Pacific Rubiales Announces Agreement to Acquire a 35% Net Working Interest in Karoon Blocks in the Santos Basin, Offshore Brazil
TORONTO, Sept. 18, 2012 /PRNewswire/ - Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC; BOVESPA: PREB) announced today that it has reached an agreement with Karoon Gas Australia Ltd. (ASX: KAR) ("Karoon") to acquire a 35% net working interest in the following exploration blocks: S-M-1101, S-M-1102, S-M-1037 and S-M-1165, and also has as an option to acquire a 35% interest in S-M-1166 (collectively, the "Karoon Blocks"). In consideration for acquiring the interests in the Karoon Blocks, the Company will pay Karoon U.S.$40 million in cash as consideration for the assignment and fund up to U.S.$210 million in carried well costs.
Ronald Pantin, Chief Executive Officer of the Company, commented: "This acquisition will represent a significant step forward in our plans to transform the Company for the future. It is an exciting exploration opportunity, is an excellent fit with the Company's strategy to target large resource capture in high potential basins and positions us well to expand further into Brazil. With these new assets, Pacific Rubiales will increase its presence in South America and enter into one of the most prolific oil rich hydrocarbon basins in the western hemisphere, building on our successful technical and project management record."
The Acquisition
The Karoon Blocks are located 220 kilometers off the coast of Santa Catarina state, just south of Rio de Janeiro, in the Santos basin. The blocks lie in 300 - 400 m water depth, in an area with a number of existing or discovered oil and gas fields. The transaction is subject to the approval of the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis ("ANP"), Brazil's oil and gas regulatory authority.
The transaction agreement consists of a U.S.$40 million payment to Karoon as consideration for the assignment, plus a carry of well costs of up to U.S.$70 million for each of the Kangaroo and Cassowary/Emu exploration wells for a total well carry cost of up to U.S.$140 million. After meeting up to the first U.S.$70 million costs for each of the first two wells, the Company will fund 35% of all costs thereafter.
The Company may elect to participate in the third well of the three well exploration commitment program, the Bilby well. If the option is exercised, Pacific Rubiales must carry up to the first U.S.$70 million in costs for the Bilby well and contribute 35% of all costs thereafter.
All three wells are expected to be drilled during 2013. Karoon will remain the operator of the Karoon Blocks until the completion of the three well exploration program and then Pacific Rubiales will be entitled to request the operatorship, subject to the Company meeting all regulatory and other legal requirements to the satisfaction of the ANP.
Strategic Context
Pacific Rubiales believes that it will acquire an interest in high quality exploration assets with a moderate risk but high reward profile, accessing large resources with the potential to develop into significant producing assets.
The Company has identified several multi-level post-salt and two pre-salt prospects on the Karoon Blocks. All of these prospects contain direct hydrocarbon indicators from seismic data. Management estimation of total P50 recoverable resources reached 1.8 billion boe excluding the pre-salt opportunities.
The Karoon Blocks lie along trend with the Piracucá and Caravela oil fields and the Merluza gas field. In April 2009, Petrobras/Repsol declared the BM-S-7 Piracucá light oil field a commercial discovery. The field is approximately five kilometers to the northeast of the Karoon acreage and is reported to contain 550 MMboe in place (Repsol, 2009). The Late Santonian reservoirs produced 3,476 bbl/d oil and liquids with approximately 4.4 MMcf/d gas in preliminary tests (Repsol, November 2009). Petrobras is currently considering an aggregate FPSO development for the field and other fields in the area. PanAtlantic Energy Group recently announced that its Sabia-1X exploration well drilled on block BM-S-72 just to the west of the Karoon Blocks, has penetrated multiple hydrocarbon bearing zones of interest, providing additional indications of the prospectivity of the area.
The Company sees Brazil as an area of untapped potential with a strong resource and reserve base. The United States Geological Survey (USGS) has estimated ("Assessment of Undiscovered Conventional Oil and Gas Resources of South America and the Caribbean, 2012") that the Campos and Santos Basins, located off the country's southeastern coast, have undiscovered oil resources in the range of 26 billion barrels (P95) to 65 billion barrels (P5).
According to the Oil and Gas Journal (OGJ), Brazil has 14 billion bbl of proven reserves in 2012, the second-largest in South America after Venezuela. The Campos and Santos Basins hold the vast majority of Brazil's proven reserves. In 2010, Brazil produced 2.7 MMbbl/d of oil and liquids.
Brazil is the ninth largest energy consumer in the world and the third largest in the Western Hemisphere, behind the United States and Canada. Total primary energy consumption in Brazil has increased by close to a third in the last decade, due to sustained economic growth. Increasing domestic oil production has been a long-term goal of the Brazilian government, and recent discoveries of large offshore, pre-salt oil fields could transform Brazil into one of the largest oil producers in the world.
Pacific Rubiales, a Canadian-based company and producer of natural gas and heavy crude oil, owns 100 percent of Meta Petroleum Corp., a Colombian oil operator which operates the Rubiales, Piriri and Quifa oil fields in the Llanos Basin in association with Ecopetrol, S.A., the Colombian national oil company, and 100 percent of Pacific Stratus Energy Corp. which operates the La Creciente natural gas field. The Company is focused on identifying opportunities primarily within the eastern Llanos Basin of Colombia as well as in other areas in Colombia and northern Peru.
The Company's common shares trade on the Toronto Stock Exchange and La Bolsa de Valores de Colombia and as Brazilian Depositary Receipts on Brazil's Bolsa de Valores Mercadorias e Futuros under the ticker symbols PRE, PREC, and PREB, respectively.
KAR Price at posting:
$5.09 Sentiment: LT Buy Disclosure: Held
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