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SOVEREIGN OILFIELD GROUP Plc

("Sovereign" or "the Company" or "the Group")

Update on re-financing activities

The Board of Sovereign announces that it is in new discussions with its lending consortium ("the Consortium") regarding the terms of its existing loans.

In May 2009 the Company concluded an agreement with the Consortium, which resulted in a standstill on all outstanding defaults and debt repayment until 31 May 2010, a reduction in the cost of finance through lower interest rate margins and a revised covenant package. The Board considered that these measures alleviated the Group's short to medium term funding concerns.  

During the last fifteen months, the Group has disposed of a number of its subsidiaries, in line with its strategy to refocus the Group as a fabrication business. Sovereign has disposed of Diamant Drilling Services SA, Vertec Engineering Limited and the cabin rental business of Labtech, Prodrill Engineering Limited, four properties, and some of the assets of SFRS.  

During that period £13 million was realised from these disposals which has been used to reduce the Group's debt facilities with the Consortium.

The Group continues to implement cost reduction strategies and the disposals of the drilling businesses and the Directors continue to focus on the core areas with the greatest opportunities for growth.

Despite continuing difficult market conditions, the fabrication division has maintained revenues and continues to trade profitability and generate positive cashflow. However a number of the fabrication division's customers have delayed payment due to their own working capital constraints, and this in turn has led to a reduction in the short term working capital facilities supporting the Group. 

The Group's drilling division, consisting of Serco SA, Maxwell Downhole Technology Limited and RDT Precision Engineers Limited (which is being closed) has remained loss making in the current financial year.  

As a result of the drilling division's losses and delays in a number of customer payments to the fabrication division the Group has not achieved its 2nd quarter covenant and has therefore had to re-open financing discussions with its lending consortium. The Board is confident of a successful resolution and will update shareholders in due course.

Further information:

Sovereign Oilfield Group Plc                                                         Tel: 01224 261900

Graham Burgess, Chief Executive Officer

Julie Cowie, Finance Director

Charles Stanley Securities - Nominated Adviser                             Tel: 0207 149 6000

Mark Taylor/Freddy Crossley

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