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Petronova, Pacific Rubiales Farm-In Worth Another Look: Black Spruce Merchant’s Sonny Mottahed

As posted on ceo.ca on March 2, 2014 by Tommy Humphreys

The $65 million market cap Petronova announced a farm-in deal with Pacific Rubiales that will see the tiny oil explorer carried for 4 wells in the largest untested prospect in Colombia, potentially worth as much as $4 billion (40% to Petronova), with drilling starting in this year’s second half. Plus: Petromanas, Petroamerica, Canacol and frontiers of interest in an interview with one of Calgary’s leading independent energy-investment bankers.

Petronova (TSXV:PNA) is poised to take off in 2014.

This from Calgary-based energy investment banker and investor Sonny Mottahed.

Mr. Mottahed in a telephone interview tells us about one company that impresses him a lot.

Colombian oil and gas explorer Petronova just announced a farm in-deal with Pacific Rubiales (TSX:PRE), Colombia’s largest non-state owned oil producer.

Pacific Rubiales can earn into 50% of Petronova’s Tinigua prospect by paying back-costs of U.S. $12.5 million and spending U.S. $33 million for drilling, completing and testing up to four wells. Petronova will keep 40% of the project.

Tinigua could be the largest untested target in Colombia, Mottahed believes, with unrisked potential of 159 million barrels of medium to heavy oil.

If proven successful, those barrels could be worth between $20 and $25 in the ground. Petronova’s 40% could be worth $1.27 billion to $1.6 billion, which is impressive considering the company’s market cap today is $65 million.

Our request for comment sent to Serafino Iacono, co-founder and co-chairman of Pacific Rubiales, was responded with two words, “Good grounds.”

The first exploratory well at Tinigua will start drilling in the second half of 2014.

Petronova has a second asset in Colombia, the PUT-2 block (75% working interest), which just drilled its first well; results are expected any day now. Success there could lead to an early production scenario.

“Management may not come across as the most promotional, but they are capable, focused and experienced,” Mr. Mottahed said. “If they are successful at PUT-2, watch out.”

[This is Sonny Mottahed’s first appearance in these CEO.ca blogs, and we are grateful to him for sharing his time and ideas with us.]

PNA Weekly Chart

CEO Technician: There is a big 2 year base here but PNA needs over $.40 to get the excitement going. (Stockcharts.com)

Mottahed owns other energy names in Colombia, including Petroamerica Oil Corp. (TSXV:PTA), a 6,000 barrels per day light-oil producer trading at 1.4 times cash flow. Mr. Mottahed says the company has a strong exploration track record and has been creative in its deal making, even as Petroamerica receives little recognition in the stock market. Petroamerica soon will show results from its sole risk La Guira 2 well. Barring success at La Guira 2, Mottahed expects the stock could see a tailwind of new buying interest after the expiry of 80 million $0.35 cent warrants on May 9, 2014.

PTA Weekly

CEO Technician: PTA has formed a very tight range around .28-.32; there is some evidence of quiet accumulation. A strong push above .35 would be very constructive and move towards a longer term breakout targeting .50+. (Stockcharts.com)

Canacol (TSX:CNE), having climbed 200% in recent months, is another Mottahed favourite.

“It’s had a huge run, but they have an incredible asset portfolio, and results from their Exxon well are imminent; so it’s very easy to be excited about Canacol.”

CNE Canacol

CEO Technician: Heavy accumulation within recent bullish consolidation – $10 is certainly achievable for CNE by June. (Stockcharts.com)

Petromanas Energy (TSXV:PMI) came up multiple times during our call. That company saw its share price rise to $0.205 from $0.14 last week after a report by Oil & Gas Investments Bulletin’s Keith Schaefer suggested Petromanas could deliver 20-fold returns to investors. Petromanas is developing its early stage onshore deep light-oil discovery in Albania with Royal Dutch Shell.

Mr. Mottahed says Petromanas Energy’s assets as they exist today could substantiate a share price of $0.70.

“These guys are onto something that looks like it is out of this world, enormous,” he says.

“Actually getting oil up and putting it into tanks and selling it will probably go a long ways in the eyes of any doubters of this discovery.”

Mottahed says the company’s second well, Molisht-1, probably will be cheaper and more efficient than its first well, Shpirag-2. Still, the banker warned that the play could take 2 to 3 years to mature, albeit with lots of milestones that could keep investors’ eyes on Petromanas.

PMI

CEO Technician: High volume breakout last week in PMI, needs to hold above $.25 to confirm and target $.40. (Stockcharts.com)

We discussed a few of Sonny Mottahed’s favourite frontiers in the international energy business in 2014.

He credited Peru for encouraging exploration investment and said that Gran Tierra (TSX:GTE) has drilled a “monster” discovery there.

