SKANA Capital Corp.
TSX VENTURE : SKN

MENA Hydrocarbons Inc.

September 20, 2010 14:18 ET

SKANA Capital Corp. and MENA Hydrocarbons Inc. Enter Into Letter of Intent for Business Combination

TORONTO, ONTARIO--(Marketwire - Sept. 20, 2010) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR TO U.S. NEWSWIRE SERVICES.

SKANA Capital Corp. ("SKANA") (TSX VENTURE:SKN) and MENA Hydrocarbons Inc. ("MENA") are pleased to announce that they have entered into a letter of intent today to complete a business combination (the "Transaction"). MENA is a private Alberta company, and is engaged in oil and gas exploration with a focus in the Middle East, North Africa and Mediterranean. SKANA is an investment company which invests primarily in small capitalization mineral and energy resource based businesses, and to a lesser extent, resource properties. 

About MENA Hydrocarbons

MENA was incorporated on May 11, 2010, and is in the process of acquiring certain interests (subject to regulatory approvals) in Egypt and Syria. Upon closing the Transaction, MENA will hold a 75% working interest and act as operator of an Egyptian development concession known as the Lagia field.

MENA has also executed a 30% participation interest in Syria Block IX with Kulczyk Oil. Block IX is a large 10,032 square kilometer exploration Block in Northwest Syria. Mena also expects to be a qualified operator and anticipates participating in certain upcoming bid rounds and direct negotiations in the region for new exploration and development blocks. 

SKANA, which currently has approximately $23 million in cash and marketable securities, believes that the proposed Transaction with MENA provides significant opportunity to increase shareholder value. The Transaction is expected to provide SKANA with a board and management team with a high degree of expertise and an asset base with significant potential for development. In addition, SKANA believes that the Transaction presents significant potential for increased shareholder value as Mena expands its portfolio in the Middle East and North Africa region.

Overview of the Transaction

Under the letter of intent, it is proposed that SKANA will acquire all of the issued and outstanding common shares of Mena in exchange for the issuance by SKANA of 0.86 common shares of SKANA for each common share of MENA so acquired (the "Exchange Ratio"). In addition, all convertible securities of MENA will become exercisable for equivalent securities of SKANA, and the exercise prices thereof adjusted if applicable, each based on the Exchange Ratio. The form that the Transaction will take will be determined at a later date, subject to tax and other corporate considerations, but is expected to effectively result in a reverse take-over of SKANA. 

There are currently 52,203,246 common shares and 1,320,000 stock options of SKANA outstanding and it is anticipated that immediately prior to closing the Transaction, approximately 180,000,000 shares of MENA will be outstanding, as well as 43,000,000 MENA common share purchase warrants exercisable at a price of $0.30 per share. Accordingly, it is anticipated that immediately following the closing of the Transaction (and assuming there are no changes to these securities of either company), an aggregate of approximately 207,003,246 common shares of SKANA will be issued and outstanding, of which it is anticipated that 154,800,000 common shares will be held by former MENA shareholders and 52,203,246 common shares will be held by existing SKANA shareholders. Furthermore, based upon the number of convertible securities of each of SKANA and MENA currently outstanding, it is anticipated that a further 38,300,000 common shares of SKANA will be reserved for issuance pursuant to outstanding convertible securities. Based on the current shareholdings and present knowledge of each of MENA and SKANA, it is anticipated that following the closing of the Transaction, no person or company will beneficially own, directly or indirectly, or control or direct more than 10% of the issued and outstanding common shares of SKANA. MENA and SKANA are arm's length parties, and there are no current non-arm's length parties of SKANA which are insiders of MENA or presently hold any direct or indirect beneficial interest in either MENA or any of its assets.  

It is anticipated that in connection with the Transaction, certain of the issued and outstanding securities of MENA will be subject to escrow to be released in four equal tranches over a 24 month period. Closing of the Transaction will be subject to the applicable securityholders of MENA entering into the requisite escrow agreements in this regard.

Canaccord Genuity Corp. has been retained by SKANA as financial advisor with respect to the proposed Transaction, and in connection therewith has delivered a preliminary opinion to the board of directors of SKANA confirming that the proposed Transaction is fair, from a financial point of view, to the securityholders of SKANA. 

The letter of intent is non-binding with respect to commercial terms, but includes binding obligations typical in the circumstances, including those relating to a period of exclusive dealing and confidentiality. The parties are targeting a definitive agreement to be reached by October 15, 2010, and expect to complete the Transaction by November 30, 2010, subject to the receipt of all necessary regulatory and other approvals and satisfaction of all other customary closing conditions. To proceed, the Transaction must be approved by the TSX Venture Exchange and, depending on the ultimate structure of the Transaction, by both SKANA and MENA shareholders. Under the terms of the letter of intent, insiders and other shareholders of each of Mena and SKANA representing approximately 40% of the issued and outstanding common shares of each, are required to enter into lock up agreements to vote in support of the Transaction. Further details concerning the Transaction and other matters referred to in this news release will be announced if and when a definitive agreement is reached.

