ANNUAL REPORT AND ACCOUNTS 2009
HIGHLIGHTS
■ The Sangaw North 1 exploration well in Kurdistan
was spudded 1 February 2010 and drilling ahead to
test the prospectivity of the Cretaceous and Jurassic
reservoirs.
■ During 2009 Sterling issued new shares to raise
£81.3 million (net of expenses).
■ In December the Company consolidated 40 existing
ordinary shares into 1 new ordinary share; current
issued shares total 219.3 million.
■ The Company sold
its US business for a
consideration of $90.0 million.
■ Loss for the year of $202.5 million, includes $170.8
million from discontinued US business.
■ Sterling repaid all bank debt, is debt-free and had
cash resources of $113.9 million at 31 December
2009.
■ Current cash at 24 March 2010 was $110.6 million
(unaudited).
Sterling Energy Plc (“Sterling” or the “Company”) is an
upstream oil and gas Company listed on AIM in London.
Sterling is an experienced operator of international
licences with a current focus on projects in Africa and
the Middle East. Sterling has high potential projects in
Kurdistan, Madagascar and Cameroon.
CONTENTS
2009 Highlights
Chairman’s Statement
Operations Review
Reserves Report
Schedule of Interests
Financial Review
Corporate Social Responsibility
Board of Directors
Corporate Governance
Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditors’ Report
Consolidated Income Statement
1
2
4
11
12
13
17
18
20
24
30
34
35
37
Consolidated Statement of Comprehensive Income 38
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Statement of Comprehensive Expense
Company Balance Sheet
Company Statement of Changes in Equity
Company Cash Flow Statement
Notes to the Financial Statements
Definitions and Glossary of Terms
Professional Advisers
Annual General Meeting
39
40
41
42
43
44
44
45
79
82
83
STERLING ENERGY PLC
1
CHAIRMAN’S STATEMENT
Sterling has emerged from 2009 as a focused exploration Company with material interests in several potentially significant
projects. The 2010 work program is fully funded by a combination of carried interests and the Company’s own resources.
Furthermore the Company has no debt.
The most exciting news is that the planning that took place during 2009 has now culminated in the commencement of
drilling the Sangaw North exploration well in Kurdistan. The well spudded on 1 February 2010 and is drilling ahead at 223
m. Drilling operations for the two large diameter surface casing strings have been challenging. However these casing
strings are now cemented in place and the well is progressing to the next casing depth. An independent study of the
Cretaceous aged reservoirs concluded an unrisked best estimate of gross prospective resources totalling some 804 million
barrels of oil. A discovery of this magnitude would transform the value of the Company. Sterling has also identified more
prospective reservoirs in the deeper Jurassic and Triassic horizons.
It is reported that the Regional Government of Kurdistan and Federal Government of Iraq have indicated they wish to
resolve their different proposals for the payment mechanism for oil revenues arising from the sale of oil produced in
Kurdistan. We are optimistic both parties will help resolve the issues before we are ready to produce and export oil from
our own licence area.
For most of 2009 Sterling’s activities were constrained by the terms of the bank waivers agreed with the Company’s
lenders. At the start of 2009 the Company had significant borrowings that exceeded allowed levels, based on the
projected future cash flow expected from developing, producing and selling its hydrocarbon reserves. This situation arose
from the disappointing performance of Sterling’s US oil and gas business, further accentuated by a period of very weak
USA commodity pricing. Following a formal sale process that was undertaken over many months and involved many
interested parties, the Company sold the US business in December 2009 and used the proceeds to repay the entire
outstanding loan.
The Ntem licence, in Cameroon, remains in force majeure, the result of a border dispute between Cameroon and
Equatorial Guinea. We are optimistic that a resolution between the two countries will be reached; we shall then be able
to resume our exploration programme and work towards drilling our first exploration well. Sterling currently holds 100%
of the Ntem licence and we envisage we will seek to farm out part of this interest in exchange for our share of costs for
an exploration programme that includes at least the first exploration well.
In Madagascar the Company has interests in two projects, Ampasindava and Ambilobe. The current government, assumed
power after a coup in March 2009, but is not recognised by its African neighbours or by most world governments. It is
likely that Sterling, and Exxon as our partner in the Ampasindava block, will look for an improvement in the political
situation prior to embarking upon any significant expenditure on seismic acquisition or a drilling programme.
During 2009 our share of oil production from the Chinguetti field in Mauritania, including our royalty interest, totalled
330,926 barrels (2008: 373,971 barrels), an average daily rate of 906 bopd (2008: 1,025 bopd). The production capability
of the field continues to decline and Petronas, the operator of the field, is evaluating future options for the field which
may include abandonment earlier than previously planned.
Following a review of the Company’s smaller projects, and discussions with the various joint venture partners, the
Company is rationalising its portfolio of projects. Markmore, Sterling’s joint venture partner and operator of the Dome
Flore concession has withdrawn the application for a licence extension for the Dome Flore block located in an area
administered by AGC, a joint agency for Senegal and Guinea Bissau. The AGC has confirmed the termination of the
licence.
The joint venture partners in the Iris Marin block, located in Gabon, have unanimously approved the operator’s
recommendation to relinquish the licence under the production sharing contract when the licence expires in May 2010.
2
STERLING ENERGY PLC
CHAIRMAN’S STATEMENT – continued
Sterling, as operator of the technical evaluation agreement for the Ibekelia block located adjacent to the Iris Marin block
in Gabon, has recommended to the other partners to cease any further work towards a contract for the Ibekelia block.
Sterling’s withdrawal from AGC and Gabon will allow the Company’s technical personnel to focus on the more material
projects and the identification of new ventures.
In September, the Company successfully raised £60.9 million (net of expenses) from the placement of new shares with a
new cornerstone investor and several existing shareholders. Part of these new funds were used to repay $35 million of
the bank debt, a condition of granting a further 17 month waiver by the lenders. In December the Company completed
an open offer to all shareholders which, alongside a placing to several Directors and staff, raised a further £20.4 million
(net of expenses). The Company is now sufficiently funded to cover its share of the anticipated work program for 2010
and beyond.
Immediately following the issue of shares for the December open offer, all of the Company’s ordinary shares were
consolidated on the basis of 40 existing ordinary shares with a nominal value of 1 pence consolidated into 1 new ordinary
share with a nominal value of 40 pence.
FINANCIAL
The financial results for 2009 and the detailed commentary are located in their relevant sections. The results for the
financial period ending 31 December 2009 report certain losses arising from the impairment of assets, the disposal of the
US business and accounting adjustments. The reporting of large losses for a growing E&P Company that has effectively
undergone a financial and business re-structuring is not unusual and results in a good starting point for 2010 onwards.
The Directors do not recommend paying a dividend for 2009.
BOARD CHANGES
During the year Christopher Callaway, Harry Wilson, Peter Wilde and Graeme Thomson stepped down from the Board
and we thank them for the contributions that each has made during their tenure.
In September Keith Henry and I were appointed to the Board, joined shortly thereafter by Nicholas Clayton. The Board is
now comprised of three executive and three non-executive Directors, each bringing different expertise and experiences
that will assist the Company and its staff in delivering the success which we believe will create increased shareholder value.
OUTLOOK
For the immediate future, the drilling of the Sangaw North exploration well is our most significant project; the well is
expected to take 180 days to drill. A commercial discovery will have the potential to transform the Company.
Our exploration projects in Cameroon and Madagascar are expected to advance after their respective political situations
are resolved.
We have sufficient cash resources to more than cover our anticipated work program for 2010, as well as identify, and
hopefully secure, new ventures to create a more diverse exploration portfolio.
The Company has undergone major changes during 2009 and I believe has entered 2010 as a ‘fit for purpose’ E&P
Company with several exciting and material projects to advance. I would like to thank the staff and shareholders alike for
their patience during this period of change which I hope we shall capitalise on to create increased shareholder value.
Alastair Beardsall
Chairman
28 March 2010
STERLING ENERGY PLC
3
OPERATIONS REVIEW
KURDISTAN
Sangaw North PSC (WI 53.33% & Operator)
During 2009 preparations were made to drill the first exploration well on the Sangaw North block. Detailed well planning
and design along with the procurement of well services and goods were progressed in parallel with construction of the
well site. Heavy rain in the area during November and December delayed the completion of the civil works and drilling
commenced on 1 February 2010. The well is drilling ahead at 223m with drilling and preliminary evaluation expected to
take 180 days.
Drilling operations for both the 36” and 28” diameter near surface sections, to accommodate the 30” and 241⁄2” casing
now set at 41m and 223m respectively, have been challenging due to lost circulation zones and poor hole conditions.
Each section has required multiple drilling runs with a progressively larger drill bit to open the drilled section sufficiently
to accommodate the large casing sizes. The well design requires these larger than usual surface casing sizes to provide
flexibility when dealing with lost circulation or locally over-pressured zones where the running of an additional casing
string is the prudent choice.
The well is being drilled using the 2,000 horse-power Sakson PR-4 rig to a planned total depth of 3,660m targeting
several Cretaceous and Jurassic aged reservoirs. The well design gives the option to drill deeper to a total depth of
4,160m to test deeper Jurassic aged reservoirs. The decision to drill this additional section will be taken based upon the
preliminary drilling results.
Having completed the acquisition of 325km of 2D seismic data during 2008, a number of specialist processing
techniques were undertaken in order to achieve the best possible seismic image of the sub-surface structure. The
interpretation and mapping of this seismic data confirmed the presence of a very large subsurface structure, coincident
with the outcropping surface anticline. The integration of regional and locally acquired field geological data with the
results of the seismic interpretation have been combined to advance the Sangaw North lead to a drillable prospect.
The primary reservoir target is the Upper Cretaceous carbonates of the Shiranish, Kometan and Qamchuqa formations.
These intervals are proven, hydrocarbon bearing and productive in all directions including the Taq Taq and Chemchemal
fields. The presence of surface oil seeps on the Sangaw North structure, geochemically akin to the oil in adjacent fields
such as Kirkuk and Taq Taq, provides considerable encouragement for the presence of subsurface hydrocarbon
entrapment at Sangaw North. An independent report completed by RISC estimates best estimate gross prospective
resources for the Upper Cretaceous reservoir of 804 mmbbl with a 27% chance of success. RISC considers that
condensate and gas are at least as likely to be discovered as oil. Historical success rates for recent exploration wells drilled
in the Kurdistan region are around 50%.
Secondary reservoir potential is also being targeted in a number of Jurassic objectives. Underexplored due to the impact
of Tertiary overburden on drill depths, the Jurassic is the emerging play in the Zagros Fold Belt. The thin Tertiary cover
(i.e. thickness) on the Sangaw North structure and the drilling capacity of the rig being used make the Jurassic an
achievable deeper target.
Continued exploration success by other operators confirms the highly prospective nature of the Kurdistan region. In May
2009, Heritage reported an oil discovery at Miran West, 40km north of Sangaw North-1. Further north Gulf Keystone
reported an oil discovery at Shaikan in August 2009 in the same Cretaceous and Jurassic reservoirs being targeted by
the Sangaw North-1 well.
4
STERLING ENERGY PLC
OPERATIONS REVIEW – continued
CAMEROON
Ntem (WI 100% & Operator)
The Ntem concession area is a deepwater block situated in the southern Douala/Rio Muni Basin and lies adjacent to the
northern maritime border of the Rio Muni province of Equatorial Guinea. Water depths range from 400m to 2,000m
across the block. During the first term of the concession over 2,100km of 2D and 1,500km2 of 3D seismic data were
acquired, along with the purchase of additional seismic and gravity data.
Sterling’s financial obligations and work programme for the Ntem concession area are currently suspended under the
force majeure provisions of the licence owing to an overlapping maritime border claim between Cameroon and
Equatorial Guinea. However, both countries are actively working to resolve this issue and Sterling understands the border
dispute may be resolved soon.
This large block is undrilled and is well placed with respect to both Tertiary and Upper Cretaceous plays. Sterling is re-
evaluating the area in the light of recent Tertiary discoveries made by Noble Energy to the north of the Ntem block. Many
large leads and prospects have been identified following a detailed interpretation of the extensive 2D and 3D seismic
database. Recent seismic attribute analysis and inversion studies reveal the presence of large and widespread submarine
fans with good exploration potential. Sterling estimates that four of the Cretaceous prospects mapped so far have
un¬risked prospective resources of several hundred million barrels each. Sterling intends to farmout an interest in this
licence.
MADAGASCAR
Civil unrest in Madagascar culminated in a military backed coup in March 2009; political uncertainty has continued for
the remainder of the year.
Ampasindava (WI 30%)
The production sharing contract (PSC) for Ampasindava is in its third phase of the exploration period with a minimum
work commitment of one exploration well. ExxonMobil (WI 70%, operator) and Sterling are unwilling to commit to
drilling an exploration well on the Sifaka prospect until political stability has been established. It is unlikely that an
exploration well will commence drilling before 2011.
Ambilobe (WI 100% and Operator)
The PSC for Ambilobe is in its second phase of the exploration period. All work commitments have been fulfilled by
completing geological and geophysical studies and acquiring approximately 1,000km of 2D seismic. In March 2009,
ExxonMobil, who had farmed in to the PSC in July 2005 for a 70% working interest withdrew from the PSC and their
interest in the block reverted to Sterling. Following ExxonMobil’s withdrawal the duration of the second phase was
extended by 18 months to November 2010. Sterling is monitoring the political situation in Madagascar and will evaluate
the alternatives for progressing the exploration activities on Ambilobe.
GABON
Iris Marin (WI 32%)
The Iris Marin block is situated in the Southern Gabon Basin, adjacent to the Gamba and Ivinga producing oil fields and
the Olowi oil field development. The permit extends from the shoreline to a water depth of 60m. Sterling holds a 32%
WI in the PSC and Addax is the operator. All licence commitments have been fulfilled and the PSC expires in May 2010.
The operator has recommended that the PSC is relinquished when the current period expires and the partners have
unanimously supported the recommendation.
STERLING ENERGY PLC
5
Ibekelia (WI 40% & Operator)
Sterling and its partners have been negotiating to convert the Technical Evaluation Agreement for the Ibekelia block into
a PSC. However, following further studies that have identified limited prospectivity and the expectation that the Iris Marin
PSC will expire in May 2010. Sterling has recommended to its partners to cease the negotiations for a PSC.
MAURITANIA
Chinguetti (Economic Interest via Funding and Royalty Agreements)
No in-fill drilling or work-over activity took place on the Chinguetti field during the first half of 2009. Gross production
continued to decline over the first six months of 2009, from 16,500 bopd to 9,500 bopd prior to the planned FPSO
annual maintenance shutdown on 26 June. The decline was attributed to increasing water production in most wells. The
field performed better after returning to production on 1 July with a reduced decline rate. In November and December
subsea intervention work was carried out, gas lift was initiated in well C-20, and optimization of the process system was
undertaken. However the overall decline has continued and gross daily production at year end was around 9,200 bopd.
Sterling estimates that at the end of 2009 Chinguetti held a remaining 5.72 mmbbl of gross 2P reserves that could be
accessed with the existing wells. Technical work continues on the reservoir model to investigate the potential for a Phase
3 drilling campaign to access potential resources in 2010/11. However, given the current oil price forecasts, the Phase 3
programme may not be economic and Sterling believes the Chinguetti Field could be abandoned earlier than originally
planned.
During 2009, Sterling’s share of production averaged 906 bopd from its interests in the Chinguetti field through the
funding agreement and royalty interest. Sterling’s current share of Chinguetti production is approximately 715 bopd.
AGC (SENEGAL/GUINEA BISSAU)
Dome Flore (WI 30%)
Markmore, Sterling’s joint venture partner and operator of the Dome Flore concession, has withdrawn the application
for a licence extension for the Dome Flore block located in an area administered by AGC, a joint agency for Senegal and
Guinea Bissau. The AGC has confirmed the termination of the licence.
USA
In December 2009 Sterling disposed of its USA business as part of its strategy to re-focus on material exploration activity.
Andrew Grosse
Exploration and Technical Director
28 March 2010
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STERLING ENERGY PLC
OPERATIONS REVIEW – continued
KURDISTAN – SANGAW NORTH
The Sangaw North block lies approximately 140 km
PSC
south east of Erbil, the Capital of the Kurdistan region of
10 November 2007
Iraq. The block is located 50 km south west of
492 km2
Suleimaniah and 50 km southeast of the giant Kirkuk oil
Contract type
Contract signed
Contract area
Participants
Sterling (Operator)
KNOC
53.33%*
20%
Addax
*If the KRG’s back-in rights are fully exercised, then Sterling’s
working interest will reduce to 40%
26.67%
Exploration period expires
November 2012
1st Sub-period
2 years
– Minimum work commitment 200 km of 2D seismic
2nd Sub-period
3 years
field. It is on trend with both the Taq Taq oil discovery (90
km) and the Chemchemal gas and condensate discovery
(30 km).
The Sangaw North PSC was awarded for an initial five-
year term. The minimum work commitment for the 1st
sub-period (November 2007 to November 2010) of 200
km of 2D seismic has been fulfilled with the acquisition
of 325 km of 2D seismic acquired in 2008/09; Sterling is
currently drilling the Sangaw North – I exploration well
which, when completed will satisfy
the work
– Minimum work commitment drill 1 exploration well
commitment of the 2nd sub-period.
Summary of PSC terms
Royalty
Cost recovery (oil)
Profit share (oil)
Cost recovery (gas)
Profit share (gas)
Tax
10%
40% after royalty
30%-15% sliding scale
53% after royalty
40%-20% sliding scale
Paid from state share
of production
The block contains a large surface anticline, the sub-
surface structure of which has been mapped by Sterling
using 325 km of 2D seismic data that was acquired in
2008/09. Sterling has identified a large, multi-horizon
prospect and RISC has determined the best estimate
gross prospective resources in the Upper Cretaceous
reservoirs to be 804 mmbbl. Secondary reservoir
potential is also being targeted in a number of Jurassic
objectives.
STERLING ENERGY PLC
7
CAMEROON – NTEM
Contract type
Contract signed
Concession
14 March 2001
‘Accrued Investments’:
R< 1.5, APD= 0%;
Contract effective date
3 September 2002
1.52.5, APD= 20.0%.
Contract area
Participants
Sterling (Operator)
100%
Licence term remaining
In force majeure,
minimum work and
financial obligations are
suspended
Current work period
18 months to run after
the lifting of force
majeure
Minimum work commitment
Drill 1 exploration well
a) Production Bonuses
Average Production
Bonus
Rate
50,000 bopd
100,000 bopd
$1 Million
$5 Million
b) Proportional Royalty: Annual Production
State
Rate
Entitlement
0- 50,000 bopd
50-100,000 bopd
>100,000 bopd
4.0%
6.0%
10.0%
c) Corporation Tax
40% (on net profits)
d) Additional Petroleum Duty (APD), is calculated as a
percentage of the profit subject to corporation tax and
is paid in addition to the corporation tax. R factor is
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STERLING ENERGY PLC
e) State may back in for a 10% participating interest in
any development and production area.
The financial obligations and work programme for the
Ntem concession area (100% WI) are currently
suspended owing to overlapping maritime border
claims between Cameroon and Equatorial Guinea,
however both countries are actively working to resolve
this issue. Sterling is evaluating the area in the light of
recent Tertiary discoveries made by Noble Energy to the
north of the block. Sterling intends to farmout an
interest in this licence.
This large block is undrilled and is well placed with
respect to both Tertiary and Upper Cretaceous plays. As
a result, it is attracting a good level of industry interest.
Many large leads and prospects have been identified
following a detailed interpretation of the extensive 2D
and 3D seismic database. Recent seismic attribute
analysis and inversion studies on this dataset reveal the
presence of large and widespread submarine fans with
good exploration potential. Four of the Cretaceous
prospects mapped so far by Sterling have un-risked
prospective resources of several hundred million bbls
each based upon Company estimates.
OPERATIONS REVIEW – continued
MADAGASCAR
AMBILOBE
Contract Summary
Contract type
Contact signed
Sterling, as operator, has fulfilled the Phase 1 and Phase
PSC
2 work programme commitments by conducting G&G
15th July 2004
studies, acquiring approximately 1,000 km of new 2D
Effective start date
28th November 2004
seismic with TGS-Nopec and processing more than
17,650 km2
5,000 km of new and vintage 2D seismic data.
Contract area
Participants
Sterling (Operator)
Exploration term
Phase 2
100%
8 year period with
possible 2 year
extension
expires Nov 2010
Phase 2 work commitment
completed
Production term
25 year period with
possible 5-10 year
extension
In July 2005 Sterling farmed out a 70% interest in the
block to ExxonMobil. In May 2008, Phase 2 of the
exploration period was extended by 1 year. 550 km of
new 2D seismic data was purchased from TGS-Nopec
and CACP (controlled amplitude, controlled phase)
compliant reprocessing of more than 5500 km of 2D
data was undertaken to help identify potential
hydrocarbon bearing anomalies in the subsurface. A
number of large leads in Cretaceous and Tertiary plays
have been identified which will require additional
seismic data to evaluate as potential drillable prospects.
