Re Investment in Mauritania

Sterling Energy PLC
27 October 2004


               Sterling Energy plc ('Sterling' or the 'Company')

                    Proposed Placing of New Ordinary Shares
                                      and
                            investment in Mauritania

The Board is delighted to announce that yesterday it entered into a conditional
agreement to provide a letter of credit for $130 million to the Mauritanian
Government to enable it to exercise its right to participate in the development
of the Chinguetti Field. In order to fund this amount, the costs associated with
the Transaction and to provide the Company with additional working capital for
its continuing development, the Company is seeking to raise approximately £97
million by way of a placing of New Ordinary Shares to institutional investors.

Sterling Chief Executive, Harry Wilson said: 'This represents a stunning deal
for Sterling, and establishes us as a key player in Mauritania, now recognised
as one of the global hotspots for oil exploration and development activity. It
cements our close relationship with the Mauritanian Government going forward as
we have been confirmed as a strategic partner of the Government to help it
develop its additional oil and gas assets.'

Key points of the Transaction:

   • The Mauritanian Government will exercise its right to acquire a 12 per
    cent. interest in the Chinguetti Field
   • Sterling will provide the Mauritanian Government with a letter of credit
    for $130 million to enable it to exercise this right for which it will
    receive a share of the Mauritanian Government's oil revenues from the
    Chinguetti Field
   • Sterling will gain an effective interest in the oil production revenues
    from the Chinguetti Field, the first commercial development in Mauritania
   • Oil production is expected to commence in early 2006 at a gross
    projected rate of 75,000 bopd
   • The Mauritanian Government has provided written confirmation that it
    considers Sterling as a strategic partner for the development of its future
    oil and gas assets
   • The Company is seeking to raise approximately £97 million by way of a
    placing of new ordinary shares to finance the letter of credit, associated
    transaction costs and working capital for the Company's ongoing development

A circular and notice of EGM was sent yesterday to Shareholders of the Company
outlining the terms of the transaction and seeking Shareholder approval to
enable the Directors to allot the New Ordinary Shares necessary to effect the
Proposed Placing ('Circular'). The EGM has been convened for 10.00 a.m. on 18
November 2004.

Enquiries:

Harry Wilson, Chief Executive, Sterling Energy plc 01582 461 121
Graeme Thomson. Finance Director, Sterling Energy plc 01582 461 121
Rob Collins, Henry Turcan, Evolution Securities Limited 020 7071 4300
Allan Piper, First City Financial Public Relations 020 7436 7486

                    Proposed Placing of New Ordinary Shares
                                      and
                            investment in Mauritania

1. Introduction and summary

At the time of the offer for Fusion in 2003 we said that we believed West Africa
was likely to be a key strategic area for oil and gas development in the future.

Consistent with this strategy, the Board is delighted to announce that yesterday
it entered into a conditional agreement to provide a letter of credit for $130
million to the Mauritanian Government to enable it to exercise its right to
participate in the development of the Chinguetti Field. In order to fund this
amount, the costs associated with the Transaction and to provide the Company
with additional working capital for its continuing development, the Company is
seeking to raise approximately £97 million by way of a placing of new Ordinary
Shares to institutional investors. In order to effect the Proposed Placing the
Company needs Shareholders to approve the Resolution set out in the notice of
EGM in the circular sent to Shareholders yesterday which gives the Directors the
necessary power and authority to allot the New Ordinary Shares.

The Transaction will give the Company an effective interest in production from
the Chinguetti Field. In addition, the Company has received a letter from the
Mauritanian Government stating that it considers Sterling a strategic partner in
relation to its oil and gas assets.

The Mauritanian Government's right to notify its intention to acquire its
interest in the Chinguetti Field expires on 20 November 2004. In order to
complete the Funding Agreement the Company needs Shareholder approval for the
Proposed Placing by 18 November 2004 and it is for this reason that a circular
was posted yesterday to Shareholders asking for their approval to effect the
Transaction without having entered into an underwriting agreement.

