IGAS.L Regulatory News (IGAS)

IGas Energy plc

Agreement to acquire Star Energy Group Limited

Signing of Gas Sales Agreement

The Board of IGas Energy plc is pleased to announce the signing of a sale and purchase agreement for the acquisition of Star Energy Group Limited ("Star Energy") from PETRONAS International Corporation Limited (the "Acquisition"), and the agreement of a Gas Sales Agreement ("GSA") with PETRONAS Energy Trading Limited. The Acquisition will comprise of the UK onshore production assets of Star Energy but excludes certain non-UK assets and the gas storage business currently conducted by Star Energy.

Andrew Austin, CEO of IGas Energy, commented:

"This is a transformational deal for IGas Energy. With this Acquisition we will be creating a substantial onshore oil and gas company in the UK. The enlarged group is expected to have a growing production profile as IGas Energy's combined oil and gas resources are developed. It is anticipated that this growing production profile could potentially see the combined group being financed without the need for further recourse to additional equity. The enlarged team will have the necessary capabilities to exploit its significant asset base.

In addition, the GSA with PETRONAS Energy Trading Limited offers an important partnership and a customer for our gas as it comes on stream. This agreement constitutes a significant step towards the migration of our resource base to reserves."

Key Highlights

·; Agreement to purchase the production assets of Star Energy with economic effect from 31st March 2011

·; Purchase consideration £110m, to be funded predominantly by:

o $140m new debt facility

o Cash generated by Star Energy prior to closing

·; Existing Group cash continues to be dedicated to IGas Energy's accelerated drilling programme

·; Star Energy's assets are estimated by Senergy (an independent reserves assessor) as at 30th June 2011 to be as follows;

o 11.1mmboe of 2P reserves

o Additionally 4.5mmboe of 2C resources

o 2,800boepd estimated production in 2011

·; Tax losses :

o Significant tax losses acquired from Star Energy and readily utilisable

o Potential to accelerate significantly IGas Energy's tax losses

·; Cost per barrel (2P) $12.7, which has the potential to be reduced to $8.5/bbl once fiscal synergies have been taken into account.

·; IGas Energy's execution capability significantly enhanced by Star Energy's;

o First class onshore operating team

o Extensive operating equipment, including workover rigs and generating plant

·; Gas Sales Agreement:

o Endorsement of IGas Energy's potential through GSA with PETRONAS Energy Trading Limited for 150bcf of gas at market derived rates

o This represents a key milestone in converting resources into reserves

Acquisition debt facility from Macquarie Bank Ltd *:

·; Principal $150m - debt financing, consisting of a $140m acquisition facility and a further $10m development facility for future capital expenditures

·; Warrants to acquire c.10 per cent. of issued share capital at a 20% premium to 20 day volume weighted average share price over prior 20 trading days

·; Significant proportion of oil production expected to be hedged prior to transaction closing

* based on credit approved term sheet subject to final documentation

The Acquisition will constitute a reverse takeover under the AIM Rules and is therefore conditional, inter alia, upon the approval of IGas Energy's shareholders at a general meeting (the "General Meeting"). An admission document giving details of the proposals and incorporating a notice convening a General Meeting will be posted to shareholders in due course. The Acquisition is also conditional upon the obtaining of certain regulatory approvals.

The Board of IGas Energy has obtained irrevocable undertakings from shareholders holding, in aggregate, 51,143,543 shares, representing 31.90% of the issued share capital of IGas Energy to vote in favour of the resolutions to be proposed at the General Meeting to implement the Acquisition. In addition the Directors have irrevocably undertaken to vote in favour of the resolutions to implement the Acquisition with respect to their holdings totalling a further 38,398,847 shares or 23.95% of the issued share capital of IGas Energy. Accordingly, IGas Energy is in receipt of aggregate undertakings to vote in favour of the resolutions to implement the Acquisition in respect 55.85% of the issued share capital of IGas Energy.

Until such time that an admission document in respect of the proposed enlarged group is published, the ordinary shares in the Company will be suspended from trading on AIM with immediate effect. The admission document is expected to be posted before the end of October 2011 with the General Meeting to be convened on 14 clear days' notice thereafter.

Notes to editors

About IGas Energy

IGas Energy produces and markets domestically sourced gas. It is currently focussed on delivering commercial production through an accelerated development programme.

IGas Energy has licences to extract hydrocarbons across the north of Wales and the north of England, covering an area of 1,756km² (equivalent to approximately 434,000 acres). IGas Energy is the operator and sole owner of each of its licences.

IGas Energy's unique position offers more than 1.7 Trillion Cubic Feet (Tcf) of technically recoverable gas (equivalent to 290 million barrels of oil) with customers located conveniently close to its operations, which includes the national gas network. IGas Energy is therefore in a strong position to secure optimum gas prices from its production and to contribute to the UK's security of supply.

About Star Energy

Founded in 1999 to operate onshore UK oil and gas fields, Star Energy is now the UK's second largest onshore oil producer, operating over 20 oil and gas fields.

About PETRONAS

PETRONAS, the acronym for Petroliam Nasional Berhad, was incorporated on 17 August 1974 under the Companies Act,1965. It is wholly-owned by the Malaysian government and is vested with the entire ownership and control of the petroleum resources in Malaysia through the Petroleum Development Act 1974. Over the years, PETRONAS has grown to become a fully integrated oil and gas corporation and is ranked among the FORTUNE Global 500® largest corporations in the world.