A strategic inflection point was taken today by BPZ Energy (BPZ).
Joint Venture with Pacific Rubiales at Block Z-1
On April 27, 2012, BPZ formally announced a much anticipated joint venture with Pacific Rubiales Energy Corp. (PEGFF.PK) to explore and develop offshore Block Z-1. Pacific Rubiales will pay BPZ $150 million in cash and has committed $185 million for BPZ's share of capital and exploratory expenditures in Block Z-1, in exchange for a 49% participating interest. BPZ will retain a 51% operating interest and Pacific Rubiales will contribute technical and operational expertise.
Click here for the joint venture news release.
BPZ owns interests in four blocks in Peru covering approximately 2.2 million undeveloped acres, and has license contracts for exploration in offshore Block Z-1, which includes the Corvina and Albacora oil fields and are the company's near-term focus projects. In addition to Block Z-1, BPZ has been actively acquiring and evaluating seismic data in its onshore Peru Blocks XIX (100% WI), XXII (100% WI) and XXIII (100% WI).
Source: BPZ Energy
At year-end 2011, BPZ had 35 million BOE of proved reserves. On June 16, 2011, BPZ announced that it had sought a volumetric amount of unrisked resource potential from Netherland Sewell & Associates, an independent reservoir engineering firm that prepares BPZ's annual reserve report. Click here for the news release. NSAI determined, based on 2-D surveys and well logs, that BPZ's unrisked prospective oil resources on Block Z-1 were an estimated 981 MMBbls of recoverable oil. The NSAI report provides a low estimate of 269 MMBbls and high estimate of 2.7 billion Bbls and is based on the evaluation of 12 prospective hydrocarbon structures on Block Z-1. While many of the evaluated structures have not been drilled, NSAI's report is based on 2-D surveys, well logs from producing and non-producing well bores, and production data from offsetting/analog reservoirs.
OAG360 notes that BPZ reported in its January 2012 corporate presentation that the company budgeted $32 million for drilling at Corvina and another $36 million in infrastructure projects, including $30 million for the CX-15 platform at Corvina and another $6 million for Albacora. In addition, BPZ allocated $22 million for a seismic survey of Block Z-1. Combined, these investments in Block Z-1 assets represent 86% of the company's total estimated 2012 CAPEX budget of $105 million. Needless to say, the joint venture announcement alleviates 2012 capital obligations for BPZ at Block Z-1.
Wall Street was well aware of BPZ's funding gap for the further development of Block Z-1 and BPZ's ongoing search for a joint venture partner. BPZ's Block Z-1 spans approximately 555,000 gross acres, and includes two producing fields (Corvina and Albacora) with proved oil reserves of 34.7 MMBO and production of 3,880 BOPD. This JV not only brings in an estimated $335 million of cash and liquidity to BPZ, it will also accelerate the exploration and development on Block Z-1, and eases pressure on BPZ's funding needs in 2012 and 2013. Based on today's announcement, the deal values Block Z-1 in Peru at approximately $684 million. OAG360 notes that as of April 20, 2012, BPZ had an enterprise value of $694 million.
Paying Down Debt, Strengthening the Balance Sheet
As we mentioned in our previous write-up, "BPZ Energy Reports 2011 Results; Company Discloses its Advancement on a Potential Joint Venture Agreement for Block Z-1", on its Q4'11 conference call in March 2012, BPZ was finishing joint venture documents and mentioned the process should be completed in March 2012 with an announcement being made shortly thereafter.
BPZ said in the joint venture news release that of the $65 million cash received upon signing, $40 million was used to pay down the company's $75 million debt facility due 2014 to $35 million, and the final maturity of the loan was extended to July 2015. In addition, the maturity of BPZ's $40 million GE turbines loan facility was extended to January 2015 from 2013. Combined, these moves relieve near-term debt pressures and provide for increased financial flexibility.
Positive for Pacific Rubiales
Given the recent news flow out of South America regarding the Argentinean government's moves towards expropriating a 51% of the total shares outstanding of YPF, all of which will be taken from Repsol, Peru appears to be a more attractive place for the industry to invest. In Pacific Rubiales' news release, that company said Peru is a country with an attractive and competitive fiscal regime that encourages foreign investment. OAG360 notes, however, the JV is still subject to the approval of the Peru regulatory authority, and that the BPZ-Pacific Rubiales deal marks first production and cash flow for Pacific Rubiales and complements Pacific's existing exploration acreage in the interior Maranon Basin of Peru.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.