Sterling Resources Announces Second Quarter Operating and Financial Results

CALGARY, Alberta, August 21, 2012 /PRNewswire/ --

Sterling Resources Ltd. (TSX-V:SLG)("Sterling" or the "Company") an international oil and gas company with exploration and development assets in the United Kingdom, Romania, France and the Netherlands announces interim operating and financial results for the quarter ended June 30th, 2012. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.

HIGHLIGHTS

• Sale of 13.5 percent interest in Cladhan field sold to TAQA Bratani Limited ("TAQA") for initial consideration of US$47 million;
• Breagh development drilling program underway with two previously suspended wells redrilled and a third new well underway;
• 50 percent interest obtained in the XXV Luceafarul Block offshore Romania;
• Reduction of the liquidity threshold required under the Breagh loan agreement from £35 million to £20 million; and
• Breagh development moving forward with total project cost now estimated at £623 million (100 percent) and production targeted to commence in December 2012.

The net loss for the quarter ended June 30, 2012 was $7.0 million ($0.03 per share - basic and diluted) compared to a loss of $13.4 million ($0.07 per share - basic and diluted) for the three months ended June 30, 2011. During the second quarter of 2011 bad debt expense of $6.8 million was incurred in relation to non-payment from a co-venturer on the Grian well. For the second quarter of 2012 pre-licence and other exploration costs of $6.1 million were higher than the $2.3 million incurred during the second quarter of 2011.

For the six months ended June 30, 2012 a net loss of $14.7 million ($0.07 per share - basic and diluted) was recorded compared with a loss of $34.4 million ($0.18 per share - basic and diluted) for the six months ended June 30, 2011. During the first two quarters of 2011 the Company incurred significant exploration and evaluation expenses in the UK North Sea related to the four well Cladhan drilling program, the drilling of the non-operated East Breagh appraisal well and the drilling of the Grian exploration well.

Cash and cash equivalents at June 30, 2012 were $31.2 million compared to $50.0 million as at December 31, 2011. In addition, the Company holds $16.0 million of non-current restricted cash in accordance with the terms of the Breagh loan agreement. The Company maintains cash balances allocated to the currencies in which they are expected to be utilized, and exchange gains or losses reflected in the income statement are therefore offset by corresponding reductions or increases in underlying capital and other expenditures. A small foreign exchange gain of $77,000 in the second quarter partially offset a loss of $269,000 incurred during the first quarter, attributable to the strengthening of the US dollar versus the UK pound upon the translation of US dollar cash balances. Foreign exchange losses of $4.9 million during the first half of 2011 mainly occurred during the first quarter of 2011, upon conversion of US dollar balances into the respective functional currencies of the operation holding the funds.

Net working capital was $20.5 million at June 30, 2012 compared to net working capital of $36.0 million at December 31, 2011. For the six months ended June 30, 2012, pre-licence and other exploration costs totaled $8.1 million, of which $4.6 million related to the Company's interests in various offshore UK licences, $2.1 million related to Romanian licences and $1.3 million to the Netherlands and other international ventures. Cumulative capital expenditures related to the Breagh project as at June 30^th have reached £100.3 million.

"Although the delay in start-up at Breagh is extremely frustrating, an intensive effort has been made to address remaining issues related to completion of the onshore facilities, for a target of first gas by year end," stated Mike Azancot, Sterling's President and CEO. "Although the Breagh development remains a primary focus, we also look forward to the drilling of the potentially high-impact Ioana and Eugenia wells in offshore Romania this fall," added Mr. Azancot.

United Kingdom

At Breagh the estimated development costs for Phase 1 have now risen to £623 million (100 percent), an increase of approximately 10 percent above the cost estimate of £566 million estimated in the 2011 Annual Report. The increase in costs is principally related to work required to complete modifications at the existing Teesside Gas Processing Plant in order to receive and process natural gas from Breagh, and to complete the onshore section of the export pipeline. Sterling's share of these additional costs amounts to approximately £17 million. As of June 30, 2012, Sterling's share of the remaining development cost is £87 million of which approximately £30 million is to be spent from July 2012 through to first gas which is targeted for December 2012.

During mid-May the Breagh development drilling program utilizing the Ensco 70 rig commenced after a delay in receipt of the rig due to retention by the previous operator. The two previously suspended wells, 42/13-3 and 42/13-5Z, have been re-drilled as production wells A-01 and A-02 respectively, and both wells encountered better than expected reservoir sections. The A-01 well encountered 74 feet of net pay (16 feet more than the 42/13-3 well) and the A-02 well encountered 68 feet of net pay (20 feet more than 42/13-5Z well), according to the Company's evaluation. In addition, both wells encountered approximately 25 feet of net pay in reservoir Zone 3 which was not encountered in either of the original wells; subject to production performance this could lead to increased reserves in the field. The first new well is now being drilled following which all three of the first wells will be production tested and up to seven further wells will then be drilled for the development program, which may last until 2014. The first three wells are expected to be on-stream at first production.

