Cambrian, Xtract Agree to Plan for Proposed Merger

The boards of Xtract Energy PLC and Cambrian Oil & Gas PLC (COIL) have agreed to the terms of a recommended proposal for COIL shareholders (other than Xtract) to acquire shares in Xtract for shares in COIL by way of scheme of arrangement under section 425 of the Companies Act 1985 (the "Scheme"). The Scheme requires approval by COlL shareholders (other than Xtract) and the sanction of the Court. Xtract currently holds approximately 64% of the current issued share capital of COIL.


Under the proposed terms of the Scheme, COIL shareholders will receive 9 new Xtract shares for every 10 COIL shares. The closing mid market prices per share of Xtract and COIL on 9 February 2007 were 5.25 pence and 3.625 pence, respectively.
Based on these closing mid prices, the Scheme:
--Values each COIL share at 4.725 pence; and
--Values COIL at approximately £14.85 million (on an undiluted basis); and
--Represents a premium to COIL shareholders of approximately 30.3%.
--The directors of COIL unanimously recommend COIL shareholders to vote in favour of the Scheme.

The COIL board believes that COIL shareholders will benefit from:
--Exposure to a more diversified asset portfolio;
--Additional management expertise;
--Removal of the multiple holding company discount on COIL's associated investments, especially its major investment in MEO Australia Limited (MEO);
--A broader institutional shareholders base;
--Improved access to funding, particularly in regard to COIL participating in any future major funding for MEO's planned drilling program, which starts later this year; and
--Potential for increased liquidity through the exchange of their COIL shares for Xtract shares.

The Xtract board believes Xtract shareholders will benefit from:
--Entry into the Australian Oil and Gas industry through COIL's holding in MEO;
--COIL becoming a wholly-owned subsidiary which will allow it to consolidate 100% of the future cash flows from the operations of COIL;
--The potential unlocking of value through the removal of the double holding company discount on COIL's associated investments; and
--Overhead and management synergies.

Commenting on the Scheme Neale Taylor, Chief Executive Officer of COIL, said:

"The Scheme presents shareholders with the opportunity to receive an immediate 30% premium to the current share price and to hold stock in a larger company with a broad asset base and diversified portfolio of assets while still participating in the existing COIL story."

Also commenting on the proposed acquisition, John Newton, Chief Executive Officer of Xtract, said:

"This is a significant step for Xtract to build a direct stake in the Australian Oil & Gas industry and participate in the MEO gas to liquids project, the Tassie Shoal Methanol Project and the Timor Sea LNG project. The Scheme has the support of the COIL board who have recommended that COIL shareholders vote in favour of it. We believe that both Xtract and COIL shareholders will benefit from the consolidation which should create a stronger combined company."

The Scheme

The Scheme extends to:

  • all the existing issued ordinary shares of 1p each in the capital of COIL;
  • any further COIL shares which are issued after the date of the Scheme document to be posted to COIL Shareholders and before 6.00pm on the date of the meeting of the COIL shareholders convened by order of the Court pursuant to section 425 of the Companies Act 1985 and the Extraordinary General Meeting of COIL convened to approve and implement the Scheme (the 'Voting Record Time') including shares issued arising from the exercise of options and warrants; and
  • any further COIL shares issued at or after the Voting Record Time and before the making of the relevant Court order either on the terms that the original or any subsequent holder thereof shall be bound by the Scheme or in respect of which the holder shall have agreed in writing to be bound by the Scheme.

Based on the closing mid price of a COIL share of 3.625 pence on 9 February 2007, the Scheme values COIL (on an undiluted basis) at approximately £14.85 million and each COIL share at approximately 4.725 pence. This represents a premium for COIL shareholders of approximately 30.3% based on the closing mid price of 5.25 pence per Xtract share on 9 February 2007, being the last business day immediately preceding this announcement. Implementation of the Scheme would involve the issue by Xtract of up to approximately 100.17 million new Xtract shares for the existing issued COIL shares (representing approximately 15.2% of Xtract's issued share capital as enlarged by this issue)."

