WSG Group Systems Inc.
TSX VENTURE : WSG

Duinord Petroleum, Inc.

August 16, 2005 22:36 ET

WSG Group Systems Inc. Announces Reverse Takeover With Duinord Petroleum, Inc.

CALGARY, ALBERTA--(CCNMatthews - Aug. 16, 2005) -

THIS NEWS RELEASE IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES, AND DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES DESCRIBED HEREIN.

WSG Group Systems Inc. ("WSG" or the "Corporation") (TSX VENTURE:WSG) today announced details concerning a proposed reverse takeover with Duinord Petroleum, Inc. ("Duinord").

About Duinord

Duinord is a private oil and gas exploration and production company based in Calgary, Alberta with an operations office in Houston, Texas. Duinord acquires and operates oil and gas exploration and production properties in selected international countries and in North America. Duinord is pursuing oil and gas fields that have been discovered, but not yet fully developed, in order to generate near term cash flow to support operations. Step-out exploration wells will be employed where the geologic, geophysical, and engineering data indicate that additional potential exists in or near to the discovered field. This focus on lower risk, already discovered fields, offers investors an opportunity to participate in domestic and international oil and gas projects with potentially lower risk profiles than that offered in traditional high-risk, high-reward wildcat exploration programs.

Oil and Gas Properties, Indonesia

Pursuant to two purchase and sale agreements dated July 1, 2005, between subsidiaries of Duinord and subsidiaries of Serica Energy Corporation, Duinord acquired a 25% interest in two properties located in the Straits of Malacca offshore North East Sumatra approximately 50 kilometers from Medan, one of the largest cities in Indonesia (the "Indonesia Properties"). The properties consist of two adjacent blocks, the Asahan Off-shore Production Sharing Contract ("Asahan PSC") and the Glagah Kambuna Technical Assistance Contract ("Glagah TAC"). Both the Asahan PSC and Glagah TAC are operated by subsidiaries of Serica Energy Corporation, a public company listed on TSX Venture Exchange Inc. ("TSX Venture").

Duinord's 25% interest in the Glagah TAC is located in a water depth of approximately 120 feet offshore of North East Sumatra in Indonesia. Glagah TAC covers an area of approximately 86,300 acres. Two wells have previously been drilled inside this block both of which resulted in the discovery of hydrocarbons. The Kambuna #1 well, drilled in 1986, tested gas at 13.8 million cubic feet per day ("mmcfd") and 950 barrels of condensate per day ("BCPD") from a net pay interval of 81 feet. A gas/water contact was not found in the pay interval at the Kambuna #1 well. The Glagah #1 well, drilled in 1985, tested oil at the rate of 2100 barrels of oil per day (52.8 degree) from an interval of 110 feet of fractured Miocene carbonates.

A subsidiary of Serica Energy Corporation has executed a drilling contract that will allow for the drilling of the initial delineation well in the Kambuna field (Kambuna #2). Duinord anticipates that the drilling of the Kambuna #2 well will commence in August 2005. Additional seismic work is expected to be completed on this block in 2006 to delineate and develop additional oportunities in the Glagah Kumbuna license area.

Duinord's 25% interest in the Asahan PSC is also located in the shallow water offshore North East Sumatra in Indonesia and covers an area of approximately 495,000 acres. Four wells have previously been drilled inside this block, which resulted in one discovery. The NSO#1 well, drilled in 1974, tested gas at rates in excess of 6 mmcfd with an approximate yield of 60 barrels of condensate from 80 feet of high quality sand pay that was tested at 4000 feet. A gas/water contact was not found in the pay sand in the NSO#1 well.

A 2-D seismic program shot in 2004, together with an extensive existing 2-D seismic grid resulted in the delineation of several prospects in the Asahan PSC. Duinord will participate in the drilling of the Togar# 1 well in the Asahan PSC, which is anticipated to spud in September 2005.

In 2006, Duinord plans to participate in a significant seismic program which will facilitate the development of a number of potential drilling locations in the Asahan PSC. As part of the program to develop the hydrocarbon potential inside the Asahan PSC based on the results of the 2004 2-D seismic program, Duinord anticipates drilling a delineation well to the NSO#1 well at the Tanjung Perling field in the second quarter of 2006.

Reserves of Duinord

The following is a summary of the oil and natural gas reserves of Duinord in the Indonesia Properties according to an independent reserve report as of July 1, 2005 prepared by McDaniel & Associates Consultants Ltd. of Calgary, Alberta (the "McDaniel Report"). The reserve estimations set forth in the McDaniel Report and summarized below were prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101.

