Summary

• The Board of Shelton believes that there is an industrial and financial rationale for the Offer. Shelton has a license portfolio with increasing production and significant exploration potential offshore in Ukraine. The transaction gives, via cash held by Petrogrand, financial means to realize the potential in the asset portfolio and to pursue the expansion opportunities that the oil and gas market offers. In addition, it is expected that the liquidity in the Shelton share will increase and the company’s position on the financial market will be strengthened.

• Shelton offers 0.30 B shares in Shelton for each share in Petrogrand. In the event of a full acceptance of the Offer approximately 12,079,769 B shares in Shelton will be issued to the shareholders of Petrogrand, corresponding to a dilution of approximately 49.8 % for the existing shareholders in Shelton.

• The acceptance period for the Offer is expected to be from 28 February 2014 up to and including 21 March 2014.

• An extraordinary shareholders meeting in Shelton on 9 January 2014 resolved to give a mandate to the Board to resolve, among other things, on issue of B shares with provisions regarding payment in kind.

Background and reasons for the Offer

During the past years Shelton has developed its license portfolio step by step with proven oil fields, increasing production and a significant resource potential offshore. Due to successful drillings Shelton reached an important milestone of 1,000 produced barrels of oil per day in the fourth quarter 2013. The increase in production has been achieved under strong profitability. The operating margin in the third quarter 2013 amounted to 32 %.

The board in Shelton believes that there is both an industrial and financial rationale for the Offer. In Russia the latest drilled well produces significantly more oil than previous wells. It has given a new and improved view of the field’s potential, which may be realized in horizontal wells with significantly better well economics. In addition, the company has two adjacent license areas where exploration of the potential only has reached initial stages. In Ukraine the company has interests in the producing Lelyaki field and three offshore licenses with significant potential. Shelton has a strong local network in Russia and Ukraine which gives good access to expansion possibilities.

The investments required to realize the potential in the license portfolio and to pursue new opportunities require investments, can only partly be financed with internally generated cash flows. The Offer to the shareholders of Petrogrand gives Shelton, via cash held by Petrogrand, financial resources to promptly and efficiently implement adopted business plans. The company’s position on the financial market will also be strengthened. By accepting the offer, shareholders of Petrogrand are given an opportunity to be part of a potential appreciation of the share compared to the existing discount and a possibility to benefit from the values that the combined company can create.

With the background outlined above Shelton announces a public offer to the shareholders of Petrogrand.

The Offer

Shelton offers 0.30 B shares in Shelton for each share in Petrogrand.

The offer constitutes a premium of approximately 34.8 % based on the volume weighted average share price for Shelton’s B shares on NASDAQ OMX Main Market and Petrogrand’s shares on NASDAQ OMX First North during the past month up until and including 21 January 2014. Compared to the last closing price for the Petrogrand share, SEK 7.00 per share, on NASDAQ OMX First North on 21 January 2014, i.e. the last day the share was traded prior to the announcement of this Offer, the Offer constitutes a premium of 38.9 %.

Based on the latest closing price paid for the Shelton B share on 21 January 2014 (SEK 32.40 per share), the Offer represents a value of approximately SEK 9.72 for each Petrogrand share. The Offer values Petrogrand to approximately SEK 391.4 million.

The offered consideration will be adjusted if Petrogrand pays dividend or transfers assets before settlement has been made under the Offer and will consequently be reduced with a corresponding amount per share for each such dividend or transfer of asset.

At full acceptance of the Offer approximately 12,079,769 new B shares in Shelton will be issued in the Offer, which is equivalent to a dilution of 49.8 % for the existing shareholders of Shelton.

Shelton’s ownership in Petrogrand

As of the date of the announcement of this Offer Shelton does not own (and does not control in any other way) any shares in Petrogrand or any financial instruments that gives Shelton a financial exposure corresponding to a share holding in Petrogrand.

