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PETROGRAND AB: Statement from the newly elected Board of Petrogrand regarding Shelton’s new offer

Petrogrand AB
Company Announcement

Statement from the newly elected Board of Petrogrand regarding Shelton’s new

Stockholm, 2014-03-17 17:15 CET (GLOBE NEWSWIRE) --

The acceptance period of Shelton Petroleum AB (“Shelton”) to Petrogrand AB’s
(“Petrogrand” or the “Company”) shareholders (the “Offer”) expired on 12 March
2014. Only 12.4 % of the shareholders had at this point accepted the Offer.
Shelton, who had stipulated in the Offer that at least 50 % of Petrogrand’s
shareholders should accept the Offer, has nevertheless declared the Offer
unconditional and will therefore register the shares tendered during the
acceptance period. In connection with the Offer being declared unconditional,
Shelton has raised the Offer from 0.34 to 0.44 Shelton B shares for each share
in Petrogrand, and given the shareholders who have not accepted the Offer the
opportunity to do so up until 28 March 2014. A group of investors, including
Metroland, representing 12.5 % of the shares in Petrogrand, has announced its
support for the updated Offer. However, a number of other large shareholders in
Petrogrand still consider the Offer to be substantially lower than what can be
deemed fair.

For this reason the Board of Petrogrand has made a re-evaluation and taken the
updated Offer in consideration, but again for the reasons mentioned below
unanimously decided to recommend the Company’s shareholders not to accept the
Offer. The Board's conclusion is further supported by the updated fairness
opinion prepared by ABG Sundal Collier which considers the bid still not to be

The reason behind the Board’s decision not to accept the Offer

The Board considers the value of Shelton to be highly uncertain, which can be
seen in the share price decline of Shelton that has happened after Petrogrand
pointed out information regarding the potential risks in Shelton. Petrogrand’s
valuation is more certain due to its liquid and financial assets that per 31
December 2013 amounted to approximately SEK 370 million and due to the fact
that the Company has zero financial debt. There is also potentially unrealized
value in Petrogrands licenses Nizhnepaninsky and Muromsky 2 through the
cooperation agreement that is being negotiated with Gazprom Neft. Shelton’s
valuation is on the other hand highly uncertain due to the uncertainty
regarding the terms for the for the Ukrainian licenses, geological uncertainty
related to the resource potential in the Rustamovskoye field in Russia, the
lack of up to date reporting of reserves and resources and the growing accounts
receivables in the Lelyaki field. Shelton's year-end report from February 17
2014 shows that short-term receivables amount to SEK 63.5 million. If the
claims in the Ukraine according to Shelton only amounts to SEK 48 million, and
total short-term receivables are SEK 63.5 million, what do the additional
receivables of SEK 15.5 million regard, and how secure are these receivables?
There is also considerable uncertainty about Shelton's tax liabilities of
approximately SEK 25 million, when will these be regulated? Considering the
above, the Board of Petrogrand is highly concerned about Shelton’s financial
situation. The uncertainty in Shelton’s value can also be seen in the recent
development of its market valuation. Since the first Offer on 22 January 2014,
the share price of Shelton has dropped from 30.6 SEK per share to 19.8 SEK per
share on 17 March 2014 at 2:00 pm. This means that the market valuation has
declined from approximately SEK 370 million to SEK 237 million during the offer
period. Furthermore, according to an official statement from the Crimea
Parliament it has been decided that all assets, including the gas and oil
fields, of Chernemorneftegaz will be nationalized.

According to Shelton, the new Offer on Petrogrand’s shares has a bid premium of
approximately 52.7 % given the stock prices of both companies. This premium is
only true if the valuation of Shelton is correct. If the bid premium was to be
based on Petrogrand’s financial assets (equivalent to approximately SEK 9.18
per share) the actual bid premium is negative 5.2 % with respect to the current
share price of 19.8 SEK per share for Shelton on March 17, 2014 at 2:00 pm. It
is evident that the bid premium based solely on the share price shows a
considerable difference compared to the premium based on the Company’s actual

To be able to form an opinion of the true value of Shelton, the Board of
Petrogrand has proposed formal meetings with Shelton, both in writing and
orally, with the purpose of receiving answers to the questions and insecurities
mentioned above. Shelton has not answered Petrogrand’s proposals. Petrogrand
has highlighted a number of issues, concerning for example the increasing
accounts receivables from the Ukrainian operations. The fact that Shelton has
not been prepared to enter into a dialogue with Petrogrand strengthens the
Board’s assessment of the Offer not being fair for the shareholders in

Before the shareholders of Petrogrand make any decision about the Offer, the
Board of Petrogrand strongly recommends that a due diligence is made on Shelton
so that potential hazards are found and presented. Petrogrand is also willing
to cover 50 % of the costs related to the due diligence. The Board of
Petrogrand cannot, at the moment, recommend the shareholders in Petrogrand to
exchange their certain financial assets for shares in a company that is not
able to provide adequate information about their current financial situation
and geological resources.

Furthermore, the Board of Petrogrand finds Shelton’s hostile actions concerning
since they distract the Company’s daily operations, affecting among other
things our negotiations with Gazprom Neft.

The Board of Petrogrand

This is a translation of the Swedish version. In case of any discrepancy between
the English and the Swedish version, the Swedish version shall take precedence.

For further information, please contact:

Maks Grinfeld, CEO, phone: +46 8 5000 7810
Mikael Wallgren, Chairman, phone: +46 8 5000 7810
Certified Adviser First North: Mangold Fondkommission AB

Reasonable caution notice: The statement and assumptions made in the company's
information regarding Petrogrand AB's ("Petrogrand") current plans, prognoses,
strategies, concepts and other statements that are not historical facts are
estimations or "forward looking statements" concerning Petrogrand's future
activities. Such future estimations comprise but are not limited to statements
that include words such as "may occur", "concerning", "plans", "expects",
"estimates", "believes", "evaluates", "prognosticates" or similar expressions.
Such expressions reflect the management of Petrogrand's expectations and
assumptions made on the basis of information available at that time.

These statements and assumptions are subject to a large number of risks and
uncertainties. These, in their turn, comprise but are not limited to I) changes
in the financial, legal and political environment of the countries in which
Petrogrand conducts business, II) changes in the available geological
information concerning the company's projects in operation, III) Petrogrand's
capacity to continuously guarantee sufficient financing to perform their
activities as a "going concern", IV) the success of all participants in the
group, or of the various interested companies, joint ventures or secondary
alliances, V) changes in currency exchange rates, in particular those relating
to the RUB/USD rate. Due to the background of the many risks and uncertainties
that exist for any oil-prospecting venture and oil production company in its
initial stage, Petrogrand's actual future development may significantly deviate
from that indicated in the company's informative statements.

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