Acquisition of Elko and Placing

RNS Number : 0761N

Xtract Energy plc

26 August 2011

 



26 August 2011

AIM: XTR

XTRACT ENERGY PLC

("Xtract" or the "Company")

Acquisition of Elko Energy, Inc.

Placing of 240,000,000New Ordinary Shares of 0.1p each at a price of 1.25 pence per Ordinary Share raising approximately £3 million (before expenses)

£12.5 million Equity Line Facility

Re-admission of the Company's enlarged share capital to trading on AIM

Convening of General Meeting

Resumption of dealings in the Company's existing issued shares

The Company has today published and sent to Shareholders an Admission Document containing information on the above proposals. The Company has applied for and expects dealings in the Company's existing issued shares to reassume on or around 26 August 2011. (Copies of the Admission Document are available free of charge for inspection during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the registered office of the Company and are also available for download from the Company's website at www.xtractenergy.co.uk).

Highlights

·     Xtract has conditionally acquired the remaining share capital of Elko Energy, Inc. for 350,245,343 new Ordinary Shares in Xtract which represents approximately 23.3 per cent. of the Enlarged Share Capital;

·     Xtract has conditionally raised approximately £3 million (before expenses) from institutional investors.  The net proceeds will be used to fund the costs associated with the Acquisition and ongoing working capital requirements of the Enlarged Group;

·     Readmission of the Enlarged Share Capital is expected to take place on 13 September 2011. The expected timetable for the Placing and Admission is set out below;

·     Xtract has also announced that it has entered into a conditional agreement with YA Global Master SPV to provide potential future funding of up to £12.5 million as part of an Equity Line Facility; and

·     Following completion of the Elko acquisition, the Company will no longer be an investing company for purposes of the AIM Rules.

On 21 June 2011, the Company announced that Xtract International has conditionally offered to acquire all of the issued and to be issued share capital of Elko Energy, Inc. not already owned by Xtract International. To satisfy the consideration for the Acquisition in full, the Company will issue 350,245,343 new Ordinary Shares (representing approximately 23.3 per cent. of the Enlarged Share Capital) to holders of Elko common stock. In addition, Elko has a total of 8,202,500 warrants and options outstanding which will be converted into rights over 57,417,500 Ordinary Shares. As announced by the Company on 4 August 2011, the Acquisition has been approved by the Elko shareholders.

The Company is pleased to announce that it has conditionally raised approximately £3 million (before expenses) by issuing 240,000,000 Placing Shares (representing approximately 15.9 per cent. of the Enlarged Share Capital) with institutional investors at the Placing Price. The net proceeds will be used to fund the costs associated with the Acquisition and the ongoing working capital requirements of the Enlarged Group.

The Company also announces that it has entered into a conditional agreement with YA Global Master SPV to provide potential future funding of up to £12.5 million pursuant to the Equity Line Facility which will introduce further flexibility of funding for possible future working capital requirements.

The Acquisition will mean that Xtract will no longer be considered, for the purposes of the AIM Rules for Companies, as an investing company and therefore, on Completion, the Acquisition will constitute a reverse takeover pursuant to Rule 14 of the AIM Rules for Companies. As such it will require the approval of the Shareholders which will be sought at the General Meeting convened for this, and other purposes including the approval of the Shareholders to the Company carrying out the Placing and entering into the Equity Line Facility, at the offices of Trowers & Hamlins LLP, Sceptre Court, 40 Tower Hill, London EC3N 4DX at 11.00 a.m. on 12 September 2011.

The Acquisition remains conditional, inter alia, upon approval of the Acquisition by the Shareholders in the General Meeting, the Placing Agreement becoming unconditional in all respects and Admission occurring. An application has been made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM, subject to these conditions having been met, and trading is expected to commence at 8.00 a.m. on 13 September 2011.

The Company has received an irrevocable undertaking to vote in favour of the Resolutions at the General Meeting from Cambrian Investment Holdings, in respect of its holding of 340,256,048 Ordinary Shares representing approximately 37.2 per cent. of the Existing Ordinary Shares.

The Directors (other than Paul Butcher who will not hold or have any interest in Ordinary Shares), the Proposed Director and Cambrian Investment Holdings have undertaken to the Company and to Cenkos that, during the period ending on the first anniversary of Admission, save in certain limited circumstances set out in Rule 7 of the AIM Rules for Companies (being in the event of an intervening court order, the death of the Director or Shareholder in question or on the acceptance of a takeover offer for the Company), they will not, and will procure that their associates will not, dispose of any interest which they have in any Ordinary Shares.

If the Placing and Acquisition do not proceed and if the SEDA is not approved at the General Meeting, the Company would need to consider alternative sources of funding to allow it to meet its short term liabilities. There is no guarantee that such funding would be available to the Company and in such an event, the Directors believe that this would have a material adverse effect on the Company.

Details of risk factors concerning the company, its business, the business environment and the proposals are contained in the Admission Document.

Directors Shareholdings

The Directors (other than Paul Butcher) have all agreed to subscribe for, in aggregate, 17,600,000 Placing Shares at the Placing Price. The directors' (and Proposed Director) shareholdings are set out below:

	As at the date of this announcement		Immediately following Admission
	Number of Ordinary Shares	Percentage of issued share capital	Number of Ordinary Shares	Percentage of issued share capital
Peter Moir	nil	nil	8,000,000	0.53
Alan Hume	nil	nil	8,000,000	0.53
Paul Butcher	nil	nil	nil	nil
George Watkins	nil	nil	1,600,000	0.11
Jeremy Kane	392,300	0.04	8,862,300	0.59

Expected timetable for the Placing and Admission

Publication of the Admission Document	26 August 2011
Latest time and date for receipt of Forms of Proxy	11 a.m. on 10 September 2011
General Meeting	11 a.m. on 12 September 2011
Cancellation of dealing facility for the Existing Ordinary Shares	12 September 2011
Admission becomes effective and dealings in the Enlarged Share Capital expected to commence on AIM	8.00 a.m. on 13 September 2011
Completion of the Acquisition	4 p.m. on 13 September 2011
Expected date for CREST accounts to be credited (where applicable)	13 September 2011
Despatch of definitive share certificates (where applicable)	By 20 September 2011

Each of the dates in the above timetable is subject to change without further notice and at the absolute discretion of the Company and Cenkos and satisfaction of all conditions contained in the Arrangement Agreement and Placing Agreement is assumed.

Placing Statistics

Placing Price per New Ordinary Share issued pursuant to the Placing	1.25 pence
Number of Ordinary Shares being issued pursuant to the Placing	240,000,000
Number of Ordinary Shares being issued pursuant to the Acquisition	350,245,343
Number of Ordinary Shares in issue following the Placing and completion of the Acquisition	1,505,210,369
Gross proceeds of the Placing (approximately)	£3.0 million
Estimated net proceeds of the Placing receivable by the Company (approximately)	£1.7 million
Market capitalisation of the Company at the Placing Price at Admission (approximately)	£18.8 million
Percentage of Enlarged Share Capital represented by Placing Shares (approximately)	15.9 per cent.
Percentage of Enlarged Share Capital represented by Acquisition Shares (approximately)	23.3 per cent.
TIDM Code/AIM Symbol	XTR
ISIN Number	GB00B06QGC57

Peter Moir, Chief Executive of Xtract Energy, commented:

"We are very pleased to have successfully raised £3 million, the net proceeds of which will be used to fund the costs associated with acquiring Elko Energy Inc and the ongoing working capital requirements of the Company.

Since the new management team have come in, we have strengthened the Balance Sheet, appointed a new Chairman and focused on core projects, while negotiating royalty arrangements for our non-core assets, with significant upside potential. The acquisition of Elko and re-listing of the Company as an operating business completes the turnaround and we anticipate drilling the high impact Luna exploration well in Denmark during Q4 2011.We look forward to updating our shareholders on progress in due course."

Enquiries please contact:

Xtract Energy Plc	Peter Moir, CEO Alan Hume FD	[phone]
Cenkos Securities Plc	Jon Fitzpatrick Alan Stewart	[phone] [phone]
Financial Dynamics	Billy Clegg Edward Westropp Alex Beagley	[phone]

Background to the Acquisition

Xtract was founded in October 2004 and was admitted to trading on AIM in January 2006 to pursue a strategy of investing in mineral and oil companies to create a broad portfolio of interests in natural resources. Whilst in general this strategy gave access to potential reward, Xtract became a minority shareholder in a geographically diverse portfolio seeking to exploit a wide range of resource types. As an investing company, Xtract's ability to influence direction on specific assets was therefore limited.

