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11 | 02 | 2009

Circular Posted to Shareholders

Note to website visitors:

You can access a copy of the circular by clicking here Sibir_February_2009_Circular.pdf

Sibir Energy plc

(“Sibir” or the “Company”)

Withdrawal of Real Estate Resolutions and

Cancellation of All Major Property Acquisitions

New Arrangement with Chalva Tchigirinski

Circular Posted to Shareholders

Notice of General Meeting

Further to the announcement of 30 January 2009, Sibir announces that it has today posted a circular (the “Circular”) to its shareholders convening a general meeting of the Company to be held at 11 a.m. on 27 February 2009 (the “General Meeting”) at which a resolution to approve the cancellation of all major property acquisitions with Mr Tchigirinski (or companies connected with him) will be put to shareholders (the “Resolution”).

At the general meeting of the Company held on 18 December 2008 (the “December General Meeting”) Sibir’s majority Russian shareholders expressed a wish, through the Company’s Chief Executive, to have time to re-evaluate the proposal to expand into real estate and their earlier decision to support the real estate resolutions which were to be put to the December General Meeting. The meeting agreed to this request and adjourned consideration of the relevant resolutions. The Board undertook to revert to Shareholders in due course with a clarification of the position resulting from that re-evaluation.

The letter from Sibir’s Non-Executive Chairman, William Guinness, accompanying the notice of the December General Meeting set out the circumstances resulting in the exceptional actions the Board took to defend the Company’s shareholder structure which the Board considers to be essential to the future of the Company’s operations in Russia. In summary, the Company advanced a total of $115.4 million (the “Sibir Debt”) as partial payment for the purchase of two properties in Mr Tchigirinski’s real estate portfolio – the Sovietsky Hotel and New Sovietskaya. This decisive course of action enabled him to avoid margin calls and, more importantly, averted a sudden and uncontrolled change to Sibir’s shareholder structure. It also gave Mr Tchigirinski time to arrange alternative finance to replace the loans that brought about the threat of margin calls. The Directors have been informed that this was arranged in early November through Mr Tchigirinski’s fellow Sibir shareholder, Mr Igor Kesaev, from Russia’s largest bank, OAO Sberbank Rossii (“Sberbank”). That finance took the form of a $192 million loan from Sberbank to Orton Oil Company Limited (“Orton Oil”) (the “Orton Oil Debt”) which in turn advanced the funds to Gradison Consultants Inc. (“Gradison”), a company owned by Mr Tchigirinski. Orton Oil is wholly owned by Mr Kesaev. Mr Tchigirinski subsequently undertook to secure the loan from Sberbank to Orton Oil by pledging his indirect approximate 23.3 per cent. stake in Sibir by the end of January 2009. The Directors have been informed that this charge has now been put in place as described below.

In the weeks following publication of the circular to Shareholders of 2 December 2008 and the December General Meeting itself the key Russian shareholders have sought a solution for Sibir that preserves it’s Russian shareholder structure, avoids the Company’s proposed expansion into real estate and achieves the recovery of all monies advanced to Mr Tchigirinski in connection with the originally proposed acquisition of real estate from him or companies connected to him. Those deliberations have now reached a successful conclusion as described below and Sibir’s major Russian shareholders have asked the Board not to proceed with the resolutions related to real estate.

In the light of the request from the majority shareholders not to proceed with the proposed real estate transactions the following action is recommended by the Board:

(a)	the agreements to acquire the real estate assets referred to above will be cancelled;
(b)	the terms on which the Sibir Debt and the Orton Oil Debt will be repaid will be as set out in the Deed of Arrangement between Sibir, Orton Oil and Mr Tchigirinski (defined and described below); and
(c)	all property resolutions referred to in the December Circular are to be withdrawn.

On 23 December 2008 the Company entered into a deed of arrangement with Mr Tchigirinski (in relation to him and all companies under his control) and Orton Oil in relation to the properties owned, or part owned, by Mr Tchigirinski (or companies connected with him) which were referred to in the December Circular and certain residential properties in France and England (the “Real Estate Portfolio”) (the “Deed of Arrangement”). The Deed of Arrangement, which was released from escrow on 10 February 2009, provides, inter alia, for the following:

