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TheStreet Open House

Sterling Resources Announces Second Quarter Operating And Financial Results

Stocks in this article: SLG

CALGARY, Alberta, August 21, 2012 /PRNewswire/ --

Sterling Resources Ltd. (TSX-V:SLG)("Sterling" or the "Company") an international oil and gas company with exploration and development assets in the United Kingdom, Romania, France and the Netherlands announces interim operating and financial results for the quarter ended June 30th, 2012. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.

HIGHLIGHTS

  • Sale of 13.5 percent interest in Cladhan field sold to TAQA Bratani Limited ("TAQA") for initial consideration of US$47 million;
  • Breagh development drilling program underway with two previously suspended wells redrilled and a third new well underway;
  • 50 percent interest obtained in the XXV Luceafarul Block offshore Romania;
  • Reduction of the liquidity threshold required under the Breagh loan agreement from £35 million to £20 million; and
  • Breagh development moving forward with total project cost now estimated at £623 million (100 percent) and production targeted to commence in December 2012.

The net loss for the quarter ended June 30, 2012 was $7.0 million ( $0.03 per share - basic and diluted) compared to a loss of $13.4 million ( $0.07 per share - basic and diluted) for the three months ended June 30, 2011. During the second quarter of 2011 bad debt expense of $6.8 million was incurred in relation to non-payment from a co-venturer on the Grian well. For the second quarter of 2012 pre-licence and other exploration costs of $6.1 million were higher than the $2.3 million incurred during the second quarter of 2011.

For the six months ended June 30, 2012 a net loss of $14.7 million ( $0.07 per share - basic and diluted) was recorded compared with a loss of $34.4 million ( $0.18 per share - basic and diluted) for the six months ended June 30, 2011. During the first two quarters of 2011 the Company incurred significant exploration and evaluation expenses in the UK North Sea related to the four well Cladhan drilling program, the drilling of the non-operated East Breagh appraisal well and the drilling of the Grian exploration well.

Cash and cash equivalents at June 30, 2012 were $31.2 million compared to $50.0 million as at December 31, 2011. In addition, the Company holds $16.0 million of non-current restricted cash in accordance with the terms of the Breagh loan agreement. The Company maintains cash balances allocated to the currencies in which they are expected to be utilized, and exchange gains or losses reflected in the income statement are therefore offset by corresponding reductions or increases in underlying capital and other expenditures. A small foreign exchange gain of $77,000 in the second quarter partially offset a loss of $269,000 incurred during the first quarter, attributable to the strengthening of the US dollar versus the UK pound upon the translation of US dollar cash balances. Foreign exchange losses of $4.9 million during the first half of 2011 mainly occurred during the first quarter of 2011, upon conversion of US dollar balances into the respective functional currencies of the operation holding the funds.

Net working capital was $20.5 million at June 30, 2012 compared to net working capital of $36.0 million at December 31, 2011. For the six months ended June 30, 2012, pre-licence and other exploration costs totaled $8.1 million, of which $4.6 million related to the Company's interests in various offshore UK licences, $2.1 million related to Romanian licences and $1.3 million to the Netherlands and other international ventures. Cumulative capital expenditures related to the Breagh project as at June 30 th have reached £100.3 million.

"Although the delay in start-up at Breagh is extremely frustrating, an intensive effort has been made to address remaining issues related to completion of the onshore facilities, for a target of first gas by year end," stated Mike Azancot, Sterling's President and CEO. "Although the Breagh development remains a primary focus, we also look forward to the drilling of the potentially high-impact Ioana and Eugenia wells in offshore Romania this fall," added Mr. Azancot.

United Kingdom

At Breagh the estimated development costs for Phase 1 have now risen to £623 million (100 percent), an increase of approximately 10 percent above the cost estimate of £566 million estimated in the 2011 Annual Report. The increase in costs is principally related to work required to complete modifications at the existing Teesside Gas Processing Plant in order to receive and process natural gas from Breagh, and to complete the onshore section of the export pipeline. Sterling's share of these additional costs amounts to approximately £17 million. As of June 30, 2012, Sterling's share of the remaining development cost is £87 million of which approximately £30 million is to be spent from July 2012 through to first gas which is targeted for December 2012.

During mid-May the Breagh development drilling program utilizing the Ensco 70 rig commenced after a delay in receipt of the rig due to retention by the previous operator. The two previously suspended wells, 42/13-3 and 42/13-5Z, have been re-drilled as production wells A-01 and A-02 respectively, and both wells encountered better than expected reservoir sections. The A-01 well encountered 74 feet of net pay (16 feet more than the 42/13-3 well) and the A-02 well encountered 68 feet of net pay (20 feet more than 42/13-5Z well), according to the Company's evaluation. In addition, both wells encountered approximately 25 feet of net pay in reservoir Zone 3 which was not encountered in either of the original wells; subject to production performance this could lead to increased reserves in the field. The first new well is now being drilled following which all three of the first wells will be production tested and up to seven further wells will then be drilled for the development program, which may last until 2014. The first three wells are expected to be on-stream at first production.

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