Albion Petroleum Ltd.
TSX VENTURE : ABP.P

May 16, 2006 12:20 ET

Albion Signs Agreement to Farm-In North Sea Petroleum Licences

CALGARY, ALBERTA--(CCNMatthews - May 16, 2006) - ALBION PETROLEUM LTD. ("Albion") (TSX VENTURE:ABP.P) is pleased to announce that it has entered into a Heads of Agreement dated April 28, 2006 (the "HOA") with Granby Enterprises Ltd. ("Granby"), Elixir Petroleum (UK) Limited ("Elixir") and Granby Enterprises North Sea Ltd. ("Granby ENS"), all incorporated in England and Wales, to farm-in to a minimum of three and maximum of five UKCS petroleum production licences or licence groups (each a "Licence" and collectively, the "Licences") located in the central North Sea, United Kingdom (the "Proposed Qualifying Transaction").

The Proposed Qualifying Transaction

Pursuant to the HOA, Albion may earn a 6.25% to 12.5% working interest ("Albion Working Interest") in each Licence, by funding 12.5% to 25% of the costs ("Albion Costs") of drilling a minimum of three and maximum five wells (the "Farm-in Wells"). The funding and drilling of each Farm-in Well on a Licence shall entitle Albion to earn the working interest in the applicable Licence. The Licences, the Albion Working Interests and the Albion Costs are set forth in the table below:



------------------------------------------------------------------------
Granby Granby Elixir Albion
Licence Interest ENS Petroleum Working Albion
Group Licence Block Enterprises Interest Interest Interest Costs
------------------------------------------------------------------------
1 P1211 14/14b
P1288 14/8a, 43.75% None 43.75% 12.50% 25.00%
14/9a
------------------------------------------------------------------------
2 P1212 15/13b 32.8125% 28.125% 32.8125% 6.25% 12.50%
------------------------------------------------------------------------
3 P1209 13/19, 43.75% None 43.75% 12.50% 25.00%
13/24c
------------------------------------------------------------------------
P1404 13/25 21.875% None 21.875% 6.25% 12.50%
------------------------------------------------------------------------
4 P1208 9/22
& 9/23c 27.08% None 27.08% 12.50% 25.00%
------------------------------------------------------------------------
5 P1213 16/1b,
16/2c, 27.08% None 27.08% 12.50% 25.00%
9/26a
------------------------------------------------------------------------


The Farm-in Wells will be the first well on each Licence to target a prospect as mapped by Granby and notified to Albion. The costs of each Farm-in Well will consist of the costs of an initial exploratory well to be drilled on each Licence through to and including demobilisation of the drilling unit including but not limited to the costs of well preparation activities, pre-drilling, drilling and coring, logging, testing, suspending or abandoning (if applicable). Any costs to complete, and from completion of, the Farm-in Well on each Licence will be based on the working interests in the Farm-in Well. Each Farm-in Well is required to be drilled to a depth as specified in the HOA or to a sufficient depth to test the deepest part of the prospect to be drilled. The HOA anticipates the drilling of the first Farm-in Well by December 31, 2006 and up to the remaining four wells by December 31, 2007. Pursuant to the HOA, Granby will be the initial operator of each Licence subject to the transfer of operatorship to other co-venturers.

Also pursuant to the HOA, and as a condition to the continuance of the HOA for the benefit of Granby and Elixir, Albion agrees to complete a minimum of new equity issue financing (the "Financing") of C$10-15 million sufficient to cover Albion's Costs of the minimum three well program, no later than June 30, 2006, subject to final receipt of all required corporate and regulatory approvals and consents. Albion will hold the net proceeds from the Financing in an Escrow Account set up specifically for the Albion Costs. Further details of the Financing will be issued in subsequent press releases.

The obligation of the parties to drill each Farm-in Well pursuant to the HOA on any particular Licence is conditional upon the affirmation by Granby, Elixir and Granby ENS, that at least ninety percent of their individual participating interest share of costs for each Farm-in Well are being carried by third parties under farm-in terms acceptable to Granby, Elixir and Granby ENS.