The Company initially sought to address this by increasing its interests in specific investment cases, such as Elko and Extrem. This, however, had limited success due to mixed operational results and a lack of available investment capital.

Following the appointment of Peter Moir, as Chief Executive Officer on 5 July 2010, the Company announced on 6 July 2010 that it had established a combined task force made up of both Elko and Xtract directors to identify the strategic options open to both companies. The objective of the strategic review was to identify how to unlock the optimum value for the shareholders of both entities.

Following the establishment of the task force, Xtract has focussed the Group's interests by:

·     entering an agreement with Chevron to realise immediate value from Elko's Dutch assets as well as securing a future potential income stream by virtue of an over-riding royalty interest in that exploration and appraisal acreage;

·     entering into share transfer and royalty agreements with Merty Enerji Petrol Arama Egitim ve Servis Hizmetler Anonim Sirketi and individual members of the Yoldemir family to transfer its shareholding in Extrem for an initial payment of $100,000 and an over-riding royalty interest alongside other success related amounts, thereby reducing its exposure to Turkey;

·     securing a major partner, Noreco, who has farmed into Elko's Danish assets. Noreco, as the new operator of this acreage, plans to spud an exploration well in the autumn of 2011;

·     instructing Ernst & Young to carry out a review and negotiation of the capital gains tax and associated liabilities of the Company and its subsidiary, Xtract International, in Australia and the UK, and to advise on the tax reliefs available to the Group; and, following agreement to a Schedule of payments with the Australian Taxation Office (ATO) and HMRC, making payments thereby reducing these liabilities on the balance sheets of both companies; and,

·     strengthening the Board to meet the revised focus of the Group.

The conclusion of the strategic review is to focus the Company, in the short term, on the exploration of Elko's Danish assets. These include the 02/05 and 01/11 licence areas offshore to the west of the Jutland Pensinsula. Xtract International has therefore conditionally offered to acquire all of the shares in Elko that are not already owned by Xtract.

Strategy

The Directors believe that the Acquisition will have the effect of strengthening the Group's balance sheet, increasing liquidity in the Enlarged Share Capital and facilitating future decision making with regard to the Danish assets. Elko has operated assets in both the Netherlands and Denmark, and completion of the Acquisition will result in this expertise becoming available to the Group. The Elko shareholders will gain liquidity as holders of the Acquisition Shares in the Enlarged Group.

Drilling on the 01/11 area is expected to commence in September 2011. Although Elko has sufficient funds to meet its share of the costs under the Danish Joint Operating Agreement, should such drilling be successful the licence partners may wish to extend the planned drilling program and the Directors believe that the Acquisition and Placing will allow them greater flexibility in considering future investment.

The Directors consider that Elko's over-riding royalty interest offers interesting potential in the medium term, whilst the Australian oil shale asset has longer term potential and is being progressed accordingly.

Looking forward, Xtract wishes to invest in further oil and gas development projects. Amongst the Board and the Group's long standing consultants, there is significant experience of exploration, appraisal, commercialisation and development. The objective is to seek assets with technical and/or other challenges, which make potential development projects initially less attractive to larger companies but which nevertheless have the potential to generate high returns for Shareholders.

The Group has maintained its position in both the Kyrgyz Republic and Morocco as the cost of so doing is minimal in terms of time and expenditure. The Kyrgyz Republic is not presently a prime focus for Xtract and may be sold or otherwise disposed of if an appropriate opportunity can be identified. The Company is seeking to arrange a meeting with the representative of the Moroccan Office National des Hydrocarbures et des Mines ("ONHYM") with a view to expanding the scope of the memorandum of understanding currently existing between ONHYM and XOSM.

Information on the Elko Assets

Elko is a Canadian registered oil and gas exploration company which has a direct interest in exploration and production licences in the Danish North Sea and an over-riding royalty interest in licences in the Dutch North Sea. Its major asset in the Danish North Sea is a 33 per cent. working interest in an exploration and production licence 02/05 and a 33 per cent. working interest in an adjoining exploration and production licence 01/11, east of the prolific Central Graben area. Technical work indicates the potential for significant resources on these combined licences. In addition, Elko holds a royalty interest in gas-bearing licence blocks P1 and P2 in the Dutch North Sea. As Shareholders are aware, Xtract already owns approximately 49.97 per cent. of Elko's current issued share capital.

Denmark

Elko held a large exploration licence in offshore Denmark, being licence 02/05, which originally covered an area of 5,372 km² offshore to the west of the Jutland Peninsula. Two wells have been drilled within this licence. Elko farmed out 47 per cent. of the licence to Altinex Oil Denmark A/S, ("Altinex"), which is part of the Noreco Group ("Noreco"). The Noreco transaction closed on 23 March 2011. As part of the closing arrangements, Elko was paid approximately US$1.1m for past costs. Following this farm-out, the ownership of the licence interests is Elko 33 per cent., Noreco 47 per cent. with 20 per cent. held by a Danish government entity, NordsøFonden (the "Danish Licence Partners"). The Directors instructed

TRACS to produce a Competent Person's Report on Elko's Danish assets ("TRACS CPR").

In the second half of 2010, the Danish Licence Partners applied for additional acreage immediately adjacent to the existing licence area. The application was made under the same ownership percentages.

The application also contained a proposal for a significant partial relinquishment of the original 02/05 license area. The Danish Licence Partners were awarded a new licence 01/11, immediately to the west of the original 02/05 licence area with a new prospect, (the "Luna Prospect"), contained within the new licence. The Danish Licence Partners have selected a specific exploration well location and intend to commence drilling in the autumn of 2011. As announced on 23 June 2011, the Danish Licence Partners have secured a latest generation jack up drilling rig to drill the Luna Prospect. The specific well location has been selected to test the Rotliegendes play in what is expected to be the optimum position in terms of reservoir quality, thickness (prognosis ca. 90m thick) and hydrocarbon charge for the combined prospective area.

It is intended that the Luna well will be drilled to a depth of 2,250 metres by the Maersk Resolve jack-up drilling unit. The Maersk Resolve is currently drilling on contract to Maersk Oil and Gas in Denmark.

As such, the Maersk Resolve is coming to the 01/11 partnership drill ready, a short mobilisation distance from the Luna prospect location and already fully accredited by the Danish authorities for drilling operations in Denmark. The rig is currently expected to be available for the Luna Prospect in the second half of September 2011. The Luna Prospect drilling program is expected to take about 30 days.

There are a number of possible outcomes which can be described as technically successful as they would prove the presence of reservoir and source. The TRACS CPR estimates that there will be a 28 per cent. chance of getting a positive result in terms of hydrocarbon presence when the Luna Prospect is drilled. The existence of hydrocarbon shows would be encouraging as it would indicate that migration had been successful and it could be interpreted that hydrocarbons have migrated through this location and are potentially trapped updip in a second lead ("Lead A").

The TRACS CPR reports a gross oil prospective resources range for Luna of 107 mmbbls to 464 mmbbls in the oil case scenario. It also reports that the Danish acreage contains three high risk leads and prospects, including the Luna Prospect and lead A which could be charged by either oil or gas. The hydrocarbon presence risk ranges from 4.6 per cent. to 9.8 per cent. All three leads and prospects could be potentially oil-bearing with total Net Attributable Prospective Resources to Elko of 747 MMbbls (Best Estimate). One lead and a prospect have been assessed as potentially gas bearing with total Net Attributable Prospective Resources to Elko of 2.04 TCF (Best Estimate), under a gas scenario. The three leads are described in the TRACS CPR as follows:

Lead A

Lead A is a 3-way dip, fault closure mapped at the crest of the East North Sea High. Closure to the east is formed by the west bounding fault of the Horn Graben. The maximum area of closure covers 3,700 km2.

Rotliegendes sandstone is proposed as the primary reservoir target with Lower Cretaceous and Jurassic shales forming the top seal. Cross fault seal is formed by the juxtaposition of Rotliegendes sandstone against Lower Cretaceous marl and claystone.

