Petroceltic in bed with Adair’s Mrs.

That’s a turn up. Whilst I have been saying for sometime that PCI are an attractive buy for any would be bidder, I certainly didn’t see a happy marriage arrangement in the form of a merger taking place.

Robert Adair, founder and main shareholder in Melrose Resources has certainly bagged himself a very fine deal here.

Considering the worth of PCI’s algerian assets alone, PCI’s market cap should be nearer £400mln than £200mln. I’m not sure the same could be said for Melrose. But they too have some hidden beauties in their portfolio. Without getting stuck into the detail on each company – the simple upside from this deal is that both can explore their pooled exploration targets with a balanced debt and RBL. This avoids equity placings and dilution but also adds strength to future farm out talks. Both companies prior to this merger were approaching significant farm out deals.

Whether these still go ahead remains unknown. Other options are now available.

I don’t know Melrose in great detail, so will be getting to know the MRS over the next few days. It feels a bit like a shotgun marriage and at first glance I can see the attraction – but it’s certainly not love at first sight for PCI holder.

First thing I’ll be checking is the father in law. The great Red Adair was known for fighting oil fires that raged out of control. I hope Robert Adair doesn’t have too close ties as firefighting couldn’t be further away from where PCI want to be.

Interesting times – the irish connection appears to have carried some weight on the deal. Lets hope that Brian didn’t agree to the deal in a knees up Tavern in Dublin.

Petroceltic International PLC

…………………………………………………………………………………

17 August 2012

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction.

FOR IMMEDIATE RELEASE 17 August 2012

Recommended merger

of

Melrose Resources plc

and

Petroceltic International plc

Summary

– The Boards of Petroceltic and Melrose are pleased to announce that they have reached agreement on the terms of a recommended merger of Melrose with Petroceltic

– The Boards of Petroceltic and Melrose believe that the Merger will create a regionally focused North Africa, Mediterranean and Black Sea independent oil and gas company with a balanced and diversified portfolio comprising production, development and high impact exploration assets

   --          Under the terms of the Merger, Melrose Shareholders will receive:

17.6 New Petroceltic Shares for every Melrose Share

– In addition, a Special Dividend of 4.7pence per Melrose Share will be paid by Melrose to Melrose Shareholders who are on Melrose’s register of members at the Reduction Record Time within 14 days of the Effective Date

– Following the Merger becoming Effective, based on the Merger Ratio of 17.6 New Petroceltic Shares for every Melrose Share held:

   --     existing Melrose Shareholders will hold 46 per cent. of the Enlarged Company; and 
   --     existing Petroceltic Shareholders will hold 54 per cent. of the Enlarged Company,

(in each case on an undiluted basis)

– The Merger values each Melrose Share at 143.9 pence and the entire issued share capital of Melrose at approximately GBP165.0 million and represents a premium of approximately 6.2 per cent. to Melrose’s Closing Price of 135.5 pence on 16 August 2012, being the last Business Day prior to the announcement of the Merger

– Together with the Special Dividend, the Merger values each Melrose Share at 148.6 pence and the entire issued share capital of Melrose at approximately GBP170.4 million and represents a premium of approximately 9.7 per cent. to Melrose’s Closing Price of 135.5 pence on 16 August 2012, being the last Business Day prior to the announcement of the Merger

– The Enlarged Group will have combined 2P reserves of 84 mmboe, 2C resources of 357 mmboe and unrisked prospective resources of 1,365 mmboe in the North Africa, Mediterranean and Black Sea regions, creating a regionally focused independent oil and gas company with significant scale

– The Boards of Petroceltic and Melrose believe that the Merger will enhance the financial flexibility of the Enlarged Group, enabling it to pursue a balanced growth strategy which includes an active exploration drilling campaign and participation in the future development of Petroceltic’s Ain Tsila gas development in Algeria

– The Enlarged Group will be well capitalised with a new $300 million facility provided by HSBC available from the date the Merger becomes Effective for a period of 18 months to, amongst other things, refinance all current outstandings under Melrose’s existing reserve based lending and subordinate facilities. The Boards of Petroceltic and Melrose believe that the commitment of HSBC, an existing lender to Melrose, represents an important element of the long term funding strategy for the Enlarged Group

