Alfa Bets on Pacific Rubiales for Energy Gains: Corporate Mexico

The end of Mexico’s 75-year state energy monopoly is making potential allies of Alfa SAB (ALFAA), a conglomerate with a stake in U.S. shale wells, and Colombia’s Pacific Rubiales Energy Corp. (PRE)

Alfa boosted its stake in the Bogota-based company to 12.3 percent from a previously disclosed 10 percent, it said today after the close of regular trading. That makes it the second-largest shareholder in Latin America’s biggest non-state-owned oil producer, according to data compiled by Bloomberg. Pacific Rubiales has sought opportunities in Mexico for two years, its chief executive officer said last month.

Building a relationship with the Colombian company would give Alfa, the Mexican lunch meat and auto-parts maker, greater expertise in bidding for domestic energy projects, according to Aberdeen Asset Management Plc and Mexico Fund Inc. Alfa, which sold $1 billion in bonds in March partly to finance energy investments, is setting its sights on becoming “real oilmen,” CEO Alvaro Fernandez said May 21.

“I see it as a way to be better positioned for the energy opening in Mexico, which is going to have very significant development,” Alberto Osorio, CEO of the Mexico Fund, which owns 7.25 million Alfa shares, said in a telephone interview from Mexico City. “Having 10 percent of Pacific Rubiales, even though Alfa’s not explaining its goal, shows a desire to gain a closer relationship and learn more about the oil industry.”

Natural Partner

Working with Pacific Rubiales in Mexico would replicate Alfa’s U.S. strategy of using alliances to tap expertise, said Kathy Collins, a research analyst at Aberdeen Asset Management, which holds the Mexican company’s bonds. Alfa’s Newpek unit works with Pioneer Natural Resources Co. and India’s Reliance Industries Ltd. to exploit oil and gas formations such as the Eagle Ford Shale in Texas.

“They started off their exploration and production operations through a joint venture with experienced operator Pioneer Resources, and it is likely they will continue this type of strategy,” she said in an e-mailed response to questions on May 30 from London. “Pacific Rubiales has established a successful operational track record in Colombia and is a natural partner for Alfa.”

Enrique Flores, a spokesman for San Pedro Garza Garcia, Mexico-based Alfa, declined to discuss the company’s plans for its stake in Pacific Rubiales. Alfa said it made the purchase “for investment purposes” in a statement today. Pacific Rubiales declined to comment.

PDVSA Connection

Mexico probably represents the “best short-term opportunity” for Pacific Rubiales, Chief Executive Officer Ronald Pantin told investors May 13 in New York. The oil producer expects to be among the first companies to sign contracts in Mexico and is open to a joint venture with Petroleos Mexicanos, the state-run oil company known as Pemex, he said.

Pantin was head of the services unit at Petroleos de Venezuela SA before leaving in 2000 as then-President Hugo Chavez stepped up control of the state company. He and Pacific Rubiales President Jose Francisco Arata founded the Colombian oil producer in 2008 along with Co-Chairmen Miguel De la Campa and Serafino Iacono.

Alfa’s purchase of the Pacific Rubiales stake will probably be used to develop exploration and production joint ventures as Mexico opens to foreign energy investment, according to Eric Conrads, a money manager who helps oversee $500 million in Latin American stocks at ING Groep NV. Pemex will seek to form ventures in fields where the company lacks expertise, such as deep water and shale, Chief Executive Officer Emilio Lozoya said in March. Pemex remains open to profitable global alliances, the company said yesterday in a statement.

Shale Exploration

“Alfa wants more access in Mexico and they want to bring a partnership within the country with a company with experience in the sector and exploration and production,” Conrads said. “Newpek is doing the same on the U.S side and the company is looking to do the same as Mexico opens up.”

Newpek posted the fastest sales expansion of Alfa’s five divisions last year, bolstered by a growing U.S. oil and gas drilling business, Alfa said in a regulatory filing.

Mexico ended Pemex’s state-run oil monopoly last year when President Enrique Pena Nieto signed a law to allow private companies to tap the country’s 13.44 billion barrels of proven oil reserves.

Mexico has the world’s sixth-largest shale reserves in the world, according to the U.S. Energy Information Administration, or EIA. Pemex has drilled 14 shale wells in northern Mexico’s Sabinas and Burgos basin, considered by the EIA to be Mexico’s most promising prospect.

Shares Gain

Alfa rose 0.8 percent to 37.29 pesos at the close of trading in Mexico City. Pacific Rubiales advanced 1.1 percent to C$21.85 in Toronto.

Alfa’s purchase of the stake in Pacific Rubiales “is a financial investment that provides the possibility to develop a joint venture in Mexico and take advantage of the country’s potential,” said Jean-Baptiste Bruny, a BBVA Research analyst in Mexico City, who rates the stock underperform. “Alfa will get the experience that Rubiales has in the energy industry, while Rubiales will benefit from Alfa’s experience in the country.”

To contact the reporters on this story: Adam Williams in Mexico City at awilliams111@bloomberg.net; Brendan Case in Mexico City at bcase4@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar

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