Ruspetro Regulatory News (RPO)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND DOES NOT CONSTITUTE A PROSPECTUS. NOTHING IN THIS ANNOUNCEMENT SHALL CONSTITUTE OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY OR SUBSCRIBE FOR ANY SECURITIES REFERRED TO HEREIN NOR SHOULD IT FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY CONTRACT OR COMMITMENT WHATSOEVER.

14 April 2016

RUSPETRO PLC

("Ruspetro" or the "Company", together with its subsidiaries, the "Group")

Cancellation of listing of Ordinary Shares on the Official List

Re-registration of the Company as private limited company

Adoption of the New Articles of Association

Publication of a Circular and notice of General Meeting

Ruspetro plc (LSE: RPO), an independent oil and gas development and production company, with assets in the Western Siberia region of the Russian Federation, announces a proposal to seek a cancellation of the listing of its Ordinary Shares on the premium segment of the Official List and trading on the London Stock Exchange's Main Market for listed securities. Subject to approval by Shareholders at a general meeting to be held on 5 May 2016, notice of which is set out in a circular (the "Circular") to be sent to shareholders today, it is anticipated that the effective date of the Cancellation will be on or around 6 June 2016.

Terms not otherwise defined herein shall have the meaning given to them in the schedule to this announcement. 

At the General Meeting, the Company will also ask shareholders to consider and approve resolutions to re-register the Company as a private limited company and to adopt new articles of association.

The purpose of the Circular is to (i) explain the background to and reasons for the Proposals; (ii) explain why the Directors consider the Proposals to be in the best interests of the Company and its Shareholders as a whole and recommend that the Shareholders vote in favour of the Resolutions; and (iii) provide notice of the General Meeting and details of the Proposals.

Implementation of the Proposals is conditional upon the approval of the Resolutions by Shareholders at the General Meeting, which is being convened for 10.30 a.m. on 5 May 2016 at the offices of White & Case LLP, 5 Old Broad Street, London EC2N 1DW, at which the Resolutions will be put to approve, inter alia, the Cancellation. If the Resolutions are passed at the General Meeting, the Cancellation is expected to occur on or around 6 June 2016.

Background to and Reasons for the Proposals

On 24 January 2012, the whole of the ordinary share capital of the Company was admitted to the premium segment of the Official List and to trading on the Main Market. In March 2012, the Ordinary Shares were included in the FTSE All Share Index. On 11 December 2014, Ruspetro completed a major capital restructuring comprising an issue of new equity raising gross proceeds of approximately US$53 million, a reduction in its long term debt from US$337 million to US$150 million and new working capital credit facilities of up to US$145 million. The Group's new loan facilities were granted by Public Joint Stock Company "Bank Otkritie Financial Corporation" ("Otkritie"), one of the largest commercial banks in Russia. The development plan set out in the Prospectus regarding the Restructuring stated that ongoing expenditure on the Group's assets aimed at increasing production would be funded by a combination of operating cash flow, proceeds of the Restructuring and ongoing drawdown on the facilities entered in to as part of the Restructuring. The Group's medium term aim was and remains to increase production to a level at which the net operating cash flows are sufficient to sustain that level of production, to cover payments due under various debt facilities and to provide a return to shareholders. 

Since completion of the Restructuring the Group has successfully increased production. However, the price for Brent crude oil has decreased substantially from an average of approximately US$100 per barrel in 2014 to an average of US$53 per barrel in 2015, to approximately US$40 per barrel today and this has had a direct impact on the Group's revenues and cash flows, as can be seen from the Company's reported financial results. 

In Ruspetro's 2015 results, the Company reported revenues of US$43.9 million (compared with 2014 revenues of US$55.1 million), with the drop in revenues of US$11.2 million being driven by a 46 per cent. decline in the average realised blended oil price, offset by a 16.5 per cent. increase in volumes sold during 2015.

In 2015, the Group's Operating loss and EBITDA were reported at US$25.6 million and US$2.6 million respectively, compared with US$18.6 million and US$9.5 million in 2014. The Group's Operating loss would have been significantly higher and EBITDA would have been significantly lower in 2015 had the Group not achieved 16.5 per cent. higher sales volumes in 2015 compared with the prior period. 

For the full year 2015, the Company reported net cash outflow from operating activities of US$4.7 million (FY2014: net positive US$3.3 million) and net cash outflow from investing activities (principally the costs of developing and maintaining production) of US$35.2 million (FY2014: US$49.6 million), leaving a deficit of US$39.9 million (FY2014: US$46.3 million) before loan repayments, interest paid and other financing charges of US$24.7 million (FY2014: US$152.9 million). The Company drew down US$59.6 million of loans during 2015 (FY2014: US$160.0 million in addition to US$37.5 million net proceeds from the issue of shares). 

The 2015 full year results demonstrate that the group is not generating sufficient cash from its current operations to cover the cost of capital investment, interest payments on loans outstanding and loan repayments due in the future. Net debt increased from US$235.1 million at the start of 2015 to US$299.9 million by the end of the year, comprising secured bank loans of US$202.8 million due for repayment in 2019 and unsecured shareholder loans of US$104.6 million of which, including interest accrued over the period to maturity, US$3.1 million is due for repayment in October 2016, US$20.3 million in May 2017 and US$128.9 million in February 2020, less cash of US$7.5 million. The Group finances its exploration and development activities using a combination of cash in hand, operating cash flow generated mainly from the sale of crude oil production, prepayments from forward oil sale agreements and additional debt or equity financing as required. As at the date of the Circular, the Group is not in breach of any of its existing secured facilities and has US$67.7 million of undrawn facilities available. During the year ended 31 December 2015, the Group negotiated the US$22.5 million advance financing arrangement with Glencore Energy UK Ltd. Prepayments from such forward oil sale agreements are one of the Group's main sources of working capital. The renewal of such prepayments occurs regularly under normal course of business, but cannot be certain and, therefore, the directors recognise that this represents a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern.

