Rodeo Capital II Corp.
TSX VENTURE : ROP.P

May 12, 2011 13:27 ET

Rodeo II Capital Corp. Executes Letter of Intent to Enter Into Business Combination With Shona Energy Company, Inc.

Proposed Qualifying Transaction to include an approximate CDN$30,000,000 equity financing

CALGARY, ALBERTA--(Marketwire - May 12, 2011) -

NOT FOR DISSEMINATION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW

Rodeo Capital II Corp. (TSX VENTURE:ROP.P) - the "Company" or "Rodeo II"), a capital pool company, is pleased to announce it has entered into a non-binding letter of intent dated May 11, 2011 (the "LOI") with Shona Energy Company, Inc. ("Shona" or the "Target Company") to complete an arm's length business combination transaction.

Rodeo II intends for the Proposed Transaction (as defined below) to constitute its Qualifying Transaction, as such term is defined in the policies of the TSX Venture Exchange (the "Exchange"), and the Proposed Transaction is subject to Exchange approval.

Shona, incorporated in Delaware and based in Houston, Texas, is an international oil and gas exploration, development and acquisition company that was founded in 2005. Shona's primary business focus is in South America including, without limitation, Colombia and Peru, where Shona's management has extensive oil and gas exploration, production and financial experience.

Shona's management team is primarily comprised of the ex-management of Santa Fe Energy and Nuevo Energy Company and has had a strong track record of adding significant shareholder value through the exploration, development and production of oil & gas assets in North America and internationally. Shona's experienced board of directors compliments Shona's management and has a broad level of experience in the E&P sector and the capital markets.

Shona has assembled a portfolio of assets in Colombia and Peru that will provide shareholders with exposure to one of the larger onshore gas discoveries in Colombia. As a follow-up to this prolific discovery, Shona has been actively engaged in signing long-term marketing contracts to monetize the Nelson discovery. To date, Shona has signed two marketing contracts with internationally recognizable third parties and is further negotiating additional marketing contracts.

Shona's significant natural gas discovery is a strategic component of an asset portfolio consisting of additional highly prospective exploration acreage in Colombia and Peru. Shona has partnered with proven, world-class operators on its remaining exploration Blocks.

In connection with the Proposed Transaction, Rodeo II or Rodeo II Subco (as defined herein) intends to complete a private placement of subscription receipts for gross proceeds of approximately CDN$30,000,000 (the "Financing"). AltaCorp Capital Inc. (the "Agent"), has agreed to act as lead agent for the Financing.

Summary of the Qualifying Transaction

The LOI contemplates Rodeo II and Shona entering into an arm's length business combination transaction (the "ProposedTransaction"). It is currently contemplated that the Proposed Transaction would include, without limitation, a court-approved plan of arrangement with the amalgamation of Shona as an amalgamated British Columbia company ("Shona Subco") with a wholly-owned subsidiary of Rodeo II ("Rodeo II Subco") to be incorporated under the laws of British Columbia for which the holders of Shona Subco's common shares would receive Rodeo II class "A" common shares ("Rodeo II Common Shares") as consideration. As a result of the Proposed Transaction, the current shareholders of Shona would own a majority of the issued and outstanding shares of the resulting publicly traded issuer (the "Resulting Issuer"). The Proposed Transaction is subject to approval of the Exchange.

Approval of the Proposed Transaction by the shareholders of Rodeo II is not expected to be required by the Exchange since the Proposed Transaction is not a "non arm's length transaction" pursuant to the policies of the Exchange. However, as part of the Proposed Transaction, a meeting of the shareholders of the Company would be called in order to obtain approval for, amongst other matters, (i) the consolidation of the issued and outstanding shares of Rodeo II on a 3 for 1 basis; (ii) the change of name of the Company to "Shona Energy Company, Inc."; (iii) the proposed directors and officers of the Resulting Issuer; (iv) the continuation of Rodeo II to British Columbia; and (v) the adoption of a new incentive stock option plan.

As part of the Proposed Transaction, five shareholders of Rodeo II (collectively, the "Rodeo Principals"), subject to various conditions, would sell and transfer from escrow an aggregate of 2,720,000 Rodeo II Common Shares (the "Escrow Share Block") representing approximately 78% of the total (3,500,000) escrowed Rodeo II Common Shares, to Shona at a price of CDN$0.085 per share, for an aggregate purchase price of CDN$231,200. The sale and purchase of the Escrow Share Block would be completed pursuant to exemptions from the take-over bid requirements of applicable securities legislation and would close concurrent with the closing of the Proposed Transaction. The Rodeo II Common Shares making up the Escrow Share Block would be surrendered for cancellation by Shona at the time of closing the Proposed Transaction.

