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Press release from Marketwire

Storm Resources Ltd. and Storm Gas Resource Corp. Execute Definitive Arrangement Agreement

Friday, November 11, 2011

Storm Resources Ltd. and Storm Gas Resource Corp. Execute Definitive Arrangement Agreement08:00 EST Friday, November 11, 2011CALGARY, ALBERTA--(Marketwire - Nov. 11, 2011) - Storm Resources Ltd. ("Storm") (TSX VENTURE:SRX) and Storm Gas Resource Corp. ("SGR") are pleased to announce that they have entered into a definitive arrangement agreement pursuant to which Storm will acquire, subject to certain conditions, all of SGR's issued and outstanding common shares ("SGR Shares") on the basis of 1.33 common shares of Storm for each one (1) SGR Share (the "Transaction"). Following completion of the Transaction, Storm will have approximately 38.2 million common shares outstanding, of which approximately 69% will be held by current shareholders of Storm and approximately 31% of which will be held by former shareholders of SGR, excluding 2.5 million SGR Shares already owned by Storm. Closing of the Transaction is expected to occur in early January 2012, subject to satisfaction of certain conditions including no material adverse change having occurred in either of Storm or SGR, standard stock exchange, court and regulatory approvals and the requisite two-thirds majority approval of SGR's shareholders and the majority of minority approval of Storm's shareholders. Additional information regarding the Transaction:Using a value of $3.73 per Storm common share, which is the 20-day volume weighted average share price ending on November 10 (day agreement was executed), the acquisition cost is $56.3 million. The net cost to Storm is $43.9 million after excluding the 2.5 million shares already owned by Storm. SGR's current production is 400 Boe per day (100% natural gas) and production in 2012 is forecast to average 850 Boe per day (100% natural gas) assuming successful completion of the second horizontal well in the Horn River Basin ("HRB") which is expected to begin November 12, 2011. SGR's bank debt at closing is estimated to be approximately $1.2 million which includes transaction costs, plus capital invested to complete and tie in the second HRB horizontal well. SGR has 81,400 net acres of undeveloped land including 60,000 net acres in the HRB. Using Storm's reserve report prepared by InSite Petroleum Consultants Ltd. ("InSite") effective December 31, 2010, Storm is acquiring 644 Mboe of total proved reserves and 2,367 MBoe of proved plus probable reserves. Net to SGR's working interest, future development capital ("FDC") is estimated at $6.7 million for total proved reserves and $22.6 million for proved plus probable reserves. FDC for both total proved and proved plus probable reserves would be reduced by $6.7 million net to SGR to reflect capital invested in the first quarter of 2011 for construction of the facility and tie in of the first horizontal well. Using the evaluation by InSite of contingent resources for the Muskwa and Otter Park formations in Storm and SGR's HRB lands dated October 31, 2011, Storm is acquiring contingent resources of 305 Bcf net sales in the low case estimate, 421 Bcf net sales in the best case estimate, and 552 Bcf net sales in the high case estimate. The low case estimate for Discovered-Petroleum-Initially-In-Place was 2.8 Tcf gross raw gas, the best case estimate was 3.1 Tcf gross raw gas, and the high case estimate was 3.4 Tcf gross raw gas. SGR's average working interest the estimated DPIIP was 63.4 percent in the low, best, and high case estimates. The HRB lands included in the InSite contingent resource evaluation totalled 30 gross sections representing 19,500 gross acres or 12,500 acres net to SGR. Storm attributes approximately $7.2 million for 68,900 net acres of undeveloped lands outside of the area in the HRB that was evaluated as part of the InSite contingent resource evaluation. At closing, SGR is expected to have 11.3 million common shares outstanding and Storm will issue 11.8 million common shares to acquire 8.8 million SGR common shares not already owned by Storm.The Transaction benefits both SGR and Storm shareholders with the combined company having a diversified, resource oriented asset base with near-term growth coming from exploitation of liquids rich natural gas in the Montney formation at Umbach. SGR shareholders gain asset diversification while retaining exposure to the upside associated with the HRB lands. Storm shareholders benefit from the consolidation of the HRB asset which provides more flexibility in terms of exploitation and development. In addition, the combined company will be financially stronger with a larger production base and proportionately lower cash G&A. The SGR Board of Directors commented, "We are proud of what the SGR team has accomplished over the past three years and believe the combined company will be in a better financial position in the current natural gas price environment which will enable it to continue gradually advancing exploitation of SGR's core land position in the HRB. This transaction is the result of an extensive process during which a special committee of our board worked with our financial advisors to explore a number of different alternatives with the objective of maximizing shareholder value. The strategically complementary nature of Storm's assets to those of SGR made a merger with Storm, where SGR shareholders have a meaningful position in the combined entity, the highest value outcome