The Company's preliminary financial results for 2015 have been released today and are prepared on a going concern basis. However, the Directors expect that the audit opinion on the 2015 financial statements (which will be presented in the annual report to be published before the end of April 2016) will include an emphasis of matter in relation to the material uncertainty identified in the paragraph above. 

The 2015 Annual Report will also include a longer term viability statement in line with the latest requirements of the UK Corporate Governance Code. As input to this assessment the Group has modelled multiple economic scenarios based on its detailed life of field model, using its baseline field development plan factored with various capital conservation restrictions, and evaluated levels of capital investment, operating cash flows and production output. This analysis has confirmed the need for significant additional funding over and above existing facilities and forward sale arrangements within the next 1-2 years, depending on the development scenario and the oil price environment.

Without this additional funding the Group will need to implement actions which will adversely affect its ability to maintain production levels and which will be detrimental to its development and production capabilities, thus probably exposing the Group to a breach in the production covenant to its primary lender. In such circumstances the Group's financial position would be very uncertain and it may be forced to undertake a capital restructuring which would be highly dilutive for Shareholders or the primary lender may enforce its security over the Group's principal assets leaving Shareholders with little or no value.

In implementing its development plan, the Group continues to draw down on its debt facilities. The Group has, through extremely tight cash management under challenging market conditions, reported positive net operating cash flows before working capital adjustments for 2015 but the Group is not currently able to generate sufficient cash flow to cover capital investment, or interest and capital repayments, and continues to draw down on debt facilities.

In the opinion of the Directors, the Group's continued viability in the years 2016 to 2020, and beyond, is conditional on securing additional funding, successful refinancing on maturity of its principal debt facilities, and access to other forms of funding that may not be available to a premium listed company.

The Directors have, therefore, considered the strategic question of what form the Group should take to be in the best position to raise the funds necessary to bring the business to the point where it is generating sufficient free cash flow to meet it financial commitments and yield a return for Shareholders. 

As set out in greater detail below, the Board is of the view that the funding necessary to achieve the Company's objectives is currently not available in the public equity markets for this type of business in the environment in which it operates and has concluded that as a private limited company the Company would have a better chance of achieving this goal and be more able to target potential investors using the Group's asset base, production and future production potential as valuation benchmarks rather than the low benchmark of the market capitalisation of the listed entity. Furthermore, not having a listing would enable the Company to open discussions with investors who are able to take a longer-term view of the Company's prospects and those of the oil and gas sector rather than with investors focused on the short term issues that affect illiquidity and volatility in the share price as a quoted entity.

After careful consideration of the Company's current position and available options, the Board believes that the Proposals are in the best interests of all Shareholders for the following reasons:

(i) Any future discussions regarding funding the drilling programme and any envisaged merger and acquisition activity by the Company can use the value of the Group's underlying oil and gas resource and reserve assets and the future production potential of the Group (as a private limited company) as a reference point for valuation rather than the market capitalisation of the Company (as a listed company) which on 13 April 2016 (being the Latest Practicable Date) was £36.81 million, with the Company's share price at 4.23p, having been £87 million at completion of the Restructuring in December 2014. The Board believes that using such benchmarks rather than the market capitalisation will better serve Shareholders' interests by creating more opportunities for the Company to achieve the funding it requires to bring production to its potential capacity and thereby creating value for the Company's shareholders;

(ii) The current environment within the oil and gas sector, particularly in Russia, is not attractive to the vast majority of institutional investors. Since the Company listed in January 2012, there has been a continual decline in the number of institutional investors that hold over 1 per cent. of the Company's outstanding share capital;

(iii) The volume of Ordinary Shares being traded is very low and, in the opinion of the Directors, no longer justifies the costs and management time required to maintain the Company's status as a premium listed company. In the three months up to 13 April 2016, an average of just 38,519 Ordinary Shares traded each day and there were twelve days on which there were no trades at all;

(iv) Limited investor demand for Ordinary Shares is preventing the Company from re-establishing a free float of the Company's Ordinary Shares to 25 per cent. or greater of the shares outstanding. Since the completion of the Restructuring, at which point the free float, as expected, was below the 25 per cent. minimum requirement for a company on the Official List, the Company has, in conjunction with its brokers, endeavoured to develop interest in the Ordinary Shares. However, against a background of a sustained low oil price and negative investor sentiment towards Russia, the Company has failed to generate sufficient appropriate demand to restore the free float above 25 per cent. The most recent analysis shows that the free float is in fact currently around 16 per cent., having been around 20 per cent. shortly following completion of the Restructuring;

(v) The costs associated with the Company's listing on the Official List and to trading on the Main Market, of approximately US$4.8 million per annum, exceed the benefits of maintaining this listing, such as access to international capital and a broad investor base, and can no longer be justified in light of the current challenging environment and market conditions and need to be reduced to be commensurate with the requirements of a private limited oil and gas exploration and production company of its size; and

(vi) A matched bargain facility (as described in more detail in paragraph 5 below) will be available to Shareholders following Cancellation providing a means by which trading in the Ordinary Shares may continue at a substantially lower cost to the Company than the current premium listing.

