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AFENTRA PLC — Earnings Release 2013
Mar 17, 2014
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Earnings Release
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RNS Number : 4285C
Sterling Energy PLC
17 March 2014
17 March 2014
STERLING ENERGY PLC
ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013
Sterling Energy Plc is today issuing its preliminary results for the year ended 31 December 2013.
OVERVIEW
Sterling Energy Plc ("Sterling" or the "Company") is an upstream oil and gas company listed on the AIM market of the London Stock Exchange. Sterling is an experienced operator of international licences with a focus on projects in Africa. Sterling has high potential exploration projects in Cameroon, Somaliland and Madagascar, and an interest in production in Mauritania.
2013 SUMMARY
· Well planning in 2013 culminated in the spud of the Bamboo-1 well on the Ntem Concession, offshore Cameroon, in February 2014.
· Farmed out 50% of the Ambilobe PSC, offshore north-west Madagascar, in exchange for $15.0 million of 3D seismic data acquisition.
· Acquired 1,300km of 2D seismic on the Ampasindava block, offshore north-west Madagascar to mature Sifaka, a drill-ready prospect.
· Acquired a 25% carried interest in Odewayne Block, Somaliland.
· Received $11.2 million of net cash flow from Chinguetti field operations, offshore Mauritania (2012: $12.7 million).
· Cash resources at 31 December 2013 of $120.8 million (2012: $120.3 million).
· Company remains debt free.
For further information contact:
Sterling Energy plc +44 (0) 20 7405 4133
Alastair Beardsall, Chairman
Liberum Capital Limited +44 (0) 20 3100 2000
Clayton Bush / Tim Graham
Peel Hunt LLP +44 (0) 20 7418 8900
Andy Crossley / Richard Crichton
www.sterlingenergyplc.com Ticker Symbol: SEY
CHAIRMAN'S STATEMENT
The most exciting event since the 2012 Annual Report is the spud of Bamboo-1, Sterling's first exploration well on the Ntem Concession, offshore Cameroon, targeting a primary objective that may contain some 450 million barrels of oil equivalent. During 2013 Sterling and Murphy Oil, our joint venture partner, finalised the well's location and prepared for the drilling operation. Reprocessing of the 3D seismic dataset for Ntem indicated that significant horizons, with the potential to be hydrocarbon filled, were located in the Ntem block away from the area subject to the overlapping border claims of Cameroon and Equatorial Guinea.
In January 2014 Sterling, Murphy Oil and Société Nationale des Hydrocarbures, the national oil company of Cameroon, agreed to lift force majeure to allow exploration activities to recommence and the Ocean Confidence rig commenced the drilling of Bamboo-1 on 9 February 2014. The well is expected to take up to 70 days to be completed and results will be announced as they become known.
We have acquired a 25% interest in the Odewayne PSA in Somaliland from Jacka Resources and Petrosoma; our share of costs for acquiring 1,500km of 2D seismic and drilling one exploration well are carried by Genel Energy. The Odewayne block covers some 22,000km2 of unexplored land on which surface oil seeps indicate an active petroleum system. We look forward to advancing the exploration of this new opportunity during 2014.
In Madagascar we received presidential consent for the agreement with OMNIS, the state oil company, to re-phase the outstanding work commitments under the Ampasindava and Ambilobe licence agreements following the suspension of exploration activities after the change of government in March 2009; both licences now run to September 2015. During the year as progress was made towards the elections that were completed in December, the political outlook and security situation in Madagascar both improved. Exxon resumed operations in late 2013 and acquired some 1,300km of 2D seismic data on the Ampasindava block to enhance the imaging of the Sifaka prospect and possibly mature some other leads into drill-ready prospects, however drilling on Ampasindava is not expected until 2015/16. We also farmed out 50% of the Ambilobe licence to Pura Vida in exchange for $15.0 million of new 3D seismic which Sterling, as operator, expects to acquire in the second half of 2014.
We are cognisant that while Sterling has interests in some very significant projects, we must endeavour to secure new opportunities to broaden our exploration portfolio. We are pleased with new venture progress this year but continue to look both within and beyond our existing geographies for further opportunities, which we believe will deliver real growth and value for our shareholders.
Financial
The Company had cash resources of $120.8 million at the end of 2013, and remains debt free. Our work programme for 2014 is fully funded and we have funds available to progress both our existing portfolio and new venture activity. We remain pleased that the revenue from Chinguetti field operations in Mauritania continued to provide positive cash flow during 2013 in excess of Sterling's administrative costs.
Board Change
In August 2013 Angus MacAskill resigned as Sterling's CEO and stepped down from the Board to seek other opportunities where he could apply his extensive knowledge and experience of engineering in the development and production of oil and gas fields. He joined Sterling in November 2010 when his expertise and attention to detail ensured the very challenging drilling operation on Sangaw North-1 was completed safely. I would like to thank Angus for the tremendous contribution he made across all aspects of Sterling's business during his three year tenure and wish him all the very best for his future challenges.
Outlook for 2014 and beyond
A positive outcome for Bamboo-1, offshore Cameroon will transform the Company; however if the well does not identify commercial hydrocarbons, Sterling has the funds to progress our other projects in Madagascar and Somaliland and to acquire others.
The formation of a democratically elected government will provide greater stability in Madagascar and allow more operational progress to be made on both the Ampasindava and Ambilobe blocks.
Acquisition of 2D seismic in the Odewayne block, Somaliland, will further our understanding of the potential of this vast acreage and may lead to an exploration well, possibly in 2015.
We shall continue to seek new opportunities within and beyond our existing areas of interest and shall only pursue those ventures that we believe will ultimately deliver value for our shareholders. Sterling's strategy is to build shareholder value through participation in the exploration of material prospects and when appropriate the Company will introduce partners, generally through a farm-down process, to pay Sterling's share of the higher costs of exploration operations.
I would like to thank our shareholders for their continuing interest in Sterling and all our staff for their hard work during 2013.
