RE: Alpha article19 Nov 2019 20:11
Relative to NAV. Between the estimated value of the CPO-5, Platanillo, OBA, Oxy carry, and cash, the net asset value of Amerisur roughly comes to the neighborhood of US$670 million. By paying US$315 million, GeoPark gains the control of assets that are worth US$670 million, with an implied discount of over 50%. In other words, the acquisition helps add approximately US$5.9 per share of additional intrinsic value to GeoPark stock.
Strategic implications
Establishing a strong presence in Putumayo. With the acquisition of Amerisur, GeoPark significantly strengthened its presence in the Putumayo-Oriente Basin (Fig. 4).
Prior to the acquisition, GeoPark already had a small foothold on the Ecuadorean side of the border by winning bids on the Espejo (50% WI, operated by GeoPark) and Perico (50% WI, non-operated) blocks in March 2019 in partnership with Frontera Energy Corporation (FEC.TSX)(OTC:FECCF)(see here; Fig. 2).
Fig. 4. Two core basins, Llanos and Putumayo-Oriente, modified from source.
In contrast to the Oriente Basin on the Ecuadorean side, the geologically contiguous Putumayo Basin on the Colombian side of the border is relatively under-explored and under-developed, thanks to security risks caused by FARC. The peace agreement reached in 2016 between the Colombian government and FARC re-opened up the Putumayo Basin.
As an early entrant, between 2005 to date, Amerisur has gradually built a land package totaling 1.21 net acres (Table 1). McDaniel & Associates estimated a mean of 184 MMbo in consolidated working interest unrisked exploration resources across Amerisur’s Putumayo portfolio (see here). Oxy's farm-in confirms the great exploration potential hidden in these blocks.
Amerisur also built OBA, the only cross-border pipeline in the area and dedicated infrastructure in support of its Putumayo production. OBA materially de-risks the egress of the Putumayo crude oil production; it provides optionality in marketing arbitrage and helps lower operating costs substantially.
It is worth noting that the Putumayo Basin still has residual security risk in spite of FARC demilitarization. There remain some dissident members of the demobilized FARC who refuse to adhere to the 2016 peace agreement and still operate in the area. In October 2018, a pipeline owned by Gran Tierra Energy (GRE) was damaged by a bomb blast triggered by an unidentified armed group, causing fire and oil spillage (see here). The acquisition of Amerisur's Putumayo assets, it seems, may introduce some security risks to GeoPark's asset portfolio.
PTO-5, a significant bolt-on to GeoPark's Llanos asset complex. Adding to its flagship LLA-34, GeoPark recently acquired LLA-87, LLA-86, and LLA-104 totaling 679,292 acres, in an equal-right partnership with Hocol, a subsidiary of the state company Ecopetrol (EC) (see here). With Amerisur's CPO-5, GeoPark assembles a contiguous land position covering more than 1 million gross acres in the heart of the prolific Llanos Basi
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