GTE Weekly

CEO Technician: Big bearish engulfing candlestick on volume last week although GTE is in a very nice long term uptrend. Above $8.50 it’s no problem but it looks a little dangerous here in the short term. (Stockcharts.com)

Nigeria, where Mottahed once lived and worked and keeps close connections, is a tough place to do business but has a robust hydrocarbon system, the financier said.

“We think the onshore in Nigeria has a lot of low hanging fruit.”

Mottahed also is looking at early stage opportunities in Indonesia.

Junior energy companies have a very high risk of going bust. They are not suitable for most investors, he reminds us.

“No matter how good the science, geology or close-ology may be, you never know what Mother Nature is going to turn up until you turn the drill bit to the right far enough to figure it out.”

Sonny Mottahed, 41, was born in Los Angeles, the son of an oil executive with Exxon-Mobile. The family lived in ten cities during Mottahed’s childhood and after university, he joined the oil and gas business in Nigeria. He then relocated to London, and Houston, before settling in Calgary, Canada’s energy finance capital, in 2004.

In Calgary, Mottahed is growing Black Spruce Merchant Capital (BCMC) with two partners, Jeff Barber and Dave Cheadle. The three men have worked together for the past eight years at Canaccord, Raymond James and now BCMC. Collectively, they have executed more than 300 transactions, including financings and mergers-acquisitions, Mottahed said.

The six-person BCMC team invests in and advises early-stage energy businesses.

Some 70% of the firm’s business today comes from the international sector, while BCMC is also active in domestic Canadian energy names.

Jeff Boyce, Co-Founder and Former CEO of Vermillion Energy and Executive Chairman at Petroamerica Oil, does business with BCMC and told us what gives Sonny Mottahed his edge.

“Sonny is intuitive and creative in finding solutions to financial and business dealings. He also has one of the most extensive contact bases, along with being one of the more likeable and street-smart financial people I have dealt with in my 33-year career.”

Learn more about Black Spruce Merchant Capital by visiting their Web site and follow them on Twitter (@BlackSpruceMC) for updates from their portfolio and the oil and gas industry.

Disclaimer: Black Spruce has a business relationship or Sonny Mottahed is an investor in all of the companies mentioned in this article. Author has a financial interest in Petroamerica Oil Corp. and Petromanas Energy. Mr. Mottahed’s comments are his opinions solely and are in no way assurances of one outcome or another. Views expressed in this article are NOT to be considered individual investment or professional advice of any kind. All facts are to be verified by the reader. Always do your own due diligence. Thank you.

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Petromanas to Acquire Gallic Energy as Part of Continental European Strategy

CALGARY, ALBERTA, October 2, 2012 – Petromanas Energy Inc. (“Petromanas” or the “Company”) (TSXV: PMI) and Gallic Energy Ltd. (“Gallic”) (TSXV: GLC) are pleased to jointly announce that they have entered into an agreement (the “Arrangement Agreement”) whereby Petromanas will acquire 100% of the issued and outstanding class A shares of Gallic (“Gallic Shares”), in exchange for common shares of Petromanas (“Petromanas Shares”), by way of a statutory plan of arrangement (the “Arrangement”). The
transaction is expected to close in the fourth quarter of 2012 provided all required Gallic security holder, court and regulatory approvals are obtained.

Under the terms of the Arrangement, holders of Gallic shares (“Gallic Shareholders”) will receive, in exchange for each Gallic Share held, 0.3736 of a share of Petromanas (the “Exchange Ratio”). The Exchange Ratio represents a value of approximately $0.07 per Gallic Share, based on the volume weighted average price of Petromanas Shares on the TSX Venture Exchange (the “TSXV”) for the ten trading days ended October 1, 2012 and a premium of 11% to the volume weighted average price of Gallic Shares on the TSXV for the same period.

In addition, under the terms of the Arrangement Agreement, all of Gallic’s outstanding options will be exercised in accordance with their terms, or, surrendered or otherwise terminated prior to the closing of the Arrangement. Pursuant to the Arrangement, all holders of Gallic warrants will receive replacement warrants of Petromanas exercisable for Petromanas Shares equal to that number of Gallic Shares which were otherwise issuable upon exercise of the Gallic warrants previously held, multiplied by the Exchange Ratio, with the exercise price adjusted accordingly. Petromanas anticipates issuing an aggregate of approximately 62.65 million common shares in connection with the Arrangement, at a deemed purchase price in respect of the Arrangement of approximately $10 million. After giving effect to the Arrangement, Petromanas will have approximately 693 million common shares outstanding.

