Pearl Acquires Cipher Exploration

Pearl Exploration and Production Ltd. on Thursday closed its previously announced acquisition of all of the issued and outstanding shares of Cipher Exploration Inc. pursuant to a share purchase agreement between Pearl, Cipher and the shareholders of Cipher. Cipher was a privately held oil and gas company with heavy oil assets in western Canada. As a result of the acquisition, Cipher is now a wholly owned subsidiary of Pearl and the shareholders of Cipher are now shareholders of Pearl.

Pursuant to the terms of the acquisition, the gross purchase price of $20 million was reduced by an amount equal to the aggregate of all long and short-term debt net of working capital of Cipher for a net purchase price of $9,254,632. The net purchase price was paid to the Cipher shareholders as shares of Pearl, issued at a deemed price of $4.52 per share. As a result, Pearl issued 2,047,502 common shares to the Cipher shareholders pro rata to their holdings in Cipher. No fractional Pearl shares were issued and any fractional Pearl share to which a Cipher shareholder was otherwise entitled was rounded up to the nearest whole Pearl share. Lightyear Capital Inc. acted as financial advisor to Cipher.

Cipher's key assets consist of heavy oil assets in the Ear Lake, Reward and Eagle Creek areas of Saskatchewan. These are areas where Pearl either operates assets or are directly adjacent to existing Pearl assets. At Ear Lake, Cipher operates 11 producing wells (100% ownership) on 2,760 net acres of land. Cipher also operates 19 wells (between 43% and 100% ownership) on 6,930 net acres of land in the Reward area. Cipher also holds a gross overriding royalty of 2.5% GORR in the Eagle Creek area. Collectively these properties are estimated to have further development potential of approximately 100 potential gross drilling locations.

For the three months ended December 31, 2006, Cipher's production from the above areas averaged approximately 350 boe/d with reserves estimated to be 3,509 Mboe on a proved plus probable basis. The reserves noted are based on an independent reserve evaluation prepared by Sproule Associates Limited as at June 30, 2006. These reserves estimates have been prepared utilizing definitions as set out under National Instrument 51-101. Based on the gross purchase price, this translates into approximately $57,000 per boe/d and $5.70 per boe.

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. All references 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.

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