Annual Report & Accounts 2008
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 
www.sterlingenergyplc.com
Sterling Energy plc Annual Report & Accounts 2008 Overview
01 Who We Are
02 Highlights – 2008
03 Management Objectives for 2009
04 Chairman’s Statement
06 Chief Executive’s Review
Business Review
08 Operational
14 Reserves Report
15 Schedule of Interests
16 Financial Review
20 Corporate Social Responsibility
22 Board of Directors
Governance
24 Directors’ Report
30 Corporate Governance
31 Statement of Directors’ Responsibilities
Financial Statements
32 Independent Auditors’ Report 
33 Consolidated income statement
33 Consolidated statement of recognised 
income and expense
34 Consolidated balance sheet
35 Consolidated cash flow statement
36 Company balance sheet
37 Company cash flow statement
37 Company statement of recognised 
income and expense
38 Notes to the financial statements
61 Definitions
$
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
bo/d
barrels of oil per day
boe
barrels of oil equivalent
boe/d
barrels of oil equivalent per day
EBITDA
earnings before interest, taxation, depreciation, amortisation, 
impairment and pre-licence expenditure
HSE
Health, Safety and Environment
km
2
square kilometre
mbo/d
thousand barrels of oil per day
mcf
thousand cubic feet of gas
mcfge
thousand cubic feet of gas equivalent
Definitions
mcfge/d
thousand cubic feet of gas equivalent per day
mmbbl
millions of barrels
mmboe
millions of barrels of oil equivalent
mmcf
millions cubic feet of gas
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
PSC
production sharing contracts
RI
Royalty interest
sq mi
square mile
tcf
trillion cubic feet of gas
TEA
technical evaluation agreement
WEC
Whittier Energy Corporation
WI
working interest
Page 61 Sterling Energy plc Annual Report & Accounts 2008 Page 1
Overview
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 potential near-term opportunities in Kurdistan, 
Madagascar and in Cameroon, as well as 
production, appraisal and exploration in the USA 
and production in Mauritania.
Who We Are Page 2 Sterling Energy plc Annual Report & Accounts 2008
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Highlights – 2008
Revenues for the period increased 7% to $103.6 •	
million (2007: $97.2 million).
Average production decreased 17% to 4,809 boe/d •	
(2007: 5,760 boe/d), partly due to the impact of two 
major hurricanes in the USA. Year to date production 
in 2009 has averaged 4,694 boe/d.
EBITDA increased to $65.1 million (2007: $56.6 million). •	
Falls of 61% in oil prices and of 25% in gas prices •	
between the end of 2007 and 2008 resulted in 
lowered fixed asset values and triggered non-cash 
pre-tax impairment charges of $180.1 million. 
Accordingly an operating loss of $175.2 million 
resulted (2007: profit $1.8 million).
 Operating profit of $7.7 million before impairment •	
charges (2007: $1.8 million).
Proved plus probable (“2P”) oil and gas reserves at the •	
end of 2008 were down 14% at 18.3 million boe.
Placing of £13.5 million at 2 pence per share in •	
October 2008.
Since the start of 2008, Sterling has repaid $41.4 •	
million (27%) of its bank debt, which currently stands 
at $112.2 million. In 2008 the falls in prices of oil by 
75% and gas by 58%, from their peaks, and continued 
gas price weakness in 2009 has resulted in a marked 
reduction in the Group’s Borrowing Base debt 
availability. Sterling’s debt is above the calculated 
available level and a waiver was agreed with its banks 
in April 2009 until mid-August 2009. Sterling is subject 
to certain restrictions and approvals under the waiver. 
A strategic solution is being sought to enable 
repayment of the existing debt gap of $25.3 million in 
advance of expiry of the waiver, in addition to further 
repayments forecast to then fall due. A further review 
will take place at that time. Cash balances are 
currently $4.3 million.
Increased activity in Kurdistan on the Sangaw North •	
PSC with a 325km 2D seismic programme completed 
over the block in late 2008. Sterling retains a 53.33% 
interest (40% fully diluted) in the block after farming it 
out. Sterling recovered all past costs and has a carry 
through the seismic and the first well up to the point  
of testing.
Recent interpretation of the Kurdistan seismic •	
confirms that the extensive anticline evident at the 
surface is also present in the subsurface where a very 
large structural closure is evident.
Good progress has been made in the evaluation of the •	
Ampasindava and Ambilobe PSC’s, Madagascar, 
where several large structures have been identified, 
with Sifaka one of the largest. A site survey on the 
Sifaka prospect has been conducted and a potential 
drilling location identified. 
Prospectivity studies over the Ntem block, offshore •	
Cameroon (Sterling 100%), have identified a number of 
significant prospects. The maritime border dispute 
that has delayed drilling is understood to be close to 
being settled.
A conditional sale of the USA assets announced in •	
September 2008 was not completed. This was due to 
the impact of the banking and credit crisis and the 
major falls in energy prices since then. A sale remains 
central to Sterling’s strategy.
2008 drilling in the USA resulted in 9 out of 18 •	
successful wells. Results so far in 2009 have improved 
markedly. Activity is now focused on bringing on 
near-term production and improving reserve 
classification.  Page 3 Sterling Energy plc Annual Report & Accounts 2008
Overview
Management objectives for 2009
Graeme Thomson, CEO of Sterling, commented: 
“Volatile times require fortitude, boldness and no little luck. 2009 
is a year of challenge and we are focused on achieving our key 
objectives, being to resolve the debt issue that has arisen from 
the recent huge fall in energy prices and to drill potentially 
‘company-making’ wells with a carried interest.”
The immediate focus remains on finding a resolution •	
to Sterling’s debt shortfall which has arisen principally 
as a direct result of the sustained and major fall in 
energy prices as shown in the table below. 
   Henry
  Brent Oil  Hub Gas
  $/bbl $/mcf
1 January 2008  94.57 7 .27
High point (July 2008)  145.28 12.92
31 December 2008  36.96 5.47
28 May 2009  64.48 3.55
We continue discussions with interested third parties •	
and continue to seek a sale of assets, including the 
USA business. Debt repayments from cash flow are 
currently $1 million per month.
To drill the high-impact, carried well in the exciting and •	
fast emerging oil province of Kurdistan.
To farm out an interest in the Cameroon licence and •	
to drill as soon as feasible.
To farm out an interest in Madagascar and then •	
prepare for drilling of the Sifaka prospect in 2010. Page 4 Sterling Energy plc Annual Report & Accounts 2008
As we all know, 2008 and so far 2009, have been exceptionally 
difficult times for the world economy and, not least, for smaller 
Exploration and Production companies like Sterling. 
We announced late last year that we had received possible bid 
approaches and had agreed a conditional sale of our USA 
assets. Major falls in energy prices since then, especially of 
USA gas, have had adverse ramifications, including for our debt 
facilities and cash flows. This, plus the impact of instability in 
the global banking sector, has made it a particularly complex 
position to resolve. I am nonetheless optimistic that, given the 
best endeavours of the management team and the support of 
our banks, for whose waiver in respect to the February 
Borrowing Base repayment until mid-August 2009 I am grateful, 
we shall prevail.
Since the start of 2008 we have repaid $41.4 million of debt and 
as at date of this report now owe $112.2 million. At the last 
Borrowing Base review, computed effective mid February 2009, 
we had a “debt gap”, being the debt repayment temporarily 
deferred as a result of the waiver, of $28.3 million after making 
an $8.0 million repayment. Further payments totalling $3.0 
million have subsequently been made. Under the terms of our 
waiver, we must repay not less than $1.0 million of debt per 
month, and have limitations and bank approval requirements  
on capital expenditures and other procedures. In addition to 
closing the remaining debt gap of $25.3 million, and meeting 
these monthly repayments, the next Borrowing Base review 
due in August 2009 is forecast to require a further debt 
repayment in September. In order to secure the future of 
Sterling, we are endeavouring to resolve this issue as soon  
as possible.
Chairman’s Statement 
Whilst our revenues for 2008 were up 7% at over $103.6 million, 
Group production from our fields in the USA and Mauritania 
was down 17% at 4,809 boe/d. EBITDA was up 15% at $65.1 
million, administrative costs were reduced by 9% and cash 
inflow from operating activities increased by 18% to $56.7 
million. An operating profit before tax and impairment charges 
in 2008 of $7.7 million was achieved, compared with $1.8 million 
in 2007. The statutory operating loss for the year was $175.2 
million (2007: profit $1.8 million).
From their peaks in 2008 oil prices fell by 75% and gas prices 
by 58%. We, along with the industry, have to assess the 
carrying value of our assets with year-end prices in mind. In 
common with many companies this review has resulted in a 
non-cash write-down, which is shown in the financial 
statements as an impairment charge to oil and gas assets of 
$180.1 million. Of this, approximately 44% was in the USA and 
56% was in Mauritania/West Africa. 
Sterling’s proved plus probable oil and gas reserves at the end 
of 2008 were 18.3 million boe, of which proved reserves were 
60% and probable reserves were 40%. There were an 
additional 9.3 million boe of possible reserves and 0.4 million 
boe of contingent resources. An independent review by RISC 
on two of our prospects in Kurdistan and Madagascar has 
indicated net unrisked best estimate prospective resources of 
460 million boe. For the Kurdistan prospect this review was 
conducted prior to the recent seismic survey and we expect the 
results of the seismic survey to increase the estimate of the 
prospective resources and decrease the exploration risk. 
Drilling was successful in Mauritania but mixed in the USA, 
although since year-end there has been a marked improvement 
in the success rate there. Page 5 Sterling Energy plc Annual Report & Accounts 2008
Overview
0
5
10
15
20
25
Reserves
mmboe
05 06 07 08
$103.6m
 
+
 
7%
revenue
“ I am very excited about the 
carried well in Kurdistan that 
we plan to drill in the fourth 
quarter of 2009. This has the 
potential to transform the 
Group’s outlook”
On the exploration front, I am very excited about the carried 
well in Kurdistan that we plan to drill in the fourth quarter of 
2009. This has the potential to transform the Group’s outlook, 
as have our interests in Cameroon and Madagascar, where 
activity is expected to accelerate. We look to farm out both 
African licences.
I wish to record my thanks to the staff and my fellow directors 
for their unstinting efforts during a period of rapidly changing 
market conditions. Paul Griggs and Chris Callaway left the 
Board in April 2008 and May 2009 respectively. I would like to 
express my sincere thanks to them both. We have also reduced 
our staff by 4% despite commencing operations in Kurdistan, 
and our manpower costs by 22%, on a like-for-like basis since 
the start of 2008. 
Our near-term aims are clear. We must adapt to the new 
conditions, and difficult choices lie ahead. I am grateful for the 
support given by everyone over the last difficult year. You may 
rest assured that no effort will be spared to achieve our 
objectives in 2009.
 
Dick Stabbins
Chairman
29 May 2009  Page 6 Sterling Energy plc Annual Report & Accounts 2008
Chief Executive’s Review
Adapting our Strategy
The last year or so has been the most volatile and difficult 
period in my considerable time in the oil industry, but I believe 
there are many reasons to be optimistic about the future, not 
least Sterling’s interests in potentially “company making” assets 
such as Kurdistan, Cameroon and Madagascar, of which I will 
say more later. 
The falls in energy prices from their high points in July to the 
December 2008 closing prices – gas down 58% and oil down 
75% – have had a well documented impact on the industry and 
the companies operating within it. The impact on Sterling has 
been no less marked.
In common with our peers, we are making adjustments to our 
business structure and strategy aimed at ensuring a sustainable 
future with good near-term upside potential. 
Energy prices have tumbled –  
costs are lagging
Although we are now getting lower revenue from our 
production, we did take out hedges prudently for 2009 of 
around 75% of our proved developed estimated sales volumes 
at prices well ahead of current ones. Operating costs, which 
followed energy prices and the consequent increase in industry 
activity to high levels, have not generally fallen; indeed items like 
insurance have increased. However, there are signs that capital 
costs are now starting to reduce with costs such as rig rates, 
steel and services all reacting to the industry’s inability to 
sustain previous cost levels.
Reducing our debt gap is the  
current priority
Since the start of 2008, Sterling has repaid $41.4 million (27%) 
of its debt, which now stands at some $112.2 million. A bank 
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Jan 09
Feb 09
Mar 09
Apr 09
May 09
0
US$
2
4
6
8
10
12
14
Natural Gas-Henry Hub $/mcf
Crude Oil-Brent $/bbl Natural Gas-Henry HUB $/mcf
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sep 08
Oct 08
Nov 08
Dec 08
Jan 09
Feb 09
Mar 09
Apr 09
May 09
0
US$
20
40
60
80
100
120
140
160
Crude Oil-Brent UK $/bbl
waiver has also been agreed and is in place until mid-August 
2009. We continue to work very hard to reduce the outstanding 
debt and to eliminate the debt gap which currently stands at 
$25.3 million. The debt gap is the amount of actual debt in 
excess of the syndicated loans Borrowing Base as reassessed 
under the reserve based lending facility assumptions every six 
months. The debt gap is also the amount of debt repayment 
temporarily deferred by our lending banks as a result of  
the waiver.
The sale of our USA assets has not yet been achieved. This is 
due primarily to the fall in energy prices and the crisis in the 
banking sector, which has meant that the conditional buyer we 
had announced in September 2008 could not complete the 
transaction. The market place for USA deals has virtually 
ceased to operate since then, but we continue to seek a buyer 
for part or all of these assets.
In parallel, we are also seeking a debt solution that will enable 
the Group to resume its expansion. This could include an 
injection of capital and people, of assets or a combination, or 
indeed a full takeover. Shareholders can be assured that senior 
management is fully committed to securing a resolution to this 
issue, in the interests of all stakeholders, as soon as possible. 
Great upside in the exploration and 
drilling portfolio
In 2008 we achieved two important farm outs, on the Iris well 
offshore Gabon and on our highly promising licence onshore in 
Kurdistan, which are described in more detail elsewhere. 
Our policy is almost always to farm out international wells and 
minimise our net costs, including drilling. Whilst the Gabon well  
in July 2008 was dry, it was drilled at no cost to us. Our bank 
waiver sets clear limitations on our international costs, but our 
policy on existing assets remains as it was last year – to farm out.  Page 7 Sterling Energy plc Annual Report & Accounts 2008
Overview
Our first well in Kurdistan is expected to commence drilling in the 
fourth quarter of 2009. When we farmed out this asset in 
September 2008, we got back our past costs (which helped with 
debt repayments) and we will also benefit from a carry on costs 
of drilling the first well until we reach the point of testing. We 
retained a 53.33% interest (40% fully diluted, if the government 
backs in) and operatorship. Recent interpretation work on the 
seismic acquired in late 2008 has led us to increase our 
expectations of the size of the prospect and to lower our 
assessment of the associated risks. There has been successful 
drilling in Kurdistan recently which, according to the Kurdistan oil 
minister, has added 4–5 billion boe in reserves – which would 
indicate a truly a world class oil region in the making.
 
