Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.
Peregrine Energy Ltd.
TSX : PEG

Peregrine Energy Ltd.

April 12, 2006 08:30 ET

Mahalo Energy Ltd. Announces Acquisition of Peregrine Energy Ltd. Through Plan of Arrangement

CALGARY, ALBERTA--(CCNMatthews - April 12, 2006) -

Not for distribution to U.S. newswire services or for dissemination in the United States of America

Mahalo Energy Ltd. (TSX:CBM) ("Mahalo") and Peregrine Energy Ltd. (TSX:PEG) ("Peregrine") are pleased to announce that they have entered into an arrangement agreement dated April 11, 2006 (the "Agreement"), pursuant to which, subject to satisfaction of certain conditions, Mahalo will acquire all of the issued and outstanding common shares of Peregrine through a Plan of Arrangement (the "Arrangement") for total consideration of approximately $90 million, including the assumption of approximately $13 million of net debt. The aggregate purchase price for the common shares of Peregrine is approximately $77 million. The Agreement contemplates that each Peregrine shareholder will receive 0.48 of a common share of Mahalo for each common share of Peregrine. Through the completion of the Arrangement, all outstanding convertible securities of Peregrine will be exchanged for comparable convertible securities of Mahalo on the same exchange ratio. The 0.48 exchange ratio represents an approximate 26% premium on the closing prices of Mahalo's and Peregrine's shares on the Toronto Stock Exchange on April 11, 2006.

There are currently 31,570,063 Peregrine common shares issued and outstanding, 2,816,667 outstanding options to purchase Peregrine common shares, 3,000,000 Peregrine common shares issuable pursuant to outstanding share purchase warrants and an additional 1,900,000 common shares issuable pursuant to outstanding performance warrants. Upon completion of the Arrangement former shareholders of Peregrine will own approximately 26% of the issued and outstanding Mahalo common shares.

With a total transaction cost of approximately $90 million (inclusive of debt) Mahalo has valued Peregrine as to:

- Land: $12.4 million (65,000 acres of net undeveloped land)

- Seismic: $10.0 million;

- Tax pools (valued at $0.10 per dollar): $4.3 million;

- Net production and reserve acquisition costs: $63.3 million;

- Production cost per boe (1,200 flowing boe/d, plus 300 boe/d behind pipe): $42,200 per boe;

- Reserve costs per boe: $14.72 (P+P), $24.34 (total Proved); and

- Price to cash flow ratio: 4.36X.

Arrangement

The Arrangement will require the approval of 66 2/3% of the votes cast by Peregrine shareholders voting at a Peregrine Shareholders meeting to be called to consider the Arrangement. The proposed transaction will also require Court or Queen's Bench of Alberta and other regulatory approval and standard conditions.

Upon recommendation of a special committee of independent directors of Peregrine, the Board of Directors of Peregrine has agreed to recommend shareholders approve the proposed transaction. Certain shareholders, including all of the officers and directors of Peregrine holding approximately 12.7% of the issued and outstanding common shares of Peregrine have agreed to vote their common shares in favour of the Arrangement.

The Agreement provides that Peregrine shall not, directly or indirectly, solicit or invite any inquiries, discussion or negotiations with any third party with respect to any takeover proposal. Peregrine and Mahalo have both agreed to pay a non-completion fee of $1 million under certain circumstances. The transaction is expected to close on or before May 31, 2005.

Financial Advisors

GMP Securities L.P. has acted as advisor to a special committee of the Board of Directors of Mahalo and has provided to such special committee and the Board of Directors of Mahalo with their verbal advice, subject to final review of documentation, that the consideration offered pursuant to the transaction is fair, from a financial point of view, to the shareholders of Mahalo.

Wellington West Capital Markets Inc. has acted as advisor to a special committee of the Board of Directors of Peregrine and has provided such special committee and the Board of Directors of Peregrine with their verbal advice, subject to final review of documentation, that the consideration offered pursuant to the transaction is fair, from a financial point of view, to the shareholders of Peregrine.

