wwwsterlingenergyplccom 
exploring for success
annual report  accounts 2007
uk 
sterling energy plc
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sterling energy
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infosterlingenergyusacom 
sterling energy plc annual report  accounts 2007 sterling energy plc “sterling” or the “company” is an upstream 
oil and gas company listed on the aim market in london sterling 
is an experienced operator of international licences with a focus on 
projects in africa and the middle east sterling has high impact 
nearterm opportunities in kurdistan and madagascar exploration 
in gabon agc and cameroon as well as appraisal and production 
assets in mauritania it seeks to expand its portfolio with an 
emphasis on nearterm activity and value growth it intends to sell 
its usa assets and to redeploy the capital to repay all of its debt 
with the resulting cash balances being used to develop its assets  
in its core areas
overview
01 highlights – 2007
02 2008 activity and objectives
03 new strategy
04 chairman’s statement
06 chief executive’s review
business review
08 operational
16 reserves report
17 schedule of interests
18 financial review
22 corporate social responsibility
24 board of directors
governance
26 directors’ report
30 corporate governance
32 statement of directors’ 
responsibilities
financial statements
33 independent auditors’ report to the 
members of sterling energy 
34 consolidated income statement
34 consolidated statement of 
recognised income and expense
35 consolidated balance sheet
36 company balance sheet
37 consolidated cash flow statement
38 company cash flow statement
39 notes to the financial statements
62 definitions page 01
million
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bopd
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million
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sterling energy plc annual report  accounts 2007
highlights – 2007
revenues for the year of 97 2 million 
2006 810 million
 
group sales averaged 5760 boepd up 
31 2006 4400 boepd
 
gross profit of 220 million  
2006 266 million
ebitda 566 million 2006 596 
million
 
group 2p reserves increased by 65 to 
213 million boe at end 2007
 
•
•
•
•
•
secured the highly prospective sangaw 
north licence 492km
2
 in the kurdish 
region of northern iraq
proposed drilling in madagascar being 
“fast tracked” for 2009 and very large 
structures identified
 
bank funding refinanced successfully 
with a current facility of 158 million
 
147 million cash acquisition of  
us onshore wec completed end  
march 2007 
 
year end bank debt of 1533 million
 
•
•
•
•
•
overview
revenue daily pr oducti on ebitda page 02 sterling energy plc annual report  accounts 2007
2008 activity and objectives
sales process for the usa business commenced in  
april 2008 after a comprehensive strategic review of the 
company’s assets and prospects the board expects that 
the proceeds of any sale will enable it to repay all of the 
company’s borrowings and leave it with significant net cash 
the usa sale together with cash revenues from its 
mauritanian producing interests will provide funding to 
increase the company’s investment in the considerable 
upside potential of its existing key assets in africa and the 
middle east as well as to develop new opportunities 
sterling will focus on an increasing number of higher impact 
exploration prospects
independent consultants risc in a review in april 2008 of 
two prospects in kurdistan and madagascar indicated 
unrisked best estimate net prospective resources of over 
500 million barrels of oil with a high net estimate of over 
1900 million barrels of oil for sterling’s current interests
conduct a 2d seismic programme in kurdistan ahead of 
drilling in 2009 
conduct well site survey in madagascar and secure rig for 
high impact nearterm drilling
•
•
•
•
•
•
the chinguetti development programme in mauritania has 
recently commenced comprising three workover wells and 
two development wells with an initial target of doubling 
production an appraisal well on the banda gas discovery 
encountered gas and oil columns with contacts similar to 
those seen in the discovery well
exploration well on the charlie prospect mean case 
21 million barrels and upside case 40 million barrels 
offshore gabon is planned for may a well in themis  
marin drilled in january 2008 was plugged and the  
licence has expired
strategy includes farmouts to enhance riskreward ratios 
and enable development of a wider portfolio of opportunities
first quarter 2008 production averaged 5824 boepd year 
2007 average 5760 boepd
cash and undrawn facilities of 164 million at end of  
q1 2008
sterling has signed letters of intent to sell peripheral usa 
properties for 87 million and has completed six usa  
farm outs in 2008
•
•
•
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•
on completion the sale of our us business will leave sterling financially 
well positioned adequately resourced and more sharply focused page 03 sterling energy plc annual report  accounts 2007
sterling is a uk aim listed exploration and production 
company which is redefining its strategy in order to focus its 
resources on higher impact opportunities in africa and the 
middle east 
the board of sterling has recently undertaken a comprehensive 
strategic review of the company’s assets and prospects and 
has concluded that it would be in shareholders’ best interests 
to sell the usa business the board believes that the usa 
business has grown to a size that makes it attractive to 
prospective buyers on 7 april 2008 the board announced that 
it had therefore mandated bmo capital markets to manage  
the sales process
the board expects that the proceeds of any sale will enable it 
to repay the company’s borrowings and leave it with significant 
net cash this together with cash revenues from its 
mauritanian producing interests and farmouts will provide 
funding to increase the company’s investment in the 
considerable upside potential of its key assets in africa and the 
middle east 
sterling will focus on an increasing number of higher impact 
exploration prospects which currently include madagascar 
kurdistan gabon agc a joint exploration zone between 
senegal and guinea bissau and cameroon it will also pursue 
new opportunities including potential acquisitions 
studies by an independent consultancy risc covering two of 
the company’s prospects in kurdistan and offshore 
madagascar were recently completed these indicated 
unrisked best estimate net prospective resources which are 
dependent on exploration success and other factors of  
over 500 million barrels of oil with a high net estimate of over 
1900 million barrels of oil for sterling’s current interests on 
those two prospects 
overview
new strategy
independent consultants have assessed two prospects in kurdistan  
and madagascar and indicated unrisked best estimate net prospective 
resources of over 500 million barrels of oil with a high net estimate  
of 1900 million barrels of oil for sterling’s current interests page 04
mboe
04 05 06 07
0
5000
10000
15000
20000
25000
sterling energy plc annual report  accounts 2007
c hairman’s statement
sterling made significant advances in 
2007 however it was a very challenging 
year for the company particularly in 
respect of the share price bank 
financing and our underlying asset 
performance we have announced 
recently that we have taken steps to 
address this situation through the sale of 
our usa assets we intend to focus in 
future on potentially “company making” 
opportunities
in march 2007 the acquisition of whittier 
energy in the usa for 147 million was 
completed and in november we 
announced the signature of the sangaw 
north psc in kurdistan our annual 
production averaged 5760 barrels of oil 
equivalent per day an improvement of 
31 over 2006 progress was also made 
with our exploration assets in africa and 
the middle east however the 
development of our licence portfolio has 
been slower than we had hoped owing 
to continuing intense competition for 
international oil and gas opportunities 
and our focus on only very high potential 
opportunities which are sensibly priced 
ebitda was 566 million and there  
was a loss before tax of 29 million after 
prelicence exploration expenditure of 
45 million production decline at the 
chinguetti oilfield in mauritania now 
appears to have stabilised with recent 
gross production of about 10000 gross 
barrels per day new development wells 
and other remedial action are underway 
to improve production levels markedly
there was a significant increase in the 
company’s oil and gas reserves as a 
result of the whittier acquisition our 
total reserves have increased from the 
equivalent of 129 million barrels of oil 
entitlement in 2006 to 213 million barrels 
of oil equivalent at the end of 2007 
we drilled 29 wells in the usa in 2007 of 
which 24 were successful there has 
been a small reduction in our booked us 
reserves as a result of production not 
being fully replaced with faster than 
expected declines in some wells and 
through weather and equipment delays 
which delayed some production 
increases
“we have recently announced the 
plan to dispose of our us assets 
we intend in future to focus on 
potentially ‘company making’ 
opportunities”
r eserve s page 05 sterling energy plc annual report  accounts 2007

65
sterling’s 2007 production in the usa 
averaged 258 million cubic feet of gas 
equivalent per day while this marked a 
significant improvement over 2006 it 
was slightly lower than we had hoped it 
should also be borne in mind that some 
55 of our global production is gas 
rather than oil while it is good to be able 
to report a recent improvement in gas 
prices in the usa the improvement is 
nowhere near as great as the increase in 
oil prices that we witnessed last year 
production in the usa in march 2008 
reached a record of over 30 mmcfgd
in december we announced the 
successful renegotiation of our bank 
facilities this was an important 
milestone at a time of severe credit 
constraint in the global credit market  
we now have a borrowing facility of  
158 million syndicated with a number  
of major banks of which 153 million is 
currently drawn down recent cash 
balances and undrawn facilities were 
164 million at the end of q1 2008
recognising that market conditions are 
changing very fast we have recently 
reviewed the group’s prospects and 
opportunities we have decided to put 
the usa assets up for sale to enable us 
to focus our resources on high reward 
ventures after a sale we expect to have 
no debt significant cash and production 
income from mauritania it will be an 
enviable position from which to build we 
have very recently added the high 
potential interest in kurdistan and there 
are moves to fast track drilling in 
madagascar
on a personal note i would like to thank 
our former chairman richard o’toole 
who left after the agm in june 2007 and 
paul griggs who left on 30 april 2008 
and all our staff directors and advisers 
for their work and support in what has 
been an interesting and challenging year 
i also wish harry wilson graeme 
thomson and jon cooper every 
success in their new roles of deputy 
chairman ceo and cfo respectively 
looking forward the much anticipated 
oil industry consolidation has been 
slower than predicted but we expect to 
be able to play a part and benefit from it 
we have an exciting programme of 
exploration activity ahead of us and a 
strengthened management structure 
and focus which i believe will add 
materially to the value of the company 
dick stabbins
chairman
30 april 2008
213
mmboe
overview page 06 sterling energy plc annual report  accounts 2007
n ew strategy 
sterling is changing i became ceo in 
early february 2008 and the board has 
now completed a strategic review of the 
business and its prospects our near
term objectives are clear 
1 we intend to focus more on 
potentially transforming drilling activity
our current portfolio already has a 
programme of very high impact work 
planned in the next year in madagascar 
and kurdistan with important wells in 
gabon and agc we will seek out more 
our focus areas will be africa and the 
middle east we will take measured risks 
for major upside an independent review 
by risc on two of our prospects in 
kurdistan and madagascar has 
indicated unrisked upside potential net 
to sterling of up to nearly 2 billion 
barrels with obvious implications for 
major valuecreating possibilities
2 to reduce our debt level and to 
improve our working capital position
we have reviewed our assets and for the 
reasons set out earlier we have 
announced plans to sell the usa assets 
in order to achieve this aim we shall 
seek to farmout selectively which is a 
sensible way to enhance the riskreward 
ratio for our work will enable us to 
diversify and extend our portfolio and 
improve nearterm cash flow much has 
been written about the banking “credit 
crunch” and stock markets have seen 
major falls so we wish to make sterling 
resilient to these changed conditions
 
oil and gas prices are up but so are 
costs 
oil prices have more than doubled over 
the last year to record levels of over 
110bbl despite talk of “recession” in 
some of the major economies around 
80 of the increase in energy usage is in 
the “developing countries” and there is 
little spare producing capacity us gas 
prices have risen over recent months 
partly in response to oil prices but also 
owing to the very cold winter there with 
record snow in many areas 
costs in the industry have been rising 
very rapidly too lead times on 
equipment and drilling have continued to 
cause problems good opportunities are 
hard to find and secure and there is a 
shortage of good and experienced 
people sterling is fortunate to have an 
excellent team who have an interest in 
over 10 of the company our team is 
highly motivated to achieve success 
high impact drilling and further 
projects sought 
we expect to drill prospects by the end 
of 2009 that will offer upside potential to 
sterling of hundreds of millions of 
barrels 
our projects are described in detail 
elsewhere in this annual report i am also 
excited about building new areas of 
activity too
 
as well as expanding our portfolio of 
licence interests we intend to add to our 
existing near term drilling programme 
both onshore and offshore this will be 
achieved by redeploying our capital to 
new activities or through sector 
consolidation we wish to offer our 
shareholders value growth through high 
upside projects combined with careful 
asset management 
c hief executive’s r eview
“i am very excited about kurdistan 
and madagascar where 
independent studies have 
indicated a combined unrisked 
net economic value at potentially 
over 2 billion if both prospects 
are successful at the best 
estimate level” page 07
apr 05
jun 05
aug 05
oct 05
dec 05
feb 06
apr 06
jun 06
aug 06
oct 06
dec 06
feb 07
apr 07
jun 07
aug 07
oct 07
dec 07
feb 08
apr 08
ftse aim oil  gas
70
performance 
90
110
130
150
170
190
210
230
crude oilbrent ubbl
apr 05
jun 05
aug 05
oct 05
dec 05
feb 06
apr 06
jun 06
aug 06
oct 06
dec 06
feb 07
apr 07
jun 07
aug 07
oct 07
dec 07
feb 08
apr 08
natural gashenry hub mmbtu
50
70
performance 
90
110
130
150
170
190
210
230
crude oilwti ubbl
mauritania
2008
2q
exploration drilling
  drilling subject to ratication of the contract extension
 timing subject to rig availability
appraisal drilling development drilling
3q 4q 2q 3q 1q
2009
gabon
agc
madagascar
kurdistan
sterling energy plc annual report  accounts 2007
material value in the exploration 
portfolio 
great uncertainty has been created by 
the recent difficulties in the credit and 
stock markets their impacts have been 
widespread and harsh and we have to 
react to these and other factors in 
formulating our strategy
 
as described in more detail earlier in this 
report the board has recently carried 
out a review of the relative upside 
potential and amount invested in each of 
the business areas sterling wishes to 
make sure that its finances are 
appropriately organised and resilient 
whilst the results of our drilling 
programme in the usa in the last year 
were good and 2008 has started well 
the size of the investment required to 
enable that business to fully flourish  
is growing 
 
sterling has highly prospective assets to 
explore with the fast tracking of 
madagascar to drilling and the new 
licence in kurdistan in the last year the 
board now believes it is in shareholders 
best interests to focus its resources on 
such high potential assets and 
opportunities and to reduce or eliminate 
its debt level it therefore intends to 
overview
dispose of its usa assets in 2008 this 
will enhance our working capital position 
materially by leaving us with significant 
net cash after the sale we will continue 
with farmouts not only to yield cash or 
reduce the nearterm costs of the wells 
but also to swap for other assets 
thereby managing and diversifying the 
portfolio this will also help to show the 
material value in our exploration portfolio 
which in current market conditions 
appears to be largely ignored and will 
allow sterling to add new opportunities 
for growth in africa and the middle east 
graeme t homson
chief executive officer
30 april 2008
 
ft se a im oil  ga s vs b rent oil price 3y
internati onal drillin g sc hedule
henry hub vs wti 3y page 08
100
bcfge
sterling energy plc annual report  accounts 2007
operational
africa and middle east
africa and middle east fast tracked
sterling has interests in exploration 
licences with multibillion barrel targets 
which could be “company makers” 
some of these are considered medium 
risk and high cost so it remains part of 
sterling’s strategy to farmdown these 
interests to give a more appropriate risk 
to and reward ratio key activity is 
expected on these in 200809 
madagascar
drilling on major structure 
there has been a major change in our 
perception of the prospectivity of 
sterling’s madagascar licences in the 
last year several very large prospects 
have been evaluated and one has been 
matured towards drilling well ahead of 
our former scheduled timing a rig is 
being sought and the ambilobe and 
ampasindava psc’s have become an 
exciting cornerstone of sterling’s 
exploration portfolio 
during 2007 the interpretation of over 
4000km of newly processed 2d 
seismic plus a further 4000km of newly 
“the sangaw north 
psc offers sterling 
the opportunity to 
access high  
impact reserves  
at moderate 
exploration risk  
in a proven 
hydrocarbon  
province”
andrew grosse
exploration and  
technical  
director  page 09 sterling energy plc annual report  accounts 2007
reprocessed vintage 2d seismic data 
began in earnest to generate prospects 
early results of this ongoing 
interpretation have yielded some very 
large structural prospects and leads the 
largest of which is the sifaka prospect in 
the inboard portion of the ampasindava 
psc in water of approximately 1000
1500m the sifaka prospect has multi
billion barrel potential and following a 
meeting between exxonmobil the 
operator and the president of 
madagascar in november 2007 it was 
reported that the partnership wished to 
drill this prospect subject to the 
availability of a suitable rig owing to the 
remote location of the block and the time 
it will take to secure and mobilise a rig in 
current market conditions sterling 
anticipates that drilling will take place in 
2009 
 
