annual report  accounts 2008
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 
wwwsterlingenergyplccom
sterling energy plc annual report  accounts 2008 overview
01 who we are
02 highlights – 2008
03 management objectives for 2009
04 chairman’s statement
06 chief executive’s review
business review
08 operational
14 reserves report
15 schedule of interests
16 financial review
20 corporate social responsibility
22 board of directors
governance
24 directors’ report
30 corporate governance
31 statement of directors’ responsibilities
financial statements
32 independent auditors’ report 
33 consolidated income statement
33 consolidated statement of recognised 
income and expense
34 consolidated balance sheet
35 consolidated cash flow statement
36 company balance sheet
37 company cash flow statement
37 company statement of recognised 
income and expense
38 notes to the financial statements
61 definitions

us dollars
2p
proven and probable
bbl
barrel of oil
bbls
barrels of oil
bcf
billion cubic feet of gas
bcfge
billions of cubic feet gas equivalent
bod
barrels of oil per day
boe
barrels of oil equivalent
boed
barrels of oil equivalent per day
ebitda
earnings before interest taxation depreciation amortisation 
impairment and prelicence expenditure
hse
health safety and environment
km
2
square kilometre
mbod
thousand barrels of oil per day
mcf
thousand cubic feet of gas
mcfge
thousand cubic feet of gas equivalent
definitions
mcfged
thousand cubic feet of gas equivalent per day
mmbbl
millions of barrels
mmboe
millions of barrels of oil equivalent
mmcf
millions cubic feet of gas
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
psc
production sharing contracts
ri
royalty interest
sq mi
square mile
tcf
trillion cubic feet of gas
tea
technical evaluation agreement
wec
whittier energy corporation
wi
working interest
page 61 sterling energy plc annual report  accounts 2008 page 1
overview
sterling energy plc “sterling” or “the company”  
is an upstream oil and gas company listed on the 
aim market in london sterling is an experienced 
operator of international licences with a focus on 
projects in africa and the middle east sterling has 
high potential nearterm opportunities in kurdistan 
madagascar and in cameroon as well as 
production appraisal and exploration in the usa 
and production in mauritania
who we are page 2 sterling energy plc annual report  accounts 2008
0
20
40
60
80
100
120
0
1000
2000
3000
4000
5000
6000
7000
0
10
20
30
40
50
60
70
revenue
million
daily production ebitda
05 06 07 08
boed
05 06 07 08
million
05 06 07 08
0
20
40
60
80
100
120
0
1000
2000
3000
4000
5000
6000
7000
0
10
20
30
40
50
60
70
revenue
million
daily production ebitda
05 06 07 08
boed
05 06 07 08
million
05 06 07 08
0
20
40
60
80
100
120
0
1000
2000
3000
4000
5000
6000
7000
0
10
20
30
40
50
60
70
revenue
million
daily production ebitda
05 06 07 08
boed
05 06 07 08
million
05 06 07 08
highlights – 2008
revenues for the period increased 7 to 1036 •	
million 2007 972 million
average production decreased 17 to 4809 boed •	
2007 5760 boed partly due to the impact of two 
major hurricanes in the usa year to date production 
in 2009 has averaged 4694 boed
ebitda increased to 651 million 2007 566 million •	
falls of 61 in oil prices and of 25 in gas prices •	
between the end of 2007 and 2008 resulted in 
lowered fixed asset values and triggered noncash 
pretax impairment charges of 1801 million 
accordingly an operating loss of 1752 million 
resulted 2007 profit 18 million
 operating profit of 77 million before impairment •	
charges 2007 18 million
proved plus probable “2p” oil and gas reserves at the •	
end of 2008 were down 14 at 183 million boe
placing of £135 million at 2 pence per share in •	
october 2008
since the start of 2008 sterling has repaid 414 •	
million 27 of its bank debt which currently stands 
at 1122 million in 2008 the falls in prices of oil by 
75 and gas by 58 from their peaks and continued 
gas price weakness in 2009 has resulted in a marked 
reduction in the group’s borrowing base debt 
availability sterling’s debt is above the calculated 
available level and a waiver was agreed with its banks 
in april 2009 until midaugust 2009 sterling is subject 
to certain restrictions and approvals under the waiver 
a strategic solution is being sought to enable 
repayment of the existing debt gap of 253 million in 
advance of expiry of the waiver in addition to further 
repayments forecast to then fall due a further review 
will take place at that time cash balances are 
currently 43 million
increased activity in kurdistan on the sangaw north •	
psc with a 325km 2d seismic programme completed 
over the block in late 2008 sterling retains a 5333 
interest 40 fully diluted in the block after farming it 
out sterling recovered all past costs and has a carry 
through the seismic and the first well up to the point  
of testing
recent interpretation of the kurdistan seismic •	
confirms that the extensive anticline evident at the 
surface is also present in the subsurface where a very 
large structural closure is evident
good progress has been made in the evaluation of the •	
ampasindava and ambilobe psc’s madagascar 
where several large structures have been identified 
with sifaka one of the largest a site survey on the 
sifaka prospect has been conducted and a potential 
drilling location identified 
prospectivity studies over the ntem block offshore •	
cameroon sterling 100 have identified a number of 
significant prospects the maritime border dispute 
that has delayed drilling is understood to be close to 
being settled
a conditional sale of the usa assets announced in •	
september 2008 was not completed this was due to 
the impact of the banking and credit crisis and the 
major falls in energy prices since then a sale remains 
central to sterling’s strategy
2008 drilling in the usa resulted in 9 out of 18 •	
successful wells results so far in 2009 have improved 
markedly activity is now focused on bringing on 
nearterm production and improving reserve 
classification  page 3 sterling energy plc annual report  accounts 2008
overview
management objectives for 2009
graeme thomson ceo of sterling commented 
“volatile times require fortitude boldness and no little luck 2009 
is a year of challenge and we are focused on achieving our key 
objectives being to resolve the debt issue that has arisen from 
the recent huge fall in energy prices and to drill potentially 
‘companymaking’ wells with a carried interest”
the immediate focus remains on finding a resolution •	
to sterling’s debt shortfall which has arisen principally 
as a direct result of the sustained and major fall in 
energy prices as shown in the table below 
   henry
  brent oil  hub gas
  bbl mcf
1 january 2008  9457 7 27
high point july 2008  14528 1292
31 december 2008  3696 547
28 may 2009  6448 355
we continue discussions with interested third parties •	
and continue to seek a sale of assets including the 
usa business debt repayments from cash flow are 
currently 1 million per month
to drill the highimpact carried well in the exciting and •	
fast emerging oil province of kurdistan
to farm out an interest in the cameroon licence and •	
to drill as soon as feasible
to farm out an interest in madagascar and then •	
prepare for drilling of the sifaka prospect in 2010 page 4 sterling energy plc annual report  accounts 2008
as we all know 2008 and so far 2009 have been exceptionally 
difficult times for the world economy and not least for smaller 
exploration and production companies like sterling 
we announced late last year that we had received possible bid 
approaches and had agreed a conditional sale of our usa 
assets major falls in energy prices since then especially of 
usa gas have had adverse ramifications including for our debt 
facilities and cash flows this plus the impact of instability in 
the global banking sector has made it a particularly complex 
position to resolve i am nonetheless optimistic that given the 
best endeavours of the management team and the support of 
our banks for whose waiver in respect to the february 
borrowing base repayment until midaugust 2009 i am grateful 
we shall prevail
since the start of 2008 we have repaid 414 million of debt and 
as at date of this report now owe 1122 million at the last 
borrowing base review computed effective mid february 2009 
we had a “debt gap” being the debt repayment temporarily 
deferred as a result of the waiver of 283 million after making 
an 80 million repayment further payments totalling 30 
million have subsequently been made under the terms of our 
waiver we must repay not less than 10 million of debt per 
month and have limitations and bank approval requirements  
on capital expenditures and other procedures in addition to 
closing the remaining debt gap of 253 million and meeting 
these monthly repayments the next borrowing base review 
due in august 2009 is forecast to require a further debt 
repayment in september in order to secure the future of 
sterling we are endeavouring to resolve this issue as soon  
as possible
chairman’s statement 
whilst our revenues for 2008 were up 7 at over 1036 million 
group production from our fields in the usa and mauritania 
was down 17 at 4809 boed ebitda was up 15 at 651 
million administrative costs were reduced by 9 and cash 
inflow from operating activities increased by 18 to 567 
million an operating profit before tax and impairment charges 
in 2008 of 77 million was achieved compared with 18 million 
in 2007 the statutory operating loss for the year was 1752 
million 2007 profit 18 million
from their peaks in 2008 oil prices fell by 75 and gas prices 
by 58 we along with the industry have to assess the 
carrying value of our assets with yearend prices in mind in 
common with many companies this review has resulted in a 
noncash writedown which is shown in the financial 
statements as an impairment charge to oil and gas assets of 
1801 million of this approximately 44 was in the usa and 
56 was in mauritaniawest africa 
sterling’s proved plus probable oil and gas reserves at the end 
of 2008 were 183 million boe of which proved reserves were 
60 and probable reserves were 40 there were an 
additional 93 million boe of possible reserves and 04 million 
boe of contingent resources an independent review by risc 
on two of our prospects in kurdistan and madagascar has 
indicated net unrisked best estimate prospective resources of 
460 million boe for the kurdistan prospect this review was 
conducted prior to the recent seismic survey and we expect the 
results of the seismic survey to increase the estimate of the 
prospective resources and decrease the exploration risk 
drilling was successful in mauritania but mixed in the usa 
although since yearend there has been a marked improvement 
in the success rate there page 5 sterling energy plc annual report  accounts 2008
overview
0
5
10
15
20
25
reserves
mmboe
05 06 07 08
1036m
 

 
7
revenue
“ i am very excited about the 
carried well in kurdistan that 
we plan to drill in the fourth 
quarter of 2009 this has the 
potential to transform the 
group’s outlook”
on the exploration front i am very excited about the carried 
well in kurdistan that we plan to drill in the fourth quarter of 
2009 this has the potential to transform the group’s outlook 
as have our interests in cameroon and madagascar where 
activity is expected to accelerate we look to farm out both 
african licences
i wish to record my thanks to the staff and my fellow directors 
for their unstinting efforts during a period of rapidly changing 
market conditions paul griggs and chris callaway left the 
board in april 2008 and may 2009 respectively i would like to 
express my sincere thanks to them both we have also reduced 
our staff by 4 despite commencing operations in kurdistan 
and our manpower costs by 22 on a likeforlike basis since 
the start of 2008 
our nearterm aims are clear we must adapt to the new 
conditions and difficult choices lie ahead i am grateful for the 
support given by everyone over the last difficult year you may 
rest assured that no effort will be spared to achieve our 
objectives in 2009
 
dick stabbins
chairman
29 may 2009  page 6 sterling energy plc annual report  accounts 2008
chief executive’s review
adapting our strategy
the last year or so has been the most volatile and difficult 
period in my considerable time in the oil industry but i believe 
there are many reasons to be optimistic about the future not 
least sterling’s interests in potentially “company making” assets 
such as kurdistan cameroon and madagascar of which i will 
say more later 
the falls in energy prices from their high points in july to the 
december 2008 closing prices – gas down 58 and oil down 
75 – have had a well documented impact on the industry and 
the companies operating within it the impact on sterling has 
been no less marked
in common with our peers we are making adjustments to our 
business structure and strategy aimed at ensuring a sustainable 
future with good nearterm upside potential 
energy prices have tumbled –  
costs are lagging
although we are now getting lower revenue from our 
production we did take out hedges prudently for 2009 of 
around 75 of our proved developed estimated sales volumes 
at prices well ahead of current ones operating costs which 
followed energy prices and the consequent increase in industry 
activity to high levels have not generally fallen indeed items like 
insurance have increased however there are signs that capital 
costs are now starting to reduce with costs such as rig rates 
steel and services all reacting to the industry’s inability to 
sustain previous cost levels
reducing our debt gap is the  
current priority
since the start of 2008 sterling has repaid 414 million 27 
of its debt which now stands at some 1122 million a bank 
jan 08
feb 08
mar 08
apr 08
may 08
jun 08
jul 08
aug 08
sep 08
oct 08
nov 08
dec 08
jan 09
feb 09
mar 09
apr 09
may 09
0
us
2
4
6
8
10
12
14
natural gashenry hub mcf
crude oilbrent bbl natural gashenry hub mcf
jan 08
feb 08
mar 08
apr 08
may 08
jun 08
jul 08
aug 08
sep 08
oct 08
nov 08
dec 08
jan 09
feb 09
mar 09
apr 09
may 09
0
us
20
40
60
80
100
120
140
160
crude oilbrent uk bbl
waiver has also been agreed and is in place until midaugust 
2009 we continue to work very hard to reduce the outstanding 
debt and to eliminate the debt gap which currently stands at 
253 million the debt gap is the amount of actual debt in 
excess of the syndicated loans borrowing base as reassessed 
under the reserve based lending facility assumptions every six 
months the debt gap is also the amount of debt repayment 
temporarily deferred by our lending banks as a result of  
the waiver
the sale of our usa assets has not yet been achieved this is 
due primarily to the fall in energy prices and the crisis in the 
banking sector which has meant that the conditional buyer we 
had announced in september 2008 could not complete the 
transaction the market place for usa deals has virtually 
ceased to operate since then but we continue to seek a buyer 
for part or all of these assets
in parallel we are also seeking a debt solution that will enable 
the group to resume its expansion this could include an 
injection of capital and people of assets or a combination or 
indeed a full takeover shareholders can be assured that senior 
management is fully committed to securing a resolution to this 
issue in the interests of all stakeholders as soon as possible 
great upside in the exploration and 
drilling portfolio
in 2008 we achieved two important farm outs on the iris well 
offshore gabon and on our highly promising licence onshore in 
kurdistan which are described in more detail elsewhere 
our policy is almost always to farm out international wells and 
minimise our net costs including drilling whilst the gabon well  
in july 2008 was dry it was drilled at no cost to us our bank 
waiver sets clear limitations on our international costs but our 
policy on existing assets remains as it was last year – to farm out  page 7 sterling energy plc annual report  accounts 2008
overview
our first well in kurdistan is expected to commence drilling in the 
fourth quarter of 2009 when we farmed out this asset in 
september 2008 we got back our past costs which helped with 
debt repayments and we will also benefit from a carry on costs 
of drilling the first well until we reach the point of testing we 
retained a 5333 interest 40 fully diluted if the government 
backs in and operatorship recent interpretation work on the 
seismic acquired in late 2008 has led us to increase our 
expectations of the size of the prospect and to lower our 
assessment of the associated risks there has been successful 
drilling in kurdistan recently which according to the kurdistan oil 
minister has added 4–5 billion boe in reserves – which would 
indicate a truly a world class oil region in the making
 
