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Full Transcript Of Petroamerica Oil's Suroco Energy Acquisition Conference Call

|Includes:PTAXF, Suroco Energy, Inc. (SROYF)

Tuesday April 29, 2014 - 9AM Calgary Time

Petroamerica Oil Corp.(OTCPK:PTAXF, TSX:V.PTA), a Calgary-based junior oil exploration and production company operating in Colombia's Llanos Basin, announced intentions to acquire Suroco Energy (OTC:SROYF, TSX:V.SRN), a Putomayo-basin focused Colombian oil firm, for roughly $100 million in shares on Monday. Management from Petroamerica held a conference call on Tuesday to discuss the planned acquisition.

Listen to the 56 minute call and read the accompanying slides here:

Here is a transcript of that call:


Hello ladies and gentleman and thank you for waiting. Welcome to Petroamerica's Suroco acquisition presentation. All lines have been placed on listen only mode and the floor will be opened for your questions following the presentation. Without further adieu, it is my pleasure to turn the floor over to your host, Executive Chairman, Mr. Jeffery Boyce. Mr. Boyce, the floor is yours.


Yes, thank you. Good morning everyone and thank you for joining us this morning for the Petroamerica webcast to introduce the Petroamerica's proposed acquisition of Suroco Energy. Again, my name is Jeff Boyce and I'm the Executive Director of Petroamerica. In addition, Ralph Gillcrist, our Executive Vice President and COO, will walk you through a presentation that will be prepared to highlight the attributes and rational for our proposed acquisition of Suroco Energy and also for the pro forma company. In addition, Nelson Navarrete, our CEO, and Colin Wagner, our CFO, are also participating in the webcast and we will all be available to answer questions at the end of the presentation.

On behalf of the board and management of Petroamerica, we are pleased to have entered in this arrangement with Suroco and feel that the pro forma Petroamerica will be well-positioned to create significant value for our shareholders in the future.

Suroco has been a highly technically-focused E&P company with a highly prospective asset reserve and production base in the Putumayo Basin of Colombia focused on oil. PTA strongly feels that there's success in building this highly prospective asset base that has been severely overlooked by the marketplace and we'll show you why. Together, with the existing Petroamerica Llanos-focused portfolio, we feel the combined company will benefit from a diverse and balanced asset base, longer life reserves, larger production base and a very strong balance sheet to fully fund the operations of the combined businesses.

Our plan moving forward will be to continue to seek out smart acquisitions to help further grow the company and compliment our on-going exploration activities. And that's in order to create the required mass and scale to compete in the growing Colombian oil and gas market. PTA will continue to be led by its executive team and on closing, a large portion of the Suroco personnel will be joining the Petroamerica team. I will now turn over to Ralph Gillcrist to run through our webcast presentation. Please feel free to ask questions using the webcast submission feature which we will go through and answer at the end of the presentation. I'll hand it over to Ralph now.


Thank you for that Jeff. So I will launch into the presentation. Please take note of the forward looking cautionary statements and then slide four of the presentation which provides a summary of Petroamerica's proposed acquisition of Suroco. The acquisition is to be completed through a plan of arrangement and the ratio is 1.7627 Petroamerica shares for each Suroco share. Based on Petroamerica's closing price prior to the announcement, this equates to an offer price of 57 cents Canadian per share and a 36% premium to their closing price and a 67% premium to their volume-weighted average trading price.

All unexercised options will be cancelled and the warrants will carry over maintaining economic equivalency. Petroamerica plans to pay out Suroco's debt on closing which currently stands at $21.5 million US. As part of the transaction, one Suroco board member will be added to Petroamerica's board. The directors, officers and the principal shareholder of Suroco have entered into voting agreements with Petroamerica. These represent then 19.2% of the issued and outstanding Suroco shares. A reciprocal break fee of $4 million dollars Canadian is payable by either party. Petroamerica does have matching rights for any unsolicited competitor bid and we expect the transaction to close around June 30.

This transaction clearly adds diversity and scale, tremendous growth possibilities in the N Sand play which is currently evolving in the Putumayo Basin of Colombia. The added extra dimension of the combined company should facilitate easier access to capital and also access to new opportunities to grow in the region.

