Desco Energy Ltd.
TSX VENTURE : DSE

Arcan Resources Ltd.

Arcan Resources Ltd.

November 16, 2006 19:05 ET

Desco Energy Ltd. and Arcan Resources Ltd. Summary of Reserves Data

CALGARY, ALBERTA--(CCNMatthews - Nov. 16, 2006) - Desco Energy Ltd. (TSX VENTURE:DSE) ("Desco") and Arcan Resources Ltd. ("Arcan"), in connection with the previously announced reverse take-over (the "RTO") of Desco by Arcan pursuant to TSX Venture Exchange ("TSXV") Policy 5.2, have each obtained a report with respect to their respective "reserves data" from an independent "qualified reserves evaluator" within the meaning of National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities.

Reserves Data for Desco

GLJ Petroleum Consultants Ltd. ("GLJ"), independent petroleum engineers of Calgary, Alberta prepared a Reserves Assessment and Evaluation of Canadian Oil and Gas Properties - Corporate Summary dated July 12, 2006 of Desco's oil and gas reserves (the "GLJ Desco Report") which evaluation is effective March 31, 2006. The numbers set out herein in respect of Desco's reserves may vary slightly from those presented in the GLJ Desco Report due to rounding.



The following table summarizes Desco's oil and gas reserves as of March 31,
2006 based on constant price and cost assumptions:

---------------------------------------------------------------------------
SUMMARY OF OIL AND GAS RESERVES
as of March 31, 2006
CONSTANT PRICES AND COSTS
---------------------------------------------------------------------------
Reserves
---------------------------------------------------------------------------
Natural
Light and Gas (non- Natural
Medium associated & Gas Oil
Oil associated) Liquids Equivalent
---------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net
Reserves Category (Mbbl) (Mbbl) (MMcf) (MMcf) (Mbbl) (Mbbl) (Mbbl) (Mbbl)
---------------------------------------------------------------------------

PROVED
Developed
Producing 31 24 348 241 11 8 101 72
Developed
Non-Producing 0 0 7 6 0 0 1 1
Undeveloped 0 0 0 0 0 0 0 0
---------------------------------------------------------------------------
TOTAL PROVED 31 24 355 246 11 8 102 73
---------------------------------------------------------------------------
PROBABLE 25 19 207 149 11 8 71 52
---------------------------------------------------------------------------
TOTAL PROVED PLUS
PROBABLE 57 44 563 395 22 16 173 125
---------------------------------------------------------------------------

Notes:
(1) Estimates of reserves of natural gas include associated and non-
associated gas.
(2) "Gross Reserves" are Desco's working interest share of remaining
reserves before the deduction of royalties.
(3) "Net Reserves" are Desco's working interest share of remaining
reserves less all Crown, freehold, and overriding royalties and
interests owned by others.


The following table summarizes the undiscounted value and the present value, discounted at 5%, 10%, 15% and 20%, of Desco's estimated future net revenue based on constant price and cost assumptions as of March 31, 2006:




---------------------------------------------------------------------------
SUMMARY OF NET PRESENT VALUES OF
FUTURE NET REVENUE
as of March 31, 2006
CONSTANT PRICES AND COSTS
---------------------------------------------------------------------------
BEFORE INCOME TAXES AFTER INCOME TAXES
DISCOUNTED AT (%/year) DISCOUNTED AT (%/year)
---------------------------------------------------------
Reserves
Category 0 5 10 15 20 0 5 10 15 20
(M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$)
---------------------------------------------------------------------------
PROVED
Developed
Producing 3,333 2,943 2,649 2,418 2,232 2,696 2,399 2,174 1,997 1,854
Developed
Non-Producing 29 27 25 23 21 29 27 25 23 21
Undeveloped 0 0 0 0 0 0 0 0 0 0
---------------------------------------------------------------------------
TOTAL PROVED 3,362 2,970 2,673 2,441 2,253 2,725 2,426 2,198 2,020 1,876
---------------------------------------------------------------------------
PROBABLE 2,450 1,899 1,529 1,266 1,072 1,665 1,290 1,038 859 727
---------------------------------------------------------------------------
TOTAL PROVED
PLUS PROBABLE 5,812 4,870 4,203 3,707 3,325 4,389 3,715 3,236 2,879 2,603
---------------------------------------------------------------------------


In the GLJ Desco Report, GLJ employed the following pricing, exchange rate and inflation rate assumptions as of March 31, 2006 in estimating Desco's reserves data using constant prices and costs:




