NEWSROOM

TORONTO, March 18, 2015 /CNW/ - Pacific Rubiales Energy Corp. (TSX: PRE) (BVC: PREC) (BOVESPA: PREB) announced today the release of its audited consolidated financial results for the full year and quarter ended December 31, 2014, together with its Management Discussion and Analysis ("MD&A"), Annual Information Form ("AIF") including Form NI51-101 F1 - Statement of Reserves Data and Other Oil and Gas Information for Pacific Rubiales Energy Corp. (the "F1 Report"). These documents will be posted on the Company's website at www.pacificrubiales.com, SEDAR at www.sedar.com, and the SIMEV website at www.superfinanciera.gov.co/web_valores/Simev. All values in this release and the Company's financial disclosures are in U.S.$, unless otherwise stated.

Operational Highlights:

• Total field production for the year was 314,947 boe/d, an increase of 1% compared to 2013.
• Gross production for the year was 176,235 boe/d, an increase of 12% compared to 2013.
• Net production for the year was 147,423 boe/d, an increase of 14% compared to 2013.Net production for the fourth quarter 2014 averaged 147,075 boe/d, a 10% increase compared to the same period of 2013. Increased production was attributable to the Company's light and medium oil fields.
• Sales volumes for the year were 158,026 boe/d, an increase of 17% compared to 2013.
• Combined operating netback on oil and gas production for the year was $54.84/boe compared to $60.77/boe in 2013. The decrease was due to the significant decline in the market prices for crude oil.
• A significant reduction in total operating costs was achieved (including over/under lifts and other costs) by $2.67/boe to $30.51/boe for the year, mitigating the impact from the lower realized prices.

Financial Highlights:

• Relaxation of debt covenants on revolving credit facility and bank debt to 4.5:1.0 debt to trailing 12 month adjusted EBITDA.
• The Board of Directors of the Company has suspended the quarterly dividend in the amount of $0.165 per share (or approximately $52 million per quarter) as of the first quarter of 2015 while international oil prices remain depressed.
• Revenues for the year were $5.0 billion, an increase of 7% compared to 2013, despite the decline in crude oil market prices during the second half of 2014.
• Despite a significant decrease in oil prices adjusted EBITDA for 2014 was $2.5 billion, similar to 2013, representing a 50% margin on total revenues for the period.
• Cash Flow (funds flow from operations) for the year was $2.0 billion, an increase of 6% compared to 2013.
• Net loss for the year was $1.3 billion, mainly as a result of the $1.6 billion non-cash impairment charge (before-tax) taken on oil and gas assets and exploration expenses, reflecting the significant decline in crude oil prices. Other non-cash items affecting earnings included unrealized foreign exchange losses, deferred income taxes, and DD&A which also contributed to the loss for the year.
• Total E&D capital expenditures of $2.4 billion, compared to $2.1 billion in 2013.
• In 2014, the Company paid a total of $208 million in dividends to shareholders.

Additional Highlights:

• A total of 56 exploration wells (including stratigraphic and appraisal wells) were drilled, resulting in 43 discoveries, achieving a 77% success rate for the year.
• Improved overall liquidity by repaying the majority of its short-term debt obligations using the proceeds from the issuance of $750 million 5.625% senior notes due 2025.
• Signed a three year Memorandum of Understanding and Cooperation with Mexico's state oil company, Petróleos Mexicanos and its subsidiary entities ("Pemex") establishing the basis for discussions and analysis of potential oil and gas cooperation in Mexico.
• Entered into a Memorandum of Understanding with the Mexican conglomerate Alfa S.A.B. de C.V. ("Alfa") to create a joint venture for bidding in the 2015 bid rounds in Mexico, the acquisition of service contracts for migration to E&P contracts, and the development of oil and gas assets and other ancillary business opportunities.
• Completed the sale of 43% of Pacific Midstream Ltd. to the International Finance Corporation and a consortium of investors for approximately $320 million.
• Total Proved plus Probable net after royalties reserves ("2P") fell to 510.9 MMboe at December 31, 2014, a decrease of 17% from 613.3 MMboe at December 31, 2013. Reserve reductions were split between technical revisions and economic revisions, with the economic revisions being the larger of the two.

