Exploration & Production | Operational Updates

Pacific Rubiales Production Increases Despite Complications

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Pacific Rubiales Energy Corp. has provided an operational update for its first quarter 2014 operating results, which includes estimates of production and sales volumes, price realizations, and operating netbacks.

First Quarter 2014 Results

Total net production for the quarter is expected to be in the range of 147 to 149 Mboe/d, an increase of approximately 16% from the same period a year ago. Total production was impacted by lower volumes produced in the Rubiales Field as a result of two factors:

1) Restrictions in surface water disposal due to the ongoing drought in Colombia; and
2) Lower than expected capital expenditures on water treatment facilities pending ongoing negotiations with Ecopetrol S.A. related to the division of capital investment in advance of the 2016 contract expiry.

The lower production at the Rubiales Field was offset by the contribution of volumes from the acquired Petrominerales Ltd. assets which produced in line with production reported in the fourth quarter 2013 (approximately 24 to 25 Mbbl/d net). The Company expects its total production to increase throughout the year and is on track to achieve its 2014 guidance of average net production of approximately 148 to 162 Mboe/d, an increase of between 15 to 25% over 2013 production levels.

The Company reports its sales volumes made up of produced volumes, plus purchased diluent volumes (mixed with its heavy oil production to form a sales blend), plus oil for trading (OFT) volumes, plus/minus sales inventory adjustments. Sales volumes can vary significantly from quarter to quarter as a consequence of fluctuating diluent and OFT volumes, and significant swings in oil inventories which are related to the timing of export cargo liftings.

Sales volumes in the first quarter are expected to be in the range of 151 to 153 Mboe/d and do not include approximately 450 Mbbl (5 Mbbl/d) of oil from prior period accumulated PAP volumes. As previously announced, these volumes relate to the agreement the Company reached with Ecopetrol to begin delivery 'in kind' of prior period PAP volumes associated with the Quifa SW arbitration decision announced last year. As of the end of the first quarter 2014, the Company has delivered in full all of the outstanding PAP volumes to Ecopetrol.

The OFT volumes in the first quarter are expected to be in the range of 10 to 11 Mbbl/d (3.4 Mbbl/d in the fourth quarter 2013). The OFT business is opportunistic in nature and therefore volumes can vary significantly from quarter to quarter. Diluent volumes in the first quarter are expected to be similar to the prior quarter (2.3 Mbbl/d in the fourth quarter 2013).

The Company expects oil price realization in the first quarter to be in the range of $98 to $100/bbl, approximately 3% higher than the prior quarter reflecting the increase of WTI from $96.42/bbl in the fourth quarter 2013 to $97.90/bbl in the first quarter 2014. Most of the Company's oil production in Colombia and Peru is exported at prices linked to international oil prices. Combined realized prices are expected to be in the range of $92 and $94/boe.

Due to factors outside of the Company's control, total operating costs increased during the quarter driven by the following:

1) Production costs - increased by approximately $1.50 to $2.50/bbl reflecting lower oil volumes produced at the Rubiales Field.
2) Transportation costs - increased by approximately $2.00 to $2.50/bbl as a result of the use of additional trucking and alternate pipeline transportation costs following terrorist attacks on the Bicentenario pipeline.
3) Bicentenario pipeline tariffs paid during force majeure - the terrorist attacks on the Bicentenario pipeline resulted in the loss of approximately 47 Mbbl/d of the Company's pipeline transportation capacity beginning in mid February. The tariffs paid during force majeure are expected to cost an additional $2.00 to $2.50/bbl.

The increase in operating costs was mitigated by the 3% increase in realized prices and as a result the Company's combined operating netbacks for the quarter remained in-line with the prior quarter, with margins exceeding 60%. Additionally, the Company did not experience any disruption in production despite the pipeline attacks, highlighting the flexibility of its business model and multiple alternative transportation options available.

The Company calculates its operating netback for both revenues and costs based on total sales volumes, rather than produced volumes. Total operating costs are reported as a combination of: production, transportation, and diluent costs, plus other costs and overlift/underlift costs. The latter two (other costs and overlift/underlift) largely relate to movements in storage and cargo lifting inventory and can consequently significantly impact total costs either positively or negatively, in any given quarter.