In Madagascar, we now expect drilling in 2010, the delay being 
due to the recent local political changes following a period of 
unrest. Our partner and operator, ExxonMobil, is focused on 
drilling a major structure on the Ampasindava block where we 
retain a 30% working interest and are partially carried. A 
participation decision is currently required by the end of July 
and we continue to seek farm-in parties to enable the Company 
to participate.
Offshore in Cameroon, we have been expediting our studies of 
the prospectivity of the Ntem block (Sterling 100%) and are very 
encouraged by the number and size of the prospects identified. 
We aim to seek farm-in parties at the appropriate time and 
understand that the border dispute may be settled soon. We 
intend to drill as soon as we can after that.
In Mauritania there is no material Phase 2 capital expenditure 
budgeted in 2009. Phase 3 is currently being evaluated and any 
work would not commence until 2010.
In the USA, the focus of our drilling is low risk wells which can 
result in short-term reclassification of reserves into proved and 
producing, whilst farming out higher risk wells. We have cut our 
“ The major challenges in a 
highly volatile time are many 
and varied, but the staff and all 
of the Directors have worked 
tirelessly for the Company”
capex programme for 2009 by 41% to no more than $27.7 
million, intending to balance cash generation with the twin aims 
of bank debt repayment and achieving commercial objectives. 
Good people in volatile times
It is hard from the outside to gauge the effort made within a 
company like ours during such a difficult time but I can tell you 
it has been huge. The major challenges in a highly volatile time 
are many and varied, but the staff and all of the Directors have 
worked tirelessly for the Company. Much has been achieved, as 
set out elsewhere in this annual report, but it has also been very 
frustrating. For example, our placing in October 2008 had given 
the Group resources to meet the then estimated debt 
repayments through to at least early 2010. The falls in energy 
prices since then have meant that the re-assessed bank debt 
Borrowing Base is lowered and we are dealing with the results. 
Volatile times require fortitude, boldness and no little luck. I am 
grateful to all stakeholders, staff, banks, shareholders, suppliers 
and others for their support and I trust, in time, that support will 
yield its rewards.
2009 is a year of challenge and we are focused on achieving 
our stated objectives, to resolve the debt issue and get Sterling 
back on a growth path.
 
Graeme Thomson
Chief Executive Officer
29 May 2009
$41.4million
 
–27%
debt repaid since 1 January 2008 Page 8 Sterling Energy plc Annual Report & Accounts 2008
Kurdistan (Northern Iraq) 1. 
Kurdistan, Iraq
Sangaw North on track for 2009 drilling
2008 represented a period of intense exploration activity on  
the Sangaw North PSC. Having only signed the contract  
with the Kurdistan Regional Government (“the KRG”) in 
November 2007 Sterling completed a 325km 2D seismic 
programme over the block in November 2008. This mixed 
vibroseis and dynamite sourced survey represented the first 
subsurface data in the block.
The survey was a great success since it confirmed that the 
extensive anticline evident at the surface is also present in the 
subsurface where a very large structural closure is evident. The 
seismic operation was carried out with an excellent HSE record 
and with minimal social and environmental impact. 
In parallel with the seismic acquisition programme we also 
farmed out a 33.33% interest in the Sangaw North PSC to 
Addax Petroleum Sangaw Limited (“Addax”). Under the terms  
of this deal, Addax paid Sterling’s past costs, Sterling’s seismic 
acquisition costs, plus a carry for Sterling’s costs for drilling the 
first well on the block, up to the point of testing. 
Following this farm out, the KRG assigned a 20% Third Party 
Interest in the PSC to the Korea National Oil Corporation. 
Sterling’s interest has thus now been reduced to 53.33%, 
Addax’s to 26.67% and Sterling remains operator of the PSC. 
Sterling’s fully diluted interest will be 40%, should the KRG 
exercise its government back-in rights.
In conjunction with the seismic operation Sterling also 
undertook an extensive programme of geological fieldwork 
involving both surface mapping and rock sample collection for 
Operational
Middle East
1
subsequent analysis. This data is being combined with the 
subsurface seismic data to identify the optimal drilling location 
for the Sangaw North exploration well planned for the fourth 
quarter of 2009, subject to rig availability.
Further analysis of the surface oil seeps, typical of the area, 
confirms that the area is charged by the same source rockthat is 
responsible for the majority of the multi-billion barrels of Iraqi 
reserves including the Kirkuk Field, only 50km to the west. 
Sangaw North represents a moderate risk but potentially high 
reward exploration project within this prolific hydrocarbon province.
In recent weeks the potential of this province has been 
highlighted by the exciting news of Heritage’s announcement  
of its Miran West discovery, located 30km to the north of the 
Sangaw Block, and the announcement by the KRG that crude 
oil exports to Turkey from DNO’s Tawke Field and the Taq-Taq 
field will commence in June 2009. 
In-country operations continue to be directed from Sterling’s 
office in Suleimaniah, Kurdistan’s second city, optimally located 
only 40km from the project area. A demographic and social 
survey of villages in the Sangaw area was undertaken in order 
to obtain feedback on the most appropriate support Sterling 
can provide to the local community. During the duration of the 
seismic operation medical clinics were conducted in many 
villages as part of our local liaison work and we plan to increase 
our support to the community as the project progresses. Page 9 Sterling Energy plc Annual Report & Accounts 2008
Business Review
Case Study:
Sangaw North 2D Seismic Acquisition
The completion of a 325km 2D seismic programme over the 
Sangaw North block in November 2008 represented the 
culmination of a multidisciplined operation and was testament 
to Sterling’s meticulous planning and awareness of the local 
social and political environment providing the backdrop to  
the project.
Having gone through a competitive tender process, the 
seismic company chosen to carry out the work was Canada- 
based Terra Seis, who were the most experienced contractor 
in-country, having previously acquired a number of surveys  
in Kurdistan over a three-year period. The vibroseis sourced 
portion of the survey (78%) was carried out using a set of 
brand new state-of-the-art Nomad 65 vibrators imported into 
Kurdistan immediately prior to commencement of the project. 
Dynamite acquisition (22%) was carried out over the more 
rugged and inaccessible terrain.
 
Working closely with the resident community, particularly with 
respect to the hiring of labour and vehicles, we were able to 
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maximise the benefits to the local economy. Great care was 
taken prior to and during the seismic operation to minimise 
both environmental and social impact and to repair any 
damage with a thorough restoration programme. Sterling 
implemented HSE procedures and standards that meant 
that, despite the involvement of nearly 300 people and 100 
vehicles per day at the peak of the operation, the project was 
completed safely with an excellent HSE record.
Close attention to costs throughout the project resulted in 
savings which allowed 32km of additional and contingent 
seismic data to be acquired whilst remaining within budget. 
This first “below ground” data over the Sangaw structure was 
very encouraging with the processed data showing that the 
extensive anticline evident at surface has a similar expression 
in the subsurface where a very large structural closure is 
evident. Ongoing refinement of the seismic data through 
specialised processing techniques will ensure that we remain 
on schedule to define an optimal well location ahead of the 
planned drilling of the well in the fourth quarter of 2009. Page 10 Sterling Energy plc Annual Report & Accounts 2008
Andrew Grosse 
Exploration and  
Technical Director 
Cameroon
Ntem 
The Ntem permit is a highly prospective deepwater block 
situated in the southern Douala/Rio Muni Basin and lies adjacent 
to the northern border of Equatorial Guinea. The financial 
obligations and work programme for the Ntem concession area 
(100% WI) are currently suspended owing to overlapping 
maritime border claims between Cameroon and Equatorial 
Guinea; however, both countries are actively working to resolve 
this issue. Sterling is re-evaluating the area in the light of recent 
Tertiary discoveries made by Noble Energy to the north of the 
block and understands the border dispute may be resolved 
soon. Sterling intends to farm out an interest in this licence. 
This large block remains undrilled and is well placed with 
respect to both Tertiary and Upper Cretaceous plays. As a 
result, it is attracting a good level of industry interest. Many 
large leads and prospects have been identified following a 
detailed interpretation of the extensive 2D and 3D seismic 
database. Recent seismic attribute analysis and inversion 
studies on this dataset reveal the presence of large and 
widespread submarine fans with good exploration potential.
Operational
Africa
1
2
4
3
Mauritania: (PSC A & PSC B) 1. 
AGC: Dome Flore 2. 
Cameroon: Ntem 3. 
Gabon: Iris Marin, Ibekelia Marin 4. 
Madagascar: Ambilobe and Ampasindava 5. 
Madagascar
The potential of the Ambilobe and Ampasindava blocks has 
continued to grow this year, building on from the identification of 
the giant Sifaka prospect last year. In Ampasindava, where 
water depths range from 200m to 3,000m, two further large 
leads have been confirmed within the Sifaka Jurassic trend. In 
Ambilobe, numerous leads of Cretaceous and Tertiary age have 
been identified, including several large Cretaceous leads. 
Preparations for the drilling of the Sifaka prospect have 
continued throughout the year. A site survey was acquired in 
mid-2008 from which a drilling location was chosen at the end 
of the year. This location is on the flank of the structure where 
other studies suggest the main Jurassic target sandstones are 
expected to be encountered at approximately 3,400m below 
seabed. Our estimates remain in line with those previously 
stated; unrisked mean prospective resources of 2 billion barrels. 
Following the completion of the environmental impact 
assessment in the first half of 2009, the Sifaka prospect should 
be ready to drill from the second half of 2009. However, 
following recent local political changes and a period of civil 
unrest we now expect to be drilling in 2010. 
Seismic reprocessing of over 8,000km of 2D data is currently 
being undertaken to identify additional exploration potential in 
both blocks, and is expected to be completed mid-2009. In the 
Ambilobe PSC, where water depths range from zero to 3,000m, 
an additional 550km of 2D was purchased in 2008 and a major 
fieldwork campaign was successfully completed. These field 
results have improved our understanding of the Jurassic and 
Cretaceous source-rocks and reservoirs in outcrop, and our 
ability to predict their presence in the undrilled offshore basins. 
In November 2008 the Ampasindava PSC entered Phase 3 of 
the exploration period which includes a commitment well. We 
expect the costs of the well to materially exceed the value of our 
remaining carry. A participation decision is required by the end 
of July and we continue to seek to further farm-down our 
interest in the PSC to cover our costs. 
5 Page 11 Sterling Energy plc Annual Report & Accounts 2008
Business Review
Case Study:
Ntem, Cameroon
The line of sedimentary basins that stretches along the West 
African coast from the Niger Delta to Angola has proven to be a 
prolific hydrocarbon province. Many oil and gas discoveries 
have been made in the Cretaceous and Tertiary sequences 
which fill these basins.
In the Ambilobe PSC, ExxonMobil withdrew from the joint 
venture on 28 May 2009. Sterling now has a 100% WI in the 
permit and we plan to farm out the block to reduce our cost 
exposure. Sterling has been offered an extension to the current 
exploration phase by OMNIS and we are currently finalising the 
terms of this extension with OMNIS. 
Mauritania
Chinguetti Phase 2B development work completed
During 2008 the operator, Petronas, completed Phase 2B of 
the development programme with the Atwood Hunter rig. This 
phase consisted of drilling two new production wells, C-19 and 
C-20, and interventions into three existing production wells. 
These interventions involved running production logs, installing 
a plug to isolate a water producing zone in one well, and 
installing larger capacity gas lift valves in all three wells. The two 
new wells added around 6.5 mmbbl of 2P field reserves and 
were brought on stream at around 3,500 bo/d each. On 
completion of the phase 2B programme, the total field 
production rate was increased to 16,500 bo/d, with half this 
due to Phase 2B itself. Current production is 10,800 bo/d.
Sterling estimates that, at the end of 2008, Chinguetti held a 
remaining 11.4 mmbbl of gross 2P reserves to be accessed with 
the existing wells, and 4.08 mmbbl of contingent resources. 
Evaluation work carried out in 2009 may culminate in a potential 
Phase 3 to access these contingent resources in 2010.
During 2008, Sterling received a share of sales of 373,000 bbls 
from its interests in the Chinguetti field through the Funding 
Agreement and its Royalty interest which together generated 
over $29.1 million gross revenue ($20.4 million net after hedges) 
from four cargo liftings.
Other development potential 
Two appraisal wells on the Banda gas discovery straddling 
PSC’s A and B were drilled in 2008. These wells encountered 
gas and oil columns with similar contacts to those seen in the 
discovery well, and confirm gas in place estimates of 1.1 tcf in 
the most likely case, with over 4 tcf in the upside case. On the 
back of these results, the operator, Petronas, is understood to 
be preparing a Field Development Plan which it expects to 
submit to the government by mid 2009. Sterling would be 
entitled to revenue under its royalty interest from any 
development of Banda.
Sterling’s Ntem block (100% WI) is located in the southern 
Douala Basin of Cameroon and is one of the few remaining 
large undrilled blocks within this province. The block covers 
an area of 2,319km
2
 and was licensed in 2001. Water depths 
range from 400m to 2,000m across the block. During the 
first term of the concession over 2,100km of 2D, and 
1,500km
2
 of 3D data was acquired, along with the purchase 
of additional seismic and gravity studies. These studies 
highlighted the presence of several large prospects and 
prompted Sterling to enter into the second (drilling) term of 
the licence. In June 2005 the work programme for Ntem was 
suspended owing to overlapping border claims between 
Cameroon and Equatorial Guinea along the Ntem licence 
boundary. Both countries are actively working to resolve the 
issue.
Discoveries to the north, south and east of Ntem are 
testament to the presence of an active petroleum system in 
the region. Sterling’s current work effort is directed towards 
understanding Ntem in the light of recent Tertiary discoveries 
made directly north of the block by Noble Energy (Benita and 
Berlinda fields in 2007–08) and Conoco Phillips (Coco Marin 
discovery in 2003).
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 its production potential. The heavy oil deposits within 
the licence, on Dome Flore and Dome Gea, contain an estimated 
gross 0.8 to 1 billion bbls in place. Sterling’s share of the drilling 
costs will be carried by Markmore for this exploration well. 
A site survey has been conducted, but a rig could not be 
secured to allow the well to be drilled prior to the end of the 
exploration phase in January 2008. A licence extension has not 
yet been granted and is still being sought. 
Gabon 
Iris Marin
The Iris Marin Production Sharing Contract (“PSC”) is situated 
in the Southern Gabon Basin, adjacent to the Gamba and 
Ivinga producing oil fields and the Olowi oil field development. 
The permit extends from the shoreline to a water depth of 60m. 
Sterling holds a 32% working interest, and sold an 18% interest 
to Addax Petroleum and also transferred the operatorship to 
Addax in June 2008. The Iris Charlie Marin-1 well was drilled in 
July 2008, but failed to find hydrocarbons and was abandoned 
as a dry hole. A thick Gamba Sandstone Formation was 
encountered by the well, confirming the prospectivity of the 
area. The operator’s forward plan is to undertake geological 
studies in 2009.
Ibekelia
Sterling and its partners are in advanced negotiations to 
convert Ibekelia from a TEA into a PSC. The TEA covers an 
area of approximately 673km
2
 adjacent to Gamba, Ivinga  
fields and Olowi. Sterling holds a 40% working interest and  
is the operator.  Page 12 Sterling Energy plc Annual Report & Accounts 2008
Operated
Non-Operated
Royalty
Tom East 1. 
Rincon 2. 
Scott & Hopper 3. 
South Mustang Island 4. 
North Mustang Island 5. 
Matagorda Island 520 (El Gordo) 6. 
STS 7. 
Owens 8. 
Big Wells 9. 
Tom Lyne 10. 
Eagleford 11. 
Bonnie View 12. 
El Toro Bueno 13. 
Westhoff 14. 
Hamel 15. 
Austin Chalk (Giddings) 16. 
Galveston Island 251 17. 
Galveston Island 303 18. 
3
2
11
21
24
29
31
27 28
32
12
14
10
34
1
7
13
15
16
20
23
22
25
26
28
27
30
33
8
9
17
18
4
5
6
19
Asset disposal process initiated
In April 2008, Sterling’s Board took the decision to sell its USA 
assets following a review of all the Group’s assets and its 
forward capital expenditure programme. Responding to current 
market conditions and the progress made on other licences over 
the last year, Sterling has sought to redeploy its capital to existing 
and other higher potential assets and to repay its debt. The 
sales process is ongoing but timing has been impacted by falling 
commodity prices and the world-wide economic downturn.
Reserves and production
At the end of 2008, Sterling USA had 2P reserves of 103 bcfge 
(17.1 mmboe) compared to year-end 2007 2P reserves of 111 
bcfge (18.5 mmboe). Possible and contingent resources were  
in excess of 47 bcfge (7.9 mmboe). Approximately 60% of the 
2P reserves were categorised as proven. Within this portfolio 
Sterling has an inventory of identified drilling prospects 
budgeted to be drilled over the next four years, most of which 
are already leased and many already have the necessary 
permits in place. 
During the year, Sterling divested of a group of non-core assets. 
This allowed Sterling to exit activities located in Oklahoma, New 
Mexico, Wyoming and California. Net proceeds were $8.7 million 
and were utilised to pay down existing debt. Net reserves sold 
were 7.2 bcfge (1.2 mmboe). In addition, the sales released the 
Group from future abandonment obligations of $4.8 million.
Sterling had a hurricane affected net production of 8.3 bcfge 
during 2008 (22.7 mmcfge/d). After accounting for the reserves 
associated with its divestitures and all reserve additions and 
adjustments, Sterling replaced 86% of its net production for  
the year. Year-end reserves were adversely impacted by the 
lower commodity price environment which accounted for 
Operational
United States of America
approximately 6 bcfge of the reduction. Without this revision, 
Sterling would have replaced over 150% of its net production 
for 2008.
 
