Notice of EGM

    RNS Number : 3696L
  Urals Energy Public Company Limited
  09 January 2009
   

    Urals Energy Public Company Limited 

    ('Urals Energy' or the 'Company') 

     Notice of EGM

    Further to the Company's announcement on 6 January 2009 regarding its intention to undertake a disposal of its shares in ZAO Dulisma and
Taas Yuriakh to Sberbank or a subsidiary, in discharge of its obligations to Sberbank under loans totaling $630 million, Urals Energy today
announces the notice of the required Extraordinary General Meeting of the Company to be held at 10am on 26 January 2009 at its registered
address, Evagoras Building, 31 Evagorou Avenue, 3rd Floor, Office 34, Nicosia, CY-1066 Cyprus.

    The Board has convened the EGM to allow shareholders to approve this transaction, as required under AIM Rule 15, which defines the
proposed disposal of assets as a "disposal resulting in a fundamental change of business".

    A circular has today been posted to shareholders, setting out further information regarding the proposals and the notice of the meeting.
A copy is available on the Company's website at the following address: www.uralsenergy.com 

    The Directors' report from the shareholder circular is attached as an appendix to this announcement.

    9 January 2009
    Enquiries:

 Pelham PR        
 Evgeniy Chuikov    [phone] 
 Mark Antelme       [phone] 


    Appendix


    Directors' report
    Report of the Board of Directors of Urals Energy Public Company Limited
    Proposed disposal by the Company of its interests in Dulisma and Taas for the forgiveness of debts to Sberbank secured by such
interests
    Introduction
    As previously announced by the Company, the Company's day to day liquidity position has become increasingly constrained, in part due to
the extended nature of the negotiations with Sberbank on a possible restructuring of the Company's unpaid and overdue debt facilities with
Sberbank. In addition, the Company has previously been in negotiations with a third party for a possible offer for the Company; however, as
announced on 6 January 2009, the third party has informed the Company that it is no longer is interested in making such an offer. Therefore,
the Company has limited options to continue its business activities in the current situation since it does not have resources to pay its
debts to Sberbank or the ability to raise capital to do so. Although Sberbank has not called a default of the Company's obligations under
the Sberbank facilities, it could elect at any time to seek payment of all of such amounts and seize its collateral. In such case, the
Company would be obliged to immediately seek to file an application for voluntary insolvency in a Cyprus court. 

    In order to avoid insolvency proceedings, the Company is proposing to enter into a transaction (the "Disposal") whereby the Company
shall transfer its direct and indirect ownership interests in Dulisma and Taas to OOO Sberbank Capital or other affiliate of Sberbank in
consideration of the release and discharge of all of the Company's outstanding obligations to Sberbank under and pursuant to two loan
agreements as follows:

    *    $500 million loan from Sberbank to OOO Urals Energy, the 100% Russian managing subsidiary of the Company (which was further loaned
to the Company and is secured by the pledge by the Company of its 35.3% interest in Taas), and

    *    $130 million loan from Sberbank to Dulisma (secured by the pledge by Urals Dulisma Limited, a 100% owned subsidiary of the Company,
of its 99% interest in Dulisma). 

    Such transaction will include the release by Sberbank of the security interests given by the Company in Dulisma and Taas together with a
release of its security interests in Ordinary Shares pledged by certain of the Company's largest Shareholders, certain of whom are also
members of the Company's Board and senior management. 

    The Disposal is classified as a Disposal Resulting in a Fundamental Change of Business under Rule 15 of the AIM Rules and therefore
requires, inter alia, the approval of the Company's Shareholders. 

    Sberbank has previously indicated that it would be agreeable to accepting a transfer of the assets pledged to it in return for a
complete forgiveness of the debts owed to it by the Company. Based on financial modeling undertaken by the Company, the only way by which
the value of the pledged assets could be realised is by undertaking the necessary costly development of the fields owned by Dulisma and
Taas. Full development of the Dulisma and Taas fields by the Company would require long-term debt rising to a projected maximum of
approximately $450 million in 2010 for Dulisma and to approximately $1,200 million in 2012 for Taas. Such financing is not available to the
Company in the current market. The Company's inability to develop the assets means that any stated values, either on the books of the
Company or in reserve reports, in the view of the Directors, are not realistic.  

