Sterling announced interim operating and financial results for the quarter ended March 31, 2010. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.
Net income for the quarter ended March 31, 2010 was $1,234,054 ($0.01 per share - basic and diluted) compared to a net loss of $1,153,937 ($0.01 per share - basic and diluted) for the three months ended March 31, 2009. During the quarter Sterling recorded foreign exchange gains of $3,494,678 compared to losses of $73,320 during the first quarter of 2009. This was due mainly to unrealized foreign exchange gains on translation of our US dollar cash and cash equivalents into the Company's functional currency, the UK pound. Foreign exchange losses as a result of translating, assets and liabilities including non-monetary property plant and equipment and other items, from UK functional currency into Canadian dollars are included in other comprehensive loss.
Net working capital was $63,909,004 at March 31, 2010 compared to net working capital of $72,674,784 at December 31, 2009. Supplementary financing will be needed in order to ensure we are fully funded for our share of the Breagh development program as well as the exploration program for the balance of 2010. In order to ensure that sufficient funding is in place, we are continuing our negotiations for a senior debt facility with the Royal Bank of Scotland (RBS). Negotiations are continuing with the intent that the facility will be fully in place by the time development consent is received from the UK Department of Energy and Climate Change (DECC). This is currently anticipated early in the third quarter of 2010.
During the three months ended March 31, 2010 capital expenditures on oil and gas properties totaled $6,098,714. Of this total approximately $2.3 million is attributable to preliminary Breagh development costs, $1.8 million relates to preliminary well costs for the Airidh and Macanta prospects located in the greater Breagh area, $1.0 million relates to capitalized overhead and miscellaneous costs relating to License Round applications and $0.2 million relates to development costs for the Kirkleatham gas prospect onshore UK.
Drilling of the Airidh and Macanta prospects are currently planned for the greater Breagh area in Quad 42 in which Sterling holds a 30% interest. Drilling is anticipated to begin in late May at the Airidh prospect located to the south of the Breagh field, and will target the first potential satellite tieback to the developing Breagh infrastructure. Drilling of the Macanta well is expected to start in late June.
The Cladhan prospect on Block 210/29a which had been anticipated to spud in mid May, subject to the availability of the J.W. McLean rig, will now commence drilling in late June or early July. The rig is currently committed to another operator in the North Sea, who has started the last well in a multi-well program, before the rig comes to Cladhan. Sterling maintains a 39.9% working interest in the Cladhan prospect.
Drilling of the Grian prospect in Block 48 of the UK North Sea is still expected to occur during the third quarter of 2010. Site survey work at the Grian prospect is now complete with Sterling currently holding a 57% working interest.
On May 16, 2010 the Company announced the signing of a farm-in agreement to acquire a 25% working interest in UK Central North Sea Blocks 21/21, 21/22 and 21/27b. The Blakeney prospect on Block 21/27b is scheduled to be drilled in the third quarter.
During the fall of 2010 the UK onshore Kirkleatham gas project is anticipated to commence production following execution of a sales agreement with Sembcorp. Sterling currently holds a 47% working interest in the Kirkleatham project.
The Company continues to be cautiously optimistic that the farm-out arrangement with Melrose Resources PLC and license transfers will receive regulatory approval allowing us to prepare application for development approval from the Romanian authorities for the Doina/Ana field offshore Romania in the Black Sea.
Plans for the drilling of the offshore Eugenia prospect in the Pelican Block of the Romanian Black Sea are progressing. Drilling of this well is anticipated to take place during the third quarter of the year, subject to the satisfactory resolution of the license transfer issue with the Romanian regulatory authorities. Sterling will be carried for the cost of this well, and after assignments, will hold a 32.5% working interest.
The three well onshore drilling program in Romania was completed during the first quarter. Following extensive evaluation, including formation testing, it has been concluded that although there is a working source and migration pathway for this play, the required development of good reservoir was missing in this part of the block. However, reservoir development is expected to improve further north in the block where the canyon system is deeper. The cost of drilling these three wells was borne by our partner on this project in order for them to earn a 50% working interest.
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