Unconventional Oil

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Excelsior Energy to buy 52.5% of heavy oil project

2007-02-08 11:07 ET - News Release
Shares issued 27,556,028
EXEL Close 2007-02-05 C$ 0.30


Mr. David Winter reports

EXCELSIOR SIGNS BINDING LETTER OF INTENT TO ACQUIRE A 52.5% OF HEAVY OIL PROJECT IN ATHABASCA HEAVY OIL DISTRICT NEAR FORT MCMURRAY

Excelsior Energy Ltd. has signed a binding letter of intent with Bounty Development Ltd., an Alberta-based private company, to acquire a 52.5-per-cent interest in Bounty's wholly owned Hangingstone oil sands assets. These assets consist of 39 contiguous sections (24,960 acres) in Township 86 and Township 85 in Alberta, approximately 28 kilometres south of Fort McMurray. An independent, Alberta-based private company has also signed a letter of intent to acquire a 22.5-per-cent interest from Bounty in the assets on the same terms as Excelsior.

The assets are located in close proximity to a number of active SAGD projects that are in various stages of development. Jacos's Hangingstone producing SAGD project and Connacher's Great Divide project to the southwest, North American Oil Sands' Hangingstone project to the south, and Nexen/Opti's Long Lake area to the east. All of these large projects are located within 30 kilometres of the assets.

The assets comprise leases and permits. The leases are valid for 15 years, the permits are valid for five years and can be converted to leases on expiry of the permit, and remain valid for an additional 15 years (20 years in total). The productive reservoir is the McMurray formation, which comprises high-quality fluvial and estuarine channel sands. Wells drilled on the assets and in immediately adjacent sections confirm the presence of the reservoir sands with oil pay thickness ranging between 12 metres and 40 metres. Bounty's reservoir mapping indicates the presence of four potential SAGD pods.

The first stage of the project will be to acquire 134 kilometres of 2-D seismic to tie the existing wells, and to delineate the size and number of potential SAGD oil sand pods. Acquisition of the 2-D seismic program will commence within the next few weeks with completion (including processing) targeted toward the end of April. An evaluation well program of up to 24 wells is planned for winter, 2007/2008, to further delineate the SAGD pods.

DeGolyer and MacNaughton has been engaged to prepare a National Instrument 51-101-compliant resource report, additional information will be released on completion of the report.

The total consideration to be provided by Excelsior comprises:


a $4.2-million bonus, a portion of which can be paid in Excelsior shares;
$8,154,300 in cash as payment of past land acquisition and related costs, a portion of which can be paid in Excelsior shares;
a payment of $1.4-million toward a 2-D seismic program; and
an estimated $5,103,000 to drill up to 24 evaluation wells.

Bounty will retain a 25-per-cent working interest in the assets.

Private placement

Excelsior is also planning to complete a non-brokered private placement. The private placement is expected to consist of 3,333,330 common shares to be offered at 30 cents per share, and 2.5 million flow-through shares to be offered at 40 cents per share to raise a total of $2-million. The proceeds will be used in conjunction with Excelsior's existing working capital to finance the initial acquisition and seismic program costs. The private placement is expected to close on or before the end of February, 2007.

We seek Safe Harbor.