05
annual report  accounts definitions
bbls barrels of oil
bcf billion cubic feet of gas
bcfge billions of cubic feet gas equivalent
boe barrels of oil equivalent
bopd barrels of oil per day
mcf thousand cubic feet of gas
mcfged thousand cubic feet of gas
equivalent per day
mmbbl millions of barrels
mmcfgd million cubic feet of gas per day
mmcfged millions of cubic feet of gas
equivalent per day
tcf trillion cubic feet of gas 1
contents
sterling energy annual report  accounts 2005
2 highlights
4 chairman’s statement
8 chief executive’s statement
10 operations report and proven probable reserves
23 schedule of main interests
24 financial report and outlook
28 directors’ report
32 directors’  senior managers’ biographies
36 corporate governance
38 statement of directors’ responsibilities 38
40 consolidated profit and loss account
41 consolidated balance sheet
42 company balance sheet
43 consolidated statement of total recognised gains and losses
43 reconciliation of movements in group shareholders’ funds
43 consolidated cash flow statement
44 notes to the financial statements
64 independent auditors’ report
66 notice of annual general meeting
  2
2005 highlights
sterling energy annual report  accounts 2005
financial highlights
• turnover increased by 19 to 
£136 million 2004 £115 million
• pretax profit up 47 to a record 
£61 million 2004 £42 million before
oneoff perth office closure cost of 
£12 million
• cash inflow from operations before the
oneoff closure cost and working capital
movements increased by 13 to 
£88 million 2004 £78 million
production and reserves
• average attributable production
increased 4 to 97 mmcfged 
2004 93 mmcfged despite the impact
of several highly destructive hurricanes
in the gulf of mexico
• realised prices up 12 at 637mcfge
2004 568mcfge
• net yearend proven  probable
reserves over 21 million boe of which
65 are in the proven category
operational highlights
• major investment in the offshore
mauritania chinguetti field development
continued with a further 65 million of
cash invested by sterling in the year
and a further investment of 50 million
projected in 2006 local office opened
• three drilling successes offshore
mauritania with a 6th appraisal well 
on the 300 million bbl tiof oualata
field an appraisal well on the 50 million
bbl gross tevet discovery and a new 
30 million bbl gross discovery
labeidna all wells were drilled at 
no cost to sterling
• key farmout to exxonmobil on
madagascar acreage with sterling
remaining as operator carried 30
interest through seismic and up to 
four well drilling programme
• new interest offshore gabon adjacent 
to existing licences 
• extreme weather conditions offshore
usa curtailed work programme
• farmout of heavy oil discoveries 
in agc 3
2006 highlights
sterling energy annual report  accounts 2005
operational highlights
• chinguetti field production 
commenced ontime in late february
and first sterling lifting took place in
early april production levels to the 
end of march averaged 59000 bpd
gross the operators peak rate target 
is of up to 75000 bpd gross 
sometime in the second half 
• firm exploration well programme in
africa of at least 5 wells to mid2007
largely carried an expansion of this
drilling programme to enhance reserve
and production upside is anticipated
• operator development proposals on 
300 million bbl gross tiof oualata 
and 50 million bbl gross tevet
discoveries anticipated
• consolidation of management of 
the african operations to the uk 
headoffice completed
• carried pistoncoring completed and
4000 km 2d seismic programme
offshore madagascar brought forward
and now underway
• success with galveston bay and
gryphon c3 wells in the usa 
now brought onstream and expected 
to produce 22 mmcfged net
• memorandum of understanding for an
exploration block signed with kurdistan
regional government of iraq and field
studies commenced
• new licence exploration 
drilling development and production
interests actively being sought to
expand reserves and production 
upside potential  chairman’s statement
sterling energy annual report  accounts 2005
dear shareholder
another successful year and great optimism for 2006
it is my pleasure once again to report further progress and
considerable achievements by your company in 2005 this growth
has continued into 2006 in late february a major milestone was
achieved by sterling when first oil was produced on time from the
chinguetti oil field offshore mauritania 
the first sterling cargo was lifted in early april 2006
gross production to the end of march averaged
59000 bpd and is expected to increase towards 
the operator’s peak rate of 75000 bpd sometime 
in the second half of 2006 sterling has an economic
interest in the field of approximately 8 plus a
productionbased royalty taken together these
interests will yield substantial cash flow and 
mark a stepchange in sterling’s development 
as a significant international explorer and 
producer of oil and gas
4
in 2005 revenues from the sale of oil and gas
increased by 19 from £115 million to £136 million
pretax earnings rose 47 to £61 million 2004 £42
million before the oneoff cost of £12 million for the
perth office closure like all other gulf of mexico
producers sterling was affected by possibly the
worst hurricane season in living memory which
caused widespread damage to communities in the
southern us states and severe disruption to the oil
and gas industry although there was minimal
physical damage to our facilities numerous third
party pipelines were shut in for safety reasons and
our production was restricted i am pleased to say
that the majority of our production was resumed
quickly and is now fully restored 5
chairman’s statement
sterling energy annual report  accounts 2005
the commencement of production from our major
investment in mauritania is expected to lead to a
very substantial increase in sterling’s financial and
operational performance in 2006
with the closure of the perth office in january 2006
sterling has consolidated its african management
activity in the uk cost and time savings are 
being realised there are dedicated teams for
mauritania new ventures and exploration activities
now in place with relevant support after the hectic
pace of growth in recent years the asset portfolio
has been streamlined
on the exploration front highlights included
• a successful farmout of our offshore madagascar
licences to exxonmobil retaining a 30 interest
and remaining operator sterling is carried through
a substantial programme of seismic and other
work plus the drilling of up to four exploration
wells the work programme has already been
accelerated with sea bottom pistoncoring
completed and the acquisition of approximately
4000 km of 2d seismic is now underway 
• success with three carried wells offshore
mauritania being
a an appraisal well on the 300 million 
bbl gross tiof oualata field 
b an appraisal well on the 50 million bbl gross 
tevet field 
c a discovery well on the new 30 million 
bbl gross labeidna field 
• useful local and regional information was garnered
from the offshore gabon well on which we were
largely carried we have been awarded an interest
adjacent to our existing licences work continues to
firmup new prospects for drilling in late 20067
• farmout on dome flore heavy oil interests 
was completed with sterling keeping a 30 
carried interest through certain studies and
appraisal activities
• the us activity was hampered by the severe
weather and its effects as well as exceptionally
difficult and volatile equipment and energy pricing
markets highlights were the galveston bay 2515
and gryphon c3 wells successfully drilled in early
2006 and now onstream increasing to a combined
projected net rate of approximately 22 mmcfged
your company with its growing cash flow from its
major investment programme over the last 18
months is looking to increase its exposure to 
“high impact” exploration activity it is focused on
adding further material exploration opportunities to
its portfolio together with development and
production activities as a first and important step
sterling has recently signed a memorandum of
understanding “mou” with the oil gas and
petrochemical establishment “oge” of the
kurdistan regional government of iraq giving
exclusive rights to commence geological studies 
and to negotiate a production sharing contract
“psc” for an exploration block sterling sees this as
a vastly underexplored region with great potential 6
financials improve again
the year 2005 was a year marked by ongoing
achievement pretax profit rose 20 to a record 
£50 million and cash inflow from operations 
before the closure cost noted above and working
capital movements was up 13 at £88 million 
during a period of heavy investment and in light 
of the prevailing operating conditions this was 
an excellent result 
we have not elected for the early adoption of
international financial reporting standards “ifrs”
and accordingly the financial statements have been
prepared on a basis consistent with the prior periods
building the springboard
sterling directly invested a further 65 million 
of cash in the chinguetti development in 2005 
the expenditures to complete the field development
work and to commence production continued 
into 2006 with up to a further 50 million paid 
or currently budgeted the successful startup will
transform sterling’s production base and financial
performance i am very pleased that production
started ontime in late february 2006 and the major
increase in cash flow from this development will 
help to provide the impetus for future growth
we anticipate development decisions on both the
tevet and tiof oualata fields this would further
boost our cash flow potential through the production
royalty at no cost to sterling and also in the case 
of tevet through the sharing of chinguetti facilities 
in addition we may be able to repeat the mutually
beneficial funding arrangements of chinguetti on
these or other fields in mauritania or elsewhere
we were less fortunate with developments in the
gulf of mexico with the industry having to cope with
the devastation of possibly the worst hurricane
season in living memory as well as production
disruptions development plans were also seriously
impeded by the scarcity and high costs of
equipment as well as oil and gas price volatility
exploration results were mixed although some
notable successes were recently recorded the latest
being the 2006 exploration wells on galveston bay
st2515 and the gryphon c3 noted above
group proven and probable reserves were over 21
million boe at the end of the year the existing
exploration projects have the required prospectivity
to add to these reserves materially leaving aside any
new projects with which sterling will be involved 
over the next twelve months we expect to 
participate in a number of drilling and other
exploration activities intended to increase our
reserves at a time of growing worldwide supply
concerns with wells in gabon mauritania and 
the usa as well as pistoncoring and seismic in
madagascar and an emphasis on new ventures 
it will be a busy time
“ the year 2005 was a year marked by ongoing 
achievement pretax profit rose 20 to a record 
£50 million and cash inflow from operations 
before the closure cost noted above and working 
capital movements was up 13 at £88 million”
chairman’s statement
sterling energy annual report  accounts 2005 7
chairman’s statement
sterling energy annual report  accounts 2005
streamlined management
during the last year the staff have not only had 
to deal with daytoday matters but also the
consolidation of african management activities in 
the uk establishing a staffed office in mauritania
and the impact of the hurricanes in the usa
this coupled with the expansion and strengthening
of various functions to cope with our growth has
made it a challenging time i would like to thank 
all of our staff including those who worked with 
us in our perth office for their support and
professionalism in this demanding period 
we believe the benefits of these changes will
become increasingly apparent
i would also like to thank dr elizabeth butler 
who after many years of service will not be 
seeking reelection to the board at this year’s agm 
her contribution has been greatly appreciated 
i welcome christopher callaway who joined the
board in february 2006 his long and distinguished
career in the city will bring significant additional
skills at this challenging time
strong outlook
the outstanding progress of your company 
over the last number of years is in no small way 
due to the expertise and dedication of its staff 
whose industry knowledge and professionalism 
have created the significant opportunities for growth
available to us today in my decades in the industry 
i have never felt so optimistic about the outlook 
and i believe sterling is very well positioned to 
take advantage of the resulting opportunities
with a significant increase in production 
and cash flow in 2006 and an increasingly exciting
exploration portfolio in a time of growing energy
shortages sterling can look forward with confidence
to a rewarding period in the years ahead
richard o’toole
chairman
21 april 2006
“ during the last year the staff have not only had 
to deal with daytoday matters but also the 
consolidation of african management activities in 
the uk establishing a staffed office in mauritania 
and the impact of the hurricanes in the usa” 8
chief executive’s statement
sterling energy annual report  accounts 2005
our industry is undergoing a period of enormous change
and we are adapting our business model to continue the
success we have so far delivered against this backdrop
the start of production in mauritania in february 2006
transforms our cash flow enabling sterling to be bolder 
in the implementation of its growth strategy
changing industry background
the key causes of this changing volatile
environment are the sustained “high” oil price
which many commentators are predicting will stay
above 50bbl over the next 3 – 5 years there is 
a recognition that the supply of oil and gas is
struggling to keep up with demand and that this
supply may be subject to unforeseen interruptions
the energy sector has moved quickly to adjust to
changes in these fundamental forces the key 
issues we now have to contend with include
• a “land grab” is underway in addition to the
major oil companies who need to meet reserve
and production replacement targets we now have
to contend with national oil companies strategically
positioning themselves to guarantee future
supplies competition for prospective acreage 
is intense
• it is not just the oil price which has risen 
sharply from the commercial terms granted 
by governments for licences through rig rates 
and seismic costs to insurance premiums the 
prices for everything in our industry have gone up 
availability of equipment has plummeted with 
for example the lead times on new rig contracts 
in west africa currently running at over a year
• the economics of exploration projects have
improved which translate into both higher risk
targets and smaller prospects being drilled 
buyers often with “cheap money” have also
lowered the economic return criteria they apply to
acquisitions such that many prices being paid for
reserves are in our view only supported by even
greater optimism about the future of energy prices
• investors have joined the “blackgold rush” 
since we joined aim in october 2002 our peer
group in london has risen from about 10 to over
100 oil and gas companies and this rate of growth
looks set to continue during 2006 readily available
funds have chased a declining number of good
opportunities and inevitably pushed prices up
availability of experienced people has also become
an issue as each of the new companies have
established their teams 9
chief executive’s statement
sterling energy annual report  accounts 2005
this all sets the scene for a highly competitive and
expensive market place where sellers are calling 
the tune although we are in the fortunate position 
of having acquired many of our assets before these
changes really started to bite and have benefited
from the inevitable rise in value we are adapting 
our model to continue this growth going forward 
stepchange
our overall aim is to continue to build our cash flow
profitability and have exciting exploration upside
focused on increasing value per share  
in our model to date
• production has offered a steady rate of return
which with low risk infill and stepout drilling
provided a platform from which to undertake
exploration our production assets would not
normally be expected to double the value of the
company in the short term – although the recent
rise in oil and gas prices has significantly increased
their value – but they do provide solid cash 
flow which we have sought to leverage into 
other opportunities
• exploration offers the big upside a key objective
has been to manage the risks and costs of drilling
which we know statistically is more likely to fail
than succeed using our technical and commercial
expertise we have been very successful in passing
on exploration costs while retaining significant
upside to drilling outcomes the key is to have 
a string of material targets ready to drill in the 
near future we have not committed to any
individual exploration project which could
materially damage the balance sheet instead 
we have put in place a sustainable exploration
programme which has been supported by our
