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Press release from PR Newswire

Pacific Rubiales in 2011: 52% Production Growth, 547% Reserve Replacement, EBITDA and Net Earnings Doubled, Reserves Base Expanded and Diversified

Wednesday, March 14, 2012

Pacific Rubiales in 2011: 52% Production Growth, 547% Reserve Replacement, EBITDA and Net Earnings Doubled, Reserves Base Expanded and Diversified20:48 EDT Wednesday, March 14, 2012 TORONTO, March 14, 2012 /PRNewswire/ - Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC; BOVESPA: PREB) announced today the release of its audited consolidated financial results for the years ended December 31, 2011 and 2010, together with its Management Discussion and Analysis ("MD&A") for the corresponding period. These documents will be posted on the Company's website at and on SEDAR at The Company has scheduled a teleconference call for investors and analysts on Thursday March 15th at 8:00 a.m. (Bogota time) / 9:00 a.m. EDT (Toronto time) / 10:00 a.m. (Rio de Janeiro time), to discuss the Company's 2011 year-end results. Analysts and interested investors are invited to participate using the dial-in instructions available at the end of this news release. 2011 Highlights Production grew 52% year over year, averaging 86,497 boe/d net after royalties, largely driven by increased production from the Rubiales and Quifa SW oil fields. First oil production from the Quifa North and Sabanero areas in December, which will contribute to growth in 2012. EBITDA for the year doubled to U.S.$1.95 billion, driven by production growth and higher netbacks. Net Earnings increased to U.S.$554.3 million in 2011, from U.S.$265.1 million in 2010. Adjusted Net Earnings from Operations increased to U.S.$749.1 million in the year, from U.S.$346.9 million in 2010. Significant increase in operating netbacks, with crude oil netbacks increasing to U.S.$61.58/bbl (up 42% compared to 2010) and natural gas netbacks increasing to U.S.$31.09/boe (up 39% compared to 2010). Total capital expenditures of U.S.$1.1 billion, including exploration spending of U.S.$267 million; up marginally from U.S.$954 million in 2010. Growth in 2011 total proved plus probable ("2P") net reserves of 52% adding 169.5 million boe, largely through the drill bit. 2P reserves replacement of 547%, and an increase in 2P reserves life index ("RLI") to 13. Successful diversification of the reserves base with the Rubiales field now accounting for less than 30% of the Company's net reserves base from 60% in 2008. First bookings of 44 MMbbl 2P net reserves from the CPE-6 E&P block at year-end 2011. Independent resource assessment totaling 2.8 billion boe Best Estimate (P50), from the evaluation of 25 of the Company's exploration blocks. Exploration success of 84%, from drilling of 69 exploration, appraisal and stratigraphic wells. Further optimization of oil transportation infrastructure with an increase in the total transportation capacity of the ODL pipeline (transporting oil out of the Rubiales and Quifa fields, PRE 35% equity interest) to 340 Mbbl/d in December; and start of construction of new diluent blending facilities at Cusiana. In the first quarter of 2012, the Company increased its dividend from U.S.$0.093 per common share to U.S.$0.11/share, a reflection of the Company's increased cash flow. Ronald Pantin, Chief Executive Officer of the Company commented: "2011 was another outstanding year of growth for Pacific Rubiales, and the Company had a very successful year in terms of its operational delivery and strategic positioning. Our production increased by over 50%, and our reserves additions more than kept pace with 5.5 boe of 2P reserves added for every boe produced during the year. Financial results were strong across all important measures, with revenues, EBITDA, net earnings and adjusted net earnings from operations all doubling from a year ago. The Company realized first production from the Quifa North area, which we expect to continue to grow in 2012. In addition, Maurel & Prom Colombia, B.V., a company in which we hold an indirect 49.999% interest, realized first production from the Sabanero area. I am particularly pleased with the growth and successful diversification of the Company's reserves base, underpinned by continued reserves bookings in the Quifa area, new reserve additions at Sabanero and the first reserves bookings on the CPE-6 E&P block. The Rubiales field now accounts for less than 30% of the Company's larger reserves base, and new reserves additions underpin the future production growth targets of Pacific Rubiales. I fully expect another exciting year in 2012, with an oil leveraged production base, and ample exploration acreage and resource to drive continued growth in the immediate and longer term." Financial Summary A summary of the financial results for the three and twelve months ended December 31, 2011 and 2010 are as follows (a more detailed discussion and analysis can be found in the MD&A):             Year Ended         Three Months Ended             December 31           December 31 (in thousands of US$ except per share amounts or as noted)            2011         2010         2011           2010                                               Oil and gas sales (1)       $   3,380,819     $   1,661,544     $   1,011,476     $     516,731                                               EBITDA (2)           