UEN Urals EN.

TIDMUEN

RNS Number : 3752Q

Urals Energy Public Company Limited

14 October 2013

 
 Press Release   14 October 2013 
 

Urals Energy PCL

("Urals Energy" or the "Company")

Notice of extraordinary general meeting ("EGM")

Possible offer for up to 100 per cent. of the entire issued share capital of Urals Energy

Posting of Circular to Shareholders

Urals Energy (AIM:UEN), the independent exploration and production company with operations in Russia, announces that following the requisition of an EGM, further details of which were announced on 25 September 2013, it will today post a notice convening an extraordinary general meeting of the Company's shareholders for 11.00 a.m. (Cyprus time) on Monday 27 January 2014 at Evagoras Building, Office 34, 3rd floor, 31 Evagorou Avenue, Nicosia, CY-1066, Cyprus.

The key points in the Circular are:

 
   --   Removal of Ingeborg Srenger from the Board will be an 'Event 
         of Default' under the Petraco Oil Company debt restructuring 
         agreement giving Petraco the right to require immediate 
         repayment of the amounts owing to it 
   --   Urals Energy would face litigation from Petraco and this 
         would be extremely detrimental to the Company and its shareholders 
   --   Potential cash offer received at an indicative price of 
         12.25 pence per share for 100% of the entire issued share 
         capital of Urals Energy 
   --   Potential cash offer is subject to due diligence from a 
         highly credible purchaser with previous Russian operational 
         oil experience 
   --   Uncertainty as to who has ultimate control and ownership 
         of Fire East Corporation 
   --   The requisitioners have failed to provide any information 
         on their future plans for Urals Energy 
   --   The Board believes that the requisitioners are planning 
         on using the Company to acquire a high risk asset 
   --   Existing management have saved Urals Energy from near bankruptcy 
   --   The resolutions proposed are not in the interests of shareholders 
   --   The Board of Urals Energy* recommends that shareholders 
         vote against all the resolutions proposed by the requisitioners 
 

* with the exception of Mr Ranta who has abstained

Copies of the Circular convening the EGM will be posted to Shareholders today and will be available from Urals Energy's website in accordance with Rule 20 of the AIM Rules for Companies, www.uralsenergy.com.

- Ends -

For further information, please contact:

 
 Urals Energy Public Company Limited 
 Alexei Maximov, Chief Executive       Tel: +7 495 795 0300 
  Officer 
 Sergey Uzornikov, Chief Financial      www.uralsenergy.com 
  Officer 
 
 
 Allenby Capital Limited 
  Nominated Adviser and Broker 
 Nick Naylor                       Tel: +44 (0) 20 3328 
                                                   5656 
 Alex Price                      www.allenbycapital.com 
 

Media enquiries:

 
 Abchurch 
 Henry Harrison-Topham / Quincy Allan     Tel: +44 (0) 20 7398 
                                                          7702 
 quincy.allan@abchurch-group.com        www.abchurch-group.com 
 

The following information is extracted from a circular to Shareholders (the "Circular") expected to be posted today. Copies of the Circular will be available to download from the Company's website. Definitions used in the Circular apply in this announcement unless the context otherwise requires.

Extraordinary General Meeting of Urals Energy Public Company Limited

("Urals Energy" or the "Company")

The Company has announced today that, following the requisition of an extraordinary general meeting, further details of which were announced on 25 September 2013, it will today post a notice convening an extraordinary general meeting of the Company's shareholders for 11.00 a.m. (Cyprus time) on Monday 27 January 2014 at Evagoras Building, Office 34, 3rd floor, 31 Evagorou Avenue, Nicosia, CY-1066, Cyprus (the "EGM").

The purpose of writing to you is to explain the background to the unanimous decision of the board of Urals Energy (the "Board") to hold the EGM on 27 January 2014 as well as to give their reasons why the Board with the exception of Mr Ranta, who has abstained, recommend that you vote against all of the resolutions proposed by the requisitioners.

Background to timing of EGM

Petraco Oil Company Ltd ("Petraco")

Shareholders will no doubt recall the debt restructuring arrangement entered into with Petraco in April 2010, full details of which were provided in the circular accompanying the notice of EGM dated 14 April 2010 (the "2010 Circular"). Petraco was, and has continued to be, enormously supportive of Urals Energy, without which support the Company would, in all likelihood, have been placed into insolvency. Key to this support has been the involvement of Ingeborg Srenger as a non-executive director of the Company and, in fact, as noted in the 2010 Circular, it is a term of the debt restructuring agreement (the "Petraco Agreement") that Petraco have the right to appoint a non-executive director to the Board.

