News Releases

Bonterra Energy Income Trust Enters Into Two Binding Agreements

Aug 15, 2008 - 12:00 ET

CALGARY, ALBERTA--(Marketwire - Aug. 15, 2008) - Bonterra Energy Income Trust ("Bonterra Trust") (www.bonterraenergy.com) (TSX:BNE.UN) is pleased to announce that it has entered into two binding agreements that will result in:


1. The acquisition of a company that presently has production of approximately 650 barrels of oil equivalent ("BOE") consisting entirely of natural gas and natural gas liquids in the Province of British Columbia, 10,000 acres and a right to earn an additional approximate 38,000 acres of non-producing lands in Alberta and British Columbia, and approximately $74,000,000 in tax pools.

2. The conversion of Bonterra Trust into a corporation, Bonterra Energy Ltd. ("Bonterra Ltd."), by way of a plan of arrangement.

What Bonterra Ltd. will look like after these transactions:

A. Bonterra Ltd. anticipates that it will pay dividends in the same monthly amount as it would have paid in distributions if it had remained a Trust (presently $0.32 per month), subject to future adjustments due to changes in commodity prices and production amounts.

B. Bonterra Ltd. will be a high paying dividend company, whereas, prior to this change it was a high paying trust. Some shareholders may benefit by paying lower income taxes on dividends than taxes previously paid on distributions.

C. 2008 exit production is expected to be approximately 5,200 BOE/day consisting of two-thirds oil and liquids and one-third natural gas, an increase from approximately 4,400 BOE's production at the present time.

D. Number of units/shares outstanding will increase from the present 17,150,000 to approximately 17,800,000 (assuming the exercise of a certain percentage of stock options, and the acquisition described below), resulting in dilution of 3.8 percent.

E. Debt of approximately 10 to 11 months of debt to cash flow.

F. Bonterra Ltd. will have tax pools of approximately $450,000,000.

G. Reserves are expected to increase by approximately 2,200,000 BOE, an approximate 8 percent increase.

H. Inventory of undrilled locations in excess of 10 years.

Conversion Rationale

Bonterra Trust's long-term business strategy has been to combine its oil and gas production technical strengths with planned business strategies to generate above average results and returns for unitholders. However, since the October 31, 2006 announcement and subsequent legislation by the Canadian federal government with respect to trust taxation, Bonterra Trust has been of the opinion that the trust structure is no longer capable of providing maximum value to unitholders. The trust taxation regime as well as the continued lack of clarity in regard to its enactment has continued to negatively impact the energy trust sector including continued depression in trust unit prices, decreased access to capital and a limited ability to grow based on the "safe harbour" rules. As well, Bonterra Trust's ability to fully execute its strategy has been compromised.

Bonterra Trust's management and Board of Directors have been examining the options available to it to lessen the impact of the Federal trust tax regulations that were legislated by the Federal government in June 2007 and have determined that an early conversion to corporate status will be beneficial to its unitholders.

Details about the Transactions

Silverwing

The first binding agreement relates to the acquisition of all of the outstanding shares of Silverwing Energy Inc. ("Silverwing"), an Alberta-based oil and natural gas company (the "Acquisition").

The gross purchase price for all of the outstanding shares of Silverwing is approximately $30,450,000, which amount shall be reduced by the amount of debt and negative working capital of Silverwing and certain penalties payable to third parties (which is currently estimated to be $16,500,000), at the closing of the Acquisition. The net purchase price shall be paid to the holders of common shares of Silverwing, at the election of the securityholder of Silverwing, on the basis of: (i) 0.002226 (subject to minor adjustments at closing) of a trust unit of Bonterra Trust (a "Bonterra Trust Unit") at a deemed price equal to $33.70 per Bonterra Trust Unit for each Silverwing share; or (ii) cash, in an amount equal to such securityholder's pro rata share of the net purchase price estimated to be approximately $0.075 per Silverwing share (subject to adjustments at closing related to Silverwing's actual cash flow from operations). All dollar amounts in this press release are in Canadian dollars unless otherwise stated.

The cash portion of the Acquisition will be funded by Bonterra Trust from its existing bank line of credit. After closing the Acquisition, Silverwing will be a wholly-owned subsidiary of Bonterra Trust and will subsequently be amalgamated with Bonterra Energy Corp. (another wholly-owned subsidiary of Bonterra Trust), and holders of Silverwing shares will hold approximately 2% of the outstanding Bonterra Trust Units, assuming that 100% of the holders of currently outstanding Silverwing shares elect to receive Bonterra Trust Units in exchange for their Silverwing shares. This press release does not constitute an offer of any securities.

The Board of Directors of Silverwing and the Board of Directors of Bonterra Energy Corp., as Administrator of Bonterra Trust (in such capacity, the "Administrator") have unanimously approved the Acquisition.

Silverwing has agreed that it will not solicit or initiate any discussions concerning the pursuit of any other business combination. Silverwing has agreed to pay to Bonterra Trust a non-completion fee of $1,000,000 in cash in certain circumstances. Bonterra Trust has agreed to pay to Silverwing a $1,000,000 non-completion fee in certain circumstances. In addition, Bonterra Trust has the right to match any superior proposal, and Silverwing has the right to respond to any superior proposal, in the event such a proposal is made.

