Sheer Energy Inc.
TSX VENTURE : SHU

Sheer Energy Inc.

September 06, 2005 10:30 ET

Sheer Energy Inc. Provides Update on Reverse Takeover Transaction and Share Purchase Agreement

CALGARY, ALBERTA--(CCNMatthews - Sept. 6, 2005) - Sheer Energy Inc. (TSX VENTURE:SHU) ("Sheer") is pleased to announce that it has received conditional approval from the TSX Venture Exchange Inc. subject to satisfying all of its requirements, which includes obtaining written consent from a majority of its shareholders, for the proposed acquisition of all the issued and outstanding shares of Rigo Oil Company Limited ("Rigo"), Vega Oil s.r.l. ("Vega") and $6,000,000 in units of Peyto Energy Trust (the "Transaction"). Further details of the Transaction may be found in the Filing Statement filed on www.sedar.com on August 29, 2005. Sheer is in the process of obtaining written consent to the Transaction from a majority of its shareholders.

Sheer has entered into a Share Purchase Agreement dated effective June 30, 2005 among the Corporation, Mrs. Neli da Silva, Dr. Fabrizio Rigo ("Dr. Rigo"), Rigo Oil, Inc. ("Rigo Delaware"), Vega, Rigo and Rigo Oil Tunisia Ltd. ("Rigo Tunisia") that sets out the terms of the Transaction (the "Share Purchase Agreement").

Rigo Oil Company Limited is a private company incorporated in Jersey, Channel Isles, and is controlled by Mrs. Neli da Silva, the spouse of Dr. Rigo. Vega is a private company incorporated in Italy. Dr. Rigo is the president of both Rigo and Vega and is a geologist with over 50 years of experience in international oil and gas exploration. Mrs. Neli da Silva and Dr. Rigo will become the controlling shareholders of Sheer with approximately 76% of the resulting issued and outstanding shares. The business combination will be an "arm's length" transaction.

Sheer is a Canadian company listed on the TSX Venture Exchange with producing oil and gas properties in Western Canada. Sheer's average daily production for the three months ended June 30, 2005 was 33 barrels of oil equivalent per day, with approximately 73% of this volume being comprised of natural gas. In 2004, Sheer sold its 49% interest in the Masjed-I-Suleyman project in Iran for approximately U.S. $3,200,000. Sheer made a dividend distribution of CDN $0.25 per share to its shareholders of record on November 18, 2004 and has made another distribution of CDN $0.25 per share as "return of capital" to shareholders of record on December 17, 2004. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 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.

Assets held by Rigo include a 37.5% working interest in the Jorf permit onshore Tunisia (989,276 acres), operated by Pioneer Natural Resources Ltd., and a 100% working interest in the Sud Tozeur permit (1,082,283 acres), also onshore Tunisia. Rigo will also have, as at the time of closing of the Transaction, approximately $5,000,000 in cash.

Assets currently held by Vega include an 85% working interest in the B.R286 permit (31,303 acres) in the shallow Adriatic Sea, offshore East-Central Italy, a 60% working interest in the Civitaquana permit (152,081 acres), onshore Central Italy, a 100% working interest in the Posta Nuova permit (38,154 acres), onshore Southern Italy, and a 30% working interest in the Montalbano permit (40,781acres), also located onshore Southern Italy.

The B.R286 permit was officially granted to Vega by the Ministry of Production Activities in early 2005. The Civitaquana, Posta Nuova and Montalbano permits are currently under review by the Ministry of Environment and it is expected that they will be officially granted to Vega in 2005 or in early 2006.

Petrel Robertson Consulting Ltd., of Calgary, completed an independent geological and engineering evaluation dated June 2004 and revised in January 2005 of the Jorf, B.R286 and the Civitaquana permits. The three permits are exploratory in nature, with no oil and gas production currently established. Seismic data is available on all three permits; additional seismic work and an exploratory drilling program are being prepared for these permits.

The Posta Nuova, Montalbano and Sud Tozeur permits were not evaluated by Petrel Robertson in their report as they were added or applied for subsequent to the completion of the Petrel report. Seismic acquisition and/or re-interpretation plus a drilling program are also being developed for these permits.

