Daylight Energy Trust
TSX : DAY.DB
TSX : DAY.UN

Daylight Energy Trust
TEMPEST ENERGY CORP.
TSX : TMY.A
TSX : TMY.B

TEMPEST ENERGY CORP.

September 26, 2005 08:00 ET

Daylight Energy Trust and Tempest Energy Corp. Announce Strategic Arrangement

CALGARY, ALBERTA--(CCNMatthews - Sept. 26, 2005) - Daylight Energy Trust (TSX:DAY.UN)(TSX:DAY.DB) and Tempest Energy Corp. (TSX:TMY.A)(TSX:TMY.B)



- DAYLIGHT TO ACQUIRE TEMPEST
- DAYLIGHT / TEMPEST / EXPLORECO
- DAYLIGHT RAISES MONTHLY DISTRIBUTIONS FROM $0.12 TO $0.14
- DAYLIGHT PROVIDES 2006 GUIDANCE

Daylight Energy Trust ("Daylight") (TSX:DAY.UN)(TSX:DAY.DB) and Tempest
Energy Corp. ("Tempest") (TSX:TMY.A)(TSX:TMY.B) are pleased to announce
that their respective Boards of Directors have unanimously approved an
agreement (the "Agreement") providing for the acquisition of Tempest by
Daylight by way of a Plan of Arrangement, as well as the creation of a
publicly listed growth-oriented junior exploration company ("ExploreCo")
for the benefit of both Daylight securityholders and Tempest
shareholders. Subsequent to the acquisition, certain exploratory oil
assets of Tempest in the Red Earth area will be sold to Midnight Oil
Exploration Ltd. ("Midnight") (TSX:MOX).

Acquisition Highlights:

Competitive net cost, high value production, large operated prospect
inventory

- Acquisition cost of $100 million net of $46 million property
disposition to Midnight
- Acquisition cost includes $14 million undeveloped land value for
Daylight;

- Current production of 2,300 boe per day
- 1,350 barrels per day high value light and medium oil (58%)
- 5,750 mmcf per day sweet gas (42%);

- Focused in two large contiguous operating areas
- Chipman/Norris - medium gravity oil and sweet gas development
potential
- Red Earth - light oil development opportunity;

- Over 90% owned and operated assets;

- Proved plus probable reserves of 5.8 million boe;

- Attractive acquisition metrics, net of undeveloped land value and
disposition proceeds
- $37,400 per flowing boe per day
- $14.80 per proved plus probable boe of reserves
- Cost of less than 3 times cash flow;

- Adds 70 gross (62 net) low risk drilling locations;

- Adds over 117,000 gross (115,000 net) undeveloped acres;

- Increases Daylight's enterprise value to over $900 million;

- Accretive on a per unit basis
- Production (4%)
- Cash flow (6%)
- Debt net of working capital reduced (14%)
- Undeveloped land (24%).

ExploreCo Highlights:

Gas focused, growth oriented, high potential junior exploration company

- Current production of 400 boe per day
- 95% natural gas;

- Focused in concentrated areas located in West 5;

- High working interest operated production;

- Over 1 million boe of proved plus probable reserves;

- Over 35,000 gross (19,800 net) undeveloped acres;

- An additional 88,000 gross (72,000 net) undeveloped acres under
seismic review option;

- Anticipated production adds of 300 boe per day by year end at
Ansell/Sundance;

- Additional drill ready high impact prospects;

- ExploreCo will be led by Mr. Scott Dawson and the existing Tempest
management team.

Acquisition of Tempest Shares

Tempest shares exchanged for Daylight Trust Units and share of new
ExploreCo

Under the terms of the Agreement, one Daylight trust unit will be issued
for every 2.35 Class 'A' shares of Tempest. Based on the 20-day weighted
average trading price for Daylight, the exchange ratio reflects a price
of $5.01 per diluted Tempest Class 'A' share outstanding, excluding the
value of ExploreCo. This represents a 24% premium over Tempest's 20-day
weighted average trading price of $4.04 per share. Tempest shareholders
will also receive shares in an ExploreCo to be formed from certain
assets contributed by Daylight and Tempest. The Class 'B' shares of
Tempest will be converted into Class 'A' shares in accordance with their
terms prior to completion of the arrangement.