the first to be undertaken in offshore 
deepwater madagascar with the 
expected costs of the well materially 
exceeding the remaining carry sterling 
plans to further farmdown its interest in 
the ampasindava psc the well would 
business review
c a se study mada ga scar
madagascar has a long but very limited 
history of hydrocarbon exploration dating 
back to the earliest 20th century shallow 
drilling on tar sands in the bemolanga area of 
the onshore morondava basin the 
morondava basin is the most southerly of the 
three main prospective basins in the country 
which are located both onshore and offshore 
along its western margin the next basin 
northward being the majunga basin and then 
the ambilobe basin furthest to the north the 
basins cover a vast area in excess of 
300000km
2
 and developed primarily in 
response to the separation of madagascar 
from east africa in jurassic times although 
the sedimentary fill has a longer history going 
back to the permian that predates this 
continental separation basins that relate to 
the successful breakup of continents are 
known as passive margin basins and globally 
contain very significant volumes of 
hydrocarbons in both pre syn and post
breakup sediments the prolific 
hydrocarbonbearing basins of brazil and 
west africa are examples of passive margin 
basins and so are the relatively unexplored 
basins of northern mozambique to kenya 
along the east african margin which form the 
paired margin to the basins in madagascar 
exploration in madagascar has historically 
concentrated on the oldest sedimentary 
rocks which predate continental separation 
and are host to tar sands and heavy oil 
deposits onshore reportedly holding several 
billion barrels of inplace resources 
exploration for hydrocarbons in jurassic and 
younger rocks has been very limited but the 
results of the handful of wells drilled during 
the 1960s to 1970s hint at prospectivity with 
the attention of industry in the last 10 years 
shifting to deepwater and the extraordinary 
drilling success achieved in deepwater 
passive margin basins attention has returned 
to madagascar‘s unexplored deepwater 
acreage sterling gained early entrant 
advantage by securing its permits ahead of 
most of the industry and then farmed out to 
exxonmobil six months later july 2005 
subsequent seismic acquisition and 
geological studies indicate that thick jurassic 
and younger sediments and very large 
structures are likely to be present this is high 
risk high reward frontier exploration however 
the underlying geological rationale is 
compelling and despite its remote location 
and water depth the huge scale of the 
potential undiscovered resources has led to a 
fast track for early drilling page 10 sterling energy plc annual report  accounts 2007
operational
africa and middle east continued
rig sterling is in the process of 
supplementing its existing local office in 
the capital erbil with another in 
sulaimaniya kurdistan’s second city 
 
gabon 
iris marin charlie well expected to 
commence in may 2008 
plans to drill the charlie prospect in may 
2008 are well advanced with a rig 
contracted and site survey now 
completed this prospect has mean 
case estimated potential recoverable 
reserves of 21 million barrels with an 
upside case of 40 million barrels sterling 
estimates that a discovery of 
approximately 8 million barrels should be 
commercial here 
 
in may 2007 the iris marin joint venture 
entered into a third exploration term on 
iris marin a 3d prestack depth 
migration processing project was 
completed in march 2007 from which 
several encouraging prospects were 
identified including the charlie prospect 
an aeromagnetic survey was also 
acquired at the same time regional 
the close proximity of a number of giant 
fields for political and historical reasons 
the area has not been explored despite 
its worldclass potential for example 
the kirkuk field 50km to the west of 
sterling’s block has recoverable oil 
reserves in excess of 16 billion barrels 
 
the block contains a very large 
moderaterisk undrilled surface 
anticline with the potential to target 
multiple regionallyproven reservoir 
intervals analysis of a number of surface 
oil seeps on the block indicates that the 
area is underpinned by the same 
hydrocarbon source rocks responsible 
for the majority of the multibillion barrels 
of iraqi reserves as a result a working 
petroleum system is considered by 
sterling to be proven on the block 
 
seismic data is required in order to 
improve confidence in mapping before 
drilling the first well sterling is evaluating 
tenders in order to acquire 2d seismic 
data during the second half of 2008 it 
would then aim to drill an exploration 
well in 2009 subject to availability of a 
be the first test of the deepwater 
potential of madagascar comparisons 
with the prolific basins of angola have 
been made 
 
sterling has a 30 wi in two blocks 
totalling approximately 25500km
2
  
in the northwestern offshore area of 
madagascar with exxonmobil as a 70 
partner in both blocks in the smaller 
ampasindava psc exxonmobil is 
operator whilst sterling is operator in the 
larger ambilobe psc 
 
kurdistan iraq 
sangaw north fast tracked to drilling 
in november 2007 sterling signed a 
psc with the kurdistan regional 
government krg of iraq for the 
sangaw north exploration block the 
block has an area of 492km
2
 and is 
situated 40km to the southwest of 
sulaimaniya 
 
surrounded by existing oil and gas 
fields the block provides sterling with an 
exploration position in an extremely 
prolific hydrocarbon province despite  page 11 sterling energy plc annual report  accounts 2007
business review
studies and nearby offset well data 
predict the presence of excellent 
reservoir quality sandstones in the area 
 
a total of 347km of high resolution 2d 
seismic data was acquired in january 
2008 covering the underexplored 
shallow water of iris marin close to the 
large gamba and ivinga oil fields this 
data is now being processed and will be 
interpreted to delineate further 
prospects 
 
sterling has exercised its preemption 
rights to increase its interest in the iris 
marin permit from 3857 to 50 
 
ibekelia technical evaluation 
agreement 
sterling and its partners are in 
negotiations to convert the neighbouring 
ibekelia tea into a psc following the 
successful completion of a technical 
study over the ibekelia area the tea 
covers a 673km
2
 area which is 
contiguous with the gamba and olowi 
oil fields and with sterling’s iris marin 
licence 
 
themis marin lapsed 
the themis admiral marine1 well was 
drilled in early january 2008 in 14 days 
and within budget the well was 
abandoned as a dry hole with shows in 
the predicted thick gamba sandstone 
an analysis of the well results and a 
review of the remaining prospectivity of 
the licence led the partners to allow the 
block to expire sterling was carried for 
18 of its approximately 28 interest 
 
agc 
dome flore extension sought
the dome flore concession lies within 
the agc a joint exploration zone 
between senegal and guinea bissau 
sterling holds a 30 wi and markmore 
a malaysian company with interests in 
bitumen refining is the operator 
 
an exploration well to drill two stacked 
maastrictrichtian light oil reservoirs is 
being planned the shallower heavy oil 
accumulation will also be penetrated by 
this well and the interval cored to 
evaluate the production potential the 
heavy oil deposits on dome flore and 
c a se study san gaw 
no rt h kurdi stan
on 10 november 2007 sterling energy 
signed a production sharing contract psc 
with the kurdistan regional government 
krg of iraq to explore for hydrocarbons in 
the sangaw north area in the kurdish region 
of northern iraq sterling has spent two years 
researching the area reviewing available data 
and negotiating this psc it is operator on the 
block in addition to being an operator 
elsewhere in africa and in the usa 
whilst the oil majors have been focused on 
southern iraq sterling energy and a small 
number of other international independent oil 
companies have secured the most 
prospective part of the exploration fairway in 
kurdistan since kurdistan’s government 
passed its oil law and issued its model pscs 
in mid 2007 over 30 blocks have been signed 
there there are few places in the world that 
remain so underexplored but offer such 
huge potential opportunities 
planned fieldwork and seismic acquisition 
will strengthen the company’s understanding 
of the geology ahead of drilling the first 
exploration well targeted for 2009 the 
sangaw north psc offers sterling energy the 
opportunity to access high impact reserves 
at moderate exploration risk in an area where 
activity is expected to be fastpaced page 12
“preparations for the drilling of sifaka  
continue with the acquisition of a site  
survey over the well location scheduled  
for mid 2008”
graham goffey
exploration manager
sterling energy plc annual report  accounts 2007
operational
africa and middle east continued page 13 sterling energy plc annual report  accounts 2007
business review
phase 2b development campaign which 
it hopes will double production the 
atwood hunter rig is expected to drill two 
new development wells and three 
workovers at a gross cost of around 150 
million starting in may 2008 
 
the new well locations were selected 
based on the high resolution 3d and 4d 
seismic which was shot over chinguetti 
in 2007 this has enhanced the 
knowledge of the complex field which 
sterling estimates held a remaining 325 
million barrels of gross 2p reserves and 
18 million barrels of contingent resources 
at the end of 2007 recent 
interpretations using this data suggest 
that the current wells are only accessing 
about half of the ultimately recoverable 
reserves the results of the current 
development phase will help to 
determine any future work 
during 2007 sterling received a share of 
sales of 1485 boepd from its interests in 
the chinguetti field through the funding 
agreement and its royalty interest which 
maritime borders both countries are 
working together to resolve the dispute 
 
sterling had planned to farmout this 
licence for drilling and it continues to 
attract a good level of industry interest 
however the award in late 2004 by 
equatorial guinea of a licence to the 
south of ntem overlapping up to 15 of 
the licence has delayed this drilling plan 
until the situation is resolved sterling 
remains committed to assisting in the 
resolution of the dispute in the interests 
of all parties 
 
a number of discoveries have been 
made in the region recently and this has 
only served to enhance its prospectivity 
 
mauritania
chinguetti phase 2b development 
work scheduled to start in may 2008 
in december 2007 petronas took over 
operatorship of the chinguetti 
development following its acquisition of 
woodside’s mauritanian assets the 
operator is currently preparing for the 
dome gea contain an estimated gross 
08 to 1 billion barrels in place sterling’s 
share of the drilling costs will be carried 
for this exploration well 
 
a site survey for this well has been 
conducted but a rig could not be 
secured to allow the well to be drilled 
ahead of the then licence expiry date of 
january 2008 a licence extension has 
been requested if this is granted then 
markmore will contract a rig 
guinea bissau
following the plugging and abandoning 
of the eirozés1 well as a dry well in april 
2007 sterling withdrew from both the 
sinapa and esperanca licenses 5 wi 
in each 
c ameroon
border dispute licence still suspended 
the financial obligations and work 
programme for the ntem concession 
area 100 wi are currently suspended 
owing to a dispute between cameroon 
and equatorial guinea over their  page 14 sterling energy plc annual report  accounts 2007
operational
us operations
together generated over 352 million of 
revenues from four cargo liftings the 
rate of decline has slowed significantly 
with production being much more stable 
and predictable since mid2007
 
other upside potential being reviewed 
an appraisal well on the 12 tcf banda 
gas discovery straddling blocks a and b 
has been drilled the appaisal well 
encountered gas and oil columns with 
similar contacts to those seen in the 
discovery well we await further results 
and a successful outcome of this well 
and subsequent confirmation of the 
commercial viability would materially 
increase the value of sterling’s royalty 
interest over blocks a and b 
 
potential also remains for the development 
of the tiof accumulation using chinguetti’s 
facilities reserves for the first stage of 
development are estimated in the range 
4060 million barrels gross sterling would 
benefit from its royalty interest a potential 
development bonus plus operational 
synergies through sharing the chinguetti 
facilities
 
u nited states of america 
assets disposal process initiated
in april 2008 sterling’s board decided to 
put the usa assets up for sale following 
the review of all of its assets mentioned 
elsewhere in this report responding to 
current market conditions and the 
progress made on other licences over 
the last year sterling wishes to redeploy 
its capital to existing and other higher 
potential assets and to repay its debt  
it is anticipated that a sale can be 
concluded well before the end of 2008
 
reserves and production inc
at the end of 2007 sterling inc had 2p 
reserves of 111 bcfge 185 million boe 
and possible and contingent resources 
of 70 bcfge 115 million boe 
approximately 65 of the 2p reserves 
were categorised as proven within this 
portfolio sterling has an inventory of 
identified drilling prospects of 
approximately twothree years most of 
which are already leased and many 
already have the necessary permits in 
place 
during the year sterling participated in 
29 new wells and recompletions of 
these 14 were in the south texas region 
and 15 were in the texaslouisiana gulf 
coast there was also completion of a 
major upgrade of the production facilities 
located in the langlie jal field located in 
the permian basin and a large 
programme of abandonment work 
offshore in the high island and mustang 
island areas these wells were 
successful but largely small higher than 
expected declines in existing fields 
unsuccessful drilling on two probable 
locations and delay cost issues relating 
to equipment availability held back 
production and reserves
at yearend production from these us 
assets was 285 mmcfgd 2006 86 
mmcfgd with the majority of the rise 
being due to the purchase of wec 
completed at the end of march 2007 
over half of the production is operated 
by sterling from its offices in houston 
and approximately 80 is natural gas page 15 sterling energy plc annual report  accounts 2007
business review
total of 29 wells in the gulf producing 
approximately 9 mmcfgd in 2007 it 
farmed out of the nonproducing high 
island 52 fields and facilities in return for 
earning a 285 orri in a successful 
well and the assumption by the farminee 
of an estimated 5 million of plugging 
and abandonment costs it has recently 
farmed out an interest in a high risk 
sidetrack of an old well on mustang 
island that encountered mechanical 
problems in return for a mainly carried 
interest and royalty 
wells and current production of over 11 
mmcfged this area includes the austin 
chalk programme where the first four 
wells have proved successful the most 
recent being the marlin well which 
commenced production at 4 mmcfged 
net in late march 2008 the austin chalk 
presents some challenging drilling as it is 
highly over pressured and these 
horizontal wells are drilled to around 
15000 feet using underbalanced drilling 
techniques this programme is now 
restarting 
 
permian basin and north texas 
sterling has production from 23 wells 
and a unit in this region producing 
around 1 mmcfged in july 2007 sterling 
increased its working interest in the 
windham field to 93 from 66 by 
purchasing the interest of the operator of 
the field with a total transaction cost of 
c36 million sterling became operator 
and intends to develop the field quickly 
 
offshore gulf of mexico 
sterling currently has production from a 
at the end of the first quarter of 2008 
production had increased to over 30 
mmcfgd from the shallow water and 
onshore coastal areas of the gulf of 
mexico with nearly 70 coming from 11 
fields a somewhat lower pace of drilling 
in 2008 than in 2007 is expected during 
the sales process
diversified asset base 
south texas 
in one of the most prolific hydrocarbon 
basins in the usa sterling currently has 
production of nearly 9 mmcfgd from a 
total of 87 wells 
 
during mid2007 sterling completed an 
investment in a drilling programme with 
viking petroleum a private houston 
company which generates drilling 
prospects primarily in south texas this 
provides over 20 nearterm drilling 
prospects and three wells were drilled in 
2007 and 15 are expected in 2008 
 
texaslouisiana onshore gulf coast 
sterling currently has production from 82  page 16 sterling energy plc annual report  accounts 2007
r eserves r eport
proven and probable reserves
a volumes
        attributable
      oil gas reserves
      ’000 million ’000 barrels
      barrels cubic feet equivalent
at 1 january 2007        5197 46304 12914
asset acquisitions        3506 48232 11545
upwards revisionadditions from previous       46 12316 2099
downwards revision from previous        744 14492 3159
production        935 7016 2104
at 31 december 2007        7070 85344 21295
b location of reserves
the geographical location of the end 2007 reserves were
north america        4273 85344  18498
west africa        2797 –  2797
          7070 85344  21295
categorisation of proven and probable reserves
1  at the start of the year
  proven reserves        60 55  57
  probable reserves        40 45  43
2  at the end of the year
 proven reserves        60 69  66
 probable reserves        40 31  34
notes 
1 the proven and probable reserve movements in 2007 are based on 
a north america evaluation reports by independent petroleum engineers as at 1 october 2007 for all assets this has led to certain downward or upward 
adjustments by the directors for the assets at the 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 justifies adjustments 
b west africa the reserves are based on an independent petroleum engineer’s valuation of the chinguetti field as of 31 december 2006 at 31 december 2007 an 
internal assessment was performed assessing the technical and economic evaluation which led to a downward oil revision by 620000 barrels these reserves 
arise from sterling’s royalty interest and from its funding to smh rather than by direct ownership in the interest in the field during the year sterling’s total 
production from the chinguetti field was 535000 barrels
2 the upwards revisions in north america principally relate to drilling workovers installation of additional compression and other facilities reprocessing of seismic 
data well control and production history the major downward gas revisions relate to field performance and unsuccessful drilling 
3 sterling has not booked reserves in west africa relating to other mauritanian or agc discoveries on the basis that there are no firm development plans 
4 definitions proven reserves have a 90 level of confidence that the stated quantities will be equaled or exceeded probable reserves have a 50 level of 
confidence that the stated quantity will be equaled or exceeded oil includes condensates  page 17 sterling energy plc annual report  accounts 2007
schedule of interests
schedule of main interests
at 31 december 2007
     sterling
    sterling net
  size licence working revenue operated
 location km
2
 name interest  interest  nonoperated
africa
mauritania  offshore  6969  psc a  na  sliding scale royalty 
     over 3
 offshore  8095  psc b  na  sliding scale royalty 
     over 6 except 528 
     of the chinguetti field
 chinguetti funding     economic interest for
 agreement with smh     na  approximately 9
     of chinguetti project
agc  casamancebissau  1699  dome flore  30

 
cameroon  southern douala basin  2319  ntem  100    operator 
gabon  southern gabon  673  ibekelia tea  40    operator 
  southern gabon  607  iris marin  50    operator 
madagascar  offshore nw  15600  ambilobe  30

    operator 
  offshore nw   9860  ampasindava  30

     
middle east
iraq  kurdistan  492  sangaw north  100    operator 
usa
offshore  mustang island    mustang island  90100  90100  operator 
  texas coast    gathering system       
  texas state waters  489  mustang island  125100  9482  operator 
  texas state waters  21  matagorda island  4275  366595  operator 
  texas federal waters  50  high island incl  75 overriding 75 royalty in operator
   52 and gryphon  royalty in gryphon gryphon otherwise 
    otherwise 50100 4238333  
  texas federal waters  23  galveston incl 303  1575174  107113   
  louisiana federal waters  20  eugene island    
   incl 268  60  45  operator 
  texas state waters  582  galveston bay    
   incl st 2515  28  20   
onshore  texas  101  three counties  22555 1742 
   austin chalk       
  louisana  165  brownthunder    
   stud  15  108  operator 
 texas  643  se texas    
   3d project area  179  128   
    68  windham  93  68  operator 
    69  carthage  708  531  operator 
    91  westhoff  75  572  operator 
    82  sunrise  12525 nri  12525 nri   
  louisana  1325  raynecrowley  30  22  operator 
    16  cutoff  75  56  operator 
 
 subject to completion of pending transaction acquiring 1143 
 carried interest for deferred work or  amount 
business review page 18
“our objective is to build a balanced 
portfolio of high value international 
exploration and development 
opportunities and to manage the 
financial exposures they bring within 
the group’s financial resources”
jon cooper
finance director and  
company secretary
sterling energy plc annual report  accounts 2007
financial r eview page 19 sterling energy plc annual report  accounts 2007
business review
sterling was successfully refinanced 
during the year to bring bank loan facilities 
into the group initially to fund the wec 
acquisition and then to provide financial 
resource to fund future opportunities 
selected data 2007  2006 
share of  
production boepd 5760  4400 
yearend 2p reserves 
000 boe 21294  12914 
revenue million 972  810 
ebitda million  566 596 
loss after tax million 23  386 
cash investment in oil  
and gas assets million 2333  512 
year end cash million 499  918 
year end debt million 1533  233 
year end net debt  
cash million 1035  686 
average realised oil  
price per bbl bbl sold 5495 5744
average realised gas
price per mcf mcf sold 716  673
total operating  
costs per boe bbl  
produced 129  94
sterling’s key objective is to build a 
balanced portfolio of high value 
international exploration and development 
opportunities and to manage the financial 
exposures they bring within the group’s 
financial resources
the acquisition of wec a nasdaq
quoted company with oil and gas 
operations onshore usa was 
completed at the end of march 2007 and 
accounted for in these financial 
statements from 1 april 2007 wec 
contributed an average of 3737 boepd 
in 2007 generating revenues to the 
group of 398 million and 249 million 
to operating cash flows 
sterling’s bank debt to help fund the 
wec purchase and other us assets was 
successfully refinanced during the year
r evenues up 20 to 972 million  
in 2007 
revenues increased by 20 to 972 
million in 2007 2006 810 million with 
the contribution from the acquired wec 
assets and higher oil and gas prices 
offsetting the impact of disappointing 
chinguetti field production 
 
usa production increased by 109 to 
an average of 258 mmcfged 2006 86 
mmcfged with 74 being gas 2006 
83 revenues from usa operations 
increased 41 to 678 million 2006 
234 million with an average realised 
price of 702mcfge 2006 673
mcfge third party income from 
sterlingoperated pipelines fell 38 to 
16 million 2006 25 million before 
related costs 
 
the group’s entitlement to chinguetti 
field production in 2007 totalled 05 
million barrels 2006 10 million barrels 
revenue from the chinguetti field 
interests totalled 293 million 2006 
576 million net of the cost of related 
settlements of hedge contracts 
crystallising of 59million 2006 37 
million and including the royalty income 
of 46 million 2006 38 million the 
average cargo sale price was 6808bbl 
2006 6110bbl an average discount 
to brent of 472bbl 2006 597bbl 
 

