TD Securities energy analyst Jamie Somerville in Calgary raised his price target on Petroamerica Oil Corp. (TO:PTA) to $0.60 this morning from $0.55, citing its relative valuation (particularly on EV/DACF), high netbacks, potential for free cash flow generation, and several high-impact exploration wells planned for the next 6–9 months.
Shares in Petroamerica last traded at $0.35 at press time, showing a potential 70% gain based on TD’s assumptions.
The analyst did not mention Petroamerica’s bidding war for Suroco Energy Inc. (TO:SRN) . Petroamerica and Suroco Energy had entered into a friendly arrangement to merge their Colombian oil businesses before VETRA, a private firm which operates 3 of Suroco’s 5 blocks in Colombia’s Putomayo Basin, announced a series of hostile bids for Suroco, which Petroamerica subsequently countered.
I called businessman and philanthropist Frank Giustra, an experienced natural resources investor who is a large and independent shareholder of Petroamerica, for his opinion on the outcome of the takeover battle.
“I look at behaviour, and we are seeing a lot of hyperbole in VETRA’s news releases. They are clearly chasing Suroco. And they are the operator of Suroco’s assets, which makes me wonder, what info do they have that we don’t? Just askin’.”
Yesterday, Petroamerica said Suroco’s N Sand play on the Put-7 block could add $250 million in value to the combined Petroamerica and Suroco, reflecting a 100% increase in value over VETRA’s offer.
“I am not sure why a Suroco shareholder would want to give up the potential upside for the all cash offer VETRA is proposing,” Mr. Giustra said on our brief call.
The Petroamerica arrangement will be placed before Suroco shareholders for approval at the special shareholder meeting on June 30, 2014 at 10am (Calgary time).
Disclosure: I am long PTA and therefore very biased