Vanoil Energy Ltd.
TSX VENTURE : VEL

Vanoil Energy Ltd.

May 26, 2011 15:56 ET

Vanoil Enters Into Non-Binding Letter of Intent

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 26, 2011) - Vanoil Energy Ltd. ("Vanoil" or the "Company") (TSX VENTURE:VEL) has entered into a non-binding letter of intent dated May 16, 2011, with respect to an arm's length business combination under which the shareholders of a private company ("private company") would receive 4.25 shares of Vanoil for every one share of the total outstanding shares of Vanoil in exchange for all the securities of the private company or its affiliate holding certain oil and gas interests in the Middle East, subject to adjustment based on the geological report being prepared by the private company. The transaction would constitute a reverse takeover of Vanoil by the private company or the affiliate under the policies of the TSX Venture Exchange ("TSXV"). The transaction is subject to satisfactory due diligence by both parties and to completion of definitive documentation by June 10, 2011, following which the name of the private company and full descriptions of its assets will be publicly disclosed. During the due diligence period, Vanoil will continue with its 373 km 2D seismic program in Kenya, which has commenced and plan for the upcoming 3D seismic program later this year. Further, the Company continues its exploration activities and is planning for a 2D marine seismic program at Lake Kivu in Rwanda.

The largest shareholders of Vanoil, Firebird Global Master Fund, Ltd. and Firebird Global Master Fund II, Ltd. (the "Firebird Funds") have agreed to vote an aggregate of 13,764,744 shares (representing approximately 40.4% of Vanoil's outstanding shares) in favour of the transaction (the "Support Agreement"). The Support Agreement is subject to satisfactory due diligence by the Firebird Funds. In addition, in the event of a bona fide unsolicited superior proposal, the Firebird Funds will be released from their voting commitment.

In addition to the due diligence and definitive documentation conditions, the transaction is subject to the approval of Vanoil shareholders and to all requisite government and regulatory approvals, the TSXV and other interested parties and authorities. The transaction is also subject to completion of an equity financing of approximately CAD $50 million (the "Financing"). Upon the successful closing of the Financing, the combined company will have significant funds to carry on its work commitments on its oil and gas concessions, including the Production Sharing Contracts executed by the Company on Blocks 3A and 3B in Kenya and the concession in Rwanda.

Vanoil and the private company expect to be in receipt of their respective National Instrument 51-101 Reserve Reports within 30 days.

About Vanoil Energy Ltd.

Based in Vancouver, Canada, Vanoil is an internationally diversified oil and gas exploration company that has a portfolio of oil and gas assets in the African countries of Kenya and Rwanda, and in the Province of Alberta, Canada. In Kenya, Blocks 3A and 3B were acquired in October 2007 through the signing of a Production Sharing Contract with the Government of the Republic of Kenya. Blocks 3A and 3B, which cover 24,912 square kilometres, are part of the under-explored Cretaceous Central African Rift Basin System. Vanoil has a 1,631 square kilometer oil and gas concession in the East Kivu Graben in Rwanda. Vanoil also owns a 42% working interest in the Sarcee 12-13 gas well and the surrounding four sections (2,560 acres) of land in the Turner Valley Area in South-western Alberta.

Completion of the transaction is subject to a number of conditions, including TSX Venture Exchange acceptance and disinterested Shareholder approval. The transaction cannot close until the required Shareholder approval is 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 and or Filing Statement to be prepared in connection with the transaction, any information released or received with respect to the RTO may not be accurate or complete and should not be relied upon. Trading in the securities of Vanoil should be considered highly speculative.

No sponsor has been retained in connection with the transaction. Vanoil and the private company intend to apply for a waiver from sponsorship based on the financing.

Disclaimer for Forward-Looking Information

Statements included in this announcement, including statements concerning the Company's plans, intentions and expectations, which are not historical in nature are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995.

Forward-looking statements may be identified by words including "anticipates", "believes", "intends", "estimates", "expects" and similar expressions. The Company cautions readers that forward-looking statements, including without limitation those relating to the company's future operations and business prospects, are based on assumptions, none of which can be assured, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Readers should not place undue reliance on forward-looking statements.

Neither 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. 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.

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