Alastair Beardsall
Chairman
OPERATIONS REVIEW
Sterling's varied asset base provides exposure to exploration opportunities within under-explored African basins that have the potential to deliver material hydrocarbon reserves. These frontier and emerging basins have historically seen little activity but offer significant encouragement for the presence of working hydrocarbon systems. Through application of technology and with the benefit of an experienced exploration team, Sterling's focus is on de-risking these basins prior to exploration drilling.
CAMEROON
Cameroon is a proven oil and gas producing province with multiple discoveries made within the shallower water shelf area to the east of Sterling's Ntem concession area and with multiple deeper water discoveries to the north. Ntem is highly prospective deep water acreage in the Douala Basin, one of the least explored Atlantic basins along the West African margin.
Ntem (WI 50%)
Overview
Considerable progress has been made in recent weeks on the Ntem concession, leading to drilling of Bamboo-1, the first exploration well on the area.
This large block is well placed with respect to both Tertiary and Upper Cretaceous plays, both of which have proven successful nearby in Cameroon and in Equatorial Guinea. To the north of the block, Tertiary oil, gas and condensate discoveries made by Noble Energy commenced production in 2011, and Euroil (Bowleven) continue to appraise their discoveries which they are progressing towards development.
In November 2011 Sterling completed a farm-out agreement with Murphy Cameroon Ntem Oil Co. Ltd ("Murphy Oil''), a wholly owned subsidiary of Murphy Oil Corporation under which Murphy Oil was assigned a 50% working interest in and operatorship of the Ntem concession. Sterling retains a 50% non-operated working interest. As consideration, Murphy Oil paid to Sterling a contribution towards past costs and will pay Sterling's share of the costs for the drilling of the Bamboo-1 well.
Operations within the Ntem concession area were suspended in 2005 under the force majeure provisions of the concession owing to an overlapping maritime border claim between Cameroon and Equatorial Guinea. The border dispute remains unresolved but Murphy and Sterling have agreed, together with Société Nationale des Hydrocarbures ("SNH"), the national oil company of Cameroon, to formally lift the declaration of force majeure in order to allow exploration activities to proceed. The current exploration period re-commenced on 22 January 2014 with the minimum work obligation of one exploration well to be drilled in the remaining 15 months.
Current and Future Activity
Murphy Oil has contracted the Ocean Confidence semi-submersible rig which has been mobilised to the Bamboo-1 location in the Ntem Concession and commenced drilling operations on 9 February 2014. This location is outside the disputed area subject to the maritime border claims of Cameroon and Equatorial Guinea, and lies in approximately 1,600m of water. Bamboo-1 is the first well in the concession and is targeting a series of vertically stacked, Cretaceous aged, submarine fans, defined using the extensive 3D seismic dataset, which now covers approximately 70% of the concession area. These target levels exhibit clear fan geometries on the 3D seismic data and are fed by a series of well-defined sediment feeder systems. Sterling estimates that the primary objective may contain mean un-risked, gross prospective resources of 422 million barrels of oil and 170 billion cubic feet of gas, a total of some 450 million barrels of oil equivalent.
SOMALILAND
The onshore basins of Somaliland offer one of the last opportunities to target undrilled Mesozoic rift basins in Africa. The Odewayne Block is well located to explore this play and is a new addition to Sterling's portfolio. Geophysical data and the results of geological fieldwork indicate that the Odewayne basin underlying the Sterling acreage has similar characteristics to producing basins in Yemen.
Odewayne (WI 25%)
Overview
Sterling acquired an interest in the Odewayne Block, located onshore Somaliland, in 2013. This very large unexplored acreage comprises an area of 22,840km2. Regional gravity and magnetic data indicate the presence of a prospective basin centred on the block but exploration to date has been very limited with no existing seismic coverage and no wells drilled on block. The Odewayne Production Sharing Agreement ("PSA") was awarded in 2005, and is in the Third Period (expiring November 2014) with an outstanding minimum work obligation of 500km of 2D seismic. The minimum work obligation during the Fourth Period of the PSA (expiring May 2016) is for 1,000km of 2D seismic and one exploration well.
During 2013 an aero-magnetic and gravity survey confirmed the geometry of the broad basin underlying the Odewayne block which is believed to be of Jurassic to Cretaceous age. Fieldwork in the block has highlighted the presence of numerous oil seeps at the surface giving encouragement that a working hydrocarbon system is present in this undrilled basin.
Sterling has completed the purchase of a 25% working interest in the Odewayne block through separate farm-out agreements with Petrosoma Limited ("Petrosoma") for 10% equity and with Jacka Resources Somaliland Limited ("Jacka") for 15% equity post year-end. Under the farm-out agreements with Petrosoma and Jacka, Sterling has paid $2.0 million and $3.0 million respectively with future conditional payments of $8.0 million and $12.0 million (aggregated) respectively payable on the basis of various operational milestones being met.
Sterling is fully carried by Genel Energy Somaliland Limited ("Genel Energy") for the costs of all exploration activities during the Third Period and the Fourth Period of the PSA.
The holders of the PSA are:
· Genel Energy Somaliland Limited (Operator) 50%
· Sterling Energy (East Africa) Limited 25%1
· Jacka Resources Somaliland Limited 15%
· Petrosoma Limited 10%
1 Effective 27 January 2014
Future Activity
Results from extensive fieldwork will continue to be analysed to enable a greater understanding of the exploration play elements. Whilst seismic operations have temporarily been suspended due to the security environment, the joint venture group are in discussions with the Somaliland Government in order to facilitate a resumption of activities and the joint venture is seeking to deliver the minimum work obligation prior to the expiry of the Third Period in November 2014.
MADAGASCAR
Sterling's Ambilobe and Ampasindava blocks are located in the Ambilobe and Majunga deep water basins, respectively, offshore north-west Madagascar. They are both undrilled but offer large scale exploration potential.
These blocks have also seen significant progress during 2013. Exploration activities had been delayed due to the political instability in the country following a change in government in March 2009 which had not been recognised by the African Union or by the United Nations. In September 2011 the political parties in Madagascar agreed to a process, prepared by the Southern African Development Community, which involved the establishment of a transitional government with the objective of holding democratic elections. Two rounds of presidential elections were duly held in October and December 2013 and were declared by international observers to have been free and fair.
