Bluebird to Sell Off U.S. Assets

Bluebird Energy plc on Aug. 15 reported that it had commenced a strategic and operational review of the Company's US assets with a view to recommending proposals which it believes will represent the best course of action for Shareholders. The Review was initiated following the sale of a net 30 per cent. interest in the Centurion project in Sumner County, Kansas by the Operator, Running Foxes.

A circular has today been posted to Shareholders. The purpose of the Circular is to provide Shareholders with details of the outcome of the ongoing Review and to set out the Directors’ reasons for considering that the disposal of the Centurion project would be in the best interests of its Shareholders and the Company as a whole. In addition, the Circular contains a notice convening a general meeting of the Company at which Shareholders approval will be sought to approve the resolution necessary to implement the Disposal.

Outcome of the Review to date and future strategy

Following an appraisal of the Group’s US assets, the Directors have concluded that the ongoing strategic focus in the US should be on those assets where the Group has, or intends to have, a controlling interest. In addition, the Directors will consider the acquisition of non-controlling interests in the US where, in their view, there is a compelling investment case.

Accordingly, the future operational focus of the Company for its existing US projects will be on Solitaire in which the Group has a 100 per cent. interest, in respect of which it will seek farm-in partners to assist in the future exploration and development of the project.

In respect of Revloc and Marcellus Shale, the decision has been taken to engage agents to sell all or part of the Group’s interests. The Group’s interest in Big Sky continues to be under review.

Outside the United States, the Directors will continue to evaluate a wider range of opportunities. One such opportunity is currently being pursued in the Republic of Ireland where in May 2011 the Company lodged an “out of round” oil and gas option licence application in respect of acreage in the Dublin Basin with the relevant licencing body, the Petroleum Affairs Division (Department of Communications, Energy and Natural Resources). Following the application, the Directors have conducted desk top and field studies and are preparing an initial assessment of available data within the Dublin Basin.

As a result of the Review and for the additional reasons set out in Section 3 (Background to and reasons for the Disposal) of the Circular, the Directors have concluded that the disposal of the Group’s 50 per cent. working interest in Centurion as described in the Circular would be in the best interests of the Shareholders and the Company.

On completion of the Disposal the Group will have a cash balance of approximately US$4.3 million, in addition to its portfolio of US assets and investment in Wessex Exploration, further details of which are set out in sections 5 (Information on other US assets) and 6 (Investment in Wessex Exploration), respectively, of the Circular. As at 15 September 2011, Wessex Exploration was valued at approximately US$ 52 million.

3 Background to and reasons for the Disposal

The Company’s Ordinary Shares were admitted to trading on AIM on 6 July 2011, with an associated placing to institutional and certain other investors raising £2.0 million at a price per Ordinary Share of 1 pence. In addition, the Company raised approximately £0.2 million via an Open Offer made at the same price immediately after Admission which was approximately 40.8 per cent. subscribed.

On 24 July 2011 Running Foxes announced that it had sold a net 30 per cent. working interest in Centurion to the Purchaser, with Running Foxes retaining its remaining net 20 per cent. working interest following the disposal. Shortly after this announcement, the Board met with the Purchaser to determine its plans for the future strategic direction of Centurion, and, accordingly, the implications of this strategy for Bluebird Energy.

Whilst the Purchaser, a private US oil and gas development company, does not wish to be named, the Directors confirm it is an independent third party company not connected to the Directors or the Group in any way and that the terms of the Disposal have been negotiated on arms’ length terms.

During these meetings it was established that the Purchaser was an organisation with substantial financial resources which intended to develop Centurion at a significantly accelerated rate compared to the work programme agreed between the Company and Running Foxes. In order to implement this strategy the Purchaser indicated its objective to assume the Operatorship of Centurion. It is understood by the Company that this will occur at or before the end of this calendar year.

The Purchaser’s strategy for Centurion involves the drilling of a number of horizontal wells and assembly of associated infrastructure within the next 12 months along with the concurrent use of a number of drilling rigs. By contrast, the Company was proposing a more cautious approach, with analysis of the results of the
drilling of a single horizontal well before committing to significant further high risk expenditure.

In light of these discussions, on 15 August 2011 the Company announced the Review. The Review has led the Directors to conclude that, in their view, continued participation in Centurion may be detrimental to the longer term prospects of the Company. In order to maintain its current share of production revenues from new wells, the Group would be required to meet its share of the significantly increased development costs planned by the Purchaser. To be able to do so, a fundraising would be required and the Directors do not believe that this action would be in the best interests of Shareholders in circumstances where the wider production potential of the project remains uncertain. Were the Group not to dispose of its working interest at this time, the Directors believe there may be substantial erosion of the value of its working interest in Centurion in the future. In forming this assessment, the Directors have also taken into account a rise in both drilling and leasing costs, especially in Kansas and Oklahoma.

In addition, the Directors expect the Group to make significant annualised cost savings as a result of the Disposal.

It is for these reasons that the Directors believe that the Disposal would be in the best interests of Shareholders. Therefore, the Directors have agreed, subject to Shareholders’ approval and negotiation and completion of definitive documentation with the Purchaser, the sale of the Group’s 50 per cent. working interest in Centurion to the Purchaser for a consideration (subject to adjustment as described in Part II) ofUS$3.1 million (approximately £1.9 million) payable in cash.