Eagle Rock Exploration Announces Recapitalization and New Management Team

CALGARY , Sept. 23 /CNW/ - Eagle Rock Exploration Ltd. ("Eagle Rock" -TSXV: ERX) is pleased to announce that it has entered into a financing and reorganization agreement (the "Reorganization Agreement") with Neil Roszell , Bruce Robertson , Jerry Sapieha and Paul Mitchell which contemplates (i) an approximate $14.6 million recapitalization of Eagle Rock through one or more non-brokered private placements (the "Private Placements"), (ii) the appointment of a new management team led by Mr. Roszell (the "New Management Team"), (iii) the appointment of a new board of directors that will include Neil Roszell , Scott Saxberg, Paul Colborne and Kevin Olson (the "New Board"), and (iv) a rights offering with the current shareholders of Eagle Rock (the "Rights Offering"). Completion of the Private Placements, the appointment of the New Management Team, the appointment of the New Board and the Rights Offering, is subject to standard closing conditions, including the approvals of the TSX Venture Exchange (the "TSXV") and, in some cases, disinterested shareholder approval by way of written consent.

New Management Team

The New Management Team has a solid track record of creating value in high-growth junior oil and gas companies. The members of the New Management Team will be appointed upon completion of the Private Placements or earlier in the event that a portion of the Private Placements close in escrow pending receipt of approval of the Private Placements by the shareholders of Eagle Rock.

The New Management Team will consist of Neil Roszell as President and Chief Executive Officer, Bruce Robertson as Executive Vice President, Jerry Sapieha as the Chief Financial Officer & Vice-President Finance, and Paul Mitchell as Vice President Exploration .

Neil Roszell , President and Chief Executive Officer and Director

Mr. Roszell is a Professional Engineer with 20 years of industry experience. Mr. Roszell was the President and Chief Executive Officer of Wild River Resources Ltd. ("Wild River") from February 2007 until July 2009 . Mr. Roszell was the President and Chief Operating Officer of Prairie Schooner Energy Ltd. ("Prairie Schooner") from August 2004 until September 2006 . Mr. Roszell was Vice President, Engineering of Great Northern Exploration Ltd. ("Great Northern") from September 2001 to June 2004 .

Bruce Robertson , Executive Vice President

Mr. Robertson is a Professional Landman with 28 years of industry experience. Mr. Robertson was the Executive Vice President of Wild River from February 2007 until July 2009 . Mr. Robertson was the Executive Vice President of Prairie Schooner from August 2004 to September 2006 . Mr. Robertson was Executive Vice President of Great Northern from September 2001 to June 2004 .

Jerry Sapieha, Chief Financial Officer & Vice President Finance

Mr. Sapieha is a Chartered Accountant with 28 years of industry experience. Mr. Sapieha was the Chief Financial Officer & Vice President, Finance, of Wild River, from February 2007 to July 2009 . Mr. Sapieha was the Chief Financial Officer & Vice President Finance of Prairie Schooner, from August 2004 to September 2006 . Mr. Sapieha was Chief Financial Officer & Vice President Finance of Great Northern from May 2002 to June 2004 .

Paul Mitchell , Vice President Exploration

Mr. Mitchell is a Professional Geologist who has 31 years of exploration and exploitation experience in Western Canada . Mr. Mitchell was the Vice President, Exploration of Wild River from September 2008 to July 2009 . Mr. Mitchell was the Vice President, Exploration, of Atlas Energy Ltd. from November 2002 to December 2006 and then the Vice President, Exploration, of Piper Resources Ltd. from January 2007 to July 2008 . Mr. Mitchell joined Wild River as Vice President, Exploration, in September 2008 and was in that role at the time of the company's sale in July 2009 .

The New Management Team has been involved in the creation of a succession of profitable junior oil and gas companies over the past 8 years. The New Management Team took Wild River from zero production in February 2007 to 2,000 boepd at the time of its sale to Crescent Point Energy Corp. ("Crescent Point") in June 2009 . Wild River was sold for approximately $170 million after raising equity of 70 million over its two year life. Wild River's value creation was primarily due to the team's extension of the Lower Shaunavon oil play in south west Saskatchewan. With the exception of Mr. Mitchell , who joined Wild River in 2008, the New Management Team was involved in similar capacities as founding members of Prairie Schooner Petroleum Ltd. ("Prairie Schooner") and Great Northern. As President and Chief Operating Officer, Mr. Roszell helped Prairie Schooner grow from a private company startup in September 2004 , to a publicly-traded 7,000 boepd producer prior to its sale in September 2006 . Mr. Roszell was Vice President of Engineering at Great Northern, a junior oil and gas company that also started as a private company in October 2001 and grew to produce 5,600 boepd as a publicly traded company at the time of its sale in June 2004 . Prior to joining this management team Mr. Mitchell , was a founding member of Amber Energy Inc.

