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Petrobank Announces Agreement With PetroBakken To Create Two

Petrobank Announces Agreement With PetroBakken To Create Two Fully
Independent Companies 
CALGARY, ALBERTA -- (Marketwire) -- 10/29/12 -- Petrobank Energy and
Resources Ltd. (TSX:PBG) is pleased to announce that we have entered
into an agreement with PetroBakken Energy Ltd. (TSX:PBN), our 57%
owned subsidiary, to complete a corporate reorganization that will
see Petrobank shareholders effectively receive Petrobank's
proportionate interest in our PetroBakken share holdings while
maintaining their interest in the remaining Petrobank assets (the
"Reorganization"). Petrobank and PetroBakken have signed an
arrangement agreement detailing the terms and conditions of the
Reorganization. The Board of Directors of each Company have approved
the Reorganization, which is anticipated to become effective on
December 31, 2012 (the "Effective Date"). 
Pursuant to the Reorganization, a new Alberta corporation will be
formed ("New Petrobank") which will, through a series of
transactions, directly or indirectly acquire all of Petrobank's
assets and liabilities, including our heavy oil assets, the THAI(R)
and related patents and cash (anticipated to be over $100 million)
(the "Heavy Oil Business"), but excluding our investment in
PetroBakken (the "PetroBakken Shares"). Existing Petrobank
shareholders will receive one share of New Petrobank for every share
of Petrobank held on the Effective Date. 
Following this distribution of Petrobank's Heavy Oil Business to New
Petrobank, Petrobank and PetroBakken will, through a series of
transactions, amalgamate, with the resulting company to continue
under the name "PetroBakken Energy Ltd." ("New PetroBakken").
Existing PetroBakken shareholders will receive one share of New
PetroBakken for every share of PetroBakken held on the Effective Date
and Petrobank shareholders will receive, in aggregate, a number of
New PetroBakken shares equal to the number of PetroBakken Shares held
by Petrobank on the Effective Date. The number of New PetroBakken
shares to be received for each Petrobank share held will be equal to
the PetroBakken/Petrobank exchange ratio ("the Exchange Ratio") on
the Effective Date, which will be calculated by dividing the number
of PetroBakken shares owned by Petrobank by the number of Petrobank
shares outstanding. As of the date
 of this press release, Petrobank
owns 106.3 million PetroBakken shares and has 96.3 million basic
shares outstanding and 100.4 million fully diluted shares
outstanding, which would result in an Exchange Ratio ranging between
1.10 and 1.06. The Exchange Ratio on the Effective Date will be
affected by any changes to the number of Petrobank shares outstanding
and the number of PetroBakken shares owned by Petrobank, including
any receipt of PetroBakken shares through Petrobank's participation
in PetroBakken's dividend reinvestment plan, Petrobank shares being
repurchased and PetroBakken shares being sold under our existing
share repurchase and share sale program, and Petrobank shares being
issued upon the exercise of stock based compensation. 
As a result of the Reorganization, New PetroBakken will be owned
directly by existing PetroBakken shareholders and existing Petrobank
shareholders in the same proportion as if the Reorganization did not
occur. Petrobank shareholders will also own one New Petrobank share
for each Petrobank share previously held.  
