Storm Resources Ltd. and Storm Gas Resource Corp. have entered into a definitive arrangement agreement pursuant to which Storm will acquire, subject to certain conditions, all of SGR's issued and outstanding common shares ("SGR Shares") on the basis of 1.33 common shares of Storm for each one (1) SGR Share (the "Transaction"). Following completion of the Transaction, Storm will have approximately 38.2 million common shares outstanding, of which approximately 69% will be held by current shareholders of Storm and approximately 31% of which will be held by former shareholders of SGR, excluding 2.5 million SGR Shares already owned by Storm.

Closing of the Transaction is expected to occur in early January 2012, subject to satisfaction of certain conditions including no material adverse change having occurred in either of Storm or SGR, standard stock exchange, court and regulatory approvals and the requisite two-thirds majority approval of SGR's shareholders and the majority of minority approval of Storm's shareholders.

Additional information regarding the Transaction:

•Using a value of $3.73 per Storm common share, which is the 20-day volume weighted average share price ending on November 10 (day agreement was executed), the acquisition cost is $56.3 million. The net cost to Storm is $43.9 million after excluding the 2.5 million shares already owned by Storm. •SGR's current production is 400 Boe per day (100% natural gas) and production in 2012 is forecast to average 850 Boe per day (100% natural gas) assuming successful completion of the second horizontal well in the Horn River Basin ("HRB") which is expected to begin November 12, 2011. •SGR's bank debt at closing is estimated to be approximately $1.2 million which includes transaction costs, plus capital invested to complete and tie in the second HRB horizontal well.
•SGR has 81,400 net acres of undeveloped land including 60,000 net acres in the HRB. •Using Storm's reserve report prepared by InSite Petroleum Consultants Ltd. ("InSite") effective December 31, 2010, Storm is acquiring 644 Mboe of total proved reserves and 2,367 MBoe of proved plus probable reserves. Net to SGR's working interest, future development capital ("FDC") is estimated at $6.7 million for total proved reserves and $22.6 million for proved plus probable reserves. FDC for both total proved and proved plus probable reserves would be reduced by $6.7 million net to SGR to reflect capital invested in the first quarter of 2011 for construction of the facility and tie in of the first horizontal well. •Using the evaluation by InSite of contingent resources for the Muskwa and Otter Park formations in Storm and SGR's HRB lands dated October 31, 2011, Storm is acquiring contingent resources of 305 Bcf net sales in the low case estimate, 421 Bcf net sales in the best case estimate, and 552 Bcf net sales in the high case estimate. The low case estimate for Discovered-Petroleum-Initially-In-Place was 2.8 Tcf gross raw gas, the best case estimate was 3.1 Tcf gross raw gas, and the high case estimate was 3.4 Tcf gross raw gas. SGR's average working interest the estimated DPIIP was 63.4 percent in the low, best, and high case estimates. The HRB lands included in the InSite contingent resource evaluation totalled 30 gross sections representing 19,500 gross acres or 12,500 acres net to SGR. •Storm attributes approximately $7.2 million for 68,900 net acres of undeveloped lands outside of the area in the HRB that was evaluated as part of the InSite contingent resource evaluation. •At closing, SGR is expected to have 11.3 million common shares outstanding and Storm will issue 11.8 million common shares to acquire 8.8 million SGR common shares not already owned by Storm. The Transaction benefits both SGR and Storm shareholders with the combined company having a diversified, resource oriented asset base with near-term growth coming from exploitation of liquids rich natural gas in the Montney formation at Umbach. SGR shareholders gain asset diversification while retaining exposure to the upside associated with the HRB lands. Storm shareholders benefit from the consolidation of the HRB asset which provides more flexibility in terms of exploitation and development. In addition, the combined company will be financially stronger with a larger production base and proportionately lower cash G&A.

The SGR Board of Directors commented, "We are proud of what the SGR team has accomplished over the past three years and believe the combined company will be in a better financial position in the current natural gas price environment which will enable it to continue gradually advancing exploitation of SGR's core land position in the HRB. This transaction is the result of an extensive process during which a special committee of our board worked with our financial advisors to explore a number of different alternatives with the objective of maximizing shareholder value. The strategically complementary nature of Storm's assets to those of SGR made a merger with Storm, where SGR shareholders have a meaningful position in the combined entity, the highest value outcome for SGR and is consistent with our longer-term objective of creating incremental value for our shareholders."

Tags: Storm Resources Ltd.