During 2008, Sterling participated in 18 new wells and over  
30 recompletions. Nine of these new wells and 25 of the 
recompletions were successful. The Group also participated in 
the shooting of two new 3D surveys (15 sq mi and 35 sq mi) one 
of which was completed and processed by year-end. Two drilling 
locations have already been identified from the first survey.
At year-end, production from our USA assets was 22 mmcfge/d 
compared to year-end 2007 of 28.5 mmcfge/d, with the 
decrease due to the impact of Hurricane Ike, disposals 
undertaken during the year (approximately 1 mmcfge/d)  
and a reduction in drilling activity due to lower commodity 
prices. Over half of the production is operated by Sterling  
and approximately 75% is natural gas.
Since the end of the year, Sterling’s USA division has  
been active with five wells successfully drilled and several 
workovers completed. Net production in 2009 has averaged  
21.0 mmcfge/d.
At the end of the first quarter of 2009 production had increased 
to over 22 mmcfge/d from 202 wells with nearly 70% of this 
production coming from 11 fields. 
Diversified Asset Base
Giddings Austin Chalk
Sterling currently has Austin Chalk production from five wells 
and current net production of over 1 mmcfge/d. This 
programme located in Grimes and Burleson Counties began in 
early 2007 and the first five wells have proved successful with 
net production increasing rapidly. Two wells are planned for 
2009 with a total of 20 locations remaining. Page 13 Sterling Energy plc Annual Report & Accounts 2008
Business Review
High Island 52 19. 
Esperson 20. 
N Ulrich 21. 
Village Mills 22. 
Phoenix Lake 23. 
Mauriceville 24. 
Gillis English Bayou 25. 
W. Cameron 26. 
E. Crowley/South Bosco/Rayne 27. 
N. Maurice/Duson 28. 
E. Texas 29. 
Beaver Dam Creek 30. 
Cut off 31. 
Lake Lery 32. 
Coffee Bay 33. 
Sunrise/Roleta 34. 
Texas/Louisiana Onshore Gulf Coast
Sterling currently has production from 133 wells of over  
11 mmcfge/d. This area includes the drilling programme 
conducted with Viking Petroleum, a private Houston company, 
which generates prospects primarily in South East Texas. Eight 
such wells were drilled in 2008 with two successful and one 
lost due to mechanical problems (re-drilled in the first quarter  
of 2009). Five additional wells are scheduled for 2009. Sterling 
was also active in its operated Westhoff field, with three wells 
successfully drilled in the fourth quarter of 2008.
Windham Field
Sterling has production from 15 wells with over 1.4 mmcfge/d  
of net production. During 2008, Sterling was active with five 
recompletions which increased production by over 0.5 mmcfge/d. 
Three additional recompletions are planned for 2009.
Offshore Gulf of Mexico
Sterling currently has interests in a total of 15 wells in the Gulf, 
producing approximately 8 mmcfge/d. In 2008 it sold its 
operated interest in the Sherman (MAT720) field and facilities  
in return for assumption of plugging and abandonment costs. 
The Company was active in this region with significant upgrades 
made to the production facilities in the El Gordo (MI 520) field  
and a recompletion that added over 0.5 mmcfge/d. Sterling also 
attempted to sidetrack an inactive well in the N. Mustang Island 
field. This was unsuccessful due to mechanical problems.
South Texas
Sterling currently has production of nearly 2.5 mmcfge/d from a 
total of 34 wells. In addition, the Company recently participated 
in the shooting of a new 35 sq mi 3D survey in LaSalle County, 
Texas. In addition to the targeted deeper formations, Sterling’s 
acreage is positioned along the highly competitive Eagleford 
Shale play. The Eagleford is found at approximately 11,000ft 
and several operators have had success with horizontal  
drilling and multi-stage fracs. During the first quarter of 2009, 
the Company farmed out a portion of its Eagleford rights in 
exchange for a partial carry including completion of the first  
well and reimbursement of seismic and land costs. The first  
well is currently drilling.
Hurricane Ike
In September 2008, Hurricane Ike made landfall near 
Galveston, Texas after travelling through the northern Gulf  
of Mexico. This was a major storm that caused widespread 
damage both onshore and offshore. Sterling’s Eugene Island 
268 (EI268) platform and its single producing well were 
seriously damaged in the storm and the well has been shut  
in since that time. Net production lost was 0.4 mmcfge/d. All 
subsea safety systems appear to be in service and the well  
and platform are expected to be abandoned during the second 
quarter of 2009. We expect that all of the required remedial 
work will be covered by Sterling’s insurance policies.
Although no other significant damage was experienced by  
our facilities, production was significantly curtailed during 
September and October 2008 due to third party downstream 
repairs and pipeline inspections. Total curtailed production  
was estimated at 6 mmcfge/d immediately after Hurricane Ike 
and approximately 4 mmcfge/d for October 2008 with the 
permanent impact on production being 0.4 mmcfge/d. Page 14 Sterling Energy plc Annual Report & Accounts 2008
Sterling Energy plc- reserves report proven and probable reserves
       2008    2007
   2008 2008 Attributable 2007 2007 Attributable 
   Oil Gas reserves Oil Gas reserves
   (000 bbls) (mmcf) (000 boe) (000 bbls) (mmcf) (000 boe)
A. Volumes
At 1 January   7 ,070 85,344 21,294 5, 197 46,304 12,914
Asset Acquisitions   7 4 371 136 3,506 48,232 1 1,545
Asset Divestments   (2,313) (592) (2,412) –  – – 
Upwards revision/additions from previous   2,080 1, 134 2,269 46 12,316 2,099
(Downwards) revision from previous    (1,201) – (1,201) (7 44) (14,492) (3, 159)
Production   (720) (6,208) (1,754) (935) (7 ,016) (2, 104)
At 31 December   4,991 80,049 18,332 7 ,070 85,344 21,294
B. Location of reserves 
The geographical location of reserves were:
North America   3,767 80,049 17 , 108 4,273 85,344 18,497
West Africa    1,224 – 1,224 2,797 – 2,797
    4,991 80,049 18,332 7 ,070 85,344 21,294
C. Categorisation of proven and probable reserves
At the end of the year: 
Proven reserves   69% 57% 60% 60% 69% 66%
Probable reserves   31% 43% 40% 40% 31% 34%
proven West Africa 756 – 756 1,300 – 1,300
  North America 2,687 45,504 10,271 3,056 58,614 12,825
probable West Africa 468 – 468 1,497 – 1,497
  North America 1,080 34,545 6,838 1,217 26,729 5,672
    4,991 80,049 18,332 7 ,070 85,343 21,294
Notes:
1.  The proven and probable reserve movements in 2008 are based on:
a)  North America: Evaluation reports prepared by independent petroleum engineers as of 1 April 2008, with 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 internal assessment of reserves, as at 31 December 2008, conducted by a qualified person (as defined by the AIM rules). This 
internal technical and economic evaluation led to a downward revision of 1,201,000 bbls.
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 the impact of Hurricane Ike, field performance, unsuccessful drilling and commodity  
price weakness.
3. Sterling has not booked reserves in West Africa relating to other Mauritanian discoveries, on the basis that there are no firm development plans.
4.  Definitions: proven reserves have a 90% level of confidence to the stated quantities will be equalled or exceeded. Probable reserves have a 50% level of confidence that the 
stated quantity will be equalled or exceeded. Oil includes condensates.
Reserves Report Page 15 Sterling Energy plc Annual Report & Accounts 2008
Business Review
Schedule of main interests at 31 December 2008
    Sterling Sterling net Operated/
  Size Licence working revenue non-
 Location (km²) name interest % interest % operated
Africa
Mauritania Offshore 6,969 PSC A n.a. Sliding scale  Non-operated 
     royalty over 3% 
 Offshore 8,095 PSC B n.a. Sliding scale royalty over  Non-operated 
     6% (except 5.28% of 
      the Chinguetti Field) 
      
 Chinguetti Funding   n.a. Economic interest  
 Agreement with SMH    for approximately 8%  
     of Chinguetti project 
AGC Casamance-Bissau 1,699 Dome Flore 30%
# 
˜  Non-operated
Cameroon Southern Douala  
 Basin 2,319 Ntem 100%  Operator
Gabon Southern Gabon 673 Ibekelia (TEA) 40%  Operator
 Southern Gabon 607 Iris Marin 32%  Non-operated
Madagascar Offshore NW 17 ,650 Ambilobe 100%*  Operator
 Offshore NW  9,860 Ampasindava 30%
#
  Non-operated
Middle East
Iraq Kurdistan  492 Sangaw North 53.33%  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% 10–7 4% Operator
 Texas State Waters  Matagorda Island/El 
  21 Gordo 46–83% 36–66% Operator
 Texas Federal Waters 50 High Island  7 .6% Gryphon ORRI 7 .6% Gryphon ORRI Non-operated
    2.85% Phoenix ORRI 2.85% Phoenix ORRI Non-operated
 Texas Federal Waters 23 Galveston 
    (incl. 303) 15.75–17 .4% 10.7–1 1.3% Non-operated
 Louisiana Federal Waters 20 Eugene Island 
    (incl. 268) 60%** 45% Operator
 Texas State Waters 5.82 Galveston Bay  
   (incl. ST 251–5) 28% 20.3% Non-operated
Onshore Texas  101 Three Counties 24–55% 19–42% Non-operated
   Austin Chalk 
  Texas 64.3 SE Texas 17 .9% 12.9% Non-operated
   3-D Project Area  
   (Mauriceville) 
  6.8 Windham 91% 68% Operator
  6.9 Carthage 100% 76.3% Operator
  9. 1 Westhoff 75% 57 .2% Operator
  8.2 Sunrise – 12.5–25% ORRI Non-operated
 Louisana 13.25 Rayne 32% 27% Operator
  1.6 Cut-Off 75% 54% Operator
#  Carried interest for deferred work or $ amount.
*  Following ExxonMobil’s decision to withdraw a licence extension was sought in May 2009.
**  To be plugged and abandoned post Hurricane Ike.
 
