re: ... cunning sey
Aim Investor By Andrew Griffiths 05 February 2006
SHARES in Sterling Energy, one of the strongest hydrocarbon plays on Aim, have jumped after an announcement that production from the offshore Chinguetti field in Mauritania should start as planned in March 2006.
Sterling has an 8% interest in the field and described the event as a milestone that will transform the company. Add this to a sliding-scale royalty over 5% more of the field – worth nearly $7 a barrel – and promising other discoveries, and you can see why investors are starting to get excited.
Last October, an adjacent well discovered oil, helping to confirm Sterling’s estimate of a field of 50m barrels. If declared commercial, Sterling would benefit from its royalty interest and tariff income as production is expected to be transported through a tie-back to the Chinguetti facilities.
A further exploration well is expected by the end of the year, and four or five more wells in 2006. Due to its royalty interest, Sterling pays no costs for any of these wells.
Sterling came to Aim in October 2002 by reversing into the oil production and exploration company LEPCO. At that time its main revenue-generating assets were offshore oil and gas production facilities in the US Gulf of Mexico. Since then, it has expanded into West Africa, through its acquisition of Fusion Oil & Gas and increased its presence in the Gulf through the acquisition of five gas fields.
Sterling’s strategy is straightforward: it uses cash-flow from the low-risk Gulf assets to drive exploration elsewhere. Exploration activities are higher risk, but the company saves money by partnering with production businesses that bear most of the costs of extracting the oil and gas that Sterling finds.
Independent consulting engineers have upgraded Sterling’s proven and probable US reserves by 5%. Of the total, 60% are in the proven category.
Sterling’s production has been affected by Hurricane Rita although gas prices have since been markedly higher.
A farm-out deal with ExxonMobil for the Ambilobe and Ampasindava offshore licences in Madagascar adds to the gravitas. ExxonMobil will pay for a significant exploration work programme in return for a 70% interest in the licences. Chief executive Harry Wilson suggested rising cash-flows would allow Sterling to be bolder in exploration and selectively add further production assets.
Interim results to June 2005 showed sales of £6.7m and a pre-tax profit of £3.3m and earnings per share of 0.17p compared to 0.15p in the previous year. The shares were recommended at 13p. A strong hold.