---------------------------------------------------------------------------
SUMMARY OF PRICING ASSUMPTIONS
as of March 31, 2006
CONSTANT PRICES AND COSTS
---------------------------------------------------------------------------
OIL(1) NATURAL GAS(1)
---------------------------------------------------------------------------
Hardisty Cromer
Bow River Edmonton Medium Alberta
WTI 24.9 Par Price 29.3 AECO-C Reference
Cushing degrees 40 degrees degrees Gas Price Plantgate
Oklahoma API API API ($Cdn/mm ($Cdn/mm
Year ($US/Bbl) ($Cdn/Bbl) ($Cdn/Bbl) ($Cdn/Bbl) btu) btu)
---------------------------------------------------------------------------
2006 66.63 49.09 73.57 53.11 6.66 6.46
---------------------------------------------------------------------------

---------------------------------------------------------------------------
NATURAL GAS LIQUIDS
---------------------------------------------------------------------------
Edmonton
Edmonton Edmonton Pentanes Exchange
Propane Butanes Plus Rate(2)
Year ($Cdn/Bbl) ($Cdn/Bbl) ($Cdn/Bbl) ($US/$Cdn)
---------------------------------------------------------------------------
2006 47.08 54.44 72.81 0.8568
---------------------------------------------------------------------------

Notes:

(1) This summary table identifies benchmark reference pricing schedules
that might apply to a reporting issuer.
(2) The exchange rate used to generate the benchmark reference prices in
this table.


Reserves Data for Arcan

GLJ, independent petroleum engineers of Calgary, Alberta prepared a Reserves Assessment and Evaluation of Canadian Oil and Gas Properties - Corporate Summary dated September 25, 2006 of Arcan's oil and gas reserves (the "GLJ Arcan Report") which evaluation is effective June 30, 2006. The numbers set out herein in respect of Arcan's reserves may vary slightly from those presented in the GLJ Arcan Report due to rounding.

Arcan's reserves in the following tables include a 75.8% interest in Deer Mountain Unit #2 (the "Deer Mountain Unit") as well as an accrued $11.7 million for the purchase of a 65.4% interest in the Deer Mountain Unit. At June 30, 2006 Arcan only held a 10.4% interest in the Deer Mountain Unit for accounting purposes, even though it had given notice on June 30, 2006 to exercise its option to purchase an additional 65.4% interest therein. Arcan closed the purchase of the additional 65.4% interest in the Deer Mountain Unit on August 25, 2006 for $10 million.

The following table summarizes Arcan's oil and gas reserves as of June 30, 2006 based on constant price and cost assumptions:




---------------------------------------------------------------------------
SUMMARY OF OIL AND GAS RESERVES
as of June 30, 2006
CONSTANT PRICES AND COSTS
---------------------------------------------------------------------------
Reserves
---------------------------------------------------------------------------
Natural
Light and Gas (non- Natural
Medium associated & Gas Oil
Oil associated) Liquids Equivalent
---------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net
Reserves Category (Mbbl) (Mbbl) (MMcf) (MMcf) (Mbbl) (Mbbl) (Mbbl) (Mbbl)
---------------------------------------------------------------------------
PROVED
Developed
Producing 1,247 1,044 1,656 1,141 45 31 1,568 1,265
Developed
Non-Producing 170 116 576 331 1 1 267 172
Undeveloped 0 0 0 0 0 0 0 0
---------------------------------------------------------------------------
TOTAL PROVED 1,417 1,160 2,232 1,472 46 32 1,835 1,437
---------------------------------------------------------------------------
PROBABLE 724 589 1,448 994 52 36 1,017 791
---------------------------------------------------------------------------
TOTAL PROVED PLUS
PROBABLE 2,141 1,749 3,680 2,467 98 68 2,852 2,228
---------------------------------------------------------------------------

Notes:
(1) Estimates of reserves of natural gas include associated and non-
associated gas.
(2) "Gross Reserves" are Arcan's working interest share of remaining
reserves before the deduction of royalties.
(3) "Net Reserves" are Arcan's working interest share of remaining reserves
less all Crown, freehold, and overriding royalties and interests owned
by others.


