Oilsands Quest Sells Wallace Creek Assets

Oilsands Quest has entered into a non-binding Letter of Intent with a third party to sell its Wallace Creek assets for total consideration of $60 million, which includes $40 million cash at closing and a $20 million contingent payment that is subject to certain future events. The sale of the Wallace Creek property would provide the Company with the financial resources to focus on moving its largest and most advanced asset, Axe Lake, toward commercial development.

"This prospective transaction is good news for Oilsands Quest shareholders. It will provide us much of the capital we need to complete the Axe Lake pilot and prove the commercial recoverability of our highest priority core asset," said Oilsands Quest Chief Executive Officer Garth Wong. "While Wallace Creek has shown considerable potential, it is not yet as well delineated as Axe Lake and is therefore considerably further away from commercial development."

Oilsands Quest has held Wallace Creek in its portfolio since January 2008, when the Company purchased the 45,545-acre permit. The area is prospective for Steam Assisted Gravity Drainage (SAGD) oil sands recovery, subject to further seismic and drilling investment to delineate the bitumen reservoir more fully. The exploration program conducted over the past three years has added substantially to the geological understanding and potential of the Wallace Creek reservoir, as reflected in the transaction price.

Completion of the transaction is subject to a number of terms and conditions, including negotiation of a definitive agreement, board approvals, due diligence, financing and approval by OQI shareholders. Oilsands Quest anticipates that a definitive sale agreement will be concluded by the end of October 2011, and that the transaction will close by the end of December 2011. A further announcement will be made upon the execution of a definitive sale agreement.

Evaluating financial alternatives

The proceeds from the sale of the Wallace Creek asset, if concluded, will reduce the amount of capital that Oilsands Quest requires to advance its development priorities. To raise the remaining required capital and to strengthen near-term liquidity, the Company is evaluating financing alternatives including a private placement of equity or a new, smaller rights offering. OQI will also continue to explore strategic partnerships or further asset sales.

Speaking about the recently cancelled $60 million rights offering, Mr. Wong said, "Our decision to cancel the rights offering considered that the negotiation of a material transaction had reached an advanced stage - a transaction that would significantly change our use of proceeds described in the rights offering prospectus. As well, it had become apparent that we would not achieve a full $60 million subscription through the rights offering, perhaps at least partially due to the weak markets of recent weeks. We are striving to return the company to a solid financial footing so that we can move ahead on unlocking the value of the barrels of bitumen we have in the ground. We appreciate the patience of our shareholders through this challenging period."