20
r evenue
97 2
million million
04 05 06 07
0
20
40
60
80
100
ebitda page 20 sterling energy plc annual report  accounts 2007
financial r eview continued
operating profit 18 million 
2007 operating profit amounted to  
18 million 2006 132 million before 
impairment charges cost of sales 
increased to 752 million 2005 544 
million largely reflecting the additional 
cost of the acquired wec business
usa costs of sales rose to 499 million 
2006 144 million averaging 530
mcfge 2006 448mcgfe operating 
expenses decreased to 193mcfge 
2006 230mcfge reflecting the lower 
cost onshore assets of wec and 
depletion charges increased to 337
mcfge 2006 218mcfge reflecting in 
the main the higher asset valuations 
resulting from the inclusion of the wec 
assets at their fair values
chinguetti cost of sales were 253 
million 2006 400 million averaging 
470bbl 2006 404bbl of which 
1725bbl related to production costs 
and 2982bbl to depletion charges the 
unit production cost increase mainly 
reflects lower production in 2007
prelicence costs of 45 million 2006 
14 million were written off as is now 
required by ifrs
with the increase in the scale of 
operations administrative expenses rose 
by 31 to 157 million 2006 120 
million this is stated after capitalisation 
as fixed assets and recoveries from 
partners in operated joint ventures 
 
ebitda and net loss
ebitda totalled 566 million 2006 
596 million which equates to 269
boe 2006 37boe 
interest revenue from cash deposits less 
finance costs on the bank loans were a 
net cost of 94 million 2006 income 
01 million this reflects the interest and 
other costs related to the loan financing 
for and cash investment in wec other 
finance items include the release of 
provisions relating to product price 
hedge contracts settled in 2007 totalling 
46 million gain 2006 03 million gain 
a taxation credit of 07 million arose in 
2007 2006 61 million credit 
net loss after tax totalled 23 million 
2006 386 million fully diluted loss 
per share was 014 usc per share 2006 
275 usc loss per share
 
n et cash flow from operating 
activities in 2007 of 481 million 
cash inflow from operating activities fell 
to 481 million 2006 623 million 
largely reflecting the decline in chinguetti 
production cash investments in oil and 
gas assets totalled 2333 million 2006 
511 million including 145 million 
invested in the wec acquisition and 
326 million in wec interests post 
acquisition 321 million was invested in 
sterling’s preexisting usa business 
134 million was invested in the 
chinguetti field 2006 39 million 
a net amount of 492 million was raised 
in february 2007 from an equity placing 
to help fund the wec acquisition  
a further 223 million was raised in 
november 2007 to fund the signature 
bonus and fees relating to the psc 
entered into in kurdistan which was 
paid out in february 2008 
 
bank facility successfully refinanced
in november 2007 the company re
financed its bank loan facilities these 
replaced the 100 million bridging facility 
entered into with natixis bank in march 
2007 of which 85 million had been  page 21
bbl
h12006 h22006 h12007 h22007
0
20
40
60
80
100
mcf
2004 2005 2006 2007
0
1
2
3
4
5
6
7
8
sterling energy plc annual report  accounts 2007
business review
drawn to fund the wec acquisition and 
the drawings of 513 million under a 
bnpp facilities held by wec itself the 
new 250 million reservebacked 
revolving facility was initially underwritten 
by natixis and has since been syndicated 
to a number of senior banks the current 
authorised borrowing base under this 
250 million facility is 143 million 
additionally natixis has provided a 
subordinated 15 million corporate facility
at the end of 2007 net debt stood at 
1035 million 2006 net cash 686 
million with unrestricted cash balances 
of 441 million 2007 867 million and 
available undrawn bank facilities of 65 
million
growing balance sheet
at the end of 2007 net assets stood at 
2783 million 2006 2236 million 
with current assets less current liabilities 
of 104 million 2006 734 million 
noncurrent assets primarily oil and gas 
assets totalled 5221 million 2006 
2021 million
further hedging underpinning loan 
and asset values
in october 2007 the group entered into 
a number of oil and gas price derivatives 
taking advantage of continuing high 
prices to underpin asset values and the 
loan borrowing base the directors 
continually review forward markets to 
identify opportunities to add value within 
the group’s hedging policy and 
consequent to such review further 
derivatives were entered into in february 
2008 in respect of future us production 
the group has accounted for these 
derivatives as cash flow hedges details 
of the group’s hedging policy and its 
year end derivative portfolio are set out 
in note 29 no further hedges have been 
put in place since the end of 2007
financial strategy and outlook
the group will look to press ahead with 
its strategy to add value for its 
shareholders in a prudent and 
commercial manner
new ventures continue to be sought to 
expand the upside in the portfolio as 
well as additional production andor 
development interests to add to the 
production profile however investment 
in both existing assets and new ventures 
will be closely managed within 
constraints imposed by the group’s 
available resources it is intended to sell 
the usa assets as described elsewhere 
in this report
c autionary statement
this financial report contains certain 
forwardlooking statements that are 
subject to the usual risk factors and 
uncertainties associated with the oil and 
gas exploration and production 
business whilst the directors believes 
the expectation reflected herein to be 
reasonable in light of the information 
available up to the time of their approval 
of this report the actual outcome may 
be materially different owing to factors 
either beyond the group’s control or 
otherwise within the group’s control but 
for example owing to a change of plan 
or strategy accordingly no reliance may 
be placed on the forwardlooking 
statements
mauritania oil price u sa ga s price page 22 sterling energy plc annual report  accounts 2007
c orporate social r esponsibility
c orporate responsibility 
sterling recognises that it has a 
corporate and social responsibility to the 
local communities in which it operates 
to its partners to its employees and to 
its shareholders in pursuing its business 
objectives it undertakes not to 
compromise its corporate or social 
responsibilities with any of these 
stakeholders 
 
business integrity 
the highest ethical standards are the 
cornerstone of sterling’s business all 
business activities are reviewed 
recorded and accounted for to ensure it 
meets these standards it also seeks to 
ensure these standards are applied by 
its business partners including 
partners host governments and 
contractors all members of staff are 
also individually accountable for their 
actions to ensure they apply and 
maintain these standards
 
social responsibility 
sterling is committed to ensuring the 
health and safety of its employees and 
the local communities in which we work 
it is committed to providing a workplace 
free of discrimination where all 
employees are afforded equal 
opportunities and are rewarded upon 
merit and ability
 
environmental responsibility 
sterling is committed to minimising its 
impact on the environment in both field 
operations and within its offices all staff 
share responsibility for monitoring and 
improving the performance of its 
environmental policies with the objective 
of reducing our impact its the 
environment on a year on year basis 
 
“sterling is committed 
to minimising its 
impact on the 
environment it 
respects the host 
countries where it has 
interests and 
recognises its 
corporate and social 
responsibilities to the 
local communities 
where it operates” page 23 sterling energy plc annual report  accounts 2007
business review
partly as a result of the very active 
hurricane season of 2005 and the extreme 
damage it did to the offshore oil and gas 
industry the united states mineral 
management service “mms” and the 
various state governments have put a large 
emphasis on removing any platform well 
pipeline or rig that is not being used and 
does not appear to have any future use 
assets that fall under this category are 
being reviewed carefully by both state and 
federal agencies with a view to removing 
them from state and federal waters
sterling in an effort to be proactive with its 
responsibility to safety and the 
environment began putting a three year 
plan in place to recomplete plug andor 
remove any assets that had no future use 
or that had any potential to become a 
safety issue this initiative was undertaken 
well in advance of the government actions 
the first step was the plugging and 
abandonment of all nonproducing wells in 
the high island a68 and a83 fields
planning began in late 2005 with the work 
being completed on most of the wells in 
2006 during the summer of 2007 the last 
wells and pipelines were plugged and the 
platforms at a68 and a83 were removed 
this operation took longer than anticipated 
due to delays resulting from both a 
shortage of personnel and of equipment 
that had been diverted to repairs on 
producing properties in the gulf of mexico 
damaged in 2005
in 2007 sterling plugged and abandoned 
wells at mustang island mu 903 mu 904 
and matagorda island mi 520 in late 2007 
it sold its interest while retaining an over
riding royalty interest in the high island 52 
field the sale of this field relieved sei of a 
plugging liability in excess of 5 million
ca se study u sa aband on ment
plans for 20089 are to remove platforms 
and pipelines in both the mu 903 and mi 
520 fields the removal of these 
platforms in conjunction with the 
abandonment actions taken in 2006 and 
2007 will currently result in sterling 
having no wells or platforms in the gulf 
that are not either producing or that do 
not have very viable plans for reentry to 
reestablish production sterling will 
have achieved its goal of “no idle iron”
  page 24 sterling energy plc annual report  accounts 2007
board of directors
graeme t homson aged 51
chief executive officer
graeme has held a number of senior finance and management positions in quoted 
companies in 1989 he 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 founder partner of endeavour and sterling he has assisted unquoted and quoted 
companies including sterling lp and the company with their corporate finance 
accounting commercial and strategic affairs he was appointed as a nonexecutive 
of the company in july 2001 and as finance director and company secretary in 
october 2002 in february 2008 he was appointed chief executive 
harry wilson aged 55
executive deputy chairman
following graduation under a british petroleum scholarship programme harry joined 
bp and worked for 17 years in a variety of exploration and corporate finance roles in 
1987 he left bp to form kirkland resources which was listed in london as dragon oil 
in 1993 
 
in 1997 harry was the principal founding partner of the endeavour oil  gas lp and 
following the successful sale of endeavour in 2000 was a founding partner and 
director of sterling following the listing of sterling on aim in 2002 harry was 
appointed chief executive of the group and became executive deputy chairman in 
february 2008
andrew grosse aged 49
exploration and technical director
andrew joined sterling in 2002 as the company’s exploration manager he has 
extensive international exploration experience with operating oil companies in africa 
the middle east and north america prior to joining sterling he was 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 subsequently delivered the chinguetti oil discovery and the tiof oil discovery 
 
he began his career with gulf oil in canada and has also worked with bp 
exploration and ultramar exploration he was appointed as a director in january 
2005
jon c ooper aged 39
finance director and company secretary
jon joined sterling as finance director and company secretary in february 2008 he 
is an experienced finance professional with advisory experience in the oil and gas 
industry 
jon began his career with kpmg where he qualified as a chartered accountant and 
in 1997 joined dresdner kleinwort wasserstein as a director in the oil and gas 
corporate finance team during this time he worked on mergers and acquisitions 
public offerings and as strategic adviser to a wide range of companies including 
gazprom lukoil omv pkn orlen unocal petronas and harvest natural resources 
prior to joining sterling jon spent two years working as finance director at gulf 
keystone petroleum page 25 sterling energy plc annual report  accounts 2007
business review
dick stabbins aged 64
nonexecutive chairman
dick is a geologist with almost 40 years of experience in the international energy 
industry mainly in the independent sector he has worked for the saskatchewan 
canada department of mineral resources 196972 for murphy oil 1972 75 and 
for ranger oil 197581 he was exploration manager and subsequently exploration 
director of goal petroleum plc from 1981 until 1996 
 
from july 2000 until its acquisition by sterling he was a nonexecutive director of 
fusion oil  gas plc dick currently manages a private energy company montrose 
industries ltd which has interests in a wide range of energy projects he also has 
considerable private venture capital experience he is an honorary member and 
former chairman 1990 of the petroleum exploration society of great britain and a 
council member 20002003 of the geological society of london whose audit 
committee he chairs
c hris c allaway aged 56
nonexecutive director
chris joined the “city” in 1973 initially with the london stock exchange and in 1983 
moving to capel cure myers subsequently anz merchant bank in the role of 
corporate finance adviser specialising in small and mediumsized growth 
companies he became a partner at coopers  lybrand in 1990 before joining 
beeson gregory in 1995 
 
beeson gregory was subsequently taken over by the evolution group in 2002 and 
upon the merger chris became joint head of corporate finance retiring in 
december 2004 since then he has been involved with a number of companies as 
an investor and a director
peter wilde aged 54
nonexecutive director
peter has spent most of his career managing and developing smaller companies working 
principally in the oil and gas sector for more than twenty years in various commercial and 
corporate roles he is a graduate in law from the london school of economics
he was a director of lepco plc from its foundation and between 1991 and 2001 was 
firstly chief operating officer and then managing director at the time of its 
introduction to aim in 1997 from 1988 to 1991 he was vicepresident of aviva 
petroleum inc
 
he has served as a nonexecutive director of sterling since 2001 and is chairman of 
the audit committee
senior personnel
l ondon
graham goffey exploration manager
alain gubian  country manager 
mauritania nouakchott
edward blunt team leader madagascar
michelle churchward legal manager
alastair donaldson joint ventures controller
tim fookes  group it manager
paul sherwood new ventures team leader
martin smith team leader gabon
chris starling commercial coordinator
roy st pier senior petroleum engineer
frances townley uk finance manager
mike adams team leader kurdistan
martin arch group accountant
houston
daniel silverman president and director usa
tom cook  director of operations  
production
john brouillette director of land and legal
april chamberlain director of finance page 26 sterling energy plc annual report  accounts 2007
the directors present their annual report on the affairs of 
sterling plc “the company” “sterling” and its subsidiaries 
“the group” together with the financial statements and 
auditors’ report for the year ended 31 december 2007 
 
principal activity and business review 
the principal activity of the group throughout the year 
remained the exploration for and production of oil and gas in 
africa and in the usa additionally in december 2007 the 
group entered into a production sharing contract “psc” in 
the kurdistan region of iraq the significant developments 
during 2007 and the other activities of the group as well as the 
future strategy and prospects for the group are reviewed in 
detail in the highlights chairman’s statement chief 
executive’s report the operations and financial reports and 
elsewhere in this annual report 
the group operates through overseas branches and 
subsidiary undertakings as appropriate to the fiscal 
environment significant subsidiary undertakings of the group 
are set out in note 16c to the financial statements 
sterling uses a number of key performance indicators kpis to 
assess the business performance against strategy these are 
reserves million boe ebitda  production boepd and can 
be found in the highlights and activity and objectives section 
of this annual report
information about the use of financial instruments by the  
group is given in note 29 to the financial statements
results and dividends 
the group loss for the financial year was 23 million 2006 
loss of 386 million this leaves an accumulated group loss 
on retained earnings of 902 million 2006 loss 880 million 
to be carried forward as a balance of the group’s retained 
earnings as a result of the accumulated deficit of 884 million 
on the retained earnings of the company at the end of 2007 
2006 deficit 845 million the directors do not recommend 
the payment of a dividend 2006 nil
directors’ report
going concern 
after making enquiries based on the budget for 2008 and the 
mediumterm plans including forecasts of loan facility 
availability the directors have a reasonable expectation that 
the group has adequate resources to continue operations for 
the foreseeable future and has therefore continued to adopt 
the going concern basis in these financial statements in 
common with many independent exploration and production 
companies the group raises finances for its exploration and 
appraisal activities in discrete tranches to finance its activities 
for limited periods further funding is then secured as and 
when required when any of the material projects move to 
development specific financing may be required to enable 
development to take place 
 
