Arsenal Energy Inc. and GEOCAN Energy Inc. announce execution of Arrangement Agreement



    CALGARY, Aug. 8 /CNW/ - Arsenal Energy Inc. (TSX: AEI) ("Arsenal") and
GEOCAN Energy Inc. (TSX: GCA) ("GEOCAN") are pleased to announce that they
have entered into an arrangement agreement (the "Arrangement Agreement")
providing for the acquisition by Arsenal of GEOCAN pursuant to a plan of
arrangement under the Business Corporations Act (Alberta) (the "Arrangement").
Under the Arrangement, Arsenal will acquire all of the outstanding class "A"
common shares of GEOCAN ("GEOCAN Shares") for consideration of $0.70 per
GEOCAN Share, payable, at the election of each GEOCAN shareholder, in cash or
0.81 of a common share of Arsenal ("Arsenal Shares"). The consideration to be
paid by Arsenal under the Arrangement of $0.70 per GEOCAN Share represents a
premium of 29% over the five day weighted average trading price of the GEOCAN
Shares to and including August 7, 2008 of $0.541. The value of the total
consideration to be paid by Arsenal for the GEOCAN Shares, based upon a share
value of $0.865 for each Arsenal Share and taking into account assumed debt of
approximately $8 million, is approximately $47.2 million.
    A maximum aggregate of $30,000,000 and a minimum aggregate of $26,000,000
in cash will be payable to the GEOCAN shareholders under the Arrangement. In
the event that the GEOCAN shareholders elect, in the aggregate, to receive
more than $30,000,000 in cash, the amount of cash to be received by a holder
electing to receive cash with respect to a GEOCAN Share will be reduced
proportionately and the balance of the purchase price for that GEOCAN Share
will be paid by a portion of an Arsenal Share at a deemed price of $0.865 per
Arsenal Share. In the event that the GEOCAN shareholders elect, in the
aggregate, to receive less than $26,000,000 in cash, the number of Arsenal
Shares to be received by a holder electing to receive Arsenal Shares with
respect to a GEOCAN Share will be reduced proportionately and the balance of
the purchase price for that GEOCAN Share will be paid in cash.
    The Arrangement requires the approval of the holders of GEOCAN Shares.
The Arrangement Agreement provides that GEOCAN shall call and hold a special
meeting of the GEOCAN shareholders by no later than October 6, 2008 for the
purposes of considering the Arrangement. The Arrangement is subject to the
approval of the Court of Queen's Bench of Alberta, the TSX and all applicable
regulatory authorities. Completion of the Arrangement is also subject to a
number of additional conditions set out in the Arrangement Agreement.
    Under the Arrangement Agreement, GEOCAN and Arsenal have each agreed that
they will not solicit or initiate any discussions concerning any business
combination or the sale of material assets. The Arrangement Agreement provides
for a mutual non-completion fee of $1.7 million if the Arrangement is not
completed in certain circumstances.
    A copy of the Arrangement Agreement will be filed on SEDAR and will be
available for viewing under the profiles of Arsenal and GEOCAN at
www.sedar.com.
    The Board of Directors of GEOCAN has unanimously determined that the
Arrangement and Arrangement Agreement are in the best interests of GEOCAN and
the GEOCAN shareholders. The Board of Directors of GEOCAN unanimously
recommends that the GEOCAN shareholders approve the Arrangement.
    Tristone Capital Inc. is acting as exclusive financial advisor to GEOCAN
with respect to the Arrangement and has provided the Board of Directors of
GEOCAN with a verbal opinion that the consideration to be received by the
GEOCAN shareholders under the Arrangement is fair, from a financial point of
view, to the GEOCAN shareholders and have agreed to deliver a written opinion
to that effect, subject to receipt and review of final documentation.
    Emerging Equities Inc. is acting as exclusive financial advisor to
Arsenal with respect to the Arrangement.
    All of the directors and officers of GEOCAN, holding a total of 3,775,148
GEOCAN Shares, representing approximately 6.7% of the outstanding GEOCAN
Shares, have entered into agreements with Arsenal pursuant to which they have
agreed to vote their GEOCAN Shares in favour of the Arrangement.
    If all necessary approvals are obtained and the conditions contained in
the Arrangement Agreement are met, Arsenal and GEOCAN anticipate that the
Arrangement will become effective on or about October 7, 2008.
    The key metrics of the Arrangement with respect to Arsenal are as
follows:

    
    -   Estimated Purchase Price (millions)                   $ 47.2
    -   Price Per Flowing Boe/d (850 Boe/d)                   $ 55,412
    -   Price Per Proven Producing Boe                        $ 25.50
    -   Estimated GEOCAN Q2 2008 Operating Margin (per Boe)   $ 46.41
    -   Proven Producing Recycle Ratio                            1.8

    Arsenal and GEOCAN believe that the combination of the two corporations
pursuant to the Arrangement would have the following benefits:

    -   The increased size of the combined corporation will contribute to
        lower average operating expenses and cost of capital, overhead
        synergies and higher financial leverage;

    -   The combined corporation will have a complimentary fit of assets as
        approximately 40% of GEOCAN's current production is in Arsenal's core
        east central Alberta area; and

    -   The addition of GEOCAN's core Northeast British Columbia property,
        where approximately 40% of GEOCAN's current production is located, to
        the combined corporation will provide a further core property for
        development. Arsenal will also acquire new exploration plays in Ochre
        and Tomahawk as well as 82,000 net acres of undeveloped land,
        providing additional potential upside to the combined corporation's
        shareholders.

