Plain-text annual report
Report and
Financial
Statements
2013
Sterling Energy Plc (“Sterling” or
the “Company”) is an upstream
oil and gas company listed on
the AIM market of the London
Stock Exchange. Sterling is
an experienced operator of
international licences with a focus
on projects in Africa. Sterling has
high potential exploration projects
in Cameroon, Somaliland and
Madagascar, and an interest in
production in Mauritania.
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Cover image © Diamond Offshore Drilling
Sterling Energy PLC Annual Report and Financial Statements 2012
Sterling Energy Plc Report and Financial Statements 2013 Sterling Energy Plc
Report and
Financial Statements
Year ended 31 December 2013
CONTENTS
Chairman’s Statement
STRATEGIC REPORT
Operations Review
Reserves Summary
Schedule of Interests
Financial Review
Business Risk
CORPORATE GOVERNANCE
Board of Directors
Audit Committee Report
Nominations Committee
Remuneration Committee Report
Communications with Shareholders
Internal Controls
Conflicts of Interest
Extractive Industries Transparency Initiative (“EITI”)
Directors’ Report
Statement of Directors’ Responsibilities
GROUP ACCOUNTS
Independent Auditors’ Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes In Equity
Consolidated Statement of Cash Flows
Company Statement of Financial Position
Company Statement of Changes In Equity
Company Statement of Cash Flows
Notes to the Financial Statements
Definitions and Glossary of Terms
Professional Advisers
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Sterling Energy Plc Report and Financial Statements 2013 OVERVIEW
Chairman’s
Statement
The most exciting event since the 2012 Annual Report
is the spud of Bamboo-1, Sterling’s first exploration well
on the Ntem Concession, offshore Cameroon, targeting
a primary objective that may contain some 450 million
barrels of oil equivalent. During 2013 Sterling and Murphy
Oil, our joint venture partner, finalised the well’s location
and prepared for the drilling operation. Reprocessing of
the 3D seismic dataset for Ntem indicated that significant
horizons, with the potential to be hydrocarbon filled, were
located in the Ntem block away from the area subject
to the overlapping border claims of Cameroon and
Equatorial Guinea.
In January 2014 Sterling, Murphy Oil and Société Nationale
des Hydrocarbures (“SNH”), the national oil company of
Cameroon, agreed to lift force majeure to allow exploration
activities to recommence and the Ocean Confidence rig
commenced the drilling of Bamboo-1 on 9 February 2014.
The well is expected to take up to 70 days to be completed
and results will be announced as they become known.
We have acquired a 25% interest in the Odewayne PSA
in Somaliland from Jacka Resources and Petrosoma;
our share of costs for acquiring 1,500km of 2D seismic
and drilling one exploration well are carried by Genel
Energy. The Odewayne block covers some 22,000km2 of
unexplored land on which surface oil seeps indicate an
active petroleum system. We look forward to advancing
the exploration of this new opportunity during 2014.
In Madagascar we received presidential consent for the
agreement with OMNIS, the state oil company, to re-
phase the outstanding work commitments under the
Ampasindava and Ambilobe licence agreements following
the suspension of exploration activities after the change
of government in March 2009; both licences now run to
September 2015. During the year as progress was made
towards the elections that were completed in December,
the political outlook and security situation in Madagascar
both improved.
Exxon resumed operations in late 2013 and acquired some
1,300km of 2D seismic data on the Ampasindava block to
enhance the imaging of the Sifaka prospect and possibly
mature some other leads into drill-ready prospects,
however drilling on Ampasindava is not expected until
2015/16. We also farmed out 50% of the Ambilobe licence
to Pura Vida in exchange for $15.0 million of new 3D
seismic which Sterling, as operator, expects to acquire in
the second half of 2014.
We are cognisant that while Sterling has interests in some
very significant projects, we must endeavour to secure new
opportunities to broaden our exploration portfolio. We are
pleased with new venture progress this year but continue
to look both within and beyond our existing geographies
for further opportunities, which we believe will deliver real
growth and value for our shareholders.
FINANCIAL
The Company had cash resources of $120.8 million
at the end of 2013, and remains debt free. Our work
programme for 2014 is fully funded and we have funds
available to progress both our existing portfolio and new
venture activity. We remain pleased that the revenue
from Chinguetti field operations in Mauritania continued
to provide positive cash flow during 2013 in excess of
Sterling’s administrative costs.
BOARD CHANGE
In August 2013 Angus MacAskill resigned as Sterling’s
CEO and stepped down from the Board to seek other
opportunities where he could apply his extensive knowledge
and experience of engineering in the development and
production of oil and gas fields. He joined Sterling in
November 2010 when his expertise and attention to detail
ensured the very challenging drilling operation on Sangaw
North-1 was completed safely. I would like to thank Angus
for the tremendous contribution he made across all
aspects of Sterling’s business during his three year tenure
and wish him all the very best for his future challenges.
4
Sterling Energy Plc Report and Financial Statements 2013 $120.8 million
CASH RESOURCES
We shall continue to seek new
opportunities within and beyond our
existing areas of interest and shall only
pursue those ventures which we believe will
ultimately deliver value for our shareholders
OUTLOOK FOR 2014 AND BEYOND
A positive outcome for Bamboo-1, offshore Cameroon
will transform the Company; however if the well does
not identify commercial hydrocarbons, Sterling has the
funds to progress our other projects in Madagascar and
Somaliland and to acquire others.
2013 SUMMARY
Well planning in 2013 culminated in the spud of
the Bamboo-1 well on the Ntem Concession,
offshore Cameroon, in February 2014.
The formation of a democratically elected government will
provide greater stability in Madagascar and allow more
operational progress to be made on both the Ampasindava
and Ambilobe blocks.
Farmed out 50% of the Ambilobe PSC, offshore
north-west Madagascar, in exchange for
$15.0 million of 3D seismic data acquisition.
in the Odewayne block,
Acquisition of 2D seismic
Somaliland, will further our understanding of the potential
of this vast acreage and may lead to an exploration well,
possibly in 2015
Acquired 1,300km of 2D seismic on the
Ampasindava block, offshore north-west
Madagascar to mature Sifaka, a drill-ready
prospect.
We shall continue to seek new opportunities within and
beyond our existing areas of interest and shall only pursue
those ventures that we believe will ultimately deliver
value for our shareholders. Sterling’s strategy is to build
shareholder value through participation in the exploration
of material prospects and when appropriate the Company
will introduce partners, generally through a farm-down
process, to pay Sterling’s share of the higher costs of
exploration operations.
I would like to thank our shareholders for their continuing
interest in Sterling and all our staff for their hard work
during 2013.
Acquired a 25% carried interest in Odewayne
Block, Somaliland.
Received $11.2 million of net cash flow from
Chinguetti field operations, offshore Mauritania
(2012: $12.7 million).
Cash resources at 31 December 2013 of
$120.8 million (2012: $120.3 million).
Company remains debt free.
Alastair Beardsall
Chairman
14 March 2014
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Sterling Energy Plc Report and Financial Statements 2013 Sterling Energy Plc
Strategic Report
Year ended 31 December 2013
STRATEGIC REPORT
Operations Review
Sterling’s varied asset base provides exposure to exploration opportunities
within under-explored African basins that have the potential to deliver material
hydrocarbon reserves. These frontier and emerging basins have historically
seen little activity but offer significant encouragement for the presence of
working hydrocarbon systems. Through application of technology and with the
benefit of an experienced exploration team, Sterling’s focus is on de-risking
these basins prior to exploration drilling.
The border dispute remains unresolved but Murphy and
Sterling have agreed, together with Société Nationale
des Hydrocarbures (“SNH”), the national oil company of
Cameroon, to formally lift the declaration of force majeure
in order to allow exploration activities to proceed. The
current exploration period re-commenced on 22 January
2014 with the minimum work obligation of one exploration
well to be drilled in the remaining 15 months.
Current and Future Activity
Murphy Oil has contracted the Ocean Confidence semi-
submersible rig which has been mobilised to the Bamboo-1
location in the Ntem Concession and commenced
drilling operations on 9 February 2014. This location is
outside the disputed area subject to the maritime border
claims of Cameroon and Equatorial Guinea, and lies in
approximately 1,600m of water. Bamboo-1 is the first well
in the concession and is targeting a series of vertically
stacked, Cretaceous aged, submarine fans, defined using
the extensive 3D seismic dataset, which now covers
approximately 70% of the concession area. These target
levels exhibit clear fan geometries on the 3D seismic data
and are fed by a series of well-defined sediment feeder
systems. Sterling estimates that the primary objective may
contain mean un-risked, gross prospective resources of
422 million barrels of oil and 170 billion cubic feet of gas, a
total of some 450 million barrels of oil equivalent.
A summary of the Ntem asset details is provided on page
12 of the Strategic Report.
CAMEROON
Cameroon is a proven oil and gas producing
province with multiple discoveries made within the
shallower water shelf area to the east of Sterling’s
Ntem concession area and with multiple deeper
water discoveries to the north. Ntem is highly
prospective deep water acreage in the Douala
Basin, one of the least explored Atlantic basins
along the West African margin.
Ntem (WI 50%)
Overview
Considerable progress has been made in recent weeks on
the Ntem concession, leading to drilling of Bamboo-1, the
first exploration well on the area.
This large block is well placed with respect to both Tertiary
and Upper Cretaceous plays, both of which have proven
successful nearby in Cameroon and in Equatorial Guinea.
To the north of the block, Tertiary oil, gas and condensate
discoveries made by Noble Energy commenced
production in 2011, and Euroil (Bowleven) continue to
appraise their discoveries which they are progressing
towards development.
In November 2011 Sterling completed a
farm-out
agreement with Murphy Cameroon Ntem Oil Co. Ltd
(“Murphy Oil”), a wholly owned subsidiary of Murphy Oil
Corporation under which Murphy Oil was assigned a
50% working interest in and operatorship of the Ntem
concession. Sterling retains a 50% non-operated working
interest. As consideration, Murphy Oil paid to Sterling a
contribution towards past costs and will pay Sterling’s
share of the costs for the drilling of the Bamboo-1 well.
Operations within the Ntem concession area were
suspended in 2005 under the force majeure provisions
of the concession owing to an overlapping maritime
border claim between Cameroon and Equatorial Guinea.
8
Sterling Energy Plc Report and Financial Statements 2013 SOMALILAND
The onshore basins of Somaliland offer one of the
last opportunities to target undrilled Mesozoic
rift basins in Africa. The Odewayne Block is well
located to explore this play and is a new addition to
Sterling’s portfolio. Geophysical data and the results
of geological fieldwork indicate that the Odewayne
basin underlying the Sterling acreage has similar
characteristics to producing basins in Yemen.
out agreements with Petrosoma and Jacka, Sterling has
paid $2.0 million and $3.0 million respectively with future
conditional payments of $8.0 million and $12.0 million
(aggregated) respectively payable on the basis of various
operational milestones being met.
Sterling is fully carried by Genel Energy Somaliland Limited
(“Genel Energy”) for the costs of all exploration activities
during the Third Period and the Fourth Period of the PSA.
The holders of the PSA are:
• Genel Energy Somaliland Limited (Operator)
• Sterling Energy (East Africa) Limited
• Jacka Resources Somaliland Limited
• Petrosoma Limited
1 Effective 27 January 2014
50%
25%1
15%
10%
Future Activity
Results from extensive fieldwork will continue to be analysed
to enable a greater understanding of the exploration play
elements. Whilst seismic operations have temporarily
been suspended due to the security environment, the
joint venture group are in discussions with the Somaliland
Government in order to facilitate a resumption of activities
and the joint venture is seeking to deliver the minimum
work obligation prior to the expiry of the Third Period in
November 2014.
A summary of the Odewayne asset details is provided on
page 13 of the Strategic Report.
Odewayne (WI 25%)
Overview
Sterling acquired an interest in the Odewayne Block,
located onshore Somaliland, in 2013. This very large
unexplored acreage comprises an area of 22,840km2.
Regional gravity and magnetic data indicate the presence
of a prospective basin centred on the block but exploration
to date has been very limited with no existing seismic
coverage and no wells drilled on block. The Odewayne
Production Sharing Agreement (“PSA”) was awarded in
2005, and is in the Third Period (expiring November 2014)
with an outstanding minimum work obligation of 500km
of 2D seismic. The minimum work obligation during
the Fourth Period of the PSA (expiring May 2016) is for
1,000km of 2D seismic and one exploration well.
During 2013 an aero-magnetic and gravity survey
confirmed the geometry of the broad basin underlying the
Odewayne block which is believed to be of Jurassic to
Cretaceous age. Fieldwork in the block has highlighted
the presence of numerous oil seeps at the surface giving
encouragement that a working hydrocarbon system is
present in this undrilled basin.
Sterling has completed the purchase of a 25% working
interest in the Odewayne block through separate farm-
out agreements with Petrosoma Limited (“Petrosoma”) for
10% equity and with Jacka Resources Somaliland Limited
(“Jacka”) for 15% equity post year end. Under the farm-
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Sterling Energy Plc Report and Financial Statements 2013
STRATEGIC REPORT
Operations Review (cont.)
MADAGASCAR
Sterling’s Ambilobe and Ampasindava blocks
are located in the Ambilobe and Majunga deep
water basins, respectively, offshore north-west
Madagascar. They are both undrilled but offer large
scale exploration potential.
These blocks have also seen significant progress during
2013. Exploration activities had been delayed due to
the political instability in the country following a change
in government in March 2009 which had not been
recognised by the African Union or by the United Nations.
In September 2011 the political parties in Madagascar
agreed to a process, prepared by the Southern African
Development Community, which involved the establishment
of a transitional government with the objective of holding
democratic elections. Two rounds of presidential elections
were duly held in October and December 2013 and were
declared by international observers to have been free and fair.
Hery Rajaonarimampianina was inaugurated as the new
president of Madagascar in January 2014 and at the time
of writing, discussions were continuing on the formation of
his new government.
During 2013, the Management Committees for both
Blocks, which are chaired by OMNIS, the state regulator,
agreed to prolong the current exploration periods of both
the Ambilobe and Ampasindava PSCs with each contract
having the same remaining duration and obligations
in the current exploration periods as existed in March
2009. These agreements were formally ratified by the
Government of Madagascar in September 2013 and
the current exploration periods of both PSCs now run to
September 2015.
Ampasindava (WI 30%)
Overview
The PSC for Ampasindava is in the third phase of the
exploration period with a minimum work commitment of
one exploration well. The large Sifaka prospect is ready
to drill and has been independently estimated to contain
gross un-risked best estimate prospective recoverable
resources of 1.2 billion barrels (RISC Competent Persons
Report, March 2008). With the return of Madagascar to
political stability, ExxonMobil Exploration and Production
(Northern Madagascar) Limited (“ExxonMobil”) (WI 70%
and Operator) and Sterling have resumed exploration
activities including well planning and a 1,314km 2D
seismic acquisition programme was completed on the
Ampasindava Block in December 2013. The data will
provide improved sub-surface imaging of the Sifaka
prospect and potentially mature additional prospects within
the Ampasindava Block to drill-ready status. Processing of
the new data is in progress.
Following the farm-in by ExxonMobil in 2005, Sterling’s
costs are carried up to a fixed amount. The cost to drill
the Sifaka prospect is estimated to exceed the remaining
carry and the Company is conducting a farm-out process
to introduce an additional partner and reduce its current
working interest in order to cover these costs. It is currently
unlikely that an exploration well will commence drilling
before 2015.
Sterling estimates that ExxonMobil’s remaining carry at the
beginning of 2014 is $30.3 million towards the gross cost
of exploration activities.
Future Activity
Following acquisition of additional 2D seismic data in 2013
the focus in 2014 will be on processing the new data in
conjunction with reprocessing of the existing database,
followed by a phase of interpretation. Well planning will
continue in order to target drilling in 2015 or 2016.
A summary of the Ampasindava asset details is provided
on page 14 of the Strategic Report.
Ambilobe (WI 50% & Operator)
Overview
The Ambilobe PSC is in the second phase of the exploration
period and all work commitments have been fulfilled.
A number of Cretaceous and Tertiary leads have been
identified, located in both shallow and deep waters, which
will require additional seismic data to develop into potential
drillable prospects. To that end, Sterling has commenced
planning a 3D seismic survey covering approximately
1,250km² which is scheduled to be acquired later in 2014.
As there are no outstanding commitments this activity is
entirely discretionary.
Sterling signed a farm-out agreement in November 2013
with Pura Vida Mauritius (“Pura Vida”) under which Pura
Vida has assumed a 50% interest in the PSC. Pura Vida
has paid Sterling $1.25 million towards Sterling’s past
costs, and will pay all costs associated with the planned
3D seismic survey up to a maximum of $15.0 million.
Following the farm-out, Sterling retains a 50% interest in
the PSC and remains as operator.
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Sterling Energy Plc Report and Financial Statements 2013 Future Activity
In the event of any commercial development of existing
or future discoveries within the PSC-A, PSC-B and PSC
C-10 contract areas, Sterling would be entitled to revenue
under its royalty interest agreements with Premier Oil Plc,
but would not have any cost obligations.
In November 2012, the Banda gas field, located in PSC-A
and operated by Tullow Oil Plc, was declared commercial
and it is planned that the field will supply gas to a new local
power station, subject to a final investment decision being
taken by the Banda joint venture.
Tullow Oil Plc plans to drill an exploration well in the PSC
C-10 contract area in the first half of 2014.
A summary of Chinguetti interests and a reserves summary
are provided on pages 16 and 17 of the Strategic Report.
KURDISTAN
Sangaw North PSC (Relinquished)
The Sangaw North block lies in the foothills region
of the Zagros fold belt, approximately 140km south
east of Erbil, the capital of the Kurdistan region
of Iraq.
During 2012, Sterling completed
its exploration of
the block, having signed the Sangaw North PSC in
November 2007, and as has been reported previously, the
Company withdrew from the PSC in early 2013. The work
commitments under the PSC were fully satisfied at the
date of the relinquishment.
Philip Frank
Exploration Director
14 March 2014
Future Activity
Acquisition of new 3D seismic data will be the focus of
activity in the Ambilobe block in 2014. With input from new
partner Pura Vida, an area of the undrilled Ambilobe basin
has been identified as the target for the 3D seismic survey.
A summary of the Ambilobe asset details is provided on
page 15 of the Strategic Report.
MAURITANIA
Chinguetti (Economic Interest via Funding and
Royalty Agreements)
Sterling has economic interests in the Chinguetti
field through a funding agreement with Société
Mauritanienne Des Hydrocarbures
(“SMH”),
Mauritania’s national oil company, and a royalty
agreement with Premier Oil Plc. The royalty agreement
also covers any commercial development of existing
or future discoveries within the PSC-A, PSC-B and
PSC C-10 contract areas.
Overview
Gross production during 2013 averaged 6,156 bopd (2012:
6,256 bopd) and the average production net to Sterling,
from the Company’s economic interests during 2013, was
527 bopd (2012: 523 bopd). Production in the first half of
the year was reduced by a scheduled shutdown of 6.5 days
for various maintenance activities and the replacement of
an anchor mooring chain. A planned sub-sea intervention
campaign due in September 2013 was postponed to
January 2014 to consolidate maintenance and intervention
programmes and minimise production down-time. This
was completed, as planned, within 10 days.
Sterling estimates that at the end of 2013, Chinguetti
held a remaining 7.8 million barrels of gross proved and
probable reserves (2P) that could be accessed via the
existing wells. Sterling’s net entitlement to 2P reserves is
559k barrels (2012: 475k barrels). The increase in the 2P
reserves recognises an updated production profile and a
subsequent revision to the anticipated economic field life
from May 2017 to December 2017. This has resulted in an
impairment reversal of $4.4 million in 2013 (see Financial
Review on page 19 of the Strategic Report).
No in-fill drilling or work-over activity took place on the
Chinguetti field during 2013.
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Sterling Energy Plc Report and Financial Statements 2013 STRATEGIC REPORT
Cameroon
Ntem (WI 50%)
OVERVIEW
The Ntem concession is a deep water block situated
in the southern Douala/Rio Muni Basin and lies
adjacent to the northern maritime border of the Rio
Muni province of Equatorial Guinea. Water depths
range from 400m to 2,000m across the block.
During the first term of the concession over 2,100km
of 2D and 1,500km2 of 3D seismic data were
acquired. Additional seismic and gravity data were
also purchased.
In November 2011, Murphy Cameroon Ntem Oil
Co. Ltd, a wholly owned subsidiary of Murphy Oil
Corporation, farmed into the block becoming a 50%
working interest partner in, and operator of the Ntem
Concession. Sterling retains a 50% non-operated
working interest.
