Mr. Eric Boehnke reports

TERRACE PLANS ACQUISITION OF SIGNIFICANT OIL & GAS INTERESTS IN SOUTH TEXAS

Terrace Energy Corp. has entered into a non-binding letter of intent with BlackBrush Oil & Gas LP, which contemplates the company and BBOG organizing a special-purpose entity (Newco) to acquire a 50-per-cent working interest in certain oil and gas leases covering approximately 147,000 net mineral acres in south Texas, United States. Newco would initially be owned and financed 50 per cent by the company and 50 per cent by BBOG and would be ceded the responsibility of developing the target acreage. Newco would be managed equally by the parties, and BBOG would be contracted by Newco to perform the duties of project operator.

BBOG is a privately owned partnership organized to explore and develop significant oil and gas interests, primarily in south Texas. BBOG is also a majority working-interest partner and the named operator of the company's STS Olmos project.

The target acreage has the potential for 1,225 drilling locations (120-acre spacing) aimed at multiple active formations, including the Pearsall and Eagle Ford shales, and Buda and Georgetown formations. The target acreage is strategically located in a region of previous prolific conventional production as well as multiple successful vertical tests in the Pearsall and Eagle Ford. The target acreage is also covered by a 300-square-mile proprietary 3-D seismic dataset. Newco will have full access to this data set in order to plan and execute development programs.

Newco may secure the working interest in the target acreage through a combination of cash payments and drilling obligations that total $65-million (U.S.) as development progresses, including reinvested cash flow from wells placed into production. Newco will be obligated to drill a minimum of four Pearsall horizontal wells and one Eagle Ford horizontal well on or before April 1, 2015. Work on the first well must commence in April, 2013. Under the terms of the LOI, the company and BBOG would each contribute initial capital of $11-million (U.S.) into Newco, which will finance certain lease acquisition costs and the estimated cost of the initial drilling program.

The agreement in principle reached among the parties is conditional upon, among other things, approval of the TSX Venture Exchange, the completion of a financing of not less than $15-million (U.S.) on terms acceptable to the company, and the review and acceptance of final documentation. There is no assurance that such conditions will be met and a definitive agreement concluded. Additional details will be announced upon acceptance of definitive documentation.

The company has begun discussions with strategic capital providers regarding alternate finance arrangements, which could, but will not necessarily, include the issue of common shares or debt, or a combination thereof. The company will announce specific terms at such time an agreement is reached.

Dave Gibbs, the company's president, commented: "Securing this project would represent a significant step in the company's evolution and would increase its net acreage position from approximately 5,000 to over 40,000, giving it a significant presence in the unconventional oil development that is taking place in south Texas. We are very pleased that our considerable efforts to position the company as a valued partner in the development of oil and gas interests in this area have brought us this opportunity."