(i)	Mr Tchigirinski has undertaken to sell the properties in the Real Estate Portfolio in order to repay the Sibir Debt and the Orton Oil Debt as soon as reasonably practicable and in any event within a period of 270 days from 15 January 2009;
(ii)	The nominee owner of each of the properties comprised in the Real Estate Portfolio will grant a power of attorney in favour of Sibir empowering it to dispose of the properties in consultation with Mr Tchigirinski. The price at which such disposals will be made is entirely at the discretion of the Board. For so long as the power of attorney is in place, Sibir shall assume responsibility for funding all costs, fees and expenses of the properties and the costs of the private aeroplane belonging to Mr Tchigirinski, which aircraft is currently being sold. These costs will be added to and form part of the Sibir Debt and will be recovered in accordance with the Deed of Arrangement;
(iii)	Mr Tchigirinski will provide all reasonable assistance in the realisation process and Sibir will pay $150,000 per month to Mr Tchigirinski for 270 days from 15 January 2009. This cost does not form part of the recoverable costs referred to in (ii) above;
(iv)	As security for the Sibir Debt (and the related costs, fees and expenses), Sibir will be granted a charge over all of the Real Estate Portfolio, ranking only behind any existing charges already taken by third parties;
(v)	Upon full repayment of the Sibir Debt (and the related costs, fees and expenses) any surplus on realisation of the Real Estate Portfolio will be accounted for to Orton Oil until full repayment of the Orton Oil Debt has been achieved and any surplus then remaining will be paid to Mr Tchigirinski and all security not previously discharged will be discharged;
(vi)	A charge by Mr Tchigirinski over his 100 per cent. shareholding in Gradison (which has a 50 per cent. shareholding in Bennfield Limited (“Bennfield”)) to Orton Oil as security for the Orton Oil Debt;
(vii)	A charge by Gradison over its 50 per cent shareholding in Bennfield and a charge by Bennfield over 50 per cent. of its approximate 46.65 per cent. stake in Sibir, in each case as security for the loan of $192 million from Sberbank to Orton Oil;
(viii)	If the Sibir Debt (including the related costs, fees and expenses) has not been repaid in full, within the period of 270 days referred to in (i) above, Sibir will be entitled either to continue with the process of realising the Real Estate Portfolio in order to effect repayment or to take the Real Estate Portfolio in full and final settlement of the Sibir Debt (and the related costs, fees and expenses); and
(ix)	If the Orton Oil Debt has not been repaid in full, within the period of 270 days referred to in (i) above, Orton Oil will be entitled to acquire all of Mr Tchigirinski’s shares in Gradison in full and final settlement of the Orton Oil Debt (so that Orton Oil would indirectly or directly own 100 per cent. of the share capital of Bennfield and thus indirectly all of Bennfield’s approximate 46.65 per cent. stake in Sibir). Gradison’s 50 per cent. shareholding in Bennfield and 50 per cent. of Bennfield’s approximate 46.65 per cent. stake in Sibir would remain charged to Sberbank to secure Sberbank’s loan of $192 million to Orton Oil unless by that time that loan had been repaid by Orton Oil.

The Directors have been informed that the charges referred to in (vi) and (vii) above have been put in place.

These arrangements should ensure that the Sibir shares held by Bennfield remain under the control of either Mr Tchigirinski or Mr Kesaev (subject to any charges over the shares to Sberbank) so that Sibir’s Russian shareholder structure remains intact without Sibir having to acquire any part of Mr Tchigirinski’s real estate portfolio. It should be noted that as a result of Sibir entering into the Deed of Arrangement the agreement between Mr Tchigirinski and Sibir, entered into on 17 December 2008, to indemnify the Company against any aggregate loss on the sale of the properties acquired from him is superseded by the Deed of Arrangement.

Having regard to the net equity position in all the properties covered by the Deed of Arrangement the Board is satisfied that the full amount of the Sibir Debt (and the related costs, fees and expenses) will be recovered by Sibir in due course even if the properties are sold on a heavily discounted basis.

Accordingly, the Company is convening a general meeting of the Company to obtain shareholder approval for the cancellation of the agreements in respect of the acquisitions of the properties known as Sovietsky Hotel and New Sovietskaya and the entering into of the Deed of Arrangement. In order to reduce the Sibir Debt as quickly as possible the Company will proceed to implement the Deed of Arrangement with Mr Tchigirinski, outlined above, prior to the General Meeting with particular emphasis on achieving disposals of Mr Tchigirinski’s real estate properties.

In accordance with the controlling shareholder agreement between, inter alia, Bennfield and Sibir, the Board has given its consent for Bennfield to vote for the Resolution in respect of its Sibir shares held in proportion to Igor Kesaev’s interest in Bennfield. The Board has not given its consent for Bennfield to vote on the Resolution in respect of its Sibir shares held in proportion to Chalva Tchigirinski’s interest in Bennfield as a result of his substantial indebtedness to the Company.

Related party transactions

The transactions referred to in this announcement are considered to be “Related Party” transactions for the purposes of the AIM Rules for Companies as Mr Tchigirinski is a significant shareholder in Sibir, through his indirect interest in Bennfield. The Directors, having consulted with the Company’s Nominated Adviser, Strand Partners Limited, are of the opinion that the terms of each of the transactions are fair and reasonable insofar as Shareholders are concerned.

The Circular is available to download from the Company’s website at www.sibirenergy.com