Cyries Energy Inc.

Cyries Energy Inc.

January 21, 2008 10:43 ET

Iteration Energy Ltd. and Cyries Energy Inc. Announce Strategic Combination

CALGARY, ALBERTA--(Marketwire - Jan. 21, 2008) - Iteration Energy Ltd. ("Iteration") (TSX:ITX) and Cyries Energy Inc. ("Cyries") (TSX:CYS) are pleased to announce that they have entered into an arrangement agreement (the "Arrangement Agreement") that provides for the combination of Iteration and Cyries to form a new growth focused, intermediate oil and gas exploration and development company with an enterprise value of approximately $1 billion. The combination will be completed pursuant to an arrangement (the "Arrangement") under the Business Corporations Act (Alberta).

Under the terms of the Arrangement Agreement, each Cyries shareholder will receive 1.475 common shares of Iteration for each common share of Cyries held, which represents, using the 20 day weighted average trading price on the Toronto Stock Exchange for Iteration, a premium of 6% on the 20 day weighted average trading price on the Toronto Stock Exchange of Cyries. Upon completion of the Arrangement, Cyries will be a wholly-owned subsidiary of Iteration. The Arrangement will be accomplished on a tax-deferred basis in Canada. At the closing of the Arrangement, Iteration shareholders will own approximately 46% of the combined entity and Cyries shareholders will own approximately 54%.

Mr. Brian Illing, currently President and Chief Executive Officer of Iteration, will continue as President and Chief Executive Officer of the combined entity. Mr. Don Archibald, currently Chairman and Chief Executive Officer of Cyries, will be appointed to the board as Chairman. The current Chairman, Mr. Jim Grenon, will continue in the role of Lead Director. The management of the combined company will be comprised of Iteration's existing executive, augmented by members of the Cyries' management team. The technical teams at Iteration and Cyries will form a highly experienced group that will be focused on exploring and exploiting the new company's exciting asset base.

The Board of Directors of Iteration will be initially comprised of eight members including the six current directors of Iteration and two representatives from Cyries. On the closing of the combination, in addition to Mr. Archibald joining the board, Mr. Howard Crone, a current director of Cyries, has advised that he has agreed to join the board as a director. Iteration and Cyries have also agreed that Mr. Gary Peddle, current Vice President Corporate and a director of Cyries, will also be put forward for election at the next annual Iteration shareholders meeting. This will expand Iteration's Board of Directors to nine members.

The Iteration executive team brings a successful track record of executing value-added acquisitions and successful exploitation, exploration and development programs, while maintaining sound financial management and strict cost controls that the new company will rely on in the future. Prior to forming Iteration, almost all of the Iteration team worked together in lead technical roles at Canadian Natural Resources Limited. They have considerable technical experience in the Deep Basin/Peace River Arch areas where both Iteration and Cyries are currently focused.

Mr. Illing stated, "This combination represents an important step in the evolution of Iteration. From our inception in March 2005 we have grown production from 2,780 boed to 8,250 boed and increased the undeveloped land base from 110,000 net acres to 265,000 net acres. We have been able to assemble a high quality asset base to support efficient future growth through the drill bit. We are excited about the growth potential of the combined entity and we look forward to continuing to successfully execute our proven strategy of acquiring, exploiting and exploring."

Mr. Archibald added, "The combination represents a logical and attractive step in the evolution of Cyries. From our inception in July 2004 we have grown production from approximately 1,000 boed to approximately 11,400 boed and increased the undeveloped land base from 100,000 net acres to 450,000 net acres. The combination of the assets and the management teams will provide Cyries with enhanced ability to participate in a dynamic, growing E&P company into the future where size and management are even more important factors. There is good synergy of assets between the two companies, a good combination of management skills combined with the strength of a larger entity and a very strong balance sheet that will allow Cyries on a combined basis to carry out a larger capital expenditure program as well as be more competitive in the current acquisition market. The skills of the Iteration management team combine well with Cyries management in the growth of a larger entity."

