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Petrobank Announces Shareholder Approval of Proposed Reorganization

CALGARY, ALBERTA -- (Marketwire) -- 12/17/12 -- Petrobank Energy and Resources Ltd. (TSX:PBG) is pleased to announce that our previously proposed reorganization with our 56% owned subsidiary, PetroBakken Energy Ltd. (TSX:PBN), which will result in Petrobank shareholders effectively receiving Petrobank's share holdings in PetroBakken while maintaining their interest in the remaining Petrobank assets (the "Reorganization"), has been approved by the shareholders of each of Petrobank and PetroBakken. We will seek final approval of the Court of Queen's Bench of Alberta on Tuesday, December 18, 2012 and anticipate that the Arrangement will be made effective on December 31, 2012 (the "Effective Date").

The Reorganization will result in a newly incorporated company ("New Petrobank") acquiring all of the assets and liabilities of Petrobank, other than its PetroBakken common shares. Upon completion of the Reorganization, each Petrobank share will entitle the holder thereof to one share of New Petrobank, which will own and operate Petrobank's existing Heavy Oil Business, and a number of PetroBakken shares to be determined by dividing the number of PetroBakken shares owned by Petrobank on December 31, 2012 by the number of Petrobank shares outstanding (the Exchange Ratio"). As of the date of this press release, Petrobank owns 107.855 million PetroBakken shares (including the shares received today through our participation in PetroBakken's dividend reinvestment plan) and has 96.615 million basic shares outstanding, which would result in an Exchange Ratio of 1.116. The final Exchange Ratio will be impacted by the number of Petrobank shares issued prior to December 31, 2012 pursuant to the exercise of share based compensation. Based on the closing price of the Petrobank shares on December 17, 2012, the Exchange Ratio would be 1.101 on the Effective Date.

Following the Reorganization, New Petrobank will continue to own the Heavy Oil Business, including cash anticipated to be in excess of $90 million. Given our cash position and the current trading price of the PetroBakken shares, we have elected to receive the PetroBakken December dividend, payable in January 2013, in PetroBakken shares pursuant to PetroBakken's dividend reinvestment program. These PetroBakken shares will be held by New Petrobank for investment purposes and may be sold at a later date. Petrobank shareholders at the Effective Date who retain the PetroBakken shares received pursuant to the Reorganization will qualify for PetroBakken's January 2013 dividend, payable in mid-February, and may participate in PetroBakken's share dividend program, as further described below.

Petrobank has received confirmation from the Toronto Stock Exchange (the "TSX") that our existing Normal Course Issuer Bid ("NCIB") will continue to be available to New Petrobank following the Reorganization. Our existing NCIB allows us to repurchase up to 7,784,304 of our common shares for cancellation until September 13, 2013. Petrobank has already purchased 3,466,700 common shares to date under this NCIB, resulting in an additional 4,317,604 common shares available for repurchase. Petrobank may not purchase more than 113,821 common shares on any trading day, subject to certain block trade exemptions. We have cancelled our previous automatic share purchase plan and may continue to make repurchases from time to time depending on market conditions.

Petrobank shareholders of record as of the Effective Date will be entitled to receive the PetroBakken Shares to be distributed pursuant to the Reorganization. In addition, the TSX has determined that due bill trading procedures will be used in connection with the distribution of the PetroBakken shares to the Petrobank shareholders pursuant to the Reorganization. As a result of the use of due bills, purchasers of Petrobank Shares on the TSX in the period from December 27, 2012 to December 31, 2012 (the "Due Bill Period") will be entitled to receive the PetroBakken shares notwithstanding that such purchases will not settle until after December 31, 2012. Any trades that are executed during the Due Bill Period will be automatically flagged to ensure that such purchasers receive the entitlement to the PetroBakken shares and the sellers do not. The due bills will be redeemed on January 4, 2013 once all trades with attached due bills entered into up to the end of the Due Bill Period have settled. As a result of the use of due bills, all trades in Petrobank shares up to and including December 31, 2012 should include the value of the PetroBakken shares distributable to a Petrobank shareholder pursuant to the Reorganization.

The ex-distribution date for the entitlement to receive the PetroBakken shares pursuant to the Reorganization will be January 2, 2012. Accordingly, any trades in Petrobank shares made on or after January 2, 2012 will not include the right to receive the PetroBakken shares to be distributed pursuant to the Reorganization.

The Reorganization is expected to be non-taxable to Petrobank and PetroBakken as well as Canadian resident shareholders of Petrobank. Canadian resident shareholders of Petrobank will split their existing adjusted cost base ("ACB") between New Petrobank and PetroBakken. The fair market value of the New Petrobank shares received will form the ACB of New Petrobank. The ACB of Petrobank less the ACB of New Petrobank will form the ACB of the PetroBakken shares received. Existing shareholders of PetroBakken will not have any ACB adjustments and will not incur any tax liability from the Reorganization.

For U.S. shareholders of Petrobank, this transaction will be treated as a taxable dividend according to U.S. tax laws. It is expected that the dividend will be based on the fair market value of the New Petrobank shares received and will be considered a "qualified dividend" for U.S. tax purposes, subject to the reduced tax rates applicable to long-term capital gains for individuals, provided shareholders meet the holding-period requirements. It is further anticipated that the dividend will be deemed to have been received on December 31, 2012, at which time registered holders of Petrobank shares will become registered holders of New Petrobank shares, notwithstanding that the New Petrobank shares may not be received in the accounts of beneficial shareholders until January 2013. Tax information has been published on the websites of both Petrobank and PetroBakken and further information regarding the estimated fair market value of the New Petrobank shares will be posted in January; however shareholders are encouraged to seek the advice of their own tax professionals.

