On a patch of barren savannah in eastern Colombia, a settlement called Oasis has sprung to life in five years. Hundreds of oil workers and truck drivers relax on a February evening in some 40 hotels, bars, eateries and brothels made mostly of corrugated metal sheets.

On a nearby dirt road, tanker trucks form a line stretching 4 kilometers, waiting to fill up with heavy crude from the Rubiales field — a hub of Colombia’s oil boom, Bloomberg Markets magazine will report in its July issue.

Oasis owes its existence to Pacific Rubiales Energy Corp. (PRE), Colombia’s No. 2 oil company, which was founded by four Venezuelans in 2008.

As then-President Hugo Chavez was seizing revenue and limiting investments of oil companies in Venezuela, the four countrymen were enticed by changes in neighboring Colombia. Former President Alvaro Uribe was easing restrictions on foreign investors and escalating the government assault on Marxist guerrilla group Revolutionary Armed Forces of Colombia, or FARC.

So the entrepreneurs targeted Rubiales, which Colombian state-controlled oil company Ecopetrol SA (ECOPETL) managed yet had barely exploited, and created a company that transformed the field into the nation’s biggest source of crude.

In 2009, as Bogota-based Pacific Rubiales and other companies ramped up production, Colombia vaulted past Argentina to become South America’s No. 3 oil producer, behind Venezuela and Brazil.

Huge Deposits

By the first quarter of this year, Pacific Rubiales had boosted output sevenfold to the equivalent of 126,000 barrels of oil a day. The company’s earnings before interest, taxes, depreciation and amortization soared eightfold to $1.88 billion in 2012 from 2008.

“The Venezuelans found huge deposits of heavy oil in Colombia where others hadn’t,” says Houston-based Bob Fryklund, vice president of energy consulting firm IHS CERA and a former ConocoPhillips executive in Brazil. “They exploited something that was off Ecopetrol’s radar. When you are smaller and more nimble, you take more risks.”

Investors have poured into shares of Pacific Rubiales (PRE). New York-based BlackRock Inc., the world’s largest asset manager; Capital Group Cos. in Los Angeles; and New York-based Lazard Asset Management LLC, part of publicly traded Lazard Ltd., are the biggest shareholders.
Labor Battle

The shares of Pacific Rubiales surged 197 percent to C$21.77 on June 10 from Feb. 6, 2008, when the producer was listed on the Toronto Stock Exchange. That compares with a 6.5 percent decline for the Standard & Poor’s Global Oil Index during the same period.

Pacific Rubiales announced June 3 that it was increasing its quarterly dividend to 16.5 U.S. cents per common share from 11 cents.

Co-founder and Chief Executive Officer Ronald Pantin now faces the challenge of maintaining Pacific Rubiales’s torrid growth. The producer has been embroiled in a labor battle with the Union Sindical Obrera, or USO. The union filed a lawsuit on May 30 against the company with the Colombian Attorney General’s office, says Mauricio Rodriguez, a lawyer providing legal assistance to the union. The suit alleges that Pacific Rubiales violated the right of free association by busting the local branch of the USO, Rodriguez says.

A spokesman for Pacific Rubiales declined to comment on the lawsuit. In February Pantin denied the USO’s allegation of union busting, saying his company complies with all of Colombia’s laws.
Rubiales Field

The company is also confronting the possible loss to Ecopetrol of its namesake field, which accounts for 60 percent of today’s production, when its license expires in 2016.

Ecopetrol currently cedes operation of the field to Pacific Rubiales. A spokesperson for Pacific Rubiales said in April that executives from the two companies are holding meetings to analyze the drilling rights situation.

“Rubiales isn’t only the biggest field in Colombia,” says Pantin, 63, who’s wearing a black-leather jacket, jeans and an open-collar blue shirt at his company’s headquarters. “Not even in Venezuela is there a field with its size. Rubiales is the secret to Colombia’s oil success.”

The Pacific Rubiales founders began to plot their departure from Venezuela more than a decade ago. Pantin was head of the services unit at state-owned Petroleos de Venezuela SA in 2000.
Chavez’s Agenda

At the time, Chavez was beginning to siphon revenue from the company to pay for his anti-poverty programs, says Eric Lee, an oil analyst at Citigroup Inc. in New York. Pantin, who says he opposed Chavez’s use of the company to promote his political agenda, left PDVSA in 2000.

After Chavez survived an attempted overthrow in 2002, thousands of PDVSA employees staged a four-month strike and called for his resignation. Chavez fired 18,000 of the striking workers in 2003. Today, some 60 Venezuelans, many of whom were dismissed or forced out by Chavez from PDVSA, work at Pacific Rubiales.

After 14 years in office, Chavez died of cancer on March 5. His hand-picked successor, Nicolas Maduro, narrowly won the presidential election on April 14.

In 2003, three Pacific Rubiales co-founders — Jose Francisco Arata, Serafino Iacono and Miguel De la Campa — seized the opportunity created by Uribe to invest in Colombia. After taking office in 2002, Uribe waged war on the 18,000-member FARC, a major cocaine trafficker, according to the National Colombian Police Service. He deployed soldiers on the roads and even placed an army battalion inside Rubiales, diminishing the rebels’ capacity to sabotage oil equipment.
Colombian Opportunity

From 2003 to 2012, Colombia’s murder rate fell 43 percent to 32 per 100,000 people, according to data published by the Ministry of National Defense.

