Profound Energy Inc.

Profound Energy Inc.
Defiant Resources Corporation

Defiant Resources Corporation

January 21, 2008 08:00 ET

Profound Energy Inc. Announces Strategic Combination With Defiant Resources Corporation

CALGARY, ALBERTA--(Marketwire - Jan. 21, 2008) - Profound Energy Inc. ("Profound" or the "Company") (TSX:PFX) and Defiant Resources Corporation ("Defiant") (TSX:DFR) are pleased to announce that they have entered into an arrangement agreement whereby Profound will acquire by plan of arrangement, subject to certain conditions, all of the issued and outstanding shares of Defiant, for total consideration of approximately $58.1 million, including the assumption of approximately $20.0 million of net debt (the "Arrangement"). Under the terms of the Arrangement, Profound will issue approximately 12.4 million common shares to the shareholders of Defiant based on an exchange ratio of 0.55 of a Profound common share for each share of Defiant or $1.69 per share based on a 10 day weighted average price of $3.07 for Profound. Based on the 10 day weighted average price of Defiant on the TSX, the transaction represents a premium of 21.8%.

Arrangement Overview:

Profound will acquire approximately 1,300 BOE/d (70% natural gas, 30% oil & liquids), 4.03 MMBOE of proven plus probable reserves (based on Profound's internal estimates) and 85,000 net acres of undeveloped land. Based on the purchase price of $58.1 million and after excluding the seismic database and undeveloped land value of approximately $12.4 million, the Arrangement metrics are:

- Production - $35,207 per BOE/d based on estimated current production of 1,300 BOE/d.

- Reserves - $11.36 per proven plus probable barrel of oil equivalent.

The Arrangement will provide Profound and Defiant shareholders, ownership in a larger, financially stronger company that intends to focus on the exploitation of the combined companies' large prospect inventory.

The Boards of Directors of both Profound and Defiant have unanimously approved the Arrangement. The Defiant Board has unanimously concluded that the Arrangement is in the best interests of its shareholders, and has unanimously resolved to recommend that Defiant shareholders vote their shares in favour of the Arrangement. FirstEnergy Capital Corp. acted as exclusive financial advisor to the Defiant Board of Directors and have provided an opinion that the consideration to be received by the Defiant Shareholders under the Arrangement is fair, from a financial point of view. Additionally, all of the directors and senior officers of Defiant, representing approximately 24 percent of the outstanding Defiant Shares have entered into support agreements to vote their shares in favour of the Arrangement.

The Arrangement contains a reciprocal non-completion fee in the amount of $1.5 million which is payable by Defiant or Profound to the other, as the case may be, in certain circumstances if the Arrangement is not completed. The Arrangement requires the requisite approval of Defiant shareholders along with customary regulatory, court and other approvals. An information circular outlining the Arrangement will be mailed to Defiant Shareholders in connection with the Arrangement and the closing of the Arrangement and shareholder's meeting are proposed to be held prior to March 31, 2008.

Strategic Rationale:

The Arrangement complements Profound's acquire, exploit and explore growth strategy and provides additional critical mass with regards to production, land and cash flow further establishing Profound as a growth-oriented junior. In addition to a solid production base consisting of 30 percent oil, the acquisition brings approximately 85,000 net undeveloped acres of land, and a new core area in the Peace River Arch, Alberta.

Both Defiant and Profound maintain significant oil and gas properties in the Pembina area, allowing efficiency in drilling and production operations. Identified well optimization and facility construction is underway which should provide short term production growth and additional drilling opportunities. In addition to a significant land base with excellent seismic coverage, Defiant provides an inventory of over 25 seismically and mapping defined drilling opportunities.

2008 Outlook:

Upon closing of the Arrangement, Profound will have the following corporate pro forma characteristics:

- Production levels of more than 3,975 BOE/d, comprising more than 25 percent light oil.

- Approximately 12.5 MMBOE of P+P reserves; RLI of approximately 9 years.

- Undeveloped land base of approximately 127,000 net acres.

- The Company will operate approximately 85 percent of its production.

- Excellent balance sheet with debt to forward cash flow of approximately 1.6 times.

- Tax pools of approximately $200 million, resulting in a significant long term tax advantage.

- Large drilling inventory of over 50 low risk development and higher reward exploration locations representing two years of activity.

- Approximately 37.3 million shares outstanding.

Profound shall provide additional 2008 guidance upon successful completion of the Arrangement.

Profound's focus continues to be on increasing shareholder value through a combination of grassroots exploration, strategic acquisitions and subsequent exploitation.

Reader Advisory

Barrels of oil equivalent ("BOE") may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and is based on an energy equivalency conversion method application at the burner tip and does not represent an economic value equivalency at the wellhead.

Certain information regarding Profound and Defiant (the "Companies") set forth in this joint news release including management's assessment of the Companies' future plans and operations, the effect of the Transaction on the Companies and on shareholders of Profound and Defiant, timing of matters relating to the approval of the Transaction and implementation thereof, production increases and future production levels contain 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 the Companies' control including, without limitation, the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, lack of availability of qualified personnel, stock market volatility, ability to access sufficient capital from internal and external sources, uncertainty related to completion of the Transaction and the effect thereof and failure to receive required shareholder and regulatory and other approvals. The Companies' actual results, performance or achievements may differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Companies will derive therefrom. Additional information on these and other factors that could affect the Companies' results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website ( Furthermore, the forward-looking statements contained in this joint news release are made as at the date of this joint news release and none of the Companies undertake any obligation to update publicly or to revise any of the 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 "cash flow" is not a recognized measure under Canadian generally accepted accounting principles ("GAAP"). Management of Profound believes that in addition to net earnings, cash flow is a useful supplemental measure as it provides an indication of the results generated by Profound's principal business activities before the consideration of how these activities are financed or how the results are taxed. Investors are cautioned, however, that this measure should not be construed as an alternative to net earnings determined in accordance with GAAP as an indication of Profound's performance. Profound's method of calculating cash flow may differ from other companies, especially those in other industries and accordingly may not be comparable to measures used by other companies. Profound calculates cash from operations as cash from operating activities before the change in non-cash working capital related to operating activities.

Readers are also cautioned that this joint news release contains the term RLI or reserve life index, which is not a recognized measure under GAAP. Management of Profound believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Profound's method of calculating this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.

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

Contact Information

  • Profound Energy Inc.
    Nick Wemyss
    Exec. V.P. and Chief Operating Officer
    (403) 513-1378
    Profound Energy Inc.
    Evelyn Burnett
    Vice President, Finance and Chief Financial Officer
    (403) 513-1388
    Profound Energy Inc.
    380, 435 - 4th Avenue S.W.
    Calgary, Alberta T2P 3A8
    Defiant Resources Corporation
    Rick J. Ironside
    President & Chief Executive Officer
    (403) 266-5587
    Defiant Resources Corporation
    1800, 800 - 6th Avenue SW
    Calgary, Alberta T2P 3G3