TIDMSEY
RNS Number : 7676G
Sterling Energy PLC
26 July 2019
26 July 2019
Sterling Energy plc
Results for the six months ending 30 June 2019
Overview
Sterling Energy plc ('Sterling' or the 'Company'), together with
its subsidiary undertakings (the 'Group'), an upstream oil and gas
company listed on the AIM market of the London Stock Exchange
(Ticker Symbol: SEY) today announces its results for the six month
period ending 30 June 2019.
The Company is an experienced operator of international
exploration and production licences, with a primary geographic
focus on emerging markets including, Africa and the Middle East,
although the Board would consider other regions for material
opportunities. The Group has a high potential exploration asset in
Somaliland and an active strategy to deliver shareholder value
through disciplined, exploration and production projects;
leveraging the Company's experience, with an emphasis on securing
near term cash flow generative opportunities.
Operations summary
-- Odewayne block, Somaliland - Operating Committee Meeting
('OCM') held early March where the work program for 2019 was
finalised by the Joint Venture ('JV') partners, including the
reprocessing of 1,000km of 2D seismic to Pre-Stack Time Migration
('PSTM').
-- The reprocessing of 1,000km of 2D seismic data to Pre-Stack
Time Migration commenced early in the second quarter and is
currently ca. 45% complete. Delivery of final products is expected
for mid Q3 2019.
-- Sterling continued to support the Operator in progressing the
technical understanding of the block.
Corporate summary
-- Continued merger and acquisition ('M&A') mandate for
transformational growth (asset and corporate options).
Financial summary
-- Adjusted EBITDAX loss of $417k (1H 2018: loss $932k).
-- Loss after tax of $645k (1H 2018: loss $1.1 million).
-- Cash resources as at 30 June 2019 of $45.5 million (30 June 2018 of $46.9 million).
-- The Group remains debt free and fully carried for Odewayne
operations (Third and the Fourth Period).
-- Ongoing focus on capital discipline, cash general and
administrative overheads ('G&A') expenses
reduced by ca. 25% to $1.2 million (1H 2018: $1.6 million).
-- Proactive focus on treasury management, with interest
received totaling $574k (1H 2018: $477k).
For further information contact:
Ticker Symbol: SEY
Sterling Energy plc +44 (0)20 7405 4133
lwww.sterlingenergyplc.com
David Marshall, Chief Executive Officer
Michael Kroupeev, Chairman
Peel Hunt LLP +44 (0)20 7418 8900
Richard Crichton
James Bavister
CEO Statement
Market Landscape
Commodity prices in 2019 have seen oil prices in the $50-70 per
barrel range. Oil price has shown steady increase from mid-$50's in
December 2018 to mid-$60's at end of Q2 2019. This growth is
backlit by US imposed sanctions on Venezuela's state oil company
PDVSA, which sparked supply fears and continuing unease in Libya
and Nigeria.
The sanctions on Iran have caused Iran exports to fall by ca.
60% since Spring 2018 to just above 1 million bpd, however this was
much less than had been anticipated defying pre sanction fears.
OPEC has moved with allies such as Russia to support prices by
tightening supplies, with production reportedly falling by 800,000
bpd at end of Q2 2019.
The USA is putting political pressure on OPEC to keep prices
low. Oil production from US shale production has increased by
nearly 63,000 bpd, to a record high of ca. 8 million bpd. Although
the backdrop to global growth is slowing, oil demand is thought to
grow to ca. 1.4 million bpd, from 1.3 million bpd in 2018.
Majors are exiting the North Sea and are being replaced by
leaner independents. North Africa is buoyant given recent large
discoveries in Egypt and the reversal of its long running
receivables problem. There remains a clear appetite in this market
for buying and selling existing production.
The Company remains well financed and is positioned to take
advantage of acquisition opportunities during these market
conditions. Our ability to filter opportunities quickly in a
congested market, combined with the leverage our cash balance
allows, provides confidence that we can secure a deal.