1,946,588         924,063         560,665           275,360 EBITDA Margin (EBITDA/Revenues)            58%         56%         55%           53% Per share                                               - basic ($) (4)           7.16         3.51         2.00           1.03   - diluted ($)            6.53         3.36         1.95           0.99                                               Net earnings            554,336         265,087         80,834           61,370 Per share                                                - basic ($)  (4)           2.04         1.01         0.29           0.23   - diluted ($)            1.97         0.96         0.28           0.22                                               Cash Flow from Operations           1,219,057         939,929         477,530           353,433 Per share                                                - basic ($)  (4)           4.48         3.57         1.70           1.32   - diluted ($)            4.09         3.42         1.66           1.27                                               Adjusted Net earnings from operations (3)           749,117         346,881         172,150           93,443 Per share                                               - basic ($)  (4)           2.75         1.32         0.61           0.35   - diluted ($)            2.51         1.26         0.60           0.34                                               Non-operating items (5)           194,781         81,794         91,316           32,073                                               Funds Flow from Operations           1,368,599         667,769         351,760           208,571 Per share                                               - basic ($) (4)           5.03         2.54         1.26           0.78   - diluted ($)            4.59         2.43         1.22           0.75   Notes: (1)   See additional details in Section 5 of the MD&A entitled "Discussion of 2011 Fourth Quarter and Annual Operating Results - Supply and Sales Balance". (2)   See Section 9 of the MD&A entitled "Discussion of 2011 Fourth Quarter and Annual Financial Results - Financial Position - EBITDA", and Section 17 entitled "Additional Financial Measures". (3)   Adjusted earnings from operations are a non-IFRS financial measure that represents net earnings adjusted for certain items of a non-operational nature including non-cash items. The Company evaluates its performance based on adjusted net earnings from operations. The reconciliation "Adjusted Net Earnings from Operations", lists the effects of certain non-operational items that are included in the Company´s financial results. Adjusted net earnings from operations may not be comparable to similar measures presented by other companies. See Section 3 of the MD&A entitled "Financial and Operating Summary - Adjusted Net Earnings from Operations Table", and Section 17 entitled "Additional Financial Measures". (4)   The basic weighted average number of common shares outstanding for the year ended December 31, 2011 and 2010 was 271,985,534(fully diluted -298,271,197) and 262,945,271(fully diluted -274,788,797), respectively. (5)   See additional details explained in Section 9 of the MD&A entitled "Discussion of 2011 Fourth Quarter and Annual Financial Results". Operating Crude Oil and Natural Gas Netbacks The Company produces and sells crude oil and natural gas. It also purchases crude oil from third parties as diluents and for trading purposes, which are included in the reported "daily volume sold". The combined crude oil and natural gas operating netback during the year ended December 31, 2011 was U.S.$58.24, 44% higher than the same period in 2010. Most of the increase is due to higher realized oil and gas prices. Operating netbacks for the years ending December 31, 2011 and 2010 are as follows (a more detailed discussion and analysis along with segmented fourth quarter netbacks can be found in the MD&A):             Year ended December 31             2011           2011       2011   2010              Oil            Gas        Combined    Combined Average net production (boe/day after royalties and field consumption)(1)           75,539           10,958       86,497   56,974 Average daily volume sold (boe/day)(1)           90,013           10,433       100,446   69,992                                       Operating netback ($/boe) (2)                                     Crude oil and natural gas sales price           98.88           34.71       92.21   65.04 Cost of production (3)           5.59           2.70       5.29   4.74 Transportation (trucking and pipeline) (4)           11.58           0.38       10.41   6.07 Diluent cost (5)           15.40           -       13.80   11.29 Other costs (6)           4.63           1.46       4.30   1.84 Overlift/Underlift (7)           0.30           (0.92)       0.17   0.74 Operating netback ($/boe)           61.38           31.09       58.24   40.36   Notes: (1)   See comments below. The term ''boe'' used in this table may be misleading, particularly if used in isolation. A boe conversion ratio of cubic feet to barrels is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In this news release we have expressed boe using the Colombian conversion standard of 5.7 Mcf: 1 bbl required by the Colombian Ministry of Mines and Energy. (2)   Combined operating netback data based on weighted average daily volume sold which includes diluents necessary for the upgrading of the Rubiales blend. (3)   Cost of production mainly includes lifting costs and other production costs such as personnel, energy, security, insurance and others. (4)   Includes the transport costs of crude oil and gas through pipelines and tank trucks incurred by the Company to take the products to the delivery points to customers. The increase over the prior period of 2010 is mainly due to the higher volume of crude oil transported via tank truck due to increased production, coupled with an increase in the overall land transport costs in Colombia during 2011. (5)   Net blending cost is estimated at U.S.