At the Company's request, trading in the Rodeo II Common Shares has been halted by the Exchange. Trading is expected to remain halted until, at the earliest, the completion of the Proposed Transaction. Rodeo II and Shona intend to enter into the Definitive Agreement on or before May 20, 2011 which would require each party to complete its respective due diligence investigation. Shona would also be required to provide Rodeo II with a complete NI 51-101 technical report on Shona's material resource properties on or before June 9, 2011 and such financial statements of Shona, and any related subsidiary companies, as may be required by the Exchange on or before July 21, 2011.

As part of the otherwise non-binding LOI, Shona has agreed not to solicit or negotiate with any other entities (including, without limitation, any CPCs) in regard to a transaction similar to the Proposed Transaction. Rodeo II has agreed not to solicit any other transactions that would constitute its Qualifying Transaction.

As part of the Proposed Transaction, the Rodeo Principals and certain shareholders of Shona would enter into support agreements (the "Support Agreements") whereby they would agree to vote their respective shares of Rodeo II and Shona in favour of the Proposed Transaction. Each of Rodeo II and Shona shall bear their own costs in respect of the Proposed Transaction.

The LOI contemplates that Rodeo II and Shona would execute the Definitive Agreement in regard to the Proposed Transaction and the parties would satisfy various other conditions, as summarized in this Press Release. There can be no assurance that the Proposed Transaction would be completed on the terms proposed above or at all.

Equity Financing with AltaCorp Capital

The Agent and Rodeo II or Rodeo II Subco intend to enter into an engagement letter (the "Engagement Letter") whereby the Agent would act as lead agent, on a commercially reasonable efforts basis, to raise approximately CDN$30,000,000. It is contemplated that the Financing would be completed by way of a private placement of subscription receipts (the "Subscription Receipts") and the funds held in escrow until closing of the Proposed Transaction. Concurrent with the closing of the Proposed Transaction, the Subscription Receipts would be automatically exchanged for common shares of the Resulting Issuer, on a one-for-one basis.

The Resulting Issuer – To be Named Shona Energy Company, Inc.

It is estimated that there would be approximately 190 million common shares of the Resulting Issuer issued and outstanding immediately following closing of the Proposed Transaction consisting of: (i) 1,176,667 Rodeo II Common Shares in total issued to the shareholders of Rodeo II (on a post-consolidation basis), inclusive of shares that may be acquired upon exercise of outstanding warrants and options; and (ii) approximately 188.5 million shares issued to the former shareholders of Shona. In addition, the holders of Shona's currently outstanding share purchase warrants and convertible preferred shares that have not converted or exercised their securities at closing of the Qualifying Transaction would be granted the right to vote at the Shona meeting and would be offered like securities in the Resulting Issuer. In addition, common shares of the Resulting Issuer would be issued as a result of completion of the Financing, and conversion of the Subscription Receipts at closing.

New Incentive Stock Option Plan

As part of the Proposed Transaction, the Resulting Issuer would implement a new incentive stock option plan, the terms and conditions of which would be implemented and determined by the board of directors of the Resulting Issuer, but would not exceed 10% of the issued and outstanding shares of the Resulting Issuer, post-completion of the Proposed Transaction.

Closing of the Qualifying Transaction

It is contemplated that closing of the Proposed Transaction would be subject to a number of terms and conditions including:

  1. execution of the Definitive Agreement by all parties by May 20, 2011 (or such later date as the parties may agree upon in writing);
  2. absence of material adverse change, material litigation, claims, investigations or other matters affecting Rodeo II and Shona, including any subsidiaries or related companies of Shona;
  3. incorporation of subsidiaries: Rodeo II Subco and Shona Subco in British Columbia
  4. completion of the Financing;
  5. completion of the sale of the Escrow Share Block;
  6. the entering into of certain ancillary agreements as contemplated in the LOI, more particularly and without limitation, the Support Agreements;
  7. approval by the Boards of Directors of Rodeo II and Shona and by the shareholders of each of Rodeo II and Shona, and their respective subsidiaries, as required;
  8. in addition to the approvals contemplated above, all parties obtaining all requisite regulatory, stock exchange or governmental authorizations and consents, including the Exchange and the approval of the Supreme Court of British Columbia pursuant to the arrangement of Rodeo II Subco and Shona Subco.