Hery Rajaonarimampianina was inaugurated as the new president of Madagascar in January 2014 and at the time of writing, discussions were continuing on the formation of his new government.
During 2013, the Management Committees for both Blocks, which are chaired by OMNIS, the state regulator, agreed to prolong the current exploration periods of both the Ambilobe and Ampasindava PSCs with each contract having the same remaining duration and obligations in the current exploration periods as existed in March 2009. These agreements were formally ratified by the Government of Madagascar in September 2013 and the current exploration periods of both PSCs now run to September 2015.
Ampasindava (WI 30%)
Overview
The PSC for Ampasindava is in the third phase of the exploration period with a minimum work commitment of one exploration well. The large Sifaka prospect is ready to drill and has been independently estimated to contain gross un-risked best estimate prospective recoverable resources of 1.2 billion barrels (RISC Competent Persons Report, March 2008). With the return of Madagascar to political stability, ExxonMobil Exploration and Production (Northern Madagascar) Limited ("ExxonMobil") (WI 70% and Operator) and Sterling have resumed exploration activities including well planning and a 1,314km 2D seismic acquisition programme was completed on the Ampasindava Block in December 2013. The data will provide improved sub-surface imaging of the Sifaka prospect and potentially mature additional prospects within the Ampasindava Block to drill-ready status. Processing of the new data is in progress.
Following the farm-in by ExxonMobil in 2005, Sterling's costs are carried up to a fixed amount. The cost to drill the Sifaka prospect is estimated to exceed the remaining carry and the Company is conducting a farm-out process to introduce an additional partner and reduce its current working interest in order to cover these costs. It is currently unlikely that an exploration well will commence drilling before 2015.
Sterling estimates that ExxonMobil's remaining carry at the beginning of 2014 is $30.3 million towards the gross cost of exploration activities.
Future Activity
Following acquisition of additional 2D seismic data in 2013 the focus in 2014 will be on processing the new data in conjunction with reprocessing of the existing database, followed by a phase of interpretation. Well planning will continue in order to target drilling in 2015 or 2016.
Ambilobe (WI 50% & Operator)
Overview
The Ambilobe PSC is in the second phase of the exploration period and all work commitments have been fulfilled. A number of Cretaceous and Tertiary leads have been identified, located in both shallow and deep waters, which will require additional seismic data to develop into potential drillable prospects. To that end, Sterling has commenced planning a 3D seismic survey covering approximately 1,250km² which is scheduled to be acquired later in 2014. As there are no outstanding commitments this activity is entirely discretionary.
Sterling signed a farm-out agreement in November 2013 with Pura Vida Mauritius ("Pura Vida") under which Pura Vida has assumed a 50% interest in the PSC. Pura Vida has paid Sterling $1.25 million towards Sterling's past costs, and will pay all costs associated with the planned 3D seismic survey up to a maximum of $15.0 million. Following the farm-out, Sterling retains a 50% interest in the PSC and remains as operator.
Future Activity
Acquisition of new 3D seismic data will be the focus of activity in the Ambilobe block in 2014. With input from new partner Pura Vida, an area of the undrilled Ambilobe basin has been identified as the target for the 3D seismic survey.
MAURITANIA
Chinguetti (Economic Interest via Funding and Royalty Agreements)
Sterling has economic interests in the Chinguetti field through a funding agreement with Société Mauritanienne Des Hydrocarbures ("SMH"), Mauritania's national oil company, and a royalty agreement with Premier Oil. The royalty agreement also covers any commercial development of existing or future discoveries within the PSC-A, PSC-B and PSC C-10 contract areas.
Overview
Gross production during 2013 averaged 6,156 bopd (2012: 6,256 bopd) and the average production net to Sterling, from the Company's economic interests during 2013, was 527 bopd (2012: 523 bopd). Production in the first half of the year was reduced by a scheduled shutdown of 6.5 days for various maintenance activities and the replacement of an anchor mooring chain. A planned sub-sea intervention campaign due in September 2013 was postponed to January 2014 to consolidate maintenance and intervention programmes and minimise production down-time. This was completed, as planned, within 10 days.
Sterling estimates that at the end of 2013, Chinguetti held a remaining 7.8 million barrels of gross proved and probable reserves (2P) that could be accessed via the existing wells. Sterling's net entitlement to 2P reserves is 559k barrels (2012: 475k barrels). The increase in the 2P reserves recognises an updated production profile and a subsequent revision to the anticipated economic field life from May 2017 to December 2017. This has resulted in an impairment reversal of $4.4 million in 2013.
No in-fill drilling or work-over activity took place on the Chinguetti field during 2013.
Future Activity
In the event of any commercial development of existing or future discoveries within the PSC-A, PSC-B and PSC C-10 contract areas, Sterling would be entitled to revenue under its royalty interest agreements with Premier Oil Plc, but would not have any cost obligations.
In November 2012, the Banda gas field, located in PSC-A and operated by Tullow Oil Plc, was declared commercial and it is planned that the field will supply gas to a new local power station, subject to a final investment decision being taken by the Banda joint venture.
Tullow Oil Plc plans to drill an exploration well in the PSC C-10 contract area in the first half of 2014.
KURDISTAN
Sangaw North PSC (Relinquished)
The Sangaw North block lies in the foothills region of the Zagros fold belt, approximately 140km south east of Erbil, the capital of the Kurdistan region of Iraq.
During 2012, Sterling completed its exploration of the block, having signed the Sangaw North PSC in November 2007, and as has been reported previously, the Company withdrew from the PSC in early 2013. The work commitments under the PSC were fully satisfied at the date of the relinquishment.
