Vast Exploration Inc.
TSX VENTURE : VST

Vast Exploration Inc.

December 22, 2006 10:33 ET

Vast Exploration to Acquire Compass Petroleum Ltd and Receive 960 BOE/D-Samson Oil and Gas to Then Acquire 50% Share

CALGARY, ALBERTA--(CCNMatthews - Dec. 22, 2006) -

NOT FOR DISSEMINATION IN THE UNITED STATES OR THROUGH U.S. NEWSWIRE SERVICES

Vast Exploration Inc. (TSX VENTURE:VST) ("Vast"), is pleased to announce that it has entered into a letter agreement (the "Letter Agreement") to acquire all of the issued and outstanding shares of Compass Petroleum Ltd. ("Compass"), a private Alberta corporation active in the oil and gas industry (the "Acquisition"). Vast has also entered into a letter agreement (the "Participation Agreement") with Samson Oil and Gas Inc. ("Samson"), a private Alberta corporation wholly owned by the Samson Cree Nation, whereby Samson will acquire 50% of the Compass shares upon the closing of the Acquisition on similar terms.

The outstanding share capital of Compass consists of 20,645,409 common shares. In addition, Compass has granted options entitling holders to purchase up to an aggregate of 750,000 additional common shares and has issued purchase warrants entitling holders to acquire up to an aggregate of 1,975,000 additional common shares. In the Letter Agreement, Vast has agreed to pay cash consideration of $2.09 per share for each Compass share purchased. The purchase price of the Compass shares was calculated on the basis of an ascribed value for Compass of $52.5 million, less outstanding net debt (approximately $7.2 million) and a certain other adjustments agreed to by Vast and Compass and assumes that all outstanding options and warrants of Compass will be exercised at or prior to closing. Compass had net sales of 960 boe/day in the month of October 2006 and has over 89,000 net acres of land in the assets being acquired. As at June 30, 2006, working interest reserves for the properties were 2,812 Mboe of Proved and 4,398 Mboe of Proved plus Probable. Based on October sales volumes, this results in a reserve life index of 8 and 12.5 years respectively. Samson currently owns approximately 13.9% of the issued and outstanding common shares of Vast (see press release dated October 25, 2006).

"This is an outstanding acquisition for Vast", said Don Parker, President and CEO. "It gives Vast instant net production of 480 boe/day with the potential to expand to 800 boe/day with well-defined development projects. With our partner Samson, we think we can build on the Compass exploration potential even further. It is also encouraging that the two major shareholders of Vast, Samson and management, have agreed to backstop the financing by maintaining their share of the equity positions in Vast."

This acquisition by Vast will provide cash flow from which it can fund its future exploration and development opportunities, including those relating to the previously announced joint venture with Samson to pursue and develop Treaty Entitlement Lands in Saskatchewan.

Terms of Proposed Acquisition, Vast Financing and Participation Agreement

The Letter Agreement, which was negotiated at arm's length between Vast and Compass, contemplates that Vast will acquire, by way of an exempt takeover bid, all of the issued and outstanding shares of Compass pursuant to individual purchase and sale agreements to be entered into with holders of outstanding Compass shares (including any Compass shares issued prior to completion of the Acquisition upon the exercise of outstanding options or warrants). As contemplated by the Letter Agreement, Vast has provided a $2 million deposit to Compass, which Compass will be entitled to retain in the event the Acquisition is not completed, other than as a result of a breach by Compass of its obligations under the Letter agreement or in the event of a material breach by Compass of the representations and warranties provided by Compass in the Letter Agreement. Vast and Compass propose to negotiate and enter into a pre-acquisition agreement by January 12, 2007. The Letter Agreement provides for various conditions in favor of Compass including that Vast must demonstrate financial capability to complete the Acquisition by February 15, 2007 and that the purchase of the outstanding Compass shares must be completed no later than February 22, 2007.