Ronald Pantin, Chief Executive Officer of the Company, commented:

"While 2014 started well, the last quarter of the year presented Pacific Rubiales and the industry with challenges not experienced for many years. Quickly recognizing the impact of a near-halving of oil prices, the Company commenced actions early in the fourth quarter to make significant adjustments in all areas of the Company that will allow it to remain a low cost operator and weather this pricing environment. Those actions continued into 2015 and will be reflected in 2015's financial results and beyond, as we continue to develop and produce oil and gas in Latin America.

"Other than the price collapse in late 2014, the results point to another relatively good year for Pacific Rubiales, as both production and revenues continued to grow. The Company saw important growth in production from light to medium oil exploration successes, as the production base continues to be diversified away from the Rubiales Field. In the past three years, we have in fact replaced production from the Rubiales Field as total net production has grown from under 100,000 boe/d to current levels of just over 150,000 boe/d, despite a 14% decline in production from the Rubiales Field in 2014. As a result of making material reductions in our operating and cash costs, we are well positioned to face an ongoing weak oil price environment. We also have a flexible asset portfolio and capital expenditure program that allows the Company to adjust spending to match cash flows.

"During 2014, we generated $2.5 billion in adjusted EBITDA and $2.0 billion in funds flow, on a record of $5.0 billion in revenues.  For the fourth quarter of 2014, we earned revenues of $992 million and generated $419 million in adjusted EBITDA and $410 million in funds flow, including a $58 million gain from crude oil hedges. Our earnings were lower compared with the third quarter of 2014, including an impairment charge of $1.6 billion against our oil and gas assets and goodwill. It is important to understand that these impairments are both one-time (except goodwill) and non-cash. Approximately 90% of the impairments are associated with our heavy oil assets.

"Our operating netback for the year was $54.84/boe, affected by the weakening of realized prices. We were able to partially mitigate the effect of the lower oil prices on our netback by reducing our combined operating costs to $27.28/boe in the fourth quarter ($30.51/boe for the full year) mainly due to ongoing cost reduction programs and also the benefit of a weaker Colombian Peso against the U.S. Dollar. The underlying operating costs (composed of production, transportation and diluent costs) in the fourth quarter dropped to an even more impressive $26.44/boe. Our total reported unit operating costs have decreased by approximately 25% since announcing a major program of cost reduction initiatives in mid-year 2013. This is an impressive achievement and we expect further operating cost reductions in 2015. The low cost producer always wins, regardless of the price environment.

"In 2014, we increased our production to 147.4 Mboe/d, a 14% growth compared with 2013, at the low end of the Company's annual production guidance. Production at the Rubiales Field was below plan for the year, primarily impacted by limited water handling capacity and weather related events on operations. However we expect our Agrocascada reverse osmosis facility to commence operation in the second quarter of 2015, raising the water disposal capacity at the Rubiales Field by 0.5 million bwd.

"While the Rubiales Field production was constrained, we delivered excellent exploration results with approximately 15 Mbbl/d production added from new light and medium oil discoveries. The Rubiales Field now represents approximately one-third of our total production. The Company's net light and medium oil production reached a record 51,408 bbl/d in the fourth quarter and is expected to grow further in 2015. Net production in 2015 year-to-date has been strong, with production increasing to 152 Mboe/d as a result of light and medium oil successes, within the range of our annual guidance target of 150 to 160 Mboe/d.

"Last week we announced that Pacific Rubiales and Ecopetrol, S.A., our partner in the Rubiales Field, have agreed not to extend the Rubiales Field contract expiring in June 2016. The decision was mutual and predicated on both economic and strategic grounds. The Company has never incorporated production from the Rubiales Field beyond contract expiry in its future forecasts and has successfully diversified its production since we acquired the field in 2007. Since that time, we have more than replaced the Rubiales production from a combination of other heavy oil production in Colombia, light and medium oil production in Colombia and Peru, and natural gas production in Colombia. A large portfolio of undeveloped reserves plus resources underpin further production growth beyond 2016.