capital structure 
details of the authorised and issued share capital together 
with details of the movements in the company’s issued share 
capital during the year are shown in note 24 to the financial 
statements the company has one class of ordinary shares 
which carry no right to fixed income each share carries the 
right to one vote at general meetings of the company
there are no specific restrictions on the size of a holding nor 
on the transfer of shares which are both governed by the 
general provisions of the articles of association and prevailing 
legislation the directors are not aware of any agreements 
between holders of the company’s shares that may result in 
restrictions on the transfer of securities or on voting rights 
 
details of the employee share schemes are set out in note 30 
 
no person has any special rights of control over the 
company’s share capital and all issued shares are fully paid 
 
at the 2007 agm the directors obtained authority through 
special resolution of the shareholders to allot equity securities 
up to the higher of an aggregate nominal amount of £780000 
or 5 of the issued share capital then in issue in november 
2007 the directors utilised this provision to issue 78510027 
ordinary shares in order to fund the initial costs relating to the 
sangaw north psc in the kurdistan region of iraq 
  page 27 sterling energy plc annual report  accounts 2007
corporate governance
directors and their interests 
directors’ remuneration and share options 
aggregate remuneration audited
directors’ remuneration consists of the following 
  fees  production defined
  basic  royalty contribution benefits total total 
  salary bonus entitlement pension in kind 2007 2006 
               
executive directors
hg wilson   686310  46051 160176  102947  12928  1008412  715705 
gp thomson   503331  33036 160176  75500  11337  783380  523629 
aj grosse   404444  22024 40044  60667  8027  535206  420350 
pm griggs   382272  24026 –  57341  11969  475608  400309 
nonexecutive directors
ra o’toole to 24072007   55056  – –  –  –  55056  97682 
ej butler to 15062006   –  – –  –  –  –  23978 
pk wilde   63069  – –  –  –  63069  52528 
ca callaway from 14022006   63069  – –  –  –  63069  46192 
r stabbins from 19012007   76121  – –  –  –  76121  – 
aggregate remuneration 2007   2233672  125137  360396  296455  44261 3059921   
aggregate remuneration 2006   1867651  170487  – 207348  34887    2280373 
the company provides limited directors’ and officers’ liability insurance at a cost of approximately 113000 in 2007 2006 
87000 this cost is not included in the above table 
 
directors’ share options
details of options to acquire ordinary shares in the company under the scheme approved in 2001 are as follows the exercise 
price is shown in pence as this is the price in which the options are denominated under the scheme 
 
   at 101   at 3112  exercise  exercise 
   2007  granted  2007  price   period 
hg wilson   700000  –  700000  4p  up to 24072011 
   4300000  –  4300000  4p  up to 18102012 
   2900000  –  2900000  7p  up to 18012013 
   1750000  –  1750000  17p  31012007 to 31012015 
   1500000  –  1500000  24p  30062008 to 29062016 
   11150000  –  11150000     
 
gp thomson   700000  –  700000  4p  up to 24072011 
   4300000  –  4300000  4p  up to 18102012 
   1700000  –  1700000  7p  up to 18012013 
   1250000  –  1250000  17p  31012007 to 31012015 
   1000000  –  1000000  24p  30052008 to 29062016 
   8950000  –  8950000     
 
aj grosse   1500000  –  1500000  4p  up to 18102012 
   1500000  –  1500000  125p  09032006 to 09032014 
   500000  –  500000  17p  28012007 to 28012015 
   1500000  –  1500000  24p  30062008 to 29062016 
   5000000  –  5000000     
pm griggs   2000000  –  2000000  155p  31012007 to 31012015 
   1000000  –  1000000  24p  30062008 to 29062016 
   3000000  –  3000000     
ra o’toole   700000  –  700000  4p  up to 24072011 
   4300000  –  4300000  4p  up to 18102012 
   1250000  – 1250000 7p  up to 18012013
   6250000 – 6250000 page 28 sterling energy plc annual report  accounts 2007
directors’ share options continued
 
   at 0101   at 3112  exercise  exercise 
   2007  granted  2007  price   period 
pk wilde   250000  –  250000  4p  up to 24 072011 
   1250000  –  1250000  4p  up to 18102012 
   500000  –  500000  17p  31012007 to 31012015 
   200000  –  200000  24p  30062008 to 29062016 
   2200000  –  2200000    
 
ca callaway   1000000  –  1000000  225p  14022008 to 14022014 
   200000  –  200000  24p  30062008 to 29062016 
   1200000  –  1200000     
 
r stabbins   –  1000000  1000000  16p  19012009 to 19012019 
   –  1000000  1000000  145p  24072009 to 24072017 
   –  2000000  2000000    
   37 750000  2000000  39750000     
share options lapsed during the year
 at 0101     at 3112  exercise  exercise 
  2007  granted  lapsed  2007  price   period 
ra o’toole
event a  500000  –  500000  –  17p  31012007 to 31012015 
event b 250000  –  250000  –  24p  0062008 to 29062016 
total 750000  –  750000 
directors’ interests in sterling save as you earn option scheme “saye” 
the directors’ interests in the saye scheme set up in 2007 are as follows 
       earliest latest
   at 0101 awards at 3112 option exercise exercise
   2007 in year 2007 price date date 
hg wilson    – 68181  68181  11264p  16112010  16052011 
gp thomson    – 85227  85227  11264p  16112010  16052011 
aj grosse    – 85227  85227  11264p  16112010  16052011 
pm griggs    –  85227  85227  11264p  16112010  16052011 
    –  323862  323862       
directors’ report
continued page 29 sterling energy plc annual report  accounts 2007
corporate governance
directors’ interests in the sterling long term incentive plan “ltip”
the directors’ interests in the ltip which was approved by shareholders at the 2007 agm are as follows 
maximum number of shares
       earliest latest
    at 0101 awards at 3112 exercise exercise
    2007 in year 2007 date date 
hg wilson     – 5889000  5889000  27092010  27122010 
gp thomson     – 4306000  4306000  27092010  27122010 
aj grosse     – 3438000  3438000  27092010  27122010 
jr cooper     –  na  na  na  na 
pm griggs     – 3268000  3268000  27092010  27122010 
pk wilde     – 536000  536000  27092010  27122010 
ca callaway     – 536000  536000  27092010  27122010 
r stabbins    – 851000 851000 27092010 27122010
     – 18824000  18824000     
the rules of the ltip scheme are summarised in note 30 to the accounts the issue of all of these is based on a share price of 1175p
since 31 december 2007 the following ltip options have been issued gp thomson 1000000 shares aj grosse 800000 
jr cooper 4200000 shares based on a share price of 94p 
 
the directors who served during the year and subsequently 
together with their beneficial interests in the issued share 
capital of the company were as follows not audited 
ordinary shares 28 april 31 december 31 december
of 1p each  2008 2007  2006
hg wilson 28120092 28120092 27970092
gp thomson 15595510 15595510 15455510
aj grosse 5650473 5650473 5500473
pm griggs na 300000 150000 
jr cooper 0 na na
ra o’toole na na 22543818
pk wilde 620000 620000 620000
ca callaway 200000 200000  200000
r stabbins 4472272 4474272 na
  nonexecutive director member of the audit remuneration and nominations 
committees
 member of the executive committee
  holdings are shown from the date of appointment being 19 january 2007 for  
dr r stabbins and 4 february 2008 for mr jr cooper and up to the date of 
ceasing to be a director on 24 july 2007 for mr r o’toole and on 23 april 
2008 for mr p griggs 
beneficial shareholdings include the shareholdings of a 
director’s spouse and infant children
of the above interests mr hg wilson’s includes 17973802 
ordinary shares held by roselea limited 2006 17823802  
a company in which he has a 26 interest and is a director 
none of the directors have any nonbeneficial shareholdings
none of the directors have contracts of employment with 
notice periods in excess of 12 months the company has 
granted an indemnity to its directors including subsidiary 
undertakings under which the company will to the maximum 
extent possible indemnify them against all costs charges 
losses and liabilities incurred by them in the performance of 
their duties
substantial shareholdings 
except for the holdings of ordinary shares listed below the 
company has not been notified by or become aware of any 
persons holding 3 or more of the 1648710585 issued 
ordinary shares 1p of each of the company at 28 april 2008 
 
   number   
amvescap plc   480906325 2916 
denis o’brien   167186005 1014 
capital group companies inc   139252000  845 
black rock inc  91778889 557
artemis   76154365  462 
slater investments   63828571  387 
supplier payment policy and practice 
the company’s policy is to settle terms of payment with 
suppliers when agreeing each transaction ensuring that 
suppliers are made aware of the terms of payment and abide 
by the terms of payment at the 2007 yearend the number of 
supplier days outstanding for the company was 133 days 
2006 30 days 
auditors 
each of the persons who is a director at the date of approval of 
this annual report confirms that 
so far as the director is aware there is no relevant audit 
information of which the company’s auditors are unaware 
and 
the directors have taken all the steps that they ought to 
have taken as a director in order to make themselves aware 
of any relevant audit information and to establish that the 
company’s auditors are aware of that information 
this confirmation is given and should be interpreted in 
accordance with the provisions of s234za of the companies 
act 1985 
 
a resolution to reappoint deloitte  touche llp as the 
company’s auditors will be proposed at the agm 
 
•
• page 30 sterling energy plc annual report  accounts 2007
corporate governance
application of combined code principles 
the directors are committed to maintaining the highest 
standards of corporate governance and this statement 
describes how the principles set out in the combined code on 
corporate governance that was issued in 2006 by the 
financial reporting council are adopted and applied having 
regard to the size and stage of development of the group 
 
the board of directors 
the board currently comprises the chairman four executive 
directors and two 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 nonexecutive 
director is dr r stabbins the board considers that all its non
executive directors are independent apart from the chairman 
who the code stipulates cannot be 
 
the board meets regularly throughout the year and all the 
necessary information is supplied to the directors on a timely 
basis to enable them to discharge their duties effectively the 
directors have access to independent professional advice at 
the group’s expense if and when required there is a formal 
schedule of matters reserved for consideration by the board 
and other matters are delegated to board committees 
 
the memorandum and articles of association require that at 
every agm there shall retire from office any director who shall 
have been a director at each of the preceding two annual 
general meetings and who was not appointed or reappointed 
by the company in general meeting at or since either such 
meeting together with all new directors appointed since the 
previous agm 
nonexecutive directors have been issued with share option 
which is contrary to the code in the opinion of the board this 
aligns their objectives with those of shareholders 
 
the company maintains directors’ and officers’ liability 
insurance cover the level of which is reviewed annually 
 
subcommittees 
the board has appointed the following subcommittees 
 
a audit committee 
this committee comprises the chairman and two non
executive directors under the chairmanship of peter wilde  
it reviews the interim and annual financial statements internal 
control matters and the scope and effectiveness of the external 
audit the external auditors have unrestricted access to the 
chairman of the audit committee 
 
b remuneration committee 
the members of the committee are the chairman and two 
nonexecutive directors under the chairmanship of 
christopher callaway 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 chairman and two 
nonexecutive directors under the chairmanship of dr r 
stabbins the nominations committee considers the 
composition of the board and makes recommendations on the 
appointment of new directors 
 
communications with shareholders 
communications with shareholders are given high priority and 
there is regular dialogue with institutional investors as well as 
general presentations at the time of the release of the annual 
and interim results the group issues its results to individual 
shareholders and will also publish them on the company’s 
website 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 online 
 
a business presentation is to be provided at the company’s 
agm and afterwards individual shareholders will be given the 
opportunity to put questions to the chairman and to the board 
the notice of agm is enclosed with this annual report
business risk 
there are a number of potential risks and uncertainties which 
could have a material impact on the group’s longterm 
performance and could cause actual results to differ materially 
from expected and historical results key risks in this regard 
are 
  page 31 sterling energy plc annual report  accounts 2007
corporate governance
category  risk 
strategic and economic   inappropriate or inaccurate strategy 
and plans 
 failure to deliver on strategy and plans 
 business environment changes 
operational  hse incident 
 poor field performance 
  failure to add value through 
exploration 
commercial  failure to access new opportunities 
  failure to maximise value from existing 
interests 
 loss of control of key assets 
 dissatisfied stakeholders 
  failure to negotiate optimal contract 
terms 
human resources and  failure to recruit and retain key 
management processes personnel 
  human error or deliberate negative 
action 
 inadequate management processes 
  insufficient quality timely information 
available to the management and the 
board 
financial   restrictions in capital markets 
impacting available financial resource 
 oil or gas price volatility 
 cost escalation 
 fiscal changes 
 operations underinsured 
 
the directors regularly monitor such risks using information 
obtained or developed from external and internal sources and 
will take actions as appropriate to mitigate these 
 
the group’s policy and objectives for financial risk 
management are set out in note 29 to the financial statements 
 
internal controls 
in september 1999 the turnbull guidance internal control 
guidance for directors on the combined code was published 
 
the directors acknowledge their responsibility for the group’s 
and the company’s systems of internal control which are 
designed to safeguard the assets of the group and to ensure 
the reliability of financial information for both internal use and 
external publication 
 
the group’s internal control procedures include board 
technical and financial approval for all projects all major 
expenditures require senior management approval at the 
appropriate stages of each transaction a regular reporting 
system covering both technical progress of projects and the 
state of the group’s financial affairs provides appropriate 
information to management to facilitate control the board has 
put in place procedures for identifying evaluating and 
managing any significant risks that face the group 
 
any systems of internal control can only provide reasonable 
and not absolute assurance that material financial irregularities 
will be detected or that the risk of failure to achieve business 
objectives is eliminated the directors having reviewed the 
effectiveness of the system of internal financial operational and 
compliance controls and risk management consider that the 
system of internal control operated effectively throughout the 
financial year and up to the date the financial statements were 
signed  page 32 sterling energy plc annual report  accounts 2007
statement of directors’ responsibilities
the directors are responsible for preparing the annual report 
and the financial statements in accordance with applicable law 
and regulations
company law requires the directors to prepare financial 
statements for each financial year the directors are required 
by the ias regulation to prepare the group financial 
statements under ifrss international financial reporting 
standards as adopted by the european union and have also 
elected to prepare the parent company financial statements in 
accordance with ifrss as adopted by the european union 
the financial statements are also required by law to be properly 
prepared in accordance with the companies act 1985 and 
article 4 of the ias regulation 
international accounting standard 1 requires that financial 
statements present fairly for each financial year the company’s 
financial position financial performance and cash flows  
this requires the faithful representation of the effects of 
transactions other events and conditions in accordance with 
the definitions and recognition criteria for assets liabilities 
income and expenses set out in the international accounting 
standards board’s “framework for the preparation and 
presentation of financial statements” in virtually all 
circumstances a fair presentation will be achieved by 
compliance with all applicable ifrss however directors are 
also required to
 
properly select and apply accounting policies 
present information including accounting policies in a 
manner that provides relevant reliable comparable and 
understandable information and 
provide additional disclosures when compliance with the 
specific requirements in ifrss are insufficient to enable 
users to understand the impact of particular transactions 
other events and conditions on the entity’s financial position 
and financial performance 
the directors are responsible for keeping proper accounting 
records that disclose with reasonable accuracy at any time the 
financial position of the company and to enable them to ensure 
that the financial statements comply with the companies act 
1985 they are also responsible for safeguarding the assets of 
the company and hence for taking reasonable steps for the 
prevention and detection of fraud and other irregularities 
 
