LOCATION OF STERLING'S OFFSHORE UNITED KINGDOM ASSETS

OFFSHORE UK OVERVIEW – Why is Sterling interested in the Offshore UK?

Sterling’s management have a long and detailed association with the development of the North Sea and excellent relations with the ruling energy body the Department of Energy and Climate Change (DECC). In addition, the remaining potential and size of the prize for successful exploration in the area is well documented.

NORTH SEA EXPLORATION OPPORTUNITIES EXCEED 1000 PROSPECTS

The Offshore UK is not a low cost environment but the third part of Sterling’s strategy – retaining meaningful working interest allows us to sell down at the appropriate time to partially fund success and continue to expand our portfolio. Sterling entered the UK offshore in 2003 when it applied for and was awarded two "Promote Licenses" covering four Blocks or partial Blocks in the United Kingdom 21st Offshore UK Licensing Round.

The Promote License was offered for the first time in 2003 for the 21st Round bidding. Promote Licenses provide opportunities for smaller companies to enter the prolific offshore basins and assess and promote the prospectivity of the licensed acreage without the stringent requirements of traditional licenses. Under the terms of the Promote Licenses, license fees are reduced and companies have two years to complete geological and geophysical studies on a license without a drilling commitment. After two years, the license holder can commit to further work or the block can be relinquished without further obligation.

Sterling has successfully participated in every UK Offshore Licensing Round from 2003 to 2011 as follows:

Some blocks have subsequently been relinquished and some converted to traditional licenses. Presently the Company holds licenses in each of the main producing basins in the North Sea: two Blocks in the Northern North Sea (oil), one block in the Central North Sea (oil) and fifteen blocks in the Southern North Sea (gas). As of December 2009 Sterling holds interests in nine licenses comprising eighteen blocks or part blocks. A brief description of each of the licenses follows:

NORTHERN NORTH SEA

Sterling acquired its interest in Blocks 210/29a and 210/30a in 2003 and reduced its interest to 39.9 percent through a series of farm-out transactions. In late 2008 the Company drilled the Cladhan 210/29-4 discovery well, encountering light oil (34° API) in a Jurassic channel sand structure. During 2010, the well was re-entered and two further sidetrack wells were drilled.

The first sidetrack (210/29a-4Z) drilled an updip location approximately one kilometre due south from the discovery well. The sidetrack was drilled to a total depth of 11,215 feet, measured depth (MD), a true vertical depth (TVDSS) of 9,561 feet. The well encountered a gross hydrocarbon column of 159 feet with 102 feet of net hydrocarbon-bearing sandstones. This was a significant improvement to the discovery well, which had 31 feet of net pay. A drill stem test (DST) was conducted by perforating the interval of 10,806 to 10,869 feet measured depth (MD). The well was flowed for a total of 18.7 hours, of which 13 hours yielded a stabilized average rate of 5,903 bopd on a 28/64" fixed choke, with a final wellhead pressure of 1,874 pounds per square inch gauge.

Following this success, well 210/29a-4Y was drilled to a downdip location at 11,530 feet MD (9,791 feet TVDSS) approximately one kilometre southeast of the original well, and about one kilometre due east of the first sidetrack location. The well encountered more than 60 feet true vertical thickness of net hydrocarbon-bearing sandstones. Analysis of the open-hole logs showed good-quality sands with an average porosity of 20 percent. Most importantly, the well did not encounter an oil-water contact at this downdip location. This means the lowest known oil occurs at 11,333 feet MD (9,650 feet TVDSS), establishing a minimum oil column at Cladhan of 425 feet at that point in time.

In March 2011, Sterling expanded its acreage in the Cladhan area by executing reciprocal agreements with Valiant Petroleum plc to facilitate the exchange of certain North Sea assets, resulting in the Company acquiring a 25 percent interest and operatorship of Blocks 210/29c and 210/30b immediately south and east of its current licenses. An appraisal well here is planned over the next 12 months.

The site surveys, permits and rig selection for the 2011 drilling campaign were completed in only seven months. The rig Transocean Prospect has drilled well 210/30a-4 one kilometre southeast of the 210/29a-4Y reservoir location, which places it further downdip in the reservoir. The well, which has a total measured depth of 12,252 feet, encountered two separate reservoir zones. No oil water contact was found and consequently the effective minimum vertical oil column is now 1228 feet.

