Redcliffe Exploration Inc.
TSX VENTURE : RXI.A
TSX VENTURE : RXI.B

Redcliffe Exploration Inc.

December 01, 2006 11:57 ET

Redcliffe Exploration Ltd. and Stallion Energy Ltd. Announce Further Information With Respect to Strategic Business Combination

CALGARY, ALBERTA--(CCNMatthews - Dec. 1, 2006) -

(NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA)

REDCLIFFE EXPLORATION LTD. (TSX VENTURE:REL.A) (TSX VENTURE:REL.B) ("Redcliffe") and STALLION ENERGY LTD. ("Stallion") are pleased to provide further information with respect to their business combination previously announced on November 21, 2006.

Redcliffe and Stallion have entered into an arm's length amalgamation agreement dated November 20, 2006 (the "Agreement") pursuant to which, subject to satisfaction of certain conditions, the parties will proceed with a business combination (the "Combination"). The resulting combined company will enjoy a strengthened asset base, expanded drilling opportunities, significant tax pools and financial strength. Both Redcliffe and Stallion bring focused exploration and development opportunities that are anticipated to increase production and cash flows in 2007.

In connection with the Combination, Stallion shareholders will be asked to approve the following: (i) Stallion changing its name to Redcliffe Exploration Inc. ("REI"); (ii) Stallion consolidating its issued and outstanding share capital on a 0.54054054 of a new common share for every one (1) presently issued common share basis; and (iii) Stallion reclassifying its authorized share capital, such that all common shares of Stallion will be converted into Class A shares ("REI Class A Shares") and a new class of shares, known as Class B shares ("REI Class B Shares") will be created, in each case having the same attributes as the existing Class A Shares and Class B Shares of Redcliffe.

Redcliffe shareholders will also be asked to approve the Combination, pursuant to which each Redcliffe Class A shareholder will receive one (1) REI Class A Share for every one (1) Redcliffe Class A Share, and each Redcliffe Class B shareholder will receive one (1) REI Class B Share for every one (1) Redcliffe Class B Share. Additionally, all options to purchase Class A Shares of Redcliffe will be exchanged for equivalent options of REI, such that Redcliffe option holders will hold an identical number of options to purchase REI Class A Shares as they did in Redcliffe prior to the Combination.

No shareholder of Stallion or Redcliffe holds in excess of 10% of the outstanding voting securities of Stallion or Redcliffe, respectively. Following completion of the Combination, no shareholder will hold in excess of 10% of the outstanding voting securities of REI.

Upon completion of the Combination, former shareholders of Redcliffe will own approximately 44.6% of the REI Class A Shares and 100% of the REI Class B Shares, and former shareholders of Stallion will hold approximately 55.4% of the REI Class A Shares and no REI Class B Shares.

The Board of Directors of REI will be comprised of Daryl Connolly, Uldis Upitis, Donald Cowie, James Rawls, W.C. (Mike) Seth, Harley Winger and Glenn Hockley. Management of REI will remain the same as the current management of Redcliffe.

REI intends to apply for a substitutional listing of the REI Class A Shares and REI Class B Shares on the TSX Venture Exchange ("TSXV") in conjunction with the completion of the transaction. The TSXV has provided the parties with a sponsorship exemption in connection with the Combination and it is expected that the Redcliffe Class A Shares and the Redcliffe Class B Shares will commence trading upon market opening on Monday, December 4, 2006.

Strategic Rationale

The transaction combines two companies with a similar geological and operational focus. Stallion has concentrated its efforts in the west central basins of Alberta and currently has producing properties at Gilby, Pine Creek and Leaman. Their recent success in the Gold Creek area of northwestern Alberta provides exposure to high impact oil and gas reserves and production. Redcliffe, which completed its Initial Public Offering on August 31, 2006, has focused its operations in the Pembina/Whitecourt area of west central Alberta as well as in the Wapiti area of northwestern Alberta. Since becoming public, Redcliffe has participated in the drilling of 8 gross (1.955 net) wells resulting in 6 gross (1.55 net) potential gas wells, 1 gross (0.225 net) potential oil well, and has recently elected not to participate in the casing of 1 gross (0.18 net) exploration well in the Albright area of northwestern Alberta. This transaction provides enhanced value for both Stallion and Redcliffe shareholders by consolidating complementary asset bases with increased financial strength, no debt, significant tax pools and an experienced management team to execute the business plan.

