Junior producer Pinnacle Gas Resources Inc., which explores for coalbed methane (CBM) across the Rocky Mountains, said Wednesday it would be taken private in an all-cash transaction by an investor group that agreed to pay a 28% premium to the company’s closing price on Wednesday.

The investor group, led by Scotia Waterous (USA) Inc. and members of Pinnacle’s management team, agreed to pay 34 cents/share for Pinnacle, or around $11 million, which is about 28% higher than the producer’s closing share price of 26.5 cents on Tuesday. Once the merger is completed, the common stock of the Sheridan, WY-based company would no longer be publicly traded.

Following the announcement Pinnacle’s share price jumped almost 25% in Wednesday morning trading to around 33 cents/share.

Pinnacle formed a special committee last October to review proposals regarding asset divestitures, strategic transactions, capital restructuring (including additional or new debt or equity financing) and other alternatives to address the company’s liquidity constraints arising out of the recent economic and natural gas pricing environment.

“The special committee considered a range of potential alternatives, including continuing to operate as an independent entity, possible sales of certain assets, the company’s ability to issue additional equity in a public or private offering, and restructurings of the company’s outstanding debt,” said Pinnacle Chairman Tom McGonagle. “After conducting an exhaustive evaluation of the alternatives, the special committee and Pinnacle’s board of directors unanimously concluded that this transaction with Scotia Waterous leading the investor group is in the best interests of our shareholders.”

Founded in 2003, Pinnacle holds CBM acreage in the Powder River Basin in northeastern Wyoming and southern Montana, as well as in the Green River Basin in southern Wyoming. Pinnacle began selling assets last year in an attempt to raise cash (see Daily GPI, April 20, 2009).

The transaction, if approved by shareholders, is expected to close before the end of March.

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