Report and
Financial Statements
2012
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 focus on projects in Africa
and the Middle East. Sterling
has high potential exploration
projects in Cameroon and
Madagascar, and an interest in
production in Mauritania.
22
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Sterling Energy PLC Annual Report and Financial Statements 2012
Sterling Energy Plc Report and Financial Statements 2012 Sterling Energy Plc
Report and
Financial Statements
Year ended 31 December 2012
CONTENTS
Chairman’s Statement
Chief Executive’s Review
Operations Review
Reserves Summary
Schedule of Interests
Financial Review
Corporate Responsibility
Board of Directors
Corporate Governance
Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditors’ Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Financial Statements
Definitions and Glossary of Terms
Professional Advisers
Annual General Meeting 2013
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Sterling Energy Plc Report and Financial Statements 2012 OVERVIEW
Chairman’s Statement
Sterling remains well funded and is actively pursuing new
opportunities to broaden our exploration portfolio. During
2012, we recruited several new sub-surface specialists
to work under our Exploration Director who joined in
November 2011; refreshment of our sub-surface team has
increased the breadth and depth of our geological expertise
and experience. The team has screened numerous new
ventures, reviewing several in detail, and, with the additional
expertise of the finance and legal functions, undertaken
due diligence on several highly ranked opportunities, the
more attractive being presented to the board. However
those projects supported by the board either failed to
pass the higher levels of due diligence undertaken prior
to execution of transaction documents, or were acquired
by others who appeared to be able and willing to offer
considerably larger consideration to the vendors. Some of
the countries we have been actively looking at over the last
12 months have become very popular with entry prices for
new ventures reaching new highs. Whilst we continue to
focus on Africa and the Middle East, we are now looking at
other geographical areas.
Our most recent news is the termination of the Sangaw
North Production Sharing Agreement (PSC), bringing
to an end our 5-year exploration program in the highly
prospective area of Kurdistan. One of the primary
advantages of the Sangaw North block was that it
contained one very large prospect requiring one exploration
well to determine if it was to be a potentially commercial
accumulation. The downside we have now experienced is
that after the disappointing results announced in 2011, in
our judgment there was little potential remaining. Following
the acquisition of more 2D seismic in 2012, Sterling with its
joint venture partner Addax Petroleum, decided not to drill
a further exploration well and to subsequently withdraw
from the PSC.
Whilst the outcome is disappointing, we believe the
initial resource potential of the Sangaw North block, a
view shared by Addax when they farmed-in and paid for
our drilling costs, justified our own financial exposure in
this project. Now we must look for similar ‘risk-reward’
opportunities, hopefully with a better outcome.
In Cameroon we have worked with Murphy Oil, who is
now the operator of the Ntem block, to refine the preferred
choice of prospects to a drill-ready status. We remain
excited about the prospectivity of the Ntem block and
look forward to resuming our exploration of the block with
the drill-bit when the resolution of the border dispute has
progressed to the satisfaction of both us and our partners.
In Madagascar we have made good progress with OMNIS,
the state oil company, to re-phase the outstanding work
commitments under the Ampasindava and Ambilobe
licence agreements following the suspension of exploration
activities after the change of government in March 2009.
We believe the various parties involved in the roadmap
towards democratic elections have agreed to reschedule
the elections to later in 2013, which we expect to enable
the resumption of operations in the country.
FINANCIAL
The Company had cash resources of $120.3 million at
the end of 2012. Our work programme for 2013 is fully
funded and we have substantial funds available for new
venture activity. We remain pleased that the revenue
from Chinguetti field operations in Mauritania continued
to provide positive cash flow during 2012 in excess of
Sterling’s administrative costs.
4
Sterling Energy Plc Report and Financial Statements 2012 $120.3 million
CASH RESOURCES
We will remain focused on acquiring
only those ventures which we believe
will deliver real growth and value for
our shareholders
OUTLOOK FOR 2013 AND BEYOND
We are optimistic that progress towards a resolution of the
border dispute between Cameroon and Equatorial Guinea
will be made in 2013 and we are ready to commence
the drilling programme to evaluate the large prospects
identified from 3D seismic. In Madagascar the roadmap for
elections indicates a democratically elected government
should be in place during 2013. We believe the Ntem and
Ampasindava blocks contain significant potential value
waiting to be tested with the drill-bit.
During 2013 our key objective is to add to our portfolio of
assets. We will look both within and beyond our legacy
areas for the right opportunity but remain focused on
acquiring only those ventures which we believe will deliver
real growth and value for our shareholders.
2012 SUMMARY
Reached agreements for the prolongation of
exploration licences in Madagascar and now
awaiting ratification.
Completed exploration operations in the
Sangaw North block in Kurdistan.
Received $12.7 million of net cash flow from
Chinguetti field operations during 2012 (2011:
$11.2 million).
Cash resources at 31 December 2012 of
$120.3 million (2011: $115.8 million).
I would like to thank our shareholders for their continuing
interest in Sterling and all our staff for their hard work
during 2012.
Company remains debt free.
Alastair Beardsall
Chairman
15 March 2013
5
Sterling Energy Plc Report and Financial Statements 2012 OVERVIEW
Chief Executive’s Review
Sterling is an oil and gas company currently focused on
exploration in Africa and the Middle East. The Company’s
strategy continues to be to build shareholder value through
participation in the exploration drilling of large exploration
prospects whilst retaining a material working interest. The
Company’s existing portfolio consists principally of large
working interests in high materiality exploration licences
acquired early in the exploration of an area. The Company
has then advanced understanding of the exploration play
through the acquisition of data and the application of
technical studies, and reduced the exploration risk to a
level that is commercially viable for the drilling of exploration
wells. When appropriate the Company has introduced
partners, generally through a farm-down process, to pay
some, or all, of Sterling’s share of the costs of exploration
drilling operations.
Following the completion of exploration activities in
Kurdistan, the Company’s exploration portfolio consists
of highly prospective interests in two areas, Cameroon
and Madagascar. With this concentrated portfolio, the
drilling of exploration wells is infrequent and the outcome
of success or failure in any one well will greatly affect the
longer term value of the Company. Success in any one
exploration well has the potential for very large returns for
shareholders and, by farming-down a proportion of our
working interest in exchange for a third party to cover our
share of the costs, the down side of our financial exposure
is limited.
In Kurdistan, the Company completed the exploration of
the Sangaw North PSC area by acquiring and interpreting
further 2D seismic data targeting the potential of a
secondary prospect along the flank of the main structure,
analogous to discoveries made in adjacent acreage to the
south east. Sterling, along with our joint venture partner,
concluded that the risked potential did not justify the cost
exposure of an exploration well and elected to withdraw
from the PSC. Although the outcome from our exploration
activities in Kurdistan has been disappointing, this venture
offered shareholders the potential of a very large addition
in value in the success case, with the downside limited by
the farming out of a portion of the Company’s interest in
return for a carry of costs through the drilling of the first
exploration well.
In Cameroon, Sterling has conducted detailed interpretation
of the reprocessed 3D seismic, completed in 2011,
increasing the Company’s confidence in the prospects
previously identified within the licence area. A stacked
series of submarine fans, each having, in the Company’s
best estimate, gross un-risked prospective resources of
several hundred million barrels of recoverable oil, may offer
the potential for multiple targets to be intersected by the
first exploration well. While the overlapping maritime border
claim between Equatorial Guinea and Cameroon has not
yet been resolved, we believe that progress continues
and that the joint venture partners, Sterling and Murphy
Cameroon Ntem Oil Co. Ltd (Operator), are well placed for
the drilling of a very high potential exploration well.
In Madagascar, significant progress has been made, in
accordance with the ‘roadmap’ signed by the incumbent
Government and their African neighbours in 2011, towards
the holding of democratic elections scheduled to take
place in 2013. Sterling has material interests in two high
potential exploration licences, Ambilobe and Ampasindava,
located in the deep water basins offshore north-west
Madagascar. The Company has concluded discussions
with OMNIS, the state agency managing the petroleum
resources of Madagascar, concerning the scheduling of
the exploration period in these licences, and expects that
exploration activities will resume in both licences in 2013.
On resumption, each licence will have the same remaining
duration and obligations in the current exploration periods
as existed in March 2009 when activities last took place. In
Ampasindava, the large Sifaka prospect is now expected
to be drilled during 2014 or 2015.
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Sterling Energy Plc Report and Financial Statements 2012
$22.5 million
REVENUE
The Company has large working
interest in high materiality exploration
and is well placed to build the portfolio
using existing resources
subsequent well drilling, and the acquisition of 2D seismic
data across nearby leads. However, Sterling is ready to
accelerate activities in both of these areas should the
opportunity arise.
Sterling has a strong balance sheet with cash resources
of $120.3 million at 31 December 2012 and generates
cash, from production, in excess of its administrative and
overhead costs. The Company is confident that the external
factors adversely influencing the existing exploration assets
will be resolved in due course, and that it is well placed to
build on the existing portfolio in a manner consistent with
the Company’s strategy, using its existing resources.
Angus MacAskill
Chief Executive Officer
15 March 2013
With the completion of exploration activities in Kurdistan,
the Company’s exploration portfolio has become more
concentrated. Sterling’s strategy includes the expansion
of the existing portfolio through the addition of exploration
assets offering material potential value to shareholders.
During 2012, the Company strengthened its technical and
commercial team, completed a preliminary screening of
many exploration opportunities in sub-Saharan Africa, and
evaluated a number in more detail. Through this process,
the Company identified several attractive opportunities to
complement its existing portfolio. However, a combination
of more detailed due diligence that identified unacceptable
commercial and legal risks, and more aggressive bidding
terms by our peers, resulted in no new ventures being
secured during the period. The Company continues to
identify and evaluate a number of interesting opportunities,
and the expansion of the existing portfolio will be a key
area of focus during 2013.
The Company also has an economic interest, approximately
equivalent to 8%, in production from the Chinguetti field in
Mauritania and a minor royalty interest in the surrounding
exploration acreage. Chinguetti is a mature field with no
further development planned. Gross oil production during
2012 averaged approximately 6,256 barrels per day. Cash
flow from our interests in Chinguetti currently covers the
Company’s administrative overhead costs and makes a
contribution to the cost of operations. Whilst the cash flow
from this project is significant, this asset is not material in
comparison to the future potential of our other projects.
Sterling’s exploration portfolio consists of highly
prospective and material exploration projects in two
emerging exploration areas, Cameroon and Madagascar.
As both are progressing slower than we would like, due
to external factors not controlled by Sterling, the planned
exploration programme in existing assets during 2013 is
relatively modest and consists of the acquisition of a site
survey in the Ampasindava licence, in preparation for
7
Sterling Energy Plc Report and Financial Statements 2012 Sterling Energy Plc
Operations Review
Year ended 31 December 2012
OPERATIONS
Operations Review
CAMEROON
Ntem (WI 50%)
The Ntem concession area is a deep water 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. Additional seismic and gravity data were purchased.
This large block is undrilled and is well placed with respect
to both Tertiary and Upper Cretaceous plays, which have
both proved successful in West Africa. To the north of the
block, Tertiary oil, gas and condensate discoveries made by
Noble Energy commenced production in 2011, and Euroil
(Bowleven) continue to appraise their nearby discoveries
and are progressing these towards development.
During 2012 Sterling interpreted the re-processed 3D
seismic data, which provided significantly improved data
quality and increased Sterling’s confidence in the material
exploration prospects previously identified in the block. The
Company is in the process of working up a full prospect
inventory for the block and considers that a stacked series
of submarine fans, offering the potential for multiple targets
being intersected by one exploration well, are ready to drill.
Current work confirms the significant potential of these
prospects, with each having gross un-risked prospective
recoverable resources of several hundred million barrels.
In November 2011 Sterling completed a farm-out agreement
with Murphy Cameroon Ntem Oil Co. Ltd (Murphy Oil), a
wholly owned subsidiary of Murphy Oil Corporation under
which Murphy Oil was assigned a 50% working interest in,
and operatorship of, the Ntem concession. Sterling retains
a 50% non-operated working interest. As consideration,
Murphy Oil paid to Sterling a contribution towards past
costs and is committed to fully fund joint operations in
relation to the current phase of exploration.
Operations within 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. The Company
believes that both countries are actively working to resolve
this issue and that the impact of the outcome will be either
neutral or positive to the Company’s position. However,
it is possible that the resolution could take longer than
expected and that the outcome could have a negative
effect on the Company’s position.
When force majeure is lifted, there will be 15 months
remaining in the current exploration period which includes
the drilling of one exploration well. Having introduced an
experienced deep water operator, the Company is well
placed for this operation when it occurs.
MADAGASCAR
Sterling’s Ambilobe and Ampasindava blocks are located
in the Majunga and Ambilobe deep water basins,
respectively, offshore north-west Madagascar. Exploration
activity in these blocks continues to be delayed due to
the political situation in the country following a change
of Government in March 2009. The Government of
Madagascar has not been recognised by the African
Union or by the United Nations but in September 2011, the
political parties in Madagascar agreed a process, prepared
by the Southern African Development Community, which
involved establishment of a Transitional Government, and
with the objective of holding democratic elections which
are expected to take place in 2013.
During 2012, discussions continued with OMNIS, the state
regulator, and formal agreement was reached to prolong
the current exploration period of both the Ambilobe and
Ampasindava production sharing contracts with each
licence having the same remaining duration and obligations
in the current exploration periods as existed in March 2009;
in effect, the exploration periods will have been suspended
10
Sterling Energy Plc Report and Financial Statements 2012
from March 2009 to when they resume. These agreements
now await formal ratification by the Government.
Ampasindava (WI 30%)
The production sharing contract (PSC) for Ampasindava
is in the third phase of the exploration period with a
minimum work commitment of one exploration well.
The large Sifaka prospect is ready to drill and has been
independently estimated to contain gross un-risked best
estimate prospective recoverable resources of 1.2 billion
barrels (RISC Competent Persons Report, March 2008).
ExxonMobil (WI 70%, Operator) and Sterling plan to drill
this well once political stability is re-established.
Following the farm-in by ExxonMobil in 2005, Sterling’s costs
are carried up to a fixed amount. The cost to drill the Sifaka
prospect is estimated to exceed the remaining carry and the
Company has started a farm-out process to introduce an
additional partner, and reduce its current working interest, to
cover these costs. It is currently unlikely that an exploration
well will commence drilling before mid-2014.
Ambilobe (WI 100% and Operator)
The PSC for Ambilobe is in the 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. A
number of large Cretaceous and Tertiary leads have been
identified, located in both shallow and deep waters, which
will require additional seismic data to develop into potential
drillable prospects. The Company has started a farm-out
process to introduce a partner to carry the costs of the
next stage of exploration which is likely to include the
acquisition of additional seismic data to define the leads
that have been identified.
KURDISTAN
Sangaw North PSC (Relinquished)
The Sangaw North block lies in the foothills region of the
Zagros fold belt, approximately 140km south east of Erbil,
the capital of the Kurdistan region of Iraq.
During 2012, Sterling completed its exploration of the
Sangaw North block, having signed the Sangaw North
Production Sharing Contract (“PSC”) in November 2007,
targeting high-impact exploration at moderate exploration
risk, and in early 2013 the Company withdrew from the PSC.
