Sheer Energy Inc.

Sheer Energy Inc.

January 07, 2005 15:52 ET

Sheer Energy Inc. Announces Signing of Letter of Intent




JANUARY 7, 2005 - 15:52 ET

Sheer Energy Inc. Announces Signing of Letter of Intent

CALGARY, ALBERTA--(CCNMatthews - Jan. 7, 2005) - Sheer Energy Inc. (TSX
VENTURE:SHU)("Sheer") is pleased to announce that it has entered into a
letter of intent with Farmkey Investment Company ("Farmkey"), the holder
of 100% of the shares of Rigo Oil Company Ltd. ("Rigo") and Vega Oil
s.r.l. ("Vega"), and Dr. Fabrizio Rigo ("Dr. Rigo"), a resident of Rome,
Italy, concerning a proposed business combination of Sheer, Rigo and
Vega ("the Transaction").

Farmkey is a private company incorporated in Jersey, Channel Isles, and
is controlled by Mrs. Neli da Silva Rigo, the wife of Dr. Rigo. Rigo is
a private company incorporated in Jersey, Channel Isles, and Vega is a
private company incorporated in Italy. Dr. Rigo is the president of both
Rigo and Vega and is a geologist with over 50 years of experience in
international oil and gas exploration.

Sheer is a Canadian company listed on the TSX Venture Exchange with
producing oil and gas properties in Western Canada. Sheer's daily
production at September 30, 2004 was 41 barrels of oil equivalent per
day, with approximately 74% of this volume being comprised of natural
gas. Sheer has recently sold its 49% interest in the Masjed-I-Suleyman
project in Iran for approximately U.S. $3,200,000. Sheer made a dividend
distribution of CDN $0.25 per share to its shareholders of record on
November 18, 2004 and has made another distribution of CDN $0.25 per
share as "return of capital" to shareholders of record on December 17,

The Transaction is expected to be structured by way of share purchase
whereby Sheer will acquire all of the issued and outstanding shares of
Rigo and Vega from Farmkey in exchange for common shares of Sheer.

Assets held by Rigo include 100,000 unit of the Peyto Energy Trust.
Other assets currently held by Rigo include a 37.5% working interest in
the Jorf permit onshore Tunisia (989,276 acres), operated by Pioneer
Natural Resources Ltd., and a 100% working interest in the Sud Tozeur
permit application (1,082,283 acres), also onshore Tunisia. The Sud
Tozeur permit is scheduled to be officially granted to Rigo in January

Assets currently held by Vega include an 85% working interest in the
d-490 B.R.-VG permit (31,303 acres) in the shallow Adriatic Sea,
offshore East-Central Italy, a 60% working interest in the Civitaquana
permit (152,081 acres), onshore Central Italy, an 80% working interest
in the Posta Nuova permit (38,154 acres), onshore Southern Italy, and a
30% working interest in the Montalbano permit (40,781acres), also
located onshore Southern Italy.

The d-490 B.R.-VG permit has recently received the approval of the
Ministry of Environment and is expected to be officially granted to Vega
by the Ministry of Production Activities in early 2005. The Civitaquana,
Posta Nuova and Montalbano permits are currently under review by the
Ministry of Environment and it is expected that they will be officially
granted to Vega later in 2005.

Petrel Robertson Consulting Ltd., of Calgary, completed an independent
geological and engineering evaluation of the Jorf, d-490 B.R.-VG and the
Civitaquana permits in August 2004. The three permits are exploratory in
nature, with no oil and gas production currently established. Seismic
data is available on all three permits; additional seismic work and an
exploratory drilling program are being prepared for these permits.

The Posta Nuova, Montalbano and Sud Tozeur permits were not evaluated by
Petrel Robertson in their August 16, 2004 report as they were applied
for subsequent to the completion of the Petrel report. Seismic
acquisition and/or re-interpretation plus a drilling program are also
being developed for these permits.

Under the terms of the Letter of Intent, Farmkey will receive 40,444,444
common shares of Sheer, at a deemed value of $0.45 per share for the six
permits and the 100,000 units of Peyto Energy Trust. Pursuant to the
business combination, Dr. Rigo will also purchase 4,222,222 common
shares of Sheer for CDN $1,900,000 ($0.45 per share). Additionally,
Sheer will arrange for a "non-brokered" private placement of 1,500,000
common shares at $0.45 per share for total proceeds of $675,000. First
Associates Investments Inc. has been engaged, through an engagement
letter dated January 6, 2005, to arrange a "brokered" private placement
of 4,000,000 common shares at $0.60 per share for total gross proceeds
of CDN $2,400,000. First Associates Investments Inc, subject to
completion of satisfactory due diligence, has also agreed to act as
sponsor in connection with the transaction. An agreement to sponsor
should not be construed as any assurance with respect to the merits of
the transaction or the likelihood of completion.

Under the terms of the Letter of Intent the total number of issued
common shares of Sheer, including the 6,557,863 shares currently
outstanding, will be 56,724,349 common shares. At the time of closing,
Sheer will have approximately CDN $9,500,000 in cash and 100,000 units
of Peyto Energy Trust for which the closing price on January 6, 2005 was
$46.80 per unit. Farmkey and Dr. Rigo will become the controlling
shareholders of Sheer with approximately 71% and 7.5% ownership
respectively. The business combination will be an "arm's length"

Upon completion of the Transaction, the board of directors of Sheer will
consist of Dr. Fabrizio Rigo, Dario E. Sodero, Andrew S. Burgess,
Derrick Armstrong and Ali Rawji.

