Sterling has announced interim operating and financial results for the quarter ended September 30, 2008. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.
Sterling's primary focus during the third quarter was upon execution of its previously announced offshore drilling programs in the Romanian Black Sea and UK North Sea. Two successful wells, Doina-4 and Ana-2, were completed in Romania during the quarter, and during October successful completion and testing of the East Breagh well in the UK Southern North Sea was announced.
In addition, the Cladhan exploration well on Block 210/29a in the UK Northern North Sea has yielded an oil find. At present the drilling of West Breagh (located in Block 42/13-5 of the Southern North Sea) is underway, with results anticipated for this well in late December.
"We have successfully executed the drilling plans that we had carefully crafted during the first half of the year, in spite of the distraction of collapsing capital markets over the past few months," stated Stewart Gibson, Sterling's Chief Executive Officer. "The successful completion of these wells and the related positive impact on our two major projects is further evidence of the high quality of Sterling's portfolio base and is a testament to the
technical skills of our employees and contractors. We do however remain concerned about ongoing access to capital and are presently pursuing a number of avenues to fund Sterling's programs beyond 2008," added Gibson.
Third quarter 2008 financial highlights include:
- Net income was $994,363 ($0.01 per common share - basic and diluted) during the third quarter of 2008 compared to a loss of $597,820 ($0.01 per common share - basic and diluted) during the third quarter of 2007; and
- Cash and cash equivalents as at September 30, 2008 consisted of cash of $11,675,789 and cash equivalents of $32,510,548 compared to $8,108,364 and $2,200,00 respectively as at December 31, 2007; and
- Net working capital was $52,160,017 as at September 30, 2008 compared to $10,585,095 at December 31, 2007; and
- Net capital expenditures were $29,273,700 during the third quarter of 2008 compared to $5,836,177 during the third quarter of 2007.
Key operational achievements during the third quarter of 2008 included:
- Early in August we commenced drilling of the Doina-4 well in the Romanian Black Sea and were able to announce 17 days later the successful drilling of the well to a target depth of 1,250 meters. The well encountered a reservoir consistent with previously drilled Doina wells containing an estimated 12 meters of high quality interval with porosities in excess of 30%. As the equivalent reservoir was previously tested at the Doina-2 well at 17.5 million cubic feet per day, and the calculations for Doina-4 indicated similar productivity potential, the well was suspended for possible re-entry as part of any future development program.
- In mid-August we were also pleased to announce that agreement had been reached to acquire the remaining 40% interest in the South Craiova Block EIII-7 from the existing holder Grove Energy, through Sterling's wholly owned Romanian subsidiary Midia Resources SRL. Located in onshore Romania, this large concession area holds potential for significant shallow gas development, specifically in the Goshawk area of Craiova.
- In early September we then reached an agreement with the TransAtlantic Petroleum Corporation to farm out a 50% working interest in the South Craiova Block. In return for this 50% working interest TransAtlantic has agreed to commence work on an exploratory three well program in early 2009, covering Sterling's costs entirely through to drilling and testing.
- In mid-September we successfully completed the Ana-2 appraisal well in the Romanian Black Sea. This well was drilled as a follow-up to the Ana-1 exploratory well (formerly known as Doina Sister) that was drilled earlier in 2008. The reservoir sand encountered in the Ana-2 well was equivalent to, or slightly better, than those encountered in the Ana-1 well, and these results confirmed the continuity of the reservoir sands. The well also confirmed our theory that this part of the field is structurally higher than previously mapped.
- Subsequent to the quarter end we were able to announce further success at the East Breagh well (42/13-4) in the UK North Sea. Preliminary analysis of both the core and well logs indicated two gas bearing intervals of approximately 23 meters net sand in total. Testing of the East Breagh well indicated that the upper zone flowed at a rate of 10.2 million cubic feet per day using a 32/64 inch choke setting at a flowing wellhead pressure of 1630 pounds per square inch. The lower zone was previously perforated and tested at rates up to 1.6 million cubic feet per day.
- On November 13, we announced our success in the UK Offshore 25th License Round. Blocks 42/10 and 42/15 located in the UK North Sea were awarded to Sterling, who will be operator of both blocks with a 60% working interest. These blocks are adjacent to our existing 42/9 and 42/14 blocks and are of strategic importance because they contain older wells which have tested gas at significant rates, and are in close proximity to the recent successes at East Breagh, where we intend to develop new infrastructure.
- Earlier this week we were pleased to announce the successful drilling of the Cladhan well located in the UK Northern North Sea. The well was drilled to a total depth of 2,967 meters and encountered oil bearing Jurassic sands over a gross interval of 33.5 meters and indicated 7.6 meters of high quality sand with maximum porosities in excess of 20%. Several downhole samples of high API light oil were collected and will be analyzed to confirm quality. A flow test was not undertaken pending the integration of well log information and the existing seismic data. The well will be suspended with a view to re-entry, sidetrack and testing in the future.