2006 Preliminary Results

Sterling Energy PLC
16 May 2007


                              STERLING ENERGY PLC

                            2006 PRELIMINARY RESULTS

                              CONFIDENT OF GROWTH

Sterling Energy, the AIM listed (symbol: SEY) independent oil & gas exploration
and production company operating in Africa, the Gulf of Mexico and onshore USA,
today announces its 2006 Preliminary Results together with an update on progress
and outlook.

2006 HIGHLIGHTS:

•   Revenues up 226% to $81.0 million in 2006 from $24.9 million in 2005

•   Entitlement sales increased in the year by 172% to an average of 4,400 boe/d

•   Gross profit up 73% to $26.6 million

•   Net cash flow from operating activities of $62.3 million (2005: outflow 
    $13.6 million)

•   Operating profit before amortisation, depletion and impairment provision was 
    $56.2 million in 2006 (2005: $11.6 million)

•   Operating loss of $46.8 million in 2006 (2005: profit $3.0 million) after 
    non-cash charge of $57.3 million for previously announced Mauritanian assets 
    impairment provision

•    2006 profit before tax and impairment provision was $13.4 million compared 
     with restated 2005 equivalent loss of $13.3 million


2007 ACTIVITY AND OBJECTIVES

•    Placing to raise £26.1 million before expenses (c.$50 million) and 
     short-term bank facility of up to $100 million completed

•    $145 million cash acquisition of US based Whittier Energy Corp. ('WEC') 
     completed in late March 2007. WEC has drilled 7 successful wells so far in
     2007 out of 8 drilled

•    WEC deal increased Group 2P reserves by over 90% to c.24.5 million boe from 
     their end 2006 level of 12.9 million boe

•    Operator estimate of remaining Chinguetti 2P field reserves increased by 
     34% to 51 million bbls from Sterling's end 2006 total. C-18 well drilled 
     and brought onstream

•    Current Group production of over 6,000 boe/d, an increase of 88% from the 
     first quarter 2007 level of 3,200 boe/d

•    Record number of wells planned for in the next 12 months, with over 35 
     wells in the USA and at least 4 in Africa. 2007 Guinea-Bissau drilling was
     unsuccessful. Licence extension recently granted on Iris Marin, Gabon with
     commitment to exploration well

•    Dr Richard Stabbins to become Chairman at the AGM following the decision of 
     Mr Richard O'Toole to retire

•    Current unrestricted cash of c.$35 million, undrawn bank facilities of 
     $14 million and bank debt of $140 million

•    Objective is to add to producing assets and near-term developments, 
     participate in international licences and drilling programmes that, if
     successful, would add materially to the Group's value



Harry Wilson, Chief Executive of Sterling Energy Plc, said:

'The production from Chinguetti in 2006 was disappointing, but with the $145
million Whittier acquisition completed at the end of March 2007, this year has
started very well. We now have a stronger financial, operational and strategic
base from which to grow and I expect a sizeable increase in production cash flow
over the next year. 2007 will be our most active drilling period ever and I look
forward to seeing the upside unlocked in our assets. We plan to continue our
growth both organically and through acquisition while recognising that the
competitive environment requires an innovative approach.'

For further information contact:

Sterling Energy plc ([phone])
Harry Wilson, Chief Executive
Graeme Thomson, Finance Director

Evolution Securities ([phone])
Rob Collins

Citigate Dewe Rogerson ([phone])
Media enquiries: Martin Jackson / George Cazenove
Analyst enquiries: Nina Soon

www.sterlingenergyplc.com                       Ticker Symbol: SEY




                              STERLING ENERGY PLC
                            2006 PRELIMINARY RESULTS

CHAIRMAN'S STATEMENT

The Company has a strengthened production-driven cash flow following the $145
million cash purchase of Whittier ('WEC') at the end of March 2007. It has a
record number of wells planned for the coming year and has added to an already
strong management team. I am proud to have seen Sterling grow from an idea into
a leading and robust AiM listed energy company with a healthy future.

In 2006, sales revenues rose by 226% to $81.0 million. Gross profit was $26.6
million compared with restated 2005 equivalent of $15.4 million. With the
adoption of International Financial Reporting Standards ('IFRS'), Sterling has
also commenced reporting in US dollars, which will more clearly reflect its
business and its underlying performance. Entitlement sales increased in the year
by 172% to a Group average of 4,400 boe/d, following the start-up of production
in Mauritania. With the WEC deal completed, Group production is currently over
6,000 boe/d.

As previously described in the 2006 interims and in the release sent to
shareholders in January 2007, the performance at Chinguetti was below
expectations and a 2006 non-cash impairment provision of $57.3 million has been
made. Since the year-end the field operator has estimated the remaining end 2006
proven and probable ('2P') reserves to be 51 million bbls, 34% higher than
Sterling had used in these statements. Total 2006 gross revenues from production
sales and royalties since field production commenced were $57 million in cash,
with one lifting and $8.7 million to date in 2007.

Operating profit before impairment provision, amortisation and depletion was
$56.2 million in 2006, compared with $11.6 million in 2005. After charging the
non-cash impairment provision, depletion and amortisation, the 2006 operating
loss was $46.8 million (2005: profit $3.0 million).

Sterling's net cash flow from operating activities for 2006 was $62.3 million
(2005: $13.6 million outflow).

The $145 million cash acquisition of WEC was completed in late March 2007. This
was partly funded from the proceeds of a gross £26 million (c.$50 million)
equity placing to institutions and a new $100 million short term bank facility
with Natixis. The expanded Sterling Group's current bank debt is $140 million
(including $53 million in WEC), whilst available cash balances are c.$35 million
and undrawn facilities are $14 million. Sterling has undertaken to refinance its
bank debts by the end of 2007 and is currently working toward this with the key
aims of increasing flexibility and lengthening repayment.

The increased Group cash flow following the WEC acquisition will enable a
ramp-up in the Group's drilling programme.

WEC more than doubles our Group production to its current level of over 6,000
boe/d and increases our 2P reserves by over 90% to approximately 24.5 million
boe at the end of the first quarter of 2007. It diversifies our production
portfolio and also brings a large number of individually small but important
exploration opportunities.

WEC has historically been able to increase its reserves through the drillbit.
Sterling plans 35 wells in the USA in the next 12 months, as well as seeking
prospects on its increased undeveloped acreage. We welcome its management and
employees as an important part of the Sterling operations.

In West Africa, at least a further four wells are expected. Work will continue
on maturing the Madagascar licences, new applications and on potential purchases
of exploration, appraisal, development or production assets.  We have also just
been notified that the application to extend the Iris Marin licence in Gabon
with a commitment to an exploration well has been successful.

I expect that 2007 will be Sterling's most active drilling year to date.

The Group headcount is now over 80 in our offices in the UK, USA, Mauritania and
Kurdistan. To help facilitate growth, recruitment and retention, the offices in
the UK and the USA will shortly relocate and consolidate in the centres of
London and Houston.

With all the changes and opportunities ahead of the Company and after over four
years as Chairman since its listing on AiM, I have decided to stand down as
Chairman and not to seek re-election as a Director at the forthcoming AGM. I am
very pleased to report that Dr Richard ('Dick') Stabbins, who has been a
non-executive Director since mid-January 2007, has accepted the unanimous
invitation of the Board of Directors to become non-executive Chairman at the
conclusion of the AGM.

Aged 63, Dick has more than 35 years technical and managerial experience of the
energy sector and public companies and owns or has options over nearly 5.5
million ordinary shares. He has worked for the Saskatchewan (Canada) Department
of Mineral Resources (1969-72), for Murphy Oil (1972 -75) and for Ranger Oil
(1975-81). He was Exploration Manager and subsequently Exploration Director of
Goal Petroleum plc from 1981 until 1996. From July 2000 until its acquisition in
early 2004 by Sterling he was a Non-Executive Director of Fusion Oil & Gas plc.

