Twin Butte Energy Ltd.

Drilcorp Energy Ltd.
TSX VENTURE : DCL

Drilcorp Energy Ltd.

April 03, 2006 09:25 ET

Twin Butte Energy Ltd. Announces Strategic Acquisitions of Drilcorp Energy Ltd. and Kerogen Petroleum Ltd.

CALGARY, ALBERTA--(CCNMatthews - April 3, 2006) -

Not for distribution to U.S. newswire services or for dissemination in the United States of America.

TWIN BUTTE ENERGY LTD. ("Twin Butte"), DRILCORP ENERGY LTD. (TSX VENTURE:DCL) ("Drilcorp") and KEROGEN PETROLEUM LTD. ("Kerogen") are pleased to announce that Twin Butte has entered into binding amalgamation agreements dated April 1, 2006 (the "Agreements") with each of Drilcorp and Kerogen, pursuant to which, subject to satisfaction of certain conditions, Twin Butte will indirectly acquire each of Drilcorp and Kerogen by creating two wholly-owned subsidiaries which will amalgamate (the "Amalgamations") with Drilcorp and Kerogen, respectively. The Agreements contemplate that the Amalgamations will proceed on the following exchange terms:

Drilcorp:

Each Drilcorp shareholder will receive, at the shareholder's election:

(i) 0.5 of a common share of Twin Butte; or

(ii) $0.60 cash; or

(iii) a combination of Twin Butte common shares and cash;

for each common share of Drilcorp to a maximum of 19,641,493 Twin Butte common shares and a maximum of $7.85 million in cash.

The total value of the Drilcorp acquisition is approximately $40 million, including the assumption of net debt of approximately $9 million and proceeds of $967,000 on the assumed exercise of all outstanding options. There are currently 49,947,315 Drilcorp common shares issued and outstanding and 2,430,000 options to purchase Drilcorp common shares. Upon completion of the Amalgamations former shareholders of Drilcorp will own approximately 25% of the issued and outstanding Twin Butte voting common shares.

The acquisition of Drilcorp will constitute a reverse take-over and change of control of Drilcorp under the rules of the TSX Venture Exchange, Inc. (the "TSXV"), and Twin Butte intends to apply for a substitutional listing of its common shares on the TSXV in conjunction with the completion of the Amalgamations. Accordingly, on a go-forward basis, Twin Butte will be subject to the TSXV policies.

Kerogen:

Each Kerogen shareholder will receive 3.35 common shares of Twin Butte for each common share of Kerogen, which will result in the issuance by Twin Butte of a maximum of 14,392,139 Twin Butte common shares. There are currently 3,377,815 Kerogen common shares issued and outstanding and 918,346 options to purchase Kerogen common shares. Upon completion of the Amalgamations former shareholders of Kerogen will own approximately 18% of the issued and outstanding Twin Butte voting common shares.

The total value of the Kerogen acquisition is approximately $18 million, including assumption of net debt of approximately $1.35 million and proceeds of $509,870 on the assumed exercise of all outstanding options and warrants.

Agreements

The Board of Directors of Drilcorp has agreed to recommend approval of the proposed transaction and certain shareholders, including certain of the management and directors of Drilcorp holding approximately 30% of the issued and outstanding common shares of Drilcorp, have agreed to vote their common shares in favour of the Amalgamation.

The Board of Directors of Kerogen has agreed to recommend approval of the proposed transaction and certain shareholders, including the management and directors of Kerogen holding approximately 40% of the issued and outstanding common shares of Kerogen, have agreed to vote their common shares in favour of the Amalgamation.

Each of the Agreements 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. Drilcorp and Kerogen have both agreed to pay Twin Butte a non-completion fee under certain circumstances.

Financial Advisors

Jennings Capital Inc. has provided the board of directors of Drilcorp with their oral opinion, subject to review of the final form of documents effecting the transaction, that the consideration offered pursuant to the transaction is fair, from a financial point of view, to the shareholders of Drilcorp.

Tristone Capital Inc. has been appointed Kerogen's financial advisor in connection with the proposed Amalgamation, and has advised the board of directors of Kerogen that it is of the opinion, subject to its review of the final form of the documents effecting the Amalgamation, that the consideration received by the Kerogen shareholders as a result of the completion of the Amalgamation is fair from a financial point of view.

