Anderson Energy Acquires $117 Million in Assets in Sylvan Lake

Anderson Energy has entered into an agreement to acquire oil and gas assets in its core area of the greater Sylvan Lake area for total cash consideration of $117.1 million before closing adjustments. The Acquisition will be financed by the issuance of subscription receipts for common shares of Anderson Energy and increased credit facilities and is expected to close on September 1, 2007, with closing subject to customary industry conditions.

Strategic Asset Acquisition

The Assets are located in and around the Company's Sylvan Lake Edmonton Sands project area in Central Alberta. First quarter production from the Assets averaged 2,146 barrels of oil equivalent per day ("BOED") and was 75% natural gas. The Assets include 9.6 million barrels of oil equivalent ("MMBOE") of proved plus probable reserves, as estimated by a combination of reports from the vendor's third party engineering firm and the Company's internal qualified reserves evaluator, numerous strategic plant and facility interests and 38,400 gross (25,300 net) acres of undeveloped land. Of particular value to Anderson Energy, 55 gross (32 net) sections of land are prospective for Edmonton Sands drilling, on which the Company has 160 gross (86 net) drilling locations identified.

Brian Dau, President & CEO of Anderson Energy commented, "This acquisition is consistent with Anderson's previously stated strategy of acquiring deeper production and reserves with shallow undrilled potential in the Edmonton Sands in Central Alberta. Anderson's proprietary in-house knowledge of the Edmonton Sands play has resulted in industry leading finding and development costs and this acquisition will allow us to continue that performance."

The Acquisition is expected to close on September 1, 2007. Highlights associated with the Acquisition are set forth below:

  1. 1. Purchase Price is $117.1 million before closing adjustments.
  2. 2. Reserves:
  3. a) Reserves of 5.1 MMBOE proved and 6.8 MMBOE proved plus probable (effective May 1, 2007) have been estimated by the vendor's third party engineering firm.

    b) Additional reserves of 1.6 MMBOE proved and 2.8 MMBOE proved plus probable associated with the Edmonton Sands formation have been estimated by the Company's internal qualified reserves evaluator. These additional reserves were estimated using a reserves methodology consistent with that employed by the Company's independent engineers in the December 31, 2006 Anderson Energy reserves report. The Company is adding 55 gross (32 net) sections of Edmonton Sands prospective land through the Acquisition.

    c) Total reserves are estimated to be 6.7 MMBOE proved and 9.6 MMBOE proved plus probable.

  4. 3. Production:
  5. a) Average production was 2,146 BOED for the three months ended March 31, 2007.

    b) 75% of production is operated.

    c) 75% of production is natural gas, 19% is natural gas liquids and 6% is light oil.

    d) Operating costs averaged $10.17 per barrel of oil equivalent ("BOE") in 2006.

  6. 4. Facilities:
  7. a) There are three key gas plants associated with the Acquisition where Anderson Energy currently has no working interest capacity and is currently paying outside processing fees on 2.8 million cubic feet per day ("MMCFD") of production. As well, there are various other compressors and gathering lines where Anderson Energy is not an owner and is currently paying a third party processing fee. The Company will achieve operating cost savings for current Anderson Energy production through the acquisition of these facilities. These various facilities interests will become more strategic to Anderson Energy as the Company ramps up its Edmonton Sands drilling program.

    b) In the Willesden Green area, the Company is installing compression for recent Edmonton Sands discoveries, which will benefit production from the acquired lands which are negatively impacted by poor service factors.

  8. 5. Drilling Locations and Other Opportunities:
  9. a) The Company has identified 160 gross (86 net) drilling locations prospective for Edmonton Sands on the acquired lands.

    b) In addition, the Company has identified:

    i) 6 gross (4.8 net) locations prospective for Glauconite infill drilling in the Bigoray Glauconitic "I" Pool. After closing the Acquisition, the Company is planning to apply for two well per section holdings and could commence drilling these lands in 2008. This Glauconite pool is very similar to other Glauconite pools in the Hoadley Glauconite trend which have been downspaced to three wells per section. This opportunity was not identified in the vendor engineering report.

    ii) In the Strachan area, the Company is planning to install compression and wellbore optimization in the Leduc and Elkton pools in this area. This project could commence in 2008. The potential uplift in production from this project is approximately 2.5 MMCFD.

    iii) Other opportunities include 15 gross (10.3 net) drilling locations and 9 gross (5.5 net) re-completion opportunities in plays other than the Edmonton Sands and Glauconite.