Dick currently manages a private energy company, Montrose Industries Ltd, which
has interests in a wide range of energy projects in North-West Europe. He also
has considerable private venture capital experience. He is a former Chairman
(1990) of the Petroleum Exploration Society of Great Britain and a Council
Member (2000-2003) of The Geological Society of London, whose Audit Committee he
chairs. He also serves on their Investment and Remuneration Committees.

I am sure he will bring fresh ideas and vigour to the Company. I know he
believes that Sterling is well placed to continue to grow and foresees a
continuation of our strategy of adding to producing assets, near-term
developments and participating in international exploration which, with success,
could all add materially to the Group's asset value.

The emphasis will continue to be a balance between our production, which gives a
healthy cash flow and underpins net assets, and drilling discretionary higher
risk and higher reward exploration wells that could make for a substantive
uplift in value. To succeed, companies like ours need cash flow, the support of
shareholders, excellent staff and to be able to drill sufficient wells to
provide longer-term growth. I believe that we have these prerequisites.

There continue to be sector consolidation opportunities but, as with assets,
this is a very competitive environment, especially with oil and gas prices
remaining high. I believe our strong management is well placed to deliver on its
strategy.

I wish to thank the directors, staff, advisers and shareholders for their
support and efforts for Sterling and I look forward to further great success for
the Group.

Richard O'Toole
Chairman
For and on behalf of the Board of Directors
15 May 2007



OPERATIONS REPORT

United States of America

Growing cash flow, increasing drilling, diversified portfolio, stronger team

For the US operations, 2006 and the early part of 2007 has been a period of
change and opportunity. The strategy of expanding from the Gulf of Mexico
shallow waters to the onshore gulf coast states has been implemented and
following the WEC deal, 2P reserves are currently over 120 bcfge (c.20 million
boe), with around 65% in the proven category and 80% being gas.

Production is currently around 26 mmcfge/d (c.4,300 boe/d), with over half
operated by Sterling. This compares with an average of 8.6 mmcfge/d 
(1,400 boe/d) in 2006, down 12% on 2005 partly due to natural decline, as well 
as extended pipeline shut-ins for replacement and expansion. The average life of 
the US assets is around 12 years, based on current production and 2P reserves 
after the Whittier Energy Corp. ('WEC') deal.

The USA is a core area for cash flow and reserves. It is expected to add to
reserves and production through the record 35 wells planned for the next 12
months, to widen the scope for add-on deals and to help fund international
operations, including drilling.

$145 million purchase of WEC completed in late March 2007

At the end of March 2007, the purchase of the issued share capital of WEC, an
onshore USA, NASDAQ listed company, was completed for a cash consideration of
$145 million and the assumption of its other net liabilities, including bank
debt of approximately $53 million. The cash consideration was $60 million paid
from existing cash resources and the remainder from the Natixis bank facility,
which is repayable no later than the end of 2007. This purchase materially
strengthens the management team, more than trebles USA production, significantly
increases and diversifies the discretionary cash flow and brings with it a
portfolio of over 90 identified drilling locations and c.8,000 undeveloped
acres.  The average WEC production in the first quarter of 2007 was 16 mmcfge/d
and that of Sterling in the USA was 8 mmcfge/d. This will lead to a considerable
increase in net production in the second quarter of 2007.

WEC was an independent oil and gas exploration company headquarted in Houston.
It acquired, developed and exploited properties located in three core areas;
South Texas, Permian Basin and the Texas/Louisiana onshore Gulf Coast.
Acquisitions made by it in 2006 added acreage in Mississippi and East Texas. It
operates nine fields in Texas, three in Louisiana and one in Mississippi and has
significant non-operated interests in these core areas. With a staff of 27, it
has an active technical team that generates exploitation and exploration
projects, which are typically drilled with industry partners, as well as
participating in the projects generated by others. WEC currently has an
experienced team of engineers, geoscientists and landmen, a significant database
of 3-D seismic, over 27,000 gross undeveloped acres (8,000 net acres) under
lease and a portfolio of over 90 probable or possible 3D supported exploitation
and exploration targets. For 2006 it recorded a net profit of approximately $10
million on sales of approximately $43 million. It has hedged approximately 65%
of its expected production from its proven reserves for over 30 months.

In 2006, WEC's average production was 16 mmcfe/d and at the end of the year it
had approximately 48 bcfge (8 million boe) of proved reserves and some 24 bcfge
(4 million boe) of probable reserves. Its results will be included in those of
Sterling from the date of its acquisition in March 2007.

WEC was formed in 1991 with various non-operated oil and gas interests. In 2002/
3 it completed four purchases of operated interests for c.$7 million and became
publicly traded. WEC completed four acquisitions during 2004 and in April 2005
acquired RIMCO Production Co. for $55 million. In this acquisition, it acquired
working interests in 116 active wells and one unit, in 18 producing fields
principally located in Texas and Louisiana, adding 24 bcfge in proved reserves
and 8 mmcfge/d of production. This also provided an enhanced technical team with
the ability to generate new prospects and a team of landmen. It also brought a
significant number of prospects targeting over 80 bcfge of non-proved resource
potential, added the ability to drill prospects and generate additional
opportunities. During 2006, WEC completed two further purchases for $30 million.
In January 2007, Sterling announced its recommended offer for WEC which
completed in late March.

The integration of the two offices into one downtown Houston office is underway
and expected to be completed in the third quarter, with a combined staff of some
40 professionals.

In addition to adding 2P reserves at the date of acquisition of over 70 bcfge
(over 11 million boe), WEC also brings contingent resources (possible and
exploration) of nearly 48 bcfge (c.8 million boe), nearly doubling those in the
USA portfolio. In 2006, WEC drilled 36 onshore wells with a success rate of 83%.

Drilling and exploration activity in 2006 and to date in 2007

Due to the huge increases in offshore drilling and related costs, a concerted
effort was made to grow the portfolio with onshore targets. Some of the more
expensive offshore wells have been postponed due to cost considerations. A
programme of liftboat work was completed and a total of five wells were drilled
in the USA by Sterling in 2006, two offshore and three onshore, with three being
brought onstream as producers. Reserve additions were not sufficient to offset
total production and other adjustments and so year-end 2006 2P reserves were 54
bcfge, down 5% from the end of 2005.

In April 2006, a well on the Gryphon field (C-3: 7.5% ORRI) was drilled at no
cost to Sterling and brought onstream. This field averaged 2.4 mmcfge/d in 2006,
second only to the Mustang/Matagorda Island areas which averaged 4.0 mmcfge/d.

Late in 2006, Sterling committed to the Three Counties drilling programme in a
prolific part of the fractured Austin Chalk producing trend in Texas, adding up
to 25 potential well locations. This is a low risk horizontal drilling play
with the potential to target up to 25 bcf of net reserves additions.  Drilling
of the first deviated well commenced in early April 2007 and the first well (55%
WI) is nearing its target depth of around 12,000 ft.

The Galveston 303 #7 well (17.36% WI) encountered 50 feet of gas pay. This well
has been completed and will be online in the second quarter of 2007. Additional
mapping will be required to assess the positive impact of this completion.

The small Galveston Bay 251-5 well (28% WI) in the inland tidal waters, was
successfully completed in 2006. The small onshore prospect, Andrew (29.6%WI) and
high risk North Theall (40% WI) exploratory wells were unsuccessful, both
encountering gas but not in economic quantities. A conditional farmout on High
Island 52 may lead to a well being drilled in 2007 at no cost to Sterling for
its 2.85% ORRI.

In 2007 Sterling has also participated in the c18,000 ft Brown 1 well ('Thunder
Stud') and which has reached target depth, has recently been logged and is being
evaluated.

To date in 2007, WEC has participated in the drilling of nine wells with seven
successful, one dry hole and one currently being evaluated.

Five wells were drilled on the royalty acreage in Zapata County, Texas (12.5% -
25% NRI). With the active drilling programme experienced since 2006, this
royalty acreage now accounts for over 3 mmcfge/d of net production.

