Emerald Energy Plc - 21 July 2003

Emerald Energy Plc NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES OF AMERICA, CANADA, JAPAN, THE REPUBLIC OF IRELAND, AUSTRALIA, SOUTH AFRICA OR JAPAN

Emerald Energy Plc

Emerald Energy Plc (the "Company") announces that it is proposing to raise approximately £6.8 million (before expenses) and a circular is being sent to Shareholders today.  The document contains details of the following proposals:

-  1 for 1 Rights Issue of 1,462,844,997 New Ordinary Shares at 0.25p per share underwritten by Waterford Finance and Investment Limited ("Waterford").

-  Issue for Cash of 1,253,000,000 New Ordinary Shares at 0.25p per share to Waterford.

-  Capital Reorganisation and Capital Reduction. -  Amendments to the Articles and the Employee Share Scheme.

-  Resignation or retirement of the existing Board of Directors and the appointment of the Proposed Directors.

Graeme Elliot, Chairman of Emerald Energy plc, commented:

"At the current oil price and production levels for Gigante #1A, the Directors expect the Company for the current financial year to generate an operating cash surplus which will be applied in the reduction of both creditors and bank indebtedness. However, the cashflow is insufficient to fund the desired exploration programme. Therefore the Board views the proposed Issue for Cash and the Rights Issue as the only structure that would enable the company to raise the sum of the magnitude required at the significant discount proposed, as a necessary and positive step which should bring benefit to Emerald by strengthening the Company's balance sheet and easing the financial pressure it has suffered in recent months.

The proposed Issue for Cash and the Rights Issue will provide the necessary funding to finance the future operations of the Group. Your Board believes that if the Proposals are not successful, the Company will have insufficient working capital for the next 12 months. Shareholders should be aware that the Board would need to renegotiate their facilities with their current bankers and consider the sale of certain assets in order to meet a potential liability which could crystallise by the end of September 2003, with payment being required within a further 90 days from then. There is no guarantee that these discussions will be successful which may result in the board appointing administrative receivers.

Accordingly, the Directors unanimously recommend you vote in favour of the resolutions to be proposed at the Extraordinary General Meeting"

Teather & Greenwood Limited, of Beaufort House, 15 St Botolph Street, London EC3A 7QR has approved the contents of this announcement solely for the purposes of Section 21 of the Financial Services and Markets Act 2000. This announcement should be read in conjunction with the full text of the document that was sent to Shareholders today.

Teather & Greenwood Limited, a company authorised and regulated by the Financial Services Authority, is acting exclusively for Emerald Energy Plc and no-one else in connection with the Offer and will not be responsible to anyone other than Emerald Energy Plc for providing the protections afforded to clients of Teather & Greenwood Limited nor for giving advice in relation to the Offer or any other matter referred to herein.

Neither the document sent to Shareholders today nor the Provisional Allotment Letter have been or will be registered under the United States Securities Act of 1933, as amended, or under the securities laws of any state of the United States nor the securities laws of any province or territory of Canada, the Republic of Ireland, Australia, South Africa or Japan, and, accordingly, subject to certain exceptions, they may not be offered or sold in the United States, Canada, the Republic of Ireland, Australia, South Africa or Japan or to any national, citizen or resident thereof.

Extracts from the Chairman's letter the document that has been sent to Shareholders today

Emerald Energy Plc

Proposed 1 for 1 Rights Issue of 1,462,844,997 New Ordinary Shares at 0.25p per share Proposed Issue for Cash of 1,253,000,000 New Ordinary Shares at 0.25p per share Capital Reorganisation and Capital Reduction Proposed Amendments to the Articles and the Employee Share Scheme

Introduction

The Company announces it is proposing to raise approximately £6.8 million (before expenses) by means of an Issue for Cash of 1,253,000,000 Issue for Cash Shares at 0.25p per share to Waterford and a Rights Issue to Qualifying Shareholders of 1,462,844,997 Rights Shares at 0.25p per share and, to effect a Capital Reorganisation and Capital Reduction. The Company also proposes, subject to shareholder approval, to amend its Articles and the Employee Share Scheme. Waterford has agreed to subscribe for all the 1,253,000,000 Issue for Cash Shares representing gross proceeds of £3,132,500 at 0.25p per share and to underwrite the subscription for all of the 1,462,844,997 Rights Shares at 0.25p per share representing gross proceeds of £3,657,112 on the terms of the Underwriting Agreement. The Rights Issue will give Shareholders the opportunity to participate in the re-financing of the Company. As a consequence of the Issue for Cash, Waterford will be the beneficial holder of 29.99 per cent. of the issued New Ordinary Shares (as enlarged by the Issue for Cash and the Rights Issue). If the underwriting is called upon in full, taking into account the Issue for Cash, Waterford will own 64.99 per cent. of the New Ordinary Shares (as enlarged by the Issue for Cash and the Rights Issue). The net proceeds of the Issue for Cash and Rights Issue will be used to fund the Company's working capital requirements, repay debt and will enable it to commence its planned drilling and exploration programme in the near future.