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CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
Concession
14 March 2001
3 September 2002
2,319km2
Participants
Murphy Cameroon Ntem Oil Co. Ltd (Operator) 50%
Sterling Cameroon Limited
50%
Current work period (First renewal)
15 months to run after the lifting of force majeure on
22 January 2014
Minimum work commitment
Drill one exploration well
Second renewal
Two years duration
Second renewal work commitment
Drill two exploration wells
a) Production Bonuses
Average Production
Rate
50,000 bopd
100,000 bopd
Bonus
$1.0 million
$5.0 million
b) Proportional Royalty
Annual Production
State
Rate
0-50,000 bopd
Entitlement
4.0%
50,000-100,000 bopd 6.0%
>100,000 bopd
10.0%
c) Corporation Tax
40% (on net profits)
d) Additional Petroleum Duty (“APD”) is calculated as a percentage
of the profit subject to corporation tax and is paid in addition to
the corporation tax. R factor is defined as the ratio of ‘Accrued Net
Income’ and ‘Accrued Investments’:
R< 1.5, APD=0%
1.52.5, APD=20.0%
e) State may back in for a 10% participating interest in any
development and production area
f) Production concession duration twenty five years, renewable for
ten years
Sterling Energy Plc Report and Financial Statements 2013
STRATEGIC REPORT
Somaliland
Odewayne (WI 25%)
OVERVIEW
The Odewayne Block is located onshore Somaliland.
The Block is at a frontier stage of exploration with
no seismic coverage and no wells drilled, but with
oil seeps at the surface indicating the presence of a
working hydrocarbon system.
Sterling acquired its 25% interest through separate
farm-in agreements with Petrosoma and Jacka,
under which all costs associated with the Phases 3
and 4 work programmes are carried by Genel Energy.
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(cid:31)(cid:30)(cid:29)(cid:30)(cid:28)(cid:27)(cid:26)(cid:29)(cid:30)(cid:25)(cid:24)(cid:23)(cid:27)(cid:22)
(cid:21)(cid:20)(cid:30)(cid:25)(cid:28)(cid:19)(cid:29)(cid:24)(cid:27)(cid:26)(cid:29)(cid:30)(cid:25)(cid:24)(cid:23)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:31)(cid:30)(cid:26)(cid:25)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)
(cid:31)(cid:30)(cid:26)(cid:24)(cid:23)(cid:28)(cid:27)(cid:31)(cid:30)(cid:26)(cid:22)
(cid:27)(cid:24)(cid:23)(cid:24)(cid:22)(cid:28)(cid:21)(cid:23)(cid:24)(cid:20)(cid:19)(cid:18)
(cid:31)(cid:30)(cid:26)(cid:21)
(cid:17)(cid:16)(cid:15)
(cid:21)(cid:18)(cid:17)(cid:16)(cid:15)(cid:14)(cid:15)(cid:16)(cid:13)(cid:12)
(cid:141)(cid:143)(cid:143)(cid:27)(cid:144)(cid:157)
(cid:21)(cid:20)(cid:30)(cid:25)(cid:28)(cid:19)(cid:29)(cid:24)(cid:27)(cid:10)(cid:30)(cid:28)(cid:4)(cid:27)(cid:7)(cid:28)(cid:3)(cid:2)(cid:1)(cid:127)
(cid:18)(cid:20)(cid:129)(cid:30)(cid:25)(cid:27)(cid:10)(cid:30)(cid:28)(cid:4)(cid:27)(cid:7)(cid:28)(cid:3)(cid:2)(cid:1)(cid:127)
(cid:26)(cid:11)(cid:10)(cid:14)(cid:18)(cid:9)(cid:14)(cid:16)
(cid:21)(cid:18)(cid:17)(cid:16)(cid:15)(cid:14)(cid:16)
(cid:21)(cid:22)(cid:24)(cid:20)(cid:19)(cid:22)(cid:27)(cid:18)(cid:17)(cid:23)(cid:19)(cid:22)
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSA
6 October 2005
6 October 2005
22,840km2
Participants
Genel Energy Somaliland Limited (Operator)
Sterling Energy (East Africa) Limited
Jacka Resources Somaliland Limited
Petrosoma Limited
Exploration term
Phase 3:
To 4 November 2014
Phase 3 work commitment:
500km 2D seismic acquisition
Phase 4:
To 2 May 2016
50%
25%
15%
10%
Phase 4 work commitment:
1,000km 2D seismic acquisition and one exploration well
Phase 5 (optional):
To 2 May 2017
Phase 6 (optional):
To 2 May 2018
Production term
Twenty five years
13
Sterling Energy Plc Report and Financial Statements 2013
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:23)(cid:22)
(cid:31)(cid:23)(cid:28)(cid:25)(cid:21)(cid:28)(cid:20)(cid:26)(cid:19)
(cid:18)(cid:19)(cid:17)(cid:26)(cid:28)(cid:19)
(cid:16)(cid:15)(cid:23)(cid:28)(cid:19)
(cid:23)(cid:25)(cid:24)(cid:12)(cid:26)(cid:21)(cid:30)(cid:25)(cid:30)(cid:25)(cid:30)
(cid:31)(cid:12)(cid:11)(cid:16)(cid:27)(cid:14)
(cid:12)(cid:19)(cid:10)(cid:19)(cid:28)(cid:19)(cid:6)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:29)(cid:25)(cid:24)(cid:23)(cid:22)(cid:21)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:25)(cid:29)(cid:28)(cid:24)(cid:21)
(cid:12)(cid:127)(cid:27)(cid:19)(cid:29)(cid:28)(cid:27)(cid:30)(cid:24)(cid:22)
(cid:141)(cid:143)(cid:143)(cid:23)(cid:144)(cid:10)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:5)(cid:29)(cid:27)(cid:4)(cid:23)(cid:3)(cid:27)(cid:19)(cid:2)(cid:1)(cid:6)
(cid:127)(cid:30)(cid:129)(cid:29)(cid:28)(cid:23)(cid:5)(cid:29)(cid:27)(cid:4)(cid:23)(cid:3)(cid:27)(cid:19)(cid:2)(cid:1)(cid:6)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:30)(cid:26)(cid:25)(cid:24)(cid:28)(cid:23)(cid:25)(cid:22)(cid:21)(cid:20)(cid:28)(cid:19)(cid:27)(cid:31)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)(cid:26)(cid:25)(cid:24)
(cid:1)(cid:19)(cid:29)(cid:26)(cid:127)(cid:26)(cid:6)(cid:129)(cid:26)(cid:24)(cid:22)
(cid:7)(cid:26)(cid:8)(cid:24)(cid:14)(cid:26)(cid:19)(cid:11)(cid:6)
(cid:12)(cid:11)(cid:5)(cid:18)(cid:30)
(cid:3)
(cid:4)
(cid:22)
(cid:2)
(cid:18)(cid:20)(cid:17)(cid:16)(cid:22)(cid:16)(cid:17)(cid:30)
(cid:27)(cid:23)(cid:22)(cid:21)
(cid:31)(cid:30)(cid:20)(cid:19)(cid:18)(cid:28)(cid:17)(cid:16)(cid:19)(cid:15)(cid:19)(cid:24)(cid:23)(cid:22)(cid:21)
(cid:22)(cid:20)(cid:20)(cid:19)(cid:25)(cid:18)(cid:19)(cid:17)(cid:26)(cid:27)(cid:23)(cid:16)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:25)(cid:29)(cid:28)(cid:24)(cid:21)
(cid:15)(cid:30)(cid:10)(cid:9)(cid:25)(cid:8)(cid:30)(cid:28)(cid:19)(cid:27)(cid:31)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)(cid:26)(cid:25)(cid:24)
(cid:17)(cid:26)(cid:9)(cid:26)(cid:141)(cid:26)(cid:127)(cid:27)(cid:26)(cid:24)(cid:22)
(cid:17)(cid:26)(cid:18)(cid:19)(cid:26)(cid:18)(cid:26)(cid:11)(cid:28)(cid:24)(cid:22)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:26)(cid:24)(cid:23)(cid:22)
(cid:21)(cid:20)(cid:19)(cid:29)(cid:30)(cid:18)(cid:19)(cid:30)(cid:24)(cid:22)
(cid:17)(cid:26)(cid:18)(cid:26)(cid:16)(cid:26)(cid:15)(cid:24)(cid:22)
(cid:23)(cid:25)(cid:24)(cid:12)(cid:16)(cid:11)(cid:26)(cid:11)(cid:13)
(cid:27)(cid:14)(cid:16)(cid:15)(cid:29)(cid:17)(cid:13)(cid:18)
(cid:14)(cid:28)(cid:13)(cid:19)(cid:26)(cid:24)(cid:22)
(cid:15)(cid:30)(cid:21)(cid:16)(cid:14)(cid:16)(cid:30)(cid:13)
(cid:20)(cid:19)(cid:18)(cid:25)(cid:17)(cid:16)(cid:31)(cid:15)
(cid:10)(cid:9)(cid:28)(cid:8)(cid:15)(cid:24)(cid:22)
(cid:12)(cid:11)(cid:25)(cid:26)(cid:18)(cid:26)(cid:24)(cid:22)
(cid:18) (cid:15) (cid:14) (cid:15) (cid:13) (cid:15) (cid:31) (cid:12) (cid:15) (cid:11)
(cid:15)(cid:10)(cid:9)(cid:8)(cid:25)(cid:8)(cid:7)(cid:19)(cid:8)(cid:25)(cid:8)
(cid:143)(cid:29)(cid:30)(cid:24)(cid:14)(cid:6)(cid:30)(cid:24)(cid:17)(cid:26)(cid:18)(cid:19)(cid:30)(cid:24)(cid:22)
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSC
15 July 2004
28 November 2004
7,379km2
Participants
ExxonMobil (Operator)
Sterling Energy (UK) Limited
70%
30%
Exploration term
Eight year period with possible two year extension
(suspended between February 2009 and November 2012)
Phase 3:
Phase 3 extension to September 2015 has been ratified
Phase 3 work commitment:
Drill one exploration well
Phase 4 (optional):
One year duration
Phase 4 work commitment:
Drill one exploration well
Production term
Twenty five year period with possible extensions
Prolongation of Phase 3 of the licence has been
agreed with OMNIS and ratified by the Government of
Madagascar. Phase 3 now runs to September 2015.
Sterling estimates that ExxonMobil’s remaining carry
at the beginning of 2014 is approximately $30 million
towards the gross cost of drilling.
STRATEGIC REPORT
Madagascar
Ampasindava (WI 30%)
OVERVIEW
The Ampasindava block is located in the Majunga
basin, offshore Madagascar. Water depths across the
block range from 20m to 2,500m.
Sterling, as operator, fulfilled the Phase 1 and Phase
2 work programme commitments for the block by
completing G&G studies and acquiring more than
3,000km of 2D seismic. In July 2005, Sterling farmed
out the block to ExxonMobil. Following acquisition,
processing and interpretation of the new 2D seismic
Sterling transferred operatorship to ExxonMobil at the
end of 2006.
In late 2007 the Sifaka prospect was selected as
the first prospect for drilling. In November 2008 the
joint venture partners elected to enter Phase 3 of the
exploration period which has a one well commitment.
The Sifaka Prospect is located in the inboard portion
of the Ampasindava block, in water depths of 500m
to 1,800m. Sifaka is mapped as a very large, simple
structure with the main reservoir target, Jurassic
deep water turbidite sandstones, expected to be
encountered at approximately 3,000m below the
seabed.
RISC (Competent Persons Report, March 2008) has
estimated the gross (100%) un-risked prospective
recoverable resources for the Sifaka prospect as
follows:
Low Estimate 150 million bbls
Best Estimate 1.2 billion bbls
High Estimate 4.8 billion bbls
14
Sterling Energy Plc Report and Financial Statements 2013
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSC
15 July 2004
28 November 2004
17,650km2
Participants
Sterling Energy (UK) Limited (Operator) 50%
Pura Vida Mauritius
50%
Exploration term
Eight year period with possible two year extension
(suspended between February 2009 and November 2012)
Phase 2:
Phase 2 extension to September 2015 has been ratified
Phase 2 work commitment:
Completed
Phase 3 (optional):
One year duration
Phase 3 work commitment:
Drill one exploration well
Production term
Twenty five year period with possible extensions
Ambilobe (WI 50%)
OVERVIEW
The Ambilobe block is located in the Ambilobe basin,
offshore Madagascar. Water depths across the block
range from shoreline to 3,000m.
The Phase 1 and Phase 2 work programme
commitments were fulfilled by conducting G&G
studies, acquiring approximately 1,000km of new 2D
seismic and processing more than 5,000km of new
and vintage 2D seismic data.
In July 2005 Sterling farmed out a 70% interest to
ExxonMobil. 550km of new 2D seismic data were
purchased and more than 5,500km of 2D data were
reprocessed. In May 2008, Phase 2 of the exploration
period was extended by 1 year. In early 2009
ExxonMobil withdrew from the PSC and its interest
reverted to Sterling.
Sterling signed a farm-out agreement in November
2013 with Pura Vida Mauritius under which Pura Vida
has assumed a 50% interest in the PSC. Pura Vida
has paid Sterling $1.25 million towards Sterling’s
past costs, and will pay all costs associated with the
planned 3D seismic survey up to a maximum cost of
$15.0 million. Following the farm-out, Sterling retains
a 50% interest in the PSC and remains as operator.
Prolongation of Phase 2 of the licence has been
agreed with OMNIS and ratified by the Government of
Madagascar. Phase 2 now runs to September 2015
and there are no outstanding commitments.
15
Sterling Energy Plc Report and Financial Statements 2013
STRATEGIC REPORT
Reserves Summary
Year ended 31 December 2013
2013
Oil
(000 boe)
2013
Gas
(mcf)
2013
Reserves
(000 boe)
2012
Oil
(000 boe)
2012
Gas
(mcf)
2012
Reserves
(000 boe)
Volumes of Proven plus Probable
Reserves
At 1 January
Revision – Chinguetti (1-3)
Production
At 31 December
475
276
(192)
559
-
-
-
-
475
276
(192)
559
664
-
(189)
475
-
-
-
-
664
-
(189)
475
1 The reserves stated are for Sterling’s net interests in the Chinguetti field only and are based on Sterling’s own assessment of reserves, as at
31 December 2013. Sterling’s interest in the Chinguetti field is through its Funding Agreement and Royalty Agreements; Sterling does not have a
direct equity participation in the Chinguetti field. The assessment was made in accordance with the definitions as set out on page 94.
2 Sterling has not booked reserves relating to other Mauritanian discoveries, on the basis that there are no approved development plans for those
discoveries.
3 In accordance with the guidelines of the AIM Market of the London Stock Exchange, Dr Philip Frank, Ph.D. Geology (1977), Exploration Director of
Sterling Energy Plc, who has been involved in the oil industry for over 30 years, is the qualified person that has reviewed the assessment of reserves
set out above.
16
Sterling Energy Plc Report and Financial Statements 2013 STRATEGIC REPORT
Schedule of Interests
Year ended 31 December 2013
Location
Mauritania: Offshore
Mauritania: Offshore
Size
(km²)
110
403
Mauritania: Offshore
10,725
PSC C-10
Mauritania: Chinguetti
29
Funding
Agreement
with SMH and
Royalty Agreement
with Premier Oil
Licence
Name
Sterling
Working
Interest
Sterling
Net Revenue
Interest
Operated/
Non-operated
PSC A
PSC B
n/a
n/a
n/a
n/a
Sliding scale royalty
from 3% WI 1
Sliding scale royalty
from 6% WI 1
Non-operated
Non-operated
Sliding scale royalty
from 4% (average) WI 1
Non-operated
Economic interest for
approximately 8% of
Chinguetti project
Non-operated
Cameroon: Southern Douala Basin
Madagascar: Offshore NW
2,319
17,650
Ntem 2
Ambilobe 3
Madagascar: Offshore NW
7,379
Ampasindava 3
Republic of Somaliland: Onshore
22,840
Odewayne Block
50%
50%
30% 4
25% 5
Non-operated
Operator
Non-operated
Non-operated
1 Sterling’s royalty interests derive from Premier Oil’s working interests of 3% in PSC A, 6% in PSC B and 4% (average) in PSC C-10. Sterling’s royalty
is up to 6% of Premier Oil’s working interest.
2 Force majeure has been lifted and the licence expires 22 April 2015.
3 Prolongation of the licences has been agreed with OMNIS, the State oil company of Madagascar and Government ratification has been received
(pages 14 and 15).
4 Carried for defined $ amount.
5 Includes 15% interest acquired on 27 January 2014.
Philip Frank
Exploration Director
14 March 2014
17
Sterling Energy Plc Report and Financial Statements 2013 STRATEGIC REPORT
Financial Review
Year ended 31 December 2013
Selected Financial Data
Chinguetti production 1
Year end 2P reserves 1
Revenue
EBITDA 1
Profit/(loss) after tax
bopd
000 boe
$million
$million
$million
Net cash investment in oil and gas assets
$million
Year end cash (including partner funds)
$million
Average realised oil price
Total cash operating costs (produced)
Year end share price
Share price change 1
1 Key performance indicators
$/bbl
$/bbl
Pence
%
2013
527
559
18.4
9.1
8.3
5.9
120.8
101.1
36.9
43
12
2012
523
475
22.5
11.1
(12.9)
4.4
120.3
102.6
50.8
39
(3)
Highlights
• Group net profit of $8.3 million in 2013 (2012: loss $12.9 million).
• Impairment reversal of Chinguetti licence $4.4 million following flatter production decline rate and associated field life
extension.
• Cash balance at year end of $120.8 million (2012: $120.3 million).
• Average 2013 Chinguetti production 527 bopd (2012: 523 bopd).
• Debt free throughout 2013.
Revenue and Cost of Sales
2013 production averaged 527 bopd, including royalty barrels, an increase of 1% from the 523 bopd averaged in 2012,
despite a production shutdown for 6.5 days to replace a broken mooring chain.
Gross volumes lifted and sold during the year were down by 17% to 2.2 million barrels (2012: 2.6 million barrels). This
reduction in lifting volume is only as a result of timing differences on the Operator’s 2013 lifting programme which varies
from year-to-year.
The lifting cost per barrel has decreased in 2013 by $1.1 to $53.8 (2012: $54.9). This was principally due to a reduction
in direct operating costs during the year following the requirement in 2012 for additional remedial expenditure and the
impact of associated short-term interruptions to production.
Currently, all of the Group’s production is from the Chinguetti field and the Group’s production was 476 bopd for the
month of December 2013.
18
Sterling Energy Plc Report and Financial Statements 2013 A summary of revenue, cost of sales and lifting volumes are provided below:
Liftings (bbls) 1
Revenue ($million)
Revenue/bbl ($)
Lifting cost ($million)
Lifting cost/bbl ($)
1 Net Sterling production during the year totalled 192,370 (2012: 191,583)
Loss for Year
The 2013 profit totalled $8.3 million (2012: loss $12.9 million).
Loss for year 2012
Impairment of Sangaw North (2012)
Other impairment reversals (2012)
Decrease in revenue
Decrease in operating costs
Increase in G&A
Release of accrual on final dissolution of in-country branch
Impairment reversal of Chinguetti
Decrease in pre-licence expenditure
Decrease in finance income and expense
Profit for year 2013
2013
2012
181,691
219,177
18.4
101.1
(9.8)
(53.8)
22.5
102.6
(12.0)
(54.9)
$ (million)
(12.9)
18.4
(0.3)
(4.1)
2.3
(0.4)
1.0
4.4
0.1
(0.1)
8.3
During 2013, the Group reversed impairments totalling $4.4 million on the Chinguetti asset following improvements in
the expected field life.
The Group also reversed accruals totalling $1.0 million with respect to discontinuing operations following the final
dissolution of local branches. All costs had been fully impaired in prior periods and had included these accruals which
were considered payable at the time of impairment.
Group direct operating costs decreased by $2.3 million due to operating cost reductions in Chinguetti (see above).
Group administrative overhead increased during the year to $3.2 million (2012: $2.8 million). Included within this charge
is $1.2 million (2012: $1.0 million) with respect to share-based payment charges.
A portion of the Group’s staff costs and associated overheads are recharged to joint venture partners ($107k), expensed
as pre-licence expenditure ($2.1 million), or capitalised ($2.0 million) where they are directly attributable to capital projects.
In 2013 this portion of Group staff costs totalled $4.1 million (2012: $4.3 million).
19
Sterling Energy Plc Report and Financial Statements 2013 STRATEGIC REPORT
Financial Review (cont.)
