Purcell Energy Ltd.

Purcell Energy Ltd.

August 02, 2005 13:22 ET

Purcell Announces Reorganization and Asset Sale

CALGARY, ALBERTA--(CCNMatthews - Aug. 2, 2005) - Purcell Energy Ltd. (TSX:PEL) ("Purcell") announces a corporate reorganization into a new exploration-focused, natural gas production company ("Tenakaco"), a gas production company (Purcell), and the sale of certain assets. Purcell has entered into two separate agreements to sell all of its Saskatchewan assets and substantially all of its Alberta assets for total consideration of $151,000,000. A portion of the consideration for the Alberta assets will be satisfied by the issuance of common shares of Prairie Schooner Petroleum Ltd. ("Prairie Schooner") in an amount equal to one Prairie Schooner common share for every 18 Purcell common shares issued and outstanding on the date of closing, such amount not to exceed 3,020,000 common shares of Prairie Schooner. The cash proceeds from the two asset sales will be used to repay outstanding debt and the balance, after corporate taxes (if any), will be distributed to Purcell shareholders along with the Prairie Schooner common shares pursuant to a plan of arrangement (the "Arrangement") described below.

As a result of the Arrangement, Purcell shareholders will retain their Purcell common shares, which will be consolidated on a one-for-five basis. They will also receive, for each common share held, 0.20 of a Tenakaco common share, approximately $0.40 in cash and 0.0556 of a Prairie Schooner common share.

The reorganization is the culmination of a year-long process by Purcell to seek alternatives to maximize shareholder value. Through this process, the board of directors has investigated or considered numerous options, including outright sale of the company, merger, or sale of a smaller amount of assets and continuing forward with Purcell. The board of directors believes that the reorganization is in the best interest of shareholders.

In conjunction with the asset sales, Purcell will also effect a reorganization of the corporation to create Tenakaco, a public exploration-focused junior producer. Pursuant to the reorganization, the Tenaka production, reserves and undeveloped acreage near Adsett, B.C. will be transferred to Tenakaco, along with all of Purcell's other undeveloped exploration lands in northeast B.C. In consideration of the transfer of assets, Tenakaco will issue approximately 10.8 million common shares that will be distributed to Purcell shareholders, while Purcell will retain its Fort Liard, N.W.T. gas property and minor Alberta and B.C. producing and undeveloped properties. The reorganization and the distribution of cash and Prairie Schooner common shares will be done pursuant to the Arrangement.

The Alberta asset sale, the Saskatchewan asset sale and the Arrangement (collectively, the "Transactions") will be subject to approval by securityholders of Purcell holding at least 66? percent of the issued and outstanding securities of Purcell. It is anticipated that an information circular detailing the Transactions will be mailed to securityholders in September 2005. The meeting of securityholders to approve the Transactions will be held in October 2005. If the requisite securityholder, regulatory and stock exchange approvals are obtained, Purcell will as soon as practicable thereafter seek an order from the Alberta Court of Queen's Bench approving the Arrangement. The Transactions, which will close contemporaneously, are expected to close in October 2005.

The Transactions have the unanimous support of the board of directors of Purcell. The directors are of the opinion that the Transactions will maximize shareholder value through ownership in three companies: Tenakaco, the refocused Purcell, and Prairie Schooner, while achieving attractive valuations for the assets that are being sold (which will eliminate debt and provide a cash payment to shareholders). The Transactions will be completed by the sale of a portion of the assets through a partnership structure, which will provide tax-efficiencies for Purcell and its shareholders. After completion of the Transactions, certain members of the existing Purcell management team and board of directors will be included in the management teams and boards of directors of either Tenakaco or Purcell. The respective management teams and boards have not been finalized and will be announced prior to issuance of the information circular describing the Transactions.

Jan Alston, President and Chief Executive Officer of Purcell, stated: "The Transactions provide the opportunity for shareholders of Purcell to realize full value. In addition to receiving a cash payment, shareholders will receive shares in Prairie Schooner, ensuring continued participation in the upside potential of the Alberta assets and exposure to a dynamic growth oriented junior. Also, shareholders will receive shares in a new B.C. natural gas-focused junior exploration and production company with a substantial land position in the emerging Tenaka natural gas play, and an extensive portfolio of high-impact natural gas prospects. Also, by retaining their Purcell shares, shareholders will own a debt-free company with greatly reduced overhead, and continue to be exposed to the upside potential of the Fort Liard natural gas property where the operator is working to increase production and improve recovery factors."

Highlights of Arrangement

As a result of the Arrangement, Purcell shareholders will receive, for each common share held, approximately $0.40 in cash, 0.0556 of a Prairie Schooner common share, 0.20 of a Tenakaco common share, and Shareholders will retain their Purcell common shares, which will be consolidated on a one-for-five basis under the Arrangement.

