Iteration Energy Ltd.

Iteration Energy Ltd.

September 24, 2007 08:38 ET

Iteration Energy Ltd. (ITX) Announces a $52.375 Million Acquisition of Producing Oil and Gas Properties in South East Alberta and West Alberta and a $25 Million Bought Deal Equity Offering

CALGARY, ALBERTA--(Marketwire - Sept. 24, 2007) - Iteration Energy Ltd. ("Iteration" or the "Company") (TSX:ITX) is pleased to announce that it has entered into an agreement to acquire two packages of producing properties through a corporate transaction (the "Acquisition"). The West Alberta properties are in the Peace River Arch area of our West Alberta/North East British Columbia focus area and are primarily natural gas. The South East Alberta properties are primarily light oil and will establish a new core area for the Company around its existing Granlea property. Late August production from the combined properties, including volumes from some current short term interruptions, was approximately 1,140 boed.

The effective date of the Acquisition is June 1, 2007 and it is expected to close on September 27, 2007. It will be funded through a combination of a bought deal equity offering, the Company's existing credit facility (which has been increased to $95 million) and funds from operations. The properties are predominantly Company operated with high working interests ("WI"). They have a low decline rate (approximately 20%) and are almost entirely year round access. The acquisition will increase the oil and liquids component of the Company's production to approximately 14%.

In association with this Acquisition, the Company has entered into a $25 million bought deal equity offering with a syndicate of underwriters led by FirstEnergy Capital Corp. and including Peters and Co. Limited and RBC Capital Markets (the "Underwriters"). Under the terms of the offering, the Company will issue 5.21 million subscription receipts (the "Subscription Receipts") at $4.80 per Subscription Receipt (the "Offering").

Each Subscription Receipt will represent the right to receive one common share of Iteration, without the payment of any additional consideration, on the closing of the Acquisition. The proceeds from the offering of Subscription Receipts will be deposited in escrow pending the closing of the Acquisition. If the Acquisition closes on or before October 31, 2007, the net proceeds from the offering of the Subscription Receipts will be released to Iteration and used by Iteration to reduce bank debt incurred on the Acquisition and for general corporate purposes.

Iteration has also granted to the Underwriters an over-allotment option to purchase up to an additional 781,500 subscription receipts at the Offering price exercisable up to 30 days from the closing of the Offering.

Details of the Acquisition are as follows:

- Price: $52.375 million
- Production: 1,140 boed including volumes from some current short term
interruptions. Approximately 50% oil, 50% gas, 20% decline.
65% operated. South Alberta 560 boed. 85% oil; West Alberta
580 boed, 20% oil.
- Metrics: $45,950 per boed. Proved plus Probable reserves at
$15.37/boe. ($42,850/boed and $14.35/boe after including $3.5
million for land, seismic and movable equipment).
- May 2007 Independent Engineering study:
Proved Proved Plus Probable
Oil (mbbl) 1,279 1,775
NGLs (mbbl) 39 55
Gas (mmcf) 6,627 9,461
BOE (mboe 2,423 3,407
Reserve Cost ($/boe) $21.62 $15.37
Reserve Cost with
Future Capital ($/boe) $21.89 $16.42
Future Development
Capital ($ millions) 0.7 3.6
- Land (net acres):
18,000 undeveloped, 25,000 developed, 43,000 total. 43%
average WI.
- Strategic Rationale:
- Low rate wells. The overall Corporate royalty rate including
these properties would only increase by approximately 1% at
current prices if the proposed Alberta royalty changes were
- Year round access properties.
- Increases oil and liquids volumes to approximately 14% of the
Company's production.
- Long life reserves (20% decline).
- Facilities ownership (4 operated and 1 non-operated gas
compressors; 8 operated and 3 non-operated oil batteries).
- Establishes a new oil-based focus area in South East Alberta
and consolidates an expanding position in the Peace River
Arch area.
- Significant upside potential through:
- Workovers
- Recompletions
- Lowering operating costs
- Waterflood enhancements
- Development and step-out drilling
- Future exploration drilling

- Tax Pools: The assets are being acquired through the purchase of a
partnership of the vendor and, as a result, the tax pools
associated with the transaction will be equal to undepreciated
capital cost of approximately $10 million. The Company had
approximately $202 million in tax pools at June 30, 2007, and
does not expect to be cash taxable following the acquisition
for at least three years.

