Canadian Oil Firm Set for East Africa

Raytec Metals Corporation has entered into negotiations to merge with Lion Petroleum Inc, a firm licensed to explore crude oil in Kenya.

The Toronto Stock Exchange listed company recently signed an agreement with Africa Oil Corporation that gives Raytec the right to earn an interest in 5 blocks in Kenya and Puntland, Somalia.

Raytec's move to merge with Lion Petroleum which has oil prospecting rights in Mandera is part of the Canadian firm's strategy to expand its presence in East and Central Africa region.

Gas assets

Lion, with offices in Nairobi, has the infrastructure in place to allow Raytec to continue building an Africa-based portfolio of oil and gas assets.

Raytec's president Brian Thurston said the relationship is strategic as the firm is focused on becoming a significant player in the developing oil and gas industry in East and Central Africa.

"Raytec board members have laid out a critical path to achieve this goal, the first part of which was the recently announced farm-in agreement with Africa Oil Corporation," he said.

Under a binding letter of intent signed by the two, the transaction is subject to certain conditions and completion of due diligence process.

The letter stipulates a business combination pursuant to which Raytec, or its subsidiary will acquire all of the 23,865,000 common shares issued and outstanding in the capital of Lion.

It is proposed that Lion's chief executive Mike Devji becomes a director of Raytec, and then be appointed chairman of the board of directors of the firm. Mr Devji said the pair had decided to merge to create a bigger and more dynamic oil exploration company.

Lion is party to production sharing contract (PSC) relating to blocks 1 and 2B with the Kenyan Government. The PSCs grant Lion 100 per cent interest in the blocks subject only to an 18 per cent back-in right in favour of the government.

Block 1 covers about 31,781 square kilometres forming part of western portion of Mandera-Lugh basin that occupies a section of northeastern territory of Kenya and extends into Somalia and Ethiopia.

Mr Thurston said Lion has entered into a farm-in agreement with East African Exploration Ltd (EAX) of Dubai, on the Block 1 concession.

"EAX may earn 50 per cent in block 1 by conducting a work programme and making all financial commitments required of Lion to the government under the PSC," he said.

Block 2B covers an area of approximately 7,807 square kilometres south of Block 1 in Northeastern Kenya and three separate rift basins; the Anza, Mandera-Lugh and Mochesa.

Raytec and Lion expect to complete their respective due diligence investigations, meet the conditions, and execute a definitive agreement shortly.

The transaction is subject to Toronto Stock Exchange acceptance, as well as approvals from Kenya's regulatory authorities. A finders fee will be payable in accordance with exchange policies.

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