Attributes of Tenakaco

Pursuant to the Arrangement, Purcell will transfer the Tenaka natural gas property and all of its undeveloped B.C. acreage to Tenakaco in consideration for approximately 10,800,000 common shares of Tenakaco that will be distributed to Purcell shareholders. The Tenaka natural gas property includes current production of 650 boe/d. As evaluated by Gilbert Laustsen Jung Associates Ltd. ("GLJ") at March 31, 2005, the Tenaka proved reserves are 1,027,000 boe and proved plus probable reserves are 1,829,000 boe. The Tenaka acreage encompasses approximately 85,500 gross (36,500 net) acres of contiguous lands covering 125 gas spacing units at an average working interest of 42.6 percent. Purcell has identified up to 12 drilling locations on 3D seismic, including follow-up locations to this past winter's drilling and other separate prospects. Additional contingent drilling locations are being developed.

A further 91,396 net acres of undeveloped land will be transferred to Tenakaco, as well as several minor producing properties. Tenakaco will be a natural gas-focused junior that will expose its shareholders to significant upside potential as it develops the Tenaka project and pursues its other high-impact deep gas prospects in northeast B.C. Before closing of the Transactions, it is anticipated that one or more equity private placements will be completed to insiders and business associates of Tenakaco.

Attributes of Purcell

On closing of the Transactions, Purcell's significant asset will be the Fort Liard natural gas property located in the southwest Northwest Territories. This property currently produces about 600 boe per day net to Purcell from three wells. During the remainder of 2005, workovers and recompletions of existing wells have the potential to increase production and reserves. Also, Purcell anticipates that new wells will be drilled. Fort Liard remains valuable with a large amount of original gas in place. The potential for improving recovery factors on the pool provides significant upside, both in production and reserves.

In addition to the Fort Liard property, Purcell will retain an extensive seismic database in the N.W.T. and Alberta. Also, Purcell will retain several minor producing and undeveloped properties in Alberta and B.C. Current production from the minor properties is 70 boe per day, with as much as 200 boe per day behind pipe pending recompletions and tie-ins. Purcell will retain undeveloped lands totaling 7,500 net acres. After closing of the Transactions, Purcell will be a debt-free company with significant cash flow from the Fort Liard property. After completion of the Transactions, Purcell intends, if circumstances permit, to implement a dividend policy whereby a portion of the Fort Liard cash flow will be paid to shareholders on a quarterly basis.

Highlights of Asset Sales

The Alberta asset sale comprises substantially all of Purcell's oil and gas reserves, production and undeveloped lands in Alberta. The Alberta asset sale also includes several producing properties in B.C., and excludes several minor producing and undeveloped properties in Alberta and B.C., which will be retained by Purcell. The Saskatchewan asset sale comprises all of Purcell's properties in Saskatchewan.

Current production from the Alberta and Saskatchewan asset sales is approximately 3,150 barrels of oil equivalent ("boe") per day, net to Purcell. The total consideration of $151,000,000, less 135,000 net acres of undeveloped lands valued at $11,000,000, equates to about $44,700 per flowing boe per day. Based on a March 31, 2005 reserves evaluation by GLJ, the asset sales included proved reserves of 6,813,000 boe and proved and probable reserves of 9,027,000 boe. The asset sales value the reserves at $20.55 per proved boe and $15.51 per proved and probable boe, after accounting for undeveloped land.

The Saskatchewan asset sale and Alberta asset sale are subject to the usual and customary conditions in a transaction of this nature, including receipt of all necessary regulatory, stock exchange and shareholder approvals, completion of due diligence, waiver or compliance with any consents, rights of first refusal or other restrictions on the asset sales and the absence of any material adverse changes to the relevant properties. The Alberta assets sale includes a break fee of $4,000,000 payable by Purcell if the sale is not completed as a result of failure to receive shareholder or regulatory approvals.

The Transactions will require approval of securityholders of Purcell holding at least 66? percent of the issued and outstanding securities of Purcell. The meeting of securityholders to approve the Transactions will be held in October 2005.

Financial Advisor

GMP Securities Ltd. is acting as financial advisor to Purcell with respect to the Transactions.

Conference Call

A conference call is scheduled for Tuesday, August 2, 2005 at 1:30 p.m. (MT) to discuss Purcell's Transactions.

Conference Call Details:

Title: Purcell Energy Reorganization and Asset Sale conference call
Date: Tuesday, August 2, 2005
Time: 1:30 p.m. Mountain Time (3:30 p.m. Eastern Time)
Dial-in: 416-640-4127 (Toronto or International)
1-800-250-4910 (toll free in North America)
Webcast: www.purcellenergy.com

A replay of the conference call will be available until August 16, 2005 at 416-640-1917 (Toronto and International) or 1-877-289-8525 (toll free in North America). The pass code for both replay numbers is 21133300#. An audio archive will be available at www.purcellenergy.com.

Forward-Looking Statements

Certain information set forth in this document contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Purcell's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approval of regulatory authorities. Purcell's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances 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, including the amount of proceeds, that Purcell will derive therefrom.


In this news release the term barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of one boe for 6,000 cubic feet of natural gas is based on an energy-equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this news release are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.

Contact Information

  • Purcell Energy Ltd.
    Jan M. Alston
    President & C.E.O.
    (403) 269-5803
    Purcell Energy Ltd.
    Bruce Murray
    (403) 269-5803
    Website: www.purcellenergy.com
    Iradesso Communications Corp.
    Peter D. Knapp
    (403) 503-0144 ext. 202