Report and Financial Statements
2014
Sterling Energy plc
Report and
Financial Statements
Year ended 31 December 2014
CONTENTS
Chairman’s Statement
STRATEGIC REPORT
Operations Review
Schedule of Interests
Reserves Summary
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 (the ‘Company’),
together with its subsidiary
undertakings (the ‘Group’), is an
upstream oil and gas company listed
on the AIM market of the London
Stock Exchange. The Company is an
experienced operator of international
licences with a focus on projects in
Africa. The Group has high potential
exploration projects in Cameroon,
Somaliland, Madagascar and
Mauritania together with a production
interest in Mauritania.
2
Cover image courtesy of CGG
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 OVERVIEW
Chairman’s Statement
$108.1 million
CASH RESOURCES
During 2014 we focused on the exploration
of our existing assets and building our
portfolio with the addition of new and
diverse opportunities...
During 2014 we focused on the exploration of our existing
In May 2014 we completed the acquisition of 40% of the
in these disputed waters is too great and in May 2014
Sterling Energy (UK) Limited, as operator, expects to
assets and building our portfolio with the addition of new
Odewayne PSC onshore Somaliland. Genel, the operator,
force majeure was declared again. Société Nationale
complete in Q2 2015 the acquisition of 1,250km² of 3D
and diverse opportunities, spreading our resources,
carries us for our share of costs to acquire a 1,500km 2D
des Hydrocarbures (‘SNH’), the national oil company
seismic data over the Ambilobe block in Madagascar,
both human and financial, across varying technical,
seismic programme and to drill one exploration well; by
of Cameroon, has advised Sterling Cameroon Limited
the cost of which is being paid by Pura Vida who farmed
commercial and geopolitical ventures.
acquiring an uncapped carried interest we can forecast
that “Cameroon does not recognise that any situation
into 50% of the Ambilobe PSC in December 2013. We
We have made progress in our quest for new ventures in
work programme.
discussions with SNH to agree the best way to progress
identify possible prospects ahead of the ‘drill or drop’
a rapidly changing oil and gas industry landscape. At the
the exploration activity in the Ntem block.
decision in July 2016.
with certainty our exploration costs for a pre-defined
of force majeure exists in the Ntem Permit”. We are in
look forward to acquiring and interpreting this data to
beginning of 2014, the Company and many of our peers all
In February 2015 we signed an agreement with Tullow Oil
actively sought new portfolio opportunities. As the global
to acquire a 40.5% interest in PSC C-3 offshore, shallow
In February 2015 Murphy advised Sterling Cameroon
FINANCIAL
oil price started to decline the competitive market for new
water Mauritania. As operator, Tullow had just finished
Limited and SNH that Murphy proposes to transfer its
The Group had cash resources of $108.1 million at the
ventures started to ease in parallel with some additional
the acquisition of a 1,600km 2D seismic programme.
50% interest and operatorship to Sterling Cameroon
end of 2014, including $1.1 million of partner funds, and
opportunities being offered by companies with exploration
During the next few months we shall work with Tullow
Limited subject to receipt of Cameroon government
we remain free of debt. Our work programme for 2015
commitments but whose budgets were under pressure in
to integrate the new seismic data with the existing sub-
approvals. We would like to thank Murphy for their
is fully funded and we have funds available to progress
response to the falling oil price. We have also seen the
surface data-set to mature leads to drill-ready prospects
diligent work as operator of the Ntem concession and
both our existing portfolio and new venture activity.
traditional business model of the smaller E&P companies
ahead of the decision to enter the next exploration period
their financial contribution that covered the Group’s share
securing acreage, and
then undertaking
leveraged
with a commitment to drill one exploration well.
of all exploration costs since November 2011.
BOARD AND MANAGEMENT CHANGES
farm-outs to reduce their exposure to the high costs of
On 23 March 2015 the Company announced the
exploration, coming under commercial and financial strain
In January 2014, the Company’s wholly owned subsidiary,
In Madagascar we received Presidential consent to
appointment of Eskil Jersing as Chief Executive Officer
as the medium and larger independent oil companies
Sterling Cameroon Limited, and our joint venture partner,
extend Phase 2 and 3 of the Ambilobe and Ampasindava
(CEO) and a director of the Company. Eskil’s career to
are no longer willing to fund 100% of the exploration risk.
lifted force majeure in the Ntem block, in Cameroon,
PSCs, respectively, to July 2016.
We had adapted our Group strategy accordingly and in
to allow exploration activities to resume. The Ocean
date spans almost 30 years working exploration, new
ventures, strategy, planning and business development
particular are more cautious about our ability to farm-out
Confidence rig commenced the drilling of Bamboo-1
The Company’s wholly owned subsidiary, Sterling
roles of increasing responsibility in the world’s key
what are sometimes, very large financial commitments.
exploration well in February 2014. The well encountered
Energy (UK) Limited, and ExxonMobil, our joint venture
petroleum basins (Africa, Brazil, SE Asia, Australasia,
the reservoirs that had been identified from the extensive
partner in the Ampasindava PSC, have completed a
North Sea, and Deep Water Gulf of Mexico). I am very
We believe the key to long term exploration success is
3D seismic dataset but no commercial hydrocarbons
review of the Sifaka prospect and concluded that the
pleased to welcome Eskil to the Company and I look
to be diligent during the appraisal of new ventures and
were encountered; the well was plugged and abandoned
technical and commercial risks are too great to justify
forward to the addition of his specialist oil and gas
highly selective in the final choice, securing fewer high
in April 2014. A review of the remaining prospectivity has
an exploration well; furthermore no other drill ready
experience, excellent business skills, and clear focused
quality opportunities rather than over-stretching the
highlighted a drill-ready prospect located in Cameroon
prospects have been identified. The joint venture
leadership that will strengthen our ability to manage our
Company’s resources with smaller equity spread across
maritime waters which are also claimed by Equatorial
partners are in discussions with OMNIS, the Malagasy
existing exploration portfolio and identify new venture
more higher risk ventures.
Guinea. We believe the geopolitical risk involved in drilling
petroleum agency on the future work programme.
opportunities.
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
OVERVIEW
Chairman’s Statement (cont.)
I will relinquish the role of Interim CEO and continue as
The Group has, via a combination of our own funds
the Company’s executive Chairman.
and carried interests, the resources to see our existing
projects advance during 2015. We hold sufficient funds
In December 2014 the Company announced that
to acquire additional growth options to add to our
Dr. Philip Frank, the Company’s Exploration Director,
portfolio; we shall continue to seek new opportunities
intended to step down from the Board and leave the
within and beyond our existing areas of interest and shall
Company. As part of the Company’s succession plan,
only pursue those ventures that we believe will ultimately
we appointed Matthew Bowyer as Exploration Manager
deliver value for our shareholders.
and following a period of transition Dr. Frank stood
down from the Board on 13 March 2013. I would like to
I would like to thank our shareholders for their continuing
thank Phil for the contribution he made to the Group’s
support for our strategy and all of our management and
exploration activity during his three year tenure and wish
staff for their diligent efforts during 2014.
him all the very best for his future challenges.
OUTLOOK FOR 2015 AND BEYOND
During 2015 we expect to receive 3D seismic data
covering the high-graded area of the Ambilobe block
Alastair Beardsall
Chairman
and 2D data on the C-3 block which will be interpreted
25 March 2015
to identify potential drill-ready prospects, in addition we
expect the planning for 2D seismic acquisition in the
Odewayne block to be well advanced.
We have a material drill-ready prospect in the Ntem
block and will work with SNH, the Cameroon state oil
company, to agree a forward plan that does not put at
risk any drilling investment in an area of disputed territorial
waters.
The high technical and commercial risks associated with
drilling the Sifaka prospect on the Ampasindava block
means there is no expectation of drilling during 2015 or
2016; in the year ahead we shall endeavour to agree a
forward plan with ExxonMobil and OMNIS, the Malagasy
petroleum agency.
2014 SUMMARY
In Cameroon, the Bamboo-1 exploration well was drilled on the Ntem block; no commercial
hydrocarbons were encountered and the well was subsequently plugged and abandoned in April
2014. The Group’s share of the drilling cost was funded by Murphy under the 2011 farm-out
agreement.
3D Seismic Programme on the Ambilobe block, offshore Madagascar, is expected to be
completed in Q2 2015.
Acquisition of a 40% carried interest in the Odewayne block, Somaliland, was completed in Q2
2014.
Signature of an agreement with Tullow Oil to acquire a 40.5% interest in PSC C-3, offshore
Mauritania.
The Group received $6.9 million of net cash flow from Chinguetti field operations, offshore
Mauritania in 2014 (2013: $11.2 million).
Cash resources at 31 December 2014 of $108.1 million (2013: $120.8 million).
The Group remains debt free.
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Sterling Energy plc Report and Financial Statements 2014
Sterling Energy plc Report and Financial Statements 2014
7
Sterling Energy plc
Strategic Report
Year ended 31 December 2014
STRATEGIC REPORT
Operations Review
The Group’s current portfolio provides exposure to exploration opportunities
within a number of 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 and commercial discoveries.
CAMEROON
Despite a recent dry exploration well, Ntem remains
highly prospective deep water acreage in the southern
Douala Basin. The Douala Basin of Cameroon is a
proven oil and gas producing province with multiple
discoveries made within the shallower water shelf
area to the east of the Ntem concession and with
multiple deeper water discoveries to the north.
Ntem (WI 100% & Operator)1
Overview
The Ntem concession lies adjacent to the southern
maritime border of the Douala Basin province of Cameroon.
Water depths range from 400m to 2,000m across this
2,319km² block. This large block is well placed with respect
to both Tertiary and Upper Cretaceous play potential, both
of which have proven successful nearby in Cameroon and
in Equatorial Guinea.
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 (referred
to as the “Affected Area”).
In November 2011, Sterling Cameroon Limited completed
a farm-out agreement with Murphy Cameroon Ntem Oil
Co. Ltd (‘Murphy’), under which Murphy was assigned a
50% working interest in, and operatorship of, the Ntem
concession. Sterling Cameroon Limited retained a 50%
non-operated working interest. As consideration, Murphy
agreed to pay all costs associated with the current
exploration phase of the concession (First Renewal Period).
1 In February 2015, Sterling Cameroon Limited signed an agreement with
Murphy whereby Murphy will transfer its 50% interest in, and operatorship
of, the Ntem concession to Sterling Cameroon Limited. Completion of
the transaction remains subject to Cameroon Ministerial approval.
2014 Activity
The border dispute between Cameroon and Equatorial
Guinea remains unresolved but Murphy and Sterling
Cameroon Limited agreed, together with Société Nationale
des Hydrocarbures (‘SNH’), the national oil company of
Cameroon, to formally lift force majeure on 22 January
2014 in order to allow exploration activity to proceed. The
current exploration period re-commenced on that date
with the minimum work obligation of one exploration well
required to be drilled before April 2015.
Murphy drilled the Bamboo-1 exploration well using the
Ocean Confidence semi-submersible rig as soon as force
majeure was lifted. Bamboo-1 was located in 1,600m of
water and was the first well drilled in the Ntem concession
area. It commenced drilling operations on 9 February 2014
and reached a total depth of 4,747m after penetrating
a series of good quality, Cretaceous aged basin floor
submarine fans. The well encountered all pre-drill targets,
but analysis of the well data indicated that no commercial
hydrocarbons were found and the well was plugged and
abandoned on 16 April 2014.
Bamboo-1 satisfied the minimum work obligation for the
First Renewal Period. An important consideration in the
joint venture’s decision to lift force majeure was that the
prospect targeted by the Bamboo-1 well lay outside of
the Affected Area. Following the drilling of Bamboo-1
an exhaustive reassessment of the prospectivity led the
joint venture to the conclusion that the area of greatest
potential in the Ntem Concession lay in the Affected Area,
to the south. As a result, on 6 May 2014 Murphy (as
operator and on behalf of the Ntem joint venture partners)
notified SNH of the joint venture’s re-declaration of force
majeure pending formal resolution of the conflicting
maritime border claims. SNH has advised that “Cameroon
does not recognise that any situation of force majeure
exists in the Ntem Permit”. Sterling Cameroon Limited is
Mauritania
Cameroon
Somaliland
Madagascar
working with SNH to determine the forward plan for the
Ntem Concession.
A summary of the Ntem asset details is provided on page
15 of the Strategic Report.
SOMALILAND
The onshore basins of Somaliland offer one of the
last opportunities to target undrilled Mesozoic basins
in Africa. The Odewayne block is ideally located to
explore this play covering a large area of a completely
unexplored onshore rift basin. Geophysical data
and geological field studies indicate that the basin
underlying the block has analogous characteristics
to producing basins in Yemen.
Odewayne (WI 40%)
Overview
This very large unexplored acreage position comprises an
area of 22,840km2. Exploration to date has been limited
to the acquisition of airborne gravity and magnetic data,
with no seismic coverage and no wells drilled on block.
The field data provides strong support for the presence
of a deep sedimentary basin and geological fieldwork has
highlighted the presence of numerous oil seeps at the
surface giving encouragement that a working hydrocarbon
system is present.
The Odewayne Production Sharing Agreement (‘PSA’)
was awarded in 2005, and is in the Third Period with an
outstanding minimum work obligation of 500km of 2D
seismic. The Third Period was recently extended by two
years (to 2 November 2016) in order to allow time for an
Oil Field Protection Unit to be established (see below).
The minimum work obligation during the Fourth Period of
the PSA (also extended by 2 years to May 2018) is for
1,000km of 2D seismic and one exploration well.
The Company’s wholly owned subsidiary, Sterling Energy
(East Africa) Limited, currently holds a 40% working
interest in the PSA. Sterling Energy (East Africa) Limited
from Petrosoma Limited
acquired an original 10%
(‘Petrosoma’) in November 2013 and an additional 30%
from Jacka Resources Somaliland Limited (‘Jacka’) in two
transactions during 2014. In aggregate, as consideration,
Sterling Energy (East Africa) Limited has paid $17.0 million
to date and a further $8.0 million is to be paid to Petrosoma
when certain operational milestones are reached.
The joint venture participants in the PSA are:
• Genel Energy Somaliland Limited (Operator)
• Sterling Energy (East Africa) Limited
• Petrosoma Limited
50%
40%
10%
Sterling Energy (East Africa) Limited is fully carried by Genel
Energy Somaliland Limited (‘Genel Energy’) for its share of
the costs of all exploration activities during the Third Period
and the Fourth Period of the PSA.
Future Activity
Operations in Somaliland have been delayed while the
Government of the Republic of Somaliland establishes
a trained and equipped Oilfield Protection Unit that can
provide the level of security required by the in-country
operators to ensure that future seismic and drilling
operations can be conducted safely and effectively.
In the meantime, results from extensive fieldwork will
continue to be analysed to enable a greater understanding
of the exploration play elements.
A summary of the Odewayne asset details is provided on
page 16 of the Strategic Report.
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
STRATEGIC REPORT
Operations Review (cont.)
MADAGASCAR
The Group’s Ambilobe and Ampasindava blocks
are located in the Ambilobe and Majunga deep
water basins, respectively, offshore north-west
Madagascar.
the new president of Madagascar
Following the inauguration of Hery Rajaonarimampianina
as
in January
2014, exploration activities on the Group’s assets in
Madagascar resumed. At that time agreement had been
reached with OMNIS, the state regulator, to prolong the
current exploration periods of both the Ambilobe and
Ampasindava PSCs to September 2015, but more recently
further extensions of both licences to July 2016 have been
approved and formally gazetted.
Ampasindava (WI 30%)
Overview
The Ampasindava block covers some 7,379km² and is
located in the Majunga basin, offshore Madagascar. Water
depths across the block range from 20m to 2,500m.
(‘ExxonMobil’)
The Ampasindava PSC is currently in the third phase
of the exploration period with a remaining minimum
work commitment of one exploration well. In late 2013
(Northern
ExxonMobil Exploration and Production
Madagascar) Limited
(WI 70% and
Operator) and Sterling Energy (UK) Limited resumed
exploration activities including acquisition of a 1,314km
2D seismic programme. The new seismic data provided
improved sub-surface imaging over the Sifaka prospect
but failed to mature additional leads and prospects within
the Ampasindava block to drill-ready status. In addition, a
detailed subsurface re-assessment of the Sifaka prospect
has led to a view that the technical and commercial
risk remains too high; specifically the high chance of
reservoir quality being poor (production concerns) and an
increased phase risk for gas over oil.
