Batista's OGX Cutting Oil Field Estimate After Missing Goal

Published Mar 27, 2013 10:45 AM by The Maritime Executive

Drilling rigs operating in parallel in the Campos Basin [http://www.ogx.com.br]

OGX Petroleo & Gas Participacoes SA, the Rio de Janeiro-based oil company run by billionaire Eike Batista, will reduce the volume estimate for its only producing field after missing output targets. Its shares fell.

OGX, which has plunged 85 percent over the past year, is “stabilizing” output at its third well at the Tubarao Azul field in the Campos Basin after encountering more complicated geology than it was expecting, Chief Executive Officer Luiz Carneiro said in an earnings report. OGX estimated Tubarao Azul’s recoverable volumes at 110 million barrels in a March 11 presentation. It didn’t offer a new estimate in the report.

“We continue completely concentrated on optimizing the total recoverable volumes at the field in line with the best industry practices, but we also recognize that the estimate of total recoverable volumes should be reduced,” Carneiro said.

Batista’s personal wealth has fallen almost $26 billion in the past year as the market value of OGX and his other commodities and logistics companies sank. OSX Brasil SA, Batista’s shipbuilder that depends on OGX to rent its production vessels, is down 74 percent in the past year.

OGX declined 2.2 percent to 2.25 reais at 10:05 a.m. in Sao Paulo, after losing as much 2.6 percent at the start of trading.

The first two wells at Tubarao Azul off the coast of Brazil’s Rio state are producing a little less than 10,000 barrels a day, Carneiro said. The company originally planned to pump as much as 20,000 barrels a day at each well at Tubarao Azul and began scaling back estimates after production missed targets.

Surrounding Areas

“A reduction in Tubarao Azul’s recoverable volume raises concerns about the real potential of the surrounding areas,” Banco Itau SA analysts Paula Kovarsky and Diego Mendes said in a note to clients. “We currently assume a 25 percent recovery factor for these accumulations, but there could be downside to our estimates.”

OGX increased its planned 2013 investments 8.3 percent to $1.3 billion after it bought a stake in the Atlanta and Oliva oil fields in November. It had $1.66 billion in cash at the end of 2012, down from $2.86 billion a year earlier, it said.

The company reported a 286 million reais ($142 million) loss in the fourth quarter, less than the 303 million reais estimate in a Bloomberg survey of two analysts.