Location: Nouakchott Sub-basin (Northern MSGBC Basin)
Area: 15,064 km2(PSC A - 6,969km2 / PSC B – 8,095 km2)
Sterling Equity: Royalty & Share of State Back-in on Chinguetti Field
Partners: Petronas (Operator), Tullow, SMH, KUFPEC, Premier, ROC
Production Sharing Contracts (PSC) A and B are located offshore Mauritania in the greater MSGBC basin. Sterling has participated in these two blocks since 1996, which have subject to significant activity, yielded 6 discoveries and the country’s first production.
Chinguetti – Miocene Oil field discovered in 2001. Approval was obtained in 2004 to develop this 123 mmbbl field with a leased floating production storage and offloading (FPSO) facility. The field came onstream in February 2006, on time and at the targetted rate of 75,000 bopd. However, the field has experienced a number of problems since then, the production has fallen well below forecast and following extensive subsurface study, which is still ongoing, the Operator has indicated that the recoverable reserves are likely to be significantly less than expected. Based on currently available information, both the Operator and several independent analyses estimate the 2P recoverable reserves to be in the region of 50 mmbbls. Phase 2B involving 2 further development wells and 3 well interventions will commence in Q2 2008 with the potential do increase production rates up to double that at the end of 2007.
Banda – Miocene Gas field discovered in 2002 and appraised by a well and sidetrack drilled in April/May 2008. This well confirmed the gas and oil columns over 2 km East of the discovery well, with gas reserves estimated in the 1-2 TCF range.
Tiof – Miocene Oil & Gas field discovered in 2003 with potential 500 mmbbl STOIIP with up to 50 mmbbl being developed in a potential first phase. Several development scenarios have been investigated and it is likely that Tiof will be developed, as a tie-back to the Chinguetti FPSO, in phases, possibly using a tension leg platform (TLP). Development studies are continuing in 2008 under the new Operator, Petronas.
Tevet – Miocene Oil field discovered in 2004 and located between the Chinguetti and the Banda Discoveries. An appraisal well was drilled in 2006 which sucessfully tested both the Miocene and underlying Cretaceous. The Operator estimates that the field contains in the region of 100 million barrels of STOIIP, and the most likely development is a tie back to the Chinguetti FPSO. Development studies have been taking place in tandem with Tiof but the timing on any development is currently unclear.
Labeidna – Miocene Oil field discovered in 2005. Recoverable reserves are estimated to be subeconomic and no appraisal activity is planned at the moment.
Sterling's interests include a sliding scale royalty based on oil price coupled with specific cash bonuses for each commercial discovery in PSC A & B, and an economic interest derived from our financing of the Government’s 12% back-in to the Chinguetti Field.
The Royalty and Discovery Bonuses
The Royalty payment is linked to oil price, for every barrel produced net to a working interest of 3% in Area A, and 6% in Area B, subject to the Government's back-in rights. Also cash bonuses of $1mm for a greater than 50mmboe discovery in Area A and $2mm in Area B are payable to Sterling.
The Royalty payment per barrel escalates with oil price and inflation. For an average price of $90 in 2008, the royalty will be $11.19 per barrel.
Sterling's Chinguetti Funding Deal
In late 2004, Sterling signed an agreement with the Government of Mauritania, whereby Sterling agreed to fund the Government’s 12% back-in to the Chinguetti field, the first oil field to be developed in Mauritania. In return, Sterling receives a share of the net production revenues.
Capital for the deal was raised through a £97 million share placing. Sterling has paid a $15.5 million signature bonus and provided a $130 million letter of credit to cover the Government’s share of the Chinguetti field development costs. In return, Sterling will receive cost recovery and profit oil from a sliding scale share of the field’s production. In November 2004, under this arrangement, the Mauritanian Government exercised its option to back-in to the Chinguetti field development taking a 12% equity stake and the state oil company SMH was formed to develop the exploration and production industry in the West African country.
