Annual Financial Report

RNS Number : 4783I

Sterling Energy PLC

26 March 2015

STERLING ENERGY PLC

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014

Sterling Energy Plc is today issuing its preliminary results for the year ended 31 December 2014.

OVERVIEW

Sterling Energy plc (the 'Company'), together with its subsidiary undertakings (the 'Group'), is an upstream oil and gas company listed on the AIM market of the London Stock Exchange. The Company is an experienced operator of international licences with a focus on projects in Africa. The Group has high potential exploration projects in Cameroon, Somaliland, Madagascar and Mauritania together with a production interest in Mauritania.

2014 SUMMARY

· In Cameroon, the Bamboo-1 exploration well was drilled on the Ntem block; no commercial hydrocarbons were encountered and the well was subsequently plugged and abandoned in April 2014. The Group's share of the drilling cost was funded by Murphy under the 2011 farm-out agreement.

· 3D Seismic Programme on the Ambilobe block, offshore Madagascar, is expected to be completed in Q2 2015.

· Acquisition of a 40% carried interest in the Odewayne block, Somaliland, was completed in Q2 2014.

· Signature of an agreement with Tullow Oil to acquire a 40.5% interest in PSC C-3, offshore Mauritania.

· The Group received $6.9 million of net cash flow from Chinguetti field operations, offshore Mauritania in 2014 (2013: $11.2 million).

· Cash resources at 31 December 2014 of $108.1 million (2013: $120.8 million).

· The Group remains debt free.

For further information contact:

Sterling Energy plc +44 (0) 20 7405 4133

Eskil Jersing, Chief Executive Officer

Alastair Beardsall, Chairman

Peel Hunt LLP +44 20 7418 8900

Richard Crichton

www.sterlingenergyplc.com Ticker Symbol: SEY

CHAIRMAN'S STATEMENT

During 2014 we focused on the exploration of our existing assets and building our portfolio with the addition of new and diverse opportunities, spreading our resources, both human and financial, across varying technical, commercial and geopolitical ventures.

We have made progress in our quest for new ventures in a rapidly changing oil and gas industry landscape. At the beginning of 2014, the Company and many of our peers all actively sought new portfolio opportunities. As the global oil price started to decline the competitive market for new ventures started to ease in parallel with some additional opportunities being offered by companies with exploration commitments but whose budgets were under pressure in response to the falling oil price. We have also seen the traditional business model of the smaller E&P companies securing acreage, and then undertaking leveraged farm-outs to reduce their exposure to the high costs of exploration, coming under commercial and financial strain as the medium and larger independent oil companies are no longer willing to fund 100% of the exploration risk. We had adapted our Group strategy accordingly and, in particular are more cautious about our ability to farm-out what are sometimes, very large financial commitments.

We believe the key to long term exploration success is to be diligent during the appraisal of new ventures and highly selective in the final choice, securing fewer high quality opportunities rather than over-stretching the Company's resources with smaller equity spread across more higher risk ventures.

In May 2014 we completed the acquisition of 40% of the Odewayne PSC onshore Somaliland. Genel, the operator, carries us for our share of costs to acquire a 1,500km 2D seismic programme and to drill one exploration well; by acquiring an uncapped carried interest we can forecast with certainty our exploration costs for a pre-defined work programme.

In February 2015 we signed an agreement with Tullow Oil to acquire a 40.5% interest in PSC C-3 offshore, shallow water Mauritania. As operator, Tullow had just finished the acquisition of a 1,600km 2D seismic programme. During the next few months we shall work with Tullow to integrate the new seismic data with the existing sub-surface data-set to mature leads to drill-ready prospects ahead of the decision to enter the next exploration period with a commitment to drill one exploration well.

In January 2014, the Company's wholly owned subsidiary, Sterling Cameroon Limited, and our joint venture partner, lifted force majeure in the Ntem block, in Cameroon, to allow exploration activities to resume. The Ocean Confidence rig commenced the drilling of Bamboo-1 exploration well in February 2014. The well encountered the reservoirs that had been identified from the extensive 3D seismic dataset but no commercial hydrocarbons were encountered; the well was plugged and abandoned in April 2014. A review of the remaining prospectivity has highlighted a drill-ready prospect located in Cameroon maritime waters which are also claimed by Equatorial Guinea. We believe the geopolitical risk involved in drilling in these disputed waters is too great and in May 2014 force majeure was declared again. Société Nationale des Hydrocarbures ('SNH'), the national oil company of Cameroon, has advised Sterling Cameroon Limited that "Cameroon does not recognise that any situation of force majeure exists in the Ntem Permit". We are in discussions with SNH to agree the best way to progress the exploration activity in the Ntem block.

In February 2015 Murphy advised Sterling Cameroon Limited and SNH that Murphy proposes to transfer its 50% interest and operatorship to Sterling Cameroon Limited subject to receipt of Cameroon government approvals. We would like to thank Murphy for their diligent work as operator of the Ntem concession and their financial contribution that covered the Group's share of all exploration costs since November 2011.

In Madagascar we received Presidential consent to extend Phase 2 and 3 of the Ambilobe and Ampasindava PSCs, respectively, to July 2016.

The Company's wholly owned subsidiary, Sterling Energy (UK) Limited, and ExxonMobil, our joint venture partner in the Ampasindava PSC, have completed a review of the Sifaka prospect and concluded that the technical and commercial risks are too great to justify an exploration well; furthermore no other drill ready prospects have been identified. The joint venture partners are in discussions with OMNIS, the Malagasy petroleum agency on the future work programme.