Year ended 31 December 2013
A summary of these movements are provided below:
Group administrative overhead (page 55)
Costs capitalised
Costs recharged to JV partners
Pre-licence expenditure
Share based payment expense
Other non-cash expenditure
Group cash G&A expense
2013
$ (million)
2012
$ (million)
(3.2)
(2.0)
(0.1)
(2.1)
(4.2)
1.2
0.1
(6.1)
(2.8)
(1.9)
(0.5)
(1.9)
(4.3)
1.0
-
(6.1)
EBITDA and Net Loss
Group EBITDA (as defined within the Definitions and Glossary of Terms on page 93) totalled $9.1 million (2012: $11.1
million).
Net profit after tax totalled $8.3 million (2012: loss $12.9 million). The basic profit per share was $0.04 per share (2012:
loss $0.06 per share).
Interest received and finance expenses were a net expense of $251k (2012: $165k) which includes exchange losses
of $66k (2012: gain $533k) on GBP cash deposits held at 31 December 2013 reported in US Dollars, a non-cash
finance expense of $434k (2012: expenses $1.0 million) relate to the unwinding of the Chinguetti decommissioning
provision (see note 8 on page 72), interest received totalled $268k (2012: $350k) and other finance expenses totalling
$19k (2012: $38k).
No dividend is proposed to be paid for the year ended 31 December 2013 (2012: $nil).
Cash Flow
Net Group cash inflow generated from operating activities was $6.3 million (2012: $7.8 million) a full reconciliation of
which is provided in note 24 on page 82.
Net cash investments in oil and gas assets totalled $5.9 million (2012: $4.4 million) and are summarised below:
Somaliland 1
Madagascar 2
Cameroon
Kurdistan
Gabon
1 Includes $3.0 million paid to Jacka Resources Somaliland Limited included within other receivables
2 Net of $1.25 million received on Ambilobe farm-out
20
2013
$ (million)
2012
$ (million)
5.1
0.1
0.7
-
-
5.9
-
1.0
0.5
3.1
(0.2)
4.4
Sterling Energy Plc Report and Financial Statements 2013 Statement of Financial Position
At the year end, cash and cash equivalents totalled $120.8 million (2012: $120.3 million) of which unrestricted funds of
$2.1 million (2012: $1.7 million) were held on behalf of partners, leaving a cash balance of $118.7 million (2012: $118.7
million) available for Sterling’s own use at 31 December 2013.
At the end of 2013, net assets/total equity stood at $114.1 million (2012: $104.6 million), and non-current assets totalled
$21.6 million (2012: $16.7 million). Net current assets increased to $114.1 million (2012: $109.2 million) due in part to a
Chinguetti cargo lifted in late December 2013, cash for which was received in January 2014.
The Group’s Chinguetti decommissioning provision increased during the year by $434k to $21.6 million (2012: $21.1 million)
due to the extension of the field life (see note 21 on page 80).
Cautionary Statement
This financial report contains certain forward-looking statements that are subject to the usual risk factors and uncertainties
associated with the oil and gas exploration and production business. Whilst the Directors believe the expectation
reflected herein to be reasonable in light of the information available up to the time of their approval of this report, the
actual outcome may be materially different owing to factors either beyond the Group’s control or otherwise within the
Group’s control but, for example, owing to a change of plan or strategy. Accordingly, no reliance may be placed on the
forward-looking statements.
21
Sterling Energy Plc Report and Financial Statements 2013 STRATEGIC REPORT
Business Risk
PRINCIPAL BUSINESS RISKS
The Directors have identified the following current principal risks in relation to the Company’s future performance. The
relative importance of risks faced by the Company can, and is likely to change with progress in the Company’s strategy
and developments in the external business environment.
STRATEGIC
Strategy Risk
The Company’s strategy may not deliver the results expected by shareholders. The Directors regularly monitor the
appropriateness of the strategy, taking into account both internal and external factors, and the progress in implementing
the strategy, and modify the strategy as may be required based on results. Key elements of this process are annual
business plans and strategy reviews, monthly reporting, and regular Board meetings.
Concentration Risk
The Company’s portfolio of exploration assets remains relatively concentrated despite its acquisition of interests in
Somaliland during the year. The Board has identified further broadening the exploration portfolio, using the existing
financial resources of the Company, as an important element of the Company’s strategy.
Competition Risk
The addition of exploration licences to the Company’s portfolio is subject to increasing competition from other companies.
Many of the Company’s larger competitors have significantly greater financial and technical resources and are able to
devote more to the development of their business. The Company mitigates this risk by choosing where and when to
deploy its business development resources.
OPERATIONAL
Exploration Risk
Exploration activities within the Company’s licences may not result in a commercial discovery. The historic industry
average exploration drilling success rate is approximately one success for every five wells. There is no certainty of
success from the existing portfolio.
Sterling mitigates the exploration risk through the experience and expertise of the Company’s specialists, the application
of appropriate technology, and the selection of prospective exploration assets. The Company has an objective to acquire
additional exploration assets, which will diversify exploration risk.
Operator Risk
Sterling is not the operator of the Company’s licences where exploration drilling is anticipated as the next operational
activity. The Company is dependent on other operators for the performance of activities and will be largely unable to
direct, control or influence the activities and costs of the operators.
By farming out prior to drilling activities, the Company has reduced its cost exposure and transferred operatorship to
other, normally larger and more experienced, operators for drilling activities, with a consequent increase in the Company’s
dependence on other operators for the performance of these activities.
Sterling carefully considers the technical and financial capability of companies becoming operator of licences during
a farm-out process. Murphy Oil is the operator of the Ntem licence in Cameroon, ExxonMobil is the operator of the
Ampasindava licence in Madagascar and Genel Energy is the operator of the Odewayne licence in Somaliland.
EXTERNAL
Country Risk
The Company’s assets are located in non-OECD countries. Governments, regulations, and the security environment
may change with a consequential effect on the Company’s assets. The Company’s assets in Cameroon, Somaliland and
Madagascar are currently affected by country-specific situations.
22
Sterling Energy Plc Report and Financial Statements 2013 In Cameroon, the Company holds a 50% working interest in the highly prospective Ntem block. The Governments of
Cameroon and Equatorial Guinea are negotiating their joint maritime border, part of which runs concurrent with two of
the Ntem block boundaries. The Company believes the final location of the maritime border will not impinge upon the
Ntem area, however there is no certainty that, when agreement over the maritime border is reached, the Ntem acreage
will remain as it is defined under the current licence agreement with the Cameroon Government.
In Madagascar the Company holds 50% and 30% in the Ambilobe and Ampasindava licences respectively. In 2013
agreement was reached with OMNIS, the state regulator, to prolong the current exploration period of both licences, with
no changes to the work commitments. These agreements were signed and ratified by the President of the Transitional
Government in July 2013 with formal gazettal of the agreements made in November 2013. In January 2014 Hery
Rajaonarimampianina was inaugurated as the new democratically elected president of Madagascar in the first free and
fair elections since 2009.
In Somaliland the Company holds a 25% interest in the Odewayne licence. Somaliland is situated in the Horn of Africa
and was, until 1960, a protectorate of the United Kingdom. The local government in Somaliland declared independence
from the Republic of Somalia in May 1991 and has, since then, developed the institutions and structures of democratic
government. Although not officially recognised as an independent country, Somaliland maintains political contacts with
its neighbours Ethiopia and Djibouti, and a number of international countries, including the United Kingdom.
Country risk is mitigated by monitoring the political, regulatory, and security environment within the countries in which
Sterling holds assets, engaging in constructive discussions where and when appropriate, and introducing third-party
expertise if this may assist in resolution of issues affecting the Company’s assets.
The Company has an objective to acquire additional assets for the exploration portfolio, which may assist in diversifying
country risk.
OTHER BUSINESS RISKS
In addition to the current principal risks identified above and general business risks, the Group’s business is subject to
risks inherent in oil and gas exploration, development and production activities. There are a number of potential risks
and uncertainties which could have a material impact on the Group’s long-term performance and could cause actual
results to differ materially from expected and historical results. The Company has identified certain risks pertinent to
its business including:
Category
Risk
Strategic and Economic
Operational
• Inappropriate or poorly conceived strategy and plans
• Failure to deliver on strategy and plans
• Business environment changes
• Competition and barriers to entry
• Operations in territories which are susceptible to political, fiscal and
social instability
• Limited diversification
• Shareholder concentration
• HSSE incident or non-compliance under local rules and/or laws
• Failure to add value through exploration
• Poor field performance
• Licences, permits and/or approvals may be difficult to sustain
• Reliance on other operators
• Delays in conducting work programmes
23
Sterling Energy Plc Report and Financial Statements 2013 STRATEGIC REPORT
Business Risk (cont.)
Commercial
Human Resources and
Management Processes
Financial
• Failure to access new opportunities
• Failure to maximise value from existing interests
• Loss of control of key assets
• Dissatisfied stakeholders
• Failure to negotiate optimal contract terms
• Reserve and production estimations are not exact determinations
• Regulatory compliance and legal
• Failure to recruit and retain key personnel
• Human error or deliberate negative action
• Inadequate management processes
• Insufficient timely information available to the management and
the Board
• Restrictions in capital markets impacting available financial resource
• Oil or gas price volatility impacting both revenues and reserves
• Counterparty default
• Cost escalation and budget overruns
• Fiscal changes
• Operations under-insured
• Foreign currency risk
• Financial control of operated and non-operated assets
• Fraud and corruption
The Directors regularly monitor such risks, using information obtained or developed from external and internal sources,
and will take actions as appropriate to mitigate these. Effective risk mitigation may be critical to Sterling in achieving
its strategic objectives and protecting its assets, personnel and reputation. The Company has developed a business
management system, including a risk management process that identifies key business risks and measures to mitigate
these risks and then implements such measures considered appropriate. Other significant elements of the business
management system include regular Board review of the business, defined process for preparation and approval of the
annual work programme and budget, monthly management reporting, financial operating procedures, and HSSE and
anti-bribery management systems.
Sterling reviews its business risks and management systems on a regular basis and, through this process, the Directors
have identified the principal risks. The Company manages some risks by maintaining a portfolio of projects and ensuring
the Company is in compliance with the terms of all its agreements, through the application of appropriate policies and
procedures implemented in the business management system, and via the recruitment and retention of a team of skilled
and experienced professionals.
CORPORATE RESPONSIBILITY
Sterling is committed to conducting its business in a responsible and sustainable way. Sterling recognises that it has
corporate and social responsibilities to the local communities in the areas in which it operates, to its partners, to its
employees and to its shareholders. In pursuing its business objectives it undertakes not to compromise its corporate or
social responsibilities with any of these stakeholders.
24
Sterling Energy Plc Report and Financial Statements 2013 BUSINESS INTEGRITY
The highest ethical standards are the cornerstone of Sterling’s business. Sterling is committed to conducting its business
with integrity, honesty and fairness. All business activities are reviewed to ensure they meet these standards. Sterling also
seeks to ensure that similar standards are applied by its business partners, contractors and suppliers. All members of
staff are individually accountable for their actions to ensure they apply and maintain these standards.
COMMUNITY RESPONSIBILITY
Sterling is committed to being a good partner in the communities in which the Company operates. Engagement and
dialogue with our local communities is essential in ensuring, that where possible, projects benefit both the Company and
the communities in which the project is located.
EMPLOYEES
Sterling is committed to providing a workplace free of discrimination where all employees are afforded equal opportunities
and are rewarded upon merit and ability. In the implementation of this policy Sterling is committed to ensuring that all
employees are given contracts with clear and fair terms. Staff are offered access to relevant training and encouraged to
join professional bodies to enhance knowledge, competence and career development.
Sterling is committed to achieving the highest possible standards of conduct, accountability and propriety and to a
culture of openness in which employees can report legitimate concerns without fear of penalty or punishment. Sterling
has a whistle-blowing policy which empowers employees to be proactive, to stop or report any failure to comply with
legal obligations or Sterling’s regulations, dangers to health and safety, financial malpractice, damage to the environment,
criminal offences and actions which are likely to harm the reputation of the Company. The whistle-blowing policy allows
employees to make anonymous reports directly to a non-executive Director.
HEALTH, SAFETY, SECURITY AND ENVIRONMENT (“HSSE”)
It is an objective of Sterling that every individual is aware of his/her responsibility towards providing for a safe and
secure working environment. HSSE and social responsibility leadership are core competencies throughout Sterling’s
line management organisation. Sterling’s HSSE risks are managed in a systematic way by utilising procedures and
appropriate training of staff, with the aim to reduce these risks to as low as is reasonably practical. Sterling ensures that
appropriate emergency response systems are in place to reduce and mitigate the impact and losses of any incident and
any residual risks and that it is in compliance with all relevant laws, regulations and industry standards.
Sterling maximises its influence with joint venture partners to share its HSSE and social responsibility values. Contractors
are required to demonstrate and deliver a credible HSSE and social responsibility programme. In order to achieve
continual improvement, Sterling is committed to reviewing its HSSE and social responsibility performance each quarter.
Sterling is committed to minimising its impact on the environment in both field operations and within its offices. All staff
share responsibility for monitoring and improving the performance of its environmental policies with the objective of
reducing our impact on the environment on a year-on-year basis.
Andrew Smith
Financial Controller
14 March 2014
Alastair Beardsall
Chairman
14 March 2014
25
Sterling Energy Plc Report and Financial Statements 2013
Sterling Energy Plc
Corporate Governance
Year ended 31 December 2013
CORPORATE GOVERNANCE
Board of Directors
Alastair Beardsall, executive Chairman, aged 60
Alastair joined Sterling in September 2009. He has been involved in the oil industry for over 30 years. For the first 12 years
Alastair worked on international assignments with Schlumberger, the oil-field services company. From 1992 he began
working for independent exploration and production operators, with increasing responsibility for specific exploration,
development and production ventures. Between September 2003 and October 2009, Alastair was executive Chairman
of Emerald Energy Plc during which time Emerald grew from a market capitalisation of less than £8 million to a size
that allowed the Company to enter the FTSE 250 index in January 2009. In October 2009 Emerald was acquired by
Sinochem Resources UK Limited, for £7.50 per share in a transaction that valued Emerald at £532 million.
Philip Frank, Exploration Director, aged 61
Philip joined Sterling in October 2011 as Exploration Director. Following a PhD gained at Liverpool University, he started
his oil industry career in 1977 with an 11 year spell in BP, initially as a North Sea rig geologist and finally as the group-wide
Assistant Chief Geologist. Since then he has held senior management positions in a range of UK-based independent
exploration and production companies including Clyde, Monument and LASMO, and has gained extensive world-wide
exploration experience with an emphasis on new venture generation. Philip was closely involved with Emerald Energy
from 2003 through to its acquisition in 2009. Initially in a consulting role and finally as Exploration Manager, he provided
the exploration direction for the company’s successes both in Colombia and in Syria.
Nicholas Clayton, non-executive Director, aged 50
Nicholas was appointed a non-executive Director of Sterling in October 2009. Nicholas is chairman of the Audit
Committee and a member of the Remuneration and Nomination Committees. Nicholas has provided strategic and
corporate finance advice to a number of public and private oil and gas companies since January 2007. Between August
2005 and December 2006 he was Global Co-Head of Oil and Gas Corporate Finance for Canaccord Adams. For the
previous 5 years he held the position of Global Head of Oil and Gas Corporate Finance for Dresdner Kleinwort Benson,
the investment bank, having previously been Global Head of Oil and Gas Research between 1997 and 2000. Nicholas
began his career at BP having obtained a first class honours degree in Business Studies, sponsored by BP, from
Portsmouth Polytechnic in 1985. Nicholas serves as a non-executive Director of Circle Oil Plc, where he is chairman of
the Audit Committee.
Keith Henry, non-executive Director, aged 69
Keith was appointed a non-executive Director of Sterling in September 2009. He chairs the Remuneration Committee
and is a member of the Audit and Nominations Committees. He has over 35 years of international business experience
in the development, ownership, design and construction of major facilities worldwide. He was with Brown & Root Limited
for 23 years, the last five of which were as Chief Executive responsible for the Europe, Africa and FSU regions. From
1995 to 1999 he was Chief Executive of National Power Plc, and then Chief Executive of Kvaerner Engineering and
Construction Ltd until June 2003. Keith serves as Chairman of Regal Petroleum Plc and Mediterranean Oil and Gas Plc,
as well as serving as a non-executive Director and advisor to a number of companies in the engineering, services and
energy sectors. He is a Fellow of the Royal Academy of Engineering.
Malcolm Pattinson, non-executive Director, aged 70
Malcolm was appointed a non-executive Director of Sterling in November 2010. Malcolm is Chairman of the Nomination
Committee and a member of the Audit and Remuneration Committees. Malcolm is a geoscientist with 40 years of
experience and joined Sterling in November 2010. Until 2001 he was the vice-president of exploration for Ranger Oil
(which became CNR); and prior to this he was exploration vice-president for Hamilton Oil (which became BHP). From
2001 to 2006 Malcolm was a consultant for Tullow Oil. Malcolm is an honorary life member and former chairman of the
Petroleum Exploration Society of Great Britain, and was awarded the medal for outstanding achievement in 1996 by
the Petroleum Group of the Geological Society. He is the chairman of GTO Limited and was formerly a non-executive
Director of Aurelian Oil and Gas Plc.
28
Sterling Energy Plc Report and Financial Statements 2013
APPLICATION OF UK CORPORATE GOVERNANCE CODE PRINCIPLES
Throughout the year ended 31 December 2013 the Board has sought to comply with a number of the provisions of the
UK Corporate Governance Code (“the Code”) in so far as it considers them to be appropriate to a company of the size
and nature of Sterling. The Directors make no statement of compliance with the Code overall and do not explain in detail
any aspect of the Code with which they do not comply. The Company continues to keep its overall system of internal
control under review.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board Composition, Operation and Independence
The Board currently comprises the executive Chairman, one executive Director and three non-executive Directors. Each
of the executive Directors has extensive knowledge of the oil and gas industry combined with general business and
financial skills. All of the Directors bring independent judgement to bear on issues of strategy, performance, resources,
key appointments and standards. The Board meets regularly throughout the year and all the necessary information is
supplied to the Directors on a timely basis to enable them to discharge their duties effectively.
The Board is responsible to the shareholders for the proper management of the Company. A Statement of Directors’
Responsibilities in respect of the financial statements is set out on page 50.
The Board has a formal schedule of matters specifically reserved for its decision. These include strategic planning,
business acquisitions or disposals, authorisation of major capital expenditure and material contractual arrangements,
changes to the Group’s capital structure, setting policies for the conduct of business, approval of budgets, remuneration
policy of Directors and senior management, and taking on debt and approval of financial statements. Other matters are
delegated to the Committees of the Board and executive Directors, supported by policies for reporting to the Board.
Keith Henry is the Senior Independent Director. The Senior Independent Director is available to Shareholders if they have
concerns which, through the normal channels of contact with the Chairman or CEO, have not been resolved or for which
such contact is inappropriate.
The Company maintains Directors’ and Officers’ liability insurance cover and provides the Directors with indemnity, the
level of which is reviewed annually.
Meetings and Attendance
The following table summarises the number of Board and committee meetings held during the year and the attendance
record of the individual Directors:
Number of meetings in year
Alastair Beardsall
Philip Frank
Angus MacAskill (resigned 16 August 2013)
Keith Henry
Nicholas Clayton
Malcolm Pattinson
Board
Meetings
Audit
Committee
Remuneration
Committee
Nominations
Committee
8
8
8
5
8
8
8
4
-
-
-
4
4
4
1
-
-
-
1
1
1
1
-
-
-
1
1
1
29
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Board of Directors (cont.)
Induction and Training
New Directors, on their appointment to the Board, are briefed by the Board and management on the activities of the
Group and its key business and financial risks, the Terms of Reference of the Board and its Committees, the list of Board
reserved matters, and the latest financial information about the Group. The Chairman ensures that Directors update their
skills, knowledge and familiarity with the Company to fulfil their roles on the Board and on Board Committees. Ongoing
training is available as necessary and includes updates from the Company Secretary on changes to the AIM rules, the
Code, requirements under the Companies Act and other regulatory matters. Directors may consult with the Company
Secretary at any time on matters related to their role on the Board. All Directors have access to independent professional
advice at the Company’s expense.
Evaluation of the Board’s Performance
Performance evaluation takes place for individual Directors, the Board and its Committees and includes assessing
the effectiveness of the Board as a whole. The evaluation of the performance of Directors is carried out using peer
appraisal questionnaires which combine business and personal performance and includes discussions with the
Senior Independent Director and the Senior Independent Director with the Chairman. Aspects of performance include
attendance and participation at Board meetings, quality of involvement in Committees, commitment and effectiveness of
their contribution to Board activities (including the AGM and shareholder communications), the adequacy of training and
non-executive Directors’ independence. The process is conducted and reviewed by the Senior Independent Director,
on behalf of the Nominations Committee; the Company Secretary is advised of its completion. The performance of the
Chairman is reviewed annually in a meeting of the non-executive Directors, led by the Senior Independent Director. This
review takes into account the views of executive Directors.
