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Sterling Energy PLC Annual Results for the Year Ended 31 December 2017


OVERVIEW

Sterling Energy plc (‘Sterling' or the ‘Company'), together with its subsidiary undertakings (the ‘Group'), is an upstream oil and gas company listed on the AIM market of the London Stock Exchange. The Company is an experienced operator of international exploration and production licences, with a primary geographic focus on Africa and the Middle East. The Group has a high potential exploration asset in Somaliland and an active strategy to deliver shareholder value through disciplined, material exploration and production projects; leveraging the Company's experience, with an emphasis on securing near term cash flow generative opportunities.

2017 SUMMARY

Operations

  • April 2017: Odewayne block, Somaliland; reduction in exposure to deferred consideration payments.
  • September 2017: Odewayne block, Somaliland; 1,000km 2D seismic campaign completed.
  • November 2017: C-10 block, Mauritania; exit (13.5% working interest).
  • Production, net to the Company from the Chinguetti field (including royalty barrels), averaged 199 barrels of oil per day (‘bopd') (2016: 279 bopd).

Corporate

  • January 2017: Refreshed Board and non-executive Directors appointed.
  • June 2017: Completion of capital restructuring.
  • October 2017: Relocation to new office (forecasted ca. 60% cost savings).
  • December 2017: CEO resignation. Eskil Jersing to remain in the post to effect an orderly handover. Departure date in Q2 2018.

Financial

  • Adjusted Earnings before Interest, Tax, Depreciation, Amortisation and Exploration Expense (‘EBITDAX') loss for the Group of $5.9 million (2016: $3.1 million loss).
  • Cash resources net to the Group at 31 December 2017 of $81.4 million (2016: $88.1 million).
  • The Group remains debt free and fully funded for all commitments.
  • Ongoing focus on capital discipline, cash G&A expenses reduced by ca. 15% to $3.9 million and is forecast to be ca. 25% lower in 2018.
  • Continued merger and acquisition (‘M&A') mandate for transformational growth (asset and corporate options).

Post year end

  • January 2018: Chinguetti, Mauritania; cessation of production (‘CoP') and negotiated termination of the Funding Agreement.

CHAIRMAN'S STATEMENT

Though 2017 was a year of partial oil price recovery, the question remains if this is a sign of reduced volatility and that the global oil market is finally finding its supply-demand balance.

Since 2014, a prolonged period of volatility has led to junior natural resource companies facing operational challenges and restricting their access to capital markets. We successfully navigated through this period without significant losses in our core values, and given the markets were still unsupportive, we managed to reduce our exposure to mid-term exploration. In 2017, we implemented our strategy of exiting from the Mauritanian C-10 block at low cost and also reduced our position in the Somaliland Odewayne block.

Oil production from the Chinguetti field ceased at the end of the year. Following a negotiated Deed of Termination settlement in January 2018, we are no longer exposed to this asset and the potential for escalating costs and project scope creep.

Following a period of instability in the oil market, many large portfolios of assets have been available for reorganisation and divestment. Numerous technically sound and material upstream opportunities have come to the market and were pursued by our team during 2017. No deals were concluded in the year, although due diligence is ongoing on a number of opportunities.

Financial

In 2017, business costs were further reduced by continued rationalisation of our structure and overheads. The Group had cash resources of $81.4 million at the end of 2017 (prior to the Chinguetti Funding Agreement termination settlement) and we remain free of debt with our work programme for 2018 fully funded. 

Board and changes

In December 2017, Eskil Jersing elected to accept another appointment and resigned from the CEO role. The Board is currently reviewing options to further optimise the governance of the Company and will make appointments in due course. We would like to thank Eskil for his excellent contribution and achievements during his CEO tenure.

Outlook for 2018 and beyond

The outlook for 2018 to 2019 is positive. The Company is now in a good shape to pursue real time opportunities in our regions of focus and with strong expertise. Should market conditions worsen, we will preserve our capabilities and strengths, accordingly.

I would like to thank all our stakeholders for their continuing support and all of our management and staff for their diligent efforts during 2017.

Michael Kroupeev – Chairman


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