The Proposed Qualifying Transaction is an arm's length transaction and is intended to be the proposed Qualifying Transaction of Albion, subject to regulatory and shareholder, if applicable, approval pursuant to Policy 2.4 of the TSX Venture Exchange Inc. (the "Exchange"). David Shaw, President of Albion said, "We are extremely pleased with the development of the relationship and this transaction with both Granby and Elixir considering their expertise in the North Sea".

Overview of Granby

Granby Oil and Gas plc ("Granby PLC") (GOIL- AIM), the parent company for Granby and Granby ENS, is an oil and gas business focused on exploration in selected areas in the North Sea and elsewhere, and also on securing production and development opportunities. Granby PLC's strategy is to build a significant portfolio of assets through both discovery and exploitation of oil and gas reserves. Granby PLC's management team includes six former executives from Enterprise Oil plc, one of the largest independent companies operating in the North Sea during the 1980s and 1990s.

Overview of Elixir

Elixir Petroleum Ltd. ("Elixir Petroleum") (EXR: ASX, ELP: AIM), the parent company of Elixir, is a dual listed oil and gas exploration company focused in the North Sea. The company was listed on the Australian Stock Exchange in July 2004 and admitted to AIM in May 2005. In its short history, Elixir Petroleum has established a portfolio of interests in 14 UKCS licenses and participated in the drilling of three exploration wells.

Overview of Albion

The current members of the Board of Directors of Albion, David A. Shaw, Walter J. Romanchuk and Colin B. Christensen, will remain as directors of Albion after the completion of the Proposed Qualifying Transaction. It is anticipated that on completion of the Proposed Qualifying Transaction, an additional director will be appointed to the Board of Directors of Albion. Information on the new director will be provided in a press release upon his appointment.

The following is a brief description of the directors of Albion:

David A. Shaw, President, Chief Executive Officer and Director

Mr. Shaw is President, Chief Executive Officer and a director of Albion. Mr. Shaw holds a Bachelor of Science degree from Sheffield University in England (1973) and a Ph. D. from Carleton University (1980). Since completing his doctorate 25 years ago, Mr. Shaw has worked in both the technical and financial communities within the resource industry. Originally with Chevron Resources, Mr. Shaw was in-house structural consultant on both metal and hydrocarbon exploration programs including the hydrocarbon project financial evaluation team. Since 1986, Mr. Shaw has been involved in the investment banking business, leading the due diligence and financing of a wide variety of global exploration companies in the junior resource sector. Mr Shaw also brings several years of experience having acted as a director for various public companies.

Walter J. Romanchuk, Director

Mr. Romanchuk is a director of Albion. Mr. Romanchuk holds a Bachelor of Commerce degree from the University of Alberta (1975). Mr. Romanchuk has twenty three years experience in the oil and gas industry in operational finance, economics, administration, business development and land with both Home Oil Company and Anadarko Petroleum Canada. Since 2001, Mr. Romanchuk has been active as an independent consultant in operations, land and business development for various junior start-up companies for which he has provided expertise in the development of cash flow projects and prospects to these entities.

Colin B. Christensen, Director

Mr. Christensen is a director of Albion. Mr. Christensen holds a Bachelor of Commerce degree from the University of Calgary (1976). Mr. Christensen has been actively involved in the administration and financing of publicly traded companies in the junior resource sector since 1990. Mr. Christensen was one of the original founders and a Director of Boxxer Gold Corp., a junior gold exploration company trading on the Exchange, where he acts as President and Chief Executive Officer.

Cautionary Statements

The shares of Albion will remain halted until certain filings are made with the Exchange, including the filing of an independent geological report respecting the properties subject to the Proposed Qualifying Transaction. Upon a satisfactory filing being made, a further news release will be issued summarizing that report.

Completion of the Proposed Qualifying Transaction is subject to a number of conditions, including but not limited to, Exchange approval and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the Proposed Qualifying Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Proposed Qualifying Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Proposed Qualifying Transaction, any information released or received with respect to the Proposed Qualifying Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The Exchange has in no way passed upon the merits of the Proposed Qualifying Transaction and has neither approved nor disapproved of the contents of this press release.

The TSX Venture Exchange does not accept responsibility for the accuracy or adequacy of this release.

Contact Information

  • Albion Petroleum Ltd.
    Colin B. Christensen
    Director
    (403) 264-4811 or (403) 410-1303
    (403) 444-9494 (FAX)