As contemplated by the Letter Agreement, Compass proposes to undertake certain reorganization transactions prior to completion of the Acquisition, which will result in various existing assets of Compass being transferred to a newly formed corporation, such that those assets will not be assets of Compass at the time of completion of the Acquisition. Those assets include office furniture and equipment currently owned by Compass and its affiliates and certain interests in oil and gas properties, to which Vast ascribed no value in connection with its evaluation of Compass.

In order to complete the Acquisition, Vast will be required to complete a financing (the "Vast Financing"), which may involve the issuance of equity, debt or a combination thereof. Discussions with respect to the method of financing are ongoing, and will be the subject of a separate press release once details are finalized.

Vast and Samson have entered into a participation agreement (the "Participation Agreement") dated as of December 17, 2006. The Participation Agreement contemplates that Vast will transfer one half of the shares acquired by it to Samson. As consideration, Samson will be responsible for 50% of the purchase price as well as all other costs associated with the acquisition. Vast and Samson have each provided 50% of the $2 million deposit to Compass. It is anticipated that Vast, Samson and their respective professional advisors will work together to complete the due diligence, any required financing and otherwise satisfy the conditions precedent to the completion of the Acquisition. Each party will be responsible for funding its share of the costs of the Acquisition, including the deposit, due diligence and closing costs and the payment of the final purchase price, and has indemnified the other party for losses attributable to non-performance of financial obligations.

The Acquisition and the Vast Financing remain subject to, among other things, receipt of all applicable regulatory approvals, the completion of satisfactory due diligence and other matters. Vast expects that all conditions precedent will be satisfied in the ordinary course. The Acquisition constitutes a "Fundamental Acquisition" and the Vast Financing may potentially result in the creation of a new "Control Person" or in a "Change of Control" for Vast within the meanings of such terms in the applicable Policies of the TSX Venture Exchange. If the approval of the Vast shareholders is required, Vast will make application to the Exchange in an effort to have the Exchange accept written evidence of informed consent without the necessity of holding a formal shareholders' meeting. Vast anticipates releasing details regarding the Vast Financing in the near future and, if required, the filing of a Filing Statement with the Exchange during January, 2007.

Compass

Compass was incorporated on September 23, 2002 under the Business Corporations Act (Alberta), and is based in Calgary, Alberta. Since its incorporation, it has been actively involved in the business of exploring for and producing oil and gas, and has amassed approximately 89,710 net acres of land comprised of Crown and freehold leases held by Compass. In October 2006, Compass had sales of 960 boe/day from its properties located in Alberta, which production was comprised of 503 bbl/d of oil and natural gas liquids and 2,743 mcf/d of gas. Information respecting the principal properties of Compass is summarized below.

Grand Forks, Alberta - Twp.11 Rge. 13 W4

Compass holds a 76% average working interest in 18,905 acres of land in the Grand Forks area of Alberta. The primary production is medium gravity oil from the Jurassic Sawtooth sandstone at an average reservoir depth of 900 meters. A minor amount of gas is produced from the Cretaceous Bow Island and Second White Specks sands at shallower depths. Compass operates over 80% of its production from 56 oil wells and 4 gas wells. October 2006 sales totaled 501 bbl/d of oil and 132 mcf/d of gas. In this area water is re-injected in the majority of the pools so that reservoir pressure is maintained and decline profiles remain constant.

Total proved reserves of 1,354 Mboe and probable reserves of 817 Mboe have been assigned to the property. There are five locations assigned proved undeveloped reserves and two locations assigned probable based on well control, offset production and extensive 3D seismic. Compass operates six of the eight oil batteries it has an interest in.

Wrentham/Weston, Alberta - Twp. 6, Rge. 15 W3

Compass has an average working interest of 56% in 33,290 acres of land in Alberta, 50 km southeast of Lethbridge, near the Montana border. There are eleven producing gas wells on the property and Compass operates nine of them. The majority of the production is from the Baron's sandstone. In October 2006, net sales averaged 233 mcf/d of gas from the property.

