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March 13, 2013 /PRNewswire/ - Pacific Rubiales Energy Corp. (TSX: PRE; BVC: PREC; BOVESPA: PREB) announced today that a commercial arbitration decision in
Colombia has been rendered in connection with its dispute with Ecopetrol, S.A. ("Ecopetrol") regarding the interpretation of the high-prices clause ("PAP") of its Quifa Association Contract.
The Company is evaluating the decision as it leaves open several unresolved issues. The Company is also evaluating all of its alternative remedies under Colombian laws and applicable international treaties.
The Company's share of production in the Quifa SW field is 60% after royalties. This participation may decrease when the application of the PAP is triggered.
September 27, 2011, Ecopetrol and the Company agreed on an arbitration process to settle differences in the interpretation of the PAP clause in the Quifa Association Contract and its effect on their share of production.
March 13, 2013, the arbitration panel delivered its decision interpreting that the PAP formula should be calculated on 100% of the production of the Quifa SW field, instead of simply the Company's 60%.
However, the arbitration panel expressly denied Ecopetrol's demand for an order for Pacific Rubiales to deliver the associated volumes of hydrocarbons as a result of its interpretation of the PAP formula. The arbitration decision is not yet firm nor does it provide enforceable remedies against the Company.
In the event that the interpretation of the PAP formula by the arbitration panel becomes enforceable, the Company would be required to deliver an additional 1,393,252 bbl of oil to Ecopetrol, representing Ecopetrol's additional share in Quifa SW production from
April 3, 2011 to
December 31, 2012, which in any case would be delivered in kind from future production out of 10% of its daily net share of production of the Quifa SW field (as of today, approximately 2,270 bbl/d over a 20 month period). This additional volume has been recorded as an over-lift on the Company´s consolidated financial statements as at
December 31, 2012.
As a result of the above and under prudent accounting practice, a provision has been made in the Company´s 2012 year-end financials to account for cumulative amounts accrued as follows:
U.S. $92 million negative impact on 2012 EBITDA, from U.S. $2,110 million to US$2,018 million, representing approximately a 4% reduction.
U.S. $61 million negative impact on 2012 Net Income, from U.S. $589 million to U.S. $528 million, which is around a 10% reduction.
The Company is evaluating all available courses of action and will vigorously defend its rights under the Quifa Association contract.