TD Securities Energy Conference Corporate presentation

TD Securities
Energy Conference
Corporate presentation
13 January 2015
Disclaimer and information sources
Disclaimer
The information in this presentation contains certain forward-looking statements including expectations of future production and capital expenditures. These statements relate to future events or our
future performance. All statements other than statements of historical fact may be forward-looking statements. Information concerning reserves or resources may also be deemed to be forwardlooking statements, as such estimates involve the implied assessment that the reserves or resources described can be profitably produced in the future. These statements reflect current expectations
that involve numerous assumptions and which are subject to a number of risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking
statements will prove inaccurate and which could cause actual results to differ from those anticipated by the Company. Although management believes that the expectations reflected in the forwardlooking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company cannot guarantee future results, levels of activity, performance, or
achievements. Actual results and future plans could differ materially from those anticipated in forward-looking statements contained in this presentation as a result of the risks described below.
Certain of the risks and other factors, some of which are beyond the Company’s control, which could cause results to differ materially from those expressed in the forward-looking statements
contained in this presentation include, but are not limited to those as described in the Company’s annual information form for the year ended December 31, 2013 (the “AIF”) which is available at
www.sedar.com. Those factors should not be considered as exhaustive.
In addition, this presentation may contain forward-looking statements attributed to third-party industry sources. These sources are not endorsed or adopted by the Company explicitly or implicitly.
Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur.
The forward-looking statements contained in this presentation are expressly qualified by the foregoing cautionary statement. Financial outlook information contained in this presentation about
prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management’s
assessment of the relevant information currently available. Readers are cautioned that any such financial outlook information contained in this presentation should not be used for purposes other
than for which it is disclosed herein.
Nothing contained herein is intended to constitute an offer to sell or a solicitation of an offer to purchase securities. Any such offer or solicitation may only be made by prospectus or otherwise
pursuant to an exemption from prospectus and registration requirements applicable to the Company.
Information Sources
Information on reserves and resources in this presentation are drawn from (i) the Company’s most recent Statement of Reserves Data and Other Oil and Gas Information on Form 51-101 F1 for the
year ended December 31, 2013; (ii) the RPS Energy report “Executive Summary Reserves and Resources Evaluation for the Breagh Gas Field Quad 42 UK North Sea as at December 31, 2013”; and (iii)
the RPS Energy report “Executive Summary Reserves and Resources Evaluation for the Cladhan Oil Field Quad 210 License Blocks UK North Sea as at December 31, 2013”; all filed on SEDAR at
www.sedar.com. Items (ii) and (iii) are referred to as “RPS Breagh end-2013 report” and “RPS Cladhan end-2013 report” respectively in this presentation.
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under
development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental,
political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early
evaluation stage. There is no certainty that it will be commercially viable to produce any portion of the resources.
Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.
Prospective resources have both an associated chance of discovery and a chance of development. There is no certainty that any portion of the resources will be discovered. If discovered, there is no
certainty that it will be commercially viable to produce any portion of the resources.
All dollars in this presentation are US dollars unless otherwise stated. $m = million dollars. Mboe/d = thousands of barrels of oil equivalent per day. MMscf/d = million cubic feet of gas per day.
MMb =millions of barrels. Bcf = billions of cubic feet.
