Notes to the Consolidated Financial Statements (u.s.$

Notes to the Consolidated Financial Statements
(u.s.$ thousands, except share and per share amounts or unless otherwise stated)
Long-Term Recoverable VAT
This amount includes recoverable VAT mainly in Colombia and Peru that the Company expects to receive one year after
the end of the reported period.
21.
Impairment Test
The Company assesses at the end of each reporting period whether there is any indication, from external and internal
sources of information, that an asset or cash generating unit CGU or goodwill may be impaired. Information the
Company considers include changes in the market, the economic and legal environment in which the Company operates
that are not within its control and affect the recoverable amount of the oil & gas, exploration and evaluation properties
and goodwill. Predominantly due to the significant and sustained decline in oil prices during 2015 and the Company's
capitalization remaining below book value, the Company has determined that indicators of impairment existed as of
December 31, 2015, and as such, has performed a test for recoverability of the value of these assets.
Internal sources of information include the manner in which long lived assets are being used or are expected to be used
and indications of economic performance of the assets. Estimates include but are not limited to the discounted future
after-tax cash flows expected to be derived from the Company's properties, costs to sell the properties and the discount
rate. Reductions in oil price forecasts, increases in estimated future costs of production, increases in estimated future
capital costs, reductions in the amount of recoverable reserves and resources and/or adverse current economics can result
in a write-down of the carrying amounts of the Company's oil and gas, exploration and evaluation assets and/or
goodwill. An impairment loss is recognized when the carrying amount exceeds the recoverable amount.
The Company's impairment tests of oil and gas and exploration and evaluation assets are performed at the CGU level, as
noted in the Estimation Uncertainty and Assumptions section of Note 2.1 to the financial statements. The recoverable
amount is calculated based on the higher of value-in-use and fair value less cost to sell. For the year ended December
31, 2015 the recoverable amount was determined based on the fair value less cost to sell (2014: value-in-use).
Assumptions used in the model to determine the recoverable amounts included:
•
After-tax discount rate of 18% (23% before tax) (2014: 10% and 12.8% before tax) as determined by the
weighted average cost of capital taking into consideration the expected return on investment by the Company's
investors, the cost of debt based on the interest-bearing borrowings of the Company and segment specific risk
based on publicly available market data.
•
Long-term WTI benchmark oil price of $41, $50, $58, $66 and $71 per barrel for 2016-2020 (2014: of $64,
$77, $83, $87 and $91 per barrel for 2015-2019) respectively and inflated by approximately 2% (2014: 2%)
subsequent to that period. Prices are based on the compilation of independent industry analyst forecasts,
published indices and management's own assumptions.
•
Hydrocarbon reserves and resources which are estimates of the amount of hydrocarbons that can be
economically and legally extracted from the Company's oil and gas properties. The Company estimates its
commercial reserves and resources based on information compiled by external reserve engineers relating to the
geological and technical data on the size, depth, shape and grade of the hydrocarbon body and suitable
production techniques and recovery rates. Commercial reserves are determined using estimates of oil and gas in
place, recovery factors and future commodity prices, the latter having an impact on the total amount of
recoverable reserves and the proportion of the gross reserves which are attributable to the host government
under the terms of the agreements. Future development costs are estimated using assumptions as to the number
of wells required to produce the commercial reserves, the cost of such wells and associated production
facilities, and other capital costs.
•
Production based on updated hydrocarbon reserve reports, recent operating and exploration results, future
operating costs based on revised budgets, capital expenditures, future exploration plans, inflation and long-term
foreign exchange rates.
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
As at December 31, 2015, based on the impairment test performed by the Company, the carrying amounts of certain
assets exceeded their recoverable amount, and as such, the Company concluded that a total of $4,641 million before tax
of impairment charges would be recorded (2014:$1,432 million). The breakdown of the charges taken is as follows:
Year ended December 31
2015
167,642 $
1,614,859
238,426
323,660
2,344,587 $
North Colombia CGU
Central Colombia CGU
South Colombia CGU
Peru
Oil and gas properties
2014
826,000
153,000
979,000
Plant and equipment
Guyana
4,200
Exploration and evaluation assets
Colombia
Belize
Peru
Brazil
Papua New Guinea
Other
Exploration and evaluation assets and others
1,242,551 $
18,890
277,222
421,120
13,000
86,186
2,058,969 $
Goodwill allocated to Colombia
Goodwill allocated to Guyana
237,009
4,640,565 $
Total impairment
5,000
13,000
47,800
70,000
375,000
8,000
1,432,000
The recoverable amounts of the above CGUs are as follows: Central Colombia CGU: $1,237 million (December 31,
2014: $4,106 million); South Colombia CGU: $Nil (December 31, 2014: $228 million); Other non-Colombian CGU:
$170 million (December 31, 2014: $208 million); Guyana (CGX): $Nil (December 31, 2014: $36 million).
The impairments recorded, excluding goodwill, may be reversed, in whole or in part, if and when the recoverable
amount of the assets and CGUs increase in future periods.
Exploration expense
During the year ending December 31, 2015, through its subsidiary CGX Energy Inc. ("CGX"), the Company incurred a
$23.3 million fee for the termination of an offshore exploratory drilling contract. Pending certain regulatory approvals,
$5.5 million was settled through the issuance of common shares of CGX in January 2016, $7.25 million is payable by
March 25, 2016 and another $7.25 million is payable by June 15, 2016. The remaining $3.3 million has been recognized
as a short-term accounts payable.
During the year ending December 31, 2015, the Company decided to withdraw from its participation in the exploratory
blocks in Papua New Guinea. Per the terms of the withdrawal, the Company agreed to accept a receivable of $96
million ($51.1 million present value, refer to Note 20), payable in six years from its partner in the blocks. As a result,
the Company has recorded a charge of $114.3 million as exploration expense in the Consolidated Statement of Income
for the year ending December 31, 2015.
Total impairment and exploration expense (before tax) are summarized below:
Year ended December 31
Impairment
Impairment of financial assets
Exploration expenses
Total impairment and exploration expenses
$
2015
4,640,565 $
49,364
217,280
4,907,209 $
2014
1,432,000
193,358
1,625,358
w
Notes to the Consolidated Financial Statements
(u.s.s thousands, except share and per share amounts or unless otherwise stated)
Goodwill
Amount
$ 633,780
(13,771)
(383,000)
237,009
(237,009)
As at December 31, 2013
Derecognition on Cubiro and Arrendajo transation
Impairment
As at December 31, 2014
Impairment
As at December 31, 2015
22. Interest-Bearing Loans and Borrowings
As at December 31
Senior Notes - 2011
Senior Notes - March 2013
Senior Notes - November 2013
Senior Notes - September 2014
Other debt
Revolving credit facility
Short-term working capital loans
Maturity
Currency
Interest Rate
December 12, 2021
March 28, 2023
November 26, 2019
January 16, 2025
Various 2016 to 2018
2017
2015
USD
USD
USD
USD
USD
USD
USD/COP
7.25%
5.13%
5.38%
5.63%
Various
LIBOR + 3.5%
Various
2015
$
690,549
1,000,000
1,300,000
1,113,651
273,146
1,000,000
2014
$
285,364
4,653,849
5,377,346
Current portion
Non-current portion
$
654,947
990,785
1,285 784
1,048,908
388,561
5,377,346
$
5,377,346
$
321,655
4,332,194
4,653,849
Senior Notes
The Senior Notes are listed on the Official List of the Luxembourg Stock Exchange and trade on the Euro MTF. Under
the terms of the notes, the Company is required to maintain certain covenants, including: (1) an interest coverage ratio of
greater than 2.5, and (2) a debt-to-EBITDA ratio of less than 3.5. The covenants do not apply during any period of time
when the notes have an investment grade rating from at least two rating agencies. These financial covenants are
incurrence covenants which, if breached, would restrict the Company from incurring additional indebtedness, but would
not result in an event of default or acceleration of repayment. The Company was compliant with the interest coverage
covenant during the period. The Company was in breach of the debt-to-EBITDA covenant during the period.
Other Debts and Revolving Credit Faculty
In 2013, the Company borrowed $109 million from Bank of America ("2013 BOFA Loan") which carries an interest
rate of LIBOR + 1.5% and matures in November 2016, with interest payments due biannually. As at December 31,
2015, the principal outstanding was $36.3 million (December 31, 2014: $72.6 million).
On April 4, 2014, the Company borrowed $75 million from Banco Latinoamericano de Comercio Exterior ("Bladex
Facility"). The Bladex Facility carries an interest rate of LIBOR + 2.70% and the principal is to be repaid in equal parts
in October 2016, April and October 2017, and April 2018 with interest payments on the outstanding principal due
biannually. As at December 31, 2015, the principal outstanding was $24.2 million (December 31, 2014: $75 million).
On April 8, 2014, the Company received $250 million under a working capital facility from HSBC Bank USA (`'HSBC
Facility"). The HSBC Facility carries an interest rate of LIBOR + 2.75%. As at December 31, 2015, the principal
amount outstanding was $212.5 million (December 31, 2014: $250 million), with $62.5 million due in 2016 and $150
million due in 2017.
The U.S. dollar credit facility ("Revolving Credit Facility") is fully committed from a syndicate of lenders to the
maturity in 2017 and the Company is required to pay commitment fees of 0.95% on the unutilized portion under the
revolving credit facility.
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
The credit facilities are subject to certain financial covenants that require the Company to maintain: (1) an interest
coverage ratio of greater than 2.5; (2) a debt-to-EBITDA ratio of less than 4.5; and (3) a net worth greater than $1
billion. Net worth is calculated as total assets less total liabilities, excluding those of the excluded subsidiaries, which are
Pacific Midstream Ltd. and Pacific Infrastructure Ventures Inc. (refer to Note 5 and Note 19). On December 28, 2015
the Company obtained a temporary waiver subject to certain conditions as discussed below from its lenders with respect
to the $1 billion net worth covenant and debt-to-EBITDA covenant. The Company was compliant with the remainder of
the covenants for which the waiver does not apply.
Debt Waivers
On December 28, 2015 the Company obtained temporary waivers ("Debt waivers") from its lenders under the
Revolving Credit Facility and the 2013 BOFA, Bladex, and HSBC facilities with respect to the net worth covenant and
the debt-to-EBITDA ratio covenant. The waivers were granted for a period of 61 days expiring on February 26, 2016,
subject to the satisfaction of certain terms and conditions including:
• The Company and the Company's lenders ("Steering Committee") reaching an agreement with respect to a
covenant providing for the minimum amount of unrestricted cash to be retained by the Company.
• The Company agreeing to certain restrictions on non-ordinary course transactions including certain investments
or dispositions and pledging assets to secure any additional indebtedness
• The Company agreeing to work with the lenders and their financial and legal advisors during the Waiver period.
Forbearance Agreements Signed Subsequent to December 31, 2015
On January 14, 2016, the Company announced it had elected to utilize the 30-day grace period under the applicable note
indentures and not make interest payments on its September 2014 Senior Notes and November 2013 Senior Notes of
$66.2 million in the aggregate as they became due on January 19, 2016 and January 26, 2016, respectively. The failure
to pay such interest constituted an event of default under the applicable note indentures on February 25, 2016 in respect
of the September 2014 Senior Notes and February 18, 2016 in respect of the November 2013 Senior Notes. On February
18, 2016, the Company entered into the Noteholder Extension Agreement with certain holders of these Senior Notes.
Under the terms of the Noteholder Extension Agreement, holders of approximately 34% of the aggregate principal
amount of outstanding November 2013 Senior Notes and 42% of the aggregate principal amount of outstanding
September 2014 Senior Notes have agreed, subject to certain terms and conditions, to forbear from declaring the
principal amounts of the Notes (and certain additional amounts) due and payable as a result of certain specified defaults
until March 31, 2016.
Furthermore, on February 19, 2016, the Company entered into the Lender Forbearance Agreements in respect of the
Revolving Credit Facility and the Bank of America, Bladex, and HSBC credit facilities. Under the terms of the Lender
Forbearance Agreements, the lenders pursuant to the credit agreements have also agreed, subject to certain terms and
conditions, to forbear from declaring the principal amounts of such credit agreements due and payable as a result of
certain specified defaults until March 31, 2016.
Debt Classification
The Company's long-term debts were previously carried at amortized cost using the effective interest rate method with
discount and transaction costs netted against the principal. As a result of the Noteholder Extension Agreement and the
Lender Forbearance Agreements being in effect until March 31, 2016, all of the Company's outstanding debts as at the
year ended December 31, 2015 were reclassified from non-current to current liability in the consolidated statements of
financial position. In addition, all remaining capitalized discounts and transaction costs were expensed as of December
31, 2015.
Finance cost
The following table summarizes the main components of finance cost for the years ended December 31, 2015 and 2014:
UJ
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
Year ended December 31
Interest on Senior Notes
Interest on other debt
Acceleration of deferred transaction costs and discount
Accretion of asset retirement obligations
Interest income
Other
$
2015
233,833
50,398
145,229
10,185
(20,870)
16,071
434,846
$
2014
215,025
56,281
11,257
(29,681)
8,418
261,300
23. Finance Lease
The Company has entered into two power-generation arrangements to supply electricity for three of its oil fields in
Colombia until June 2016 and August 2021. In addition, the Company has lease and take-or-pay arrangements for
airplanes and IT equipment that are accounted for as finance leases. The arrangements have been accounted for as
finance leases with an average effective interest rate of 14.52% (2014: 12.85%). The Company's minimum lease
payments are as follows:
As at December 31
2015
Within 1 year
Year 2
Year 3
Year 4
Year 5
Thereafter
Total minimum lease payments
Amounts representing interest
Present value of net minimum lease payments
Current portion
Non-current portio❑
Total obligations under finance lease
2014
17,473 $
6,787
6,778
6,778
6,797
4,514
49,127 $
(12,616)
36,511 $
23,346
14,567
6,790
6,778
6,778
11,310
69,569
(18,766)
50,803
13,559 $
22,952
36,511 $
17,202
33,601
50,803
For the year ending December 31, 2015, interest expense of $6.1 million (2014: $8.4 million) was incurred on these
finance leases.
24. Asset Retirement Obligation
The Company makes full provision for the future cost of decommissioning oil production facilities on a discounted basis
upon the installation of those facilities.
