www.sterlingenergyplc.com 
Exploring for success
Annual Report & Accounts 2007
UK 
Sterling Energy PLC
5 Chancery Lane
London
WC2A 1LG
Tel: +44 (0)20 7405 4133
Fax: +44 (0)20 7440 9059
info@sterllingenergyuk.com
USA 
Sterling Energy
333 Clay Street #700
Houston
Texas 77002
Tel: +1 (713) 850 1880
Fax: +1 (713) 850 1879
info@sterlingenergyusa.com 
Sterling Energy PLC Annual Report & Accounts 2007 Sterling Energy PLC (“Sterling” or the “Company”) is an upstream 
oil and gas Company listed on the AIM market in London. Sterling 
is an experienced operator of international licences with a focus on 
projects in Africa and the Middle East. Sterling has high impact 
near-term opportunities in Kurdistan and Madagascar, exploration 
in Gabon, AGC and Cameroon, as well as appraisal and production 
assets in Mauritania. It seeks to expand its portfolio with an 
emphasis on near-term activity and value growth. It intends to sell 
its USA assets and to redeploy the capital to repay all of its debt, 
with the resulting cash balances being used to develop its assets  
in its core areas.
Overview
01 Highlights – 2007
02 2008 Activity and Objectives
03 New Strategy
04 Chairman’s Statement
06 Chief Executive’s Review
Business review
08 Operational
16 Reserves Report
17 Schedule of Interests
18 Financial Review
22 Corporate Social Responsibility
24 Board of Directors
Governance
26 Directors’ Report
30 Corporate Governance
32 Statement of Directors’ 
Responsibilities
Financial statements
33 Independent Auditors’ Report to the 
Members of Sterling Energy 
34 Consolidated income statement
34 Consolidated statement of 
recognised income and expense
35 Consolidated balance sheet
36 Company balance sheet
37 Consolidated cash flow statement
38 Company cash flow statement
39 Notes to the financial statements
62 Definitions Page 01
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Sterling Energy PLC Annual Report & Accounts 2007
Highlights – 2007
Revenues for the year of $97 .2 million 
(2006: $81.0 million)
 
Group sales averaged 5,760 boepd, up 
31% (2006: 4,400 boepd)
 
Gross profit of $22.0 million  
(2006: $26.6 million)
EBITDA $56.6 million (2006: $59.6 
million)
 
Group 2P reserves increased by 65% to 
21.3 million boe at end 2007
 
•
•
•
•
•
Secured the highly prospective Sangaw 
North licence 492km
2
, in the Kurdish 
region of Northern Iraq
Proposed drilling in Madagascar being 
“fast tracked” for 2009 and very large 
structures identified
 
Bank funding re-financed successfully, 
with a current facility of $158 million
 
$147 million cash acquisition of  
US onshore WEC completed end  
March 2007 
 
Year end bank debt of $153.3 million
 
•
•
•
•
•
Overview
revenue daily pr Oducti On ebitda Page 02 Sterling Energy PLC Annual Report & Accounts 2007
2008 activity and Objectives
Sales process for the USA business commenced in  
April 2008 after a comprehensive strategic review of the 
Company’s assets and prospects. The Board expects that 
the proceeds of any sale will enable it to repay all of the 
Company’s borrowings and leave it with significant net cash 
The USA sale, together with cash revenues from its 
Mauritanian producing interests, will provide funding to 
increase the Company’s investment in the considerable 
upside potential of its existing key assets in Africa and the 
Middle East, as well as to develop new opportunities 
Sterling will focus on an increasing number of higher impact 
exploration prospects
Independent consultants, RISC, in a review in April 2008 of 
two prospects in Kurdistan and Madagascar, indicated 
unrisked best estimate net prospective resources of over 
500 million barrels of oil with a high net estimate of over 
1,900 million barrels of oil for Sterling’s current interests
Conduct a 2D seismic programme in Kurdistan ahead of 
drilling in 2009 
Conduct well site survey in Madagascar and secure rig for 
high impact near-term drilling
•
•
•
•
•
•
The Chinguetti development programme in Mauritania has 
recently commenced, comprising three workover wells and 
two development wells with an initial target of doubling 
production. An appraisal well on the Banda gas discovery 
encountered gas and oil columns with contacts similar to 
those seen in the discovery well
Exploration well on the Charlie prospect, mean case 
21 million barrels and upside case 40 million barrels, 
offshore Gabon is planned for May. A well in Themis  
Marin drilled in January 2008 was plugged and the  
licence has expired
Strategy includes farmouts to enhance risk-reward ratios 
and enable development of a wider portfolio of opportunities
First quarter 2008 production averaged 5,824 boepd (year 
2007, average 5,760 boepd)
Cash and undrawn facilities of $16.4 million at end of  
Q1 2008
Sterling has signed letters of intent to sell peripheral USA 
properties for $8.7 million and has completed six USA  
farm outs in 2008
•
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•
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On completion the sale of our US business will leave Sterling financially 
well positioned, adequately resourced and more sharply focused. Page 03 Sterling Energy PLC Annual Report & Accounts 2007
Sterling is a UK AIM listed exploration and production 
company, which is redefining its strategy in order to focus its 
resources on higher impact opportunities in Africa and the 
Middle East. 
The Board of Sterling has recently undertaken a comprehensive 
strategic review of the Company’s assets and prospects and 
has concluded that it would be in shareholders’ best interests 
to sell the USA business. The Board believes that the USA 
business has grown to a size that makes it attractive to 
prospective buyers. On 7 April 2008 the Board announced that 
it had therefore mandated BMO Capital Markets to manage  
the sales process.
The Board expects that the proceeds of any sale will enable it 
to repay the Company’s borrowings and leave it with significant 
net cash. This, together with cash revenues from its 
Mauritanian producing interests and farmouts, will provide 
funding to increase the Company’s investment in the 
considerable upside potential of its key assets in Africa and the 
Middle East. 
Sterling will focus on an increasing number of higher impact 
exploration prospects, which currently include Madagascar, 
Kurdistan, Gabon, AGC (a joint exploration zone between 
Senegal and Guinea Bissau) and Cameroon. It will also pursue 
new opportunities, including potential acquisitions. 
Studies by an independent consultancy, RISC, covering two of 
the Company’s prospects in Kurdistan and offshore 
Madagascar, were recently completed. These indicated 
unrisked best estimate net prospective resources, which are 
dependent on exploration success and other factors, of  
over 500 million barrels of oil with a high net estimate of over 
1,900 million barrels of oil for Sterling’s current interests on 
those two prospects. 
Overview
new Strategy
Independent consultants have assessed two prospects in Kurdistan  
and Madagascar and indicated unrisked best estimate net prospective 
resources of over 500 million barrels of oil, with a high net estimate  
of 1,900 million barrels of oil for Sterling’s current interests. Page 04
mboe
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Sterling Energy PLC Annual Report & Accounts 2007
c hairman’s Statement
Sterling made significant advances in 
2007. However, it was a very challenging 
year for the Company, particularly in 
respect of the share price, bank 
financing and our underlying asset 
performance. We have announced 
recently that we have taken steps to 
address this situation through the sale of 
our USA assets. We intend to focus in 
future on potentially “Company making” 
opportunities.
In March 2007 the acquisition of Whittier 
Energy in the USA for $147 million was 
completed, and in November we 
announced the signature of the Sangaw 
North PSC in Kurdistan. Our annual 
production averaged 5,760 barrels of oil 
equivalent per day, an improvement of 
31% over 2006. Progress was also made 
with our exploration assets in Africa and 
the Middle East. However, the 
development of our licence portfolio has 
been slower than we had hoped owing 
to continuing intense competition for 
international oil and gas opportunities 
and our focus on only very high potential 
opportunities which are sensibly priced. 
EBITDA was $56.6 million and there  
was a loss before tax of $2.9 million after 
pre-licence exploration expenditure of 
$4.5 million. Production decline at the 
Chinguetti oilfield in Mauritania now 
appears to have stabilised with recent 
gross production of about 10,000 gross 
barrels per day. New development wells 
and other remedial action are underway 
to improve production levels markedly.
There was a significant increase in the 
Company’s oil and gas reserves as a 
result of the Whittier acquisition. Our 
total reserves have increased from the 
equivalent of 12.9 million barrels of oil 
entitlement in 2006 to 21.3 million barrels 
of oil equivalent at the end of 2007. 
We drilled 29 wells in the USA in 2007 of 
which 24 were successful. There has 
been a small reduction in our booked US 
reserves as a result of production not 
being fully replaced, with faster than 
expected declines in some wells, and 
through weather and equipment delays 
which delayed some production 
increases.
“We have recently announced the 
plan to dispose of our US assets, 
we intend in future to focus on 
potentially ‘Company making’ 
opportunities.”
r eServe S Page 05 Sterling Energy PLC Annual Report & Accounts 2007
+
65%
Sterling’s 2007 production in the USA 
averaged 25.8 million cubic feet of gas 
equivalent per day. While this marked a 
significant improvement over 2006, it 
was slightly lower than we had hoped. It 
should also be borne in mind that some 
55% of our global production is gas, 
rather than oil. While it is good to be able 
to report a recent improvement in gas 
prices in the USA, the improvement is 
nowhere near as great as the increase in 
oil prices that we witnessed last year. 
Production in the USA in March 2008 
reached a record of over 30 mmcfgd.
In December we announced the 
successful renegotiation of our bank 
facilities. This was an important 
milestone at a time of severe credit 
constraint in the global credit market.  
We now have a borrowing facility of  
$158 million syndicated with a number  
of major banks, of which $153 million is 
currently drawn down. Recent cash 
balances and undrawn facilities were 
$16.4 million at the end of Q1 2008.
Recognising that market conditions are 
changing very fast, we have recently 
reviewed the Group’s prospects and 
opportunities. We have decided to put 
the USA assets up for sale to enable us 
to focus our resources on high reward 
ventures. After a sale, we expect to have 
no debt, significant cash and production 
income from Mauritania. It will be an 
enviable position from which to build. We 
have very recently added the high 
potential interest in Kurdistan and there 
are moves to fast track drilling in 
Madagascar.
On a personal note, I would like to thank 
our former Chairman Richard O’Toole 
who left after the AGM in June 2007 and 
Paul Griggs who left on 30 April 2008, 
and all our staff, Directors and advisers 
for their work and support in what has 
been an interesting and challenging year. 
I also wish Harry Wilson, Graeme 
Thomson and Jon Cooper every 
success in their new roles of Deputy 
Chairman, CEO and CFO respectively. 
Looking forward, the much anticipated 
oil industry consolidation has been 
slower than predicted, but we expect to 
be able to play a part and benefit from it. 
We have an exciting programme of 
exploration activity ahead of us and a 
strengthened management structure 
and focus, which I believe will add 
materially to the value of the Company. 
dick Stabbins
Chairman
30 April 2008
21.3
MMbOe
Overview Page 06 Sterling Energy PLC Annual Report & Accounts 2007
n ew strategy 
Sterling is changing. I became CEO in 
early February 2008 and the Board has 
now completed a strategic review of the 
business and its prospects. Our near-
term objectives are clear; 
1. We intend to focus more on 
potentially transforming drilling activity
Our current portfolio already has a 
programme of very high impact work 
planned in the next year in Madagascar 
and Kurdistan, with important wells in 
Gabon and AGC. We will seek out more. 
Our focus areas will be Africa and the 
Middle East. We will take measured risks 
for major upside. An independent review 
by RISC on two of our prospects in 
Kurdistan and Madagascar, has 
indicated unrisked upside potential net 
to Sterling of up to nearly 2 billion 
barrels, with obvious implications for 
major value-creating possibilities.
2. To reduce our debt level and to 
improve our working capital position
We have reviewed our assets and for the 
reasons set out earlier we have 
announced plans to sell the USA assets 
in order to achieve this aim. We shall 
seek to farmout selectively, which is a 
sensible way to enhance the risk-reward 
ratio for our work, will enable us to 
diversify and extend our portfolio and 
improve near-term cash flow. Much has 
been written about the banking “credit 
crunch” and stock markets have seen 
major falls, so we wish to make Sterling 
resilient to these changed conditions.
 
Oil and gas prices are up, but so are 
costs 
Oil prices have more than doubled over 
the last year to record levels of over 
$110/bbl despite talk of “recession” in 
some of the major economies. Around 
80% of the increase in energy usage is in 
the “developing countries” and there is 
little spare producing capacity. US gas 
prices have risen over recent months, 
partly in response to oil prices, but also 
owing to the very cold winter there with 
record snow in many areas. 
Costs in the industry have been rising 
very rapidly too. Lead times on 
equipment and drilling have continued to 
cause problems. Good opportunities are 
hard to find and secure and there is a 
shortage of good and experienced 
people. Sterling is fortunate to have an 
excellent team who have an interest in 
over 10% of the Company. Our team is 
highly motivated to achieve success. 
High impact drilling and further 
projects sought 
We expect to drill prospects by the end 
of 2009 that will offer upside potential to 
Sterling of hundreds of millions of 
barrels. 
Our projects are described in detail 
elsewhere in this annual report. I am also 
excited about building new areas of 
activity too.
 
As well as expanding our portfolio of 
licence interests, we intend to add to our 
existing near term drilling programme, 
both onshore and offshore. This will be 
achieved by redeploying our capital to 
new activities or through sector 
consolidation. We wish to offer our 
shareholders value growth through high 
upside projects combined with careful 
asset management. 
c hief executive’s r eview
“I am very excited about Kurdistan 
and Madagascar, where 
independent studies have 
indicated a combined unrisked 
net economic value at potentially 
over $2 billion if both prospects 
are successful at the best 
estimate level.” Page 07
Apr 05
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Feb 08
Apr 08
FTSE AIM Oil & Gas
70
Performance (%)
90
110
130
150
170
190
210
230
Crude Oil-Brent U$/BBL
Apr 05
Jun 05
Aug 05
Oct 05
Dec 05
Feb 06
Apr 06
Jun 06
Aug 06
Oct 06
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Feb 07
Apr 07
Jun 07
Aug 07
Oct 07
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Feb 08
Apr 08
Natural Gas-Henry Hub $/MMBTU
50
70
Performance (%)
90
110
130
150
170
190
210
230
Crude Oil-WTI U$/BBL
Mauritania
2008
2Q
Exploration Drilling
*  Drilling subject to ratication of the contract extension
** Timing subject to rig availability
Appraisal Drilling Development Drilling
3Q 4Q 2Q 3Q 1Q
2009
Gabon
AGC*
Madagascar**
Kurdistan
Sterling Energy PLC Annual Report & Accounts 2007
Material value in the exploration 
portfolio 
Great uncertainty has been created by 
the recent difficulties in the credit and 
stock markets. Their impacts have been 
widespread and harsh and we have to 
react to these and other factors in 
formulating our strategy.
 
As described in more detail earlier in this 
report, the Board has recently carried 
out a review of the relative upside 
potential and amount invested in each of 
the business areas. Sterling wishes to 
make sure that its finances are 
appropriately organised and resilient. 
Whilst the results of our drilling 
programme in the USA in the last year 
were good and 2008 has started well, 
the size of the investment required to 
enable that business to fully flourish  
is growing. 
 
Sterling has highly prospective assets to 
explore. With the fast tracking of 
Madagascar to drilling and the new 
licence in Kurdistan in the last year, the 
Board now believes it is in shareholders 
best interests to focus its resources on 
such high potential assets and 
opportunities and to reduce or eliminate 
its debt level. It therefore intends to 
Overview
dispose of its USA assets in 2008. This 
will enhance our working capital position 
materially by leaving us with significant 
net cash after the sale. We will continue 
with farmouts, not only to yield cash or 
reduce the near-term costs of the wells 
but also to swap for other assets, 
thereby managing and diversifying the 
portfolio. This will also help to show the 
material value in our exploration portfolio 
which in current market conditions 
appears to be largely ignored and will 
allow Sterling to add new opportunities 
for growth in Africa and the Middle East. 
Graeme t homson
Chief Executive Officer
30 April 2008
 
Ft Se a iM Oil & Ga S vs b rent Oil price -3y
internati Onal drillin G Sc Hedule
Henry Hub vs Wti -3y Page 08
100
bcfge
Sterling Energy PLC Annual Report & Accounts 2007
Operational
Africa and Middle East
africa and Middle east fast tracked
Sterling has interests in exploration 
licences with multi-billion barrel targets 
which could be “Company makers”. 
Some of these are considered medium 
risk and high cost, so it remains part of 
Sterling’s strategy to farm-down these 
interests to give a more appropriate risk 
to and reward ratio. Key activity is 
expected on these in 2008/09. 
Madagascar
Drilling on major structure 
There has been a major change in our 
perception of the prospectivity of 
Sterling’s Madagascar licences in the 
last year. Several very large prospects 
have been evaluated and one has been 
matured towards drilling well ahead of 
our former scheduled timing. A rig is 
being sought and the Ambilobe and 
Ampasindava PSC’s have become an 
exciting cornerstone of Sterling’s 
exploration portfolio. 
During 2007, the interpretation of over 
4,000km of newly processed 2D 
seismic, plus a further 4,000km of newly 
“The Sangaw North 
PSC offers Sterling 
the opportunity to 
access high  
impact reserves  
at moderate 
exploration risk  
in a proven 
hydrocarbon  
province.”
Andrew Grosse
Exploration and  
Technical  
Director  Page 09 Sterling Energy PLC Annual Report & Accounts 2007
reprocessed vintage 2D seismic data, 
began in earnest to generate prospects. 
Early results of this ongoing 
interpretation have yielded some very 
large structural prospects and leads, the 
largest of which is the Sifaka Prospect in 
the inboard portion of the Ampasindava 
PSC, in water of approximately 1,000-
1,500m. The Sifaka Prospect has multi-
billion barrel potential and following a 
meeting between ExxonMobil, the 
operator, and the President of 
Madagascar in November 2007 it was 
reported that the partnership wished to 
drill this prospect, subject to the 
availability of a suitable rig. Owing to the 
remote location of the block and the time 
it will take to secure and mobilise a rig in 
current market conditions, Sterling 
anticipates that drilling will take place in 
2009. 
 