growing production cash flow
our response to both the new industry environment
and sterling’s own financial resources is to try and
sidestep the crowd and look for value in less
obvious opportunities buying conventional
production at present levels is in our view unlikely to
meet our criteria whereas for example our creative
financing of the mauritanian government’s
participation in the chinguetti field unlocked
substantial value for both sides which could
otherwise have been lost the recent signing by
sterling of an mou in the kurdistan region is
another example of such opportunities
sterling’s hallmark to date has been innovative
transactions playing to our strengths of experience
creativity flexibility and speed underpinning this
model is the quality of the people within the
company they are our most essential resource
the tremendous activity in the oil  gas sector
makes it increasingly difficult to stand out from 
our peers we are already starting to see signs 
of investor fatigue and the first soundings of 
sector consolidation in the past successful oil
companies were taken over by larger companies
once their assets reached critical mass and we
expect history to repeat itself over the 
next few years 
the performance of the company is the only 
true measure of the success of the strategy 
our track record since listing on aim in late 2002 
is a vindication of the model implemented by 
our team our vision is to remain in the top 
10 of our peer group in terms of value added 
and perceived upside potential 
strongly positioned
we are very well positioned and optimistic for
sterling’s continued development we will not
overpay for assets as our focus is on creating
shareholder value the cash flow from chinguetti
and from the usa puts sterling in a very strong
position to effect a stepchange in its activities 
and to leverage itself into new opportunities 
in this fastchanging environment 
harry wilson 
chief executive officer 
21 april 2006 10
africa and middle eastern operations 
2005 saw the continued development of the chinguetti
field exploration and appraisal wells in mauritania 
and gabon consolidation of the management of the
african interests in the uk and active management 
of the licence portfolio 
sterling farmedout exploration interests in the ambilobe
and ampasindava licences in madagascar to exxonmobil
and has retained a 30 interest and operatorship of this
exciting exploration opportunity it also added to its
portfolio the operated offshore ibekelia technical
evaluation agreement “tea” which is adjacent 
to its two licences in gabon
10
in line with its policy to manage the portfolio 
proactively sterling also farmed out the dome 
flore heavy oil interests in agc and relinquished 
its noneconomic licence interests in cheval marin 
and croix du sud in the agc activity on the ntem
licence in cameroon has been suspended pending
resolution of a territorial issue with neighbouring 
equatorial guinea
with the commencement of chinguetti production 
in late february 2006 and the consequent return on
sterling’s investment the pace of our production 
and exploration activity is set to increase markedly 
development decisions on discoveries in mauritania
totalling a gross 380 million bbls are expected in
2006 with sterling having no cost exposure owing 
to its royalty interest over 6 of psc b and 3 in
psc a adjusted for any exercise by the government
of its backin rights which for chinguetti was 12
sterling is currently expecting to participate in 
at least five exploration wells in west africa up to
mid2007 for these wells most of its costs will 
be paid by other companies through farmouts 
new opportunities are being sought to expand this
programme and to enhance sterling’s already strong
reserve and production upside an example of the
implementation of this strategy is the signing of the
mou in kurdistan an office is being opened and it 
is hoped a psc can be signed as sterling is keen 
to undertake drilling there 
operations report
sterling energy annual report  accounts 2005 11 11
mauritania chinguetti 
field onstream
the chinguetti field came onstream on 24 february
2006 and production to the end of march averaged
59000 bpd it is expected that it will rise towards the
operator’s forecast peak rate of up to 75000 bpd 
in the second half of 2006 there have inevitably
been fluctuations since production commenced 
as reservoir management and other issues are
optimised the gas injection system is currently 
being commissioned the first cargo of crude in
which sterling had an interest of approximately
170000 bbls was shipped in early april with
payment due in early may
the development of the chinguetti field located 
80 km offshore mauritania in 800 metres of water
took place throughout 2005 the conversion of the
berge helene floating production unit took place in
singapore with equipment sourced from around 
the world the drilling of injection and producer
wells and the installation of subsea equipment
continued with the hookup and commissioning
taking place at the start of 2006 oil industry 
costs rose markedly during the period and the
development drilling and subsea architecture also
presented many challenges despite these obstacles
the startup on this the first producing field in
mauritania was on schedule
sterling has two interests in the chinguetti
production the first is through the groundbreaking
funding agreement signed with the mauritanian
government in october 2004 whereby sterling has a
strategic partnership with societe mauritanienne des
hydrocarbures smh formerly gpc to fund smh’s
12 backin to the field in exchange for an effective
economic interest of approximately 8 as of the
date of this report sterling had paid or accrued total
expenditures of 140 million in relation solely to its
economic interest including payment of smh’s share
of past development and initial operating costs and a
signature bonus to the government 
as part of the funding agreement sterling has also
been working closely with smh through sterling’s
new office in nouakchott it has been providing 
smh with training assistance and workshops in 
the technical commercial and financial areas 
several smh personnel have been seconded 
to the sterling offices in the uk 
operations report
sterling energy annual report  accounts 2005 12
the second interest in chinguetti comes from the
wider productionbased royalty arrangement sterling
has which covers 3 and 6 respectively of all
developments in both psc a and psc b each
adjusted for any exercise by the government of its
backin rights on fields developed sterling receives 
a cash bonus of 12 million for each development
approved over 50 million bbl and a sliding scale
royalty from any development based on net
production the payment is subject to an annual
escalation of the payment bands at an oil price of
50bbl this is currently 587bbl and at 60bbl is
740bbl the royalty interest was adjusted to 528
on chinguetti as the government exercised its 
backin right importantly this royalty gives sterling
an interest in each field and future discoveries
without paying any of the exploration appraisal 
or development costs 
sterling’s share of net attributable proven and
probable reserves for the chinguetti field was 
117 million bbls at the end of both 2004 and 2005 
these have been derived from the gross estimate 
of 139 million bbls set out in the independent
petroleum consultants’ report in the circular to
shareholders in october 2004 the operator is
expected to revise its 2004 gross estimate of 
123 million bbls in light of actual production 
and other factors
there are three discoveries in psc b which are being
evaluated by the operator for development decisions
a tevet is a 2004 miocene discovery close 
to chinguetti containing estimated gross 
reserves of 50 million bbls a development
decision is anticipated
b labeidna similarly close to chinguetti was
discovered in 2005 with estimated gross reserves 
of 30 million bbls it is also a miocene reservoir 
further appraisal drilling is expected 
it is likely that these two fields would be tiebacks 
to existing chinguetti facilities thereby ensuring
costeffective development and enhancing 
chinguetti economics 
c the much larger tiof oualata field was
discovered in late 2003 and has estimated 
gross reserves of 300 million barrels and 
significant gas volumes a 6th appraisal well 
was drilled on tiof in 2005 and the field is
undergoing engineering studies with a view 
to a development decision anticipated 
sterling expects any development to be 
in stages partly because of the reservoir
complexities it has the potential for a much
greater gross production level than chinguetti
“ there are three discoveries in psc b 
which are being evaluated by the 
operator for development decisions”
operations report
sterling energy annual report  accounts 2005 13
aside from the great oil upside of the 50 prospects
in the psc areas for which sterling’s exploration 
and other costs are carried through its royalty
agreement there is also the major potential for gas
developments in the country the banda gas field in
psc a was discovered in 2002 and has estimated
reserves of some 25 bcf whilst development
options have been studied for this and other
discoveries in mauritania it is believed that
significant further volumes will be needed before 
this gas can be developed probably involving
construction of lng facilities further important
reservoir information was gathered during 2005
when the chinguetti gas injection well was 
drilled on banda 
the mauritanian exploration programme resumed in
late 2005 after the chinguetti development drilling
was completed resulting in the discovery well at
labeidna the appraisal wells at tiof oualata 
and tevet as well as the first cretaceous discovery 
at faucon in block 1 apart from the chinguetti wells
five wells were drilled during the year in psc’s 
a  b with two successful appraisal wells
confirming expectations of development potential
the new discovery and two dry holes
in late march 2006 the government announced 
that it had reached a proposed resolution with
woodside the operator of blocks including a and b
over their disputes any proposals will be subject to
partner agreement as currently understood these
proposals are not expected to have a material 
impact on sterling partly due to the indirect 
nature of its interests
the exploration programme for 2006 starting shortly
will initially focus on shallower water prospects 
it is expected that the rig will spend much of its time
in blocks a and b drilling wells at no cost to sterling
operations report
sterling energy annual report  accounts 2005
mauritania
guinea bissau
gabon
cameroon
agc joint exploration zone  
senegal  guinea bissau
west africa exploration and production assets 14
operations report
sterling energy annual report  accounts 2005
madagascar licences farmed out 
sterling is the operator of the ambilobe and
ampasindava blocks awarded in november 
2004 which cover an area of some 34000 sq km
offshore northern madagascar there has since 
been a surge of interest in madagascar whose
offshore provinces represent one of the rare
opportunities to explore undrilled basins which 
offer significant potential
in july 2005 an agreement was signed with 
exxonmobil for them to farmin to both blocks
under the terms of this agreement sterling will
retain a 30 interest in the licences and will be
carried through an exploration work programme
that subject to certain milestones being achieved
includes pistoncoring 2d and 3d seismic acquisition
and the drilling of up to two wells per licence
sterling also remains operator of the licences
the results of the ongoing first phase geological 
and geophysical studies are encouraging and an
approximately 4000 km regional 2d seismic
acquisition programme has been accelerated and 
is now underway a pistoncoring programme 
has recently been completed to sample seafloor
features which may be related to an active
hydrocarbon source integration of the results of
these new programmes with existing information
will provide a dataset to evaluate the potential of 
the blocks and highgrade them for 3d acquisition
and future drilling in 200708
the ambilobe and ampasindava blocks are an
exciting cornerstone of sterling’s exploration
portfolio as evidenced by the farmin by 
exxonmobil in 2005 and an acceleration of 
the exploration programme planned for 2006  15
operations report
sterling energy annual report  accounts 2005
gabon – new ‘tea’ and a 
further well planned 
sterling operates three shallow water permits in
southern gabon iris marin 3857 interest 
themis marin 2057 interest and the ibekelia 
tea 40 interest in september 2005 sterling
signed a tea with the gabonese government for 
the ibekelia permit the agreement covers a 
673 sq km area which is contiguous with the 
gamba and olowi oil fields and with sterling’s
existing licences at the end of the evaluation term
there is an option to convert to a full production
sharing agreement 
in december 2004 sterling participated in a joint 
3d seismic survey with adjacent operators covering
three contiguous permit areas including the
southern part of themis marin and the adjacent
etame area oil discoveries the themis survey area
covers some 240 sq km and the data is currently
undergoing intensive prestack depth migration
processing to define subsalt depth closures at the
prolific target gamba reservoir level an exploration
well is scheduled in the themis marin licence
expected in early 2007 with the timing being
dependent principally on rig availability sterling will
be carried for 18 of its 2057 working interest and
hence will pay only 257 of the costs 
one well was drilled in the iris marin licence during
august and september 2005 the iris iboga marin 
no 1 iibm1 well it reached a depth of 2035 metres
and penetrated over 30 metres of excellent 
reservoirquality subsalt gamba sandstones but
unfortunately these formations were water bearing
accordingly the well was plugged and abandoned 
the excellent reservoir quality encountered 
prompted sterling and its partners to enter a 15
month licence extension and undergo reprocessing
of the 3d seismic data to evaluate other potential
drilling targets in the licence following this well
sterling increased its effective interest in the licence 
to 3857 from 2057
guineabissau 
sterling holds a 5 working interest in the sinapa
licence where the sinapa2 well drilled in april 2004
found oil reservoir quality and structural issues
mean commerciality of the find remains uncertain
plans for appraisal of the sinapa licence await the
outcome of drilling of two exploration wells in the
adjacent esperanca permit in late 2006early 2007
sterling has an option to acquire a 5 working
interest in the esperanca permit at no cost 
to be exercised after this first well
agc heavy oil dome flore 
interests farmed out
dome flore 
agc is the joint exploration zone between senegal
and guineabissau in march 2005 sterling farmed
out 55 of its interest in the dome flore heavy oil
interests retaining 30 the dome flore licence lies
in the shallow waters and contains two significant
heavy oil discoveries from the late 196070s 
sterling estimates there are 8001000 million 
barrels in place in 2005 a series of engineering and
feasibility studies indicated that additional reservoir
rock and oil samples were required to fully evaluate
the potential of the heavy oil accumulation 
“ an exploration well is scheduled in the themis marin 
licence expected in early 2007 with the timing being 
dependent principally on rig availability” 16
in january 2006 the licence entered the first 
renewal period of the exploration phase being 
two years as part of the evaluation of the heavy 
oil commercial potential a series of individual cores
will be taken throughout the heavy oil reservoir
these cores will deliver key data that is required 
to progress the heavy oil feasibility study 
additionally in this period a new 2d seismic survey
will be acquired the purpose of this survey is to
evaluate additional exploration potential in the block
associated with undrilled salt domes and potential
tilted fault block plays
croix du sud 
sterling secured an extension of the croix du sud
licence 85 interest to january 2006 in order to 
try and find a partner to carry it in an exploration
well on the licence however no partner was found
mainly due to the major increases in the already high
drilling costs associated with this ultra deepwater
licence and its limited commercial potential 
the licence has now lapsed 
cameroon
during 2005 the financial obligations and work
programme for the ntem concession area were
suspended due to a dispute between cameroon 
and equatorial guinea over their maritime borders
both countries are currently working together to
resolve the dispute sterling had planned to farmout
this licence for drilling and had originally and still
continues to attract a good level of industry interest
the award in late2004 by equatorial guinea of a
licence to the south of ntem overlapping up to 
20 of ntem has delayed this drilling plan until 
the situation is resolved 
operations report
sterling energy annual report  accounts 2005
“ sterling has an active new ventures programme 
searching for both production and exploration 
opportunities to add to the upside potential 
of its portfolio”
other areas
in 2005 sterling disposed of its interest in its 