Sterling Energy (UK) Limited, as operator, expects to complete in Q2 2015 the acquisition of 1,250 km² of 3D seismic data over the Ambilobe block in Madagascar, the cost of which is being paid by Pura Vida who farmed into 50% of the Ambilobe PSC in December 2013. We look forward to acquiring and interpreting this data to identify possible prospects ahead of the 'drill or drop' decision in July 2016.

Financial

The Group had cash resources of $108.1 million at the end of 2014, including $1.1 million of partner funds, and we remain free of debt. Our work programme for 2015 is fully funded and we have funds available to progress both our existing portfolio and new venture activity.

Board and Management Changes

On 23 March 2015 the Company announced the appointment of Eskil Jersing as Chief Executive Officer (CEO) and a director of the Company. Eskil's career to date spans almost 30 years working exploration, new ventures, strategy, planning and business development roles of increasing responsibility in the world's key petroleum basins (Africa, Brazil, SE Asia, Australasia, North Sea, and Deep Water Gulf of Mexico). I am very pleased to welcome Eskil to the Company and I look forward to the addition of his specialist oil and gas experience, excellent business skills, and clear focused leadership that will strengthen our ability to manage our existing exploration portfolio and identify new venture opportunities.

I will relinquish the role of Interim CEO and continue as the Company's executive Chairman.

In December 2014 the Company announced that Dr. Philip Frank, the Company's Exploration Director, intended to step down from the Board and leave the Company. As part of the Company's succession plan, we appointed Matthew Bowyer as Exploration Manager and following a period of transition Dr. Frank stood down from the Board on 13 March 2013. I would like to thank Phil for the contribution he made to the Group's exploration activity during his three year tenure and wish him all the very best for his future challenges.

Outlook for 2015 and Beyond

During 2015 we expect to receive 3D seismic data covering the high-graded area of the Ambilobe block and 2D data on the C-3 block which will be interpreted to identify potential drill-ready prospects; in addition we expect the planning for 2D seismic acquisition in the Odewayne block to be well advanced.

We have a material drill-ready prospect in the Ntem block and will work with SNH, the Cameroon state oil company, to agree a forward plan that does not put at risk any drilling investment in an area of disputed territorial waters.

The high technical and commercial risks associated with drilling the Sifaka prospect on the Ampasindava block means there is no expectation of drilling during 2015 or 2016; in the year ahead we shall endeavour to agree a forward plan with ExxonMobil and OMNIS, the Malagasy petroleum agency.

The Group has, via a combination of our own funds and carried interests, the resources to see our existing projects advance during 2015. We hold sufficient funds to acquire additional growth options to add to our portfolio; we shall continue to seek new opportunities within and beyond our existing areas of interest and shall only pursue those ventures that we believe will ultimately deliver value for our shareholders.

I would like to thank our shareholders for their continuing support for our strategy and all of our management and staff for their diligent efforts during 2014.

Alastair Beardsall

Chairman

OPERATIONS REVIEW

The Group's current portfolio provides exposure to exploration opportunities within a number of under-explored African basins that have the potential to deliver material hydrocarbon reserves. These frontier and emerging basins have historically seen little activity but offer significant encouragement for the presence of working hydrocarbon systems and commercial discoveries.

CAMEROON

Despite a recent dry exploration well, Ntem remains highly prospective deep water acreage in the southern Douala Basin. The Douala Basin of Cameroon is a proven oil and gas producing province with multiple discoveries made within the shallower water shelf area to the east of the Ntem concession and with multiple deeper water discoveries to the north.

Ntem (WI 100% & Operator)*

Overview

The Ntem concession lies adjacent to the southern maritime border of the Douala Basin province of Cameroon. Water depths range from 400m to 2,000m across this 2,319km² block. This large block is well placed with respect to both Tertiary and Upper Cretaceous play potential, both of which have proven successful nearby in Cameroon and in Equatorial Guinea.

Operations within the Ntem concession area were suspended in 2005 under the force majeure provisions of the concession owing to an overlapping maritime border claim between Cameroon and Equatorial Guinea (referred to as the "Affected Area").

In November 2011, Sterling Cameroon Limited completed a farm-out agreement with Murphy Cameroon Ntem Oil Co. Ltd ('Murphy'), under which Murphy was assigned a 50% working interest in, and operatorship of, the Ntem concession. Sterling Cameroon Limited retained a 50% non-operated working interest. As consideration, Murphy agreed to pay all costs associated with the current exploration phase of the concession (First Renewal Period).

*In February 2015, Sterling Cameroon Limited signed an agreement with Murphy whereby Murphy will transfer its 50% interest in, and operatorship of, the Ntem concession to Sterling Cameroon Limited. Completion of the transaction remains subject to Cameroon Ministerial approval.

2014 Activity

The border dispute between Cameroon and Equatorial Guinea remains unresolved but Murphy and Sterling Cameroon Limited agreed, together with Société Nationale des Hydrocarbures ('SNH'), the national oil company of Cameroon, to formally lift force majeure on 22 January 2014 in order to allow exploration activity to proceed. The current exploration period re-commenced on that date with the minimum work obligation of one exploration well required to be drilled before April 2015.