The first to be undertaken in offshore 
deepwater Madagascar. With the 
expected costs of the well materially 
exceeding the remaining carry, Sterling 
plans to further farm-down its interest in 
the Ampasindava PSC. The well would 
business review
c a Se Study: Mada Ga Scar
Madagascar has a long, but very limited 
history of hydrocarbon exploration, dating 
back to the earliest 20th Century shallow 
drilling on tar sands in the Bemolanga area of 
the onshore Morondava Basin. The 
Morondava Basin is the most southerly of the 
three main prospective basins in the country, 
which are located both onshore and offshore 
along its western margin; the next basin 
northward being the Majunga Basin and then 
the Ambilobe Basin furthest to the north. The 
basins cover a vast area, in excess of 
300,000km
2
, and developed primarily in 
response to the separation of Madagascar 
from East Africa in Jurassic times; although 
the sedimentary fill has a longer history going 
back to the Permian that pre-dates this 
continental separation. Basins that relate to 
the successful break-up of continents are 
known as passive margin basins and globally 
contain very significant volumes of 
hydrocarbons in both pre-, syn- and post-
break-up sediments. The prolific 
hydrocarbon-bearing basins of Brazil and 
West Africa are examples of passive margin 
basins and so are the relatively unexplored 
basins of northern Mozambique to Kenya 
along the East African margin, which form the 
paired margin to the basins in Madagascar. 
Exploration in Madagascar has historically 
concentrated on the oldest sedimentary 
rocks, which pre-date continental separation 
and are host to tar sands and heavy oil 
deposits onshore reportedly holding several 
billion barrels of in-place resources. 
Exploration for hydrocarbons in Jurassic and 
younger rocks has been very limited, but the 
results of the handful of wells drilled during 
the 1960s to 1970s hint at prospectivity. With 
the attention of industry in the last 10 years 
shifting to deepwater, and the extraordinary 
drilling success achieved in deepwater 
passive margin basins, attention has returned 
to Madagascar‘s unexplored deepwater 
acreage. Sterling gained early entrant 
advantage by securing its permits ahead of 
most of the industry and then farmed out to 
ExxonMobil six months later (July 2005). 
Subsequent seismic acquisition and 
geological studies indicate that thick Jurassic 
and younger sediments and very large 
structures are likely to be present. This is high 
risk, high reward frontier exploration, however 
the underlying geological rationale is 
compelling and despite its remote location 
and water depth, the huge scale of the 
potential undiscovered resources has led to a 
fast track for early drilling. Page 10 Sterling Energy PLC Annual Report & Accounts 2007
Operational
Africa and Middle East (continued)
rig. Sterling is in the process of 
supplementing its existing local office in 
the capital, Erbil, with another in 
Sulaimaniya, Kurdistan’s second city. 
 
Gabon 
Iris Marin: Charlie well expected to 
commence in May 2008 
Plans to drill the Charlie Prospect in May 
2008 are well advanced, with a rig 
contracted and site survey now 
completed. This prospect has mean 
case estimated potential recoverable 
reserves of 21 million barrels with an 
upside case of 40 million barrels. Sterling 
estimates that a discovery of 
approximately 8 million barrels should be 
commercial here. 
 
In May 2007 the Iris Marin Joint Venture 
entered into a third exploration term on 
Iris Marin. A 3D Pre-Stack Depth 
Migration processing project was 
completed in March 2007, from which 
several encouraging prospects were 
identified, including the Charlie Prospect. 
An aeromagnetic survey was also 
acquired at the same time. Regional 
the close proximity of a number of giant 
fields, for political and historical reasons 
the area has not been explored, despite 
its world-class potential. For example, 
the Kirkuk field, 50km to the west of 
Sterling’s block, has recoverable oil 
reserves in excess of 16 billion barrels. 
 
The block contains a very large, 
moderate-risk, undrilled surface 
anticline, with the potential to target 
multiple regionally-proven reservoir 
intervals. Analysis of a number of surface 
oil seeps on the block indicates that the 
area is underpinned by the same 
hydrocarbon source rocks responsible 
for the majority of the multi-billion barrels 
of Iraqi reserves. As a result, a working 
petroleum system is considered by 
Sterling to be proven on the block. 
 
Seismic data is required in order to 
improve confidence in mapping before 
drilling the first well. Sterling is evaluating 
tenders in order to acquire 2D seismic 
data during the second half of 2008. It 
would then aim to drill an exploration 
well in 2009, subject to availability of a 
be the first test of the deepwater 
potential of Madagascar. Comparisons 
with the prolific basins of Angola have 
been made. 
 
Sterling has a 30% WI in two blocks, 
totalling approximately 25,500km
2
  
in the north-western offshore area of 
Madagascar, with ExxonMobil as a 70% 
partner in both blocks. In the smaller 
Ampasindava PSC, ExxonMobil is 
operator, whilst Sterling is operator in the 
larger Ambilobe PSC. 
 
Kurdistan, iraq 
Sangaw North fast tracked to drilling 
In November 2007 Sterling signed a 
PSC with the Kurdistan Regional 
Government (KRG) of Iraq for the 
Sangaw North exploration block. The 
block has an area of 492km
2
 and is 
situated 40km to the southwest of 
Sulaimaniya. 
 
Surrounded by existing oil and gas 
fields, the block provides Sterling with an 
exploration position in an extremely 
prolific hydrocarbon province. Despite  Page 11 Sterling Energy PLC Annual Report & Accounts 2007
business review
studies and nearby offset well data 
predict the presence of excellent 
reservoir quality sandstones in the area. 
 
A total of 347km of high resolution 2D 
seismic data was acquired in January 
2008, covering the under-explored 
shallow water of Iris Marin, close to the 
large Gamba and Ivinga oil fields. This 
data is now being processed and will be 
interpreted to delineate further 
prospects. 
 
Sterling has exercised its pre-emption 
rights to increase its interest in the Iris 
Marin permit from 38.57% to 50%. 
 
Ibekelia Technical Evaluation 
Agreement 
Sterling and its partners are in 
negotiations to convert the neighbouring 
Ibekelia TEA into a PSC following the 
successful completion of a technical 
study over the Ibekelia area. The TEA 
covers a 673km
2
 area which is 
contiguous with the Gamba and Olowi 
oil fields and with Sterling’s Iris Marin 
licence. 
 
Themis Marin lapsed 
The Themis Admiral Marine-1 well was 
drilled in early January 2008 in 14 days 
and within budget. The well was 
abandoned as a dry hole with shows in 
the predicted thick Gamba sandstone. 
An analysis of the well results and a 
review of the remaining prospectivity of 
the licence led the partners to allow the 
block to expire. Sterling was carried for 
18% of its approximately 28% interest. 
 
aGc 
Dome Flore extension sought
The Dome Flore concession lies within 
the AGC, a joint exploration zone 
between Senegal and Guinea Bissau. 
Sterling holds a 30% WI and Markmore, 
a Malaysian company with interests in 
bitumen refining, is the operator. 
 
An exploration well to drill two stacked 
Maastrictrichtian light oil reservoirs is 
being planned. The shallower heavy oil 
accumulation will also be penetrated by 
this well and the interval cored to 
evaluate the production potential. The 
heavy oil deposits on Dome Flore and 
c a Se Study: San GaW 
nO rt H, Kurdi Stan
On 10 November 2007 Sterling Energy 
signed a Production Sharing Contract (PSC) 
with the Kurdistan Regional Government 
(KRG) of Iraq to explore for hydrocarbons in 
the Sangaw North area in the Kurdish region 
of Northern Iraq. Sterling has spent two years 
researching the area, reviewing available data 
and negotiating this PSC. It is operator on the 
block, in addition to being an operator 
elsewhere in Africa and in the USA. 
Whilst the oil majors have been focused on 
southern Iraq, Sterling Energy and a small 
number of other international independent oil 
companies have secured the most 
prospective part of the exploration fairway in 
Kurdistan. Since Kurdistan’s government 
passed its oil law and issued its model PSCs 
in mid 2007 over 30 blocks have been signed 
there. There are few places in the world that 
remain so under-explored but offer such 
huge potential opportunities. 
Planned fieldwork and seismic acquisition, 
will strengthen the Company’s understanding 
of the geology ahead of drilling the first 
exploration well, targeted for 2009. The 
Sangaw North PSC offers Sterling Energy the 
opportunity to access high impact reserves 
at moderate exploration risk in an area where 
activity is expected to be fast-paced. Page 12
“Preparations for the drilling of Sifaka  
continue with the acquisition of a site  
survey over the well location scheduled  
for mid 2008.”
Graham Goffey
Exploration Manager
Sterling Energy PLC Annual Report & Accounts 2007
Operational
Africa and Middle East (continued) Page 13 Sterling Energy PLC Annual Report & Accounts 2007
business review
Phase 2B development campaign, which 
it hopes will double production. The 
Atwood Hunter rig is expected to drill two 
new development wells and three 
workovers at a gross cost of around $150 
million, starting in May 2008. 
 
The new well locations were selected 
based on the high resolution 3D and 4D 
seismic, which was shot over Chinguetti 
in 2007. This has enhanced the 
knowledge of the complex field, which 
Sterling estimates held a remaining 32.5 
million barrels of gross 2P reserves and 
18 million barrels of contingent resources 
at the end of 2007. Recent 
interpretations using this data suggest 
that the current wells are only accessing 
about half of the ultimately recoverable 
reserves; the results of the current 
development phase will help to 
determine any future work. 
During 2007, Sterling received a share of 
sales of 1,485 boepd from its interests in 
the Chinguetti field through the Funding 
Agreement and its Royalty interest which 
maritime borders. Both countries are 
working together to resolve the dispute. 
 
Sterling had planned to farm-out this 
licence for drilling and it continues to 
attract a good level of industry interest. 
However the award in late 2004 by 
Equatorial Guinea of a licence to the 
South of Ntem overlapping up to 15% of 
the licence has delayed this drilling plan 
until the situation is resolved. Sterling 
remains committed to assisting in the 
resolution of the dispute in the interests 
of all parties. 
 
A number of discoveries have been 
made in the region recently and this has 
only served to enhance its prospectivity. 
 
Mauritania
Chinguetti Phase 2B development 
work scheduled to start in May 2008 
In December 2007, Petronas took over 
operatorship of the Chinguetti 
development following its acquisition of 
Woodside’s Mauritanian assets. The 
operator is currently preparing for the 
Dome Gea contain an estimated gross 
0.8 to 1 billion barrels in place. Sterling’s 
share of the drilling costs will be carried 
for this exploration well. 
 
A site survey for this well has been 
conducted, but a rig could not be 
secured to allow the well to be drilled 
ahead of the then licence expiry date of 
January 2008. A licence extension has 
been requested, if this is granted then 
Markmore will contract a rig. 
Guinea bissau
Following the plugging and abandoning 
of the Eirozés-1 well as a dry well in April 
2007, Sterling withdrew from both the 
Sinapa and Esperanca licenses (5% WI 
in each). 
c ameroon
Border dispute: licence still suspended 
The financial obligations and work 
programme for the Ntem concession 
area (100% WI) are currently suspended 
owing to a dispute between Cameroon 
and Equatorial Guinea over their  Page 14 Sterling Energy PLC Annual Report & Accounts 2007
Operational
US operations
together generated over $35.2 million of 
revenues from four cargo liftings. The 
rate of decline has slowed significantly, 
with production being much more stable 
and predictable since mid-2007.
 
Other upside potential being reviewed 
An appraisal well on the 1-2 tcf Banda 
gas discovery straddling Blocks A and B 
has been drilled. The appaisal well 
encountered gas and oil columns with 
similar contacts to those seen in the 
discovery well. We await further results 
and a successful outcome of this well 
and subsequent confirmation of the 
commercial viability would materially 
increase the value of Sterling’s Royalty 
interest over Blocks A and B. 
 
Potential also remains for the development 
of the Tiof accumulation using Chinguetti’s 
facilities. Reserves for the first stage of 
development are estimated in the range 
40-60 million barrels gross. Sterling would 
benefit from its Royalty interest, a potential 
development bonus, plus operational 
synergies through sharing the Chinguetti 
facilities.
 
u nited States of america 
Assets disposal process initiated
In April 2008, Sterling’s board decided to 
put the USA assets up for sale following 
the review of all of its assets mentioned 
elsewhere in this report. Responding to 
current market conditions and the 
progress made on other licences over 
the last year, Sterling wishes to redeploy 
its capital to existing and other higher 
potential assets and to repay its debt.  
It is anticipated that a sale can be 
concluded well before the end of 2008.
 
Reserves and production Inc.
At the end of 2007, Sterling Inc. had 2P 
reserves of 111 bcfge (18.5 million boe) 
and possible and contingent resources 
of 70+ bcfge (11.5 million boe). 
Approximately 65% of the 2P reserves 
were categorised as proven. Within this 
portfolio Sterling has an inventory of 
identified drilling prospects, of 
approximately two/three years, most of 
which are already leased and many 
already have the necessary permits in 
place. 
During the year, Sterling participated in 
29 new wells and re-completions. Of 
these 14 were in the South Texas region 
and 15 were in the Texas/Louisiana Gulf 
Coast. There was also completion of a 
major upgrade of the production facilities 
located in the Langlie Jal field located in 
the Permian Basin and a large 
programme of abandonment work 
offshore in the High Island and Mustang 
Island areas. These wells were 
successful but largely small. Higher than 
expected declines in existing fields, 
unsuccessful drilling on two probable 
locations and delay cost issues relating 
to equipment availability, held back 
production and reserves.
At year-end, production from these U.S. 
assets was 28.5 mmcfgd (2006: 8.6 
mmcfgd), with the majority of the rise 
being due to the purchase of WEC 
completed at the end of March 2007. 
Over half of the production is operated 
by Sterling from its offices in Houston 
and approximately 80% is natural gas. Page 15 Sterling Energy PLC Annual Report & Accounts 2007
business review
total of 29 wells in the Gulf producing 
approximately 9 mmcfgd. In 2007 it 
farmed out of the non-producing High 
Island 52 fields and facilities in return for 
earning a 2.85% ORRI in a successful 
well and the assumption by the farminee 
of an estimated $5+ million of plugging 
and abandonment costs. It has recently 
farmed out an interest in a high risk 
sidetrack of an old well on Mustang 
Island that encountered mechanical 
problems in return for a mainly carried 
interest and royalty. 
wells and current production of over 11 
mmcfged. This area includes the Austin 
Chalk programme where the first four 
wells have proved successful, the most 
recent being the Marlin well which 
commenced production at 4 mmcfged 
net in late March 2008. The Austin Chalk 
presents some challenging drilling as it is 
highly over pressured and these 
horizontal wells are drilled to around 
15,000 feet using under-balanced drilling 
techniques. This programme is now 
restarting. 
 
Permian Basin and North Texas 
Sterling has production from 23 wells 
and a unit in this region producing 
around 1 mmcfged. In July 2007 Sterling 
increased its working interest in the 
Windham field to 93% from 66% by 
purchasing the interest of the operator of 
the field with a total transaction cost of 
c.$3.6 million. Sterling became operator 
and intends to develop the field quickly. 
 
Offshore Gulf of Mexico 
Sterling currently has production from a 
At the end of the first quarter of 2008 
production had increased to over 30 
mmcfgd from the shallow water and 
onshore coastal areas of the Gulf of 
Mexico, with nearly 70% coming from 11 
fields. A somewhat lower pace of drilling 
in 2008 than in 2007 is expected during 
the sales process.
Diversified Asset Base 
South Texas 
In one of the most prolific hydrocarbon 
basins in the USA, Sterling currently has 
production of nearly 9 mmcfgd from a 
total of 87 wells. 
 
During mid-2007, Sterling completed an 
investment in a drilling programme with 
Viking Petroleum, a private Houston 
company, which generates drilling 
prospects, primarily in South Texas. This 
provides over 20 near-term drilling 
prospects and three wells were drilled in 
2007 and 15 are expected in 2008. 
 
Texas/Louisiana Onshore Gulf Coast 
Sterling currently has production from 82  Page 16 Sterling Energy PLC Annual Report & Accounts 2007
r eserves r eport
proven and probable reserves
a. Volumes
        Attributable
      Oil Gas reserves
      (’000 (million (’000 barrels
      barrels) cubic feet) equivalent)
At 1 January 2007        5,197 46,304 12,914
Asset acquisitions        3,506 48,232 11,545
Upwards revision/additions from previous       46 12,316 2,099
(Downwards) revision from previous        (744) (14,492) (3,159)
Production        (935) (7,016) (2,104)
At 31 December 2007        7,070 85,344 21,295
b. Location of reserves
The geographical location of the end 2007 reserves were:
North America        4,273 85,344  18,498
West Africa        2,797 –  2,797
          7,070 85,344  21,295
Categorisation of proven and probable reserves:
1.  At the start of the year:
  Proven reserves        60% 55%  57%
  Probable reserves        40% 45%  43%
2.  At the end of the year:
 Proven reserves        60% 69%  66%
 Probable reserves        40% 31%  34%
Notes: 
1. The proven and probable reserve movements in 2007 are based on: 
a) North America: Evaluation reports by independent petroleum engineers as at 1 October 2007, for all assets. This has led to certain downward or upward 
adjustments by the Directors for the assets at the year-end where, in their opinion, subsequent performance of assets, or further evaluation through drilling or 
work-overs or through the impact of changes in prices or costs, justifies adjustments. 
b) West Africa: The reserves are based on an independent petroleum engineer’s valuation of the Chinguetti field as of 31 December 2006. At 31 December 2007 an 
internal assessment was performed assessing the technical and economic evaluation which led to a downward oil revision by 620,000 barrels. These reserves 
arise from Sterling’s royalty interest and from its funding to SMH, rather than by direct ownership in the interest in the field. During the year Sterling’s total 
production from the Chinguetti field was 535,000 barrels.
2. The upwards revisions in North America principally relate to drilling, work-overs, installation of additional compression and other facilities, reprocessing of seismic 
data, well control and production history. The major downward gas revisions relate to field performance and unsuccessful drilling. 
3. Sterling has not booked reserves in West Africa relating to other Mauritanian or AGC discoveries, on the basis that there are no firm development plans. 
4. Definitions: Proven reserves have a 90% level of confidence that the stated quantities will be equaled or exceeded. Probable reserves have a 50% level of 
confidence that the stated quantity will be equaled or exceeded. Oil includes condensates.  Page 17 Sterling Energy PLC Annual Report & Accounts 2007
Schedule of interests
Schedule of main interests
At 31 December 2007
     Sterling
    Sterling net
  Size Licence working revenue Operated/
 Location (km
2
) name interest % Interest % Non-operated
Africa
Mauritania  Offshore  6,969  PSC A  n.a  Sliding scale royalty 
     over 3%
 Offshore  8,095  PSC B  n.a  Sliding scale royalty 
     over 6% (except 5.28% 
     of the Chinguetti field)
 Chinguetti funding     Economic interest for
 agreement with SMH     n.a  approximately 9%
     of Chinguetti project
AGC  Casamance-Bissau  1,699  Dome Flore  30%
#
 
Cameroon  Southern Douala Basin  2,319  Ntem  100%    Operator 
Gabon  Southern Gabon  673  Ibekelia (TEA)  40%    Operator 
  Southern Gabon  607  Iris Marin  50%*    Operator 
Madagascar  Offshore NW  15,600  Ambilobe  30%
#
    Operator 
  Offshore NW   9,860  Ampasindava  30%
#
     
