26th Sep 2007 07:02
Sterling Energy PLC26 September 2007 26 September 2007 STERLING ENERGY PLC 2007 INTERIM RESULTS EXCITING DEVELOPMENTS AHEAD Highlights • $147 million cash acquisition of US onshore Whittier Energy Corp ("WEC") completed at the end of March 2007 and successfully integrated • WEC increased Group 2P reserves by over 85% (c.11 million boe) and added approximately 8 million boe to contingent resources • 20 wells drilled in USA in H1 2007 with a success rate of 85%, adding to proven reserves and production • Revenues in the first half of $45.1 million (H1 2006: $45.3 million) • Group production averaged 4,910 boepd in the first half (H1 2006: 4,671 boepd) • Profit for the first half of $1.4 million (H1 profit 2006: $8.2 million, year 2006 loss $38.6 million) reduced by impact on non-cash depletion of the end 2006 Mauritanian reserve downgrade and deferred tax added to the WEC cost • Earnings before interest, tax, depletion and amortisation ("EBITDA") of $27.1 million in the first half (H1 2006: $27.6 million) • 30 June 2007 unrestricted cash balance of $26 million and 25 September 2007 balance of $21 million with $14 million of undrawn facilities Prospects and Outlook • Revenues set to grow in the second half • Group production estimated at over 6,100 boepd for the third quarter, an increase of 25% over H1 • Bank funding being re-financed by new 6 year $265 million Group facilities, with initial borrowing base expected to total c. $160-5 million • A further 20 USA wells expected in the second half and c.40 planned for 2008 aiming to materially increase US reserves • These wells are expected to take USA production to over 6,000 boepd by end 2007, an increase of over 20% since WEC was purchased. Further growth planned for 2008 • Mauritania second development phase to commence in early 2008 with 2-3 wells and 2-3 workovers. The Operator forecasts that production will double from its current level • Two exploration wells offshore Gabon by mid 2008 • Madagascar offshore seismic identifies significant prospects. Early drilling anticipated. Dick Stabbins, Sterling's newly appointed Chairman, said: "I am confident that we are well positioned to add value from our drillingprogramme. This will be achieved through exploration in Gabon, Madagascar andthe AGC, from further exploration, appraisal and development work in the USA,from a second development phase in Mauritania and by adding further licenceinterests in our core areas of USA, Africa and the Middle East. We have ahealthy cash flow to invest and I am confident about Sterling's outlook." For further information contact: Sterling Energy plc (+44 207 405 4133) Harry Wilson, Chief ExecutiveGraeme Thomson, Finance Director Evolution Securities (+44 207 071 4311) Rob Collins Citigate Dewe Rogerson (+44 207 638 9571) Media enquiries: Martin JacksonAnalyst enquiries: Kate Delahunty www.sterlingenergyplc.com Ticker Symbol: SEY STERLING ENERGY PLC 2007 INTERIM RESULTS CHAIRMAN'S STATEMENT Sterling is well placed with a healthy cash flow from our US and Mauritanianproduction base. We are improving our bank facilities with longer repaymentterms and with greater flexibility as we increase our asset base. In thenear-term, we expect to participate in high impact exploration drilling inMadagascar, Gabon and the AGC. New licence awards in our core areas of the USA,Africa and the Middle East are also anticipated. Our interim results are set out in detail below. Whilst there are manychallenges to confront, I believe that we have all the resources to succeed andI am confident about our future. I believe that oil companies must drill to add material value. We are developinga portfolio of attractive prospects, so the coming months will be exciting. Riskis part of our business and we have shown through innovative farm-outs and otherdeals that we are able to use third party funding for part or all of the morerisky early exploration work. We will continue to adopt such an approach and tobalance risk and reward with our resources. This is my first message to Shareholders since becoming Chairman after the AGMin July. On behalf of the Board I would like to express our thanks to RichardO'Toole who stepped down after almost seven years. He helped to grow the Companyfrom an idea to the international energy company it is today and remains asignificant shareholder. The Sterling team is dedicated and determined to succeed; they have considerableskills and the necessary positive attitude. I have already been greatlyimpressed by them and I am confident that Sterling has an exciting andprofitable time ahead. Richard Stabbins25 September 2007 OPERATIONS REPORT United States Operations Strong, predictable production, diversified portfolio The purchase of WEC has markedly increased US production from 9 mmcfge/d in thefirst quarter of 2007 to 28 mmcfge/d in the second quarter. It also diversifiedthe production base away from the shallow Gulf of Mexico into the onshore USA,especially Texas and Louisiana. In the first two months of the third quarterthis has averaged 29 mmcfge/d and is expected to rise again by year-end throughdrilling new wells and by bringing onstream previously successful wells.Although production has initially grown a little slower than hoped for due todelays in securing drilling rigs and equipment, the outlook for progress in theUS operations remains excellent. Sterling paid a total of c.