for SGR and is consistent with our longer-term objective of creating incremental value for our shareholders." Board RecommendationsThe Board of Directors of SGR established a Special Committee comprised of independent directors with a mandate, among other things, to consider the Transaction and to make a recommendation to the Board of Directors in respect thereof. The Special Committee of the SGR Board of Directors recommended that the Boards of Directors approve the Transaction. Based on the recommendation of the Special Committee, the Board of Directors of SGR approved the Transaction and has concluded that the Transaction is in the best interest of SGR and its shareholders and have unanimously resolved to recommend that its shareholders vote their shares in favour of the Transaction. Peters & Co. Limited and RBC Dominion Securities Inc. were engaged to act as SGR's exclusive financial advisors with respect to the Transaction. Each of Peters & Co. Limited and RBC Dominion Securities Inc. has advised the Board of Directors of SGR that, in its opinion, as at November 10 and subject to review of final documentation, the consideration to be received by SGR shareholders pursuant to the Transaction is fair, from a financial point of view, to SGR shareholders other than Storm. Each of Storm and SGR has agreed that it will not solicit or initiate discussions regarding any other business combination or sale of material assets. SGR has also granted Storm a right to match competing unsolicited proposals. The arrangement agreement in respect of the Transaction provides for non-completion fees payable by either SGR or Storm in certain circumstances if the Transaction is not completed.READER ADVISORIESBoe Presentation – For the purpose of calculating unit revenues and costs, natural gas is converted to a barrel of oil equivalent ("Boe") using six thousand cubic feet ("Mcf") of natural gas equal to one barrel of oil unless otherwise stated. Boe may be misleading, particularly if used in isolation. A Boe conversion ratio of six Mcf to one barrel ("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 measurements and conversions in this report are derived by converting natural gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil. Mboe means 1,000 Boe. Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters, or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project at an early stage of development. Estimates of Contingent Resources described herein are estimates only; the actual resources may be higher or lower than those calculated in the independent evaluation. There is no certainty that the resources described in the evaluation will be commercially produced. Discovered-Petroleum-Initially-in-Place ("DPIIP") - Is defined in the Canadian Oil and Gas Evaluation Handbook ("COGEH") as the quantity of hydrocarbons that are estimated to be in place within a known accumulation. DPIIP is divided into recoverable and unrecoverable portions, with the estimated future recoverable portion classified as reserves and contingent resources. There is no certainty that it will be economically viable or technically feasible to produce any portion of this DPIIP except for those portions identified as proved or probable reserves. 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 the combined company's working capital and bank facility, reserves, undeveloped land holdings and anticipated benefits from the Transaction. The forward-looking statements and information are based on certain key expectations and assumptions made by Storm and SGR, 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 shareholder approvals, the performance of existing wells; the success obtained in drilling new wells; and the sufficiency of budgeted capital expenditures in carrying out planned activities; and the availability and cost of labour and services. Although Storm and SGR 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 Storm and SGR 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 Transaction, 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 shareholder, court, regulatory and other third party approvals. This press release also contains forward-looking statements and information concerning the anticipated completion of the proposed Transaction and the anticipated timing for completion of the Transaction. Storm and SGR have provided these anticipated times in reliance on certain assumptions that they believe are reasonable at this time, including assumptions as to the timing of receipt of the necessary regulatory and court approvals and the time necessary to satisfy the conditions to the closing of the Transaction. 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 Transaction. 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 Storm's 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 (www.sedar.com) in the case of Storm, and at Storm's website (www.stormresourcesltd.com). The forward-looking statements and information contained in this press release are made as of the date hereof and Storm and SGR 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. FOR FURTHER INFORMATION PLEASE CONTACT: Brian LavergneStorm Resources Ltd.President and Chief Executive Officer(403) 817-6145ORDonald McLeanStorm Resources Ltd.Chief Financial Officer(403) 817-6145ORCarol KnudsenStorm Resources Ltd.Manager, Corporate Affairs(403) 817-6145www.stormresourcesltd.comORKevin HallStorm Gas Resource Corp.President and Chief Executive Officer(403) 231-4344NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.