Petroamerica Oil Corp has entered into an arrangement agreement with Suroco Energy Inc whereby Petroamerica has agreed to acquire all of the issued and outstanding common shares of Suroco by way of a statutory plan of arrangement under the Business Corporations Act. Pursuant to the terms of the Arrangement Agreement, holders of Suroco Shares will receive 1.7627 common shares of Petroamerica for each Suroco Share held.
Based on Petroamerica’s most recent closing price of CDN$0.325 per share on April 25, 2014, the Exchange Ratio reflects a value of CDN$0.573 per Suroco Share, representing a 36.4% premium over Suroco’s closing price on April 22, 2014 of CDN$0.42 and a 66.6% premium over Suroco's 10-day volume weighted average trading price. The Arrangement is expected to close on or around June 30, 2014, provided all required Suroco Shareholder, court, stock exchange and regulatory approvals are obtained.
“This transaction provides the diversification and scale we have been searching for in Colombia and offers shareholders exposure to a potentially prolific new play trend developing in the Putumayo Basin. The size of the combined company and its production, reserves and cash flow are anticipated to facilitate easier access to capital and open up additional growth opportunities.” says Jeff Boyce, Executive Chairman of Petroamerica.
- Growth and Diversification– Significant first step towards expanding and diversifying Petroamerica’s portfolio by acquiring four blocks focused in the Putumayo Basin, one of the most productive basins in Colombia.
- Considerable Resource Upside– Suroco’s acreage provides significant exposure to the prolific N Sand oil play developing in the Putumayo Basin which is proved up in neighbouring Ecuador.
- Added Bench Strength– Suroco’s technical team has a proven ability to identify N Sand play concepts and prospects and is actively negotiating additional farm-ins and licensing opportunities in the region.
Bolsters High Netback Oil Focus– Suroco’s production is 100% medium oil weighted and averaged 2,461 barrels of oil per day (“bopd”) (net before royalty) for the month of March 2014.
- Enhances Reserves– Suroco’s 3.1 million barrels ("MMbbl") of proved and probable (“2P”) reserves working interest (before royalty) builds upon Petroamerica’s reserve base and significantly extends Petroamerica’s reserve life index.
- Unbooked Reserves– Ability to add unbooked reserves in the near term with low risk appraisal and development drilling of Suroco’s recent Quinde West discovery.
- Operatorship– Suroco qualified as a restricted operator in the 2010 bid round.
Key attributes of the combined company:
- Interests in nine E&P contracts focused on high netback light and medium oil exploration and production in the Llanos and Putumayo Basins in Colombia.
- Exposure to the prolific N Sand oil play in the Putumayo Basin, which is expected to fuel the future growth of the company.
- Production will increase 38% to approximately 8,967 barrels of oil equivalent per day (net before royalty) (March 2014 average).
- 2P reserves will increase 63% to 8.0 million barrels of oil equivalent net before royalty with before-tax net present value (discounted at 10%) of $284 million.
- Combined 2014 expected cash flow from operations of approximately $116 million funds the combined capital expenditure program of approximately $85 million, resulting in free cash flow of approximately $30 million.
- 2014 drilling program consisting of 12 additional wells this year; 6 targeting high impact exploration and 6 lower risk appraisal and development wells, providing a number of near term catalysts.
- A substantial inventory of exploration prospects and leads to be worked up for future drillingto support future production growth.
- A strong balance sheet - it is anticipated that the combined company will have a cash balance of approximately $62 million at closing, providing opportunity to grow and consolidate in the region.
- Total debt of only $31.5 million
- A market capitalization of approximately CDN$270 million based on Petroamerica’s trading price of April 25, 2014 (assumes approximately 832 million Petroamerica shares outstanding upon completion of the Arrangement).
- Suroco qualified as a restricted operator, and the combined company intends to apply to become an unrestricted operator.