Sterling Resources Announce Update on Breagh field operations and Cladhan field
Sterling Resources Ltd. (TSX-V: SLG) (“Sterling” or the “Company”) announces an update on Breagh field operations and Cladhan field development, reserves and valuation.
Since the beginning of the year, Breagh production has averaged 126 million cubic feet of gas per day (“MMscf/d”) sales gas (38 MMscf/d net to Sterling) with production uptime of 95 percent during this period. Key to this performance has been the continued excellent performance of the two hydraulically stimulated wells A07 and A08, contributing approximately 45 percent of the average daily performance of the Breagh field and already contributing 20 percent of the cumulative production from October 2013 to date, although only commencing production in the second half of 2014. Current production rates are remaining stable at around 125 MMscf/d sales gas for the field (38 MMscf/d net to Sterling).
The continuing high performance of wells A07 and A08 underlines the importance of hydraulic stimulations in plans for improving performance from existing and planned wells for Breagh Phase 1 and for new wells being considered during the potential Phase 2 development.
RWE Dea UK and Sterling are planning a further Breagh Phase 1 infill well campaign of 3 wells (2 new and 1 re-entry), which is expected to start in the fourth quarter of 2015. This campaign may be increased to 6 wells (4 new, 1 re-entry and 1 sidetrack). All wells are intended to be hydraulically stimulated.
The second oil production well (P2) is currently being completed with the drilling rig expected to demobilize within the next two weeks. The well encountered a reservoir section which was thinner than expected. Work to tie in the subsea infrastructure at both the Cladhan field and the Tern platform is scheduled to re-start in the second quarter of 2015 after being deferred from 2014. Associated topsides modification work on the Tern platform continues in parallel.
Following the results of the wells, proved plus probable reserves for 100 percent of the field have been estimated by Sterling’s independent reserves evaluator RPS Energy to be 10.2 million barrels (“MMbbls”) at the end of 2014. This is a reduction from 16.5 MMbbls at the end of 2013, attributable primarily to the results of the P2 well. Post the impact of the second (2013) TAQA development carry, which is repayable out of net field cash flow, proved plus probable reserves net to Sterling are now estimated by RPS Energy to be 0.45 MMbbls at the end of 2014, a reduction from 1.80 MMbbls at the end of 2013.The Net Present Value of the field to Sterling, post-tax at a 10 percent discount rate, is now estimated by RPS Energy to be US$13.4 million at year-end 2014(1), a reduction from US$76 million at the end of 2013. The value at the end of 2014 assumes pay-out of the second TAQA carry in the first quarter of 2018, when Sterling’s equity increases from 2.0 percent to 13.8 percent. The reduction from previous valuation is a combination of reserves reduction and oil price effects. Sterling’s full reserves report (Canadian National Instrument 51-101F1) is expected to be filed in late March 2015.
The revised Cladhan production profile net to Sterling estimated by RPS Energy in thousands of barrels per day (“Mbbls/d”) is set out below.
First oil for the field is still expected during the third quarter of 2015. Development cost forecasts indicate Sterling remains exposed to a cost of approximately US$2 million during 2015 being the excess of the development cost for Sterling’s 2.0 percent current interest over the available funding from the first (2012) TAQA development carry.
(1) RPS Energy’s valuation assumes a price for Cladhan crude (which is expected to achieve a small premium to Brent crude) of US$71.2/bbl in 2015, US$75.5/bbl in 2016, US$80.4/bbl in 2017, US$85.4/bbl in 2018, US$90.5/bbl in 2019 and US$94.9/bbl in 2020 escalating at 2.0 percent per annum thereafter.