noncore gsec 101 licence offshore philippines 
to aim listed forum energy plc in return for a 147
stake forum has a range of energy interests there
with small oil producing fields impending coal
production and a gastoelectricity development
forum carried out a 3d seismic programme on its
large reed bank area which includes the
sampaguita gas discovery this is currently being
interpreted to identify drilling prospects 
further details on the company can be found at 
wwwforumenergycom
other residual interests in holland and onshore 
uk are progressively being disposed of
new ventures 
sterling has an active new ventures programme
searching for both production and exploration
opportunities to add to the upside potential of its
portfolio for exploration africa the usa and the
middle east are key focus areas having the potential
to add high impact projects the focus for production
interests is in both of its core areas africa and 
the usa with the large production increase
expected in 2006 and with the higher cash flows 
an increasing level of resources are being 
committed to these new ventures  17
operations report
sterling energy annual report  accounts 2005 18
operations report
sterling energy annual report  accounts 2005
united states operations 
all of sterling’s production in 2005 was from the shallow waters of 
the gulf of mexico despite the impact of several highly destructive
hurricanes average attributable production increased 4 to 97 mmcfged
2004 93 mmcfged oil and gas prices were volatile with the average
for the year being 12 higher at 637mcfge 2004 568mcfge 
after deducting 35 bcf of production for the year and adding 14 bcfge
net through completed projects yearend proven and probable reserves
were 574 bcfge of these reserves 86 is gas and as in 2004 
60 of the total was categorised as proven by independent 
petroleum consultants 19
operations report
sterling energy annual report  accounts 2005
production levels in early 2006 have been lower
because of natural decline and equipment shortages
leading to delays in restorative work as well as
some residual restoration after the hurricane 
shutins production in the first quarter 2006
averaged 78 mmcfged this is expected to increase
in the second quarter with two recent successful
wells brought onstream in midapril adding an
expected combined rate of 22 mmcfged net as well
as the completion of other planned maintenance
work plans for 2006 include expanding our position
in the gulf of mexico and into the onshore arena 
sterling became an accredited operator in the 
gulf of mexico in 2004 and is now responsible for 
8 fields 21 offshore structures in both federal and
state waters over 68 miles of pipelines five
compressor stations and two onshore facilities 
with 7500 bbls of oil storage capacity it operated
some 70 of its 2005 production the management
and administration is carried out by a staff of 
twelve in houston who interface with over 
40 regulatory authorities
the average life of sterling’s fields based on
average 2005 production and yearend reserves is
approximately 15 years which is considerably longer
then most of the younger gulf of mexico reservoirs
the continued contribution from these reservoirs
some of which have lives in excess of 20 years
should provide a cornerstone to production growth 
sterling’s major properties are its mustang and
matagorda island interests in the western gulf
which accounted for 57 of 2005 production 
56 mmcfged the mu 749 gu2 well drilled to
recover attic reserves is producing but has not
yielded the expected results sterling had promoted
a 25 working interest to cover part of its costs 
a recompletion on the mu 7481 well was successful
as was the workover on the mi 52016 that had 
not produced since 1995 latterly sterling has
increased the throughput capacity of the pipeline
system and towards the end of the year the third
party throughput increased thereby adding to
transportation and processing fees this income
before costs was 22 million in 2005 
up 54 on 2004 
“ the average life of sterling’s fields based on average 
2005 production and yearend reserves is approximately 
15 years which is considerably longer than most of the 
younger gulf of mexico reservoirs” 20
production from these mustang and matagorda
fields in early 2006 has been lower at some 3842
mmcfged adversely affected by the need to install
further compression facilities on mu7481 which 
has been shutin as a result as was increasingly 
the case during 2005 the lack of availability of
equipment on a timely basis as well as increases 
in costs has delayed or cancelled drilling and 
workover operations in particular after the
extensive hurricane damage those drilling rigs lift
boats supply and crew boats not damaged by the
storms were directed to the central and eastern gulf
to give full support to efforts to make assets safe and
thence to bring production back online the 2005
hurricanes have also increased property and
business interruption insurance rates by some 
250500 and the market capacity for named
windstorm damage cover has been greatly reduced
at the renewal in february 2006 sterling’s insurance
costs rose by approximately 250 and a cap of 25
million was placed on named windstorm damage
this is one reason for the planned extension of
activities into the onshore arena 
with the purchase of a 3d dataset over mustang
island sterling has recently developed its first
internally generated prospects it was successful at
both the 4th quarter 2005 and 1st quarter of 2006
offshore texas state lease sales acquiring 5 year
term leases over two internally generated low to
moderate risked exploratory prospects 
operations report
sterling energy annual report  accounts 2005
these two drilling opportunities will be matured with
the intention of farming them out on a promoted
basis and drilling the first of these in the 4th quarter
of 2006 with the second in the first half of 2007 
this is part of an emphasis on identifying infill
locations in the area for drilling
the high island area in which sterling has a 
royalty interest accounted for 28 of production 
in 2005 24 mmcfged natural decline rates reduced
production towards the end of the year and recent
rates have been approximately 18 mmcfged 
the gryphon c1 well has been particularly affected
in order to restore production the gryphon c3 
well was drilled in march 2006 at no cost to sterling 
and has been brought online rates are being
progressively increased towards an additional 
1315 mmcfged net  
a recompletion on the eugene island 2681 well in
july 2005 was successful analysis of potential
production and reserve additions in sterling’s other
fields is underway and small or noncore interests
are expected to be disposed of 
sterling’s first move into the onshore usa 
was successful it participated for a 28 working
interest in a nonoperated exploratory well
galveston 2515 in the tidal area just south of 
the city of houston the oil well was successfully
completed in march 2006 and has since been
brought on production at a net rate of approximately
08 mmcfged this production as well as the
successful c3 well and other works will impact 
the second quarter production 
25
20
15
10
5
0
31 dec 02 31 dec 03 31 dec 04 31 dec 05
millions boe
gulf of mexico
chinguetti
4 year comparison
of proven 
probable reserves 21
operations report
sterling energy annual report  accounts 2005
of particular note for the remainder of the year 
are firstly a proposed well expected in the 
fourth quarter on ga303 175 working interest
secondly an agreed 1625 working interest in an
onshore louisiana well andrew in the third quarter
and thirdly a well and a workover planned in the
mustang and matagorda areas
with the high volatility in product prices and the
raised expectation of sellers sterling was outbid 
on a number of production packages in 2005 
the task remains to find reserves and exploration
opportunities whose net return is commensurate
with the related risk 
with the weight of money in the sector and the
paucity of good opportunities prices have inevitably
been bidup and attractive drilling deals are sold
quickly the lead times for equipment have extended
from weeks often to many months and costs have
soared as a result sterling intends to grow its
portfolio of drilling opportunities from internal
prospect generation from industry partnerships and
by selective production acquisitions in this
unprecedented industry environment 22
operations report
sterling energy annual report  accounts 2005
proven and probable reserves
attributable
reserves 
oil gas   000 barrels 
a volumes 1 000 barrels million cubic ft equivalent 
at 1st january 2005 13231 50393 21629 
upwardsdownwards revision from 
previous estimates 2 42 1632 230
production in the year        106 2901 589
at 31st december 2005 13083 49124 21270
b location of reserves
the geographical location of the end 2005 
reserves were
north america 1383 49124 9570
west africa 11700 0 11700
c categorisation of proven and probable reserves
i at the start of the year
proven reserves 61 60 61
probable reserves 39 40 39
ii at the end of the year
proven reserves 70 58 65
probable reserves 30 42 35
notes
1 the proven and probable reserves movements in 2005 are based on
a north america evaluation reports by independent petroleum engineers as of 1 september 2005 for the offshore assets 
with certain downward or upward adjustments by the directors at the yearend where in their opinion subsequent 
performance of assets or further evaluation through drilling or workovers or through the impact of changes in prices 
or costs requires adjustments 
b west africa the reserves are based on an independent consultants evaluation on the chinguetti field contained in the circular 
to shareholders dated 26 october 2004 of 139 million bbls gross p50 from which the directors have derived their estimate of
sterling’s share of reserves the net estimates are based on sterling’s expected share of the economic entitlement from the
field arising from its overriding royalty interest and from its funding to smh formerly gpc rather than by direct ownership of
the interest in the field with the completion of the field development the commencement of production in early 2006 and in
light of economic conditions it is expected that the field operator will issue a revision to their field estimates during 2006 from
their current 123 million bbls gross
2 the gas revisions principally relate to drilling workingovers installation of additional compression and other facilities
reprocessing of seismic data well control and production history the major revisions relate to the mustang island and 
gryphon properties
3 sterling has not yet booked reserves in west africa relating to other discoveries made before or during the year such as tiof
oualata tevet labeidna and banda on the basis that no firm development plan has as yet been approved by the partners
4 definitions proven reserves have a 90 level of confidence that 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 23
operations report
sterling energy annual report  accounts 2005
size licence sterling working sterling net operated 
location km
2
 name interest  revenue interest  nonoperated
africa
mauritania offshore 6969 psc a na sliding scale royalty 
over 3 interest
offshore 8095 psc b na sliding scale royalty 
over 6 except 528
of the chinguetti field and 
an economic interest of
approximately 8 
in the field
agc casamancebissau 1699 dome flore 30 na 
cameroon southern douala 2319 ntem 100 na operator
basin
gabon southern gabon 673 ibekelia 40 na operator
southern gabon 607 iris marin 3857 na operator
southern gabon 911 themis marin 2057 pay 257 
of next well na operator
guineabissau casamancebissau 2349 sinapa 5 na 
casamancebissau 3491 esperanca 5 back in right na 
madagascar offshore nw 20800 ambilobe 30 carried through
up to 2 wells na operator
offshore nw 13147 ampasindava 30 carried through
up to 2 wells na operator
usa
mustang island mustang island 90 – 100 90 – 100 operator
texas coast gathering system
texas state waters 489 mustang island 125 – 100 94 – 82 operator
texas state waters 21 matagorda island 42 – 75 366 – 595 operator
texas federal 50 high island 75 overriding royalty in gryphon operator
waters incl 52 and gryphon royalty in gryphon otherwise 423 – 8333
otherwise 50 – 100
texas federal 23 galveston 175 119 – 126 
waters incl 303
louisiana 20 eugene island 60 45 operator
federal waters incl 268 
texas state waters 582 galveston bay 28 20 
incl st 2515
carried for studiespart appraisal being increased from 2057
sterling energy schedule of main interests at 31 december 2005 24
financial report and outlook
sterling energy annual report  accounts 2005
sterling had a record year in 2005
pretax profit increased by 20 to £50 million 2004 £42
million and the outlook is for a sustained improvement in 
cash flow and profitability following the startup of production 
in mauritania in late february 2006 in 2005 production 
increased by 4 to an average of 97 mmcfged with 82 
being gas solid foundations to increase production and for 
future exploration and development in sterling’s core areas 
have now been established 
record profits
turnover increased by 19 to £136 million in 2005
2004 £115 million average realised prices for 
the year were approximately 637mcfge 
2004 568mcfge and the sterling exchange 
rate fell from 192 £ at the start of 2005 to 
172 £ by yearend
gross profit increased by 18 to £80 million 
from £68 million in 2004
of the totals the average production for the 
first half was 112 mmcfged up 32 on the
corresponding period at an average sales price 
of 626mcfge 2004 first half 576mcfge 
second half 2005 production was severely curtailed
principally by the effect of hurricanes and pipeline
shutins and averaged 83 mmcfged at an average
price of 653mcfge 2004 second half 562mcfge
third party income from sterling operated pipelines
rose 54 to 22 million in the year before costs
costs of sales rose 20 to £56 million 2004 £47
million in dollar terms this equates to an average
unit cost of 287mcfge 2004 251mcgfe 
of these direct production and pipeline costs were
equivalent to 134mcfge 2004 099mcfge and a
depletion charge of 153mcfge 2004 152mcfge 
sterling’s end 2005 us proven and probable 
reserve base was 574 bcfge proven reserves 
were 60 of this total and the usa reserve life
averages over 15 years 
£80 
million 
gross profit increased 
by 18 to £80 million 25
financial report and outlook
sterling energy annual report  accounts 2005
the mauritanian interests accounted for 55 
of the estimated yearend proven and probable
reserves being 117 mmbbls of oil reserves 
first production from the chinguetti field
commenced in late february 2006 with sterling’s
first lifting in early april this startup is expected to
increase markedly the group’s production level 
after including the attributable share of acquisition
costs expected past and development costs the
estimated purchase and development cost of these
reserves is approximately 16bbl the cost of
forward oil market transactions carried out in early
2005 was approximately 76bbl for 21 million
barrels to the end of 2007 this risk management 
has safeguarded minimum prices averaging
377bbl sterling will receive actual prices up to 
an average of 455bbl and then all income over an
average of 50bbl the cost of these transactions is
included in debtors at the yearend and will be
amortised against relevant production
as expected overheads rose by 28 to a net 
£26 million this reflected the impact of the planned
expansion of the uk technical commercial and
support staff to run the african operations and to
cope with expected growth in activity as well as the
opening of the mauritanian local office there was
some duplication of costs whilst the handover from
the perth office was completed the houston office
remained the operator of 70 of its production
interests in january 2006 the closure of the perth
office acquired with the fusion purchase in late
2004 was completed and a oneoff exceptional cost
of £12 million was incurred there is expected to be
a quick payback on this cost due to savings in travel
as well as in management time 
before the oneoff cost there was an increase 
in the operating profit of 14 to £54 million in 2005
with net financial income of £07 million 2004 net
cost £06 million mainly from interest on net cash
deposits profit before tax and exceptional costs was
up 47 at £61 million 2004 £42 million 
the taxation charge of £19 million arose in  
both the usa and uk this is a rate of 31 on the
pretax profit before the oneoff charge noted above 
2004 29 most available tax losses have been
utilised in earlier years including 2004 however
because of the use of accelerated depletion for tax
purposes for certain us drilling and similar costs 
the estimated current tax payable is £13 million and
sterling has provided a deferred tax charge of £06
million as it expects that in the future certain of 
these timing differences will reverse 
fully diluted earnings per share which reflects the
potentially dilutive impact of options was 022p per
share 2004 033p this reduction reflects the full
year impact of the shares issued in the £97 million
placing in november 2004 which affect the
computation only since their issue these funds 
have been progressively invested through 2005
mainly in the chinguetti field development in
mauritania and the benefits to earnings should
become apparent in 2006  26