WEC also participated in the successful drilling of its first well in McMullen
County, Texas (33% WI). The well is being prepared to be on production by the
end of the June. Sterling has over 4,000 gross acres leased here and there is
the potential for multiple offsets to this first well.

An exploratory well in the East Lake Arthur area near Lafayette, Louisiana (67%
WI) was drilled. A secondary interval at c.10,000 ft was tested at rates in
excess of 1 mmcfd. Facilities are being constructed and preparations for a
pipeline hook-up.

A development well has been drilled on the operated Rayne field: a secondary
objective is to be tested. A well in Jackson County, Texas was abandoned.

Expansion of Mustang Island Facilities

The North Mustang Island gathering system and facilities were significantly
expanded to handle larger volumes of oil and gas for both Sterling and third
parties towards the end of 2006.  This project was mainly paid for by a customer
but Sterling retains full ownership of the facilities and gathering system. In
2006 the third party pipeline income rose 19% to $2.5 million. In the first
quarter of 2007 it has risen further to approximately $0.25 million per month.

An exciting 2007

With a greatly expanded and diversified reserve base, increased cash flow and an
extensive drilling programme, the USA operations will be very active. Internal
prospect generation will be a key focus, adding drilling opportunities which may
be sold on a promoted basis where beneficial. Activity will also focus on the
management of the asset portfolio, with efforts focused on material
opportunities.

Africa and Middle East

Mauritania

Recent positive news after 2006 reserve downgrade

As previously announced in both the interim report in September 2006 and in the
circular and announcement setting out the WEC offer dated 18 January 2007, the
performance of the Chinguetti field has disappointed. As stated in the January
circular, a report by an independent petroleum engineering consultant, RISC, set
out an ultimate field 2P reserve estimate of 50 million bbls assuming a further
3-4 development wells and contingent resources of a further 18 million bbls.
They valued Sterling's Mauritanian assets at $87-121 million and using their 2P
reserves indicated a fall of 64% from the end 2005 ultimately recoverable field
reserve estimate. The key reason for the decline is that the recoverability per
well is much lower than had been forecast as the complex field is more faulted
and compartmentalised than the operator had originally estimated.

Based on the RISC report on the Mauritanian assets, as well as taking into
account factors such as risks, performance, oil prices and significant
uncertainties on this and other possible future developments, the Board has made
a non-cash impairment provision against the Mauritanian assets in 2006 of $57.3
million, writing them down in the Sterling financial statements to the low end
of the RISC valuation, being $87.0 million.

Sterling has two economic interests in the Chinguetti development. The first is
through the Funding Agreement with the Mauritanian Government, signed in
November 2004, which enabled the Government to participate directly in the
Chinguetti development through Societe Mauritanienne des Hydrocarbures ('SMH').
In 2006, Sterling had 6 liftings, selling its entitlement of 0.9 million
barrels and realising $57.4 million of revenue, at an average price of $61/bbl.
Cumulative net cost under the Funding Agreement to the end of 2006 was $114
million, with a further $24 million principally for the 2004 signature bonus and
other related costs.

A total of $46 million was also paid for the purchase of Sterling's second
interest, being royalties from the 2003 purchase of Fusion Oil & Gas plc. An
agreement with Premier Oil, covers  any production from a 3% interest in PSC A,
a 6% interest in PSC B (with a 5.28% interest in Chinguetti). These are a
sliding scale royalty at a rate linked to realised oil (or gas) prices. In 2006,
Sterling received royalties of $3.8 million at an average royalty rate of $7.7/
bbl.

The Chinguetti field, Mauritania's first oil field development and Sterling's
first African production, came onstream in February 2006.  Production rapidly
climbed towards the field operator's (Woodside) target of up to 75,000 bopd.
Water injection and gas lift, together with gas injection into the Banda gas
field, were all brought online in the first two months of production.
Unfortunately, oil production quickly began to decline due to high gas
production and lack of pressure support from the water injection. Close
monitoring of the field indicated that the reservoir structure was far more
complex than expected. In particular it was more faulted and economically
producible reserves were therefore significantly lower.

In June 2006, the PSC contracts in four offshore blocks, including the
Chinguetti area, were re-negotiated as part of the resolution of a dispute
between the partners and the government over amendments signed in 2005. This
included a reduction of the cost oil ceiling rate of the Chinguetti field from
60% to 50% during each quarter when the field crude oil market price equals or
exceeds $55/bbl. The partners also paid a $100 million Chinguetti project bonus
to the Government - this did not involve either SMH or Sterling making a
payment.

Field production fell to an average of just over 41,000 bopd for the second
quarter of 2006 and the decline continued throughout the rest of the year.  With
problems on the FPSO and in re-starting various wells after shut-downs, the
field production ended 2006 at just under 30,000 bopd, bringing the average for
the period since production started to 35,100 bopd. The total field production
in 2006 was 10.9 million bbls. At the end of 2006 and based on the RISC report,
remaining 2P field reserves were estimated at 39.4 million bbls and net to
Sterling they were 4.0 million bbls.

Production in the first quarter of 2007 was 18,300 bpd and the cumulative field
production by the end of March was 12.5 million barrels. The Chinguetti 18
development well spudded in late December 2006 and, despite some problems with
the completion, successfully reached its target and came onstream in March 2007.
In April, production was estimated at 17,500 bpd with restrictions arising from
a subsea equipment maintenance programme and operational problems, including a
plug failure in well C-14. Sterling has had one 2007 lifting, in February,
which, together with the royalty payment received, totalled $8.7 million.

The Operator continues to study ways to optimise future production and reserve
recovery. A 2007 seismic campaign to acquire high resolution 3D and 4D data has
been completed. This will be processed and interpreted through the year in order
to optimise field recovery and economics. It is then expected that an additional
3-4 development wells will be drilled in 2008, with the timing to be decided and
with a modified completion format.

Since the year-end there has been some encouraging news, with the field operator
estimating remaining end 2006 field 2P reserves at 51 million bbls, 34% higher
than RISC had estimated in its report. The operator indicated that there could
also be further development phases with associated field reserves, currently
classified as contingent resources, of a further 28 million bbls. A recent
disposal of an interest in the field and adjacent licences has also indicated a
potentially higher value than used in the financial statements for 2006.

Tiof discovery

Development plans for Tiof (also known as Oualata) have been delayed but
Sterling is hopeful that a field development plan will be proposed this year.
Although this field falls outside the Funding Agreement, Sterling will benefit
if it utilises the Chinguetti FPSO and related facilities, whilst paying no
development costs.  Furthermore, under the Royalty Agreement, Sterling will
receive production royalties and may receive a $2 million development bonus.

A tension leg platform is the expected development approach, tied back to
Chinguetti for an initial estimated 40-60 million bbl development. First oil
could be up to 50,000 bopd in 2010/11.

Subsequent satellite developments of further reserves, most notably at Tevet,
could be made, depending on field performances

Any such further development using Chinguetti's facilities would benefit
Sterling through the sharing of facilities and the ability to economically
produce otherwise marginal reserves.

Other Discoveries and Exploration

The prospects for an LNG development using Banda and other gas discoveries,
remains dependent on the outcome of drilling elsewhere in Mauritania, market
needs, technology and licence terms including clarification of the gas fiscal
regime. There are no plans for exploration in either PSC A or B areas in 2007.

Madagascar

Sterling has a 30% WI in two blocks totalling approximately 25,500 sq km in the
northern offshore area. ExxonMobil is a 70% partner in both blocks: in the
smaller Ampasindava PSC, it became operater in October 2006, whilst Sterling
remains operator on the Ambilobe PSC.

During 2006, the acquisition and processing of over 4,000km of new 2D seismic,
plus the reprocessing of over a further 4,000km of vintage 2D seismic, took
place. This provides a modern processed regional seismic dataset covering both
blocks, which will be used for prospect generation.

