Pacific Exploration & Production, formerly known as Pacific Rubiales, also announced today the formation of an independent committee of the board of directors to assist the full board of directors in analyzing strategic alternatives to its capital structure in this low oil price environment. The Canadian petroleum company announced today in a statement that “The company and its board of directors are committed to working with all of the company’s stakeholders, including its contracting parties in Colombia and abroad, to ensure the long-term viability of the company and the preservation of value.” The company is being advised by Lazard Frères & Co. LLC.

Pacific Exploration announced on December 28 of last year that it obtained certain waivers with respect to the: $1 billion USD revolving credit and guaranty agreement with a syndicate of lenders and Bank of America as administrative agent; the $250 million credit and guaranty agreement with HSBC Bank USA, as agent; the $109 million credit and guaranty agreement with Bank of America as lender; and the $75 million master credit agreement with Banco Latino Americano de Comercio Exterior (Bladex) as lender.

The waivers obtained by Pacific Exploration provide relief in respect of the covenant that requires its consolidated net worth to be above U.S.$1 billion and in respect of the company’s consolidated leverage ratio of 4:50:1:00, which reflects the permitted gross debt-to-trailing twelve month adjusted EBITDA. The waivers are set to expire on February 26, 2016 and are subject to the satisfaction of certain terms and conditions, including a condition that the company and the requisite threshold of the company’s lenders reaching an agreement on or before January 21, 2016 with respect to a covenant providing for the minimum amount of unrestricted cash to be retained by the company throughout the waiver period. The previous extension of the liquidity deadline was granted on January 14, 2016 through to January 21, 2016.

Pacific Exploration is involved in exploration and production of natural gas and crude oil, with operations focused in Latin America. The company has a portfolio of assets with interests in more than 85 exploration and production blocks in seven countries including Colombia, Peru, Guatemala, Brasil, Guyana, Papua New Guinea, Mexico and Belize.

Last Friday, January 15, Fitch Ratings (click here for details) has downgraded Pacific Exploration’s Long Term Issuer Default Rating and Local Currency Long Term issuer Default Rating to “C.”

Specifically, according to Pacific Exploration the following interest payments will not be paid on the scheduled payment dates: $31.3 million USD in the aggregate in respect of the 5.625% notes scheduled to be paid on January 19, 2016; and $34.9 million USD in the aggregate in respect of the 5.375% notes scheduled to be paid the end of next week, on January 26, 2016. The company has elected to use the grace period to assess strategic alternatives with respect to its capital structure.

Pacific Exploration announced its intention to utilize a 30 day grace period permitted under the indentures governing its 5.625% notes due in 2025 and its 5.375% notes due in 2019 to assess strategic alternatives and an extension to the minimum liquidity deadline under the waivers.

Pacific Exploration’s current liquidity position is being routed by the continued low international oil prices. The company says that it will use the grace period to engage with its creditors (including its lenders and holders of each series of the company’s notes) with a view to making its capital structure more suitable to current market conditions. The company states that it remains and intends to remain current with its suppliers, trade partners and contractors, as normal operations continue in Colombia and the other jurisdictions within which the company operates.

Pacific Exploration also goes on to state that the failure to make the January interest payments on the scheduled dates does not constitute an event of default under the indentures that govern the notes. In each case, the company has a 30 day period from the scheduled payment dates to cure the failure to make such payments and the company reserves the right to make the January interest payments prior to the expiry of each grace period.

As previously announced on December 28, 2015, the Pacific Exploration obtained certain waivers with respect to the: $1 billion USD revolving credit and guaranty agreement with a syndicate of lenders, and Bank of America as the administrative agent, a $250 million USD credit and guaranty agreement with HSBC Bank USA, as agent, a $109 million USD credit and guaranty agreement with Bank of America as lender, and a $75 million USD master credit agreement with Banco Latino Americano de Comercio Exterior as lender.

Pacific Exploration is being advised by Lazard Frères & Co. LLC.

The waivers obtained by the company provide relief in respect of the covenant that requires its consolidated net worth to be above $1 billion USD and with respect to the company’s consolidated leverage ratio of 4:50:1:00, which reflects the permitted gross debt-to-trailing twelve month adjusted EBITDA. The waivers are set to expire on February 26, 2016 and are subject to the satisfaction of certain terms and conditions, including a condition that the company and the requisite threshold of the company’s lenders reaching an agreement on or before January 14, 2016 with respect to a covenant providing for the minimum amount of unrestricted cash to be retained by the company throughout the waiver period.

Pacific Exploration also announced last Thursday that the company and its lenders have agreed to extend the liquidity deadline to this Thursday, January 21, 2016, or such later date as the company and its lenders shall agree.

Pacific Exploration is a Canadian public company involved in exploration and production of natural gas and crude oil, with operations focused in Latin America. The Company has a portfolio of assets with interests in more than 85 exploration and production blocks in seven countries including Colombia, Peru, Guatemala, Brasil, Guyana, Papua New Guinea, Mexico and Belize.

The waivers were obtained with respect to the: US $1 billion revolving credit and guaranty agreement with a syndicate of lenders and Bank of America as the administrative agent, a US $250 million credit and guaranty agreement with HSBC Bank as agent, a US.$109 million credit and guaranty agreement with Bank of America as lender, and a $75 million USD master credit agreement with Banco Latino Americano de Comercio Exterior, as lender.

