Pacific Rubiales expects continued strong production growth and operating netbacks in the second quarter, and provides an update on the Colombia permitting process

TORONTO, July 11, 2013 /PRNewswire/ - Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC; BOVESPA: PREB) is pleased to provide an update on its second quarter 2013 operations and exploration activities, and the status of certain of its pending Colombian permits.  Local public hearings, relating to the blanket exploration and development environmental permit for the Company's CPE-6 block are expected to commence early next month, with permit approval expected within three to six weeks following the hearings.

In the second quarter of 2013, the Company expects:

• To report continued strong production volumes, with production at the top of its annual guidance range and operating netbacks on its oil sales volumes of above $60/bbl, in-line with the first quarter of 2013.
• Although gross production increased, net after royalty production is expected to be at similar levels as reported in the first quarter of 2013, after accommodating the additional volumes associated with the high-prices clause arbitration decision at Quifa SW ("PAP").
• Early effects from its previously announced cost reduction initiatives to be recognized in the form of a reduction in transportation and diluent costs.

Other highlights from the quarter:

• Exploration well activity included four wells resulting in the previously announced oil discovery in offshore Brazil and a natural gas/condensate discovery in Colombia.
• In June, the Company announced an increase of 50% to its quarterly cash dividend to U.S. $0.165 per common share from the previous U.S. $0.110 per common share.

The Company expects to release its second quarter financial results after markets close on Thursday August 8, 2013.

Ronald Pantin, Chief Executive Officer of the Company, commented:

"In early July, the Autoridad Nacional de Licencias Ambientales ("ANLA") announced the implementation of a simplified environmental licensing process for oil and gas operators in Colombia, which we expect to be effective by the end of July.  We believe this will improve the timelines for the permitting process for our operations in Colombia.

"The most immediate impact to the Company relates to the pending approval of a blanket exploration and development environmental permit for the CPE-6 block in the southern Llanos Basin, which is located to the southwest of the Rubiales and Quifa SW fields.  The ANLA has scheduled local public hearings for this permit for early August. The Company expects to receive approval of the permit within a three to six week period following the public hearings.

"We recognize the efforts the ANLA has made to enhance and streamline the process to speed up licenses for oil producers in Colombia and we look forward to working with them in the future.

"I am also pleased to announce that we have achieved another strong quarter of operational performance. We expect reported net after royalty production in the second quarter to be at similar levels as the previous quarter (an increase of approximately 38% from the same period a year ago), and completely accommodating the additional Quifa SW PAP arbitration volumes (approximately 2.6 Mbbl/d), which starting in the second quarter, are being paid entirely in kind, in the field.

"WTI benchmark pricing in the quarter remained relatively strong at approximately $94.50/bbl compared to the previous quarter and the same period a year ago, while Brent benchmark pricing fell to approximately $103/bbl compared to almost $113/bbl in the previous quarter.  With the significant narrowing of the WTI - Brent differential, we expect average price realization on our crude oil sales in the second quarter to be in the range of $94 - $95/bbl.

"In the first quarter, we announced a plan to reduce our oil operating costs by approximately $8/bbl on a pro-forma basis for the remainder 2013. The Company's financial and operating performance is expected to benefit from certain initiatives and projects currently underway.  This is expected to have a major impact on costs in the second half of the year, although a reduction in both transportation and diluent costs was realized in the second quarter and is expected to positively impact operating netbacks. Operating netbacks on oil in the second quarter are expected to be in the range of $60 - $61/bbl.

"The Company's diluent costs are expected to decrease by approximately 30% in the second quarter 2013 compared to the previous quarter, and by over 40% compared to the same period a year ago.  The reduction in diluent costs is mainly driven by the increased use of our own light oil crude for diluent (and less purchase of volumes of more expensive natural gasoline acquired in the international markets). In addition the Company expects to see reduced diluent transportation costs and efficiency gains resulting from the start-up of the new diluent blending facility at the Cusiana station in May, which will significantly reduce diluent trucking distances.  With the start-up of the Cusiana blending station, oil shipped through the ODL pipeline from the Quifa and Rubiales fields is blended to 16.8 degree API instead of the 18 degree API blend previously used.

