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Press release from CNW Group

STERLING RESOURCES ANNOUNCES FIRST QUARTER OPERATING AND FINANCIAL RESULTS

Wednesday, June 22, 2011

STERLING RESOURCES ANNOUNCES FIRST QUARTER OPERATING AND FINANCIAL RESULTS17:00 EDT Wednesday, June 22, 2011CALGARY, June 22, 2011 /CNW/ - Sterling Resources Ltd. (TSX-V:SLG)("Sterling" or the "Company") an international oil and gas company with exploration and development assets in the United Kingdom, Romania, France and the Netherlands, announces interim operating and financial results for the quarter ended March 31, 2011. Unless otherwise noted all figures contained in this report are denominated in Canadian dollars.These are the Company's first financial statements prepared in accordance with International Accounting Standard (IAS) 34, using accounting policies consistent with International Financial Reporting Standards (IFRS), and accordingly the transition date to IFRS has been specified as January 1, 2010 in order to fully reflect the impact of the Company's new accounting policies on the comparative period for 2010. This interim report has been filed in accordance with the extended filing deadline permitted by the Canadian Securities Administrators for all companies filing under IFRS for the first time.For the three months ended March 31, 2011 the Company recorded a net loss of $22.4 million ($0.12 per share) compared with a net loss of $1.6 million ($0.01 per share) for the three months ended March 31, 2010. The three main events contributing to this comparative increased loss are firstly the dry hole costs of $9.7 million related to the unsuccessful Grian well drilled in block 48/28b in the UK Southern North Sea in which Sterling holds a 57 percent interest.  By comparison exploration costs during the first quarter of 2010 related to the unsuccessful well at Airidh totaled $1.7 million.Secondly, Sterling incurred a loss of $4.5 million during the quarter mostly attributable to the loss on conversion of US dollar denominated working capital into functional currencies, as the US dollar weakened significantly in relation to the Canadian dollar. This compares to a foreign exchange gain of $4.2 million during the first quarter of 2010 when the US dollar strengthened significantly against the UK pound.And thirdly, as our activity level has increased, pre-license and other exploration costs totalled $4,914,000 including $2,419,000 relating to the Netherlands and other international ventures, $1,470,000 relating to Romania and $1,025,000 relating to the Company's interests in our various licenses offshore the UK. In the same period in 2010, pre-license and other exploration costs totalled $1,641,000 comprised of $949,000 relating to Romania, $19,000 relating to other international ventures and $673,000 relating to the UK.Cash and cash equivalents at March 31, 2011 were $96.9 million compared to $142.6 million as at December 31, 2010.  Net working capital was $75.1 million at March 31, 2011 compared to net working capital of $138.4 million at December 31, 2010. This level of working capital is expected to be sufficient to cover our obligations and commitments for the next year. Additional funding will be required for the second phase of Breagh and for the development of Cladhan in the UK North Sea and Doina/Ana in the Romanian Black Sea.During the three months ended March 31, 2011 capital expenditures on petroleum and natural gas properties and equipment totaled $56.6 million. Of this total approximately $32.8 million was attributable to construction work related to the Breagh platform jacket, topsides, pipeline sections and onshore facilities; $10.7 million is related to drilling activities at Cladhan; $6.8 million is attributable to the unsuccessful Grian well in the UK North Sea; and $5.7 million attributable to the successful East Breagh appraisal well 42/13a-6.Commenting on the interim results, Mike Azancot, Sterling's President and CEO said, "Sterling faced a number of challenges and opportunities at the start of the year. Our strengthened balance sheet following the close of the equity financing in December placed us in an excellent position to move forward with the Breagh Phase 1 development, the further appraisal of Cladhan and to continue in our efforts to overcome political challenges in Romania.""The successful appraisal well at East Breagh has enhanced the size and scope of the Breagh field and the full field development. With significant progress accomplished so far, the project is on target for 1st gas in July 2012. The four well Cladhan drilling campaign has been successful in delineating the northern core area with a new effective oil column of over 1,200 feet and we have a better understanding of some of the field's limits which enables us to proceed with development planning of the base case with flexibility for upside prospectivity. We look forward to recommencing operations next year as we embark on development and further appraisal drilling, having fully integrated the valuable information gathered so far into a reprocessed seismic project," added Mr. Azancot."It is with much reluctance that we have had to file legal notices in Romania but we must move forward and continue the exploration and development of oil and gas resources in our offshore license blocks. We have always been of the opinion that Romania's Black Sea offers the country the potential to reduce gas imports dramatically, provide for high levels of investment and tax receipts while providing significant employment opportunities. Our actions are focused on taking a proactive approach in assisting in the resolution of the current impasse. As a long-standing, loyal and patient investor in the country we reiterate that it is our intention to follow through on our business plan in Romania by developing and further exploring our resources. I believe that with prompt actions from the government, an amicable resolution can be reached without resorting to arbitration," noted Mr. Azancot.United KingdomAt Breagh in the UK Southern North Sea, we began the year with a very successful appraisal well 42/13a-6 on the eastern side of the field which encountered 62 feet of gas bearing sand, the thickest to date. By proving up more reserves on the eastern side of the field, a second phase of development involving another platform is now considered very likely. During the first quarter, operations have been progressing to secure all contracts and permitting for the development of Breagh. A final draft of the Field Development Program (FDP) was submitted in mid June. The FDP is now expected to be approved around the end of June. All major contracts for the development have been awarded and the full-field project is on budget and on schedule to deliver first gas in July of 2012.At Cladhan in the UK Northern North Sea, Sterling expanded our acreage in March 2011 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 our current licenses. An appraisal well here is planned during 2012. During early April a successful sidetrack well 210/30a-4 was drilled one kilometer southeast of the 210/29a-4Y location, placing it further downdip in the northern core area. The well had a total measured depth of 12,252 feet and encountered two separate reservoir