Petroamerica Oil shares are headed a lot higher following a successful and hard fought acquisition of Suroco Energy announced earlier.
Petroamerica has lagged its Colombian oil peers considerably, constantly trading for less than 1.5x cash flow because of its relatively small size and reserve life, concentration risk of its main Las Maracas asset, and a lack of operatorship over its production.
Bringing Suroco into Petroamerica changes everything, and now the pro-forma 9,000 boepd producer (increasing PTA's production by 38%) with 2P reserves increasing from 5 million to 8 million barrels (increasing PTA's reserves by 63%) has an impressive runway to grow the company to over 30,000 boepd within 3 years.
Note 2P reserves do not include any value Suroco’s new discoveries at Quinde West, Quinde East, or for the extension of the Quinde West discovery onto the Put-7 block.
Suroco's value to Petroamerica is the N Sand play in Colombia's Putomayo Basin, a repeatable, medium oil exploration fairway that stretches from Ecuador into Southern Colombia.
Petroamerica had to battle Suroco's partner in the Putomayo, a private producer called Vetra Energy, for control over Suroco, with both parties bidding up Suroco in an at-times testy bidding war.
Suroco shareholders ended up siding with Petroamerica's offer over Vetra's premium, all cash offer, for the upside provided by Petroamerica's shares.
Not surprisingly, the majority (78.6%) of Suroco shareholders opted to become Petroamerica investors by taking the all-share option (13.6% chose the cash and 7.8% chose a combination of both).
The pro-forma company also has a clear path to operatorship and will apply to operate the Put-7 block as well as apply to become an unrestricted operator in Colombia.
Juan Szabo, a director of Suroco, was appointed as a director of Petroamerica as well.
Petroamerica has at least three high impact exploration wells planned for the next two quarters.
The release states: "Over the next few weeks the combined company will take steps to consolidate its operations. The combined company will hold working interests in 11 blocks covering over 1 million gross (439 thousand net) acres in the Llanos and Putumayo Basins in Colombia. Petroamerica will also provide an operational update shortly, as well as provide updated capital spending and production estimates for the balance of fiscal 2014."
The acquisition will take time to digest however the stage is set for impressive growth from the pro-forma company.
I called Jeff Boyce, Executive Chairman of Petroamerica, for comment on the company today.
The dynamic Vermillion Energy founding CEO had a raspy voice after a hard fought battle for the company, and told me to be patient as the human resources of the two company's come together.
Boyce reminded me that Vetra is now Petroamerica's partner, and that he expects the relationship to be a positive one.
"I'd be pounding the table harder today than ever," Boyce commented.
He knows his stock is about to take off.
Read: Petroamerica and Suroco Complete Plan of Arrangement
Author owns shares in PTA and as such is biased. Always do your own due diligence as you are responsible for your own trades.