Bulldog Energy Inc.

Bulldog Energy Inc.

October 03, 2005 09:00 ET

Bulldog Energy Inc. Announces Sale to Crescent Point Energy Trust and the Creation of a New High Growth Junior

CALGARY, ALBERTA--(CCNMatthews - Oct. 3, 2005) - Bulldog Energy Inc. (TSX:BDE.A) (TSX:BDE.B) announces its intention to effect a strategic corporate reorganization whereby the majority of the company's operations will be sold to Crescent Point Energy Trust with the remainder of the company's assets transferred into an exciting new publicly traded company, Bulldog Resources Inc., owned by the current Bulldog Energy shareholders. Bulldog Resources is poised for significant growth through a light oil focused multi-location drilling program.

The reorganization is the result of a thorough strategic review of Bulldog Energy's options undertaken over the past few months by management and the Board of Directors with the intention of maximizing shareholder value.

Since mid-2004, we have achieved considerable success in our exploration and development programs with a corresponding growth in reserves and production volumes, entirely focused in Southeast Saskatchewan. While not yet fully exploited, the growth potential from most of these assets is slowing. The majority of these properties are operated by Bulldog Energy with an average working interesting of 75%. All of the production is light oil, realizing very high netbacks, with facilities and flow line infrastructure in place. The 2005 third quarter has just completed - we expect to report a cash flow increase over the prior quarter in excess of 50% on the strength of a production volume increase greater than 15% and a realized price increase greater than 20%. While these results are very attractive, the downside of success is the imminent prospect of Bulldog Energy becoming very taxable on current cash flow basis in the immediate future.

After considering all of the above factors, management and the Board of Directors concluded that the sale to Crescent Point and the creation of Bulldog Resources is in the best interests of all shareholders. The proposed transactions will be effected pursuant to a Plan of Arrangement under the Business Corporations Act (Alberta) and subject to shareholders' approval. The definitive Arrangement Agreement must be concluded on or before November 18, 2005 for inclusion in the Information Circular - Proxy Statement to be mailed to all shareholders on or before that date. Should Bulldog Energy shareholders approve the transactions, the Effective Date is expected to be on or before December 16, 2005. The Board of Directors has unanimously approved the proposed transactions and recommends shareholder approval. The directors and officers of Bulldog Energy have entered into lock-up agreements with Crescent Point to tender all of their securities. Tristone Capital Inc. is acting as financial advisor to Bulldog Energy and has provided the Bulldog Energy Board of Directors with its opinion that the consideration to be received by Bulldog Energy shareholders is fair, from a financial point of view.

Consideration to be Received by Bulldog Energy Inc. Shareholders

Bulldog Energy's Class A shareholders will receive 0.130 of a Crescent Point unit and 1.0 common share of Bulldog Resources (prior to a 2:1 consolidation) for each Class A share held. Bulldog Energy is currently entitled to call its Class B shares for conversion. Pursuant to the proposed transactions, each Class B share will be converted into Class A shares based upon the result of $10.00 divided by the weighted average trading price of the Class A shares for the 10 day period commencing the day following the public announcement of the proposed transactions (approximately 1,000,000 Class A shares based upon recent trading prices).Bulldog Energy's current capital structure is:

Class A shares outstanding 32,275,798
Class B shares outstanding 372,768
Stock options to purchase
Class A shares (average
exercise price of $1.13) 2,417,500

The conversion of the Class B shares and the anticipated exercise of all outstanding stock options will result in approximately 35.7 million Class A shares outstanding at the time of closing.

The agreement with Crescent Point contemplates that Bulldog Energy's total indebtedness (debt plus working capital excluding income taxes payable) as of September 30, 2005 will not exceed $18,200,000; any excess above this amount will be allocated to Bulldog Resources. Management is confident that this level will not be exceeded. For purposes of the proposed transactions, the measurement of indebtedness as of September 30, 2005 will not include (a) the expected cash proceeds from stock option exercises, (b) costs to be incurred prior to closing, and (c) any liability for income taxes.

Concurrent with the announcement of the proposed transactions, Crescent Point has agreed to announce a 5% increase in its monthly cash distribution to $0.20/unit/month upon implementation of the Plan of Arrangement. Crescent Point has also agreed that should the Effective Date of the proposed transactions be later than the Record Date for its November monthly distribution, Crescent Point will deliver a cash payment of $0.026 per Bulldog Energy Class A share on closing.