Following the farm-in by ExxonMobil in 2005, Sterling
Energy (UK) Limited’s costs have been carried up to a
fixed amount. The Group estimates that ExxonMobil’s
remaining carry at the beginning of 2015 is $28.3 million;
however we expect the Group’s 30% share of the cost of
potentially drilling an exploration well would exceed this
amount.
Future Activity
Following the review of the remaining on block prospectivity,
and the Sifaka prospect specifically, ExxonMobil and
Sterling Energy (UK) Limited have not planned to drill an
exploration well in 2015 or 2016 and have engaged with
OMNIS to discuss the work programme.
A summary of the Ampasindava asset details is provided
on page 17 of the Strategic Report.
Ambilobe (WI 50% & Operator)
Overview
The Ambilobe block covers some 17,650km² and is located
in the Ambilobe basin, offshore Madagascar. Water depths
across the block range from shoreline to 3,000m.
The Ambilobe PSC is in the second phase of the
exploration period and all work commitments have
been fulfilled. The Ambilobe block is covered by an
extensive database of vintage 2D data that has led to
the identification of a number of Cretaceous and Tertiary
aged leads, located in both shallow and deep waters, all
of which require additional seismic data to develop into
possible drillable prospects.
Sterling Energy (UK) Limited completed a farm-out
agreement in December 2013 with Pura Vida Mauritius
(‘Pura Vida’) under which Pura Vida assumed a 50%
interest in the Ambilobe PSC and will pay all costs
associated with a planned 1,250km² 3D seismic survey
up to a maximum of $15.0 million. Following the farm-out,
Sterling Energy (UK) Limited retains a 50% interest in the
PSC and remains as operator.
Future Activity
The Ambilobe joint venture will acquire 1,250km² of new
3D seismic data, expected to be completed in Q2 2015.
This data will be focused over an area of high-graded
prospectivity following prior interpretation of vintage 2D
seismic data. The required permits have been secured
to allow the seismic acquisition. The survey will be
undertaken by CGG and it is anticipated that processed
time migrated data will be available for interpretation at
the end of 2015. Depth migrated data will follow in Q1
2016 and will be an important factor in the “drill or drop”
decision required by July 2016.
A summary of the Ambilobe asset details is provided on
page 18 of the Strategic Report.
C-3 (WI 40.5%)2
Overview
Block C-3 is located in shallow water within the
Nouakchott sub-basin, offshore Mauritania and covers
9,800km². The production sharing contract (‘PSC’)
for block C-3 is held by the Company’s wholly owned
subsidiary Sterling Energy Mauritania Limited (40.5%
working interest)2, Tullow (49.5% working interest and
operator) and SMHPM (10% working interest). SMHPM is
carried by Sterling Energy Mauritania Limited and Tullow,
pro-rata to their working interest, during the exploration
phases. The PSC is in the first phase of the exploration
period, which runs to June 2016, with a minimum work
commitment of acquiring 1,600km of 2D seismic data.
In late 2014, the operator acquired 1,600km of new 2D
seismic data over block C-3 and processing of the new
seismic data will satisfy the minimum work obligations for
the current phase of the exploration period.
Future Activity
Reinterpretation of exploration efforts in light of the Cairn
SNE-1 discovery in Senegal has highlighted the possible
extension of an Albian clastic play into PSC C-3. Following
the acquisition of the new 2D data, the joint venture will
focus on the interpretation and integration of regional data
in 2015, to inform the decision on entry into Phase 2 and
the commitment to acquire 700km² of 3D seismic and drill
one exploration well.
A summary of the C-3 asset details is provided on page 19
of the Strategic Report.
MAURITANIA
Chinguetti (Economic Interest via Funding and
Royalty Agreements).
interests
in the
The Company has economic
Chinguetti field through a funding agreement with
Société Mauritanienne Des Hydrocarbures et du
Patrimoine Minier (‘SMHPM’), Mauritania’s national
oil company, and a royalty agreement with Premier
Oil through its wholly owned subsidiary Sterling
North West Africa Holdings Limited.
Overview
Gross production during 2014 averaged 5,512 bopd
(2013: 6,156 bopd) and the average production net to the
Group, from the Group’s economic interests during 2014,
was 432 bopd (2013: 527 bopd). Production in the first half
of the year was reduced by a planned sub-sea intervention
campaign in January to consolidate maintenance and
intervention programmes and minimise production down-
time. This was completed, as planned, within 10 days.
The Company estimates that at the end of 2014, the net
entitlement to 2P reserves is 292k barrels (2013: 559k
barrels).
No infill drilling or workover activity took place on the
Chinguetti field during 2014.
In early 2015, the Company was notified by Premier Oil
(‘Premier’) that Premier’s interest in PSC-A (including the
Banda gas field), PSC-B (other than the Chinguetti field)
and PSC C-10 had expired. Premier’s exit from each of
these PSC’s does not affect the royalty currently received
by the Group from Premier over Premier’s interest in
production from the Chinguetti field.
Future Activity
The Chinguetti joint venture is investigating how best
to manage the Chinguetti field in the current low oil
price environment. Discussions are being held with the
Government of Mauritania and contractors to best manage
the situation.
A summary of Chinguetti interests and a resource summary
are provided on pages 14 and 20 of the Strategic Report.
2 In February 2015, Sterling Energy Mauritania Limited signed an
agreement with Tullow Oil for the acquisition of a 40.5% working interest
in PSC C-3. The transaction is subject to Mauritanian Governmental
approval and completion with Tullow.
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
STRATEGIC REPORT
Cameroon
Licence
Name
Sterling
Working
Interest %
Sterling
Net Revenue
Interest %
Operated/
Non-operated
STRATEGIC REPORT
Schedule of Interests
Year ended 31 December 2014
Location
Mauritania: Offshore
Mauritania: Offshore
Mauritania: Offshore
Cameroon: Offshore
Madagascar: Offshore
Size
(km²)
29
29
9,800
2,319
17,650
PSC B -
Chinguetti
Field
PSC B -
Chinguetti
Field
n/a
n/a
PSC C-3 3
40.5%
Ntem 4
Ambilobe 5
100%
50%
30% 6
40%
Sliding scale royalty
from 6% WI 1
Non-operated
Economic interest for
approximately 8% of
Chinguetti project 2
Non-operated
Non-operated
Operated
Operated
Non-operated
Non-operated
Madagascar: Offshore
7,379
Ampasindava 5
Somaliland: Onshore
22,840 Odewayne Block 7
1 The Company’s royalty interests derive from Premier Oil’s working interests of 6% in PSC B. The Company’s royalty is up to 6% of Premier Oil’s
working interest.
2 The Company’s interest derives from the Funding Agreement with SMHPM.
3 Acquisition of PSC C-3 remains subject to Mauritanian Government approval and completion of the transaction with Tullow Oil.
4 Force majeure was lifted on 22 January 2014 in order to drill the Bamboo-1 well, as a result the current phase was extended to 22 April 2015. On 6
May 2014 force majeure was re-declared; SNH, however, has not accepted this as valid. Transer of Murphy’s 50% working interest and operatorship
remains subject to Cameroon Ministerial approval.
5 The licences were taken out of suspension and new exploration periods were agreed with OMNIS; extensions to July 2016 have been approved and
gazetted.
6 Carried for defined gross cost $ amount.
7 Carried for the minimum work obligation of current phase and next phase of PSA.
Ntem (WI 100%)
OVERVIEW
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
(‘Murphy’) farmed into the block becoming a 50% working
interest partner in, and operator of the Ntem Concession.
Sterling Cameroon Limited retained a 50% non-operated
working interest.
The Ntem Concession entered force majeure from June
2005 to January 2014 as a result of overlapping maritime
border claims by the Republic of Cameroon and the
Republic of Equatorial Guinea affecting the licence area.
Whilst the border claims have not been resolved by the
Cameroon and Equatorial Guinea Governments,
in
January 2014 the joint venture partners agreed, with
Société Nationale des Hydrocarbures (‘SNH’), the national
oil company of Cameroon, to formally lift the declaration
of force majeure in order to allow drilling of the Bamboo-1
exploration well.
Following the lifting of force majeure, the current exploration
period (the ‘First Renewal Period’) of the Ntem Concession
re-commenced on 22 January 2014. Upon lifting of force
majeure the remaining term of the First Renewal Period
was approximately 15 months (expiring April 2015). The
minimum work obligation in the First Renewal Period to
drill one exploration well was satisfied by the Bamboo-1
well. The Bamboo-1 well failed to find hydrocarbons and
was plugged and abandoned on 16 April 2014.
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(cid:10)(cid:24)(cid:25)(cid:12)(cid:17)
(cid:20)(cid:19)(cid:18)(cid:30)(cid:17)(cid:29)(cid:16)(cid:15)(cid:14)(cid:10)(cid:18)(cid:17)(cid:9)(cid:14)(cid:8)(cid:17)(cid:7)(cid:11)(cid:6)(cid:5)
(cid:22)(cid:19)(cid:4)(cid:18)(cid:30)(cid:14)(cid:10)(cid:18)(cid:17)(cid:9)(cid:14)(cid:8)(cid:17)(cid:7)(cid:11)(cid:6)(cid:5)
(cid:23)(cid:22)(cid:21)(cid:22)(cid:20)(cid:22)(cid:19)(cid:23)(cid:18)(cid:17)
(cid:18)(cid:17)(cid:16)(cid:17)(cid:23)(cid:15)(cid:24)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)
(cid:18)(cid:17)(cid:16)(cid:17)(cid:23)(cid:15)(cid:24)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:29)
(cid:26)(cid:25)(cid:24)
(cid:18)(cid:17)(cid:16)(cid:17)(cid:23)(cid:15)(cid:24)
(cid:21)(cid:20)(cid:19)(cid:25)(cid:24)(cid:24)(cid:29)(cid:28)
(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:29)(cid:28)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)
(cid:31)(cid:8)(cid:7)(cid:6)(cid:5)
(cid:18)(cid:20)(cid:23)(cid:27)(cid:13)(cid:12)(cid:20)(cid:23)(cid:13)(cid:22)(cid:15)
(cid:31)(cid:30)(cid:29)(cid:28)
(cid:20)(cid:19)(cid:18)(cid:30)(cid:17)(cid:29)(cid:16)(cid:15)(cid:14)(cid:24)(cid:16)(cid:18)(cid:30)(cid:15)(cid:13)
(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:22)(cid:21)
(cid:26)(cid:19)(cid:17)(cid:12)(cid:16)(cid:19)(cid:29)(cid:11)
(cid:22)(cid:11)(cid:18)(cid:12)(cid:16)
(cid:31)(cid:8)(cid:7)(cid:6)(cid:4)
(cid:14)(cid:12)(cid:17)(cid:23)(cid:15)(cid:24)(cid:16)(cid:17)
(cid:16)(cid:30)(cid:29)(cid:15)(cid:14)(cid:19)(cid:12)
(cid:27)(cid:13)(cid:12)(cid:20)(cid:11)
(cid:16)(cid:30)(cid:29)(cid:15)(cid:14)(cid:19)(cid:13)
(cid:14)(cid:26)(cid:18)(cid:17)(cid:13)(cid:16)(cid:24)(cid:12)
(cid:3)(cid:2)(cid:14)(cid:31)(cid:1)
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
Concession
14 March 2001
3 September 2002
2,319km2
Participants
Sterling Cameroon Limited (Operator)
100%*
*Pending approval by the Government of Cameroon
Exploration term
Current First Renewal Period:
On 6 May 2014 the joint venture declared force majeure pending
formal resolution of the conflicting maritime border claims
Minimum work commitment:
Drill one exploration well (completed by drilling Bamboo-1)
Second Renewal Period (optional):
Two years duration
Second Renewal Period work commitment:
Drill two exploration wells
Production term
Twenty five years, renewable for ten years
State Participation
State may back in for a 10% participating interest in any
development and production area
has advised that “Cameroon does not recognise that any
situation of force majeure exists in the Ntem Permit”.
In February 2015, Sterling Cameroon Limited signed an
agreement with Murphy whereby Murphy will transfer its
50% interest in, and operatorship of, the Ntem Concession
to Sterling Cameroon Limited. Completion of the transaction
remains subject to Cameroon Ministerial approval.
14
15
On 6 May 2014, Murphy (as operator and on behalf of
the Ntem joint venture partners) notified SNH of the joint
venture’s re-declaration of force majeure pending formal
resolution of the conflicting maritime border claims. SNH
Sterling Cameroon Limited is working with SNH to
determine the forward plan for the Ntem Concession given
the declaration of force majeure.
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
STRATEGIC REPORT
Somaliland
Odewayne (WI 40%)
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 field data indicating
the presence of a sedimentary basin and oil seeps at surface
indicating the presence of a working hydrocarbon system.
Sterling Energy (East Africa) Limited acquired its 40% interest
through separate farm-in agreements with Petrosoma and
Jacka Resources, under which all Sterling Energy (East
Africa) Limited’s share of costs associated with the Phases
3 and 4 work programmes are carried by Genel Energy.
In May 2014, the Government granted the joint venture
a 2 year extension to the current phase of the PSA (to 2
November 2016), and the dates of each subsequent phase
were also adjusted accordingly.
(cid:1)(cid:26)(cid:12)(cid:26)(cid:9)
(cid:15)(cid:14)(cid:30)(cid:29)
(cid:31)(cid:18)(cid:28)(cid:17)(cid:27)(cid:16)(cid:17)(cid:27)(cid:15)(cid:14)(cid:30)(cid:29)
(cid:8)(cid:4)(cid:10)(cid:3)(cid:13)(cid:2)(cid:7)(cid:10)
(cid:8)‚(cid:19)ƒ(cid:16)(cid:18)(cid:20)(cid:19)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:29)
(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:13)(cid:12)(cid:15)(cid:11)(cid:10)(cid:11)(cid:15)(cid:9)(cid:8)
(cid:157) (cid:27) €
(cid:21)(cid:20)(cid:30)(cid:25)(cid:28)(cid:19)(cid:29)(cid:24)(cid:27)(cid:6)(cid:30)(cid:28)(cid:14)(cid:27)(cid:3)(cid:28)(cid:16)(cid:129)(cid:141)(cid:143)
(cid:13)(cid:20)(cid:144)(cid:30)(cid:25)(cid:27)(cid:6)(cid:30)(cid:28)(cid:14)(cid:27)(cid:3)(cid:28)(cid:16)(cid:129)(cid:141)(cid:143)
(cid:26)(cid:7)(cid:6)(cid:10)(cid:13)(cid:5)(cid:10)(cid:15)
(cid:21)(cid:13)(cid:12)(cid:15)(cid:11)(cid:10)(cid:15)
(cid:10)(cid:29)(cid:14)(cid:19)(cid:127)(cid:29)(cid:27)(cid:13)(cid:129)(cid:30)(cid:127)(cid:29)
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
Petrosoma Limited
Exploration term
Phase 3:
To 2 November 2016
Phase 3 work commitment:
500km 2D seismic acquisition
Phase 4 (optional):
To 2 May 2018
Phase 4 work commitment:
50%
40%
10%
1,000km 2D seismic acquisition and one exploration well
Phase 5 (optional):
To 2 May 2019
Phase 5 work commitment:
500km 2D seismic acquisition and one exploration well
Phase 6 (optional):
To 2 May 2020
Phase 6 work commitment:
500km 2D seismic acquisition and one exploration well
Production term
Twenty five years, renewable for ten years
State Participation
State may back in for up to a 20% participating interest in any
development and production area
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 Energy (UK) Limited, 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
Energy (UK) Limited, farmed out the block to ExxonMobil
Exploration and Production
(Northern Madagascar)
Limited (‘ExxonMobil’). Following acquisition, processing
and interpretation of the new 2D seismic, Sterling Energy
(UK) Limited transferred operatorship to ExxonMobil at the
end of 2006.
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 has been previously identified as the
most likely prospect for drilling and is located in water
depths of 500m to 1,800m. ExxonMobil and Sterling Energy
(UK) Limited completed the acquisition of a discretionary
1,314km 2D seismic programme in December 2013 to
provide additional control over the Sifaka prospect and
to delineate previously identified leads within the Sifaka
trend. However a thorough analysis by the joint venture
has highlighted the high technical and commercial risks
associated with the Sifaka prospect. In addition the new
seismic data indicated that no additional leads can be
matured to drill-ready status.
