RNS Number:5545S
Fusion Oil & Gas PLC
27 November 2003


                              Fusion Oil & Gas plc

                          ("Fusion" or "the Company")

                             Letter to shareholders

The Board of Fusion has posted a letter to Shareholders setting out the Board's
response to the letter sent by Sterling Energy plc ("Sterling") to Fusion
Shareholders on 21 November 2003 regarding the Offer by Sterling.  The full text
of the letter from the Chairman of Fusion is set out below:

"Dear Shareholder

FUSION TO REMAIN INDEPENDENT OR BE ACQUIRED BY STERLING?

On 21 November 2003, Sterling Energy plc ("Sterling") announced that it had sent
a letter to Fusion Shareholders concerning the offer made by Evolution Beeson
Gregory on 1 October 2003 on behalf of Sterling for the issued and to be issued
share capital of Fusion (the "Offer").

The revised final closing time and date of the Offer is now 1.00pm on 4 December
2003.

The Fusion Board notes that over the last few weeks, Sterling has indicated in
its announcements that it has received acceptances for only a further 6,734,705
Fusion Shares, representing less than 7% of Fusion's issued share capital, in
addition to that which it already owned and that which it stated it had support
for at the outset of the Offer. Why have many of your fellow Shareholders shown
reluctance to accept the Offer?

The Offer comprises 3.5 shares or 2.5 shares plus 10p for each Fusion share. At
Sterling's recent closing price of 10.75p per Sterling Share this represents
37.625p or 36.875p for each Fusion Share, which is only a 20.4% or 18% premium
to the closing price of 31.25p per Fusion Share on 11 September 2003, being the
last dealing day prior to the announcement that Sterling had approached Fusion.
A more up to date share price history graph than that presented by Sterling in
its letter dated 20 November 2003 is included with this letter in Appendix 1.

The letter from Sterling's Chairman, Richard O'Toole warrants some comment. I
will deal with the points broadly in the order that they appear in Mr. O'Toole's
letter.

ALTERNATIVE OFFER STATUS

Fusion was formally approached by Sterling on 7 August 2003. The Company was
informed on the same day that the two Westmount Resources Limited appointees to
the Fusion Board would be supporting the terms proposed by Sterling. Following
this approach, the Board of Fusion considered the proposed offer and reviewed
Sterling information on its underlying assets and the value relative to
Sterling's share price. The Board duly concluded that the proposed offer
significantly undervalued Fusion, was not in the best interests of Shareholders
and could not be recommended. As you are aware, the Offer has proceeded on a
hostile basis.

Accordingly, Fusion organised a data room of commercial and technical data,
approached candidate companies and scheduled visits by interested companies. A
number of companies attended the dataroom but then indicated to the Board that
they found the limited timeframe for evaluating large quantities of 3D seismic
data and/or the hostile nature of the Offer from Sterling to have created an
environment in which they were not willing to make an alternative offer. In
consequence, although discussions with third parties are continuing, your Board
considers it unlikely that these will lead to an alternative offer being made in
the short term for the entire issued and to be issued share capital of the
Company. Should Sterling's Offer fail, then the Board of Fusion intends to
continue these discussions with third parties as part of its original pre-Offer
strategy of maximising Shareholder benefit through the extraction of value that
has been established in the Company's assets for the benefit of all
Shareholders.

RECENT NEWS AND INFORMATION

1  Fusion has made several announcements about progress and change to its
portfolio since 1 October 2003.

Chinguetti-4-5 well

Sterling completely omits any reference to the excellent test results at the
Chinguetti Field offshore Mauritania. The Chinguetti-4-5 well tested at rates of
up to 15,680 barrels of oil per day and a declaration of commerciality is
expected in the next couple of months which, subject to completion of
documentation, will formalise royalty rights for Fusion and is therefore of
significance. Why was this not mentioned by Sterling?

