Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).

31 December 2018

Urals Energy Public Company Limited

("Urals Energy", the "Company" or the "Group")

Posting of Circular to Shareholders

and

Notice of Extraordinary General Meeting

On 11 December 2018, the Company announced that it had received a notice from Adler Impex S.A. (the "Requisitioner") requiring the Company to convene an extraordinary general meeting to consider resolutions to remove the Existing Directors from the board of Urals Energy (the "Board") and to replace them with Mr Vladimir Rusinov, Mr Alexey Maximov, Mr Vasily Mesheryakov and Mr Jean-Pascal Hilaire Peltier. 

The Board announces that Company has today posted a Circular to Shareholders (the "Circular") including a notice convening an Extraordinary General Meeting of the Company (the "Extraordinary General Meeting").

The Board UNANIMOUSLY recommends that Shareholders VOTE AGAINST

all the Resolutions proposed by the Requisitioners at the Extraordinary General Meeting

The Circular and a Form of Proxy will be available shortly on the Company's website, www.uralsenergy.com.

Extracts from the Circular are set out further below. Any references to page numbers, appendices, or 'this document' refer to the Circular. All capitalised terms used throughout this announcement shall have the meanings given to such terms in the Definitions section of this announcement and as defined in the Circular.

For further information, please contact:

LETTER FROM THE CHAIRMAN

The Board of Urals Energy UNANIMOUSLY recommends that
Shareholders VOTE AGAINST all the Resolutions proposed by the Requisitioners at the Extraordinary General Meeting

Since 10 October 2018, the Company has been required to make a number of regulatory announcements which concern transactions by its Petrosakh subsidiary that have come to light and were not approved by the Board. The Board commissioned an independent review of these transactions by Crowe Russaudit LLC ("Crowe"), the results of which were announced on 22 November 2018. The Board believes that a total that is the equivalent of approximately US$5.1 million of loans have been made by the Group on the authority of the President of Petrosakh, Mr Sergey Kononov ('Mr Kononov'), without the Board's approval. Approximately US$0.17 million of these loans have subsequently been repaid, although the Board believes that some or all of the remaining amounts may be irrecoverable.

On 11 December 2018, your Board announced that it had received a notice from the Requisitioner requiring the Company to convene an extraordinary general meeting to consider resolutions to remove the Existing Directors from the Board and to replace them with Mr Vladimir Rusinov, Mr Alexey Maximov, Mr Vasily Mesheryakov and Mr Jean-Pascal Hilaire Peltier.  The Board notes that Mr Maximov is the former Chief Executive Officer of the Company. The Board believes that the Requisition has been instigated by Mr Kononov, as the Board believes that the Requisitioner is owned by a trust the beneficiaries of which are members of the family of Mr Kononov.

In accordance with Cypriot law and the Company's constitution, I am now writing to Shareholders to convene the Extraordinary General Meeting to propose the Requisitioner's Resolutions and to explain why the Board unanimously recommends that you continue to back the Existing Directors.  This document contains the notice of the Extraordinary General Meeting, which is to be held at 11:00 a.m. Cyprus time on 22 February 2019 at the registered office of the Company at Glafkos Tower, Office 501, 5th floor, 3 Menandrou street, Nicosia, CY-1066, Cyprus, at which the Requisitioner's Resolutions will be considered. 

This document should be read in full. The attention of Shareholders is drawn to Appendix 1, which provides information regarding the position relating to voting on the various Requisitioner's Resolutions at the Extraordinary General Meeting, as prescribed in the Company's Articles of Association.

The Existing Directors would like to highlight the following points to Shareholders:

·     The Existing Directors have rebuilt the Group's asset portfolio over the last four years, which has resulted in significant increases in the Group's base of reserves and prospective resources.

·     The Group has oil production levels of approximately 2,000 barrels per day. Under the Existing Directors the Company paid its first dividend in 2017, and prior to the recently announced loans and transactions made/undertaken by Petrosakh that were not authorised by the Board, it was the publicly stated intention of the Existing Directors to pay a dividend in 2018.

·     The Board believes that Mr Kononov's actions, which have been required to be announced as they have emerged, have led to a substantial reduction in shareholder value. 

·     The Board has previously sought to reach agreement with Mr Kononov, offering proposals including that:

-        Mr Vladimir Rusinov be appointed to the Board, taking the role of Group Chief Executive Officer from Mr Dyachenko who would resign, with Mr Rusinov also assuming the role of President of Petrosakh on an interim basis from Mr Kononov, who would resign from that position, as well as repay or refinance the loans and transactions by Petrosakh that were not authorised by the Board; or

-        He or the Requisitioner make an offer to all shareholders that are independent of the Requisitioner, at a price which would be recommended by the Board.

