03:45:58 EDT Thu 25 Apr 2024
Enter Symbol
or Name
USA
CA



Sterling Resources Ltd
Symbol SLG
Shares Issued 380,700,077
Close 2015-03-27 C$ 0.16
Market Cap C$ 60,912,012
Recent Sedar Documents

Sterling's NI 51-101 year-end 2P reserves at 23.1 mmboe

2015-03-27 18:59 ET - News Release

Mr. Jacob Ulrich reports

STERLING RESOURCES ANNOUNCES FILING OF ANNUAL NI 51-101 RESERVES REPORT AND PROVIDES SUMMARY OF RESERVES RESULTS

Sterling Resources Ltd. has filed its annual reserve disclosure pursuant to National Instrument 51-101 as at Dec. 31, 2014, as evaluated by RPS Energy Canada Ltd., the company's independent reserve evaluator, in its report dated March 25, 2015. An update of the company's contingent and prospective resources will be provided with the year-end financial and operating information in mid-April. All dollar amounts in this news release are U.S. dollars.

Breagh

During 2014, total field sales gas volumes were 29.5 billion cubic feet, equating to an average rate of 81 million standard cubic feet per day (24.2 million standard cubic feet per day net to Sterling). Average production uptime over the year was 81 per cent, with an improved performance of around 95 per cent being achieved by the end of the year, which has continued into 2015. Total condensate production for the year was 109,100 (32,700 barrels net to Sterling), equivalent to average production for the year of 290 barrels per day (90 barrels a day net to Sterling).

Key achievements during the year have been:

  • Completion of the first part of the phase 1 development drilling campaign, culminating in the hydraulic stimulations of the A07 and A08 wells, which started production in August and November, 2014, respectively;
  • Operational resolution of start-up issues on the Breagh processing facilities linked to foulling of slug catcher instrumentation, improving operation reliability in the second half of 2014 and into 2015;
  • Acquisition of new 3-D seismic across the Breagh field area for use in continuing development of the field, including the remaining phase 1 drilling program and phase 2 development planning.

Cladhan

The Cladhan development project continued to progress through 2014 in line with the field development program requirements. The development drilling included two high-angle production wells and one high-angle water injection well. The first of the two development production wells, P1, was drilled with a high deviation to penetrate the Cladhan reservoir close to but updip from the 210/29a-4Z exploration well. The well encountered a total reservoir section of nearly 2,300 feet (measured depth) with a net pay of 815 feet measured depth. The well was then suspended and the second production well, P2, was drilled to a southerly location, encountering thinner-than-expected sands at the heel of the well and little pay thereafter. The well was subsequently suspended to allow further analysis while the injector well W1 was being drilled. The rig re-entered the previously suspended 210/29a-6 well and sidetracked to the W1 development position in the eastern area of the field. The well penetrated a gross reservoir thickness of 3,900 feet (measured depth) through which a number of moderate-quality channel sands were encountered. The P1 and W1 wells were subsequently completed.

After these completions were made, the rig returned to redrill the P2 well, which encountered a gross reservoir section of 1,930 feet with approximately 220 feet of net pay. Completion of the P2 well finished in the first quarter of 2015.

Development activities for both topsides and subsea workscopes are well progressed. However, during 2014 both cost and schedule overruns have been realized associated with technical, weather and supply chain issues. Technical issues are now resolved, with a revised schedule and forward budget. The effect of these combined effects leaves limited contingency in the project schedule going forward, which is a key issue for the remaining subsea installation activity. The remaining subsea activities are scheduled for the summer construction window to mitigate further schedule delays due to weather downtime.

Reserves and net present values

The longer-term production performance of all the Breagh wells has been estimated using normal industry practices. Production data were obtained during 2014, improving the reliability of the forecasts. The long-term performance has been estimated using the company's technical model tested against the more continuous production data acquired during 2014 and early 2015. In addition, the company has estimated recoveries using decline curve and material balance techniques.

The longer-term production performance of the Cladhan production wells has been estimated using normal industry practices using the company's technical model.

These data and analyses for Breagh and Cladhan have been reviewed and RPS has therefore provided a range of production and reserve estimates to account for potential uncertainty in the forecasts and recoveries.

