Urals Energy Plc Regulatory News (UEN)

20 December 2010

Urals Energy Public Company Limited

('Urals Energy' or the 'Company')

Placing

Urals Energy, the Russian focused oil & gas exploration and production company, is pleased to announce that it has completed a conditional placing to provide the Company with additional funds to enhance the development of its business. The Company is raising £5.8 million (being US$9.0 million, based on an exchange rate of US$1.5533 to GB£1.00) before expenses. This is to be effected by means of a placing of 52,420,768 shares with a nominal value of US$0.0063 each (the "Placing Shares") at a placing price of 11.0 pence per Placing Share (the "Placing Price"). The Placing has been arranged by Allenby Capital Limited ("Allenby Capital").

Background to the Placing, use of proceeds and working capital

The Directors wish to take advantage of the opportunity to raise funds from a small number of institutional and other investors at the present time. On 14 December 2010 the Directors sent to shareholders a circular convening an Extraordinary General Meeting at 11.00 am on 30 December 2010 the (the "EGM") at which they are seeking shareholder approval for the disapplication of the shareholders' statutory pre-emptive rights to allow the issue of up to 65,000,000 new shares of US$0.0063 each for cash.

The Directors have decided to undertake the fundraising by way of the Placing following a limited and targeted marketing exercise, rather than by offering all shareholders the opportunity to acquire further shares. The Directors believe that the additional cost and delay incurred in connection with any such offer (as a result of satisfying the regulatory requirements associated with allowing the Company's shareholders to participate in a fundraising) would not have been in the best interests of the Company. In addition the Director's believe that the investors procured by Allenby Capital will be able to provide further funding to the Company at the appropriate time in the future.

The net proceeds of the Placing will be used for:

• development drilling and workovers at both Articneft and Petrosakh;

• maintenance CAPEX at both Articneft and Petrosakh; and

• working capital financing.

The Placing will provide the Company with funds to increase its production and this increased production will generate funds both to repay Petraco Oil Company Limited ("Petraco") in accordance with the previously announced repayment schedule and to start to generate returns for shareholders. In the event that the Company cannot make the repayments to Petraco on the scheduled dates then the Board believe that the interests of shareholders will be significantly damaged as steps may be taken by Petraco to protect its position.

The Directors are of the view that the Placing will give the Company sufficient working capital for at least the next 12 months. However, the Company's growth is difficult to predict and if it were to grow faster or slower than anticipated, or in the event of unforeseen circumstances, further working capital may be required. There can be no certainty as to the terms or availability of such funding in the future.

The Company continues to look at opportunities in relation to the Tarkskoye field, which is located close to the Company's Arcticneft operations and is currently subject of a government auction process, but at this point no decision has been made. However, the Directors do not plan to use the proceeds from the Placing in relation to any development at the Tarkskoye field.

Taas loan

The Directors note the recent public announcements by Sberbank relating to a possible disposal of the Taas-Yuryakh and Dulisma operations during the first half of 2011. These operations were formally owned by Urals Energy but were transferred to Sberbank to settle outstanding loans in late 2009 following the change of management at Sberbank, which decided not to extend the loans. The Directors believe that any disposal by Sberbank of the Taas-Yuryakh and Dulisma operations may accelerate the repayment of the $37.5 million now owed to Urals by Taas-YuryakhNeftegasDobycha LLC which is otherwise due in 2015. However, the Board believes it would not be prudent to incorporate this possible cash inflow in the Company's cash flow projections or to assume that these proceeds may be available during the 2011 for the development of Urals Energy's existing assets.

Operational update

The Directors are pleased to report that the Company's current production stands at a level of 2,360 barrels of oil per day ("BOPD"), taking into account production at natural flow rates from the side track well 35b at Petrosakh of 152 BOPD.

The Company plans to drill five new and side track wells at the Petrosakh field in the next year. The Company is currently in the process of selecting a drilling contractor for these wells.

The Company also plans to drill four side track wells and recommence pressure maintenance on the reservoir. These activities would not only increase current production at Arcticneft, but may also prove the recent geological studies of the field, which may result in an upgrade or increase of the reserves.