Under the terms of the Share Purchase Agreement, Mrs. Neli da Silva will receive 55,000,000 common shares of Sheer, having a deemed value of $0.45 per share and 11,000,000 Series "A" Warrants in exchange for all the issued and outstanding securities of Rigo (and, indirectly, all of the issued and outstanding securities of Rigo Tunisia) and for $6,000,000 in units of Peyto Energy Trust, and Rigo Delaware, the parent company of Vega, will be issued 333,333 common shares of Sheer having a deemed value of $0.45 per share and 66,666 Series "A" Warrants in exchange for all the issued and outstanding shares of Vega.

Each whole Series "A" Warrant will entitle the holder to acquire one common share in the Corporation at an exercise price of $0.60 per common share expiring two years from the date of issue of the units.

It is a condition of closing the Transaction that the Corporation complete a brokered private placement and a non-brokered private placement (the "Private Placements"). Completion of the Private Placements is subject to a number of conditions, including, but not limited to, their approvals by the Exchange.

The Corporation will arrange for the non-brokered private placement of 4,444,444 units at $0.45 per unit for total proceeds of approximately $2,000,000 with such units being comprised of one common share and 0.2 of a Series "A" Warrant. No commission or fees will be paid in conjunction with the non-brokered private placement.

In addition, First Associates has agreed to act as sponsor to the Transaction and as agent on a best efforts basis in respect of the brokered private placement of 6,000,000 units of the Corporation at $0.60 per unit for total gross proceeds of $3,600,000 with such units being comprised of one common share and 0.4 of a Series "B" Warrant. Each whole Series "B" Warrant will entitle the holder to acquire one common share in the Corporation at an exercise price of $0.80 per common share expiring one year from the date of issue of the units. In consideration for its services, First Associates will receive an agent's commission, broker options, and be paid a corporate finance fee of $45,000 plus GST and be reimbursed for its expenses. No finders fees are payable in respect of the Transaction or any of the Private Placements.

Upon completion of the Transaction and the Private Placements, the total number of issued common shares of Sheer, including the 6,557,863 shares currently outstanding, will be 72,335,640 common shares. Additionally, the Corporation will have outstanding 11,955,554 Series "A" Warrants and 2,400,000 Series "B" Warrants.

The following table summarizes the pro forma financial information assuming subscription for the entire Private Placements:



Rigo/Vega Sheer Pro Forma Pro Forma
March 31, 2005 March 31, 2005 Adjustments Consolidated
Pro Forma
Balance Sheet
Current Assets $ 103,676 $ 183,105 $ 16,031,000 $ 16,317,781
Non-Current
Assets 2,561,436 804,649 785,801 4,151,886
Total Assets 2,665,112 987,754 16,816,801 20,469,667
Current
Liabilities 20,219 134,630 - 154,849
Non-Current
Liabilities 2,649,771 187,069 (2,359,635) 477,205
Total
Liabilities 2,669,990 321,699 (2,359,635) 632,054
Shareholder's
Equity $ (4,878) $ 666,055 $ 19,176,436 $ 19,837,613


The Corporation will have approximately $10,400,000 in cash available to it after closing the Transaction and Private Placements, which assumes subscriptions for all securities offered under the Private Placements. It will also hold $6,000,000 in units of Peyto Energy Trust, which is a trust listed on the Toronto Stock Exchange, that could be sold for cash. It is estimated that these funds will be sufficient to pay the Corporation's share of the costs of the proposed exploration program, which is expected to consist of seismic programs and the drilling and testing of one well on each of the Tunisian and Italian Permits, provided that the Corporation can farm out portions of its interests in the Sud Tozeur, B.R.268, Montalbano and Civitaquana permits

Upon completion of the Transaction, the board of directors of Sheer will consist of Dr. Fabrizio Rigo, Dario E. Sodero, Andrew S. Burgess, Derrick Armstrong and Ali Rawji. Dr. Rigo will be the President and C.E.O. Other key positions are expected to include Dario Sodero as Executive Vice President, Ali Rawji as C.F.O. and Fausto Petitta as Vice President Operations.