Management of the combined company

Following the closing of the Transaction, it is proposed that all directors and officers of SKANA shall resign other than Mr. Greg Clarkes (the current President and Chief Executive Officer of SKANA). The board and management composition has been structured so as to retain an existing member of SKANA's management to provide continuity, while integrating the expertise of individuals associated with MENA to manage the combined company's new assets as well as add valuable oil and gas experience to the SKANA team.

The combined company will be led by an experienced management team with a track record in developing and managing international start-up oil and gas companies. Upon completion of the Transaction, the board of directors of SKANA shall be reconstituted to consist of Messrs. Abby Badwi, Robert Cross, Shane O'leary, Richard Grafton, Merfyn Roberts, Greg Clarkes, Brian Tingle, Magdi Bassaly, and Jason Bednar, and two additional members to be nominated by Mena. In addition, Mr. Brad Goldie will be appointed as Vice President-Exploration of SKANA, Mr. Gary Hyde will be appointed as Chief Operating Officer of SKANA, and a new Chief Executive Officer and Chief Financial Officer of SKANA are expected to be appointed in due course. Mr. Sam Charanek will be appointed as an advisor to the board of SKANA.

Abby Badwi

• Mr. Badwi, PGeol, is an international energy executive and professional geologist, with more than 35 years experience in the exploration, development, and production of oil and gas fields, in North America, South America, Europe, Asia and the Middle East. He is currently president and CEO of Bankers Petroleum Ltd. Previously, he served as president and CEO of Rally Energy Corp., which was sold in 2007. He has been an officer and director of several Canadian public and private companies. Mr. Badwi is currently a director of Bankers, Northern Hunter and ArPetrol Inc.

Robert Cross

• Robert Cross has more than 20 years of experience as a financier in the mining and oil & gas sectors. Mr. Cross is a co- founder and Non-Executive Chairman of Bankers Petroleum Ltd., Non-Executive Chairman of B2Gold Corp., co-founder and Chairman of Petrodorado Energy Ltd and until October 2007, was the Non-Executive Chairman of Northern Orion Resources Inc. Between 1996 and 1998, Mr. Cross was Chairman and Chief Executive Officer of Yorkton Securities Inc. From 1987 to 1994, he was a Partner, Investment Banking with Gordon Capital Corporation in Toronto. He has an Engineering Degree from the University of Waterloo, and received his MBA from Harvard Business School in 1987.

Shane O'Leary

• Shane P. O'Leary has been the Chief Operating Officer of Gran Tierra Energy since March 2, 2009. Mr. O'Leary's regional experience includes South America, North Africa, the Middle East, the former Soviet Union, and North America. Prior to joining Gran Tierra Energy, Mr. O'Leary was President and Chief Executive Officer of First Calgary Petroleums Ltd., an oil and gas company actively engaged in exploration and development activities in Algeria. From 2002 to 2006, Mr. O'Leary worked for Encana Corporation where his positions included Vice President of Development Planning and Engineering, as well as Vice President Brazil Business Unit. From 1985 to 2002 he worked for the Amoco Production Company/BP Exploration where he occupied numerous senior finance, planning, and business development positions with assignments in Canada, U.S.A., Azerbaijan and Egypt, culminating in his role as Business Development Manager for BP Alaska Gas. Early in his career Mr. O'Leary worked as a Corporate Banking Officer for Bank of Montreal's Petroleum group in Calgary, a Reservoir Engineer for Dome Petroleum, and as a Senior Field Engineer for Schlumberger Overseas, S.A. in Kuwait. Mr. O'Leary earned his Bachelor of Science degree in chemical engineering from Queen's University in Kingston, Ontario and his Masters in Business Administration from the University of Western Ontario in London, Ontario. He is a member of the Canadian National Committee of the World Petroleum Council and The Association of Professional Engineers, Geologists, and Geophysicists of Alberta (P. Eng).

Richard Grafton

• Mr. Grafton has over 30 years' experience in the investment and energy business. Currently, Mr. Grafton is President and Chief Executive Officer of Grafton Capital Corporation, a private capital company concentrating on long term value creation. In 2007, Mr. Grafton was appointed Vice-Chairman of Canaccord Capital Corporation acting as the firm's ambassador to the global energy markets. Prior thereto, Mr. Grafton acted as Executive Vice President and Managing Director, Global Head of Energy of Canaccord Adams. He was responsible for all aspects of the firm's oil and gas operations.

