Pacific Rubiales to Acquire PE-Backed C&C Energia

Pacific Rubiales Energy Corp., a Canadian-based producer of natural gas and heavy crude oil, announced on Nov. 19 that it will purchase C&C Energia Ltd. According to Reuters, the $500 million transaction will expand exploration and development capacity in Columbia, where both companies have operations. The acquisition is expected to be completed in 2013. C&C Energia previously received backing from Calgary-based private equity firm 32 Degrees Capital.


Pacific Rubiales Agrees to Acquire C&C Energia and Create a New Exploration Company

TORONTO, Nov. 19, 2012 /CNW/ – Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC; BOVESPA: PREB) is pleased to announce it has entered into an arrangement agreement with C&C Energia Ltd. (TSX: CZE) whereby Pacific Rubiales will acquire all of the common shares of C&C Energia (the “Arrangement Agreement”).

Pursuant to the Arrangement Agreement, on closing of the acquisition each common share of C&C Energia will be exchanged for 0.3528 common shares of Pacific Rubiales and one common share of a new exploration company (“Newco”).  The offer values C&C Energia at approximately Cdn.$7.81 per share, representing a premium of approximately 21% to the 20-day volume-weighted price on the Toronto Stock Exchange of C&C Energia as at November 16, 2012.  In addition, C&C Energia’s management estimates Newco’s value to be approximately Cdn.$2.00 per share, representing a combined value of approximately Cdn.$9.81 and a premium of approximately 52% over the same period.

Pacific Rubiales is expected to retain a 5% equity interest in Newco.  It is anticipated that the transaction will be effected by way of a court approved plan of arrangement (“Arrangement”).

Ronald Pantin, Chief Executive Officer of Pacific Rubiales, commented:  “We consider this to be a win-win for the shareholders of both companies. For Pacific Rubiales shareholders, it adds production and reserves at attractive and accretive metrics and assets whose value can be increased through accelerated activity and transportation and marketing synergies.  For C&C Energia shareholders, it provides an immediate premium valuation, enhanced liquidity and participation in the growth of Colombia’s largest independent oil company with a history of generating consistent shareholder returns.  C&C Energia shareholders will also have continued exposure to the producing assets through the new ownership in Pacific Rubiales common shares as well as the exploration upside provided by a well-funded Newco.”

Strategic Rationale

Pacific Rubiales believes that this is a highly strategic acquisition and provides additional visibility to its ability and leverage to increase production and reserves both organically and acquisitively at attractive and competitive metrics.

The key attributes of the acquired C&C Energia assets are as follows:

•consist of four development blocks (Cravoviejo, Cachicamo, Pájaro Pinto, Llanos 19 blocks), which are all in the prolific Colombian Llanos basin;
•in close proximity to Pacific Rubiales’ existing heavy oil production and pipeline infrastructure, allowing for additional value captured through transportation and marketing efficiencies;
•100% working interest and operatorship on all the blocks is expected to provide an advantageous position to drive activity and the pace of development;
•provide material production, additional reserves and additional free cash flow to Pacific Rubiales’ existing portfolio in Colombia;
•current production of approximately 11,500 bbl/d net before royalties, all of which is high quality and high netback light oil;
•the light oil production can be used to meet Pacific Rubiales’ growing requirement for diluent to mix with its heavy oil production at a lower cost; and
•Pacific Rubiales believes it will be able to quickly ramp up production on the Llanos development blocks within a 12 month period, capturing and accelerating value.
In addition, Pacific Rubiales and the shareholders of C&C Energia will retain upside potential on the exploration assets through their equity ownership of Newco.  It is anticipated that Newco will acquire C&C Energia’s interests in the Coati, Andaquies, Morpho and Putumayo-8 blocks in Colombia and receive cash from C&C Energia in the amount of approximately U.S.$80 million, subject to working capital adjustments.

Terms of the Arrangement

The Arrangement is subject to approval by the shareholders of C&C Energia, court approval, regulatory, stock exchange and other approvals, and satisfaction of all other customary closing conditions.  To proceed, the Arrangement must be approved by at least 66 2/3 of C&C Energia’s shareholders.  The Arrangement is expected to close in the first quarter of 2013.

The Arrangement Agreement also provides that C&C Energia will pay Pacific Rubiales a non-completion fee of Cdn.$15 million in certain circumstances and a reciprocal non-completion fee is payable by Pacific Rubiales to C&C Energia in certain circumstances.  The Arrangement Agreement includes customary provisions, including no solicitation of alternative transactions, right to match superior proposals and fiduciary-out provisions.

Board of Director Recommendation and Financial Advisors

The board of directors of C&C Energia has approved the Arrangement Agreement and has resolved to recommend that the shareholders of C&C Energia vote in favour of the Arrangement.

Pacific Rubiales’ financial advisor is GMP Securities L.P.; its legal advisor is Norton Rose Canada LLP in Canada and Colombia.  C&C Energia’s financial advisor is FirstEnergy Capital Corp. (“FirstEnergy”); its legal advisor is Blakes, Cassels & Graydon LLP in Canada and Posse Herrera Ruiz in Colombia.

FirstEnergy has provided the board of directors of C&C Energia with an opinion that, subject to its review of the final form of documentation effecting the Arrangement, the consideration to be offered by Pacific Rubiales to the shareholders of C&C Energia under the Arrangement is fair, from a financial point of view, to the shareholders of C&C Energia.

Support Agreements

The Arrangement has the support of executive officers of C&C Energia as well as certain directors and shareholders who collectively hold approximately 41% of the fully diluted common shares of C&C Energia.  Each of the aforementioned executive officers, directors and shareholders has entered into support agreements in favour of the Arrangement.

Conference Call

Pacific Rubiales has scheduled a telephone conference call for investors and analysts on Wednesday November 21, 2012 at 8:00 a.m. (Bogotá and Toronto time) / 11:00 a.m. (Rio de Janeiro time) to discuss the Arrangement. Participants will include Ronald Pantin, Chief Executive Officer, and selected members of senior management. Additional details will be published via news release prior to the conference call.

Information About Pacific Rubiales

Pacific Rubiales, a Canadian-based company and producer of natural gas and heavy crude oil, owns 100% of Meta Petroleum Corp., a Colombian oil operator which operates the Rubiales, Piriri and Quifa oil fields in the Llanos Basin in association with Ecopetrol, S.A., the Colombian national oil company, 100% of Pacific Stratus Energy Colombia Corp., which operates the La Creciente natural gas field, and light oil assets from the recent acquisition of PetroMagdalena Energy Corp.

Information About C&C Energia

C&C Energia is engaged in the exploration for and the development and production of oil resources in Colombia. C&C Energia owns eight blocks (seven operated) and approximately 597,000 acres (478,000 net acres) in Colombia.

SOURCE: Pacific Rubiales Energy Corp.

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