financial report and outlook
sterling energy annual report  accounts 2005
cash flow strengthening
“ at the end of 2005 cash balances were £478 million 
end 2004 £896 million of which £76 million was for 
unrestricted uses 2004 £203 million” 
cash inflows
in 2005 cash inflow from operations 
before the oneoff perth closure costs and 
working capital movements rose by 13 to 
£88 million 2004 £78 million the net financial
cash inflow also rose to £12 million 2004 outflow
£03 million and there was also £11 million arising
from the exercise of options by perth staff
2004 £970 million share placing 
cash outflows 
a total of £364 million was spent in 2005 in
connection with the investment associated with the
development of the chinguetti field in mauritania 
at the end of the year total drawdowns of 651
million had been made under the cashbacked 130
million letter of credit provided by sterling to smh
formerly gpc funds are expected to be
progressively drawndown to meet the future and
past costs associated with the government’s direct
12 interest in this field in which sterling has an
approximate 8 economic interest with first oil
production having commenced in late february 2006
sterling expects to see a marked increase in cash
generated from production operations in the year 
other cash capital expenditures were £89 million 
of which £64 million related to the drilling appraisal
and development of reserves in the gulf of mexico
and £25 million mainly to africa the increase in 
net debtors and current creditors of £150 million
includes the costs associated with the oil price
“futures” noted above
at the end of 2005 the 275 million loan from
hibernia a subsidiary of capital one included 
a number of financial covenants which amongst 
other matters limits the level of funds that can be
repatriated from the us to the rest of the group 
it does not require any repayments before 30 june
2007 save on a voluntary basis or as a result 
of a standard twiceyearly borrowing base 
redetermination one of which is currently 
in progress the amount of the funds that can be
repatriated for group use at the end of the year 
was about 5 million virtually the same as the 
then usa cash balance the current interest rate
payable is approximately 775 with interest
payments made monthly 
strengthened balance sheet
net current assets fell to £376 million at the end 
of 2005 from £888 million at the end of 2004
principally due to the use of funds for the 
chinguetti field development
sterling’s equity shareholders’ funds 
increased to £1692 million at the end of 2005 
2004 £1484 million the issued share capital 
had risen by the end of 2005 to approximately 1402
million shares as set out in the directors’ report
the favourable movement in exchange rates
produced an unrealised translation gain of £166
million when dollar net assets were converted 
into sterling being the reporting currency 
at the end of the year  27
financial report and outlook
sterling energy annual report  accounts 2005
financial outlook
the financial outlook is very strong with a 
stepchange expected following the commencement
of mauritanian production this should permit
sterling to enter into an expansion of its exploration
activity with greater upside than hitherto to
selectively acquire development and production
activities and to extend its ability to “gearup”
the planned increased exposure to 
exploration will build on a programme that 
currently is largely being funded by third parties
continued exploration and appraisal activity in
mauritania is currently mostly costfree due to
royalty interests the cash requirement for new
exploration appraisal and development will be
highly dependent on the results inter alia of
interpretation work any potential farmouts 
the result of current and proposed drilling 
and planned new licences sterling intends to
increase materially its exploration activity
with an emphasis on higher potential impact
opportunities in its core areas which may 
require greater cost exposure
the directors expect proposals to be announced 
by the operator in 2006 on the possible development 
of both the tevet and tiof oualata fields offshore
mauritania sterling is entitled to a royalty income
stream on these 350 million bbl reserves and bonus
payments of 12 million where any field’s reserves
exceed 50 million barrels or its equivalent sterling
makes no payment in relation to its royalty interests
for the exploration appraisal or development 
costs for these or for any other fields that may 
be discovered there  
liquidity in sterling’s shares on the stock market has
again been higher in 2005 it is a constituent on the
“aim 50” index for the largest companies has over
50 wellknown institutions on its share register and
more than 3500 shareholders 
the directors’ primary aim remains to continue to
enhance shareholder value with the major growth 
in production and operational cash flow expected in
2006 the directors are extremely confident of the
outlook for sterling in the coming year   
25
20
15
10
5
0
2h 02 1h 03 2h 03 1h 04 2h 04 1h 05 2h 05 q1 06
mmcfgeday
gulf of mexico
 hurricane impacted
chinguetti
 production from 
24 february 06
daily production
comparison 28
directors’ report
sterling energy annual report  accounts 2005
the directors have pleasure in presenting their 
annual report on the affairs of sterling energy plc 
“the company” “sterling” and its subsidiaries 
“the group” together with the financial
statements and auditors’ report for the year 
ended 31 december 2005
principal activity and business review
the principal activity of the group throughout the
year remained the exploration for and production of
oil and gas in africa and in the usa the significant
developments during 2005 and the other activities 
of the group as well as the future strategy and
prospects for the group are reviewed in detail in 
the chairman’s statement the chief executive’s
statement in the operations and financial reports
and elsewhere in this annual report the policy and
objectives of the financial risk management are set
out in note 26 to the financial statements
results and dividends
the group made a profit for the financial year of 
£31 million during 2005 2004  profit of £30 million
this leaves an accumulated group profit of £43
million 2004 – profit £12 million to be carried
forward as a balance on the group profit and 
loss account as a result of the accumulated deficit 
of £26 million retained by the company at the end 
of 2005 the directors cannot recommend the
payment of a dividend 2004  £nil
share capital 
as at 31 december 2005 the issued ordinary share
capital of the company had increased to
1401950558 ordinary shares nominal value 1p
each from 1393325558 ordinary shares at 
31 december 2004 this increase was principally due
to new ordinary shares issued in connection with the
exercise of 8500000 share options by former 
members of staff on the closure of the perth office
the authorised ordinary share capital of the
company is £24000000 being 2400000000
ordinary shares of 1p each further details are
provided in note 19 to the financial statements 
no new shares have been issued since 
the end of 2005
share option scheme
the directors regard the granting of options as an
integral part of the employment incentives for group
personnel and believe they have played an important
role in recruiting and retaining high quality people
as well as in its success
at the end of 2005 a total of 64125000 share options
were outstanding under the schemes approved by
shareholders in 2001 these are exercisable at prices
of between 4p and 17p per share a total of
15550000 options were granted by the
remuneration committee and issued during the year
to staff and directors at exercise prices of 145p17p
per share exercisable between 2007 and 2015
details of these grants are set out in note 7 to the
financial statements  options over 8625000
ordinary shares were exercised during the year at
125p per share and options over 500000 ordinary
shares exercisable at 125p lapsed  29
directors’ report
sterling energy annual report  accounts 2005
from 1 january 2006 to date a further 35 million
options have been granted by the remuneration
committee at an exercise price of 17p25p per share
all with an exercise period of no longer than 10 years
from the date of grant and generally not exercisable
within the first two years and options over 1300000
shares exercisable at 125p have been cancelled 
save for the grant of 1000000 share options at an
exercise price of 225p to christopher callaway on
joining the board as a nonexecutive director in
february 2006 there have been no options 
granted to directors 
the scheme rule is that the number of share options
outstanding should not exceed 10 of the issued
share capital of the company from time to time in
2003 in recognition of best practice the company
undertook to reduce this proportion progressively
towards 5 of the issued share capital as of the
date of this report approximately 47 of the issued
share capital is under option or approved for grant
21 april 2006 31 december 2005 31 december 2004
dr elizabeth butler 349550 349550 349550
christopher callaway 100000 na na 
paul griggs 150000 150000 na
andrew grosse 5500473 5500473 na
richard o’toole 22543818 22543818 22543818
graeme thomson 16049558 16049558 15699558
peter wilde 620000 620000 620000
harry wilson 27970092 27970092 27770092
nonexecutive director member of the audit remuneration and nominations committees
 holdings are shown from the date of appointment being 1 january 2005 for mr griggs and for mr grosse and 14 february 2006 for
mr callaway alan levison was appointed on 15 october 2004 and ceased to be a director on  22 march 2005 at the end of 2004 he
held 60000 ordinary shares 
 retires by rotation and is not seeking reelection ceases to be a director on 15 june 2006
beneficial shareholdings include the shareholdings of a director’s spouse and infant children
of the above interests at 31 december 2005 mr wilson’s includes 17823802 ordinary shares held by roselea limited a company
in which he has a 26 interest and is a director 31 december 2004 17623802 ordinary shares 
none of the directors have any nonbeneficial shareholdings 
none of the directors have contracts of employment with notice periods in excess of 12 months details of remuneration paid to the
directors who served in the year are included in note 7 to the financial statements
directors’ interests
the directors who served during the year and subsequently together with their beneficial interests
in the issued share capital of the company were as follows
ordinary shares of 1p each 30
directors’ report
sterling energy annual report  accounts 2005
substantial shareholders
except for the holdings of ordinary shares listed
below the company has not been notified by any
persons holding 3 or more of the issued ordinary
shares of 1p each of the company at 21 april 2006
number     
amvescap plc 349897048 2495
of which invesco perpetual uk investment series uk icvc 
is the beneficial owner of 218062476 ordinary shares
supplier payment policy and practice
the company’s policy is to settle terms of payment
with suppliers when agreeing each transaction
ensuring that suppliers are made aware of the terms
of payment and abide by the terms of payment 
at the 2005 yearend the number of supplier 
days outstanding for the company was 30 days 
2004 – 30 days
environment health and safety policy
the group’s policy is that it is fully committed to
high standards of environment health and safety
management and compliance with applicable
regulations and laws in particular in the usa 
where the group is an operator on the majority of 
its properties there is a high degree of interaction on
such matters with over forty state federal and local
authorities as well as coowners and specialist
suppliers it has internal policies and practices which
are intended to ensure compliance with this policy 
in other countries where it is operator the group’s
activities are more focussed on exploration activity 
it liaises with governmental departments partners
suppliers and other interest groups to comply with
local requirements and good practice 
where the group is nonoperator it is largely reliant
on the field or licence operators in such matters 
in some situations it does have the opportunity 
to participate in the policy setting and to receive 
reports on its implementation for example through
operating committees but this is likely to be more
limited in its nature and extent 
notice of annual general meeting “agm”
the notice of the agm to be held at 1100 am on 
15 june 2006 is set out in this report  accounts 
a form of proxy is also enclosed which permits
voting via the internet as well as by post 
the ordinary business to be dealt with includes 
the adoption of the accounts and related reports 
of the directors and auditors for the financial year
ended 31 december 2005 the election of 
christopher callaway as a director the reelection 
of harry wilson and graeme thomson as directors
the reappointment of deloitte  touche llp as
auditors to the company and the authorisation 
for the directors to fix their remuneration 
“ the group’s policy is that it is fully committed to 
high standards of environment health and safety 
management and compliance with applicable 
regulations and laws” 31
directors’ report
sterling energy annual report  accounts 2005
in addition there are a further two special
resolutions proposed to be dealt with under 
special business the first of these is resolution 6
which concerns the continued authority for the
directors to allot and sell shares for cash up to the
higher of an aggregate nominal value of £3500000
or 25 of the issued share capital from time to time
up to a date not later than 15 june 2007 
this disapplication of the preemption rights
pursuant to section 951 of the companies act 1985
the act is intended to give the company the
flexibility to enter into transactions involving the
issue of shares without requiring additional specific
prior shareholder approval the directors believe that
the authorisation remains at an appropriate level in
light of the company’s stage of development and
enables it to take advantage of opportunities to 
assist in the fulfilment of its strategy and objectives
without requiring specific shareholder approval
they believe such flexibility has been instrumental 
in creating the sustained growth achieved since
joining aim in late 2002 
resolution 6 also allows the directors to sell shares
that it holds as treasury shares pursuant to section
162a3 of the act as if rights of preemption did not
apply to the sale the authority renewed by this
special resolution will expire at the conclusion of 
the agm to be held in 2007 unless otherwise
amended before then 
authority was granted to the directors at the agm
held in 2005 under section 80 of the act to allot
shares or grant rights over shares up to the higher of
an aggregate nominal value of £4600000 or one
third of the issued share capital form time to time
such authority to expire at the annual general
meeting in 2010 or on 28 june 2010 whichever is 
the earlier the directors consider this remains an
appropriate authority level and no amendment to 
it will be proposed at the agm
resolution number 7 is the second special resolution
and deals with the authority for the company to buy
its own ordinary shares in the markets up to a limit
of 10 of its issued ordinary share capital from time
to time the maximum and minimum prices are
stated in the resolution your directors believe that it
is advantageous for the company to have this
flexibility to make market purchases of its own
shares but have no current plans to do so in the
event that the shares are purchased they would
either be cancelled and the number of shares in
issue would be reduced accordingly or subject to
the companies acquisition of own shares
treasury shares regulations 2003 the
regulations retained as treasury shares 
the regulations enable companies to hold shares
repurchased as treasury shares with a view to
possible resale at a future date rather than having 
to cancel them the company will consider holding
repurchased shares pursuant to the authority
conferred by this resolution as treasury shares 
this would give the company the ability to reissue
treasury shares quickly and cost effectively and
would provide the company with additional
flexibility in the management of its capital base
however your directors will only exercise this
authority if they are satisfied that a purchase would
result in an increase in expected earnings per 
share and would be in the interests of 
shareholders generally
approved by the board of directors 
and signed on its behalf 
graeme thomson fca
finance director  company secretary
21 april 2006 32
directors’  senior managers’ biographies
sterling energy annual report  accounts 2005
harry wilson
age 53
chief executive 
officer
graeme thomson
fca age 49
finance director 
company secretary
paul griggs
age 47
commercial 
director
andrew grosse
age 47
exploration  
technical director
richard o toole
age 61
nonexecutive 
chairman
dr elizabeth butler
age 61
nonexecutive 
director
chris callaway
age 54
nonexecutive 
director
peter wilde
age 52
nonexecutive 
director 33
directors’  senior managers’ biographies
sterling energy annual report  accounts 2005
executive directors
harry wilson 
chief executive officer
following graduation under a british petroleum