Note
As at December 31, 2013
Accretion expense
Acquisitions
Changes during the year
As at December 31, 2014
Accretion expense
Disposal
Expenditure
Foreign exchange
Changes during the year
As at December 31, 2015
Current portion
Non-current portion
$
15,16
15,16
15,16
$
Amount
201,576
11,257
15,799
29,165
257,797
10,185
(4,556)
(878)
(41,810)
(10,141)
210,597
3,449
207,148
210,597
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
The asset retirement obligation represents the present value of decommissioning costs relating to oil and gas properties,
of which up to $345 million are expected to be incurred (December 31, 2014: $323 million). Cash flows are expected to
occur in a variety of countries and currencies, and the discount rates and inflation rates are chosen in association with the
currencies in which the liabilities are expected to be settled. The future decommissioning costs are discounted using the
risk-free rate between 3.52% and 4.97% and an inflation rate of 0.6% for cash flows expected to be settled in U.S.$, and
a risk-free rate between 6.01% and 10.20% and an inflation rate between 3.00% and 5.20% for cash flows expected to be
settled in COP (December 31, 2014: U.S.$ Risk Free Rate of 3.61%-4.43% with inflation of 1.3%, COP Risk Free Rate
5.99%-8.99% with inflation of 3.65%) to arrive at the present value. Assumptions, based on the current economic
environment, have been made which management believe are a reasonable basis upon which to estimate the future
liability. These estimates are reviewed regularly to take into account any material changes to the assumptions. However,
actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning
expenditures, which will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is
likely to depend on when the fields cease to produce at economically viable rates. This in turn will depend upon future
oil and gas prices, which are inherently uncertain.
25. Contingencies and Commitments
A summary of the Company's commitments, undiscounted and by calendar year, is presented below:
As at December 31,2015
ODL Take-or-Pay Agreement
M111111111111WOrk commitments
Bicentenario Ship-or-Pay Agreement
Operating purchase and leases
Transportation and processing commitments
Purchase Genser Power
Community obligations
Total
2016
$
$
30,887 $
58,032
153,932
224,939
56,730
19,052
9,520
553,092 $
2017
2018
2019
17,675 $
104,536
155,487
58,087
142,686
16,600 $
83,246
155,487
54,199
133,275
15,524 $
8,500
155,487
53,342
130,477
478.471 $
442.807 $
363,330 $
Subsequent to
2021
10,937 $
$
8,500
155,913
712,684
52,872
39,550
122,846
536,369
351,068 $
1,288,603 $
2020
Total
91,623
262,814
1,488,990
482,989
1,122,383
19,052
9,520
3,477,371
The Company has various guarantees in place in the normal course of business. As at December 31, 2015, the Company
has issued letters of credit and guarantees for exploration and operational commitments for a total of $272 million
(December 31, 2014: $434 million).
The Company has an assignment agreement with Transporte Incorporado S.A.S. ("Transporte Incorporado"), a
Colombian company owned by an unrelated international private equity fund. Transporte Incorporado owns a 5% equity
interest and capacity right in the OCENSA pipeline in Colombia. Under the assignment agreement, the Company is
entitled to use Transporte Incomorado's capacity to transport crude oil through the OCENSA pipeline for a set monthly
premium until 2024. Pursuant to the assignment agreement, the Company is required for the duration of the agreement to
maintain a minimum credit rating of Ba3 (Moody's), which was breached in September and December 2015 and January
2016 when Moody's downgraded the Company's credit rating to B3, Caa3 and C respectively. As a result of the
downgrade and in accordance with the assignment agreement, upon giving notice to the Company, Transporte
Incorporado would have the right to early-terminate the assignment agreement and the Company would be required to
pay an amount determined in accordance with the agreement, estimated at $129 million. The Company has not received
such notice from Transporte Incorporado, and on January 6, 2016, the Company received a waiver from Transporte
Incorporado of its right to early-terminate for a period of 45 days until February 15, 2016, which was further extended
several times to March 18, 2016. The Company continues to pay monthly premiums and is currently in negotiation with
Transporte Incorporado regarding the terms of the agreement and the minimum credit rating requirement. No provision
has been recognized as of December 31, 2015 relating to the breach of the credit rating requirement.
In Colombia, the Company is participating in a project to expand the OCENSA pipeline, which is expected to be
completed and commence operation in 2016. As part of the expansion project, the Company, through its subsidiaries
Meta Petroleum and Petrominerales Colombia, entered into separate crude oil transport agreements with OCENSA for
future transport capacity. The Company will start paying ship-or-pay fees once the expansion project is complete and
operational. As part of the transport agreements, the Company is required to maintain minimum credit ratings of BB(Fitch) and Ba3 (Moody's). This covenant was breached in September and December 2015 and January 2016 when
Moody's downgraded the Company's credit rating to B3, Caa3 and C respectively. As a result of the downgrades and
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
pursuant to the transport agreements, upon giving notice to the Company, OCENSA has the right to require the
Company to provide a letter of credit or proof of sufficient equity or working capital within a cure period of 60 days
starting from the day on which notice is received by the Company. On November 5, 2015 the Company received a
waiver from OCENSA of its rights to receive a letter of credit which will expire once the project is complete and
operational. No provision has been recognized as of December 31, 2015 relating to the breach of the credit rating
requirement.
In March 2012, The Company's subsidiary Pacific Stratus Energy Colombia Corp ("PSE") entered into a liquefaction,
storage and loading services agreement ("Tolling Agreement") with Exmar NV ("Exmar"). The Company as part of
the agreement is required to maintain a minimum credit rating of BB- (Standards and Poor's). This covenant was
breached in December 2015 when Standards and Poor's downgraded the Company's credit rating to CCC+. As a result
of the downgrade and pursuant to the agreement, upon giving notice to the Company, Exmar can request a letter of
credit for approximately $53.6 million. As at December 31, 2015 PSE and Exmar were in negotiations regarding the
minimum credit rating requirement, and early termination of the agreement. The Company has recognized a provision of
$20 million based on its best estimate of the cost for early termination. In March 2016, the Company and Exmar agreed
to terminate the Tolling Agreement, and the Company agreed to pay a termination fee of $5 million in cash up front and
$1 million per month for a period of 15 months. Any and all obligations in connection with the Tolling Agreement have
been terminated.
Contingencies
The Company is involved in various claims and litigation arising in the normal course of business. Because the outcome
of these matters is uncertain, there can be no assurance that such matters will be resolved in the Company's favour. The
Company does not currently believe that the outcome of adverse decisions in any pending or threatened proceedings
related to these and other matters or any amount which it may be required to pay by reason thereof would have a
material impact on its financial position, results of operations or cash flows.
Tax Review in Colombia
The Company currently has a number of tax filings under review by the Colombian tax authority ("DIAN").
The DIAN has officially reassessed several value-added tax ("IVA") declarations on the basis that the volume of oil
produced and used for internal consumption at certain fields in Colombia should have been subject to IVA. For the year
ending December 31, 2015, the amounts reassessed, including interest and penalties, is estimated at $59.8 million, of
which the Company estimates that $21.9 million should be assumed by companies that share interests in these contracts.
The Company disagrees with the DIAN's reassessment and official appeals have been initiated. Several other taxation
periods back to 2011 with respect to IVA on field oil consumption are also currently under review by the DIAN. For the
periods that are under review, if the DIAN's views were to prevail, the Company estimates that the IVA, including
interest and penalties, could range between $59.8 million and $120 million, of which, the Company estimates that a
range of $31.8 million to $53.8 million should be assumed by other companies that share interests in these contracts.
On February 24, 2016, the DIAN issued a ruling which concluded that the internal consumption of oil produced does not
create an IVA obligation. The Company expects the current dispute regarding IVA to be resolved in its favour, and as
such no provision has been recognized in the consolidated financial statements. The Company continues to utilize oil
produced for internal consumption, which is an accepted practice for the oil industry in Colombia.
The DIAN is also reviewing certain income tax deductions with respect to the special tax benefit for qualifying
petroleum assets as well as other exploration expenditures. As at December 31, 2015, the DIAN has reassessed $56.3
million of tax owing, including estimated interest and penalties, with respect to the denied deductions.
As at December 31, 2015, the Company believes that the disagreements with the DIAN related to the denied income tax
deductions will be resolved in favour of the Company. No provision with respect to income tax deductions under dispute
has been recognized in the consolidated financial statements.
Notes to the Consolidated Financial Statements
(U.S. $ thousands, except share and per share amounts or unless otherwise stated)
High Price Royalty in Colombia
The Company has certain exploration contracts acquired through business acquisitions where there existed outstanding
disagreements with the Agencia Nacional de Hidrocarburos (National Hydrocarbon Agency or "ANH" of Colombia)
relating to the interpretation of the high-price participation clause. These contracts require high-price participation
payments to be paid to the ANH once an exploitation area within a contracted area has cumulatively produced five
million or more barrels of oil. The disagreement is around whether the exploitation areas under these contracts should be
determined individually or combined with other exploration areas within the same contracted area, for the purpose of
determining the five million barrel threshold. The ANH has interpreted that the high-price participation should be
calculated on a combined basis.
The Company disagrees with the ANH's interpretation and asserts that in accordance with the exploration contracts, the
five million barrel threshold should be applied on each of the exploitation areas within a contracted area. The Company
has several contracts that are subject to ANH high-price participation. One of these contracts is the Corcel Block, which
was acquired as part of the Petrominerales acquisition and which is the only one for which an arbitration process has
been initiated. However, the arbitration process for Corcel was under suspension at the time the Company acquired
Petrominerales. As at December 31, 2015, the amount under arbitration is approximately $194 million plus related
interest of $37 million. The Company also disagrees with the interest rate that the ANH hastsed in calculating the
interest cost. The Company asserts that since the high-price participation is denominated in the U.S. dollar, the contract
requires the interest rate to be three-month LIBOR + 4%, whereas the ANH has applied the highest legally authorized
interest rate on Colombian peso liabilities, which is over 20%. An amount under discussion with the ANH for another
contract is approximately $99 million plus interest.
The Company and the ANH are currently in discussion to further understand the differences in interpretation of these
exploration contracts. The Company believes that it has a strong position with respect to the high-price participation
based on legal interpretation of the contracts and technical data available. However, in accordance with IFRS 3, to
account for business acquisitions the Company is required to and has recorded a liability for such contingencies as of the
date of acquisition, even though the Company believes the disagreement will be resolved in favour of the Company.
The Company does not disclose the amount recognized as required by paragraphs 84 and 85 of IAS 37, on the grounds
that this would be prejudicial to the outcome of the dispute resolution.
26. Issued Capital
a)
Authorized, issued and fully paid common shares
The Company has an authorized capital of an unlimited number of common shares with no par value.
Continuity schedule of share capital is as follows:
As at December 31, 2013
Repurchase of shares
Issued on exercise of options
As at December 31, 2014
Treasury shares issued
As at December 31, 2015
b)
Note Number of Shares
322,503,752 $
(11,896,599)
2,647,900
313,255,053 $
27e
1,766,145
315,021,198 $
Amount
2,667,820
(107,083)
49,748
2,610,485
5,303
2,615,788
Stock options
The Company has established a "rolling" Stock Option Plan (the "Plan") in compliance with the applicable TSX policy
for granting stock options. Under the Plan, the maximum number of shares reserved for issuance may not exceed 10% of
the total number of issued and outstanding common shares. The exercise price of each option shall not be less than the
market price (as defined under the TSX Company Manual) of the Company's stock at the date of grant.
A summary of the changes in stock options is presented below:
w
Notes to the Consolidated Financial Statements
(us.s thousands, except share and per share amounts or unless otherwise stated)
Number of options Weighted average
outstanding
exercise price (CS)
25,917,692
21.01
13.45
(2,647,900)
(101,000)
23.38
23,168,792
21.86
(6,647,675)
17.16
16,521,117
23.76
As at December 31, 2013
Exercised during the year
Cancelled during the year
As at December 31, 2014
Cancelled and expired during the year
As at December 31, 2015
No stock options were exercised in 2015; the weighted average share price at the time when the stock options were
exercised during the year ending December 31, 2014 was C$13.47.
The following table summarizes information about the stock options outstanding and exercisable:
Outstanding & exercisable
116,667
250,000
3,718,250
53,000
12,000
160,000
2,500
5,188,700
69,000
6,112,000
714,000
125,000
16,521,117
Exercise price (C$)
6.30
34.43
25.76
28.01
25.59
22.05
24.68
22.75
29.10
23.26
24.32
19.21
23.76
Remaining
contractual life (years)
1.53
0.09
0.21
0.34
0.40
0.74
0.82
1.05
1.25
2.08
2.11
2.88
1.29
Expiry date
July 10, 2017
February 2, 2016
March 16, 2016
May 3, 2016
May 26, 2016
September 27, 2016
October 24, 2016
January 18, 2017
March 30, 2017
January 28, 2018
February 8, 2018
November 15, 2018
No stock options were granted to employees, directors or contractors during 2015 (2014: Nil).
c)
Deferred share units
The Company established the Deferred Share Unit Plan (the "DSU Plan") for its non-employee directors during 2012
and for its employees in July 2014. Each DSU represents the right to receive a cash payment on retirement or
termination equal to the volume-weighted average market price of the Company's shares at the time of surrender. Cash
dividends paid by the Company are credited as additional DSUs. The fair value of the DSUs granted and the changes in
their fair value during the period were recognized as share-based compensation on the Consolidated Statement of Loss
with a corresponding amount recorded in accounts payable and accrued liabilities on the Consolidated Statement of
Financial Position.
The following table summarizes information about the DSU's outstanding:
As at December 31, 2013
Fair value adjustment for the year
Granted during the year
Settled during the year
As at December 31, 2014
Fair value adjustircnt for the year
Granted during the year
Settled during the year
As at December 31, 2015
Number of DSUs
outstanding
340,958 $
2,151,955
(5,527)
2,487,386 $
6,611,178
(2,218,139)
6,880,425 $
Amount
6,161
(23,776)
34,727
(37)
17,075
(19,747)
17,902
(6,730)
8,500
The December 31, 2015 liability is based on a fair value of $1.71 per DSU approximating the Company's closing share
price in U.S. dollars.
For the year ending December 31, 2015, a $1.6 million gain (December 31, 2014 $10.2 million expense) was recorded
as share-based compensation expense in respect to DSUs granted during the period and the change in fair value.
