Arsenal Energy Inc.

Arsenal Energy Inc.

August 12, 2005 17:18 ET

Arsenal Completes Acquisition of Quadra Resources Corp.

CALGARY, ALBERTA--(CCNMatthews - Aug. 12, 2005) -

This news release is not for distribution in the United States.

Arsenal Energy Inc. (TSX:AEI) ("Arsenal") and Quadra Resources Corp. ("Quadra") are pleased to announce that the acquisition of Quadra by Arsenal closed on August 11, 2005. The acquisition, the details of which are included in the press release of June 20, 2005, was completed via a Plan of Arrangement (the "Arrangement") and was approved by the Quadra secutiyholders at a special meeting held on August 9, 2005.

Under the terms of the Arrangement, Quadra shareholders received 0.025 of an Arsenal common share for each one (1) Quadra share; Quadra warrantholders received 0.025 of an Arsenal purchase warrant for each one (1) Quadra purchase warrant, with the exercise price adjusted to reflect the exchange ratio and Quadra broker warrantholders received 0.025 of an Arsenal broker warrant for each one (1) Quadra broker warrant, with the exercise price adjusted to reflect the exchange ratio. After giving effect to the Arrangement, Arsenal has 32,103,536 shares issued and outstanding, 2,975,344 share purchase warrants with a strike price between $0.60 and $1.00 per warrant, 1,013,570 share purchase warrants with a strike price between $5.20 and $7.80 per warrant and 2,920,000 outstanding stock options. The share purchase warrants with a strike price between $0.60 and $1.00 per warrant expire between August 28, 2005 and December 15, 2005 and the share purchase warrants with a strike price between $5.20 and $7.80 per warrant expire between October 4, 2005 and May 2, 2006.

Acquisition Highlights

Quadra, through its wholly owned subsidiary, Quadra Egypt Limited ("QEL"), has negotiated a Concession Agreement with Ganoub El Wadi Holding Petroleum Company ("Ganope") of Cairo, Egypt, relative to the Nuqra oil and gas concession (the "Concession"), which is comprised of 30,028 sq km. (approximately, 7,500,000 acres) of exploration acreage that is located in Southern Nile Valley of the Arab Republic of Egypt ("Egypt").

Ganope is a holding company that is wholly owned by the Government of Egypt ("State"), and is in charge of all oil exploration and production activities in Upper Egypt south of latitude 28 Deg. N., while another State owned company; Egyptian General Petroleum Corporation, has the same role for areas to the north of such latitude.

Quadra's principal property is its 7,500,000 acre Concession located in South East Egypt. The lands in the Concession are located in southeastern Egypt near the city of Luxor on the east bank of the Nile River and are situated in the heart of the Komombo Basin. The Komombo Basin is a rift basin analogous to the Gulf of Suez Basin in Egypt and the Muglad Basin in Sudan, both of which have major proven oil reserves. The Concession is accompanied by 3,000 km of 2D seismic (circa 1995), covering less than twenty percent (20%) of the above mentioned acreage. QEL has identified 13 seismically defined exploratory leads from existing technical data. Well data from the Concession confirms the existence of Cretaceous and Jurassic sandstone formations which may hold the potential for discovery of significant accumulations of oil reserves.

The Concession agreement stipulates that QEL must carry out an agreed work program with minimum obligation of eleven million U.S. Dollars (USD$ 11.0 million) in capital expenditures over 8 years.

QEL entered into a farmout agreement (the "Farmout Agreement"), dated effective July 1, 2004, with TransGlobe Petroleum Egypt Inc. ("TransGlobe"), a wholly owned subsidiary of TransGlobe Energy Corporation of Calgary, Alberta (TSX - TGL, AMEX - TGA).

Under the terms of the Farmout Agreement, TransGlobe has agreed to provide a minimum of USD$2.0 million on behalf of QEL to perform and complete, within 18 months, the Stage 1 program required under QEL's Concession agreement with Ganope. Upon completion of the Stage 1 work program, TransGlobe has the option to provide all required funds of USD$4.0 million on behalf of QEL to perform and complete the Stage 2 work program and upon expending USD$6.0 million, TransGlobe will be deemed to have earned a 50% working interest in the Concession. Subsequent to TransGlobe earning its undivided interest in the Concession, QEL will hold a net 30% undivided working interest in the Concession. TransGlobe has agreed to act as Operator on behalf of QEL prior to earning in and thereafter.

Arsenal also acquired Quadra's wholly owned subsidiary, Chase Energy B.V. ("Chase"). Chase is a private company incorporated under the laws of the Netherlands on September 19, 2001. Chase's principal assets are a protocol of agreement dated November 1, 2001 with The National Holding Company UzbekNefteGaz and the rights stemming from such protocol of agreement.

Certain statements in this material may be "forward-looking statements" including outlook on oil and gas prices, estimates of future production, estimated completion dates of acquisitions and construction and development projects, business plans for drilling and exploration, estimated amount and timing of capital expenditures and anticipated future debt levels and royalty rates. Information concerning reserves contained in this material may also be deemed forward-looking statements as such estimates involve the implied assessment that the resources described can be profitably produced in the future. These statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated by Arsenal.

The TSX and the Frankfurt Exchange do not accept responsibility for the adequacy or accuracy of this release.

Contact Information