    Key attributes of the combined corporation (assuming the maximum aggregate
of cash of $30.0 million is paid by Arsenal to GEOCAN shareholders) include:

    -   Pro Forma Estimated Production at Closing (Boe/d)     2,830
    -   Pro Forma Diluted Shares Outstanding (millions)       106.9
    -   Pro Forma Run Rate Cash Flow (millions)             $    48
    -   Pro Forma Run Rate Cash Flow per Diluted Share      $  0.45
    -   Pro Forma Net Debt to Run Rate Cash Flow                1.1
    -   Pro Forma Proven Producing Reserves (million Boe)       5.3
    

    Reader Advisory
    ---------------
    This press release does not constitute an offer to sell or the
solicitation of an offer to buy any securities of Arsenal within the United
States. The securities of Arsenal have not been and will not be registered
under the United States Securities Act of 1933, as amended (the "1933 Act"),
or any state securities laws. Accordingly, the Arsenal Shares may not be
offered or sold in the United States or to U.S. persons (as such terms are
defined in Regulation S under the 1933 Act) unless registered under the 1933
Act and applicable state securities laws or an exemption from such
registration is available.

    Forward Looking Statements
    --------------------------
    This press release contains forward-looking statements. More
particularly, this press release contains statements concerning the
anticipated dates for the holding of the GEOCAN shareholder meeting and the
anticipated date for the completion of the Arrangement. Arsenal and GEOCAN
have provided these anticipated dates in reliance on certain assumptions that
they believe are reasonable at this time, including assumptions as to the time
required to prepare meeting materials for mailing, the timing of receipt of
the necessary regulatory and court approvals and the time necessary to satisfy
the conditions set out in the Arrangement Agreement. These dates may change
for a number of reasons, including unforeseen delays in preparing meeting
materials, inability to secure necessary regulatory or court approvals in the
time assumed or the need for additional time to satisfy the conditions to the
completion of the Arrangement. The Arrangement may not be completed on the
timelines indicated or at all. Accordingly, readers should not place undue
reliance on the forward-looking statements contained in this press release.
    This press release also contains forward-looking statements concerning
estimated production, cash flow and net debt. These forward-looking statements
are based on certain key expectations and assumptions made by Arsenal and
GEOCAN, including expectations and assumptions concerning prevailing commodity
prices and exchange rates, availability and cost of labour and services, the
timing of receipt of regulatory approvals, the performance of existing wells,
the success obtained in drilling new wells, the performance of new wells and
the sufficiency of budgeted capital expenditures in carrying out planned
activities. Although Arsenal and GEOCAN believe that the expectations and
assumptions on which these forward-looking statements are based are
reasonable, undue reliance should not be placed on these forward-looking
statements because Arsenal and GEOCAN can give no assurance that they will
prove to be correct. Actual results could differ materially from those
currently anticipated due to a number of factors and risks. These include, but
are not limited to, risks associated with the oil and gas industry in general
(e.g., operational risks in development, exploration and production; delays or
changes in plans with respect to exploration or development projects or
capital expenditures; the uncertainty of reserve estimates; the uncertainty of
estimates and projections relating to production, costs and expenses, and
health, safety and environmental risks), commodity price and exchange rate
fluctuations and uncertainties resulting from potential delays or changes in
plans with respect to exploration or development projects or capital
expenditures. Certain of these risks are set out in more detail in the Annual
Information Forms of Arsenal and GEOCAN which have been filed on SEDAR and can
be accessed at www.sedar.com.

    Barrel of Oil Equivalent
    ------------------------
    In this press release, a "Boe" refers to a barrel of oil equivalent on
the basis of 1 Boe to 6 thousand cubic feet of natural gas. Boe's may be
misleading, particularly if used in isolation. A Boe conversion ratio of 1 Boe
for 6 thousand cubic feet of natual gas is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.





For further information:

For further information: on Arsenal, please contact Tony van Winkoop,
President and CEO at (403) 699-2062; or J. Paul Lawrence, Vice President
Finance and CFO at (403) 699-2070 or by e-mail at info@arsenalenergy.com; For
further information on GEOCAN, please contact Wayne Wadley, President and CEO;
or Brad Farris, Vice President Finance and CFO at (403) 261-3851, fax (403)
261-3834 or by e-mail wwadley@geocan.com or bfarris@geocan.com

Organization Profile

GEOCAN ENERGY INC.

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