– It is not the intention of the Enlarged Company to make distributions by way of dividend payments for the foreseeable future following the completion of the Merger. The Boards of Petroceltic and Melrose consider that it will be in the Enlarged Company shareholders’ best interests to reinvest the profits of the Enlarged Group in its business growth opportunities, including the Algerian Ain Tsila gas development and the international exploration inventory. The Board of the Enlarged Company will regularly review and possibly adjust the dividend policy as the Enlarged Group’s asset portfolio and financial position evolve over forthcoming years

– The Merger will bring together the complementary skill-sets and shared management culture of the experienced operational teams of Petroceltic and Melrose. The Petroceltic team has a proven track-record in delivering high-impact exploration and appraisal results in North Africa. The Melrose team has delivered numerous onshore and offshore fields through development into production on fast-tracked schedules

– The Enlarged Company will be led by a management team comprising Brian O’Cathain of Petroceltic as Chief Executive Officer, David Thomas of Melrose as Chief Operating Officer and Tom Hickey of Petroceltic as Chief Financial Officer. The Boards of Petroceltic and Melrose expect that Robert Adair of Melrose will become Non-Executive Chairman of the Enlarged Company and that Hugh McCutcheon will become the Non-Executive Deputy Chairman of the Enlarged Company. The Board of the Enlarged Company will also include the management team and two Non-Executive Directors from Melrose, Alan Parsley and James Agnew and two other Non-Executive Directors from Petroceltic, Robert Arnott and Con Casey

– Petroceltic has received hard irrevocable undertakings to vote (or to procure to be voted) in favour of the resolutions to approve the Merger at the Court Meeting and the Melrose General Meeting from Robert Adair and Skye (a company connected to Robert Adair), who together are interested in an aggregate of 58,431,929 Melrose Shares, representing approximately 50.95 per cent. of the issued share capital of Melrose, and from other Directors of Melrose, who together are interested in an aggregate of 1,514,159 Melrose Shares representing approximately 1.32 per cent. of the issued share capital of Melrose, being in aggregate a total of 59,946,088 Melrose Shares representing approximately 52.27 per cent. of the issued share capital of Melrose

– A Relationship Agreement has been agreed between Petroceltic, Robert Adair and Skye conditional upon Admission of the Enlarged Company, the key terms of which are set out in Appendix IV of this announcement

– If the Merger becomes Effective, and subject to (i) satisfying eligibility criteria; (ii) market and trading conditions; and (iii) obtaining any necessary approvals including approval of the Board of the Enlarged Company, the Enlarged Company intends to make an application for a premium listing on the Official List of the UK Listing Authority and to be admitted to trading on the London Stock Exchange as soon as reasonably practicable and, in any event, within 12 months following the Merger becoming Effective. It will also consider seeking a listing on the Official List of the Irish Stock Exchange and admission to trading on the main securities market of the Irish Stock Exchange as soon as reasonably practicable thereafter. The Boards of Petroceltic and Melrose expect that a premium listing in London would broaden the range of investors and funds capable of investing in the Enlarged Company, and thereby contribute to the development of an active and liquid market in its shares. However, there is no certainty that such application will be successful at the time envisaged, or at all. In the event that such application is unsuccessful, the Enlarged Company’s shares will continue to trade on AIM and ESM

– It is intended that the Merger will be implemented by means of a scheme of arrangement of Melrose under Part 26 of the UK Companies Act, pursuant to which Petroceltic will acquire the entire issued and to be issued ordinary share capital of Melrose

– The Melrose Board, which has been so advised by Lambert Energy Advisory, N+1 Brewin and HSBC, considers the terms of the Merger to be fair and reasonable and intends to unanimously recommend that Melrose Shareholders vote in favour of the resolutions to be proposed at the Court Meeting and the Melrose General Meeting which are to be convened to approve the Merger. In providing their advice to the Melrose Board, Lambert Energy Advisory, N+1 Brewin and HSBC have taken into account the commercial assessments of the Melrose Board. Lambert Energy Advisory is acting as financial adviser to Melrose for the purposes of providing independent advice to the Melrose Directors on the Merger under Rule 3 of the Code

– The Merger represents a reverse takeover for Petroceltic under the AIM Rules and the ESM Rules, and as such will be conditional, amongst other things, on the admission to trading on AIM and ESM of Petroceltic, requiring the publication of an Admission Document, and the approval of Petroceltic Shareholders

