Emerge Announces Closing of $30 Million Bought Deal Financing and Provides Operational Update

CALGARY, ALBERTA -- (Marketwire - Oct. 14, 2010) - Emerge Oil & Gas Inc. (“Emerge“ or the “Company“) (TSX: EME) is pleased to announce the closing of its recently-announced bought deal equity financing, and is providing an operational update following an active third quarter.


Equity Financing

Today the Company closed its recently-announced equity financing of 8.85 million common shares sold at a price of $3.40 per common share for gross proceeds of $30.1 million (approximately $28.5 million net after issuance costs) (the “Financing“). The Financing was underwritten by a syndicate of underwriters co-led by National Bank Financial Inc. and Dundee Securities Corporation, and including Cormark Securities Inc., GMP Securities L.P. and Peters & Co. Limited. The net proceeds will be used by the Company to initially reduce bank debt, and subsequently to increase its 2010/2011 capital program and for general corporate purposes. Emerge now has 91,926,767 common shares outstanding.


Operational Update

Drilling

Emerge has continued its drilling program focused in the Lloydminster area where the Company has now drilled and cased 49 wells to-date. Emerge drilled 24 heavy oil wells in Q3 2010 at a 100% working interest and a 100% success rate, bringing our year-to-date average success rate to 98%. Initial production rates of 45 to 50 boe/d for the new wells are in-line with management estimates. Emerge has identified 220 drilling locations on its lands in the greater Lloydminster and Battlebend areas targeting multiple heavy and medium oil formations.

The Company has 6 drills planned for the remainder of 2010 to complete its budgeted 55-well drilling program, and we expect these wells to be drilled and cased by mid-November. The Company may drill an additional 3 to 5 wells later in Q4 2010 using funds from the Financing.


Reactivations

Emerge also continued with its well reactivation and optimization program in Q3 2010, with 52 reactivations/recompletions performed during the quarter, largely using underbalanced foam stimulation. The Company added approximately 870 boe/d from these jobs for an average of 17 boe/d of initial production per reactivation, which is in-line with management estimates. To-date, Emerge has more than doubled production to 850 boe/d in its recently acquired Reward/Ear Lake field (from the 400 boe/d acquired in late June 2010) solely from reactivations of standing wells using the foam job technique. Emerge currently has approximately 185 foam job candidates in its corporate inventory.


Production

Production averaged 5,592 boe/d for Q3 2010, up 1,060 boe/d or 23% from 4,532 boe/d in Q2 2010. With over 50 wells coming onto production in the quarter requiring full single-well battery set-up including 2 tanks per lease, sales volumes lagged production volumes in Q3 2010 by approximately 500 boe/d due to the required inventory build in the tanks. Once the minimum inventory is reached in the tanks, the Company will sell the excess oil inventory such that sales volumes are expected to realign with production volumes in future months.

Production for the first two weeks of October has averaged 6,200 boe/d based on field reports. In addition, 5 heavy oil wells are in the process of completion and equipping and are expected to be on stream by the end of October, potentially adding 200 to 250 boe/d of new production.


Risk Management

On October 1, 2010, the Company entered into its first hedging transaction, consisting of a financial hedge (commodity swap) of 1,000 bbl/d at the WCS (Western Canadian Select) 20.5° API heavy oil price of $70.00/bbl for the calendar year January 1, 2011 to December 31, 2011. The transaction was in accordance with the Company's board-approved strategy on hedging and risk management, and the Company will continue to review hedging opportunities that fit with this strategy.


Outlook

Preparations are underway for the remainder of the Company's 2010 heavy oil capital program, including reactivating 20-30 wells, drilling the remaining 6 wells of our budgeted 55-well drilling program and potentially drilling an additional 3 to 5 drills as a lead-in to our 2011 drilling program. To facilitate the growth in the Company's volumes, Emerge is also continuing with the expansion of its Silverdale central oil battery and sales pipeline tie-in, aimed at lowering operating costs and improving netbacks. The sales pipeline is currently being constructed by a third party at no capital cost to Emerge, but rather a small throughput volume commitment, and the third party has advised that commissioning of the line is expected on or around November 1, 2010. Phase III of our Silverdale oil battery expansion, which will increase oil handling capacity to 12,000 boe/d and reduce reliance on third parties for oil treating and cleaning, is scheduled to be completed by January 31, 2011 at a capital cost of $8 to $10 million. Emerge is also in the process of acquiring new seismic data in the greater Lloydminster area. To-date, 86 kilometers of 2D data has been shot with additional data to be acquired in the next few months. It is anticipated the new data will enhance Emerge's drilling inventory while a portion of the data will further delineate locations on farm-in lands.

