Rockyview Energy Inc.
TSX : RVE

Rockyview Energy Inc.
Espoir Exploration Corp.
TSX VENTURE : ESX.A
TSX VENTURE : ESX.B

Espoir Exploration Corp.

October 31, 2005 08:32 ET

Rockyview Energy Inc. Agrees to Acquire Espoir Exploration Corp.

CALGARY, ALBERTA--(CCNMatthews - Oct. 31, 2005) - Rockyview Energy Inc. (TSX:RVE) ("Rockyview") and Espoir Exploration Corp. (TSX VENTURE:ESX.A) (TSX VENTURE:ESX.B) ("Espoir") are pleased to announce that they have entered into an agreement whereby Rockyview will acquire, by way of a plan of arrangement, all of the issued and outstanding shares of Espoir (the "Transaction"). Pursuant to the Transaction, the Espoir Class B shares will be converted into Espoir Class A shares on the basis of 3.1348 Espoir Class A shares for each Espoir Class B share and Espoir Class A shareholders will, at their election, receive either $3.19 cash or 0.5148 of a Rockyview share for each Espoir Class A share held. The total consideration offered by Rockyview is subject to a maximum of $8.325 million cash and 7.445 million Rockyview shares.

Transaction Highlights

- Total acquisition cost of $61.9 million, including $54.4 million for Espoir's shares and the assumption of $7.5 million of net debt at closing. Included in the acquisition cost is $6.6 million for 48,421 net acres of undeveloped land and seismic.

- Acquisition of approximately 935 boe of daily production, 93% of which is natural gas.

- Focussed operations in two areas:

- Thunder (Central Alberta; Twps. 58-61, Rges. 4-7 W5M). Multi-zone potential for gas in Cretaceous, Jurassic and Paleozoic formations. Additional upside in the Upper Mannville formation for coalbed methane ("CBM"). This area is in close proximity to the Corbett Creek CBM project area where Rockyview's management team compiled a significant land position while at APF Energy Trust; and

- Spirit River/Gordondale (Peace River Arch; Twps. 75-82, Rges. 2-11 W6M). Multi-zone potential for gas and light oil in Cretaceous and Triassic formations.

- Espoir's average working interest is approximately 61% in 17 producing wells, and Espoir operates 72% of its production.

- Espoir has proved reserves of 1.58 million boe and proved plus probable reserves of 2.31 million boe which is based on an independent engineering report prepared by GLJ Petroleum Consultants effective October 1, 2005 (the "GLJ Report").

- Espoir has an additional 15 to 20 gross (10 to 14 net) drilling locations, none of which is included in the GLJ Report.

- Acquisition metrics, net of undeveloped land and seismic, of:

- $59,151 per flowing boe;

- $23.92 per boe (proved plus probable); and

- 2.92 times estimated 2006 cash flow.

- Accretive on a Rockyview per share basis:

- Production (18% per share);

- Reserves (20% per share, (total proved) and 7% per share (proved plusprobable)); and

- Cash flow (17%).

Transaction Structure and Espoir's Financial Advisor

The Transaction will be completed by way of a plan of arrangement. Espoir expects to mail an information circular to its shareholders by the end of November and intends to hold a shareholders' meeting to vote on the Transaction by mid-January, 2006. The Transaction will require the approval of 66?% of the votes cast by the Espoir securityholders and the approval of the Court of Queen's Bench of Alberta. The Transaction is subject to the acceptance and approval of the Toronto Stock Exchange and the TSX Venture Exchange.

The boards of directors of Rockyview and Espoir have approved the Transaction. In addition, the board of directors of Espoir will recommend that the securityholders approve the Transaction. Certain Espoir Class A shareholders, representing approximately 23% of the outstanding Class A shares (basic), have agreed to vote in favour of the Transaction. Espoir has agreed to pay to Rockyview, in certain circumstances, a non-completion fee of $1.75 million.

GMP Securities Ltd. acted as financial advisor to Espoir and has advised the board of directors of Espoir that they are of the opinion that, subject to the review of formal documentation, the consideration to be received by the Espoir shareholders pursuant to the Transaction is fair, from a financial point of view, to the Espoir shareholders.