In early 2009 ExxonMobil withdrew from the PSC; the
ExxonMobil interest in the block reverted to Sterling.
Following ExxonMobil’s withdrawal, Phase 2 was
extended by 18 months to November 2010.
STERLING ENERGY PLC
9
AMPASINDAVA
Contract Summary
Contract type
Contact signed
The Sifaka Prospect is located in the inboard portion of
PSC
the Ampasindava block, in water depths of 500m to
15th July 2004
1,800m. Sifaka is mapped as a large structure with the
Effective start date
28th November 2004
main
reservoir
target,
Jurassic
deepwater,
Contract area
Participants
7,379 km2
turbiditesandstones, expected to be encountered at
approximately 3,400m below the seabed.
Exxon Mobil (Operator)
Sterling
70%
30%
Exploration term
8 year period with
Phase 3
possible 2 year
extension
expires Nov 2010
Phase 3 work commitment
1 exploration well
Production term
25 year period with
possible 5-10 year
extension
RISC (Competent Persons Report, March 2008) has
estimated the gross (100%) un-risked prospective
resources for the Sifaka prospect as follows:
Low Estimate
Best Estimate
High Estimate
150 million bbl
1.2 billion bbl
4.8 billion bbl
The drilling of the Sifaka prospect will be the first
exploration well to test the deepwater potential of
Sterling farmed out the block to ExxonMobil in July
Madagascar.
At
the beginning of 2010, Sterling estimate
ExxonMobil’s remaining carry is approximately $39
million towards the gross cost of drilling.
2005. Sterling, as operator, fulfilled the Phase 1 and
Phase 2 work programme commitments for the block by
completing G&G studies and acquiring more than 3,000
km of 2D seismic in 2006. Following acquisition,
processing and interpretation of the 2D seismic data
Sterling transfer operatorship to ExxonMobil at the end
of 2006.
In late 2007 the Sifaka prospect was selected as a
potential structure to drill and a site-survey was
undertaken. In November 2008 the joint venture
partners elected to enter Phase 3 of the exploration
period which has a firm well commitment.
10
STERLING ENERGY PLC
RESERVES REPORT
A. Volumes of proven plus
probable reserves
At 1st January
Asset Acquisitions
Asset Disposals
Revision – USA(1)
Revision – Chinguetti(2)
Production
At 31st December
B. Location of Reserves
North America
West Africa
C. Categorisation of Proven
and Probable reserves:
At the end of the year:
Proven reserves
Probable reserves
Proven
West Africa
North America
Probable
West Africa
North America
Notes:
–
(2,762)
(658)
(553)
(677)
340
–
340
340
100%
–
340
–
–
–
340
2009
Oil
(000 boe)
2009
Gas
(mcf)
2009
Reserves
(000 boe)
2008
Oil
(000 boe)
2008
Gas
(mcf)
2008
Reserves
(000 boe)
4,990
80,049
18,332
–
(67,328)
(7,607)
–
(5,114)
–
(13,983)
(1,927)
(553)
(1,529)
7,070
74
(2,313)
2,080
(1,201)
(720)
85,344
21,294
371
(592)
1,134
–
(6,208)
136
(2,412)
2,269
(1,201)
(1,754)
–
–
–
–
–
–
–
–
–
–
–
340
4,990
80,049
18,332
–
340
340
3,767
1,224
4,991
80,049
–
17,108
1,224
80,049
18,332
100%
–
340
–
–
–
340
69%
31%
756
2,687
468
1,080
4,991
57%
43%
–
45,504
–
34,545
60%
40%
756
10,271
468
6,838
80,049
18,332
1. North America: The reserves are based on evaluation reports prepared by independent petroleum engineers that assessed the
reserves as at 1 April 2009 and 1 April 2008. Adjustments have been made by the Directors to allow reporting for the assets at
the year-end and where, in their opinion, subsequent performance of assets, or further evaluation through drilling or work-overs,
or through the impact of changes in prices or costs, justifies adjustments.
2. West Africa: the reserves stated are for the Chinguetti field only and are based on Sterling’s own assessment of reserves, as at
31 December 2009. The assessment was made in accordance with the standards and definitions as set out on page 79.
3.
4.
Sterling has not booked reserves in West Africa relating to other Mauritanian discoveries, on the basis that there are no approved
development plans for these discoveries.
In accordance with the guidelines of the AIM Market of the London Stock Exchange, Andrew Grosse, B.Sc. (Hons) Geology &
Geophysics (1980), Exploration & Technical Director of Sterling Energy Plc, who has been involved in the oil industry for over
29 years, is the qualified person that has reviewed the assessment of reserves set out above.
STERLING ENERGY PLC
11
SCHEDULE OF INTERESTS
Africa
Mauritania
Location
Offshore
Offshore
Size
(km2)
Licence
Name
Sterling
Working
Interest % Interest %
Sterling
Net Revenue
Operated/
Non-operated
6,969
8,095
PSC A
PSC B
n.a
n.a
Sliding scale royalty over 3% Non-operated
Sliding scale royalty over 6% Non-operated
(except 5.28% of the
Chinguetti Field)
Chinguetti
Funding Agreement
n.a
With SMH
Economic interest for
Non-operated
approximately 8% of
Chinguetti project
Cameroon
Southern Douala Basin 2,319
Ntem
Gabon
Southern Gabon
Southern Gabon
673
607
Ibekelia (TEA)
Iris Marin
Madagascar Offshore NW
17,650
Ambilobe
Offshore NW
7,379
Ampasindava
100%
40%
32%
100%
30%(1)
Middle East
Iraq
Kurdistan
492
Sangaw North
53.33%(2)
1. Carried for defined $ amount
2. Carried for drilling costs for 1 exploration well
Operator
Operator
Non-operated
Operator
Non-operated
Operator
12
FINANCIAL REVIEW
SELECTED FINANCIAL DATA
USA production
Chinguetti production
Total production
Year-end 2P reserves
Revenue (continuing operations)
Revenue (discontinued operations)
EBITDA(1)
Loss after tax
Net cash investment in oil & gas assets
Year end cash (including partner funds)
Year end debt
Year end net cash/(debt)
Average realised oil price (net of hedges)
Average realised gas price (net of hedges)
Total cash operating costs per boe
Year end share price(2)
Share price growth (based on year end share price)
bopd
bopd
bopd
000 boe
$million
$million
$million
$million
$million
$million
$million
$million
$/bbl
$/mcf
$/boe
Pence
%
2009
3,587
906
4,493
340
22.7
50.2
10.0
(202.5)
31.7
113.9
–
113.9
62.02
5.93
16.06
155
63
2008
3,784
1,025
4,809
18,332
20.4
83.1
21.4
(156.8)
57.4
23.8
(119.3)
(95.5)
67.21
8.82
18.55
95
(81)
1.
EBITDA is calculated as earnings before interest, taxation, depreciation, amortisation, impairment and pre-licence expenditure on continuing
operations
2.
Adjusted for 40:1 share consolidation implemented in December 2009
HIGHLIGHTS
■ Net loss of $202.5 million in 2009 reflects pre-tax asset impairment charges of $94.1 million, offset by a deferred
tax credit of $24.0 million, and a loss on disposal of the US business of $118.8 million;
■ Sterling repaid $122.9 million of debt outstanding during the period and was debt free at the end of 2009;
■ Equity placings in September and December raised a total of £81.3 million ($133.3 million);
■ Cash balances at year-end were $113.9 million.
CONTINUING AND DISCONTINUED OPERATIONS
Following the disposal of the USA business on 2 December 2009, the Group’s income statement has been represented
for both 2009 and 2008 to show revenues and expenses from continuing operations only, with results from discontinued
operations condensed into a single line item at the foot of the income statement. An analysis of the income statement
showing both continuing and discontinued operations is presented in note 3.
REVENUE AND COST OF SALES
2009 production was 4,493 bopd, a decrease of 7% from the 4,809 bopd in 2008.
USA production decreased to 21.5 mmcfge/d (2008: 22.7 mmcfge/d). This was a result of natural production decline
rates and the deferral of capital expenditure ahead of the disposal. The USA business accounted for 80% of production
in 2009 (2008: 79%). Net Chinguetti field production for the year was equivalent to 906 bopd (2008: 1,025 bopd),
including royalty barrels.
13
Currently, all of the Group’s production is from the Chinguetti field and the Group’s net production is approximately
715 bopd.
2009 Group turnover from continuing operations was $22.7 million (2008: $20.4 million), this was primarily as result of
an increased average realised oil price from the Chinguetti liftings during the year, net of hedges (2009: $68.62 per bbl,
2008: $54.67 per bbl). Including discontinued operations, turnover decreased by 30% to $72.9 million, including hedge
settlement income of $16.9 million, compared to 2008 turnover of $103.6 million (after $16.0 million expense for
hedges). This decrease was a result of declining USA and Mauritanian production, US gas prices not recovering to the
same degree as oil prices, and approximately one month less contribution to revenue by the USA business due to its
disposal during the period.
OPERATING LOSS
The 2009 operating loss from continuing operations amounted to $18.0 million. The operating loss from both
continuing and discontinued operations amounted to $214.4 million (2008: loss $175.2 million) after pre-tax non-cash
impairment charges of $94.1 million and a pre-tax loss on the disposal of discontinued operations of $118.8 million. Due
to a deferred tax credit of $24.0 million relating to the impairment, the post-tax impairment charge was $70.1 million.
The total cost of sales from both continuing and discontinued operations decreased to $57.6 million (2008:
$87.0 million), reflecting a reduction in the depletion charge in the year to $33.5 million (2008: $53.9 million), and lower
operating costs. The decrease in depletion was as a result of the impairments to exploration, evaluation and property,
plant and equipment assets, and because the USA business was classified as a discontinued operation on 20 October
2009. Under IFRS 5 discontinued operations are not depleted whilst held for sale.
Chinguetti cost of sales was $13.5 million (2008: $27.0 million) averaging $40.79/bbl (2008: $73.14/bbl), of which
$25.11/bbl related to production costs and $15.68/bbl to depletion charges.
The $94.1 million (2008: $180.1 million) impairment charge was in recognition of poor field performance and a
continued weakness in US gas prices. This impairment comprises the following:
(i)
$17.9 million impairment of Chinguetti producing field, $0.8 million impairment of the Chinguetti royalty asset, and
$3.3 million impairment of the Gabon exploration and evaluation assets.
(ii) $72.1 million impairment of USA assets of which exploration and evaluation assets accounted for $69.9 million, and
$2.2 million was in relation to producing assets.
Pre-licence exploration costs of $0.5 million (2008: $2.7 million) were written off as required under IFRS.
Administrative costs for continuing operations and after capitalised costs and partner recharges fell by $1.5 million to
$4.7 million in 2009 (2008: $6.2 million). This was due to a reduction in the share-based payment expense and
favourable movements in the average £ to $ exchange rate during the year.
Total Group administrative expenses, including discontinued operations, increased by 8% to $15.5 million (2008:
$14.3 million). This included a one-off charge for USA staff severance payments of $2.6 million, and was after a non-
cash share option charge of $0.7 million (2008: $1.5 million). The non-cash share option charge has decreased compared
to the 2008 charge due a reduction in employees following the USA disposal during the year.
EBITDA AND NET LOSS
EBITDA for continuing operations totalled $10.0 million (2008: $21.4 million).
14
STERLING ENERGY PLC
FINANCIAL REVIEW – continued
Finance costs for continuing operations less interest revenue from cash deposits were a net expense of $13.6 million
(2008: $9.5 million). This reflects the interest cost, repayment of waiver fees and other costs associated with the Group’s
loans.
A deferred tax credit of $26.0 million arose in 2009 (2008: $27.9 million credit), including $24.0 million relating to
impairments which partly offset the USA impairment charge in the year.
Net loss after tax totalled $202.5 million (2008: $156.8 million loss) of which a net loss of $170.8 million was attributable
to discontinued operations. This net loss attributable to discontinued operations comprised a net loss on operations of
$52.0 million for 2009 and a loss of $118.8 million on disposal. The loss per share was US$2.10 per share (2008:
US$3.45 loss per share).
CASH FLOW
Cash inflow generated from operating activities was $33.9 million (2008: $56.7 million). Cash out-flow from continuing
operations was $4.5 million (2008: $22.0 million), cash flow generated from discontinued operations was $38.4 million
(2008: $34.7 million).
Net cash investments in oil and gas assets totalled $31.7 million (2008: $57.4 million) and primarily comprised
$22.3 million invested in the USA producing assets and $5.9 million in USA non-producing assets. The Group’s
exploration expenditure in Kurdistan is carried by Addax up to the point of testing the first well.
The Company repaid $122.9 million of debt during the period and was debt free at the end of 2009.
A net amount of £60.9 million was raised in September 2009 from an equity placing which strengthened the Company’s
balance sheet and secured the bank waiver. At the time of the placing, Sterling announced its intention to offer shares
at the placing price to all of its shareholders. Following publication of the prospectus and approval of shareholders at
the EGM, Sterling raised an additional net £20.4 million in December 2009.
BALANCE SHEET
At the end of 2009 non-current assets were $11.1 million (2008: $321.4 million). This decrease was primarily as a result
of the USA disposal and impairments during the year. Net current assets increased to $98.3 million (2008: net current
liabilities $16.2 million). During 2009 Sterling repaid $122.9 million of principal leaving the Group debt free with a net
cash position of $113.9 million at the year end. At the end of 2009, net assets stood at $88.1 million (2008:
$171.2 million).
The Group’s total decommissioning provision decreased during the year by $5.5 million to $21.0 million (2008:
$26.5 million). The Chinguetti decommissioning provision increased by $12.8 million. This was offset by the disposal of
the USA business and the decommissioning work undertaken in USA during the year. The costs of Chinguetti
decommissioning may exceed the value of reserves remaining and the Company may have to draw on funds from other
sources to satisfy such costs.
HEDGING
At the end of 2009 the Group did not have any oil and gas price derivatives in place.
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
STERLING ENERGY PLC
15
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.
Jonathan Cooper
Financial Director and Company Secretary
28 March 2010
16
STERLING ENERGY PLC
CORPORATE SOCIAL RESPONSIBILITY
Sterling is committed to conducting its business in a responsible and sustainable way. Sterling recognises that it has
corporate and social responsibilities to the local communities in the areas in which it operates, to its partners, to its
employees and to its shareholders. In pursuing its business objectives it undertakes not to compromise its corporate or
social responsibilities with any of these stakeholders.
BUSINESS INTEGRITY
The highest ethical standards are the cornerstone of Sterling’s business. Sterling is committed to conducting its business
with integrity, honesty and fairness. All business activities are reviewed to ensure it meets these standards. It also seeks
to ensure that standards are applied by its business partners, contractors and suppliers. All members of staff are
individually accountable for their actions to ensure they apply and maintain these standards.
Sterling is a member of TRACE International Inc., the anti bribery association. Several of the Directors have completed
the TRACE training and assessment.
COMMUNITY RESPONSIBILITY
Sterling is committed to being a good partner in the communities in which the Company operates. Engagement and
dialogue with our local communities is essential in ensuring, where possible, projects benefit both the Company and the
communities in which the project is located. During the year Sterling continued to hire additional local staff for both its
Suleimaniah office in Kurdistan and its drilling operations on the Sangaw North block.
EMPLOYEES
Sterling is committed to providing a workplace free of discrimination where all employees are afforded equal
opportunities and are rewarded upon merit and ability. In the implementation of this policy Sterling is committed to
ensuring that all employees are given contracts with clear and fair terms. Staff are offered access to relevant training and
encouraged to join professional bodies to enhance knowledge, competence and career development.
Sterling is committed to achieving the highest possible standards of conduct, accountability and propriety and to a
culture of openness in which employees can report legitimate concerns without fear of penalty or punishment. Sterling
has a whistle blowing policy which empowers employees to be proactive, to stop or report any failure to comply with
legal obligations or Sterling’s regulations, dangers to health and safety, financial malpractice, damage to the
environment, criminal offences and actions which are likely to harm the reputation of the Company. The whistle blowing
policy allows employees to make anonymous reports directly to a non-executive Director.
HEALTH, SAFETY, ENVIRONMENT AND SECURITY (‘HSES‘)
It is an objective of Sterling that every individual is aware of his/her responsibility towards providing for a safe and secure
working environment. HSES and social responsibility leadership are core competencies throughout Sterling’s line
management organisation. Sterling’s HSES risks are managed in a systematic way by utilising procedures and appropriate
training of staff, with the aim to reduce these risks to as low as is reasonably practical. Sterling will ensure that
appropriate emergency response systems are in place to reduce and mitigate the impact and losses of any incident and
any residual risks and that it is in compliance with all relevant laws, regulations and industry standards. Sterling maximises
its influence with joint venture partners to share its HSES and social responsibility values. Contractors are required to
demonstrate and deliver a credible HSES and social responsibility programme. In order to achieve continual improvement,
Sterling is committed to reviewing its HSES and social responsibility performance each quarter.
Sterling is committed to minimising its impact on the environment in both field operations and within its offices. All staff
share responsibility for monitoring and improving the performance of its environmental policies with the objective of
reducing our impact on the environment on a year on year basis.
STERLING ENERGY PLC
17
BOARD OF DIRECTORS
Alastair Beardsall, executive Chairman, aged 56
Alastair joined Sterling in September 2009. He has been involved in the oil industry for 30 years. For the first 12 years
Alastair worked on international assignments with Schlumberger, the oil-field services Company. From 1992 he began
working for independent exploration and production operators, with increasing responsibility for specific exploration,
development and production ventures.
Between September 2003 and October 2009, Alastair was executive Chairman of Emerald Energy plc during which time
Emerald grew from a market capitalisation of less than £8 million to a size that allowed the Company to enter the FTSE
250 index in January 2009. In October 2009 Emerald was acquired by Sinochem Resources UK Limited for £7.50 per
share in a transaction that valued Emerald Energy at £532 million.
Andrew Grosse, Exploration and Technical Director, aged 51
Andrew joined Sterling in 2002 as the Company’s Exploration Manager, and was appointed as a Director in January
2005. He has extensive international exploration experience with operating oil companies in Africa, the Middle East and
North America.
Prior to joining Sterling, he was British Borneo’s Exploration Manager for the Gulf of Mexico and then for International
New Ventures. He began his career with Gulf Oil in Canada, and has also worked with BP Exploration and Ultramar
Exploration.
Jonathan Cooper, Financial Director and Company Secretary, aged 41
Jonathan joined Sterling as Finance Director in February 2008. He is an experienced finance professional with advisory
experience in the oil and gas industry.
Jonathan began his career with KPMG where he qualified as a Chartered Accountant, and in 1997 joined Dresdner
Kleinwort Wasserstein where he worked as a Director in the Oil and Gas Corporate Finance Team. During this time he
worked on mergers and acquisitions, public offerings and as strategic adviser to a wide range of companies including
Gazprom, Lukoil, OMV, PKN Orlen, Unocal, Petronas and Harvest Natural Resources. Prior to joining Sterling, Jonathan
spent two years working as Finance Director at Gulf Keystone Petroleum.
Richard Stabbins, non-executive Director, aged 66
Dick joined Sterling as a non-executive Director in January 2007 and was non-executive Chairman from July 2007 to
September 2009. He chairs the Nominations Committee and is a member of the Audit and Remuneration Committees.
He is a geologist with more than 40 years of experience in the international energy industry, mainly in the independent
sector. He has worked for the Saskatchewan (Canada) Department of Mineral Resources (1969-72), for Murphy Oil
(1972-75) and for Ranger Oil (1975-81). He was Exploration Manager and subsequently Exploration Director of Goal
Petroleum plc from 1981 until 1996.
From July 2000 until its acquisition by Sterling, he was a non-executive Director of Fusion Oil & Gas Plc. Dick currently
manages a private Company, Montrose Industries Ltd, which has interests in a wide range of energy projects. He is a
former Chairman (1990) and is an Honorary Member of the Petroleum Exploration Society of Great Britain, and a Council
Member (2000-2003) of the Geological Society of London, whose Audit Committee he chairs.
Nicholas Clayton, non-executive Director, aged 46
Nicholas was appointed a non-executive Director of Sterling in October 2009. Nicholas is chairman of the Audit
Committee and a member of the Remuneration and Nomination Committees.