Thus far there has been limited progress in respect of such proposals.

·     In the meantime, the Board has been in discussion with potential partners for the Group's operations and hopes to be able to bring forward proposals in the first quarter of 2019. The Board's objective is to address the short-term working capital deficit of the Group, caused primarily by the actions of Mr Kononov, as well as provide the necessary capital for the development of the Group's assets.

·     If the Board is supported by Shareholders at the Extraordinary General Meeting, it will proceed to take action to remove Mr Kononov from his position as President of Petrosakh. The Board caveats that this process could take time and could involve a legal process in Russia, if Mr Kononov continues to resist its proposals.

·     The Board has chosen 22 February 2019 as the date for the Extraordinary General Meeting in order to allow its AIM nominated adviser sufficient time to carry out customary due diligence and satisfy itself as to Board composition and the suitability of the Alternative Directors for the purposes of the AIM Rules.  There can be no certainty that this due diligence process will be satisfactorily concluded, which could potentially lead to the Company's AIM nominated adviser resigning and trading in the Company's shares on AIM being suspended and possibly cancelled (if no replacement AIM nominated adviser is appointed within one month of such a suspension).  A key part of the Company's AIM nominated advisers' requirements will be for the Alternative Directors to demonstrate that they are 'independent' of Mr Kononov and that they will continue to seek repayment of the loans that were not authorised by the Board.

·     Thus far, very little information has been provided by the Requisitioner in respect of the proposed strategy to be pursued by the Alternative Directors. The Board assumes that the Alternative Directors will at some point explain their perspective on the Group's current circumstances and their proposals to secure the funding of the Group, as well as their strategy for the future development of the Group's assets.

WHY YOU SHOULD VOTE AGAINST THE REQUISITIONERS' PROPOSALS:

·     The Requisitioner has not put forward any strategy for the Company going forward and some of the loans made by Petrosakh to date on Mr Kononov's authority appear to be dubious and incapable of repayment. 

Very little information has been provided by the Requisitioner.  In particular, the Requisitioner has not put forward any proposals for how the Requisitioner or the Alternative Directors would intend to fund the Group's significant working capital deficit. 

The Board believes that the Requisition has been instigated by Mr Kononov, as the Board believes that the Requisitioner is owned by a trust the beneficiaries of which are members of the family of Mr Kononov.  Since June 2018, whilst Mr Kononov has been its President, Petrosakh has expended a significant amount of the Group's capital by making a net investment directly into the shares of the Kholmsk Seaport on Sakhalin Island. 

Since June 2018, Petrosakh has also provided a number of loans that are connected with the Kholmsk Seaport or its stakeholders, with these loans being substantial relative to the Group's working capital requirements.  Petrosakh lent a total of approximately Russian Roubles 97 million (equivalent to approximately US$1.4 million) to the Kholmsk Seaport directly.  In July 2018, Petrosakh made loans to Mr Y L Freidis, which represent a total of approximately Russian Roubles 96 million (equivalent to approximately US$1.4 million).  The Board understands that Mr Freidis holds a 19.9% voting interest in the Kholmsk Seaport and is also an employee of Petrosakh.  The Board understands that the Kholmsk Seaport was in financial distress and has only avoided bankruptcy proceedings due to Petrosakh covering its debts as the Kholmsk Seaport's creditors pursued it in the Russian courts. The Kholmsk Seaport still has other substantial liabilities and it is not clear whether Petrosakh will be able to recover its loans.  The Board is considering the possible impairment of all the above loans.

The pattern of lending activity by Petrosakh, as described above, which occurred in the second half of 2018, whilst Mr Kononov has been Petrosakh's President represents, in the view of the Board, a substantial and unjustifiable deviation from the Group's oil exploration and production business.  This pattern of lending, in conjunction with other transactions by Petrosakh, has also led to a substantial Group working capital deficit.