The Luna Prospect

The Luna Prospect is a combination pinch-out and faulted Rotliegendes defining the trap. It is located in a small half graben with the pinch-out edge to the south east of the structure. The TRACS CPR shows a seismic line and map to illustrate the extent of the structure. The Rotliegendes reservoir is thought to have a high probability of being present at this location based on the seismic interpretation. Uncertainty still exists however on which seismic event represents the top of the reservoir and where the pinch-out occurs. Both Elko and Noreco have interpreted this feature but have used different seismic reflectors to define the reservoir interval. The volumetric impact of this different interpretation is not thought to be significant. In addition to the uncertainty on the pinch-out position, there is a possibility that the Rotliegendes does not, in fact pinch-out, but continues updip into Lead A. It is, therefore, possible that the Luna Prospect and Lead A are connected and represent one feature. The current well location which targets the Luna Prospect, was selected in order to maximise the information gathered by the well and is designed to address this uncertainty.

Chalk Channel

In 2009, following the reprocessing of 2D seismic data, an assessment of the reservoir potential within the Chalk sequence was carried out. The result was a new play concept consisting of a slump and channel system stretching from the north east corner of the 02/05 licence to beyond the south west corner.

Overall

In the TRACS CPR, the resources are summarised as follows:

The two Danish licences cover an area of 3,638 km2 offshore to the west of the Jutland peninsula. An assessment was made on the probability of success and expected hydrocarbon type. Where appropriate both oil and gas cases were generated. The results of this GIIP and STOIIP analysis are shown in Tables ES.1 to ES.2 below, on a 100 per cent. basis. Table ES.3 lists the oil, gas and total hydrocarbon risk estimates:

	STOIIP MMbbls				Oil Prospective Resources MMbbls
Lead/Prospect	Mean	P90	P50	P10	Mean	P90	P50	P10
A in licence	10736	2899	7412	21909	2435	642	1672	4996
A in total	13926	3777	9890	28269	3159	834	2214	6456
Luna	902	364	828	1536	270	107	245	464
Chalk Channel	2531	555	1761	5267	506	109	348	1074

Table ES.1: Summary of oil cases for Danish exploration portfolio

	GIIP BCF				Gas Prospective Resources BCF
Lead/Prospect	Mean	P90	P50	P10	Mean	P90	P50	P10
A in licence	10700	2888	7461	21807	7497	1988	5186	15338
A total	13821	3842	9557	27958	9684	2634	6682	19622
Luna	1378	546	1262	2340	1105	430	1007	1908

Table ES.2: Summary of gas cases for Danish exploration portfolio

NOTE 1: Lead A appears in both Tables ES.1 and ES.2 as it may be charged by either oil or gas, but not both.

NOTE 2: Lead A extends outside the redrawn boundaries of the two licence blocks, and based on the mean volumetric estimates about 23 per cent. of the lead lies outside the 02/05 and 01/11 licences.

Source: TRACS CPR 19 May 2011 page 51

	Probability of Success
Lead	Source	Seal	Reservoir	Trap	Overall	Gas/ Overall	Gas Overall	Oil Overall
A on block	0.4	0.4	0.3	0.95	0.046	0.5	0.023	0.023
Chalk Channel	0.3	0.9	0.4	0.5	0.054	0		0.054
Luna	0.4	0.5	0.7	0.7	0.098	0.5	0.049	0.049

Table ES.3: Summary of risk assessment for Danish exploration portfolio

Source: TRACS CPR 19 May 2011 page 51

Economic evaluations based on notional production profiles and development costs have been carried out for Lead A and Luna, resulting in the PV (10 per cent.) and PV (20 per cent.) EMVs shown below are for Elko's net equity share of 33 per cent.:

Elko 33% EMV $mln PV 1.1.2011 at Oil/Gas Price	$60/$6 Bbl/Mscf		$70/$7 Bbl/Mscf		$80/$8 Bbl/Mscf		$100/$10 Bbl/Mscf
Disc. rate	10%	20%	10%	20%	10%	20%	10%	20%
ROTLIEGEND
Lead A (Gas case)	101	21	121	26	141	32	182	43
Luna (Gas case)	13	(4)	15	(3)	20	(1)	31	2

Table ES.4: Rotl. Oil cases - Post-tax EMVs with sensitivities to price and discount rate

Elko 33% EMV $mln PV 1.1.2011 at Oil/Gas Price	$60/$6 Bbl/Mscf		$70/$7 Bbl/Mscf		$80/$8 Bbl/Mscf		$100/$10 Bbl/Mscf
Disc. rate	10%	20%	10%	20%	10%	20%	10%	20%
ROTLIEGEND
Lead A (Gas case)	27	3	34	5	41	7	55	12
Luna (Gas case)	(1)	(7)	2	(6)	5	(5)	10	(3)

Table ES.5: Rotl. Gas cases - Post-tax EMVs with sensitivities to price and discount rate

Source: TRACS CPR 19 May 2011 page 52

Netherlands

In December 2010, Elko entered into an agreement relating to its licences in Blocks P1 and P2 offshore the Netherlands with Chevron. In consideration for all of its interests in the Blocks, Elko received €4,300,000 and will receive an overriding royalty up to 5 per cent. of the sales value from Chevron's share of gas delivered into the Dutch National Transmission System and Chevron condensate delivered onshore.

Elko was advised on 24 May 2011 that Chevron had assigned 20 per cent. of its working interest in the offshore Blocks P1 and P2 (including the associated overriding royalty arrangement with Elko) to TAQA and that regulatory approvals have been received. TAQA is the Dutch business unit of the Abu Dhabi National Energy Company that explores and produces gas and condensate onshore and offshore in the Dutch North Sea.

After state participation through EBN at 40 per cent., the effective interests in the two blocks became Chevron with 48 per cent. and, TAQA with 12 per cent. This assignment by Chevron to TAQA had no effective impact on the overriding royalty interest held by Elko on the P1 and P2 blocks.

Elko understands that Chevron intends to drill the first well on the P2 block since its acquisition, in the autumn of 2011. The P2-10 well will be drilled by the Noble Byron Welliver jack-up drilling rig.

The P2-10 appraisal well will target an existing gas discovery on the P2 block (P2-7, with low levels of CO2) and one of the main objectives is to evaluate commercial hydrocarbon flow rates from an extended reach horizontal well within the Rotliegendes sandstone reservoir. The well program is expected to take up to 100 days. Block P2 is an example of Elko having utilised key seismic technology, Pre-Stack Depth Migration (PSDM) for interpretation to create time and depth maps for various prospects. The data sets produced for P2 supersede previous efforts using public domain datasets acquired and used in the licence applications and first pass prospect maps.

Information on the Xtract Assets

Australia

The Group acquired its oil shale exploration rights over mining tenements at Julia Creek, Queensland in two tranches in late 2005 and early 2006. Xtract's wholly owned subsidiary, XOL, has focussed on the development of those oil shale resources and the technology for oil extraction from oil shale resources. Xtract have contracted with Worley Parsons to provide a technical study on the various technologies which are being used or developed around the world to extract hydrocarbons from oil shale, as applicable for the exploitation of Julia Creek. The study will assist Xtract to review the technical options available to make the development commercially viable and attractive to partners.

The Directors instructed GeoConsult Pty Ltd to review the Group's oil shale asset for the purposes of the trAdmission and Placing ("GeoConsult CPR").

The asset is described in that report as follows: "The oil shale in-situ resources are based on shallow drilling programmes with holes spaced from 1 to 2 kms. The holes are open holed to the top of the oil shale and the oil shale cored. The cores were sampled at 2m intervals and analysed by the Modified Fischer Assay (MFA) method. Drill hole spacing under the JORC Code defines whether or not the resources can be described as Measured, Indicated or Inferred."

The oil shale varies from 2m to 13m thick on a >40 l/t basis and extends at shallow dip from subcrop to a nominal mining limit of 70m. The oil shale is principally composed of calcite, clays and kerogen. The kerogen, from which the oil is generated, comprises approximately 18wt per cent. of the fresh oil shale. The oil content by MFA varies from the 40 l/t cut off to a maximum of 86 l/t.

The JORC Code applies only to solid minerals, including oil shale, but not to the shale oil produced from the oil shale. The currently preferred standard to be used to report shale oil is the Petroleum Resources Management System ("PRMS") endorsed by the Society of Petroleum Engineers ("SPE") and referred to as the SPE-PRMS. Thus the oil shale resource is first determined under the JORC Code then subsequently under the SPE-PRMS to report the oil resource. The table following classifies the resources in accordance with the SPE-PRMS.