Total proved reserves of 44 Mboe and probable reserves of 17 Mboe have been assigned to the property. One new well, recently tied-in, is not included in the above reserve assignments.

Lacombe, Alberta - Twp. 40, Rge. 27 W4

Compass has an average 53% working interest in 12,181 acres of land in the Lacombe area of Central Alberta. The Company operates eleven producing wells of which seven are producing Horseshoe Canyon coal-bed methane wells, three are from the Edmonton/Bearpaw sands, and one is a Viking oil and gas producer. In October 2006 net sales totaled 439 mcf/d of gas and 2 bbls/d of oil and natural gas liquids from this asset.

Total proved reserves of 811 Mboe and probable reserves of 521 Mboe have been assigned to this property. Sixty-six un-drilled locations have been identified in Lacombe primarily focused on the Horseshoe Canyon coals that at are at depths of less than 750 meters.

Vilna, Alberta - Twp. 59, Rge. 13 W4

Compass has an average 77% W.I. in 37,120 acres in the Vilna area of central Alberta. The Company operates 19 producing gas wells in the field with several shut-in wells scheduled to be tied-in this winter, adding to production volumes. Net sales for October 2006 averaged 1,789 mcf/d of gas from Vilna.

Total proved reserves of 416 Mboe and probable reserves of 166 Mboe have been assigned to this property. Four wells are awaiting tie-in and three uphole Viking zones have been identified for future development. No reserves have been assigned to the 13,344 net acres of prospective undeveloped land in the area.

Grassland, Alberta - Twp. 68, Rge. 19 W4

Compass has a 70% working interest in 2,560 acres of land in the Grassland area of Central Alberta. There are three standing Grand Rapids gas wells awaiting tie-in in the area. Discussions are well advanced with an industrial user in the area to purchase the gas through a direct sales contract. Net production is expected to exceed 500 mcf/d from these wells. Total proved reserves of 89 Mboe and probable reserves of 44 Mboe have been assigned to this property.

Craigend, Alberta - Twp.64, Rge. 11 W4

In the Craigend area Compass has 61% average working interest in 28,800 acres of land. The area contains an extensive Viking shallow gas resource play. There are ten producing Viking wells on the property already. Net sales totaled 132 mcf/d of gas in October 2006 from Craigend.

Total proved reserves of 92 Mboe and probable reserves of 18 Mboe have been assigned to Craigend. Additionally, Compass has received four well per section holding status for the area and as a result now has 75 infill locations available for drilling. These locations are not included in the engineering evaluation.

Sproule and Associates, Petroleum Consultants ("Sproule") of Calgary, Alberta, an independent qualified reserves evaluator, has prepared a report (the "Sproule Report") in respect of certain of Compass' properties (specifically, the Craigend, Davey Lake, Grand Forks, Grand Forks East, Grassland, Lacombe, Purple Springs, Vilna, Weston, Wolf Island and Wrentham Areas) entitled "Evaluation of Certain P&NG Reserves of Compass Petroleum Partnership" dated September 25, 2006 with an effective date of June 30, 2006. The Sproule Report complies with the requirements of National Instrument 51-101 as adopted by the Canadian securities regulators. Certain information respecting the oil and gas reserves of Compass and the present worth value of the estimated future net cash flows attributed thereto in the Sproule Report is set out below.



Summary of Oil and Gas Reserves
as of June 30, 2006

Net to Appraised Interest

Escalated Prices and Costs (CDN$)

Reserves
--------------------------------------------------------
Light and Medium Oil Sales Natural Gas
Gas Liquids

--------------------------------------------------------
Gross Net Gross Net Gross Net
Reserves Category (MSTB) (MSTB) (MMscf)(MMscf) (Mbbls) (Mbbls)

---------------------------------------------------------------------------
Proved Developed
Producing 1,058.9 933.8 3,273 2,862 11.6 7.2