Merfyn Roberts

• Merfyn Roberts of London, England has been a fund manager and investment advisor for more than 25 years and has been closely associated with the energy industry. He sits on the boards of directors of several resource companies, including Agnico-Eagle Mines Limited, Eastern Platinum Limited and Rambler Metals and Mining plc. Mr Roberts is a graduate of Liverpool University, UK (BSc. Geology) and Oxford University, UK (MSc. Geochemistry) and is a member of the Institute of Chartered Accountants in England and Wales.

Dr. Magdy L Bassaly

• Dr. Bassaly has over 18 years of experience in the International energy sector. He founded the National Geophysical Company in 1996 as well as the National Exploration Company. He founded Alliance International Petroleum Company and held the Lagia development Lease in Egypt (Alliance Egyptian National Oil Company). Dr. Bassaly is currently the President of MENA Offshore Oil Company and the Chairman of Child Support Foundation (international charity foundation for children in Africa).

Jason Bednar

• Mr. Bednar is a Chartered Accountant with +15 years experience. He was a co-founder and Chief Financial Officer of Pan Orient Energy Corp, a South East Asia Exploration company, from 2004 to April 2009. Past Manager of Financial Reporting for Canadian 88 Energy Corp. (1998-2002) and former Controller of Canadian Superior Energy Inc. (2002-2004). He is a member of the boards of directors of Canacol Energy Inc. and Sagres Energy Inc.

Brad Goldie

• Mr. Goldie is a professional Geoscientist with 30 years of experience in the Petroleum industry. Most recently, he was Manager of Business Development for TransGlobe and Manager of Exploration for Egypt from 2005-2010 and played an instrumental role in their rapid growth there. Prior to this, he was the Manager – USA Gulf of Mexico for AEC International (EnCana) and Senior Staff Geophysicist in West Africa, Ecuador, Colombia and Argentina from 1998-2005. Additionally, Mr. Goldie was a Senior Staff Geophysicist in Yemen and Western Canada for Nexen from 1994-1998, Senior Geophysicist in Western Canada for Bow Valley Energy from 1987-1994, and Geophysicist in Western Canada and East Coast, Canada for Suncor from 1980-1987.

Gary Hyde

• Mr. Hyde is a petroleum engineer with 25 years of industry experience. He formerly was Chief Operating Officer of Pearl Exploration and Production, October 2005 to March 2008, where he oversaw production growth to over 11,000 boepd. From December 2003 to February 2005, Mr. Hyde was Vice President Operations and Production for Calpine Natural Gas Trust LP. He was Business Development Advisor at EnCana Corporation from April 2003 to December 2003, and Vice President Development, EnCana Corporation from April 2002 to March 2003. Prior to that, he was Vice President International Operations for AEC International, and held senior Development engineering positions with Santa Fe Energy Resources SE Asia, and Imperial Oil Limited. Mr. Hyde has extensive experience in both international and domestic exploration and development. Mr. Hyde has a BSc Engineering and a MBA from the University of Alberta.

Sam Charanek

• An independent businessman and entrepreneur, Mr. Charanek has co-founded and helped finance several successful junior oil and gas companies including Pan Orient Energy, Excelsior Energy, Canacol Energy and Petrodorado Energy Inc. Mr. Charanek has over 15 years of financial industry experience.

For further biographical details relating to Mr. Clarkes and Mr. Tingle, please refer to publicly available information under SKANA's SEDAR profile at www.sedar.com

In accordance with the policies of the TSX Venture Exchange, trading in common shares of SKANA is currently halted and will remain halted pending a determination being made as to whether or not the Transaction constitutes a "change of business" or a "reverse take over" within the meaning of the policies of the TSX Venture Exchange.

For further details concerning SKANA, including financial information, please refer to the annual audited financial statements of SKANA for the year ended March 31, 2010, together with the accompanying management's discussion and analysis for such period, all available on SEDAR at www.sedar.com.

SKANA and MENA caution that no definitive agreement has been entered into and accordingly no assurance can be given that the process contemplated by the letter of intent will lead to a definitive agreement relating to the Transaction on the terms contemplated by the letter of intent or otherwise or any other transaction. Neither SKANA nor MENA intend to make any further announcements or communications regarding these potential transactions until either a definitive agreement has been reached or discussions are terminated without such an agreement being reached.

Completion of the Transaction is subject to a number of conditions, including TSX Venture Exchange acceptance and shareholder approval (including on a disinterested basis to the extent required). The Transaction cannot close until the required shareholder approvals and all required regulatory approvals are obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of SKANA should be considered highly speculative.

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

Forward-Looking Statements: Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of SKANA and MENA, including, but not limited to, the impact of general economic conditions, industry conditions, dependence upon regulatory and shareholder approvals, the execution of definitive documentation and the uncertainty of obtaining additional financing. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. 

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 RELEASE.

Contact Information

  • SKANA Capital Corp.
    Greg Clarkes
    Chairman
    (604) 669-4899
    or
    MENA Hydrocarbons Inc.
    Sam Charanek
    Director
    (403) 930-7500 or (403) 618-8115