What price RPT if they lose the Ukrainian licences?

Since late Jan 2006, Regal has had a storming run, with its sp up from @25p to @£1.70 now. In this period, Regal have had their production licenses reaffirmed by the highest court in the Ukraine, The Supreme Court, and Regal now have 18.5 years left to produce as much as they can from their vast area hundred miles or so NE of Kiev, an area bigger than Greater London or at least 200 square miles.

The official reserves are currently 169mln boe, or about 83mln proven and 86mln probable boe's. All director's, past and present believe that the real reserves are at least double this amount, given that the reserves were understated due to internal caution soon after the balls up with the Greek alleged reserves, and the fact that the estimates were only deduced from a small corner of Regal's vast acreage potential.

As we enter 2007, there is much to look forward to with Regal Petroleum.

Firstly, Romania joined the EU today, and any oil/gas found and produced there is likely to be sold at rates which are more in line with those in the rest of the European Community. Romania remains a dark horse in terms of what its actually worth to Regal, and seems to be have been subdivided into the Northern block, which has been farmed out to Aurelian Oil & Gas, and the Southern block, where an estimate last month of between 100mln - 400 mln boe was produced (10 prospective wells estimated at 10-40mln boe). Drilling will commence in the southern block (which covers over 6000 sq kms) in Q2.

Secondly, our JV with Apache in Egypt should start to produce results this year, and the estimates for oil in Egypt (just oil there, no gas) is approx 20mln bo. Not insignificant if it can be proven, and potentially worth almost £1 per share for Regal.

Thirdly, the jewel in the crown, the Ukraine. Regal have promised to update us on their plans for these huge fields, and as I see it, these are their options:

a)Enter into a JV with a senior partner. It will cost many tens of millions of dollars to up production from the current 4 wells, to the 100+ needed to produce significant amounts on a daily basis. Regal do not have that cash, and will need the help of a Shell, BP or even a JKX to go down this route. The licenses expire in 18 years and they will presumably want to get production levels upto a maximum within a couple of years.

b)Raise money by equity or debt financing to go it alone in the Ukraine. Very much an outside bet, given Regal's history. The reality though, is that Regal have 128.5mln shares, and only about 10mln new shares were issued in the infamous placement at £3.90 prior to the Greek problem. However, Regal would need to issue at least another 100mln shares at about £1.50 to even think about going it alone in the Ukraine, and I suspect that the major shareholders would not allow that.

c)Sell the Ukranian operation by itself, or sell the whole company. The problem here is that until Regal's reserves are officially upgraded, or they start producing real revenues, the sale price will only currently be a fraction of what would be possible were they to be further advanced. Equally, the company will forever be associated with its history, and will likely never trade on any kind of premium to its real worth. This means that the major shareholders will only ever be able to exit their position on a takeover, or at least 1-2 years on when real revenues should be occuring.

In summary, Regal have spent the last 18months-2 years in court, and all else seems to have been put on hold until recently. This year, their 3 major assets should start to see Regal turn from a company with much potential, to either a solid oil/gas producer, or to a company bought out by one of the many other bigger players out there.

Either way, I look forward to this year with much optimism