in madagascar we now expect drilling in 2010 the delay being 
due to the recent local political changes following a period of 
unrest our partner and operator exxonmobil is focused on 
drilling a major structure on the ampasindava block where we 
retain a 30 working interest and are partially carried a 
participation decision is currently required by the end of july 
and we continue to seek farmin parties to enable the company 
to participate
offshore in cameroon we have been expediting our studies of 
the prospectivity of the ntem block sterling 100 and are very 
encouraged by the number and size of the prospects identified 
we aim to seek farmin parties at the appropriate time and 
understand that the border dispute may be settled soon we 
intend to drill as soon as we can after that
in mauritania there is no material phase 2 capital expenditure 
budgeted in 2009 phase 3 is currently being evaluated and any 
work would not commence until 2010
in the usa the focus of our drilling is low risk wells which can 
result in shortterm reclassification of reserves into proved and 
producing whilst farming out higher risk wells we have cut our 
“ the major challenges in a 
highly volatile time are many 
and varied but the staff and all 
of the directors have worked 
tirelessly for the company”
capex programme for 2009 by 41 to no more than 277 
million intending to balance cash generation with the twin aims 
of bank debt repayment and achieving commercial objectives 
good people in volatile times
it is hard from the outside to gauge the effort made within a 
company like ours during such a difficult time but i can tell you 
it has been huge the major challenges in a highly volatile time 
are many and varied but the staff and all of the directors have 
worked tirelessly for the company much has been achieved as 
set out elsewhere in this annual report but it has also been very 
frustrating for example our placing in october 2008 had given 
the group resources to meet the then estimated debt 
repayments through to at least early 2010 the falls in energy 
prices since then have meant that the reassessed bank debt 
borrowing base is lowered and we are dealing with the results 
volatile times require fortitude boldness and no little luck i am 
grateful to all stakeholders staff banks shareholders suppliers 
and others for their support and i trust in time that support will 
yield its rewards
2009 is a year of challenge and we are focused on achieving 
our stated objectives to resolve the debt issue and get sterling 
back on a growth path
 
graeme thomson
chief executive officer
29 may 2009
414million
 
–27
debt repaid since 1 january 2008 page 8 sterling energy plc annual report  accounts 2008
kurdistan northern iraq 1 
kurdistan iraq
sangaw north on track for 2009 drilling
2008 represented a period of intense exploration activity on  
the sangaw north psc having only signed the contract  
with the kurdistan regional government “the krg” in 
november 2007 sterling completed a 325km 2d seismic 
programme over the block in november 2008 this mixed 
vibroseis and dynamite sourced survey represented the first 
subsurface data in the block
the survey was a great success since it confirmed that the 
extensive anticline evident at the surface is also present in the 
subsurface where a very large structural closure is evident the 
seismic operation was carried out with an excellent hse record 
and with minimal social and environmental impact 
in parallel with the seismic acquisition programme we also 
farmed out a 3333 interest in the sangaw north psc to 
addax petroleum sangaw limited “addax” under the terms  
of this deal addax paid sterling’s past costs sterling’s seismic 
acquisition costs plus a carry for sterling’s costs for drilling the 
first well on the block up to the point of testing 
following this farm out the krg assigned a 20 third party 
interest in the psc to the korea national oil corporation 
sterling’s interest has thus now been reduced to 5333 
addax’s to 2667 and sterling remains operator of the psc 
sterling’s fully diluted interest will be 40 should the krg 
exercise its government backin rights
in conjunction with the seismic operation sterling also 
undertook an extensive programme of geological fieldwork 
involving both surface mapping and rock sample collection for 
operational
middle east
1
subsequent analysis this data is being combined with the 
subsurface seismic data to identify the optimal drilling location 
for the sangaw north exploration well planned for the fourth 
quarter of 2009 subject to rig availability
further analysis of the surface oil seeps typical of the area 
confirms that the area is charged by the same source rockthat is 
responsible for the majority of the multibillion barrels of iraqi 
reserves including the kirkuk field only 50km to the west 
sangaw north represents a moderate risk but potentially high 
reward exploration project within this prolific hydrocarbon province
in recent weeks the potential of this province has been 
highlighted by the exciting news of heritage’s announcement  
of its miran west discovery located 30km to the north of the 
sangaw block and the announcement by the krg that crude 
oil exports to turkey from dno’s tawke field and the taqtaq 
field will commence in june 2009 
incountry operations continue to be directed from sterling’s 
office in suleimaniah kurdistan’s second city optimally located 
only 40km from the project area a demographic and social 
survey of villages in the sangaw area was undertaken in order 
to obtain feedback on the most appropriate support sterling 
can provide to the local community during the duration of the 
seismic operation medical clinics were conducted in many 
villages as part of our local liaison work and we plan to increase 
our support to the community as the project progresses page 9 sterling energy plc annual report  accounts 2008
business review
case study
sangaw north 2d seismic acquisition
the completion of a 325km 2d seismic programme over the 
sangaw north block in november 2008 represented the 
culmination of a multidisciplined operation and was testament 
to sterling’s meticulous planning and awareness of the local 
social and political environment providing the backdrop to  
the project
having gone through a competitive tender process the 
seismic company chosen to carry out the work was canada 
based terra seis who were the most experienced contractor 
incountry having previously acquired a number of surveys  
in kurdistan over a threeyear period the vibroseis sourced 
portion of the survey 78 was carried out using a set of 
brand new stateoftheart nomad 65 vibrators imported into 
kurdistan immediately prior to commencement of the project 
dynamite acquisition 22 was carried out over the more 
rugged and inaccessible terrain
 
working closely with the resident community particularly with 
respect to the hiring of labour and vehicles we were able to 
100000
200000
300000
400000
500000
600000
700000
800000
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
tradfordseukc1
051109  162707
100000
200000
300000
400000
500000
600000
700000
800000
maximise the benefits to the local economy great care was 
taken prior to and during the seismic operation to minimise 
both environmental and social impact and to repair any 
damage with a thorough restoration programme sterling 
implemented hse procedures and standards that meant 
that despite the involvement of nearly 300 people and 100 
vehicles per day at the peak of the operation the project was 
completed safely with an excellent hse record
close attention to costs throughout the project resulted in 
savings which allowed 32km of additional and contingent 
seismic data to be acquired whilst remaining within budget 
this first “below ground” data over the sangaw structure was 
very encouraging with the processed data showing that the 
extensive anticline evident at surface has a similar expression 
in the subsurface where a very large structural closure is 
evident ongoing refinement of the seismic data through 
specialised processing techniques will ensure that we remain 
on schedule to define an optimal well location ahead of the 
planned drilling of the well in the fourth quarter of 2009 page 10 sterling energy plc annual report  accounts 2008
andrew grosse 
exploration and  
technical director 
cameroon
ntem 
the ntem permit is a highly prospective deepwater block 
situated in the southern doualario muni basin and lies adjacent 
to the northern border of equatorial guinea the financial 
obligations and work programme for the ntem concession area 
100 wi are currently suspended owing to overlapping 
maritime border claims between cameroon and equatorial 
guinea however both countries are actively working to resolve 
this issue sterling is reevaluating the area in the light of recent 
tertiary discoveries made by noble energy to the north of the 
block and understands the border dispute may be resolved 
soon sterling intends to farm out an interest in this licence 
this large block remains undrilled and is well placed with 
respect to both tertiary and upper cretaceous plays as a 
result it is attracting a good level of industry interest many 
large leads and prospects have been identified following a 
detailed interpretation of the extensive 2d and 3d seismic 
database recent seismic attribute analysis and inversion 
studies on this dataset reveal the presence of large and 
widespread submarine fans with good exploration potential
operational
africa
1
2
4
3
mauritania psc a  psc b 1 
agc dome flore 2 
cameroon ntem 3 
gabon iris marin ibekelia marin 4 
madagascar ambilobe and ampasindava 5 
madagascar
the potential of the ambilobe and ampasindava blocks has 
continued to grow this year building on from the identification of 
the giant sifaka prospect last year in ampasindava where 
water depths range from 200m to 3000m two further large 
leads have been confirmed within the sifaka jurassic trend in 
ambilobe numerous leads of cretaceous and tertiary age have 
been identified including several large cretaceous leads 
preparations for the drilling of the sifaka prospect have 
continued throughout the year a site survey was acquired in 
mid2008 from which a drilling location was chosen at the end 
of the year this location is on the flank of the structure where 
other studies suggest the main jurassic target sandstones are 
expected to be encountered at approximately 3400m below 
seabed our estimates remain in line with those previously 
stated unrisked mean prospective resources of 2 billion barrels 
following the completion of the environmental impact 
assessment in the first half of 2009 the sifaka prospect should 
be ready to drill from the second half of 2009 however 
following recent local political changes and a period of civil 
unrest we now expect to be drilling in 2010 
seismic reprocessing of over 8000km of 2d data is currently 
being undertaken to identify additional exploration potential in 
both blocks and is expected to be completed mid2009 in the 
ambilobe psc where water depths range from zero to 3000m 
an additional 550km of 2d was purchased in 2008 and a major 
fieldwork campaign was successfully completed these field 
results have improved our understanding of the jurassic and 
cretaceous sourcerocks and reservoirs in outcrop and our 
ability to predict their presence in the undrilled offshore basins 
in november 2008 the ampasindava psc entered phase 3 of 
the exploration period which includes a commitment well we 
expect the costs of the well to materially exceed the value of our 
remaining carry a participation decision is required by the end 
of july and we continue to seek to further farmdown our 
interest in the psc to cover our costs 
5 page 11 sterling energy plc annual report  accounts 2008
business review
case study
ntem cameroon
the line of sedimentary basins that stretches along the west 
african coast from the niger delta to angola has proven to be a 
prolific hydrocarbon province many oil and gas discoveries 
have been made in the cretaceous and tertiary sequences 
which fill these basins
in the ambilobe psc exxonmobil withdrew from the joint 
venture on 28 may 2009 sterling now has a 100 wi in the 
permit and we plan to farm out the block to reduce our cost 
exposure sterling has been offered an extension to the current 
exploration phase by omnis and we are currently finalising the 
terms of this extension with omnis 
mauritania
chinguetti phase 2b development work completed
during 2008 the operator petronas completed phase 2b of 
the development programme with the atwood hunter rig this 
phase consisted of drilling two new production wells c19 and 
c20 and interventions into three existing production wells 
these interventions involved running production logs installing 
a plug to isolate a water producing zone in one well and 
installing larger capacity gas lift valves in all three wells the two 
new wells added around 65 mmbbl of 2p field reserves and 
were brought on stream at around 3500 bod each on 
completion of the phase 2b programme the total field 
production rate was increased to 16500 bod with half this 
due to phase 2b itself current production is 10800 bod
sterling estimates that at the end of 2008 chinguetti held a 
remaining 114 mmbbl of gross 2p reserves to be accessed with 
the existing wells and 408 mmbbl of contingent resources 
evaluation work carried out in 2009 may culminate in a potential 
phase 3 to access these contingent resources in 2010
during 2008 sterling received a share of sales of 373000 bbls 
from its interests in the chinguetti field through the funding 
agreement and its royalty interest which together generated 
over 291 million gross revenue 204 million net after hedges 
from four cargo liftings
other development potential 
two appraisal wells on the banda gas discovery straddling 
psc’s a and b were drilled in 2008 these wells encountered 
gas and oil columns with similar contacts to those seen in the 
discovery well and confirm gas in place estimates of 11 tcf in 
the most likely case with over 4 tcf in the upside case on the 
back of these results the operator petronas is understood to 
be preparing a field development plan which it expects to 
submit to the government by mid 2009 sterling would be 
entitled to revenue under its royalty interest from any 
development of banda
sterling’s ntem block 100 wi is located in the southern 
douala basin of cameroon and is one of the few remaining 
large undrilled blocks within this province the block covers 
an area of 2319km
2
 and was licensed in 2001 water depths 
range from 400m to 2000m across the block during the 
first term of the concession over 2100km of 2d and 
1500km
2
 of 3d data was acquired along with the purchase 
of additional seismic and gravity studies these studies 
highlighted the presence of several large prospects and 
prompted sterling to enter into the second drilling term of 
the licence in june 2005 the work programme for ntem was 
suspended owing to overlapping border claims between 
cameroon and equatorial guinea along the ntem licence 
boundary both countries are actively working to resolve the 
issue
discoveries to the north south and east of ntem are 
testament to the presence of an active petroleum system in 
the region sterling’s current work effort is directed towards 
understanding ntem in the light of recent tertiary discoveries 
made directly north of the block by noble energy benita and 
berlinda fields in 2007–08 and conoco phillips coco marin 
discovery in 2003
agc
dome flore extension sought
the dome flore concession lies within the agc a joint 
exploration zone between senegal and guinea bissau sterling 
holds a 30 wi and markmore a malaysian company with 
interests in bitumen refining is the operator 
an exploration well to drill two stacked maastrictrichtian light oil 
reservoirs is being planned the shallower heavy oil accumulation 
will also be penetrated by this well and the interval cored to 
evaluate its production potential the heavy oil deposits within 
the licence on dome flore and dome gea contain an estimated 
gross 08 to 1 billion bbls in place sterling’s share of the drilling 
costs will be carried by markmore for this exploration well 
a site survey has been conducted but a rig could not be 
secured to allow the well to be drilled prior to the end of the 
exploration phase in january 2008 a licence extension has not 
yet been granted and is still being sought 
gabon 
iris marin
the iris marin production sharing contract “psc” is situated 
in the southern gabon basin adjacent to the gamba and 
ivinga producing oil fields and the olowi oil field development 
the permit extends from the shoreline to a water depth of 60m 
sterling holds a 32 working interest and sold an 18 interest 
to addax petroleum and also transferred the operatorship to 
addax in june 2008 the iris charlie marin1 well was drilled in 
july 2008 but failed to find hydrocarbons and was abandoned 
as a dry hole a thick gamba sandstone formation was 
encountered by the well confirming the prospectivity of the 
area the operator’s forward plan is to undertake geological 
studies in 2009
ibekelia
sterling and its partners are in advanced negotiations to 
convert ibekelia from a tea into a psc the tea covers an 
area of approximately 673km
2
 adjacent to gamba ivinga  
fields and olowi sterling holds a 40 working interest and  
is the operator  page 12 sterling energy plc annual report  accounts 2008
operated
nonoperated
royalty
tom east 1 
rincon 2 
scott  hopper 3 
south mustang island 4 
north mustang island 5 
matagorda island 520 el gordo 6 
sts 7 
owens 8 
big wells 9 
tom lyne 10 
eagleford 11 
bonnie view 12 
el toro bueno 13 
westhoff 14 
hamel 15 
austin chalk giddings 16 
galveston island 251 17 
galveston island 303 18 
3
2
11
21
24
29
31
27 28
32
12
14
10
34
1
7
13
15
16
20
23
22
25
26
28
27
30
33
8
9
17
18
4
5
6
19
asset disposal process initiated
in april 2008 sterling’s board took the decision to sell its usa 
assets following a review of all the group’s assets and its 
forward capital expenditure programme responding to current 
market conditions and the progress made on other licences over 
the last year sterling has sought to redeploy its capital to existing 
and other higher potential assets and to repay its debt the 
sales process is ongoing but timing has been impacted by falling 
commodity prices and the worldwide economic downturn
reserves and production
at the end of 2008 sterling usa had 2p reserves of 103 bcfge 
171 mmboe compared to yearend 2007 2p reserves of 111 
bcfge 185 mmboe possible and contingent resources were  
in excess of 47 bcfge 79 mmboe approximately 60 of the 
2p reserves were categorised as proven within this portfolio 
sterling has an inventory of identified drilling prospects 
budgeted to be drilled over the next four years most of which 
are already leased and many already have the necessary 
permits in place 
during the year sterling divested of a group of noncore assets 
this allowed sterling to exit activities located in oklahoma new 
mexico wyoming and california net proceeds were 87 million 
and were utilised to pay down existing debt net reserves sold 
were 72 bcfge 12 mmboe in addition the sales released the 
group from future abandonment obligations of 48 million
sterling had a hurricane affected net production of 83 bcfge 
during 2008 227 mmcfged after accounting for the reserves 
associated with its divestitures and all reserve additions and 
adjustments sterling replaced 86 of its net production for  
the year yearend reserves were adversely impacted by the 
lower commodity price environment which accounted for 
operational
united states of america
approximately 6 bcfge of the reduction without this revision 
sterling would have replaced over 150 of its net production 
for 2008
 