scholarship programme harry joined bp and 
worked for 17 years initially as a geophysicist and
subsequently as a senior exploration manager in bp
offices worldwide and in corporate finance in 1987
he set up an independent exploration and production
company – kirkland resources holdings plc 
in 1993 kirkland as was sold to a fully listed oil
company later renamed dragon oil plc in 1997 
he coestablished endeavour oil  gas lp whose
assets in the usa were sold in 2000 he was a
founding partner and chairman of sterling lp from
200002 and was appointed as chief executive
officer on joining aim in october 2002 
graeme thomson fca
finance director  company secretary
graeme has held a number of senior finance and
management positions in quoted companies and in
the “city” in 1989 he coled a management buyin
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 cofounding partner of endeavour and sterling he
has assisted unquoted and quoted companies with
their corporate finance accounting commercial and
strategic affairs he was appointed as an executive
director in october 2002 on sterling joining aim 
paul griggs
commercial director
paul joined as commercial director in january 2005
he has an extensive track record of international 
oil and gas industry business development and
commercial activities having held senior positions
with fina exploration bhp petroleum and the
investment bank natwest markets prior to joining
he was vice president business development for
omv’s worldwide exploration  production division
in vienna playing a major role in the company’s
significant growth in recent years he led omv’s
eur300 million acquisition of the assets of preussag
energie and was involved in the eur15 billion 
deal to acquire a 51 stake in the romanian 
state oil company petrom 
andrew grosse
exploration  technical director
andrew joined 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 britishborneo’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 has subsequently
delivered the chinguetti and tiof oil discoveries 
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 34
nonexecutive directors
richard o’toole
nonexecutive chairman
richard worked with ge in the usa for a number 
of years prior to becoming managing director of
estuary fuels ltd an irish oil importation and
trading company from 1982 to 1987 he was
managing director of tusker resources plc an
independent irish oil company which built up a
portfolio of international exploration assets in
conjunction with international oil companies 
he was the founder chairman of kirkland resources
holdings plc in 1987 which was sold in 1993
richard was a founder of endeavour oil  gas lp 
whose assets were also sold in 2000 richard was 
a founding partner of sterling and was appointed
chairman on it joining aim in october 2002 
he is chairman of the nominations committee
dr elizabeth butler
nonexecutive director
liz has spent over 20 years working in world
financial markets she has held senior posts in
several international investment banks and is
currently a strategic advisor on energy matters to
westlb ag prior to entering commercial life she
gained a dphil at oxford university she has also
spent two periods working for bp exploration
initially as a reservoir engineer and then as a
consultant to the chief executive on projects relating
to its reorganisation and restructuring she became 
a director of the company in 1992 was appointed 
as a nonexecutive in july 2001 and is chairman of
the remuneration committee she is not standing
for reelection at the agm and will cease to be a
director on 15 june 2006
christopher callaway
nonexecutive director
chris joined the “city” in 1973 initially with the
london stock exchange and in 1983 he moved to
capel cure myers subsequently anz merchant
bank in the role of corporate finance adviser
specialising in small and medium sized growth
companies he became a partner at coopers 
 lybrand in 1990 before joining beeson gregory 
in 1995 beeson gregory was subsequently taken
over by the evolution group in 2002 and on the
merger mr callaway became joint head of
corporate finance retiring in december 2004 
since then mr callaway has been involved in the
flotation of a number of companies of which he 
is both an investor and a director he became 
a director in february 2006
directors’  senior managers’ biographies
sterling energy annual report  accounts 2005 35
directors’  senior managers’ biographies
sterling energy annual report  accounts 2005
peter wilde
nonexecutive director
peter graduated in law from the london school of
economics and has spent most of his career
managing and developing smaller companies
working in the oil sector for the last sixteen years 
in 1989 he was appointed vicepresident of aviva
petroleum inc the dallas based oil and gas
independent where his responsibilities particularly
included corporate financial control and integration
of acquisitions he has been a director of the
company since its foundation in 1983 serving as a
full time director from 1991 to 2001 first as chief
operating officer and latterly as managing director
since july 2001 he has served as a nonexecutive
director and is chairman of the audit committee
senior managers
robert munn
director  vice president sterling energy inc sei
robert has 24 years oil industry experience both us
and international  he has a successful track record in
the management of finding and developing oil and
gas reserves primarily in the gulf of mexico he
joined sterling over two years ago heads up the
houston office and was made a director of 
sei early in 2005
james hargreaves
managermauritania  director sterling energy
mauritania ltd seml
james started at sterling in mid2004 working on
commercial matters he assisted in the chinguetti
funding agreement and is managermauritania 
he has 18 years commercial and business
development experience worldwide in the offshore
oil  gas industry and was made a director of 
seml in april 2005 36
corporate governance
sterling energy annual report  accounts 2005
application of combined code principles
the directors are committed to maintaining the highest
standards of corporate governance and this statement
describes how the principles of good governance set
out in the combined code are applied
the board of directors
at 21 april 2006 the board comprised four executive
directors and four nonexecutive directors each of
the executive directors has extensive knowledge of
the oil and gas industry combined with general
business skills all of the directors bring independent
judgment to bear on issues of strategy performance
resources key appointments and standards there is
a clear division of responsibilities between the
chairman and the chief executive the senior
independent nonexecutive director is mr r o’toole
the board considers that all its nonexecutive
directors are independent the board meets
regularly throughout the year and all the necessary
information is supplied to the directors on a timely
basis to enable them to discharge their duties
effectively the directors have access to independent
professional advice at the group’s expense if and
when required there is a formal schedule of matters
reserved for consideration by the board and other
matters are delegated to board committees 
the memorandum and articles of association
require that at every agm there shall retire from
office any director who shall have been a director at
each of the preceding two annual general meetings
and who was not appointed or reappointed by the
company in general meeting at or since either such
meeting together with all new directors appointed
since the previous agm
subcommittees
the board has appointed the following
subcommittees
a audit committee
this committee comprises the four independent
nonexecutive directors under the chairmanship 
of peter wilde it reviews the interim and annual
financial statements internal control matters and 
the scope and effectiveness of the external audit 
the external auditors have unrestricted access 
to the chairman of the audit committee
b remuneration committee
the members of the committee are the four
independent nonexecutive directors under the
chairmanship of elizabeth butler until the agm 
a successor will be appointed from the other 
nonexecutive directors the committee determines
the group’s executive directors’ remuneration 
nonexecutive directors’ fees are considered and
agreed by the board
c nominations committee
the members of this committee are the four
independent nonexecutive directors under the
chairmanship of richard o’toole the nominations
committee considers the composition of the 
board and makes recommendations on the
appointment of new directors 37
corporate governance
sterling energy annual report  accounts 2005
communications with shareholders
communications with shareholders are given 
high priority and there is regular dialogue with
institutional investors as well as general
presentations at the time of the release of the 
annual and interim results the group issues its
results to individual shareholders and will also
publish them on the company’s website
wwwsterlingenergyplccom regular updates to
record news in relation to the company are also
included on the website shareholders and other
interested parties can subscribe to receive news
updates and other documents from the 
company by post or online
a business presentation is to be provided at 
the company’s agm and afterwards individual
shareholders will be given the opportunity to put
questions to the chairman and to the board
internal controls
in september 1999 the turnbull guidance internal
control guidance for directors on the combined
code was published
the directors acknowledge their responsibility 
for the group’s and the company’s systems of
internal control which are designed to safeguard 
the assets of the group and to ensure the reliability
of financial information for both internal use and
external publication 
the group’s internal control procedures 
include board technical and financial approval for 
all projects all major expenditures require senior
management approval at the appropriate stages of
each transaction overall a regular reporting system
covering both technical progress of projects and the
state of the group’s financial affairs ensures control
the board has put in place procedures for
identifying evaluating and managing any 
significant risks that face the group
any systems of internal control can only provide
reasonable and not absolute assurance that
material financial irregularities will be detected or
that the risk of failure to achieve business objectives
is eliminated the directors having reviewed the
effectiveness of the system of internal financial
operational and compliance controls and risk
management consider that the system of internal
control operated effectively throughout the 
financial year and up to the date the financial
statements were signed
” communications with shareholders are
given high priority and there is regular 
dialogue with institutional investors as well
as general presentations at the time of the 
release of the annual and interim results” 38
• select suitable accounting policies and then apply
them consistently
• make judgements and estimates that are
reasonable and prudent
• state whether applicable accounting standards
have been followed and
• prepare the financial statements on the going
concern basis unless it is inappropriate to 
presume that the company and group will
continue in business
statement of directors’ responsibilities
sterling energy annual report  accounts 2005
united kingdom company law requires the directors to
prepare financial statements for each financial year which
give a true and fair view of the state of affairs of the
company and group as at the end of the financial year 
and of the profit or loss of the group for that period 
in preparing those financial statements 
the directors are required to
the directors are responsible for keeping proper
accounting records which disclose with reasonable
accuracy at any time the financial position of the
company and group and to enable them to ensure
that the financial statements comply with the
companies act 1985 they are also responsible for
the system of internal control safeguarding the
assets of the company and group and hence for
taking reasonable steps for the prevention and
detection of fraud and other irregularities  39
financial statements
sterling energy annual report  accounts 2005
pretax profit
pretax profit up 47 to a record £61 million 
2004 £42 million before oneoff perth office 
closure cost of £12 million
7
6
5
4
3
2
1
0
1
2002 2003 2004 2005
preexceptional 
 costs
£ millions
pretax 
profit before
exceptional 
costs  4 year
comparison 40
consolidated profit and loss account
year ended 31 december 2005
2005 2004
note £’000 £’000
turnover 1c 2 13642 11457
cost of sales 5615 4670
gross profit 8027 6787
administrative expenses 2625 2052
exceptional office closure costs 27 1153 
total administrative expenses 3778 2052
operating profit 4249 4735
interest receivable and similar income 4 1882 312
interest payable and similar charges 5 1145 883
profit on ordinary activities before taxation 3 4986 4164
taxation on profit on ordinary activities 8 1878 1197
profit on ordinary activities after taxation 3108 2967
minority interest 2
profit for the financial year 3108 2969
earnings per share basic 10 022p 034p
earnings per share diluted 10 022p 033p
all profits and losses arise from continuing operations
sterling energy annual report  accounts 2005
financial statements 41
consolidated balance sheet
31 december 2005
2005 2004
note £’000 £’000
fixed assets
intangible assets 11 29000 30629
tangible assets 12 131863 51754
investments 13a 689 
161552 82383
current assets
debtors 14 15501 2968
cash at bank and in hand 15 47786 89556
63287 92524
creditors amounts falling due
within one year 16 25702 3762
net current assets 37585 88762
total assets less current liabilities 199137 171145
creditors amounts falling due 
after more than one year 17 15918 15014
provisions for liabilities and charges 18 12909 6671
net assets 170310 149460
capital and reserves
called up equity share capital 19 14019 13933
share premium account 20 142590 141600
currency translation reserve 20 8364 8271
profit and loss account 20 4274 1166
equity shareholders’ funds 169247 148428
minority interest 21 1063 1032
170310 149460
sterling energy annual report  accounts 2005
financial statements 42
company balance sheet
31 december 2005
2005 2004
note £’000 £’000
fixed assets
intangible assets 11 72 62
investments 13b 118061 118061
118133 118123
current assets
debtors 14 15579 12246
cash at bank and in hand 15 40531 80073
56110 92319
creditors amounts falling due
within one year 16 20201 58015
net current assets 35909 34304
total assets less current liabilities 
being net assets 154042 152427
capital and reserves
called up equity share capital 19 14019 13933
share premium account 20 142590 141600
profit and loss account 20 2567 3106
154042 152427
these financial statements were approved by the board of directors on 21 april 2006 
g p thomson fca h g wilson
director director
sterling energy annual report  accounts 2005
financial statements 43
consolidated statement of total recognised 
gains and losses
year ended 31 december 2005
2005 2004
£’000 £’000
profit for the financial year 3108 2969
currency translation adjustments 16635 6389
total recognised gainslosses relating to the year 19743 3420
reconciliation of movements in group 
shareholders’ funds
year ended 31 december 2005
2005 2004
£’000 £’000
profit for the financial year 3108 2969
currency translation adjustments 16635 6389
shares issued net of expenses 1076 96974
movement in shares to be issued  1716
total movement in the year 20819 91838
shareholders’ funds at 1 january 148428 56590
shareholders’ funds at 31 december 169247 148428
consolidated cash flow statement
year ended 31 december 2005
note 2005 2004
£’000 £’000
net cash outflowinflow from operations 23 7399 8145
returns on investments and servicing of finance 24a 1163 290
capital expenditure 24a 45314 16109
acquisitions and disposals 24a  18763
cash outflow before financing 51550 27017
financing 24a 38240 34818
decreaseincrease in cash in the year 24b 13310 7801
sterling energy annual report  accounts 2005
financial statements 44
notes to the financial statements
year ended 31 december 2005
1 accounting policies
the principal accounting policies which have all been applied consistently throughout the year and the
preceding year are set out below
a basis of accounting
the financial statements are prepared under the historical cost convention and in accordance with applicable
united kingdom law and accounting standards the financial statements have also been prepared in
accordance with the statement of recommended practice “accounting for oil and gas exploration
development production and decommissioning activities” “the sorp”
b consolidation
the group financial statements consolidate the results of sterling energy plc and its subsidiary undertakings
drawn up to 31 december annually the results of subsidiaries acquired are consolidated for the periods from
which control passed acquisitions are accounted for under the acquisition method with goodwill representing
any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities
acquired being capitalised within intangible assets and amortised over its estimated useful economic life
