Pacific Rubiales Nearly Doubles Revenue in 2Q

Pacific Rubiales announced the release of its unaudited consolidated financial results for the three month and six month periods ended June 30, 2010, together with its Management's Discussion and Analysis ("MD&A") for the corresponding periods.

Ronald Pantin, Chief Executive Officer, commented, "The outstanding financial results achieved this quarter compared to the same period last year reflect our commitment to rapidly growing our Company's total portfolio of assets. With $359.7 million in revenue this quarter, more than double the growth achieved in the same quarter last year, we are clearly demonstrating our ability to take a high quality exploration portfolio into rapid production and commercialization. This is due to our strategic position in Colombia in the areas of transportation infrastructure, commercial flexibility and exploration technology and experience."

The total accumulated revenues for the six months of 2010 totaled $740.2 million, higher by 173% in comparison to the same period of 2009. This was the result of the considerable increase in production and the optimization of marketing activities, coupled with a higher combined crude oil and gas sale price in 2010, as mentioned below. This operational success not only resulted in increased revenues but also in an increase in net income for the period to $47.9 million, compared to a $118.5 million loss for the same period of 2009.

Results, Analysis and Highlights

The results for the second 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 under the umbrella of its paramount strategic focus: growth.

The average WTI price for the second quarter of 2010 was $78.05 per barrel (bbl) in comparison with $59.79/bbl for the same period of 2009, which represents an increase of 31%. As a result, the average combined realized oil and gas sales price for the Company for the second quarter of 2010 increased to $61.45 per barrel of oil equivalent (boe) from $50.12 per boe in the same period of 2009, representing an increase of 22%.

The increase in gross operated production of the Company during the second quarter of 2010 was a significant achievement, averaging 138,382 boe per day (boe/d), which is 65,325 boe/d (96%) 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 and Quifa heavy oil fields. Production continues to grow and as of August 9, 2010, the Company's total operated production has exceeded 147,514 boe/d for all its fields, which, as in previous quarters, continues to make the Company the fastest growing oil and gas Company in Colombia, as well as the country's second largest operator.

In the execution of its commercial strategy, the Company continued exporting its oil production to international markets, namely, USA, Singapore, India and Ivory Coast, while maintaining a presence in the local market with direct sales to the bunker and industrial sectors. During the second quarter of 2010, the Company exported 4.6 million bbl of crude oil, and sold 0.4 million bbl of oil to the Colombian domestic market. In addition, gas sales to the domestic market averaged 61 mmscf/d of natural gas from the La Creciente field.

During the second quarter of 2010, the Company continued its exploration campaign in the Quifa block, drilling a total of five stratigraphic wells. The stratigraphic wells, Quifa 20X and Quifa 22X, drilled in the north-western border of the commercial area, confirmed the presence of hydrocarbons, thereby indicating that the producing area located in south-west Quifa can be extended towards this part of the area. The Quifa 28X, Quifa 33X and Quifa 34X stratigraphic wells, drilled in the south-eastern and north-eastern part of the Block, did not show evidence of oil accumulation, indicating a stratigraphic control in the oil distribution in this part of the block. For the rest of the year, the Company has prepared an aggressive appraisal campaign to delineate the discoveries made on Quifa 20X and 22X, as well as the discoveries made on prospects A, F and Q during the first quarter of 2010.