"During 2014, we completed two transactions to monetize a portion of our infrastructure assets, that being the sale of our 5% interest in the equity and capacity rights of the Ocensa pipeline for $385 million, and the sale of 43% of our interest in Pacific Midstream (which holds interests in pipelines and the PEL electrical transmission line to the Rubiales and Quifa fields) for $320 million (with $240 million received late in the fourth quarter). The cash proceeds received in 2014 from these transactions were used to pay down short-term bank loans and credit facilities. These sales of midstream assets validate our successful strategy of investing in infrastructure projects in Colombia, and the value it generates. We expect additional sales of midstream assets during 2015 and recently we have received from an unrelated third party an indicative offer for an additional 30% of Pacific Midstream.

"The Company's net 2P reserves at year-end 2014 decreased by 17% compared to the prior year. The 2014 negative reserves reductions were caused by a combination of economic and technical revisions, with the majority (approximately 90%) related to heavy oil reserves. Heavy oil reserve reductions related to the Rubiales Field were due to field performance not meeting previous forecasts prior to the field expiry in mid-year 2016. The remaining reductions were from the Company's other mainly undeveloped heavy oil fields. In the case of the latter, it is important to understand that they occurred under the current low oil price environment and a common practice would be to see the majority of these reserves come back to the Company under a higher oil price environment. In the meantime the Company expects that the majority of these reserves could be moved to contingent resources. It is important to note that the Company was successful in adding new light and medium oil reserves in both Colombia and Peru, essentially replacing light and medium oil production through the drill bit.

"Our financial and capital strategy remains focused on maintaining a healthy balance sheet by: (1) reducing operating and G&A costs; (2) suspending the dividend; (3) reducing capital expenditures to match cash flow under the prevailing oil price environment; (4) allocating capital to the most material and the highest return projects; (5) maintaining liquidity; and (6) debt liability management. These initiatives are aimed at ensuring funding for future growth and generating strong returns to our shareholders. Under our current strategic plan, we expect to see modest production growth in 2015 and have positioned ourselves for accelerated growth when oil prices improve.

"The Company has negotiated a relaxation of the revolving credit facility covenant to 4.5 times 12 month trailing debt to adjusted EBITDA, providing us with additional debt flexibility. We decided that it was prudent at this time to fully draw on the revolving credit facility, to increase our cash position, in case of a possible worsening oil price environment. We used the cash proceeds to repay all of our 2015 and 2016 short-term bank debt, pushing out the next payment on bank debt to late 2016. We intend to hold the remaining funds (exceeding $500 million) as cash on the balance sheet, in order to protect against a prolonged depression in international oil prices. Our debt leverage ratio currently remains well below our bond incurrence covenants of 3.5 times 12 month trailing debt to adjusted EBITDA.

"In summary, Pacific Rubiales in 2015 is looking towards a return to a better pricing environment but is prepared and well-positioned to withstand the current low oil price environment. We have a well thought out strategy of repeatable and profitable long-term growth, and the experience in executing our operating and capital programs to deliver results. We remain committed to building for the long-term benefit of our shareholders, employees, and other stakeholders, the leading independent E&P company focused in Latin America."

Financial Results

Production

In 2014, the Company's net production of 147,423 boe/d increased 14% compared to a year ago, driven by rising production volumes in the Company's light and medium oil fields. Net production from the Rubiales Field decreased to 60,368 bbl/d from 70,214 bbl/d in 2013 primarily due to restricted water disposal capacity and adverse weather conditions impacting operations. Quifa SW net production increased to 26,079 bbl/d during the fourth quarter of 2014, 15% higher than the same period of 2013 and 10% higher than the third quarter of 2014, in part from the tie-in of additional producing wells and the impact of lower oil prices on the PAP royalty volumes.

With the rise in production from light and medium oil fields, now representing 35% of the Company's total net average fourth quarter production, the reliance on Rubiales production continues to lessen, representing only 37% of the total net average fourth quarter production, down from 51% for the fourth quarter of 2013.

Production and Sales Volumes

The Company produces and sells crude oil and natural gas. It also purchases liquids and crude oil from third parties for trading purposes and distillate for diluent mixing with heavy oil production, which are included in the reported "volumes sold". Sales volumes are also impacted by the relative movement in inventories during a reporting period. Both revenues and costs are recognized on the respective volumes sold during the period.