About Shona Energy Company, Inc.

All information in this Press Release relating to Shona is the sole responsibility of Shona. Management of Rodeo II has not independently reviewed this disclosure nor has Rodeo's management hired any third party consultants or contractors to verify such information.

Shona, incorporated in Delaware and based in Houston, Texas, is an international oil and gas exploration, development and acquisition company with a focus on South America. Shona acquired its interests over the course of 2006 to 2009, and Shona along with its partners have spent approximately US$80 million over the past 5 years on its four blocks in Colombia and one block in Peru. In total, the interests encompass over 700,000 gross acres (over 300,000 net) and have excellent fiscal terms.

Shona is operator and has a 100% working interest in the Esperanza Block in Colombia, which contains the Nelson field – Shona's sizable recent natural gas discovery. The block contains several incremental drill ready prospects and seismically identified leads. Shona has two long term, natural gas sales contracts, the most significant being a contract providing for delivery of 19 million cubic feet per day (MMCFPD) of natural gas from the Nelson Field to the nearby mining operation owned by a very large, high quality multinational Fortune 500 corporation. Pricing of the contracts will be indexed to the La Guajira field. An 11 kilometer, six inch pipeline from the discovery area to the existing processing facility has been installed. Sales from the discovery can start in late 2011. The processing facilities are being upgraded and along with the new gathering system is expected to be able to process up to 65 MMCFPD from the Nelson Field by the fourth quarter of 2011, if additional natural gas sales contracts can be obtained.

Shona's other Colombian assets include a 37.5% working interest in the Serrania, Los Picachos and Macaya Blocks located in the Cauguan Basin. The areas contain potential for the discovery of very large heavy oil resources and is proximate to the Ombu Block – where delineation drilling and thermal recovery testing is currently being performed on the announced 100 million barrels Capella field discovery. The first exploration well is planned to be drilled in the first quarter of 2012

Shona's Peruvian asset is a 36.5% working interest in Block 102, which is located in the prolific Maranon basin. Block 102 contains several, low risk exploration prospects. The first exploration well that offsets production on Pluspetrol's Block 1-AB is planned to be drilled in October 2011. The prospect is only 6 kilometers from an existing pipeline system.

Shona is currently evaluating additional exploration opportunities. The work program noted above will be fully funded upon completion of the contemplated transactions.

Land Summary
WorkingGrossNet
CountryInterestAcreageAcreage
Esperanza BlockColombia100%60,00260,002
Block 102Peru36.5%313,023114,253
Serrania BlockColombia37.5%110,76941,538
Los Picachos BlockColombia37.5%52,77119,789
Macaya BlockColombia37.5%195,25473,220
TOTALS:731,819308,802

As of the date of this press release, Shona's issued and outstanding share capital is as follows: 172,653,966 common shares, 14,740,143 special warrants, 39,196,520 share purchase warrants and 175,939 preferred shares. The special warrants, share purchase warrants and preferred shares are convertible or exercisable into common shares of Shona. Shona's intention is to have the share purchase warrants and preferred shares converted into common shares prior to the Proposed Transaction but holders of share purchase warrants or preferred shares who do not convert or exercise their securities will be allowed to vote at the meeting of shareholders of Shona and offered like securities in the Resulting Issuer. The outstanding special warrants will automatically convert to common shares just prior to the Proposed Transaction. No persons or entities own 20% or more of the issued and outstanding voting securities of Shona.

Insiders and Board of Directors of the Resulting Issuer

Upon completion of the Proposed Transaction, all of the existing directors and officers of Rodeo II would resign and the management of the Resulting Issuer would include the persons identified below:

Background of New Officers

James L. Payne – Chairman and CEO, Houston, Texas

James L. Payne, MBA, Geophysical Engineer, is one of the co-founders of Shona. He has had a long and successful career in the energy and petroleum business. He is currently a Director of Nabors Industries, Inc. Mr. Payne has recently resigned as Director of Baker Hughes, Inc. and Global Industries, Ltd. Mr. Payne is the Ex-Chairman, President and CEO of Nuevo Energy Company (2001-2004), Ex-Chairman, President and CEO (1989-1999) and Vice-President of Exploration (1983-1989) of Santa Fe Energy and had an International and Domestic exploration and operating career of 23 years with Chevron.

