SKANA Capital Corp.
TSX VENTURE : SKN

December 17, 2010 09:30 ET

SKANA Shares to Resume Trading Following Announcement of Definitive Merger Agreement With MENA Hydrocarbons Inc.

CALGARY, ALBERTA and VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 17, 2010) -

NOT FOR DISTRIBUTION TO UNITED STATES WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

MENA Hydrocarbons Inc. ("MENA") and SKANA Capital Corp. ("Skana") (TSX VENTURE:SKN) are pleased to announce the signing of a definitive arm's length merger agreement (the "Agreement") providing for a reverse take-over of Skana by MENA (the "Transaction"). The TSX Venture Exchange has advised that the trading halt in the common shares (the "Skana Shares") of Skana (instituted following the announcement of MENA's proposed merger with Skana, as set forth in a news release dated September 20, 2010) will be lifted, and the Skana Shares will resume trading at the opening of trading on December 20, 2010.

About MENA

Egypt

MENA was incorporated pursuant to the laws of the Province of Alberta on May 11, 2010, and is in the process of acquiring certain interests (subject to regulatory approvals) in Egypt and Syria. MENA holds a 75% working interest and acts as operator of an Egyptian development concession known as the Lagia field. MENA has an agreement in place to acquire the remaining 25% working interest from a party controlled by Magdy Bassaly for $1,500,000 in cash and 15 million common shares of MENA, issued at a deemed price of US$0.30 per share upon the exercise of the performance warrant held by Magdy Bassaly, as described later in this release. The acquisition is subject to Egyptian regulatory approval and is expected to be completed near the end of 2010. The Lagia field is located in the Sinai on the west side of the Gulf of Suez in the north-eastern part of Egypt. MENA's 75% interest in the Lagia field represents the following reserves(1):

Reserve Category Heavy Crude Oil
mbbls
Proved Developed -
Proved Undeveloped 862
Probable 2,174
Total Proved + Probable 3,036
Possible 4,808
Total 7,844

The following table sets forth the future net development costs estimated in the D&M Reserve Report for the development of each of the reserves categories:

  Total Proved 
(M US$)
Total Proved Plus Probable
(M US$)
2010 4,800 9,600
2011 1,071 2,142
2012 1,092 2,185
2013 1,114 1,114
2014 1,137 1,137
Total for all years (undiscounted) 12,521 23,235

The following table represents the contingent oil resources attributable to the Lagia field(2):

  Low Estimate Best Estimate High Estimate
Gross Working Interest Contingent Oil Resources, bbl 267,618 2,530,501 8,994,431

Syria

MENA has also executed a 30% participation interest in Syria Block IX with a subsidiary of Kulczyk Oil Ventures Inc. ("Kulczyk"). Block IX is a large 10,032 square kilometer exploration Block in Northwest Syria. MENA has a 30% economic interest in Block IX and is working with the Syrian Government and Kulczyk to be recognized on title in due course. Under the terms of the Block IX PSC, the remaining work commitment is to drill two exploration wells for a minimum of $2 million for each well, and the farm-in agreement requires MENA to pay 60% of the cost of the first exploration well and its pro-rata 30% portion of the second well. MENA has also paid US$1.0 million in back costs to Kulczyk and will pay a further US$2.0 million in remaining back costs. The first well is expected to spud in the first quarter of 2011.

MENA's participation interest in Syria Block IX and its Syrian work program are not material to MENA's current asset base and capital program at this time. 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.

The following is a summary of MENA's significant financial information for the period from incorporation on May 11, 2010 until September 30, 2010 prepared by management:

  As at September 30, 2010 (unaudited)
Working capital $4.2 million
Petroleum and natural gas interests $3.3 million
Net loss $1.7 million

About SKANA

Skana, which currently has more than $23 million in cash and marketable securities, believes that the Transaction provides significant opportunity to increase shareholder value and Canaccord Genuity Corp. has been engaged by Skana as financial advisor with respect to the Transaction and has delivered an opinion to the Skana board of directors confirming that the Transaction is fair, from a financial point of view, to the Skana shareholders. 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.

Raymond James Ltd. (the "Sponsor"), subject to completion of satisfactory due diligence, has agreed to act as sponsor to Skana in connection with the Transaction. An agreement to sponsor should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of completion. Skana will pay the Sponsor a sponsorship fee and will reimburse the Sponsor for the expenses incurred in respect of the sponsorship.

Overview of the Transaction

On December 17, 2010 MENA and Skana entered into the Agreement providing for an amalgamation between MENA and a wholly-owned subsidiary of Skana pursuant to which MENA shareholders will receive 0.86 Skana Shares for each common share ("MENA Share") of MENA (the "Exchange Ratio"). In addition, all convertible securities of MENA outstanding upon the closing of the Transaction will either be exchanged for or become exercisable to acquire securities of Skana, and the exercise prices thereof adjusted, as applicable, based on the Exchange Ratio. The Transaction will result in a reverse take-over of Skana.