18
STERLING ENERGY PLC
BOARD OF DIRECTORS – continued
Nicholas has provided strategic and corporate finance advice to a number of public and private oil and gas companies
since January 2007. Between August 2005 and December 2006 he was Global Co-Head of Oil and Gas Corporate
Finance for Canaccord Adams. For the previous 5 years he held the position of Global Head of Oil and Gas Corporate
Finance for Dresdner Kleinwort Benson, the investment bank, having previously been Global Head of Oil and Gas
Research between 1997 and 2000. Nicholas began his career at BP having obtained a first class honours degree in
Business Studies, sponsored by BP, from Portsmouth Polytechnic in 1985.
He is currently a non-executive Director of Artumas Group Inc, an international oil Company listed on the Oslo Stock
Exchange, and of Bridge Resources Corp., a Canadian listed Company with operations in the North Sea and North
America. Nicholas also provides strategic advice to Geopark, an AIM-listed Company operating in Chile and Argentina.
Keith Henry, non-executive Director, aged 65
Keith was appointed a non-executive Director of Sterling in September 2009. He chairs the Remuneration Committee
and is a member of the Audit and Nominations Committees.
He has over 35 years of international business experience in the development, ownership, design and construction of
major facilities worldwide. He was with Brown & Root Limited for 23 years, the last five of which were as Chief Executive
responsible for the Europe, Africa and FSU regions. From 1995 to 1999 he was Chief Executive of National Power Plc,
and then Chief Executive of Kvaerner Engineering and Construction Ltd until June 2003.
Keith serves as Chairman of Regal Petroleum plc and Helius Energy plc, as well as serving as a non-executive Director
and advisor to a number of companies in the engineering, services and energy sectors. He is a Fellow of the Royal
Academy of Engineering.
STERLING ENERGY PLC
19
CORPORATE GOVERNANCE
APPLICATION OF COMBINED CODE PRINCIPLES
The Directors are mindful of their duties and responsibilities to all Shareholders and of their statutory duties under the
2006 Companies Act, the core duty of which is to act in good faith and in a way most likely to promote the success of
the Company for the benefit of its members as a whole. As an AIM listed company, the Company is not required to
comply with the Combined Code, however, the Directors are committed to maintaining the highest standards of
corporate governance. This statement describes how the Company has applied the main and supporting principles of
corporate governance set out in the Combined Code published by the Financial Reporting Council in June 2008.
The Company has complied with the provisions set out in Section 1 of the Combined Code with the exception of the
matters referred to below.
Provision A.2.1
Following the resignation of Graeme Thomson as CEO in December 2009, Alastair Beardsall has
undertaken the roles and responsibilities of both CEO and Chairman. The Board of Sterling recognises
that the current structure is not compliant with article A.2.1 of the Combined Code. The Board
believes that appropriate challenge exists within the three members of the executive management,
and the appointment of three senior and experienced non-executive directors ensures the Board’s
independence is maintained. The composition of both the executive management and the Board is
reviewed periodically and as the level of activity at Sterling increases the Board will ensure the
Company implements the changes to fully comply with provision A.2.1 of the Combined Code at the
appropriate time.
Provision B.1.3 Non-executive Directors have been awarded share options. The awards of these options was approved
in advance at the December 2009 extraordinary general meeting. Shares acquired by the exercise of
options are not required to be held for at least one year after the non-executive Director leaves the
Board as required under the Code. Notwithstanding the foregoing, the Board considers each of the
non-executive Directors to be independent.
Provision A.6
Currently the Board does not undertake formal evaluation of its own performance and that of its
Committees and individual Directors. The Board will introduce a formal evaluation process in 2010.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board Composition, Operation and Independence
The Board currently comprises the executive Chairman, two executive Directors and three non-executive Directors. Each
of the executive Directors has extensive knowledge of the oil and gas industry combined with general business skills. All
of the Directors bring independent judgment to bear on issues of strategy, performance, resources, key appointments
and standards. The Board meets regularly throughout the year and all the necessary information is supplied to the
Directors on a timely basis to enable them to discharge their duties effectively.
20
STERLING ENERGY PLC
CORPORATE GOVERNANCE – continued
Meetings and Attendance
The following table summarises the number of Board and committee meetings held during the year and the attendance
record of the individual Directors:
Board
Meetings
Audit
Committee
Remuneration
Committee
Nominations
Committee
Number Meetings in year
Alastair Beardsall (appointed 8 September 2009)
Chris Callaway (resigned 1 May 2009)
Nicholas Clayton (appointed 1 October 2009)
Jonathan Cooper
Andrew Grosse
Keith Henry (appointed 8 September 2009)
Graeme Thomson (resigned 22 December 2009)
Richard Stabbins
Peter Wilde (resigned 1 October 2009)
Harry Wilson (resigned 30 June 2009)
*Denotes attendence by invitation
20
5
3
4
20
19
5
18
20
16
12
2
1*
0
0
2*
2*
1
2*
2
2
1*
7
6*
0
4
0
0
5
0
7
3
0
1
0
0
0
0
0
1
0
1
1
0
During 2009 the Board met twenty times, this unusual number of meetings is attributable to discussions on bank waivers,
corporate restructuring, fundraising, and the sale of the USA business. The Directors have access to independent
professional advice, at the Group’s expense, if and when required. There is a formal schedule of matters reserved for
consideration by the Board and certain matters are delegated to committees of the Board.
Keith Henry is the Senior Independent Director. The Senior Independent Director is available to Shareholders if they have
concerns which, through the normal channels of contact with the Chairman or Finance Director have not been resolved
or for which such contact is inappropriate.
The Board is responsible to Shareholders for the proper management of the Company. A Statement of Directors
Responsibilities in respect of the financial statements is set out on page 34.
The Company’s Articles of association require that any Director who has been a Director at the preceding two annual
general meetings and who was not appointed or re-appointed by the Company, retire and stand for re-election. All new
Directors appointed since the previous annual general meeting need to stand for election at the following annual general
meeting.
Non-executive Directors have been issued with share options, under the NED LTIP. These awards were approved on
22 December 2009 in advance of the awards being made. In the opinion of the Board this aligns the objectives of the
non-executive Directors with those of Shareholders. The NED LTIP is not subject to performance conditions for
independence reasons.
The Company maintains Directors’ and Officers’ Liability insurance cover, the level of which is reviewed annually.
SUB-COMMITTEES
The Board has appointed the following sub-committees:
STERLING ENERGY PLC
21
Audit Committee
This Committee currently comprises Richard Stabbins, Nicholas Clayton and Keith Henry, under the Chairmanship of
Nicholas Clayton. It reviews the interim and annual financial statements, internal control matters and the scope and
effectiveness of the external audit. The external auditors have unrestricted access to the Chairman of the Audit
Committee. Audit Committee meetings are also attended by the external auditor where appropriate and, by invitation,
the Chairman, Finance Director and Exploration and Technical Director.
Audit Committee Report for 2009
The Audit Committee met twice during the year. During these meetings the Audit Committee considered the following:
•
•
•
•
the integrity of the financial statements and other formal announcements relating to the Group’s financial
performance and, in particular, reviewed the judgments that are contained within the financial statements;
the Group’s internal control and risk management policies and systems, and their effectiveness;
Sterling’s Whistle Blowing procedures to ensure that its employees are able to raise concerns, in confidence, about
possible wrongdoing in financial reporting and other matters;
the requirements for an internal audit function in the context of the Group’s overall risk management system. The
Committee is satisfied that the Group does not currently require an internal audit function, however, it will continue
to monitor the situation;
•
the relationship with the external auditor, in particular satisfying itself as to the independence of the external
auditor. Following an assessment of the quality of the service provided, auditor independence and the effectiveness
of the audit process, the Committee recommended that the Board presents the resolution to the shareholders at
the 2010 AGM to reappoint Deloitte LLP as external auditors; and
• monitoring a policy on the engagement of the external auditors to supply non-audit services, taking into account
relevant guidance regarding the provision of non-audit services by the external audit firm.
Nominations Committee
The members of this Committee are currently Richard Stabbins, Nicholas Clayton and Keith Henry under the
Chairmanship of Richard Stabbins. The Nominations Committee considers the composition of the Board and makes
recommendations on the appointment of new Directors.
Nominations Committee Report for 2009
The Nomination Committee met once during the year. During 2009, there were significant changes to the Sterling Board
and as a result much of the work that would have been undertaken and considered by the Nominations Committee was
undertaken and considered by the wider Board.
Nicholas Clayton and Keith Henry offer themselves for election at the AGM following their appointments 1 October 2009
and 8 September 2009 respectively. Richard Stabbins is retiring by rotation and offers himself for re-election. Their
biographical details, provided on pages 18 to 19, demonstrate the range of experience and skills which each brings to
Sterling. The Board considers that their performance continues to be effective and that each Director has the necessary
commitment to fulfil their respective roles.
Remuneration Committee
The members of the Committee are Keith Henry, Richard Stabbins, and Nicholas Clayton, under the Chairmanship of
Keith Henry.
Further details on the roles and responsibilities of the Remuneration Committee are described in greater detail in the
Report on Directors’ Remuneration, set out in pages 24 to 29.
22
STERLING ENERGY PLC
CORPORATE GOVERNANCE – continued
COMMUNICATIONS WITH SHAREHOLDERS
The Board is accountable to the Company’s Shareholders and as such it is important for the Board to appreciate the
aspirations of the shareholders and equally that the shareholders understand how the actions of the Board and short-
term financial performance relate to the achievement of the Company’s longer term goals.
The Board reports to the shareholders on its stewardship of the Company through the publication of interim and final
results each year. Press releases are issued throughout the year and the Company maintains a website
(www.sterlingenergyplc.com) on which press releases, corporate presentations and the annual report and accounts are
available to view. Additionally this annual report contains extensive information about the Company’s activities. Enquiries
from individual shareholders on matters relating to the business of the Company are welcomed. Shareholders and other
interested parties can subscribe to receive notification of news updates and other documents from the Company via
email. In addition the executive Directors meet with major shareholders to discuss the progress of the Company.
The executive Chairman provides periodic feedback to the Board following meetings with shareholders. The Senior
Independent Director also attends some shareholder meetings to ensure the Board is appraised of all feedback provided
by such meetings.
The annual general meeting provides an opportunity for communication with all Shareholders and the Board encourages
the Shareholders to attend and welcomes their participation. The Directors attend the annual general meeting and are
available to answer questions. Details of resolutions to be proposed at the annual general meeting to be held on 7 May
2010 can be found in the notice of the meeting, on pages 83 to 87.
INTERNAL CONTROLS
In September 1999 the Turnbull Guidance (Internal Control: Guidance for Directors on the Combined Code) was
published.
The Directors acknowledge their responsibility for establishing and maintaining the Group’s and the Company’s systems
of internal control. These are designed to safeguard the assets of the Group and to ensure the reliability of financial
information for both internal use and external publication.
The Group’s internal control procedures include Board approval for all significant projects. All major expenditures require
either senior management or Board approval at the appropriate stages of each transaction. A system of regular reporting
covering both technical progress of projects and the state of the Group’s financial affairs provides appropriate
information to management to facilitate control. The Board reviews identifies, evaluates and manages the significant
risks that face the Group.
Any systems of internal control can only provide reasonable, and not absolute, assurance that material financial
irregularities will be detected or that the risk of failure to achieve business objectives is eliminated. The Directors, having
reviewed the effectiveness of the system of internal financial, operational and compliance controls and risk management,
consider that the system of internal control operated effectively throughout the financial year and up to the date the
financial statements were signed.
CONFLICTS OF INTEREST
The Company has in place procedures for the disclosure and review of any conflicts, or potential conflicts of interest
which the Directors may have and for the authorization of such conflicts by the Board. In deciding whether to authorize
a conflict matter or a potential conflict the Directors must have regard to their general duties under the Companies Act
2006.
STERLING ENERGY PLC
23
REMUNERATION REPORT
REMUNERATION COMMITTEE
The Remuneration Committee is comprised of Keith Henry, Richard Stabbins and Nicholas Clayton. Keith Henry is the
Chairman of the Remuneration Committee. The Committee makes recommendations to the Board, within its agreed
terms of reference, on the structure and overall remuneration package for executive Directors and reviews the
remuneration for other senior employees. Non- executive Directors’ fees are considered and agreed by the Board.
The Remuneration Committee is permitted to appoint independent advisors to assist in the determination of level of
remuneration. During 2009 the Remuneration Committee appointed independent advisors to assist in the preparation
of the Company’s long term incentive programs for the staff and non-executive Directors.
REMUNERATION POLICY
The Company’s policy on Directors’ remuneration is that the overall remuneration package should be sufficiently
competitive to attract, retain and motivate high quality executives capable of achieving the Group’s objectives and
thereby enhancing shareholder value. The package consists of salary, performance related bonus and share options
awarded under the Staff Long Term Incentive Plan, with the balance between these components being salaries at levels
around the middle of the range of salaries for peer companies and material additional remuneration resulting from
performance adding materially to shareholder value. Sterling acknowledges the benefit of the executive Directors
accepting appointments as non-executive Directors of other companies; if they accept more than two such appointments
they are required to pass their fees for those appointments to the Company. The details of individual components of the
executive remuneration package and service contracts are discussed below:
Basic Salary and Benefits: The salary and benefits are reviewed annually. Currently the Remuneration Committee uses
remuneration data collected from published accounts and surveys of peer companies and does not use executive
remuneration consultants. The Committee reviews this method on a regular basis.
Performance Related Bonuses: Performance bonuses are awarded to executive Directors by the Board, upon
recommendations by the Remuneration Committee. Prior to each year the Remuneration Committee considers the levels
of potential bonus payments and the corresponding set of objectives for which bonuses may be payable. At the end of
each year the Remuneration Committee considers if the objectives have been achieved as well as individual contribution
to the performance of the Group. The maximum level of performance bonus is capped as a percentage of annual salary.
Long Term Incentive Plans: During 2009 the Company reviewed the existing share based incentive schemes currently
in place to motivate and incentivise its employees, and also took independent advice. Based on this review the Company
proposed a new All Staff Long Term Incentive Plan as being the most effective way to deliver the incentives that the
Board believes will continue to align the interests of the employees and shareholders. Shareholders approved this plan
at the December EGM held on 22 December 2009.
With effect from 2009, awards are made in the form of options to acquire shares in the Company at the shares' nominal
value. The All Staff LTIP is designed as a three year plan and the Company intends to grant annual awards in October
each year based on the recommendations of the Remuneration Committee. It is proposed that the awards will only be
earned subject to achieving performance conditions measured over the twelve month period following the grant (see
note 27). Awards earned will not normally vest and be exercisable for a further 2 years and vesting will be conditional
upon the recipient of the award remaining an employee of the Company. Although awards under the All Staff LTIP
would normally be granted in October of each year, for 2009 the awards were made immediately after the EGM that
approved the 2009 All Staff LTIP and were based upon the criteria that would have been used had the awards been
made in October.
24
STERLING ENERGY PLC
REMUNERATION REPORT – continued
Awards are made on similar terms to non-executive Directors of the Company, under a separate plan the NED LTIP.
Awards under the NED LTIP are made by the Board and are not be subject to performance conditions for independence
reasons.
Pensions: The Group operates a number of defined contribution pension schemes pursuant to which it contributes 10%
percent of pensionable salary per eligible member.
Fees: The fees for non-executive Directors are determined by the Board within the limits stipulated in the Articles of
Association. The non-executive Directors are not involved in any discussions or decision about their own remuneration.
In the reported period, a revision was made to the level of fees and all non-executive Directors now receive fees of
£30,000 per annum (2008: £34,500- £54,000).
SERVICE CONTRACTS
Each of the executive Directors has a service contract with the Company, details of which are as follows:
Director
Commencement
of appointment
Date of current
contract
Base annual
salary
Notice
period
Production
Royalty entitlement **
Alastair Beardsall *
8 September 2009
8 September 2009
£220,000
12 months
Jonathan Cooper
4 February 2008
1 October 2009
£190,000
12 months
Andrew Grosse
11 February 2002
1 October 2009
£220,000
12 months
Graeme Thomson ***
18 October 2002
18 October 2002
£345,159
12 months
Harry Wilson ****
1 January 2003
1 January 2003
£346,000
12 months
–
–
£98,438
£356,250
£393,750
* Contracted to devote 80% of his working time to the business of Sterling Energy Plc.
** All future entitlements under the scheme for the Directors were settled in full during 2009.
***Resigned as a Director on the 22 December 2009, employment contract terminates 15 April 2010.
****Resigned as a Director 30 June 2009, employment contract expired on 28 August 2009.
The salaries paid to the Directors are reviewed annually with the most recent salary review being implemented on
1 October 2009. Save for the annual salary review disclosed above, the new service contracts entered into by the
Company with the executive Directors on 8 September 2009 and 1 October 2009 are on substantially the same terms
as the previous form of service contracts.
Non-executive Directors do not have service contracts, but instead each has a letter of appointment setting out the terms
and conditions of his appointment, details of which are as follows:
Director
Nicholas Clayton
Keith Henry
Richard Stabbins
Commencement
of appointment
Date of
current contract
1 October 2009
1 October 2009
8 September 2009
8 September 2009
19 January 2007
8 September 2009
Base fees
per annum
£30,000
£30,000
£30,000
Save for the fees outlined above and the share options awarded under the NED LTIP, the non- executive Directors are
not entitled to any other benefits or arrangements.
Except as disclosed above, there are no service contracts or letters of appointment in force between any Director with
the Company or the Group as at the date of this document.
STERLING ENERGY PLC
25
The Company has granted an indemnity to its Directors (including subsidiary undertakings) under which the Company
will, to the maximum extent possible, indemnify them against all costs, charges, losses and liabilities incurred by them in
the performance of their duties.
The Company provides limited Directors’ and officers’ liability insurance, at a cost of approximately $98,000 in 2009
(2008 – $103,000).
DIRECTORS AND THEIR INTERESTS
Directors’ Remuneration and Share Options
Aggregate remuneration (audited)
Fees and
basic salary
£
Compensation
for loss
of office
£
53,026
202,450
–
240,940
339,409
–
–
–
–
–
254,119
33,150
11,500
7,500
9,462
46,846
34,500
–
–
–
–
–
Bonus
£
13,250
23,750
–
27,500
–
–
–
–
–
–
–
Production*
Royalty
Entitlement
£
Defined
contribution
pension
£
Benefits
in kind
£
Total
2009
£
Total
2008
£
–
–
–
98,438
356,250
5,303
850
72,429
–
27,993
–
33,391
50,911
3,388
–
4,327
4,433
257,581
–
404,596
751,003
213,101
184,982
347,229
510,185
393,750
38,925
2,135
722,079
542,837
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,500
34,500
7,500
9,462
46,846
34,500
–
–
54,000
34,500
1,199,752
33,150
64,500
848,438
156,523
15,133
2,317,496
–
1,314,166
40,000
120,000
239,063
177,983
30,123
–
1,921,335
Executive Directors
Alastair Beardsall
(appointed 8 September 2009)
Jonathan Cooper
Paul Griggs
(resigned 23 April 2008)
Andrew Grosse
Graeme Thomson
(resigned 22 December 2009)
Harry Wilson
(resigned 30 June 2009)
Non- Executive Directors
Chris Callaway
(resigned 1 May 2009)
Nicholas Clayton
(appointed 1 October 2009)
Keith Henry
(appointed 8 September 2009)
Richard Stabbins
Peter Wilde
(resigned 1 October 2009)
Aggregate
remuneration 2009
Aggregate
remuneration 2008
* Production royalty entitlement replaced the production royalty bonus scheme.
All future entitlements under the scheme for the Directors were settled in full during 2009.
26
STERLING ENERGY PLC
REMUNERATION REPORT – continued
Share Options (audited)
Details of options to acquire ordinary shares in the Company under the scheme approved in 2001 are as follows. The
exercise price is shown in pence as this is the price at which the options are denominated under the scheme:
The number of options and exercise prices has been adjusted to reflect the 40:1 share consolidation that was
implemented in December 2009.
Andrew Grosse
Graeme Thomson
Peter Wilde
Harry Wilson
Total
1st January
2009
Granted
31st December
2009
37,500
37,500
12,500
37,500
125,000
17,500
107,500
42,500
31,250
25,000
223,750
6,250
31,250
37,500
17,500
107,500
72,500
43,750
37,500
278,750
665,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,500
37,500
12,500
37,500
125,000
17,500
107,500
42,500
31,250
25,000
223,750
6,250
31,250
37,500
17,500
107,500
72,500
43,750
37,500
278,750
665,000
Exercise
price
160p
500p
680p
960p
160p
160p
280p
680p
960p
Exercise period
Up to 18/10/2012
Up to 09/03/2014
Up to 28/01/2015
Up to 29/06/2016
Up to 24/07/2011
Up to 18/10/2012
Up to 18/01/2013
Up to 15/04/2011
Up to 15/04/2011
160p
160p
Up to 24/07/2011
Up to 18/10/2012
160p
160p
280p
680p
960p
Up to 24/07/2011
Up to 18/10/2012
Up to 18/01/2013
Up to 28/08/2010
Up to 28/08/2010
STERLING ENERGY PLC
27
Share Options Lapsed During the Year (audited)
The number of options and exercise prices has been adjusted to reflect the 40:1 share consolidation that was
implemented in December 2009.