during 2008 sterling participated in 18 new wells and over  
30 recompletions nine of these new wells and 25 of the 
recompletions were successful the group also participated in 
the shooting of two new 3d surveys 15 sq mi and 35 sq mi one 
of which was completed and processed by yearend two drilling 
locations have already been identified from the first survey
at yearend production from our usa assets was 22 mmcfged 
compared to yearend 2007 of 285 mmcfged with the 
decrease due to the impact of hurricane ike disposals 
undertaken during the year approximately 1 mmcfged  
and a reduction in drilling activity due to lower commodity 
prices over half of the production is operated by sterling  
and approximately 75 is natural gas
since the end of the year sterling’s usa division has  
been active with five wells successfully drilled and several 
workovers completed net production in 2009 has averaged  
210 mmcfged
at the end of the first quarter of 2009 production had increased 
to over 22 mmcfged from 202 wells with nearly 70 of this 
production coming from 11 fields 
diversified asset base
giddings austin chalk
sterling currently has austin chalk production from five wells 
and current net production of over 1 mmcfged this 
programme located in grimes and burleson counties began in 
early 2007 and the first five wells have proved successful with 
net production increasing rapidly two wells are planned for 
2009 with a total of 20 locations remaining page 13 sterling energy plc annual report  accounts 2008
business review
high island 52 19 
esperson 20 
n ulrich 21 
village mills 22 
phoenix lake 23 
mauriceville 24 
gillis english bayou 25 
w cameron 26 
e crowleysouth boscorayne 27 
n mauriceduson 28 
e texas 29 
beaver dam creek 30 
cut off 31 
lake lery 32 
coffee bay 33 
sunriseroleta 34 
texaslouisiana onshore gulf coast
sterling currently has production from 133 wells of over  
11 mmcfged this area includes the drilling programme 
conducted with viking petroleum a private houston company 
which generates prospects primarily in south east texas eight 
such wells were drilled in 2008 with two successful and one 
lost due to mechanical problems redrilled in the first quarter  
of 2009 five additional wells are scheduled for 2009 sterling 
was also active in its operated westhoff field with three wells 
successfully drilled in the fourth quarter of 2008
windham field
sterling has production from 15 wells with over 14 mmcfged  
of net production during 2008 sterling was active with five 
recompletions which increased production by over 05 mmcfged 
three additional recompletions are planned for 2009
offshore gulf of mexico
sterling currently has interests in a total of 15 wells in the gulf 
producing approximately 8 mmcfged in 2008 it sold its 
operated interest in the sherman mat720 field and facilities  
in return for assumption of plugging and abandonment costs 
the company was active in this region with significant upgrades 
made to the production facilities in the el gordo mi 520 field  
and a recompletion that added over 05 mmcfged sterling also 
attempted to sidetrack an inactive well in the n mustang island 
field this was unsuccessful due to mechanical problems
south texas
sterling currently has production of nearly 25 mmcfged from a 
total of 34 wells in addition the company recently participated 
in the shooting of a new 35 sq mi 3d survey in lasalle county 
texas in addition to the targeted deeper formations sterling’s 
acreage is positioned along the highly competitive eagleford 
shale play the eagleford is found at approximately 11000ft 
and several operators have had success with horizontal  
drilling and multistage fracs during the first quarter of 2009 
the company farmed out a portion of its eagleford rights in 
exchange for a partial carry including completion of the first  
well and reimbursement of seismic and land costs the first  
well is currently drilling
hurricane ike
in september 2008 hurricane ike made landfall near 
galveston texas after travelling through the northern gulf  
of mexico this was a major storm that caused widespread 
damage both onshore and offshore sterling’s eugene island 
268 ei268 platform and its single producing well were 
seriously damaged in the storm and the well has been shut  
in since that time net production lost was 04 mmcfged all 
subsea safety systems appear to be in service and the well  
and platform are expected to be abandoned during the second 
quarter of 2009 we expect that all of the required remedial 
work will be covered by sterling’s insurance policies
although no other significant damage was experienced by  
our facilities production was significantly curtailed during 
september and october 2008 due to third party downstream 
repairs and pipeline inspections total curtailed production  
was estimated at 6 mmcfged immediately after hurricane ike 
and approximately 4 mmcfged for october 2008 with the 
permanent impact on production being 04 mmcfged page 14 sterling energy plc annual report  accounts 2008
sterling energy plc reserves report proven and probable reserves
       2008    2007
   2008 2008 attributable 2007 2007 attributable 
   oil gas reserves oil gas reserves
   000 bbls mmcf 000 boe 000 bbls mmcf 000 boe
a volumes
at 1 january   7 070 85344 21294 5 197 46304 12914
asset acquisitions   7 4 371 136 3506 48232 1 1545
asset divestments   2313 592 2412 –  – – 
upwards revisionadditions from previous   2080 1 134 2269 46 12316 2099
downwards revision from previous    1201 – 1201 7 44 14492 3 159
production   720 6208 1754 935 7 016 2 104
at 31 december   4991 80049 18332 7 070 85344 21294
b location of reserves 
the geographical location of reserves were
north america   3767 80049 17  108 4273 85344 18497
west africa    1224 – 1224 2797 – 2797
    4991 80049 18332 7 070 85344 21294
c categorisation of proven and probable reserves
at the end of the year 
proven reserves   69 57 60 60 69 66
probable reserves   31 43 40 40 31 34
proven west africa 756 – 756 1300 – 1300
  north america 2687 45504 10271 3056 58614 12825
probable west africa 468 – 468 1497 – 1497
  north america 1080 34545 6838 1217 26729 5672
    4991 80049 18332 7 070 85343 21294
notes
1  the proven and probable reserve movements in 2008 are based on
a  north america evaluation reports prepared by independent petroleum engineers as of 1 april 2008 with certain downward or upward adjustments by the directors for the 
assets at the 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 internal assessment of reserves as at 31 december 2008 conducted by a qualified person as defined by the aim rules this 
internal technical and economic evaluation led to a downward revision of 1201000 bbls
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 the impact of hurricane ike field performance unsuccessful drilling and commodity  
price weakness
3 sterling has not booked reserves in west africa relating to other mauritanian discoveries on the basis that there are no firm development plans
4  definitions proven reserves have a 90 level of confidence to the stated quantities will be equalled or exceeded probable reserves have a 50 level of confidence that the 
stated quantity will be equalled or exceeded oil includes condensates
reserves report page 15 sterling energy plc annual report  accounts 2008
business review
schedule of main interests at 31 december 2008
    sterling sterling net operated
  size licence working revenue non
 location km² name interest  interest  operated
africa
mauritania offshore 6969 psc a na sliding scale  nonoperated 
     royalty over 3 
 offshore 8095 psc b na sliding scale royalty over  nonoperated 
     6 except 528 of 
      the chinguetti field 
      
 chinguetti funding   na economic interest  
 agreement with smh    for approximately 8  
     of chinguetti project 
agc casamancebissau 1699 dome flore 30
 
˜  nonoperated
cameroon southern douala  
 basin 2319 ntem 100  operator
gabon southern gabon 673 ibekelia tea 40  operator
 southern gabon 607 iris marin 32  nonoperated
madagascar offshore nw 17 650 ambilobe 100  operator
 offshore nw  9860 ampasindava 30

  nonoperated
middle east
iraq kurdistan  492 sangaw north 5333  operator
usa
offshore mustang island  mustang island 90–100 90–100 operator
 texas coast  gathering system   
 texas state waters 489 mustang island 125–100 10–7 4 operator
 texas state waters  matagorda islandel 
  21 gordo 46–83 36–66 operator
 texas federal waters 50 high island  7 6 gryphon orri 7 6 gryphon orri nonoperated
    285 phoenix orri 285 phoenix orri nonoperated
 texas federal waters 23 galveston 
    incl 303 1575–17 4 107–1 13 nonoperated
 louisiana federal waters 20 eugene island 
    incl 268 60 45 operator
 texas state waters 582 galveston bay  
   incl st 251–5 28 203 nonoperated
onshore texas  101 three counties 24–55 19–42 nonoperated
   austin chalk 
  texas 643 se texas 17 9 129 nonoperated
   3d project area  
   mauriceville 
  68 windham 91 68 operator
  69 carthage 100 763 operator
  9 1 westhoff 75 57 2 operator
  82 sunrise – 125–25 orri nonoperated
 louisana 1325 rayne 32 27 operator
  16 cutoff 75 54 operator
  carried interest for deferred work or  amount
  following exxonmobil’s decision to withdraw a licence extension was sought in may 2009
  to be plugged and abandoned post hurricane ike
 
˜
 licence extension sought
schedule of interests page 16 sterling energy plc annual report  accounts 2008
selected financial data  2008 2007
usa production boed 3784 4297
chinguetti production boed 1025 1463
total production boed  4809  5760
   