Production available for sale for the year increased to 147,423 boe/d from 129,386 boe/d in 2013 (an increase of 14%), due to rising volumes in producing fields. Despite an increase in the Company's net heavy oil production from 2012 levels, purchased diluent volumes decreased 53% - the result of replacing purchased diluent by its own light crude oil. Oil for trading volumes for the year increased to 12,085 bbl/d from 3,832 bbl/d a year ago, while inventory balances for the year decreased to a 2,655 boe/d build from a 190 boe/d build compared to 2013.

Total volumes sold, composed of production volumes available for sale, purchased diluent volumes, oil for trading volumes and inventory balance changes, increased to 158,026 boe/d in the current year from 134,621 boe/d a year ago (an increase of 17%).

Operating Netbacks and Sales Volumes

Compared with the fourth quarter of 2013, the Company reduced costs in all three cost categories: production, transportation, and diluent. Production cost decreased from $13.98/boe in the fourth quarter of 2013 to $13.71/boe in 2014, as a result of field cost optimizations and the commissioning of the PEL power transmission line project. Transportation cost for the quarter decreased from $12.26/boe in 2013 to $10.92/boe for 2014 as the disruption at the Bicentenario Pipeline has eased in the fourth quarter. Diluent cost continued to decrease as the Company fully utilized the production of light and medium oil from prior acquisitions and new discoveries.

For the year 2014, the Company's total operating costs (including overlift, royalties, and other costs) decreased to an average of $30.51/boe, compared with $33.18/boe for 2013. Further reductions in costs were achieved toward the second half of 2014, as the Company achieved even lower operating costs of $27.28/boe during the fourth quarter of 2014, compared with $31.23 the same period a year ago.

The Company also reports separately netback on crude oil for trading, which was $0.67/bbl in 2014, compared to $1.54/bbl in 2013. For the fourth quarter 2014, netback on crude oil for trading was $1.01/bbl, compared to $0.76/bbl the same period a year ago. Additional oil for trading details are available in the MD&A.

2014 Reserves

The following tables summarize information contained in the independent-reserves reports prepared by RPS Energy Canada Ltd. ("RPS"); Petrotech Engineering Ltd. ("Petrotech"); Netherland, Sewell & Associates, Inc. ("NSAI"); and Degolyer and MacNaughton Limited ("D&M") effective December 31, 2014.

These reserves reports were prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and the National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and included in the Company's Form NI51-101 F1 - Statement of Reserves Data and Other Oil and Gas Information for Pacific Rubiales Energy Corp. (the "F1 Report") filed on SEDAR. Additional reserves information as required under NI 51-101 are included in the Company's Annual Information Form dated March 18, 2015.

All reserves presented are based on forecast pricing and estimated costs effective December 31, 2014 as determined by the Company's independent reserves evaluators. The Company's net reserves after royalties incorporate all applicable royalties under Colombia and Peru fiscal legislation based on forecast pricing and production rates, including any additional participation interest ("PAP") related to the price of oil applicable to certain Colombian blocks, as at year-end 2014.

In 2014, the Company's reserves were impacted by significantly lower oil price forecasts resulting in economic revisions plus the impact of normal course technical revisions as assessed by the Company's independent reserves evaluators. The majority of the reduction in reserves is related to the Company's heavy oil fields (approximately 90%). Heavy oil reserve reductions related to the Rubiales Field were due to field performance not meeting previous forecasts prior to the field expiry in mid-year 2016. Economic revisions as a result of lower oil prices can usually be reversed with higher oil prices, which would result in positive economic revisions in the future.

However, it is important to note that the Company was successful in exploration and added new light and medium oil reserves in both Colombia and Peru. The Company approximately replaced light and medium oil production through exploration discoveries with further additions expected to follow from exploitation and delineation drilling in the future.