Moving onto slide five, which lays out our strategic rational for combining these two companies. Firstly, this represents a material step towards expanding and growing the company's portfolio adding dimension with the addition of another prolific basin to the portfolio. Secondly, it provides exposure to a potentially prolific play that was developed in the neighbouring country of Ecuador and extends into the Putumayo Basin of Colombia. This is where we envisage most of the future growth of the combined company will come from. Thirdly, we will be bringing over with this acquisition, a very strong technical team that will compliment our existing technical team and which we feel, holds the key to unlocking value in the N Sand play.

Suroco are currently negotiating additional farm-ins in the area that we feel would further consolidate the combined companies position in this play. Fourthly, Suroco currently produces around 2,500 barrels of oil per day, company working interests, of medium gravity high netback crude with netbacks in the region of $50 dollars per barrel and this will increase Petroamerica's current production by 38%.

Suroco will also contribute 3.1 million barrels of 2P reserves, increasing Petroamerica's 2P reserves to 8 million barrels, which represents an increase of 63%. We also see significant potential for adding unbooked reserves in the near-term through low risk appraisal drilling of a new discovery that was announced by Suroco called Quinde West and the last important point concerns operatorship. Suroco qualified as a restricted operator in the 2010 bid round and the plan is the combined company will apply for unrestricted operatorship on the back of experience gained as part of the consortium that operates in the Suroriente Block.

Moving on to slide six. This shows the combined portfolio of the two companies and although we are adding a new basin to the portfolio, the acreage positions are still very focused and capture important play trends in these basins. The combined company will have a nine block portfolio covering more than 778,000 acres gross in both the Llanos and Putumayo Basins. Furthermore, both companies are actively negotiating farm-ins to add to this core position of acreage.

Moving on to slide seven. This acquisition provides PTA with a strong entry point into the Putumayo Basin. The N Sand play was successfully developed in the mid-1990s in northern Ecuador by targeting seismic amplitude anomalies on 3D seismic. During the same time period, very little exploration activity was taking place in the Putumayo Basin in Colombia due to the poor security situation that existed in the area at the time which has resulted in this basin being relatively underexplored. Suroco established a portfolio of four exploration blocks targeting the sweet spot of this amplitude play and they have proved up the extension of this play into Colombia with the Cohembi field development. Also this has been re-enforced by their recent discovery at Quinde West on the Suroriente Block located on the border of Ecuador.

The Suroco technical team has carried out extensive exploration work in the basin, making it well-positioned to add new opportunities that would provide the combined company with increased leverage in this play. Building on this portfolio of properties, gives Petroamerica the opportunity to become one of the dominant N Sand players in the Putumayo Basin.

Moving onto slide eight. This slide is very important as it emphasizes the near-term potential for reserves at Quinde West that have not been included in the 2013 year-end reserves. The Quinde West accumulation was discovered by the Quinde-4 well that was drilled at the end of last year. It's currently producing on long-term tests around 2,600 barrels of oil per day gross from the well-developed N Sand. This discovery is currently being appraised by the Quinde-6 appraisal well. The results of which should be made available to the market shortly. The Qunide-4 test results were not available at year-end and as such, the reserves auditor assigned only 160,000 barrels of working interest oil to this discovery.

Suroco's internal evaluation estimates are that Quinde West discovery potentially holds 25 million barrels of oil in place or just over one million barrels of contingent resources net to Suroco that could easily be converted into 2P reserves with the test results that are now available from the Quinde-4 well, the drilling and test results from Quinde-6 and one additional appraisal well to be drilled this year.

The Quinde West discovery which was drilled on an amplitude anomaly also significantly de-risks the Quinde East prospects on the other side of the fault, which is scheduled to be drilled during the second quarter of this year.

If the listeners would like to pass onto slide nine, this really demonstrates that we see significant potential exploration running room in Suroco's Putumayo acreage. With eleven prospects already identified holding an estimated P 50 working interest under its prospective resources of 16 million barrels net to the company plus an additional 24 million barrels of P 50 prospective resources identified in leads.