This transaction is designed to enhance long-term value for Petrobank
and PetroBakken shareholders. The Reorganization is consistent with
our long-held corporate goal of enhancing shareholder value by
creating strong, focused independent companies. Anticipated benefits
of the Reorganization include: 


 
--  Petrobank shareholders will receive direct ownership in the shares of
    New PetroBakken plus freely tradable shares in New Petrobank which will
    own the Heavy Oil Business; 
--  The Reorganization will eliminate the recent negative market valuation
    of the Heavy Oil Business; 
--  New Petrobank will have a simplified structure with an anticipated cash
    balance of over $100 million, sufficient to fund operations for more
    than two years at current and expected expenditure rates; 
--  Existing Petrobank shareholders will receive future dividends directly
    from New PetroBakken following the Reorganization; 
--  The Reorganization is not expected to be cash taxable to any of the
    corporate entities; 
--  The Reorganization is not expected to be cash taxable to Canadian
    Petrobank shareholders unless their adjusted cost base for their
    Petrobank shares is less than the fair market value of New Petrobank;
    and 
--  The expected date of the Reorganization of December 31, 2012 may allow
    U.S. Petrobank shareholders to benefit from a lower tax rate on the
    transaction as the receipt of the New Petrobank shares are expected to
    be treated as "qualified dividends", eligible for lower tax rates in
    2012 compared to the ordinary income tax rates that are expected in
    2013.

 
The Reorganization will not result in any changes to the existing
Board and senior management of PetroBakken. PetroBakken is expected
to continue to pursue a strategy of shareholder value creation
through growth and income. The Reorganization will not affect the
PetroBakken dividend policy and shareholders are expected to continue
to receive $0.08 per share paid on a monthly basis. The first
dividend payable on New PetroBakken common shares is expected in
mid-February for shareholders of record on January 31, 2013. New
Petrobank is expected to receive the December PetroBakken dividend,
payable in mid-January in cash. 
The Reorganization will not result in any significant changes to the
existing Board and senior management of Petrobank. Following the
Reorganization, New Petrobank will continue to own the Heavy Oil
Business including cash anticipated to be in excess of $100 million.
New Petrobank will be a well-positioned junior heavy oil company with
significant capital, an attractive asset base, a patented heavy oil
extraction technology, and a plan to grow production and reserve
value. 
The Reorganization is subject to the approval of the shareholders of
each of Petrobank and PetroBakken. It is anticipated that a
joint-management information circular containing additional
information with respect to the Reorganization will be mailed to each
Petrobank and PetroBakken shareholder in mid-November and meetings of
the shareholders of each Company will be held in mid-December, 2012.
The Board of Directors of each Company, upon considering the
recommendations of their respective independent committees, have
recommended that their shareholders approve the Reorganization.
Pending approvals from the shareholders of each Company, approval of
applicable courts, receipt of appropriate regulatory approvals and
satisfaction of other customary closing conditions, the transaction
is scheduled to become effective on December 31, 2012.  
TD Securities Inc. acted as sole financial advisor to the independent
committee of the Board of Directors of Petrobank. TD Securities Inc.
provided an opinion to Petrobank's Board of Directors that the
Reorganization is fair from a financial point of view to Petrobank's
shareholders. 
The Reorganization is expected to be non-taxable to Petrobank and
PetroBakken as well as Canadian resident shareholders of Petrobank.
Canadian resident shareholders of Petrobank will split their existing
adjusted cost base ("ACB") between New Petrobank and New PetroBakken.
The fair market value of the New Petrobank shares received will form
the ACB of New Petrobank. The ACB of Petrobank less the ACB of New
Petrobank will form the ACB of New PetroBakken. If the ACB of
Petrobank is less than the ACB of New Petrobank, a capital gain will
be recognized amounting to this negative ACB difference. Existing
shareholders of PetroBakken will not have any ACB adjustments, and
will not incur any tax liability from the Reorganization. 
For U.S. shareholders of Petrobank, this transaction will be treated
as a taxable dividend according to U.S. tax laws. It is expected that
the dividend will be based on the fair market value of the New
Petrobank shares received and will be considered a "qualified
dividend" for U.S. tax purposes, subject to the reduced tax rates
applicable to long-term capital gains for individuals, provided
shareholders meet the holding-period requirements. Tax information
will be published on the websites of both Petrobank and PetroBakken
in the near future; however shareholders are encouraged to seek the
advice of their own tax professionals. 
2013 BUSINESS PLAN FOR "NEW PETROBANK" AND OPERATIONS UPDATE 
The business plan of New Petrobank is focused on: 


 
--  Pursuing the commercialization of THAI(R) at Kerrobert; 
--  Commencing cold production at Dawson to condition the reservoir for our
    THAI(R) demonstration project; 
--  Exploiting cold production opportunities on existing lands; 
--  Planning for future THAI(R) projects - currently our existing lands
    could support as many as three new THAI(R) projects along the Kerrobert
    trend; 
--  Adding more prospective resources to our land inventory; and 
--  Enhancing our intellectual property portfolio and pursuing future
    technology licensing opportunities through Archon.

 
We expect New Petrobank to enter 2013 with extensive financial
resources, a focused portfolio of heavy oil assets and a multi-year
business plan to capture the significant value potential of the
THAI(R) technologies and drive long term shareholder value. 
During Q3 2012, production averaged 305 barrels of oil per day
(bopd), an increase from 236 bopd in Q2 2012. We have focused on
increasing air injection and continue to target much higher injection
and production rates in the near future. 
At Dawson, we have commenced cold oil production at the first of the
two horizontal THAI(R) production wells. We expect to initiate cold
production at the second well before the end of 2012. These wells are
expected to produce for a period of time to pre-condition the
reservoir for start-up of the THAI(R) demonstration project. 
Petrobank has reactivated eight wells in the Kerrobert trend lands
for cold production. All of these wells are in the early stages of
clean-up and production. We expect to drill four stratigraphic wells
in Q4 2012 to better define our resources in the Luseland area. We
expect to complete these four wells for cold production in 2013 as
part of our plan to opportunistically exploit the primary production
potential of our assets. 
During 2012, we have purchased additional lands on the Kerrobert
channel trend and currently own approximately 25 sections of land in
Saskatchewan. We continue to evaluate the THAI(R) potential and
initial planning is underway for up to three new THAI(R) projects.  
At Archon, we continue to enhance our existing patents and progress
new processes which have applicability for THAI(R) and beyond. We
continue to receive international interest for the THAI(R) process
and several discussions are ongoing. Due to the complexities of
dealing with international parties, we cannot comment on when or if
these discussions will lead to agreements to license the THAI(R)
patents. 
At the end of Q3 2012, Petrobank was well positioned financially. We
had approximately $86 million of positive working capital, including
$96 million of cash. To October 29, 2012, we had repurchased 3.5
million Petrobank shares and sold the equivalent number of
PetroBakken shares under our renewed Normal Course Issuer Bid and
PetroBakken share sale plan. Under this plan, we have netted
approximately $1.1 million of proceeds to Petrobank since September
2012. As mentioned above, we expect to have over $100 million of cash
in New Petrobank. The additional cash is expected to come from
proceeds from the normal exercise of Petrobank's existing stock based
compensation and the receipt of PetroBakken's December dividend in
January 2013. 
IN MEMORIAM 
We are sad to announce that the Chairman of Petrobank, Jerald L.
Oaks, passed away September 28. Jerry had been a Director of
Petrobank since September 1993 and was a key player in the formation
and strategic growth of the entire Petrobank group of companies.
Jerry was the perfect epitome of a good man and a gentle man. He
defined the word "gentleman". He was always supportive, positive and
encouraging and able to express strong views and opinions in a
gentle, respectful way. We will miss his guidance, wisdom, humor and
friendship.  
INVESTOR WEBCAST AND CONFERENCE CALL 
Management of Petrobank will be holding a webcast and conference call
for investors, financial analysts, media and any interested persons
on Tuesday, October 30, 2012 at 9:00 a.m. Mountain Time (11:00 a.m.
Eastern Time) to discuss the Reorganization, our 2013 business plan
for New Petrobank and an operations update. Petrobank will introduce
a new investor presentation at this time. The investor webcast and
conference call details are as follows: 
Live call dial-in number(s): 416-340-8530 / 877-240-9772 
The live audio webcast link is:
http://events.digitalmedia.telus.com/petrobank/103112/index.php and
is also available on our website at:
http://www.petrobank.com/investors/presentations-webcasts. 
Petrobank Energy and Resources Ltd. is a Calgary-based oil and
natural gas exploration and production company with operations in
western Canada. The Company currently operates high-impact projects
through two business units and a technology subsidiary. Petrobank's
57% currently owned TSX-listed subsidiary, PetroBakken Energy Ltd.
(TSX:PBN), is an oil and gas exploration and production company
combining light oil Bakken and Cardium resource plays with
conventional light oil assets. Whitesands Insitu Partnership, a
partnership between Petrobank and its wholly-owned subsidiary
Whitesands Insitu Inc., applies Petrobank's patented THAI(R) heavy
oil recovery process in the field. THAI(R) is an evolutionary in-situ
combustion technology for the recovery of bitumen and heavy oil.
THAI(R) and CAPRI(R) are registered trademarks of Archon Technologies
Ltd., a wholly-owned subsidiary of Petrobank Energy and Resources
Ltd., for specialized methods for recovery of oil from subterranean
formations through in-situ combustion techniques and methodologies
with or without upgrading catalysts. Used under license by Petrobank
Energy and Resources Ltd. 
Forward-Looking Statements. Certain information provided in this
press release constitutes forward-looking statements. Specifically,
this press release contains forward-looking statements relating to
the terms of and timing for completion of the Reorganization, timing
of mailing of shareholder materials and holding of shareholder
meetings, payment of future dividends, expected tax treatment of the
Reorganization and the future business of Petrobank and PetroBakken.
Forward-looking statements are necessarily based upon assumptions and
judgments with respect to the future including, but not limited to,
the receipt of required shareholder and regulatory approvals and
satisfaction of other conditions to the Reorganization, the outlook
for commodity markets and capital markets, the performance of
producing wells and reservoirs, well development and operating
performance, general economic and business conditions, weather, the
regulatory and legal environment and other risks associated with oil
and gas operations. The reader is cautioned that assumptions used in
the preparation of such information, although considered reasonable
at the time of preparation, may prove to be incorrect. Actual results
achieved during the forecast period will vary from the information
provided herein as a result of numerous known and unknown risks and
uncertainties and other factors. You can find a discussion of certain
of those risks and uncertainties in our Canadian securities filings.
Such factors include, but are not limited to: general economic,
market and business conditions; fluctuations in oil prices; the
results of exploration and development drilling, recompletions and
related activities; timing and rig availability, outcome of
exploration contract negotiations; fluctuation in foreign currency
exchange rates; the uncertainty of reserve estimates; changes in
environmental and other regulations; risks associated with oil and
gas operations; risks associated with the approval of the
Reorganization by our shareholders, the receipt of regulatory
approvals, the satisfaction of other conditions to the
Reorganization, and other factors, many of which are beyond the
control of Petrobank and PetroBakken. There is no representation by
Petrobank or PetroBakken that actual results achieved during the
forecast period will be the same in whole or in part as those
forecast. Except as may be required by applicable securities laws,
neither Petrobank nor PetroBakken assumes any obligation to publicly
update or revise any forward-looking statements made herein or
otherwise, whether as a result of new information, future events or
otherwise. 
Contacts:
Petrobank Energy & Resources Ltd.
John D. Wright
President and Chief Executive Officer
403.750.4400 
Petrobank Energy & Resources Ltd.
Chris J. Bloomer
Senior Vice President and Chief Operating Officer, Heavy Oil
403.750.4400 
Petrobank Energy & Resources Ltd.
Peter Cheung
Vice President Finance and Chief Financial Officer
403.750.4400 
Petrobank Energy & Resources Ltd.
Suite 3000, 355 - 8th Avenue S.W.
Calgary, Alberta, T2P 1G1
403.750.4400
403.266.5794 (FAX)
ir@petrobank.com
www.petrobank.com
 
 
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