Having consulted a limited number of potential investors, the Directors are
optimistic that they will be able to secure the required funding to complete the
Transaction. To this end, the Company has undertaken to the Mauritanian
Government to use all reasonable endeavours to enter into an underwriting
agreement with Evolution by 8 November 2004 after which the Company will write
to Shareholders. The Funding Agreement may lapse unless this is achieved.

2. Information on Sterling

Sterling is an independent oil and gas company focused on the exploration,
development and production of oil and gas. The Group has two principal
geographical areas of operation namely production in the Gulf of Mexico and
exploration in West Africa.

Gulf of Mexico

Over 90 per cent. of Sterling's production comes from gas in the Gulf of Mexico
where Sterling's proven and probable reserves have increased to more than 60
bcfge at 30 June 2004 from 23.3 bcfge at the end of 2003 which at current
production rates of around 10.5 mmcfged per day equates to approximately 15
years of production. This increase has been achieved both through strategic
acquisitions, most noticeably the Osprey acquisition in February 2004 for $39.5
million, and an overall increase in reserves in other fields. Detailed
preparations are underway for drilling further wells and workovers during the
next eighteen months with the aim of once again more than doubling US
production.

West Africa

In December 2003, Sterling acquired Fusion Oil and Gas plc for approximately £40
million and thereby gained exposure to an existing portfolio of exploration
assets in West Africa. An extensive programme of drilling and further
exploration is planned in the area with initial oil production expected in
Mauritania from the Chinguetti Field in 2006 from which the Company will benefit
through its existing royalty arrangement.

3. Background to and reasons for the Transaction

Sterling holds royalty interests in the areas governed by PSCA and PSCB in
offshore Mauritania. The current interests in the PSCB area are held as follows:

Woodside group companies                                                53.846%
Hardman group companies                                                 21.600%
British Gas group companies                                             11.630%
Premier group companies                                                  9.231%
ROC Oil group companies                                                  3.693%

Sterling's current interest in the area governed by PSCB is held through an
agreement reached between Premier and Fusion (prior to its acquisition by
Sterling), whereby Premier is obliged to pay Sterling a sliding scale royalty on
every barrel produced under Fusion's original 6 per cent. working interest.

Situated within the PSCB area is the Chinguetti Field which has received
development approval from the Mauritanian Government. The first oil production
from this field is expected to commence in early 2006.

Under PSCB, the Mauritanian Government currently has the option to acquire a 12
per cent. interest in the Chinguetti Field. In order to take advantage of this
opportunity the Mauritanian Government must notify the operator, Woodside, of
its intention to exercise its option prior to 21 November 2004. Under the terms
of PSCB, if the Mauritanian Government exercises its option, it is obliged to
pay its share of past development and appraisal costs and future development
costs. With a view to enabling the Mauritanian Government to meet these
obligations, Sterling has entered into the Funding Agreement with the
Mauritanian Government under which it will provide a letter of credit to the
Mauritanian Government for $130 million. In addition Sterling will pay the
Mauritanian Government a cash bonus of $15.5 million upon the Funding Agreement
becoming wholly unconditional in all respects. The Funding Agreement provides
for the Mauritanian Government to exercise its option through Groupe Projet
Chinguetti, a state owned special purpose company.

Oil production is expected to commence from the Chinguetti Field in early 2006
and pursuant to the terms of the Funding Agreement GPC's 12 per cent. share of
oil revenues will be split, on an agreed but confidential basis, between
'profit' oil and 'cost' oil. Initially the split of 'profit' oil and 'cost' oil
will substantially favour 'cost' oil, out of the revenues from which Sterling's
loan to GPC will be repaid. Revenues from 'profit' oil will be apportioned
between GPC and Sterling according to cumulative production.

Reserves and production forecasts

RISC, independent consultants, have produced a report on the Chinguetti Field
which has been included in the circular sent to Shareholders. Under the base
case oil price scenario advised by Sterling, the gross Chinguetti Field reserves
are estimated by RISC to be as follows:
    
                                          P90             P50              P10

Reserves mmstb                            72              139              205

The Directors believe that, with the expected production profile of the
Chinguetti Field, the Transaction is likely to:

- lead to an early repayment of the funds drawndown under the letter of credit;

- provide an attractive income stream over a number of years;

- increase its proven and probable reserves; and

- diversify its areas of production.