I have written to Shareholders today to give details of the Proposals, to explain why the Directors consider them to be in the best interests of the Company and to recommend that Shareholders vote in favour of the resolutions to approve the Proposals at the EGM.

Information on Emerald

Emerald is a United Kingdom based independent oil exploration and production company with a production interest in Colombia, derived from the Gigante #1A oil well on the Matambo Block in the Upper Magdalena Valley and exploration in Colombia, through its Campo Rico and Matambo Association Contract with Ecopetrol.

Further information on the Emerald Group's exploration and production interests the document that has been sent to Shareholders today.

Background and reasons for the Issue for Cash and the Rights Issue

The Gigante #1A well has continued to produce throughout the past year and is now the sole source of production for Emerald since the sale of its North American assets. The commerciality application for the development of the Gigante Field was submitted in 2002 and was granted on a sole-risk basis around the well, with the remainder of the field area retained on exploration terms, albeit with no obligations. However, since the fire at the well in May 2000, the production rate has not recovered to the levels required to fund the Company's planned exploration activities, which has had a significant effect on the Group's financial position. Efforts have been made to seek farm-out partners for a second Gigante well, but these were unsuccessful.

As a result of a technical review and the lack of internally generated funds for capital expenditure, rationalisation of the exploration portfolio has been undertaken. This has seen modifications to some licences and the termination of others that were deemed to provide insufficient expected returns to Emerald. In addition to Matambo, the sole remaining exploration opportunity is the drilling of the Campo Rico block in the Llanos Basin, Colombia. Technical work on this block has to date established three drillable prospects - Centauro, Centauro Sur and Cimarron Sur. The two Centauro prospects probably run into each other to form a single structure and the first planned well Centauro #2 to be spudded in December this year, will be up-dip from the Centauro #1 discovery well, drilled in the 1980's by Ecopetrol. The Company estimates that the Centauro structure contains some 13 million barrels of reserves in the Mirador reservoir and despite relatively heavy oil, flow rates of up to 1,200 bopd should be achievable. The Company's technical assessment estimates that the Cimarron structure may contain 16 million barrels of recoverable oil.

Current trading and prospects

As stated in the Outlook paragraph of the Chairman's statement in the Company's preliminary results for the year ended 31 December 2002 as announced on 30 April 2003, "since 31 December 2002, all costs have been substantially reduced and at an operational level contributions are being made to the repayment of bank debt, the repayment of creditors and to the payment of overheads in both Bogotá and London." The full text of the Chairman's statement is included in the Annual Report and Accounts for the year ended 31 December 2002 which are enclosed with the document sent to Shareholders today.

At the current oil price and production levels for Gigante #1A, the Directors expect the Company for the current financial year to generate an operating cash surplus which will be applied in the reduction of both creditors and bank indebtedness. However, the cashflow is insufficient to fund the desired exploration programme.  Therefore the Board views the proposed Issue for Cash and the Rights Issue as the only structure that would enable the Company to raise the sum of the magnitude required at the significant discount proposed, as a necessary and positive step which should bring benefit to Emerald by strengthening the Company's balance sheet and easing the financial pressure it has suffered in recent months.

The proposed Issue for Cash and the Rights Issue will provide the necessary funding to finance the future operations of the Group.

Your Board believes that if the Proposals are not successful, the Company will have insufficient working capital for the next 12 months. Shareholders should be aware that the Board would need to renegotiate their facilities with their current bankers and consider the sale of certain assets in order to meet a potential liability which could crystallise by the end of September 2003, with payment being required within a further 90 days from then. There is no guarantee that these discussions will be successful which may result in the board appointing administrative receivers.

