Milagro Energy Inc.
TSX : MIG

Milagro Energy Inc.

February 27, 2007 09:00 ET

Milagro Energy Inc. Announces Refinancing Plans

CALGARY, ALBERTA--(CCNMatthews - Feb. 27, 2007) -

NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Milagro Energy Inc. (TSX:MIG) ("Milagro" or the "Company") is pleased to announce that it has entered into agreements to restructure its existing bridge credit facility into a longer term and more flexible structure and to pursue an equity offering to raise funds to finance its extensive development and exploration program and to reduce its working capital deficiency.

Restructuring of Brookfield Bridge Lending Fund Credit Facility

The Company has entered into an agreement (the "Restructuring Agreement") with its principal lender, Brookfield Bridge Lending Fund Inc. (the "Fund") to refinance its existing $20.5 million credit facility (the "Existing Fund Facility"). Under the Restructuring Agreement, Milagro and the Fund have agreed that the Existing Fund Facility will be replaced with the following:

(i) The issuance by Milagro to the Fund of $7.5 million principal amount of 8.5% secured convertible debentures due two years from their issue date (the "Convertible Debentures"). The Convertible Debentures will be convertible at any time prior to their maturity date into common shares of Milagro at a conversion price equal to 115% of the issue price of Milagro's common shares in the proposed Equity Offering (as defined herein). The Convertible Debentures may be redeemed by the Company at any time on or after the first 121 days from closing and before the first anniversary of closing at 110% of principal amount, and any time on or after the first anniversary of closing at 115% of principal amount.

(ii) A new non-revolving senior secured facility (the "New Senior Facility") of up to $12 million, with interest at a rate of prime plus 1.75%, calculated daily and payable monthly. This new facility will mature and be payable in full on December 31, 2007.

(iii) The payment of cash in an amount of at least $1 million from the proceeds of the Equity Offering, with a portion of additional proceeds to be applied to the repayment of the Existing Fund Facility as follows:



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Gross Proceeds from Repayment New Senior Convertible
Equity Offering Amount Facility Debentures
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$10,000,000 to $11,000,000 $1,000,000 $12,000,000 $7,500,000
$11,000,001 to $12,500,000 $1,500,000 $11,500,000 $7,500,000
$12,500,001 to $14,000,000 $2,000,000 $11,000,000 $7,500,000
$14,000,001 to $16,000,000 $3,000,000 $10,000,000 $7,500,000
$16,000,001 to $20,000,000 $4,000,000 $ 9,000,000 $7,500,000
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Milagro is appreciative of the Fund for its support in restructuring the Existing Fund Facility. Milagro believes that the extended term and reduced principal amount of the New Senior Facility along with the two year term of the Convertible Debentures will give the Company the necessary flexibility to pursue new equity financing and enable the subsequent execution of its 2007 drilling program of high impact prospects. The exchange of a significant portion of the Existing Fund Facility into Convertible Debentures also offers the Fund and the Company a mechanism to exchange much of Milagro's current debt into additional common equity in the near term to further strengthen the financial position of Milagro.

Proposed Equity Offering

Milagro has engaged Westwind Partners Inc. ("Westwind") to act as agent for the public offering of common shares and flow-through common shares of Milagro on a marketed and reasonable best-efforts basis to raise gross proceeds of a minimum of $10 million and a maximum of $20 million (the "Equity Offering"). The Equity Offering is expected to be made pursuant to a short form prospectus which the Company expects to file within the next week. Further details regarding the equity offering will be provided by the Company when the preliminary prospectus for the offering is filed.

The Corporation intends to use the proceeds of the Equity Offering, net of the fees and expenses of the Equity Offering and the partial repayment of the Existing Fund Facility described above, to pursue its development and exploration program and to reduce its existing working capital deficiency.

The Corporation's initial drilling program for 2007 includes delineating the Duperow formation on Milagro's Battle Creek, Saskatchewan property as follow up to the significant reserve potential announced January 17, 2007. At the Corporation's Judy Creek, Alberta property, Milagro will be targeting an extension of the prolific Swan Hills Reef for which regulatory approval was received in late 2006. Also in the Judy Creek area, Milagro intends to horizontally drill one of the large seismically identified Pekisko structures located on its 100% owned properties. Milagro has identified additional prospects for near-term production additions including re-completing a well at the Corporation's Shekilie property and drilling a well at Rigel, British Columbia, offsetting the Corporations current Baldonnel natural gas production.

Completion of the Equity Offering and the other transactions contemplated by the Restructuring Agreement are each conditional on the closing of the other transaction, and are subject to a number of other conditions, including negotiation and completion of definitive documentation, completion of satisfactory due diligence by the Fund and Westwind, successful marketing of the Equity Offering and regulatory approval, including approval of the Toronto Stock Exchange. There is no assurance that the transactions described in this press release will be completed on the terms described herein or at all.

These securities have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state, and may not be offered or sold in the United States unless an exemption from registration is available. This press release does not constitute an offer to sell or the solicitation of an offer to buy these securities in the United States

Milagro is an exploration and production company engaged in the acquisition, exploration, development and production of oil and natural gas reserves in western Canada.

READER ADVISORY

Statements in this press release may contain forward-looking information including expectations of funds to be raised in a financing, production, and future capital expenditures and cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the company. These risks include, but are not limited to, the risks associated with the oil and gas industry, commodity prices, general economic conditions, conditions in the capital markets in Canada and elsewhere and exchange rate changes. Industry related risks could include, but are not limited to, operational risks in exploration, development and production, delays or changes in plans, risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. The reader is cautioned not to place undue reliance on this forward-looking information.

Contact Information

  • Milagro Energy Inc.
    Jeffrey Rekunyk
    CEO
    (403) 693-4006
    or
    Milagro Energy Inc.
    Brad Haack
    CFO
    (403) 693-4007
    Website: www.milagroenergy.com