Initial interpretation of seismic data shows that both blocks contain some large
structures and the current focus is to further evaluate these. In the coming
year or so, exploration of this unexplored frontier region is expected to enter
a new phase; ExxonMobil and its partners in the Majunga PSC (adjacent to the
Ampasindava PSC) are reportedly planning the first deepwater exploration well,
subject to rig availability and other considerations, in 2008.

During 2006, ExxonMobil and Sterling jointly entered the second exploration
period in both blocks, with the pre-requisite relinquishment of 25% of the
licence areas. The Ambilobe PSC is now 15,600 sq km and the Ampasindava PSC is
9,860 sq km. Under the conditions of the farm-in by ExxonMobil in July 2005,
Sterling's 30% interest in the licences will be carried through an exploration
work programme that, subject to certain milestones being achieved and a
financial cap on the carry in each block, includes 2D and 3D seismic acquisition
and the drilling of up to two wells per licence. With the significant increase
in drilling and other costs since then, Sterling currently estimates that this
would cover it for all costs up to and including part of any well costs.

The Ambilobe and Ampasindava PSC's are an exciting cornerstone of Sterling's
exploration portfolio. The integration of the results of the new seismic data
with existing information will provide invaluable insights into the potential of
this region. This will facilitate high-grading of areas for 3D seismic
acquisition in late 2007/early 2008.

Gabon

Sterling operates two shallow water permits in southern Gabon, Iris Marin
(38.57% WI) and Themis Marin (20.57% WI), as well as the Ibekelia Technical
Evaluation Area  (40% WI).

Themis Marin exploration well in third quarter2007

In Themis Marin a detailed 3D PSDM imaging and processing project was completed
during 2006. Data has been interpreted and integrated with regional studies to
generate a prospect portfolio, from which a clearly defined prospect at the
sub-salt Gamba formation level has been approved by partners for drilling.

Planning for an exploration well to drill this prospect in the third quarter of
2007 is well advanced. The Gamba formation reservoir produces at the nearby
Etame field and its surrounding satellite fields.  Sterling will be carried for
18% of its 20.57% working interest and hence will pay only 2.57% of the well
costs.

Iris Marin: permit extension granted

In Iris Marin, an intensive 3D PSDM project is in the final stages of
completion. A number of good prospects have been identified and are under
evaluation. An application was made in early 2007 to take the licence into a
third term and commit to drilling an exploration well, which has very recently
been granted. The Iris Iboga Marin No 1 (IIBM-1) well, drilled by Sterling in
2005 to 2,035 metres, penetrated over 30 metres of excellent reservoir-quality
sub-salt Gamba sandstones in the area.

In the year Sterling increased its interest in this permit by 18% to 38.57%.

In Iris Marin and in the neighbouring Ibekelia area, also operated by Sterling,
a 7,100 line km aeromagnetic survey has been completed in 2007. The data was
acquired as part of an ongoing regional evaluation. The Ibekelia TEA agreement
covers a 673 sq km area which is contiguous with the Gamba and Olowi oil fields
and with Sterling's existing licences. At the end of the evaluation term there
is an option to convert to a full Production Sharing Agreement.

Guinea-Bissau

Two high risk exploration wells abandoned: interest in permit acquired

Sterling holds a 5% working interest in the Sinapa and Esperanca licences. Plans
for the further appraisal of these licences awaits the detailed evaluation of
the results of the two high-risk 2007 exploration wells drilled on the Esperanca
permit, which were abandoned. After the first of these wells, Sterling exercised
its option to acquire a 5% WI in Esperanca at no cost and is liable for its
share of the costs of the second well from the date it exercised its option.

Cameroon

Border dispute: licence still suspended

The financial obligations and work programme for the Ntem concession area (100%
WI) are currently suspended due to a dispute between Cameroon and Equatorial
Guinea over their maritime borders. Both countries are working together to
resolve the dispute. Sterling had planned to farm-out this licence for drilling
and it continues to attract a good level of industry interest. The award in
late-2004 by Equatorial Guinea of a licence to the South of Ntem overlapping up
to 20% of the licence has delayed this drilling plan until the situation is
resolved. Sterling remains committed to assisting in the resolution of the
dispute in the interests of all parties.

AGC

Dome Flore Exploration well planned for late 2007

The Dome Flore concession lies within the AGC, a joint exploration zone between
Senegal and Guinea Bissau. Sterling holds a 30% WI: Markmore, a Malaysian
company with interests in bitumen refining, is the operator.

An exploration well to drill two stacked Miocene light oil targets in late 2007,
is being planned, dependent on rig availability. The shallower heavy oil
accumulation will also be penetrated by this well and the interval cored to
evaluate the heavy oil potential. The heavy oil deposits on Dome Flore and Dome
Gea contain an estimated 0.8 to 1 billion barrels in place. Sterling share of
drilling costs will be carried through this exploration well.

Kurdistan, Iraq

Steady progress being made

In February 2006, Sterling signed a Memorandum of Understanding ('MOU') with the
Oil, Gas & Petrochemical Establishment of the Kurdistan Regional Government of
Iraq ('KRG'). This provided exclusive rights for the company to carry out
geological studies and negotiate a full Production Sharing Contract (PSC) for an
exploration block in Kurdistan, a largely unexplored area of high potential.

Sterling is working closely with the KRG to convert the MOU into a PSC and has
followed the progress made as the central and regional authorities seek to
clarify the energy legislation. With an office in Erbil, the capital of
Kurdistan, and a local General Manager overseeing its business activities,
Sterling is committed to widening its activities in the region. This has the
potential to become a significant new core area for Sterling.

FINANCIAL REPORT AND OUTLOOK

Adoption of IFRS and reporting in US$

The results of the Sterling Group for 2006 have been prepared, for the first
time, in accordance with International Financial Reporting Standards ('IFRS')
which AiM companies are required to adopt no later than the financial reporting
period commencing on or after 1 January 2007. As a result, the 2005 comparative
figures have also been restated. The accounting polices adopted by the Group and
the impact of the move from UK GAAP to IFRS for the previously audited 2005
financial statements, including quantification of the main accounting
differences, are set out in the attached statements.

At the same time, Sterling has adopted the US dollar as the reporting currency
of the Group with effect from 1 January 2005. The Board believes that by
reporting in US dollars the accounts will provide a clearer representation of
the underlying transactions which are predominantly carried out in US dollars.
These changes have required a very considerable amount of additional work and
cost.

Revenue up 226% to $81.0 million in 2006

Revenue increased by 226% to $81.0 million in 2006 (2005: $24.9 million),
largely reflecting the start-up of production from the Chinguetti field. Revenue
from Chinguetti was $57.6 million, net of the cost of related settlements of
hedge contracts crystalising of $3.7 million and including the royalty income of
$3.8 million. The average cargo sale price was $61.10/bbl (an average discount
to Brent of $5.97/bbl) before deductions of $3.89/bbl for the hedges.

In the US, the average realised price achieved was approximately $6.73/mcfge
(2005: $6.39/mcfge), an increase of 5%. Third party income from
Sterling-operated pipelines rose 19% to $2.5 million (2005: $2.1 million),
before related costs.

The Group's share of barrels lifted from the Chinguetti field in 2006 totalled
0.9 million barrels, which when added to the entitlement from the royalty
stream, added an average of 3,030 bpd to average sales for the year. USA
production decreased by 12% to an average of 8.6 mmcfge/d, (2005: 9.7 mmcfge/d),
with 83% being gas (2005: 82%).

Cost of sales rose significantly to $54.4 million (2005: $9.5 million), this
increase principally reflecting production from the Chinguetti field. Average
cost of sales for the Chinguetti field liftings was $40.40 /bbl, of which $7.90
/bbl related to production costs and $32.50 /bbl to depletion charges. For the
US operations, the average unit cost of sales was $4.48/mcfge (2005: $2.87/
mcgfe). Of these costs, direct production costs rose markedly as a result of
increases in insurance, ad valorum taxes and platform maintenance costs to $2.30
/mcfge (2005:$1.34/mcfge). The higher depletion charge of $2.18/mcfge (2005:
$1.53/mcfge) resulted mainly from higher projected development and abandonment
costs and reserve adjustments.

