Kit Resources to Acquire Summit Energy, GOM Assets

Kit Resources Ltd. said that it has signed a definitive agreement to acquire all of the issued and outstanding membership interests of Summit Energy Company, L.L.C. for consideration of approximately US$29 million.

Summit is a privately held, arms length, oil and gas company headquartered in Lafayette, Louisiana with a quality portfolio of gas/condensate assets onshore/offshore Marsh Island in the Gulf of Mexico, including an 18.1634% participating interest in a 109 square mile portion of lands and water bottoms (the "Phase I Area") governed by an Exclusive Geophysical Agreement (the "EGA") with the State of Louisiana and a 6.25% participating interest in the remaining lands covered by the EGA (the "Phase II Area").

The Marsh Island project is newly opened up acreage in a prolific producing area that is virtually unexplored. Summit has an exclusive leasing option to acquire 18,158 acres within a 90,000 AMI (area of mutual interest) that is surrounded by producing gas/condensate fields. Recent new discoveries in the vicinity include the Mound Point, Lake Sand and W. Cote Blanche fields with a total estimated 11.5+ trillion cubic feet of gas equivalent ("TcfGE"). Please see the map at http://files.newswire.ca/509/SummitEnergymap.JPG. This estimate has been obtained from available public records, has not been verified by Kit and is not warranted by Summit.

On the Marsh Island project, over 24 prospects with considerable size potential have been identified on new 3D seismic. The Company intends to commence an aggressive drilling program in early 2007.

The Summit assets also include an 18.1634% interest in a 40 MMcfgpd production facility tied into the existing regional pipeline infrastructure. This asset has the potential to dramatically accelerate production timing and reduce capital costs upon successful completion of the exploration program.

Concurrently, Kit is finalizing agreements with certain of the remaining participants in the Marsh Island project pursuant to which the Company will acquire an additional 12.15% interest in the project from these other participants for a cash consideration of approximately US$14,203,000.

In addition the Company has agreed to acquire the Gulf of Mexico assets (the "GOM Assets") of Pearl Exploration and Production Ltd. in consideration for 10 million common shares of Kit, each Kit share having a deemed value of Cdn$1.20. Pearl is an Alberta-based issuer, the shares of which are listed for trading on the TSX Venture Exchange, and is an arms length party to Kit.

The GOM Assets being acquired from Pearl include a 100% working interest in five Gulf of Mexico offshore exploration blocks, farm-in rights to acquire a 25% working interest in a sixth offshore block, and all physical data, work products and files and records associated with these blocks. Drilling on the top prospects is expected to commence in the first half of 2007.

Together, the Summit and Pearl acquisitions create a robust, exciting new oil and gas company with a tremendous startup shallow water exploration portfolio. Numerous prospects have been defined by 3D seismic and all are near existing production and infrastructure. The Company will maintain a strategic focus in the Gulf of Mexico, the heart of the U.S. petrochemical industry, with an aggressive growth strategy through development and further acquisition. A proven management team is in place with a highly successful operations and acquisitions track record as well as a proven prospect generating team with an oil and gas finding track record.

Transaction Summary

Kit has signed a definitive agreement (dated January 17, 2007) with Summit Energy Holdings LLC to acquire all of the issued and outstanding membership interests of Summit for consideration of US $29,262,002.

Summit is a privately held company based in Lafayette, LA. Summit's primary assets include an 18.1634% participating interest in the Phase I Area of the Marsh Island project and a 6.25% participating interest in the Phase II Area.

Pursuant to the agreement the acquisition will have an effective date of October 1, 2006 and the US$29,262,002 purchase price will be adjusted to account for general, administrative and technical overhead expenses from that date. Kit also has an option, exercisable until February 28, 2007, to acquire an interest in joint operating agreements relating to certain additional fields for an additional US$1,250,000.

Within 3 days of the execution of the definitive agreement Kit will be required to fund Summit's share of two AFEs (authorization for expenditure) relating to the purchase and refurbishment of a production facility and two shut-in gas wells (US$227,500) and to the drilling of the Greylock Prospect within the Phase I Area (US$803,000). A US$2,000,000 deposit was paid into escrow upon execution of the definitive agreement. The transaction is anticipated to close before the end of February.

Concurrently, Kit is finalizing agreements with certain of the remaining partners in the Marsh Island project pursuant to which the Company will acquire an additional 12.15% interest in the project for a cash consideration of US$14,203,000.