The Scheme, which will be subject to the conditions and further terms set out below and to be set out in Scheme Documentation to be despatched to COIL shareholders in due course (as required by the Companies Act), will be effected on the following basis:

  • COIL shareholders will receive 9 Xtract Ordinary Shares for every 10 COIL Shares they hold. This represents an approximate premium of 30.3% based on prevailing market prices.
  • Any 3p COIL warrants which are not exercised prior to the Voting Record Time shall cease and determine in accordance with their terms.
  • For those COIL options and 3p warrants which are not exercised prior to the Voting Record Time and which under their terms do not cease and determine if they are not so exercised, following the completion of the Scheme, Xtract will procure an amendment to COIL's Articles of Association which will entitle such COIL option and warrant holders to receive Xtract shares upon exercise of such options and warrants at the same ratio as in paragraph 1 above.

Conditions of the Scheme

Xtract and COIL agree that the sanction of the Court in respect of the Scheme will only be sought if:

  • No Material Adverse Change: since 30 June 2006, save as otherwise disclosed, no event, change or condition has occurred or become known to Xtract where that would have or could be reasonably expected to have a material adverse effect on the business, assets, liabilities, trading or financial position, profitability or prospects of COIL ('Material Adverse Change').
  • No Material Acquisitions, Disposals or New Commitments: since 30 June 2006 (other than in relation to the purchases of interests in Elko Energy Inc and MEO):
  • COIL has not disposed of or acquired any assets or businesses, or offered or agreed to announce any acquisitions or disposals, for an amount in aggregate of £0.5 million (or in the case of disposals, where the book value was in aggregate greater than £0.5 million);
  • COIL has not entered into or offered or agreed to enter into, or announced any arrangement which required expenditure, or the foregoing of revenue, by COIL of an amount in aggregate of £0.5 million;
  • the business of COIL has otherwise carried on in the usual and ordinary course.

Consequences of the Scheme

save as otherwise disclosed, no provision of any agreement to which COIL is a party or by which COIL or any part of its assets may be bound would, as a consequence of the Scheme, result in a Material Adverse Change.

Issue of Equity

from the date of this announcement there is no further issue of equity by COIL save for the issue as a result of the exercise of existing warrants or options.

Xtract Consents

any consents required by Xtract under any existing contractual arrangements or otherwise are granted.

The above represents the principal conditions but is not intended to be exhaustive. Detailed documentation will need to be drafted by way of a scheme of arrangement to be approved by the COIL board and its advisors prior to submission to the Court and posting to COIL Shareholders.

The City Code on Takeovers and Mergers ("the Takeover Code")

As has been previously announced on 17 August 2006, although COIL is incorporated in England, the place of central management of COIL is currently located outside the UK, the Channel Islands or the Isle of Man since the main place of business of COIL is in Australia. The majority of Board meetings are held outside the UK, the Channel Islands and the Isle of Man and the majority of the Board are resident outside the UK, the Channel Islands and the Isle of Man. Accordingly, as COIL is a company to which paragraph 3 (a) (ii) of the Introduction to the Takeover Code does not apply, the Panel on Takeovers and Mergers has confirmed that COIL is not subject to the Takeover Code and Shareholders will not be afforded any protections under the Takeover Code.


The directors of COIL have reached agreement with Xtract on the terms of the Scheme. The directors of COIL unanimously recommend that COIL shareholders vote in favour of the Scheme.

General Procedure of the Scheme of Arrangement

The basic steps required to implement a scheme of arrangement are as follows:

  • COIL shall apply to Court for an order that a meeting of COIL shareholders excluding Xtract be called.
  • if the Court agrees, it will order that the appropriate COIL shareholder meeting is held. If a majority in number and 75% in value of the COIL shareholders (other than Xtract) present and voting at the meeting agree to the arrangement and it is also approved by the Court, then it is binding on all the COIL shareholders whether or not they voted in favour or voted at all and on COIL.
  • for the Scheme to have effect, a copy of the Court order shall be delivered to Companies House.