Summary of Resources by Status

Oil-Contingent Resources

	Gross (MMbbls)			Net Attributable (MMbbls)			Risk Factor	Operator
	Low Estimate	Best Estimate	High Estimate	Low Estimate	Best Estimate	High Estimate
Oil & Liquids Contingent Resources		240	1940		240	1940	50%	Xtract Oil Limited

Source: GeoConsultant CPR 7 July 2011, page 105

The GeoConsult CPR clarifies the above table as follows:

Under the SPE-PRMS the resources are classified as Contingent Resources. By definition this classification covers petroleum which is potentially recoverable but is not mature enough for commercial development due to various contingencies. These contingencies include resource and reserve definition by close spaced drilling, the continuing development of suitable extraction techniques, the oil price and the lifting of a moratorium imposed by the Queensland Government. Based on a level of increasing certainty of the resources the Contingent Resource category is further subdivided into 3C, 2C and 1C. This level of certainty classification is reflected in the JORC Code Resources subdivisions of Inferred, Indicated and Measured. Thus the shale oil in the JORC Code Inferred Resources is classified as 3C by the SPE-PRMS standard and the shale oil in the JORC Code Indicated Resource is classified as 2C by the PRMS-SPE standard. The sub-class based on maturity of deposit of "development unclarified or on hold" can be applied to both Contingent Resources classifications.

It is considered that further drilling will raise the 3C resources to at least the 2C category and that the 2C category will be raised to the 1C category. It is expected that future operations to advance the oil shale deposit will consist of drilling to raise the reliability of resource estimates, bulk sampling and continued research into the oil extraction process.

The GeoConsult CPR summarises XOL's oil shale assets, over which XOL has exploration permits for minerals (EPM) in its own name or the benefit of a farm in agreement with Intermin Resources Limited (Intermin Resources). The status of these licences and the process by which XOL can apply for a mining lease directly or via a mineral development licence (MDL) is described in the report as follows:

"XOL having been granted an EPM is the only party that can advance towards a mining lease either directly or via an MDL over the EPM area. There is no opportunity for a third party to apply for or be granted any form of mineral title in this process and only the exercise of Ministerial Discretion can disrupt the process providing the tenements are kept in good standing. Hence sovereign risk is a risk that must be accepted."

The Queensland Government declared a two year moratorium on Oil Shale mining in August 2008 which has not yet been rescinded despite the initially declared period having expired. During this period the Government has not updated or extended the existing EPMs. As such, 2 out of the 5 EPMs held directly by XOL, and 1 EPM held by Intermin Resources in which XOL has an indirect interest (out of 11 EPMs) have, on the face of it, expired with no regulatory confirmation that they will be extended to take account of the moratorium. However XOL has submitted applications to the Queensland Department of Mines and Energy for all of the EPMs held by it directly and indirectly to be replaced by MDLs. The applications for the 5 EPMs held directly by XOL to be replaced by MDLs have been accepted and the prescribed fees have been paid. The next step is for the Department to determine the terms and conditions on which the MDLs will be granted and issue offer letters for XOL to accept and pay the prescribed fees. An MDL in respect of the 1 EPM of Intermin Resources in which XOL has an indirect interest has also been applied for and accepted. The Directors believe that such MDLs should be granted based on previous practice once the moratorium is lifted. Therefore whilst the contingent resource is large, the directors consider this to be a long term asset with restricted commercial potential whilst the moratorium remains in place.

Turkey

Xtract built up its 50 per cent. stake in Extrem in the period September 2008 to February 2010. The remaining 50 per cent. of Extrem was owned by Merty Energy, Petroleum Exploration, Education and Services Inc. ("Merty") and individual members of the Yoldemir family. Extrem has a portfolio of licence interests in onshore and offshore Turkey. In 2010, Xtract reviewed the entire asset portfolio of Extrem with Merty and others, to determine the most advantageous way to progress the Extrem portfolio given competing demands on Xtract resources, whilst retaining value for shareholders.

Pursuant to share transfer and royalty agreements, Merty has acquired Xtract's 50 per cent. share ownership in Extrem, thereby giving Merty and the Yoldemir family complete control of Extrem. Merty and the Yoldemir family, as the  sole owners of Extrem, have  granted Xtract certain gross over-riding royalty interests in the existing licences and may make other success based payments in consideration for the assignment of Xtract's 50 per cent. shareholding in Extrem.

This transaction was intended to enable Merty and Extrem to fund and progress the licences through farm out with new partners. Xtract is expected to benefit from this strategy in that it will have no further financial liability in relation to Extrem or the Turkish licences. However Xtract has received near term income by a payment of $100,000 from Merty, and will retain a participation in any future successful commercial production by virtue of Merty's assignment to it of a gross over-riding royalty interest.

Morocco

In September 2008 Xtract formed a joint venture company, Xtract Energy (Oil Shale) Morocco S.A. ("XOSM") with Alraed Limited Investment Holding Company WLL, a company controlled by His Highness, Prince Bandar Bin Mohd. Bin Abdulrahman Al-Saud of Saudi Arabia. XOSM has signed a Memorandum of Understanding with the Office National des Hydrocarbures et des Mines for the purposes of evaluation and possible development of an oil shale deposit near Tarfaya, in the south west part of Morocco. Xtract currently holds 70 per cent. of the joint venture. The Company is currently seeking to arrange a meeting with representatives of ONHYM with a view to expanding the scope of the Memorandum of Understanding.

Kyrgyz Republic

Xtract owns 25.0 per cent. of the issued share capital of Zhibek Resources. Zhibek Resources is an oil and gas exploration company which has a 72 per cent. interest in the Tash Kumyr exploration licence in the Kyrgyz Republic. Xtract entered a farm-out agreement with Santos International Holdings Pty Limited ("Santos") to fund a seismic and drilling programme in 2008. The agreement provided that Santos would undertake an $8.5 million exploration programme including 2D seismic and an exploration well to be completed by 2011. Santos acquired and interpreted over 100km of new 2D seismic data and identified a new prospect called Karagan, which is believed to be a fault controlled trap that sits between the producing Mailisai oil field nearby to the west and the Kyzyl Alma gas and Mailisu oil fields to the east. Karagan is on trend and analogous to the Kyzyl Alma gas field, which has been producing gas and gas liquids from Jurassic sandstones since 1968. In May 2010, Zhibek advised that approval had been received for the commencement of drilling an exploration well. Following civil unrest in the Kyrgyz Republic in 2010 all on-site exploration was suspended. No decision to recommence operations has been made. Currently the operator is evaluating drilling rigs to fulfil the requirements of the original licence and is considering the implications of the delayed programme with the Kyrgyz Geological Agency.

Future Prospects and Use of the Placing Proceeds

In recent months the Company has focussed on assessing or developing the Group's existing assets with the objective of creating a stable and sustainable platform on which to base future growth. As noted above, the immediate priority is the Luna exploration well on the Danish acreage. Elko has sufficient funds on hand to meet its agreed commitments under the Danish Joint Operating Agreement. However the licence partners may wish to extend the planned drilling program and part of the proceeds of the Placing would be expected to meet that contingency. In addition the Placing proceeds, together with any capital raised under the SEDA, will be used to fund the work programme and ongoing costs of the Enlarged Group.

In the longer term part of the proceeds will assist the Company in reviewing its commercial opportunities in connection with the oil shale assets at Julia Creek potentially leading, in due course, to a bankable project. In recent months Xtract has considered a number of opportunities that are consistent with the adopted strategy of seeking assets with technical and/or other challenges with the potential to generate high returns for shareholders. These potential opportunities have not been investigated in any detail as the capital available has only been sufficient to meet the requirements of existing projects. The proceeds of the Placing allied, potentially, to drawdowns under the SEDA will enable the Directors to consider future opportunities.

The appraisal well in the Netherlands is also of significant interest to the Company by reason of its overriding royalty interest.

Directors, Proposed Director and Consultants

Directors

George Watkins CBE, PhD, DEng, Chairman (aged 67)

George Watkins has over 40 years of domestic and international experience in exploration, production, project and commercial activity in the petroleum sector, having spent 5 years with Shell and 30 years with Conoco Inc Mr. Watkins joined the Conoco Group in 1973 and retired as Chairman and Managing Director of Conoco Philips (UK) Ltd in 2002. He is a former board member of Paladin Resources plc, a former Chairman and board member of PSN Ltd and was senior non-executive director of Abbot Group plc. He was Chairman of Scottish Enterprise Grampian (2002-2004) and is currently a governor of the Robert Gordon University in Aberdeen.