  • Due to higher realized crude oil prices and a substantial increase in production volume during the second quarter of 2010, the Company was able to significantly increase revenues by 123% in comparison to the prior period ($359.7 million during the second quarter of 2010 versus $161 million during the same period of 2009), mainly due to a substantial increase in production volume, price increase and trading optimisation.
  • As of August 9, 2010, the Company had reached the historical milestone of exceeding 147,514 boe/d of gross operated production, equivalent to 60,247 boe/d, net after royalties. This milestone resulted from the continuous growth in production of heavy oil in the Rubiales/Piriri and Quifa 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 six months of 2010 totaled $432.3 million which represents a significant increase of 341% compared to the same period of 2009 EBITDA of $98.1 million. For the second quarter of 2010 EBITDA amounted to $202.6 million, mainly generated from international sales (86%), while EBITDA from gas and domestic sales contributed 6.5% and 7.5%, respectively.
  • Capital expenditures during the second quarter of 2010 totaled $134.7 million, of which $30.8 million went into exploration activities including seismic, aerogravimetry, aeromagnetometry and drilling ($20.7 million to geophysics and $10.1 million to drilling of wells). Also, $73.9 million were invested in the expansion and construction of production infrastructure, $29.1 million in production drilling activities, and $0.9 million were invested in the development of other strategic projects (STAR, Llanomulsion and gas exportation projects).
  • On June 23, 2010 the Company announced that it had been awarded six new blocks in the Ronda 2010 bidding process organized by the Agencia Nacional de Hidrocarburos of Colombia ("ANH"). The Company won sole rights to three blocks and was awarded three other blocks through a joint venture with Talisman (Colombia) Oil & Gas Ltd., a wholly owned subsidiary of Talisman Energy Inc. In all six blocks the Company will be the operator. The blocks awarded to the Company are located in the Putumayo, Llanos, and Cordillera Basins.
  • On June 15, 2010 the Company announced that Ecopetrol S.A., the Company's partner in the development of the Rubiales field, had given its approval to the request to expand the commercial area of the Rubiales field, located in the Llanos Basin in Colombia. This approval gives the Company all it requires to grow production and reach our stated production goal at Rubiales of 170,000 bbl per day by the end of 2010. Capacity expansion is underway, and construction of CPF2 is on schedule for completion by September 30, 2010. This is an important step in the Company's growth strategy and paves the way for future expansion not only in the block, but also in the region.
  • 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 south-west area and the Rubiales south-west 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. The drilling of 3 wells in the northern Quifa area (one exploratory and two stratigraphic) on Prospects "A", "F" and "Q", confirmed the presence of a hydrocarbon column on the top of the basal sandstones incorporating a total of 251 mmbbl of certified gross resources and we are currently working to incorporate these new resources in the Company's proved and probable reserves at the end of 2010 by means of drilling appraisal and development wells on those prospects.
  • The exploration program during the second quarter of 2010 resulted in exploratory success at the Company's Guairuro-1 stratigraphic well located in the CPE-6 Block, in the Llanos Basin, Colombia. The results from the Guairuro-1 well confirmed the presence of hydrocarbons in the region and reinforce the exploratory potential of the CPE-6 Block. The Guairuro-1 well is the first of the six stratigraphic wells to be drilled in the block in 2010.
  • As a result of the above-mentioned activity at Quifa and CPE-6, a total of six stratigraphic wells were drilled in the second quarter of 2010 totaling net exploration expenditure of $30.8 million.
  • 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. This second phase, where we are negotiating with ECP the terms of the new contract will be agreed before the kick off of the pilot project. During the first phase of the STAR project a number of studies and tests were carried out which confirm the feasibility and potential of the technology and clear the way for the next stages of the project. Engineering design has been contracted, the purchasing of the equipment is in progress, the area of the pilot test has been selected and the design of the synchronized wells is being finalized.
  • During the second quarter of 2010, the Company exported a total of 4.6 million bbl of oil to USA, Singapore, and Ivory Coast refineries, including six Castilla crude oil cargoes for 4.1 million bbl, and one Vasconia crude oil cargo for 0.5 million bbl at an average price of $67.08/bbl, which is a significant commercial accomplishment. 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 $66.80/bbl.
  • During the second quarter of 2010 the sales of gas increased, to an average of 61 mmscf/d of natural gas from 31 mmscf/d in the same period of 2009 (97% increase), sold mainly from La Creciente field at an average price of $4.69/mmbtu (equivalent to $4.62/mscf), representing a premium of 20% over the weighted domestic regulated price ($3.89/mmbtu) and 11% over the Henry Hub natural gas prices in the United States Gulf Coast, and 9% over the realized sale gas price of the second quarter of 2009. The 97% increase in gas production during the second quarter of 2010 in comparison to the same period of 2009 was mainly due to the continuous investment in facilities and the fact that the average production for the second quarter of 2009 was affected by maintenance activities.
  • In May 2010, construction of new facilities to process crude oil production from Quifa Block was initiated. These facilities will gather production from the western block of Quifa. Dehydrated heavy crude and treated water will be pumped directly to the ODL pumping station and to CPF-1, respectively. The planned capacity of these new facilities is 30,000 bbl/d of crude from the Quifa field.
  • During the second quarter of 2010 the Company transported 63,303 bbl/d through the different trucking and pipeline systems, including 8,806 bbl/d of diluents; 80% of this volume was transported via pipeline, generating savings of $9.02/bbl in transportation costs for the Company.
  • 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 second quarter of 2010, the Company had currency risk management contracts outstanding totalling $240.7 million with expiration dates between July and December 2010.
  • On June 30, 2010 the Company solicited consents to amend the indenture relating to its 8.75% senior unsecured notes due 2016, to provide the Company with needed flexibility to invest in minority equity investments in, and provide guarantees for, joint venture entities. This solicitation was approved by a majority of the note holders on July 15, 2010.