TriStar Oil & Gas Ltd.

TSX : TOG


TriStar Oil & Gas Ltd.

January 19, 2006 08:26 ET

Tristar Oil & Gas Ltd. Acquires Sawtooth International Resources Inc. And Two Private Companies; Announces Bought Deal Financing; And Upward Revision To 2006 Guidance

CALGARY, ALBERTA--(CCNMatthews - Jan. 19, 2006) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.

TRISTAR ACQUIRES SAWTOOTH - PLAN OF ARRANGEMENT

TriStar Oil & Gas Ltd. ("TriStar")(TSX:TOG) and Sawtooth International Resources Inc. ("Sawtooth")(TSX VENTURE:SAW) are pleased to announce that they have entered into an arrangement agreement (the "Arrangement Agreement") which provides that TriStar will acquire (the "Sawtooth Acquisition") all of the issued and outstanding common shares of Sawtooth ("Sawtooth Shares") pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement").

The purchase price payable by TriStar for each Sawtooth share will be, at the election of the holder, $2.25 in cash or 0.2903 common shares of TriStar ("TriStar Shares") or a combination thereof. A total of 3.6 million TriStar shares will be issued to holders of Sawtooth Shares pursuant to the Arrangement. In the event that the Sawtooth shareholders elect, in the aggregate, to receive more than 50 percent TriStar Shares, the amount of TriStar Shares to be received by a shareholder of Sawtooth electing to receive TriStar Shares for a Sawtooth Share will be reduced pro rata and the balance of the purchase price for that Sawtooth Share will be paid in cash. In the event that the holders of Sawtooth Shares elect to receive less than 50 percent TriStar Shares, the amount of cash to be received by a holder electing to receive cash with respect to a Sawtooth

Share will be reduced pro rata and the balance of the purchase price for that Sawtooth Share will be paid in TriStar shares.

This transaction provides TriStar with ownership in an exciting new light oil play in Central Alberta. Sawtooth has current production of more than 1,275 boepd primarily focused in a large, high quality light oil pool located in the Redwater/Fort Saskatchewan area, approximately 50 km northeast of the City of Edmonton.

A majority of Sawtooth's Redwater/Fort Saskatchewan production is from the main Redwater Ellerslie "C" pool, and an exciting new pool extension to the west. Internal mapping estimates have original oil in place ("OOIP") of more than 16.4 million barrels of high quality, 34 degrees API light oil. Current government data indicates cumulative oil recovered to date of 0.69 mmboe providing a current recovery factor of 4.2 percent for the existing developed portion of the pool.

TriStar believes that ultimate recoveries should exceed 25 percent of the OOIP, or 4.1 mmboe for the entire pool. In addition, recovery factors may be further enhanced by a secondary waterflood program. Sawtooth has an average working interest in the pool of approximately 85 percent.

Sawtooth's Redwater/Fort Saskatchewan production is pipelined to a 100 percent company owned Redwater facility located at 3-7-55-20W4M. The central facilities include oil, gas, and water separation and treating equipment, crude oil pipeline connection, salt water disposal facilities and solution gas gathering facilities. The primary assets of Sawtooth also include an average operated working interest of 95 percent in 11,690 (11,054 net) undeveloped acres of land in this area.

TriStar has identified more than 14 gross (11.1 net) drilling locations on the undeveloped land associated with the Sawtooth Acquisition. In addition, TriStar has also identified potential waterflood opportunities with respect to the Sawtooth assets.

PRIVATE COMPANY ACQUISITIONS

TriStar is also pleased to announce that, subject to regulatory and other approvals, it has executed agreements to acquire, by way of an exempt takeover bid, all of the issued and outstanding shares of two private Saskatchewan oil and gas companies, and certain other minor complimentary interests in the assets held by the private companies (collectively the "Private Company Assets"), for a combined total purchase price of approximately $22 million (the "Purchase Price").

The Private Company Assets comprise high quality, long life light oil reserves strategically located in TriStar's key operating area of southeast Saskatchewan. The Private Company Assets are operated, with high working interests and control of key producing infrastructure.

TriStar has identified more than 16 gross (12.9 net) drilling locations associated with the Private Company Acquisitions.

COMBINED ACQUISITION METRICS

The combined acquisition parameters relating to the Sawtooth Acquisition and the Private Company Assets are set forth as follows:

1. Combined Purchase Price: C$92 million.

2. Long Life Reserves:

- 4.4 million boe (proven plus probable), based on NI 51-101 engineering estimates prepared by Sproule Associates Limited with respect to the Sawtooth Acquisition, and TriStar internal engineering estimates with respect to the Private Company Assets.

- $21.07 per boe proven plus probable.

- Reserve life index of more than 7.3 years proven plus probable.

3. High Quality Production:

- greater than 1,650 boepd ($55,800 per producing boe.)

4. Net Operating Income Multiple:

- 4.0 times (at US$55/bbl WTI and C$9.00 GJ AECO pricing)

5. Significant Drilling Upside:

- Currently Identified Locations - 30 gross (24 net)

6. Other Key Attributes

- greater than 95% operated assets

- greater than 80% average working interest

- Infrastructure - working interests in operated, light oil batteries in Central Alberta and southeast Saskatchewan.

- Land - more than 15,000 net acres of undeveloped land.

- Access to seismic - 3-D seismic surveys (greater than 8.5 square miles); greater than 93 miles of 2-D seismic.

