Milagro Energy Inc.

Milagro Energy Inc.

March 28, 2005 09:18 ET

Milagro Energy Inc. Announces Letter of Intent to Purchase Drilcorp Energy Ltd.


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: MILAGRO ENERGY INC.

TSX SYMBOL: MIG

MARCH 28, 2005 - 09:18 ET

Milagro Energy Inc. Announces Letter of Intent to
Purchase Drilcorp Energy Ltd.

CALGARY, ALBERTA--(CCNMatthews - March 28, 2005) - Milagro Energy Inc.
(TSX:MIG) ("Milagro") has entered into a letter of intent (the "LOI") to
purchase all of the issued and outstanding shares of Drilcorp Energy
Ltd. ("Drilcorp") (TSX Venture: DCL) by way of take-over bid for $0.746
cash, subject to adjustment, for each of the 45,882,084 fully diluted
Drilcorp shares (the "Drilcorp Shares"). This represents an aggregate
consideration of $34,228,034 plus the assumption of Drilcorp's bank debt
and working capital deficiency currently estimated to be approximately
$8,700,000. Under the LOI, the cash consideration is subject to
adjustment pending a final determination of the amount of debt and
working capital as of March 31, 2005 and the amount of certain other
obligations of Drilcorp in respect of severance and termination of
employment obligations, amounts payable in respect of share appreciation
rights, Drilcorp's transaction costs and legal costs and other amounts
attributable to all ongoing legal actions.

The LOI is subject to certain conditions including: (a) Milagro and
Drilcorp board approval by March 29, 2005; (b) Milagro obtaining
satisfactory financing on or before April 1, 2005; (c) Milagro
completing a satisfactory due diligence review no later than April 12,
2005; and (d) Lock-up agreements being provided to Milagro by all
officers and the majority of the directors of Drilcorp (collectively,
the "LOI Conditions"). Drilcorp has agreed not to solicit other offers
for its assets or for the Drilcorp Shares.

Upon satisfaction of the LOI Conditions Milagro (or its wholly-owned
subsidiary) will mail a take-over bid circular (the "Offer") to the
shareholders of Drilcorp by April 15, 2005 which will remain open for 35
days following the date of mailing. It will be a condition that at least
66 2/3% of the Drilcorp Shares, on a fully-diluted basis, be tendered to
the Offer and not withdrawn. In addition to other usual and customary
conditions, Milagro's obligation to take up and pay for the Drilcorp
Shares under the Offer will also be subject to there being no material
outstanding or threatened court or regulatory actions enjoining the
Offer, or the completion of a subsequent acquisition transaction (being
any transaction entitling Milagro to acquire 100% of the Drilcorp
Shares) and that the existing Nova Bancorp et al legal actions against
Drilcorp have been discontinued, that releases have been provided to
Drilcorp in respect thereof, and that Milagro is satisfied that it will
have no material liability in respect of such legal actions nor any
material liability in respect of any new legal actions commenced by or
against Drilcorp.

A break fee of $1,500,000 is payable by Drilcorp to Milagro if: (a) the
Drilcorp board recommendation in favour of the Milagro offer changes or
is withdrawn or modified; or (b) a superior offer is accepted by the
shareholders of Drilcorp, unless matched by Milagro.

A break fee of $1,000,000 is payable by Milagro to Drilcorp if: (a) a
take-over bid circular is not mailed to Drilcorp shareholders on or by
April 15, 2005 provided all conditions to mailing have been satisfied;
or (b) Milagro fails to take up and pay for the Drilcorp Shares on the
expiry day of the Offer and all conditions of the Offer have been
satisfied.

The acquisition of Drilcorp will provide Milagro with a new core area in
the Grand Prairie area of northwest Alberta. The Kakwa property and
other assets held by Drilcorp will add 625 Boe per day of light oil and
natural gas, weighted 66% to natural gas. The Drilcorp assets are high
working interest and operated with a good reserve life index. The core
property from the acquisition located in the Kakwa area is complementary
to Milagro's Judy Creek project which is also located in northwest
Alberta. Upon completion of the acquisition it is anticipated that
Milagro will have 1250 Boe per day of production, weighted 55% to gas on
a combined basis and proved plus probable reserves of 11.8 Bcf of gas
and 2.7 million barrels of oil and natural gas liquids.

Milagro is an exploration and production company engaged in the
acquisition, exploration, development and production of oil and gas
reserves in western Canada. Milagro is listed for trading on the Toronto
Stock Exchange.

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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Milagro Energy Inc.
    Jeffrey Rekunyk
    President and CEO
    (403) 693-4000 or Toll Free: 1-866-693-4022
    or
    Milagro Energy Inc.
    Brad Haack
    CFO
    (403) 693-4000 or Toll Free: 1-866-693-4022
    Website: www.milagroenergy.com