January 2015
Corporate Presentation
Page 1
Overview of Sterling Resources
• E&P independent listed on TSX-V (Toronto, ticker SLG)
− Market cap of C$89m (31 Dec 2014, at C$0.235/share)
− Pro forma net debt of US$185m(1) (31 Dec 2014)
• 4 areas of operations: UK, Romania, France and the Netherlands
• Main asset is Breagh gas field in UK
− Achieved net production of 4.1 Mboe/d in 2014
− Expected net production rate 5.7 Mboe/d in 2015
• First production expected from Cladhan oil field in UK in Q3 2015
• 2015 estimated operating cash flow from Breagh and Cladhan of ~$80m(2)
• Large UK tax loss of ~£413m(3): no taxes expected to be payable during
Breagh/Cladhan field lives(4)
• Material asset base: 33 MMboe of 2P reserves and 90 MMboe 2C
resources(5) at end 2013; 2014 production 1.5 MMboe
(1)
(2)
(3)
(4)
(5)
(6)
Short term debt plus long term debt, minus cash and cash equivalents, minus restricted cash
Forward curve prices at 31 Dec 2014 (48.6p/th average 2015), net of Sterling estimate of operating costs and Flowstream entitlement
Management estimate at 30 Sep 2014 for Ring Fence CT loss (SCT loss is approx. £384m)
Management estimate assuming no Breagh Phase 2, no further exploration costs, forecast G&A, forward curve gas prices
Sterling end 2013 NI51-101F1
Breagh photograph courtesy of RWE
January 2015
Corporate Presentation
Page 2
Material Reserves, Contingent & Prospective Resources
ASSET
WORKING
INTEREST
NET RESERVES
& RESOURCES DESCRIPTION
(1)(2)
MMboe
CURRENT PRODUCTION / DEVELOPMENT
2P (1)
BREAGH (UK)
30%
30.5
Phase 1 producing;
Phase 2 first production 2017
CLADHAN (UK)
13.8% (3)
1.8
First oil targeted Q3 2015
2C (1)
PLANNED DEVELOPMENT
ANA & DOINA (Romania)
65%
36.0
CROSGAN & BREAGH (UK)
30%
6.8+2.1
F17a / F18 (Netherlands)
35%
12.0
APPRAISAL
2C
Gas discoveries
Crosgan appraisal well Q1 2015;
Breagh in-field resources in 2017/18
3 oil discoveries
(1)
33%
2.7
Heavy oil
VARIOUS
12.6
Other discoveries
EUGENIA (Romania)
40%
6.3
Gas discovery
LUCEAFARUL (Romania)
50%
8.7
Gas discovery
GRENADE (France)
UK NORTH SEA
PR Best (1)
EXPLORATION
40-65%
375
Various prospects
VARIOUS
58
Various prospects
ONSHORE FRANCE
33.4%
24
Audignon prospect
OFFSHORE NETHERLANDS
30-35%
46
Various prospects
OFFSHORE ROMANIA
UK NORTH SEA
Build-up of reserves and contingent resources
(1)
January 2015
(2)
(3)
Corporate Presentation
2P = Proved plus Probable Reserves, 2C = P50 Contingent Resources, PR Best =
Best Estimate Prospective Resources (the definitions of Contingent and Prospective
Resources can be found on Page 21 of Sterling’s end 2013 NI 51-101F1)
Source: Sterling end 2013 NI 51-101F1
Final equity interest upon pay-out of second carry arrangement with TAQA
Page 3
Production growing and diversifying over next 5 years
Sterling’s production should
increase materially in coming
years:
• Cladhan expected on-stream Q3 2015
• Breagh Phase 2 expected on-stream Q3
2017 (profile assumes 7 wells from a
second platform)
• Crosgan expected on-stream 2018
(assuming appraisal success Q1 2015)
• Ana & Doina expected on-stream 2019
(production assumes halving of equity
post ongoing equity reduction process,
but may be completely divested)
• F17a/18 oil fields on-stream 2019
(unless divested)
Sources:
Breagh – management P50 estimates based on latest 12-well reservoir simulation for Phase 1 Alpha platform only and incremental production of 18-well case with Alpha & Bravo platforms
Cladhan – 2P reserves case, underlying profile from RPS Cladhan end-2013 report delayed by 8 months and adjusted for second TAQA carry
Ana & Doina, Crosgan – Sterling estimate consistent with RPS P50 contingent resources in end 2013 NI 51-101 F1, with Ana & Doina equity notionally halved to reflect planned equity reduction
F17a/F18 – Sterling estimate assuming first 2 sub-sea wells on-stream in first year, estimate consistent with RPS contingent resources in end 2013 NI 51-101 F1
January 2015
Corporate Presentation
Page 4
Gas-dominated portfolio
• Sterling’s portfolio is heavily weighted towards gas
(end 2013, ex NI 51-101F1):
─ 82% of 2P reserves are gas
• In H2 2014:
─ Brent crude spot price has fallen 47%
─ UK NBP spot gas price has increased 19%, in $ terms
─ 72% of 2C resources are gas
─ 98% of current production is gas (remainder is Breagh
NGLs)
Sterling’s heavily gas-weighted portfolio provides resilience to a low oil price environment
January 2015
Corporate Presentation
Page 5
Vision and strategy
VISION: BECOME A LEADING PREDOMINANTLY UK-FOCUSED E&P COMPANY WITH SOLID BALANCE
SHEET AND DIVERSIFIED CASH FLOW, DELIVERING SUPERIOR RETURNS TO SHAREHOLDERS
•
Refinance bond debt, probably through bank RBL, in H1 2015 to reduce interest cost and push back amortization
•
Pursue sale of part of Breagh interest to facilitate refinancing of debt and improve liquidity
•
Significantly reduce equity in Romanian Black Sea blocks and in other exploration assets
•
Pursue acquisitions of UK production, where value-accretive through accelerated utilisation of UK tax loss
•
Work with operator on Breagh development optimisation
•
Improve financial resilience through refinancing, greater liquidity level and diversification of cash flow sources
Close gap to fair value though focus on UK production and tax efficiency, backed by rigorous capital allocation
January 2015
Corporate Presentation
Page 6
Breagh: field summary
Participants
Sterling (30%), RWE Dea (70%, op.)