yearend 2p reserves 000 boe 18332 21294
   
revenue million 1036 972
ebitda million 651 566
loss after tax million 1568 23
net cash investment in  
 oil  gas assets million 574 2332
year end cash million 238 441
year end debt million  1193 1533
year end net debtcash million  955 11 22
average realised oil price  
 per bbl net of hedges bbl 6721 5495
average realised gas price  
 per mcf net of hedges mcf 882 7 1 6
total cash operating costs  
 per boe note 7 bbl 1855 1291
 ebitda is calculated as earnings before interest taxation depreciation 
amortisation impairment and prelicence expenditure
2008 has been a challenging year for sterling financially early in 
2008 against a background of difficulties in the wider credit 
and stock markets sterling took the decision in shareholders’ 
interests to reduce or eliminate its debt and to focus on its 
highly prospective assets and opportunities
in april 2008 sterling announced that it had retained bmo 
capital markets to manage a sales process for its usa oil and 
gas exploration and production business the rationale for the 
disposal was to reduce its debt level and improve the working 
capital position with the aim of enabling sterling to redeploy 
some of this capital on its high impact exploration projects as 
well as to seek similar new business opportunities 
financial review
during the year and consistent with these goals sterling 
farmed down its interests in two of its exploration projects  
in sangaw north kurdistan and iris marin gabon to  
addax petroleum
with weakening global commodity prices during the third 
quarter of 2008 and following a 203 million reduction in debt 
availability under its borrowing base facility sterling undertook 
a placing to raise £135 million during october 2008 at the 
same time sterling also announced a conditional sale of its usa 
business with a continued deterioration in the global economy 
during the fourth quarter of 2008 commodity prices were 
further adversely impacted and debtequity dried up as a result 
sterling was unable to complete the conditional sale of the usa 
business but remains committed to this process
following a borrowing base redetermination in february 2009 
natixis as agent and technical bank indicated that reflecting a 
major fall in commodity prices since the previous 
redetermination sterling’s debt availability under the borrowing 
base facility would be reduced further to 763 million this 
recent determination resulted in a debt gap between the 
amount already drawn and the reduced available facility the 
debt gap is currently 253 million under the borrowing base 
facility after principal repayments of 110 million to date in 
2009 as a result of this debt gap sterling required a 
repayment waiver from its banking syndicate sterling expects 
to service its adjusted cash flow obligations at least until the 
next borrowing base redetermination which is due in mid
august 2009 based on the banking syndicate’s latest 
borrowing base model the borrowing base debt availability is 
forecast to reduce further to 585 million in august 2009 the 
waiver includes various changes to the terms of the loan 
including fees dependent on the timing of the elimination of the 
debt gap prior bank approvals of capital costs and a monthly 
repayment of not less than 10 million under a cash sweep 
mechanism sterling continues to work on a longer term 
solution with its banks and its strategic partners and  page 17 sterling energy plc annual report  accounts 2008
business review
651 m  15
ebitda
stakeholders since the start of 2008 to date sterling has repaid 
414 million of debt under the borrowing base facility
additionally sterling has a subordinated 15 million corporate 
facility with natixis of which 11 million has been drawn down
revenues up 7 to 1036 million  
in 2008
revenues increased by 7 to 1036 million in 2008 2007 
972 million with high average oil and gas prices for 2008 
offsetting the impact of declining chinguetti field production 
and lower than forecast production from the usa portfolio 
usa production decreased by 12 to an average of 227 
mmcfged 2007 258 mmcfged gas accounting for 75 of 
this production 2007 74 usa production was significantly 
affected in the third quarter of 2008 203 mmcfged and q4 
190 mmcfged as a result of hurricane ike currently usa 
production is 22 mmcfged as a result of new wells coming on 
stream in early 2009 revenues from usa operations increased 
23 to 832 million 2007 678 million with an average 
realised price of 1004mcfge 2007 702mcfge third party 
income from sterling operated pipelines fell 23 to 12 million 
2007 16 million before related costs due to a decline in 
throughput from the wells throughput volumes in 2008 were 
02 mmcfge and 401000 bbls compared to throughput 
volumes in 2007 of 04 mmcfge and 400000 bbls
the group’s entitlement to chinguetti field production in 2008 
totalled 04 million bbls 2007 05 million bbls revenue from 
the chinguetti field interests totalled 204 million 2007 293 
million net of the cost of related settlements of hedge 
contracts crystallising which totalled 87 million 2007 59 
million and including royalty income amounting to 20 million 
2007 46 million the average cargo sale price was 8501
bbl 2007 6808bbl an average discount to brent of 702
bbl 2007 472bbl 
operating loss 1752 million after  
1830 million non cash impairments
2008 operating loss amounted to 1752 million 2007 profit 
18 million after pretax impairment charges of 1830 million 
due to the deferred tax credit of 242 million relating to the 
impairment the posttax impairment charge was 1588 million 
adjusting for these impairment charges gives an adjusted 
operating profit of 77 million cost of sales increased to 870 
million 2007 752 million largely reflecting an increased 
depletion charge in the year of 539 million 2007 492 
million and the increase in operating costs in the year of 326 
million 2007 271 million 
during the year we have recognised 1801 million impairment 
of oil and gas assets which was predominately due to the 
dramatic decline in oil and gas prices at the end of 2008 and to 
a lesser extent due to field performance this impairment 
comprises the following 
a a 759 million impairment of chinguetti producing field 43 
million impairment of the chinguetti royalty asset 70 million 
impairment of the tiof royalty asset 63 million impairment of the 
dome flore exploration and evaluation ee assets and 65 
million impairment of the gabon and guinea bissau ee assets 
where there is no longer headroom in the africa ee pool 
b additionally there is an 801 million impairment of usa 
assets 773 million of this impairment relates to the impairment 
of onshore assets 28 million relates to impairment associated 
with write off of ei268 reserves ei268 suffered significant 
damage to the platform and jacket from hurricane ike this well 
is currently in the process of being plugged and abandoned 
the cost for the removal of wreck plugging and abandonment 
is covered by the group’s insurance
usa costs of sales rose to 597 million 2007 499 million 
averaging 720mcfge 2007 530mcgfe operating 
“ against a background of 
difficulties in the wider credit 
and stock markets sterling 
took the decision in 
shareholders’ interests to 
reduce or eliminate its debt 
and to focus on its highly  
prospective assets and  
opportunities”
jon cooper 
finance director and  
company secretary page 18 sterling energy plc annual report  accounts 2008
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
mauritania oil price
bbl
us prices
05 06 07 08
mcfge
05 06 07 08
0
10
20
30
40
50
60
70
80
90
0
2
4
6
8
10
12
mauritania oil price
bbl
us prices
05 06 07 08
mcfge
05 06 07 08
expenses increased to 261mcfge 2007 193mcfge and 
depletion charges increased to 459mcfge 2007 337
mcfge reflecting the higher depletion rate of reserves 988 in 
2008 compared to 701 in 2007 
chinguetti cost of sales were 274 million 2007 253 million 
averaging 7314bbl 2007 470bbl of which 3233bbl 
related to production costs and 4082bbl to depletion charges 
this increase in unit of production costs reflects the absolute 
increase in cost of sales mainly relating to increased fuel costs in 
combination with reduced production from the chinguetti fields 
prelicence costs of 27 million 2007 45 million were written 
off as required under ifrs
administrative expenses decreased by 9 to 143 million 
2007 157 million this is stated after capitalisation of fixed 
assets recoveries from partners in operated joint ventures and 
a noncash share option charge of 15 million 2007 19 
million this has decreased from 2007 because of a reduction 
in employee costs during the year
during the year sterling sold noncore assets in the usa 
realising a profit on disposal of 31 million and realised a 22 
million profit in respect to the farm out of its interests held in the 
sangaw north licence 
ebitda and net loss
ebitda totalled 651 million 2007 566 million which 
equates to 371boe 2007 269boe 
interest revenue from cash deposits less finance costs on the 
bank loans were a net cost of 95 million 2007 94 million 
this reflects the interest and other costs related to the loan 
financing for and cash investment in whittier energy 
corporation acquired in 2007
a taxation credit of 279 million arose in 2008 2007 07 
million credit reflecting a deferred tax credit of 279 million 
financial review continued
including 242 million which partly offsets the usa impairment 
charge in the year 
net loss after tax totalled 1568 million 2007 23 million loss 
fully diluted loss per share was 863 usc per share 2007 014 
usc loss per share
net cash flow from operating activities
cash inflow from operating activities increased to 567 million 
2007 485 million
net cash investments in oil and gas assets totalled 574 million 
2007 2333 million including key investments of 350 million 
invested in the usa business producing assets and 227 million 
invested in the chinguetti field producing asset 112 million was 
invested in usa nonproducing assets 50 million invested in 
gabon 04 million in cameroon 03 million in madagascar 
and 366 million in kurdistan during the year the sangaw 
north block was successfully farmed out and as a result addax 
petroleum paid all past costs and agreed to carry sterling’s 
costs for the planned exploration work programme of 2d seismic 
and the first exploration well up to the point of testing 49 million 
in respect of plugging and abandonment costs during the year 
proceeds from disposals and farm outs totalled 555 million
a net amount of 209 million was raised in october 2008 from 
an equity placing to strengthen the company’s balance sheet 
this was required to ensure sterling was in compliance of its 
banking covenants
bank facility 
the company has a 1250 million reservebacked revolving 
facility with natixis as agent and technical bank as discussed 
previously natixis has indicated that following the major fall in 
energy prices over the last few months the company’s 
borrowing base under its syndicated debt facility is currently 
calculated at 763 million and at the last borrowing base 
review was forecast to be 585 million at the next borrowing  page 19
heading here
sterling energy plc annual report  accounts 2008
business review
base review in august 2009 under this facility at the end of 
may 2009 sterling had an outstanding balance of 1012 
million giving rise to a debt gap of 253 million in april 2009 
sterling signed a waiver agreement with the banks which 
allowed sterling to reschedule its loan repayments until the next 
borrowing base review in mid august 2009 the waiver 
includes various changes to the terms of the loan including 
fees dependent on the timing of the elimination of the debt gap 
prior bank approvals of capital costs and a monthly repayment 
of not less than 10 million under a cash sweep mechanism 
additionally sterling has a subordinated 150 million corporate 
facility with natixis of which 110 million has been drawn down
at the end of 2008 net debt stood at 955 million 2007 
1035 million with total cash balances of 238 million 2007 
441 million
balance sheet
at the end of 2008 net assets stood at 1712 million 2007 
2783 million with current assets less current liabilities of 
negative 162 million 2007 47 million noncurrent assets 
primarily oil and gas assets totalled 3183 million 2007 5278 
million total debt was 1193 million 2007 1533 million
the decommissioning provision of 265 million 2007 221 
million has increased during the year as a result of a 46 million 
increase in the provision for decommissioning of eugene island 
268 and a 34 million increase to mauritania decommissioning 
provision the 59 million total decommissioning cost for ei268 
is expected to be fully covered by sterling’s insurance this 
increase in the decommissioning provision is partly offset from 
the release of 48 million in the usa decommissioning 
provision from fields sold during the year 
hedging 
in october 2007 the group entered into a number of oil and gas 
price derivatives taking advantage of the then prevailing high 
prices to underpin asset values and the loan borrowing base 
the directors continually review forward markets to identify 
opportunities to add value within the group’s hedging policy 
details of the group’s hedging policy and its yearend derivative 
portfolio are set out in note 27 no further hedges have been put 
in place since the end of 2007 in light of the fall in energy prices 
the hedges in place throughout 2009 give rise to a derivative 
asset position of 156 million 2007 146 million liability 
financial strategy and outlook
the group will look to press ahead with its strategy to add 
value for its shareholders in a prudent and commercial manner
while the debt gap on the borrowing base facility remains 
sterling is required to ensure that its capital expenditure is 
predominately directed towards its borrowing base assets 
major exploration projects will continue on the expected 
timetables where sterling is carried by its partners
between now and august 2009 sterling will continue to work 
with its banks and stakeholders to put a robust longterm 
solution in place to this issue potential options are discussed 
further in the chairman’s statement ceo’s review and the 
operational review
cautionary statement
this financial report contains certain 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 believe the 
expectation reflected herein to be reasonable in light of the 
information available up to the time of their approval of this 
report the actual outcome may be materially different owing to 
factors either beyond the group’s control or otherwise within 
the group’s control but for example owing to a change of plan 
or strategy accordingly no reliance may be placed on the 
forwardlooking statements
56 7m  18 
cash inflow from operating activities page 20 sterling energy plc annual report  accounts 2008
sterling recognises that it has a  
corporate and social responsibility  
to the local communities in the areas  
in which it operates to its partners  
to its employees and to its shareholders 
in pursuing its business objectives  
it undertakes not to compromise its 
corporate or social responsibilities  
with any of these stakeholders
business integrity
the highest ethical standards are the cornerstone of sterling’s 
business all business activities are reviewed recorded and 
accounted for to ensure it meets these standards it also seeks 
to ensure these standards are applied by its business partners 
including partners host governments and contractors all 
members of staff are also individually accountable for their 
actions to ensure they apply and maintain these standards 
corporate social responsibility
social responsibility
sterling is committed to ensuring the health and safety of its 
employees and the local communities in which we work it is 
committed to providing a workplace free of discrimination 
where all employees are afforded equal opportunities and are 
rewarded upon merit and ability
environmental responsibility
sterling is committed to minimising its impact on the 
environment in both field operations and within its offices  
all staff share responsibility for monitoring and improving the 
performance of its environmental policies with the objective  
of reducing our impact on the environment on a yearon 
year basis  page 21 sterling energy plc annual report  accounts 2008
business review
case study
kurdistan
prior to the onset of seismic acquisition operations in the 
sangaw north area sterling undertook both environmental 
and social impact studies in order to minimise and mitigate 
against any effects on the local physical ecological and 
social environment local community support during 2008 
included the provision of mobile medical clinics held in a 
number of villages many remote from the nearest 
government provided medical support sterling also 
contracted the mines advisory group mag to identify and 
demarcate unexploded ordnance uxo and mine threat 
areas for subsequent clearance a community survey was 
undertaken during the fourth quarter of 2008 and the 
majority of villages in the sangaw north district were visited 
in order to seek opinion on the most appropriate options for 
future support these village visits also offered the 
opportunity to distribute children’s clothing and sports 
equipment building further goodwill with the local 
population sterling will continue to build on the support 
offered to date through further initiatives during 2009 page 22 sterling energy plc annual report  accounts 2008
board of directors
graeme thomson aged 52
chief executive officer
graeme has held a number of senior finance and management positions in quoted 
companies in 1989 he 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 56
executive deputy chairman
following graduation under a british petroleum scholarship programme harry joined 
bp and worked for 17 years in a variety of exploration and corporate finance roles in 
1987 he left bp to form kirkland resources which was listed in london as dragon oil 
in 1993 
 
in 1997 harry was the principal founding partner of the endeavour oil  gas lp and 
following the successful sale of endeavour in 2000 was a founding partner and 
director of sterling following the listing of sterling on aim in 2002 harry was 
appointed chief executive of the group and became executive deputy chairman in 
february 2008
andrew grosse aged 50
exploration and technical director
andrew joined sterling in 2002 as the company’s exploration manager he has 
extensive international exploration experience with operating oil companies in africa 
the middle east and north america prior to joining sterling he was 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 page 23 sterling energy plc annual report  accounts 2008
business review
jon cooper aged 40
finance director and company secretary
jon joined sterling as finance director and company secretary in february 2008 he is 
an experienced finance professional with advisory experience in the oil and gas industry 
 
jon began his career with kpmg where he qualified as a chartered accountant and 
in 1997 joined dresdner kleinwort wasserstein as a director in the oil and gas 
corporate finance team during this time he worked on mergers and acquisitions 
public offerings and as strategic adviser to a wide range of companies including 
gazprom lukoil omv pkn orlen unocal petronas and harvest natural resources 
prior to joining sterling jon spent two years working as finance director at gulf 
keystone petroleum
dick stabbins aged 65
nonexecutive chairman
dick is a geologist with 40 years of experience in the international energy industry 
mainly in the independent sector he has worked for the saskatchewan canada 
department of mineral resources 1969–72 for murphy oil 1972–75 and for ranger 
oil 1975–81 he was exploration manager and subsequently exploration director of 
goal petroleum plc from 1981 until 1996 
 
from july 2000 until its acquisition by sterling he was a 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 2000–03 of the 
geological society of london whose audit committee he chairs
peter wilde aged 55
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 20 years in various commercial and 
corporate roles he is a graduate in law from the london school of economics
 
he was a director of lepco plc from its foundation between 1991 and 2001 he 
was firstly chief operating officer and then managing director at the time of its 
introduction to aim from 1988 to 1991 he was 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
london
mike adams senior geologist
martin arch financial controller 
edward blunt senior geologist
michelle churchward legal manager
alastair donaldson  financial controller 
– west africa 
  and middle east
tim fookes  group it manager 
alain gubian  country manager 
mauritania
tom radford  senior geophysicist
martin smith senior geophysicist
roy st pier senior engineer
frances townley uk finance manager
us
daniel silverman  president and 
director usa
john brouillette  director of land and 
legal
april chamberlain director of finance
tom cook  director of operations 
and productions page 33 sterling energy plc annual report  accounts 2008
financial statements
consolidated income statement
year ended 31 december 2008
       31 december 31 december
        2008 2007
      notes 000 000
revenue      5 103568  97 171 
cost of sales      7 87035 7 51 97
gross profit       16533  21974 
administrative expenses        14307 15720
impairment of oil and gas assets      13 14 15 180142  – 
other impairments       2833  – 
profit on disposal of oil and gas assets      6 5311   – 
profit on disposal of investment      16c 2871   – 
prelicence exploration costs       2664 4462
operating lossprofit      6 175231 1792 
interest revenue and other finance gainslosses      9 1159  3286 
gain on hedging instruments        –  4618 
finance costs      9 10620 12642
loss before tax       184692 2946
tax      10 27862  693 
loss for the financial year       156830 2253
loss per share usc    
basic and diluted      12 863 01 4
all operations were continuing throughout both years
consolidated statement of recognised 
income and expense
year ended 31 december 2008
       31 december  31 december
       2008 2007
      notes 000 000 
currency exchange adjustments      23 1921 965
movement on value of quoted company investment      23 657 4082
movement on hedge reserve      23 29995  14421 
net incomeloss recognised directly in equity       2741 7   1 7538
loss for the financial year       156830 2253
total recognised loss for the year attributable to equity holders of the parent company   129413 1 9791 page 34 sterling energy plc annual report  accounts 2008
consolidated balance sheet
31 december 2008
      as at  as at 
      31 december 31 december 
       2008 2007
      notes 000 000
noncurrent assets
intangible royalty assets      13 3791  16600 
intangible exploration and evaluation assets      14 125756  155581 
property plant and equipment      15 187760  342917 
investments      16a 996  6985 
other receivables – restricted bank deposits reclassified – note 25      3145   5765 
       321448  527 848 
current assets
inventories       4994  5036
trade and other receivables      17 32606  41 965
derivative financial instruments      27 16071  2005 
current tax repayable        –  833 
cash and cash equivalents reclassified – note 25       23854  44101 
       77525  93940 
total assets       398973  621788 
current liabilities
trade and other payables      18 39533 79835
derivative financial instruments      27 497 9434
bank loan      19 53700  – 
       93730 89269
noncurrent liabilities
bank loan      19 65570 15331 8
deferred tax liabilities      20 40793 6951 2
derivative financial instruments      27  –  7 1 7 4 
longterm provisions      21 27664 24245
       134027 254249
total liabilities       227757 343518
net assets       171216  278270 
equity     
share capital      22 42749  3 1 8 11
share premium account      23 351334  341414 
share option reserve      23 9869  8368
investment revaluation reserve      23  –  657
currency translation reserve      23 1263 658
hedge reserve      23 15574  14421 
retained earnings      23 247047 90217
total equity       171216  278270
these financial statements were approved by the board of directors on 29 may 2009
signed on behalf of the board of directors
jr cooper aca  gp thomson fca
director    director page 35 sterling energy plc annual report  accounts 2008
financial statements
       31 december 31 december 
        2008 2007
      note 000 000 
operating activities
cash generated from operations      25 56745  481 3 1 
taxation receivedpaid         –  41 6 
net cash flow from operating activities       56745  48547 
investing activities
interest received       1635  2888 
capital expenditure       11287 4 87 945
corporate acquisitions        –  145368
increase in investment       550  – 
proceeds on disposal of property plant and equipment       16526   – 
proceeds on farmout of exploration and evaluation asset       38960   – 
restricted cash reclassified – note 25       2620  5765
net cash used in investing activities       53683 2361 90
financing activities
net proceeds from issue of ordinary shares       20858  72521 
repaymentsdrawdowns on loan facilities       30409 78779 
interest paid       8347  11 354
decrease in overdraft       3781  – 
net cash flow used infrom financing activities       21679 139946 
    
net decrease in cash and cash equivalents       18617  4 769 7
cash and cash equivalents at beginning of year reclassified note 25     44101  91759 
effect of foreign exchange rate changes       1630 39 
cash and cash equivalents at end of year       23854  441 01 
consolidated cash flow statement
year ended 31 december 2008 page 36 sterling energy plc annual report  accounts 2008
company balance sheet
31 december 2008
       as at  as at 
       31 december  31 december
       2008 2007
      notes 000 000
noncurrent assets
property plant and equipment      15 8801  7 61 70 
investments      16b 337 180  338399 
       345981  414569 
current assets
inventories       4211  4804 
trade and other receivables      17 96785  58617 
derivative financial instruments      27 6542   – 
current tax repayable        –  833 
cash and cash equivalents        15432  26540 
       122969  90794 
total assets       468951  505363 
current liabilities
trade and other payables      18 169735 54323
derivative financial instruments      28  –  6305
bank loan      19 53700  – 
       223435 60628
noncurrent liabilities
bank loan      19 65570 15331 8
derivative financial instruments      27  –  4848
longterm provisions      21 8211 4509
       73781 162675
total liabilities       297216 223303
net assets       171735  282060 
equity
share capital      22 42749  3181 1 
share premium account      23 351334  341414 
share option reserve      23 9869  8368 
hedge reserve      23  6542   11  1 53
retained earnings      23 238759 88380
total equity       171735  282060 
    