Moving on to slide ten, the rational behind an all-paper offer for Suroco was to ensure that the combined [company] would have sufficient financial muscle to exploit the more-than-ample combined opportunity that both companies bring to the table. At the end of March, Petroamerica had a cash balance of approximately $95 million dollars US and upon closing of the deal, we expect to have a cash balance of $62 million dollars. This is after paying out Suroco's debt and the transaction costs. The combined production of the pro forma company is expected to be around 8,800 barrels of oil per day for 2014 which will generate approximately $116 million dollars in operating cash flow for this year.

The combined 2014 capital is estimated at $85 million, which for the remainder of this year includes the drilling of 12 wells, six of which will be high impact exploration wells and the other six will be lower risk appraisal and development wells, resulting in a significant number of catalysts that we can see coming for the rest of this year.

Free cash flow, at the end of this year, is expected to be around $30 million dollars. It's anticipated that the strong cash flow and a healthy balance sheet should provide easier access to capital and fund additional growth opportunities. As a part of this, following closing, we will look at alternative lower cost financing options to replace Petroamerica's existing $31.5 million dollar senior note.

I'd just like to add a cautionary note that these guidance numbers mentioned are preliminary and we will be issuing revised guidance on production, cash flow and capital spending at closing.

Moving to slide eleven. It will illustrate the step change nature of this transaction for Petroamerica. Running through the diagrams right to left, top to bottom, oil production will increase 38% from current production of 6,500 barrels per day to almost 9,000 barrels of oil per day - these are March production averages. It is anticipated after-tax cash flow from operations will increase from $84 million to $116 million, an increase of 38%. Our land holdings will almost double in size, increasing from 457,000 acres to more than 778,000 acres gross and we'll move from five e&p contracts up to nine.

2P reserves will increase from 4.9 million barrel current to 8 million barrels, an increase of more than 63%. The 2P reserves before-tax net present value, discounted at 10%, increases from 195 million to 284 million which represents an increase of 46%. And the P50 working interest prospective resources increases from 26 million barrels to 43 million barrels, representing a 62% increase.

All of these metrics clearly show the transaction has a material impact on the scale of the combined business moving forward.

Moving onto slide twelve, we think that this slide clearly illustrates there is significant potential for the combined company to bridge the valuation gap with where our peer group is trading for some of the key trading metrics.

The top left chart shows on a per barrel flowing basis, the combined company would be trading at $22,562 per barrel which is a 233% discount to that of the peer group which is trading at $75,040 per barrel. On multiples of cash flow, the chart on the top right, at over 2 times the 2014 estimated cash flow, we would be trading at less than half that of our peer group which is trading at four and a half times cash flow for this year.

On a dollar per barrel basis for 2P reserves, the bottom left chart, the gap is less, just a 5% discount to the peer group. And finally the net asset value asset basis which is the bottom right chart, we will be trading at a 29% discount to our peer group. All of these metrics clearly suggest that the share prices of the combined company have a significant potential to be revalued relative to the peer group valuations.

It's important to emphasize as well, that for the 2P reserves and the 2P NAV calculations, we have not factored in unbooked reserves we see coming from the Quinde West discovery.

Finally, moving onto the last slide, here we summarize what we think are the key attributes and strengths of the combined company moving forward. We will have interests in nine E&P contracts focused on high netback, light and medium oil production in two prolific basins, the Llanos and Putumayo. We will be a dominant player in the N Sand play, which we think has the potential to be prolific and will certainly drive the future growth of the company and possibly this basin.

Combined production of just under 9,000 barrels of oil a day will move us one step closer to our nearest peer group of producing companies in Colombia. 2P reserves of eight million barrels with a before-tax net present value discounted at 10% of $284 million. We will have 2014 cash flow from operations of $116 million, which will easily fund the combined capital expenditure program of $85 million and deliver free cash flow at the end of the year of $30 million dollars.

The remaining 2014 drilling program is full of catalysts targeting six high impact exploration prospects and six low-risk appraisal and development wells. The balance sheet is healthy with approximately $62 million at closing and this will enable the company to continue to grow and consolidate its presence in the region.

We will have at closing a total debt position of only $31.5 million and a market cap in the region of $270 million dollars Canadian based on Petroamerica's trading price as of April 25th, assuming 832 million shares outstanding.

