Jun 30

Sterling Energy Plc is an independent, upstream oil and gas exploration, development, and production company with a focussed portfolio of highly prospective projects in three western Africa countries and the Middle East, namely Kurdistan in northern Iraq. The company strives to secure interests in high impact exploration assets through direst licensing, farming in, or acquisition. Once discovered, the strategy is to promptly develop the exploration asset into a production asset that is both cash generative and profitable. The company, in most cases, is the on-site operator, which includes operating all projects in which it has 100% equity interest and others, like the Kurdistan development, where it has only a partial interest. The goal of the company is to become integrated among exploration, development, and production activities.

Selling U.S. Interests

In order to be more focussed and productive, the company constantly reviews its existing projects in order to assign resources to programmes in places that deemed to have the best chance to deliver value for shareholders. For example, field of declining production capability, once after full evaluation, may be given the option of abandonment, such as Chinguetti field in Mauritania. Elsewhere, applications for licence extensions for smaller projects may be withdrawn so that the company can focus on the more material projects and the identification of new ventures.

However, the most noticeable of all is the company’s selling its several producing U.S. gas fields in the Gulf of Mexico, where the company also served as the operator for most of its projects. The performance of the U.S. business had been very disappointing, including the very weak U.S. natural gas pricing at the time. All together, the company sold it for $90 million following decisions to focus on new opportunities on the African continent.

Self-Funding Operations

The proceeds from the U.S. sale was used to repay the company’s entire outstanding loan, making the company currently debt free. Relieved from the interest-paying burden, the company should have more leeway to plan its operations. Currently, the company is fully funded with its own resources for its 2010 work and possibly beyond. In the past year, the company had two rounds of share placements, one private and one public. Net of expenses, it raised a total of more than £80 million. Shares (SEY) of the company are listed on LSE’s AIM sub-market and were at 130p as of 29 June 2010. Note that current price level takes into account a share consolidation that the company implemented after the issuance of new shares in December 2009, when 40 existing ordinary shares were converted into 1 new ordinary share.

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