Pacific Rubiales Energy, an oil and gas company based in Toronto but holding assets in Latin America, has struck one of Canada's largest energy deals of the year, agreeing to pay nearly $935-million to buy Petrominerales Ltd.
As part of the deal, Pacific Rubiales plans to spin out Petrominerales' assets in Brazil and create another company. Every Petrominerales share will be exchanged for $11 and a share in the new company, according to the terms of the takeover deal announced Monday.
In addition to giving Pacific Rubiales more clout in Colombia and Peru, the proposed deal will change the way the acquirer transports its oil. Petrominerales produces some light oil, which Pacific Rubiales can use to thin its own heavy crude, making it easier to transport.
Pacific Rubiales will also be able to stop trucking oil because the deal comes with a pipeline component. This will allow Pacific Rubiales to cut shipping costs while increasing production.
Pacific Rubiales expects to save $35-million because of Petrominerales's light oil, which can be used as diluent to transport heavy oil. The pipeline components of the deal will allow Pacific Rubiales to sell its crude oil at higher prices with lower costs, it said. This will save the company $69-million, Ronald Pantin, the company's chief executive, said in a conference call.
"These assets are very important for Pacific," Mr. Pantin said of Petrominerales's pipeline ownership, according to a transcript of the call. "We'll be able to reduce to zero the trucking of oil to the coast and be able to sell all our production of heavy oil."
Petrominerales, whose head office is in Calgary, has also struck an agreement to buy out its partner in a Brazilian project, picking up the 25 per cent it does not already own. Pacific Rubiales will then take that project and spin out a new company. The new exploration and production company will have $100-million to work with, Pacific Rubiales said.
The takeover deal requires approval from Petrominerales shareholders. Directors and senior executives collectively owning 4 per cent of the company's shares have pledged to support the deal. The target company's investors must approve the deal and Petrominerales expects to hold a special meeting by the end of November.
Petrominerales closed at $11.70 on the Toronto Stock Exchange Monday. While this is above the $11 in cash Pacific Rubiales offered Petrominerales shareholders, it does not reflect the value of the new company. FirstEnergy Capital analysts said the new company has a value of $1.70 per share.
Pacific Rubiales closed down 5.6 per cent on Monday, indicating shareholders are upset about the deal.
FirstEnergy recommends that Petrominerales shareholders accept the deal. Pacific Rubiales shareholders should also be pleased with the proposed transaction, FirstEnergy said.
"We reiterate our investment thesis that investors should own Colombian light oil reserves and production," the firm said in a note. "Petrominerales' assets are strategic, given that acquired light oil reserves and production can be used as diluent to monetize Pacific Rubiales' heavy oil."
The deal marks a 42-per-cent 49-per-cent premium over Petrominerales' closing price on Friday. If the initial cash injection into the new company is taken into account, the transaction represents a 56-per-cent premium, FirstEnergy said.