Response to Sterling Release

Fusion Oil & Gas PLC
20 October 2003

     

                              Fusion Oil & Gas plc

                             ('Fusion' or 'the Company')

                 Sterling Energy plc ('Sterling') statement Re: Offer


The Fusion Board notes Sterling's announcement this morning and comments as
follows:


•        Fusion has developed a high quality portfolio of exploration assets in
West Africa.  The drilling programme on these assets has recently commenced and
Fusion believes that this programme will result in the creation of material
value to its Shareholders.


•        Fusion continues to believe that Sterling's offer is opportunistic and
undervalues the Company.  As a result, Fusion remains in active discussions, the
nature and terms of which remain subject to confidentiality restrictions at this
stage, to seek a better deal for all Fusion shareholders.



•        Sterling states that it has support for the Offer in respect of
approximately 41.5% of Fusion's shares.  The Fusion Board notes that 9.5% of
this support is conditional on the absence of a higher offer.  A further 11.6%
relates to letters of intent and are not a legally binding undertaking to accept
the Offer.



•        Sterling states that Fusion has 'no declared proven or probable oil or
gas reserves after drilling 6 wells over the past three years.'  Fusion has
participated in 7 wells (not 6) over the last three years and has been involved
in two discoveries, two successful appraisal wells and one appraisal/early
development well which is currently under extended well test, the results of
which are imminent.  Fusion has commissioned an independent technical review of
its assets which will establish the quantum of the proven, probable and possible
reserves that can be reasonably attributed to Fusion at this point in time. This
review is nearing completion.



•        Sterling states that a merger between the two companies would create a
'geographically focused portfolio of production, appraisal and exploration
assets'.  Fusion believes a merger between it and Sterling would create an
unfocused mix of shallow water Gulf of Mexico assets and West African
exploration acreage, mainly located in deep water. The Fusion Board does not
believe that combining these disparate portfolios would enhance the value of
either.



•        Fusion believes that Sterling's statement that Fusion has 'no
production income, with none expected before the latter part of 2005 - over four
years after its first discovery well' shows an apparent lack of understanding by
Sterling of the realities and timeframes required to explore and develop
frontier acreage.



  • Sterling argues that a merger between Sterling and Fusion would create a
    company with 'the greater resources needed to develop and exploit' these
    assets.  The Board of Fusion believes that Sterling's producing assets do
    not generate sufficient free cash flow to have a material effect on the
    development of Fusion's assets.



Chairman of Fusion, Peter Dolan, said:



'Fusion believes that Sterling's announcement today demonstrates a lack of
understanding of the process of exploration in frontier areas and the
incompatibility of the two companies. Fusion remains in discussions to seek a
better deal than Sterling's inadequate and opportunistic offer.  As a result the
Board of Fusion continues to recommend shareholders to take no action in
relation to Sterling's offer.'


20 October 2003


Enquiries


Fusion Oil & Gas plc
Peter Dolan, Chairman                  Tel:       [phone]

                                       Email:   [e-mail]
Alan Stein, Managing Director          Tel:      [phone]

                                       Email:  [e-mail]

College Hill Associates                       Tel:       [phone]
James Henderson                        Email:  [e-mail]
Phil Wilson-Brown                      Email:  [e-mail]

Canaccord Capital (Europe) Ltd
Toby Hayward                           Tel:     [phone]

                                       Email:  [e-mail]


The Directors of Fusion (other than Mr Williams and Mr Levison, who have not
participated in these deliberations on the proposed offer) accept responsibility
for the information contained in this announcement and to the best of their
knowledge and belief (having taken all reasonable care to ensure that such is
the case), the information contained in this announcement is in accordance with
the facts and does not omit anything likely to affect the import of such
information.



Canaccord Capital (Europe) Limited ('Canaccord'), which is regulated in the
United Kingdom by the Financial Services Authority, is acting exclusively for
Fusion and is acting for no one else in connection with the Offer and  will not
be responsible to anyone other than Fusion for providing the protections
afforded to clients of Canaccord nor for giving advice in relation to the Offer.








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