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Pacific Rubiales – Neutral

Attractive fundamentals but limited upside

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July 7, 2014 (www.investorideas.com newswire) We are initiating coverage of Pacific Rubiales with a Neutral recommendation on the notes due to attractive fundamentals that include adequate leverage that compares favorably to other HY issuers, strong profitability with an average 55% EBITDA margin in the last four years, and expected deleverage plans throughout 2014. We begin with a Neutral recommendation on 2019 and 2023 bonds, as they seem fairly priced in relation to comparables and UW on 2021, as it is trading 100bps tighter in spread than its LTM average. The limited upside suggests that the market would already be incorporating the positive fundamentals of the company. Therefore due to our constructive view on the company but fair or even tight relative valuations, we begin with a Neutral recommendation on Pacific.

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The company has had a sound financial profile throughout the years, due to healthy netbacks & cost control initiatives. Its Total Debt/EBITDA of 1.6x compares favorably to the covenant established at 3.5x. This ratio stands in line or even in a better position than other E&P companies in North America such as Rosetta Resources (BB-, 2.7x) and Noble Energy (BBB, 1.6x).

Additionally, the probability of debt issuances in 2014 is low as on the contrary, deleverage plans are underway with the spinoff and monetization of midstream assets. Therefore the Capex for USD 2.5bn should be mostly funded with cash generation.

The main challenge that the company faces coming into the future is the expiration of the contract on the Rubiales field (Jun-16) and its impact on reserves and production. However we are constructive on the potential impact on net production of new fields such as CPE-6 and Rio Ariari, which are expected to be producing 15-25Kboed and 25-35 respectively by 2016

Regards,

Laura Mesa
+(571) 339 4400 Ext 1608
lmesa@credicorpcapital.com

Daniel Velandia
+(571) 339 4400 Ext 1505
dvelandia@credicorpcapital.com

La información contenida en este mensaje es confidencial y para conocimiento exclusivo del destinatario. La información y opiniones contenidas en este mensaje pertenecen únicamente al remitente, excepto cuando en el cuerpo del mensaje se establezca lo contrario y el remitente esté autorizado para enviar dicha información con carácter definitivo y oficial de Credicorp Capital. La información relacionada con su cuenta, los extractos, informes financieros y de productos, sólo será vinculante en la medida en que sea remitida por los canales y en los formatos que Credicorp Capital determine. Las opiniones, conclusiones o cualquier otra clase de información contenida en este correo no relacionadas con los fines del negocio de Credicorp Capital, deben entenderse como personales y bajo ninguna circunstancia son avaladas por Credicorp Capital. Si usted ha recibido este mensaje por error por favor proceda a eliminarlo, y notificar al remitente. De cualquier manera, usted no debe usar, divulgar, revelar, distribuir, imprimir, copiar o adulterar en forma parcial o total este mensaje. Credicorp Capital no se hace responsable por la eventual transmisión de virus o programas dañinos por este medio. Credicorp Capital, no se responsabiliza por eventuales daños o alteraciones como consecuencia de la recepción o uso del presente mensaje.

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