Reverse Takeover Creates Heavy Oil Focused 1200+ BOEPD Junior Producer

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International Sovereign Energy Corp. and Palliser Oil & Gas Corporation Announce Letter of Intent for Business Combination

    
    TSX: "ISR"
    Common Shares: 16,096,084
    

CALGARY, Dec. 7 /CNW/ - International Sovereign Energy Corp. (TSX: ISR) ("ISR") and Palliser Oil & Gas Corporation ("Palliser"), a private Alberta based oil and natural gas exploration company, are pleased to announce that they have entered into a letter of intent dated December 6, 2009 (the "LOI") pursuant to which ISR and Palliser have agreed to complete a plan of arrangement (the "Transaction") resulting in the combination of the two companies.

The Transaction

The Transaction is an arm's length transaction pursuant to which Palliser will be arranged and ultimately ISR and Palliser will be amalgamated to form a new corporation ("New Palliser") that will carry on ISR's and Palliser's current business and operations under the name "Palliser Oil & Gas Corporation". The current directors and management of Palliser will form the board of directors (the "Board") and management of the New Palliser, joined on the Board by Sharad Mistry, presently CFO and a director of ISR, and an additional nominee of ISR.

Under the terms of the LOI, holders of common shares of Palliser ("Palliser Shares") will be entitled to receive 0.95 common shares (the "New Palliser Shares") of the New Palliser for each one Palliser Share held (the "Palliser Exchange Ratio"). The Palliser Exchange Ratio is based upon a net asset value per ISR Share of $1.15 and a net asset value per Palliser Share of $1.09. The Palliser Exchange Ratio is subject to certain adjustments, including adjustments in favor of ISR shareholders based on benefits received for foreign owned assets and domestic operational matters. ISR Shares will not change in number and will become shares of New Palliser. Based upon the number of ISR Shares and Palliser Shares outstanding as at today's date (and including the issuance of approximately 500,000 Palliser Shares in respect of all "in-the-money" options and warrants which may be exercised prior to closing), there would be approximately 37.2 million New Palliser Shares outstanding following completion of the Transaction, with shareholders of Palliser and ISR holding approximately 57% and 43% of the outstanding shares respectively.

GMP Securities LP has been engaged as a financial advisor to ISR and has provided a verbal fairness opinion to the board of directors of ISR that the consideration received by ISR shareholders is fair from a financial point of view.

There are currently 21.7 million Palliser Shares outstanding. Directors and management of Palliser hold an aggregate of 5.8 million Palliser Shares (representing approximately 27% of the issued and outstanding Palliser Shares). The existing options and warrants to acquire Palliser Shares held by the directors or management team of Palliser will be exercised or cancelled prior to closing of the Transaction.

ISR Treasury Issuance

In accordance with the rules of the Toronto Stock Exchange (the "TSX"), the issuance of New Palliser Shares to Palliser shareholders (the "ISR Treasury Issuance") will require the approval of holders of ISR Shares.

There are approximately 16.1 million ISR shares outstanding, Directors and management of ISR hold an aggregate of 0.9 million ISR Shares (representing approximately 6% of the issued and outstanding ISR Shares).

Conditions to Completion of the Transaction

Completion of the Transaction is subject to the execution of a definitive arrangement agreement (the "Arrangement Agreement") and completion of due diligence on or before December 14, 2009, by each Party. The closing of the Transaction will be subject to customary closing conditions including (i) regulatory and TSX approvals; (ii) requisite court order approving the Transaction; (iii) approval of 66 2/3% of the votes of holders of Palliser Shares at a meeting of Palliser shareholders with respect to the Arrangement; (iv) approval of 50% of the votes of holders of ISR Shares at a meeting of ISR shareholders with respect to the ISR Treasury Issuance and (v) consent of the lenders to Palliser and ISR.

A joint management information circular (the "Information Circular") for the meetings of the shareholders of ISR and Palliser is expected to be mailed to shareholders in mid-December, 2009 with the meetings expected to be scheduled for mid to late January 2010. Closing of the Transaction is expected to occur shortly following the meetings and in any event before the end of January.

The Information Circular will contain detailed information in respect of Palliser, ISR and the New Palliser, including operational, historical and pro-forma financial information, and will be accessible on ISR's SEDAR profile at www.sedar.com shortly following mailing of the Information Circular to the respective shareholders of each of Palliser and ISR.