Dr. Rigo is a geologist with over 50 years of international exploration experience. He is currently the President of Rigo and Vega; from 1952 to 1967 he worked in various capacities for several companies in Italy, including Edison and Elf; in 1967 he founded Rigo and Associates, an international consulting firm; in 1970 he co-founded Seagull Oil Co., a private company which was acquired by Denison Mines after the discovery of the Vega oil field offshore Sicily; in 1982 he co-founded Seaxe Energy Corporation, a public company listed on the NASDAQ, which was later merged with Hadson Corporation; in 1984 he founded Euromin Canada Ltd., a company listed on the Vancouver Stock Exchange, which became Eurogas Corporation in 1995. Dr. Rigo graduated from the University of Milan, Italy, with a Doctorate in Geological Sciences in 1951.

Dario Sodero is a geologist with over 35 years of Canadian and international oil and gas exploration experience. He is the President of Planaval Resources Ltd., a private consulting company. From 1969 to 1979 he worked at Canada Cities Service where he became Geological Manager; from 1980 to 1990 he was Vice President and President of Atlas Yellowknife Resources, a company listed on the TSX; in 1992 he co-founded Coachlight Resources Ltd., a company listed on the Alberta Stock Exchange which was merged with Danoil Energy (later renamed Acclaim Energy Trust) in 1998; in 1997 he co-founded the Corporation. Mr. Sodero graduated from the University of Turin, Italy, with a Doctorate in Geological Sciences (Honours) in 1967.

Ali Rawji, C.A. provides financial reporting and corporate finance consulting services. He was a Vice President at First Associates Investments Inc. from 1997 to 2004 where he was in charge of the Public Venture Capital Group in Calgary and led the financing of numerous private and public companies. He has been involved in the development of several initiatives in the public venture capital markets in Canada, including participating as a member of corporate finance committees at the TSX Venture Exchange. Prior to that he was Manager of Listings at the Alberta Stock Exchange from 1995 to 1997. Mr. Rawji is a Chartered Accountant and also holds a Chartered Financial Analyst designation and a Bachelor of Economics (Honours) degree from the London School of Economics (1981).

Andrew S. Burgess, C.A. is the President of Greenfields Financial Corporation, a private financial consulting company. He has extensive experience in the formation and management, including taxation and financial reporting, of both private and public companies. Mr. Burgess graduated from the University of Manitoba in 1974 with a Bachelor of Commerce (Hons.) degree and qualified as a Chartered Accountant in 1976 with Peat, Marwick, Mitchell & Co. He qualified as a Certified Public Accountant in 1999. Mr. Burgess is Chief Financial Officer and a director of Huntington Resources Limited and Ecstall Mining Corporation, both junior resource exploration companies listed on the TSX Venture Exchange. Mr. Burgess is a member of The Institute of Chartered Accountants of Alberta and the Canadian Tax Foundation.

Derrick Armstrong is a partner and the regional head of the Securities and Capital Markets group in the Calgary office of a national law firm. He received a Bachelor of Commerce from the University of Calgary (1977) and an LLB from the University of Alberta (1980), and has practiced law in Calgary continuously since 1980. He is a director of Centurion Energy International Inc. (TSX and AIM), Veteran Resources Inc. (TSX) and Zi Corporation (TSX and NASDAQ).

Fausto Petitta has over 50 years experience with oil and gas companies in various capacities. He has worked for Montedison, Gulf Oil, Shell Oil, Ambassador Petroleum and Seagull Exploration from 1956 to 1979, mostly in the area of international concessions acquisition. From 1979 to 1998 he held positions as Managing Director for Canada Northwest (Italy and U.K.) and Eurogas Oil Corporation Tunisia. Since 2000, he has been the Vice President of Operations for Rigo.

Sheer's annual general meeting is scheduled to be held on September 8, 2005 at which time the shareholders will also vote on the proposed name change to "Cygam Energy Inc.", which is also subject to acceptance by the TSX Venture Exchange.

Trading of the shares of Sheer Energy Inc. will remain halted until completion of the Transaction and the Private Placements.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and Shareholder consent. The transaction cannot close until the required Shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Filing Statement prepared in connection with the transaction, any information released or received with respect to the RTO may not be accurate or complete and should not be relied upon. Trading the securities of Sheer Energy Inc. should be considered highly speculative.

SHARES ISSUED: 6,557,863

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

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

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

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