Eastern Siberian Acquisition

RNS Number:5647B
Urals Energy Public Company Limited
18 April 2006

                      URALS ENERGY PUBLIC COMPANY LIMITED



   US$148 Million Acquisition of Major Eastern Siberian Oil & Gas Development
                       License and Associated Facilities



Urals Energy ("Urals Energy"or "the Group or the Company"), a leading
independent exploration and production company with operations in Russia which
was admitted to trading on AIM in August 2005, announces the $148 million
acquisition of the significant Dulisminskoye oil, condensate and gas field
together with the LTK transportation and treating facilities, both located in
southern East Siberia near the giant Kovykta and Verkhnechoskoye fields. The
East Siberia Pacific Ocean pipeline planned by Transneft is expected to pass
through the region.



The Dulisminskoye Field ("The Field")



*         The Field is in the early stages of development producing 1,000 bopd



*         According to preliminary estimates by DeGolyer and MacNaughton the
Field contains approximately 109 million barrels of proved and probable oil
reserves, approximately 87 million barrels of possible oil and condensate
reserves and 1.9 trillion cubic feet of possible gas reserves



Impact of Acquisition



*         Projected to increase Urals Energy total Group reserves to 225
million barrels of proved and probable reserves and 369 million barrels and 2
trillion cubic feet of proved, possible and probable reserves



*         Planned programme of infield development drilling and construction
of additional processing and transportation facilities projected to increase
Field production from 1,000 bopd to approximately 12,000 bopd by end of 2008 and
approximately 30,000 bopd by end of 2011



Consideration and Funding:



*         $148 million cash consideration with initial $50 million payment -
consideration and forward capex to be funded through combination of debt and new
equity



*         $50 million initial payment provided by Morgan Stanley as
pre-payment for shares to be allotted



Rationale:



*         Provides Urals Energy with an attractive entry into Eastern Siberia,
one of the most important undeveloped petroleum provinces in Russia on
attractive terms per 2P and 3P barrel in a new region



*         Significantly increases Urals proved, possible and probable reserves
and provides important planned future increases in production and cashflow



William R. Thomas, Chief Executive Officer, commented:

"This is a significant acquisition for the Group giving us a material producing
field strategically located close to the proposed East Siberian pipeline and in
a region with substantial additional hydrocarbon potential. The successful
integration and development of recent acquisitions has enabled us to meet our
production targets twelve months ahead of schedule. We are confident this
acquisition will also accelerate our growth ahead of plan."


Pelham PR                                                          18 April 2006
James Henderson/ Gavin Davis                                       020 7743 6673



   US$148 Million Acquisition of Major Eastern Siberian Oil & Gas Development
                       License and Associated Facilities



Urals Energy today announces that it has signed a definitive sale and purchase
agreement (the "Agreement") to acquire the entire issued share capital of OOO
Dulisma ("Dulisma") and OOO Lenskaya Transportnaya Kompaniya ("LTK") for an
aggregate purchase price of $148 million payable in cash.



The Acquisition



Pursuant to the Agreement, Urals Energy will acquire the significant
Dulisminskoye oil, condensate and gas field (the "Field") together with the LTK
transportation and treating facilities, all situated in the Irkutsk region of
Eastern Siberia.  The Irkutsk region is located in southern East Siberia
approximately 1,100 km from the border between Russia and China.  The region
holds significant discovered oil and gas deposits, including the giant Kovykta
and Verkhnechoskoye fields, and the East Siberia Pacific Ocean pipeline ("ESPO")
planned by Transneft is expected to pass through the region.



Urals Energy will pay a total of $148 million for the acquisition, with an
initial $50 million payment. Of the $148 million payable, $133 million is a cash
payment to acquire the equity and $15m payable to acquire outstanding promissory
notes. The balance of the consideration is payable on closing and is subject to
approval by the Russian Federal Antimonopoly Service and other customary
conditions precedent.   Urals Energy has assumed operational and financial
control of Dulisma and LTK with immediate effect.  Closing of the transaction is
expected in June 2006.



Dulisma owns the license for a large oil, condensate and gas field in the early
stages of development located in the Irkutsk region of the Russian Federation.
The Field is delineated by 47 exploration and appraisal wells drilled during the
late 1980's. The Russian State Committee on Reserves has attributed recoverable
reserves (categories ABC1-2) of approximately 180 million barrels of oil and
condensate and 2.2 trillion cubic ft of gas to the field.



According to a preliminary 12 April 2006 estimate by the Company's independent
engineering consultants, DeGolyer and MacNaughton ("D&M"), the Field contains
approximately 109 million barrels of proved and probable oil reserves,
approximately 87 million barrels of possible oil and condensate reserves and 1.9
trillion cubic feet of possible gas reserves as at 31 March 2006. These are
preliminary estimates and subject to confirmation prior to publication of D&M's
definitive reserve report expected in early May.



On completion of the acquisition and following confirmation by D&M of its
preliminary reserve estimate for the Field, the Group will have increased its
proved and probable reserves to 225 million barrels and proved, possible and
probable reserves to 369 million barrels with an additional 2 trillion cubic
feet of gas.

