Storm Cat Energy Corporation Announces Default Under Subordinated Convertible Notes, Provides Update of Credit Facility and Engages Parkman Whaling LLC and Alvarez & Marsal

Storm Cat Energy Corporation Announces Default Under Subordinated Convertible Notes, Provides Update of Credit Facility and Engages Parkman Whaling LLC and Alvarez & Marsal

Storm Cat Energy Corporation reported that it failed to make its required quarterly interest payment when due on September 30, 2008, and such failure has continued for a period of 30 days, with respect to its Series A and Series B Subordinated Convertible Notes each due March 31, 2012. The failure of Storm Cat to make the required quarterly interest payment prior to the expiration of such 30 day grace period constitutes an “Event of Default” under the terms of each of the respective Note Purchase Agreements.

In connection with Storm Cat’s previously reported and continuing defaults under its Credit Agreement, its Lenders notified the noteholders that pursuant to the terms of the Note Purchase Agreements and the Subordination and Intercreditor Agreement previously entered into by the noteholders, that the Lenders were enforcing their rights (1) to prohibit Storm Cat from making any payments to the noteholders, and (2) to require that the noteholders standstill and not accelerate any amounts due under the Notes upon an Event of Default or seek other enforcement or redemption actions otherwise permitted under the Note Purchase Agreements. Additionally, as a result of the Event of Default, the rate of interest on the outstanding principal amount of the Notes as well as any overdue interest will increase from 9 1/4% to 12.0% per annum.

Storm Cat has been in discussions with its Lenders since mid-August in order to seek a waiver or forbearance of the defaults under the Credit Agreement, to amend the Credit Agreement or otherwise restructure the Company and seek a liquidity event. Although Storm Cat intends to pursue in good faith efforts to renegotiate or restructure the terms of the Credit Agreement, there can be no assurance that these efforts will ultimately be successful. In addition, any restructuring plan ultimately agreed upon by Storm Cat and its Lenders may involve implementation through a bankruptcy filing by Storm Cat and/or certain of its subsidiaries. In the event that Storm Cat and its Lenders fail to agree on the terms of a consensual restructuring of the obligations under the Credit Agreement, the Lenders may attempt to effect an acceleration of the obligations under the Credit Agreement. In such event, a material adverse effect on the Company and its results of operations would result.

In connection with the above mentioned defaults under the Credit Agreement, an affiliate of one of the Lenders recently exercised its right to declare a cross-default on Storm Cat’s natural gas commodity swap agreements. The swap agreements were terminated and amounts in the aggregate of $9.4 million owing to Storm Cat upon termination of the swap agreements were paid to the Lenders to be set-off and reduce the amounts outstanding under the Company’s revolving credit facility. Because Storm Cat remains in default under the Credit Agreement, it may not re-borrow any funds used to pay down the revolving credit facility without the consent of the Lenders in their sole discretion. As a result of the termination of the swap agreements, Storm Cat is now fully exposed to the impact of gas price fluctuations in the commodity markets.

As previously reported, Storm Cat has been exploring since mid-May numerous alternatives to improve liquidity, including raising capital, refinancing outstanding debt or the potential sale of assets. Unfortunately, as a result of falling commodity prices and the global financial crisis Storm Cat has been unsuccessful to date. Nonetheless, in connection with on-going discussions with its Lenders regarding potential restructuring initiatives, Storm Cat has engaged Houston-based Parkman Whaling LLC for the purpose of assisting the Company in exploring strategic business alternatives as well as engaged Alvarez & Marsal, a turnaround and restructuring firm, for the purpose of assisting the Company with its restructuring efforts.

About Storm Cat Energy

Storm Cat Energy is an independent oil and gas company focused on the exploration, production and development of large unconventional gas reserves from fractured shales, coal beds and tight sand formations and, secondarily, from conventional formations. The Company has producing properties in Wyoming’s Powder River Basin and Arkansas’ Arkoma Basin and exploration and development acreage in Canada. The Company’s shares trade on the American Stock Exchange under the symbol “SCU” and in Canada on the Toronto Stock Exchange under the symbol “SME.”

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