Mr. Jacob Ulrich reports

STERLING RESOURCES ANNOUNCES 2013 OPERATING AND FINANCIAL RESULTS AND NI 51-101 RESERVES DISCLOSURE

Sterling Resources Ltd. has released operating and financial results for the year ended Dec. 31, 2013. Sterling changed the presentation currency of its financial reporting from Canadian dollars (which remains the functional currency of the company) to U.S. dollars, effective Dec. 31, 2013, and accordingly, unless otherwise noted, all figures contained in this release are denominated in U.S. dollars. The change in presentation currency has been made to better reflect the company's business activities and improve comparability with the company's peers in the oil and gas industry.

The net loss for the year ended Dec. 31, 2013, was $31.2-million (11 cents per common share) compared with a net loss of $49.7-million (22 cents per common share) for the year ended Dec. 31, 2012. The decrease in the net loss is largely attributable to non-recurring refinancing and review costs partially offset by increased revenues, foreign exchange gains and the 2012 relinquishment of the Sheryl licence in the United Kingdom North Sea. Highlights for the year ended Dec. 31, 2013, include the following:

The company's first material production commenced at the Breagh gas field in the UKNS during October, 2013, generating revenue of $3.5-million by year-end 2013. Natural gas is sold on a spot basis pursuant to a gas-trading agreement with Vitol signed in 2011, whereby Sterling nominates volumes on a day-ahead or month-ahead basis and achieves a price very close to the U.K. reference spot price at the national balancing point. Sterling is paid the month following production. A small amount of condensate is also produced at Breagh (approximately three barrels of liquids per million standard cubic feet of production) and is sold to a third party at a price linked to northwest European spot prices for naphthenic products.

Third party Gemini Oil & Gas Fund II LP was paid $465,000 pursuant to a loan agreement originally executed in 2007 related to the financing of appraisal wells on the Breagh field. Gemini is entitled to interest and principal repayments representing a portion of gas and condensate production revenue from Breagh, and the portion varies as certain thresholds of cumulative payment are reached.

Prelicence and other exploration costs during 2013 were $8.4-million, a significant decrease from the 2012 level of $31.5-million, due to lower activity levels during 2013 and the relinquishment of Sheryl (U.K. block 21/23a) during 2012, which resulted in a charge of $12.8-million. Of the $8.4-million total, $3.6-million ($20.1-million in 2012) was attributable to licences in the U.K., $2.0-million ($7.8-million in 2012) attributable to Romania, and $2.8-million ($3.6-million in 2012) was attributable to the Netherlands and other international ventures. In addition to the charge related to Sheryl, the 2012 prelicence number was higher due to seismic costs on the U.K. 42/13b, 42/17 and 42/18 (Lochran) blocks, the Muridava block in Romania, and the E3/F1 block in the Netherlands, which were acquired and expensed in the period.

For the year ended Dec. 31, 2013, the company recorded a foreign exchange gain of $9.8-million due to the weakening of the U.S. dollar (in which a $225-million senior secured bond of the company's U.K. subsidiary is denominated) against the U.K. pound (which is the functional currency for the U.K.), partially offset by bank balances held in U.S. dollars. This gain offset losses incurred in the first half of 2013, which arose mainly: (1) on the repayment of the 105-million-pound senior secured bank credit facility (from the U.S.-dollar-denominated bond as a result of the U.K. pound strengthening against the Canadian dollar and (2) a foreign exchange loss of $600,000 during the first quarter of 2013, which arose on the U.S.-dollar-denominated short-term loan as a result of the Canadian dollar weakening relative to the U.S. dollar.

Net employee expense during 2013 totalled $7.3-million increasing marginally by $151,000 over the 2012 level. Of this total, $6.5-million was wages and salaries with the remaining $800,000 related to non-cash compensation. The non-cash component was down from the $3.3-million level in 2012 as certain options were fully amortized and no new options were issued.

General and administrative expenses for the year ended Dec. 31, 2013, after recoveries, totalled $3.0-million, increasing by $159,000 over the 2012 level. During 2013, a number of cost-saving initiatives were launched including the relocation of the offices in both London and Aberdeen to smaller facilities.

