Lion Acquires Producing Property in the Gulf of Mexico

Lion Energy has entered into a conditional agreement to acquire a 20% equity position in PetroReal Main Pass LLC, of the United States.

International PetroReal Oil Corporation, a Canadian company trading on the Toronto Venture Exchange (Code IOC), entered into a Sales and Purchase Agreement with Ridgelake Energy Inc to acquire its 70% majority-interest ownership in the MP-59 field in early May 2004 and since then has completed its due diligence and is finalising its financing arrangements. PetroReal has agreed to pay US$78 million upon completion and the acquisition has an effective date of January 1, 2005.

The acquisition by PetroReal International is scheduled to be completed on January 7, 2005.

Under the agreement with PetroReal International, Lion is to acquire 20% of the equity in PetroReal Main Pass LLC. On completion of the MP-59 acquisition, PetroReal Main Pass LLC will hold a 70% Working Interest in MP-59.

The 70% WI in MP-59 will be an asset of PetroReal Main Pass LLC, a US incorporated company formed exclusively for this acquisition and Lion will have a direct equity participation in this company.

The MP-59 field is operated by a major international oil company and is located in the Gulf of Mexico about 35 miles due east of Venice, Louisiana in US federal waters.

The MP-59 field currently consists of 15 wells and 17 active oil completions on one platform and one satellite structure located in 70 feet of water. The field was producing approximately 2,700 barrels of oil and 0.8 million cubic feet of gas per day before production was suspended ahead of hurricane "Ivan". The storm caused damage to the platform and the facilities, which is currently being repaired by the field operator. Full production capacity is anticipated to be restored by December 23, 2004.

PetroReal has completed all its due diligence, including title opinion, independent reserve evaluations and an environmental inspection. Independent reserve evaluations were carried out by three different engineering firms; Schlumberger, R. A. Lenser & Associates and Ryder Scott with Proven reserves after royalty varying from 8.2 to 14.4 MMBBL of oil and 4.5 to 7.6 BCF of gas net to the Ridgelake interest. In addition, Ridgelake estimates that there are additional reserves of oil and gas in the Probable and Possible categories net to the Ridgelake interest of up to 17.4 million barrels of oil equivalent (oil and gas combined). Gas is entrained with the oil and represents approximately 10% of the value of the field.

Plans for increasing production at MP-59 after acquisition include a debottlenecking program projected to increase production to in excess of 4,000 BOPD and further development drilling aimed at increasing production levels to in excess of 6,000 BOPD.

To fund the acquisition, PetroReal is arranging a Secured Credit Facility for US$ 50,000,000, with the remaining equity funds to be provided by the equity shareholders in PetroReal Main Pass LLC, of which Lion will contribute US$ 8,000,000 for its 20% shareholding.

Lion intends to fund the investment from these sources:

  • US$4,350,000 from the proceeds from the January 2005 sale of its investment in the Bula oil production tenement in Indonesia, including a drilling rig and other heavy equipment used in Indonesia, plus proceeds from the sale of oil inventory held to the date of sale totaling approximately US$1,100,000. This sale of assets was advised to the market on November 17, 2004 and is subject to Lion shareholder approval at a general meeting to be held on January 7, 2005.

  • The balance from private placement of shares or other securities in Lion.

  • Lion's offer is subject to completion of due diligence.

    Assuming an average oil price of US$33.40 per barrel and no unforeseen interruption to operations, Lion expects the investment to generate for Lion a pre-tax revenue contribution of over US$25 million over the next 6 years. Production should continue for between 20 and 30 years, depending on the amount of additional reserves proven by further drilling. Lion expects that operating costs (and any development expenses) of the investment will be funded from the investment's own cash flow.

    Lion's directors and management consider this acquisition represents the opportunity to acquire proven producing oil reserves in an area where the considerable developed infrastructure ensures operating costs are very reasonable. This coupled with a world class operator classifies the acquisition as a low risk opportunity to acquire solid medium to long term earnings whilst exposed to upside to additional reserves from further appraisal and development drilling.


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