At the end of 2007, Sterling Inc. had 2P reserves of 111 bcfge (18.5 million boe) and possible and contingent resources of 70+ bcfge (11.5 million boe). Approximately 65% of the 2P reserves were categorized as proven. Within this portfolio Sterling has an inventory of identified drilling prospects, of approximately two/three years, most of which are already leased and many already have the necessary permits in place.
During the year, Sterling participated in 29 new wells and re-completions. Of these 14 were in the South Texas region and 15 were in the Texas/Louisiana Gulf Coast. There was also completion of a major upgrade of the production facilities located in the Langlie Jal field located in the Permian Basin and a large program of abandonment work offshore in the High Island and Mustang Island areas. These wells were successful but largely small. Higher than expected declines in existing fields, unsuccessful drilling on two probable locations and delays/cost issues relating to equipment availability, held back production and reserves.
At year-end, production from these U.S. assets was 28.5 mmcfged (2006: 8.6 mmcfge/d), with the majority of the rise being due to the purchase of WEC completed at the end of March 2007. Over half of the production is operated by Sterling from its offices in Houston and approximately 80% is natural gas.
At the end of the first quarter of 2008 production had increased to over 30 mmcfge/d from the shallow water and onshore coastal areas of the Gulf of Mexico, with nearly 70% coming from 11 fields. A somewhat lower pace of drilling in 2008 than in 2007 is expected during the sales process.
In one of the most prolific hydrocarbon basins in the USA, Sterling currently has production of nearly 9 mmcfge/d from a total of 87 wells.
During mid-2007, Sterling completed an investment in a drilling program with Viking Petroleum, a private Houston Company, which generates drilling prospects, primarily in South Texas. This provides over 20 near-term drilling prospects and three wells were drilled in 2007 and 15 are expected in 2008.
Sterling currently has production from 82 wells and current production of over 11 mmcfged. This area includes the Austin Chalk program where the first 4 wells have proved successful, the most recent being the Marlin well which commenced production at 4 mmcfged net in late March 2008. The Austin Chalk presents some challenging drilling as it is highly over pressured and these horizontal wells are drilled to around 15,000 feet using under-balanced drilling techniques. This program is now restarting.
Sterling has production from 23 wells and a unit in this region producing around 1 mmcfged. In July 2007 Sterling increased its working interest in the Windham field to 93% from 66% by purchasing the interest of the operator of the field with a total transaction cost of c$3.6 million. Sterling became operator and intends to develop the field quickly.
Sterling currently has production from a total of 29 wells in the Gulf producing approximately 9 mmcfge/d. In 2007 it farmed out of the non-producing High Island 52 fields and facilities in return for earning a 2.85% ORRI in a successful well and the assumption by the farminee of an estimated $5+ million of plugging and abandonment costs. It has recently farmed out an interest in a high risk sidetrack of an old well on Mustang Island that encountered mechanical problems in return for a mainly carried interest and royalty.
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