Retirement and Re-election
The Company’s Articles of association require that any Director who has been a Director at the preceding two Annual
General Meetings and who was not appointed or re-appointed by the Company, retire and stand for re-election. All
new Directors appointed since the previous Annual General Meeting need to stand for election at the following Annual
General Meeting.
30
Sterling Energy Plc Report and Financial Statements 2013 Audit Committee Report
An important part of the role of the Audit Committee is its responsibility for reviewing the effectiveness of the Group’s
financial reporting, internal control policies, and procedures for the identification, assessment and reporting of risk. The
latter two areas are integral to the Group’s core management processes and the Committee devotes significant time to
their review. Further information on the risk management and internal control systems is provided within the Strategic
Report on pages 22 to 24.
One of the key governance requirements of a group’s financial statements is for the report and accounts to be fair,
balanced and understandable. The co-ordination and review of the Group-wide input into the Report and Financial
Statements is a sizeable exercise performed within an exacting time-frame which runs alongside the formal audit process
undertaken by the external Auditors. Arriving at a position where initially the Audit Committee, and then the Board, are
satisfied with the overall fairness, balance and clarity of the document is underpinned by the following:
• comprehensive guidance issued to contributors at operational levels;
• a verification process dealing with the factual content of the reports;
• comprehensive reviews undertaken at different levels that aim to ensure consistency and overall balance; and
• comprehensive review by the senior management team.
The Audit Committee has also championed efforts to ‘declutter’ the Report and Financial Statements by stripping out
duplication and sequencing information in as logical a manner as possible without compromising compliance with UK
regulatory and accounting requirements.
An essential part of the integrity of the financial statements are the key assumptions and estimates or judgments that
have to be made. The Committee reviews key judgments prior to publication of the financial statements at the full
and half year, as well as considering significant issues throughout the year. In particular, this includes reviewing any
materially subjective assumptions within the Group’s activities to enable an appropriate determination of asset valuation
and provisioning. The Committee reviewed and was satisfied that the judgments exercised by management on material
items contained within the Report and Financial Statements were reasonable.
Additionally, the Committee also considered management’s assessment of going concern with respect to the Group’s
cash position and its commitments for the next 12 months and were satisfied that the Group continues to be able to fund
its liabilities from existing cash reserves which totalled $120.8 million at 31 December 2013.
The Audit Committee has considered the Group’s internal control and risk management policies and systems, their
effectiveness and the requirements for an internal audit function in the context of the Group’s overall risk management
system. The Committee is satisfied that the Group does not currently require an internal audit function, however, it will
continue to periodically review the situation. A limited internal audit of controls and processes was undertaken by the
Chairman of the Audit Committee in December 2013.
The Committee also considered Sterling’s whistle-blowing procedures to ensure that its employees are able to raise
concerns, in confidence, about possible wrongdoing in financial reporting and other matters. The audit committee met
four times during the year to consider these matters.
The external audit function plays an important part in assessing the effectiveness of financial reporting and internal controls
and, in turn, the effectiveness and quality of audit is of key importance. Our Auditors, BDO LLP have been in place since
2010 and, in line with the audit profession’s own ethical guidance, the current audit engagement partner is due to rotate
off the Company’s account in the year ending 31 December 2015 having served for a period of five years. The Committee
reviews the Auditors’ independence and monitors the nature and level of non-audit fees payable to them on an annual
basis. The Committee believes that certain work of a non-audit nature is best undertaken by the external Auditors, and
believes that it is not appropriate to limit the level of such work by reference to a set percentage of the audit fee, as this
does not take into account important judgments that need to be made concerning the nature of work undertaken to help
safeguard the Auditors’ independence. Details of fees payable to the Auditors are set out in note 5 on page 71.
31
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Audit Committee Report (cont.)
The Committee has reviewed the recent changes to the UK Corporate Governance Code including the requirement
for FTSE 350 companies to put the external audit contract out to tender at least every ten years. Having considered
the FRC’s guidance on aligning the timing of such re-tenders with the audit engagement partner rotation cycle, the
Committee’s current intentions are that it will initiate a re-tendering process in 2020. This policy will be kept under review
and the Committee will use its regular reviews of Auditor effectiveness to assess whether an earlier date for such a
re-tender would be desirable. Such regular reviews are used to assess the effectiveness of the external audit process
and the Auditors’ performance, with the Committee undertaking an internal assessment of the audit effectiveness and
performance which is mapped against audit appointment criteria. The Committee has recommended to the Board that
it recommend that shareholders support the re-appointment of BDO LLP at the 2014 AGM.
Nicholas Clayton
Chairman of the Audit Committee
14 March 2014
MEMBERS
This Committee comprises:
• Nicholas Clayton (Chairman)
• Keith Henry
• Malcolm Pattinson
SUMMARY OF RESPONSIBILITIES
• Reviewing the effectiveness of the Group’s financial reporting, internal control policies and procedures for the
identification, assessment and reporting of risk;
• monitoring the integrity of the Group’s financial statements;
• monitoring the effectiveness of the internal control environment;
• making recommendations to the Board on the appointment of the Auditors;
• agreeing the scope of the Auditors’ annual audit programme and reviewing the output;
• keeping the relationship with the Auditors under review;
• assessing the effectiveness of the audit process; and
• developing and implementing policy on the engagement of the Auditors to supply non-audit services.
The external Auditors have unrestricted access to the Chairman of the Audit Committee. Audit Committee meetings are
also attended by the external Auditor where appropriate and, by invitation, the Chairman, Chief Executive Officer, other
Directors and senior management.
32
Sterling Energy Plc Report and Financial Statements 2013 Nominations Committee
The Nominations Committee met once during the year. The members of this Committee are currently Nicholas Clayton,
Keith Henry and Malcolm Pattinson under the Chairmanship of Malcolm Pattinson. The Nominations Committee
considers the composition of the Board and makes recommendations on the appointment of new Directors and those
candidates presenting themselves for re-election at the AGM. The Senior Independent Director co-ordinates the annual
performance evaluation of Directors.
Malcolm Pattinson will retire by rotation and offer himself for re-election at the AGM. His biographical details, provided
on page 28, demonstrate the range of experience and skill he brings to Sterling. The Nominations Committee and the
Board considers that his performance continues to be effective and that he has the necessary commitment to fulfil his
respective role.
33
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Remuneration Committee Report
The Remuneration Committee (“Committee”) convened several times during the year, both meeting and via conference
calls, and has been actively engaged on all matters of corporate remuneration. Over the past year, the Committee has
considered the following matters:
• the 2013 All Staff LTIP award;
• adoption of the HMRC Approved Sub-Plan of the All Staff LTIP;
• the 2013 HMRC Approved Sub-Plan award;
• the 2013 Directors’ pay and bonus review;
• the settlement offered to Angus MacAskill following his resignation on 16 August 2013; and
• the revision of Alastair Beardsall’s remuneration package and All Staff LTIP award.
During 2013 Sterling made considerable progress in delivering on our existing assets, as well as pursuing new venture
opportunities. This was reflected by an improvement in Sterling’s share price, which ended the year up 12%, from
37.5p to 42.5p. This upward trend has continued in 2014, following the announcement that drilling has commenced on
Bamboo-1 on the Ntem Block in Cameroon.
The safe operation of our activities, the management and growth of the Company’s assets, and the selective pursuit
of new business opportunities, are the three main criteria on which the performance of Sterling’s executive team and
employees are judged when considering remuneration.
In both Cameroon and Madagascar, projects that had experienced very limited operational progress for many years, we
have seen significant activity.
In Cameroon, Sterling alongside our partners Murphy Oil and Société Nationale des Hydrocarbures (“SNH”), agreed to lift
the force majeure and the Ocean Confidence rig commenced the drilling of the Bamboo-1 exploration well on the Ntem
licence in February 2014. This was achieved as a direct result of the extensive work that Sterling and Murphy Oil had
undertaken during 2013 in preparation for the spud of the Bamboo-1 well.
In Madagascar, amendments to the Ambilobe and Ampasindava licences have received Presidential consent, recognising
a period of suspension of all field work that began in 2009. Both licences will now run to September 2015. The 50%
farm-out of the Ambilobe licence to Pura Vida will see the new joint venture acquire $15.0 million of 3D seismic over the
block in 2014. This will enhance our sub-surface imaging ahead of the next exploration phase of the licence which, once
entered into, will require the drilling of an exploration well. The Ampasindava licence has also seen increased activity
towards the drilling of an exploration well in 2015/16.
During 2013, a 25% working interest in the Odewayne licence, located onshore Somaliland, was added to the Group’s
portfolio of projects. Sterling will pay a total of $25.0 million for the 25% interest; the payments have been phased to
minimise the operational and political risk to Sterling by setting them against the achievement of certain operational
milestones. The acquisition of this interest was achieved via two separate farm-in agreements with Petrosoma Limited,
and Jacka Resources Somaliland Limited, and represents a material new opportunity for our shareholders in an emerging
and potentially exciting territory.
New venture identification, appraisal, and subsequent delivery, continues to be challenging in a competitive market where
there are a limited number of attractive opportunities to selectively pursue. Although the farm-in to the Odewayne licence
was the only new acquisition implemented in 2013, the Committee were satisfied with the number of opportunities
reviewed by management who continue to work hard to short-list and appraise ventures with a view to only pursuing
those where they see material upside for shareholders.
The Committee, when reviewing base salaries, consider matters of retention, motivation, the economic climate, and the
challenges facing the business; they also consider appropriate industry benchmarks. The annual base salary levels for
executive Directors were as follows:
34
Sterling Energy Plc Report and Financial Statements 2013 Alastair Beardsall
Philip Frank
Angus MacAskill
2013 salary
2012 salary
% increase
£180,000
£231,800
£271,800
£80,000
£225,000
£263,800
125%
3%
3%
In considering these increases the Committee took into account the following factors:
• review of remuneration in peer companies;
• general level of UK inflation (CPI/RPI); and
• retention/motivation.
The increment to the base salary for Alastair Beardsall reflects the significant increase in his time commitment to Sterling’s
business. As Sterling’s Chairman, Alastair Beardsall has executive responsibilities, but remains a part-time employee.
The non-executive fees are determined by the Board with no Director voting on his own remuneration. For 2013 the fees
were £33,000 (2012: £33,000).
The Committee reviewed Directors’ bonuses and awarded the following amounts during the year:
Alastair Beardsall
Philip Frank
Angus MacAskill
2013 bonus
2012 bonus
% increase
£31,500
£40,570
-
-
-
-
>100%
>100%
-
The rules of the Company’s Staff Bonus Scheme permit the award of an annual bonus to executive Directors where:
• the total annual bonus is capped at a maximum of 100% of the base salary;
• up to 50% may be awarded for achieving certain corporate objectives, for 2013 these objectives included HSSE
performance, new ventures and farming out certain assets; and
• up to 50% may be awarded for exceptional personal performance; exceptional is performance above and beyond that
expected under the individual’s job description.
Annual bonuses are also granted to eligible UK staff under the same rules; the maximum percentage that can be
awarded reflects the individual’s skills-set experience. Bonuses are not awarded to non-executive Directors.
The Committee awarded the following options under the All Staff LTIP schemes:
Alastair Beardsall
Philip Frank
Angus MacAskill
2013 LTIP Award 2012 LTIP Award
% increase
1,657,500
627,000
-
-
843,750
989,250
>100%
(26%)
(100%)
Alastair Beardsall is considered by the Panel on Takeovers and Mergers (“Panel”) to be a concert party with Waterford
Finance and Investment Limited. Consequently, any LTIP award would require a Rule 9 Waiver granted by the Panel
and approved by the shareholders at a general meeting and Alastair Beardsall has therefore declined to accept any
35
Sterling Energy Plc Report and Financial Statements 2013
CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
LTIP awards since 2009 to avoid this necessity. However, in recognition of Alastair Beardsall’s significant executive role
during the past three years, the Committee wished to better align his incentive package with the interests of shareholders
and, accordingly, considered an award of 1,657,500 options was appropriate. The award represents the aggregate of
the awards that would have been made to him for 2010, 2011, 2012 and 2013 had he accepted the awards offered
previously for these years.
Under the Remuneration Policy, the Committee recommended the grant to Philip Frank of 627,000 options under the All
Staff LTIP which represents an amount capped at 100% of annual salary.
Under the vesting criteria of the All Staff LTIP, options granted will only vest if the Sterling Energy Share Price meets the
criteria set out in note 26 on page 88. Under these criteria, if the Sterling Energy Share Price underperforms the FTSE
350 Index, by more than 10% then no options will vest. For 100% of the options to vest the Sterling Energy Share Price
must outperform the FTSE 350 Index by more than 50%.
During the year, the Committee approved the adoption of the HMRC Sub-Plan of the All Staff LTIP scheme. This scheme
is an HMRC approved Company Share Option Plan (“CSOP”) scheme that allows both the Company and the employee
to benefit from some tax savings offered on the exercise of qualifying options. The specific details of the scheme can
be found in note 26 on page 89. Where appropriate, Directors, senior management and other employees have been
issued options under the HMRC Sub-Plan in preference to the non-approved All Staff LTIP; the sum of the awards to all
individuals under the HMRC Sub-Plan and All Staff LTIP is equal to the number that would have been issued under the
All Staff LTIP if the HMRC Sub-Plan had not been approved and implemented.
On 16 August 2013, Angus MacAskill left the Company. Angus had been Sterling’s CEO since 9 November 2010, having
being appointed during the drilling of the Sangaw North-1 exploration well in Kurdistan. Since joining, he had guided
the Company through some very challenging drilling and other operated activities in Kurdistan, introduced Murphy
Oil as a funding and operating partner into Ntem and strengthened Sterling’s ability to pursue new ventures. With this
transformation completed, Angus decided it was an appropriate time for him to stand down as CEO of the Company.
His notice period was three months and this was paid in lieu of notice. In recognition of the contributions made during
his time at the Company, his waiving a bonus in 2012 and other factors, the Committee decided that it was appropriate
to make a further discretionary payment for loss of office of £74,745 (the equivalent of a further three months’ salary).
The Committee also agreed to make a contingent compensation payment to Angus MacAskill of a further three months
base salary, payable on a month by month basis totalling £74,745, should he still not have found alternative employment
within six months of leaving Sterling and that his share option awards under the All Staff LTIP should continue to vest as
if he were in continued employment with the Company.
The Company made considerable progress during 2013 which will hopefully act as the springboard for future success
in 2014 and beyond. In recognition of this, the Committee believes that the recommendations it has made to the Board
on executive and staff remuneration have been fair, balanced and reflective of the corporate objectives that were met
during the year.
Keith Henry
Chairman, Remuneration Committee
14 March 2014
36
Sterling Energy Plc Report and Financial Statements 2013 MEMBERS
This Committee comprises:
• Keith Henry (Chairman)
• Nicholas Clayton
• Malcolm Pattinson
SUMMARY OF RESPONSIBILITIES
• Agreeing a policy for the remuneration of the Chairman, executive Directors and other senior executives;
• within the agreed policy, determining individual remuneration packages for the Chairman, executive Directors and
senior employees;
• agreeing the policy on terms and conditions to be included in service agreements for the Chairman, executive Directors,
and other senior executives, including termination payments and compensation commitments, where applicable; and
• approving any employee incentive schemes and the performance conditions to be used for such schemes including
share performance targets.
OPERATION OF THE COMMITTEE
The Remuneration Committee makes recommendations to the Board, within its agreed terms of reference, on the structure
and overall remuneration package for executive Directors and reviews the remuneration for other senior employees. The
Committee consists entirely of non-executive Directors and, where appropriate, will invite executive Directors or senior
managers to attend meetings to provide suitable context for its discussions. Only members of the Committee participate
in discussions and reach conclusions on matters with which the Committee is responsible. No member or attendee is
authorised to participate in matters relating to their own remuneration. Non-executive Directors’ fees are considered and
agreed separately by the Board. The Committee has not engaged the services of any remuneration consultants during
the year.
REMUNERATION STRATEGY
The Company remuneration strategy is to provide a remuneration package that:
• helps to attract, retain and motivate;
• is aligned to shareholders’ interests;
• is competitive within the appropriate market;
• encourages and supports a performance culture aligned to the achievement of the Company’s strategic objectives; and
• is fair and transparent.
REMUNERATION POLICY
The Company’s policy on Directors’ remuneration is that the overall remuneration package should be sufficiently
competitive to attract, retain and motivate high quality executives capable of achieving the Group’s objectives and thereby
enhancing shareholder value. The package consists of salary, performance related bonus, pension provision, other
benefits such as private medical cover, life assurance and share options awarded under the All Staff LTIP. The balance
between these components are targeted at base salary levels around the middle of the range for peer companies with
material additional remuneration linked to performance and results that add materially to shareholder value.
Sterling acknowledges the benefit of the executive Directors accepting appointments as non-executive Directors of other
companies; if they accept more than two such appointments they are required to pass their fees for those appointments
to the Company.
37
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
The details of individual components of the executive remuneration package and service contracts are:
Elements of package Purpose and link to strategy
How element is reviewed
Base salary and fees
Performance related
bonuses
To recognise market value of the
role, reflecting the individual’s skills,
experience and responsibilities to
ensure the business can attract and
retain talent.
To incentivise and reward, on an
annual basis, the performance of
individuals, and multi-disciplinary
teams within the Company on both
financial and non-financial metrics.
All Staff LTIP scheme
To incentivise and reward delivery
of sustained long-term TSR
performance aligned to the interests of
shareholders.
NED LTIP scheme
Pension provision
To provide competitive retirement
benefits which reward long-term
performance and loyalty through long
service.
Other benefits
To provide competitive cost-effective
benefits through leveraging the
Company’s size and scale.
Reviewed annually. The Committee uses comparator data
collected from published accounts and industry surveys of
peer companies. No executive remuneration consultants
were used during the year.
Objectives are set, prior to the year under review, to align
short-term goals with the longer term sustainable future
of the Company. At the end of each year the Committee
considers if objectives have been achieved in addition to
individual performance and contribution to the Group. The
maximum level of performance bonus for executive Directors
is capped at 100% of annual salary; non-executive Directors
do not participate in the bonus scheme.
The All Staff and NED LTIP scheme options are equity
settled and have a vesting period of three years. If options
remain unexercised after a period of five years from the
date of grant, the options expire. Options are forfeited if the
employee or Director leaves the Group before the options
vest or are exercised, however, the Committee may exercise
discretionary powers in certain circumstances. All Staff LTIPs
are subject to the performance conditions set out in note
26 on page 88. NED LTIPs have no performance conditions
attached to them. The maximum value to which options
may be granted in any one year is capped, the cap is
based upon the individual’s role and responsibilities, for the
executive Directors the cap is 100% of annual base salary.
The Group operates a number of defined contribution
pension schemes pursuant to which it contributes 10%
of pensionable salary per eligible member. Scheme
membership and contribution is linked to the member’s base
salary (see above).
The Group subscribes to a number of benefits for
employees and Directors which include life assurance,
income protection, subsidised fitness centre membership
and private medical insurance. As with the pension scheme
provision these benefits are linked to base salary.
The Company operates no defined benefit schemes and no material changes to the benefits have been made during
the year.
The principles and criteria used in the recruitment of executive personnel do not differ from those listed above. The
Committee may incentivise the engagement of new employees by way of an uplift to LTIPs awarded in the first year of
employment. No upper limit to the size of the uplift to the LTIP award has been set as the Committee will consider sign-
on awards on a case-by-case basis. No cash settled sign-on payments are made.
Notice periods for Directors are in line with Code guidance, none are currently greater than six months with Code
guidance being none greater than twelve months.
38
Sterling Energy Plc Report and Financial Statements 2013 Termination payments made to Directors on loss of office that are not provided for within their service contracts are only
made if the Committee considers them appropriate, has recommended them to the Board and the Board has granted
their approval.
All Staff and NED LTIPs
Directors’ interests in LTIP’s are accounted for under IFRS 2 (Share-based payments), accounting charges in the period
are detailed in note 27 on page 91.