the directors are responsible for the maintenance and integrity 
of the corporate and financial information included on the 
company’s website legislation in the united kingdom 
governing the preparation and dissemination of financial 
statements may differ from legislation in other jurisdictions 
•
•
• page 33 sterling energy plc annual report  accounts 2007
financial statements
we have audited the group and parent company financial statements the “financial statements’’ of sterling energy plc for the year 
ended 31 december 2007 which comprise the consolidated income statement the consolidated and parent company balance 
sheets the consolidated and parent company cash flow statements the consolidated and parent company statements of 
recognised income and expense and the related notes 1 to 31 these financial statements have been prepared under the 
accounting policies set out therein we have also audited the information in the directors’ report that is described as having been 
audited
this report is made solely to the company’s members as a body in accordance with section 235 of the companies act 1985 
our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to 
them in an auditors’ report and for no other purpose to the fullest extent permitted by law we do not accept or assume 
responsibility to anyone other than the company and the company’s members as a body for our audit work for this report or for 
the opinions we have formed
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law and 
international financial reporting standards ifrss as adopted by the european union are set out in the statement of directors’ 
responsibilities
our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and 
international standards on auditing uk and ireland
we report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in 
accordance with the companies act 1985 and as regards the group financial statements article 4 of the ias regulation we also 
report to you whether in our opinion the information given in the directors’ report is consistent with the financial statements the 
information given in the directors’ report includes that specific information presented in the highlights chairman’s statement 
chief executive’s report and the operations and financial reports that is cross referred from the business review section of the 
directors’ report
in addition we report to you if in our opinion the company has not kept proper accounting records if we have not received all the 
information and explanations we require for our audit or if information specified by law regarding directors’ remuneration and 
other transactions is not disclosed
we read the other information contained in the annual report as described in the contents section and consider whether it is 
consistent with the audited financial statements we consider the implications for our report if we become aware of any apparent 
misstatements or material inconsistencies with the financial statements our responsibilities do not extend to any further 
information outside the annual report
basis of audit opinion
we conducted our audit in accordance with international standards on auditing uk and ireland issued by the auditing practices 
board an audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the financial 
statements it also includes an assessment of the significant estimates and judgements made by the directors in the preparation 
of the financial statements and of whether the accounting policies are appropriate to the group’s and company’s circumstances 
consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order 
to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the director’s 
report to be audited are free from material misstatement whether caused by fraud or other irregularity or error in forming our 
opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the 
directors’ report to be audited
opinion
in our opinion
the group financial statements give a true and fair view in accordance with ifrss as adopted by the european union of the 
state of the group’s affairs as at 31 december 2007 and of its loss for the year then ended
the parent company financial statements give a true and fair view in accordance with ifrss as adopted by the european 
union as applied in accordance with the provisions of the companies act 1985 of the state of the parent company’s affairs as 
at 31 december 2007 
the financial statements have been properly prepared in accordance with the companies act 1985 and as regards the group 
financial statements article 4 of the ias regulation and
the information given in the directors’ report is consistent with the financial statements
deloitte  touche llp
chartered accountants and registered auditors 
london
30 april 2008
•
•
•
•
independent auditors’ report to the members  
of sterling energy page 34 sterling energy plc annual report  accounts 2007
       2007 2006
      note  ’000 ’000
revenue      4 97171 81003
cost of sales      6 75197 54419
gross profit       21974 26584
administrative expenses       15720 12027
impairment provision      121314 – 60033
prelicence exploration costs       4462 1368
operating profitloss       1792 46844
interest revenue and finance gains      8 3286 3082
gain on hedging instruments       4618 303
finance costs       8 12642 3201
loss before tax       2946 46660
tax       9 693 6101
loss for the financial year       2253 40559
attributable to minority interest       – 1981
loss attributable to equity holders of parent company       2253 38578
loss per share cents basic and diluted us¢      11  014 275
all operations were continuing throughout both years
consolidated statement of recognised income 
and expense
year ended 31 december 2007
       2007 2006
      note ’000 ’000
exchange differences on translation of foreign operations     25 965 2363
movement on value of investment in quoted company      25 4082 2287
movement on hedge reserve      25 14421 –
net lossincome recognised directly in equity       17538 76
loss for the financial year       2253 40559
total recognised loss for the year       19791 40483
attributable to
equity holders of the parent       19791 38502
minority interests       – 1981
       19791 40483
consolidated income statement
year ended 31 december 2007 page 35 sterling energy plc annual report  accounts 2007
financial statements
consolidated balance sheet
31 december 2007
        2007 2006
      note ’000  ’000
noncurrent assets
intangible royalty assets      12 16600 18000
intangible exploration and evaluation assets      13 155581 21384
property plant and equipment      14 342917 156800
investments      16a 16b 6985 5922
       522083 202106
current assets
inventories       5036 3713
trade and other receivables      17 41965 13863
derivative financial instruments      29 2005 –
current tax repayable       833 1248
cash and cash equivalents      18 49866 91759
       99705 110583
total assets       621788 312689
current liabilities
trade and other payables      19 79835 32182
derivative financial instruments      29 9434 4650
current tax liabilities       – 299
       89269 37131
noncurrent liabilities
longterm debt       20 153318 23214
deferred tax liabilities      21 69512 6128
derivative financial instruments      22 7174 –
longterm provisions      23 24245 22593
       254249 51935
total liabilities       343518 89066
net assets       278270 223623
equity 
share capital      24 31811 26919
share premium account      25 341414 273785
share option reserve      25 8368 6451
investment revaluation reserve      25 657 4739
currency translation reserve      25 658 307
hedging reserve      25 14421 –
retained earnings      25 90217 87964
total equity and equity attributable to equity holders of the parent     278270 223623
these financial statements were approved by the board of directors on 30 april 2008
signed on behalf of the board of directors
j r cooper aca  g p thomson fca
director  director page 36 sterling energy plc annual report  accounts 2007
company balance sheet
31 december 2007
       2007 2006
      note ’000 ’000
noncurrent assets
intangible exploration and evaluation assets      13 – 89
property plant and equipment      14 76171 84162
investment in subsidiaries      16c 338399 156350
       414570 240601
current assets
trade and other receivables      17 58617 121237
inventories       4803 3713
current tax repayable       833 833
cash and cash equivalents      18 26540 74236
       90793 200019
total assets       505363 440620
current liabilities
trade and other payables      19 54323 208782
derivative financial instruments      29 6305 4650
current tax liabilities       – 315
       60628 213747
noncurrent liabilities
longterm debt      20 153318 –
derivative financial instrument      22 4848 –
longterm provisions      23 4509 4253
       162675 4253
total liabilities       223303 218000
net assets       282060 222620
equity
share capital      24 31811 26919
share premium account      25 341414 273785
share option reserve      25 8368 6451
hedging reserve      25 11153 –
retained earnings      25 88380 84535
total equity       282060 222620
these financial statements were approved by the board of directors on 30 april 2008
signed on behalf of the board of directors
j r cooper aca  g p thomson fca
director  director page 37 sterling energy plc annual report  accounts 2007
financial statements
consolidated cash flow statement
year ended 31 december 2007
       2007 2006
      note ’000 ’000
operating activities
cash generated from operations      27 48131 63017
taxation refundedpaid       416 767
net cash flow from operating activities       48547 62250
investing activities
capital expenditure       87945 51191
corporate acquisitions      15 145368 –
interest received       2888 3082
net cash used in investing activities       230425 48109
financing activities
net proceeds from issue of ordinary shares       72521 245
longterm loan proceedsrepayment       78779 4111
interest paid       11354 1648
net cash flow fromused in financing activities       139946 5514
net decreaseincrease in cash and cash equivalents      41932 8627
cash and cash equivalents at beginning of year       91759 82033
effect of foreign exchange rate changes       39 1099
cash and cash equivalents at end of year      18 49866 91759 page 38 sterling energy plc annual report  accounts 2007
company cash flow statement
year ended 31 december 2007
       2007 2006
      note ’000 ’000
operating activities
cash used ingenerated from operations      27 62192 1524
investing activities
interest received       2143 2891
capital expenditure       8553 –
corporate acquisitions       145368 –
net cash used ingenerated from investing activities      151778 2891
financing activities
net proceeds from issue of ordinary shares       72521 245
longterm loan proceeds       101993 –
interest paid       8240 –
net cash flow from financing activities       166274 245
net decreaseincrease in cash and cash equivalents      47696 4660
cash and cash equivalents at beginning of year       74236 69576
cash and cash equivalents at end of year      18 26540 74236
company statement of recognised  
income and expense
year ended 31 december 2007
       2007 2006
      note ’000 ’000
movement on hedge reserve      25 11153 1898
net loss recognised directly in equity       11153 1898
loss for the financial year      25 3845 71640
       14998 69742
attributable to
equity holders of the company       14998 69742 page 39 sterling energy plc annual report  accounts 2007
financial statements
notes to the financial statements
year ended 31 december 2007
1 accounting policies
a general
sterling energy plc is a company incorporated in great britain 
under the companies act 1985 the address of the registered 
office is 5 chancery lane london wc1a 1lg the company 
and the group are engaged in the exploration for and 
development and production of oil and gas
these financial statements are presented in us dollars as this 
is the currency in which the majority of the group’s revenues 
and expenditure are transacted 
b basis of accounting
the financial statements of the company and the group have 
been prepared in accordance with international financial 
reporting standards “ifrs” as endorsed by the council of the 
european union 
in the current year the group has adopted ifrs 7 – financial 
instruments disclosures which is effective for annual reporting 
periods beginning on or after 1 january 2007 and the related 
amendment to ias1 – presentation of financial statements 
the impact of the adoption of ifrs 7 and the changes to ias 1 
has been to expand the disclosures provided in these financial 
statements regarding the group’s financial instruments and 
management of capital see note 30 four interpretations 
issued by the international financial reporting interpretations 
committee became effective for the current period these are 
ifric 7 – applying the restatement approach under ias 29 
financial reporting in hyperinflationary economies ifric 8 
scope of ifrs 2 ifric 9 reassessment of embedded 
derivatives and ifric 10 interim financial reporting and 
impairment the adoption of these interpretations has not led 
to any changes in the group’s accounting policies
at the date of authorisation of these financial statements the 
following standards and interpretations which have not been 
applied in these financial statements were in issue but not yet 
effective
ifrs 2 sharebased payments revised 2008
ifrs 3 business combination revised 2008
ifrs 8 operating segments
ias 1 presentation of financial statements revised 2008
ias23  borrowing costs revised 2007
ias 27  consolidated and separate financial statements 
revised 2008
ias 32 financial instruments presentation revised 2008
ifric 11 ifrs 2 – group and treasury share transactions
ifric 12 service concession arrangements
ifric 13 customer loyalty programme
ifric 14  ias19 – the limit on a defined benefit asset 
minimum funding requirements and their interaction
the directors anticipate that the adoption of these standards 
and interpretations in future periods will have no material 
impact on the financial statements of the group except for 
revised segment disclosures when ifrs8 comes into effect for 
periods commencing on or after 1 january 2009
the accounts and balance sheet are prepared under the 
historical cost convention except for the revaluation of certain 
financial instruments the principal accounting policies adopted 
are set out below 
c basis of consolidation
the consolidated financial statements incorporate the financial 
statements of the company and entities controlled by the 
company its subsidiaries made up to 31 december each year 
control is achieved where the company has the power to 
govern the financial and operating policies of an invested entity 
so as to obtain benefits from its activities
minority interests in the net assets of consolidated subsidiaries 
are identified separately from the group’s equity therein 
minority interests consist of the amount of those interests at the 
date of the original business combination and the minority’s 
share of changes in equity since the date of the combination 
losses applicable to the minority in excess of the minority’s 
interest in the subsidiary’s equity are allocated against the 
interests of the group except to the extent that the minority has 
a binding obligation and is able to make an additional 
investment to cover the losses
the results of subsidiaries acquired or disposed of during the 
year are included in the consolidated income statement from 
the effective date of acquisition or up to the effective date of 
disposal as appropriate
where necessary adjustments are made to the financial 
statements of subsidiaries to bring the accounting policies 
used into line with those used by the group
all intragroup transactions balances income and expenses 
are eliminated on consolidation
d business combinations
the acquisition of subsidiaries is accounted for using the 
purchase method the cost of the acquisition is measured at 
the aggregate of the fair values at the date of exchange of 
assets and liabilities incurred or assumed and equity 
instruments issued by the group in exchange for control of the 
acquiree plus any costs directly attributable to the business 
combination the acquiree’s identifiable assets liabilities and 
contingent liabilities that meet the conditions for noncurrent 
assets or disposal groups that are classified as held for sale in 
accordance with ifrs 5 non current assets held for sale and 
discontinued operations are recognised and measured at fair 
value less costs to sell
the interest of minority shareholders in the acquiree is initially 
measured at the minority’s proportion of the net fair value of the 
assets liabilities and contingent liabilities recognised
e interest in joint ventures
a joint venture is a contractual arrangement whereby the group 
and other parties undertake an economic activity that is subject 
to joint control
where a company undertakes its activities under joint venture 
arrangements directly the group’s share of jointly controlled 
assets and any liabilities incurred jointly with other ventures are  page 40 sterling energy plc annual report  accounts 2007
notes to the financial statements continued
year ended 31 december 2007
1 accounting policies continued
recognised in the financial statements of the relevant group 
company and classified according to their nature
similarly income from the sale or use of the group’s share of 
the output of jointlycontrolled assets and its share of joint 
venture expenses are recognised in the financial statements of 
the relevant group company and classified according to their 
nature
f revenue
sales of petroleum are recognised net of any sales taxes when 
goods are delivered or the title has passed to the customer 
interest income is accrued on a time basis by reference to the 
principal outstanding and at the effective interest rate 
applicable royalties and tariff income are recognised as 
earned dividend revenue from investments is recognised when 
the shareholders’ rights to receive payment have been 
established
g oil and gas interests
exploration and evaluation assets “ee”
the group accounts for oil and gas exploration under the full 
cost method having regard to the requirements of ifrs 6 
exploration for and evaluation of mineral resources 
ee costs are initially capitalised within intangible assets other 
than goodwill such ee costs include licence acquisition 
costs geological and geophysical costs costs of drilling 
exploration and appraisal wells and an appropriate share of 
overheads ee costs are capitalised and accumulated in cost 
pools which are not larger than a segment
expenditures incurred before the group has obtained the legal 
rights to explore a specific area are expensed in the year that 
they are incurred
the group’s oil and gas assets are currently held in two cost 
pools north america and africa and the middle east
costs relating to the exploration and evaluation of oil and gas 
interests are carried forward until the existence or otherwise of 
commercial reserves has been determined 
if commercial reserves have been discovered the related ee 
assets are assessed for impairment and the resultant carrying 
value is then reclassified as oil and gas assets within property 
plant and equipment on a field by field basis 
ee assets that are determined not to have resulted in the 
discovery of commercial reserves remain capitalised as 
intangible ee assets at cost less accumulated amortisation 
subject to the relevant cost pool meeting an impairment test as 
set out below such ee assets are amortised on a unit of 
production basis over the life of the proven and probable 
commercial reserves of the pool to which they relate
under the full cost method impairment tests on ee assets are 
conducted on an individual cost pool basis including any 
development or producing assets when facts and 
circumstances suggest that the carrying amount in the pool 
may exceed its recoverable amount such indicators include 
the point at which a determination is made as to whether or not 
commercial reserves exist where the ee assets concerned 
fall within the scope of an established full cost pool the ee 
assets are tested for impairment together with all development 
and production assets associated with that cost pool as a 
single cashgenerating unit the aggregate carrying value is 
compared against the expected recoverable amount of the 
pool generally by reference to the present value of the future 
cash flows expected to be delivered from production of 
commercial reserves where the ee assets to be tested fall 
outside the scope of any established cost pool there will 
generally be no commercial reserves and the ee assets 
concerned will be written off in full
any impairment loss is separately recognised within the income 
statement
development and production assets
development and production assets are generally accumulated 
on a fieldbyfield basis and include the cost of developing the 
commercial reserves discovered and bringing them into 
production together with the ee expenditures incurred in 
finding commercial reserves transferred from intangible ee 
assets as outlined above 
depletion is provided for on a cashgenerating unit basis on a 
unit of production basis over the life of the proven and probable 
commercial reserves taking into account the expected future 
costs to extract all such reserves
an impairment test is performed on an individual asset basis 
whenever events and circumstances indicate that the carrying 
value of an asset may exceed its recoverable amount the 
recoverable amount is assessed as the present value of the 
future cash flows expected to be derived from production of 
commercial reserves 
the cashgenerating unit basis is generally the field however 
oil and gas assets including infrastructure assets may be 
accounted for on an aggregated basis where such assets are 
economically interdependent
property plant and equipment assets other than oil and  
gas assets
property plant and equipment other than oil and gas assets 
are stated at cost less accumulated depletion and any 
provision for impairment depletion is provided at rates 
estimated to write off the cost less estimated residual value of 
each asset over its expected useful life as follows
computer and office equipment – 33 straight line
h decommissioning
provisions for decommissioning costs are recognised in 
accordance with ias 37 provisions contingent liabilities and 
contingent assets provisions are recorded at the present 
value of the expenditures expected to be required to settle the 
group’s future obligations page 41 sterling energy plc annual report  accounts 2007
financial statements
1 accounting policies continued
provisions are reviewed at each balance sheet date to reflect 
the current best estimate of the cost at present value the 
unwinding of the discount is reflected as a finance cost a 
decommissioning asset is also established since the future 
cost of decommissioning is regarded as part of the total 
investment to gain access to future economic benefits and 
included as part of the cost of the relevant development and 
production asset depletion on this asset is calculated under 
the unit of production method based on commercial reserves 
i intangible royalty interests
the carrying value of each individual royalty interest is 
amortised on the unit of production basis relative to the 
underlying asset and assessed individually for impairment 
when there is an indication that an impairment event may have 
occurred 
j foreign currencies
the us dollar is the reporting currency of the company and the 
group transactions denominated in other currencies are 
translated into us dollar at the rate of exchange ruling at the 
date of the transaction assets and liabilities in other currencies 
are translated into us dollars at the rate of exchange ruling at 
the reporting date all exchange differences arising from such 
translations are dealt with in the profit and loss account
the results of entities with a functional currency other than the 
us dollar are translated at the average rates of exchange 
during the period and their balance sheet at the rates ruling at 
the balance sheet date exchange differences arising on 
translation of the opening net assets and on translation of the 
results of such entities are dealt with through the currency 
translation reserve 
k taxation
current tax including uk corporation tax and foreign tax is 
provided at amounts expected to be paid or recovered using 
the tax rates and laws that have been enacted or substantively 
enacted by the balance sheet date
deferred tax is recognised in respect of all timing differences 
that have originated but not reversed at the balance sheet date 
where transactions or events that result in an obligation to pay 
more tax in the future or a right to pay less tax in the future 
have occurred at the balance sheet date timing differences 
are differences between the group’s taxable profits and its 
results as stated in the financial statements that arise from the 
inclusion of gains and losses in tax assessments in periods 
different from those in which they are recognised in the 
financial statements
a net deferred tax asset is regarded as recoverable and 
therefore recognised only when on the basis of all available 
evidence it can be regarded as more likely than not that there 
will be suitable taxable profits from which the future reversal of 
the underlying timing differences can be deducted
deferred tax is provided on temporary differences arising on 
acquisitions that are categorised as business combinations as 
part of the assessment of the fair value of assets and liabilities 
acquired deferred tax is recognised in respect of the retained 
earnings of overseas subsidiaries only to the extent that at the 
balance sheet date dividends have been accrued as receivable 
or a binding agreement to distribute past earnings in future has 
been entered into by the subsidiary or associate 
deferred tax is measured at the average tax rates that are 
expected to apply in the periods in which the timing differences 
are expected to reverse based on tax rates and laws that have 
been enacted or substantively enacted by the balance sheet 
date deferred tax is measured on a nondiscounted basis
l investments
investments are recognised and derecognised on a trade date 
where a purchase or sale of an investment is under a contract 
whose terms require delivery of the investment within the 
timeframe established by the market concerned and are 
initially measured at cost including transaction costs
group investments are classified as availableforsale and are 
measured at subsequent reporting dates at fair value gains 
and losses arising from changes in fair value are recognised 
directly in equity until the investment is disposed of or is 
determined to be impaired at which time the cumulative gain  
or loss previously recognised in equity is included in the profit 
or loss of the period impairment losses recognised in profit or 
loss for equity investments classified as availableforsale are 
not subsequently reversed through profit or loss 
noncurrent investments in subsidiary undertakings are shown 
in the company’s balance sheet at the lower of cost or net 
realisable value 
m operating leases
rentals under operating leases are charged on a straightline 
basis over the lease term 
n derivative financial instruments
the group uses derivative financial instruments to manage its 
exposure to movements in oil and gas prices fluctuations in 
foreign exchange rates and interest rates
derivatives financial instruments are stated at fair value
the purpose for which a derivative is used is established at 
inception to qualify for hedge accounting the derivative must 
be “highly effective” in achieving its objective and this 
effectiveness must be documented at inception and throughout 
the period of the hedge relationship the hedge must be 
assessed on an ongoing basis and determined to have been 
“highly effective” throughout the financial reporting periods for 
which the hedge was designated
for the purpose of hedge accounting hedges are classified as 
either fair value hedges when they hedge the exposure to 
changes in the fair value of a recognised asset or liability or 
cashflow hedges when they hedge exposure to variability in 
cashflows that is either attributable to a particular risk 
associated with a recognised asset or liability or forecasted 
transaction
during the year the group designated a number of its oil and 
gas derivatives as cashflow hedges of future production see 
note 29
notes to the financial statements continued
year ended 31 december 2007 page 42 sterling energy plc annual report  accounts 2007
1 accounting policies continued
in relation to fair value hedges which meet the conditions for 
hedge accounting any gain or loss from remeasuring the 
derivative and the hedged item at fair value is recognised 
immediately in the income statement any gain or loss on the 
hedged item attributable to the hedged risk is adjusted against 
the carrying amount of the hedged item and recognised in the 
income statement
for cashflow hedges the portion of the gains and losses on 
the hedging instrument that is determined to be an effective 
hedge is taken to equity and the ineffective position as well as 
any change in time value is recognised in the income 
statement the gains and losses taken to equity are 
subsequently transferred to the income statement during the 
period in which the hedged transaction affects the income 
statement or if the hedge is subsequently deemed to be 
ineffective a similar treatment applies to foreign currency loans 
which are hedges of the group’s net investment in the net 
assets of a foreign operation
o pension costs
the group operates a number of defined contribution pension 
schemes the amount charged to the income statement for 
these schemes is the contributions payable in the year 
differences between contributions payable in the year and 
contributions actually paid are shown as either accruals or 
prepayments in the balance sheet
p sharebased payments
the company and group have applied the requirements of 
ifrs 2 sharebased payments
the company issues equity sharebased payments to certain 
employees the fair value of these awards has been 
determined at the date of the grant of the award allowing for the 
effect of any marketbased performance conditions this fair 
value adjusted by the estimate of the number of awards that 
will eventually invest as a result of nonmarket conditions is 
expensed uniformly over the vesting period
the fair values are calculated using an option pricing model 
with suitable modifications to allow for employee turnover after 
vesting and early exercise the inputs to the model include the 
share price at the date of grant exercise price expected 
volatility expected dividends riskfree rate of interest and 
patterns of exercise of the plan participants
q overunderlift
lifting or offtake arrangements for oil and gas produced in 
certain of the group’s operations are such that each participant 
may not receive and sell its precise share of the overall 
production in each period the resulting imbalance between 
cumulative entitlement and cumulative liftings less inventory is 
“underlift” or “overlift” underlifts are valued at the lower of cost 
and net realisable value and overlifts are valued at market 
value adjustments are made to cost of sales and balances 
included within receivables and payables as appropriate the 
group’s share of any physical inventory is accounted for at the 
lower of cost and net realisable value
r inventories
the group’s share of any material and equipment inventories is 
accounted for at the lower of cost and net realisable value
s provisions
provisions are recognised when the group has a present 
obligation as a result of a past event and it is probable that the 
group would be required to settle that obligation provisions 
are measured at the management’s best estimate of the 
expenditure required to settle the obligation at the balance 
sheet date and are discounted to present value where the 
effect is material
2  critical accounting judgements and key sources of 
estimation uncertainty
the key assumptions concerning the future and other key 
sources of estimation uncertainty at the balance sheet date 
that have a significant risk of causing a material adjustment to 
the carrying amounts of assets and liabilities within the next 
financial year are discussed below
commercial reserves 
commercial reserves are proven and probable oil and gas 
reserves calculated on an entitlement basis
estimates of commercial reserves underpin the calculation of 
depletion and amortisation on a unit of production basis 
estimates of commercial reserves include estimates of the 
amount of oil and gas in place assumptions about reservoir 
performance over the life of the field and assumptions about 
commercial factors which in turn will be affected by the future 
oil and gas price
impairment of assets
determining whether the carrying asset value is impaired 
requires an estimation of the value in use of the cash
generating unit to which it belongs the value in use calculation 
requires the entity to estimate the future cash flows expected to 
arise from the cashgenerating unit and a suitable discount rate 
in order to calculate present value this necessarily entails an 
estimate of future recoverable commercial reserves for each of 
the cash generating units which is in turn dependent on an 
estimate of future oil and gas prices
in respect of exploration and evaluation assets held outside of 
established full cost pools the assessments also involve a 
judgement on whether further exploration and evaluation 
activities are justified and whether licences will be retained
fair values
the determination of the fair values of oils and gas properties 
particularly exploration and evaluation assets acquired in 
business combinations and the resulting measurement of any 
goodwill that may arise requires the use of estimates similar to 
those described above
fair values of derivative financial instruments
the fair values of derivative financial instruments used for 
hedging purposes reflect the market’s view at any point in time 
of the outlook for future oil or gas prices which generally 
change over time consequently there can be no assertion that 
the fair values reflect the amount at any future cash flows that 
may arise as the hedges mature 
notes to the financial statements continued
year ended 31 december 2007 page 43 sterling energy plc annual report  accounts 2007
financial statements
3 geographical segments
the group operates in one business segment the exploration for and production of oil and gas the group currently has interests 
in two geographical segments north america and africa and the middle east segment information about the business is 
presented below 
   north america  africa   total
   2007 2006 2007 2006 2007 2006
   ’000 ’000 ’000 ’000 ’000 ’000
income statement
revenue   67843 23441 29328 57562 97171 81003
cost of sales   49871 14380 25326 40039 75197 54419
gross profit   17972 9061 4002 17523 21974 26584
impairment provision   – 2653 – 57380 – 60033
prelicence exploration costs   1181 – 3281 1368 4462 1368
segment result   16791 6408 721 41225 17512 34817
unallocated corporate expenses       15720 12027
operating profitloss       1792 46844
interest revenue and finance gains       3286 3082
gain on hedging instrument       4618 303
finance costs        12642 3201
loss before tax       2946 46660
tax       693 6101
loss for the financial year       2253 40559
attributable to minority interest       – 1981
loss attributable to equity holders of parent company      2253 38578
 corporate assets  north america  africa   total
 2007 2006 2007 2006 2007 2006 2007 2006
 ’000 ’000 ’000 ’000 ’000 ’000 ’000 ’000
other segment information
capital additions
property plant and equipment 374 307 54970 8375 8063 14223 63407 22905
ee expenditure 600 – 10668 2972 24437 2555 35705 5527
depreciation and amortisation 461 233 32405 7338 17444 35407 50310 42978
impairment provision – – – 2653 – 57380 – 60033
balance sheet
segment assets 45651 88515 424005 97461 152132 126713 621788 312689
segment liabilities 175666 11426 128261 53443 39591 24197 343518 89066
 carrying amount of segment assets exclude intragroup financing 
notes to the financial statements continued
year ended 31 december 2007 page 44 sterling energy plc annual report  accounts 2007
4 revenue
       2007 2006
       ’000 ’000
revenue from the sale of oil and gas       74509 67877
royalty income       21106 10604
tariff income       1556 2522
total operating revenue       97171 81003
finance revenue       3178 3082
total revenue       100349 84085
revenue from the sale of oil and gas is stated net of 5877000 in relation to cash settlements under hedging contract 2006 
3681000
5 operating profit
       2007 2006
       ’000 ’000
profitloss from operations is stated after charging crediting    
staff costs note 7       18523 7644
depletion and amortisation notes 12 13 and 14       50310 42978
impairment expense notes 12 13 and 14       – 60033
depreciation of other fixed assets       1108 361
net foreign exchange lossesgains       108 129
an analysis of auditors’ remuneration is as follows   
fees payable to the company’s auditors for the audit of the company’s annual accounts    265 110
fees payable to the company’s auditors for other services to the group
 audit of the company’s subsidiaries pursuant to legislation      35 29
 ifrs opening balance sheet and related audit work       – 113
total audit fees       300 252
 tax advisory services       125 124
   