these financial statements were approved by the board of directors on 29 may 2009
signed on behalf of the board of directors
jr cooper aca  gp thomson fca
director    director
   page 37 sterling energy plc annual report  accounts 2008
financial statements
       31 december  31 december
       2008 2007
      note 000 000 
operating activities    
cash generated from operations      25 21506  62 192
net cash flow from operating activities       21506  62 192
investing activities
interest received       4524  21 43 
capital expenditure       18925 8553
corporate acquisitions        –  145368
net cash used in investing activities       14401 1 5 1778
financing activities
net proceeds from issue of ordinary shares       20858  72521 
repaymentsdrawdowns on loan facilities       30409 101993 
interest paid       8105 8240
net cash flow used infrom financing activities       1 7656 166274 
net decrease in cash and cash equivalents       10551  4 7696
cash and cash equivalents at beginning of year       26540  74236 
effect of foreign exchange rate changes       557  – 
cash and cash equivalents at end of year       15432  26540 
company cash flow statement
year ended 31 december 2008
       31 december  31 december
       2008 2007
      note 000 000 
movement on hedge reserve      23 1 7695   11  1 53
net lossincome recognised directly in equity       1 7695   11  1 53
loss for the financial year       150379 3845
total recognised loss for the year attributable to equity holders of the parent company   132684 14998
company statement of recognised 
income and expense
year ended 31 december 2008 page 38 sterling energy plc annual report  accounts 2008
1 accounting policies
a general information
sterling energy plc is a company incorporated in great britain 
under the companies act 1985 the address of the registered 
office is 5 chancery lane london wc2a 1lg the company 
and the group are engaged in the exploration for and 
development and production of oil and gas
these financial statements are presented in us dollars as this is 
the currency in which the majority of the group’s revenues and 
expenditure are transacted 
b basis of accounting and adoption of new and  
revised standards
the financial statements of the company and the group have 
been prepared in accordance with international financial 
reporting standards “ifrs” as endorsed by the council of the 
european union 
the financial statements are prepared under the historical cost 
convention except for the revaluation of certain financial 
instruments the principal accounting policies adopted are set 
out below
in the current year two interpretations issued by the international 
financial reporting committee “ifric” are effective for the 
current period these are ifric 11 ifrs 2 – group and 
treasury share transactions and ifric 14 ias 19 – the limit 
on defined benefit asset minimum funding requirements and 
their interaction the adoption of these interpretations has not 
led to any changes in the group’s accounting policies 
at the date of authorisation of these financial statements the 
following standards and interpretations which have not been 
applied in these financial statements were in issue but not  
yet effective and in some cases had not yet been adopted  
by the eu
ifrs 1 amended cost of an investment in a subsidiary  
 ias 27 amended  jointly controlled entity of associate
ifrs 2 amended   sharebased payment – vesting 
conditions and cancellations
ifrs 3 revised 2008  business combination 
ifrs 8 operating segments
ias 1 revised 2007  presentation of financial statements 
ias 23 revised 2007  borrowing costs
ias 27 revised 2008  consolidated and separate financial 
statements 
ias 32 amended puttable financial instruments and  
 ias 1 amended  obligations arising on liquidation
ifric 12 service concession arrangements
ifric 15  agreements for the construction of  
real estate
ifric 16  hedges of a net investment in a  
foreign operation
the directors anticipate that the adoption of these standards 
and interpretations in future periods will have no material impact 
on the financial statements of the group except for revised 
segment disclosures when ifrs 8 comes into effect for periods 
commencing on or after 1 january 2009 and the treatment of 
and future acquisition of subsidiaries when ifrs 3 comes into 
notes to the financial statements
year ended 31 december 2008
effect for business combinations for which the acquisition date 
is on or after 1 january 2010
c going concern
the financial statements have been prepared in accordance 
with the going concern basis of accounting the use of this 
basis of accounting takes into consideration the group’s 
current and forecast financing position additional details of 
which are provided in note 2 and note 19 including the 
existence of a material uncertainty relating to going concern
d basis of consolidation
the consolidated financial statements incorporate the financial 
statements of the company and entities controlled by the 
company its subsidiaries made up to 31 december each year 
control is achieved where the company has the power to 
govern the financial and operating policies of an invested entity 
so as to obtain benefits from its activities 
the results of subsidiaries acquired or disposed of during the 
year are included in the consolidated income statement from 
the effective date of acquisition or up to the effective date of 
disposal as appropriate
where necessary adjustments are made to the financial 
statements of subsidiaries to bring the accounting policies used 
into line with those used by the group
all intragroup transactions balances income and expenses 
are eliminated on consolidation
as a consolidated group income statement is published a 
separate income statement for the parent company has not 
been published in accordance with section 230 4 of the 
companies act 1985 
e revenue
sales of petroleum and gas are recognised net of any sales 
taxes when goods are delivered or the title has passed to the 
customer interest income is accrued on a time basis by 
reference to the principal outstanding and at the effective 
interest rate applicable royalties and tariff income are 
recognised as earned dividend revenue from investments is 
recognised when the shareholders’ rights to receive payment 
have been established
f oil and gas interests
exploration and evaluation assets “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 page 39 sterling energy plc annual report  accounts 2008
financial statements
the group’s oil and gas assets are currently held in two cost 
pools north america and africa and the middle east
costs relating to the exploration and evaluation of oil and gas 
interests are carried forward until the existence or otherwise of 
commercial reserves has been determined 
if commercial reserves have been discovered the related 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 fieldbyfield 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 depreciation and any 
provision for impairment depreciation is provided at rates 
estimated to write off the cost less estimated residual value of 
each asset over its expected useful life as follows
computer and office equipment – 33 straight line
g decommissioning
provisions for decommissioning costs are recognised in 
accordance with ias 37 provisions contingent liabilities and 
contingent assets provisions are recorded at the present value 
of the expenditures expected to be required to settle the 
group’s future obligations
provisions are reviewed at each balance sheet date to reflect 
the current best estimate of the cost at present value the 
unwinding of the discount is reflected as a finance cost a 
decommissioning asset is also established since the future 
cost of decommissioning is regarded as part of the total 
investment to gain access to future economic benefits and 
included as part of the cost of the relevant development and 
production asset depletion on this asset is calculated under 
the unit of production method based on commercial reserves 
h intangible royalty interests
the carrying value of each individual royalty interest is 
amortised on the unit of production basis relative to the 
underlying asset and assessed individually for impairment  
when there is an indication that an impairment event may  
have occurred 
i foreign currencies
the us dollar is the reporting currency of the company and the 
group transactions denominated in other currencies are 
translated into us dollar at the rate of exchange ruling at the 
date of the transaction assets and liabilities in other currencies 
are translated into us dollars at the rate of exchange ruling at 
the reporting date all exchange differences arising from such 
translations are dealt with in the profit and loss account
the results of entities with a functional currency other than the 
us dollar are translated at the average rates of exchange during 
the period and their balance sheet at the rates ruling at the 
balance sheet date exchange differences arising on translation 
of the opening net assets and on translation of the results of 
such entities are dealt with through the currency translation 
reserve 
j taxation
current tax including uk corporation tax and foreign tax is 
provided at amounts expected to be paid or recovered using 
the tax rates and laws that have been enacted or substantively 
enacted by the balance sheet date page 40 sterling energy plc annual report  accounts 2008
1 accounting policies continued
j taxation continued
deferred tax is recognised in respect of all timing differences 
that have originated but not reversed at the balance sheet date 
where transactions or events that result in an obligation to pay 
more tax in the future or a right to pay less tax in the future have 
occurred at the balance sheet date timing differences are 
differences between the group’s taxable profits and its results 
as stated in the financial statements that arise from the inclusion 
of gains and losses in tax assessments in periods different from 
those in which they are recognised in the financial statements
a net deferred tax asset is regarded as recoverable and 
therefore recognised only when on the basis of all available 
evidence it can be regarded as more likely than not that there 
will be suitable taxable profits from which the future reversal of 
the underlying timing differences can be deducted
deferred tax is provided on temporary differences arising on 
acquisitions that are categorised as business combinations as 
part of the assessment of the fair value of assets and liabilities 
acquired deferred tax is recognised in respect of the retained 
earnings of overseas subsidiaries only to the extent that at the 
balance sheet date dividends have been accrued as receivable 
or a binding agreement to distribute past earnings in future has 
been entered into by the subsidiary or associate 
deferred tax is measured at the average tax rates that are 
expected to apply in the periods in which the timing differences 
are expected to reverse based on tax rates and laws that have 
been enacted or substantively enacted by the balance sheet 
date deferred tax is measured on a nondiscounted basis
k investments
investments are recognised and derecognised on a trade date 
where a purchase or sale of an investment is under a contract 
whose terms require delivery of the investment within the 
timeframe established by the market concerned and are initially 
measured at cost including transaction costs
group investments are classified as 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 cost less any provision for 
permanent diminution of value 
l operating leases
rentals under operating leases are charged on a straightline 
basis over the lease term 
 
m financial instruments
derivative financial instruments
financial assets and financial liabilities are recognised on the 
group’s balance sheet when the group becomes party to the 
contractual provision of the instrument 
the group uses derivative financial instruments to manage its 
exposure to movements in oil and gas prices fluctuations in 
foreign exchange rates and interest rates
derivatives financial instruments are stated at fair value
the purpose for which a derivative is used is established at 
inception to qualify for hedge accounting the derivative must 
be “highly effective” in achieving its objective and this 
effectiveness must be documented at inception and throughout 
the period of the hedge relationship the hedge must be 
assessed on an ongoing basis and determined to have been 
“highly effective” throughout the financial reporting periods for 
which the hedge was designated
for the purpose of hedge accounting hedges are classified as 
either fair value hedges when they hedge the exposure to 
changes in the fair value of a recognised asset or liability or 
cash flow hedges when they hedge exposure to variability in 
cash flows that is either attributable to a particular risk 
associated with a recognised asset or liability or forecasted 
transaction
in relation to fair value hedges which meet the conditions for 
hedge accounting any gain or loss from 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 cash flow hedges the portion of the gains and losses on 
the hedging instrument that is determined to be an effective 
hedge is taken to equity and the ineffective position as well as 
any change in time value is recognised in the income 
statement the gains and losses taken to equity are 
subsequently transferred to the income statement during the 
period in which the hedged transaction affects the income 
statement or if the hedge is subsequently deemed to be 
ineffective a similar treatment applies to foreign currency loans 
which are hedges of the group’s net investment in the net 
assets of a foreign operation
during the year the group designated a number of its oil and 
gas derivatives as cash flow hedges of future production see 
note 27
financial assets at fair value through profit and loss 
fvtpl 
financial assets are classified as fvtpl where the financial 
asset is either held for trading or it is designated as at fvtpl
a financial asset is classified as held for trading if 
it has been acquired principally for the purpose of selling in •	
the near future or 
it is a part of an identified portfolio of financial instruments •	
that the group manages together and has a recent actual 
pattern of shortterm profittaking or 
it is a derivative that is not designated and effective as a •	
hedging instrument 
notes to the financial statements continued
year ended 31 december 2008 page 41 sterling energy plc annual report  accounts 2008
financial statements
1 accounting policies continued
a financial asset other than a financial asset held for trading 
may be designated as at fvtpl upon initial recognition if 
such designation eliminates or significantly reduces a •	
measurement or recognition inconsistency that would 
otherwise arise or 
the financial asset forms part of a group of financial assets or •	
financial liabilities or both which is managed and its 
performance is evaluated on a fair value basis in accordance 
with the group’s documented risk management or 
investment strategy and information about the group is 
provided internally on that basis or 
it forms part of a contract containing one or more embedded •	
derivatives and ias 39 financial instruments recognition 
and measurement permits the entire combined contract 
asset or liability to be designated as at fvtpl 
financial assets at fvtpl are stated at fair value with any 
resultant gain or loss recognised in profit or loss the net gain 
or loss recognised in profit or loss incorporates any dividend or 
interest earned on the financial asset fair value is determined in 
the manner described in note 27
trade receivables 
trade receivables are measured at initial recognition of their fair 
value appropriate allowances for estimated irrecoverable 
amounts are recognised in the income statement when there is 
objective evidence that the asset is impaired
cash and cash equivalents
cash and cash equivalents comprise demand deposits and 
other shortterm highly liquid investments that are readily 
convertible to a known amount of cash and are subject to an 
insignificant risk of change in value
trade payables 
trade payables are stated at their fair value 
financial liabilities and equity 
financial liabilities and equity instruments are classified 
according to the substance of the contractual arrangements 
entered into an equity instrument is any contract that 
evidences a residual interest in the asset of the group after 
deducting all of its liabilities equity instruments issued by the 
company are recorded at the proceeds received net of direct 
issue costs
n pension costs
the group operates a number of defined contribution pension 
schemes the amount charged to the income statement for 
these schemes is the contributions payable in the year 
differences between contributions payable in the year and 
contributions actually paid are shown as either accruals or 
prepayments in the balance sheet
o 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
p 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 net realisable value represents 
the estimated selling prices less all estimated costs of 
completion and costs to be incurred in marketing selling  
and distribution 
q inventories
the group’s share of any material and equipment inventories is 
accounted for at the lower of cost and net realisable value net 
realisable value is the estimated selling price less the estimated 
costs of completion and the estimated costs necessary to 
make the sale the cost of inventories comprises all costs of 
purchase costs of conversion and other costs incurred in 
bringing the inventories to their present location and condition
r provisions
provisions are recognised when the group has a present 
obligation as a result of a past event and it is probable that the 
group would be required to settle that obligation provisions are 
measured at the management’s best estimate of the 
expenditure required to settle the obligation at the balance 
sheet date and are discounted to present value where the 
effect is material
s finance costs and debt
financial costs of debt are allocated to periods over the term of 
the related debt and at a constant rate on the carrying amount 
arrangement fees and issue costs are deducted from the debt 
proceeds on initial recognition of the liability and are amortised 
and charged to the income statement as finance costs over the 
term of the debt 
 
