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Beyond Petrobras: Value and Growth in the 'Other' South American Oil Companies

Jul. 29, 2008 6:40 AM ETGTE, BZP8 Comments
Harry Chernoff profile picture
Harry Chernoff

For most oil & gas investors, South American oil is Petrobras (PBR) and Petrobras is South American oil. Since Petrobras was one of the largest and most successful investor-owned oil companies in the world even before announcing the gigantic Carioca and Tupi discoveries, this focus on PBR is understandable.

It is also shortsighted. With the recent pullback in oil equities, several little known but high growth South American oil stories are also now value stories, especially Gran Tierra (AMEX: GTE), Pacific Rubiales [TSX: PEG], and BPZ (AMEX: BZP). What these three companies have in common are:

  1. a focus on Colombia and Peru – two of the most investor-friendly oil producing countries in the world,
  2. enormous net acreage positions in proven and highly promising basins,
  3. exponential production growth, and
  4. attractive valuations.

With an enterprise value of about $750M, Gran Tierra is the smallest of the three Colombian/Peruvian operators. However, it has the largest net acreage position and the most aggressive drilling program (.PDF). GTE controls almost 6 million net acres in Colombia, Peru, and, to a lesser extent, Argentina. Production has increased from 1,000 b/d in 2007 to more than 4,100 b/d currently, with recent Colombian discoveries promising to continue the production growth (see here and here - .PDF warning.)

At its current run-rate of more than 4,100 b/d and assuming net realizations in the $100/bbl range, GTE would generate annualized EBITDA in the $100M range, implying an EV/EBITDA around 7.5x.

Pacific Rubiales (.PDF) is the largest of the three companies. It expects heavy oil production at its Rubiales field to increase from 12,000 b/d in mid 2008 to 45,000 b/d by the end of 2009. Gas production at its La Creciente field is scheduled to increase from roughly 40 mmcf/d in mid 2008 to 60 mmcf/d by year-end and 100 mmcf/d by

This article was written by

Harry Chernoff profile picture
Harry Chernoff is the chief economist at Pathfinder Capital Advisors, LLC, a specialized investment bank that provides financial advisory and capital-raising services for clients primarily engaged in the oil and gas, and power generation sectors. Mr. Chernoff has 35 years of experience in the energy industry with an emphasis on energy economics and finance, including 24 years at Science Applications International Corp. (SAIC). At SAIC, Mr. Chernoff directed projects on economics, socioeconomics, regulation, valuation, and investment under uncertainty for government and private sector clients in the U.S., Europe, and Asia. Mr. Chernoff’s energy sector specialties are electric power, nuclear power, oil & gas, and energy efficiency and renewable energy. At Pathfinder Capital, Mr. Chernoff concentrates on debt and equity valuation, investment decision-making, and distressed assets in the energy and financial sectors. Mr. Chernoff has a B.A. in economics from The College of William & Mary and an M.B.A. in information systems from Marymount University.

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Comments (8)

How's that vastly over hyped and over valued BZP investment turning out for ya?

For somebody who appears to have some sense, recommending BPZ at $20 was utterly contemptible even with somebody with rose colored glasses.

BPZ, at current $6, is 50-100% over valued to the peer group and is still a sell. The only thing that could justify current price is if they have much better than expected success at Albacora. But that's betting on the come and only nitwits do that.
borisb profile picture
Harry this piece is thoughful insightful stellar
Here are the web links to an article about Brazil and an economic development plan for Brazil to be funded with money generated by Petrobras.

The article became a hot item on Brazzil magazine and also on RGE Monitor. You also can participate on the discussions following the article on both websites.

Published on Brazzil magazine at:

Why Brazil Should Demand the Renationalization of Petrobras.

Published on RGE Monitor at:

Why Brazil Should Demand the Renationalization of Petrobras
i read today that gte is merging with i assume a south american(by the name) oil company to become an international player on a global scale. maybe that is hype but it is worth a look-see.
Thanks for the info. While I own BPZ for some time I was not aware of GTE and PEG. Now, if we only knew the price of oil and gas for the next year or two. Predictions are of an over supply. There are more wells being drilled than ever, especially gas wells. Demand destruction is obvious and alternatives are off to the races. I don't think our govt. will allow deflation to happen - maybe heavy taxation of E&G and substitution of various alternatives. I consider this to be a treacherous time for O&G investments at best.
erniem profile picture
Downside: Possible nationalization of resources a la Venezuela.
elliot_mllr profile picture
Very worthwhile leads. Thanks.
Tim Plaehn profile picture
Great info! Time to do my own research. Thanks for the heads up.
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