Year Awarded
Chris Callaway
2006
2006
Total
Peter Wilde
2005
2006
Total
Richard Stabbins
2007
2007
Total
1st January
2009
Lapsed
31st December
2009
Exercise
price
Exercise period
25,000
5,000
(25,000)
(5,000)
30,000
(30,000)
12,500
5,000
(12,500)
(5,000)
17,500
(17,500)
25,000
25,000
(25,000)
(25,000)
50,000
(50,000)
900p
960p
Up to 14/02/2014
Up to 29/06/2016
680p
960p
Up to 31/01/2015
Up to 29/06/2016
640p
580p
Up to 19/01/2017
Up to 24/07/2017
–
–
–
–
–
–
–
–
–
Directors’ interests in Sterling Save As You Earn Option Scheme ('SAYE') (audited)
The Directors’ interests in the SAYE scheme set up in 2007 are as follows:
Jonathan Cooper
Andrew Grosse
Graeme Thomson
Harry Wilson
1st January
2009
Cancelled
in year
31st December
2009
Option
price
Earliest
exercise date
Latest
exercise date
10,101
10,101
10,101
10,101
–
–
–
10,101
10,101
10,101
95.04p
01/12/2011
01/06/2012
95.04p
01/12/2011
01/06/2012
95.04p
01/12/2011
01/06/2012
(10,101)
–
95.04p
–
–
40,404
(10,101)
30,303
Directors’ interests in the Sterling 2007 Long Term Incentive Plan ('LTIP') (audited)
The Directors’ interests in the 2007 LTIP are as follows:
The number of options and exercise price has been adjusted to reflect the 40:1 share consolidation that was
implemented in December 2009.
Forfeited
Granted
Excercised
31st December
2009
Excerise
price
Earliest
exercise date
Latest
exercise date
Chris Callaway
Jonathan Cooper
Andrew Grosse
Richard Stabbins
Graeme Thomson
Peter Wilde
Harry Wilson
1st January
2009
13,400
105,000
105,950
21,275
132,650
13,400
147,225
(13,400)
–
–
(21,275)
–
(8,934)
(100,195)
538,900
(143,804)
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,466)
(47,030)
–
105,000
105,950
–
132,650
–
–
(51,496)
343,600
40p
40p
40p
40p
40p
40p
40p
n/a
14/02/2011
27/09/2010
n/a
15/04/2010
n/a
n/a
n/a
14/05/2011
14/05/2011
n/a
15/07/2010
n/a
n/a
Approved by shareholders at the EGM held on 22 December 2009.
28
STERLING ENERGY PLC
REMUNERATION REPORT – continued
The LTIPs for Mr Chris Callaway lapsed on his resignation on 1 May 2009.
The LTIPs for Mr Harry Wilson were exercised, to the extent vested when he ceased to be an employee on 28 August
2009.
The LTIPs for Mr Peter Wilde were exercised, to the extent they had vested, following his resignation on 1 October 2009.
The LTIPs for Mr Richard Stabbins were relinquished prior to grant of options under the NED LTIP.
All Staff Long-Term Incentive Plan (audited)
The Directors interests in the All Staff LTIP are as follows:
Alastair Beardsall *
Jonathan Cooper
Andrew Grosse
1st January
2009
Granted
Excercised
31st December
2009
Excerise
Earliest
price exercise date
Latest
exercise date
–
–
–
–
1,125,000
400,000
475,000
2,000,000
–
–
–
–
1,125,000
400,000
475,000
2,000,000
40p
40p
40p
01/10/2012
01/10/2012
01/10/2012
30/09/2014
30/09/2014
30/09/2014
Approved by shareholders at the EGM held on 22 December 2009.
* In recognition of Alastair Beardsall’s efforts in the fund raising and the September Placing, and as a means of retention, 50% of the
options awarded to him will vest without performance criteria in October 2012, always provided he remains employed by the Company
at that time.
Non-executive Directors Long-Term Incentive Plan (audited)
The Non-executive Directors’ interests in the NED LTIP are as follows:
Nicholas Clayton
Keith Henry
Richard Stabbins
1st January
2009
Granted
Excercised
31st December
2009
Excerise
price
Earliest
exercise date
Latest
exercise date
–
–
–
–
125,000
125,000
125,000
375,000
–
–
–
–
125,000
125,000
125,000
375,000
40p
40p
40p
01/10/2012
01/10/2012
01/10/2012
30/09/2014
30/09/2014
30/09/2014
Approved by shareholders at the EGM held on 22 December 2009.
The rules of the LTIP schemes are summarised in note 27.
For and on behalf of the Board
Keith Henry
Chairman, Remuneration Committee
28 March 2010
STERLING ENERGY PLC
29
DIRECTORS’ REPORT
The Directors present their annual report on the affairs of Sterling and its subsidiaries, together with the financial
statements and auditors’ report for the year ended 31 December 2009.
PRINCIPAL ACTIVITY AND BUSINESS REVIEW
The principal activity of the Group throughout the year remained the exploration for and production of oil and gas in
Africa, the Middle East and the USA. The USA business was sold on 2 December 2009. The significant developments
during 2009 and the other activities of the Group, as well as the future strategy and prospects for the Group, are
reviewed in detail in the Chairman’s Statement, the Operational Review and Financial Review.
The Group operates through overseas branches and subsidiary undertakings as appropriate to the fiscal environment.
Significant subsidiary undertakings of the Group are set out in note 16 to the financial statements.
The Group uses a number of key performance indicators (KPI’s) to assess the business performance against strategy.
These are net debt ($), Reserves (million boe), EBITDA ($), production (bopd) and share price growth and analysis of the
KPI’s can be found in the Financial Review.
RESULTS AND DIVIDENDS
The Group loss for the financial year was $202.5 million (2008: loss of $156.8 million). This leaves an accumulated Group
loss on retained earnings of $446.3 million (2008: loss $247.0 million) to be carried forward as a balance of the Group’s
retained earnings. As a result of the accumulated deficit of $388.7 million on the retained earnings of the Company at
the end of 2009 (2008: deficit $238.8 million), the Directors do not recommend the payment of a dividend (2008: nil).
GOING CONCERN
The Company’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the operations review on pages 4 to 10. The financial position of the Company, its cash flows and
liquidity position are described in the financial review on pages 13 to 16. In addition, note 26 to the financial statements
include the Company’s objectives, policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.
The Company 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 the Company is well placed to
manage its business risks successfully despite the current uncertain economic outlook.
The Directors have a reasonable expectation that the Company 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.
CAPITAL STRUCTURE
Details of the issued share capital, together with details of the movements in the Company’s issued share capital during
the year, are shown in note 22 to the financial statements. Following completion of the capital raising on 23 December
2009, Sterling consolidated every 40 shares of 1 pence each into one ordinary share of 40 pence each. The Company
has one class of ordinary share which carries no right to fixed income. Each share carries the right to one vote at general
meetings of the Company.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the
general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements
between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights.
Details of the employee share schemes are set out in note 27.
30
STERLING ENERGY PLC
DIRECTORS’ REPORT – continued
No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
DIRECTORS
The Directors who served throughout the year were as follows:
Mr. Alastair Beardsall (appointed 8 September 2009)
Mr. Chris Callaway (resigned 1 May 2009)
Mr. Nicholas Clayton (appointed 1 October 2009)
Dr. Jonathan Cooper
Mr. Keith Henry (appointed 8 September 2009)
Mr. Andrew Grosse
Dr. Richard Stabbins
Mr. Graeme Thomson (resigned 22 December 2009)
Mr. Harry Wilson (resigned 30 June 2009)
Mr. Peter Wilde (resigned 1 October 2009)
Biographical details of serving Directors can be found in the Board of Directors section of this report.
DIRECTORS’ ELECTION AND ROTATION
With regard to the appointment and replacement of the Directors, the Company is governed by its Articles of
Association, the Combined Code, the Companies Acts and related legislation. The powers of Directors are described in
the Corporate Governance Report.
In accordance with article 106 of the Company’s Article of Association Richard Stabbins offers himself for re-election,
and in accordance with article 110 of the Company’s Articles of Association Keith Henry and Nicholas Clayton offer
themselves for election at the forthcoming AGM on 7 May 2010.
DIRECTORS’ AND THEIR INTERESTS
The Directors, who served during the year and subsequently, together with their beneficial interests in the issued share
capital of the Company, were as follows:
Ordinary shares
of 40p each
Alastair Beardsall**
Chris Callaway
Nicholas Clayton*
Jonathan Cooper**
Andrew Grosse**
Keith Henry
Richard Stabbins*
Graeme Thomson
Peter Wilde
Harry Wilson
22-March
2010
500,000
n.a
132,500
58,012
696,211
500,000
300,000
n.a
n.a
n.a
31-December
2009
31-December
2008
500,000
n.a
125,000
58,012
696,211
500,000
289,481
n.a
n.a
n.a
n.a
2,500
n.a
12,500
185,012
n.a
130,607
433,638
21,750
703,002
* non-Executive Director, member of the audit, remuneration and nominations committees
** executive director
Beneficial shareholdings include the shareholdings of a Director’s spouse and infant children.
STERLING ENERGY PLC
31
Of the above interests, Dr Richard Stabbins includes 140,000 (2008: 111,857) 40 pence ordinary shares held by
Montrose Industries Limited a Company in which he has a direct 84.4% holding and is a director.
SUBSTANTIAL SHAREHOLDING
Except for the holdings of ordinary shares listed below, the Company has not been notified by or become aware of any
persons holding 3% or more of the 219,309,625 issued ordinary shares of 40 pence each of the Company at 22 March
2010:
Waterford Finance and Investment Limited
Invesco Asset Management Limited
Mr. Denis O’Brien
Artemis Investment Management Limited
Gartmore Investment Management Limited
SUPPLIER PAYMENT POLICY AND PRACTICE
Number
65,384,217
48,165,876
16,075,943
11,138,885
9,652,728
%
29.81
21.96
7.33
5.08
4.40
The Company’s policy is to settle terms of payment with suppliers when agreeing each transaction, ensuring that
suppliers are made aware of the terms of payment and abide by them. At the 2009 year-end, the number of supplier
days outstanding for the continuing operations of the Group was 60 days (restated 2008: 35 days).
CHARITABLE AND POLITICAL CONTRIBUTIONS
During the year the group made charitable donations of $5,000 (2008: $24,000), principally to local charities serving the
communities in which the group operates. No political contributions were made during the year.
BUSINESS RISK
The Group’s business is subject to risks inherent in oil and gas exploration, development and production activities. There
are a number of potential risks and uncertainties which could have a material impact on the Group’s long-term
performance and could cause actual results to differ materially from expected and historical results. Key risks in this
regard are:
Category
Risk
Strategic and Economic
Inappropriate or inaccurate strategy and plans
Failure to deliver on strategy and plans
Business environment changes
Significant competition
Operational
HSE incident or non-compliance
Poor field performance
Failure to add value through exploration
Permits and/or approvals maybe difficult to sustain
Commercial
Failure to access new opportunities
Failure to maximise value from existing interests
Loss of control of key assets
Dissatisfied stakeholders
Failure to negotiate optimal contract terms
Reserve estimations are not exact determinations
32
STERLING ENERGY PLC
DIRECTORS’ REPORT – continued
Category
Risk
Human Resources and
Failure to recruit and retain key personnel
Management Processes
Human error or deliberate negative action
Inadequate management processes
Insufficient timely information available to the management and the Board
Financial
Restrictions in capital markets impacting available financial resource
Oil or gas price volatility impacting both revenues available and Bank debt called for
repayment
Cost escalation
Fiscal changes
Operations under-insured
Foreign currency risk
The Directors regularly monitor such risks, using information obtained or developed from external and internal sources,
and will take actions as appropriate to mitigate these. Effective risk mitigation is critical to Sterling in achieving its
strategic objectives and protecting its assets, personnel and reputation. Sterling manages its risks by maintaining a
balanced portfolio of projects and by seeking to ensure it is in compliance with the terms of its agreements, and through
the application of appropriate policies and procedures, and via the recruitment and retention of a team of skilled and
experience professionals.
FINANCIAL INSTRUMENTS
Information about the use of financial instruments, the Group’s policy and objectives for financial risk management is
given in note 26 to the financial statements.
AUDITORS
Each of the persons who is a Director at the date of approval of this Annual Report confirms that:
•
so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware;
and
•
the Directors have taken all the steps that they ought to have taken as a Director in order to make themselves aware
of any relevant audit information and to establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies
Act 2006.
Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be
proposed at the forthcoming annual general meeting.
Jonathan Cooper
Director
28 March 2010
STERLING ENERGY PLC
33
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors
are required to prepare group financial statements in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent
Company financial statements in accordance with IFRSs as adopted by the European Union. Under Company law the
Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period. In preparing these financial statements,
International Accounting Standard 1 requires that Directors:
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
•
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity's financial
position and financial performance; and
• make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and which disclose with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on
the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
DIRECTORS’ RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
•
the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included
in the consolidation taken as a whole; and
•
the annual report includes a fair review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
For and on behalf of the Board
Alastair Beardsall
Director
28 March 2010
34
STERLING ENERGY PLC
INDEPENDENT AUDITORS’ REPORT
We have audited the financial statements of Sterling Energy Plc for the year ended 31 December 2009 which comprise
the consolidated and parent company income statement, the consolidated and parent Company statement of
comprehensive income, the consolidated and parent Company statement of changes in equity, the consolidated and
Company balance sheet, the consolidated and parent Company cash flow statements and the related notes 1 to 28. The
financial reporting framework that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of paragraph 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those
matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as
a body, for our audit work, for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of whether the accounting policies are appropriate to the group’s and the parent
Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall presentation of the financial statements.
OPINION OF THE FINANCIAL STATEMENTS
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as
at 31 December 2009 and of the group’s loss for the year then ended;
•
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:
•
the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006 that would have applied were the Company a quoted Company; and
•
the information given in the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
STERLING ENERGY PLC
35
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
•
adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have
been received from branches not visited by us; or
•
•
the parent Company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Bevan Whitehead, Senior Statutory Auditor
For and on behalf of Deloitte LLP
Chartered Accounts and Statutory Auditors
London, UK
28 March 2010
36
STERLING ENERGY PLC
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2009
Note
31st December 2009
$000
31st December 2008
$000
Continuing operations
Revenue
Cost of sales
Gross profit/(loss)
Administrative expenses
Impairment of oil and gas assets
Other impairments
Profit on disposal of oil and gas assets
Profit on disposal of investment
Pre-licence exploration costs
Operating loss
Interest revenue and other finance gains/ losses
Finance costs
Loss before tax
Tax
Loss for the financial period from continuing operations
Discontinued operations
Loss from the period from discontinued operations
Loss for the year
Loss per share (USc)
From continuing operations
From continuing & discontinued operations
Basic and diluted
4
6
3
3
5
16c
3
5
8
8
9
5
10
12
12
12
22,709
(13,498)
9,211
(4,684)
(22,055)
–
–
–
(512)
(18,040)
(252)
(13,340)
(31,632)
–
(31,632)
(170,851)
(202,483)
(32.75)
(209.66)
(209.66)
20,444
(26,971)
(6,527)
(6,246)
(100,012)
(833)
2,200
2,871
(2,014)
(110,561)
116
(9,606)
(120,051)
–
(120,051)
(36,779)
(156,830)
(264.21)
(345.15)
(345.15)
STERLING ENERGY PLC
37
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2009
Loss for the year
Hedge movement
Currency exchange adjustments
Revaluation of shares
31st December 2009
$000
31st December 2008
$000
(202,483)
(15,574)
1,155
12
(156,830)
29,995
(1,921)
(657)
Total comprehensive expense for the year, net of tax
(216,890)
(129,413)
Tax
–
–
Total comprehensive expense for the year
(216,890)
(129,413)
38
STERLING ENERGY PLC
CONSOLIDATED BALANCE SHEET
31 December 2009
Non-current assets
Intangible royalty assets
Intangible exploration and evaluation assets
Property, plant and equipment
Investments
Other receivables – restricted bank deposits
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Bank loan
Net current assets/(liabilities)
Non-current liabilities
Bank loan
Deferred tax liabilities
Long-term provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share option reserve
Investment revaluation reserve
Currency translation reserve
Hedge reserve
Retained earnings
Total Equity
Note
13
14
15
16a
17
26
18
26
19
19
20
21
22
23
23
23
23
23
23
31st December 2009
$000
31st December 2008
$000
1,818
8,957
305
18
–
11,098
4,367
2,578
–
113,859
120,804
131,902
(22,525)
–
–
(22,525)
98,279
–
–
(21,238)
(21,238)
(43,763)
88,139
148,537
378,859
7,104
12
(108)
–
(446,265)
88,139
3,791
125,756
187,760
996
3,145
321,448
4,994
32,606
16,071
23,854
77,525
398,973
(39,533)
(497)
(53,700)
(93,730)
(16,205)
(65,570)
(40,793)
(27,664)
(134,027)
(227,757)
171,216
42,749
351,334
9,869
–
(1,263)
15,574
(247,047)
171,216
The financial statements of Sterling Energy Plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 28 March 2010
Signed on behalf of the Board of Directors
Jonathan Cooper, ACA
Director
Alastair Beardsall,
Director
STERLING ENERGY PLC
39
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2009
Share
capital
account
$000
Share
premium
account
$000
Share
Investment
option revaluation
reserve
reserve
$000
$000
Currency
translation
account
$000
Hedge
reserve
$000
Retained
earnings
$000
Total
$000
Group
At 1 January 2008
Total comprehensive expense
for the year
Issued share capital
Share option reserve charge
for the year
31,811
341,414
8,368
–
10,938
–
9,920
–
–
657
(657)
–
–
–
12
–
–
–
12
658
(14,421)
(90,217)
278,270
(1,921)
–
29,995
–
(156,830)
–
(129,413)
20,858
–
–
–
1,501
(1,263)
15,574
(247,047)
171,216
1,155
–
(15,574)
–
(202,483)
–
(216,890)
133,313
–
–
(108)
–
–
–
–
3,265
500
–
(446,265)
88,139
–
–
1,501
9,869
–
–
500
(3,265)
7,104
At 1 January 2009
42,749
351,334
Total comprehensive expense
for the year
Issued share capital
Share option reserve charge
for the year
Transfer of share based payment
reserve
–
105,788
–
27,525
–
–
–
–
At 31 December 2009
148,537
378,859
40
STERLING ENERGY PLC
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2009
Operating activities
Cash generated from operations
Net cash flow from operating activities
Investing activities
Interest received
Capital expenditure
Increase in investment
Proceeds on disposal subsidiary
Proceeds on disposal of property, plant & equipment
Proceeds on farmout of exploration and evaluation asset
Decrease in restricted cash
Net cash generated/(used) in investing activities
Financing activities
Net proceeds from issue of ordinary shares
Repayments on loan facilities
Interest paid
Decrease in overdraft
Net cash flow generated/(used) in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
Note
25
31st December 2009
$000
31st December 2008
$000
33,936
33,936
837
(31,688)
–
85,812
9
–
–
54,970
133,314
(122,909)
(8,768)
–
1,637
90,543
23,854
(538)
113,859
56,745
56,745
1,635
(112,874)
(550)
–
16,526
38,960
2,620
(53,683)
20,858
(30,409)
(8,347)
(3,781)
(21,679)
(18,617)
44,101
(1,630)
23,854
Cash and cash equivalents at 31 December 2009 includes $4,146,000 that is restricted. This relates to short-term
restrictions on cash following the US sale. These restrictions have now been lifted.
