Sterling Reports Strong Growth for First Half of 2006

Sterling Energy reported on Monday that its performance in the first six months of 2006 has been materially better than the comparable period in 2005.

Average daily group production rose from the corresponding period by more than 150% to more than 25 million cubic feet of gas equivalent per day (mmcfged).

Realized Gulf of Mexico prices were up more than 12% to US$7.25/mcfge, and average production exceeded 7.8 mmcfged in the period (year 2005: 9.7 mmcfged). U.S. production levels have recently risen to more than 10.1 mmcfged, 35% up on the first quarter, with new wells fully onstream and with greater equipment availability. Sterling recently spudded an onshore well, Trehan-1, in South Louisiana, the first of four exploration wells planned in the U.S. in the second half that together could materially impact reserves and production.

The start-up of the Chinguetti Field in West Africa in late-February 2006 also contributed strongly to Sterling’s cash flow, with US$32 million received from three first-half cargo sales and royalties. The next lifting is expected in early August 2006.

Chinguetti’s Field operator continues to address the technical and operating issues in this first field to be developed offshore Mauritania. Lower-than-expected production was offset in the period by higher-than-expected oil prices. Current gross field production rates are 35-40,000 barrels of oil per day (bpd). Sterling expects that these issues will be progressively addressed and resolved over the course of 2006/early 2007, including with infill wells. Although the expected future production rates are lower than initially projected by the operator, the current studies and operations will help to clarify the optimum future production levels and will enable estimates of Chinguetti and other Mauritanian reserves to be updated later in the year. Currently, US$96 million of the US$130 million letter of credit provided under the funding agreement has been drawn.

A declaration of commerciality is expected by year-end on the Tiof field, in which Sterling has a sliding scale royalty interest over 6% and for which it pays no development costs. An initial gross 50,000-bpd production level in 2009 is envisaged, with 40-60 million bbls being developed in the initial phase. There would then be scope to extend the development through satellite tie-backs. The Tevet, Labeidna, and Banda oil discoveries are also being looked at for tie-back to Chinguetti, which would be at no cost to Sterling. Tevet is being “fast tracked,” with Sterling having a royalty interest greater than 6%.

Drilling is also expected to commence shortly on the 150-million-bbl Colin prospect, in which Sterling has a royalty interest greater than 3%. Further carried exploration wells are expected over the next year.

Elsewhere, a largely carried exploration program of up to three wells, offshore Gabon and Equatorial Guinea, is expected over the next year. In addition, interpretation of the recently acquired 4,000 km of 2D seismic offshore Madagascar has commenced. Initial results give cause for optimism. Also, work continues on the Kurdistan project.

With the increased cash flow, other high-impact projects are being actively sought in order to expand Sterling’s upside potential.

The interim results for the six months to June 30, 2006, will be announced on Sept. 22, 2006.

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