Cadogan Regulatory News (CAD)

27 May 2011 12:07

CADOGAN PETROLEUM plc ("CADOGAN","THE COMPANY" OR "THE SELLER")

FARM-OUT BY WAY OF DISPOSAL OF UP TO 60% OF POKROVSKOE PETROLEUM B.V. AND 60% OF ZAGORYANSKA PETROLEUM B.V. TO ENI UKRAINE HOLDINGS B.V. ("DISPOSAL")

Posting of circular

Further to the announcement dated 13 April 2011 detailing the proposed disposal of up to 60% of Pokrovskoe Petroleum B.V. ("Pok BV") and 60% of Zagoryanska Petroleum B.V. ("Zag BV") to Eni Ukraine Holdings B.V. ("the Buyer"), the Company has today posted a circular to Shareholders convening a General Meeting to approve the proposed disposal ("Circular").

The General Meeting is scheduled for 2.30 pm on 16 June 2011 at The Royal Society of Chemistry, Burlington House, Piccadilly, London W1J OBA (or as soon thereafter as the Annual General Meeting, convened at the same venue on that day, concludes or is adjourned).

Capitalised terms used, but not defined, in this announcement shall have the same meaning as set out in the Circular.

Details of the Disposal

Pursuant to the terms of the Disposal Agreement, the Buyer will initially acquire a 30% interest in the share capital of Pok BV (the direct parent company of Gazvydobuvannya, the holder of the Pok Licence), with the option to acquire a further 30% interest in the future. The Buyer will also acquire a 60% interest in the share capital of Zag BV (the direct parent of Astroinvest-Energy, the holder of the Zag Licence). Both licences relate to the Group's operations in Eastern Ukraine. The initial consideration will comprise a cash payment of USD38 million and 100% of the funding of the Pok Agreed Appraisal Work Programme in an amount of USD30 million (with the Buyer funding the VAT on the work programme of up to USD6 million). At Completion, CPHL will assign to the Buyer 30% of the benefit of the Pok Loan and 60% of the benefit of the Zag Loan. Subject to successful results from the Pok Agreed Appraisal Work Programme and award of production licences for both the Pokrovskoe field and the Zagoryanska field, the Buyer will pay the Group further amounts of up to USD90 million.

The Company's strategy is to increase value for Shareholders by establishing commercial reserves from strategic positions in high potential oil and gas fields in Ukraine and to realise that value at the appropriate time. Significant progress has been made in technical analysis of the Company's assets. Following the strategic review undertaken in 2009, the Board developed a strategy to farm out some of its assets in order to de-risk the Company's activities. The Board believes that the Disposal will allow the Continuing Group to significantly de-risk its assets whilst maintaining exposure to the ongoing operations. By retaining an equity interest in the Pok BV Group and the Zag BV Group the Continuing Group will continue to participate and operate both the Pok Licence and the Zag Licence.

The Board believes that the Disposal will deliver positive benefits in line with the Company's strategic goals. The Board intends to utilise part of the initial net proceeds to fund development of the Company's other assets and, specifically, finance any future work programmes relating to the Pok Licence and the Zag Licence. Any future work on the Pok Licence in excess of USD30 million provided by the Buyer will be funded in proportion to the equity interests in Pok BV. If the Buyer subsequently increases its equity interest there is a mechanism for the Seller to be reimbursed. Additional future cash proceeds from the Disposal (which are dependent on successful operational results and the award of production licences) will further strengthen the Company's financial position, enabling it to finance its share of future development activities and to invest in new business opportunities.

Pok BV and Zag BV were incorporated in February 2011 as indirect wholly owned subsidiaries of the Company. On 23 March 2011, Pok BV acquired 100% of the issued capital of Gazvydobuvannya. Gazvydobuvannya is the sole registered owner of the Pok Licence. On 29 March 2011, Zag BV acquired 90% of the issued capital of Astroinvest-Energy. Astroinvest-Energy is the sole registered owner of the Zag Licence.

The loss before tax and gross assets of Gazvydobuvannya for the year ended 31 December 2010 were £803,000 and £5.63 million respectively and the profit before tax and gross assets of Astroinvest-Energy for the year ended 31 December 2010 were £344,000 and £3.13 million respectively.

The initial consideration will comprise 100% of the funding of the Pok AgreedAppraisal Work Programme in an amount of USD30 million (with the Buyer fundingthe VAT on the work programme of up to USD6 million), including drilling plus aUSD38 million payment. At Completion, CPHL will assign to the Buyer 30% of thebenefit of the Pok Loan and 60% of the benefit of the Zag Loan. Subject tosuccessful results from the above programmes and award of production licences,the Buyer will pay the Group further amounts of up to USD90 million. The tablebelow summarises when the Directors expect to receive the various componentparts of the aggregate consideration payable by the Buyer under the DisposalAgreement: Pok Licence Zag Licence Estimated Date USDm USDm Initial consideration - 38.0 On or around 30 June 2011 Pok Agreed Appraisal Work 30.0 - Q3 and Q4 2011 Programme - funding VAT on the Pok Agreed Appraisal 6.0 - Q3 and Q4 2011 Work Programme (up to) If the Buyer exercises its option 40.0 - End Q1 2012 to acquire additional 30% of share capital of Pok BV If a production licence is 15.0 - End Q4 2012 granted for the Pokrovskoe field (after exercise of the Pok option) If a production licence is - 35.0 Mid-end 2013 granted for the Zagoryanska field Total 91.0 73.0

The USD30 million funding of the Pok Agreed Appraisal Work Programme (together with the VAT payment of up to USD6 million) will be used to fulfil the work obligations on the Pok Licence and to test the potential of the Upper and Lower Visean intervals.

The initial cash proceeds of USD38 million arising from the Disposal will be applied to finance any future work programmes on the Zag Licence and fund development of the Group's other assets. Additional future cash proceeds from successful operational results and the award of production licences will further strengthen the Group's financial position, enabling it to finance its share of future development activities and to invest in new business opportunities.

A copy of the Circular has been submitted to the Financial Services Authority and will shortly be available for inspection at the National Storage Mechanism, which is located at

http://www.hemscott.com/nsm.do

The Circular is also available on the Company's website, www.cadoganpetroleum.com

Enquiries

For further information please contact:

Cadogan Petroleum Plc + 44 20 7487 8301 Ian Baron, CEO Gordon Stein, CFO Stefan Bort, Company Secretary

BDO Corporate Finance +44 121 352 6200 +44 117 930 1500 John Stephan David Abbott Bankside Consultants +44 20 7367 8888 Simon Rothschild