20 Oct 2009 07:00
20 October 2009
STERLING ENERGY PLC
("Sterling" or the "Company")
Agreed Sale of USA Business;
Proceeds Will Repay All Bank Debt
Sterling (AIM: SEY), the independent oil and gas exploration and production company with interests in the Middle East, Africa and the USA, is pleased to announce that it has today signed a binding sale agreement in respect of its USA business to a non-USA buyer. The agreed initial gross consideration is US$90 million
payable on completion and further amounts may become payable depending on future oil and gas prices over the next three years.
Background
Sterling's USA business includes exploration and production projects, primarily in the onshore Gulf Coast and shallow waters of the Gulf of Mexico. Independent third party and Company reserve reports, effective 1 April 2009, estimated proved and probable reserves of 53 and 41 billion cubic feet of gas equivalent respectively, of which 73% is gas and 27% is oil. Average production to date in 2009 is 20.5 million cubic feet of gas equivalent per day. In the year to 31 December 2008, the Company's USA business generated revenues of US$83.2 million and a gross profit of $23.5 million.
In April 2008 Sterling announced its intention to sell the USA business following a comprehensive strategic review of the Company's assets and prospects. This review concluded that focusing the Company's
resources on higher impact opportunities in Africa and the Middle East would be in shareholders best interests.
Progress with the sale process, which was handled by BMO Capital Markets, had been impacted by the banking and credit crisis and major falls in US natural gas prices from the record levels of mid-2008. Recently, the stability in the US gas price has prompted renewed third party interest in the USA business and Sterling's recent refinancing placed the Company in a stronger position to negotiate a fair price for its US business and thus conclude today's agreed sale.
Terms of Sale
The initial sale consideration of $90 million is fully financed, with an effective date of 1 April 2009. Completion is subject only to remaining title and environmental due diligence, which is expected to be completed in early December. The actual cash to be received will be adjusted for intra-Group cash movements since 1 April 2009.
In addition to the initial consideration, there is a three year 'upside sharing agreement', under which Sterling is entitled to a 40% share of the annual excess net production proceeds if the average realised oil price exceeds $90 per barrel and/or the realised gas price exceeds $9 per mcf in any of 2010-2012.
The disposal will lead to a book loss on the sale of around $80 million, which will be recognised in Sterling's accounts for the period to 31 December 2009.
Use of Sale Proceeds
After adjusting for cash already received from the USA business since the effective date and the various
expenses associated with the sale, including additional banking fees, Sterling expects to receive approximately $79 million in cash on completion. The Company proposes to use the proceeds to repay all of Sterling's outstanding bank debt totalling approximately US$73 million, following which the Company will be debt free. The remaining cash will be added to existing cash balances of approximately $65 million and used for working capital and investment purposes.
Alastair Beardsall, Sterling's Chairman said:
"This is an important step for Sterling towards focusing both technical and financial resources on existing
higher impact opportunities in Africa and the Middle East where our portfolio of exploration opportunities has the potential to deliver better returns to shareholders. In the near term, we look forward to drilling our first well in Kurdistan on our prospect at Sangaw North. We are currently mobilising a rig to the drilling site
and expect to start drilling the well in mid-December."
| Further information: | |
| Sterling Energy plc | (+44 20 7405 4133) |
| Alastair Beardsall, Chairman Graeme Thomson, Chief Executive Jonathan Cooper, Chief Financial Officer | |
| Evolution Securities | (+44 20 7071 4300) |
| Rob Collins Chris Sim Neil Elliot | |
| Citigate Dewe Rogerson | (+44 20 7638 9571) |
| Martin Jackson |