– The Merger is also conditional on approval by the Bulgarian Commission on Protection of Competition

– The Petroceltic Directors believe that the Merger is in the best interests of Petroceltic and Petroceltic Shareholders as a whole and, accordingly intend to unanimously recommend that Petroceltic Shareholders approve the Petroceltic Resolutions at the Petroceltic General Meeting as they have irrevocably undertaken to do in respect of their own beneficial holdings totalling 17,767,842 Petroceltic Shares, representing approximately 0.75 per cent. of the Petroceltic Shares

Commenting on the Merger, Robert Adair, Executive Chairman of Melrose said:

“The merger represents an exciting opportunity for all shareholders and will create an E&P company with a strong regional focus and the scale to compete successfully in this arena. The Enlarged Group will have a strong, highly experienced management team with a good blend of operating skills to maximise the value of these assets and pursue additional business development opportunities. The Melrose Board believes that the Merger will provide access to material resources in a leading gas development and an exposure to a more diverse exploration portfolio, enhancing the longer term outlook for the business.”

Commenting on the Merger, Brian O’Cathain, Chief Executive of Petroceltic said:

“A combination with Melrose is a compelling opportunity to create a regionally focused company, balanced between production, development and exploration. The benefits extend beyond the improved risk profile to the combined entity’s enhanced strategic and funding options allowing the potential value of the assets of both companies to be realised for their shareholders.”

It is expected that the Scheme Circular, containing further information about the Merger and notices of the Court Meeting and Melrose General Meeting, together with the Forms of Proxy, will be posted to Melrose Shareholders on or around 24 August 2012. It is also expected that the Scheme will become effective on 10 October 2012, subject to the satisfaction of the Conditions and certain further terms set out in Appendix I to this announcement.

The Admission Document for the Enlarged Group, containing information about the Enlarged Group and the New Petroceltic Shares, will be posted to Melrose Shareholders with the Scheme Circular.

This summary should be read in conjunction with, and is subject to, the full text of the following announcement including the Appendices. The Conditions and certain further terms of the Merger are set out in Appendix I to this announcement. Appendix II contains details of the sources and bases of certain information contained in this announcement. Appendix III contains details of the irrevocable undertakings given to Petroceltic and Melrose. Appendix IV contains the key terms of the Relationship Agreement. Appendix V contains the definitions of certain terms used in this announcement.

Rule 2.10 disclosure

In accordance with Rule 2.10 of the Code, Melrose confirms that as of the date of this announcement it has 114,689,178 ordinary shares of 10 pence each in issue and admitted to trading on the London Stock Exchange with the ISIN GB0009354589.

In accordance with Rule 2.10 of the Code, Petroceltic confirms that as of the date of this announcement it has 2,369,605,049 ordinary shares of EUR 0.0125 each in issue and admitted to trading on the AIM market of the London Stock Exchange and the Enterprise Securities Market of the Irish Stock Exchange with the ISIN IE0003186172.

In accordance with Rule 2.10 of the Code, Petroceltic confirms that as of the date of this announcement it has the following warrants in respect of ordinary shares of EUR 0.0125 each in issue, which are transferrable but which are not admitted to trading on AIM, ESM or any other recognised exchange:

 
 Number of Warrants    Date of Grant    Exercise Expiry   Exercise Price 
                                              Date 
-------------------  ----------------  ----------------  --------------- 
 15,000,000           20 October 2011   31 December       4.52 pence per 
                                         2015              share 
-------------------  ----------------  ----------------  --------------- 
 15,000,000           8 November 2011   31 December       5.61 pence per 
                                         2015              share 
-------------------  ----------------  ----------------  --------------- 
 2,842,294            1 December 2011   31 December       6.86 pence per 
                                         2015              share 
-------------------  ----------------  ----------------  --------------- 
 17,921,027           3 January 2012    31 December       7.80 pence per 
                                         2015              share 
-------------------  ----------------  ----------------  --------------- 
 8,306,481            10 February       31 December       8.24 pence per 
                       2012              2015              share 
-------------------  ----------------  ----------------  ---------------

There will be a presentation for analysts at 9.30 am today (Friday 17 August 2012). Please contact Charlie Stewart at Pelham Bell Pottinger for details. Tel: +44(0)207 861 3148 or via email: cstewart@pelhambellpottinger.co.uk