Philip Frank
Exploration Director
FINANCIAL REVIEW
SELECTED FINANCIAL DATA
| 2013 | 2012 | ||
| Chinguetti production 1 | bopd | 527 | 523 |
| Year end 2P reserves 1 | 000 boe | 559 | 475 |
| Revenue | $million | 18.4 | 22.5 |
| EBITDA 1 | $million | 9.1 | 11.1 |
| Profit/(loss) after tax | $million | 8.3 | (12.9) |
| Net cash investment in oil & gas assets | $million | 5.9 | 4.4 |
| Year end cash (including partner funds) | $million | 120.8 | 120.3 |
| Average realised oil price | $/bbl | 101.1 | 102.6 |
| Total cash operating costs (produced) | $/bbl | 36.9 | 50.8 |
| Year end share price | Pence | 43 | 39 |
| Share price change 1 1 Key performance indicators |
% | 12 | (3) |
Highlights
· Group net profit of $8.3 million in 2013 (2012: loss $12.9 million).
· Impairment reversal of Chinguetti licence $4.4 million following flatter production decline rate and associated field life extension.
· Cash balance at year end of $120.8 million (2012: $120.3 million).
· Average 2013 Chinguetti production 527 bopd (2012: 523 bopd).
· Debt free throughout 2013.
Revenue and cost of sales
2013 production averaged 527 bopd, including royalty barrels, an increase of 1% from the 523 bopd averaged in 2012, despite a production shutdown for 6.5 days to replace a broken mooring chain.
Gross volumes lifted and sold during the year were down by 17% to 2.2 million barrels (2012: 2.6 million barrels). This reduction in lifting volume is only as a result of timing differences on the Operator's 2013 lifting programme which varies from year-to-year.
The lifting cost per barrel has decreased in 2013 by $1.1 to $53.8 (2012: $54.9). This was principally due to a reduction in direct operating costs during the year following the requirement in 2012 for additional remedial expenditure and the impact of associated short-term interruptions to production.
Currently, all of the Group's production is from the Chinguetti field and the Group's production was 476 bopd for the month of December 2013.
A summary of revenue, cost of sales and lifting volumes are provided below:
| 2013 | 2012 | |
| Liftings (bbls)1 | 181,691 | 219,177 |
| Revenue ($million) | 18.4 | 22.5 |
| Revenue / bbl ($) | 101.1 | 102.6 |
| Lifting cost ($million) | (9.8) | (12.0) |
| Lifting cost / bbl ($) | (53.8) | (54.9) |
| 1 Net Sterling production during the year totalled 192,370 (2012: 191,583) |
Loss for year
The 2013 profit totalled $8.3 million (2012: loss $12.9 million).
| 2013 | |
| Loss for year 2012 | (12.9) |
| Impairment of Sangaw North (2012) | 18.4 |
| Other impairment reversals (2012) | (0.3) |
| Decrease in revenue | (4.1) |
| Decrease in operating costs | 2.3 |
| Increase in G&A | (0.4) |
| Release of accrual on final dissolution of in-country branch | 1.0 |
| Impairment reversal of Chinguetti | 4.4 |
| Decrease in pre-licence expenditure | 0.1 |
| Decrease in finance income & expense | (0.1) |
| Profit for year 2013 | 8.3 |
During 2013, the Group reversed impairments totalling $4.4 million on the Chinguetti asset following improvements in the expected field life.
The Group also reversed accruals totalling $1.0 million with respect to discontinuing operations following the final dissolution of local branches. All costs had been fully impaired in prior periods and had included these accruals which were considered payable at the time of impairment.
Group direct operating costs decreased by $2.3 million due to operating cost reductions in Chinguetti (see above).
Group administrative overhead increased during the year to $3.2 million (2012: $2.8 million). Included within this charge is $1.2 million (2012: $1.0 million) with respect to share-based payment charges.
A portion of the Group's staff costs and associated overheads are recharged to joint venture partners ($107k), expensed as pre-licence expenditure ($2.1 million), or capitalised ($2.0 million) where they are directly attributable to capital projects. In 2013 this portion of Group staff costs totalled $4.1 million (2012: $4.3 million).
A summary of these movements are provided below:
| 2013 | 2012 | |
| Group administrative overhead | (3.2) | (2.8) |
| Costs capitalised | (2.0) | (1.9) |
| Costs recharged to JV partners | (0.1) | (0.5) |
| Pre-licence expenditure | (2.1) | (1.9) |
| (4.2) | (4.3) | |
| Share based payment expense | 1.2 | 1.0 |
| Other non-cash expenditure | 0.1 | 0.0 |
| Group cash G&A expense | (6.1) | (6.1) |
EBITDA and net loss
Group EBITDA totalled $9.1 million (2012: $11.1 million).
Net profit after tax totalled $8.3 million (2012: loss $12.9 million). The basic profit per share was $0.04 per share (2012: loss $0.06 per share).
Interest received and finance expenses were a net expense of $251k (2012: $165k) which includes exchange losses of $66k (2012: gain $533k) on GBP cash deposits held at 31 December 2013 reported in US Dollars, a non-cash finance expense of $434k (2012: expenses $1.0 million) relate to the unwinding of the Chinguetti decommissioning, interest received totalled $268k (2012: $350k) and other finance expenses totalling $19k (2012: $38k).
No dividend is proposed to be paid for the year ended 31 December 2013 (2012: $nil).
Cash flow
Net Group cash inflow generated from operating activities was $6.3 million (2012: $7.8 million) a full reconciliation of which is provided in note 9.
Net cash investments in oil and gas assets totalled $5.9 million (2012: $4.4 million) and are summarised below:
| 2013 | 2012 | ||
| Somaliland 1 | 5.1 | - | |
| Madagascar 2 | 0.1 | 1.0 | |
| Cameroon | 0.7 | 0.5 | |
| Kurdistan | - | 3.1 | |
| Gabon | - | (0.2) | |
| 5.9 | 4.4 | ||
| 1 Includes $3.0 million paid to Jacka Resources Somaliland Limited included within other receivables. | |||
| 2 Net of $1.25 million received on Ambilobe farm-out. |
Statement of financial position
At the year end, cash and cash equivalents totalled $120.8 million (2012: $120.3 million) of which unrestricted funds of $2.1 million (2012: $1.7 million) were held on behalf of partners, leaving a cash balance of $118.7 million (2012: $118.7 million) available for Sterling's own use at 31 December 2013.