(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:5)(cid:25)(cid:4)(cid:26)(cid:8)(cid:25)
(cid:3)(cid:2)(cid:29)(cid:8)(cid:25)
(cid:23)(cid:25)(cid:24)(cid:15)(cid:26)(cid:21)(cid:30)(cid:25)(cid:30)(cid:25)(cid:30)
(cid:144)(cid:12)‚(cid:24)(cid:17)
(cid:143)(cid:144)(cid:144)(cid:23)(cid:157)(cid:10)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:1)(cid:29)(cid:27)(cid:4)(cid:23)(cid:127)(cid:27)(cid:19)(cid:2)(cid:129)(cid:6)
(cid:3)(cid:30)(cid:141)(cid:29)(cid:28)(cid:23)(cid:1)(cid:29)(cid:27)(cid:4)(cid:23)(cid:127)(cid:27)(cid:19)(cid:2)(cid:129)(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:144)(cid:157)(cid:157)(cid:28)(cid:11)(cid:17)(cid:28)(cid:27)(cid:19)(cid:29)
(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:17) (cid:10)(cid:143)
(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:12)(cid:30)(cid:11)(cid:10)(cid:25)(cid:9)(cid:30)(cid:28)(cid:19)(cid:27)(cid:31)
(cid:144)(cid:157)(cid:157)(cid:28)(cid:11)(cid:17)(cid:28)(cid:27)(cid:19)(cid:29)
(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:23)(cid:25)(cid:24)(cid:15)(cid:16)(cid:14)(cid:26)(cid:14)(cid:13)
(cid:17) (cid:24)€(cid:28)(cid:18)(cid:6)(cid:9)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:26)(cid:24)(cid:23)(cid:22)
(cid:14)(cid:28)(cid:13)(cid:19)(cid:26)(cid:24)(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: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
Originally an eight year period (in four phases) with possible two
year extension, but suspended between February 2009 and
November 2012
Current Phase 3:
To July 2016
Phase 3 work commitment:
Drill one exploration well
Production term
Twenty five year period with possible extensions
Phase 3 of the Exploration Period was previously extended
to September 2015, and a further extension to July 2016
has now been approved and gazetted.
Sterling Energy (UK) Limited estimates that ExxonMobil’s
remaining carry at the beginning of 2015 is $28.3 million.
16
17
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
STRATEGIC REPORT
Madagascar
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.
Sterling Energy (UK) Limited 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 Energy (UK) Limited
$1.25 million towards Sterling Energy (UK) Limited’s past
costs, and will pay all costs associated with the 3D seismic
survey (expected to be completed in Q2 2015) up to a
maximum cost of $15.0 million. Following the farm-out,
Sterling Energy (UK) Limited retains a 50% interest in the
PSC and remains as operator.
Sterling Energy (UK) Limited and Pura Vida continue with
preparations for the 3D seismic programme which is
expected to be completed in Q2 2015.
Phase 2 was previously extended to September 2015,
and a further extension to July 2016 has now been
approved and gazetted. There are no outstanding work
commitments under the current phase of the PSC.
(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:5)(cid:25)(cid:4)(cid:26)(cid:8)(cid:25)
(cid:3)(cid:2)(cid:29)(cid:8)(cid:25)
(cid:23)(cid:25)(cid:24)(cid:15)(cid:26)(cid:21)(cid:30)(cid:25)(cid:30)(cid:25)(cid:30)
(cid:144)(cid:12)‚(cid:24)(cid:17)
(cid:143)(cid:144)(cid:144)(cid:23)(cid:157)(cid:10)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:1)(cid:29)(cid:27)(cid:4)(cid:23)(cid:127)(cid:27)(cid:19)(cid:2)(cid:129)(cid:6)
(cid:3)(cid:30)(cid:141)(cid:29)(cid:28)(cid:23)(cid:1)(cid:29)(cid:27)(cid:4)(cid:23)(cid:127)(cid:27)(cid:19)(cid:2)(cid:129)(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:144)(cid:157)(cid:157)(cid:28)(cid:11)(cid:17)(cid:28)(cid:27)(cid:19)(cid:29)
(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:17) (cid:10)(cid:143)
(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:12)(cid:30)(cid:11)(cid:10)(cid:25)(cid:9)(cid:30)(cid:28)(cid:19)(cid:27)(cid:31)
(cid:144)(cid:157)(cid:157)(cid:28)(cid:11)(cid:17)(cid:28)(cid:27)(cid:19)(cid:29)
(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:23)(cid:25)(cid:24)(cid:15)(cid:16)(cid:14)(cid:26)(cid:14)(cid:13)
(cid:17) (cid:24)€(cid:28)(cid:18)(cid:6)(cid:9)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:26)(cid:24)(cid:23)(cid:22)
(cid:14)(cid:28)(cid:13)(cid:19)(cid:26)(cid:24)(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: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
17,650km2
Participants
Sterling Energy (UK) Limited (Operator) 50%
Pura Vida Mauritius
50%
Exploration term
Originally an eight year period (in four phases) with possible two
year extension, but suspended between February 2009 and
November 2012
Current Phase 2:
To July 2016
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
STRATEGIC REPORT
Mauritania
(cid:31)(cid:30)(cid:23)
(cid:23)(cid:22)(cid:21)(cid:22)
(cid:31)(cid:30)(cid:24)
(cid:27)(cid:26)(cid:25)(cid:25)(cid:30)(cid:24)
(cid:31)(cid:30)(cid:29)
(cid:26)(cid:24)(cid:23)(cid:23)(cid:22)(cid:21)(cid:20)(cid:19)
(cid:18)(cid:17)(cid:16)(cid:15)(cid:23)(cid:14)(cid:13)(cid:12)
(cid:11)(cid:13)(cid:16)(cid:15)(cid:12)(cid:10)
(cid:31)(cid:30)(cid:29)(cid:27)
(cid:27)(cid:26)(cid:25)(cid:25)(cid:30)(cid:24)
(cid:30)(cid:17)(cid:23)(cid:7)(cid:13)(cid:17)(cid:14)(cid:6)
(cid:5)(cid:6)(cid:16)(cid:7)(cid:13)
(cid:31)(cid:30)(cid:22)
(cid:27)(cid:30)(cid:20)(cid:22)(cid:25)
(cid:31) (cid:30) (cid:29) (cid:28) (cid:27) (cid:26) (cid:30) (cid:25) (cid:27) (cid:30)
(cid:25)(cid:22)(cid:24)(cid:7)(cid:1)(cid:6)(cid:129)(cid:22)(cid:17)(cid:17)
(cid:31)(cid:30)(cid:29)(cid:25)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:30)(cid:29)
(cid:28)(cid:27)(cid:31)(cid:26)(cid:25)
(cid:21)(cid:31)(cid:20)(cid:19)(cid:18)(cid:17)(cid:16)(cid:15)(cid:14)(cid:14)(cid:19)(cid:13)
(cid:31)(cid:30)(cid:29)(cid:29)
(cid:19)(cid:21)(cid:20)(cid:18)(cid:17)(cid:21)(cid:22)(cid:20)(cid:16)(cid:30)(cid:21)(cid:22)(cid:25)(cid:15)(cid:14)(cid:18)(cid:20)(cid:17)(cid:30)(cid:25)(cid:18)(cid:26)(cid:28)(cid:15)(cid:13)(cid:17)(cid:30)(cid:26)(cid:12)
(cid:31)(cid:30)(cid:29)(cid:26)
(cid:27)(cid:26)(cid:25)(cid:25)(cid:30)(cid:24)
(cid:141)(cid:143)(cid:20)(cid:144)(cid:157)
(cid:18)(cid:17)(cid:16)(cid:15)(cid:23)(cid:14)(cid:13)(cid:12)(cid:20)(cid:4)(cid:16)(cid:23)(cid:3)(cid:20)(cid:2)(cid:23)(cid:22)(cid:6)(cid:1)(cid:127)
(cid:18)(cid:17)(cid:16)(cid:15)(cid:23)(cid:14)(cid:13)(cid:12)(cid:20)(cid:27)(cid:13)(cid:17)(cid:16)(cid:15)(cid:16)(cid:127)(cid:17)
(cid:5)(cid:17)(cid:129)(cid:16)(cid:15)(cid:20)(cid:4)(cid:16)(cid:23)(cid:3)(cid:20)(cid:2)(cid:23)(cid:22)(cid:6)(cid:1)(cid:127)
(cid:31)(cid:30)(cid:29)(cid:28)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:30)(cid:29)
(cid:31)(cid:30)(cid:27)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:30)(cid:29)
(cid:18)(cid:11)(cid:25)(cid:11)(cid:9)(cid:30)(cid:8)
Block C-3 (WI 40.5%)
OVERVIEW
The block is in the initial phase of exploration with the work
commitment of acquiring 1,600km of 2D data completed.
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSC
17 April 2013
30 June 2013
9,781km2
In February 2015, Sterling Energy Mauritania Limited signed
an agreement with Tullow Oil for the acquisition by Sterling
Energy Mauritania Limited of a 40.5% working interest in
PSC C-3 in return for a consideration of approximately
$2.5 million to compensate for past costs. The transaction
is subject to Mauritanian Governmental approval.
Participants
Tullow Mauritania Limited (Operator)
Sterling Energy Mauritania Limited
49.5%
40.5%*
Société Mauritanienne Des Hydrocarbures
Et Du Patrimoine Minier (‘SMHPM’)
10%**
* Subject to approval by the Mauritanian Government
** Carried through exploration
Exploration term
Phase 1:
To 30 June 2016
Phase 1 work commitment:
1,600km 2D seismic acquisition (completed)
Phase 2 (optional):
To 30 June 2019
Phase 2 work commitment:
One well and 700km2 of 3D seismic
Phase 3 (optional):
To 30 June 2022
Phase 3 work commitment:
One well
Production term
Twenty five years
State Participation
The State may back in for up to a maximum of 18% participating
interest (to include their 10% carried interest in the exploration
phase) in any development and production area
18
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
STRATEGIC REPORT
Reserves Summary
Year ended 31 December 2014
2014
Oil
(000 boe)
2014
Gas
(mcf)
2014
Reserves
(000 boe)
2013
Oil
(000 boe)
2013
Gas
(mcf)
2013
Reserves
(000 boe)
Volumes of Proven plus Probable
Reserves
At 1 January
Revision – Chinguetti (1-3)
Production
At 31 December
559
(109)
(158)
292
-
-
-
-
559
(109)
(158)
292
475
276
(192)
559
-
-
-
-
475
276
(192)
559
1 The reserves stated are for the Company’s net interests in the Chinguetti field only and are based on the Company’s own assessment of reserves, as
at 31 December 2014. The Group’s interest in the Chinguetti field is through its Funding Agreement and Royalty Agreement; The Company does not
have a direct equity participation in the Chinguetti field. The assessment was made in accordance with the definitions as set out on pages 98 - 100.
2 The Group has not booked reserves relating to other Mauritanian discoveries, on the basis that there are no approved development plans for these
discoveries.
3 In accordance with the guidelines of the AIM Market of the London Stock Exchange, Mr Matthew Bowyer, Exploration Manager of Sterling Energy
plc, who has been involved in the oil industry for over 18 years, is the qualified person that has reviewed the technical information set out above.
Matthew Bowyer
Exploration Manager
25 March 2015
STRATEGIC REPORT
Financial Review
Year ended 31 December 2014
Selected Financial Data
Chinguetti production 1
Year end 2P reserves 1
Revenue
Adjusted EBITDA 1
(Loss)/profit after tax
Net cash investment in oil & gas assets
Year end cash (including partner funds)
Average realised oil price
Total cash operating costs (produced)
Year end share price
Share price change 1
1 Key performance indicators
bopd
000 boe
$million
$million
$million
$million
$million
$/bbl
$/bbl
Pence
%
2014
432
292
16.0
5.1
(12.3)
14.1
108.1
94.2
57.4
20
(55)
2013
527
559
18.4
9.1
8.3
5.9
120.8
101.1
36.9
43
12
Highlights
• Group net loss of $12.3 million in 2014 (2013: profit $8.3 million).
• Full impairment of both Chinguetti Funding Agreement and Royalty Agreement totalling $6.0 million resulting from
lower oil forecast price base and increased production decline rate.
• Cash balance at end of year $108.1 million (2013: $120.8 million).
• Average 2014 Chinguetti production, net to the Company, of 432 bopd (2013: 527 bopd).
• Debt free throughout 2014.
20
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 STRATEGIC REPORT
Financial Review (cont.)
Year ended 31 December 2014
Revenue and Cost of Sales
2014 production, net to the Company, averaged 432 bopd, including royalty barrels, a decrease of 18% from the 527
bopd averaged in 2013; the reduced volumes reflect the 10 day planned production shutdown in January 2014.
Gross volumes lifted and sold during the year from the Chinguetti field were down by 6% to 2.1 million barrels (2013: 2.2
million barrels).
The lifting cost per barrel has increased in 2014 by $16.2 to $70.0 (2013: $53.8). This was principally due to an increase in
direct operating costs during the year, most of which are fixed and not variable, apportioned to a low level of production.
The Group has made a provision in recognition of expected future net onerous commitments for 2015 under the
Chinguetti Funding Agreement of $3.4 million (2013: $nil).
Group administrative overhead decreased during the year to $2.1 million (2013: $3.2 million). Included within this charge
is $659k (2013: $1.2 million) with respect to share-based payment charges.
In 2014 a portion of the Group’s staff costs and associated overheads are recharged to joint venture partners ($576k),
expensed as pre-licence expenditure ($2.0 million), or capitalised ($1.5 million) where they are directly attributable to
capital projects. This totals $4.1 million in the year (2013: $4.2 million).
Currently, all of the Group’s production is from the Chinguetti field and the Group’s production was 388 bopd for the
month of December 2014 (December 2013: 476 bopd).
During 2014, the Group fully impaired the Chinguetti Funding Agreement and Royalty Agreement totalling $6.0 million
following the Group’s commercial analysis of lower current and forecast oil prices and increased production decline rates.
A summary of revenue, cost of sales and lifting volumes are provided below.
The operator on the Ampasindava block in Madagascar has identified there is no commercial drillable prospect. The
Group has fully impaired the asset $1.9 million at 31 December 2014.
Liftings (bbls) 1
Revenue ($million)
Revenue/bbl ($)
Lifting cost ($million)
Lifting cost/bbl ($)
1 Net Sterling production during the year totalled 157,751 (2013: 192,370)
Loss for Year
The 2014 loss totalled $12.3 million (2013: profit $8.3 million).
Profit for year 2013
Decrease in revenue
Increase in operating costs
Increase in other obligations
Decrease in G&A
Impairment reversal of Chinguetti (2013)
Impairment of Chinguetti FA and RA (2014)
Impairment of Ampasindava (2014)
Increase in finance net expense
Release of accrual on final dissolution of in-country branch (2013)
Loss for year 2014
2014
2013
169,699
181,691
16.0
94.2
(11.9)
(70.0)
18.4
101.1
(9.8)
(53.8)
$ (million)
8.3
(2.4)
(2.1)
(3.4)
1.1
(4.4)
(6.0)
(1.9)
(0.6)
(0.9)
(12.3)
A summary of these movements are provided below.
Group administrative overhead (page 59)
Costs capitalised
Costs recharged to JV partners
Pre-licence expenditure
Share based payment expense
Other non-cash expenditure
Group cash G&A expense
2014
$ (million)
2013
$ (million)
(2.1)
(1.5)
(0.6)
(2.0)
(4.1)
0.7
0.1
(5.4)
(3.2)
(2.0)
(0.1)
(2.1)
(4.2)
1.2
0.1
(6.1)
EBITDA and Net Loss
Group Adjusted EBITDA (as defined within the Definitions and Glossary of Terms on pages 98-100) totalled $5.1 million
(2013: $9.1 million).
Net loss after tax totalled $12.3 million (2013: profit $8.3 million). The basic loss per share was $0.06 per share (2013:
profit $0.04 per share).
Interest received and finance expenses result in a net expense of $878k (2013: $251k) which includes exchange losses
of $181k (2013: $66k) on GBP cash deposits held at 31 December 2014 reported in US Dollars, a non-cash finance
expense of $1.1 million (2013: $434k) relating to the unwinding of the Chinguetti decommissioning provision (see Note 8
on page 79 and Note 20 on pages 87 - 88), interest received totalled $398k (2013: $268k) and other finance expenses
totalling $16k (2013: $19k).
No dividend is proposed to be paid for the year ended 31 December 2014 (2013: $nil).
Cost of sales for the Group increased by $2.1 million mainly due to an increase on Chinguetti FPSO operating day rates.
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 STRATEGIC REPORT
Financial Review (cont.)
Year ended 31 December 2014
STRATEGIC REPORT
Business Risk
Cash Flow
Net Group cash inflow generated from operating activities was $1.4 million (2013: $6.3 million); a full reconciliation of
which is provided in the Consolidated Statement of Cash Flows.
