Sterling announced its 2009 operational updates.
Sterling has emerged from 2009 as a focused exploration Company with material interests in several potentially significant projects. The 2010 work program is fully funded by a combination of carried interests and the Company's own resources. Furthermore the Company has no debt.
The most exciting news is that the planning that took place during 2009 has now culminated in the commencement of drilling the Sangaw North exploration well in Kurdistan. The well spudded on February 1, 2010 and is drilling ahead at 223m. Drilling operations for the two large diameter surface casing strings have been challenging. However these casing strings are now cemented in place and the well is progressing to the next casing depth. An independent study of the Cretaceous aged reservoirs concluded an unrisked best estimate of gross prospective resources totaling some 804 million barrels of oil. A discovery of this magnitude would transform the value of the Company. Sterling has also identified more prospective reservoirs in the deeper Jurassic and Triassic horizons.
It is reported that the Regional Government of Kurdistan and Federal Government of Iraq have indicated they wish to resolve their different proposals for the payment mechanism for oil revenues arising from the sale of oil produced in Kurdistan. We are optimistic both parties will help resolve the issues before we are ready to produce and export oil from our own license area.
For most of 2009 Sterling's activities were constrained by the terms of the bank waivers agreed with the Company's lenders. At the start of 2009 the Company had significant borrowings that exceeded allowed levels, based on the projected future cash flow expected from developing, producing and selling its hydrocarbon reserves. This situation arose from the disappointing performance of Sterling's US oil and gas business, further accentuated by a period of very weak USA commodity pricing. Following a formal sale process that was undertaken over many months and involved many interested parties, the Company sold the US business in December 2009 and used the proceeds to repay the entire outstanding loan.
The Ntem license, in Cameroon, remains in force majeure, the result of a border dispute between Cameroon and Equatorial Guinea. We are optimistic that a resolution between the two countries will be reached; we shall then be able to resume our exploration program and work towards drilling our first exploration well. Sterling currently holds 100% of the Ntem license and we envisage we will seek to farm out part of this interest in exchange for our share of costs for an exploration program that includes at least the first exploration well.
In Madagascar the Company has interests in two projects, Ampasindava and Ambilobe. The current government, assumed power after a coup in March 2009, but is not recognized by its African neighbors or by most world governments. It is likely that Sterling, and Exxon as our partner in the Ampasindava block, will look for an improvement in the political situation prior to embarking upon any significant expenditure on seismic acquisition or a drilling program.
During 2009 our share of oil production from the Chinguetti field in Mauritania, including our royalty interest, totaled 330,926 barrels (2008: 373,971 barrels), an average daily rate of 906 bopd (2008: 1,025 bopd). The production capability of the field continues to decline and Petronas, the operator of the field, is evaluating future options for the field which may include abandonment earlier than previously planned.
Following a review of the Company's smaller projects, and discussions with the various joint venture partners, the Company is rationalizing its portfolio of projects. Markmore, Sterling's joint venture partner and operator of the Dome Flore concession has withdrawn the application for a license extension for the Dome Flore block located in an area administered by AGC, a joint agency for Senegal and Guinea Bissau. The AGC has confirmed the termination of the license.
The joint venture partners in the Iris Marin block, located in Gabon, have unanimously approved the operator's recommendation to relinquish the license under the production sharing contract when the license expires in May 2010. Sterling, as operator of the technical evaluation agreement for the Ibekelia block located adjacent to the Iris Marin block in Gabon, has recommended to the other partners to cease any further work towards a contract for the Ibekelia block. Sterling's withdrawal from AGC and Gabon will allow the Company's technical personnel to focus on the more material projects and the identification of new ventures.
In September, the Company successfully raised £60.9 million (net of expenses) from the placement of new shares with a new cornerstone investor and several existing shareholders. Part of these new funds were used to repay $35 million of the bank debt, a condition of granting a further 17 month waiver by the lenders. In December the Company completed an open offer to all shareholders which, alongside a placing to several Directors and staff, raised a further £20.4 million (net of expenses). The Company is now sufficiently funded to cover its share of the anticipated work program for 2010 and beyond.
Immediately following the issue of shares for the December open offer, all of the Company's ordinary shares were consolidated on the basis of 40 existing ordinary shares with a nominal value of 1 pence consolidated into 1 new ordinary share with a nominal value of 40 pence.
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