Consequently, for the reasons set out above, the Board believes that the Proposals are in the best interests of the Shareholders and the Company.

Near term strategic priorities

The Group's principal secured facilities are due for repayment in November 2019. The Directors are of the view that, if the Company is unable to attract additional investment in the future, the Company will need to implement certain additional actions so as to allow it to meet its existing contractual obligations as and when they fall due. These actions may include some or all of the following:

· further financial restructuring, including through further capital raises that may be dilutive to Shareholders; as a private, unlisted company, the Directors firmly believe that the options open to the Company are much broader and avoid the additional costs, management time and limitations which apply to undertaking such changes as a publicly listed entity.

· further reducing planned capital expenditure, including scaling back the drilling programme, and placing operating assets on care and maintenance (which would be achievable but would adversely affect the Group's ability to maintain production);

· further reducing the Company's cost base to the detriment of its development and production capabilities; and

· conserving cash through working capital management.

The Directors are focused on building a profitable business through the development of Ruspetro's oil and gas reserves and resources at a pace and scale to realise their potential and value for the direct benefit of Shareholders. While the Company has already taken steps to restructure its balance sheet, the Group will need to undertake significant capital expenditure to increase production and to continue to meet its current debt obligations as described above.

Therefore the Directors believe that the Company will need to look at alternative sources of funding that may not be available to the Company as a listed entity. Consequently, and in the absence of institutional investor interest and stock market liquidity for the Company's Ordinary Shares, which is one of the major benefits of a listing (and discussed in more detail below), the Directors believe that the interests of Shareholders can be better served as an unlisted private company.

Lack of Institutional Investor Demand

Market conditions in the global oil and gas sector have recently been, and are expected for the foreseeable future to continue to be, very challenging. Institutional investor appetite for investment in the Russian oil and gas sector in particular has very significantly diminished since Ruspetro's flotation in 2012. This, coupled with the weakening Russian economy, the declining market valuation of Ruspetro and current free-float issues (as described further below) may materially adversely affect the Company's business, results of operations, financial condition and prospects, and the trading price of the Ordinary Shares. Following discussions with brokers, the Directors are of the opinion that there is limited investor appetite to invest in the Russian oil and gas sector in general and the Company in particular amongst investors in publicly traded companies such as Ruspetro. In light of the overall market conditions, the Directors are of the opinion that it will be very difficult for the Company to attract any meaningful equity investment in the future through its listing on the premium segment of the Official List and trading on the Main Market.

Market Valuation

As at 13 April 2016, the market capitalisation of the Company was £36.81 million based on a share price of 4.23 pence compared with 134 pence at flotation on 24 January 2012.

The recent decline in the Russian economy and the sustained low price of oil and gas continue to affect the Company. During the second half of 2015 and the beginning of 2016 the Group has continued to experience the impact of high volatility of the oil price and USD / Russian Ruble exchange rate, which management views as key external risks that will continue throughout 2016 and are unpredictable for the future. Operationally, it will be crucial for the Group to successfully and cost-effectively implement its current appraisal campaign to identify sufficient suitable development well targets and significantly increase the Group's production in 2016 and beyond. The importance of the above external and operational uncertainties has adversely impacted the market valuation of the Company.

With trading volume at a very low level, the Company's share price is very volatile and can move up or down significantly following relatively small numbers of low value trades in its Ordinary Shares, which can make the shares less attractive to investors.

The Directors consider that the current market capitalisation of the Company is not reflective of its underlying value and will compromise the valuations which may be achieved as part of any future strategic initiatives. As a private limited company, the value of its assets, its production and the well-head revenue per barrel potential of the Company will, the Directors believe, become the focus for valuation models rather than the market capitalisation of the listed Company.

The Directors are of the view that, in order to protect the business of the Company and maximise its value for Shareholders, it is no longer in the interests of the Company or its Shareholders to maintain the listing on the premium segment of the Official List and trading on the Main Market. 

Free Float Position

On 17 November 2014, the Company published the Prospectus in connection with the Placing and Open Offer, which formed part of the plans for the Restructuring. As noted in the Prospectus, the UKLA requires listed issuers to maintain at least 25 per cent. free float in their listed shares and, depending on the level of take up by minority shareholders in the Open Offer, there was a risk that upon completion of the Restructuring, there would be insufficient free float in the Ordinary Shares. Ruspetro agreed with the UKLA that if, within six months after completion of the Restructuring, there remained insufficient free float in the Ordinary Shares, the Directors would consider proposing a resolution to its Shareholders to cancel the Company's listing on the premium segment of the Official List and its trading on the main market of the London Stock Exchange and move its listing to another market in London.

Since the completion of the Restructuring there has remained insufficient free float in the Ordinary Shares. In December 2014, shortly after completion of the Restructuring, the free float reached approximately 20 per cent. and is currently estimated at around 16 per cent. At the time of the Restructuring a number of larger shareholders (whose holdings are excluded from the calculation of the percentage of shares in public hands) indicated their willingness to dispose of shares in order to increase the free float. The Directors have endeavoured to generate interest in purchasing such shares by promoting the shares through investor and analyst presentations. However, the consistent comments received from such meetings has been that investors will not invest whilst the Company faces the risks represented by the oil price and the political climate in Russia. 

