Sovereign Oilfield Group Disposes of Vertec and Labtech Assets

Sovereign Oilfield Group has entered into, subject inter alia to Shareholder approval, a Share Purchase Agreement (“SPA”) to dispose of the entire issued share capital of Vertec Engineering Limited (“Vertec”) and a Business Purchase Agreement (“BPA”) to dispose of the rental cabin assets of Labtech Services Limited (“the Labtech Assets”) for a total consideration £5.45 million to be paid in cash.

Vertec and Labtech specialize in the design, engineering and manufacture of onshore and offshore engineering cabins, containers, baskets, air conditioning and refrigeration units. In addition they both run repair, and refurbishment operations as well as a cabin rental service.

The gross assets of Labtech and Vertec were £1.2 million and £2.0 million as at March 31, 2008 and the operating profit is approximately £0.8 million and £0.1 million respectively. The figures above are extracted from management accounts for the year to March 31, 2008.

Cooltime Engineering Services Limited, a wholly owned subsidiary of Vertec, does not form part of these Disposals.

All of the sale proceeds will be used to pay down existing debt facilities with the Existing Lending Consortium.

The proposed disposals are deemed to be a 'disposal resulting in a fundamental change of the business' for the purpose of AIM Rule 15 as the disposal proceeds are in excess of the market capitalisation of the Company at close of business on September 25, 2008, being the day prior to the Ordinary Shares being suspended from trading on AIM. By virtue of being deemed to be a fundamental change of business, the disposal of Vertec and the Labtech Assets is conditional on approval of the Shareholders.

Remaining businesses of the Company

Subject to shareholder approval, the Drilling Division and remaining Fabrication Division businesses will be the remaining trading businesses of the Group. As such Directors do not consider that the Company will be classed as an investing company under Rule 15 of the AIM Rules.

For the year to March 31, 2008 the unaudited turnover attributable to the Drilling Division and remaining Fabrication Division businesses of the Group was £87.0 million with a gross profit of £21.3 million before the allocation of administration costs. The figures above are extracted from management accounts for the year to March 31, 2008.


These Disposals became a condition of continued banking support from our lender group HBOS, Merrill Lynch, Cyrus Partners and Polygon Investment Partners (the "Existing Lending Consortium") and consequently the Board has concluded that the Group should dispose of Vertec and the Labtech Assets.

Sovereign currently has debt facilities of £32.8 million comprising £16.4 million senior debt and £16.4 million of mezzanine debt from its Existing Lending Consortium. They have confirmed continued support of the Group's existing banking facilities, subject to certain conditions subsequent, which will be met on completion of this transaction.

Signature of the SPA and BPA will now enable publication of the 2008 Annual Accounts and the 2008 Interim Report on Friday, May 15, 2009 and thereby, following this, the restoration of the Company’s Ordinary Shares to trading on AIM.


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