Costs related to refinancing and review activities during 2013 totalled $12.9-million, of which $7.6-million related to bank and professional consultants, $1.5-million to severance payments, and $3.8-million of transaction costs related to the credit facility.

Financing costs during 2013 totalled $9.6-million primarily attributable to borrowing costs on the bond issue occurred from the date production at Breagh commenced in October, 2013. The rest of the financing costs includes accretion of the discount on decommissioning obligations and has increased due to greater decommissioning obligations on the Breagh development. During the first quarter of 2013, $1.9-million of financing costs were incurred in relation to the $12-million bridging loan facility.

The company has not yet recognized a deferred tax asset generated as a result of non-capital and other tax losses, due to the uncertainty of future taxable profits against which such losses can be offset. In the U.K., tax losses are estimated to amount to $616-million for ring fence corporation tax losses and $580-million for supplementary charge corporation tax. The net value of U.K. tax losses (including future ring fence expenditure supplement available to claim on these losses) is estimated by management to be approximately $220-million. Tax losses and allowances in Canada include tax pools of approximately $61-million and non-capital losses of approximately $43-million, and $17-million of tax-deductible expenses and losses are available to shield future taxable income in the Netherlands.

Cash and cash equivalents were $34.7-million at Dec. 31, 2013, compared with $9.5-million at year-end 2012. Restricted cash of $7.8-million at Dec. 31, 2013 ($22.0-million as at Dec. 31, 2012), was cash held in blocked accounts, specifically $2.8-million related to expenditures at Breagh and $5.0-million toward the second bond interest payable on April 30, 2014.

Net working capital was $2.2-million as at Dec. 31, 2013, significantly higher than the level at year-end 2012 mainly due to the refinancing, the wind-down of the drilling campaign in Romania and funds received from the share issue partly offset by the continuing development expenditure at Breagh. The current portion of long-term debt at year-end 2012 of $138.3-million was refinanced during the second quarter of 2013.

Capital expenditures during 2014 are anticipated to reach $86-million, of which approximately $31-million is related to U.K. Breagh phase 1 field development; $16-million related to other U.K. exploration and appraisal; $24-million for exploration and appraisal in Romania, the Netherland and France; and $4-million for predevelopment costs at Breagh phase 2 and at Ana and Doina offshore Romania. The expected cost of exploration and appraisal work in Romania, the Netherland and France has decreased significantly compared with earlier guidance principally due to the deferral of the Luceafarul-1 well into 2015.

An updated corporate presentation is available for viewing on the Sterling Resources website.

"The past year has been a transitional one as the company finally achieved production at Breagh and went through a significant change in leadership," noted Jake Ulrich Sterling's chief executive officer. "Our focus is now upon optimizing production levels at Breagh and reducing our working interest levels in the Black Sea, in order to advance development towards achieving Romanian production," added Mr. Ulrich.

Operational summary for 2013

United Kingdom

Breagh field development

Following first gas and a few weeks of intermittent operation as the Teesside gas-processing plant was started up, production at Breagh was suspended in November, 2013, to resolve mechanical issues at TGPP associated with pipeline pigging operations used to clear the field pipeline of liquids. These mechanical issues were resolved after seven weeks by changing the pipeline junction at the TGPP inlet and making improvements to operational management of pigging operations. Production recommenced in late December and has continued until April 10, 2014, on which date a further production shutdown commenced to remove fouling within the slug catchers and to replace level control instrumentation with the intention of improving processing uptime at TGPP. This shutdown is expected to be completed in early May, 2014.

The majority of the drilling operations have been completed for the planned phase 1 of the development. Wells A01-A06 have been drilled, completed, tested and on production since late December, 2013. Since then, sales production during the first quarter of 2014 has averaged 75 million standard cubic feet per day for the whole field or 22 million standard cubic feet per day net to Sterling. The Ensco 70 jack-up drilling rig will return to the field at the end of April, at which time the company plans to complete well A07 using hydraulic fracture stimulation (fracking), and then to drill and complete well A08. The company is also planning further development drilling of wells A09 and A10 from the Breagh Alpha platform late in 2015 early in 2016, following a new 3-D seismic acquisition over the field, which will be acquired during the summer of 2014.