zones. No oil water contact was found and the main zone is in the same pressure regime as all other wells drilled in the northern core area. Consequently the effective minimum vertical oil column is now 1,228 feet.Three geological sidetracks of the 210/30a-4 well were then drilled. The first sidetrack, 210/30a-4Z, located 1.6 kilometers east of the 210/30a-4 well, was completed during early May and targeted a portion of the fan system even further downdip. The 210/30a-4Z well was drilled to a measured depth of 15,900 feet and encountered two separate Upper Jurassic reservoir zones of 12 and 169 feet (vertical thickness) with oil shows through both. The well encountered these sands deeper than expected and much closer to a major fault system. Petrophysical analysis indicated porosities of up to 13.5 percent with a high degree of dolomitic cement and no pressure measurements were obtainable. While we would have preferred to see better quality sands in what appears to be a large package of oil filled reservoir, this is the first well into a deeper portion of the field with little well control. In our view this well may not be representative of the whole fan system and accordingly upside prospectivity in this area of the Cladhan field may still be significant. During May a 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 a dedicated floating production storage and offloading unit with first production targeted as early as 2014.During late March the UK Government increased North Sea taxation unexpectedly in the spring budget, raising the supplemental rate from 20 to 32 percent. This tax increase will impact Sterling to a much lesser degree than many of our peers because of our significant tax pools. Dialogue with the UK Government through the industry body Oil and Gas UK continues in an effort to ameliorate the impact on future investments in the North Sea and potentially exempt gas production from this tax increase.In the Southern North Sea on Block 48/28b, a commitment well was drilled to 6,148 feet measured depth encountering good Leman sandstone but was unfortunately not hydrocarbon bearing. The well has been abandoned.FranceIn the Paris Basin of France, Sterling as operator has been awarded 9.5 blocks pending final approval by the Secretary of State. A recent moratorium on fracking operations has delayed activity of our neighbours in their plans to evaluate the unconventional oil potential of the Liassic shale. We understand that a conclusion of the French government review will be to relax the control of drilling operations but that fracking activities will in future be scrutinized and monitored. Sterling will continue to monitor this situation and participate in industry dialogue with the government as deemed appropriate. No drilling is planned by Sterling until 2012 in the Paris Basin, although a multi-well drilling program is planned for this year on an adjacent license and its outcome will assist us in developing our own drilling plans going forward.RomaniaSubsequent to the end of the first quarter we announced that we had declared force majeure on Sterling's Midia and Pelican Blocks in the Romanian Black Sea, as the Company has been unable to undertake petroleum operations for reasons outside of our control which the Company views as political in nature. The total lack of clarity on the applicable procedure and authority for issuance of construction permits constitutes an event of force majeure under the Concession Agreement. One effect of this action will be that the duration of the license periods will be extended for the period in which we are under force majeure. Additionally, in early May Sterling filed a Notice of Default with NAMR as a result of NAMR's failure to grant license assignments to Sterling's partners Petro Ventures Europe BV and Gas Plus International BV for a 20 and 15 percent license holding respectively on our Midia and Pelican Blocks.Having had no prompt resolution to these issues, Sterling filed a Notice of Dispute with the Government of Romania under the treaty for the Promotion and Reciprocal Protection of Investments between Romania and Canada (the "Treaty") on June 20, 2011. In the Treaty, Romania undertook obligations with respect to the protection of investments of Canadian investors into Romania. The Notice of Dispute allows for a six month period of negotiations in which to resolve the issues amicably. If Sterling is unable to obtain satisfactory resolution on all the issues within this period, the Company can then submit the matter to arbitration, if it so desires. Under the arbitration process, Sterling would claim monetary damages that reflect the entire and significant ultimate value of our offshore assets.Sterling Resources Ltd. is a Canadian-listed international oil and gas company headquartered in Calgary, Alberta with assets in the United Kingdom, Romania, France and the Netherlands.  The shares are listed and posted for trading on the TSX Venture Exchange under the symbol "SLG".Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this releasee.Filer Profile No. 00002072Forward-Looking StatementsAll statements included in this press release that address activities, events or developments that Sterling expects, believes or anticipates will or may occur in the future are forward-looking statements. In addition, statements relating to reserves or resources are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves and resources described can be profitably produced in the future.These forward-looking statements involve numerous assumptions made by Sterling based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances.  In addition, these statements involve substantial known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other-forward looking statements will prove inaccurate, certain of which are beyond Sterling's control, including: the impact of general economic conditions in the areas in which Sterling operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition there are risks and uncertainties associated with oil and gas operations.  Readers should also carefully consider the matters discussed under the heading "Risk Factors" in the Company's Annual Information Form.Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Sterling's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. These statements speak only as of the date of the press release. Sterling does not intend and does not assume any obligation to update these forward-looking statements except as required by law.Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this press release should not be used for purpose other than for which it is disclosed herein.The timing and results of any such arbitral process in respect of the Romanian assets is uncertain and the ultimate success of Sterling's potential arbitration process cannot be assured.For further information: visit www.sterling-resources.com or contact: Mike Azancot, President and Chief Executive Officer, Phone 44-7740-432883, mike.azancot@sterling-resources.com David Blewden, Chief Financial Officer, Phone: 44-1330-826766, Mobile: 44-7771-740804, david.blewden@sterling-resources.com George Kesteven, Manager, Corporate and Investor Relations, Phone: (403) 215-9265, Fax: (403) 215-9279, george.kesteven@sterling-resources.com