Oil and gas company Sterling Energy plc (SEY) announced Tuesday the signing of a binding agreement to sell its USA business to a non-USA buyer for an initial gross consideration US$90 million. The company also said that it could receive additional payments, depending on future oil and gas prices, over the next three years. Sterling Energy intends to use the sale proceeds to repay all of its bank debt and become debt-free.
Sterling's USA business, which includes exploration and production projects, mainly in the onshore Gulf Coast and shallow waters of the Gulf of Mexico, recorded average production to date in 2009 of 20.5 million cubic feet of gas equivalent per day.
As per the deal, Sterling Energy would receive $90 million in consideration, with an effective date of 1 April 2009. The group said that consummation of the sale is subject only to remaining title and environmental due diligence, which would be obtained in early December.
Further, the group revealed that there is a three year 'upside sharing agreement', under which Sterling is entitled to a 40% share of the annual excess net production proceeds if the average realised oil price surpasses $90 per barrel and/or the realised gas price crosses $9 per mcf in any of 2010-2012.
The company had announced its intention to sell the USA business in April 2008, with the sales process managed by BMO Capital Markets. The banking and credit crisis and significant drops in US natural gas prices stalled the progress until recently when stabilization of gas prices prompted renewed third party interest in the business.
Sterling Energy also noted that the sale will lead to a book loss of about $80 million that would be recognized in the accounts for the period ending 31 December 2009.
After adjusting for cash advances and expenses associated with the sale, the company anticipates a net cash inflow of around $79 million from the closure of the transaction.
The company said that it proposes to utilize the proceeds to repay all of its outstanding bank debt aggregating to US$73 million. The rest of the cash will be added to existing cash balances of about $65 million and used for working capital and future investments.
Commenting on the sale, Alastair Beardsall, Sterling's Chairman said, "This is an important step for Sterling towards focusing both technical and financial resources on existing higher impact opportunities in Africa and the Middle East where our portfolio of exploration opportunities has the potential to deliver better returns to shareholders."
Beardsall added that the company is looking forward to drilling its first well in Kurdistan at Sangaw North and is presently mobilizing a rig to the drilling site. The company expects to start drilling the well in mid-December.
SEY.L is currently trading at 4.94 pence, up 0.09 pence or 1.86% on the LSE.
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