  10. 6. The Assets are being acquired through the purchase of a subsidiary of the vendor and, as a result, the tax pools associated with the Acquisition will be equal to undepreciated capital cost of $23.4 million. The Company has approximately $204 million in tax pools, including over $50 million in Canadian Exploration Expense at March 31, 2007 and does not expect to be cash taxable following the acquisition for at least three years based on current modeling.
  11. 7. Purchase price parameters (net of $7 million value for plant synergy, 25,334 net acres of undeveloped land and seismic) are $16.27/BOE proved and $11.53/BOE proved plus probable without future development capital, $20.23/BOE proved and $16.45/BOE proved plus probable including future development capital and $51,300/BOED of current production. Anderson Energy's technical review of the acquired assets suggests meaningful drilling upside that, over time, may reduce these purchase price parameters. 8. BMO Capital Markets acted as exclusive financial advisor for the Acquisition.

Equity Financing

In conjunction with the Acquisition, Anderson Energy has entered into a bought deal equity financing agreement with a syndicate of underwriters led by BMO Capital Markets, Cormark Securities Inc. and RBC Capital Markets and including Tristone Capital Inc. and GMP Securities L.P. (collectively, the "Underwriters"), pursuant to which the Underwriters have agreed to purchase for resale to the public 25,700,000 subscription receipts (the "Subscription Receipts") at a price of $3.90 per Subscription Receipt for aggregate gross proceeds of $100,230,000 (the "Offering"). In addition, the Underwriters have been granted an overallotment option to purchase up to 3,855,000 additional Subscription Receipts which may be exercised up to 30 days after closing of the Offering.

Insider participation in the Offering includes 224,494 subscription receipts to be purchased by J.C. Anderson, Chairman of the Board and 75,000 subscription receipts to be purchased by Brian Dau, President & CEO. After the Offering, Mr. Anderson will own 5.0 million common shares and Mr. Dau will own 1.5 million common shares of the Company.

Each Subscription Receipt will entitle the holder to receive one common share of Anderson Energy for no additional consideration upon closing of the Acquisition. The proceeds from the Offering will be deposited in escrow pending the closing of the Acquisition and Anderson Energy's receipt of all necessary approvals. If the Acquisition closes on or before October 1, 2007, the net proceeds from the Offering will be released to Anderson Energy and used to pay a portion of the Acquisition price.

The Offering is subject to certain conditions including required regulatory approvals. The Subscription Receipts will be offered in all provinces of Canada by way of a short form prospectus and in the U.S. on a private placement basis pursuant to exemptions from registration requirements. The closing of the Offering is expected to occur on August 13, 2007.

In conjunction with the Acquisition, the Company has negotiated an increase in its bank lines from $75 to $105 million. On a pro forma basis, the Company's net debt at March 31, 2007, after adjusting for the Acquisition, an additional $9.5 million property acquisition completed on June 28, 2007 and a $32.5 million net equity issue completed on April 24, 2007, would be $67 million.

Operational Update

Anderson Energy's current production is 4,900 BOED (early July), with approximately 1,000 BOED of behind pipe production. Wet weather in the second quarter slowed down the Company's drilling and tie-in plans, with only five wells drilled and only two wells tied-in during the second quarter. Not including the Acquisition, the Company's production remains within the previously published annual and exit guidance.

The impact of the Acquisition on the Company's Edmonton Sands land position and drilling inventory is shown below:

Edmonton Sands land position:

                             June 30, 2007      June 30, 2007 pro forma
                                                       with Acquisition
Gross sections                         252                          307
Net sections                           135                          167

Drilling inventory as of June 30, 2007:

                              June 30, 2007     June 30, 2007 pro forma
                                                       with Acquisition
                               Gross    Net               Gross     Net
Edmonton Sands                   760    399                 920     485
Other                            306     76                 321      86
Total                          1,066    475               1,241     571
On June 28, 2007, the Company closed a $9.5 million property acquisition in Sylvan Lake, where it acquired approximately 240 BOED of production.

Assuming the transaction closes on September 1, 2007, the Company's 2007 production guidance is estimated to be 5,600 to 6,000 BOED and 2007 exit production guidance is estimated to be 8,000 to 8,400 BOED.

The Company's revised 2007 capital budget is:

 Field expenditures                    $ 73 million
 Acquisitions                          $127 million
 Total capital expenditures            $200 million

Drilling on the lands acquired in the Acquisition may commence late in 2007 but as such will have no meaningful impact on 2007 average or exit volumes.

The Acquisition and related financing will have a meaningful impact on the Company's reserves and production and will substantially increase both its Edmonton Sands and other horizons opportunity base while leaving the Company with sufficient financial flexibility for its planned drilling program.