Pacific Rubiales to Acquire Petrominerales for $909 Million

Pacific Rubiales Energy Corp. (PREC) agreed to buy Petrominerales Ltd. (PMG) for C$935 million ($909 million) in cash as the world’s fastest-growing major crude producer seeks to reduce transport costs in Colombia.

Petrominerales stockholders will receive C$11 a share and one share in a newly formed exploration and production company, Bogota-based Pacific Rubiales said yesterday in a statement. That’s 42 percent more than where Calgary-based Petrominerales was trading before its stock was halted Sept. 27. Pacific will also assume C$640 million in debt, including convertible bonds.

Pacific Rubiales, listed in Toronto and Bogota, made at least 10 acquisitions of companies and oil block stakes over the past two years. The latest deal will give it access to low-density crude, which is cheaper to transport than the heavy oil that makes up the bulk of its reserves.

“This is a natural fit,” David Neuhauser, a managing director at Livermore Partners Inc., said by e-mail on Sept. 27, before the deal was announced. “Pacific needs the light oil, and Petrominerales needs the capital to develop their vast acreage.”

Pacific shares fell 3.4 percent to 37,460 pesos in Bogota today, while Petrominerales surged 36 percent to 21,500 pesos.

“We see important strategy drivers for the transaction, but price seems to be high,” Caio Carvalhal and Felipe dos Santos, analysts at JPMorgan Chase & Co., wrote in a note. “The market was not expecting such a large acquisition now, but rather Pacific Rubiales to focus on digesting the acquisitions concluded in 2012.”

Pipelines Stakes

Pacific plans to pay some of the debt held by Petrominerales by spinning off infrastructure assets held by the two companies in a private placement, Chief Executive Officer Ronald Pantin told reporters in Bogota today.

Assets in the new company will include stakes in the Ocensa and Bicentenario pipelines, with Pacific planning to sell an initial 40 percent, Pantin said.

The total value of the deal, including net debt, is about C$1.6 billion, Petrominerales said in a statement. Petrominerales holders will also receive one share in ExploreCo, which is being formed with the company’s Brazilian assets and C$100 million in cash.

The deal needs regulatory approval and will be financed with a $1.3 billion bank loan, plus cash. A unit of Bank of America Corp. advised Pacific Rubiales. TD Securities Inc. advised Petrominerales.

Fastest Growth

Pacific’s compound production growth over the last five years is 47 percent, the fastest among 109 producers with a market value of at least $5 billion, according to data compiled by Bloomberg. The group average is 8.4 percent growth, the data show.

Petrominerales, which produces mostly from fields in Colombia’s Llanos basin, reported a 31 percent decline in second-quarter output. Pacific had 514 million barrels of proved and probable reserves by the end of 2012, while Petrominerales had 41.2 million barrels, the companies said in separate September presentations.

The transaction’s full value of $44 per barrel would fall to $25 after adjustments to pipeline stakes and cost savings, according to the JPMorgan analysts. The company’s guidance of $4 billion for 2014 earnings before interest, taxes, depreciation and amortization “looks ambitious,” they wrote.

The deal’s total value is 2.98 times forecast Ebitda, compared with the 4.83 median ratio of similar transactions, according to data compiled by Bloomberg.

To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net; Andrew Willis in Bogota at awillis21@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; James Attwood at jattwood3@bloomberg.net

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