Pearl Exploration and Production Closes the Acquisition of Nevarro Energy

Pearl Exploration and Production Ltd.

Pearl Exploration and Production Ltd. and Nevarro Energy Ltd. have closed their previously announced acquisition by Pearl of all of the issued and outstanding shares of Nevarro under a court approved Plan of Arrangement involving Pearl, Nevarro, Serrano Energy Ltd. and the shareholders of Nevarro. At a special meeting of the shareholders of Nevarro held on September 19, 2006, the shareholders voted 99.94% in favor of the acquisition.

Nevarro is a junior oil and gas company focused on exploration in western Canada. The board of directors of both Pearl and Nevarro unanimously supported the transaction. Under the terms of the Nevarro Plan of Arrangement, Nevarro shareholders will receive, at the election of the individual Nevarro shareholders, for each Nevarro share, either: (a) $1.875 in cash, 0.125 of a common share of Pearl (a "Pearl Share"), 0.5 of a common share of Serrano (a "Serrano Share") and 0.20866 of a common share purchase warrant of Serrano (a "Serrano Warrant"); or (b) 0.5 of a Pearl Share, 0.5 of a Serrano Share and 0.20866 of a Serrano Warrant. Based on the elections of Nevarro shareholders, a total of 1,637,126 Pearl Shares will be issued, and $23,764,556 in cash will be paid, to Nevarro shareholders. Nevarro is now a wholly owned subsidiary of Pearl and the shareholders of Nevarro are shareholders of Pearl and of Serrano. The total consideration for the acquisition is approximately $39.6 million.

Nevarro's production over the last month averaged approximately 1,100 barrels of oil equivalent per day ("BOE/d"). Exploration and development has continued on the Nevarro oil and gas assets since the transaction was mutually announced on June 28, 2006, and as a result Pearl will be tying in additional production of 300 BOE/d in the coming weeks. It is anticipated that by the end of 2006, the net production from the Nevarro oil and gas assets will be at 1,600 BOE/d which will be incremental to Pearl's production from its other oil and gas assets.

The estimated reserves acquired prior to the 2006 exploration and development activity noted above are based on an independent reserve evaluation prepared by independent reservoir engineers, DeGolyer and McNaughton Canada Limited as at December 31, 2005. These reserve estimates have been prepared utilizing definitions as set out under National Instrument 51-101.

"The acquisition of Nevarro is consistent with Pearl's strategic focus and will result in a substantial addition to our asset base in western Canada with more than 100 drilling locations. The assets being acquired are primarily located adjacent to our core property in the Onion Lake area where we recently announced aggressive development plans, further solidifying our presence in that area," said Gary Guidry, President and CEO of Pearl.

Pearl will participate in the capitalization of Serrano by providing $3 million to fund a 36% ownership interest. Current Nevarro shareholders will be entitled, through the Serrano Warrants, to subscribe for up to 2,666,667 shares, on a pro-rata basis, of Serrano, either as flow-through shares at a price of $0.625 per flow-through share or as non flow-through shares at a price of $0.50 per share. Serrano will be staffed with existing management of Nevarro. In addition to equity participation in low risk exploration and exploitation, Pearl will also obtain the right to participate in up to a 50% non-promoted working interest on any new prospects, and an option to acquire the remaining 50% interest in those prospects. This long-term relationship provides a growth vehicle in a core area for Pearl.

The transaction has been conditionally approved by the TSX Venture Exchange, subject only to the filing of final materials.

All references in this release to BOEs are based on a 6 to 1 conversion ratio. BOEs 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.