It should be emphasised that the discussions are at a preliminary stage. Accordingly, no assurances can be given that any formal offer will be forthcoming or that any transaction will occur.

Any further announcement will be made if and when appropriate.

Emerald Energy Plc
Alastair Beardsall – 020 7925 2440
Lisa Hibberd – 020 7925 2440

Harland Capital Limited
Harry Sutherland – 0203 051 9306

The Khurbet East field (EEN 50%) is producing a steady 10,700 b/d gross with
almost no water. Development wells are on track to enable the upgraded Early
Production Facility to increase production to 16,000 b/d gross by end 2009.
Contracts are to be issued soon for the Central Processing Facility which should
handle production of 30,000 b/d gross by mid 2011
We have identified several areas of upside in the Khurbet East field, the Yousefieh
discovery and in exploration in block 26, any or all of which could lead to significant
upside in potential value to EEN. These include:

increased recovery of reserves in early years (due to lack of water production and
low pressure drop in the reservoir) – leading to higher field NPV;
Newsflow – we see a number of drilling events in both Syria and Colombia which
can provide upside to Emerald’s valuation and share price in 2H09 – these include –

Gigante 2, Yousefieh-3, KHE-12, Mirto-1, Capella-7 etc.

• Khurbet East reserve upside still possible. Failure to
establish a firm oil water contact within the Khurbet East
reservoir leaves open the possibility that a deeper contact could
be determined materially adding to oil in place estimates. We
understand plans are underway to drill an appraisal well to the
south of KHE-8 to test this upside.

Valuation/Risks
We have a core NAV for Emerald of 863p/sh and a risked upside
of 246p/sh. Our total NAV of 1,109p/sh is made up of 557p/sh for
Colombia, 485p/sh for Syria and 67p/sh of net cash and working
capital. Fully de-risked our NAV rises to 1,747p/sh.

Accordingly, we already have full year pre-tax loss estimates of £10bn, including an assumption for credit losses of £22.5bn (the ST article suggests full-year credit losses of over £20bn). Rather than the losses currently being incurred, there are two key issues for the group in our view: 1) the proportion of current losses that are attributable to APS assets and 2) the group earnings power excluding APS assets. We would argue that the current credit losses will substantially reflect APS assets.

Ironically, despite the scale of current losses, which are the largest in the sector, we regard the asset quality and book value of the Lloyds group as the most reliable of the domestic UK banks, due to the APS. The asset quality problems of the group, large though they may be, are in clearly identifiable parts of the asset base and appear to have been substantially transferred to the APS. The remainder of the book ex the APS appears to be of relatively high quality, including a majority of loans in prime mortgages. This contrasts with Barclays, where there is no APS, and RBS, where much less is known of the mix of APS assets and the remaining asset mix net of the APS.

Instead, our negative view of Lloyds is due to the pressure we see on the group‘s sustainable profitability, partly as we view it the most exposed to the structural uncertainties from funding (ie its loans/deposits ratio) and to the current sector margin pressures. Unlike RBS, Lloyds has not quantified its expectations for margin decline this year, although it has indicated similar pressures. We expect negative trends in both revenue and profits before impairments at the interim stage and for this to be taken negatively by the market, as it has negative implications for estimates of future sustainable earnings. Revenue pressures are likely to include lower margins (negative for net interest income) and lower non-interest income from lower fees (including, but not restricted to, lower PPI revenue).

We continue to have a negative view towards the domestic UK banks, preferring the Far Eastern groups and Barclays as the least geared to the domestic UK market.

RSL has an M&A mandate; FP does not
One has to question what is in this for FP shareholders. Arguably there would be
an acceleration of the turn-around of FP and through RSL shares, a way in which
to participate in the upside that could be created through industry consolidation.
But couldn’t FP’s own management team facilitate a deal itself (and not dilute the
value of synergies to its shareholders). This may come down to a function of size
and the willingness of the shareholder base to support deals. RSL’s shareholders
expect to be writing cheques to support deals; the same is not true for FP
shareholders, in our view.

FP comprises a UK business (protection / group
pensions) and international operations (FP Intl and
Lombard): While group pensions are unattractive,
there would be an opportunity to create synergies
through subsequent transactions.

Investors have previously expressed a preference to us of being involved in the company that ends up being a target of
Resolution. As such this should be positive news for Friends Provident shares this morning but we believe that it also
heralds the start of much needed wider consolidation of the UK life industry. We would not rule out another bidder for

There is little change to our valuation of the company which we still see at a premium to end 2009E embedded value of
128p. We maintain our Target Price at this fair value even though we do not expect the shares to achieve this level in the
short term, or in their current form if the offer is successful. Our Target Price is reduced slightly to 130p (from 140p) to
reflect the recent disposal of F&C. However one of the reasons why we have been tempted to review our
recommendation and Target Price has been the short term cash and dividend prospects. With Resolution’s management
and cash, this concern disappears. We believe the shares represent an attractive investment at this level, even on a
relative basis within a cheap UK life subsector.

This is just the FSA’s costs and excludes the cost of companies complying with their ever changing rules and documentation etc which I would estimate cost everyone regulated by the FSA many more billions of pounds, let alone the number of trees that have been destroyed as a result of the ever changing documentation needed.