Strike Petroleum Ltd.

FairWest Energy Corporation

FairWest Energy Corporation

March 12, 2007 09:00 ET

FairWest Energy Corporation and Strike Petroleum Ltd. Announce Board Approval of Plan of Arrangement

CALGARY, ALBERTA--(CCNMatthews - March 12, 2007) -


FairWest Energy Corporation ("FairWest") (TSX:FEC) and Strike Petroleum Ltd. ("Strike") (TSX VENTURE:SPP) are pleased to announce that they have completed their respective due diligence processes, finalized the share exchange ratio, and received unanimous approval from both boards of directors of the previously announced arrangement (the "Arrangement") whereby FairWest will acquire all of the issued and outstanding shares of Strike.

The board of directors of Strike unanimously recommend that the securityholders and creditors of Strike vote in favour of the Arrangement. A meeting of Strike's shareholders and creditors will be held in April 2007 to approve the Arrangement. Strike's board of directors, collectively holding approximately 10% of the outstanding Strike shares, have agreed to vote in favour of the Arrangement.

The ratio of Strike shares to be exchanged for FairWest shares has been estimated by Strike and FairWest at 1.798 Strike shares for every FairWest share, with the calculated ratio largely based upon the net asset values of each company. FairWest estimates that the Strike shareholders will receive approximately 12,194,750 FairWest common shares. This represents an aggregate purchase price of approximately $22.2 million, and takes into account the assumption by FairWest of Strike's outstanding bank debt and working capital deficiency of $16.0 million. In arriving at the estimated exchange ratio, independent evaluations of the Strike and FairWest reserves were used. Both evaluations are effective as of January 1, 2007. The calculation of the final exchange ratio was also subject to an adjustment based upon a number of conditions, including due diligence and an in depth and complete determination of Strike's total indebtedness. The reduction in the exchange ratio, from Strike's perspective, was predominantly due to reduced average production volumes and reserves at Strike.

"The acquisition of Strike by FairWest will result in a doubling of most of FairWest's key indicators, including daily production, cash flow and available exploitation and drilling opportunities", said Jim Gettis, President of FairWest. "FairWest will add approximately 500 barrels of oil equivalent per day ("boe/d") of high working interest, operated production, with an attractive portfolio of exploitation and drilling opportunities at Kirkpatrick Lake, Youngstown and Sedalia. Strike's lands are adjacent to FairWest's current core areas located at Antelope, Berry Creek, and Provost in eastern Alberta. In addition, most of Strike's administrative and technical team will be invited to join us at FairWest, and we are excited about the opportunities we can create with great people from both companies."

Richard Clark, Executive Chairman of Strike, added "This transaction represents a very good way for Strike shareholders to realize and enhance the value of their investment. Through this business combination Strike shareholders will be able to participate in a well-managed, high-growth, exploration-focused company. I look forward to joining FairWest's board of directors and contributing to FairWest' future growth once shareholders and unsecured creditors have approved this transaction."

Impact of the Transaction on FairWest

The transaction is expected to increase FairWest's cash flow, cash flow per share, production, and reserves. Combined current production is approximately 1,075 boe/d, and the FairWest team believes that a 2007 exit production rate of 1,500 boe/d is possible from the assets of the combined companies. Proved plus probable reserves to be acquired by FairWest based on Strike's January 1, 2007 reserve report are estimated at 1.21 million barrels of oil equivalent, 90% of which are natural gas. The transaction will increase FairWest's enterprise value to approximately $62.8 million, while maintaining a strong balance sheet with a year end debt to projected cash flow ratio of less than 1 times.

Based on a total estimated acquisition cost at May 1, 2007 of $22.2 million, which includes undeveloped land and seismic data valued at $2.5 million, and the assumption of $16.0 million debt and working capital deficiency, the acquisition metrics of the transaction are as follows:

- Reserve acquisition metrics of $17.05/boe of proved plus probable reserves;

- Production acquisition cost of $36,004/boe/d based on estimated April 2007 production of 545 boe/d; and

- Incremental 2007 cash flow of approximately $4.16 million (assuming forecasted production, C$7.78/MCF AECO natural gas and Cdn$60.10/bbl oil)

A total of 8,000 acres of undeveloped land will be added to FairWest's current undeveloped land base of 24,000 acres. Strike's income tax pools of $23.3 million in combination with FairWest income tax pools of $32.3 million will allow FairWest to avoid the payment of current taxes for at least 3 years.

The Arrangement is subject to certain arrangements being made with Strike's creditors, as set forth in the information circular which will be mailed to Strike shareholders and creditors. The transactions contemplated by the Arrangement are subject to a number of conditions including the following:

- approval of the Arrangement by securityholders and creditors of the Company;

- regulatory approval including TSX Venture and TSX approval;

- the granting of a final order by the Court of Queen's Bench of Alberta, approving the Arrangement; and

- no material adverse change shall have occurred in the affairs of Strike or FairWest

Additional Financing

In conjunction with the transaction, FairWest and Strike intend to complete a $5.0 million private placement financing, the net proceeds of which will be used to fund the capital programs of the combined companies, pay down debt, fund the expenses of the transaction and for general working capital purposes. FairWest intends to rationalize the combined property inventory and sell non core assets.

Creditor Arrangement

Representatives of Strike and FairWest have met with unsecured creditors who represent approximately 70% of the trade payables as of December 31, 2006 (the "Indebtedness"). In these meetings, the amount of the Indebtedness was confirmed and agreement in principle was reached by the parties as to the most effective manner to settle the Indebtedness. For every $1.00 of Indebtedness, FairWest is prepared to pay the unsecured creditor either: (i) $0.50 cash plus 1 FairWest common share valued at $0.50 per common share, or (ii) 2 FairWest common shares valued at $0.50 per common share. FairWest estimates that it will issue 6,000,000 common shares and $3.0 million to the unsecured creditors. The offer to the unsecured creditors will be included in an information circular that will result in a creditors meeting in the latter part of April 2007.

About Strike

Strike (TSX VENTURE:SPP) is a Calgary-based junior oil and gas corporation with its principal producing properties located at the Kirkpatrick Lake, Youngstown, Sedalia, Jumpbush and Majorville areas of Alberta.

About FairWest

FairWest (TSX:FEC) is a Calgary, Alberta based junior oil and gas company engaged in the acquisition, exploration, development and production of crude oil and natural gas in the provinces of Alberta and Saskatchewan.

Statements in this release which describe either FairWest's or Strike's intentions, expectations or predictions, or which relate to matters that are not historical facts are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Strike to be materially different from any future results, performances or achievements expressed in or implied by such forward-looking statements. Either FairWest or Strike may update or revise any forward-looking statements, whether as a result of new information, future events or changing market and business conditions.

BOE Disclosure: Disclosure provided herein in respect of barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This Press Release is not to be disseminated in the United States of America. This announcement is not an offer of Strike's shares in the United States. Strike's shares have not been and will not be registered under the U.S. Securities Act and have not been and will not be offered or sold in the United States except in transactions exempt from the registration requirements of that Act.

Contact Information

  • Strike Petroleum Ltd.
    D. Stephen Burtt, CA
    (403) 264-2332, ext 22
    (403) 264-2350 (FAX)
    FairWest Energy Corporation
    James G. Gettis
    President and Chief Executive Officer
    (403) 264-4949
    (403) 269-1761 (FAX)
    FairWest Energy Corporation
    Marion D. Mackie
    Chief Financial Officer
    (403) 264-4949
    (403) 269-1761 (FAX)