The scheme devised by the senior management team of Petro Rubiales is centered around the trucking of the Rubiales field production (12.5 degrees API) to the Guaduas tank farm in the central region of Colombia. Once there, the Rubiales crude will be diluted with light crude oil up to 18 degrees API (pipeline grade). The diluted stream will then be injected into the pipeline system that leads to the export terminal of Covenas on the Caribbean coast of Colombia, as part of the Vasconia crude stream (Vasconia is a Colombian 25 degrees API commercial segregation). The operation will begin with a volume of 4,000 barrels per day of diluted crude, depending on the quality of the diluent available.
The Guaduas tank farm is owned by Pacific Stratus Energy Ltd., a Canadian company which recently entered into an agreement to merge with Petro Rubiales to create one of the largest independent E&P companies in Colombia (see news release dated, November 12, 2007).
This new operation will significantly improve the net back of the Rubiales crude as a result of two concurring effects. The first is a significant reduction in current transportation costs as a result of shortened trucking distance to the selling point (Guaduas tank farm), and the other being a significant increase in value by directing the crude to the international market, rather than to the local, domestic market. Management expects that at today's oil prices, the barrels of oil handled through this new arrangement will yield a value in excess of $60 per barrel, an almost $24 per barrel of additional netback, as compared with present values.
Petro Rubiales is currently constructing new facilities nearby Guaduas. Upon completion (expected within three months), the facilities will be able to handle up to 20,000 barrels per day of diluted crude, enabling the whole of Rubiales' net production (around 14,000 barrels per day) to go through Guaduas, allowing the company to benefit from the improved values. This new scheme, and the collaboration with Pacific Stratus, emphasizes the type of synergies that will be possible when the merger between the two companies is completed in the first quarter, 2008.
Petro Rubiales has embarked upon an aggressive strategy of increasing the gross production capacity in the Rubiales field (from approximately 24,000 to 126,000 barrels of oil per day), as well as investing in transport facilities to handle the Company's production goals. The Company anticipates constructing a new pipeline with a capacity of 200,000 barrels per day (diluted crude) to join the Rubiales field with the main pipeline system in Colombia, with flow currently scheduled for Q3, 2009. The new pipeline will allow for all of the Rubiales field production to be exported to the international market.
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