Middle East
Iraq  Kurdistan  492  Sangaw North  100%    Operator 
USA
Offshore  Mustang Island    Mustang Island  90%-100%  90%-100%  Operator 
  Texas Coast    Gathering System       
  Texas State Waters  48.9  Mustang Island  12.5%-100%  9.4%-82%  Operator 
  Texas State Waters  21  Matagorda Island  42%-75%  36.6%-59.5%  Operator 
  Texas Federal Waters  50  High Island (incl  7.5% overriding 7.5% royalty in Operator
   52 and Gryphon)  royalty in Gryphon, Gryphon, otherwise 
    otherwise 50%-100% 42.3%-83.33%  
  Texas Federal Waters  23  Galveston (incl 303)  15.75%-17.4%  10.7%-11.3%   
  Louisiana Federal Waters  20  Eugene Island    
   (incl 268)  60%  45%  Operator 
  Texas State Waters  5.82  Galveston Bay    
   (incl ST 251~5)  28%  20%   
Onshore  Texas  101  Three Counties  22.5%-55% 17%-42% 
   Austin Chalk       
  Louisana  16.5  Brown/Thunder    
   Stud  15%  10.8%  Operator 
 Texas  64.3  SE Texas    
   3-D Project Area  17.9%  12.8%   
    6.8  Windham  93%  68%  Operator 
    6.9  Carthage  70.8%  53.1%  Operator 
    9.1  Westhoff  75%  57.2%  Operator 
    8.2  Sunrise  12.5%-25% NRI  12.5%-25% NRI   
  Louisana  13.25  Rayne/Crowley  30%  22%  Operator 
    1.6  Cut-Off  75%  56%  Operator 
 
* Subject to completion of pending transaction acquiring 11.43% 
# Carried interest for deferred work or $ amount 
business review Page 18
“Our objective is to build a balanced 
portfolio of high value international 
exploration and development 
opportunities and to manage the 
financial exposures they bring within 
the Group’s financial resources.”
Jon Cooper
Finance Director and  
Company Secretary
Sterling Energy PLC Annual Report & Accounts 2007
Financial r eview Page 19 Sterling Energy PLC Annual Report & Accounts 2007
business review
Sterling was successfully refinanced 
during the year to bring bank loan facilities 
into the Group initially to fund the WEC 
acquisition and then to provide financial 
resource to fund future opportunities. 
Selected data 2007  2006 
Share of  
production (boepd) 5,760  4,400 
Year-end 2P reserves 
(000 boe) 21,294  12,914 
Revenue ($million) 97.2  81.0 
EBITDA ($million)  56.6 59.6 
Loss after tax ($million) (2.3)  (38.6) 
Cash investment in oil  
and gas assets ($million) 233.3  51.2 
Year end cash ($million) 49.9  91.8 
Year end debt ($million) (153.3)  (23.3) 
Year end net (debt)  
cash ($million) (103.5)  68.6 
Average realised oil  
price per bbl ($/bbl) (sold) 54.95 57.44
Average realised gas
price per mcf ($/mcf) (sold) 7.16  6.73
Total operating  
costs per boe ($/bbl)  
(produced) 12.9  9.4
Sterling’s key objective is to build a 
balanced portfolio of high value 
international exploration and development 
opportunities and to manage the financial 
exposures they bring within the Group’s 
financial resources.
The acquisition of WEC, a NASDAQ-
quoted company with oil and gas 
operations onshore USA, was 
completed at the end of March 2007 and 
accounted for in these financial 
statements from 1 April 2007. WEC 
contributed an average of 3,737 boepd 
in 2007, generating revenues to the 
Group of $39.8 million and $24.9 million 
to operating cash flows. 
Sterling’s bank debt to help fund the 
WEC purchase and other US assets was 
successfully refinanced during the year.
r evenues up 20% to $97.2 million  
in 2007 
Revenues increased by 20% to $97.2 
million in 2007 (2006: $81.0 million), with 
the contribution from the acquired WEC 
assets and higher oil and gas prices 
offsetting the impact of disappointing 
Chinguetti field production. 
 
USA production increased by 109% to 
an average of 25.8 mmcfge/d (2006: 8.6 
mmcfge/d), with 74% being gas (2006: 
83%). Revenues from USA operations 
increased 41% to $67.8 million (2006: 
$23.4 million) with an average realised 
price of $7.02/mcfge (2006: $6.73/
mcfge). Third party income from 
Sterling-operated pipelines fell 38% to 
$1.6 million (2006: $2.5 million), before 
related costs. 
 
The Group’s entitlement to Chinguetti 
field production in 2007 totalled 0.5 
million barrels (2006: 1.0 million barrels). 
Revenue from the Chinguetti field 
interests totalled $29.3 million (2006: 
$57.6 million), net of the cost of related 
settlements of hedge contracts 
crystallising of $5.9million (2006: $3.7 
million) and including the royalty income 
of $4.6 million (2006: $3.8 million). The 
average cargo sale price was $68.08/bbl 
(2006: $61.10/bbl), an average discount 
to Brent of $4.72/bbl (2006: $5.97/bbl). 
 
+
20%
r evenue
97 .2
million $million
04 05 06 07
0
20
40
60
80
100
ebitda Page 20 Sterling Energy PLC Annual Report & Accounts 2007
Financial r eview (continued)
Operating profit $1.8 million 
2007 operating profit amounted to  
$1.8 million (2006: $13.2 million before 
impairment charges). Cost of sales 
increased to $75.2 million (2005: $54.4 
million), largely reflecting the additional 
cost of the acquired WEC business.
USA costs of sales rose to $49.9 million 
(2006: $14.4 million) averaging $5.30/
mcfge (2006: $4.48/mcgfe). Operating 
expenses decreased to $1.93/mcfge 
(2006: $2.30/mcfge) reflecting the lower 
cost onshore assets of WEC and 
depletion charges increased to $3.37/
mcfge (2006: $2.18/mcfge) reflecting, in 
the main, the higher asset valuations 
resulting from the inclusion of the WEC 
assets at their fair values.
Chinguetti cost of sales were $25.3 
million (2006: $40.0 million) averaging 
$47.0/bbl (2006: $40.4/bbl), of which 
$17.25/bbl related to production costs 
and $29.82/bbl to depletion charges. The 
unit production cost increase mainly 
reflects lower production in 2007.
Pre-licence costs of $4.5 million (2006: 
$1.4 million) were written off as is now 
required by IFRS.
With the increase in the scale of 
operations, administrative expenses rose 
by 31% to $15.7 million (2006: $12.0 
million). This is stated after capitalisation 
as fixed assets and recoveries from 
partners in operated joint ventures. 
 
ebitda and net loss
EBITDA totalled $56.6 million (2006: 
$59.6 million) which equates to $26.9/
boe (2006: $37/boe). 
Interest revenue from cash deposits, less 
finance costs on the bank loans, were a 
net cost of $9.4 million (2006: income 
$0.1 million). This reflects the interest and 
other costs related to the loan financing 
for and cash investment in WEC. Other 
finance items include the release of 
provisions relating to product price 
hedge contracts settled in 2007 totalling 
$4.6 million gain (2006: $0.3 million gain). 
A taxation credit of $0.7 million arose in 
2007 (2006: $6.1 million credit). 
Net loss after tax totalled $2.3 million 
(2006: $38.6 million). Fully diluted loss 
per share was 0.14 USc per share (2006: 
2.75 USc loss per share).
 
n et cash flow from operating 
activities in 2007 of $48.1 million 
Cash inflow from operating activities fell 
to $48.1 million (2006: $62.3 million) 
largely reflecting the decline in Chinguetti 
production. Cash investments in oil and 
gas assets totalled $233.3 million (2006: 
$51.1 million), including $145 million 
invested in the WEC acquisition and 
$32.6 million in WEC interests post 
acquisition, $32.1 million was invested in 
Sterling’s pre-existing USA business, 
$13.4 million was invested in the 
Chinguetti field (2006: $39 million). 
A net amount of $49.2 million was raised 
in February 2007 from an equity placing 
to help fund the WEC acquisition.  
A further $22.3 million was raised in 
November 2007 to fund the signature 
bonus and fees relating to the PSC 
entered into in Kurdistan, which was 
paid out in February 2008. 
 
bank facility successfully re-financed
In November 2007, the Company re-
financed its bank loan facilities. These 
replaced the $100 million bridging facility 
entered into with Natixis Bank in March 
2007 (of which $85 million had been  Page 21
$bbl
H1-2006 H2-2006 H1-2007 H2-2007
0
20
40
60
80
100
mcf
2004 2005 2006 2007
0
1
2
3
4
5
6
7
8
Sterling Energy PLC Annual Report & Accounts 2007
business review
drawn to fund the WEC acquisition), and 
the drawings of $51.3 million under a 
BNPP facilities held by WEC itself. The 
new $250 million reserve-backed 
revolving facility was initially under-written 
by Natixis and has since been syndicated 
to a number of senior banks. The current 
authorised borrowing base under this 
$250 million facility is $143 million. 
Additionally, Natixis has provided a 
subordinated $15 million corporate facility.
At the end of 2007, net debt stood at 
$103.5 million (2006: net cash $68.6 
million) with unrestricted cash balances 
of $44.1 million (2007: $86.7 million) and 
available undrawn bank facilities of $6.5 
million.
Growing balance Sheet
At the end of 2007, net assets stood at 
$278.3 million (2006: $223.6 million), 
with current assets less current liabilities 
of $10.4 million (2006: $73.4 million). 
Non-current assets, primarily oil and gas 
assets totalled $522.1 million (2006: 
$202.1 million)
Further hedging under-pinning loan 
and asset values
In October 2007, the Group entered into 
a number of oil and gas price derivatives, 
taking advantage of continuing high 
prices to under-pin asset values and the 
loan borrowing base. The Directors 
continually review forward markets to 
identify opportunities to add value within 
the Group’s hedging policy, and 
consequent to such review further 
derivatives were entered into in February 
2008 in respect of future US production. 
The Group has accounted for these 
derivatives as cash flow hedges. Details 
of the Group’s hedging policy and its 
year end derivative portfolio are set out 
in note 29. No further hedges have been 
put in place since the end of 2007.
Financial strategy and outlook
The Group will look to press ahead with 
its strategy to add value for its 
shareholders in a prudent and 
commercial manner.
New ventures continue to be sought to 
expand the upside in the portfolio, as 
well as additional production and/or 
development interests to add to the 
production profile. However, investment 
in both existing assets and new ventures 
will be closely managed within 
constraints imposed by the Group’s 
available resources. It is intended to sell 
the USA assets as described elsewhere 
in this report.
c autionary statement
This financial report contains certain 
forward-looking statements that are 
subject to the usual risk factors and 
uncertainties associated with the oil and 
gas exploration and production 
business. Whilst the Directors believes 
the expectation reflected herein to be 
reasonable in light of the information 
available up to the time of their approval 
of this report, the actual outcome may 
be materially different owing to factors 
either beyond the Group’s control or 
otherwise within the Group’s control but, 
for example, owing to a change of plan 
or strategy. Accordingly, no reliance may 
be placed on the forward-looking 
statements.
Mauritania Oil price u Sa Ga S price Page 22 Sterling Energy PLC Annual Report & Accounts 2007
c orporate Social r esponsibility
c orporate responsibility 
Sterling recognises that it has a 
corporate and social responsibility to the 
local communities in which it operates, 
to its partners, to its employees and to 
its shareholders. In pursuing its business 
objectives it undertakes not to 
compromise its corporate or social 
responsibilities with any of these 
stakeholders. 
 
business integrity 
The highest ethical standards are the 
cornerstone of Sterling’s business. All 
business activities are reviewed, 
recorded and accounted for to ensure it 
meets these standards. It also seeks to 
ensure these standards are applied by 
its business partners, including, 
partners, host Governments and 
contractors. All members of staff are 
also individually accountable for their 
actions to ensure they apply and 
maintain these standards
 
Social responsibility 
Sterling is committed to ensuring the 
health and safety of its employees and 
the local communities in which we work. 
It is committed to providing a workplace 
free of discrimination where all 
employees are afforded equal 
opportunities and are rewarded upon 
merit and ability
 
environmental responsibility 
Sterling is committed to minimising its 
impact on the environment in both field 
operations and within its offices. All staff 
share responsibility for monitoring and 
improving the performance of its 
environmental policies with the objective 
of reducing our impact its the 
environment on a year on year basis. 
 
“Sterling is committed 
to minimising its 
impact on the 
environment, it 
respects the host 
countries where it has 
interests and 
recognises its 
corporate and social 
responsibilities to the 
local communities 
where it operates.” Page 23 Sterling Energy PLC Annual Report & Accounts 2007
business review
Partly as a result of the very active 
hurricane season of 2005 and the extreme 
damage it did to the offshore oil and gas 
industry, the United States Mineral 
Management Service (“MMS”) and the 
various state governments have put a large 
emphasis on removing any platform, well, 
pipeline or rig that is not being used and 
does not appear to have any future use. 
Assets that fall under this category are 
being reviewed carefully by both State and 
Federal agencies with a view to removing 
them from State and Federal waters.
Sterling, in an effort to be proactive with its 
responsibility to safety and the 
environment, began putting a three year 
plan in place to re-complete, plug and/or 
remove any assets that had no future use 
or that had any potential to become a 
safety issue. This initiative was undertaken 
well in advance of the government actions. 
The first step was the plugging and 
abandonment of all non-producing wells in 
the High Island A-68 and A-83 fields.
Planning began in late 2005 with the work 
being completed on most of the wells in 
2006. During the summer of 2007 the last 
wells and pipelines were plugged and the 
platforms at A-68 and A-83 were removed. 
This operation took longer than anticipated 
due to delays resulting from both a 
shortage of personnel and of equipment 
that had been diverted to repairs on 
producing properties in the Gulf of Mexico 
damaged in 2005.
In 2007, Sterling plugged and abandoned 
wells at Mustang Island (MU 903, MU 904) 
and Matagorda Island (MI) 520. In late 2007, 
it sold its interest, while retaining an over-
riding royalty interest, in the High Island 52 
field. The sale of this field relieved SEI of a 
plugging liability in excess of $5 million.
ca Se Study: u Sa aband On Ment
Plans for 2008/9 are to remove platforms 
and pipelines in both the MU 903 and MI 
520 fields. The removal of these 
platforms in conjunction with the 
abandonment actions taken in 2006 and 
2007 will currently result in Sterling 
having no wells or platforms in the Gulf 
that are not either producing or that do 
not have very viable plans for re-entry to 
re-establish production. Sterling will 
have achieved its goal of “no idle iron”!
  Page 24 Sterling Energy PLC Annual Report & Accounts 2007
board of directors
Graeme t homson, aged 51
Chief Executive Officer
Graeme has held a number of senior finance and management positions in quoted 
companies. In 1989, he co-led a management buy-in to AmBrit International plc, 
which was taken over in 1992. He then joined the Kirkland Group, which later became 
Dragon Oil plc, where he served as Finance Director and Company Secretary until 
April 1999. 
 
A founder partner of Endeavour and Sterling, he has assisted unquoted and quoted 
companies, including Sterling LP and the Company, with their corporate finance, 
accounting, commercial and strategic affairs. He was appointed as a non-executive 
of the Company in July 2001, and as Finance Director and Company Secretary in 
October 2002. In February 2008 he was appointed Chief Executive. 
Harry Wilson, aged 55
Executive Deputy Chairman
Following graduation under a British Petroleum scholarship programme, Harry joined 
BP and worked for 17 years in a variety of exploration and corporate finance roles. In 
1987, he left BP to form Kirkland Resources which was listed in London as Dragon Oil 
in 1993. 
 
In 1997, Harry was the principal founding partner of the Endeavour Oil & Gas LP and 
following the successful sale of Endeavour in 2000 was a founding partner and 
director of Sterling. Following the listing of Sterling on AIM in 2002, Harry was 
appointed Chief Executive of the Group and became Executive Deputy Chairman in 
February 2008.
andrew Grosse, aged 49
Exploration and Technical Director
Andrew joined Sterling in 2002, as the Company’s Exploration Manager. He has 
extensive international exploration experience with operating oil companies in Africa, 
the Middle East and North America. Prior to joining Sterling, he was British-Borneo’s 
Exploration Manager for the Gulf of Mexico and then for International New Ventures 
where he was instrumental in securing an interest in the offshore Mauritanian acreage 
which subsequently delivered the Chinguetti oil discovery and the Tiof oil discovery. 
 
He began his career with Gulf Oil in Canada, and has also worked with BP 
Exploration and Ultramar Exploration. He was appointed as a director in January 
2005.
Jon c ooper, aged 39
Finance Director and Company Secretary
Jon joined Sterling as Finance Director and Company Secretary in February 2008. He 
is an experienced finance professional with advisory experience in the oil and gas 
industry. 
Jon began his career with KPMG where he qualified as a Chartered Accountant, and 
in 1997 joined Dresdner Kleinwort Wasserstein as a Director in the Oil and Gas 
Corporate Finance Team. During this time he worked on mergers and acquisitions, 
public offerings and as strategic adviser to a wide range of companies including 
Gazprom, Lukoil, OMV, PKN Orlen, Unocal, Petronas and Harvest Natural Resources. 
Prior to joining Sterling Jon spent two years working as Finance Director at Gulf 
Keystone Petroleum. Page 25 Sterling Energy PLC Annual Report & Accounts 2007
business review
dick Stabbins, aged 64
Non-Executive Chairman
Dick is a geologist with almost 40 years of experience in the international energy 
industry, mainly in the independent sector. He has worked for the Saskatchewan 
(Canada) Department of Mineral Resources (1969-72), for Murphy Oil (1972 -75) and 
for Ranger Oil (1975-81). He was Exploration Manager and subsequently Exploration 
Director of Goal Petroleum plc from 1981 until 1996. 
 
From July 2000 until its acquisition by Sterling, he was a Non-Executive Director of 
Fusion Oil & Gas plc. Dick currently manages a private energy company, Montrose 
Industries Ltd, which has interests in a wide range of energy projects. He also has 
considerable private venture capital experience. He is an Honorary Member and 
former Chairman (1990) of the Petroleum Exploration Society of Great Britain and a 
Council Member (2000-2003) of the Geological Society of London, whose Audit 
Committee he chairs.
c hris c allaway, aged 56
Non-Executive Director
Chris joined the “City” in 1973, initially with the London Stock Exchange and in 1983, 
moving to Capel Cure Myers (subsequently ANZ Merchant Bank) in the role of 
corporate finance adviser, specialising in small- and medium-sized growth 
companies. He became a partner at Coopers & Lybrand in 1990 before joining 
Beeson Gregory in 1995. 
 
Beeson Gregory was subsequently taken over by the Evolution Group in 2002, and 
upon the merger Chris became Joint Head of Corporate Finance, retiring in 
December 2004. Since then, he has been involved with a number of companies as 
an investor and a director.
peter Wilde, aged 54
Non-Executive Director
Peter has spent most of his career managing and developing smaller companies, working 
principally in the oil and gas sector for more than twenty years in various commercial and 
corporate roles. He is a graduate in law from the London School of Economics.
He was a director of LEPCO plc from its foundation and between 1991 and 2001 was 
firstly Chief Operating Officer and then Managing Director at the time of its 
introduction to AIM in 1997. From 1988 to 1991 he was Vice-President of Aviva 
Petroleum Inc.
 