$147 million in cash for the issued share capital ofWEC and assumed other net liabilities of c.$56 million at closing at the end ofMarch 2007. WEC was an independent oil & gas exploration and developmentcompany headquartered in Houston, Texas with assets primarily onshore in SouthTexas, Permian Basin, onshore Gulf Coast of Texas and Louisiana. When combined with Sterling's existing presence in the shallow Gulf of Mexico,Sterling now has USA assets that provide it with over 120 bcfge in 2P reserves,of which approximately 65% fall into the proven category, 50-100+ bcfge incontingent resources, as well as an extensive inventory of identified, leasedand in many cases permitted drilling prospects from which to build its reserves. Over half of the production is operated by Sterling. Production is approximately85% in natural gas, a commodity with continued strong demand. Whilst priceswere weaker in the third quarter our revenues were partly protected throughhedges. Gas prices have since recovered and futures prices for the next twoyears are at average levels of $7.7/mcf. The USA operations serve to provide Sterling with a steady, reliable andrelatively predictable cash flow from its producing assets and exposure toimportant upside and growth through both the drill bit and by selectivelypurchasing assets in its core areas. Operations activity to date in 2007 In 2007, Sterling expects to participate in a record number of 40 new wells.The first half saw 20 new wells drilled by Sterling (and WEC) of which 17 havebeen successful and now put on production. One of these wells, the Yegua #1 is the first well in the Company's Austin Chalkproperty. This well, located in Burleson County, Texas, is a horizontal wellwhich was drilled to a depth of c.15,500 feet. It was completed and turned tosales in early July. The well had an initial production rate, net to Sterling's42.5% NRI, of just over 2 mmcfge/d and has recently settled around 1 mmcfge/d,as expected. Importantly, the well demonstrates the Company's ability to drilland complete these wells in the Austin Chalk formation. A second well, Rocket 2(19.6% NRI), is being drilled in Grimes County and is expected to be completednext month and be on production in weeks. The site for the third well is beingprepared (39.5% NRI) and the programme will continue with further drillingadditional wells on this Austin Chalk acreage. Success has continued in the Mauriceville field located in Orange County, Texas.This field is the result of a 60 square mile 3-D seismic shoot conducted inlate 2005 which resulted in production from the Nodasaria and the Yegua sandslocated at approximately 8,000 and 12,000 feet in depth. In June, the ninthwell on the field, the Boilermaker C-A, was tested with a net production rate of0.2 mmcfge/d to its NRI of 2.9%. In addition, there are eight further wells that have been successfully drilledand logged and are currently waiting on either completion or pipelineconnections. These wells are expected to take production to over 30 mmcfge/d byend 2007 compared with some 25 mmcfge/d after WEC was purchased, an increase ofover 20%. Further growth is planned for 2008. The onshore high risk/high upside Brown1 exploration well ("Thunder Stud": NRI10.7%) was drilled to 17,900 feet and production casing was run. The testingprogramme on this potentially large structure had to be postponed untilmid-October due to exceptionally adverse weather and consequent equipmentdelays. Partners are keen to drill a further well quickly. Offshore, a farmout well on High Island 52 (ORRI 2.85%) has been successful andis being brought onto production. The near-term abandonment costs of thenon-producing wells and of the platforms there have passed to the farminee. Upgrades of the pipelines and facilities in late 2006 have led to the expectedincrease in third party throughput income from the Mustang Island and Matagordoarea. Meanwhile, a programme of abandonment work is now reaching its end on boththe non-producing High Island 68/83 wells and platforms, as well as in wells inthe Mustang Island area. Drilling has not only resulted in an overall upward change and re-categorisationof reserves, but has validated a number of drilling targets for 2008. Two acquisitions have recently been made in the USA. In June 2007, Sterlingacquired an option on a 20% equity stake in Viking International Petroleum (VIP)in the form of a 2-year $3.5 million convertible note. VIP is a private companythat generates drilling prospects located primarily in South Texas, one ofSterling's core areas but where it lacked near-term activity. Sterling has apre-emptive right over its drilling interests and the first two wells in Augustand September have been successful adding net reserves in excess of 1 bcfge. In addition to gaining access to over 3,500 acres in South Texas, a region thathas become very competitive for mineral rights in recent years, VIP also hasover 2,700 square miles of 3-D seismic. The acquisition also provides aportfolio of over 30 prospects with an exposure to net un-risked reserves ofnearly 60 bcfge. It is