The expected average sales gas production for 2014 is 90 million to 95 million standard cubic feet per day for the whole field (27 million to 28 million standard cubic feet per day net to Sterling), below the previous guidance of 106 million to 112 million standard cubic feet per day for the whole field provided in a news release on Feb. 19, 2014, equivalent to a reduction of approximately 15 per cent.

This change reflects production performance over the first quarter of 2014 to reflect lower than planned production efficiency (well time on stream and plant uptime), lower production expectations for wells A07 and A08, and changes to forecasted performance data to match actual sales production (system pressures, gas shrinkage and stabilized performance of wells A01 to A06). The sales gas rate production rate at the end of 2014 is now forecast to be 117 million standard cubic feet per day for the whole field (35 million standard cubic feet per day net to Sterling), only marginally lower than the 118 million standard cubic feet per day announced on Feb. 19, 2014.

Despite the lower initial production rates, reserves for the whole field at the end of 2013 at the proved plus probable level (phases 1 and 2) have only decreased by 1 per cent from the end of 2012 (after adjusting for a small amount of production in 2013) and for phase 1 are effectively unchanged. The issue therefore is how to extract the reserves more effectively, and the company is looking to enhance production rates through fracking wells and by drilling additional wells in both phases of development.

The large areal extent of the Breagh field of approximately 80 square kilometres means that further offshore facilities will be required to completely develop the field, most likely a second platform on the eastern side of the field. The size of the platform and well type and degree of stimulation are all key factors to a successful development of this area of the field during the second phase, all of which are currently being studied. The results of the hydraulic fracture treatment on well A07 will be particularly important in the evaluation of the phase 2 development. Because of the time required for these studies, it is possible that development approval may slip into 2015. Initial production from Breagh phase 2 is now expected during the third quarter of 2017.

Cladhan field development

The Cladhan development in block 210/29a is proceeding satisfactorily, slightly behind schedule but within budget, with first production expected around the end of the first quarter of 2015. Development drilling is expected to recommence later in April, 2014; installation of the subsea pipelines and tie-back to the host Tern platform are expected to begin over the summer of 2014; and final modifications to the Tern platform are anticipated to be completed over the period from the third quarter of 2014 into the second quarter of 2015 (finishing with the second compressor train, which is not needed for first production). Initial field production from Cladhan is expected at the end of the first quarter 2015 to be 17,000 barrels per day (approximately 2,300 barrels per day net to Sterling at a 13.8-per-cent interest level).

As a result of two separate agreements with TAQA Bratani regarding Cladhan in 2012 and 2013, Sterling reduced its equity interest but is now fully carried through to first oil. Part of the carry costs are repayable out of production revenue and after payout occurs, expected during the third quarter of 2015. Sterling will hold a 13.8-per-cent interest in the Cladhan field.

U.K. exploration

Exploration activities in 2013 focused on the acquisition and processing of seismic surveys over the Lochran prospect near to the Breagh field and the reprocessing of a number of existing seismic data sets, which included the Niadar prospect in the southern North Sea. The Niadar prospect is situated close to infrastructure, which may provide a relatively quick turnaround from exploration (if successful) to production. Following a planned farm-down this year, the prospect is expected to be drilled in 2015.

Preparatory planning work, including acquisition of a site survey, was completed in 2013 for drilling the exploration well to test the Beverley oil prospect in the central North Sea. Sterling's costs for drilling are fully carried, with expectations to drill in the latter half of 2014, following transfer of operatorship of this licence to Shell (U.K.) Ltd. later this month.

In December, 2013, Sterling was awarded its choice of blocks applied for in the 27th offshore licensing round. The company gained a 100-per-cent interest in several more blocks close to the Breagh field containing the Ossian and Darach prospects. The current plan is to farm down and seek a carry for the firm well commitment, planned to test both prospects. The company is also applying for additional prospective acreage in the 28th licensing round, which is due to close later this month with awards possibly by the end of 2014.

