Pacific Rubiales Sees 246% Increase in Revenues

Pacific Rubiales released its unaudited consolidated financial results for the three month period ended March 31, 2010, together with its Management's Discussion and Analysis.

Ronald Pantin, Chief Executive Officer, commented, "We are very pleased with first quarter results which continue to show strong production growth, with an increase of 81% in average realized oil and gas sales price reflected in a 246% increase in revenues from the same quarter last year. The company also almost doubled average production of oil and gas sold, going from 34,283 boed to 65,702. Gross operated production increased by 88% from the same period last year, demonstrating the rapid ramp-up in production at Rubiales from the capacity investment we have made in our principal field."

First Quarter 2010 Results Summary

The results for the first quarter of 2010 underline the strength of the company's operational activity, its capacity to increase production and commitment from management to deliver robust financials. Management is focused on realizing challenging operational objectives while continuing the company's ambitious exploration and production ("E&P") investment program. The average WTI price for the period was $78.45 per barrel (bbl) in comparison with $44.53/bbl for the three months ended March 31, 2009, which represents an increase of 76%. As a result, the average combined realized oil and gas sales price for the company for the first quarter of 2010 increased to $64.35 per barrel of oil equivalent (boe) from $35.65 per boe in the same period of 2009, representing an increase of 81%. This last figure demonstrates how the company was able to execute above the norm through its trading and commercial initiatives.

The increase in gross operated production of the company during the first quarter of 2010 was a significant achievement, averaging 129,686 boe per day (boe/d), which is 60,496 boe/d (88%) greater than operated production for the same period of 2009. This growth in operated production came mainly through the increase in production at the Rubiales heavy oil field. As of April 30, 2010, the company's total operated production exceeded 136,000 boe/d for all its fields, which makes the company the fastest growing oil and gas company in Colombia.

In the execution of its commercial strategy, the company continued exporting its oil production to international markets mainly to the USA, China, and Europe, while maintaining a presence in the local market with direct sales to the bunker and industrial sectors. During the first quarter of 2010, the company exported 4.5 million bbl of crude oil, and sold 0.4 million bbl to the Colombian domestic market.

The company significantly increased revenues by 246% to $380.5 million as compared to $110 million in the same period of 2009. This was the result of the considerable increase in production and the optimization of marketing activities, coupled with higher combined crude oil and gas sale prices, as mentioned above. This operational success resulted in increased revenues and increased net income for the period to $32.1 million.

The Oleoducto de los Llanos Orientales ("ODL") pipeline was fully commissioned in this quarter and this project is now a reality that will allow the development of the Rubiales field to its full potential, as well as the leveraging of Quifa and the company's surrounding exploration blocks. Also, in a strategic move due to projected full capacity projected for Colombian pipelines, the company bought firm pipeline capacity in the Ocensa system for 50,000 bbl/d in 2010 and 60,000 bbl/d from 2011 until 2016, which ensures that the company will not experience pipeline transport limitations in the future.

During the first quarter of 2010, the company focused its exploration and appraisal campaign on the Quifa, Rubiales and Moriche blocks, drilling a total of 10 wells at those locations (two exploratory, three stratigraphic and five appraisal wells). The results of one exploratory and two stratigraphic wells, drilled in the northern part of Quifa Block, confirmed the presence of hydrocarbons in prospects "A", "F" and "Q", incorporating a total of 251 mmbbl of certified gross resources for these prospects, and the four appraisal wells, drilled in the southwest of Quifa, confirmed the extension of prospects "H" and "E" to the northeast. At the Rubiales field, one successful appraisal well extended the area of the Rub-147 (prospect "D") to the northeast. In the Moriche Block, one successful exploratory well incorporated a total of 1.22 million bbl of combined proved plus probable (2P) gross reserves, or 0.46 million bbl net reserves before royalties. The total net reserves after royalties reached 0.43 million bbl.