Facilities completed and commissioned
Field 2P Reserves(1)
596 Bcf sales gas, 2.4 MMb condensate
• Wells A01 – A08 online
Net 2P Reserves(1)
179 Bcf, 0.7 MMb cond. (= 30.5 MMboe)
Net 2C Resources(1)
13 Bcf (2.2 MMboe)
• Production stable at ~130 MMscf/day sales gas (full field) early January
2015
First Production
October 2013
• Plant uptime 98% in December 2014
Hydraulic stimulation very successful
• A07: production improvement 2-3x over conventional completion
• A08: production improvement for stimulated zones >4x over
conventional completion (conventionally perforated in 2 zones)
Low operating cost field
• Average $8.6/boe over 2015-2019, including 100% Sterling opex
Phase 1 production and remaining development capex
Net sales production
Mboe/d
Net development
capex $m
2015
5.7
41
2016
7.4
69
2017
7.7
12
Total
122
(1) Sterling end 2013 NI 51-101F1; Phases 1 & 2
January 2015
Corporate Presentation
Page 7
Field total (100%) wet gas volumes; sales gas = 98.5% of wet gas
January 2015
A08 Online
TGPP vessel inspection & minor modifications
Slug catcher
Instrumentation
replacement
Slug catcher
Instrumentation fouling
A07 Online
Breagh: production performance in 2014
Data up to 3 January 2015
Corporate Presentation
Page 8
Breagh: future plans
Remaining Phase 1 development
A12
Drilling of A09-A12 in 2015-16, all with hydraulic stimulation (A09
onstream Q4 2015, other wells during 2016)
•
Rig rates expected to be significantly lower in H2 2015
•
Stimulation of further wells possible (A01, A02, A04, A06)
•
Installation of onshore compression over 2015-2017 to boost production
rates by 40 - 50% initially, and thereby increase reserves
A11
A03
Phase 2 development
A10
A08 A05
A01
A02
A04
•
A09
•
Review in 2015 of previous plan of approx. 6 production wells drilled
from a new fixed wellhead platform (Breagh Bravo)
•
Results of stimulated wells and 2014 3D seismic important for optimizing
Phase 2 scope
•
Net pre-sanction costs of approx. $2m in 2015
A07
A06
Additional upside
January 2015
•
P50 contingent resource of 6.8 MMboe net from in-field deeper horizon
•
Tie-backs to platform from Crosgan discovery (now being appraised) and
(upon exploration success) Ossian or Darach
•
Third party tariffing opportunity being discussed
Corporate Presentation
Page 9
Cladhan: development summary
Participants
Sterling 2-13.8%, TAQA (52.7%, op.), MOL (33.5%)
2P Reserves(1)
16.5 MMbbls field, 1.8 MMbbls net (post carry)
P50 Prospective Resources(1)
2 MMbbls field, 0.3 MMbbls net (post carry)
First Production
Q3 2015
• Subsea via Tern platform (operated by TAQA), 17km NE of Cladhan
• Initial development with two producers (P1, P2) and one water
injector (W1)
• Sterling is not exposed to funding Cladhan development costs other
than cost increase on 2% interest
• Second of two carries from TAQA is repayable out of cash flow
(expected to result in additional 11.8% interest reverting to Sterling
in Q3 2016)
• Average opex $21/bbl over 2015-2019, including 100% Sterling opex
Net oil production
Mboe/d(2)
January 2015
2015
0.1
2016
0.7
2017
1.3
(1) Sterling end 2013 NI 51-101F1
(2) Profile from RPS Cladhan end 2013 report, adjusted by management for
current expected date of first production and expected pay-out of 2nd carry
Corporate Presentation
Page 10
Cladhan: current status
• Production, water injection and gas lift pipelines laid
• P1 and W1 wells drilled; P2 currently drilling and due to be
completed in January 2015
• Tern topsides modifications commenced
• Subsea connections to be made Q2 2015
• Project delay from Q1 to Q3 2015 principally due to deferring
sub-sea work into spring 2015 to reduce risk of weather
delays during winter
• 12% development cost increase currently – Sterling exposed
to $2 million in relation to excess over fixed TAQA carry
amount for 2% equity interest
• First production expected Q3 2015
January 2015
Corporate Presentation
Page 11
Romania: gas development project and high quality exploration potential
Block
Interest
P50
CR(1)
Block 13 – Pelican
65%, op
38 Bcf
28 Bcf
44 MMb
Block 15 – Midia (Shallow)
65%, op
216 Bcf
1088 Bcf
Block 25 – Luceafarul
50%, op
52 Bcf
53 Bcf
Block 27 – Muridava
40%, non-op
1 Bcf
178 Bcf
320 Bcf
1989 Bcf
44 MMb
TOTAL(2)
Best Est.