The Board is of the opinion that this position is unlikely to improve in the short term.

Alternative listings in London

In connection with the Board's considerations of the free float position, the Board has considered whether a transfer of the Company's listing to another market in London would be of benefit to Shareholders. However, having studied the alternatives, the Board is of the view that the benefits described above of becoming an unlisted private company at this stage in the Company's development outweigh the potential benefits of seeking admission to an alternative market in London.

However, in order to provide Shareholders with a platform through which Ordinary Shares can be traded, the Company has arranged with its Registrar, Capita Asset Services to provide a matched bargain trading facility, further details of which are set out below. 

Costs of Maintaining a Listing

The Directors estimate that direct and indirect costs associated with the listing of the Ordinary Shares on the premium segment of the Official List and to trading on the Main Market has been on average US$4.8 million per annum since the Company's initial public offering in January 2012, taking in to account the recurring costs of maintaining the listing and the costs associated with the listing and subsequent corporate actions, including advisory, legal and audit fees, as well as the associated costs of maintaining a London office and external investor relations. The Directors consider that these costs are disproportionately high versus the benefits of a listing on the premium segment of the Official List and that these funds could be better utilised within the business of the Company. Thus, on implementation of the Proposals a substantial proportion of these costs will be eliminated due to reduced board and management costs, the elimination of fees directly related to the listing, fees from external advisors being reduced substantially, the elimination of costs related to raising new capital for a listed company and the reduction of general and administrative expenses associated with the requirements of a listed company. Furthermore, substantive management time spent on maintaining a listing will be eliminated. These financial and management resources can be more effectively utilised in the development and management of the business in a private company context.

3. Details of the Cancellation

In order to effect the Cancellation, the Company is required to obtain prior approval from the Shareholders pursuant to paragraph 5.2.5R(2)(b) of the Listing Rules. Accordingly, at the General Meeting to be held on 5 May 2016, a shareholder resolution will be proposed, as the first resolution set out in the Notice of General Meeting contained in the Circular, authorising the Board to proceed with the Cancellation (the "Cancellation Resolution"). The Cancellation Resolution will require:

(a) approval from a majority of not less than 75 per cent. of the votes attaching to the Ordinary Shares; and

(b) the approval from a majority of the votes attaching to the Ordinary Shares of Independent Shareholders.

For the purpose of the Cancellation Resolution, in accordance with the definition set out in the Listing Rules, the term "Independent Shareholders" refers to Shareholders other than any person who exercises or controls, on their own or together with any person whom they are acting in concert, 30 per cent. or more of the votes entitled to be cast on all or substantially all matter at general meetings of the Company ("Controlling Shareholders"). The following Shareholders are considered to be Controlling Shareholders because they and/or their controllers were all founding shareholders of the Company prior to its flotation in 2012 and are deemed to be "acting in concert" for the purposes of the Listing Rules:

Notes:

1. Limolines Transport Limited and Conchetta Consultants Limited are companies connected with Kirill Androsov, a non-executive director of the Company, and in which Mr Androsov is deemed to have a beneficial interest.

2. Makayla Investments Limited is controlled by and represents the interests of Andrey Rappoport.

3. Nervent Limited and Roony Invest & Finance S.A. are controlled by and represent the interests of Alexander Chistyakov, the chairman of the Company.

4. Mr Thomas Reed was previously a shareholder in Nervent Limited with Alexander Chistyakov and was a founding shareholder of the Company.

Accordingly, votes attaching to these Ordinary Shares will count towards meeting the requirement described in part (a) above to approve the Cancellation Resolution, but not part (b).

Conditional upon the Cancellation Resolution receiving approval at the General Meeting, the Company will apply to cancel the Ordinary Shares from admission to the premium segment of the Official List and to remove the Ordinary Shares from trading on the Main Market. It is anticipated that the Cancellation will take effect on or around 6 June 2016, being in any event not less than 20 Business Days following the passing of the Cancellation Resolutions.

4. Effect of the Cancellation

The principal effects of the Cancellation, and the factors that the Directors believe that Shareholders should take into consideration when deciding whether or not to vote in favour of the Resolutions, include the following:

Trading and liquidity

Following the Cancellation, the Ordinary Shares will no longer be traded on a public market or trading facility on any recognised investment exchange. As a result, a Shareholder will not be able to trade its Ordinary Shares on the London Stock Exchange and, consequently, the opportunity for Shareholders to realise their investment in the Company will be limited and there will be no public valuation of Ordinary Shares held by them. As described below, the Company will, with effect from Cancellation, to put in place a matched bargain settlement facility to serve as a limited platform for Shareholders and other persons to seek to buy or sell shares.

Following publication of the Circular and following Cancellation, the liquidity and marketability of the Ordinary Shares may be significantly reduced and the value of such shares may be adversely affected as a consequence.

Disclosure and reporting

The Company will no longer be subject to the regulatory and financial reporting regime applicable to companies whose shares are admitted to the Official List and to trading on the Main Market including the Listing Rules (including the Model Code on directors' share dealings), the Disclosure and Transparency Rules, and the Corporate Governance Code.