2 going concern
the group’s business activities together with the factors likely 
to affect is future development performance and position are 
set out in the operational review the financial position of the 
group at the yearend its cash flows liquidity position and 
borrowing facilities are described further in the financial 
review in addition note 27 to the financial statements includes 
the group’s objectives policies and processes for managing its 
capital its financial risk management objectives details of its 
financial instruments and hedging activities and its exposure to 
credit risk and liquidity risk page 42 sterling energy plc annual report  accounts 2008
2 going concern continued
as described in the chief executive’s review and the financial 
review the current economic and operating environment 
remains challenging the group reported an operating loss of  
1752 million for the year reflecting significant asset impairment 
charges and following the dramatic commodity price 
weakening during 2008 and early 2009 sterling has a current 
debt gap as at the date of the annual report representing 
outstanding debt in excess of the level available under the 
terms of its borrowing base facility of 253 million for which 
sterling has secured a waiver from repayment until the next 
borrowing base review in august based on current forecasts 
537 million falls due for repayment in 2009 of which  
11 million has already been repaid 
as previously explained sterling continues to work with its 
banks and stakeholders to put a longterm solution in place to 
meet its repayment obligations ahead of the expiry of the 
waiver and the next borrowing base redetermination in mid 
august 2009 these strategic solutions include
the sale of the usa business for which the process •	
continues
the sale of and farm out of certain exploration assets •	
an asset injection in exchange for equity that could increase •	
the borrowing base
raising equity from a combination of sterling’s current •	
shareholders or new shareholders including a strategic 
investor and 
a takeover of sterling as announced on 4 november 2008 •	
sterling continues to discuss approaches from third parties 
regarding possible offers that may result in a change of 
control however there is no certainty that these could lead 
to an offer for sterling
the directors have concluded that the uncertainty as to the 
achievement of a strategic solution represents a material 
uncertainty that casts significant doubt upon the group’s and 
company’s ability to continue as a going concern and 
therefore that it may be unable to realise its assets and 
discharge its liabilities in the normal course of trading 
nevertheless after making enquiries and considering the 
options described above the directors have a reasonable 
expectation that the company and the group will have 
adequate resources to continue in operational existence for the 
foreseeable future for these reasons they continue to adopt 
the going concern basis in preparing the annual reports and 
accounts the financial statements do not include the 
adjustments that would result if the group or company was 
unable to continue as a going concern
3 critical accounting judgements and 
key sources of estimation uncertainty 
in the application of the group’s accounting policies which  
are described in note 1 the directors are required to make 
judgements estimates and assumptions about the carrying 
amounts of assets and liabilities that are not readily apparent 
from other sources the estimates and associated assumptions 
are based on historical experience and other factors that are 
considered to be relevant actual results may differ from  
these estimates
the estimates and underlying assumptions are reviewed on  
an ongoing basis revisions to accounting estimates are 
recognised in the period in which the estimate is revised if  
the revision affects only that period or in the period of the 
revision and future periods if the revision affects both current 
and future periods
the key assumptions concerning the future and other key 
sources of estimation uncertainty at the balance sheet date 
that have a significant risk of causing a material adjustment to 
the carrying amounts of assets and liabilities within the next 
financial year are discussed below
commercial reserves 
commercial reserves are proven and probable oil and gas 
reserves calculated on an entitlement basis
estimates of commercial reserves underpin the calculation  
of depletion and amortisation on a unit of production basis 
estimates of commercial reserves include estimates of the 
amount of oil and gas in place assumptions about reservoir 
performance over the life of the field and assumptions about 
commercial factors which in turn will be affected by the future 
oil and gas price
classification of debt between current and noncurrent
as described in note 19 the repayment of debt is determined 
based on a twice yearly borrowing base calculation 
accordingly the actual amount of debt repayable within one 
year is likely to differ from that presented in the balance sheet 
as a result of revisions to estimates used in the borrowing  
base calculation
impairment of assets
management is required to assess the oil and gas assets for 
indicators of impairment the carrying value of oil and gas 
assets is disclosed in notes 14 and 15 as part of this 
assessment management has carried out an impairment test 
on the oil and gas assets within property plant and equipment 
chinguetti and the usa producing assets and of the 
exploration and evaluation asset pool this test compares the 
carrying value at the balance sheet date with the expected 
discounted cash flows from the relevant projects for the 
discounted cash flows to be calculated management has used 
a production profile based on its best estimate of proven and 
probable reserves and a range of assumptions including a  
10 pretax discount rate and an internally estimated oil  
price profile
decommissioning
the group has obligations in respect of decommissioning in 
mauritania and the usa the extent to which a provision is 
recognised depends on the legal requirements at the date of 
decommissioning the estimated costs and timing of the work 
and the discount rate applied
fair values
the determination of the fair values of oils and gas properties 
particularly exploration and evaluation assets acquired in 
business combinations and the resulting measurement of any 
goodwill that may arise requires the use of estimates similar to 
those described above
notes to the financial statements continued
year ended 31 december 2008 page 43 sterling energy plc annual report  accounts 2008
financial statements
3 critical accounting judgements and key sources of estimation uncertainty continued
fair values of derivative financial instruments
the fair values of derivative financial instruments used for hedging purposes reflect the market’s view at any point in time of the 
outlook for future oil or gas prices which generally change over time consequently there can be no assertion that the fair values 
reflect the amount at any future cash flows that may arise as the hedges mature 
sharebased payments 
management is required to make assumptions in respect of the inputs used to calculate the fair value of sharebased payment 
arrangements details of these can be found in note 28 
4 geographical segments
the group operates in one business segment the exploration for and production of oil and gas the group currently has interests 
in two geographical segments north america and africa and the middle east these divisions are the basis on which the group 
reports it’s primary segment information segment information about the business is presented below 
 north america  africa and middle east  total 
    
   2008 2007 2008 2007 2008 2007
   000 000 000 000 000 000
income statement        
revenue   83176  67 843  20392  29328  103568  97 171 
cost of sales   59681 49871 27354 25326 87035 7 51 97
gross profit   23495  17 972  6961 4002  16533  21 974 
impairment provision   82130  –  100845  –  182975  – 
prelicence exploration costs   650  1 1 8 1  2014 3281 2664 4462
profit and loss on disposals of assetsinvestments   3 111   –  5071   –  8182   – 
segment result   5617 4 16791  104749 721  160924 17 512 
unallocated corporate expenses        14307 15720
operating lossprofit       175231 1792 
interest revenue and finance gains       1977  3286 
gain on hedging instrument        –  4618 
finance costs        10620 12642
other losses       818  – 
loss before tax       184692 2946
tax       27862  693 
loss attributable to equity holders of parent company      156830 2253
 unallocated  north america  africa and middle east  total 
    
 2008 2007 2008 2007 2008 2007 2008 2007
 000 000 000 000 000 000 000 000
other segment information        
capital additions         
property plant and equipment 224  37 4  35616  54970  22697  8063  58537  63407 
ee expenditure  258  600  7271  10668   21080  24437  28609  35705 
depreciation and amortisation 487 461 38621 32405 15559 17 444 54667 50310
impairment provision  –   –  82130  –  100845  –  182975  – 
        
balance sheet 
segment assets 26233  45651  345131  424005  27610  1 521 32  398973  621788 
segment liabilities 123510 175666 78290 128261  25957 39591 227757 343518
carrying amounts of segment assets exclude intragroup financing page 44 sterling energy plc annual report  accounts 2008
5 revenue
       2008 2007
       000 000
revenue from the sale of oil and gas       82298  74509 
royalty income        19194  21106 
tariff income       1228  1556 
other revenue       848   – 
total operating revenue       103568  9 7 1 7 1 
finance revenue        1977  3178 
total revenue       105545  100349
revenue from the sale of oil and gas is stated net of 16520000 in relation to cash settlements under hedging contracts  
2007 5877000
6 loss for the year
       2008 2007
      notes 000 000
loss from operations is stated after charging crediting
staff costs      8 14460  18523 
depletion and amortisation of oil and gas assets      13 14 15 53887  50310 
impairment expense      13 14 15 180142   – 
other impairments       2833   – 
depreciation of other fixed assets      15 781  1108 
net foreign exchange lossesgains       818  108
profit on disposal of oil and gas assets       5311   – 
profit on disposal of investment       2871   – 
an analysis of auditors’ remuneration is as follows
fees payable to the company’s auditors for the audit of the company’s annual accounts 299  335 
audit of the company’ subsidiaries pursuant to legislation  53  35 
total audit fees  352  370 
other services – interim review  156   – 
tax advisory services  49  125 
total non audit fees   205  125
7  cost of sales
       2008 2007
      notes 000 000
amortisation and depletion of oil and gas properties      13 14 15 53887  49202 
operating costs   32559  27 143 
underlift of product entitlement  589   1 1 48
       87035  7 51 97
8 employee information
the average monthly number of employees of the group including executive directors during the year was 69 2007 72 of which 
15 were employed in the africa and middle east operations 2007 14 35 in the north american operations 2007 40 and 19 in 
corporate support staff 2007 18 
 
notes to the financial statements continued
year ended 31 december 2008 page 45 sterling energy plc annual report  accounts 2008
financial statements
8 employee information continued
the average monthly number of employees of the company including executive directors during the year was 3 2007 2 who 
were all employed in the africa and middle east operations
employee costs during the year including executive directors amounted to
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
wages and salaries     12624  15850  649  434 
social security costs     961  1684  36  15 
other pension costs     875  989   –   – 
     14460  18523  685  449
a portion of the group’s staff costs and associated overheads are recharged to the joint venture partners expensed as operating 
costs expensed as prelicence expenditure or capitalised where they are directly attributable to ongoing capital projects in 2008 
this portion amounted to 9886000 2007 10186000
9 investment revenue and finance costs
       2008 2007
       000 000
interest revenue and finance gainslosses        
interest revenue on shortterm deposits       1977  3178 
exchange differences       818 108 
       1159  3286 
       2008 2007
       000 000
finance costs
interest on bank loans and overdrafts       9379  1 1354 
unwinding of discount on decommissioning provision       1 111  1132 
unwinding of discount on production royalty revenue bonus provision       130  156 
       10620  12642
10 taxation
       2008 2007
       000 000
current tax credit       27936 509
deferred tax – origination and reversal of timing differences      74  184
total credit       27862 693 page 46 sterling energy plc annual report  accounts 2008
10 taxation continued
the difference between the tax credit of 27862000 2007 credit of 693000 and the amount calculated by applying the 
applicable standard rate of tax is as follows
       2008 2007
       000 000
loss on ordinary activities before tax       184692 2946
tax on loss on ordinary activities at standard us corporation tax rate of 34 2007 34    62795 1001 
effects of
expenses not deductible for tax purposes       25581  1856
capital allowances lower thanin excess of depreciation       2350 82
difference in nonukus tax rates       6027  127 
other temporary differences        8849   – 
adjustment for tax losses        –  2628 
adjustment in respect of prior years        –  509
state taxes        681  –
change in tax rate       3855 –
tax credit for the year       27862 693
during 2008 and 2007 the group generated its results primarily in the us therefore the tax rate in the above reconciliation for 
2008 is the standard rate for us corporation tax 
with effect from 1 april 2008 the main rate of uk corporation tax reduced to 28 however given the group’s taxation charge 
principally relates to the us the change of rate will not have a significant effect on the group’s overall taxation charge
11 loss attributable to sterling energy plc
the loss for the financial year dealt with in the accounts of sterling energy plc was 150379000 2007 loss of 3845000 as 
provided by s230 of the companies act 1985 no income statement is provided in respect of sterling energy plc
12 loss per share
the calculation of basic and diluted loss per share is based on the loss for the financial year of 156830000 2007 loss 
2253000 and on 1817510912 2007 1565678397 ordinary shares being the weighted average number of ordinary shares in 
issue as the effect of any dilutive shares would decrease the loss per share the basic and diluted losses per share are the same 
in addition 135656000 2007 95129000 share options were in issue that could potentially dilute basic earnings per share in the 
future but were not included in the calculation of diluted earnings per share because they are antidilutive
13 intangible royalty assets
        group
        000
net book value at 1 january 2007        18000 
amortisation charge for the year        1400
net book value at 31 december 2007        16600 
amortisation charge for the year        1508
impairment charge for the year        1 1301
net book value at 31 december 2008        3791
group net book value at 31 december 2008 comprises the value of rights to future royalties in respect of the group’s agreements 
covering licences psca and pscb in mauritania the value of these royalty interests is dependent upon future oil and gas prices 
and the development and production of the underlying oil and gas reserves
 
an impairment assessment and any subsequent charge is calculated on an individual royalty interest basis future recoverable 
amounts are estimated by management based on the present value of future cash flows expected to be derived from the 
production of commercial reserves in these licences and are compared against the carrying value of these assets 
notes to the financial statements continued
year ended 31 december 2008 page 47 sterling energy plc annual report  accounts 2008
financial statements
14 intangible exploration and evaluation ee assets
        group
        000
net book value at 1 january 2007        21384 
additions during the year        36233 
additions through acquisitions during the year        101314 
amortisation charge for the year        3350
net book value at 31 december 2007        155581 
additions during the year        28609 
disposals during the year farm out        39988
amortisation charge for the year        5829
impairment charge for the year        12617
net book value at 31 december 2008        125756
the amount for intangible exploration and evaluation assets represents investments in respect of exploration licences see note 1f 
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 
during the year a 2200000 profit on disposal was realised relating to the farm out of the kurdistan interest
15 property plant and equipment
       computer 
      oil and gas  and office
      assets equipment total
group      000 000 000
cost        
at 1 january 2007      237 280  2879  240159 
additions during the year      62612  795  63407 
additions through acquisitions during the year      167 978  292  168270 
at 31 december 2007      467 870  3966  471836 
additions during the year      57 692  845  58537 
disposals during the year      1361 1  –  1361 1
at 31 december 2008      511951  4811  516762 
accumulated depreciation        
at 1 january 2007      81717 1642 83359
charge for the year      44452 1 108 45560
at 31 december 2007      126 169 2750 128919
disposals during the year      3471   –  3471 
charge for the year      46549 781 47 330
impairment charge for the year      156224  –  156224
at 31 december 2008      325471 3531 329002
net book value at 31 december 2008      186480  1280  187760 
net book value at 31 december 2007      341701  1216  342917
during the year the us disposed of a number of oil and gas assets realising an overall profit on disposal of 3111000 the 
impairment charge in the year for the group relates to the companies mauritanian interest such impairment charge is calculated 
by reference to assessment of future discounted cash flows expected to be delivered from production of commercial reserves 
against the individual cash generating unit carrying values page 48 sterling energy plc annual report  accounts 2008
15 property plant and equipment continued
       computer 
      oil and gas  and office
      assets equipment total
company      000 000 000
cost
at 1 january 2007      141973  147  142120 
additions during the year      8087   –  8087 
at 31 december 2007      150060  147  150207 
additions during the year      22697   –  22697 
at 31 december 2008      172757  147  172904 
accumulated depreciation
at 1 january 2007      57 846 1 12 57 958
charge for the year      16043 35 16078
at 31 december 2007      73889 147 7 4036
charge for the year      14 134  –  14 134
impairment charge for the year      75933  –  75933
at 31 december 2008      163956 147 164103
net book value at 31 december 2008      8801   –  8801 
net book value at 31 december 2007      76 171   –  76 171
16 fixed asset investments
a investments held by the group
the company holds through its us subsidiary sterling energy inc an option to acquire a 20 equity stake in viking international 
petroleum vip in the form of a twoyear 3500000 convertible note and warrants held at fair value through profit and loss vip 
is a private company that generates drilling prospects located primarily in south texas over which sterling has preemptive drilling 
rights this has been reclassified to current receivables to reflect the fact it is due for repayment in june 2009
the balance of the group’s investments consists primarily of investments held through the us subsidiary sterling energy usa inc 
in various limited liability partnerships 
b investment in subsidiaries
        company
        000
cost        
at 1 january 2007        156350 
additional investment during the year        182049 
at 31 december 2007        338399 
additions during the year capital contribution        56549 
impairment during the year        57 768
at 31 december 2008        337 180
notes to the financial statements continued
year ended 31 december 2008 page 49 sterling energy plc annual report  accounts 2008
financial statements
16 fixed asset investments continued
   proportion  
 country of  class of  of voting 
 incorporation shares held rights held nature of business
sterling energy uk limited  united kingdom ordinary 100 exploration for oil and gas
sterling energy international limited  united kingdom ordinary 100 exploration for oil and gas
sterling energy inc   usa ordinary 100 exploration for and 
    production of oil and gas
sterling energy usa inc  usa ordinary 100 investment holding company
 formerly whittier energy corporation    
sterling oil limited  united kingdom ordinary 100 investment holding company
sterling energy north america limited  united kingdom ordinary 100 investment holding company
sterling northwest africa holdings limited  jersey ci ordinary 100 exploration for oil and gas
sterling cameroon limited  jersey ci ordinary 100 exploration for oil and gas
sterling dome flore limited  jersey ci ordinary 100 exploration for oil and gas
sterling oil and gas iris marin limited  jersey ci ordinary 100 exploration for oil and gas
sterling oil and gas themis marin limited  jersey ci ordinary 100 exploration for oil and gas
  held directly by the company sterling energy plc
  held directly by sterling energy uk limited
  held directly by sterling energy north america limited
 held directly by sterling oil limited
 held directly or indirectly through sterling northwest africa limited
c profit on disposal of fixed asset investments
       000 000
group       2008 2007
forum energy plc        2615  –
sterling energy mauritania a limited        256  –
total       2871  –
17  trade and other receivables
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
trade receivables     22042  32373  937   – 
amounts owed by subsidiary undertakings      –   –   95612  53236 
other debtors     8752  5715  158  178 
amounts advanced to joint venture partners     249  663   –   – 
prepayments and accrued income     1563  3214  78  5203 
     32606  41 965  96785  58617
the directors consider that the carrying amount of trade and other receivables approximates their fair value page 50 sterling energy plc annual report  accounts 2008
18 trade and other payables
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
trade payables     15426  27 356  282  7 003 
amounts owed to subsidiary undertakings       –   –  156074  40198 
amounts owed to joint venture partners     1974  6631   742   – 
other taxation and social security     148  205   –   – 
accruals and deferred income     18018  45643  12636  7 122 
bank overdraft     3967   –   –   – 
     39533  79835  169735  54323
the directors consider that the carrying amount of trade and other payables approximates their fair value
19 longterm and shortterm debt
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
bank loan current     53700   –  53700   – 
bank loan noncurrent     65570  15331 8  65570  153318 
     119270  153318  119270  15331 8
at 31 december 2008 the group had a bank loan facility of 250000000 2007 250000000 the “borrowing base facility” of 
which 112170000 2007 144818000 had been drawn down the amount that is available to be drawn under this facility is 
determined by a twiceyearly borrowing base review the borrowing base review establishes a limit on the amounts which may 
be drawn down based on the net present value of the oil and gas assets which comprise the borrowing base as at 31 december 
2008 the available amount was fully drawn at 112170000 based upon the september 2008 borrowing base redetermination 
as disclosed in note 26 subsequent to the year end the facility amount has been reduced to 125000000 in addition to the 
amounts drawn down a further 482136 2007 482136 is pledged under a letter of credit the facility is secured by a floating 
charge over certain of the property plant and equipment of the group an intragroup loan of approximately 56242000  
2007 74393600 is subordinated to the facility interest is payable at a margin 225–3 over us libor rate the facility  
also includes certain financial and nonfinancial covenants 
in addition to the borrowing base facility the company has an unsecured corporate facility available of 15000000  
2007 15000000 of which at 31 december 2008 10734000 2007 8018000 had been drawn at 31 december 2008 
3639000 2007 4523000 of loan unamortised loan facility expenses are deducted from the bank loan balance in the balance 
sheet these costs are being amortised over the remaining life of the facility
20 deferred tax liabilities
 