PR(1)
•
Industrial sector gas prices (~80% of total gas market) now
close to Western European price
•
Residential sector gas prices to be liberalized over 4+ years
•
ExxonMobil 1.5-3Tcf ‘Domino’ discovery in deep water
adjacent to Sterling Midia block, in 2012
Catalyst for wider industry interest in Black Sea
─ XOM now drilling 4-5 further exploration/appraisal wells
─
•
Sale process underway to achieve a material reduction in
equity interests in all 4 blocks
Expect to close around end Q1 2015
─ Consideration likely to include upfront cash and exploration
carries plus development carry or contingent payments
─ Also expect to receive share of 3D seismic back costs (Sterling
share ~$9m)
─
•
(1)
Sterling end 2013 NI 51-101 F1. CR = contingent resources, PR = prospective resources.
(2)
Totals are calculated stochastically and may not add arithmetically.
No drilling planned until 2016
January 2015
Corporate Presentation
Page 12
Netherlands: probable oil development
• Sterling is operator of Jurassic and Early Cretaceous horizons in licences
F17a, F18 (Sterling 35%)
• Contingent and prospective oil resources in F17a/18
−
Net 12 MMbbls contingent oil resources(1), in four discoveries
−
Net 19 MMbbls prospective resources(1)
• Other appraisal activity by Wintershall pushing forward possible oil
development hub in the area
−
30MMbbls+ discovery in shallower horizon in same block with well F17-10(2) in late
2012
−
“The F17-10 discovery makes an oil development in this area feasible”, “Total
reserves in [F17/18 & L05] are estimated to be over 16 mln Sm3 (100MMbo)” – EBN
statements, 2013(3)
−
Wintershall reported to have drilled two successful appraisal wells, F17-11 and F1712, in H2 2014
−
Appraisal activity expected to continue with sidetrack and test of F17-11 well
• Sterling acquired 3D seismic in Q2 2014 to improve reservoir understanding
and assist in evaluating development options
(1)
(2)
(3)
Sterling end 2013 NI 51-101 F1
Wintershall news release 4 December 2012
EBN report “Focus On Dutch Oil & Gas 2013”
January 2015
Corporate Presentation
Page 13
Expected activity for 2015-17
2014
Q4
2015
Q1
Q2
2016
Q3
Q4
Q1
Q2
2017
Q3
Q4
Q1
Q2
Q3
Q4
United Kingdom
Drill & stimulate A09-A12 and 1 sidetrack
Breagh Phase 1 development
Onshore compression
FDP approval 
Breagh Phase 2 development
Romania
Offshore licence equity reduction
Ana / Doina development
E&A drilling
Detailed design, fabrication, installation
First oil 
Cladhan development
E&A drilling
Additional sidetrack
Crosgan
Niadar
Beverley
Ossian/Darach
Data room, bids, close
Pre FEED
FEED
1x Bl 25, 2x Bl 27
Project Sanction
15
13
Project Development
15
13
Netherlands/France
[No planned activity]
January 2015
Corporate Presentation
Page 14
Financial situation and near term plans
•
Amendments to UK bond terms made in Dec 2014 provide additional liquidity through to end Apr 2015
-
Principal amendment is suspension of requirement to transfer funds to a restricted account at end of each month until
end April 2015
-
Amortization instalment and interest payment of $32.7m still required on 30 April 2015
-
High level of support from bondholders – 99.7% vote in favour of amendments
-
Expected cash deficit (below $10 minimum UK unrestricted cash required under bond) of approx. $20m at end April
2015 (without any completed divestments)
•
Cash and cash equivalents of $18 million at end December 2014; no restricted cash following approval of
bond amendments
•
To meet amortization instalment and interest payment at end April, partial sale of Breagh and bond
refinancing planned
•
Sell-down of Romanian Black Sea blocks should complete around end Q1 2015; upfront cash payment
expected as component of consideration
•
Discussions continuing with potential purchasers of 10-15% of Breagh
•
Discussions continuing with several banks regarding RBL
January 2015
Corporate Presentation
Page 15