Response to Fusion defence

Sterling Energy PLC
20 October 2003

Sterling Energy plc

Re: Offer for Fusion Oil & Gas plc

Not for release, publication or distribution in, into or from the United States,
Canada, Australia or Japan

Sterling announces its response to Fusion's defence document.

Richard O'Toole, Chairman of Sterling, states:

'As your largest shareholder, we were disappointed that the letter of 11 October
2003 from Fusion was short on detail and full of promises.



The facts are:



  • Sterling's Offer is the only offer available to Fusion Shareholders.



  • Sterling owns or has already received support for the Offer in respect of
    41.5% of Fusion's shares.



  • Sterling has delivered an increasing share price, production income and
    reserve growth.



In contrast Fusion, has:



  • A falling share price, down from 50p at flotation in September 2000 to
    31.25p on 11 September 2003, the day prior to the start of the Offer Period.



  • No production income, with none expected before the latter part of 2005 -
    over four years after its first discovery well.



  • No declared proven or probable oil or gas reserves after drilling six
    wells over the past three years.



It will create a group with a geographically focused portfolio of production,
appraisal and exploration assets and with the greater resources needed to
develop and exploit them. Our view is that Fusion Shareholders will achieve more
as part of an enlarged Sterling.'







On 25 September 2003 Evolution Beeson Gregory announced an offer to be made by
Evolution Beeson Gregory Limited on behalf of Sterling for the whole of the
issued and to be issued share capital of Fusion Oil & Gas plc not already owned
by Sterling.  The Offer Document and Form of Acceptance relating to the Offer
were posted to Fusion Shareholders on 1 October 2003.



The Offer has been made on the following basis:



                     3.5 Sterling Shares for 1 Fusion Share

                       Equal to 40.25 p per Fusion Share



                                       Or



                      10p in cash and 2.5 Sterling Shares

                       Equal to 38.75 p per Fusion Share



On 11 October 2003 the Board of Fusion wrote to Fusion Shareholders recommending
that Fusion Shareholders take no action in relation to the Offer.  The Fusion
Board contends that the Sterling offer significantly undervalues Fusion and that
they have commenced discussions with a number of parties with the aim of
securing alternative proposals.



On 18 October 2003 Sterling posted a circular to Fusion Shareholders urging them
to ignore the advice of their board and accept the terms of the Sterling offer
by returning their Form of Acceptance before the first closing date of the Offer
being 3.00pm on 22 October 2003.



Set out below isa rebuttal of the defence case posted to Fusion Shareholders by
the Fusion Board on 13 October 2003:





WHY FUSION HAS GOT IT WRONG - AGAIN



Fusion says that Sterling's offer significantly undervalues Fusion and does not
adequately reflect the value of the company's assets or the stage which the
company has reached in its development.



Key shareholders disagree and at the outset the Offer had support from holders
of 41.5% of Fusion's Shares:



  • Westmount Energy, formerly Fusion's largest shareholder and represented by
    two Fusion directors, sold 20.37% of Fusion's Shares to Sterling on the same
    basis as the terms of the Offer.



  • Invesco Asset Management, Fusion's second largest shareholder, has signed
    an irrevocable undertaking to accept the Offer in respect of 9.5% of
    Fusion's share capital in the absence of a higher bid by 22 October 2003.



  • Sterling has letters of intent to accept the Offer from holders of a
    further 11.6% of Fusion Shares.



  • Before the first news of our approach on 12 September 2003, Fusion's
    Closing Price was 31.25p, 37% lower than a year earlier.



  • Sterling is offering to pay 40.25p for each Fusion Share, a premium of
    28.9% over the Closing Price before our approach became known publicly.



Without Sterling's Offer where would the Fusion share price be?



Fusion believes the offer from Sterling would result in your interest in
Fusion's exploration upside being substantially diluted.



Fusion's existing strategy is inherently dilutive, as has already been shown by
the disposals to Premier and Amerada. The stronger resources of the Enlarged
Group will allow you to keep more of the exploration upside.



Fusion does not believe that the disparate portfolios of Fusion and Sterling are
complementary or that combining them will enhance the value of either.



The Enlarged Group will have a balanced portfolio of international interests,
with:



  • Increasing cash flow.



  • Profitable producing assets.



  • Exploration, appraisal and development assets.



  • A presence in two key strategic areas for energy in the 21st Century: gas
    in the Gulf of Mexico and oil in West Africa.