Pro Forma Information

Following the completion of the Amalgamations, Twin Butte will have:

- assuming the successful completion of the Amalgamations, and a private placement announced on March 3, 2006 by Twin Butte of up to 25,000,000 common shares for aggregate proceeds of approximately $10,000,000 (see the press release filed on www.sedar.com), Twin Butte will have issued and outstanding a maximum of 79,805,123 common shares, 9,333,310 non-voting shares, as well as warrants to acquire an additional 7,000,000 common shares, each at an exercise price of $0.43 per share;

- in excess of $120 million in tax pools which will shelter oil and gas revenue and allow for an aggressive acquisition oriented business plan;

- daily production of over 1,100 boe/d, comprised of 70 percent natural gas and 30 percent light oil and NGL's;

- a planned capital expenditure program of approximately $10 million over the next 12 months. The capital expenditure program will be funded from cash flow and available bank lines;

- in excess of 15,000 net undeveloped acres of land with numerous exploration and development drilling opportunities;

- net debt of approximately $3 million assuming the exercise of the above referenced warrants representing approximately 0.3 years of proforma cash flow; and

- core operations in East Central Alberta at Bruce, Bulwark and Oyen, and in North Western Alberta at Jayar.



Selected Financial Information

The following table sets forth certain unaudited financial information
for each of Drilcorp, Kerogen and Twin Butte.

Drilcorp Kerogen Twin Butte
-------------- --------------- ------------------
As at and for
the 9 months As at and for As at and for
ended the year ended the proforma year
September 30, December 31, ended March 31,
2005 2005 2006(1)
-------------- --------------- ------------------
(unaudited) (unaudited) (unaudited)

Total Revenue 6,700,107 7,596,418 17,000
Net Lease Operating
Income 4,839,311 4,373,291 (495,000)
Bank Debt 6,270,673 0 0
Working Capital
(Deficiency) (1,127,746) (618,239) 3,605,000
Total Assets 21,438,530 9,984,555 3,689,000
Shareholders' Equity 10,053,027 5,577,402 3,668,000
Number of Shares
Outstanding
Basic 47,574,238 3,377,815 30,104,823
Diluted 48,209,238 4,296,161 37,104,823

Notes:
(1) After conversion of outstanding convertible demand notes.


Board of Directors

The board of directors of Twin Butte is comprised of Messrs. Paul Colborne, Jeff Lawson, Ken Mullen and Robin Salmon and James Saunders who will continue as directors of the go-forward public entity. The subject Board has considerable experience in managing and directing junior public oil and gas companies and feels they jointly with the management of Twin Butte will be able to generate numerous unique growth opportunities for the combined entity.

Paul Colborne, Director

Paul Colborne is currently a director and the Chairman and Chief Executive Officer of TriStar Oil & Gas Ltd., a TSX listed junior oil and gas exploration company with current production of more than 2,700 boepd. In addition, Mr. Colborne is also Chairman of Mission Oil & Gas Inc., a Director of Crescent Point Energy Trust, Canetic Resources Trust, as well as a Director of Titan Exploration Ltd., Orleans Energy Ltd., and Breaker Energy Ltd. From October, 2001 to August, 2003, Mr. Colborne was the President and Chief Executive Officer of Crescent Point Energy Ltd. Crescent Point converted into Crescent Point Energy Trust in August, 2003, whereupon Mr. Colborne commenced as President and Chief Executive Officer of StarPoint Energy Ltd. In January 2005, StarPoint merged with E3 Energy Inc., and converted to a conventional oil and gas royalty trust. In January of 2006, StarPoint Energy Trust and Acclaim Energy Trust merged to create Canetic Resources Trust, a 75,000 boepd conventional oil and gas royalty trust listed on the TSX and NYSE. From 1993 to February, 2001, Mr. Colborne was the President and Chief Executive Officer of Startech Energy Inc., a Calgary based intermediate oil and gas exploration and production company whose shares were listed on the TSX and NASDAQ.

