Magnus Energy Inc.

Magnus Energy Inc.

August 22, 2007 09:00 ET

Magnus Energy Announces Arrangement Agreement With Questerre Energy and Updates Private Placement

CALGARY, ALBERTA--(Marketwire - Aug. 22, 2007) - Magnus Energy Inc. ("Magnus") (TSX VENTURE:MEI.A) (TSX VENTURE:MEI.B) is pleased to announce that it has entered into an Arrangement Agreement (the "Arrangement Agreement") with Questerre Energy Corporation ("Questerre") to merge the two companies (the "Transaction"). Pursuant to the Arrangement Agreement, Questerre will acquire all of the outstanding securities of Magnus on a fully diluted basis through the issuance of 11.09 million common shares of Questerre based on a price of $1.04 per share and which price is based on the 20 day weighted average trading price of the Questerre common shares on the Toronto Stock Exchange for the period ending on August 17, 2007, subject to certain adjustments between the parties. The aggregate consideration to be paid by Questerre will be based upon the settlement of a substantial portion of the trade payables of secured and unsecured creditors of Magnus. In addition, a component of the consideration paid by Questerre is comprised of the payout of approximately $15 million, to satisfy the senior secured debt facilities of Magnus held by its principal lenders.

Shareholders of Magnus will be asked to approve the Transaction at an Annual and Special Meeting of Magnus to be held on or about September 28, 2007, (the "Meeting"). The notice of the Meeting and accompanying Information Circular (the "Information Circular") detailing the information in respect of matters contemplated by the Arrangement Agreement will be mailed to shareholders of Magnus on or about August 31, 2007. The Transaction will require the approval of 66 2/3% of the votes cast by the shareholders and the approval of the Court of Queen's Bench of Alberta, the TSX Venture Exchange and certain regulatory authorities. The Transaction is subject to several terms and conditions including successful due diligence review by Questerre of Magnus and compliance with all applicable securities and corporate laws and regulatory approvals. The Board of Magnus believes that the Transaction will maximize value for the shareholders of Magnus and represents the best alternative to enhance the value of the assets of Magnus over time. The Transaction is expected to close on or about September 28, 2007 following the Magnus Meeting.

The directors of each of Magnus and Questerre have unanimously approved the proposed Transaction. In addition, the Board of Directors of Magnus has concluded that the proposed Transaction is fair and in the best interests of its shareholders and has agreed to recommend that the shareholders of Magnus vote in favour of the Transaction. Holders of in excess of 25% of the issued and outstanding Class A Shares of Magnus, including all directors, officers and insiders of Magnus, have entered into lock-up agreements with Questerre whereby they have agreed to support and vote their shares in favour of the Transaction.

The Transaction will provide the shareholders of Magnus with continued participation in the upside of the asset base of Magnus through a stake in Questerre, an oil and gas company focused on the acquisition, exploration, exploitation and development of oil and natural gas in Canada. The strategic merits of the proposed Transaction are significant for both groups of shareholders. The current production of Magnus is complementary to Questerre's existing production and Questerre expects to realize significant operational and administrative savings through the combination of the two companies.

In conjunction with the Transaction, Magnus is pleased to announce that it has entered into an agreement with a wholly-owned subsidiary of Questerre whereby Magnus has agreed to farmin on the Beaver River Area, British Columbia properties of Questerre's subsidiary ("Beaver River Farmin Agreement"). The Beaver River Farmin Agreement contemplates that Magnus will participate in the drilling of a test well on Questerre's lands to the base of the deepest formation penetrated in the farmin lands. In conjunction with the Beaver River Farmin Agreement, Magnus also announces that its previously announced Private Placement of Subscription Receipts in a press release issued July 19, 2007 has been amended and Magnus is proceeding with a private placement (the "Private Placement") to raise aggregate proceeds of $6 million of Class A Shares of Magnus at $0.10 per share as part of the Transaction requirements in satisfaction of CEE flow-through expenditures of Magnus. The Class A Shares will be subject to a four month hold period in the selling jurisdictions commencing on the Closing Date in accordance with applicable securities laws. Magnus will pay an advisory fee of cash in the sum of 2% of the funds raised pursuant to the Offering to Dundee Securities Corporation. The net proceeds of the Private Placement will be used by Questerre to meet the flow-through obligations of Magnus.

The Transaction also provides for a farmin by Questerre into the Antler area, Saskatchewan properties of Magnus (the "Antler Farmin Agreement"). The terms of the Antler Farmin Agreement include a commitment by Questerre to participate in the drilling of the next location to be drilled by Magnus with its partners in Antler.

Magnus also announces that pursuant to its press release issued July 19, 2007, Magnus has issued approximately 15.5 million Class A Shares of Magnus at a deemed price of $0.10 per share in satisfaction of a portion of its outstanding debts and intends to continue to settle its remaining outstanding debts with trade creditors through the issuance of additional Class A Shares of Magnus. Any settlements will be subject to final TSX Venture Exchange approval and the Class A Shares issued will be subject to a four month hold period in accordance with applicable securities laws.


This news release contains certain forward-looking statements, including management's assessment of future plans and operations, and capital expenditures and the timing thereof, that involve substantial known and unknown risks and uncertainties, certain of which are beyond a company's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. A company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances 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, including the amount of proceeds, that a company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to a company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and neither company undertakes any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

The term BOE or BOEs may be misleading, particularly if used in isolation. A BOE (barrel of oil equivalent) conversion rate of 6 Mcf per one (1) BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

MEI.A - 58,170,655 Class A Shares

MEI.B - 1,044,000 Class B Shares

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved of the contents of this news release and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Magnus Energy Inc.
    Murray M. Stewart
    President and Chief Executive Officer
    (403) 233-4963
    (403) 262-9920 (FAX)
    Magnus Energy Inc.
    Suite 1650, AMEC Place
    801 - 6th Avenue S.W.
    Calgary, Alberta T2P 3W2