  • A stronger balance sheet and more cash, which the Directors believe will
    enable the Enlarged Group to capitalise on any future successful exploration
    to a greater degree than has been the case for Fusion.



  • A highly experienced management team with international experience capable
    of extracting value from successful exploration.





Fusion expects the drilling programmes will result in the creation of material
value to its shareholders.



Fusion's strategy as solely an exploration company is flawed as it does not
allow shareholders to maximise the upside of success. Its acquisition of license
interests and the six wells drilled to date - even with success on Chinguetti -
have resulted in reduced shareholder value.



Canaccord, Fusion's newly appointed financial adviser, said of the sale of the
direct interests in its Mauritanian licences, including Chinguetti:



             'In purely cash terms it's a better deal for Premier'.



The Fusion Board has repeatedly promised to deliver shareholder value. How much
longer must Fusion Shareholders wait?  The Sterling Offer represents the only
real alternative to the current decline!





Lastly if Fusion is in discussions with a number of parties, Fusion Shareholders
should ask their board the following:





                             WHO ARE THESE PARTIES?



                         WHERE ARE THEIR ALTERNATIVES?





Enquiries:



Harry Wilson, Chief Executive, Sterling Energy plc:          01582 462 121
Graeme Thomson, Finance Director, Sterling Energy plc:       01582 462 121
Chris Callaway, Evolution Beeson Gregory Limited:            020 7071 4309
Allan Piper, First City Financial Public Relations:          020 7436 7486



This summary should be read in conjunction with the circular sent to
shareholders on 18 October 2003.



Words and expressions defined in the offer document from Sterling to Fusion
Shareholders dated 1 October 2003 (the 'Offer Document') have the same meaning
in this document. In addition, the following definitions shall apply: 'Amerada'
- Amerada Hess Corporation; 'Canaccord' - Canaccord Capital (Europe) Limited;
and 'Premier' - Premier Oil plc.



This announcement does not constitute an offer to sell or an invitation to
purchase any securities in any jurisdiction.



This announcement contains forward looking statements.  As such statements
relate to future events, they are subject to risks and uncertainties, which may
cause the actual results to differ materially.



Evolution Beeson Gregory, which is regulated in the UK by the Financial Services
Authority, is acting exclusively for Sterling and no one else in connection with
the Offer and other matters described herein and will not be responsible to
anyone other than Sterling for providing the protections afforded to customers
of Evolution Beeson Gregory or for giving advice in relation to the Offer or any
other matter described in this announcement.



The Offer has not been made, directly or indirectly, in or into, or by use of
the mails or by any means or instrumentality (including without limitation,
telephonically or electronically) of interstate or foreign commerce of, or by
any facilities of a national, state or other securities exchange of, the United
States or Canada or Australia or Japan or any other jurisdiction if to do so
would constitute a violation of the relevant laws of such jurisdiction and the
Offer should not be accepted by any such use, means, instrumentality or
facility, or from within the United States or Canada or Australia or Japan or
any such jurisdiction and doing so may render invalid any purported acceptance
of the Offer. Accordingly, copies of this announcement and any documents related
to the Offer are not being and must not be mailed, forwarded, sent, transmitted
or otherwise distributed in, into or from the United States or Canada or
Australia or Japan or any such other jurisdiction and all persons receiving such
announcement (including, without limitation, custodians, nominees and trustees)
should observe these restrictions and must not distribute, forward, mail or
transmit or send them into or from the United States or Canada or Australia or
Japan or any such other jurisdiction.  The availability of the Offer to persons
who are not resident in the United Kingdom may be affected by laws of the
relevant jurisdictions.  Persons who are not resident in the United Kingdom
should inform themselves about and observe any applicable requirements.



The New Sterling Shares to be issued pursuant to the Offer have not been, and
will not be, registered under the United States Securities Act of 1933, as
amended, or under any of the relevant securities laws of any state or district
of the United States, Canada, Australia or Japan.  Accordingly, unless an
exemption under such Act or other laws is available, the New Sterling Shares may
not be offered, sold, transferred or delivered, directly or indirectly, in or
into the United States, Canada, Australia or Japan or to or for the account or
benefit of any United States, Canadian, Australian or Japanese person.  The
Offer is subject, inter alia, to the conditions set out in Appendix I to the
Offer Document.




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