SEY.L Regulatory News (SEY)

7 Dec 2005 07:01

Sterling Energy PLC07 December 2005 07 December 2005 STERLING ENERGY PLC OPERATIONAL UPDATE Sterling Energy plc ("Sterling"), the AIM listed energy company with activitiesin the Gulf of Mexico and Africa, today provides an update on its activitiessince the publication of its interims on 23 September 2005. Commencement of Mauritanian oil production on-target for March 2006 The conversion of the floating production vessel for the Chinguetti field,offshore Mauritania, has been completed. It is on location at the field and thehook-up and installation is well underway. The project is over 95% completed,including all drilling, well-completion and clean-up. First production is onschedule for March 2006, building up to a 70-75,000 bpd peak within severalmonths. Sterling has an approximate 8% economic interest in the field. It also has asliding scale royalty over 5.28% of the field which, at an oil price of $55/bbl,is worth approximately $6.9 per attributable barrel. The commencement of production in Mauritania will mark a transformation in thelevel of Sterling's attributable production and cash flow. In October, the adjacent Tevet-2 well discovered oil in its Miocene target. Thishelps to reconfirm Sterling's estimates of a field of 50 million barrels. Ifdeclared commercial, Sterling would benefit from its royalty interest and tariffincome as production is expected to be transported through a tie-back to theChinguetti facilities. The well also found a 6 metre oil column in theCretaceous interval, which is encouraging for the other numerous such prospectsas it proved a working hydrocarbon system and good quality sands. The Labeidna well drilled in November was declared as a discovery and waslogged. Thin oil bearing sands were encountered. A further exploration well is expected by the end of the year and 4 - 5 furtherwells in 2006. Due to its royalty interest Sterling pays no costs for any ofthese wells. Gulf of Mexico Independent consulting engineers have upgraded Sterling's proven and probable USreserves by 5% to 58.3 bcfge as of 1st September. Of these 60% are in theproven category. There has also been an increase to $34 million in the borrowingbase for the US bank loan at the recent review date. The facility is now to beextended by approximately 18 months to the end of 2009, subject to finalapprovals. In common with other Gulf of Mexico operators, Sterling's production has beenaffected by Hurricane Rita although gas prices have since been markedly higher.On balance, Sterling has experienced a limited and short-term net financialimpact. Current production is approximately 7.5-8.0 mmcfged. Since Hurricane Rita inlate September, production from the Sterling operated fields in the western Gulfhas been maintained at approximately 5.0-5.5 mmcfged. Elsewhere, the High Island/Eugene Island areas have been affected. Although the physical damage toSterling's platforms and its owned pipeline systems was very limited, thewidespread damage to third party transmission systems through which productflows, has caused temporary production shut-in's. Production is expected to befully restored towards mid/end of December. Prices have been much higher as a result of the regional shut-in's following thehurricanes. In the Henry Hub area they are currently over $11/mcf, havingpeaked in excess of $13/mcf, although prices in the Western Gulf market haverecently been some $2.50/mcf lower than this. These compare with Sterling'saverage realised prices in the first half of 2005 of $6.38/mcf. The lowerpriced forward sales for the July-December period covering approximately 3.3mmcfgd at an average of $6.06/mcf have now all been closed-out. At present some20% of current production is hedged for the January-March 2006 period at $8.84/mcf. Further hedges are expected to be taken out in order to reduce pricing riskinto 2006. Production from the Gryphon High Island 52 field (7.6% royalty interest) has, inthe last two weeks, increased to a rate of 2.6 mmcfgd. This has risen from 0.5mmcfgd when it restarted in early November and from 1.3 mmcfgd in mid-Novemberas the production curtailments have gradually been reduced. During the downtimethe C-1 well was acidised to stimulate production. A new well is expected to be drilled by Gryphon in the first quarter of 2006which is intended to double production. This is to be drilled at no