       2008 2007
group       000 000
at 1 january       69512  6127 
deferred tax on acquisition        –  63571 
other       783  – 
credited to profit and loss account       27936 186
at 31 december       40793  6951 2 
        2008
group        000
the provision at 31 december 2008 consists of        
accelerated capital allowances        58886 
other temporary differences        2290 
unutilised tax losses        20383
         40793
notes to the financial statements continued
year ended 31 december 2008 page 51 sterling energy plc annual report  accounts 2008
financial statements
20 deferred tax liabilities continued
at the balance sheet date the group had an unrecognised deferred tax asset of 28195000 2007 7757000 relating primarily 
to unused tax losses no deferred tax asset has been recognised due to the uncertainty of future profit streams against which 
these losses could be utilised additionally there is an unrecognised deferred tax liability of 2127000 2007 1992000 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 28027000 2007 10726000 relating 
primarily to unused losses and unutilised capital allowances
21 longterm provisions
       2008 2007
group       000 000
decommissioning provision a       26481  22095 
2003 production royalty bonus scheme b       1183  2150 
       27664  24245 
a decommissioning provisions
      north america africa total
group     note 000 000 000
at 1 january 2007      15640  4253  19893 
additions in year       6489   –  6489 
acquisition in year      71 1   –  71 1
utilisation in year      6 130  –  6 130
unwinding of discount      876  256  1 132
at 31 december 2007      17 586  4509  22095 
additions in year        4596  3431  8027 
released on disposal during the year      4752  –  4752
unwinding of discount      9 840  271  1 1 1 1
at 31 december 2008      18270  8211  26481
the amounts shown above represent the estimated costs for decommissioning the group’s producing interests in north america 
which are expected to occur between 2009 and 2017 and in respect of its economic interest in the chinguetti field in mauritania 
where decommissioning is expected to occur around 2013
the company amount of 8211000 2007 4509000 in africa represents the amount provided within the company for future 
decommissioning expenditure
b 2003 production royalty bonus scheme
       2008 2007
group       000 000
at 1 january       2150  2700 
unwinding of discount       130  156 
amounts paid during the year        
adjustment to tax rates       81   – 
transferred to current liabilities       11 19 746
foreign exchange movements       59 40 
at 31 december       1183  2150 
 
this scheme was intended to reward key persons for the successful performance of certain assets after financial thresholds had 
been reached for the period since listing in 2002 the scheme was terminated in 2007 and replaced by the new ltip see note 28 
and no further sums will accrue the company has the option to require beneficiaries to subscribe for new ordinary shares for the 
net amount arising after tax and national insurance from 2008 onwards  page 52 sterling energy plc annual report  accounts 2008
22 share capital
       2008 2007
       000 000
authorised
3000000000 2007 24000000000 ordinary shares of 1p      56433  46078 
called up allotted and fully paid
2325510585 2007 1648710585 ordinary shares of 1p      42749  3 1 8 11 
movements during the year included the placing of 675000000 new ordinary shares during october 2008 in order to strengthen 
the company’s balance sheet enabling the group to complete its current committed business plan and provide general working 
capital for the group further movements during the year consisted of 1800000 new ordinary shares which were issued to 
employees and a former employee who exercised share options in the year
23 reserves
  share share investment currency    
  premium option revaluation translation hedge retained  
  account reserve reserve account reserve  earnings total
group  000 000 000 000 000 000 000
at 1 january 2007  273785  6451  4739  307  –  87 964 196704 
premium on shares issued   67 629   –   –  –   –   –  67 629 
currency translation adjustments   –   –   –  965   –   –  965 
revaluation of 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 1 january 2008  341414  8368  657  658  14421 90217 246459 
premium on shares issued   1 1010   –    –    –    –    –   1 1010 
share issue costs  1090 – – – – – 1090
currency translation adjustments   –    –    –   1921  –    –   1921
disposal of held for sale investment   –    –   657  –    –    –   657
hedge movement    –    –    –    –   29995   –   29995 
share option reserve charge for the year   –   1501   –    –    –    –   1501 
loss for the year   –   –   –    –    –   156830 156830
at 31 december 2008  351334  9869   –    1263 15574  247047 128467 
    share share   
    premium option hedge retained  
    account reserve reserve  earnings total
company    000 000 000 000 000
at 1 january 2007    273785  6451   –   84535 195701 
premium on shares issued     67 629   –     –     –   67 629 
charge for the year     –   1917   –    –   1917 
hedge movement      –    –   1 1 153  –   1 1 153
loss for the year     –    –    –   3845 3845
at 1 january 2008    341414  8368  1 1153 88380 250249 
premium on shares issued     1 1010   –    –    –   1 1010 
charge for the year     –   1501   –    –   1501 
share issue costs    1090  –    –    –   1090
hedge movement      –    –   17 695   –   17 695 
loss for the year     –    –    –   150379 150379
at 31 december 2008    351334  9869  6542  238759 128986 
notes to the financial statements continued
year ended 31 december 2008 page 53 sterling energy plc annual report  accounts 2008
financial statements
24 operating leases and capital commitments
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
minimum lease payments under operating leases recognised as an expense in the year   4897   4759   3419   3421 
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 
    
     2008 2007 2008 2007
     000 000 000 000
within one year     4942   4706   3393   31 32 
in the second to fifth year inclusive     13614   18779   10107   12483 
after five years     2884   1754   –    –  
      21440   25239   13500   15615
operating lease payments represent the group’s share of rentals for an fpso “floating production and storage offtake” vessel in 
mauritania and rentals payable for certain of its office properties whilst sterling has no contractual capital commitments in respect of 
the purchase of property plant and equipment the group continues to meet its share of expenditures on projects as they fall due
25 cash flows from operating activities
       2008 2007
group       000 000
operating activities        
operating lossprofit       175231 1792 
depletion and amortisation       54667  50310 
impairment expense       180142   – 
other impairments       2833   – 
inventory revaluation       4730   – 
gain on disposals       8182  – 
sharebased payment provision       1501  1918 
operating cash flow prior to working capital       60460  54020 
decreaseincrease in inventories       4689 1323
decreaseincrease in trade and other receivables reclassified      1938  12387
decreaseincrease in trade and other payables reclassified      964 7 821 
       56745  48131 
       2008 2007
company       000 000
operating activities        
operating loss       145473 3057
depletion and amortisation       14134  15985 
impairment expense       133701   – 
other impairments       833   – 
sharebased payment provision       1501  236 
operating cash flow prior to working capital       4696  13164 
decreaseincrease in inventories       592  1090
increasedecrease in trade and other receivables       92481 62619 
increasedecrease in trade and other payables       108699  136885
       21506  62 192
amounts of 3145000 2007 5765000 in the group previously presented as cash equivalents have been presented as other 
receivables – restricted cash in these financial statements to better reflect restrictions over their availability to the group prior year 
comparatives have been reclassified accordingly page 54 sterling energy plc annual report  accounts 2008
26 postbalance sheet events
financing following a borrowing base redetermination in february 2009 natixis as agent and technical bank indicated that 
following the major fall in energy prices over the last few months the company’s available borrowing base under its syndicated 
debt facility is currently calculated at 76300000 and is currently forecast to be 58500000 at the next borrowing base review 
in august 2009 under this facility at the end of may 2009 sterling had an outstanding balance of 101200000 giving rise to a 
debt gap of 25300000 in april 2009 sterling signed a waiver agreement with the banks which allowed sterling to reschedule 
its loan repayments until the next borrowing base review in mid august 2009 the waiver includes various changes to the terms of 
the loan including fees dependent on the timing of the elimination of the debt gap prior bank approvals of capital costs a 
reduction in the total facility commitment amount from 250000000 to 125000000 and a monthly repayment of not less than 
1000000 under a cash sweep mechanism 
27  financial instruments
capital risk management and liquidity risk
further discussion on the group’s funding position and the application of the going concern assumption is provided in note 2
the group is not subject to externally imposed capital requirements the capital structure of the group consists of debt which 
includes the borrowings disclosed in note 19 net of cash and cash equivalents held for working capital purposes and equity 
attributable to the equity holders of the parent comprising issued capital reserves and retained earnings as disclosed in note 23 
the group uses cash flow models which are regularly updated to monitor liquidity risk
gearing ratio
       2008 2007
group      note 000 000
debt      19 119270  153318 
cash and cash equivalents       23854 49866
net debt       95416  103452 
equity       171216  278270 
net debt to equity ratio       56 37
significant accounting policies
details of the significant accounting policies and methods adopted including the criteria for recognition the basis of measurement 
and the basis on which income and expenses are recognised in respect of each material class of financial asset financial liability 
and equity instrument are disclosed in note 1 to the financial statements 
 
     carrying amount  fair value 
    
     2008 2007 2008 2007
group    notes 000 000 000 000
financial assets       
cash and cash equivalents      23854   49866   23854   49866 
derivative instruments in designated hedge accounting relationships     16071   2005   16071   2005 
availableforsale financial assets      –   1932   –   1932 
other financial assets at fair value    16a 996   3500   996   3500 
trade and other receivables    17  32606   41965   32606   41965 
total      73527   99268   73527   99268 
financial liabilities
derivative instruments in designated hedge accounting relationships     497   16608   497   16608 
financial liabilities at amortised cost    19  119270   153318   119270   153318 
trade and other payables    18  39533   79835   39533   79835 
total      159300   249761   159300   249761 
notes to the financial statements continued
year ended 31 december 2008 page 55 sterling energy plc annual report  accounts 2008
financial statements
27  financial instruments continued
     carrying amount  fair value 
    
     2008 2007 2008 2007
company    notes 000 000 000 000
financial assets       
cash and cash equivalents      15432   26540   15432   26540 
derivative instruments in designated hedge accounting relationships     6542   –   6542   – 
trade and other receivables    17  1173   5381   1173   5381 
total      23147   31921   23147   31921 
       
financial liabilities
derivative instruments in designated hedge accounting relationships     –   1 1 153   –   11  1 53 
financial liabilities at amortised cost    19  119270   153318   119270   153318 
trade and other payables    18  13660   14 125   13660   14125 
total      132930   178596   132930   1 78596
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 shortterm maturities of the instruments less than six months the fair values of the collars are 
determined directly by reference to these similar commodity price quotes as well as a relevant forward quoted interest rate curve 
inflation is assumed to add 1 and the volatility assumption is based on historic price volatility
other financial assets and liabilities are valued at amortised cost value less any credit risk provision in respect of assets  
due to the shortterm nature of these assets and liabilities such values approximate their fair values at 31 december 2008  
and 31 december 2007 
 
financial risk management objectives
the group’s objective and policy is to use financial instruments to manage the risk profile of its underlying operations the group 
continually monitors financial risk including oil and gas price risk interest rate risk equity price risk currency translation risk and 
liquidity risk and takes appropriate measures to ensure such risks are managed in a controlled manner including where 
appropriate the use of financial derivatives the group does not enter into or trade financial instruments including derivative 
financial instruments for speculative purposes
oil and gas price risk
the group uses a range of derivative instruments to provide a cash flow hedge against its exposure to volatility in oil and gas 
prices arising from floating price sales at 31 december 2008 the group had cash flow hedges in place with the following 
characteristics 
        group
        2009
        settlements
brent oil price
volume bbl         360000 
hedge price per bbl
– swap         7430 
wti oil price
volume bbl         168000 
hedge price per bbl
– swap       69908535
henry hub gas price
volume mmbtu         2680000 
hedge price per mmbtu
– collar floorsceilings       7 00900
– swap       800–922 page 56 sterling energy plc annual report  accounts 2008
27  financial instruments continued
the group policy is to hedge a minimum of 25 of the proven production profile of the borrowing base assets as required by the 
borrowing base facility with the actual level determined by broader financial requirements and market availability and pricing 
the table below shows the combined impact on the fair values of oil and gas derivatives resulting from a 10 increasedecrease in 
forward prices for oil and a 1 increasedecrease for gas analysed between earnings and equity
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
decrease        
decreaseincrease in profit      –   –   –   – 
increase in equity      7015   31 93   3576   4243 
increase in net assets      7015   3 193   3576   4243 
        
increase        
increasedecrease in profit      –   –   –   – 
decrease in equity      7100   26396   3576   18063 
decrease in net assets      7100   26396   3576   18063
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 shortterm deposit the group 
is also exposed to the impact of movements on interest rates on the periodend valuation of its derivative instruments
interest rate sensitivity analysis
the sensitivity analysis below has been determined based on the exposure to interest rates for derivative and 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
    
     2008 2007 2008 2007
     000 000 000 000
loans at amortised amount     1193 1533 1193 1533
cash and cash equivalents     239  499  154  331 
     954 1034 1039 1202
foreign currency translation risk
the group’s reporting currency is the us dollar being the currency in which the majority of the group’s revenue and expenditure 
is transacted the us dollar is the functional currency of the company and the majority of its subsidiaries less material elements 
of its management services and treasury functions are transacted in sterling the majority of balances are held in us dollars with 
transfers to sterling and other local currencies as required to meet local needs at the end of 2008 there were no net material 
monetary liabilities or assets not denominated in the functional currency of the subsidiary involved 
the group does not enter into derivative transactions to manage its foreign currency translation or transaction risk
credit risk management
credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group
the group reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and 
will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the group
the group’s business is diversified in terms of both region and the number of counterparties and the group does not have 
significant exposure to any single counterparty or group of counterparties with similar characteristics
 
notes to the financial statements continued
year ended 31 december 2008 page 57 sterling energy plc annual report  accounts 2008
financial statements
27  financial instruments continued
the following tables detail the remaining contractual maturity for the 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 54 2007 67
   less than  six months one to
   six months  to one year six years total interest principal
group   000 000 000 000 000 000
2008        
trade payables    17400   –   –   17400   –  17400 
derivative financial instruments    20   477   –   497   –   497 
longterm and shortterm debt    53412   3161   69079   125651  6381  119270 
        
