News Column

Petrominerales Announces Acquisition by Pacific Rubiales and Formation of Brazil Focused Exploration Company

Sep 29 2013 12:00AM

Marketwire

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CALGARY, ALBERTA -- (Marketwired) -- 09/29/13 -- Petrominerales (TSX: PMG) (BVC: PMGC) announces we have entered into an agreement (the "Arrangement Agreement") with Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC; BOVESPA:PREB) ("Pacific Rubiales") 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) (the "Arrangement"). 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.

Highlights of the proposed transactions:

-- Cash consideration of C$11.00 per Petrominerales share;-- Petrominerales shareholders also receive one share of ExploreCo for every Petrominerales share held; and-- ExploreCo will have C$100 million cash and will hold 120,013 gross acres (119,321 net acres) focused on the Reconcavo Basin, onshore Brazil.



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.

Shareholder Approval

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.

Closing

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.

Strategic Rationale

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.

ExploreCo

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. (TSX: LTS), 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.

ExploreCo highlights:

-- Cash of C$100 million (approximately C$90 million after the acquisition of our minority partner's interest);-- Highly prospective land base - 120,013 gross acres (119,321 net acres);-- Large Gomo resource with undiscovered petroleum initially-in-place ("UPIIP") of over 1 billion barrels;-- Over 100 potential development locations;-- Shallow exploration potential including three conventional exploration prospects on Block 177 with an estimated 133 mmbbls of UPIIP;-- Attractive fiscal regime;-- Close proximity to existing infrastructure; and-- Basic shares outstanding 85.0 million.(1)1. Assumes that all stock options, deferred common shares, and incentive shares of Petrominerales are settled for cash prior to closing of the proposed Arrangement. The actual impact of all or any of the Petrominerales stock options, deferred common shares, and incentive shares cannot be assured and assumptions made in this respect are solely for the purposes of the calculations set forth herein.



ExploreCo's vision is to be the premier independent exploration and production company in Brazil, maximizing shareholder value by bringing an innovative and entrepreneurial approach to underexploited opportunities. Similar to Colombia, Brazil offers a compelling combination of prospective geology and a favourable fiscal regime. ExploreCo aims to implement a large-scale, repeatable, low-risk, multi-well development program, utilizing advanced technology and completion techniques.

Petrominerales Ltd. is an international oil and gas company operating in Latin America since 2002. Our high-quality land base and multi-year inventory of exploration and development opportunities in Colombia, Peru and Brazil provide long-term growth potential for years to come.

Forward-Looking Statements and Cautionary Language. Certain information provided in this press release constitutes forward-looking statements. Specifically, this press release contains forward-looking statements relating to: (i) the anticipated timing of the Petrominerales shareholder meeting to approve the Arrangement, (ii) the anticipated timing of the closing of the Arrangement, (iii) the exploration and development prospects of ExploreCo, and (iv) planned exploration and development activities of ExploreCo.

The forward-looking statements are based on certain key expectations and assumptions. With respect to the anticipated timing of the Petrominerales shareholder meeting, these include expectations and assumptions concerning the time required to convene the meeting and complete and mail the related information circular. With respect to the anticipated timing of the closing of the Arrangement, these include expectations and assumptions with respect to the timely receipt of all required court, shareholder and regulatory approvals and the satisfaction of all other conditions to the closing of the Arrangement. With respect to the remaining forward-looking statements, these include expectations and assumptions concerning the availability of capital, the success of future drilling and development activities, the performance of existing wells, the testing and performance of new wells, prevailing commodity prices and economic conditions, the availability of labour and services, the ability to transport and market production, timing of completion of infrastructure and transportation projects, weather and access to drilling locations.

Although Petrominerales believes that the expectations and assumptions on which the forward-looking statements are based are reasonable at the time of preparation, undue reliance should not be placed on the forward-looking statements as Petrominerales can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. With respect to the timing of the completion of the Arrangement, these include risks that the required court, shareholder and regulatory approvals are not obtained on a timely basis, on terms acceptable to the parties or at all and risks that other conditions to the completion of the Arrangement are not satisfied. There is no guarantee that the Arrangement will close at the anticipated time or at all. With respect to the exploration and development prospects of ExploreCo, the planned exploration and development activities of ExploreCo and such factors and risks include, but are not limited to: general economic, market and business conditions; fluctuations in oil prices; the test results and performance of exploration and development drilling, recompletions and related activities; timing and rig availability; availability of transportation and offloading capacity, outcome of exploration contract negotiations; fluctuation in foreign currency exchange rates; the uncertainty of reserve estimates and estimates of the value of undeveloped land; changes in environmental and other regulations; risks associated with oil and gas operations; and other factors, many of which are beyond the control of Petrominerales. These and other risks are described further in Petrominerales' annual information form for the year ended December 31, 2012 which has been filed on SEDAR and may be reviewed under Petrominerales' profile at www.sedar.com.

The forward-looking statements contained in this press release are made as of the date hereof. Except as may be required by applicable securities laws, Petrominerales assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Undiscovered Petroleum Initially-In-Place ("UPIIP"). UPIIP, equivalent to undiscovered resources, are those quantities of petroleum that are estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of UPIIP is referred to as prospective resources, the remainder as unrecoverable. Undiscovered resources carry discovery risk. There is no certainty that any portion of these resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of UPIIP at this time.

This news release shall not constitute an offer to sell or a solicitation of an offer to buy any securities and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful. The securities to be distributed pursuant to the Arrangement have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws. The securities to be distributed pursuant to the Arrangement will be offered and sold in the United States pursuant to the exemption from registration set forth in Section 3(a)(10) of the U.S. Securities Act and similar exemptions under applicable state securities laws.



Contacts:
Petrominerales Ltd.
John D. Wright
Chairman of the Board
+1403.705.8850 or +571.629.2701

Petrominerales Ltd.
Corey C. Ruttan
President and Chief Executive Officer
+1403.705.8850 or +571.629.2701

Petrominerales Ltd.
John Koch
Chief Operating Officer
+1403.705.8850 or +571.629.2701

Petrominerales Ltd.
Kelly D. Sledz
Chief Financial Officer
+1403.705.8850 or +571.629.2701
ir@petrominerales.com
www.petrominerales.com





Source: Marketwire