2.2 million shares of Kit (with a deemed value of Cdn$1.20 per share) are payable as finders fees in connection with the above transactions and the financing described below. An additional 5 million Kit shares, comprising part of the consideration for the acquisition of the Summit, will be issued under the terms of certain assignment agreements pursuant to which Kit was granted the opportunity to acquire Summit.

In addition, by a letter agreement dated January 2, 2007, Kit has agreed to acquire the GOM Assets of Pearl in consideration for 10 million common shares of Kit, each Kit share having a deemed value of Cdn$1.20. Kit will purchase Pearl's GOM Assets, comprised of a 100% working interest in five Gulf of Mexico offshore exploration blocks, farm-in rights to acquire a 25% working interest in a sixth offshore block, and all physical data, work products and files and records associated with these blocks, in exchange for 10 million Kit shares. Kit will also acquire any contingent and contractual liability associated with the Pearl GOM Assets. Closing of the transaction is also expected to occur before the end of February and is subject to the successful closing of the Summit transaction and all requisite regulatory approvals.

Financing The Company has signed an agreement to sell, on a private placement basis, up to an aggregate of 125,000,000 subscription receipts at a price of Cdn$1.20 per share for gross proceeds of up to Cdn$150,000,000. The subscription receipts will be sold by a syndicate comprised of Canaccord Adams Inc. and Orion Securities Inc. (the "Agents"). Each subscription receipt will entitle the holder to acquire one common share of Kit, without further action or payment on the part of the holder, concurrently with the closing of the Summit acquisition. A 5% fee will be payable on gross proceeds placed by the Agents.

Net proceeds of the private placement will be used towards the acquisition of Summit and related transaction fees, planned drill programs, as well as for general working capital purposes. The shares issued upon exercise of the subscription receipts will be subject to a hold period of 4 months commencing on the date the subscription receipts are issued. The private placement is subject to regulatory approval.

Assets

Summit

The Summit assets comprise the Marsh Island gas project in the Gulf of Mexico and a 40 MMcfgpd production facility which is tied into the existing regional pipeline infrastructure. The Marsh Island project is newly opened up acreage in a prolific producing area which is virtually unexplored. Surrounded by producing gas/condensate fields, Summit has an exclusive leasing option to acquire 18,158 acres within a 90,000 AMI. On state water bottom lands, Summit has selected its maximum of 8,158 acres. The Marsh Island land selection of a maximum of 10,000 acres is due to occur towards the end of March 2007. In late 2005, Summit acquired 109 square miles of 3D seismic and interpretation has identified numerous prospects. The seismic survey was designed with cutting edge parameters for state of the art amplitude versus offset and amplitude versus angle analysis. Careful data processing was a prerequisite and a highly experienced team of consultants was assembled to execute the plan. Ultra long offsets were designed to 60,000 feet with 14 second record length and 110 foot x 110 foot bin size.

The acquisition targets are located in a highly prolific gas prone Miocene trend ranging from the Tex L series (+/-10,000') through the Gyroidina sand (+/- 20,000'). The seismic survey was situated between the Mound Point, Lake Sand and Cote Blanche Bay fields which are estimated to contain over 11 TcfGE. A new field discovery by McMoRan, JB Mountain, within the adjacent state lease, initially produced 50 MMcfgpd. The Mound Point deep field discovery, found by El Paso in mid 2003, is less than 10,000 feet west of the Survey lands and has produced over 9 bcf to date. Another nearby deep discovery made by McMoRan in March 2005 (the Blueberry Hill well), is located less than 5,000 feet west of the Survey lands and initially tested 30 MMcfgpd plus 3,000 bopd. Please note that the above mentioned production and resource estimates have been obtained from available public records, have not been verified by Kit and are not warranted by Summit.

Several well and pipeline permits are in hand and others are in process. Drilling contracts are being negotiated with the first planned well to spud in early 2007. It is anticipated that multiple rig years will be required to exploit the extensive prospect inventory.

Summit has an 18.1634% participating interest in the Phase I Area of the Marsh Island project, a 6.25% interest in the Phase II Area and an 18.1634% interest in the production facility. Kit will also be acquiring an additional 12.15% participating interest in the Phase I Area for an aggregate 30.31% participating interest.

An independent NI 51-101 resource estimate on the Phase I Area is currently being carried out by Petrotech Engineering Ltd. and is expected to be completed by the end of January.

Pearl

The Pearl GOM Assets comprise a 100% working interest in five Gulf of Mexico offshore gas exploration blocks (MU 736, SMI 164, WC 364, WC 263, WC 346) and farm-in rights to acquire a 25% working interest in a sixth offshore block. Focus is on high upside targets with low to moderate technical risk.

