Fairborne Energy Ltd.

Fairborne Energy Ltd.

March 09, 2005 06:00 ET

Fairborne Energy Ltd. Announces the Creation of Fairborne Energy Trust and an Exploration Focused Junior Producer




MARCH 9, 2005 - 06:00 ET

Fairborne Energy Ltd. Announces the Creation of
Fairborne Energy Trust and an Exploration Focused
Junior Producer

CALGARY, ALBERTA--(CCNMatthews - March 8, 2005) - Fairborne Energy Ltd.
(TSX: FEL) ("Fairborne") announced today that its Board of Directors has
unanimously approved a proposal to reorganize Fairborne to create a new
oil and gas trust, Fairborne Energy Trust ("Fairborne Trust" or the
"Trust"), and a public exploration-focused junior producer, Fairquest
Energy Limited ("Fairquest"), by way of a Plan of Arrangement (the
"Arrangement"). Pursuant to the Arrangement, Fairborne shareholders will
receive, for each outstanding common share of Fairborne, 0.333 of a
common share of Fairquest and, at their election, either one unit of
Fairborne Trust (which will receive monthly cash distributions), or one
Exchangeable Share (the exchange ratio of which will be adjusted on a
monthly basis in lieu of cash distributions to unitholders) in an
affiliated entity, such shares being exchangeable into trust units of
Fairborne Trust (subject to a maximum number of exchangeable shares to
be issued).

With an anticipated enterprise value of approximately $700 million,
Fairborne Trust will own 90 percent of the existing producing assets of
Fairborne and an undeveloped land base comprising 168,000 net acres.
Fairquest will own an interest in certain of Fairborne's existing
producing assets and 68,000 net acres of undeveloped lands. In addition,
Fairquest will farm-in on 83,000 net acres of the Trust with a view to
enhancing the production of both Fairquest and the Trust.

Richard A. Walls, President and CEO of Fairborne, has commented "This
transaction represents an important and logical step in the evolution of
Fairborne. We believe the Arrangement will provide Fairborne
shareholders with the opportunity to realize the value of Fairborne's
producing assets while preserving access to its sizeable inventory of
growth opportunities. The Trust will have high quality long life assets
in attractive areas, which will provide a unique combination of mature
producing assets and a large inventory of low risk development drilling
opportunities including growth of the coal bed methane assets. Based on
the inventory of opportunities that we have identified, we are confident
we can execute a business plan that will allow the Trust to actively
reinvest funds from operations to grow production, while paying out an
attractive distribution to our unitholders. As was the case in
Fairborne, the Trust will also pursue strategic acquisitions on an
opportunistic basis. Fairquest's mandate will be to access development
and exploration opportunities on its initial land base which includes
significant farm-in acreage available from the Trust. Overall, this
transaction will provide shareholders with the opportunity to
participate in both a high quality, sustainable Trust and an exciting
new exploration company."

Benefits of the Transaction

The reorganization is designed to enhance shareholder value by
separating certain lower risk assets to create a platform for
optimization and stable distributions for the Trust and at the same time
create a new growth-oriented junior producer. Shareholders of Fairborne
will have the opportunity to participate in the future of both entities
as a result of this transaction.

The transaction provides the following strategic benefits:

The separation of Fairborne's long-life, producing growth assets from
its higher risk, exploratory high growth assets better aligns the risks
and returns from each asset class and provides shareholders the
opportunity to determine their participation in each asset class.

Fairborne Energy Trust will provide a natural gas oriented vehicle to
deliver cash flow from its diverse portfolio of assets to unitholders in
a tax efficient manner.

The Trust will have a Coal Bed Methane project with an additional 150
locations to be drilled in addition to the 42 wells that are currently
producing approximately 6.3 MMcf per day

With current production of 11,000 BOE per day and 2005 exit production
of approximately 11,500 BOE per day, the Trust will have the critical
mass and access to relatively low cost capital required to compete
effectively for acquisitions and incremental lower risk development

Fairquest provides shareholders with a ground floor investment in a
growth-oriented exploration focused producer.

Existing shareholders retain exposure to a substantial portfolio of over
300 identified exploration and development drilling opportunities.

Both the Trust and Fairquest will be managed by the same experienced
team of professionals who have demonstrated their ability to deliver on
exploration, exploitation, acquisition and financial management

Based on these and other factors, the Board of Directors of Fairborne
has unanimously determined that the Arrangement is in the best interest
of Fairborne shareholders. Management and directors of Fairborne and
their associates, representing approximately 19 percent of the
outstanding fully diluted common shares of Fairborne, have agreed to
vote in favour of the Plan of Arrangement.