He has served as a Non-Executive Director of Sterling since 2001 and is chairman of 
the Audit Committee.
Senior personnel
l ondon
Graham Goffey Exploration Manager
Alain Gubian  Country Manager, 
Mauritania (Nouakchott)
Edward Blunt Team Leader, Madagascar
Michelle Churchward Legal Manager
Alastair Donaldson Joint Ventures Controller
Tim Fookes  Group IT Manager
Paul Sherwood New Ventures Team Leader
Martin Smith Team Leader, Gabon
Chris Starling Commercial Co-Ordinator
Roy St Pier Senior Petroleum Engineer
Frances Townley UK Finance Manager
Mike Adams Team Leader Kurdistan
Martin Arch Group Accountant
Houston
Daniel Silverman President and Director USA
Tom Cook  Director of Operations & 
Production
John Brouillette Director of Land and Legal
April Chamberlain Director of Finance Page 26 Sterling Energy PLC Annual Report & Accounts 2007
The Directors present their annual report on the affairs of 
Sterling PLC (“the Company”, “Sterling”) and its subsidiaries 
(“the Group”), together with the financial statements and 
auditors’ report for the year ended 31 December 2007. 
 
Principal activity and business review 
The principal activity of the Group throughout the year 
remained the exploration for and production of oil and gas in 
Africa and in the USA. Additionally, in December 2007, the 
Group entered into a Production Sharing Contract (“PSC”) in 
the Kurdistan region of Iraq. The significant developments 
during 2007 and the other activities of the Group, as well as the 
future strategy and prospects for the Group, are reviewed in 
detail in the Highlights, Chairman’s Statement, Chief 
Executive’s Report, the Operations and Financial Reports and 
elsewhere in this annual report. 
The Group operates through overseas branches and 
subsidiary undertakings as appropriate to the fiscal 
environment. Significant subsidiary undertakings of the Group 
are set out in note 16c to the financial statements. 
Sterling uses a number of key performance indicators (KPIs) to 
assess the business performance against strategy. These are 
reserves (million boe), EBITDA ($), production (boepd) and can 
be found in the Highlights and Activity and Objectives section 
of this annual report.
Information about the use of financial instruments by the  
Group is given in note 29 to the financial statements.
Results and dividends 
The Group loss for the financial year was $2.3 million (2006: 
loss of $38.6 million). This leaves an accumulated Group loss 
on retained earnings of $90.2 million (2006: loss $88.0 million) 
to be carried forward as a balance of the Group’s retained 
earnings. As a result of the accumulated deficit of $88.4 million 
on the retained earnings of the Company at the end of 2007 
(2006: deficit $84.5 million), the Directors do not recommend 
the payment of a dividend (2006: nil).
Directors’ Report
Going concern 
After making enquiries, based on the budget for 2008 and the 
medium-term plans, including forecasts of loan facility 
availability, the Directors have a reasonable expectation that 
the Group has adequate resources to continue operations for 
the foreseeable future and has therefore continued to adopt 
the going concern basis in these financial statements. In 
common with many independent exploration and production 
companies, the Group raises finances for its exploration and 
appraisal activities in discrete tranches to finance its activities 
for limited periods. Further funding is then secured as and 
when required. When any of the material projects move to 
development specific financing may be required to enable 
development to take place. 
 
Capital structure 
Details of the authorised and issued share capital, together 
with details of the movements in the Company’s issued share 
capital during the year are shown in note 24 to the financial 
statements. The Company has one class of ordinary shares 
which carry no right to fixed income. Each share carries the 
right to one vote at general meetings of the Company.
There are no specific restrictions on the size of a holding nor 
on the transfer of shares, which are both governed by the 
general provisions of the Articles of Association and prevailing 
legislation. The Directors are not aware of any agreements 
between holders of the Company’s shares that may result in 
restrictions on the transfer of securities or on voting rights. 
 
Details of the employee share schemes are set out in note 30. 
 
No person has any special rights of control over the 
Company’s share capital and all issued shares are fully paid. 
 
At the 2007 AGM the Directors obtained authority through 
special resolution of the shareholders to allot equity securities 
up to the higher of an aggregate nominal amount of £780,000 
or 5% of the issued share capital then in issue. In November 
2007 the Directors utilised this provision to issue 78,510,027 
ordinary shares in order to fund the initial costs relating to the 
Sangaw North PSC in the Kurdistan region of Iraq. 
  Page 27 Sterling Energy PLC Annual Report & Accounts 2007
Corporate governance
Directors and their interests 
Directors’ remuneration and share options 
Aggregate remuneration (audited)
Directors’ remuneration consists of the following: 
  Fees/  Production Defined
  basic  royalty contribution Benefits Total Total 
  salary Bonus entitlement pension in kind 2007 2006 
   $ $  $  $  $  $  $ 
Executive Directors
H.G. Wilson   686,310  46,051 160,176  102,947  12,928  1,008,412  715,705 
G.P. Thomson   503,331  33,036 160,176  75,500  11,337  783,380  523,629 
A.J. Grosse   404,444  22,024 40,044  60,667  8,027  535,206  420,350 
P.M. Griggs   382,272  24,026 –  57,341  11,969  475,608  400,309 
Non-executive Directors
R.A. O’Toole (to 24/07/2007)   55,056  – –  –  –  55,056  97,682 
E.J. Butler (to 15/06/2006)   –  – –  –  –  –  23,978 
P.K. Wilde   63,069  – –  –  –  63,069  52,528 
C.A. Callaway (from 14/02/2006)   63,069  – –  –  –  63,069  46,192 
R. Stabbins (from 19/01/2007)   76,121  – –  –  –  76,121  – 
Aggregate remuneration 2007   2,233,672  125,137  360,396  296,455  44,261 3,059,921   
Aggregate remuneration 2006   1,867,651  170,487  – 207,348  34,887    2,280,373 
The Company provides limited Directors’ and officers’ liability insurance, at a cost of approximately $113,000 in 2007 (2006: 
$87,000). This cost is not included in the above table. 
 
Directors’ share options
Details of options to acquire ordinary shares in the Company under the scheme approved in 2001 are as follows. The exercise 
price is shown in pence as this is the price in which the options are denominated under the scheme: 
 
   At 1/01   At 31/12  Exercise  Exercise 
   2007  Granted  2007  price   period 
H.G. Wilson   700,000  –  700,000  4p  Up to 24/07/2011 
   4,300,000  –  4,300,000  4p  Up to 18/10/2012 
   2,900,000  –  2,900,000  7p  Up to 18/01/2013 
   1,750,000  –  1,750,000  17p  31/01/2007 to 31/01/2015 
   1,500,000  –  1,500,000  24p  30/06/2008 to 29/06/2016 
   11,150,000  –  11,150,000     
 
G.P. Thomson   700,000  –  700,000  4p  Up to 24/07/2011 
   4,300,000  –  4,300,000  4p  Up to 18/10/2012 
   1,700,000  –  1,700,000  7p  Up to 18/01/2013 
   1,250,000  –  1,250,000  17p  31/01/2007 to 31/01/2015 
   1,000,000  –  1,000,000  24p  30/05/2008 to 29/06/2016 
   8,950,000  –  8,950,000     
 
A.J. Grosse   1,500,000  –  1,500,000  4p  Up to 18/10/2012 
   1,500,000  –  1,500,000  12.5p  09/03/2006 to 09/03/2014 
   500,000  –  500,000  17p  28/01/2007 to 28/01/2015 
   1,500,000  –  1,500,000  24p  30/06/2008 to 29/06/2016 
   5,000,000  –  5,000,000     
P.M. Griggs   2,000,000  –  2,000,000  15.5p  31/01/2007 to 31/01/2015 
   1,000,000  –  1,000,000  24p  30/06/2008 to 29/06/2016 
   3,000,000  –  3,000,000     
R.A. O’Toole   700,000  –  700,000  4p  Up to 24/07/2011 
   4,300,000  –  4,300,000  4p  Up to 18/10/2012 
   1,250,000  – 1,250,000 7p  Up to 18/01/2013
   6,250,000 – 6,250,000 Page 28 Sterling Energy PLC Annual Report & Accounts 2007
Directors’ share options (continued)
 
   At 01/01   At 31/12  Exercise  Exercise 
   2007  Granted  2007  price   period 
P.K. Wilde   250,000  –  250,000  4p  Up to 24 /07/2011 
   1,250,000  –  1,250,000  4p  Up to 18/10/2012 
   500,000  –  500,000  17p  31/01/2007 to 31/01/2015 
   200,000  –  200,000  24p  30/06/2008 to 29/06/2016 
   2,200,000  –  2,200,000    
 
C.A. Callaway   1,000,000  –  1,000,000  22.5p  14/02/2008 to 14/02/2014 
   200,000  –  200,000  24p  30/06/2008 to 29/06/2016 
   1,200,000  –  1,200,000     
 
R. Stabbins   –  1,000,000  1,000,000  16p  19/01/2009 to 19/01/2019 
   –  1,000,000  1,000,000  14.5p  24/07/2009 to 24/07/2017 
   –  2,000,000  2,000,000    
   37 ,750,000  2,000,000  39,750,000     
Share options lapsed during the year
 At 01/01     At 31/12  Exercise  Exercise 
  2007  Granted  Lapsed  2007  price   period 
R.A. O’Toole
Event A  (500,000)  –  (500,000)  –  17p  31/01/2007 to 31/01/2015 
Event B (250,000)  –  (250,000)  –  24p  0/06/2008 to 29/06/2016 
Total (750,000)  –  (750,000) 
Directors’ interests in Sterling Save As You Earn Option Scheme (“SAYE”) 
The Directors’ interests in the SAYE scheme set up in 2007 are as follows 
       Earliest Latest
   At 01/01 Awards At 31/12 Option exercise exercise
   2007 in year 2007 price date date 
H.G. Wilson    – 68,181  68,181  11.264p  16/11/2010  16/05/2011 
G.P. Thomson    – 85,227  85,227  11.264p  16/11/2010  16/05/2011 
A.J. Grosse    – 85,227  85,227  11.264p  16/11/2010  16/05/2011 
P.M. Griggs    –  85,227  85,227  11.264p  16/11/2010  16/05/2011 
    –  323,862  323,862       
Directors’ Report
continued Page 29 Sterling Energy PLC Annual Report & Accounts 2007
Corporate governance
Directors’ interests in the Sterling Long Term Incentive Plan (“LTIP”)
The Directors’ interests in the LTIP, which was approved by shareholders at the 2007 AGM, are as follows: 
Maximum number of shares
       Earliest Latest
    At 01/01 Awards At 31/12 exercise exercise
    2007 in year 2007 date date 
H.G. Wilson     – 5,889,000  5,889,000  27/09/2010  27/12/2010 
G.P. Thomson     – 4,306,000  4,306,000  27/09/2010  27/12/2010 
A.J. Grosse     – 3,438,000  3,438,000  27/09/2010  27/12/2010 
J.R. Cooper     –  n.a.  n.a.  n.a.  n.a. 
P.M. Griggs     – 3,268,000  3,268,000  27/09/2010  27/12/2010 
P.K. Wilde     – 536,000  536,000  27/09/2010  27/12/2010 
C.A. Callaway     – 536,000  536,000  27/09/2010  27/12/2010 
R. Stabbins    – 851,000 851,000 27/09/2010 27/12/2010
     – 18,824,000  18,824,000     
The rules of the LTIP scheme are summarised in note 30 to the Accounts. The issue of all of these is based on a share price of 11.75p
Since 31 December 2007 the following LTIP Options have been issued: G.P. Thomson 1,000,000 shares, A.J. Grosse 800,000, 
J.R. Cooper 4,200,000 shares, based on a share price of 9.4p 
 
The Directors who served during the year and subsequently, 
together with their beneficial interests in the issued share 
capital of the Company, were as follows (not audited): 
Ordinary shares 28 April 31 December 31 December
of 1p each  2008 2007  2006
H.G. Wilson** 28,120,092 28,120,092 27,970,092
G.P. Thomson** 15,595,510 15,595,510 15,455,510
A.J. Grosse** 5,650,473 5,650,473 5,500,473
P.M. Griggs~ n.a 300,000 150,000 
J.R. Cooper**~ 0 n.a n.a
R.A. O’Toole~ n.a n.a 22,543,818
P.K. Wilde* 620,000 620,000 620,000
C.A. Callaway* 200,000 200,000  200,000
R. Stabbins*~ 4,472,272 4,474,272 n.a
*  non-executive director, member of the audit, remuneration and nominations 
committees
** member of the executive committee
~  holdings are shown from the date of appointment, being 19 January 2007 for  
Dr R. Stabbins and 4 February 2008 for Mr J.R. Cooper and up to the date of 
ceasing to be a director on 24 July 2007 for Mr R O’Toole and on 23 April 
2008 for Mr P Griggs. 
Beneficial shareholdings include the shareholdings of a 
director’s spouse and infant children.
Of the above interests, Mr H.G. Wilson’s includes 17,973,802 
ordinary shares held by Roselea Limited (2006: 17,823,802),  
a company in which he has a 26% interest and is a director. 
None of the Directors have any non-beneficial shareholdings.
None of the Directors have contracts of employment with 
notice periods in excess of 12 months. The Company has 
granted an indemnity to its Directors (including subsidiary 
undertakings) under which the Company will, to the maximum 
extent possible, indemnify them against all costs, charges, 
losses and liabilities incurred by them in the performance of 
their duties.
Substantial shareholdings 
Except for the holdings of ordinary shares listed below, the 
Company has not been notified by or become aware of any 
persons holding 3% or more of the 1,648,710,585 issued 
ordinary shares 1p of each of the Company at 28 April 2008: 
 
   Number  % 
Amvescap plc   480,906,325 29.16 
Denis O’Brien   167,186,005 10.14 
Capital Group Companies Inc.   139,252,000  8.45 
Black Rock Inc  91,778,889 5.57
Artemis   76,154,365  4.62 
Slater Investments   63,828,571  3.87 
Supplier payment policy and practice 
The Company’s policy is to settle terms of payment with 
suppliers when agreeing each transaction, ensuring that 
suppliers are made aware of the terms of payment and abide 
by the terms of payment. At the 2007 year-end, the number of 
supplier days outstanding for the Company was 133 days 
(2006: 30 days). 
Auditors 
Each of the persons who is a Director at the date of approval of 
this Annual Report confirms that: 
so far as the Director is aware, there is no relevant audit 
information of which the Company’s auditors are unaware; 
and 
the Directors have taken all the steps that they ought to 
have taken as a Director in order to make themselves aware 
of any relevant audit information and to establish that the 
Company’s auditors are aware of that information. 
This confirmation is given and should be interpreted in 
accordance with the provisions of s234ZA of the Companies 
Act 1985. 
 
A resolution to re-appoint Deloitte & Touche LLP as the 
Company’s auditors will be proposed at the AGM. 
 
•
• Page 30 Sterling Energy PLC Annual Report & Accounts 2007
Corporate Governance
Application of Combined Code principles 
The Directors are committed to maintaining the highest 
standards of corporate governance and this statement 
describes how the principles set out in the Combined Code on 
Corporate Governance that was issued in 2006 by the 
Financial Reporting Council are adopted and applied, having 
regard to the size and stage of development of the Group. 
 
The Board of Directors 
The Board currently comprises the Chairman, four Executive 
Directors and two Non-Executive Directors. Each of the 
Executive Directors has extensive knowledge of the oil and gas 
industry combined with general business skills. All of the 
Directors bring independent judgment to bear on issues of 
strategy, performance, resources, key appointments and 
standards. 
 
There is a clear division of responsibilities between the 
Chairman and the Chief Executive. The Senior Non-Executive 
Director is Dr R Stabbins. The Board considers that all its Non-
Executive Directors are independent, apart from the Chairman 
who the Code stipulates cannot be. 
 
The Board meets regularly throughout the year and all the 
necessary information is supplied to the Directors on a timely 
basis to enable them to discharge their duties effectively. The 
Directors have access to independent professional advice, at 
the Group’s expense, if and when required. There is a formal 
schedule of matters reserved for consideration by the Board 
and other matters are delegated to Board Committees. 
 
The Memorandum and Articles of Association require that at 
every AGM, there shall retire from office any Director who shall 
have been a Director at each of the preceding two annual 
general meetings and who was not appointed or re-appointed 
by the Company in general meeting at, or since, either such 
meeting, together with all new Directors appointed since the 
previous AGM. 
Non-executive Directors have been issued with share option 
which is contrary to the Code; in the opinion of the Board this 
aligns their objectives with those of shareholders. 
 
The Company maintains Directors’ and Officers’ Liability 
insurance cover, the level of which is reviewed annually. 
 
Sub-Committees 
The Board has appointed the following sub-committees: 
 
A. Audit Committee 
This Committee comprises the Chairman and two Non-
Executive Directors, under the Chairmanship of Peter Wilde.  
It reviews the interim and annual financial statements, internal 
control matters and the scope and effectiveness of the external 
audit. The external auditors have unrestricted access to the 
Chairman of the Audit Committee. 
 
B. Remuneration Committee 
The members of the Committee are the Chairman and two 
Non-Executive Directors, under the Chairmanship of 
Christopher Callaway. The Committee determines the Group’s 
Executive Directors’ remuneration. Non-Executive Directors’ 
fees are considered and agreed by the Board. 
 
C. Nominations Committee 
The members of this Committee are the Chairman and two 
Non-Executive Directors under the Chairmanship of Dr R 
Stabbins. The Nominations Committee considers the 
composition of the Board and makes recommendations on the 
appointment of new Directors. 
 
Communications with shareholders 
Communications with shareholders are given high priority and 
there is regular dialogue with institutional investors, as well as 
general presentations at the time of the release of the annual 
and interim results. The Group issues its results to individual 
shareholders and will also publish them on the Company’s 
website www.sterlingenergyplc.com. Regular updates to 
record news in relation to the Company are also included on 
the website. Shareholders and other interested parties can 
subscribe to receive news updates and other documents from 
the Company online. 
 
A business presentation is to be provided at the Company’s 
AGM and afterwards individual shareholders will be given the 
opportunity to put questions to the Chairman and to the Board. 
The Notice of AGM is enclosed with this Annual Report.
Business risk 
There are a number of potential risks and uncertainties which 
could have a material impact on the Group’s long-term 
performance and could cause actual results to differ materially 
from expected and historical results. Key risks in this regard 
are: 
  Page 31 Sterling Energy PLC Annual Report & Accounts 2007
Corporate governance
Category  Risk 
Strategic and economic   Inappropriate or inaccurate strategy 
and plans 
 Failure to deliver on strategy and plans 
 Business environment changes 
Operational  HSE incident 
 Poor field performance 
  Failure to add value through 
exploration 
Commercial  Failure to access new opportunities 
  Failure to maximise value from existing 
interests 
 Loss of control of key assets 
 Dissatisfied stakeholders 
  Failure to negotiate optimal contract 
terms 
Human Resources and  Failure to recruit and retain key 
management processes personnel 
  Human error or deliberate negative 
action 
 Inadequate management processes 
  Insufficient, quality, timely information 
available to the management and the 
Board 
Financial   Restrictions in capital markets 
impacting available financial resource 
 Oil or gas price volatility 
 Cost escalation 
 Fiscal changes 
 Operations under-insured 
 
The Directors regularly monitor such risks, using information 
obtained or developed from external and internal sources, and 
will take actions as appropriate to mitigate these. 
 