In July 2008, Sterling entered into a farm-out agreement
with Addax Petroleum Sangaw Limited (Addax) under
which Addax paid Sterling’s past costs, seismic acquisition
costs, and costs for drilling the first exploration well on
the block, excluding testing. Sterling retained a 53.33%
interest in the PSC.
Following the acquisition of 325km of 2D seismic in
November 2008,
the Sangaw North-1 exploration
well commenced drilling in early 2010, targeting major
exploration potential in Triassic, Jurassic, and Cretaceous
aged formations within a large anticline structure. Five flow
tests were conducted with gas being produced, along
with formation water, in all five of the flow tests at rates
that were not commercial and the well was plugged and
abandoned.
Having identified additional exploration potential, the
joint venture partners entered the second sub-period of
the exploration phase of the PSC in November 2011.
The Company completed acquisition of a further 117km
of 2D seismic data in mid-2012. Interpretation of the new
2D seismic data indicated that the risked potential of a
secondary prospect along the flank of the main structure,
analogous to the recent discoveries made in adjacent
acreage to the south east of the Sangaw North PSC area,
did not justify the cost exposure of an exploration well.
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Sterling Energy Plc Report and Financial Statements 2012
OPERATIONS
Operations Review (cont.)
A farm-out process was conducted which did not result
in any offers of participation, indicating the wider industry
concurred with the Company’s view.
the Company’s economic interests, of 0.475 million barrels
(2011: 0.664 million barrels).
No in-fill drilling or work-over activity took place on the
Chinguetti field during 2012. Planned shutdowns were
conducted over a total of 4 days in the second half of 2012
for maintenance of the floating production and storage
facility and subsea equipment.
In the event of any commercial development of existing
or future discoveries within the PSC-A, PSC-B and C-10
contract areas, Sterling will be entitled to revenue, but will
not have any cost obligations, under its royalty interest
agreements with Premier Oil.
In November 2012, the Banda field, located in PSC-A
and operated by Tullow Oil Plc, was declared commercial
and it is planned that the field will supply gas to a new
local power station, subject to completion of a Gas Sales
Agreement.
Tullow Oil Plc plans to drill an exploration well in the C-10
contract area in the second half of 2013.
Philip Frank
Exploration Director
15 March 2013
Under the terms of the PSC, the joint venture partners
were required to notify the Kurdistan Regional Government
of Iraq (KRG) on or before 31 January 2013 whether the
partnership intended to drill a further exploration well on
the Sangaw North block. On 29 January 2013, Sterling
notified the KRG of the joint venture partnership decision
not to drill a second exploration well in the contract area
and the PSC automatically terminated on that date. The
work commitments under the PSC have been satisfied.
MAURITANIA
Chinguetti (Economic Interest via Funding and
Royalty Agreements)
Sterling has economic interests in the Chinguetti field
through a funding agreement with Societe Mauritanienne
Des Hydrocarbures, Mauritania’s national oil company,
and a royalty agreement with Premier Oil.
Gross production during 2012 averaged 6,256 bopd
(2011: 7,250 bopd) and the average production net to
Sterling, from the Company’s economic interests, during
2012 was 523 bopd (2011: 629 bopd). Production in the
first half of the year was reduced by a shutdown of 17 days
due to a hydrate blockage in the gas pipeline connecting
Banda to Chinguetti and a further shutdown of 9 days
due to a failure in the subsea instrumentation controlling
the operations of the gas well in the Banda field. Gross
production during the month of December 2012 averaged
6,911 bopd (December 2011: 6,800 bopd).
Sterling estimates that at the end of 2012, Chinguetti
held a remaining 6.9 million barrels of gross proved and
probable reserves (2P) that could be accessed with the
existing wells, with Sterling’s net 2P reserves, from with
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Sterling Energy Plc Report and Financial Statements 2012
OPERATIONS
Cameroon
Ntem (WI 50%)
OVERVIEW
The Ntem concession is a deep water 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. Additional seismic and gravity data were
also purchased. This large block is undrilled and is
well placed with respect to both Tertiary and Upper
Cretaceous plays.
The Ntem concession is currently in force majeure
as a result of overlapping maritime border claims
between Cameroon and Equatorial Guinea. Both
countries are actively working to resolve this issue.
When force majeure is lifted, there will be 15 months
remaining in the current exploration period. The work
commitment in this period is 1 exploration well.
In November 2011, Murphy Cameroon Ntem Oil Co.
Ltd (Murphy Oil), a wholly owned subsidiary of Murphy
Oil Corporation, farmed into the block becoming
a 50% working interest partner in, and operator of
the Ntem Concession. Sterling retains a 50% non-
operated working interest and Sterling’s share of
costs for the remainder of the current exploration
period will be paid by Murphy Oil.
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CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
Concession
14 March 2001
3 September 2002
2,319 km2
Participants
Cameroon Ntem Oil Co. Ltd (Operator) 50%
Sterling
50%
Licence term remaining
In force majeure, minimum work and financial obligations are
suspended.
Current work period
15 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
0-50,000 bopd
Entitlement
4.0%
50,000-100,000 bopd 6.0%
>100,000 bopd
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 defined as the ratio of ‘Accrued Net
Income’ and ‘Accrued Investments’:
R< 1.5, APD=0%
1.52.5, APD=20.0%
e) State may back in for a 10% participating interest in any
development and production area.
f) Production concession duration 25 years, renewable for 10 years.
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Sterling Energy Plc Report and Financial Statements 2012
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(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:29)(cid:25)(cid:24)(cid:23)(cid:22)(cid:21)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:25)(cid:29)(cid:28)(cid:24)(cid:21)
(cid:12)(cid:127)(cid:27)(cid:19)(cid:29)(cid:28)(cid:27)(cid:30)(cid:24)(cid:22)
(cid:141)(cid:143)(cid:143)(cid:23)(cid:144)(cid:10)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:5)(cid:29)(cid:27)(cid:4)(cid:23)(cid:3)(cid:27)(cid:19)(cid:2)(cid:1)(cid:6)
(cid:127)(cid:30)(cid:129)(cid:29)(cid:28)(cid:23)(cid:5)(cid:29)(cid:27)(cid:4)(cid:23)(cid:3)(cid:27)(cid:19)(cid:2)(cid:1)(cid:6)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:30)(cid:26)(cid:25)(cid:24)(cid:28)(cid:23)(cid:25)(cid:22)(cid:21)(cid:20)(cid:28)(cid:19)(cid:27)(cid:31)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)(cid:26)(cid:25)(cid:24)
(cid:1)(cid:19)(cid:29)(cid:26)(cid:127)(cid:26)(cid:6)(cid:129)(cid:26)(cid:24)(cid:22)
(cid:7)(cid:26)(cid:8)(cid:24)(cid:14)(cid:26)(cid:19)(cid:11)(cid:6)
(cid:12)(cid:11)(cid:5)(cid:18)(cid:30)
(cid:3)
(cid:4)
(cid:22)
(cid:2)
(cid:18)(cid:20)(cid:17)(cid:16)(cid:22)(cid:16)(cid:17)(cid:30)
(cid:27)(cid:23)(cid:22)(cid:21)
(cid:31)(cid:30)(cid:20)(cid:19)(cid:18)(cid:28)(cid:17)(cid:16)(cid:19)(cid:15)(cid:19)(cid:24)(cid:23)(cid:22)(cid:21)
(cid:22)(cid:20)(cid:20)(cid:19)(cid:25)(cid:18)(cid:19)(cid:17)(cid:26)(cid:27)(cid:23)(cid:16)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:25)(cid:29)(cid:28)(cid:24)(cid:21)
(cid:15)(cid:30)(cid:10)(cid:9)(cid:25)(cid:8)(cid:30)(cid:28)(cid:19)(cid:27)(cid:31)
(cid:31)(cid:30)(cid:30)(cid:29)(cid:28)(cid:27)(cid:29)(cid:26)(cid:25)(cid:24)
(cid:17)(cid:26)(cid:9)(cid:26)(cid:141)(cid:26)(cid:127)(cid:27)(cid:26)(cid:24)(cid:22)
(cid:17)(cid:26)(cid:18)(cid:19)(cid:26)(cid:18)(cid:26)(cid:11)(cid:28)(cid:24)(cid:22)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:26)(cid:24)(cid:23)(cid:22)
(cid:21)(cid:20)(cid:19)(cid:29)(cid:30)(cid:18)(cid:19)(cid:30)(cid:24)(cid:22)
(cid:17)(cid:26)(cid:18)(cid:26)(cid:16)(cid:26)(cid:15)(cid:24)(cid:22)
(cid:23)(cid:25)(cid:24)(cid:12)(cid:16)(cid:11)(cid:26)(cid:11)(cid:13)
(cid:27)(cid:14)(cid:16)(cid:15)(cid:29)(cid:17)(cid:13)(cid:18)
(cid:14)(cid:28)(cid:13)(cid:19)(cid:26)(cid:24)(cid:22)
(cid:15)(cid:30)(cid:21)(cid:16)(cid:14)(cid:16)(cid:30)(cid:13)
(cid:20)(cid:19)(cid:18)(cid:25)(cid:17)(cid:16)(cid:31)(cid:15)
(cid:10)(cid:9)(cid:28)(cid:8)(cid:15)(cid:24)(cid:22)
(cid:12)(cid:11)(cid:25)(cid:26)(cid:18)(cid:26)(cid:24)(cid:22)
(cid:18) (cid:15) (cid:14) (cid:15) (cid:13) (cid:15) (cid:31) (cid:12) (cid:15) (cid:11)
(cid:15)(cid:10)(cid:9)(cid:8)(cid:25)(cid:8)(cid:7)(cid:19)(cid:8)(cid:25)(cid:8)
(cid:143)(cid:29)(cid:30)(cid:24)(cid:14)(cid:6)(cid:30)(cid:24)(cid:17)(cid:26)(cid:18)(cid:19)(cid:30)(cid:24)(cid:22)
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSC
15 July 2004
28 November 2004
17,650 km2
Participants
Sterling (Operator)
100%
Exploration term
8 year period with possible 2 year extension.
Phase 2
Phase 2 prolongation awaiting ratification.
Phase 2 work commitment
Completed.
Production term
25 year period with possible 5-10 year extension.
OPERATIONS
Madagascar
Ambilobe (WI 100%)
OVERVIEW
The Ambilobe block is located in the Ambilobe basin,
offshore Madagascar. Water depths across the block
range from shoreline to 3,000m.
The Phase 1 and Phase 2 work programme
commitments were fulfilled by conducting G&G
studies, acquiring approximately 1,000km of new 2D
seismic and processing more than 5,000km of new
and vintage 2D seismic data.
In July 2005 Sterling farmed out 70% interest to
ExxonMobil. 550km of new 2D seismic data were
purchased and more than 5,500km of 2D data were
reprocessed. 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 May 2008, Phase 2 of the exploration period
was extended by 1 year. In early 2009 ExxonMobil
withdrew from the PSC and their interest reverted to
Sterling.
Prolongation of Phase 2 of the licence has been agreed
with OMNIS and awaits Government ratification.
14
Sterling Energy Plc Report and Financial Statements 2012 OPERATIONS
W
SIFAKA PROSPECT
E
Madagascar (cont.)
0
5 km
Seismic data courtesy of TGS-Nopec
CONTRACT SUMMARY
Contract type
Contract signed
Contract effective date
Contract area
PSC
15 July 2004
28 November 2004
7,379 km2
Participants
ExxonMobil (Operator)
Sterling
70%
30%
Exploration term
8 year period with possible 2 year extension.
Phase 3
Phase 3 prolongation awaits ratification.
Phase 3 work commitment
Drill exploration well.
Production term
25 year period with possible 5-10 year extension.
The drilling of the Sifaka prospect could be the first
exploration well to test the deep water potential of
Madagascar. Prolongation of Phase 3 of the licence
has been agreed with OMNIS and awaits Government
ratification.
Sterling estimates that ExxonMobil’s remaining carry
at the beginning of 2012 is approximately $34 million
towards the gross cost of drilling.
Ampasindava (WI 30%)
OVERVIEW
The Ampasindava block is located in the Majunga
basin, offshore Madagascar. Water depths across the
block range from 20m to 2,500m.
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
3,000km of 2D seismic. In July 2005, Sterling farmed
out the block to ExxonMobil. Following acquisition,
processing and interpretation of the new 2D seismic
data. Sterling transferred operatorship to ExxonMobil
at the end of 2006.
In late 2007 the Sifaka prospect was selected as
the first prospect for drilling and a site-survey was
undertaken in 2008. In November 2008 the joint
venture partners elected to enter Phase 3 of the
exploration period which has a firm well commitment.
The Sifaka Prospect is located in the inboard portion
of the Ampasindava block, in water depths of 500m
to 1,800m. Sifaka is mapped as a very large, simple
structure with the main reservoir target, Jurassic
deep-water turbidite sandstones, expected to be
encountered at approximately 3,000m below the
seabed.
RISC (Competent Persons Report, March 2008) has
estimated the gross (100%) un-risked prospective
recoverable resources for the Sifaka prospect as
follows:
Low Estimate 150 million bbl
Best Estimate 1.2 billion bbl
High Estimate 4.8 billion bbl
15
Sterling Energy Plc Report and Financial Statements 2012 Reserves Summary
Year ended 31 December 2012
Volumes of Proven plus
Probable Reserves
At 1 January
Revision – Chinguetti
Production
At 31 December 1-3
2012
Oil
(000 boe)
2012
Gas
(mcf)
2012
Reserves
(000 boe)
2011
Oil
(000 boe)
2011
Gas
(mcf)
2011
Reserves
(000 boe)
664
-
(189)
475
-
-
-
-
664
-
(189)
475
421
472
(229)
664
-
-
-
-
421
472
(229)
664
1 The reserves stated are for Sterling’s net interests in the Chinguetti field only and are based on Sterling’s own assessment of reserves, as at 31
December 2012. Sterling’s interest in the Chinguetti field is through its Funding Agreement and Royalty Agreements; Sterling does not have a direct
equity participation in the Chinguetti field. The assessment was made in accordance with the definitions as set out on page 86.
2 Sterling has not booked reserves relating to other Mauritanian discoveries, on the basis that there are no approved development plans for these
discoveries.
3 In accordance with the guidelines of the AIM Market of the London Stock Exchange, Dr Philip Frank, Ph.D. Geology (1977), Exploration Director of
Sterling Energy Plc, who has been involved in the oil industry for over 30 years, is the qualified person that has reviewed the assessment of reserves
set out above.