expected that many of these prospects will be drilledover the next 18 months. In July 2007, Sterling took its NRI in the Windham Field to 66% located inMidland County, TX for c$3.6 million and became operator. It intends to quickenthe pace of development of the field. Prior to this date, it had a 40% NRI inthe field which has 13 producing wells, four PUD drilling locations and threeprobable locations. Total net 2P reserves are 5.1 bcfge and 0.4 mmcfge/d inproduction. Sterling now plans to have participated in 20 additional USA wells in the secondhalf and complete a facility upgrade in the Langlie Jal Field located in thePermian Basin. The operated Merge prospect (Sterling NRI 31% after farmout) iscurrently being drilled south of the Rayne Field located in South Louisiana. Intotal, these wells have the potential of adding materially to production andreserves. African Operations Mauritania Phase 2B development expected to raise production in 2008 Chinguetti field oil production in the first quarter averaged 18,300 bopd and15,400 bopd in the second quarter of 2007. The Chinguetti-18 development well,drilled and brought onstream in March 2007, has contributed at gross rates up to6,000 bopd. A number of non-reservoir related factors have contributed toproduction rates being less than the field potential over the past six months.These include planned shut-downs for subsea and FPSO maintenance work, a failedwater shut-off plug in well C-14, and restricted gas lift capability in severalwells. Resolution of these issues would improve current field rates of13,000-14,000 bopd markedly. The Group's interest in production in the firsthalf of 2007 through its Funding Agreement and its royalty stream averaged over1,700 bopd. Recent interpretation suggests that the current wells are only accessing abouthalf of the producible reserves from the field. Phase 2B of the Chinguettidevelopment is expected to commence in early 2008 with 2-3 new development wellsand 2-3 workovers using the Atwood Hunter rig. The recently acquired highresolution 3D and 4D seismic data is being processed to assist with theselection of optimal well locations and a full development programme update isexpected from the Operator shortly. The operator has forecast that fieldproduction will at least double as a result. During the period, the Operator published estimated ultimate recoverablereserves of 62 mmbbl from the field compared to the 50 mmbbl carried by Sterlingfollowing the independent RISC report earlier in January. With oil prices currently in the high $70's/barrel, Chinguetti still providessignificant revenue for the Group with total income from the 2 cargoes in thefirst half of 2007 of $20.3m including overriding royalties on production andbefore hedge costs. Two further cargo lifts are expected in the second half of2007. The field partners have recently agreed to jointly market crude oil. As aresult of the new arrangements, Sterling's crude oil entitlement will be sold insmaller quantities, but more regularly, thereby helping to provide a smoothercash flow profile. Work towards a development plan for Tiof continues to be progressed, with a 3Dseismic survey conducted in 2007. Sterling will benefit from any developmentthrough its royalty income and development bonus, as well as potentialoperational synergies through sharing Chinguetti facilities and costs. Tiofwould most likely be developed through a tension leg platform tied back throughthe Chinguetti FPSO facilities. Reserves for the first phase are estimated inthe range 40-60 million bbl. Gabon Preparing for drilling in Q4 2007 and Q1 2008 Rigs have been procured for the drilling of two exploration wells which areplanned in the near term. The Admiral prospect in Themis Marin will be drilledin Q4 2007 with the THAM-1 well targeting 5-20 million bbls gross. Abouttwo-thirds of Sterling's interest in this well is carried. Additionally, theCharlie prospect in Iris Marin, where there is no carry, is expected to bedrilled in H1 2008 targeting 15-40 million bbls gross. Both wells will target prospects in the Gamba Sandstone Formation which is theproducing reservoir in the nearby Gamba, Ivinga, Etame and Ebouri Felds.Success is likely to upgrade other prospects in Sterling's acreage. Sterling operates three shallow water permits in southern Gabon; Iris Marin(38.57% interest), Themis Marin (20.57% interest) and the Ibekelia TEA(Technical Evaluation Agreement) (40% interest). An encouraging view of theprospectivity prompted Sterling to pre-empt the sale by PetroSA of its non-coreinterests in Iris and Themis. The completion of this transaction is expected inQ4 2007 and it will increase Sterling's equity in Iris Marin to 50% and inThemis Marin to 28.51%. In Iris Marin and the neighbouring Ibekelia TEA a 7,100 line km aeromagneticsurvey was completed in H1 2007, and the data is being reviewed in conjunctionwith the results of recent 3D seismic reprocessing projects. Sterling and itspartners intend to convert Ibekelia into a full Production Sharing Agreement byend 2007, subject to Government approval. Madagascar Large prospects identified Sterling has a 30% interest in the Ambilobe and Ampasindava Production SharingContracts (PSC's) covering two large blocks in northwestern