In addition the Mauritanian Government has given Sterling written confirmation
that it will be a strategic partner for future oil and gas developments.

4. Financial effects of the Transaction

Under the terms of the Funding Agreement, Sterling is required to provide a
letter of credit to GPC, drawdowns under which cannot exceed $130 million. As
set out above this will be used by GPC to repay its share of past and future
development costs of the Chinguetti Field.

The development plan for the Chinguetti Field which has been adopted by all
interested parties and approved by the Mauritanian Government anticipates that
oil production will commence in early 2006 with initial production expected at
75,000 bopd. Sterling's economic model has been independently audited by RISC
who have reported on the net present value attributable to Sterling based on
future oil price scenarios provided by Sterling. A summary of their findings is
set out below:

'The key economic assumptions used in the discounted cashflow model are
described below.

- Future capital and operating costs are based on information provided by
Sterling.

   • Brent oil price forecasts were supplied by Sterling. These are based on
    the assumption that 80 per cent. of sales are hedged at US$42.15/bbl in 2006
    and US$39.60/bbl in 2007 with the balance and all production from 2008
    onwards sold at US$25/bbl flat in real terms for the Base Case. For the Low
    and High Cases, the hedge assumptions are the same with the balance and all
    production from 2008 onwards sold at US$20/bbl and US$30/bbl flat in real
    terms respectively. A crude quality discount to Brent of US$0.5/bbl has been
    applied. The resultant money of the day average prices are:


US$/bbl   2006      2007      2008      2009      2010      2011      2012

Base Case   38.2      36.1      27.0      27.6      28.1      28.7      29.3
High Case   39.2      37.1      32.6      33.2      33.9      34.6      35.3
Low Case    37.2      35.1      21.5      22.0      22.4      22.8      23.3

- Inflation rate of 2.0 per cent. applied to all costs.

- Values for opening cost recovery balances were provided by Sterling and RISC
has relied upon this information.

- Economics have been run pre-tax.

- A discount rate of 10 per cent. has been applied.

Net Present Value attributable to Sterling under the terms of the Funding
Agreement are shown below for the P90, P50 and P10 production forecasts.
Consistent with the assumptions in these production forecasts, the development
activities, capital expenditure and schedule are identical for these cases.
Operating expenditure and the timing of abandonment are dependent on production
rates and have been adjusted accordingly.

Net present value (pre-tax) at 10 per cent. nominal attributable to Sterling as
at 20/11/2004, US$ million

                                          P90           P50               P10
(US$ million)                         Production    Production       Production
                                       forecast      forecast         forecast

Base case oil price                        1.7         58.9            92.2

The sensitivity of the P50 production forecasts case to the Low and High Case
oil price scenarios above is shown below:

Net Present Value (pre-tax) at 10 per cent. nominal attributable to Sterling as
at 20/11/2004, US$ million

(US$million)                        Low Case Oil               High Case Oil
                                         Price                       Price
P50 Production Forecast                   40.2                        77.7

The above values should not be taken as representing RISC's view of Sterling's
potential interests nor as an indication of Fair Market Value.

In addition to the upside reserves potential indicated above, there are a number
of potential upside opportunities that could conceivably be realised during the
life of the Chinguetti Field and which could enhance the value attributable to
Sterling.'

The Directors believe that based on the selective use of oil price hedges in
2006 and 2007 and the production forecasts based on the probable case (P50), the
potential return on investment from the Transaction make it an attractive
proposition. The anticipated oil production from the Chinguetti Field provides
cashflow with the added attraction of possible revenues from further adjacent
developments using the Chinguetti infrastructure. Other opportunities may arise
for the Company as a strategic partner of the Mauritanian Government in the
development of its oil and gas assets.