John R. Womack – President, Hockley, Texas

John R. Womack has significant experience in the oil and gas sector. He is the Ex-Director of Land and Worldwide Negotiations for Nuevo Energy Company. He has served in various management positions with a number of issuers in the space including: Ex-President; Petrolera Sante Fe Energy (Argentine Operating Subsidiary of Santa Fe Energy); Ex-Vice President, Land & Business Development, Santa Fe Energy; Ex-President, Cherokee Resources (a private co. in which Sante Fe Energy had an ownership stake); and 18 years of experience with Union Texas Petroleum in various management roles.

Larry D. Leavell – Chief Operating Officer, Spring, Texas

Larry D. Leavell has significant experience in the upstream sector of the oil and gas industry and has held numerous executive and management positions. Larry was President of Devon Energy Companies in Southeast Asia and served as Director and Officer of the Indonesian Petroleum Association. During his tenure with Santa Fe Energy, he was International Production Manager, Corporate Manager of Health, Safety and Environmental, Manager of Marketing including heavy oil upgrading. He started his engineering career with Amoco Production Company.

Randall H. Castleberry – Chief Financial Officer, New Bern, North Carolina

Mr. Castleberry brings to Shona a three decades-long career in structuring, financing, and managing mid-cap businesses. His historical assignments include serving as Chairman & CEO of Southern Pump and Tank Company and being the President of Lee-Moore Oil Company/The Pantry Group. More recently Randy has served as the managing partner of Shelton Graham Associates which has successfully provided consulting on fund raising, execution of operating plans and market share growth in Latin America.

Shetal Mentlewski – Corporate Secretary and Treasurer, Houston, Texas

Mrs. Mentlewski serves as Director of Corporate Development and Director of Environmental Affairs in additional above-titled roles. Mrs. Mentlewski is a graduate of Texas A & M University with a BS in Chemical Engineering. She additionally holds a Juris Doctorate from South Texas School of Law. Prior to her tenure at Shona, Shetal served in various technical capacities at Marathon Oil Company and Kellogg Brown & Root.

The board of directors of the Resulting Issuer would be increased to 7 directors and would solely be composed of nominees of Shona, of which 6 directors would be independent of management. The directors of the Resulting Issuer would be as follows:

Jordan R. Smith, Director, Denver, Colorado

Mr. Smith serves as a Director. For the last five years he has served as the President and Chief Executive Officer, Ramshorn Investments, Ltd., the exploration and production subsidiary of Nabors International, Ltd. Mr. Smith previously served as an exploration executive for Chevron, Forest Oil Corporation, Wolf Oil and Energetics Inc. He is also a Director of Clayton Williams Energy and Delta Petroleum Corp.

Gary R. Petersen, Director, Houston, Texas

Mr. Petersen serves as a Director. Mr. Petersen serves on the board of directors of several EnCap portfolio companies and is a member of the board of Plains All American, Inc. (NYSE: PAA) and EV Energy Partners (Nasdaq: EVEP). He is a member of the Independent Petroleum Association of America and the Houston Producers' Forum.

Charles L. Watson, Director, Houston, Texas

Mr. Watson serves as a Director. In 2003, he co-founded Eagle Energy Partners, where he also serves as Chairman. Mr. Watson founded Natural Gas Clearinghouse in 1985, which became NGC in 1990, then Dynegy Inc. in 1998, where he served as Chairman & Chief Executive Officer from 1998-2002. He also serves as a Director of Baker Hughes, Inc.

Edgar G. Hotard, Director , Woodlands, Texas

Mr. Hotard serves as a Director. Since November , 2010, he has served as General Partner of HAO Capital and since January 2001 as Chairman of the Monitor Group China and Senior Advisor to the Monitor Group. Mr. Hotard served as President & Chief Operating Officer of Praxair Industries (US $5 Billion worldwide gases and medical service company operating in 40 countries) from June 1992 to January 1999. He also serves as a Director of Global Industries, where he is lead director since May 2000 and Albany International Corp., where he is chair of the audit committee, since November 2006.

Gregory D. Elliott, Director, Broussard, Louisiana

Mr. Elliot serves as Director. For the past five years Mr. Elliott has served as manager of Geoproduction and President of Workstrings, LLC and Superior Inspection Services – SIS (both Superior Energy Services Companies). Workstrings and SIS are oilfield service companies with operations throughout the Americas. Mr. Elliott is a petroleum engineer who worked 15 years for Chevron prior to founding Workstrings in 1997.