The reader is cautioned that the use of the term boe ("barrels of oil equivalent") may be misleading, particularly when used in isolation. A boe conversion 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.

There is no assurance that the cost assumptions contained in the McDaniel Report will be attained and variances could be material. Other assumptions and qualifications relating to costs and other matters are included in the McDaniel Report. The recovery and reserves estimates on Duinord's properties described herein are estimates only. The actual reserves on Duinord's properties may be greater or less than those calculated. The estimates in these tables use constant prices and costs.



Summary of Remaining Reserves(1)
--------------------------------
Natural GasReserves Condensate Reserves
------------------- -------------------
Property Company Company Property Company Company
Gross Gross Net Gross Gross Net
Reserve Category Mmcf Mmcf Mmcf Mbbl Mbbl Mbbl
--------------------------------------------------

Total Proved
Reserves - - - - - -
Probable Reserves 66,293 16,573 13,694 3,450 863 713
Proved Plus
Probable Reserves 66,293 16,573 13,694 3,450 863 713


BOE Reserves(2)
---------------
Property Company Company
Gross Gross Net
Reserve Category Mbbl Mbbl Mbbl
--------------------------------

Total Proved Reserves - - -
Probable Reserves 14,499 3,625 2,995
Proved Plus Probable Reserves 14,499 3,625 2,995

(1) Company Gross reserves are based on 25 percent of the property
gross reserves.
Company Net reserves are based on Company share of total Cost
and Profit Oil.
(2) Based on gas/boe conversion of 6 to 1


Summary of Company Share of Net Present Values Before Income Taxes
------------------------------------------------------------------

$M US Dollars
-------------
Reserve Category 0.0% 5.0% 10.0% 15.0% 20.0%
----------------- ----------------------------------------------
Total Proved Reserves - - - - -
Probable Reserves 30,899 23,089 17,362 13,082 9,831
Proved Plus Probable
Reserves 30,899 23,089 17,362 13,082 9,831


Summary of Company Share of Net Present Values After Income Taxes
------------------------------------------------------------------

$M US Dollars
-------------
Reserve Category 0.0% 5.0% 10.0% 15.0% 20.0%
----------------- ----------------------------------------------
Total Proved Reserves - - - - -
Probable Reserves 18,994 13,702 9,826 6,936 4,750
Proved Plus Probable
Reserves 18,994 13,702 9,826 6,936 4,750


Duinord Corporate History and Structure

Duinord was incorporated on November 23, 2004 under the Canada Business Corporations Act. The registered office of Duinord is located in Calgary, Alberta and it has an operations office in Houston, Texas.

Duinord has 11,264,916 common shares (the "Duinord Common Shares") issued and outstanding and no stock options, warrants or other dilution, other than 11,264,816 share purchase warrants (the "Duinord Warrants"), each entitling the holder to purchase one Duinord Common Share at a price of $0.80 per share until twelve months from the closing of the Business Combination, and agent's options to purchase up to 863,520 units at a price of $0.40 per unit until twenty four months from the closing of the Business Combination, each unit consisting of one Duinord Common Share and one Duinord Warrant each entitling the holder to acquire one Duinord Common Share at a price of $0.80 per share until twenty four months from the closing of the Business Combination, (the "Existing Duinord Agent's Options").

The only shareholders of Duinord that own more than 10% of the outstanding Duinord Common Shares are RAB Special Situations LB of London, England (which owns 22.2%), Northern Rivers Capital Management Inc. of Toronto, Ontario (which owns or controls 11.1%) and Front Street Investment Management Inc., of Toronto, Ontario (which owns 11.1%), all of which are institutional investors in oil and gas exploration companies.

Based on management prepared unaudited financial statements for the period ended June 30, 2005, Duinord had interest income of approximately $6,000, expenses of approximately $465,000, a net loss of approximately $459,000, and positive working capital of approximately $3,600,000. In addition, as at June 30, 2005, Duinord had total assets of approximately $3,600,000 and no liabilities.

Directors and Officers of Duinord

The current directors of Duinord are Raymond LaGarde, Richard E. MacDougal, Alex T. Warmath and Douglas M. Stuve. The sole current officer of Duinord is Raymond L. LaGarde as the President and Chief Executive Officer. In addition, Mark N. Witt provides financial consulting services to Duinord.