Proved Developed
Non-Producing 0.0 0.0 1,116 954 0.0 0.0

Proved Undeveloped 239.0 216.6 4,614 4,055 1.9 1.3

Probable
Additional 785.9 664.5 4,746 4,122 9.3 5.7
--------------------------------------------------------
--------------------------------------------------------
Total Proved Plus
Probable 2,083.8 1,814.9 13,749 11,993 22.8 14.2


Net Present Values Of Future Net Revenue
Including Alberta Royalty Tax Credit

Net to Appraised Interest

Escalated Prices and Costs (CDN$)

Before Income Taxes Discounted
at (%/Year)

--------------------------------------------------------
0 10 15
Reserves Category (M$) (M$) (M$)

---------------------------------------------------------------------------
Proved Developed
Producing 39,090 29,130 26,147

Proved Developed
Non-Producing 4,763 3,827 3,477

Proved Undeveloped 15,982 9,441 7,362

Probable
Additional 34,770 17,799 13,850

--------------------------------------------------------
Total Proved Plus
Probable 94,604 60,196 50,836


Readers are cautioned that the estimated values disclosed do not represent "fair market value". See the cautionary statement set out below. In preparing the foregoing, Sproule used an escalated price for natural gas starting at $7.19 CDN per MMBTU for the AECO spot price and $81.51 CDN for the Edmonton 40 degree API par price for oil in 2006. For clarification on this point and other matters, the foregoing should be read in conjunction with the full Sproule Report which will be available on the SEDAR website at www.sedar.com.

Based on management prepared financial statements, as at October 31, 2006 Compass had net assets of $29,122,689, including a working capital deficit of $499,000 (excluding bank debt) and $6,700,000 in bank debt. The following is a summary of selected financial data in respect of Compass for the four month period ending October 31, 2006 based on management prepared, unaudited financial statements and for the fiscal year ended June 30, 2006 based on audited financial statements:



4 Months Ended 12 Months Ended
October 31, 2006 June 30, 2006
($) ($)
(unaudited) (audited)
Current Assets 3,277,799 5,171,455
Oil & Gas Assets 38,687,842 38,546,321
Other Assets 4,323,121 4,323,121
Total Assets 46,288,762 48,040,897
Current Liabilities 10,476,874 12,346,600
Other Liabilities 6,689,199 7,058,018
Total Liabilities 17,166,734 19,404,618
Working Capital Surplus (Deficiency) (7,199,075) (7,175,145)
Net Revenue after Royalties 5,012,715 17,081,092
Operating and G&A Expenses (2,760,432) (7,196,569)
Net Income (Loss) 445,238 3,139,860
Shareholders' Equity 29,122,689 28,636,279
Dividends 0 0


ADVISORY: It should not be assumed that the estimated future net cash flow shown herein is representative of the fair market value of the subject properties. There is no assurance that the price and cost assumptions utilized to estimate future net cash flows will be attained and variances could be material. The recovery and reserve estimates of crude oil, NGLs and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, NGLs and natural gas reserves may be greater or less than the estimates provided herein.

Natural gas volumes have been converted to barrels ("bbl") of oil equivalent ("boe") using six thousand cubic feet ("mcf") of natural gas equal to one boe. This conversion conforms to NI51-101. Use of the term boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 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. Readers are cautioned that estimates of future net revenue, whether calculated without discount or using a discount rate, do not represent fair market value of reserves.

Completion of the transactions referred to herein is subject to a number of conditions, including but not limited to, Exchange acceptance and, if applicable pursuant to Exchange Requirements, the approval of the disinterested shareholders of Vast. Where applicable, 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 management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

Certain statements contained in this press release may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements are subject to both known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Vast to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the receipt of required regulatory approvals, the availability of sufficient capital, the estimated cost and availability of funding for the continued exploration and development of Vast's prospects, political and economic conditions, commodity prices and other factors.

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

Contact Information

  • Vast Exploration Inc.
    Don Parker
    President
    (403) 263-3000
    (403) 263-3041 (FAX)