Sanction of Phase 2 of the Breagh development will be made later in 2012. A decision as to the appropriate form of incremental development will be made following completion of a sub-surface study being conducted jointly by Sterling and RWE Dea UK, reflecting the results of reprocessed 3D seismic and better than expected results from the first two development wells.

In April an agreement was executed with TAQA for the sale of a 13.5 percent interest in the North Cladhan area (Blocks 210/29a and 210/30a) for an initial consideration of US$47 million. This initial consideration will be received in three installments: US$22.3 million upon completion of assignment, now expected around the end of this month; US$4.3 million to be paid upon the achievement of certain milestones likely to be attained by October 2012; and the balance as a carry of a portion of Sterling's Cladhan development expenditures up to US$53.6 million or a cash payment of up to US$20.4 million, or a combination of the two. A further payment of up to US$10 million could be received if, after first production, proven plus probable reserves are certified to be in the range of 30 to 45 million barrels for 100 percent of the field. A final field development program is expected to be submitted around the beginning of the fourth quarter of 2012 with approval expected early in 2013. It is planned that TAQA will assume operatorship later in 2012.

During April, the Company announced that the South Cladhan exploration well, 210-29c-5 did not encounter hydrocarbons and was subsequently plugged and abandoned. Pursuant to farm-out agreements the well was drilled at no cost to Sterling.

The Company has engaged a financial advisor to sell up to all of its remaining 26.4 percent interest in the Cladhan field in the UK North Sea. Subject to the receipt of suitable offers, it is the Company's intention to sign a definitive sale agreement and complete during the fourth quarter.

The Company announced in May that it had exchanged its 50 percent interest in the UKCS Block 16/3d (Cairngorm) for a 10 percent interest in the Netherlands F and L Quad licences held by Enquest PLC. The Cairngorm licence, which was awarded in the UK 26^th Offshore Licensing Round earlier this year, was not regarded as a core asset, and this transaction will further optimize Sterling's portfolio in the highly prospective F and L Quad licences in the Dutch North Sea.

Romania

In late May, Sterling's wholly owned subsidiary in Romania, Midia Resources SRL ("Midia"), obtained approval from the National Agency for Mineral Resources ("NAMR") for an interest in the 1,000 square kilometre Romanian Black Sea concession Block 25 (Luceafarul). Midia has obtained a 50 percent interest and is operator. Petro Ventures Europe BV holds the remaining 50 percent interest. Block 25 was one of a number of 10th Round offshore concessions awarded in June 2010 and subsequently ratified by the government in October 2011. This shallow water block, to the west of and adjacent to Sterling's Midia Block, contains an existing gas discovery and multiple exploration plays, has existing 2D seismic coverage and has been assessed by an independent reserves evaluator.

This procurement of an interest in Block 25 follows the announcement in mid-March of NAMR`s approval of Sterling`s procurement of a 40 percent interest in the 1,000 square kilometre Block 27 (Muridava) concession. This shallow water block is adjacent to the Pelican Block, in which Sterling currently holds a 65 percent interest, and contains multiple exploration plays, has existing 2D seismic coverage and contains an existing discovery well. The Muridava Block is a highly prospective block and shooting of 3D seismic over it is taking place this summer, with the intention to drill on the Block as early as 2013.   The procurement of interests in both Blocks 25 and 27 is consistent with the Company`s strategy in the Romanian Black Sea of continuing to build upon the existing offshore acreage to complement the existing interests in the Midia and Pelican Blocks.

The Company was pleased to note the commitment given by the Romanian government to liberalizing the gas sector in Romania in a letter to the International Monetary Fund ("IMF") dated June 8, 2012. The letter states that gas prices will be liberalized starting from the end of this year in order to converge to average European prices by the end of 2014 for the non-household sector (industrial), or the end of 2015 if a large gap remains between European gas prices and import prices, and by the end of 2018 for the household sector. As the non-household sector has represented approximately 70 to 75 percent of the total market in recent years, this schedule is very positive for the Ana and Doina gas developments, which are expected to come on stream in 2015/2016, as well as for the valuation of Sterling's extensive exploration acreage.