offshore Madagascar.Following a farmin that carries Sterling for a significant exploration workprogramme, ExxonMobil became a 70% equity interest holder and co-venturer inboth blocks. Sterling currently estimates that the carry will cover it for allcosts up to and including a portion of any well costs. Sterling is operator of the larger Ambilobe Block while ExxonMobil operates theAmpasindava Block. In the first half of 2007, exploration activity has continued apace with theinterpretation of more that 8,000 km of new and reprocessed 2D seismic data. Theaddition of this modern, regional seismic dataset has significantly improved theco-venturers' understanding of the exploration potential of both blocks. Initialresults show that the salt basin, offshore northwest Madagascar, is appreciablylarger than had been previously considered and contains a number of very largestructures. In the Ampasindava Block, one such structure has been identified andis a particular target of the operator's ongoing evaluation. The evaluation workprogramme continues to mature the exploration portfolio towards key decisionsregarding additional data acquisition and possible early drilling. AGC joint development area Carried exploration/appraisal well planned on Dome Flore The Dome Flore concession lies within the AGC, a joint exploration zone betweenSenegal and Guinea Bissau. Sterling holds a 30% non-operated interest. Heavyoil feasibility studies suggested the need for further appraisal of Dome Floreto assess the economic feasibility of this heavy oil deposit which, togetherwith the adjacent Dome Gea, contains an estimated 800+ million bbls of oil inplace. A drilling site survey has been completed for a well for whichSterling's costs are carried. The operator is now seeking a drilling rig todrill. The well has appraisal objectives for the heavy oil accumulation alongwith deeper, light oil exploration objectives. Guinea-Bissau Evaluating well results Sterling holds a 5% working interest in the Sinapa license and elected duringthe first half of 2007 to acquire a 5% interest in the neighbouring Esperancalicence. Drilling on the Espinafre and Eirozes prospects in the first half of2007 was unsuccessful and the joint venture is currently evaluating the wellresults with a view to making a decision in 4Q 2007 as to any forward workprogramme. Cameroon Border dispute resolution in progress This 100% licence remains suspended due to a border dispute: Cameroon andEquatorial Guinea are working together to resolve this. Recent industrydrilling activity in both countries has seen several significant gasdiscoveries. Kurdistan Continued progress towards PSC In February 2006, Sterling signed a Memorandum of Understanding ("MOU") with theKurdistan Regional Government of Iraq ("KRG"). This provided exclusive rightsfor the company to carry out geological studies and negotiate a full ProductionSharing Contract (PSC) for an exploration block in Kurdistan, a largelyunexplored area of high potential. The KRG has made good progress in putting in place the required energylegislation and in August this year the KRG Parliament passed a new petroleumlaw which will provide the legal framework for future PSC's. Sterling continuesto work with the KRG to convert the MOU into a PSC. FINANCIAL REPORT Finance Review Profit for the first half of 2007 was $1.4 million (H1 2006: $8.2 million),recovering from the $38.6 million loss (including the Chinguetti write-down)reported for the full year 2006. EBITDA was $27.1 million of which WECcontributed $10.1 million for the period since its purchase at the end of March2007 for $147 million and net liabilities of $56 million. Sterling has alsotoday conditionally refinanced all of its bank debt in new 6 year facilities. Key Indicators H1 2007 H1 2006 Year 2006 Production (boepd, entitlement basis) 4,910 4,671 4,400 Realised Mauritania Oil Price $61.93 $63.91 $61.01 Realised US Gas Price (per mcf) $7.39 $7.35 $6.73 Operating performance Production was 4,910 boepd for the first half 2007 up 5% from the 4,671 in H12006 and up 19% from the second half of 2006. The USA accounted for 65% ofproduction in H1 2007. The contribution from the Chinguetti field in Mauritaniato first half production was 1,719 bopd further declining from the H1 2006 levelof 3,363 bopd despite first contributions from the Chinguetti-18 well. Turnover for the period of $45.1 million, net of hedge settlements of $2.9million, was only slightly lower than the $45.3 million (net of $1.1 million ofhedges) in H1 2006. The proportion arising from Chinguetti fell markedly from72% in H1 2006 to 38% in H1 2007 and lower in the second half. Costs of sales increased. Chinguetti operating expenses are largely fixed inthe short term and so increased to $13.85/bbl (H1 2006: $6.02/bbl). Depreciationthere increased to $32.42/bbl (H1 2006: $28.62/bbl) following the write down inreserves and book values at the 2006 year end. US operating costs were lower at $1.38/mcf (H1 2006: $1.60/mcf) reflecting thelower cost base of onshore production, but depreciation costs increased to $3.25/mcf (H1 2006: $1.60/mcf), partly due to the requirement under IFRS accountingrules applying to the Whittier acquisition to "uplift" the purchase price fornon-cash deferred