Iteration Energy Ltd. and Cyries Energy Inc. Announce Strategic Combination

    CALGARY, Jan. 21 /CNW/ - Iteration Energy Ltd. ("Iteration") (TSX: ITX)
and Cyries Energy Inc. ("Cyries") (TSX: CYS) are pleased to announce that they
have entered into an arrangement agreement (the "Arrangement Agreement") that
provides for the combination of Iteration and Cyries to form a new growth
focused, intermediate oil and gas exploration and development company with an
enterprise value of approximately $1 billion. The combination will be
completed pursuant to an arrangement (the "Arrangement") under the Business
Corporations Act (Alberta).
    Under the terms of the Arrangement Agreement, each Cyries shareholder
will receive 1.475 common shares of Iteration for each common share of Cyries
held, which represents, using the 20 day weighted average trading price on the
Toronto Stock Exchange for Iteration, a premium of 6% on the 20 day weighted
average trading price on the Toronto Stock Exchange of Cyries. Upon completion
of the Arrangement, Cyries will be a wholly-owned subsidiary of Iteration. The
Arrangement will be accomplished on a tax-deferred basis in Canada. At the
closing of the Arrangement, Iteration shareholders will own approximately 46%
of the combined entity and Cyries shareholders will own approximately 54%.
    Mr. Brian Illing, currently President and Chief Executive Officer of
Iteration, will continue as President and Chief Executive Officer of the
combined entity. Mr. Don Archibald, currently Chairman and Chief Executive
Officer of Cyries, will be appointed to the board as Chairman. The current
Chairman, Mr. Jim Grenon, will continue in the role of Lead Director. The
management of the combined company will be comprised of Iteration's existing
executive, augmented by members of the Cyries' management team. The technical
teams at Iteration and Cyries will form a highly experienced group that will
be focused on exploring and exploiting the new company's exciting asset base.
    The Board of Directors of Iteration will be initially comprised of eight
members including the six current directors of Iteration and two
representatives from Cyries. On the closing of the combination, in addition to
Mr. Archibald joining the board, Mr. Howard Crone, a current director of
Cyries, has advised that he has agreed to join the board as a director.
Iteration and Cyries have also agreed that Mr. Gary Peddle, current Vice
President Corporate and a director of Cyries, will also be put forward for
election at the next annual Iteration shareholders meeting. This will expand
Iteration's Board of Directors to nine members.
    The Iteration executive team brings a successful track record of
executing value-added acquisitions and successful exploitation, exploration
and development programs, while maintaining sound financial management and
strict cost controls that the new company will rely on in the future. Prior to
forming Iteration, almost all of the Iteration team worked together in lead
technical roles at Canadian Natural Resources Limited. They have considerable
technical experience in the Deep Basin/Peace River Arch areas where both
Iteration and Cyries are currently focused.
    Mr. Illing stated, "This combination represents an important step in the
evolution of Iteration. From our inception in March 2005 we have grown
production from 2,780 boed to 8,250 boed and increased the undeveloped land
base from 110,000 net acres to 265,000 net acres. We have been able to
assemble a high quality asset base to support efficient future growth through
the drill bit. We are excited about the growth potential of the combined
entity and we look forward to continuing to successfully execute our proven
strategy of acquiring, exploiting and exploring."
    Mr. Archibald added, "The combination represents a logical and attractive
step in the evolution of Cyries. From our inception in July 2004 we have grown
production from approximately 1,000 boed to approximately 11,400 boed and
increased the undeveloped land base from 100,000 net acres to 450,000 net
acres. The combination of the assets and the management teams will provide
Cyries with enhanced ability to participate in a dynamic, growing E&P company
into the future where size and management are even more important factors.
There is good synergy of assets between the two companies, a good combination
of management skills combined with the strength of a larger entity and a very
strong balance sheet that will allow Cyries on a combined basis to carry out a
larger capital expenditure program as well as be more competitive in the
current acquisition market. The skills of the Iteration management team
combine well with Cyries management in the growth of a larger entity."

