Sterling: Chinguetti Phase 2B Development Work Scheduled for May Start

Sterling Energy reported that in December 2007, Petronas took over operatorship of the Chinguetti development following its acquisition of Woodside's Mauritanian assets. The operator is currently preparing for the Phase 2B development campaign, which it hopes will double production. The Atwood Hunter rig is expected to drill two new development wells and three workovers at a gross cost of around $150m, starting in May 2008.

The new well locations were selected based on the high resolution 3D and 4D seismic, which was shot over Chinguetti in 2007. This has enhanced the knowledge of the complex field, which Sterling estimates held a remaining 32.5 million bbls of gross 2P reserves and 18 million bbls of contingent resources at the end of 2007. Recent interpretations using this data suggest that the current wells are only accessing about half of the ultimately recoverable reserves; the results of the current development phase will help to determine any future work.

During 2007, Sterling received a share of sales of 1,485 boepd from its interests in the Chinguetti field through the Funding Agreement and its Royalty interest which together generated over $35.2 million of revenues from four cargo liftings. The rate of decline has slowed significantly, with production being much more stable and predictable since mid-2007.

An appraisal well on the 1-2 tcf Banda gas discovery straddling Blocks A and B has been drilled. The appraisal well encountered gas and oil columns with similar contacts to those seen in the discovery well. We await further results and a successful outcome of this well and subsequent confirmation of the commercial viability would materially increase the value of Sterling's Royalty interest over Blocks A and B.

Potential also remains for the development of the Tiof accumulation using Chinguetti's facilities. Reserves for the first stage of development are estimated in the range 40-60 million bbls gross. Sterling would benefit from its Royalty interest, a potential development bonus, plus operational synergies through sharing the Chinguetti facilities.

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