Tern Regulatory News (TERN)



16 May 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 with Core.

Core is a US-focused oil and gas company, which has a 33.3% working interest and a 25.0% (not 29.13% as previously stated) net revenue interest in respect of Block 818L, Mustang Island, in Kleburg County, Texas ("the Mustang Island assets"). The Mustang Island assets are shallow inshore oil and gas assets, located in the Gulf of Mexico, with infrastructure in place and nearby oil and gas pipelines available.

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 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 were the same as those of the previous loan made to Core: it was unsecured, carried interest at a rate of ten per cent. per annum and was repayable on 1 October 2012 or earlier in certain circumstances.

As announced on 17 March 2011, Chalkwell 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 itself requires funds to meet its obligations to its JOA partners. Prior to seeking to raise such additional capital, Chalkwell believed it necessary to agree the terms on which it would acquire the Mustang Island assets, and that security be granted in connection with all advances made to Core to date and any future advances.

Accordingly, on 29 April 2011, Chalkwell entered into an option agreement with Core, pursuant to which Core granted an option to Chalkwell to acquire the Mustang Island assets, the key terms of which are as follows:

·; The option can be exercised at any time up to 31 July 2011, and must be completed within five days thereof:

·; The purchase price to be:

·; Cancellation of all advances made to Core;

·; Reimbursement of Core's legal fees up to £20,000;

·; Payment of consultancy fees to Kevin Collins and Anthony Mason, who own Core, of £230,000;

·; Reimbursement of Core's costs in connection with re-entering the Mustang Island assets, estimated at £159,333;

·; Payment of US$1.2m of indebtedness incurred by Core in acquiring the Mustang Island assets;

·; Following the acquisition of the Mustang Island assets, an ongoing royalty of 4% of all revenues therefrom, and 16.65% of revenues attributable to the interest in the Mustang Island I-1 ST well ("I-1 well").

The Option Agreement gives certain rights and imposes certain obligations on the parties thereto for the period of the Option Agreement.

On 29 April 2011, Chalkwell entered into a promissory note with Core, pursuant to which Core agreed to grant security over the advances made to Core by Chalkwell, on the following key terms:

·; Principal £1,568,000 (to include expected further advances to be made to Core);

·; Maturity date 31 January 2012;

·; Security to be granted over a portion of Core's interest in the I-1 well, ranked behind the charge given to the vendors of the Mustang Island assets;

·; Interest rate 0.55% per annum.

On the same day and further to the above, Core and Chalkwell entered into a Deed of Trust, Mortgage, Assignment of Production, Security Agreement and Financing Statement which provides security over the I-1 well, for the loans previously provided to Core by Chalkwell amounting to £1,228,000, the effect of which is that, the loans are now secured, although the original signed contract must be notarised and the charge recorded . Chalkwell's security sits behind a charge on the I-1 well held by WellMaster Exploration & Production Co., LLC, from which Core bought a portion of its working interest, in the amount of $866,750, being the amount that it is owed. The Directors of Chalkwell are of the view that the value of the I-1 well exceeds the £2 million (approximately) of liens secured against it.

In order to continue to trade and to acquire the Mustang Island assets, the Company urgently needs additional capital and is in discussions to raise £1,000,000 which is needed to advance monies to Core to meet its obligations under the JOA and for its own working capital requirements.

If these funds are made available the Company will then, in order to complete the acquisition of Mustang Island and to enable its shares to be readmitted to trading on AIM, need to raise further funds to satisfy the working capital requirements of the enlarged group. This is currently estimated by the Directors of Chalkwell to be of the order of £2,000,000.

A further announcement will be made in due course.

---ENDS---

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