Sound Oil Acquires Mitra Energia

Sound Oil

Sound Oil will acquire Mitra, an unquoted gas exploration and development company with interests in Indonesia, in a reverse takeover. Sound Oil will acquire Mitra in consideration of an issue of new Ordinary Shares.


-Sound Oil is to acquire Mitra, an unquoted gas exploration and development company with interests in Indonesia, in a reverse takeover. Mitra holds a 34 percent interest in the Bangkanai Block onshore central Kalimantan and a 20 percent interest in the Citarum Block onshore central Java.

-Sound Oil, an AIM quoted company with cash of approximately £10 million, will acquire Mitra in consideration of an issue of 223,376,623 new Ordinary Shares which values Mitra at approximately £16.2 million at the Placing Price.

-Sound Oil has raised £11.7 million before expenses at an issue price of 7.25p per share in a conditional placing of new Ordinary Shares.

-The market capitalization of the Enlarged Group at the Placing Price is approximately £50 million.

-Sound Oil's cash resources as increased by the net proceeds of the Placing will be used principally for the development of Mitra's gas interests in Indonesia.

-The transaction is subject to the approval of Sound Oil shareholders at an extraordinary general meeting to be held on July 12, 2006.

-The Company expects the Placing Shares and Consideration Shares to be admitted to AIM following the EGM.

Commenting on the Acquisition and Placing, Gerry Orbell, Chairman and Chief Executive of Sound Oil said, "This is a very good deal for Sound. Within a few months we will have started drilling the first of four high impact exploration wells on our licenses in Java and Kalimantan. In addition we shall be developing the Kerendan gas field in Kalimantan which we expect to give us a 20 year cash flow starting 2008".

Mitra is an unquoted Mauritian company formed in 2004 by its three directors who are interested in 93.7 percent. of Mitra's issued ordinary shares. Mitra has a 34 percent interest in the Bangkanai PSC and a 20 percent interest in the Citarum PSC. Mitra has not generated any revenue to date; it incurred a loss of US $1.2 million in the year ended December 31, 2005 and its net assets at that date were US $0.7 million.

Bangkanai Production Sharing Contract

The Bangkanai PSC encompasses an area of 6,976 km2, located approximately 200 kilometers west of Balikpapan and 330 kilometers north of Banjarmasin, the provincial capitals of East and West Kalimantan respectively. The block is situated on the west side of the Kutei Basin and the northern edge of the stable Barito Shelf. The area was previously part of a larger production sharing contract awarded to Unocal in 1972. During this period Unocal shot two 2D seismic surveys in 1975 and 1985/1986 and drilled ten exploration wells and two appraisal wells. The only discovery to date is the Kerendan gas field made in 1982. Although Unocal's plan of production for Kerendan was approved in 1997, they were unable to secure a gas sales agreement for the gas, and relinquished the contract in 2000. The Bangkanai PSC, covering a large area in which only six wells have been drilled, including three Kerendan wells, was awarded to EBE on 30 December 2003 for a 30 year period, including an exploration period of 10 years. In September 2004 MEB (a subsidiary of Mitra) farmed in to the license (49 percent) (the "MEB Farm-In"). It has recently signed a sale and purchase agreement for the sale of part of its farm-in interest to Medco (the "Medco Farm-In"). This sale is not yet complete, but at completion the resulting interests will be: EBE 51 percent operator; MEB 34 percent; and Medco 15 per cent.

Citarum Production Sharing Contract
The Citarum PSC covers an area of 4,440 km2 in Central West Java. The northern margin of the block is characterised by hilly terrain which is moderately populated. The southern block is generally more mountainous and in part covered by volcanic rock. The block is situated on the southern margin of the active oil and gas producing areas of the North West Java Basin and includes fields such as Subang, Jatibarang, Tambun and Pondok Tengah. Consequently the northern margin of the block is located close to PT Pertamina (Persero)'s well-developed oil and gas pipeline network. The Citarum PSC was awarded to BPREC on 7 October 2005 and no wells have yet been drilled in the block. BPREC is a company with the following shareholdings: Ranhill Energy 60% operator; BPE 20 percent; and MEC 20 percent. On 21 June 2006 BPREC (acting by its liquidator) entered into a Deed of Assignment whereby BPREC assigned its 100 percent working interest in the Citarum PSC to BPREC Pte. BPREC Pte. is a company with the following shareholdings: West Java Energy 60 percent operator; BPE 20 percent; and MEC 20 percent.

Bangladesh Block 22 Production Sharing Contract
The Bangladesh production sharing contract (the "Bangladesh PSC") relates to Block 22 which covers approximately 1,250 km2 in the Chittagong Hills area in eastern Bangladesh. Block 22 lies to the south of gas producing fields in India and is to the east of nearby gas discoveries and the producing Sangu field operated by Cairn energy. The operator of the PSC is Ocean Bangladesh Corporation ("OBC"). Sound Oil Bangladesh Limited ("SOB") has entered an agreement with OBC under which OBC will assign to SOB 50 percent of its interest in the PSC. This assignment is subject to the extension of the PSC and the approval of both the government of Bangladesh and the Bangladesh Oil, Gas and Mineral Corporation. Sound Oil has entered into an option agreement under which Sound Oil may be required to acquire SOB for a consideration of 14,634,813 new Sound Oil shares (or cash of US$2.0 million if agreed by both parties). The exercise price of the option is reduced to 2,195,222 new Sound Oil shares (or cash of US$0.3 million) if the option is exercised before the assignment of OBC's interest in the PSC has become effective. Sound Oil may exercise its call option to acquire SOB at any time in the four months from May 19, 2006 and a put option may be exercised to require Sound Oil to acquire SOB at any time after four months have elapsed from the date of the agreement, until May 19, 2086.

The purpose of the Enlarged Group will be the exploration and production of hydrocarbons, either as a joint venture partner with a direct ownership in a license or as a shareholder. The Enlarged Group may be either a non-operating party or an operator depending on the circumstances. The Enlarged Group intends to acquire discoveries at the appraisal stage and take the properties to production. Exploration properties will be acquired which have a potentially high positive impact on the worth of the company (such as Citarum), but with the risk mitigated, for example by farm out. Other exploration and production companies may be acquired which have a strategic fit with the Enlarged Group. The Enlarged Group will be geographically unrestricted but will focus on Asia and Africa in the first instance. No redeployment of the Company's fixed assets is anticipated. Save for the Existing Directors, Sound Oil does not have any employees. Following Admission, it is intended that the Existing Directors will continue to be directors of the Company, and it is proposed that three new directors, who are currently shareholders (through their shareholdings in the three companies which prior to the Acquisition own 93.75% of Mitra) and directors of Mitra, will also be appointed to the Board.