Humbled Oil Driller Vows to Change Ways After Restructuring

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(Bloomberg) -- After emerging this week from one of the largest-ever energy-industry debt restructurings, Pacific Exploration & Production Corp. has a new ticker on the Toronto stock exchange and a new mantra: discipline.

The oil and gas producer will target profit rather than growing production at all costs, and limit its geographic focus to Colombia and Peru after divesting assets in Brazil and ditching expansion plans in Mexico, according to new Chairman Gabriel de Alba.

“We are resetting the business plan,” de Alba said in a telephone interview Thursday. “We are transforming the focus from a production orientation to one that is focused on sustainability of cash flow. Certainly profitability for the shareholders and discipline on capital allocation. Those are the main drivers.”

While the message of prudence over exuberance probably will be cheered by investors, it will be cold comfort to those who already lost everything. Pacific failed to make interest payments on bonds in January and March before agreeing to a restructuring proposal put forward by Canadian private equity firm Catalyst Capital Group Inc. and creditors.

The deal, completed this week, reduced Pacific’s debt from $5.4 billion to $250 million, while large shareholders including Mexico’s Alfa SAB and Venezuela’s O’Hara Administration Co. lost millions and small Colombian investors lost everything. Competing restructuring proposals from Alfa and O’Hara were rejected.

Midstream Assets

Suspended since April, Pacific resumed trading in Toronto on Thursday under the ticker PEN CN, with shares rising to C$58. “The company is still undervalued,” de Alba said. “Compared to similar trading companies, there still is room to go.”

To ensure that happens, the driller has become cash-flow positive and will continue cutting costs and improving productivity at Colombian fields, he said. Pacific expects to increase production from 74,100 barrels a day now to an average of 84,000 barrels a day in the second half of next year. That compares with 154,800 at the end of last year, before its contract in the Rubiales field expired in June.

Investments next year of $300 million will be concentrated in Colombia and assume an oil price of about $40 a barrel, de Alba said. The company’s clean balance sheet means the urgency to sell midstream assets including stakes in a port, pipelines and electricity transmission cables has now gone, with “multiple parties” expressing an interest in aggregating similar assets into a joint unit of some kind, he said.

New Era

“We can do more with these assets,” de Alba said. “We can exchange ownership with other parties and build a bigger company that could eventually be floated out.” 

Pacific announced a new board and management on Wednesday, marking the end of an era for the group of Venezuelans who left Hugo Chavez’s Venezuela to found Pacific Rubiales, as the company was formerly known, successfully ramping up production in Colombian fields like Rubiales where other companies had previously failed.

Outgoing Chief Executive Officer Ronald Pantin was head of the services unit at Petroleos de Venezuela SA, where he worked with Pacific’s former President Jose Francisco Arata. Pantin and Arata co-founded the company in 2008 along with Miguel de la Campa and Serafino Iacono, only to see it spiral into liquidity problems after takeovers ballooned debt and crude prices plunged.

After making at least 10 acquisitions of companies and oil blocks at the start of this decade, Pacific then agreed to buy Colombia-based Petrominerales Ltd. for C$935 million in 2013 amid a hunt for light crude assets.

Pantin’s replacement will be chosen by the end of the year, de Alba said.

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