Three geological sidetracks of the 210/20a-4 were completed during this drilling campaign. The first of these wells, 210/30a-4Z was completed in early May 2011 and is located 1.6 kilometers to the east of the 210/30a-4 well, targeting what is believed to be a turbidite fan system located even further downdip. The 210/30a-4Z well was drilled to a total measured depth of 15,900 feet having encountered two separate Upper Jurassic reservoir zones of 12 and 169 feet (vertical thickness) with oil shows through both intervals. No oil-water contact was encountered. Petrophysical analysis of the open-hole logs showed porosities of up to 13.5% but with a high degree of dolomitic cement. Pressure measurements were attempted but not obtained. The objectives of the 210/30a-4Z sidetrack well were to appraise the field further east of previous well control and prove sand and oil presence in the fan system, which is considerably deeper than previous wells which have been drilled into the channel systems on the terrace structure.

During mid May of 2011 a second sidetrack well 210/30a-4Y was drilled to a measured depth of 12,615 feet into a separate system to the south in the central channel. The well encountered 40 feet (vertical thickness) of high quality Upper Jurassic sands with porosities of up to 25 percent but the sands are water wet. Pressure measurements confirmed that the interval is over-pressured, but to a lesser extent than in the northern core area. The implication of this information is that the central channel is separate from the main reservoir in the northern core area. While we were disappointed to encounter wet sands, we were encouraged by the quality of the reservoir which positively aids our understanding of reservoir quality distribution within the Cladhan field.

In early June the fourth and final well of this Cladhan campaign, 210/30a-4X, was drilled into the most southern limit of the northern core area in a potentially separate channel to a measured depth of 10,614 feet, encountering 105 feet net (vertical thickness) of high quality Upper Jurassic sands. Petrophysical analysis of the interval showed five feet of oil-bearing sands at the top of the interval and the well will be suspended for possible re-use as a future development well at this location or elsewhere after a sidetrack. With the completion of the four well program, RPS Energy will start a review of the Cladhan resources with the intent of issuing an update report within a few weeks. The next drilling campaign at Cladhan is anticipated to commence in early 2012 following the integration of the data from this campaign into a field-wide reprocessed seismic project.

The Company is currently considering various development scenarios for Cladhan of either a subsea development system or dedicated floating production storage and offloading unit, with first production targeted as early as 2014. At December 31, 2010, Sterling's independent resources evaluators have attributed Company Interest (P50) Contingent Resources of 11.6 MMbbls and Best Estimate (P50) Prospective Resources of 27.9 MMBOE on an unrisked basis to Cladhan.

CENTRAL NORTH SEA

Activity in the Central North Sea has centred on Block 21/23a with the drilling of the Sheryl discovery during 2006 in which Sterling holds a 35% interest. Sheryl tested oil at a maximum rate of 1,915 Bopd of 22 degree API gravity oil, although independent studies indicate the potential for up to 10,000 Bopd from a high angle well with sand control and artificial lift. The project is currently on hold, awaiting ullage in the Pict pipeline system, which may become available during 2010. Sterling took back operatorship of the Block in early 2009 and will now focus on the best short term solution for the field. Independent reserves auditors have attributed net Probable reserves of 1.1 MMbbls to Sheryl at December 31, 2008.

During May of 2010 Sterling entered into a farm-in agreement with Wintershall (E&P) Limited to acquire a 25 percent working interest in the UK Central North Sea Blocks 21/21, 21/22, and 21/27b. The initial focus was upon the Blakeney prospect on Block 21/27b, which is an Upper Tay sandstone four way dip closed structure adjacent to the Pilot Field and an updip of the Fyne/Dandy trend. Block 21/27a is located on the western margin of the West Forties Graben system approximately 10 kilometres southwest of the Sheryl discovery. Sterling had conducted extensive internal study of these Blocks previously and success at Blakeney, with its close proximity to Sheryl, overall economic potential could be enhanced with a common production and export facility.

In August of 2010 the Blakeney well was drilled to a measured depth of 4,456 feet where the well encountered a 71 foot net oil column of excellent reservoir sands. Testing of this vertical well was not planned, as any future test will be conducted from a high angle well completed with properly sized sand screens. The farm-in agreement with operator Wintershall (E&P) Limited also encompasses a 25%interests in Block 21/21 and 21/22 where the operator has mapped additional prospects.

