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Pacific Rubiales' LNG project in Colombia delayed: partner

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Pacific Rubiales' LNG project in Colombia delayed: partner

Bogota — Citing "unfavorable market conditions," Canada-based Pacific Rubiales Energy has decided to postpone the start-up of its floating LNG project, according to its partner, FLNG vessel builder Exmar.

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Colombia-focused PRE had planned to start exporting 70,000 Mcf/d of LNG early this year to customers in Central America and in the Caribbean aboard a $180 million floating liquefaction, regasification and storage vessel that Belgium-based Exmar is building at a shipyard in Wison, China.

The partners are also building a second vessel, a storage barge, as well as an $80 million, 90-km pipeline to connect PRE's natural gas field at La Cresciente in Colombia's northern Sucre province with a new LNG terminal at Tolu on the Caribbean coast.

In its year-end message to shareholders Thursday, Exmar said the project is only deferred, not canceled. Exmar also said that PRE would "take delivery" of the vessel during the second half of 2015.

PRE could not be reached for comment.

PRE "remains committed to the project and is evaluating different alternatives, including the relocation of the Caribbean barge to a difference site," Exmar wrote in its year-end report. In March 2012, PRE signed a 15-year contract to provide 70,000 Mcf/d gas to the venture with Exmar.

The partners' previous announcement that the FLNG vessel and barge would be based at a port in Tolu, a coastal city southeast of Cartagena, now appears to be in doubt.

When the contract was signed, PRE said that the company hoped to double gas production at La Cresciente to 140,000 Mcf/d in future years if market conditions were favorable. Global oversupplies, however, have caused natural gas prices to plunge, casting doubt on the economics of many projects, not just PRE's.

Pacific Rubiales had hoped the Exmar floating LNG venture would help it diversify and lessen dependence on revenue from the Rubiales heavy crude oil field in Colombia's eastern Meta state, in which operator PRE currently is a 40% partner with state-controlled Ecopetrol.

Terms of the Rubiales venture call for all of PRE's equity interest to revert to Ecopetrol by the end of June 2016. Efforts by PRE to renegotiate the contract so that it can maintain a presence at Colombia's single largest producing oil field have so far failed.

An enhanced heavy crude recovery pilot project called STAR that the partners conducted on the Quifa field adjacent to Rubiales was discontinued last year. PRE had hoped that positive results would induce Ecopetrol to extend the partnership.

PRE currently produces a net 150,000 boe/d, almost all of it in Colombia, and projects only slight growth of up to 8% additional output in 2015.

In December, it announced a $1.5 billion investment plan for 2015, a 40% cut from 2014, in response to plunging oil prices. Then on January 9, the company announced it was cutting an additional 27% from this year's capital expenditures from what was announced in December.

PRE's uncertain future prospects have caused investors to flee the stock, which over the last six months has lost 90% of its value in Toronto Stock Exchange trading. Investors were spooked earlier this month when Standard & Poor's credit rating service announced it was placing PRE's $4 billion-plus debt on negative watch. S&P, like Platts, is owned by McGraw-Hill Financial.

"The credit watch placement reflects our view that the company's financial metrics will deteriorate as a result of weaker oil prices, which could lead to a reassessment of the company's financial risk profile," S&P said in a statement, adding that the decision also reflects the impact of reduced oil field investment this year announced first in December and again this month.

The company has said in local media interviews that its current debt load is manageable and that it is in no danger of a near-term default. However, the company said it was significantly cutting operational costs. In December, CEO Ronald Pantin said the company had so far laid off 100 workers.

--Chris Kraul,
--Edited by Derek Sands,