Unconventional Oil

[johnlw]

Connacher Oil and Gas Limited to acquire Luke Energy Ltd.

/NOT TO BE DISTRIBUTED IN THE UNITED STATES OF AMERICA OR THROUGH U.S.
WIRE SERVICES/

CALGARY, Dec. 13 /CNW/ - Connacher Oil and Gas Limited ("Connacher") -
(CLL - TSX) and Luke Energy Ltd. ("Luke") - (LKE - TSX) announced today that
they have entered into a binding Letter Agreement ("Offer") pursuant to which
Connacher will acquire the outstanding common shares of Luke ("Luke Shares")
by way of a business combination under a proposed Plan of Arrangement.
Under the terms of the Offer, holders of Luke Shares will receive $2.31
in cash and 0.75 of a common share of Connacher ("Connacher Share") for each
Luke Share, which last traded on the Toronto Stock Exchange ("TSX") at $4.50.
Connacher Shares last traded at $3.98 resulting in the Offer providing an
indicated premium of 17.7 percent to the most recent closing price for Luke
Shares.
The consideration being paid by Connacher includes the assumption of
approximately $6 million of Luke debt at year-end; however the debt is
expected to increase prior to closing as a result of Luke's aggressive winter
drilling program scheduled for the first quarter of 2006.
The Offer is subject to a number of conditions including execution of
definitive documentation regarding the Plan of Arrangement, financing of the
Offer, execution of voting support agreements from all of the Luke directors
and senior officers (holding approximately 18 percent of the issued and
outstanding Luke Shares on a diluted basis), receipt of Luke shareholder,
regulatory and court approval and certain other conditions customary for a
transaction of this nature. Furthermore, Luke has undertaken to use its
reasonable commercial efforts to secure support from additional shareholders
for the transaction.
There are 37,128,924 Luke Shares and 3,583,232 Luke employee options
presently outstanding. It is expected the Information Circular will be mailed
to Luke shareholders on or about February 15, 2006 with a view to completion
of the transaction prior to March 31, 2006.
The Offer has the support of the Boards of Directors of both Connacher
and Luke. The Board of Directors of Luke has approved the Offer and has
determined that the Offer is fair to the Luke shareholders and has determined
to recommend that the Luke shareholders accept the Offer. GMP Securities L.P.,
the financial advisor to Luke, has provided a verbal opinion, subject to final
review of documentation, that the Offer is fair, from a financial point of
view, to the Luke shareholders.
The Board of Directors of Luke has agreed that it will not solicit or
initiate discussion or negotiations with any third party concerning the sale
of Luke or any of its assets. Luke has agreed under certain circumstances to
pay to Connacher a non-completion fee of $10 million. Connacher also has the
right to match any unsolicited offer or proposal that Luke may receive.
The Luke transaction provides Connacher with a significant lower risk
shallow natural gas project with recognized growth potential in central
northern Alberta, along with other prospective acreage, drillable prospects
and opportunities in other selected regions of the province. The transaction
helps Connacher crystallize its strategy of hedging its initial natural gas
requirements to make steam for its Great Divide oil sands project in
northeastern Alberta, which is awaiting regulatory approval so Connacher can
proceed with a 10,000 bbl/day development. If the potential of the Luke
properties is realized as envisaged, the transaction also has the potential to
provide a continuing hedge if, as and when additional pods are identified for
future development, as well as organic growth of production and cash flow.
Furthermore, the transaction helps to diversify Connacher's existing asset
base, provides a significant current cash flow base and also brings a project
inventory which could result in higher risk/higher reward activity for
Connacher.
In addition to the immediate benefit of the premium provided by the
Offer, Luke shareholders receive cash together with common shares of
Connacher, also a well-financed company. This will afford the Luke
shareholders not only the opportunity to continue to participate in the growth
potential of Luke's assets, but also secures them exposure to the long-life
Connacher oil sands assets at Great Divide and indirectly to exploration and
production growth potential in South America through Connacher's 35 percent
equity stake in Petrolifera Petroleum Limited ("Petrolifera"). Petrolifera is
a public Canadian oil and gas company listed for trading on the Toronto Stock
Exchange with extensive petroleum rights under licenses onshore Peru and an
active drilling program in the Neuquen Basin, Argentina which has recently
yielded four new crude oil discoveries in 2005, including three flowing oil
wells. Further drilling is underway in Argentina.
On a combined basis, Connacher would immediately have a production base
of approximately 3,500 boe/d consisting of approximately 15.7 mmcf/d of
natural gas production and approximately 900 bbl/d of oil production prior to
any rationalization activity. The proforma combined reserve base of the
company using reserve reports with an effective date of June 30, 2005 for
conventional reserves and September 1, 2005 for oil sands reserves is
approximately 79.3 million boe, including 69.6 million probable recoverable
barrels of bitumen reserves at Connacher's Great Divide Pod One. Assuming
Pod One development is approved and the project comes on stream at its
application rate of 10,000 bbl/d and these volumes are combined with the
proforma conventional production rate of 3,500 boe/d, a calculated reserve
life index of 16 years is indicated. A further 38.7 million barrels of
possible recoverable reserves have also been assigned to Pod One by a
recognized independent consultant.
Connacher intends to finance the cash portion of this transaction
initially with a bridge loan from a major international bank. Subsequently,
plans are to repay the bridge loan from proceeds of a new revolving term
facility and the expected proceeds from the anticipated sale of certain of
Connacher's conventional oil and gas assets. This would allow Connacher's
management and technical staff to focus on the newly acquired properties and
the linkage to the Great Divide development program.
Proforma the transaction and subject to final adjustments, working
capital will be approximately $71 million after discharging Luke's assumed
debt of $6 million. There will be approximately 174 million Connacher Shares
outstanding on closing.

Forward-Looking Statements: Except for statements of historical fact
relating to the companies mentioned herein, this press release contains
certain forward-looking statements within the meaning of applicable securities
law. Forward-looking statements are frequently characterized by words such as
"plan", "expect", "project", "intend", "believe", "anticipate":, "estimate"
and other similar words, or statements that certain events or conditions "may"
or "will" occur. Forward-looking statements are based on the opinions and
estimates of management at the date the statements are made, and are subject
to a variety of risks and uncertainties and other factors that could cause
actual events or results to differ materially from those projected in the
forward-looking statements. These factors include the inherent risks involved
in the exploration and development of oil sands properties, the uncertainties
involved in interpreting drilling results and other geological data,
fluctuating oil prices, uncertainties associated with obtaining regulatory
approvals for Connacher's Great Divide oil sands project, the possibility of
third-party requests for information or intervention which could delay
regulatory approvals, the possibility of project cost overruns or
unanticipated costs and expenses, uncertainties relating to the availability
and costs of financing needed in the future and other factors including
unforeseen delays. Certain information regarding Connacher and Luke in this
news release, including future development plans, anticipated production and
expenditures, combined reserves base, reserve life, outstanding share capital
and anticipated working capital constitute forward-looking statements under
applicable securities law. As an oil sands enterprise in the development
stage, Connacher faces risks, including those associated with exploration,
development, regulatory approvals and the ability to access sufficient capital
from external sources. The proposed acquisition is subject to a number of
conditions which must be satisfied prior to completion of the transaction.
There is a risk that such conditions will not be satisfied and the transaction
will not be completed on time or at all. In addition, actual results will
differ, and may differ materially from those anticipated in the forward-
looking statements. The companies mentioned herein undertake no obligation to
update forward-looking statements if circumstances or management's estimates
or opinions should change, unless required by law. The reader is cautioned not
to place undue reliance on forward-looking statements.

All references to barrels of oil equivalent (boe) are calculated on the
basis of 6 mcf: 1 bbl. Boes may be misleading, particularly if used in
isolation. This conversion is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. Reserve life is calculated by dividing estimated
proved and probable recoverable reserves as estimated by independent
consultants by the estimated proforma daily production rate on an annualized
basis and expressing the result in years.


For further information: contact: Richard A. Gusella, President and
Chief Executive Officer, Connacher Oil and Gas Limited, Phone: [phone],
Fax: [phone], [e-mail], Website:
www.connacheroil.com; Or Harold V. Pedersen, President and Chief Executive
Officer, Luke Energy Ltd., Phone: [phone], Fax: [phone],
Website: www.lukeenergy.com