taxation. For WEC the depreciation charge was $4.20/mcfge. Administrative expenses, net of third party recharges for operating licences andcosts capitalised, increased to $6.6 million (H1 2006: $4.8 million), mainlyreflecting the scaling-up of the UK exploration and commercial teams and theaddition of WEC's Houston office. Earnings before interest, tax, depreciation and amortisation (EBITDA) totalled$27.1 million (H1 2006: $27.6 million, year 2006: $59.4 million). Of this, $48/bbl was from the Mauritanian operations (H1 2006: $58/bbl) and the US operationswere $36/boe (H1 2006: $35/boe). Finance items Net finance expense for the first half of 2007 was $2.9 million (H1 2006: $0.2million), reflecting higher levels of bank debt incurred for and with the WECdeal. At mid-year, Sterling had borrowed $87 million from Natixis under itsshort-term acquisition facility due by the end of 2007 and a further $56 millionunder a facility solely within WEC. Net debt stood at $110.6 million at 30 June2007 (30 June 2006: net cash $49.0 million; 31 December 2006: net cash $68.5million). Interest currently accrues on bank debt at an average rate of 8.2%. At 25 September 2007, unrestricted cash balances were $21 million, undrawnfacilities were $14 million and total bank debt was $149 million after financingthe second half USA asset purchases. Also today Sterling has conditionally agreed to refinance all of its bank debtin new facilities lead by Natixis. It is intended that a new $250 millionfacility will be syndicated with other banks and a subordinated $15 millionfacility will be with Natixis. It is expected that at drawdown the totalborrowing base will be around $160-5 million. With 6 year terms, there will be aborrowing base review every 6 months, with the first one effective mid January2008. Cash flow Net cash flow from operating activities (after working capital) in the firsthalf of 2007 totalled $8.4 million excluding $11.1 million from the June 2007Chinguetti lifting which was not paid until mid July (H1 2006: $19.9 million).New marketing arrangements for the Chinguetti field will give Sterling moreregular realisations of its oil entitlements going forward creating a smoothercash flow profile. The Whittier assets, included for only the second quarter,contributed $5.7 million to H1 2007. Cash investments in oil and gas assets in the first half of 2007, excluding thecosts directly related to the WEC acquisition, totalled $33.3 million (H1 2006:$36.3 million). Of this, $10.3 million was invested in Mauritania in respect ofthe Chinguetti-18 well and long lead items for the 2008 Phase 2B drillingprogramme and $21.1 million was invested in the USA, including $8.5 million inrespect of the WEC assets. WEC acquisition The WEC acquisition was completed at the end of March 2007 and has beenaccounted for within these financial statements with effect from that date. Asset out in note 7, the acquisition was completed at a cost of $146.8 million ofcash which was sourced from $49.2 million from a share placing, $85.0 millionfrom a one year bank bridge facility and the balance from internal cashbalances. The WEC Balance Sheet at the acquisition date contained $56 million ofnet liabilities, before deferred tax. An initial exercise has been performed to attribute fair values to the assetsand liabilities acquired which will be reviewed and finalised at the 2007year-end. As part of the acquisition accounting, oil and gas assets arerequired to be included at their fair value and reflect deferred taxationliabilities arising. This additional tax cost added $0.75/mcfge to the WECdepreciation charge in respect of the 2P reserves acquired. The contribution from the WEC assets in the second quarter to first half pre-taxprofits was $1.2 million on revenues of $14.1 million, whilst it added $10.3million to operating cash flow before working capital. Oil and gas prices hedge positions Settlements of hedges in the period reduced turnover by $2.9 million but werealmost offset by the $1.8 million release from provisions. Hedge positions held at 30 June 2007 can be summarised as follows: H2 2007 2008 2009Brent Oil PriceVolume (bbl) 600,000 Nil Nil Current price hedge (per bbl) Floor $50.00 - - WTI Oil PriceVolume (bbl) 99,000 192,000 108,000 Current price hedge (per bbl) - Collar Floors $47.50-$60.00 $60.00 - - Collar Ceilings $68.60-$69.25 $72.30-$83.00 - - Swaps $73.00 $70.00-71.35 $69.90 Henry Hub Gas PriceVolume (mcf) 990,000 1,100,000 420,000 Current price hedge (per mcf) - Collar Floors $6.00-$9.00 $6.50-$9.00 $7.00 - Collar Ceilings $7.95-$16.25 $9.75-$16.25 $8.65 - Swaps $6.97-$10.98 $8.65-$10.98 $9.22 No further hedges have been entered into during the period up to 26th September2007. The Board regularly reviews the Group's exposure to oil and gas pricemovements and currently intends to enter into further oil and gas hedges for thenext 2-3 years. Disclaimer This statement contains certain forward-looking statements that are subject tothe usual risk factors and uncertainties associated with the oil and gasexploration and production business. Whilst the Group believes the expectationreflected herein to be reasonable in light of the information available to it atthis time, the actual outcome may be materially