Sterling Resources Ltd. (TSX-V:SLG) ("Sterling" or the "Company") is pleased to announce financial and operating results for the year ended December 31, 2016 and reserves as at December 31, 2016. Unless otherwise noted, all figures contained in this release are denominated in US dollars.
The net loss for the year ended December 31, 2016 was $9.6 million ($0.04 per common share) compared to a net loss of $206.9 million ($0.51 per common share) for the year ended December 31, 2015. In 2015, the main factor driving the loss was the downward re-measurement of the deferred tax asset on the ground of lack of recoverability in the then low commodity price environment, whereas the net loss in 2016 was reduced due to a credit arising from a revaluation of the deferred tax asset, due to a forecast increase in UK net taxable income. Financial highlights during the year include as follows:
Strong production performance continued from Breagh throughout 2016 with high facilities uptimes. Full year average gross sales gas production achieved forecast at 71.3 million standard cubic feet per day ("MMscf/d") net 21.4 MMscf/d to the Company. Gross condensate sales for 2016 averaged 212 barrels per day ("bbls/d"), net 63.5 bbls/d to Sterling. All outstanding works at the Teesside Gas Processing Plant have been completed and the Breagh partnership entered into an Amended and Restated Gas Processing and Operations Agreement. In addition, the Company successfully entered into a new Gas Sales Agreement with British Gas Trading Limited, a subsidiary of Centrica plc.
The anticipated infill drilling campaign of two new wells (A09 and A10) in the Breagh field and the re-entry and hydraulic stimulation of one existing well to improve performance is expected to commence in June 2017.
Planning for onshore compression is in progress at the time of this press release with start-up planned for the end of the first quarter of 2019. Full year gross sales gas production for 2017, as per RPS Energy, the Company's reserves evaluator is expected to average 72.9 MMscf/d, 21.9 MMscf/d net to the Company due to the natural decline in production from the existing wells plus the benefits from the production from the new drilling in the fourth quarter of 2017.
In the Netherlands, the Company is currently evaluating development options which include a subsea tieback to a potential Wintershall oil hub in the area, following the completion of seismic procession and interpretation work at the end of 2016 and during the first quarter of 2017. A licence extension has been granted to January 2021.
The Company has continued efforts to reduce non-essential costs with further partial relinquishments of exploration licences within the Ossian/Darrach and Niadar areas.
The completion of the Recapitalization of the Company has reduced the debt to a more appropriate level. In addition, the Company has access to a super senior revolving credit facility, though the Company currently forecasts that this will not be utilized. Following on from the Recapitalization, a 100:1 consolidation of the Company's common shares was completed, and further cost-reduction initiatives have been completed. The overall effect of these changes has been to put Sterling in much better shape to cope with a low commodity price environment and to progress the development activities on Breagh.
Following these financial and organisational changes, the Company received several approaches by parties interested to explore possible transactions in relation to the Company including potential mergers and an outright sale. These approaches and discussions culminated in the Company entering into an agreement for the sale of its UK subsidiary, Sterling Resources (UK) Ltd. ("SRUK") to Oranje-Nassau Energie B.V. ("ONE").
On March 3, 2017, the Company, together with its wholly-owned subsidiary SRUK Holdings Ltd. ("SHL") entered a definitive agreement (the "Share Purchase Agreement") with ONE, pursuant to which ONE has agreed to acquire (the "Transaction") from SHL the entire issued share capital of SRUK for an amount equal to US$163 million, less:
a) amounts necessary to redeem the outstanding US$40 million principal amount of bonds issued by SRUK;
b) amounts necessary to cancel the super senior revolving credit facility entered by SRUK, SHL and the Company with a syndicate of lenders; and
c) certain completion adjustments based on actual change of control and interim period costs relative to targeted amounts.
Following all such adjustments, and other associated expenses, the Company anticipates net proceeds from the sale of SRUK of approximately US$113 million, assuming a completion date of the Transaction of May 15, 2017.
In the event that the Transaction is approved by the shareholders of Sterling, all other conditions to closing are satisfied or waived and the Transaction is completed in accordance with the terms of the Share Purchase Agreement, Sterling will not have any active business operations or assets other than cash including, indirectly, the cash consideration received by SHL from ONE as consideration for the shares of SRUK. As a result, it is the current intention of Sterling, if approved by shareholders of Sterling, to undertake a voluntary winding-up and dissolution following completion of the Transaction (the "Winding-up").
Pursuant to the Winding-up, Sterling intends to distribute all net proceeds of the Transaction (after the payment or discharge of all obligations, including those associated with each of the Transaction and Winding-up itself (collectively, the "Obligations")) to the shareholders of Sterling in the form of return of capital in one or more installments. There are a number of variables, known and unknown, that may impact the ultimate amount of the distributions payable to Sterling's shareholders in connection with the Winding-up, including the quantum of the Obligations. While the distributions made to Sterling's shareholders may therefore be materially lower than the amount anticipated as of the March 3, announcement (the Transaction announcement date), based on the information available to Sterling as of the March 3, announcement, it is anticipated that the cumulative distributions to be paid to Sterling shareholders subsequent to the completion of the Transaction, are likely, based on the exchange rate at the time of the March 3, announcement, to be in the range of between Canadian $0.97 and $1.02 per Common Share as a return of capital on Common Shares.
The Common Shares of Sterling are expected to cease trading and be delisted from the TSX Venture Exchange on or about the time of the final distribution to Sterling shareholders.
Details of the Transaction and the Winding-up and the risks, processes and procedures associated therewith and subsequent to the completion thereof, will be disclosed in greater detail in the information circular regarding the Transaction, which will be mailed to shareholders in advance of the shareholders meeting that is expected to take place on or about May 8, 2017, to amongst other things, consider the Transaction and the Winding-Up.
"Breagh has once again had strong production performance in 2016 and remains a valuable low operating cost UK North Sea asset, which with the anticipated infill drilling campaign beginning in 2017 and onshore compression will add further value. Having completed the Recapitalization, the Company now has a debt base more appropriate to its size and a clearer path forward. However, given the inherent risks involved in oil and gas operations including the fluctuations in commodity prices, and given a careful review of the Transaction by the board of directors, in consultation with our financial and legal advisors, we believe that the Transaction represents excellent value and is in the best interests of the Sterling shareholders," said John Rapach, the CEO of Sterling.
Executive summaries of the reserves and resources reports for the Breagh and Cladhan fields in the UK North Sea as at December 31, 2016 prepared by RPS are planned to be filed on SEDAR and made available on the Company's website www.sterling-resources.com within the next days.
Sterling Resources Ltd. is a Canadian-listed international oil and gas company whose registered office is in Calgary, Alberta with assets in the United Kingdom and the Netherlands. The shares are listed and posted for trading on the TSX Venture Exchange under the symbol "SLG".Sterling Resources Ltd. (TSX-V:SLG) ("Sterling" or the "Company") is pleased to announce financial and operating
SOURCE: Sterling Resources Ltd.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.