23 September 2014

Sound Oil plc

("Sound Oil" or the "Company")

Nervesa Reserve Based Lending - Heads of Terms

Sound Oil, the European / Mediterranean focused upstream oil and gas company, is pleased to announce signature of non-binding Heads of Terms in respect of a Reserve Based Lending facility for the Nervesa discovery, onshore Italy. 

The Company is pleased to confirm, subject to contract, a Euro 7 million 24 month loan secured on the Carita permit (which holds the Nervesa discovery) and without recourse to the Company (the "Proposed Funding").  The Proposed Funding is to be provided by Greenberry S.A. ("Greenberry"), an affiliate of Continental Investment Partners S.A. ("Continental") (Sound Oil's cornerstone investor) and will attract a 5% annual coupon. As part of the Proposed Funding arrangements Greenberry will be granted a 4% royalty on gross revenues from the Nervesa discovery within the Carita permit area and an arrangement fee. Greenberry have agreed for the arrangement fee to be paid in Sound Oil shares at an effective issue price of 16 pence per ordinary share (a 25% premium to the closing price on Friday 19 September 2014) which will result in the issue of 3,906,250 ordinary shares in the Company.  The loan will be issued at 91.25% of par value.

Following the agreement in principle of the Proposed Funding, the Company has decided not to continue with negotiations with respect to the farm in transaction with the Niche Group plc.

Related Party Transaction

Continental is currently directly and indirectly interested in 15.48% of the Company's issued share capital and Marco Fumagalli, a director of the Company, is Managing Partner of, and a 25% shareholder in, Continental.

Under the AIM Rules for Companies therefore, Continental is deemed to be a related party of the Company. As a result, the entry by the Company into a binding agreement with Continental or an affiliate of Continental in connection with the Proposed Funding will constitute a related party transaction pursuant to Rule 13 of the AIM Rules for Companies and accordingly a further announcement will be made at the time such an agreement is entered into.

James Parsons, Sound Oil's Chief Executive Officer, commented:

"This loan will be the second major investment by our cornerstone institutional investor and demonstrates the value of our flagship asset, Nervesa, which will achieve first gas in 2015.

This transaction:

·     fully funds Nervesa going forward

·     allows the Company to retain its current cash balance (US$19 million as at 31 August 2014) for other assets in the drill programme

·    delivers greater value for Sound Oil shareholders with an estimated Euro 2 million increase in NPV10 compared to the previous farm in offer (ceding only 4% of future revenues from the Nervesa discovery) and avoiding the complexities of a joint venture partner"

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