Pacific Rubiales seeks downstream integration

By OGJ editors
-- Pacific Rubiales Energy Corp., Toronto, having grown the past 3 years to become Colombia’s second-largest oil and gas operator, plans to seek downstream market integration and a more substantive integration in host countries in which it operates.

The company launched a strategic review process with three aims: growth based on discovering, developing, and producing new and existing reserves, securing market access by participating in key oil and gas transportation and port infrastructure projects, and integrating downstream assets in the value chain while strengthening links with stakeholders in host countries.

Transportation, refining plans
Pacific Rubiales has secured transportation for its Llanos basin oil production in the OCENSA pipeline so far, and it also plans to participate with Colombia’s state Ecopetrol and others in the Bicentennial pipeline project, which it said has the “potential to be the cornerstone of future oil transportation in Colombia as it will open up communication lines between new production areas and export ports.”

The company also will acquire a stake in a private venture called Pacific Infrastructure Inc., which, among other projects, is developing a new crude oil and products terminal and port in Cartagena and a new pipeline that will link the Caribbean ports of Covenas and Cartagena. With a small investment, the company will secure alternative storage and port capacity for both its imports and growing exports.

The company’s Rubiales field is primed to reach 170,000 b/d of gross production by the end of 2010, and the adjacent Quifa block is to yield 30,000 b/d at the end of 2010 and 60,000 b/d by the end of 2011. The STAR secondary recovery project is expected to add reserves in Rubiales and the firm’s other heavy oil blocks.

Recent success in Block CPE-6 has begun to confirm the company’s view that its exploration blocks adjacent to the Rubiales field hold important promise (see map, OGJ, Sept. 6, 2010, p. 82). A longer term view of the portfolio has Arauca, CPO-1, Guama, Topoyaco, and other areas as its main focus, and these assets will continue to be the subject of sustained efforts in coming months.

The recent entry into Guatemala and commencement of operations in Peru also falls within this search for growth while diversifying the company’s resource base.

Competition for deep conversion refining capacity is hardening regionally. Pacific Rubiales does not plan to buy refinery assets but will move into mitigating the volatility in netbacks by accessing deep conversion refining capacity through long-term processing deals. This in turn will result in the need to start trading farther down the value chain.

Bunker fuel, asphaltite, coal
The vertical downstream integration strategy will be two-pronged. The company will invest in a new venture named CI Pacific Fuels SA that will initially focus on developing the bunker market in Colombia that it is already supplying as well as the supply of finished products to the wholesale market.

Pacific Rubiales has also decided to participate in the development of asphaltite and coal assets through its equity participation in a company called Pacific Coal SA.

The asphaltite resources, in particular, will afford access to large and profitable markets for exports and domestic ends as Colombia tackles its burgeoning need to expand roads and serve other industrial uses. This market lends itself to the company’s core competencies as asphaltite is mainly another form of extra-heavy hydrocarbons.

This downstream integration strategy is also an important piece in fulfilling the need for the company to gain a larger and more integrated presence in the Colombian market, particularly as it becomes the most important heavy oil producer in Colombia.

Pacific Rubiales has net production of 65,000 b/d of oil equivalent after royalties and owns working interests in 40 blocks in Colombia, Peru, and Guatemala.

An example of the company’s latest social initiatives can be found at Rubiales field, where it is promoting the planting of large plots of otherwise unused land with crops that will be directed towards producing biofuels, which can then be combined with the downstream integration strategy.

The company will cover its expansion plan with its own cash flow and at this time does not see the need for more debt or equity financing.

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