J. G. (Jeff) Lawson, Director

Mr. Lawson is a Partner in the law firm of Burnet, Duckworth & Palmer LLP, a Canadian law firm with offices in Calgary, Alberta where his practice is focused on merger and acquisition activities and corporate finance. Mr. Lawson is also a member of the Executive Committee of Burnet, Duckworth & Palmer LLP and serves on the board of directors of a number of public issuers and certain charitable organizations.

Ken Mullen, Director

Mr. Mullen is the President and Chief Executive Officer of Savanna Energy Services Corp. (a publicly-traded oilfield services company). Mr. Mullen was previously President and Chief Executive Officer of Plains Energy Services Ltd. Plains Energy was acquired by Precision Drilling Corp. in 2000 pursuant to a hostile takeover. Prior to joining Plains Energy, Mr. Mullen practiced law, specializing in corporate tax planning, structuring of acquisitions, and corporate combinations, and as a Chartered Accountant specializing in corporate tax and finance planning.

Robin Salmon, Director

Mr. Salmon was the Chief Financial Officer of ViRexx Medical Corp. from September, 2001 until November, 2005. Mr. Salmon was also a director of ViRexx until 2004 and as corporate secretary thereafter. From May 2003 until December 2004, Mr. Salmon served as the Chief Financial Officer and director of AltaRex Medical Corp. Prior to September, 2001, from September, 2000, Mr. Salmon was the Chief Financial Officer of Indico Technologies Limited. Prior thereto, Mr. Salmon was a partner of KPMG LLP, where, during a 20-year career, he focused on taxation and corporate finance for private and public companies. Mr. Salmon received a BA (Hons.) from the Richard Ivey School of Business, University of Western Ontario in 1970 and is a Chartered Accountant.

James Saunders, Director

Mr. Saunders is currently the Chairman and Chief Executive Officer of Prairie Schooner Petroleum Ltd. (a publicly traded oil and gas company) and a director of Orleans Energy Ltd. Prior thereto he was the President and Chief Executive Officer of Great Northern Exploration Ltd. (a publicly traded oil and gas company) and held that position since August 2001. Mr. Saunders was also the President of Ionic Energy Inc. (a publicly traded oil and gas company) from June 1997 until 2001.

Conditions to Completion

The completion of the Amalgamations is subject a number of conditions including the approval of the TSXV and disinterested shareholder approval from Drilcorp and Kerogen, if applicable. The Amalgamations cannot close until the required shareholder approvals are obtained. There can be no assurance that the Amalgamations will be completed as proposed or at all. In addition, sponsorship of the proposed transaction (and the listing of the Twin Butte voting shares) may be required in accordance with the TSXV policies, but has not yet been obtained, however, the Company is applying for an exemption to the sponsorship requirements of the TSXV but there are no assurances one will be obtained. The completion of the Drilcorp Amalgamation is not conditional on the completion of the Kerogen Amalgamation.

Investors are cautioned that, except as disclosed in publicly disseminated press releases of the Company's and the management information circulars to be prepared in connection with the Amalgamations, any information released or received with respect to the proposed transactions may not be accurate or complete and should not be relied upon. Trading in the securities of Twin Butte, Drilcorp and Kerogen should be considered speculative at this time based on the information contained herein.

The board of directors of Drilcorp have called a special meeting of Drilcorp Shareholders to consider the Drilcorp amalgamation for May 30, 2006 and have set a record date for the special meeting of April 26, 2006. Kerogen anticipates that it will hold a special meeting to approve the Kerogen amalgamation prior to the end of May, 2006.

About the Parties

Twin Butte is a private Alberta company and is a reporting issuer in all of the provinces of Canada. There are 8,448,036 Twin Butte voting common shares currently issued and outstanding which are widely held. Kerogen is a private junior oil and gas company while Drilcorp is a publicly trading junior oil and gas company, each of whom are 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 management's assessment 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 this 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

  • Twin Butte Energy Ltd.
    J.G. (Jeff) Lawson
    Director
    (403) 260-0267
    or
    Drilcorp Energy Ltd.
    Rick Wlodarczak
    Managing Director Corporate
    (403) 264-5453
    or
    Kerogen Petroleum Ltd.
    David Burghardt
    President
    (403) 215-2045
    or
    Kerogen Petroleum Ltd.
    Ron Cawston
    Executive Vice President
    (403) 215-2045