"Transportation costs in the second quarter are expected to be reduced by approximately 10% compared to the previous quarter through the increased use of pipeline transportation.  The new business arrangements governing the OCENSA pipeline allowed the Company to contract additional spare capacity in the pipeline starting in the second quarter.  Further reductions in transportation costs are expected in the second half of the year with the start-up of the new Bicentenario pipeline which is expected in the third quarter of the year and will provide the Company with approximately 37 Mbbl/d of pipeline capacity and is expected to further reduce crude oil truck transportation by year-end.

"In the second half of the year, production costs are expected to decrease significantly as a result of the new Petroelectrica de los Llanos ("PEL") power transmission line (100% owned by Pacific Rubiales) which will connect the Rubiales and Quifa SW fields with Colombia's electrical grid, supplying less expensive energy to power field operations. During the second quarter, 81% of the 540 transmission towers were completed. All of the required equipment is in place and the project is expected to be complete and operational in the third quarter of 2013.

"Cost reductions on incremental produced barrels from the Rubiales and Quifa SW fields are expected from the ongoing water irrigation project, where produced water will be treated through reverse osmosis facilities and used for agroforestry, rather than re-injected.  Water irrigation will be used to handle most of the increase in water production expected in the future from these fields.  The water irrigation project is expected to startup in the fourth quarter of 2013.

"A number of important additional infrastructure projects continue to progress.  Of particular note, construction on the new port facility at Puerto Bahia near Cartagena, Colombia is on schedule with five 300,000 bbl storage tanks currently under construction. The purchase order for the pipe of the connecting Olecar oil pipeline will be placed in July and the environmental impact studies will also be submitted this month.  Start-up of this facility is expected in the second half of 2014.  The Colombian LNG export project is also on-track for start-up in late 2014, with the EXMAR LNG barge currently under construction in Wison Shipyards in China.    

"The Company has actively invested in pipelines, ports and other infrastructure facilities over the past five years, allowing it to manage the pace of its production growth and capture additional value.  The Company is planning to spin out a portion of these assets, keeping operational control, to create additional value for shareholders.

"I am pleased with our strong operating performance in the first half of 2013.  I expect our production growth, improving cost structure, and exciting exploration program to continue in the second half of the year, as we build for the long-term benefit of our shareholders and employees, the leading E&P Company focussed in Latin America."

Exploration Update

During the second quarter of 2013, the Company continued with its exploration activities in Colombia, Peru and Brazil, drilling a total of four wells, two in Colombia, one in Peru and one in Brazil.  In addition, the Company began drilling an exploration well at the La Creciente Block, located in the Lower Magdalena Valley Basin, in Colombia, acquired 789 km of 2D seismic in Peru and completed aeromagnetic and aerogravity surveys in Colombia.

Colombia

At the Guama Block, located in the Lower Magdalena Valley Basin, the Company completed drilling operations in the Capure-1X well which is located some two km northeast of the Pedernalto-1X gas and condensate discovery.  Petrophysical logs indicate a total of 137 feet of net pay averaging 8% porosity.  The well has been completed with a production string with first testing of the Miocene Porquero Medio D sand expected shortly and other prospective zones at a later date.

At the La Creciente Block, also in the Lower Magdalena Valley Basin, the Company started drilling the LCI-1X well, located east of the La Creciente "A" gas field.  The well is expected to reach TD at 12,944 feet and is targeting natural gas.  The current depth of the well is approximately 8,600 feet.  Another exploration well (LCH-1X) located north of the La Creciente "D" gas field is planned to be drilled immediately following the LCI-1X well.