One of the resolutions proposed by the requisitioners is for the removal of Ingeborg Srenger as a director of Urals Energy. If passed, this could have extremely detrimental consequences for the Company and its shareholders as it would be likely to result in an 'Event of Default' under the debt restructuring terms which would give Petraco the right to require immediate repayment of the amounts owing to it from the Company under the Petraco Agreement and seizure of Arkticneft. Aside from the exposure this would give the Company to litigation from Petraco, it would be likely to cause severe damage to Urals Energy's relationship with Petraco going forward. Petraco have written to Urals Energy in such terms.

Therefore, in order to remove the possibility of an 'Event of Default' occurring under the Petraco Agreement or of litigation between the Company and Petraco, itself a shareholder in Urals Energy, the Board considers that it is in the interests of shareholders as a whole for the EGM to take place after all sums have been repaid to Petraco which, as previously announced, is anticipated to take place prior to the end of 2013.

Possible offer for up to 100 per cent. of the entire issued share capital of Urals Energy

The Board has received a non-binding letter of intent from a third party, whom the Board and the Company's advisers consider to be highly credible, setting out the third party's intention to make an offer for up to 100 per cent. of the entire issued share capital of the Company (the "Potential Offer"). The Potential Offer, which is subject to the results of a due diligence process currently underway, is envisaged to be an all cash offer and with an indicative price of 12.25 pence per share, a significant premium to the Company's current share price. I must stress that, at this stage, whilst the Board view the possible purchaser as highly credible, with both the necessary means to effect the Potential Offer and previous Russian operational oil experience, no binding offer has yet been forthcoming and there can be no guarantee that a formal offer will in fact be made. Further, should a formal offer be made, there can be no guarantee that the price per share will be as indicated.

The Board unanimously consider that it is in the interests of all shareholders to allow the third party time to complete the due diligence required. The Board have been informed by the third party that, should the resolutions proposed by the requisitioners be passed by shareholders, no offer would be forthcoming.

To date, the Company has received no indication from the requisitioners, who hold in excess of 30 per cent. of the issued share capital of the Company, that they intend to make an offer for the entire issued share capital of the Company. As an AIM listed Cypriot company, the Company is not subject to any takeover code

If a formal offer is received, the Board will consider such offer on its merits and make a recommendation to shareholders as to whether to accept.

Summary

In view of the above, namely the risk of an 'Event of Default' resulting in potential litigation from Petraco and the possibility of an offer for up to 100 per cent. of the entire issued share capital of the Company, the Board unanimously considers that it is in the best interests of shareholders to hold the EGM no sooner than early 2014. The Company has received advice from its Cypriot lawyers that convening the EGM for 27 January 2014 is in accordance with Cypriot law.

Recommendation to vote against all resolutions proposed by the requisitioners

The Board, with the exception of Mr Ranta who has abstained, recommends that shareholders vote against all the resolutions proposed by the requisitioners at the EGM for the following reasons:

It is far from clear who is behind Fire East Corporation

As announced on 4 October 2013, pursuant to Urals Energy's articles of association the Board has asked Fire East Corporation ("Fire East") to identify any persons who have an interest in the shares Fire East holds in the Company. The Board has subsequently received a response from Fire East stating that that Mr Oleg Makhno is the 100 per cent. beneficial owner of Fire East. The Board is currently considering this response further but understands that Fire East and Mr Barsky are both acting at the behest of Mr D Bosov, owner of the Alltech Group, Pechora LNG and Pacific Oil Company amongst others.

The Board* advises that shareholders vote against the resolutions proposed by the requisitioners given the risk that control of the Company may be passed to unknown individuals which could be to the detriment of shareholders.

The requisitioners have failed to give any information on their future plans for Urals Energy

Neither Alpcot Capital Management Ltd nor Fire East have given any public indication of what their future plans are for Urals Energy, despite proposing a complete change of executive management of the Company and a change of board control. The Board is concerned that, in addition to leaving shareholders with very little information regarding the future of the Company, many of the senior technical and operational staff that are pivotal to Urals Energy's continued operations may choose to seek more certain employment elsewhere in the absence of certainty over their futures.

The Board* therefore advises that shareholders vote against the resolutions in order to avoid potentially irreparable damage being done to the Company's operations.

The Board has reason to believe that the requisitioners are planning on using the Company to acquire a high risk asset and dilute existing shareholders

In 2010 Mr Bosov approached Urals Energy with a proposal that the Company acquire the Prizalivnyj licence on Sakhalyn Island (which is owned by Pacific Oil Company), some 200 kms north of the Company's own licence at Petrosakh. This was rejected by the Company at that time on the basis of the perceived geological risks, high costs and location in relation to evacuation of hydrocarbons, if any. Subsequently in May 2013, Mr Barsky, on behalf of Mr Bosov, again approached Urals Energy seeking to combine the acquisition of the Prizalivniy licence together with a merger with Matra Petroleum plc, a company of which he is CEO. At the time Matra Petroleum plc was in the process of selling its principal asset, an exploration licence and expected to receive a minimum of US$25 million for this. At the meeting in June 2013, the Board accepted an independent professional's recommendation to reject Mr Barsky's proposal, principally on the grounds that the geological risks of the Prizalivnyj licence were unduly high, further seismic is likely to be required and the costs of drilling a first well could be in the region of US$10 to US$15 million. In addition, although it might seem that there would be synergistic benefits with Urals Energy's licence and refinery at Petrosakh, in reality the lack of logistics would be both difficult and expensive to overcome.