˜
 Licence extension sought.
Schedule of Interests Page 16 Sterling Energy plc Annual Report & Accounts 2008
Selected financial data  2008 2007
USA production boe/d 3,784 4,297
Chinguetti production boe/d 1,025 1,463
Total production boe/d  4,809  5,760
   
Year-end 2P reserves 000 boe 18,332 21,294
   
Revenue $million 103.6 97.2
EBITDA* $million 65.1 56.6
Loss after tax $million (156.8) (2.3)
Net cash investment in  
 oil & gas assets $million 57.4 233.2
Year end cash $million 23.8 44.1
Year end debt $million  (119.3) (153.3)
Year end net (debt)/cash $million  (95.5) (11 2.2)
Average realised oil price  
 per bbl (net of hedges) $/bbl 67.21 54.95
Average realised gas price  
 per mcf (net of hedges) $/mcf 8.82 7. 1 6
Total cash operating costs  
 per boe (note 7) $/bbl 18.55 12.91
* EBITDA is calculated as earnings before interest, taxation, depreciation, 
amortisation, impairment and pre-licence expenditure.
2008 has been a challenging year for Sterling financially. Early in 
2008, against a background of difficulties in the wider credit 
and stock markets, Sterling took the decision, in shareholders’ 
interests, to reduce or eliminate its debt, and to focus on its 
highly prospective assets and opportunities.
In April 2008, Sterling announced that it had retained BMO 
Capital Markets to manage a sales process for its USA oil and 
gas exploration and production business. The rationale for the 
disposal was to reduce its debt level and improve the working 
capital position, with the aim of enabling Sterling to redeploy 
some of this capital on its high impact exploration projects, as 
well as to seek similar new business opportunities. 
Financial Review
During the year, and consistent with these goals, Sterling 
farmed down its interests in two of its exploration projects  
in Sangaw North (Kurdistan) and Iris Marin (Gabon) to  
Addax Petroleum.
With weakening global commodity prices during the third 
quarter of 2008, and following a $20.3 million reduction in debt 
availability under its Borrowing Base Facility, Sterling undertook 
a placing to raise £13.5 million during October 2008. At the 
same time Sterling also announced a conditional sale of its USA 
business. With a continued deterioration in the global economy 
during the fourth quarter of 2008, commodity prices were 
further adversely impacted and debt/equity dried up. As a result 
Sterling was unable to complete the conditional sale of the USA 
business, but remains committed to this process.
Following a Borrowing Base redetermination in February 2009 
Natixis, as agent and technical bank, indicated that reflecting a 
major fall in commodity prices since the previous 
redetermination, Sterling’s debt availability under the Borrowing 
Base Facility would be reduced further to $76.3 million. This 
recent determination resulted in a debt gap between the 
amount already drawn and the reduced available facility. The 
debt gap is currently $25.3 million, under the Borrowing Base 
Facility, after principal repayments of $11.0 million to date in 
2009. As a result of this debt gap, Sterling required a 
repayment waiver from its banking syndicate. Sterling expects 
to service its adjusted cash flow obligations at least until the 
next Borrowing Base re-determination which is due in mid-
August 2009. Based on the banking syndicate’s latest 
Borrowing Base model, the Borrowing Base debt availability is 
forecast to reduce further to $58.5 million in August 2009. The 
waiver includes various changes to the terms of the loan, 
including fees dependent on the timing of the elimination of the 
debt gap, prior bank approvals of capital costs and a monthly 
repayment of not less than $1.0 million under a cash sweep 
mechanism. Sterling continues to work on a longer term 
solution with its banks and its strategic partners and  Page 17 Sterling Energy plc Annual Report & Accounts 2008
Business Review
$65.1 m + 15%
EBITDA
stakeholders. Since the start of 2008 to date Sterling has repaid 
$41.4 million of debt under the Borrowing Base Facility.
Additionally, Sterling has a subordinated $15 million corporate 
facility, with Natixis, of which $11 million has been drawn down.
Revenues up 7% to $103.6 million  
in 2008
Revenues increased by 7% to $103.6 million in 2008 (2007: 
$97.2 million), with high average oil and gas prices for 2008 
offsetting the impact of declining Chinguetti field production 
and lower than forecast production from the USA portfolio. 
USA production decreased by 12% to an average of 22.7 
mmcfge/d (2007: 25.8 mmcfge/d), gas accounting for 75% of 
this production (2007: 74%). USA production was significantly 
affected in the third quarter of 2008 (20.3 mmcfge/d) and Q4 
(19.0 mmcfge/d) as a result of Hurricane Ike. Currently USA 
production is 22 mmcfge/d, as a result of new wells coming on 
stream in early 2009. Revenues from USA operations increased 
23% to $83.2 million (2007: $67.8 million) with an average 
realised price of $10.04/mcfge (2007: $7.02/mcfge). Third party 
income from Sterling operated pipelines fell 23% to $1.2 million 
(2007: $1.6 million), before related costs, due to a decline in 
throughput from the wells. Throughput volumes in 2008 were 
0.2 mmcfge and 401,000 bbls compared to throughput 
volumes in 2007 of 0.4 mmcfge and 400,000 bbls.
The Group’s entitlement to Chinguetti field production in 2008 
totalled 0.4 million bbls (2007: 0.5 million bbls). Revenue from 
the Chinguetti field interests totalled $20.4 million (2007: $29.3 
million), net of the cost of related settlements of hedge 
contracts crystallising which totalled $8.7 million (2007: $5.9 
million) and including royalty income amounting to $2.0 million 
(2007: $4.6 million). The average cargo sale price was $85.01/
bbl (2007: $68.08/bbl), an average discount to Brent of $7.02/
bbl (2007: $4.72/bbl). 
Operating loss $175.2 million after  
$183.0 million non cash impairments
2008 operating loss amounted to $175.2 million (2007: profit 
$1.8 million) after pre-tax impairment charges of $183.0 million. 
Due to the deferred tax credit of $24.2 million relating to the 
impairment, the post-tax impairment charge was $158.8 million. 
Adjusting for these impairment charges gives an adjusted 
operating profit of $7.7 million. Cost of sales increased to $87.0 
million (2007: $75.2 million), largely reflecting an increased 
depletion charge in the year of $53.9 million (2007: $49.2 
million) and the increase in operating costs in the year of $32.6 
million (2007: $27.1 million). 
During the year we have recognised $180.1 million impairment 
of oil and gas assets, which was predominately due to the 
dramatic decline in oil and gas prices at the end of 2008, and to 
a lesser extent due to field performance. This impairment 
comprises the following; 
a) A $75.9 million impairment of Chinguetti producing field, $4.3 
million impairment of the Chinguetti royalty asset, $7.0 million 
impairment of the Tiof royalty asset, $6.3 million impairment of the 
Dome Flore exploration and evaluation (E&E) assets, and $6.5 
million impairment of the Gabon and Guinea Bissau E&E assets 
where there is no longer head-room in the Africa E&E pool. 
b) Additionally, there is an $80.1 million impairment of USA 
assets. $77.3 million of this impairment relates to the impairment 
of onshore assets. $2.8 million relates to impairment associated 
with write off of EI268 reserves. EI268 suffered significant 
damage to the platform and jacket from Hurricane Ike. This well 
is currently in the process of being plugged and abandoned, 
the cost for the removal of wreck, plugging and abandonment 
is covered by the Group’s insurance.
USA costs of sales rose to $59.7 million (2007: $49.9 million) 
averaging $7.20/mcfge (2007: $5.30/mcgfe). Operating 
“ Against a background of 
difficulties in the wider credit 
and stock markets, Sterling 
took the decision, in 
shareholders’ interests, to 
reduce or eliminate its debt, 
and to focus on its highly  
prospective assets and  
opportunities”
Jon Cooper 
Finance Director and  
Company Secretary Page 18 Sterling Energy plc Annual Report & Accounts 2008
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
Mauritania Oil Price
$/bbl
US Prices
05 06 07 08
$/mcfge
05 06 07 08
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
Mauritania Oil Price
$/bbl
US Prices
05 06 07 08
$/mcfge
05 06 07 08
expenses increased to $2.61/mcfge (2007: $1.93/mcfge) and 
depletion charges increased to $4.59/mcfge (2007: $3.37/
mcfge) reflecting the higher depletion rate of reserves (9.88% in 
2008 compared to 7.01% in 2007). 
Chinguetti cost of sales were $27.4 million (2007: $25.3 million) 
averaging $73.14/bbl (2007: $47.0/bbl), of which $32.33/bbl 
related to production costs and $40.82/bbl to depletion charges. 
This increase in unit of production costs reflects the absolute 
increase in cost of sales mainly relating to increased fuel costs in 
combination with reduced production from the Chinguetti fields. 
Pre-licence costs of $2.7 million (2007: $4.5 million) were written 
off as required under IFRS.
Administrative expenses decreased by 9% to $14.3 million 
(2007: $15.7 million). This is stated after capitalisation of fixed 
assets, recoveries from partners in operated joint ventures, and 
a non-cash share option charge of $1.5 million (2007: $1.9 
million). This has decreased from 2007 because of a reduction 
in employee costs during the year.
During the year Sterling sold non-core assets in the USA 
realising a profit on disposal of $3.1 million, and realised a $2.2 
million profit in respect to the farm out of its interests held in the 
Sangaw North licence. 
EBITDA and net loss
EBITDA totalled $65.1 million (2007: $56.6 million) which 
equates to $37.1/boe (2007: $26.9/boe). 
Interest revenue from cash deposits, less finance costs on the 
bank loans, were a net cost of $9.5 million (2007: $9.4 million). 
This reflects the interest and other costs related to the loan 
financing for and cash investment in Whittier Energy 
Corporation, acquired in 2007.
A taxation credit of $27.9 million arose in 2008 (2007: $0.7 
million credit), reflecting a deferred tax credit of $27.9 million, 
Financial Review continued
including $24.2 million which partly offsets the USA impairment 
charge in the year. 
Net loss after tax totalled $156.8 million (2007: $2.3 million loss). 
Fully diluted loss per share was 8.63 USc per share (2007: 0.14 
USc loss per share).
Net cash flow from operating activities
Cash inflow from operating activities increased to $56.7 million 
(2007: $48.5 million).
Net cash investments in oil and gas assets totalled $57.4 million 
(2007: $233.3 million), including key investments of $35.0 million 
invested in the USA business producing assets, and $22.7 million 
invested in the Chinguetti field producing asset. $11.2 million was 
invested in USA non-producing assets, $5.0 million invested in 
Gabon, $0.4 million in Cameroon, $0.3 million in Madagascar 
and $36.6 million in Kurdistan. During the year the Sangaw 
North block was successfully farmed out and as a result Addax 
Petroleum paid all past costs, and agreed to carry Sterling’s 
costs for the planned exploration work programme of 2D seismic 
and the first exploration well up to the point of testing. $4.9 million 
in respect of plugging and abandonment costs during the year. 
Proceeds from disposals and farm outs totalled $55.5 million.
A net amount of $20.9 million was raised in October 2008 from 
an equity placing to strengthen the Company’s balance sheet. 
This was required to ensure Sterling was in compliance of its 
banking covenants.
Bank facility 
The Company has a $125.0 million reserve-backed revolving 
facility with Natixis as agent and technical bank. As discussed 
previously, Natixis has indicated that following the major fall in 
energy prices over the last few months, the Company’s 
Borrowing Base under its syndicated debt facility is currently 
calculated at $76.3 million and, at the last Borrowing Base 
review, was forecast to be $58.5 million at the next Borrowing  Page 19
Heading here
Sterling Energy plc Annual Report & Accounts 2008
Business Review
Base review in August 2009. Under this facility, at the end of 
May 2009, Sterling had an outstanding balance of $101.2 
million, giving rise to a debt gap of $25.3 million. In April 2009, 
Sterling signed a waiver agreement with the banks which 
allowed Sterling to reschedule its loan repayments until the next 
Borrowing Base review in mid August 2009. The waiver 
includes various changes to the terms of the loan, including 
fees dependent on the timing of the elimination of the debt gap, 
prior bank approvals of capital costs and a monthly repayment 
of not less than $1.0 million under a cash sweep mechanism. 
Additionally, Sterling has a subordinated $15.0 million corporate 
facility, with Natixis, of which $11.0 million has been drawn down.
At the end of 2008, net debt stood at $95.5 million (2007: 
$103.5 million) with total cash balances of $23.8 million (2007: 
$44.1 million).
Balance sheet
At the end of 2008, net assets stood at $171.2 million (2007: 
$278.3 million), with current assets less current liabilities of 
negative 16.2 million (2007: $4.7 million). Non-current assets, 
primarily oil and gas assets totalled $318.3 million (2007: $527.8 
million). Total debt was $119.3 million (2007: $153.3 million).
The decommissioning provision of $26.5 million (2007: $22.1 
million) has increased during the year as a result of a $4.6 million 
increase in the provision for decommissioning of Eugene Island 
268, and a $3.4 million increase to Mauritania decommissioning 
provision. The $5.9 million total decommissioning cost for EI268 
is expected to be fully covered by Sterling’s insurance. This 
increase in the decommissioning provision is partly offset from 
the release of $4.8 million in the USA decommissioning 
provision from fields sold during the year. 
Hedging 
In October 2007, the Group entered into a number of oil and gas 
price derivatives, taking advantage of the then prevailing high 
prices to underpin 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. 
Details of the Group’s hedging policy and its year-end derivative 
portfolio are set out in note 27. No further hedges have been put 
in place since the end of 2007. In light of the fall in energy prices, 
the hedges in place throughout 2009 give rise to a derivative 
asset position of $15.6 million (2007: $14.6 million liability). 
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.
While the debt gap on the Borrowing Base Facility remains, 
Sterling is required to ensure that its capital expenditure is 
predominately directed towards its Borrowing Base assets. 
Major exploration projects will continue on the expected 
timetables where Sterling is carried by its partners.
Between now and August 2009 Sterling will continue to work 
with its banks and stakeholders to put a robust long-term 
solution in place to this issue. Potential options are discussed 
further in the Chairman’s Statement, CEO’s Review and the 
Operational Review.
Cautionary 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 believe 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.
$56. 7m + 18% 
cash inflow from operating activities Page 20 Sterling Energy plc Annual Report & Accounts 2008
Sterling recognises that it has a  
corporate and social responsibility  
to the local communities in the areas  
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. 
Corporate Social Responsibility
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 on the environment on a year-on- 
year basis.  Page 21 Sterling Energy plc Annual Report & Accounts 2008
Business Review
Case Study:
Kurdistan
Prior to the onset of seismic acquisition operations in the 
Sangaw North area Sterling undertook both Environmental 
and Social Impact Studies in order to minimise and mitigate 
against any effects on the local physical, ecological and 
social environment. Local community support during 2008 
included the provision of mobile medical clinics held in a 
number of villages, many remote from the nearest 
government provided medical support. Sterling also 
contracted the Mines Advisory Group (MAG) to identify and 
demarcate unexploded ordnance (UXO) and mine threat 
areas for subsequent clearance. A community survey was 
undertaken during the fourth quarter of 2008, and the 
majority of villages in the Sangaw North district were visited, 
in order to seek opinion on the most appropriate options for 
future support. These village visits also offered the 
opportunity to distribute children’s clothing and sports 
equipment, building further goodwill with the local 
population. Sterling will continue to build on the support 
offered to date through further initiatives during 2009. Page 22 Sterling Energy plc Annual Report & Accounts 2008
Board of Directors
Graeme Thomson, aged 52
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 56
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 50
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. Page 23 Sterling Energy plc Annual Report & Accounts 2008
Business Review
Jon Cooper, aged 40
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.
Dick Stabbins, aged 65
Non-Executive Chairman
Dick is a geologist with 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 (2000–03) of the 
Geological Society of London, whose Audit Committee he chairs.
Peter Wilde, aged 55
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 20 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. Between 1991 and 2001 he 
was firstly Chief Operating Officer and then Managing Director at the time of its 
introduction to AIM. 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
London
Mike Adams Senior Geologist
Martin Arch Financial Controller 
Edward Blunt Senior Geologist
Michelle Churchward Legal Manager
Alastair Donaldson  Financial Controller 
– West Africa 
  and Middle East
Tim Fookes  Group IT Manager 
Alain Gubian  Country Manager, 
Mauritania
Tom Radford  Senior Geophysicist
Martin Smith Senior Geophysicist
Roy St Pier Senior Engineer
Frances Townley UK Finance Manager
US
Daniel Silverman  President and 
Director USA
John Brouillette  Director of Land and 
Legal
April Chamberlain Director of Finance
Tom Cook  Director of Operations 
and Productions Page 33 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
Consolidated income statement
Year ended 31 December 2008
       31 December 31 December
        2008 2007
      Notes $000 $000
Revenue      5 103,568  97 ,171 
Cost of sales      7 (87,035) (7 5,1 97)
Gross profit       16,533  21,974 
Administrative expenses        (14,307) (15,720)
Impairment of oil and gas assets      13, 14, 15 (180,142)  – 
Other impairments       (2,833)  – 
Profit on disposal of oil and gas assets      6 5,311   – 
Profit on disposal of investment      16c 2,871   – 
Pre-licence exploration costs       (2,664) (4,462)
Operating (loss)/profit      6 (175,231) 1,792 
Interest revenue and other finance gains/losses      9 1,159  3,286 
Gain on hedging instruments        –  4,618 
Finance costs      9 (10,620) (12,642)
Loss before tax       (184,692) (2,946)
Tax      10 27,862  693 
Loss for the financial year       (156,830) (2,253)
Loss per share (USc)    
Basic and diluted      12 (8.63) (0.1 4)
All operations were continuing throughout both years.
Consolidated statement of recognised 
income and expense
Year ended 31 December 2008
       31 December  31 December
       2008 2007
      Notes $000 $000 
Currency exchange adjustments      23 (1,921) 965
Movement on value of quoted company investment      23 (657) (4,082)
Movement on hedge reserve      23 29,995  (14,421 )
Net income/(loss) recognised directly in equity       27,41 7  ( 1 7,538)
Loss for the financial year       (156,830) (2,253)
Total recognised loss for the year attributable to equity holders of the parent company   (129,413) (1 9,791) Page 34 Sterling Energy plc Annual Report & Accounts 2008
Consolidated balance sheet
31 December 2008
      As at  As at 
      31 December 31 December 
       2008 2007
      Notes $000 $000
Non-current assets
Intangible royalty assets      13 3,791  16,600 
Intangible exploration and evaluation assets      14 125,756  155,581 
Property, plant and equipment      15 187,760  342,917 
Investments      16a 996  6,985 
Other receivables – restricted bank deposits (reclassified – note 25)      3,145   5,765 
       321,448  527 ,848 
Current assets
Inventories       4,994  5,036
Trade and other receivables      17 32,606  41 ,965
Derivative financial instruments      27 16,071  2,005 
Current tax repayable        –  833 
Cash and cash equivalents (reclassified – note 25)       23,854  44,101 
       77,525  93,940 
Total assets       398,973  621,788 
Current liabilities
Trade and other payables      18 (39,533) (79,835)
Derivative financial instruments      27 (497) (9,434)
Bank loan      19 (53,700)  – 
       (93,730) (89,269)
Non-current liabilities
Bank loan      19 (65,570) (153,31 8)
Deferred tax liabilities      20 (40,793) (69,51 2)
Derivative financial instruments      27  –  (7, 1 7 4 )
Long-term provisions      21 (27,664) (24,245)
       (134,027) (254,249)
Total liabilities       (227,757) (343,518)
Net assets       171,216  278,270 
Equity     
Share capital      22 42,749  3 1 ,8 11
Share premium account      23 351,334  341,414 
Share option reserve      23 9,869  8,368
Investment revaluation reserve      23  –  657
Currency translation reserve      23 (1,263) 658
Hedge reserve      23 15,574  (14,421 )
Retained earnings      23 (247,047) (90,217)
Total equity       171,216  278,270
These financial statements were approved by the Board of Directors on 29 May 2009.
Signed on behalf of the Board of Directors
J.R. Cooper, ACA  G.P. Thomson, FCA
Director    Director Page 35 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
       31 December 31 December 
        2008 2007
      Note $000 $000 
Operating activities
Cash generated from operations      25 56,745  48,1 3 1 
Taxation received/(paid)         –  41 6 
Net cash flow from operating activities       56,745  48,547 
Investing activities
Interest received       1,635  2,888 
Capital expenditure       (112,87 4) (87 ,945)
Corporate acquisitions        –  (145,368)
Increase in investment       (550)  – 
Proceeds on disposal of property, plant and equipment       16,526   – 
Proceeds on farmout of exploration and evaluation asset       38,960   – 
Restricted cash (reclassified – note 25)       2,620  (5,765)
Net cash used in investing activities       (53,683) (236,1 90)
Financing activities
Net proceeds from issue of ordinary shares       20,858  72,521 
(Repayments)/draw-downs on loan facilities       (30,409) 78,779 
Interest paid       (8,347) ( 11 ,354)
Decrease in overdraft       (3,781)  – 
Net cash flow (used in)/from financing activities       (21,679) 139,946 
    
