Frontera purchases remaining stake in Pacific Midstream
Canada’s Frontera Energy (ticker: FEC) announced the acquisition of Pacific Midstream Ltd, in a move that consolidates Frontera’s holdings.
Frontera will pay $225 million in cash for the remaining 36.6% of Pacific, leaving it as the sole holder of the midstream company. The transaction is meant to adjust the company’s transportation obligations, decreasing costs and allowing it to renegotiate the size of such agreements.
The Canadian E&P, previously known as Pacific Exploration & Production Company, has its operations in Peru and Colombia. The company produces oil mostly. Natural gas makes up only 9% of the 72.4 MBOEPD the company produced in Q2 2017.
Frontera owns a total of 30 blocks in Columbia and Peru, split between seven different basins. The company currently plans to drill 50-60 development wells in 2017, with a further 80-90 workovers and well services. Three exploration wells will also be drilled, and two more may be drilled if the first three are successful.
Source: FEC Investor Presentation
About one third of the company’s production comes from legacy heavy oil in the Quifa blocks, which are producing about 25 MBOEPD net. Frontera expects to use a 65-well infill program and a 15-well vertical program to mitigate current production decline and replace reserves.
Like GeoPark Energy (ticker: GPRK), Frontera is also active in the Llanos basin. Recent development wells have found success, increasing Frontera’s reservoir available to produce. Water injection should begin by year end, improving recovery from 30% to 50%.
Pacific Midstream provides midstream takeaway for Frontera, so the company’s purchase of Pacific will directly affect its operations. Holding the entire company should improve negotiations regarding takeaway commitments, thereby reducing costs.
Source: FEC Investor Presentation