Financial effects for Shelton

As of September 30, 2013 the main assets of Petrogrand consisted of approximately SEK 330 million in cash (adjusted for a conversion of SEK 30 million and repayment of a convertible loan of SEK 185 million) and 1,500,000 B shares in Shelton.

The financial information below is based on Shelton’s consolidated financial statements as of 31 December 2012 and 30 September 2013 and the period January – September 2013 and on the assumption that Shelton through the Offer acquires all shares in Petrogrand.

The table below shows the consolidated condensed balance sheets of Shelton as of 31 December 2012 and 30 September 2013 (amounts in SEK million):

			31 Dec		30 Sep
			2012		2013
Non-current assets			276		287
Current assets			61		277
Total Assets			337		564
Equity			271		278
Non-current liabilities			50		28
Current liabilities			16		258
Total Equity and Liabilities			337		564

The table below shows Shelton’s consolidated condensed income statement for the period January – September 2013 (amounts in SEK million):

			Jan-Sep
			2013
Revenue			72
Operating costs			-53
Operating profit			19
Financial items			-12
Profit before tax			7

Based on Petrogrand’s interim report January – September 2013 Petrogrand had non-current assets of SEK 1 million, current assets of SEK 370 million, equity of SEK 364 million and current liabilities of SEK 7 million as of 30 September 2013. The current assets consisted of inventory SEK 2 million, convertible debentures SEK 215 million, assets under discretionary management SEK 101 million and cash SEK 48 million. Subsequent to 30 September 2013 SEK 30 million of the convertible receivable has been converted to shares and SEK 185 million has been repaid to Petrogrand in cash.

If Shelton acquires Petrogrand through the Offer, the following items will be added to the consolidated balance sheet of Shelton, based on Petrogrand’s consolidated balance sheet as of 30 September 2013: non-current assets of SEK 1 million and current assets of SEK 340 million. The convertible debenture that has been converted to shares in Shelton will be reported as treasury shares, which means that they will not be included in assets in the balance sheet but instead reduce equity. The remaining convertible debenture of SEK 185 million constituted receivables on Shelton and has since been settled in cash by Shelton and is thereby assumed to be cash if the Offer is completed. Current liabilities of SEK 7 million will also be added to Shelton’s consolidated balance sheet.

In the case that, at the time of the acquisition, there will be goodwill such goodwill will be included among assets in Shelton’s consolidated balance sheet.

Petrogrand does not conduct any significant oil operations at the time of the Offer and the consolidated income statement of Shelton will therefore only be affected by the administrative costs and financial income and costs. For the period January – September 2013 the administrative costs amounted to SEK -6 million and the financial items to net SEK -3 million in Petrogrand.

Financing of the Offer

An extraordinary shareholders meeting in Shelton on 9 January 2014 resolved to give a mandate to the Board to resolve, among other things, on issue of B shares with provisions regarding payment in kind. The Board intends to issue B shares under this mandate in relation to the Offer.

Share capital and ownership structure

The share capital in Shelton prior to the offer amounts to SEK 60,815,440. The number of A shares amounts to 170,580 (10 votes per share) and the number of B shares amounts to 11,992,508 (one vote per share), giving a total number of 12,163,088 shares.

Shelton has outstanding convertible debentures of a total nominal amount of SEK 22,410,000. These convertibles can be converted to Shelton B shares at a conversion price of SEK 16 during the period 1-15 June 2014. At full conversion Shelton will issue 1,400,625 B shares.

Shelton has 320,000 outstanding warrants. Each warrant entitles the holder to subscribe for one new B share for SEK 18.67 during the period 1-15 June 2015. If fully subscribed, the warrants will lead to 320,000 new B shares being issued.

The share capital in Petrogrand amounts to SEK 40,265,898 and the number of shares to 40,265,898.

Petrogrand has issued warrants as part of its employee incentive program. The Offer does not include these warrants. Shelton will ensure that the holders of the warrants will be treated fairly. Shelton intends to consult with Petrogrand management to receive the full warrant terms in order to be able to provide a fair offer.