16
Sterling Energy Plc Report and Financial Statements 2012 Schedule of Interests
Year ended 31 December 2012
Location
Africa
Mauritania: Offshore
Mauritania: Offshore
Size
(km²)
Licence Name
Sterling
Working
Interest
%
Sterling
Net Revenue
Interest %
Operated/
Non-operated
110
403
PSC A
PSC B
n/a
n/a
n/a
n/a
Sliding scale royalty
from 3% WI 1
Sliding scale royalty
from 6% WI 1
Non-operated
Non-operated
Sliding scale royalty
from 4% (average) WI 1
Non-operated
Economic interest for
approximately 8% of
Chinguetti project
Non-operated
Mauritania: Offshore
10,725
PSC C-10
Mauritania: Chinguetti
29
Funding
Agreement
with SMH and
Royalty Agreement
with Premier Oil
Cameroon: Southern Douala Basin
2,319
Ntem
Madagascar: Offshore NW
17,650
Ambilobe 2
Madagascar: Offshore NW
7,379
Ampasindava 2
50%
100%
30% 3
Non-operated
Operator
Non-operated
1 Sterling’s royalty interests derive from Premier Oil’s working interests of 3% in PSC A, 6% in PSC B and 4% (average) in PSC C-10. Sterling’s royalty
is up to 6% of Premier Oil’s working interest.
2 The current exploration period was due to end in November 2010. Prolongation of the licences has been agreed with OMNIS, the State oil Company
of Madagascar, and awaits Government ratification (pages 14 and 15).
3 Carried for defined $ amount.
17
Sterling Energy Plc Report and Financial Statements 2012 Sterling Energy Plc
Financial Review
Year ended 31 December 2012
Financial Review
Year ended 31 December 2012
Selected Financial Data
Chinguetti production 1
Year end 2P reserves 1
Revenue
EBITDA 1
Loss/(profit) after tax
Net cash investment in oil and gas assets
Year end cash (including partner funds)
Year end debt 1
Year end net cash (including partner funds)
Average realised oil price (net of hedges)
Total cash operating costs (produced)
Year end share price
Share price change 1
1 Key performance indicators
bopd
000 boe
$million
$million
$million
$million
$million
$million
$million
$/bbl
$/bbl
Pence
%
2012
523
475
22.5
11.1
(12.9)
4.4
120.3
-
120.3
102.6
50.8
39
(3)
2011
629
664
19.1
11.6
18.4
1.7
115.8
-
115.8
108.5
34.0
40
(53)
Highlights
• Group net loss of $12.9 million in 2012 (2011: Profit $18.4 million)
• Impairment of Sangaw North licence $18.4 million following decision to relinquish
• Cash balance at year end of $120.3 million (2011: $115.8 million)
• Average 2012 Chinguetti production 523 bopd (2011: 629 bopd)
• Debt free throughout 2012
Revenue and Cost of Sales
2012 production averaged 523 bopd, including Royalty barrels, a decrease of 17% from the 629 bopd averaged
in 2011. A large proportion of the decrease was due to isolated operational factors comprising a 17 day stoppage
following a hydrate blockage and a 9 day stoppage following a failure of subsea instrumentation.
Currently, all of the Group’s production is from the Chinguetti field and the Group’s production was 536 bopd for the
month of December 2012.
Liftings (bbls) 1
Revenue ($million)
Revenue / bbl ($)
Lifting cost ($million)
Lifting cost / bbl ($)
2012
2011
219,177
176,345
22.5
102.6
(12.0)
(54.9)
19.1
108.5
(6.1)
(34.7)
1 Net Sterling production during the year totalled 191,583
Gross volumes lifted and sold during the year were up by 28% to 2.6 million barrels (2011: 2.0 million barrels), due
mainly to timing differences on liftings of oil stored in facilities at the Chinguetti field (2012: 3 liftings, 2011: 2 liftings).
20
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW The lifting cost per barrel has increased in 2012 by $20.2 to $54.9 (2011: $34.7). $9.8 of this increase relates to the
increased per unit depletion of the Chinguetti asset (2011: $nil) following the $8.2 million impairment reversal in 2011
with the balance of the increase due to additional maintenance costs and the payment of accumulated environmental
contributions since the commencement of production in 2006.
Loss for Year
The 2012 loss from operations totalled $12.9 million (2011: profit $18.4 million).
Profit from year 2011
Increase in revenue
Increase in per unit depletion
Increase in operating costs
Decrease in G&A
Impairment of Sangaw North
Impairment reversal of Chinguetti (2011)
Other impairment reversals
Increase in pre-licence expenditure
Decrease in finance income and expense
Loss for year 2012
$ (million)
18.4
3.3
(2.2)
(3.8)
0.9
(18.4)
(8.2)
0.3
(1.1)
(2.3)
(12.9)
In December 2012, the Group fully impaired its Sangaw North exploration asset following a decision to formally relinquish
the licence. The impairment of Sangaw North totalled $18.4 million (total Group impairment expense $18.1 million
which include reversals of $324k with respect to former assets in Gabon). The Group’s direct operating costs increased
by $3.8 million and depletion increased by $2.2 million following the reversal of prior year impairment losses in 2011.
Group administrative overhead decreased during the year to $2.8 million (2011: $3.7 million). Included within this
charge is $1.0 million (2011: $1.9 million) relating to share-based payment charges.
A portion of the Group’s staff costs and associated overheads are recharged to joint venture partners ($512k), expensed
as pre-licence expenditure ($1.9 million), or capitalised ($1.9 million) where they are directly attributable to on-going
capital projects. In 2012 this portion amounted to $4.3 million (2011: $5.1 million).
21
Sterling Energy Plc Report and Financial Statements 2012 Financial Review (cont.)
Year ended 31 December 2012
A summary of these movements are provided below:
Group administrative overhead (page 47)
Costs capitalised
Costs recharged to JV partners
Pre-licence expenditure
Share based payment expense
Other non-cash expenditure
Group cash G&A expense
2012
$ (million)
2011
$ (million)
(2.8)
(1.9)
(0.5)
(1.9)
(4.3)
1.0
-
(6.1)
(3.7)
(1.6)
(2.5)
(1.1)
(5.1)
1.9
0.2
(6.9)
EBITDA and Net Loss
Group EBITDA (as defined within the Definitions and Glossary of Terms on page 86) totalled $11.1 million (2011:
$11.6 million).
Net loss after tax totalled $12.9 million (2011: profit $18.4 million). The basic loss per share was $0.06 per share (2011:
profit $0.08 per share).
Interest received and finance expenses were a net expense of $165k (2011: net income $2.2 million) reflecting foreign
exchange gains of $533k (2011: loss $61k) on GBP cash balances held at 31 December 2012 which are reported in US
Dollars, non-cash finance expenses of $1.0 million (2011: income $1.9 million) relate to the unwinding of the Chinguetti
decommissioning provision (see note 8 on page 66), interest received totalled $350k (2011: $365k) and other finance
expenses totalling $38k.
No dividend is proposed to be paid for the year ended 31 December 2012 (2011: $nil).
Cash Flow
Net Group cash inflow generated from operating activities was $7.8 million (2011: $5.6 million).
Net cash investments in oil and gas assets totalled $4.4 million (2011: $1.7 million) and are summarised below:
Kurdistan
Madagascar
Cameroon
Gabon
2012
$ (million)
2011
$ (million)
3.1
1.0
0.5
(0.2)
4.4
4.5
0.7
(3.5)
-
1.7
The net cash investments in oil and gas assets in Kurdistan during 2012 were subsequently fully impaired by the end
of the period.
22
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW Statement of Financial Position
At the year end, cash and cash equivalents totalled $120.3 million (2011: $115.8 million) of which unrestricted funds of
$1.7 million (2011: $1.0 million) were held on behalf of partners, leaving a cash balance of $118.7 million (2011: $114.8
million) available for Sterling’s own use at 31 December 2012. At the end of 2012, net assets / total equity stood at
$104.6 million (2011: $116.1 million), and non-current assets were $16.7 million (2011: $31.3 million). This decrease is
as a result of the impairment of the Sangaw North licence. Net current assets increased to $109.2 million (2011: $105.1
million) due to the increased lifting revenues for 2012.
The Group’s Chinguetti decommissioning provision increased during the year by $1.0 million to $21.1 million (2011:
$20.1million) due to the unwinding of liability to its present value. The provision continues to reflect the Group’s best
estimate of this liability based on its estimate of the remaining economic field life.
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
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.
Andrew Smith
Financial Controller
15 March 2013
Angus MacAskill
Chief Executive Officer
15 March 2013
23
Sterling Energy Plc Report and Financial Statements 2012
Corporate Responsibility
Year ended 31 December 2012
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 they meet these standards. Sterling
also seeks to ensure that similar 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. The Directors have completed the TRACE
training and assessment. The Company further reinforced its anti-bribery procedures, adopting amended policies and
guidelines, following the enactment of the UK Bribery Act on 1 July 2011.
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. Throughout the year Sterling continued to employ local staff and
contractors at both its Sulaymaniyah office and 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 ensures 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.
24
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW Board of Directors
Year ended 31 December 2012
Alastair Beardsall, executive Chairman, aged 59
Alastair joined Sterling in September 2009. He has been involved in the oil industry for over 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 at £532 million.
Angus MacAskill, Chief Executive Officer, aged 53
Angus joined Sterling as Chief Executive Officer in November 2010. His career in the oil and gas industry started in
1981 with 5 years at Schlumberger on assignments in Africa. Angus joined Mobil Oil and, during 10 years with the
company, held a number of production, reservoir engineering and managerial posts in UK and Norway. Since 1997,
Angus has worked for a number of independent exploration and production companies, including Enterprise Oil and
Elixir Petroleum, in commercial, managerial and executive positions of increasing responsibility. Angus joined Emerald
Energy in 2006 as Chief Operating Officer and in December of that year was appointed Chief Executive Officer. During
the following three years, the company experienced material growth following exploration successes in its assets in
South America and the Middle East, prior to being acquired by Sinochem in 2009.
Philip Frank, Exploration Director, aged 60
Philip joined Sterling in October 2011 as Exploration Director. Following a PhD gained at Liverpool University, he started
his oil industry career in 1977 with an 11 year spell in BP, initially as a North Sea rig geologist and finally as the group-wide
Assistant Chief Geologist. Since then he has held senior management positions in a range of UK-based independent
exploration and production companies including Clyde, Monument and LASMO, and has gained extensive world-wide
exploration experience with an emphasis on new venture generation. Philip was closely involved with Emerald Energy
from 2003 through to its acquisition in 2009. Initially in a consulting role and finally as Exploration Manager, he provided
the exploration direction for the company’s successes both in Colombia and in Syria.
Nicholas Clayton, non-executive Director, aged 49
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. 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. Nicholas serves as a non-executive Director of Circle Oil Plc and provides strategic
advice to Geopark, an AIM-listed Company operating in Chile and Argentina.
25
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW
Board of Directors (cont.)
Year ended 31 December 2012
Keith Henry, non-executive Director, aged 68
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 Mediterranean Oil and Gas
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.
Malcolm Pattinson, non-executive Director, aged 69
Malcolm was appointed a non-executive Director of Sterling in November 2010. He is chairman of the Nominations
Committee and a member of the Audit and Remunerations Committees. Malcolm is a geoscientist with 40 years of
experience and joined Sterling in November 2010. Until 2001 he was the vice-president of exploration for Ranger Oil
(which became CNR); and prior to this he was exploration vice-president for Hamilton Oil (which became BHP). From
2001 to 2006 Malcolm was a consultant for Tullow Oil. Malcolm is an honorary life member and former chairman of the
Petroleum Exploration Society of Great Britain, and was awarded the medal for outstanding achievement in 1996 by
the Petroleum Group of the Geological Society. He is the chairman of GTO Limited and was formerly a non-executive
Director of Aurelian Oil and Gas Plc.
26
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW Corporate Governance
Year ended 31 December 2012
APPLICATION OF UK CORPORATE GOVERNANCE CODE PRINCIPLES
The Directors are mindful of their duties and responsibilities to all Shareholders and of their statutory duties under the
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 UK Corporate Governance 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 UK Corporate Governance Code published by the Financial Reporting Council
in June 2010 (“Code”).
During the year, the Company has adhered to the provisions set out in the Code with the exception of the matters
referred to below.
Provision D.1.3
Non-executive Directors (“NED”) have been awarded share options under the non-executive Directors Long Term
Incentive Plan (“NED LTIP”). The NED LTIP rules and option awards were approved by shareholders, as required under
the Code, at the December 2009 extraordinary general meeting. Future NED LTIP awards will be awarded subject to
approval by shareholders. Under the NED LTIP rules, shares acquired by the exercise of options were not required to
be held for at least one year after the non-executive Director leaves the Board as required under the Code.
Amendments to the share options previously awarded under the NED LTIP and to the NED LTIP rules for any future
awards, requiring shares acquired by the exercise of options to be held for at least one year after the non-executive
Director leaves the Board, have been approved.
As of the date of publication of this Annual Report, the Company fully adheres to the provisions set out in the Code.
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 and
financial skills. All of the Directors bring independent judgement 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.
The Board is responsible to the Shareholders for the proper management of the Company. A Statement of Directors’
Responsibilities in respect of the Financial Statements is set out on page 44.
The Board has a formal schedule of matters specifically reserved for its decision. These include strategic planning,
business acquisitions or disposals, authorisation of major capital expenditure and material contractual arrangements,
changes to the Group’s capital structure, setting policies for the conduct of business, approval of budgets, remuneration
policy of Directors and senior management, and taking on debt and approval of Financial Statements. Other matters are
delegated to the Committees of the Board and executive Directors, supported by policies for reporting to the Board.
During the year share options have been issued to non-executive Directors under the NED LTIP (Keith Henry 103,150,
Malcolm Pattinson 103,150 and Nicholas Clayton 103,150) subject to the approval by shareholders at the next Annual
General Meeting. In the opinion of the Board the NED LTIP 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 Board considers each of the non-executive Directors to be independent.
27
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW Corporate Governance (cont.)
Year ended 31 December 2012
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 CEO, have not been resolved or
for which such contact is inappropriate.
The Company maintains Directors’ and Officers’ liability insurance cover and provides the Directors with indemnity, the
level of which is reviewed annually.
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:
Number of meetings in year
Alastair Beardsall
Nicholas Clayton
Keith Henry
Angus MacAskill
Malcolm Pattinson
Philip Frank
Board
Meetings
Audit
Committee
Remuneration
Committee
Nominations
Committee
9
9
9
9
9
9
8
4
-
4
4
-
4
-
3
-
3
3
-
3
-
1
-
1
1
-
1
-
Induction and Training
New Directors, on their appointment to the Board, are briefed by the Board and management on the activities of the
Group and its key business and financial risks, the Terms of Reference of the Board and its Committees, the list of Board
reserved matters, and the latest financial information about the Group. The Chairman ensures that Directors update
their skills, knowledge and familiarity with the Company to fulfil their roles on the Board and on Board Committees.
On-going training is available as necessary and includes updates from the Company Secretary on changes to the AIM
rules, the Code, requirements under the Companies Act and other regulatory matters. Directors may consult with the
Company Secretary at any time on matters related to their role on the Board. All Directors have access to independent
professional advice at the Company’s expense.
Evaluation of the Board’s Performance
Performance evaluation takes place for individual Directors, the Board and its Committees and includes assessing
the effectiveness of the Board as a whole. The evaluation of the performance of Directors is carried out using peer
appraisal questionnaires which combine business and personal performance and includes discussions with the
Senior Independent Director and the Senior Independent Director with the Chairman. Aspects of performance include
attendance and participation at Board meetings, quality of involvement in Committees, commitment and effectiveness of
their contribution to Board activities (including the AGM and shareholder communications), the adequacy of training and
non-executive Directors’ independence. The process is conducted and reviewed by the Senior Independent Director,
on behalf of the Nomination Committee; the Company Secretary is advised of its completion. The performance of the
Chairman is reviewed annually in a meeting of the non-executive Directors, led by the Senior Independent Director. This
review takes into account the views of executive Directors.