    Highlights of the Combined Company

    Management of both Iteration and Cyries believe that the combination
provides many strategic benefits including:

    -   Creation of a significant, gas levered intermediate producer focused
        in the Peace River Arch, East Central Alberta, South East Alberta and
        North East British Columbia;
    -   An excellent asset overlap and synergies in the Deep Basin/Peace
        River Arch area of Alberta and at Boundary Lake on both sides of the
        Alberta/British Columbia border;
    -   A pro forma estimated enterprise value of over $1 billion which is
        expected to result in enhanced liquidity, a more competitive cost of
        capital and improved financial flexibility;
    -   Strong pro forma balance sheet with expected debt to 2008 funds flow
        of approximately 1.1 times;
    -   Larger size, which will enable the combined company to be more
        competitive in the domestic acquisition market;
    -   Current combined production of approximately 20,000 boed, 70% of
        which is natural gas;
    -   A large, balanced portfolio of exploration and development
        opportunities over the combined entity's significant undeveloped land
        position of approximately 715,000 net acres in Western Canada;
    -   Accretive to Iteration on the following metrics:
        -  increase to Iteration's production per share of 9%;
        -  increase to Iteration's funds flow from operations per share of
    -   Expected to be significantly accretive to Iteration's reserves per
        share (independent engineer reserve evaluations as at December 31,
        2007 for each of Iteration and Cyries are expected to be completed in
        March 2008);
    -   The combined company will maintain high operatorship and working
        interest positions; and
    -   A strong combination of technical skills that will be applied over
        the larger asset base to achieve both operating efficiencies and an
        increase in the number of internal drilling opportunities identified.

    Key Pro Forma Operating and Financial Information for the Combined

    Some of the key pro forma operating and financial information for the
combined company include the following:

        Estimated combined 2007 Exit Production               19,600 boed(1)
        Expected Pro Forma Q1 2008 Exit Production            21,000 boed(1)
        Pro Forma Enterprise Value                             $1 billion(1)
        Estimated Q1 2008 Funds Flow(2)                       $45 million(1)
        Estimated Q1 2008 Debt                               $232 million(1)
        Combined Tax Pools at December 31, 2007              $500 million(1)
        Fully Diluted Shares Outstanding                      170 million(1)
        Undeveloped Land Base (net acres)                         715,000(1)

    (1) All figures are current estimates of Iteration and Cyries management.
    (2) Based on an average 2008 AECO price of $7.08/gj Cdn. and average 2008
        WTI price of $92/bbl Cdn.

    Both Iteration and Cyries have started significant winter drilling
programs which will be completed during the first quarter of 2008 and are
expected to result in continued production growth and value creation. Both
companies have a significant inventory of prospects for the remainder of 2008.
The combined company intends to optimize the post-winter drilling program
taking into consideration prevailing commodity prices and cost of services
before releasing guidance for the balance of the year.

    About the Transaction

    The Directors and Officers of Cyries, who control approximately 13% of
the securities to be voted in respect of the transaction, have agreed to vote
their Cyries securities in favour of the Arrangement. FirstEnergy Capital
Corp. is acting as exclusive financial advisor to Cyries with respect to the
combination and has advised the Board of Directors of Cyries that it is of the
opinion, as of the date hereof, that the consideration to be received by
Cyries shareholders pursuant to the Arrangement is fair from a financial point
of view to Cyries shareholders. The Boards of Directors of both Iteration and
Cyries have unanimously approved the Arrangement Agreement. The Board of
Directors of Cyries has also concluded that the Arrangement is in the best
interests of its securityholders, and has resolved to recommend that
securityholders of Cyries vote their securities in favour of the combination.
Cyries has agreed that it will not solicit or initiate any discussions
concerning the pursuit of any other business combination. Cyries has agreed to
pay to Iteration a non-completion fee of $13.25 million in certain
circumstances. In addition, Iteration has the right to match any superior
proposal, and Cyries has the right to respond to any superior proposal, in the
event such a proposal is made.
    The Arrangement is subject to regulatory and court approval and the
approval by a majority of at least two thirds of holders of common shares and
warrants of Cyries, voting as a single class, who vote on the Arrangement. The
mailing to the securityholders of Cyries of an information circular regarding
the Arrangement is expected in early February 2008. A Cyries securityholders
meeting is expected to be held in early March 2008, with completion of the
combination expected shortly thereafter, subject to receipt of necessary
regulatory and court approval and satisfaction or waiver of conditions.
    Complete details of the terms of the combination are set out in the
Arrangement Agreement, which will be filed by each of Iteration and Cyries on
SEDAR and will be available for viewing under each of Iteration's and Cyries'
profile on

    Investor Conference Call

    A joint conference call has been scheduled for January 21, 2008, at
8.00am Calgary time / 10.00am (Toronto time) to discuss the combination.
Members of the investment community may participate by using the following
dial in numbers:

    604-899-1159 Vancouver
    403-232-6311 Calgary or International
    780-424-5694 Edmonton
    416-883-0139 Toronto
    613-212-4230 Ottawa
    514-395-2055 Montreal
    Toll Free dial in number: 1-888-458-1598 from Canada and USA
    Use Participant pass code: 63142 followed by the number sign.

