Colombia's Pacific Rubiales farms into Karoon's Santos basin offshore block
BY ROSS KELLY
SYDNEY -- In another sign of Colombia's fast emergence as a major player in South American energy markets, Pacific Rubiales Energy has taken a stake in exploration blocks offshore Brazil for up to $250 million.
Once crippled by Marxist guerrilla activity in and around some of its most promising oil fields, Colombia's oil industry has undergone a transformation in recent years as military success drove insurgents out of much of the countryside. Oil production in Colombia has grown at more than 6% a year since a low point in 2003. The upturn has also been assisted by policies encouraging foreign investment in the industry and helped companies such as Pacific Rubiales accumulate capital to expand.
"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," Chief Executive Ronald Pantin said in a statement Wednesday. The company's assets are currently concentrated in Colombia, Peru and Venezuela.
It has bought a 35% interest in four exploration blocks in the Santos basin, located south of Rio de Janeiro, from Karoon Gas ahead of a three-well exploration campaign expected to kick off early next year.
Pending relevant regulatory approvals for the deal, Pacific Rubiales will give Karoon $40 million cash and carry a sizeable share of the drilling costs.
Colombia's second-biggest oil producer behind state-owned Ecopetrol will carry up to the first $70 million in costs for each of the first two exploration wells--called Kangaroo and Emu--and 35% of any extra costs for each well.
It has an option to participate in a third well, Bilby, under the same conditions and another option to take a 35% interest in a fifth block.
The properties are in much shallower water than recent giant discoveries further offshore such as the Tupi field. However, significant commercial discoveries have been made closer to the coast.
The most notable is the Piracuca oil field just five kilometers northeast of Karoon's blocks. Petrobras and partner Repsol SA (REP.MC) in 2009 declared Piracuca a commercial discovery estimated to contain 550 million barrels of light oil.
Pacific Rubiales said that although the blocks come with moderate exploration risk, they have a "high reward profile" and could contain large resources. The Bogota-based company and its Australian partner will have to overcome development challenges that have weighed on Brazil's promising oil and gas sector.
In contrast to Colombia, Brazil's energy industry is having difficulty reaching its potential amid high development costs blamed on government policy that limits the deployment of foreign capital and expertise. Shares of Brazilian oil companies including state-controlled Petrobras and OGX have fallen rapidly in recent years, prompting Karoon in late 2010 to pull the plug on an initial public offering of its South American assets.
Dow Jones Newswires