Net decrease in cash and cash equivalents       (18,617) ( 4 7,69 7)
Cash and cash equivalents at beginning of year (reclassified note 25)     44,101  91,759 
Effect of foreign exchange rate changes       (1,630) 39 
Cash and cash equivalents at end of year       23,854  44,1 01 
Consolidated cash flow statement
Year ended 31 December 2008 Page 36 Sterling Energy plc Annual Report & Accounts 2008
Company balance sheet
31 December 2008
       As at  As at 
       31 December  31 December
       2008 2007
      Notes $000 $000
Non-current assets
Property, plant and equipment      15 8,801  7 6,1 70 
Investments      16b 337, 180  338,399 
       345,981  414,569 
Current assets
Inventories       4,211  4,804 
Trade and other receivables      17 96,785  58,617 
Derivative financial instruments      27 6,542   – 
Current tax repayable        –  833 
Cash and cash equivalents        15,432  26,540 
       122,969  90,794 
Total assets       468,951  505,363 
Current liabilities
Trade and other payables      18 (169,735) (54,323)
Derivative financial instruments      28  –  (6,305)
Bank loan      19 (53,700)  – 
       (223,435) (60,628)
Non-current liabilities
Bank loan      19 (65,570) (153,31 8)
Derivative financial instruments      27  –  (4,848)
Long-term provisions      21 (8,211) (4,509)
       (73,781) (162,675)
Total liabilities       (297,216) (223,303)
Net assets       171,735  282,060 
Equity
Share capital      22 42,749  31,81 1 
Share premium account      23 351,334  341,414 
Share option reserve      23 9,869  8,368 
Hedge reserve      23  6,542  ( 11 , 1 53)
Retained earnings      23 (238,759) (88,380)
Total equity       171,735  282,060 
    
These financial statements were approved by the Board of Directors on 29 May 2009.
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 2008
Financial Statements
       31 December  31 December
       2008 2007
      Note $000 $000 
Operating activities    
Cash generated from operations      25 21,506  (62, 192)
Net cash flow from operating activities       21,506  (62, 192)
Investing activities
Interest received       4,524  2,1 43 
Capital expenditure       (18,925) (8,553)
Corporate acquisitions        –  (145,368)
Net cash used in investing activities       (14,401) (1 5 1,778)
Financing activities
Net proceeds from issue of ordinary shares       20,858  72,521 
(Repayments)/draw-downs on loan facilities       (30,409) 101,993 
Interest paid       (8,105) (8,240)
Net cash flow (used in)/from financing activities       (1 7,656) 166,274 
Net (decrease) in cash and cash equivalents       (10,551) ( 4 7,696)
Cash and cash equivalents at beginning of year       26,540  74,236 
Effect of foreign exchange rate changes       (557)  – 
Cash and cash equivalents at end of year       15,432  26,540 
Company cash flow statement
Year ended 31 December 2008
       31 December  31 December
       2008 2007
      Note $000 $000 
Movement on hedge reserve      23 1 7,695  ( 11 , 1 53)
Net (loss)/income recognised directly in equity       1 7,695  ( 11 , 1 53)
Loss for the financial year       (150,379) (3,845)
Total recognised loss for the year attributable to equity holders of the parent company   (132,684) (14,998)
Company statement of recognised 
income and expense
Year ended 31 December 2008 Page 38 Sterling Energy plc Annual Report & Accounts 2008
1. Accounting policies
a) General information
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 WC2A 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 and adoption of new and  
revised standards
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. 
The financial statements are prepared under the historical cost 
convention except for the revaluation of certain financial 
instruments. The principal accounting policies adopted are set 
out below.
In the current year, two Interpretations issued by the International 
Financial Reporting Committee (“IFRIC”) are effective for the 
current period. These are IFRIC 11 (IFRS 2 – Group and 
Treasury Share Transactions) and IFRIC 14 (IAS 19 – The Limit 
on Defined Benefit Asset, Minimum Funding Requirements and 
their Interaction). 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 (and in some cases had not yet been adopted  
by the EU):
IFRS 1 (amended)/ Cost of an Investment in a Subsidiary,  
 IAS 27 (amended)  Jointly Controlled Entity of Associate
IFRS 2 (amended)   Share-based Payment – Vesting 
Conditions and Cancellations
IFRS 3 (revised 2008)  Business Combination 
IFRS 8 Operating Segments
IAS 1 (revised 2007)  Presentation of Financial Statements 
IAS 23 (revised 2007)  Borrowing Costs
IAS 27 (revised 2008)  Consolidated and Separate Financial 
Statements 
IAS 32 (amended)/ Puttable Financial Instruments and  
 IAS 1 (amended)  Obligations Arising on Liquidation
IFRIC 12 Service Concession Arrangements
IFRIC 15  Agreements for the Construction of  
Real Estate
IFRIC 16  Hedges of a Net Investment in a  
Foreign Operation
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 IFRS 8 comes into effect for periods 
commencing on or after 1 January 2009 and the treatment of 
and future acquisition of subsidiaries when IFRS 3 comes into 
Notes to the financial statements
Year ended 31 December 2008
effect for business combinations for which the acquisition date 
is on or after 1 January 2010.
c) Going concern
The financial statements have been prepared in accordance 
with the going concern basis of accounting. The use of this 
basis of accounting takes into consideration the Group’s 
current and forecast financing position, additional details of 
which are provided in note 2 and note 19, including the 
existence of a material uncertainty relating to going concern.
d) 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. 
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.
As a consolidated Group income statement is published, a 
separate income statement for the parent company has not 
been published in accordance with section 230 (4) of the 
Companies Act 1985. 
e) Revenue
Sales of petroleum and gas 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.
f) 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. Page 39 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
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 depreciation, and any 
provision for impairment. Depreciation 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.
g) 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.
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. 
h) 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. 
i) 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. 
j) 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. Page 40 Sterling Energy plc Annual Report & Accounts 2008
1. Accounting policies continued
j) Taxation (continued)
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.
k) 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 cost less any provision for 
permanent diminution of value. 
l) Operating leases
Rentals under operating leases are charged on a straight-line 
basis over the lease term. 
 