Information on Waterford

Waterford is subscribing in full for the Issue for Cash Shares and underwriting the Rights Issue. Waterford is a privately owned investment vehicle registered in Guernsey.

The Panel has deemed that Alastair Beardsall, Edward Grace, Fred Ponsonby, Waterford and persons acting in concert with any of them are acting in concert.

Further information on Waterford is set out in the document sent to Shareholders today.

Existing Directors

It is proposed that, immediately following the approval of the Proposals by Shareholders at the EGM, all the current members of the Company's Board of Directors shall resign with the exception of John Silcock who will retire at the AGM and will not stand for re-election. The resigning Directors have entered into conditional agreements with the Company, which contain provisions, inter alia, for a sum equivalent to three months' salary, or fees, to be paid (instead of their contracted entitlement of 12 months in the case of the Executive Directors and 6 months in the case of the Non-Executive Directors) and for all options granted under the Employee Share Option Scheme granted in favour of the existing Directors to lapse within six months of their resignation.

Other than the agreements detailed above no agreement, arrangement or understanding  (including any compensation arrangement) exists between Waterford and the Directors, recent directors, Shareholders or recent Shareholders of Emerald in connection with the Proposals.

Proposed Directors and Senior Management

Following the EGM it is intended that the following new appointments will be made to the Board:

Alastair John Beardsall (49)

Proposed Executive Director Alastair Beardsall has been involved in the international oil and gas industry for 22 years. His career began with 12 years working for Schlumberger Ltd as a field engineer and location manager for provision of oil field services on international assignment to the Middle East, Far East, USA and Russia. More recently Alastair has worked for a number of independent operators, including Quest Petroleum Ltd (1992-1994), Glencore Ltd (1996-1997), EuroSov Energy plc (1997-1999) and Sibir Energy plc (1999-2000).  His roles have included those of Chief Engineer, Operations Manager and Technical Director and he has operational experience in some of the harshest environments in the world. Alastair has oil and gas industry skills and experience that cover the broad spectrum from exploration through development to production. He has served as a director of EuroSov Energy plc (listed on the Official List) and Sibir Energy plc (quoted on AIM) and is currently a director of First Calgary Petroleums Ltd (dual quotation on the Toronto Stock Exchange and AIM).

Edward Grace (38)

Proposed Executive Director Edward Grace, MBA, has been a corporate financier with Merrill Lynch and Lehman Brothers. Most recently, Edward served as Director of Investment Banking with Lehman Brothers, focusing on raising capital in private and public capital markets for, and providing mergers and acquisitions advisory to, growth companies. During his career with Merrill Lynch, Edward spent substantial time working with corporate and government clients in Central and Eastern Europe, Russia and the Middle East focusing on the provision of finance and privatisation of large state owned assets. Prior to investment banking, as a management consultant with Accenture, formerly Andersen Consulting, Edward was involved in project work for some of the largest energy companies in the UK. John

Merfyn Roberts (52)

Proposed Non-Executive Director Merfyn Roberts holds an MSc from the University of Oxford in Geochemistry and began his career as a geologist working in the UK and in North Africa. In 1976 he joined Thomson McLintock & Co. in London and qualified as a Chartered Accountant in 1980. He joined Charter Consolidated Limited in 1982 as an equity investment analyst and in 1985 he joined Target Group PLC where he managed the Gold, Commodity and World Income Unit Trusts. In 1990 he joined Minorco S.A. in London to set up and manage Minorco's in-house equity fund which, by the time he left in 1996, specialised in the natural resources sector. Since 1996 he has been involved with Dragon Securities Limited, a natural resources based equity fund, as investment director until 2000 and subsequently as investment consultant. He is also currently the investment director of Cardiff Capital Limited, a manager of North American, UK and European resource stocks. He is currently a director of Ocean Resources Capital Holdings plc, Resources Investment Trust plc and Arc Advisers Limited, and is a past director of Estelar Resources Limited.

Frederick "Fred" Matthew Thomas Ponsonby (44)

Proposed Non-Executive Director Fred Ponsonby is an oil industry professional who has also pursued a career in politics. A petroleum engineer by profession, Fred started his oil industry career with Charterhouse Petroleum plc (1984- 1986) and has most recently worked for LASMO plc (1989-1992) as a senior petroleum engineer and Phibro Energy (1994-1998), an oil subsidiary of Salomon Brothers, as the technical manager with responsibility for international exploration and production projects. Fred Ponsonby is an active member of the House of Lords and a member of various European parliamentary institutions. He has held a number of company directorships and is currently a non-executive director of Acorn Oil and Gas Limited.