As a result, Shareholders will no longer be afforded the protections given by the Listing Rules such as:

- the requirement to be notified of annual and half yearly results;

- the requirement on the contents of annual reports (for example, to ensure that each annual report contains a statement by the Directors that the business of the Company is a going concern);

- the requirement on the contents of half-yearly reports (for example, to ensure that each half-yearly report contains information showing the split between dividends and interest received);

- the requirements to provide trading updates;

- the requirements to notify and/or seek shareholder approval for certain events, including substantial transactions, financing transactions, related party transactions and fundamental changes in the Company's business, including certain acquisitions and disposals;

- the requirement for the independence of the Board;

- the Company will cease to have a sponsor and broker;

- as an unlisted company, the Company will be subject to fewer operational restrictions than as a listed company. In addition, as an unlisted company, the Company may be subject to less stringent accounting and reporting requirements;

- the Cancellation may have either positive or negative taxation consequences for Shareholders. Shareholders who are in any doubt about their tax position should consult their own professional independent adviser immediately; and

- there will be reduced controls over the terms of capital raises and issuances of new Ordinary Shares to related parties (such as substantial shareholders) this could lead to substantial dilution for Shareholders.

Further, Shareholders would also lose the protection of the Disclosure and Transparency Rules which includes, among others, the right to be notified of any inside information which directly concerns the Company (DTR 2), of transactions by persons discharging managerial responsibilities and their connected persons (DTR 3), the requirements regarding periodic financial reporting (DTR 4) and of any dealings by shareholders who hold more than 3 per cent. of the Company's shares (DTR 5). 

To mitigate this, the re-registered private listed company will adopt new articles of association taking effect from Re-Registration that will include provisions to provide a degree of disclosure to shareholders appropriate with its status as an unlisted private company (further details are set out in Part II of the Circular) and implement certain corporate governance measures as set out below.

The Company will:

- continue to provide operational updates when the Company deems it to be appropriate;

- publish its annual results (further details of which are set out in Part II of the Circular);

- adopt the provision of the Model Code in relation to any dealings in the Company's shares by directors and senior employees following Cancellation; and

- require, under the New Articles, disclosure by Shareholders if, as a result of either of an acquisition or disposal of shares in the Company or of changes in the total voting rights attached to the Company's shares, the percentage of voting rights which such Shareholder holds, or has control over, reaches, exceeds or falls below 3 per cent. and each additional 1 per cent. above that level.

City Code on Takeovers and Mergers

The Code is issued and administered by the Panel. Ruspetro is a company to which the Code applies and its Shareholders are accordingly entitled to the protections afforded by the Code.

The Code and the Panel operate principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment by an offeror. The Code also provides an orderly framework within which takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the integrity of the financial markets. The Code would continue to apply to the Company for a period of ten years from the date of the Cancellation. 

Corporate Governance

While the Company will no longer be subject to Listing Rules, the Disclosure and Transparency Rules and the Corporate Governance Code following Cancellation, the Company will continue to maintain good standards of corporate governance for the benefit of all of its Shareholders appropriate for an unlisted company. As a result, the Company will adopt a corporate governance policy which will set out the governance standards for the Company following Cancellation. The Company will also ensure effective engagement with Shareholders. A summary of the Company's proposed corporate governance arrangements following Cancellation are set out below.

(a) Composition of the Board

Following Cancellation, it is proposed that the Board will comprise of a maximum of six directors.

Each of Makayla, Limolines, Nervent and Mastin (each an "Appointing Shareholder"), who, together with their concert parties, collectively currently represent approximately 74.9 per cent. of the Issued Share Capital, shall be entitled to nominate and appoint one director (the "Shareholder Directors"). The Board shall have at least one director who will be a non-executive independent director and the chief executive officer shall also be a director. The Board will continue to have a chairman who will be one of the Shareholder Directors. 

It is expected that Alexander Chistyakov, Kirill Androsov and Sergey Gordeev shall initially comprise three of the four Shareholder Directors, with an additional Shareholder Director to be appointed by Makayla shortly after Cancellation. John Conlin will continue to act as the chief executive officer of the Company following Cancellation. As the Board currently has four independent non-executive directors, it is expected that three of these directors shall resign with effect from Cancellation with one of the current independent non-executive directors remaining in place.

The right of appointment of the Shareholder Directors is set out in individual relationship agreements with each of the Appointing Shareholders, which will become effective with effect from Cancellation (as described in paragraph (e) below).

Other than as set out above, a director of the Company may be appointed at any time by a decision of the Board or by an ordinary resolution of the Company's shareholders. As a private limited company is not required to have a secretary, it will be at the Board's sole discretion whether a secretary is required.

The Company shall retain the current schedule of matters reserved for the Board (with such necessary amendments as necessary to reflect the new corporate governance provisions referred to in the Circular and its status as a private limited company following re-registration).

(b) Committees of the Company

Following Cancellation, the Company will no longer be subject to the Corporate Governance Code and consequently will no longer be required to maintain a nominations committee, a remuneration committee or an audit committee. The current functions of the nominations committee and the remuneration committee will be carried out by the Board following Re-registration. 

The Board will continue to maintain an audit committee whose terms of reference shall be broadly similar to the provisions of the Corporate Governance Code (the "Audit Committee").

The Audit Committee will have three members one of whom shall be the independent non-executive director. The independent non-executive director will be the Chairman of the Committee. In addition, the Committee will be made up of one other director and the chief financial officer of the Company. The Audit Committee will continue to meet at least three times a year and otherwise as required. Members of the Board (other than the members of the Audit Committee), may be invited to attend all or part of the Audit Committee's meetings as necessary. The external auditors may attend meetings on a regular basis, both with and without executive management being present. 

