More fuelThis morning, Pacific Rubiales Energy (PRE-T) announced Q1/15 results. Impact: NEGATIVE. Q1/15 diluted CFPS of $0.50 compared to our $0.65 estimate (consensus was at $0.73). The miss against our estimates was caused by higher-than-expected opex and cash taxes (partially offset by higherthan- expected realized prices and lower-than-expected G&A). Net debt as at March 31 of $5,371 million was $156 million higher than we had expected, due to a combination of lower-than-expected cash flow, higher-than-expected capex, and changes in non-cash working capital. Recall that as announced on May 5, Pacific Rubiales has entered into exclusive discussions in respect of an offer from ALFA SAB (ALFAMM) and Harbour Energy (private) whereby ALFA and Harbour would acquire all of Pacific Rubiales' shares not owned by ALFA for a price of C$6.50 per share, subject to completion of definitive documentation and the requisite approval by the board and shareholders. We continue to assume a relatively high likelihood that discussions will progress to a definitive offer that will result in Pacific Rubiales shareholders being paid C$6.50/share or thereabouts in cash during H2/15. However, we continue to note significant deal risk. If Alfa/Harbour were just as surprised by these financials as we were and wanted to keep their valuation whole in enterprise value terms, this would imply an adjustment to the purchase price of ~C$0.60 is required. We are surprised by how strongly Pacific Rubiales' shares have traded in reaction to the offer announcement and Q1/15 financials, regardless of recent oil price strength. Our perception of downside risk if a deal is not concluded with ALFA/Harbour is increased. As a result, we are lowering our target to C$5.50 and our rating to REDUCE (from Hold). Our target is now based on 0.85x the C$6.50 offer (previously 1.0x the offer price). TD Investment Conclusion Definitive documentation of an offer from Alfa and Harbour is now critical. Pacific Rubiales has a significant track record of operational execution and acquisitions since 2006, delivering growth in production and reserves. It also has a large portfolio of development and exploration projects. As the largest public Latin America-focused independent E&P, we have long viewed Pacific Rubiales as a potential take-out target for large companies (or private equity) wanting to increase their Latin American E&P exposure.