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Pacific Rubiales Goes Onshore Papua New Guinea for $345M

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Pacific Rubiales Energy announced Monday that it has signed a binding agreement with InterOil Corporation whereby it can acquire a 10 percent net participating interest in the PPL237 Petroleum Prospect License and the Triceratops structure located within PPL237, onshore in Papua New Guinea for an estimated total investment of up to approximately $345 million.

The investment will be comprised of an up-front down payment of $116 million cash, funding of an agreed exploration work program, and cash payments based on the independently certified resources of the Triceratops structure. The Company's net participating interest is calculated after accounting for a 5 percent total project back-in right of the Government of Papua New Guinea.

"This is an exciting opportunity for the Company to participate in a low risk, high return investment. This farm-in has been structured in a way that limits the Company's down side risk in a very prospective region. The bulk of our investment will only be made if we receive independent certification of the resource potential at the Triceratops structure and once Triceratops is in production, our share of the investment will be funded through a portion of the production Proceeds," Ronald Pantin, Chief Executive Officer of the Company, commented.

Structure of the Farm-in

The Company believes that it is acquiring an interest in high quality assets with significant exploration and future development upside through access to a large potential resource. The farm-in consists of two separate transactions:

  1. Acquisition of a 10% net participating interest in the 290 km2 PPL237 License, accomplished through a U.S.$36 million down payment and funding of 35% of the total expenditures associated with the License's exploration work program consisting of a 250 km 2D seismic program plus the drilling, testing and completion of up to four exploration wells on the block.
  2. Acquisition of a 10% net participating interest in the Triceratops structure, accomplished through a U.S.$80 million down payment and a funding of 35% of the total expenditures associated with a work program consisting of 250 km 2D seismic, the Triceratops-2 appraisal well (currently being drilled by InterOil), and the drilling, testing and completion of six additional exploration and appraisal wells planned on the structure. On completion of all the work program expenditures, an additional cash payment ("Resource Payment") based on independently certified prospect resources of the Triceratops structure will be paid by the Company out of a 70% portion of its proceeds from production. A portion of the initial up-front down payment and approximately 70% of the funded work program are deducted from the Resource Payment.

InterOil will remain the operator of PPL237, but Pacific Rubiales expects to have an active technical role in the joint operations of the license. The work program is expected to be completed in the 2012 - 2014 time-frame. The Company expects to fund its share of the work program's expected capital expenditure by internally generated cash flow.

Strategic Context

The PPL237 License containing the Triceratops structure lies in the lowland and foothills region of Papua New Guinea some 275 km northwest of Port Moresby. InterOil is currently drilling the Triceratops-2 appraisal well which is meant to test a previously discovered gas field identified by wells drilled in 1959 and 2005.

PPL237 lies along trend from the Antelope and Elk gas condensate fields containing an independently certified gross field (best case) contingent resources of 8.6 tcf gas and 129 million bbl condensate, establishing this trend to be a world class hydrocarbon province. The existing and potential resources are being actively explored for the potential to develop a commercial LNG export scheme and condensate stripping operation.

Papua New Guinea is a country with considerable O&G exploration and development potential, and has an attractive and competitive fiscal regime which encourages foreign investment. Government royalties are levied at a fixed 2% and income taxes at 30 percent.

The transaction is subject to the approval of the Papua New Guinea regulatory authority.

WHAT DO YOU THINK?

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