Murphy drilled the Bamboo-1 exploration well using the Ocean Confidence semi-submersible rig as soon as force majeure was lifted. Bamboo-1 was located in 1,600m of water and was the first well drilled in the Ntem concession area. It commenced drilling operations on 9 February 2014 and reached a total depth of 4,747m after penetrating a series of good quality, Cretaceous aged basin floor submarine fans. The well encountered all pre-drill targets, but analysis of the well data indicated that no commercial hydrocarbons were found and the well was plugged and abandoned on 16 April 2014.

Bamboo-1 satisfied the minimum work obligation for the First Renewal Period. An important consideration in the joint venture's decision to lift force majeure was that the prospect targeted by the Bamboo-1 well lay outside of the Affected Area. Following the drilling of Bamboo-1 an exhaustive reassessment of the prospectivity led the joint venture to the conclusion that the area of greatest potential in the Ntem Concession lay in the Affected Area, to the south. As a result, on 6 May 2014 Murphy (as operator and on behalf of the Ntem joint venture partners) notified SNH of the joint venture's re-declaration of force majeure pending formal resolution of the conflicting maritime border claims. SNH has advised that "Cameroon does not recognise that any situation of force majeure exists in the Ntem Permit". Sterling Cameroon Limited is working with SNH to determine the forward plan for the Ntem Concession.

SOMALILAND

The onshore basins of Somaliland offer one of the last opportunities to target undrilled Mesozoic basins in Africa. The Odewayne block is ideally located to explore this play covering a large area of a completely unexplored onshore rift basin. Geophysical data and geological field studies indicate that the basin underlying the block has analogous characteristics to producing basins in Yemen.

Odewayne (WI 40%)

Overview

This very large unexplored acreage position comprises an area of 22,840km². Exploration to date has been limited to the acquisition of airborne gravity and magnetic data, with no seismic coverage and no wells drilled on block. The field data provides strong support for the presence of a deep sedimentary basin and geological fieldwork has highlighted the presence of numerous oil seeps at the surface giving encouragement that a working hydrocarbon system is present.

The Odewayne Production Sharing Agreement ('PSA') was awarded in 2005, and is in the Third Period with an outstanding minimum work obligation of 500km of 2D seismic. The Third Period was recently extended by two years (to 2 November 2016) in order to allow time for an Oil Field Protection Unit to be established (see below). The minimum work obligation during the Fourth Period of the PSA (also extended by 2 years to May 2018) is for 1,000km of 2D seismic and one exploration well.

The Company's wholly owned subsidiary, Sterling Energy (East Africa) Limited, currently holds a 40% working interest in the PSA. Sterling Energy (East Africa) Limited acquired an original 10% from Petrosoma Limited ('Petrosoma') in November 2013 and an additional 30% from Jacka Resources Somaliland Limited ('Jacka') in two transactions during 2014. In aggregate, as consideration, Sterling Energy (East Africa) Limited has paid $17.0 million to date and a further $8.0 million is to be paid to Petrosoma when certain operational milestones are reached.

The joint venture participants in the PSA are:

· Genel Energy Somaliland Limited (Operator) 50%

· Sterling Energy (East Africa) Limited 40%

· Petrosoma Limited 10%

Sterling Energy (East Africa) Limited is fully carried by Genel Energy Somaliland Limited ('Genel Energy') for its share of the costs of all exploration activities during the Third Period and the Fourth Period of the PSA.

Future Activity

Operations in Somaliland have been delayed while the Government of the Republic of Somaliland establishes a trained and equipped Oilfield Protection Unit that can provide the level of security required by the in-country operators to ensure that future seismic and drilling operations can be conducted safely and effectively.

In the meantime, results from extensive fieldwork will continue to be analysed to enable a greater understanding of the exploration play elements.

MADAGASCAR

The Group's Ambilobe and Ampasindava blocks are located in the Ambilobe and Majunga deep water basins, respectively, offshore north-west Madagascar.

Following the inauguration of Hery Rajaonarimampianina as the new president of Madagascar in January 2014, exploration activities on the Group's assets in Madagascar resumed. At that time agreement had been reached with OMNIS, the state regulator, to prolong the current exploration periods of both the Ambilobe and Ampasindava PSCs to September 2015, but more recently, further extensions of both licences to July 2016 have been approved and formally gazetted.

Ampasindava (WI 30%)

Overview

The Ampasindava block covers some 7,379km² and is located in the Majunga basin, offshore Madagascar. Water depths across the block range from 20m to 2,500m.

The Ampasindava PSC is currently in the third phase of the exploration period with a remaining minimum work commitment of one exploration well. In late 2013 ExxonMobil Exploration and Production (Northern Madagascar) Limited ('ExxonMobil') (WI 70% and Operator) and Sterling Energy (UK) Limited resumed exploration activities including acquisition of a 1,314km 2D seismic programme. The new seismic data provided improved sub-surface imaging over the Sifaka prospect but failed to mature additional leads and prospects within the Ampasindava block to drill-ready status. In addition, a detailed subsurface re-assessment of the Sifaka prospect has led to a view that the technical and commercial risk remains too high; specifically the high chance of reservoir quality being poor (production concerns) and an increased phase risk for gas over oil.

Following the farm-in by ExxonMobil in 2005, Sterling Energy (UK) Limited's costs have been carried up to a fixed amount. The Group estimates that ExxonMobil's remaining carry at the beginning of 2015 is $28.3 million; however we expect the Group's 30% share of the cost of potentially drilling an exploration well would exceed this amount.