STERLING ENERGY PLC
41
COMPANY STATEMENT OF COMPREHENSIVE EXPENSE
Year ended 31 December 2009
Loss for the year
Hedge movement
Total comprehensive expense for the year, net of tax
31st December 2009
$000
31st December 2008
$000
(153,175)
(6,542)
(159,717)
(150,379)
17,695
(132,684)
Tax
–
–
Total comprehensive expense for the year
(159,717)
(132,684)
42
STERLING ENERGY PLC
COMPANY BALANCE SHEET
31 December 2009
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Bank loan
Net current liabilities
Non-current liabilities
Bank loan
Long-term provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share option reserve
Hedge reserve
Retained earnings
Total Equity
Note
15
16
17
26
18
19
19
21
22
23
23
23
23
31st December 2009
$000
31st December 2008
$000
25
221,386
221,411
4,367
28,978
–
106,265
139,610
361,021
(194,203)
–
(194,203)
(54,593)
–
(20,987)
(20,987)
8,801
337,180
345,981
4,211
96,785
6,542
15,432
122,970
468,951
(169,735)
(53,700)
(223,435)
(100,465)
(65,570)
(8,211)
(73,781)
(215,190)
(297,216)
145,831
171,735
148,537
378,859
7,104
–
42,749
351,334
9,869
6,542
(388,669)
(238,759)
145,831
171,735
The financial statements of Sterling Energy Plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 28 March 2010
Signed on behalf of the Board of Directors
Jonathan Cooper, ACA
Director
Alastair Beardsall,
Director
STERLING ENERGY PLC
43
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2009
Company
Share
capital
account
$000
Share
premium
account
$000
Share
option
reserve
$000
Hedge
reserve
$000
Retained
earnings
$000
Total
$000
At 1 January 2008
31,811
341,414
8,368
(11,153)
(88,380)
282,060
Total comprehensive expense
for the year
Issued share capital
Share option reserve charge
–
10,938
–
9,920
for the year
–
–
At 1 January 2009
42,749
351,334
Total comprehensive expense
for the year
–
–
Issued share capital
105,788
27,525
Share option reserve charge
for the year
Transfer of share based
payment reserve
–
–
–
–
–
–
1,501
9,869
–
–
500
(3,265)
At 31 December 2009
148,537
378,859
7,104
17,695
(150,379)
(132,684)
–
–
–
–
20,858
1,501
6,542
(238,759)
171,735
(6,542)
(153,175)
(159,717)
–
–
–
–
–
–
3,265
133,313
500
–
(388,669)
145,831
COMPANY CASH FLOW STATEMENT
Year ended 31 December 2009
Operating activities
Cash (used)/generated from operations
Net cash flow (used)/generated in operating activities
Note
25
Investing activities
Interest received
Capital expenditure
Net cash generated/(used) in investing activities
Financing activities
Net proceeds from issue of ordinary shares
Repayments on loan facilities
Repayments from subsidiaries
Interest paid
Net cash flow generated/(used) in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
31st December 2009
$000
31st December 2008
$000
(3,034)
(3,034)
2,356
(1,076)
1,280
133,314
(122,909)
90,317
(8,047)
92,675
90,921
15,432
(88)
106,265
21,506
21,506
4,524
(18,925)
(14,401)
20,858
(30,409)
–
(8,105)
(17,656)
(10,551)
26,540
(557)
15,432
44
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2009
1.
a)
ACCOUNTING POLICIES
General Information
Sterling Energy Plc is a Company incorporated in Great Britain under the Companies Act. The address of the
registered office is 5 Chancery Lane, London, WC2A 1LG. The Company and the Group are engaged in the
exploration for, and development and production of, oil and gas.
These financial statements are presented in US dollars as this is the currency in which the majority of the Group’s
revenues and expenditure are transacted.
b)
Basis of accounting and adoption of new and revised standards
The financial statements of the Company and the Group have been prepared in accordance with International
Financial Reporting Standards (IFRS) as endorsed by the Council of the European Union.
The financial statements are prepared under the historical cost convention except for the revaluation of certain
properties and financial instruments. The principal accounting policies adopted are set out below.
In the current financial year, the Group has adopted International Financial Reporting Standard 8 ‘Operating
Segments’, International Accounting Standard 1 ‘Presentation of Financial Statements’ (revised 2007) and
International Accounting Standard 23 ‘Borrowing Costs’ (March 2007).
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the
Group. The adoption of IFRS 8 has had no effect on the identified operating segments for the Group which are
also the reportable segments.
IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate
from the income statement and statement of other comprehensive income. As a result, a consolidated statement
of changes in equity has been included in the primary statements, showing changes in each component of equity
for each period presented.
IAS 23 (March 2007) had no impact on the Group, as the Group already capitalises borrowing costs directly
attributable to the construction of qualifying assets under its existing accounting policies.
At the date of authorisation of this financial information, the following Standards and Interpretations which have
not been applied in this financial information were in issue but are not yet effective:
IFRS 1/(amended)/
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or
IAS 27 (amended)
Associate
IAS 27 (amended)
Entity or Associate
IFRS 1 (amended)*
Additional Exemptions for First-time Adopters
IFRS 2 (amended)*
Group Cash-settled Share-based Payment Transactions
IFRS 3 (revised 2008)
Business Combinations
IFRS 9*
Financial Instruments
IAS 24 (revised 2009)*
Related Party Disclosures
IAS 27 (revised 2008)
Consolidated and Separate Financial Statements
IAS 28 (revised 2008)
Investment in Associates
IAS 32 (amended)*
Classification of Rights Issues
IFRIC 14 (amended)
Prepayment of a Minimum Funding Requirement
IFRIC 17
Distributions of Non-cash Assets to Owners
STERLING ENERGY PLC
45
1.
ACCOUNTING POLICIES – continued
IFRIC 18
IFRIC 19*
Transfers of Assets from Customers
Extinguishing Financial Liabilities with Equity Instruments
Improvements to IFRSs (2009)**
* Not yet endorsed by EU.
** Improvements with effective date 1 January 2010 have not yet been endorsed by EU.
The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have
a material impact on the financial statements of the Group except for the treatment of acquisition of subsidiaries
when IFRS 3 (revised 2008), IAS27 (revised 2008) and IAS28 (revised 2008) come into effect for business
combinations for which the acquisition date is on or after 1 January 2010.
c)
Going concern
The Directors have, at the time of approving the financial statements, 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 financial statements. Further detail is contained in
the Directors Report.
d)
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the
Company has the power to govern the financial and operating policies of an invested entity so as to obtain
benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
As a consolidated Group income statement is published, a separate income statement for the parent Company
has not been published in accordance with section 408 of the Companies Act 2006.
e)
Revenue
Sales of petroleum and gas are recognised, net of any sales taxes when goods are delivered or the title has passed
to the customer. Interest income is accrued on a time basis by reference to the principal outstanding and at the
effective interest rate applicable. Royalties and tariff income are recognised as earned. Dividend revenue from
investments is recognised when the shareholders’ rights to receive payment have been established.
f)
Oil and gas interests
Exploration and Evaluation assets (“E&E”)
The Group accounts for oil and gas exploration under the full cost method having regard to the requirements of
IFRS 6 Exploration for and Evaluation of Mineral Resources. E&E costs are initially capitalised within intangible
assets other than goodwill. Such E&E costs include licence acquisition costs, geological and geophysical costs,
costs of drilling exploration and appraisal wells, and an appropriate share of overheads. E&E costs are capitalised
and accumulated in cost pools which are not larger than a segment. Expenditures incurred before the Group has
obtained the legal rights to explore a specific area are expensed in the year that they are incurred.
46
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
1.
ACCOUNTING POLICIES – continued
The Group’s oil and gas assets are currently held in two cost pools; Africa and the Middle East (Continuing) and
North America (Discontinued).
Costs relating to the exploration and evaluation of oil and gas interests are carried forward until the existence or
otherwise of commercial reserves has been determined.
If commercial reserves have been discovered, the related E&E assets are assessed for impairment and the resultant
carrying value is then reclassified as oil and gas assets within property, plant and equipment, on a field by field
basis.
E&E assets that are determined not to have resulted in the discovery of commercial reserves remain capitalised
as intangible E&E assets at cost less accumulated amortisation, subject to the relevant cost pool meeting an
impairment test as set out below. Such E&E assets are amortised on a unit of production basis over the life of
the proven and probable commercial reserves of the pool to which they relate.
Under the full cost method, impairment tests on E&E assets are conducted on an individual cost pool basis,
including any development or producing assets, when facts and circumstances suggest that the carrying amount
in the pool may exceed its recoverable amount. Such indicators include the point at which a determination is
made as to whether or not commercial reserves exist. Where the E&E assets concerned fall within the scope of
an established full cost pool, the E&E assets are tested for impairment together with all development and
production assets associated with that cost pool, as a single cash-generating unit. The aggregate carrying value
is compared against the expected recoverable amount of the pool, generally by reference to the present value of
the future cash flows expected to be delivered from production of commercial reserves. Where the E&E assets to
be tested fall outside the scope of any established cost pool, there will generally be no commercial reserves and
if the E&E is determined as unsuccessful the E&E assets concerned will be written off in full. Any impairment loss
is separately recognised within the income statement.
Development and production assets are generally accumulated on a field-by-field basis and include the cost of
developing the commercial reserves discovered and bringing them into production, together with the E&E
expenditures, incurred in finding commercial reserves, transferred from intangible E&E assets as outlined above.
Depletion is provided for on a cash-generating unit basis on a unit of production basis over the life of the proven
and probable commercial reserves taking into account the expected future costs to extract all such reserves.
Development and production assets (“PP&E”)
An impairment test is performed on an individual cash- generating unit whenever events and circumstances
indicate that the carrying value of an asset may exceed its recoverable amount. The recoverable amount is
assessed as the present value of the future cash flows expected to be derived from production of commercial
reserves.
The cash-generating unit basis is generally the field, however, oil and gas assets, including infrastructure assets,
may be accounted for on an aggregated basis where such assets are economically inter-dependent.
Property, plant and equipment assets other than oil and gas assets
Property, plant and equipment other than oil and gas assets are stated at cost, less accumulated depreciation,
and any provision for impairment. Depreciation is provided at rates estimated to write off the cost, less estimated
residual value, of each asset over its expected useful life as follows:
Computer and office equipment – 33% straight line
STERLING ENERGY PLC
47
1.
g)
ACCOUNTING POLICIES – continued
Decommissioning
Provisions for decommissioning costs are recognised in accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets. Provisions are recorded at the present value of the expenditures expected to be required
to settle the Group’s future obligations.
Provisions are reviewed at each balance sheet date to reflect the current best estimate of the cost at present
value. The unwinding of the discount is reflected as a finance cost. A decommissioning asset is also established,
since the future cost of decommissioning is regarded as part of the total investment to gain access to future
economic benefits, and included as part of the cost of the relevant development and production asset. Depletion
on this asset is calculated under the unit of production method based on commercial reserves.
h)
Intangible royalty interests
The carrying value of each individual royalty interest is amortised on the unit of production basis relative to the
underlying asset and assessed individually for impairment when there is an indication that an impairment event
may have occurred.
i)
Foreign currencies
The US dollar is the reporting currency of the Company and the Group. Transactions denominated in other
currencies are translated into US dollar at the rate of exchange ruling at the date of the transaction. Assets and
liabilities in other currencies are translated into US dollars at the rate of exchange ruling at the reporting date.
All exchange differences arising from such translations are dealt with in the profit and loss account.
The results of entities with a functional currency other than the US dollar are translated at the average rates of
exchange during the period and their balance sheet at the rates ruling at the balance sheet date. Exchange
differences arising on translation of the opening net assets and on translation of the results of such entities are
dealt with through the currency translation reserve.
j)
Taxation
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported
in the income statement because it excludes items of income or expense that are taxable or deductible on other
years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax asset are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the accounting profit.
48
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
1.
ACCOUNTING POLICIES – continued
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary
differences and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
k)
Investments
Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under
a contract whose terms require delivery of the investment within the timeframe established by the market
concerned, and are initially measured at cost, including transaction costs.
Group investments are classified as available-for-sale and are measured at subsequent reporting dates at fair
value. Gains and losses arising from changes in fair value are recognised directly in equity, until the investment
is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised
in equity is included in the profit or loss of the period. Impairment losses recognised in profit or loss for equity
investments classified as available-for-sale are not subsequently reversed through profit or loss.
Non-current investments in subsidiary undertakings are shown in the Company’s balance sheet at cost less any
provision for permanent diminution of value.
l)
Operating leases
Rentals under operating leases are charged on a straight-line basis over the lease term.
m)
Financial instruments
Derivative Financial Instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes
party to the contractual provision of the instrument. The Group used derivative financial instruments to manage
its exposure to movements in oil and gas prices, fluctuations in foreign exchange rates and interest rates.
Derivatives financial instruments are stated at fair value.
The purpose for which a derivative is used is established at inception. To qualify for hedge accounting, the
derivative must be ‘highly effective’ in achieving its objective and this effectiveness must be documented at
inception and throughout the period of the hedge relationship. The hedge must be assessed on an ongoing basis
and determined to have been ‘highly effective’ throughout the financial reporting periods for which the hedge
was designated.
STERLING ENERGY PLC
49
1.
ACCOUNTING POLICIES – continued
For the purpose of hedge accounting, hedges are classified as either fair value hedges, when they hedge the
exposure to changes in the fair value of a recognised asset or liability, or cash flow hedges, when they hedge
exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised
asset or liability or forecasted transaction.
In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from
re-measuring the derivative and the hedged item at fair value is recognised immediately in the Income Statement.
Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of
the hedged item and recognised in the Income Statement.
For cash flow hedges, the portion of the gains and losses on the hedging instrument that is determined to be an
effective hedge is taken to equity and the ineffective position, as well as any change in time value, is recognised
in the Income Statement. The gains and losses taken to equity are subsequently transferred to the Income
Statement during the period in which the hedged transaction affects the Income Statement or if the hedge is
subsequently deemed to be ineffective. A similar treatment applies to foreign currency loans which are hedges
of the Group’s net investment in the net assets of a foreign operation.
During the year the Group designated a number of its oil and gas derivatives as cash flow hedges of future
production (See note 26).
Financial assets at fair value through profit and loss (FVTPL)
Financial assets are classified as FVTPL where the financial asset is either held for trading or it is designated as at
FVTPL.
A financial asset is classified as held for trading if:
•
•
•
it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a
recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial
recognition if:
•
•
such designation eliminates or significantly reduces a measurement or recognition inconsistency that
would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is
managed and its performance is evaluated on a fair value basis, in accordance with the Group's
documented risk management or investment strategy, and information about the Group is provided
internally on that basis; or
•
it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial
Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be
designated as at FVTPL.
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The
net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.
Fair value is determined in the manner described in note 26.
50
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
1.
ACCOUNTING POLICIES – continued
Trade receivables
Trade receivables are measured at initial recognition of their fair value. Appropriate allowances for estimated
irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is
impaired.
Cash and cash equivalents
Cash and cash equivalents comprise demand deposits, and other short term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Trade payables
Trade payables are stated at their fair value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the asset of
the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the
proceeds received net of direct issue costs.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives
where their risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at FVTPL.
An embedded derivative is presented as a non-current asset or a non- current liability if the remaining maturity
of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected
to be realised or settled within 12 month. Other derivatives are presented as current assets or current liabilities.
n)
Pension costs
The Group operates a number of defined contribution pension schemes. The amount charged to the income
statement for these schemes is the contributions payable in the year. Differences between contributions payable
in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.
o)
Share-based payments
The Company and Group have applied the requirements of IFRS 2 Share-based Payments. The Company issues
equity share-based payments to certain employees. The fair value of these awards has been determined at the
date of the grant of the award allowing for the effect of any market-based performance conditions. This fair
value, adjusted by the estimate of the number of awards that will eventually invest as a result of non-market
conditions, is expensed uniformly over the vesting period.
The fair values are calculated using an option pricing model with suitable modifications to allow for employee
turnover after vesting and early exercise. The inputs to the model include: the share price at the date of grant;
exercise price; expected volatility; expected dividends; risk-free rate of interest; and patterns of exercise of the
plan participants.
STERLING ENERGY PLC
51
1.
p)
ACCOUNTING POLICIES – continued
Over/underlift
Lifting or off take arrangements for oil and gas produced in certain of the Group’s operations are such that each
participant may not receive and sell its precise share of the overall production in each period. The resulting
imbalance between cumulative entitlement and cumulative liftings less inventory is ‘underlift’ or ‘overlift’.
Underlifts are valued at the lower of cost and net realisable value and overlifts are valued at market value.
Adjustments are made to cost of sales and balances included within receivables and payables as appropriate.
The Group’s share of any physical inventory is accounted for at the lower of cost and net realisable value. Net
realisable value represents the estimated selling prices less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.
q)
Inventories
The Group’s share of any material and equipment inventories is accounted for at the lower of cost and net
realisable value. Net realisable value is the estimated selling price less the estimated costs of completion and the
estimated costs necessary to make the sale. The cost of inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present location and condition.
r)
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable
that the Group would be required to settle that obligation. Provisions are measured at the management’s best
estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to
present value where the effect is material.
s)
Finance costs and debt
Financial costs of debt are allocated to periods over the term of the related debt and at a constant rate on the
carrying amount. Arrangement fees and issue costs are deducted from the debt proceeds on initial recognition
of the liability and are amortised and charged to the income statement as finance costs over the term of the debt.
2.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 1, the Directors are required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current and future periods.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
Commercial reserves
Commercial reserves are proven and probable oil and gas reserves, calculated on an entitlement basis. Estimates
of commercial reserves underpin the calculation of depletion and amortisation on a unit of production basis.
Estimates of commercial reserves include estimates of the amount of oil and gas in place, assumptions about
reservoir performance over the life of the field and assumptions about commercial factors which, in turn, will be
affected by the future oil and gas price.
52
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
2.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY – continued
Impairment of assets
Management is required to assess the oil and gas assets for indicators of impairment. The carrying value of oil
and gas assets is disclosed in notes 13, 14 and 15. The carrying value of related investments in the Company
balance sheet is disclosed in note 16. As part of this assessment, management has carried out an impairment test
on the Chinguetti oil and gas assets within property, plant and equipment. This test compares the carrying value
at the balance sheet date with the expected discounted cash flows from the relevant projects. For the discounted
cash flows to be calculated, management has used a production profile based on its best estimate of proven and
probable reserves and a range of assumptions including a 10% pre- tax discount rate and an internally estimated
oil price profile. Exploration and evaluation assets are subject to a separate review for indicators of impairment,
by reference to the impairment indicators set out in IFRS 6, which is inherently judgemental.
Decommissioning
The Group has obligations in respect of decommissioning in Mauritania. The extent to which a provision is
recognised depends on the legal requirements at the date of decommissioning, the estimated costs and timing
of the work and the discount rate applied. Decommissioning estimates for the Chinguetti field are based on a
range of operator estimates which are currently under further review by the operator and the Chinguetti
partners. Sterling believes the field could be abandoned earlier than originally planned and allowance has been
made for this in the calculation of the obligation.
Fair values
The determination of the fair values of oils and gas properties, particularly exploration and evaluation assets,
acquired in business combinations, and the resulting measurement of any goodwill that may arise, requires the
use of estimates similar to those described above
Share based payments
Management is required to make assumptions in respect of the inputs used to calculate the fair value of share
based payment arrangements. Details of these can be found in note 27.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives
where their risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at FVTPL.
An embedded derivative is presented as a non-current asset or a non- current liability if the remaining maturity
of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected
to be realised or settled within 12 month. Other derivatives are presented as current assets or current liabilities.
3.
OPERATING SEGMENTS
The Group operates in one business segment; the exploration for and production of oil and gas. The Group
operates in two geographical segments North America, and Africa and the Middle East. The Group’s continuing
geographical segment relates to its Africa and Middle East operations. In December 2009 the Group completed
the sale of its North America segment (note 10) and this segment is now classified as a discontinued operation
for all years presented.
STERLING ENERGY PLC
53
3.
OPERATING SEGMENTS – continued
Africa and Middle East
North America
Total
2009
$000
2008
$000
2009
$000
2008
$000
2009
$000
2008
$000
Income Statement
Revenue
Cost of sales
Gross profit
22,709
(13,498)
20,444
(26,971)
50,199
(44,104)
9,211
(6,527)
6,095
Impairment provision
(22,055)
(100,845)
(72,085)
Pre-licence exploration
83,124
(60,064)
23,060
(82,130)
72,908
(57,602)
103,568
(87,035)
15,306
16,533
(94,140)
(182,975)
costs
(512)
(2,014)
(18)
(650)
(530)
(2,664)
Profit and loss on disposals
of assets/investments
–
5,071
(682)
3,111
(682)
8,182
Segment result
(13,356)
(104,315)
(66,690)
(56,609)
(80,046)
(160,924)
Unallocated corporate
expenses
Operating loss
Loss on disposal of subsidiary
Interest revenue and finance gains
Finance costs
Other gains/(losses)
Loss before tax
Tax
Loss attributable to equity holders
Loss for the financial period from continuing operations
Loss from the period from discontinued operations
(15,487)
(14,307)
(95,533)
(175,231)
(118,820)
837
–
1,977
(14,714)
(10,620)
(265)
(818)
(228,495)
(184,692)
26,012
27,862
(202,483)
(156,830)
(31,632)
(120,051)
(170,851)
(36,779)
(202,483)
(156,830)
Unallocated
Africa and Middle East
North America
Total
2009
$000
2008
$000
2009
$000
2008
$000
2009
$000
2008
$000
2009
$000
2008
$000
Other segment information
Capital additions
Property, plant and equipment 210
Exploration and evaluation
139
Depreciation & amortisation
(294)
Impairment provision
–
224
258
(487)
–
Balance sheet
Non current assets*
Segment assets**
Segment liabilities***
1,294
108,488
(3,299)
2,218
24,015
(123,510)
1,048
2,051
(5,193)
(22,055)
9,804
12,316
(40,464)
22,697
21,080
(15,559)
(100,845)
21,886
5,724
(25,957)
22,309
5,231
(28,391)
(72,085)
35,616
7,271
(38,621)
(82,130)
23,567
7,421
(33,878)
(94,140)
58,537
28,609
(54,667)
(182,975)
–
–
–
297,344
47,786
(78,290)
11,098
120,804
(43,763)
321,448
77,525
(227,757)
Revenue from continuing operations includes amounts of $17.4 million from one single customer (2008: $27.0 million).