Daryl Connolly, Chairman and Chief Executive Officer of Redcliffe, and Randy Harrison, President and Chief Executive Officer of Stallion jointly commented: "This transaction accelerates the growth potential of REI while providing immediate cash flows and tax pools that will facilitate future corporate growth transactions. It also provides Stallion shareholders with liquidity and the financial resources to pursue development of the Gold Creek property potential and access to a large prospect inventory assembled by Redcliffe through its joint venture programs. The deal combines financial strength with opportunity at a time of pricing uncertainty in the industry. Redcliffe and Stallion are debt free companies with drilling prospects containing a balance between risk and reward. This combination increases our ability to execute on plans to develop REI into a successful junior explorer and provide the critical mass to compete for the services and opportunities within the oil and gas industry. We are targeting production rates of 1,000 boepd during 2007 and this is our first major step. The tax pools will provide considerable advantages both financially and competitively during 2007 and beyond."

Transaction Highlights

Redcliffe and Stallion shareholders will participate in a larger, growth-oriented, junior oil and gas producer with an enhanced ability to exploit its assets through its cash flow base, financial strength, and an expanded inventory of drilling prospects. Following the completion of the Combination, management estimates that REI will have:

- Daily production of over 400 boepd, comprised of 85 percent natural gas and 15 percent light oil and NGLs;

- An initially proposed capital expenditure program of $15 million for 2007 to be funded from cash on hand, cash flow and available bank lines;

- Access to Stallion's 8,000 gross undeveloped acres as well as in excess of 18,500 gross acres of undeveloped or option lands through Redcliffe joint ventures;

- Over $55 million in tax pools which will shelter oil and gas revenue and allow for an aggressive acquisition oriented business plan;

- Approximately 23,119,000 REI Class A Shares and 1,102,500 REI Class B Shares issued and outstanding, as well as options to acquire an additional 1,140,250 REI Class A Shares, each at an exercise price of $0.35 per share;

- No debt; and

- Core operations in Leaman, Gilby, Pine Creek, Gold Creek, Wapiti, Harmattan and the general Pembina/Whitecourt area.

In addition, and as determined by Paddock Lindstrom & Associates Ltd., in an independent National Instrument 51-101 compliant reserve report, effective August 1, 2006, Stallion had estimated reserves of 424,600 boe on a proven basis and 897,500 boe on a proven plus probable basis (based on working interest before royalties).

Capital Spending and Production Targets

REI currently anticipates drilling at least 15 wells on existing owned or controlled properties of Redcliffe and Stallion during 2007. This 2007 capital program has been preliminarily established at $15 million and does not include follow-up wells to Redcliffe's or Stallion's drilling programs since October 2006. Both companies have drilled during 2006 a total of 15 wells with an 80% success rate. Additionally, the strength of the pro forma balance sheet and cash flows provides REI with the capacity to exploit successful wells and new opportunities generated by the exploration team in 2007. REI has targeted to reach 1,000 boepd in 2007 through these drilling opportunities.



Selected Financial Information

The following table sets forth certain unaudited financial information for
each of Stallion and Redcliffe.

Stallion Redcliffe
----------------- -------------------
As at and for the
As at and for the period from
9 months ended May 4, 2006 to
July 31, 2006 September 30, 2006
----------------- -------------------
(in $000's, except for shares outstanding) (unaudited) (unaudited)

Total revenues 1,999 53
Net loss 367 48
Long-term debt - -
Working capital 1,135 12,134
Total assets 16,553 12,488
Shareholders' equity 12,996 12,263
Number of shares outstanding:
Basic 21,415,245 11,402,500
Diluted 23,840,245 12,542,750


Management and Board of Directors

Following the Combination, Redcliffe Exploration Inc. will be led by Daryl H. Connolly, Chairman and CEO, and the existing management team of Redcliffe, including: John P. Andersen, Vice President, Exploration; Brent S. Dube, Vice President, Operations; George Gramatke, Vice President, Finance and Chief Financial Officer; and Bruce G. Hall, Vice President, Land.