Raymond L. LaGarde is an international petroleum business development specialist experienced in leading multi-disciplinary exploration and business development teams with projects in Azerbaijan, Nigeria, Gabon and Holland. Mr. LaGarde has been a director of WSG since October 2004. He was the Managing Director, World Wide Acquisitions of the Dutch DuPont subsidiary, DuPont Services B.V., from 1989 to 1991, when he joined DuPont Nigeria Exploration & Production Ltd. as Director, Negotiations and Governmental Affairs. He was Senior Vice-President of Conoco Overseas Company Ltd. from 1993 to 1996 where his responsibilities included New Business Manager for Latin America.

From 1997 to 1999, he joined the Union Texas Petroleum Company, where he was Director International Negotiations for the Enhanced Production New Ventures Group and was later the Vice-President of the Union Texas Petroleum subsidiary in Azerbaijan, Union Texas Lok Batan Ltd., where he was based in Baku. After ARCO's takeover of Union Texas Petroleum, he joined Burlington Resources International Inc. where he was International Negotiator for the Far East and West Africa until October 2000. From April 2001 to June 2004, Mr. LaGarde was an International Negotiator for the Global Greenfields Group of Anadarko Petroleum Company and during part of that period he also served as President and Managing Director of the Anadarko subsidiary, Anadarko Gabon Ltd.

Mr. LaGarde resides in The Woodlands, Texas.

Richard E. MacDougal is a registered petroleum engineer working both domestically and internationally.

Mr. MacDougal is a member of the Board of Directors of Duinord and since March 2005 has served as Chief Operating Officer for GFI Oil & Gas (USA) Inc. He provides leadership on the management team and directs all operational and engineering activities. Prior to joining GFI Oil & Gas (USA) Inc., he served as Vice President of Anadarko International Energy Co., from 2004 to March 2005, where he was responsible for the generation and acquisition of International New Ventures in Russia and Kazakhstan. From 2001 to 2004, he was Manager of International Development Projects, responsible for Alaska Development, Venezuela Production and oversight of Anadarko's interests in Egypt, Australia and Brazil.

Prior to joining Anadarko, Mr. MacDougal was Vice-President, Acquisitions and Joint Ventures for Hurricane Hydrocarbons Ltd. from 2000 to 2001. From 1999 to 2000, he was the Senior Vice-President and General Manager of First International Oil Corporation (FIOC) in Almaty, Kazakhstan. At FIOC, MacDougal was responsible for managing production and exploration activities for two production joint ventures and two exploration joint ventures in Kazakhstan.

Mr. MacDougal also worked with Union Texas Petroleum in a variety of capacities from 1989 to 1999. His positions included President of Union Texas Azerbaijan Limited in Baku, Azerbaijan, Director of Enhanced Production Ventures at Union Texas Petroleum in Houston, Texas, Director of Drilling and Production where he managed the company's worldwide drilling, production, and facility construction and Division Manager, Operations and Engineering, in Pakistan where he was responsible for production operations, engineering and logistics.

Mr. MacDougal began his career with Exxon Company USA in Houston, Texas, and held various supervisory engineering roles from 1979 to 1989 including serving in Operations Reservoir Group Prudhoe Bay and drilling offshore exploration wells in the Gulf of Mexico and the Santa Barbara Channel.

Mr. MacDougal has a Masters of Science degree in Systems Management from the University of Southern California and a Master of Science degree in Ocean Engineering from the Massachusetts Institute of Technology of Cambridge, Massachusetts. He is also a Registered Professional Engineer in the State of Texas.

Mr. MacDougal resides in The Woodlands, Texas.

Alex T. Warmath has over twenty-five years of diversified experience in thirty foreign countries and thirty-four geologic provinces within North America and has made discoveries in twenty-five geologic provinces around the world. Mr. Warmath serves on the Board of Directors for Duinord and is Chief Executive Officer and Director of GFI Oil & Gas (USA) Inc. From 2001 to March 2005, Mr. Warmath was Geological and Geophysical Project Manager Indonesia for Anadarko Petroleum Corporation. He also served as Geological Advisor- Global Greenfields Group at Anadarko.

From 1998 to 2001, Mr. Warmath served as Senior Director of International New Ventures for Enron Global Explorations & Production, Inc. From 1995 to 1998, Mr. Warmath was Exploration & Development Manager for Western Region and Senior Staff Geologist for Onshore Gulf of Mexico Group at Apache Corporation in Houston, Texas.

From 1993 to 1994, Mr. Warmath was Manager of Geology and Geophysics at AA Production Company, in Lubbock, Texas and from 1991 to 1993 he was Geoscience Section Manager and Business Development Manager, EG&G Energy Services Group or Morgantown, West Virginia.

