“We are contrarian, value-oriented investors in private equity, credit and real estate,” is what Apollo Global says on its website. The firm which was founded by Leon Black in 1990 out of the ashes of investment bank Drexel Burnham Lambert is a pioneer in the private equity space. Today it manages over $150 billion globally with the majority of that in the credit sector.
Apollo is known as being contrarian, deep-value investors so by them committing US$100 million to the international (and specifically Colombian) E&P space, we view this as a sign that a bottom for some of these companies might be near.
After global oil prices fell 20% since July of this year, companies with oil exposure have been decimated. Canacol shares are down approximately 50% over the same timeframe.
Oil companies across the Colombian space are down: Petroamerica Oil down 1.7%, Pacific Rubiales down 11% and Gran Tierra down 36% over, all in just 6 months. Parex Resources, the market leader in Colombia, is the only company with a positive return and is up 10%.
Companies with light oil exposure in Colombia offer some of the highest netbacks in the industry and as a result are generating significant free cash flows, even at double digit oil prices. Petroamerica, for example, is producing 7,400 boepd and averages netbacks of around $50/barrel. At $80 oil, they are generating over $200 million in operating cash flow with an enterprise value of the same amount.
Charle Gamba, President and CEO of Canacol, commented: “We are excited to partner with Apollo Investment given its strong track record and look forward to pursuing additional opportunities with their support. Given our recent exploration successes for both light oil and gas, these funds also provide Canacol with a flexible option to pursue accelerated growth within our diverse portfolio.”
Canacol produces over 12,000 boepd, primarily from wells in Colombia, and hold reserves of over 43MMboe. As at year-end, the company had $210 million in debt outstanding and $170 million in cash.
Ted Goldthorpe, President of Apollo Investment, commented: “We look forward to supporting Canacol and its outstanding team that combines Latin American knowledge and relationships with strong technical expertise and practices. We believe this investment will further our strategy of financing talented, experienced teams who can derive value from physical assets.”
- US$100 million unsecured floating rate senior note
- US$50 million can be immediately drawn down with remaining available within 18 months at Canacol’s decision
- Senior notes repayable on December 31, 2019
- Interest rate of LIBOR + 8.5% (LIBOR floor of 1%), payable quarterly
For the immediate term the blended interest cost of the existing senior secured term loan combined with the Apollo senior notes is expected to average ~6% interest from now through the end of 2015, which is consistent with or below interest rates for alternate debt instruments for the level of debt outstanding.
Beyond giving them more capital to deploy in their 2015 capital program, the company’s existing debt began amortizing this month which was costing them nearly US$5 million per month (US$14.7 million quarterly). The company says its current lenders have approved the Apollo loan and are supportive of the corporation’s growth program.
Canacol expects to release its 2015 capital budget by December. They are targeting 13 – 14,000 boepd of production in 2014 with a plan to grow to 35,000 boepd by 2016 which they claim could raise their stock into the +$20 category.
Here’s the Canacol chart:
Video of Carl Icahn recalling takeover of US Steel with Leon Black