OREANDA-NEWS. August 30, 2007. The City of Moscow (“the City”) and Sibir Energy plc (“Sibir”) are to combine their refining and petrol retail holdings in the Moscow Oil and Gas Company (“MOGC”) with Sibir’s upstream assets in an enlarged Sibir in which the City will now have an 18.03% stake.

• As part of the merger Central Fuel Company (“CFC”), the City-owned controlling shareholder in MOGC, will subscribe for its stake in Sibir by transferring to Sibir all of CFC’s common shares in MOGC. Sibir will in turn issue to CFC 69,714,254 ordinary shares in Sibir, at $10.35 (Ј5.13), representing 18.03% of the enlarged company.
• CFC will have an option for 18 calendar months or upon a change of control to purchase up to a further 15,492,056 ordinary Sibir shares representing 3.16% of the enlarged Sibir at a strike price of $10.35 (Ј5.13).
• Sibir will also pay $200m in cash for CFC’s preference shares in MOGC.
• On completion of the transaction, MOGC will become a 100 per cent owned subsidiary of Sibir. At the exchange rate of Ј/US$2.02 the cost to Sibir in cash and shares is approximately US$922 million.
• Sibir has negotiated a commitment from two major international banks to lend the Company on commercial terms US$400 million in order to fund the cash element of the transaction, refinance certain other Sibir indebtedness and provide a trading and refining facility.
• The new Sibir will be a fully integrated oil and gas company with rapidly growing production as well as significant refining, marketing and retail assets including a controlling stake in both the 240,000 barrel per day Moscow Refinery and 139 petrol stations in Moscow and the Moscow Region.
• On completion of the transaction Russian shareholders will now account for approximately 65% of shares in the enlarged Sibir with the remainder held by international institutions and individual investors.
• Sibir will secure sufficient refining capacity for its fast growing production from the Salym and Magma fields, thus mitigating the effect of seasonal volatility in domestic oil price, while realising full value for its crude production and ensuring security of energy supply for the City of Moscow.
• The City achieves market value and liquidity for its stake through its shareholding in Sibir, spreads its risk across both upstream and downstream sectors of the value chain and has the right to board representation at Sibir thereby retaining full influence in the affairs of MOGC
• The new Board of Sibir will comprise the existing Chairman and Chief Executive William Guinness and Henry Cameron respectively, Bennfield’s representative Chalva Tchigirinski, one representative from CFC and two additional independent directors yet to be appointed.
• Sibir plans to move to a main LSE listing during 2008.
• The deal is subject to Sibir shareholder approval at an upcoming EGM scheduled for September 18th in London, England.
• In an earlier unrelated transaction a subsidiary of Sibir, Sibenergy (Cyprus) Limited has provided financial assistance to MOGC in the amount of US$102 million to allow MOGC to avoid a reduction of its charter capital arising from the impairment in value of its Sibneft Yugra shares.
• The above mentioned transactions are considered to be “Related Party” transactions under the AIM Rules and are further described in the explanatory circular to be dispatched to Sibir’s shareholders today. The independent directors having consulted with Strand Partners, consider that the terms of the transactions are fair and reasonable insofar as the shareholders are concerned.

A spokesperson for the City of Moscow commented: “After over eight months of detailed and arduous negotiations with Sibir the City is pleased to have achieved an excellent valuation for its assets and this has been confirmed by Deutsche Bank in its fairness opinion. The City is confident that as a result of this transaction the value of its assets will grow and the risk associated with those assets will be diminished. The City sees great potential in this project through growing production and reserves, in refining and the development of our retail fuels network in Moscow and the surrounding region where we are committed to providing the Moscow market with the highest quality fuels and services. The City, together with the other large Russian shareholders in Sibir, will maintain its influence over the policies and strategic direction of the company. The company will observe the interests of the City and the federation while seeking to maximise the company’s market capitalisation. This deal also ensures the independence of the Moscow Refinery and the City, together with the other Russian shareholders of Sibir, plans to invite the other shareholders at the Refinery to participate in a major upgrade and investment programme there. Further, the transaction is in full accord with the country’s policy of consolidation in the area of natural resources and is the first step towards the creation of another large, vertically integrated oil company with the participation of state oil companies.”

Sibir chief executive, Henry Cameron: “The deal achieves a number of important objectives for us. The most important is our ability now to participate fully in the oil and gas value chain and guarantee capacity for our fast growing production. That is important for our development and the quality of our earnings. Having the City of Moscow as a major shareholder is also very significant and will assist us in ongoing negotiations over the future of the Moscow Refinery. Our experience in retail in Moscow will see the development of the 139 petrol stations into a world class operation with international branding. The completion of this deal frees us to move forward with our expansion plans which include adding reserves to our upstream operations, expansion of refining capacity at the Moscow Refinery in collaboration with the other shareholders at the Refinery and pursuit of major opportunities that could significantly enhance Sibir’s position. Finally, Sibir has succeeded in the Russian market in large part because it is majority Russian owned and has taken into account Russian sensibilities and objectives. By bringing the City into Sibir as a key shareholder Sibir has aligned the objectives of its current shareholders with an important arm of the Russian State thus ensuring that Sibir will continue to be viewed as a responsible corporate citizen working in the best interests of all key stakeholders.”