Pacific Rubiales announces Q1 2015 results

Pacific Rubiales Energy Corp has announced the release of its unaudited consolidated financial results for the quarter ended March 31, 2015, together with its Management Discussion and Analysis.

Operational highlights:

• Net production for the quarter was a record 152 650 boe/d, an increase of 4% compared to the fourth quarter of 2014, and within the Company's guidance (150 000 - 160 000 boe/d). Increased production was mainly due to higher light and medium oil production, and increases in the Quifa SW Field.
• Light and medium oil production increased 18% from the first quarter of 2014 and up 8% from the fourth quarter of 2014 to 55 587 bpd
• Net production at the Quifa SW Field increased to 29 812 bpd during the first quarter of 2015, 14% higher than the fourth quarter of 2014 and 34% higher than the same period of 2014.

Financial highlights:

• Revenues for the quarter were US$800 million, a decrease of 19% compared to the fourth quarter of 2014, due to the decline in crude oil market prices.
• Average oil and gas sales (including trading) for the first quarter were a record 180 086 boe/d, an increase of 19% compared to the same period in 2014.
• Combined operating netback on oil and gas production for the quarter was US$22.73/boe compared to US$38.36/boe in the fourth quarter of 2014. The decrease was attributable to the significant decline in the market prices for crude oil.
• Significant and continuing cash operating cost reductions with underlying operating costs (excluding over/under lift and other) declining 20% from the prior quarter and 34% from the same period a year ago.
• General and administrative expenses were US$55 million in the first quarter of 2015 down from US$98 million in the fourth quarter of 2014 and US$75 million in the first quarter of 2014.
• Adjusted EBITDA decreased by 36% to US$270 million from US$419 million in the fourth quarter of 2014.
• Cash Flow (Funds Flow from Operations) for the quarter was US$157 million.
• Net loss for the first quarter of 2015 was US$722 million, reflecting the significant decline from crude oil price realization as well as a non-cash impairment on assets. Other non-cash items affecting earnings included unrealised foreign exchange losses and DD&A.
• Total capital expenditures decreased to US$226 million in the first quarter of 2015, compared with US$758 million in the fourth quarter of 2014 and US$469 million in the first quarter of 2014.

Additional highlights:

• The Company obtained an amendment to certain covenants on its revolving credit facility and bank debt, raising the gross debt to trailing 12-month Adjusted EBITDA ratio from 3.5:1.0 to 4.5:1.0.
• The Company drew down US$1 billion on the revolving credit facility and used part of the cash proceeds to repay US$384 million of the 2015 and 2016 short-term bank debt, and contributing to the US$860 million dollars of cash on the balance sheet as of March 31, 2015.
• As announced on May 5, 2015, the Company entered into exclusive discussions in respect of an offer from ALFA, S.A.B. de C.V. and Harbour Energy Ltd., whereby they would acquire all of the issued and outstanding common shares in the capital of the company ("Common Shares") not owned by ALFA for a price of C$6.50 per share, subject to completion of definitive documentation and the requisite approval by the board and shareholders. If the offer proceeds it would be a related party transaction under applicable securities laws and it is therefore being reviewed by an independent committee of the board who have retained financial advisors to provide an independent valuation in accordance with securities laws. If the transaction is approved by the board it will then require approval by shareholders at a special meeting where it must be approved by two thirds of all the shareholders voting at the meeting and by a majority of the minority shareholders voting at the meeting.
• The company received US$200 million from a prepaid forward sale of crude oil negotiated with a global energy marketer for the delivery of six million barrels of crude oil over a six-month period.
• Eight exploration wells (including stratigraphic and appraisal wells) were drilled in the quarter, resulting in six discoveries. This was a 75% success rate for the quarter, compared to 56% in the same period of 2014. Exploration successes primarily located in the Central and Deep Llanos in Colombia have added approximately 10 000 bpd of light oil production over the past year.

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

"In my last Message to Shareholders at year-end 2014, I outlined some of the plans that we were executing to align the company's operations with the low oil price environment. As a shareholder, you should be very pleased that the hard-working and diligent team at Pacific Rubiales has fulfilled our promise to you. You will see in the first quarter results that the company has significantly reduced G&A and cash operating costs. While these reductions do not fully offset the dramatic drop in oil prices in the first quarter of 2015, they do assure the Company's profitability through the remainder of 2015 and beyond, within expected oil price scenarios.

"As you know, we announced on May 5th that the Company is in exclusive discussions with one of our largest shareholders, ALFA and their partner Harbour Energy, for the potential acquisition of the Company.

"Through the first and continuing into the second quarter of 2015, we have achieved all-time record production volumes. We are currently averaging in excess of 155 000 boe/d – this is up from our 2014 exit rate of approximately 150 000 boe/d. This is smaller growth in comparison to previous years, but I want to emphasise that this production growth is due to the quality of the Company's light and medium oil assets and important new exploration discoveries that were made in 2014 in the Colombian Foothills. Continued exploration in 2015 has identified a number of other exploration prospects similar to the discoveries already made and importantly has resulted in a significant number of light oil development drilling locations that should allow production growth to continue well into 2016. In addition, we have confirmed the potential of the offshore Brazil Kangaroo discovery and announced a second potentially similar oil discovery nearby at the Echidna prospect.

"For the first quarter of 2015, we generated US$800 million in revenues, US$270 million in Adjusted EBITDA and US$157 million in Funds Flow from Operations. Our earnings were lower compared with the fourth quarter of 2014, due to the downward trend of crude oil prices and a non-cash impairment charge of US$411 million (after tax) against our exploration assets and goodwill. Our operating netback for the quarter was US$22.73/boe, also affected by lower oil prices.

"We continued to streamline our operations to achieve further cost reductions during the quarter, with underlying operating costs of US$21.21/boe and total operating costs (including overlift and other costs) of US$26.72/boe, compared to US$26.44/boe and US$27.28/boe respectively for the fourth quarter of 2014.

"During the quarter, we successfully negotiated the relaxation of the maintenance covenants on our US$1 billion revolving credit facility and bank debt. The 12 - month trailing gross debt to Adjusted EBITDA calculation was changed from 3.5:1.0 to 4.5:1.0; a testament to the support and confidence provided to us by our long-standing lenders.

"We also closed a transaction during the quarter whereby we received US$200 million upfront as partial prepayment for six million barrels of oil in a forward sale spanning the next six months, as part of our working capital management program. In addition, we announced the intent of a third party to acquire 30% of Pacific Midstream for US$200 million – which is expected to close this quarter. As a result, we expect to see an improvement in our net bank and long-term debt (excluding working capital deficiencies), which was approximately US$4.4 billion at the end of the first quarter of 2015.

"Going forward, our financial and capital strategy remains focused on maintaining a healthy balance sheet by: (1) maintaining reduced operating and G&A costs; (2) reducing capital expenditures to match cash flow under the prevailing oil price environment; (3) allocating capital to the most material and highest return projects; (4) maintaining liquidity; and (5) implementing strategic liability management initiatives; all aimed at ensuring funding for future growth and generating strong returns to our shareholders."

The full results can be found at www.pacificruiables.com

Adapted from a press release by David Bizley

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