Arsenal Energy Inc.

Arsenal Energy Inc.
Quadra Resources Corp.

Quadra Resources Corp.

June 20, 2005 21:41 ET

Arsenal Enters Into Agreement To Acquire Quadra Resources Corp.

CALGARY, ALBERTA--(CCNMatthews - June 20, 2005) - Arsenal Energy Inc. ("Arsenal") (TSX VENTURE:AEI) and Quadra Resources Corp. ("Quadra") (CNQ:QDRA.U)(FRANKFURT:QR1) are pleased to announce that they have entered into an agreement whereby Arsenal will acquire all of the issued and outstanding securities of Quadra (the "Transaction"). The Transaction is expected to be completed by way of Plan of Arrangement (the "Arrangement") and has been unanimously approved and recommended by the Board of Directors of both Arsenal and Quadra. The Transaction is anticipated to close August 15, 2005.

Under the terms of the Transaction, Quadra shareholders will receive 0.025 of an Arsenal common share for each one (1) Quadra share; Quadra warrantholders will receive 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 will receive 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 Transaction as aforesaid, Arsenal will have outstanding approximately 30.7 million shares (36.9 million on a fully diluted basis), approximately 920,000 Arsenal purchase warrants at a weighted average strike price of CDN$6.20 per warrant and approximately 95,000 Arsenal broker warrants at a weighted average strike price of CDN$5.50 per broker warrant. The last of the purchase warrants will expire in April, 2006 and the last of the broker warrants will expire in February, 2006. It is a condition to the completion of the Transaction that all outstanding options and debentures to acquire Quadra shares shall have been exercised, converted, cancelled or otherwise terminated.

Arsenal will retain Wellington West Capital Inc. to provide a fairness opinion to the Arsenal board with respect to the fairness, from a financial point of view, of the Transaction to Arsenal shareholders.

Bolder Investment Partners Ltd. will be retained by Quadra to provide a fairness opinion to the Quadra board with respect to the fairness, from a financial point of view, of the Transaction to Quadra shareholders.

The Transaction will require the approval of 66 2/3% of the votes cast by Quadra shareholders, warrantholders, and broker warrantholders voting at a meeting of Quadra security holders to be called to consider the Transaction. The proposed Transaction will as also require Court of Queen's Bench of Alberta and other regulatory and stock exchange approval and the satisfaction of a number of standard conditions. Quadra management and directors and shareholders holding 17% of the shares and warrants of Quadra have agreed to enter into lockup agreements pursuant to which they will agree to irrevocably vote in favor of the Transaction. In addition management has agreed to obtain agreements additional shareholders holding 23% of the shares of Quadra to enter into lockup agreements pursuant to which they will agree to irrevocably vote in favor of the Arrangement. The Board of Directors of Quadra have agreed that Quadra will not solicit or initiate discussions or negotiations with third parties for any business combination involving Quadra, and under defined circumstances have agreed to pay Arsenal a non-completion fee. Arsenal has also agreed to pay Quadra a break fee in certain circumstances.

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 will also acquire 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.

Proforma Highlights

Upon closing Arsenal will have the following key operating and financial characteristics:

- Production exceeding 2,000 barrels of oil equivalent per day after the close of previously announced property acquisition by Arsenal and resolution of current production issues, please refer to operational update for additional information

- 50,000 net acres of undeveloped land in Alberta and Saskatchewan, Canada

- 20,000 net acres of undeveloped land in North Dakota, United States

- 7,500,000 gross acres of undeveloped lands in Egypt, North Africa

- Protocol agreement in Uzbekistan

- 39.7 million shares outstanding fully diluted

Operational Update

Due to severe weather in the Lloydminster area during April and May, some of Arsenal's properties were shut in due to road bans, heavy rains and service rig availability.

Aggregate production from these properties were approximately 300 barrels of oil equivalent per day. Arsenal anticipates that these properties will be brought back on production throughout June and July as conditions permit.

In conjunction with the previously announced property acquisition, Arsenal will acquire approximately 350 barrels of oil equivalent per day on June 30, 2005, with an effective date of May 1, 2005. The company's 28 gross (12 net) well drilling program on these lands began in May and is scheduled to continue through October 2005.

Effective June 30, 2005, after giving effect to the transaction referenced above, Arsenal estimates that its production will be approximately 1,700 barrels of oil equivalent per day with an additional 300 barrels of oil equivalent per day shut in. Conditional upon weather and service rig availability, Arsenal anticipates this production to be brought back into production in July.


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

The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

The TSX Venture Exchange, CNQ nor the Frankfurt Exchange have not accept responsibility for the adequacy or accuracy of this release.

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