Petrominerales Ltd. (PMG) is poised to gain 42 percent over the next 12 months as the Canadian oil producer considers steps to raise cash from assets including a Colombian pipeline stake, Toronto-Dominion Bank said.
The company’s 5 percent stake in the 800-plus-kilometer Ocensa pipeline, which links Colombia’s oil-rich eastern plains with the Caribbean coast, might be partially sold or pledged as security to obtain debt funding, according to a report today by the bank’s TD Securities unit. Calgary-based Petrominerales agreed in 2011 to pay $281 million for the stake.
The Ocensa stake “is underappreciated by the market, and we see significant potential for the company to announce a transaction” that will demonstrate its value, TD Securities analysts Jamie Somerville and Danny Yick wrote in the report. They raised their recommendation on the stock to buy from hold.
The company’s Canadian-traded shares rose 0.7 percent to C$5.63 as of 2:54 p.m. in Toronto. TD Securities has a 12-month target price of C$8, according to the report.
Petrominerales fell 1.2 percent to 9,980 pesos at 12:29 p.m. in Bogota. The Colombian-traded shares have tumbled 32 percent this year, the worst performance on the benchmark Colcap index after textile-maker Fabricato SA, whose shares were suspended in November and didn’t trade again until March.
TD Securities acted as a financial advisor to Petrominerales when the company bought the Ocensa stake in 2011, according to a statement at the time.
“Pipeline upgrades, increasing demand for pipeline capacity, and recent changes to the ownership terms have likely all contributed to an increase in value since then,” the TD analysts wrote today.
Petrominerales may need cash because investors in August are likely to exercise an option to demand immediate repayment of about $200 million of convertible bonds due in 2016, according to TD Securities.
The debt can be repaid in cash or shares, and “Petrominerales is keen to avoid repaying the debentures with shares to avoid potentially significant dilution,” according to the report.
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