    A replay of the joint conference call will be available approximately
30 minutes after completion of the conference call until February 3, 2008, by
calling 1-877-653-0545 from Canada or USA or 403-232-0933 from local Calgary
or International. and entering the Pass code 604189 followed by pressing the
pound (No.) key.

    About Iteration

    Iteration is an independent Canadian oil and natural gas exploration,
development and production company with its common shares trading on the
Toronto Stock Exchange under the symbol "ITX".

    About Cyries

    Cyries is an independent Canadian oil and natural gas exploration,
development and production company with its common shares trading on the
Toronto Stock Exchange under the symbol "CYS".

    Advisory Regarding Forward-Looking Statements

    This press release contains forward-looking statements and
forward-looking information within the meaning of applicable securities laws.
The use of any of the words "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "may", "will", "project", "should", "believe",
"plans", "intends" and similar expressions are intended to identify
forward-looking information or statements. More particularly and without
limitation, this press release contains forward looking statements and
information concerning completion of the combination and the assessment of the
combined company's petroleum and natural gas production reserves, undeveloped
land holdings, reserve life index, business strategy, future development and
growth opportunities, prospects, asset base and anticipated benefits from the
combination including improved operating efficiencies, field optimizations and
cost reductions, future cash flows, value and debt levels, capital programs
,and future plans. The forward-looking statements and information are based on
certain key expectations and assumptions made by Iteration and Cyries,
including expectations and assumptions concerning prevailing commodity prices
and exchange rates, applicable royalty rates and tax laws, future well
production rates and reserve volumes, the timing of receipt of regulatory and
security holder approvals, the performance of existing wells, the success
obtained in drilling new wells, the sufficiency of budgeted capital
expenditures in carrying out planned activities, the availability and cost of
labour and services and the impact of the Province of Alberta's new royalty
regime. Although Iteration and Cyries believe that the expectations and
assumptions on which such forward-looking statements and information are based
are reasonable, undue reliance should not be placed on the forward looking
statements and information because Iteration and Cyries can give no assurance
that they will prove to be correct. Since forward-looking statements and
information address future events and conditions, by their very nature they
involve inherent risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, the risks associated with the
oil and gas industry in general such as 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
reserves, production, costs and expenses, health, safety and environmental
risks, commodity price and exchange rate fluctuations, marketing and
transportation, loss of markets, environmental risks, competition, incorrect
assessment of the value of acquisitions, failure to realize the anticipated
benefits of acquisitions, ability to access sufficient capital from internal
and external sources, failure to obtain required regulatory and other
approvals, and changes in legislation, including but not limited to tax laws,
royalties and environmental regulations. There are risks also inherent in the
nature of the proposed combination, including failure to realize anticipated
synergies or cost savings, risks regarding the integration of the two
entities, incorrect assessments of the values of the other entity, and failure
to obtain the required security holder, court, regulatory and other third
party approvals. This press release also contains forward-looking statements
and information concerning the anticipated completion of the proposed
Arrangement and the anticipated timing for completion of the Arrangement.
Iteration and Cyries have provided these anticipated times 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 to the closing of the Arrangement.
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. Accordingly, readers should
not place undue reliance on the forward-looking statements and information
contained in this press release concerning these times. Readers are cautioned
that the foregoing list of factors is not exhaustive. Additional information
on these and other factors that could affect Iteration's, Cyries' or the
combined company's operations or financial results are included in reports on
file with applicable securities regulatory authorities and may be accessed
through the SEDAR website (, in the case of Iteration, at
Iteration's website (, and in the case of Cyries, at
Cyries' website ( The forward-looking statements and
information contained in this press release are made as of the date hereof and
Iteration and Cyries undertake no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of new
information, future events or otherwise, unless so required by applicable
securities laws.

    Barrels of Oil Equivalent

    "Boe" means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic
feet of natural gas. Boe's may be misleading, particularly if used in
isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural 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.

    %SEDAR: 00002576E

For further information:

For further information: Iteration Energy Ltd.: Brian L. Illing,
President and Chief Executive Officer, Tel: (403) 290-4867; Sean Johnson,
Chief Financial Officer, Tel: (403) 290-4904; Website:;
Cyries Energy Inc.: Don Archibald, Chairman and Chief Executive Officer, Tel:
(403) 232-4157; Website:

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