One of the key projects being acquired, MU 736 (Mustang Island), is a large amplitude supported prospect with significant resource potential. Targets are prognosed at 11,000 to 13,500 feet along the regional Marg A/Rob L gas trend. Drilling is expected to commence in the first half of 2007 on this top priority project.

A resource assessment of the Pearl GOM Assets is currently being carried out by Ryder Scott and is expected to be completed by the end of January.

Management

The Board of Directors of Kit, effective as of the closing date of the foregoing transactions, will comprise the following:

  • Keith Hill, Chairman
  • Clinton W. Coldren, President
  • Gary Guidry
  • John Zaozirny

The current Board will resign effective as of the same date. Additional independent directors will be elected to the Company's Board of Directors at the next annual general meeting.

Clinton W. Coldren

Clinton W. Coldren brings 29 years of oil and gas management, financial and operational experience to the Company. For the majority of these years, Mr. Coldren focused on domestic operating basins, specifically the Louisiana and Texas Gulf coast. In 1977, Mr. Coldren graduated from Lehigh University with a degree in Mechanical Engineering. He later received his MBA from the University of Pittsburgh in 1992. He held management positions with Gulf Oil/Chevron and CNG Producing before commencing an independent career. Mr. Coldren has a highly successful track record as a company builder. He founded Cenergy Corporation, an oil and gas consulting company and was a founding member of Energy Partners, Ltd. which became a publicly traded company focused on the shallow-water region of the Gulf of Mexico. At Energy Partners Mr. Coldren held a number of senior positions, including Executive Vice President and Chief Operating Officer. Most recently he founded Coldren Oil & Gas Company LP where he was Director, President and CEO for this Gulf of Mexico independent oil and gas company. These were all high growth, successful companies completing major acquisitions and transactions including the recent US$625 million purchase of all of Noble Energy's shelf assets, one of the largest acquisitions in the Gulf region.

Keith Hill

Mr. Hill has over 20 years of experience in the oil industry including senior management positions and international new venture and exploration management at Lundin Oil AB, Occidental Petroleum Corporation and Shell Oil Company. His educational background includes a B.Sc. in Geophysics and an M.Sc. in Geology from Michigan State University and an M.B.A. in International Business and Finance from the University of St. Thomas in Houston, Texas. Mr. Hill was formerly President and CEO of Valkyries Petroleum Corp., a Russia focused oil and gas company which he led through a highly successful takeover.

Gary Guidry

Mr. Guidry has extensive experience in the oil industry and a proven track record in international petroleum development and project execution, operating in diverse environments ranging from deep-water West Africa and the Gulf of Mexico, and South American rainforests to the deserts of the Middle East. Prior to joining the Lundin Group, Mr. Guidry was President and C.E.O. of Calpine Natural Gas Trust, an energy trust listed on the Toronto Stock Exchange. During his tenure with Calpine Mr. Guidry led the Company through substantial growth and ultimately a successful merger with Viking Energy Royalty Trust. He has previously held executive positions including President of AEC International and senior management positions for CanOxy/Nexen, Benton Oil and Gas and Occidental Petroleum including projects in Nigeria, Yemen and Ecuador. A Petroleum Engineer by training, he is an Alberta-registered Professional Engineer.

John Zaozirny

Mr. Zaozirny is counsel to the law firm of McCarthy Tetrault, vice-chairman of Canaccord Capital and a governor of the Business Council of British Columbia. He served as Alberta's Minister of Energy and Natural Resources from 1982 to 1986 when he negotiated the end of the national energy program while also chairing the cabinet committee on economic development.

Corporate

Operational and technical headquarters for the Company will be established in New Orleans, LA with corporate offices located in Vancouver, B.C.

Kit has granted incentive stock options to certain directors and officers of the Company. The options entitle such persons to purchase up to an aggregate of 1,450,000 common shares of the Company at a price of Cdn$1.20 over a period of 10 years. The option grant is subject to regulatory approval.

Upon closing of the Summit and Pearl transactions and the shares issuable pursuant to the proposed private placement and incentive stock option grant, Kit's share structure will be approximately as follows:

  • 259,938,550 million shares outstanding
  • 267,173,550 million shares fully diluted

Upon closing of the Summit and Pearl transactions, Kit proposes to change its name to Bayou Bend Petroleum Ltd. to better reflect the new focus and direction of the Company.

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