ExploreCo Creation by Daylight and Tempest

Accretive and creative transaction for the benefit of securityholders

A new, publicly listed, junior growth-oriented exploration company
("ExploreCo") with approximately 400 boe per day of primarily natural
gas production focused in the West 5 area will be created for the
benefit of Daylight and Tempest with Daylight securityholders receiving
65% of the initial equity and Tempest shareholders receiving the
remaining 35% of the initial equity. The assets in ExploreCo will be
contributed from current Daylight and Tempest assets. Under the
Agreement, Daylight securityholders and Tempest shareholders will also
receive pro-rata arrangement warrants to purchase an additional 20%
interest in ExploreCo beyond the initial equity received, at net asset
value. The current Tempest management team will lead ExploreCo.

Monthly Distributions Increase from $0.12 to $0.14 per unit

Acquisition and strong commodity prices provide impetus for distribution
increase

In conjunction with this acquisition, Daylight is today announcing its
intention to increase its monthly distributions from $0.12 per unit to
$0.14 per unit, effective for the October 31, 2005 record date
distribution payable November 15, 2005. This increase is reflective of
the accretive nature of this acquisition, coupled with the strong
commodity price environment. Daylight is confident of the sustainability
of this increase in distribution rate. The stability of ongoing
distributions is increased through Daylight's comprehensive development
program and its conservative payout ratio.

Disposition of Tempest's Exploratory Assets

Daylight to sell exploratory land and prospects at Red Earth to Midnight

Daylight and Midnight have entered into an agreement pursuant to which
Midnight will acquire approximately 600 boe per day of current
production as well as undeveloped exploratory land and seismic in the
Red Earth area that is currently owned by Tempest. This divestiture to
Midnight for cash consideration of $46 million will be effective
October 1, 2005 and will be subject to adjustment for activities from
the effective date to closing date. These assets to be sold to Midnight
are exploratory in nature and have significant capital requirements. The
disposition will have the effect of improving the acquisition metrics of
the Tempest acquisition and the per unit accretion figures, and results
in a capital expenditure program and risk profile more suited for a
Trust.

Midnight and Daylight operate under an Administrative and Technical
Services Agreement. The evaluation of Tempest was done jointly and the
properties and opportunities allocated to the respective parties
consistent with their respective business strategies. To maintain
Daylight's high standards of Corporate Governance, a "Special Committee"
comprised of all of the independent directors of Daylight was formed to
review the transaction with Midnight and ensure the transaction was
fair, reasonable and considered the continued longer term success of
Daylight from a financial and competitive perspective.

Securityholder Meetings and Approvals

Completion of the various transactions are subject to regulatory
approval, the requisite approval of the Tempest shareholders and the
requisite approval of the securityholders of Daylight. It is expected
that the applicable securityholder meetings relating to such approvals
will be held on or about November 28, 2005 with closing occurring by the
end of November, 2005, which would allow Tempest shareholders to receive
the November 30, 2005 record date trust unit distribution. An
information circular in respect of the transaction is expected to be
mailed in late October, 2005.

Financial Advisors

Canaccord Capital Corporation is acting as financial advisor to the
Daylight Special Committee. Mustang Capital Partners Inc. is acting as
financial advisor to Daylight. GMP Securities Inc. is acting as
financial advisor to Tempest.

Benefits of the Acquisition

Expanded multi year drill ready development prospect inventory

The Tempest acquisition allows both Daylight unitholders and Tempest
shareholders to participate in a stronger, well capitalized trust.
Daylight will continue to have a balanced portfolio of low risk
internally generated drilling prospects and will be well-positioned to
add significant unitholder value. Furthermore, Daylight will continue to
provide excellent financial flexibility through a conservative payout
ratio.

Upon closing, after giving effect to the transfer of assets to ExploreCo
and the disposition of certain exploratory assets to Midnight, Daylight
will have the following key operating and financial characteristics:

- Increased monthly distributions from $0.12 per unit to $0.14 per unit
- Representing a 17% increase;

- Estimated 2006 production of approximately 17,000 boe per day,
post-divestment of 400 boe per day to ExploreCo and disposition to
Midnight, with balanced commodity mix
- 58% natural gas
- 42% crude oil;

- Annualized cash flow of approximately $185 million based on
conservative internal assumptions
- US$55 per barrel WTI crude oil
- $9.50 per mcf AECO natural gas
- US$0.85 exchange rate
- High production netback of $33 per boe
- Commodity price assumptions are conservative relative to current
analyst consensus
- Cash flow price sensitivity of:
- $2.0 million per US$1.00 change in WTI
- $4.3 million per $0.25 change in natural gas price per mcf at
AECO;

- No hedging in place for 2006 allows full participation in the current
strong commodity price environment
- Current 2006 forward strip:
- US$65 per barrel WTI crude oil
- $11.50 per mcf AECO natural gas;