total non audit fees       125 124
6 cost of sales
       2007 2006
       ’000 ’000
operating costs       27143 15140
amortisation and depletion of oil and gas properties       49202 42618
underlift of product entitlement       1148 3339
       75197 54419
7 employee information
the average monthly number of employees of the group including executive directors during the year was 72 2006 43 of 
which 14 were employed in the africa and middle east operations 2006 14 40 in the north american operations 2006 14 and 
18 in new ventures and corporate support 2006 15 
the average monthly number of employees of the company including executive directors during the year was 2 2006 nil who 
were both employed in the africa and middle east operations
employee costs during the year including executive directors amounted to
      group company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
wages and salaries      15850 6251 434 –
social security costs     1684 799 15 –
other pension costs     989 594 – –
     18523 7644 449 –
notes to the financial statements continued
year ended 31 december 2007 page 45 sterling energy plc annual report  accounts 2007
financial statements
7 employee information continued
a portion of the group’s staff costs and associated overheads are recharged to the joint venture partners expensed as operating 
costs expensed as prelicence expenditure or capitalised where they are directly attributable to ongoing capital projects in 2007 
this portion amounted to 10186000 2006 5938000
8 investment revenue and finance costs
       2007 2006
       ’000 ’000
interest revenue and finance gains
interest on shortterm deposits        3178 3082
exchange differences       108 –
       3286 3082
       2007 2006
       ’000 ’000
finance costs 
interest on bank loans and overdrafts       11354 1951
unwinding of discount on decommissioning provision        1132 1121
unwinding of discount on production royalty revenue bonus provision     156 –
exchange differences       – 129
       12642 3201
9 taxation
the group tax charge comprises
       2007 2006
       ’000 ’000
current tax credit       509 1255
deferred tax – origination and reversal of timing differences      184 4846
total credit       693 6101
the difference between the tax credit of 693000 2006 credit of 6101000 and the amount calculated by applying the 
applicable standard rate of tax is as follows
       2007 2006
       ’000 ’000
loss on ordinary activities before tax       2946 46660
tax on loss on ordinary activities at standard us corporation tax rate of 34 2006 34   1001 15864
effects of
expenses not deductible for tax purposes       1856 1654
capital allowances lower thanin excess of depreciation      82 10994
other temporary differences       – 395
difference in nonukus tax rates       127 1364
adjustment for tax losses        2628 47
adjustment in respect of prior years       509 1383
tax credit for the year       693 6101
during 2007 and 2006 the group generated its results primarily in the us therefore the tax rate in the above reconciliation for 
2007 is the standard rate for us corporation tax 
with effect from 1 april 2008 the main rate of uk corporation tax reduced to 28 however given the group’s taxation charge 
principally relates to the us the change of rate will not have a significant effect on there group’s overall taxation charge
 
notes to the financial statements continued
year ended 31 december 2007 page 46 sterling energy plc annual report  accounts 2007
10 loss attributable to sterling energy plc
the loss for the financial year dealt with in the accounts of sterling energy plc was 3845000 2006 loss of 71640000 as 
provided by s230 of the companies act 1985 no income statement is provided in respect of sterling energy plc
11 loss per share
the calculation of basic and diluted loss per share is based on the loss for the financial year of 2253000 2006 loss 
38578000 and on 1565678397 2006 1402408092 ordinary shares being the weighted average number of ordinary 
shares in issue as the effect of any dilutive shares would decrease the loss per share the basic and diluted loss per share are the 
same
12 intangible royalty assets 
        group
        ’000
net book value at 1 january 2006        42149
depletion charge for the year        1675
impairment charge for the year        22474
net book value at 31 december 2006        18000
depletion charge for the year        1400
net book value at 31 december 2007        16600
group net book value at 31 december 2007 comprises the value of rights to future royalties in respect of the group’s agreements 
covering licences psca and pscb in mauritania the value of these royalty interests is dependent upon future oil and gas prices 
and the development and production of the underlying oil and gas reserves
an impairment assessment and any subsequent charge is calculated on an individual royalty interest basis future recoverable 
amounts are estimated by management based on the present value of future cash flows expected to be derived from the 
production of commercial reserves in these licences and are compared against the carrying value of these assets 
 
13 intangible exploration and evaluation ee assets 
       group company
       ’000 ’000
net book value at 1 january 2006       26660 73
additions during the year       5527 16
amortisation charge for the year       949 –
impairment charge for the year       9854 –
net book value at 31 december 2006       21384 89
additions during the year       36233 
additions through acquisitions during the year note 16      101314 
amortisation charge for the year       3350 89
net book value at 31 december 2007       155581 –
  
the amount for intangible exploration and evaluation assets represents investments in respect of exploration licences see note 1g  
impairment tests on ee assets are conducted on an individual cost pool basis when facts and circumstances suggest that the 
carrying amount in the pool may exceed its recoverable amount the impairment recorded above relates to assets held in the 
africa pool where the estimated recoverable amount of the property plant and equipment and ee in the pool was insufficient to 
cover the carrying amount 
notes to the financial statements continued
year ended 31 december 2007 page 47 sterling energy plc annual report  accounts 2007
financial statements
14 property plant and equipment
        computer 
      oil and and office 
      gas assets equipment total
group      ’000 ’000 ’000
cost
at 1 january 2006      215061 2193 217254
additions during the year      22219 686 22905
at 31 december 2006      237280 2879 240159
additions during the year      62612 795 63407
additions through acquisitions during the year note 15     167978 292 168270
at 31 december 2007      467870 3966 471836
accumulated depreciation     
at 1 january 2006      14019 1281 15300
charge for the year      39993 361 40354
impairment charge for the year      27705 – 27705
at 31 december 2006      81717 1642 83359
charge for the year      44452 1108 45560
at 31 december 2007      126169 2750 128919
net book value at 31 december 2007      341701 1216 342917
net book value at 31 december 2006      155563 1237 156800
the impairment charge in 2006 for the group related to the group’s mauritanian and us interests the impairment charge was 
calculated by reference to assessment of future discounted cash flows expected to be derived from production of commercial 
reserves measured against the individual cash generating unit carrying values
        computer 
      oil and and office 
      gas assets equipment total
company      ’000 ’000 ’000
cost
at 1 january 2006      – 147 147
intragroup transfer      141973 – 141973
at 31 december 2006      141973 147 142120
additions during the year      8087 – 8087
at 31 december 2007      150060 147 150207
accumulated depreciation
at 1 january 2006      – 96 96
charge for the year      – 16 16
intragroup transfer      57846 – 57846
at 31 december 2006      57846 112 57958
charge for the year      16043 35 16073
at 31 december 2007      73889 142 74031
net book value at 31 december 2007      76171 – 76171
net book value at 31 december 2006      84127 35 84162
notes to the financial statements continued
year ended 31 december 2007 page 48 sterling energy plc annual report  accounts 2007
15 acquisition of subsidiary
on 29 march 2007 the group acquired 100 per cent of the issued share capital of whittier energy corporation “wec” for cash 
consideration of 1454 million plus 14 million for directly attributable costs wec is the parent company of a group of 
companies involved in onshore us gulf coast exploration and production this transaction has been accounted for using the 
purchase method of accounting wec was subsequently renamed sterling energy usa inc during the period
       book value fair value
       ’000 ’000
net assets acquired
property plant and equipment        119316  167978 
intangible exploration and evaluation assets       31895  101634 
goodwill       1485  – 
trade and other receivables       15506  15342 
cash and cash equivalents       1392  1392 
trade and other payables       23339 23339
bank loans       51325 51325
deferred tax liabilities       24139 63571
decommissioning liabilities       711 711
       70080  146760
satisfied by 
cash         145432 
directly attributable costs        1328 
        146760 
net cash outflow arising on acquisition  
cash consideration        146760
cash and cash equivalents acquired        1392 
        145368
wec contributed 399 million of revenue 48 million of gross profit and a loss of 30 million to the group’s loss before tax for 
the period between the effective date of acquisition and 31 december 2007 wec contributed 25 million to operating cash flow 
before working capital for the same period
16 fixed asset investments 
a available for sale investments
the investments partly consist of an investment in a quoted company of 1932000 2006 5922000 representing the fair value 
of the current equity interest of 1402 in forum energy plc a company listed on the alternative investment market “aim” in 
london as at 31 december 2007 the fair value of this investment was based on a forum share price of 2425p 2006 755p
b investment at fair value through profit and loss
additionally the company holds through its us subsidiary sterling energy inc an option on a 20 equity stake in viking 
international petroleum vip in the form of a twoyear 3500000 convertible note and warrants vip is a private company that 
generates drilling prospects located primarily in south texas over which sterling has preemptive drilling rights
the balance of the group’s investments consists primarily of investments held through the us subsidiary sterling energy usa inc in 
various limited liability partnerships
notes to the financial statements continued
year ended 31 december 2007 page 49 sterling energy plc annual report  accounts 2007
financial statements
16 fixed asset investments continued
c investment in subsidiaries
        company
        ’000
cost
at 1 january 2006        230351
additional investment during year        1708
impairment charge        75709
at 31 december 2006        156350
additional investment during year        182049
at 31 december 2007        338399
there was no change in the composition of the company’s fixed asset investments during the year all of which relate to subsidiary 
undertakings 
at 31 december 2007 the company had investments in the following subsidiary undertakings
 
