Epsilon Energy Ltd.
TSX : EPS

Epsilon Energy Ltd.

February 06, 2012 15:32 ET

Epsilon Energy Ltd. Announces $40 Million Bought Deal Financing

CONCORD, ONTARIO--(Marketwire - Feb. 6, 2012) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Epsilon Energy Ltd. (TSX:EPS) ("Epsilon" or the "Company") is pleased to announce that it has entered into an agreement with a syndicate of underwriters co-led by Cormark Securities Inc. and Clarus Securities Inc. including CIBC World Markets Inc., Raymond James Ltd., Global Hunter Securities, LLC and Stonecap Securities Inc. (collectively, the "Underwriters") pursuant to which the Underwriters have agreed to purchase $40.0 million aggregate principal amount of 7.75% convertible unsecured subordinated debentures (the "Debentures") of Epsilon at a price of $1,000 per Debenture (the "Offering").

The Debentures will mature on March 31, 2017 and will accrue interest at the rate of 7.75% per annum payable on a semi-annual basis in arrears on September 30th and March 31st each year commencing on September 30, 2012. At the holder's option, the Debentures may be converted into common shares in the capital of Epsilon at any time up to the earlier of the maturity date and the business day immediately preceding the date specified by the Company for redemption of the Debentures. The conversion price, subject to adjustment in certain circumstances, will be $4.45 for each common share being the conversion rate of approximately 224.7191 Epsilon common shares for each $1,000 principal amount of Debentures.

The Debentures will be direct, unsecured obligations of Epsilon, subordinated to other indebtedness of the Company for borrowed money and ranking equally with all other unsecured subordinated indebtedness.

The Debentures will not be redeemable by the Company before March 31, 2015. From March 31, 2015 through to maturity date, Epsilon may, at its option, redeem the convertible debentures, in whole or in part, at par plus accrued and unpaid interest provided that the volume weighted average trading price of the common shares of the Company on the Toronto Stock Exchange during a specified period prior to redemption is not less than 125% of the conversion price.

Subject to specified conditions, Epsilon will have the right to repay the outstanding principal amount of the Debentures, on maturity or redemption, through the issuance of common shares of the Company. Epsilon also has the option to satisfy its obligation to pay interest through the issuance and sale of additional common shares of the Company.

The Offering is scheduled to close on or about February 28, 2012 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including the approval of the TSX. Proceeds of the Offering will used to fund the Company's capital program and for general corporate purposes. The Debentures will be offered in certain provinces of Canada by way of a short form prospectus.

The securities offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

About Epsilon Energy Ltd.

Epsilon is engaged in the exploration and production of oil and natural gas reserves. The Company also has participating interests and production sharing agreements in other oil and natural gas plays within North America. Established in 2005, the Company has been a producer of oil and natural gas since 2006. Epsilon's ongoing business strategy involves focused targeting of lower risk oil and natural gas properties within the Marcellus Shale and other parts of Canada and the United States.

ADVISORY: This press release contains forward looking statements which may include statements concerning completion of any proposed acquisitions, capital programs, debt, funds flow from operations, closing date of the offering and the anticipated use of the net proceeds of the offering. Although Epsilon believes that the expectations reflected in these forward looking statements are reasonable, undue reliance should not be placed on them because Epsilon can give no assurance that they will prove to be correct. Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Any proposed acquisition may not be completed if required approvals or some other condition to closing is not satisfied. The closing of the offering could be delayed if Epsilon is not able to obtain the necessary regulatory and stock exchange approvals on the timelines it has planned. The offering will not be completed at all if these approvals are not obtained or some other condition to the closing is not satisfied. Accordingly, there is a risk that any proposed acquisition or offering will not be completed within the anticipated time or at all. The intended use of the net proceeds of the offering by Epsilon might change if the board of directors of Epsilon determines that it would be in the best interests of Epsilon to deploy the proceeds for some other purpose.

The forward looking statements contained in this press release are made as of the date hereof and Epsilon undertakes no obligations to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release. The TSX has neither approved nor disapproved the contents of this press release.

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