To jointly acquire BP Colombia subsidiary, with associated interests ranging from 31% to 50% in the Tauramena, Rio Chitamena, Recetor and Piedemonte association contracts; a 40.56% interest in the RC4 and RC5 exploration blocks offshore Cartagena; interests in the Cusiana gas processing facility and interests in four pipelines, including a 24.8% interest in the OCENSA crude oil pipeline, which has current capacity of 450,000 barrels per day.
Joint-venture partners Talisman Energy Inc., Calgary, (Toronto: TLM; NYSE: TLM) and Ecopetrol SA have agreed to jointly acquire BP Exploration Co. (Colombia) Ltd., a subsidiary of BP Plc, London, (NYSE: BP), for an aggregate price of US$1.9 billion in cash. The working capital adjustment is estimated at $145 million.
Talisman will acquire a 49% interest in the company for US$858 million, excluding its share of working capital, and Ecopetrol will hold the remaining 51% interest.
Talisman currently holds interests in 14 blocks in Colombia, totaling 5.2 million net acres. The acquisition adds an additional 330,000 net acres adjacent to Talisman's foothills acreage.
Talisman president and chief executive John Manzoni says, "This is an exciting opportunity and an excellent fit with Talisman's strategy of long-term profitable growth. These are tremendous assets that our team knows well. They are attractively priced, with excellent running room and we are partnering with the preeminent oil and gas company in Colombia."
Talisman is targeting production of at least 50,000 barrels of oil equivalent per day in Latin America. According to EIA data, oil production in Colombia averaged 680,000 barrels per day in 2009, an increase of 13% over the previous year, and is expected to exceed 800,000 barrels per day in 2011. "This (acquisition) will add another oil-weighted producing area to our asset mix," Manzoni says.
He further notes that the size of the deal is "very manageable" for Talisman and allows the company "to preserve a strong balance sheet and maintain spending flexibility."
The assets include interests ranging from 31% to 50% in the Tauramena, Rio Chitamena, Recetor and Piedemonte association contracts; a 40.56% interest in the RC4 and RC5 exploration blocks offshore Cartagena; interests in the Cusiana gas processing facility and interests in four pipelines, including a 24.8% interest in the OCENSA crude oil pipeline, which has current capacity of 450,000 barrels per day. Talisman will hold a 49% indirect interest.
The acquisition also provides more than 12,000 barrels of oil equivalent per day net production to Talisman, plus immediate cash flow to fund E&P opportunities on the acreage. BP Colombia holds current production of approximately 25,000 barrels of oil equivalent per day (65% liquids).
Talisman estimates 2P reserves before royalties of 123 million barrels equivalent, with proved reserves of 95 million barrels equivalent (60% oil and liquids). Talisman's indirect interest will be 49%.
BP Colombia currently employs 470 workers, which are expected to remain with the new owners. The transaction adds immediate production and cash flow to Talisman's Latin American asset base.
The deal is expected to close by year-end 2010.
Goldman, Sachs & Co. advised on the transaction.
Talisman believes the deal metrics, approximately US$40,000 per barrel of oil equivalent per day and less than US$9 per BOE of 2P reserves before royalties, are attractive given the resource potential in the country. Royalties are approximately 20%, with an income tax rate of 33%, according to Talisman's estimates.
Additionally, the company holds oil and gas assets in North America, the North Sea, southeastern Asia and North Africa.