PetroNeft Resources plc

14 June 2023

PetroNeft Resources plc ('PetroNeft' or 'the Company')

Licence 67

Heads of Terms for Potential Disposal  

PetroNeft announces that it has entered into a non-binding conditional Heads of Terms (the "HoT") to sell its entire interest in Lineynoye LLC ("Lineynoye"), the subsidiary through which the Company holds its interest in Licence 67, to Pavel Tetyakov (CEO of PetroNeft) for a consideration of Rub 210million (US$2.56m at current exchange rates) plus the assumption of debt (the "Proposed Disposal").

PetroNeft owns 90% of Lineynoye with the remaining equity being owned by Belgrave Naftogas ("Belgrave"), formerly Arawak Energy, who have also agreed to sell its interest.

In addition, a loan agreement is being executed between Lineynoye and Pavel Tetyakov for Rub 4.4M (the "Loan Agreement"). The aim of this loan agreement is to enable Lineynoye to settle an outstanding shareholder loan agreement between the Company and Lineynoye for Rub 4.4M. The proceeds of the loan will be put towards the Company working capital requirements. The loan will be for a six-month period, at zero interest rate and is unsecured.

The Proposed Disposal is subject, inter alia, to the execution of a formal binding sales and purchase agreement. If agreed, the Proposed Disposal would be subject to all applicable corporate and government approvals, as well as approval of independent shareholders of the Company under AIM and Euronext Growth Rules. Moreover, the Proposed Disposal would amount to a related party transaction for PetroNeft under AIM and Euronext Growth Rules.

Further announcements will be made, as appropriate, in due course.

Background and rationale

As a result of the considerable and increasing challenges faced by the Company due to the Ukrainian conflict, on 29 November 2022, the Company announced a Strategic Asset review. On the 10 February 2023, the Company announced that Pavel Tetyakov (CEO and Executive Director of PetroNeft) had expressed an interest in acquiring the Company's Russian Assets. An independent committee of the board of PetroNeft was constituted to review any offers and to consider all other viable options.

Since November 2022, the Company has run a competitive process, inviting interested parties to participate in a potential disposal of all or some of its Russian assets. During the process, two additional parties issued expressions of interest and undertook due diligence. After completion of their respect due diligence exercises, both parties declined to submit a bid. As of today's date, the only interested party is Pavel Tetyakov.

In addition to Licence 67, Pavel Tetyakov also expressed an interest in acquiring 100% of Stimul-T LLC (which owns and operates Licence 61), but the Company's joint venture partner in respect Licence 61, Oil India International B.V., have so far rejected the offer. Stimul-T LLC voluntarily filed for bankruptcy administration in Russia in May 2023.

The Loan Agreement constitutes a related party transaction pursuant to AIM and Euronext Growth Rules. The Independent Directors consider, having consulted with Davy, the Company's nominated adviser and Euronext Growth Adviser, that the terms of the related party transaction (being the Loan Agreement) are fair and reasonable insofar as the Company's independent shareholders are concerned.

Debt Settlement Agreements

As of 31 May 2023, the Company has four main debt instruments totaling US$5,586,603, which includes US$947,003 of accumulated interest. The debt instruments include the Petrogrand B.V. loan, two convertible loans issued in 2019 and 2021, and a loan from Belgrave Naftogas issued as part of the acquisition of the additional interest in Licence 67 in 2021.

The Company has been engaging with the debt holders to reach a settlement agreement in conjunction with the Proposed Disposal, which is likely to result in a significant reduction of the principal amount and forgiveness of interest.

2022 Audit Update

Whilst the Company will continue to try to source an auditor in respect of the Company's financial statements for the financial year ended 31 December 2022, the Company will not be able to publish audited accounts for 2022 by the required deadline of the 30 June 2023 under the under AIM and Euronext Growth Rules. The likely consequence is that the Company's ordinary shares will be suspended from trading on 3 July 2023, until such time as the situation can be resolved.

For further information, contact:

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation and is disclosed in accordance with the Issuer's obligations under Article 17 of the Market Abuse Regulations.