There are currently 52,866,600 Skana Shares and 1,320,000 stock options of Skana outstanding and it is anticipated that immediately prior to closing the Transaction, approximately 195,000,021 MENA Shares will be outstanding (inclusive of 15,000,000 MENA Shares expected to be issued upon exercise of the MENA Share performance warrants held by Mr. Magdy Bassaly, as described below), as well as 43,500,000 MENA Share purchase warrants exercisable at a price of $0.30 per MENA Share and 11,400,000 stock options of MENA exercisable at a price of $0.38 per MENA share. It is expected that the 15,000,000 outstanding MENA Share performance warrants granted to Mr. Bassaly will be exercised for 15,000,000 MENA Shares upon transfer of the remaining 25% interest in the Lagia field to MENA. The consideration paid by Mr. Magdy Bassaly to exercise the 15,000,000 MENA Share performance warrants is the transfer of the remaining 25% interest in the Lagia field. Upon such exercise, Mr. Bassaly will hold 65,000,000 MENA Shares. No other persons, individually or acting jointly or in concert, currently hold more than 10% of the issued and outstanding MENA Shares.

Based on the foregoing, it is currently anticipated that in connection with the Transaction, a total of 167,700,018 Skana shares will be issued at a deemed price of $0.40 per share to acquire MENA. 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 220,566,618 Skana Shares will be issued and outstanding, of which it is anticipated that approximately 76% and 24% of the issued and outstanding the Skana Shares will be held by former MENA shareholders and existing Skana shareholders, respectively. Furthermore, based upon the number of convertible securities of each of Skana and MENA currently outstanding, it is anticipated that a further 48,534,000 Skana Shares 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 Skana Shares, other than Mr. Magdy Bassaly, who is expected to hold 55,900,000 Skana Shares, or approximately 25% of the issued and outstanding Skana Shares. Mr. Bassaly is a proposed director of Skana following completion of the Transaction and is currently President of MENA's operations in Egypt. 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 seed share resale restrictions, to be released in five equal tranches over a 12 month period in accordance with the policies of the TSX Venture Exchange. In addition, Closing of the Transaction will be subject to the proposed directors and senior officers of Skana following the completion of the Transaction entering into requisite escrow agreements in accordance with the policies of the TSX Venture Exchange.

Upon closing of the Transaction, it is expected that Skana will change its name to "MENA Hydrocarbons Inc." or a similar name to be agreed upon by MENA and Skana.

The parties are planning to mail a joint proxy circular to their shareholders for shareholder meetings to be held in the first quarter of 2011, which will provide detailed disclosure of the Transaction and the business and affairs of MENA and Skana and the combined company.

Completion of the Transaction is subject to a number of conditions, including shareholder approval by both MENA and Skana shareholders and is also subject to the receipt of all necessary regulatory and other approvals, including approval by the TSX Venture Exchange and satisfaction of all other customary closing conditions. The Transaction cannot close until the required shareholder approval is obtained. Insiders and other shareholders of each of MENA and Skana (representing 52% of the issued and outstanding common shares in the case of MENA, and 35% of the issued and outstanding common shares in the case of Skana) have entered into support agreements to vote in support of the Transaction. There can be no assurance that the Transaction will be completed as proposed or at all.

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, Richard Grafton, Merfyn Roberts, Greg Clarkes, Brian Tingle, Magdy 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. A subsequent announcement will be made in this regard. 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.

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 that 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 more than 15 years professional experience. Mr. Bednar is currently the Chief Financial Officer of Sagres Energy Inc., since April 2009. He was the founding 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., and is the Chairman of the board of directors of Gallic Energy Ltd.

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

Definitions of certain technical terms used in this release:

Resource Categories:

Contingent resources are defined within the Canadian Oil and Gas Evaluation Handbook ("COGEH") as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent resources are further classified in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status as follows:

"Economic Contingent Resources" are those contingent resources that are currently economically recoverable. 

"Sub-Economic Contingent Resources" are those contingent resources that are not currently economically recoverable.

"Contingent Resources - Undetermined Economic Status" is the term used where evaluations are incomplete such that it is premature to clearly define the economic viability of a project. The contingent resources in the above estimate have an undetermined economic status.

The estimates of reserves and resources were prepared in compliance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities promulgated by the Canadian Securities Administrators. The resource estimates described above were determined in accordance with COGEH using the following mutually exclusive categories:

Uncertainty Categories:

A range of prospective, undiscovered, discovered and contingent resources estimates (low, best and high) was prepared to reflect a range of technical and economic uncertainties and was determined in accordance with COGEH.

Low Estimate is defined within COGEH as a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.

Best Estimate is defined within COGEH as the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.

High Estimate is defined within COGEH as an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.

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, 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.

Investors are cautioned that, except as disclosed in the joint proxy 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.

THIS NEWS RELEASE DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES IN THE UNITED STATES. THE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO U.S. PERSONS UNLESS REGISTERED UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.


(1) Based on the report of DeGolyer & MacNaughton Canada Limited prepared as at July 26, 2010 with an effective date of March 31, 2010 (the "D&M Reserve Report"). Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

(2) Based on the report of DeGolyer & MacNaughton Canada Limited prepared as at July 26, 2010 with an effective date of March 31, 2010. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. The contingent resources cannot be classified as reserves at this time because of the uncertainty of commerciality and lack of sufficient development drilling. Definitions of certain technical terms are set out at the end of this news release.

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 news release. 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) 618-8115