Highlights of the Combined Company

Management of both Iteration and Cyries believe that the combination provides many strategic benefits including:

- Creation of a significant, gas levered intermediate producer focused in the Peace River Arch, East Central Alberta, South East Alberta and North East British Columbia;

- An excellent asset overlap and synergies in the Deep Basin/Peace River Arch area of Alberta and at Boundary Lake on both sides of the Alberta/British Columbia border;

- A pro forma estimated enterprise value of over $1 billion which is expected to result in enhanced liquidity, a more competitive cost of capital and improved financial flexibility;

- Strong pro forma balance sheet with expected debt to 2008 funds flow of approximately 1.1 times;

- Larger size, which will enable the combined company to be more competitive in the domestic acquisition market;

- Current combined production of approximately 20,000 boed, 70% of which is natural gas;

- A large, balanced portfolio of exploration and development opportunities over the combined entity's significant undeveloped land position of approximately 715,000 net acres in Western Canada;

- Accretive to Iteration on the following metrics:

-- increase to Iteration's production per share of 9%;

-- increase to Iteration's funds flow from operations per share of 8%;

- Expected to be significantly accretive to Iteration's reserves per share (independent engineer reserve evaluations as at December 31, 2007 for each of Iteration and Cyries are expected to be completed in March 2008);

- The combined company will maintain high operatorship and working interest positions; and

- A strong combination of technical skills that will be applied over the larger asset base to achieve both operating efficiencies and an increase in the number of internal drilling opportunities identified.

Key Pro Forma Operating and Financial Information for the Combined Company

Some of the key pro forma operating and financial information for the combined company include the following:

Estimated combined 2007 Exit Production 19,600 boed (1)
Expected Pro Forma Q1 2008 Exit Production 21,000 boed (1)
Pro Forma Enterprise Value $1 billion (1)
Estimated Q1 2008 Funds Flow (2) $45 million (1)
Estimated Q1 2008 Debt $232 million (1)
Combined Tax Pools at December 31, 2007 $500 million (1)
Fully Diluted Shares Outstanding 170 million (1)
Undeveloped Land Base (net acres) 715,000 (1)

(1) All figures are current estimates of Iteration and Cyries management.
(2) Based on an average 2008 AECO price of $7.08/gj Cdn. and average 2008
WTI price of $92/bbl Cdn.

Both Iteration and Cyries have started significant winter drilling programs which will be completed during the first quarter of 2008 and are expected to result in continued production growth and value creation. Both companies have a significant inventory of prospects for the remainder of 2008. The combined company intends to optimize the post-winter drilling program taking into consideration prevailing commodity prices and cost of services before releasing guidance for the balance of the year.

About the Transaction

The Directors and Officers of Cyries, who control approximately 13% of the securities to be voted in respect of the transaction, have agreed to vote their Cyries securities in favour of the Arrangement. FirstEnergy Capital Corp. is acting as exclusive financial advisor to Cyries with respect to the combination and has advised the Board of Directors of Cyries that it is of the opinion, as of the date hereof, that the consideration to be received by Cyries shareholders pursuant to the Arrangement is fair from a financial point of view to Cyries shareholders. The Boards of Directors of both Iteration and Cyries have unanimously approved the Arrangement Agreement. The Board of Directors of Cyries has also concluded that the Arrangement is in the best interests of its securityholders, and has resolved to recommend that securityholders of Cyries vote their securities in favour of the combination. Cyries has agreed that it will not solicit or initiate any discussions concerning the pursuit of any other business combination. Cyries has agreed to pay to Iteration a non-completion fee of $13.25 million in certain circumstances. In addition, Iteration has the right to match any superior proposal, and Cyries has the right to respond to any superior proposal, in the event such a proposal is made.

The Arrangement is subject to regulatory and court approval and the approval by a majority of at least two thirds of holders of common shares and warrants of Cyries, voting as a single class, who vote on the Arrangement. The mailing to the securityholders of Cyries of an information circular regarding the Arrangement is expected in early February 2008. A Cyries securityholders meeting is expected to be held in early March 2008, with completion of the combination expected shortly thereafter, subject to receipt of necessary regulatory and court approval and satisfaction or waiver of conditions.

