Drilcorp Energy Ltd.

Drilcorp Energy Ltd.

January 07, 2005 16:37 ET

Drilcorp Special Committee Responds to Nova Bancorp and Dissidents


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: DRILCORP ENERGY LTD.

TSX VENTURE SYMBOL: DCL

JANUARY 7, 2005 - 16:37 ET

Drilcorp Special Committee Responds to Nova Bancorp
and Dissidents

CALGARY, ALBERTA--(CCNMatthews - Jan. 7, 2005) - Drilcorp Energy Ltd.
(TSX VENTURE:DCL) ("Drilcorp." or the "Company") today released the
following statement from the Special Committee of the Board of Directors
of the Company (the "Committee"). The Committee is comprised of George
P. Messina, Donald K. Robinson (Chair) and Martin C. Bernholtz, all of
whom are independent directors, and was formed to deal with matters
arising out of the requisition for a special meeting received from
certain of the Company's shareholders. The Committee has retained
Cassels, Brock & Blackwell LLP as independent counsel. As previously
announced, the Board of the Company has called a special meeting of
shareholders for April 4, 2005, in response to the requisition.

"Nova Bancorp Group Inc., of Vancouver ("Nova Bancorp") announced
yesterday that it, and certain of the shareholders of the Company have
called a special meeting of the shareholders of the Company for February
17, 2004. They have no authority to do so and the Committee is of the
view that the distribution by Nova Bancorp of any materials in respect
of this purported meeting will constitute an illegal solicitation of
proxies. Shareholders should disregard any materials sent to them by or
on behalf of Nova Bancorp. The Company will instruct the relevant
intermediaries not to facilitate the distribution of any materials
relating to this illegal meeting and, if necessary, will seek
appropriate relief from the Court of Queen's Bench of Alberta.

The Committee is of the view that a meeting held on the previously
announced date of April 4 is in the best interests of the Company. The
recently appointed management of the Company has begun to implement a
revised business plan that has shown immediate and meaningful results.
The Committee feels strongly that management of the Company should be
given an opportunity to create value for all shareholders.

This latest press release by Nova Bancorp is another in a series of
inaccurate public statements which distort both the relevant facts and
the applicable law in an opportunistic attempt to leverage a relatively
minor equity stake in Drilcorp into control of the Company. In addition,
Nova Bancorp appears to have systematically and intentionally violated
proxy solicitation rules in order to attempt to garner support for its
position from other shareholders. The Company will actively pursue any
remedies it may have in respect of these violations.

Nova Bancorp has claimed, in private correspondence to the current
Directors, that the current Board has made "fundamental and detrimental
changes to Drilcorp's management and employee roster". The Board, did in
fact, made fundamental changes by dismissing a management team that
demonstrated that it was unable to execute on an operational level and
unable to create shareholder value. Members of that management team now
appear to be partnering with Nova Bancorp to install a new Board and
management for reasons that appear to be motivated more by a desire for
revenge than a desire to create value for all shareholders.

The former management team destroyed shareholder value by engaging in
ill-advised rework and exploration projects and acquisitions and failing
to adequately discharge their duties. Among other things, this placed
the Company in a position where it had to undertake a series of highly
dilutive equity offerings in which a total of 15.4 million common shares
and over 800,000 warrants were issued. This represented an increase of
over 62% in the then issued capital of the Company (25,000,000 shares),
seriously diluting the existing shareholders.

The former management team spent over $3.0 million in two unsuccessful
attempts to drill a highly risky sour gas well on a single exploration
prospect. This amount exceeded the expenditures authorized for the
project and former management was seeking to spend an additional
$500,000 when the Board intervened. The exploration prospect was
subsequently abandoned. As a consequence of dedicating such a
significant portion of the exploration budget to this one prospect,
other less costly and more prospective exploration opportunities were
not pursued.

Former management also failed to conduct an adequate review of the
documentation relating to the acquisition of Abingdon Exploration Ltd.,
resulting in litigation to determine whether a particular producing
property was included in the transaction. Ultimately, the Company
settled the litigation by paying additional cash to acquire the property
in dispute and by diluting its economic interest in the property through
the grant of an overriding royalty. The Abingdon acquisition also lead
to significant dilution through the issuance of over 4.7 million common
shares.

By way of contrast, current management has demonstrated, in a relatively
short period of time, that it is capable of creating value for
shareholders through the implementation of its current multi-well
drilling program. In addition, since the new management was appointed,
the Company's share price has risen by 29%, reflecting market confidence
in the new management team.

Nova Bancorp appears to recognise the serious limitations of Drilcorp's
previous management team as it has made clear, to members of the current
Board, that it does not propose to re-hire any of them, should it
succeed in electing its slate of directors. Its claim that the Board has
made "detrimental changes" to the management team is, therefore,
disingenuous and it is clear that its real intention is to leverage its
minor equity stake into control of Drilcorp through nominally
"partnering" with former management.

In particular the Board has been advised that principals of Nova Bancorp
will comprise 40% of the "new" board that will be proposed for election.
(i.e., two of five directors) while the other significant shareholders
with whom Nova Bancorp claims to be acting and purportedly hold close to
30% of the outstanding shares will be entitled to only one director.
While Nova Bancorp's (purported) 8% shareholding in Drilcorp is not
insignificant, it would not normally entitle it to 40% Board
representation. It is clear that, if Nova Bancorp should succeed, the
Company's future will be determined in accordance with Nova Bancorp's
short-term merchant banking priorities and not with a view to creating
long term value for all shareholders

Nova Bancorp has announced that it has received indications of support
for its position from the holders of over 50% of Drilcorp's outstanding
shares. This claim is not supported by any evidence and any indications
of support are likely based upon highly selective and/or incomplete
information provided by Nova Bancorp and others.

Shareholders are advised not to respond to any solicitations by Nova
Bancorp or any other shareholder and to wait until a Management
Information Circular, containing all relevant information relating to
the April 4, 2005 meeting, is delivered. The Company also cautions
shareholders that entering into agreements (formal or informal) with
Nova Bancorp or others with whom Nova Bancorp is acting may subject them
to reporting requirements and restrictions on acquisitions or
dispositions of shares of the Company under applicable securities laws.
Failure to comply with these requirements and restrictions constitute
violations of applicable securities laws."

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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
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    Wes Hall
    (416) 867-4550
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    or accuracy of this release.