The combined company will also attempt to qualify as an unrestricted operator in Colombia on the basis of the experience that has been gained by Suroco as part of the consortium that operates the Suroriente Block.

Thank you for your attention and with that, I will hand you back again to Jeff Boyce, our Executive Chairman, to continue the webcast.


Thanks Ralph for that summary. In closing, I just want to tell you there's more to come with this piece of business, I believe the highly accretive nature of the reserve base done by GLJ as you'll see this unfold over the near-term both with the Quinde West Discovery and other business being done in the region I believe are going to move this company forward and I would just say you don't have all the pieces in front of you today and I can understand why there's a sensitivity to looking at the current picture, but I can tell you and pretty much guarantee with you that there will be some significant other business coming which will enhance both regions and provide a clearer picture to everyone as to where this business is going and what's going to be involved.

And I'd also like to thank you all for joining us this morning. We are extremely excited about the opportunity despite the short term sensitivity in the stock price. We believe that it creates a great opportunity for understanding value and making some serious money for people. I now want to conclude the formal portion of the webcast and open the floor for questions that have been submitted and I will make room for that.

Operator, we're ready to field questions now.


Yes, again if you would like to ask a question on the line, please press star one on your telephone keypad. If you would like to withdraw you request at any time, you can press star two. We do have a question on the line by Andre Baez.


Yes, hi how are you? What does it require to have the status of operator in Colombia and what is the time line for you to gain that status?


Hi, Andre, this is Ralph Gillcrist talking. As you probably know in Colombia, qualification criteria for becoming an operator very much dependant on which bid round the block was launched in. And it can range from having operated production of five hundred barrels a day to a thousand a day to 1P reserves of one million barrels a day to two million barrels a day. You have to have drilled, operated two wells in the last two years as well. So Petroamerica itself, we would actually qualify as a restricted operator and did qualify as a restricted operator for the 2010 bid round as did Suroco. So that would entitle us to apply to be operator of any 2010 bid round block and there are also other financial criteria as well that are required - financial stress tests that you have to meet. So both companies would qualify as restricted operators for blocks that were awarded in the 2010 bid round.

Additionally, the Suroriente block is operated by a consortium of which Suroco is a member of that consortium and the plan is to submit in front of the A&H, the experience, the reserves and the production, and the financial balance sheet of Petroamerica to qualify as an unrestricted operator. Obviously that is subject to the A&H approving that application, but we feel relatively confident that we can gain operatorship that way as an unrestricted operator. Next question?


The next question comes from Nathan Piper. Nathan?


Hi, it's Nathan Piper, RBC Capital Markets. Just a quick question, do you think you have enough scale? I know the temptation is to get the scale to become more relevant to investors, but this deal still leaves you quite a bit short of the peer group that I am sure you were aiming at. What do you think the scale is you really need? Obviously you know of some other things coming down the track that you've mentioned. But what do you think the scale is that you need to target to really get back into the investors' radars?


Yeah, it's Jeff Boyce, maybe I'll answer that question, thank you. Clearly this deal provides a lot of elements towards that scale, it doesn't solve all the challenges in moving to the critical mass that we need. The scale would be focusing on north of 20,000 barrels a day. We feel the inventory and some of the business that we're working on will move us well into that direction, but I would say that this is only the first step and not the only step in moving it into that scale. I mean the market cap's going be somewhere in the 270-300 million. Once people see and understand the value of the business, clearly that needs to move up into the half billion towards a billion. I'd say from a market cap perspective, that's our target, is the billion dollar range. I think there is a valuation gap which can help to you get there. Once we can prove we can execute on this transaction and then go and develop some of the significant resources attached with the assets of the two related companies, but I would say to you that a billion dollars and 20,000 plus boe is our targets over the next year to two years.


The next question comes from Alan Knowles. Alan?


Morning guys. On the Quinde East, is that going to be the Quinde 8 well? Is that the evaluation of that prospect that coming up later here in this quarter or when would you evaluate that side of Quinde?


Hi Al, it's Ralph. So Quinde 8 is actually one of the additional appraisal wells in the Quinde West Discovery, yeah? And Quinde East, which is effectively the amplitude anomaly as it continues across the fault in our presentation we refer to that as Quinde 1 and that will be drilled towards the end of the second quarter.


