ProEx Energy Ltd.
TSX : PXE

ProEx Energy Ltd.

March 05, 2007 15:04 ET

ProEx Energy Announces Significant Acquisition and Bought Deal Equity Financing

Expands British Columbia Foothills Presence

CALGARY, ALBERTA--(CCNMatthews - March 5, 2007) -

NOT FOR DISSEMINATION IN THE US OR THROUGH US WIRE SERVICES

ProEx Energy Ltd. ("ProEx" or the "Company") (TSX:PXE) today announced that it has entered into an agreement to acquire certain interests in northeast British Columbia Foothills assets acquired earlier today by Progress Energy Trust ("Progress") on substantially similar commercial terms as Progress (the "Acquisition"). The Acquisition has an effective date of April 1, 2007 and is expected to close on or about April 2, 2007, with the closing being subject to customary industry conditions. ProEx's total consideration under the agreement is approximately $134.3 million, subject to certain closing adjustments, and will be financed through a concurrently announced equity offering, described below, as well as increased available credit facilities.

The Acquisition is a unique high-quality opportunity at this time in the cycle and is an extremely complementary fit to ProEx's existing operations in the British Columbia Foothills. The Acquisition includes producing assets with significant exploitation potential and exploratory lands on-trend to the Company's existing Foothills activity.

"Since inception, our focus has been on building the underlying value of each share of ProEx and to this point we have accomplished this entirely through the drill bit," said David Johnson, President and CEO of ProEx. "The assets we are acquiring today are a hand-in-glove fit with our existing producing assets in northeast British Columbia and will expand our exploration inventory and growth potential substantially."

The key attributes of this Acquisition are:

- Current production of approximately 2,200 boe per day comprising 95 percent natural gas

- Proved plus probable reserves, as estimated by the original vendor's third party engineering firm of approximately 6.6 million boe. Based on knowledge and experience obtained over the past four years through successful exploration activities in the Foothills, ProEx expects to significantly increase the proved plus probable reserves through the drilling of approximately 20 to 25 wells over the next two years

- Large contiguous land blocks with high working interests in ProEx's core regions which will add approximately 80,000 net undeveloped acres bringing total undeveloped land under control to approximately 365,000 acres

- The addition of over 800 square kilometers of 3-D seismic coverage, expanding ProEx's 3-D seismic data library to approximately 2,000 square kilometers, and approximately 2,000 kilometers of 2-D data

- Improved netback and future profitability resulting from the acquisition of royalties on prior farm-in lands

- Access to alternate major natural gas processing facilities allowing greater diversity in ProEx processing capacity

Acquisition and full-cycle metrics

Excluding the value of the undeveloped land and seismic data of $27.2 million, the net acquisition cost of $107.1 million results in attractive on-stream costs of $48,700 per producing boe based on current production of approximately 2,200 boe per day, and a proved plus probable reserve additions cost, based on the original vendor's third party report, of $16.23 per boe. The acquisition cost plus future activity is expected to result in full cycle finding and development costs of approximately $10.00 to $12.00 per boe to exploit the recoverable reserves. This is consistent with the Company's cumulative full cycle all-in finding costs since 2004 in the British Columbia Foothills.

ProEx's growing dominance in the Foothills

ProEx's predecessor company, Progress Energy, entered the Foothills region in 2002 through the acquisition of four producing wells in the Town and Beg areas. The first third party activity completed by Progress in the Foothills was a farm-in on a block of land which is included in this asset group. Since that time, ProEx and Progress have jointly drilled approximately 130 Foothills wells. Based on the combined year-end reserve reports, ProEx and Progress have discovered 350 billion cubic feet of natural gas in the Foothills over the past four years of which ProEx has booked approximately 200 billion cubic feet. Significant expertise has been developed throughout this period by our technical team who continuously look for not only large scale regional expansion opportunities but cost effective refinements to the ongoing program.

Acquired properties are a "hand-in-glove" fit

Bubbles area

ProEx has acquired a 40 percent working interest in the majority of these lands and a 26 percent working interest in the deeper Slave Point horizon. The Bubbles area represents approximately 65 percent of the acquired production and is producing primarily from the Halfway, Baldonnel and Slave Point formations. The regional geology is characterized by its stacked reservoirs in the Triassic and Cretaceous sections similar in depths to adjacent ProEx working interest properties at Town and West Beg. Natural gas in the Halfway is contained within a tight gas reservoir with well-log and producing characteristics consistent with ProEx's experience throughout the northeast British Columbia Foothills. An aggressive step-out and infill program is planned across the Bubbles lands. The Slave Point formation also offers exposure to higher impact exploration that has the potential to materially expand the Company's ultimate potential over the longer term.