different owing to factorseither beyond the Group's control or otherwise within the Group's control butwhere, for example, the Group decides on a change of plan or strategy.Accordingly, no reliance may be placed on the figures contained in suchforward-looking statements. Definitions 2P - proven and probable bbls - barrels of oil bcf - billion cubic feet of gas bcfge - billions of cubic feet gas equivalent boe - barrels of oil equivalent boepd - barrels of oil equivalent per day bopd - barrels of oil per day mcf - thousand cubic feet of gas mcfge/d - thousand cubic feet of gas equivalent per day mmbbl - millions of barrels mmcfg/d - million cubic feet of gas per day mmcfge/d - millions of cubic feet of gas equivalent per day NRI - net revenue interest ORRI - overriding royalty interest WI - working interest Sterling Energy plc - Consolidated income statementFor the six months to 30 June 2007 Six months to 30 Six months to 30 Year ended 31 June 2007 June 2006 December 2006 $000's $000's $000's (unaudited) (unaudited) Revenue 45,127 45,329 81,003 Cost of sales (33,605) (25,888) (54,419) __________ __________ __________ Gross profit 11,522 19,441 26,584 Administrative expenses (6,607) (4,797) (12,027)Impairment provision - (1,000) (60,033)Pre-licence exploration costs (1,621) (10) (1,368) __________ __________ __________ Operating profit/(loss) 3,294 13,634 (46,844) Interest revenue and finance gains 1,754 1,384 3,082Gain/(Loss) on hedging instruments 1,835 (2,894) 303Finance costs (4,610) (1,616) (3,201) __________ __________ __________Profit/(Loss) before tax 2,273 10,508 (46,660) Tax (Note 8) (824) (2,282) 6,101 __________ __________ __________Profit/(Loss) for financial year 1,449 8,226 (40,559)Attributable to minority interest - - 1,981 __________ __________ __________Profit/(loss) attributable to equity holders of parent company 1,449 8,226 (38,578) __________ __________ __________Earnings/(loss) per share: (Note 9) Basic 0.09USc 0.59USc (2.75)USc __________ __________ __________ Diluted 0.09USc 0.57USc (2.75)USc __________ __________ __________ Sterling Energy plc - Consolidated balance sheet As at 30 June As at 30 June As at 31 December 2007 2006 2006 $000's $000's $000's (unaudited) (unaudited)Non-current assetsIntangible royalty assets 17,199 40,210 18,000Intangible exploration and evaluation assets 103,040 27,007 21,384Property, plant and equipment 349,214 193,584 156,800Investments 4,456 4,396 5,922 __________ __________ __________ 473,909 265,197 202,106 __________ __________ __________Current assetsInventories 1,116 2,304 3,713Trade and other receivables 49,149 23,703 13,863Current tax repayable 833 - 1,248Cash and cash equivalents 31,075 67,816 91,759 __________ __________ __________ 82,173 93,823 110,583 __________ __________ __________Total assets 556,082 359,020 312,689 __________ __________ __________Current liabilitiesTrade and other payables (47,451) (24,386) (32,182)Derivative financial instruments (2,959) (7,847) (4,650)Current tax liabilities (295) (3,292) (299)Bank loans (85,667) - - __________ __________ __________ (136,372) (35,525) (37,131) __________ __________ __________Non-current liabilitiesLong-term debt (56,000) (18,840) (23,214)Deferred tax liabilities (66,360) (10,680) (6,128)Long-term provisions (23,149) (25,197) (22,593) __________ __________ __________ (145,509) (54,717) (51,935) __________ __________ __________Total liabilities (281,881) (90,242) (89,066) __________ __________ __________Net assets 274,201 268,778 223,623 __________ __________ __________EquityShare capital 30,109 26,899 26,919Share premium account 319,806 273,560 273,785Share option reserve 7,268 5,468 6,451Investment revaluation reserve 2,145 3,113 4,739Currency translation reserve 1,388 (1,084) (307)Retained earnings (86,515) (41,159) (87,964) __________ __________ __________Equity attributable to equity holders of the parent 274,201 266,797 223,623 Minority interest - 1,981 - __________ __________ __________Total Equity 274,201 268,778 223,623 __________ __________ __________ Sterling Energy plc - Consolidated statement of recognised income and expenseFor the six months ended 30 June 2007 Six months to 30 Six months to 30 Year ended 31 June 2007 June 2006 December 2006 $000's (unaudited) $000's $000's (unaudited) Profit/(loss) for the financial period 1,449 8,226 (38,578)Movement on share option reserve 817 915 1,898Currency translation adjustments 1,695 1,587 2,363Movement on value of quoted company investment (2,594) (3,913) (2,287) __________ __________ __________Recognised income and expense for the period 1,367 6,815 (36,604) _________ __________ __________ Statement of changes in equityFor the six months ended 30 June 2007 Six months to 30 Six months to 30 Year ended 31 June 2007 June 2006 December 2006 $000's $000's $000's (unaudited) (unaudited) Balance at beginning of period 223,623 261,963 261,963Profit/(Loss) for the financial period 1,449 8,226 (38,578)Currency translation adjustments 1,695 1,587 2,363Investment revaluation reserve (2,594) (3,913) (2,287)Minority interest - - (1,981)Shares issued (net of expenses) 49,211 - 245Share Option Reserve 817 915 1,898 __________ __________ __________Balance at end of period 274,201 268,778 223,623 __________ __________ __________ Consolidated cash flow statement (see note 10)For the six months ended 30 June 2007 Six months to Six months to Year ended 31 30 June 2007 30 June 2006 December 2006 $000's $000's $000's (unaudited) (unaudited)Operating activitiesCash generated from operations 7,986 19,928 63,017Taxation paid 416 - (767) __________ __________ __________Net cash flow from operating activities 8,402 19,928 62,250 Investing activities Capital expenditure (33,304) (36,263) (51,191) Corporate acquisitions (145,368) - -Interest received 1,754 1,430 3,082 __________ __________ __________Net cash used in investing activities (176,918) (34,833) (48,109) Financing activitiesNet proceeds from issue of ordinary shares 49,211 - 245Repayments of loan facilities (23,214) - (4,111)Draw-downs on loan facilities 85,667 - -Interest paid (3,973) (999) (1,648) __________ __________ __________Net cash flow from/(used in) financing activities 107,691 (999) (5,514) __________ __________ __________ Net (decrease)/increase in cash and cash equivalents (60,825) (15,904) 8,627 Cash and cash equivalents at beginning of year 91,759 82,033 82,033 Effect of foreign exchange rate changes 141 1,687 1,099 __________ __________ __________Cash and cash equivalents at end of year 31,075 67,816 91,759 __________ __________ __________ Sterling Energy plc - Notes to the interim financial informationFor the six months to 30 June 2007 1. The interim financial information in this report is prepared on the basis of the accounting policies set out in the 2006 Annual Report and Accounts which are consistent with International Financial Reporting Standards (IFRS) adopted for use by the European Union. 2. No interim dividend is proposed to be paid for the six months to 30 June 2007. 3. This statement does not comprise statutory accounts as defined in Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2006, on which the auditors gave an unqualified report, have been filed with the Registrar of Companies. 4. The interim financial information as at and for the six months ended 30 June 2007 have been neither audited nor reviewed by Sterling Energy plc's auditors. 5. The Directors of the Company approved the financial information included in this interim result document on 25 September 2007. 6. Segmental reporting The group operates in one business segment; the exploration for and productionof oil and gas. The group currently has interests in two geographical segments;North America and Africa. Segment information about the operating profit of thebusiness is presented below. North America Africa Total H1 2007 H1 2006 H1 2007 H1 2006 H1 2007 H1 2006 $'000 $'000 $'000 $'000 $'000 $'000 Revenue 27,685 12,514 17,442 32,815 45,127 45,329 Cost of sales (16,755) (5,279) (16,850) (20,609) (33,605) (25,888) Gross profit 10,930 7,235 592 12,206 11,522 19,441Impairment provision - - - (1,000) - (1,000)Pre-licence exploration costs - - (1,621) (10) (1,621) (10) Segment result 10,930 7,235 (1,029) 11,196 9,901 18,431 _______ _______ _______ _______Unallocated corporate expenses (6,607) (4,797) Operating Profit 3,294 13,634 _______ _______ Sterling Energy plc - Notes to the interim financial informationFor the six months to 30 June 2007 7. Acquisition of subsidiary On 29 March 2007, the group acquired 100 per cent of the issued share capital ofWhittier Energy Corporation ("WEC") for cash consideration of $147 million. WECis the parent company of a group of companies involved in onshore US Gulf Coastexploration and production. This transaction has been accounted for using thepurchase method of accounting. WEC was subsequently renamed Sterling Energy USAInc. during the period. Book value Fair value $'000 $'000Net assets acquired : Property, plant and equipment 119,316 191,210Intangible exploration and evaluation assets 31,194 72,981Goodwill 1,485 - Trade and other receivables 15,723 15,268Cash and cash equivalents 1,392 1,392Trade and other payables (21,634) (21,634) Bank loans (51,325) (51,325)Deferred tax liabilities (24,139) (60,421)Decommissioning liabilities (711) (711) 71,301 146,760 __________ _________ Satisfied by: Cash 145,432Directly attributable costs 1,328 146,760 _______Net cash outflow arising on acquisition: Cash consideration (146,760)Cash and cash equivalents acquired 1,392 (145,368) _______ WEC contributed $14.1 million of revenue, $3.3 million of gross profit, and $1.2million to the Group's profit before tax for the period between the effectivedate of acquisition and 30 June 2007. WEC contributed $10.3 million to operatingcash flow before working capital for the same period. A deferred taxation liability is estimated at $60.4 million and mainly arises asa result of the requirements under IFRS 3 ("Business combinations"). The fairvalue of non-current assets acquired reflects the resulting deferred taxationliabilities... Sterling Energy plc - Notes to the interim financial informationFor the six months to 30 June 2007 8. Taxation The Group tax charge comprises: Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 $000's $000's $000's (unaudited) (unaudited Current tax charge/(credit) - 1,265 (1,255)Deferred tax-origination and reversal of timing differences 824 1,017 (4,846) __________ __________ __________Total