Gran Tierra Energy has agreed to acquire Colombia's PetroLatina Energy for $525m.

The acquisition will include an initial cash payment of $500m at closing and a deferred payment of $25m before the end of this year.

Gran Tierra has plans to fund this acquisition through its current cash balance, available borrowings under its existing credit facilities, a new $130m debt facility and private placement of up to $173.5m subscription receipts.

PetroLatina has assets in the Middle Magdalena basin in Colombia, where it conducts independent explorations and has a production company.

Gran Tierra considers some key factors such as the growth platform in Middle Magdelena basin with reserves adding to more than 53 million barrels.

This will increase Gran Tierra Energy’s portfolio reserves by 70% to 129 million barrels of equivalent oil.

Gran Tierra forecasts that long term cash flow generation and attractive pro forma operating netbacks can be $30 per barrel.

The acquisition will enhance Gran Tierra’s land position in the Putumayo basin by increasing the company’s WI in PUT-4 Block from 70% to 100% WI and adding the 100% WI PUT-25 block.

According to the acquisition agreement, PetroLatina Energy will be an indirect subsidiary of Gran Tierra Energy. Gran Tierra, PetroLatina and three other key shareholders will hold more than 80% of the shares in the company.

Gran Tierra president and CEO Gary Guidry said: "The Acquisition represents a unique material opportunity in Colombia in terms of scale and upside potential, and will add a new core area for Gran Tierra in the prolific Middle Magdalena Basin.

"The combination of Gran Tierra’s strong, positive cash-flowing asset base and PetroLatina’s attractive portfolio of development opportunities will create a premier Colombia-focused exploration and production company."