Breagh Development Costs Rise More, Sterling Says (UK)

Breagh Costs Rise

Sterling Resources Ltd. has provided an update regarding the anticipated start of first production and the latest development cost for the Breagh gas field.

The review of the remaining work required at the Teesside Gas Processing Plant (“TGPP”), where Breagh gas is to be processed, is still ongoing. The contractual date for mechanical completion of the TGPP works has not been achieved. This is attributed to problems with repair of equipment damaged during shipment and the management of design of the works. Preliminary estimates of costs and schedule to production start-up show a slight further increase in costs above the range indicated in a news release of May 21, 2012 and production start-up is expected towards the end of the fourth quarter of 2012.

The estimate of Phase 1 development costs has now risen to the range of £600 to £610 million (100 percent), an increase of 6 to 8 percent over the cost estimate of £566 million provided in the Company’s 2011 annual report. This increase also includes costs relating to activities not connected to the TGPP work, such as completion of the onshore pipeline, completion of additional rock-dumping required on the offshore section of the pipelines and an estimate of increased drilling costs for future wells based on current rig rates. Sterling’s share of the cost increase amounts to £10 to £13 million. As a result of the production delay, ongoing drilling and other costs from September (amounting to approximately £2 million per month) will now not be funded out of field cash flow.

Early drilling results on the Breagh Alpha platform have been positive with the first wells, A-01 and A-02 (side-tracks of the original 42/13-3 and 42/13-5Z wells), both encountering a materially thicker than expected gas-bearing reservoir section. These first two wells will be flow-tested within the next month, following which the first new well will be drilled from the platform. These three wells are expected to be on-stream at first gas.

Mike Azancot, Sterling’s President and CEO, commented, “An updated estimation of the Breagh project cost overruns has been made with first gas date still planned in the fourth quarter 2012. As a result of our careful cash management and the recent launch of asset divestment processes, we are able to satisfy our liquidity requirements under the terms of our Credit Facility.”

Press Release, July 13, 2012

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