The next question comes from Jamie Summerville. Jamie?


Hey good morning, thanks guys. Just with regards to potentially attracting more investors, I was wondering if you could comment on the potential for share consolidation and move to the TSX main board?


Hi, Jamie, it's Colin Wagner talking here. It's obvious with the number of shares that will be outstanding that consolidation will be something we'll strongly consider going forward in the future. As far as listing on the big board, again that's something to consider as well, but right now, we kind of like the freedom that being on the Venture provides us and it is still very attractive for us to stay there. It will be just something that we will continue to assess going forward and we will review our options as we move into the next phase of our company's structure.


Thank you.


And Jamie, it's Jeff. I'll just add a little bit to that. As you well know we will not be having a shareholders meeting for the Petroamerica Suroco transaction, only the Suroco's shareholders will be meeting. Clearly that would have been if we had appropriate time to do it. Our meeting is set for the latter part of November this year and I would say that's on the agenda to propose to the shareholders at that time. In the event there's any other business is done, it might be considered at that time, but it is definitely on our radar to address that item in the near term.


The next question comes from Justin Anderson and again if you have a question please press star one on your key pad. Justin?


Thanks guys. I just a question on the prospects outside of Suroriente and just hoping you could comment on which ones you're most excited about and when you might expect to explore those prospects?


Hi, Justin, it's Ralph Gillcrist, yeah? Firstly on Suroriente, we have a number of amplitude anomalies including Cohembi North that we drilled at the end of this year and Diamante as well. The Alea 1848 Block, we have a prospect that is called the Trampa Mixta that they're still waiting for the permits. However, this is a conventional structural Putumayo trap that also has a quite large N Sand amplitude anomaly draped over it. The fact the Suroco holds a 50% working interest in that block obviously makes that material. The Suroco team is also evaluating the PUT-2 Block which has a number of amplitude anomalies. One of the things I would add as well is that Suroco have taken the regional 2D database and they've reprocessed that data set, basically harmonizing the amplitudes to look for these amplitude anomalies, yeah?

So they have a very good understanding of the distribution of the potential N Sand traps. Obviously some of this we can't talk about because there are competitor implications. However on their acreage in Suroriente, in Alea 1848 and in PUT-2, we see significant amplitude anomalies and we're also looking at other amplitude anomalies at other acreages in the Basin. Next question?


The next question comes from Micheal Letros. Again if you have a question please press star one. Michael?


Great, Jeff, just to go back to the comments you've made a couple times on this call that there's significant other business coming. Can you give a size of the context of the future deals, whether the deals will be basically more existing production or if they'll be more exploration in nature and in general is it just one deal or multiple deals? What's your thinking?


Yeah, I would say they're more focused on the low risk exploration component. They're not more production deals immediately, obviously we need to get this piece of business digested and finalized. They are more on what we will call exploration-focused and low to medium risk opportunities. There are a number of them, but let's say more than a couple and they are in negotiation phase not discussion phase, so they are reasonably well along and we will be providing more guidance and detail as we're able to. That's about all the color I can give you at this point in time.


The next question comes from Niel Fagans. Niel?


Yes, thanks for taking my question. I am going back to the N Sand for a moment. I'm not familiar with that play. Can you talk a little bit about what the dry hole costs are on an exploration well and what the cost is to drill, complete and equip an appraisal well? And also infrastructure in the acquired lands, is it extensive? Are you transporting through pipeline or trucking and how do you see that playing out if you make a series of discoveries in these trends?


This is Ralph Gillcrist responding to your question. So the drilling costs obviously depend on depth, but I would say the dry hole costs range from say $7-10 million, including construction of pad. Typically to complete and test, you need to add another two million dollars to that. In terms of infrastructure and evacuation of crude, there are bottlenecks in this part of Colombia. At the moment, the Suroriente consortium, they have a number of evacuation routes for their crude. Some of it is being trucked to Orito(sp?) and there, it goes into the OTV, the Temao (sp?) pipeline that goes to the coast. That's obviously the lowest transportation cost. Also if the loading terminal at Orito(sp?) is full, then it gets trucked up the Upper Magdelena and the Middle Magdelena Valley to various points and even some of the crude is being trucked to the coast. Those obviously the highest transportation costs.