Operations
During the first two quarters of 2019, work on the Odewayne
block in Somaliland was focused on the reprocessing to Pre-Stack
Time Migration of the full 2D seismic dataset that was acquired in
2017. Sterling continues to support the operator and we are looking
forward to receiving final deliverables by mid Q3 2019. The costs
associated with the current period (Third Period) and the Fourth
Period are fully carried by Genel Energy Somaliland Limited ('Genel
Energy'), hence the minimal capital investment shown within the
accounts.
Corporate
Activity levels on opportunity and asset screening remains high
and Sterling are well entrenched in the deal flow. Many smaller
companies with viable developments but low cash reserves are
looking for merger opportunities, giving them access to cash that
is currently not available from capital markets.
Sterling retains a strong position on the AIM listed oil and gas
sector with a strong cash platform of $45.5 million and no debt or
other liabilities. The Company has continued to reduce G&A and
focus on robust treasury management, in line with the Board mandate
for cash preservation to maximise our ability to deploy capital
into new assets. For 2019 the Company hopes to achieve G&A
savings in comparison to 2018, whilst increasing interest
received.
Operations Review
Somaliland
Somaliland offers one of the last opportunities to target an
undrilled onshore Mesozoic rift basin in Africa. The Odewayne
block, with access to the Berbera deepwater port less than a 100km
to the north, is ideally located to explore this frontier basin. A
2D geophysical survey acquired in 2017, along with potential field
data and legacy geological field studies, help corroborate the
presence of a sedimentary basin with further evidence for a working
hydrocarbon system.
Odewayne (WI 34% - Fully carried by Genel Energy) Exploration
block
This large and unexplored frontier acreage position comprises an
area of 22,840km(2) , the equivalent of ca. 100 UK North Sea
blocks. Exploration activity prior to the 2017 regional 2D seismic
acquisition program has been limited to the acquisition of airborne
gravity and magnetic data and surface fieldwork studies, with no
wells drilled on block.
The Odewayne production sharing agreement ('PSA') was awarded in
2005. It is in the Third Period, with a minimum work obligation of
500km of 2D seismic. The Third Period has been extended, through
the 6th deed of amendment and its minimum work obligation was met
in 2017 when the Somali Government (Ministry of Energy and
Minerals) contracted BGP (Geophysical contractor) to undertake a
1,000km (full fold, 1,076km surface) 10km by 10km, 2D seismic
campaign. The minimum work obligation during the optional Fourth
Period of the PSA (also extended by 2 years) is for 1,000km of 2D
seismic and one exploration well.
The Company's wholly owned subsidiary, Sterling Energy (East
Africa) Limited ('SE(EA)L'), holds a 34% working interest in the
PSA. SE(EA)L originally acquired a 10% position from Petrosoma
Limited ('Petrosoma') in November 2013 and an additional 30% from
Jacka Resources Somaliland Limited ('Jacka') in two transactions
during 2014.
In April 2017, the Company agreed to revised farm-out terms to
reduce the staged contingent consideration payments due to
Petrosoma and reduce SE(EA)L's interest in the Odewayne asset by
6%. The farm-out agreement was amended such that the parties
cancelled the $8.0 million contingent consideration in return for:
(i) a payment by SE(EA)L to Petrosoma of $3.5 million; and (ii) a
transfer from SE(EA)L to Petrosoma of a 6% interest in the PSA.
Post Government of Somaliland approval, SE(EA)L holds a 34%
interest in the Odewayne Block, fully carried by Genel Energy for
its share of the costs of all exploration activities during the
Third and Fourth Periods of the PSA.
In addition to studies undertaken by the operator to support the
interpretation of the 2D seismic data acquired in 2017, Sterling
performed test reprocessing to full Pre-Stack Time Migration on 3
seismic lines in 2018. Following this work, the JV partners elected
in Q1 2019 to reprocess the entire 2D seismic dataset to full
Pre-Stack Time Migration. This reprocessing started in Q2 and is
currently ca. 45% complete with final deliverables expected by mid
Q3 2019. An option remains to process these data to Pre-Stack Depth
Migration.