PetroBakken Share Dividend Program

Concurrent with the Reorganization, PetroBakken has adopted a share dividend program ("SDP"). PetroBakken currently has a dividend reinvestment plan in place that is available only to Canadian PetroBakken shareholders, and PetroBakken intends to phase out the dividend reinvestment plan with a share dividend program that would generally be available to most PetroBakken shareholders. Although PetroBakken expects that the SDP will ultimately replace the dividend reinvestment plan, the dividend reinvestment plan will remain in place for a transition period following the implementation of the share dividend program to allow registered and beneficial shareholders to enroll in the share dividend program.

PetroBakken shareholders participating in the SDP can elect to receive share dividends on all or some of their shares. Anticipated benefits of participation in the SDP include:


--  Dividends will be paid in the form of shares to those shareholders who
    elect to participate in the SDP at 95% of the weighted average market
    price calculated 5 days before the payment date. 

--  Participation in the SDP is not expected to generate dividend income for
    Canadian PetroBakken shareholders holding their shares in taxable
    accounts. Shares issued under the SDP are expected to have a nominal
    cost for Canadian tax purposes and, as a result, receipt of stock
    dividends under the SDP will effectively result in a downward adjustment
    to the shareholder's cost base and would be taxed as a capital gain or
    loss upon the eventual sale of the shares. In addition, Canadian
    PetroBakken shareholders participating in the SDP may also benefit if
    the tax rate on capital gains is lower than the tax rate on dividend
    income applicable to their individual circumstances. 

--  Non-Canadian shareholders holding PetroBakken shares in a taxable
    account who elect to participate in the SDP are not expected to be
    subject to Canadian withholding taxes that typically range from 15% -
    25% on dividends paid by PetroBakken. Therefore the number of shares
    received under the SDP will reflect the entire amount of the stock
    dividend. 

--  Shareholders with tax-deferred accounts are not expected to be impacted.

All shareholders are advised to consult their own tax advisors regarding the tax consequences to them of receiving cash or share dividends on their PetroBakken shares. For more details discussing the potential tax consequences of the SDP, please refer to PetroBakken and Petrobank's Joint Management Information Circular dated November 16, 2012 filed on SEDAR and available on our website at http://www.petrobank.com.

Shareholders wishing to participate in the SDP with respect to the PetroBakken shares received pursuant to the Reorganization should contact their broker or intermediary or, in the case of registered shareholders, contact PetroBakken's transfer agent, Olympia Trust Company. Further information in respect of the SDP, as well as the necessary enrolment forms, will be available prior to year end on PetroBakken's website at www.petrobakken.com.

Petrobank Energy and Resources Ltd. is a Calgary-based oil and natural gas exploration and production company with operations in western Canada. The Company currently operates high-impact projects through two business units and a technology subsidiary. Petrobank's 56% currently owned TSX- listed subsidiary, PetroBakken Energy Ltd. (TSX:PBN), is an oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets. Whitesands Insitu Partnership, a partnership between Petrobank and its wholly-owned subsidiary Whitesands Insitu Inc., applies Petrobank's patented THAI® heavy oil recovery process in the field. THAI® is an evolutionary in-situ combustion technology for the recovery of bitumen and heavy oil. THAI® and CAPRI® are registered trademarks of Archon Technologies Ltd., a wholly-owned subsidiary of Petrobank Energy and Resources Ltd., for specialized methods for recovery of oil from subterranean formations through in-situ combustion techniques and methodologies with or without upgrading catalysts. Used under license by Petrobank Energy and Resources Ltd.

Forward-Looking Statements. Certain information provided in this press release constitutes forward-looking statements. Specifically, this press release contains forward-looking statements relating to the terms of and timing for completion of the Reorganization, payment of future dividends, expected tax treatment of the Reorganization and the future business of Petrobank. Forward-looking statements are necessarily based upon assumptions and judgments with respect to the future including, but not limited to, the receipt of required regulatory approvals and satisfaction of other conditions to the Reorganization, the outlook for commodity markets and capital markets, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather, the regulatory and legal environment and other risks associated with oil and gas operations. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. You can find a discussion of certain of those risks and uncertainties in our Canadian securities filings. Such factors include, but are not limited to: general economic, market and business conditions; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; timing and rig availability, outcome of exploration contract negotiations; fluctuation in foreign currency exchange rates; the uncertainty of reserve estimates; changes in environmental and other regulations; risks associated with oil and gas operations; risks associated with the receipt of regulatory approvals and the satisfaction of other conditions to the Reorganization, and other factors, many of which are beyond the control of Petrobank and PetroBakken. There is no representation by Petrobank or PetroBakken that actual results achieved during the forecast period will be the same in whole or in part as those forecast. Except as may be required by applicable securities laws, neither Petrobank nor PetroBakken assumes any obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Contacts:
Petrobank Energy & Resources Ltd.
John D. Wright
President and Chief Executive Officer
403.750.4400

Petrobank Energy & Resources Ltd.
Chris J. Bloomer
Senior Vice President and Chief Operating Officer
403.750.4400

Petrobank Energy & Resources Ltd.
Peter Cheung
Vice President Finance and Chief Financial Officer
403.750.4400
[email protected]
www.petrobank.com

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