Retirement and Re-election
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.
28
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW SUB-COMMITTEES
The Board has appointed the following sub-committees:
Audit Committee
This Committee currently comprises Nicholas Clayton, Keith Henry and Malcolm Pattinson, 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, Chief Executive Officer, other Directors and senior management.
Audit Committee Report for 2012
The Audit Committee met four times 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 Committee recommends that the Board presents the resolution to the shareholders at the 2013 AGM to reappoint
BDO 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 Nicholas Clayton, Keith Henry and Malcolm Pattinson under the
Chairmanship of Malcolm Pattinson. The Nominations Committee considers the composition of the Board and makes
recommendations on the appointment of new Directors and those candidates presenting themselves for re-election at
the AGM. The Senior Independent Director co-ordinates the annual performance evaluation of Directors.
Nominations Committee Report for 2012
The Nominations Committee met once during the year.
Keith Henry and Nicholas Clayton will retire by rotation and offer themselves for re-election at the AGM. Their biographical
details, provided on pages 25 and 26, demonstrate the range of experience and skill which each bring to Sterling.
The Nominations Committee and 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 Remuneration Committee met three times during the year.
The members of the Committee are Keith Henry, Nicholas Clayton and Malcolm Pattinson 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 32 to 35.
29
Sterling Energy Plc Report and Financial Statements 2012
Corporate Governance (cont.)
Year ended 31 December 2012
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 Report and Financial
Statements are available to view. Additionally this report and financial statement 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 19
April 2013 can be found in the notice of the meeting, on pages 94 to 98.
INTERNAL CONTROLS
In September 1999 the Turnbull Guidance (Internal Control: Guidance for Directors on the Combined Code) was
published, and revised in October 2005.
The Directors acknowledge their responsibility for establishing and maintaining the Group and the Company 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 authorisation of such conflicts by the Board. In deciding whether to authorise
a conflict matter or a potential conflict the Directors must have regard to their general duties under the Companies Act
2006.
30
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (“EITI”)
In accordance with the Transparency Criteria as set-out by the EITI, Sterling has made the following payments to
Government bodies during the year ended 31 December 2012:
Madagascar: Ambilobe
Madagascar: Ampasindava 1
Kurdistan
Cameroon 2
Mauritania 3
2012
$000
191
108
5
26
599
929
2011
$000
-
108
105
26
14
253
1 Payments made by ExxonMobil.
2 2012 payment made by Murphy Oil Corporation.
3 Included within payments made to SMH (Mauritania’s national oil company) under the terms of the Chinguetti Funding Agreement, relating to
Chinguetti field operating costs and PSC obligations, and totalling $9.3 million (2011: $7.9 million). Payments made in 2012 include backdated
environmental commission charges accrued from 2006 totalling approximately $100k per year.
31
Sterling Energy Plc Report and Financial Statements 2012 Remuneration Report
Year ended 31 December 2012
REMUNERATION COMMITTEE
The Remuneration Committee is comprised of Keith Henry, Nicholas Clayton and Malcolm Pattinson. 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 remuneration.
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 All 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 linked to
performance and results 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. Objectives are
set to align the individuals’ motivation with the longer term sustainable future of the Company. These objectives may not
provide short term or easily measurable results. 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 at 100% of annual salary. Performance bonuses awarded to executive Directors are
settled in shares in the Company which must be held for a minimum of 12 months after the award.
Results Based Long Term Incentive Plans: In 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 (“All Staff LTIP”) 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.
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 subject to performance conditions for independence
reasons.
Pensions: The Group operates a number of defined contribution pension schemes pursuant to which it contributes
10% of pensionable salary per eligible member.
32
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW 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.
SERVICE CONTRACTS
Each of the executive Directors has a service contract with the Company, details of which are as follows:
Director
Alastair Beardsall
Philip Frank
Angus MacAskill
Commencement of
appointment
Date of current
contract
Base annual
salary
Notice
period
8 September 2009
1 January 2011
£80,000 1
6 months
3 October 2011
3 October 2011
£231,800
6 months
9 November 2010
9 November 2010
£271,800
6 months
1 As of 1 January 2011 contracted to devote 20% of his working time to the business of Sterling Energy Plc.
The salaries paid to the Directors are reviewed annually with the most recent salary review being implemented on
1 January 2013.
Non-executive Directors do not have service contracts, but instead each has a letter of appointment setting out the
terms and conditions of their appointment, details of which are as follows:
Director
Nicholas Clayton
Keith Henry
Commencement of
appointment
Date of current
contract
Base fees
per annum
1 October 2009
1 October 2009
8 September 2009
8 September 2009
£33,000
£33,000
£33,000
Malcolm Pattinson
15 November 2010
15 November 2010
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.
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 $27k in 2012 (2011:
$26k).
33
Sterling Energy Plc Report and Financial Statements 2012 Remuneration Report (cont.)
Year ended 31 December 2012
DIRECTORS AND THEIR INTERESTS
Directors’ Remuneration and Share Options
Aggregate Remuneration (Audited):
Fees and
basic salary
Bonus
Defined
contribution
pension
Benefits
in kind
Total
2012
Total
2011
Executive Directors:
Alastair Beardsall
Jonathan Cooper
(resigned 18 October 2011)
Philip Frank
Andrew Grosse
(resigned 3 October 2011)
Angus MacAskill
Non-executive Directors:
Nicholas Clayton
Keith Henry
Malcolm Pattinson
£
80,000
-
225,000
-
263,800
33,000
33,000
33,000
Aggregate remuneration 2012 (£)
667,800
£
-
-
-
-
-
-
-
-
-
£
£
£
£
8,000
3,954
91,954
91,723
-
-
-
172,563
22,500
7,449
254,949
61,910
-
-
-
214,127
26,380
5,989
296,169
365,004
-
-
-
-
-
-
33,000
30,000
33,000
30,000
33,000
30,000
56,880
17,392
742,072
-
Aggregate remuneration 2011 (£)
818,256
85,000
73,089
18,982
-
995,327
Aggregate remuneration 2012 (US$)
1,058,489
-
90,157
27,566
1,176,212
-
Aggregate remuneration 2011 (US$)
1,311,665
136,255
117,162
30,429
-
1,595,511
No bonuses were paid to the Directors for the year ended 31 December 2012.
Directors’ interests in LTIP’s are accounted for under IFRS 2 (Share-based payments), accounting charges in the period
are detailed in note 26.
34
Sterling Energy Plc Report and Financial Statements 2012FINANCIAL REVIEW All Staff Long Term Incentive Plan (audited)
The Directors’ interests in the All Staff LTIP are as follows:
1 January
2012
Lapsed
Granted Exercised
31 December
2012
Exercise
price
Earliest
exercise
date 1
Latest
exercise
date 1
Alastair Beardsall 2
1,125,000
(562,500)
-
(562,500)
-
40p
n/a
n/a
Philip Frank
1,097,600
Angus MacAskill
1,609,800
-
-
843,750
989,250
-
-
1,941,350
40p
01.10.14
30.09.17
2,599,050
40p
01.10.13
30.09.17
3,832,400
(562,500)
1,833,000
(562,500)
4,540,400
Approved by shareholders at the EGM held on 22 December 2009.
1 If the Company is in a closed period, the earliest and latest date of exercise may vary.
2 In recognition of Alastair Beardsall’s efforts in the fund raising and the September 2009 Placing, and as a means of retention, 50 per cent of the
options awarded to him in 2009 vested without performance criteria in October 2012.
No gains were made on the exercise of options during the year (2011: nil).
Non-executive Directors Long Term Incentive Plan (audited)
The non-executive Directors’ interests in the NED LTIP are as follows:
1 January
2012 2
Lapsed 3 Granted 4 Exercised
31 December
2012
Exercise
price
Earliest
exercise
date 1
Latest
exercise
date 1
Nicholas Clayton
125,000
Keith Henry
125,000
-
-
103,150
103,150
Malcolm Pattinson
125,000
(41,667)
103,150
375,000
(41,667)
309,450
-
-
-
-
228,150
228,150
186,483
642,783
1 If the Company is in a closed period, the earliest and latest date of exercise may vary.
2 Approved by shareholders at the EGM held on 22 December 2009 and 28 April 2011.
3 Surrendered subject to approval of 2012 grant by shareholders at next Annual General Meeting.
4 Granted subject to approval of 2012 grant by shareholders at next Annual General Meeting.
The rules of the LTIP schemes are summarised in note 26.
For and on behalf of the Board
40p
01.10.12
30.09.17
40p
01.10.12
30.09.17
40p
01.01.14
30.09.17
Keith Henry
Chairman, Remuneration Committee
15 March 2013
35
Sterling Energy Plc Report and Financial Statements 2012 Sterling Energy Plc
Financial Statements
Year ended 31 December 2012
FINANCIAL STATEMENTS
Director’s Report
Year ended 31 December 2012
The Directors present the Report and Financial Statements on the affairs of Sterling and its subsidiaries, together with
the financial statements and auditors’ report for the year ended 31 December 2012.
PRINCIPAL ACTIVITY AND BUSINESS REVIEW
The principal activity of the Group and Company throughout the year remained the exploration for and production of oil
and gas in Africa and the Middle East. The significant developments during 2012 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 Chief
Executive’s Review, the Operational Review and the 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. Analysis of the
KPI’s can be found in the Financial Review on page 20.
RESULTS AND DIVIDENDS
The Group loss for the financial year was $12.9 million (2011: profit of $18.4 million). This leaves an accumulated Group
retained deficit of $423.1 million (2011: deficit $411.1 million) to be carried forward. The Directors do not recommend
the payment of a dividend (2011: $nil).
GOING CONCERN
The Group business activities, together with the factors likely to affect its future development, performance and position
are set out in the Operations Review on pages 10 to 15. The financial position of the Group and Company, its cash
flows and liquidity position are described in the Financial Review on pages 20 to 23. In addition, note 25 to the financial
statements include the Group’s objectives, policies and processes for managing its capital financial risk: details of its
financial instruments and its exposures to credit risk and liquidity risk.
The Group 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 that both the Group and Company are well
placed to manage their business risks successfully despite the current uncertain economic outlook.
The Directors have 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 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 18 to the financial statements. 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 26. No person has any special rights of control
over the Company’s share capital and all issued shares are fully paid.
38
Sterling Energy Plc Report and Financial Statements 2012
DIRECTORS
The Directors who served during the year were as follows:
Mr Alastair Beardsall
Mr Nicholas Clayton
Dr Philip Frank
Mr Keith Henry
Mr Angus MacAskill
Mr Malcolm Pattinson
Biographical details of serving Directors can be found in the Board of Directors section of this report on pages 25 and 26.
DIRECTORS’ ELECTION AND ROTATION
With regard to the appointment and replacement of the Directors, the Company is governed by its Articles of
Association, the Code, the Companies Acts and related legislation. The powers of Directors are described in the
Corporate Governance section.
In accordance with article 106 of the Company’s Articles of Association Keith Henry and Nicholas Clayton retire by
rotation and offer themselves for re-election at the forthcoming AGM.
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
15 March 2013
31 December 2012
31 December 2011
Alastair Beardsall 2
Nicholas Clayton 1
Philip Frank 2
Keith Henry 1
Angus MacAskill 2
Malcolm Pattinson 1
1,062,500
1,062,500
132,500
132,204
500,000
302,000
62,810
132,500
132,204
500,000
302,000
62,810
500,000
132,500
32,204
500,000
100,000
62,810
1 Non-executive Director, member of the Audit, Remuneration and Nominations Committees.
2 Executive Director.
Beneficial shareholdings include the shareholdings of a Director’s spouse and infant children.
39
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Director’s Report (cont.)
Year ended 31 December 2012
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 220,053,520 issued ordinary shares of 40 pence each of the Company at
15 March 2013:
Waterford Finance
Invesco
Denis O’Brien
Soyuzneftegas Capital Limited
Artemis Investment Management
Number
65,814,217
34,592,405
16,190,433
15,494,103
10,910,174
%
29.91
15.72
7.36
7.04
4.96
SUPPLIER PAYMENT POLICY AND PRACTICE
The Company’s and Group’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 2012 year end, the number
of supplier days outstanding for the Group was 24 days (2011: 37 days).
CHARITABLE AND POLITICAL CONTRIBUTIONS
During the year the Group and Company made charitable donations of $870 (2011: $800), principally to local charities
serving the communities in which the Group operates. No political contributions were made during the year (2011: $nil).
BUSINESS RISK
The Directors have identified the following current principal risks in relation to the Company’s future performance. The
relative importance of risks faced by the Company can, and is likely to change with progress in the Company’s strategy
and developments in the external business environment.
Strategic:
Strategy risk
The Company’s strategy may not deliver the results expected by shareholders. The Directors regularly monitor the
appropriateness of the strategy, taking into account both internal and external factors, and the progress in implementing
the strategy, and modify the strategy as may be required based on results. Key elements of this process are annual
business plans and strategy reviews, monthly reporting, and regular Board meetings.
Concentration risk
The Company’s portfolio of exploration assets has increased in concentration following the withdrawal from the Sangaw
North PSC in Kurdistan. The Board has identified the broadening of the exploration portfolio, using the existing financial
resources of the Company, as an important element of the Company’s strategy.
Competition risk
The addition of exploration licences to the Company’s portfolio is subject to increasing competition from other
companies. Many of the Company’s larger competitors have significantly greater financial and technical resources and
are able to devote more to the development of their business. The Company mitigates this risk by choosing where and
when to deploy its business development resources.
Operational:
Exploration risk
Exploration activities within the Company’s licences may not result in a commercial discovery. The historic industry
average exploration drilling success rate is approximately one success for every five wells. There is no certainty of
success from the existing portfolio.
40
Sterling Energy Plc Report and Financial Statements 2012 Sterling mitigates the exploration risk through the experience and expertise of the Company’s specialists, the application
of appropriate technology, and the selection of prospective exploration assets. The Company has an objective to
acquire additional exploration assets, which will diversify exploration risk.
Operator risk
Sterling is not the operator of the Company’s licences where exploration drilling is anticipated as the next operational
activity. The Company is dependent on other operators for the performance of activities and will be largely unable to
direct, control or influence the activities and costs of the operators.
By farming out prior to drilling activities, the Company has reduced its cost exposure and transferred operatorship
to other, normally larger and more experienced, operators for drilling activities, with a consequent increase in the
Company’s dependence on other operators for the performance of these activities.
Sterling carefully considers the technical and financial capability of company’s becoming operator of licences during a
farm out process. Murphy Oil is the operator of the Ntem licence in Cameroon and ExxonMobil is the operator of the
Ampasindava licence in Madagascar.
External:
Country risk
The Company’s assets are located in non-OECD countries. Governments, regulations, and the security environment
may change with a consequential effect on the Company’s assets. The Company’s assets in Cameroon and Madagascar
are currently affected by country-specific situations.