2007        
trade payables   33987   –   –  33987   –   33987 
derivative financial instruments   4855  4579  7 174  16608   –  16608 
longterm debt   7 299  9079  147 212  163590  10272 153318 
   less than  six months one to
   six months  to one year six years total interest principal
company   000 000 000 000 000 000
2008        
trade payables   1024   –   –   1024   –  1024 
derivative financial instruments    –   –   –   –   –   – 
longterm and shortterm debt    53412   3161   69079   125651  6381  119270 
        
2007        
trade payables   7 003   –   –  7 003   –  7 003 
derivative financial instruments   3284  3021  4848  1 1153   –  1 1153 
longterm debt   7 299  9079  147 212  163590  10272 153318 
the following table details the group’s liquidity analysis for its derivative financial instruments the table has been drawn up based 
on the undiscounted net cash outflows on the derivative instruments the amounts payable are not fixed but have been 
determined by reference to published commodity price quotations at the reporting date 
     group  company 
    
     2008 2007 2008 2007
     000 000 000 000
forecast cash settlements net of derivative asset and liabilities
2008      –   7 673   –  6305 
2009      –    6930   –  4848 
      –   14603   –   1 1153 
discounted values      –   14390   –   10993
 
there are no forecast cash settlements in 2009 as the group and the company are in a net asset position in respect of their hedges
  page 58 sterling energy plc annual report  accounts 2008
28 sharebased payments
the group recognised a total expense within administration costs in respect of sharebased payments under equitysettled 
share option plans of 1501000 2007 1918000 the company recognised a total expense within administration costs in 
respect of sharebased payments under equitysettled share option plans of 98000 2007 236000
the sterling employee share incentive plan
movements during the year on share options were as follows
     2008  2007
      weighted  weighted
    2008 average 2007 average
    number of exercise  number of exercise 
    share price share price
    options pence options pence
outstanding at the beginning of period   68865000  117  78390000  125 
granted during the period    –   –  4650000  155 
forfeited during the period   8400000 176  10025000 183 
exercised during the period   1800000 40  4150000 108 
outstanding at the end of the year   58665000  108  68865000  1 17 
exercisable at the end of the year   56165000  107  50585000  83 
 
for all options the group plan provides for a grant price equal to the average quoted market price of the company’s shares on the 
date of grant 
all options are equity settled the vesting period for all options is generally two years if the options remain unexercised after a 
period of ten years from the date of grant the options expire furthermore options are forfeited if the employee leaves the group 
before the options vest
the range of exercise prices for options outstanding at the end of the year was
 
    2008  
    weighted  
    average  
    exercise   
    price 2008 2007
    pence number number
year of grant     
2001    4  2350000  2600000 
2002     4  21850000  22950000 
2003     7  7750000  8200000 
2004     131  3325000  5325000 
2005     17  9250000  1 1510000 
2006     234  11640000  13630000 
2007     153  2500000  4650000
the weighted average share price at the date of exercise during the year was 118 pence 2007 14 pence the options 
outstanding at the end of the year have a weighted average contractual life of 513 years 2007 638 years
the cost of share options is spread over the vesting period of two years the weighted average fair value of options granted during 
the period was nil pence 2007 155 pence
 
fair values were measured by use of the blackscholes pricing model the inputs to the model were as follows
       2008 2007
       number number
weighted average share price pence       8 11 1525
weighted average exercise price pence       4 108
average expected volatility       5458 4272
expected life years       5 5
average riskfree rate        383 470
expected dividends       none none
notes to the financial statements continued
year ended 31 december 2008 page 59 sterling energy plc annual report  accounts 2008
financial statements
28 sharebased payments continued
the expected life of the options is based on the best estimate of the directors following a review of the profile of the award 
holders expected volatility was estimated by calculating the historical volatility of the company’s share price over the year 
preceding the grant of the options
no performance criteria are attached to the outstanding options other than the requirement that the employee must complete 
two years of service with certain exceptions such as a company takeover compulsory redundancy or else at the discretion of  
the directors 
long term incentive plan “ltip”
in accordance with the approved ltip the company granted nominal cost options to the directors to acquire ordinary shares 
“shares” the ‘a’ options and at the same time granted nominal cost options to acquire shares to the trustees of the sterling 
energy plc employee benefit trust the “ebt” the ‘b’ options the trustees of the ebt agreed to make awards to the directors of 
reversionary interests which would initially be represented by the b options
the company also granted nominal cost options to acquire shares to other employees under the approved ltip
movement during the year on share options were as follows
      2008 2007
      number number
      of share of share
      options options
outstanding at the beginning of period     44534000   – 
granted during the period      45575000  46622000 
forfeited during the period     10628000 2088000
outstanding at the end of the year     79481000  44534000 
exercisable at the end of the year      –    – 
the nominal cost options outstanding at the end of the year have a weighted average remaining contractual life of 228 years 
2007 275 years
the cost of these shares is spread over the vesting period of 3 years 2007 3 years
the weighted average fair value of the options granted during the year was 1204 pence 2007 1725 pence
 
at 20 august 2008 “the amendment date” the company amended the vesting conditions for all the outstanding nominal cost 
options under the approved ltip
the amendments were considered necessary for the ltip to continue to be an effective staff incentive scheme after taking into 
account the change in the market conditions in 2008
the actual number of shares that will be finally awarded out of the maximum number stated above under the ltip or alternative 
cash settlement at the parent company’s option will depend upon the achievement of performance criteria measured over a 
vesting period of three years for each award
up to 50 of the nominal cost options will vest based on a comparison of the total shareholder return “tsr” of the parent 
company as measured against a comparator group of companies “the first performance condition” the tsr of each company 
with the comparator group will be statistically ranked 
the number of options that ultimately vest is based on the company’s relative ranking as follows
tsr compared to comparator group       old rules  new rules
below median       nil 250
median to upper quartile       150 325
upper quartile to upper decile       350 425
above upper decile       500 500
  page 60 sterling energy plc annual report  accounts 2008
28 sharebased payments continued
up to the other 50 of the nominal cost options will vest based on the share price growth of the company’s shares at the date of 
grant or at the amendment date for options granted before the amendment date “the second performance condition” as follows
share price growth        old rules  new rules
below 50       nil  250
50–75       100 300
75–100       200 350
100–125       300 400
125–150       400 450
above 150       500 500
the aggregated incremental fair value of £1098000 will be expensed over the remaining vesting periods two to three years
the company used the inputs noted below to measure the fair values of the old and new nominal cost options
these fair values were calculated using modified binomial option pricing models the inputs to these models were as follows
       2008 2007
share price pence       36 11  7 5
exercise price pence       1 nil
expected volatility       5458 4572
expected life years       2 to 3 3
risk free rate        383 575
expected dividends       none none
for options subject to the first performance condition – the weighted expected  of vesting    2978 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 2008
29 related party transactions
transactions between the company and its subsidiaries which are related parties have been eliminated on consolidation at the 
yearend the company had amounts payable to subsidiary companies of 156074000 2007 40198000 included within 
related party transactions is an intercompany loan between the company and se usa of 67141000 2007 63848000 which 
is interest bearing during the year interest of 4243000 accrued on this loan which is eliminated on consolidation
transactions with directors
details of directors’ remuneration who comprise key management personnel are provided below
related party transactions
       2008 2007
       000 000
shortterm employee benefits       3134  2763 
compensation for loss of office       74   – 
post employee benefits       328  296 
sharebased payments       715  1917 
       4251  4976
notes to the financial statements continued
year ended 31 december 2008 overview
01 who we are
02 highlights – 2008
03 management objectives for 2009
04 chairman’s statement
06 chief executive’s review
business review
08 operational
14 reserves report
15 schedule of interests
16 financial review
20 corporate social responsibility
22 board of directors
governance
24 directors’ report
30 corporate governance
31 statement of directors’ responsibilities
financial statements
32 independent auditors’ report 
33 consolidated income statement
33 consolidated statement of recognised 
income and expense
34 consolidated balance sheet
35 consolidated cash flow statement
36 company balance sheet
37 company cash flow statement
37 company statement of recognised 
income and expense
38 notes to the financial statements
61 definitions

us dollars
2p
proven and probable
bbl
barrel of oil
bbls
barrels of oil
bcf
billion cubic feet of gas
bcfge
billions of cubic feet gas equivalent
bod
barrels of oil per day
boe
barrels of oil equivalent
boed
barrels of oil equivalent per day
ebitda
earnings before interest taxation depreciation amortisation 
impairment and prelicence expenditure
hse
health safety and environment
km
2
square kilometre
mbod
thousand barrels of oil per day
mcf
thousand cubic feet of gas
mcfge
thousand cubic feet of gas equivalent
definitions
mcfged
thousand cubic feet of gas equivalent per day
mmbbl
millions of barrels
mmboe
millions of barrels of oil equivalent
mmcf
millions cubic feet of gas
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
psc
production sharing contracts
ri
royalty interest
sq mi
square mile
tcf
trillion cubic feet of gas
tea
technical evaluation agreement
wec
whittier energy corporation
wi
working interest
page 61 sterling energy plc annual report  accounts 2008 annual report  accounts 2008
uk 
sterling energy plc
5 chancery lane
london
wc2a 1lg
tel 44 020 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 
wwwsterlingenergyplccom
sterling energy plc annual report  accounts 2008


Summary:
 page 6 sterling energy plc annual report  accounts 2008
chief executive’s review
adapting our strategy
the last year or so has been the most volatile and difficult 
period in my considerable time in the oil industry but i believe 
there are many reasons to be optimistic about the future not 
least sterling’s interests in potentially “company making” assets 
such as kurdistan cameroon and madagascar of which i will 
say more later 
the falls in energy prices from their high points in july to the 
december 2008 closing prices – gas down 58 and oil down 
75 – have had a well documented impact on the industry and 
the companies operating within it the impact on sterling has 
been no less marked
in common with our peers we are making adjustments to our 
business structure and strategy aimed at ensuring a sustainable 
future with good nearterm upside potential 
energy prices have tumbled –  
costs are lagging
although we are now getting lower revenue from our 
production we did take out hedges prudently for 2009 of 
around 75 of our proved developed estimated sales volumes 
at prices well ahead of current ones operating costs which 
followed energy prices and the consequent increase in industry 
activity to high levels have not generally fallen indeed items like 
insurance have increased however there are signs that capital 
costs are now starting to reduce with costs such as rig rates 
steel and services all reacting to the industry’s inability to 
sustain previous cost levels
reducing our debt gap is the  
current priority
since the start of 2008 sterling has repaid 414 million 27 
of its debt which now stands at some 1122 million a bank 
jan 08
feb 08
mar 08
apr 08
may 08
jun 08
jul 08
aug 08
sep 08
oct 08
nov 08
dec 08
jan 09
feb 09
mar 09
apr 09
may 09
0
us
2
4
6
8
10
12
14
natural gashenry hub mcf
crude oilbrent bbl natural gashenry hub mcf
jan 08
feb 08
mar 08
apr 08
may 08
jun 08
jul 08
aug 08
sep 08
oct 08
nov 08
dec 08
jan 09
feb 09
mar 09
apr 09
may 09
0
us
20
40
60
80
100
120
140
160
crude oilbrent uk bbl
waiver has also been agreed and is in place until midaugust 
2009 we continue to work very hard to reduce the outstanding 
debt and to eliminate the debt gap which currently stands at 
253 million the debt gap is the amount of actual debt in 
excess of the syndicated loans borrowing base as reassessed 
under the reserve based lending facility assumptions every six 
months the debt gap is also the amount of debt repayment 
temporarily deferred by our lending banks as a result of  
the waiver
the sale of our usa assets has not yet been achieved this is 
due primarily to the fall in energy prices and the crisis in the 
banking sector which has meant that the conditional buyer we 
had announced in september 2008 could not complete the 
transaction the market place for usa deals has virtually 
ceased to operate since then but we continue to seek a buyer 
for part or all of these assets
in parallel we are also seeking a debt solution that will enable 
the group to resume its expansion this could include an 
injection of capital and people of assets or a combination or 
indeed a full takeover shareholders can be assured that senior 
management is fully committed to securing a resolution to this 
issue in the interests of all stakeholders as soon as possible 
great upside in the exploration and 
drilling portfolio
in 2008 we achieved two important farm outs on the iris well 
offshore gabon and on our highly promising licence onshore in 
kurdistan which are described in more detail elsewhere 
our policy is almost always to farm out international wells and 
minimise our net costs including drilling whilst the gabon well  
in july 2008 was dry it was drilled at no cost to us our bank 
waiver sets clear limitations on our international costs but our 
policy on existing assets remains as it was last year – to farm out  page 7 sterling energy plc annual report  accounts 2008
overview
our first well in kurdistan is expected to commence drilling in the 
fourth quarter of 2009 when we farmed out this asset in 
september 2008 we got back our past costs which helped with 
debt repayments and we will also benefit from a carry on costs 
of drilling the first well until we reach the point of testing we 
retained a 5333 interest 40 fully diluted if the government 
backs in and operatorship recent interpretation work on the 
seismic acquired in late 2008 has led us to increase our 
expectations of the size of the prospect and to lower our 
assessment of the associated risks there has been successful 
drilling in kurdistan recently which according to the kurdistan oil 
minister has added 4–5 billion boe in reserves – which would 
indicate a truly a world class oil region in the making
 
in madagascar we now expect drilling in 2010 the delay being 
due to the recent local political changes following a period of 
unrest our partner and operator exxonmobil is focused on 
drilling a major structure on the ampasindava block where we 
retain a 30 working interest and are partially carried a 
participation decision is currently required by the end of july 
and we continue to seek farmin parties to enable the company 
to participate
offshore in cameroon we have been expediting our studies of 
the prospectivity of the ntem block sterling 100 and are very 
encouraged by the number and size of the prospects identified 
we aim to seek farmin parties at the appropriate time and 
understand that the border dispute may be settled soon we 
intend to drill as soon as we can after that
in mauritania there is no material phase 2 capital expenditure 
budgeted in 2009 phase 3 is currently being evaluated and any 
work would not commence until 2010
in the usa the focus of our drilling is low risk wells which can 
result in shortterm reclassification of reserves into proved and 
producing whilst farming out higher risk wells we have cut our 
“ the major challenges in a 
highly volatile time are many 
and varied but the staff and all 
of the directors have worked 
tirelessly for the company”
capex programme for 2009 by 41 to no more than 277 
million intending to balance cash generation with the twin aims 
of bank debt repayment and achieving commercial objectives 
good people in volatile times
it is hard from the outside to gauge the effort made within a 
company like ours during such a difficult time but i can tell you 
it has been huge the major challenges in a highly volatile time 
are many and varied but the staff and all of the directors have 
worked tirelessly for the company much has been achieved as 
set out elsewhere in this annual report but it has also been very 
frustrating for example our placing in october 2008 had given 
the group resources to meet the then estimated debt 
repayments through to at least early 2010 the falls in energy 
prices since then have meant that the reassessed bank debt 
borrowing base is lowered and we are dealing with the results 
volatile times require fortitude boldness and no little luck i am 
grateful to all stakeholders staff banks shareholders suppliers 
and others for their support and i trust in time that support will 
yield its rewards
2009 is a year of challenge and we are focused on achieving 
our stated objectives to resolve the debt issue and get sterling 
back on a growth path
 
graeme thomson
chief executive officer
29 may 2009
414million
 
–27
debt repaid since 1 january 2008