The Field is currently producing 1,000 bopd from five wells and transported
through a third party pipeline system. On completion of the acquisition, Urals
Energy intends to increase production as quickly and efficiently as possible
through infield development drilling and construction of additional processing
and transportation facilities. This will include the construction by LTK of an
early phase 12,000 bopd capacity pipeline from the Field to the centralised oil
depot at Ust-Kut.  LTK owns the pipeline right of way and has received the
necessary regulatory permits to build and operate the early phase pipeline which
is expected to be operational by early 2007. Based on the Group's work to date,
Urals Energy anticipates that production from the Field will increase to
approximately 12,000 bopd by the end of 2008.



The Group also currently anticipates that the Field has the potential to
increase its production to approximately 30,000 bopd by the end of 2011. This
second phase of the development programme will include the construction of a
permanent pipeline to either the river port and railway terminal at Ust-Kut or
to a planned pump station on the  ESPO pipeline.



The Field is strategically located North West of Lake Baikal, along the planned
route of the ESPO oil pipeline which is expected to connect East Siberian
oilfields to the Pacific Coast in order to supply demand for oil in Asian
markets. Transneft has announced it expects to commission the first phase of the
ESPO in 2008. The Field, together with the Verkhnechonskoye Field operated by
TNK-BP and the Talakan Field operated by Surgutneftegas, will potentially be key
suppliers of crude oil to the ESPO. With estimated possible reserves of
approximately 1.9 trillion cubic feet of gas, the Field also has the potential
to supply Gazprom for its proposed gas pipeline to Asian markets.



Financing of the Acquisition



The Group intends to finance the acquisition through a combination of debt and
equity capital, with new equity expected to be the principal funding source.
Such funding will cover the acquisition, additional capital investment required
to develop the acquired assets and the Company's other working capital needs.



The Company has entered into an agreement with Morgan Stanley & Co.
International Limited ("Morgan Stanley") covering the provision of US$50 million
for the initial payment relating to the acquisition.  The advance by Morgan
Stanley to the Company (the "Advance") is structured as a pre-payment for shares
to be allotted to Morgan Stanley (or as it may direct).  The number of shares to
be allotted to Morgan Stanley are to be sufficient to discharge the Advance and
certain associated costs and fees.



In the event that the Advance and associated costs and fees have not been
recouped by 30 September 2006, the Group will be required to allot at least
sufficient shares to Morgan Stanley, at a discount to the then prevailing market
price, in order to allow it to recover the amount of the Advance (plus payment
in kind accruals, costs and fees that accrue after 30 June 2006), with any
proceeds realised by Morgan Stanley over and above such recovery to be returned
to the Company.



The Group intends to convene an EGM in the near term to obtain shareholder
approvals for the allotment of shares on a non-pre-emptive basis for purposes
noted above and to approve the issue of shares to Morgan Stanley in respect of
the Advance.  In this regard, the Group and Morgan Stanley have received
irrevocable undertakings to vote in favour of the necessary resolutions to
support the Morgan Stanley arrangement from existing shareholders holding a
majority of the Company's issued share capital.  The requisite shareholder
resolutions require a simple majority to be passed.



Rationale and Strategy



The Acquisition fits Urals Energy's acquisition criteria of acquiring producing
and non-producing assets in complementary areas of Russia and the CIS with
development and exploration potential.  The Acquisition gives Urals Energy an
attractive entry into Eastern Siberia, one of the most important undeveloped
petroleum provinces in Russia. This acquisition is expected to significantly
increase Urals Energy's proved and probable reserves and provide important
future increases in production and cash flow. The Group believes the transaction
represents a compelling opportunity to acquire producing and non-producing
assets on attractive terms per 2P and 3P barrel in a new region.  Recent
proposals by Russian government working groups have focused on Eastern Siberia
as a priority for tax relief to boost development of the region's oil industry.



The acquisition of Dulisma and LTK will be Urals Energy's fourth acquisition
transaction within the last twelve months. The successful integration and
development of the ZAO Arcticneft, OOO Dinyu and OOO Urals Nord acquisitions has
enabled Urals Energy to meet its production target for 2007 twelve months
earlier than anticipated at the time of the Group's IPO. Production is currently
9,000 bopd and prior to the announcement of this acquisition was forecast to
rise to at least 14,000 bopd by the end of 2007. The Group will provide a
revised production target following completion of the D&M report for the Field.



More detailed information will be provided as soon as practical but in no event
later than the closing of the acquisition. This will include information about
the profitability of the acquired assets, prepared in accordance with the
Company's accounting standards.



Background to Urals Energy



Urals Energy is an independent exploration and production (E&P) company with its
principal assets and operations in Sakhalin Island, Timan Pechora (including
areas in the Nenets Autonomous Okrug and Komi Republic) and the Republic of
Udmurtia, Russia. The Company was admitted to trading on AIM in August 2005.



The Group is focused on the integration of its five recently acquired
subsidiaries and the exploitation of their assets. In addition, it is actively
seeking to continue to grow and diversify its reserve and production portfolio
through exploration activities and the acquisition of additional E&P companies
or assets by taking advantage of the ongoing rationalisation of E&P assets in
Russia.



The Group's six E&P subsidiaries have Proved and Probable reserves of 116
million barrels of oil equivalent (MMBOE) and produced approximately 6,237
barrels of oil per day (BOPD) during the second six months of 2005.



The Group's two largest subsidiaries by reserves and production, Petrosakh and
Arcticneft, own and operate refining assets with a total refining capacity of
5,300 BOPD, which provide the Group with the ability to maximise the value of
the oil produced by choosing between the sale of oil or of refined products
depending on market conditions, tax considerations and other factors.








                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

ACQIFFIVSTIDLIR