Tiof well

The Tiof exploration well was the third consecutive discovery out of three wells
targeting Tertiary-aged reservoirs drilled in Mauritania since May 2001. As
previously announced, the importance of this is not only the inherent value of
the reserves at Tiof but also the establishment of a high 'success rate' which
augurs well for the numerous further Tertiary-aged prospects on our licences
over which Fusion has a royalty.

Poune well

The Poune well was spudded on 16 November 2003. Although Poune is a dual
objective well, its main target is the Cretaceous. If successful, it is the view
of your Board that the exploration risk associated with this reservoir sequence
will be substantially reduced. Based on the Company's own evaluations, just over
half of the potential total resource in Mauritania is contained within
Cretaceous-aged reservoirs. On 17 November 2003, ROC Oil Company Limited, one of
the partners in the Mauritania PSC B joint venture, reported that the main
Cretaceous potential reservoir target is expected to be penetrated within the
next three weeks.

2 The reference by Mr. O'Toole to the "poor decision" by Fusion to sell its
working interest in Mauritania is only an opinion. Fusion has a long history in
the Mauritania project and, in Fusion's belief, is surely therefore well placed
to determine the optimal means of extracting value. In Fusion's opinion,
Sterling by contrast can have only a basic knowledge of the technical merits and
risk profile of our assets as it has not even reviewed our technical data. As a
result of the transaction with Premier, Fusion has maintained exposure to the
upside in this project and avoided the need to raise additional debt and/or
equity funding to finance what are likely to be very large amounts of capital
expenditure. Due to Fusion not being exposed to the effects of progressive
exploration and development expenditure, the conditional royalty and cash
bonuses should result in earlier positive cash flow to the Company. The
Chinguetti royalty income stream is expected to commence in late 2005 and should
steadily increase if Tiof, Banda and any further discoveries are brought on
production.

3 With respect to Amerada Hess ("Hess"), Mr O'Toole's comments that Hess's
withdrawal from two of our licences are negative factors is misleading. If these
factors are negative (and in combination with Sterling's professed view, that
the exchange of a working interest in Mauritania for a royalty was a "poor
decision"), why does Sterling still want to acquire Fusion?

Hess has withdrawn from these licences after having undertaken a preliminary
review of the 3D seismic data. It has also been reported in the press that Hess
is in the process of restructuring its portfolio and has recently withdrawn from
a number of projects in the UK North Sea and Far East and is now concentrating
its capital expenditure on activities that will increase its existing production
or lead to new near-term production.

The withdrawal decisions by Hess leave Fusion with the benefit of cost-free 3D
seismic datasets and its original large equity interests, and being in a
position to negotiate new farm-outs with companies which have recently shown
particular interest in these assets.

Who is in a better position to negotiate the new farmouts? Surely it must be the
Fusion management and staff rather than Sterling, which has not yet even seen
our technical data.

4 How much do you know about Sterling's Gulf of Mexico projects?

It should be remembered that if the Sterling Offer is successful, Fusion
Shareholders will become stakeholders in Sterling's existing assets, principally
'mature' gas producing properties in the Gulf of Mexico and an exploration
licence on the Reed Bank in the Philippines.

It is noteworthy how little information Sterling has provided to Fusion
Shareholders about the status, potential and value of these assets. Do you know,
for example, how much they are worth, how long they will have a positive value,
what Sterling intends to do with these assets, what the associated liabilities
are and what the abandonment costs would be?

Although drilling targets in the shallow-water Gulf of Mexico are typically of
limited reserve size, the presence of established infrastructure and a
relatively benign operational environment allow low drilling costs and projects
to be rapidly brought onto production. Sterling has a strategy of drilling on or
around existing gas fields or discoveries and it would therefore be reasonable
to anticipate continual operational activity on its assets and high success
rates in accessing modest incremental reserves. Additional reserves are required
to offset the rapid depletion rate of mature assets, rising operating costs and
abandonment liabilities. The following comments relating to some of the Sterling
assets are based on statements in documents produced by Sterling or Evolution
Beeson Gregory since October 2002.