His other prior experience includes Vice-President of Energetics Inc. and Exploration of Methods, Inc., Manager of Technical Activities of Voyager Petroleums, Ltd., District Geologist of Fuelex, Inc., Geologist of Transcontinental Oil Corp., Geologist of Diamond Shamrock Inc. and Geologist of Tenneco Oil Company.

Mr. Warmath received his Masters of Science Geology from the University of Arkansas and his Bachelors of Science in Geology from Georgia Southern University. He is a Certificated Petroleum Geologist and a licensed Professional Geoscientist in the State of Texas.

Mr. Warmath resides in The Woodlands, Texas.

Mark N. Witt currently serves as the Chief Financial Officer for GFI Oil & Gas (USA) Inc. and he specializes in financial management and consulting in the energy industry. He is the founder and President of Commercial Energy Services LLC ("CES"), a private energy and financial consulting firm and has been since 2003, where he has served as Chief Financial Officer for various companies. Prior to founding CES, he was the Vice-President, Energy Commodities Risk Management for Goldman Sachs & Company from 2002 to 2003. Prior to joining Goldman Sachs, Mr. Witt served as Senior Vice President, Origination for Tractebel Energy Marketing, Inc. from 1999 to 2002. He served as Director of Northeast Origination for Enron Capital & Trade Resources, Inc. from 1997 to 1999.

From 1994 to 1997, Mr. Witt was the Chief Financial Officer, Vice-President and Director of Virginia Gas Company, a natural gas exploration and production, storage, distribution, pipeline and marketing company. From 1984 to 1994, Mr. Witt Held various financial and analytical positions with British Petroleum Company PLC in London, England and started his career as an auditor with KPMG in Austin and Houston, Texas from 1980 to 1984. Mr. Witt received his Bachelor of Business Administration in Accounting, from The University of Texas and attended the Darden Business School Executive Program at the University of Virginia and the Investment Management Program at the London Business School. Mr. Witt is a Certified Public Accountant and a member of the American Institute of CPAs.

Mr. Witt resides in Houston, Texas.

WSG Reorganization

As previously announced, a subsidiary of the Corporation, WSG Group Associates Inc. ("WSG Associates") has entered into an asset purchase agreement (the "WSG Associates Sale Agreement") with W.S.G. Benefit Consultants Ltd. ("W.S.G. Benefits") a company controlled by Greg Campbell, the President and CEO of the Corporation, pursuant to which W.S.G. Benefits has agreed to purchase all of the assets and liabilities of WSG Associates for a purchase price of $800,000 less $150,000 for estimated tax liability (the "WSG Associates Sale"). The closing conditions of the WSG Associates Sale were fulfilled and the closing took place on June 30, 2005.

On July 7 and July 9, 2005, Raymond L. LaGarde, Richard E. MacDougal and Alex T. Warmath each exercised an option (the "Option") to purchase 2,000,000 WSG Common Shares for an aggregate of 6,000,000 Common Shares from W.S.G. Benefits, at a price of $0.05 per share.

Summary of the Proposed Transaction

WSG has entered into a non-arm's length letter agreement dated July 21, 2005 with Duinord, pursuant to which the Corporation and Duinord have agreed to complete a business combination (the "Business Combination") to form a new company called GFI Oil & Gas Corp. ("NewCo"). The Business Combination is expected to constitute a non-arm's length Reverse Takeover of the Corporation as defined in the policies of the TSX Venture.

The Business Combination will be completed after Duinord has completed a private placement financing to raise additional funds. Duinord has entered into a non-binding memorandum of understanding with a private equity firm to raise approximately US $6,000,000 (the "Duinord Financing"). Under the Duinord Financing, Duinord will issue (i) approximately 16,400,000 Duinord Common Shares at a price of Cdn. $0.44 per share; and (ii) warrants (the "Duinord New Warrants") to purchase the same number of Duinord Common Shares as were issued under the Duinord Financing, at an exercise price of Cdn. $0.80 per share exercisable for a period of one year. If the Duinord Financing closes, the subscriber will be permitted to appoint additional directors to the Duinord board. Duinord intends to use the proceeds of the Duinord Financing to fund its obligations in respect of the Indonesia Properties. Closing of the Duinord Financing is subject to execution of formal documentation, completion of due diligence and certain other conditions. Once a binding agreement has been executed with respect to the Duinord Financing, the Corporation will issue a news release disclosing the material terms thereof.

Assuming completion of the Duinord Financing, Duinord will have approximately 27,664,916 Duinord Common Shares, the 11,264,816 Duinord Warrants, the 863,520 Existing Duinord Agent's Options and approximately 16,400,000 Duinord New Warrants outstanding.