At the Santa Cruz Block, located in the Catatumbo Basin, the Company completed the drilling and evaluation of the Phobos-1X exploration well.  Although the well showed the presence of hydrocarbons in the Mirador and Barco formations, the pressure and fluid tests only showed hydrocarbon traces, so the well was plugged and abandoned.  The Company is in the process of selling its interest in the Santa Cruz Block.

At the Quifa Block, located in the southern Llanos Basin, the Company started mobilization of a 721 km² 3D seismic survey to be acquired in the northwestern portion of the block. This seismic program is expected to identify new exploration and appraisal locations, confirm commerciality in this part of the block and also contribute to improving the reservoir model for the developing Cajua heavy oil field.

At the CPE-6 Block, located approximately 70 km southwest of Quifa, the processing of the 366 km² of 3D seismic data acquired in the northern part of the block is expected to be completed early in the third quarter.  The seismic data is expected to identify appraisal locations to delineate reservoir in the Hamaca prospect.

At the COR-15 and COR-24 Blocks, in the Cordillera Basin, field operations of the aero-geophysical (gravity and magnetics) survey were completed and interpretation of 3D seismic data in the COR-15 and Muisca Blocks continued with completion expected in the third quarter.  The geophysical surveys in the Muisca Block are expected to validate two previously identified prospects, which will be evaluated through two wells expected to be drilled during the fourth quarter of 2013.

Peru

In Block 138, located in the Ucayali-Marañon basins, the Company finished drilling the Yahuish-1X exploration well, reaching a TD of 8,417 feet MD. The well targeted Cretaceous and Paleozoic prospect, encountering oil shows in one Cretaceous and two Paleozoic sand intervals.  Preparations are being made to production test the Paleozoic zones through casing.

In Block 135, the Company completed the acquisition of the 789 km of 2D seismic data.

In Block 116, preparations and licensing continue in anticipation of drilling the Fortuna-1 exploration well, which is expected to start up during the fourth quarter of 2013.

At Block Z-1, located in the offshore Tumbes basin, the Company continues processing the 1,143 km² of the 3D seismic survey acquired by BPZ Resources Inc., operator of the block.

Brazil

In the offshore Santos Basin, further evaluation of petrophysical data, oil samples and drill cores from the Bilby-1 exploration well continued.  Appraisal locations for the Bilby and Kangaroo oil discoveries are expected to be defined during the third quarter of 2013.

During the second quarter, the Company along with its partners was awarded three blocks in Brazil's 11th Bid Round.  All three blocks are in the offshore deep water in northern Brazil.

Guatemala

At the N-10-96 and O-10-96 Blocks, the civil work for the Balam-1X exploration well has been delayed by unusual seasonal flooding in the area. This well is expected to spud by the end of August.

Pacific Rubiales, a Canadian company and producer of natural gas and crude oil, owns 100% of Meta Petroleum Corp., which operates the Rubiales, Piriri and Quifa heavy oil fields in the Llanos Basin, and 100% of Pacific Stratus Energy Colombia Corp., which operates the La Creciente natural gas field in the northwestern area of Colombia.  Pacific Rubiales has also acquired 100% of PetroMagdalena Energy Corp., which owns light oil assets in Colombia, and 100% of C&C Energia Ltd., which owns light oil assets in the Llanos Basin.  In addition, the Company has a diversified portfolio of assets beyond Colombia, which includes producing and exploration assets in Peru, Guatemala, Brazil, Guyana and Papua New Guinea.

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 news 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, Peru, Brazil, Papua New Guinea and Guyana; 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 13, 2013 filed on SEDAR at www.sedar.com. 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 news release due to, among other factors, difficulties or interruptions encountered during the production of hydrocarbons.

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.

Translation

This news release was prepared in the English language and subsequently translated into Spanish and Portuguese. In the case of any differences between the English version and its translated counterparts, the English document should be treated as the governing version.

Definitions 

SOURCE Pacific Rubiales Energy Corp.

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