CALGARY, ALBERTA--(CCNMatthews - May 1, 2007) - FairWest Energy Corporation ("FairWest") (TSX:FEC) and Strike Petroleum Ltd. ("Strike") (TSX VENTURE:SPP) jointly announce that on April 30, 2007 the shareholders of Strike voted in favour of the Plan of Arrangement (the "Arrangement") between FairWest and Strike. On April 30, 2007, unsecured creditors representing $5,426,862.98, or 95.69% of Strike's unsecured claims as of January 24, 2007 agreed to be bound by the terms of the Arrangement. On May 1, 2007 the Court of Queen's Bench of Alberta gave final approval for the Arrangement. The Arrangement is scheduled to close on May 22, 2007.
FairWest estimates that the Strike shareholders will receive 12,194,757 FairWest common shares. Strike unsecured creditors will receive a further 5,426,863 FairWest common shares. Assuming that 10,000,000 FairWest Shares are issued pursuant to FairWest's private placement and 17,621,620 FairWest Shares will be issued to Strike Shareholders and Strike Creditors pursuant to the Arrangement, there will be 89,609,064 FairWest Shares issued and outstanding after closing the Arrangement. Mr. Richard Clark, a director of Strike, has been appointed to FairWest's board of directors.
FairWest has arranged a line of credit from its current lender for $15.0 million of bank financing that will used, in part to payout Strike's current lender. FairWest intend to close a $1.91 million sale of a natural gas property on May 4, 2007 and expects to close a further $1.0 million of property sales by May 22, 2007. FairWest has closed the private placement of 1,074,000 flow-through common shares at $0.50 per common share for total consideration of $537,000. An additional 8,926,000 flow-through common shares at $0.50 per common share are currently being offered for sale. The proceeds from bank financing, property sales and equity sales will be sufficient to close the Arrangement on May 22, 2007.
This Arrangement provides FairWest and Strike shareholders, as well as Strike's unsecured creditors, with the opportunity to participate in the growth potential of a junior producer that can realize benefits of size and scale through a larger production base, operational and geographic synergies and an expanded inventory of drilling prospects. These benefits primarily relating to an improved platform to enhance value to FairWest Shareholders and to reduce risk include:
(a) the combination of FairWest's and Strike's natural gas production and exploration and growth potential to form a portfolio of near and intermediate term low risk and low cost conventional opportunities;
(b) a production base that will continue to be weighted at 95% natural gas that is expected to produce 1,500 boe/d by December 31, 2007;
(c) a properly financed company that is capable of accelerating the development of the combined inventory of oil and gas prospects. FairWest expects to incur $6.9 million of capital expenditures in 2007;
(d) combined group of motivated and experienced employees that has access to a reliable source of oil and gas prospects and key services;
(e) increased liquidity for FairWest and Strike Shareholders; and
(f) an opportunity for Strike Creditors to realize full value for the services they provided.
Based on a total estimated acquisition cost at May 1, 2007 of $22.2 million, which includes undeveloped land and seismic data valued at $2.5 million, and the assumption of $16.0 million debt and working capital deficiency, the acquisition metrics of the transaction are as follows:
- Reserve acquisition metrics of $17.05/boe of proved plus probable reserves;
- Production acquisition cost of $39,245/boe/d based on expected production of 500 boe/d; and
- Incremental 2007 cash flow of approximately $3.68 million (assuming forecasted production, C$7.50/MCF AECO natural gas and Cdn$50.00/bbl oil)
A total of 8,000 acres of undeveloped land will be added to FairWest's current undeveloped land base of 24,000 acres. The Strike lands contain 20 natural gas prospects that FairWest intends to commence drilling in August 2007. Strike's income tax pools of $23.3 million in combination with FairWest income tax pools of $32.3 million will allow FairWest to avoid the payment of current taxes for at least 3 years.
FairWest (TSX:FEC) is a Calgary, Alberta based junior oil and gas company engaged in the acquisition, exploration, development and production of crude oil and natural gas in the provinces of Alberta and Saskatchewan. Further information concerning FairWest is available at www.fairwestenergy.com.
Forward-Looking Statements: Statements in this release which describe FairWest's intentions, expectations or predictions, or which relate to matters that are not historical facts are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of FairWest to be materially different from any future results, performances or achievements expressed in or implied by such forward-looking statements. FairWest may update or revise any forward-looking statements, whether as a result of new information, future events or changing market and business conditions.
FOR FURTHER INFORMATION PLEASE CONTACT:
FairWest Energy Corporation
James G. Gettis
President and Chief Executive Officer
FairWest Energy Corporation
Marion D. Mackie
Chief Financial Officer
(403) 269-1761 (FAX)