The subject of the Agreement is to define the terms of cooperation within the scope of a new joint-venture company that would conduct the following business: (i) exploration and production of hydrocarbons (including shale gas) in Poland; (ii) drilling services in Europe and, specifically, in Poland; (iii) services related to hydro-fracturing and other services associated with exploration and production of hydrocarbons.
The parties intend to implement their joint venture through a specially created joint venture company styled Silurian Hallwood Limited registered in Jersey, Channel Islands (“JVC”) and through SES (currently a subsidiary of Silurian), all the shares in which JVC intends to acquire. The Parties intend to achieve the following shareholding structure in the JVC before it is floated on the London Stock Exchange:
(i) Hallwood Energy will subscribe for 50% of shares in JVC;
(ii) Petrolinvest will subscribe for 25% of shares in JVC;
(iii) Tabacchi will subscribe for 20% of shares in JVC;
(iv) Mr Wiesław Skrobowski will subscribe for 5% of shares in JVC.

In accordance with the executed Agreement JVC will acquire 100% of shares in SES from the SES shareholders, i.e. Silurian (90% of shares in SES) and Mr Wiesław Skrobowski (10% of the shares in SES) for the total price of PLN 1 million. At present, Petrolinvest uses SES for the development of its business of rendering services to entities who hold licences for exploration and production of shale gas in Poland, and specifically drilling services. It is expected that in the 1st and 2nd quarter of 2012 SES will receive two drilling rigs specially designed for exploration of shale gas. Furthermore, SES will hold between four and seven licences for exploration works in Poland which are currently held by Silurian with an option for two additional licences. Additionally, in relation to the transaction, Petrolinvest will obtain a premium of USD 6 million (payable in shares in JVC prior to JVC’s floating on the stock exchange).
In result of the executed agreement, Hallwood Energy will transfer to SES the know-how (advisory services, support services, intellectual property rights) and the hydra-fracturing, to the extent necessary to allow SES to use the hydra-fracturing technology in the procedure of shale gas production . In result of the executed agreement SES will obtain the exclusive right to that technology of Hallwood Energy covering the territory of the entire Europe for application to the work related with its own licences and to be offered to third parties.
The parties intend to transform JVC into a public limited company (Plc.) and, subsequently, to cooperate to conduct a private placement of JVC and to introduce the JVC shares to stock exchange trading on the AIM market (London).
Furthermore, the Agreement regulates, among others, the principal corporate governance rules of JVC and SES.

Hallwood Energy specialises in exploration and production of unconventional deposits of gas and one of the leaders in the sector as far as the hydro-fracturing technology used throughout the world in the production of shale gas. Hallwood has extensive long-term experience in the exploration and production of shale gas using the horizontal drills technology and the hydro-fracturing technology. One of the investments that have been recently completed by the Hallwood Group was an investment in the range of USD 120 million in a company producing shale gas in the United States which was sold to a US corporation Chesapeake Energy Corporation for the total sum of approximately USD 535 million.

The investment in JVC will allow Petrolinvest to strengthen its position in the sector of rendering services to entities in the business of exploration and production of shale gas. In result of the transaction the Petrolinvest Group will be able to extend the scope of its exploration and production of shale gas services and to develop, thanks to the Hallwood Energy’s know-how and additional financing obtained through private and public placement of shares, its operations in the area of exploration based on its own licences in Poland.

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