Outlook
Once final deliverables of the Pre-Stack Time Migrated data have
been received, the JV partners' focus will turn to the
interpretation of these new seismic products and their integration
with the geological models developed for the basin. It is
anticipated that the enhanced imaging of the subsurface will allow
a refining of these models and the identification of a number of
leads for further investigation. Concurrently, the JV partners will
take a view on whether to reprocess the seismic data to Pre-Stack
Depth Migration. Alongside this seismic reprocessing, contingent
activity includes a surface seep study focused on areas highlighted
by the seismic interpretation as most likely to be situated above
migration pathways from hydrocarbon kitchens.
Future work could include infill 2D seismic data acquisition
over the most prospective areas with a view to maturing a number of
prospects to drill-ready status. Such infill seismic would be
acquired in 2020 or 2021 ahead of a decision to enter the next
exploration period (Fourth Period), which includes the commitment
to drill an exploration well.
M&A strategy
Sterling has actively transitioned the portfolio out of long
cycle exploration assets requiring third party funding and
continues to actively search for near to mid-term value creation
and transformative growth / monetisation options in both Africa and
the Middle East (although the board would also consider options
further afield for the right project). A prudent, selective and
persistent M&A led effort is directed towards shorter-cycle
revenue generating projects that will deliver in a sustained lower
oil price landscape, in progressive jurisdictions.
The Company maintains a disciplined approach to all M&A
efforts at a corporate and asset level, only pursuing and executing
those growth options that the Company believes to have the best
opportunity to ultimately deliver value for shareholders.
Financial Review
Selected financial data
1H 2019 1H 2018 FY 2018
Adjusted EBITDAX (1) ($m) (0.4) (0.9) (1.5)
--------------------------------------------- -------- -------- --------
Loss after tax ($m) (0.6) (1.1) (2.0)
--------------------------------------------- -------- -------- --------
Cash and cash equivalents net to Group ($m) 45.5 46.9 46.3
--------------------------------------------- -------- -------- --------
Debt ($m) - - -
--------------------------------------------- -------- -------- --------
NAVPS (2) (at period end) (GBP pence) 23.8 24.3 24.0
--------------------------------------------- -------- -------- --------
Share price (at period end) (GBP pence) 10.4 13.3 10.4
--------------------------------------------- -------- -------- --------
(1) Adjusted EBITDAX is calculated as earnings before interest,
taxation, depreciation, amortisation, impairment, pre-licence
expenditure, provisions and share-based payments.
(2) Net asset value per share
Loss from operations
The loss from operations for 1H 2019 was $1.2 million (1H 2018:
loss $1.6 million).
During the period, net administrative expenditure decreased by
ca. 25% to $1.2 million (1H 2018: $1.6 million) and includes
pre-licence costs of $782k (1H 2018: $623k).
The Group continues to focus on such expenditures and forecasts
G&A of ca. $2.4 million in 2019, a ca. 20% decrease from the
2018 full year results of $3.0 million.
Adjusted EBITDAX and loss after tax
Adjusted EBITDAX totalled a loss of $417k (1H 2018: loss
$932k).
Finance income of $574k represents interest received on cash
held by the Group (1H 2018: $477k). The Group continues to focus on
treasury management to maximise interest received and preserve
cash.
Finance costs totalled $19k (1H 2018: $28k).
The loss after tax totalled $645k (1H 2018: loss $1.1 million).
Basic loss per share was 0.29 USc per share (1H 2018: 0.50 USc loss
per share). No dividend is proposed to be paid for the six months
to 30 June 2019 (30 June 2018: nil).
Cash flow
Net cash outflow from operating activities (pre-working capital
movements) totalled $1.2 million (1H 2018: outflow $34.1 million).
After working capital, net cash outflow from operating activities
totalled $1.4 million (1H 2018: outflow $34.9 million).
Cash generated from investing activities totalled $554k (1H
2018: $439k).
Statement of financial position
At 30 June 2019, Sterling held $45.5 million cash and cash
equivalents available for its own use (30 June 2018: $46.9
million).
Group net assets at 30 June 2019 were $66.7 million (30 June
2018 were $68.2 million). Non-current assets totalled $21.1 million
(30 June 2018: $21.1 million) with net current assets reducing to
$45.6 million (30 June 2018: $47.1million).
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the CEO Statement and in the Operations Review. The
financial position of the Group is described in the Financial
Review.