2007 Guidance

With approximately 35% of the projected 2007 drilling program remaining, the Company is continuing to monitor commodity prices and service costs to optimize the timing of operations for the remainder of the year. Based on this transaction closing on September 27, 2007 and our current drill schedule, the revised 2007 guidance is as follows:

Revised Guidance Previous Guidance
Average production (boed) 6,680 6,400
Capital program ($ million) 149 (1) 92 (2)
Funds from operations ($ millions) 54 51
Net debt Dec 31, 2007 ($ million) 65 34
Net Wells 54 55

October 2007 to December 2007 Price Forecast (based on the September 20,
2007 strip)
-AECO gas $Cdn/GJ 5.87 6.13
-Edmonton Light oil $Cdn/bbl 80.00 75.00

(1) Includes acquisitions of approximately $56 million.
(2) Included acquisitions of approximately $4 million.

For further information with respect to this acquisition and equity offering, please see the Company website at

Advisory - Forward-Looking Information

Natural gas is converted to crude oil equivalent at a ratio of six thousand cubic feet to one barrel. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: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.

This press release was prepared on September 24, 2007 and is based on management's assessment of historical financial and operating results of the Company and the acquisition. The reader should be aware that historical results are not necessarily indicative of future performance. This press release contains forward-looking statements relating to future events or future performance. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expects", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating results and various components thereof affecting the economic performance of Iteration. Undue reliance should not be placed on these forward-looking statements which are based upon management's assumptions and are subject to known and unknown risks and uncertainties, including the business risks discussed below, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted. The Company undertakes no obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise.

The forward looking statements contained herein are expressly qualified by this cautionary statement. Readers are cautioned that the following list of risk factors is not exhaustive.

In particular, this press release contains forward-looking statements and information pertaining to the following:

- The quantity and recoverability of our reserves;

- The timing and amount of future production;

- Prices for natural gas produced;

- Operating and other costs;

- Business strategies and plans of Management;

- Supply and demand of natural gas;

- Expectations regarding our ability to raise capital and to add to our reserves through acquisitions as well as exploration and development;

- The focus of capital expenditures on development activity rather than exploration;

- The sale, farming in, farming out or development of certain exploration properties using third party resources;

- The use of development activity and acquisitions to replace and add to reserves;

- The impact of changes in natural gas prices on cash flow after hedging;

- Drilling plans;

- The existence, operations and strategy of the commodity price risk management program;

- The approximate and maximum amount of forward sales and hedging to be employed;

- The Company's acquisition strategy, and the criteria to be considered and the benefits to be derived;

- The impact of Canadian federal and provincial governmental regulation on the Company relative to other issuers of similar size;

- Our treatment under governmental regulatory regimes;

- The goal to sustain or grow production and reserves through prudent management and acquisition;

- The emergence of accretive growth opportunities; and

- The Company's ability to benefit from the combination of growth opportunities and the means to grow through the capital markets.

Iteration's actual results could differ materially from those anticipated in our forward-looking statements as a result of the risk factors set forth below and elsewhere in this press release which include but are not limited to:

- Volatility in market prices for natural gas;

- Risks inherent in our operations;

- Uncertainties associated with estimating reserves;

- Competition for, among other things: capital, acquisitions of reserves, undeveloped lands and skilled personnel;

- Incorrect assessments of the value of acquisitions;

- Geological, technical, drilling and process problems;

- General economic conditions including fluctuations in the price of natural gas;

- Royalties payable in respect of Iteration's production;

- Governmental regulation of the oil and gas industry, including environmental regulation;

- Fluctuation in foreign exchange or interest rates;

- Unanticipated operational events that can reduce production or cause production to be shut-in or delayed;

- Stock market volatility and market valuations; and

- The need to obtain required approvals from regulatory authorities.

Many of these risk factors and uncertainties are discussed in further detail in the Management's Discussion and Analysis and the Annual Information Form for the year ended December 31, 2006, as well as Management's Discussion and Analysis for the three months ended March 31, 2007 and three and six months ended June 30, 2007, which are available through the internet on the Company's website at and on the Company's SEDAR profile at

Iteration Energy Ltd.

Iteration is an Alberta based corporation engaged in the business of exploring for and developing oil and natural gas reserves in Western Canada and acquiring natural resource properties. Iteration's common shares are listed on the Toronto Stock Exchange under the symbol "ITX".

The TSX has not reviewed this press release and does not accept responsibility for the accuracy of any of the data presented here-in.

Contact Information

  • Iteration Energy Ltd.
    Mr. Brian Illing, President and CEO
    (403) 261-6883