Pearl Exploration and Production Ltd.



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  Aug 2, 2007 - 16:30 ET
Pearl to Acquire Watch Resources Ltd.

  CALGARY, ALBERTA--(Marketwire - Aug. 2, 2007) - Pearl Exploration and Production Ltd. ("Pearl" ) (TSX VENTURE:PXX)(FIRST NORTH:PXXS) and Watch Resources Ltd. ("Watch") (TSX VENTURE:WRL) are pleased to announce that they have signed an agreement (the "Arrangement Agreement") whereby Pearl will acquire all of the issued and outstanding shares of Watch.

The key producing asset of Watch is its Fishing Lake conventional heavy oil field in north-central Alberta. This field is located near Pearl's Onion Lake field and the acquisition of this field is anticipated to provide synergies with Pearl's Onion Lake operations while contributing to Pearl's goal of building a solid base of recoverable resources to provide low risk production and cash flow. Watch has no debt and a current cash position of approximately Cdn $7 million.

The Fishing Lake property will represent a significant heavy oil resource for Pearl and offers additional potential with the use of enhanced oil recovery techniques. The field comprises compact geology with stacked reservoir sands over a contiguous 7 1/2 section land base. An independent NI 51-101 reserves report on the Fishing Lake assets has been commissioned by Pearl and is expected to be completed in August 2007.

The Fishing Lake field is early in its development with current net production of approximately 400 boepd, and Watch has internally estimated a 2007 exit rate for the field of 700 to 750 boepd with the continuation of its ongoing capital program. Further development drilling in 2008 and beyond provides the potential for production upside.

"The Offer will provide Watch shareholders the opportunity to directly participate in a diverse and growing resource company," Keith Hill, President and CEO of Pearl, commented. "We are quickly building an excellent portfolio of low risk, producing assets in western Canada. Watch's Fishing Lake property provides Pearl with significant production and resource upside and we are looking forward to fully exploiting that property. Its proximity to our existing producing assets makes it an ideal investment for Pearl and will contribute immediately to our production and cash flow goals."

Randy Buchanan, President of Watch, commented, "We have been striving for the last year or two at Watch to delineate a marketable heavy oil play which we have now done. We have always had the intention of turning these assets over to a larger company to exploit when the timing was appropriate and we feel strongly that Pearl, with their focus on heavy oil as well as their strong technical abilities coupled with proven fund raising abilities, is a strategic choice to enhance Watch's shareholder value."

Subject to necessary approvals, Pearl will acquire Watch in an all share transaction at an exchange ratio of 0.23 common shares of Pearl for each common share of Watch pursuant to a plan of arrangement (the "Arrangement"). At the closing price of Pearl shares of $4.71 on August 1, 2007, the total transaction is valued at approximately Cdn $55 million Watch has approximately 50.7 million shares outstanding (on a fully diluted basis).

Full details of the Arrangement will be included in an information circular that is expected to be mailed to Watch shareholders in early September, 2007. Completion of the Arrangement will be subject to, among other things, the approval of not less than two-thirds of the votes cast at a meeting of Watch shareholders called to approve the Arrangement, presently anticipated to be held in October, 2007, and the approval of the Court of Queen's Bench of Alberta. Other conditions will include those typical for a transaction of this nature and receipt of regulatory, stock exchange and third party approvals satisfactory to Pearl. Subject to the satisfaction of these conditions, it is anticipated that the closing of the transaction will occur shortly after the meeting.

J.F. Mackie & Company Ltd. is acting as financial advisor to Watch with respect to the Arrangement and has advised the board of directors of Watch, and its special committee, that the consideration to be received by Watch shareholders as a result of completion of the Arrangement is fair from a financial point of view.

The board of directors of Watch, and its special committee, has unanimously approved the entering into of the Arrangement Agreement and has determined the Arrangement and the Arrangement Agreement to be in the best interests of the shareholders of Watch.

Management of Watch believes the transaction will enhance value for its shareholders by providing the following benefits:

- strong financial and technical resources to fully exploit the Fishing Lake opportunity;

- complementary and geographically close assets will allow for economies of scale with technical skills and equipment utilization;

- increased liquidity in a larger and higher profile company listed on two exchanges;

- diversification of projects will mitigate risk and enhance high grading opportunities; and

- strong combined balance sheet to increase access to lower cost of capital to minimize dilution to shareholders while accelerating the exploitation of the resources;

- alignment with a company with a strong and aggressive focus on the creation of long term shareholder value.

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 its website at www.pearleandp.com.

Watch is an energy resource development company engaged in the exploration and production of petroleum and natural gas. Watch is a Canadian public company, listed for trading on the TSX Venture Exchange (TSXV) with the symbol WRL. Additional information on Watch is available on its website at www.watchresources.com

Pearl's Certified Advisor on First North is E. Ohman J:or Fondkommission AB.

All references in this release to boe's are based on a 6 to 1 conversion ratio. Boe's 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.

Forward-looking Statements: This document 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 and Watch's capability to execute and implement its future plans. Actual results may differ materially from those projected by management. For such statements, we claim the safe harbour for forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995.

Cautionary Statements: Completion of the Arrangement is subject to a number of conditions, including but not limited to, court and shareholder approval. There can be no assurance that the Arrangement will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the information circular to be prepared in connection with the transaction, any information released or received with respect to the Arrangement may not be accurate or complete and should not be relied upon. Trading in the securities of Watch should be considered highly speculative.


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

FOR FURTHER INFORMATION PLEASE CONTACT:


Pearl Exploration and Production Ltd.
Keith Hill
President
(604) 689-7842
(604) 689-4250 (FAX)
Email: khill@namdo.com

or

Pearl Exploration and Production Ltd.
Arlene Weatherdon
CFO
(403) 716-4054
(403) 265-8324 (FAX)
Email: arlene.weatherdon@pxx.ca

or

Pearl Exploration and Production Ltd.
Sophia Shane
Corporate Development
(604) 689-7842
(604) 689-4250 (FAX)
Email: sophias@namdo.com
Website: www.pearleandp.com

or

Watch Resources Ltd.
Randy Buchanan
President
(403) 265-1951
(403) 265-1930 (FAX)
Email: randy@Energy51.ca
Website: www.watchresources.com
 
 

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