Alfa to Inherit Pacific Rubiales' Output Battle If Bid Prevails

(Bloomberg) -- If Alfa SAB and Harbour Energy Ltd. succeed in buying Pacific Rubiales Energy Corp. they’ll also acquire the oil driller’s battle to avert a steep production decline.

With the expiration next year of an agreement to produce crude from its namesake Rubiales field in central Colombia, the company will try to ramp up production at a nearby block known as CPE-6. That effort has met with slumping prices and community opposition, with some landowners threatening to try to halt the project on concern it’s harming the environment.

“They don’t have anything of any significance that could fill the gap besides those projects in the near term,” Gregory Lesko, a money manager at Deltec Asset Management LLC, said by phone from New York. “I don’t think there’s any way around a production decline. The question is how steep it’s going to be.”

Alfa and Harbour offered to buy Pacific Rubiales, which trades in both Toronto and Bogota, this week for about C$2.1 billion ($1.7 billion) after the collapse in crude prices spurred record losses and pushed up debt, making the stock among the world’s worst performers among oil producers. Pacific Rubiales is now in exclusive talks with Alfa and energy investor Harbour. Alfa, a San Pedro Garza Garcia, Mexico-based conglomerate, is seeking an expanded oil business as its home nation opens production to foreign investment.

Colombia’s state-controlled producer, Ecopetrol SA, said in March that Pacific Rubiales’ contract for its namesake field won’t be extended beyond June 2016. The nation’s largest oilfield accounts for roughly a third of Pacific’s production and 11 percent of total reserves.

‘Critical’ Development

Without the Rubiales field, CPE-6 is “critical” for the company, said Lesko, who manages about $300 million in emerging- market equities, with output from potential projects in Mexico still years away.

The government granted an environmental license in November 2013 for the project, which is currently producing about 1,500 barrels a day, according to an April presentation. Canadian energy producer Talisman Energy Inc. has a 50 percent non- operating stake in the block.


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Copyright 2016 Bloomberg News.

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