Q. Can the Company provide an update as to the current situation with the alleged debt repayment agreement ("ADRA")?
A. As previously reported by the Company, the Board is convinced that ADRA is a forgery aimed at blackmailing the Board into succumbing to the demands of Mr. Rovneiko with veiled backing from Fire East and its benefactors. It is of no coincidence that the ADRA appeared recently and only after the date of the EGM was made public. It is also apparent that had the ADRA existed in reality and was legitimate, having allegedly been signed in December 2010, unquestionably it would have been presented to the Company during the last three years and, most certainly, during the Arbitration, where the subject matter of the ADRA (alleged debt to Mr. Rovneiko regarding his pledge of shares during the Taas deal) had been the main argument of his defence. During the arbitration, Mr. Rovneiko presented another fake "document" on the exact same subject matter, but with a dramatically lesser claim. This "document" was proven to be a forgery by an independent expert opinion and was not recognised as a legitimate claim to the Company by the arbitration.
The Company has requested that Mr. Rovneiko produce the original of the ADRA in order to conduct a document authenticity expertise, which he has failed to do. With the absence of any legitimate and legally-binding claim, based on proven sufficient factual evidence and adherence to all corporate procedures, any and all assertions of Mr. Rovneiko and any other party are treated by the Board as superficial. The Board makes it clear that it does not recognise the ADRA, has no intent of fulfilling any claims made in it and is committed to fight this issue to the end.
Q. If the current Board is removed post the EGM would the Company not be still held accountable should the ADRA hold up?
A. This question should be better addressed to Fire East and its backer but, in the extremely unlikely event that the ADRA was found to be valid, then, as a binding obligation on the Company, this would survive any change of management. Presumably this would be of concern to Mr. Barsky as he will need to deal with the potential bankruptcy of the Company, the danger of which he himself threatened with during a face-to-face meeting with Mr. Dyachenko and Mr. Ogarev in October 2013? It would be interesting to know how Mr. Barsky and Mr. Makhno propose to come to terms with Mr. Rovneiko regarding the ADRA and the London Court of International Arbitration ("LCIA") award according to which Mr. Rovneiko owes the Company close to US$9 million? Or has this issue already been resolved, in which case the shareholders have the right to know what to expect from the potential new management team, as this to date has been not forthcoming.
Q. What are the most significant threats to the Company if the current BOD is removed post the EGM?
A. The main threat that the Company faces is the arrangement reached between Mr. Rovneiko, Mr. Barsky and Fire East regarding the ADRA. In addition, the Board sees the following as detrimental to the Company:
- Any possible merger with Mr. Bosov's Prizalivniy venture will, in the opinion of the Board, be at the expense and to the detriment of Urals Energy and its shareholders, followed by serious overall dilution and destruction of value. The recent claim made by Fire East in a letter to Urals Energy shareholders dated 10 January 2014 that Prizalivniy has been sold and thus its merger with the Company is impossible only points out to the fact that Fire East is in close contact with Mr. Bosov. The Board believes that the possibility of this merger has and still is high since it considers that Mr. Bosov would not be interested in Urals Energy otherwise.
- Any possible financing of the merged Urals Energy is likely to be made at the expense of shareholders and include substantial dilution.
- The (now) two individuals proposed to replace the existing BOD/management, both have apparent conflicts of interest with their main jobs. In the case with Mr. Barsky he is the CEO of Pechora LNG, which is going through a difficult stage and requires all his attention to continue as a going concern. In parallel he is also the CEO of Matra Petroleum plc, which also requires a significant amount of his time in order to be successful following its recent acquisition in the United States. Mr. Barsky will no doubt be stretched and therefore will, in the opinion of the Board, not be in a position to devote sufficient time and energy to Urals Energy. As for Mr. Kolleck, in a conversation with one of Urals Energy directors, Mr. Kolleck said that "he is doing this only as a favour to Mr. Barsky", which, in the opinion of the Board, hardly justifies the decision to enter the Board of an unknown company with difficult assets to manage.
- Key employees that have been retained through the years and have recently gained a feeling of accomplishment and belief in the future growth of the Company are likely to leave.
- Petraco will cease its support of Urals Energy including possible trade financing and off-taking.
Q. Does the Board of Urals Energy believe the value of the Company is higher than the indicative price of 12.25 pence per share? If so, when will shareholders see this value in the share price?