Pro Forma Attributes of Fairborne Trust and Fairquest

Fairborne Trust Fairquest

Current Production:
Oil and Liquids (bbls per day) 3,000 70
Natural Gas (MMcf per day) 48.0 5.8
Total (BOE per day) 11,000 1,030
Natural Gas % 73% 93%

Proved (MMBOE) 23.4 2.1
Proved and Probable (MMBOE) 35.6 3.1
Reserve Life Index (Proved) 6.6 years 6.5 years
Reserve Life Index (P+P) 10.0 years 9.7 years

Reserve Values(2)(3)
Proved ($MM) 332 28.4
Proved and Probable ($MM) 449 37.2

Undeveloped Land (net acres) (4) 168,000 68,000
Farmin acres - 83,000

Debt ($MM) (5) 120 0

Units/Shares Outstanding (MM) 44.0(6) 22.1(7)
Exchangeable Shares (MM) 8.0(6)

Annualized Cash Flow ($MM)(8) 100 10

(1) Based on the Reserve Report at December 31, 2004 using Gilbert
Laustsen Jung Associates Ltd. December 31, 2004 forecast pricing.
Reserve Life Index based on average production for the fourth
quarter of 2004.
(2) Reserve values are the before tax present values of cash flow at a
10% discount rate as per the Reserve Report and do not necessarily
represent fair market value.
(3) As at December 31, 2004
(4) As at March 6, 2005.
(5) Estimated net debt at closing inclusive of transaction costs and net
of the proceeds of planned private placements.
(6) Assuming all Exchangeable Shares are issued pursuant to the
(7) Aggregate number of shares including initial private placement
(8) Based on $42 (US) WTI oil price, $7.00 (CDN) gas price, $1CDN equals
$0.80 US, current levels of production, royalties and operating

Fairborne Energy Trust

Fairborne Trust's mandate will be to generate stable monthly
distributions by focusing on low-cost operations and active development
of its property base. Fairborne Trust will have production of
approximately 11,000 BOE per day, comprised of 48 MMcf per day of
natural gas and 3,000 bbls per day of crude oil and liquids (2005 exit
production estimated to be 11,500 BOE per day). As operator of over 95
percent of its properties, the Trust will be able to ensure that all
planned future activity will be pursued. The reserve reports prepared by
Gilbert Laustsen Jung Associates Ltd. and Sproule Associates Ltd. (the
'Reserve Report'), effective December 31, 2004, indicate that Fairborne
Trust would have proved plus probable reserves of 35.6 MMBOE, resulting
in a Reserve Life Index of approximately 10.0 years based on 2004 fourth
quarter average production.

Fairborne Trust's structure will provide for a complete production and
technical team to manage the assets of both the Trust and Fairquest.
This structure will differentiate Fairborne Trust from many other trusts
as it will enable the Trust to leverage the technical skill of the staff
responsible for finding and developing Fairborne's existing assets and
to realize the full potential of those assets through continued
development. It is expected that the Trust will establish an initial
cash distribution policy of $0.11 per unit per month. This distribution
represents 60% of cash flow assuming all Exchangable Shares are issued
and not converted. Through farm-out arrangements on standard industry
terms with Fairquest (on certain former Fairborne lands), the Trust will
also have the opportunity to participate in the development of higher
risk prospects on its lands without exposing additional risk capital.

The executive team of Fairborne Trust will be led by Richard A. Walls,
Chairman, Steven VanSickle, President and CEO, David Summers, COO, Gary
Poirier, VP Operations, David Cymbalisty, VP Engineering, Shaun Alspach,
VP Business Development and Tom Park, VP Marketing. This team brings a
successful track record of executing exploration and development
programs, asset and corporate acquisitions and sound financial
management. The Board of Directors of the Trust will include Mr. Walls
as Chairman and Mr. VanSickle, as well as four independent directors
including two current Fairborne directors. The majority of directors of
the Trust will be independent of the Trust and Fairquest. It is
anticipated that management and directors of Fairborne and their
associates will own approximately 17 percent of the Trust Units, thereby
aligning their interests with those of other unitholders.

An industry comparable compensation program will be put in place that
aligns unitholder and employee interests, and will include salaries,
bonuses and a trust unit incentive plan. The Trust will have an
internalized management structure with no fixed percent bonus plan or
fees payable on acquisitions or dispositions.

Fairquest Energy Limited

As part of the reorganization, Fairborne shareholders will also receive,
for each Fairborne common share held, 0.333 new common shares in
Fairquest, a growth and exploration focused natural gas producer. Under
the Arrangement, Fairquest will acquire working interests in certain of
Fairborne's producing assets and undeveloped lands in the
Columbia/Harlech, Peace River Arch, Pine Creek, Wild River and West
Pembina/Brazeau properties. These interests currently produce
approximately 1,000 BOE per day, comprised of 5.8 mmcf per day of
natural gas and 70 bbls per day of natural gas liquids and are expected
to exit 2005 producing 1,500 BOE per day. Fairquest will also have
approximately 68,000 net acres of undeveloped land in these core areas.
In addition, Fairquest will have an option to farm-in on 83,000 net
acres of Fairborne exploratory lands retained by the Trust, on standard
industry terms, thereby providing Fairquest with an additional portfolio
of opportunities.