m) Financial instruments
Derivative financial instruments
Financial assets and financial liabilities are recognised on the 
Group’s balance sheet when the Group becomes party to the 
contractual provision of the instrument. 
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 
cash flow hedges, when they hedge exposure to variability in 
cash flows that is either attributable to a particular risk 
associated with a recognised asset or liability or forecasted 
transaction.
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 cash flow 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.
During the year the Group designated a number of its oil and 
gas derivatives as cash flow hedges of future production (see 
note 27).
Financial assets at fair value through profit and loss 
(FVTPL) 
Financial assets are classified as FVTPL where the financial 
asset is either held for trading or it is designated as at FVTPL.
A financial asset is classified as held for trading if: 
it has been acquired principally for the purpose of selling in •	
the near future; or 
it is a part of an identified portfolio of financial instruments •	
that the Group manages together and has a recent actual 
pattern of short-term profit-taking; or 
it is a derivative that is not designated and effective as a •	
hedging instrument. 
Notes to the financial statements continued
Year ended 31 December 2008 Page 41 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
1. Accounting policies continued
A financial asset other than a financial asset held for trading 
may be designated as at FVTPL upon initial recognition if: 
such designation eliminates or significantly reduces a •	
measurement or recognition inconsistency that would 
otherwise arise; or 
the financial asset forms part of a group of financial assets or •	
financial liabilities or both, which is managed and its 
performance is evaluated on a fair value basis, in accordance 
with the Group’s documented risk management or 
investment strategy, and information about the Group is 
provided internally on that basis; or 
it forms part of a contract containing one or more embedded •	
derivatives, and IAS 39 Financial Instruments: Recognition 
and Measurement permits the entire combined contract 
(asset or liability) to be designated as at FVTPL. 
Financial assets at FVTPL are stated at fair value, with any 
resultant gain or loss recognised in profit or loss. The net gain 
or loss recognised in profit or loss incorporates any dividend or 
interest earned on the financial asset. Fair value is determined in 
the manner described in note 27.
Trade receivables 
Trade receivables are measured at initial recognition of their fair 
value. Appropriate allowances for estimated irrecoverable 
amounts are recognised in the income statement when there is 
objective evidence that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise demand deposits, and 
other short-term highly liquid investments that are readily 
convertible to a known amount of cash and are subject to an 
insignificant risk of change in value.
Trade payables 
Trade payables are stated at their fair value. 
Financial liabilities and equity 
Financial liabilities and equity instruments are classified 
according to the substance of the contractual arrangements 
entered into. An equity instrument is any contract that 
evidences a residual interest in the asset of the Group after 
deducting all of its liabilities. Equity instruments issued by the 
Company are recorded at the proceeds received net of direct 
issue costs.
n) 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.
o) 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.
p) 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. Net realisable value represents 
the estimated selling prices less all estimated costs of 
completion and costs to be incurred in marketing, selling  
and distribution. 
q) Inventories
The Group’s share of any material and equipment inventories is 
accounted for at the lower of cost and net realisable value. Net 
realisable value is the estimated selling price less the estimated 
costs of completion and the estimated costs necessary to 
make the sale. The cost of inventories comprises all costs of 
purchase, costs of conversion and other costs incurred in 
bringing the inventories to their present location and condition.
r) 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.
s) Finance costs and debt
Financial costs of debt are allocated to periods over the term of 
the related debt and at a constant rate on the carrying amount. 
Arrangement fees and issue costs are deducted from the debt 
proceeds on initial recognition of the liability and are amortised 
and charged to the income statement as finance costs over the 
term of the debt. 
 
2. Going concern
The Group’s business activities, together with the factors likely 
to affect is future development, performance and position are 
set out in the Operational Review. The financial position of the 
Group at the year-end, its cash flows, liquidity position and 
borrowing facilities are described further in the Financial 
Review. In addition note 27 to the financial statements includes 
the Group’s objectives, policies and processes for managing its 
capital, its financial risk management objectives, details of its 
financial instruments and hedging activities and its exposure to 
credit risk and liquidity risk. Page 42 Sterling Energy plc Annual Report & Accounts 2008
2. Going concern continued
As described in the Chief Executive’s Review and the Financial 
Review, the current economic and operating environment 
remains challenging. The Group reported an operating loss of  
$175.2 million for the year reflecting significant asset impairment 
charges, and following the dramatic commodity price 
weakening during 2008 and early 2009 Sterling has a current 
debt gap as at the date of the annual report representing 
outstanding debt in excess of the level available under the 
terms of its Borrowing Base Facility of $25.3 million for which 
Sterling has secured a waiver from repayment until the next 
Borrowing Base review in August. Based on current forecasts 
$53.7 million falls due for repayment in 2009, of which  
$11 million has already been repaid. 
As previously explained, Sterling continues to work with its 
banks and stakeholders to put a long-term solution in place to 
meet its repayment obligations, ahead of the expiry of the 
waiver and the next Borrowing Base redetermination in mid 
August 2009. These strategic solutions include:
The sale of the USA business, for which the process •	
continues;
The sale of and farm out of certain exploration assets; •	
An asset injection in exchange for equity that could increase •	
the Borrowing Base;
Raising equity from a combination of Sterling’s current •	
shareholders or new Shareholders including a strategic 
investor; and 
A takeover of Sterling. As announced on 4 November 2008, •	
Sterling continues to discuss approaches from third parties 
regarding possible offers that may result in a change of 
control, however, there is no certainty that these could lead 
to an offer for Sterling.
The Directors have concluded that the uncertainty as to the 
achievement of a strategic solution represents a material 
uncertainty that casts significant doubt upon the Group’s and 
Company’s ability to continue as a going concern, and, 
therefore, that it may be unable to realise its assets and 
discharge its liabilities in the normal course of trading. 
Nevertheless after making enquiries, and considering the 
options described above, the Directors have a reasonable 
expectation that the Company and the Group will have 
adequate resources to continue in operational existence for the 
foreseeable future. For these reasons, they continue to adopt 
the going concern basis in preparing the annual reports and 
accounts. The financial statements do not include the 
adjustments that would result if the Group or Company was 
unable to continue as a going concern.
3. Critical accounting judgements and 
key sources of estimation uncertainty 
In the application of the Group’s accounting policies, which  
are described in note 1, the Directors are required to make 
judgements, estimates and assumptions about the carrying 
amounts of assets and liabilities that are not readily apparent 
from other sources. The estimates and associated assumptions 
are based on historical experience and other factors that are 
considered to be relevant. Actual results may differ from  
these estimates.
The estimates and underlying assumptions are reviewed on  
an ongoing basis. Revisions to accounting estimates are 
recognised in the period in which the estimate is revised if  
the revision affects only that period, or in the period of the 
revision and future periods if the revision affects both current 
and future periods.
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.
Classification of debt between current and non-current
As described in note 19, the repayment of debt is determined 
based on a twice yearly Borrowing Base calculation. 
Accordingly, the actual amount of debt repayable within one 
year is likely to differ from that presented in the balance sheet 
as a result of revisions to estimates used in the Borrowing  
Base calculation.
Impairment of assets
Management is required to assess the oil and gas assets for 
indicators of impairment. The carrying value of oil and gas 
assets is disclosed in notes 14 and 15. As part of this 
assessment, management has carried out an impairment test 
on the oil and gas assets within property, plant and equipment 
(Chinguetti and the USA producing assets, and of the 
exploration and evaluation asset pool). This test compares the 
carrying value at the balance sheet date with the expected 
discounted cash flows from the relevant projects. For the 
discounted cash flows to be calculated, management has used 
a production profile based on its best estimate of proven and 
probable reserves and a range of assumptions including a  
10% pre-tax discount rate and an internally estimated oil  
price profile.
Decommissioning
The Group has obligations in respect of decommissioning in 
Mauritania and the USA. The extent to which a provision is 
recognised depends on the legal requirements at the date of 
decommissioning, the estimated costs and timing of the work 
and the discount rate applied.
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.
Notes to the financial statements continued
Year ended 31 December 2008 Page 43 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
3. Critical accounting judgements and key sources of estimation uncertainty continued
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. 
Share-based payments 
Management is required to make assumptions in respect of the inputs used to calculate the fair value of share-based payment 
arrangements. Details of these can be found in note 28. 
4. 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. These divisions are the basis on which the Group 
reports it’s primary segment information. Segment information about the business is presented below. 
 North America  Africa and Middle East  Total 
    
   2008 2007 2008 2007 2008 2007
   $000 $000 $000 $000 $000 $000
Income Statement        
Revenue   83,176  67 ,843  20,392  29,328  103,568  97 ,171 
Cost of sales   (59,681) (49,871) (27,354) (25,326) (87,035) (7 5,1 97)
Gross profit   23,495  17 ,972  (6,961) 4,002  16,533  21 ,974 
Impairment provision   (82,130)  –  (100,845)  –  (182,975)  – 
Pre-licence exploration costs   (650) ( 1 ,1 8 1 ) (2,014) (3,281) (2,664) (4,462)
Profit and loss on disposals of assets/investments   3, 111   –  5,071   –  8,182   – 
Segment result   (56,17 4) 16,791  (104,749) 721  (160,924) 17 ,512 
Unallocated corporate expenses        (14,307) (15,720)
Operating (loss)/profit       (175,231) 1,792 
Interest revenue and finance gains       1,977  3,286 
Gain on hedging instrument        –  4,618 
Finance costs        (10,620) (12,642)
Other losses       (818)  – 
Loss before tax       (184,692) (2,946)
Tax       27,862  693 
Loss attributable to equity holders of parent company      (156,830) (2,253)
 Unallocated  North America  Africa and Middle East  Total 
    
 2008 2007 2008 2007 2008 2007 2008 2007
 $000 $000 $000 $000 $000 $000 $000 $000
Other segment information        
Capital additions         
Property, plant and equipment 224  37 4  35,616  54,970  22,697  8,063  58,537  63,407 
E&E expenditure  258  600  7,271  10,668   21,080  24,437  28,609  35,705 
Depreciation and amortisation (487) (461) (38,621) (32,405) (15,559) (17 ,444) (54,667) (50,310)
Impairment provision  –   –  (82,130)  –  (100,845)  –  (182,975)  – 
        
Balance sheet 
Segment assets* 26,233  45,651  345,131  424,005  27,610  1 52,1 32  398,973  621,788 
Segment liabilities (123,510) (175,666) (78,290) (128,261 ) (25,957) (39,591) (227,757) (343,518)
*Carrying amounts of segment assets exclude intra-group financing. Page 44 Sterling Energy plc Annual Report & Accounts 2008
5. Revenue
       2008 2007
       $000 $000
Revenue from the sale of oil and gas       82,298  74,509 
Royalty income        19,194  21,106 
Tariff income       1,228  1,556 
Other revenue       848   – 
Total operating revenue       103,568  9 7, 1 7 1 
Finance revenue        1,977  3,178 
Total revenue       105,545  100,349
Revenue from the sale of oil and gas is stated net of $16,520,000 in relation to cash settlements under hedging contracts  
(2007: $5,877,000).
6. Loss for the year
       2008 2007
      Notes $000 $000
Loss from operations is stated after charging (crediting):
Staff costs      8 14,460  18,523 
Depletion and amortisation of oil and gas assets      13, 14, 15 53,887  50,310 
Impairment expense      13, 14, 15 180,142   – 
Other impairments       2,833   – 
Depreciation of other fixed assets      15 781  1,108 
Net foreign exchange losses/(gains)       818  (108)
Profit on disposal of oil and gas assets       5,311   – 
Profit on disposal of investment       2,871   – 
An analysis of auditors’ remuneration is as follows:
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts 299  335 
Audit of the Company’ subsidiaries pursuant to legislation  53  35 
Total audit fees  352  370 
Other services – interim review  156   – 
Tax advisory services  49  125 
Total non audit fees   205  125
7 . Cost of sales
       2008 2007
      Notes $000 $000
Amortisation and depletion of oil and gas properties      13, 14, 15 53,887  49,202 
Operating costs   32,559  27 ,143 
Underlift of product entitlement  589  ( 1 ,1 48)
       87,035  7 5,1 97
8. Employee information
The average monthly number of employees of the Group (including Executive Directors) during the year was 69 (2007: 72) of which 
15 were employed in the Africa and Middle East operations (2007: 14), 35 in the North American operations (2007: 40), and 19 in 
Corporate Support Staff (2007: 18). 
 
