Festino Venture Corp.
TSX VENTURE : FTO.P

May 12, 2006 18:53 ET

Festino Announces Qualifying Transaction, Private Placement

CALGARY, ALBERTA--(CCNMatthews - May 12, 2006) -

(Not intended for Dissemination in the United States):

Festino Venture Corp. (TSX VENTURE:FTO.P) ("Festino" or the "Corporation") confirms that it will not be proceeding with its previously announced "Qualifying Transaction" with Blue Eagle Energy, Inc. It will, however, be proceeding with the acquisition (the "Acquisition") of all of the issued and outstanding shares of Malahat Oil & Gas Ltd. ("Malahat") pursuant to a share purchase agreement dated effective April 30, 2006 for aggregate consideration of $875,000 payable by way of $300,000 cash and 2,875,000 common shares of Festino issued at an ascribed value of $0.20 per share. The Acquisition is intended to satisfy Festino's requirement to complete a Qualifying Transaction within the meaning of TSX Venture Exchange Policy 2.4, and is a "Non Arm's Length Qualifying Transaction" as defined in that Policy. The Acquisition remains subject to, among other things, all applicable regulatory, director and "majority of the minority" shareholder approvals. Festino expects to hold a meeting of its shareholders on or about June 7, 2006 in order to obtain approval for the Acquisition. Upon completion of the Acquisition, it is anticipated that the name of Festino will be changed to "Maskal Energy Inc."

Concurrently with and conditional upon the completion of the Acquisition, Festino intends to sell a minimum of 4,333,330 and a maximum of 15,000,000 common shares to raise gross proceeds of between $1 million and $3 million (the "Offering"). The common shares will be issued at $0.20 per share ($0.25 if issued on a "flow through" basis). The Offering will be effected by way of a brokered private placement, with Leede Financial Markets Inc. having been retained, on a commercially reasonable best efforts basis, to act as selling agent in connection with the Offering. Leede will be paid a corporate finance fee of $15,000 (plus GST), commissions equal to 10% of the gross proceeds raised in the Offering, out of pocket expenses and agent's warrants, exercisable for 18 months, entitling Leede to acquire up to 10% of the number of shares sold in the Offering at the issue price. Proceeds of the offering will be used to complete the Acquisition, to implement Malahat's exploration program (discussed below) and for working capital.

Malahat Oil & Gas Ltd.

Malahat was incorporated on March 8, 1996 under the Business Corporations Act (Alberta). Messrs. Garden, Tedrick and Walter, who are directors and/or officers of Festino, currently manage and own approximately 47.5% of the issued and outstanding shares of Malahat. Since its incorporation, Malahat has been active in exploring for and producing oil and gas. A description of Malahat's principal properties is as follows:

South Linklater (Melita, Manitoba)

Malahat holds 100% working interest in 2,720 acres of lands situated approximately 60 miles south west of Brandon, Manitoba adjacent to the Manitoba/Saskatchewan border. The property includes 2 producing oil wells, 4 shut-in wells and a water disposal well. The producing wells are tied into a facility on site, also owned by Malahat, that is currently operating under capacity. The production currently averages 13 barrels of oil per day from the 2 wells. The production is subject to freehold royalties.

Upon successful completion of the Acquisition and the private placement, it is anticipated that the corporation will drill two new wells on its Manitoba lands targeting, among others, the Bakken geological formation. Malahat has identified two initial drilling locations based on geological mapping, preliminary review of seismic and proximity to production. The first well will be drilled on lands owned by Malahat as to 50%, and the second well on lands 100% owned by Malahat. Costs for drilling and abandoning the wells are estimated by management at $210,000 per well ($315,000 net), with completion, equipping and tie-in costs adding another $240,000 per well ($360,000 net) if required. The foregoing proposed work program is being independently reviewed by Chapman Petroleum Engineering Ltd. In the event Chapman supports the proposed program, the Chapman Report referred to below will be amended to that effect and filed on the SEDAR website. If not, or if there are material changes to the proposed work program, then Festino will issue a news release to that effect. In either case, the filing of the amended Chapman Report or the dissemination of the news release will take place prior to the shareholders' meeting scheduled for June 7, 2006.

Other Areas

Malahat also holds a 15% working interest in 1 producing and one shut-in gas well in the Provost Area of Alberta. The shut in well will be tested and the results reviewed in order to determine the economic viability of placing them on production. Current production of the producing well (net to Malahat) is approximately 3.5 boe per day.