At the end of 2013, net assets / total equity stood at $114.1 million (2012: $104.6 million), and non-current assets totalled $21.6 million (2012: $16.7 million). Net current assets increased to $114.1 million (2012: $109.2 million) due in part to a Chinguetti cargo lifted in late December 2013, cash for which was received in January 2014.
The Group's Chinguetti decommissioning provision increased during the year by $434k to $21.6 million (2012: $21.1 million) due to the extension of the field life from May to December 2017.
Cautionary statement
This financial report 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 Directors believe the expectation reflected herein to be reasonable in light of the information available up to the time of their approval of this report, the actual outcome may be materially different owing to factors either beyond the Group's control or otherwise within the Group's control but, for example, owing to a change of plan or strategy. Accordingly, no reliance may be placed on the forward-looking statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Note | 31st December 2013 | 31st December 2012 | ||
| $000 | $000 | |||
| Revenue | 18,370 | 22,496 | ||
| Cost of sales | (9,766) | (12,028) | ||
| Gross profit | 8,604 | 10,468 | ||
| Other administrative expenses | (3,177) | (2,795) | ||
| Reversal of impairment of oil and gas assets and royalty asset | 4,359 | 347 | ||
| Pre-licence costs | (2,226) | (2,353) | ||
| Total administrative expenses | (1,044) | (4,801) | ||
| Profit from operations | 7,560 | 5,667 | ||
| Finance income | 892 | 350 | ||
| Finance expense | (1,143) | (515) | ||
| Profit before tax | 7,309 | 5,502 | ||
| Tax | - | - | ||
| Profit for the year from continuing operations | 7,309 | 5,502 | ||
| Profit/(loss) for the year from discontinued operations | 4 | 1,025 | (18,422) | |
| Profit/(loss) for the year attributable to the owners of the parent | 8,334 | (12,920) | ||
| Other comprehensive expense | ||||
| Currency translation adjustments | (39) | (6) | ||
| Total other comprehensive expense for the year | (39) | (6) | ||
| Total comprehensive income/(expense) for the year attributable to the owners of the parent | 8,295 | (12,926) | ||
| Basic profit/(loss) per share (USc) | ||||
| From continuing operations | 5 | 3.32 | 2.51 | |
| From continuing and discontinued operations | 5 | 3.79 | (5.88) | |
| Diluted profit/(loss) per share (USc) | ||||
| From continuing operations | 5 | 3.32 | 2.51 | |
| From continuing and discontinued operations | 5 | 3.78 | (5.88) | |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Note | 31st December 2013 | 31st December 2012 | ||
| $000 | $000 | |||
| Non-current assets | ||||
| Intangible royalty assets | 6 | 2,794 | 2,424 | |
| Intangible exploration and evaluation assets | 7 | 13,187 | 10,245 | |
| Property, plant and equipment | 8 | 5,644 | 4,059 | |
| 21,625 | 16,728 | |||
| Current assets | ||||
| Inventories | 2,746 | 2,993 | ||
| Trade and other receivables | 5,935 | 1,210 | ||
| Cash and cash equivalents | 120,755 | 120,348 | ||
| 129,436 | 124,551 | |||
| Total assets | 151,061 | 141,279 | ||
| Equity | ||||
| Share capital | 149,014 | 149,014 | ||
| Share premium | 378,863 | 378,863 | ||
| Currency translation reserve | (249) | (210) | ||
| Retained deficit | (413,550) | (423,050) | ||
| Total equity | 114,078 | 104,617 | ||
| Non-current liabilities | ||||
| Long-term provisions | 21,651 | 21,274 | ||
| 21,651 | 21,274 | |||
| Current liabilities | ||||
| Trade and other payables | 15,332 | 15,388 | ||
| 15,332 | 15,388 | |||
| Total liabilities | 36,983 | 36,662 | ||
| Total equity and liabilities | 151,061 | 141,279 | ||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Currency | |||||||
| Share | Share | translation | Retained | ||||
| capital | premium | reserve | deficit 1 | Total | |||
| $000 | $000 | $000 | $000 | $000 | |||
| At 1 January 2012 | 148,589 | 378,859 | (204) | (411,103) | 116,141 | ||
| Loss for the year | - | - | - | (12,920) | (12,920) | ||
| Currency translation adjustments | - | - | (6) | - | (6) | ||
| Total comprehensive expense for the year attributable to the owners of the parent | - | - | (6) | (12,920) | (12,926) | ||
| Issued share capital/premium | 425 | 4 | - | - | 429 | ||
| Share option charge for the year | - | - | - | 973 | 973 | ||
| At 31 December 2012 | 149,014 | 378,863 | (210) | (423,050) | 104,617 | ||
| Profit for the year | - | - | - | 8,334 | 8,334 | ||
| Currency translation adjustments | - | - | (39) | - | (39) | ||
| Total comprehensive income for the year attributable to the owners of the parent | - | - | (39) | 8,334 | 8,295 | ||
| Share option charge for the year | - | - | - | 1,166 | 1,166 | ||
| At 31 December 2013 | 149,014 | 378,863 | (249) | (413,550) | 114,078 |
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
CONSOLIDATED STATEMENT OF CASH FLOWS
| Note | 2013 | 2012 | ||
| $000 | $000 | |||
| Operating activities | ||||
| Cash generated from operations | 9 | 6,269 | 7,800 | |
| Net cash flow from operating activities | 6,269 | 7,800 | ||
| Investing activities | ||||
| Interest received | 268 | 350 | ||
| Purchase of property, plant and equipment | (85) | (100) | ||
| Exploration and evaluation costs 1 | (5,942) | (4,446) | ||
| Net cash used in investing activities | (5,759) | (4,196) | ||
| Financing activities | ||||
| Net proceeds from issue of ordinary shares | - | 429 | ||
| Net cash flow generated from financing activities | - | 429 | ||
| Net increase in cash and cash equivalents | 510 | 4,033 | ||
| Cash and cash equivalents at beginning of year | 120,348 | 115,826 | ||
| Effect of foreign exchange rate changes | (103) | 489 | ||
| Cash and cash equivalents at end of year | 120,755 | 120,348 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
The preliminary results announcement is for the year ended 31 December 2013.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company has today published its Annual Report and Accounts on its website, www.sterlingenergyplc.com, these contain the full financial statements for the year ended 31 December 2013 that comply with the IFRSs. The Annual Report and Accounts and the notice for the Company's Annual General meeting, which is to be held at 11.00 a.m on 25 April 2014, will be posted to Shareholders on or about 2 April 2013.