*Segment non-current assets include $0.3 million in UK (2008: $0.4 million) and $7.6 million in Cameroon (2008: $6.1 million).
**Carrying amounts of segment assets exclude investments in subsidiaries.
***Carrying amounts of segment liabilities exclude intra-group financing.
54
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
4.
REVENUE
Continuing operations
Revenue from the sale of oil and gas
Royalty income
Total operating revenue
Finance revenue
Discontinuing operations (see note 10)
Total operating revenue
Finance revenue
Total
2009
$000
21,455
1,254
22,709
13
22,722
50,199
823
51,022
73,744
2008
$000
18,352
2,092
20,444
938
21,382
83,124
1,038
84,162
105,544
Revenue from the sale of oil and gas of continuing operations is stated net of $4,011,000 hedge income in
relation to cash settlements under hedging contracts (2008: expense $8,679,000).
5.
LOSS FOR THE YEAR
Loss from continuing operations is stated after charging (crediting):
Note
7
6
3
3
8
16c
Staf costs
Depletion of oil and gas assets
Impairment expense
Other impairments
Depreciation of other fixed assets
Net foreign exchange losses
Profit on disposal of oil and gas assets
Profit on disposal of investment
An analysis of auditor's remuneration is as follows:
Fees payable to the Company’s auditors for the audit of the
Company’s annual accounts
Audit of the Company’ subsidiaries pursuant to legislation
Other services – interim review
Total audit fees
Tax advisory services
Total non audit fees
Total
2009
$000
6,455
5,190
22,055
–
295
(265)
–
–
84
55
78
217
68
68
2008
$000
9,446
15,265
100,012
833
600
(822)
2,200
2,871
299
53
156
508
49
49
STERLING ENERGY PLC
55
6.
COST OF SALES
Continuing operations
Amortisation and depletion of oil and gas properties
Operating costs
Over/(underlift) of product entitlement
2009
$000
5,190
8,777
(469)
13,498
7.
EMPLOYEE INFORMATION
The average monthly number of employees of the Group (including executive Directors) was:
Africa & Middle East
North America (to 2 December 2009)
Corporate Support Staff
2009
17
33
17
67
2008
$000
15,265
11,117
589
26,971
2008
15
35
19
69
The average monthly number of employees of the Company (including executive Directors) during the year was
1 (2008: 2).
Group employee costs during the year (including executive Directors) amounted to:
Wages and salaries
Social security costs
Other pension costs
Wages and salaries
Social security costs
Continuing operations
2009
$000
5,426
501
528
6,455
2009
$000
457
30
487
Company
2008
$000
8,123
707
616
9,446
2008
$000
649
36
685
A portion of the Group’s staff costs and associated overheads are recharged to the joint venture partners,
expensed as operating costs, expensed as pre-licence expenditure or capitalised where they are directly
attributable to ongoing capital projects. In 2009 this portion amounted to $4,645,000 (2008: $9,886,000).
56
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
8.
INVESTMENT REVENUE AND FINANCE COSTS
Interest revenue and finance gains/(losses):
Interest revenue on short-term deposits
Exchange differences
Finance costs:
Interest on bank loans and overdrafts
Unwinding of discount on decommissioning provision
Unwinding of discount on production royalty bonus provision
9.
TAXATION
Deferred tax – origination and reversal of timing differences
Current tax credit
Total credit
Continuing operations
2009
$000
13
(265)
(252)
Continuing operations
2009
$000
12,406
708
226
13,340
Continuing operations
2009
$000
–
–
–
2008
$000
938
(822)
116
2008
$000
9,205
271
130
9,606
2008
$000
–
–
–
The difference between the tax credit of $nil (2008: $nil) and the amount calculated by applying the applicable
standard rate of tax is as follows:
Loss before tax on continuing operations
(31,632)
(120,051)
Tax on loss on ordinary activities at standard UK corporation tax rate
Total
2009
$000
2008
$000
of 28% (2008: 28.5%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Diference in UK tax rates
Other temporary diferences
Adjustment for tax losses
Tax credit for the year
(8,857)
(34,215)
7,581
(2,318)
–
228
3,366
–
24,734
(2,350)
601
2,381
8,849
–
With effect from 1 April 2008, the main rate of UK corporation tax reduced to 28%.
STERLING ENERGY PLC
57
10.
DISCONTINUED OPERATIONS
In April 2008 Sterling announced its intention to sell the USA business following a comprehensive strategic review
of the Company's assets and prospects. This review concluded that focusing the Company’s resources on higher
impact opportunities in Africa and the Middle East would be in shareholders best interests. The sale
documentation was signed on 20 October 2009 with a gross initial sale consideration of $90.0 million, before
closing adjustments, with an effective economic date of 1 April 2009. On completion, the consideration was
adjusted for intra- group cash movements since 1 April 2009 and other costs. The sale completed on 2 December
2009, on which date control of the USA business passed to the acquirer, and Sterling repaid all bank debt.
In addition to the initial consideration, there is a three year ‘upside sharing agreement’, under which Sterling is
entitled to a 40% share of the annual excess net production proceeds if the average business’ realised oil price
exceeds $90 per barrel and/or the realised gas price exceeds $9 per mcf in any of 2010-2012. The Company has
analysed the Henry Hub and WTI forward curves over the agreement period, and assessed accounting disclosure
required in the period (IAS 37/IAS 39) and has accounted for the agreement as a financial asset embedded
derivative as the outcome of the agreement relates to commodity prices over future dates. At 31 December 2009
the value of the upside sharing agreement was determined to be insignificant, and therefore no amount has been
recognised. See notes 1 and 26 for full accounting disclosure.
The results of the Group’s discontinued USA operations are shown on the consolidated income statement and
in Notes 3 and 4. Net operating cash flows from discontinued operations are shown in Note 25. During the
period to the date of disposal the cash used in investing activities was $27.5 million (2008 – $30.0 million).
Immediately prior to the sale, the Group’s share of net assets associated with the USA operations was
$200.7 million (2008– $265.3 million), comprising non- current assets of $221.7 million (2008 – $295.6 million),
current assets of $24.0 million (2008 – $43.5 million), current liabilities including intra-group financing of $148.3
million (2008 – $139.0 million), and long term liabilities of $27.9million (2008 – $58.6 million).
Upon completion the Group recognised cash inflow of $85.8 million, transaction costs of $3.9 million, and a loss
of $170.8 million.
Revenue
Expenses
Loss before tax
Attributable tax expense
Loss on disposal of discontinued operations
Net loss attributable to discontinued operations
Period ended
2 December
2009
$000
50,199
(128,242)
(78,043)
26,012
(118,820)
(170,851)
Year
Ended
2008
$000
83,124
(147,765)
(64,641)
27,862
–
(36,779)
The balance sheet as at 1 January 2008 has not been re-presented as there have been no changes.
11.
LOSS ATTRIBUTABLE TO STERLING ENERGY PLC
The loss for the financial year dealt with in the Company accounts of Sterling Energy Plc was $153,175,000
(2008: loss of $150,379,000). As provided by s408 of the Companies Act 2006, no income statement is provided
in respect of Sterling Energy Plc.
58
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
12.
LOSS PER SHARE
The calculation of basic and diluted loss per share is based on the Group Consolidated (continued and
discontinued) loss for the financial year of $202,483,000 (2008: loss $156,830,000) and on 96,577,765 (restated
2008: 45,437,773) 40p ordinary shares, being the weighted average number of ordinary shares in issue.
The calculation of basic and diluted loss per share from continuing operations loss for the financial year of
$31,632,000 (2008: loss $120,051,000) and on 96,577,765 (restated 2008: 45,437,773) 40p ordinary shares,
being the weighted average number of ordinary shares in issue.
The calculation of basic and diluted loss per share from discontinued operations for the financial year of
$170,851,000 (2008: loss $36,779,000) and on 96,577,765 (restated 2008: 45,437,773) 40p ordinary shares,
being the weighted average number of ordinary shares in issue.
Loss per share (USc)
From continuing & discontinued operations
From continuing operations
From discontinued operations
Total
2009
2008
(209.66)
(32.75)
(176.91)
(345.15)
(264.21)
(80.94)
As the effect of any dilutive shares would decrease the loss per share, the basic and diluted losses per share are
the same. In addition 6,029,480 (restated 2008: 3,391,150) share options were in issue that could potentially
dilute basic earnings per share in the future but were not included in the calculation of diluted earnings per share
because they are anti-dilutive.
13.
INTANGIBLE ROYALTY ASSETS
Net book value at 1 January 2008
Amortisation charge for the year
Impairment charge for the year
Net book value at 31 December 2008
Amortisation charge for the year
Impairment charge for the year
Net book value at 31 December 2009
Group
$000
16,600
(1,508)
(11,301)
3,791
(1,147)
(826)
1,818
Group net book value at 31 December 2009 comprises the value of rights to future royalties in respect of the
Group’s agreements covering licences PSCA and PSCB 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.
An impairment assessment and any subsequent charge are calculated on an individual royalty interest basis.
Future recoverable amounts are estimated by management based on the present value of future cash flows
expected to be derived from the production of commercial reserves in these licences and are compared against
the carrying value of these assets.
STERLING ENERGY PLC
59
14.
INTANGIBLE EXPLORATION AND EVALUATION (E&E) ASSETS
Net book value at 1 January 2008
Additions during the year
Disposals during the year (farm-out)
Amortisation charge for the year
Impairment charge for the year
Net book value at 31 December 2008
Additions during the year
Transfer to PPE
Disposals during the year – US sale
Amortisation charge for the year
Impairment charge for the year
Net book value at 31 December 2009
Group
$000
155,581
28,609
(39,988)
(5,829)
(12,617)
125,756
7,422
(700)
(45,743)
(4,520)
(73,258)
8,957
The amount for intangible exploration and evaluation assets represents investments in respect of exploration
licences (see note 1f). Impairment tests on E&E assets are conducted on an individual cost pool basis when facts
and circumstances suggest that the carrying amount in the pool may exceed its recoverable amount. The
impairment recorded above relates to assets held in the USA of $69.9 million (2008: $nil), and Africa pool of
$3.3 million (2008: $12.6 million) where the estimated recoverable amount of the property, plant and equipment
and E&E in the pool was insufficient to cover the carrying amount.
15.
PROPERTY, PLANT AND EQUIPMENT
Group
Cost
At 1 January 2008
Additions during the year
Disposals during the year
At 31 December 2008
Additions during the year
Disposals during the year – US sale
At 31 December 2009
Oil and Gas
assets
$000
467,870
57,692
(13,611)
511,951
35,369
(361,449)
185,871
Computer
and office
equipment
$000
3,966
845
–
4,811
265
(2,305)
2,771
Total
$000
471,836
58,537
(13,611)
516,762
35,634
(363,754)
188,642
60
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
15.
PROPERTY, PLANT AND EQUIPMENT – continued
Group
Accumulated depreciation and impairment
At 1 January 2008
Disposals during the year
Charge for the year
Impairment charge for the year
At 31 December 2008
Disposals during the year – US sale
Charge for the year
Impairment charge for the year
At 31 December 2009
Oil and Gas
assets
$000
(126,169)
3,471
(46,549)
(156,224)
(325,471)
187,506
(27,850)
(20,056)
(185,871)
Net book value at 31 December 2009
–
Net book value at 31 December 2008
186,480
Computer
and office
equipment
$000
(2,750)
–
(781)
–
(3,531)
1,427
(362)
–
(2,466)
305
1,280
Total
$000
(128,919)
3,471
(47,330)
(156,224)
(329,002)
188,933
(28,212)
(20,056)
(188,337)
305
187,760
The impairment charge in the year for the Group relates to the Group’s Mauritanian and USA interests. The
impairment charge calculated by reference to assessment of future discounted cash flows expected to be
delivered from production of commercial reserves against the individual cash generating unit carrying values.
Company
Cost
At 1 January 2008
Additions during the year
At 31 December 2008
Additions during the year
At 31 December 2009
Accumulated depreciation and impairment
At 1 January 2008
Charge for the year
Impairment Charge for the year
At 31 December 2008
Charge for the year
Impairment Charge for the year
At 31 December 2009
Net book value at 31 December 2009
Net book value at 31 December 2008
Oil and Gas
assets
$000
150,060
22,697
172,757
13,115
185,872
(73,889)
(14,134)
(75,933)
(163,956)
(4,044)
(17,872)
(185,872)
–
8,801
Computer
and office
equipment
$000
147
–
147
28
175
(147)
–
–
(147)
(3)
–
(150)
25
–
Total
$000
150,207
22,697
172,904
13,143
186,047
(74,036)
(14,134)
(75,933)
(164,103)
(4,047)
(17,872)
(186,022)
25
8,801
STERLING ENERGY PLC
61
16.
FIXED ASSET INVESTMENTS
a)
Investment held by the Group
As at 31 December 2009, the Group’s investments consist of shares held in various oil and gas companies.
b)
Investment in subsidiaries
Cost
At 1 January 2008
Additions during the year (capital contribution)
Impairment during the year
At 31 December 2008
Reduction during the year
Disposals during the year
At 31 December 2009
Company
$000
338,399
56,549
(57,768)
337,180
(9,984)
(105,810)
221,386
Country of
incorporation
Class of
shares held
Sterling Energy (UK) Limited *
United Kingdom
Ordinary
Westmount Resources Inc *
USA
Ordinary
Sterling Energy (Mauritania) Limited *
United Kingdom
Ordinary
Sterling Energy (International) Limited **
United Kingdom
Ordinary
Proportion
of voting
rights held
100%
100%
100%
100%
Nature of business
Exploration for oil and gas
Production of oil and gas
Dormant
Exploration for oil and gas
Sterling Oil Limited *
United Kingdom
Ordinary
100% Investment holding company
Sterling Energy (North America) Limited *
United Kingdom
Ordinary
100% Investment holding company
Sterling Northwest Africa Holdings Limited ***
Jersey, CI
Ordinary
Sterling Energy (Mauritania) Limited ****
Jersey, CI
Ordinary
100%
100%
Exploration for oil and gas
Exploration for oil and gas
Sterling Cameroon Holdings Limited ****
Jersey, CI
Ordinary
100% Investment holding company
Sterling Cameroon Limited ****
Jersey, CI
Ordinary
100%
Exploration for oil and gas
Sterling Dome Flore Holdings Limited ****
Jersey, CI
Ordinary
100% Investment holding company
Sterling Dome Flore Limited ****
Jersey, CI
Ordinary
Sterling Oil and Gas (Iris Marin) Limited ****
Jersey, CI
Ordinary
Sterling Oil and Gas (Themis Marin) Limited ****
Jersey, CI
Ordinary
100%
100%
100%
Exploration for oil and gas
Exploration for oil and gas
Exploration for oil and gas
* Held directly by the Company, Sterling Energy Plc
** Held directly by Sterling Energy (UK) Limited
*** Held directly by Sterling Oil Limited
**** Held directly or indirectly through Sterling Northwest Africa Limited
c)
Profit on disposal of fixed asset investments
Forum Energy PLC
Sterling Energy Mauritania A Limited
Total
62
STERLING ENERGY PLC
Group
2009
$000
–
–
–
Group
2008
$000
2,615
256
2,871
NOTES TO THE FINANCIAL STATEMENTS – continued
17.
TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts owed by subsidiary undertakings
Other debtors
Amounts advanced to joint venture partners
Prepayments and accrued income
Group
Company
2009
$000
662
–
393
1,037
486
2,578
2008
$000
22,042
–
8,752
249
1,563
32,606
2009
$000
171
2008
$000
937
27,979
95,649
67
667
94
158
–
41
28,978
96,785
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
18.
TRADE AND OTHER PAYABLES
Group
Company
Trade payables
Amounts owed to subsidiary undertakings
2009
$000
4,760
–
Amounts advanced from joint venture partners
1,998
Other taxation and social security
Accruals and deferred income
Bank overdraft
–
15,767
–
22,525
2008
$000
15,426
–
1,974
148
18,018
3,967
39,533
2009
$000
1,499
179,579
–
–
13,125
–
2008
$000
282
156,931
742
–
11,780
–
194,203
169,735
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
19.
LONG-TERM AND SHORT-TERM DEBT
Group & Company
Bank loan current
Bank loan non current
2009
$000
–
–
–
2008
$000
53,700
65,570
119,270
Following the sale of its USA business, Sterling repaid the bank loan facility in full. Prior to the expiry of the April
2009 waiver in mid August 2009, which had allowed Sterling to reschedule its loan repayments, Sterling
negotiated a revised waiver. This revised waiver was conditional upon the receipt, by Sterling, of the proceeds of
the placing announced on 14 August 2009 and a repayment to the banks of $35 million of principal. Following
the shareholder vote at the EGM held on 8 September 2009 approving the placing, the $35 million was paid to
the banks on 9 September 2009. The placing raised £62.5 million (before expenses) by way of a placing of
4,807,315,000 new 1p ordinary shares (120,182,875 new 40p Ordinary Shares) at a price of 1.3 pence per share.
On 2 December 2009 the Company completed the sale of the USA business and repaid all outstanding debt at
that date, and at the year- end was debt free.
STERLING ENERGY PLC
63
20.
DEFERRED TAX LIABILITIES
Group
At 1 January
Other
Loss on discontinued operations
Loss on disposal of discontinued operations
2009
$000
40,793
–
(26,012)
(14,781)
–
2008
$000
69,512
(783)
(27,936)
–
40,793
At the balance sheet date the Group had an unrecognised deferred tax asset of $33,756,000 (2008:
$28,195,000) relating primarily to unused tax losses and unutilised capital allowances. No deferred tax asset has
been recognised due to the uncertainty of future profit streams against which these losses could be utilised.
Company
At the balance sheet date the Company had an unrecognised deferred tax asset of $33,816,000 (2008:
$28,027,000) relating primarily to unused losses and unutilised capital allowances.
21.
LONG-TERM PROVISIONS
Group
Decommissioning provision (a)
2003 Production royalty bonus scheme (b)
a)
Decommissioning provisions
Group
At 1 January 2008
Additions in year
Released on disposal during the year
Unwinding of discount
At 31 December 2008
Additions in year
Released on disposal during the year
Amounts paid during the year
Disposal of subsidiary
Unwinding of discount
At 31 December 2009
2009
$000
20,987
251
21,238
North America
$000
Africa and
Middle East
$000
17,586
4,596
(4,752)
840
18,270
–
(970)
(5,112)
(13,561)
1,373
–
4,509
3,431
–
271
8,211
12,068
–
–
–
708
20,987
2008
$000
26,481
1,183
27,664
Total
$000
22,095
8,027
(4,752)
1,111
26,481
12,068
(970)
(5,112)
(13,561)
2,081
20,987
The amounts shown above for Africa and Middle East represent the estimated costs for decommissioning the
Group’s producing interests in respect of its economic interest in the Chinguetti field in Mauritania. Additions in
the year reflect latest information from the operator, as disclosed in note 2.
64
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
21.
LONG-TERM PROVISIONS – continued
The Company amount of $20,987,000 (2008 $8,211,000) in Africa represents the amount provided within the
Company for future decommissioning expenditure.
b)
2003 Production royalty bonus scheme
Group
At 1 January
Unwinding of discount
Amounts paid during the year
Adjustment to Tax Rates
Transferred to current liabilities
Foreign exchange movements
2009
$000
1,183
226
(1,110)
–
(194)
146
251
2008
$000
2,150
130
–
81
(1,119)
(59)
1,183
This scheme was intended to reward key persons for the successful performance of certain assets after financial
thresholds had been reached for the period since listing in 2002. The scheme was terminated in 2007 and
replaced by the LTIP scheme (2007- 2008 scheme, and 2009 onwards scheme, see note 27) and no further sums
will accrue. All future entitlements under the Scheme to Directors who served in 2009 have been settled in full
in 2009. The Company has the option to require the one remaining beneficiary to subscribe for new ordinary
shares for the net amount arising after tax and national insurance from 2008 onwards.