The Colombian leader also stripped Ecopetrol of its regulatory powers in 2003 and transferred them to his newly created National Hydrocarbons Agency. The agency changed the way producers acquired drilling rights and paid royalties.

“We decided to invest in Colombia after the creation of the regulator,” says Arata, who is president of Pacific Rubiales. Juan Manuel Santos, who succeeded Uribe as president in 2010, is continuing to encourage foreign investment in the oil industry and signed a free-trade agreement with the European Union and Peru in June 2012.

Arata, De la Campa and Iacono founded Pacific Stratus Energy Ltd., a predecessor to Pacific Rubiales, in 2004 to begin exploring Colombia for crude. The partners, who had very little money, initially raised funds in Canada because the capital markets in Colombia were undeveloped at the time, says Manfred Kruger, who was chairman of Pacific Stratus and later head of investor relations at Pacific Rubiales.
Pacific Rubiales

Arata, who had worked with Pantin at PDVSA, hired geophysicists and other exploration experts who had left or been fired from the Venezuelan oil giant.

The founders concluded that Colombia’s eastern Llanos basin, home of the Rubiales field, probably held large reserves because of its geological similarities to Venezuela’s Orinoco basin, where PDVSA operates. By 2005, Pacific Stratus had raised $10 million from investors to buy its first Colombian oil block.

The Venezuelans took control of Rubiales, which was producing only the equivalent of 24,784 barrels of oil a day in 2007, through two acquisitions. Arata, Iacono and De la Campa teamed up with Pantin, an expert in oil production, to buy small, Toronto-listed Consolidated AGX Resources Corp. They renamed it Petro Rubiales Energy Corp., and Pantin was brought on board as a partner to run the company.
Lawsuit Filed

Using funds from investors, Petro Rubiales then paid $245 million to acquire 75 percent of Rubiales Energy Holdings Ltd., which operated the Rubiales, Quifa and Piriri fields in partnership with Ecopetrol. In January 2008, the four men merged their two companies to form Pacific Rubiales.

After three years of rapid growth at Pacific Rubiales, the USO, Colombia’s largest oil union, organized protests in the field for higher wages and better working conditions. Moises Baron, a senior USO secretary, says the company fired or declined to renew the contracts for union workers.

It then rehired those who had joined a smaller and more company-friendly federation called UTEN. Baron says Pacific Rubiales violated labor laws related to a free-trade agreement between Colombia and the U.S.

“The doors to our fields are always open to USO,” said Alejandro Jimenez, head of corporate social responsibility at Pacific Rubiales, before the filing of the May 30 suit. “They are free to exercise all their union activities.” Jimenez denied that Pacific Rubiales violated labor laws.
Global Expansion

Ian Macqueen, an oil equity analyst at CIBC World Markets in Calgary, says he’s convinced that Ecopetrol will take over production in Rubiales after Pacific Rubiales’s license expires, stripping Pantin of the cornerstone of his company. Ecopetrol owns 60 percent of the Rubiales license and gets the same percentage of the production under its contract with Pacific Rubiales.

Pantin says he’s confident that his company will retain the license after 2016 because of its success drilling in the Rubiales field.

“We have a special relationship with Ecopetrol,” Pantin says. “Our growth came with them as our partner.”

With the scheduled loss of Rubiales approaching, Pantin has targeted an adjacent area called CPE-6 as a major source of future production. Environmental regulators, in response to concerns from 37 rancher families, are requiring that Pacific Rubiales limit the number of roads it builds and restrict its use of water in the area. The environmental issues have delayed the granting of the drilling license to the company for more than a year.
Brazilian Discovery

Pantin is also hunting for oil outside Colombia in a bid to turn his upstart company into a global producer. He has spent $1.07 billion since last year to buy companies and oil-and-gas blocks in Brazil, Colombia, Guatemala, Guyana, Papua New Guinea and Peru.

Investors are concerned about whether the onshore driller has the expertise to tap reserves offshore for the first time in countries such as Brazil and Guyana.

“The company has been a real success story — such a success that they’re branching out into other areas that are away from their core competencies, which leads some of us to worry,” says Russ Dallen, a fixed-income investor at Caracas Capital Markets, which owns more than $5 million of Pacific Rubiales securities.

Pacific Rubiales’s joint venture with Karoon (PRE) Gas Australia Ltd. to drill in Brazilian waters paid off in January when the companies discovered an undisclosed amount of oil. They announced a second discovery in May.
Doubling Production

“If I may be a bit arrogant, we call it the Pacific effect, because we go to a new area, we enter, and we discover,” Pantin says.

The four Venezuelans have ambitions to more than double oil and gas production by 2015. For that to happen, they’ll have to find several more deposits, continuing a hot streak that made Pacific Rubiales, as of May, the best-performing major oil stock in Latin America during the previous five years.