Sterling Farms-Out Sangaw Interest in Kurdistan Region to Addax

Sterling Energy plc

Sterling has agreed to farm-out a 33.33% interest in the Sangaw North Production Sharing Contract, in the Kurdistan Region of Iraq, to Addax Petroleum Sangaw Limited.

Following the farm-out, Sterling will retain a 66.67% interest in the Sangaw North PSC. Upon the assignment of a 20% Third Party Interest to the Korea National Oil Corporation (announced by the KRG on June 25, 2008), Sterling's interest will be reduced to 53.33% and Addax Petroleum's interest will be reduced to 26.67%. Sterling remains Operator.

Under the terms of the deal, Addax Petroleum will pay Sterling's past costs and Sterling's costs for the planned exploration work program of 2D seismic and the first exploration well in the Sangaw North Block.

The Block, which covers an area of 492 km2, is located approximately 140 km south east of Erbil and 50 km south west of Suleimaniah. It lies in a highly prospective area, around 50 km south east of the giant Kirkuk oil field and on trend with Addax Petroleum's Taq Taq oil field and the Chemchemal oil and gas condensate discovery. The Block itself contains a large surface anticline with the potential for multiple reservoir intervals in the subsurface, a feature seen in many existing fields in the area.

Terra Seis, a Canadian seismic contractor, is currently acquiring 310 km of 2D seismic data over the Block, using a combination of vibrator and dynamite sources depending on the terrain. The seismic acquisition programme is making good progress and the initial results from the seismic data are very encouraging. The survey is scheduled to finish in November.

Graeme Thomson, Chief Executive of Sterling, said, "We are making excellent progress in our exploration of the Sangaw North Block and in implementing our strategy of advancing near-term high potential prospects. Our field work has identified a number of surface oil seeps, confirming the presence of a working petroleum system in the area, and with the good progress on the seismic programme we are on track to spud our first exploration well in mid 2009. The fast pace of our exploration progress reflects our commitment to this very prospective acreage.

The signing of the farm-out deal with Addax Petroleum, a leading international operator, with a strong acreage position and commitment to Kurdistan, underlines the potential of the Sangaw North Block. Sterling will also benefit from Addax Petroleum's drilling experience in the region. This will enhance Sterling's ability to access high impact reserves at moderate exploration risk at the earliest opportunity which will be of benefit to all the people of Iraq and our shareholders."