Mr. Watkins holds a BSc in Mining and a PhD in Geophysics from the University of Leeds, an MSc in Management from the Stanford Business School in California and a Hon D.Eng from Heriot Watt University in Scotland.

Peter Moir, Chief Executive Officer (57)

Peter Moir is currently chief executive officer of both Elko and Xtract, positions which he has held from January 2009 and July 2010 respectively. From 2002 to 2009 Mr. Moir acted as a consultant to Eni Group of Italy, the operator of the 10 billion barrel Kashagan field where he achieved the sanction of the first phase of a multi billion dollar investment project. Prior to 2002, Mr. Moir was at BG Group, where his roles included Vice President of Kazakhstan and Vice President of Strategy and Portfolio Development. In the late 1990s Mr. Moir was Vice President of BG Group's Central North Sea business, which produced 40 MMboe per annum and generated 50 per cent., of BG's operating profit. He also managed the engineering feasibility study of the 20 TCF Karachagank gas condensate field. After a period in economics and commodity price risk management, Mr. Moir also headed up BG's asset commercialisation group to bring gas chain focus to gas discoveries in UK, Trinidad and Egypt. Mr. Moir has also spent time at Shell and as a well production technologist on the Brent, Auk, Rough, Morecambe, Leman and Indefatigable fields and fraccing and testing of southern north sea tight gas Rotliegendes sandstones. He has a MEng in Petroleum Engineering and a BSc in Civil Engineering.

Alan Hume, Chief Financial Officer (52)

Before joining Elko in September 2008 and Xtract in October 2010, Alan Hume was Chief Financial Officer of ALDAR/Laing O'Rourke Construction, a joint venture established to develop land in and around Abu Dhabi in the UAE. Between 2000 and 2006, Mr. Hume held senior executive positions in Edison Mission Energy, a US multi-national independent power producer with European regional headquarters in London with regional turnover of $1 billion and operations in Italy, Sicily, Spain, Turkey and the UK. Before that, Mr. Hume held senior positions within the Halliburton/Brown & Root Group, a diverse multi-national, primarily involved in oilfield services and engineering and construction activities with global revenues in excess of $15bn. These included Global Finance Manager for Brown & Root Energy Service, Finance Manager of European Marine Contractors, Finance and Commercial Director of Halliburton (Pty) Ltd (South Africa) and Finance Manager of Rockwater AS (Norway). Mr. Hume is a Fellow of Chartered Institute of Management Accountants (FCMA).

Paul Butcher, Non-Executive Director (53)

Paul Butcher holds a BSc in Earth Sciences and an MSc in Marine Geology and Geophysics and an MBA. He has spent 25 years of his career at BP and Amoco, leading a variety of senior strategic and operational leadership positions within the upstream business. Paul is the CEO of Panther Resources and a non-executive Director of Terrain Energy.

Proposed Director

Jeremy Kane, Non-Executive Director (71)

Jeremy Kane has spent more than 40 years working in marketing, communications and public affairs developing and implementing global and regional corporate reputation, crisis management and public affairs programs. Mr. Kane worked for over 23 years at Mars Confectionery holding a number of senior roles including Chief Personnel Officer, Marketing Director, Sales Director and Group External Affairs Director in the UK, Continental Europe, the Americas and Asia Pacific. Mr. Kane founded and chaired European Public Policy Advisors (EPPA) which became the largest independent public affairs company in Europe with fee income exceeding €10 million from 22 offices and over 100 professionals. He sold EPPA to its management and co-founded Ergo Communications, a marketing communications and public affairs company which he chaired for more than six years. Ergo was sold to Huntsworth plc, the global PR group, in 2004. In 2006 Mr. Kane co-founded another European public affairs company, Landmark European Public Policy Advisers. He moved to the United States in 2008 and formed Hillgate Communications Inc a Marketing Communications specialist and currently holds a number of directorships including Chairman of the Canadian oil and gas company Elko Energy, Inc.

It is anticipated that a management team commensurate with the escalating requirements of the business will be recruited to complement and assist the executive directors. This management team will be supported by consultants who will be contracted specific to their areas of expertise. The Company intends to operate with a minimum level of staffing but with a larger experienced ''virtual'' skills-pool from where it can draw on relevant experience on a case-by-case basis. The Company intends at the outset, where appropriate, to partner and joint venture with investors and associates who will support the Company with commercial skills and influence in areas where the Company intends to grow its business.

Consultants

Gordon Parry

Gordon is responsible for exploration, geosciences and stakeholder management activity. Gordon holds a BSc in geology and a PhD in geophysics and has over 30 years international experience with Shell in geosciences, exploration management, business development and reputation management.

John Chamberlain

John acts as geophysical advisor to the group. Harvard and Cambridge educated to PhD level, John is a geophysicist with over 28 years industry experience in technical and management roles, mainly with Phillips Petroleum in the UK.

Peter Fellows

Peter is responsible for reservoir engineering, asset development and investment economics activity. He holds a BSc in Physics/Chemistry and a MSc in Physics and has over 39 years international experience in drilling, reservoir engineering, economics and asset management with Schlumberger, Burmah, Sun Oil, Kufpec and Agip.

Arrangement Agreement in respect of the Acquisition

Pursuant to the terms of an agreement between the Company, Xtract International and Elko dated 21 June 2011 (as amended and restated on 29 June 2011), the parties have entered into a conditional plan of arrangement under section 182 of the Business Corporations Act, Ontario (the "Plan of Arrangement") involving the acquisition by Xtract International of all of the issued and outstanding shares in the capital of Elko not owned by the Company in exchange for shares in the Company, on the basis of seven Ordinary Shares for every Elko share.

By the terms of the Arrangement Agreement, the parties agree that their obligations to complete the Plan of Arrangement are subject to the satisfaction or waiver of mutual conditions precedent that include Elko obtaining an interim and final order of the Ontario Superior Court of Justice; the passing of a resolution approving the Plan of Arrangement at a company meeting of Elko (which has been satisfied); compliance of the Plan of Arrangement with applicable laws; and the successful completion by the Company of the admission to trading on AIM of the whole of its ordinary issued and to be issued share capital in accordance with Rule 6 of the AIM Rules for Companies. Elko is subject to additional conditions precedent for the exclusive benefit of the Company and Xtract International, and similarly the Company and Xtract International are also subject to additionalconditions precedent for the exclusive benefit of Elko, relating to the performance of covenants and the truth and correctness of representations and warranties given by each of the parties.

By the terms of the Arrangement Agreement, Elko has given the usual representations and warranties to and in favour of the Company and Xtract International, and both the Company and Xtract International have given representations and warranties to and in favour of Elko, as to authorisation, ownership and compliance with applicable laws. Each of the parties has given mutual covenants, including non-solicitation covenants provided by Elko. The Arrangement Agreement is governed by the laws of the Province of Ontario and the federal laws of Canada, and the non-exclusive jurisdiction of the Courts of the Province of Ontario applies in respect of all matters arising under and in relation to the Arrangement Agreement.

Plan of Arrangement

The terms of the Plan of Arrangement provide for the following events to occur, each five minutes apart, from the date the arrangement in respect of the Acquisition becomes effective in accordance with the Arrangement Agreement:

i	The Elko shares held by those shareholders who have exercised their rights of dissent in respect of the Plan of Arrangement shall be deemed to have transferred to Xtract International and such shareholders shall cease to have any rights as shareholders in Elko;
ii	Each share in Elko (other than those held by the Company in respect of which a shareholder has exercised their dissent rights) shall be transferred and assigned to Xtract International in consideration for Ordinary Shares on the basis of seven Ordinary Shares for each share in Elko;
iii	Each holder of an option in Elko (an "Elko Option") shall receive an option to acquire shares in the Company (a "Company Option") in exchange for their Elko Option on the basis that (a) such Company Option is exercisable to acquire a number of Ordinary Shares equal to the number of shares in Elko underlying the Elko Option multiplied by seven; (b) the price payable to acquire each Ordinary Share is equal to the price payable under the Elko Option divided by seven;
iv	Each holder of a warrant in Elko (an "Elko Warrant") shall receive a warrant to acquire Ordinary Shares (a "Company Warrant") in exchange for their Elko Warrant on the basis that (a) such Company Warrant is exercisable to acquire a number of Ordinary Shares equal to the number of shares in Elko underlying the Elko Warrant multiplied by seven; (b) the price payable under the Elko Warrant replaced by such Company Warrant divided by seven.
v	The number of directors of Elko will be set at three and the incumbent directors of the company shall be deemed to have resigned with the exception of Peter Moir, Alan Hume and Christopher Irvine.

