This morning two Canadian-based Colombian-focused oil and gas juniors announced intentions to combine their growing businesses.
Petroamerica Oil Corp is acquiring Suroco Energy in an all shares transaction representing a 66.6% premium over Suroco's 10-day volume weighted average trading price.
The combined company will have roughly 9000 bopd production coming from two of Colombia's most prolific basins and a $270 million market capitalization.
"This transaction provides the diversification and scale we have been searching for in Colombia and offers shareholders exposure to a potentially prolific new play trend developing in the Putumayo Basin," commented Jeff Boyce, Executive Chairman of Petroamerica. "The size of the combined company and its production, reserves and cash flow are anticipated to facilitate easier access to capital and open up additional growth opportunities."
Management at Petroamerica explained their acquisition rationale in today's news release:
- Growth and Diversification – Significant first step towards expanding and diversifying Petroamerica's portfolio by acquiring four blocks focused in the Putumayo Basin, one of the most productive basins in Colombia
- Considerable Resource Upside – Suroco's acreage provides significant exposure to the prolific N Sand oil play developing in the Putumayo Basin which is proved up in neighbouring Ecuador
- Added Bench Strength – Suroco's technical team has a proven ability to identify N Sand play concepts and prospects and is actively negotiating additional farm-ins and licensing opportunities in the region
- Bolsters High Netback Oil Focus – Suroco's production is 100% medium oil weighted and averaged 2,461 barrels of oil per day ("bopd") (net before royalty) for the month of March 2014
- Enhances Reserves – Suroco's 3.1 million barrels ("MMbbl") of proved and probable ("2P") reserves working interest (before royalty) builds upon Petroamerica's reserve base and significantly extends Petroamerica's reserve life index
- Unbooked Reserves – Ability to add unbooked reserves in the near term with low risk appraisal and development drilling of Suroco's recentQuinde West discovery
- Operatorship – Suroco qualified as a restricted operator in the 2010 bid round
KEY ATTRIBUTES OF THE COMBINED COMPANY:
- Interests in nine E&P contracts focused on high netback light and medium oil exploration and production in the Llanos and Putumayo Basins in Colombia
- Exposure to the prolific N Sand oil play in the Putumayo Basin, which is expected to fuel the future growth of the company
- Production will increase 38% to approximately 8,967 barrels of oil equivalent per day (net before royalty) (March 2014 average)
- 2P reserves will increase 63% to 8.0 million barrels of oil equivalent net before royalty with before-tax net present value (discounted at 10%) of $284 million
- Combined 2014 expected cash flow from operations of approximately $116 million funds the combined capital expenditure program of approximately $85 million, resulting in free cash flow of approximately $30 million
- 2014 drilling program consisting of 12 additional wells this year; 6 targeting high impact exploration and 6 lower risk appraisal and development wells, providing a number of near term catalysts
- A substantial inventory of exploration prospects and leads to be worked up for future drilling to support future production growth
- A strong balance sheet - it is anticipated that the combined company will have a cash balance of approximately $62 million at closing, providing opportunity to grow and consolidate in the region
- Total debt of only $31.5 million
- A market capitalization of approximately CDN$270 million based on Petroamerica's trading price of April 25, 2014 (assumes approximately 832 million Petroamerica shares outstanding upon completion of the Arrangement)
- Suroco qualified as a restricted operator, and the combined company intends to apply to become an unrestricted operator
CONFERENCE CALL AND WEBCAST INFORMATION
Petroamerica will host a conference call and webcast to discuss this transaction on Tuesday, April 29, 2014 beginning at 9:00 am Mountain Time. The telephone number for the conference call is 866-906-1113 or 857-288-2559 (International). To participate in the webcast you must register at http://wsw.com/webcast/cc/pta.
Full news release: Petroamerica Signs Agreement with Suroco Energy Inc. to Acquire all of Suroco's Issued and Outstanding Common Shares
Full disclosure: I am a biased shareholder in PTA... More to come on this.