Chapman Petroleum Engineering Ltd., an independent qualified reserves evaluator, has prepared a reserve report in respect of certain of Malahat's properties entitled "Reserve and Economic Evaluation Oil and Gas Properties" dated April 28, 2006 with an effective date of January 1, 2006 (as at December 31, 2005). The Chapman Report complies with the requirements of National Instrument 51-101 as adopted by the Canadian securities regulators. A summary of certain portions of the Chapman Report is as follows:



------------------------------------------------------------------------
Summary of Oil and Gas Reserves
as of December 31, 2005
------------------------------------------------------------------------

------------------------------------------------------------------------
Constant Prices and Costs (CDN$)
------------------------------------------------------------------------

------------------------------------------------------------------------
Reserves
------------------------------------------------------------------------
Light and Natural Natural
Medium Oil Heavy Oil Gas(1) Gas Liquids
------------------------------------------------------------------------
Reserves Gross Net Gross Net Gross Net Gross Net
Category (MSTB) (MSTB) (MSTB) (MSTB) (MMscf) (MMscf) Mbbl Mbbl
------------------------------------------------------------------------
Proved
------------------------------------------------------------------------
Developed
Producing 0 0 12 11 26 23 1 0
------------------------------------------------------------------------
Developed
Non-Producing 0 0 13 12 0 0 0 0
------------------------------------------------------------------------
Undeveloped 0 0 0 0 0 0
------------------------------------------------------------------------
Total Proved 0 0 25 23 26 23
------------------------------------------------------------------------

------------------------------------------------------------------------
Probable 0 0 19 18 197 169 1 1
------------------------------------------------------------------------

------------------------------------------------------------------------
Total Proved
Plus Probable 0 0 44 42 223 192 2 1
------------------------------------------------------------------------
Note:
(1) Includes associated, non-associated and solution gas where
applicable.


------------------------------------------------------------------------
Net Present Values Of Future Net Revenue as of December 31, 2005
Including ARTC
------------------------------------------------------------------------

------------------------------------------------------------------------
Constant Prices and Costs (CDN$)
------------------------------------------------------------------------

------------------------------------------------------------------------
Before Income Taxes After Income Taxes
Discounted at(%/Year) Discounted at(%/Year)
------------------------------------------------------------------------
0 10 15 0 10 15
Reserves Category (M$) (M$) (M$) (M$) (M$) (M$)
------------------------------------------------------------------------
Proved
------------------------------------------------------------------------
Developed Producing 313 268 251 274 238 225
------------------------------------------------------------------------
Developed Non-Producing 268 214 193 173 139 127
------------------------------------------------------------------------
Undeveloped 0 0 0 0 0 0
------------------------------------------------------------------------
Total Proved 582 481 444 446 378 352
------------------------------------------------------------------------
Probable 1,748 661 493 1,152 433 323
------------------------------------------------------------------------
Total Proved Plus Probable 2,330 1,143 937 1,599 811 674
------------------------------------------------------------------------


Readers are cautioned that the estimated values disclosed do not represent "fair market value". The foregoing should be read in conjunction with the full Chapman Report which will be available on the SEDAR website at www.sedar.com.

Chapman employed the following pricing, exchange rate and inflation rate assumptions as of December 30, 2005 (being the last trading day of 2005) in estimating Malahat's reserves data using constant prices and costs.



------------------------------------------------------------------------
Natural Gas
Crude Oil Liquid Mix
(Heavy) at Natural Gas (Edmonton
Cromer, Sask. AECO Hub Reference Price Exchange
($CDN/bbl) ($CDN/mcf) $CDN/bbl) $US/CDN
------------------------------------------------------------------------
50.08 9.54 $55.09 0.85
------------------------------------------------------------------------


Based on the audited financial statements of Malahat as at December 31, 2005, Malahat had annual revenues of $349,839 and a net loss $128,552 due to expenses incurred in connection with a workover on the property.

The following persons, all of Calgary, Alberta, own or control more than 10% of Malahat:

John Garden, Brent Walter, Todd Montgomery and James Dale.