In Cameroon, the Company holds a 50% working interest in the highly prospective Ntem block. The Governments of
Cameroon and Equatorial Guinea are negotiating their joint maritime border, part of which runs concurrent with two of
the Ntem block boundaries. The Company believes the final location of the maritime border will not impinge upon the
Ntem area, however there is no certainty that, when agreement over the maritime border is reached, the Ntem acreage
will remain as it is defined under the current licence agreement with the Cameroon Government.
The Company has reached agreement with OMNIS, the state regulator in Madagascar, to prolong the Ampasindava
and Ambilobe licences and awaits ratification by the Government of Madagascar; the existing exploration phase of
each licence ended in November 2010. The Company believes the political roadmap towards elections is progressing
well and expects a positive outcome. However there is no certainty of a positive outcome.
Country risk is mitigated by monitoring the political, regulatory, and security environment within the countries in which
Sterling holds assets, engaging in constructive discussions where and when appropriate, and introducing third-party
expertise if this may assist in resolution of issues affecting the Company’s assets.
The Company has an objective to acquire additional assets for the exploration portfolio, which may assist in diversifying
country risk.
In addition to the current principal risks identified above and general business risks, 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. The Company has identified certain risks pertinent to its
business including:
41
Sterling Energy Plc Report and Financial Statements 2012
FINANCIAL STATEMENTS
Director’s Report (cont.)
Year ended 31 December 2012
Category
Risk
Strategic and Economic
Operational
Commercial
Human Resources and Management
Processes
Financial
• Inappropriate or poorly conceived strategy and plans
• Failure to deliver on strategy and plans
• Business environment changes
• Competition and barriers to entry
• Operations in territories which are susceptible to political, fiscal and
social instability
• Limited diversification
• Shareholder concentration
• HSES incident or non-compliance under local rules and/or laws
• Failure to add value through exploration
• Poor field performance
• Licences, permits and/or approvals maybe difficult to sustain
• Reliance on other operators
• Delays in conducting work programmes
• 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 and production estimations are not exact determinations
• Regulatory compliance and legal
• Failure to recruit and retain key personnel
• Human error or deliberate negative action
• Inadequate management processes
• Insufficient timely information available to the management and
the Board
• Restrictions in capital markets impacting available financial resource
• Oil or gas price volatility impacting both revenues and reserves
• Counterparty default
• Cost escalation and budget overruns
• Fiscal changes
• Operations under-insured
• Foreign currency risk
• Financial control of operated and non-operated assets
• Fraud and corruption
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 may be critical to Sterling in achieving
its strategic objectives and protecting its assets, personnel and reputation. The Company has developed a business
management system, including a risk management process which identifies key business risks and measures to mitigate
these risks and then implements such measures considered appropriate. Other significant elements of the business
management system include regular Board review of the business, defined process for preparation and approval of the
annual work programme and budget, monthly management reporting, financial operating procedures, and HSES and
anti-bribery management systems.
42
Sterling Energy Plc Report and Financial Statements 2012 Sterling reviews its business risks and management systems on a regular basis and, through this process, the Directors
have identified the principal risks. The Company manages some risks by maintaining a portfolio of projects and ensuring
the Company is in compliance with the terms of all its agreements, through the application of appropriate policies and
procedures implemented in the business management system, 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 25 to the financial statements.
AUDITORS
Each of the persons who are a Director at the date of approval of this Report and Financial Statements 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.
BDO LLP has expressed its willingness to continue in office as auditors and a resolution to appoint BDO will be
proposed at the forthcoming Annual General Meeting.
Angus MacAskill
Director
15 March 2013
43
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities
Year ended 31 December 2012
The Directors are responsible for preparing the Report and 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
have elected to prepare the Group and Company financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and
Company and of the profit or loss of the Group and Company for that period. The Directors are also required to prepare
financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on
the Alternative Investment Market.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any
material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and 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 requirements of 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.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Report and Financial Statements are made available on a website. Financial
statements are published on the Company’s website in accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility
also extends to the on going integrity of the financial statements contained therein.
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 Report and Financial Statements include 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
Angus MacAskill
Director
15 March 2013
44
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Independent Auditors’ Report
Year ended 31 December 2012
We have audited the financial statements of Sterling Energy Plc for the year ended 31 December 2012 which comprise
of the consolidated statement of comprehensive income, the consolidated and company statement of financial position,
the consolidated and company statement of changes in equity, the consolidated and company statement of cash flows
and the related notes. 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 Part 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 auditor’s 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 Statement of Directors’ Responsibilities, 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 and
express an opinion on 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.
The Directors have chosen to comply with the requirements of Schedule 8 part 3 of the Large and Medium-Sized
Companies and Groups (Accounts and Reports Regulations) 2008 made under Section 421 of the Companies Act
2006 (“Schedule 8”) with regard to the Directors’ Remuneration Report as if the company is a quoted company included
on the official list.
Our responsibility is to audit and express an opinion on that part of the Directors’ Remuneration Report to be audited.
Other than previously noted we are not responsible for auditing and expressing an opinion on the company’s compliance
with the requirements of the Listing Rules.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/
scope/private.cfm.
OPINION ON 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 2012 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;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006;
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.
45
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Independent Auditors’ Report (cont.)
Year ended 31 December 2012
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 not
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.
Scott Knight (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
15 March 2013
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
46
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
Year ended 31 December 2012
Note
31 December 2012
$000
31 December 2011
$000
Revenue
Cost of sales
Gross profit
Other administrative expenses
Reversal of impairment of oil and gas assets
Impairment of oil and gas assets
Pre-licence costs
Total administrative expenses
Profit from operations
Finance income
Finance expense
Profit before tax
Tax
4
6
5
8
8
9
Profit for the year from continuing operations
Loss for the year from discontinued operations
10
(Loss)/profit for the year attributable to the
owners of the parent
Other comprehensive (expense)/income
Currency translation adjustments
Total other comprehensive (expense)/income for the year
Total comprehensive (expense)/income for the year
attributable to the owners of the parent
Basic profit/(loss) per share (USc)
From continuing operations
From continuing and discontinued operations
Diluted profit/(loss) per share (USc)
From continuing operations
From continuing and discontinued operations
22,496
(12,028)
10,468
(2,795)
347
-
(2,353)
(4,801)
5,667
350
(515)
5,502
-
5,502
(18,422)
(12,920)
(6)
(6)
19,146
(6,113)
13,033
(3,728)
8,269
(33)
(1,282)
3,226
16,259
3,212
(1,051)
18,420
-
18,420
-
18,420
31
31
(12,926)
18,451
2.51
(5.89)
2.51
(5.89)
8.40
8.40
8.29
8.29
12
12
12
12
47
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Consolidated Statement of Financial Position
Year ended 31 December 2012
Note
31 December 2012
$000
31 December 2011
$000
Non-current assets
Intangible royalty assets
Intangible exploration and evaluation assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Currency translation reserve
Retained deficit
Total equity
Non-current liabilities
Long-term provisions
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
13
14
15
17
18
21
22
2,424
10,245
4,059
16,728
2,993
1,210
120,348
124,551
141,279
149,014
378,863
(210)
(423,050)
104,617
21,274
21,274
15,388
15,388
36,662
141,279
3,221
22,455
5,643
31,319
2,872
922
115,826
119,620
150,939
148,589
378,859
(204)
(411,103)
116,141
20,297
20,297
14,501
14,501
34,798
150,939
The financial statements of Sterling Energy Plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 15 March 2013.
Signed on behalf of the Board of Directors
Angus MacAskill
Director
Alastair Beardsall
Director
48
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
Year ended 31 December 2012
Share capital
Share
premium
Currency
translation
reserve
Retained
deficit 1
Total
$000
$000
$000
$000
$000
At 1 January 2011
Profit for the year
Currency translation adjustments
Total comprehensive income for the year
attributable to the owners of the parent
Issued share capital/premium
Share option charge for the year
At 31 December 2011
Loss for the year
Currency translation adjustments
Total comprehensive expense for the year
attributable to the owners of the parent
Issued share capital/premium
Share option charge for the year
148,573
378,859
(235)
(431,380)
-
-
-
16
-
-
-
-
-
-
-
31
31
-
-
18,420
-
95,817
18,420
31
18,420
18,541
-
1,857
16
1,857
148,589
378,859
(204)
(411,103)
116,141
-
-
-
425
-
-
-
-
4
-
-
(6)
(6)
-
-
(12,920)
(12,920)
-
(6)
(12,920)
(12,926)
-
973
429
973
At 31 December 2012
149,014
378,863
(210)
(423,050)
104,617
1 The share option reserve has been included within the retained deficit reserve.
49
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
Year ended 31 December 2012
Note
24
Operating activities
Cash generated from operations
Net cash flow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Exploration and evaluation costs
Proceeds on disposal of PPE
Net cash used in investing activities
Financing activities
Net proceeds from issue of ordinary shares
Net cash flow generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
2012
$000
7,800
7,800
350
(100)
(4,446)
-
(4,196)
429
429
4,033
115,826
489
120,348
2011
$000
5,573
5,573
365
(41)
(1,695)
22
(1,349)
16
16
4,240
111,679
(93)
115,826
50
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Company Statement of Financial Position
Year ended 31 December 2012
Note
31 December 2012
$000
31 December 2011
$000
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Retained deficit
Total equity
Non-current liabilities
Long-term provisions
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
15
16
17
18
21a
22
3,977
106,668
110,645
2,993
14,349
118,565
135,907
246,552
149,014
378,863
(375,735)
152,142
21,154
21,154
73,256
73,256
94,410
246,552
5,602
105,740
111,342
2,872
21,395
114,831
139,098
250,440
148,589
378,859
(368,070)
159,378
20,144
20,144
70,918
70,918
91,062
250,440
The financial statements of Sterling Energy Plc, registered number 1757721 were approved by the Board of Directors
and authorised for issue on 15 March 2013.
Signed on behalf of the Board of Directors
Angus MacAskill
Director
Alastair Beardsall
Director
51
Sterling Energy Plc Report and Financial Statements 2012
FINANCIAL STATEMENTS
Company Statement of Changes in Equity
Year ended 31 December 2012
At 1 January 2011
148,573
378,859
(371,480)
155,952
Share
capital
Share
premium
Retained
deficit 1
Total
$000
$000
$000
$000
Total comprehensive income for the year
Issued share capital/premium
Share option charge for the year
At 31 December 2011
Total comprehensive expense for the year
Issued share capital/premium
Share option charge for the year
At 31 December 2012
1 The share option reserve has been included within the retained deficit reserve.
-
16
-
-
-
-
1,553
1,553
-
16
1,857
1,857
148,589
378,859
(368,070)
159,378
-
425
-
-
4
-
(8,638)
(8,638)
-
973
429
973
149,014
378,863
(375,735)
152,142
52
Sterling Energy Plc Report and Financial Statements 2012 FINANCIAL STATEMENTS
Company Statement of Cash Flows
Year ended 31 December 2012
Note
24
Operating activities
Cash generated from operations
Net cash flow used in operating activities
Investing activities
Interest received
Proceeds on disposal of PPE
Net cash generated from investing activities
Financing activities
Net proceeds from issue of ordinary shares
Net cash flow generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
2012
$000
2,401
2,401
350
-
350
429
429
3,180
114,831
554
118,565
2011
$000
13,527
13,527
365
22
387
16
16
13,930
100,936
(35)
114,831
53
Sterling Energy Plc Report and Financial Statements 2012 Sterling Energy Plc
Notes to the
Financial Statements
Year ended 31 December 2012
1.
ACCOUNTING POLICIES
a) General Information
Sterling Energy Plc is a public Company incorporated in the United Kingdom under the UK Companies Act. The
address of the registered office is 85 Fleet Street, London, EC4Y 1AE. 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 and the functional currency of the Company.
b) Basis of Accounting and Adoption of New and Revised Standards
(i) New and amended standards adopted by the Group:
The following new standards and amendments to standards are mandatory for the first time for the Group for
financial year beginning 1 January 2012. Except as noted, the implementation of these standards is not expected
to have a material effect on the Group.
Standard
Effective date
Impact on initial application
IFRS 7 – Amendment – Transfer of Financial Asset
1 July 2011
No impact
IFRS 1 – Amendment – Severe hyperinflation and
removal of fixed dates
1 July 2011
No impact
No other IFRS issued and adopted but not yet effective are expected to have an impact on the Group’s financial
statements.
(ii) Standards, amendments and interpretations, which are effective for reporting periods beginning after the date
of these financial statements which have not been adopted early:
Standard
Description
Effective date
Presentation of Items of Other Comprehensive Income
1 July 2012
IAS 1
IFRS 10
IFRS 11
IFRS 12
IFRS 13
IAS 27
IAS 28
IAS 19
IFRS 7
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Separate Financial Statements
Investments in Associates and Joint Ventures
Employee Benefits
Offsetting Financial Assets and Financial Liabilities
Improvements to IFRS
(2009-2011 Cycle)
IFRS 10, 11 and 12 1
Transition Guidance
IAS 32
IFRS 9 1
Offsetting Financial Assets and Financial Liabilities
Financial Instruments
1 Not yet endorsed by the European Union
56
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 January 2015
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 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 the 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 statement of
comprehensive income 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 statement of comprehensive income and expense is published, a separate statement
of comprehensive income and expense for the parent Company has not been published in accordance with
section 408 of the Companies Act 2006.
e) Jointly Controlled Operations
Jointly controlled operations are arrangements in which the Group holds an interest on a long term basis which
are jointly controlled by the Group and one or more ventures under a contractual arrangement. The Group’s
exploration, development and production activities are sometimes conducted jointly with other companies in this
way. Since these arrangements do not constitute entities in their own right, the consolidated financial statements
reflect the relevant proportion of costs, revenues, assets and liabilities applicable to the Group’s interests.
f) Revenue
Sales of oil 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 on an entitlement basis.
Dividend revenue from investments is recognised when the shareholders’ rights to receive payment have been
established.
g) Oil and Gas Interests
Exploration and Evaluation Assets:
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.
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.
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.
57
Sterling Energy Plc Report and Financial Statements 2012 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 cost
pool by cost pool 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, subject to the relevant cost pool meeting an impairment test as set out below.
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. 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 cost 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 statement of comprehensive income.
Impaired assets are reviewed annually to determine whether any substantial change to their fair value amounts
previously impaired would require reversal.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in
the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount
that would have been determined (net of depletion or amortisation) had no impairment loss been recognised in
prior periods. Reversal of impairments and impairment charges are credited / (charged) to a separate line item
under total costs in the Consolidated Income Statement.
Refer to note 5 on page 65 for detailed disclosure of the results of impairments and impairment reviews performed.
Development and Production Assets:
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,
which constitutes a single cash generating unit. 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.
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.
58
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements h) 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 reporting date to reflect the current best estimate of the cost at present value.
The unwinding of the discount is reflected as a finance expense. 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.
i) Intangible Royalty Interests
The carrying value of each individual royalty interest is initially stated at cost, and 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.
j) Foreign Currencies
The US dollar is the functional and reporting currency of the Company and the reporting currency of 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
current year comprehensive income.
