Stetson Oil & Gas to Acquire Rhea Resources

Stetson Oil & Gas and Rhea Resources have signed a letter of intent whereby Stetson will acquire all of the outstanding common shares of Rhea in exchange for common shares of Stetson (the "Transaction"). Pursuant to the Transaction, Rhea shareholders will be entitled to receive 0.70 of a Stetson common share for each common share of Rhea held for a deemed price of $0.10 per Stetson common share. As a result of the transaction, Stetson will increase its production, oil and gas reserves and funds from operations.

Rhea is a privately owned company with oil and gas assets situated in the Lashburn area of west central Saskatchewan. Rhea's oil and gas reserves were evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") effective March 31, 2008. The GLJ evaluation estimated total proven and probable reserves of 219,000 barrels ("bbls") of oil, with a net present value, before tax and discounted at 10%, of $3,793,000. The purchase price agreed to be paid by Stetson for the common shares of Rhea is $2,204,000, to be paid by issuing 22,976,866 common shares of Stetson.

Rhea's assets consist of producing oil and gas properties located in the Lashburn and Buzzard areas of west central Saskatchewan. The main productive zone is the Sparky formation, which produces 12 degree API oil from a depth of 575 meters. Rhea has working interests ranging from 5.0% to 83.33% (with an average of 28.5%) in 18 producing oil wells. Rhea is the operator of four producing oil wells, while the remaining wells are non-operated. Rhea's net production for the three month period ended September 30, 2008 was 90 barrels of oil per day ("bopd"). Net operating income for the same period totaled $450,000. Stetson has identified one workover candidate and one development drilling opportunity on Rhea owned lands.

The Transaction will bring significant benefits to each of the companies and their shareholders. The board of directors of both Stetson and Rhea support the proposed combination.

For Stetson, the Transaction:

  • Adds production, reserves and cash flow to augment Stetson's growth plan;
  • Adds current daily production of approximately 85 bopd at a cost of $25,930 per flowing boepd;
  • The combined entity will have daily production of approximately 115 boepd;
  • Adds proved and probable reserves of 219,000 bbls (as at March 31, 2008) at a cost of $10.06 per barrel of oil;
  • Will provide net operating income of approximately $40,000 per month, which Stetson intends to use, together with an established credit facility, to accelerate development of its current properties; and,
  • Efficiencies in management and administration expenditures as the management team of the two companies is rationalized.

For Rhea, the Transaction:

  • Provides liquidity to shareholders, as Stetson shares are posted for trading on the TSX Venture Exchange;
  • Offers increased exploration and development potential based on Stetson's existing properties, and in particular Stetson's potentially high impact North Dakota Bakken drilling prospect; and,
  • Efficiencies in management and administration expenditures as the management team of the two companies is rationalized.

Board of Directors' Recommendations

Evans and Evans Inc. is acting as financial advisor to both Stetson and Rhea. . The Board of Directors of both Rhea and Stetson has received a draft opinion from Evans & Evans, Inc. that states, as of November 30, 2008, the terms of the proposed Transaction are fair, from a financial point of view to the shareholders of both Rhea and Stetson. The companies have common officers and directors, including a common President and CEO. The Board of Directors of Rhea, including the Independent Committee of the Board, has recommended that Rhea shareholders vote in favor of the Transaction. The Board of Directors of Stetson has also voted in favor of the Transaction.

Ahmed Said, the Chairman of Stetson, stated, "Stetson's acquisition of Rhea is consistent with our strategy of consolidating North American oil and gas assets and the current cash on hand, cash flow and operating line of credit from Rhea's assets will assist us in covering the costs associated with exploring and developing our Fort Berthold properties. We believe that this transaction represents value as we add proved and probable reserves of approximately 219,000 bbls at a cost of $10.06 per barrel of oil."

Transaction Details

The Transaction is subject to the completion of definitive documentation, regulatory approval and obtaining shareholder approval at a special meeting of Rhea shareholders.

Under the terms of the Transaction, Rhea shareholders will receive 0.70 of a common share of Stetson for each common share of Rhea held. Each outstanding Rhea convertible security will be exercisable for Stetson common shares based on the exchange ratio. Upon completion of the Transaction, Stetson will have approximately 106.99 million common shares issued and outstanding, with former Rhea shareholders holding approximately 21.5% of the issued and outstanding Stetson common shares.


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