$3.14 per bbl of Rubiales crude, considering an average diluent purchase price delivered at the Rubiales field of U.S.$103.13/bbl (Light Crude Oil 37º API and natural gas at 81.6º API), plus pipeline fees from the Rubiales field to Coveñas of U.S.$7.76 per bbl, less the average Rubiales Blend (Castilla) sale price of U.S.$97.23 per bbl, times the Rubiales average blending ratio of 23%. Maintaining dilution cost over the previous period of 2010 (U.S.$3.12/bbl). (6)   Other costs mainly correspond to royalties on gas production, external road maintenance at the Rubiales field, inventory fluctuation, crude oil trading cost, storage cost and the net effect of the currency hedges of operating expenses incurred in Colombian pesos ("COP") during the period. See additional comments in Section 11 of the MD&A entitled "Risk Management Contracts". (7)   Corresponds to the net effect of the over-lift position for the period amounting to U.S.$6.4 million, which generated a reduction in the combined production costs of U.S.$0.17/boe as explained in Section 9 of the MD&A entitled "Discussion of 2011 Fourth Quarter and Annual Financial Results - Financial Position - Operating Costs". Production Summary The Company produces crude oil and natural gas from a number of different fields, all located in Colombia. The Company operates most of its production. The average net after royalty production during the year ended December 31, 2011 was 86,497 boe/d, 52% higher than the same period in 2010. Average production for the Company's major producing fields for the years ending December 31, 2011 and 2010 are as follows (a more detailed discussion and analysis along with segmented fourth quarter production can be found in the MD&A):             Average Year Production (in boe/d)             Total field production     Share before royalties(1)     Net Share after royalties Producing Fields           2011 2010     2011 2010     2011 2010 Rubiales / Piriri           165,446 123,581     68,503 53,065     54,802 42,452 Quifa(2)           36,496 4,819     20,928 2,812     19,181 2,630 La Creciente (3)           10,801 10,055     10,586 9,923     10,584 9,920 Abanico (4)           2,183 2,821     643 896     617 843 Rio Ceibas (5)           1,754 1,871     475 506     380 405 Dindal / Rio Seco (6)           1,220 704     725 586     609 470 Other Producing fields (7)           550 456     330 271     324 254 Total           218,450 144,307     102,190 68,059     86,497 56,974   Notes: (1)   Share after royalties is net of internal consumption at the field. (2)    Includes Quifa SW field and early production from Quifa North prospects. The Company's share before royalties in the Quifa SW field is 60% and decreases according to a high-prices clause that assigns additional production to Ecopetrol. On September 27, 2011, Ecopetrol and the Company agreed to start an arbitration process to define the interpretation of this clause and its effect in the production split. In the meantime, both companies have agreed to apply the ANH formula to assign the additional share to ECP, from April 2011, until the arbitration settlement is concluded. See additional comments under the section of the MD&A entitled "Volume Allocation for Certain Fields". (3)    Royalties on the gas production from La Creciente field are payable in cash and accounted as part of the production cost. Royalties on the condensates are paid in kind, representing a small impact in the net share after royalties. The Company started activities to increase the process capacity to 120 MMcf/d in La Creciente Station and also in the Abocol project in order to increase in 4.5 MMcf/d of gas sales from this field. (4)    Ecopetrol agreed to drill one development and one injector well during the fourth quarter of 2011. The Company started the EPC for a new water treatment plant. (5)    During the second quarter of 2011, Ecopetrol confirmed that it will not extend the duration of the Caguan Contract, where the Rio Ceibas field (operated by Petrobras - Company's share 27.3%) is located. In consequence, the association contract was terminated on December 31, 2011. (6)    The increase in gross production in comparison to 2010 is caused by the sales of natural gas produced in the field, which commenced during the year and were included in this report starting second quarter of 2011. The compressed gas sales averaged 0.7 MMcf/d in December 2011. Remaining gas is currently being injected and used for power generation for internal consumption. The increase in production is also due to services completed in some of the producing well. (7)    Other producing fields located in the Cerrito, Puli, Moriche, Las Quinchas, Buganviles, Sabanero