Petroamerica Provides Rationale Why its Arrangement Transaction is a Superior Alternative for Suroco Shareholders than the Vetra Offer
CALGARY, June 11, 2014 /CNW/ - Petroamerica Oil Corp. ("Petroamerica") (TSX-V:PTA) has now reviewed the terms of the unsolicited cash offer (the "Vetra Offer") from Vetra Acquisition Ltd., a wholly owned subsidiary of VETRA Holding S.a.r.l. (collectively "Vetra") to acquire the issued and outstanding common shares of Suroco Energy Inc. (the "Suroco"). Petroamerica has also reviewed the press release of Suroco issued earlier today in response to the Vetra Offer. Petroamerica supports Suroco's position that Suroco shareholders should reject the Vetra Offer, and should support the proposed plan of arrangement (the "Arrangement") between Suroco and Petroamerica for the following reasons:
- Suroco's unanimous support for the Arrangement - The Board of Directors of Suroco considered the terms of the Vetra Offer and the terms of the Arrangement, received advice from its financial and legal advisors, and unanimously determined to reaffirm its support for the Arrangement in preference to the Vetra Offer. Alentar Holdings Inc., Suroco's largest shareholder, and Suroco's officers have all confirmed that they continue to support the Arrangement.
- Independent proxy advisory firm, ISS Proxy Advisory Services ("ISS") has recommended voting IN FAVOUR of the Arrangement - ISS has published a report recommending their clients vote IN FAVOUR of the Arrangement and that the Vetra Offer does not appear compelling enough to warrant a change in its initial voting recommendation to approve the Arrangement. ISS is a leading independent corporate governance analysis and proxy voting firm whose recommendations assist its clients in making choices regarding proxy voting and transaction decisions.
- The Arrangement will permit Suroco shareholders to participate in the growth and upside opportunities that the asset portfolio of the combined company is expected to deliver in the near term, the details of which include:
- Suroco's management believes that the recently discovered Quinde West field may extend to the Putumayo 7 Block (Suroco 50% interest) and when drilled, is expected to add significant value to the combined company, under more favorable economic terms than those of the Suroriente Block.
- Suroco has amassed a meaningful land position with exposure to the potentially prolific N Sand oil play in the Putumayo Basin of Colombia, which has been proved up in neighbouring Ecuador and is in its infancy in Colombia. Suroco's technical team has proved the N Sand play extension into Colombia and has applied its learnings to identify numerous N Sand prospects and leads that the combined company plans to aggressively develop.
- Petroamerica has built a portfolio of high value light oil prospects in the Llanos Basin of Colombia, including blocks with low-side fault closures, which is a play that has been the subject of recent exploration success in the basin. Petroamerica is planning to drill three high impact light oil exploration wells on its Llanos Basin acreage in 2014, targeting prospects which have been derisked by 3D seismic.
- The growth and development of Petroamerica will be accelerated by the Suroco combination - The Arrangement creates a combined company with a production base of approximately 9,000 barrels of oil equivalent per day (net before royalty) ("boepd") holding interests in eleven exploration and production contracts focused on high netback light and medium oil exploration and production in the Llanos and Putumayo Basins in Colombia. The Arrangement represents an important step by Petroamerica toward realizing its vision of becoming a leading Colombia focused exploration and production player targeting oil production upwards of 30,000 boepd and a sustainable reserve life of more than 5 years. The combined asset base of both companies provides the potential to achieve these goals over a 2 to 3 year time frame. Petroamerica also expects that the combined company will be opportunistic in its pursuit of additional acquisitions in its Llanos and Putumayo basin core areas.
- The combined company is expected to have a strong, under-levered balance sheet that will fund the future development and exploration of its asset base - As of June 9, 2014, Petroamerica held over US $100 million in cash and upon completion of the Arrangement and after the payment of Arrangement expenses and Suroco's existing credit facilities, is expected to have at least US $65 million in cash and only US$31.5 million in debt. For the 2014 fiscal year, the combined company expects to generate cash flows from operations of approximately US $116 million and have free cash flows (i.e. cash flow after all capital expenditures) of at least US $30 million. The combined company also anticipates generating significant cash flows from its producing properties in 2015 and beyond.
- Petroamerica has an established history of deal-making and delivering reserves and production growth that has resulted in substantial value creation for its shareholders - Petroamerica has grown its net production from 155 boepd average in Q1 2012 to 6,478 boepd average in Q1 2014. Petroamerica has also increased working interest proved plus probable reserves from 3.0 million barrels of oil equivalent ("boe") as at December 31, 2011 to 4.9 million boe as at December 31, 2013. Petroamerica's share price has appreciated more than 230% from the beginning of 2012 to the close of trading as of June 10, 2014 as a result of the production and reserve growth Petroamerica has delivered.
- Analyst target prices for Petroamerica imply $0.78 per Suroco common share of potential value to Suroco shareholders - Petroamerica is covered by seven research analysts (five of them unrestricted) with an average target price of $0.44 per Petroamerica common share, which equates to $0.78 per Suroco common share based on the exchange ratio of 1.7626 Petroamerica common shares per Suroco common share pursuant to the Arrangement, which constitutes significant upside to the Vetra Offer of $0.60 per Suroco common share, and further demonstrates the upside potential of the Arrangement to Suroco shareholders.
- Suroco shareholders will benefit from increased liquidity - Suroco's average daily dollar volume traded year-to-date on all Canadian exchanges and prior to the announcement of the execution of the arrangement agreement with Petroamerica on April 28, 2014 was approximately $22,600 per day compared to Petroamerica's average daily dollar volume traded of approximately $472,300 per day over the same period. Clearly, Petroamerica common shares are substantially more liquid than Suroco common shares. Petroamerica also believes that the increased size of the combined company after completion of the Arrangement will further enhance the liquidity of the combined company's common shares.
