Exceed Energy Inc.
TSX VENTURE : EX.A

Exceed Energy Inc.
WestFire Energy Ltd.

WestFire Energy Ltd.

November 03, 2009 08:30 ET

WestFire to Acquire Exceed and Producing Assets to Create a Premier Public Viking Focused Junior Producer

CALGARY, ALBERTA--(Marketwire - Nov. 3, 2009) - WestFire Energy Ltd. ("WestFire"), a private oil and gas company with operations in Alberta and Saskatchewan, and Exceed Energy Inc. ("Exceed") (TSX VENTURE:EX.A) jointly announce that they have entered into an arrangement agreement (the "Arrangement Agreement") whereby WestFire will acquire all of the outstanding shares of Exceed and apply for the listing of its shares on a recognized Canadian stock exchange (the "Exceed Acquisition").

WestFire is also pleased to announce that it has entered into an agreement (the "Asset Purchase Agreement") with a Court-appointed receiver to acquire certain producing oil and gas properties located in the Lloydminster/Lindbergh and Peace River Arch areas of Alberta and light oil properties in southeast Saskatchewan (the "Producing Assets") for a cash purchase price of $30 million prior to closing adjustments (the "Producing Asset Acquisition").

Key Attributes of Pro Forma WestFire

WestFire will be a premier publicly listed junior Viking resource player in western Canada with one of the largest land positions of any operator and guided by an experienced board of directors. WestFire will combine high growth, long life Viking light oil resources with conventional light oil, heavy oil, and natural gas assets. Pro forma closing of the Exceed Acquisition and the Producing Asset Acquisition, WestFire will have the following key attributes:

  • 2009 total company exit production greater than 2,100 boepd (50% oil);
  • Greater than 7 million boe of proved plus probable reserves (includes GLJ Petroleum Consultants Ltd.'s evaluation of WestFire and the Producing Assets effective December 31, 2008 and September 30, 2009, respectively, and GLJ Petroleum Consultants Ltd.'s audit of Exceed effective September 30, 2009) with significant future reserve growth potential through revisions, additions, improved recoveries and the application of technology;
  • Significant undeveloped land inventory of 258,000 acres (203,000 net acres) with over 110,000 acres (99,000 net acres) in the heart of the Viking play;
  • 400+ Viking drilling locations representing numerous years of unbooked drilling inventory;
  • Tax pools in excess of $260 million; and
  • Run rate cash flow of $15 million based on US$70.00/bbl WTI, CDN$5.00/mcf AECO and $0.90 US$/CDN exchange rate and 2009 exit production.

Corporate Strategy and Strategic Rationale:

WestFire was recapitalized by the current management team in December 2007. Market conditions at the time provided an attractive entry point for a new private asset consolidator. In the past seven quarters, the WestFire team has made ten acquisitions. A major focus of this acquisition strategy was on the emerging light oil resource play in the Viking formation located in west central Saskatchewan and the Redwater area of central Alberta.

Current production of WestFire is approximately 1,400 boe/d, consisting of 33% oil and natural gas liquids and 67% natural gas. Current net debt prior to giving effect to the Exceed Acquisition and the Producing Asset Acquisition is approximately $8.0 million. WestFire has 26.5 million issued and outstanding common shares as of this date.

WestFire's assets coupled with the Exceed Acquisition and the Producing Asset Acquisition provide for additional growth, diversity and cash flow to fuel the Viking opportunities. The pro forma asset base creates an oil weighted junior company with pure play investment exposure to the horizontal Viking light oil resource play. WestFire has a dominant land position providing a number of years of visible growth through the drilling of 400 plus identified locations. WestFire is expected to have an improved cost of capital as a result of the focused nature of the high netback Viking light oil and conventional assets in Saskatchewan and Alberta.

Viking Resource Play

The Viking formation is an extensive marine deposit that has been delineated by vertical wellbores. Geographically, this light oil resource play has been proven productive in a fairway stretching from the Kindersley area in west central Saskatchewan to the Redwater area in central Alberta.

The Viking oil pools were initially discovered in the early 1950's with over 8,000 vertical wells drilled in the Kindersley/Redwater areas to date. The lower portion of the formation contains oil in thicker but shaly intervals that have been trapped in compartments of sandstone. Vertical drilling has achieved limited success in recovering this "compartmentalized" oil. The advent of horizontal drilling and multi-stage frac completion techniques have been successful in enhancing the recovery of oil from this formation.