“This transaction provides shareholders of both companies with an opportunity to access an expanded portfolio of European assets on favourable terms,” said Glenn McNamara, CEO of Petromanas. “Petromanas has always planned to diversify and complement its Albanian exploration portfolio with additional European assets. The combined exploration assets are focused on proven petroleum producing basins and offer exposure to a variety of play and commodity types while diversifying risk across the portfolio. Our subsurface expertise currently being utilized in Albania is a very good fit for Gallic’s naturally fractured carbonate assets in France’s Aquitaine Basin. In addition, fiscal terms, regional commodity prices and infrastructure access in France are very attractive for conventional assets. We feel this is a cost effective way to expand Petromanas’ exploration portfolio and our solid balance sheet will permit ongoing exploration activities across the unified asset base to proceed in an orderly and timely fashion from a position of strength.”

The Arrangement Agreement provides for, among other things, a non-solicitation covenant on the part of Gallic, subject to customary “fiduciary out” provisions, that entitles Gallic to consider and accept a superior proposal and a right in favour of Petromanas to match any superior proposal. If the Arrangement Agreement is terminated in certain circumstances, including if Gallic enters into an agreement with respect to a superior proposal or if the Board of Directors of Gallic withdraws or modifies its recommendation with respect to the proposed transaction, Petromanas is entitled to a termination payment in cash of $350,860. A complete copy of the Arrangement Agreement will be available under Petromanas’ issuer profile on SEDAR at www.sedar.com.

The Gallic Board of Directors, after consulting with its financial and legal advisors, has unanimously (other than one Gallic director who recused himself from the process of considering the proposed transaction) determined that the Arrangement is in the best interests of Gallic and that the consideration being offered to Gallic Shareholders is fair, from a financial point of view, to the Gallic Shareholders. The Gallic Board has resolved to unanimously recommend that Gallic Shareholders and Gallic warrantholders vote their shares and warrants in favour of the Arrangement at the special meeting (the “Gallic Meeting”) of Gallic Shareholders and warrantholders (voting together as a single class) to be held on or about November 30, 2012.

The directors and senior officers of Gallic have entered into support agreements with Petromanas to vote their Gallic Shares and Gallic warrants in favour of the Arrangement at the Gallic Meeting. Completion of the transaction is subject to customary closing conditions, including court approval of the Arrangement; approval of two-thirds of the votes cast by holders of Gallic Shares and Gallic warrants (voting together as a single class) in person or by proxy at the Gallic Meeting; and applicable government and regulatory approvals by, among others, the relevant authorities in Canada, France and Australia (if required).

Full details of the transaction will be included in an information circular to be mailed to Gallic Shareholders and warrantholders in accordance with applicable securities laws. A copy of the information circular and related documents will be filed under Gallic’s issuer profile on SEDAR at www.sedar.com.

Black Spruce Merchant Capital Corp is acting as financial advisor to Petromanas with respect to the Transaction. Raymond James Ltd. has provided the board of directors of Petromanas with its verbal opinion that, subject to its review of the final form of documents effecting the Transaction, the consideration payable pursuant to the Arrangement is fair, from a financial point of view, to the shareholders of Petromanas. National Bank Financial Inc. is acting as strategic advisor to Petromanas. Petromanas’ legal advisor is Norton Rose Canada LLP.

Gallic’s Board of Directors has received a fairness opinion from Macquarie Capital Markets Canada Ltd. that, subject to the assumptions and limitations contained therein, the consideration to be received by Gallic Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Gallic Shareholders. Gallic’s legal advisor is Davis LLP.

 

About Gallic Energy Ltd.

Gallic is an international oil and gas company with assets in France and Australia. Current operations are focused on France and, in particular, on the Aquitaine Basin where Gallic holds a 100% working interest in approximately 320,000 net acres of exploration lands. Gallic also holds acreage in the prospective Canning Basin in Australia.

For further information with respect to Gallic Energy Ltd. please contact:

William H. (Bill) Smith
President and Chief Executive Officer
Gallic Energy Ltd.
Tel: (403) 930-7533

or

Dean Callaway
Vice President Finance and Chief Financial Officer
Gallic Energy Ltd.
Tel: (403) 930-7534
info@gallicenergy.com

 

About Petromanas

Petromanas is an international oil and gas company focused on the exploration and development of its assets in Albania. Petromanas, through its wholly-owned subsidiary, holds three Production Sharing Contracts (“PSCs”) with the Albanian government. Under the terms of the PSCs, the Company has a 100% working interest in Blocks A, B, D, and E and a 50% working interest in Blocks 2 and 3 that comprise more than 1.4 million gross acres across Albania’s Berati thrust belt.

