Mr. Terry McCoy reports

ARCAN ANNOUNCES PROPOSED TRANSACTION TO RECAPITALIZE ITS CONVERTIBLE DEBENTURES

Arcan Resources Ltd. has proposed a transaction to recapitalize its convertible debentures into equity with the following key elements:

• Exchange of Arcan's $86.25-million 6.25-per-cent convertible unsecured subordinated debentures due Feb. 28, 2016, and $85.0-million 6.50-per-cent convertible unsecured subordinated debentures due Oct. 31, 2018, into equity at an exchange price of 15 cents per share, representing approximately 87.5 per cent of the postexchange common shares in the capital of Arcan;
• Reduction of Arcan's total pro forma debt, as at Sept. 30, 2014, from $324.6-million, including the debentures at face value, to $150.6-million;
• Reduction of Arcan's annual cash interest and financing expenses by approximately $10.9-million;
• Current holders of Arcan's issued and outstanding common shares retaining an approximate 7.5-per-cent interest in the company upon completion of the exchange;
• Employees, trade creditors and customers not affected by the exchange;
• The exchange is expected to be completed early in the first quarter of 2015.

"The recapitalization transaction provides the best available solution to reduce our debt levels and normalize our capital structure to be on a level playing field with other oil and natural gas producers," said Terry McCoy, Arcan's chief executive officer.

Management and the board of directors of Arcan believe that the exchange is in the best interest of all stakeholders and provides a number of benefits to the company, including the following:

• Normalizes Arcan's capital structure to be competitive with industry peers in the challenging oil price and equity market environment:
• • Reduces Arcan's pro forma ratio of net debt and working capital to quarterly annualized funds from operations, as at Sept. 30, 2014, from 9.0 times to 3.2 times;
  • Simplifies Arcan's capital structure to include only common shares and bank debt;
  • Encourages investor interest in the company;
• Substantially improves financial strength and reduces financial risk:
• • Retires the approximately $171.25-million of net debt currently existing pursuant to the debentures;
  • Improves Arcan's financial liquidity and sustainability;
  • Improves Arcan's liquidity position under its credit facilities due to the impact on future interest charges;
  • Provides increased certainty to the capital markets and Arcan's banking syndicate with respect to Arcan's capital structure;
• Positions the company to invest in its asset base:
• • Decreases annual cash interest and financing expenses by approximately $10.9-million, which can be reallocated to asset development;
  • Provides the opportunity for accretive growth using only internally generated cash flow over a multiyear horizon.

The exchange will be implemented upon the approval of the holders of debentures, by way of extraordinary resolution, pursuant to and in accordance with the terms of the indenture (as supplemented) governing the debentures. Arcan will continue to operate as usual and will carry on satisfying its obligations to trade creditors, customers and employees in the ordinary course of business.

Arcan has thoroughly investigated and exhausted a variety of financial alternatives, all of which have failed to generate acceptable proposals. The significant decline in oil prices has further exacerbated Arcan's position with respect to asset distribution opportunities and other alternatives.

Arcan's board has determined that the exchange is in the best interests of the company and its stakeholders, given, among other considerations, that it will reduce Arcan's net debt by approximately $171.25-million, simplify Arcan's capital structure and provide considerable improvement in Arcan's financial liquidity. The determination to approve the exchange was made, based on a range of factors, including an opinion received from Scotia Waterous Inc., Arcan's financial adviser with respect to the exchange, addressed to the board of the company, that the consideration to be received by the debentureholders pursuant to the exchange, if implemented, is fair, from a financial point of view, to the debentureholders and current shareholders of the company.

The board believes that the exchange transaction is a significant and positive development for Arcan and its stakeholders. It is a solution that is considered fair to the debentureholders and to the current shareholders, and it delivers on the company's key commitment to explore and pursue options to improve its capital structure and liquidity. The board and management believe that the exchange will create a financially stronger company and better allow for the pursuit of Arcan's business and operational goals.

