Shelton Petroleum AB has entered into a strategic relationship with Baltic Oil Terminals PLC, a UK public company listed on the AIM market in London.

Under the terms of the strategic relationship, Shelton has agreed to issue to Baltic 54,000,000 new B Shares in the capital of Shelton (the "Shelton Shares") and Baltic has agreed to issue to Shelton 14,957,368 new ordinary shares of 1 pence each in the capital of Baltic (the "Baltic Shares" and the "Equity Swap", respectively). The exchange ratio has been calculated by reference to the average market closing price of Shelton B Shares and Baltic ordinary shares for the four weeks ending 2 November 2010, being SEK 0.759 and 25.89 pence, respectively, and an average SEK/GBP exchange rate over the period of 10.584, valuing each issue of shares at approximately SEK 41 million. The market closing prices on 5 November 2010 were SEK 0.76 for Shelton B shares and 25.5 pence for Baltic ordinary shares.

Following completion of the Equity Swap, Shelton will own approximately 19.5 per cent of Baltic's enlarged issued share capital, and Baltic will own approximately 10.2 per cent of Shelton's enlarged share capital. The Equity Swap is structured as an issue of equity in kind and no cash will be expended by either party.

Shelton and Baltic are involved in two separate but highly complementary areas of the oil industry. Baltic operates a terminals business in the Russian ports of Baltysk and Kaliningrad and its key asset is a 50% interest in the Rosbunker terminal in Baltysk which specialises in fuel oil (mazut). Trains are able to deliver products from all over Russia, the Former Soviet Union and Asia directly to the terminal. Baltic earns tolling fees and is also able to trade in these products in its own right. In addition to Rosbunker, Baltic also has interests in several other oil product assets in Kaliningrad, which derive revenues through processing and distribution of oil products to domestic markets. Baltic's executive management has more than 40 years experience in the oil services industry from multiple locations, around the world, including the Former Soviet Union.

With Baltic's expertise in oil trading, infrastructure and transportation, the relationship between Shelton and Baltic will provide both companies with the opportunity to explore significant long term commercial benefits. Shelton and Baltic intend to identify and take advantage of a broad range of joint initiatives, including identifying customers for the supply of crude oil and other products, facilitating suitable transportation and storage services and entering into product swap arrangements. Several opportunities have already been identified and are currently being progressed. The companies will further evaluate the strategic opportunities in order to explore ways of developing and strengthening the relationship in the future.

Robert Karlsson, Chief Executive of Shelton, commented, "Baltic has built up a very impressive oil terminals and trading business and we see several areas of mutually beneficial cooperation. Securing a presence in hydrocarbons transhipment allows Shelton to take a further step in its strategy of becoming an integrated oil & gas company. We also look forward to supporting Baltic in evaluating significant growth opportunities for both companies' benefit. I am looking forward to a long and successful relationship."

Simon Escott, Chief Executive of Baltic, commented, "Shelton are an ideal partner for Baltic as we seek to expand our business. They have considerable oil reserves and their production levels are expected to increase significantly in the short term. Their refining interests will also be highly complementary to our existing trading and terminals operations and represent a key potential synergy between ourselves and Shelton. As a major investor in Baltic, they will be able to provide access to a range of opportunities which with our expertise should benefit our operations."

Tags: Shelton Petroleum