The Directors’ interests in the All Staff LTIP scheme, which was approved by shareholders at the EGM held on 22
December 2009, are as follows (audited):
1 January
2013
Lapsed
Granted Exercised
31 December
2013
Exercise
price
Earliest
exercise
date 1
Latest
exercise
date 1
Alastair Beardsall
-
Philip Frank
Philip Frank
1,941,350
-
-
-
-
1,657,500
557,500
69,500
Angus MacAskill
2,599,050 (1,000,000)
-
4,540,400 (1,000,000)
2,284,500
-
-
-
-
-
1,657,500
40p
01.11.16
31.10.18
2,498.850
40p
01.10.14
31.10.18
69,500
43p
10.12.16
09.12.18
1,599,050
40p
01.10.14
30.09.17
5,824,900
1 If the Company is in a closed period, the earliest and latest date of exercise may vary.
No gains were made on the exercise of options during the year (2012: nil).
The non-executive Directors’ interests in the NED LTIP, which was approved by shareholders at the EGM held on 22
December 2009, are as follows (audited):
1 January
2013 2
Lapsed
Granted Exercised
31 December
2013
Exercise
price
Earliest
exercise
date 1
Latest
exercise
date 1
Nicholas Clayton
Keith Henry
228,150
228,150
Malcolm Pattinson
186,483
642,783
-
-
-
-
-
-
-
-
-
-
-
-
228,150
228,150
186,483
642,783
1 If the Company is in a closed period, the earliest and latest date of exercise may vary.
2 Awards approved by shareholders on 22 December 2009, 28 April 2011 and 19 April 2013.
40p
01.10.12
30.09.17
40p
01.10.12
30.09.17
40p
01.10.13
30.09.17
The rules of the LTIP schemes and a full list of performance conditions and vesting criteria are summarised in note 26
on page 88.
Service contracts
Directors’ service contracts are reviewed annually at the end of each calendar year with any changes taking effect from
1 January of the following year. The 2013 salary review was implemented on 1 January 2014 and is incorporated within
the numbers below:
Director
Alastair Beardsall
Philip Frank
Commencement of
appointment
Date of current
contract
Base annual
salary
Notice
period
8 September 2009
1 January 2011
£193,400
6 months
3 October 2011
3 October 2011
£249,000
6 months
39
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
Non-executive Directors do not have service contracts, but instead each has a letter of appointment setting out the
terms and conditions of their appointment, details of which are as follows:
Director
Nicholas Clayton
Keith Henry
Malcolm Pattinson
Commencement of
appointment
Date of
current contract
1 October 2009
1 October 2009
8 September 2009
8 September 2009
15 November 2010
15 November 2010
Base fees
per annum
£35,000
£35,000
£35,000
Save for the fees outlined above and the share options awarded under the NED LTIP, the non-executive Directors are not
entitled to any other benefits or arrangements.
Except as disclosed above, there are no service contracts or letters of appointment in force between any Director with
the Company or the Group as at the date of this document.
The Directors’ interests in shares of the Company are detailed on page 48.
The Company has granted an indemnity to its Directors (including subsidiary undertakings) under which the Company
will, to the maximum extent possible, indemnify them against all costs, charges, losses and liabilities incurred by them
in the performance of their duties.
The Company provides limited Directors’ and Officers’ liability insurance, at a cost of approximately $22k in 2013
(2012: $27k).
Aggregate Remuneration
The aggregate remuneration paid to Directors is summarised below (audited):
Fees and
basic
salary
Payment
on loss of
office
Bonus
Defined
contribution
pension
Benefits
in kind
Total
2013
Total
2012
£
198,000 1
231,800
£
-
-
£
31,500
£
-
£
£
£
4,398
233,898
91,954
40,570
23,180
8,683
304,233
254,949
Executive Directors:
Alastair Beardsall
Philip Frank
Angus MacAskill (resigned 16 Aug 2013)
258,458
74,745
-
17,109
3,647
353,959
296,169
Non-executive Directors:
Nicholas Clayton
Keith Henry
Malcolm Pattinson
33,000
33,000
33,000
-
-
-
-
-
-
-
-
-
-
-
-
33,000
33,000
33,000
33,000
33,000
33,000
Aggregate remuneration 2013 (£)
787,258
74,745
72,070
40,289
16,728
991,090
-
Aggregate remuneration 2012 (£)
667,800
-
-
56,880
17,392
-
742,072
Aggregate remuneration 2013 (US$)
1,231,584
116,931
112,746
63,028
26,169
1,550,458
-
Aggregate remuneration 2012 (US$)
1,058,489
-
-
90,157
27,566
-
1,176,212
1 Includes pension contributions paid as cash.
40
Sterling Energy Plc Report and Financial Statements 2013 The table below sets out the total remuneration for the Company’s CEO for the past five years:
Year
CEO
% change
CEO single
figure of total
remuneration
(£’000)
Annual bonus
pay-out against
maximum
opportunity
(%)
2013
2012
2011
2010
2009
Angus MacAskill 1
Angus MacAskill
Angus MacAskill
353,959
19.5%
296,169
(18.9%)
-
-
365,004
(0.4%)
23%
Graeme Thomson/Angus MacAskill
366,377
(51.2%)
Graeme Thomson
751,003
91.9%
-
-
1 Includes £74,745 paid as compensation for loss of office.
Long-term
incentive
vesting rates
against
maximum
opportunity
(%)
-
-
-
-
-
In August 2013, Angus MacAskill resigned as CEO of the Company. Since that time, Alastair Beardsall has acted as
interim CEO in addition to being executive Chairman.
The graphs below show the value of executive Director packages for 2013 together with minimum and maximum
remuneration attainable:
Alastair Beardsall (executive Chairman and interim CEO)
Maximum
Actual
Minimum
£0
£100,000
£200,000
£300,000
£400,000
£500,000
Philip Frank (Exploration Director)
Maximum
Actual
Minimum
£0
£100,000
£200,000
£300,000
£400,000
£500,000
Angus MacAskill (resigned 16 August 2013)
Maximum
Actual
Minimum
£0
£100,000
£200,000
£300,000
£400,000
£500,000
Basic salary
Bonus
Pension provision
Other benefits
Basic salary
Bonus
Pension provision
Other benefits
Basic salary
Bonus
Pension provision
Other benefits
41
Sterling Energy Plc Report and Financial Statements 2013
CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
Performance Graph
The graph below shows a comparison between the TSR for Sterling shares for the five-year period to 31 December 2013
and the TSR for the companies comprising the FTSE 350 Index over the same period. This index has been selected to
provide a relevant comparator to Sterling. The TSR measure is based on the weighted average share price for December.
Total Shareholder Return
Based on weighted average share price for December
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
SEY
FTSE 350
December 08
December 09
December 10
December 11
December 12
December 13
• In August 2009 the Company announced the raising of £62.5 million by way of a share placing at the equivalent of 52p
per share and the repayment of $35 million of historic debt.
• In October 2009 the Company announced the sale of its US business for $90 million.
• In December 2009 the Company completed on the sale of the US business and announced an Open Offer to its
shareholders to subscribe for £20.4 million at 52p per share.
• In February 2010 the Sangaw North-1 exploration well was spudded in Kurdistan.
• In September 2010 the Company announced the initial drilling results from the Sangaw North-1 well which had not, at
that time, encountered hydrocarbons at commercially recoverable flow rates.
• In July 2011 the Company announced that it had plugged and abandoned the Sangaw North-1 well.
42
Sterling Energy Plc Report and Financial Statements 2013 Communications with Shareholders
The Board is accountable to the Company’s shareholders and as such it is important for the Board to appreciate the
aspirations of the shareholders and equally that the shareholders understand how the actions of the Board and short-
term financial performance relate to the achievement of the Company’s longer term goals.
The Board reports to the shareholders on its stewardship of the Company through the publication of interim and
final results each year. Press releases are issued throughout the year and the Company maintains a website (www.
sterlingenergyplc.com) on which press releases, corporate presentations and the Report and Financial Statements are
available to view. Additionally this Report and Financial Statement contains extensive information about the Company’s
activities. Enquiries from individual shareholders on matters relating to the business of the Company are welcomed.
Shareholders and other interested parties can subscribe to receive notification of news updates and other documents
from the Company via email. In addition the executive Directors meet with major shareholders to discuss the progress
of the Company.
The executive Chairman provides periodic feedback to the Board following meetings with shareholders. The Senior
Independent Director also attends some shareholder meetings to ensure the Board is appraised of all feedback provided
by such meetings.
The Annual General Meeting provides an opportunity for communication with all shareholders and the Board encourages
the shareholders to attend and welcomes their participation. The Directors attend the Annual General Meeting and are
available to answer questions. Details of resolutions to be proposed at the Annual General Meeting to be held on 25 April
2014 can be found in the notice of the meeting, on the Company’s website.
43
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Internal Controls
In September 1999 the Turnbull Guidance (Internal Control: Guidance for Directors on the Combined Code) was
published, and revised in October 2005. In September 2012 the revised UK Corporate Governance Code was published
for reporting periods beginning on or after 1 October 2012.
The Directors acknowledge their responsibility for establishing and maintaining the Group and the Company systems
of internal control. These are designed to safeguard the assets of the Group and to ensure the reliability of financial
information for both internal use and external publication.
The Group’s internal control procedures include Board approval for all significant projects. All major expenditures require
either senior management or Board approval at the appropriate stages of each transaction. A system of regular reporting
covering both technical progress of projects and the state of the Group’s financial affairs provides appropriate information
to management to facilitate control. The Board reviews, identifies, evaluates and manages the significant risks that face
the Group.
Any systems of internal control can only provide reasonable, and not absolute, assurance that material financial
irregularities will be detected or that the risk of failure to achieve business objectives is eliminated. The Directors, having
reviewed the effectiveness of the system of internal financial, operational and compliance controls and risk management,
consider that the system of internal control operated effectively throughout the financial year and up to the date the
financial statements were signed.
44
Sterling Energy Plc Report and Financial Statements 2013 Conflicts of Interest
The Company has in place procedures for the disclosure and review of any conflicts, or potential conflicts of interest,
which the Directors may have and for the clearance or otherwise of such conflicts by the Board. In deciding on a conflict
or a potential conflict the Directors must have regard to their general duties under the Companies Act 2006.
45
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Extractive Industries Transparency Initiative (“EITI”)
In accordance with the Transparency Criteria as set-out by the EITI, Sterling has made the following payments to
Government bodies during the year ended 31 December 2013:
Madagascar: Ambilobe
Madagascar: Ampasindava 1
Kurdistan
Cameroon 2
Mauritania 3
Somaliland 4
1 Payments made by ExxonMobil.
2 Payments made by Murphy Oil Corporation.
2013
$000
191
150
-
52
104
105
602
2012
$000
191
108
5
26
599
-
929
3 Included within payments made to SMH (Mauritania’s national oil company) under the terms of the Chinguetti Funding Agreement, relating
to Chinguetti field operating costs and PSC obligations, totalling $7.2 million in 2013 (2012: $9.3 million). Payments made in 2013 include
environmental commission charges totalling $100k.
4 Payments made by Genel Energy.
46
Sterling Energy Plc Report and Financial Statements 2013 Directors’ Report
The Directors present the Report and Financial Statements on the affairs of Sterling and its subsidiaries, together with
the financial statements and Auditors’ Report for the year ended 31 December 2013.
PRINCIPLE ACTIVITY AND BUSINESS REVIEW
The principal activity of the Group and Company throughout the year remained the exploration for and production of oil
and gas in Africa. The significant developments during 2013 and the other activities of the Group, as well as the future
strategy and prospects for the Group, are reviewed in detail in the Chairman’s Statement and the Strategic Report
section of this report.
The Group operates through overseas branches and subsidiary undertakings as appropriate to the fiscal environment.
Subsidiary undertakings of the Group are set out in note 16 to the financial statements.
The Group uses a number of key performance indicators (“KPI’s”) to assess the business performance against strategy.
These are net debt ($), reserves (million boe), EBITDA ($), production (bopd) and share price growth. Analysis of the KPI’s
can be found in the Financial Review on page 18.
RESULTS AND DIVIDENDS
The Group profit for the financial year was $8.3 million (2012: loss of $12.9 million). This leaves an accumulated Group
retained deficit of $413.6 million (2012: deficit $423.1 million) to be carried forward. The Directors do not recommend the
payment of a dividend (2012: $nil).
GOING CONCERN
The Group business activities, together with the factors likely to affect its future development, performance and position
are set out in the Operations Review on pages 8 to 15. The financial position of the Group and Company, its cash
flows and liquidity position are described in the Financial Review on pages 18 to 21. In addition, note 25 to the financial
statements include the Group’s objectives, policies and processes for managing its capital financial risk: details of its
financial instruments and its exposures to credit risk and liquidity risk.
The Group has sufficient cash resources for its working capital needs and its committed capital expenditure programme
at least for the next 12 months. As a consequence, the Directors believe that both the Group and Company are well
placed to manage their business risks successfully despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual
financial statements.
CAPITAL STRUCTURE
Details of the issued share capital, together with details of the movements in the Company’s issued share capital during
the year, are shown in note 18 to the financial statements. The Company has one class of ordinary share which carries
no right to fixed income. Each share carries the right to one vote at general meetings of the Company.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the
general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements
between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights.
Details of the employee share schemes are set out in note 26. No person has any special rights of control over the
Company’s share capital and all issued shares are fully paid.
47
Sterling Energy Plc Report and Financial Statements 2013
CORPORATE GOVERNANCE
Directors’ Report (cont.)
DIRECTORS
The Directors who served during the year were as follows:
Mr Alastair Beardsall
Dr Philip Frank
Mr Angus MacAskill (resigned 16 August 2013)
Mr Keith Henry
Mr Nicholas Clayton
Mr Malcolm Pattinson
Biographical details of serving Directors can be found in the Board of Directors section of this report on page 28.
DIRECTORS AND ELECTION ROTATION
With regard to the appointment and replacement of the Directors, the Company is governed by its Articles of Association,
the Code, the Companies Acts and related legislation. The powers of Directors are described in the Corporate Governance
section.
In accordance with article 106 of the Company’s Articles of Association Malcolm Pattinson retires by rotation and offers
himself for re-election at the forthcoming AGM.
DIRECTORS AND THEIR INTERESTS
The Directors, who served during the year and subsequently, together with their beneficial interests in the issued share
capital of the Company, were as follows:
Ordinary shares of 40p each
Alastair Beardsall 1
Philip Frank 1
Angus MacAskill (resigned 16 August 2013) 1
Keith Henry 2
Nicholas Clayton 2
Malcolm Pattinson 2
1 Executive Director.
14 March
2014
1,062,500
132,204
N/a
500,000
132,500
62,810
31 December
2013
31 December
2012
1,062,500
1,062,500
132,204
N/a
500,000
132,500
62,810
132,204
302,000
500,000
132,500
62,810
2 Non-executive Director, member of the Audit, Remuneration and Nominations Committees.
Beneficial shareholdings include the shareholdings of a Director’s spouse and infant children.
48
Sterling Energy Plc Report and Financial Statements 2013 SUBSTANTIAL SHAREHOLDINGS
Except for the holdings of ordinary shares listed below, the Company has not been notified by or become aware of
any persons holding 3% or more of the 220,053,520 issued ordinary shares of 40 pence each of the Company at
14 March 2014:
Waterford Finance
Soyuzneftegas Capital Limited
YF Finance Limited
Denis O’Brien
Sprott US Holdings Inc.
Number
65,814,217
33,500,755
16,452,600
16,190,433
11,756,500
%
29.91
15.22
7.48
7.36
5.34
BUSINESS RISK
A summary of the principle and general business risks can be found within the Strategic Report on pages 22 to 24.
FINANCIAL INSTRUMENTS
Information about the use of financial instruments, the Group’s policy and objectives for financial risk management is
given in note 25 to the financial statements.
AUDITORS
Each of the persons who are a Director at the date of approval of this Report and Financial Statements confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s Auditors are unaware; and
• the Directors have taken all the steps that they ought to have taken as a Director in order to make themselves aware of
any relevant audit information and to establish that the Company’s Auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies
Act 2006.
BDO LLP has expressed its willingness to continue in office as Auditors and a resolution to appoint BDO will be proposed
at the forthcoming Annual General Meeting.
Alastair Beardsall
Director
14 March 2014
49
Sterling Energy Plc Report and Financial Statements 2013 CORPORATE GOVERNANCE
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Report and Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors
have elected to prepare the Group and Company financial statements in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and
Company and of the profit or loss of the Group and Company for that period. The Directors are also required to prepare
financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the
Alternative Investment Market.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any
material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are
also responsible for safeguarding the assets of the Company and thus for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Report and Financial Statements are made available on a website. Financial
statements are published on the Company’s website in accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility
also extends to the ongoing integrity of the financial statements contained therein.
DIRECTORS’ RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge that the financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Report
and Financial Statements include a fair review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
For and on behalf of the Board
Alastair Beardsall
Director
14 March 2014
50
Sterling Energy Plc Report and Financial Statements 2013 51
Sterling Energy Plc Report and Financial Statements 2013 Sterling Energy Plc
Group Accounts
Year ended 31 December 2013
Independent Auditors’ Report
Year ended 31 December 2013
We have audited the financial statements of Sterling
Energy Plc for the year ended 31 December 2013 which
comprise the consolidated and Company statement
of financial position, the consolidated statement of
comprehensive income, the consolidated and Company
statement of cash flows, the consolidated and Company
statement of changes in equity and the related notes. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial
Reporting Standards as adopted by the European Union
and, as regards the parent Company financial statements,
as applied in accordance with the provisions of the
Companies Act 2006.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s
members those matters we are required to state to them in
an Auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND
AUDITORS
As explained more fully in the Statement of Directors’
Responsibilities,
for
the Directors are
the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Financial
Reporting Council’s (“FRC”) Ethical Standards for Auditors.
responsible
SCOPE OF THE AUDIT OF THE FINANCIAL
STATEMENTS
A description of the scope of an audit of financial statements
is provided on the FRC’s website at:
www.frc.org.uk/auditscopeukprivate
OPINION ON FINANCIAL STATEMENTS
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and the parent company’s affairs as
at 31 December 2013 and of the Group’s profit for the
year then ended;
• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
• the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006;
• the financial statements have been prepared
in
accordance with the requirements of the Companies Act
2006; and
• the part of the Directors’ Remuneration Committee
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
OPINION ON OTHER MATTERS PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion the information given in the Strategic Report
and Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT
BY EXCEPTION
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified
by law are not made; or
• we have not received all the information and explanations
we require for our audit.
Scott Knight (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
14 March 2014
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
54
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS Consolidated Statement of Comprehensive Income
Year ended 31 December 2013
Note
31 December 2013
$000
31 December 2012
$000
Revenue
Cost of sales
Gross profit
Other administrative expenses
Reversal of impairment of oil and gas assets
Pre-licence costs
Total administrative expenses
Profit from operations
Finance income
Finance expense
Profit before tax
Tax
4
6
5
8
8
9
Profit for the year from continuing operations
Profit/(loss) for the year from discontinued operations
10
Profit/(loss) for the year attributable to the
owners of the parent
Other comprehensive expense
Currency translation adjustments
Total other comprehensive expense for the year
Total comprehensive income/(expense) for the year
attributable to the owners of the parent
Basic profit/(loss) per share (USc)
From continuing operations
From continuing and discontinued operations
Diluted profit/(loss) per share (USc)
From continuing operations
From continuing and discontinued operations
12
12
12
12
18,370
(9,766)
8,604
(3,177)
4,359
(2,226)
(1,044)
7,560
892
(1,143)
7,309
-
7,309
1,025
8,334
(39)
(39)
8,295
3.32
3.79
3.32
3.78
22,496
(12,028)
10,468
(2,795)
347
(2,353)
(4,801)
5,667
350
(515)
5,502
-
5,502
(18,422)
(12,920)
(6)
(6)
(12,926)
2.51
(5.88)
2.51
(5.88)
55
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS Consolidated Statement of Financial Position
Year ended 31 December 2013
Note
31 December 2013
$000
31 December 2012
$000
Non-current assets
Intangible royalty assets
Intangible exploration and evaluation assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Currency translation reserve
Retained deficit
Total equity
Non-current liabilities
Long-term provisions
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
13
14
15
17
18
21
22
2,794
13,187
5,644
21,625
2,746
5,935
120,755
129,436
151,061
149,014
378,863
(249)
(413,550)
114,078
21,651
21,651
15,332
15,332
36,983
151,061
2,424
10,245
4,059
16,728
2,993
1,210
120,348
124,551
141,279
149,014
378,863
(210)
(423,050)
104,617
21,274
21,274
15,388
15,388
36,662
141,279
The financial statements of Sterling Energy Plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 14 March 2014.