Payment of consideration pursuant to the terms of the Plan of Arrangement is to be made by way of share certificates being made available to shareholders of Elko, with each certificate representing the number of Ordinary Shares to be delivered to each Elko shareholder in respect of their Elko shares for which a letter of transmittal and certificates representing the same had been delivered to Elko's designated person.

The Placing and Admission

240,000,000 new Ordinary Shares are being placed at the Placing Price, representing 15.9 per cent. of the Enlarged Share Capital. The Placing, which has not been underwritten, is expected to raise £3.0 million for the Company. The Placing is conditional, inter alia, upon:

·     the Acquisition becoming wholly unconditional (save for any condition relating to Admission);

·     the Placing Agreement becoming unconditional and not having been terminated in accordance with its terms prior to Admission; and

·     Admission becoming effective not later than 8:00 a.m. on 13 September 2011, or such later date as Cenkos and the Company may agree, being not later than 8:00 a.m. on 20 September 2011.

The Placing Shares will be placed free of expenses and any stamp duty and will rank pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and other distributions declared, paid or made after the date of issue.

The market capitalisation of Xtract Energy immediately following the Placing, at the Placing Price, will be approximately £18.8 million. The Placing Price represents a discount of approximately 53.7 per cent. to the closing middle market price of 2.7 pence per Ordinary Share on 20 June 2011, the day prior to the suspension of trading in the Ordinary Shares on AIM. Application will be made to the London Stock Exchange for the Existing Ordinary Shares and the Placing Shares and Acquisition Shares to be issued, to be admitted to trading on AIM. Dealings in the New Ordinary Shares on AIM are expected to commence on 13 September 2011. Dealings in the Existing Ordinary Shares are also expected to re-commence on or around 26 August 2011.

The Directors (other than Paul Butcher) have all agreed to subscribe for, in aggregate, 17,600,000 Placing Shares at the Placing Price. Shareholders may be concerned that they have not been able to participate in the Placing on a pre-emptive basis. The Board wishes to assure Shareholders that in principle it would have been most keen to have done so but that the costs, timescale and complexity of such an exercise do not at present make economic sense.

Currency and Hedging

The Group has a treasury and commercial hedging policy that covers interest rate, foreign exchange and commodity price exposures. The Group may also, where appropriate, elect to hedge a proportion of its expenditure to protect cash flows against commodity price and exchange rate fluctuations. The Group also maintains cash balances in major operating currencies relative to operational cash requirements in those currencies. The Group will use other hedging arrangements in relation to specific currency exposures when prudent.

Dividend Policy

The declaration of any payment by the Company of any future dividends on the Ordinary Shares and the amount will depend on the results of the Enlarged Group's operations, its financial condition, cash requirements, future prospects, profits available for distribution and other factors deemed to be relevant at the time. The nature of the Enlarged Group's business means that it is unlikely that the Directors will be in a position to recommend any dividend in the early years following Admission.

Lock-in arrangements and orderly market undertakings

The Directors (other than Paul Butcher who will not hold or have any interest in Ordinary Shares), the Proposed Director and Cambrian Investment Holdings have undertaken to the Company and to Cenkos that, during the period ending on the first anniversary of Admission, save in certain limited circumstances set out in Rule 7 of the AIM Rules for Companies (being in the event of an intervening court order, the death of the Director or Shareholder in question or on the acceptance of a takeover offer for the Company), they will not, and will procure that their associates will not, dispose of any interest which they have in any Ordinary Shares.

In addition, the Directors (other than Paul Butcher) and the Proposed Director (but not Cambrian Investment Holdings) have undertaken to the Company and to Cenkos that, during the period commencing on the first anniversary and ending on the second anniversary of Admission, save in such limited circumstances, they will, and will procure that their associates will, generally only dispose of any interest which they have in any Ordinary Shares through Cenkos (or the Company's then current broker) and in such orderly manner as Cenkos (or such broker) shall reasonably determine (having regard to the desirability of maintaining an orderly market).

The City Code on Takeovers and Mergers, Mandatory Bids, Squeeze-out and Sell-out Rules

The City Code on Takeovers and Mergers is administered by the Panel on Takeovers and Mergers ("Panel"). The Company is a company to which the City Code applies and its Shareholders are accordingly entitled to the protections afforded by the City Code. The City Code and the Panel operate principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment by an offeror. The City Code also provides an orderly framework within which takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the integrity of the UK's financial markets.

Under Rule 9 of the City Code, when a person or a group of persons acting in concert acquires an interest in shares in a company which is subject to the City Code, and such shares (when taken together with any other shares in which he or they have an existing interest) carry 30 per cent., or more of the voting rights of a company, such person or group of persons is normally obliged to make a general offer in cash to all of the company's shareholders to acquire the remaining equity share capital at the highest price paid by any member of such concert party within the preceding 12 months. Rule 9 of the City Code also states that, if any person or group of persons acting in concert has an interest in shares carrying not less than 30 per cent., but does not hold shares carrying more than 50 per cent., of the voting rights, and such person, or any person acting in concert with him, acquires an interest in any additional shares which increase their percentage of the voting rights, such person or group of persons is, in the same way, obliged to make a general offer to all shareholders. Under the 2008 Act, if an offeror were to acquire 90 per cent., of the Ordinary Shares within four months of making its offer, it could then compulsorily acquire the remaining 10 per cent. It would do so by sending a notice to non-accepting Shareholders telling them that it will compulsorily acquire their shares and then, six weeks later, it would execute a transfer of the outstanding shares in its favour and pay the consideration to the Company, which would hold the consideration on trust for such Shareholders.

The consideration offered to the Shareholders whose shares are compulsorily acquired under the 2006 Act must, in general, be the same as the consideration that was available under the takeover offer unless the Shareholders can show that the offer value is unfair.

The 2006 Act also gives minority shareholders a right to be bought out in certain circumstances by an offeror who had made a takeover offer. If a takeover offer related to all the Ordinary Shares and at any time before the end of the period within which the offer could be accepted the offeror held or had agreed to acquire not less than 90 per cent., of the Ordinary Shares, any holder of shares to which the offer relates who has not accepted the offer can by a written communication to the offeror require it to acquire those shares. The offeror would be required to give any Shareholder notice of his right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of minority

Shareholders to be bought out, but that period cannot end less than three months after the end of the acceptance period. If a Shareholder exercises its rights, the offeror is bound to acquire those shares on the terms of the offer or on such other terms as may be agreed.

Equity Line Facility

The Company has entered into a Standby Equity Distribution Agreement for up to £12.5 million with YA Global Master SPV, an investment fund managed by Yorkville Advisors, LLC. This arrangement is expected to provide enhanced access to capital at prices close to the then prevailing market price. This access to additional short term funding may be required for project and investment decisions in the short to medium term.

Xtract may draw down funds from time to time in accordance with the terms of the SEDA, over a period of up to three years, in exchange for the issue of new shares in the capital of the Company. The amount of an advance cannot exceed: (a) £2,000,000; (b) such amount as would result in the Investor holding more than 2.99 per cent. of the total issued share capital of the Company or 0.99 per cent. if the Company is in a takeover period; (c) an amount equal to 300 per cent. of the average daily trading volume of the Ordinary Shares multiplied by the volume weighted average price of the Ordinary Shares (the "VWAP") on AIM for the 10 day trading period immediately prior to the date of the relevant advance notice ("Pricing Period"); or (d) such other amount as may be agreed upon by the mutual consent in writing of the parties.

The number and timing of advances to be made pursuant to the SEDA shall be at the discretion of the Company but the Company cannot make more than one advance every ten trading days without prior agreement with the Investor, and advances made must not exceed the advance amounts, as defined in the SEDA. Advances are subject to the satisfaction of certain conditions precedent including there being no breach of warranties, no material adverse change in respect of the Company and no material breach by the Company of the covenants and obligations of the SEDA.