Board of Directors

The New Board of Eagle Rock shall consist of the following individuals, including Mr. Neil Roszell , and a designee from the existing Eagle Rock board.

Scott Saxberg, Director

Mr. Saxberg is currently the President, Chief Executive Officer and a director of Crescent Point. Mr. Saxberg was President and Chief Executive Officer of Crescent Point Energy Trust, and prior thereto was President, Chief Operating Officer and a director of Crescent Point Resources Ltd., prior to its conversion to the trust. Upon inception, Mr. Saxberg was Vice President, Operations and one of the founders of Crescent Point.

Paul Colborne, Director

Paul Colborne is currently the President of StarValley Oil and Gas Ltd., a private, Calgary-based oil and gas company. Mr. Colborne also serves on the board of directors of Crescent Point, Glamis Resources Ltd., Breaker Energy Ltd., Twin Butte Energy Ltd., Sikanni Services Ltd, Seaview Energy Inc. and Priviti Capital Corporation.

Kevin Olson , Director

Mr. Olson is the President of a private energy fund, EnergyX Equity Inc., and has held this position since October, 2001. Mr. Olson is a former director of Wild River and is currently on the board of directors of Yoho Resources Inc.

Private Placements

New Management Team, the New Board and employees (and persons related to them) of the new Eagle Rock (the "Investor Group"), will be the primary subscribers for up to 230,000,000 units ("Units") of Eagle Rock at a price of $0.045 per Unit. In addition, up to 95,000,000 common shares of Eagle Rock ("Common Shares") will be issued at a price of $0.045 per Common Share to the Investor Group or other third parties. The aggregate gross proceeds to Eagle Rock will be approximately $14.6 million . Each Unit will be comprised of one Common Share and one performance warrant ("Warrant") entitling the holder to purchase one Common Share at a price of $0.06 per share for a period of five years from the date of issuance. The Warrants will vest and become exercisable as to one-third upon the TSXV 20 day weighted average trading price of the Common Shares (the "market price") equaling or exceeding $0.08 per share, an additional one-third upon the market price equalling or exceeding $0.10 per share and a final one-third upon the market price equaling or exceeding $0.12 per share.

It is anticipated that the members of the Investor Group will purchase an aggregate of approximately 230,000,000 Units under the Private Placements with the result that they will hold approximately 61% of the outstanding Common Shares (excluding the Common Shares issuable on the exercise of the Warrants) following the completion of the Private Placements, and 58% of the outstanding Common Shares (excluding the Common Shares issuable on the exercise of the Warrants) after giving effect to the Private Placements and the Rights Offering, assuming that all of the rights issued thereunder are exercised.

It is anticipated that the 95,000,000 Common Shares issued under the Private Placements will be issued to principally to other investors selected by the New Management Team and the New Board.

If more than 25% of the proceeds from the Private Placements are derived from principal shareholders the Management Team and the New Board, and any other purchaser of 10% of the securities sold pursuant to the Private Placements, then the securities purchased by those persons will be subject to an thirty-six month escrow under TSXV policies, unless Eagle Rock qualifies as a Tier 1 Issuer, then such securities will be subject to an eighteen month escrow under TSXV policies. All securities issued under the Private Placements will be subject to a four-month hold period from the date of issuance, in accordance with TSXV policies and applicable securities laws.

The proceeds of the Private Placements and the Rights Offering will be applied to the reduction of bank debt and other debt of Eagle Rock. Immediately prior to the closing of the Private Placements, all 4,810,433 outstanding stock options and performance options of Eagle Rock will terminate.