Petrogrand has no outstanding convertibles or other instruments that can result in the issue of new shares other than the above mentioned warrants.

Petrogrand holds 1,500,000 B shares in Shelton, corresponding to approximately 12.3% of the capital and 10.8% of the total votes before the Offer. If the Offer is completed, these shares will either be withdrawn and cancelled, or sold.

If the Offer is fully accepted, approximately 12,079,769 new B shares in Shelton will be issued to the shareholders of Petrogrand. The number of shares may vary due to rounding. Given full acceptance of the Offer, the number of shares will amount to 24,242,857, of which 170,580 are A shares and 24,072,277 are B shares (before dilution of above mentioned convertibles and warrants). If the 1,500,000 shares held by Petrogrand are withdrawn and cancelled, the total amount of shares will decrease from 24,242,857 till 22,742,857.

Conditions to the offer

Completion of the offer is conditional upon:

1. The Offer being accepted to such an extent that Shelton becomes the owner of more than 50% of the total number of shares and votes (on a fully diluted basis);
2. No other party announcing an offer to acquire shares in Petrogrand on terms that are more favourable to the shareholders in Petrogrand than the Offer;
3. With respect to the Offer and Shelton’s acquisition of Petrogrand, receipt of all necessary regulatory, governmental or similar clearances, approvals and decisions, in each case on terms which, in Shelton’s opinion, are acceptable;
4. Petrogrand not taking any measures that are liable to impair the prerequisites for the Offer or its implementation, including but not limited to divestment of a significant part of Petrogrand’s operations or assets, or any other significant change in operations not in accordance with the business principles previously adhered to by Petrogrand
5. That no significant change in Petrogrand’s financial position or operations has occurred following the announcement of the Offer. A significant change includes but is not limited to an event that significantly affects or reasonably could affect Petrogrand’s cash position, sales, result or equity negatively which Shelton not reasonably could be aware of or predict at the time of announcement of the Offer
6. That no information that has been published by Petrogrand, or transferred from Petrogrand to Shelton, is significantly incorrect, incomplete or misleading and that Petrogrand has published all information that should have been published by Petrogrand
7. That neither the Offer or acquisition of Petrogrand is made impossible or significantly difficult due to legislation or other decree, court decision, government decision or other similar event that has occurred or reasonably can be expected to occur, that is outside the control of Shelton and that Shelton not reasonably could have foreseen at the time of announcement of the Offer.

Shelton reserves the right to withdraw the Offer in the event that it is clear that any of the above conditions are not fulfilled or cannot be fulfilled. However, with regard to conditions 2-7, such withdrawal will only be made provided that the non-fulfillment of such condition is of material importance to Shelton’s acquisition of Petrogrand. Shelton reserves the right to waive, in whole or in part, one or more of the conditions above, including, with respect to condition 1 above, to complete the Offer at a lower level of acceptance.

Due diligence

Shelton has not performed any due diligence of Petrogrand at any point since Petrogrand’s interim report for the period January – September 2013 was published.

Information about related parties

Two members of the board of Petrogrand, Maks Grinfeld and Mats Jansson, are also members of the board of Shelton. Maks Grinfeld is also the CEO of Petrogrand. Maks Grinfeld and Mats Jansson have not participated in the Board of Shelton’s preparation or decision of the Offer.

Indicative time plan

The Offering document is expected to be published approximately on 27 February 2014. The acceptance period for the Offer is scheduled from 28 February up to and including 21 March 2014.

Issue of settlement statements of the consideration to the shareholders that accept the Offer is estimated to start approximately on 31 March 2014. Shelton reserves the right to extend the acceptance period and to postpone the date for settlement statements of the consideration, for example if approvals from relevant anti monopoly authorities cannot be obtained before the acceptance period expires.

