01/31/2012 08:23 EST | Updated 04/01/2012 05:12 EDT

Chinook selling oil-producing assets to City of Medicine Hat for $36.2M

CALGARY - Chinook Energy Inc. (TSX:CKE) is selling oil-producing assets in the Mannyberries area of southeastern Alberta to the City of Medicine Hat for about $36.2 million.

The transaction will see the city, which has already received council approval for the deal, acquire an asset that produced about 345 barrels of oil per day (94 per cent oil) in the third quarter of 2011.

Closing of the deal is expected around Feb. 14, with an effective date of Jan. 1.

Chinook said it plans to use the proceeds to reduce current bank debt and improve the company's balance sheet. The company estimates its bank debt on the closing date of the transaction will be approximately $100 million.

"The disposition permits Chinook to monetize assets at a competitive price and is anticipated to provide Chinook with increased financial flexibility to pursue the company's inventory of crude oil and liquids rich drilling projects in its core areas both domestically and internationally," it said in a release.

Chinook is a Calgary-based oil and natural gas exploration and development company with assets in Western Canada and oil interests both onshore and offshore in Tunisia.