   proportion
 country of class of of voting 
 incorporation shares held rights held nature of business
sterling energy uk limited united kingdom ordinary 100 exploration for oil and gas
sterling energy inc
†
  usa ordinary 100 exploration for and production   
    of oil and gas
sterling energy north america limited usa ordinary 100 investment holding company
sterling energy usa inc
‡
 
formerly whittier energy corporation usa ordinary 100 exploration for and production  
    of oil and gas
sterling oil limited united kingdom ordinary 100 investment holding company
sterling northwest africa holdings limited
¶
 jersey ci ordinary 100 investment holding company
sterling 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 dome flore limited

 jersey ci ordinary 100 exploration for oil and gas
sterling oil  gas iris marin limited

 jersey ci ordinary 100 exploration for oil and gas
sterling oil  gas themis marin limited

 jersey ci ordinary 100 exploration for oil and gas
 held directly by the company sterling energy plc
† held directly by sterling energy uk limited
‡ held directly by sterling energy north america limited
¶ held directly by sterling oil limited
 held directly or indirectly through sterling northwest africa holdings limited
17 trade and other receivables
     group company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
amounts falling due within one year
trade receivables     32373 5809 – –
amounts owed by subsidiary undertakings     – – 53236 119227
other debtors     5715 3451 178 1541
amounts advanced to joint venture partners     663 3504 – 395
prepayments and accrued income     3214 1099 5203 74
     41965 13863 58617 121237
the directors consider that the carrying amount of trade and other receivables approximates their fair value
notes to the financial statements continued
year ended 31 december 2007 page 50 sterling energy plc annual report  accounts 2007
18 cash and cash equivalents
     group  company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
cash at bank and in hand unrestricted     44101 86723 26540 74236
cash held on a restricted account     5765 5036 – –
cash and cash equivalents at 31 december     49866 91759 26540 74236
cash and cash equivalents comprise cash in hand deposits on call with banks and highly liquid investments that are readily 
convertible into known amounts of cash and which are subject to an insignificant risk of change in value
included in cash and cash equivalents of the group is an amount of 5765000 2006 5036000 held in restricted accounts to 
be used for the sole purpose of the payment of decommissioning costs on three us producing licences 
 
19 trade and other payables
     group  company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
trade payables     27356 4276 7003 321
amounts owed to subsidiary undertakings     – – 40198 187829
amounts owed to joint venture partners     6631 4315 – –
other taxation and social security     205 188 – –
accruals and deferred income     45643 23403 7122 20632
     79835 32182 54323 208782
the directors consider that the carrying amount of trade and other payables approximates their fair value
20 longterm debt
     group  company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
bank loan     153318 23214 153318 –
at 31 december 2007 the group had a bank loan facility of 250000000 the “borrowingbase facility” of which 144818000 
had been drawn down under this facility at the end of the period the amount that was available to be drawn under this facility 
was determined by a twiceyearly borrowing base review in addition a further 482136 2006 nil is pledged under a letter of 
credit the facility was secured by a floating charge over certain of the property plant and equipment of the group an intragroup 
loan of approximately 74393600 2006 28453800 was subordinated to the facility interest was payable at a margin 225–
45 over us libor rate the facility also includes certain financial and nonfinancial covenants 
in addition to the borrowingbase facility the company has an unsecured corporate facility available of 15000000 of which at 
31 december 2007 8018000 had been drawn
during january 2007 the loan of 23214000 outstanding at 31 december 2006 with macquarie bank was repaid in full and the 
facility cancelled
21 deferred tax liabilities
       2007 2006
group       ’000 ’000
at 1 january        6127 10973
deferred tax on acquisition note 15       63571 –
credited to profit and loss account       186 4846
at 31 december        69513 6127
notes to the financial statements continued
year ended 31 december 2007 page 51 sterling energy plc annual report  accounts 2007
financial statements
21 deferred tax liabilities continued
        2007
group        ’000
the provision at 31 december 2007 consists of
accelerated capital allowances        84469
other temporary differences        4889
utilised tax losses        10068
at 31 december        69512
at the balance sheet date the group had an unrecognised deferred tax asset of 7757000 2006 3158000 no deferred tax 
asset has been recognised due to the uncertainty of future profit streams additionally there is an unrecognised deferred tax 
liability of 1992000 2006 3549000 in respect of unremitted earnings from sterling’s us subsidiaries 
company
at the balance sheet date the company had an unrecognised deferred tax asset of 10726000 2006 27776000 relating 
primarily to unused losses and unutilised capital allowances
22 derivative financial instruments
        2007 2006
group       ’000 ’000
at 1 january        – –
contracts maturing in more than one year       7174 –
at 31 december        7174 –
     
        2007 2006
company      note ’000 ’000
at 1 january        – –
contracts maturing in more than one year      29 4848 –
at 31 december        4848 –
23 longterm provisions
        2007 2006
group       ’000 ’000
decommissioning provision a       22095 19893
2003 production royalty bonus scheme b       2150 2700
       24245 22593
a decommissioning provision
      north america  africa total
group      ’000 ’000 ’000
at 1 january 2006      14895 3885 18780
additions in year      333 130 463
utilisation in year      471 – 471
unwinding of discount note 9      883 238 1121
at 31 december 2006      15640 4253 19893
additions in year      6489 – 6489
acquisition in year note 15      711 – 711
utilisation in year      6130 – 6130
unwinding of discount note 9      876 256 1132
at 31 december 2007      17586 4509 22095
notes to the financial statements continued
year ended 31 december 2007 page 52 sterling energy plc annual report  accounts 2007
23 longterm provisions continued
the amounts shown above represent the estimated costs for decommissioning the group’s producing interests in north america 
which are expected to occur between 2008 and 2017 and in respect of its economic interest in the chinguetti field in mauritania 
where decommissioning is expected to occur around 2014
the company amount of 4509000 2006 4253000 in africa represents the amount provided within the company for future 
decommissioning expenditure
b 2003 production royalty bonus scheme
        2007 2006
group       ’000 ’000
at 1 january        2700 3300
unwinding of discount       156 –
transferred to current liabilities       746 600
foreign exchange movements       40 –
at 31 december        2150 2700
this scheme was intended to reward key persons for the successful performance of certain assets after financial thresholds had 
been reached for the period since listing in 2002 the scheme was terminated in 2007 and replaced by the new ltip see note 30 
and no further sums will accrue the company has the option to require beneficiaries to subscribe for new ordinary shares for the 
net amount arising after tax and national insurance from 2008 onwards
24 share capital
       2007 2006
       ’000 ’000
authorised
2400000000 2006 2400000000 ordinary shares of 1p       46078 46078
called up allotted and fully paid  
1648710585 ordinary shares of 1p each 2006 1402950558 ordinary shares of 1p each   31811 26919
   
movements during the year included the placing of 163250000 new ordinary shares during january 2007 in connection with the 
whittier acquisition an additional placing of 78510027 new ordinary shares was made in november 2007 in order to fund the initial 
costs relating to the production sharing contract entered into with the kurdistan regional government of iraq for the sangaw north 
exploration block further movements during the year consisted of 4000000 new ordinary shares which were issued to former 
employees who exercised share options in the year 
25 reserves
  share share investment currency   
  premium option revaluation translation hedge retained  
  account reserve reserve account reserve earnings total
group  ’000 ’000 ’000 ’000 ’000 ’000 ’000
at 1 january 2006  273560 4553 7026 2670 – 49386 233083
premium on shares issued   225 – – – – – 225
currency translation adjustments  – – – 2363 – – 2363
revaluation on investment held for sale  – – 2287 – – – 2287
share option reserve charge for the year  – 1898 – – – – 1898
loss for the year  – – – – – 38578 38578
at 1 january 2007  273785 6451 4739 307 – 87964 196704
premium on shares issued   67629 – – – – – 67629
currency translation adjustments  – – – 965 – – 965
revaluation on investment held for sale  – – 4082 – – – 4082
hedge movement  – – – – 14421 – 14421
share option reserve charge for the year  – 1917 – – – – 1917
loss for the year  – – – – – 2253 2253
at 31 december 2007  341414 8368 657 658 14421 90217 246459
notes to the financial statements continued
year ended 31 december 2007 page 53 sterling energy plc annual report  accounts 2007
financial statements
25 reserves continued
    share share   
    premium option hedge retained  
    account reserve reserve earnings total
company    ’000 ’000 ’000 ’000 ’000
at 1 january 2006    273560 4553 – 12895 265218
premium on shares issued     225 – – – 225
charge for the year    – 1898 – – 1898
loss for the year    – – – 71640 71640
at 1 january 2007    273785 6451 – 84535 195701
premium on shares issued     67629 – – – 67629
charge for the year    – 1917 – – 1917
hedge movement    – – 11153 – 11153
loss for the year    – – – 3845 3845
at 31 december 2007    341414 8368 11153 88380 250249
sharebased payment charges in respect to share issues made in the year were 261586 2006 24776
26 operating leases
       group
       2007 2006 
       ’000 ’000
minimum lease payments under operating leases recognised as an expense in the year    4759 2391
 
there were no operating lease payments made by the company during the year
at the balance sheet date outstanding commitments for minimum lease payments under noncancellable operating leases fall due 
as follows
      group company 
     2007 2006  2007 2006 
     ’000 ’000 ’000 ’000
within one year     4706 3257 3132 3011
in the second to fifth year inclusive     18779 12603 12483 12357
after five years     1754 3121 – 2875
     25239 18981 15615 18243
operating lease payments represent the group’s share of rentals for a floating production and storage offtake vessel in 
mauritania and rentals payable for certain of its office properties 
27 cash flows from operating activities 
       2007 2006
group       ’000 ’000
operating activities
operating profitloss       1792 46844
depletion and amortisation       50310 42978
impairment expense       – 60033
exploration expense       – 1368
sharebased payment provision       1918 1898
operating cash flow prior to working capital       54020 59433
increase in inventories       1323 3713
increase in trade and other receivables       12387 3454
increase in trade and other payables       7821 10751
net cash from operating activities       48131 63017
   
notes to the financial statements continued
year ended 31 december 2007 page 54 sterling energy plc annual report  accounts 2007
27 cash flows from operating activities continued
       2007 2006
company       ’000 ’000
operating activities
operating profitloss       3057 82377
impairment expense provision       – 75709
depletion and amortisation       15985 –
share based payment provision       236 1898
operating cash flow prior to working capital       13164 4770
increase in inventories       1090 3713
decreaseincrease in trade and other receivables       62619 95327
decreaseincrease in trade and other payables       136885 105334
net cash used ingenerated from operating activities      62192 1524
28 postbalance sheet events
on 4 april 2008 the company announced the proposed sale of sterling energy inc and sterling energy usa inc 100 owned 
subsidiary companies which represent one of the companies two geographical segments north america 
a sterling energy inc and sterling energy usa inc represent a significant part of the business and in 2007 created a segment 
result of 16791000 profit 2006 6408000 profit and represented segment assets of 430790000 2006 97461000 
and segment liabilities of 132812000 2006 53443000
b the aim of the sale is to repay the group’s existing borrowings and leave it with significant net cash this together with cash 
revenues from its mauritanian providing interests will provide funding to increase the group’s investment in its key high impact 
exploration assets the group will also pursue new opportunities including acquisitions in africa and the middle east the sale 
is expected to be completed by the end of 2008 
c further information on the north america segment is shown in note 3 of the financial statements
 
29 financial instruments
capital risk management
the group manages its capital to ensure that entities in the group will be able to continue as a going concern and to maximise 
returns to investors through the optimal utilisation of available debt and equity capital 
the group is not subject to externally imposed capital requirements the capital structure of the group consists of debt which 
includes the borrowings disclosed in note 20 net of cash and cash equivalents held for working capital purposes and equity 
attributable to the equity holders of the parent comprising issued capital reserves and retained earnings as disclosed in note 25
the directors regularly review the group’s funding requirements and satisfy these requirement in the most cost effective and 
practical manner dependent upon both the external credit markets and the availability of equity funding
gearing ratio
       2007 2006
group      notes ’000 ’000
debt      20 153318 23214
cash and cash equivalents        18 49866 91759
net debtcash       103452 68545
equity       278270 223623
net debt to equity ratio       37 na
significant accounting policies
details of the significant accounting policies and methods adopted including the criteria for recognition the basis of measurement and 
the basis on which income and expenses are recognised in respect of each material class of financial asset financial liability and 
equity instrument are disclosed in note 1 to the financial statements 
notes to the financial statements continued
year ended 31 december 2007 page 55 sterling energy plc annual report  accounts 2007
financial statements
29 financial instruments continued
     carrying amount  fair value
     2007 2006 2007 2006
group    notes ’000 ’000 ’000 ’000
financial assets
cash and cash equivalents    18  49866  91759  49866   91759 
derivative instruments in designated hedge accounting relationships     2005  –  2005  –
availableforsale financial assets     16a  1932 5922 1932 5922
other financial assets at fair value    16b 3500 – 3500 –
trade receivables    17  41965  13863 41965 13863
total      99268  111544 99268   111544 
financial liabilities
derivative instruments in designated hedge accounting relationships   16608  – 16608  –
other derivative instruments     – 4650 – 4650
financial liabilities at amortised cost     153318  23214 153318 23214
trade payables    19 79835 32182 79835 32182
total     249761 60046  249761 60046 
     carrying amount  fair value
     2007 2006 2007 2006
company    note ’000 ’000 ’000 ’000
financial assets
cash and cash equivalents    18 33099  74236  26540  74236 
trade receivables    17  5381  2010  5381  2010 
total     38480  76246  31921  76246 
financial liabilities
derivative instruments in designated hedge accounting relationships    11153 – 11153  –
other derivative instruments     – 4650 – 4650
financial liabilities at amortised cost     153318 – 153318 –
trade payables    19  20684  20953  14125  20953 
total     185155  25603  178596  25603
the fair values of financial assets and financial liabilities are determined as follows 
derivative instruments in designated hedge accounting relationships relate to oil and gas derivatives primarily consisting of 
swaps and collars the fair values of the swap contracts are determined directly by reference to published oil and gas price 
quotations in active markets due to the relatively short term maturities of the instruments less than six months the fair values 
of the collars are determined directly by reference to these similar commodity price quotes as well as a relevant forward quoted 
interest rate curve inflation is assumed to add 1 and the volatility assumption is based on historic price volatility
availableforsale financial instruments are valued at the quoted market price for the investments at the balance sheet date see 
note 16a
other financial assets and liabilities are valued at amortised cost value less any credit risk provision due to the shortterm 
nature of these assets and liabilities such values approximate their fair values at 31 december 2007 and 31 december 2006 
financial risk management objectives
the group’s objective and policy is to use financial instruments to manage the risk profile of its underlying operations the group 
continually monitors financial risk including oil and gas price risk interest rate risk equity price risk currency translation risk and 
liquidity risk and takes appropriate measures to ensure such risks are managed in a controlled manner including where 
appropriate the use of financial derivatives 
the group does not enter into or trade financial instruments including derivative financial instruments for speculative purposes
•
•
•
notes to the financial statements continued
year ended 31 december 2007 page 56 sterling energy plc annual report  accounts 2007
29 financial instruments continued
oil and gas price risk
the group uses a range of derivative instruments to provide a cash flow hedge against its exposure to volatility in oil and gas prices 
arising from floating price sales at 31 december 2007 the group had cash flow hedges in place with the following characteristics 
      group
     2008 settlements 2009 settlements 
brent oil price
volume bbl     360000 360000
hedge price per bbl
– swap     7430 7430
  
wti oil price  
volume bbl     72000  108000
hedge price per bbl  
– collar floorsceilings    60007230 – 8300  –
– swaps     7000 – 8845 6990 
  
