Who’s next? The TSX places its bets


Source: Yahoo Finance, Hydrocarbons Colombia

Colombian oil stocks started to creep up on Friday afternoon then shot up at the end of trading. Most stocks jumped when the market opened on Monday and then drifted around after the C&C Energy/Pacific Rubiales announcement to finish as seen in the chart. Only one stock finished lower (Petrodorado) and one stock (Suroco) had its run up entirely on Friday afternoon and opened lower on Monday rather than higher.

C&C Energy – the purchased party – finished up about 28%. Management had estimated the direct benefit of the sale to be a 21% premium over recent trading average and they estimated the value of NewCo to add another 30% to the benefit. So far investors seem to have bought the upside story but discounted somewhat the C&C management estimates.

As is normal, the purchasing party – Pacific Rubiales – gets punished for by the market for the dilution impact. Today the effect was moderate with the stock closing down about 1% which is well within PRE’s normal daily variation.

Bottom-Line: If we treat the magnitude of the increase as a kind of vote by investors about what will happen next, then Canacol is the public’s vote for the next player to fall into the arms of another , at least among the ‘big dogs’ traded on the TSX’s main exchange. Among the more speculative TSX Ventures stocks, it is a split vote between Petroamerica and Suroco. A number of junior companies have publicly stated they are looking for money, partners or both. We won’t speculate on who will be next among the juniors but there will certainly be more transactions over the next quarter or so, perhaps not quite of this size.

Strangely, one of the rumors we heard before the news broke was perennial gossip target Petrominerales but it had a more modest uptick today.

One question we have is who is going to do the buying? Will it always be Pacific Rubiales? Will Ecopetrol get into the fray? Or will we see more ‘business consolidations’ like the deal between Shona and Canacol?