Shelton Petroleum and Petrogrand to enter into a business combination

* Shelton Petroleum and Petrogrand have entered into an agreement to
  form a combined and enlarged oil group with Russian oil assets
  exclusively
* Shelton Petroleum will according to the agreement issue 17,500,000 B
  shares for a contribution by Petrogrand of (i) its 49% ownership in
  its oil assets in Komi and (ii) USD 4 million of cash
* The combined license portfolio will consist of Shelton Petroleum’s
  assets in Bashkiria and Petrogrand’s assets in Komi, with a net
  production of about 1,350 barrels of oil per day and 32 million
  barrels of 2P oil reserves
* Petrogrand and Shelton Petroleum have approximately 10,000
  shareholders
* The new board of directors and management of the combined entity will
  hold representatives of both Shelton Petroleum and Petrogrand
* Shelton Petroleum’s oil assets in Ukraine will be spun-off to existing
  shareholders and will not be part of the new joint entity
* After the transaction, Petrogrand plans to shift its focus to new
  business ventures within real estate
* The proposed business combination puts an end to the cross-ownership
  between Petrogrand and Shelton Petroleum that has been criticized by
  the Securities Council
* The agreement is conditional upon the approval at the extraordinary
  general meetings of both companies
* Petrogrand and Shelton Petroleum are currently subject to a review by
  the Disciplinary Committee of Nasdaq Stockholm


Shelton Petroleum AB (SHEL B, Nasdaq Stockholm) (“Shelton Petroleum”)
and Petrogrand AB (PETRO, Nasdaq First North Stockholm) (“Petrogrand”)
have entered into an agreement (i) to form a new combined and enlarged
oil group with exclusively Russian oil assets and (ii) to dissolve the
cross-ownership between the two companies. Shelton Petroleum’s and
Petrogrand’s operations in Bashkiria and Komi regions respectively, both
located in the European part of Russia, will be managed as one oil
group.

The combined company will have a net working interest oil production of
about 1,350 barrels of oil per day and 2P oil reserves of about 32
million barrels. The entity will be owned by the current shareholders of
both Shelton Petroleum and Petrogrand, in total about 10,000
shareholders. The combined businesses will benefit from an attractive
license portfolio and an improved position on the financial markets.
Synergies are anticipated within operational management, oil sales,
purchasing power as well as central administration.

 

Transaction overview

The new entity with operations in Russia

Shelton Petroleum will according to the agreement acquire a subsidiary
of Petrogrand holding USD 4 million of cash as well as Petrogrand’s
stake in the Komi assets (49%) for a total consideration of 17,500,000
newly issued shares of series B in Shelton Petroleum. Petrogrand will
distribute these shares, together with the 4,700,000 B shares in Shelton
Petroleum it already holds, to its shareholders in accordance with the
Lex Asea rules. Since Shelton Petroleum holds 28.8% of the shares in
Petrogrand, Shelton Petroleum will through Petrogrand’s dividend
distribution receive 6,387,386 shares in Shelton Petroleum. These shares
will be cancelled.

In summary, Shelton Petroleum has 761,900 A shares and 17,899,347 B
shares prior to the transaction. A total of 17,500,000 B shares will be
issued and 6,387,386 of these will be cancelled. Following the
completion of all the steps in the transaction, it is anticipated that
the number of shares in Shelton Petroleum will amount to 761,900 A
shares and 29,011,961 B shares, comprising 36,630,961 votes. The new
enlarged Shelton Petroleum will change its name following the business
combination.

Further information about the proposed new issue of shares, etc. can be
found in a separate press release containing the notice to the EGM
issued by Shelton Petroleum on the date hereof.

 

Board of directors and management

It is proposed that Björn Lindström, David Sturt, Dmitry Zubatyuk, Hans
Berggren and Sven-Erik Zachrisson shall be appointed members of the
board of directors of Shelton Petroleum. Björn Lindström shall be
appointed chairman of the board and Dmitry Zubatyuk shall be appointed
CEO. 

 

Distribution of Shelton Petroleum’s assets in Ukraine

As a part of the proposed transaction, Shelton Petroleum will distribute
the company’s assets in Ukraine to its shareholders. For historical
reasons, the Ukrainian operations will continue to operate under the
name Shelton. The Ukrainian assets consist of a 45% ownership in Kashtan
Petroleum, license holder and operator of the Lelyaki oil field, as well
as a Joint Investment Agreement regarding offshore licenses. The
production from the Lelyaki field in August 2015 net to Shelton
Petroleum amounted to about 330 barrels of oil per day. 2P reserves in
Ukraine net to Shelton Petroleum amount to 8 million barrels.

Given the geopolitical development in the area, it is the opinion of
Shelton Petroleum and Petrogrand that it makes sense from both an
operational and financial point of view to continue developing Russian
and Ukrainian assets in separate entities.

The Ukrainian assets will be distributed to the shareholders of Shelton
Petroleum prior to the issue of the consideration shares to Petrogrand.
As a consequence, the current shareholders of Shelton Petroleum,
including Petrogrand, will receive shares in the Ukrainian assets on a
pro-rata basis in relation to their holding in Shelton Petroleum.
Petrogrand shall not be a long-term shareholder and has undertaken to
dispose of its shares. It is the intention of the parties to create
liquidity in the shares of the company holding the Ukrainian assets.

 

Petrogrand after the transaction

After the transaction, Petrogrand is planning to change its name and
enter into the real estate business with cash generating operations in
Moscow and Stockholm. It is Shelton Petroleum’s intention to divest its
shareholding in Petrogrand following the transaction. Petrogrand will
publish a more detailed update on the future operations in due time.