The accompanying tables provide a reserve and net present value summary as at Dec. 31, 2014, and changes from Dec. 31, 2013, together with associated assumptions on accumulated tax allowances used in calculating the after-tax values.

                                RESERVES SUMMARY (BASED ON FORECAST PRICES AND COSTS)(1)

                    Company-share gross(2)            Summary of net present             Summary of net present
                     and net oil and gas                value of future net                value of future net
                reserves as at Dec. 31, 2014           revenue before income               revenue after income
                            (mmboe)(4)              tax(7) as at Dec. 31, 2014         tax(7) as at Dec. 31, 2014
                                                          ($ millions)                        ($ millions)
                     Proved plus    Proved plus                         Proved plus                         Proved plus
              Total     probable  probable plus   Total  Proved plus  probable plus   Total  Proved plus  probable plus
             proved                    possible  proved     probable       possible  proved     probable       possible
                                             (3)                                (3)                                  (3)

Breagh(5)      18.0         22.7           30.2     377          496            675     346          403            481
Cladhan(6)      0.1          0.5            0.8       4           13             30       4           13             30
Company 
total(8)(9)    18.1         23.1           31.0     382          509            705     350          416            511


               RESERVES SUMMARY CHANGE SINCE DEC. 31, 2013 (BASED ON FORECAST PRICES AND COSTS)(1)

                    Change in company-share            Change in net present              Change in net present
                   gross(2) and net oil and             value of future net                value of future net
                       gas reserves as at              revenue before income               revenue after income
                          Dec. 31, 2014              tax(7) as at Dec. 31, 2014        tax(7) as at Dec. 31, 2014
                             (mmboe)(4)                   ($ millions)                        ($ millions)
                     Proved plus    Proved plus                         Proved plus                         Proved plus
              Total     probable  probable plus   Total  Proved plus  probable plus   Total  Proved plus  probable plus
             proved                    possible  proved     probable       possible  proved     probable       possible
                                             (3)                                (3)                                  (3)

Breagh(5)      (5.4)        (7.9)          (9.8)   (115)        (184)          (238)     (9)         (36)           (55)
Cladhan(6)     (0.8)        (1.3)          (1.6)    (49)         (86)          (101)    (47)         (62)           (55)
Company 
total(8)(9)    (6.2)        (9.2)         (11.6)   (163)        (270)          (339)    (56)         (98)          (110)


                                       TAX ALLOWANCES USED IN AFTER-TAX VALUES(10)

                                      Tax allowances                Tax allowances              Change from end of 2013
                                 as at Dec. 31, 2014           as at Dec. 31, 2013                       to end of 2014
                                 (millions of pounds)          (millions of pounds)                 (millions of pounds)
Breagh                                           285                           232                                   53
Cladhan                                           38                            34                                    4

(1)  Estimates of reserves and future net revenue have been made assuming the development of each property in respect of
     which the estimate is made will occur, without regard to the likely availability to the company of financing 
     required for that development. Numbers may not correspond precisely with those set forth in the company's annual 
     disclosure in Form 51-101F1 due to the effects of rounding.
(2)  Gross before royalties.
(3)  Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There
     is a 10-per-cent probability that the quantities actually recovered will equal or exceed the sum of proved plus 
     probable plus possible reserves. In this instance, the gross values are the same as the net values because the 
     royalty is zero.
(4)  Millions of barrels of oil equivalent may be misleading, particularly if used in isolation. A conversion ratio of 
     6,000 cubic feet to one barrel is based on an energy equivalency conversion method primarily applicable at the 
     burner tip, and does not represent a value equivalency at the wellhead.
(5)  Breagh reserves are predominantly gas.
(6)  Oil.
(7)  Discounted at 10 per cent per year.
(8)  Company reserve totals are arithmetic aggregations of multiple estimates, which statistical principles indicate may
     be misleading as to volumes that may actually be recovered. Readers should give particular attention to the 
     estimates of individual classes of reserves and appreciate the differing probabilities of recovery associated with
     each class under a specific set of economic conditions: (1) at least a 90-per-cent probability that the quantities
     actually recovered will equal or exceed the estimated proved reserves (1P); (2) at least a 50-per-cent probability
     that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves
     (2P); and (3) at least a 10-per-cent probability that the quantities actually recovered will equal or exceed the 
     sum of the estimated proved plus probable plus possible reserves (3P).
(9)  The estimates of reserves and future net revenue for individual properties may not reflect the same confidence 
     level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.
(10) Tax allowances assumed to be available to offset future corporation tax (CT) and supplementary charge corporation
     tax (SCT) comprise historical capital allowances and the cumulative ring fence expenditure supplement (RFES). RFES
     is a 10-per-cent annual uplift, available on cumulative tax losses for CT and SCT, for up to six accounting 
     periods on a compounded basis. In these valuations, it has been applied on the cumulative notional net loss at a 
     field level.