MANAGEMENT AND BOARD RECOMMENDATIONS

The Arrangement has the unanimous support of the Board of Directors of both Sawtooth and TriStar. In addition, the Board of Directors of Sawtooth will recommend that the shareholders of Sawtooth vote in favour of the Arrangement, and all of Sawtooth's officers and directors, representing approximately 20 percent of the fully diluted outstanding shares, have entered into lock-up agreements whereby they have agreed to vote in favour of the Arrangement. The Arrangement Agreement contains a mutual non-completion fee in the amount of $2.5 million, which is payable by Sawtooth or TriStar to the other, as the case may be, in certain circumstances if the Arrangement is not completed.

The completion of the Arrangement is subject to various conditions, including receipt of all applicable regulatory, shareholder and Court approvals. A special meeting of shareholders of Sawtooth will be called in mid March of 2006 to consider the Arrangement. An information circular detailing the Arrangement is anticipated to be mailed to Sawtooth shareholders in February.

BMO Nesbitt Burns Inc. is acting as strategic advisor to TriStar in connection with the transaction. Haywood Securities Inc. ("Haywood") is acting as financial advisor to Sawtooth in respect of the Arrangement, and Haywood has advised the board of directors of Sawtooth that they are of the opinion, subject to their review of the final form of the documents affecting the Arrangement, that the consideration offered pursuant to the Arrangement is fair, from a financial point of view, to Sawtooth shareholders.

TRISTAR EQUITY FINANCING

Concurrent with the Sawtooth Acquisition, TriStar has entered into a bought deal equity financing agreement with a syndicate of underwriters co-led by Orion Securities Inc. and FirstEnergy Capital Corp, and including BMO Nesbitt Burns Inc., GMP Securities Ltd., Tristone Capital Inc., Scotia Capital Inc., TD Securities Inc., National Bank Financial Inc., Blackmont Capital Inc., Canaccord Capital Corporation and Haywood Securities Inc., to issue on a private placement basis, 5.68 million subscription receipts of TriStar at a price of $7.75 each for gross aggregate proceeds of $44.0 million (the "Offering"). Closing of the Offering is scheduled for February 17, 2006.

The proceeds of the offering of subscription receipts will be held in escrow pending TriStar's receipt of all necessary regulatory approvals and the completion of the Arrangement and the issue of the underlying TriStar Shares thereunder.

Upon these conditions being met, the proceeds of the offering of the subscription receipts will be released to TriStar and each subscription receipt will be exchanged for one TriStar Share without additional payment. If closing of the Arrangement does not take place by 5:00 p.m. (Calgary time) on March 31, 2006, the Arrangement is terminated at any earlier time or TriStar or Sawtooth has announced to the public that it does not intend to proceed with the Arrangement, holders of the subscription receipts will be entitled to a return of their full subscription price and their pro rata entitlement to the interest earned on the escrowed funds.

Subscription receipts issued pursuant to the private placement will be subject to a hold period from the date of closing of the Offering until the closing of the Arrangement. The Offering is subject to the receipt of all necessary regulatory, shareholder and stock exchange approvals.

PROFORMA OVERVIEW; UPWARD REVISION TO TRISTAR 2006 GUIDANCE

The Sawtooth Acquisition and Private Company Assets are significantly accretive to TriStar on a reserves, production, cash flow and net asset value per share basis.

Upon the closing of the Sawtooth Acquisition, the Private Company Assets and the Offering, TriStar will have the following corporate characteristics:

Reserves: greater than 7.7 mmboe (P+P); RLI of approximately 8 years

Production: greater than 2,650 boepd (75% light oil)

Debt: $11MM; less than 0.3 times 2006 annualized cash flow ($55 WTI, $9 AECO)

Shares Outstanding: 36.2 MM (B); 38.5 MM (FD) (post equity financing)

Upside: greater than 90 locations

greater than 115,000 net acres of undeveloped land

Upon completion of the Sawtooth and Private Company Assets, TriStar will be revising upward the Company's 2006 average daily and exit rate production estimates.

TriStar now anticipates 2006 average daily production of more than 2,550 boepd, comprised of 75 percent high quality, long life light oil, and 25 percent natural gas, with a 2006 production exit rate of more than 2,850 boepd.

TRISTAR ANNOUNCES HIRING OF NEW CFO

TriStar is pleased to announce the appointment of Jason J. Zabinsky to the position of Vice President, Finance and Chief Financial Officer.

Mr. Zabinsky has over 11 years of capital markets experience and joins TriStar after a very successful eight year career at a major Canadian Investment and Corporate Bank where he most recently held the position of Director. Mr. Zabinsky has extensive oil and gas capital markets and transaction experience and has been actively involved in Canadian and international mergers and acquisitions, corporate reorganizations, equity issues, high yield debt issues, restructurings, bridge finance and general corporate banking. Mr. Zabinsky is a graduate from the University of Saskatchewan, Bachelor of Commerce (Accounting), High Distinction and is a Chartered Financial Analyst.

Information provided herein contains forward-looking statements. The reader is cautioned that assumptions used in the preparation of such information, which are considered reasonable by TriStar at the time of preparation, may prove to be incorrect. Actual results achieved will vary from the information provided and the variations may be material. There is no representation by TriStar that actual results achieved will be the same in whole or in part as those indicated in the forward-looking statements.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The common shares offered have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and many not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable states securities laws.

THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Contact Information

  • TriStar Oil & Gas Ltd.
    Brett Herman
    President and C.O.O.
    (403) 268-7800
    (403) 218-6075 (FAX)
    or
    TriStar Oil & Gas Ltd.
    Jason Zabinsky
    Vice President, Finance and C.F.O.
    (403) 268-7800
    (403) 218-6075 (FAX)
    or
    TRISTAR OIL & GAS LTD.
    Suite 3100, 205 Fifth Avenue S.W.
    Calgary, Alberta T2P 2V7