Arsenal to Purchase Acreage in Alberta

Arsenal has entered into an agreement to purchase certain producing properties for a total consideration of $40.25 million. The Acquisition is consistent with Arsenal's strategy of acquiring low decline water flood projects in eastern Alberta for reserve growth in the medium term, and acquiring very low cost reserves, land, and infrastructure in long life gas plays for the long term.

The Acquired Properties are currently producing approximately 1,500 boepd (50% liquids) and include 1.8 million boe of proved and 2.5 million boe of proved plus probable reserves.

The Acquired Properties strategically fit in Arsenal's eastern Alberta core operating areas. Upon completion of the Acquisition, Arsenal's production from its Princess/Provost areas will increase from approximately 920 boepd to approximately 1,850 boepd. The Acquired Properties produce medium gravity oil, are all operated, and have high working interests. Arsenal has identified a number of additional pools on its heritage lands and on the Acquired Properties which management feel may benefit from water re-injection.

Arsenal is also acquiring 580 boepd of gas production in the Desan area of NE BC. The Acquired Properties are operated, have a high working interest, and a relatively low decline rate. Arsenal views the Desan purchase as a counter cyclical core gas property acquisition at very low cost.

The Acquisition is scheduled to close November 15th. Arsenal intends to fund the Acquisition entirely with bank debt within its existing credit facility. Pro forma debt at closing is estimated at $50 million with pro forma annualized cash flow of $42 million, representing pro forma debt to cash flow of 1.2x. Subject to the closing of the Acquisition, Arsenal anticipates it will exit 2011 at approximately 3,900 boepd. In conjunction with the Acquisition, Arsenal has hedged 700 bbls/d of oil at a price of $92.10 CDN/bbl until the end of 2013.

Arsenal's credit facility of $60 million is currently under review to take into consideration recent drilling activities and to incorporate the Acquisition. Arsenal expects that its borrowing base will be increased to account for the added activity and production. The Acquisition is not expected to affect Arsenal's planned capital development program for the remainder of 2011 and for 2012.

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