Net cash investments in oil and gas assets totalled $14.1 million (2013: $5.9 million) and are summarised below:
Somaliland
Madagascar
Cameroon
2014
$ (million)
2013
$ (million)
12.4
1.0
0.7
14.1
5.1
0.1
0.7
5.9
Net cash investments in the year do not include the $3.0 million prepayment incurred in 2013 ($17.1 million E&E
additions per Note 14).
Statement of Financial Position
At the year end, cash and cash equivalents totalled $108.1 million (2013: $120.8 million) of which $1.1 million (2013:
$2.1 million) were held on behalf of partners, leaving a cash balance of $107.0 million (2013: $118.7 million). There are
currently no restricted funds in the Group.
At the end of 2014, net assets/total equity stood at $102.4 million (2013: $114.1 million), and non-current assets totalled
$28.5 million (2013: $21.6 million). Net current assets reduced to $96.6 million (2013: $114.1 million).
The Group’s Chinguetti decommissioning provision increased during the year by $1.1 million to $22.7 million (2013:
$21.6 million).
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.
PRINCIPAL BUSINESS RISKS
The long-term commercial success of the Group will depend on its ability to find, acquire, develop and commercially produce
oil and natural gas reserves. Moreover, the Group may determine that current market conditions, terms of acquisition and
participation, or pricing conditions make such acquisitions or participations uneconomic. The Directors have identified the
following principal risks in relation to the Group’s future performance. The relative importance of risks faced by the Group
can, and is likely to change with progress in the Group’s strategy and developments in the external business environment.
STRATEGIC
Strategy Risk
The Group’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 which are reviewed every six months, in addition to ongoing strategy reviews, monthly reporting, and
regular Board meetings.
Concentration Risk
The Group’s portfolio of assets remains relatively concentrated on early stage exploration within the African continent.
The Board has considered broadening the exploration portfolio, using the existing financial resources of the Group, as an
alternative element of the Group’s strategy.
Competition Risk
The petroleum industry is highly competitive across in all its lifecycle phases. The Group competes with numerous other
participants in the search for acquisition and production of, oil and natural gas properties and in the marketing of oil and
natural gas. The addition of exploration licences to the Group’s portfolio is subject to increasing competition even in the
currently depressed market. Many of the Group’s larger competitors have significantly greater financial and technical
resources and are able to devote more to the development of their business. The Group mitigates this risk by being highly
selective in choosing where and when to deploy its business development resources.
OPERATIONAL
Exploration Risk
Exploration activities within the Group’s licences may not result in a commercial discovery. Future oil and gas exploration
may involve non-commercial efforts, not only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other costs. Putting a well on production does not
assure a profit on the investment or recovery of drilling, completion and operating costs. There is no certainty of success
from the Group’s existing portfolio.
The Group mitigates exploration risk through the experience and expertise of the Group’s specialists, the application
of appropriate technology, and the selection of prospective exploration assets. The Group has an ongoing objective to
acquire additional exploration assets to enable diversification and risk mitigation across the exploration portfolio.
Operator Risk
For some assets, the Group is dependent on other operators for the performance of E&P activities and will be largely
unable to direct, control or influence the activities and costs of these operators.
By farming out exploration assets prior to drilling activities, the Group has reduced its cost exposure and may transfer
operatorship to other, normally larger and more experienced, operators for drilling, appraisal and development activities,
with a consequent increase in the Group’s dependence on other operators for the performance of these activities.
The Group carefully considers the technical, HSSE and financial capabilities of future potential operators during a farm-
out process. ExxonMobil is the operator of the Ampasindava licence in Madagascar, Genel Energy is the operator of the
Odewayne licence in Somaliland, and Tullow Oil is the operator of the C-3 licence in Mauritania.
24
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 STRATEGIC REPORT
Business Risk (cont.)
EXTERNAL
Country Risk
The Group’s assets are located in non-OECD countries. Governments, regulations, and the security environment may
change with a consequential effect on the Group’s assets. The Group’s assets in Cameroon, Madagascar, Somaliland
and Mauritania are affected by country-specific situations; the use by governments of tax claims, real or not, as a
pressure point to coerce oil companies also appears to be increasing.
In Cameroon, following the post balance sheet event (Note 26), Sterling Cameroon Limited will hold a 100% working
interest in the Ntem block. The Governments of Cameroon and Equatorial Guinea continue to negotiate their joint
maritime border, part of which runs concurrent with two of the Ntem block boundaries. The Group 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, Sterling Energy (UK) Limited holds 50% and 30% in the Ambilobe and Ampasindava licences respectively.
Further approval has been given by OMNIS, the state regulator, to prolong the current exploration period of both licences,
with no changes to the work commitments. These agreements were signed by the Government of Madagascar in October
2014 and formal gazettal ratified in February 2015. Extensions are confirmed through to July 2016. In Madagascar;
however, there remains uncertainty over government and fiscal policy with regards to international trade taxes, economic
growth and in-country investment.
In Somaliland, Sterling Energy (East Africa) Limited holds a 40% 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 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.
The Government of Somaliland has conducted a tendering process for establishing an Oilfield Protection Unit (OPU);
however, implementation has been delayed due to funding uncertainties and lack of clear UN support. The operator,
Genel, is continuing to evaluate methods to initiate operations with sufficient levels of security in place.
In Mauritania, Sterling Energy Mauritania Limited has signed an agreement to purchase a 40.5% working interest in the
C-3 block, offshore Mauritania. Block C-3 has an active work program with Phase 1 of the PSC due to expire in June
2016. Prior to 1996 it was believed there were no hydrocarbon resources in Mauritania with the first PSC being signed in
that year; however first oil from the Chinguetti field commenced in February 2006 and the Company participates via its
Funding Agreement with Société Mauritanienne Des Hydrocarbures et du Patrimoine Minier. There remains considerable
uncertainty over the future abandonment of the Chinguetti field, together with future government and fiscal policy in
respect of investment from international organisations in the exploration, development and production of hydrocarbons.
Country risk is mitigated by monitoring the political, regulatory and HSSE environment within the countries in which the
Group holds its assets; engaging in constructive discussions where and when appropriate, and introducing third-party
expertise if this may assist in resolution of issues affecting the Group’s assets.
Financial
The Group 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 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 Group has identified certain risks pertinent to its business including:
Category
Risk
Strategic and Economic
Operational
Commercial
Human Resources and
Management Processes
• Inappropriate or poorly conceived strategy and plans
• Failure to deliver on strategy and plans
• Business environment changes
• Competition and barriers to entry
• Failure to access new opportunities
• Operations in territories which are susceptible to political, fiscal and
social instability
• Limited portfolio diversification
• Shareholder concentration
• HSSE incident or non-compliance under local rules and/or laws
• Failure to add value through exploration and appraisal
• Poor field performance
• Licences, permits and/or approvals may be difficult to sustain
• Reliance on other operators
• Delays in conducting work programmes
• Failure to maximise value from existing interests
• Business environment changes
• Loss of control of key assets
• Dissatisfied stakeholders
• Failure to negotiate optimal contract terms
• Reserve and production estimations are not exact determinations
• Complex regulatory compliance
• Failure to recruit and retain key personnel / human capital deficit
• Human error or deliberate negative action
• Bribery and corruption
• 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 stability
• Operations under-insured
• Foreign currency risk
• Financial control of operated and non-operated assets
• Fraud and corruption / increased third party exposure
26
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 HEALTH, SAFETY, SECURITY AND ENVIRONMENT (‘HSSE’)
It is an objective of the Group 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 the Group’s
line management organisation. The Group’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. The Group 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.
The Group 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, the Group is committed to reviewing its HSSE and social responsibility performance at
least each quarter.
The Group 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.
The Strategic Report was approved by the Board of Directors on 25 March 2015 and signed on its behalf by:
Gavin Milne
Company Secretary
Alastair Beardsall
Chairman
STRATEGIC REPORT
Business Risk (cont.)
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 and proactive risk mitigation is critical to the Group
in achieving its strategic objectives and protecting its assets, personnel and reputation. The Group 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.
The Group reviews its business risks and management systems on a regular basis and, through this process, the
Directors continually identify the principal risks for mitigation. The Group manages some risks by ensuring the Group
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
The Group is committed to conducting its business in a responsible and sustainable way. The Group recognises that it
has corporate and social responsibilities to the indigenous 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
and social responsibilities with any of these stakeholders.
BUSINESS INTEGRITY
The highest ethical standards are the cornerstone of the Group’s business. The Group is committed to conducting its
business with integrity, honesty and fairness. All business activities are reviewed to ensure they meet these standards.
The Group 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
The Company and its subsidiary undertakings are committed to being a good partner in the communities in which it
operates. Engagement and dialogue with local communities is essential in ensuring, that where possible, projects benefit
both the Group and the communities in which the project is located.
EMPLOYEES
The Group is committed to providing a workplace free of discrimination where all employees are afforded equal
opportunities and are rewarded on merit and ability. In the implementation of this policy the Group 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 their knowledge, competence and career development.
The Group 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. The
Group has a whistleblowing policy which empowers employees to be proactive, to report any failure to comply with legal
obligations or the Group’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 Group. The whistleblowing policy allows
employees to make anonymous reports directly to a non-executive Director.
28
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
Sterling Energy plc
Corporate Governance
Year ended 31 December 2014
CORPORATE GOVERNANCE
Board of Directors
Alastair Beardsall, executive Chairman, aged 61
Alastair joined the Company in September 2009. He has been involved in the oil industry for over 35 years. For the first
12 years Alastair worked on international assignments with Schlumberger, the oil-field services company. From 1992
he began working for exploration and production operators, with increasing responsibility for exploration, development
and production ventures. Between September 2003 and October 2009, Alastair was executive Chairman of Emerald
Energy plc (Emerald). In October 2009 Emerald was acquired by Sinochem Resources UK Limited, for £7.50 per share
in a transaction that valued Emerald at £532.0 million. Alastair is a non-executive Director of Jupiter Energy Limited and
advises other private companies in the oil and gas industry.
Eskil Jersing, Chief Executive Officer, aged 51
Eskil joined the Company on 23 March 2015. He holds a BSc in Geophysics from University College Cardiff and an
MSc in Petroleum Geology from Imperial College London. He started his career in the oil and gas industry in 1985 as a
Field Seismologist with SSL in Papua New Guinea. From 1993 to 2009 he worked for Enterprise Oil (London, Aberdeen,
Houston, and Brazil), and following the takeover, Shell International (Houston); initially as a Senior Geophysicist, moving
on to be the Gulf of Mexico Exploration Strategy and Planning Manager and finally as the Gulf of Mexico Paleogene
Exploration Manager. In 2009 Eskil joined Marathon Oil (Houston) as their Exploration Manager (Conventional New
Ventures) Worldwide and subsequently Apache Corporation (Perth) as Director Worldwide Exploration and New Ventures
Asia Pacific. Most recently he was Head of New Ventures and Co-Head of Mergers & Acquisitions at Petrobras Oil & Gas
BV (Rotterdam).
Nicholas Clayton, non-executive Director, aged 51
Nicholas was appointed a non-executive Director of the Company 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 obtained a first class
honours degree in Business Studies, from Portsmouth Polytechnic in 1985. Nicholas serves as a non-executive Director of
Alpha Petroleum Resources Limited and Circle Oil plc, where he is chairman of the Audit Committee.
Keith Henry, non-executive Director, aged 70
Keith was appointed a non-executive Director of the Company 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 Europe, Africa and the
FSU region. 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 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 71
Malcolm was appointed a non-executive Director of the Company 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 the Company in November 2010. Until 2001 he was the vice-president of exploration for
Ranger Oil (subsequently CNR); and prior to this he was exploration vice-president for Hamilton Brothers Oil (subsequently
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.
APPLICATION OF UK CORPORATE GOVERNANCE CODE PRINCIPLES
Throughout the year ended 31 December 2014 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 an entity of the size and
nature of the Group. 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 Group 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 55.
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 and CEO, have not been resolved or for
which such contact is inappropriate.
The Group 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
Keith Henry
Nicholas Clayton
Malcolm Pattinson
Board
Meetings
Audit
Committee1
Remuneration
Committee
Nominations
Committee2
10
10
9
10
10
10
5
-
-
5
5
5
3
-
-
3
3
3
-
-
-
-
-
-
1 In addition to the Audit Committee meeting to discuss the annual audit and full year results, the Committee also meets in advance of announcements
of a financial disclosure, including the Interim Results at 30 June and Q1 and Q3 Interim Management Statements.
2 There were no separate Nominations Committee meetings held in the year as Nominations Committee matters were handled by either the Non-
Executive Directors prior to, or by the Directors during, Board Meetings.
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CORPORATE GOVERNANCE
Board of Directors (cont.)
Audit Committee Report
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 Group 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. 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 been 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.
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 25 - 29 and also on page 50.
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 Annual Report and
Accounts 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, is
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 remove unnecessary items from the Report and Financial Statements
by stripping out duplication and sequencing information in a consistent and reasonable manner without compromising
compliance with UK regulatory and accounting requirements.
An essential part of the integrity of the financial statements is 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 both the end
of the financial year and at the end of the six month interim period, as well as considering significant issues throughout
the year. In particular, this includes reviewing any subjective material assumptions within the Group’s activities to enable
an appropriate determination of asset valuation and provisioning and the accounting treatment thereof. The Committee
reviewed and was satisfied that the judgments exercised by management on material items contained within the Report
and Financial Statements are 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 was satisfied that the Group continues to be able to fund
its liabilities from existing cash reserves which totalled $108.1 million at 31 December 2014.
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.
The Committee also considered the Group’s whistleblowing 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
several 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 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.
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CORPORATE GOVERNANCE
Audit Committee Report (cont.)
Nominations Committee
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 78.
The Committee has reviewed the recent changes to the UK Corporate Governance Code (September 2014) including the
best practice for 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 prior to 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 2015 AGM.
There were no separate Nominations Committee meetings held in the year, as Nominations Committee matters were
handled by either the Non-Executive Directors prior to, or by the Directors during, Board Meetings.
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 coordinates the annual performance evaluation of Directors.
The Nominations Committee was central to the search process for a CEO which culminated in the appointment on 23
March 2015 of Eskil Jersing; the Committee was involved in preparation of the search brief, compilation of short-lists for
interviews by the Board and the final selection of the appointed candidate. The Remuneration Committee was involved
in the recommendation of the package offered to the CEO prior to appointment.
Alastair Beardsall will retire by rotation and offer himself for re-election at the AGM. His biographical details, provided on
page 32, demonstrate the range of experience and skill he brings to the Group. 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.
Nicholas Clayton
Chairman of the Audit Committee
25 March 2015
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, including a review of the management report issued by the
executive management to the Board each month;
• monitoring the effectiveness of the internal control environment;
• making recommendations to the Board on the appointment of the Auditors;
• making recommendation to the Board on Auditors’ fees;
• agreeing the scope of the Auditors’ annual audit programme and reviewing the output;
• ensuring the independence of the Auditors is maintained;
• assessing the effectiveness of the audit process; and
• developing and implementing policy on the engagement of the Auditors to supply non-audit services.
The Auditors have unrestricted access to the Chairman of the Audit Committee. Audit Committee meetings are attended
by the Auditor where and when appropriate and, by invitation, the executive Chairman, other Directors and senior
management.
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Remuneration Committee Report
The Remuneration Committee convened several times during the year and has been actively engaged on all matters of
corporate remuneration. Over the past year, the Committee has considered the following matters:
• the terms of the 2009 All Staff LTIP, NED LTIP and HMRC Approved schemes and, if in the current economic conditions
being experienced in the natural resources sector, whether or not they retain the ability to motivate, incentivise and
retain the calibre of staff and management required to promote future success for the Group;
• the 2014 awards under the 2009 All Staff LTIP rules to staff and executive management;
• the 2014 review of achievement of certain corporate objectives (KPI); and subsequently
• the setting of 2015 corporate objectives (KPI); and
• the proposed basic salary uplift for 2015 to reflect general inflation and merit awards for staff and executive management.
Director
Alastair Beardsall
Philip Frank
2014 bonus
2013 bonus
% increase
£0
£0
£31,500
£40,570
n/a
n/a
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 and experience. Bonuses are not awarded to non-executive Directors.
The Committee awarded the following options under the All Staff LTIP schemes:
The safe operation of our activities, the management and maturation of the Group’s assets, and the selective pursuit
of new business opportunities, are three main criteria on which the performance of the Company’s executive team and
employees are judged when considering remuneration.