The main responsibilities of the Audit Committee will include monitoring the integrity of the Group's financial statements and announcements on annual results; overseeing the relationship with the external auditors; reviewing significant financial reporting and accounting policy issues, the Group's risk management systems and internal control processes; and ensuring effective whistle-blowing procedures are maintained.

(c) Corporate Governance Code

While the Corporate Governance Code will no longer apply to the Company following Cancellation, the Company will incorporate certain principles of the Corporate Governance Code set out below as part of its ongoing corporate governance policy. 

(i) Leadership

- The Company will continue to be headed by an effective board which is collectively responsible for the long-term success of the Company. 

- The Chairman will continue to be responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role. 

- As part of his or her role as a member of the Board, the independent non-executive director will constructively challenge and help develop proposals on strategy.

(ii) Effectiveness

- The Board and the Audit Committee will have the appropriate balance of skills, experience, independence and knowledge of the Company to enable them to discharge their respective duties and responsibilities effectively. 

- The Board will be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. 

- The Board will undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.

(iii) Accountability

- The Board will be responsible for determining the nature and extent of the significant principal risks it is willing to take in achieving its strategic objectives. The Board will continue to maintain sound risk management and internal control systems. 

- The Board will continue to maintain formal and transparent arrangements for considering how they will apply the corporate reporting, risk management and internal control principles (which will be implemented and monitored by the Audit Committee).

(iv) Relations with Shareholders

- The Company will continue to maintain a dialogue with Shareholders to engender a mutual understanding of its objectives. The Board as a whole will have responsibility for ensuring that a satisfactory dialogue with Shareholders continues.

(d) Shareholder Rights and Protections

Shareholders will also have the benefit of certain shareholder rights that will be incorporated into the New Articles (as described in further detail in paragraph 7 below). In addition and as noted above, the Code will continue to apply to the Company for ten years following the Company's re-registration as a private limited company. They are as follows:

(i) Drag-Along Right: Where a majority of the Shareholders (holding not less than 75 per cent. in nominal value of the issued share capital of the Company) accept an offer from a third party purchaser to buy their shares, those shareholders shall be entitled to force the holders of the remaining 25 per cent. to accept such an offer and sell their shares to the third party on the same terms and conditions. 

(ii) Tag-Along Right: Where a majority of the Shareholders (holding not less than 75 per cent. in nominal value of the total issued share capital of the Company) accept an offer from a third party purchaser to buy their shares, the holders of the remaining 25 per cent. shall be entitled to force the selling shareholders (who wish to sell their shares) to procure an offer for the shares benefiting from the rights on the same terms and conditions.

Under the Tag-Along Right, the result is that one or more minority shareholders may require a seller of shares to procure that a proposed buyer acquiring a controlling interest in the Company extends its offer to purchase the shares to all shareholders of the Company. The Tag-Along Right acts as protection for the minority holders in case the majority chooses not to exercise its drag along rights. Under the Drag-Along Right, the majority of the equity holders may accept an offer to buy their equity and to force the remaining holders to accept the offer on the same terms. The purpose of these provisions are to protect certain Shareholders within the Company.

(e) Relationship Agreements

Each of Makayla, Limolines, Nervent and Mastin is currently party to an existing relationship agreement with the Company, the terms of such (in the case of the controlling shareholders) are consistent with the requirements of Chapter 9 of the Listing Rules (as regards arrangements with a Controlling Shareholder).

Under the terms of the existing relationship agreements, Makayla, Limolines, Nervent and Mastin agreed, inter alia, to:

(i) conduct all transactions, agreements or arrangements entered into between any member of the Group and themselves and all relationships between any member of the Group and themselves on an arm's length basis and on normal commercial terms and in accordance with the related party transaction rules set out in the Listing Rules;

(ii) not take any action that has or would have the effect of preventing the Company or any other member of the Group from complying with its obligations under the Listing Rules (including the principle of equality of treatment of shareholders set out in principle 5 of paragraph 7.2.1R of the Listing Rules, in accordance with the terms of such principle);

(iii) not propose or procure the proposal of any resolution of the Shareholders (or any class thereof) which is intended, or appears to be intended, to circumvent the proper application of the Listing Rules; and/or

(iv) abstain from voting on any resolution required by paragraph 11.1.7R(3) of the Listing Rules to approve a transaction with a related party involving themselves.

Each of these existing relationship agreements will terminate with effect from the Cancellation in accordance with their terms. The Company has entered into new relationship agreements with each of the Appointing Shareholders which take effect from Cancellation to govern the arrangements between such Appointing Shareholders and the Company when it is a private limited company. 

Under the terms of such separate new relationship agreements:

· each of the Appointing Shareholders shall (and shall procure that their relevant affiliates shall) conduct all transactions, agreements or arrangements entered into between any member of the Group and the relevant Shareholder (and its affiliates) and all relationships between any member of the Group and the relevant Shareholder (and its affiliates) on an arm's length basis and on normal commercial terms; and

· the relevant Shareholder shall have the right to nominate one director to the Board for so long as it (and its associates) own five (5) per cent. or more of the issued Shares.

The new relationship agreements will continue until the relevant Shareholder (together with any of its associates) ceases to be entitled to exercise (or to control the exercise of) on its own or together with any of its associates five (5) per cent. or more of the rights to vote at the Company's general meetings.

