PROGRESS TOWARDS POTENTIALLY COMPANY MAKING WELLS IN 2009

Highlights

Addax farms in to Sangaw North PSC, Kurdistan, for a 33.33% (26.67% post third-party assignment) interest on excellent terms. Sterling will recover all past costs, enjoy a carry for the current seismic programme and for the first well, have access to rig in country and remain operator.

Good progress made in the evaluation of the Ampasindava and Ambilobe PSC’s, Madagascar, where several large structures have been identified, with Sifaka one of the largest. A site survey has been conducted on the Sifaka prospect and a potential drilling location identified.

An independent review of two of Sterling’s prospects in Kurdistan and Madagascar by RISC indicated “unrisked best estimate” prospective resources of over 450 million barrels of oil, with a high estimate of over 1.8 billion barrels of oil net to Sterling.

Signed a conditional sale agreement with a prospective purchaser for the USA business, proposed sale of which was announced in April 2008.

£13.5 million ($24.3 million) gross equity placement agreed with major shareholders at 2p per share, subject to shareholder approval at EGM. Proceeds of the placing and the Kurdistan farmout will enable Sterling to meet debt repayments and provide working capital, while much of international work programme costs for the next year are now covered by carry arrangements.

Group turnover for the period increased by 26% to $56.7 million, net of hedge settlements of $14.6 million, (2007: $45.1 million, net of $2.9 million of hedges).

Average production in first half 2008 increased 6.8% to 5,242 boepd (2007: 4,910 boepd), with USA business accounting for 82%.

Operating cash flow, prior to working capital, in 1H 2008 of $33 million (2007: $27 million) and a significant reduction in payables of over $27 million in same period. In August $10 million of bank debt was repaid reducing balance to $143 million.

Current cash balances, together with the funds due from the Kurdistan farmout, the recent Mauritania lifting and the net placing proceeds, total $52.3 million.

Prospects and Outlook

Seismic programme on Sangaw North, Kurdistan due to be completed November, initial results are very encouraging and could lead to an improved risking for the prospects on the block.

Spudding of first well on Sangaw North, Kurdistan planned for mid-2009

First well on the Sifaka prospect, Ampasindava PSC, Madagascar possibly Q3 2009.

Farmout of interest in Ampasindava PSC, Madagascar in progress, interest is increasing with drilling becoming more imminent.

Completion of sale of USA business anticipated late 2008 which would transform Sterling’s financial status.

Investment in Phase 2B development, Mauritania, to increase production will be completed by year-end and 2009 should see a cash inflow from those operations, which are now producing around 1,300 bpd net and expected to rise when the C-20 well comes onstream in late October.

Aim to be drilling four material wells per year.

Plan to return cash to shareholders though share buy-back when and if appropriate.

Richard Stabbins, Chairman of Sterling, said:
“The new management team has quickly identified and successfully addressed many of the important issues that were confronting the Group. I believe the next few months will see the financial strength of Sterling transformed and its focus become much sharper on high potential exploration assets. The independent review of two of our prospects in Kurdistan and Madagascar, which indicated “unrisked best estimate” net prospective resources to Sterling of over 450 million barrels of oil, with a high estimate of over 1.8 billion barrels of oil, indicates the transformational potential in our portfolio. Clearly, the realisation of such reserves depends on our exploration success, but I believe that we are now very well positioned to exploit that potential with the prospect of delivering significant returns to shareholders.”

For further information contact:
Sterling Energy plc (+44 207 405 4133)
Graeme Thomson, Chief Executive
Jon Cooper, Chief Financial Officer

Evolution Securities (+44 207 071 4311)
Rob Collins

Citigate Dewe Rogerson (+44 207 638 9571)
Media enquiries: Martin Jackson
Analyst enquiries: Emma Woollaston