- A strong balance sheet with significant financial flexibility
- bank debt, net of working capital deficiency, to forward cash flow
ratio of approximately 0.8 times;

- An independently engineered reserve base of 35 million boe proved and
49 million boe proved plus probable generating a proved plus probable
RLI of 8 years;

- On a pro-forma debt-adjusted basis, an accretive transaction
- Production (4%)
- Cash flow (6%)
- Debt net of working capital reduced (14%)
- Undeveloped land (24%);

- Excellent acquisition metrics, excluding land costs, in a competitive
environment
- Reserve cost of under $15 per boe, proved plus probable
- Production cost of approximately $37,400 per flowing boe per day;

- Increased enterprise value of over $900 million
- Projected market capitalization of $770 million, including
convertible debentures
- Estimated debt net of working capital deficiency of $150 million
- Enhanced liquidity
- More competitive cost of capital
- Improved financial flexibility;

- Basic units outstanding to 59.0 million (including exchangeables) and
on a fully diluted basis, 65.3 million units outstanding (including
the convertible debentures);

- A payout ratio of 56% basic (60% fully diluted) - which is a
continuation of Daylight's current pay-out ratio and provides
increased flexibility and greater stability of distributions going
forward;

- Greater stability for delivering distributions to unitholders as cash
flow will be generated from a larger suite of diversified, high
quality, oil and natural gas assets;

- Addition of two new focused properties within our core areas and
minimal incremental G&A
- Chipman/Norris - medium gravity oil and sweet gas development
potential
- Red Earth - light oil development opportunity;

- A large undeveloped land base of more than 500,000 net acres;

- An expanded 2005 capital expenditure budget of $70 million and 2006
preliminary capital expenditure budget of $80 million to pursue
internally identified development drilling prospects and opportunities
on Daylight's significant undeveloped land holdings;

- Multi-year drilling inventory of 270 gross (212 net) low risk
locations;

- The leverage of in-house high end value added technical skills over a
larger asset base to achieve operating efficiencies and to increase
the identification of internal drilling opportunities;

- Estimated distribution taxability of 70% in 2005 and 85% in 2006.

ExploreCo - Poised For Growth

Led by experienced and proven exploration management team

A new, publicly listed, junior growth-oriented exploration company
("ExploreCo") with approximately 400 boe per day of primarily natural
gas production, access to approximately 92,000 net acres of undeveloped
land and focused in the West 5 area will be created for the benefit of
Daylight and Tempest with Daylight securityholders receiving 65% of the
initial equity and Tempest shareholders receiving the remaining 35% of
the initial equity. The assets in ExploreCo will be contributed from
current Daylight and Tempest assets. Under the Agreement, Daylight
securityholders and Tempest shareholders will also receive pro-rata
arrangement warrants to purchase an additional 20% interest in ExploreCo
beyond the initial equity received, at net asset value. The current
Tempest management team will lead ExploreCo.

The ExploreCo assets will be a combination of assets currently held by
Daylight and Tempest. Commensurate with Daylight's previous announced
intention to spin-out an ExploreCo, Daylight will contribute West 5
production, reserves and undeveloped land from its Big Bend, Ferrier,
Garrington and Pembina areas. Tempest will contribute its high impact
Ansell/Sundance asset in West Central Alberta where Tempest has recently
been very active. In addition, Daylight has agreed to grant ExploreCo
seismic review options in several non-core areas of West Central
Alberta.

ExploreCo will be poised for significant growth from its multiple
locations identified in the Ansell/Sundance area. This area is in the
centre of a significant multi-zone production and exploration fairway.
ExploreCo will be an active land acquirer and driller in this area. The
Ansell/Sundance interest will be well-balanced with the current cash
flow and production provided by the assets being contributed from
Daylight.

Key operating and financial information regarding ExploreCo are as
follows:

- Reserves of 803,000 boe proved and 1,031,000 boe proved plus probable,
excluding non-producing reserves at Ansell/Sundance;

- Reserve values (PV10%) of $14.5 million proved and $16.7 million
proved plus probable, based on an independent July, 2005 reserve
report which excludes non-producing reserves at Ansell/Sundance;

- Current production of 400 boe per day
- Production adds expected at Ansell/Sundance
- Production expected to increase to 700 boe per day by year end;

- No Debt;

- Net undeveloped land of 19,800 acres, with seismic review options on
an additional 72,000 undeveloped net acres;

- Full tax pool coverage.