Signed on behalf of the Board of Directors
Alastair Beardsall
Director
14 March 2014
Philip Frank
Director
14 March 2014
56
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS Consolidated Statement of Changes in Equity
Year ended 31 December 2013
At 1 January 2012
Loss for the year
Currency translation adjustments
Total comprehensive expense for the year
attributable to the owners of the parent
Issued share capital/premium
Share option charge for the year
At 31 December 2012
Profit for the year
Currency translation adjustments
Total comprehensive income for the year
attributable to the owners of the parent
Share option charge for the year
Share capital
Share
premium
Currency
translation
reserve
Retained
deficit 1
Total
$000
$000
148,589
378,859
$000
(204)
-
-
-
425
-
-
-
-
4
-
-
(6)
(6)
-
-
$000
$000
(411,103)
116,141
(12,920)
(12,920)
-
(6)
(12,920)
(12,926)
-
973
429
973
149,014
378,863
(210)
(423,050)
104,617
-
-
-
-
-
-
-
-
-
(39)
(39)
-
8,334
-
8,334
8,334
(39)
8,295
1,166
1,166
At 31 December 2013
149,014
378,863
(249)
(413,550)
114,078
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
57
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS Consolidated Statement of Cash Flows
Year ended 31 December 2013
Note
24
Operating activities
Cash generated from operations
Net cash flow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Exploration and evaluation costs 1
Net cash used in investing activities
Financing activities
Net proceeds from issue of ordinary shares
Net cash flow generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
2013
$000
6,269
6,269
268
(85)
(5,942)
(5,759)
-
-
510
120,348
(103)
120,755
2012
$000
7,800
7,800
350
(100)
(4,446)
(4,196)
429
429
4,033
115,826
489
120,348
1 Included within exploration and evaluation expenditure of $5.9 million is $1.25 million (2012: $nil) of back costs.
58
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS Company Statement of Financial Position
Year ended 31 December 2013
Note
31 December 2013
$000
31 December 2012
$000
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Retained deficit
Total equity
Non-current liabilities
Long-term provisions
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
15
16
17
18
21a
22
5,546
107,834
113,380
2,746
25,342
118,498
146,586
259,966
149,014
378,863
(364,232)
163,645
21,588
21,588
74,733
74,733
96,321
259,966
3,977
106,668
110,645
2,993
14,349
118,565
135,907
246,552
149,014
378,863
(375,735)
152,142
21,154
21,154
73,256
73,256
94,410
246,552
The financial statements of Sterling Energy Plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 14 March 2014.
Signed on behalf of the Board of Directors
Alastair Beardsall
Director
14 March 2014
Philip Frank
Director
14 March 2014
59
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS
Company Statement of Changes in Equity
Year ended 31 December 2013
Share
capital
Share
premium
Retained
deficit 1
Total
$000
$000
$000
$000
At 1 January 2012
148,589
378,859
(368,070)
159,378
Total comprehensive expense for the year
Issued share capital/premium
Share option charge for the year
At 31 December 2012
Total comprehensive income for the year
Share option charge for the year
At 31 December 2013
-
425
-
-
4
-
(8,638)
(8,638)
-
973
429
973
149,014
378,863
(375,735)
152,142
-
-
-
-
10,337
10,337
1,166
1,166
149,014
378,863
(364,232)
163,645
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
60
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS Company Statement of Cash Flows
Year ended 31 December 2013
Note
24
Operating activities
Cash generated from operations
Net cash flow used in operating activities
Investing activities
Interest received
Net cash generated from investing activities
Financing activities
Net proceeds from issue of ordinary shares
Net cash flow generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
2013
$000
(197)
(197)
268
268
-
-
71
118,565
(138)
118,498
2012
$000
2,401
2,401
350
350
429
429
3,180
114,831
554
118,565
61
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS 1.
ACCOUNTING POLICIES
a) General Information
Sterling Energy Plc is a public Company incorporated in the United Kingdom under the UK Companies Act. The
address of the registered office is 85 Fleet Street, London, EC4Y 1AE. The Company and the Group are engaged
in the exploration for, and production of, oil and gas.
These financial statements are presented in US dollars as this is the currency in which the majority of the Group’s
revenues and expenditure are transacted and the functional currency of the Company.
b) Basis of Accounting and Adoption of New and Revised Standards
(i) New and amended standards adopted by the Group:
The following new standards and amendments to standards are mandatory for the first time for the Group for the
financial year beginning 1 January 2013. Except as noted, the implementation of these standards is not expected
to have a material effect on the Group.
Standard
Effective date
Impact on initial application
IAS 1 – Presentation of Items of Other Comprehensive Income
(Amendments)
1 July 2012
No impact
IFRS 1 – Severe hyperinflation and removal of fixed dates
(Amendments)
1 January 2013
No impact
IFRS 1 – Government Loans (Amendments)
1 January 2013
No impact
IFRS 7 – Offsetting Financial Assets and Financial Liabilities
(Amendments)
1 January 2013
No impact
IFRS 13 – Fair Value Measurement
1 January 2013
No impact
IAS 12 – Recovery of Underlying Assets (Amendments)
1 January 2013
No impact
IAS 19 – Employee Benefits
IFRIC 20 – Stripping Costs
1 January 2013
No impact
1 January 2013
No impact
Annual Improvements to IFRSs (2009-2011 Cycle)
1 January 2013
No impact
No other IFRS issued and adopted but not yet effective are expected to have an impact on the Group’s financial
statements.
(ii) Standards, amendments and interpretations, which are effective for reporting periods beginning after the date
of these financial statements which have not been adopted early:
Standard
IFRS 10
Description
Consolidated Financial Statements
IFRS 10, 11 and 12
Consolidated Financial Statements. Joint Arrangements and
Disclosure of Interests in Other Entities (Amendments)
IFRS 11
IFRS 12
IAS 27
IAS 28
Joint Arrangements
Disclosure of Interests in Other Entities
Separate Financial Statements
Investments in Associates and Joint Ventures
Effective date
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
62
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS IFRS 10, 12 and IAS 27 Investment Entities (Amendments)
IAS 32
IAS 36
IAS 39
IFRIC 211
IAS 191
Offsetting Financial Assets and Financial Liabilities
(Amendments)
Recoverable Amounts (Amendments)
Novation of Derivatives (Amendments)
Levies
Defined Benefit Plans (Amendments)
Annual Improvements
to IFRSs1
Annual Improvements
to IFRSs1
(2010-2012 Cycle)
(2011-2013 Cycle)
1 Not yet endorsed by the EU
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 July 2014
1 July 2014
1 July 2014
The Directors have not fully assessed the impact of all standards but do not expect them to have a material
impact.
c) Going Concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group
has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to
adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in
the Directors’ Report.
d) Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entities
controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where
the Company has the power to govern the financial and operating policies of an invested entity so as to obtain
benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
As a consolidated Group statement of comprehensive income and expense is published, a separate statement
of comprehensive income and expense for the parent Company has not been published in accordance with
section 408 of the Companies Act 2006.
e) Jointly Controlled Operations
Jointly controlled operations are arrangements in which the Group holds an interest on a long term basis and
are jointly controlled by the Group and one or more ventures under a contractual arrangement. The Group’s
exploration and production activities are sometimes conducted jointly with other companies in this way. Since
these arrangements do not constitute entities in their own right, the consolidated financial statements reflect the
relevant proportion of costs, revenues, assets and liabilities applicable to the Group’s interests.
63
Sterling Energy Plc Report and Financial Statements 2013
f) Revenue
Sales of oil and gas are recognised, net of any sales taxes when goods are delivered or the title has passed to
the customer. Interest income is accrued on a time basis by reference to the principal outstanding and at the
effective interest rate applicable. Royalties and tariff income are recognised as earned on an entitlement basis.
g) Oil and Gas Interests
Exploration and Evaluation Assets:
The Group accounts for oil and gas exploration under the full cost method having regard to the requirements of IFRS
6 Exploration for and Evaluation of Mineral Resources. E&E costs are initially capitalised within intangible assets.
Such E&E costs include licence acquisition costs, geological and geophysical costs, costs of drilling exploration
and appraisal wells, and an appropriate share of overheads. E&E costs are capitalised and accumulated in cost
pools which are not larger than a segment. Expenditures incurred before the Group has obtained the legal rights
to explore a specific area are expensed in the year in which they are incurred.
Costs relating to the exploration and evaluation of oil and gas interests are carried forward until the existence or
otherwise of commercial reserves has been determined.
If commercial reserves have been discovered, the related E&E assets are assessed for impairment and the
resultant carrying value is then reclassified as oil and gas assets within property, plant and equipment, on a cost
pool by cost pool basis.
E&E assets that are determined not to have resulted in the discovery of commercial reserves remain capitalised
as intangible E&E assets at cost, subject to the relevant cost pool meeting an impairment test as set out below.
Under the full cost method, impairment tests on E&E assets are conducted on an individual cost pool basis,
including any development or producing assets, when facts and circumstances suggest that the carrying amount
in the pool may exceed its recoverable amount. Such indicators include the point at which a determination is
made as to whether or not commercial reserves exist. The E&E assets are tested for impairment together with
all development and production assets associated with that cost pool, as a single cash-generating unit. The
aggregate carrying value is compared against the expected recoverable amount of the cost pool, generally by
reference to the present value of the future cash flows expected to be delivered from production of commercial
reserves. Where the E&E assets to be tested fall outside the scope of any established cost pool, there will
generally be no commercial reserves and if the E&E is determined as unsuccessful the E&E assets concerned will
be written off in full. Any impairment loss is separately recognised within the statement of comprehensive income.
Impaired assets are reviewed annually to determine whether any substantial change to their fair value amounts
previously impaired would require reversal.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in
the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount
that would have been determined (net of depletion or amortisation) had no impairment loss been recognised in
prior periods. Reversal of impairments and impairment charges are credited/(charged) to a separate line item
under total administration costs in the Consolidated Income Statement.
Refer to note 5 on page 71 for detailed disclosure of the results of impairments and impairment reviews performed.
Development and Production Assets:
Development and production assets are generally accumulated on a field-by-field basis and include the cost
of developing the commercial reserves discovered and bringing them into production, together with the E&E
expenditures, incurred in finding commercial reserves, transferred from intangible E&E assets as outlined above,
64
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS
which constitutes a single cash generating unit. Depletion is provided for on a cash-generating unit basis on a
unit of production basis over the life of the proven and probable commercial reserves taking into account the
expected future costs to extract all such reserves.
An impairment test is performed on an individual cash-generating unit whenever events and circumstances
indicate that the carrying value of an asset may exceed its recoverable amount.
The recoverable amount is assessed as the present value of the future cash flows expected to be derived from
production of commercial reserves.
The cash-generating unit basis is generally the field, however, oil and gas assets, including infrastructure assets,
may be accounted for on an aggregated basis where such assets are economically inter-dependent.
h) Property, Plant and Equipment Assets other than Oil and Gas Assets:
Property, plant and equipment other than oil and gas assets are stated at cost, less accumulated depreciation,
and any provision for impairment. Depreciation is provided at rates estimated to write off the cost, less estimated
residual value, of each asset over its expected useful life as follows:
Computer and office equipment depreciation – 33% straight line.
i) Decommissioning
Provisions for decommissioning costs are recognised in accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets. Provisions are recorded at the present value of the expenditures expected to be required
to settle the Group’s future obligations.
Provisions are reviewed at each reporting date to reflect the current best estimate of the cost at present value.
Any change in the date on which provisions fall due will change the present value of the provision. These changes
are treated as a finance expense.
The unwinding of the discount is reflected as a finance expense. A decommissioning asset is also established,
since the future cost of decommissioning is regarded as part of the total investment to gain access to future
economic benefits, and included as part of the cost of the relevant development and production asset. Depletion
on this asset is calculated under the unit of production method based on commercial reserves.
j) Intangible Royalty Interests
The carrying value of each individual royalty interest is initially stated at cost, and amortised on the unit of
production basis relative to the underlying asset and assessed individually for impairment when there is an
indication that an impairment event may have occurred.
k) Foreign Currencies
The US dollar is the functional and reporting currency of the Company and the reporting currency of the Group.
Transactions denominated in other currencies are translated into US dollars at the rate of exchange ruling at
the date of the transaction. Assets and liabilities in other currencies are translated into US dollars at the rate of
exchange ruling at the reporting date. All exchange differences arising from such translations are dealt with in
current year comprehensive income.
The results of entities with a functional currency other than the US dollar are translated at the average rates of
exchange during the period and their statement of financial position at the rates ruling at the reporting date.
Exchange differences arising on translation of the opening net assets and on translation of the results of such
entities are dealt with through the currency translation reserve.
65
Sterling Energy Plc Report and Financial Statements 2013 l) Taxation
Current Tax:
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported
in the statement of comprehensive income because it excludes items of income or expense that are taxable or
deductible on other years and it further excludes items that are never taxable or deductible. The Group’s liability
for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred Tax:
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary
differences and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax is charged or credited in the statement of comprehensive income, except when
it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
m) Investments (Company)
Non-current investments in subsidiary undertakings are shown in the Company’s Statement of Financial Position
at cost less any provision for permanent diminution of value.
n) Operating Leases
Rentals under operating leases are charged on a straight-line basis over the lease term.
o) Financial Instruments
The Group’s Financial Instruments comprise of cash and cash equivalents, loans and receivables. There are no
other categories of financial instrument.
Trade Receivables:
Trade receivables are measured at amortised cost, unless the effect of the time value of money is immaterial.
Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is
objective evidence that the asset is impaired.
Cash and Cash Equivalents:
Cash and cash equivalents comprise demand deposits, and other short-term highly liquid investments, with an
original maturity of less than three months, and are readily convertible to a known amount of cash and are subject
to an insignificant risk of change in value.
66
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS
The Group has the following financial liabilities, all are classified as held at amortised cost. The Group holds no
other categories of financial liability.
Trade Payables:
Trade payables are stated at their amortised cost.
Financial Liabilities and Equity:
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the asset of the Group after
deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received
net of direct issue costs.
p) Pension Costs
The Group operates a number of defined contribution pension schemes. The amount charged to the Statement
of Comprehensive Income for these schemes is the contributions payable in the year. Differences between
contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in
the Statement of Financial Position.
q) Share-Based Payments
The Company and Group have applied the requirements of IFRS 2 Share-Based Payments. The Company
issues equity share-based payments to certain employees. The fair value of these awards has been determined
at the date of the grant of the award allowing for the effect of any market-based performance conditions. This
fair value, adjusted by the estimate of the number of awards that will eventually vest as a result of non-market
conditions, is expensed uniformly over the vesting period.
The fair values are calculated using an option pricing model with suitable modifications to allow for employee
turnover before vesting and early exercise. The inputs to the model include: the share price at the date of grant;
exercise price; expected volatility; expected dividends; risk-free rate of interest; and patterns of exercise of the
plan participants.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the
options, measured immediately before and after the modification, is also charged to the Consolidated Statement
of Comprehensive Income over the remaining vesting period.
r) Over/(Under) Lift of Inventories
Lifting or off take arrangements for oil and gas produced in certain of the Group’s operations are such that each
participant may not receive and sell its precise share of the overall production in each period. The resulting
imbalance between cumulative entitlement and cumulative liftings is ‘underlift’ or ‘overlift’. Underlifts and overlifts
are valued at the lower of cost and net realisable value. Adjustments are made to cost of sales and balances
included within receivables and payables as appropriate.
s) Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable
that the Group would be required to settle that obligation. Provisions are measured at the management’s best
estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present
value where the effect is material.
67
Sterling Energy Plc Report and Financial Statements 2013 t) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision makers. The chief operating decision makers have been identified as the executive Board members.
The operating results of each of the geographical segments are regularly reviewed by the Group’s chief operating
decision makers in order to make decisions about the allocation of resources and to assess their performance.
Africa has exploration and production activities, the Middle East has exploration activities (discontinued) and the
United Kingdom office is an administrative cost centre.
2.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 1, the Directors are required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and future periods.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
Commercial Reserves
Commercial reserves are proven and probable oil and gas reserves, calculated on an entitlement basis. Estimates
of commercial reserves underpin the calculation of depletion and amortisation on a unit of production basis.
Estimates of commercial reserves include estimates of the amount of oil and gas in place, assumptions about
reservoir performance over the life of the field and assumptions about commercial factors which, in turn, will be
affected by the future oil and gas price.
Impairment of Assets
Management is required to assess oil and gas assets for indicators of impairment and have considered the economic
value of both the Chinguetti Funding and Royalty Agreements and specifically whether further historic impairments
should be reversed. The carrying value of oil and gas assets is disclosed in notes 13, 14 and 15. The carrying value of
related investments in the Company statement of financial position is disclosed in note 16. As part of this assessment,
management has carried out an impairment test on the Chinguetti oil and gas assets. This test compares the carrying
value at the reporting date with the expected discounted cash flows from the relevant projects.
For the discounted cash flows to be calculated, management has used a production profile based on its best
estimate of proven and probable reserves and a range of assumptions including a 10% pre-tax discount rate and an
internally estimated oil price profile. Exploration and evaluation assets are subject to a separate review for indicators
of impairment, by reference to the impairment indicators set out in IFRS 6, which is inherently judgemental.
Decommissioning
The Group has obligations in respect of decommissioning in Mauritania. The extent to which a provision is
recognised depends on the legal requirements at the date of decommissioning, the estimated costs and timing
of the work and the discount rate applied. Decommissioning estimates for the Chinguetti field are based on a
range of operator estimates which are periodically reviewed by the operator and the Chinguetti partners. Sterling
believes the field could be abandoned earlier than originally planned and allowance has been made for this in the
calculation of the obligation.
68
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS Share-based Payments
Management is required to make assumptions in respect of the inputs used to calculate the fair value of share-
based payment arrangements. Details of these can be found in note 26.
3.
OPERATING SEGMENTS
The Group’s two operating segments are its Africa and Middle East (discontinued) segments. The UK corporate
office is a technical and administrative cost centre. The operating results of each of these segments are regularly
reviewed by the Group’s executive Directors and senior management in order to make decisions about the
allocation of resources and to assess their performance.
The accounting policies of these segments are in line with those set out in note 1.
The following tables present revenue, profit and certain asset and liability information regarding the Group’s
operating segments for the year ended 31 December 2013, and for the year ended 31 December 2012.
Africa
Middle East
(Discontinued)
2013
$000
2012
$000
2013
$000
2012
$000
2013
$000
Total
2012
$000
Statement of comprehensive income
Revenue 1
Cost of sales
Gross profit
Impairment reversal
Impairment provision
Accruals release
Pre-licence costs
Segment result
Unallocated corporate expenses
Profit/(loss) from operations
Finance income
Finance expense
Profit/(loss) before tax
Tax
Profit/(loss) attributable to owners
of the parent
Profit from continuing operations
Profit/(loss) from discontinued operations
18,370
22,496
(9,766)
(12,028)
8,604
10,468
4,359
347
-
-
-
-
(2,226)
(2,353)
-
-
-
-
-
-
-
-
-
18,370
22,496
(9,766)
(12,028)
8,604
10,468
4,359
347
(18,422)
-
(18,422)
1,025
-
-
-
1,025
(2,226)
10,737
8,462
1,025
(18,422)
11,762
(3,177)
-
(2,353)
(9,960)
(2,795)
8,585
(12,755)
892
(1,143)
350
(515)
8,334
(12,920)
-
-
8,334
7,309
1,025
8,334
(12,920)
5,502
(18,422)
(12,920)
69
Sterling Energy Plc Report and Financial Statements 2013 Corporate
Africa
Middle East
(Discontinued)
2013
$000
2012
$000
2013
$000
2012
$000
2013
$000
2012
$000
2013
$000
Total
2012
$000
85
-
100
-
-
-
2,942
1,313
(69)
(59)
(2,420)
(2,422)
-
-
-
-
4,359
-
347
-
-
-
-
-
-
85
100
4,575 2
2,942
5,888
-
-
(2,489)
(2,481)
4,359
347
-
(18,422)
-
(18,422)
Other segment
information
Capital additions:
Property, plant and
equipment
Exploration and evaluation
Depreciation and
amortisation
Impairment reversal
Impairment provision
Segment assets and
liabilities
Non-current assets 3
97
83
21,528
16,645
-
-
21,625
16,728
Segment assets 4
119,146
119,409
9,210
3,409
1,080
1,733
129,436
124,551
Segment liabilities 5
(1,298)
(711)
(35,179)
(33,906)
(506)
(2,045)
(36,983)
(36,662)
1 Revenue from continuing operations includes amounts of $17.1 million (100% external) from one single customer (2012: $21.2 million).
2 Included within $4.6 million are accruals totalling $1.4 million and net cash additions of $3.1 million.
3 Segment non-current assets include $7.3 million in Cameroon (2012: $6.5 million), $nil in Kurdistan (2012: $nil), $8.3 million in Mauritania
(2012: $6.4 million), $3.9 million in Madagascar (2012: $3.8 million) and $2.1 million in Somaliland (2012: $nil).