The Ordinary Shares will be issued pursuant to the Equity Line Facility at 95 per cent. of  the lowest daily VWAP of the Ordinary Shares for the Pricing Period prior to the advance notice that is greater or equal to the minimum acceptable price set by the Company. The minimum acceptable price may not be more than 95 per cent of the VWAP of the Ordinary Shares on the date immediately prior to the advance notice. The advance amount will automatically be reduced by up to 10 per cent. for each trading day during the Pricing Period that the VWAP is below the minimum acceptable price.

Share Option Arrangements

The Directors believe that the success of the Group will depend to a high degree on the future performance of the executive Directors and the management team. Accordingly, the Remuneration Committee has approved, in principle, incentive and bonus arrangements for the executive Directors. Details of such proposed arrangements (including, in particular, vesting and performance criteria) will be finalised in due course, but Shareholders should note that share incentive arrangements shall not exceed 10 per cent. of the Company's issued share capital.

Corporate Governance

The Directors recognise the importance of sound corporate governance. Following Admission, the Board will comprise two executive directors and 3 non-executive directors. Jeremy Kane, who has agreed in principle to be become a director of the Company will bring an additional independent view to the Board, and will provide an additional balance to the executive Directors. The Directors are committed to maintaining high standards of corporate governance and the Board has resolved to recruit at least one more independent, non-executive director. The process of recruitment is underway and several candidates have been identified; and the Company expects to make a suitable appointment shortly after Admission.

The Company intends, so far as is practicable for a company of its size and nature, to comply with the provisions of the UK Corporate Governance Code. The Company has three committees which deal with matters relating to audit, remuneration and nominations. The Audit Committee receives and reviews reports from management and auditors relating to the interim and annual accounts and to the system of internal financial control. The  remuneration Committee, when applicable, determines the terms and conditions of service of executive Directors and is responsible for reviewing performance and determining the payment of any bonuses or the grant of any share options. The Nominations Committee is responsible for identifying, evaluating and recommending candidates to join the Board and make recommendations on compositions and balance. All committees comprise of the non-executive Directors.

The Directors are required to comply with Rule 21 of the AIM Rules for Companies relating to Directors' and applicable employees' dealings in the Company's securities and to this end the Company has adopted an appropriate share dealing code.

Settlement and CREST

CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument. The Company has applied for the New Ordinary Shares to be admitted to CREST and it is expected that the New Ordinary Shares will be so admitted and accordingly enabled for settlement in CREST on the date of Admission. It is expected that Admission of the New Ordinary Shares will become effective and that dealings will commence at 8.00 a.m. on 13 September 2011. Accordingly, settlement of transactions in Ordinary Shares following Admission may take place within the CREST system if any Shareholder so wishes. CREST is a voluntary system and Shareholders who wish to receive and retain share certificates will be able to do so. Persons acquiring Placing Shares may elect to receive such shares in uncertificated form if, but only if, that person is a "system-member" (as defined in the CREST Regulations) in relation to CREST.

General Meeting

A notice set out at the end of the Admission Document convening the GM to be held at the offices of Trowers & Hamlins LLP at Sceptre Court, 40 Tower Hill, London EC3N 4DX at 11.00 a.m. on 12 September 2011. Shareholders who do not intend to attend the GM in person who wish to vote are requested to complete and return the Form of Proxy (which they should have received) by 11.00 a.m. on 10 September 2011.

As the Acquisition constitutes a reverse takeover, Shareholder approval of the Acquisition, as set out in Resolution 1, is required under the AIM Rules. Shareholders should be aware that the Resolutions authorise the directors of the Company to allot and issue the Placing Shares, the Acquisition Shares, options and warrants in respect of Ordinary Shares to Elko option and warrant holders and Ordinary Shares in connection with the Equity Line Facility on a non pre-emptive basis. Resolution 1 is an ordinary resolution requiring a simple majority of votes cast to be in favour. Resolution 2 is a special resolution requiring not less than 75 per cent. of votes cast to be in favour.

Irrevocable Undertaking

The Company has received an irrevocable undertaking to vote in favour of the Resolutions at the GM from Cambrian Investment Holdings in respect of its holding of 340,256,048 Ordinary Shares representing 37.2 per cent. of the Existing Ordinary Shares.

Board Recommendation

Your Directors are of the opinion that the Acquisition, the Placing and the Equity Line Facility are in the best interests of the Company and its Shareholders and, accordingly, unanimously recommend that you vote in favour of the Resolutions. None of the Directors will hold any Ordinary Shares entitling them to vote at the GM but Jeremy Kane, the Proposed Director, intends to vote his own beneficial holding of 392,300 Ordinary Shares representing 0.04 per cent. of the Existing Ordinary Shares of the Company and in respect of which he has entered into an irrevocable undertaking.