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
27. Related-party Transactions
The following sets out the details of the Company's related-party transactions:
a)
During the year ending December 31, 2015, the Company received cash of $58 million in accordance with its joint
operations obligation associated with its 49% interest in Block Z-1 in Peru. In addition, the Company had accounts
receivable of $0.3 million under the joint operation agreement from Alfa SAB de CV ("Alfa"), which owns a 51%
working capital interest in Block Z-1 and also holds 19.2% of the issued and outstanding capital of the Company.
b)
On December 11, 2015, the Company and the other shareholders of Pacific Power Generation Corp. ("Pacific
Power"), including Proenergy Corp. (a subsidiary of Blue Pacific Assets Corp. ("Blue Pacific")), entered into a
share purchase agreement with Faustia Development S.A., Tusca Equities Inc. and Associated Ventures Corp. (the
"Pacific Power Purchasers"), for the sale of 70% of the shares of Pacific Power. As part of the transaction, the
Company agreed to sell 4% of the Company's 24.9% equity interest in Pacific Power to the Pacific Power
Purchasers for approximately $5.0 million. As a result of the sale, the Company currently owns approximately 21%
and Proenergy Corp. (Blue Pacific) currently owns approximately 5% of Pacific Power. Associated Ventures Corp.
is controlled by a director of the Company.
The Company used most of the proceeds from the sale to pay for its share of a put option that was exercised by
Sustainable Services Inc., pursuant to the terms of a pre-existing shareholder agreement between Pacific Power and
its shareholders. The Company did not bear any of the transaction costs of approximately $1.3 million, and was
not subject to withholdings for its pro-rata share of any of the Pacific Power debt that may have been accelerated as
a part of the transaction.
c)
In October 2012, the Company and Ecopetrol signed two Build, Own, Manage, and Transfer ("BOMT")
agreements with Consorcio Genser Power-Proelectrica and its subsidiaries ("Genser-Proelectrica") to acquire
certain power generation assets for the Rubiales field. Genser-Proelectrica is a joint venture between Promotora de
Energia Electrica de Cartagena & Cia S.C.A.E.S.P ("Proelectrica"), in which the Company has a 21.1% indirect
interest and Genser Power Inc. ("Genser") which is 51% owned by Pacific Power. On March 1, 2013, these
contracts were assigned to TennoMorichal SAS ("TermoMorichal"), the company created to perform the
agreements, in which Pacific Power has a 51% indirect interest. Total commitment under the BOMT agreements is
$229.7 million over ten years. In April 2013, the Company and Ecopetrol entered into another agreement with
Genser-Proelectrica to acquire additional assets for a total commitment of $57 million over ten years. At the end of
the Rubiales Association Contract in 2016, the Company's obligations along with the power generation assets will
be transferred to Ecopetrol. During the year ending December 31, 2015 the Company paid $30.6 million (2014:
$14.5 million) under the Rubiales Association Contract. As at December 31, 2015, the Company had an advance of
$3.3 million (December 2014: $7.6 million).
During the year ending December 31, 2015, $2.5 million was expensed in relation to power generation cost (2014:
$Nil). The Company had accounts payable of $3.6 million (December 2014: $5.9 million) due to GenserProelectrica as at December 31, 2015. In addition, on May 5, 2014, a subsidiary of the Company provided a
guarantee in favour of XM Compailia de Expertos en Mercados S.A. on behalf of Proelectrica guaranteeing
obligations pursuant to an energy supply agreement in the aggregate amount of approximately $16.7 million. In
December 2014, the Company entered into a new contract with Genser related to the operation and maintenance of
the power generation facility located in the Sabanero field.
In October 2013, the Company entered into connection agreements and energy supply agreements with Proelectrica
for the supply of power to the oil fields in the Llanos basin. The connection agreements authorize Meta Petroleum
Corp. and Agro Cascada S.A.S. to use the connection assets of Petroelectrica for power supply at the Quifa and
Rubiales fields. The agreement commenced on November 1, 2013 and will operate for 13 years. During the year
ending December 31, 2015 the Company made payments of $46.3 million (2014: $69.1 million) under this
agreement.
The Company has entered into several take-or-pay agreements as well as interruptible gas sales and transport
agreements to supply gas from the La Creciente natural gas field to Proelectrica's gas-fired plant. During the year
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
ending December 31, 2015, the Company recorded revenues of $9.3 million (2014: $13.4 million) from such
agreements. As at December 31, 2015, the Company had trade accounts receivable of $12.3 million (December
2014: $7.5 million) from Proelectrica.
Under the energy supply agreements, Proelectrica provides electricity to the Company for power supply at the
Quifa and Rubiales fields, with payments to be calculated monthly on a demand-and-deliver basis. The term of the
agreement is until December 31, 2026. The aggregate estimated energy supply agreement is for 1.5 million
kilowatts.
d)
As at December 31, 2015, the Company had trade accounts receivable of $12.3 million (December 31, 2014: $7.5
million) from Proelectrica, in which the Company has a 21.1% indirect interest and which is 5% owned indirectly
by Blue Pacific. The Company and Blue Pacific's indirect interests are held through Pacific Power. Revenue from
Proelectrica in the normal course of the Company's business was $9.3 million for the year ending December 31,
2015 (2014: $13.4 million).
e)
As at December 31, 2015, loans receivable from related parties in the aggregate amount of $0.5 million (December
31, 2014: $0.9 million) are due from one executive director and seven officers of the Company. The loans are noninterest bearing and payable in equal monthly payments over a 48-month term.
In August 2015, the Company agreed to pay $8.3 million in severance to one of its officers, which included $5.5
million in cash paid during the year ending December 31, 2015 and $2.8 million payable in March 2016. In
addition, the departing officer's DSU entitlement was paid in kind with the Company's shares held in treasury on a
one-to-one basis, for a total of approximately 1.3 million common shares. Also during 2015, the Company also
made payments in kind of approximately 0.5 million common shares to three departing directors as settlement for
DSU entitlements.
f)
During the year ending December 31 2015, the Company paid $108.5 million to ODL (2014: $165 million) for
crude oil transport services under the pipeline take-or-pay agreement, and had accounts payable of $13.1 million
(December 31, 2014: $Ni1). In addition, the Company received $2.9 million from ODL during the year ending
December 31, 2015 (2014: $2.6 million) with respect to certain administrative services and rental equipment and
machinery. The Company accounts receivable from ODL as at December 31, 2015 of $0.1 million (December 31,
2014: $0.4 million). The Company has an approximately 22% indirect interest in ODL.
g)
During the year ending December 31, 2015, the Company paid $155.6 million to Oleoducto Bicentenario de
Colombia S.A.S. (2014: $174.4 million), a pipeline company in which the Company has a 27.9% interest, for crude
oil transport services under the pipeline ship-or-pay agreement. As at December 31, 2015, the balance of loans
outstanding to Bicentenario was $Nil (December 31, 2014: $42 million). Interest income of $1.3 million was
recognized during the year ending December 31, 2015 (2014: $2.7 million). Interest of $2.1 million was paid on
the loans during the year ending December 31, 2015, (December 31; 2014: $5.9 million), and capital of $42 million
was paid on the loans in the year ending in December 31, 2015. During the year ending December 31, 2015, the
Company received $Nil (2014: $0.6 million) with respect to certain administrative services, rental equipment and
machinery. The Company has advanced $87.9 million as at December 31, 2015 (December 31, 2014: $87.9
million) to Bicentenario as a prepayment of transport tariff, which will be amortized against the barrels transported.
As at December 31, 2015 the Company had trade accounts receivable of $0.4 million (December 31, 2014: $13.7
million) as a short-term advance.
h)
The Company has established two charitable foundations in Colombia: the Pacific Rubiales Foundation and the
Foundation for Social Development of Energy Available ("FUDES"). Both foundations have the objective of
advancing social and community development projects in the country. During the year ending December 31, 2015,
the Company contributed $15.3 million to these foundations (2014: $43.7 million). As at December 31, 2015, the
Company had accounts receivable (advances) of $0.4 million (December 31, 2014: $5.0 million) and accounts
payable of $3.2 million (December 31, 2014: $8.7 million).
i)
At as December 31, 2015, the Company had demand loans receivable from PII in the amount of $72.4 million
(December 31, 2014: $71.4 million). The loans are guaranteed by Pll's pipeline project and bear interest that
Notes to the Consolidated Financial Statements
(U.S. $ thousands, except share and per share amounts or unless otherwise stated)
ranges from LIBOR + 2% to 7% per annum. The Company owns 41.79% of PII. Interest income of $5 million was
recognized during the year ending December 31, 2015 (2014: $3.7 million) regarding to the loan. In addition,
during the year ending December 31, 2015, the Company received $3.7 million (2014: $1.3 million) from PII with
respect to contract fees for advisory services and technical assistance in pipeline construction of "Oleoducto del
Caribe". In addition, as at December 31, 2015, the Company had accounts receivable of $0.5 million (December
31, 2014: $1.0 million) from Pacific Infrastructure Ventures Inc., a branch of PII. As at December 31, 2015 the
Company had accounts payable of $0.5 million to PII (December 31, 2014: SNi1).
In December 2012, the Company entered into a take-or-pay agreement with Sociedad Puerto Bahia S.A., a
company that is wholly owned by PII. Pursuant to the terms of the agreement, Sociedad Puerto Bahia S.A. will
provide for the storage, transfer, loading and unloading of hydrocarbons at its port facilities. The contract term
commenced in 2014 and will continue for seven years, renewable in one-year increments thereafter. These
agreements may indirectly benefit Blue Pacific and other unrelated minority shareholders of PII. During the year
ending December 31 2015, the Company advanced $28.6 million, to Sociedad Puerto Bahia S.A. (2014: $Nil) of
which $10.9 million were expensed during the year ending in December 31, 2015 in relation to services received
(2014: $Nil).
j)
In October 2012, the Company entered into an agreement with CRC, Blue Advanced Colloidal Fuels Corp. ("Blue
ACF"), Alpha Ventures Finance Inc. ("AVF"), and an unrelated party whereby the Company acquired from CRC
the right to a 5% equity interest in Blue ACF for a cash consideration of $5 million. Blue ACF is a company
engaged in developing colloidal fuels; its majority shareholder is AVF, which is controlled by Blue Pacific. As part
of the purchase, CRC also assigned to the Company the right to acquire up to an additional 5% equity interest in
Blue ACF for an additional investment of up to $5 million. The Company currently has an 8.49% equity interest in
CRC. In addition, the Company has an indirect equity interest of 8.61% in CRC through its 21.1% ownership of
Pacific Power, which in turn has a 40.86% equity interest in CRC. A director of the Company, is the Executive
Chairman of CRC.
k)
Blue Pacific provides the Company with passenger air transport services on an as-needed basis. During the year
ending December 31, 2015, the Company paid $Nil (2014: $0.2 million) for these services.
1)
The Company has a lease agreement for an office in Caracas, Venezuela for approximately $6 thousand per month.
The office space is 50% owned by a family member of an executive officer of the Company.
The Company's key management personnel include its Board of Directors and the executive officers.
As at December 31
2015
Short-term employee benefits
Post-employment pension and medical benefits
Share-based payments
$
2014
14,739 $
1,333
16,228
32,300 $
30,597
2,568
26,697
59,862
28. Financial Assets and Liabilities
Overview of Risk Management
The Company explores, develops and produces oil and gas and enters into contracts to sell its oil and gas production,
and to manage its market risk associated with commodity markets, and notably its exposure to oil pricing. The Company
also enters into supply agreements and purchases goods and services denominated in non-functional currencies such as
Colombian Pesos for its Colombian-based activities. These activities expose the Company to market risk from changes
in commodity prices, foreign exchange rates, interest rates, and credit and liquidity risks that affect the Company's
earnings and the value of associated financial instruments it holds.
The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge its risk
exposures. The Company's strategy, policies and controls are designed to ensure that the risks it assumes comply with
Notes to the Consolidated Financial Statements
(us.s thousands, except share and per share amounts or unless otherwise stated)
the Company's internal objectives and its risk tolerance. It is the Company's policy that no speculative trading in
derivatives shall be undertaken.
When possible and cost effective, the Company applies hedge accounting. Hedging does not guard against all risks and
is not always effective. The Company could recognize financial losses as a result of volatility in the market values of
these contracts.
Risks Associated with Financial Assets and Liabilities
a) Market Risks
Commodity Price Risk
Commodity price risk is the risk that the cash flows and operations of the Company will fluctuate as a result of changes
in commodity prices associated with oil pricing. Significant changes in commodity prices can also impact the
Company's ability to raise capital or obtain additional debt financing. Commodity prices for crude oil are impacted by
world economic events that dictate the levels of supply and demand. While the Company does not engage in speculative
financial instrument trading, it may enter into various hedging strategies such as costless collars, swaps, and forwards to
minimize its commodity price risk exposure to oil pricing.
Foreign Currency Risk
Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows
of the Company's financial assets or liabilities. As the Company operates primarily in Colombia, fluctuations in the
exchange rate between the Colombian peso and the U.S. dollar can have a significant effect on the Company's reported
results.
To mitigate the exposure to the fluctuating COP/U.S.$ exchange rate associated with operating and general and
administrative expenses incurred in COP, the Company may enter into various hedging strategies such as currency
costless collars, swaps and forwards. In addition, the Company may also enter into currency derivatives to manage the
foreign exchange risk on financial assets that are denominated in the Canadian dollar.
The Company's foreign exchange gain/loss primarily includes unrealized foreign exchange gains and losses on the
translation of COP-denominated risk management assets and liabilities held in Colombia.
Interest Rate Risk
The Company is exposed to interest rate risk on its outstanding variable-rate revolving credit borrowings due to
fluctuations in market interest rates. The Company monitors its exposure to interest rates on an ongoing basis.
Sensitivity Analysis on Market Risks
The details below summarize the sensitivities of the Company's risk management positions to fluctuations in the
underlying benchmark prices, with all other variables held constant. Fluctuations in the underlying benchmarks could
have resulted in unrealized gains or losses impacting pre-tax net earnings as follows:
•
•
•
A $1 change in the WTI price would have resulted in a $55 million change in revenue as at December 31, 2015
(2014: $64 million).
A 10% change in the COP/U.S.$ exchange rate would have resulted in a $13.4 million change in foreign
exchange gain/loss as at December 31, 2015 (2014: $8.1 million).
_
A 1% (100 basis points) change in the interest rate would increase or decrease interest expense by $13 million
(2014: $7.9 million).
Notes to the Consolidated Financial Statements
(u.s.$ thousands, except share and per share amounts or unless otherwise stated)
b) Credit Risk
Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to
meet its obligations in accordance with agreed terms. The Company actively limits the total exposure to individual client
counterparties and holds a trade credit insurance policy for indemnification for losses from non-collection of trade
receivables.
