Equity Swaps and Revised Arrangements with Caithness Oil Limited

18th November 2012

Trapoil (AIM: TRAP), the independent oil and gas exploration and appraisal company focused on the UK Continental Shelf ("UKCS") region of the North Sea, is pleased to announce the signing of a legally binding agreement with Caithness Oil Limited ("Caithness") and its parent company. Caithness Petroleum Limited ("Caithness Petroleum"), to exchange equity interests and vary certain of Caithness' pre-existing farm-in obligations in respect of the Knockinnon (Licence P.1270, Block 11/24) and Forse (Licence P.1286, Block 11/23 and Licence P.1270, Block 11/24) prospects, subject to the satisfaction of certain pre-conditions.

Highlights:
· Trapoil will gain a 35 per cent. interest in Knockinnon increasing its total working interest to 70 per cent. Caithness will retain 30 per cent interest and each company will pay its participating interest share of all agreed future expenditure. The Knockinnon prospect, discovered in 2000, has estimated most likely recoverable resources of over 6mmbls of oil (Trapoil management's estimate) and represents a near term development opportunity.
· Trapoil will assume operatorship of Knockinnon and will consequently have greater control over the timing of any work programme. There are currently no work commitments to the Department of Energy and Climate Change ("DECC") on Knockinnon.
· Trapoil will transfer its 35 per cent. equity interest in the Forse prospect to Caithness, which will accept sole responsibility for the firm commitment to DECC to drill a well by 21 December 2013.

· Trapoil will be granted the right to acquire a 20 per cent. working interest in Forse for a nominal consideration within three months of the completion of the first well on the prospect. In the event that Caithness does not spud the Forse well by 21 December 2013, Trapoil will be paid US$7 million by Caithness or alternatively will be issued with a 12 month loan note of US$7m secured against all the assets of Caithness.
· Any futurecash flow from Knockinnon or Forse will not be encumbered by any cost recoveries which have previously arisen or may arise from the existing farm-in arrangements between Caithness and Trapoil.

Arrangements with Caithness Oil Limited

Current Equity Interests

Trapoil, via its wholly owned subsidiary Trap Oil Limited, holds a 35 per cent. carried interest in the P.1270 and P.1286 licences, which formed part of the asset portfolio of Reach Oil & Gas Limited, acquired by the Company in July 2011. Caithness owns the remaining 65 per cent. and is the operator of these licences with all of Trapoil's costs being carried for the first well on each licence.

Proposed Revised Equity Interests and Other Arrangements
Trapoil, Caithness and Caithness Petroleum have conditionally agreed to vary the existing legal arrangements between them, the principal amendments comprising:

· Caithness will transfer a 35 per cent. equity interest in that part of the P.1270 licence area containing the Knockinnon prospect to Trapoil, such that Trapoil will hold a 70 per cent. working interest going forwards and assume the role of operator. Accordingly, Caithness will no longer be obliged to drill the Knockinnon well as a commitment to Trapoil, or carry Trapoil, and will retain a 30 per cent. working interest.

· Trapoil will transfer its entire 35 per cent. equity interest in that part of the P.1270 licence area containing the Forse prospect (the "Forse Sub-Area") to Caithness. Accordingly, Caithness will be solely responsible for drilling the firm Forse commitment well to DECC and the associated costs. Trapoil will be granted an option to potentially acquire a 20 per cent. working interest in the Forse Sub-Area, and in any part of the P.1286 licence area into which a discovery made by the first well to be drilled in the Forse Sub-Area extends, for £1 within three months of completion of the work programme attributable to the first well on the prospect.

· Trapoil will transfer its entire 35 per cent. equity interest in the P.1286 licence area to Caithness. Further to a recent agreement with DECC, the firm well commitment originally tied to the P.1287 licence was transferred to licence P.1286 and linked to the Forse well.

· In the event that Caithness does not spud the Forse well by 21 December 2013, Trapoil will be paid US$7 million by Caithness or alternatively will be issued with a 12 month loan note of US$7 million. The loan note would be secured against all of the assets of Caithness, and yield interest at a rate of LIBOR plus 7 per cent.. The loan note would be repayable early, together with accrued interest, within ten business days of Caithness raising sufficient funds to do so. Trapoil would also have the option to elect to convert the note into equity in Caithness Petroleum at a valuation to be agreed between the parties at that time or otherwise determined by an independent expert. Trapoil has also been provided with a Parent Company Guarantee, in respect of the loan note, from Caithness Petroleum.

· The outstanding FIA work obligations in respect of Lybster (Licence P.1270, Block 11/24-3v2), will be fulfilled by Caithness in due course with Caithness remaining as operator and Trapoil retaining its existing 35 per cent. carried interest.
Completion of the proposed equity transfers and the revised arrangements set out above is subject, inter alia, to the requisite DECC approvals and the consent of Caithness Petroleum's existing shareholders and loan note holders.

Mark Groves Gidney, Chief Executive Officer of Trapoil, commented:"We are pleased to have reached agreement with Caithness on these proposed revised arrangements which provide greater clarity to our ongoing drilling campaign. Upon completion, we will have majority control and operatorship of Knockinnon, which we see as an attractive near term development opportunity.

Furthermore, Caithness will assume sole responsibility for the costs and liability to DECC associated with the commitment well on Forse, whilst we will retain the flexibility to secure a 20 per cent. working interest in Forse should the first well prove to be successful."

Article source
http://www.investegate.co.uk/trap-oil-group-plc/rns/revised-arrangements-with-caithness/201211160700052362R/