c turnover
turnover represents the value of the group’s share of hydrocarbon production sold in the year
d consortium accounting
the group’s exploration development and production activities are generally conducted as colicensee in joint
arrangements with other companies the financial statements reflect the relevant proportions of production
capital expenditure and operating costs applicable to the group’s interests
e oil and gas interests
the group accounts for oil and gas exploration under the full cost basis as set out in the sorp 
licence acquisition costs geographical and geophysical costs costs of drilling exploration appraisal and
development wells and an appropriate share of overheads including appropriate directors’ costs are
capitalised and accumulated in full cost pools within tangible fixed assets on a geographical basis the group’s
oil and gas assets are currently held in four cost pools western europe north america west africa and 
east africa
costs relating to the exploration and appraisal of oil and gas interests which the directors consider to be 
unevaluated are initially held outside relevant cost pools as intangible fixed assets these costs are reassessed
at each year end and when there are indications of impairment or at the conclusion of an appraisal programme
the related costs are transferred to the appropriate full cost pool within tangible fixed assets
an impairment review is carried out at each balance sheet date to assess whether the net book value of the
capitalised costs in each pool is covered by the associated recoverable amount as outlined in frs 11
“impairment of fixed assets and goodwill” impairment losses are recognised in the profit and loss account
depletion is provided on balances held in each cost pool plus the expected future costs to extract all
commercial oil and gas reserves using the unit of production method commercial oil and gas reserves are
proven and probable oil and gas reserves as defined in the sorp  depletion is not provided on interests held
outside the cost pools
f depreciation of other tangible fixed assets
depreciation on other tangible fixed assets 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
sterling energy annual report  accounts 2005
financial statements 45
notes to the financial statements
year ended 31 december 2005
1 accounting policies continued
g decommissioning
provision for decommissioning costs is recognised in accordance with financial reporting standard no 12
“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 in the relevant full cost pool depletion on this asset is calculated
under the unit of production method based on estimated commercial reserves 
h foreign currencies
transactions denominated in foreign currencies are translated into sterling at the rate of exchange ruling at the
date of the transaction assets and liabilities in foreign currencies are translated into sterling at the rate of
exchange ruling at the end of the financial year all exchange differences are dealt with in the profit and 
loss account
the results of overseas operations 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 results of overseas operations are dealt with through the currency translation reserve 
i taxation
current tax including uk corporation tax and foreign tax is provided at amounts expected to be paid 
or recovered using the tax rates and laws that have been enacted or substantively enacted by the balance
sheet date
deferred tax is recognised in respect of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a
right to pay less tax in the future have occurred at the balance sheet date timing differences are differences
between the group’s taxable profits and its results as stated in the financial statements that arise from the
inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in
the financial statements
a net deferred tax asset is regarded as recoverable and therefore recognised only when on the basis of all
available evidence it can be regarded as more likely than not that there will be suitable taxable profits from which
the future reversal of the underlying timing differences can be deducted deferred tax is 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 nondiscounted basis
j investments
fixed asset investments are shown at lower of cost or net realisable value less provision for any impairment
k operating leases
rentals under operating leases are charged on a straightline basis over the lease term even if the payments
are not made on such a basis
l debt
debt is initially stated at the amount of net proceeds after deduction of issue costs the carrying amount is
increased by the finance cost in respect of the accounting period and reduced by payments made in the period
sterling energy annual report  accounts 2005
financial statements 46
notes to the financial statements
year ended 31 december 2005
1 accounting policies continued
m derivative financial instruments
the group uses derivative financial instruments to manage its exposure to changes in prices of oil and 
natural gas these transactions are accounted for on an accruals basis gains and losses on settlement of
hedging contracts are accounted for in turnover in the period in which the hedged sales are recognised
n pension costs
the group operates a number of defined contribution pension schemes the amount charged to the profit 
and loss account 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
2 segment information
the group operates in one business segment the exploration for and production of oil and gas the group
currently has interests in three geographical segments western europe north america west africa and 
east africa as follows
3 profit on ordinary activities before taxation
profit on ordinary activities before taxation is stated after charging
2005 2004
£’000 £’000
depletion of tangible fixed assets – oil  gas interests 3007 2856
depreciation of tangible fixed assets – other assets 388 201
auditors’ remuneration for audit services
 group 15 15
 company 58 59
auditors’ remuneration  further assurance services 20 3
operating lease rentals  other operating leases 237 386
western europe north america east africa west africa total
2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
turnover
 existing operations 79  13563 11457     13642 11457
profitloss 
before taxation 142 220 4972 4747   128 363 4986 4164
net assets 5270 17881 26276 26419 165  138599 105160 170310 149460
 all turnover is sold to third parties within the segment of origin
 net assets exclude intragroup financing
 net assets for western europe include £564000 in 2004 that was last year reflected in south east asia

sterling energy annual report  accounts 2005
financial statements 47
notes to the financial statements
year ended 31 december 2005
4 interest receivable and similar income
2005 2004
£’000 £’000
interest receivable and similar income 1849 309
other 33 3
1882 312
5 interest payable and similar charges
2005 2004
£’000 £’000
interest and fees arising on bank loans 686 599
unwinding of discount on provisions see note 18 459 284
1145 883
6 employee information
the average monthly number of employees including executive directors during the year was 41 2004 – 30 
of which 16 200412 were employed in the african operations 11 in the north american operations 20047 
and 14 in new ventures and corporate support 200411 employee costs during the year including executive
directors amounted to
2005 2004
£’000 £’000
wages and salaries 3267 3091
social security costs 259 591
other pension costs 194 144
3720 3826
included within employee costs above is £2032000 2004  £2508000 which has been capitalised 
sterling energy annual report  accounts 2005
financial statements 48
notes to the financial statements
year ended 31 december 2005
7 directors’ remuneration
aggregate remuneration
directors’ remuneration consists of the following
defined
fees contribution benefits total total
basic salary bonus pension in kind 2005 2004
££ ££££
executive directors
hg wilson 275000 50000 27500 3664 356164 699317
gp  thomson 200000 30000 20000 5256 255256 468699
aj grosse 140000 40000 14000 2957 196957 
p m griggs 135000 30000 13500 2149 180649 
na quinton      272510
to 15 october 2004
nonexecutive directors
ra o’toole 46000    46000 40000
dr ej butler 25000    25000 20000
p k wilde 25000    25000 20000
a levison 8548    8548 16452
to 22 march 2005
aggregate remuneration 854548 150000 75000 14026 1093574 1536978
the company provides limited directors’ and officers’ liability insurance at a cost of approximately 
£17000 in 2005 2004  £13000 this cost is not included in the above table
details of directors’ interests in the issued shares of the company are shown in the directors’ report
sterling energy annual report  accounts 2005
financial statements 49
notes to the financial statements
year ended 31 december 2005
7 directors’ remuneration continued
directors’ and staff share options
details of options to acquire ordinary shares in the company under the scheme approved in 2001 are as follows
at 1 january exercised at 31 december exercise exercise
2005 granted lapsed 2005 price period
hg wilson 700000   700000 4p up to 24 july 2011
4300000   4300000 4p up to 18 oct 2012
2900000   2900000 7p up to 18 jan 2013
 1750000  1750000 17p 31 jan 2007  31 jan 2015
7900000 1750000  9650000
gp  thomson 700000   700000 4p up to 24 july 2011
4300000   4300000 4p up to 18 oct  2012
1700000   1700000 7p up to 18 jan 2013
 1250000  1250000 17p 31 jan 2007  31jan 2015
6700000 1250000  7950000
aj grosse 1500000   1500000 4p up to 18 oct 2012
1500000   1500000 125p 9 mar 2006  9 mar 2014
 500000  500000 17p 31 jan 2007  31 jan 2015
3000000 500000  3500000
p m griggs  2000000  2000000 155p 1 jan 2007  1 jan 2015
 2000000  2000000
ra o’toole 700000   700000 4p up to 24 july 2011
4300000   4300000 4p up to 18 oct 2012
1250000   1250000 7p up to 18 jan 2013
 500000  500000 17p 31 jan 2007  31 jan 2015
6250000 500000  6750000
p k wilde 250000   250000 4p up to 24 july 2011
1250000   1250000 4p up to 18 oct 2012
 500000  500000 17p 31 jan 2007  31 jan 2015
1500000 500000  2000000
sterling energy annual report  accounts 2005
financial statements 50
notes to the financial statements
year ended 31 december 2005
7 directors’ remuneration continued
at 01 january exercised at 31 december exercise exercise
2005 granted lapsed 2005 price period
dr ej butler 250000   250000 4p up to 24 july 2011
1250000   1250000 4p up to 18 oct 2012
 500000 500000 17p 31 jan 2007  31 jan 2015
1500000 500000  2000000
26850000 7000000  33850000
other grantees 700000   700000 5p up to 24 july 2011
6050000   6050000 4p up to 18 oct 2012
3150000   3150000 7p up to 18 jan 2013
16450000  9125000 7325000 125p 9 mar 2006  15 may 2014
4500000   4500000 15p 24 sep 2006  24 sep 2014
 8550000  8550000 14517p 1 jan 2007  14 dec 2015
30850000 8550000 9125000 30275000
57700000 15550000 9125000 64125000
other grantees consists of holdings by numerous employees that are not directors of the company 
the midmarket price of the ordinary shares at 31 december 2005 was 1725p 2004 1525p and the range 
during the year was 1425p to 205p 2004 1025p to 20p
8 taxation
the group tax charge comprises
2005 2004
£’000 £’000
current tax 1306 226
deferred tax – origination and reversal of timing differences 572 971
1878 1197
sterling energy annual report  accounts 2005
financial statements 51
notes to the financial statements
year ended 31 december 2005
8 taxation continued
the difference between the current tax charge of £1306000 2004  £226000 and the amount calculated by
applying the applicable standard rate of tax is as follows
2005 2004
£’000 £’000
profit on ordinary activities before tax 4986 4164
tax on profit on ordinary activities at standard 
us corporation tax rate of 34 2004 34 1695 1416
effects of
expenses not deductible for tax purposes 722 87
capital allowances in excess of depreciation 594 136
other temporary differences 552 245
difference in nonus tax rates 4 33
adjustment for tax losses 4 929
adjustment in respect of prior years 35 –
current tax charge for the year 1306 226
during 2004 and 2005 the group generated its results primarily in the us therefore the tax rate in the above
reconciliation for 2004 and 2005 is the standard rate for us corporation tax
9 profit attributable to sterling energy plc
the profit for the financial year dealt with in the accounts of sterling energy plc was £539000 
2004  loss of £144000 as provided by s230 of the companies act 1985 no profit and loss account 
is presented in respect of sterling energy plc
10 earnings per share
the calculation of basic earnings per share is based on the profit for the financial year of £3108000 
2004  £2969000 and on 1393778640 2004  884788687 ordinary shares being the weighted average 
number of ordinary shares in issue the calculation of diluted earnings per share is based on the profit for 
the financial year as for basic earnings per share the number of shares outstanding is adjusted as follows
2005
number of shares
for basic earnings per share 1393778640
exercise of options 31622597
for diluted earnings per share 1425401237
sterling energy annual report  accounts 2005
financial statements 52
notes to the financial statements
year ended 31 december 2005
11 intangible fixed assets – unevaluated oil and gas interests
group company
£’000 £’000
at 1 january 2005 30629 62
written off 5 
transfers to tangible fixed assets see note 12 7973 10
transfers to investments see note 13 689 
additions 3230 
currency translation adjustment 3808 
at 31 december 2005 29000 72
group net book value at 31 december 2005 comprises £1863000 for north america £70000 for western
europe and £27067000 for africa group net book value at 31 december 2004 comprised £1678000 for 
north america £33000 for western europe £564000 for south east asia and £28354000 for africa
12 tangible fixed assets
oil and gas computer  office 
interests equipment total
group £’000 £’000 £’000
cost
at 1 january 2005 55398 685 56083
transfers from intangible fixed assets 
see note 11 7973  7973
additions 69906 466 70372
currency translation adjustment 5869 13 5882
at 31 december 2005 139146 1164 140310
accumulated depreciation
at 1 january 2005 4090 239 4329
charge for the year 3007 388 3395
currency translation adjustment 723  723
at 31 december 2005 7820 627 8447
net book value
at 31 december 2005 131326 537 131863
at 1 january 2005 51308 446 51754
the net book value of oil and gas interests at 31 december 2005 comprises £42306000 2004 £31601000
relating to north america £69000 2004 £109000 relating to western europe and £88951000 
2004 £19598000 to the west africa cost pools respectively
sterling energy annual report  accounts 2005
financial statements 53
notes to the financial statements
year ended 31 december 2005
13 fixed asset investments 
a investment in quoted company
the investment in a quoted company of £689000 represents the net book value of the gsec101 licence that the
group formerly held offshore of the philippines this asset was transferred to forum energy plc in return for a
current equity interest of 147 effective from 18 may 2005 as at 31 december 2005 the market value of this
investment was £4781856 based on a forum share price of 1195p
b investment in subsidiaries
company 
cost £’000
at 1 january 2005 118061
additions 
written off during year 
at 31 december 2005 118061
there was no movement in the company’s fixed asset investments during the year all of 
which relate to subsidiary undertakings 
at 31 december 2005 the parent company had investments in the following subsidiary undertakings
country of class of proportion nature of business
incorporation shares held of voting
rights held
lepco oil  gas canada limited canada ordinary 100 exploration for and 
production of oil and gas
sterling energy uk limited uk ordinary 100 exploration for oil and gas
sterling energy inc usa ordinary 100 exploration for and
production of oil and gas
sterling oil limited uk ordinary 100 investment holding 
company
sterling oil  gas pty limited australia ordinary 100 service company
sterling northwest africa jersey ci ordinary 100 investment holding
holdings limited company
sterling energy  jersey ci ordinary 100 exploration for oil and gas
mauritania limited 
fusion mauritania a limited  jersey ci ordinary 701 exploration for oil and gas
sterling cameroon limited jersey ci ordinary 100 exploration for oil and gas
sterling croix du sud limited jersey ci ordinary 100 exploration for oil and gas
sterling cheval marin 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  gas jersey ci ordinary 100 exploration for oil and gas
iris marin limited
sterling oil  gas jersey ci ordinary 100 exploration for oil and gas
themis marin limited
held through sterling energy uk limited held directly by sterling oil limited 
held directly or indirectly through sterling northwest africa holdings limited
sterling energy annual report  accounts 2005
financial statements 54
notes to the financial statements
year ended 31 december 2005
14 debtors
group company
2005 2004 2005 2004
£000 £000 £000 £000
amounts falling due within one year
trade debtors 3018 2297  
amounts owed by subsidiary undertakings   15539 12188
other debtors 2578 95 40 
prepayments and accrued income 9905 310  58
15501 2702 15579 12246
amounts falling due after more than one year
other debtors  245  
prepayments and accrued income  21 
 266  
15501 2968 15579 12246
15 cash at bank and in hand
