Urals Energy, a leading independent exploration and production company with operations in Russia which was admitted to trading on AIM in August 2005, announces the $148 million acquisition of the significant Dulisminskoye oil, condensate and gas field together with the LTK transportation and treating facilities, both located in southern East Siberia near the giant Kovykta and Verkhnechoskoye fields. The East Siberia Pacific Ocean pipeline planned by Transneft is expected to pass through the region.

The Dulisminskoye Field (“The Field”)

• The Field is in the early stages of development producing 1,000 bopd
  
• According to preliminary estimates by DeGolyer and MacNaughton the Field contains approximately 109 million barrels of proved and probable oil reserves, approximately 87 million barrels of possible oil and condensate reserves and 1.9 trillion cubic feet of possible gas reserves

Impact of Acquisition

• Projected to increase Urals Energy total Group reserves to 225 million barrels of proved and probable reserves and 369 million barrels and 2 trillion cubic feet of proved, possible and probable reserves
  
• Planned programme of infield development drilling and construction of additional processing and transportation facilities projected to increase Field production from 1,000 bopd to approximately 12,000 bopd by end of 2008 and approximately 30,000 bopd by end of 2011

Consideration and Funding

• $148 million cash consideration with initial $50 million payment – consideration and forward capex to be funded through combination of debt and new equity
  
• $50 million initial payment provided by Morgan Stanley as pre-payment for shares to be allotted

Rationale

• Provides Urals Energy with an attractive entry into Eastern Siberia, one of the most important undeveloped petroleum provinces in Russia on attractive terms per 2P and 3P barrel in a new region
  
• Significantly increases Urals proved, possible and probable reserves and provides important future increases in production and cashflow

William R. Thomas, Chief Executive Officer, commented:
“This is a significant acquisition for the Group giving us a material producing field strategically located close to the proposed East Siberian pipeline and in a region with substantial additional hydrocarbon potential. The successful integration and development of recent acquisitions has enabled us to meet our production targets twelve months ahead of schedule. We are confident this acquisition will also accelerate our growth ahead of plan.”

18 April 2006

Pelham PR
James Henderson/ Gavin Davis – 020 7743 6673

US$148 Million Acquisition of Major Eastern Siberian Oil & Gas Development License
and Associated Facilities
Urals Energy today announces that it has signed a definitive sale and purchase agreement (the “Agreement”) to acquire the entire issued share capital of OOO Dulisma (“Dulisma”) and OOO Lenskaya Transportnaya Kompaniya (“LTK”) for an aggregate purchase price of $148 million payable in cash.

The Acquisition
Pursuant to the Agreement, Urals Energy will acquire the significant Dulisminskoye oil, condensate and gas field (the “Field”) together with the LTK transportation and treating facilities, all situated in the Irkutsk region of Eastern Siberia. The Irkutsk region is located in southern East Siberia approximately 1,100 km from the border between Russia and China. The region holds significant discovered oil and gas deposits, including the giant Kovykta and Verkhnechoskoye fields, and the East Siberia Pacific Ocean pipeline (“ESPO”) planned by Transneft is expected to pass through the region.

Urals Energy will pay a total of $148 million for the acquisition, with an initial $50 million payment. Of the $148 million payable, $133 million is a cash payment to acquire the equity and $15m payable to acquire outstanding promissory notes. The balance of the consideration is payable on closing and is subject to approval by the Russian Federal Antimonopoly Service and other customary conditions precedent. Urals Energy has assumed operational and financial control of Dulisma and LTK with immediate effect. Closing of the transaction is expected in June 2006.

Dulisma owns the license for a large oil, condensate and gas field in the early stages of development located in the Irkutsk region of the Russian Federation. The Field is delineated by 47 exploration and appraisal wells drilled during the late 1980’s. The Russian State Committee on Reserves has attributed recoverable reserves (categories ABC1-2) of approximately 180 million barrels of oil and condensate and 2.2 trillion cubic ft of gas to the field.

According to a preliminary 12 April 2006 estimate by the Company’s independent engineering consultants, DeGolyer and MacNaughton (“D&M”), the Field contains approximately 109 million barrels of proved and probable oil reserves, approximately 87 million barrels of possible oil and condensate reserves and 1.9 trillion cubic feet of possible gas reserves as at 31 March 2006. These are preliminary estimates and subject to confirmation prior to publication of D&M’s definitive reserve report expected in early May.

On completion of the acquisition and following confirmation by D&M of its preliminary reserve estimate for the Field, the Group will have increased its proved and probable reserves to 225 million barrels and proved, possible and probable reserves to 369 million barrels with an additional 2 trillion cubic feet of gas.

The Field is currently producing 1,000 bopd from five wells and transported through a third party pipeline system. On completion of the acquisition, Urals Energy intends to increase production as quickly and efficiently as possible through infield development drilling and construction of additional processing and transportation facilities. This will include the construction by LTK of an early phase 12,000 bopd capacity pipeline from the Field to the centralised oil depot at Ust-Kut. LTK owns the pipeline right of way and has received the necessary regulatory permits to build and operate the early phase pipeline which is expected to be operational by early 2007. Based on the Group’s work to date, Urals Energy anticipates that production from the Field will increase to approximately 12,000 bopd by the end of 2008.

The Group also currently anticipates that the Field has the potential to increase its production to approximately 30,000 bopd by the end of 2011. This second phase of the development programme will include the construction of a permanent pipeline to either the river port and railway terminal at Ust-Kut or to a planned pump station on the ESPO pipeline.

The Field is strategically located North West of Lake Baikal, along the planned route of the ESPO oil pipeline which is expected to connect East Siberian oilfields to the Pacific Coast in order to supply demand for oil in Asian markets. Transneft has announced it expects to commission the first phase of the ESPO in 2008. The Field, together with the Verkhnechonskoye Field operated by TNK-BP and the Talakan Field operated by Surgutneftegas, will potentially be key suppliers of crude oil to the ESPO. With estimated possible reserves of approximately 1.9 trillion cubic feet of gas, the Field also has the potential to supply Gazprom for its proposed gas pipeline to Asian markets.