The Arrangement Agreement will contain customary representations, warranties and conditions, and will include non-solicitation covenants by ISR and mutual non-completion fees of $750,000 payable in certain circumstances, which mutual non-completion fees are applicable pursuant to the LOI. A copy of the Arrangement Agreement will also be accessible on ISR's SEDAR profile at www.sedar.com.

Completion of the Transaction is subject to a number of conditions, including TSX acceptance and shareholder approvals. The Transaction cannot close until the required shareholder approvals are 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 Information Circular, 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 either ISR or Palliser should be considered to be highly speculative.

    
    Strategic Benefits and Highlights of the Transaction

    Upon closing of the Transaction, it is expected that the New Palliser will
have:

    -   an experienced, committed and dedicated management team, which will
        be comprised of the current management team of Palliser. The Palliser
        management team, led by Kevin Gibson as President and Chief Executive
        Officer, has extensive technical oil and gas experience and an
        established track record of achieving its goal of cost-effective per
        share growth in reserves, production and cashflow;

    -   an experienced board of directors that have a track record of
        building, financing and governing private and public oil and gas
        companies which brings a wide range of experience, knowledge and
        innovation to the New Palliser;

    -   estimated production at closing, assuming normal declines and
        including the volumes anticipated from current operations, of
        approximately 1,200 - 1,300 Boe/d weighted 60% natural gas and 40%
        oil and natural gas liquids;

    -   a diverse portfolio of low to medium risk drilling and completion
        opportunities, including a number of "drill ready" heavy oil
        prospects;

    -   an undeveloped land base of approximately 53,000 net acres; and

    -   net debt of approximately $7.1 million and total credit facilities of
        $13-15 million.
    

About Palliser Oil & Gas Corporation

Palliser, a privately held corporation based in Calgary, Alberta, has been engaged in the business of exploring for, developing and producing oil and natural gas, and acquiring oil and natural gas properties in western Canada since it commenced operations November, 2005. Since commencing operations, Palliser has concentrated on exploration and development drilling of prospects in its core areas, including the greater Lloydminster heavy oil area in both Saskatchewan and Alberta and the natural gas area of Granlea, Alberta. Palliser's current operations are directed predominantly towards heavy oil prospects.

"Our view is that the combined entities will present a more attractive enterprise to each of our shareholder groups and the broader public market, generally, based on added expertise of personnel, a larger production base, combined cash flow and a more diversified prospect inventory weighted to heavy oil opportunities" said Kevin Gibson, Palliser President & CEO. "The current prospect base of the combined enterprise gives us the flexibility of pursuing the current favorable heavy oil metrics and the ability to reallocate resources to gas prospects on the recovery of the natural gas price".

The Palliser management team brings a full spectrum of geotechnical, engineering, negotiating and financial experience to its investment decisions. This diverse technical experience combined with a board of directors experienced in consolidating and integrating acquisitions and in the capital markets, will provide a platform for aggressive organic growth complemented by strategic acquisitions.

Palliser is led by an experienced board of directors and management team which include the following members:

    
    Management Team                     Position and Background
    -------------------   ---------------------------------------------------
    Kevin J. Gibson        President of Palliser since March, 2008; prior
                           thereto President and Chief Executive Officer
                           Innova Exploration Ltd. from November, 2000.

    Carrie L. McLauchlin   Vice-President, Finance and Chief Financial
                           Officer of Palliser since May, 2008; prior
                           thereto, independent oil and gas consultant; prior
                           thereto, Vice-President, Finance and Chief
                           Financial Officer of Luke Energy Ltd. and Key
                           West Energy Corporation.

    Robert R. Padget       Vice-President, Engineering of Palliser since
                           January, 2009; prior thereto, Vice-President,
                           Engineering and Chief Operating Officer of Great
                           Plains Exploration Ltd. from 2004 to 2008; prior
                           thereto, Vice-President, Engineering and
                           Operations of Seventh Energy from 2008 to 2004 and
                           at Calpine Energy from 2001 to 2002.

    Allan B. Carswell      Vice-President, Exploration of Palliser since
                           April, 2006; prior thereto, Senior Exploration
                           Geologist with NuVista Energy Ltd. since 2005;
                           prior thereto, Exploration Geologist for Bonavista
                           Petroleum Ltd. from 2000 to 2005.