Buckinghorse/Green area

ProEx has acquired a 50 percent working interest in the exploration lands and production in the Buckinghorse/Green area. This area represents approximately 35 percent of the acquired production and is producing primarily from the Baldonnel and Debolt formations. The acquired lands cover approximately 30,000 net undeveloped acres and are contiguous with the Company's lands acquired in the fourth quarter of 2006. Significant upside has been identified utilizing 2-D seismic data in look-alike opportunities similar to the producing wells. Acquisition of seismic data will be necessary to further expand the inventory of opportunities in the Cretaceous and Triassic horizons. ProEx will also hold a 50 percent working interest in three Buckinghorse-Halfway A pool discovery wells that are not currently on production. Each discovery well provides an immediate inventory of drilling locations which will provide the critical mass necessary to advance the facilities development.

Substantial Upside Potential

The focus of ProEx's historical activities in the Foothills has been the extensive Triassic aged Halfway formation. Prior to 2006, the majority of the Company's drilling activities have been along the seismically identified anticlinal crests where ProEx employed innovative drilling techniques to unlock the potential of the region. Typical Halfway wells along the crest produce from one to three million cubic feet per day in the first year and then stabilize in the range of 0.5 to 1.0 million cubic feet per day with a reserve life greater than 30 years. In 2006, ProEx along with its working interest partner Progress experienced substantial success in the Cretaceous horizons throughout the Foothills with success being experienced predominantly in the Bluesky and Gething formations.

Forecast Guidance

ProEx forecasts 2007 average production to be between 10,000 and 10,500 boe per day, assuming an April 1 closing date. Exit 2007 production is expected to be in the range of 12,000 to 13,000 boe per day.

With this acquisition, ProEx will increase its 2007 exploration and development capital budget from $120 million to $150 million. Including the acquisition the total investment spending will be approximately $285 million.

Financing

In conjunction with the Acquisition, ProEx has entered into an agreement with a syndicate of underwriters co-led by Peters & Co. Limited and BMO Capital Markets and including FirstEnergy Capital Corp., Raymond James Ltd., GMP Securities LP, Canaccord Capital Corporation, Sprott Securities, and Tristone Capital Inc. (collectively, the "Underwriters"), pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 8,050,000 subscription receipts (the "Subscription Receipts") at a price of $12.45 per Subscription Receipt for aggregate gross proceeds of $100,222,500.

Each Subscription Receipt will represent the right to receive one common share of ProEx, 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 May 1, 2007, the net proceeds from the offering of the Subscription Receipts will be released to ProEx and used by ProEx to pay a portion of the Acquisition price.

The Subscription Receipt offering is subject to certain conditions including normal regulatory approvals. The Subscription Receipts will be offered in certain provinces of Canada by way of a short form prospectus. The closing of the Subscription Receipt offering is expected to occur on or about March 27, 2007.

As part of the acquisition, ProEx's credit facility will be increased to $150 million. BMO Capital Markets has also provided an equity bridge facility of $100 million which can be utilized for this transaction. It is expected that this facility will not be utilized due to the concurrently announced equity financing. BMO Capital Markets has acted as exclusive financial advisor on this transaction.

This News Release is not an offer to sell or a solicitation of offers to by the Subscription Receipts in the United States. The Subscription Receipts have not been and will not be registered under the United States Securities Act and may not be offered or sold in the United States except in transactions exempt from such registration.

ProEx is a Calgary based junior oil and natural gas company with operations focused in northeast British Columbia. Common shares of ProEx are listed on the Toronto Stock Exchange under the symbol PXE.

Forward Looking Statements - Certain information regarding ProEx Energy Ltd. set forth in this document, including management's assessment of ProEx Energy Ltd.'s future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond ProEx Energy Ltd.'s control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. ProEx Energy Ltd.'s 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 that ProEx Energy Ltd. will derive therefrom.

Contact Information

  • ProEx Energy Ltd.
    Mr. David Johnson
    President & CEO
    (403) 216-2510
    (403) 216-2514 (FAX)
    or
    ProEx Energy Ltd.
    Mr. Steven Allaire
    Vice President Finance & CFO
    (403) 216-2510
    (403) 216-2514 (FAX)
    Email: ir@proexenergy.com