16 July 2012

Sound Oil plc

("Sound Oil" or "the Company")

Funding Update

Sound Oil, the upstream oil and gas company with assets in Italy and Indonesia, announces the following funding update:

Private Placement and Open Offer:

Sound Oil has agreed a private placement through Astin Capital Management Limited ("Astin") and intends to make an open offer to existing shareholders. Following the announcement of the encouraging results at the Jatayu well, the new funds will be used to fund continuing operations including probable testing and two other wells at Citarum (Indonesia); to provide contingency funds for the Nervesa well and fund the development of Rapagnano and Casa Tiberi (Italy); and for other operations.

The placement involves the Company issuing 774,341,464 new ordinary shares of 0.1 pence each immediately in exchange for 7,143,300 redeemable subscription notes at a par value of £1 per note.  The notes are unsecured and non interest bearing. They will be redeemed in seven equal amounts for a cash consideration at the end of seven separate trading periods, commencing  25^th July 2012 and finishing  in February 2013. The cash consideration for the redemption of the notes is calculated as the arithmetic average of the 20 trading day volume weighted average price ("VWAP") for each of the seven periods.   In summary the Company will therefore issue a fixed number of shares for a variable consideration (the VWAP for the next seven months).

The placement also involves the cancellation of all (217,552,682) existing warrants previously issued by the Company.  No new warrants are being issued in association with this placement.

Whilst the precise amount raised will depend on future share price trends, the placement would raise approximately six million pounds (after fees and transaction costs which reflect the warrant cancellation) should the share price remain constant. 

Various protection clauses have been agreed as part of the placement, including a "no shorting" provision, a cap on Astin investors owning more than 29.9 per cent of the Company's share capital and a floor price.  The floor price is variable, being determined by Sound at the beginning of each settlement period and enabling the Company to elect to roll forward the settlement of those days below the floor price to an extraordinary settlement period at the end of the seven months.  The settlement during the extraordinary settlement period is the 40 days VWAP of that period.

In addition the placement includes an Escrow arrangement and  "lock in" for all new shares issued (on a declining balance basis). 

The Company also announces that at the end of the settlement period (a maximum of seven months plus a 40 day extraordinary settlement period, if required), existing shareholders will be offered the chance to participate in an open offer up to a maximum of £1.0 million.  This open offer will be priced at the VWAP for the entire period of the placement, thereby enabling existing shareholders to benefit from similar terms to new investors.

Application will be made for the new ordinary shares to be admitted to trading on AIM and this is expected to become effective on 20 July 2012.  Following the issue of the new shares, the Company will have 2,870,128,815 ordinary shares in issue with each share carrying the right to one vote.  There are no shares held in treasury.  The total number of voting rights in the Company is therefore 2,870,128,815 and this figure may be used by shareholders as the denominator for the calculations by which they determine if they are required to notify their interest in, or a change to their interest in, the Company under the Disclosure and Transparency Rules.

Strombone Update:

During the last two months the Company has completed all actions required in preparation for this core appraisal drill, including securing the land, agreeing a Letter of Intent with the rig contractor and submitting all required documentation to the relevant authorities.  The award of all drilling permits in the Basilicata Region, however, requires more time to satisfy any concerns on environmental and regional development issues.  The Company remains confident it will secure the permit to drill Strombone in the near term and discussions with the Region and the local Council continue.  It is now expected that the Strombone appraisal drilling will occur early 2013.

The protracted negotiations with the oil and gas fund with whom the Company was in advanced discussions regarding potential debt funding at Strombone, have been terminated.

The funding of Strombone is significantly less urgent as no material expenditure is now planned for Strombone in the near term.  

Gerry Orbell, Sound Oil's Chairman and Chief Executive, commented:

"The Company will be focusing its efforts on the important Jatayu and Nervesa wells in the coming weeks. At Jatayu we expect to acquire wireline log results over the 390 ft hydrocarbon bearing section imminently. This may be followed by deepening the well to the primary objective and/or testing. The Nervesa gas appraisal well is on schedule for drilling in the autumn 2012.  Both these priorities are potentially transformational for the Company. 

Access to capital is a critical element of success for a pre-revenue oil/gas explorer and we are pleased to secure this new equity in difficult market conditions.  This placement enables Sound to cover the anticipated additional expenditure in Citarum, including the completion of the complex Jatayu well and the forthcoming Geulis and Cataka wells, all of which will be drilled continuously throughout the rest of the year.

The Directors continue to believe there is significant upside in Sound stock. This innovative structure was specifically designed to limit dilution at current prices, therefore enabling the Company to benefit from future price increases during a very active operational period.  I am pleased to confirm that this placement also removes all warrants previously issued by the company and therefore removes a future overhang from the stock, further increasing the upside exposure for existing shareholders. I am also pleased to accede to previous requests and give existing shareholders the opportunity to participate in the placing on similar terms through an open offer. Further details of this will be announced at the appropriate time.

This placement secures Sound Oil well into 2013, well beyond our near term operations."

Existing shareholders are invited to a hosted telephone conference call with the Company's Executive team on Thursday July 26^th at 11am (London time).  For dial in details please contact Tom Hufton on tomh@buchanan.uk.com or 0207 466 5167.

For further information please contact: