Pearl Exploration and Production Ltd.

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  Jun 28, 2006 - 08:00 ET
Pearl Exploration and Production Ltd. to Acquire Nevarro Energy Ltd.

  CALGARY, ALBERTA--(CCNMatthews - June 28, 2006) - Pearl Exploration and Production Ltd. ("Pearl") (TSX VENTURE:PXX) and Nevarro Energy Ltd. ("Nevarro") (TSX VENTURE:NEL) are pleased to announce that the parties have entered into a letter agreement dated June 27, 2006 (the "Letter Agreement") by which Pearl has agreed to acquire all of the issued and outstanding shares of Nevarro, a junior oil and gas company focused on exploration in Western Canada. The proposed transaction has the unanimous support of the board of directors of both Pearl and Nevarro.

Pursuant to the Letter Agreement, Pearl will acquire all of the issued and outstanding shares of Nevarro in consideration for a combination of cash, common shares of Pearl and shares of a new joint venture exploration company ("Exploreco"). Specifically, a Nevarro Shareholder will receive, for each Nevarro Share held on the date the transaction is completed, $1.875 cash, 0.125 of a Pearl Share and 0.5 of an Exploreco Share. As a result of this: (i) Nevarro will become a wholly owned subsidiary of Pearl and (ii) the shareholders of Nevarro will become shareholders of Pearl and of Exploreco. The total consideration for the purchase is approximately $38.3 MM (which includes the assumption of bank debt of $6.4 MM).

For the three months ended March 31, 2006, Nevarro's production averaged approximately 1,024 boe/d with reserves estimated to be 3,390 Mboe on a proved plus probable basis. Current production is 1,030 boe/d. The reserves noted are based on an independent reserve evaluation prepared by independent reservoir engineers, DeGolyer and McNaughton Canada Limited as at December 31, 2005. These reserve estimates have been prepared utilizing definitions as set out under National Instrument 51-101.

The total consideration, including debt, represents approximately $37,200 boe/d or $11.30/boe proved plus probable reserves. Excluding value attributed for processing facilities fees, the respective metrics are $29,650 boe/d and $9.00/boe proved plus probable reserves. Pearl expects the acquisition to be accretive to its shareholders both on a cashflow per share basis and a reserves per share basis.

Shareholders of Nevarro, including all directors and officers, representing approximately 30% of the shares have entered into lockup agreements to tender their shares to the offer. The Letter Agreement also provides for a break fee which is payable under certain circumstances if the transaction is not completed.

"The acquisition of Nevarro is consistent with Pearl's strategic focus and will result in a substantial addition to our asset base in Western Canada with more than 100 drilling locations. The assets being acquired are primarily located adjacent to our core property in the Onion Lake area, further solidifying our presence in that area," said Gary Guidry, President and CEO of Pearl. "In addition to the identified development opportunities, value will be obtained through further organic growth in the area."

Pearl will participate in the capitalization of Exploreco by providing $3 MM to fund a 36% ownership interest. Current Nevarro shareholders will be entitled to subscribe for up to 2,666,667 shares, on a pro-rata basis, of Exploreco, either as flow-through shares at a price of $0.625 per flow-through share or as non flow-through shares at a price of $0.50 per share. Exploreco will be staffed with existing management of Nevarro. In addition to equity participation in low risk exploration and exploitation, Pearl will also obtain the right to participate in up to a 50% non-promoted working interest on any new prospects, and an option to acquire the remaining 50% interest in those prospects. This long-term relationship provides a growth vehicle in a core area for Pearl.

The transaction is subject to regulatory approval and the approval by Nevarro shareholders.

Asset Highlights

Aberfeldy/Dulwich, Saskatchewan - Nevarro currently holds a 69.3% average working interest in approximately 1,500 acres of land in the Aberfeldy/Dulwich area of Saskatchewan. Nevarro operates 14 wells in this area and produces both heavy oil and natural gas. The Dulwich area also includes Nevarro's salt water disposal and oil skimming facility. As at March 31, 2006, production was approximately 390 boe/d (net).

Lashburn/Marshall, Saskatchewan - Nevarro has an interest in 49 (gross) wells in this area, of which 31 are producing wells operated by Nevarro. As at March 31, 2006, production net to Nevarro was approximately 686 boe/d.

Mulligan, Alberta - Nevarro has an approximate 31% average working interest in over 6,000 acres in the Mulligan area of Alberta. This is a multi-zone area with the production of natural gas from the Gething formation and oil production from the Charlie Lake formation. Production is approximately 196 mcf (net) from five wells.

Nevarro also has seven wells that have been drilled and are waiting to be completed. This is comprised of four gas wells and three oil wells.

GMP Securities L.P. acted as advisors to Pearl and Acumen Capital Finance Partners Limited acted as advisors to Nevarro.

All references in this release to BOEs are based on a 6 to 1 conversion ratio. BOEs may be misleading, particularly if used in isolation. A BOE conversion of 6 Mcf: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.

Pearl is a public company focused on delivering disciplined growth by establishing a North American portfolio of oil and gas projects with an emphasis on large resource opportunities. Additional information on Pearl is available on our website at

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities of Pearl or Nevarro within the United States. The securities of Pearl and Nevarro 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 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 1933 Act and applicable state securities laws or an exemption from such registration is available.

Forward-looking statements: This press release contains statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, the regulatory process and actions, technical issues, new legislation, competitive and general economic factors and conditions, the uncertainties resulting from potential delays or changes in plans, the occurrence of unexpected events, and Pearl's capability to execute and implement its future plans. Actual results may differ materially from those projected by management.

This press release also contains forward-looking statements concerning the anticipated acquisition for all of the shares of Nevarro. Although Pearl believes that the expectations reflected in these forward-looking statements are reasonable, undue reliance should not be placed on them because Pearl can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements contained in this press release are made as of the date hereof and Pearl undertakes 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.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.


Pearl Exploration and Production Ltd.
Gary Guidry
President and Chief Executive Officer
(403) 716-4051
(403) 261-1007 (FAX)


Pearl Exploration and Production Ltd.
Gary Hyde
Chief Operating Officer
(403) 716-4063
(403) 261-1007 (FAX)


Nevarro Energy Ltd.
Richard C. Bennett
President and Chief Executive Officer
(403) 231-1235
(403) 264-7304 (FAX)


Nevarro Energy Ltd.
J.W. Grant Robertson
Vice-President, Business Development
(403) 231-1230
(403) 264-7304 (FAX)

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