Breagh changes

From year-end 2013 to year-end 2014, Breagh field proved plus probable (2P) reserves decreased by 7.9 million barrels of oil equivalent in volume, $184-million in pretax value and $36-million in after-tax value. The changes in reserves and value are principally due to sales gas production in 2014 of 1.5 million barrels of oil equivalent and the reclassification of reserves previously associated with the phase 2 development to be implemented in the southwestern area of the field to contingent resources due to the delays and deferrals in commitment to the project. Once a definitive phase 2 development plan is approved for commitment, the contingent resources will be reclassified back to reserves. It should be noted that the after-tax values at year-end 2013 and year-end 2014 assume a supplementary charge corporation tax rate of 32 per cent, which following the U.K. 2015 budget has been reduced to 20 per cent with effect from Jan. 1, 2015.

Available tax allowances have increased since year-end 2013, principally as a result of additional capital expenditures during 2014 on Breagh and neighbouring licences, supplemented by RFES applied on the notional net loss at a field level at year-end 2014, offset by taxable operating profit from the field during the year.

Cladhan changes

From year-end 2013 to year-end 2014, Cladhan field 2P reserves decreased by 1.3 million barrels of oil equivalent in volume, $86-million in pretax value and $62-million in after-tax value. The reserve decrease is principally due to the poorer net pay results in the southern extent of the field development area following the drilling of the P2 well and the sidetracked P2Z well. The value decrease is principally due to the change in production profile due to the reserve change, and commensurate increased time to financial payback of the Cladhan development carry due to a combination of increase development costs and significantly reduced oil price forecasts. It should be noted that Cladhan is not projected to pay tax in the projected cash flows used to calculate the Dec. 31, 2014, values.

Available tax allowances have increased since year-end 2013, principally as a result of RFES applied on the notional net loss at a field level at end-2014.

Breagh and Cladhan production and capital expenditure forecasts

The company's revised production five-year production and capital expenditure forecasts for the Breagh and Cladhan field developments are as shown in the accompanying table.

              COMPANY NET FIVE-YEAR PROVED PLUS PROBABLE PRODUCTION FORECAST
                        AND ASSOCIATED CAPITAL EXPENDITURE FORECAST

                             Breagh                                        Cladhan
                Net average                                   Net average 
            production rate        Capital costs          production rate       Capital costs
                    (mboe/d)         ($ millions)                 (mbbl/d)        ($ millions)

2015                   5.37                 51.1                     0.08                 1.9
2016                   7.47                 64.0                     0.26                   0
2017                   7.88                  9.4                     0.09                   0
2018                   6.48                    0                     0.28                   0
2019                   4.83                    0                     0.22                   0

The company's hydrocarbon reserves were independently evaluated by RPS effective Dec. 31, 2014, in accordance with the Canadian Oil and Gas Evaluation Handbook (COGEH) reserve definitions and evaluation practices and procedures, as specified by NI 51-101. There is no certainty that it will be commercially viable to produce any portion of the reserves. The evaluation uses RPS Energy forecast prices and costs as at Dec. 31, 2014. Complete details regarding Sterling's reserves for the year ended Dec. 31, 2014, can be found on SEDAR and on the company's website.

We seek Safe Harbor.

© 2024 Canjex Publishing Ltd. All rights reserved.