    Sberbank has rejected all of the Company's requests for additional funding, including a request for an additional $140 million that was
necessary to proceed with the development of the Dulisma assets in the second half of 2008. 

    The Company has also been in active discussions during 2008 with possible investors, joint venturers and parties potentially interested
in acquiring the Company. These efforts have been assisted by several outside expert investment advisors, but none of such efforts has
resulted in any arrangement that would permit the Company to rationalise any of its East Siberian assets or indeed meet its debt
obligations.

    Therefore, the only viable alternative is to engage in the Disposal and at the same time seek a short term working capital facility to
allow the Company to continue in business and continue to seek buyers for its remaining assets. The alternative would be to initiate
voluntary insolvency proceedings, that would likely eliminate any remaining equity value for the Shareholders after claims of Sberbank and
other creditors are dealt with. In this situation the Directors have concluded that the Disposal is in the best interests of the Company and
its shareholders.  

    Since the Disposal requires Shareholder approval under the AIM Rules, the Board is seeking approval of the Shareholders at an
Extraordinary General Meeting of the Resolution set out in the Notice of EGM. Subject to receiving Shareholder approval, the Disposal is
expected to take place as soon as possible after the EGM.

    Background

    Since Admission, the Company has continued to exploit its Russian oil and gas assets, using cash from the funds raised at Admission, two
subsequent private placements of shares and other bank and third party debt. Subsequent to Admission, the Company has made two significant
acquisitions, the first being Dulisma and subsequently 35.3% of the issued share capital of Taas. The Dulisma acquisition was financed via a
private placement with the subsequent development being financed first by a development loan from an affiliate of Goldman Sachs, and later
by the above $130 million facility from Sberbank, that replaced the Goldman Sachs loan. The Taas acquisition was financed primarily by a
private placement and the above $500 million acquisition loan from Sberbank. In the case of the Sberbank facilities the Company's interests
in the acquired companies was pledged to Sberbank as security. Details of the loans are as follows:

    *    In November 2007, the Company entered into a loan agreement with Sberbank in the amount of $130.0 million bearing interest of 14%
per annum and maturing in November 2008. If the Company met certain technical conditions, the loan was to have been extended for a further
six years with 15 equal quarterly principal installments payable starting May 2010. The Company pledged 100% of its shares in Dulisma as
collateral for its obligations under the loan. Additionally, major Shareholders of the Company agreed to pledge certain of their Ordinary
Shares in the Company to Sberbank as additional collateral.

    *    In December 2007, the Company entered into a loan agreement with Sberbank in the amount of $500.0 million to finance the
acquisition of its 35.3% participation interest in Taas. The loan bears interest of 14% per annum payable monthly. The interest payments
through November 2008 were secured with interest bearing promissory notes acquired from Sberbank. According to the loan agreement, the loan
matured in November 2008. However, if the Company met certain technical conditions, the loan could be extended until November 2010,
repayable in full in one installment. The Company pledged its 35.3% interest in Taas as collateral for its obligations under the loan.
Additionally, certain other shareholders in Taas pledged certain of their shares in Taas, and major Shareholders of the Company agreed to
pledge certain of their Ordinary Shares in the Company to Sberbank as additional collateral. 

    Until early September 2008, the Company felt confident that both loans would be extended since the technical conditions referred to
above had been met in the opinion of the Company and notice of such fact was given to Sberbank. However, after significant subsequent
discussions with Sberbank, it was determined by Sberbank that it would not extend the loans on their existing terms, despite the Company's
view regarding the satisfaction of the conditions for extension.

    Since the acquisition by the Company of its 35.3% interest in Taas in late 2007, the worldwide oil and gas markets have experienced a
significant decline in product prices. Whilst energy prices have declined, there has not been until recently a corresponding decline in the
cost of drilling and other oilfield services. This situation has put a strain on the Company's cash flow and its ability to carry out its
development plans. Further, the financial markets have caused lenders and equity investors to be more conservative with their credits and
investment. This situation has affected Russian lenders, and has been widely published in press and other reports. Whilst the Company cannot
be confident that the deteriorating credit markets were the main factor that contributed to Sberbank's decision not to extend the terms of
the above loans, Sberbank's decision not to extend the existing loans or provide an additional $140 million Dulisma development loan in the
beginning of September 2008 coincided with the deterioration in the financial markets. 

