Pacific Rubiales May Gain 70 Percent on Cost Cuts, BTG Says

Pacific Rubiales Energy Corp. is poised to gain 70 percent over the next year as the Colombian driller cuts operating costs by reducing the use of trucks to bring oil to market, Banco BTG Pactual SA analysts said.

Bogota-based Pacific Rubiales said in April it will try to lower operating costs per barrel, which jumped 17 percent in 2012 from a year earlier to $39.77. The company recently received environmental licenses that will allow it to build treatment facilities closer to production areas or build pipelines to carry the oil to existing facilities in one of its fields, BTG analysts Gustavo Gattass and Andres Cardona wrote in a report today.

“With a visible cost-cutting strategy in place that already seems to be yielding some results, there is room for improving profitability,” the analysts wrote. “The cost equation could still improve, providing the stock with some additional momentum throughout the year.”

Part of the inefficiencies at Pacific Rubiales stemmed from the need to cut some oil with 80 percent to 90 percent water at its Quifa field before trucking, according to BTG.

“That means that Pacific was trucking anywhere between four and nine barrels of water for every barrel of oil that it was eventually able to produce, facing a massive in-field transportation cost that is booked as part of its consolidated lifting costs,” according to the report.

Cutting costs by an average $8 per barrel may have the same impact as if production grew by an additional 8.8 percent this year, the report said.

BTG’s target price is C$35.50 over the next 12 months. The company’s shares traded in Toronto fell by 1.1 percent to $20.97 as of 1:36 p.m. in Toronto. The Bogota-traded shares fell by 0.8 percent to 38,240 pesos.

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