Sterling announced its results for the six month period ending June 30, 2010.
Prospects and Outlook
The excitement of spudding the Sangaw North #1 exploration well on February 1 has not been dulled by the drilling challenges we have faced. The causes of the difficult drilling conditions encountered near the surface of the well are now safely behind steel casing cemented in place. Drilling continued at a controlled and safe pace to reach the top Cretaceous reservoirs and onward to a depth of 2,395 m.
Interpretation of intermediate wire-line logs indicated several potential hydrocarbon bearing zones, a view supported further by the hydrocarbon shows observed while drilling this section. The well is undergoing open-hole flow testing to evaluate the hydrocarbon potential of the identified zones and Sterling will issue further updates on the Sangaw North well when appropriate.
Overcoming the various drilling challenges has delayed the overall progress of the Sangaw North well; the original estimate of 180 days to complete the drilling operation has now been extended to 240 days.
Progress with our other exploration projects in Cameroon and Madagascar continues to be hampered by politics over which we have little influence. We continue to advance our understanding of these project areas and advance the pre-planning for future operations wherever it is possible and cost-effective to do so.
The financial results for the 6 months to June 30, 2010 reflect a much slimmer Group operation following the sale of the US business. The positive cash flow generated from our economic interest in the Chinguetti field development offsets the costs of seeking new ventures and general administration. Further analysis can be found in the Financial Review below.
Sterling continues to seek and evaluate new projects. In this regard, our objective is to deliver value for our shareholders by securing interests in new acreage, farming in to existing exploration opportunities and possibly acquisition via corporate transactions.
With some $113.3 million of cash, at June 30, 2010, Sterling is well funded and we expect to advance all our existing projects through 2010 and into 2011 without needing additional financing.
Kurdistan, Iraq - Sangaw North
In the Sterling operated (53.33% WI) Sangaw North block, the Sangaw North #1 exploration well has penetrated the prospective Cretaceous horizon, been drilled to a depth of 2,395 m and open-hole wire-line log data acquired over the interval 1,450 m to 2,395 m. Preliminary analysis of the observed hydrocarbon shows while drilling, the cores that have been cut within this interval and the wire-line log data, indicate potential hydrocarbon bearing zones.
Sterling is now conducting open-hole flow testing of the prospective zones identified from the well data; this operation is expected to take up to 14 days and further updates on the testing will be announced after the testing is completed and the results evaluated.
The forward well plan after testing is to drill ahead through the remaining Cretaceous section and the deeper potential reservoirs in the Jurassic. Overcoming the various drilling challenges has delayed the overall progress of the well; the original estimate of 180 days to complete the drilling operation has now been revised to approximately 240 days.
An independent competent persons report published by RISC (UK) Ltd assigns best estimate gross prospective resources for the Upper Cretaceous reservoir at 804 mmbbl with 27% chance of success and considers that gas and condensate are at least as likely to be discovered as oil.
Secondary reservoir potential is also being targeted in a number of Jurassic objectives. Limited thickness of the Tertiary on the Sangaw North structure, coupled with the high specifications of the drilling rig contracted, make the Jurassic an achievable deeper target; Sterling estimates the Jurassic may contain gross unrisked resource of 600 mmbbl with a 10% chance of success.
Cameroon - Ntem
The Ntem concession area is a highly prospective offshore block in water depths from 400m to 2,000m, situated in the southern Douala/Rio Muni Basin adjacent to the northern maritime border of Equatorial Guinea. Sterling's financial obligations and work program for the Ntem concession area (100% WI) are currently suspended owing to overlapping maritime border claims between Cameroon and Equatorial Guinea; however, both countries are working to resolve this issue.
More than 2,100 km of 2D, and 1,500 sq km of 3D seismic data has been acquired over the block, along with the purchase of additional seismic and gravity studies. Recent seismic attribute analysis and inversion studies on this dataset reveal the presence of large and widespread submarine fans with good exploration potential; four of the Cretaceous prospects mapped so far have prospective resources of several hundred million barrels each. A Tertiary discovery made by Noble Energy to the north of the block, which is now under development, indicates further potential prospectivity on the Ntem block.
This large block is undrilled and is well placed with respect to both Tertiary and Upper Cretaceous plays; many large leads and prospects have been identified following a detailed interpretation of the extensive 2D and 3D seismic database. Several major E&P companies have shown an interest in partnering Sterling on this license and a farmout process will be conducted at the appropriate time. While the license is in force majeure the minimum work commitment to drill a well is suspended. Following ratification of a resolution of the border dispute Sterling will have approximately 15 months to drill an exploration well to complete the work commitment.
Madagascar - Ampasindava and Ambilobe
Sterling's Ambilobe and Ampasindava blocks are located in the deepwater basin offshore north-west Madagascar. The exploration program for both blocks continues to be hampered due to the political situation in Madagascar; there are no signs of an imminent resolution of the underlying issues.
In the Ampasindava block, the large Sifaka prospect is ready to drill and Sterling (30% WI) awaits confirmation from Exxon, the operator (70% WI), on timing for the well. RISC estimate the gross un-risked mean prospective resource for the Sifaka Prospect is 2 billion bbl (RISC Competent Persons Report, March 2008). The estimated cost to drill the Sifaka prospect will materially exceed the value of the remaining carry and Sterling will seek to farm down its 30% working interest in the PSC to cover these costs.
The Ampasindava block is in phase 3 of the exploration period which expires in late 2010 and includes a firm exploration well. There are provisions within the license agreement for prolongation or extension of the current exploration phase.
In the Sterling operated Ambilobe block (100% WI) all work commitments for Phase 2 have been fulfilled and evaluation of several large leads of Cretaceous and Tertiary age continues. Phase 2 of the exploration period expires in November 2010 and Sterling is seeking a farm-in partner to share the cost of future seismic acquisition and exploration drilling.
Mauritania - Chinguetti field
The rate of production decline for the Chinguetti field has reduced over the six-month period, with average production of approximately 8,161 bopd gross, and 681 bopd net to Sterling.
Petronas, the operator, continues to investigate the potential for a Phase 3 drilling campaign to access contingent resources from the Chinguetti field, however further development may not be economic and, in the absence of Phase 3, the field could be abandoned earlier than originally planned.
Petronas is reported to be preparing a field development plan for the Banda field; Sterling would be entitled to revenue under its royalty interest agreements with Premier Oil from any commercial development of Banda.
AGC - Dome Flore
AGC is a joint exploration zone between Senegal and Guinea Bissau. The Dome Flore license expired in January 2008; discussions regarding a license extension have been unsuccessful and the AGC authorities have advised that the Dome Flore license has been terminated. Markmore Energy the operator of the Dome Flore block held 70% WI and Sterling 30% WI.
Gabon - Iris Marin
The Iris Marin Production Sharing Contract (Sterling 32% WI) expired on May 13, 2010.
Gabon - Ibekelia
Sterling (40% WI, operator) and its joint venture partners have discontinued negotiations for a production sharing contract for the Ibekelia block.
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