Rights Offering

Upon completion of the Private Placements, Eagle Rock shareholders will be entitled to participate in a Rights Offering, which is expected to be conducted by way of a Rights Offering circular, whereby each shareholder as of the record date for such offering (the "Record Date"), will be issued one right ("Right") for each Common Share held on the Record Date, entitling that holder to purchase one (1) Common Share for each four (4) Rights held at a price of $0.045 per Common Share at or before the expiry time of the Rights Offering, expected to be no later than 45 days after the closing of the Private Placements, following which all outstanding Rights shall terminate and expire. The number of Common Shares to be issued pursuant to the Rights Offering is the maximum permitted by applicable securities laws to be issued pursuant to a Rights Offering circular. Subscribers of Common Shares or Units under the Private Placements will not be entitled to participate in the Rights Offering with respect to any securities acquired under the Private Placements. The Rights Offering is subject to applicable regulatory approval, including the TSXV.

Shareholder and Stock Exchange Approvals

Completion of the transactions contemplated under the Reorganization Agreement is subject to a number of conditions and approvals. Under the policies of the TSXV, the completion of the Private Placements will result in the creation of a Control Person and, accordingly, unless such requirement is waived by the TSXV, is subject to the approval of the shareholders of Eagle Rock. Accordingly, the consent of a majority of Eagle Rock's shareholders in respect of the Reorganization Agreement is required as a condition of the acceptance of such transactions by the TSXV. Pursuant to the Reorganization Agreement, Eagle Rock has agreed to seek the written consent on or before October 2, 2009 , failing which the Investor Group has the right to terminate the Reorganization Agreement. In the event that the written consent is not obtained on or before October 2, 2009 , Eagle Rock has convened a special meeting of shareholders on October 30, 2009 , to be held at the offices of Eagle Rock, at which shareholder approval will be sought for the Reorganization Agreement, in addition to certain other matters of business as described below. Any shareholder of Eagle Rock wishing to obtain and execute the written consent should contact Eagle Rock as set out below.

At the special meeting of the shareholders of Eagle Rock scheduled for October 30, 2009 , the New Management Team will seek a special resolution of shareholders consolidating the outstanding share capital of Eagle Rock on a ratio not exceeding 50 old Common Shares for each one new Common Share, or such lesser number of old Common Shares as may be accepted by the TSXV (the "Consolidation"), Eagle Rock currently has issued and outstanding 54,543,193 Common Shares. Upon completion of the Private Placements (assuming they are fully subscribed), Eagle Rock will have issued and outstanding 379,543,193 Common Shares and 230,000,000 Warrants, and including the Rights Offering (assuming all Rights are exercised), an additional 13,635,798 Common Shares (subject to rounding) will be issued resulting in 393,178,991 Common Shares being issued and outstanding. The Consolidation is a condition to the TSXV providing conditional acceptance to the transactions contemplated under the Reorganization Agreement. In addition to the Consolidation, the New Management Team will also seek shareholder approval to change the name of Eagle Rock to "Wild Stream Exploration Inc." or such other name as may be acceptable under applicable corporate law and the TSXV and, if required, shareholder approval of any amendments to the existing stock option plan, or the adoption of a new stock option plan, and such other matters as provided in the notice of meeting.

Asset Sale to Proceed if Reorganization Not Completed

On September 2, 2009 , Eagle Rock announced it had accepted a non-binding offer to sell certain petroleum and natural gas rights and associated wells and facilities in the Red Coulee area of southern Alberta and the Beverley area of southwest Saskatchewan (the "Asset Sale"). The Asset Sale is with an entity controlled by the certain members of the New Management Team and will not be proceeded with in the event that the recapitalization transactions described above are completed. Should the recapitalization transactions with the Investor Group not close, the Asset Sale will proceed in accordance with the previously announced terms for a purchase price of $21 million , subject to post-closing normal industry adjustments. Such transaction is considered a "reviewable" transaction under the policies of the TSXV, requiring the approval of a majority of shareholders of Eagle Rock, which may be obtained by way of written consent.

Bank Debt and Forbearance Agreement

Eagle Rock entered terms of forbearance with its bank in April 2009 following a breach of the working capital covenant in its lending agreement with the bank. The key term of the forbearance agreement was to cure the working capital default by June 30, 2009 . This was not accomplished.

The bank has been advised of the transactions contemplated in both the proposed Asset Sale and the recapitalization transaction and has agreed to amended terms of forbearance with dates that coincide with the expected closing dates of whichever of these transactions are completed.