henry hub gas price  
volume mmbtu     3990000 2680000
hedge price per mmbtu  
– collar floorsceilings    650 – 900975 – 1625  7865 
– swaps     776 – 1098 800 – 922
the group policy is to hedge a minimum of 25 of the proven production profile of the natixis facility borrowing base assets as 
required by the facility with the actual level determined by broader financial requirements and market availability and pricing 
at 31 december 2006 there were no cash flow hedges in place
the table below shows the combined impact on the fair values of oil and gas derivatives resulting from a 10 decreaseincrease in 
forward prices for oil and a 1 decreaseincrease for gas analysed between earnings and equity 
     group    company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
decrease
decrease in profit     – 4650 – 4650
decrease in equity     3193 – 4243 –
decrease in net assets     3193 4650 4243 4650
increase
increase in profit     – 4650 – 4650
increase in equity     26396 – 18063 –
increase in assets     26396 4650 18063 4650
interest rate risk management
the group is exposed to interest rate risk as entities in the group borrow funds at floating interest rates which are fixed for defined 
periods of up to six months under the facility agreement the group also places available funds on short term deposit the group 
is also exposed to the impact of movements on interest rates on the periodend valuation of its derivative instruments
the group monitors its exposure to interest rate risk on a regular basis but does not currently use derivative instruments to 
manage its interest rate risk 
notes to the financial statements continued
year ended 31 december 2007 page 57 sterling energy plc annual report  accounts 2007
financial statements
29 financial instruments continued
interest rate sensitivity analysis
the sensitivity analysis below has been determined based on the exposure to interest rates for derivative and nonderivative 
instruments at the balance sheet date and assuming the amount of the balances at the balance sheet date were outstanding for 
the whole year
a 100 basis point change represents management’s estimate of a reasonably possible change in interest rates at the balance 
sheet date if interest rates had been 100 basis points higher and all other variables were held constant the group’s profits and 
equity would be impacted as follows
    group    company
    increasedecrease   increasedecrease
    2007 2006  2007 2006
    ’000 ’000  ’000 ’000
loans at amortised amount     1533 232  1533 232
cash and cash equivalents    499 918  331 742
    1034 686   1202 510
the group’s exposure to interest rates has increased during the year as it has entered into additional loans with floating interest 
rate terms to finance acquisitions of and investments in assets
foreign currency translation risk
the group’s reporting currency is the us dollar being the currency in which the majority of the group’s revenue and expenditure 
is transacted the us dollar is the functional currency of the company and the majority of its subsidiaries less material elements 
of its management services and treasury functions are transacted in sterling the majority of balances are held in us dollars with 
transfers to sterling and other local currencies as required to meet local needs at the end of 2007 there were no net material 
monetary liabilities or assets not denominated in the functional currency of the subsidiary involved 
the group does not enter into derivative transactions to manage its foreign currency translation or transaction risk
equity price risks
the group is exposed to equity price risk in respect of its availableforsale investments which are investments in listed equity 
securities these investments are held for strategic rather than trading purposes
equity price sensitivity analysis
a 5 change represents management’s estimate of a reasonably possible change in equity prices at the balance sheet date  
on the basis of the group’s exposure to equity price risks at the reporting date if equity prices had been 5 higher other equity 
reserves would increase by 97000 2006 296000 
the group’s sensitivity to equity prices has not changed significantly from the prior year
credit risk management
credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group
the group reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and 
will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the group
the group’s business is diversified in terms of both region and the number of counterparties and the group does not have 
significant exposure to any single counterparty or group of counterparties with similar characteristics
liquidity risk management
the group manages liquidity risk by maintaining adequate reserves banking facilities and reserve borrowing facilities to match its 
short medium and longterm funding requirements the group uses cash flow models which are regularly updated to monitor 
liquidity risk
included in note 20 is a description of additional undrawn facilities that the group has at its disposal at 31 december 2007 to 
further reduce its liquidity risk
notes to the financial statements continued
year ended 31 december 2007 page 58 sterling energy plc annual report  accounts 2007
29 financial instruments continued
liquidity and interest rate tables
the following tables detail the remaining contractual maturity for the nonderivative financial assets and liabilities of the group and 
company the tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date 
on which the group can be required to pay the table includes both interest and principal cash flows including rates for loan 
liabilities and cash deposits on actual contractual arrangements the weighted average interest rate used is 67 2006 79
   less than  6 months to    
   six months 1 year 16 years total  interest principal
group   ’000 ’000 ’000 ’000 ’000 ’000
2007
trade payables   33987 – – 33987 – 33987
derivative financial instruments   4855 4579 7174 16608 – 16608
longterm debt   7299  9079 147212  163590  10272 153318
  
2006
trade payables   8591 – – 8591 – 8591
derivative financial instruments   4650 – – 4650 – 4650
longterm debt   25048  – – 25048  1834 23214
   less than  6 months to    
   six months 1 year 16 years total  interest principal
company   ’000 ’000 ’000 ’000 ’000 ’000
2007
trade payables   7003 – – 7003 – 7003
derivative financial instruments   3284 3021 4848 11153 – 11153
longterm debt    7299 9079 147212 163590 10272 153318
  
2006  
trade payables   321 – – 321 – 321
derivative financial instruments   4650 – – 4650 – 4650
longterm debt   – – – – – –
the following table details the group’s liquidity analysis for its derivative financial instruments the table has been drawn up based 
on the undiscounted net cash outflows on the derivative instruments the amounts payable are not fixed but have been 
determined by reference to published commodity price quotations at the reporting date 
      group company
     2007 2006 2007 2006
     ’000 ’000 ’000 ’000
forecast cash settlements net of derivative asset and liabilities in notes 18 and 20
2007     – 4650 – 4650
2008     7673 – 6305 –
2009     6930 – 4848 –
     14603  4650 11153 4650
discounted values     14390 4650  10993  4650 
notes to the financial statements continued
year ended 31 december 2007 page 59 sterling energy plc annual report  accounts 2007
financial statements
30 sharebased payments
the group recognised a total expense within administration costs in respect of sharebased payments under equitysettled 
share option plans of 1916722 2006 1898000 the company recognised a total expense within administration costs in 
respect of sharebased payments under equitysettled share option plans of 236000 2006 1898000
the sterling employee share incentive plan
movements during the year on share options were as follows
    2007 2007  2006 2006
     weighted   weighted 
     average   average 
    number exercise   number exercise 
    of share price   of share price 
    options pence  options pence
outstanding at the beginning of period   78390000 125  64125000 95
granted during the period   4650000 155  17805000 230
forfeited during the period   10025000 183  2540000 150
exercised during the period   4150000 108  1000000 125
outstanding at the end of the year   68865000 117  78390000 125
exercisable at the end of the year   50585000 83  48535000 70
for all options the group plan provides for a grant price equal to the average quoted market price of the company’s shares on the 
date of grant 
all options are equity settled the vesting period for all options is generally two years if the options remain unexercised after a 
period of ten years from the date of grant the options expire furthermore options are forfeited if the employee leaves the group 
before the options vest
the range of exercise prices for options outstanding at the end of the year was
    weighted     
    average    
     exercise    
    price  2007  2006
year of grant    pence  number  number
2001    4 2600000  3300000
2002    4 22950000  22950000
2003    7 8200000  9000000
2004    13 5325000  11285000
2005    188 11510000  14050000
2006    231 13630000  17805000
2007    155 4650000  –
the weighted average share price at the date of exercise during the year was 14 pence 2006 16 pence the options outstanding 
at the end of the year have a weighted average contractual life of 638 years 2006 695 years
the cost of share options is spread over the vesting period of two years the weighted average fair value of options granted during 
the period was 155 pence 2006 23 pence
fair values were measured by use of the blackscholes pricing model the inputs to the model were as follows
       2007 2006
       number number
weighted average share price pence       1525 159
weighted average exercise price pence       108 154
average expected volatility        4272 459
expected life years       5 5
average riskfree rate        47 45
expected dividends       none none
the expected life of the options is based on the best estimate of the directors following a review of the profile of the award 
holders expected volatility was estimated by calculating the historical volatility of the company’s share price over the year 
preceding the grant of the options
notes to the financial statements continued
year ended 31 december 2007 page 60 sterling energy plc annual report  accounts 2007
30 sharebased payments continued
no performance criteria are attached to the outstanding 
options other than the requirement that the employee must 
complete two years of service with certain exceptions such as 
a company takeover compulsory redundancy or else at the 
discretion of the directors 
long term incentive plan “ltip”
in accordance with the approved ltip the company granted 
nominal cost options to the directors to acquire ordinary shares 
“shares” the “a” options and at the same time granted 
nominal cost options to acquire shares to the trustees of the 
sterling energy plc employee benefit trust the “ebt” the “b” 
options the trustees of the ebt agreed to make awards to 
the directors of reversionary interests which would initially be 
represented by the b options
the company also granted nominal cost options to acquire 
shares to other employees under the approved ltip
movement during the year on share options were as follows
  2007 2006
  number  number
  of share of share 
  options options
outstanding at the beginning of period  – –
granted during the period  46622000 –
forfeited during the period  2088000 –
outstanding at the end of the year  44534000 –
exercisable at the end of the year  – –
the nominal cost options outstanding at the end of the year 
have a contractual life of 275 years 2006 nil 
the cost of these shares is spread over the vesting period of 
three years 2006 nil
the weighted average fair value of the options granted during 
the year was 1725 pence 2006 nil
the actual number of shares that will be finally awarded out of 
the maximum number stated above under the ltip or 
alternative cash settlement at the company’s option will 
depend upon the achievement of performance criteria 
measured over a vesting period of three years for each award
up to 50 of the nominal cost options will vest based on a 
comparison of the total shareholder return “tsr” of the 
company as measured against a comparator group of 
companies “the first performance condition” the tsr of 
each company with the comparator group will be statistically 
ranked 
the number of options that ultimately vest is based on the 
company’s relative ranking and requires that performance is at 
least equal to the median of the peer group with a maximum 
award being achieved at the 90th percentile
up to the other 50 of the nominal cost options will vest based 
on the share price growth of the company’s shares above 
1175 pence the original share price “the second performance 
condition” 
the number of options that ultimately vest is based on the total 
growth of the share price and requires that growth is at least 
50 with a maximum award being achieved at 150 growth 
these fair values were calculated using modified binomial 
option pricing models the inputs to these models were as 
follows
   2007
share price pence   1175
exercise price pence   nil
expected volatility   4572
expected life years   3
risk free rate    575
expected dividends   none
for options subject to the  
first performance condition –  
the weighted expected  of vesting   933
expected volatility was estimated by calculating the historical 
volatility of the company’s share price over the three years 
preceding the grant of the ltip shares 
for the options that are subject to the first performance 
condition a weighted expected percentage of options vesting 
was applied this was estimated based on the company’s 
historical tsr performance against the comparator group on a 
quarterly basis from 2000 to 2007
notes to the financial statements continued
year ended 31 december 2007 page 61 sterling energy plc annual report  accounts 2007
financial statements
31 related party transactions
transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation at the 
year end the company had amounts payable to subsidiary companies of 40198000 2006 187829
transactions with directors – details of directors’ remuneration who comprise key management personnel are provided below
       2007 2006
       ’000 ’000
shortterm employee benefits       2763 2073
post employee benefits       296 207
sharebased payments       1917 1898
       4976 4178
notes to the financial statements continued
year ended 31 december 2007 page 62 sterling energy plc annual report  accounts 2007
 us dollars
2p proven and probable
bbl barrel of oil
bbls barrels of oil
bcf billion cubic feet of gas
bcfge billions of cubic feet gas equivalent
boe barrels of oil equivalent
bopd barrels of oil per day
ebitda  earnings before interest taxation depreciation 
and amortisation
mcf thousand cubic feet of gas
mcfge thousand cubic feet of gas equivalent
mmbbl millions of barrels
mmcfgd million cubic feet of gas per day
mmcfged millions of cubic feet of gas equivalent per day
nri net revenue interest
orri overriding royalty interest
tcf trillion cubic feet of gas
wi working interest
wec whittier energy corporation
definitions page 63 sterling energy plc annual report  accounts 2007
financial statements
notes page 64 sterling energy plc annual report  accounts 2007
notes sterling energy plc “sterling” or the “company” is an upstream 
oil and gas company listed on the aim market in london sterling 
is an experienced operator of international licences with a focus on 
projects in africa and the middle east sterling has high impact 
nearterm opportunities in kurdistan and madagascar exploration 
in gabon agc and cameroon as well as appraisal and production 
assets in mauritania it seeks to expand its portfolio with an 
emphasis on nearterm activity and value growth it intends to sell 
its usa assets and to redeploy the capital to repay all of its debt 
with the resulting cash balances being used to develop its assets  
in its core areas
overview
01 highlights – 2007
02 2008 activity and objectives
03 new strategy
04 chairman’s statement
06 chief executive’s review
business review
08 operational
16 reserves report
17 schedule of interests
18 financial review
22 corporate social responsibility
24 board of directors
governance
26 directors’ report
30 corporate governance
32 statement of directors’ 
responsibilities
financial statements
33 independent auditors’ report to the 
members of sterling energy 
34 consolidated income statement
34 consolidated statement of 
recognised income and expense
35 consolidated balance sheet
36 company balance sheet
37 consolidated cash flow statement
38 company cash flow statement
39 notes to the financial statements
62 definitions wwwsterlingenergyplccom 
exploring for success
annual report  accounts 2007
uk 
sterling energy plc
5 chancery lane
london
wc2a 1lg
tel 44 020 7405 4133
fax 44 020 7440 9059
infosterllingenergyukcom
usa 
sterling energy
333 clay street 700
houston
texas 77002
tel 1 713 850 1880
fax 1 713 850 1879
infosterlingenergyusacom 
sterling energy plc annual report  accounts 2007


Summary:
 page 06 sterling energy plc annual report  accounts 2007
n ew strategy 
sterling is changing i became ceo in 
early february 2008 and the board has 
now completed a strategic review of the 
business and its prospects our near
term objectives are clear 
1 we intend to focus more on 
potentially transforming drilling activity
our current portfolio already has a 
programme of very high impact work 
planned in the next year in madagascar 
and kurdistan with important wells in 
gabon and agc we will seek out more 
our focus areas will be africa and the 
middle east we will take measured risks 
for major upside an independent review 
by risc on two of our prospects in 
kurdistan and madagascar has 
indicated unrisked upside potential net 
to sterling of up to nearly 2 billion 
barrels with obvious implications for 
major valuecreating possibilities
2 to reduce our debt level and to 
improve our working capital position
we have reviewed our assets and for the 
reasons set out earlier we have 
announced plans to sell the usa assets 
in order to achieve this aim we shall 
seek to farmout selectively which is a 
sensible way to enhance the riskreward 
ratio for our work will enable us to 
diversify and extend our portfolio and 
improve nearterm cash flow much has 
been written about the banking “credit 
crunch” and stock markets have seen 
major falls so we wish to make sterling 
resilient to these changed conditions
 
oil and gas prices are up but so are 
costs 
oil prices have more than doubled over 
the last year to record levels of over 
110bbl despite talk of “recession” in 
some of the major economies around 
80 of the increase in energy usage is in 
the “developing countries” and there is 
little spare producing capacity us gas 
prices have risen over recent months 
partly in response to oil prices but also 
owing to the very cold winter there with 
record snow in many areas 
costs in the industry have been rising 
very rapidly too lead times on 
equipment and drilling have continued to 
cause problems good opportunities are 
hard to find and secure and there is a 
shortage of good and experienced 
people sterling is fortunate to have an 
excellent team who have an interest in 
over 10 of the company our team is 
highly motivated to achieve success 
high impact drilling and further 
projects sought 
we expect to drill prospects by the end 
of 2009 that will offer upside potential to 
sterling of hundreds of millions of 
barrels 
our projects are described in detail 
elsewhere in this annual report i am also 
excited about building new areas of 
activity too
 
as well as expanding our portfolio of 
licence interests we intend to add to our 
existing near term drilling programme 
both onshore and offshore this will be 
achieved by redeploying our capital to 
new activities or through sector 
consolidation we wish to offer our 
shareholders value growth through high 
upside projects combined with careful 
asset management 
c hief executive’s r eview
“i am very excited about kurdistan 
and madagascar where 
independent studies have 
indicated a combined unrisked 
net economic value at potentially 
over 2 billion if both prospects 
are successful at the best 
estimate level” page 07
apr 05
jun 05
aug 05
oct 05
dec 05
feb 06
apr 06
jun 06
aug 06
oct 06
dec 06
feb 07
apr 07
jun 07
aug 07
oct 07
dec 07
feb 08
apr 08
ftse aim oil  gas
70
performance 
90
110
130
150
170
190
210
230
crude oilbrent ubbl
apr 05
jun 05
aug 05
oct 05
dec 05
feb 06
apr 06
jun 06
aug 06
oct 06
dec 06
feb 07
apr 07
jun 07
aug 07
oct 07
dec 07
feb 08
apr 08
natural gashenry hub mmbtu
50
70
performance 
90
110
130
150
170
190
210
230
crude oilwti ubbl
mauritania
2008
2q
exploration drilling
  drilling subject to ratication of the contract extension
 timing subject to rig availability
appraisal drilling development drilling
3q 4q 2q 3q 1q
2009
gabon
agc
madagascar
kurdistan
sterling energy plc annual report  accounts 2007
material value in the exploration 
portfolio 
great uncertainty has been created by 
the recent difficulties in the credit and 
stock markets their impacts have been 
widespread and harsh and we have to 
react to these and other factors in 
formulating our strategy
 
as described in more detail earlier in this 
report the board has recently carried 
out a review of the relative upside 
potential and amount invested in each of 
the business areas sterling wishes to 
make sure that its finances are 
appropriately organised and resilient 
whilst the results of our drilling 
programme in the usa in the last year 
were good and 2008 has started well 
the size of the investment required to 
enable that business to fully flourish  
is growing 
 
sterling has highly prospective assets to 
explore with the fast tracking of 
madagascar to drilling and the new 
licence in kurdistan in the last year the 
board now believes it is in shareholders 
best interests to focus its resources on 
such high potential assets and 
opportunities and to reduce or eliminate 
its debt level it therefore intends to 
overview
dispose of its usa assets in 2008 this 
will enhance our working capital position 
materially by leaving us with significant 
net cash after the sale we will continue 
with farmouts not only to yield cash or 
reduce the nearterm costs of the wells 
but also to swap for other assets 
thereby managing and diversifying the 
portfolio this will also help to show the 
material value in our exploration portfolio 
which in current market conditions 
appears to be largely ignored and will 
allow sterling to add new opportunities 
for growth in africa and the middle east 
graeme t homson
chief executive officer
30 april 2008
 
ft se a im oil  ga s vs b rent oil price 3y
internati onal drillin g sc hedule
henry hub vs wti 3y