included in cash at bank and in hand for the group is an amount of approximately £2379000 2004  £1566000
held in a restricted account to be used for the sole purpose of the payment of decommissioning costs on three
us producing licences there is additionally a deposit held in escrow for an amount of us64880123
£37796000 held by the parent company 2004 us130000000 £67757000 these funds are to be utilised 
to pay for past and ongoing costs with regard to the groups participation in the chinguetti field development 
see note 22c
16 creditors amounts falling due within one year
group company
2005 2004 2005 2004
£000 £000 £000 £000
trade creditors 1124 560 100 40
amounts owed to subsidiary undertakings   19707 57712
amounts owed to joint venture partners 712 510  
corporation tax 1271 226 121 
other taxation and social security 262 90  
accruals and deferred income 22333 2376 273 263
25702 3762 20201 58015
sterling energy annual report  accounts 2005
financial statements 55
notes to the financial statements
year ended 31 december 2005
16 creditors amounts falling due within one year continued
sterling energy has a bank loan facility of us27500000 outstanding at the end of the period the “facility”
which is classified as longterm as it is not currently repayable until mid 2007 the amount that can be drawn
under this facility is determined by a twice yearly borrowing base review and carries a current interest rate of
775 at 31 december 2005 the us27325000 £15918000 drawn down under this facility is repayable on or
before june 2007 at the groups discretion any surplus cash balances held on current accounts are swept on a
daily basis against the loan facility in order to minimise interest expense incurred in addition a further
us175000 2004  us175000 is pledged under a letter of credit the facility is secured by a floating charge 
over certain of the tangible net assets of sterling energy inc and is nonrecourse to the rest of the group
although an intragroup loan of approximately £13779000 2004  £15228000 is subordinated to the facility
interest is payable at a margin over either the eurodollar rate or the wall street journal prime rate at the
preference of sterling energy inc the facility also includes certain financial and nonfinancial covenants 
17 creditors amounts falling due after more than one year
group
2005 2004
£000 £000
bank loan see note 16 15918 14233
other long term liabilities  781
15918 15014
18 provisions for liabilities and charges
group
2005 2004
£000 £000
decommissioning 10940 5558
deferred tax 1969 1113
12909 6671
decommissioning
north west
america africa total
£000 £000 £’000
at 1 january 2005 5558  5558
additions in year 1973 2263 4236
unwinding of discount see note 5 459  459
currency translation adjustment 687  687
at 31 december 2005 8677 2263 10940
the amount shown above represents the estimated costs for decommissioning the groups producing
interests in north america which are expected to occur between 2008 and 2017 and an additional amount in
respect of its interest in the chinguetti field in mauritania which is expected to occur between 2011 and 2014
sterling energy annual report  accounts 2005
financial statements 56
notes to the financial statements
year ended 31 december 2005
18 provisions for liabilities and charges continued
deferred taxation
2005
£000
at 1 january 2005 1113
charged to profit and loss account 572
currency translation adjustment 284
at 31 december 2005 1969
the provision at 31 december 2005 consists of accelerated capital allowances
19 called up equity share capital
2005 2004
£000 £000
authorised
2400000000 2004 2400000000 ordinary shares of 1p 24000 24000
called up allotted and fully paid
1401950558 ordinary shares of 1p each 14019 13933
2004  1393325558 ordinary shares of 1p each
movements during the year were as follows
a 125000 new ordinary shares with a nominal value of £1250 were issued to a former employee who exercised
share options in the year
b 8500000 new ordinary shares with a nominal value of £85000 were issued to exemployees who exercised
share options in the year in conjunction with the closure of the perth office see note 27
sterling energy annual report  accounts 2005
financial statements 57
notes to the financial statements
year ended 31 december 2005
20 reserves
share currency profit
premium translation and loss
account reserve account total
£000 £000 £000 £000
group
at 1 january 2005 141600 8271 1166 134495
premium on shares issued 990   990
currency translation adjustments  16635  16635
profit for the year   3108 3108
at 31 december 2005 142590 8364 4274 155228
share profit
premium and loss
account account total
£000 £000 £000
company
at 1 january 2005 141600 3106 138494
premium on shares issued  990 990
profit for the year  539 539
at 31 december 2005 142590 2567 140023
21 minority interest
£000
at 1 january 2005 1032
currency translation adjustment 31
at 31 december 2005 1063
the balance at 31 december 2005 represents a 299 third party interest in the consolidated net asset value of
the entity that holds certain of the groups interests in mauritania fusion mauritania a limited
sterling energy annual report  accounts 2005
financial statements 58
notes to the financial statements
year ended 31 december 2005
22 financial commitments
a annual commitments under noncancellable operating leases are as follows
company and group land and land and 
buildings buildings
2005 2004
£000 £000
operating leases with an option to terminate 6 
within one year
operating leases with an option to terminate 77 
later than one but within two years
operating leases with an option to terminate 70 395
between two and five years
153 395
b expenditure commitments are as follows 
group group
2005 2004
£000 £000
due within one year 19486 3171
due later than one year but within two years 15 5497
19501 8668
in acquiring its oil and gas interests the group has pledged that various work programmes will be undertaken on
each permitinterest the commitments above are an estimate of the cost of performing these work programmes  
c mauritania transaction
on 26 october 2004 the group entered into a funding agreement with the islamic republic of mauritania 
the “government” and groupe project chinguetti “gpc” now société des hydrocarbures mauritenienne
“smh” in relation to the funding of the governments share of the chinguetti oil field development 
“chinguetti development” smh is a state owned special purpose vehicle formed by the government 
to hold its interest in the chinguetti development
the group has agreed to reimburse smh the past costs payable by the government as a result of the exercise 
of its option to acquire 12 per cent of the chinguetti development the group has further agreed to fund 
smhs share of all future petroleum costs being exploration appraisal and development costs relating to the
chinguetti development up to the commencement of production upon commencement of production smh will
pay a share of its operating expenditure commitments with the remainder being met by the group
sterling energy annual report  accounts 2005
financial statements 59
notes to the financial statements
year ended 31 december 2005
22 financial commitments continued
c mauritania transaction continued
the group has put in place a letter of credit for us130000000 backed by funds on deposit under which the 
past and ongoing petroleum costs will be paid to gpc this figure represents the maximum amount that the
group will be required to pay under the terms of the funding agreement as at 31 december 2005 
us65119877 had been drawn down on the facility to fund the development and the remaining funds of
us64880123 are held on escrow as disclosed in note 15 to the financial statements any remaining funds on
deposit will be released from escrow on the “letter of credit termination date” which is defined as the earlier of
either two years after completion of the funding agreement 19 november 2006 or the completion of payments
by sterling to smh of both the past oil production costs and the exploration costs and funding of the operating
expenditure of smh and sterling out of revenues from the sale of chinguetti oil for a period of six consecutive
months after initial commercial production
under the funding agreement the company will become entitled to a portion of smhs share of profit oil
produced from the chinguetti development in addition the group will be entitled to recover its costs from 
smhs share of cost oil
23 reconciliation of operating profit to net cash outflowinflow from operations
2005 2004
£000 £000
operating profit 4249 4735
depreciation and depletion 3395 3057
intangible assets written off 5 50
cash inflow from operations before
working capital movements 7649 7842
increase in debtors 13396 1455
increasedecrease in creditors 1652 1758
net cash outflowinflow from operations 7399 8145
24 notes to the cash flow statement
a gross cash flows
2005 2004
£000 £000
returns on investments and servicing of finance
interest received 1849 309
interest paid 686 599
net cash inflowoutflow 1163 290
capital expenditure
purchase of intangible fixed assets 2072 3618
purchase of tangible fixed assets 43242 12491
net cash outflow 45314 16109
sterling energy annual report  accounts 2005
financial statements 60
notes to the financial statements
year ended 31 december 2005
24 notes to the cash flow statement continued
a gross cash flows continued
2005 2004
£’000 £’000
acquisitions
other acquisitions  18763
net cash outflow  18763
financing
issue of ordinary shares net of expenses 1076 92557
drawdown under bank loan facility  13191
net receiptspayments from restricted accounts 37164 70930
net cash inflow 38240 34818
b analysis and reconciliation of net funds
1 january cash other exchange 31 december
2005 flow noncash movement 2005
group changes
£000 £000 £000 £000 £000
cash in hand and at bank 20233 13310  688 7611
debt due after 1 year 14233   1685 15918
debt due within 1 year     
net funds 6000 13310  997 8307
 the cash balance at 31 december 2005 excludes £40175000 of restricted cash 2004  £69323000
as described further in note 15
2005 2004
£000 £000
decreaseincrease in cash in the year 13310 7801
cash inflow from increase in debt  13191
translation difference 997 1122
movement in net funds in year 14307 6512
net funds at 1 january 6000 12512
net funds at 31 december 8307 6000
sterling energy annual report  accounts 2005
financial statements 61
notes to the financial statements
year ended 31 december 2005
25 post balance sheet events
following the year end first oil production from the chinguetti field in mauritania commenced in late february
in which sterling has an approximate 8 economic interest further cash calls have been made to date of
9522476 this leaves a remaining deposit in the restricted bank account see notes 15 and 26 of 55357647
26 derivatives and other financial instruments
this note provides the narrative and numerical disclosures required by frs 13 “derivatives and other financial
instruments disclosures” as permitted by frs 13 short term debtors and creditors have been excluded from
the disclosures other than the currency disclosures
the groups objective and policy is to use financial instruments to manage its risk profile commensurate with
the complexity of its underlying operations during the year the groups financial assets and liabilities
consisted of
• cash at bank and in hand see note 15
• loan facility with hibernia national bank see notes 16 and 17
• short term gas commodity swaps using forward sales contracts in the gas trading markets
• short term oil commodity “cap and collar” swaps using forward sales contracts in the oil trading markets
these are used to manage the working capital requirements of the group the main risks arising from the
groups operations are interest rate risk gas price risk and foreign currency translation risk the group
monitors risk on a regular basis and takes appropriate measures to ensure risks are managed in a 
controlled manner
interest rate risk
the groups financial assets and liabilities accrue interest at prevailing floating rates in either the united states
of america or the united kingdom as described further below the group does not currently use derivative
instruments to manage its interest rate risk although it continues to monitor the need for such instruments on
an ongoing basis
gas price risk
the group uses natural gas hedging instruments forward sales to manage exposure to volatility in gas prices
at the end of 2005 it had entered into hedging transactions for a number of months in 2006 covering part of its
projected production
sterling energy annual report  accounts 2005
financial statements 62
notes to the financial statements
year ended 31 december 2005
26 derivatives and other financial instruments continued
foreign currency translation risk
the functional currency of the oil and gas producing activities of the group is us and of its management
services and treasury functions is £ sterling balances are held in us and australian to meet immediate local
operating or administrative needs at the end of 2005 there were no net material monetary liabilities or assets
not denominated in the functional currency of the subsidiary involved except for intragroup financings 
the group does not enter into derivative transactions to manage its foreign currency translation or 
transaction risk
interest rate risk profile of financial assets and liabilities
financial assets
2005 2004
£000 £000
pounds sterling £ 3344 13458
united states dollars us 44093 75958
other 349 140
at 31 december 47786 89556
at 31 december 2005 the group held cash at bank and in hand under its control of £7611000 
2004  £20233000 which forms the majority of its working capital this balance relates to deposits placed 
with banking institutions that are available on demand which are principally denominated in a combination 
of pounds sterling which carry interest at prevailing united kingdom deposit floating rates and us dollars 
which on a daily basis are offset against the sterling energy inc loan facility note 16 in order to reduce 
ongoing interest expense the groups financial assets also include restricted cash balances denominated 
in us of £379000 2004  £1566000 as disclosed in note 15 which bear interest at the prevailing us bank
floating rate additionally the group has on restricted deposit a sum denominated in us of £37796000 which
will be used to cover the remaining costs of the group investment in the chinguetti field development 
in mauritania see note 22c 
sterling energy annual report  accounts 2005
financial statements 63
notes to the financial statements
year ended 31 december 2005
26 derivatives and other financial instruments continued
financial liabilities
at 31 december 2005 the groups financial liabilities comprised a us275 million revolving credit loan facility  
a summary of the loan facility available to the group at 31 december 2005 including its maturity profile and
interest rate profile is set out in note 16
fair values
the fair values of the groups financial assets and liabilities at 31 december 2005 and 31 december 2004 are
materially equivalent to their carrying value save for forward gas and oil swaps entered into for 2006 which
when compared to the forward market prices prevailing at the balance sheet date showed an unrecognised fair
value loss of us374750 £218310 2004  us244000 £127090 additionally during the year the group
entered into forward oil “cap and collar” swaps covering the period 200607 in respect of a proportion of
forecast attributable production from its interests in mauritania at the balance sheet date these agreements
showed an unrecognised fair value loss of us4577604 £2666669 2004  nil
27 exceptional costs
during the year the board decided that it would be more advantageous to manage all of the groups african
activities out of its uk head office accordingly the perth office closed in 2005 and the relocation of activities
and some key personnel from perth to the uk has now taken place the costs of £1153000 incurred in respect
of this closure have been fully recognised in 2005
sterling energy annual report  accounts 2005
financial statements 64
independent auditors’ report to the 
members of sterling energy plc
we have audited the group and individual company financial
statements the “financial statements” of sterling energy plc
for the year ended 31 december 2005 which comprise the
consolidated profit and loss account the consolidated and
individual company balance sheets the consolidated cash flow
statement the consolidated statement of total recognised 
gains and losses the reconciliation of movements in groups
shareholders’ funds and the related notes 1 to 27 
these financial statements have been prepared under 
the accounting policies set out therein
this report is made solely to the company’s
members as a body in accordance with section 235
of the companies act 1985  our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditors’ report and for no other purpose
to the fullest extent permitted by law we do not
accept or assume responsibility to anyone other than
the company and the company’s members as a body
for our audit work for this report or for the 
opinions we have formed
independent auditors’ report
sterling energy annual report  accounts 2005
respective responsibilities of 
directors and auditors
the directors’ responsibilities for preparing 
the annual report and the financial statements 
