Stake in key Colombian pipeline provides Pacific Rubiales with plenty of options

A small interest in Colombia's most important oil pipeline represents a versatile plum for Pacific Rubiales Energy Corp. in its $935-million takeover bid for fellow Colombia oil explorer Petrominerales Ltd.

Petrominerales has a 5 per cent stake in the 560,000-barrel-a-day Ocensa pipeline, which extends 830 kilometres to Colombia's Caribbean coast from the country's central oil fields. The line moves more than half of the country's oil production.

In response to the deal, analysts are re-running their estimates on the pipeline's value, and it may mean a bump in price for Talisman Energy Inc.'s stake in it, which is also for sale.

"Pipeline infrastructure in Colombia is valuable, especially the Ocensa pipeline," said Darren Engels, analyst at FirstEnergy Capital Corp. "It's probably the most secure, the most stable" in the country.

Pacific Rubiales has several options for the interest, including selling it to a third party to help finance the takeover, folding it into an infrastructure spinoff it was already planning or hanging onto it. The company requires the secure capacity for its production, though it can negotiate that with new owners, should it become an option.

"I would guess, given that the asset is developed, it would be more likely for it to be put into this spin-out now," Mr. Engels said. "It's a cash-flow-generating asset, so it would be appealing to any investors in this new spin-out company."

Pacific Rubiales CEO Ronald Pantin told analysts on Monday that he already has an offer for the Ocensa interest from a private fund, but has not decided whether to accept it.

He said the company has opened a data room and begun roadshows for the spin-off initiative, which would mean selling a 40 per cent stake in its infrastructure interests. They currently comprise shares of two pipelines, Oleoductos de Los Llanos and Oleoducto Bicentenario, and a power transmission line.

"As we have mentioned before, we'll be spinning off parts of it in a private placement, some of those assets, and from there we would have the capability to reduce the debt that we have," Mr. Pantin said.

Petrominerales also has a 9.65 per cent interest in the smaller Oleoducto Bicentenario. Pacific Rubiales valued both Petrominerales' pipeline stakes at $400-million, though it did not break out the value of each. Petrominerales paid $211-million (U.S.) for the Ocensa interest in 2011.

Talisman has 12 per cent of the pipeline, and has said it expects to sell it this year, and the Street consensus for the asset is in the $500-million to $600-million range. That is "looking light all of a sudden," said one Calgary-based analyst.

Interestingly, the Ocensa stake is also part of the break-fee provisions of the takeover. Apart from $60-million (U.S.) that would be paid to Pacific Rubiales should the deal fall through, the suitor would still get the right to make an offer for Petrominerales's pipeline interest in the event the takeover fails to close by Dec. 10.

(Jeffrey Jones is a Globe and Mail Business Reporter.)

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