As part of the strategic review undertaken by Bulldog Energy's management and Board of Directors, the company's evaluation engineers, GLJ Petroleum Consultants Ltd., were engaged to prepare a full reserve report as of August 31, 2005. This report was mechanically up-dated to September 30, 2005. Bulldog Energy has experienced considerable drilling success in 2005 resulting in a very significant increase in reserves and values since GLJ's previous report effective December 31, 2004. The following table summarizes the key aspects of the GLJ report as of September 30, 2005 based on forecast prices and costs as of July 1, 2005.

Reserves NPV 10%
(MBOE) ($000s)
Total Proved 3,523 $ 70,324
Total Proved plus Probable 5,700 $ 104,334
Allocated to:

Bulldog Energy (Sellco) 5,275 $ 96,841
Bulldog Resources (Exploreco) 425 $ 7,493
Total 5,700 $ 104,334

The net present values (NPV) of future net revenues are based upon GLJ's assessment of the production profile of the properties and its current projection of future energy prices and costs. The values are based upon projected revenues less royalties, operating costs, and development expenditures and are not reduced for corporate general and administrative costs, finance charges, and income taxes. The September 30th GLJ report recognized 36 proven undeveloped and probable locations on Bulldog Energy's Carlyle Manor properties.

Bulldog Energy has calculated its net asset value based upon the following measures:

Bulldog Bulldog Total
Energy Resources Bulldog
(000's) (Sellco) (Exploreco) Energy
NPV of reserves
discounted @ 10% $ 96,841 $ 7,493 $ 104,334
Undeveloped land 5,300 965 6,265
Deduct indebtedness (18,200) - (18,200)
Add stock option proceeds 2,730 - 2,730
Net asset value before
income taxes $ 86,671 $ 8,458 $ 94,464
Fully diluted common
shares outstanding (000s) 35,700 35,700(i) 35,700
Net asset value per common
share $ 2.43 $ 0.24(i) $ 2.67
(i)The proposed transactions contemplate an effective 2:1 share
consolidation for Bulldog Resources such that approximately
17.85 million common shares will be outstanding and the net
asset value per common share will be $0.48.

Transaction Metrics

The proposed transactions crystallize the value of the sale assets by exchanging Bulldog Energy common shares for Crescent Point units. It provides a diversification of assets, liquidity, and an attractive yield in a well run, growing royalty trust. The upside potential of the Bulldog Energy sale properties will be realized through the ownership of the Crescent Point units as well as through Crescent Point's future distributions and operational activities. Crescent Point has approved a 5% increase to its trust unit distributions concurrent with the public announcement of the proposed transactions.

Bulldog Energy's current production is averaging approximately 2,125 bbls/day divided as to 1,925 bbls/day in Bulldog Energy (Sellco) and 200 bbls/day in Bulldog Resources (Exploreco). Sellco has 3,337,000 bbls Proven and 5,275,000 bbls Proven and Probable of reserves. Crescent Point will issue approximately 4.6 million units which if valued at $21.70/unit together with the assumption of $18.2 million of indebtedness results in total consideration for the sale assets of $118 million. This consideration results in top decile metrics (both on a flowing barrel basis and per unit of reserves) paid for Southeast Saskatchewan assets to-date.

Bulldog Resources Inc.

Bulldog Resouces will initially focus its activities in Southeast Saskatchewan where achieved top decile industry performance for field and corporate cash flow per BOE. Bulldog Energy increased its oil production every quarter in its fifteen quarter corporate history.

Bulldog Resources will commence operations with approximately 200 bbls/day of light oil production from three operated properties in Southeast Saskatchewan: Fremantle (100% working interest), Browning (96% working interest) and Tilston (50% working interest). All of the properties have oil production facilities and will be operated by Bulldog Resources.

The Tilston property has excellent potential for multi-well production and reserve additions. A vertical stratigraphic information well was cored in our zones of interest. 3-D seismic indicates the play may extend over a large area on lands controlled by Bulldog and its partner. A follow-up horizontal well drilled two legs in two separate zones with net pays of approximately 600 meters and approximately 400 meters. The well produces 34 degree API oil at current rates of approximately 250 bbls/day (125 bbls/day net). Tilston is a high quality, high impact prospect which requires further drilling to establish added value for our shareholders. Bulldog Resources intends to initiate a drilling program on this property as soon as possible.