2. 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 Operations Review. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review.
The Group has sufficient cash resources for its working capital needs and its committed capital expenditure programme at least for the next 12 months. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
3. Operating segments
| Middle East | ||||||||||||||
| Africa | (Discontinued) | Total | ||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||
| $000 | $000 | $000 | $000 | $000 | $000 | |||||||||
| Statement of comprehensive income | ||||||||||||||
| Revenue 1 | 18,370 | 22,496 | - | - | 18,370 | 22,496 | ||||||||
| Cost of sales | (9,766) | (12,028) | - | - | (9,766) | (12,028) | ||||||||
| Gross profit | 8,604 | 10,468 | - | - | 8,604 | 10,468 | ||||||||
| Impairment reversal | 4,359 | 347 | - | - | 4,359 | 347 | ||||||||
| Impairment provision | - | - | - | (18,422) | - | (18,422) | ||||||||
| Accruals release | - | - | 1,025 | - | 1,025 | - | ||||||||
| Pre-licence costs | (2,226) | (2,353) | - | - | (2,226) | (2,353) | ||||||||
| Segment result | 10,737 | 8,462 | 1,025 | (18,422) | 11,762 | (9,960) | ||||||||
| Unallocated corporate expenses | (3,177) | (2,795) | ||||||||||||
| Profit/(loss) from operations | 8,585 | (12,755) | ||||||||||||
| Finance income | 892 | 350 | ||||||||||||
| Finance expense | (1,143) | (515) | ||||||||||||
| Profit/(loss) before tax | 8,334 | (12,920) | ||||||||||||
| Tax | - | - | ||||||||||||
| Profit/(loss) attributable to owners of the parent | 8,334 | (12,920) | ||||||||||||
| Profit from continuing operations | 7,309 | 5,502 | ||||||||||||
| Profit/(loss) from discontinued operations | 1,025 | (18,422) | ||||||||||||
| 8,334 | (12,920) | |||||||||||||
| Middle East | ||||||||||||||
| Corporate | Africa | (Discontinued) | Total | |||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||
| $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | |||||||
| Other segment information | ||||||||||||||
| Capital additions | ||||||||||||||
| Property, plant and equipment | 85 | 100 | - | - | - | - | 85 | 100 | ||||||
| Exploration and evaluation | - | - | 2,942 | 1,313 | - | 4,5752 | 2,942 | 5,888 | ||||||
| Depreciation & amortisation | (69) | (59) | (2,420) | (2,422) | - | - | (2,489) | (2,481) | ||||||
| Impairment reversal | - | - | 4,359 | 347 | - | - | 4,359 | 347 | ||||||
| Impairment provision | - | - | - | - | - | (18,422) | - | (18,422) | ||||||
| Segment assets and liabilities | ||||||||||||||
| Non-current assets 3 | 97 | 83 | 21,528 | 16,645 | - | - | 21,625 | 16,728 | ||||||
| Segment assets 4 | 119,146 | 119,409 | 9,210 | 3,409 | 1,080 | 1,733 | 129,436 | 124,551 | ||||||
| Segment liabilities 5 | (1,298) | (711) | (35,179) | (33,906) | (506) | (2,045) | (36,983) | (36,662) | ||||||
| 1 Revenue from continuing operations includes amounts of $17.1 million (100% external) from one single customer (2012: $21.2 million). | ||||||||||||||
| 2 Included within the $4.6 million are accruals totalling $1.4 million and net cash additions of $3.1 million. | ||||||||||||||
| 3 Segment non-current assets include $7.3 million in Cameroon (2012: $6.5 million), $nil in Kurdistan (2012: $nil), $8.3 million in Mauritania (2012: $6.4 million), $3.9 million in Madagascar (2012: $3.8 million) and $2.1 million in Somaliland (2012: $nil). | ||||||||||||||
| 4 Carrying amounts of segment assets exclude investments in subsidiaries. | ||||||||||||||
| 5 Carrying amounts of segment liabilities exclude intra-group financing. | ||||||||||||||
4. Discontinued operations
On 29 January 2013, Sterling formally announced withdrawal from the Sangaw North licence in Kurdistan. The decision to relinquish was made in December 2012 and all amounts, totaling $18.4 million, were fully impaired at this date. At the date of the final dissolution, Sterling had fully satisfied the work commitment required by the Sangaw North PSC and all other commitments in country.
During 2013 the Group released accruals totalling $1.0 million.
The financial impact of the Group's discontinued operations is provided below:
| 2013 | 2012 | ||||
| $000 | $000 | ||||
| Profit/(loss) for the year from discontinued operations | 1,025 | (18,422) | |||
| Cash flows from investing activities (note 9) | - | (3,133) | |||
| Net (decrease)/increase in cash and cash equivalents | (553) | 719 | |||
| Basic profit/(loss) per share from discontinued operations (USc) (note 5) | 0.47 | (8.39) | |||
| Diluted profit/(loss) per share from discontinued operations (USc) (note 5) | 0.46 | (8.39) |
5. Earnings per share
| Basic | Diluted | ||||||
| 2013 | 2012 | 2013 | 2012 | ||||
| $000 | $000 | $000 | $000 | ||||
| Profit for the year (continuing operations) | 7,309 | 5,502 | 7,309 | 5,502 | |||
| Profit/(loss) for the year (discontinuing operations) | 1,025 | (18,422) | 1,025 | (18,422) | |||
| Weighted average number of ordinary shares in issue during the year | 220,053,520 | 219,530,061 | 220,053,520 | 219,530,061 | |||
| Dilutive effect of share options outstanding | - | - | 367,069 | - | |||
| Fully diluted average number of ordinary shares during the year | 220,053,520 | 219,530,061 | 220,420,589 | 219,530,061 | |||
| EPS (continuing operations) | 3.32 | 2.51 | 3.32 | 2.51 | |||
| EPS (discontinuing operations) | 0.47 | (8.39) | 0.46 | (8.39) |
In the current year, the number of potentially dilutive ordinary shares in respect of All staff and NED LTIPs outstanding as at the year end is 13,707,483 (2012: 11,409,488).