Exploration Update

During 2014, a total of 56 exploration wells (including stratigraphic and appraisal wells) were drilled, resulting in 43 discoveries, achieving a 77% success rate for the year. In the fourth quarter of 2014, the Company drilled or participated in 17 exploration wells, including 13 wells located in Colombia, two in Peru, one in the Santos Basin of offshore Brazil and one in Papua New Guinea. This exploration drilling campaign resulted in new discoveries in the Canaguaro, Llanos-19, Corcel, Guatiquia, and Quifa Blocks in Colombia, the PPL-475 (formally PPL-237) Block in Papua New Guinea and on Block S-M-1165 Block offshore Brazil. Additional details are available in the Company's 2014 quarterly and year-end MD&A.

Fourth Quarter & Year End 2014 Conference call Details

The Company has scheduled a telephone conference call for investors and analysts on Wednesday, March 18, 2014 at 8:00 a.m. (Bogotá time), 9:00 a.m. (Toronto time) and 10:00 a.m. (Rio de Janeiro time) to discuss the Company's fourth quarter and year end 2014 results. Participants will include Ronald Pantin, Chief Executive Officer, José Francisco Arata, President, and selected members of senior management.

The live conference call will be conducted in English with simultaneous Spanish translation. A presentation will be available on the Company's website prior to the call, which can be accessed at www.pacificrubiales.com.

Analysts and interested investors are invited to participate using the following dial-in numbers:

A replay of the conference call will be available until 23:59 pm (Toronto time), Wednesday, April 1, 2015 and can be accessed using the following dial-in numbers:

Pacific Rubiales is a Canadian public company and a leading explorer and producer of natural gas and crude oil, with operations focused in Latin America. The Company has a diversified portfolio of assets with interests in over 90 exploration and production blocks in seven countries including Colombia, Peru, Guatemala, Brazil, Guyana, Papua New Guinea and Belize. The Company's strategy is focused on sustainable growth in production & reserves and cash generation. Pacific Rubiales is committed to conducting business safely, in a socially and environmentally responsible manner.

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.

Advisories

Cautionary Note Concerning Forward-Looking Statements

This news release contains forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding estimates and/or assumptions in respect of production, revenue, cash flow and costs, reserve and resource estimates, potential resources and reserves and the Company's exploration and development plans and objectives) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things: uncertainty of estimates of capital and operating costs, production estimates and estimated economic return; the possibility that actual circumstances will differ from the estimates and assumptions; failure to establish estimated resources or reserves; fluctuations in petroleum prices and currency exchange rates; inflation; changes in equity markets; political developments in Colombia, Guatemala, Peru, Brazil, Papua New Guinea, Guyana and Mexico; changes to regulations affecting the Company's activities; uncertainties relating to the availability and costs of financing needed in the future; the uncertainties involved in interpreting drilling results and other geological data; and the other risks disclosed under the heading "Risk Factors" and elsewhere in the Company's annual information form dated March 18, 2015 filed on SEDAR at www.sedar.com. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

In addition, reported production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this press release due to, among other factors, difficulties or interruptions encountered during the production of hydrocarbons.

The recovery and reserves estimates of crude oil and natural gas reserves provided in this news release taken from the independent reserve reports are estimates only, and there is no guarantee that the estimated reserves will be recovered.  Actual crude oil and natural gas reserves may eventually be greater than or less than the estimates provided.

The estimated values disclosed in this news release do not represent fair market value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

Boe Conversion

The term "boe" is used in this news release. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 5.7 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The Company's natural gas reserves are contained in the La Creciente, Guama and other bocks in Colombia as well as in the Piedera Redonda field in Block Z-1, Peru.  For all natural gas reserves in Colombia, boe's have been expressed using the Colombian conversion standard of 5.7 Mcf:  1 bbl required by the Colombian Ministry of Mines and Energy, and for all natural gas reserves in Peru, boe's have been expressed using the Peruvian conversion standard of 5.626 Mcf: 1 bbl required by Perupetro S.A. If a conversion standard of 6.0 Mcf: 1 bbl was used for all of the Company's natural gas reserves, this would result in a reduction in the Company's net P1 and 2P reserves of approximately 4.9 and 6.9 MMboe, respectively.

Definitions

Translation

This news release was prepared in the English language and subsequently translated into Spanish and Portuguese. In the case of any differences between the English version and its translated counterparts, the English document should be treated as the governing version.

SOURCE Pacific Rubiales Energy Corp.

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