08:29 EDT Thursday, July 03, 2008

CALGARY, July 3 /CNW/ - Upper Lake Oil and Gas Ltd. (TSX: UP) ("Upper Lake") and Monterey Exploration Ltd. ("Monterey"), a private oil and gas company, are pleased to announce that they have entered into an agreement (the "Arrangement Agreement") under which, subject to certain conditions, Monterey will acquire all of the issued and outstanding shares (the "Upper Lake Shares") of Upper Lake (the "Transaction").

The proposed Transaction is intended to create a northeast British Columbia ("NEBC") focused, natural gas weighted producer with resource style assets including interests in the emerging Montney resource play in NEBC. Upon closing of the Transaction the combined company will have:

    <<
    -   An experienced management team, which will comprise the current
        management of Monterey
    -   Estimated production of approximately 2,400 boe/d, of which 80% is
        weighted to natural gas
    -   8.3 MMBoe of Proved plus Probable reserves as of December 31, 2007 as
        reviewed by GLJ Petroleum Consultants Ltd. ("GLJ")
    -   Reserve Life Index in excess of 9.5 years
    -   Undeveloped land base of 90,000 net acres almost entirely located in
        NEBC
    -   Strategic, high working interest land position in the heart of the
        Montney resource play
    -   Excellent asset overlap (majority of Upper Lake's producing assets
        are located in close proximity to Monterey's interest in the
        Ferrybank Belly River Gas Unit in Central Alberta and Upper Lake's
        undeveloped Montney land position at Tupper complements Monterey's
        existing activities in the Montney in NEBC)
    -   Prospect inventory of approximately $150 million, which has the
        potential to provide several years of future drilling opportunities
        at Monterey's current pace of activity
    -   Additional mass and free cash flow which can be applied to its
        drilling prospects
    >>

Under the terms of the Arrangement Agreement, shareholders of Upper Lake ("Upper Lake Shareholders") will receive 0.28 of a common share of Monterey (a "Monterey Share") for each Upper Lake Share held. Monterey Shares may also be issued to certain optionholders of Upper Lake in accordance with the Arrangement Agreement. Based on Monterey's year-end 2007 net asset value of $3.32 per share (calculated with response to Monterey's independently prepared year-end reserves report and assuming 25,054,162 shares outstanding), the total purchase price is approximately $32 million, comprised of approximately $26 million of equity value and the assumption of approximately $6.0 million of net debt. Upper Lake's current production is estimated at 800 boe/d, it holds approximately 20,875 net acres of undeveloped land internally valued at $5 million and had 1.3 MMBoe of Proved plus Probable reserves at December 31, 2007, as prepared by GLJ.