A Chairman of the Board of Directors will be appointed from the Proposed Directors.

The Proposed Directors have been selected to provide the broad skill set required to run the Company. The Proposed Directors will reduce the costs of the current board, which currently consists of 5 directors, including 3 executive directors. The new board will consist of 2 part time executive directors and 2 non-executive directors. The Articles currently permit fees to be paid to directors subject to an aggregate cap of £32,000. In order to attract high calibre individuals to the Company, the Proposed Directors wish to increase this limit to £100,000. A resolution to effect this amendment will be proposed at the EGM.

In addition the Proposed Directors have experience of both Official List and AIM quoted oil and gas exploration and productions companies and experience of running private equity financed oil and gas companies.

Helen Manning, the existing Financial Manager, will take on the responsibility for the financial reporting of the Group. The operations in Colombia will continue to be managed by Dr John Wardle.

Helen Manning FCCA has worked in the oil industry for the last 14 years. She spent 8 years with Fina, starting in upstream joint ventures and was rotated into a number of roles in both the upstream and downstream divisions. Helen moved to Statoil's downstream gas marketing division Alliance Gas as Financial Accountant followed by role of Finance Manager at Honeywill & Stein an ex BP chemical distribution company. Helen joined Emerald in November 2000 as Finance Manager.

John Wardle worked with Britoil Plc in the North Sea, mainly offshore until the takeover by BP in 1988. With BP he continued his engineering career until a secondment to Sedco-Forex Schlumberger in 1990 (Rig Management). In 1991 he returned to BP as Well Operations Supervisor, including production operations on the Clyde field and subsequently in the Miller/Brae Complex. In 1993 he was transferred to Colombia as Drilling Supervisor in the foothill exploration wells. In 1996 he became Drilling Superintendent of Exploration Group 3, in charge of the Floreña exploration campaign, with annual budget responsibility in excess of US$40 MM. In 1998 he resigned from BP to follow consultancy interests, working for several major operators in Columbia. In 2000 he joined Emerald Energy Colombia as Operations Manager, with responsibility for production and drilling operations. In July 2001 he was appointed General Manager of Emerald Energy Colombia.

The Proposed Directors intend to seek the appointment of an additional independent director to the Board of the Company. The Proposed Directors have confirmed that in the event of the Proposals being completed in all respects, the existing employment rights, including pension rights, of the management and employees of Emerald will be fully safeguarded. The Proposed Directors believe that the underlying assets of the Company are a sound basis on which to increase the Group's business both in Colombia and in other international locations. The Proposed Directors intend to pursue a low risk strategy with regard to the Company's key assets, the Matambo and Campo Rico Association Contracts, and to seek additional assets in and outside Colombia.

In addition the Proposed Directors will consider moving Emerald's listing from the Official List to an admission on AIM, to reduce the ongoing costs of the Company's administration and to reduce the costs of future transactions. It is proposed that this will happen within nine months of Admission. AIM is understood by the Proposed Directors to have less rigorous regulatory requirements than the Official List. For example, a company admitted to the Official List requires shareholder approval for a transaction in which it acquires or disposes of assets equivalent to 25 per cent. or more of its own size, while a company quoted on AIM only requires shareholder approval of a transaction in which it acquires assets equivalent to 100 per cent. or more of its own size. Should the Proposals not be approved, the Board will reconsider its intentions, having taken advice from its advisers.

Waiver of the requirements of the City Code

In accordance with Rule 9.1(a) of the City Code, except with the consent of the Panel, when any person acquires, whether by a series of transactions over a period of time or not, shares which (taken together with shares held or acquired by persons acting in concert with him) carry 30 per cent. or more of the voting rights of a company, that person or persons acting in concert must normally make a general offer to purchase the balance of the issued share capital of that class of shares.

Likewise, in accordance with 9.1(b) of the City Code, when any person who, together with persons acting in concert with him, holds not less than 30 per cent. but not more than 50 per cent. of the voting rights of a company and such person, or any persons acting in concert with them, acquires additional shares which increase his percentage of voting rights, that person or persons acting in concert must normally make a general offer to purchase the balance of the issued share capital of that class of shares.

