Petrominerales announces we have entered into an agreement with Pacific Rubiales Energy Corp under which Pacific Rubiales will acquire all of the outstanding shares of Petrominerales by way of a plan of arrangement under the Business Corporations Act (Alberta). Pursuant to the Arrangement, each share of Petrominerales will be exchanged for cash consideration of C$11.00 and one share of a new Brazil-focused exploration and production company ("ExploreCo") based in Calgary, Alberta.
ExploreCo will be capitalized with C$100 million cash and will hold all of Petrominerales' Brazil assets, including our talented team of technical professionals in Brazil. Concurrently, we have entered into an agreement with our partner in Brazil to acquire their entire 25% interest in certain of our Brazilian properties.
Petrominerales shareholders will receive cash consideration of C$11.00 per Petrominerales share under the Arrangement. The cash consideration (not including the value of the ExploreCo shares) represents a premium of 42% over last the closing price of the Petrominerales shares on the Toronto Stock Exchange of C$7.74 and 56% over the 20 trading day volume weighted average trading price of C$7.07. The total transaction value is approximately C$1.6 billion, including the assumption of net debt, but excluding ExploreCo's asset value and C$100 million of cash.
Board Approval and Recommendation
Following an extensive strategic review and detailed analysis of the proposed Arrangement, the Board of Directors of Petrominerales has unanimously: (i) approved the Arrangement and the entering into of the Arrangement Agreement; (ii) determined that the Arrangement is in the best interests of Petrominerales and is fair, from a financial point of view, to Petrominerales' shareholders, and (iii) determined to recommend that Petrominerales' shareholders vote in favour of the Arrangement. Petrominerales' exclusive financial advisor, TD Securities Inc., has provided a verbal opinion to the Board of Directors of Petrominerales that, as of the date hereof and subject to its review of final documentation, the consideration to be received by Petrominerales shareholders under the Arrangement is fair, from a financial point of view, to Petrominerales shareholders, and such opinion was considered by the Board of Directors in making its determinations.
The Arrangement is subject to the approval of the Petrominerales shareholders. A special meeting of the Petrominerales shareholders is expected to be held by the end of November, 2013 to consider the Arrangement, with an information circular to be mailed to Petrominerales shareholders by early November, 2013. Directors and officers of Petrominerales who collectively hold 4% of the outstanding shares of Petrominerales have entered into lock-up agreements with Pacific Rubiales supporting the Arrangement, pursuant to which they have agreed to vote their shares held in favour of the approval of the Arrangement at the meeting.
Subject to the satisfaction of all of the conditions to closing set out in the Arrangement Agreement, it is anticipated that that the Arrangement will close in the fourth quarter of 2013. Conditions to closing under the Arrangement Agreement include, among other matters, receipt of all required regulatory and stock exchange approvals, receipt of required court approvals, receipt of Petrominerales shareholder approval and the absence of material adverse changes respecting Petrominerales.
Arrangement Agreement Terms
The Arrangement Agreement contemplates a reciprocal non-completion fee of US$60 million payable on the occurrence of certain circumstances. In addition, the Arrangement Agreement provides for an irrevocable offer by Pacific Rubiales to purchase Petrominerales' equity interest in the Ocensa pipeline if the Arrangement is not completed by December 10, 2013 for any reason, provided that: (i) Petrominerales has not entered into an agreement to sell its Ocensa equity interest to a third party, and (ii) the Arrangement Agreement has not been terminated due to the fault of Petrominerales. The Arrangement Agreement also provides for customary non-solicitation covenants, subject to customary "fiduciary out" provisions entitling Petrominerales to consider and accept a superior proposal and a right in favor of Pacific Rubiales to match any superior proposal.
A copy of the Arrangement Agreement will be filed by Petrominerales on SEDAR and will be reviewable under Petrominerales' profile at www.sedar.com.