Future Activity

Following the review of the remaining on block prospectivity, and the Sifaka prospect specifically, ExxonMobil and Sterling Energy (UK) Limited have not planned to drill an exploration well in 2015 or 2016 and have engaged with OMNIS to discuss the work programme.

Ambilobe (WI 50% & Operator)

Overview

The Ambilobe block covers some 17,650km² and is located in the Ambilobe basin, offshore Madagascar. Water depths across the block range from shoreline to 3,000m.

The Ambilobe PSC is in the second phase of the exploration period and all work commitments have been fulfilled. The Ambilobe block is covered by an extensive database of vintage 2D data that has led to the identification of a number of Cretaceous and Tertiary aged leads, located in both shallow and deep waters, all of which require additional seismic data to develop into possible drillable prospects.

Sterling Energy (UK) Limited completed a farm-out agreement in December 2013 with Pura Vida Mauritius ('Pura Vida') under which Pura Vida assumed a 50% interest in the Ambilobe PSC and will pay all costs associated with a planned 1,250km² 3D seismic survey up to a maximum of $15.0 million. Following the farm-out, Sterling Energy (UK) Limited retains a 50% interest in the PSC and remains as operator.

Future Activity

The Ambilobe joint venture will acquire 1,250km² of new 3D seismic data, expected to be completed in Q2 2015. This data will be focused over an area of high-graded prospectivity following prior interpretation of vintage 2D seismic data. The required permits have been secured to allow the seismic acquisition. The survey will be undertaken by CGG and it is anticipated that processed time migrated data will be available for interpretation at the end of 2015. Depth migrated data will follow in Q1 2016 and will be an important factor in the "drill or drop" decision required by July 2016.

MAURITANIA

Chinguetti (Economic Interest via Funding and Royalty Agreements)

The Company has economic interests in the Chinguetti field through a funding agreement with Société Mauritanienne Des Hydrocarbures et du Patrimoine Minier ('SMHPM'), Mauritania's national oil company, and a royalty agreement with Premier Oil through its wholly owned subsidiary Sterling North West Africa Holdings Limited.

Overview

Gross production during 2014 averaged 5,512 bopd (2013: 6,156 bopd) and the average production net to the Group, from the Group's economic interests during 2014, was 432 bopd (2013: 527 bopd). Production in the first half of the year was reduced by a planned sub-sea intervention campaign in January to consolidate maintenance and intervention programmes and minimise production down-time. This was completed, as planned, within 10 days.

The Company estimates that at the end of 2014, the net entitlement to 2P reserves is 292k barrels (2013: 559k barrels).

No infill drilling or workover activity took place on the Chinguetti field during 2014.

In early 2015, the Company was notified by Premier Oil ('Premier') that Premier's interest in PSC-A (including the Banda gas field), PSC-B (other than the Chinguetti field) and PSC C-10 had expired. Premier's exit from each of these PSC's does not affect the royalty currently received by the Group from Premier over Premier's interest in production from the Chinguetti field.

Future Activity

The Chinguetti joint venture is investigating how best to manage the Chinguetti field in the current low oil price environment. Discussions are being held with the Government of Mauritania and contractors to best manage the situation.

C-3 (WI 40.5%)*

Overview

Block C-3 is located in shallow water within the Nouakchott sub-basin, offshore Mauritania and covers 9,800km². The production sharing contract ('PSC') for block C-3 is held by the Company's wholly owned subsidiary Sterling Energy Mauritania Limited (40.5% working interest), Tullow (49.5% working interest and operator) and SMHPM (10% working interest)*. SMHPM is carried by Sterling Energy Mauritania Limited and Tullow, pro-rata to their working interest, during the exploration phases. The PSC is in the first phase of the exploration period, which runs to June 2016, with a minimum work commitment of acquiring 1,600km of 2D seismic data.

In late 2014, the operator acquired 1,600km of new 2D seismic data over block C-3 and processing of the new seismic data will satisfy the minimum work obligations for the current phase of the exploration period.

*In February 2015, Sterling Energy Mauritania Limited signed an agreement with Tullow Oil for the acquisition of a 40.5% working interest in PSC C-3. The transaction is subject to Mauritanian Governmental approval and completion with Tullow.

Future Activity

Reinterpretation of exploration efforts in light of the Cairn SNE-1 discovery in Senegal has highlighted the possible extension of an Albian clastic play into PSC C-3. Following the acquisition of the new 2D data, the joint venture will focus on the interpretation and integration of regional data in 2015, to inform the decision on entry into Phase 2 and the commitment to acquire 700km² of 3D seismic and drill one exploration well.

Matthew Bowyer

Exploration Manager

FINANCIAL REVIEW

SELECTED FINANCIAL DATA

		2014	2013
Chinguetti production ¹	bopd	432	527
Year end 2P reserves ¹	000 boe	292	559
Revenue	$million	16.0	18.4
Adjusted EBITDA ¹	$million	5.1	9.1
(Loss)/profit after tax	$million	(12.3)	8.3
Net cash investment in oil & gas assets	$million	14.1	5.9
Year end cash (including partner funds)	$million	108.1	120.8
Average realised oil price	$/bbl	94.2	101.1
Total cash operating costs (produced)	$/bbl	57.4	36.9
Year end share price	Pence	20	43
Share price change ¹ ¹Key performance indicators	%	(55)	12

Highlights

· Group net loss of $12.3 million in 2014 (2013: profit $8.3 million).