It is a matter of public record that in April 2013, attempts by East Siberian Resources Ltd, a company owned by Mr Bosov, to farm out a controlling interest in the Prizalivnyj licence were unsuccessful. It is also well known that Mr Barsky believes Russian assets to be overvalued and this has led to the recently announced new strategy of Matra Petroleum plc to seek investment opportunities in the United States.

Steve Buscher and I, as the representatives of the Board, met Mr Barsky in Moscow at his request on 25 September 2013, the day on which the EGM was requisitioned. In this meeting Mr Barsky was clear that his motivation was to take control of the Company, without making an offer for the entire share capital and then to have the Company acquire the Prizalivnyj licence for new shares in the Company, resulting in significant dilution for current shareholders.

In the Board's* view the result of this exercise could be extremely damaging to existing shareholders. The risks and costs associated with the licence would be significant for a small company with a relatively limited cash flow, even if we believed the area to be sufficiently prospective. The subsequent protection of the interests of minority shareholders in the Company would also not be assured. As a result, the Board* recommend that shareholders vote against all the resolutions.

Existing management have saved Urals Energy from near bankruptcy

Urals Energy's transformational recovery from near bankruptcy a few years ago has been dramatic. Production at both of its assets is solid and the recent results of the Passive Seismic Spectroscopy and a separate Micro-Seismic surveys give the Board considerable grounds for optimism and show the possibility of significantly increasing production at Arkticneft from the current horizons with limited capital and operational expenditure. At the same time, measures to halt natural decline at Petrosakh including the completion of successful workovers have stabilised production and new well drilling and existing well optimisation programmes are in place and being implemented on both fields.

As announced on 27 September 2013, the Company's gross profit for the first six months of 2013 improved by 60 per cent. to US$4.9 million (H1-2012: US$3.0 million). As a result the Company achieved a net profit of US$1.0 million for the same period (H1-2012: US$0.6 million loss). Indeed, for the first time since 2006, the Company achieved positive net working capital on 30 June 2013 of US$0.7 million (2012: US$1.0 million negative working capital).

Looking to the future, the drilling of Well #53 on the Petrosakh Field will be completed during October 2013 and, following the annual planned tanker shipment for export from Arkticneft in late October 2013, the Board anticipates being substantially debt free by the end of 2013 resulting in the expected release of the charge over the Company's Arkticneft assets by Petraco. Drilling of a new well #112 is expected to start shortly after Well #53 commences production.

The Board believe that Mr Barsky is well aware of the significant progress being made by Urals Energy and this attempt to obtain control of the Company without paying shareholders a premium is entirely opportunistic.

By voting against the resolutions proposed by the requisitioners, shareholders will retain the current management and stability for the Company, thereby allowing the current strategy, which is already bringing tangible results, to be fulfilled. Any vote in favour of the requisitioners risks undermining this progress and stability.

The resolutions proposed are not in the interests of shareholders

As noted above, to date the requisitioners have made no indication to the Board that they are prepared to make a bid for the entire issued share capital of the Company. It is also clear from statements made by Mr Barsky that his motivation is precisely the opposite, namely to take control of the Company without having to make an offer for all of its shares.

The Board* therefore advise shareholders to vote against the resolutions proposed at the EGM since to do otherwise potentially risks the interests of minority shareholders being sidelined in favour of the requisitioners.

Further action to be taken

The Board* advises shareholders to vote against all resolutions proposed at the EGM.

On 11 October 2013 the Board received a letter from Fire East claiming to have written confirmation from other shareholders representing in excess of 8.5 per cent. of the issued share capital of the Company in favour of the resolutions proposed at the EGM. The Board is currently investigating the veracity of this as yet unsubstantiated claim but, in the meantime, the Board* advises shareholders not to commit to a course of action without having received all available information.

Further announcements in relation to the Potential Offer will be made at the appropriate time. In the event that the Potential Offer does not proceed, the Board will write to shareholders before the end of 2013 to update them on the Company's progress and set out in more detail the Board's arguments for shareholders voting against all of the resolutions proposed at the EGM. The Board* urges shareholders to take no action until they have received this further letter.

Yours sincerely,

Andrew Shrager

Chairman

Urals Energy Public Company Limited

* with the exception of Mr Ranta who has abstained

This information is provided by RNS

The company news service from the London Stock Exchange

END

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