Benefits of the Transaction

The Espoir acquisition allows both Rockyview and Espoir shareholders to participate in a stronger, well capitalized exploration and production company. Rockyview will have a balanced portfolio of low risk, internally generated drilling prospects and will be well-positioned to add significant shareholder value through Espoir's higher-impact plays.

Upon closing of the Transaction, Rockyview will have the following key operating and financial characteristics:

- Estimated production of approximately 1,900 boe per day, leveraged 94% to natural gas, before giving effect to any production additions as a result of Rockyview's fourth quarter capital program (estimated to be approximately 400 boe per day).

- Estimated annual 2006 cash flow of approximately $40 to $44 million with an operating netback of $38.00 per boe, based on the following assumptions:

- average daily production of 2,800 boe to 3,000 boe, comprised 95% natural gas;

- average commodity assumptions of Cdn. $9.50 per mcf for natural gas and U.S. $55.00 per barrel for oil;

- exchange rate of Cdn. $0.85;

- operating and transportation costs of $6.60 and $1.41 per boe,
respectively;

- royalty rate of 20%; and

- capital expenditure program of $30 million.

- No hedges in place, allowing full participation in the strong commodity price environment.

- A high-quality drilling inventory of 130 gross (75 net) wells to be drilled during 2006 and 2007.

- An independently engineered reserve base of 3.27 million boe (total proved) and 5.45 million boe (total proved plus probable).

- Increased enterprise value

- Market capitalization of approximately $145 million;

- Enhanced liquidity; and

- Improved financial flexibility.

- Attractive balance sheet with an estimated combined net debt on closing of $22 million, representing 0.5 times projected cash flow.

- Combined bank debt of $18 million on credit lines which are expected to be approximately $25 million. The bank debt is the net result of Espoir and Rockyview's fourth quarter capital programs, the cash portion of the onsideration paid to the Espoir shareholders and transaction costs; and

- Based on estimated 2006 cash flow of $40 to $44 million and 2006
risked capital expenditures of $30 million, Rockyview estimates
that December 31, 2006 net debt will be approximately $10 million,
or 0.22 times annual cash flow.

- Combined tax pools of $69 million at June 30, 2005.

- 19.5 million shares outstanding (21.4 million fully diluted).

"This acquisition is a very strong complement to our existing portfolio of assets," commented Rockyview's President and Chief Executive Officer, Steve Cloutier. "We had been looking to add one or two new core areas with significant drilling upside that balanced our lower-risk Horseshoe Canyon CBM development program in Wood River. The Thunder area northwest of Edmonton and the Peace River Arch fit our criteria: multi-zone drilling potential with room to grow."

Mr. Cloutier noted that the exploration potential resident in the Espoir assets is likely to generate new production and reserves at very attractive rates. "Given what we believe to be reasonable risking of the Espoir drilling inventory, we think we can find new production at $15,000 to $20,000 per flowing boe, so our all-in costs of the transaction, after future capital, should be in the $40,000/boe/d range. With gas prices expected to remain high in the near future, the value of that incremental cash flow is significant."

Bruce Beynon, Espoir's President and Chief Executive Officer, stated, "The combination with Rockyview will allow Espoir shareholders to participate in a unique high-quality natural gas company whose future growth is back-stopped by an exciting and proven Horseshoe Canyon CBM development program. The combined entity, with its 94% leverage to natural gas, will provide shareholders with significant exposure to a robust natural gas price environment."

Reader Advisory

Forward-Looking Statements - Certain information set forth in this news release, including management's assessment of future plans, 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 management's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, risks associated with the uncertainty of reserve estimates and currency fluctuations. 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.

Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion factor is an industry accepted norm and is not based on either energy content or current prices.

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

Contact Information

  • Rockyview Energy Inc.
    Steve Cloutier
    President & CEO
    (403) 538-5000
    (403) 538-5050 (FAX)
    or
    Rockyview Energy Inc.
    Alan MacDonald
    V.P., Finance & CFO
    (403) 538-5000
    (403) 538-5050 (FAX)
    Email: invest@rockyviewenergy.com
    or
    Espoir Exploration Corp.
    Bruce Beynon
    President & CEO
    (403) 294-1442
    (403) 294-1455 (FAX)
    or
    Espoir Exploration Corp.
    Michael Wilhelm
    V.P., Finance & CFO
    (403) 294-1442
    (403) 294-1455 (FAX)
    Email: info@espoir-exploration.com