Following the announcement on 10 December 2010 of a recommended cash offer for Regal, Energees Investments (the principal holding company of the Smart Holding Group) and Regal are pleased to announce that they have reached agreement on the terms of a revised, increased, recommended partial cash offer to be made by Energees Management.

The revised offer will be structured as a partial offer for up to 224,446,485 Regal Shares (representing approximately 70 per cent. of the fully diluted share capital of the Company) at 38 pence in cash per Regal Share (the Increased Partial Offer).

The terms of the Increased Partial Offer value Regal's fully diluted share capital at approximately £121.8 million and the Regal Shares subject to the Increased Partial Offer at approximately £85.3 million.

The Increased Partial Offer allows those Regal Shareholders, who accept in respect of all of their Regal Shares, the potential for a full exit at 38 pence in cash per Regal Share (although acceptances in respect of more than 70 per cent. of a Shareholder's Regal Shares may be subject to scaling down as set out in paragraph 2 of this Announcement).

The consideration of 38 pence per Regal Share under the terms of the Increased Partial Offer represents a: • 204% premium to the closing price of 12.5 pence per Regal Share on 24 November 2010, being the last business day before the commencement of the Offer Period; • 147% premium to the average closing price of 15.4 pence per Regal Share for the one month period prior to the commencement of the Offer Period; and • 58% premium to the offer price of 24 pence per Regal Share under the Original Offer.

The Increased Partial Offer will also allow those Regal Shareholders, who do not want to accept the Increased Partial Offer in respect of all of their Regal Shares, to retain an ongoing equity interest in Regal in respect of some or all of their holding.

The Increased Partial Offer has a clearly defined timetable, is not subject to Ukrainian anti-trust clearance (which was received by Energees Management on 20 January 2011) and will enable (subject to the Increased Partial Offer being declared wholly unconditional on 20 February 2011) cash consideration to be despatched to Regal Shareholders on or around 8 March 2011 (once any scaling down exercise has been completed).

Smart Holding Group is one of the largest, diversified groups of companies in Ukraine and brings extensive experience of operating in Ukraine and in the natural resources sector.

The Increased Partial Offer will result in the Smart Holding Group obtaining majority ownership of Regal and will give local, Ukraine-based shareholder support to Regal management, as well The Regal Directors, who have been so advised by BofA Merrill Lynch, consider the terms of the Increased Partial Offer to be fair and reasonable. The background to and reasons for the Regal Directors' recommendation are summarised in paragraph 6 of this Announcement. In providing its advice, BofA Merrill Lynch has taken into account the commercial assessments of the Regal Directors.

The Regal Directors have terminated Regal's discussions with Heamoor and Geo-Alliance, having concluded that the Increased Partial Offer is the best and only firm option currently available to Regal Shareholders and on the basis that the Increased Partial Offer delivers greater certainty of value for Regal Shareholders than their proposed transaction or Regal remaining an independent quoted entity without the majority ownership of Energees Management.

The Increased Partial Offer Document is being published, and will be posted to Regal Shareholders (other than persons in a Restricted Jurisdiction), today together with the Approval Form and New Form of Acceptance.

Energees Management has received irrevocable undertakings to accept and approve the Increased Partial Offer from certain Regal Shareholders, as well as Regal Directors, in respect of 42,509,411 Regal Shares, representing approximately 13.35 per cent. of Regal's existing issued ordinary share capital. 15,484,800 of these Regal Shares, representing approximately 4.86 per cent. of the existing issued ordinary share capital of Regal, relate to long derivative contracts in respect of which the holder has undertaken to use reasonable endeavours to procure (so far as it is able) acceptance and approval of the Increased Partial Offer.

The Increased Partial Offer must be declared unconditional as to acceptances by 20 February 2011 (unless the Panel otherwise consents) and Regal Shareholders are therefore urged to return their New Forms of Acceptance and Approval Forms as soon as possible.

Commenting on the Increased Partial Offer, Alexey Pertin, Director of Energees Investments and CEO of the Smart Holding Group, stated that: 'Our Increased Partial Offer is a carefully considered means of providing all shareholders a complete solution today.

Those seeking ongoing equity exposure can select equity and maximise their ongoing stake in Regal, knowing exactly what they are investing in - a re-energized Regal with the committed local country backing of Energees Management - without taking risk on assets, strategy and management which may be unfamiliar to Regal Shareholders.

In addition, with the 147% one month average premium available under the Increased Partial Offer, Energees Management is providing Regal shareholders the option to enjoy a highly attractive and quickly realisable cash exit (potentially for up to 100% of their shareholding) at highly compelling valuation levels.

We are excited about supporting Regal in the next stage of its journey and look forward to working to realise value for all stakeholders, today, tomorrow and in the future.'

Keith Henry, Chairman of Regal, commented,"Against the background of operational, legal and funding challenges faced by the Company, your Board is pleased to have reached a much improved agreement with Energees Management that allows Regal Shareholders to receive a substantially increased cash element of consideration as well as retaining the option of maintaining equity exposure in Regal.

Based on work completed to date in connection with the Geo Proposal by Regal and its advisers, and the Board's assessment of the certainty of being able to finalise all required workstreams and to announce a binding transaction with Heamoor and Geo-Alliance, the Board of Regal has concluded that the Increased Partial Offer represents a superior proposition with respect to certainty of value by comparison to the Geo Proposal, that the Increased Partial Offer is the best and only firm option currently available to Regal Shareholders and therefore intends unanimously to recommend shareholders to accept and approve the Increased Partial Offer"

Tags: Regal Petroleum