22.
SHARE CAPITAL
Called up, allotted and fully paid
219,304,551 (2008 restated: 58,137,765) ordinary shares of 40p
Movements during the year included:
2009
$000
2008
$000
148,537
42,749
1.
2.
3.
4.
5.
4,807,315,000: 1p Ordinary shares (120,182,875 40p new Ordinary Shares) were issued by way of a
Placing on 8 September 2009 in order to repay $35 million of debt upon receipt of the placing proceeds,
provide a stronger negotiating position for the Company with respect to its USA disposal process and
strengthen the working capital position of the Group;
The Open Offer of 1,585,072,352: 1p Ordinary shares (39,626,809: 40p new Ordinary shares) on
23 December 2009 which provided all shareholders the opportunity to subscribe for two new ordinary
shares for every nine existing held, at the same price as the September Placing;
The Firm Placing of 52,224,231: 1p Ordinary shares (1,305,606: 40p new Ordinary shares) on
23 December 2009 to certain employees and management of the Company;
Further movements during the year consisted of 1,881,208: 1p Ordinary shares (47,030: 40p new
Ordinary shares) during November 2009 which were issued to a former employee who exercised share
options in the year;
Following the completion of the capital raising on 23 December 2009 a share consolidation was
undertaken to consolidate every 40 Ordinary of 1 pence each shares then in issue in the capital of the
Company (8,772,003,400 1p Ordinary shares) to one 40p Ordinary share (219,300,085 40p Ordinary
Shares). Fractions of Ordinary shares created as a result of the Consolidation are being aggregated and
sold in the market place for the benefit of the Company;
6.
Issue of 4,466 Ordinary Shares of 40 pence to a former employee on 31 December 2009.
STERLING ENERGY PLC
65
23.
RESERVES
Group
Share
premium
account
$000
Share
Investment
option revaluation
reserve
reserve
$000
$000
Currency
translation
account
$000
At 1 January 2008
Premium on shares issued
Share issue costs
Currency translation adjustments
Disposal of held for sale investment
Hedge movement
Share option reserve charge for the year
Loss for the year
At 1 January 2009
Premium on shares issued
Share issue costs
Currency translation adjustments
Investment revaluation
Hedge movement
Share option reserve charge for the year
Transfer of share based payment reserve
Loss for the year
341,414
11,010
(1,090)
–
–
–
–
–
351,334
31,634
(4,109)
–
–
–
–
–
–
At 31 December 2009
378,859
8,368
–
–
–
–
–
1,501
–
9,869
–
–
–
–
–
500
(3,265)
–
7,104
657
–
–
–
(657)
–
–
–
–
–
–
–
12
–
–
–
–
12
Hedge
reserve
$000
(14,421)
–
–
–
–
29,995
–
–
Retained
earnings
$000
(90,217)
–
–
–
–
–
–
(156,830)
Total
$000
246,459
11,010
(1,090)
(1,921)
(657)
29,995
1,501
(156,830)
15,574
(247,047)
128,467
–
–
–
–
(15,574)
–
–
–
–
–
–
–
–
–
3,265
(202,483)
31,634
(4,109)
1,155
12
(15,574)
500
–
(202,483)
658
–
–
(1,921)
–
–
–
–
(1,263)
–
–
1,155
–
–
–
–
–
(108)
–
(446,265)
(60,398)
Company
At 1 January 2008
Premium on shares issued
Share issue costs
Charge for the year
Hedge movement
Loss for the year
At 1 January 2009
Premium on shares issued
Share issue costs
Share option reserve charge for the year
Transfer of share based payment reserve
Hedge movement
Loss for the year
At 31 December 2009
Share
premium
account
$000
Share
option
reserve
$000
341,414
11,010
(1,090)
–
–
–
351,334
31,634
(4,109)
–
–
–
–
378,859
8,368
–
–
1,501
–
–
9,869
–
–
500
(3,265)
–
–
7,104
Hedge
reserve
$000
(11,153)
–
–
–
17,695
–
Retained
earnings
$000
(88,380)
–
–
–
–
(150,379)
Total
$000
250,249
11,010
(1,090)
1,501
17,695
(150,379)
6,542
(238,759)
128,986
–
–
–
–
(6,542)
–
–
–
–
3,265
–
(153,175)
31,634
(4,109)
500
–
(6,542)
(153,175)
–
(388,669)
(2,706)
66
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
24.
OPERATING LEASES AND CAPITAL COMMITMENTS
Group
2009
$000
2008
$000
Company
2009
$000
2008
$000
Minimum lease payments under
operating leases recognised as an
expense in the year
5,628
4,897
3,475
3,419
There were no operating lease payments made by the Company during the year. At the balance sheet date
outstanding commitments for minimum lease payments under non-cancellable operating leases fall due as
follows:
Within one year
In the second to fifth year inclusive
After five years
Group
Company
2009
$000
4,497
9,178
–
13,675
2008
$000
4,942
13,614
2,884
21,440
2009
$000
3,438
6,851
–
10,289
2008
$000
3,393
10,107
–
13,500
Operating lease payments represent the Group’s share of rentals for an FPSO (Floating Production Storage and
Offtake) vessel in Mauritania and rentals payable for certain of its office properties.
25.
CASH FLOWS FROM OPERATING ACTIVITIES
2009
$000
2008
$000
Group
Operating activities:
Operating loss from continuing operations
Operating loss from discontinued operations
Depletion and amortisation
Impairment expense
Other impairments
Inventory revaluation
Loss/(gain) on disposal of fixed assets
Loss on disposal of subsidiary
Share-based payment provision
Operating cash flow prior to working capital
Decrease/(increase) in inventories
Decrease in trade and other receivables
Decrease in trade and other payables
Cash generated/(outflow) from continuing operations
Cash generated from discontinued operations
(18,040)
(196,316)
(214,356)
33,878
94,140
–
–
682
118,820
500
33,664
626
21,964
(22,317)
33,936
(4,517)
38,453
33,936
(110,561)
(64,670)
(175,231)
54,667
180,142
2,833
4,730
(8,182)
–
1,501
60,460
(4,689)
1,938
(964)
56,745
21,973
34,772
56,745
STERLING ENERGY PLC
67
25.
CASH FLOWS FROM OPERATING ACTIVITIES – continued
Company
Operating activities:
Operating loss
Depletion and amortisation
Impairment expense
Other impairments
Loss on disposal of subsidiary
Share-based payment provision
Operating cash flow prior to working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
2009
$000
2008
$000
(140,813)
4,046
146,804
–
355
500
10,892
(156)
(14,245)
475
(3,034)
(145,473)
14,134
133,701
833
–
1,501
4,696
592
(92,481)
108,699
21,506
26.
FINANCIAL INSTRUMENTS
Capital risk management and liquidity risk
The Group is not subject to externally imposed capital requirements. The capital structure of the Group consists
of cash and cash equivalents held for working capital purposes, and equity attributable to the equity holders of
the parent, comprising issued capital, reserves and retained earnings as disclosed in note 23. The Group uses cash
flow models, which are regularly updated, to monitor liquidity risk.
Gearing ratio
Group
Debt
Cash and cash equivalents
Net debt
Equity
Net debt to equity ratio
2009
$000
–
(113,859)
(113,859)
88,139
n/a
2008
$000
119,270
(23,854)
95,416
171,216
56%
68
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
26.
FINANCIAL INSTRUMENTS – continued
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the
basis of measurement and the basis on which income and expenses are recognised, in respect of each material
class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.
Group
Financial assets
Carrying amount
Fair value
2009
$000
2008
$000
2009
$000
2008
$000
Cash and cash equivalents
113,859
23,854
113,859
23,854
Derivative instruments in designated hedge
accounting relationships – investments
Other financial assets at fair value
Trade and other receivables
Total
Financial Liabilities
Derivative instruments in designated hedge
accounting relationships – investments
Financial liabilities at amortised cost
– bank loan
Trade and other payables
Total
–
18
2,578
116,455
–
–
22,525
22,525
16,071
996
32,606
73,527
497
119,270
39,533
159,300
–
18
2,578
116,455
–
–
22,525
22,525
16,071
996
32,606
73,527
497
119,270
39,533
159,300
Company
Financial assets
Carrying amount
Fair value
2009
$000
2008
$000
2009
$000
2008
$000
Cash and cash equivalents
106,265
15,432
106,265
15,432
Derivative instruments in designated hedge
accounting relationships – investments
Trade and other receivables
–
999
6,542
1,173
–
999
6,542
1,173
Total
107,264
23,147
107,264
23,147
Financial Liabilities
Financial liabilities at amortised cost – bank loan
–
Trade and other payables
Total
14,624
14,624
119,270
13,660
132,930
–
14,624
14,624
119,270
13,660
132,930
The fair values of financial assets and financial liabilities are valued at amortised cost value less any credit risk
provision in respect of assets. Due to the short term nature of these assets and liabilities such values approximate
their fair values at 31 December 2009 and 31 December 2008.
All outstanding cash flow hedges in respect of the Group’s oil and gas production were settled during the year.
STERLING ENERGY PLC
69
26.
FINANCIAL INSTRUMENTS – continued
Financial risk management objectives
The Group’s objective and policy is to use financial instruments to manage the risk profile of its underlying
operations. The Group continually monitors financial risk including oil and gas price risk, interest rate risk, equity
price risk, currency translation risk and liquidity risk and takes appropriate measures to ensure such risks are
managed in a controlled manner including, where appropriate, through the use of financial derivatives. The
Group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
Interest rate risk management
The Group does not have any outstanding borrowings and hence, the Group is only exposed to interest rate risk
on its short term cash deposits.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for derivative and non-
derivative instruments at the balance sheet date and assuming the amount of the balances at the balance sheet
date were outstanding for the whole year.
A 100 basis point change represents management’s estimate of a possible change in interest rates at the balance
sheet date. If interest rates had been 100 basis points higher and all other variables were held constant the
Group’s profits and equity would be impacted as follows:
Loans at amortised amount
Cash and cash equivalents
Group
Increase/(decrease)
Company
Increase/(decrease)
2009
$000
–
1,139
1,139
2008
$000
(1,193)
239
(954)
2009
$000
–
1,063
1,063
2008
$000
(1,193)
154
(1,039)
Foreign currency translation risk
The Group’s reporting currency is the US dollar; being the currency in which the majority of the Group’s revenue
and expenditure is transacted. The US dollar is the functional currency of the Company and the majority of its
subsidiaries. Less material elements of its management, services and treasury functions are transacted in sterling.
The majority of balances are held in US dollars with transfers to sterling and other local currencies as required to
meet local needs. At the end of 2009 there were no net material monetary liabilities or assets not denominated
in the functional currency of the subsidiary involved. The Group does not enter into derivative transactions to
manage its foreign currency translation or transaction risk.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group. The Group reviews the credit risk of the entities that it sells its products to or that it enters into
contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered
necessary where risks are significant to the Group. The Group’s business is diversified in terms of both region and
the number of counter-parties and the Group does not have significant exposure to any single counter-party or
Group of counter-parties with similar characteristics.
70
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
26.
FINANCIAL INSTRUMENTS – continued
Liquidity and interest rate tables
The following tables detail the remaining contractual maturity for the non-derivative financial assets and liabilities
of the Group and Company. The tables have been drawn up based on the undiscounted cash flows of financial
liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest
and principal cash flows including rates for loan liabilities and cash deposits on actual contractual arrangements.
The weighted average interest rate used in 2009 is nil (2008: 5.4%).
Less than six
months
$000
Six months
to one year
$000
One to six
years
$000
Total
$000
Interest
$000
Principal
$000
Group
2009
Trade payables
6,759
2008
Trade payables
Derivative financial
instruments
Long-term debt
Company
2009
Trade payables
2008
Trade payables
Derivative financial
instruments
Long-term debt
–
–
477
3,161
–
–
–
6,759
17,400
497
–
–
–
–
17,400
497
69,078
125,651
(6,381)
119,270
17,400
20
53,412
Less than six
months
$000
Six months
to one year
$000
One to six
years
$000
Total
$000
Interest
$000
Principal
$000
1,499
1,024
–
–
–
–
–
–
–
1,499
1,024
–
–
–
–
–
1,024
–
53,412
3,161
69,078
125,651
(6,381)
119,270
Embedded derivatives (USA upside sharing agreement)
The fair value calculation based on the forward curves at the 2009 year-end indicates that there is no current
value in the embedded derivative in the upside sharing agreement at 31 December 2009.
Values need to be assessed at every balance sheet date, however given the conditions of the upside sharing
agreement, hedges currently in place for the USA business, the economic environment, and the low risk of oil/gas
prices reaching threshold levels there is a low likelihood of material value to Sterling Energy Plc. Accordingly, no
amounts are recognised in these financial statements, and no sensitivity analysis is presented.
27.
SHARE – BASED PAYMENTS
The Group recognised a total expense, within administration costs, in respect of share-based payments under
equity-settled share option plans of $500,000 (2008: $1,501,000). The Company recognised a reversal of prior
year charge, within administration costs, in respect of share-based payments under equity-settled share option
plans of $114,000 (2008: $98,000).
STERLING ENERGY PLC
71
27.
SHARE – BASED PAYMENTS – continued
Share options (2002 – 2007)
The number of options and exercise prices has been adjusted to reflect the 40:1 share consolidation. Movements
during the year on share options were as follows:
2009
Number of
share
options
(restated)
Outstanding at the beginning of period
1,466,625
Forfeited during the period
Exercised during the period
(218,500)
–
Outstanding at the end of the year
1,248,125
Exercisable at the end of the year
1,248,125
2009
Weighted
average
exercise
price
(pence)
(restated)
432
736
–
397
397
2008
Number of
share
options
(restated)
1,721,625
(210,000)
(45,000)
1,466,625
1,404,125
2008
Weighted
average
exercise
price
(pence)
(restated)
468
704
160
432
428
For all options the Group plan provides for a grant price equal to the average quoted market price of the
Company’s shares on the date of Grant.
All options are equity settled. The vesting period for all options is generally two years. If the options remain
unexercised after a period of ten years from the date of grant, the options expire. Furthermore, some options are
forfeited if the employee leaves the Group before the options vest.
The range of exercise prices for options outstanding at the end of the year was:
Year of grant:
2001
2002
2003
2004
2005
2006
2007
2009
Weighted
average
exercise
price
(pence)
(restated)
160
160
280
500
680
951
620
2009
Number
(restated)
58,750
546,250
193,750
83,125
153,750
200,000
12,500
2008
Number
(restated)
58,750
546,250
193,750
83,125
231,250
291,000
62,500
No share options were exercised during 2009 (In 2008 the weighted average share price at the date of exercise
was 160 pence (restated)). The options outstanding at the end of the year have a weighted average contractual
life of 4.06 years (2008: 5.13 years). The cost of share options is spread over the vesting period of two years. The
weighted average fair value of options granted during the period was Nil pence (2008: Nil).
72
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
27.
SHARE – BASED PAYMENTS – continued
Fair values were measured by use of the Black-Scholes pricing model. The inputs to the model were as follows:
Weighted average share price (pence) (2008 restated)
Weighted average exercise price (pence) (2008 restated)
Average expected volatility
Expected life (years)
Average risk-free rate (%)
Expected dividends
2009
Number
157
n/a
54.91%
5
0.75%
None
2008
Number
324
160
54.58%
5
3.83%
None
The expected life of the options is based on the best estimate of the Directors following a review of the profile
of the award holders. Expected volatility was estimated by calculating the historical volatility of the Company’s
share price over the year preceding the grant of the options.
No performance criteria are attached to the outstanding options, other than the requirement that the employee
must complete two years of service with certain exceptions such as a Company takeover, compulsory redundancy
or else at the discretion of the Directors.
2007 Long Term Incentive Plan (‘2007 LTIP’)
The number of options and exercise prices has been adjusted to reflect the 40:1 share consolidation. In
accordance with the approved 2007 LTIP scheme, the Company granted nominal cost options to the Directors
to acquire ordinary shares (“Shares”) (the ‘A’ Options) and at the same time, granted nominal cost options to
acquire shares to the trustees of the Sterling Energy Plc Employee Benefit Trust (the “EBT”) (the ‘B’ Options). The
trustees of the EBT agreed to make awards to the Directors of reversionary interests, which would initially be
represented by the B Options. During 2009 the outstanding options under the 2007 Directors LTIP were
transferred and reverted to the 2007 approved staff LTIP scheme. The All Staff Long Term Incentive Plan (“All
Staff LTIP”) was approved by shareholders and introduced in 2009, and as a result no further awards or grants
under other existing Company share performance schemes will be made, subsisting awards and grants will
remain in place and the schemes will be allowed to time lapse.
The Company also granted nominal cost options to acquire Shares to other employees under the approved 2007
LTIP.
Movement during the year on share options were as follows:
Outstanding at the beginning of period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
2009
Number
of share
options
(restated)
1,987,025
158,590
(52,104)
(830,229)
1,263,282
–
2008
Number
of share
options
(restated)
1,113,350
1,139,375
–
(265,700)
1,987,025
–
STERLING ENERGY PLC
73
27.
SHARE – BASED PAYMENTS – continued
The nominal cost options outstanding at the end of the year have a weighted average remaining contractual life
of 1.45 years (2008: 2.28 years). The cost of these shares is spread over the vesting period of 3 years (2008:
3 years). The weighted average fair value of the options granted during the year was nil pence (2008:
48.16 pence).
The actual number of shares that will be finally awarded out of the maximum number stated above under the
LTIP, or alternative cash settlement at the parent Company's option, will depend upon the achievement of
performance criteria measured over a vesting period of three years for each award. Up to 50% of the nominal
cost options will vest based on a comparison of the total shareholder return (“TSR”) of the parent Company as
measured against a comparator group of companies (“the First Performance Condition”). The TSR of each
Company with the comparator group will be statistically ranked.
The LTIP options exercised during the year equate to the pro-ration of number of options for early departure of
good leavers of the Company and are based on ‘completed months’ on share options since grant dates to date
of departure.
The number of options that ultimately vest is based on the Company’s relative ranking as follows:
TSR compared to comparator group
Below Median
Median to Upper Quartile
Upper Quartile to Upper Decile
Above Upper Decile
25.0%
32.5%
42.5%
50.0%
Up to the other 50% of the nominal cost options will vest based on the share price growth of the Company’s
shares at the date of grant or at the amendment date for options granted before the amendment date (“the
Second Performance Condition”) as follows:
Share price growth %
Below 50%
50% – 75%
75% – 100%
100% – 125%
125% – 150%
above 150%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
The aggregated incremental fair value of $1,029,103 will be expensed over the remaining vesting periods (1 to
2 years).
The Company used the inputs noted below to measure the fair values of the old and new nominal cost options.
74
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
27.
SHARE – BASED PAYMENTS – continued
These fair values were calculated using modified binomial option pricing models. The inputs to these models were
as follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Expected life (years)
Risk free rate (%)
Expected dividends
2009
n/a
40
54.91%
1 to 2
0.75%
None
2008
(restated)
144
40
54.58%
2 to 3
3.83%
None
For options subject to the First Performance Condition – the weighted
expected % of vesting
29.78%
29.78%
Expected volatility was estimated by calculating the historical volatility of the Company’s share price over the
three years preceding the grant of the LTIP shares.
For the options that are subject to the First Performance Condition, a weighted expected percentage of options
vesting were applied. This was estimated based on the Company’s historical TSR performance against the
comparator Group on a quarterly basis from 2000 to 2009.
All Staff Long-Term Incentive Plan (‘All Staff LTIP’)
During 2009 the Company reviewed the existing share based incentive schemes in place to motivate and
incentivise its employees, and took independent advice. Based on this review a new long term incentive plan was
introduced to align the interests of the employees and Shareholders. In accordance with the approved All Staff
LTIP, the Company has granted options to its staff and non-executive Directors to acquire shares in the Company.
The movement during the year on the share options were as follows:
Outstanding at the beginning of the year
Granted during the period
Forfeited during the period outstanding at the end of the year
Outstanding at the end of the year
Exercisable at the end of the year
2009
Number of
Share options
–
3,143,088
–
3,143,088
–
Exercise price
(pence)
–
40
–
40
–
All options are equity settled. The vesting period is three years. If the options remain unexercised after a period
of five years from the date of grant, the options expire.