As at December 31
Trade receivable
Advances / deposits
Recoverable VAT and withholding tax
Other receivables
Receivable from joint arrangements
Allowance for doubtful accounts
$
$
Bicentenario loan (non-current, Note 20)
Long-term recoverable VAT (non-current, Note 20)
2015
173,777 $
26,853
57,845
182,384
101,413
(24,275)
517,997 $
2014
64,958
582,955 $
224,871
108,828
70,890
163,874
252,745
(3,849)
817,359
41,992
86,886
946,237
As at December 31, 2015 one of the Company's customers had accounts receivable that was greater than 10% of total
trade accounts receivable. The Company's credit exposure to this customer was $39 million, or 23%, of trade accounts
receivable (December 31, 2014: three customers at $102 million, $29 million and $25 million or 46%, 13% and 11% of
trade accounts receivable). Revenue from this customer for 2015 was $362 million or 13%, of revenue (December 31,
2014: $156 million, $29 million and $21 million or 17%, 3% and 2% of revenue), respectively.
The majority of the recoverable VAT and Withholding Tax is due to the Colombian and Peruvian tax authorities.
The majority of the receivables from joint arrangements is due from Ecopetrol.
Included in other receivables are loans receivable from PII $72.4 million (December 2014: $71.4 million). The demand
loan receivable from PII is guaranteed by PII's pipeline project and bears interest that ranges from LIBOR + 2% to 7%
per annum and interest income of $5 million was recognized during the year ending December 31, 2015 (2014: $3.7
million).
The Bicentenario loan bears interest at 7.32% and interest income of $1.3 million was recognized during the year ending
December 31, 2015 (2014: $2.7 million). As of December 31, 2015 the balance of loan was $Nil (December 31, 2014:
$42 million).
The Company does not hold any collateral or other credit enhancements to cover its credit risks associated with its
financial assets, except for the loan with PII.
QV Trading Litigation
The Company is in the process of commencing legal proceedings against an unrelated customer, QV Trading LLC, in
respect of an overdue accounts receivable in the amount of approximately $16 million for the sale of oil in August 2015.
c) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The
Company's process for managing liquidity risk includes ensuring, to the extent possible, that it will have sufficient
liquidity to meet its liabilities when they become due. The Company prepares annual capital expenditure budgets that are
monitored and updated as required. In addition, the Company requires authorizations for expenditures on projects to
assist with the management of capital. As at December 31, 2015, the Company had available $Nil of revolving credit
(2014: $1 billion).
48
Notes to the Consolidated Financial Statements
(u.s.s thousands, except share and per share amounts or unless otherwise stated)
In February 2016, the Company entered into a forbearance agreement with the counter parties of its debt obligations that
may result in the entire debt balance becoming due as at March 31, 2016; refer to Note 22 for further details.
Notwithstanding the above paragraph, the following are the contractual maturities of non-derivative financial liabilities
(based on calendar year and undiscounted):
2017
2016
Note
Financial liability due in
Accounts payable and accrued liabilities
Long-term debt
Obligations under finance lease
Total
$
22
23
$
1,216,891
117,580
17,473
1,351,944
2018
-
$
1,155,569
6,787
1,162,356
$
6,778
6,778 $
Subsequent to
2021
2020
2019
$
1,300,000
6,778
1,306,778 $
$
690,549
6,797
697,346 $
2,113,648
4,514
2,118,162
Total
$
$
1,216,891
5,377,346
49,127
6,643,364
Accounts payable and accrual liabilities consisted of the following as at December 31, 2015 and 2014:
As at December 31
2014
2015
250,624
$
Trade and other payables
600,404
$
844,500
602,907
Accrued liabilities
Payables - JV partners
11,076
45,409
Advances, wananties, and deposits
91,982
127,535
260,302
Withholding tax and provisions
1,216,891
301,121
$
1,918,969
d) Hedge Accounting and Risk Management Contracts
The terms and conditions of the hedging instruments and expected settlement periods are as follows for instruments
outstanding as at:
December 31, 2015
Term
Type of Instrument
Notional Amount /
Volume (bbl)
floor/ Ceiling or strike
price
Carrying amount
Liabilities
Assets
Benchmark
Previously Subject to Fledge Accounting:
Commodities Price Risk
January to June 2016
Zero-cost collars
Total subject to hedge accounting
600,000
60-66
WTI
12,244
12,244
$
(3)
(3)
Not Subject to Hedge Accounting:
Commodities Price Risk
Zero-cost collars
Zero-cost collars
April to December 2016
January to December 2016
(counterpart), option)
Various 2016
Extendable
January to March 2016
Extendable Swap
Total not subject to hedge accounting
Total December 31, 2015
1,800,000
1,500,000
48 / 68
48.60 - 56 / 58.75 -73.45
WTI
BRENT
1,650,000
2,100,000
57-59.30/ 62-64.30
55.20 - 55.30
BRENT
BRENT
15,360
77,867
(53,061)
$
32,728
34,584
160,539
$
(1)
(1)
(53,063)
$
172,783
$
(53,066)
As at December 31, 2015 it was determined that the derivatives subject to hedge accounting no longer met the
requirement of highly probable, therefore hedge accounting for these instruments has been discontinued. The amount
previously accumulated within equity as a cash flow hedge and time value reserve will be reclassified into net income
(loss) as the original hedged transactions occur which are expected to occur between January and June 2016.
Notes to the Consolidated Financial Statements
(u.s.$ thousands, except share and per share amounts or unless otherwise stated)
December 31, 2014
Type of Instrument
Term
Notional Amount /
Volume (bbl)
Floor/ Ceiling or strike
price
Carrying amount
Assets
Liabilities
Benchmark
Subject to Hedge Accounting:
Foreign Currency Risk
Zero-cost collars
Zero-cost collars
January to December 2015
January to June 2015
Commodities Price Risk
Zero-cost collars
January to March 2015
January to June 2015
Zero-cost collars
Total subject to hedge accounting
Not Subject to Hedge Accounting:
Foreign Currency Risk
January to December 2015
Zero-cost collars
Commodities Price Risk
January to December 2015
Zero-cost collars
January to June 2015
Zero-cost collars
Total not subject to hedge accounting
240,000
180,000
2070-2251 ODP/$
2020-2180 COWS
600,000
900,000
80 / 112
80 / 111.50
150,000
1900-2050 COP/$
1,200,000
3,000,000
75 / 90
75 / 88-89.15
COP/USD
COP/USD
$
(44,656)
$
(23,409)
16,999
3,738
20,737
$
(23,409)
59,606
$
(68,065)
$
BRENT
WTI
Total December 31, 2014
(26,672)
(17,984)
16,017
22,852
38,869
WTI
WTI
COP/USD
$
$
$
Instruments Subject to Hedge Accounting
Hedging Relationship
The Company's hedging strategies for which hedge accounting is applied consists of the following:
•
Foreign exchange: From its highly probable forecasted COP expenditures, the Company has identified the
foreign exchange fluctuation risk as the hedged item. To mitigate the risk, currency collars were entered into
and classified as hedging instruments. The collars used limit the risk of variability in cash flows arising from
the fluctuations in the COP to U.S.$ exchange rates above and below the specified ranges.
To determine the effectiveness of the hedging relationship, the Company assesses the critical terms between the
hedged item and hedging instruments on a qualitative basis. If mismatches in the terms are noted, a quantitative
assessment is used to determine the impact of potential ineffectiveness.
The sources of ineffectiveness identified in the current foreign exchange hedging strategy relate to differing
credit ratings of the counterparties and the duration of the relationship. These sources of ineffectiveness were
insignificant for the years ending December 31, 2015 and 2014.
•
Commodity price: The Company's forecasted sales are subject to the benchmark price, quality differential, and
location differential risk components. As part of the Company's risk management strategy, the benchmark price
risk component is hedged, which has historically comprised approximately 94% of the hedged item as a whole.
The basis and location risk components are not subject to hedge accounting, as it was not considered
economical.
From its forecasted sales, the Company has identified its crude oil price risk as the specific benchmark risk
component to be hedged, consistent with the Company's risk management strategy and exposure. The
Company utilized commodity price collars as designated hedging instruments to manage related fluctuations in
cash flow above or below the specified ranges.
To determine the effectiveness of the hedging relationship, the Company assesses the critical terms between the
hedged item and hedging instruments on a qualitative basis. If mismatches in the terms are noted, a quantitative
assessment is used to determine the impact of potential ineffectiveness.
Notes to the Consolidated Financial Statements
(u.s.$ thousands, except share and per share amounts or unless otherwise stated)
The sources of ineffectiveness identified in the current commodities hedging strategy relate to differing credit
ratings of the counterparties. The sources of ineffectiveness were insignificant for the years ending December
31, 2015 and 2014.
The following table summarizes Company's outstanding financial derivative positions subject to hedge accounting:
As at December 31, 2015:
fledging Instrinnent
Line item in the statement of Changes in fair mine used for
calculating hedge
financial position where the
ineffectiveness for 2015
hedging instrument is located
Hedged Item
Changes in fair value used for
calculating hedge
ineffectiveness for 2015
Cumulative Cash flow hete
Cumulative Cash flow hedge
reserve for continuing hedges reserve for discontinued hedges
Cash flow hedges:
Commodities Price Risk
Zero-cost collars
Zero-cost collars
12,146
Risk Management Assets
Risk Management Liabilities
17.6.34
$
12.146 $
$
17.634 $
$
11146
12.146 $
As at December 31, 2014:
Hedging Instrument
Line item in the statement of Changes in fair value used for
calculating hedge
financial position where the
ineffectiveness for 2014
hedging instrument is located
Hedged Item
Changes in fair value used for
calculating hedge
ineffectiwness for 2014
Cumulative cash ❑ow hedge
Cunudative cash flow Sledge
reserve for continuing hedges reserve for tfiscontinued hedges
Cash flow hedges:
Foreign Currency Risk
Zero-cost collars
Risk Managermnt Liabilities
$
8
(33.988)
(33.988)
S
$
(34.216)
(34.216)
$
$
(33.978) $
(33.978) $
Impact of Hedging Relationship
The Company excludes changes in fair value relating to the option time value from ineffectiveness assessments and
records these amounts in other comprehensive income, as a cost of hedging.
As at December 31, 2015:
Change in the value of the
Bette ineffectiveness
hedging instrument recognized
in OCI gain/floss)
recognized in profit or loss
gain/(loss)
Amount reclassified from the
Line item in profit or loss (that cash flow hedge reserve to profit
or loss gain/floss)
includes hedge ineffectiveness)
Line item affected in profit or
loss because of the
reclassification
Foreign exchange risk
Zero-cost collars
Commodities Price Risk
$
Zero-cost collars
(25,347) S
(5,138)
Foreign exchange gain (loss)
126_678
(329)
(5.467)
Risk management gain (loss)
101.331 $
S
(59,325) Production and operating costs
153.615 Revenue
94.290
As at December 31, 2014:
Change in the value of the
hedging instrument recognized
in OCI gain/floss)
Amount reclassified from the
Hedge ineffectiveness
recognized in profit or loss
gain/(loss)
line item in profit or loss (that cash flow hedge reserve to profit
or loss gain/floss)
includes hedge ineffectiveness)
line item affected in profit or
loss because of the
reclassification
Foreign exchange risk
Zero-cost collars
Commodities Price Risk
Zero-cost collars
$
(43,276) S
3,957
Foreign exchange gain (loss)
(8,199) Production and operating costs
67,720
24,444 $
3,957
Risk management gain (loss)
28,636 Revenue
20,437
For 2015, the Company recorded ineffectiveness on commodity price risk management contracts of $0.3 million as risk
management gains (2014: $4.7 million loss). These amounts are unrealized and represent the change in fair value of the
commodity price derivatives.
6
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
For 2015, the Company recorded ineffectiveness on foreign currency risk management contracts of $5.1 million as
foreign exchange loss (2014: $3.9 million gain). These amounts are unrealized and represent the change in fair value of
the foreign currency derivatives.
Instruments Not Subject to Hedge Accounting:
As part of the Company's risk management strategy, derivative financial instruments are used to manage exposure to
risks in addition to those designated for hedge accounting. As these instruments have not been designated as hedges, the
change in fair value is recorded in profit or loss as risk management gain or loss.
For the year ending December 31, 2015, the Company recorded risk management gains of $86.7 million on commodity
price risk management contracts in net loss (2014: $2.4 million gain). In addition during the year ending December 31,
2015, the Company recognized gains in revenue of $150.6 million related to these instruments, which were settled
(2014: $31.4 million gain).
For the year ending December 31, 2015, the Company recorded risk management gains of $42.7 million on foreign
currency risk management contracts in net loss (2014: loss of $30.7 million). Included in these amounts were $91.9
million of unrealized gains (2014: $27.4 million loss) representing the change in fair value. In addition during the year
ending December 31, 2015, the Company recognized realized losses in foreign exchange of $49.2 million related to
these instruments, which were settled (2014: $5.6 million loss).
e) Fair Value
The Company's financial instruments are cash and cash equivalents, restricted cash, accounts receivable, accounts
payable and accrued liabilities, risk management assets and liabilities, bank debt, finance lease obligation, debentures
and fair value through other comprehensive income investments on the statement of financial position. The carrying
value and fair value of these financial instruments are disclosed below by financial instrument category.
As at December 31,2015
Fair value
Carrying value
Note
As at December 31,2014
Fair value
Carrying value
Financial Assets
Financial assets measured at amortized cost
Cash and cash equivalents
Restricted cash
Accounts receivable(r)
Bicentenario loan
Long-term receivables
$
342,660 $
35,922
333,754 $
15,644
333,754
15,644
60,469
1,022,006
582,955
60,469
1,022,006
904,245
41,992
10,375
1,306,010
904,245
41,992
10,375
1,306,010
582,955
28b, 20
28b, 20
20
342,660 $
35,922
Financial assets mandatorily measured at fair value through
profit or loss (FITPL)
Held-for-trading derivatives that are not designated in hedge
accounting relationships
28d
160,539
160,539
160,539
160,539
20,737
20,737
20,737
20,737
Financial assets designated as measured at fair value through
other comprehensive income (FITOCI)
Investments in equity instruments
20
1,125
1,125
1,125
1,125
1 9 924
9;924
19,924
19,924
28d
12,244
12,244
1,195,914
Derivative instruments in designated hedge accounting
relationships
$
$
12,244
12,244
1,195,914 $
•
38,869
38,869
38,869 $38,869
1,385,540
1,385,540
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
As at December 31, 2015
Carrying Nalue
Fair value
Note
As at December 31, 2014
Fair value
Carrying Nslue
Financial Liabilities
Financial liabilities measured at amortized cost
Accounts payable and accrued liabilities
Long-term debt
(1,216,891) $
(1,273346)
(1,216,891) $
(1,273,146)
(1,918,969) $
(673,925)
(1,918,969)
(680,446)
22
23
(4,104,200)
(36,511)
(6,630,748)
(801,870)
(46,000)
(3,337,907)
(3,979,924)
(50,803)
(6,623,621)
(3,372,736)
(64,006)
(6,036,157)
Financial liabilities measured at fair value through profit or loss
(Fi'TPL)
Held-for-trading derivatives that are not designated in hedge
accounting relationships
28d
(53,063)
(53,063)
(53,063)
(53,063)
(23,409)
(23,409)
(23,409)
(23,409)
Derivative instruments in designated hedge accounting
relationships
28d
(3)
(3)
(6,683,814) $
(3)
(3)
(3,390,973) $
(44,656)
(44,656)
(6,691,686) $
Senior Notes 12)
Obligations under finance lease
1)
2)
28c
22
$
$
Includes long-term VAT.