4 Carrying amounts of segment assets exclude investments in subsidiaries.
5 Carrying amounts of segment liabilities exclude intra-group financing.
4.
REVENUE
Revenue from the sale of oil and gas
Royalty income
Total operating revenue
2013
$000
17,076
1,294
18,370
Total
2012
$000
21,163
1,333
22,496
70
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS 5.
PROFIT FROM OPERATIONS
Profit from operations is stated after charging/(crediting):
Staff costs
Share-based payments
Impairment reversal
Depreciation of other non-current assets
An analysis of auditor’s remuneration is as follows:
Fees payable to the Group’s auditors for the audit of
the Group’s annual accounts
Audit of the Company’s subsidiaries pursuant to legislation
Audit related assurance services
Total audit fees
Note
7
7
13,14,15
15
2013
$000
4,049
1,166
(4,359)
69
48
53
-
101
Total
2012
$000
3,616
973
(347)
59
48
55
11
114
During the year the Group released accruals totalling $1.0 million relating to discontinued operations, this has
been included with administrative expenses.
During the year the Company reversed impairments totalling $4.4 million in accordance with IAS 36 “Impairment of
Assets” following a review by the operator of forecast field life estimations on the Chinguetti field in Mauritania. This
review resulted in an extension of the economic field life reflecting improved production decline rates. Of the $4.4
million, $3.2 million relates to reversals of prior period impairment losses on the Chinguetti Funding Agreement and
$1.2 million to reversals of prior period impairment losses on the Chinguetti Intangible Royalty Asset.
Impairment reversals have been determined by comparing the current value in use to carrying values. In
determining the value in use, field reserves were increased by 276k barrels of oil (Reserves Summary page 16)
and has subsequently extended the field life. In calculating the impairment reversal, management used a range
of assumptions, including a long-term oil price of $80 per barrel and a 10% pre-tax discount rate.
6.
COST OF SALES
Amortisation of intangible royalty asset
Depletion of property, plant and equipment – oil and gas
Operating costs
Over/(under) lift of product entitlement
2013
$000
782
1,638
7,100
246
9,766
2012
$000
797
1,625
9,727
(121)
12,028
71
Sterling Energy Plc Report and Financial Statements 2013
7.
EMPLOYEE INFORMATION
The average monthly number of employees of the Group (including executive Directors) was:
Africa and Middle East
Corporate support staff
Group employee costs during the year (including executive Directors) amounted to:
Wages and salaries
Social security costs
Other pension costs
Share-based payments
2013
2012
6
11
17
2013
$000
3,407
414
228
1,166
5,215
14
11
25
2012
$000
3,034
347
235
973
4,589
Key management personnel include Directors who have been paid $1.6 million (2012: $1.2 million), see
Remuneration Committee Report (pages 34 to 42) for additional detail.
A portion of the Group’s staff costs and associated overheads are recharged to the joint venture partners,
expensed as pre-licence expenditure or capitalised where they are directly attributable to ongoing capital
projects. In 2013 this portion amounted to $4.1 million (2012: $4.3 million).
8.
FINANCE INCOME AND FINANCE EXPENSE
Finance income:
Interest revenue on short-term deposits
Revisions to discount on decommissioning provision in year
Finance expense:
Bank charges
Unwinding of discount on decommissioning provision
Unwinding of discount on production royalty bonus provision
Exchange differences
72
2013
$000
268
624
892
11
1,058
8
66
1,143
2012
$000
350
-
350
12
1,010
26
(533)
515
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS 9.
TAXATION
The tax charge for the year is calculated by applying the applicable standard rate of tax as follows:
Profit/(loss) before tax
Tax on profit/(loss) on ordinary activities at standard
UK corporation tax rate of 23.25% (2012: 24.5%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Adjustment for tax losses
Tax charge for the year
2013
$000
8,334
1,938
27
(1,891)
(74)
-
Total
2012
$000
(12,920)
(3,165)
5,134
(1,717)
(252)
-
10. DISCONTINUED OPERATIONS
On 29 January 2013, Sterling formally announced withdrawal from the Sangaw North licence in Kurdistan. The
decision to relinquish was made in December 2012 and all amounts, totaling $18.4 million, were fully impaired
at this date.
At the date of the final dissolution, Sterling had fully satisfied the work commitment required by the Sangaw North
PSC and all other commitments in country.
During 2013 the Group released accruals totalling $1.0 million.
The financial impact of the Group’s discontinued operations is provided below:
Profit/(loss) for the year from discontinued operations (page 55)
Cash flows from investing activities (note 3 page 70)
Net (decrease)/increase in cash and cash equivalents
Basic profit/(loss) per share from discontinued operations (USc) (note 12 page 74)
Diluted profit/(loss) per share from discontinued operations (USc) (note 12 page 74)
2013
$000
1,025
-
(553)
0.47
0.46
2012
$000
(18,422)
(3,133)
719
(8.39)
(8.39)
11. PROFIT ATTRIBUTABLE TO THE COMPANY
The loss for the financial year within the Company accounts of Sterling Energy Plc was $10.3 million (2012: profit
of $8.6 million). As provided by s408 of the Companies Act 2006, no individual statement of comprehensive
income and expense is provided in respect of the Company.
73
Sterling Energy Plc Report and Financial Statements 2013 12. EARNINGS PER SHARE
Profit for the year (continuing operations)
Profit/(loss) for the year (discontinuing operations)
Weighted average number of ordinary shares in
issue during the year
2013
$000
7,309
1,025
Basic
2012
$000
5,502
(18,442)
2013
$000
7,309
1,025
Diluted
2012
$000
5,502
(18,442)
220,053,520
219,530,061
220,053,520
219,530,061
Dilutive effect of share options outstanding
-
-
367,069
-
Fully diluted average number of ordinary shares
during the year
EPS (continuing operations)
EPS (discontinuing operations)
220,053,520
219,530,061
220,420,589
219,530,061
3.32
0.47
2.51
(8.39)
3.32
0.46
2.51
(8.39)
In the current year, the number of potentially dilutive ordinary shares in respect of All staff and NED LTIPs
outstanding as at the year end is 13,707,483 (2012: 11,409,488) (see note 26 on pages 86 to 90).
13.
INTANGIBLE ROYALTY ASSETS
Net book value at 31 December 2011 and 1 January 2012
Amortisation charge for the year
Net book value at 31 December 2012
Impairment reversal
Amortisation charge for the year
Net book value at 31 December 2013
Group
$000
3,221
(797)
2,424
1,152
(782)
2,794
Group net book value at 31 December 2013 comprises the value of rights to future royalties in respect of the
Group’s agreements covering licences PSC A, PSC B and PSC C-10 in Mauritania. The value of these royalty
interests is dependent upon future oil and gas prices and the development and production of the underlying oil
and gas reserves.
Impairment assessments and any subsequent charges are calculated on an individual royalty interest basis.
Future recoverable amounts are estimated by management based on the present value of future cash flows
expected to be derived from the production of commercial reserves in these licences and are compared against
the carrying value of these assets.
In 2013 impairment losses recognised in prior periods totalling $1.2 million have been reversed on the Chinguetti
asset. Details of impairment losses can be found in note 1 on pages 64 and 65 and note 5 on page 71.
74
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS 14.
INTANGIBLE EXPLORATION AND EVALUATION (“E&E”) ASSETS
Net book value at 31 December 2011 and 1 January 2012
Additions during the year
Impairment charge for the year
Impairment reversal for the year
Net book value at 31 December 2012
Additions during the year
Reimbursement of back costs on farm-out of Ambilobe licence
Net book value at 31 December 2013
Note
Group
$000
22,455
5,888
10
(18,422)
324
10,245
4,192
(1,250)
13,187
On 28 October 2013, Sterling announced its farm-in to the Odewayne Block, onshore Somaliland. Under the
terms of the farm-in Sterling will pay a total of $10.0 million to Petrosoma Limited, a Somaliland company, for
a 10% interest in the licence. $8.0 million of the consideration is contingent upon the completion of certain
operational milestones which had not been achieved at 31 December 2013 and is disclosed as a contingent
liability in note 29.
On 27 January 2014, Sterling announced the completion of the acquisition of a further 15% interest in the
Odewayne Block from Jacka Resources Somaliland Limited, an Australian Company. Sterling will pay a total
of $15.0 million for the 15% interest. At 31 December 2013 Sterling had paid a total of $3.0 million which is
included within other receivables. The remaining $12.0 million dollars is contingent upon the completion of
certain operational milestones which had not been achieved at 31 December 2013.
The amount for intangible exploration and evaluation assets represents investments in respect of exploration
licences (see note 1g). Impairment tests on E&E assets are conducted on an individual cost pool basis when
facts and circumstances suggest that the carrying amount in the pool may exceed its recoverable amount.
75
Sterling Energy Plc Report and Financial Statements 2013
15. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
At 31 December 2011 and 1 January 2012
185,825
2,964
188,789
Additions during the year
Adjustments during the year
At 31 December 2012
Additions during the year
Disposals in the year
At 31 December 2013
-
(23)
185,802
-
-
100
-
3,064
85
(3,006)
100
(23)
188,866
85
(3,006)
185,802
143
185,945
Accumulated depreciation and impairment
At 31 December 2011 and 1 January 2012
(180,223)
(2,923)
(183,146)
Charge for the year
Impairment reversal for the year
At 31 December 2012
Charge for the year
Impairment reversal for the year
Disposals in the year
At 31 December 2013
Net book value at 31 December 2013
Net book value at 31 December 2012
Net book value at 31 December 2011
(1,625)
23
(59)
-
(1,684)
23
(181,825)
(2,982)
(184,807)
(1,638)
3,207
(69)
-
-
3,006
(180,256)
5,546
3,977
5,602
(45)
98
82
41
(1,707)
3,207
3,006
(180,301)
5,644
4,059
5,643
76
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS Company
Cost
At 31 December 2011 and 1 January 2012
Disposals in the year
At 31 December 2012
Disposals in the year
At 31 December 2013
Accumulated depreciation and impairment
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
185,825
(23)
185,802
-
185,802
150
-
150
(150)
-
185,975
(23)
185,952
(150)
185,802
At 31 December 2011 and 1 January 2012
(180,223)
(150)
(180,373)
Charge for the year
Impairment reversal for the year
At 31 December 2012
Charge for the year
Impairment reversal for the year
Disposals in the year
At 31 December 2013
Net book value at 31 December 2013
Net book value at 31 December 2012
Net book value at 31 December 2011
(1,625)
23
-
-
(1,625)
23
(181,825)
(150)
(181,975)
(1,638)
3,207
-
(180,256)
5,546
3,977
5,602
-
-
150
-
-
-
-
(1,638)
3,207
150
(180,256)
5,546
3,977
5,602
During the year impairment reversals recognised in prior periods totalling $3.2 million have been reversed on the
Chinguetti asset (2012: $23k). Details of impairment reversals can be found in note 1 on pages 64 and 65 and
note 5 on pages 71.
77
Sterling Energy Plc Report and Financial Statements 2013 16.
INVESTMENT IN SUBSIDIARIES
Cost
At 31 December 2011 and 1 January 2012
Additions during the year
At 31 December 2012
Additions during the year
At 31 December 2013
Company
$000
105,740
928
106,668
1,166
107,834
The subsidiary undertakings at the year end are as follows (these undertakings are included on consolidation):
Sterling Energy (UK) Limited 1
Sterling Energy (International) Limited 2
Country of
incorporation
Class of
shares
held
Proportion
of voting
rights held
2013
Proportion
of voting
rights held
2012
Nature of
business
United
Kingdom
United
Kingdom
Ordinary
100%
100% Exploration for
oil and gas
Ordinary
100%
100% Exploration for
oil and gas
Sterling Northwest Africa Holdings Limited 1
Jersey, CI
Ordinary
100%
100% Exploration for
Sterling Energy Holdings Limited 3
Jersey, CI
Ordinary
100%
100%
oil and gas
Investment
holding
company
Sterling Cameroon Limited 3
Jersey, CI
Ordinary
100%
100% Exploration for
oil and gas
Sterling Energy (East Africa) Limited 3
Jersey, CI
Ordinary
100%
100% Exploration for
oil and gas
1 Held directly by the Company, Sterling Energy Plc
2 Held directly by Sterling Energy (UK) Limited
3 Held directly or indirectly through Sterling Northwest Africa Holdings Limited
78
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS 17. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts owed by subsidiary undertakings
Other receivables
Amounts due from joint venture partners
Prepayments and accrued income
2013
$000
2,453
-
3,082
-
400
Group
2012
$000
433
-
117
70
590
2013
$000
2,113
23,149
12
-
68
Company
2012
$000
31
14,228
19
-
71
5,935
1,210
25,342
14,349
Included within other receivables is $3.0 million paid to Jacka Resources Somaliland Limited.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
18. SHARE CAPITAL
Authorised, called up, allotted and fully paid
220,053,520 (2012: 220,053,520) ordinary shares of 40p
149,014
149,014
2013
$000
2012
$000
19. RESERVES
Reserves within equity are as follows:
Share Capital
Amounts subscribed for share capital at nominal value.
Share Premium Account
The share premium account represents the amounts received by the Company on the issue of its shares which
were in excess of the nominal value of the shares.
Currency Translation Reserve
The foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries
whose functional currencies are not the US$.
Retained Deficit
Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts
reflected directly in other reserves.
20. DEFERRED TAX
At the reporting date the Group had an unrecognised deferred tax asset of $15.3 million (2012: $19.0 million)
relating primarily to unused tax losses and unutilised capital allowances. No deferred tax asset has been
recognised due to the uncertainty of future profit streams against which these losses could be utilised. At the
reporting date the Company had an unrecognised deferred tax asset of $13.0 million (2012: $17.3 million)
relating primarily to unused losses and unutilised capital allowances.
79
Sterling Energy Plc Report and Financial Statements 2013 21. LONG-TERM PROVISIONS
Group
Decommissioning provision (a)
2003 Production Royalty Bonus Scheme (b)
a) Decommissioning Provisions
Group/Company
At 1 January
Revisions at year end
Unwinding of discount
2013
$000
2012
$000
21,588
21,154
63
120
21,651
21,274
2013
$000
2012
$000
21,154
20,144
(624)
1,058
21,588
-
1,010
21,154
The amounts shown above represent the estimated costs for decommissioning the Group’s producing interests
in respect of its economic interest in the Chinguetti field in Mauritania.
The Company amount of $21.6 million (2012: $21.2 million) represents the amount provided within the Company
for future decommissioning expenditure.
During the year the economic field life was extended following a review by the operator of decline rate performance.
The extension of field life has resulted in an adjustment to the provision during the year of $624k. Full details of
impairment losses and reversals can be found in note 5 on page 71.
b) 2003 Production Royalty Bonus Scheme
Group
At 1 January
Unwinding of discount
Transferred to current liabilities
Foreign exchange movements
2013
$000
2012
$000
120
8
(68)
3
63
153
26
(67)
8
120
This scheme was intended to reward key persons for the successful performance of certain assets after financial
thresholds had been reached for the period since listing in 2002. The scheme was terminated in 2007 and
replaced by the LTIP scheme (“2007 LTIP”, and the “All Staff LTIP”, see note 26) and no further sums will accrue.
80
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS The Company has the option to require the one remaining beneficiary to subscribe for new ordinary shares for
the net amount arising after tax and national insurance from 2008 onwards.
22. TRADE AND OTHER PAYABLES
Trade payables
Amounts owed to subsidiary undertakings
Amounts advanced from joint venture partners
Accruals
2013
$000
448
-
1,539
13,345
15,332
Group
2012
$000
377
-
92
14,919
15,388
Company
2012
$000
71
2013
$000
35
62,014
60,440
-
12,684
74,733
-
12,745
73,256
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
23. OPERATING LEASES AND CAPITAL COMMITMENTS
2013
$000
Group
2012
$000
Company
2012
$000
2013
$000
Minimum lease payments under operating
leases recognised as an expense in the year
3,454
4,443
2,783
3,378
At the reporting date outstanding commitments for minimum operating leases payments fall due as follows:
Within one year
In the second to fifth year inclusive
2013
$000
5,765
7,015
12,780
Group
2012
$000
6,384
13,302
19,686
2013
$000
5,314
6,600
11,914
Company
2012
$000
5,694
11,914
17,608
Operating lease payments represent the Group’s share of rentals for a Floating Production, Storage and Offtake
(“FPSO”) vessel in Mauritania and rentals payable for its office properties. The current FPSO lease is due to expire
in April 2016, at which point the joint venture partners have an option to extend the contract for a further period
of time. Included within the $12.8 million is $5.3 million and $6.6 million payable on the FPSO within one year
and two to five respectively.
81
Sterling Energy Plc Report and Financial Statements 2013 24. CASH FLOWS FROM OPERATING ACTIVITIES
Group
Operating activities:
Profit before tax from continuing operations
Profit/(loss) before tax from discontinued operations
Finance income and gains
Finance expense and losses
Depletion and amortisation
Impairment reversal
Impairment expense
Share-based payment charge
Operating cash flow prior to working capital movements
Decrease/(increase) in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Cash generated from continuing operations
Cash outflow from discontinued operations
Company
Operating activities:
Profit/(loss) before tax
Finance income and gains
Finance expense and losses
Depletion and amortisation
Impairment reversal
Net movement in investment
Share-based payment charge
Operating cash flow prior to working capital movements
Decrease/(increase) in inventories
Increase/(decrease) in trade and other receivables
Increase in trade and other payables
Decrease/(increase) in provisions
82
2013
$000
7,309
1,025
(892)
1,066
2,488
(4,359)
-
1,166
7,803
247
(1,725)
(56)
6,269
6,822
(553)
6,269
2013
$000
10,337
(892)
1,196
1,638
(3,207)
(1,166)
1,166
9,072
247
(10,993)
1,322
155
(197)
2012
$000
5,502
(18,422)
(350)
503
2,481
(347)
18,422
973
8,762
(121)
(287)
(554)
7,800
7,852
(52)
7,800
2012
$000
(8,638)
(350)
479
1,625
(23)
(928)
973
(6,862)
(121)
7,046
19,911
(17,573)
2,401
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS 25. FINANCIAL INSTRUMENTS
Capital Risk Management and Liquidity Risk
The Group and Company is not subject to externally imposed capital requirements. The capital structure of
the Group and Company consists of cash and cash equivalents held for working capital purposes and equity
attributable to the equity holders of the parent, comprising issued capital, reserves and retained deficit as
disclosed in the statement of changes in equity. The Group and Company uses cash flow models and budgets,
which are regularly updated, to monitor liquidity risk.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the
basis of measurement and the basis on which income and expenses are recognised, in respect of each material
class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.
Due to the short-term nature of these assets and liabilities such values approximate their fair values at 31
December 2013 and 31 December 2012.
Group
Financial assets (classified as loans and receivables)
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Company
Financial assets (classified as loans and receivables)
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Carrying amount/Fair value
2013
$000
2012
$000
120,755
120,348
5,535
620
126,290
120,968
15,332
15,332
15,388
15,388
Carrying amount/Fair value
2013
$000
2012
$000
118,498
118,565
25,274
14,278
143,772
132,843
74,733
74,733
73,256
73,256
83
Sterling Energy Plc Report and Financial Statements 2013 Financial Risk Management Objectives
The Group’s and Company’s objective and policy is to use financial instruments to manage the risk profile of its
underlying operations. The Group continually monitors financial risk including oil and gas price risk, interest rate
risk, equity price risk, currency translation risk and liquidity risk and takes appropriate measures to ensure such
risks are managed in a controlled manner including, where appropriate, through the use of financial derivatives.
The Group and Company does not enter into or trade financial instruments, including derivative financial
instruments, for speculative purposes.
Interest Rate Risk Management
The Group and Company does not have any outstanding borrowings and thus, the Group and Company is only
exposed to interest rate risk on its short-term cash deposits.
Interest Rate Sensitivity Analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for derivative and
non-derivative instruments at the reporting date and assuming the amount of the balances at the reporting date
were outstanding for the whole year.
A 100 basis point change represents management’s estimate of a possible change in interest rates at the
reporting date. If interest rates had been 100 basis points higher and all other variables were held constant the
Group’s profits and equity would be impacted as follows:
Cash and cash equivalents
Group Increase
Company Increase
2013
$000
1,208
2012
$000
1,203
2013
$000
1,185
2012
$000
1,186
Foreign Currency Risk
The Group’s and Company’s reporting currency is the US dollar, being the currency in which the majority of the
Group’s revenue and expenditure is transacted. The US dollar is the functional currency of the Company and
the majority of its subsidiaries. Less material elements of its management, services and treasury functions are
transacted in pounds sterling. The majority of balances are held in US dollars with transfers to pounds sterling
and other local currencies as required to meet local needs. The Group does not enter into derivative transactions
to manage its foreign currency translation or transaction risk.
