Petrominerales

Overview

Pacific Rubiales, which is a B.C. corporation listed on the TSX and an oil and gas producer operating through wholly-owned subsidiaries in Columbia and elsewhere, is to acquire Petrominerales after Petrominerales has first distributed (as a stated capital distribution occurring under an Alberta Plan of Arrangement) its Brazilian exploration assets (with a book value of $32M) to the Petrominerales shareholders in the form of ResourceCo which, in turn, will hold those Brazilian assets through a Brazilian subsidiary (Alvorada), and will also be capitalized with $100M of cash. ResourceCo is anticipated to be listed on the TSXV. Petrominerales, an Alberta corporation, is listed on the TSX and the Columbian Stock Exchange and is an exploration and production company operating in Columbia, Peru and Brazil. The common shares of Petrominerales will be acquired for $11.00 per share (or $935M in total, assuming no dissenters) in cash, also under the Plan of Arrangement.

ResourceCo Asset Drop-down and Plan of Arrangement

1. Pursuant to an Asset Conveyance Agreement (and not the Plan of Arrangement), Petrominerales will transfer its shares of Alvorada and of Newco (which will hold $100M of cash, subject to adjustments) to ResourceCo in consideration for the assumption of liabilities and the issuance of common shares.
2. The Shareholder Rights Plan of Petrominerales will be terminated.
3. Common shares of Petrominerales held by dissenting shareholders will be transferred to Petrominerales.
4. Petrominerales will reduce its stated capital and satisfy that reduction by distributing the shares of ResourceCo.
5. All common shares of Petrominerales not already held by Pacific Rubiales will be transferred to Pacific Rubiales in exchange for $11.00 per share in cash.

Securities laws

The ResourceCo share issuances and distributions will be exempted under the 3(a)(10) rule. Shareholder approval is required by a 2/3 majority. Extensive discussion of analysis for there being no collateral benefit for MI 61-101 purposes (no majority of minority approval).

Canadian tax consequences

PUC distribution. It is not anticipated that the distribution will give rise to a deemed dividend as Petrominerales has advised that the paid-up capital of its shares is well in excess of the fair market value of the ResourceCo shares. There is no indication as to whether reliance is being placed on s. 84(4.1) or 84(2), nor is there an indication of a ruling having been sought.

Exchange of Petrominerales shares for cash

Occurs on non-rollover basis.

Dissenters

Disposition give rise to proceeds except re any deemed dividend or any interest award.

Non-residents

Petrominerales has advised that it believes its shares are not taxable Canadian property given the foreign asset base. As per above, no deemed dividend is anticipated.

U.S. tax consequences

Exchange. The receipt of ResourceCo shares and the transfer of Petrominerales common shares to Pacific Rubiales in exchange for cash will be treated as a taxable disposition.

PFIC status

Petrominerales does not believe that it has been a PFIC, or that it is likely to become one in 2013. It expects ResourceCo to be a PFIC for its 2013 and 2014, and does not anticipate it being a PFIC for 2015 or later.