The success of Bulldog Resources will depend on the skills, ideas and execution abilities of its people to create new opportunities. Upon closing, all of Bulldog Energy's Board of Directors, management, and employees will join Bulldog Resources which at the inception of trading will be owned by the current Bulldog Energy shareholders. This management group has demonstrated the ability to start, efficiently grow junior oil and natural gas companies, and create value for their shareholders as demonstrated by the increase in Bulldog Energy's Class A share price from the December 2001 Initial Public Offering price of $0.20/share to the current price of approximately $3.84/share.

In conjunction with the proposed transactions, management, staff and directors will be offered the opportunity to participate in a private placement for Bulldog Resources' common shares. The private placement will raise $4.0 million through the issuance of 4,000,000 common shares at $1.00/share (equating to approximately two times the post consolidation net asset value per common share); 50% of this issue will be on a flow through basis for income tax purposes. These shares will be subject to escrow provisions for a period of 18 months. Approximately 90% of this private placement will be allocated to management and staff. We believe in the alignment of management with shareholders through substantial investment and ownership - this subscription for common shares at a premium to net asset value demonstrates management's commitment to the success of Bulldog Resources.

After completion of the private placement, it is anticipated that Bulldog Resources will commence operations with:

- The current management and professional group of Bulldog Energy:

- Kenneth McKay as President and CEO
- Bruce McKay as COO and Vice President Production
- Michael Flanagan as Executive Vice President Land
- Ailsa Brereton as Chief Financial Officer
- Michael Hutchison as Chief Geologist
- Harvey McDougall as Chief Geophysicist
- Sami Ruohio as Senior Production Engineer

- The current Board of Directors of Bulldog Energy:

Independent Directors

- Craig Lothian, Chairman of the Board
- Claudio Ghersinich, Chair of the Reserves Committee
- James Pasieka, Chair of the Compensation Committee
- John Thomson, Chair of the Audit Committee

Management Directors

- Kenneth McKay
- Bruce McKay

- approximately 21,850,000 common shares outstanding (post a 2:1
consolidation) to be trading on the TSX Exchange at the inception
of the company.

- Cash resources of $4,000,000

- No debt; an operating line of credit will be negotiated shortly
after operations commence.

- Initial production of approximately 200 bbls/day of light oil.

- Corporate cash flow of approximately $2.0 million on an annualized
basis based on a $60/bbl WTI price and an $0.84 exchange rate.

- Reserves of 186,000 bbls Proved and 425,000 bbls Proved and
Probable based on the September 30, 2005 GLJ report.

Bulldog Resources will initially focus on pursuing medium depth (1,000 to 1,500m) light oil reservoirs in Southeast Saskatchewan where this team has demonstrated excellent success. The company will be an active driller and acquirer in this area. We expect to initiate Bulldog Resources' drilling program as soon as possible after the closing of the proposed transactions. After evaluation of this program, we intend to provide 2006 guidance on capital expenditures, production and cash flow forecasts.


Bulldog Energy's officers and directors firmly believe based on our technical knowledge of the properties, the recognition of a large reserve value on our properties at a time of historically high oil prices, the income tax horizon, and the attractiveness of the company's development drilling program to an acquirer, that this is the optimum time to crystallize gains in Bulldog Energy. We believe the Bulldog Energy properties will be accretive to the Crescent Point asset opportunity base, production and cash flow which our shareholders will enjoy through ownership of Crescent Point Trust units.

With a strong platform for value creation, a proven exploration team, solid management, and projected continuing strength in commodity prices, the future of Bulldog Resources is exciting. This is management's third start-up of a junior oil and gas company. In our view, this is the best starting point we have had to create value for our shareholders.

Certain information presented is of a forward looking nature. Such forward looking information involves substantial known and unknown risks and uncertainties. Most of these are beyond Bulldog's control and include: the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, the availability of qualified personnel, stock market volatility, and the access to sufficient capital from internal and external sources. The reader is cautioned that assumptions used in the preparation of such information, while considered reasonable by Bulldog at the time, may prove to be incorrect. Bulldog's actual results could differ materially from those expressed in, or implied by, such forward looking information.

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