Pursuant to the terms of the Business Combination: (i) the holders of the Duinord Common Shares will receive one common share of NewCo (the "NewCo Common Shares") with a deemed value of $0.40 per share for each share owned; and (ii) the holders of the WSG Common Shares will receive one NewCo Common Share for each existing common share of WSG owned. The outstanding Existing Duinord Agent's Options, Duinord Warrants, Duinord New Warrants and the outstanding WSG agent's options, warrants and stock options, shall be replaced with the same number of agent's options, warrants and stock options of NewCo with identical terms.

After completion of the Business Combination, the NewCo Board of Directors will consist of Gregory C. Campbell, a current director of WSG, as well as Raymond L. LaGarde, Alex T. Warmath, Richard E. MacDougal and James H. Coleman.

Since 1982, Gregory C. Campbell has been the President of WSG Benefit Consultants Ltd., a private company in the business of providing employee group insurance benefit advisory service, sales and benefits administration. Mr. Campbell is also the President of 599401 Alberta Ltd, a company that owns and operates commercial real estate in Calgary. In addition, he has been the Chairman and CEO of the Corporation since 1997. Mr. Campbell has also actively invested in the oil and gas industry in Canada and North America over the last two decades.

James H. Coleman is a senior partner of the law firm of Macleod Dixon LLP. Mr. Coleman has been with Macleod Dixon since 1974. Mr. Coleman has been a director and/or officer of a number of public companies listed on The Toronto Stock Exchange, including Bitech Petroleum Corporation, Anadime Corporation and Pangea Goldfields Inc. He is currently on the Board of Directors of Biopotential Capital Inc., Arawak Energy Corporation, Anterra Corporation, Gold Reserve Inc., RSX Energy Inc., MegaGold Corporation, Great Basin Energies Inc. and Energold Mining Ltd.

The completion of the Business Combination is subject to the approval of TSX Venture and all other necessary regulatory approval. The completion of the Business Combination is also subject to additional conditions precedent, including shareholder approval of the Corporation and of Duinord, satisfactory completion of due diligence reviews by the parties, board of director's approval of the Corporation and Duinord, the entering into of a formal agreement, the closing of the Duinord Financing and certain other conditions.

TSX Venture has also advised the Corporation will be required to retain a sponsor for the Business Combination to provide a sponsor report to TSX Venture in accordance with its policies. WSG has entered into negotiations to retain a sponsor and will issue a news release disclosing details of its sponsorship once a formal engagement has been executed.

The Business Combination will be a non-arm's length transaction as Raymond L. LaGarde, a director and shareholder of WSG, is a director and officer of Duinord. In addition, Alex T. Warmath and Richard E. MacDougal, Directors of Duinord, are employees of GFI Oil & Gas (USA) Inc., a subsidiary of WSG.

WSG also announces it has reserved a price of $0.40 per share for the grant of stock options to acquire up to 10% of the number of issued and outstanding NewCo Common Shares (the "Stock Options") in the event the Business Combination is completed. The grant of the Stock Options is subject to regulatory approval. The Stock Options will be granted to directors, officers, employees and consultants of NewCo, as determined by the Board of Directors of NewCo following the completion of the Business Combination.

The WSG Common Shares were halted for trading on the TSX Venture in connection with the announcement of the Business Combination. The WSG Common Shares will remain halted until the Corporation has completed certain filings with TSX Venture.

As indicated above, completion of the Business Combination is subject to a number of conditions, including but not limited to, TSX Venture acceptance and shareholder approval. The Business Combination cannot close until the required shareholder approval is obtained. There can be no assurance that the Business Combination will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Information Circular of the Corporation to be prepared in connection with the Business Combination, any information released or received with respect to the Business Combination may not be accurate or complete and should not be relied upon. Trading in the securities of the Corporation should be considered highly speculative.

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Factors that might cause a difference include, but are not limited to, drilling results, currency fluctuations, commodity price fluctuations and operational costs. Neither Duinord nor WSG will update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect financial results is included in the documents filed from time to time with the Canadian securities regulatory authorities by WSG and Duinord.

The securities of Duinord and WSG being offered have not been, nor will be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from U.S. registration requirements. This release does not constitute an offer for sale of securities in the United States.

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

Contact Information

  • WSG Group Systems Inc.
    Gregory C. Campbell
    President
    (403) 209-3381
    or
    Duinord Petroleum, Inc.
    Raymond L. LaGarde
    President
    (281) 877-7299