Total fair value of the various Senior Notes is estimated using their last traded prices as at December 31, 2015 and 2014.
(44,656)
(44,656)
(6,104,222)
When drawn, bank debt bears interest at a floating rate; accordingly, the fair value approximates the carrying value.
Due to the short-term nature of cash and cash equivalents, accounts receivable and other current assets and accounts
payable and accrued liabilities, their carrying values approximate their fair values.
The following table summarizes the Company's financial instruments that are carried or disclosed at fair value in
accordance with the classification of fair value input hierarchy in II RS 7 Financial Instruments - Disclosures.
December 31, 2015
Financial assets at Fair Value
Held-for-trading derivatives that are not designated in hedge accounting
relationships
Derivative instruments in designated hedge accounting relationships
Quoted prices in
active markets
Lewl 1
Significant
Observable Inputs
LeNel 2
$
$
Financial assets at FVTOCI
Investments in equity instruments
-
Financial liabilities at Fair Value
Held-for-trading derivatives that are not designated in hedge accounting
relationships
Derivative instruments in designated hedge accounting relationships
Other liabilities
Long-term debt
Senior notes
Obligations under finance lease
Total
160,539
12,244
160,539 $
12,244
1,125
$
Other Assets
Long-term receivables
Significant
Unobservable
Inputs
LCNel 3
$
60,469
60,469 $
$
$
(53,063) $
(3)
$
$
(801,870)
(1,273,146) $
(46,000)
1,125
-
$
(53,063)
(3)
(1,273,146)
(801,870)
(46,000)
LLI
b5
Notes to the Consolidated Financial Statements
(u.s.s thousands, except share and per share amounts or unless otherwise stated)
December 31, 2014
Quoted prices in
active markets
Level 1
Significant
Observable Inputs
Level 2
Financial assets at Fair Value
Held-for-trading derivatives that are not designated in hedge accounting
relationships
Derivative instruments in designated hedge accounting relationships
$
13,774
$
-
$
Financial liabilities at Fair Value
Held-for-trading derivatives that are not designated in hedge accounting
relationships
Derivative instruments in designated hedge accounting relationships
Other liabilities
Long-term debt
Senior notes
Obligations under finance lease
Total
20,737 $
38,869
Financial assets at FVTOCI
Investments in equity instruments
OtherAssets
Loan to Bicentenario
Long-term receivables
Significant
Unobservable
Inputs
Level 3
20,737
38,869
6,150
41,992 $
10,375
$
19,924
$
41,992
10,375
(23,409) $
(44,656)
$
$
(3,372,736)
-
(680,446) $
(64,006)
(23,409)
(44,656)
-
$
(680,446)
(3,372,736)
(64,006)
The Company uses Level 1 inputs, being the last quoted price of the traded investments, to measure the fair value of its
financial assets at FVTOCI, with the exception of certain investments that do not have an observable market.
The Company uses Level 2 inputs to measure the fair value of its risk management contracts. The fair values of these
contracts are estimated using internal discounted cash flows based upon forward prices and quotes obtained from
counterparties to the contracts, taking into account the credit worthiness of those counterparties or the Company's credit
rating when applicable.
The Company uses Level 3 inputs to measure the fair value of certain investments that do not have an active market.
Valuation Techniques
The foreign currency forward contracts are measured based on observable spot exchange rates, and the yield curves of
the respective currencies, as well as the currency basis spreads between the respective currencies. The credit risks
associated with the counterparties and the Company are estimated based on observable benchmark risk spreads.
Commodity risk management contracts are measured at observable spot and forward crude oil prices.
Investment in unquoted ordinary shares that have no observable market data are valued at cost.
0 Capital management
The Company's objectives when managing capital are: (i) to maintain a flexible capital structure, which optimizes the
cost of capital at acceptable risk; and (ii) to maintain investor, creditor and market confidence to sustain the future
development of the business.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and
the risk characteristics of its underlying assets. To maintain or adjust the capital structure, the Company may from time
to time issue shares, raise debt and/or adjust its capital spending to manage its current and projected debt levels.
The Company monitors capital based on the following non-standardized IFRS measures: current and projected ratios of
debt to cash flow from operations and debt to capital employed. The Company's objective, which is currently met, is to
w
Notes to the Consolidated Financial Statements
(U.S.$ thousands, except share and per share amounts or unless otherwise stated)
maintain a debt to cash flow from operations ratio of less than three times. The ratio may increase at certain times as a
result of acquisitions. To facilitate the management of this ratio, the Company prepares annual budgets, which are
updated depending on varying factors such as general market conditions and successful capital deployment. The
Company's share capital is not subject to external restrictions.
The Company is in the process of negotiating with its stakeholders for a restructuring of its capital structure, including
its long-term debts. Refer to Note 2.
$
Equity attributable to equity holders of the parent
Long-tenndebt
Working capital deficit
$
As at December 31
2014
2015
(3,099,376) $
2,467,637
4,332,194
5,454,675
899,644
7,699,475
2,355,299 $
29. Supplemental Disclosure on Cash Flows
Changes in non-cash working capital are as follows:
Year ended December 31
Decrease in accounts receivable
Increase in income twos receivable
(Decrease) increase in accounts payable and accrued liabilities
Decrease in inventories
Increase (decrease) in income taxes payable
Increase in prepaid expenses
$
2015
301,999 $
(51,114)
(726,613)
578
43,606
(1,031)
(432,575) $
2014
137,014
(97,164)
150,471
9,067
(113,873)
(2,457)
83,058
Other cash flow information is as follows:
Year ended December 31
2015
Cash income taxts paid
Cash interest paid
Cash interest received
$
84,709 $
262,154
6,427
2014
204,199
216,260
3,731
30. Subsequent Events
a) On January 14, 2016, the Company announced it had elected to utilize the 30-day grace period under the
applicable note indentures and not make interest payments on its September 2014 Senior Notes and November
2013 Senior Notes of $66.2 million in the aggregate as they became due on January 19, 2016 and January 26,
2016, respectively. The failure to pay such interest constituted an event of default under the applicable note
indentures on February 25, 2016 in respect of the September 2014 Senior Notes and February 18, 2016 in
respect of the November 2013 Senior Notes. The Company subsequently entered into several forbearance
agreements with noteholders and lenders, whereby the lenders and certain noteholders agreed, subject to certain
terms and conditions, to forbear from declaring the principal amounts under the Senior Notes and credit
agreements due and payable as a result of certain specified defaults until March 31, 2016. Refer to Note 22 Forbearance Agreements Signed Subsequent to December 31, 2015.
b) On March 3, 2016 the Company entered into an agreement with Exmar to early terminate the tolling agreement
between the Company and Exmar with respect to the liquefied natural gas export project, and release the
Company of all its obligations therein, including the minimum credit rating covenant breach (Note 25).
Pursuant to the termination agreement, the Company paid $5 million in cash and will pay $1 million per month
for the next 15 months to Exmar.
Qa
Cl
Notes to the Consolidated Financial Statements
(U.S $ thousands, except share and per share amounts or unless otherwise stated)
c)
Subsequent to December 31, 2015, the Company obtained from Transporte Incorporado several waivers from
the minimum credit rating covenant under the transport capacity assignment agreement (Note 25), extending
the waiver period to March 18, 2016.
d) During February 2016, all of the Company's outstanding oil price derivative contracts were early terminated
and the Company received $83.1 million in cash in respect of the gains realized on early termination. In
addition to the cash received, $33.4 million of gains were realized on the oil price derivative contracts early
terminated by Bank of America, which were used to reduce the principal outstanding under the 2013 BOFA
Loan (Note 22). The principal outstanding under the 2013 BOFA Loan after this repayment was $2.9 million.
e) On November 27, 2015, the Company agreed with Bladex to prepay the Bladex credit facility in the amount of
$50.6 million, and in return, Bladex provided Letters of Credit for the same amount. Subsequent to December
31, 2015, the Company made two additional prepayments, on January 8, 2016 for $17.2 million and on
February 3, 2016 for $7.1 million, at which time the Bladex facility was fully repaid and cancelled.
31. Comparative Financial Statements
The comparative consolidated financial statements have been reclassified from the ones previously presented to conform
to the presentation of the current consolidated financial statements.
56
This is Exhibit "G" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CAN_DMS: \65405557\1
iiu 1111 iii
A contestar cite el No.
2016-01-215340
Tipo: Salida
Fecha: 20/04/2016 08:54:39 PM
Tramite: 16024 - MEDIDAS CAUTELARES (DECRETA, PRACTICA,
Sociedad: 830126302 - META PETROLEUM COR
Exp. 39978
Remltente: 400 - DELEGATURA PARA PROCEDIMIENTOS DE INS
Destine: 4151 - ARCHIVO APOYO JUDICLAL
Folios: 6
Anexos: NO
Tipo Documental: AUTOSINNOT
Consecutive: 400-000282
SUPERINTENDENCIA
DE SOCIEDADES
AUTO
SUPERINTENDENCIA DE SOCIEDADES
Sujetos
Grupo C&C Energia Sucursal Colombia (Nit. 900.035.084)
Meta Petroleum Corp. Sucursal Colombia (Nit. 830.126.302)
Pacific Stratus Energy Colombia Corp. Sucursal Colombia (Nit. 800.128.549)
Petrominerales Colombia Corp. Sucursal Colombia (Nit. 830.029.881)
Asunto
Decreta medida cautelar
Expediente
39978
I.
ANTECEDENTES
1. Pacific Exploration & Production (antes Pacific Rubiales Energy Corp.), se dedica a la
exploraciOn, desarrollo y producciOn de petrOleo crudo y gas natural. Las acciones de
la compaflia se negocian pitlicamente en la Boise de Valores de Toronto, Canada
(TSX) y en la Bolsa de Valores de Colombia (BVC), segOn autorizaciOn emitida por la
Superintendencia Financiera de Colombia el 18 de diciembre de 2009.
2. Las sociedades Grupo C&C Energia Sucursal Colombia (Nit. 900.035.084), Meta
Petroleum Corp. Sucursal Colombia (Nit. 830.126.302), Pacific Stratus Energy
Colombia Corp. Sucursal Colombia (Nit. 800.128.549) y Petrominerales Colombia
Corp. Sucursal Colombia (Nit. 830.029.881) son sucursales vinculadas a Pacific
Exploration & Petroleum, sociedad esta que controla, directa o indirectamente, las
cuatro sociedades domiciliadas en Suiza, Barbados y Panama, propietarias de las
sucursales operatives en Colombia'.
3. La sociedad Pacific Exploration & Production, en su calidad de emisora de valores,
este obligada a publicar, tanto en Canada como en Colombia, toda la informaciOn
relevante que permita a los inversionistas conocer oportuna y permanentemente su
situacion financiera. En cumplimiento de la obligacion de divulgaciOn de informaciOn,
Pacific Exploration & Petroleum public() el 18 de marzo de 2016, en el SIMEV2, los
estados financieros consolidados, con corte a 31 de diciembre de 2015, que reflejan
una perdida neta de cinco mil cuatrocientos ochenta y dos millones novecientos
setenta y mil Mares (US$5.482.971.000).
4. El informe de los auditores independientes de Pacific Exploration & Production, en un
parrafo de enfasis, advierte sobre "(...) la existencia de una incertidumbre material que
puede aportar duda significativa sobre /a capacidad de la entidad para continuar como
negocio en marcha". El informe llama la atenciOn sobre la Nota 2 de los estados
financieros al 31 de diciembre de 2015, en la cual se explican la perdida neta de
$5.482,9 millones y un deficit de $2.990,2 millones a la misma fecha.
1 Nota
3 de los estados financieros consolidados de Pacific Exploration & Production, con corte a
diciembre 30 de 2014, publicados en el SIMEV el 15 de marzo de 2015.
2 Sistema Integral de Informacion del Mercado de Valores de la Superintendencia Financiera de
Colombia.
T000S POR UN
NUEVO PAIS
,A7
En la Superintendencia de Sociedades trabajamos con
integridad por un Pais sin corrupciOn.
Entidad No. 1 en el Indice de Transparencia de las Entidades PIA!ices, ITEP.
—
‘Z=3
1 'Net
,
2/6
AUTO SIN NOTIFICACION
B16-0400-000121
META PETROLEUM CORP SUCURSAL COLOMBIA
1
0111111
SUPERINTENDENCIA
DE SOCIEDADES
5. La referida Note 2 de los estados financieros resalta la Politica de Reducci6n de
Costos, implementada desde finales de 2014, para mitigar los precios bajos del
petraleo. Sin embargo, senate que a pesar de las medidas adoptadas y con el nivel de
precios del crudo, la compania muy posiblemente requiera nueva financiaciOn para
cubrir el pago de intereses y el repago de la deuda al momento de sus respectivos
vencimientos y el cubrimiento de los gastos de operaciOn en efectivo.
6. El 14 de enero de 2016, Pacific Exploration & Production inform6 al mercado, a traves
del SIMEV, que habia elegido utilizer el period() de gracia de 30 dies, en virtud de
ciertos contratos de emisi6n de notas suscritos y no pager los intereses de USD$66,2
millones segOn habia sido convenido, con relaciOn a los bonos senior de septiembre de
2014 y los bonos senior de noviembre de 2013, con fecha de vencimiento de 19 de
enero de 2016 y 26 de enero de 2016 respectivamente.
7. El 24 de marzo de 2016, Pacific Exploration & Production informo al mercado, a traves
del SIMEV, que el "Acuerdo de abstenciOn sobre los contratos de credito" habia sido
prorrogado hasta el 29 de abril de 2016.
8. El 28 de marzo de 2016, de acuerdo con informaciOn relevante publicada en el SIMEV,
la agencia Fitch Ratings redujo la calificacion corporative de Pacific Exploration &
Production de C a RD (por sus siglas en ingles "Restricted Default").