The Fairquest team will be led by Richard A. Walls, President and CEO
and Robert A. Maitland, VP Finance and CFO. Fairquest will have access
to all of the employees of Fairborne Trust pursuant to a technical
services agreement. Such employee services will be charged to Fairquest
by the Trust on a cost recovery basis. The Board of Directors of
Fairquest will include Mr. Walls and Mr. Maitland as well as three
independent directors including two current Fairborne directors. The
majority of directors of Fairquest will be independent of Fairquest and
the Trust.

At closing and prior to a private placement, Fairquest will assume
approximately $10 million of Fairborne's existing debt and plans to have
an initial capital expenditure program between $15 and $30 million for
the remainder of 2005. A private placement comprised of shares and
warrants of Fairquest will be made available to Fairborne management,
directors and employees raising total proceeds of approximately $10
million. These shares and warrants will be subject to escrow/vesting
conditions over a three year period. There will be approximately 22.1
million common shares issued and outstanding after the initial private


Pursuant to the Arrangement, Fairborne shareholders will receive, for
each Fairborne common share held, 0.333 of a share of Fairquest and, at
their election, either one trust unit of Fairborne Trust which will pay
monthly cash distributions, or one Exchangeable Share, subject to a
maximum of approximately 8.0 million Exchangeable Shares being issued.
The Exchangeable Shares will initially be exchangeable for one Trust
unit of Fairborne Trust. In lieu of monthly cash distributions, the
exchange ratio of the Exchangeable Shares will increase on a basis
related to distributions paid to unitholders. If requests for
Exchangeable Shares pursuant to the Arrangement exceed the maximum
available, the Exchangeable Shares will be pro-rated among those
electing. Non-resident and tax exempt shareholders will not be eligible
to receive Exchangeable Shares.

An information circular detailing the Arrangement is anticipated to be
mailed to securityholders in April, 2005. A meeting of Fairborne's
security holders to consider the reorganization will occur in May, 2005.
The Arrangement will require the approval of 66 2/3 percent of the votes
cast by the shareholders and option holders of Fairborne voting at the
securityholder meeting, the approval of the majority of shareholders
excluding management, the approval of the Court of Queen's Bench of
Alberta and of certain regulatory agencies.

Financial Advisors

CIBC World Markets Inc has acted as the lead financial advisor to
Fairborne with respect to the proposed transaction and has advised the
Board of Directors of Fairborne that they are of the opinion, as of the
date hereof, that the consideration to be received by the Fairborne
shareholders pursuant to the Arrangement is fair, from a financial point
of view, to the Fairborne shareholders. Canaccord Capital Corporation,
GMP Securities Ltd., Peters & Co. Limited. and Sprott Securities Inc.
are acting as strategic advisors in connection with the transaction.

Conference Call

A conference call to discuss the proposed transaction will be held on
Thursday, March 10, 2005 at 9:00 a.m. Mountain Standard Time (11:00 a.m.
Eastern Time). To participate, please call 1-888-458-1598, conference
3163713#. The conference call will also be recorded and available for
review until April 8, 2005 by calling 1-877-653-0545 and entering the
reservation number 270492 followed by the number sign.

Fairborne Energy Ltd. is a growth oriented, junior natural gas
exploration, development and production company operating exclusively in
western Canada. Fairborne's common shares are publicly traded on the
Toronto Stock Exchange under the trading symbol "FEL".

Forward-Looking Statements

Certain information set forth in this document, including managements'
assessment of the future plans and operations of Fairborne, Fairborne
Trust and Fairquest, contains 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. The actual results, performance or
achievement of Fairborne, Fairborne Trust and Fairquest 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 Fairborne, Fairborne
Trust and Fairquest will derive therefrom. Fairborne disclaims any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or

BOE disclosure may be misleading, particularly if used in isolation. A
BOE conversion ratio of 6 Mcf to 1 Bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.


Contact Information

    Fairborne Energy Ltd.
    Richard A. Walls
    President and Chief Executive Officer
    (403) 290-7750
    (403) 290-3216 (FAX)
    Email: rwalls@fairborne-energy.com
    Fairborne Energy Ltd.
    Robert A. Maitland
    Vice President, Finance and Chief Financial Officer
    (403) 290-7750
    (403) 290-3216 (FAX)
    Email: rmaitland@fairborne-energy.com
    Fairborne Energy Ltd.
    Steven R. Vansickle
    Senior Vice President, Exploration
    (403) 290-7750
    (403) 290-3216 (FAX)
    Email: svansickle@fairborne-energy.com