SOUTHERN NORTH SEA

Sterling acquired Block 42/13 in the UK Southern North Sea as operator in 2004. Its interest in the Block was reduced to 45 percent after a series of farm-out arrangements and in late 2007 the Company and its partners drilled the 42/13-3 well, which tested gas at rates of up to 17.6 million cubic feet per day (MMcf/d). These results confirmed that damage to the formation which had been experienced in earlier Breagh wells drilled by other operators, could be overcome by the use of oil-based drilling fluids.

In 2008, the Breagh 42/13-4 appraisal well was drilled on the eastern flank of the Breagh structure. This well tested gas at rates of up to 10.2 MMcf/d and confirmed the continuity of the reservoir encountered in the 42/13-3 well. In late 2008 Sterling commenced drilling the Breagh 42/13-5 and 5Z horizontal appraisal wells, which were completed and tested in early 2009. The 42/13-5Z well tested natural gas at rates of up to 26 MMcf/d.

After the success of the appraisal drilling program in early 2009, Sterling commenced a process to dispose of a partial interest in the greater Breagh area in order to provide sufficient funds to continue development. In August 2009 the Company completed the sale of one-third of its 45 percent interest in Block 42/13 and varying interests in the surrounding blocks comprising the greater Breagh area for total gross proceeds of approximately $103,000,000. Following the disposition, Sterling retained a 30 percent interest in the entire greater Breagh area. The sale also resulted in the purchaser, RWE Dea, becoming operator. Following the transaction, development of the Breagh field was Sterling's primary focus for 2009-2010, with finalization of conceptual field development plans and completion of preliminary engineering studies for the platform, pipeline and modifications to the gas terminal.

The Breagh development concept is a modular design to allow not only expansion of reservoir exploitation within the development area, but to accommodate new natural gas from surrounding prospects and fields and new third-party business from outside the Quad 42 area. The initial development phase will place the Breagh Alpha platform over the previously drilled wells 42/13-3 and 42/13-5Z. These wells were left suspended after appraisal drilling by Sterling in 2007 and 2008-2009 so that they could be utilized as early development wells. It is anticipated that up to 8 wells will be drilled from the platform to exploit the natural gas from the West Breagh area. Natural gas will be transported to landfall via a 20" pipeline running approximately 100 kilometres to the shore, where it will be linked to an onshore pipeline running approximately 10 kilometres to the Teesside Gas Processing Plant (TGPP). The TGPP will process the raw natural gas, prior to its entry into the National Transmission System (NTS).

A second platform, Breagh Bravo, is now being considered over the 42/13a-6 well. This well was drilled during the first quarter of 2011, 2.4 kilometres further east of the 41/13-4 well drilled in 2008. The well came in on prognosis regarding the structure, encountering 62 feet of gas-bearing sand, the thickest encountered in the field to date. The well was not tested but extensive open hole logs have confirmed similar permeabilities to the previous wells tested.

Conceptual studies have begun on development of the eastern part of the Breagh Field. Further infrastructure will be considered for areas outside the drilling radius of the Breagh Alpha and Breagh Bravo platforms, either as subsea clusters or unmanned installations. An agreement with Teesside Gas & Liquids Processing (TGLP) for the processing and redelivery of natural gas to be produced from Breagh over its entire field life was concluded in 2010. Among the services TGLP is to provide is the processing of Breagh natural gas production within a dedicated unit at the plant, with onward redelivery of gas to the NTS and/or local customers. TGLP will also provide remote operational services to the offshore Breagh Alpha platform facility and will provide ongoing operational and maintenance-related services to the Breagh pipeline's onshore section.

Operations have been progressing to secure all contracts and permitting for the field's development. What are expected to be final drafts of the environmental statements for the onshore and offshore segments and the Field Development Programme (FDP) following various reviews and clarifications, should be submitted to the UK Department of Energy and Climate Change (DECC) in the 2nd half of April 2011.. The environmental statements and FDP are now expected to be approved by early May 2011.Tendering and contract awards were made for all major elements of the project:

• Heerema Vlissingen B.V. was awarded a contract for the engineering, procurement and construction of a minimum facilities platform. Heerema will construct the jacket, topsides and piles at its Vlissingen yard in the Netherlands. The jacket will be approximately 85 metres tall with a total weight including piles of 4,000 tonnes, while the topsides will weigh approximately 1,400 tonnes. Installation of the platform is expected to take place in the third quarter of 2011;
• •Allseas Construction Contractors SA has been awarded the contract for the engineering, installation and precommissioning of the offshore pipeline and associated fibre-optic cable. Most of the pipe has been delivered and is now being concrete coated;
• ENSCO has been awarded the development drilling contract, with drilling expected to commence in October 2011; and
• An agreement with px Group provides for the construction and installation of onshore 20" and 3" pipelines and a telemetry system from Coatham Sands, Redcar to the TGPP. In addition to its existing responsibility for operationand management of the TGPP, px will manage onshore pipeline construction.

