Brazil's OGX Evaluating Funding Options for Concession Auction

RIO DE JANEIRO - Brazilian independent oil producer OGX Petroleo e Gas Participacoes SA plans to invest $1.3 billion in 2013, but that total doesn't include the company's potential participation in an important new auction of oil and natural-gas concessions, OGX's chief financial officer said Wednesday.

"We think that it is interesting for us to participate in the 11th bid round," CFO Roberto Monteiro said during a conference call with analysts. "But we are not disclosing at the moment how much we want to spend or even if we will participate."

Brazil is scheduled to hold the country's 11th auction of oil and natural-gas exploration blocks in May, the first such sale since December 2008.

OGX, part of billionaire Brazilian businessman Eike Batista's industrial empire, doesn't have the financial wiggle room to take on more debt, so participating in Brazil's 11th round auction of oil and natural-gas concessions will require "capital discipline," Mr. Monteiro said. OGX ended 2012 with $1.7 billion in cash.

Among the "alternatives" listed by Mr. Monteiro was a potential sale of a stake in some of OGX's exploration blocks and oil fields, where the company retains majority stakes of between 70% and 100%.

"We have some options still open," he said.

OGX had previously planned to sell a stake in its blocks in the Campos Basin, but never completed a deal.

During the conference call to discuss OGX's fourth-quarter earnings, company officials admitted disappointment with crude-oil output at the Tubarao Azul field. Lower-than-expected production at the field has not only weighed on the company's shares since mid-2012, but also dragged down shares of other companies under Mr. Batista's EBX Group umbrella. The production has generated concern among investors about the ability of his companies to generate returns.

"Production levels in the first two production wells stabilized at a rate below our earlier projections," Chief Executive Luiz Carneiro said during the call. That could result in a reduction in estimates for recoverable reserves at Tubarao Azul, currently projected at 110 million barrels of crude, the CEO added.

OGX officials also said that just because output at Tubarao Azul has been a disappointment doesn't mean that the results can be "extrapolated" to other fields such as Tubarao Martelo, which is expected to start production by year-end, Mr. Carneiro said.

The OSX-2 and OSX-3 floating production platforms should arrive in Brazil in the third quarter, Mr. Monteiro said. OSX-2 will be installed at the Tubarao Tigre, Tubarao Gato and Tubarao Areia fields, while OSX-3 will produce from the Tubarao Martelo field, the executive said.

A well-head platform will also arrive for installation at Tubarao Martelo "sometime mid-next year," Mr. Monteiro said.

Copyright (c) 2012 Dow Jones & Company, Inc.


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