Notes to the financial statements continued
Year ended 31 December 2008 Page 45 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
8. Employee information continued
The average monthly number of employees of the Company (including Executive Directors) during the year was 3 (2007: 2) who 
were all employed in the Africa and Middle East operations.
Employee costs during the year (including Executive Directors) amounted to:
     Group  Company 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Wages and salaries     12,624  15,850  649  434 
Social security costs     961  1,684  36  15 
Other pension costs     875  989   –   – 
     14,460  18,523  685  449
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 2008 
this portion amounted to $9,886,000 (2007: $10,186,000).
9. Investment revenue and finance costs
       2008 2007
       $000 $000
Interest revenue and finance gains/losses:        
Interest revenue on short-term deposits       1,977  3,178 
Exchange differences       (818) 108 
       1,159  3,286 
       2008 2007
       $000 $000
Finance costs:
Interest on bank loans and overdrafts       9,379  1 1,354 
Unwinding of discount on decommissioning provision       1, 111  1,132 
Unwinding of discount on production royalty revenue bonus provision       130  156 
       10,620  12,642
10. Taxation
       2008 2007
       $000 $000
Current tax credit       (27,936) (509)
Deferred tax – origination and reversal of timing differences      74  (184)
Total credit       (27,862) (693) Page 46 Sterling Energy plc Annual Report & Accounts 2008
10. Taxation continued
The difference between the tax credit of $27,862,000 (2007: credit of $693,000) and the amount calculated by applying the 
applicable standard rate of tax is as follows:
       2008 2007
       $000 $000
Loss on ordinary activities before tax       (184,692) (2,946)
Tax on loss on ordinary activities at standard US corporation tax rate of 34% (2007: 34%)    (62,795) (1,001 )
Effects of:
Expenses not deductible for tax purposes       25,581  (1,856)
Capital allowances lower than/(in excess of) depreciation       (2,350) (82)
Difference in non-UK/US tax rates       6,027  127 
Other temporary differences        8,849   – 
Adjustment for tax losses        –  2,628 
Adjustment in respect of prior years        –  (509)
State taxes        681  –
Change in tax rate       (3,855) –
Tax credit for the year       (27,862) (693)
During 2008 and 2007 the Group generated its results primarily in the US. Therefore the tax rate in the above reconciliation for 
2008 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 the Group’s overall taxation charge.
11. Loss attributable to Sterling Energy plc
The loss for the financial year dealt with in the accounts of Sterling Energy plc was $150,379,000 (2007: loss of $3,845,000). As 
provided by s230 of the Companies Act 1985, no income statement is provided in respect of Sterling Energy plc.
12. Loss per share
The calculation of basic and diluted loss per share is based on the loss for the financial year of $156,830,000 (2007: loss 
$2,253,000) and on 1,817,510,912 (2007: 1,565,678,397) 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 losses per share are the same. 
In addition 135,656,000 (2007: 95,129,000) share options were in issue that could potentially dilute basic earnings per share in the 
future but were not included in the calculation of diluted earnings per share because they are antidilutive.
13. Intangible royalty assets
        Group
        $000
Net book value at 1 January 2007        18,000 
Amortisation charge for the year        (1,400)
Net book value at 31 December 2007        16,600 
Amortisation charge for the year        (1,508)
Impairment charge for the year        (1 1,301)
Net book value at 31 December 2008        3,791
Group net book value at 31 December 2008 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. 
Notes to the financial statements continued
Year ended 31 December 2008 Page 47 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
14. Intangible exploration and evaluation (E&E) assets
        Group
        $000
Net book value at 1 January 2007        21,384 
Additions during the year        36,233 
Additions through acquisitions during the year        101,314 
Amortisation charge for the year        (3,350)
Net book value at 31 December 2007        155,581 
Additions during the year        28,609 
Disposals during the year (farm out)        (39,988)
Amortisation charge for the year        (5,829)
Impairment charge for the year        (12,617)
Net book value at 31 December 2008        125,756
The amount for intangible exploration and evaluation assets represents investments in respect of exploration licences (see note 1f). 
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. 
During the year a $2,200,000 profit on disposal was realised, relating to the farm out of the Kurdistan interest.
15. Property, plant and equipment
       Computer 
      Oil and gas  and office
      assets equipment Total
Group      $000 $000 $000
Cost        
At 1 January 2007      237 ,280  2,879  240,159 
Additions during the year      62,612  795  63,407 
Additions through acquisitions during the year      167 ,978  292  168,270 
At 31 December 2007      467 ,870  3,966  471,836 
Additions during the year      57 ,692  845  58,537 
Disposals during the year      (13,61 1)  –  (13,61 1)
At 31 December 2008      511,951  4,811  516,762 
Accumulated depreciation        
At 1 January 2007      (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)
Disposals during the year      3,471   –  3,471 
Charge for the year      (46,549) (781) (47 ,330)
Impairment Charge for the year      (156,224)  –  (156,224)
At 31 December 2008      (325,471) (3,531) (329,002)
Net book value at 31 December 2008      186,480  1,280  187,760 
Net book value at 31 December 2007      341,701  1,216  342,917
During the year the US disposed of a number of oil and gas assets realising an overall profit on disposal of $3,111,000. The 
impairment charge in the year for the Group relates to the companies Mauritanian interest. Such impairment charge is calculated 
by reference to assessment of future discounted cash flows expected to be delivered from production of commercial reserves 
against the individual cash generating unit carrying values. Page 48 Sterling Energy plc Annual Report & Accounts 2008
15. Property, plant and equipment continued
       Computer 
      Oil and gas  and office
      assets equipment Total
Company      $000 $000 $000
Cost
At 1 January 2007      141,973  147  142,120 
Additions during the year      8,087   –  8,087 
At 31 December 2007      150,060  147  150,207 
Additions during the year      22,697   –  22,697 
At 31 December 2008      172,757  147  172,904 
Accumulated depreciation
At 1 January 2007      (57 ,846) (1 12) (57 ,958)
Charge for the year      (16,043) (35) (16,078)
At 31 December 2007      (73,889) (147) (7 4,036)
Charge for the year      (14, 134)  –  (14, 134)
Impairment charge for the year      (75,933)  –  (75,933)
At 31 December 2008      (163,956) (147) (164,103)
Net book value at 31 December 2008      8,801   –  8,801 
Net book value at 31 December 2007      76, 171   –  76, 171
16. Fixed asset investments
a) Investments held by the Group
The Company holds through its US subsidiary Sterling Energy Inc. an option to acquire a 20% equity stake in Viking International 
Petroleum (VIP) in the form of a two-year $3,500,000 convertible note and warrants, held at fair value through profit and loss. VIP 
is a private company that generates drilling prospects located primarily in South Texas over which Sterling has pre-emptive drilling 
rights. This has been reclassified to current receivables to reflect the fact it is due for repayment in June 2009.
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. 
b) Investment in subsidiaries
        Company
        $000
Cost        
At 1 January 2007        156,350 
Additional investment during the year        182,049 
At 31 December 2007        338,399 
Additions during the year (capital contribution)        56,549 
Impairment during the year        (57 ,768)
At 31 December 2008        337, 180
Notes to the financial statements continued
Year ended 31 December 2008 Page 49 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
16. Fixed asset investments continued
   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 (International) 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 USA Inc *** USA Ordinary 100% Investment holding company
 (formerly Whittier Energy Corporation)    
Sterling Oil Limited * United Kingdom Ordinary 100% Investment holding company
Sterling Energy (North America) Limited * United Kingdom Ordinary 100% Investment holding company
Sterling Northwest Africa Holdings Limited **** Jersey, CI Ordinary 100% Exploration for oil and gas
Sterling Cameroon Limited ***** Jersey, CI Ordinary 100% Exploration for oil and gas
Sterling Dome Flore Limited ***** Jersey, CI Ordinary 100% Exploration for oil and gas
Sterling Oil and Gas (Iris Marin) Limited ***** Jersey, CI Ordinary 100% Exploration for oil and gas
Sterling Oil and Gas (Themis Marin) Limited ***** Jersey, CI 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 Limited.
c) Profit on disposal of fixed asset investments
       $000 $000
Group       2008 2007
Forum Energy PLC        2,615  –
Sterling Energy Mauritania A Limited        256  –
Total       2,871  –
17 . Trade and other receivables
     Group  Company 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Trade receivables     22,042  32,373  937   – 
Amounts owed by subsidiary undertakings      –   –   95,612  53,236 
Other debtors     8,752  5,715  158  178 
Amounts advanced to joint venture partners     249  663   –   – 
Prepayments and accrued income     1,563  3,214  78  5,203 
     32,606  41 ,965  96,785  58,617
The Directors consider that the carrying amount of trade and other receivables approximates their fair value. Page 50 Sterling Energy plc Annual Report & Accounts 2008
18. Trade and other payables
     Group  Company 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Trade payables     15,426  27 ,356  282  7 ,003 
Amounts owed to subsidiary undertakings       –   –  156,074  40,198 
Amounts owed to joint venture partners     1,974  6,631   742   – 
Other taxation and social security     148  205   –   – 
Accruals and deferred income     18,018  45,643  12,636  7 ,122 
Bank overdraft     3,967   –   –   – 
     39,533  79,835  169,735  54,323
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
19. Long-term and short-term debt
     Group  Company 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Bank loan current     53,700   –  53,700   – 
Bank loan non-current     65,570  153,31 8  65,570  153,318 
     119,270  153,318  119,270  153,31 8
At 31 December 2008 the Group had a bank loan facility of $250,000,000 (2007: $250,000,000) (the “Borrowing Base Facility”) of 
which $112,170,000 (2007: $144,818,000) had been drawn down. The amount that is available to be drawn under this facility is 
determined by a twice-yearly Borrowing Base review. The Borrowing Base review establishes a limit on the amounts which may 
be drawn down, based on the net present value of the oil and gas assets which comprise the Borrowing Base. As at 31 December 
2008, the available amount was fully drawn, at $112,170,000, based upon the September 2008 Borrowing Base redetermination. 
As disclosed in note 26, subsequent to the year end the facility amount has been reduced to $125,000,000. In addition to the 
amounts drawn down, a further $482,136 (2007: $482,136) is pledged under a letter of credit. The facility is secured by a floating 
charge over certain of the property, plant and equipment of the Group. An intra-Group loan of approximately $56,242,000  
(2007: $74,393,600) is subordinated to the facility. Interest is payable at a margin 2.25%–3% 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  
(2007: $15,000,000) of which, at 31 December 2008, $10,734,000 (2007: $8,018,000) had been drawn. At 31 December 2008 
$3,639,000 (2007: $4,523,000) of loan unamortised loan facility expenses are deducted from the bank loan balance in the balance 
sheet. These costs are being amortised over the remaining life of the facility.
20. Deferred tax liabilities
 
       2008 2007
Group       $000 $000
At 1 January       69,512  6,127 
Deferred tax on acquisition        –  63,571 
Other       (783)  – 
Credited to profit and loss account       (27,936) (186)
At 31 December       40,793  69,51 2 
        2008
Group        $000
The provision at 31 December 2008 consists of:        
Accelerated Capital Allowances        58,886 
Other temporary differences        2,290 
Unutilised tax losses        (20,383)
         40,793
Notes to the financial statements continued
Year ended 31 December 2008 Page 51 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
20. Deferred tax liabilities continued
At the balance sheet date, the Group had an unrecognised deferred tax asset of $28,195,000 (2007: $7,757,000) relating primarily 
to unused tax losses. No deferred tax asset has been recognised due to the uncertainty of future profit streams against which 
these losses could be utilised. Additionally there is an unrecognised deferred tax liability of $2,127,000 (2007: $1,992,000) 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 $28,027,000 (2007: $10,726,000) relating 
primarily to unused losses and unutilised capital allowances.
21. Long-term provisions
       2008 2007
Group       $000 $000
Decommissioning provision (a)       26,481  22,095 
2003 Production royalty bonus scheme (b)       1,183  2,150 
       27,664  24,245 
a) Decommissioning provisions
      North America Africa Total
Group     Note $000 $000 $000
At 1 January 2007      15,640  4,253  19,893 
Additions in year       6,489   –  6,489 
Acquisition in year      71 1   –  71 1
Utilisation in year      (6, 130)  –  (6, 130)
Unwinding of discount      876  256  1, 132
At 31 December 2007      17 ,586  4,509  22,095 
Additions in year        4,596  3,431  8,027 
Released on disposal during the year      (4,752)  –  (4,752)
Unwinding of discount      9 840  271  1, 1 1 1
At 31 December 2008      18,270  8,211  26,481
The amounts shown above represent the estimated costs for decommissioning the Group’s producing interests in North America, 
which are expected to occur between 2009 and 2017 and in respect of its economic interest in the Chinguetti field in Mauritania 
where decommissioning is expected to occur around 2013.
The Company amount of $8,211,000 (2007: $4,509,000) in Africa represents the amount provided within the Company for future 
decommissioning expenditure.
b) 2003 production royalty bonus scheme
       2008 2007
Group       $000 $000
At 1 January       2,150  2,700 
Unwinding of discount       130  156 
Amounts paid during the year        
Adjustment to tax rates       81   – 
Transferred to current liabilities       (1,1 19) (746)
Foreign exchange movements       (59) 40 
At 31 December       1,183  2,150 
 
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 28) 
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.  Page 52 Sterling Energy plc Annual Report & Accounts 2008
22. Share capital
       2008 2007
       $000 $000
Authorised:
3,000,000,000 (2007: 2,4000,000,000) ordinary shares of 1p      56,433  46,078 
Called up, allotted and fully paid
2,325,510,585 (2007: 1,648,710,585) ordinary shares of 1p      42,749  3 1 ,8 11 
Movements during the year included the placing of 675,000,000 new ordinary shares during October 2008 in order to strengthen 
the Company’s balance sheet, enabling the Group to complete its current committed business plan and provide general working 
capital for the Group. Further movements during the year consisted of 1,800,000 new ordinary shares which were issued to 
employees (and a former employee) who exercised share options in the year.
23. 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 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 of 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 1 January 2008  341,414  8,368  657  658  (14,421) (90,217) 246,459 
Premium on shares issued   1 1,010   –    –    –    –    –   1 1,010 
Share issue costs  (1,090) – – – – – (1,090)
Currency translation adjustments   –    –    –   (1,921)  –    –   (1,921)
Disposal of held for sale investment   –    –   (657)  –    –    –   (657)
Hedge movement    –    –    –    –   29,995   –   29,995 
Share option reserve charge for the year   –   1,501   –    –    –    –   1,501 
Loss for the year   –   –   –    –    –   (156,830) (156,830)
At 31 December 2008  351,334  9,869   –    (1,263) 15,574  (247,047) 128,467 
    Share Share   
    premium option Hedge Retained  
    account reserve reserve  earnings Total
Company    $000 $000 $000 $000 $000
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      –    –   (1 1, 153)  –   (1 1, 153)
Loss for the year     –    –    –   (3,845) (3,845)
At 1 January 2008    341,414  8,368  (1 1,153) (88,380) 250,249 
Premium on shares issued     1 1,010   –    –    –   1 1,010 
Charge for the year     –   1,501   –    –   1,501 
Share issue costs    (1,090)  –    –    –   (1,090)
Hedge movement      –    –   17 ,695   –   17 ,695 
Loss for the year     –    –    –   (150,379) (150,379)
At 31 December 2008    351,334  9,869  6,542  (238,759) 128,986 
Notes to the financial statements continued
Year ended 31 December 2008 Page 53 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
24. Operating leases and capital commitments
     Group  Company 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Minimum lease payments under operating leases recognised as an expense in the year   4,897   4,759   3,419   3,421 
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 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Within one year     4,942   4,706   3,393   3,1 32 
In the second to fifth year inclusive     13,614   18,779   10,107   12,483 
After five years     2,884   1,754   –    –  
      21,440   25,239   13,500   15,615
Operating lease payments represent the Group’s share of rentals for an FPSO (“Floating Production and Storage Offtake”) vessel in 
Mauritania and rentals payable for certain of its office properties. Whilst Sterling has no contractual capital commitments in respect of 
the purchase of property, plant and equipment, the Group continues to meet its share of expenditures on projects as they fall due.
25. Cash flows from operating activities
       2008 2007
Group       $000 $000
Operating activities:        
Operating (loss)/profit       (175,231) 1,792 
Depletion and amortisation       54,667  50,310 
Impairment expense       180,142   – 
Other impairments       2,833   – 
Inventory revaluation       4,730   – 
Gain on disposals       (8,182)  – 
Share-based payment provision       1,501  1,918 
Operating cash flow prior to working capital       60,460  54,020 
Decrease/(increase) in inventories       (4,689) (1,323)
Decrease/(increase) in trade and other receivables (reclassified)      1,938  (12,387)
(Decrease)/increase in trade and other payables (reclassified)      (964) 7 ,821 
       56,745  48,131 
       2008 2007
Company       $000 $000
Operating activities:        
Operating loss       (145,473) (3,057)
Depletion and amortisation       14,134  15,985 
Impairment expense       133,701   – 
Other impairments       833   – 
Share-based payment provision       1,501  236 
Operating cash flow prior to working capital       4,696  13,164 
Decrease/(increase) in inventories       592  (1,090)
(Increase)/decrease in trade and other receivables       (92,481) 62,619 
Increase/(decrease) in trade and other payables       108,699  (136,885)
       21,506  (62, 192)
Amounts of $3,145,000 (2007: $5,765,000) in the Group previously presented as cash equivalents have been presented as other 
receivables – restricted cash in these financial statements to better reflect restrictions over their availability to the Group. Prior year 
comparatives have been reclassified accordingly. Page 54 Sterling Energy plc Annual Report & Accounts 2008
26. Post-balance sheet events
Financing: Following a Borrowing Base redetermination in February 2009 Natixis, as agent and technical bank, indicated that 
following the major fall in energy prices over the last few months, the Company’s available Borrowing Base under its syndicated 
debt facility is currently calculated at $76,300,000 and is currently forecast to be $58,500,000 at the next Borrowing Base review 
in August 2009. Under this facility, at the end of May 2009, Sterling had an outstanding balance of $101,200,000, giving rise to a 
debt gap of $25,300,000. In April 2009, Sterling signed a waiver agreement with the banks which allowed Sterling to reschedule 
its loan repayments until the next Borrowing Base review in mid August 2009. The waiver includes various changes to the terms of 
the loan, including fees dependent on the timing of the elimination of the debt gap, prior bank approvals of capital costs, a 
reduction in the total facility commitment amount from $250,000,000 to $125,000,000, and a monthly repayment of not less than 
$1,000,000 under a cash sweep mechanism. 
27 . Financial instruments
Capital risk management and liquidity risk
Further discussion on the Group’s funding position and the application of the going concern assumption is provided in note 2.
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 19 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 23. 
The Group uses cash flow models, which are regularly updated, to monitor liquidity risk.
Gearing ratio
       2008 2007
Group      Note $000 $000
Debt      19 119,270  153,318 
Cash and cash equivalents       (23,854) (49,866)
Net debt       95,416  103,452 
Equity       171,216  278,270 
Net debt to equity ratio       56% 37%
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. 
 