Gross profit increased by 73% to $26.6 million in 2006 from $15.4 million in
2005.

Operating profit in 2006 was $13.2 million (2005: profit $6.0 million), before a
non-cash impairment provision of $60.0 million (2005:$3.1 million). Of this
provision, $57.3 million arose in 2006 from the Mauritanian assets for the
reasons noted above. There was also a USA impairment provision of $2.7 million
against producing interests under the new IFRS requirements. Pre-licence costs
of $1.4 million were incurred in 2006 and are now required to be immediately
expensed (2005: $0.7 million).

With the increase in the scale of operations, administrative expenses rose by
83% to $12.0 million ($2005: $6.6 million). This increase reflects the full-year
impact of the expansion of the UK technical, commercial and support staff to run
the African operations, which includes the Mauritanian production start-up.
Sterling operates over half of its production in the USA and is operator in
Gabon, Madagascar and Cameroon. The 2006 costs included a $1.9 million (2005:
$1.8 million) charge in respect of the fair value of outstanding share options.

Interest revenue from cash deposits, less finance costs on the US  bank loan and
decommissioning provisions, were a net cost of $0.1 million (2005: income $1.3
million). Under IFRS, the product price hedge contracts maturing in 2006 and in
2007 are 'marked to market' resulting in a gain of $0.3million in 2006 (2005:
$20.7 million loss).

A taxation credit of $6.1 million arose in 2006 (2005: $4.4 million credit).

Fully diluted loss per share, which reflects the potentially dilutive impact of
options and the impairment provisions, was 2.75 USc per share (2005: 0.86 USc
loss).

Net cash flow from operating activities in 2006 of $62.3 million

The 2006 cash inflow from operating activities of $62.3 million compared with an
outflow in 2005 of $13.6 million, the increase reflecting the impact of the
Chinguetti production. Net cash of $48.1 million was used in investing
activities (2005: $80.2 million), of which $34 million was for the Chinguetti
field compared with $65 million in 2005. Other cash capital expenditures were
principally $13 million related to the Gulf of Mexico.

At the end of 2006, unrestricted cash balances were $86.7 million (2005: $13.1
million) and a further $5.0 million was for restricted uses in the USA for
abandonment of fields (end 2005 a total of $69.0 million was for restricted uses
related to Chinguetti and in the USA).

At 31 December 2006 USA bank loan drawn was $23.2 million (2005: $27.3 million).
At the end of 2006 current assets less current liabilities were $73.4 million
compared with $43.4 million at the end of 2005.

Principally as a consequence of the impairment provisions made, Sterling's
equity shareholders' funds fell to $223.6 million at the end of 2006 (2005:
$260.0 million).

Outlook

Since the end of 2006, Sterling has completed the $145 million WEC purchase.
This was funded with approximately $60 million of cash and $85 million from a
secured Group short term loan with Natixis. A share placing in January 2007
raised a gross total of £26.1 million at 16p per share and in January the
year-end USA bank loan of $23.5 million was repaid in full.

Currently, unrestricted cash balances total approximately $35 million with
undrawn bank facilities of US$14 million. Total bank debt of the enlarged Group
is approximately $140 million, of which $53 million is drawn under the facility
assumed with the WEC purchase and $87 million is under the short-term loan
repayable by the end of 2007. Sterling intends to refinance this debt,
increasing its term and flexibility.

With a greatly increased discretionary cash flow and 2P reserve base in the USA
assets following the WEC deal, Sterling intends to drill a record number of
exploratory and development wells in the USA in 2007. In Africa, Chinguetti cash
flow is largely expected to be used to fund further development drilling in
2008, whilst the majority of other committed costs are carried by third parties.

New ventures continue to be sought to increase the pace of exploration drilling
and to expand the upside in the portfolio, as well as additional production and/
or development interests to extend the production profile.

Sterling is well placed to increase its production cash flow though 2007 and to
add to its reserves and upside potential through an increased pace of drilling.

PROVEN AND PROBABLE RESERVES (4)
    Volumes (1)                                         Oil               Gas           Entitlement
                                                                                           Reserves
                                                      ('000          (million           ('000 barrels
                                                   barrels)         cubic feet)          equivalent)
                                                                 
    At 1 January 2006                                13,083            49,124                21,270
    Acquisitions (2)                                                    3,436                   573
    Upwards revisions  (2)                                                956                   160
    Downwards revisions(2)                           (6,620)           (4,617)               (7,390)
    Production                                       (1,266)           (2,595)               (1,699)

    At 31 December 2006                               5,197            46,304                12,914

a.  Location of Reserves

    The geographical location of the end 2006 reserves were:

    North America                                     1,245            46,304                 8,962
    West Africa                                       3,952                 0                 3,952


b.  Categorisation of proven and probable reserves:

 1. At the start of the year:
    Proven reserves                                     70%               58%                   65%
    Probable reserves                                   30%               42%                   35%

 2. At the end of the year:
    Proven reserves                                     60%               55%                   57%
    Probable reserves                                   40%               45%                   43%



NOTES

1.   The proven and probable reserves movements in 2006 are  t abased on:

a.   North America: evaluation reports by independent petroleum engineer's as of 
     1 September 2006 for the offshore assets and as of 31 December 2006 for the 
     onshore acquisition, with certain downward or upward adjustments by the 
     directors for the offshore assets at the year-end where, in their opinion, 
     subsequent performance of assets, or further evaluation through drilling or
     workovers or through the impact of changes in prices or costs, justifies
     adjustments.

b.   West Africa: the reserves are based on an independent petroleum engineer's 
     evaluation of the Chinguetti field as of 31 December 2006, arising from its 
     overriding royalty interest and from its funding to SMH (formerly GPC), 
     rather than by direct ownership in the interest in the field.

2.   The downward oil revision relates to the Chinguetti field reserves and is 
     based on the report in 1 above. Gas revisions principally relate to 
     drilling, workovers, installation of additional compression and other 
     facilities, reprocessing of seismic data, well control and production 
     history in the USA. The major downward gas revisions relate to a well on 
     the Mustang Island properties. The oil additions relate to the Three 
     Counties project onshore Texas.

3.   Sterling has not booked reserves in West Africa relating to other 
     Mauritanian or AGC discoveries, on the basis that there are no firm 
     development plans.

4.   Definitions: Proven reserves have a 90% level of confidence that the stated 
     quantities will be equalled or exceeded. Probable reserves have a 50% level 
     of confidence that the stated quantity will be equalled or exceeded. Oil
     includes condensates.

STERLING ENERGY SCHEDULE OF MAIN INTERESTS AT
31 DECEMBER 2006

               Location          Size     Licence        Sterling Working    Sterling Net           Operated/
                                 (km(2))  Name           Interest %          Revenue Interest %     Non-operated
Africa

Mauritania      Offshore         6,969    PSC A          n.a                 Sliding scale royalty
                                                                             over 3%
                Offshore         8,095    PSC B          n.a                 Sliding scale royalty
                                                                             over 6% (except 5.28%
                                                                             of the Chinguetti
                                                                             Field, plus an
                                                                             economic interest of
                                                                             approximately 9% in
                                                                             the Field
AGC            Casamance-Bissau  1,699    Dome Flore     30%*                n.a
Cameroon       Southern Douala   2,319    Ntem           100%                n.a                    Operator
               Basin
Gabon          Southern Gabon    673      Ibekelia (TEA) 40%                 n.a                    Operator
               Southern Gabon    607***   Iris Marin     38.57%              n.a                    Operator
               Southern Gabon    911      Themis Marin   20.57% (pay 2.57%   n.a                    Operator
                                                         of next well)
Guinea-Bissau  Casamance-Bissau  2,349    Sinapa         5%                  n.a
               Casamance-Bissau  3,491    Esperanca      5% **               n.a
Madagascar     Offshore NW       15,600   Ambilobe       30%*                n.a                    Operator
               Offshore NW        9,860   Ampasindava    30%*                n.a