Director
Alastair Beardsall
Philip Frank
2013 LTIP Award
2012 LTIP Award
% increase
727,100
936,100
1,657,500
627,000
<56%
>49%
In both Cameroon and Madagascar, projects that previously experienced very limited operational progress have seen
significant activity in 2014 and 1H 2015 respectively. In Somaliland, the acquisition of a 40% in the Odewayne licence
was completed in 1H 2014 and added to the Group’s portfolio of projects. Refer to the Operations Review for details on
current assets.
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. The Committee was 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 for staff and executive Directors, consider matters of retention, motivation,
the economic climate (CPI/RPI), the challenges facing the business and appropriate industry benchmarks of remuneration
in peer companies. The annual base salary levels for executive Directors were as follows:
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 LTIP
awards since 2009 to avoid this necessity. However, in recognition of Alastair Beardsall’s significant executive role during
the past five years, the Committee wished to better align his incentive package with the interests of shareholders and,
accordingly, considered that the awards totalling 2,384,600 options for 2013 and 2014 was appropriate. The award
represents the aggregate of the awards that would have been made to him for the period 2010-2014 had he accepted
the awards offered previously for these years. These awards remain subject to the granting of a Rule 9 Waiver by the
Panel being approved by the shareholders at a general meeting.
Under the Remuneration Policy, the Committee recommended the grant to Philip Frank of 936,100 options under the All
Staff LTIP which represents an amount capped at 100% of annual salary.
Director
Alastair Beardsall
Philip Frank
2014 salary
2013 salary
% increase
£193,400
£249,000
£180,000
£231,800
7%
7%
Under the vesting criteria of the All Staff LTIP, options granted will only vest if the Company Share Price meets the criteria
set out in Note 24 on pages 92 - 96. Under these criteria, if the Company Share Price underperforms the FTSE 350
Index, by more than 10% then no options will vest. For 100% of the options to vest the Company Share Price must
outperform the FTSE 350 Index by more than 50%. No LTIPs vested in the year.
As the Company’s executive 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 2014 the fees
for each non-executive individual were £35,000 (2013: £33,000).
The Committee awarded no bonuses to the executive Directors during the year.
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 2014 these objectives included HSSE
performance, new ventures and farming out certain assets;
• up to 50% may be awarded for exceptional personal performance; exceptional is performance above and beyond that
expected under the individual’s job description.
The Company also utilises an HMRC approved Company Share Option Plan (‘CSOP’) 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 again be found in Note 24. 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.
Given the current economic climate in the natural resources sector, the Committee is to consider whether or not the All
Staff LTIP and HMRC approved CSOP schemes retain the ability to motivate, incentivise and retain the calibre of staff
and management required to promote future success for the Group.
On 18 December 2014 the Company announced Philip Frank’s intention to stand down from the Board. Philip joined the
Company in 2011 and has guided the Group through its exploration activity including the drilling of the Bamboo-1 well in
Cameroon. In addition he secured the Group’s entry into the Odewayne prospect in Somaliland. The Board wishes him
well in his future endeavours.
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CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
The Company made considerable progress during 2014 which will hopefully act as the springboard for future success
in 2015 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
25 March 2015
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
• the approval of 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 is 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.
The Company acknowledges the benefit of the executive Directors accepting appointments as non-executive Directors
of other companies; however, if they accept more than two such appointments, they are required to deduct such fees
for those appointments from their Company executive remuneration.
Details of individual components of executive remuneration are:
Elements of package Purpose and link to strategy
How element is reviewed
Base salary and fees
To recognise market value of the
role, reflecting the individual’s
skills, experience, authorities and
responsibilities, to ensure the business
can attract and retain the appropriate
Directors, both executive and non-
executive.
Reviewed annually. The Committee uses comparator data
collected from published accounts and industry surveys of
peer companies to determine the base salary for each of the
executive Directors. No executive remuneration consultants
were used during the year. The executive Directors use
peer group data to determine the level of fees for the non-
executive Directors.
Performance related
bonuses
To incentivise and reward, on an
annual basis, the performance of
individuals, and the Group on both
financial and non-financial metrics.
All Staff LTIP, NED LTIP,
HMRC Approved
schemes
To reward delivery of sustained long-
term total shareholder returns (TSR)
performance aligned to the interests of
shareholders.
Pension provision
To provide competitive retirement
benefits commensurate with schemes
offered by peer companies.
Other benefits
To provide competitive cost-effective
benefits through leveraging the
Group’s size and scale.
Objectives (KPIs) are set, prior to the year under review,
to align near-term goals with the longer term sustainable
future of the Group. At the end of each year the Committee
considers if the KPIs have been achieved in addition to
individual performance and contribution to the Group. The
maximum level of performance related 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
24. 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, some of 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.
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Remuneration Committee Report (cont.)
The principles and criteria used in the remuneration of executive personnel do not differ materially from those listed
above. The Committee may incentivise the engagement of new employees by way of uplift to the 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.
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.
Following the remuneration policy set out above the Remuneration Committee has determined the following packages
for 2015:
• Alastair Beardsall, Executive Chairman, will receive a base salary, effective 1/1/2015, of £197,300, a 10% non-
contributory pension contribution paid directly to Alastair Beardsall and other benefits as set out above.
• Eskil Jersing, Chief Executive Officer, will receive a base salary, effective 23/3/2015, of £275,000, a 10% non-contributory
pension contribution paid to Eskil Jersing’s personal pension scheme and other benefits as set out above.
• For Alastair Beardsall and Eskil Jersing any award under the performance related bonus scheme will be determined at
the end of 2015 and will be based on achievement of certain corporate KPIs and individual performance, the principles
of the bonus scheme are set out on page 38. The Company considers the specifics of the KPIs to be commercially
sensitive as they reflect the Company’s commercial strategy; in general the KPIs are focused on HSE, new ventures and
managing the Companies financial exposure to its existing assets.
• The award of options under the Companies All Staff LTIP plan to Alastair Beardsall and Eskil Jersing will be determined
by the Remuneration Committee during the year in accordance with the principles as set out on page 39, and disclosed
at the time of any award.
Following the remuneration policy set out above the executive Directors have determined the fees for the non-executive
Directors for 2015 be set at £35,700.
All Staff and NED LTIPs
Directors’ interests in LTIPs are accounted for under IFRS 2 - Share-Based Payments; accounting charges in the period
are detailed in Note 24 on pages 92 - 96.
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
2014
Lapsed
Granted Exercised
31 December
2014
Exercise
price
Earliest
exercise
date 1
Latest
exercise
date 1
Alastair Beardsall
1,657,500
-
727,100
Philip Frank
Philip Frank
2,498,850 (1,097,600)
936,100
69,500
-
-
4,225,850 (1,097,600)
1,663,200
-
-
-
-
2,384,600
40p
01.11.16
30.09.19
2,337,350
40p
01.10.15
30.09.19
69,500
43p
10.12.16
09.12.18
4,791,450
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 (2013: 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
2014 2
Lapsed
Granted Exercised
31 December
2014
Exercise
price
Earliest
exercise
date 1
Latest
exercise
date 1
Nicholas Clayton
228,150
(125,000)
Keith Henry
228,150
(125,000)
Malcolm Pattinson
186,483
-
642,783
(250,000)
-
-
-
-
-
-
-
-
103,150
103,150
186,483
392,783
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.
No LTIPs vested in the year as the performance conditions were not met.
40p
01.10.15
30.09.17
40p
01.10.15
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 can are summarised in Note
24 on pages 92 - 96.
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 2014 salary review was implemented on 1 January 2015 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
£197,300
6 months
3 October 2011
3 October 2011
£254,000
6 months
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
Commencement of
appointment
Date of current
contract
Base fees
per annum
1 October 2009
1 October 2009
8 September 2009
8 September 2009
£35,700
£35,700
£35,700
Malcolm Pattinson
15 November 2010
15 November 2010
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.
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014
CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
Directors and their interests (audited)
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:
2013 Remuneration
Fees and
basic salary
Bonus
Defined
contribution
pension
Benefits
in kind
Single figure
remuneration
Total 2013
Ordinary shares
of 40p each
Alastair Beardsall 1
Philip Frank 1
Keith Henry 2
Nicholas Clayton 2
Malcolm Pattinson 2
1 Executive Director.
23 March
2015
1,062,500
132,204
500,000
132,500
62,810
31 December
2014
31 December
2013
1,062,500
1,062,500
132,204
500,000
132,500
62,810
132,204
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.
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 $26k in 2014 (2013:
$22k).
Aggregate Remuneration
The single figure of total remuneration paid to Directors in 2014 and 2013 is summarised below (audited):
2014 Remuneration
Fees and
basic salary
Bonus
Defined
contribution
pension
Benefits
in kind
Single figure
remuneration
Total 2014
Executive Directors:
Alastair Beardsall
Philip Frank
£
£
198,000 1
231,800
31,500
40,570
Angus MacAskill (resigned 16 Aug 2013)
258,458
Non-executive Directors:
Nicholas Clayton
Keith Henry
Malcolm Pattinson
33,000
33,000
33,000
-
-
-
-
£
-
23,180
17,109
-
-
-
£
£
4,398
8,683
3,647
-
-
-
233,898
304,233
279,214
33,000
33,000
33,000
Aggregate remuneration 2013 (£)
787,258
72,070
Aggregate remuneration 2013 (US$)
1,231,584
112,746
40,289
63,028
16,728
916,345
26,169
1,433,527
1 Includes pension contributions paid as cash.
In addition to the remuneration paid to Directors as above, further payments for ‘loss of office’ were made to Angus
MacAskill in the year of £74,745 (2013: £74,745). These payments were made under Angus MacAskill’s Settlement &
Compromise Agreement.
Fees and basic salary
Base fees and salary remain the foundation stone of the Directors’ remuneration packages which determine the levels of
other elements such as pension contributions and bonus payments. When setting base salaries for executive Directors,
the Company Remuneration Committee will take into account:
• the Director’s performance, individual responsibilities, authorities and experience; and
• comparisons with salary levels in peer group companies gathered from disclosure in various public documents such as
£
£
peer group annual reports and accounts.
Executive Directors:
Alastair Beardsall
Philip Frank
Non-executive Directors:
Nicholas Clayton
Keith Henry
Malcolm Pattinson
Aggregate remuneration 2014 (£)
Aggregate remuneration 2014 (US$)
1 Includes pension contributions paid as cash.
£
212,740 1
249,000
35,000
35,000
35,000
566,740
933,728
£
-
-
-
-
-
-
-
£
-
24,900
-
-
-
7,061
8,880
219,801
282,780
-
-
-
35,000
35,000
35,000
24,900
41,024
15,941
26,264
607,581
1,001,015
The basic salary is used to determine the level of pension contributions. The level of fees for the non-executive Directors
is set by the executive Directors with reference to the fees paid to non-executive Directors in peer group companies.
Bonus
The Remuneration Committee administers the bonus scheme for the Company and considers whether executive
Directors are eligible for an annual and/or interim bonus payment; the Committee also has an oversight for bonus awards
to staff. The bonus scheme comprises of two parts, (i) corporate performance as measured against pre-determined
objectives (KPI), and (ii) individual performance; refer to page 41 for further details. If so, performance conditions will
be relevant to the award, stretched and designed to enhance shareholder value and to promote the long term success
of the Company. Upper limits are set and disclosed by the Remuneration Committee. The Remuneration Committee
reviewed the outcome of the Company’s performance with regard to its 2014 KPIs and noted that it had not met any
of its key objectives and accordingly no executive bonuses were awarded to the executive Directors in 2014. As a
comparison, in 2013 the Remuneration Committee agreed that a percentage proportion of the 2013 KPIs had been
achieved and awarded such executive bonuses to the executive Directors accordingly. The Company considers the KPIs
to be commercially sensitive as they reflect the Company’s commercial strategy; in general the KPIs are focused on HSE,
new ventures and managing the Companies financial exposure to its existing assets. The KPIs for 2014 are similar to
those adopted in 2013. Non-executive Directors are not eligible to receive bonus payments.
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CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
Defined Contribution Pension
The defined contribution pension scheme is an employer contribution scheme calculated at 10% of base salary. Such
payments are made into individual Director personal pension plans as chosen by each individual Director. On retirement,
such contribution payments cease from the effective date of cessation of employment. Contributions to Phil Frank’s
pension scheme ceased following his departure from the Company. Non-executive Directors are not eligible to receive
pension contributions.
Benefits in Kind
Taxable benefits in kind for executive Directors include Company paid private medical health schemes and associated
cash plans, the latter is subject to an annual limit. In addition the Company pays for life insurance, travel insurance,
directors and officers insurance and disability cover; such benefits are not taxable benefits for individual Directors.
The graphs below show the value of the executive Director packages for 2014 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
Basic salary
Bonus
Pension provision
Other benefits
Basic salary
Bonus
Pension provision
Other benefits
The table below sets out the total remuneration for the Company’s CEO for the past six years:
Philip Frank (Exploration Director)
Year
CEO
% change
CEO single
figure of total
remuneration
(£)
Annual bonus
pay-out against
maximum
opportunity
(%)
Long-term
incentive
vesting rates
against
maximum
opportunity
(%)
Maximum
Actual
Minimum
£0
£100,000
£200,000
£300,000
£400,000
£500,000
2014
2013
2012
2011
2010
2009
Alastair Beardsall 1
219,801
(51.3%)
Angus MacAskill 2/Alastair Beardsall 1
451,417
52.4%
Angus MacAskill
Angus MacAskill
296,169
(18.9%)
365,004
(0.4%)
23%
Graeme Thomson/Angus MacAskill
366,377
(51.2%)
Graeme Thomson
751,003
91.9%
-
-
-
-
-
-
-
-
-
-
-
1 Part-time.
2 Includes £74,745 paid as compensation for loss of office.
Since August 2013, Alastair Beardsall has acted as interim CEO in addition to being executive Chairman (his remuneration
as relating to his appointment in 2013 has been prorated accordingly).
The annual percentage change in CEO single figure remuneration for years 2009 to 2014 compares with that of all
employees: (8.8%), 1.3%, (23.9%), (20.5%), 8.5% and (19.8%) respectively.
Performance Graph
The graph below shows a comparison between the TSR for the Company’s shares for the five-year period to
31 December 2014 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 the Company. 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
January 09
December 09 December 10 December 11 December 12 December 13 December 14
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 CORPORATE GOVERNANCE
Remuneration Committee Report (cont.)
Communications with Shareholders
• 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.
• On 9 February 2014 the Ntem Bamboo-1 exploration well was spudded offshore Cameroon.
• On 8 April 2014 the Company announced the drilling results from the Ntem Bamboo-1 well which had not encountered
commercial hydrocarbons and the well was to be plugged and abandoned.
The table below shows the total Group remuneration compared to the total distribution to shareholders:
2014
2013
Total Group
remuneration (£)
Total distribution
to shareholders
1,810,941
2,256,832
0
0
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 Group’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 Group’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 29 April
2015 can be found in the notice of the meeting, on the Company’s website.
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 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 UK Corporate Governance Code was published for
reporting periods beginning on or after 1 October 2012 and subsequently revised in September 2014 for reporting
periods beginning on or after 1 October 2014.
Extractive Industries Transparency Initiative (‘EITI’)
In accordance with the Transparency Criteria as set out by the EITI, the Group has made the following payments to
Government bodies during the year ended 31 December 2014:
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.
Madagascar: Ambilobe
Madagascar: Ampasindava 1
2014
$000
146
108
-
500
104
75
933
2013
$000
191
150
-
52
104
105
602
Kurdistan
Cameroon 2
Mauritania 3
Somaliland 4
1 Payments made by ExxonMobil.
2 Payments made by Murphy Oil Corporation.
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 $9.5 million in 2013 (2013: $7.2 million).
4 Payments made by Genel Energy.
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.
Conflicts of Interest
The Group and 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.
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Directors’ Report
The Directors present their Annual Report and Financial Statements on the affairs of the Company and its subsidiaries,
together with the independent Auditors’ Report for the year ended 31 December 2014.
DIRECTORS
The Directors who served during the year were as follows:
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 2014 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.
Mr Alastair Beardsall
Dr Philip Frank
Mr Keith Henry
Mr Nicholas Clayton
Mr Malcolm Pattinson
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.
In December 2014, the Company announced that Dr. Philip Frank planned to step down from the Board in Q1 2015; Dr.
Frank stood down on 13 March 2015. Eskil Jersing joined the Board on 23 March 2015.
The Group uses a number of key performance indicators (‘KPIs’) to assess the business performance against strategy.
These are net debt ($), reserves (million boe), adjusted EBITDA ($), production (bopd) and share price growth. Analysis
of the KPIs can be found in the Financial Review on page 21.