About Xtract Energy Plc

Xtract's prime assets are its interest in shale oil deposits at Julia Creek in Queensland, Australia and a joint venture with the Australian research group, CSIRO, to develop a process for extracting oil from shale deposits. The initial validation tests, comprising small scale batch extractions of oil from the shale, have demonstrated that recovery from Xtract's Julia Creek shales in Queensland, Australia, would be in the order of 150 liters of light crude oil per tonne of shale. Earlier conventional retorting experiments indicated that the conversion of kerogen to oil yielded about 74 litres of oil per ton of shale.

Applying this rate of yield increase to the yields of 50 - 65 litres per tonne used in Xtract's AIM admission document in relation to certain of Xtract's Julia Creek leases results in estimated in-situ shale oil resources of over 1.6 billion barrels of oil.

Other energy assets held by Xtract are:

  • Approximately 64% of Cambrian Oil and Gas Plc ("COIL") which is developing oil and gas assets in the Kyrgyz Republic. COIL also owns approximately 22% of the issued share capital of ASX listed MEO. MEO is focused on developing a gas-to-liquids project in the Timor Sea, approximately 275 km northwest of Darwin, Australia, in an area known as Tassie Shoal. It has secured Australian Commonwealth Government environmental approvals for two large scale (1.8 mtpa) methanol plants (50% interest) and a 3 mtpa LNG plant (100%), which is the only new Australia LNG project to receive its Commonwealth Government environmental approvals.
  • Approximately 15% of Wasabi Energy Limited which has rights to the Kallina power technology, uranium exploration interests in the Northern Territory, Australia, interests in the newly-formed Evolution Energy joint venture to produce bio-diesel fuel in Australia and in a coal deposit in Canada.
  • Approximately 18.6% of Aviva Corporation Limited with promising thermal coal deposits in the mid-west of Western Australia.

About Cambrian Oil & Gas Plc

COIL has a portfolio of interests in Central Asia, China, the North Sea and Australia.

The Kyrgyz interests held through the Company's wholly owned subsidiary Zhibek Resources Plc include a production sharing agreement with Kyrgyzneftegaz to instigate a water injection project on the Beshkent-Togap oil field, a 72% interest in JSC KNG Hyrdocarbons, which holds several exploration licenses in the Tash Kumyr area and 100% interest in the Toktogul exploration license.

COIL also holds approximately 22% of MEO. MEO has successfully completed the acquisition of new 2D and 3D seismic data over Epenarra, located in MEO's 100% owned Exploration Permit NT/P68 in the Timor Sea. The Epenarra structure is a broad, low relief anticline with mapped closure of approximately 1,200 square kilometers, located entirely within Australian waters. The data has been acquired to confirm optimal well locations for the Heron-2 appraisal well and production test on the Epenarra structure and the Blackwood-1 exploration well.

MEO intends drilling up to three wells (Heron-2, Blackwood-1 and potentially Heron-3) in the Permit area and has secured a new jack-up rig to undertake the drilling. The rig is expected to arrive on location in August 2007.

COIL also holds approximately 33.5% of the issued capital of Elko.

Elko, an oil and gas exploration company, has been awarded a 5,400 square kilometer exploration and production license in the Danish North Sea Sector, which it holds with an 80% interest. The remaining 20% is held by the Danish State, which has a direct and full working interest. Phase I of the technical studies has been completed. Following further ongoing technical work it is planned to farm down Elko's interest during 2007 in exchange for future seismic and drilling obligations being paid for by a new partner.

Elko also owns approximately 40% of Dragon Energy Inc., a private Canadian company with a significant development project in Gansu Province, China ("Dragon"). Dragon has signed a Joint Venture Agreement with a provincial subsidiary of CNPC of China, the 10th largest oil company worldwide, providing for the re-development of the Maling Oilfield in Gansu Province, China.

In the year ended 30 June 2006 COIL made a loss of £0.4 million and net assets at that date were £3.6 million.

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