The Group’s policy and objectives for financial risk 
management are set out in note 29 to the financial statements. 
 
Internal controls 
In September 1999 the Turnbull Guidance (Internal Control: 
Guidance for Directors on the Combined Code) was published. 
 
The Directors acknowledge their responsibility for the Group’s 
and the Company’s systems of internal control, which are 
designed to safeguard the assets of the Group and to ensure 
the reliability of financial information for both internal use and 
external publication. 
 
The Group’s internal control procedures include Board, 
technical and financial approval for all projects. All major 
expenditures require senior management approval at the 
appropriate stages of each transaction. A regular reporting 
system covering both technical progress of projects and the 
state of the Group’s financial affairs provides appropriate 
information to management to facilitate control. The Board has 
put in place procedures for identifying, evaluating and 
managing any significant risks that face the Group. 
 
Any systems of internal control can only provide reasonable, 
and not absolute, assurance that material financial irregularities 
will be detected or that the risk of failure to achieve business 
objectives is eliminated. The Directors, having reviewed the 
effectiveness of the system of internal financial, operational and 
compliance controls and risk management, consider that the 
system of internal control operated effectively throughout the 
financial year and up to the date the financial statements were 
signed.  Page 32 Sterling Energy PLC Annual Report & Accounts 2007
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the annual report, 
and the financial statements in accordance with applicable law 
and regulations.
Company law requires the Directors to prepare financial 
statements for each financial year. The Directors are required 
by the IAS Regulation to prepare the Group financial 
statements under IFRSs (International Financial Reporting 
Standards) as adopted by the European Union and have also 
elected to prepare the parent company financial statements in 
accordance with IFRSs as adopted by the European Union. 
The financial statements are also required by law to be properly 
prepared in accordance with the Companies Act 1985 and 
Article 4 of the IAS Regulation. 
International Accounting Standard 1 requires that financial 
statements present fairly for each financial year the Company’s 
financial position, financial performance and cash flows.  
This requires the faithful representation of the effects of 
transactions, other events and conditions in accordance with 
the definitions and recognition criteria for assets, liabilities, 
income and expenses set out in the International Accounting 
Standards Board’s “Framework for the preparation and 
presentation of financial statements”. In virtually all 
circumstances, a fair presentation will be achieved by 
compliance with all applicable IFRSs. However, Directors are 
also required to:
 
properly select and apply accounting policies; 
present information, including accounting policies, in a 
manner that provides relevant, reliable, comparable and 
understandable information; and 
provide additional disclosures when compliance with the 
specific requirements in IFRSs are insufficient to enable 
users to understand the impact of particular transactions, 
other events and conditions on the entity’s financial position 
and financial performance. 
The Directors are responsible for keeping proper accounting 
records that disclose with reasonable accuracy at any time the 
financial position of the Company and to enable them to ensure 
that the financial statements comply with the Companies Act 
1985. They are also responsible for safeguarding the assets of 
the Company and hence for taking reasonable steps for the 
prevention and detection of fraud and other irregularities. 
 
The Directors are responsible for the maintenance and integrity 
of the corporate and financial information included on the 
Company’s website. Legislation in the United Kingdom 
governing the preparation and dissemination of financial 
statements may differ from legislation in other jurisdictions. 
•
•
• Page 33 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
We have audited the Group and parent company financial statements (the “financial statements’’) of Sterling Energy PLC for the year 
ended 31 December 2007 which comprise the consolidated income statement, the consolidated and parent company balance 
sheets, the consolidated and parent company cash flow statements, the consolidated and parent company statements of 
recognised income and expense and the related notes 1 to 31. These financial statements have been prepared under the 
accounting policies set out therein. We have also audited the information in the Directors’ Report that is described as having been 
audited.
This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. 
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to 
them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume 
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for 
the opinions we have formed.
Respective responsibilities of Directors and auditors
The Directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law and 
International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of Directors’ 
responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and 
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in 
accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We also 
report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. The 
information given in the Directors’ report includes that specific information presented in the Highlights, Chairman’s Statement, 
Chief Executive’s Report and the Operations and Financial reports that is cross referred from the business review section of the 
Directors’ report.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the 
information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and 
other transactions is not disclosed.
We read the other information contained in the annual report as described in the contents section and consider whether it is 
consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent 
misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further 
information outside the annual report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices 
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial 
statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation 
of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, 
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order 
to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Director’s 
Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our 
opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the 
Directors’ Report to be audited.
Opinion
In our opinion:
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the 
state of the Group’s affairs as at 31 December 2007 and of its loss for the year then ended;
the parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European 
Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as 
at 31 December 2007; 
the financial statements have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group 
financial statements, Article 4 of the IAS Regulation; and
the information given in the Directors’ Report is consistent with the financial statements.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors 
London
30 April 2008
•
•
•
•
Independent Auditors’ Report to the Members  
of Sterling Energy Page 34 Sterling Energy PLC Annual Report & Accounts 2007
       2007 2006
      Note  $’000 $’000
Revenue      4 97,171 81,003
Cost of sales      6 (75,197) (54,419)
Gross profit       21,974 26,584
Administrative expenses       (15,720) (12,027)
Impairment provision      12,13,14 – (60,033)
Pre-licence exploration costs       (4,462) (1,368)
Operating profit/(loss)       1,792 (46,844)
Interest revenue and finance gains      8 3,286 3,082
Gain on hedging instruments       4,618 303
Finance costs       8 (12,642) (3,201)
Loss before tax       (2,946) (46,660)
Tax       9 693 6,101
Loss for the financial year       (2,253) (40,559)
Attributable to minority interest       – 1,981
Loss attributable to equity holders of parent company       (2,253) (38,578)
Loss per share (cents): basic and diluted (US¢)      11  (0.14) (2.75)
All operations were continuing throughout both years.
Consolidated statement of recognised income 
and expense
Year ended 31 December 2007
       2007 2006
      Note $’000 $’000
Exchange differences on translation of foreign operations     25 965 2,363
Movement on value of investment in quoted company      25 (4,082) (2,287)
Movement on hedge reserve      25 (14,421) –
Net (loss)/income recognised directly in equity       (17,538) 76
Loss for the financial year       (2,253) (40,559)
Total recognised loss for the year       (19,791) (40,483)
Attributable to:
Equity holders of the parent       (19,791) (38,502)
Minority interests       – (1,981)
       (19,791) (40,483)
Consolidated income statement
Year ended 31 December 2007 Page 35 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
Consolidated balance sheet
31 December 2007
        2007 2006
      Note $’000  $’000
Non-current assets
Intangible royalty assets      12 16,600 18,000
Intangible exploration and evaluation assets      13 155,581 21,384
Property, plant and equipment      14 342,917 156,800
Investments      16a, 16b 6,985 5,922
       522,083 202,106
Current assets
Inventories       5,036 3,713
Trade and other receivables      17 41,965 13,863
Derivative financial instruments      29 2,005 –
Current tax repayable       833 1,248
Cash and cash equivalents      18 49,866 91,759
       99,705 110,583
Total assets       621,788 312,689
Current liabilities
Trade and other payables      19 (79,835) (32,182)
Derivative financial instruments      29 (9,434) (4,650)
Current tax liabilities       – (299)
       (89,269) (37,131)
Non-current liabilities
Long-term debt       20 (153,318) (23,214)
Deferred tax liabilities      21 (69,512) (6,128)
Derivative financial instruments      22 (7,174) –
Long-term provisions      23 (24,245) (22,593)
       (254,249) (51,935)
Total liabilities       (343,518) (89,066)
Net assets       278,270 223,623
Equity 
Share capital      24 31,811 26,919
Share premium account      25 341,414 273,785
Share option reserve      25 8,368 6,451
Investment revaluation reserve      25 657 4,739
Currency translation reserve      25 658 (307)
Hedging reserve      25 (14,421) –
Retained earnings      25 (90,217) (87,964)
Total equity and equity attributable to equity holders of the parent     278,270 223,623
These financial statements were approved by the Board of Directors on 30 April 2008
Signed on behalf of the Board of Directors
J R Cooper, ACA  G P Thomson, FCA
Director  Director Page 36 Sterling Energy PLC Annual Report & Accounts 2007
Company balance sheet
31 December 2007
       2007 2006
      Note $’000 $’000
Non-current assets
Intangible exploration and evaluation assets      13 – 89
Property, plant and equipment      14 76,171 84,162
Investment in subsidiaries      16c 338,399 156,350
       414,570 240,601
Current assets
Trade and other receivables      17 58,617 121,237
Inventories       4,803 3,713
Current tax repayable       833 833
Cash and cash equivalents      18 26,540 74,236
       90,793 200,019
Total assets       505,363 440,620
Current liabilities
Trade and other payables      19 (54,323) (208,782)
Derivative financial instruments      29 (6,305) (4,650)
Current tax liabilities       – (315)
       (60,628) (213,747)
Non-current liabilities
Long-term debt      20 (153,318) –
Derivative financial instrument      22 (4,848) –
Long-term provisions      23 (4,509) (4,253)
       (162,675) (4,253)
Total liabilities       (223,303) (218,000)
Net assets       282,060 222,620
Equity
Share capital      24 31,811 26,919
Share premium account      25 341,414 273,785
Share option reserve      25 8,368 6,451
Hedging reserve      25 (11,153) –
Retained earnings      25 (88,380) (84,535)
Total equity       282,060 222,620
These financial statements were approved by the Board of Directors on 30 April 2008
Signed on behalf of the Board of Directors
J R Cooper, ACA  G P Thomson, FCA
Director  Director Page 37 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
Consolidated cash flow statement
Year ended 31 December 2007
       2007 2006
      Note $’000 $’000
Operating activities:
Cash generated from operations      27 48,131 63,017
Taxation refunded/(paid)       416 (767)
Net cash flow from operating activities       48,547 62,250
Investing activities:
Capital expenditure       (87,945) (51,191)
Corporate acquisitions      15 (145,368) –
Interest received       2,888 3,082
Net cash used in investing activities       (230,425) (48,109)
Financing activities:
Net proceeds from issue of ordinary shares       72,521 245
Long-term loan proceeds/(repayment)       78,779 (4,111)
Interest paid       (11,354) (1,648)
Net cash flow from/(used in) financing activities       139,946 (5,514)
Net (decrease)/increase in cash and cash equivalents      (41,932) 8,627
Cash and cash equivalents at beginning of year       91,759 82,033
Effect of foreign exchange rate changes       39 1,099
Cash and cash equivalents at end of year      18 49,866 91,759 Page 38 Sterling Energy PLC Annual Report & Accounts 2007
Company cash flow statement
Year ended 31 December 2007
       2007 2006
      Note $’000 $’000
Operating activities:
Cash (used in)/generated from operations      27 (62,192) 1,524
Investing activities:
Interest received       2,143 2,891
Capital expenditure       (8,553) –
Corporate acquisitions       (145,368) –
Net cash (used in)/generated from investing activities      (151,778) 2,891
Financing activities:
Net proceeds from issue of ordinary shares       72,521 245
Long-term loan proceeds       101,993 –
Interest paid       (8,240) –
Net cash flow from financing activities       166,274 245
Net (decrease)/increase in cash and cash equivalents      (47,696) 4,660
Cash and cash equivalents at beginning of year       74,236 69,576
Cash and cash equivalents at end of year      18 26,540 74,236
Company statement of recognised  
income and expense
Year ended 31 December 2007
       2007 2006
      Note $’000 $’000
Movement on hedge reserve      25 (11,153) (1,898)
Net (loss) recognised directly in equity       (11,153) (1,898)
Loss for the financial year      25 (3,845) (71,640)
       (14,998) (69,742)
Attributable to:
Equity holders of the Company       (14,998) (69,742) Page 39 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
Notes to the financial statements
Year ended 31 December 2007
1. Accounting policies
a) General
Sterling Energy PLC is a company incorporated in Great Britain 
under the Companies Act 1985. The address of the registered 
office is 5 Chancery Lane, London, WC1A 1LG. The Company 
and the Group are engaged in the exploration for and 
development and production of oil and gas.
These financial statements are presented in US dollars as this 
is the currency in which the majority of the Group’s revenues 
and expenditure are transacted. 
b) Basis of accounting
The financial statements of the Company and the Group have 
been prepared in accordance with International Financial 
Reporting Standards (“IFRS”) as endorsed by the Council of the 
European Union. 
In the current year, the Group has adopted IFRS 7 – Financial 
Instruments: Disclosures which is effective for annual reporting 
periods beginning on or after 1 January 2007, and the related 
amendment to IAS1 – Presentation of Financial Statements. 
The impact of the adoption of IFRS 7 and the changes to IAS 1 
has been to expand the disclosures provided in these financial 
statements regarding the Group’s financial instruments and 
management of capital (see note 30). Four interpretations 
issued by the International Financial Reporting Interpretations 
Committee became effective for the current period. These are: 
IFRIC 7 – Applying the restatement Approach under IAS 29, 
Financial Reporting in Hyperinflationary Economies; IFRIC 8 
Scope of IFRS 2; IFRIC 9 Reassessment of Embedded 
Derivatives; and IFRIC 10 Interim Financial Reporting and 
Impairment. The adoption of these Interpretations has not led 
to any changes in the Group’s accounting policies.
At the date of authorisation of these financial statements, the 
following Standards and Interpretations which have not been 
applied in these financial statements were in issue but not yet 
effective:
IFRS 2 Share-based payments (revised 2008)
IFRS 3 Business combination (revised 2008)
IFRS 8 Operating Segments
IAS 1 Presentation of financial statements (revised 2008)
IAS23  Borrowing Costs (revised 2007)
IAS 27  Consolidated and separate financial statements 
(revised 2008)
IAS 32 Financial instruments: Presentation (revised 2008)
IFRIC 11 IFRS 2 – Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programme
IFRIC 14  IAS19 – The Limit on a Defined Benefit Asset, 
Minimum Funding Requirements and their Interaction
The Directors anticipate that the adoption of these Standards 
and Interpretations in future periods will have no material 
impact on the financial statements of the Group except for 
revised segment disclosures when IFRS8 comes into effect for 
periods commencing on or after 1 January 2009.
The accounts and balance sheet are prepared under the 
historical cost convention except for the revaluation of certain 
financial instruments. The principal accounting policies adopted 
are set out below. 
c) Basis of consolidation
The consolidated financial statements incorporate the financial 
statements of the Company and entities controlled by the 
Company (its subsidiaries) made up to 31 December each year. 
Control is achieved where the Company has the power to 
govern the financial and operating policies of an invested entity 
so as to obtain benefits from its activities.
Minority interests in the net assets of consolidated subsidiaries 
are identified separately from the Group’s equity therein. 
Minority interests consist of the amount of those interests at the 
date of the original business combination and the minority’s 
share of changes in equity since the date of the combination. 
Losses applicable to the minority in excess of the minority’s 
interest in the subsidiary’s equity are allocated against the 
interests of the Group except to the extent that the minority has 
a binding obligation and is able to make an additional 
investment to cover the losses.
The results of subsidiaries acquired or disposed of during the 
year are included in the consolidated income statement from 
the effective date of acquisition or up to the effective date of 
disposal, as appropriate.
Where necessary, adjustments are made to the financial 
statements of subsidiaries to bring the accounting policies 
used into line with those used by the Group.
All intra-group transactions, balances, income and expenses 
are eliminated on consolidation.
d) Business combinations
The acquisition of subsidiaries is accounted for using the 
purchase method. The cost of the acquisition is measured at 
the aggregate of the fair values, at the date of exchange, of 
assets and liabilities incurred or assumed, and equity 
instruments issued by the Group in exchange for control of the 
acquiree, plus any costs directly attributable to the business 
combination. The acquiree’s identifiable assets, liabilities and 
contingent liabilities that meet the conditions for non-current 
assets (or disposal groups) that are classified as held for sale in 
accordance with IFRS 5 Non Current Assets Held for Sale and 
Discontinued Operations are recognised and measured at fair 
value less costs to sell.
The interest of minority shareholders in the acquiree is initially 
measured at the minority’s proportion of the net fair value of the 
assets, liabilities and contingent liabilities recognised.
e) Interest in joint ventures
A joint venture is a contractual arrangement whereby the Group 
and other parties undertake an economic activity that is subject 
to joint control.
Where a company undertakes its activities under joint venture 
arrangements directly, the Group’s share of jointly controlled 
assets and any liabilities incurred jointly with other ventures are  Page 40 Sterling Energy PLC Annual Report & Accounts 2007
Notes to the financial statements (continued)
Year ended 31 December 2007
1. Accounting policies (continued)
recognised in the financial statements of the relevant Group 
company and classified according to their nature.
Similarly, income from the sale or use of the Group’s share of 
the output of jointly-controlled assets, and its share of joint 
venture expenses, are recognised in the financial statements of 
the relevant Group company and classified according to their 
nature.
f) Revenue
Sales of petroleum are recognised, net of any sales taxes when 
goods are delivered or the title has passed to the customer. 
Interest income is accrued on a time basis by reference to the 
principal outstanding and at the effective interest rate 
applicable. Royalties and tariff income are recognised as 
earned. Dividend revenue from investments is recognised when 
the shareholders’ rights to receive payment have been 
established.
g) Oil and gas interests
Exploration and Evaluation assets (“E&E”)
The Group accounts for oil and gas exploration under the full 
cost method having regard to the requirements of IFRS 6 
Exploration for and Evaluation of Mineral Resources. 
E&E costs are initially capitalised within intangible assets other 
than goodwill. Such E&E costs include licence acquisition 
costs, geological and geophysical costs, costs of drilling 
exploration and appraisal wells, and an appropriate share of 
overheads. E&E costs are capitalised and accumulated in cost 
pools which are not larger than a segment.
Expenditures incurred before the Group has obtained the legal 
rights to explore a specific area are expensed in the year that 
they are incurred.
The Group’s oil and gas assets are currently held in two cost 
pools; North America and Africa and the Middle East.
Costs relating to the exploration and evaluation of oil and gas 
interests are carried forward until the existence or otherwise of 
commercial reserves has been determined. 
If commercial reserves have been discovered, the related E&E 
assets are assessed for impairment and the resultant carrying 
value is then reclassified as oil and gas assets within property, 
plant and equipment, on a field by field basis. 
E&E assets that are determined not to have resulted in the 
discovery of commercial reserves remain capitalised as 
intangible E&E assets at cost less accumulated amortisation, 
subject to the relevant cost pool meeting an impairment test as 
set out below. Such E&E assets are amortised on a unit of 
production basis over the life of the proven and probable 
commercial reserves of the pool to which they relate.
Under the full cost method, impairment tests on E&E assets are 
conducted on an individual cost pool basis, including any 
development or producing assets, when facts and 
circumstances suggest that the carrying amount in the pool 
may exceed its recoverable amount. Such indicators include 
the point at which a determination is made as to whether or not 
commercial reserves exist. Where the E&E assets concerned 
fall within the scope of an established full cost pool, the E&E 
assets are tested for impairment together with all development 
and production assets associated with that cost pool, as a 
single cash-generating unit. The aggregate carrying value is 
compared against the expected recoverable amount of the 
pool, generally by reference to the present value of the future 
cash flows expected to be delivered from production of 
commercial reserves. Where the E&E assets to be tested fall 
outside the scope of any established cost pool, there will 
generally be no commercial reserves and the E&E assets 
concerned will be written off in full.
Any impairment loss is separately recognised within the income 
statement.
Development and production assets
Development and production assets are generally accumulated 
on a field-by-field basis and include the cost of developing the 
commercial reserves discovered and bringing them into 
production, together with the E&E expenditures, incurred in 
finding commercial reserves, transferred from intangible E&E 
assets as outlined above. 
Depletion is provided for on a cash-generating unit basis on a 
unit of production basis over the life of the proven and probable 
commercial reserves taking into account the expected future 
costs to extract all such reserves.
An impairment test is performed on an individual asset basis 
whenever events and circumstances indicate that the carrying 
value of an asset may exceed its recoverable amount. The 
recoverable amount is assessed as the present value of the 
future cash flows expected to be derived from production of 
commercial reserves. 
The cash-generating unit basis is generally the field, however, 
oil and gas assets, including infrastructure assets, may be 
accounted for on an aggregated basis where such assets are 
economically inter-dependent.
Property, plant and equipment assets other than oil and  
gas assets
Property, plant and equipment other than oil and gas assets 
are stated at cost, less accumulated depletion, and any 
provision for impairment. Depletion is provided at rates 
estimated to write off the cost, less estimated residual value, of 
each asset over its expected useful life as follows:
Computer and office equipment – 33% straight line.
h) Decommissioning
Provisions for decommissioning costs are recognised in 
accordance with IAS 37 Provisions, Contingent Liabilities and 
Contingent Assets. Provisions are recorded at the present 
value of the expenditures expected to be required to settle the 
Group’s future obligations. Page 41 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
1. Accounting policies (continued)
Provisions are reviewed at each balance sheet date to reflect 
the current best estimate of the cost at present value. The 
unwinding of the discount is reflected as a finance cost. A 
decommissioning asset is also established, since the future 
cost of decommissioning is regarded as part of the total 
investment to gain access to future economic benefits, and 
included as part of the cost of the relevant development and 
production asset. Depletion on this asset is calculated under 
the unit of production method based on commercial reserves. 
i) Intangible royalty interests
The carrying value of each individual royalty interest is 
amortised on the unit of production basis relative to the 
underlying asset and assessed individually for impairment 
when there is an indication that an impairment event may have 
occurred. 
j) Foreign currencies
The US dollar is the reporting currency of the Company and the 
Group. Transactions denominated in other currencies are 
translated into US dollar at the rate of exchange ruling at the 
date of the transaction. Assets and liabilities in other currencies 
are translated into US dollars at the rate of exchange ruling at 
the reporting date. All exchange differences arising from such 
translations are dealt with in the profit and loss account.
The results of entities with a functional currency other than the 
US dollar are translated at the average rates of exchange 
during the period and their balance sheet at the rates ruling at 
the balance sheet date. Exchange differences arising on 
translation of the opening net assets and on translation of the 
results of such entities are dealt with through the currency 
translation reserve. 
k) Taxation
Current tax, including UK corporation tax and foreign tax, is 
provided at amounts expected to be paid (or recovered) using 
the tax rates and laws that have been enacted or substantively 
enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences 
that have originated but not reversed at the balance sheet date 
where transactions or events that result in an obligation to pay 
more tax in the future or a right to pay less tax in the future 
have occurred at the balance sheet date. Timing differences 
are differences between the Group’s taxable profits and its 
results, as stated in the financial statements that arise from the 
inclusion of gains and losses in tax assessments in periods 
different from those in which they are recognised in the 
financial statements.
A net deferred tax asset is regarded as recoverable and 
therefore recognised only when, on the basis of all available 
evidence, it can be regarded as more likely than not that there 
will be suitable taxable profits from which the future reversal of 
the underlying timing differences can be deducted.
Deferred tax is provided on temporary differences arising on 
acquisitions that are categorised as business combinations, as 
part of the assessment of the fair value of assets and liabilities 
acquired. Deferred tax is recognised in respect of the retained 
earnings of overseas subsidiaries only to the extent that, at the 
balance sheet date, dividends have been accrued as receivable 
or a binding agreement to distribute past earnings in future has 
been entered into by the subsidiary or associate. 
Deferred tax is measured at the average tax rates that are 
expected to apply in the periods in which the timing differences 
are expected to reverse based on tax rates and laws that have 
been enacted or substantively enacted by the balance sheet 
date. Deferred tax is measured on a non-discounted basis.
l) Investments
Investments are recognised and derecognised on a trade date 
where a purchase or sale of an investment is under a contract 
whose terms require delivery of the investment within the 
timeframe established by the market concerned, and are 
initially measured at cost, including transaction costs.
Group investments are classified as available-for-sale and are 
measured at subsequent reporting dates at fair value. Gains 
and losses arising from changes in fair value are recognised 
directly in equity, until the investment is disposed of or is 
determined to be impaired, at which time the cumulative gain  
or loss previously recognised in equity is included in the profit 
or loss of the period. Impairment losses recognised in profit or 
loss for equity investments classified as available-for-sale are 
not subsequently reversed through profit or loss. 
Non-current investments in subsidiary undertakings are shown 
in the Company’s balance sheet at the lower of cost or net 
realisable value. 
m) Operating leases
Rentals under operating leases are charged on a straight-line 
basis over the lease term. 
n) Derivative financial instruments
The Group uses derivative financial instruments to manage its 
exposure to movements in oil and gas prices, fluctuations in 
foreign exchange rates and interest rates.
Derivatives financial instruments are stated at fair value.
The purpose for which a derivative is used is established at 
inception. To qualify for hedge accounting, the derivative must 
be “highly effective” in achieving its objective and this 
effectiveness must be documented at inception and throughout 
the period of the hedge relationship. The hedge must be 
assessed on an ongoing basis and determined to have been 
“highly effective” throughout the financial reporting periods for 
which the hedge was designated.
For the purpose of hedge accounting, hedges are classified as 
either fair value hedges, when they hedge the exposure to 
changes in the fair value of a recognised asset or liability, or 
cashflow hedges, when they hedge exposure to variability in 
cashflows that is either attributable to a particular risk 
associated with a recognised asset or liability or forecasted 
transaction.
During the year the Group designated a number of its oil and 
gas derivatives as cashflow hedges of future production (see 
note 29).
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 42 Sterling Energy PLC Annual Report & Accounts 2007
1. Accounting policies (continued)
In relation to fair value hedges which meet the conditions for 
hedge accounting, any gain or loss from re-measuring the 
derivative and the hedged item at fair value is recognised 
immediately in the Income Statement. Any gain or loss on the 
hedged item attributable to the hedged risk is adjusted against 
the carrying amount of the hedged item and recognised in the 
Income Statement.
For cashflow hedges, the portion of the gains and losses on 
the hedging instrument that is determined to be an effective 
hedge is taken to equity and the ineffective position, as well as 
any change in time value, is recognised in the Income 
Statement. The gains and losses taken to equity are 
subsequently transferred to the Income Statement during the 
period in which the hedged transaction affects the Income 
Statement or if the hedge is subsequently deemed to be 
ineffective. A similar treatment applies to foreign currency loans 
which are hedges of the Group’s net investment in the net 
assets of a foreign operation.
o) Pension costs
The Group operates a number of defined contribution pension 
schemes. The amount charged to the income statement for 
these schemes is the contributions payable in the year. 
Differences between contributions payable in the year and 
contributions actually paid are shown as either accruals or 
prepayments in the balance sheet.
p) Share-based payments
The Company and Group have applied the requirements of 
IFRS 2 Share-based payments.
The Company issues equity share-based payments to certain 
employees. The fair value of these awards has been 
determined at the date of the grant of the award allowing for the 
effect of any market-based performance conditions. This fair 
value, adjusted by the estimate of the number of awards that 
will eventually invest as a result of non-market conditions, is 
expensed uniformly over the vesting period.
The fair values are calculated using an option pricing model 
with suitable modifications to allow for employee turnover after 
vesting and early exercise. The inputs to the model include: the 
share price at the date of grant; exercise price; expected 
volatility; expected dividends; risk-free rate of interest; and 
patterns of exercise of the plan participants.
q) Over/underlift
Lifting or offtake arrangements for oil and gas produced in 
certain of the Group’s operations are such that each participant 
may not receive and sell its precise share of the overall 
production in each period. The resulting imbalance between 
cumulative entitlement and cumulative liftings less inventory is 
“underlift” or “overlift”. Underlifts are valued at the lower of cost 
and net realisable value and overlifts are valued at market 
value. Adjustments are made to cost of sales and balances 
included within receivables and payables as appropriate. The 
Group’s share of any physical inventory is accounted for at the 
lower of cost and net realisable value.
r) Inventories
The Group’s share of any material and equipment inventories is 
accounted for at the lower of cost and net realisable value.
s) Provisions
Provisions are recognised when the Group has a present 
obligation as a result of a past event and it is probable that the 
Group would be required to settle that obligation. Provisions 
are measured at the management’s best estimate of the 
expenditure required to settle the obligation at the balance 
sheet date, and are discounted to present value where the 
effect is material.
2.  Critical accounting judgements and key sources of 
estimation uncertainty
The key assumptions concerning the future, and other key 
sources of estimation uncertainty at the balance sheet date, 
that have a significant risk of causing a material adjustment to 
the carrying amounts of assets and liabilities within the next 
financial year, are discussed below.
Commercial reserves 
Commercial reserves are proven and probable oil and gas 
reserves, calculated on an entitlement basis.
Estimates of commercial reserves underpin the calculation of 
depletion and amortisation on a unit of production basis. 
Estimates of commercial reserves include estimates of the 
amount of oil and gas in place, assumptions about reservoir 
performance over the life of the field and assumptions about 
commercial factors which, in turn, will be affected by the future 
oil and gas price.
Impairment of assets
Determining whether the carrying asset value is impaired 
requires an estimation of the value in use of the cash-
generating unit to which it belongs. The value in use calculation 
requires the entity to estimate the future cash flows expected to 
arise from the cash-generating unit and a suitable discount rate 
in order to calculate present value. This necessarily entails an 
estimate of future recoverable commercial reserves for each of 
the cash generating units which is in turn dependent on an 
estimate of future oil and gas prices.
In respect of exploration and evaluation assets held outside of 
established full cost pools, the assessments also involve a 
judgement on whether further exploration and evaluation 
activities are justified, and whether licences will be retained.
Fair values
The determination of the fair values of oils and gas properties, 
particularly exploration and evaluation assets, acquired in 
business combinations, and the resulting measurement of any 
goodwill that may arise, requires the use of estimates similar to 
those described above.
Fair values of derivative financial instruments
The fair values of derivative financial instruments used for 
hedging purposes reflect the market’s view at any point in time 
of the outlook for future oil or gas prices, which generally 
change over time. Consequently, there can be no assertion that 
the fair values reflect the amount at any future cash flows that 
may arise as the hedges mature. 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 43 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
3. Geographical segments
The Group operates in one business segment; the exploration for and production of oil and gas. The Group currently has interests 
in two geographical segments; North America, and Africa and the Middle East. Segment information about the business is 
presented below. 
   North America  Africa   Total
   2007 2006 2007 2006 2007 2006
   $’000 $’000 $’000 $’000 $’000 $’000
Income statement
Revenue   67,843 23,441 29,328 57,562 97,171 81,003
Cost of sales   (49,871) (14,380) (25,326) (40,039) (75,197) (54,419)
Gross profit   17,972 9,061 4,002 17,523 21,974 26,584
Impairment provision   – (2,653) – (57,380) – (60,033)
Pre-licence exploration costs   (1,181) – (3,281) (1,368) (4,462) (1,368)
Segment result   16,791 6,408 721 (41,225) 17,512 (34,817)
Unallocated corporate expenses       (15,720) (12,027)
Operating profit/(loss)       1,792 (46,844)
Interest revenue and finance gains       3,286 3,082
Gain on hedging instrument       4,618 303
Finance costs        (12,642) (3,201)
Loss before tax       (2,946) (46,660)
Tax       693 6,101
Loss for the financial year       (2,253) (40,559)
Attributable to minority interest       – 1,981
Loss attributable to equity holders of parent company      (2,253) (38,578)
 Corporate assets  North America  Africa   Total
 2007 2006 2007 2006 2007 2006 2007 2006
 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Other segment information
Capital additions
Property, plant and equipment 374 307 54,970 8,375 8,063 14,223 63,407 22,905
E&E expenditure 600 – 10,668 2,972 24,437 2,555 35,705 5,527
Depreciation and amortisation (461) (233) (32,405) (7,338) (17,444) (35,407) (50,310) (42,978)
Impairment provision – – – (2,653) – (57,380) – (60,033)
Balance sheet
Segment assets* 45,651 88,515 424,005 97,461 152,132 126,713 621,788 312,689
Segment liabilities (175,666) (11,426) (128,261) (53,443) (39,591) (24,197) (343,518) (89,066)
* Carrying amount of segment assets exclude intra-group financing. 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 44 Sterling Energy PLC Annual Report & Accounts 2007
4. Revenue
       2007 2006
       $’000 $’000
Revenue from the sale of oil and gas       74,509 67,877
Royalty income       21,106 10,604
Tariff income       1,556 2,522
Total operating revenue       97,171 81,003
Finance revenue       3,178 3,082
Total revenue       100,349 84,085
Revenue from the sale of oil and gas is stated net of $5,877,000 in relation to cash settlements under hedging contract (2006: 
$3,681,000).
5. Operating Profit
       2007 2006
       $’000 $’000
Profit/(loss) from operations is stated after charging (crediting):    
Staff costs (note 7)       18,523 7,644
Depletion and amortisation (notes 12, 13 and 14)       50,310 42,978
Impairment expense (notes 12, 13 and 14)       – 60,033
Depreciation of other fixed assets       1,108 361
Net foreign exchange losses/(gains)       (108) 129
An analysis of auditors’ remuneration is as follows:   
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts    265 110
Fees payable to the Company’s auditors for other services to the Group
 Audit of the Company’s subsidiaries pursuant to legislation      35 29
 IFRS opening balance sheet and related audit work       – 113
Total audit fees       300 252
 Tax advisory services       125 124
   