    Since the Sberbank Dulisma and Taas loans became due, the Company has continued to discuss the possible rearrangement of the loans or
other possibilities. In the course of such discussions Sberbank was informed of the Company's efforts to find an investor with the financial
resources to either assist the Company with its cash situation or to make an offer for the Company, and therefore, Sberbank has not called a
default of the loans and has explicitly waived any default interest amounts through the end of 2008.

    Its inability to extend its major credits with Sberbank coupled with the further deterioration in global financial markets has hampered
the Company's ability to raise debt finance or other forms of finance. The Company's discussions with third parties regarding an offer for
the Company have not been successful. Although progress had been achieved with one of such parties in late 2008, that third party has since
indicated its lack of interest in proceeding towards an offer.  

    Therefore, the Company is now left with few alternatives in regard to a restructuring of its debts to Sberbank, and has reached an
agreement with Sberbank to simply transfer the pledged assets of Dulisma and Taas in exchange for a complete forgiveness of the loans and a
release of all collateral securing same.


    Information on the assets being disposed of

    Taas

    Taas is a privately-held Russian E&P company with oil development operations in the Srednebotuobinskoye oil, gas and condensate field in
Eastern Siberia ("Srednebotuobinskoye Field"). Taas was acquired by the Company on 27 November 2007. Taas holds two licenses for the
exploration and production of oil in the central block of the Srednebotuobinskoye Field (the "Central Block") and the geological
prospecting, exploration and production of hydrocarbons in the adjacent Kurungsky allotment (the "Southern Block") in Eastern Siberia,
which, unless extended, expire in 2016 and 2032 respectively. Under Russian law, a license holder is entitled to extend the license period
for an additional 25 year term, unless material violations of license terms have occurred. Both licenses cover the same oil deposits that
had been historically divided into two licensed areas. While the Central Block license covers oil production only, the Southern Block
license allows Taas to develop both oil and gas reserves in the licensed area. 

    Below is presented certain financial information extracted from the standalone IFRS financial statements of Taas as of and for the six
months ended 30 June 2008 (in US Dollars)

    Net revenues: $2,076 thousand

    Net loss before income tax: $9,125 thousand

    Trade and other accounts payable: $21,190 thousand

    Gross debt: $123,090 thousand; of which $59,657 thousand were received from Sberbank.

    At 31 December 2008 Gross debt amounted to $124,872 thousand (excluding accrued interest), of which $28,100 thousand relates to loans
received from the Company. On 28 November 2008, Taas received two loans from Finfund (one of its other participation owners) in the amount
of $18,633 thousand and from Panfund Limited (a related party to another participation interest owner) in the amount of $21,884 thousand,
which were used to repay the above $59,657 thousand Sberbank loan. Total intercompany debt of Taas to the Company currently stands at
$28,100 thousand (excluding any interest), bearing 12% interest per annum and maturing in February 2015. 

    Dulisma

    Dulisma is a Russian limited liability company headquartered in Irkutsk, in Eastern Siberia. Dulisma was founded in 2000 by a state
owned exploration company to develop Dulisminskoye oil, condensate and gas field (the "Dulisminskoye Field"). The Company entered into a
definitive sale and purchase agreement for the US$148 million acquisition of Dulisma and related assets on 15 April 2006, and the
acquisition was completed in June 2006. Dulisma has a combined exploration and development license for the Dulisminskoye Field. The license,
unless extended, expires in August 2019. The Company has applied for an extension of the license. 

    Below is presented certain financial information extracted from the Consolidated IFRS financial statements of the Company as of and for
the six months ended 30 June 2008 (in US Dollars) and from the year end 2008 management accounts of Dulisma:

    Net revenues: $5,676 thousand

    Net loss before income tax: $4,949 thousand

    Trade and other accounts payable: $6,760 thousand

    Gross debt: $143,236 thousand

    At 31 December 2008 Gross debt amounted to $149,196 thousand (excluding accrued interest).