The Company has sufficient cash resources for its working
capital needs and its committed capital expenditure programme for
at least the next 12 months. As a consequence, the Directors
believe the Company is well placed to manage its business risks.
The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the results for the six
months ended 30 June 2019.
Disclaimer
This document contains certain forward-looking statements that
are subject to the usual risk factors and uncertainties associated
with the oil and gas exploration and production business. Whilst
the Group believes the expectation reflected herein to be
reasonable in light of the information available to it at this
time, the actual outcome may be materially different owing to
factors either beyond the Group's control or otherwise within the
Group's control but where, for example, the Group decides on a
change of plan or strategy. Accordingly, no reliance may be placed
on the figures contained in such forward-looking statements.
Glossary
$ US Dollars
2D two dimensional
-----------------------------------------------------
Adjusted EBITDAX earnings before interest, taxation, depreciation,
amortisation, impairment, pre-
licence expenditure, provisions and share based
payments
-----------------------------------------------------
Bpd Barrels per day
-----------------------------------------------------
Km kilometre
-----------------------------------------------------
NAVPS Net asset value per share
-----------------------------------------------------
Post-stack Processing of raw seismic data into a geological
representation of the subsurface
-----------------------------------------------------
PSTM or Pre-stack More advance technique of processing of raw seismic
time migrated dataset data; used when considering complex geology
-----------------------------------------------------
PSA production sharing agreement
-----------------------------------------------------
Seismic Geophysical investigation method that uses seismic
energy to interpret the geometry of rocks in the
subsurface
-----------------------------------------------------
Subsurface image Geological representation of the subsurface typically
using geophysical investigation methods such as
seismic
-----------------------------------------------------
km(2) square kilometre
-----------------------------------------------------
WI working interest
-----------------------------------------------------
Condensed consolidated income statement for the six months to 30
June 2019
Six months Six months
to to Year ended
30th June 30th June 31st December
2019 2018 2018
$000 $000 $000
(unaudited) (unaudited) (audited)
------------------ --------------- -----------------
Revenue - 534 534
Cost of sales - (515) (515)
Gross Profit - 19 19
Other administrative expenses (418) (956) (1,546)
Pre-licence costs (782) (623) (1,453)
----------------------------------- ------------------ --------------- -----------------
Total administrative expenses (1,200) (1,579) (2,999)
Loss from operations (1,200) (1,560) (2,980)
Finance income 574 477 1,044
Finance expense (19) (28) (20)
Loss before tax (645) (1,111) (1,956)
Tax - - -
Loss for the period attributable
to the owners of the parent (645) (1,111) (1,956)
------------------ --------------- -----------------
Other comprehensive expense
- items to be
reclassified to the income
statement in subsequent periods
Currency translation adjustments (6) (3) (12)
Total comprehensive expense
for the period (6) (3) (12)
------------------ --------------- -----------------
Total comprehensive expense
for the period attributable
to the owners of the parent (651) (1,114) (1,968)
================== =============== =================
Basic and diluted loss per
share (US cents) (.29) (.50) (.89)
Condensed consolidated statement of financial position as at 30
June 2019
As at As at As at
30th June 30th June 31st December
Note 2019 2018 2018
$000 $000 $000
(unaudited) (unaudited) (audited)
------------ ------------ --------------
Non-current assets
Intangible exploration
and evaluation assets 3 21,109 21,076 21,093
Property, plant and equipment 5 11 8
21,114 21,087 21,101
------------ ------------ --------------
Current assets
Trade and other receivables 296 410 390
Cash and cash equivalents 45,507 46,900 46,312
45,803 47,310 46,702
------------ ------------ --------------
Total assets 66,917 68,397 67,803
------------ ------------ --------------
Equity
Share capital 28,143 28,143 28,143
Currency translation reserve (207) (192) (201)
Retained earnings 38,742 40,232 39,387
Total equity 66,678 68,183 67,329
============ ============ ==============
Current liabilities
Trade and other payables 239 214 474
239 214 474
------------ ------------ --------------
Total liabilities 239 214 474
------------ ------------ --------------
Total equity and liabilities 66,917 68,397 67,803
------------ ------------ --------------
Condensed consolidated statement of changes in equity for the
six months ended 30 June 2019
Currency
Share translation Retained
capital reserve earnings(1) Total
$000 $000 $000 $000
--------------------- ------------ ------------ --------
At 1 January 2018 28,143 (189) 41,343 69,297
------------------------------- --------------------- ------------ ------------ --------
Total comprehensive expense
for the period attributable
to the owners of the parent - (3) (1,111) (1,114)
------------
At 30 June 2018 28,143 (192) 40,232 68,183
------------------------------- --------------------- ------------ ------------ --------
Total comprehensive expense
for the period attributable
to the owners of the parent - (9) (845) (854)
At 31 December 2018 28,143 (201) 39,387 67,329
------------------------------- --------------------- ------------ ------------ --------
Total comprehensive expense
for the period attributable
to the owners of the parent - (6) (645) (651)
At 30 June 2019 28,143 (207) 38,742 66,678
------------------------------- --------------------- ------------ ------------ --------
(1) The share option reserve has been included within the
retained earnings reserve.