 

Nasdaq Disciplinary Committee and dissolving the cross-ownership

The transaction will also put an end to the cross-ownership between the
two companies. Prior to the transaction, Petrogrand holds 4,700,000 B
shares in Shelton Petroleum, equivalent to 25.2% of the total number of
shares and 18.4% of the total votes. Shelton Petroleum holds 11,585,308
shares in Petrogrand, equivalent to 28.8% of the total number of shares
and votes. During the end of 2013 and the first six months of 2014, i.e.
when Petrogrand was managed by the previous management and board of
directors, there were several conflicts between the two companies. Both
companies were criticized by the Swedish Securities Council, which
requested the companies to solve the conflicts.

As a result of the conflicts, which took place approximately 18 months
ago, Nasdaq Stockholm has initiated an investigation of both Petrogrand
and Shelton Petroleum regarding possible insufficient disclosure of
information to the market and investors and non-compliance with the
relevant takeover rules and good practices on the Swedish stock market.

Based on the fact that the cross-ownership has not been dissolved and
Nasdaq Stockholm’s investigation, the matter has been submitted to the
Disciplinary Committee of Nasdaq Stockholm for further assessment and
ruling on an appropriate sanction. Potential sanctions are a warning
(where the non-compliance is of less serious nature or excusable), a
fine (in the case of Shelton as a stock exchange listed company,
corresponding to not more than 15 times the annual fee paid by it to
Nasdaq Stockholm, approximately SEK 3 million) or delisting (where the
breach is material). As at the date hereof, Petrogrand and Shelton
Petroleum are awaiting the Disciplinary Committee’s decision on a
hearing date where both parties can present their respective cases to
the committee.

The companies have previously made several attempts to break up the
cross-ownership but no solution has been reached until now. In the
beginning of the second quarter 2015, a new governance of Petrogrand was
implemented with a new board of directors and a new Chief Executive
Officer. Since then, Petrogrand has focused on reinstating proper
corporate governance, controlling damage caused by previous
mismanagement and dissolving the cross-ownership on terms that are
beneficial for all parties going forward. The current constructive
dialogue resulted in the proposal that is now being put forward to the
shareholders in both companies. The board of Petrogrand and Shelton
Petroleum believe that the proposal balances the interests of the
shareholders of both companies and creates a profitable oil company with
solid production, a strong license portfolio and a platform for future
expansion. It should also satisfy Nasdaq Stockholm’s request to dissolve
the cross-ownership between Shelton Petroleum and Petrogrand.

 

General meeting of shareholders

The agreement entered into by the board of directors is subject to
shareholders’ approval at extraordinary general meetings to be held on 9
November 2015 and certain other conditions.

Given the cross-ownership, Petrogrand and Shelton Petroleum will not be
entitled to vote at each others general meeting in any matter
constituting a related party transaction. Both companies will use its
best reasonable efforts to obtain written undertakings from its
shareholders to vote in favor of the proposals. Shelton Petroleum and
Petrogrand will publish independent fairness opinions on the
transaction. Shelton Petroleum will issue a prospectus prior to listing
the newly issued shares.

The agreement entered into between Shelton Petroleum and Petrogrand as
well as the notice to the extraordinary general meetings will be made
available on www.sheltonpetroleum.com and www.petrogrand.se. These
documents provide a fuller description of the transaction than what is
included in this press release.

 

 

For more information, please contact:

Robert Karlsson, CEO, Shelton Petroleum, tel +46 709 565 141

robert.karlsson@sheltonpetroleum.com

www.sheltonpetroleum.com

 

Dmitry Zubatyuk, CEO, Petrogrand, tel +46 8 500 07 810

dmitry.zubatyuk@petrogrand.se  

www.petrogrand.se

 

About Shelton Petroleum Shelton Petroleum is a Swedish company focused
on exploring and developing concessions in Russia and Ukraine. In
Russia, the company holds licenses in the Volga-Urals area in Bashkiria
and has commenced production on the Rustamovskoye field after a
successful exploration program. In Ukraine, Shelton Petroleum’s wholly
owned subsidiary has a joint venture with Ukrnafta and
Chornomornaftogaz. Shelton Petroleum’s oil and gas 2P reserves amount to
34 million barrels. The company’s share is traded on Nasdaq Stockholm
under the symbol SHEL B.

 

About Petrogrand

Petrogrand’s overall business concept is to conduct oil production
through acquired Russian subsidiaries and oil licenses. The company is
also to manage and refine Russian oil resources and, when favorable,
divest assets and licenses. The shares in Petrogrand are listed at
Nasdaq First North Stockholm under the symbol PETRO, an alternative
market place (i.e. not a regulated market) and the company’s Certified
Adviser is Mangold Fondkommission AB. For more information visit our
webpage www.petrogrand.se.

 

Important information

This press release is not and does not form part of any offer for sale
of securities.

This press release may not, directly or indirectly, be distributed or
published to or within the United States of America, Australia, Hong
Kong, Japan, Canada, New Zealand or South Africa.

This press release contains forward-looking statements, which, in
respect of the transactions described herein, mean certain risks and
uncertainties, including in relation to the expected advantages of the
transactions. Actual events or results can due to a number of risks and
uncertainties significantly differ from what has been described in this
press release, including that the expected advantages cannot be
realized.

The information provided herein is such that Shelton Petroleum AB is
obligated to disclose it pursuant to the Securities Markets Act
(2007:528) and/or the Financial Instruments Trading Act (1991:980). The
information was submitted for publication at 8.00 a.m. CET on 7 October
2015.

This is an English translation of the Swedish original. In case of
discrepancies, the Swedish original shall prevail.