The Acquisition is subject to, among other things, regulatory and court approval and the Acquisition resulting in Bonterra Trust acquiring 100% of the outstanding Silverwing shares. In addition the Acquisition is subject to a due diligence review being completed by both Bonterra Trust and Silverwing to their sole satisfaction. The Acquisition is expected to close in November, 2008.

It is a condition of the Acquisition that all of the directors and officers, and certain shareholders of Silverwing holding an aggregate of not less than 51,550,000 of the outstanding shares of Silverwing, enter into support agreements whereby they agree to deliver into an offer made by Bonterra Trust, all Silverwing securities held by them or to otherwise support the Acquisition by agreeing to vote all of their securities of Silverwing in favour of the Acquisition, as the case may be.

Complete details of the terms of the proposed Acquisition are set out in the letter agreement that will be filed by Bonterra Trust on SEDAR (www.sedar.com) under its profile.

SRX

The second binding agreement relates to a transaction with SRX Post Holdings Inc. ("SRX").

Immediately subsequent to the closing of the Acquisition, Bonterra Trust proposes to complete a proposed plan of arrangement (the "Arrangement") involving Bonterra Trust, Bonterra Energy Corp. ("Bonterra Corp."), Novitas Energy Ltd. ("Novitas") and SRX pursuant to an arrangement agreement ("Arrangement Agreement") entered into among Bonterra Trust, Bonterra Corp., Novitas and SRX.

SRX is currently an inactive public company incorporated under the Canada Business Corporations Act and is subject to creditor protection under the Companies' Creditors Arrangement Act (the "CCAA") pursuant to proceedings in the Qu├ębec Superior Court. The CCAA proceedings will result in: (i) all liabilities of SRX being extinguished; (ii) Bonterra Trust making an investment of approximately $11,250,000 in SRX; (iii) the share capital of SRX being reorganized to enable the redemption of all outstanding common shares for nominal consideration; and (iv) the corporate name of SRX being changed to Bonterra Energy Ltd. ("New Bonterra").

Subject to the terms and conditions of the Arrangement Agreement, the transaction will be carried out as an arrangement under the Business Corporations Act (Alberta). Under the Arrangement, New Bonterra will acquire all of the outstanding Bonterra Trust Units by issuing common shares to holders of Bonterra Units on a one-for-one basis. In addition, Bonterra Corp. and Novitas, which currently hold the operating assets of Bonterra Trust, will amalgamate to form a new operating subsidiary of Bonterra Trust. Upon completion, the Arrangement will result in Bonterra Trust being converted to a corporation and holders of Bonterra Trust Units becoming shareholders that own, indirectly, an economic interest in Bonterra Trust's business on the same basis as at present. Bonterra Trust intends to apply to have the common shares of New Bonterra listed on the Toronto Stock Exchange at the closing of the transaction.

The Board of Directors of the Administrator and the Board of Directors of SRX have unanimously approved the Arrangement.

SRX has agreed that it will not solicit or initiate any discussions concerning the pursuit of any other business combination. SRX has agreed to pay to Bonterra Corp. a termination fee of $300,000 in cash in certain circumstances. Bonterra Corp. has agreed to pay to SRX a $300,000 termination fee in certain circumstances. In addition, Bonterra Corp. has the right to match any superior proposal, and SRX has the right to respond to any superior proposal, in the event such a proposal is made.

The Arrangement shall be subject to, among other things, regulatory and court approval and the approval by a majority of at least two thirds of the holders of Bonterra Trust Units and the holders of options to purchase Bonterra Trust Units, voting as a single class, who vote on the Arrangement. The mailing of an information circular to the holders of Bonterra Trust Units regarding the Arrangement and related matters is expected in September, 2008.

A meeting of the holders of Bonterra Trust Units is expected to be held in October, 2008. The completion of the Arrangement is 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 Arrangement are set out in the Arrangement Agreement that will be filed by Bonterra Trust on SEDAR (www.sedar.com) under its profile.

Although the closing of the Acquisition and the closing of the Arrangement are not conditional upon each other, it is anticipated that the Bonterra Trust Units to be issued to the securityholders of Silverwing pursuant to the Acquisition will be exchanged, under the Arrangement, for shares of New Bonterra.

About Bonterra

Bonterra Energy Income Trust is presently a conventional oil and gas royalty trust with operations in Alberta and Saskatchewan. Its units are listed on The Toronto Stock Exchange under the symbol "BNE.UN".

BOE's are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable to the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation.

Certain statements contained in this press release include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this press release includes, but is not limited to: expected cash provided by continuing operations; cash distributions; dividends; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and gas industry; business strategy and outlook; expansion and growth of our business and operations; and maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; credit risks; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, and may include, without limitation: foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas trusts to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived therefrom. Except as required by law, Bonterra Trust disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

The forward-looking information contained herein is expressly qualified by this cautionary statement.

%SEDAR: 00017467E



FOR FURTHER INFORMATION PLEASE CONTACT:

Bonterra Oil & Gas Ltd.
George F. Fink
President, and CEO
(403) 262-5307
Fax: (403) 265-7488

or

Bonterra Oil & Gas Ltd.
Garth E. Schultz
Vice President - Finance, and CFO
(403) 262-5307
Fax: (403) 265-7488
info@bonterraenergy.com
www.bonterraenergy.com

 

 
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