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

"Acquisition"	the proposed acquisition by the Xtract International of those shares in the capital of Elko not already held by Xtract International
"Acquisition Shares"	the 350,245,343 Ordinary Shares proposed to be issued to holders of Elko shareholders (excluding Xtract) in the ratio of 7 Ordinary Shares for each 1 share in Elko
"Admission"	admission of the Enlarged Share Capital to trading on AIM, and such admission becoming effective in accordance with the AIM Rules for Companies
"Admission Document"	the document published on 26 August 2011
"AIM"	AIM, a market operated by the London Stock Exchange
"AIM Rules for Companies"	the rules for companies whose securities are admitted to trading on AIM as published by the London Stock Exchange from time to time
"AIM Rules for Nominated Advisers"	the rules setting out the eligibility, ongoing obligations and certain disciplinary matters in relation to nominated advisers, as published by the London Stock Exchange from time to time
"Articles"	the articles of association of the Company, as amended from time to time
"Arrangement Agreement"	the agreement between the Company, Xtract International Limited and Elko dated 21 June 2011 (as amended and restated on 29 June 2011) pursuant to which Xtract International will acquire all of the issued and outstanding shares in the capital of Elko not owned by Xtract International in exchange for shares in the Company, on the basis of seven Ordinary Shares for every Elko share
"Audit Committee"	the audit committee of the Board
"Board" or "Directors"	the board of directors of the Company
"Business Day"	a day other than a Saturday or Sunday on which banks are open for commercial business in the City of London
"Cambrian Investment Holdings"	Cambrian Investment Holdings Limited, a private limited company incorporated in England and Wales with registered number 05838754
"Cenkos", "NOMAD" or "Nominated Adviser"	Cenkos Securities plc, a company incorporated in England and Wales with registered number 05210733 and having its registered office at 6.7.8. Tokenhouse Yard, London EC2R 7AS
"Certificated" or "in Certificated Form"	not in uncertificated form (that is, not in CREST)
"Chevron"	Chevron Exploration and Production Netherlands B.V., a company incorporated under the laws of the Netherlands with registration number 27114238
"City Code"	the City Code on Takeovers and Mergers
"Company", "Xtract Energy" or "Xtract"	Xtract Energy Plc, a company incorporated in England and Wales with registered number 5267047 and having its registered office at 4/F Windsor House, 55-56 St James's Street, London SW1 1LA
"Competent Person" or "TRACS" or "GeoConsult"	TRACS International Consultancy Limited or GeoConsult Pty Limited, as the context requires
"Completion"	completion of the Acquisition in accordance with the Arrangement Agreement
"CPR" or "Competent Persons Report"	Competent Person's Report as defined in the AIM Note for Mining Oil & Gas Companies
"CREST"	the relevant system (as defined in the CREST Regulations) for paperless settlement of share transfers and the holding of shares in uncertificated form which is administered by Euroclear UK & Ireland Limited
"CRESTCo"	Euroclear UK & Ireland Limited, the operator of CREST
"CREST Regulations"	the Uncertificated Securities Regulations 2001 (SI 2001/3755) as amended
"Disclosure and Transparency Rules"	the disclosure and transparency rules issued by the FSA acting in its capacity as the competent authority for the purposes of Part V of FSMA
"EBN"	Energie Beheer Nederland B.V., a private limited company incorporated under the laws of the Netherlands with registration number 14026250
"Elko"	Elko Energy, Inc., a corporation governed by the laws of Ontario
"Elko Energy A/S"	Elko Energy A/S is a company incorporated under the laws of Denmark with registration number 29418365
"Enlarged Group"	the Group following Completion
"Equity Line Facility"	the facility provided by YA Global Master SPV to the Company, whereby the Company may drawdown up to £12.5 million in aggregate from YA Global Master SPV in return for issuing Ordinary Shares, pursuant to the SEDA
"Enlarged Share Capital"	the entire issued ordinary share capital of the Company immediately following Admission comprising the Existing Ordinary Shares, the Placing Shares and the Acquisition Shares (excluding any Ordinary Shares to be issued pursuant to the exercise of any a) Options or b) warrants or options in respect of Ordinary Shares to be issued to the holders of Elko warrants and options in connection with the Acquisition)
"Existing Ordinary Shares"	the 914,965,026 Ordinary Shares in issue as at the date of this document
"Existing Shareholders"	the holders of Existing Ordinary Shares
"Extrem"	Extrem Enerji Petrol Arama Uretim ve Egitim Servisleri Anonim Sirketi, a joint stock company organised under the laws of Turkey
"Form(s) of Proxy"	the form of proxy accompanying the Admission Document for use by Existing Shareholders in respect of the GM
"FSA"	the Financial Services Authority
"FSMA"	the Financial Services and Markets Act 2000, as amended
"GeoConsult"	GeoConsult Pty Limited, the competent person who has reported on Xtract's Australian assets
"GM" or "General Meeting"	the general meeting of the Company to be held at the offices of Trowers & Hamlins LLP at Sceptre Court, 40 Tower Hill London EC3N 4DX at 11.00 a.m. on 12 September 2011
"Group" or "Xtract Energy Group"	the Company and its subsidiaries
"HMRC"	HM Revenue & Customs
"IFRS"	International Financial Reporting Standards as adopted for use in the European Union
"Lock-in Agreements"	the agreements by which the Directors (other than Paul Butcher), the Proposed Director and Cambrian Investments Holdings have agreed with Cenkos and the Company, certain undertakings with respect to their current and future holdings of and/or interests in Ordinary Shares
"London Stock Exchange"	London Stock Exchange plc
"New Ordinary Shares"	together, the Acquisition Shares and the Placing Shares
"Nomination Committee"	the nomination committee of the Board
"Noreco"	Norwegian Energy Company ASA is a public company incorporated under the laws of Norway with registration number 987989297
"Notice of GM"	the notice of GM
"Official List"	the official list of the UK Listing Authority
"Options"	existing options to subscribe for Ordinary Shares
"Ordinary Shares" or "Shares"	ordinary shares of 0.1 pence each in the capital of the Company
"Participant ID"	the identification code or membership number used in CREST to identify a particular CREST member or other CREST participant
"Placees"	subscribers for the Placing Shares
"Placing"	the conditional placing by Cenkos of the Placing Shares on behalf of the Company at the Placing Price pursuant to and on the terms of the Placing Agreement
"Placing Agreement"	the conditional agreement dated 26 August 2011 between (i) Cenkos; (ii) the Company; (iii) the Directors and (iv) the Proposed Director, relating to the Placing and Admission
"Placing Price"	1.25 pence for each Placing Share
"Placing Shares"	the 240,000,000 new Ordinary Shares to be issued pursuant to the Placing
"Proposed Director"	Jeremy Alden Kane
"Prospectus Rules"	the Prospectus Rules of the FSA brought into effect on 1 July 2005 pursuant to Commission Regulation (EC) No. 809/2004 and the Prospectus Regulations 2005 (SI 2005/1433)
"Registrar"	Share Registrars Limited, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey, GU9 7LL
"Resolutions"	the resolutions to be proposed at the GM
"Remuneration Committee"	the remuneration committee of the Board
"SEDA"	Standby Equity Distribution Agreement between YA Global Master SPV  and the Company in respect of the Equity Line Facility
"Shareholder(s)"	(a) person(s) who is/are registered as holder(s) of Ordinary Shares from time to time
"Takeover Panel"	the Panel on Takeovers and Mergers which administers the City Code
"TAQA"	TAQA Energie B.V. is a company incorporated under the laws of the Netherlands with registration number 27149802 0000
"TRACS"	Tracs International Consultancy Limited, (a company of AGR Petroleum Services Group), the competent person who has reported on Elko's Danish assets
"UK" or "United Kingdom"	United Kingdom of Great Britain and Northern Ireland
"UK Corporate Governance Code"	the UK Corporate Governance Code, published in June 2010 by the Financial Reporting Council
"US" or "United States"	the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia
"XOL"	Xtract Oil Limited, a company registered under the laws of Australia with company number ACN 096 739 454
"XOSM"	Xtract Energy (Oil Shale) Morocco S.A., a company incorporated under the laws of Morocco, registered with number 186457
"Xtract International"	Xtract International Limited, a company incorporated in England and Wales with company number 5061163 and a wholly owned subsidiary of Xtract Energy
"YA Global Master SPV"	YA Global Master SPV, Ltd., a company registered in the Cayman Islands with registration number 221956
"Zhibek Resources"	Zhibek Resources Limited, a company incorporated in England and Wales with the registered number 5059363
"$" or "dollars"	US dollars, the lawful currency of the United States of America
"£" or "sterling"	UK pounds sterling, the lawful currency of the United Kingdom

GLOSSARY OF TECHNICAL TERMS

The following glossary of technical terms apply throughout this announcement.

"bbl"	one barrel of oil or condensate; 1 barrel = 35 Imperial gallons (approximately) or 159 litres (approximately)
"Bcf"	billion cubic feet of gas
"Bcfe"	billion cubic feet of gas equivalent
"bpd"	barrels per day
"bcpd"	barrel of condensate per day
"boe"	barrel of oil equivalent
"boepd"	barrel of oil equivalent per day
"bopd"	barrel of oil or condensate per day
"closure"	the vertical distance from the apex of a structure to the lowest structural contour that contains the structure
"contingent resources"	those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies
"EBITDA"	earnings before interest, taxation, depreciation and amortisation
"GIIP"	gas initially in place
"graben"	a relatively low-standing fault block bounded by opposing normal faults
"JORC Code"	The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources
"l/t"	litres per tonne
"LNG"	liquid natural gas
"Mbbl"	thousand barrels of oil or condensate
"Mbc"	thousand barrels of condensate
"Mboe"	thousand barrels of oil equivalent
"Mcf"	thousand cubic feet of gas
"Mcfepd"	thousand cubic feet of gas equivalent per day
"MMbbl"	million barrels of oil or condensate
"MMboe"	million barrels of oil equivalent
"MMcf"	million cubic feet of gas
"MMcfe"	million cubic feet of gas equivalent
"MMcfpd"	million cubic feet of gas per day
"MMcfepd"	million cubic feet of gas equivalent per day
"NGLs"	liquids obtained from natural gas processing or refining of crude oil. NGLs include ethane, propane, butane and pentanes-plus/condensate
"NPV10"	discounted present value of future cash flows using a 10 per cent. discount rate
"pinch-out"	the termination by thinning or tapering out ("pinching out") of a reservoir against a nonporous sealing rock creates a favourable geometry to trap hydrocarbons
"possible reserves" or "P10"	reserves which are not yet "proven" but which, on the available evidence, and taking into account technical and economic factors have a better than 10 per cent. chance of being produced
"probable reserves" or "P50"	reserves which are not yet "proven" but which, on the available evidence, and taking into account technical and economic factors have a better than 50 per cent. chance of being produced
"proved developed reserves"	reserves which are expected by a petroleum engineer to be recovered from completion zones that are open at the time of the estimate and are producing
"proved reserves" or "proven reserves" or "P90"	reserves which, on the available evidence, and taking into account technical and economic factors have a better than 90 per cent. chance of being produced
"proved undeveloped reserves"	reserves which are expected by a petroleum engineer to be recovered (1) from new wells on undrilled acreage, (2) by deepening existing wells to a different reservoir, or (3) where relatively large expenditure is required to (a) recomplete an existing well or (b) install production or transportation facilities for primary or enhanced recovery projects
"reserves"	estimated volumes of crude oil, natural gas, condensate or natural gas liquids anticipated to be commercially recoverable under existing economic conditions
"resources"	deposits of naturally occurring hydrocarbons which, if recoverable, include those volumes of hydrocarbons either yet to be found (prospective) or if found the development of which depends upon a number of factors (technical, legal and/or commercial) being resolved (contingent)
"shows"	the appearance of oil or gas (as appropriate) in cuttings, samples or cores from a drilling well
"STOIIP"	stock tank oil initially in place
"TCF"	Trillion cubic feet of gas
"trap"	a petroleum reservoir, or oil and gas reservoir formed by a structural and/or stratigraphic trap
"updip"	located up the slope of a dipping plane or surface
"wt%"	percentage by weight

 

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