Rubiales Pays Up for Synergies

Pacific Rubiales has agreed to buy Petrominerales for CAD1.58bn ($1.53bn), in a combination of assets that analysts see as beneficial even if coming at a cost. Rubiales is to pay CAD935m and take on CAD640m debt, the two Colombian E&P operators say. Petrominerales shareholders will receive CAD11.00 per share and one share in a newly formed entity to hold Brazilian assets and receive a CAD100m cash capitalization. The level represents a 42% premium to the CAD7.74 closing price in the previous session. The value represents about 40x reserves, Jose Dario Lozano, director of equity research at Alianza Valores, tells LatinFinance, compared to the 20x at which many large oil companies trade. “It’s difficult to know if it is expensive in the long run or not. You need to analyze not only the reserves, but also the cost savings and the value of the pipelines [included in the deal],” Lozano says. “The effect of the transaction in the short term could be negative, as the premium Pacific Rubiales paid is high. However, the acquisition is strategic and could benefit the company long-term,” Serfinco says in a report. Rubiales plans to fund the deal with cash on hand and a $1.3bn committed bank loan to be refinanced following the close. The buyer plans to pay down some of the debt by selling all or part of Petrominerales’ stakes in pipelines, and retaining access through leasing contracts. In calling the deal “credit neutral,” Fitch expects it will marginally increase Rubiales’ leverage – to 1.2x from 0.7x at year end 2012 – and somewhat increase its production diversification. In aggregate, Rubiales gains 18 Colombian blocks, four Peruvian blocks, a 5% equity interest in the Oleoducto Central pipeline and a 9.65% stake in the Oleoducto Bicentenario de Colombia pipeline. The transaction awaits approval from regulators and Petrominerales shareholders. Bank of America advised Pacific Rubiales, and TD Securities advised Petrominerales. Petrominerales shares closed at CAD11.70 Monday.