As a consequence of the Issue for Cash, Waterford will be the beneficial holder of 29.99 per cent. of the issued New Ordinary Shares (as enlarged by both the Issue for Cash and the Rights Issue). If the underwriting is called upon, the Waterford Concert Party will become a beneficial holder of 30.00 per cent. or more of the New Ordinary Shares (as enlarged by both the Issue for Cash and the Rights Issue). In such event, the Waterford Concert Party would be obliged under Rule 9 of the Code to make an offer to the existing Shareholders for their New Ordinary Shares. If the underwriting is called upon in full, the Waterford Concert Party will own 64.99 per cent. of the issued New Ordinary Shares (as enlarged by both the Issue for Cash and the Rights Issue) which is more than 50 per cent. of the New Ordinary Shares and will then no longer be subject to Rule 9 of the City Code.

In the event that the Waterford Concert Party comes to hold not less than 30 per cent. but not more than 50 per cent. of the issued New Ordinary Shares following the implementation of the Proposals as a result of part but not all the underwriting of the Rights Issue being called upon, the members of the Waterford Concert Party will not be able to acquire, for so long as they are acting in concert, additional new Ordinary Shares without being obliged to extend a general offer for Emerald under Rule 9.1(a) of the City Code.

In the event that the Waterford Concert Party comes to hold more than 50 per cent. of the issued New Ordinary Shares following the implementation of the Proposals, they will thereafter be free to acquire any number of New Ordinary Shares and thereby increase their percentage of voting rights without incurring any obligation under Rule 9 of the City Code to make a general offer for the Company.

The Panel has confirmed that, subject to Resolution One being passed on a poll by Shareholders at the EGM, the obligations that would otherwise arise, under Rule 9 of the City Code on Waterford to make a general offer for the entire issued ordinary share capital of the Company not already owned by Waterford and by persons acting in concert with Waterford as a result of the implementation of the Proposals will be waived.

In light of Waterford's interest in the Company pursuant to the Proposals, and to ensure the Board is free from conflicts of interest, the Company has entered into the Continuing Relationship Agreement. On the basis of, inter alia, that agreement, the Directors and Proposed Directors are satisfied the business of the Company will be carried on independently of Waterford and all transactions and relationships between the Group and Waterford (and its associates) will be on arm's length terms and on a normal commercial basis.

Capital Reorganisation, capital reduction and proposed consolidation

Capital reorganisation

An Isle of Man company is prevented by company law from issuing shares at a discount to the nominal value of its shares. Since the proposed Issue Price of 0.25p is below the current nominal value of the Existing Ordinary Shares of 1p, the Capital Reorganisation needs to be implemented to enable the Proposals to proceed. Each Existing Ordinary Share of 1p nominal value will be sub-divided into one New Ordinary Share of 0.1p and one Deferred Share of 0.9p. Each authorised but unissued Existing Ordinary Share will be sub-divided into ten New Ordinary Shares. Each New Ordinary Share will have the same rights (including voting and dividend rights and rights on a return of capital) as each Existing Ordinary Share. The Capital Reorganisation, which will have no effect upon the Group's net assets, requires the amendment of the Articles as proposed in Resolution 2B set out in the Notice of EGM.

The rights attaching to the Deferred Shares, which will not be listed or quoted on any stock exchange, will be minimal, thereby rendering them effectively valueless. No certificates will be issued in respect of the Deferred Shares and subject to the passing of Resolutions 2 and 6 at the EGM, application may be made to the High Court of Justice in the Isle of Man for the cancellation of the Deferred Shares.

Capital reduction

The audited profit and loss account of the Company as at 31 December 2002 shows a deficit of £26.59 million. So long as there is a deficit on the Company's profit and loss account, the Company is precluded by the IOM Act from paying dividends or buying back shares. Accordingly, the Company is proposing, in addition to cancelling the Deferred Shares, to effect a reduction of its share premium account, which, subject to the passing of Resolution 6 at the EGM and approval by the High Court of Justice in the Isle of Man, will eliminate the deficit in the Company's profit and loss account. 

If the reduction is sanctioned by the Court, the deficit of £26.59 million will be eliminated.  The implementation of the reduction to the share premium account will not affect the rights attaching to New Ordinary Shares.

In order to obtain the Court's confirmation, it is necessary for the Company to ensure that the reduction will not prejudice the interests of its creditors. At present, it is anticipated that the Company will give an undertaking to the Court for the protection of creditors.