· Full impairment of both Chinguetti Funding Agreement and Royalty Agreement totalling $6.0 million resulting from lower oil forecast price base and increased production decline rate.

· Cash balance at end of year $108.1 million (2013: $120.8 million).

· Average 2014 Chinguetti production, net to the Company, of 432 bopd (2013: 527 bopd).

· Debt free throughout 2014.

Revenue and cost of sales

2014 production, net to the Company, averaged 432 bopd, including royalty barrels, a decrease of 18% from the 527 bopd averaged in 2013; the reduced volumes reflect the 10 day planned production shutdown in January 2014.

Gross volumes lifted and sold during the year from the Chinguetti field were down by 6% to 2.1 million barrels (2013: 2.2 million barrels).

The lifting cost per barrel has increased in 2014 by $16.2 to $70.0 (2013: $53.8). This was principally due to an increase in direct operating costs during the year, most of which are fixed and not variable, apportioned to a low level of production.

Currently, all of the Group's production is from the Chinguetti field and the Group's production was 388 bopd for the month of December 2014 (December 2013: 476 bopd).

A summary of revenue, cost of sales and lifting volumes are provided below:

	2014	2013
Liftings (bbls)¹	169,699	181,691
Revenue ($million)	16.0	18.4
Revenue / bbl ($)	94.2	101.1
Lifting cost ($million)	(11.9)	(9.8)
Lifting cost / bbl ($)	(70.0)	(53.8)
¹ Net Sterling production during the year totalled 157,751 (2013: 192,370)

Loss for year

The 2014 loss totalled $12.3 million (2013: profit $8.3 million).

	2014
	$ million

Profit for year 2013	8.3
Decrease in revenue	(2.4)
Increase in operating costs	(2.1)
Increase in other obligations	(3.4)
Decrease in G&A	1.1
Impairment reversal of Chinguetti (2013)	(4.4)
Impairment of Chinguetti FA and RA (2014)	(6.0)
Impairment of Ampasindava (2014)	(1.9)
Increase in finance net expense	(0.6)
Release of accrual on final dissolution of in-country branch (2013)	(0.9)
Loss for year 2014	(12.3)

Cost of sales for the Group increased by $2.1 million mainly due to an increase on Chinguetti FPSO operating day rates.

The Group has made a provision in recognition of expected future net onerous commitments for 2015 under the Chinguetti Funding Agreement of $3.4 million (2013: $nil).

Group administrative overhead decreased during the year to $2.1 million (2013: $3.2 million). Included within this charge is $659k (2013: $1.2 million) with respect to share-based payment charges.

In 2014 a portion of the Group's staff costs and associated overheads are recharged to joint venture partners ($576k), expensed as pre-licence expenditure ($2.0 million), or capitalised ($1.5 million) where they are directly attributable to capital projects. This totals $4.1 million in the year (2013: $4.2 million).

During 2014, the Group fully impaired the Chinguetti Funding Agreement and Royalty Agreement totalling $6.0 million following the Group's commercial analysis of lower current and forecast oil prices and increased production decline rates.

The operator on the Ampasindava block in Madagascar has identified there is no commercial drillable prospect. The Group has fully impaired the asset $1.9 million at 31 December 2014.

A summary of these movements are provided below:

	2014	2013
	$ million	$ million

Group administrative overhead	(2.1)	(3.2)
·
Costs capitalised	(1.5)	(2.0)
Costs recharged to JV partners	(0.6)	(0.1)
Pre-licence expenditure	(2.0)	(2.1)
	(4.1)	(4.2)
Share based payment expense	0.7	1.2
Other non-cash expenditure	0.1	0.1
Group cash G&A expense	(5.4)	(6.1)

Adjusted EBITDA and net loss

Group Adjusted EBITDA (as defined within the Definitions and Glossary of Terms) totalled $5.1 million (2013: $9.1 million).

Net loss after tax totalled $12.3 million (2013: profit $8.3 million). The basic loss per share was $0.06 per share (2013: profit $0.04 per share).

Interest received and finance expenses result in a net expense of $878k (2013: $251k) which includes exchange losses of $181k (2013: $66k) on GBP cash deposits held at 31 December 2014 reported in US Dollars, a non-cash finance expense of $1.1 million (2013: $434k) relating to the unwinding of the Chinguetti decommissioning provision, interest received totalled $398k (2013: $268k) and other finance expenses totalling $16k (2013: $19k).

No dividend is proposed to be paid for the year ended 31 December 2014 (2013: $nil).

Cash flow

Net Group cash inflow generated from operating activities was $1.4 million (2013: $6.3 million); a full reconciliation of which is provided in the Consolidated Statement of Cash Flows.

Net cash investments in oil and gas assets totalled $14.1 million (2013: $5.9 million) and are summarised below:

	2014	2013
	$ million	$ million

Somaliland	12.4	5.1
Madagascar	1.0	0.1
Cameroon	0.7	0.7
	14.1	5.9

Net cash investments in the year do not include the $3.0 million prepayment incurred in 2013 ($17.1 million E&E additions per Note 7).

Statement of financial position

At the year end, cash and cash equivalents totalled $108.1 million (2013: $120.8 million) of which $1.1 million (2013: $2.1 million) were held on behalf of partners, leaving a cash balance of $107.0 million (2013: $118.7 million). There are currently no restricted funds in the Group.