I think the real development that you're going to see moving forward in this part of the Basin is looking towards Ecuador where the OCP heavy crude pipeline has a spare capacity of 300,000 barrels per day. They're expanding the loading facilities at the OCP and in fact the operator or the consortium of Suroriente is negotiating access to that terminal to evacuate some of its crude.

Additionally, Ecopetrol, Suroco and Vetra have built a road that crosses the PUT-7 Block and links with the main Orito(sp?) Ecuador highway which will probably shave a dollar off the transportation costs as well. So I think moving forward, a lot of companies are looking to the spare capacity that we see available in Ecuador and that will have a significant impact on the netbacks that we see. Next question please?


The next question comes from Ian MacQueen. Ian?


Morning guys, can you just comment I think I just seen something about polymer floods in the N Sands. I think waterflooding probably is the norm. Can you comment on the waterflood front and right now if there's any analogues for polymer floods, if there's any reserves booked to polymer floods and how that might unfold in the future.


Sure, so typically with the waterflood, you can expect to add an additional 10% on your base recovery. Now Suroco has implemented a waterflood project and it is working. We're seeing the field re-pressurized and there's not a whole lot of compartmentalization in the field. So everything is pretty well connected, which is what you need for a successful waterflood. On the polymer flood, I would say that you could potentially add another 5-8% recovery and I would also say that at the moment, that's in the very early stage stages.

Suroco has commissioned a feasibility study for polymer additional recovery and we won't have a clear view on that until I would say until the end of this year, but if it works, it does have the potential to add an additional 5-8% recovery. And maybe Nelson can help me here, but I think Ecopetrol has actually implemented some polymer injection type terteriary recovery projects in the Middle Magdelena that have been successful.




I don't know if he dropped off or what happened, but we do have another question on the line from Alan Knowles.


Hi guys, just a follow up to before. I just wanted to check on the N Sand anomalies and if you consider these to be largely de-risked now with the works that's been done or are they mutually exclusive as you go forward? And secondly, on your existing blocks, is your intent to retain all of your existing blocks going forward or would you consider letting some of them go?


Hi Al, this is Ralph again. With respect to the N Sand seismic amplitude anomaly, I think the Suroco technical team basically have the key to predicting N Sand presence in the basin and I would say they have proven that with the development at Cohembi. They have a number of data points that they can calibrate amplitude response to sound thickness. The Quinde 4 well result also fits with the amplitude versus thickness predictions. Quinde 6 will be a key well to further confirm whether that relationship is working. Also on the Ecuadorian side there are a number of big fields basically where the amplitude thickness and sound thickness relationship is working. So I think they're well on the way at de-risking that play.

In terms of our current acreage position, I would say that we are largely comfortable with the land position and the prospectivity that we have on that land position. If anything, we would like to add to that which Jeff alluded to earlier. Probably with the exception of Llanos 10 where we are actively looking for a farm-in partner to bring our working interest down there a bit. But otherwise I like the land holding that we have and I think the company has the financial resources to expand on that and to add new N Sand potential and new potential in Llanos Basin as well. And so we will be focused on growing the portfolio, not divesting. Next question, please?


We also have a question on the line from Nathan Piper. Nathan?


Yeah, Nathan again. Just to ask you a bit more about Putumayo and to understand the structure of the company and given the demands of Putumayo are quite different from Llanos and what experience do you have of operating there and I guess specifically on Putumayo-2, the Cannello well has been challenging. I just want an update on that also.


So this is Ralph Gillcrest again. I think operating conditions in the Putumayo will be more challenging. There still is a security situation in parts of the Putumayo. Community relations are very important and you have to have good people on the ground dealing with the communities. All developments are partnerships. At the moment, we don't actually operate, but if we do move into that position of operatorship it would be important to have a good community security type group also a good relationship with the military. Activity levels in the Putumayo are increasing and the military has a bigger presence because of that and they are protecting oil installations and oil exploration activity. With regards to the issues in Cannelo Sur, given the early stage we are in the transaction, I would rather not comment on that and allow Suroco themselves release that information just because they are much closer to that situation than we are. So Suroco will be coming out with news on that shortly.