5. Trading in the Ordinary Shares after Cancellation

Whilst the Board believes that the Proposals are in the best interests of the Shareholders as a whole, it recognises that the Cancellation will reduce the transparency of trading in the Company's shares. Following the Cancellation, although the Ordinary Shares will remain transferable, it will no longer possible to trade the shares on Main Market of the London Stock Exchange. Accordingly, the Board has made arrangements for a matched bargain settlement facility with the Company's registrar, Capita Asset Services ("Capita"), (the "Facility") to be available with effect from Cancellation to enable Shareholders to trade their Ordinary Shares. Following the General Meeting and subject to the approval of the Resolutions, Capita will contact all shareholders with information on how to access this service. Contact details will also be provided on the Company's website once implemented. To access the Facility, Shareholders/new investors will need to complete and submit a postal dealing form, which will be processed by Capita on an order book. Where price expectations allow, orders will be matched between buyers and sellers, and Capita will make contact with the parties to confirm the price and arrange settlement. Capita have been chosen by the Company because they are one of the leading registrar services in the United Kingdom, they currently maintain the Company's register of Shareholders and they are one of the only matched bargain facility providers in the UK to provide this service using Crest registered shares (meaning existing Shareholders do not need a physical share certificate to trade using this service).

Shares will continue to be eligible for CREST settlement.

6. Re-registration to a Private Limited Company

Conditional upon the approval of the Cancellation Resolutions, the Board is asking Shareholders to approve the re-registration of Ruspetro as a private limited company. Following the Cancellation, the Board believes that the requirements and associated costs of the Company maintaining its public company status will be difficult to justify and that the Company will benefit from the more flexible requirements and lower costs associated with private limited company status. It is therefore proposed to re-register the Company as a private limited company.

The Board also believes that the Company's development strategy will be better achieved as a private company, without the regulatory, disclosure and administrative processes required of a publicly listed company. 

The Directors believe that it would be better for the Company to operate as a private company, as further capital can be raised using a higher basis for valuation when funding is considered necessary, thus enabling the Company to achieve the production objectives that will realise the field's potential in order to generate free cash flow.

Process for Re-registration

Assuming the resolution to approve the Re-registration is passed, the Company intends to make an application to be re-registered as a private limited company under the Companies Act by the name of "Ruspetro Limited". 

Under the Act, as part of the Re-registration, the Company is required to make such changes to its articles of association as are required in connection with the Company becoming a private company limited by shares. The Resolutions include the adoption of the New Articles. Details of the proposed New Articles are set out in paragraph 7 below. The Re-registration requires the approval of not less than 75 per cent. of the votes cast by Shareholders at a general meeting.

7. Adoption of New Articles

Under resolution 3, the Board is asking Shareholders to approve the adoption by the Company of the New Articles with effect from Registration. The New Articles being adopted will include provisions which the Directors believe to be appropriate for a private limited company incorporated under the Companies Act with a broad shareholder base. The proposed New Articles contain a number of alterations when compared with the existing Articles of Association of the Company (the "Existing Articles"), but the Board consider the proposed New Articles to be more suitable for a private limited company. The principal changes introduced by the New Articles are summarised in Part II. 

A copy of the Company's Existing Articles and the proposed New Articles will be available for inspection during normal business hours (excluding Saturdays, Sundays and bank holidays) at the Company's registered office from the date of the Circular until the close of the General Meeting. The proposed New Articles will also be available for inspection at the General Meeting at least 15 minutes prior to the start of the meeting and up until the close of the meeting.

8. Irrevocable Undertakings

The following shareholders have irrevocably agreed to vote in favour of all of the Resolutions in respect of the Ordinary Shares they control:

Notes:

1. Limolines Transport Limited and Conchetta Consultants Limited are companies connected with Kirill Androsov, a non-executive director of the Company, and in which Mr Androsov is deemed to have a beneficial interest.

2. Makayla Investments Limited is controlled by and represents the interests of Andrey Rappoport, a founding shareholder of the Company.

3. Nervent Limited and Roony Invest & Finance S.A. are controlled by and represent the interests of Alexander Chistyakov, the chairman of the Company.

4. Directors.

5. Mastin Holdings Limited is beneficially owned and controlled by Sergey Gordeev, a non-executive director of the Company.

Therefore, it is anticipated that the Resolutions will be approved at the General Meeting.

9. General Meeting

A notice convening a General Meeting to be called for at the offices of White & Case LLP, 5 Old Broad Street, London EC2N 1DW at 10.30 a.m. on 5 May 2016 at which the Resolutions will be proposed as set out at the end of the Circular. 

The purpose of the General Meeting is to consider and, if thought fit, pass the Resolutions as set out in full in the Notice of General Meeting. The Cancellation is conditional on the passing of the first and second Resolutions, the Re-registration is conditional on the passing of the first, second and third Resolutions and adoption of the New Articles is conditional on the passing of the all Resolutions. Unless all the Resolutions are approved by the Shareholders (and the first Resolution is also approved by the Independent Shareholders), the Cancellation, the Re-registration and adoption of New Articles will not occur.

10. Action to be taken

Shareholders will find enclosed with the Circular a Form of Proxy for use in connection with the General Meeting.