6. Intangible royalty assets
| Group | ||
| $000 | ||
| Net book value at 31 December 2011 and 1 January 2012 | 3,221 | |
| Amortisation charge for the year | (797) | |
| Net book value at 31 December 2012 | 2,424 | |
| Impairment reversal | 1,152 | |
| Amortisation charge for the year | (782) | |
| Net book value at 31 December 2013 | 2,794 |
Group net book value at 31 December 2013 comprises the value of rights to future royalties in respect of the Group's agreements covering licences PSC A, PSC B and PSC C-10 in Mauritania. The value of these royalty interests is dependent upon future oil and gas prices and the development and production of the underlying oil and gas reserves.
Impairment assessments and any subsequent charges are calculated on an individual royalty interest basis. Future recoverable amounts are estimated by management based on the present value of future cash flows expected to be derived from the production of commercial reserves in these licences and are compared against the carrying value of these assets.
In 2013 impairment losses recognised in prior periods totalling $1.2 million have been reversed on the Chinguetti asset.
7. Intangible Exploration and Evaluation ("E&E") assets
| Group | ||||||||
| Note | $000 | |||||||
| Net book value at 31 December 2011 and 1 January 2012 | 22,455 | |||||||
| Additions during the year | 5,888 | |||||||
| Impairment charge for the year | 3 | (18,422) | ||||||
| Impairment reversal for the year | 324 | |||||||
| Net book value at 31 December 2012 | 10,245 | |||||||
| Additions during the year | 4,192 | |||||||
| Reimbursement of back costs on farm-out of Ambilobe licence | (1,250) | |||||||
| Net book value at 31 December 2013 | 13,187 |
On 28 October 2013, Sterling announced its farm-in to the Odewayne Block, onshore Somaliland. Under the terms of the farm-in Sterling will pay a total of $10.0 million to Petrosoma Limited, a Somaliland company, for a 10% interest in the licence. $8.0 million of the consideration is contingent upon the completion of certain operational milestones which had not been achieved at 31 December 2013 and is disclosed as a contingent liability.
On 27 January 2014, Sterling announced the completion of the acquisition of a further 15% interest in the Odewayne Block from Jacka Resources Somaliland Limited, an Australian Company. Sterling will pay a total of $15.0 million for the 15% interest. At 31 December 2013 Sterling had paid a total of $3.0 million which is included within other receivables. The remaining $12.0 million dollars is contingent upon the completion of certain operational milestones which had not been achieved at 31 December 2013.
The amount for intangible exploration and evaluation assets represents investments in respect of exploration licences. Impairment tests on E&E assets are conducted on an individual cost pool basis when facts and circumstances suggest that the carrying amount in the pool may exceed its recoverable amount.
8. Property, plant and equipment
| Computer | ||||
| Oil and Gas assets | and office equipment | Total | ||
| Group | $000 | $000 | $000 | |
| Cost | ||||
| At 31 December 2011 and 1 January 2012 | 185,825 | 2,964 | 188,789 | |
| Additions during the year | - | 100 | 100 | |
| Adjustments during the year | (23) | - | (23) | |
| At 31 December 2012 | 185,802 | 3,064 | 188,866 | |
| Additions during the year | - | 85 | 85 | |
| Disposals in the year | - | (3,006) | (3,006) | |
| At 31 December 2013 | 185,802 | 143 | 185,945 | |
| Accumulated depreciation and impairment | ||||
| At 31 December 2011 and 1 January 2012 | (180,223) | (2,923) | (183,146) | |
| Charge for the year | (1,625) | (59) | (1,684) | |
| Impairment reversal for the year | 23 | - | 23 | |
| At 31 December 2012 | (181,825) | (2,982) | (184,807) | |
| Charge for the year | (1,638) | (69) | (1,707) | |
| Impairment reversal for the year | 3,207 | - | 3,207 | |
| Disposals in the year | - | 3,006 | 3,006 | |
| At 31 December 2013 | (180,256) | (45) | (180,301) | |
| Net book value at 31 December 2013 | 5,546 | 98 | 5,644 | |
| Net book value at 31 December 2012 | 3,977 | 82 | 4,059 | |
| Net book value at 31 December 2011 | 5,602 | 41 | 5,643 |
During the year impairment reversals recognised in prior periods totalling $3.2 million have been reversed on the Chinguetti asset (2012: $23k).
9. Cash flows from operating activities
| 2013 | 2012 | ||
| Group | $000 | $000 | |
| Operating activities: | |||
| Profit before tax from continuing operations | 7,309 | 5,502 | |
| Profit/(loss) before tax from discontinued operations | 1,025 | (18,422) | |
| Finance income and gains | (892) | (350) | |
| Finance expense and losses | 1,066 | 503 | |
| Depletion and amortisation | 2,488 | 2,481 | |
| Impairment reversal | (4,359) | (347) | |
| Impairment expense | - | 18,422 | |
| Share-based payment charge | 1,166 | 973 | |
| Operating cash flow prior to working capital movements | 7,803 | 8,762 | |
| Decrease/(increase) in inventories | 247 | (121) | |
| Increase in trade and other receivables | (1,725) | (287) | |
| Decrease in trade and other payables | (56) | (554) | |
| 6,269 | 7,800 | ||
| Cash generated from continuing operations | 6,822 | 7,852 | |
| Cash outflow from discontinued operations | (553) | (52) | |
| 6,269 | 7,800 |
DEFINITIONS AND GLOSSARY OF TERMS
$ US dollars
2006 Act The Companies Act 2006, as amended
2007 LTIP the 2007 Long Term Incentive Plan
1P Proven reserves or in-place quantities depending on the context
2D two dimensional
2P the sum of Proven and Probable reserves or in-place quantities
depending on the context
3D three dimensional
3P the sum of Proven, Probable and Possible reserves or in-place quantities
depending on the context
AIM Alternative Investment Market of the London Stock Exchange
All Staff LTIP the All Staff Long-Term Incentive Plan adopted in 2009
AGM Annual General Meeting
API gravity an American Petroleum Institute scale for crude oil density
Articles the Articles of Association of the Company
bbl barrel, equivalent to 42 US gallons of fluid
bbl/d barrel per day
bopd barrel of oil per day
boe barrel of oil equivalent, a measure of the gas component converted into its
equivalence in barrels of oil
boepd barrel of oil equivalent per day
bcf billion cubic feet of gas
Board the Board of Directors of the Company
C Celsius
Capex capital expenditure
CGR condensate gas ratio
Combined Code or Code the Combined Code on Corporate Governance. Now superseded by the UK Corporate Governance Code (see below).