Options are forfeited if the employee leaves the group before the options vest or are exercised.
The options outstanding at the year end have a contractual life of 4.75 years. The cost of the options is spread
over the vesting period of three years. The fair value of the options granted during the year was 64.73 pence.
The number of options that vest are based on a comparison of the growth of the Company's share price (“SESP”)
against the growth of the FTSE350 index (“Index“) for the year ending 30 September 2010, with the share price
at 30 September 2009 re-determined as £1.57 following the share consolidation undertaken on 23 December
2009.
STERLING ENERGY PLC
75
27.
SHARE – BASED PAYMENTS – continued
If the SESP performance matches the Index performance, then 25% of the share options will be earned.
If the SESP under-performs the Index performance by 10% or more, then no share options will be earned and
the share options will lapse.
If the SESP performance is between matching the Index and under-performing by 10%, the amount of the share
options that will be earned will be determined by extrapolating on a 2.5:1 straight line basis.
If the SESP performance is between matching the Index and out-performing by 50%, the amount of the share
options that will be earned will be determined by extrapolating on a 1.5:1 straight line basis.
If the SESP out performs the Index performance by 50% or more, then 100% of the share options will be earned.
All performance measures are defined as being the absolute share price performance or absolute index
performance, and not the performance relative to each other.
Fair values were measured by use of a modified binomial model. The inputs to the basic binomial model were as
follows:
Share price (pence)
Exercise price (pence)
Expected volatility
Expected life (years)
Risk free rate (%)
Expected dividends
2009
157
40
54.91%
3
0.75%
Nil
Expected volatility was estimated by calculating the historical volatility of the Company's share price over the
three years preceding the share placing at 29 September 2008. In modifying the binomial model, the Company
has calculated the mean (5%) and the standard deviation (12%) of the historical year-on-year growth rates for
the years ended 30 September 2002 to 2009. The Company has overlaid a normal distribution for the FTSE350
condition to assess a range of possible outcomes.
The Company has then compared the SESP performance against the range of Index performance to estimate the
vested proportions of share options in accordance with the scheme rules. Weighting factors based on
probabilities under the normal distribution are then applied to the range of share option values to calculate a
weighted-average share options value.
Non-executive Directors Long-Term Incentive Plan (’NED LTIP‘)
The movement during the year on the share options was as follows:
Outstanding at the beginning of the year
Granted during the period
Forfeited during the period outstanding at the end of the year
Outstanding at the end of the year
Exercisable at the end of the year
2009
Number of
Share options
–
375,000
–
375,000
–
Exercise price
(pence)
–
40
–
40
–
76
STERLING ENERGY PLC
NOTES TO THE FINANCIAL STATEMENTS – continued
27.
SHARE – BASED PAYMENTS – continued
All options are equity settled. The vesting period is three years. If the options remain unexercised after a period
of five years from the date of grant, the options expire.
Furthermore, options are forfeited if the employee leaves the group before the options vest or are exercised. The
options outstanding at the year end have a contractual life of 4.75 years. The cost of the options is spread over
the vesting period of three years. The fair value of the options granted during the year was 119.90 pence.
No performance criteria are attached to the outstanding options, other than the requirement that the holders
must remained employed by the group when the options are exercised, unless the employment are terminated
on death or as good leavers.
Fair values were measured by use of a binomial model, using the same inputs as the basic (pre-modified) model
for the All Staff Long-Term Incentive Plan above.
28.
RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation. At the year end the Company had amounts payable to subsidiary companies of $151,600,000
(2008: $61,282,000). Amounts owed by related parties and amounts owed to related parties are as follows:
Amounts owed by related parties
Sterling Energy (International) Limited
Sterling North West Africa Holdings Limited
Sterling Energy (Mauritania) Limited
Lepco USA Intercompany Receivables
SE USA Intercompany Receivables
Amounts owed to related parties
Sterling Energy (UK) Limited
Sterling North West Africa Holdings Limited
Sterling Energy (Mauritania) Limited
Sterling Oil Limited
Sterling Energy (North America) Ltd
Note
17
17
17
17
17
18
18
18
18
18
As at
31st December
2009
$000
As at
31st December
2008
$000
26
–
27,917
36
–
27,979
35,019
14,270
130,000
290
–
25
529
27,917
36
67,141
95,649
13,130
13,569
130,000
230
2
179,579
156,931
Other transactions with related parties include cost allocations for services provided by Sterling Energy (UK)
Limited to other group companies.
STERLING ENERGY PLC
77
28.
RELATED PARTY TRANSACTIONS – continued
Transactions with Directors
Details of Directors’ remuneration, who comprise key management personnel, are provided below:
Short-term employee benefits
Compensation for loss of office
Post employee benefits
Share-based payments
2009
$000
3,332
52
245
366
3,995
2008
$000
3,134
74
328
715
4,251
78
STERLING ENERGY PLC
DEFINITIONS AND GLOSSARY OF TERMS
Year ended 31 December 2009
$
1P
US Dollars
Proven reserves or in-place quantities depending on the context
2007 LTIP
the 2007 Long Term Incentive Plan
2D
2P
3D
3P
AIM
All Staff LTIP
Articles
bbl
bbl/d
bopd
boepd
two dimensional
the sum of Proven and Probable reserves or in-place quantities
depending on the context
three dimensional
the sum of Proven, Probable and Possible reserves or in-place
quantities depending on the context
Alternative Investment Market of the London Stock Exchange
the All Staff Long Term Incentive Plan adopted in 2009
the articles of association of the Company
barrel, equivalent to 42 US gallons of fluid
barrel per day
barrel of oil per day
barrel of oil equivalent per day
Borrowing Base Facility
the facility made available under the Senior Facility Agreement
Bcf
Board
boe
Capex
billion cubic feet of gas
the Board of Directors of the Company
barrel of oil equivalent, a measure of the gas component converted
into its equivalence in barrels of oil
capital expenditure
Combined Code
the Combined Code on Corporate Governance
Company or Sterling
Sterling Energy Plc
Contingent Resources
those quantities of petroleum estimated, as at a given date, to be
potentially recoverable from known accumulations by application of
development projects but which are not currently considered to be
commercially recoverable due to one or more contingencies,
Contingent Resources are a class of discovered recoverable resources.
the directors of the Company
earnings before interest, taxation, depreciation, depletion and
amortisation, impairment and pre-licence expenditure
Exploration and evaluation assets
Directors
EBITDA
E&E
farmin & farmout
a transaction under which one party (farmout party) transfers part
of its interest to a contract to another party (farmin party) in
exchange for a consideration which may comprise the obligation to
STERLING ENERGY PLC
79
Firm Placing
the firm placing of shares pursuant to the prospectus dated
pay for some of the farmout party costs relating to the contract and
a cash sum for past costs incurred by the farmout party
FPSO
G&G
Group
HSES
4 December 2009
Floating, Production, Storage and Offloading vessel
geological and geophysical
the Company and its subsidiary undertakings
Health, Safety, Environment and Security
hydrocarbons
organic compounds of carbon and hydrogen
km
km2
KRG
lead
m
mmbbl
mmstb
mmboe
mmcf
mmcfg/d
mmcfge/d
mmscf/d
NED LTIP
Open Offer
kilometre(s)
square kilometre (s)
Kurdistan Regional Government of Iraq
indication of a possible exploration prospect
metre(s)
million barrels
million barrels of oil at stock tank conditions
million barrels of oil equivalent
million cubic feet of gas
million cubic feet of gas per day
million cubic feet of gas equivalent per day
million cubic feet at standard pressure and temperature per day
Non-executive Director Long Term Incentive Plan adopted in 2009
the invitation to qualifying shareholders to subscribe for open offer
shares pursuant to the prospectus dated 4 December 2009
P90, P50, P10
90%, 50% and 10% probabilities respectively that the stated
petroleum
Petronas
PP&E
prospect
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
oil, gas, condensate and natural gas liquids
PC Mauritania I PTY LTD
Property, Plant & Equipment
a potential sub-surface accumulation of hydrocarbons which has
been identified but not drilled
Prospective Resources
those quantities of petroleum which are estimated, as at a given
date, to be potentially recoverable from undiscovered accumulations
80
STERLING ENERGY PLC
DEFINITIONS AND GLOSSARY OF TERMS – continued
Year ended 31 December 2009
PSC
Reserves
reservoir
RI
RISC
seismic
production sharing contract
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
a porous and permeable rock capable of containing fluids
royalty interest
RISC (UK) Limited of Golden Cross House, 8 Duncannon Street,
London WC2N 4JF
data, obtained using a sound source and receiver, that is processed
to provide a representation of a vertical cross-section through the
subsurface layers
Senior Facility Agreement
$125 million borrowing base facility agreement dated 26 September
2007
September Placing
the placing of 4,807,315,000 ordinary 1 pence shares at a price of
1.3 pence per share to raise £62.5 million which was completed in
shares
spud
sq km
sq mi
Tcf
TEA
September 2009
40p Ordinary Shares
to commence drilling a well
square kilometre
square mile
trillion cubic feet of gas
technical evaluation agreement
United Kingdom or UK
the United Kingdom of Great Britain and Northern Ireland
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
STERLING ENERGY PLC
81
PROFESSIONAL ADVISERS
Nominated Advisors
Evolution Securities
100 Wood Street London
EC2V 7AN
Bankers
Barclays Commercial Bank
1 Churchill Place
London
E14 5HP
Legal
Ashurst Broadwalk Street
5 Appold Street
London EC2A 2HA
Auditors
Deloitte LLP
Chartered Accountants
London
Registered Office
5 Chancery Lane
Clifford’s Inn
London
WC2A 1LG
82
STERLING ENERGY PLC
ANNUAL GENERAL MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to
what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate
independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have
sold or otherwise transferred all your shares in Sterling Energy Plc, please forward this document and the
accompanying Form of Proxy to the person through whom the sale or transfer was effected, for transmission
to the purchaser or transferee.
Information relating to the appointment of a proxy may be found in the notes appended to this notice of
Annual General Meeting.
STERLING ENERGY PLC (the "Company")
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Sterling Energy Plc will be held at Ashurst LLP,
Broadwalk House, 5 Appold Street, London, EC2A 2HA on 7 May 2010, at 11.00 a.m. to consider and, if
thought fit to pass, the following resolutions. Resolution 9 shall be proposed as a special resolution and all
other resolutions shall be proposed as ordinary resolutions.
ORDINARY RESOLUTIONS
1. To receive and adopt the Accounts for the financial year ended 31 December 2009, together with the
reports of the Directors and auditors thereon.
(Resolution 1)
2. To approve the Remuneration Report contained in the Accounts for the financial year ended 31 December
2009.
(Resolution 2)
3.
In accordance with article 106 of the Company’s Articles of Association, to re-elect Richard Stabbins, who
retires by rotation, as a Non Executive Director of the Company.
(Resolution 3)
4.
In accordance with article 110 of the Company's Articles of Association, to elect Keith Henry as a Non
Executive Director of the Company (appointed since the last annual general meeting).
(Resolution 4)
5.
In accordance with article 110 of the Company's Articles of Association, to elect Nicholas Clayton as a Non
Executive Director of the Company (appointed since the last annual general meeting).
(Resolution 5)
6. To reappoint Deloitte LLP as auditors of the Company.
7. To authorise the Directors to set the remuneration of the auditors.
(Resolution 6)
(Resolution 7)
8. That the Directors be generally and unconditionally authorised for the purposes of section 551 of the
Companies Act 2006 (the "Act"), to exercise all the powers of the Company to allot shares and grant rights
to subscribe for, or convert any security into, shares:
(a) up to an aggregate nominal amount (within the meaning of section 551(3) and (6) of the Act) of
£29,241,283 (such amount to be reduced by the nominal amount allotted or granted under (b) below
in excess of such sum); and
(b) comprising equity securities (as defined in section 560 of the Act) up to an aggregate nominal amount
(within the meaning of Section 551(3) and (6) of the Act) of £58,482,567 (such amount to be reduced
by any allotments or grants made under (a) above) in connection with or pursuant to an offer or
invitation by way of a rights issue in favour of holders of ordinary shares in proportion (as nearly as
practicable) to the respective number of ordinary shares held by them on the record date for such
allotment (and holders of any other class of equity securities entitled to participate therein or if the
Directors consider it necessary, as permitted by the rights of those securities), but subject to such
STERLING ENERGY PLC
83
exclusions or other arrangements as the Directors may consider necessary or appropriate to deal with
fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which
may arise under the laws of, or the requirements of any regulatory body or stock exchange in any
territory or any other matter whatsoever,
these authorities to expire at the conclusion of the next Annual General Meeting of the Company (or if
earlier on 30 June 2011), (save that the Company may before such expiry make any offer or agreement
which would or might require shares to be allotted or rights to be granted, after such expiry and the
Directors may allot shares, or grant rights to subscribe for or to convert any security into shares, in
pursuance of any such offer or agreement as if the authorities conferred hereby had not expired).
(Resolution 8)
SPECIAL RESOLUTION
9. That subject to the passing of Resolution 8, the Directors be given power pursuant to section 570(1) and
573 of the Companies Act 2006 (the "Act") to:
(a) allot equity securities (as defined in section 560 of the Act) of the Company for cash pursuant to the
authority conferred by that resolution; and
(b) sell ordinary shares (as defined in section 560(1) of the Act) held by the Company as treasury shares
for cash, as if section 561 of the Act did not apply to any such allotment or sale, provided that this
power shall be limited to the allotment of equity securities for cash:
(i)
in connection with or pursuant to an offer or invitation to acquire equity securities (but in the
case of the authority granted under Resolution 8(b), by way of a rights issue only) in favour of
holders of ordinary shares in proportion (as nearly as practicable) to the respective number of
ordinary shares held by them on the record date for such allotment or sale but subject to such
exclusions or other arrangements as the Directors may consider necessary or appropriate to deal
with fractional entitlements, treasury shares, record dates or legal regulatory or practical
difficulties which may arise under the laws of or the requirements of any regulatory body or stock
exchange in any territory or any other matter whatsoever; and
(ii)
in the case of the authority granted under Resolution 8(a) above, and otherwise than pursuant to
paragraph (i) of this resolution, up to an aggregate nominal amount of £4,386,192, and shall
expire at the conclusion of the next Annual General Meeting of the Company (or, if earlier, on 30
June 2011), save that the Company may before such expiry make any offer or agreement which
would or might require equity securities to be allotted, or treasury shares to be sold, after such
expiry and the Directors may allot equity securities, or sell treasury shares in pursuance of any such
offer or agreement as if the power conferred hereby had not expired.
(Resolution 9)
By order of the Board
Jonathan Cooper
Company Secretary
28 March 2010
84
STERLING ENERGY PLC
Registered Office:
Sterling Energy Plc
5 Chancery Lane
London
WC2A 1LG
EXPLANATORY NOTES TO THE RESOLUTIONS
The following explanatory information is provided by way of background to the business of the meeting:
Resolution 8
Your Directors may allot shares and grant rights to subscribe for, or convert any security into, shares only if
authorised to do so by shareholders. The authority granted at the last Annual General Meeting is due to
expire at this year’s Annual General Meeting. Accordingly, Resolution 8 will be proposed as an ordinary
resolution to grant new authorities to allot shares and grant rights to subscribe for, or convert any security
into, shares (a) up to an aggregate nominal amount of £29,241,283 and (b) in connection with a rights issue
up to an aggregate nominal amount (when added to allotments under part (a) of the resolution) of
£58,482,567.
These amounts represent approximately one third and approximately two thirds respectively of the total
issued ordinary share capital of the Company at 26 March 2010, in accordance with current guidelines of the
Associate of British Insurers (the "ABI") insofar as they affect the Company. If given, these authorities will
expire at the next Annual General Meeting of the Company or on 30 June 2011, whichever is the earlier. Your
Directors have no present intention of issuing shares pursuant to this authority.
Resolution 9
Your Directors also require additional authority from shareholders to allot equity securities or sell treasury
shares where they propose to do so for cash and otherwise than to existing shareholders pro rata to their
holdings. The authority granted at the last Annual General Meeting is due to expire at this year's Annual
General Meeting. Accordingly, Resolution 9 will be proposed as a special resolution to grant such authority.
Apart from offers or invitations in proportion to the respective number of shares held, the authority will be
limited to the allotment of equity securities and sales of treasury shares for cash up to an aggregate nominal
value of £4,386,193 (being five per cent. of the Company's issued ordinary share capital at 26 March 2010). If
given, this authority will expire at the next Annual General Meeting of the Company or on 30 June 2011,
whichever is the earlier. Your Directors do not have any present intention of exercising this authority, but
consider it desirable to have the flexibility to use it should opportunities arise. Your Directors will have due
regard to institutional guidelines in relation to any exercise of this authority, in particular, the requirement
for advance consultation and explanation before making any non pre-emptive cash issue pursuant to this
resolution which exceeds 7.5% of the Company's issued share capital in any rolling 3 year period.
Recommendation
Your Directors believe that all the proposed resolutions to be considered at the Annual General Meeting as
set out in this document are in the best interests of the Company and its shareholders as a whole. Accordingly,
your Directors unanimously recommend that you vote in favour of them as they intend to do in respect of
their own beneficial holdings.
NOTES:
1. Appointment of a proxy
Only holders of ordinary shares are entitled to attend and vote at this meeting.
A member is entitled to appoint another person as their proxy to exercise all or any of their rights to attend
to speak and to vote at the Annual General Meeting. A member may appoint more than one proxy in relation
to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or
shares held by them. A proxy need not be a member of the Company. A Form of Proxy for the Annual General
Meeting is enclosed and should be completed and returned so as to reach the Company's registrar, Capita
Registrars, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU by hand, post or courier (during normal
STERLING ENERGY PLC
85
business hours only), not later than 48 hours before the time of the Annual General Meeting. Completion of
a Form of Proxy or any CREST Proxy Instruction will not preclude a member attending and voting in person at
the meeting.
Alternatively, you can register your proxy vote electronically by means of a website provided by the
Company's registrar (www.capitashareportal.com), where full instructions are provided. In order to register
your vote on-line you will need to enter the Investor Code which is given in the enclosed Form of Proxy. This
website can only be used for the purpose stated above, not for sending any other document or information.
2. CREST electronic proxies
Alternatively, if you are a member of CREST, you may register the appointment of a proxy by using the CREST
electronic proxy appointment service.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment
service may do so for this Annual General Meeting and any adjournment(s) thereof by using the procedures
described in the CREST Manual subject to the provisions of the Company's articles of association. CREST
personal members or other CREST sponsored members, and those CREST members who have appointed a
voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able
to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate
CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK
& Ireland Limited's specifications and must contain the information required for such instructions, as described
in the CREST Manual (available via www.euroclear.com/CREST). The message, regardless of whether it
constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed
proxy, must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA10) by no later
than 48 hours before the start of the Annual General Meeting. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host)
from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by
CREST. After this time any change of instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that
Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular
messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST
personal member or sponsored member or has appointed a voting service provider(s), to procure that his
CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message
is transmitted by means of the CREST system by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a)
of the Uncertificated Securities Regulations 2001.
3. Documents on display
There will be available for inspection at the registered office of the Company during normal business hours
from the date of this notice until the time of the annual general meeting and at the place of the Annual
General Meeting for at least 15 minutes prior to and during the meeting:
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STERLING ENERGY PLC
EXPLANATORY NOTES TO THE RESOLUTIONS – continued
(a) copies of service agreements under which Directors of the Company are employed, and copies of the
terms and conditions of appointment of Non-Executive Directors; and
(b) the Company's Articles of Association.
4. Right to attend and vote
Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that in
order to have the right to attend and vote at the Annual General Meeting (and also for the purpose of
determining how many votes a person entitled to attend and vote may cast), only those persons who have
their name entered in the register of members' of the Company at 6:00 p.m. on 5 May 2010 or, in the event
of any adjournment, by 6:00 p.m. on the date which is two days before the day of the adjourned meeting.
Changes to entries on the register after this time shall be disregarded in determining the rights of any person
to attend or vote at the meeting.
5. Corporate members
Any corporate which is a member can appoint one or more corporate representatives who may exercise on its
behalf all of its powers as a member provided that they do not do so in relation to the same shares.
6. Electronic Communication
You may not use any electronic address (within the meaning of section 333(4) of the Companies Act 2006)
provided in this notice (or in any related documents including the proxy form) to communicate with the
Company for any purposes other than those expressly stated.
STERLING ENERGY PLC
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STERLING ENERGY PLC
Sterling Energy Plc
5 Chancery Lane
London
WC2A 1LG
Tel: +44 (0)20 7405 4133
Fax: +44 (0)20 7440 9059
Info@sterlingenergyuk.com
www.sterlingenergyplc.com
STERLING ENERGY PLC
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