Romania

Between December, 2013, and February, 2014, Sterling as operator completed 3-D seismic surveys amounting to 1,350 square kilometres over key areas of the Luceafarul, Midia and Pelican offshore blocks. This was completed several months earlier than expected by using two vessels rather than one. The earlier completion of the 3-D seismic program means that the planned sell-down process to reduce the company's equity interests in its Black Sea blocks can commence at the end of the summer 2014 with interpreted results available for all of Sterling's main fields and prospects, providing important information for potential new partners. Sterling intends to reduce its equity interests in the Midia Shallow and Pelican blocks (currently 65 per cent), in the Luceafarul block (currently 50 per cent), and in the Muridava block (currently 40 per cent) to approximately half of the current levels by introducing a new partner. It is the intention to sign binding documentation, if the process is successful, around the end of 2014 with completion expected in the first quarter of 2015.

The development of the Ana and Doina fields in the Midia block continues to be evaluated by Sterling, but the timing of first production is now expected to occur during 2019. This will allow for optimization of the development to reflect the recent 3-D seismic acquired and to incorporate any exploration or appraisal success in Midia and nearby blocks over the next two years, which should add value by leading to a larger regional development.

An exploration well spudded in the remaining Black Sea block, Muridava (Sterling 40 per cent), on April 11, 2014, is expected to take two months to complete. The Muridava-1 well is on the same geological trend as the existing Olimpiyskaya and Eugenia gas discoveries and has targets in three formations. An exploration well on the Luceafarul block is planned in early 2015.

Licence extensions for the Midia Shallow and Pelican blocks have recently been agreed with the National Agency for Mineral Resources. Three extension options to the exploration period currently ending in May, 2014, are available, with extensions to May, 2015, May, 2018, and May, 2020. Commitments are projected to be satisfied in 2014 for the first extension period, and for each of the second and third extension periods, the commitments comprise two wells (in aggregate, over the two blocks).

During January, 2014, the sale of Sterling's 65-per-cent interest in a portion of the Midia block in the Romanian Black Sea to ExxonMobil Exploration and Production Romania and OMV Petrom S.A. was completed. Net of Romanian tax, the company received proceeds of approximately $25-million. In the event of future exploration success on the sale portion, Sterling will be entitled to further proceeds of $29.25-million upon a commercial discovery being made and an additional $19.5-million upon first production from the sale portion. The Midia block has now been split into two parts with the shallow waters contract area (Midia Shallow) being retained by Sterling at its current equity interest of 65 per cent. The Midia Shallow block includes the Ana and Doina discoveries, the Ioana prospect, and several other prospects. Sterling retains no interest in the smaller, carved-out portion of the deepwater Midia block.

Netherlands

A 3-D seismic survey is planned over the oil discoveries and prospects in the Jurassic and Early Cretaceous horizons in blocks F17a and F18 (Sterling 35 per cent) in the second half of 2014. This will improve reservoir understanding and assist in evaluating development options. With the commitment to complete 3-D seismic in place, a further multiyear extension has been requested from the Dutch authorities. The oil discovery by Wintershall Noord Zee BV with well F17-10 in late 2012 (which it estimated at the time as being at least 30 million barrels) in the shallower, Late Cretaceous horizon has, in the view of Sterling and partner Energie Beheer Nederland BV, increased the likelihood of a regional oil development hub. Sterling estimates that first production could be achieved at the earliest by 2019.

Financial review and outlook

The company was successful in refinancing the company in 2013 through a series of challenging financing transactions. In January, it completed a shareholder loan of $12-million from Vitol. In March, it closed an equity raise of $63.25-million (before expenses), enabling repayment of the Vitol loan. In early April, it agreed on a transaction with TAQA to provide development financing for Cladhan. Finally later in April, it closed the $225-million senior secured bond, allowing repayment of the credit facility (of which $134-million had been drawn).