Milestones

• On April 26, 2010 the company announced the final results of the first phase of its exploration campaign from late 2007 through to April 2010, on its Quifa and Rubiales Blocks. These results have led to a declaration of commerciality for the Quifa southwest area and the Rubiales southwest area, an important event for the company as it has focused significant effort and capital to bring these areas into production. The closing of this first phase is a key milestone in the company's strategy to continuously grow our resources, prove new reserves and rapidly bring new areas into our existing production infrastructure. The success of the exploration campaign within Quifa in particular, leading to over 40,000 ha of declared commerciality, is also very significant since it demonstrates the long term viability of the Rubiales region and the Llanos Basin.
• On April 7, 2010, the company announced the successful completion of the first phase of the Synchronized Thermal Additional Recovery (STAR) project, and the kick-off of the second phase, as contemplated by the Memorandum of Understanding (MOU) executed with Ecopetrol on April 6, 2009. During the first phase of the STAR project a number of studies and tests were carried out at the University of Calgary's research laboratories, and on the basis of the same, it has been determined that the Rubiales crude has a stable and controllable ignition point at reservoir conditions, that the fire front thereby generated is stable, and that there is evidence of significant additional recovery potential by using the STAR process at the Rubiales field. These results confirm the feasibility and potential of the technology and clear the way for the next stages of the project.
• On March 16, 2010, the company announced a new oil discovery at the Quifa-24X exploratory well, as well as results of the Quifa-32 appraisal well located in the Quifa Block. The sustained effort and focus in this area continues to show positive results and extends the company's understanding of the Quifa region and its hydrocarbon potential.
• On February 24, 2010, the company announced an update to the independently certified Statement of Reserves Data and Other Oil and Gas Information for all of the company's assets, estimating total 2P reserves at 280.6 million boe (MMboe), net after royalties, having a total net present value (NPV) (10% discount, before tax) of $8.32 billion. Despite a total net production of 12.4 MMboe in 2009, the company's net proven plus probable reserves increased by 34.3%, from 209 MMboe as of December 31, 2008. These reserves represent 1.3 bbl of net 2P reserves per outstanding share as of December 31, 2009.
• During the first quarter of 2010, the company exported a total of 4.5 million bbl of oil mainly to US and China refineries, including eight Castilla crude oil cargoes for 4 million bbl, and one Vasconia crude oil cargo for 0.5 million bbl at an average price of $70.37/bbl, which is a significant commercial accomplishment typifying the quality of our production. The company also maintained its flexible commercial strategy by selling 0.4 million bbl of Rubiales production in the Colombian domestic market, at an average price of $68.26/bbl.
• During the first quarter of 2010 the sales of gas increased, achieving an average of 59.7 mmscf/d of natural gas sold from the La Creciente field at an average price of $4.95/mscf, representing a premium of 41% over the weighted domestic regulated price ($3.51/mscf) and only 7% lower than the Henry Hub natural gas prices in the United States Gulf Coast.
• During the first quarter of 2010, exploration activity mainly concentrated on drilling campaigns at the Quifa, Rubiales and Moriche blocks for a total of 10 wells drilled in these three areas. As a result of this activity, a total of two exploratory, three stratigraphic and five appraisal wells were drilled. The total gross exploration expenditure in the drilling campaign was $25.48 million. As a result of the drilling campaign, the company incorporated a total of 1.43 million bbl gross of oil reserves, and 251 million bbl of certified gross resources. The total net exploration expenditure was $13.42 million. The company incorporated a total of 0.43 million bbl oil net reserves before royalties.
• On March 2, 2010, a capacity test of the ODL pipeline was performed reaching a total of 167,642 bbl during 24 hours of continuous pumping. Over 16 million bbl of diluted crude have been transported from Rubiales to Monterrey since the pipeline entered in operation in October 2009.
• During the first quarter of 2010 the company transported 55,934 bbl/d through the different trucking and pipeline systems, 39,043 bbl/d of Rubiales crude (12.5degrees API), and 16,891 bbl/d of diluents and other crudes produced, and 92% of this volume was transported via the pipeline systems. During this quarter, the company transported through the ODL pipeline a combined volume of 3.64 million bbl of heavy oil and diluents, generating savings in transportation costs for the company of approximately $8 per bbl, or 45% lower in comparison to the truck transportation cost.
• Due to higher realized crude oil prices and a substantial increase in production volume during the first quarter of 2010, the company was able to significantly increase revenues by 246% in comparison to the prior period ($380.5 million during the first quarter of 2010 versus $110 million during the same period of 2009), mainly due to a substantial increase in production volume and trading optimization.
• As of April 30, 2010, the company had reached the historical milestone of exceeding 136,000 boe/d of gross operated production, equivalent to 55,123 boe/d net after royalties. The 136,000 boe/d milestone resulted from the continuous growth in production of heavy oil in the Rubiales/Piriri blocks, further supported by the coming into operation of the ODL pipeline. This volume also incorporates the development of the company's light and medium oil blocks, as well as the natural gas volume produced (at a conversion rate of 6,000 standard cubic feet per barrel) from the La Creciente block and other smaller fields.
• EBITDA during the first quarter of 2010 totaled $229.7 million, which represents a significant increase of 361% compared to the first quarter of 2009 EBITDA of $49.8 million. EBITDA from international sales represented 82% of this amount, while EBITDA from gas and domestic sales contributed 10% and 8%, respectively.
• The company entered into currency risk management contracts in the form of costless collars to reduce the foreign currency exposure associated with operating expenses, as well as general and administrative expenses, incurred in Colombian Pesos. During the first quarter of 2010, the company had currency risk management contracts outstanding totaling $319 million with expiration dates between April and December 2010.
• Total capital expenditures during the period totaled $81.0 million ($72.3 million net of the 30% tax benefit effect in Colombia), of which $13.42 million went into exploration activities including seismic, aerogravimetry, aeromagnetometry and drilling ($1.42 million to geophysics and $12.0 million to drilling of wells). Also, $36.66 million were invested in the expansion and construction of production infrastructure and $30.92 million in production drilling activities.
• The company announced on November 4, 2009 an expanded and fully funded capital plan of $853 million for 2010. With this investment program the company expects to double its net production to reach 92,000 boe/d before royalties at the end of 2010 versus the 2009 year end figure of 40,579 boe/d. The $853 million capital program for 2010 includes $165.5 million for development drilling, $190.8 million foexploration, $471.8 million for production facilities and $25 million to advance the STAR pilot project. This is an increase of $471 million over 2009 capital expenditures. As of March 31, 2010, a total of $81.0 million of capital investments had been made.
• On April 17, 2010 the company closed the syndication of a $250 million unsecured revolving credit facility. Pricing of the facility varies in accordance with the rating assigned to the company's senior debt securities by Standard & Poor's Ratings Group and Fitch Inc. The company will pay commitment fees on the unutilized portion of any outstanding commitments under the facility and regular spread over any disbursed amounts. Based on the company's current rating and expected usage, the commitment fee will be 100 basis points and the applicable margin will be LIBOR plus 325 basis points. Subject to customary acceleration events set out in the credit agreement, or unless terminated earlier by the company without penalty, repayment of the outstanding principal on the facility will be made in full on the second anniversary of the closing date.