Pacific Rubiales provides 2015 outlook & guidance
Pacific Rubiales Energy Corp. (TSX: PRE) (BVC: PREC) (BOVESPA: PREB) announced its full year operational outlook and guidance for 2015. All amount values in this release are in U.S.$ and all production numbers are expressed in net after royalty volumes, unless otherwise stated.
2015 Outlook and Guidance – Key Highlights:
- Production of 155 to 160 Mboe/d, an increase of approximately 5 to 8% over expected 2014 production levels.
- A base case average WTI oil price assumption of $70.00/bbl during the year and the 2014 average Brent-WTI benchmark price differential.
- Oil price realization is expected to average to approximately the WTI benchmark price assumption.
- EBITDA of $1.9 to 2.1 billion and Funds Flow (Cash Flow) of $1.45 to $1.55 billion.
- Exploration and development (“E&D”) capital expenditures of $1.5 billion, with over 80% directed to development drilling and facilities, and the remainder largely to low risk exploration.
- Development drilling expenditures of $768 million targeting currently producing fields and fields under development, drilling an expected 381 gross (233 net) wells in Colombia and Peru.
- Facilities expenditures of $483 million targeting currently producing fields and fields under development.
- Exploration expenditures of $226 million mainly targeting lower risk appraisal wells, drilling 18 gross (10 net) wells mainly in Colombia, Peru and Brazil.
The Company has entered into an agreement with Alfa S.A.B. de C.V. (“ALFA”) to form a new Mexican joint venture company on a 50/50 basis to jointly develop oil and gas projects in Mexico.
The Company has the flexibility to adjust its capital program to changing oil prices, estimating EBITDA sensitivity of $55 – $60 million for each $1/bbl movement in oil price.
Ronald Pantin, Chief Executive Officer of the Company, commented:
“Results during 2014 were mixed, but despite challenging operational conditions, and more recently the global oil price decline, production and financial results are expected to be at the lower end of our 2014 guidance, representing approximately 15% year-over-year growth.
“During the year, production at the Rubiales Field was below plan due to a combination of wet weather conditions and a delay in permits for the start-up of Agrocascada. On the other hand, our light oil production in 2014 exceeded plan expectations and we are now producing approximately 53 Mbbl/d of light and medium oil in Colombia and Peru combined, with approximately 30% of that production delivered through the drill bit, net of declines. Production in the Quifa SW Field in 2014 also exceeded plan expectations.
“Upon receipt of all necessary permits for Agrocascada and the approval of an agreement on a funding split with our partner Ecopetrol, S.A., we expect to raise production in the Rubiales Field back up to higher levels in 2015. In addition at our new heavy oil development in the CPE-6 Block, we expect to commission the first phase facilities before year-end and commence development drilling.
“Full year production for 2015 is expected to be between 155 to 160 Mboe/d, generating EBITDA of approximately $1.9 to $2.1 billion, assuming a WTI oil price average of $70.00/bbl. Funds Flow (“cash flow”) is expected to be approximately $1.45 to $1.55 billion, sufficient to fully fund our planned 2015 capital expenditures program. In an environment of lower oil prices, our 2015 capital expenditures program is focused on near-term, high-margin volumes. When setting the Company’s 2015 outlook and guidance targets, we have chosen to be both cautious and prudent in an uncertain environment, maintaining flexibility, assuming a lower oil price, and adjusting capital to match internally generated cash flow. Although we believe that lower prices will be relatively short-lived, we will be closely monitoring the external environment and have the flexibility to adjust to lower or higher prices accordingly.
“The Company sells its oil production as either Castilla or Vasconia benchmark blends. In the lower oil price environment, accompanied by a significant narrowing of the Brent-WTI spread, we expect to receive a $2 to $3 discount to WTI for Castilla and a $1 to $2 premium to WTI for Vasconia. With the Bicentenario pipeline in full operation, Vasconia blend is expected to account for more than 60% of the Company’s oil sales volumes.
“To develop our 2015 guidance plan, we have ranked all of our potential capital programs measured on the basis of: 1) returns, 2) materiality, and 3) production volume timing. This allows us to allocate capital to the highest return projects. We have also cut discretionary exploration spending by more than 50%, allocating capital to lower-risk short- to medium-term exploration and appraisal projects. The Company’s ability to significantly reduce capital expenditures and still achieve 5 to 8% growth, illustrates the strength and flexibility of our diversified portfolio.
“Reducing operating costs will continue to be a priority. We are targeting 2015 cash operating costs (production plus transportation plus diluent costs) of less than $30/boe, mainly driven by the full electrification of the Quifa SW Field, start-up of the Agrocascada water disposal through irrigation project, and other operational efficiencies. We are a low cost producer, considering that over 60% of our oil production is heavy oil. It is important to recognize that our operating costs fully price in access to tidewater, allowing us to capture international prices and access the best markets in the world. We also plan to reduce G&A in line with lower capital expenditures.
“The Company expects a working capital surplus of $300 to $400 million (net of short-term bank debt) during the year allowing us to fully fund the capital program and other cash requirements with internally generated cash flow and cash on hand. During 2014, we eliminated all our short-term corporate debt, extending the maturity of our long-term debt. Our $1.0 billion revolving credit facility is expected to remain untapped during the year, but does provide us with further liquidity if required under special circumstances and environment.
“Our planned monetization of midstream assets will continue. We expect to close the 43% sale of Pacific Midstream assets for approximately $320 million to the International Financial Corporation prior to the end of 2014. The Company has additional levers to raise cash without impacting production including, the remaining 57% of Pacific Midstream, other midstream assets including our 41% interest in Pacific Infrastructure, and divestment of non-core small producing and exploration properties.
“Our ongoing discussions with potential partners have come to fruition and we are pleased to announce a Joint Venture in Mexico. We have entered into to an agreement in principle with ALFA in connection with the formation of a joint venture company in Mexico on a 50/50 basis. The Joint Venture will also allow for: (i) the joint study of, and bidding on, assets in Mexico’s initial oil and gas bid round in 2015 (the “First Bid Round”); (ii) the acquisition of services contracts with a view to migrating them to exploration and production contracts; (iii) the development or petroleum and natural gas assets in Mexico; and (iv) the development of any business ancillary to the petroleum business in Mexico, including mid-stream projects.
“We expect the opportunities in Mexico to compete favourably on a returns and materiality basis with the best projects we have in Colombia and Peru. We look forward to providing more details on the Joint Venture company and the projects in our Mexican Joint Venture in the near future.
“In summary, Pacific Rubiales enters 2015 in solid standing. We have reduced our capital expenditures to match expected cash flow in a lower oil price environment and have the flexibility and further discretionary components to adjust to the external environment. We have extended out our corporate debt maturity and have significant levers we can pull to raise additional cash. We will allocate capital to the highest return projects. We are very excited by the opportunities we see in Mexico and expect these to provide an additional engine of growth in coming years, along with our other projects in Colombia and Peru.
“We look forward to an exciting year in 2015 as we continue our strategy of repeatable, profitable growth, building for the long-term benefit of our shareholders, employees and other stakeholders, the leading E&P Company focused in Latin America.”
Source: Pacific Rubiales Energy Corp.