I would like to comment about the Putumayo situation. Yes it is more challenging than operating in Llanos Basin, but in the last ten years there has been a dramatic change in security. Now there are more than six companies operating in the area. There are probably more than 30 oil fields that are being produced right now. So in general the situation has improved.


The next question comes from Jamie Summerville. Again, if you want to ask a question please press star one on your telephone keypad. Jamie?


Hey guys, I just wanted to follow up on. I think you recently put out that you qualified for the normal course issuer bid. I know you have your hands full getting this deal done and working on follow up deals, but with the market selling off shares yesterday and today, what's the likelihood you could actually start becoming active on that normal course issuer bid?


There is a high probability that could be implemented. We'll obviously have to review as I mentioned we are working on some other projects which are not incorporated into our current capital budget so I think we'd like to how those unfold, if we can get them completed. And then what that would do to our capital budget going forward before we made any material move in that regard, but clearly, we see the valuation over the last day or two as being very, very compelling and would be looking to utilize that once we have a better feel for these other projects we are working on and if they come to fruition how much capital would be required, but its definitely something that's high on the list of priorities.


We have a question on the line from Michael Letros. Michael?


Just one follow up question. In terms with this acquisition with Suroco, why now and why not a few months ago, let's say six months ago. Has there been something they uncovered or released that finally made you decide to make this transaction? Or what was your thinking about the timing?


Well, I would say to you that we've been looking for a while to strengthen and diversify our portfolio. This isn't the first thing we've looked at, we've looked at numerous things. Clearly there's an ability to get scale. This isn't Suroco's first dance either, to put it bluntly. I think the timing just worked for a number of reasons. From our standpoint, Suroco had done a good job, but when we got in and started evaluating some of the great work they had done here over the last six to twelve months, we were shocked to say the least at the opportunity and the highly prospective asset base they built, we were, like the marketplace, a little unaware. And obviously we were in the position to understand it a little bit better until it fully gets disclosed, but I would say we were very, very pleasantly surprised. Why now? I think the opportunity had come around whereby we wanted to get bigger, we needed to make a decision, do we move this into someone else or do we want to carry forward and operate and grow a bigger business?

With review of that, we determined we wanted to get bigger. Clearly we wanted to add to our reserve base which was one of our issues - a lighter reserve life and this moves us in the right direction. It's high quality reserves done by GLJ, that was important and with these other pieces of business felt that we needed to have a second basin to operate and grow in. And the characteristics of where Suroco was clearly fit the model of what we were looking for. Don't get me wrong, Llanos is a very, very important part of our portfolio and we're continuing to grow it and it has some very good attributes, but we wanted to balance out that portfolio with something a little bit longer term, bigger reserves and I would say that they can scale up the business on the production and reserve side. And we really feel this is a start towards that.


We do have a question on the line from Ed Newhook. Ed?


I wonder if you could tell me if there's a certain threshold at which you would consider other companies would come looking to the new combined company and in fact would you anticipate if there would be interest from some of the larger companies.


Sure, it's Jeff Boyce speaking. You know, at the end of the day, you're trying to attract shareholders and sometimes somebody wants more than 5-10%, they want 100. That's the business. We're open for business trying to grow and add value to this business. If someone comes along, I can't predict what going to happen. Clearly this business is severely undervalued from many of the metrics and even more so over the last couple of days and that clearly makes us susceptible, but at the end of the day, we're trying to grow a business and attract the shareholders that can move it forward. But you know, anything can happen and we're at risk like many of the other guys. We have a high quality portfolio of assets both from the Suroco side and from the PTA side, so definitely there can be interest but we're not waiting around, we're trying grow a business and we'll see what shakes out. But there's a lot of other players trying to get bigger as well, we understand that, and there's not a lot of choices in that marketplace on how and where to get bigger, so we're definitely susceptible, but we're on the growth plan now. Any other questions?


There are no more questions in the queue at this time.


Okay, I think then we're going to close off the call. I would like to again thank you all for participating and by all means we're available at any time to meet or answer any further questions on a one-off basis so we're all available if you have any further questions down the road. I'm going to want to thank you all again for your interest in this transaction and I look forward to working with you all again. Thank you very much.

Disclosure: I am long PTAXF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.