Sterling to Plug, Abandon Sangaw North Well

Sterling provided the following update for the Sterling operated Sangaw North block in Kurdistan (53.33% working interest).

Flow testing operations have been completed in the cased hole section of the Sangaw North-1 well. Two flow tests were conducted; the first across a 100 meter interval within the Jurassic aged Sargelu formation and the second across a 100 meter interval within the Cretaceous aged Kometan formation.

During the first flow test, formation gas and water were observed in small quantities at surface but sustainable flow rates were not achieved. The Company believes that the Jurassic aged Sargelu formation does not contain a sufficient natural fracture network to support sustained flow.

During the second flow test, within the Cretaceous aged Kometan formation, the well flowed at a stabilized rate of approximately 0.4 million standard cubic feet of gas and 4,500 barrels of formation water per day during an 8 hour flow period through a 60/64ths inch choke with a wellhead pressure of 280 pounds per square inch. Approximately 83 percent of the produced gas was hydrocarbon gas with the remainder comprising 10 percent hydrogen sulphide and 7 percent carbon dioxide.

Neither flow test produced hydrocarbons at commercial rates and the Sangaw North-1 well will now be plugged and abandoned. The operations to plug and abandon the well are expected to take approximately 2 weeks, after which the drilling rig will be demobilized from the location.

The current exploration phase of the Production Sharing Contract for the Sangaw North area will expire in November 2011 and the joint venture partnership (Sterling, Addax and KNOC) may elect to enter the next exploration phase which runs until November 2013; the Sangaw North-1 well has fulfilled the work commitment for this next phase. During the coming months Sterling will integrate and analyse the seismic, drilling, logging and testing data before making recommendations to the joint venture group.

Angus MacAskill, Sterling's Chief Executive said, "We are disappointed that flow testing has not demonstrated commercial hydrocarbon flow rates in the Sangaw North-1 well. An integrated interpretation of all the data acquired during well operations will be conducted to determine the remaining potential of the Sangaw North structure prior to a decision on future operations."

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