9. Debido a las dificultades financieras resenadas en los parrafos anteriores y segun el
comunicado de prensa emitido el 19 de abril de 2016, la sociedad Pacific Exploration &
Petroleum, asi como los representantes de los tenedores de notes ("Ad Hoc
Committee"), ciertos bancos ("Supporting Bank Lenders") y Ia firma Catalyst Capital
Group Inc., Ilegaron a un acuerdo para Ilevar a cabo una operaci6n comprensiva de
restructured& financiera con el objeto de reducir significativamente el endeudamiento
de la sociedad Pacific Exploration & Petroleum, mejorar Ia liquidez y ubicar a Ia
compania en una posiciOn que le permita soportar las condiciones actuates del
mercado del petrOleo.
10. SegUn consta en los estados financieros consolidados con corte a 31 de diciembre de
2015, las yentas de petroleo y gas en Colombia ascienden al 98,01% de la operaciOn
global de Pacific Exploration & Petroleum.
11. La puesta en marcha de la operacion de restructuraciOn financiera, supone por un lado,
la constituciOn de gravamenes sobre los activos en Colombia y por el otro, el tremite de
varios procedimientos de insolvencia, no solo ante la Superintendencia de Sociedades,
sino tambien ante tribunales extranjeros, en particular canadienses y estadounidenses.
Ademas de lo anterior, la sociedad matriz ha reconocido que como resultado de sus
operaciones en Colombia existen obligaciones con trabajadores directos e indirectos,
proveedores, clientes y otros grupos de interes que merecen protecciOn.
11.
CONSIDERACIONES DEL DESPACHO
1. El regimen de insolvencia contenido en la Ley 1116 de 2006, tiene como objetivos
basicos (i) la protecciOn del credit° y (ii) la recuperaciOn y conservation de la empresa,
como fuente de riqueza y de empleo formal. El regimen de insolvencia en su
perspective recuperatoria pretende preserver empresas viables y normalizar las
relaciones comerciales y crediticias, propiciando y protegiendo la buena fe en las
relaciones comerciales y patrimoniales en general.
2. En atenciOn a dichos objetivos y a la funcion econ6mica del regimen de insolvencia, el
legislador facult6 ampliamente al juez concursal para "[o]rdenar las medidas
pertinentes a (sic) proteger, custodiar y recuperar los bienes que integran el activo
patrimonial del deudo(, asi como "para dirigir el proceso y lograr que se cumplan las
finalidades del mismo", segOn lo previsto en el articulo 5 de la Ley 1116 de 2006.
TODOS PON UN
NUEVO PAIS
En la Superintendencia de Sociedades trabajamos con
integridad por un Pais sin corruption.
A7
iN=A ,
Nn 4 An AI inriirp rip Transnarennia de las Entidades P, blicas. ITEP.
SUPERINTENDENCIA
DE SOCIEDADES
3/6
AUTO SIN NOTIFICACION
B16-0400-000121
META PETROLEUM CORP SUCURSAL COLOMBIA
3. En ese orden de ideas, el juez concursal tiene el deber de dirigir el proceso y asegurar
su eficacia, y para ello cuenta con la facultad de tomar todas las medidas pertinentes
encaminadas a proteger el patrimonio del deudor. Asi, el juez del concurso dispone de
un amplio espectro decisional que se materialize, en Ia practice, en la posibilidad de
emitir cualquier tipo de orden que persiga "proteger, custodiar y recuperar" el
patrimonio del deudor.
4. Esta prerrogativa del juez concursal no se circunscribe Onicamente a los procesos de
reorganized& en curso. Por el contrario, el juez puede anticipar Ia medida cautelar
sin que sea necesario que la misma se decrete en el marco de un proceso iniciado
formalmente mediante una providencia de aperture de la insolvencia. Esto, en
atencion a elementos objetivos de juicio y en consonancia con la faceta preventive del
esquema de insolvencia de la Ley 1116 de 2006, que se concreta en la causal de
reorganized& consistente en la incapacidad inminente de pago.
5. Ahora bien, el ejercicio de esa amplia facultad no puede implicar el desconocimiento
de criterios de ponderacion, razon por la cual el citado articulo 5 del estatuto de
insolvencia debe armonizarse con lo previsto en el regimen de medidas cautelares
contenido en el articulo 590 C.G.P., en lo que respecta a los principios que informan la
actuacion, los criterios de valoracion y la finalidad de la orden cautelar3.
6. Con base en lo indicado, de la integraciOn de las normas concursales y la procesal,
derivan subreglas aplicables al decreto de medidas cautelares, cuando lo que se
propone el juez es ejercer sus facultades de direcciOn, en general, y de preserved&
de activos, en particular.
7. En consecuencia, como lo indica el literal c) del citado articulo 590 C.G.P., las
medidas razonables que puede tomar el juez deben buscar Ia protecciOn del derecho
en litigio, la prevenciOn de datios, la cesaciOn de conductas lesivas y el aseguramiento
de la efectividad de la pretensiOn, y deben valorarse aspectos como la apariencia de
buen derecho, la necesidad, la efectividad y la proporcionalidad de la orden.
8. En el presente caso, estima el Despacho adecuado decretar una medida cautelar
consistente en ordenar a las sucursales domiciliadas en Colombia lo siguiente:
a. Informer de manera detallada y oportuna cualquier disposiciOn de activos para
la generaci6n de flujos de caja que se pretenda realizar. A titulo meramente
ilustrativo, las sociedades deben informar acerca de la constituci6n de
gravamenes, del compromiso de flujos futuros, de la disposiciOn de derechos
economicos de cualquier tipo de contrato, etc. Esta obliged& de informed&
debera cumplirse oportunamente, es decir, antes de materializar la disposici6n
en cuestion.
b. Informer de manera detallada y oportuna todas las novedades relatives al
avance de los procedimientos de insolvencia que adelante la matriz de las
companies en jurisdicciones foraneas, como la canadiense y la
estadounidense. Esta obliged& de informaciOn debera ejecutarse dentro de
las veinticuatro (24) horas siguientes a la novedad, adjuntando los soportes
correspondientes.
9. La intervenciOn del juez del concurso, a traves del decreto oficioso de la medida
cautelar, est5 plenamente justificada por cuanto la sociedad controlante viene
enfrentando graves dificultades financieras, lo cual es un hecho notorio, al punto de
que su supervivencia este supeditada a la puesta en marcha de la operaci6n de
reestructuracion tantas veces mencionada. Si bien es cierto que esa operaci6n en
principio solo vincula a la sociedad controlante, no puede ignorers° que son las
3
Autos 400-010397 de 6 de agosto de 2015 y 400-014367 de 26 de octubre de 2015.
Any TODOSPOR UN
uEVO PAIS
En la Superintendencia de sociedades trabajamos con
integridad por un Pais sin corrupcion.
4/6
AUTO SIN NOTIFICACION
B16-0400-000121
META PETROLEUM CORP SUCURSAL COLOMBIA
SUPERINTENDENCIA
DE SOCIEDADES
sucursales colombianas las que producen los flujos de caja sobre los que descansa en
ultimas la posibilidad de recuperaciOn del grupo Pacific Exploration & Production. El
juez tambien ha sido sensible al hecho de que no se puede excluir tajantemente la
hipotesis de la existencia actual o potencial de acreedores insatisfechos en Colombia.
10. Puesto que en el presente caso se trata de la efectividad de la restructured& de las
empresas del grupo Pacific, se cumple la finalidad que establece el articulo 590
C.G.P. Los dernas aspectos que deben valorarse al momento de decretar la medida
cautelar, tambien han sido tomados en consideraciOn. En efecto, Ia medida oblige a
las sucursales en cuesti6n a proporcionar informed& suficiente y oportuna a esta
Delegatura. Esta medida cumple con los requisites de necesidad, efectividad y
proporcionalidad, pues se trata de suministrar informed& pertinente, en clave de
prevencion de insolvencia, de manera que el proceso de restructured& financiera se
pueda desarrollar de forma transparente e informada, permitiendo que los acreedores
en Colombia puedan velar correctamente por sus intereses.
11 La medida cautelar que se ordena en la presente providencia puede ser adicionada de
oficio y en cualquier momento por este ❑espacho, sin menoscabo del ejercicio de la
plenitud de facultades que, de oficio o a peticiOn de parte, le correspondan a la
Superintendencia de Sociedades, en virtud de lo dispuesto en la Ley 1116 de 2006 y
demas normas concordantes.
En merit° de lo expuesto, el Superintendente Delegado para Procedimientos de
Insolvencia,
RESUELVE
Primero. Ordenar a las sociedades Grupo C&C Energia Sucursal Colombia (Nit.
900.035.084), Meta Petroleum Corp. Sucursal Colombia (Nit. 830.126.302), Pacific Stratus
Energy Colombia Corp. Sucursal Colombia (Nit. 800.128.549) y Petrominerales Colombia
Corp. Sucursal Colombia (Nit. 830.029.881), domiciliadas todas en Bogota D.C., informar
de manera detallada y oportuna cualquier disposiciOn de activos para la generaci6n de
flujos de caja que se pretenda realizar. Esta obligaciOn de informed& debera ejecutarse
antes de materializar la disposici6n de los activos.
Segundo. Ordenar a las sociedades identificadas en el numeral anterior informar de
manera detallada y oportuna todas las novedades relatives al avance de los
procedimientos de insolvencia que adelante la matriz en jurisdicciones foraneas, como la
canadiense y Ia estadounidense. Esta obligaciOn de informaciOn debera ejecutarse dentro
de las veinticuatro (24) horas siguientes al momento en que se produzca la novedad,
adjuntando los soportes correspondientes.
Tercero. Ordenar al Grupo de Apoyo Judicial que comunique la presente providencia al
representante legal de cada una de las mencionadas sucursales en las direcciones
electronicas de notificacion judicial que para el efecto aparecen inscritas en el registro
mercantil, como lo disponen el articulo 67 y siguientes, Ley 1437 de 2011.
Grupo C&C Energia Sucursal Colombia
Meta Petroleum Corp. Sucursal Colombia
Pacific Stratus Energy Corp. Sucursal Colombia
Petrominerales Colombia Corp. Sucursal Colombia
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Cumplase,
TOWS POR UN
-
NUEVO PALS
rc!....2
En la Superintendencia de Sociedades trabajamos con
integridad por un Pais sin corrupci6n.
,10P1
Al" 7 mr. 4.1 InAina rlc Trnricnarpnria r1a lac FrIfirlatiPc Pithfirac ITPP
172
5/6
AUTO SIN NOTIFICACION
B16-0400-000121
META PETROLEUM CORP SUCURSAL COLOMBIA
SUPERINTENDENCIA
ISM SOCIEDADES
NICOLAS POLANIA TELLO
Superintendente Delegado para Procedimientos de Insolvencia
TRD:
TODOS POD UN
NUEVO PAi5
En la Superintendencia de Sociedades trabajamos con
integridad por un Pais sin corrupciOn.
•
SUPERINTENDENCIA
DE SOCIEDADES
sisir Tows POR UN
lc NUEVO PAIS
..
d^ ~MINIrIT
616
AUTO SIN NOTIFICACION
B16-0400-000121
META PETROLEUM CORP SUCURSAL COLOMBIA
En la Superintendencia de Sociedades trabajamos con
integridad por un Pais sin corrupciOn.
Entidad No. 1 en el indice de Transparencia de las Entidades Piablicas, ITEP.
DECISION
SUPERINTENDENCE OF CORPORATIONS
Addressees
Grupo C&C Energia Sucursal Colombia (Nit. 900.035.084)
Meta Petroleum Corp. Sucursal Colombia (Nit. 830.126.302)
Pacific Stratus Energy Colombia Corp. Sucursal Colombia (Nit. 800.128.549)
Petrominerales Colombia Corp. Sucursal Colombia (Nit. 830.029.881)
Subject
Decrees injunction
File
39978
I. BACKGROUND
1. Pacific Exploration & Production (formerly Pacific Rubiales Energy Corp.), is dedicated to exploration,
development and production of oil and natural gas. The company's shares list on the ...(TSX) and on the
(BVC), as per authorization issued by the Superintendencia Financiera de Colombia on 18 December
2009.
2. Grupo C&C Energia Sucursal Colombia (Nit. 900.035.084), Meta Petroleum Corp. Sucursal Colombia
(Nit. 830.126.302), Pacific Stratus Energy Colombia Corp. Sucursal Colombia (Nit. 800.128.549) and
Petrominerales Colombia Corp. Sucursal Colombia (Nit. 830.029.881) are branches related to Pacific
Exploration & Petroleum, company that controls, directly or indirectly, the four companies domiciled in
Switzerland, Barbados and Panama, owners of operational branches in Colombia'.
3. Pacific Exploration & Production, in its capacity as issuer of securities, is obligated to publish, both in
Canada as well as in Colombia, all material information that allows investors to know in a timely and
permanent manner its financial situation. In compliance of the obligation to disclose information, Pacific
Exploration & Petroleum published on March 18, 2016, on SIMEV2, the consolidated financial
statements, as at December 31, 2015, which reflect a net loss of (US$ 5,482,971,000).
4. The report from the independent auditors of Pacific Exploration & Production,... warn of "(...) the
existence of material uncertainty that may generate significant doubt regarding the entity's capacity to
continue as a going concern". The report calls to attention Note 2 of the financial statements as at 31
December 2015, which explains the net loss of $5,482.9 million and a deficit of $2,990.2 million as at the
same date.
1 Note 3 of Pacific Exploration & Production's consolidated financial statements, as at December 30, 2014,
published on SIMEV on March 15, 2015.
2 Sistema Integral de Information del Mercado de Valores de la Superintendencia Financiera de Colombia.
5. Note 2 to the financial statements highlights the Cost Reduction Policy, implemented since the end of
2014, to mitigate low oil prices. However, it indicates that notwithstanding the measures adopted and
the level of crude prices, the company in all likelihood will require new financing to cover the payment
of interests and payment of debt upon applicable maturities and to cover operational expenses in cash.
6. On Jan. 14, 2016, Pacific Exploration & Production informed the market, on SIMEV, that it chose to
use the 30 day grace period, under certain note indentures and not to pay interests of USD$66.2 million
as agreed, in regards to senior notes dated September 2014 and senior notes date November 2013, due
on Jan 19, 2016 and Jan 26, 2016 respectively.
7. On March 24, 2016, Pacific Exploration & Production informed the market, on SIMEV, that the
"Forbearance Agreement on the credit contracts" had been extended until April 29, 2016.
8. On March 28, 2016, as per material information on SIMEV, Fitch Ratings lowered Pacific Exploration &
Production's rating from C to RD ("Restricted Default").
