Pacific Rubiales is really the story of the two companies that merged in January 2008 to originate this new company – Pacific Stratus Energy Ltd. and Petro Rubiales Energy Corp.
Pacific Stratus was founded in 2004 by a group of Venezuelan oil veterans who were looking to leverage their expertise in the Sub-Andean Basin, gained from long years working for or with PDVSA in Venezuela, to prospects outside of Venezuela. Pacific Stratus initially focused on acquiring interests, starting with its first exploration and exploitation contract at La Creciente. Over the next three years, Pacific Stratus continued to expand its holdings, carefully evaluating its portfolio, setting priorities on the most likely prospects and raising money on the public market to finance its activities.
This exploration strategy proved to be very successful. Following successful wells at Ortega (no longer held by the company) and Puli-7, Pacific Stratus commenced drilling at La Creciente, which has turned out to be a significant natural gas discovery. Success at La Creciente was followed by another successful well at Moriche, as well as further success defining the La Creciente gas field.
The genesis of Petro Rubiales lies in the discovery of oil in the Rubiales Block of Colombia in 1982. While extracting the heavy oil found there proved uneconomic at the time, between 1988 and 2000, the field was explored and produced sporadically, and in late 2000, Petrolex Energy Corporation re-commenced production at 1,300 bbl/d. The Rubiales Oil Field was ultimately sold by Petrolex to Rubiales Holdings Ltd., which continued to develop and explore the field through its wholly-owned subsidiary, Meta Petroleum.
The management team of Petro Rubiales, like that of Pacific Stratus, was steeped in oil knowledge and expertise due to long years of work in Venezuela. They too recognised the wonderful opportunities offered by Colombia, and by July 2007 reached a deal with the owners of Rubiales Holdings to sell 75% of Rubiales Holdings to Consolidated AGX Resources, which immediately changed its name to Petro Rubiales Energy Corp. At the same time, Petro Rubiales raised $421 million in public equity, to finance the acquisition and provide working capital. By November 2007, Petro Rubiales had acquired the remaining 25% of Rubiales Holdings.
Management of Petro Rubiales recognised that the value of, and cash flows from, the Rubiales Oil Field could be expanded greatly through a combination of workovers, capital investment, and innovative marketing. Production at Rubiales, already on the rise throughout 2007, continued its increase under Petro Rubiales’ stewardship, reaching record levels by the end of 2007. These production records have continued in 2008, most recently reaching an average gross production of 30,585 bbl/d (March 31, 2008).
The management of the two companies were already well acquainted, and their interest in Colombia resulted in a number of opportunities and ventures being undertaken together. While both companies entered into these ventures, in part, in order to diversify their portfolios, they soon realised that the best diversification strategy was to combine: both companies had strengths, but in complementary areas – Petro Rubiales in production, Pacific Stratus in exploration. Each was in complementary resources – Petro Rubiales in heavy oil, Pacific Stratus in natural gas. Just as importantly, the combination of the two would place the combined company in a position where its finances, production and exploration profile would open up opportunities in Colombia that were normally reserved to the majors.
These compelling reasons led ultimately to the merger of the companies, and the company we are now proud to describe to you in this Annual Report – Pacific Rubiales Energy Corp., a company that will be a significant player in the Colombian and Latin American oil and gas industry for quite a while.