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Market Impact: Neutral. Petroamerica reported 3Q15 production of 3,655 bbl/d (FCC 3,250 bbl/d) and cash flow of US$3.5 mm (FCC US$0.7 mm). Production in 4Q15e of 2,912 bbl/d is tracking in line with our estimate of 2,950 bbl/d. While the 3Q15 results were better than expected, 3Q15 results are secondary to the arrangement agreement with Gran Tierra that is expected to close around the end of January 2016e.
PETROAMERICA OIL
Petroamerica has entered into an agreement with Gran Tierra Energy (GTE – TSX), in which Gran Tierra will acquire all of its outstanding common shares of Petroamerica for total net consideration of approximately US$85 mm. As per the terms of the agreement, Petroamerica shareholders can elect to receive either 0.4 of a Gran Tierra share for each Petroamerica share held or C$1.32 per share in cash. This acquisition price represents a 43% premium to Thursday’s closing price of $0.92 per share. We assume that Petroamerica shareholders will elect to receive shares, thereby continuing to benefit from the upside potential of the combined entity. We recommend that Petroamerica shareholders vote in favour of the deal and tender their shares. The acquisition is expected to close at the end of January 2016e.
Market Impact: Negative. Petroamerica has entered into a private placement agreement to issue up to US$20 mm in senior secured debentures. The proceeds will be used to appraise and develop the Cumplidor Field on the PUT-7 Block (50% WI) and to reactivate development activity in the fields located on the Suroriente Block (15.8% WI). If the entire US$20 mm in senior secured debentures are issued, the financing is 46% dilutive to our current 2016e cash flow estimate to approximately US$3 mm (previously US$6 mm). Our dilution estimate does not include (1) the potential for cash flow growth from the appraisal and development activity on the Cumplidor Field and Suroriente Fields or (2) the potential dilution for the issuance of up to 6 mm warrants, versus the current basic share count of 58 mm shares.
Market Impact: Negative. Petroamerica reported 2Q15 production of 3,634 bbl/d and cash flow of US$3.0 mm (US$0.03 per share), which was below expectations. Also, 2H15 production guidance is well below our production outlook, and as such, we will be reducing our go-forward production outlook. Offsetting the reduced production profile is also a substantial reduction in 2015e capital spending.
Petroamerica has agreed to acquire PetroNova Energy (PTA – TSX-V) in an all-share transaction that has been valued at approximately C$29 mm (US$23 mm). Petroamerica will issue 216 mm shares and assume C$1.6 mm of net debt. The acquisition is expected to close near the end of July 2015e, at which point Petroamerica will have approximately 1.1 billion shares outstanding. The Company plans to consolidate its shares on a 10:1 basis following the close of the acquisition.
Petroamerica previously reported 1Q15 production volumes of 4,587 bbl/d. The Company’s sales volumes were slightly less than production at 4,544 bbl/d; however, cash fl ow of US$2 mm beat our estimate. The Company was able to show an improvement in operating and transportation costs, as well as G&A costs.
Market Impact: Neutral. With quarterly results broadly in line with our forecast, we highlight that April production is 4,064 bbl/d. This is above our forecast for 2Q15e of 3,813 bbl/d, yet still a decline from 1Q15. With declining production and little visibility for 2H15 capital spending and outlook, we remain cautious on an investment in Petroamerica.
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