Emerge continues to review new opportunities, including asset and corporate acquisitions and participation in farm-in agreements, as part of its ongoing growth initiatives. Emerge plans to maintain a strong balance sheet in order to create flexibility for these opportunities. Current net debt, reflecting the net proceeds of the Financing, is approximately $21 million and the Company has total credit facilities (including a $10 million acquisition/development line) of $60 million.

Emerge is currently developing its 2011 capital and operating budget and plans to announce its 2011 budget numbers later in Q4 2010 following board approval. Emerge anticipates an expanded heavy oil-focused capital program in 2011, which will be funded from cash flow generated by the Company's existing asset base, net proceeds from the Financing and existing credit facilities, which may increase following the Company's annual review with its lender in March 2011 after our annual independent reserve evaluation is finalized.


About Emerge Oil & Gas Inc.

Emerge is engaged in the exploration for and development and production of oil and natural gas in Western Canada. The Company currently operates within two principal areas, namely, the Lloydminster area of West-Central Saskatchewan and East-Central Alberta and the Battlebend area of East-Central Alberta. Emerge is headquartered in Calgary, Canada.


Advisories:

Barrel of Oil Equivalent

The Company may present petroleum and natural gas production and reserve volumes in barrel of oil equivalent (“boe“) amounts. For purposes of computing such units, a conversion rate of 6,000 cubic feet of natural gas to one barrel of oil equivalent (6:1) is used. The conversion ratio of 6:1 is based on an energy equivalency conversion method which is primarily applicable at the burner tip and does not represent value equivalence at the wellhead. Readers are cautioned that boe figures may be misleading, particularly if used in isolation.



Forward-Looking Statements

Certain statements contained in this news release constitute “forward-looking statements“ under applicable securities laws. These statements relate to future events or future performance and are based on the Company's current expectations, estimates, projections, assumptions and beliefs. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Accordingly, undue reliance should not be placed on these forward-looking statements. The use of any of the words “expect“, “anticipate“, “continue“, “estimate“, “objective“, “ongoing“, “may“, “will“, “project“, “should“, “believe“, “plans“, “intends“ and similar expressions are intended to identify forward-looking statements. In particular, but without limiting the foregoing, this news release contains forward-looking information pertaining to the following: the use of proceeds from the Financing; changes to its 2010/2011 capital budget; drilling plans and timing of drilling, completion, reactivation, workover and tie-in of wells; plans for facilities construction and timing of completion of such construction; anticipated production volumes and timing of commencement of production; drilling, completion, facility and other capital costs; methods of financing capital expenditures and ability to fund financial liabilities; supply and demand for the Company's products; prices for oil and natural gas, and in particular heavy oil; operating, general and administrative and other costs and expenses, and the Company's ability to reduce such costs; acquisition and farm-in plans and the ability to finance such plans; and expectations regarding the Company's ability to add reserves through exploration, development and acquisitions. All such forward-looking statements involve known and unknown risks and uncertainties, certain of which are beyond the control of the Company. Such risks and uncertainties include, without limitation: risks associated with oil and natural gas exploration, development, exploitation, production, transportation and marketing; general economic conditions in North America and globally; changes in the demand for Emerge's products; volatility in market prices for oil and gas, and in particular heavy oil; unanticipated fluctuations or declines in production; the effects of adverse weather conditions; changes in foreign currency exchange and interest rates; changes in tax or environmental laws, royalty rates or other regulatory matters affecting the Company and its operations; inaccurate estimation of Emerge's oil and natural gas reserves; ability to attract and retain qualified personnel; increased debt levels or debt service requirements; limited, unfavorable or lack of access to capital markets; and the impact of competitors. The forward-looking statements contained in this news release are made as of the date hereof and the Company does not intend, and does not assume any obligation, to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable securities laws.



For more information, please contact

Emerge Oil & Gas Inc.
Thomas J. Greschner
Chairman, President and CEO
403-718-3852
tomg@emergeoilandgas.com
or
Emerge Oil & Gas Inc.
Anita Tonn
Vice President, Finance & CFO
403-718-3855
anitat@emergeoilandgas.com
or
Emerge Oil & Gas Inc.
Suite 1800, 250 - 2nd Street SW
Calgary, AB, Canada T2P 0C1
403-718-3850
403-718-3851
www.emergeoilandgas.com