RESULTS AND DIVIDENDS
The Group loss for the financial year was $12.3 million (2013: profit $8.3 million). This leaves an accumulated Group
retained deficit of $425.2 million (2013: deficit $413.6 million) to be carried forward. The Directors do not recommend the
payment of a dividend (2013: $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 10 - 13. The financial position of the Group and Company, its cash
flows and liquidity position are described in the Financial Review on pages 21 - 24. In addition, Note 23 to the financial
statements includes 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 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 24. No person has any special rights of control over the
Company’s share capital and all issued shares are fully paid.
Biographical details of serving Directors can be found in the Board of Directors section of this report on page 32.
DIRECTORS AND ELECTION ROTATION
With regard to the appointment and re-election 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 within this report.
In accordance with article 106 of the Company’s Articles of Association, Alastair Beardsall retires by rotation and offers
himself for re-election at the forthcoming AGM on 29 April 2015.
In accordance with article 110 of the Company’s Articles of Association, Eskil Jersing offers himself for election at the
forthcoming AGM on 29 April 2015.
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
23 March 2015:
Waterford Finance & Investment Ltd
Mistyvale Limited
YF Finance Limited
Denis O'Brien
Sprott Asset Management
Number
65,814,217
33,500,755
21,579,689
15,750,000
11,318,432
%
29.91
15.22
9.81
7.16
5.14
BUSINESS RISK
A summary of the principle and general business risks can be found within the Strategic Report on pages 25 - 29.
FINANCIAL INSTRUMENTS
Information about the use of financial instruments, the Group’s policy and objectives for financial risk management is
given in Note 23 to the financial statements.
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CORPORATE GOVERNANCE
Directors’ Report (cont.)
Statement of Directors’ Responsibilities
AUDITORS
Each of the persons who are a Director at the date of approval of this Report and Financial Statements confirms that:
The Directors are responsible for preparing the Directors Report, Strategic Report and Financial Statements in accordance
with applicable law and regulations.
• 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.
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 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.
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 to be held on 29 April 2015.
In preparing these financial statements, the Directors are required to:
Alastair Beardsall
Chairman
25 March 2015
• 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
Group’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 Group 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 Group and 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
Chairman
25 March 2015
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 Sterling Energy plc
Group Accounts
Year ended 31 December 2014
Independent Auditors’ Report
to the members of Sterling Energy plc
Consolidated Statement of Comprehensive Income
Year ended 31 December 2014
We have audited the financial statements of Sterling Energy plc
for the year ended 31 December 2014 which comprises 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 (IFRSs) 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, the Directors are responsible for 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’s’) Ethical Standards for Auditors.
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 2014 and of the Group’s loss 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; and
• the financial statements have been prepared in accordance
with the requirements of 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.
OPINION ON DIRECTORS’ REMUNERATION REPORT
WHICH WE HAVE AGREED TO REPORT
The company voluntarily prepares a Directors’ Remuneration
Report in accordance with the provisions of the Companies
Act 2006 that would have applied had the company been
a quoted company. We have agreed to audit the part of
the Directors’ Remuneration Report that we would have
been required to audit under the Companies Act 2006 if
the company was a quoted company.
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
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
25 March 2015
BDO LLP is a limited liability partnership registered in
England and Wales.
Note
31 December 2014
$000
31 December 2013
$000
Revenue
Cost of sales
Gross profit
Other administrative expenses
(Impairment)/impairment reversal of oil and gas assets
Pre-licence costs
Onerous contract
Total administrative expenses
(Loss)/profit from operations
Finance income
Finance expense
(Loss)/profit before tax
Tax
(Loss)/profit for the year from continuing operations
Profit for the year from discontinued operations
(Loss)/profit for the year attributable to the owners
of the parent
Other comprehensive income/(expense)
Currency translation adjustments
Total other comprehensive income/(expense) for the year
Total comprehensive (expense)/income for the year
attributable to the owners of the parent
Basic (loss)/profit per share (US cents)
From continuing operations
From continuing and discontinued operations
Diluted (loss)/profit per share (US cents)
From continuing operations
From continuing and discontinued operations
4
6
3
20
5
8
8
9
10
12
12
12
12
15,991
(11,873)
4,118
(2,069)
(7,903)
(2,196)
(3,390)
(15,558)
(11,440)
398
(1,276)
(12,318)
-
(12,318)
-
(12,318)
24
24
(12,294)
(5.60)
(5.60)
(5.60)
(5.60)
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
58
59
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014GROUP ACCOUNTSGROUP ACCOUNTS Consolidated Statement of Financial Position
Year ended 31 December 2014
Consolidated Statement of Changes in Equity
Year ended 31 December 2014
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
Short-term provisions
Total liabilities
Total equity and liabilities
Note
31 December 2014
$000
31 December 2013
$000
13
14
15
17
18
20
21
20
-
28,426
72
28,498
2,223
3,294
108,148
113,665
142,163
149,014
378,863
(225)
(425,209)
102,443
22,667
22,667
13,663
3,390
17,053
39,720
142,163
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
The financial statements of Sterling Energy plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 25 March 2015.
Signed on behalf of the Board of Directors.
Alastair Beardsall
Chairman
25 March 2015
60
At 1 January 2013
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
At 31 December 2013
Loss for the year
Currency translation adjustments
Total comprehensive expense 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
149,014
378,863
-
-
-
-
-
-
-
-
$000
(210)
-
(39)
(39)
-
$000
$000
(423,050)
104,617
8,334
-
8,334
8,334
(39)
8,295
1,166
1,166
149,014
378,863
(249)
(413,550)
114,078
-
-
-
-
-
-
-
-
-
24
24
-
(12,318)
(12,318)
-
24
(12,318)
(12,294)
659
659
At 31 December 2014
149,014
378,863
(225)
(425,209)
102,443
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
61
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014GROUP ACCOUNTSGROUP ACCOUNTS Consolidated Statement of Cash Flows
Year ended 31 December 2014
Company Statement of Financial Position
Year ended 31 December 2014
Note
13,15
3
3
15
14
Operating activities
(Loss)/profit before tax from continuing operations
Profit before tax from discontinued operations
Finance income and gains
Finance expense and losses
Depletion and amortisation
Impairment reversal
Impairment expense
Onerous provision
Share-based payment charge
Operating cash flow prior to working capital movements
Decrease in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Cash generated from continuing operations
Cash outflow from discontinued operations
Net cash flow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Exploration and evaluation costs
Net cash used in investing activities
Net (decrease)/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
2014
$000
(12,318)
-
(398)
1,265
2,358
-
7,903
3,390
659
2,859
523
(359)
(1,669)
1,354
1,814
(460)
1,354
398
(32)
(14,102)
(13,736)
(12,382)
120,755
(225)
108,148
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
268
(85)
(5,942)
(5,759)
510
120,348
(103)
120,755
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
Short-term provisions
Total liabilities
Total equity and liabilities
Note
31 December 2014
$000
31 December 2013
$000
15
16
17
18
20a
21
20
-
28,890
28,890
2,223
19,773
106,473
128,469
157,359
149,014
378,863
(447,839)
80,038
22,667
22,667
51,264
3,390
54,654
77,321
157,359
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
The financial statements of Sterling Energy plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 25 March 2015.
Signed on behalf of the Board of Directors.
Alastair Beardsall
Chairman
25 March 2015
62
63
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014GROUP ACCOUNTSGROUP ACCOUNTS
Company Statement of Changes in Equity
Year ended 31 December 2014
Company Statement of Cash Flows
Year ended 31 December 2014
At 1 January 2013
Total comprehensive income for the year
Share option charge for the year
At 31 December 2013
Total comprehensive expense for the year
Share option charge for the year
At 31 December 2014
Share
capital
Share
premium
Retained
deficit 1
Total
$000
$000
$000
$000
149,014
378,863
(375,735)
152,142
-
-
-
-
10,337
10,337
1,166
1,166
Operating activities
(Loss)/profit before tax
Finance income and gains
Finance expense and losses
149,014
378,863
(364,232)
163,645
Depletion and amortisation
-
-
-
-
(84,266)
(84,266)
659
659
Impairment reversal
Impairment expense
149,014
378,863
(447,839)
80,038
Impairment of investment
Note
15
15
15
1 The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.
Onerous provision
Net movement in investment
Share-based payment charge
Operating cash flow prior to working capital movements
Decrease in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Net cash flow used in operating activities
Investing activities
Interest received
Net cash generated from investing activities
Net (decrease)/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
2014
$000
(84,266)
(398)
1,241
1,567
-
3,979
79,604
3,390
-
30
5,147
522
5,569
(22,936)
(533)
(12,231)
398
398
(11,833)
118,498
(192)
106,473
2013
$000
10,337
(892)
1,196
1,638
(3,207)
-
-
-
(1,166)
1,166
9,072
247
(10,993)
1,322
155
(197)
268
268
71
118,565
(138)
118,498
64
65
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014GROUP ACCOUNTSGROUP ACCOUNTS 1.
ACCOUNTING POLICIES
a) General Information
Sterling Energy plc is a public Company incorporated in the United Kingdom under the UK Companies Act 2006.
The address of the registered office is 85 Fleet Street, London, EC4Y 1AE. The Company and the Group are
engaged in the exploration, development and production of commercial 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 2014. 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
IFRS 10 – Consolidated Financial Statements
1 January 2014
No impact
IFRS 11 – Joint Arrangements 1
1 January 2014
No impact
IFRS 12 – Disclosure of Interests in Other Entities
1 January 2014
No impact
IAS 27 – Amendment - Separate Financial Statements
1 January 2014
No impact
IAS 28 – Amendment - Investments in Associates and Joint
Ventures
1 January 2014
No impact
IAS 32 – Offsetting Financial Assets and Financial Liabilities
1 January 2014
No impact
IAS 36 – Recoverable amounts disclosures for non-financial
assets
1 January 2014
No impact
IAS 39 – Novation of Derivatives and Continuation of Hedge
Accounting
1 January 2014
No impact
IFRIC 21 – Levies
17 June 2014
No impact
1 Under the terms of the Group’s Joint Operating Agreements, the Group is engaged in Joint Arrangements; however, initial application of
IFRS 11 has no impact on the Financial Statements.
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
Description
Effective date
IAS 11
IAS 19
Presentation of Financial Statements (Amendments)
1 January 2016
Defined Benefit Plans (Amendments)
IAS 16 and IAS 381
Acceptable Methods of Depreciation and Amortisation
(Amendments)
IAS 271
IFRS 91
Separate Financial Statements
Financial Instruments
1 February 2015
1 January 2016
1 January 2016
1 January 2018
IFRS 10 and IAS 281
Investments in Associates and Joint Ventures (Amendments)
1 January 2016
IFRS 10, 12 and IAS 28 Investment Entities (Amendments)
IFRS 111
IFRS 151
Joint Arrangements (Amendments)
Revenue from Contract with Customers
Annual Improvements
to IFRSs
Annual Improvements
to IFRSs
Annual Improvements
to IFRSs1
(2010-2012 Cycle)
(2011-2013 Cycle)
(2012-2014 Cycle)
1 Not yet endorsed by the EU
1 January 2016
1 January 2016
1 January 2017
1 February 2015
1 January 2015
1 January 2016
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 preparation of the financial statements. Further detail is
contained in the Directors’ Report.
d) Basis of Consolidation
(i) Subsidiaries and acquisitions
The consolidated financial statements incorporate the financial statements of the Company and entities controlled
by the Company (its subsidiaries) made up to 31 December each year. Control is recognised where an investor
is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect
these returns through its power over the investee. On acquisition, the assets, liabilities and contingent liabilities
of a subsidiary are measured at their fair value at the date of acquisition. Any excess of the cost of the acquisition
over the fair values of the identifiable net assets acquired is recognised as a “fair value” adjustment. If the cost
of the acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognised
directly in profit or loss.
The results of subsidiaries acquired or disposed of during the year are included in the Statement of Comprehensive
Income from the effective date of acquisition or up to the effective date of disposal, as appropriate.
66
67
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
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.
(ii) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements.
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
The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint control
over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed
under the same principles as control over subsidiaries. The Group classifies its interest in joint arrangements
as joint operations as the Group has both the rights to assets and obligations for the liabilities of the joint
arrangement.
Impairment
The Group’s oil and gas assets are analysed into cash generating units (‘CGU’) for impairment reporting purposes,
with E&E asset impairment testing being performed at an individual asset level. The current CGU consists of
the Group’s whole E&E portfolio. E&E assets are reviewed for impairment when circumstances arise which
indicate that the carrying value of an E&E asset exceeds the recoverable amount. The recoverable amount of the
individual asset is determined as the higher of its fair value less costs to sell and value in use. Impairment losses
resulting from an impairment review are written off to the Income Statement. Any impairment loss is separately
recognized 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.
As 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 separate line items
under total administration expenses within the statement of comprehensive income.
In assessing the classification of interests in joint arrangements, the Group considers:
Refer to Note 2 and Note 3 for detailed disclosure of the results of impairments and impairment reviews performed.
• the structure of the joint arrangement;
• the contractual terms of the joint arrangement; and
• any other facts and circumstances
The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and
expenses in accordance with its contractually conferred rights and obligations.
f) Revenue
Sales of oil and gas are recognised, net of any sales taxes, when risks and rewards of ownership have passed to
the customer, typically this is at the point of physical lifting. See also section r) below. Royalties and tariff income
are recognised as earned on an entitlement basis.
g) Oil and Gas Interests
Exploration and Evaluation Assets:
Capitalisation
Pre-acquisition costs on oil and gas assets are recognised in the Income Statement when incurred. Costs
incurred after rights to explore have been obtained, such as geological and geophysical surveys, drilling and
commercial appraisal costs, and other directly attributable costs of exploration and appraisal including technical
and administrative costs, are capitalised as intangible exploration and evaluation (‘E&E’) assets. The assessment
of what constitutes an individual E&E asset is based on technical criteria but essentially either a single licence
area or contiguous licence areas with consistent geological features are designated as individual E&E assets.
Costs relating to the exploration and evaluation of oil and gas interests are carried forward until the existence, or
otherwise, of commercial reserves have been determined.
E&E costs are not amortised prior to the conclusion of appraisal activities. Once active exploration is completed
the asset is assessed for impairment. If commercial reserves are discovered then the carrying value of the
E&E asset is reclassified as a development and production (‘D&P’) asset, following development sanction, but
only after the carrying value is assessed for impairment and where appropriate its carrying value adjusted. If it
subsequently assessed that commercial reserves have not been discovered, the E&E asset is written off to the
Income Statement.
Development and Production Assets:
Capitalisation
Costs of bringing a field into production, including the cost of facilities, wells and sub-sea equipment together
with E&E assets reclassified in accordance with the above policy, are capitalised as a D&P asset within property,
plant and equipment. Normally each individual field development will form an individual D&P asset but there may
be cases, such as phased developments, or multiple fields around a single production facility when fields are
grouped together to form a single D&P asset.
Depreciation
All costs relating to a development are accumulated and not depreciated until the commencement of production.
Depreciation is calculated on a unit of production basis based on the proven and probable reserves of the
asset. Any re-assessment of reserves affects the depreciation rate prospectively. Significant items of plant and
equipment will normally be fully depreciated over the life of the field. However these items are assessed to
consider if their useful lives differ from the expected life of the D&P asset and should this occur a different
depreciation rate would be charged. The key areas of estimation regarding depreciation and the associated unit
of production calculation for oil and gas assets are recoverable reserves and future capital expenditures.
Impairment
A review is carried out for any indication that the carrying value of the Group’s D&P assets may be impaired.
The impairment review of D&P assets is carried out on an annual, asset by asset basis and involves comparing
the carrying value with the recoverable value of an asset. The recoverable amount of an asset is determined
as the higher of its fair value less costs to sell and value in use. The value in use is determined from estimated
future net cash flows, being the present value of the future cash flows expected to be derived from production of
commercial reserves. Impairment resulting from the impairment testing is charged to a separate line item under
total administration expenses within the Statement of Comprehensive Income.
The pre-tax future cash flows are adjusted for risks specific to the cash-generating unit and are discounted using
a pre-tax discount rate. The discount rate is derived from the Group’s post-tax weighted average cost of capital
and is adjusted where applicable to take into account any specific risks relating to the country where the cash-
generating unit is located, although other rates may be used if appropriate to the specific circumstances. The
discount rates applied in assessments of impairment are reassessed each year.
68
69
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS 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. Each royalty asset is assessed individually for impairment when
there is an indication that an impairment event may have occurred. See also Impairment of assets – Note 2.
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.
l) Taxation
Current Tax:
Tax is payable based upon 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. Any Group 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.
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.
70
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS 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.