- The combined company will be better positioned to close the valuation gap with its Colombian peers - Petroamerica is currently trading considerably below its peer group valuation range based on current and forward looking production and cash flow estimates. Petroamerica believes that the increased scale of the combined company, coupled with a strong balance sheet and an active 2014 drilling campaign, will position the combined company to close this valuation gap. Shareholders of the combined company would be expected to realize price appreciation should the combined company trade more in-line with peer group comparables.
- Access to additional sources of non-dilutive funding - Upon the completion of the Arrangement, the combined company is expected to initially be significantly under-levered compared to its peers. Petroamerica has already begun to review a number of different options to refinance its US $31.5 million of long-term debt. Petroamerica anticipates that this alternative source of long-term debt financing will provide it with reduced interest costs and will eliminate any requirement to issue equity sweeteners in connection with the debt financing. As a result, the overall cost of capital to the combined company will be lower, with no expected adverse dilutive effect on the combined company's equity structure.
Petroamerica continues to support the Arrangement transaction with Suroco, and urges Suroco shareholders to review today's Suroco press release announcing Suroco's rejection of the Vetra Offer. Petroamerica also urges Suroco shareholders to follow the instructions contained in that press release in relation to voting their Suroco shares to support the Arrangement and rejecting the Vetra Offer.
Petroamerica Oil Corp. is a Canadian oil and gas exploration and production company with activities in Colombia. Petroamerica currently produces more than 6,500 boe per day and has interests in five blocks, all located in Colombia's Llanos Basin. Petroamerica's shares are listed on the TSX Venture Exchange under the symbol "PTA". A summary of the Company property holdings, including maps of the above noted acquisition, has been included in the current presentation located at www.PetroamericaOilCorp.com.
Forward Looking Statements:
This news release includes information that constitutes "forward-looking information" or "forward-looking statements". More particularly, this news release contains statements concerning expectations regarding the timing and successful completion of the Arrangement, the combined company's expected cash flows, drilling and exploration plans, business strategy, priorities, plans and expected production and the anticipated timing thereof, the extension of the Quinde West field to the Putamayo 7 Block and the expected economic terms of such field, the potential value with respect to the N Sand oil play in the Putamayo Basin in Colombia, production growth of the combined company, anticipated reserve life of the combined company's assets, potential future acquisitions, the anticipated increase in the liquidity of the shares of Petroamerica following the completion of the Arrangement, the expected price appreciation of Petroamerica in relation to its peers as a result of the Arrangement, expectations regarding the sources of debt financing of Petroamerica and the timing of any changes to the existing debt instruments of Petroamerica and the economic effects thereof and other statements, expectations, beliefs, goals, objectives, assumptions and information about possible future events, conditions, results of operations or performance. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. Business priorities disclosed herein are objectives only and their achievement cannot be guaranteed.
Material risk factors include, but are not limited to: the inability to obtain regulatory approval for any operational activities, inability to get all necessary approvals for completion of the Arrangement, the risks of the oil and gas industry in general, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable shortages of equipment and/or labour; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations in oil and gas prices, foreign currency exchange rates and interest rates, and reliance on industry partners and other factors, many of which are beyond the control of Petroamerica. You can find an additional discussion of those assumptions, risks and uncertainties in Petroamerica's and Suroco's Canadian securities filings.
Neither Petroamerica nor any of its subsidiaries nor any of its officers, directors or employees guarantees that the assumptions underlying such forward-looking statements are free from errors nor do any of the foregoing accept any responsibility for the future accuracy of the opinions expressed in this document or the actual occurrence of the forecasted developments.
Readers should also note that even if the drilling program as proposed by Petroamerica is successful, there are many factors that could result in production levels being less than anticipated or targeted, including without limitation, greater than anticipated declines in existing production due to poor reservoir performance, mechanical failures or inability to access production facilities, among other factors.
Statements relating to "reserves" are deemed to be forward-looking statements or information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitable in the future. There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of Petroamerica. The reserve data included herein represents estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative and classifications of reserves are only attempts to define the degree of speculation involved.
Information relating to proved plus probable reserves are contained in the reports of GLJ Petroleum Consultants Ltd. for Petroamerica dated effective December 31, 2011 and December 31, 2013.
The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed Arrangement and has neither approved nor disapproved the contents of this press release. Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This press release contains reference to non-GAAP measures. These non-GAAP measures do not have any standardized meaning prescribed by GAAP applicable to Petroamerica. These non-GAAP measures are as follows:
● "Cash flow" is a non-GAAP measure defined as cash from operating activities excluding net change in other assets and liabilities, net change in non-cash working capital and cash tax on sale of assets; and
● "Free cash flow" is a non-GAAP measure defined as cash flow (as defined above) less capital expenditures.
These measures have been described and presented in this press release in order to provide shareholders with additional information regarding Petroamerica's liquidity and its ability to generate funds to finance its operations.
Use of 'boe'
Throughout this press release, the calculation of barrels of oil equivalent ("boe") is at a conversion rate of 6,000 cubic feet ("cf") of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6,000 cf: 1 barrel is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.
SOURCE Petroamerica Oil Corp.For further information: ABOUT PETROAMERICA, PLEASE CONTACT: Nelson Navarrete, President and Chief Executive Officer; Colin Wagner, Chief Financial Officer; Ralph Gillcrist, Chief Operating Officer and Executive Vice President; Tel Bogota, Colombia: +57-1-744-0644; Tel Calgary, Canada: +1-403-237-8300; Email: email@example.com; Web Page: www.PetroamericaOilCorp.com