Drilcorp Energy Ltd.

Drilcorp Energy Ltd.

March 28, 2005 10:33 ET

Drilcorp Announces Letter of Intent With Milagro Energy


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: DRILCORP ENERGY LTD.

TSX VENTURE SYMBOL: DCL

MARCH 28, 2005 - 10:33 ET

Drilcorp Announces Letter of Intent With Milagro Energy

CALGARY, ALBERTA--(CCNMatthews - March 28, 2005) - Drilcorp Energy Ltd.
("Drilcorp" or the "Corporation") (TSX VENTURE:DCL) is pleased to
announce that it has entered into a letter of intent (the "LOI") for the
acquisition by Milagro Energy Inc. ("Milagro") (TSX:MIG), or a
wholly-owned subsidiary of Milagro, of all issued and outstanding shares
of Drilcorp by way of a takeover bid for $0.746 cash, subject to
adjustment, for each of the 45,882,084 fully diluted Drilcorp shares
(the "Offer"). The Offer represents an aggregate consideration of
$34,228,034 plus the assumption of Drilcorp's bank debt and working
capital deficiency currently estimated at $8,700,000. The Offer is
subject to adjustment as at March 31, 2005 for the Corporation's debt
and working capital deficiency, severance and related payments,
financial advisory fees and transaction costs as well as potential
adjustments relating to the outstanding legal actions commenced by Nova
Bancorp Investments Ltd. and certain members of Drilcorp's former
management (the "Nova Group"). If no additional negative adjustments are
required, the Offer represents a 73.5% premium over the closing trading
price of Drilcorp shares on March 24, 2005.

The Offer is subject to a number of conditions including final board
approval, waiver of a financing condition on or before April 1, 2005 and
completion of certain due diligence matters satisfactory to Milagro no
later than April 12, 2005. Drilcorp's management is highly confident
that its board of directors will approve the Offer at a Drilcorp board
meeting to be held later today.

Pursuant to the LOI, Drilcorp has agreed to provide lock-up agreements
from its management and certain of its directors in support of the
Offer. Assuming all conditions to the LOI are satisfied or waived by
Milagro or Drilcorp, as the case may be, it is anticipated that a
take-over bid circular will be mailed to Drilcorp shareholders on or
before April 15, 2005. The LOI provides for a break fee of $1.5 million
payable to Milagro in certain circumstances and in certain events,
Milagro would be obligated to pay a break fee of $1 million to Drilcorp.
Assuming a take-over bid circular is mailed to Drilcorp shareholders on
or about April 15, 2005, it is expected the Offer will expire on or
about Friday, May 20, 2005.

Collins Barrow Securities Inc. ("CB Securities") acted as financial
advisor to Drilcorp and conducted the sales process, which culminated in
the LOI. Darryl Derouin, President of CB Securities, has confirmed to
Drilcorp that CB Securities will be providing a written fairness opinion
to the board of directors confirming the fairness of the Offer to all
shareholders from a financial point of view. In commenting on the sales
process itself, Mr. Derouin observed that the Corporation's high quality
assets attracted many qualified bidders and a superior price for
Drilcorp's shareholders, notwithstanding the turmoil created by the Nova
Group. Morley Salmon, Chairman of Drilcorp, stated, "I am very pleased
that the sales process has created an opportunity of tremendous value
and a real choice for all Drilcorp shareholders and I sincerely hope
that the Nova Group fully endorses and supports the Offer and ceases all
of its counterproductive efforts to interfere with the sales process."
In this regard, Mr. Salmon noted that the Nova Group has suggested, on
numerous occasions, it intends to interfere with any offer arising from
the sales process as it attempts to deny shareholders any choice but to
accept an uncertain future under a regime determined by Nova. If the
Offer is mailed to Drilcorp shareholders under the LOI, there is
absolutely no reason for Drilcorp shareholders to vote for Nova's slate
of directors at the April 4th shareholders' meeting. In fact, Drilcorp
shareholders should be aware that a vote for Nova's slate of directors
may result in a withdrawal or termination of the Offer and would
undoubtedly impose additional costs on Drilcorp and its shareholders
because of the stated intention of the Nova Group to seek reimbursement
from the Corporation for the costs of conducting its improper
shareholders' meeting on February 17, 2005 and other legal actions
forced upon the Corporation and the majority directors of the Board.

As the April 4th shareholders' meeting is rapidly approaching, the
majority directors of Drilcorp's Board urge all Drilcorp shareholders to
vote with current management given the emergence of Milagro's premium
offer. Shareholders are urged to vote the BLUE proxy FOR Drilcorp's
current slate of directors for the Offer to proceed. For assistance with
voting your shares, please contact Wes Hall at the number below or Vito
Ciraco at (416) 867-2322, both of Kingsdale Shareholder Services Inc.

Drilcorp is a junior oil and gas company concentrating on acquiring and
exploiting lower risk natural gas properties in Alberta. The
Corporation's largest producing asset and facility is located at Jayar,
100 km south of Grande Prairie, Alberta.

Milagro is an exploration and production company engaged in the
acquisition, exploration, development and production of oil and gas
reserves in western Canada. The shares of Milagro are listed for trading
on the Toronto Stock Exchange.

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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Kingsdale Shareholder Services Inc.
    Wes Hall
    President
    (416) 867-2342
    Email: whall@kingsdalecapital.com
    Website: www.drilcorp.ca
    The TSX Venture Exchange has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this press release.