Total non audit fees       125 124
6. Cost of sales
       2007 2006
       $’000 $’000
Operating costs       27,143 15,140
Amortisation and depletion of oil and gas properties       49,202 42,618
Underlift of product entitlement       (1,148) (3,339)
       75,197 54,419
7. Employee information
The average monthly number of employees of the Group (including Executive Directors) during the year was 72 (2006: 43) of 
which 14 were employed in the Africa and Middle East operations (2006: 14), 40 in the North American operations (2006: 14), and 
18 in New Ventures and Corporate Support (2006: 15). 
The average monthly number of employees of the Company (including executive Directors) during the year was 2 (2006: nil) who 
were both employed in the Africa and Middle East operations.
Employee costs during the year (including Executive Directors) amounted to:
      Group Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Wages and salaries      15,850 6,251 434 –
Social Security costs     1,684 799 15 –
Other pension costs     989 594 – –
     18,523 7,644 449 –
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 45 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
7. Employee information (continued)
A portion of the Group’s staff costs and associated overheads are recharged to the joint venture partners, expensed as operating 
costs, expensed as pre-licence expenditure or capitalised where they are directly attributable to ongoing capital projects. In 2007 
this portion amounted to $10,186,000 (2006: $5,938,000).
8. Investment revenue and finance costs
       2007 2006
       $’000 $’000
Interest revenue and finance gains:
Interest on short-term deposits        3,178 3,082
Exchange differences       108 –
       3,286 3,082
       2007 2006
       $’000 $’000
Finance costs: 
Interest on bank loans and overdrafts       11,354 1,951
Unwinding of discount on decommissioning provision        1,132 1,121
Unwinding of discount on production royalty revenue bonus provision     156 –
Exchange differences       – 129
       12,642 3,201
9. Taxation
The Group tax charge comprises:
       2007 2006
       $’000 $’000
Current tax credit       (509) (1,255)
Deferred tax – origination and reversal of timing differences      (184) (4,846)
Total credit       (693) (6,101)
The difference between the tax credit of $693,000 (2006: credit of $6,101,000) and the amount calculated by applying the 
applicable standard rate of tax is as follows:
       2007 2006
       $’000 $’000
Loss on ordinary activities before tax       (2,946) (46,660)
Tax on loss on ordinary activities at standard US corporation tax rate of 34% (2006: 34%)   (1,001) (15,864)
Effects of:
Expenses not deductible for tax purposes       (1,856) (1,654)
Capital allowances lower than/(in excess of) depreciation      (82) 10,994
Other temporary differences       – 395
Difference in non-UK/US tax rates       127 1,364
Adjustment for tax losses        2,628 47
Adjustment in respect of prior years       (509) (1,383)
Tax credit for the year       (693) (6,101)
During 2007 and 2006 the Group generated its results primarily in the US. Therefore the tax rate in the above reconciliation for 
2007 is the standard rate for US corporation tax. 
With effect from 1 April 2008, the main rate of UK corporation tax reduced to 28%. However, given the Group’s taxation charge 
principally relates to the US, the change of rate will not have a significant effect on there Group’s overall taxation charge.
 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 46 Sterling Energy PLC Annual Report & Accounts 2007
10. Loss attributable to Sterling Energy PLC
The loss for the financial year dealt with in the accounts of Sterling Energy PLC was $3,845,000 (2006: loss of $71,640,000). As 
provided by s230 of the Companies Act 1985, no income statement is provided in respect of Sterling Energy PLC.
11. Loss per share
The calculation of basic and diluted loss per share is based on the loss for the financial year of $2,253,000 (2006: loss 
$38,578,000) and on 1,565,678,397 (2006: 1,402,408,092) ordinary shares, being the weighted average number of ordinary 
shares in issue. As the effect of any dilutive shares would decrease the loss per share, the basic and diluted loss per share are the 
same.
12. Intangible royalty assets 
        Group
        $’000
Net book value at 1 January 2006        42,149
Depletion charge for the year        (1,675)
Impairment charge for the year        (22,474)
Net book value at 31 December 2006        18,000
Depletion charge for the year        (1,400)
Net book value at 31 December 2007        16,600
Group net book value at 31 December 2007 comprises the value of rights to future royalties in respect of the Group’s agreements 
covering licences PSCA and PSCB in Mauritania. The value of these royalty interests is dependent upon future oil and gas prices 
and the development and production of the underlying oil and gas reserves.
An impairment assessment and any subsequent charge is calculated on an individual royalty interest basis. Future recoverable 
amounts are estimated by management based on the present value of future cash flows expected to be derived from the 
production of commercial reserves in these licences and are compared against the carrying value of these assets. 
 