Board of Directors and Management

Upon completion of the Arrangement, Mr. Gary Gardiner, the current President and Chief Executive Officer of Peregrine, will join the board of Directors of Mahalo and will also act as the Chief Executive Officer of the combined entity. Mr. Duncan Chisholm, current President and Chief Executive Officer of Mahalo, will act as the President and Chief Operating Officer of the combined entity. The new management team will also consist of Mr. Art Flaws as Senior Vice President, Mr. David Burton as Vice President, Engineering, Mr. George Hardisty as Vice President, Land and Business Development, Mr. Vernon Haberlack as Vice President, Production, Mr. Ed Marcinew as Vice President, Exploration, Mr. William Dawidowski as Vice President, Finance and Chief Financial Officer and Ms. Lindsay Goos as Controller.

The board of directors of Peregrine and Mahalo believes that the addition of this talented technical group, together with the current team, will provide strength going forward to exploit the company's abundant development and exploration opportunities.

The Board of Directors of Mahalo, following the completion of the transaction, will be comprised of Messrs. Duncan Chisholm, Gary Gardiner, William Gallacher, Michael Dilger, David Butler, Gary Dundas, J.G. (Jeff) Lawson and Kevin Wolfe.

Pro Forma Mahalo

The acquisition allows Mahalo to supplement its existing staff with a strong management team familiar and qualified in the handling and execution of multi hundred well programs which are available through Mahalo's current land position and prospect inventory.

Peregrine's properties are located primarily in NE British Columbia and West Central Alberta. These properties are of a conventional high risk/high reward resource base and compliment Mahalo's low risk North American coal bed development and exciting shale opportunities. While the integration of these assets will be highly accretive to Mahalo's low risk portfolio, Mahalo remains primarily focused on our unconventional base and its strong predictability and now has the human resources available to develop this asset base efficiently.

Upon closing this acquisition, the new entity will have strong cash flow and available bank lines to fund its capital program. The transaction provides Mahalo with an increased asset base, along with high reserve and predictable production type assets necessary for long-term growth.

Upon closing the transaction, Mahalo estimates it will have the following attributes:

- approximately 58,285,594 (basic) common shares issued and outstanding;

- daily sales production of approximately 3,400boe/d, comprised of 92 percent natural gas and 8 percent light oil and NGL's;

- 2006 capital program of $57 million dollars is anticipated to be funded through available bank lines and 2006 cash flow (allocated at 70% unconventional and 30% to conventional);

- banking facilities (combined) currently in place of $52.5 million dollars (CDN);

- current debt position of $33 million dollars (CDN);

- 2006 cash flow from operations of $31,734 million (CDN) based on an $8.36 gas price;

- 2006 pro-forma cash flow/basic share: $0.62;

- exit production 2006 (BOED) of approximately 4,400 boe/d, primarily derived from unconventional development;

- drilling inventory of more than 1,400 locations across a large resource base;

- reserve base: Proved and Probable of 12.7 million boe;

- reserve life index: 10.2 years based on 3,400 boe/d rate;

- land base: Ownership of and access to earn on greater than 430,000 acres of undeveloped land across Mahalo's North American assets;

- a skilled management team with a broad base of knowledge in unconventional and conventional petroleum and natural gas exploration in both Canada and the USA; and

- tax pools would be increased by $43 million.

About the Parties

Mahalo is a Calgary-based company engaged in the exploration for, and the acquisition, development and production of unconventional natural gas, principally coal bed methane and shale gas, both in Western Canada and Oklahoma.
Peregrine is a Calgary-based company engaged in the exploration, development and production of crude oil and natural gas in Western Canada.

Cautionary Statements

Disclosure provided herein in respect of boe units may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain information set forth in this document, including management's assessment of future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond each party's control, including the risks of successfully completing the proposed Arrangement, 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. Actual results, performance or achievement 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 will be derived there from. Each disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities legislation.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Mahalo Energy Ltd.
    Duncan Chisholm
    President
    (403) 262-9623
    (403) 262-7049 (FAX)
    or
    Peregrine Energy Ltd.
    Gary Gardiner
    President and Chief Executive Officer
    (403) 451-3490
    (403) 262-7049 (FAX)
    or
    Mahalo Energy Ltd.
    201B, 218 - 8th Avenue SW
    Calgary, Alberta T2P 1B5
    Website: www.mahaloenergy.com