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 statement of financial position at the rates ruling at the reporting 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.
k) 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 statement of comprehensive income 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 reporting 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. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised.
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 reporting 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.
59
Sterling Energy Plc Report and Financial Statements 2012 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 statement of comprehensive income, 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.
l) Investments (Company)
Non-current investments in subsidiary undertakings are shown in the Company’s Statement of Financial Position
at cost less any provision for permanent diminution of value.
m) Operating Leases
Rentals under operating leases are charged on a straight-line basis over the lease term.
n) Financial Instruments
The Group’s Financial Instruments comprise of cash and cash equivalents, loans and receivables. There are no
other categories of financial instrument.
Trade Receivables:
Trade receivables are measured at amortised cost, unless the effect of the time value of money is immaterial.
Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss 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, with an
original maturity of less than 3 months, and are readily convertible to a known amount of cash and are subject to
an insignificant risk of change in value.
The Group has the following financial liabilities, all are classified as held at amortised cost. The Group holds no
other categories of financial liability.
Trade Payables:
Trade payables are stated at their amortised cost.
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.
o) Pension Costs
The Group operates a number of defined contribution pension schemes. The amount charged to the Statement
of Comprehensive Income 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 Statement of Financial Position.
60
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements p) 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 vest 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 before 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.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the
options, measured immediately before and after the modification, is also charged to the Consolidated Statement
of Comprehensive Income over the remaining vesting period.
q) Over/(Under) Lift
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 is ‘underlift’ or ‘overlift’. Underlifts and overlifts
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.
r) 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.
s) 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 reporting date, and are discounted to present
value where the effect is material.
t) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision makers. The chief operating decision makers have been identified as the executive Board members.
The operating results of each of the geographical segments are regularly reviewed by the Group’s chief operating
decision makers in order to make decisions about the allocation of resources and to assess their performance.
Africa has exploration and development activities, the Middle East has exploration activities (discontinued) and
the United Kingdom office is an administrative cost centre.
61
Sterling Energy Plc Report and Financial Statements 2012 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 on-going 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 reporting
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.
Impairment of Assets
Management is required to assess oil and gas assets for indicators of impairment and have considered the
economic value of both the Chinguetti Funding and Royalty Agreements and specifically whether further historic
impairments should be reversed. 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 statement of financial position 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 reporting 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 periodically reviewed 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.
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 26.
62
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 3.
OPERATING SEGMENTS
The Group’s two operating segments are its Africa and Middle East (discontinued) segments. The UK corporate
office is a technical and administrative cost centre. The operating results of each of these segments are regularly
reviewed by the Group’s executive Directors and senior management in order to make decisions about the
allocation of resources and to assess their performance.
The accounting policies of these segments are in line with those set out in note 1.
The following tables present revenue, profit and certain asset and liability information regarding the Group’s
operating segments for the year ended 31 December 2012, and for the year ended 31 December 2011.
Africa
Middle East
(Discontinued)
2012
$000
2011
$000
2012
$000
2011
$000
2012
$000
Total
2011
$000
22,496
19,146
(12,028)
(6,113)
10,468
13,033
347
8,269
-
-
-
-
-
(33)
(18,422)
(2,353)
(1,282)
-
8,462
19,987
(18,422)
-
-
-
-
-
-
-
Statement of Comprehensive Income
Revenue 1
Cost of sales
Gross profit
Impairment reversal
Impairment provision
Pre-licence costs
Segment result
Unallocated corporate expenses
(Loss)/profit from operations
Finance income
Finance expense
(Loss)/profit before tax
Tax
(Loss)/profit attributable to owners of
the parent
Profit from continuing operations
Loss from discontinued operations
22,496
19,146
(12,028)
(6,113)
10,468
13,033
347
8,269
(18,422)
(33)
(2,353)
(1,282)
(9,960)
19,987
(2,795)
(3,728)
(12,755)
16,259
350
(515)
3,212
(1,051)
(12,920)
18,420
-
-
(12,920)
18,420
5,502
18,420
(18,422)
-
(12,920)
18,420
63
Sterling Energy Plc Report and Financial Statements 2012 Corporate
Africa
Middle East
(Discontinued)
2012
$000
2011
$000
2012
$000
2011
$000
2012
$000
2011
$000
2012
$000
Total
2011
$000
100
-
41
-
-
-
-
-
100
41
1,313
(2,786)
4,575 2
4,481
5,888
1,695
(59)
(160)
(2,422)
(267)
-
-
-
-
347
8,269
-
-
-
-
(2,481)
(427)
347
8,269
-
(33)
(18,422)
-
(18,422)
(33)
Other Segment
Information
Capital additions:
Property, plant and
equipment
Exploration and evaluation
Depreciation and
amortisation
Impairment reversal
Impairment provision
Segment Assets and
Liabilities
Non-current assets 3
83
41
16,645
17,432
-
13,846
16,728
31,319
Segment assets 4
119,409
115,300
3,409
3,297
1,733
1,023
124,551
119,620
Segment liabilities 5
(711)
(994)
(33,906)
(33,088)
(2,045)
(716)
(36,662)
(34,798)
1 Revenue from continuing operations includes amounts of $21.2 million (100% external) from one single customer (2011: $17.5 million).
2 Included within $4.5 million are accruals totalling $1.4 million and net cash additions of $3.1 million.
3 Segment non-current assets include $6.5 million in Cameroon (2011: $6.0 million), $nil in Kurdistan (2011: $13.8 million), $6.4 million in
Mauritania (2011: $8.8 million) and $3.8 million in Madagascar (2011: $2.6 million).
4 Carrying amounts of segment assets exclude investments in subsidiaries.
5 Carrying amounts of segment liabilities exclude intra-group financing.
4.
REVENUE
Revenue from the sale of oil and gas
Royalty income
Total operating revenue
2012
$000
21,163
1,333
22,496
Total
2011
$000
17,509
1,637
19,146
64
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 5.
PROFIT FROM OPERATIONS
Profit from operations is stated after charging/(crediting):
Staff costs
Share-based payments
Impairment reversal
Impairment expense
Depreciation of other non-current assets
An analysis of auditor’s remuneration is as follows:
Fees payable to the Group’s auditors for the audit of
the Group’s annual accounts
Audit of the Company’s subsidiaries pursuant to legislation
Audit related assurance services
Total audit fees
Note
7
7
14,15
14
15
2012
$000
3,616
973
(347)
18,422
59
48
55
11
114
Total
2011
$000
4,554
1,857
(8,269)
33
161
70
32
11
113
During the year the Company fully impaired all capitalised expenditure totalling $18.4 million (2011: $nil) on the
Sangaw North licence following the decision to relinquish the block. Full details of the impairment and financial
impact are disclosed in note 10 on pages 67 and 68.
In 2011 the Company reversed impairments totalling $8.3 million in accordance with IAS 36 “Impairment of
Assets” following a review by the operator of forecast field life estimations on the Chinguetti field in Mauritania.
This review resulted in an extension of the economic field life to better reflect decline rates that have been
regressing less aggressively than originally prognosed. Of the $8.3 million, $5.6 million relates to reversals of
prior period impairment losses on the Chinguetti Funding Agreement and $2.7 million to reversals of prior period
impairment losses on the Chinguetti Intangible Royalty Asset.
2011 Impairment reversals had been determined by estimating the value in use and resulted in an increase in field
reserves of 0.472 million barrels of oil (Reserves Summary page 16). In calculating this impairment, management
used a range of assumptions, including a long-term oil price of $85 per barrel and a 10% pre-tax discount rate.
6.
COST OF SALES
Amortisation of intangible royalty asset
Depletion of property, plant & equipment - oil and gas
Operating costs
Under lift of product entitlement
2012
$000
797
1,625
9,727
(121)
12,028
2011
$000
266
-
7,814
(1,967)
6,113
65
Sterling Energy Plc Report and Financial Statements 2012 7.
EMPLOYEE INFORMATION
The average monthly number of employees of the Group (including executive Directors) was:
Africa and Middle East
Corporate support staff
Group employee costs during the year (including executive Directors) amounted to:
Wages and salaries
Social security costs
Other pension costs
Share-based payments
2012
2011
14
11
25
2012
$000
3,034
347
235
973
4,589
17
14
31
2011
$000
3,831
426
297
1,857
6,411
Key management personnel include Directors who have been paid $1.2 million (2011: $1.6 million), see
Remuneration Report (pages 32 to 35) for additional detail.
A portion of the Group’s staff costs and associated overheads are recharged to the joint venture partners,
expensed as pre-licence expenditure or capitalised where they are directly attributable to on-going capital
projects. In 2012 this portion amounted to $4.3 million (2011: $5.1 million).
8.
FINANCE INCOME AND FINANCE EXPENSE
Finance income:
Interest revenue on short-term deposits
Revisions to discount on decommissioning provision in year
Finance expense:
Bank charges
Unwinding of discount on decommissioning provision
Unwinding of discount on production royalty bonus provision
Exchange differences
66
2012
$000
350
-
350
12
1,010
26
(533)
515
2011
$000
365
2,847
3,212
10
959
21
61
1,051
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 9.
TAXATION
The tax charge for the year is calculated by applying the applicable standard rate of tax as follows:
(Loss)/profit before tax
Tax on profit on ordinary activities at standard
UK corporation tax rate of 24.5% (2011: 26.5%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Adjustment for tax losses
Tax charge for the year
10. DISCONTINUED OPERATIONS
2012
$000
(12,920)
(3,165)
5,134
(1,717)
(252)
-
Total
2011
$000
18,420
4,881
(2,117)
(2,981)
217
-
On 29 January 2013, Sterling formally announced withdrawal from the Sangaw North licence in Kurdistan. The
decision to relinquish was made in December 2012 following interpretation of the 2D seismic data acquired in the
Sangaw North PSC earlier in 2012. This indicated that the remaining potential was insufficient to justify drilling a
second exploration well in the contract area.
Sterling acquired and processed 117km of 2D seismic data, supplementing the 2D seismic data previously
acquired in the contract area. Interpretation of the new seismic data indicated that the risked potential of a
secondary target along the flank of the main structure, analogous to the recent discoveries made in adjacent
acreage to the south east of the Sangaw North PSC area, did not justify the cost exposure of an exploration
well. Based on this interpretation, the joint venture partnership has decided not to drill a second exploration well
in the contract area.
Under the terms of the PSC, Sterling were required to notify the Kurdistan Regional Government of Iraq (KRG) on
or before 31 January 2013 whether or not they wished to participate in the drilling of a further exploration well on
the Sangaw North block before the end of the current exploration phase which ran to November 2013.
On 30 December 2012, Sterling fully impaired all expenditure capitalised on the Sangaw North block following
a decision by the Board to relinquish the licence. Details of the financial impact of the relinquishment are
summarised below:
Loss for the year from discontinued operations (page 47)
Cash flows from operating activities (note 24 page 76)
2012
$000
(18,422)
-
2011
$000
-
-
Cash flows from investing activities (note 3 page 64)
(3,133)
(4,481)
Basic and diluted loss per share from discontinued operations (USc)
(note 12 page 68)
(8.38)
-
67
Sterling Energy Plc Report and Financial Statements 2012
On 29 January 2013, Sterling notified the KRG of the partnership’s decision not to drill a second exploration well
in the Sangaw North PSC area and the PSC automatically terminated on that date.
At the date of termination, Sterling had fully satisfied the work commitment required by the Sangaw North PSC.
Following the closure of Sangaw North operations, Sterling will have no remaining interests in Kurdistan.
11. PROFIT ATTRIBUTABLE TO THE COMPANY
The loss for the financial year dealt within the Company accounts of Sterling Energy Plc was $8.6 million (2011:
profit of $1.6 million). As provided by s408 of the Companies Act 2006, no individual statement of comprehensive
income and expense is provided in respect of the Company.
12. EARNINGS PER SHARE
The calculation of basic loss per share is based on the Group consolidated loss for the financial year of $12.9
million (2011: profit $18.4 million) and on 219,530,061 (2011: 219,382,869) ordinary shares, being the weighted
average number of ordinary shares in issue. For the year ended 31 December 2012, the basic loss per share
were 5.89 US¢ per share (2011: profit 8.40 US¢ per share).
For the year ended 31 December 2012, the fully diluted loss per share was 5.89 US¢ per share (2011: profit 8.29
US¢ per share). This is computed based on 219,530,061 (2011: 222,292,291) ordinary shares, being the total
used for the computation of the basic earnings per share as adjusted in assuming the exercise of none of the
11,409,488 options outstanding as at the year end (see note 26 on pages 80 to 84).
For the year ended 31 December 2012, the basic and fully diluted loss per share from discontinued operations
was 8.38 US¢ per share (2011: nil US¢ per share). The loss from discontinued operations during the year was
$18.4 million (2011: $nil). The profit from continuing operations was $5.5 million (2011: $18.4 million).
13.
INTANGIBLE ROYALTY ASSETS
Net book value at 31 December 2010 and 1 January 2011
Impairment reversal
Amortisation charge for the year
Net book value at 31 December 2011
Amortisation charge for the year
Net book value at 31 December 2012
Group
$000
824
2,663
(266)
3,221
(797)
2,424
Group net book value at 31 December 2012 comprises the value of rights to future royalties in respect of the
Group’s agreements covering licences PSC A and PSC B and PSC C-10 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.
68
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 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.
In 2011 impairment losses recognised in prior periods totalling $2.7 million have been reversed on the Chinguetti
asset. Details of impairment losses can be found in note 1 on page 58 and note 5 on page 65.
14.
INTANGIBLE EXPLORATION AND EVALUATION (E&E) ASSETS
Net book value at 31 December 2010 and 1 January 2011
Additions during the year
Reimbursement of back costs on farm-out
Impairment charge for the year
Net book value at 31 December 2011
Additions during the year
Impairment charge for the year
Impairment reversal for the year
Net book value at 31 December 2012
Note
Group
$000
20,793
6,474
(4,779)
(33)
22,455
5,888
10
(18,422)
324
10,245
The amount for intangible exploration and evaluation assets represents investments in respect of exploration
licences (see note 1g). 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 reversal recorded above relates to assets held in the Africa pool of $324k (2011: impairment
$33k) where the estimated recoverable amount of the property, plant and equipment and E&E in the pool was in
excess of the carrying amount.
