Winstar to Farmout Interest in Tunisia Concession

- Winstar to Farmout Interest in Tunisia Concession

Thursday, August 18, 2011
Winstar Resources Ltd.

Winstar has executed a Memorandum of Understanding (MOU) with a privately held European exploration and production company ("Privateco") to farmout for cash and a work program, up to 50% of Winstar's current 45% working interest in the Sabria Concession in west-central Tunisia, including existing production, inventory and reserves. All amounts are in US dollars unless otherwise stated.

Winstar and Privateco have agreed to expeditiously work towards drafting and executing a comprehensive Farmout Agreement plus ancillary agreements in accordance with the commercial terms and conditions contained within the executed MOU.

This transaction is attractive to Winstar as it:

• Provides an opportunity to accelerate the development of the extensive probable reserves associated with the Sabria Concession;
• Provides incremental working capital to fund the current and near term capital programs; and
• Provides meaningful near term incremental drilling operations at Sabria during a period in which Winstar's capital is focused on developing the Triassic and Silurian potential within the southern Tunisian concessions of Chouech Essaida and Ech Chouech.

The basic terms and conditions of the executed MOU are as follows:

• Privateco will earn an undivided 22.5% working interest within the Sabria Concession upon Closing in exchange for a cash payment of US $6.55 million, subject to final closing adjustments, and a work commitment to pay 45% of the capital costs to:
• Work-over an existing Sabria well;
• Drill and complete 3 new Sabria horizontal development wells to a depth to exploit the reserves within the Ordovician Sandstones of the Hamra and El Atchane Formations.
• The work commitment is to be completed within 2.5 years from the date on which the Tunisian government issues a decree granting approval of the title transfer to Privateco.
• The work commitment is subject to budgetary approval by ETAP (Tunisian State Oil and Gas Company) which owns the remaining 55% working interest in the Sabria Concession.

The Effective Date of the transaction is July 1, 2011 with a closing date expected during the fourth quarter of 2011. At closing, Winstar will receive $6.55MM USD of which 5.7MM USD represents the estimated value for the proved developed producing ("PDP") reserves at July 1, 2011 plus seismic and inventory. This is based on a value of $7.0 MM USD for the PDP reserves at January 1, 2011 and will be adjusted based on actual net after tax cash flows attributable to the 22.5% interest from January 1, 2011 to coincide with the December 31, 2010 RPS Energy report mentioned below.

Winstar will remain as the Operator.

This transaction is subject to execution of the formal transaction documents and final approval by the parties' respective boards and the government of Tunisia.

The work commitment is estimated to have a value to Winstar, after earned carried working interest (22.5%), of approximately US $12.3 million. Privateco also agrees to transfer the deductible tax pools associated with Winstar's carried interest of the work commitment, which is estimated to be an additional US $6.1 million of tax benefits for Winstar. Thus, the total value of the transaction is estimated to be US $25.5 million, subject to final closing adjustments, net to Winstar in cash, work and tax benefits.

Based on RPS Energy Independent reserve report as December 31, 2010, and using a value of $7.0MM USD at January 1, 2011 for PDP reserves, the 22.5% working interest in the reserves and value of Sabria, which will be earned by the Privateco is as follows:

• Total PDP Reserves; 326,000 boe (before royalty),
• Total PDP Reserves; $6.4 million (Present Value, discounted at 10%, after tax)

Winstar's 45% working interest in current production at Sabria is 190 boepd and would be 95 boepd net to Winstar's 22.5% working interest after giving effect to this transaction.

Based on reserve values estimated as of December 31, 2010, and using a value of $7.0MM USD at January 1, 2011, the Privateco is paying $21.77 per boe for PDP reserves.

Winstar is currently producing 1,500 to 1,700 boepd (1,050 to 1,150 bopd of crude plus 450 to 550 boepd of solution gas). Sales of the solution gas produced in association with the crude oil are still partially restricted due to mechanical issues within the Tunisian national gas transmission system owned and operated by STEG (Tunisian National Electric and Natural Gas Company). As a result of the mechanical restriction, Winstar is currently selling 1,500 to 1,650 boepd. The mechanical challenges are anticipated to be resolved within the near future.

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