If Shareholders pass Resolution 6, the Company may arrange for a petition to be presented to the Court seeking its confirmation of the reduction. Until such confirmation is obtained, the cancellation of deferred shares will not take effect.

Share certificates for the New Ordinary Shares will be despatched by 18 September 2003. Share certificates for Existing Ordinary Shares will remain valid in respect of the equivalent number of New Ordinary Shares shown thereon.

Proposed consolidation

It is the Proposed Directors' intention, subject to Shareholder approval, to consolidate the New Ordinary Shares within 12 months of the publication of the document sent to Shareholders today. It is the Proposed Directors current intention that this consolidation be on the basis of one post consolidation ordinary share with a nominal value of 20p each for every 200 New Ordinary Shares held.

The Proposed Directors consider that a consolidation of the New Ordinary Shares could improve liquidity and may lead to a relative reduction in the bid offer spread of the Company's shares. In addition, the Proposed Directors believe that the consolidation will reduce the ongoing administration costs of the Company.

The holders of fewer than 200 New Ordinary Shares would not be entitled to receive a post consolidation ordinary share. Shareholders with a holding of New Ordinary Shares in excess of 200 New Ordinary Shares, but which is not exactly divisible by 200 would have their entitlement rounded down to the nearest whole number. Fractional entitlements (arising in respect of holding of more or less than 200 New Ordinary Shares) will be sold in the market or bought back by the Company (subject to the Company having sufficient distributable reserves) at the discretion of the Proposed Directors. If the proposed consolidation is to be effected, the Directors would consider putting a resolution to Shareholders entitling the Directors to apply any proceeds of £3 or under arising from the sale of fractional entitlements for the Company's benefit.

Shareholders who are considering subscribing for Rights Shares should be aware that if they have less than 200 New Ordinary Shares following such subscription, they will not have any shares in the capital of the Company if the current proposed consolidation takes effect.

Use of proceeds

The Proposals will result in the Company raising approximately £6.8 million (£6.1 million net of expenses) from the Issue for Cash and the Rights Issue. Part of the proceeds will be used to further explore and develop reserves within the Campo Rico Association Contract Area at an approximate cost of £2.2 million, to repay debt of approximately £2.5 million with the balance of proceeds being held on deposit for general working capital purposes.

The Directors are of the opinion that, taking into account the proceeds of the Proposals and available bank facilities, the Group has sufficient working capital for its present requirements that is for at least the next 12 months from the date of the document sent to Shareholders today.

The Board believes that if the Proposals are not successful, the Company will have insufficient working capital for the next 12 months. Shareholders should be aware that the Board would need to renegotiate their facilities with their current bankers and consider the sale of certain assets in order to meet a potential liability which could crystallise by the end of September 2003, with payment being required within a further 90 days from then. There is no guarantee that these discussions will be successful which would result in the board appointing administrative receivers.

Details of the Issue for Cash and the Rights

Issue Issue for Cash

The Company proposes to raise £3,132,500 gross, by means of a non-pre-emptive Issue for Cash of 1,253,000,000 Issue for Cash Shares at 0.25p per share to Waterford.

Rights Issue
The Company proposes to raise £3,657,112 gross, by means of the Rights Issue on the following basis:

1 Rights Share for each Existing Ordinary Share held on the Record Date at 0.25p per share

Provisional Allotment Letters will be sent to Qualifying Shareholders in respect of their entitlement to Rights Shares subject to Shareholder approval of the Proposals at the EGM. The Provisional Allotment Letters will show the number of Rights Shares provisionally allotted to Qualifying Shareholders and contain instructions regarding acceptance and payment, renunciation, splitting and registration in respect of the Rights Shares.

Further information on the Rights Issue and the terms and conditions on which it is being made, including the procedure for application and payment, is set out in the document sent to Shareholders today.

The Rights Issue has been fully underwritten by Waterford. The underwriting cannot be terminated once the Nil Paid Rights have started trading.

The latest time and date for acceptance and payment under the Rights Issue is expected to be 9.30am on 8 September 2003.

When considering whether or not to subscribe for Rights Shares, each Shareholder should consider the risk factors set out in the document sent to Shareholders today.