Complete details of the terms of the combination are set out in the Arrangement Agreement, which will be filed by each of Iteration and Cyries on SEDAR and will be available for viewing under each of Iteration's and Cyries' profile on

Investor Conference Call

A joint conference call has been scheduled for January 21, 2008, at 8.00am Calgary time / 10.00am (Toronto time) to discuss the combination. Members of the investment community may participate by using the following dial in numbers:

604-899-1159 Vancouver
403-232-6311 Calgary or International
780-424-5694 Edmonton
416-883-0139 Toronto
613-212-4230 Ottawa
514-395-2055 Montreal
Toll Free dial in number: 1-888-458-1598 from Canada and USA
Use Participant pass code: 63142#

A replay of the joint conference call will be available approximately 30 minutes after completion of the conference call until February 3, 2008, by calling 1-877-653-0545 from Canada or USA or 403-232-0933 from local Calgary or International. and entering the Pass code 604189 followed by pressing the # key.

About Iteration

Iteration is an independent Canadian oil and natural gas exploration, development and production company with its common shares trading on the Toronto Stock Exchange under the symbol "ITX".

About Cyries

Cyries is an independent Canadian oil and natural gas exploration, development and production company with its common shares trading on the Toronto Stock Exchange under the symbol "CYS".

Advisory Regarding Forward-Looking Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward looking statements and information concerning completion of the combination and the assessment of the combined company's petroleum and natural gas production reserves, undeveloped land holdings, reserve life index, business strategy, future development and growth opportunities, prospects, asset base and anticipated benefits from the combination including improved operating efficiencies, field optimizations and cost reductions, future cash flows, value and debt levels, capital programs ,and future plans. The forward-looking statements and information are based on certain key expectations and assumptions made by Iteration and Cyries, including expectations and assumptions concerning prevailing commodity prices and exchange rates, applicable royalty rates and tax laws, future well production rates and reserve volumes, the timing of receipt of regulatory and security holder approvals, the performance of existing wells, the success obtained in drilling new wells, the sufficiency of budgeted capital expenditures in carrying out planned activities, the availability and cost of labour and services and the impact of the Province of Alberta's new royalty regime. Although Iteration and Cyries believe that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward looking statements and information because Iteration and Cyries can give no assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks.
These include, but are not limited to, the risks associated with the oil and gas industry in general such as operational risks in development, exploration and production delays or changes in plans with respect to exploration or development projects or capital expenditures, the uncertainty of reserve estimates, the uncertainty of estimates and projections relating to reserves, production, costs and expenses, health, safety and environmental risks, commodity price and exchange rate fluctuations, marketing and transportation, loss of markets, environmental risks, competition, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, ability to access sufficient capital from internal and external sources, failure to obtain required regulatory and other approvals, and changes in legislation, including but not limited to tax laws, royalties and environmental regulations.
There are risks also inherent in the nature of the proposed combination, including failure to realize anticipated synergies or cost savings, risks regarding the integration of the two entities, incorrect assessments of the values of the other entity, and failure to obtain the required security holder, court, regulatory and other third party approvals. This press release also contains forward-looking statements and information concerning the anticipated completion of the proposed Arrangement and the anticipated timing for completion of the Arrangement. Iteration and Cyries have provided these anticipated times in reliance on certain assumptions that they believe are reasonable at this time, including assumptions as to the time required to prepare meeting materials for mailing, the timing of receipt of the necessary regulatory and court approvals and the time necessary to satisfy the conditions to the closing of the Arrangement. These dates may change for a number of reasons, including unforeseen delays in preparing meeting materials, inability to secure necessary regulatory or court approvals in the time assumed or the need for additional time to satisfy the conditions to the completion of the Arrangement. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this press release concerning these times. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Iteration's, Cyries' or the combined company's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (, in the case of Iteration, at Iteration's website (, and in the case of Cyries, at Cyries' website ( The forward-looking statements and information contained in this press release are made as of the date hereof and Iteration and Cyries undertake no obligation 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.

Barrels of Oil Equivalent

"Boe" means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable a t the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • Iteration Energy Ltd.
    Brian L. Illing
    President and Chief Executive Officer
    (403) 290-4867
    Iteration Energy Ltd.
    Sean Johnson
    Chief Financial Officer
    (403) 290-4904
    Cyries Energy Inc.
    Don Archibald
    Chairman and Chief Executive Officer
    (403) 232-4157