The following table summarizes the undiscounted value and the present value, discounted at 5%, 10%, 15% and 20%, of Arcan's estimated future net revenue based on constant price and cost assumptions as of June 30, 2006 (including a 75.8% interest in the Deer Mountain Unit):



---------------------------------------------------------------------------
SUMMARY OF NET PRESENT VALUES OF
FUTURE NET REVENUE
as of June 30, 2006
CONSTANT PRICES AND COSTS
---------------------------------------------------------------------------
BEFORE INCOME TAXES AFTER INCOME TAXES
DISCOUNTED AT (%/year) DISCOUNTED AT (%/year)
-------------------------------------------------------------
Reserves
Category 0 5 10 15 20 0 5 10 15 20
(MM$) (MM$) (MM$) (MM$) (MM$) (MM$) (MM$) (MM$) (MM$) (MM$)
---------------------------------------------------------------------------
PROVED
Developed
Producing 54.1 36.6 26.5 20.1 15.9 46.7 32.8 24.4 18.9 15.0
Developed
Non-Producing 11.7 7.7 5.6 4.3 3.4 8.3 5.3 3.9 3.1 2.5
Undeveloped 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------
TOTAL PROVED 65.9 44.3 32.1 24.5 19.3 55.0 38.2 28.3 21.9 17.5
---------------------------------------------------------------------------
PROBABLE 39.7 24.8 17.2 12.7 9.7 26.8 16.8 11.7 8.6 6.5
---------------------------------------------------------------------------
TOTAL PROVED
PLUS PROBABLE 105.5 69.1 49.3 37.1 29.0 81.8 55.0 40.0 30.5 24.0
---------------------------------------------------------------------------


In the GLJ Arcan Report, GLJ employed the following pricing, exchange rate and inflation rate assumptions as of June 30, 2006 in estimating Arcan's reserves data using constant prices and costs:



---------------------------------------------------------------------------
SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS
AS OF JUNE 30, 2006
CONSTANT PRICES AND COSTS
---------------------------------------------------------------------------
OIL GAS NATURAL GAS LIQUIDS
---------------------------------------------------------------------
Edmonton
Par Price Edmonton Edmonton Edmonton
WTI 40 Natural Pentanes Butanes Propane
Cushing degrees Gas(1) Plus FOB FOB FOB Field
Oklahoma API AECO Price Field Gate Field Gate Gate
Year ($US/Bbl) ($Cdn/Bbl) ($Cdn/MM Btu) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/Bbl)
---------------------------------------------------------------------------
Year
ended
June
2006 73.93 85.28 5.33 89.04 63.11 52.02
---------------------------------------------------------------------------

---------------------------------------------------------------------------
INFLATION
---------------------------------------------------------------------------
Inflation Exchange
Rate(2) Rate(3)
Year (% Yr) ($US/Cdn)
---------------------------------------------------------------------------
Year
ended
June
2006 0.00 0.8969
---------------------------------------------------------------------------

Notes:
(1) Summary table identifies benchmark reference pricing schedules that may
apply to a reporting issuer.
(2) Inflation rated for forecasting prices and costs.
(3) Exchange rates used to generate the benchmark reference prices in this
table.


The TSXV has advised Desco that trading in the common shares of Desco will remain halted pending the filing of certain documentation with the TSXV.

Completion of the transaction is subject to a number of conditions, including TSXV acceptance and disinterested Desco and Arcan shareholder approval. The RTO cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the joint management information circular to be prepared in connection with the transaction, any information released or received with respect to the RTO may not be accurate or complete and should not be relied upon. Trading in the securities of Desco should be considered highly speculative.

The TSXV has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Where amounts are expressed on a barrel of oil equivalent basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel. The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The disclosure of estimates of future net revenue and the before income taxes and after income taxes values thereof set out in this press release are estimated values only and do not represent the fair market value of the subject oil and gas reserves.

Advisory Regarding Forward-Looking Statements

Certain information with respect to Desco and Arcan contained herein, including their respective assessments of future plans and operations, contain forward-looking statements. These forward-looking statements are based on assumptions and are subject to numerous risks and uncertainties, certain of which are beyond Desco's and Arcan's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency exchange rate fluctuations, imprecision of reserve estimates, environmental risks, competition from other explorers, stock market volatility and ability to access sufficient capital. As a result, Desco's and Arcan's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur. In addition, the reader is cautioned that historical results are not necessarily indicative of future performance.

Contact Information

  • Desco Energy Ltd.
    Robert J. Dales
    President and CEO
    (403) 690-3884
    Email: bobdales@telus.net
    or
    Desco Energy Ltd.
    1000 Canterra Tower 400 - Third Avenue S.W.
    Calgary, Alberta T2P 4H2
    or
    Arcan Resources Ltd.
    Douglas Penner
    Vice President, Finance and CFO
    (403) 262-0321
    Email: dpenner@arcanres.com
    or
    Arcan Resources Ltd.
    Suite 3200, 450 - 1st Street S.W.
    Calgary, Alberta T2P 5H1
    (403) 262-4636
    (403) 262-4636 (FAX)