USA: offshore  Mustang Island             Mustang Island 90-100%             90-100%                Operator
               Texas Coast                Gathering
                                          System
               Texas State       48.9     Mustang Island 12.5-100%           9.4-82%                Operator
               Waters
               Texas State       21       Matagorda      42-75%              36.6-59.5%             Operator
               Waters                     Island
               Texas Federal     50       High Island    7.5% overriding     7.5% royalty in        Operator
                                                                             Gryphon,
               Waters                     (incl 52 and   royalty in Gryphon, otherwise 42.3-83.33%
                                          Gryphon)       otherwise 50- 100%
                                                         
               Texas Federal     23       Galveston      15.75-17.4%         10.7-11.3%
               Waters                     (incl 303)
               Louisiana         20       Eugene Island  60%                 45%                      Operator
               Federal Waters             (incl 268)
               Texas State       5.82     Galveston Bay  28%                 20%
               Waters                     (incl ST 2515)
USA: onshore   Texas             101      Three Counties 22.5-55%            17-42%
                                          Austin Chalk
               Louisiana         16.5     Brown /        15%                 10.8%                    Operator
                                          Thunder Stud


Whittier    Texas                64.3     SE Texas 3-D      17.9%                  12.8%
onshore                                   Project Area
from end
March 2007
                                 6.8      Windham           71.3%                  53.5%             Operator
                                 6.9      Carthage          70.8%                  53.1%             Operator
                                 9.1      Westhoff          75%                    57.2%             Operator
                                 8.2      Sunrise           12.5-25% NRI           12.5-25% NRI
            Louisiana            13.25    Rayne/Crowley     30%                    22%               Operator
                                 1.6      Cut-Off           75%                    56%               Operator

            * carried interest            ** option         *** size reduces in
            for defined work or           exercised Apr     3rd term from 2007
            $ amount                      2007              onwards



Definitions

2P             - proven and probable
bbls           - barrels of oil
bcf            - billion cubic feet of gas
bcfge          - billions of cubic feet gas equivalent
boe            - barrels of oil equivalent
bopd           - barrels of oil per day
mcf            - thousand cubic feet of gas
mcfge/d        - thousand cubic feet of gas equivalent per day
mmbbl          - millions of barrels
mmcfg/d        - million cubic feet of gas per day
mmcfge/d       - millions of cubic feet of gas equivalent per day
NRI            - net revenue interest
ORRI           - overriding royalty interest
WI             - working interest


Consolidated income statement
Year ended 31 December 2006
                                                                          
                                                                                                        2005
                                                                                        2006        restated    
                                                               Note                    $'000           $'000

Revenue                                                                                81,003          24,879

Cost of sales                                                                         (54,419)         (9,509)

Gross profit                                                                           26,584          15,370

Administrative expenses                                                               (12,027)         (6,564)
Impairment provision                                           4,5,6                  (60,033)         (3,072)
Pre-licence exploration costs                                                          (1,368)           (659)
Office closure costs                                                                         -         (2,098)

Operating (loss)/profit                                                               (46,844)          2,977

Interest revenue and finance gains                                                      3,082           3,366
Gain/(loss) on hedging instruments                                                        303         (20,729)
Finance costs                                                                          (3,201)         (2,026)

Loss before tax                                                                       (46,660)        (16,412)

Tax                                                            2                        6,101           4,370

Loss for the financial year                                                           (40,559)        (12,042)

Attributable to minority interest                                                       1,981                -

Loss attributable to equity holders of parent company                                 (38,578)        (12,042)

Loss per share (cent): basic and diluted                       3                     (2.75)USc       (0.86)USc




Consolidated statement of recognised income and expense                                                  2005
                                                                                         2006        restated
                                                              Note                      $'000           $'000

Exchange differences on translation of foreign operations      9                        2,363          (2,670)
Movement on share option reserve                               9                        1,898           1,802
Movement on value of investment in quoted company              9                       (2,287)          7,026

Net income recognised directly in equity                                                1,974           6,158

Loss for the financial year                                                           (40,559)        (12,042)

Total recognised income and expense for the year                                      (38,585)         (5,884)

Attributable to:
Equity holders of the parent                                                          (36,604)         (5,884)
Minority interests                                                                     (1,981)              -

                                                                                      (38,585)         (5,884)


Consolidated balance sheet
Year ended 31 December 2006
                                                                                                   2005
                                                                                      2006       restated   
                                                          Note                       $'000         $'000
Non-current assets
Intangible royalty assets                                   4                        18,000        42,149
Intangible exploration and evaluation assets                5                        21,384        26,660
Property, plant and equipment                               6                       156,800       201,954
Investments                                                                           5,922         8,209

                                                                                    202,106       278,972

Current assets
Inventories                                                                           3,713             -
Trade and other receivables                                                          13,863        10,409
Current tax repayable                                                                 1,248             -
Cash and cash equivalents                                                            91,759        82,033

                                                                                    110,583        92,442

Total assets                                                                        312,689       371,414

Current liabilities
Trade and other payables                                                            (32,182)      (41,877)
Derivative financial instruments                                                     (4,650)       (4,953)
Current tax liabilities                                                                (299)       (2,242)

                                                                                    (37,131)      (49,072)


Non-current liabilities
Long-term debt                                                                      (23,214)      (27,325)
Deferred tax liabilities                                                             (6,128)      (10,974)
Long-term provisions                                        7                       (22,593)      (22,080)

                                                                                    (51,935)      (60,379)

Total liabilities                                                                   (89,066)     (109,451)


Net assets                                                                          223,623       261,963

Equity
Share capital                                               8                        26,919        26,899
Share premium account                                       9                       273,785       273,560
Share option reserve                                        9                         6,451         4,553
Investment revaluation reserve                              9                         4,739         7,026
Currency translation reserve                                9                          (307)       (2,670)
Retained earnings                                           9                       (87,964)      (49,386)

Equity attributable to equity holders of the parent                                 223,623       259,982

Minority interest                                                                         -         1,981

Total equity                                                                        223,623       261,963



Consolidated cash flow statement
Year ended 31 December 2006
                                                                                                  2005
                                                                                   2006       restated 
                                                           Note                   $'000          $'000
                                                                                             
Operating activities:
Cash generated/(absorbed) by operating activities          10                    63,017       (13,318)
Taxation paid                                                                      (767)        (331)

Net cash flow from/(used in) operating activities                                62,250       (13,649)

Investing activities:
Capital expenditure                                                              (51,191)     (83,518)
Interest received                                                                  3,082        3,306

Net cash used in investing activities                                            (48,109)     (80,212)

Financing activities:                                                             
Net proceeds from issue of ordinary shares                                            245       1,851
Long-term loan repayment                                                           (4,111)      -
Interest paid                                                                      (1,648)      (1,264)

Net cash flow (used in)/from financing activities                                   (5,514)        587

Net increase/(decrease) in cash and cash equivalents                                 8,627     (93,274)

Cash and cash equivalents at beginning of year                                      82,033     171,939

Effect of foreign exchange rate changes                                              1,099       3,368

Cash and cash equivalents at end of year                                            91,759      82,033




1.         a)         Basis of accounting

The preliminary results announcement has been prepared in accordance with
International Financial Reporting Standards ('IFRSs') and under the historical
cost convention. The information for the comparative period has been restated
from a UK GAAP basis contained in the statutory financial statements for the
period, with a summary of the effects being represented in note 13 below.

The financial information set out above does not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985. Statutory accounts
for 2005 have been delivered to the Registrar of Companies, and those for 2006
will be delivered following the Company's Annual General Meeting. The statutory
accounts for 2006 were approved by the Board on 15 May 2007. The auditors have
reported on the accounts for both 2005 and 2006; their reports were unqualified
and did not contain statements under s237(2) and (3) of the Companies Act 1985.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRSs, this announcement does not itself
contain sufficient information to comply with IFRSs. The Company expects to
publish full financial statements that comply with IFRSs  in its annual report
and accounts 2006.

