Block by Block

How has Pacific Rubiales evolved since it was establish in 2007, and how has the energy sector changed?

At that time, Colombia was producing 580,000 barrels per day (bbl/d), and today we are producing 970,000 bbl/d. It has increased by about 400,000 bbl/d. When we bought the Rubiales Field from Germán Efromovich, who owns Avianca and the Elliott Management hedge fund in New York, it was producing 14,000 bbl/d, and now we are producing 270,000 bbl/d five years later. Pacific Rubiales represents 250,000 bbl/d out of 400,000, or around 60% of this growth. We feel as though the planets have aligned. The new hydrocarbon policies of President Uribe and also the creation of the National Hydrocarbon Agency (ANH) have been very beneficial. When I came here, I founded Pacific Rubiales with my partners. Everything happened in July 2007, when we went to the Toronto stock market to raise capital. We created a very successful IPO and we have been growing ever since. You will not find another company that has grown like us. We produce a lot and our reserves went from 50 million bbl to close to 407 million bbl in 2011; we will have some very important additions in 2012 as well. We expect to have very important increases in reserves. Since Pacific Rubiales was founded in 2007, it has moved into other countries in the region. We are producing and exploring in Peru where we have four exploration blocks and one in production. We also have offshore fields in Brazil and Guyana, on the border with Venezuela. We are in Guatemala, and also in Papua New Guinea on the other side of the world. We went there because we received an offer we couldn’t refuse. We were offered an excellent prospect, and it is probably the largest discovery I have ever seen in my life. Pacific Rubiales has grown from an IPO worth $400 million to beyond $8 billion in market capitalization. Pacific Rubiales has been very important for Colombia. Our investment is in the order of $2 billion a year, although that is not the net total of Pacific Rubiales. We have 62 blocks and nine in production. We do have some partners in these blocks; however, we are operators in all of our blocks. We expect the growth of the company to move up to 500,000 bbl/d over the next few years.

To what do you attribute your success?

As in any other business, it’s all about location. You need to have the knowledge and understand the geology. If you do that, you will find oil. You will not find oil where there is none. In the past, Colombia had security problems and it was underexplored. We had the chance to come here at the right time. Since we understood the geology, we positioned the company in the heavy oil belt in Los Llanos, and that is why we have been so successful.

What is your overview for gas in Colombia, and what are the main challenges in this sector?

We have 140 million standard cubic feet (scf) of production capacity; however, we can only transport about 65 million. The problem is with the regulations; in Colombia, you cannot be vertically integrated. If you are a producer you cannot be a transporter; if you are a transporter you cannot be a distributor. We cannot build a pipeline. With oil, we were transporting it all by road, about 70,000 barrels on 2,000 trucks. We had a pipeline on wheels. You can do that with oil, but not with natural gas. To get out of that bottleneck, we are building an energy plant with Exmar that will be a barge-mounted liquefaction plant. With that, we will serve the Caribbean region. It is not a large market, but there are very good margins because all these islands are using either diesel or fuel oil for power production. If you substitute that, the cost is about $20 per million British thermal units (btu). If you can sell that in Colombia for $5, you have a lot of room to improve by going from $5 to $20. Around 50% of our production would be exported to the Caribbean.

What does Colombia need to do to maximize its oil and gas potential?

In the past, the problem in Colombia was infrastructure. However, now the main problem in Colombia is that we have 2.3 billion bbl of oil in reserve and it is producing close to 1 million bbl/d. We have six to seven years at the existing production rate left. There is a lot of exploration, but it is difficult to find another oil giant here in Colombia. We will continue discovering oil, but not in the magnitudes of the past. The new frontiers will be in the south Putumayo region near Ecuador; however, there are some security concerns. Also, offshore Colombia has not been explored, as there are a lot of opportunities in the Caribbean and here in the Pacific. Most important is that there is no secondary recovery minimum. The secondary recovery for heavy oil is 15%, but if we use the proper technology, we can increase that to 50%. You can duplicate all of Colombia’s reserves by applying secondary recovery technologies in just one field. We place a lot of importance in investing in technology, and that is what we are doing. We are paving the way for heavy oil.

In 2011, you acquired 19% of CGX. What was the strategy behind this?

Right now we have a 35% share of the company, and have increased our position. We knew there were two ways to get into Guyana. There are excellent offshore blocks there; the US Geological Survey says that there are over 6 billion bbl of oil reserves. We know that area well from when we were exploring Venezuelan waters and we hit five successful wells. We understand the area and we will use CGX rather than Pacific Rubiales because it has a long history there. CGX has been there from the very beginning, and has excellent relations with the government. Instead of going directly with Pacific Rubiales, we are investing through CGX, which is a Canadian company, and although we don’t control it, we have a very important position.

How would you assess security issues in the oil and gas sector?

The security here in Colombia is great when you are away from the borders of Venezuela and Ecuador. We have never had an issue before, even when we were using our 2,000 trucks. The areas around the Venezuelan and Ecuadorean borders are complicated. If the government can reach an agreement with the FARC, things will change here. It is the last thing that Colombia needs to change for it to be a perfect country to invest in. I am optimistic. The country has been at war for decades, and the Colombian people just want peace and progress. There will be discussions and it will be a long, hard process, but they will get there.

As Latin America’s fourth largest oil producer, how do you see the energy sector evolving in the medium to long term, and where do you envision Pacific Rubiales in the future?

Pacific Rubiales is now the largest independent oil company in Latin America. We see it taking a very important position here in Colombia. We are producing 270,000 bbl/d, which is very close to what Ecopetrol is producing. In Peru, we only produce 5,000 bbl/d at the moment. We have excellent prospects in Brazil and we feel optimistic about Guyana and Guatemala.

© The Business Year – December 2012