13. Intangible exploration and evaluation (E&E) assets 
       Group Company
       $’000 $’000
Net book value at 1 January 2006       26,660 73
Additions during the year       5,527 16
Amortisation charge for the year       (949) –
Impairment charge for the year       (9,854) –
Net book value at 31 December 2006       21,384 89
Additions during the year       36,233 
Additions through acquisitions during the year (note 16)      101,314 
Amortisation charge for the year       (3,350) (89)
Net book value at 31 December 2007       155,581 –
  
The amount for intangible exploration and evaluation assets represents investments in respect of exploration licences (see note 1g ). 
Impairment tests on E&E assets are conducted on an individual cost pool basis when facts and circumstances suggest that the 
carrying amount in the pool may exceed its recoverable amount. The impairment recorded above relates to assets held in the 
Africa pool where the estimated recoverable amount of the property, plant and equipment and E&E in the pool was insufficient to 
cover the carrying amount. 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 47 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
14. Property, plant and equipment
        Computer 
      Oil and and office 
      gas assets equipment Total
Group      $’000 $’000 $’000
Cost
At 1 January 2006      215,061 2,193 217,254
Additions during the year      22,219 686 22,905
At 31 December 2006      237,280 2,879 240,159
Additions during the year      62,612 795 63,407
Additions through acquisitions during the year (note 15)     167,978 292 168,270
At 31 December 2007      467,870 3,966 471,836
Accumulated depreciation     
At 1 January 2006      14,019 1,281 15,300
Charge for the year      39,993 361 40,354
Impairment charge for the year      27,705 – 27,705
At 31 December 2006      81,717 1,642 83,359
Charge for the year      44,452 1,108 45,560
At 31 December 2007      126,169 2,750 128,919
Net book value at 31 December 2007      341,701 1,216 342,917
Net book value at 31 December 2006      155,563 1,237 156,800
The impairment charge in 2006 for the Group related to the Group’s Mauritanian and US interests. The impairment charge was 
calculated by reference to assessment of future discounted cash flows expected to be derived from production of commercial 
reserves measured against the individual cash generating unit carrying values.
        Computer 
      Oil and and office 
      gas assets equipment Total
Company      $’000 $’000 $’000
Cost
At 1 January 2006      – 147 147
Intra-group transfer      141,973 – 141,973
At 31 December 2006      141,973 147 142,120
Additions during the year      8,087 – 8,087
At 31 December 2007      150,060 147 150,207
Accumulated depreciation
At 1 January 2006      – (96) (96)
Charge for the year      – (16) (16)
Intra-group transfer      (57,846) – (57,846)
At 31 December 2006      (57,846) (112) (57,958)
Charge for the year      (16,043) (35) (16,073)
At 31 December 2007      (73,889) (142) (74,031)
Net book value at 31 December 2007      76,171 – 76,171
Net book value at 31 December 2006      84,127 35 84,162
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 48 Sterling Energy PLC Annual Report & Accounts 2007
15. Acquisition of subsidiary
On 29 March 2007, the Group acquired 100 per cent of the issued share capital of Whittier Energy Corporation (“WEC”) for cash 
consideration of $145.4 million, plus $1.4 million for directly attributable costs. WEC is the parent company of a group of 
companies involved in onshore US Gulf Coast exploration and production. This transaction has been accounted for using the 
purchase method of accounting. WEC was subsequently renamed Sterling Energy USA Inc. during the period.
       Book value Fair value
       $’000 $’000
Net assets acquired:
Property, plant and equipment        119,316  167,978 
Intangible exploration and evaluation assets       31,895  101,634 
Goodwill       1,485  – 
Trade and other receivables       15,506  15,342 
Cash and cash equivalents       1,392  1,392 
Trade and other payables       (23,339) (23,339)
Bank loans       (51,325) (51,325)
Deferred tax liabilities       (24,139) (63,571)
Decommissioning liabilities       (711) (711)
       70,080  146,760
Satisfied by: 
Cash         145,432 
Directly attributable costs        1,328 
        146,760 
Net cash outflow arising on acquisition:  
Cash consideration        (146,760)
Cash and cash equivalents acquired        1,392 
        (145,368)
WEC contributed $39.9 million of revenue, $4.8 million of gross profit, and a loss of $3.0 million to the Group’s loss before tax for 
the period between the effective date of acquisition and 31 December 2007. WEC contributed $25 million to operating cash flow 
before working capital for the same period.
16. Fixed asset investments 
a) Available for sale investments
The investments partly consist of an investment in a quoted company of $1,932,000 (2006: $5,922,000) representing the fair value 
of the current equity interest of 14.02% in Forum Energy plc, a company listed on the Alternative Investment Market (“AIM”) in 
London. As at 31 December 2007 the fair value of this investment was based on a Forum share price of 24.25p (2006: 75.5p).
b) Investment at fair value through profit and loss
Additionally the Company holds through its US subsidiary Sterling Energy Inc. an option on a 20% equity stake in Viking 
International Petroleum (VIP) in the form of a two-year $3,500,000 convertible note and warrants. VIP is a private company that 
generates drilling prospects located primarily in South Texas over which Sterling has pre-emptive drilling rights.
The balance of the Group’s investments consists primarily of investments held through the US subsidiary Sterling Energy USA Inc. in 
various limited liability partnerships.
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 49 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
16. Fixed asset investments (continued)
c) Investment in subsidiaries
        Company
        $’000
Cost
At 1 January 2006        230,351
Additional investment during year        1,708
Impairment charge        (75,709)
At 31 December 2006        156,350
Additional investment during year        182,049
At 31 December 2007        338,399
There was no change in the composition of the Company’s fixed asset investments during the year, all of which relate to subsidiary 
undertakings. 
At 31 December 2007, the Company had investments in the following subsidiary undertakings:
 
   Proportion
 Country of Class of of voting 
 incorporation shares held rights held Nature of business
Sterling Energy (UK) Limited* United Kingdom Ordinary 100% Exploration for oil and gas
Sterling Energy, Inc.
†
  USA Ordinary 100% Exploration for and production   
    of oil and gas
Sterling Energy North America Limited* USA Ordinary 100% Investment holding company
Sterling Energy USA Inc.
‡
 
(formerly Whittier Energy Corporation) USA Ordinary 100% Exploration for and production  
    of oil and gas
Sterling Oil Limited* United Kingdom Ordinary 100% Investment holding company
Sterling Northwest Africa Holdings Limited
¶
 Jersey, C.I. Ordinary 100% Investment holding company
Sterling Mauritania A Limited
#
 Jersey, C.I. Ordinary 70.1% Exploration for oil and gas
Sterling Cameroon Limited
#
 Jersey, C.I. Ordinary 100% Exploration for oil and gas
Sterling Dome Flore Limited
#
 Jersey, C.I. Ordinary 100% Exploration for oil and gas
Sterling Oil & Gas (Iris Marin) Limited
#
 Jersey, C.I. Ordinary 100% Exploration for oil and gas
Sterling Oil & Gas (Themis Marin) Limited
#
 Jersey, C.I. Ordinary 100% Exploration for oil and gas
* Held directly by the Company, Sterling Energy PLC
† Held directly by Sterling Energy (UK) Limited
‡ Held directly by Sterling Energy North America Limited
¶ Held directly by Sterling Oil Limited
# Held directly or indirectly through Sterling Northwest Africa Holdings Limited
17. Trade and other receivables
     Group Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Amounts falling due within one year:
Trade receivables     32,373 5,809 – –
Amounts owed by subsidiary undertakings     – – 53,236 119,227
Other debtors     5,715 3,451 178 1,541
Amounts advanced to Joint Venture partners     663 3,504 – 395
Prepayments and accrued income     3,214 1,099 5,203 74
     41,965 13,863 58,617 121,237
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 50 Sterling Energy PLC Annual Report & Accounts 2007
18. Cash and cash equivalents
     Group  Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Cash at bank and in hand, unrestricted     44,101 86,723 26,540 74,236
Cash held on a restricted account     5,765 5,036 – –
Cash and cash equivalents at 31 December     49,866 91,759 26,540 74,236
Cash and cash equivalents comprise cash in hand, deposits on call with banks and highly liquid investments that are readily 
convertible into known amounts of cash and which are subject to an insignificant risk of change in value.
Included in cash and cash equivalents of the Group is an amount of $5,765,000 (2006: $5,036,000) held in restricted accounts to 
be used for the sole purpose of the payment of decommissioning costs on three US producing licences. 
 
19. Trade and other payables
     Group  Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Trade payables     27,356 4,276 7,003 321
Amounts owed to subsidiary undertakings     – – 40,198 187,829
Amounts owed to joint venture partners     6,631 4,315 – –
Other taxation and social security     205 188 – –
Accruals and deferred income     45,643 23,403 7,122 20,632
     79,835 32,182 54,323 208,782
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
20. Long-term debt
     Group  Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Bank loan     153,318 23,214 153,318 –
At 31 December 2007 the Group had a bank loan facility of $250,000,000 (the “borrowing-base facility”) of which $144,818,000 
had been drawn down under this facility at the end of the period. The amount that was available to be drawn under this facility 
was determined by a twice-yearly borrowing base review. In addition, a further $482,136 (2006: $nil) is pledged under a letter of 
credit. The facility was secured by a floating charge over certain of the property, plant and equipment of the Group. An intra-group 
loan of approximately $74,393,600 (2006: $28,453,800) was subordinated to the facility. Interest was payable at a margin 2.25%–
4.5% over US LIBOR rate. The facility also includes certain financial and non-financial covenants. 
In addition to the borrowing-base facility, the Company has an unsecured corporate facility available of $15,000,000 of which, at 
31 December 2007, $8,018,000 had been drawn.
During January 2007 the loan of $23,214,000 outstanding at 31 December 2006 with Macquarie Bank was repaid in full and the 
facility cancelled.
21. Deferred tax liabilities
       2007 2006
Group       $’000 $’000
At 1 January        6,127 10,973
Deferred tax on acquisition (note 15)       63,571 –
Credited to profit and loss account       (186) (4,846)
At 31 December        69,513 6,127
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 51 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
21. Deferred tax liabilities (continued)
        2007
Group        $’000
The provision at 31 December 2007 consists of:
Accelerated Capital Allowances        84,469
Other temporary differences        (4,889)
Utilised tax losses        (10,068)
At 31 December        69,512
At the balance sheet date the Group had an unrecognised deferred tax asset of $7,757,000 (2006: $3,158,000). No deferred tax 
asset has been recognised due to the uncertainty of future profit streams. Additionally there is an unrecognised deferred tax 
liability of $1,992,000 (2006: $3,549,000) in respect of unremitted earnings from Sterling’s US subsidiaries. 
Company
At the balance sheet date the Company had an unrecognised deferred tax asset of $10,726,000 (2006: $27,776,000) relating 
primarily to unused losses and unutilised capital allowances.
22. Derivative financial instruments
        2007 2006
Group       $’000 $’000
At 1 January        – –
Contracts maturing in more than one year       7,174 –
At 31 December        7,174 –
     
        2007 2006
Company      Note $’000 $’000
At 1 January        – –
Contracts maturing in more than one year      29 4,848 –
At 31 December        4,848 –
23. Long-term provisions
        2007 2006
Group       $’000 $’000
Decommissioning provision (a)       22,095 19,893
2003 Production royalty bonus scheme (b)       2,150 2,700
       24,245 22,593
a) Decommissioning provision
      North America  Africa Total
Group      $’000 $’000 $’000
At 1 January 2006      14,895 3,885 18,780
Additions in year      333 130 463
Utilisation in year      (471) – (471)
Unwinding of discount (note 9)      883 238 1,121
At 31 December 2006      15,640 4,253 19,893
Additions in year      6,489 – 6,489
Acquisition in year (note 15)      711 – 711
Utilisation in year      (6,130) – (6,130)
Unwinding of discount (note 9)      876 256 1,132
At 31 December 2007      17,586 4,509 22,095
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 52 Sterling Energy PLC Annual Report & Accounts 2007
23. Long-term provisions (continued)
The amounts shown above represent the estimated costs for decommissioning the Group’s producing interests in North America, 
which are expected to occur between 2008 and 2017 and in respect of its economic interest in the Chinguetti field in Mauritania 
where decommissioning is expected to occur around 2014.
The Company amount of $4,509,000 (2006: $4,253,000) in Africa represents the amount provided within the Company for future 
decommissioning expenditure.
b) 2003 Production royalty bonus scheme
        2007 2006
Group       $’000 $’000
At 1 January        2,700 3,300
Unwinding of discount       156 –
Transferred to current liabilities       (746) (600)
Foreign exchange movements       40 –
At 31 December        2,150 2,700
This scheme was intended to reward key persons for the successful performance of certain assets after financial thresholds had 
been reached for the period since listing in 2002. The scheme was terminated in 2007 and replaced by the new LTIP (see note 30) 
and no further sums will accrue. The Company has the option to require beneficiaries to subscribe for new ordinary shares for the 
net amount arising after tax and national insurance from 2008 onwards.
24. Share capital
       2007 2006
       $’000 $’000
Authorised:
2,400,000,000 (2006: 2,400,000,000) ordinary shares of 1p       46,078 46,078
Called up, allotted and fully paid:  
1,648,710,585 ordinary shares of 1p each (2006: 1,402,950,558 ordinary shares of 1p each)   31,811 26,919
   
Movements during the year included the placing of 163,250,000 new ordinary shares during January 2007 in connection with the 
Whittier acquisition. An additional placing of 78,510,027 new ordinary shares was made in November 2007 in order to fund the initial 
costs relating to the Production Sharing Contract entered into with the Kurdistan Regional Government of Iraq for the Sangaw North 
exploration block. Further movements during the year consisted of 4,000,000 new ordinary shares which were issued to former 
employees who exercised share options in the year. 
25. Reserves
  Share Share Investment Currency   
  premium option revaluation translation Hedge Retained  
  account reserve reserve account reserve earnings Total
Group  $’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2006  273,560 4,553 7,026 (2,670) – (49,386) 233,083
Premium on shares issued   225 – – – – – 225
Currency translation adjustments  – – – 2,363 – – 2,363
Revaluation on Investment held for sale  – – (2,287) – – – (2,287)
Share option reserve charge for the year  – 1,898 – – – – 1,898
Loss for the year  – – – – – (38,578) (38,578)
At 1 January 2007  273,785 6,451 4,739 (307) – (87,964) 196,704
Premium on shares issued   67,629 – – – – – 67,629
Currency translation adjustments  – – – 965 – – 965
Revaluation on Investment held for sale  – – (4,082) – – – (4,082)
Hedge movement  – – – – (14,421) – (14,421)
Share option reserve charge for the year  – 1,917 – – – – 1,917
Loss for the year  – – – – – (2,253) (2,253)
At 31 December 2007  341,414 8,368 657 658 (14,421) (90,217) 246,459
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 53 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
25. Reserves (continued)
    Share Share   
    premium option Hedge Retained  
    account reserve reserve earnings Total
Company    $’000 $’000 $’000 $’000 $’000
At 1 January 2006    273,560 4,553 – (12,895) 265,218
Premium on shares issued     225 – – – 225
Charge for the year    – 1,898 – – 1,898
Loss for the year    – – – (71,640) (71,640)
At 1 January 2007    273,785 6,451 – (84,535) 195,701
Premium on shares issued     67,629 – – – 67,629
Charge for the year    – 1,917 – – 1,917
Hedge movement    – – (11,153) – (11,153)
Loss for the year    – – – (3,845) (3,845)
At 31 December 2007    341,414 8,368 (11,153) (88,380) 250,249
Share-based payment charges in respect to share issues made in the year were $261,586 (2006: $24,776).
26. Operating leases
       Group
       2007 2006 
       $’000 $’000
Minimum lease payments under operating leases recognised as an expense in the year    4,759 2,391
 
There were no operating lease payments made by the Company during the year.
At the balance sheet date outstanding commitments for minimum lease payments under non-cancellable operating leases fall due 
as follows.
      Group Company 
     2007 2006  2007 2006 
     $’000 $’000 $’000 $’000
Within one year     4,706 3,257 3,132 3,011
In the second to fifth year inclusive     18,779 12,603 12,483 12,357
After five years     1,754 3,121 – 2,875
     25,239 18,981 15,615 18,243
Operating lease payments represent the Group’s share of rentals for a Floating Production and Storage Offtake vessel in 
Mauritania and rentals payable for certain of its office properties. 
27. Cash flows from operating activities 
       2007 2006
Group       $’000 $’000
Operating activities:
Operating profit/(loss)       1,792 (46,844)
Depletion and amortisation       50,310 42,978
Impairment expense       – 60,033
Exploration expense       – 1,368
Share-based payment provision       1,918 1,898
Operating cash flow prior to working capital       54,020 59,433
Increase in inventories       (1,323) (3,713)
Increase in trade and other receivables       (12,387) (3,454)
Increase in trade and other payables       7,821 10,751
Net cash from operating activities       48,131 63,017
   
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 54 Sterling Energy PLC Annual Report & Accounts 2007
27. Cash flows from operating activities (continued)
       2007 2006
Company       $’000 $’000
Operating activities:
Operating profit/(loss)       (3,057) (82,377)
Impairment expense provision       – 75,709
Depletion and amortisation       15,985 –
Share based payment provision       236 1,898
Operating cash flow prior to working capital       13,164 (4,770)
Increase in inventories       (1,090) (3,713)
Decrease/(increase) in trade and other receivables       62,619 (95,327)
(Decrease)/increase in trade and other payables       (136,885) 105,334
Net cash (used in)/generated from operating activities      (62,192) 1,524
28. Post-balance sheet events
On 4 April 2008 the Company announced the proposed sale of Sterling Energy Inc. and Sterling Energy USA Inc. (100% owned 
subsidiary companies) which represent one of the companies two geographical segments (North America). 
(a) Sterling Energy Inc. and Sterling Energy USA Inc represent a significant part of the business and in 2007 created a segment 
result of $16,791,000 profit (2006: $6,408,000 profit) and represented segment assets of $430,790,000 (2006: $97,461,000) 
and segment liabilities of $132,812,000 (2006: $53,443,000);
(b) The aim of the sale is to repay the Group’s existing borrowings and leave it with significant net cash. This together with cash 
revenues from its Mauritanian providing interests, will provide funding to increase the Group’s investment in its key high impact 
exploration assets. The Group will also pursue new opportunities including acquisitions in Africa and the Middle East. The sale 
is expected to be completed by the end of 2008; 
(c) Further information on the North America segment is shown in note 3 of the financial statements.
 
29. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern and to maximise 
returns to investors through the optimal utilisation of available debt and equity capital. 
The Group is not subject to externally imposed capital requirements. The capital structure of the Group consists of debt, which 
includes the borrowings disclosed in note 20 net of cash and cash equivalents held for working capital purposes, and equity 
attributable to the equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in note 25.
The Directors regularly review the Group’s funding requirements and satisfy these requirement in the most cost effective and 
practical manner dependent upon both the external credit markets and the availability of equity funding.
Gearing ratio
       2007 2006
Group      Notes $’000 $’000
Debt      20 153,318 23,214
Cash and cash equivalents        18 (49,866) (91,759)
Net debt/(cash)       103,452 (68,545)
Equity       278,270 223,623
Net debt to equity ratio       37% n/a
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and 
the basis on which income and expenses are recognised, in respect of each material class of financial asset, financial liability and 
equity instrument are disclosed in note 1 to the financial statements. 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 55 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
29. Financial instruments (continued)
     Carrying amount  Fair value
     2007 2006 2007 2006
Group    Notes $’000 $’000 $’000 $’000
Financial assets
Cash and cash equivalents    18  49,866  91,759  49,866   91,759 
Derivative instruments in designated hedge accounting relationships     2,005  –  2,005  –
Available-for-sale financial assets     16a  1,932 5,922 1,932 5,922
Other financial assets at fair value    16b 3,500 – 3,500 –
Trade receivables    17  41,965  13,863 41,965 13,863
Total      99,268  111,544 99,268   111,544 
Financial liabilities
Derivative instruments in designated hedge accounting relationships   16,608  – 16,608  –
Other derivative instruments     – 4,650 – 4,650
Financial liabilities at amortised cost     153,318  23,214 153,318 23,214
Trade payables    19 79,835 32,182 79,835 32,182
Total     249,761 60,046  249,761 60,046 
     Carrying amount  Fair value
     2007 2006 2007 2006
Company    Note $’000 $’000 $’000 $’000
Financial assets
Cash and cash equivalents    18 33,099  74,236  26,540  74,236 
Trade receivables    17  5,381  2,010  5,381  2,010 
Total     38,480  76,246  31,921  76,246 
Financial liabilities
Derivative instruments in designated hedge accounting relationships    11,153 – 11,153  –
Other derivative instruments     – 4,650 – 4,650
Financial liabilities at amortised cost     153,318 – 153,318 –
Trade payables    19  20,684  20,953  14,125  20,953 
Total     185,155  25,603  178,596  25,603
The fair values of financial assets and financial liabilities are determined as follows: 
Derivative instruments in designated hedge accounting relationships relate to oil and gas derivatives, primarily consisting of 
swaps and collars. The fair values of the swap contracts are determined directly by reference to published oil and gas price 
quotations in active markets, due to the relatively short term maturities of the instruments less than six months. The fair values 
of the collars are determined directly by reference to these similar commodity price quotes as well as a relevant forward quoted 
interest rate curve. Inflation is assumed to add 1%, and the volatility assumption is based on historic price volatility.
Available-for-sale financial instruments are valued at the quoted market price for the investments at the balance sheet date (see 
note 16a).
Other financial assets and liabilities are valued at amortised cost value less any credit risk provision. Due to the short-term 
nature of these assets and liabilities such values approximate their fair values at 31 December 2007 and 31 December 2006. 
Financial risk management objectives
The Group’s objective and policy is to use financial instruments to manage the risk profile of its underlying operations. The Group 
continually monitors financial risk including oil and gas price risk, interest rate risk, equity price risk, currency translation risk and 
liquidity risk and takes appropriate measures to ensure such risks are managed in a controlled manner including, where 
appropriate, the use of financial derivatives. 
The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
•
•
•
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 56 Sterling Energy PLC Annual Report & Accounts 2007
29. Financial instruments (continued)
Oil and gas price risk
The Group uses a range of derivative instruments to provide a cash flow hedge against its exposure to volatility in oil and gas prices 
arising from floating price sales. At 31 December 2007 the Group had cash flow hedges in place with the following characteristics: 
      Group
     2008 settlements 2009 settlements 
Brent oil price
Volume (bbl)     360,000 360,000
Hedge price (per bbl)
– Swap     $74.30 $74.30
  
WTI oil price  
Volume (bbl)     72,000  108,000
Hedge price (per bbl)  
– Collar floors/ceilings    $60.00/$72.30 – $83.00  –
– Swaps     $70.00 – $88.45 $69.90 
  
Henry Hub gas price  
Volume (mmbtu)     3,990,000 2,680,000
Hedge price (per mmbtu)  
– Collar floors/ceilings    $6.50 – $9.00/$9.75 – $16.25  $7/$8.65 
– Swaps     $7.76 – $10.98 $8.00 – $9.22
The Group policy is to hedge a minimum of 25% of the proven production profile of the Natixis Facility Borrowing Base Assets as 
required by the Facility with the actual level determined by broader financial requirements and market availability and pricing. 
At 31 December 2006 there were no cash flow hedges in place.
The table below shows the combined impact on the fair values of oil and gas derivatives resulting from a $10 decrease/increase in 
forward prices for oil and a $1 decrease/increase for gas, analysed between earnings and equity. 
     Group    Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Decrease:
Decrease in profit     – 4,650 – 4,650
Decrease in equity     3,193 – 4,243 –
Decrease in net assets     3,193 4,650 4,243 4,650
Increase:
Increase in profit     – 4,650 – 4,650
Increase in equity     26,396 – 18,063 –
Increase in assets     26,396 4,650 18,063 4,650
Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates which are fixed for defined 
periods of up to six months under the Facility Agreement. The Group also places available funds on short term deposit. The Group 
is also exposed to the impact of movements on interest rates on the period-end valuation of its derivative instruments.
The Group monitors its exposure to interest rate risk on a regular basis but does not currently use derivative instruments to 
manage its interest rate risk. 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 57 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
29. Financial instruments (continued)
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for derivative and non-derivative 
instruments at the balance sheet date and assuming the amount of the balances at the balance sheet date were outstanding for 
the whole year.
A 100 basis point change represents management’s estimate of a reasonably possible change in interest rates at the balance 
sheet date. If interest rates had been 100 basis points higher and all other variables were held constant the Group’s profits and 
equity would be impacted as follows:
    Group    Company
    Increase/(decrease)   Increase/(decrease)
    2007 2006  2007 2006
    $’000 $’000  $’000 $’000
Loans at amortised amount     (1,533) (232)  (1,533) (232)
Cash and cash equivalents    499 918  331 742
    (1,034) 686   (1,202) 510
The Group’s exposure to interest rates has increased during the year as it has entered into additional loans with floating interest 
rate terms to finance acquisitions of, and investments in, assets.
Foreign currency translation risk
The Group’s reporting currency is the US dollar; being the currency in which the majority of the Group’s revenue and expenditure 
is transacted. The US dollar is the functional currency of the Company and the majority of its subsidiaries. Less material elements 
of its management, services and treasury functions are transacted in sterling. The majority of balances are held in US dollars with 
transfers to sterling and other local currencies as required to meet local needs. At the end of 2007 there were no net material 
monetary liabilities or assets not denominated in the functional currency of the subsidiary involved. 
The Group does not enter into derivative transactions to manage its foreign currency translation or transaction risk.
Equity price risks
The Group is exposed to equity price risk in respect of its available-for-sale investments which are investments in listed equity 
securities. These investments are held for strategic rather than trading purposes.
Equity price sensitivity analysis
A 5% change represents management’s estimate of a reasonably possible change in equity prices at the balance sheet date.  
On the basis of the Group’s exposure to equity price risks at the reporting date, if equity prices had been 5% higher other equity 
reserves would increase by $97,000 (2006: $296,000). 
The Group’s sensitivity to equity prices has not changed significantly from the prior year.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and 
will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group.
The Group’s business is diversified in terms of both region and the number of counter-parties and the Group does not have 
significant exposure to any single counter-party or group of counter-parties with similar characteristics.
Liquidity risk management
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities to match its 
short, medium and long-term funding requirements. The Group uses cash flow models, which are regularly updated, to monitor 
liquidity risk.
Included in note 20 is a description of additional undrawn facilities that the Group has at its disposal at 31 December 2007 to 
further reduce its liquidity risk.
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 58 Sterling Energy PLC Annual Report & Accounts 2007
29. Financial instruments (continued)
Liquidity and interest rate tables
The following tables detail the remaining contractual maturity for the non-derivative financial assets and liabilities of the Group and 
Company. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date 
on which the Group can be required to pay. The table includes both interest and principal cash flows including rates for loan 
liabilities and cash deposits on actual contractual arrangements. The weighted average interest rate used is 6.7% (2006: 7.9%)
   Less than  6 months to    
   six months 1 year 1-6 years Total  Interest Principal
Group   $’000 $’000 $’000 $’000 $’000 $’000
2007
Trade payables   33,987 – – 33,987 – 33,987
Derivative financial instruments   4,855 4,579 7,174 16,608 – 16,608
Long-term debt   7,299  9,079 147,212  163,590  (10,272) 153,318
  
2006
Trade payables   8,591 – – 8,591 – 8,591
Derivative financial instruments   4,650 – – 4,650 – 4,650
Long-term debt   25,048  – – 25,048  (1,834) 23,214
   Less than  6 months to    
   six months 1 year 1-6 years Total  Interest Principal
Company   $’000 $’000 $’000 $’000 $’000 $’000
2007
Trade payables   7,003 – – 7,003 – 7,003
Derivative financial instruments   3,284 3,021 4,848 11,153 – 11,153
Long-term debt    7,299 9,079 147,212 163,590 (10,272) 153,318
  
2006  
Trade payables   321 – – 321 – 321
Derivative financial instruments   4,650 – – 4,650 – 4,650
Long-term debt   – – – – – –
The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based 
on the undiscounted net cash outflows on the derivative instruments. The amounts payable are not fixed but have been 
determined by reference to published commodity price quotations at the reporting date. 
      Group Company
     2007 2006 2007 2006
     $’000 $’000 $’000 $’000
Forecast cash settlements (net of derivative asset and liabilities in notes 18 and 20)
2007     – 4,650 – 4,650
2008     7,673 – 6,305 –
2009     6,930 – 4,848 –
     14,603  4,650 11,153 4,650
Discounted values     14,390 4,650  10,993  4,650 
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 59 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
30. Share-based payments
The Group recognised a total expense, within administration costs, in respect of share-based payments under equity-settled 
share option plans of $1,916,722 (2006: $1,898,000). The Company recognised a total expense, within administration costs, in 
respect of share-based payments under equity-settled share option plans of $236,000 (2006: $1,898,000).
The Sterling Employee Share Incentive Plan
Movements during the year on share options were as follows:
    2007 2007  2006 2006
     Weighted   Weighted 
     average   average 
    Number exercise   Number exercise 
    of share price   of share price 
    options (pence)  options (pence)
Outstanding at the beginning of period   78,390,000 12.5  64,125,000 9.5
Granted during the period   4,650,000 15.5  17,805,000 23.0
Forfeited during the period   (10,025,000) 18.3  (2,540,000) 15.0
Exercised during the period   (4,150,000) 10.8  (1,000,000) 12.5
Outstanding at the end of the year   68,865,000 11.7  78,390,000 12.5
Exercisable at the end of the year   50,585,000 8.3  48,535,000 7.0
For all options the Group plan provides for a grant price equal to the average quoted market price of the Company’s shares on the 
date of grant. 
All options are equity settled. The vesting period for all options is generally two years. If the options remain unexercised after a 
period of ten years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group 
before the options vest.
The range of exercise prices for options outstanding at the end of the year was:
    Weighted     
    average    
     exercise    
    price  2007  2006
Year of grant    (pence)  Number  Number
2001    4 2,600,000  3,300,000
2002    4 22,950,000  22,950,000
2003    7 8,200,000  9,000,000
2004    13 5,325,000  11,285,000
2005    18.8 11,510,000  14,050,000
2006    23.1 13,630,000  17,805,000
2007    15.5 4,650,000  –
The weighted average share price at the date of exercise during the year was 14 pence (2006: 16 pence). The options outstanding 
at the end of the year have a weighted average contractual life of 6.38 years (2006: 6.95 years)
The cost of share options is spread over the vesting period of two years. The weighted average fair value of options granted during 
the period was 15.5 pence (2006: 23 pence).
Fair values were measured by use of the Black-Scholes pricing model. The inputs to the model were as follows:
       2007 2006
       Number Number
Weighted average share price (pence)       15.25 15.9
Weighted average exercise price (pence)       10.8 15.4
Average expected volatility        42.72% 45.9%
Expected life (years)       5 5
Average risk-free rate (%)       4.7% 4.5%
Expected dividends       None None
The expected life of the options is based on the best estimate of the Directors following a review of the profile of the award 
holders. Expected volatility was estimated by calculating the historical volatility of the Company’s share price over the year 
preceding the grant of the options.
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 60 Sterling Energy PLC Annual Report & Accounts 2007
30. Share-based payments (continued)
No performance criteria are attached to the outstanding 
options, other than the requirement that the employee must 
complete two years of service with certain exceptions such as 
a company takeover, compulsory redundancy or else at the 
discretion of the Directors. 
Long Term Incentive Plan (“LTIP”)
In accordance with the approved LTIP, the Company granted 
nominal cost options to the Directors to acquire ordinary shares 
(“Shares”) (the “A” Options) and at the same time, granted 
nominal cost options to acquire shares to the trustees of the 
Sterling Energy PLC Employee Benefit Trust (the “EBT”) (the “B” 
Options). The trustees of the EBT agreed to make awards to 
the Directors of reversionary interests, which would initially be 
represented by the B Options.
The Company also granted nominal cost options to acquire 
shares to other employees under the approved LTIP.
Movement during the year on share options were as follows:
  2007 2006
  Number  Number
  of share of share 
  options options
Outstanding at the beginning of period  – –
Granted during the period  46,622,000 –
Forfeited during the period  (2,088,000) –
Outstanding at the end of the year  44,534,000 –
Exercisable at the end of the year  – –
The nominal cost options outstanding at the end of the year 
have a contractual life of 2.75 years (2006: nil). 
The cost of these shares is spread over the vesting period of 
three years (2006: nil).
The weighted average fair value of the options granted during 
the year was 1.725 pence (2006: nil).
The actual number of shares that will be finally awarded out of 
the maximum number stated above under the LTIP, or 
alternative cash settlement at the Company’s option, will 
depend upon the achievement of performance criteria 
measured over a vesting period of three years for each award.
Up to 50% of the nominal cost options will vest based on a 
comparison of the total shareholder return (“TSR”) of the 
Company as measured against a comparator group of 
companies (“the First Performance Condition”). The TSR of 
each company with the comparator group will be statistically 
ranked. 
The number of options that ultimately vest is based on the 
Company’s relative ranking and requires that performance is at 
least equal to the median of the peer group with a maximum 
award being achieved at the 90th percentile.
Up to the other 50% of the nominal cost options will vest based 
on the share price growth of the Company’s shares above 
11.75 pence, the original share price (“the Second Performance 
Condition”). 
The number of options that ultimately vest is based on the total 
growth of the share price and requires that growth is at least 
50%, with a maximum award being achieved at 150% growth. 
These fair values were calculated using modified binomial 
option pricing models. The inputs to these models were as 
follows:
   2007
Share price (pence)   11.75
Exercise price (pence)   Nil
Expected volatility   45.72%
Expected life (years)   3
Risk free rate (%)   5.75%
Expected dividends   None
For options subject to the  
First Performance Condition –  
the weighted expected % of vesting   9.33%
Expected volatility was estimated by calculating the historical 
volatility of the Company’s share price over the three years 
preceding the grant of the LTIP shares. 
For the options that are subject to the First Performance 
Condition, a weighted expected percentage of options vesting 
was applied. This was estimated based on the Company’s 
historical TSR performance against the comparator group on a 
quarterly basis from 2000 to 2007.
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 61 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
31. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties have been eliminated on consolidation. At the 
year end the Company had amounts payable to subsidiary companies of $40,198,000 (2006: $187,829).
Transactions with Directors – details of Directors’ remuneration, who comprise key management personnel, are provided below:
       2007 2006
       $’000 $’000
Short-term employee benefits       2,763 2,073
Post employee benefits       296 207
Share-based payments       1,917 1,898
       4,976 4,178
Notes to the financial statements (continued)
Year ended 31 December 2007 Page 62 Sterling Energy PLC Annual Report & Accounts 2007
$ US dollars
2p proven and probable
bbl barrel of oil
bbls barrels of oil
bcf billion cubic feet of gas
bcfge billions of cubic feet gas equivalent
boe barrels of oil equivalent
bopd barrels of oil per day
EBITDA  earnings before interest, taxation, depreciation 
and amortisation
mcf thousand cubic feet of gas
mcfge thousand cubic feet of gas equivalent
mmbbl millions of barrels
mmcfg/d million cubic feet of gas per day
mmcfge/d millions of cubic feet of gas equivalent per day
nri net revenue interest
orri overriding royalty interest
tcf trillion cubic feet of gas
wi working interest
WEC Whittier Energy Corporation
Definitions Page 63 Sterling Energy PLC Annual Report & Accounts 2007
Financial statements
Notes Page 64 Sterling Energy PLC Annual Report & Accounts 2007
Notes Sterling Energy PLC (“Sterling” or the “Company”) is an upstream 
oil and gas Company listed on the AIM market in London. Sterling 
is an experienced operator of international licences with a focus on 
projects in Africa and the Middle East. Sterling has high impact 
near-term opportunities in Kurdistan and Madagascar, exploration 
in Gabon, AGC and Cameroon, as well as appraisal and production 
assets in Mauritania. It seeks to expand its portfolio with an 
emphasis on near-term activity and value growth. It intends to sell 
its USA assets and to redeploy the capital to repay all of its debt, 
with the resulting cash balances being used to develop its assets  
in its core areas.
Overview
01 Highlights – 2007
02 2008 Activity and Objectives
03 New Strategy
04 Chairman’s Statement
06 Chief Executive’s Review
Business review
08 Operational
16 Reserves Report
17 Schedule of Interests
18 Financial Review
22 Corporate Social Responsibility
24 Board of Directors
Governance
26 Directors’ Report
30 Corporate Governance
32 Statement of Directors’ 
Responsibilities
Financial statements
33 Independent Auditors’ Report to the 
Members of Sterling Energy 
34 Consolidated income statement
34 Consolidated statement of 
recognised income and expense
35 Consolidated balance sheet
36 Company balance sheet
37 Consolidated cash flow statement
38 Company cash flow statement
39 Notes to the financial statements
62 Definitions www.sterlingenergyplc.com 
Exploring for success
Annual Report & Accounts 2007
UK 
Sterling Energy PLC
5 Chancery Lane
London
WC2A 1LG
Tel: +44 (0)20 7405 4133
Fax: +44 (0)20 7440 9059
info@sterllingenergyuk.com
USA 
Sterling Energy
333 Clay Street #700
Houston
Texas 77002
Tel: +1 (713) 850 1880
Fax: +1 (713) 850 1879
info@sterlingenergyusa.com 
Sterling Energy PLC Annual Report & Accounts 2007