    Glenn Taylor           Vice-President, Operations and Production of the
                           Corporation since November, 2008; prior thereto,
                           Manager of Operations of TransGlobe Energy
                           Corporation from 2003 to 2008.

    Gordon Timm            Vice-President, Land of the Corporation since
                           September, 2008; prior thereto, Vice-President,
                           Land with NuVista Energy from 2004 to 2008; prior
                           thereto, Vice-President, Land with Signal Energy
                           since 2004; Vice-President, Land with Penn West
                           Petroleum Ltd. from 1998 - 2003.


    Board of Directors                         Background
    -------------------   ---------------------------------------------------

    Daryl S. Fridhandler,  Partner, in the Calgary law firm of Burnet,
     Q.C.                  Duckworth & Palmer LLP.

    Kenneth H. Crowther    Businessman; prior thereto, President of Sproule
                           Associates Limited, Oil and Gas Consultants.

    Stephen C. Hayden      Director of Ivy Capital Partners, an investment
                           management firm based in Calgary since 2008.
                           Director of Hayden Capital, a private consulting
                           firm since 2006; prior thereto Director,
                           Investment Banking, Canaccord Capital Corp. from
                           2004; prior thereto, a securities lawyer with
                           Burnet, Duckworth & Palmer LLP.

    Wayne R. Toole         Businessman; prior thereto, Executive Vice-
                           President and Chief Operating Officer of Palliser;
                           prior thereto President and CEO of Palliser since
                           November, 2005; prior thereto, President of Zorin
                           Exploration Ltd. (TSX listed).

    Kevin J. Gibson        President of Palliser since March, 2008; prior
                           thereto President and Chief Executive Officer
                           Innova Exploration Ltd. from November, 2000.
    

About International Sovereign Energy Corp.

International Sovereign Energy Corp. is an oil and gas exploration development and production company with an office in Calgary, Alberta and is active in the exploration and development of hydrocarbon reserves in western Canada.

Eugene Hretzay, President & CEO of International Sovereign, says, "We are delighted to announce this arrangement, which combines Palliser's experienced management team and their niche heavy oil strategy with ISR's strong balance sheet, to create a platform which we feel will create substantial shareholder value for our shareholders for years to come."

Cautionary Statements

BOEs - Disclosure provided herein in respect of BOEs 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. All BOE conversions in this press release are derived by converting gas to oil according to this 6 Mcf to 1 Bbl ratio.

Forward looking statements - Certain statements contained in this press release constitute forward-looking statements, including, without limitation, Palliser and ISR management's assessment of future plans and operations, future financial position, the performance characteristics of ISR's and Palliser's oil and natural gas properties, potential of resource plays, oil and natural gas production estimates, expectations of future production rates, expectations of debt levels and credit facilities, the New Palliser's future plans, operations and objectives, completion of the Transaction and receipt of all required approvals thereto and the timing thereof. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the party's control including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, 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, inability to meet or continue to meet listing requirements, the inability to obtain required consents, permits or approvals, including, without limitation, shareholder, TSX and court approval of the Transaction, failure to realize the anticipated benefits of the Transaction and the risk that actual results will vary from the results forecasted and such variations may be material. 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. The New Palliser's 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 the New Palliser will derive therefrom. There is no assurance that the necessary approvals for completion of the Transaction will be obtained or that some other condition to the closing of the Transaction will not be satisfied. Even if such conditions are satisfied, there is risk that closing of the Transaction or the Palliser financing could be delayed and may not meet the timelines planned.

The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, ISR and Palliser disclaim any intention and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, ISR and Palliser undertake no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above.

The TSX has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this press release.

Not for distribution to U.S. Newswire Services or for dissemination in the United States of America. Any failure to comply with this restriction may constitute a violation of U.S. Securities laws.

SOURCE INTERNATIONAL SOVEREIGN ENERGY CORP.

For further information: For further information: At Palliser: Kevin J. Gibson, President and Chief Executive Officer, Kevin@palliserogc.com, (403) 209-5717; or Carrie McLauchlin, Vice-President, Finance and Chief Financial Officer, carrie@palliserogc.com, (403) 209-5718; At ISR: Eugene N. Hretzay, President and Chief Executive Officer, ehretzay@isove.com, (403) 263-2472

Organization Profile

INTERNATIONAL SOVEREIGN ENERGY CORP.

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