Colombia calling: Petroamerica acquires PetroNova

Cartagena, Colombia
Source: http://www.backtrackers.nl/colombia/

The Colombian E&P landscape is characterised by a few IOCs with 100mmbbl+ of reserves (e.g. Repsol, Chevron, Occidental) and a large number of independent E&Ps. The smaller end of the scale is dominated by many small players with more than 25 companies with less than 2.5mmboe of reserves.

Colombian E&P 2P reserves
Source: Company disclosures, Wood Mackenzie, OGInsights

Colombia is seen as a relatively low risk play – the country has enjoyed good exploration success and onshore drilling is low cost. Many small explorers have flocked to the country over the last decade. These companies have made a number of discoveries, large and small, but often lack the financing, experience and management team needed to take full advantage of the opportunity afforded by the country.

Following the oil price drop, the challenging market environment has made Colombia a market ripe for consolidation. Small players are sub-scale and cannot grow on their own, making them good targets for takeover by larger and better funded players. On 15 June 2015, the Colombian E&P landscape took one further step towards consolidation with Petroamerica agreeing to takeover PetroNova.

The deal was agreed between the companies on 12 June 2015 with Petroamerica offering 0.85 shares per PetroNova share. The offer values PetroNova at USD20.2mm with an enterprise value of USD21.8mm. The implied deal metrics are: USD66,110/bopd (304bopd production), USD6.2/bbl 2P (3.5mmbbl post royalty reserves).

Whilst PetroNova’s reserve and production base is small, it does increase Petroamerica’s 2P reserves by 78% to 14.5mmbbl. More importantly, Petroamerica will consolidate its position in PUT-2 to 100% and obtain operatorship. The PetroNova portfolio is complementary with assets in the Putumayo and Llanos basins, just like Petroamerica. The assets also come with a drill-ready prospect inventory, 209mmbbl of unrisked prospective resources and environmental permits on each of the blocks, allowing Petroamerica to expand its exploration portfolio at low cost.

Left: Petroamerica asset map
Right: PetroNova asset map
Source: Company disclosures

Petroamerica has taken advantage of PetroNova’s falling share price which has declined by c.70% since its highs in Q3 2014. Whilst Petroamerica’s share price has also been hit by the sector downturn, its performance has not been as bad as that of PetroNova. The acquisition combines two  companies with a c.USD100mm market capitalisation (Petroamerica) and a c.USD20mm market capitalisation (PetroNova). Both businesses are arguable subscale and even with the slight bulk up through the acquisition, Petroamerica still falls short of being a major player in Colombia. However, post transaction, Petroamerica will hold a more interesting portfolio, with exploration assets that could add substantial reserves and will be unlocked with the recovery in oil price and it is a growing portfolio with potential that may one day, attract the interest of the bigger players.

PetroNova share price (LTM)
Petroamerica share price (indexed to PetroNova)
Source: OGInsights