Strategy overview

The Company's short-term strategy is to ensure that its remaining debts are repaid, its liquidity situation is stabilised and that its cost reduction programme is completed.

In the mid-term, the Company intends to focus on optimising the operations of its existing assets, identifying ways of utilising the maximum upside potential in downstream and marketing and achieving a positive operating cash flow. The Directors intend to work towards achieving a target production from the Company's existing assets of 3,400 BOPD by the end of 2011 and 5,150 BOPD by the end of 2013. In addition to development drilling at Arcticneft, the work program aims to prove the results of the recent geological studies, which may result not only in the stabilising of production, but in the increase of production from existing wells and upgrade, or even increase, in the reserves numbers.

The Placing will allow the Company to hire an experienced high-profile drilling contractor to run drilling operations at both of the Company's sites to overcome issues encountered in the past in drilling and completing new and side track wells. Whilst there may be a small increase in costs, this would substantially increase the speed of drilling and mitigate risks. The Company has already started negotiations with several drilling contractors and will make a decision once the proceeds from the Placing are received.

In the long-term, the Directors intend to derive maximum value for the Company's shareholders through continued enhanced effective management of the Company's assets. Various alternative growth and expansion opportunities are being considered by the Directors, but these will only be actively pursued where the Board considers them to be clearly beneficial to the Company.

Conditions of the Placing

As a result of the size of the Placing relative to the Company's existing authority to allot shares for cash otherwise than on a pre-emptive basis, the Placing is conditional, inter alia, upon the passing of the resolutions by the Company's shareholders at the EGM. These resolutions approve the disapplication of pre-emption rights to enable the Directors to allot the Placing Shares for cash to persons other than current shareholders.

Under the terms of a placing agreement dated 17 December 2010 and entered into between the Company, the executive directors of the Company and Allenby Capital, Allenby Capital has agreed to use its reasonable endeavours to procure placees for the Placing Shares at the Placing Price. The Placing is not being underwritten.

The Placing, is conditional, inter alia, on shareholder approval of the above mentioned disapplication of pre-emptive rights at the Company's forthcoming EGM on 30 December 2010, further details of which were announced on 14 December 2010 and the admission of the Placing Shares to trading on AIM.

Application will be made to the London Stock Exchange plc for the Placing Shares to be admitted to trading on AIM. It is expected that, following the passing of the resolutions at the EGM, dealings in the Placing Shares will commence on or around 31 December 2010. The Placing Shares will rank paripassu with the existing shares of US$0.0063 each in the Company.

The Placing Shares are equivalent to approximately 21.54 per cent of the enlarged issued share capital of the Company following Admission and the Placing Price represents a discount of approximately 15 per cent to the closing mid-market price of an existing issued Ordinary Share of 13.0 pence on 17 December 2010, being the latest practicable date prior to this announcement. The total enlarged issued share capital of the Company following Admission will be 243,414,731 shares of US$0.0063 each in the capital of the Company. The above figure may be used by shareholders as the denominator for the calculations by which they can determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the AIM Rules.

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

"We are pleased to welcome new institutional shareholders to the Company who we believe will be able to assist the Company in implementing its future plans. The funds raised will allow the Company to undertake a more active development program and increase our flexibility while continuing our focus on increasing shareholder value.

"Without this funding Urals Energy may be unable to make the staged repayments to Petraco on the agreed dates and in these circumstances the Directors would have to take steps to protect the interests of creditors, which would be the detriment of shareholders. The Directors therefore urge all existing shareholders to support this fundraising by voting in favour of the resolutions at the EGM on 30 December 2010.

"2010 was a year of "house cleaning" and in 2011 we will focus on production and operations' improvements, while seeking growth opportunities. To be able to undertake such development, it is vital that in the future we make the repayments to Petraco on the agreed dates and this fundraising will give us the ability to do so. We will start looking again at opportunities for expanding our operations, but this can be done only once we have completed the development stage."

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