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 development activities, the Middle East has exploration activities (discontinued) and
the United Kingdom office is an administrative cost centre.
u) Contingent Consideration
Contingent consideration is an obligation of the acquiring entity to transfer additional assets or equity interests to
the former owners of an acquiree. The terms, under which this consideration will be calculated and paid, is part
of the acquisition agreement. The consideration will only be paid if specified future events occur or conditions
are met.
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.
Provision for Onerous Contract
A provision for an onerous contract is made where the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received under the said contract - see Note 20.
Company – Investment
If circumstances indicate that impairment may exist, investments in subsidiary undertakings of the Company are
evaluated using market values, where available, or the discounted expected future cash flows of the investment.
If these cash flows are lower than the Company’s carrying value of the investment, an impairment charge is
recorded in the Company. Evaluation of impairments on such investments involves significant management
judgement and may differ from actual results - see Note 16.
Onerous Commitments
Onerous commitments on future oil and gas activities are only recognised where such commitments are certain.
No recognition is given for onerous work programme commitments for specific assets where there remains
uncertainty on the outcome of discussions between respective oil and gas operators, government bodies and/
or other stakeholders.
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 individual E&E assets and the Chinguetti Funding and Royalty Agreements. 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.
With reference to the Chinguetti Funding Agreement, as part of the assessment, management has carried out an
impairment test whereby the test compares the carrying value at the reporting date with the expected discounted
future cash flows. 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.
72
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
With reference to the Chinguetti Royalty Agreement, impairment assessments and any subsequent charges are
calculated on an individual royalty interest basis. Future recoverable amounts are estimated by management based
upon 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.
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.
Key assumptions used in the value-in-use calculations
The calculation of value-in-use for oil and gas assets under development or in production is most sensitive to the
following assumptions:
• Production volumes;
• Commodity prices;
• Fixed and variable operating costs;
• Capital expenditure; and
• Discount rates.
Production volumes/recoverable reserves
Annual estimates of oil and gas reserves are generated internally by the Group with external input from operator
profiles. These are reported annually to the Board. The self-certified estimated future production profiles are used in
the life of the fields which in turn are used as a basis in the value-in-use calculation.
Commodity prices
An average of published forward prices and the long term assumption for natural gas and Brent oil are used for
future cash flows in accordance with the Group’s corporate assumptions. Field specific discounts and prices are
used where applicable.
Fixed and variable operating costs
Typical examples of variable operating costs are pipeline tariffs, treatment charges and freight costs. Commercial
agreements are in place for most of these costs and the assumptions used in the value-in-use calculation are
sourced from these where available. Examples of fixed operating costs are platform costs and operator overheads.
Fixed operating costs are based on operator budgets.
Capital expenditure
Field development is capital intensive and future capital expenditure has a significant bearing on the value of an
oil and gas development asset. In addition, capital expenditure may be required for producing fields to increase
production and/or extend the life of the field. Cost assumptions are based on operator budgets or specific contracts
where available. The Company and Group are currently not exposed to development capital expenditures.
Discount rates
Discount rates reflect the current market assessment of the risks specific to the oil and gas sector and are based on
the weighted average cost of capital for the Group. Where appropriate, the rates are adjusted to reflect the market
assessment of any risk specific to the field for which future estimated cash flows have not been adjusted. The Group
has applied a discount rate of 10% for the current year (2013: 10%).
Sensitivity to changes in assumptions
A potential change in any of the above assumptions may cause the estimated recoverable value to be lower than
the carrying value, resulting in a further impairment loss. The assumptions which would have the greatest impact
on the recoverable amounts of the fields are production volumes and commodity prices. Having reviewed these
assumptions, impairment has been recognised in the current year for both the Ampasindava and Chinguetti assets.
During the year the Group recognised impairments totalling $7.9 million in accordance with IAS 36 “Impairment
of Assets” following a review of forecast field life estimations. This review resulted in the full impairment of both the
Chinguetti Funding Agreement ($3.9 million) and the Chinguetti Royalty Agreement ($2.1 million). The operator on the
Ampasindava block in Madagascar has identified there is no drillable prospect and the Group’s view is that it intends
to exit from the block; accordingly the Ampasindava asset has been fully impaired ($1.9 million).
In 2013 the Group 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 at that time.
Impairments and associated reversals have been determined by comparing the current value in use to carrying
values.
In calculating the 2014 Chinguetti asset impairment, management used a range of assumptions, including a long-
term oil price of $55 per barrel (Brent) and a 10% pre-tax discount rate.
Oil & gas expenditure – acquisitions and disposals
Commercial transactions involving the acquisition of a D&P asset in exchange for an E&E or D&P asset are
accounted for at fair value with the difference between the fair value and cost being recognised in the statement of
comprehensive income as a gain or loss. When a commercial transaction involves a D&P asset and takes the form of
a farm-in or farm-out agreement, the premium expected to be paid/received is treated as part of the consideration.
Fair value calculations are not carried out for commercial transactions involving the exchange of E&E assets. The
capitalised costs of the disposed asset are transferred to the acquired asset. Farm-in and farm-out transactions of
E&E assets are accounted for at cost. Costs are capitalised according to the Group’s cost interest (net of premium
received or paid) as costs are incurred.
Proceeds from the disposal of an E&E asset, or part of an E&E asset, are deducted from the capitalised costs and
the difference recognised in the statement of comprehensive income as a gain or loss. Proceeds from the disposal
of a D&P asset, or part of a D&P asset, are recognised in the Income Statement, after deducting the related net book
value of the asset. The Company and Group were not exposed to disposal proceeds in the year.
Decommissioning
The Company 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 partnership.
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 24.
74
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
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 2014 and for the year ended 31 December 2013.
Africa
Middle East
(Discontinued)
Note
2014
$000
2013
$000
2014
$000
2013
$000
2014
$000
Total
2013
$000
15,991
18,370
(11,873)
(9,766)
4,118
8,604
(1,863)
-
(2,061)
1,152
(3,979)
3,207
-
-
(2,196)
(2,226)
(3,390)
-
(9,371)
10,737
-
-
-
-
-
-
5
-
-
5
Statement of comprehensive income
Revenue 1
Cost of sales
Gross profit
Impairment of E&E assets
(Impairment)/impairment reversal
royalty assets
(Impairment)/impairment reversal
of D&P assets
14
13
15
Accruals release
Pre-licence costs
Onerous contract
Segment result
Unallocated corporate expenses
(Loss)/profit from operations
Finance income
Finance expense
(Loss)/profit before tax
Tax
(Loss)/profit attributable to owners
of the parent
(Loss)/profit from continuing operations
Profit from discontinued operations
15,991
18,370
(11,873)
(9,766)
4,118
8,604
(1,863)
-
-
-
-
-
-
-
(3,979)
3,207
1,025
5
1,025
-
-
(2,196)
(2,226)
(3,390)
-
1,025
(9,366)
11,762
(2,074)
(3,177)
(11,440)
8,585
398
892
(1,276)
(1,143)
(12,318)
8,334
-
-
(12,318)
8,334
(12,318)
7,309
-
1,025
(12,318)
8,334
Corporate
Africa
Middle East
(Discontinued)
2014
$000
2013
$000
2014
$000
2013
$000
2014
$000
2013
$000
2014
$000
Total
2013
$000
Other segment
information
Capital additions:
Property, plant and
equipment
Exploration and evaluation
Depreciation and
amortisation
Impairment reversal
Impairment expense
Segment assets and
liabilities
32
-
85
-
-
-
17,102
2,942
(58)
(69)
(2,300)
(2,420)
-
-
-
-
-
4,359
(7,903)
-
Non-current assets 2
72
97
28,426
21,528
Segment assets 3
107,151
119,146
6,461
9,210
Segment liabilities 4
(815)
(1,298)
(38,877)
(35,179)
-
-
-
-
-
-
-
-
-
-
-
-
32
85
17,102
2,942
(2,358)
(2,489)
-
4,359
(7,903)
-
28,498
21,625
53
(28)
1,080
113,665
129,436
(506)
(39,720)
(36,983)
2 Segment non-current assets include $8.0 million in Cameroon (2013: $7.3 million), $nil in Kurdistan (2013: $nil), $nil in Mauritania (2013:
$8.3 million), $3.0 million in Madagascar (2013: $3.9 million) and $17.4 million in Somaliland (2013: $2.1 million).
3 Corporate segment assets include $106.6 million cash and cash equivalents (2013: $118.7 million) and $543k other receivables (2013:
$471k). Carrying amounts of segment assets exclude investments in subsidiaries.
4 Carrying amounts of segment liabilities exclude intra-group financing.
4.
REVENUE
Revenue from the sale of oil and gas
Royalty income
Total operating revenue
2014
$000
14,944
1,047
15,991
Total
2013
$000
17,076
1,294
18,370
(2,061)
1,152
(2013: $17.1 million).
1 Revenue from continuing operations (Mauritania, Africa) includes amounts of $14.9 million (100% external) from one single customer
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
5.
(LOSS)/PROFIT FROM OPERATIONS
(Loss)/profit from operations is stated after charging/(crediting):
Group employee costs during the year (including executive Directors) amounted to:
Staff costs
Share-based payments
Impairment reversal
Impairment
Depreciation of other non-current assets
Onerous contract
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
See Note 2 for details on the above impairment.
6.
COST OF SALES
Amortisation of intangible royalty asset
Depletion of property, plant & equipment - oil and gas
Operating costs
Over lift of product entitlement
Note
7
7
13,15
13,14,15
15
20
2014
$000
3,524
659
-
7,903
58
3,390
53
59
-
112
2014
$000
733
1,567
9,050
523
11,873
Total
2013
$000
4,049
1,166
(4,359)
-
69
-
48
53
-
101
2013
$000
782
1,638
7,100
246
9,766
7.
EMPLOYEE INFORMATION
The average monthly number of employees of the Group (including executive Directors) was:
Africa and Middle East
Corporate support staff
2014
2013
4
10
14
6
11
17
Wages and salaries
Social security costs
Other pension costs
Share-based payments
2014
$000
2,955
367
202
659
4,183
2013
$000
3,407
414
228
1,166
5,215
Key management personnel include Directors who have been paid $1.2 million (2013: $1.6 million), see
Remuneration Committee Report (pages 38 - 48) 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 2014 this portion amounted to $4.1 million (2013: $4.2 million).
8.
FINANCE INCOME AND FINANCE EXPENSE
Finance income:
Interest revenue on short-term deposits
Revisions to discount on decommissioning provision at year end
Finance expense:
Bank charges
Unwinding of discount on decommissioning provision
Unwinding of discount on production royalty bonus provision
Exchange differences
2014
$000
398
-
398
11
1,079
5
181
2013
$000
268
624
892
11
1,058
8
66
1,276
1,143
78
79
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
9.
TAXATION
11. LOSS ATTRIBUTABLE TO THE COMPANY
The tax charge for the year is calculated by applying the applicable standard rate of tax as follows:
(Loss)/profit before tax
Tax on (loss)/profit on ordinary activities at standard
UK corporation tax rate of 21.50% (2013: 23.25%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Adjustment for tax losses
Tax charge for the year
2014
$000
(12,318)
(2,648)
2,101
102
445
-
Total
2013
$000
8,334
1,938
27
(1,891)
(74)
-
Deferred Tax
At the reporting date the Group had an unrecognised deferred tax asset of $17.1 million (2013: $15.3 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 $13.4 million (2013: $13.0 million)
relating primarily to unused losses and unutilised capital allowances.
10. DISCONTINUED OPERATIONS
On 29 January 2013, the Company formally announced the Group’s withdrawal from the Sangaw North licence
in Kurdistan. The decision to relinquish was made in December 2012 and all amounts were fully impaired at
this date. At the date of the final dissolution, the Group had fully satisfied the work commitment required by the
Sangaw North PSC and all other commitments in country.
During 2014 the Group released accruals totalling $5k and incurred expenditure totalling $15k.
The financial impact of the Group’s discontinued operations is provided below:
Profit for the year from discontinued operations (page 59)
Net decrease in cash and cash equivalents
Basic profit per share from discontinued operations (US cents) (Note 12 page 81)
Diluted profit per share from discontinued operations (US cents) (Note 12 page 81)
2014
$000
-
(460)
0.00
0.00
2013
$000
1,025
(553)
0.47
0.46
The loss for the financial year within the Company accounts of Sterling Energy plc was $84.3 million (2013: $10.3
million) which includes the investment impairment as detailed in Note 16. As provided by s408 of the Companies
Act 2006, no individual statement of comprehensive income and expense is provided in respect of the Company.
12. EARNINGS PER SHARE
(Loss)/profit for the year (continuing operations)
(12,318)
Profit for the year (discontinuing operations)
-
2014
$000
Basic
2013
$000
7,309
1,025
2014
$000
(12,318)
-
Diluted
2013
$000
7,309
1,025
Weighted average number of ordinary shares in
issue during the year
220,053,520
220,053,520
220,053,520
220,053,520
Dilutive effect of share options outstanding
-
-
-
367,069
Fully diluted average number of ordinary shares
during the year
220,053,520
220,053,520
220,053,520
220,420,589
EPS (continuing operations) (US cents)
EPS (discontinuing operations) (US cents)
(5.60)
-
3.32
0.47
(5.60)
-
3.32
0.46
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 13,185,433 (2013: 13,707,483) (see Note 24 on pages 92 - 96).
13.
INTANGIBLE ROYALTY ASSETS
Net book value at 1 January 2013
Amortisation charge for the year
Impairment reversal
Net book value at 31 December 2013
Amortisation charge for the year
Impairment for the year
Net book value at 31 December 2014
Group
$000
2,424
(782)
1,152
2,794
(733)
(2,061)
-
Group net book value at 31 December 2014 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; however see Note 26a. 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.
See Note 2 for details on the above impairment.
80
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS 14.
INTANGIBLE EXPLORATION AND EVALUATION (‘E&E’) ASSETS
15. PROPERTY, PLANT AND EQUIPMENT
Net book value at 1 January 2013
Additions during the year
Reimbursement of back costs on farm-out of Ambilobe licence
Net book value at 31 December 2013
Additions during the year
Impairment for the year
Net book value at 31 December 2014
Group
$000
10,245
4,192
(1,250)
13,187
17,102
(1,863)
28,426
Impairment for the year refers to the full impairment of the Ampasindava asset.
On 27 January 2014, the Group accounted for $3.0 million toward a 15% interest in the Odewayne block from
Jacka Resources Somaliland Limited (Jacka), an Australian company. This had been previously accounted for as
a prepayment at 31 December 2013.
On 6 May 2014, the Company announced the completion of the acquisition of an additional 15% interest in the
Odewayne block from Jacka and paid $12.0 million as consideration for the farm-in and settlement for future
commitments under the farm-in agreement.
Under the terms of both acquisitions, the Group paid $15.0 million for a 30% interest in the Odewayne block,
further to the 10% acquired in 2013 from Petrosoma Limited.
Group
Cost
At 1 January 2013
Additions during the year
Adjustments during the year
At 31 December 2013
Additions during the year
At 31 December 2014
Accumulated depreciation and impairment
At 1 January 2013
Charge for the year
Impairment reversal for the year
Disposals in the year
At 31 December 2013
Charge for the year
Impairment for the year
At 31 December 2014
Net book value at 31 December 2014
Net book value at 31 December 2013
Net book value at 31 December 2012
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
185,802
3,064
188,866
-
-
185,802
-
185,802
85
(3,006)
143
32
175
85
(3,006)
185,945
32
185,977
(181,825)
(2,982)
(184,807)
(1,638)
3,207
(69)
-
-
3,006
(180,256)
(1,567)
(3,979)
(45)
(58)
-
(1,707)
3,207
3,006
(180,301)
(1,625)
(3,979)
(185,802)
(103)
(185,905)
-
5,546
3,977
72
98
82
72
5,644
4,059
82
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS Company
Cost
At 1 January 2013
Disposals in the year
At 31 December 2013
At 31 December 2014
Accumulated depreciation and impairment
At 1 January 2013
Charge for the year
Impairment reversal for the year
Disposals in the year
At 31 December 2013
Charge for the year
Impairment reversal for the year
At 31 December 2014
Net book value at 31 December 2014
Net book value at 31 December 2013
Net book value at 31 December 2012
See Note 2 for details on the above impairment.
16.