in accordance with applicable united kingdom 
law and united kingdom accounting standards
united kingdom generally accepted accounting
practice are set out in the statement of 
directors responsibilities
our responsibility is to audit the financial statements
in accordance with relevant united kingdom legal
and regulatory requirements and international
standards on auditing uk and ireland 65
independent auditors’ report
sterling energy annual report  accounts 2005
we report to you our opinion as to whether the
financial statements give a true and fair view in
accordance with the relevant financial reporting
framework and are properly prepared in accordance
with the companies act 1985 we also report to 
you if in our opinion the directors’ report is 
not consistent with the financial statements 
if the company has not kept proper accounting
records if we have not received all the information
and explanations we require for our audit or if
information specified by law regarding directors
remuneration and other transactions are
not disclosed
we read the directors’ report and the other
information contained in the annual report 
for the above year as described in the contents
section and consider the implications for our report 
if we become aware of any apparent misstatements
or material inconsistencies with the 
financial statements
basis of audit opinion
we conducted our audit in accordance with
international standards on auditing uk and ireland
issued by the auditing practices board an audit
includes examination on a test basis 
of evidence relevant to the amounts and disclosures
in the financial statements it also includes an
assessment of the significant estimates and
judgments made by the directors in the preparation
of the financial statements and of whether the
accounting policies are appropriate to the
circumstances of the company and the group
consistently applied and adequately disclosed
we planned and performed our audit so as to obtain
all the information and explanations which we
considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that
the financial statements are free from material
misstatement whether caused by fraud or other
irregularity or error in forming our opinion we also
evaluated the overall adequacy of the presentation 
of information in the financial statements
opinion
in our opinion
• the financial statements give a true and fair view
in accordance with united kingdom generally
accepted accounting practice of the state of the
group’s and the individual companys affairs as at
31 december 2005 and of the group’s profit for the
year then ended and 
• the financial statements have been 
properly prepared in accordance with the
companies act 1985
deloitte  touche llp
chartered accountants and registered auditors
london 21 april 2006 66
notice of annual general meeting
sterling energy annual report  accounts 2005
notice is hereby given that the annual general
meeting of sterling energy plc the “company” will
be held at the offices of ashurst broadgate west 
9 appold street london ec2a 2ap at 1100am on 
15 june 2006 for the following purposes
ordinary business
1 to receive and adopt the accounts for the financial year ended 31 december 2005 together with the reports of
the directors and auditors thereon
2 to elect christopher callaway as a director 
3 to reelect harry wilson as a director
4 to reelect graeme thomson as a director 
5 to reappoint deloitte  touche llp as auditors to the company and to authorise the directors 
to fix their remuneration
special business
to consider and if thought fit to pass the following special resolutions
6 that the directors be and are hereby empowered pursuant to section 951 of the companies act 1985 the
“act” in place of all existing powers given to the directors pursuant to such section 95 of the act to
a allot equity securities as defined in section 94 of the act for cash pursuant to the authority conferred upon
them by resolution no7 passed at the agm held on 29 june 2005 as if section 891 of the act did not 
apply to any such allotment and 
b sell relevant shares as defined in section 945 of the act held by the company as treasury shares as defined
in section 943a of the act treasury shares for cash as defined in section 162d2 of the act as if section
891 of the act did not apply to any such sale
provided that this power shall be limited to the allotment of equity securities for cash and the 
sale of treasury shares up to an aggregate nominal value of £3500000 and that this power shall 
expire at the conclusion of the annual general meeting to be held in 2007 save that the company 
may before such expiry make any offer or enter into any agreement which would or might require equity
securities to be allotted or treasury shares to be sold after such expiry and the directors may allot 
equity securities or sell treasury shares in pursuance of such an offer or agreement as if the authority 
conferred hereby had not expired 67
notice of annual general meeting
sterling energy annual report  accounts 2005
7 that the company is hereby generally and unconditionally authorised for the purposes of section 166 of the
act to make market purchases within the meaning of section 1633 of the act of any of the ordinary shares of
1p each in the capital of the company on such terms and in such manner as the directors may from time to
time determine provided that
a the maximum number of ordinary shares which may be purchased is 140000000 representing approximately
10 per cent of the issued ordinary share capital of the company
b the minimum price which may be paid for each ordinary share is 1p which amount shall be exclusive of
expenses if any
c the maximum price which may be paid for each ordinary share is an amount equal to 105 per cent of the
average of the middle market quotations for the ordinary shares of the company as derived from the daily
official list of the london stock exchange plc for the five business days immediately preceding the day on
which such share is contracted to be purchased
d unless previously renewed revoked or varied this authority shall expire at the conclusion of the agm in 2007
and
e under this authority the company may make a contract to purchase ordinary shares which would or might be
executed wholly or partly after the expiry of this authority and make purchases of ordinary shares pursuant to it
as if this authority had not expired
by order of the board
graeme thomson  
fca company secretary 
21 april 2006
notes
i shareholders are entitled to attend and vote at the annual general meeting and may appoint one or more
proxies to so attend and on a poll vote instead of them a proxy need not be a member of the company
ii a form of proxy is enclosed with this document to be valid it must be returned to the company’s registrars
capita registrars po box 25 beckenham kent br3 4br if by post or to 34 beckenham road beckenham
kent br3 4tu if by hand not later than 48 hours before the time of the annual general meeting  
alternatively you may register your proxy appointment and instructions online by visiting the website of 
our registrars capita registrars by logging onto wwwcapitaregistrarscom where full instructions are given 
in order to register your vote online you will need to enter the reference number which is given on the
enclosed form of proxy the completion and return by a member of a duly completed form of proxy will not
preclude any such member from attending in person and voting at the annual general meeting
iii alternatively if you are a member of crest you may register the appointment of a proxy by using the crest
electronic proxy appointment service
crest members who wish to appoint a proxy or proxies by utilising the crest electronic proxy appointment
service may do so for this annual general meeting and any adjournments thereof by utilising the procedures
described in the crest manual  crest personal members who have appointed a voting service providers
should refer to their crest sponsor or voting service providers who will be able to take the appropriate
action on their behalf 68
notice of annual general meeting
sterling energy annual report  accounts 2005
in order for a proxy appointment made by means of crest to be valid the appropriate crest message a
crest proxy instruction must be properly authenticated in accordance with crestcos specifications and
must contain the information required for such instructions as described in the crest manual the message
regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a
previously appointed proxy must in order to be valid be transmitted so as to be received by the issuers agent
by not later than 48 hours before the time of the annual general meeting  for this purpose the time of receipt
will be taken to be the time as determined by the timestamp applied to the message by the crest applications
host from which the issuers agent is able to retrieve the message by enquiry to crest in the manner
prescribed by crest
crest members and where applicable their crest sponsors or voting service providers should note that
crestco does not make available special procedures in crest for any particular messages  normal system
timings and limitations will therefore apply in relation to the input of crest proxy instructions it is the
responsibility of the crest member concerned to take or if the crest member is a crest personal member
or crest sponsor or voting service providers takes such action as shall be necessary to ensure that a
message is transmitted by means of the crest system by any particular time in this connection crest
members and where applicable their crest sponsors or voting service providers are referred in particular
to those sections of the crest manual concerning practical limitations of the crest system and timings
the company may treat as invalid a crest proxy instruction in the circumstances set out in 
regulation 355a of the uncertificated securities regulations 2001
appointing a proxy will not prevent a shareholder from attending in person and voting at the meeting 
iv pursuant to regulation 41 of the uncertified securities regulations 2001 only those shareholders registered 
in the register of members of the company 48 hours before the meeting will be entitled to attend and vote 
at the annual general meeting in respect of the number of shares registered in their name at that time 
subsequent changes to the register will be disregarded in determining the right of any person to attend 
or vote at the annual general meeting
v there will be available for inspection at the registered office of the company during normal business 
hours on any week day excluding public holidays from the date of this notice until the date of the meeting 
and at the place of the meeting for at least 15 minutes prior to the meeting and during the meeting 
copies of the following documents
a the register of directors’ interests in ordinary shares of the company
b the executive directors’ service contracts and the nonexecutive directors’ letters of appointment
c the company’s memorandum and articles of association   contacts
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sterling energy plc
mardall house
79 vaughan road
harpenden hertfordshire
al5 4hu
tel 44 01582 462 121
fax 44 01582 461 221
infosterlingenergyukcom
usa
sterling energy inc
15425 north freeway
suite 300
houston
t exas 77090
tel 1 281872 9600
fax 1 281872 9610
infosterlingenergycom


Summary:
 8
chief executive’s statement
sterling energy annual report  accounts 2005
our industry is undergoing a period of enormous change
and we are adapting our business model to continue the
success we have so far delivered against this backdrop
the start of production in mauritania in february 2006
transforms our cash flow enabling sterling to be bolder 
in the implementation of its growth strategy
changing industry background
the key causes of this changing volatile
environment are the sustained “high” oil price
which many commentators are predicting will stay
above 50bbl over the next 3 – 5 years there is 
a recognition that the supply of oil and gas is
struggling to keep up with demand and that this
supply may be subject to unforeseen interruptions
the energy sector has moved quickly to adjust to
changes in these fundamental forces the key 
issues we now have to contend with include
• a “land grab” is underway in addition to the
major oil companies who need to meet reserve
and production replacement targets we now have
to contend with national oil companies strategically
positioning themselves to guarantee future
supplies competition for prospective acreage 
is intense
• it is not just the oil price which has risen 
sharply from the commercial terms granted 
by governments for licences through rig rates 
and seismic costs to insurance premiums the 
prices for everything in our industry have gone up 
availability of equipment has plummeted with 
for example the lead times on new rig contracts 
in west africa currently running at over a year
• the economics of exploration projects have
improved which translate into both higher risk
targets and smaller prospects being drilled 
buyers often with “cheap money” have also
lowered the economic return criteria they apply to
acquisitions such that many prices being paid for
reserves are in our view only supported by even
greater optimism about the future of energy prices
• investors have joined the “blackgold rush” 
since we joined aim in october 2002 our peer
group in london has risen from about 10 to over
100 oil and gas companies and this rate of growth
looks set to continue during 2006 readily available
funds have chased a declining number of good
opportunities and inevitably pushed prices up
availability of experienced people has also become
an issue as each of the new companies have
established their teams 9
chief executive’s statement
sterling energy annual report  accounts 2005
this all sets the scene for a highly competitive and
expensive market place where sellers are calling 
the tune although we are in the fortunate position 
of having acquired many of our assets before these
changes really started to bite and have benefited
from the inevitable rise in value we are adapting 
our model to continue this growth going forward 
stepchange
our overall aim is to continue to build our cash flow
profitability and have exciting exploration upside
focused on increasing value per share  
in our model to date
• production has offered a steady rate of return
which with low risk infill and stepout drilling
provided a platform from which to undertake
exploration our production assets would not
normally be expected to double the value of the
company in the short term – although the recent
rise in oil and gas prices has significantly increased
their value – but they do provide solid cash 
flow which we have sought to leverage into 
other opportunities
• exploration offers the big upside a key objective
has been to manage the risks and costs of drilling
which we know statistically is more likely to fail
than succeed using our technical and commercial
expertise we have been very successful in passing
on exploration costs while retaining significant
upside to drilling outcomes the key is to have 
a string of material targets ready to drill in the 
near future we have not committed to any
individual exploration project which could
materially damage the balance sheet instead 
we have put in place a sustainable exploration
programme which has been supported by our
growing production cash flow
our response to both the new industry environment
and sterling’s own financial resources is to try and
sidestep the crowd and look for value in less
obvious opportunities buying conventional
production at present levels is in our view unlikely to
meet our criteria whereas for example our creative
financing of the mauritanian government’s
participation in the chinguetti field unlocked
substantial value for both sides which could
otherwise have been lost the recent signing by
sterling of an mou in the kurdistan region is
another example of such opportunities
sterling’s hallmark to date has been innovative
transactions playing to our strengths of experience
creativity flexibility and speed underpinning this
model is the quality of the people within the
company they are our most essential resource
the tremendous activity in the oil  gas sector
makes it increasingly difficult to stand out from 
our peers we are already starting to see signs 
of investor fatigue and the first soundings of 
sector consolidation in the past successful oil
companies were taken over by larger companies
once their assets reached critical mass and we
expect history to repeat itself over the 
next few years 
the performance of the company is the only 
true measure of the success of the strategy 
our track record since listing on aim in late 2002 
is a vindication of the model implemented by 
our team our vision is to remain in the top 
10 of our peer group in terms of value added 
and perceived upside potential 
strongly positioned
we are very well positioned and optimistic for
sterling’s continued development we will not
overpay for assets as our focus is on creating
shareholder value the cash flow from chinguetti
and from the usa puts sterling in a very strong
position to effect a stepchange in its activities 
and to leverage itself into new opportunities 
in this fastchanging environment 
harry wilson 
chief executive officer 
21 april 2006