SOUTHERN NORTH SEA
Block 42/13a (Sterling 30% interest with RWE Dea as operator) is located on the Dogger Shelf just north of the Cleveland basin. Sterling was attracted to this block by a well drilled in 1997 which tested gas from a 400 foot gross gas column. The evaluation of the block indicated the potential for major reserves in a very large structure. An analysis of the test results of the original 1997 42/13-2 discovery indicates that the tested portion was highly damaged. The well could have potentially achieved rates of 11-25 MMscf/d, significantly above the 3 MMscf/d originally tested in the well.
The initial Breagh appraisal well (42/13-3) commenced drilling in late September 2007 and was completed in November 2007. The well was drilled to a total depth of 8,047 feet and open hole logs confirmed a gas bearing Carboniferous section with an estimated 76 feet of net pay. The well tested up to 17.6 MMscf/d from perforations across the interval 7,332 feet to 7,447 feet and the rates recorded were at the upper end of the pre-well estimates. This was Sterling's first operated UK North Sea well and marked an important milestone for the company. During September 2008 Sterling successfully drilled the East Breagh well (42/13-4) located on Block 42/13a. After detecting the presence of gas and sand while drilling at 7,500 feet (7,363 feet of true vertical depth (tvd)), a 110 foot core was taken. Drilling was then resumed and the well reached a final depth of 8,000 feet tvd subsea on September 30th, with gas shows of up to 20% while coring and drilling.
Preliminary analyses of both the core and the well logs indicated two gas bearing intervals with approximately 72 feet net sand in total. The upper section showed 30 feet of high quality reservoir with porosity of up to 18% and permeability up to 50 millidarcy, confirmed from core data. Preliminary geological analysis indicated that these upper gas sands correlate with the sands encountered in the previously drilled West Breagh well (42/13-3) four kilometers away.
The East Breagh well was tested from the upper zone perforations 7,490 feet measured depth (md) to 7,560 feet md at controlled rates of up to 10.2 MMscf/d. The final rate was held for a period of twelve hours prior to shutting in for pressure build up. The stabilized test was completed on a 32/64 inch choke setting at a flowing wellhead pressure (fwhp) of approximately 1,630 pounds per square inch (psi) of pressure. A further rate increase was not attempted for operational reasons, but it should be noted that a calculated rate of 12.5 MMscf/d should be achievable at an fwhp of 1000 psi.
A lower, poorer quality sand formation was also logged in the well. As part of the testing program this lower formation was perforated first from 7,635 feet md to 7,746 feet md and tested at rates of up to 1.6 MMscf/d before adding perforations to the upper zone as above. This is the first time such a lower formation has been tested individually and in addition to proving the presence of gas, it provides further upside potential for stimulation in further wells.
Over year-end 2008, Sterling announced the successful drilling of the 42/13-5 and 5-z wells on block 42/13a. The 42/13-5 “pilot” well was directionally drilled from the same seabed location as the 42/13-3 well drilled during 2007 and encountered the top of the Breagh reservoir approximately 17 feet higher than anticipated. At this point the well bore was angled at 70 degrees and entered the reservoir some 1,700 feet south east of the 42/13-3 well. The 42/13-5 pilot encountered 165 feet of sand (approximately 55 feet vertical thickness) confirming consistency with previous wells and reached a final depth of 8,900 feet having penetrated a regional limestone seismic marker.
The pilot hole was then cemented back above the reservoir and the drilling of a 2,500 foot horizontal well (denoted 42/13-5z) commenced. The horizontal well reached a final total depth of 10,746 feet on the 2nd of January 2009 after drilling a total of approximately 1,200 feet of sand and intersecting various sand intervals.
Subsequent testing of the 42/13-5z well indicated a maximum flow rate of 26 MMscf/d on an 80/64 inch choke setting at a flowing well head pressure of approximately 890 pounds per square inch. Additional inflow testing was completed using various choke sizes over a 60-hour period. These results are currently being integrated with data from the drilling of the other wells in the 42/13a block in order to optimize well requirements for development.
With the completion and testing of the 42/13-5z well there are now three wells ready for production.