Dr. Rigo is a geologist with over 50 years of international exploration
experience. He is currently the President of 1Rigo and Vega; from 1952
to 1967 he worked in various capacities for several companies in Italy,
including Edison and Elf; in 1967 he founded Rigo and Associates, an
international consulting firm; in 1970 he co-founded Seagull Oil Co., a
private company which was acquired by Denison Mines after the discovery
of the Vega oil field offshore Sicily; in 1982 he co-founded Seaxe
Energy Corporation, a public company listed on Nasdaq , which was later
merged with Hadson Corporation; in 1984 he founded Euromin Canada Ltd.,
a company listed on the Vancouver Stock Exchange, which became Eurogas
Corporation in 1995. Dr. Rigo graduated from the University of Milan,
Italy, with a Doctorate in Geological Sciences in 1951.

Dario Sodero is a geologist with over 35 years of Canadian and
international oil and gas experience. He is the President of Planaval
Resources Ltd., a private consulting company. From 1969 to 1979 he
worked at Canada Cities Service where he became geological manager; from
1980 to 1990 he was Vice President and President of Atlas Yellowknife
Resources, a company listed on the TSX; in 1992 he co-founded Coachlight
Resources Ltd., a company listed on the Alberta Stock Exchange which was
merged with Acclaim Energy in 1998; in 1997 he co-founded Sheer Energy
Inc., a company listed on the TSX Venture Exchange which became involved
in the re-development of the giant Masjed-I-Suleyman field in Iran. Mr.
Sodero graduated from the University of Turin, Italy, with a Doctorate
in Geological Sciences (Honours) in 1967.

Andrew S. Burgess, C.A. is the President of Greenfields Financial
Corporation, a private financial consulting company. He has extensive
experience in the formation and management, including taxation and
financial reporting, of both private and public companies. Mr. Burgess
graduated from the University of Manitoba in 1974 with a Bachelor of
Commerce (Hons.) degree and qualified as a Chartered Accountant in 1976
with Peat, Marwick, Mitchell & Co. He qualified as a Certified Public
Accountant in 1999. Mr. Burgess is Chief Financial Officer and a
director of Huntington Resources Limited and Ecstall Mining Corporation,
both junior resource exploration companies, and a director of Carpatsky
Petroleum Inc., an international oil and gas production company active
in Ukraine. All of the above companies are listed on the TSX Venture
Exchange. Mr. Burgess is a member of The Institute of Chartered
Accountants of Alberta and the Canadian Tax Foundation.

Derrick Armstrong is a partner and the regional head of the Securities
and Capital Markets group in the Calgary office of a national law firm.
He received a Bachelor of Commerce from the University of Calgary (1977)
and an LLB from the University of Alberta (1980), and has practiced law
in Calgary continuously since 1980. He is a director of Centurion Energy
International Inc. (TSX and AIM listed), Veteran Resources Inc. (TSX)
and Zi Corporation (TSX and NASDAQ).

Ali Rawji, C.A. was a Vice President Corporate Finance at First
Assopciates Investments Inc. from 1997 to 2004, and prior to that he was
Manager of Listings at the Alberta Stock Exchange from 1995 to 1997. Mr.
Rawji is a Chartered Accountant and also holds a Chartered Financial
Analyst designation. He holds a Bachelor of Economics (Honours) degree
from the London School of Economics.

Dr. Rigo will be the President and C.E.O. Other key positions are
expected to include Dario Sodero as Executive Vice President, Ali Rawji
as C.F.O. and Fausto Petitta as Vice President Operations.

Fausto Petitta has over 50 years experience with oil and gas companies
in various capacities. He has worked for Montedison, Gulf Oil, Shell
Oil, Ambassador Petroleum and Seagull Exploration from 1956 to 1979,
mostly in the area of international concessions acquisition. From 1979
to 1998 he held positions as Managing Director for Canada Northwest
(Italy and U.K.) and Eurogas Oil Corporation Tunisia. Since 2000, he has
been Vice President Operations for Rigo Oil.

As part of the conditions of the proposed business combination, each
party shall carry out "due diligence" investigations as such party
determines appropriate in order to evaluate the merits of completing the

Financial statements for the period ended September 30, 2004 for Rigo
and Vega are currently being prepared by management and will be released
as soon as received by Sheer.

Completion of the transaction is subject to a number of conditions,
including but not limited to, Exchange acceptance and Shareholder
consent. 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 Filing
Statement to be prepared in connection with the transaction, any
information released or received with respect to the RTO may not be
accurate or complete and should not be relied upon. Trading the
securities of Sheer Energy Inc. should be considered highly speculative.

The TSX Venture Exchange has in no way passed upon the merits of the
proposed transaction and has neither approved nor disapproved the
contents of this press release.

Sheer also announces that Mr. Charles S. Cook has resigned from the
Board of Directors, effective January 5, 2005 for personal reasons. The
Company is presently seeking an independent director to replace Mr. Cook.

SHARES ISSUED: 6,557,863


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