At the end of 2014, net assets/total equity stood at $102.4 million (2013: $114.1 million), and non-current assets totalled $28.5 million (2013: $21.6 million). Net current assets reduced to $96.6 million (2013: $114.1 million).

The Group's Chinguetti decommissioning provision increased during the year by $1.1 million to $22.7 million (2013: $21.6 million).

Cautionary statement

This financial report contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Directors believe the expectation reflected herein to be reasonable in light of the information available up to the time of their approval of this report, the actual outcome may be materially different owing to factors either beyond the Group's control or otherwise within the Group's control but, for example, owing to a change of plan or strategy. Accordingly, no reliance may be placed on the forward-looking statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Note	31st December 2014	31st December 2013
		$000	$000

Revenue		15,991	18,370
Cost of sales		(11,873)	(9,766)

Gross profit		4,118	8,604

Other administrative expenses		(2,069)	(3,177)
(Impairment)/impairment reversal of oil and gas assets		(7,903)	4,359
Pre-licence costs		(2,196)	(2,226)
Onerous contract		(3,390)	-
Total administrative expenses		(15,558)	(1,044)

(Loss)/profit from operations		(11,440)	7,560

Finance income		398	892
Finance expense		(1,276)	(1,143)

(Loss)/profit before tax		(12,318)	7,309

Tax		-	-

(Loss)/profit for the year from continuing operations		(12,318)	7,309

Profit for the year from discontinued operations	4	-	1,025

(Loss)/profit for the year attributable to the owners of the parent		(12,318)	8,334

Other comprehensive income/(expense)
Currency translation adjustments		24	(39)

Total other comprehensive income/(expense) for the year		24	(39)

Total comprehensive (expense)/income for the year attributable to the owners of the parent		(12,294)	8,295

Basic (loss)/profit per share (US cents)
From continuing operations	5	(5.60)	3.32
From continuing and discontinued operations	5	(5.60)	3.79

Diluted (loss)/profit per share (US cents)
From continuing operations	5	(5.60)	3.32
From continuing and discontinued operations	5	(5.60)	3.78

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	31st December 2014	31st December 2013
		$000	$000

Non-current assets
Intangible royalty assets	6	-	2,794
Intangible exploration and evaluation assets	7	28,426	13,187
Property, plant and equipment	8	72	5,644
		28,498	21,625

Current assets
Inventories		2,223	2,746
Trade and other receivables		3,294	5,935
Cash and cash equivalents		108,148	120,755
		113,665	129,436

Total assets		142,163	151,061

Equity
Share capital		149,014	149,014
Share premium		378,863	378,863
Currency translation reserve		(225)	(249)
Retained deficit		(425,209)	(413,550)
Total equity		102,443	114,078

Non-current liabilities
Long-term provisions		22,667	21,651
		22,667	21,651

Current liabilities
Trade and other payables		13,663	15,332
Short-term provisions		3,390	-
		17,053	15,332

Total liabilities		39,720	36,983

Total equity and liabilities		142,163	151,061

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

			Currency
	Share	Share	translation	Retained
	capital	premium	reserve	deficit ¹	Total
	$000	$000	$000	$000	$000

At 1 January 2013	149,014	378,863	(210)	(423,050)	104,617
Profit for the year	-	-	-	8,334	8,334
Currency translation adjustments	-	-	(39)	-	(39)
Total comprehensive income for the year attributable to the owners of the parent	-	-	(39)	8,334	8,295
Share option charge for the year	-	-	-	1,166	1,166
At 31 December 2013	149,014	378,863	(249)	(413,550)	114,078
Loss for the year	-	-	-	(12,318)	(12,318)
Currency translation adjustments	-	-	24	-	24
Total comprehensive expense for the year attributable to the owners of the parent	-	-	24	(12,318)	(12,294)
Share option charge for the year	-	-	-	659	659
At 31 December 2014	149,014	378,863	(225)	(425,209)	102,443

¹ The share option reserve has been included within the retained deficit reserve and is a non-distributable reserve.

CONSOLIDATED STATEMENT OF CASH FLOWS

	Note	2014	2013
		$000	$000
Operating activities:

(Loss)/profit before tax from continuing operations		(12,318)	7,309
Profit before tax from discontinued operations		-	1,025
Finance income and gains		(398)	(892)
Finance expense and losses		1,265	1,066
Depletion and amortisation	6,8	2,358	2,488
Impairment reversal	3	-	(4,359)
Impairment expense	3	7,903	-
Onerous provision		3,390	-
Share-based payment charge		659	1,166
Operating cash flow prior to working capital movements		2,859	7,803
Decrease in inventories		523	247
Increase in trade and other receivables		(359)	(1,725)
Decrease in trade and other payables		(1,669)	(56)

		1,354	6,269

Cash generated from continuing operations		1,814	6,822
Cash outflow from discontinued operations		(460)	(553)

Net cash flow from operating activities		1,354	6,269

Investing activities
Interest received		398	268
Purchase of property, plant and equipment	8	(32)	(85)
Exploration and evaluation costs	7	(14,102)	(5,942)

Net cash used in investing activities		(13,736)	(5,759)


Net (decrease)/increase in cash and cash equivalents		(12,382)	510

Cash and cash equivalents at beginning of year		120,755	120,348

Effect of foreign exchange rate changes		(225)	(103)

Cash and cash equivalents at end of year		108,148	120,755

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General information

The preliminary results announcement is for the year ended 31 December 2014.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2014 or 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company has today published its Annual Report and Accounts on its website, www.sterlingenergyplc.com, these contain the full financial statements for the year ended 31 December 2014 that comply with the IFRSs. The Annual Report and Accounts and the notice for the Company's Annual General meeting, which is to be held at 11.00 a.m. on 29 April 2015, will be posted to Shareholders on or about 7 April 2015.

2. Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operations Review. The financial position of the Group, its cash flows and liquidity position are described in the Financial Review.

The Group has sufficient cash resources for its working capital needs and its committed capital expenditure programme at least for the next 12 months. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

3. Operating segments

				Middle East
		Africa		(Discontinued)		Total
		2014	2013	2014	2013	2014	2013
		$000	$000	$000	$000	$000	$000

Statement of comprehensive income
Revenue ¹		15,991	18,370	-	-	15,991	18,370
Cost of sales		(11,873)	(9,766)	-	-	(11,873)	(9,766)
Gross profit		4,118	8,604	-	-	4,118	8,604
Impairment of E&E assets	Note 7	(1,863)	-	-	-	(1,863)	-
(Impairment)/impairment reversal royalty assets	Note 6	(2,061)	1,152	-	-	(2,061)	1,152
(Impairment)/impairment reversal of D&P assets	Note 8	(3,979)	3,207	-	-	(3,979)	3,207
Accruals release		-	-	5	1,025	5	1,025
Pre-licence costs		(2,196)	(2,226)	-	-	(2,196)	(2,226)
Onerous contract		(3,390)	-	-	-	(3,390)	-
Segment result		(9,371)	10,737	5	1,025	(9,366)	11,762
Unallocated corporate expenses						(2,074)	(3,177)
(Loss)/profit from operations						(11,440)	8,585
Finance income						398	892
Finance expense						(1,276)	(1,143)
(Loss)/profit before tax						(12,318)	8,334
Tax						-	-

(Loss)/profit attributable to owners of the parent						(12,318)	8,334

(Loss)/profit from continuing operations						(12,318)	7,309
Profit from discontinued operations						-	1,025
						(12,318)	8,334

4. Discontinued operations

On 29 January 2013, the Company formally announced the Group's withdrawal from the Sangaw North licence in Kurdistan. The decision to relinquish was made in December 2012 and all amounts were fully impaired at this date. At the date of the final dissolution, the Group had fully satisfied the work commitment required by the Sangaw North PSC and all other commitments in country.

During 2014 the Group released accruals totalling $5k and incurred expenditure totalling $15k.

The financial impact of the Group's discontinued operations is provided below:

	2014	2013
	$000	$000

Profit for the year from discontinued operations	-	1,025
Net decrease in cash and cash equivalents	(460)	(553)
Basic profit per share from discontinued operations (US cents) (Note 5)	0.00	0.47
Diluted profit per share from discontinued operations (US cents) (Note 5)	0.00	0.46

5. Earnings per share

	Basic		Diluted
	2014	2013	2014	2013
	$000	$000	$000	$000

(Loss)/profit for the year (continuing operations)	(12,318)	7,309	(12,318)	7,309
Profit for the year (discontinuing operations)	-	1,025	-	1,025

Weighted average number of ordinary shares in issue during the year	220,053,520	220,053,520	220,053,520	220,053,520
Dilutive effect of share options outstanding	-	-	-	367,069
Fully diluted average number of ordinary shares during the year	220,053,520	220,053,520	220,053,520	220,420,589

EPS (continuing operations) (US cents)	(5.60)	3.32	(5.60)	3.32
EPS (discontinuing operations) (US cents)	-	0.47	-	0.46

6. Intangible royalty assets

		Group
		$000

Net book value at 1 January 2013		2,424
Amortisation charge for the year		(782)
Impairment reversal		1,152
Net book value at 31 December 2013		2,794
Amortisation charge for the year		(733)
Impairment for the year		(2,061)
Net book value at 31 December 2014		-

Group net book value at 31 December 2014 comprises the value of rights to future royalties in respect of the Group's agreements covering licences PSC A, PSC B and PSC C-10 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.

7. Intangible Exploration and Evaluation ("E&E") assets

			Group
			$000

Net book value at 1 January 2013			10,245
Additions during the year			4,192
Reimbursement of back costs on farm-out of Ambilobe licence			(1,250)
Net book value at 31 December 2013			13,187
Additions during the year			17,102
Impairment for the year			(1,863)
Net book value at 31 December 2014			28,426

Impairment for the year refers to the full impairment of the Ampasindava asset.

On 27 January 2014, the Group accounted for $3.0 million toward a 15% interest in the Odewayne block from Jacka Resources Somaliland Limited (Jacka), an Australian company. This had been previously accounted for as a prepayment at 31 December 2013.

On 6 May 2014, the Company announced the completion of the acquisition of an additional 15% interest in the Odewayne block from Jacka and paid $12.0 million as consideration for the farm-in and settlement for future commitments under the farm-in agreement.

Under the terms of both acquisitions, the Group paid $15.0 million for a 30% interest in the Odewayne block, further to the 10% acquired in 2013 from Petrosoma Limited.