The Board of Directors of Redcliffe Exploration Inc. will be comprised of Daryl H. Connolly, Uldis Upitis, Donald Cowie, James H. Rawls, Wazir C. (Mike) Seth, Harley L. Winger and Glenn D. Hockley upon closing of the transaction, all of Calgary, Alberta other than Mr. Rawls who resides in Mississippi, U.S.A.

Glenn D. Hockley, a director of Stallion Energy Ltd. is expected to join the REI board of directors upon completion of the Combination. Mr. Hockley is a professional geologist and an independent businessman with over 30 years of experience in the oil and gas business. Mr. Hockley was the President of Torrington Resources Ltd. from 1993 to 1998 and President of Eravista Energy Ltd. from 1998 to 2004. He presently acts as a director of Berens Energy Ltd., Anderson Energy Ltd., both of which are listed on the TSX and Stallion Energy Ltd.

Brief biographies of each of REI's proposed directors and management will be included in the information circular to be mailed to shareholders of Redcliffe and Stallion.

Agreements

The Board of Directors of Redcliffe has agreed to recommend shareholder approval of the proposed transaction and certain shareholders, including management, consultants and directors of Redcliffe holding approximately 49% of the issued and outstanding Class A Shares, have agreed to vote their shares in favour of the Combination.

The Board of Directors of Stallion has agreed to recommend shareholder approval of the transactions required to complete the Combination and certain shareholders, including management, employees and directors of Stallion holding approximately 36% of the issued and outstanding common shares of Stallion, have agreed to vote their common shares in favour of the transactions required to complete the Combination.

The Agreement provides that the parties shall not, directly or indirectly, solicit or invite any inquiries, discussion or negotiations with any third party with respect to any takeover proposal and each party agrees to pay an $800,000 break fee under certain circumstances.

The Agreement provides for the entering into of non-competition agreements by Redcliffe with certain key personnel of Stallion.

Conditions to Completion

The completion of the Combination is subject to a number of conditions including the approval of the TSXV and shareholder approval from each of Stallion and Redcliffe and certain other conditions. The Combination cannot close until the required approvals are obtained. There can be no assurance that the Combination will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in publicly disseminated press releases of either Redcliffe or Stallion or the Redcliffe and Stallion information circulars to be prepared in connection with the Combination, any information released or received with respect to the proposed transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Redcliffe and Stallion should be considered speculative at this time based on the information contained herein.

The TSXV has in no way passed upon the merits of the proposed transaction and has neither approved or disapproved the contents of this news release.

Redcliffe and Stallion plan on holding special meetings of their respective shareholders in early 2007 to consider and approve the proposed transaction.

Financial Adviser

GMP Securities L.P. ("GMP") acted as the financial adviser to Redcliffe in respect of this transaction. GMP has advised the Board of Directors of Redcliffe that it is of the opinion, subject to its review of the final form of the documents effecting the Combination, that the consideration to the Redcliffe shareholders pursuant to the Combination is fair from a financial point of view to the Redcliffe shareholders.

About the Parties

Redcliffe is a Calgary based publicly traded junior oil and gas company incorporated under the laws of the Province of Alberta, engaged in the exploration, development and production of oil and natural gas in the Western Canadian Sedimentary Basin.

Stallion is a Calgary based private junior oil and gas company continued under the laws of the Province of Alberta, also engaged in the exploration, development and production of oil and natural gas in the Western Canadian Sedimentary Basin.

Cautionary Statements

Disclosure provided herein in respect of boe units may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain information set forth in this document, including managements' assessments of future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond these party'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 industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. 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 will be derived there from. Each disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities legislation.

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

Contact Information

  • Redcliffe Exploration Ltd.
    Daryl Connolly
    President and CEO
    (403) 539-8440
    or
    Redcliffe Exploration Ltd.
    Suite 900, 736 - 6th Avenue SW
    Calgary, Alberta
    T2S 3T7
    or
    Stallion Energy Ltd.
    Randy Harrison
    President and CEO
    (403) 263-9732
    or
    Stallion Energy Ltd.
    Suite 1900, 555 - 4th Avenue SW
    Calgary, Alberta
    T2P 3E7