This preliminary announcement was approved by the Board on 15 May 2007.

1.       b)           Geographical segments

The group operates in one business segment; the exploration for and production
of oil and gas. The group currently has interests in two geographical segments;
North America, and Africa. Segment information about the business is presented
below.

                                   North America         Africa             Total

INCOME STATEMENT                   2006      2005    2006      2005    2006      2005
                                  $'000     $'000   $'000     $'000   $'000     $'000

Revenue                           23,441  24,879    57,562        -   81,003    24,879

Cost of sales                    (14,380) (9,509)  (40,039)       -  (54,419)   (9,509)

Gross profit                       9,061  15,370    17,523        -   26,584    15,370

Impairment provision              (2,653)   (322)  (57,380) (2,750)  (60,033)   (3,072)
Pre-licence exploration costs          -       -    (1,368)   (659)   (1,368)     (659)

Segment result                     6,408  15,048   (41,225) (3,409)  (34,817)   11,639

Unallocated corporate expenses                                       (12,027)   (8,662)

Operating (loss)/profit                                              (46,844)    2,977
Interest revenue and finance gains                                     3,082     3,366
Gain/(loss) on hedging instrument                                        303   (20,729)
Finance costs                                                         (3,201)   (2,026)

Loss before tax                                                      (46,660)  (16,412)
Tax                                                                    6,101     4,370

Loss for the financial year                                          (40,559)  (12,042)

Attributable to minority interest                                       1,981        -

Loss attributable to equity holders                                   (38,578) (12,042)
of parent company


                      Corporate assets    North America        Africa              Total

                         2006    2005     2006     2005     2006     2005     2006     2005
                        $'000   $'000    $'000    $'000    $'000    $'000    $'000    $'000
OTHER SEGMENT
INFORMATION
Capital additions
Property, plant and       307     742    8,375   15,319   14,223  105,012   22,905    121,073
equipment
E&E expenditure              -       -   2,972      608    2,555      943    5,527      1,551

Depreciation and         (233)   (175)  (7,338)  (5,338) (35,407)        - (42,978)    (5,513)
amortisation
Impairment provision         -       -  (2,653)    (322) (57,380)  (2,750) (60,033)    (3,072)

BALANCE SHEET

Segment assets*        88,515  82,253   97,461   93,620  126,713  195,541  312,689    371,414

Segment liabilities   (11,426) (9,691) (53,443) (53,102) (24,197) (46,658) (89,066)  (109,451)


* Carrying amount of segment assets exclude intra-group financing.


2.       Taxation

The group tax charge comprises:
                                                                                          2006          2005
                                                                                         $'000         $'000

Current tax (credit)/charge                                                            (1,255)        2,141
Deferred tax - origination and reversal of timing differences                          (4,846)       (6,511)

Total credit                                                                           (6,101)       (4,370)


The difference between the tax credit of $6,101,000 (2005 - credit of
$4,370,000) and the amount calculated by applying the applicable standard rate
of tax is as follows:
                                                                                                        
                                                                                          2006          2005
                                                                                         $'000         $'000

Loss on ordinary activities before tax                                                (46,660)      (16,412)

Tax on loss on ordinary activities at standard                                        (15,864)       (5,580)
US corporation tax rate of 34% (2005: 34%)

Effects of:
Expenses not deductible for tax purposes                                               (1,654)        9,684
Capital allowances lower than/(in excess of)                                           15,840          (985)
depreciation
Other temporary differences                                                               395        (1,042)
Difference in non-UK/US tax rates                                                       1,364             7
Adjustment for tax losses                                                                  47            (7)
Adjustment in respect of prior years                                                   (1,383)           64
Deferred tax credit                                                                    (4,846)       (6,511)

Tax credit for the year                                                                (6,101)       (4,370)


During 2006 and 2005 the Group generated its results primarily in the US.
Therefore the tax rate in the above reconciliation for 2006 is the standard rate
for US corporation tax.

3.       Loss per share

The calculation of basic and diluted loss per share is based on the loss for the
financial year of $38,578,000 (2005 - restated loss $12,042,000) and on
1,402,408,092 (2005 - 1,393,778,640) ordinary shares, being the weighted average
number of ordinary shares in issue. As the effect of any dilutive shares would
decrease the loss per share, the basic and diluted loss per share are the same.

4.       Intangible royalty assets

                                                                                                 $'000

Net Book Value at 1 January 2005                                                                44,878
Additions during the year                                                                           21
Impairment charge for the year                                                                  (2,750)

Net Book Value at 31 December 2005                                                              42,149
Depletion Charge for the year                                                                   (1,675)
Impairment charge for the year                                                                 (22,474)

Net Book Value at 31 December 2006                                                              18,000


Group net book value at 31 December 2006 comprises the value of rights to future
royalties in respect of the group's agreements covering licences PSCA and PSCB
in Mauritania. The value of these royalty interests is dependent upon future oil
and gas prices and the development and production of the underlying oil and gas
reserves.

5.       Intangible exploration and evaluation (E&E) assets


                                                                                $'000

Net book value at 1 January 2005                                                25,109
Additions during the year                                                       1,551

Net book value at 31 December 2005                                              26,660
Additions during the year                                                       5,527
Depletion charge for the year                                                   (949)
Impairment charge for the year                                                  (9,854)

Net Book Value at 31 December 2006                                              21,384


The amount for intangible exploration and evaluation assets represents
investments in respect of exploration licences.


6.       Property, plant and equipment

                                                                         Oil and gas       Computer and
                                                                              assets   office equipment        Total
                                                                               $'000             $'000         $'000
Cost
At 1 January 2005                                                             94,866            1,315         96,181
Additions during the year                                                    120,195              878        121,073

At 31 December 2005                                                          215,061            2,193        217,254
Additions during the year                                                     22,219              686         22,905

At 31 December 2006                                                          237,280            2,879        240,159

Accumulated depreciation
At 1 January 2005                                                              9,006              459          9,465
Charge for the year                                                            4,691              822          5,513
Impairment charge for the year                                                   322                 -           322

At 31 December 2005                                                           14,019            1,281         15,300
Charge for the year                                                           39,993              361         40,354
Impairment charge for the year                                                27,705                 -        27,705

At 31 December 2006                                                           81,717            1,642         83,359

Net book value at 31 December 2006                                           155,563            1,237        156,800

Net book value at 31 December 2005                                           201,042              912        201,954


7.       Long-term provisions

a)         Decommissioning provision
                                                                      North        Africa        Total 
                                                                    America
                                                                      $'000         $'000        $'000

At 1 January 2005                                                    10,671             -       10,671
Additions in year                                                     3,389         3,885        7,274
Unwinding of discount                                                   835             -          835

At 31 December 2005                                                  14,895         3,885       18,780
Additions in year                                                       333          130           463
Utilisation in year                                                    (471)            -         (471)
Unwinding of discount                                                   883          238         1,121

At 31 December 2006                                                  15,640        4,253        19,893


The amounts shown above represent the estimated costs for decommissioning the
group's producing interests in North America, which are expected to occur
between 2008 and 2017 and in respect of its economic interest in the Chinguetti
field in Mauritania where decommissioning is expected to occur around 2014.

b)      2003 Production royalty bonus scheme
                                                                                     2006          2005
                                                                                    $'000         $'000

At 1 January                                                                        3,300         3,300
Transferred to current liabilities                                                   (600)            -

At 31 December                                                                      2,700         3,300


8.       Share capital

                                                                                     2006          2005
                                                                                    $'000         $'000
Authorised:
2,400,000,000 (2005: 2,400,000,000) ordinary shares of 1p                          46,078        46,078

Called up, allotted and fully paid:
1,402,950,558 ordinary shares of 1p each (2005 - 1,401,950,558                     26,919        26,899
ordinary shares of 1p each)

