Urals Energy Plc Regulatory News (UEN)

21 March 2011

Urals Energy Public Company Limited

('Urals Energy' or the 'Company')

Operational update

Highlights

·; Active start to the year with a clear strategic focus on increasing production from existing assets

·; Updated Petrosaskh drilling strategy, designed to maximize field potential

·; Ready to spud Well#51 by end of March

·; Arcticneft performance review is underway in order to increase production

·; Assessment of previously suspended wells underway

·; Intellectual Drilling Services appointed for geological and drilling services at both Petrosaskh and Arcticneft

Petrosakh

Current production at Petrosakh is 1,422 BOPD. Recent flow rate tests on the sidetrack well 35b have confirmed that the reservoir has the potential for a production increase. In response to this new data, and with a strengthened balance sheet following the successful private placement conducted in December 2010, the decision has been made to drill more vertical wells into the same area, in addition to sidetracks from already proven wells on the field.

In order to capture the full potential of the Petrosakh field, the vertical well will consist of a larger diameter and are expected by the Board to achieve better flow rates than the previously envisaged drilling programme would have achieved. In particular, the updated strategy entails drilling two new vertical wells and four sidetracks. The Company is currently looking at the different development options of both sidetrack and vertical wells, to determine which will better increase production.

Since the beginning of the year, the Company has modernized the ARB-100 drilling rig. The improved rig is expected to substantially decrease drilling time and reduce risks associated with drilling. In addition, all the necessary preparations of the pad site for drilling the first vertical well #51 have been finalised, and the rig is now in position and is being assembled.

In addition, the Company has signed supply contracts, paid and taken delivery of drilling pipes, casings and chemicals which are now positioned for drilling the first two vertical wells.

As the first two wells will be vertical, the decision has been made to not use an independent drilling contractor, given that Petrosakh has all the required drilling expertise in-house. However, geological studies will be conducted and directional drilling supervised and performed by a well-known and experienced company, Intellectual Drilling Services, for both Petrosakh and Arcticneft. In the past this contractor has operated in all UEN-owned fields.

Downstream

Petrosakh continues to refine and sell 100% of its crude oil production. Demand for fuel oil and diesel has exceeded the current supply, however demand for gasoline is subject to seasonality and is low in winter. As a result, we have accumulated 5,000 tons (about 38,000 bbls) of gasoline, which will be sold during the Spring-Summer season.

Following an increase in world oil prices and subsequent excise tax in Russia, prices for oil products in Sakhalin have also increased. Average prices for January-February 2011, net of VAT and excise tax for diesel, increased by 20% compared with average 2010 prices. Average prices for gasoline in January - February 2011, net of VAT and excise tax, did not change from the average 2010 prices. Taking into account seasonal demand for gasoline is low; this shows an increase in gasoline prices by at least 15%.

Offshore licence

The offshore exploration license at Petrosakh expired in February 2011. As was previously reported, after confirming a lack of interest from potential farm-out partners, the management decided not to apply for an extension due to substantial capital expenditure requirements and the high risk of the exploration programme

Arcticneft

Current production at Arcticneft stands at 726 BOPD. As of 21 March 2011 crude oil in stock was 83,187 bbls.

As previously reported, the Company was planning to divest Arcticneft and focus on its East Siberian assets. Consequently, it did not concentrate on increasing production and development at Arcticneft. Thus, in 2006 water flooding was stopped which led to the production declining rapidly. Since this time, the decline in production has leveled off and production has stabilized at the current levels.

Last year the Company engaged a respected oil industry institute to review the current well performance and recommence water injection, in order to increase production from the existing wells. These recommendations have now been implemented.

In 2011 the Company not only plans to increase production from the existing wells, but also to drill new wells following the approval of the field development plan by State Central Development Committee. This approval process is in progress. Drilling is scheduled for the second half of the year, since delivery of the required materials to Arcticneft can be made only during the open navigation period, which starts in June.

The Company is recommencing waterflood performance monitoring via regular fluid level measurements, pressure buildup testing in the wells and monitoring of the producing gas-oil ratio. This work will facilitate accurate assessment of bottom-hole conditions, permeability, productivity and any impediments to productivity such as the "skin factor". This in turn will allow the Company to assess the need for remedial measures, such as acid stimulation, as a way of restoring optimum productivity in the wells.

In addition, interference testing will be conducted, in order to determine the level of connectivity between producers and injectors where such questions arise. The institute has issued its recommendations regarding the optimum composition of acid, which will now be tested on select wells in June - July 2011, after navigation opens and required chemicals can be delivered to the field. Once the composition of acid fluid is confirmed, similar measures will be applied on all wells of the field.

Concurrently, the Company is reviewing approximately 16 wells which have previously been suspended. Depending on the results of this review, the most promising wells will be reactivated.

Corporate

There has been increased interest in the Russian media to a potential alleged sale of the Company's former assets, Dulisma and Taas, by their present owners. The Company is closely monitoring this situation, having in mind the possible payback of an existing outstanding loan to Taas in the event of a successful deal closure.

Alexei Maximov, CEO of Urals Energy, commented as follows:

'We have had an active start to the year, focusing on developing our existing portfolio and increasing production from these fields. Based upon new data, this has included updating our strategy at Petrosakh, leaving us better positioned to best capture the field's potential. As part of this campaign, we are now close to spudding Well#51. Meanwhile good progress is being made at Arcticneft which includes increasing production and in identifying suspended wells to bring back into production."

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