Condensed consolidated statement of cash flows for the six
months ended 30 June 2019
Six months Six months Year
to to ended
31st
30th June 30th June December
Note 2019 2018 2018
$000 $000 $000
(unaudited) (unaudited) (audited)
------------------------------------------- ------------------------------------------ ----------
Operating
activities:
Loss before tax (645) (1,111) (1,956)
Depreciation,
depletion
& amortisation 2 5 10
Finance income
and gains (574) (477) (1,044)
Finance expense
and losses - 2 12
Decommissioning
costs - (32,500) (32,500)
------------------------------------------- ------------------------------------------ ----------
Operating cash
outflow
prior to
working capital
movements (1,217) (34,081) (35,478)
Decrease in
inventories - 363 363
Decrease in
trade and
other
receivables 94 458 478
Decrease in
trade and
other payables (235) (1,640) (41)
Net cash outflow
from
operating
activities (1,358) (34,900) (34,678)
Investing
activities
Interest
received 570 477 1,044
Purchase of
property,
plant and
equipment - (3) (4)
Exploration and
evaluation
costs 3 (16) (35) (1,391)
Net cash
generated
from/(used
in) investing
activities 554 439 (351)
Net decrease in
cash and
cash
equivalents (804) (34,461) (35,029)
Cash and cash
equivalents
at beginning of
period 46,312 81,365 81,365
Effect of
foreign
exchange
rate changes (1) (4) (24)
Cash and cash
equivalents
at end of
period 45,507 46,900 46,312
=========================================== ========================================== ==========
Notes to the consolidated results for the six months ended 30
June 2019
1. Basis of preparation
The financial information contained in this announcement does
not constitute statutory financial statements within the meaning of
Section 435 of the Companies Act 2006.
The financial information for the six months ended 30 June 2019
is unaudited. In the opinion of the Directors, the financial
information for this period fairly represents the financial
position of the Group. Results of operations and cash flows for the
period are in compliance with International Financial Reporting
Standards as adopted by the EU ('EUIFRS'). The accounting policies,
estimates and judgements applied are consistent with those
disclosed in the annual financial statements for the year ended 31
December 2018. These financial statements should be read in
conjunction with the annual financial statements for the year ended
31 December 2018.
All financial information is presented in USD, unless otherwise
disclosed.
An unqualified audit opinion was expressed for the year ended 31
December 2018, as delivered to the Registrar.
The Directors of the Company approved the financial information
included in the results on 26 July 2019.
2. Results & dividends
The Group has retained earnings at the end of the period of
$38.7 million (30 June 2018: $40.2 million retained earnings) to be
carried forward. The Directors do not recommend the payment of a
dividend (1H 2018: nil).
3. Intangible exploration and evaluation (E&E) assets
Total
$000
(unaudited)
------------
Net book value at 31 December 2017 21,041
------------
Additions during the period 35
Net book value at 30 June 2018 21,076
------------
Additions during the period 17
Net book value at 31 December 2018 21,093
------------
Additions during the period 16
Net book value at 30 June 2019 21,109
------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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