9. Due to the financial difficulties indicated above and as per press release issued on April 19, 2016,
Pacific Exploration & Petroleum, as well as the representatives of bondholders ("Committee Ad Hoc"),
certain banks ("Supporting Bank Lenders") and Catalyst Capital Group Inc., reached an agreement to
carry out a comprehensive financial restructuring to significantly reduce Pacific Exploration &
Petroleum's debt, improve liquidity and better position the company to support the current oil market
conditions.
10. As evidenced in the consolidated financial statements as at 31 December 2015, sales of oil and gas in
Colombia make up 98.01% of Pacific Exploration & Petroleum's global operation.
11. The start of the financial restructuring operation, means on the one hand, the constitution of
encumbrances on the company's assets in Colombia and on the other, the filing of several insolvency
procedures, not only before the Superintendence of Corporations, but also before foreign tribunals, on
particular in Canada and the United States. Apart from the foregoing, the parent company has
recognized that as a result of its operations in Colombia there are obligations with direct and indirect
workers, suppliers, clients and other stakeholders that deserve protection.
II. CONSIDERATIONS OF THE OFFICE
1. The insolvency regime provided in Law 1116 of 2006, has the following basic objectives (i) protection
of credit and (ii) recovery and conservation of the company, as a source of wealth and formal
employment. The insolvency regime from a recovery standpoint intends to preserve viable companies
and normalize commercial and credit relations, encouraging and protecting good faith in commercial
and equity relations in general.
2. Given said objectives and the economic function of the insolvency regime, the legislator gave ample
powers to the insolvency judge to "order the applicable measures... to protect, guard and recover the
goods that make up the debtor's assets", as well as to "direct the process and achieve compliance of its
purpose", as per article 5 of Law 1116 of 2006.
3. In this line of thinking, the insolvency judge has the duty to direct the process and ensure its efficacy,
and for this purpose it has the power to take all pertinent measures intended to protecting the debtor's
equity. Thus, the insolvency judge has ample power to decide what is to occur, in practice, regarding the
possibility to issue any type of order to "protect, guard and recover" the debtor's equity.
4. This power of the insolvency judge is not limited to only ongoing reorganization processes. On the
contrary, the judge may anticipate the injunction without the need for it to be decreed in the framework
of a process that formally initiated by an order to open the insolvency proceedings. This, due to the
objective elements to make decisions and to be consistent with the preventive aspect of the insolvency
scheme of Law 1116 of 2006, which is materialized in the reorganization cause constituted by the
imminent incapacity to make payments.
5. Now, the exercise of these ample powers cannot imply ignorance of the criteria to balance all
applicable factors, for this reason said article 5 of the insolvency statute must be harmonized with the
provisions of the injunctions regime in article 590 of the C.G.P., in regards to the principles that govern
the proceedings, the criteria to decide and the purpose of the preventative measure3.
6. Based on the above, the integration of the insolvency and procedural norms, generate sub-rules
applicable to the decree of injunctions, when the intention of the judge is to exercise the powers of
direction, in general, and preservation of assets, specifically.
7. In consequence, as per literal c) of said article 590 C.G.P., the reasonable measures that the judge can
take must seek to protect the law in litigation, the prevention of damage, cessation of harmful conducts
and assuring effectiveness of the action, and there must be an analysis of aspects such as the
appearance of proper legal basis, the need for, effectiveness and proportionality of the order.
8. In this case, this Offices considers adequate to decree an injunction which consists of ordering the
branches domiciled in Colombia to do the following:
a. Inform in detail and in a timely manner any disposition of assets for the generation of cash flows
intended. Only as an example, the companies must inform regarding the constitution of encumbrances,
commitments that involve future flows, disposition of economic rights in any type of contract, etc. This
obligation to inform must be complied with in a timely manner, namely, before materializing the
disposition.
b. Inform in detail and in a timely manner all development s regarding the advance of the insolvency
procedures carried out by the parent of the companies in foreign jurisdictions, such as in Canada and in
the USA. This obligation to inform must be carried out within (24) hours after the development,
attaching applicable supporting elements.
9. The intervention of the insolvency judge, through issuance of the injunction, is fully justified given
that the controlling company has been facing grave financial difficulties, which is a well-known fact, to
the extent that its survival is dependent on the execution of the restructuring operation mentioned.
Although it is true that that operation in principle only binds the controlling entity, we cannot ignore
that it is the Colombian branches the ones that produce the cash flows which are the base for the
ultimate possibility of recovery for the Pacific Exploration & Production group. The judge also has been
aware of the fact that the hypothesis of the current or dissatisfied creditors in Colombia cannot be fully
excluded.
3
Decisions 400-010397 dated 6 August 2015 and 400-014367 dated 26 October 2015.
10. Given that in this case deals with the effectiveness of the restructuring of the companies in the
Pacific group, the purpose of article 590 C.G.P. is fulfilled. The other aspects that must be valued when
issuing the injunction, have also been taken into account. Effectively, the order obligates the applicable
braches to provide sufficient and timely information to this Office. This order meets the requirements
provided regarding the need for the measure, its effectiveness and proportionality, given that it its
intention is the delivery of pertinent information, as a means of prevention of insolvency, so that the
financial restructuring process can be carried out in a transparent and informed manner, allowing
creditors in Colombia to protect their interests.
11. The injunction ordered herein may be broadened ex officio and at any time, notwithstanding the full
exercise of powers which, ex officio or at the request of interested parties, are the jurisdiction of the
Superintendencia de Sociedades, by virtue of Law 1116 of 2006 and other applicable norms.
Based on the above, the Delegated Superintendent for Insolvency Procedures,
DECIDES
First. Order Grupo C&C Energia Sucursal Colombia (Nit. 900.035.084), Meta Petroleum Corp. Sucursal
Colombia (Nit. 830.126.302), Pacific Stratus Energy Colombia Corp. Sucursal Colombia (Nit. 800.128.549)
and Petrominerales Colombia Corp. Sucursal Colombia (Nit. 830.029.881), all domiciled in Bogota D.C.,
to inform in detail and in a timely manner any disposition of assets for the generation of cash flows
intended. This obligation to inform must be carried out before the materialization of the disposition of
the assets.
Second. Order the companies identified above to inform in detail and in a timely manner all
developments regarding the advance of the insolvency procedures being carried out by the parent in
foreign jurisdictions, such as in Canada and the USA. This obligation to inform must be carried out within
(24) hours after the moment in which the development occurs, attached pertinent supporting elements.
Third. Order the Judicial Support Group (Grupo de Apoyo Judicial) to communicate this decision to the
legal representatives of each of the aforementioned branches at to the electronic addresses for judicial
notification which are included for such purpose in the mercantile registry, as per article 67 et seq., of
Law 1437 of 2011.
Name of Branch
Electronic address for judicial notification
Grupo C&C Energia Sucursal Colombia
[email protected]
Meta Petroleum Corp. Sucursal Colombia
[email protected]
Pacific Stratus Energy Corp. Sucursal Colombia
[email protected]
[email protected]
Petrominerales
Colombia
Let it be enforced,
Colombia
Corp.
Sucursal
[email protected]
-7
NICOLAS POLANIA TELLO
Delegated Superintendent for Insolvency Procedures
This is Exhibit "H" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CANDMS: \65405557\1
LAZARD
LAZARD FRERES & CO. LLC
30 ROCKEFELLER RI A74.
NEW YORK, NY
0020
PHONE 212-632-6000
www.lazard.com
February [ ], 2016
Strictly Confidential
[Name and
Address of
Bidder]
Dear [Bidder Name]:
Thank you for your interest in Pacific Exploration & Production Corporation and its
subsidiaries ("Pacific Exploration" or the "Company"). Pacific Exploration is soliciting
interest from prospective investors with respect to an acquisition of substantially all or a
portion of the Company's assets or an investment to support a recapitalization of the
Company (a "Transaction"). In connection with this process, the Company has engaged
Lazard Freres & Co. LLC ("Lazard") to act as its investment banker. This letter sets forth the
process and procedures for submitting a preliminary, non-binding indication of interest (a
"Preliminary Proposal") that outlines the terms and conditions of a possible Transaction.
Due Diligence
You have already been provided due diligence information through a virtual data room and
access to Pacific Exploration management. Pacific Exploration management and Lazard
remain available to assist your team in completing due diligence by the Preliminary Proposal
deadline (described below).
Preliminary Proposal
You are requested to submit a Preliminary Proposal in writing to Lazard no later than 5:00
p.m., New York time, on Monday, February 29, 2016. Your Preliminary Proposal should
indicate clearly the following:
i.
a description of the proposed investment or acquisition structure;
ii.
the aggregate amount of the equity and/or debt investment to be made in the
Company in United States dollars or the purchase price in United States dollars and
the form of purchase consideration in the case of an acqusition;
iii.
key assumptions supporting the investment or purchase price valuation including
the implied enterprise value on a debt-free and cash-free basis and a detailed
explanation and calculation of the value of any non-cash consideration or
investment including assumptions associated therewith;
iv.
an outline of the assets of the Company that are subject to the transaction and any
assets expected to be excluded;
v.
a description of any liabilities to be assumed as part of the transaction;
vi.
the equity and/or debt consideration to be allocated to unsecured creditors,
shareholders and/or any other stakeholder of the Company;
vii.
the underlying assumptions regarding the pro forma capital structure (including the
form and amount of anticipated equity and/or debt levels, debt service fees, interest
or dividend rates, amortization, voting rights or other protective provisions (as
applicable), redemption, prepayment or repayment attributes and any other material
attributes of the investment);
viii.
a description of the proposed transaction structure (including, but not limited to the
implementation mechanism) and specific sources of financing (including, but not
limited to any debtor-in-possession or bridge financing required to effectuate the
transaction);
ix.
a description of intentions for the Company's assets subject to the transaction;
x.
an overview of the proposed treatment of the Company's employees;
xi.
a description of the conditions and approvals required for a final and binding offer,
including any anticipated corporate, securityholder, internal or regulatory
approvals required to close the transaction, any financing conditions, and an
estimate of the anticipated time frame and any anticipated impediments for
obtaining such approvals;
xii.
a description of any additional due diligence required to be conducted in order to
submit a final and binding offer;
xiii.
any other terms or conditions of the Preliminary Proposal that are material to the
transaction (including, but not limited to any contemplated fees);
Your Preliminary Proposal should be submitted via email to:
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, NY 10112
Attention: Phoebe Clarke
Telephone: (212) 632-1379
Facsimile: (212) xxx-xxxx
[email protected]
In addition, by the Preliminary Proposal deadline, please provide Lazard with your current
audited financial statements and latest unaudited financial statements (or, if you intend to
form an entity for the purpose of the transaction, current audited financial statements and
latest unaudited financial statements of the equity holders or sponsors of the entity who will
guarantee the obligations of the entity) or such other form of financial disclosure and/or
credit-quality support or enhancement, if any, that will allow the Company to make a
reasonable determination as to your financial and other capabilities to consummate the
Transaction.
Prior to the submission of your Preliminary Proposal, Lazard will be available to clarify the
process and procedures or answer questions as appropriate. Please direct all inquiries to Ari
Lefkovits (212-632-6110) or Mark Renton (212-632-2620).
Promptly following the submission of your Preliminary Proposal, the Company, in
consultation with its independent directors and its advisors, will determine which parties will
be selected to conduct confirmatory due diligence and to submit a final and binding proposal.
Your submission of a Preliminary Proposal does not in any way create any binding
obligations on the Company or any of its affiliates with respect to any proposed Transaction.
You understand and agree that, unless and until a final definitive agreement has been
executed and delivered, no contract or agreement providing for any Transaction involving the
parties shall be deemed to exist and neither party nor any of its affiliates or equity holders
will be under any legal obligation of any kind whatsoever with respect to any Transaction by
virtue of a Preliminary Proposal or otherwise. You acknowledge that, except as may be
expressly provided for in a final definitive agreement executed by you and the Company
and/or its affiliates, as applicable, none of the Company, Lazard or any of their respective
affiliates or any of their respective equity holders, partners (limited and/or general), directors,
officers, employees, agents, advisors or representatives (collectively, "Company Persons")
makes any representations or warranties, express or implied, with respect to any information,
documents or presentations made available or provided to you or your representatives, either
written or oral. You will not have any claims whatsoever against any Company Person
arising out of or relating to any information provided or to be provided to you in connection
with the process, or the rejection of any proposals or the transaction process or procedures.
The Company expressly reserves the right, in its sole and absolute discretion and without
assigning any reasons therefor, to evaluate all Preliminary Proposals and to reject any or all
Preliminary Proposals. Further, the Company expressly reserves the right, in its sole and
absolute discretion, without advance notice and without giving any reasons therefor, at any
time to amend or terminate any or all of the procedures set forth herein, to ter inate
discussions with any or all interested parties, to negotiate with any party individually or
simultaneously with other interested parties, or to consummate a transaction with any
interested party. By submitting a Preliminary Proposal, you agree not to make any claim
against the Company or Lazard, or any of their respective affiliates or advisers or Company
Persons, in the event that you are not invited into a further stage, if any, of the process. You
will bear all costs of your investigation and evaluation of the Company and any Preliminary
Proposal, including the fees and disbursements of your counsel, advisers, and agents.
Neither the Company nor any of the Company's officers, directors, employees, vendors,
creditors or investors should be contacted directly with respect to this process without our
prior consent. Please note that the existence and content of this letter and the teinis of, or
discussions or information regarding, any Preliminary Proposal or Transaction are subject to
the terms of the Confidentiality Agreement with the Company, which you or your affiliate
previously executed and which will apply throughout the process.
Thank you for your consideration.
Sincerely,
[]
Managing Director
This is Exhibit "I" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CAN_DMS: \65405557\1
LAZARD
LAZARD FRERES & CO. LLC
30 ROCKEFELLER II'L.A.ZA
NEW YORK. NY •0O2O
PHONE 212 - 832 6000
WWW.lazard.com
March 9, 2016
Strictly Confidential
[Bidder name]
[Address]
[Address]
[Address]
Attn: [Name]
Ladies and Gentlemen:
Thank you for your continued interest in Pacific Exploration & Production Corporation
and its subsidiaries ("Pacific" or the "Company") and a possible acquisition of substantially all
of the Company's assets or an investment to support a recapitalization of the Company (a
"Transaction"). As you know, the Company has engaged Lazard Freres & Co. LLC ("Lazard")
to act as its investment banker with respect to the Transaction. This letter sets forth the process
and procedures for submitting a final, binding offer (a "Binding Offer") with respect to a
Transaction.