INVESTMENT IN SUBSIDIARIES
Cost
At 1 January 2013
Additions during the year
At 31 December 2013
Impairment of investment in subsidiary
Additions during the year
At 31 December 2014
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
185,802
-
185,802
185,802
150
(150)
-
-
185,952
(150)
185,802
185,802
(181,825)
(150)
(181,975)
(1,638)
3,207
-
(180,256)
(1,567)
(3,979)
(185,802)
-
5,546
3,977
-
-
150
-
-
-
-
-
-
-
(1,638)
3,207
150
(180,256)
(1,567)
(3,979)
(185,802)
-
5,546
3,977
Company
$000
106,668
1,166
107,834
(79,604)
660
28,890
The subsidiary undertakings at 31 December 2014 are as follows (these undertakings are included on consolidation):
Country of
incorporation
Class of
shares held
Proportion of
voting rights
held 2014
Proportion of
voting rights
held 2013
Nature of
business
Sterling Energy (UK) Limited 1
Sterling Energy (International)
Limited 2
Sterling Energy Overseas
Limited 1
Sterling Energy Mauritania
Limited 3
Sterling Northwest Africa
Holdings Limited 1
Sterling Energy Holdings
Limited 4
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Ordinary
100%
100%
Ordinary
100%
100%
Exploration for oil
and gas
Exploration for oil
and gas
Ordinary
100%
100% Investment holding
company
Ordinary
100%
100%
Jersey, CI
Ordinary
100%
100%
Exploration for oil
and gas
Exploration for oil
and gas
Jersey, CI
Ordinary
100%
100% Investment holding
company
Sterling Cameroon Limited 4
Jersey, CI
Ordinary
100%
100%
Sterling Energy (East Africa)
Limited 4
Sterling Kenya Limited
(Dormant) 4
Jersey, CI
Ordinary
100%
100%
Jersey, CI
Ordinary
100%
100%
Exploration for oil
and gas
Exploration for oil
and gas
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 by the Company, Sterling Energy Overseas Limited
4 Held directly or indirectly through Sterling Northwest Africa Limited
17. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts owed by subsidiary undertakings
Other receivables
Amounts due from joint venture partners
Prepayments and accrued income
2014
$000
2,699
-
162
-
433
Group
2013
$000
2,453
-
3,082
-
400
2014
$000
2,518
17,130
55
-
70
Company
2013
$000
2,113
23,149
12
-
68
3,294
5,935
19,773
25,342
The impairment above reflects the Director’s view on the fair value at 31 December 2014 of investments held
within its subsidiary undertakings; see Note 2 (Company – Investment) for details on the above impairment
assessment methodology.
At 31 December 2013, included within other receivables, is a $3.0 million prepayment to Jacka Resources
Somaliland Limited. This has been transferred to E&E assets in the year upon completion of the farm-in transaction.
The Directors consider that the carrying amount of trade and other receivables is a reliable estimate of their fair
value.
84
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS 18. SHARE CAPITAL
20. SHORT AND LONG-TERM PROVISIONS
Authorised, called up, allotted and fully paid
220,053,520 (2013: 220,053,520) ordinary shares of 40p
149,014
149,014
2014
$000
2013
$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 dollar.
Retained Deficit
Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts
reflected directly in other reserves. The share option reserve has been included within the retained deficit and is
a non-distributable reserve.
86
At 31 December 2014, a provision of $3.4 million has been made in recognition of all expected future net onerous
commitments under the Chinguetti Funding Agreement – see also Note 2. Long term provisions are detailed in
the table below:
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
2014
$000
2013
$000
22,667
21,588
-
63
22,667
21,651
2013
$000
2012
$000
21,588
21,154
-
1,079
22,667
(624)
1,058
21,588
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. It is anticipated that decommissioning
payments will be made prior to 31 December 2017.
The Company amount of $22.7 million (2013: $21.6 million) represents the amount provided within the Company
for future decommissioning expenditure.
In 2013 the economic field life was extended following a review by the operator of decline rate performance. The
extension of field life resulted in an adjustment to the decommissioning provision of $624k.
The full impairment in the year of both the Chinguetti Funding and Royalty Agreements has no impact on the
timing of the decommissioning.
b) 2003 Production Royalty Bonus Scheme
Group
At 1 January
Unwinding of discount
Transferred to current liabilities
Foreign exchange movements
2014
$000
2013
$000
63
5
(68)
-
-
120
8
(68)
3
63
87
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
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 24) and no further sums will accrue.
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.
21. TRADE AND OTHER PAYABLES
Trade payables
Amounts owed to subsidiary undertakings
Amounts advanced from joint venture partners
Accruals
2014
$000
356
-
850
12,457
13,663
Group
2013
$000
448
-
1,539
13,345
15,332
Company
2013
$000
35
2014
$000
10
39,120
62,014
-
12,134
51,264
-
12,684
74,733
23. 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 2014 and 31 December 2013.
The Directors consider that the carrying amount of trade and other payables is a reliable estimate of their fair
value.
Group
Financial assets (classified as loans and receivables)
22. OPERATING LEASES AND CAPITAL COMMITMENTS
2014
$000
Group
2013
$000
Company
2013
$000
2014
$000
Minimum lease payments under operating
leases recognised as an expense in the year
5,220
3,454
4,763
2,783
Total
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
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
2014
$000
5,203
1,554
6,757
Group
2013
$000
5,765
7,015
12,780
Company
2013
$000
5,314
6,600
11,914
2014
$000
4,809
1,554
6,363
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 commitment is through
the Chinguetti Funding Agreement and has a break clause as at end April 2016; accordingly, included within the
$6.8 million is $4.8 million and $1.6 million payable on the FPSO within one year and two to five years respectively.
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
2014
$000
2013
$000
108,148
120,755
2,861
5,535
111,009
126,290
13,663
13,663
15,332
15,332
Carrying amount/Fair value
2014
$000
2013
$000
106,473
118,498
19,703
25,274
126,176
143,772
51,264
51,264
74,733
74,733
88
89
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
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 at the reporting date
and assumes 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
2014
$000
1,081
2013
$000
1,208
2014
$000
1,065
2013
$000
1,185
Foreign Currency Risk
The Group’s and Company’s functional currency is the US dollar, being the currency in which the majority of
the Group’s revenue and expenditure is transacted. Small elements of its management, services and treasury
functions are held and transacted in pounds sterling. The Group does not enter into derivative transactions
to manage its foreign currency. Foreign currency risk is immaterial to the Group and Company – see the
following table:
Financial Assets
Cash and cash equivalents
2014
$000
Group
2013
$000
Company
2013
$000
2014
$000
Cash and cash equivalents held in US$
106,791
116,419
105,180
114,323
Cash and cash equivalents held in GBP
1,357
4,336
1,293
4,175
108,148
120,755
106,473
118,498
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
2014
$000
2,779
82
2,861
2014
$000
12,972
691
13,663
Group
2013
$000
5,446
89
5,535
Group
2013
$000
14,163
1,169
15,332
Company
2013
$000
2014
$000
19,699
25,258
4
16
19,703
25,274
2014
$000
45,196
6,068
51,264
Company
2013
$000
68,821
5,912
74,733
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.
90
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS 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 99% (2013: 96%) 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 $533k (2013: $155k) 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. There are no financial instruments held at fair value under the level 1, 2 and
3 hierarchy.
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 2014 is nil % (2013: nil %).
Less than
six months
Six months
to one year
One to
six years
$000
$000
$000
Group
Trade payables (2014)
Trade payables (2013)
1,111
1,901
Company
Trade payables (2014)
Trade payables (2013)
4
28
-
-
-
-
-
-
-
-
Total
$000
1,111
1,901
4
28
Interest
Principal
$000
$000
-
-
-
-
-
-
-
-
24. 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 $659k (2013: $1.2 million). The Company recognised a total expense,
within administration costs, in respect of share-based payments under equity-settled share option plans of
$30k (2013: $50k).
In 2009 the Company reviewed the existing share-based incentive schemes currently in place to motivate and
incentivise Group 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 were made
under the share option scheme, subsisting grants remained in place and the scheme fully lapsed in 2013.
There were no movements during the year on the share options.
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
2014
Number of
share options
2014
Weighted
average
exercise price
(pence)
2013
Number of
share options
2013
Weighted
average
exercise price
(pence)
-
-
-
-
-
-
-
-
-
-
236,875
(236,875)
-
-
-
348
348
-
-
-
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, was as follows:
2014
Number of
share options
2014
Exercise
price (pence)
2013
Number of
share options
2013
Exercise price
(pence)
Outstanding at the beginning of the year
12,114,800
Granted during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
4,396,300
(4,954,150)
11,556,950
-
40
40
40
40
-
10,529,830
3,755,800
(2,170,830)
12,114,800
-
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 31 December 2014 have a contractual life of 3.81 years (2013: 3.80 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 5.7 pence (2013: 16.5 pence).
92
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS
If the Company 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.
The movement during the year, on the share options, was as follows:
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.
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
2014
24
40
2013
38
40
61.25%
69.53%
3
0.66%
Nil
3
0.46%
Nil
Expected volatility for grants in the year was estimated by calculating the historical volatility of the Company’s
share price over the period 22 December 2009 to 1 October 2014 (2013: over the period 22 December 2009 to
31 October 2013). 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
In 2013 the Company introduced a HMRC approved sub-plan to the All Staff Long Term Incentive Plan (‘HMRC
Sub-Plan’).
2014
Number of
share options
2014
Exercise
price (pence)
2013
Number of
share options
2013
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
563,800
-
(278,000)
1,235,700
-
43
40
-
43
42
-
-
949,900
-
-
949,900
-
-
43
-
-
43
-
The options outstanding at 31 December 2014 have a contractual life of 4.31 years (2013: 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 5.7 pence (2013: 19.3 pence).
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
2014
24
40
2013
43
43
61.25%
69.53%
3
0.66%
Nil
3
0.46%
Nil
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, was as follows:
2014
Number of
share options
2014
Exercise
price (pence)
2013
Number of
share options
2013
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
-
(250,000)
392,783
83,333
40
40
40
40
40
642,783
-
-
642,783
333,333
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.
94
95
Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS Phase 1 of the PSC is due to expire on 30 June 2016. Completion of the acquisition and processing of 2D
seismic data represents the minimum work obligation during Phase 1.
Ntem Concession Cameroon
On 17 February 2015 it was announced that the Company’s wholly owned subsidiary, Sterling Cameroon Limited,
has signed an agreement with Murphy Cameroon Ntem Oil Co. Ltd (‘Murphy’) whereby Murphy will transfer its
50% interest in, and operatorship of, the Ntem Concession, offshore Cameroon to Sterling Cameroon Limited.
No consideration is payable for the transfer of Murphy’s interest. Following completion, the Ntem Concession will
be held 100% by Sterling Cameroon Limited (‘Operator’).
27. CONTINGENT LIABILITIES
The Group has received a claim for VAT from the Malagasy 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, there is a remaining contingent consideration
of $8.0 million payable to Petrosoma Limited based upon various operational milestones being met. At 31
December 2014, these milestones had not been met.
Furthermore, options are forfeited if the non-executive Director leaves the Group before the options vest or are
exercised. The options outstanding at 31 December 2014 have a contractual life of 2.33 years (2013: 2.32
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 remain employed by the Group when the options are exercised, unless employment is terminated on death,
or as a good leaver.
25. 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
2014
$000
960
123
41
416
Group
2013
$000
1,371
117
63
758
1,540
2,309
Company
2013
$000
155
-
-
50
205
2014
$000
173
-
-
30
203
Further information on Directors’ remuneration is detailed in the Remuneration Committee Report, on pages 38 - 48.
The Company has no other disclosed related party transactions.
26. SUBSEQUENT EVENTS
Mauritania – Royalty Agreements with Mauritania
On 9 February 2015 it was announced that the Company had been notified of changes to Premier Oil plc’s
(‘Premier’) interests in PSC A, PSC B (excluding the Chinguetti field) and PSC C-10 offshore Mauritania.
Premier’s exit from each of PSC A, PSC B and PSC C-10 does not affect the royalty currently received by the
Group from Premier over Premier’s interest in production from the Chinguetti field; however, the Group will no longer
benefit from a royalty linked to Premier’s participation in a potential development of Banda, Tiof and/or Tevet.
Acquisition of an Interest in block C-3 Mauritania
On 10 February 2015 it was announced that Sterling Energy Mauritania Limited signed a sale and purchase
agreement with Tullow Mauritania Limited (‘Tullow’) to acquire a 40.5% interest in the Production Sharing
Contract (‘PSC’) for block C-3, located offshore in the Islamic Republic of Mauritania. Under the terms of the
SPA, on completion:
(i) Sterling Energy Mauritania Limited will assume a 40.5% participating interest in the PSC from Tullow, including
an entitlement to a corresponding interest in past costs; and
(ii) Sterling Energy Mauritania Limited will pay Tullow approximately $2.5 million in consideration and repayment
of past costs.
96
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014Year ended 31 December 2014Notes to the Financial StatementsGROUP ACCOUNTS Definitions and Glossary of Terms
$
2006 Act
2007 LTIP
1P
2D
2P
3D
3P
AIM
All Staff LTIP
AGM
Articles
bbl
bopd
boe
Board
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
AIM, a Market of the London Stock Exchange
the All Staff Long-Term Incentive Plan adopted in 2009
Annual General Meeting
the Articles of Association of the Company
barrel, equivalent to 42 US gallons of fluid
barrel of oil per day
barrel of oil equivalent, a measure of the gas component converted into its
equivalence in barrels of oil
the Board of Directors of the Company
Combined Code or Code
UK Corporate Governance Code
Companies Act
the Companies Act (as amended 2006)
HMRC
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
IFRS
k
km
km2
lead
Health, Safety, Security and Environment
organic compounds of carbon and hydrogen
International Financial Reporting Standards
thousands
kilometre(s)
square kilometre(s)
indication of a possible exploration prospect
London Stock Exchange or LSE
London Stock Exchange Plc
m
mcf
Murphy
NED LTIP
OECD
Ordinary Shares
P90, P50, P10
metre(s)
thousand cubic feet
Murphy Cameroon Ntem Oil Co. Ltd
non-executive Director Long Term Incentive Plan adopted in 2009
Organisation for Economic Cooperation and Development
ordinary shares of 40 pence each
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
Company
CSOP
Directors
E&E
Adjusted EBITDA
EITI
FA
farm-in & farm-out
FPSO
G&G
GBP
Genel Energy
Group
Sterling Energy plc
Panel or Takeover Panel
The Panel on Takeovers and Mergers
Company Share Option Plan (HMRC approved share option scheme)
the Directors of the Company
exploration and evaluation assets
earnings before interest, taxation, depreciation, depletion and amortisation,
impairment, share-based payments, provisions, and pre-licence expenditure
Extractive Industries Transparency Initiative
Funding Agreement
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
Floating, Production, Storage and Offloading vessel
geological and geophysical
pounds sterling
Genel Energy Somaliland Limited
the Company and its subsidiary undertakings
Petroleum
Petronas
Premier
Prospect
PSA
PSC
Pura Vida
RA
Reserves
oil, gas, condensate and natural gas liquids
PC Mauritania 1 PTY LTD
Premier Oil
a potential sub-surface accumulation of hydrocarbons which has been
identified but not drilled
production sharing agreement
production sharing contract
Pura Vida Mauritius
Royalty Agreement
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
98
Sterling Energy plc Report and Financial Statements 2014
Sterling Energy plc Report and Financial Statements 2014
99
Definitions and Glossary of Terms (cont.)
Professional Advisers
Reservoir
RISC
Seismic
SESP
Shares
Shareholders
SMHPM
Subsidiary
TSR
a porous and permeable rock capable of containing fluids
RISC (UK) Limited of 53 Chandos Place, Covent Garden, London WC2N
4HS
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 plc share price
40p Ordinary Shares
Ordinary shareholders of 40p each in the Company
Société Mauritanienne Des Hydrocarbures et du Patrimoine Minier
a subsidiary undertaking as defined in the 2006 Act
Total Shareholder Return (End Share Price – Opening Share Price/Opening
Share Price) plus (Sum of Dividends Per Share/Opening Share Price)
United Kingdom or UK
the United Kingdom of Great Britain and Northern Ireland
UK Corporate Governance Code
United States or US
Working Interest or WI
Formerly the Combined Code, sets out standards of good
relation to Board leadership and effectiveness, remuneration, accountability
and relations with shareholders
practice in
the United States of America
a Company’s equity interest in a project before reduction for royalties or
production share owed to others under the applicable fiscal terms
Nominated Adviser and Corporate Broker
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
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
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Sterling Energy plc Report and Financial Statements 2014Sterling Energy plc Report and Financial Statements 2014 Sterling Energy plc
85 Fleet Street
London
EC4Y 1AE
Tel:
+44 (0)20 7405 4133
Fax: +44 (0)20 7440 9059
Email: info@sterlingenergyuk.com
www.sterlingenergyplc.com