and Guasimo blocks. The Company has scheduled a telephone conference call for investors and analysts on Thursday, March 15, 2012 at 8:00 a.m. (Bogotá time) / and 9:00 a.m. EDT (Toronto time) / 10:00 a.m. (Rio de Janeiro time) to discuss the Company's 2011 year-end results. Participants will include Ronald Pantin, Chief Executive Officer, José Francisco Arata, President, and selected members of senior management. The live conference call will be conducted in English with simultaneous Spanish translation. The Company will post a presentation on the Company's website prior to the call; it can be accessed at: Analysts and interested investors are invited to participate using the dial-in numbers as follows: Participant Number (International/Local):     (647) 427-7450 Participant Number (Toll free Colombia):     01-800-518-0661 Participant Number (Toll free North America):     1-888-231-8191 Conference ID (English Participants):      58864238 Conference ID (Spanish Participants):      59804796 The conference call will be webcast which can be accessed through the following link: A replay of the call will be available until 23:59 pm (EDT), March 29, 2012, which can be accessed as follows: Encore Toll Free Dial-in Number:    1-855-859-2056 Encore Local Dial-in-Number:     416-849-0833 Encore ID (English Participants):     58864238 Encore ID (Spanish Participants):    59804796 Pacific Rubiales, a Canadian-based company and producer of natural gas and heavy crude oil, owns 100 percent of Meta Petroleum Corp., a Colombian oil operator which operates the Rubiales, Piriri and Quifa oil fields in the Llanos Basin in association with Ecopetrol, S.A., the Colombian national oil company, and 100 percent of Pacific Stratus Energy Corp. which operates the La Creciente natural gas field. The Company is focused on identifying opportunities primarily within the eastern Llanos Basin of Colombia as well as in other areas in Colombia and northern Peru. Pacific Rubiales has working interests in 43 blocks in Colombia, Peru and Guatemala. The Company's common shares trade on the Toronto Stock Exchange and La Bolsa de Valores de Colombia and as Brazilian Depositary Receipts on Brazil's Bolsa de Valores Mercadorias e Futuros under the ticker symbols PRE, PREC, and PREB, respectively. Advisories Cautionary Note Concerning Forward-Looking Statements This press release contains forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding estimates and/or assumptions in respect of production, revenue, cash flow and costs, reserve and resource estimates, potential resources and reserves and the Company's exploration and development plans and objectives) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things: uncertainty of estimates of capital and operating costs, production estimates and estimated economic return; the possibility that actual circumstances will differ from the estimates and assumptions; failure to establish estimated resources or reserves; fluctuations in petroleum prices and currency exchange rates; inflation; changes in equity markets; political developments in Colombia, Guatemala or Peru; changes to regulations affecting the Company's activities; uncertainties relating to the availability and costs of financing needed in the future; the uncertainties involved in interpreting drilling results and other geological data; and the other risks disclosed under the heading "Risk Factors" and elsewhere in the Company's annual information form dated March 14, 2012 filed on SEDAR at Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein. In addition, reported production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this press release due to, among other factors, difficulties or interruptions encountered during the production of hydrocarbons. Reserves Replacement Production replacement is calculated by dividing reserves additions by production in the same period. Reserves additions over a given period, in this case 2011, are calculated by summing one or more of revisions and improved recovery, extensions and discoveries, acquisitions and divestitures. Reserve replacement cost is calculated by dividing total capital invested in finding, development and acquisitions net of divestitures by reserve additions in the same period. Boe Conversion Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 5.7 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The estimated values disclosed in this news release do not represent fair market value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Definitions  Bcf Billion cubic feet. Bcfe Billion cubic feet of natural gas equivalent. bbl Barrel of oil. bbl/d Barrel of oil per day. boe Barrel of oil equivalent. Boe's may be misleading, particularly if used in isolation. The Colombian standard is a boe conversion ratio of 5.7 Mcf:1 bbl and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. boe/d Barrel of oil equivalent per day. Mbbl Thousand barrels. Mboe Thousand barrels of oil equivalent. MMbbl Million barrels. MMboe    Million barrels of oil equivalent. Mcf Thousand cubic feet. WTI West Texas Intermediate Crude Oil.         SOURCE Pacific Rubiales Energy Corp.For further information: <p> </p> <p> Christopher (Chris) LeGallais<br/> Sr. Vice President, Investor Relations<br/> +1 (647) 295-3700 </p> <p> Carolina Escobar V<br/> Corporate Manager Investor Relations<br/> +57 (1) 628-3970 </p>