For further information with respect to Petromanas Energy Inc. please contact:

Glenn McNamara, CEO
Hamid Mozayani, COO
Bill Cummins, CFO
Petromanas Energy Inc.
Suite 1720, 734 – 7th Avenue SW
Calgary, Alberta
Canada T2P 3P8
Tel: +1 403 457 4400
Fax: +1 403 457 4480
Email: info@petromanas.com

Website: www.petromanas.com

The Equicom Group
Nick Hurst
300 5th Avenue SW, 10th Floor
Calgary, Alberta
Canada T2P 3C4
Tel: +1 403 218 2835
Fax: +1 403 218 2830
nhurst@equicomgroup.com

 

Forward-Looking Information

This press release contains forward-looking forward-looking information and statements within the meaning of applicable securities laws and are based on the expectations, estimates and projections of management of Petromanas and Gallic as of the date of this news release unless otherwise stated. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, ”believe”, “plans”, “intends” and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking information and statements concerning: the anticipated benefits of the Arrangement to Petromanas and Gallic and their respective shareholders, including anticipated synergies; the timing and anticipated receipt of required regulatory, court and securityholder approvals for the transaction; the ability of Petromanas and Gallic to satisfy the other conditions to, and to complete, the Arrangement; the anticipated timing of the mailing of the information circular regarding the Arrangement, the holding of the Gallic Meeting and the closing of the Arrangement.

In respect of the forward-looking information and statements concerning the anticipated benefits and completion of the proposed Arrangement and the anticipated timing for completion of the Arrangement, Petromanas and Gallic have provided such in reliance on certain assumptions that it believes are reasonable at this time, including assumptions as to the time required to prepare and mail securityholder meeting materials, including the required information circular; the ability of Petromanas and Gallic to receive, in a timely manner, the necessary government, regulatory, court, securityholder, stock exchange and other third party approvals, including but not limited to the receipt of applicable competition approvals and foreign government approvals; the ability of Petromanas and Gallic to satisfy, in a timely manner, the other conditions to the closing of the Arrangement; and expectations and assumptions concerning, among other things: commodity prices and interest and foreign exchange rates; planned synergies, capital efficiencies and cost-savings; applicable tax laws; future production rates; the sufficiency of budgeted capital expenditures in carrying out planned activities; and the availability and cost of labour and services. The anticipated dates provided may change for a number of reasons, including unforeseen delays in preparing meeting materials, inability to secure necessary securityholder, government, regulatory, court or other third party approvals in the time assumed or the need for additional time to satisfy the other conditions to the completion of the Arrangement. Accordingly, readers should not place undue reliance on the forward-looking information and statements contained in this press release. In respect of the forward-looking information and statements, Petromanas and Gallic have provided such in reliance on certain assumptions that it believes are reasonable at this time, including assumptions in respect of: prevailing commodity prices, margins and exchange rates; that Petromanas’ future results of operations will be consistent with past performance and management expectations in relation thereto; the continued availability of capital at attractive prices to fund future capital requirements relating to existing assets and projects, including but not limited to future capital expenditures relating to expansion, upgrades and maintenance shutdowns; the success of growth projects; future operating costs; that counterparties to material agreements will continue to perform in a timely manner; that there are no unforeseen events preventing the performance of contracts; and that there are no unforeseen material construction or other costs related to current growth projects or current operations.

Since forward-looking information and 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. These include, but are not limited to the risks associated with the industries in which Petromanas and Gallic operate in general such as: operational risks; delays or changes in plans with respect to growth projects or capital expenditures; costs and expenses; health, safety and environmental risks; commodity price, interest rate and exchange rate fluctuations; environmental risks; competition; failure to realize the anticipated benefits of the Arrangement and to successfully integrate Gallic and Petromanas; ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws and environmental regulations. Risks and uncertainties inherent in the nature of the Arrangement include the failure of Petromanas or Gallic to obtain necessary securityholder, government, regulatory, court and other third party approvals, or to otherwise satisfy the conditions to the Arrangement, in a timely manner, or at all. Failure to so obtain such approvals, or the failure of Petromanas or Gallic to otherwise satisfy the conditions to the Arrangement, may result in the Arrangement not being completed on the proposed terms, or at all.

Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on other factors that could affect the operations or financial results of Petromanas, Gallic and the combined company, are included in reports on file with applicable securities regulatory authorities, including but not limited to; Petromanas’ Annual Information Form for the year ended December 31, 2011 which may be accessed on Petromanas’ SEDAR profile at www.sedar.com and the Annual Information Form of Gallic for the year ended December 31, 2011 which may accessed on Gallic’s SEDAR profile.

The forward-looking information and statements contained in this press release are made as of the date hereof and Petromanas undertakes no obligation to update publicly or revise any forward- looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

SOURCE: Petromanas Energy Inc.

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