The Company was pleased to note the commitment given by the Romanian government to liberalizing the gas sector in Romania in a letter to the International Monetary Fund ("IMF") dated June 8, 2012. The letter states that gas prices will be liberalized starting from the end of this year in order to converge to average European prices by the end of 2014 for the non-household sector (industrial), or the end of 2015 if a large gap remains between European gas prices and import prices, and by the end of 2018 for the household sector. As the non-household sector has represented approximately 70 to 75 percent of the total market in recent years, this schedule is very positive for the Ana and Doina gas developments, which are expected to come on stream in 2015/2016, as well as for the valuation of Sterling's extensive exploration acreage.
On July 10, 2012 the new power and gas law containing these provisions was passed by the Romanian government. The legislation enacts the gradual liberalization of gas prices as contained in the letter to the IMF, as well as providing for third party access to the Romanian transmission system. In Romania, the gas liberalization program allows for a more precise evaluation of our projects. We intend to reduce our high current equity interest to one that is more manageable going into 2013, in order to fund the development program and the exciting exploration campaign upon our highly prospective offshore blocks.
Sterling's exploration drilling operations will resume in September 2012 from the cantilever-type jack-up drilling rig "GSP Jupiter". The program calls for the drilling of the Ioana gas prospect in 91 metres water depth to target the Mid Pontian sandstone formation to a total anticipated depth of 1,600 metres. Following the drilling of Ioana, the rig will be remobilized north for the drilling of the Eugenia oil prospect in 55 metres water depth to target three formations in the Oligocene, Eocene and Late Cretaceous to a total anticipated depth of 2,300 metres. Success at Ioana could greatly enhance Sterling's goal to increase the size of the gas hub in the Midia block that already includes the Ana and Doina discoveries. Eugenia, on the other hand, represents the first exploration well to be drilled in the Pelican block.
Financing ActivitiesThe Company has a senior secured credit facility (the "Credit Facility") for up to £105 million with a lending syndicate of four institutions to fund Phase 1 of the Breagh gas field. The Credit Facility comprises a main tranche of £95 million and a cost-overrun tranche of £10 million, with a term of six and a half years. Availability under both tranches is re-determined semi-annually and currently stands at approximately £80 million for the main tranche with the full amount of the cost-overrun tranche available. Utilization of the cost-overrun tranche requires a matching use of funds from the Company. The Credit Facility also requires the Company to maintain a minimum level of cash over a 12 month period, as demonstrated by forward-looking cash flow statements prepared at each quarter end. During the second quarter the Company announced that it had reached agreement with the lending syndicate to reduce this minimum cash requirement from £35 million to £20 million effective April 1, 2012 until project completion, £10 million of which is held as non-current restricted cash as it is expected that there will be no access to these funds for a year. The Company believes it is in compliance with the undertakings and obligations under the terms of the Credit Facility as at June 30, 2012. Since June 30 th the additional costs and production delays at Breagh means that the Company now expects to fully draw upon both tranches of the Credit Facility. In order to fund all planned activities prior to the likely renegotiation of the Breagh Credit facility during the first quarter of 2013, a small portion of anticipated proceeds from the additional asset sales either of offshore Romania or of the remaining Cladhan interest will be required. The Company has embarked upon a rationalization of assets in Romania and the United Kingdom. This process includes a portion of our interests in the Midia, Pelican and Luceafarul Blocks offshore Romania and all or part of the Company's remaining 26.4 percent interest in Cladhan. These planned divestments will raise cash for the Company's exploration, appraisal and development activities and, in the case of offshore Romania, a reduction in working interest from the current level of 65 percent in Midia and Pelican and 50 percent in Luceafarul will be more appropriate given the substantial exploration and development program planned for 2013 and beyond. Sterling Resources Ltd. is a Canadian-listed international oil and gas company headquartered in Calgary, Alberta with assets in the United Kingdom, Romania, France and the Netherlands. The shares are listed and posted for trading on the TSX Venture Exchange under the symbol "SLG". Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.