Resulting Issuer

Following completion of the Acquisition, it is anticipated that the resulting issuer will have a Board of Directors initially comprised of 4 members, being Messrs. John Garden, Robert Tedrick, Gerald Maetche and Brent Walter, all of whom are current directors of Festino. It is further anticipated that Mr. Garden will serve as President and Chief Executive Officer of the resulting issuer, and that Mr. Tedrick will serve as Vice President - Exploration and, initially, as corporate secretary and CFO. It is anticipated that the resulting issuer will have initial production of approximately 16 boe/day and working capital of approximately $1 million subsequent to the completion of the Acquisition and the minimum private placement. The business experience of the aforementioned individuals is as follows:

John Garden

Mr. Garden received his B.Sc. in chemical engineering from the University of Calgary in 1993. He has particular experience in drilling, completing and stimulating production from oil and gas wells, and has on occasion taught courses in these areas. He has, since 1995, been a founder and President of Deadeye Engineering Inc., a private company engaged primarily in drilling and completions operations for the energy industry. He is a member of a number of professional associations, including the Association of Professional Engineers, Geologists and Geophysicists of Alberta, the Association of Professional Engineers and Geologists of Saskatchewan and the International Coil Tubing Association.

Robert Tedrick

Mr. Tedrick received his Bachelor of Science degree in Geology from the University of Kansas in 1960 and his Master of Science degree in Geology from the University of Alberta in 1962. He has 40 years of experience in the oil and gas industry and since 1968 has operated his own geological consulting firm. Mr. Tedrick has generated oil and gas drilling prospects and has participated in evaluating exploration and development opportunities for both major and junior oil and gas firms in Canada and the United States. He has assisted in acquisition and divestiture projects in most parts of the western Canada Sedimentary Basin, and has participated in the early stage development of a number of junior oil and gas enterprises and has served at various times on the board of directors. Mr. Tedrick is a member of the Association of Professional Engineers, Geologists and Geophysicists of Alberta and is a member of the Canadian Society of Petroleum Geologists.

Gerald W. Maetche

Since November, 2004, Mr. Maetche has been employed as Vice-President, Sales and Marketing for Swanberg Bros. Trucking Ltd., an oilfield transportation company based in Grande Prairie, Alberta. Between October, 2003 and November, 2004, he was an independent business consultant to Patch Safety Services Ltd. (TSXV - PSS)/HSE Integrated Ltd. (TSXV-HSL) and Crown Energy Technologies Ltd., an Alberta based oilfield equipment manufacturer. He held various positions with Patch Safety from 1995 through October, 2003, including President and CEO from October, 2000 through October, 2003. Mr. Maetche has 26 years of diversified oil field service experience from the field level to senior management. Mr. Maetche is currently a director of Festino Venture Corp. (TSXV) and was formerly a director of Sunshine Capital Corp. Mr. Maetche is 50 years old.

Brent Walter

Mr. Walter received his LL.B. from the University of Saskatchewan in 1990. Since 2004, he has been a lawyer with the law firm ProVenture Law LLP, and practices primarily in the areas of securities and corporate/commercial law. He presently serves as a director, senior officer and member of the audit committee of a number of public and private corporations, including Mystique Energy, Inc. and Anglo Minerals Ltd., both of which are Exchange listed issuers. He is a member of the Law Societies of Alberta and Saskatchewan, as well as the Canadian Bar Association.

Upon completion of the Acquisition, the following individuals are expected to be Insiders (within the meaning of Exchange policies): Messrs. John Garden, Robert Tedrick, Gerald Maetche and Brent Walter.

Festino has made application to the Exchange for an exemption from the sponsorship requirements applicable to the Acquisition in accordance with Exchange Policy 2.2. There can be no assurances that the exemption will be granted.

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

Investors are cautioned that, except as disclosed in the management information circular of filing statement to be prepared in connection with the transaction, any information released or received with respect to the 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 TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

ADVISORY: Natural gas volumes have been converted to barrels ("bbl") of oil equivalent ("boe") using six thousand cubic feet ("mcf") of natural gas equal to one boe. This conversion conforms to NI51-101. Use of the term boe may be misleading, particularly if used in isolation. A boe conversion ration of 6 mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. With respect to exploration and development costs, the aggregate of the exploration and development costs incurred for the indicated period and the change during that period in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that period.

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

Contact Information

  • Festino Venture Corp.
    John Garden
    President
    (403) 265-4973
    (403) 265-4514 (FAX)