It ended the year with $42.5-million of cash (including restricted cash), which was increased in February, 2014, by the receipt of after-tax proceeds of approximately $24.9-million from the sale of a subdivided portion of the company's Midia block, offshore Romania. However, the company's expected 2014 operating cash flow has been impacted by a combination of lower than expected Breagh production for 2014 and lower U.K. spot gas prices. As noted herein, 2014 production is now expected to be 15 per cent down on earlier guidance while the average forward curve U.K. gas spot price for 2014 has decreased by around 15 per cent from the beginning of January to early April (adjusting for actuals for the first quarter).

Sterling should have available financing to satisfy a requirement under the bond to have a minimum of $10-million unrestricted cash in the U.K. subsidiary up to around the end of the third quarter of 2014 at a flat gas price of 55 pence per therm ($9.10 per thousand cubic feet) for the rest of the year, in line with recent current forward curve gas prices. The extent of the cash shortfall will be determined by many factors including production rate, gas price, Breagh capital expenditures, and the phasing and cost of exploration activities. To address this potential cash shortfall, the company is considering a number of relatively small financing alternatives most likely involving debt capital markets.

Reserves and resources summary

Sterling is pleased to announce the filing of its annual reserves disclosure pursuant to National Instrument 51-101 and an update of the company's contingent and prospective resources, both as at Dec. 31, 2013.

The company has decreased its proved and proved plus probable reserves by 1.0 million and 3.0 million barrels of oil equivalent, respectively. This is due largely to the farm-outs and reduced working interest for the Cladhan field.

The company has decreased the P50 contingent resources by 7.0 million barrels of oil equivalent, a decrease of 8 per cent over year-end 2012. The decrease is due to a combination of several licence relinquishments and further evaluations of the Nia prospect on 49/18b and of the deeper Zone 3 sands within the Breagh field.

The company has decreased best-estimate prospective resources by 50.2 million barrels of oil equivalent, a decrease of 9 per cent over year-end 2012. This increase is mainly due to further subsurface evaluations of the company's Romanian properties, mainly in the Muridava block, which was offset by further additions in the U.K. with awards within the 27th licensing round (Ossian and Darach prospects).

The company has relinquished the Romanian onshore licence and consequently now has no unconventional gas resources.

                                      RESERVES SUMMARY 
                            (based on forecast prices and costs) 

                             Company share gross and net oil and gas reserves as at Dec. 31, 2013 (MMboe)
                         Total proved     Proved plus probable        Proved plus probable plus possible

Breagh                           23.4                     30.5                                      40.0
Cladhan                           0.9                      1.8                                       2.6
Company total                    24.3                     32.3                                      42.6

    Summary of net present value of future net revenue before income tax as at Dec. 31, 2013 (M$)
            Total proved        Proved plus probable          Proved plus probable plus possible

Breagh              $492                        $680                                        $913
Cladhan               53                          99                                         131
Company total        545                         779                                       1,044

                              RESOURCES SUMMARY
                    (based on forecast prices and costs) 

                     Unrisked contingent resources as at Dec. 31, 2013, company share
                                   1C                      2C                      3C
                                P (90)                  P (50)                  P (10)

Gas (bcf)                         294                     390                     484
Oil (MMbbl)                        20                    25.5                    33.5


         Unrisked prospective resources as at Dec. 31, 2013, company share
          Low estimate              Best estimate            High estimate
                 P (90)                     P (50)                   P (10) 

Gas (bcf)        1,939                      2,769                    4,045
Oil (MMbbl)         24                         52                      147

The company's hydrocarbon reserves and resources were independently evaluated by RPS, effective Dec. 31, 2013, in accordance with the Canadian oil and gas evaluation handbook reserves definitions and evaluation practices and procedures, as specified by NI 51-101. There is no certainty that it will be commercially viable to produce any portion of the reserves. The evaluation uses the RPS forecast prices and costs as at Dec. 31, 2013. Complete details regarding Sterling's reserves and resources for the year ended Dec. 31, 2013, and in a format specified by NI 51-101, can be found on SEDAR or on the company's website.

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