On July 10, 2012 the new power and gas law containing these provisions was passed by the Romanian government. The legislation enacts the gradual liberalization of gas prices as contained in the letter to the IMF, as well as providing for third party access to the Romanian transmission system. In Romania, the gas liberalization program allows for a more precise evaluation of our projects. We intend to reduce our high current equity interest to one that is more manageable going into 2013, in order to fund the development program and the exciting exploration campaign upon our highly prospective offshore blocks.

Sterling's exploration drilling operations will resume in September 2012 from the cantilever-type jack-up drilling rig "GSP Jupiter". The program calls for the drilling of the Ioana gas prospect in 91 metres water depth to target the Mid Pontian sandstone formation to a total anticipated depth of 1,600 metres. Following the drilling of Ioana, the rig will be remobilized north for the drilling of the Eugenia oil prospect in 55 metres water depth to target three formations in the Oligocene, Eocene and Late Cretaceous to a total anticipated depth of 2,300 metres. Success at Ioana could greatly enhance Sterling's goal to increase the size of the gas hub in the Midia block that already includes the Ana and Doina discoveries. Eugenia, on the other hand, represents the first exploration well to be drilled in the Pelican block.

Financing Activities

The Company has a senior secured credit facility (the "Credit Facility") for up to £105 million with a lending syndicate of four institutions to fund Phase 1 of the Breagh gas field. The Credit Facility comprises a main tranche of £95 million and a cost-overrun tranche of £10 million, with a term of six and a half years. Availability under both tranches is re-determined semi-annually and currently stands at approximately £80 million for the main tranche with the full amount of the cost-overrun tranche available. Utilization of the cost-overrun tranche requires a matching use of funds from the Company. The Credit Facility also requires the Company to maintain a minimum level of cash over a 12 month period, as demonstrated by forward-looking cash flow statements prepared at each quarter end. During the second quarter the Company announced that it had reached agreement with the lending syndicate to reduce this minimum cash requirement from £35 million to £20 million effective April 1, 2012 until project completion, £10 million of which is held as non-current restricted cash as it is expected that there will be no access to these funds for a year. The Company believes it is in compliance with the undertakings and obligations under the terms of the Credit Facility as at June 30, 2012.

Since June 30^th the additional costs and production delays at Breagh means that the Company now expects to fully draw upon both tranches of the Credit Facility. In order to fund all planned activities prior to the likely renegotiation of the Breagh Credit facility during the first quarter of 2013, a small portion of anticipated proceeds from the additional asset sales either of offshore Romania or of the remaining Cladhan interest will be required.

The Company has embarked upon a rationalization of assets in Romania and the United Kingdom. This process includes a portion of our interests in the Midia, Pelican and Luceafarul Blocks offshore Romania and all or part of the Company's remaining 26.4 percent interest in Cladhan. These planned divestments will raise cash for the Company's exploration, appraisal and development activities and, in the case of offshore Romania, a reduction in working interest from the current level of 65 percent in Midia and Pelican and 50 percent in Luceafarul will be more appropriate given the substantial exploration and development program planned for 2013 and beyond.

Sterling Resources Ltd. is a Canadian-listed international oil and gas company headquartered in Calgary, Alberta with assets in the United Kingdom, Romania, France and the Netherlands. The shares are listed and posted for trading on the TSX Venture Exchange under the symbol "SLG".

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Filer Profile No. 00002072

Forward-Looking Statements

All statements included in this press release that address activities, events or developments that Sterling expects, believes or anticipates will or may occur in the future are forward-looking statements. In addition, statements relating to reserves or resources are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves and resources described can be profitably produced in the future.

These forward-looking statements involve numerous assumptions made by Sterling based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. In addition, these statements involve substantial known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other-forward looking statements will prove inaccurate, certain of which are beyond Sterling's control, including: the impact of general economic conditions in the areas in which Sterling operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition there are risks and uncertainties associated with oil and gas operations. Readers should also carefully consider the matters discussed under the heading "Risk Factors" in the Company's Annual Information Form.

Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Sterling's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. These statements speak only as of the date of the press release. Sterling does not intend and does not assume any obligation to update these forward-looking statements except as required by law.

Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this press release should not be used for purposes other than for which it is disclosed herein.

For further information:
Visit http://www.sterling-resources.com or contact:
Mike Azancot, President and Chief Executive Officer, Phone: +44-20-3008-8488, Mobile: +44-7740-432883, [email protected]
David Blewden, Chief Financial Officer, Phone: +44-20-3008-8488, Mobile: +44-7771-740804, [email protected]
George Kesteven, Manager, Corporate and Investor Relations, Phone: +1(403)215-9265, Mobile: +1-(403)-519-3912, [email protected]
(SLG.)

SOURCE Sterling Resources Ltd.