9.       Reserves
                                                               
                                      Share        Share      Investment     Currency                    
                                    premium       option    revaluation   translation     Retained 
                                    account      reserve        reserve       reserve     earnings       Total
                                      $'000        $'000          $'000         $'000        $'000       $'000

At 1 January 2005                   271,858        2,751              -             -      (37,344)    237,265
Premium on shares issued              1,702            -              -             -            -       1,702
Currency translation                      -            -              -        (2,670)           -      (2,670)
adjustments
Revaluation on Investment held            -            -          7,026             -            -       7,026
for sale
Share option reserve charge for           -        1,802              -             -            -       1,802
the year
Loss for the year                         -            -              -             -      (12,042)    (12,042)

At 1 January 2006                   273,560        4,553          7,026        (2,670)     (49,386)    233,083

Premium on shares issued                225            -              -             -            -         225
Currency translation                      -            -              -         2,363            -       2,363
adjustments
Revaluation on Investment held            -            -         (2,287)            -            -      (2,287)
for sale
Share option reserve charge for           -        1,898              -             -            -       1,898
the year
Loss for the year                         -            -              -             -      (38,578)    (38,578)

At 31 December 2006                 273,785        6,451          4,739          (307)     (87,964)    196,704


10.     Cash flows from operating activities
                                                                                          2006         2005
                                                                                         $'000        $'000
Operating activities:
Operating (loss)/profit                                                                (46,844)       2,977
Depletion and amortisation                                                              42,978        5,513
Impairment expense                                                                      60,033        3,072
Exploration expense                                                                      1,368          659
Premium/settlement of hedging transactions                                                    -     (16,020)
Share-based payment provision                                                            1,898        1,802

Operating cash flow prior to working capital                                            59,433       (1,997)

(Increase) in inventories                                                               (3,713)            -
(Increase) in trade and other receivables                                               (3,454)      (8,670)
Increase/(decrease) in trade and other payables                                         10,751       (2,651)

Cash generated/(absorbed) by operating activities                                       63,017      (13,318)


11.     Post balance sheet events

          On 19 January 2007 the company announced a recommended $145 million
cash offer for the issued share capital of Whittier Energy Corporation ('WEC'),
a NASDAQ-listed US company with producing and exploration assets onshore Gulf
Coast. A placing of 163,250,000 new ordinary shares at 16p was completed at that
time, raising £26.1 million before expenses and a short-term bank facility of up
to $100 million, repayable no later than 31 December 2007 was also completed.
The acquisition of WEC was completed on 29 March 2007.

          The long term bank loan of $23.2 million was repaid in full in January
2007


12.    Share-based payments

The group recognised a total expense, within administration costs, in respect of
share-based payments under the equity-settled share option plan of $1,898,000
(2005:$1,802,000).

13.       Transition to IFRS

The company has elected to adopt International Financial Reporting Standards ('
IFRS').  In preparing these financial statements the group has converted to IFRS
as at a transition date of 1 January 2005 and prepared an opening balance sheet
under IFRS at that date. The effect of the transition on the profit and net
assets of the group are set out below. At that date the company made those
changes in accounting policies and other restatements required by IFRS 1 for the
first-time adoption of IFRS. This note explains the principal adjustments made
by the group in restating its UK GAAP balance sheet as at 1 January 2005 and its
previously published UK GAAP financial statements for the year ended 31 December
2005.

Exemptions applied

IFRS 1 allows exemptions from the application of certain IFRS requirements to
assist companies with the transition process. Accordingly, the group has applied
the following choices in respect of the optional exemptions from full
retrospective application, as set out in IFRS 1.

a)             Business combinations exemption

The group has applied the business combinations exemption in IFRS 1. It has not
restated business combinations that took place prior to the 1 January 2005
transition date.

b)            Cumulative translation differences exemption

The group has elected to set the cumulative translation differences to zero at 1
January 2005. This exemption has been applied to all subsidiaries in accordance
with IFRS 1.

c)      Share-based payment transaction exemption

The company has elected not to apply the exemption to IFRS 2 Share-based
Payments to equity instruments granted on or before 7 November 2002, and
accordingly IFRS 2 has been applied to all such awards.

Main adjustments

In adopting IFRS, the main adjustments to the group's UK GAAP financial
statements as translated into US dollars, and re-classified to conform to IFRS
balance sheet formats, can be explained as follows:

1.      IFRS 2 - Share-based Payments

The company operates a share option scheme for directors and staff of the group.
Under UK GAAP no adjustment was made to the financial statements when options
were granted as such options are granted at market value; adjustments were made
to the financial statements only when the options were exercised.

IFRS 2 requires such share-based payments to be fair valued at grant date using
an option pricing model and charged through the income statement over the
vesting period of the relevant awards.

2.      IFRS 6 Exploration for and evaluation of mineral resources

IFRS 6 requires that all pre-licence costs, incurred before the group has
obtained the legal rights to explore a specific area, are written off in the
year that they are incurred. On transition to IFRS all such capitalised costs
existing at 1 January 2005 were written off (net of related deferred tax) to
retained earnings.

3.      IAS 16 Property, plant and equipment and IAS 36 Impairment of Assets

The group applied the 'full cost' accounting policy under UK GAAP under which
costs were carried in cost pools which may have included a number of individual
fields and depreciated on a unit of production basis by reference to that cost
pool. Under IFRS, the group still applies the full cost methodology to
exploration and evaluation ('E&E') assets and the unit of production method for
depreciating costs, but IAS 16 requires that proved properties are depleted on
an individual property basis and not by reference to the cost pools.

IAS 36 further requires that impairment tests of proved properties are performed
on an individual asset basis and not on a cost pool basis.

4.      IAS 38 Intangible Assets

Under UK GAAP the group's over-riding royalty interests were accounted for as
part of the group's tangible and intangible oil and gas interests. IFRS 6 and
IAS 36 do not permit this treatment. The group has therefore determined to
account for these interests in accordance with IAS 38, recognising amortisation
of the individual carrying values of such interests on a unit of production
basis when the related field comes into production and applying an impairment
test to the individual carrying values of such individual assets when necessary.

On transition to IFRS, adjustments have been recorded to write off intangible
royalty assets associated with unsuccessful prospects which were previously
covered within the UK GAAP full cost pool, and to recognise related deferred tax
effects.

5.      IAS 39 Financial Instruments: Recognition and Measurement

Under IAS 39 the group is required to 'mark to market' its derivatives and
certain other financial assets and liabilities to recognise them at fair value.

a)  On transition to IFRS, an adjustment has been made to recognise the fair
values of the hedges and the liability in respect of the 2003 production royalty
bonus scheme in the balance sheet and recognise the movement in fair value in
the income statement.

b)  On transition to IFRS, adjustments have been made to recognise the fair
value of the 'available for sale' investment in Forum Energy plc by means of an
adjustment to equity in each year.

6.      IAS 12 Income taxes

Under IAS 12, the group is required to calculate deferred tax on fair value
adjustments that arise as a result of a business combination. On transition to
IFRS, an adjustment has been made to recognise the deferred tax liability
associated with such adjustments, with any subsequent movement in the ongoing
deferred tax liability being recorded as an adjustment to the income statement.


Analysis of effect of transition to IFRS on profit and net assets of the group for the year to  31 December
2005
                                                                     Notes   Effect on               Effect on
                                                                                profit              net assets
                                                                               US$'000                 US$'000

IFRS 2 Share based payments                                              1     (1,802)                       -
IFRS 6 Pre-licence costs                                                 2       (659)                 (2,157)
IAS 16 Depletion and impairment of oil and gas assets                    3         270                     238
IAS 38 Accounting for royalty interests                                  4     (2,750)                 (3,750)
IAS 39 Oil and gas price hedges                                          5    (20,729)                (20,973)
IAS 39 Accounting for 'Available-for-sale financial                      5           -                   7,026
assets'
IAS 39 2003 Production royalty bonus scheme                              5           -                 (3,300)
IAS 12 Income taxes                                                      6       7,893                 (7,471)

Reduction in profit/net assets                                                (17,777)                (30,387)





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