Board of Directors Recommendations

The board of directors of Eagle Rock has determined that the transactions contemplated under the Reorganization Agreement are in the best interest of its shareholders, has unanimously approved such transactions and recommends that the shareholders execute the written consents approving such matters. Any shareholder of Eagle Rock wishing to obtain and execute the written consent should contact Eagle Rock as set out below.

The board of directors and officers of Eagle Rock, who, in the aggregate, control approximately 6.7% of the Common Shares, have entered into support agreements or agreed to enter into support agreements pursuant to which they have agreed, among other things, to resign upon completion of the Private Placements and execute a written shareholder consent (or, if required, vote their Common Shares) in favour of the Reorganization Agreement and the transactions contemplated thereunder.

The Reorganization Agreement with the Investor Group

The transactions contemplated in the Reorganization Agreement contain a number of customary representations, warranties and conditions and provide for completion of the Asset Sale should the transactions contemplated under the Reorganization Agreement not proceed. The complete agreement will be accessible under Eagle Rock Exploration Ltd. at www.sedar.com.

Financial Advisors

National Bank Financial acted as financial advisor to Eagle Rock in connection with both the Reorganization Agreement and the Asset Sale.

Peters & Co. Limited and FirstEnergy Capital Corp. are acting as co-financial advisors to the New Management Group with respect to the Reorganization Agreement.

Strategic Rationale and Corporate Strategy

The New Management Team believes that the current market conditions in the Canadian energy sector provide an optimal point of entry for an oil focused junior producer. Current economic conditions have resulted in decreased industry activity that has created a drop in the cost of services, materials and land. It is anticipated that these factors combined with access to capital will provide the new Eagle Rock with the opportunity for increased returns.

The New Management Team is a cohesive group with a proven track record of creating value for investors. The recapitalized Eagle Rock will be focused from both a commodity and geographical perspective. The New Management Team's history of using strict fiscal management with a focus on strategic acquisitions will allow Eagle Rock to differentiate itself from its peer-group.

Following completion of the Private Placement, Eagle Rock expects to initially focus on predominately medium to light oil opportunities in southwestern Saskatchewan. Eagle Rock's production base, which averaged 425 boepd (95% oil) in August 2009 , and recapitalized corporate structure will allow for the exploitation and expansion of the current 25 well drilling inventory.

The business plan will see the New Management Team aggressively pursue strategic acquisitions focused on repeatable inventory of resource oil prospects in two or three core areas. Once it has established its initial positions in these core areas, Eagle Rock will execute an aggressive capital development cycle, complemented with further acquisitions, which it expects to result in meaningful reserves, production and cash flow per share growth.

The New Management Team expects Eagle Rock to become one of the few publicly traded, oil-focused companies in the Canadian junior oil and gas sector. The new company represents an opportunity to participate in a focused, well-capitalized junior oil and gas company with a proven management team committed to cost-effective growth of light and medium gravity oil reserves.

About Eagle Rock Exploration Ltd.

Eagle Rock is a publicly-traded energy company involved in the exploration and development of low to medium risk oil and gas properties in western Canada . Eagle Rock's Common Shares trade on the TSXV under the symbol "ERX". Eagle Rock currently has 54,543,193 Common Shares issued and outstanding.

Reader Advisory

Certain information set forth in this news release contains forward-looking statements. More particularly, this news release contains statements concerning transactions contemplated under the Reorganization Agreement and the Asset Sale. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Eagle Rock's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Eagle Rock's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so what benefits Eagle Rock will derive therefrom. Eagle Rock disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities laws. In this news release the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (Mcf) of natural gas for one barrel (Bbl) of oil based on an energy equivalency conversion method. boes may be misleading particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1Bbl is based on an energy equivalency conversion method primarily applicable to the burner tip and does not represent a value equivalency at the wellhead.

This news release shall not constitute an offer to sell or the solicitation of any offer to buy securities in any jurisdiction.

    
    Neither TSX Venture Exchange nor its Regulation Services Provider (as
    that term is defined in the policies of the TSX Venture Exchange) accepts
    responsibility for the adequacy or accuracy of this release.
    

For further information: please visit Eagle Rock's website at: www.eaglerockexploration.com or contact: Jim Silye, President and Chief Executive Officer, Tel: [phone], Fax: [phone], or by E-mail: [email protected] or Neil Roszell, Tel: [phone] or by E-mail: [email protected]