Desco Energy Ltd.

April 11, 2006 16:38 ET

Desco Energy Ltd. Enters Into Agreement to Acquire Assets and Provides Operations Update

CALGARY, ALBERTA--(CCNMatthews - April 11, 2006) -

McLeod Area Acquisition

Desco Energy Ltd. (TSX VENTURE:DSE) ("Desco" or the "Corporation") has entered into an Agreement of Purchase and Sale among Colchester Energy Ltd. ("Colchester"), as vendor, Desco, as purchaser, and Robert Dales, Darrin Hopkins, Anthony Kinnon, Gordon Salomons and Neil Sinclair, as beneficiaries (collectively, the "Beneficiaries") whereunder Desco will purchase, effective as of April 1, 2006, working interests in and to certain petroleum and natural gas rights and related interests located in the McLeod area of Alberta (collectively, the "McLeod Assets"). Colchester acquired the McLeod Assets as trustee for and on behalf of the Beneficiaries, pursuant to three participation agreements entered into between Colchester and Arcan Resources Ltd. ("Arcan"). The McLeod Assets to be acquired by Desco are comprised of working interests of between 7% and 15% in six sections of land, upon which are located three wells, two of which are producing gas wells and the third well is standing cased.

Colchester is a private Alberta corporation, the sole shareholder, officer and director of which is William Guinan. Mr. Guinan is also an officer and a director of Desco. Each of Robert Dales, William Guinan, Gordon Salomons and Neil Sinclair is a director of Desco and each of Mr. Dales, Mr. Guinan and Mr. Sinclair is also an officer of Desco.

The purchase price to be paid by Desco to Colchester, as trustee for the Beneficiaries, is $584,00 and is to be paid in cash. The amount of the purchase price represents the aggregate participation costs incurred by the Beneficiaries, on an estimated after tax basis, in respect of the McLeod Assets, which amount is less than the net present value (before taxes, discounted at 10%) of the proved plus probable reserves attributed to the McLeod Assets as determined by an independent third party evaluation, effective as of March 31, 2006, provided to Desco by AJM Petroleum Consultants of Calgary, Alberta. No finder's fee is to be paid in connection with the proposed asset acquisition.

The closing of the acquisition of the McLeod Assets by Desco is subject to the usual conditions applicable to an acquisition of petroleum and natural gas rights and related interests as well as the approval of Desco's acquisition of the McLeod Assets by the TSX Venture Exchange. The purpose and business reasons for the acquisition of the McLeod Assets include the combining of the McLeod Assets with other petroleum and natural gas interests held by Desco and which have previously been acquired by Desco through participation arrangements with Arcan. In addition, substantially all of Desco's existing petroleum and natural gas rights are operated by Arcan. The anticipated effect of the acquisition of the McLeod Assets is to provide additional production revenue and resultant cash flow to Desco, to add to Desco's land base and to thereby facilitate future exploration and production opportunities.

Hamburg Area Operations Update

Desco is pleased to announce preliminary results of the Hamburg area winter drilling program in which Desco participated pursuant to its previously announced Qualifying Transaction. Desco participated in the drilling of five wells in the Hamburg area of Alberta. Two of the wells have commenced production from the Slave Point formation. One well has been completed in the Bluesky formation but will not commence production until after break-up. It is intended that the remaining two wells that were uneconomic in the Slave Point formation will be completed in uphole formations next winter. Based on these results the Corporation is anticipating participating in the drilling of four to six Slave Point wells and a minimum of two Bluesky wells next winter. Further disclosure on the discovery wells is expected to be forthcoming after reservoir tests are completed during the next 120 days of production.

Forward Looking Statements:

Certain information set forth in this news release contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Desco's 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. Desco'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 of the events anticipated by the forward-looking statements will transpire or occur, of if any of them do so what benefits Desco will derive therefrom. Desco disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Desco Energy Ltd. is an emerging Alberta based public corporation actively engaged in the exploration, development and production of crude oil and natural gas in Western Canada.

The TSX Venture Exchange Does Not Accept Responsibility for the Adequacy or Accuracy of this Press Release.

Contact Information

  • Desco Energy Ltd.
    Mr. Robert J. Dales
    President and Chief Executive Officer
    (403) 803-3884