Sterling Energy has announced that it is withdrawing from the Sangaw North Production Sharing Contract ("PSC") in Kurdistan. Shares in the company were trading down 3.3 percent on Friday morning:
Interpretation of the 2D seismic data acquired in the Sangaw North PSC during 2012 has indicated that the remaining potential is insufficient to justify drilling a second exploration well in the contract area. Therefore, the Company has elected to withdraw from the Sangaw North PSC effective 29 January 2013.
2D Seismic Interpretation:
Sterling, as operator of the Sangaw North PSC, acquired and processed 117 km of 2D seismic data during 2012, supplementing the 2D seismic data previously acquired in the contract area. Interpretation of the new seismic data indicated that the risked potential of a secondary target along the flank of the main structure, analogous to the recent discoveries made in adjacent acreage to the south east of the Sangaw North PSC area, did not justify the cost exposure of an exploration well. Based on this interpretation, the joint venture partnership has decided not to drill a second exploration well in the contract area.
Under the terms of the PSC, Sterling and Addax must notify the Kurdistan Regional Government of Iraq (KRG) on or before 31 January 2013 whether the partnership intends to drill a further exploration well on the Sangaw North block before the end of the current exploration phase which runs to November 2013. If Sterling and Addax elect not to drill, then the PSC will terminate on the earlier of the date upon which the partnership notifies the KRG of such election or 1 February 2013.
On 29 January 2013, Sterling notified the KRG of the partnership's decision not to drill a second exploration well in the Sangaw North PSC area and the PSC automatically terminated on that date.
The partnership has satisfied the work commitment required by the Sangaw North PSC and Sterling will now proceed, over the coming months, to close its remaining operations relating to Sangaw North. Following the closure of these operations, Sterling will have no remaining interests in Kurdistan.
Angus MacAskill, Sterling's Chief Executive said:
"Licensing of the Sangaw North block early in the exploration of this area provided Sterling an attractive opportunity to explore this prospective region, undoubtedly containing major hydrocarbon resources, through attractive PSC terms and with the mitigation of the financial and technical risks by farming down part of the original interest in return for a carry through the drilling of the first exploration well.
"While we are naturally very disappointed to have been unsuccessful in our exploration efforts in Kurdistan, we now look forward to focusing on, and adding to, our remaining high potential exploration interests in Africa."
(Source: Sterling Energy)
(Picture: Surface oil seeping from ground at Sangaw North Block)