General

Both the Issue for Cash and the Rights Issue, which is underwritten by Waterford, are inter-conditional and are also conditional, inter-alia, upon:

1. the Issue for Cash and Underwriting Agreement not having been terminated in accordance with its terms prior to Admission and otherwise becoming unconditional in all respects;
2. Admission becoming effective on or before 8.00am on 18 August 2003 or such later time and/or date as the Company, Waterford and Teather & Greenwood may agree; and
3. the passing of resolutions 1-5 at the EGM.

The New Ordinary Shares issued pursuant to the Rights Issue and Issue for Cash will when fully paid rank pari passu with the issued New Ordinary Shares created by the Capital Reduction, including voting rights, and the right to receive all dividends and distribution declared after the Record Date.

The Issue Price represents a discount of approximately 64 per cent. to the closing mid market price on 14 July 2003, being the latest practicable dealing day prior to the publication of the document sent to Shareholders today, and a premium to nominal value of 0.15 pence.

It is expected that Admission will take place on 8.00am on 18 August 2003 (or such later time and/or date as the Company, Waterford and Teather & Greenwood may agree). If Admission has not so occurred, monies remitted with Provisional Allotment Letters will be returned to Shareholders without interest at the Shareholder's risk as soon thereafter as is practicable.

Share Options

The Employee Share Scheme currently only permits options to be granted to employees of the Group and directors of the Group who are required to devote in excess of 25 hours per week to the business of the Group. The Proposed Directors wish to have the flexibility to attract high calibre individuals to work for the Company and to have the flexibility in remunerating them in either cash or options, in order to reduce the operating costs of the Group. It is therefore proposed that the Rules of the Employee Share Scheme are changed to enable options to be granted to consultants to the Group and to any director of any company in the Group regardless of the number of hours he is required to devote to the business of the Group. A resolution to effect this is to be put to Shareholders at the EGM as resolution 8.

Financial information

Financial information on the Company, for the five financial periods ended 31 December 2002 is set out in the document sent to Shareholders today. The auditors report on the financial statements for the year ended 31 December 2002 drew attention to a fundamental uncertainty relating to going concern.

"In forming our opinion we have considered the adequacy of the disclosures made in Note 1 of the Financial Statements concerning their preparation on a going concern basis. The validity of this basis depends on the successful outcome of negotiations to finance the Group and sufficient funds being raised. The Financial Statements do not include any adjustments that would result from a failure to secure funds through the financing negotiations."

Your Board believes that if the Proposals are not successful, the Company will have insufficient working capital for the next 12 months. Shareholders should be aware that the Board would need to renegotiate their facilities with their current bankers and consider the sale of certain assets in order to meet a potential liability which could crystallise by the end of September 2003, with payment being required within a further 90 days from then. There is no guarantee that these discussions will be successful which would result in the board appointing administrative receivers.

Extraordinary General Meeting

Set out at the end of the document sent to Shareholders today is a notice convening the Extraordinary General Meeting to be held at 12:15pm on 15 August 2003 at which the following resolutions will be proposed:

1. To approve the waiver.
2. To:
-     sub-divide the current issued ordinary share capital of the Company into one New Ordinary Share and one Deferred Share;
-     sub-divide each unissued Existing Ordinary Share into ten New Ordinary Shares; and
-     adopt new Articles setting out the rights attaching to the Deferred Shares 3. To authorise the Directors to allot the Issue for Cash Shares;
4. To authorise the Directors to allot the Rights Shares;
5. To authorise the Directors to allot a further 2,000,000,000 New Ordinary Shares;
6. To cancel the Deferred Shares, reduce the Company's share premium account and amend the Articles;
7. To amend the Articles to increase the amount the Company can pay in directors' fees from £32,000 to £100,000; and
8. To amend the terms of the Employee Share Scheme.

Recommendation
The Directors, who have been advised by Teather & Greenwood, consider the Proposals to be in the best interests of the Company and Shareholders as a whole. In providing advice to the Company, Teather & Greenwood, has taken into account the Directors' commercial assessments. Accordingly, the Directors unanimously recommend you vote in favour of the resolutions to be proposed at the Extraordinary General Meeting, as they intend to do in respect of their own beneficial shareholdings amounting in aggregate to 32,930,146 New Ordinary Shares, representing 2.25 per cent. of the Company's existing issued ordinary share capital.

EXPECTED TIMETABLE

DEFINITIONS The following definitions apply throughout this announcement:

Enquiries:
Emerald Energy Plc
Iain Alexander 020 8823 9140

Teather & Greenwood Limited
Dugald Carlean 020 7426 9000
Robert Naylor

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