Sterling Energy Plunges 40% on Kurdistan Update

Shares in Sterling Energy (LSE: SEY), the AIM-listed oil & gas company with interests Iraqi Kurdistan, fell 40% in early trading this morning following an update on its activities at Sangaw North:

Sangaw North #1 Exploration Well

The exploration well has been drilled to an intermediate depth of 2,395m and open-hole wire-line log data acquired from 1,450m to 2,395m. Analysis of the wire-line log data indicated potential hydrocarbon bearing zones and Sterling has completed open-hole drill stem tests ("DST") over two prospective zones identified from the well data.

DST #1 was performed using inflatable straddle packers to selectively test an open-hole interval within the Cretaceous age Kometan formation. During the 6 hour flow period, an initial recovery of gas was followed by flowing water with minor gas content.

DST #2 was performed with a casing packer set near the shoe of the 9 7/8" casing and an inflatable open-hole bridge plug set within the Cretaceous age Shiranish formation in order to test an open-hole interval of the Shiranish. Coiled tubing and nitrogen were used during the initial flow period to assist in flowing back the fluid column in the tubing and the heavy drilling mud in the open-hole section; the coiled tubing was removed when the well started to flow naturally.

Following an initial clean up period, the well produced gas at an estimated flow rate of 4 million standard cubic feet per day (mmscfd) along with some drilling fluids, however the gas flow decreased and was replaced with water, believed to be formation water, flowing at an estimated rate of 4,300 bbl per day. The well was then shut-in and then re-opened for a second flow period. The well initially flowed water and then produced gas at an estimated flow rate of 1 mmscfd, however again the gas flow decreased and was replaced with water at an estimated rate of 750 bbl per day.

The forward plan is to drill ahead through the remaining Cretaceous section to evaluate the Qamchuqa reservoir and then to the deeper reservoirs in the Jurassic. The well is expected to reach a depth of 3,660m during the 4th quarter of 2010.

Alastair Beardsall, Sterling's Chairman commented:

"The initial recovery of gas flowing to surface from these zones within the Kometan and Shiranish is encouraging; however the subsequent water flow from these zones is disappointing. We shall now resume drilling to evaluate the Qamchuqa and then on to the Jurassic Whilst drilling ahead we shall further analyse the DST results and the previously acquired log data to see whether further testing within the Shiranish and Kometan intervals is justified, once the well has been drilled to its final depth and the open-hole sections cased."

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