8. Property, plant and equipment

		Computer
	Oil and Gas assets	and office equipment	Total
Group	$000	$000	$000

Cost
At 1 January 2013	185,802	3,064	188,866
Additions during the year	-	85	85
Adjustments during the year	-	(3,006)	(3,006)
At 31 December 2013	185,802	143	185,945
Additions during the year	-	32	32
At 31 December 2014	185,802	175	185,977

Accumulated depreciation and impairment
At 1 January 2013	(181,825)	(2,982)	(184,807)
Charge for the year	(1,638)	(69)	(1,707)
Impairment reversal for the year	3,207	-	3,207
Disposals in the year	-	3,006	3,006
At 31 December 2013	(180,256)	(45)	(180,301)
Charge for the year	(1,567)	(58)	(1,625)
Impairment for the year	(3,979)	-	(3,979)
At 31 December 2014	(185,802)	(103)	(185,905)

Net book value at 31 December 2014	-	72	72
Net book value at 31 December 2013	5,546	98	5,644
Net book value at 31 December 2012	3,977	82	4,059

DEFINITIONS AND GLOSSARY OF TERMS

$ US dollars

2006 Act The Companies Act 2006, as amended

2007 LTIP the 2007 Long Term Incentive Plan

1P Proven reserves or in-place quantities depending on the context

2D two dimensional

2P the sum of Proven and Probable reserves or in-place quantities depending on the context

3D three dimensional

3P the sum of Proven, Probable and Possible reserves or in-place quantities depending on the context

AIM AIM, a market of the London Stock Exchange

All Staff LTIP the All Staff Long-Term Incentive Plan adopted in 2009

AGM Annual General Meeting

Articles the Articles of Association of the Company

bbl barrel, equivalent to 42 US gallons of fluid

bopd barrel of oil per day

boe barrel of oil equivalent, a measure of the gas component converted into its equivalence in barrels of oil

Board the Board of Directors of the Company

Combined Code or Code UK Corporate Governance Code

Companies Act the Companies Act (as amended 2006)

Company Sterling Energy plc

CSOP Company Share Option Plan (HMRC approved share option scheme)

Directors the Directors of the Company

E&E exploration and evaluation assets

Adjusted EBITDA earnings before interest, taxation, depreciation, depletion and amortisation, impairment, share-based payments, provisions, and pre-licence expenditure

EITI Extractive Industries Transparency Initiative

farm-in & farm-out a transaction under which one party (farm-out party) transfers part of its interest to a contract to another party (farm-in party) in exchange for a consideration which may comprise the obligation to pay for some of the farm-out party costs relating to the contract and a cash sum for past costs incurred by the farm-out party

FA Funding Agreement

FPSO Floating, Production, Storage and Offloading vessel

G&G geological and geophysical

GBP pounds sterling

Genel Energy Genel Energy Somaliland Limited

Group the Company and its subsidiary undertakings

HMRC Her Majesty's Revenue and Customs

HMRC Approved Sub-Plan or The HMRC approved sub-plan of the All Staff LTIP

HMRC Sub-Plan

HSSE Health, Safety, Security and Environment

hydrocarbons organic compounds of carbon and hydrogen

IFRS International Financial Reporting Standards

K thousands

km kilometre(s)

km² square kilometre(s)

lead indication of a possible exploration prospect

London Stock Exchange or LSE London Stock Exchange Plc

m metre(s)

mcf thousand cubic feet

Murphy Murphy Cameroon Ntem Oil Co. Ltd

NED LTIP non-executive Director Long Term Incentive Plan adopted in 2009

OECD Organisation for Economic Cooperation and Development

Ordinary Shares ordinary shares of 40 pence each

P90, P50, P10 90%, 50% and 10% probabilities respectively that the stated quantities will be equalled or exceeded. The P90, P50 and P10 quantities correspond to the Proved (1P), Proved + Probable (2P) and Proved + Probable + Possible (3P) confidence levels respectively

Panel or Takeover Panel The Panel on Takeovers and Mergers

Petroleum oil, gas, condensate and natural gas liquids

Petronas PC Mauritania 1 PTY LTD

Premier Premier Oil

Prospect a potential sub-surface accumulation of hydrocarbons which has been identified but not drilled

PSA production sharing agreement

PSC production sharing contract

Pura Vida Pura Vida Mauritius

RA Royalty Agreement

Reserves reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must satisfy four criteria; they must be discovered, recoverable, commercial and remaining based on the development projects applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by development and production status

Reservoir a porous and permeable rock capable of containing fluids

RISC RISC (UK) Limited of 53 Chandos Place, Covent Garden, London WC2N 4HS

Seismic data, obtained using a sound source and receiver, that is processed to provide a representation of a vertical cross-section through the subsurface layers

SESP Sterling Energy plc share price

Shares 40p Ordinary Shares

Shareholders Ordinary shareholders of 40p each in the Company

SMHPM Société Mauritanienne Des Hydrocarbures et du Patrimoine Minier

Subsidiary a subsidiary undertaking as defined in the 2006 Act

TSR Total Shareholder Return (End Share Price - Opening Share Price/Opening Share Price) plus (Sum of Dividends Per Share/Opening Share Price)

United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland

UK Corporate Governance Code Formerly the Combined Code, sets out standards of good practice in relation to Board leadership and effectiveness, remuneration, accountability and relations with shareholders

United States or US the United States of America

Working Interest or WI a Company's equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms

This information is provided by RNS

The company news service from the London Stock Exchange

END

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