The Group and Company’s foreign currency translation risk is as follows:
Financial Assets
Cash and cash equivalents
2013
$000
Group
2012
$000
Company
2012
$000
2013
$000
Cash and cash equivalents held in US$
116,419
110,791
114,323
109,148
Cash and cash equivalents held in GBP
4,336
9,557
4,175
9,417
120,755
120,348
118,498
118,565
84
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS Trade and other receivables
Trade and other receivables held in US$
Trade and other receivables held in GBP
Financial liabilities
Trade and other payables
Trade and other payables held in US$
Trade and other payables held in GBP
2013
$000
5,446
89
5,535
2013
$000
14,163
1,169
15,332
Group
2012
$000
381
239
620
Group
2012
$000
14,857
531
15,388
2013
$000
25,258
16
25,274
2013
$000
68,821
5,912
74,733
Company
2012
$000
19
14,259
14,278
Company
2012
$000
67,627
5,629
73,256
Credit Risk Management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group or Company. The Group and Company reviews the credit risk of the entities that it sells its products
to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of
credit as may be considered necessary where risks are significant to the Group or Company. The Group’s and
Company’s business is diversified in terms of both region and the number of counter-parties and the Group and
Company does not have significant exposure to any single counter-party or Group and Company of counter-
parties with similar characteristics.
In relation to its cash and cash equivalents, the Group has to manage its currency exposures and the credit risk
associated with the credit quality of the financial institutions in which the Group maintains its cash resources. At the
year end the Group held approximately 96% (2012: 92%) of its cash in US dollars. At the year end the Group held
the majority of its balances with AA- and A+ Standard & Poors rated institutions. The Group continues to monitor
its treasury management to ensure an appropriate balance of the safety of funds and maximisation of yield.
During the year the Company reversed previously impaired loans to Sterling Energy (International) Limited
totalling $155k (2012: $17.6 million) following the relinquishment of its Sangaw North licence in Kurdistan. Trade
and other receivables are non-interest bearing. The Group does not hold any collateral as security and the Group
does not hold any significant provision in the impairment account for trade and other receivables as they relate
to customers with no default history.
Liquidity and Interest Rate Tables
The following tables detail the remaining contractual maturity for the non-derivative financial assets and liabilities
of the Group and Company. The tables have been drawn up based on the undiscounted cash flows of financial
liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest
and principal cash flows including rates for loan liabilities and cash deposits on actual contractual arrangements.
The weighted average interest rate used in 2013 is nil% (2012: nil%).
85
Sterling Energy Plc Report and Financial Statements 2013 Less than
six months
Six months
to one year
One to
six years
$000
$000
$000
Group
Trade payables (2013)
Trade payables (2012)
1,901
469
Company
Trade payables (2013)
Trade payables (2012)
28
71
-
-
-
-
-
-
-
-
Total
$000
1,901
469
28
71
Interest
Principal
$000
$000
-
-
-
-
-
-
-
-
26. SHARE-BASED PAYMENTS
The Group recognised a total expense, within administration costs, in respect of share-based payments under
equity-settled share option plans of $1.2 million (2012: $973k). The Company recognised a total expense,
within administration costs, in respect of share-based payments under equity-settled share option plans of
$50k (2012: $184k).
In 2009 the Company reviewed the existing share-based incentive schemes currently in place to motivate and
incentivise its employees. The Company also took independent advice to support its review. Based on this,
the Company proposed a new All Staff Long Term Incentive Plan as being the most effective way to deliver
the incentives that the Board believes will continue to align the interests of the employees and shareholders.
Shareholders approved this plan at the December EGM held on 22 December 2009.
With effect from 2009, all further awards are made under the All Staff Long Term Incentive Plan. Awards are made
on similar terms to non-executive Directors of the Company, under a separate plan the NED LTIP.
Share options (2002- 2007)
Following the introduction of the Long Term Incentive Plan in 2007 (“2007 LTIP”), no further grants have been
made under the share option scheme, subsisting grants remained in place and the scheme fully lapsed during
the year.
Movements during the year on share options were as follows:
2013
Number of
share options
2013
Weighted
average
exercise price
(pence)
2012
Number of
share options
2012
Weighted
average
exercise price
(pence)
236,875
(236,875)
-
-
-
348
348
-
-
-
799,375
(562,500)
-
236,875
236,875
266
231
-
348
348
Outstanding at the beginning of period
Forfeited during the period
Exercised during the period
Outstanding at the end of the year
Exercisable at the end of the year
86
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS
The range of exercise prices for options outstanding at the end of the year was:
Year of grant:
2003
2004
2005
2006
2007
2013
Weighted
average
exercise price
(pence)
280
500
690
830
620
2013
Number
2012
Number
-
-
-
-
-
193,750
14,375
2,500
13,750
12,500
No share options were exercised during 2013 (2012: nil). During the year all outstanding share options were
surrendered in exchange for an additional 5% grant to the option holder’s 2013 All Staff LTIP award.
2007 Long Term Incentive Plan (“2007 LTIP”)
Following the introduction, and approval by shareholders of the All Staff Long Term Incentive Plan (“All Staff
LTIP”) in 2009, no further awards or grants have been made under the 2007 LTIP, subsisting awards and grants
remained in place and the scheme fully lapsed in 2012.
Movement during the year on share options were as follows:
Outstanding at the beginning of period
Exercised during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
2013
Number of
share options
2013
Exercise price
(pence)
2012
Number of
share options
2012
Exercise price
(pence)
-
-
-
-
-
-
-
-
-
-
417,328
-
(417,328)
-
-
40
-
40
-
-
87
Sterling Energy Plc Report and Financial Statements 2013 All Staff Long Term Incentive Plan (“All Staff LTIP”)
In accordance with the approved All Staff LTIP, the Group has granted options to its staff and executive Directors
to acquire shares in the Company.
The movement during the year on the share options were as follows:
2013
Number of
share options
2013
Exercise
price (pence)
2012
Number of
share options
2012
Exercise price
(pence)
Outstanding at the beginning of the year
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
10,529,830
3,755,800
-
(2,170,830)
12,114,800
-
40
40
-
40
40
-
7,354,868
6,270,600
(562,500)
(2,533,138)
10,529,830
-
40
40
40
40
40
-
All options are equity settled. The vesting period is three years. If the options remain unexercised after a period
of five years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group
before the options vest or are exercised.
The options outstanding at the year end have a contractual life of 3.80 years (2012: 4.14 years). The cost of the
options is spread over the vesting period of three years. The fair value of the options granted during the year was
16.5 pence (2012: 20.4 pence).
If the Sterling Energy share price (“SESP”) under-performs the Index performance by 10% or more, then no share
options will be earned and the share options will lapse.
If the SESP performance is between matching the Index and under-performing by 10%, the amount of the share
options that will be earned will be determined by extrapolating on a 2.5:1 straight line basis.
If the SESP performance matches the Index performance, then 25% of the share options will be earned.
If the SESP performance is between matching the Index and out-performing by 50%, the amount of the share
options that will be earned will be determined by extrapolating on a 1.5:1 straight line basis.
If the SESP out performs the Index performance by 50% or more, then 100% of the share options will be earned.
All performance measures are defined as being the absolute share price performance or absolute index
performance, and not the performance relative to each other.
88
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS Fair values were measured by use of a modified binomial model. The inputs to the basic binomial model were
as follows:
Share price (pence)
Exercise price (pence)
Expected volatility at time of grant
Expected life (years)
Risk free rate (%)
Expected dividends
2013
38
40
2012
43
40
69.53%
69.53%
3
0.46%
Nil
3
0.24%
Nil
Expected volatility for grants in the year was estimated by calculating the historical volatility of the Company’s
share price over the period 1 November 2010 to 31 October 2013 (2012: over the period 23 December 2009
to 30 September 2012). The Company has overlaid a normal distribution for the FTSE350 condition to assess a
range of possible outcomes.
The Company has then compared the SESP performance against the range of Index performance to estimate
the vested proportions of share options in accordance with the scheme rules. Weighting factors based on
probabilities under the normal distribution are then applied to the range of share option values to calculate a
weighted-average share option value.
All Staff LTIP Sub-Plan
During the year the Company introduced a HMRC approved sub-plan to the All Staff Long Term Incentive Plan
(“HMRC Sub-Plan”).
The movement during the year on the share options were as follows:
2013
Number of
share options
2013
Exercise
price (pence)
2012
Number of
share options
2012
Exercise price
(pence)
Outstanding at the beginning of the year
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
-
949,900
-
-
949,900
-
-
43
-
-
43
-
-
-
-
-
-
-
-
-
-
-
-
-
The options outstanding at the year end have a contractual life of 4.94 years. The cost of the options is spread
over the vesting period of three years. The fair value of the options granted during the year was 19.3 pence.
89
Sterling Energy Plc Report and Financial Statements 2013 Fair values were measured by use of a modified binomial model. The inputs to the basic binomial model were
as follows:
Share price (pence)
Exercise price (pence)
Expected volatility at time of grant
Expected life (years)
Risk free rate (%)
Expected dividends
2013
43
43
69.53%
3
0.46%
Nil
2012
-
-
-
-
-
-
Non-executive Directors Long Term Incentive Plan (“NED LTIP”)
In accordance with the approved NED LTIP, the Group has granted options to its non-executive Directors to
acquire shares in the Company.
The movement during the year on the share options were as follows:
2013
Number of
share options
2013
Exercise
price (pence)
2012
Number of
share options
2012
Exercise price
(pence)
Outstanding at the beginning of the year
642,783
Granted during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
-
-
642,783
333,333
40
40
40
40
-
427,084
309,450
(93,751)
642,783
-
40
40
40
40
-
All options are equity settled. The vesting period is three years. If the options remain unexercised after a period
of five years from the date of grant, the options expire.
Furthermore, options are forfeited if the employee leaves the Group before the options vest or are exercised.
The options outstanding at the year end have a contractual life of 2.32 years (2012: 3.39 years). The cost of the
options is spread over the vesting period of three years.
No performance criteria are attached to the outstanding options, other than the requirement that the holders
must remained employed by the Group when the options are exercised, unless employment is terminated on
death, or as a good leaver.
90
Sterling Energy Plc Report and Financial Statements 2013Year ended 31 December 2013Notes to the Financial StatementsGROUP ACCOUNTS 27. RELATED PARTY TRANSACTIONS
Details of Directors’ remuneration, which comprise key management personnel, are provided below:
Short-term employee benefits
Payments on loss of office
Defined contribution pension
Share-based payments
2013
$000
1,371
117
63
758
Group
2012
$000
1,087
-
90
884
2,309
2,061
Company
2012
$000
158
-
-
184
342
2013
$000
155
-
-
50
205
Further information on Directors’ remuneration is detailed in the Remuneration Committee Report, on pages 34 to 42.
The Company has no other disclosable related party transactions.
28. SUBSEQUENT EVENTS
On 27 January 2014, Sterling announced the completion of the acquisition of a further 15% interest in the
Odewayne Block in Somaliland from Jacka Resources Somaliland Limited, an Australian Company. Sterling will
pay a total of $15.0 million for the 15% interest.
On 10 February 2014 Sterling announced that the operator of the Ntem Block in Cameroon, Murphy Oil,
confirmed that drilling operations have commenced on the Bamboo-1 well using the Ocean Confidence, a fifth
generation semi-submersible drilling rig.
29. CONTINGENT LIABILITIES
The Group has received a claim for VAT from the Madagascan tax authority totalling $946k in respect of its
Ampasindava and Ambilobe licences. Having taken professional advice the Group considers the claim to be
wholly without foundation and continues to defend its position through the appropriate dispute resolution and
legal processes.
Following the farm-in to the Odewayne licence in Somaliland, the Group has a contingent consideration of
$20.0 million to Petrosoma Limited ($8.0 million) and Jacka Resources Somaliland Limited ($12.0 million). Details
of the farm-in and the consideration are summarised in note 14 on page 75.
91
Sterling Energy Plc Report and Financial Statements 2013 Definitions and Glossary of Terms
$
2006 Act
2007 LTIP
1P
2D
2P
3D
3P
AIM
All Staff LTIP
AGM
API gravity
Articles
bbl
bbl/d
bopd
boe
boepd
bcf
Board
C
Capex
CGR
Combined Code or Code
Companies Act
Company or Sterling
Contingent Resources
COS
CSOP
Darcy
Deg
Directors
DST
E&E
92
US dollars
The Companies Act 2006, as amended
The 2007 Long Term Incentive Plan
Proven reserves or in-place quantities depending on the context
Two dimensional
The sum of Proven and Probable reserves or in-place quantities
depending on the context
Three dimensional
The sum of Proven, Probable and Possible reserves or in-place
quantities depending on the context
Alternative Investment Market of the London Stock Exchange
The All Staff Long-Term Incentive Plan adopted in 2009
Annual General Meeting
An American Petroleum Institute scale for crude oil density
The Articles of Association of the Company
Barrel, equivalent to 42 US gallons of fluid
Barrel per day
Barrel of oil per day
Barrel of oil equivalent, a measure of the gas component converted
into its equivalence in barrels of oil
Barrel of oil equivalent per day
Billion cubic feet of gas
The Board of Directors of the Company
Celsius
Capital expenditure
Condensate gas ratio
The Combined Code on Corporate Governance. Now superseded
by the UK Corporate Governance Code (see below)
The Companies Act (as amended 2006)
Sterling Energy Plc
Those quantities of petroleum estimated, as at a given date, to be
potentially recoverable from known accumulations by application of
development projects but which are not currently considered to be
commercially recoverable due to one or more contingencies, Contingent
Resources are a class of discovered recoverable resources
Chance of success
Company Share Option Plan (HMRC approved share option scheme)
Unit of permeability
Degrees
The Directors of the Company
Drill stem test, a method of flow testing a well
Exploration and evaluation assets
Sterling Energy Plc Report and Financial Statements 2013GROUP ACCOUNTS EBITDA
EITI
EMV
EUR
Farm-in and farm-out
FDP
FPSO
FCA
G&G
GBP
taxation, depreciation, depletion and
Earnings before
amortisation, impairment, share-based payments and pre-licence
expenditure
interest,
Extractive Industries Transparency Initiative
Expected monetary value
Economic ultimate recovery
A transaction under which one party (farm-out party) transfers part of
its interest to a contract to another party (farm-in party) in exchange
for a consideration which may comprise the obligation to pay for
some of the farm-out party costs relating to the contract and a cash
sum for past costs incurred by the farm-out party
Field development plan
Floating, Production, Storage and Offloading vessel
The Financial Conduct Authority of the United Kingdom
Geological and geophysical
Pounds Sterling
Genel Energy
Genel Energy Somaliland Limited
GIIP
GOC
GOR
GWC
Group
HMRC
Gas initially in place
Gas oil contact
Gas oil ratio
Gas water contact
The Company and its subsidiary undertakings
Her Majesty’s Revenue and Customs
HMRC Approved Sub-Plan or
The HMRC approved sub-plan of the All Staff LTIP
HMRC Sub-Plan
HSSE
Hydrocarbons
JV
km
km2
Lead
Health, Safety, Security and Environment
Organic compounds of carbon and hydrogen
Joint venture
Kilometre(s)
Square kilometre(s)
Indication of a possible exploration prospect
London Stock Exchange or LSE
London Stock Exchange Plc
m
mmbbl
mmstb
mmboe
mmcf
mmcfge/d
mmscf/d
mss
mTVDss
Murphy Oil
Metre(s)
Million barrels
Million barrels of oil at stock tank conditions
Million barrels of oil equivalent
Million cubic feet of gas
Million cubic feet of gas equivalent per day
Million cubic feet at standard pressure and temperature per day
Metres sub-sea
Metres true vertical depth sub-sea
Murphy Cameroon Ntem Oil Co. Ltd, a wholly owned subsidiary of
Murphy Oil Corporation
93
Sterling Energy Plc Report and Financial Statements 2013 Definitions and Glossary of Terms (cont.)
NED LTIP
NPV
OECD
Opex
Ordinary Shares
OWC
P90, P50, P10
Non-executive Director Long Term Incentive Plan adopted in 2009
Net present value of a series of cash-flows
Organisation for Economic Cooperation and Development
Operating expenditure
Sterling ordinary shares of 40 pence each
Oil water contact
90%, 50% and 10% probabilities respectively that the stated
quantities will be equalled or exceeded. The P90, P50 and P10
quantities correspond to the Proved (1P), Proved + Probable (2P)
and Proved + Probable + Possible (3P) confidence levels respectively
Panel or Takeover Panel
The Panel on Takeovers and Mergers
Petroleum
Petronas
PP&E
PRMS
Prospect
Oil, gas, condensate and natural gas liquids
PC Mauritania 1 PTY LTD
Property, Plant & Equipment
Petroleum resource Management System as issued in March 2007
by the Society of Petroleum Engineers et al
A potential sub-surface accumulation of hydrocarbons which has
been identified but not drilled
Prospective Resources or
Prospective Recoverable Resources
psi(a)
Those quantities of petroleum which are estimated, as at a given
date, to be potentially recoverable from undiscovered accumulations
Pounds per square inch (absolute)
PSC
PSA
Pura Vida
Reserves
Production sharing contract
Production sharing agreement
Pura Vida Mauritius
Reserves are those quantities of petroleum anticipated to be
commercially recoverable by application of development projects
to known accumulations from a given date forward under defined
conditions. Reserves must satisfy four criteria; they must be
discovered, recoverable, commercial and remaining based on the
development projects applied. Reserves are further categorised in
accordance with the level of certainty associated with the estimates
and may be sub-classified based on project maturity and/or
characterised by development and production status
Reservoir
A porous and permeable rock capable of containing fluids
RF
RI
RISC
Scf
Seismic
SESP
Shares
94
Recovery factor
Royalty interest
RISC (UK) Limited of 53 Chandos Place, Covent Garden, London
WC2N 4HS
Standard cubic feet of gas (measured at 60 degree Fahrenheit and
14.7 psia)
Data, obtained using a sound source and receiver, that is processed
to provide a representation of a vertical cross-section through the
subsurface layers
Sterling Energy share price
40p Ordinary Shares
Sterling Energy Plc Report and Financial Statements 2013 Shareholders
Ordinary shareholders of 40p each in the Company
SMH
sq km
sq mi
stb
STOIIP
Société Mauritanienne Des Hydrocarbures
Square kilometre
Square mile
Stock tank barrel (measured at 60 degrees Fahrenheit and 14.7 psia)
Stock tank oil initially in place
Subsidiary
A subsidiary undertaking as defined in the 2006 Act
Tcf
TEA
TD
TSR
TVD
Trillion cubic feet of gas
Technical evaluation agreement
Total depth
Total Shareholder Return (End Share Price – Opening Share Price/
Opening Share Price) plus (Sum of Dividends Per Share/Opening
Share Price)
True vertical depth
United Kingdom or UK
The United Kingdom of Great Britain and Northern Ireland
UK Corporate Governance Code
Formerly the Combined Code, sets out standards of good
to Board
practice
remuneration, accountability and relations with shareholders
relation
in
leadership and effectiveness,
United States or US
The United States of America
Water-cut
Working Interest or WI
That percentage of total fluid production that is water
A Company’s equity interest in a project before reduction for royalties
or production share owed to others under the applicable fiscal terms
95
Sterling Energy Plc Report and Financial Statements 2013
Professional Advisers
Nominated Advisors
Legal
Memery Crystal LLP
44 Southampton Buildings
London
WC2A 1AP
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Registered Office
85 Fleet Street
London
EC4Y 1AE
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London
EL2Y 9LY
Corporate Brokers
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London
EL2Y 9LY
Peel Hunt
Moor House,
120 London Wall
London
EC2Y 5ET
Corporate Bankers
Barclays Commercial Bank
1 Churchill Place
London
E14 5HP
HSBC
165 Fleet Street
London
EC4A 2DY
The Royal Bank of Scotland Plc
1 Albyn Place
Aberdeen
AB10 1BR
96
Sterling Energy Plc Report and Financial Statements 2013 Designed and produced by blueasterisk design
97
Sterling Energy Plc Report and Financial Statements 2013 Sterling Energy Plc
85 Fleet Street
London
EC4Y 1AE
+44 (0)20 7405 4133
Tel:
Fax: +44 (0)20 7440 9059
Email: info@sterlingenergyuk.com
www.sterlingenergyplc.com
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