69
Sterling Energy Plc Report and Financial Statements 2012
15. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
At 31 December 2010 and 1 January 2011
185,829
2,949
188,778
Additions during the year
Disposals in the year
Adjustments during the year
At 31 December 2011
Additions during the year
Adjustments during the year
At 31 December 2012
-
-
(4)
41
(26)
-
41
(26)
(4)
185,825
2,964
188,789
-
(23)
100
-
100
(23)
185,802
3,064
188,866
Accumulated depreciation and impairment
At 31 December 2010 and 1 January 2011
(185,829)
(2,774)
(188,603)
Charge for the year
Disposals in the year
Impairment reversal for the year
At 31 December 2011
Charge for the year
Impairment reversal for the year
At 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
Net book value at 31 December 2010
-
-
5,606
(161)
12
-
(161)
12
5,606
(180,223)
(2,923)
(183,146)
(1,625)
23
(59)
-
(1,684)
23
(181,825)
(2,982)
(184,807)
3,977
5,602
-
82
41
175
4,059
5,643
175
70
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements Company
Cost
Oil and Gas
assets
Computer
and office
equipment
Total
$000
$000
$000
At 31 December 2010 and 1 January 2011
185,829
176
186,005
Adjustments during the year
Disposals in the year
At 31 December 2011
Disposals in the year
At 31 December 2012
(4)
-
185,825
(23)
185,802
-
(26)
150
-
150
(4)
(26)
185,975
(23)
185,952
Accumulated depreciation and impairment
At 31 December 2010 and 1 January 2011
(185,829)
(161)
(185,990)
Charge for the year
Disposals in the year
Impairment reversal for the year
At 31 December 2011
Charge for the year
Impairment reversal for the year
At 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
Net book value at 31 December 2010
-
-
5,606
(1)
12
-
(1)
12
5,606
(180,223)
(150)
(180,373)
(1,625)
23
-
-
(1,625)
23
(181,825)
(150)
(181,975)
3,977
5,602
-
-
-
15
3,977
5,602
15
During the year impairment reversals recognised in prior periods totalling $23k have been reversed on the
Chinguetti asset (2011: $5.6 million). Details of impairment reversals can be found in note 1 on page 58 and
note 5 on page 65.
71
Sterling Energy Plc Report and Financial Statements 2012 16.
INVESTMENT IN SUBSIDIARIES
Cost
At 31 December 2010 and 1 January 2011
Additions during the year
Disposals during the year on liquidation of subsidiary undertakings
At 31 December 2011
Additions during the year
At 31 December 2012
Company
$000
223,137
1,539
(118,936)
105,740
928
106,668
The principal subsidiary undertakings at the year-end are as follows (these undertakings are included on
consolidation):
Sterling Energy (UK) Limited1
Sterling Energy (International) Limited 2
Country of
incorporation
Class of
shares
held
Proportion
of voting
rights held
2012
Proportion
of voting
rights held
2011
Nature of
business
United
Kingdom
United
Kingdom
Ordinary
100%
100% Exploration for
oil and gas
Ordinary
100%
100% Exploration for
oil and gas
Sterling Northwest Africa Holdings Limited 1
Jersey, CI
Ordinary
100%
100% Exploration for
Sterling Cameroon Holdings Limited 3
Jersey, CI
Ordinary
100%
100%
oil and gas
Investment
holding
company
Sterling Cameroon Limited 3
Jersey, CI
Ordinary
100%
100% Exploration for
Sterling Energy (East Africa) Limited 3
Jersey, CI
Ordinary
100% 4
1 Held directly by the Company, Sterling Energy Plc.
2 Held directly by Sterling Energy (UK) Limited.
3 Held directly or indirectly through Sterling Northwest Africa Limited.
4 Sterling Energy (East Africa) Ltd incorporated during 2012.
oil and gas
-
Exploration for
oil and gas
72
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 17. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts owed by subsidiary undertakings
Other receivables
Amounts due from joint venture partners
Prepayments and accrued income
2012
$000
433
-
117
70
590
1,210
Group
2011
$000
428
-
51
46
397
922
Company
2011
$000
21
2012
$000
31
14,228
21,308
19
-
71
13
-
53
14,349
21,395
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
18. SHARE CAPITAL
2012
$000
2011
$000
Authorised, called up, allotted and fully paid
220,053,520 (2011: 219,389,020) ordinary shares of 40p
149,014
148,589
Movements during the year included:
• Issue of 102,000 Ordinary Shares of 40 pence to A MacAskill in settlement of 2011 bonus.
• Issue of 562,500 Ordinary Shares of 40 pence to A Beardsall on exercise of share options under the All Staff
LTIP scheme.
19. RESERVES
Reserves within equity are as follows:
Share Capital
Amounts subscribed for share capital at nominal value.
Share Premium Account
The share premium account represents the amounts received by the Company on the issue of its shares which
were in excess of the nominal value of the shares.
Currency Translation Reserve
The foreign currency translation reserve includes movements that relate to the retranslation of the subsidiaries
whose functional currencies are not the US$.
Retained Deficit
Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts
reflected directly in other reserves.
73
Sterling Energy Plc Report and Financial Statements 2012 20. DEFERRED TAX
At the reporting date the Group had an unrecognised deferred tax asset of $19.0 million (2011: $22.7 million)
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. At the
reporting date the Company had an unrecognised deferred tax asset of $17.3 million (2011: $21.9 million)
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
Revisions in year
Unwinding of discount
2012
$000
2011
$000
21,154
20,144
120
153
21,274
20,297
2012
$000
2011
$000
20,144
-
1,010
21,154
22,032
(2,847)
959
20,144
The amounts shown above for Africa represent the estimated costs for decommissioning the Group’s producing
interests in respect of its economic interest in the Chinguetti field in Mauritania.
The Company amount of $21.2 million (2011: $20.1 million) 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
Transferred to current liabilities
Foreign exchange movements
74
2012
$000
2011
$000
153
26
(67)
8
120
199
21
(69)
2
153
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 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 LTIP’, and the ‘All Staff LTIP’, see note 26) and no further sums will accrue.
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. TRADE AND OTHER PAYABLES
Trade payables
Amounts owed to subsidiary undertakings
Amounts advanced from joint venture partners
Accruals
2012
$000
377
-
92
14,919
15,388
Group
2011
$000
962
-
205
13,334
14,501
Company
2011
$000
6
2012
$000
71
60,440
58,570
-
12,745
73,256
-
12,342
70,918
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
23. OPERATING LEASES AND CAPITAL COMMITMENTS
2012
$000
Group
2011
$000
Company
2011
$000
2012
$000
Minimum lease payments under operating
leases recognised as an expense in the year
4,443
4,447
3,378
3,383
At the reporting date outstanding commitments for minimum operating leases payments fall due as follows:
Within one year
In the second to fifth year inclusive
2012
$000
3,635
1,388
5,023
Group
2011
$000
4,395
696
5,091
Company
2011
$000
3,378
490
3,868
2012
$000
2,936
-
2,936
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 its office properties. The current FPSO lease is due to expire
in 2013 at which point the Joint Venture Partners have an option to extend the contract for a further period of
time. Included within the $5.0 million is $2.9 million payable on the FPSO within one year.
75
Sterling Energy Plc Report and Financial Statements 2012
24. CASH FLOWS FROM OPERATING ACTIVITIES
Group
Operating activities:
Profit before tax from continuing operations
Loss before tax from discontinued operations
Finance income and gains
Finance expense and losses
Depletion and amortisation
Impairment reversal
Impairment expense
Gain on disposal of property, plant and equipment
Share-based payment charge
Operating cash flow prior to working capital movements
Increase in inventories
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Cash generated from continuing operations
Cash generated/(outflow) from discontinued operations
Company
Operating activities:
(Loss)/profit before tax
Finance income and gains
Finance expense and losses
Depletion and amortisation
Impairment reversal
Net movement in investment
Disposal of investments
Gain on disposal of property, plant and equipment
Share-based payment charge
Operating cash flow prior to working capital movements
Increase in inventories
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in provisions
76
2012
$000
5,502
(18,422)
(350)
503
2,481
(347)
18,422
-
973
8,762
(121)
(287)
(554)
7,800
7,800
-
7,800
2012
$000
(8,638)
(350)
479
1,625
(23)
(928)
-
-
973
(6,862)
(121)
7,046
19,911
(17,573)
2,401
2011
$000
18,420
-
(3,212)
1,041
427
(8,269)
33
(8)
1,857
10,289
(1,971)
16,773
(19,518)
5,573
5,573
-
5,573
2011
$000
1,553
(3,212)
996
1
(5,605)
(1,539)
16,569
(8)
1,857
10,612
(1,971)
25,790
(20,904)
-
13,527
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 25. FINANCIAL INSTRUMENTS
Capital Risk Management and Liquidity Risk
The Group and Company is not subject to externally imposed capital requirements. The capital structure of
the Group and Company 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 deficit as
disclosed in the statement of changes in equity. The Group and Company uses cash flow models and budgets,
which are regularly updated, to monitor liquidity risk.
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.
Due to the short term nature of these assets and liabilities such values approximate their fair values at
31 December 2012 and 31 December 2011.
Group
Financial assets (classified as loans and receivables)
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Company
Financial assets (classified as loans and receivables)
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities at amortised cost
Trade and other payables
Total
Carrying amount / Fair value
2012
$000
2011
$000
120,348
115,826
620
525
120,968
116,351
15,388
15,388
14,501
14,501
Carrying amount / Fair value
2012
$000
2011
$000
118,565
114,831
14,278
21,342
132,843
136,173
73,256
73,256
70,918
70,918
77
Sterling Energy Plc Report and Financial Statements 2012 Financial Risk Management Objectives
The Group’s and Company’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 and Company does not enter into or trade financial instruments, including derivative financial
instruments, for speculative purposes.
Interest Rate Risk Management
The Group and Company does not have any outstanding borrowings and hence, the Group and Company 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 reporting date and assuming the amount of the balances at the reporting 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
reporting 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:
Cash and cash equivalents
Group Increase
Company Increase
2012
$000
1,203
2011
$000
1,158
2012
$000
1,186
2011
$000
1,148
Foreign Currency Risk
The Group’s and Company’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 pounds sterling. The majority of balances are held in US dollars with transfers to pounds sterling
and other local currencies as required to meet local needs. The Group does not enter into derivative transactions
to manage its foreign currency translation or transaction risk.
The Group and Company’s foreign currency translation risk is as follows:
Financial Assets
Cash and cash equivalents
Cash and cash equivalents held in $US
Cash and cash equivalents held in GBP
2012
$000
110,791
9,557
120,348
Group
2011
$000
101,671
14,155
115,826
2012
$000
109,148
9,417
118,565
Company
2011
$000
100,862
13,969
114,831
78
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements Trade and other receivables
Trade and other receivables held in $US
Trade and other receivables held in GBP
Financial Liabilities
Trade and other payables
Trade and other payables held in $US
Trade and other payables held in GBP
2012
$000
381
239
620
2012
$000
14,857
531
15,388
Group
2011
$000
469
56
525
Group
2011
$000
13,763
738
14,501
2012
$000
19
14,259
14,278
2012
$000
67,627
5,629
73,256
Company
2011
$000
13,693
7,649
21,342
Company
2011
$000
65,676
5,242
70,918
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 or Company. The Group and Company 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 or Company. The Group’s and
Company’s business is diversified in terms of both region and the number of counter-parties and the Group and
Company does not have significant exposure to any single counter-party or Group and Company of counter-
parties with similar characteristics.
In relation to its cash and cash equivalents, the Group has to manage its currency exposures and the credit risk
associated with the credit quality of the financial institutions in which the Group maintains its cash resources. At the
year end the Group held approximately 92% (2011: 88%) of its cash in US dollars. At the year end the Group held
the majority of its balances with AA- and A+ Standard & Poors rated institutions. The Group continues to monitor
its treasury management to ensure an appropriate balance of the safety of funds and maximisation of yield.
During the year the Company impaired loans to Sterling Energy International Limited totalling $17.6 million (2011: $nil)
following the relinquishment of its Sangaw North licence in Kurdistan. Trade and other receivables are non-interest
bearing. The Group does not hold any collateral as security and the Group does not hold any significant provision in
the impairment account for trade and other receivables as they relate to customers with no default history.
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 2012 is nil% (2011: nil%).
79
Sterling Energy Plc Report and Financial Statements 2012 Less than
six months
Six months
to one year
One to
six years
$000
$000
$000
Total
$000
Interest
Principal
$000
$000
Group
2012
Trade payables
469
2011
Trade payables
1,167
Company
2012
Trade payables
2011
Trade payables
71
6
-
-
-
-
-
-
-
-
469
1,167
71
6
-
-
-
-
-
-
-
-
Upside Sharing Agreement
Following the sale of Sterling’s U.S. operations to Atinum E&P Inc. (“Atinum”) in 2009 the Company held a three
year ‘upside sharing agreement’, under which the Company is entitled to a 40% share of the annual excess
net production proceeds, net of certain costs, if Atinum’s average realised oil price exceeds $90 bbl and/or the
realised gas price exceeds $9 mcf in 2010-2012.
The Company has modelled the value of each of the embedded derivatives (for oil and gas production) using a
DCF model at prevailing oil and gas prices. The DCF model takes account of production profiles, appropriate
discount factors and costs, hedges and other contractual terms.
At 31 December 2012 the value of the upside sharing agreement was $nil (31 December 2011: $nil). The Group
has no financial obligation in respect of this agreement, which has now fully expired, with no amounts falling due.
26. 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 $973k (2011: $1.9 million). The Company recognised a total expense, within
administration costs, in respect of share-based payments under equity-settled share option plans of $184k
(2011: $255k).
In 2009 the Company reviewed the existing share-based incentive schemes currently in place to motivate and
incentivise its employees. The Company also took independent advice to support its review. Based on this,
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, all further awards are made under the All Staff Long Term Incentive Plan. Awards are
made on similar terms to non-executive Directors of the Company, under a separate plan the NED Long Term
Incentive Plan.
80
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements
Share options (2002- 2007)
Movements during the year on share options were as follows:
Outstanding at the beginning of period
Forfeited during the period
Exercised during the period
Outstanding at the end of the year
Exercisable at the end of the year
2012
Number of
share options
2012
Weighted
average
exercise price
(pence)
2011
Number of
share options
2011
Weighted
average
exercise price
(pence)
799,375
(562,500)
-
236,875
236,875
266
231
-
348
348
1,125,625
(326,250)
-
799,375
799,375
337
553
-
266
266
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
2012
Number
2011
Number
2012
Weighted
average
exercise price
(pence)
n/a
160
280
500
690
830
620
-
-
193,750
14,375
2,500
13,750
12,500
-
503,750
193,750
14,375
27,500
47,500
12,500
No share options were exercised during 2012 (2011: nil). The options outstanding at the end of the year have a
weighted average contractual life of 0.60 years (2011: 1.18 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
(2011: nil pence). Some of the options lapse if the employee leaves the Company.
No further awards were made under this share option scheme post the introduction of the 2007 LTIPs.
81
Sterling Energy Plc Report and Financial Statements 2012 2007 Long Term Incentive Plan (“2007 LTIP”)
Following the introduction, and approval by shareholders of the All Staff Long Term Incentive Plan (‘All Staff
LTIP’) in 2009, no further awards or grants have been made under the 2007 LTIP, subsisting awards and grants
remained in place and the scheme fully lapsed during the year.
Movement during the year on share options were as follows:
Outstanding at the beginning of period
Exercised during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
2012
Number of
share options
2012
Exercise price
(pence)
2011
Number of
share options
2011
Exercise price
(pence)
417,328
-
(417,328)
-
-
40
-
40
-
-
910,240
(25,513)
(467,399)
417,328
417,328
40
40
40
40
40
All Staff Long Term Incentive Plan (“All Staff LTIP”)
In accordance with the approved All Staff LTIP, the Group has granted options to its staff and executive Directors
to acquire shares in the Company.
