SLG San Lorenzo Gold Corp

CALGARY, July 6, 2015 /CNW/ - Sterling Resources Ltd. (TSX-V: SLG) ("Sterling" or the "Company") announces an update to Breagh operations and a financial update. Unless otherwise noted all dollar figures contained in this release are denominated in U.S. dollars.

Breagh Operations and Capital Expenditure

Production at Breagh in the first half of 2015 was in line with expectations. In the past few weeks, baseline inspection of offshore and onshore facilities has been completed. In late May an intelligent pig run was made in the offshore and onshore pipeline and during June a planned three week shutdown of the field was successfully completed ahead of schedule.  All results from the inspection surveys are in line with expectations, with no significant issues raised.

Headline production figures for the first half of the year are as follows:

• The average rate in first half 2015 was 104.8 million standard cubic feet of gas per day ("MMscf/d") of sales gas for the full field (31.5 MMscf/d net to Sterling). This is inclusive of the three week shutdown in June.
• Plant uptime was in excess of 95 percent, exclusive of the three week planned shutdown period.
• In addition to gas production, condensate was produced at an average condensate-gas ratio of 3.8 barrels per MMscf of sales gas.

The forecast for the second half of 2015 is 99 MMscf/d sales gas for the full field (29.7 MMscf/d net to Sterling). The full year production average forecast remains at 103 MMscf/d of sales gas for the full field (30.9 MMscf/d net to Sterling), in line with previous guidance.

Alongside normal production operations, planning for the installation of onshore compression and for a further campaign of development drilling has continued. Front-end engineering and design for the onshore compression project, based on a gas-turbine driver, is scheduled to commence mid-July 2015 with final approval expected in October 2015.  Compression is expected to be operational from mid- 2017.

Processing of the Breagh 3D seismic data is continuing with delivery of final processed data expected in September 2015. The currently available information is being combined with production history and results of the successful hydraulic fracture operations on wells A07 and A08 to support the infill drilling campaign. It is planned that all wells in the campaign will be fracked (hydraulically stimulated).

DEA UK as operator is currently progressing a drilling rig and services tender exercise, with the expectation of commencing the drilling campaign in December 2015 running through to completion during 2017.  Sterling expects that the work program will comprise the drilling of 3 or 4 new wells and the re-entry and fracking of 2 or 3 existing wells.  For the purposes of estimating capital expenditure ("capex"), Sterling currently assumes that the work program will comprise 4 new wells and the re-entry and fracking of 2 existing wells.  The actual program will however depend on the results of the seismic interpretation, the ongoing performance of existing wells and the initial results of the new wells and fracs.  It is further expected that the fracking of new and existing wells will occur in batches for greater operational efficiency and lower cost. 

Sterling management now estimates capex for the remaining Phase 1 work program and pre-sanction costs for Phase 2 from the beginning of 2015 to have fallen to $87 million net to Sterling.  This is a significant reduction of $38 million from the previous guidance of $125 million set out in the news release dated March 27, 2015.  This previous capex estimate was based on the forecast provided by the Company's independent reserves evaluator RPS Energy in the year-end 2014 reserves report, re-phased by Sterling to reflect the expected work program.  This reduction is a result of several factors:

(i) A significant reduction in drilling rig day-rates and associated service costs;

(ii) Firming up of overall project costs for onshore compression in light of the preferred gas-turbine driver (subject to final approval);

(iii) An updated technical assumption that the two existing wells do not need to be side-tracked before being fracked; and

(iv) Batch fracking of new/existing wells, rather than sequential fracking.

The total remaining capex is expected by Sterling to be phased as follows:

Production estimates beyond 2015 currently remain as per previous guidance. 

Financial Update

The sale of the Company's Romanian business to an affiliate of the Carlyle Group (as announced on March 26, 2015; the "Romanian Sale") is now expected to close in early August 2015. On this basis, an additional $0.75 million amendment fee would be payable shortly after July 15, 2015 to holders of the Company' senior secured 2019 bond (the "Bond") in accordance with the Bond amendments approved by Bondholders on May 8, 2015 (as described in the news release dated April 23, 2015). 

At the end of June 2015, the Company had total group cash resources of $12 million.  At the end of October 2015, the Company is expected to have a cash deficit of approximately $20 million, after (i) completion of Romanian Sale in the first half of August, (ii) paying the outstanding amortization instalment from April 30, 2015 (with a 7.5 percent premium and accumulated interest) of $24.8 million upon closing of the Romanian Sale, (iii) making an amortization instalment (with a 7.5 percent premium) and interest payment of $33.3 million on October 30, 2015, and (iv) providing for $10 million of minimum UK unrestricted cash from October 31, 2015.  Work continues on a debt-based refinancing of the Bond to provide a long-term financing solution for the Company.

Jake Ulrich, Sterling's Chief Executive Officer, commented: "We are very pleased that the first annual shutdown of Breagh has been completed successfully and that the field continues its strong operational performance.  The reduction in forecast Breagh capex is excellent news as it will facilitate a debt-based refinancing of the Company, on which we are making good progress.  In parallel, we are continuing with our efforts to seek a corporate sale or merger of Sterling, or possibly a sale of 10 to 15 percent the Breagh field, and in this regard we expect to announce the appointment of a strategic financial advisor shortly."

Sterling is a Canadian listed international oil and gas company headquartered in Calgary, Alberta with assets in the United Kingdom, Romania, France and the Netherlands.  The common shares are listed and posted for trading on the Toronto Stock Exchange Venture (TSX-V) under the symbol "SLG".

Neither the TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this release.

Filer Profile No. 00002072            

Forward-Looking Statements

All statements included in this news release that address activities, events or developments that Sterling expects, believes or anticipates will or may occur in the future are forward-looking statements.  In addition, statements relating to expected production, reserves, costs and valuation are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future.

These forward-looking statements involve numerous assumptions made by Sterling based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances.  In addition, these statements involve substantial known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other-forward looking statements will prove inaccurate, certain of which are beyond Sterling's control, including: the impact of general economic conditions in the areas in which Sterling operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition there are risks and uncertainties associated with oil and gas operations.  Readers should also carefully consider the matters discussed under the heading "Risk Factors" in the Company's Annual Information Form.

Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur.  Sterling's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements.  These statements speak only as of the date of the news release. Sterling does not intend and does not assume any obligation to update these forward-looking statements except as required by law.

Financial outlook information contained in this news release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available.  Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.

SOURCE Sterling Resources Ltd.