    ZAO Dulisma, Urals Dulisma (a Cyprus intermediary holding company) and the Company were involved in a series of mutual intercompany
loans with a net result of $264 thousand (excluding any interest) in favour of the Company and Urals Dulisma, bearing 15% interest per annum
and maturing in December 2015.

    Profits and valuation of the disposed assets

    During the first half of 2008, Dulisma accounted for revenue to the Company of $5,676 thousand, and Taas accounted for revenue to the
Company of $735 thousand, each according to the Consolidated IFRS financial statements of the Company as of and for the six months ended 30
June 2008.

    The book value of the assets to be disposed of, according to November 30, 2008 balance sheet of the Company is as follows:

    Dulisma     $197.0 million

    Taas        $704.0 million 

    Regardless of any book or market values that might be ascribed to the assets being disposed of, the Company is simply unable to pay
Sberbank or raise any financing to do so. As noted above, the Company does not have the resources to develop these assets in any case. The
Directors believe, based partly upon discussions with third party investors with whom the Company has been in discussions regarding the
assets, that the market value of the assets is less than the book value and also less than the amounts owed to Sberbank. If Sberbank were to
seize the assets in a foreclosure sale, the result is likely to be that the Company would face a deficiency amount owed to Sberbank if any
subsequent sale of the assets yielded less than was owed to Sberbank. 

    An additional consideration in determining the benefit to the Company of the asset disposal is that each of Taas and Dulisma, as noted
above, have outstanding debt and payables to third party contractors and suppliers which will continue to be obligations of the transferred
companies after the transfer to Sberbank, and therefore the Company's group will be relieved of these amounts as well. 

    Use of proceeds

    As the Disposal is for the forgiveness of indebtedness of the Company, there will be no net proceeds realised by the Company.


    Interests of Directors

    As part of the arrangement to secure the $500 million Loan Agreement from Sberbank, certain of the Directors voluntarily agreed to
pledge the Ordinary Shares in the Company in which they held beneficial interests in order to satisfy a condition of Sberbank. The Directors
who did so did not receive any compensation for such pledges. Such Ordinary Shares will be released from the pledges to Sberbank if the
Disposal is completed. The Directors and the number of Ordinary Shares of the Company in which they own beneficial interests are set forth
below:

    Leonid Dyachenko    6 791 295 shares

    Alexey Ogarev          2 680 266 shares

    The Directors have declared their interests in the Disposal as required by Cyprus company law.

    Effect on the Company

    The Disposal will eliminate the largest indebtedness of the Company with Sberbank and will also relieve the Company if its obligations
to certain trade creditors. The Directors believe that it will enable the Company to attract a working capital line of credit to allow the
Company to continue in business over the short term whilst continuing to market its remaining assets (principally ZAO Articneft and ZAO
Petroskah) for sale through third party international investment advisors who are already engaged for such purpose and who have been engaged
in marketing efforts. The Company will be a much smaller enterprise and will not require significant staff or resources to continue to make
efforts to rationalise its remaining assets. The Company intends to take action to restructure its cost base accordingly to conserve cash
wherever possible.

    If the Disposal is not approved by the Shareholders, then absent an additional cash infusion or credits, the Company will not be able to
continue in business, resulting in probable insolvency proceedings, either in Cyprus or in Russia, with respect to all of its holdings.
Although no conclusions can be definitively reached regarding the result of such insolvency proceedings, it is the Directors' view that
little if any equity value would remain after satisfaction of the claims of creditors in insolvency proceedings.

    The Directors believe that proceeding with the Disposal and so allowing the Company to continue in business will enable it to achieve
sales of the Company's remaining assets at fair values. Although there is no assurance that such will be the case, the Directors believe
that continuing in business for the purpose of achieving sales of the remaining assets or the entire Company in an orderly fashion will
result in the Company's ability to return some positive value to shareholders. Therefore, the Directors believe that adopting the Resolution
to permit the completion of the Disposal is in the best interests of the Company and its Shareholders.



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