Mr. McCoy continued: "After a thorough review of options, we are convinced that it is in all stakeholders' best interests to implement the recapitalization transaction at this time. We believe that our capital structure, without the exchange, would continue to negatively impact market valuation and the ability for Arcan to operate effectively. Management expects that the exchange will rectify the issues impacting the company's financial position, resulting in a stronger entity that can actively invest in its asset base and realize asset value. Arcan has shown its ability to be an efficient operator through its improvements in drilling and operations. Arcan's asset base provides growth potential through a focused land position, extensive existing infrastructure and ongoing positive impact from horizontal multistage fracture technology."

"The completion of the recapitalization transaction will normalize Arcan's capital structure to be competitive with other oil and natural gas producers and significantly improve liquidity," said Doug Penner, president. "We will now be able to truly focus on the development of our asset base and path forward without the implications of high debt levels overshadowing our operational successes."

Management and the board believe that the exchange is an important step to stabilizing the company and moving forward. Arcan's credit facilities have been successively reduced by its banking syndicate over the last two years from $200-million and are now composed of a $160-million syndicated revolving-term credit facility and a $10-million non-syndicated revolving operating term credit facility. These credit facilities are in term out and will mature on May 28, 2015. Management is currently in discussions with the syndicate regarding the impact of reduced oil prices and production, the exchange on the credit facilities, and the potential refinancing of the credit facilities.

In connection with the exchange, debentureholders holding approximately 40 per cent of the debentures have executed a support agreement whereby they have agreed, subject to certain terms and conditions (including due diligence and the extension or refinancing of the credit facilities on terms acceptable to them), to vote in favour of and support the exchange. Under the terms of the support agreement, such debentureholders will receive additional common shares representing approximately 5 per cent of the new common shares in the capital of Arcan upon completion of the exchange. Additional details regarding the exchange are contained in the support agreement, a copy of which will be filed under Arcan's profile on SEDAR. The exchange remains subject to approval in its entirety by the TSX Venture Exchange.

Blake, Cassels & Graydon LLP is legal adviser to the company. Goodmans LLP is legal adviser to the ad hoc committee of debentureholders.

Pro forma net debt and working capital to quarterly annualized funds from operations, and common share interests

Management uses net debt and working capital to quarterly annualized funds from operations as a key measure of Arcan's liquidity, as shown in Note 5 of Arcan's audited consolidated financial statements for the year ended Dec. 31, 2013. The attached net debt and working capital table sets forth Arcan's pro forma net debt and working capital to quarterly annualized funds from operations as at Sept. 30, 2014, assuming the completion of the exchange.

              NET DEBT AND WORKING CAPITAL TO ANNUALIZED 
                       FUNDS FROM OPERATIONS
                               ($000s)
                                            Three months ended
                                        Sept. 30,       Sept. 30,
                                            2014            2014
                                                      (pro forma)
Net debt and working
capital
(including convertible
debentures at face value)      $        (324,637)  $    (150,608)
Cash flow from operating
activities                                 6,981           9,732
Change in non-cash operating
working capital and
restricted share units                       995             939
Exchange costs                             1,051           1,051
Funds from operations                      9,027          11,722
Annualizing factor                            x4              x4
Quarterly annualized funds
from operations                $          36,108   $      46,888
Ratio                                   9.0 to 1        3.2 to 1

Key steps in the exchange

Arcan expects to hold a meeting of debentureholders to consider the exchange before the end of the first quarter of 2015 in Calgary, Alta. The extraordinary resolution approving the exchange of the debentures into equity must be passed by 66-2/3 per cent of the debentures present in person or by proxy and voting on the resolution.

The exchange will not require any action by shareholders and is not subject to any shareholder vote.

Further information about the exchange and the meeting of debentureholders will be provided in an information circular, expected to be distributed to debentureholders in the coming weeks, as well as in other Arcan continuous disclosure filings available on SEDAR and the company's website.

We seek Safe Harbor.