Companies Act the Companies Act (as amended 2006).
Company or Sterling Sterling Energy Plc
Contingent Resources those quantities of petroleum estimated, as at a given date, to be
potentially recoverable from known accumulations by application of
development projects but which are not currently considered to be
commercially recoverable due to one or more contingencies, Contingent
Resources are a class of discovered recoverable resources.
COS chance of success
CSOP Company Share Option Plan (HMRC approved share option scheme).
Darcy unit of permeability
Deg degrees
Directors the Directors of the Company
DST drill stem test, a method of flow testing a well
E&E exploration and evaluation assets
EBITDA earnings before interest, taxation, depreciation, depletion and
amortisation, impairment, share-based payments and pre-licence
expenditure
EITI Extractive Industries Transparency Initiative
EMV expected monetary value
EUR economic ultimate recovery
Farm-in & farm-out a transaction under which one party (farm-out party) transfers part of its
interest to a contract to another party (farm-in party) in exchange for a
consideration which may comprise the obligation to pay for some of the
farm-out party costs relating to the contract and a cash sum for past costs
incurred by the farm-out party
FDP field development plan
FPSO Floating, Production, Storage and Offloading vessel
FCA the Financial Conduct Authority of the United Kingdom
G&G geological and geophysical
GBP pounds sterling
Genel Energy Genel Energy Somaliland Limited
GIIP gas initially in place
GOC gas oil contact
GOR gas oil ratio
GWC gas water contact
Group the Company and its subsidiary undertakings
HMRC Her Majesty's Revenue and Customs
HMRC Approved Sub-Plan or The HMRC approved sub-plan of the All Staff LTIP.
HMRC Sub-Plan
HSSE Health, Safety, Security and Environment.
hydrocarbons organic compounds of carbon and hydrogen
JV joint venture
km kilometre(s)
km2 square kilometre(s)
lead indication of a possible exploration prospect
London Stock Exchange or LSE London Stock Exchange Plc
m metre(s)
mmbbl million barrels
mmstb million barrels of oil at stock tank conditions
mmboe million barrels of oil equivalent
mmcf million cubic feet of gas
mmcfge/d million cubic feet of gas equivalent per day
mmscf/d million cubic feet at standard pressure and temperature per day
mss metres sub-sea
mTVDss metres true vertical depth sub-sea
Murphy Oil Murphy Cameroon Ntem Oil Co. Ltd a wholly owned subsidiary of Murphy
Oil Corporation
NED LTIP non-executive Director Long Term Incentive Plan adopted in 2009
NPV net present value of a series of cash-flows
OECD Organisation for Economic Cooperation and Development
Opex operating expenditure
Ordinary Shares Sterling ordinary shares of 40 pence each
OWC oil water contact
P90, P50, P10 90%, 50% and 10% probabilities respectively that the stated quantities
will be equalled or exceeded. The P90, P50 and P10 quantities
correspond to the Proved (1P), Proved + Probable (2P) and Proved +
Probable + Possible (3P) confidence levels respectively
Panel or Takeover Panel The Panel on Takeovers and Mergers
Petroleum oil, gas, condensate and natural gas liquids
Petronas PC Mauritania 1 PTY LTD
PP&E Property, Plant & Equipment
PRMS Petroleum resource Management System as issued in March 2007 by the
Society of Petroleum Engineers et al
Prospect a potential sub-surface accumulation of hydrocarbons which has been
identified but not drilled
Prospective Resources or those quantities of petroleum which are estimated, as at a
Prospective Recoverable Resources given date, to be potentially recoverable from undiscovered accumulations
psi(a) pounds per square inch (absolute)
PSA production sharing agreement
PSC production sharing contract
Pura Vida Pura Vida Mauritius
Reserves reserves are those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must satisfy four criteria; they must be discovered, recoverable, commercial and remaining based on the development projects applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by development and production status
Reservoir a porous and permeable rock capable of containing fluids
RF recovery factor
RI royalty interest
RISC RISC (UK) Limited of 53 Chandos Place, Covent Garden, London WC2N 4HS
Scf standard cubic feet of gas (measured at 60 degree Fahrenheit and 14.7 psia)
Seismic data, obtained using a sound source and receiver, that is processed to provide a representation of a vertical cross-section through the subsurface layers
SESP Sterling Energy share price
Shares 40p Ordinary Shares
Shareholders Ordinary shareholders of 40p each in the Company
SMH Société Mauritanienne Des Hydrocarbures
sq km square kilometre
sq mi square mile
stb stock tank barrel (measured at 60 degrees Fahrenheit and 14.7 psia)
STOIIP Stock tank oil initially in place
Subsidiary a subsidiary undertaking as defined in the 2006 Act
Tcf trillion cubic feet of gas
TEA technical evaluation agreement
TD total depth
TSR Total Shareholder Return (End Share Price - Opening Share Price / Opening Share Price) plus (Sum of Dividends Per Share / Opening Share Price).
TVD true vertical depth
United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland
UK Corporate Governance Code Formerly the Combined Code, sets out standards of good practice in
relation to Board leadership and effectiveness, remuneration, accountability and relations with shareholders
United States or US the United States of America
Water-cut that percentage of total fluid production that is water
Working Interest or WI a Company's equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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