The Company expects to incur capital expenditures of approximately $125 million for the development of Breagh in 2011. First gas from the Breagh field from the Breagh Alpha platform is on schedule for July 2012 with the field expected to reach a peak annual rate of 160 MMcf/d in 2013 for the first phase of development. Gas will be sold on a day ahead or month ahead spot basis.

THE GREATER BREAGH AREA

With success in subsequent license rounds, Sterling developed a significant acreage holding surrounding the Breagh Field, known as the “Greater Breagh Area“. This area is made up as follows : Blocks 42/19, 42/20 & 42/24 are adjoining blocks located just north of the giant Ravenspurn gas fields. Mapping has firmed up a significant Bunter formation prospect on Block 42/19 named Airidh. As this block has been converted to a traditional license, Sterling has committed to drill this prospect in 2010.

Blocks 42/8, 42/9, 42/12 and 42/14 were obtained in the 23rd Offshore Licensing Round and surround the Breagh gas discovery on the neighboring 42/13a block. Sterling acquired a closely spaced seismic program in 2008 which has created numerous additional drilling prospects.

Blocks 42/18, 42/2b, 42/3 and 42/4 (Sterling 100%) were obtained in the 24th Offshore Licensing Round. These blocks in the Quad 42 area form a natural exploration extension in areas adjacent to the Breagh discovery within which several Carboniferous prospects have been identified. Blocks 42/18 and 42/24 have since been relinquished.During November 2008 Sterling announced it had been successful in the UK 25th Offshore Licensing Round awards, which were announced on November 12th by the UK Department of Energy and Climate Change. The blocks awarded were 42/10 and 42/15, which are immediately adjacent to Sterling's existing 12 block position surrounding the Breagh gas discovery.

In addition, the 42/15a-2 well drilled by Total in 1990, tested gas from the Zechstein formation at 7.6 MMscf/d and 0.15 MMscf/d from the underlying Carboniferous (Scremerston) formation. On Block 42/15, there is also a small Triassic Bunter discovery which tested at 19.6 MMscf/d from the 42/15b-1 well drilled by Total in 1984. The newly procured blocks adjoin the 42/9 and 42/14 blocks.

The main attraction with the new blocks focuses on a sizeable discovery on 42/10 in the Yoredale sands (which are geologically similar to the Breagh Reservoir). The 42/10-2z well drilled by Mobil Oil in 1996 tested 8 MMscf/d and was drilled just before the original Mobil Oil well on Breagh (1997), using the same type of water-based drilling fluid which is now known to be less than optimal. The structure was reasonably well defined by existing seismic which has been supplemented by the recent purchase of a 3D survey shot in 2009.

Two wells are currently planned during 2010 for the Greater Breagh Area in Quad 42 of the Southern North Sea in which Sterling holds a 30% interest. In conjunction with the operator RWE Dea, drilling of the Airidh and Macanta wells, located to the south and east of the Breagh field respectively are expected to begin during the second quarter of 2010, and will target the first potential satellite tiebacks to the developing Breagh infrastructure.

Drilling of the Macanta prospect in Block42/14, a satellite location approximately 13 kilometres east of the main Breagh field was completed in early August of 2010. Drllled to a measured depth of 8,937 feet, the well encountered wet sands at a deeper level than anticipated and the well was therefore plugged and abandoned. The stratigraphic information obtained from the Macanta well will enhance the understanding of neighbouring prospects surrounding the Crosgan discovery and possible deeper reservoir potential within the Breagh field.

During the summer of 2010, 3-D seismic work was completed on the Darach prospect which is located in the northern quadrant of the greater Breagh, Quad 42. Following completion of this seismic work the Darach prospect was relinquished at the request of the operator.

Blocks 48/18d, 48/23b and 48/28b (split) were obtained in the 24th Offshore Licensing Round and are also located in the Southern North Sea. The Grian well 48/28b-2 was completed in March of 2011. T he well encountered good quality Leman Sandstone at a total measured depth of 6,148 feet, however the well failed to find gas and was plugged and abandoned. Drilling of the Grian well has now fulfilled all license commitments. Sterling holds a 57 percent interest with the remaining 43 percent held by partner GB Petroleum Ltd