Fraction of shares

Only full B shares of Shelton will be issued to shareholders of Petrogrand that accepts the Offer. Fractions of shares will be added together and sold by Shelton on the market on behalf of the affected shareholders and the proceeds from the sold shares will be distributed between the affected shareholders in relation to the respective shareholder’s fraction of one share (after deduction of costs for selling the shares). The sale of the shares will be executed by Pareto Securities AB or other account-handling institute.

The B shares in Shelton that are issued as consideration in the Offer entitles to dividend for the first time on the record date for dividend that comes closest after the new shares have been registered in the shareholders register of Shelton.

Compulsory redemption and delisting

In the case that Shelton becomes the owner of more than 90% of the outstanding shares in Petrogrand, Shelton intends to initiate a compulsory redemption process in accordance with the Swedish Companies Act in order to acquire all of the outstanding shares in Petrogrand. In such case Shelton intends to act for the shares in Petrogrand to be delisted from NASDAQ OMX First North, provided that it can be done in accordance with existing regulations and generally accepted practices on the stock market.

Applicable law and disputes

Swedish law, the Swedish Corporate Governance Board’s rules for public offers regarding shares in Swedish limited liability companies whose shares are traded on certain markets (the “Takeover rules”), the Securities Council’s (Sw. Aktiemarknadsnämnden) statement on interpretation and application of the takeover rules and, in applicable cases, the Security Council’s earlier statement on interpretation and application of the Industry and Commerce Stock Exchange Committee’s (Sw. Näringslivets Börskommitté) rules for public offers are applicable on the Offer.

Disputes related to, or that arises as a consequence of the Offer shall be settled by a Swedish court of law exclusively, with the Stockholm District Court as first instance.

Advisors

Shelton has in relation to the Offer hired Pareto Securities AB as financial advisor and the law firms Kilpatrick Townsend and Gernandt & Danielsson as legal advisors in relation to the Offer.

Stockholm den 22 January 2014

Shelton Petroleum AB (publ)

The Board of Directors

For more information, please contact: Robert Karlsson, CEO, Shelton Petroleum, +46 709 565 141 robert.karlsson@sheltonpetroleum.com www.sheltonpetroleum.com

The information provided herein is such that Shelton Petroleum AB is obligated to disclose it pursuant to the Securities Markets Act (2007:528) and the Takeover rules. The information was submitted for publication at 8:00 (CET) on 22 January 2014.

About Shelton Petroleum Shelton Petroleum is a Swedish company focused on exploring and developing concessions in Russia and the resource-rich basins of Ukraine. In Russia, the company holds three licenses in the Volga-Urals area in Bashkiria and has commenced production on the Rustamovskoye field after a successful exploration program. In Ukraine, Shelton Petroleum’s wholly owned subsidiary has a joint venture with Ukrnafta and Chornomornaftogaz, two leading Ukrainian oil and gas companies. The Shelton Petroleum share is traded on NASDAQ OMX Stockholm under the under the symbol SHEL B.

IMPORTANT INFORMATION

This press release may not, directly or indirectly, be distributed or published to or within the United States of America, Australia, Hongkong, Japan, Canada, New Zealand or South Africa. The Offer is not given to (and acceptances will not be admitted from) persons in these countries or persons in any other country where an acceptance of the Offer would require further documentation, registration or other measures in addition to what is required by Swedish law.

This press release contains forward looking statements which in relation to the Offer means certain risks and uncertainties, including the expected advantages of the acquisition for Shelton and Shelton’s strategic and operational expectations. Actual events or results can due to a number of risks and uncertainties significantly differ from what has been described in this press release, including among other things that the Offer cannot be completed or that the completion is delayed and that the expected advantages of the Offer for Shelton cannot be realized.

All information in this press release has been submitted as of 22 January 2014, and Shelton has no intention, and does not undertake to, update the information.

This is an English translation of the Swedish original. In case of discrepancies, the Swedish original shall prevail.