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$Colombia and Latin America
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Re: Pacific Rubiales Energy shares go to zero Certainly in hindsight, Pacific Rubiales Energy over-extended itself: outside the Colombia comfort zone, into expensive, highly-risky, long-term pay-off offshore adventures and too many heavy oil projects at once. Even close by Peru was not kind to PRE. The net debt to cash flow ratio was already alarmingly high when the share the price was still over C$20 and oil prices hovered near US$100 a barrel. PRE was quick to spend and acquire but slow to shed when the acquisition turned south or met with shareholder and peer disapproval. As our quebecois co-citizens like to say, the company "took up too much space" with lavish sponsorship schemes and constant bragging. This insatiable desire to constantly show off has taken down more than one flashy, fast growing enterprise. PRE would have been better off integrating more Colombians and other experienced oil sector ex-pats into the board of directors and senior management. Too many Venezuelans spoil the broth. They may look and sound all the same these South Americans to unfamiliar North Americans but the differences between national characters and moods are nonetheless significant. Politics and respect matter in places like Colombia just like everywhere else. As an investor, I made lots of mistakes. The biggest one that comes to mind is not understanding the nature of the LNG export contract and how the price was tied directly to benchmark oil prices. I did see LNG prices weakening over the longer run in response due to growing world-wide production (and for that reason alone steered clear of British Columbia-levered LNG plays) but mistakenly believed that that near-term, the LNG exports would buffer any oil price weakness. All in all, the PRE fiasco makes the the conservatively run, understated Canadian, American and British explorers and producers look good by comparison. But the experience also illustrates the huge economic potential of Venezuela under modern, sophisticated political management. Something the polar opposite of the envy-driven, populist, anti-technocratic, anti-market leadership of the Chavistas. It is probably safe to say that the social opportunity cost of Chavez and Maduro regimes has been absolutely devastating. Perhaps worse than any other Neo-Marxist poisoned regime anywhere on the planet. |
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