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New Debt Facility and Operations Update

Source: 5/31/2012, Location: Asia

PetroNeft Resources plc owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to provide an update on its operations.

New Debt Facility
On 30 May 2012, PetroNeft signed a three-year loan agreement with Arawak for $15 million. The loan is secured on PetroNeft’s 50% interest in Licence 67 and will be repayable in one lump sum at the end of the three-year loan period in May 2015. The interest payable under the loan will be LIBOR plus 6%, a competitive rate given present market conditions. Under the terms of the loan PetroNeft also granted Arawak 4,000,000 warrants over shares at a strike price of US$0.1345 per share. The existing US$30m facility with Macquarie Bank Limited remains in place and Macquarie has granted permission under the terms of their facility for this additional debt facility with Arawak.

Area of Mutual Interest Agreement
On 30 May 2012, PetroNeft entered into a new three-year Area of Mutual Interest Agreement (“AMI”) with Arawak. Under the agreement the two companies will continue to jointly pursue new opportunities in Western Siberia, building on the success of the previous AMI agreement that ran for three years to August 2011. Under the previous AMI, Arawak opted to take a 50% interest in Licence 67 which was acquired by PetroNeft in January 2010.

Licence 61 Arbuzovskoye Pilot Development Programme
PetroNeft plans to drill up to ten new production wells on Arbuzovskoye with the first of the new wells likely to come on production in Q3 2012. The drilling rig and necessary supplies to drill these wells were moved to location during Q1 when winter roads were in place to handle the heavy loads. Arbuzovskoye contains in excess of 13m barrels of oil and will become the Company’s second production development.

Licence 61 - Lineynoye Field Development Programme
Current production remains steady at about 2,200 bopd and is providing valuable positive cash flows each month. We continue to be pleased with the water injection response from the Pad 1 wells and have initiated water injection into one well on Pad 2, with additional wells planned in the future.

A number of studies are underway that will help us to better understand the results from the Pad 2 wells. These studies will take some time to complete, but we have a good initial understanding of the differences between the Lineynoye Pad 1 and the Pad 2 wells. We do not foresee similar issues arising at either the Arbuzovskoye or Sibkrayevskoye fields which will be the next major developments in Licence 61.

Dennis Francis, Chief Executive Officer of PetroNeft Resources plc, commented:
“We are delighted to conclude a new financing arrangement and AMI agreement with Arawak Energy and look forward to continuing our fruitful partnership in the coming years. We will now focus on developing Arbuzovskoye and seek to build on our existing production profile and positive cashflows throughout the remainder of the year.”

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