Bow Valley Enters New Venture in Alaska


Foothills - North Slope
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Bow Valley Energy has entered a new venture in Alaska and closed its previously announced US$150 million financing in the U.K.

New Venture Alaska

Bow Valley has entered into a Joint Venture Agreement with Alaska Venture Capital Group, LLC ("AVCG") and its operating subsidiary Brooks Range Petroleum Corporation, under which Bow Valley will participate in an exploration program on the North Slope of Alaska. Under the terms of the transaction, Bow Valley will pay 28% of specified capital expenditures to earn a 20% working interest in lands owned by AVCG. In addition, Bow Valley has agreed to pay certain capital costs previously incurred by AVCG.

The lands covered by the agreement total approximately 140,000 acres (gross). The co-venturers have approved a budget of US$41.3 million for 2006 and calendar year 2007, which encompasses the cost of drilling two wells and acquiring seismic. A third well may be drilled if conditions permit.

Alaska is a proven light oil basin where numerous major oil discoveries have been made, including the Prudhoe Bay, Kuparuk, Alpine and Milne Point fields representing 23 billion barrels of discovered oil reserves and 1 million bopd of current production. The farm-in lands are in close proximity to these fields and infrastructure.

The capital spending in the new jurisdiction will be funded through a combination of cash flow, asset sales and/or new equity.

"Participation in this Joint Venture represents a major initiative to expand the Company's business into new international jurisdictions," said Robert G. Moffat, President and CEO of Bow Valley. "Alaska is a politically stable jurisdiction, it has an attractive fiscal regime and there is significant exploration potential remaining within close proximity to existing infrastructure. We believe this opportunity is similar to the offshore U.K. where the Company has been extremely successful in establishing a significant production base by pursuing smaller opportunities that are no longer considered material to the established major oil companies operating in the area. The Joint Venture is a first step in establishing Alaska as a major production and revenue contributor to Bow Valley's operations."

U.K. Financing

The Company has closed the previously announced debt facility with the Bank of Scotland. The US$150 million debt facility consists of a US$125 million senior facility and a US$25 million mezzanine facility. This facility is expected to fully fund Bow Valley's share of capital expenditures to develop four fields at Enoch, Blane, Chestnut and Ettrick, all in the U.K. North Sea. The facility will also cover ongoing capital requirements for the Kyle field as well as certain exploration spending. From Bank of Scotland financial projections, it is not anticipated that the senior facility will be drawn by more than 50 percent (not including exploration capital).

Robert G. Moffat noted that: "The new line gives the Company a high degree of confidence that it will be able to continue to fund its participation in the four field development projects. These projects are anticipated to provide total production additions of 63,000 boe/d (7,950 boe/d net) over the next eighteen months and will mark a significant milestone in the growth of Bow Valley Energy."

Canada - Operational and Budget Update

In response to current industry conditions of lower natural gas prices, the Company is reducing its 2006 capital budget from C$40 million to approximately C$30 million, and is suspending its previously announced 2006 exit production rate guidance. Current production is approximately 1,700 boe/d and 2006 full year volumes are now expected to average approximately 1,850-1,900 boe/d. The Company has approximately 1,000 boe/d of predominantly natural gas potential behind pipe which can be tied-in between now and early in the new year. Approximately 500 boe/d of these volumes relate to drilling success in the first quarter of 2006, which were not tied-in because the wells are in winter access only areas. Another approximately 500 boe/d relates to recent drilling success and includes both tested wells and one well where productive capacity is expected to be confirmed via testing expected to occur over the next four weeks.

"Recent drilling success in Canada has provided Bow Valley with additional production volumes to tie-in during the next two to three months," stated Robert G. Moffat. "Canadian production volumes have been below forecast during 2006 but with these recent behind pipe additions, production and resultant cash flow should soon exhibit renewed growth. An industry environment characterized by weak natural gas prices and significantly higher costs has prompted the Company to adjust the drilling program to target higher reward opportunities and reduce capital spending as announced. Meanwhile, Bow Valley has a well financed development agenda in the U.K. with an expanding exploration prospect inventory and combined with the new Joint Venture in Alaska should achieve superior economic returns over the next several years from its international operations."

Bow Valley Energy Ltd. is an oil and natural gas exploration, development and production company with operations in western Canada, Alaska and the U.K. sector of the North Sea. The common shares of the Company trade on the Toronto Stock Exchange under the symbol BVX.

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