El Gordo

In January 2003, three locations were identified for drilling in addition to
well "workovers" to enhance production. During the year operations on the field
commenced and, despite delays, in September 2003 it was noted that the El Gordo
sidetrack well had tapped (penetrated) four separate gas zones and production
was expected in a few weeks. It would appear that only the deepest zone was
considered worthy of completion for production, however initial production rates
from this interval were lower than expected with early sand production reported.
Has material value been added by these operations and what is the true potential
of this project?

Galveston 303

In October 2002, there was note of at least two new drilling opportunities. In
June 2003, Sterling announced in its 2002 annual results announcement that the
field had "significant development upside which we hope to tap in the coming
months". The interim results published on 25 September 2003 indicate that
further drilling is expected in the latter part of 2003 or early 2004, dependent
upon partner approval and rig availability. As typical Gulf of Mexico projects
can be brought onto production very quickly, what progress has been made to
access this upside?

High Island 52

Gryphon Exploration farmed into this licence in return for drilling an
exploration target. Sterling retained a royalty on production from the
subsequent discovery. Did Sterling give away upside and was it a poor decision?
Whilst the deal sounds very similar to that between Fusion and Premier regarding
Mauritania, the commercial and technical risk profiles and the scope of the
royalty are vastly different. Fusion has negotiated a royalty arrangement over a
large exploration permit in a frontier area, which has high deepwater drilling
costs and no prior history of production or infrastructure. Sterling in contrast
appears to have surrendered equity in a high value prospect in a low risk
environment adjacent to their own infrastructure. Sterling have announced
better-than-expected production from the Gryphon#2 well, which unfortunately
highlights the potential value lost by not retaining a working interest in this
discovery. What therefore would the impact of retaining a working interest in
this discovery have been?

Despite initial success in this low risk licence, Sterling has given away
further upside by farming out more equity. As Sterling said in its interim
results "The Gryphon 2 discovery was brought on stream as an important gas
producer and we have recently signed a farmout agreement which may result in
further carried wells being drilled in an expanded area." These actions do not
suggest a strategy of preserving maximum shareholder exposure to future success
through active participation in exploration programs.

Fusion's royalty is on production in a frontier basin requiring large
infrastructure investment and high ongoing exploration commitment. If Sterling
converts working interests in Gulf of Mexico licences surrounded by developed
infrastructure into royalties, would they be willing to fund and operate
frontier exploration in West Africa?

WHAT NEXT?

1  Unsuccessful Sterling Offer

If, by 4 December 2003, Sterling has not declared the Offer unconditional as to
acceptances, unless the Takeover Panel consent otherwise, the Offer will lapse
and the process will end. Sterling would then not be allowed to mount a second
bid for Fusion for a further year.

What would then happen?

Fusion would continue its focus on operational matters and concentrate in
particular on the following activities:

* Assess the significance in Mauritania of the recent successful Chinguetti
production test, the Tiof and Banda discoveries and the imminent
outcome of the Poune exploration well.

* Seek new partners for our Croix du Sud (AGC) and Ntem (Cameroon) licences.

* Pursue licence applications in Western Sahara (SADR).

* Monitor progress relating to Fusion's option in Guinea Bissau where Premier is
expected to announce a drilling program.

* Complete processing of the 3D seismic datasets in Gabon with a view to having
drill ready prospects early in 2004.

* Seek new ventures/opportunities to expand the portfolio which are consistent
with our strategy of enabling the extraction of value that has been established
in the Company's assets for the benefit of all Shareholders.

Your Board believes that, in a post-Sterling Offer environment, the recent
successful exploration results from Mauritania and the reversion of large equity
interests to Fusion in two highly prospective licences should be favourably
recognised by investors.

Unless it disposes of its interest, Sterling would remain as a Shareholder and
would be treated in the same way as any other Shareholder.