Ted M. Anthony, Director, Lafayette, Louisiana

Mr. Anthony serves as Director. Mr. Anthony serves as a managing partner of Babineaux, Poche', Anthony & Slavich, LLC, as well as General Counsel of Geoproduction. Mr. Anthony previously served as managing partner of Perret Doise, APLC, as well as a petroleum engineer for Marathon Oil Company, Inc. He is also a Director of Louisiana Reserve Development Corporation.

All of the current shareholders of Shona act at arm's length to Rodeo II and all of the current shareholders of Rodeo II act at arm's length to Shona.

Sponsorship of the Qualifying Transaction

Sponsorship of a "Qualifying Transaction" of a CPC is required by the Exchange unless exempt therefrom in accordance with the Exchange's policies. Given the size and nature of the Proposed Transaction, including the amount of the Financing, Rodeo II intends to apply for an exemption from the sponsorship requirements pursuant to the policies of the Exchange. If the exemption is not granted by the Exchange, then Rodeo II would be required to engage a sponsor.

Rodeo II will prepare and disseminate a subsequent Press Release of information regarding summary financial information on Shona and the specifics and mechanics of the Financing.

About Rodeo Capital II Corp.: Rodeo II is a CPC that completed its initial public offering and obtained a listing on the Exchange in February 2011 (Trading Symbol: "ROP.P"). Prior to entering into the LOI, Rodeo II did not carry on any active business activity other than reviewing potential transactions that would qualify as Rodeo II's Qualifying Transaction.

About Shona Energy Company, Inc.: Shona, incorporated in Delaware and based in Houston, Texas, is an international oil and gas exploration, development and acquisition company that was founded in January 2005. Shona's primary business focus is on South America including, without limitation, Colombia and Peru, where management of Shona has extensive exploration, production and financial expertise.

Cautionary Note

As noted above, completion of the Proposed Transaction is subject to a number of conditions including, without limitation, approval of the Exchange, approval of the shareholders of Shona and Rodeo II, completion of the share consolidation by Rodeo II and completion of the Financing. Where applicable, the Proposed Transaction cannot close until the required approvals have been obtained. There can be no assurance that the Proposed Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the continuous disclosure document containing full, true and plain disclosure regarding the Proposed Transaction, required to be filed with the securities regulatory authorities having jurisdiction over the affairs of the Company, any information released or received with respect to the Proposed Transaction may not be accurate or complete and should not be relied upon. The trading in the securities of Rodeo II on the Exchange, if reinstated prior to completion of the Proposed Transaction, should be considered highly speculative.

This press release contains forward-looking information. More particularly, this press release contains statements concerning the prospective Qualifying Transaction of the Company. The information about the Target Company contained in the press release has not been independently verified by the Company. Although the Company believes in light of the experience of its officers and directors, current conditions and expected future developments and other factors that have been considered appropriate that the expectations reflected in this forward-looking information are reasonable, undue reliance should not be placed on them because the Company can give no assurance that they will prove to be correct. Forward-looking information involves known and unknown risks, uncertainties, assumptions (including, but not limited to, assumptions on the performance and financial results of the Target Company) and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. The terms and conditions of the prospective Qualifying Transaction may change based on the Company's due diligence on the respective companies and properties of the Target Company (which is going to be limited as the Company intends largely to rely on the due diligence of other parties of the Proposed Transaction to contain its costs, among other things), the entering into a binding agreement for the Qualifying Transaction and the Proposed Transaction, the success of the Financing, regulatory and third party comments, consents and approvals and the ability to meet the conditions of the Qualifying Transaction in the required timeframes. The forward-looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligations to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Completion of the Proposed Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the Proposed Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Proposed Transaction will be completed as proposed or at all.

This press release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

Investors are cautioned that, except as disclosed in the management information circular, filing statement or other continuous disclosure document to be prepared in connection with the Proposed Transaction, any information released or received with respect to the Proposed Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the Proposed Transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Rodeo Capital II Corp.
    Michael G. Thomson, President, Chief Executive Officer
    and Chief Financial Officer and Director
    Vancouver Office: (604) 484-6628 or Cell: (604) 312-4777
    tsxthomson@gmail.com