The key objectives for the Company, and therefore the criteria in evaluating Binding
Offers, are to: (i) arrange for a Transaction on terms and conditions that will maximize value for
the benefit of the Company's stakeholders; (ii) ensure sufficient liquidity; (iii) provide a high
certainty of closing; (iv) permit the Company to consummate an acceptable Transaction
expeditiously; and (v) ensure the Binding Offer shall preserve local trade claims and the stability
of the business of the Company in the jurisdictions within which it operates.
We invite you to submit your written Binding Offer by 5:00 p.m., (EST) on Wednesday,
March 16, 2016 to:
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, NY 10112
Attention: Phoebe Clarke
Telephone: (212) 632-1379
Facsimile: (212) 332-1757
[email protected]
Your Binding Offer must be in the form of a letter that is signed and dated on behalf of
your organization by a duly authorized representative.
PARIS
LONDON
MILAN
N EW YORK
NEW DELHI
SAN
somiew,
FRANCISCO
CAIRO
SEOUL
CHICAGO
SINGAPORE
FRANKFURT
KAMSURG
STOCKHOLMSYDNEY
HONG KONG
TOKYO
WARSAW
MADRID
LAZARD
Your Binding Offer should explicitly address each of the following items:
Identity of Investor / Purchaser
Please clearly state the identity of the prospective investor / purchaser (including details of the
identity and ownership of the bidding vehicle, if different). Your Binding Offer should include
information to demonstrate the prospective investor / purchaser's financial strength and ability to
fund the transaction and, if applicable, the financial strength of any guarantor.
Transaction Structure
A detailed description of the investment or acquisition structure you are proposing, including,
but not limited to an outline of the assets of the Company that are subject to the Transaction, a
description of any liabilities you do not plan to assume, the proposed implementation
mechanism, including specific jurisdictions for insolvency filings, and timing with respect to
each stage of the Transaction.
If your Binding Offer requires that the Company grant security over any of its assets or that it
divest any of its assets, then please provide specifics with respect to that security and/or those
divestitures, including any conditions and timing. If your Binding Offer requires approval from
the Company's creditors, or any of them, or Court proceedings or orders, then please provide
specifics as to the approvals, proceedings and/or orders contemplated.
New Investment / Purchase Price
The aggregate amount of the equity and / or debt investment to be made in the Company in
United States dollars or the purchase price in United States dollars and the form of purchase
consideration in the case of an acquisition. Your Binding Offer should include the investment or
purchase price valuation, including the implied enterprise value on a debt-free and cash-free
basis and a detailed explanation and calculation of the value of any non-cash consideration or
investment including assumptions associated therewith.
A qualifying Binding Offer must have a minimum capital commitment of US$500 million, plus
adequate funding to pay cash interest and fees to the extent applicable. In the event that your
Binding Offer contains hedging provisions acceptable to the Company, the minimum capital
commitment is US$400 million, plus amounts to fund cash interest and fees to the extent
applicable.
Pro Forma Capital Structure / Stakeholder Treatment
Details regarding the pro forma capital structure (including the form and amount of anticipated
equity and / or debt levels, letters of credit, debt service fees, interest or dividend rates, collateral,
amortization, voting rights, legal jurisdictions or other protective provisions (as applicable),
redemption, prepayment or repayment attributes and any other material attributes of the
investment) after giving effect to the Transaction.
-2-
LAZATZL)
The cash, equity and / or debt consideration to be allocated to unsecured creditors (including
specific guidance on the treatment of issued and outstanding letters of credit), shareholders and /
or any other stakeholder of the Company. To the extent your Binding Offer contemplates any
consideration other than cash or publicly traded securities, please provide guidance on the
valuation of such consideration.
Business Plan
Details regarding your go-forward business plan for the Company and related assumptions,
including: (i) adequacy of the proposed investment and pro forma capital structure; (ii) treatment
of the Company's employees with a specific focus on management teams; (iii) capital
expenditure / development strategy; (iv) cost reduction initiatives; (v) strategy with respect to
managing working capital, trade relationships, key contracts and contingent liabilities; (vi)
contemplated asset sales and associated projected net proceeds and timing thereof; (vii) plan to
obtain requisite regulatory and licensing approvals related to any change of control; and (viii)
any other material assumptions.
Financing
The Company places significant emphasis on the ability of the selected investor / purchaser to
consummate the Transaction in a timely manner and therefore requires certainty on your ability
to finance the Transaction. You are required to state in detail the method and sources by which
you intend to finance the Transaction. If the prospective financing is being obtained from other
than internal and immediately available sources, you must: (i) specify details of such financing
and a point of contact for each such other financing source; (ii) provide financing commitment
letters (debt and equity) for each such financing source that are not subject to diligence, approval
or other conditions; and (iii) indicate the process and timing required to close such financing.
For the avoidance of doubt, a qualified Binding Bid shall not contain, and the Company will not
enter into a definitive agreement containing, financing conditionality. The selected investor /
purchaser will be required to provide financing guarantees and / or assurances satisfactory to the
Company prior to execution of a definitive agreement.
Definitive Agreement
Your submission of a Binding Offer shall not be subject to any contingency, including your
internal approvals, further due diligence or financing contingencies, and shall be subject only to
definitive documentation acceptable to you and the Company.
Approvals / Conditions
Your ability to move quickly to execute a definitive agreement without contingencies will be a
critical factor. Therefore, please confirm that you have obtained all necessary corporate,
stockholder, board of directors, investment committee, regulatory or other approvals and list all
other material conditions upon which your Binding Offer is based or which may affect the timing
of any Transaction. Please let us know if there is anything that would prevent or delay your
ability to close the Transaction expeditiously.
-3-
LAZARD
Due Diligence
Prospective investors / purchasers are expected to complete all due diligence prior to submitting
a Binding Offer. Your Binding Offer should state that it is not subject to the completion of any
further due diligence. If you require additional information to complete your due diligence,
please provide Lazard with a supplementary due diligence list immediately so that the Company
can attempt to address any outstanding questions in advance of the deadline for submitting
Binding Offers.
Acting as Principal
Your Binding Offer should confirm: (i) that you are acting alone and not in conjunction with, or
as agent or broker for, any other party (other than funds managed or advised by you); and (ii)
that you have not entered into any agreement, arrangement, undertaking or understanding in
relation to the Transaction with any other person (other than any arrangement with any debt or
equity finance provider in connection with the Transaction and described in the Binding Offer).
Contact Details
Provide the name and contact details of the senior-level individual(s) responsible for the
Transaction within your company with whom we may clarify any issues with respect to your
Binding Offer as well as the identity and contact information for the financial (including
financing parties), legal, accounting or other outside advisors retained by you for the preparation
of your Binding Offer.
Acceptance Period / Firm Offer
Your Binding Offer should confirm that it will remain open for acceptance by the Company for a
minimum of forty-five (45) calendar days after the date of submission.
Other Relevant Information
Provide details of any other factors, including any proposed Transaction terms, time constraints
or other matters not addressed elsewhere in this letter that may be material to the Company in
considering your Binding Offer.
Bidders will be invited to present their proposals, business plans and operating strategies to
Pacific's incumbent stakeholders. In addition to a detailed in-person presentation, bidders and
their advisors will be invited to make themselves available for diligence sessions conducted by
the advisors to the existing creditors.
-4-
LAZARD
Miscellaneous
Prior to the submission of your Binding Offer, Lazard will be available to clarify the process and
procedures and answer other questions as appropriate. Please direct all inquiries to Ari Lefkovits
(212-632-6110) or Mark Renton (212-632-2620).
Your submission of a Binding Offer does not in any way create any binding obligations on the
Company or any of its affiliates with respect to any proposed Transaction. You acknowledge and
agree that, unless and until a final definitive agreement has been executed and delivered by the
parties thereto, no contract or agreement providing for any Transaction involving the parties shall
be deemed to exist, and neither Pacific nor its affiliates will have any legal obligation of any kind
whatsoever with respect to any Transaction. You acknowledge that, except as may be expressly
provided for in a definitive agreement executed by you and the Company and / or its affiliates, as
applicable, none of the Company, Lazard or any of their respective affiliates or any of their
respective equity holders, partners (limited and/or general), directors, officers, employees,
agents, advisors or representatives (collectively, "Company Persons") makes any representations
or warranties, express or implied, with respect to any information, documents or presentations
made available or provided to you or your representatives, either written or oral. You will not
have any claims whatsoever against any Company Person arising out of or relating to any
information provided or to be provided to you in connection with the process, or the rejection of
any proposals or the Transaction process or procedures.
The Company expressly reserves the right, in its sole and absolute discretion and without
assigning any reasons therefor, to evaluate all Binding Offers and to reject any or all Binding
Offers for any reason, in the Company's sole and absolute discretion. Further, the Company
expressly reserves the right, in its sole and absolute discretion, without advance notice and
without giving any reasons therefor, at any time to amend or terminate any or all of the
procedures set forth herein, to terminate discussions with any or all interested parties, to
negotiate with any party individually or simultaneously with other interested parties, or to
consummate a Transaction with any interested party. By submitting a Binding Offer, you agree
not to make any claim against any Company Person in the event that you are not invited into a
further stage, if any, of the process. You will bear all costs of your investigation and evaluation
of the Company, including the fees and disbursements of your counsel, advisers, and agents.
Neither any Company Person nor any of the Company's vendors, creditors or investors may be
contacted directly with respect to this process without our prior written consent. Please note that
the existence and content of this letter are subject to the terms of the Confidentiality Agreement
between you and/or your affiliate and the Company, and will continue to apply to any further
information or communications throughout the process.
-5-
LAZARD
The Company's creditors have retained financial and legal advisors to review proposed
Transactions and your Binding Offer will be shared with these advisors. These advisors are
subject to confidentiality agreements with the Company. If your Binding Offer prohibits
disclosure to these advisors, it may be rejected for that reason alone.
We would like to thank you again for your interest and we look forward to discussing this
opportunity further with you.
Sincerely,
Ari Lefkovits
Managing Director
-6-
This is Exhibit "J" referred to in the
Affidavit of Peter Volk
sworn before me, this 27th day
of April, 2016
A Commissioner for taking Affidavits
CAN_DMS:165405557\1
EXECUTION VERSION
PACIFIC EXPLORATION & PRODUCTION CORP.
RECAPITALIZATION — SUMMARY OF TERMS
All dollar amounts are in US dollars.
This recapitalization and financing ter sheet (the "Recapitalization Term Sheet"), which is attached as Exhibit A
to that certain Restructuring Support Agreement, dated as of April 20, 2016 (the "RSA")1 by and among the
Company, the Consenting Creditors and the Plan Sponsor, summarizes certain principal terms and conditions of a
proposed restructuring plan and related financing facilities of Pacific Exploration & Production Corp. ("Pacific")
and certain of its direct and indirect affiliates and subsidiaries that are Parties to the RSA (each, including Pacific, a
"Company Party" and collectively, the "Company").
Pacific, the Company Parties that are Guarantors (as defined in the Note Indentures and/or the Credit Facilities) (the
"Guarantor Debtors"), and any other direct or indirect subsidiaries of Pacific as the Company, the Requisite
Consenting Creditors and the Plan Sponsor may agree (the "Additional Debtors" and, together with Pacific and the
Guarantor Debtors, the "Debtors") will implement the Restructuring through a prearranged plan of reorganization,
which shall be consistent with the terms of this Recapitalization Term Sheet and the RSA (as it may be amended or
supplemented from time to time in accordance with the terms of the RSA, the "Plan") to be filed by the Debtors in
(i) a proceeding to be commenced under the Companies' Creditors Arrangement Act (the "CCAA") in the Ontario
Superior Court of Justice (Commercial List) (the "Canadian Court"), (ii) an ancillary proceeding, or such other
proceeding, acceptable to the Company, the Requisite Consenting Creditors and the Plan Sponsor to be commenced
under Ley 1116 of 2006 in Colombia ("Law 1116") in the court seized of jurisdiction in a Colombian proceeding
under Law 1116 (the "Colombian Court"), and (iii) a proceeding under chapter 15 of title 11 of the United States
Code (the "Bankruptcy Code" and, together with the CCAA and Law 1116, the "Insolvency Laws") in the United
States Bankruptcy Court for the Southern District of New York (the "U.S. Court" and, together with the Canadian
Court and the Colombian Court, the "Insolvency Courts"). If the Company, the Requisite Consenting Creditors
and the Plan Sponsor agree (each acting in their sole discretion), the Restructuring may be implemented through a
Plan filed in a proceeding to be commenced under chapter 11 of the Bankruptcy Code before the U.S. Court, with
such other appropriate proceedings before each of the Canadian Court and the Colombian Court as agreed by the
Company, Requisite Consenting Creditors and the Plan Sponsor, and the Parties to the RSA shall thereafter
negotiate in good faith to promptly effectuate such modifications to the RSA and to the Definitive Documents as are
reasonably necessary to implement the Restructuring in such manner.
The governing documents with respect to the Restructuring will contain terms and conditions that are dependent on
each other, including those described in the RSA, this Recapitalization Term Sheet and the secured DIP and exit
financing facility term sheet (the "DIP/Exit Note Term Sheet") and secured DIP and exit L/C facility term sheet
(the "DIP/Exit LC Term Sheet" and, together with the DIP/Exit Note Term Sheet, the "DIP/Exit Term Sheets").
This Recapitalization Term Sheet and the DIP/Exit Term Sheets do not include a description of all of the terms,
conditions, and other provisions that are to be contained in the definitive documentation governing the
Restructuring, which remain subject to discussion and negotiation in accordance with the RSA. The Restructuring
will not contain any material terms or conditions that are inconsistent in any material respect with this
Recapitalization Term Sheet, the DIP/Exit Tenn Sheets or the RSA, except with the express written consent of the
Company, the Requisite Consenting Creditors and the Plan Sponsor. This Recapitalization Term Sheet is entitled to
protection from any use or disclosure to any party or person pursuant to Federal Rule of Evidence 408 and similar
laws and regulations in effect in any relevant jurisdiction.
1.
THE REORGANIZED
COMPANY
A reorganized Pacific, which shall be re-listed on a stock exchange as of the Plan
Effective Date, which shall be reorganized in a manner acceptable to Pacific, the
Requisite Consenting Creditors and the Plan Sponsor, each in their sole
discretion, with respect to jurisdiction of formation, tax attributes, withholding
tax exemptions and other related matters (the "Reorganized Company").
2.
DIP/EXIT
FINANCING/EQUITY
In accordance with and subject to the terms and conditions of the DIP/Exit Term
Sheets, up to $634 million secured financing (the "DIP Financing") to be
provided by way of (i) senior secured first-lien notes (the "DIP Notes") in an
I
Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the RSA.