(By Balaseshan) CIBC World Markets Inc. analyst Ian Macqueen downgraded the rating of C&C Energia Ltd. (TSE: CZE) to "sector performer" from "sector outperformer" with a C$10 price target.
CZE has entered into an agreement with Pacific Rubiales Energy Corp. (TSE: PRE) whereby PRE will acquire all of the issued and outstanding shares CZE, the analyst noted. Each common share of CZE will be exchanged for 0.3528 PRE share, C$0.001 and one share of a new Colombia-focused exploration company (Newco).
[Related -Avago Technologies Ltd. (AVGO) Q3 Earnings Preview: Going For 20 in a Row]
Macqueen said Newco will be a growth-oriented junior exploration and production company led by Randy McLeod, current President and CEO of CZE. Newco will retain CZE's Colombian exploration blocks in the Putumayo and Middle Magdalena Basins and about $80 million in cash.
CZE plans to drill 3 to 4 wells on its exploration blocks in 2013 with operations focused on Coati (1 well), Putumayo-8 (1 well) and Morpho (1 to 2 wells), the analyst noted. Net capex for 2013 is estimated at about $15 million. The company also plans to evaluate additional exploration and production acquisitions.
CZE is currently trading below the transaction value plus ($7.86/share) plus cash ($1.18/share). Macqueen believes that Newco will be well-funded with significant risked and unrisked upside in its portfolio.
CZE is trading up 1.27 percent at C$8.80 on Wednesday.