WestFire holds 173 (155 net) sections of land on the Viking play, of which a total of 77 (73 net) sections have vertical penetrations that define the Viking oil potential. The remaining 96 (82 net) sections are adjacent to lands that have vertical well control. A minimum of four horizontal well drilling locations per section exist on these lands. In 2009, WestFire has successfully drilled eight (7.5 net) Viking horizontal wells.

Management and the Board of Directors of WestFire

WestFire's management group will continue to be led by Lowell E. Jackson as President and Chief Executive Officer, D. Stephen Burtt as Vice-President, Finance and Chief Financial Officer, Darrin R. Drall as Vice-President, Engineering and Frank P. Muller as Senior Vice-President, Exploration.

WestFire will have an experienced Board of Directors that has an outstanding record of building significant oil and gas companies and creating substantial value for shareholders. The Board of Directors will consist of Edward Chwyl (Chairman), John A. Brussa, Raymond T. Chan, Paul Colborne, Lowell E. Jackson, and Michael McGovern.

The Exceed Acquisition

The acquisition of Exceed will be accomplished through a Plan of Arrangement (the "Arrangement") wherein each Exceed share will be exchanged for 0.01 of a WestFire share. It is expected that up to 645,225 WestFire common shares will be issued pursuant to the Arrangement.

Pursuant to the Arrangement, 25% of the WestFire common shares to be issued to Exceed shareholders will be placed in escrow pending final determination of the amount of a potential contingent liability to Exceed. The ultimate number of WestFire shares to be released from escrow will depend on the actual amount of such liability and in the event the liability exceeds the value of the escrowed shares, the escrowed shares will not be released and will be cancelled by WestFire.

Completion of the Exceed Acquisition is subject to receipt of 66 2/3% of the Exceed shareholders voting in person or by proxy at a meeting of the Exceed shareholders to be held to consider the Arrangement as well as the customary court, regulatory and exchange approvals. The information circular which will contain detailed information for the Arrangement is expected to be mailed to Exceed shareholders on or about November 18, 2009 and it is anticipated that the special meeting of Exceed's shareholders will be held on or about December 17, 2009 with closing of the Exceed Acquisition on or about December 18, 2009. There can be no assurances that the Exceed Acquisition will be completed as proposed or at all. The Arrangement Agreement provides for termination rights, including in the event the Arrangement is not completed by December 31, 2009.

The Board of Directors of Exceed have unanimously approved the Arrangement and have determined that it is in the best interests of Exceed and its shareholders from a financial point of view and will recommend that shareholders vote their shares in favour of the Arrangement. The directors and officers of Exceed and certain other Exceed shareholders, who collectively beneficially own or control over 50% of the Exceed shares, have entered into support agreements with WestFire to vote their Exceed shares in favour of the Arrangement.

The Arrangement Agreement prohibits Exceed from soliciting or initiating any discussion regarding any other business combination or sale of material assets, contains provisions for WestFire to match competing, unsolicited proposals and, subject to certain conditions, provides for a reciprocal termination fee of $0.15 million.

Producing Asset Acquisition:

The ultimate purchase by WestFire of the Producing Assets is subject to final court approval and customary closing conditions. In the event the Producing Assets are not sold by the receiver to WestFire and WestFire is not in breach of the Asset Purchase Agreement, WestFire is entitled to a one-time payment of $2 million. Funding of the Producing Asset Acquisition is currently intended to be accomplished by a combination of WestFire's bank debt and proceeds from an equity financing to be completed on or about the closing of the Producing Asset Acquisition which is expected to be completed on or about December 18, 2009.

The Lloydminster/Lindbergh assets are operated 100% working interest heavy oil properties that include 3D seismic coverage over the acreage. Target formations include the Lloydminster and Sparky at shallow depths (500-700m) that will be developed with horizontal drilling.

The Peace River Arch assets are a combination of operated and non-operated light oil and liquids rich natural gas properties. The acreage also has 3D seismic coverage and the main producing horizons are the Granite Wash and Doig. WestFire will optimize production and costs in these areas through improvement in facilities and operations.

The southeast Saskatchewan assets are mostly operated light oil properties with strong netbacks from favourable royalty incentives. Primary formations include the Midale and the Bakken.