5. The Proposed Placing

The Company will seek to raise approximately £97 million through the issue of
New Ordinary Shares. In order to meet the timetable under the Funding Agreement
it is necessary to raise the funds by 20 November 2004. In order to be able to
achieve this, the New Ordinary Shares are required to be admitted to trading on
AIM by not later than 19 November 2004 and consequently the EGM must take place
on 18 November 2004. Due to these time constraints it has been necessary to seek
Shareholder approval to enable the Company to raise the funds required under the
Funding Agreement together with associated costs and working capital
requirements prior to undertaking the Proposed Placing. In addition, the
Directors believe that it is necessary for the Company to attempt to raise the
funds by way of a placing as there is insufficient time to undertake a
pre-emptive offer to Shareholders as a whole.

The proceeds of the Proposed Placing will be used as follows:

- signature bonus to the Mauritanian Government of £8.5 million ($15.5 million);

- £71.2 million ($130 million) as security for the letter of credit to be
provided to GPC under the terms of the Funding Agreement;

- £7.0 million for the estimated costs of the Transaction which includes the
fees payable to Evolution and $4.0 million (£2.1 million), of which $2.5 million
(£1.4 million) is repayable on completion of the Funding Agreement and the
balance 18 months thereafter, payable to WARBA NATIONAL Contracting Co. W.L.L.
who introduced the transaction to Sterling and have assisted Sterling
throughout.

The balance of £10.3 million will be used for general working capital to assist
in the further development of the Group's assets.

Settlement and dealings

Conditional upon the funds being raised, application will be made to the London
Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. If
such application is made, it is expected that Admission will occur on 19
November 2004.

The New Ordinary Shares will, if issued, rank pari passu in all respects with
the existing Ordinary Shares including the right to receive dividends and other
distributions declared following Admission.

6. Current trading and prospects

The Directors believe that both the current trading and prospects of the Company
are extremely encouraging. Gas prices have been and remain strong which
naturally benefits the Company's revenues and Sterling intends to participate in
the drilling of over 20 wells in Africa and the Gulf of Mexico over the next
year. The Directors believe that the Transaction, if completed, has the
potential to substantially improve the Company's reserves and cash flow when
production commences and further enhance the Company's prospects.

7. Extraordinary General Meeting

The Circular includes a notice convening the EGM to be held on 18 November 2004
at the offices of Evolution Securities Limited, 100 Wood Street, London, EC2V
7AN, at 10.00 a.m., at which the Resolution will be proposed for the purposes of
implementing the Proposed Placing.

The Resolution will be proposed as a special resolution to authorise the
Directors to allot New Ordinary Shares up to an aggregate nominal amount of
£11,500,000 and to disapply Shareholders' statutory pre-emption rights up to the
same aggregate nominal amount.

In the event that the Underwriting Agreement is not entered into the Directors
will recommend voting against the Resolution and will release the obligations
under any irrevocable undertakings received.

9. Irrevocable undertakings

The Company has received irrevocable undertakings to vote in favour of the
Resolution to be proposed at the EGM from each of the Directors holding Ordinary
Shares and from certain other Shareholders including the Company's largest
Shareholder, Westmount Energy Limited, in respect of, in aggregate, 221,724,503
Ordinary Shares representing approximately 27.0 per cent. of the Company's
existing issued ordinary share capital.

This announcement does not constitute an offer to sell any securities in the
United States. The proposed issue of the New Ordinary Shares in connection with
the Proposed Placing have not been, and will not be, registered under the United
States Securities Act of 1933 (as amended) or under the securities laws of any
state of the United States or qualify for distribution under any of the relevant
securities laws of Canada, Australia or Japan, nor has any prospectus in
relation to the New Ordinary Shares been lodged with or registered by the
Australian Securities and Investments Commission. Accordingly, subject to
certain exceptions, the New Ordinary Shares, if issued, may not be, directly or
indirectly, offered, sold, taken up, delivered or transferred in or into the
United States, Canada, Australia or Japan.

Words and expressions where defined in the circular issued by the Company and
dated 26 October 2004 shall, unless the context requires otherwise, have the
same meaning in this document.



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