Sterling: Africa, Middle East Operations Fast-Tracked

Sterling has interests in exploration licenses with multi-billion barrel targets which could be "Company makers". Some of these are considered medium risk and high cost, so it remains part of Sterling's strategy to farm-down these interests to give a more appropriate risk to reward ratio. Key activity is expected on these in 2008/9.

There has been a major change in our perception of the prospectivity of Sterling's Madagascar licenses in the last year. Several very large prospects have been evaluated and one has been matured towards drilling well ahead of our former scheduled timing. A rig is being sought and the Ambilobe and Ampasindava PSC's have become an exciting cornerstone of Sterling's exploration portfolio.

During 2007, the interpretation of over 4,000km of newly processed 2D seismic, plus a further 4,000km of newly reprocessed vintage 2D seismic data, began in earnest to generate prospects. Early results of this ongoing interpretation have yielded some very large structural prospects and leads, the largest of which is the Sifaka Prospect in the inboard portion of the Ampasindava PSC, in water of approximately 1,000-1,500m. The Sifaka Prospect has multi-billion barrel potential and following a meeting between ExxonMobil, the operator, and the President of Madagascar in November 2007 it was reported that the partnership wished to drill this prospect, subject to the availability of a suitable rig. Owing to the remote location of the block and the time it will take to secure and mobilize a rig in current market conditions, Sterling anticipates that drilling will take place in 2009.

Preparations for the drilling of Sifaka continue with the acquisition of a site survey over the drilling location scheduled for mid 2008, the first to be undertaken in offshore deepwater Madagascar. With the expected costs of the well materially exceeding the remaining carry, Sterling plans to further farm-down its interest in the Ampasindava PSC. The well would be the first test of the deepwater potential of Madagascar. Comparisons with the prolific basins of Angola have been made.

Sterling has a 30% WI in two blocks, totaling approximately 25,500 sq km in the north-western offshore area of Madagascar, with ExxonMobil as a 70% partner in both blocks. In the smaller Ampasindava PSC, ExxonMobil is operator, whilst Sterling is operator in the larger Ambilobe PSC.

Kurdistan, Iraq

In November 2007 Sterling signed a PSC with the Kurdistan Regional Government (KRG) of Iraq for the Sangaw North exploration block. The block has an area of 492 sq km and is situated 40 km to the southwest of Sulaimaniya.

Surrounded by existing oil and gas fields, the block provides Sterling with an exploration position in an extremely prolific hydrocarbon province. Despite the close proximity of a number of giant fields, for political and historical reasons the area has not been explored, despite its world-class potential. For example, the Kirkuk field, 50km to the west of Sterling's block, has recoverable oil reserves in excess of 16 billion barrels.

The block contains a very large, moderate-risk, undrilled surface anticline, with the potential to target multiple regionally-proven reservoir intervals. Analysis of a number of surface oil seeps on the block, indicates that the area is underpinned by the same hydrocarbon source rocks responsible for the majority of the multi-billion barrels of Iraqi reserves. As a result, a working petroleum system is considered by Sterling to be proven on the block.

Seismic data is required in order to improve confidence in mapping before drilling the first well. Sterling is evaluating tenders in order to acquire 2D seismic data during the second half of 2008. It would then aim to drill an exploration well in 2009, subject to the availability of a rig. Sterling is in the process of supplementing its existing local office in the capital, Erbil, with another in Sulaimaniya, Kurdistan's second city.