Key Attributes of the Producing Assets:

  • Current production of approximately 625 boe/d, comprised of 32% heavy oil, 24% light/medium oil and natural gas liquids, and 44% natural gas;
  • Approximately 0.9 million boe of proved reserves and 1.9 million boe of proved plus probable reserves (effective September 30, 2009 as evaluated by GLJ Petroleum Consultants Ltd.);
  • Reserve life index of 3.9 years proved and 8.3 years proved plus probable; and
  • 57,000 net acres of undeveloped land with extensive 3D seismic.

Advisors

Macquarie Capital Markets Canada Ltd. is acting as financial advisor to WestFire for the Exceed Acquisition and the Producing Asset Acquisition. Sayer Energy Advisors is acting as financial advisor to Exceed and has advised the Exceed Board of Directors that they are of the opinion that the consideration to be paid to Exceed pursuant to the Exceed Acquisition is fair from a financial point of view to the Exceed shareholders, subject to review of final form documentation. A copy of the Sayer Energy Advisors fairness opinion will be included in the Exceed information circular to be sent to the Exceed shareholders in connection with the meeting to be called to approve the Arrangement.

About Exceed

Exceed is a Calgary based emerging oil and gas company engaged in the exploration, development and production of oil and gas reserves in western Canada. Exceed's Class A common shares trade on the TSX Venture Exchange under the symbol "EX.A".

Reader Advisory

Certain of the information contained in this joint press release assumes that WestFire has completed the Exceed Acquisition and Producing Asset Acquisition on the anticipated basis and times set forth herein. The Exceed Acquisition is subject to the receipt of the approval of the shareholders of Exceed, the approval of the Court of Queen's Bench for the province of Alberta as well as all other necessary regulatory approvals. The anticipated listing of the WestFire shares on a recognized Canadian stock exchange is subject to the conditional approval of that stock exchange and WestFire satisfying the listing requirements and all other requirements of such exchange. The Producing Asset Acquisition is subject to the receipt of the approval of the Court of Queen's Bench for the province of Alberta as well as the satisfaction of other customary closing conditions including the ability of WestFire to fund the purchase price of the Producing Assets.

Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six mcf to one 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. This conversion factor is an industry accepted norm and is not based on either energy content or current prices.

Statements in this joint press release contain forward-looking information including, without limitation, expectations of future production and exit production rates, components of cash flow and earnings, recoverable reserves, drilling results, timing and completion of the Exceed Acquisition and Producing Asset Acquisition, estimated potential of the Viking resource play, the listing of the WestFire shares on a recognized Canadian stock exchange and ongoing corporate strategy and benefits of the Exceed Acquisition and Producing Asset Acquisition. Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of WestFire and Exceed. These risks include, but are not limited to; the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks could include, but are not limited to; operational risks in exploration, development and production, delays or changes in plans, risks associated to the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses and access to capital. The risks outlined above should not be construed as exhaustive. The reader is cautioned not to place undue reliance on this forward-looking information. Neither WestFire or Exceed undertakes no obligation to update or revise any forward-looking statements except as expressly required by applicable securities laws.

Readers are further cautioned that the preparation of financial statements in accordance with Canadian generally accepted accounting principles ("GAAP") requires management to make certain judgements and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.

Cash flow from operations and operating netbacks are not recognized measures under GAAP. Management of WestFire and Exceed believe that in addition to net income, cash flow from operations and operating netbacks are useful supplemental measures as they demonstrate an ability to generate the cash necessary to repay debt or fund future growth through capital investment. Readers are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with GAAP as an indication of WestFire's or Exceed's performance. WestFire's and Exceed's method of calculating these measures may differ from other companies and, accordingly, they may not be comparable to measures used by other companies. For these purposes, WestFire and Exceed defines cash flow from operations as cash provided by operations before changes in non-cash operating working capital and defines operating netbacks as revenue less royalties and operating expenses.

Readers are also cautioned that this joint press release contains the term reserve life index, which is not a recognized measure under GAAP. Management believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms determined in accordance with GAAP as a measure of performance. The method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein. The securities have not been 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 may not be offered or sold within the United States or to United States Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THE RELEASE.

Contact Information

  • WestFire Energy Ltd.
    Lowell Jackson
    President and CEO
    (403) 718-3601
    (403) 261-9658 (FAX)
    or
    WestFire Energy Ltd.
    Stephen Burtt
    Vice President Finance and CFO
    (403) 718-3603
    (403) 261-9658 (FAX)
    or
    Exceed Energy Inc.
    Richard Wolfli
    President and CEO
    (403) 508-1853
    (403) 508-1781 (FAX)
    www.exceedenergy.com