Fitch Ratings has downgraded Pacific’s foreign and local Long-term Issuer Default Ratings (IDRs) to ‘CCC’from ‘B-‘. Fitch has also downgraded to ‘CCC/RR4’ from ‘ B-/RR4’ the long-term rating on Pacific’soutstanding senior unsecured debt issuances totalling approximately USD $4 billion with final maturities in 2019 through and 2025. The ratings were previously on Rating Watch Negative.The downgrade reflects Fitch’s expectations that the company’s capital structure could weaken to

The downgrade reflects Fitch’s expectations that the company’s capital structure could weaken to an unsustainable level over the near term as a result of slower oil price recovery expectations. The rating action also incorporates the company’s delay in the sale of assets to bolster liquidity as well as delays in reaching an agreement with the company’s syndicate of lenders under its USD $1 billion revolving credit facility and other bank loans.

Pacific Rubiales is a Canadian public company involved in exploration and production of natural gas and crude oil, with operations focused in Latin America. The Company has a portfolio of assets with interests in more than 85 exploration and production blocks in seven countries including Colombia, Peru, Guatemala, Brasil, Guyana, Papua New Guinea, Mexico and Belize.

The waivers have been granted for a period of 61 days and will expire on February 26, 2016, subject to the satisfaction of certain terms and conditions, including the company and the steering committee reaching an agreement on or before next Wednesday, January 14, 2016 with respect to a covenant providing for the minimum amount of unrestricted cash to be retained by the company throughout the waiver period. As consideration for entering into the waivers, the company has also agreed to certain restrictions on non-ordinary course transactions and agreed to work with the lenders and their financial and legal advisors during the waiver period.

According to Fitch Ratings, Pacific credit metrics have been materially affected by the sharp decline in oil prices, as well as the company’s debt increase during 2015. Total and net debt/EBITDA for the latest 12 months ended September 2015 have increased to 4.3x and 3.9x, from 1.9x and 1.8x, as of year-end 2014. This was mostly due to due to the decline in global oil prices as well as Pacific’s debt increase of more than USD $600 million during first-half 2015. On the positive side, Pacific reported zero short-term debt as of September 2015.

CEO Ronald Pantin defended the company in a statement: “Contrary to market rumours, the Company is not in default under any of its debt obligations and does not expect to be at risk of payment default. The leverage covenants in our senior  notes are ‘incurrence based covenants’ which simply means the Company’s ability to take on additional debt may be restricted by such ratios, subject to various exemptions. All of our senior notes have maturities that extend out from 2019 to 2025.”

Pantin went on to describe aggressive cost cutting that the company is undertaking immediately in order to weather the current market conditions. “The uncertainty in oil prices continues and although we believe that oil prices will recover, we are taking a cautious view on the timing, reducing both our costs and our 2015 capital budget to match expected cash flow. The Company has the operational and financial flexibility to adapt to the changing environment while continuing to grow production. Our reduced capital budget only has a marginal impact on production targets as we focus expenditures on our highest return and most material near-term projects.”

“Pacific Rubiales remains fully focused on maintaining liquidity in this environment, by significantly reducing costs and also reducing capital expenditures by $200 to $400 million, to match expected cash flow. Furthermore, we have additional flexibility from our $1.0 billion revolving credit facility, which is currently undrawn,” said Pantin. “Reducing costs remains a priority. Our cash operating costs are now expected to be approximately $28/boe (barrel of oil equivalent), benefiting from the lower Colombian Peso, a number of cost reduction initiatives put in place before year-end 2014, and lower supplier service costs. We expect significantly lower G&A costs to be driven by the lower local currency exchange rate and a reduction in staff and other costs. Average royalty rates and cash taxes are also expected to be reduced in the lower oil price environment.”

The debts were incurred partly through a string of acquisitions in the recent past, when oil production was more lucrative. The Canadian based but South America focused producer of natural gas and crude oil, owns 100% of Meta Petroleum Corp. , which operates the Rubiales, Piriri and Quifa heavy oil fields in the Llanos Basin, and 100% of Pacific Stratus Energy Colombia Corp., which operates the La Creciente natural gas field in the northwestern area of Colombia.  Pacific Rubiales has also previously acquired 100% of Petrominerales Ltd, which owns light and heavy oil assets in Colombia and oil and gas assets in Peru, 100% of PetroMagdalena Energy Corp., which owns light oil assets in Colombia, and 100% of C&C Energia Ltd., which owns light oil assets in the Llanos Basin.  In addition, the Company has a diversified portfolio of assets beyond Colombia, which includes producing and exploration assets in Peru, Guatemala, Brazil, Guyana and Papua New Guinea.

2015 Revised Guidance – Key Highlights released by Pacific Rubiales:

• Net production of 150 to 160 Mboe/d, a slight decrease from the previous guidance, representing approximately 1 to 8% growth over expected 2014 production levels.

• Average WTI oil price assumption of $55 to $60/bbl during the year.

• Oil price realization is expected to be $1 to $2 above the WTI benchmark price assumption.

• A significant reduction in 2015 cash costs: with operating costs estimated at $28/boe, G&A costs of $200 million, financing costs of $250 million and cash taxes of $200 million expected.

• Generating Adjusted EBITDA of $1.5 to $1.7 billion (including funds from hedging programs and dividends from affiliates), and Funds Flow (Cash Flow) of $1.1 to $1.3 billion.

• Exploration and development (“E&D“) capital expenditures of $1.1 to $1.3 billion, the majority directed to development drilling and facilities, and a small amount to exploration.

The company’s common shares trade on the Toronto Stock Exchange and La Bolsa de Valores de Colombia and as Brazilian Depositary Receipts on Brazil’s Bolsa de Valores Mercadorias e Futuros under the ticker symbols PRE, PREC, and PREB, respectively.