The Arrangement is a culmination of Petrominerales' exploration and development successes in Colombia and Peru. "The key to our success in Colombia has been our unparalleled asset base combined with our talented staff who are true ambassadors of Petrominerales' Vision and Values", said Corey C. Ruttan, President and Chief Executive Officer of Petrominerales. "Over the past eleven years, we have discovered over 100 mmbbls of oil in Colombia, grown production to over 23,000 bopd, returned over C$150 million to shareholders through dividends, generated over US$700 million of royalties and tax revenue for Colombia, and established Fundacion Vichituni investing in highly successful voluntary social investment programs creating a lasting benefit to local communities. Since our initial public offering in 2006, at C$3.75 per Petrominerales share, Petrominerales shareholders have earned a compound annual rate of return of over 20% on their original investment, including dividends and the value of this Arrangement."
Management views the Arrangement as an opportunity for our shareholders to realize value for a large portion of Petrominerales' assets, at attractive metrics, while continuing to participate directly in the upside of our exploration acreage in Brazil. ExploreCo will be well-capitalized at inception with significant cash, no debt, a strong team of professionals based in Brazil, and a focused portfolio of exploration and exploitation assets onshore Brazil.
As part of the Arrangement, ExploreCo will be capitalized with C$100 million in cash and Petrominerales' 75% interest in Alvopetro S.A. Extracao de Petroleo e Gas Natural ("Alvopetro"). A share purchase agreement has been entered into by Petrominerales with the holder of the remaining 25% interest in Alvopetro to transfer such interest, subject to the satisfaction of certain closing conditions, to ExploreCo. Upon closing, ExploreCo will hold 100% of AlvoPetro. Alvopetro holds all of Petrominerales' Brazil exploration assets consisting of three producing fields and 12 exploration blocks comprising 120,013 gross acres onshore Brazil.
Following the Arrangement, ExploreCo will have a highly prospective acreage position and a well-funded balance sheet combined with an experienced team of professionals. ExploreCo will be a growth-oriented exploration and resource development company led by Corey C. Ruttan, current President and Chief Executive Officer of Petrominerales, and John Koch, current Chief Operating Officer. John D. Wright, the founder of Petrominerales, and current Chairman on the Board, will join ExploreCo as Chairman of the Board. Mr. Wright is also the President, Chief Executive Officer and a Director of Lightstream Resources Ltd., a premier Canadian oil and gas exploration and production company combining light oil Bakken and Cardium resource plays with conventional light oil assets. The remainder of the management team and the Board of Directors of ExploreCo will be appointed prior to the closing of the Arrangement.
ExploreCo's assets are focussed in the Reconcavo Basin, onshore Brazil, located 85 kilometres north of the city of Salvador in northeast Brazil. Brazil's first oil production came from this basin in 1939. Since then, over 6,000 wells have been drilled in the basin, with cumulative production exceeding 1.5 billion barrels of light oil from 86 fields. Current production is over 60,000 barrels of oil equivalent per day, and the majority of the basin's production comes from the Sergi, Agua Grande, and Candeias reservoirs. The basin has a well-developed infrastructure network and an active service industry.
Our primary target is the Gomo member of the Candeias formation, which is both mature source rock and contains the prospective reservoir sands. The Gomo is oil saturated and found at depths between 2,500 and 3,200 metres over our existing acreage position. There have been 24 wells drilled by other operators that have identified thick, stacked, oil-bearing sands. The Gomo net pay on these blocks ranges between 10 and 200 metres, averaging 44 metres with porosities ranging from 9 to 15 percent and permeability between 0.1 and 4 millidarcies. Oil quality ranges between 34 and 38 degrees API.
We plan to commence civil works for our initial drilling campaign in mid-October and start drilling the first well on Block 197 in November 2013. This will be followed by wells at Bom Lugar and Block 183. The goal with these initial wells is to demonstrate the commercial viability of the Gomo sands providing the foundation for a large-scale commercialization.
For more information about related Opportunities and Key Players visit Brazil Oil and Gas Projects