Tern Regulatory News (TERN)

17 March 2011

Chalkwell Investments plc

("Chalkwell" or the "Company")

Update on Discussions with Core Oil & Gas Inc. ("Core") and Funding Requirements

Chalkwell is an AIM-quoted investment company with a focus on the resource sector and as previously announced is in discussions to acquire Core, which would be classified as a reverse takeover under the AIM Rules.

Core is a US-focused oil and gas company, which has a 33.3% working interest and a 29.13% net revenue interest in respect of Mustang Island in Kleburg County, Texas ("Mustang Island"). Mustang Island is a shallow inshore oil and gas asset, located in the Gulf of Mexico, with infrastructure in place and nearby oil and gas pipelines available. It is a proven behind-pipe asset, comprised of four shut-in wells previously drilled by Chevron Corporation. Core is also in discussions to acquire participation interests in respect of certain other interests in the US. 

On 1 November 2010, the Company announced a placing to raise £600,000, of which £500,000 was used to make an unsecured loan to Core, and on 26 January 2011, the Company announced a subscription to raise £1 million ("Subscription") of which £300,000 was used to make a further unsecured loan to Core, as announced on 7 February 2011. The advances to Core were to allow it to meet its obligations under the joint operating agreement ("JOA") with Dominion Resources and in order to meet its own working capital requirements.

On 18 January 2011, Channel Equity Partners Limited ("Channel"), a shareholder in Chalkwell, made a short term interest free loan to Chalkwell of £325,000 to enable it to advance funds to Core, which was repaid on 4 February 2011 out of the proceeds of the Subscription.

On 24 February 2011, the Company made a further loan to Core of £428,000, as a result of unforeseen cost over-runs, taking the aggregate advanced to Core to £1,228,000 (excluding interest). The terms of the loan are the same as those of the previous loan made to Core: it is unsecured, carries interest at a rate of ten per cent. per annum and is repayable on 1 October 2012 or earlier in certain circumstances.

Chalkwell, as a result of the above advances to Core and the repayment of the loan to Channel, now requires additional working capital in order to meet its own short term obligations and also to allow further advances to be made to Core which requires funds to meet its obligations to its JOA partners which in turn are expected to preserve and enhance the value of its interests in the Mustang Island asset. Chalkwell is in discussions with potential investors who have indicated a willingness to provide such funds subject to security being granted in connection with all advances made to Core to date and any future advances, and to all advances being set off against the proposed consideration to acquire Core. The vendors of Core have agreed in principle to these changes and the legal documentation is in the process of being drawn up.

Core and its partners have used the advances made by Chalkwell to re-enter and sidetrack the Mustang Island I-1 well to determine the commerciality of a number of horizons. The resulting data is currently being analysed, but early indications from the log analysis are very promising with good shows of gas and condensate from multiple sands. The directors of Chalkwell are encouraged by these results and they and the directors of Core are working with their respective advisers to progress the acquisition of Core and re-admission of the enlarged company to AIM.

Pursuant to Rule 15 of the AIM Rules (the Company having been an investing company for twelve months), trading in the Company's ordinary shares and warrants was suspended from trading on AIM on 26 January 2011.

A further announcement will be made in due course.

In accordance with the AIM Rules - Guidance for Mining and Oil & Gas Companies, Andy Kirchin, a director of RPS Energy, who are actively engaged by Core to prepare a competent person's report on Core's oil and gas assets, qualifies as a Qualified Person for the purposes of this announcement and has approved the technical information contained in this announcement.

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