Additionally, as announced by the Company on 22 November 2018, in May 2016, the Company's Arcticneft subsidiary issued a short-term loan to a company named Igrovoy Kontinent LLC ("Igrovoy Kontinent") amounting to US$360,000.  On 15 March 2017, Arcticneft assigned the loan issued to Igrovoy Kontinent to PRO-ARTS LLC ("PRO-ARTS"), in accordance with a loan assignment agreement. As at 15 March 2017, US$360,000 was equivalent to approximately Russian Roubles 23.1 million.  According to Mr Kononov's explanations, Arcticneft assigned the loan to PRO-ARTS to eliminate any connection with Igrovoy Kontinent as a participant in the tender for purchasing a right to develop the Dagi field. As at 31 October 2018, PRO-ARTS had not repaid its debt to Arcticneft.  The Board does not believe that Igrovoy Kontinent or PRO-ARTS, on the basis of their publicly available accounts as detailed in the independent report by Crowe, have the means to repay the loan.

In 2017, Petrosakh made loans of approximately Russian Roubles 98 million (equivalent to approximately US$1.4 million) to a company named Maxitrans LLC ("Maxitrans"). Furthermore, the General Director of Maxitrans was appointed as an employee of Petrosakh. This company already had substantial liabilities before the loan was made and it would appear to the Board, on the basis of their publicly available accounts as detailed in the independent report by Crowe, that it is unlikely to be able to repay its loans to the Group. 

·     The Existing Directors believe that the Requisition has been instigated by the very individual who they believe has significantly damaged the financial condition of the Group and caused a substantial reduction in shareholder value.

The closing mid-market price of the Company's Ordinary Shares on AIM on 9 October 2018 was 75 pence, with this being the day prior to the release of the first announcement on 10 October 2018 in relation to a transaction authorised by Mr Kononov that had not been approved by the Board.  The closing mid-market price of the Company's Ordinary Shares on AIM on 27 December 2018, being the last practicable date prior to the finalisation of this document, was 23.5 pence, representing a decrease of approximately 68.7%.  The Board attributes a significant amount of this reduction in shareholder value to consequences of the actions of Mr Kononov. 

As at the date of this document, the Existing Directors believe that the Group is likely to face a total working capital deficit of up to approximately US$5 million in the coming months, unless the loans and transactions made/undertaken by Petrosakh, that were authorised by Mr Kononov without reference to the Board, are repaid in the near term or an alternative solution to the Group's working capital issues is found. 

·     If a new board is appointed, the Board cannot guarantee that this new board will take any action against Mr Kononov or seek the loan repayments referred to above.

·     The Board also believes that Mr Kononov is seeking to take control of Urals Energy at board level without paying shareholders for such control.

·     The Existing Directors cannot provide any guarantees that the Requisitioner's Resolutions, if passed, will not pose a risk to the continued admission of the Company's Ordinary Shares to trading on AIM due to the suitability of the Alternative Directors and the new Board for the purposes of the AIM Rules.

Shareholders should be aware that the Requisitioner's Resolutions, if passed, could potentially pose a risk to the admission of the Ordinary Shares to trading on AIM. If the Requisitioner's Resolutions are passed, the Company's AIM nominated adviser will need to consider the proposed Alternative Directors and the composition of a new Board in connection with the overall suitability of the Company to be a company with shares admitted to a public market in the UK.

In order to comply with the AIM Rules, the Company's AIM nominated adviser must undertake customary due diligence on the Alternative Directors and satisfy itself as to Board composition and suitability.

The Alternative Directors have made contact with the Company's AIM nominated adviser in order to commence the director due diligence process. The Existing Directors have chosen 22 February 2019 as the date for the Extraordinary General Meeting in order to allow sufficient time for this due diligence process, although there is no guarantee that this will be completed by the time of the Extraordinary General Meeting, nor of the eventual outcome of the due diligence process.

The Company's AIM nominated adviser will need to consider, inter alia, the recent background concerning the Group and the Requisition, including the recent loans and transactions made/undertaken by Petrosakh, and the Alternative Directors' independence, as nominees of a substantial shareholder that the Existing Directors believe is owned by a trust for the benefit of the family of Mr Kononov.  As at the date of this document the AIM nominated adviser's considerations on the above themes are at an early stage, as the director due diligence process has only recently started and the AIM nominated adviser has not yet met with the Alternative Directors.

In the event that the Company's AIM nominated adviser cannot reach a satisfactory conclusion in this respect and as to the suitability of any new Board for the purposes of the AIM Rules, then should all of the Requisitioner's Resolutions be passed, the AIM nominated adviser may determine that it should resign, potentially with immediate effect. Following the resignation of the Company's AIM nominated adviser taking effect, in the absence of the appointment of a new AIM nominated adviser, trading in the Company's Ordinary Shares on AIM will be suspended. If the Company cannot appoint a replacement AIM nominated adviser within one month of such suspension, the admission of the Company's Ordinary Shares to trading on AIM will be cancelled and, unless other arrangements are put in place, Shareholders will not be able to trade their Ordinary Shares. The Existing Directors are of the view that, in the circumstances, there can be no guarantee that a replacement AIM nominated adviser can be appointed within the appropriate timescale.