cost toSterling. Eugene Island 268 remains shut-in awaiting completion of limited platform andthird party pipeline repairs. Production is expected to restart in mid/lateDecember. The North Mustang Island and Sherman fields production were shut-in for fourdays in late November for recertification of the pipelines and also to completethe hook-up of new equipment to enable the Mustang line to carry more thirdparty throughput and to reduce line pressure, thereby allowing the MU748-1 wellto be brought back on-stream at a net rate of 0.6 mmcfgd, after a two monthsshut-in. A liftboat has been provisionally secured to workover the MU904-5 well inmid-December, work which has been delayed due to widespread equipment shortages. Sterling has commenced drilling the non-operated TB-2 well on GA Bay ST251. Ithas farmed into this for a 28% WI (20.5% NRI) with the target being a net 3-6bcf prospect at 15,300 feet. Its net share of costs is estimated at $2.1million. Drilling is estimated at 50 days. Sterling was also successful in its 100% bid for the Mustang Island 749 S/2 NE/4tract in its core area and on which it has identified a prospect at 9-10,000ft.State confirmation is awaited before further work on this drilling prospect iscommenced. This is the first prospect to be derived from the 3D data acquired inmid-year. Africa In Madagascar, where Sterling has a 30% carried interest and remains as operatorafter farming-out to ExxonMobil, a 2,500+km 2-D seismic survey is expected to bebrought forward by a year into 2006. This follows encouraging early reviews ofthe 34,000 sq km blocks. In the Dome Flore licence in AGC, in which Sterling has a 30% interest, theinitial studies of the heavy oil prospect have identified the need for furtherappraisal work. Accordingly, the joint venture has agreed to enter the FirstRenewal Period on the permit. Under the terms of the farmout agreement signedearlier in the year, Sterling will be carried for the costs of a firm commitmentwell programme in excess of $10 million gross. Whilst this is a largeaccumulation the prospects of commerciality at this stage still remains to beproven. After detailed review of the prospectivity, a farmout programme and in view ofthe likely extremely high drilling cost that Sterling would have to bear, noticehas been given to the licensing authorities that the deepwater Croix Du Sudlicence in AGC will be allowed to lapse. Sterling has increased it interest in the Iris Marin PSC in Gabon to 38.57% from20.57%. This licence, together with Ibekalia TEA and Themis Marin PSC areas areof great interest. A well is scheduled to be drilled on Themis Marin in thesecond half of 2006 with Sterling paying only 2.57% of the costs for its 20.57%interest. Work continues on the evaluation of the Iris Marin licence followingthe Iris Iboga Marin-1 well earlier in the year. The closure of the Perth office remains on track for the end of January 2006 andthe offices have been sublet. An increasing emphasis is now being placed on newventure efforts in Africa and a new ventures team has now been assembled withthe objective of increasing the pace of new licences, drilling opportunities andof selective production opportunities following the upsurge in cash flowexpected with the major rise in production in the first half of 2006. Whilstthis has duplicated overhead costs in the short-term, financial andadministrative benefits are soon expected to arise. Chief Executive, Harry Wilson, said "The commencement of production from the offshore Chinguetti field in Mauritaniais on-target for March 2006 and will transform Sterling's prospects in the yearsahead. Strong US gas prices and the increasing likelihood of these beingsustained, has, in value terms, dwarfed the short-term impact of downtime in theGulf of Mexico due to the effects of severe weather. We believe our rising cashflows will provide increasing strength to Sterling and permit us to be bolder inour exploration activities, as well as enable us to selectively add furtherproduction assets to our portfolio." For further information contact: Sterling Energy plc +44 1582 462 121Harry Wilson, Chief ExecutiveGraeme Thomson, Finance Director Citigate Dewe Rogerson +44 207 638 9571Media: Martin Jackson / Rachel LankesterAnalysts: Nina Soon www.sterlingenergyplc.com Ticker Symbol: SEY This information is provided by RNS The company news service from the London Stock Exchange