Pacific Rubiales to expand in Colombia with C y C Energia deal

Offer of C$7.81 is at 4 pct premium to C&C's Friday close

Deal expands Pacific Rubiales presence in Llanos basin

Shares of C&C Energia rise as much as 25 pct

Canadian oil and natural gas producer Pacific Rubiales Energy Corp will buy rival Colombia focused C&C Energia Ltd in a deal valued at about C$500 million ($500 million) as oil production in the South American country regains momentum after years of decline.

Colombia, Latin America's fourth-largest oil producer, hopes for a 20-fold increase in oil reserves to 41 billion barrels by 2.030.

The acquisition gives Pacific Rubiales access to four blocks in the prolific Llanos basin, which contains Colombia's largest producing oilfield the Rubiales. 

The oilfield accounts for most of Pacific Rubiales's gross operated production.

C&C Energia, which currently produces about 11,500 barrels of oil per day, holds interests in eight blocks in Colombia spread over 597,000 acres. It operates seven of these blocks.

Pacific Rubiales produced 97,142 barrels of oil equivalent per day, net of royalty, in the quarter ended Sept. 30.

C&C Energia's light oil production can be used to meet growing requirements for diluent to mix with heavy oil production at a lower cost, Pacific Rubiales said. 

A diluent is used to dilute heavy oil to help it move through pipelines.

"They are buying light oil production right next to where they have heavy oil production. 

They are adding to their own light oil inventory, which should potentially eliminate the amount of light oil they need to buy in the open market," said Raymond James analyst Rafi Khouri.

Shares of C&C Energia, which had a market value of about C$479 million as of Friday close, rose 25 percent to C$9.41 on the Toronto Stock Exchange on monday.

Shares of Pacific Rubiales, which has a market value of about C$6.54 billion, fell 2 percent to C$21.72.

"There is not probably a lot of upsides on those blocks," analyst Ian Macqueen of CIBC said. "I am neutral to it."

Shares of Petrominerales Ltd, which operates in the Deep Llanos basin, rose 5 percent to C$7.92.

Pacific Rubiales's offer of about C$7.81 per C&C Energia share represents a premium of 4 percent to the stock's Friday close of C$7.50.

Each common share of C&C Energia will be exchanged for 0.3528 common shares of Pacific Rubiales and one common share of a new exploration company, Pacific Rubiales said.

Pacific Rubiales is likely to retain a 5 percent stake in the new exploration company, which is expected to acquire C&C Energia's interests in the Coati, Andaquies, Morpho and Putumayo 8 blocks in Colombia and receive cash of about $80 million from C&C Energia.

C&C Energia values the new exploration company, which will be led by its Chief Executive Randy McLeod, at about C$2.00 per share, representing a combined offer of about C$9.81.

The transaction, which provides for a non completion fee of C$15 million, is expected to close in the first quarter of 2.013.

GMP Securities L.P advised Pacific Rubiales, while FirstEnergy Capital Corp was the adviser for C&C Energia.