Terrace Energy Enters LOI for South Texas Acreage

Terrace Energy Corp. has entered into a non-binding letter of intent (LOI) with BlackBrush Oil & Gas, LP (BBOG), which contemplates the Company and BBOG organizing a special purpose entity (Newco) to acquire a 50 percent working interest in certain oil & gas leases covering approximately 147,000 net mineral acres in South Texas. Newco would initially be owned and funded 50 percent by the Company and 50 percent by BBOG and would be ceded the responsibility of developing the Target Acreage. Newco would be managed equally by the parties and BBOG would be contracted by Newco to perform the duties of project operator.

BBOG is a privately owned partnership organized to explore and develop significant oil & gas interests, primarily in South Texas. BBOG is also a majority working interest partner and the named operator of the Company's STS Olmos Project.

The Target Acreage has the potential for 1,225 drilling locations (120 acre spacing) aimed at multiple active formations including: the Pearsall and Eagle Ford shales; and Buda and Georgetown formations. The Target Acreage is strategically located in a region of previous prolific conventional production as well as multiple successful vertical tests in the Pearsall and Eagle Ford. The Target Acreage is also covered by a 300 square mile proprietary 3-D seismic dataset. Newco will have full access to this dataset in order to plan and execute development programs.

Newco may secure the WI in the Target Acreage through a combination of cash payments and drilling obligations that total $65 million as development progresses, including reinvested cash flow from wells placed into production. Newco will be obligated to drill a minimum of four Pearsall horizontal wells and one Eagle Ford horizontal well on or before April 1, 2015. Work on the first well must commence in April, 2013. Under the terms of the LOI, the Company and BBOG would each contribute initial capital of $11 million into Newco which will fund certain lease acquisition costs and the estimated cost of the initial drilling program.

The agreement in principle reached among the parties is conditional upon, among other things, approval of the TSX Venture Exchange, the completion of a financing of not less than $15 million on terms acceptable to the Company and the review and acceptance of final documentation. There is no assurance that such conditions will be met and a definitive agreement concluded. Additional details will be announced upon acceptance of definitive documentation.

The Company has begun discussions with strategic capital providers regarding alternate finance arrangements, which could, but do not necessarily, include the issue of common shares or debt, or a combination thereof. The Company will announce specific terms at such time an agreement is reached.

Dave Gibbs, Terrace Energy's president, commented, "Securing this project would represent a significant step in the Company's evolution and would increase its net acreage position from approximately 5,000 to over 40,000 giving it a significant presence in the unconventional oil development that is taking place in South Texas. We are very pleased that our considerable efforts to position the Company as a valued partner in the development of oil & gas interests in this area have brought us this opportunity."


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