Shareholders should also be aware that the Company will no longer be bound by the AIM Rules if the admission of the Company's Ordinary Shares to trading on AIM were to be cancelled. As a consequence, investors would not be able to benefit from certain of the protections provided by the AIM Rules. For example, the Company would no longer be required to announce material events, interim or final results or transactions (including transactions with related parties) and certain previously prescribed corporate governance procedures may not be adhered to by the Company in the future as an unquoted company. Shareholders' approval would also not be required for reverse takeovers and/or fundamental changes in the Company's business. The Company will no longer be bound to comply with the corporate governance requirements applicable to UK-quoted companies and the Company would also no longer be required to have an AIM nominated adviser, nor be required to retain a broker.

The Existing Board are aware that the Company's AIM nominated adviser is, in light of the recent actions taken by Mr Kononov, considering whether to continue to act as the Company's AIM nominated adviser.  Should the Company's AIM nominated adviser resign before the Extraordinary General Meeting is held, the Existing Board do not believe that it would be possible for the Company to appoint a new AIM nominated adviser before the Extraordinary General Meeting and this would result in trading in the Company's Ordinary Shares on AIM being suspended (and cancelled if the Company cannot appoint a replacement AIM nominated adviser within one month of such suspension).

RECOMMENDATION of the BOARD

For the reasons set out above, the Board considers that the Requisitioner's Resolutions to:

·     remove the Existing Directors, being Andrew Henry Shrager, Leonid Dyachenko and Stephen Myers Buscher; and

·     replace them with the Alternative Directors, being Vladimir Rusinov, Alexey Maximov, Vasily Mesheryakov and Jean-Pascal Hilaire Peltier,

are, in each case, not in the best interests of the Company or Shareholders as a whole. The Board therefore unanimously recommends that all Shareholders VOTE AGAINST the Requisitioner's Resolutions, as all the Existing Directors have undertaken to do in respect of their aggregate beneficial holdings of Ordinary Shares.

ACTION TO BE TAKEN

You will find, set out at the end of this document, a Notice convening the Extraordinary General Meeting, to be held at 11:00 a.m. Cyprus time on 22 February 2019 at the registered office of the Company at Glafkos Tower, Office 501, 5th floor, 3 Menandrou street, Nicosia, CY-1066, Cyprus, at which the Requisitioner's Resolutions will be considered. The full text of the Requisitioner's Resolutions is set out in the Notice.

Voting at the Extraordinary General Meeting will be by poll and not on a show of hands and each Shareholder entitled to attend and who is present in person or by proxy will be entitled to one vote for each Ordinary Share held in relation to the proposed removal of each of the Existing Directors, and four votes for each Ordinary Share held in relation to the proposed appointments of the Alternative Directors which may be cast in any amount for or against any of the Alternative Directors. Further details regarding voting on the Requisitioner's Resolutions can be found in Appendix 1 to this document.

HOW TO VOTE AGAINST THE REQUISITIONERS' PROPOSALS IF YOU HOLD YOUR SHARES IN CERTIFICATED FORM:

·     Complete the Form of Proxy for use at the Extraordinary General Meeting which is enclosed with this document.

·     Whether or not you intend to be present at the Extraordinary General Meeting, you should complete and sign the Form of Proxy in accordance with the instructions printed on it.

·     Please return the Form of Proxy so as to be deposited at the registered office of the Company and received by the secretary of the Company, as soon as possible and, in any event, no later than 11:00 a.m. on 20 February 2019.

·     Shareholders wishing to complete their paper Form of Proxy in line with the Board's recommendation should place an "X" in the boxes under the heading "Against" for the Requisitioner's Resolutions numbered 1-3.

·     Shareholders wishing to complete their paper Form of Proxy in line with the Board's recommendation should also insert the desired number of shares they wish to vote 'Against' in the boxes under the heading "Against" for the Requisitioner's Resolutions numbered 4-7, provided that the total number of shares voted does not exceed the cumulative number of shares for voting.

·     The completion and return of a Form of Proxy will not preclude you from attending and voting in person at the Extraordinary General Meeting if you wish to and are so entitled.

HOW TO VOTE AGAINST THE REQUISITIONER'S RESOLUTIONS IF YOU HOLD DEPOSITARY INTERESTS:

·     Holders of Depositary Interests should complete a Form of Instruction.