A. The Board believes that presently the Company's value is higher than the indicative price of 12.25 pence per share. While ultimately the market determines the value of the Company, the Board believes that the share price will start growing after the uncertainties surrounding the Company (such as the EGM and ADRA) are removed and the efforts of the management will return to being focused on building value. With a clean balance sheet, two producing assets and new strengthened shareholder body, the Board is confident that the share price will increase.
Q. Please can the Company provide any additional information on flow rates for well #53? Is there any update on well #112?
A. As recently announced, the flow rate for well #53 has remained stable at around 70 bbls per day; drilling of well #112 is underway and has reached the depth of slightly more than 1000 meters.
Q. If the BOD are successful at the upcoming EGM what are their plans for the future of the Company?
A. The plans the Board has for the Company have not changed independent of the requisitioned EGM, and having paid off its debt and clearing its balance sheet, the efforts of the management will focus on improving and adding production on both fields, finishing the reserve assessment by Miller and Lents in the near future, continuing its drilling programmes both at Petrosakh and Articneft, as well as seeking new assets and possible strategic alliances.
Q. What relationship is there, if any, between the Company's newest and largest shareholder Adler Impex and the current BODs?
A. There is no particular relationship aside from the support of Adler Impex of the existing Board of Directors, its strategy and possible aligned interest for further growth and improvement of valuation.
Q. Why did Alpcot sell their stake in the Company?
A. The Board believes that the requisition of the EGM was in many ways instigated by Alpcot as an attempt to change the Company's management and merge with Prizalivniy block. However, following the subsequent events after the requisition, lack of backing from the majority of shareholders and obvious connection between the ADRA, Rovneiko, Fire East and its backers, the Board considers that Alpcot probably decided to disassociate itself from Fire East and exit prior to the EGM. The resignation of Mr. Ranta from the Board immediately after Alpcot's exit only proves that the joint requisition by Alpcot and Fire East was a concerted effort to take over the Company with no long-term plans for its development.
Q. Can you comment on the letter of Fire East from 10 January 2014?
A. It is notable that Fire East has neglected to mention that the original requisition proposal also included the retention of a third Board member, Torbjorn Ranta, as part of the new board. In addition, Alpcot's exit is not mentioned, which raises the question why Fire East does not address the fact that one of the requisitioners has decided to sell before the EGM, even though it was said that Alpcot fully supported the change in management and "strategy" presented by Mr. Barsky?
Fire East yet again uses the excuse of being a minority shareholder for not presenting a clear strategy for the Company, which is surprising given the fact that it claims that Mr. Makhno has a strong oil background and Mr. Barsky is presented as a leading manager in the oil business.
In the opinion of the Board, the "strategy" that was originally presented (increasing production to 7000 bbls per day, tripling the processing at the PSK refinery etc.) only demonstrates that the requisitioners do not understand the assets of the Company. Aside from general claims of "effective management and leadership", "more effectively exploiting the assets of the Company" etc., it seems that Fire East and Mr. Barsky have nothing of substance.
Fire East's claim that Mr. Maximov promised Mr. Rovneiko a payment of US$41.7 million is completely unsubstantiated and false. Moreover, as was already mentioned, the ADRA is a forgery concocted and presented by Mr. Rovneiko only after the appearance of the requisition, even though the issue of this "loan" has been the subject of the LCIA, which Rovneiko had lost on all accounts. The present attempt by Fire East to disassociate itself from Rovneiko is interesting since it was Mr. Barsky who first brought this subject up during a meeting with Mr. Dyachenko and Mr. Ogarev and it was Mr. Barsky's representative who sent a copy of the ADRA to Mr. Andrew Shrager and attempted to use it to blackmail the Board. Moreover, the ADRA was the official excuse used by the police in its recent "visit" of Urals Energy's offices, which is unprecedented given the fact that the "agreement" is between two Cypriot companies. Thus, claiming that they have nothing to do with it is, in the opinion of the Board, at the very least disingenuous, and only increases concern over a possible arrangement that Fire East, Mr. Barsky and Mr. Rovneiko may have reached behind the backs of all shareholders.
Finally, the claim that voting in favor of the resolutions is "the chance to save the business of Urals Energy" (under the new leadership) counters all the above and poses the question - where were Mr. Barsky and Co. during the Sberbank settlement? When the Company was suspended and almost bankrupt? Where was Mr. Barsky and Co. during the arbitration with Mr. Rovneiko? During the settlement with Finfund? Petraco?
The business of Urals Energy has already been "saved" by the current Board.