Shareholders, whether or not they propose to attend the General Meeting in person, are requested to complete, sign and return the Form of Proxy, in accordance with the instructions printed thereon, so as to be received by the Company's registrars, Capita Registrars as soon as possible and, in any event, by not later than 10.30 a.m. on 5 May 2016. Completion and return of the Form of Proxy will not preclude Shareholders from attending and voting at the General Meeting in person if they wish to do so. If you hold shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Registrar (CREST participant ID RA10), so that it is received by no later than 10.30 a.m. on 3 May 2016. The completion and return of a CREST Proxy Instruction will not preclude you from attending and voting in person at the General Meeting or any adjournment thereof, if you so wish and are so entitled.

If the Form of Proxy is not returned or the CREST Proxy Instruction not submitted by 10.30 a.m. on 3 May 2016, your vote will not count.

If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other appropriate independent financial adviser authorised under the FSMA if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.

11. Consequences of a failure to approve the Resolutions

If Shareholders do not approve the Resolutions, the Company will remain on the Official List and its Ordinary Shares will continue to trade on the London Stock Exchange. Failure to approve the Resolutions in the short term will not materially affect the Company. However, in the longer term the Directors believe that Company will face considerable risks as a listed company with regard to its financing and investment strategy as described in detail in section 2 of the Circular.

A requirement for significant additional funding over and above existing facilities and forward sale arrangements within the next 1-2 years, depending on the development scenario and the oil price environment, has been identified by the Directors. Without this additional funding the Group will need to implement actions which will adversely affect its ability to maintain production levels and which will be detrimental to its development and production capabilities, thus probably exposing the Group to a breach in the production covenant to its primary lender. In such circumstances the Group's financial position would be very uncertain and it may be forced to undertake a capital restructuring which would be highly dilutive for Shareholders or the primary lender may enforce its security over the Group's principal assets leaving Shareholders with little or no value.

The Company will continue to be in breach of the Listing Rules requirement for the number of shares in public hands. If the Company is unable, as has been the case since December 2014 and appears likely to continue to be the case, to restore the number of shares in public hands to 25 per cent. or more, the UKLA may require the cancellation of the Company's listing in any event. 

The Directors recognise that cancelling the Company's listing means Shareholders losing significant rights and protections. However, the Directors are of the opinion that the Proposals set out in the Circular offer the best platform from which to secure a future for all Shareholders. Accordingly, the Board unanimously recommends that all Shareholders vote in favour of the Resolutions.

Shareholders should note that sufficient irrevocable undertakings to vote in favour of the Resolutions have been obtained to approve the Resolutions in any event.

12. Documents available for inspection

Copies of the following documents will be made available for inspection during normal business hours on any weekday (except Saturdays and public holidays) at the registered office of the Company at Fourth Floor, 58 Grosvenor Street, London W1K 3JB up to and including the General Meeting:

(a) the Memorandum and Articles of Association of the Company;

(b) a draft of the New Articles;

(c) the register of Directors' interests in the share capital of the Company;

(d) the irrevocable undertakings referred to in paragraph 8 of this Part I;

(e) the Circular; and

(f) the Proxy Form.

13. Recommendation

The Board considers the Proposals to be in the best interests of Shareholders as a whole and most likely to promote the success of the Company. Accordingly, the Board unanimously recommends Shareholders to vote in favour of the Resolutions to be proposed at the General Meeting, as all Directors have either irrevocably undertaken or indicated their intention to do in respect of their own beneficial holdings of Ordinary Shares, amounting to 0.06 per cent. of the votes available to be cast at the General Meeting.

The Company has received irrevocable undertakings to vote in favour of the Resolutions representing 75.65 per cent. of all votes entitled to vote at general meetings and 51.95 per cent. of the votes of Independent Shareholders. Therefore, it is anticipated that the Resolutions will be approved at the General Meeting.

The Circular will be posted to shareholders later today and has also been submitted to the National Storage Mechanism and will be available for viewing shortly at http://www.hemscott.com/nsm.do. The Circular will also be available on the Company's website at www.ruspetro.com and copies of the Circular will be made available at the Company's registered office at Fourth Floor, 58 Grosvenor Street, London W1K 3JB, United Kingdom.

For further information please visit www.ruspetro.com

Enquiries:

Investors / Analyst enquiries

Dominic Manley, Ruspetro

+44 20 7318 1630

Media enquiries

Ben Brewerton - FTI Consulting

+44 20 3727 1000

Disclaimer

This announcement is not intended to and does not constitute or form part of any offer to sell or invitation to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the proposals set out herein or otherwise, nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract therefor or be considered a recommendation that any investor should subscribe for or purchase or invest in any securities.

Any such offer or invitation will be made solely by means of the prospectus to be published by the Company in due course. This announcement has not been examined or approved by the Financial Conduct Authority (the "FCA") or any other regulatory authority. The distribution for this announcement in certain jurisdictions may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

The securities referred to herein have not been and will not be registered under the US Securities Act of 1933 as amended (the "Securities Act") or under any US state securities laws and may not be offered or sold within the United States unless any such securities are registered under the Securities Act or an exemption from the registration requirements of the Securities Act and any applicable state laws is available.

Strand Hanson Limited, which is authorised and regulated in the United Kingdom by the FCA has been appointed as Sponsor to the Company in connection with the Proposals. Strand Hanson Limited will not be responsible to anyone other than the Company for providing the protections afforded to clients of Strand Hanson Limited nor for providing advice in relation to the Proposals, the content of this announcement or any matter referred to herein.

Schedule

The following definitions apply throughout this announcement unless the context requires otherwise: