NEWS
September 1, 2006
EERG to Acquire Canadian Oil and Gas Exploration Company
LITTLETON, Colo., Sept. 1, 2006 (PRIMEZONE) -- Eternal Energy Corp. announced it has entered into a letter agreement to acquire Zavanna Canada Corp. (``Zavanna''). Zavanna owns various oil and gas leases, overriding royalty interests, production, equipment, and contract rights located in Alberta, Canada, substantially all of which are expected to remain with Eternal and Zavanna following the closing.
The purchase price for Zavanna is expected to be CDN $11,125,000, of which CDN $250,000 was tendered as a deposit. The deposit becomes non-refundable if the transaction is not canceled on or before September 30, 2006. Eternal's due diligence period expires on October 1, 2006 and the closing is expected to occur on or before November 15, 2006. Sproule Associates Limited, a 50-year-old diversified, world-wide petroleum consulting firm, completed an engineering report regarding Zavanna's assets and concluded that their discounted value (using a 10% discount factor) was approximately CDN $13 million. The effective date of the transaction will be July 1, 2006.
Zavanna reported to Eternal that current gross monthly production from the existing producing wells has averaged approximately 93,504 mcf, 2,964 barrels of condensate and 3,039 barrels of liquids. Zavanna reported that its monthly cash flow for the first six months of 2006 has averaged approximately CDN $235,000. Eternal anticipates that, in the next 18 months, up to eight additional development wells could be drilled on certain properties in which Zavanna has interests. The anticipated resulting additional production should increase the cash flow net to Zavanna's interests. Under certain circumstances, Eternal's purchase price may be reduced by up to CDN $1 million, if the average monthly cash flow from the Zavanna interests have not increased to CDN $275,000 during November 2006 to March 2007 and to CDN $300,000 during November 2006 to June 2007.