2 Successful Sterling Offer

If, by 4 December 2003, Sterling has achieved control of Fusion, Fusion
Shareholders who have accepted the Offer will become Sterling shareholders, in
some cases receiving a cash payment.

What would then happen?

Our portfolio, including five licences which Fusion now operates, would become
the responsibility of Sterling's management who would have to make critical
investment decisions on unfamiliar assets, and without existing relationships
with joint venture partners and host governments.

THE DECISION

Shareholders who have lodged acceptances with Sterling have the right to
withdraw those acceptances by sending the enclosed written notice to Capita IRG
Plc, Corporate Actions, PO Box 166, The Registry, 34 Beckenham Road, Beckenham,
Kent, BR3 4TH.

The decision to be made by Shareholders who to date have not accepted Sterling's
Offer is simple.

*  By accepting the Offer, you would be likely to have a smaller share of
Fusion's assets, which would then be owned and managed by Sterling. As yet,
Sterling has not made any effort to access our technical data relating to these
assets. You would also be exposed to existing Gulf of Mexico assets.

*  By not accepting the Offer, and if the Offer lapses, Fusion as an independent
company would continue to be able to optimise the benefits from the recent
drilling successes and increased equity interests in Fusion's exclusively West
African portfolio interests.

What has been promised by your Board over the last three years is beginning to
materialise. The Board of Fusion remains convinced that Sterling's Offer is
opportunistic and significantly undervalues your Company.

The Board of Fusion accordingly continues to recommend that you do not accept
the Offer and that you give the Fusion management the time to extract
shareholder value according to a timetable of its own choosing.

Yours sincerely

Peter Dolan"

27 November 2003


Enquiries

Fusion Oil & Gas plc
Peter Dolan, Chairman                         Tel:       020 8891 3252

                                              Email:   pdolan@fusionoil.co.uk
Alan Stein, Managing Director                 Tel:      00 61 89 226 3011

                                              Email:  astein@fusionoil.com.au

College Hill Associates                       Tel:       020 7457 2020
James Henderson                               Email:  james.henderson@collegehill.com

Canaccord Capital (Europe) Ltd
Toby Hayward                                  Tel:     020 7518 7393

                                              Email:  toby_hayward@canaccordeurope.com





The Directors of Fusion (other than Mr Williams and Mr Levison, who have not
participated in these deliberations on the Offer) (the "Non-conflicted Directors
") accept responsibility for the information contained in this announcement,
save that the only responsibility accepted by the Non-conflicted Directors in
respect of the information contained in this announcement relating to Sterling
which has been compiled from published sources is to ensure that such
information has been correctly and fairly reproduced and presented. Subject as
aforesaid, to the best of the knowledge and belief of the Non-conflicted
Directors (having taken all reasonable care to ensure that such is the case),
the information contained in this announcement is in accordance with the facts
and does not omit anything likely to affect the import of such information.

Unless otherwise defined herein, words and expressions defined in the defence
document from Fusion dated 11 October 2003 (the "Defence Document") have the
same meaning in this announcement.

Bases and sources of information

(a) The reference to "acceptances for only a further 6,734,705 Fusion Shares" is
derived from announcements released by Sterling on 23 October 2003 and 21
November 2003.

(b) The reference to "Sterling's recent closing price of 10.75p per Sterling
Share" is derived from the last close price as stated on the London Stock
Exchange website on 25 November 2003.

(c) The reference to "this represents 37.625p or 36.875p for each Fusion Share,
which is only a 20.4% or 18% premium to the closing price of 31.25p per Fusion
Share on 11 September 2003" is calculated using the information set out in
Sterling's Offer Document dated 1 October 2003.

Canaccord Capital (Europe) Limited ("Canaccord"), which is regulated in the
United Kingdom by the Financial Services Authority, is acting exclusively for
Fusion and no one else in connection with the Offer and will not be responsible
to anyone other than Fusion for providing the protections afforded to clients of
Canaccord or for giving advice in relation to the Offer.




                      This information is provided by RNS
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