·     To be valid the accompanying Form of Instruction for use in connection with the Extraordinary General Meeting should be completed, signed and returned as soon as possible and, in any event, so as to reach Computershare Investor Services PLC by 9:00 a.m. (Greenwich Mean Time) on 19 February 2019.

·     Holders of Depositary Interests wishing to complete their paper Form of Instruction in line with the Board's recommendation should place an "X" in the boxes under the heading "Against" for the Requisitioner's Resolutions (1-3).

·     Holders of Depositary Interests wishing to complete their paper Form of Instruction in line with the Board's recommendation for the Requisitioner's Resolutions (4-7) should either (i) place an "X" in the boxes under the heading "Against" or (ii) indicate the desired number of shares they wish to vote 'Against' in a separate schedule, provided that the total number of shares voted does not exceed the Holders of Depositary Interests' number of shares for voting.

The Board of Urals Energy UNANIMOUSLY recommends that
Shareholders VOTE AGAINST the Requisitioner's Resolutions
at the Extraordinary General Meeting

Yours faithfully,

Andrew Shrager
Non-Executive Chairman

APPENDIX 1: INFORMATION REGARDING VOTING AT THE EXTRAORDINARY GENERAL MEETING

Voting at the Extraordinary General Meeting will be by poll and not on a show of hands and each Shareholder entitled to attend and who is present in person or by proxy will, pursuant to, inter alia, regulation 16 under the Articles of Association, be entitled to:

§ one vote for each Ordinary Share held in relation to the proposed removal of each of the Existing Directors (resolutions 1-3), and

§ four votes for each Ordinary Share held in relation the proposed appointment of the Alternative Directors (resolutions 4-7) which may be cast in any amount for or against any of the Alternative Directors. Therefore, if a Shareholder holds 100 Ordinary Shares, the Shareholder will have 400 votes in relation to the proposed appointments, which can be allocated in any amount amongst the Alternative Directors. For example, the Shareholder could cast one vote for each of three Alternative Directors, and 397 votes for the fourth.

DEFINITIONS

The following definitions apply throughout this document unless the context otherwise requires:

All times referred to in this section are local time in Cyprus unless otherwise indicated.

All references to legislation in this document are to the legislation of the Republic of Cyprus unless the contrary is indicated. Any reference to any provision of any legislation shall include any amendment, modification, re-enactment or extension thereof.

Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.

NOTICE OF EXTRAORDINARY GENERAL MEETING

URALS ENERGY PUBLIC COMPANY LIMITED ("Company")

Notice of Extraordinary General Meeting

NOTICE is given that an Extraordinary General Meeting of the Company will be held at the registered office of the Company at Glafkos Tower, Office 501, 5^th floor, 3 Menandrou street, Nicosia, CY-1066, Cyprus on 22 February 2019 at 11:00 a.m. Cyprus time to consider and, if thought fit, pass the following resolutions:

To be proposed as ordinary resolutions:

1.    THAT Andrew Henry Shrager be removed from office as director of the Company in accordance with section 178 of the Companies Law Cap. 113, (the "Law") with immediate effect. 

2.    THAT Leonid Y. Dyachenko be removed from office as director of the Company in accordance with section 178 of the Law with immediate effect.

3.    THAT Stephen Myers Buscher be removed from office as director of the Company in accordance with section 178 of the Law with immediate effect. 

4.    THAT Vladimir Rusinov be appointed as director of the Company in accordance with Regulation 15 of the Company's Articles of Association with immediate effect.

5.    THAT Alexey Maximov be appointed as director of the Company in accordance with Regulation 15 of the Company's Articles of Association with immediate effect.

6.    THAT Vasily Mesheryakov be appointed as director of the Company in accordance with Regulation 15 of the Company's Articles of Association with immediate effect.

7.    THAT Jean-Pascal Hilaire Peltier be appointed as director of the Company in accordance with Regulation 15 of the Company's Articles of Association with immediate effect.

By order of the Board

Leonid Y. Dyachenko, Chief Executive Officer

Dated: 28 December 2018

A member of the Company entitled to attend and vote at this meeting is entitled under Cypriot law to appoint one or more proxies to attend and on a poll vote on his behalf. A proxy need not be a member of the Company. Proxy forms and other relevant material will be sent to the shareholders in due course.

Please see Appendix 1 of the circular to Shareholders that accompanies this notice for Information regarding voting at the Extraordinary General Meeting.

EXPECTED TIMETABLE OF EVENTS

-ENDS-