SEY.L Regulatory News (SEY)

16 Nov 2006 10:43

Sterling Energy PLC16 November 2006 16 November 2006 STERLING ENERGY PLC ("Sterling" or the "Company") OPERATING UPDATE Sterling Energy plc, the AIM listed oil & gas exploration & production companyoperating in the Gulf of Mexico and Africa, today provides an update on itsactivities since the publication on 19 September 2006 of its Interim Results. Mauritania Sterling notes the presentation by Woodside, operator of the Chinguetti field,made today, which gave an interim reserves update for proven, probable andcontingent resources of 77 million bbls. Of this total, 53 million bbls wereproven and probable reserves ("2P"). In addition to an infill well by the end of2006, a 4D seismic survey is planned for 2007 and a programme of infill wells inlate 2007. It also highlighted the high resolution 3D seismic work planned for2007 on the Tiof field, in which Sterling has a royalty interest, and theconcept of a tie-back into Chinguetti facilities with a possible capacity of50,000 bpd. Chinguetti field production since mid-year has been in the range of27,000-35,000 bopd. In its 2006 half-year report, Sterling had used a provisional estimate of 2Pfield reserves of 80 million barrels ("bbls"), based on a 4 phase development ofthe field. These estimates will be formally reviewed again at the time ofpublication of the annual results for 2006, in light of further informationgained over the coming months. For the development potential of Phases 2onwards, key data will be obtained from the drilling of the well planned forDecember. The planned 4D seismic will make it possible to have a much betterpicture of the ultimate potential recoverable reserves of the Chinguetti field. Under the provisions of the Funding Agreement, Sterling's cash flow continues toreflect its priority of recovering development costs paid by it, through costoil production. Gulf of Mexico and Gulf Coast Production in the third quarter averaged 8.6 mmcfged, compared with 8.5 mmcfgedin the first half of 2006. Shut-ins owing to the pipeline repairs on Gryphon andthe planned upgrade at Mustang Island areas, held back production. Energy priceshave been lower than in the first half. Gas accounts for some 80% of USproduction and gas prices to date in the second half have generally rangedbetween $5.5 and $7.25 per mcf, recently moving over $8 per mcf with the earlyonset of colder conditions. In line with the strategy of increasing its exposure onshore, Sterling hasexecuted a letter of intent to participate in a 25 well Austin Chalk horizontalwell programme in the central Gulf coast region of Texas. Sterling willparticipate for 25-55% working interest ("WI") in this low risk, infill drillingin existing fields. Based on an independent consultants report, it exposesSterling to 11 bcfge of net proven and 14 bcfge of net possible reserves. At theend of June 2006, Sterling's 2P USA reserves were over 50 bcfge. With anexpected early December completion, this will immediately add approximately 4+bcfge to proven reserves. With an initial outlay for the lease purchases and thefirst three wells of approximately $9.5 million, this programme is thereafterexpected to be self-funding. Sterling has a 55% WI in the initial test well,which is expected to spud in mid-December. The programme projects that wellswill be drilled continuously thereafter on a 90 day basis and Sterling can electon its participation on a well-by-well basis. The Matagorda Island 520 SE/4 # 4 ST was successfully re-completed in September,increasing net production from 1 mcfgd to 500 mcfgd. Sterling has a 59.5% netrevenue interest in the well. At Mustang Island in the Western Gulf, Sterling has completed early, a $4.8million upgrade of its pipeline and processing facilities to accommodateincreased third party production, commencing shortly. Sterling paid $0.25million of the costs of these upgrades, the remainder being paid by a thirdparty user. This work has resulted in periods of shut-in of the system toaccommodate this work. Sterling's transportation and processing revenues areexpected to double to over $2.6 million per annum and it will enable anextension of the life of some of its wells. Sterling recently participated with a 22.25% working interest ("WI") in theDavis Petroleum Corp. - #1 Trahan. The well found productive pay but reserveshave now been deemed uneconomic. Sterling has farmed out its interest in the High Island 52 Field (50% WI),subject to the drilling of a well in Q1 2007. This farmout excludes Sterling'sroyalty interest in the Gryphon wells located in the NE quadrant of High Island52, which have been generating in excess of $0.5 million net per month. Sterlingwill receive cash of $0.3 million if no well is drilled or it is not commercial.In the event of any development, it will have a 2.75% ORRI and will be relievedof the field abandonment costs, which exceed $2 million net. Abandonment operations are underway on High Island A-68/83 where productionceased in 2003. Seven wells are being plugged and decommissioning of theexisting platforms will take place in 2007. The non-operated Galveston 303 #7 well is drilling earlier than expected.Sterling has a 17.3% WI in this 10,873 foot well to capture 1 bcf of netreserves. The well is expected to reach total depth in late-November. The higher potential drilling is expected to start in late November, on theNorth Theall Heirs #1 exploratory well located onshore south Louisiana. Sterlinghas a 34% WI in this high risk 15,000 foot well, targeting a net 10-30 bcfge. Preparation also continues on the Thunder Stud prospect in south Louisiana (15%WI). This is Sterling's first onshore operated well, targeting deep reserves(18,000 feet) in excess of 20 bcfge net. Drilling is expected to start in lateDecember. Active programme and seeking acquisitions Chief Executive, Harry Wilson, said: "Our cash balance, currently over $50 million, continues to increase, supportedby liftings from Chinguetti and production in the Gulf of Mexico. Activity overthe next year remains at a high level. We have joined an onshore US infill wellprogramme, which will commence in December, adding to our reserves andproduction. We keenly await the results of the next Chinguetti well due to spudshortly and of the 3 largely carried exploration wells in West Africa and 3 inthe USA due by the end of the first half of 2007. We continue to seek furtherprofitable and value adding assets". Enquiries Sterling Energy (+44 (0)1582 462 121) Web site: www.sterlingenergyplc.comHarry WilsonGraeme Thomson Citigate Dewe Rogerson (+44 (0)20 7638 9571)Media enquiries: Martin JacksonAnalyst enquiries: Nina Soon This information is provided by RNS The company news service from the London Stock Exchange