THE GREATER BREAGH AREA
With success in subsequent license rounds, Sterling developed a significant acreage holding surrounding the Breagh Field, known as the “Greater Breagh Area“. This area is made up as follows : Blocks 42/19, 42/20 & 42/24 are adjoining blocks located just north of the giant Ravenspurn gas fields. Mapping has firmed up a significant Bunter formation prospect on Block 42/19 named Airidh. As this block has been converted to a traditional license, Sterling has committed to drill this prospect in 2010.
Blocks 42/8, 42/9, 42/12 and 42/14 were obtained in the 23rd Offshore Licensing Round and surround the Breagh gas discovery on the neighboring 42/13a block. Sterling acquired a closely spaced seismic program in 2008 which has created numerous additional drilling prospects.
Blocks 42/18, 42/2b, 42/3 and 42/4 (Sterling 100%) were obtained in the 24th Offshore Licensing Round. These blocks in the Quad 42 area form a natural exploration extension in areas adjacent to the Breagh discovery within which several Carboniferous prospects have been identified. Blocks 42/18 and 42/24 have since been relinquished.During November 2008 Sterling announced it had been successful in the UK 25th Offshore Licensing Round awards, which were announced on November 12th by the UK Department of Energy and Climate Change. The blocks awarded were 42/10 and 42/15, which are immediately adjacent to Sterling's existing 12 block position surrounding the Breagh gas discovery.
In addition, the 42/15a-2 well drilled by Total in 1990, tested gas from the Zechstein formation at 7.6 MMscf/d and 0.15 MMscf/d from the underlying Carboniferous (Scremerston) formation. On Block 42/15, there is also a small Triassic Bunter discovery which tested at 19.6 MMscf/d from the 42/15b-1 well drilled by Total in 1984. The newly procured blocks adjoin the 42/9 and 42/14 blocks.
The main attraction with the new blocks focuses on a sizeable discovery on 42/10 in the Yoredale sands (which are geologically similar to the Breagh Reservoir). The 42/10-2z well drilled by Mobil Oil in 1996 tested 8 MMscf/d and was drilled just before the original Mobil Oil well on Breagh (1997), using the same type of water-based drilling fluid which is now known to be less than optimal. The structure was reasonably well defined by existing seismic which has been supplemented by the recent purchase of a 3D survey shot in 2009.
Two wells are currently planned during 2010 for the Greater Breagh Area in Quad 42 of the Southern North Sea in which Sterling holds a 30% interest. In conjunction with the operator RWE Dea, drilling of the Airidh and Macanta wells, located to the south and east of the Breagh field respectively are expected to begin during the second quarter of 2010, and will target the first potential satellite tiebacks to the developing Breagh infrastructure.
During August of 2009 Sterling received total consideration of approximately CAD$103 million from RWE Dea in exchange for a 15% working interest in Breagh and varying interests in the surrounding exploration blocks. Sterling retained a 30% interest in the Breagh Field and the surrounding blocks which comprise the Greater Breagh Area with RWE Dea assuming operatorship.
The Breagh development program is on track, with UK government project sanction targeted for early in the second quarter of 2010 and first gas production anticipated in early 2012. The field will be developed using a phased approach, with phase one being a single platform with up to nine wells, a new 100km 20 inch diameter pipeline to shore and processing at the existing Teesside Gas Processing Plant (TGPP) facility. This will achieve first gas for a gross capital cost of approximately £350 million depending on final well count and rig rate achieved. Phase one will have the capacity for a gross plateau production rate of 225 MMscfd. Phase two will incorporate an additional platform increasing the capacity to a total of 18 wells, and depending on future exploration success and potential for attracting third party gas, will have the capacity for a maximum gross plateau production rate of 400 MMscfd. The necessary detailed engineering studies for the longer lead items are underway and bids for the pipeline installation are being evaluated with the start of major offshore activity planned for late 2011. The operator supplied project phasing and costing has been integrated into our discussions with the Royal Bank of Scotland for procurement of a senior debt facility, which is also progressing.
Quad 48
Blocks 48/18d, 48/23b and 48/28b (split) were obtained in the 24th Offshore Licensing Round and are also located in the Southern North Sea. Sterling has a 57% interest, is the operator and is currently farming down interest on behalf of the joint venture group.
In the Southern North Sea the Grian prospect in Quad 48 is also planned for drilling in 2010 in order to evaluate a Rotliegendes prospect located just to the west of the Hewett gas field. Sterling will operate the well which will be drilled to secure this prospect.
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