     Carrying amount  Fair value 
    
     2008 2007 2008 2007
Group    Notes $000 $000 $000 $000
Financial assets       
Cash and cash equivalents      23,854   49,866   23,854   49,866 
Derivative instruments in designated hedge accounting relationships     16,071   2,005   16,071   2,005 
Available-for-sale financial assets      –   1,932   –   1,932 
Other financial assets at fair value    16a 996   3,500   996   3,500 
Trade and other receivables    17  32,606   41,965   32,606   41,965 
Total      73,527   99,268   73,527   99,268 
Financial Liabilities
Derivative instruments in designated hedge accounting relationships     497   16,608   497   16,608 
Financial liabilities at amortised cost    19  119,270   153,318   119,270   153,318 
Trade and other payables    18  39,533   79,835   39,533   79,835 
Total      159,300   249,761   159,300   249,761 
Notes to the financial statements continued
Year ended 31 December 2008 Page 55 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
27 . Financial instruments continued
     Carrying amount  Fair value 
    
     2008 2007 2008 2007
Company    Notes $000 $000 $000 $000
Financial assets       
Cash and cash equivalents      15,432   26,540   15,432   26,540 
Derivative instruments in designated hedge accounting relationships     6,542   –   6,542   – 
Trade and other receivables    17  1,173   5,381   1,173   5,381 
Total      23,147   31,921   23,147   31,921 
       
Financial Liabilities
Derivative instruments in designated hedge accounting relationships     –   1 1, 153   –   11 , 1 53 
Financial liabilities at amortised cost    19  119,270   153,318   119,270   153,318 
Trade and other payables    18  13,660   14, 125   13,660   14,125 
Total      132,930   178,596   132,930   1 78,596
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.
Other financial assets and liabilities are valued at amortised cost value less any credit risk provision in respect of assets.  
Due to the short-term nature of these assets and liabilities such values approximate their fair values at 31 December 2008  
and 31 December 2007. 
 
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.
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 2008 the Group had cash flow hedges in place with the following 
characteristics: 
        Group
        2009
        settlements
Brent oil price
Volume (bbl)         360,000 
Hedge price (per bbl)
– Swap         $74.30 
WTI oil price
Volume (bbl)         168,000 
Hedge price (per bbl)
– Swap       $69.90/$85.35
Henry Hub gas price
Volume (mmbtu)         2,680,000 
Hedge price (per mmbtu)
– Collar floors/ceilings       $7 .00/$9.00
– Swap       $8.00–$9.22 Page 56 Sterling Energy plc Annual Report & Accounts 2008
27 . Financial instruments continued
The Group policy is to hedge a minimum of 25% of the proven production profile of the Borrowing Base Assets as required by the 
Borrowing Base Facility with the actual level determined by broader financial requirements and market availability and pricing. 
The table below shows the combined impact on the fair values of oil and gas derivatives resulting from a $10 increase/decrease in 
forward prices for oil and a $1 increase/decrease for gas, analysed between earnings and equity.
     Group  Company 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Decrease:        
Decrease/increase in profit      –   –   –   – 
Increase in equity      7,015   3,1 93   3,576   4,243 
Increase in net assets      7,015   3, 193   3,576   4,243 
        
Increase:        
Increase/decrease in profit      –   –   –   – 
Decrease in equity      7,100   26,396   3,576   18,063 
Decrease in net assets      7,100   26,396   3,576   18,063
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.
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)
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Loans at amortised amount     (1,193) (1,533) (1,193) (1,533)
Cash and cash equivalents     239  499  154  331 
     (954) (1,034) (1,039) (1,202)
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 2008 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.
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.
 
Notes to the financial statements continued
Year ended 31 December 2008 Page 57 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
27 . Financial instruments continued
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 5.4% (2007: 6.7%).
   Less than  Six months One to
   six months  to one year six years Total Interest Principal
Group   $000 $000 $000 $000 $000 $000
2008        
Trade payables    17,400   –   –   17,400   –  17,400 
Derivative financial instruments    20   477   –   497   –   497 
Long-term and short-term debt    53,412   3,161   69,079   125,651  (6,381)  119,270 
        
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 
   Less than  Six months One to
   six months  to one year six years Total Interest Principal
Company   $000 $000 $000 $000 $000 $000
2008        
Trade payables   1,024   –   –   1,024   –  1,024 
Derivative financial instruments    –   –   –   –   –   – 
Long-term and short-term debt    53,412   3,161   69,079   125,651  (6,381)  119,270 
        
2007        
Trade payables   7 ,003   –   –  7 ,003   –  7 ,003 
Derivative financial instruments   3,284  3,021  4,848  1 1,153   –  1 1,153 
Long-term debt   7 ,299  9,079  147 ,212  163,590  (10,272) 153,318 
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 
    
     2008 2007 2008 2007
     $000 $000 $000 $000
Forecast cash settlements (net of derivative asset and liabilities):
2008      –   7 ,673   –  6,305 
2009      –    6,930   –  4,848 
      –   14,603   –   1 1,153 
Discounted values      –   14,390   –   10,993
 
There are no forecast cash settlements in 2009 as the Group and the Company are in a net asset position in respect of their hedges.
  Page 58 Sterling Energy plc Annual Report & Accounts 2008
28. 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 $1,501,000 (2007: $1,918,000). The Company recognised a total expense, within administration costs, in 
respect of share-based payments under equity-settled share option plans of $98,000 (2007: $236,000).
The Sterling Employee Share Incentive Plan
Movements during the year on share options were as follows:
     2008  2007
      Weighted  Weighted
    2008 average 2007 average
    Number of exercise  Number of exercise 
    share price share price
    options (pence) options (pence)
Outstanding at the beginning of period   68,865,000  11.7  78,390,000  12.5 
Granted during the period    –   –  4,650,000  15.5 
Forfeited during the period   (8,400,000) 17.6  (10,025,000) 18.3 
Exercised during the period   (1,800,000) 4.0  (4,150,000) 10.8 
Outstanding at the end of the year   58,665,000  10.8  68,865,000  1 1.7 
Exercisable at the end of the year   56,165,000  10.7  50,585,000  8.3 
 
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:
 
    2008  
    Weighted  
    average  
    exercise   
    price 2008 2007
    (pence) Number Number
Year of grant:     
2001    4  2,350,000  2,600,000 
2002     4  21,850,000  22,950,000 
2003     7  7,750,000  8,200,000 
2004     13.1  3,325,000  5,325,000 
2005     17  9,250,000  1 1,510,000 
2006     23.4  11,640,000  13,630,000 
2007     15.3  2,500,000  4,650,000
The weighted average share price at the date of exercise during the year was 11.8 pence (2007: 14 pence). The options 
outstanding at the end of the year have a weighted average contractual life of 5.13 years (2007: 6.38 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 nil pence (2007: 15.5 pence).
 
Fair values were measured by use of the Black-Scholes pricing model. The inputs to the model were as follows:
       2008 2007
       number number
Weighted average share price (pence)       8. 11 15.25
Weighted average exercise price (pence)       4 10.8
Average expected volatility       54.58% 42.72%
Expected life (years)       5 5
Average risk-free rate (%)       3.83% 4.70%
Expected dividends       None None
Notes to the financial statements continued
Year ended 31 December 2008 Page 59 Sterling Energy plc Annual Report & Accounts 2008
Financial Statements
28. Share-based payments continued
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.
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:
      2008 2007
      Number Number
      of share of share
      options options
Outstanding at the beginning of period     44,534,000   – 
Granted during the period      45,575,000  46,622,000 
Forfeited during the period     (10,628,000) (2,088,000)
Outstanding at the end of the year     79,481,000  44,534,000 
Exercisable at the end of the year      –    – 
The nominal cost options outstanding at the end of the year have a weighted average remaining contractual life of 2.28 years 
(2007: 2.75 years).
The cost of these shares is spread over the vesting period of 3 years (2007: 3 years).
The weighted average fair value of the options granted during the year was 1.204 pence (2007: 1.725 pence).
 
At 20 August 2008 (“the amendment date”), the Company amended the vesting conditions for all the outstanding nominal cost 
options under the approved LTIP.
The amendments were considered necessary for the LTIP to continue to be an effective staff incentive scheme after taking into 
account the change in the market conditions in 2008.
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 parent 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 parent 
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 as follows:
TSR compared to comparator group       Old rules  New rules
Below Median       nil 25.0%
Median to Upper Quartile       15.0% 32.5%
Upper Quartile to Upper Decile       35.0% 42.5%
Above Upper Decile       50.0% 50.0%
  Page 60 Sterling Energy plc Annual Report & Accounts 2008
28. Share-based payments continued
Up to the other 50% of the nominal cost options will vest based on the share price growth of the Company’s shares at the date of 
grant or at the amendment date for options granted before the amendment date (“the Second Performance Condition”) as follows:
Share price growth %       Old rules  New rules
Below 50%       nil  25.0%
50%–75%       10.0% 30.0%
75%–100%       20.0% 35.0%
100%–125%       30.0% 40.0%
125%–150%       40.0% 45.0%
above 150%       50.0% 50.0%
The aggregated incremental fair value of £1,098,000 will be expensed over the remaining vesting periods (two to three years).
The Company used the inputs noted below to measure the fair values of the old and new nominal cost options.
These fair values were calculated using modified binomial option pricing models. The inputs to these models were as follows:
       2008 2007
Share price (pence)       3.6 11 . 7 5
Exercise price (pence)       1 Nil
Expected volatility       54.58% 45.72%
Expected life (years)       2 to 3 3
Risk free rate (%)       3.83% 5.75%
Expected dividends       None None
For options subject to the First Performance Condition – the weighted expected % of vesting    29.78% 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 2008.
29. 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 $156,074,000 (2007: $40,198,000). Included within 
related party transactions is an intercompany loan between the Company and SE USA of $67,141,000 (2007: $63,848,000) which 
is interest bearing. During the year interest of $4,243,000 accrued on this loan which is eliminated on consolidation.
Transactions with Directors
Details of Directors’ remuneration, who comprise key management personnel, are provided below:
Related party transactions
       2008 2007
       $000 $000
Short-term employee benefits       3,134  2,763 
Compensation for loss of office       74   – 
Post employee benefits       328  296 
Share-based payments       715  1,917 
       4,251  4,976
Notes to the financial statements continued
Year ended 31 December 2008 Overview
01 Who We Are
02 Highlights – 2008
03 Management Objectives for 2009
04 Chairman’s Statement
06 Chief Executive’s Review
Business Review
08 Operational
14 Reserves Report
15 Schedule of Interests
16 Financial Review
20 Corporate Social Responsibility
22 Board of Directors
Governance
24 Directors’ Report
30 Corporate Governance
31 Statement of Directors’ Responsibilities
Financial Statements
32 Independent Auditors’ Report 
33 Consolidated income statement
33 Consolidated statement of recognised 
income and expense
34 Consolidated balance sheet
35 Consolidated cash flow statement
36 Company balance sheet
37 Company cash flow statement
37 Company statement of recognised 
income and expense
38 Notes to the financial statements
61 Definitions
$
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
bo/d
barrels of oil per day
boe
barrels of oil equivalent
boe/d
barrels of oil equivalent per day
EBITDA
earnings before interest, taxation, depreciation, amortisation, 
impairment and pre-licence expenditure
HSE
Health, Safety and Environment
km
2
square kilometre
mbo/d
thousand barrels of oil per day
mcf
thousand cubic feet of gas
mcfge
thousand cubic feet of gas equivalent
Definitions
mcfge/d
thousand cubic feet of gas equivalent per day
mmbbl
millions of barrels
mmboe
millions of barrels of oil equivalent
mmcf
millions cubic feet of gas
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
PSC
production sharing contracts
RI
Royalty interest
sq mi
square mile
tcf
trillion cubic feet of gas
TEA
technical evaluation agreement
WEC
Whittier Energy Corporation
WI
working interest
Page 61 Sterling Energy plc Annual Report & Accounts 2008 Annual Report & Accounts 2008
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 
www.sterlingenergyplc.com
Sterling Energy plc Annual Report & Accounts 2008