SignalEnergy Inc.

November 08, 2006 23:59 ET

SignalEnergy Inc. Enters Into an Agreement to Acquire a Private Oil and Gas Company and Proposed Plan of Arrangement

CALGARY--(CCNMatthews - Nov. 8) -


SignalEnergy Inc. ("Signal" or the "Corporation") (TSX:SGI) has entered into an agreement to acquire a private oil and gas company ("PrivateCo") and proposes to proceed with a plan of arrangement (the "Arrangement") to reorganize its share capital.

PrivateCo has 2.9 million boes of proven and 3.3 million boes of proven and probable reserves as determined by its independent engineers in an evaluation completed as at May 31, 2006. The consideration for the acquisition of PrivateCo will be $15.0 million cash, approximately 16.3 million common shares of Signal and the assumption of approximately $8.2 million of indebtedness, net of working capital. PrivateCo's current production is 550 boe per day with approximately 200 boe per day that is behind pipe. In addition, PrivateCo holds 14,000 net acres of undeveloped land with an average working interest of 54% and options to earn an additional 52,800 gross acres of undeveloped lands. The PrivateCo lands are all located in the Ladyfern area straddling the borders of Alberta and British Columbia where there is an estimated 60 infill drilling locations with immediate access to production facilities.

Closing of the acquisition is expected to occur on or before November 15, 2006, subject to regulatory approval.

Upon completion of the acquisition Signal will have production of 850 boe per day and 3.6 million boes of proven and 5.4 million boes of proven and probable reserves consisting of natural gas and natural gas liquids based on independent engineering evaluations. In addition, Signal will have 23,000 net acres of undeveloped land and the right to earn up to an additional 52,800 acres of undeveloped land.

In conjunction with the acquisition, Signal will propose an Arrangement with its shareholders whereby existing shareholders can elect to receive one share of a newly created company ("Amalco") for each five Signal shares held, $1.30 cash for each share or a combination thereof provided that the maximum amount of cash to be paid out to shareholders is $30 million.

Following the completion of the Arrangement and the acquisition of PrivateCo and assuming that the Corporation takes up and pays for $30 million of common shares, Signal will have approximately 13.2 million common shares outstanding and a working capital surplus of $12 million. Signal's 2007 capital budget for the combined company is estimated to be $15 million which will fund the drilling of 10 infill development wells and 5 exploration wells in the Ladyfern area, all expected to be drilled by the end of the first quarter 2007.

Upon completion of the Arrangement funds managed or advised by Lime Rock Management LP ("Lime Rock") will hold approximately 2.6 million shares of the resultant company representing 19.6% of the issued and outstanding shares (assuming that the Corporation takes up and pays for all of the $30 million of commons shares). Upon completion of the Arrangement, two Lime Rock nominees will be appointed to the Board of Directors (the "Board") of Signal and Mr. George Watson and Mr. Randy Harrison will resign. We would like to thank Mr. Watson and Mr. Harrison for their valuable contributions and support to the Corporation. Mr. Watson has served on the Board of Signal since the re-organization of SignalGene Inc. in December 2003 and Mr. Harrison has served on the Board since the acquisition of Predator Exploration Ltd in January, 2005.

Mr. J. Cameron Bailey, CFA will remain as President and Chief Executive Officer of Signal. Mr. Bailey led Signal from its restructuring as a biotechnology company in December 2003 to an oil and gas company with peak production of 2,200 boes per day in December 2005 while maintaining top quartile finding and development costs of $13.67 per boe and recycle ratio of 2.5 times. In March 2006 Signal sold 3.4 million boes of proven and 4.7 million boes of proven and probable reserves for $96.2 million leaving it with $65 million of net working capital.

Mr. John C. Milford has been appointed Executive Vice President, Exploration and Development of Signal. Mr. Milford has a Masters Degree in Earth Sciences from the University of British Columbia. He has worked as a Petroleum Geologist for 25 years during which time he has been a founder and director of a number of successful private oil and gas companies. He has established a successful track record of low finding and development costs experienced directly from his prospect generation activities.

Mr. Jamie Jeffs, C.A. will remain as the Chief Financial Officer of Signal. He joined the Corporation in August 2005 as the Chief Financial Officer. Mr. Jeffs was formerly Vice President, Finance of CriticalControl Solutions Corp., and prior thereto was with KPMG LLP.

Additional management appointments will be made in the near future.

Mr. Bailey commented that, "the combination of the acquisition, re-organization and new management team sets the foundation for an aggressive counter cyclical buy and exploit strategy. The Corporation is extremely fortunate to have a strong balance sheet to fund the acquisition of long life natural gas reserves and to be ramping-up its activities during a cyclical down turn in the industry. In addition, shareholders of Signal will have the opportunity to receive some of the benefit from the prior sale of assets of Signal in the form of a cash return through the Arrangement".

FirstEnergy Capital Corp. ("First Energy") acted as financial advisor to the Board. The Board has approved the acquisition and has received a verbal opinion from FirstEnergy that the consideration to be paid pursuant to the acquisition of PrivateCo is fair, from a financial point of view, to Signal shareholders, subject to a review of the final form of documents.

Tristone Capital Inc. acted as financial advisor to the Board of Directors of the PrivateCo.

BOE Presentation

Natural gas reserves and volumes recorded in thousand cubic feet are converted to barrels of oil equivalent ("boe") on the basis of six thousand cubic feet ("mcf") of gas to one barrel ("bbl") of oil. The term "barrels of oil equivalent" may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 1 bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead.

Caution to Reader

This news release contains forward-looking statements and the reader is cautioned not to place undue reliance on these statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. This specifically includes whether the acquisition will close or that the Arrangement will be approved or implemented. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predications, forecasts, projections and other forward-looking statements will not occur.

This news release is not for dissemination in the United States or to any United States news services. The common shares of Signal have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States or to any U.S person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

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