2009-09-25-2009-09-16

To buy company with assets in Cheal petroleum license in Taranaki Basin, gaining 380 BO/d.

Tag Oil Ltd., Vancouver, (Toronto Venture: TAO) plans to merge with Trans-Orient Petroleum Ltd. (Toronto Venture: TOZ; OTCBB: TOPLF) in a deal valued at approximately C$7.3 million. Tag will issue one share per 2.8 Trans-Orient shares. The transaction represents a 40% premium on Trans-Orient's per-share net asset value. At closing, Trans-Orient will become a subsidiary of Tag, and it is estimated that Tag will have 29.9 million shares. Trans-Orient has approximately 37 million shares outstanding. Tag Oil will be the surviving entity. Full details of the merger, including the terms of the arrangement agreement, will be released by Nov. 16. The combined company will focus on oil and gas opportunities in New Zealand, will have no debt, C$12.5 million in working capital, cash flow from the developing Cheal light-oil discovery and a lower-risk prospect inventory defined by 3-D seismic in the prolific Taranaki Basin discovery fairway. This is in addition to the high-impact frontier exploration opportunities targeting widespread fractured oil shale source-rock formations in the East Coast Basin. Tag Oil will contribute 100% interest in the Cheal petroleum license in the Taranaki Basin of New Zealand, containing the Cheal oil discovery, production facilities and the surrounding exploration acreage. The relatively shallow Cheal oil pool has cumulative production of more than 500,000 barrels of oil to date, with remaining proven and probable reserves of approximately 530,000 barrels of oil equivalent and is currently producing at average rates of 325 to 380 barrels of oil per day. Numerous prospects for step-out drilling in the lightly explored 20,000-acres covered by the Cheal exploration area and exploration permit 38748 provide a number of lower-risk exploration drilling opportunities to grow near-term production. Tag also brings to the transaction a strong financial position with projected net cash flow on completion of its Cheal transaction of C$6.5 million during the next 12 months, based on existing production. Tag has no debt and C$7 million in working capital. Trans-Orient brings a high-impact, under-explored frontier acreage position onshore the East Coast Basin. Trans-Orient's 2.2 million-acre exploration permits encompass a portfolio of high-impact conventional prospects such as Waitangi Hill and unconventional opportunities such as Boar Hill leveraging new fracturing technology to target fractured oil shale source-rock formations that have many similarities to successful developments such as the U.S. Bakken shale. Trans-Orient also brings C$5.5 million in working capital. Evans Evans Inc. provided a fairness opinion to the Tag board. Stephen Semeniuk provided a fairness opinion to Trans-Orient board. The deal is expected to close by Dec. 9.