The ExploreCo management team will include the following:

A. Scott Dawson, President & CEO
Gerald R. Costigan, VP Exploration
Douglas N. Penner, VP Finance & CFO
Jamie Beninger, VP Land
John Mueller, VP Engineering & Operations

This proven executive team and dedicated employees have been primarily
responsible for growing Tempest from a start-up with no production or
reserves to Tempest's current portfolio of high quality producing
properties which was accomplished almost exclusively with the drill bit
on internally generated opportunities.

The ExploreCo Board of Directors shall include the following industry
professionals:

A. Scott Dawson
Ken Faircloth
Harley Winger
Ken Woolner

ExploreCo will assume a capital expenditure program of approximately
$5 million for the remainder of 2005. A private placement of shares to
the ExploreCo management team raising total proceeds of $6.2 million,
based on the independently engineered net asset value of the ExploreCo,
will also be undertaken. Arrangement warrants allocated to Daylight
securityholders and Tempest shareholders which are priced at net asset
value are expected to provide a further $5.2 million to ExploreCo if
fully exercised. Combining the proposed initial private placement and
arrangement warrants with internally generated cash flow, ExploreCo will
be well positioned to aggressively pursue and expand its asset base and
certain exploratory initiatives, which are currently underway.

Board's of Directors Recommendations and Tempest Fairness Opinion

The Board's of Directors of both Daylight and Tempest have unanimously
approved the transaction. GMP Securities Inc. has provided Tempest's
Board of Directors with its opinion that the consideration to be
received by Tempest shareholders is fair, from a financial point of
view. The Tempest Board has concluded that the transaction is in the
best interests of its shareholders, and has resolved to recommend that
the Tempest shareholders vote their Tempest shares in favour of the
proposed transaction. The management and Board of Directors of Tempest
beneficially owning 12% of the Class 'A' shares of Tempest have agreed
to vote their Tempest securities in favour of the proposed transaction.

Non-Solicitation and Non-Completion Fee

Tempest has also agreed that it will not solicit or initiate any
discussions concerning the sale of material assets or any other business
acquisition. Tempest and Daylight have agreed to pay a non-completion
fee of $4 million to their respective counterparts in certain
circumstances.

FORWARD-LOOKING STATEMENTS Certain information set forth in this
document, including management's assessment of Daylight's, Tempest's and
ExploreCo's future plans and operations, contain forward-looking
statements. By their nature, forward-looking statements are subject to
numerous risks and uncertainties, some of which are beyond these
parties' control, including the impact of general economic conditions,
industry conditions, volatility of commodity prices, currency
fluctuations, imprecision of reserve estimates, environmental risks,
competition from other industry participants, the lack of availability
of qualified personnel or management, stock market volatility and
ability to access sufficient capital from internal and external sources.
Readers are cautioned that the assumptions used in the preparation of
such information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on forward-looking statements. Daylight's,
Tempest's and ExploreCo's actual results, performance or achievements
could differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly, no assurance can be given
that any of the events anticipated by the forward-looking statements
will transpire or occur, or if any of them do so, what benefits that
Daylight, Tempest or ExploreCo will derive therefrom. Daylight and
Tempest each disclaim any intention or obligation to update or review
any forward-looking statements, whether as a result of new information,
future events or otherwise.

Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000
cubic feet of natural gas. Boe's may be misleading, particularly if used
in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of
natural gas is based on an energy equivalency conversion primarily
applicable at the burner tip and does not represent a value equivalency
at the wellhead.

This press release shall not constitute an offer to sell or the
solicitation of an offer to buy the securities in any jurisdiction. The
securities 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 may 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. This news release is not for distribution in the United States.


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

Contact Information

  • Daylight Energy Trust
    Fred Woods
    Executive Chairman
    (403) 303-8505 or Toll free (877) 266-6901
    (403) 266-6988 (FAX)
    fwoods@daylightenergy.ca
    or
    Daylight Energy Trust
    Steve Nielsen
    CFO
    (403) 213-5312 or Toll free (877) 266-6901
    (403) 266-6988 (FAX)
    snielsen@daylightenergy.ca
    or
    Daylight Energy Trust
    Scott Daniel
    Manager Investor Relations and Treasury
    (403) 218-6885 or Toll free (877) 266-6901
    (403) 266-6988 (FAX)
    sdaniel@daylightenergy.ca
    or
    Tempest Energy Corp.
    Scott Dawson
    President and CEO
    (403) 205-3704
    (403) 262-3924 (FAX)
    sdawson@tempestenergy.com