The movement during the year on the share options were as follows:
2012
Number of
share options
2012
Exercise price
(pence)
2011
Number of
share options
2011
Exercise price
(pence)
Outstanding at the beginning of the year
Granted during the period
Exercised during the period
Lapsed during the period
7,354,868
6,270,600
(562,500)
(2,533,138)
Outstanding at the end of the year
10,529,830
Exercisable at the end of the year
-
40
40
40
40
40
-
5,282,777
3,952,150
-
(1,880,059)
7,354,868
-
40
40
-
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 4.14 years (2011: 4.10 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
20.4 pence (2011: 15.45 pence).
If the Sterling Energy share price (“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.
82
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements If the SESP performance matches the Index performance, then 25% of the share options will be earned.
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 at time of grant
Expected life (years)
Risk free rate (%)
Expected dividends
2012
2011
43
40
40
40
69.53%
79.77%
3
0.24%
Nil
3
0.81%
Nil
Expected volatility for grants in the year was estimated by calculating the historical volatility of the Company’s
share price over the period 23 December 2009 to 30 September 2012 (2011: over the period 23 December
2009 to 30 September 2011). 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 option value.
Non-executive Directors Long Term Incentive Plan (‘NED LTIP’)
In accordance with the approved NED LTIP, the Group has granted options to its non-executive Directors to
acquire shares in the Company.
The movement during the year on the share options was as follows:
Outstanding at the beginning of the year
Granted during the period
Lapsed during the period
Outstanding at the end of the year
Exercisable at the end of the year
2012
Number of
share options
2012
Exercise price
(pence)
2011
Number of
share options
2011
Exercise price
(pence)
427,084
309,450
(93,751)
642,783
-
40
40
40
40
-
302,084
125,000
-
427,084
-
40
40
-
40
-
83
Sterling Energy Plc Report and Financial Statements 2012 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 3.39 years (2011: 3.20 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
20.4 pence (2011: n/a 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 employment is terminated on
death, or as a good leaver.
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.
27. RELATED PARTY TRANSACTIONS
Details of Directors’ remuneration, which comprise key management personnel, are provided below:
Short-term employee benefits
Defined contribution pension
Share-based payments
2012
$000
1,087
90
884
2,061
Group
2011
$000
1,482
117
1,089
2,688
Company
2011
$000
144
-
255
399
2012
$000
158
-
184
342
Further information on Directors’ remuneration is detailed in the Remuneration Report, on pages 32 to 35.
28. SUBSEQUENT EVENTS
There have been no events subsequent to the reporting date that require disclosure.
29. CONTINGENT LIABILITIES
The Group has received a claim for VAT from the Madagascan tax authority totalling $973k in respect of its
Ampasindava and Ambilobe licences. Having taken professional advice the Group considers the claim to be
wholly without foundation and continues to defend its position through the appropriate dispute resolution and
legal processes.
84
Sterling Energy Plc Report and Financial Statements 2012Year ended 31 December 2012Notes to the Financial Statements 85
Sterling Energy Plc Report and Financial Statements 2012 Definitions and Glossary of Terms
$
2006 Act
2007 LTIP
1P
2D
2P
3D
3P
AIM
All Staff LTIP
AGM
API gravity
Articles
bbl
bbl/d
bopd
boe
boepd
bcf
Board
C
Capex
CGR
Combined Code or Code
Companies Act
Company or Sterling
Contingent Resources
COS
Darcy
Deg
Directors
DST
E&E
EBITDA
86
US dollars
The Companies Act 2006, as amended
The 2007 Long Term Incentive Plan
Proven reserves or in-place quantities depending on the context
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
Annual General Meeting
An American Petroleum Institute scale for crude oil density
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, a measure of the gas component converted
into its equivalence in barrels of oil
Barrel of oil equivalent per day
Billion cubic feet of gas
The Board of Directors of the Company
Celsius
Capital expenditure
Condensate gas ratio
The Combined Code on Corporate Governance. Now superseded
by the UK Corporate Governance Code (see below)
The Companies Act (as amended 2006)
Sterling Energy Plc
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
Chance of success
Unit of permeability
Degrees
The Directors of the Company
Drill stem test, a method of flow testing a well
Exploration and evaluation assets
Earnings before interest, taxation, depreciation, depletion and
amortisation, impairment, share-based payments and pre-licence
expenditure
Sterling Energy Plc Report and Financial Statements 2012 EITI
EMV
EUR
Farm-in and farm-out
FDP
FPSO
FSA
G&G
GBP
GIIP
GOC
GOR
GWC
Group
HMRC
HSES
Extractive Industries Transparency Initiative
Expected monetary value
Economic ultimate recovery
A transaction under which one party (farm-out party) transfers part of
its interest to a contract to another party (farm-in party) in exchange
for a consideration which may comprise the obligation to pay for
some of the farm-out party costs relating to the contract and a cash
sum for past costs incurred by the farm-out party
Field development plan
Floating, Production, Storage and Offloading vessel
The Financial Services Authority of the United Kingdom
Geological and geophysical
Pounds Sterling
Gas initially in place
Gas oil contact
Gas oil ratio
Gas water contact
The Company and its subsidiary undertakings
Her Majesty’s Revenue and Customs
Health, Safety, Environment and Security
Hydrocarbons
Organic compounds of carbon and hydrogen
km
km2
KRG
Lead
Kilometre(s)
Square kilometre(s)
Kurdistan Regional Government of Iraq
Indication of a possible exploration prospect
London Stock Exchange or LSE
London Stock Exchange Plc
m
mmbbl
mmstb
mmboe
mmcf
mmcfge/d
mmscf/d
mss
mTVDss
Murphy Oil
NED LTIP
NPV
OECD
Opex
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 equivalent per day
Million cubic feet at standard pressure and temperature per day
Metres sub-sea
Metres true vertical depth sub-sea
Murphy Cameroon Ntem Oil Co. Ltd, a wholly owned subsidiary of
Murphy Oil Corporation
Non-executive Director Long Term Incentive Plan adopted in 2009
Net present value of a series of cash-flows
Organisation for Economic Cooperation and Development
Operating expenditure
Ordinary Shares
Sterling ordinary shares of 40 pence each
87
Sterling Energy Plc Report and Financial Statements 2012 Definitions and Glossary of Terms (cont.)
OWC
P90, P50, P10
Oil water contact
90%, 50% and 10% probabilities respectively that the stated
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
Panel or Takeover Panel
The Panel on Takeovers and Mergers
Petroleum
Petronas
PP&E
PRMS
Prospect
Oil, gas, condensate and natural gas liquids
PC Mauritania I PTY LTD
Property, Plant & Equipment
Petroleum resource Management System as issued in March 2007
by the Society of Petroleum Engineers et al
A potential sub-surface accumulation of hydrocarbons which has
been identified but not drilled
Prospective Resources or
Prospective Recoverable Resources
psi(a)
Those quantities of petroleum which are estimated, as at a given
date, to be potentially recoverable from undiscovered accumulations
Pounds per square inch (absolute)
PSC
Reserves
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
Reservoir
A porous and permeable rock capable of containing fluids
RF
RI
RISC
Scf
Seismic
SESP
Shares
Recovery factor
Royalty interest
RISC (UK) Limited of 53 Chandos Place, Covent Garden, London
WC2N 4HS
Standard cubic feet of gas (measured at 60 degree Fahrenheit and
14.7 psia)
Data, obtained using a sound source and receiver, that is processed
to provide a representation of a vertical cross-section through the
subsurface layers
Sterling Energy share price
40p Ordinary Shares
Shareholders
Ordinary shareholders of 40p each in the Company
SMH
sq km
sq mi
stb
STOIIP
Societe Mauritanienne Des Hydrocarbures
Square kilometre
Square mile
Stock tank barrel (measured at 60 degrees Fahrenheit and 14.7 psia)
Stock tank oil initially in place
Subsidiary
A subsidiary undertaking as defined in the 2006 Act
88
Sterling Energy Plc Report and Financial Statements 2012 Tcf
TEA
TD
TVD
Trillion cubic feet of gas
Technical evaluation agreement
Total depth
True vertical depth
United Kingdom or UK
The United Kingdom of Great Britain and Northern Ireland
UK Corporate Governance Code
or Code
Formerly the Combined Code, sets out standards of good
to board
practice
remuneration, accountability and relations with shareholders
relation
in
leadership and effectiveness,
United States or US
The United States of America
Water-cut
Working Interest or WI
That percentage of total fluid production that is water
A Company’s equity interest in a project before reduction for royalties
or production share owed to others under the applicable fiscal terms
89
Sterling Energy Plc Report and Financial Statements 2012 Professional Advisers
Nominated Advisors
Legal
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London
EL2Y 9LY
Ashurst
Broadwalk Street
5 Appold Street
London
EC2A 2HA
Corporate Brokers
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Registered Office
85 Fleet Street
London
EC4Y 1AE
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London
EL2Y 9LY
Peel Hunt
Moor House,
120 London Wall
London
EC2Y 5ET
Corporate Bankers
Barclays Commercial Bank
1 Churchill Place
London
E14 5HP
HSBC
165 Fleet Street
London
EC4A 2DY
The Royal Bank of Scotland Plc
1 Albyn Place
Aberdeen
AB10 1BR
90
Sterling Energy Plc Report and Financial Statements 2012 91
Sterling Energy Plc Report and Financial Statements 2012 Sterling Energy Plc
Annual General
Meeting 2013
Annual General Meeting 2013
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 19 April 2013, at 11.00 a.m. to consider and, if thought fit, to pass
the following resolutions. Resolutions 8 and 9 shall be proposed as special resolutions 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 2012, together with the
reports of the Directors and auditors thereon. (Resolution 1)
To approve the Remuneration Report contained in the Accounts for the financial year ended 31 December
2012. (Resolution 2)
To re-appoint BDO LLP as auditors of the Company. (Resolution 3)
To authorise the Directors to set the remuneration of the auditors. (Resolution 4)
In accordance with article 106 of the Company’s Articles of Association, to re-elect Nicholas John Clayton,
who retires by rotation, as a Director of the Company (Resolution 5)
In accordance with article 106 of the Company’s Articles of Association, to re-elect Keith Nicholas Henry,
who retires by rotation, as a Director of the Company. (Resolution 6)
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
£29,340,469 (such amount to be reduced by the nominal amount allotted or granted under (b) below
in excess of such sum); and
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 £58,680,939 (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
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,
(b)
these authorities to expire at the conclusion of the next Annual General Meeting of the Company (or if earlier
on 30 June 2014), (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 7)
2.
3.
4.
5.
6.
7.
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Sterling Energy Plc Report and Financial Statements 2012
Special Resolution
8.
That subject to the passing of Resolution 7, 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
sell ordinary shares (as defined in section 560(1) of the Act) held by the Company as treasury shares
for cash,
(b)
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 and the sale of treasury shares:
(i)
(ii)
in connection with or pursuant to an offer or invitation to acquire equity securities (but in the
case of the authority granted under Resolution 7(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
in the case of the authority granted under Resolution 7(a) above (or in the case of any transfer
of treasury shares), and otherwise than pursuant to paragraph (i) of this resolution, up to an
aggregate nominal amount of £4,401,070, and shall expire at the conclusion of the next Annual
General Meeting of the Company (or, if earlier, on 30 June 2014), 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 8)
the grant to each of Keith Nicholas Henry, Nicholas John Clayton and Malcolm Hood Pattinson of
an option to acquire 103,150 ordinary shares at 40p per share under the Sterling Energy Plc Non-
executive Directors Long-Term Incentive Plan (the “NED Options”) be and is hereby approved;
the Directors be generally and unconditionally authorised for the purpose of section 551 of the Act
(in addition to any existing authority) to exercise all powers of the Company to allot shares and grant
rights to subscribe for, or convert any security into, shares pursuant to or in connection with the NED
Options up to an aggregate nominal amount (within the meaning of section 551 (3) and (6) of the Act)
of £123,780; and
(c) the Directors be given the power pursuant to sections 570 and 573 of the Act to allot equity
securities (as defined in the Act) (in addition to any existing authority) pursuant to the authority
referred to in paragraph (b) above as if section 561 of the Act did not apply to any such allotment
provided that any such power shall be limited to the allotment of equity securities pursuant to or in
connection with the NED Options up to an aggregate nominal amount of £123,780,
9.
That:
(a)
(b)
(c)
these authorities to expire on 1 October 2017 (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 authorisations conferred hereby had not
expired). (Resolution 9)
By Order of the Board
Andrew Smith
Company Secretary
15 March 2013
Registered Office:
Sterling Energy Plc
85 Fleet Street
London EC4Y 1AE
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Sterling Energy Plc Report and Financial Statements 2012
Annual General Meeting 2013
Explanatory Notes to the Resolutions
The following explanatory information is provided by way of background to the business of the meeting:
Resolution 2
This resolution is to approve the Directors’ Remuneration Report for the financial year ended 31 December 2012.
You can find the report on pages 32 to 35 of the Report and Financial Statements 2012.
Resolution 5
Biographical details of the Director standing for re-election (Nicholas John Clayton) appear on page 25 of the
Report and Financial Statements 2012.
Resolution 6
Biographical details of the Director standing for re-election (Keith Nicholas Henry) appear on page 26 of the Report
and Financial Statements 2012.
Resolution 7
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 7 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 £29,340,469 and (b) in connection with a rights issue up to an aggregate nominal
amount (including allotments under part (a) of the resolution) of £58,680,939.
These amounts represent approximately one third and approximately two thirds respectively of the total issued
ordinary share capital of the Company at 15 March 2013, in accordance with current guidelines of the Association
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 2014, whichever is the earlier. Your Directors have no
present intention of issuing shares pursuant to this authority.
Resolution 8
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 8 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 £4,401,070 (being 5%
per cent of the Company’s issued ordinary share capital at 15 March 2013). If given, this authority will expire at
the next Annual General Meeting of the Company or on 30 June 2014, 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.
Resolution 9
The Sterling Energy Plc Non-executive Directors Long-Term Incentive Plan (the “NED LTIP”) was approved by
shareholders at the Extraordinary General Meeting held on 4 December 2009, at which time your Directors were
authorised to allot shares pursuant to options to be granted under the NED LTIP up to an aggregate nominal
amount of £150,000. On 30 October 2012, Keith Nicholas Henry, Nicholas John Clayton and Malcolm Hood
Pattinson were each granted, subject to the approval of shareholders, an option to acquire 103,150 ordinary
96
Sterling Energy Plc Report and Financial Statements 2012 shares at 40p per share (the “NED Options”). The NED Options are exercisable after three years and are not
subject to performance conditions. There being insufficient headroom within the existing authority for issue of
shares to satisfy the NED Options, it is proposed that your Directors be authorised to allot shares pursuant to the
NED Options up to an aggregate nominal amount of £123,780, such authority to expire on 1 October 2017.
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 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
97
Sterling Energy Plc Report and Financial Statements 2012
Annual General Meeting 2013
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:
(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.
5.
6.
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 17 April 2013 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.
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.
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.
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Sterling Energy Plc Report and Financial Statements 2012
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Sterling Energy Plc
85 Fleet Street
London
EC4Y 1AE
+44 (0)20 7405 4133
Tel:
Fax: +44 (0)20 7440 9059
Email: info@sterlingenergyuk.com
www.sterlingenergyplc.com