charge/(credit) 824 2,282 (6,101) __________ __________ __________ The difference between the current tax charge and the amount calculated by applying theapplicable standard rate of tax is as follows: Group profit/(loss) on ordinary activities before tax 2,273 10,508 (46,660) __________ __________ __________Tax on Group profit/(loss) on ordinary activities at standard US corporation taxrate of 34% 773 3,573 (15,864) Effects of:Expenses not deductible for tax purposes 94 264 (1,654)Capital allowances (in excess of)/exceeded by depreciation (1,937) (2,367) 15,840Other temporary differences 1,313 (46) 395Difference in tax rates 131 (159) 1,364Adjustment for tax losses (374) - 47Adjustment in respect of prior years - - (1,383)Deferred tax charge/(credit) 824 1,017 (4,846) __________ __________ __________Tax charge/(credit) for the period 824 2,282 (6,101) __________ __________ __________ During 2007 and 2006 the group generated its results primarily in the US.Therefore the tax rate in the above reconciliation for 2007 is the standard ratefor US corporation tax. Sterling Energy plc - Notes to the interim financial informationFor the six months to 30 June 2007 9. Earnings per share Basic earnings per share is based on the profit on ordinary activities aftertaxation of $1,449,000 (first half 2006: profit for the period, $8,226,000; year2006: loss for the year $38,578,000) and the weighted average number of1,543,761,608 ordinary shares of 1p each in issue during the period (first half2006: 1,401,950,558; year 2006: 1,402,408,092). For the six months to 30 June2007, the fully diluted earnings per share was 0.09USc per share. This iscomputed based on 1,572,411,822 ordinary shares, being the total used for thecomputation of the basic earnings per share as adjusted in assuming the exerciseof 28,650,214 of the 77,065,000 options granted or approved for grant as at theend of June 2007. 10. Cash flow a. Cash flows from operating activities Six months to Six months to Year ended 30 June 2007 30 June 2006 31 December 2006 $000's $000's $000's (unaudited) (unaudited)Operating activitiesOperating profit/(loss) 3,294 13,634 (46,844)Depletion and amortisation 21,353 12,126 42,978Impairment expense - 1,000 60,033Pre-licence exploration costs 1,621 10 1,368Share-based payment provision 817 796 1,898 __________ __________ __________Operating cash flow prior to working capital 27,085 27,566 59,433 Decrease/(Increase) in inventories 2,597 (2,304) (3,713)(Increase) in trade and other receivables (18,315) (5,870) (3,454)(Decrease)/increase in trade and other payables (3,381) 536 10,751 __________ __________ __________Net cash provided by operating activities 7,986 19,928 63,017 __________ __________ __________ b. Cash and cash equivalents At 1 January Cash flow Exchange At 30 June 2007 2007 $000's Movement $000's $000's $000's Cash at bank and in hand, unrestricted 86,723 (60,682) 141 26,182Cash held on a restricted account 5,036 (143) - 4,893 __________ __________ __________ __________Cash & cash equivalents 91,759 (60,825) 141 31,075 __________ __________ __________ __________ Sterling Energy plc - Notes to the interim financial informationFor the six months to 30 June 2007 11. Share capital At 30 June At 31 December 2007 2006 $'000 $'000Authorised:2,400,000,000 (2006: 2,400,000,000) ordinary shares of 1p each 46,078 46,078 Called up, allotted and fully paid:1,565,900,558 ordinary shares of 1p each (year ended 2006 - 1,402,950,558 ordinary shares of 1p each) 30,109 26,919 __________ __________ Movements during the period consisted of 162,950,000 new ordinary shares whichwere issued at a price of 16p in connection with the acquisition of WEC (seenote 7). 12. Bank loan facilities Six months to Year ended 31 30 June 2007 December 2006 $'000 $'000 Bank loan facilities - long-term 56,000 23,214Bank loan facilities - short-term 85,667 - 141,667 23,214 __________ __________ The acquisition of WEC (note 7) was partially funded by a bank loan facilityagreed on 19 January 2007 of $100,000,000 of which $85,667,000 had been drawn at30 June 2007. This facility is secured. At the period end the facility, whichrequires repayment by 28 December 2007, is accordingly classified as short-term. In addition, a further $56,000,000 of bank debt drawn by WEC was alsooutstanding at 30 June 2007. This facility is secured by a charge over all ofthe WEC assets, including the property, plant and equipment and is repayableafter more than one year. On 25 September 2007 conditional agreements were reached to refinance all bankdebt then outstanding under new six year facilities. There are a number ofconditions to be met before drawing can occur. There will be twice yearlyborrowing base reviews, the first being effective on 15 January 2008. The loan held by Sterling Energy Inc. of $23,214,000 at the end of 31 December2006 was repaid in the first half of 2007 and the facility was subsequentlycancelled. 13. Further copies of this interim statement are available from the Company Secretary, Sterling Energy plc, 5 Chancery Lane, Cliffords Inn, London, WC2A 1LG, United Kingdom. Telephone +44 (0) 207 405 4133, Fax +44 (0) 207 440 9059, [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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