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Brazil's OGX Close to Sale Of Oil Field Stake to Petronas

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SAO PAULO - Brazilian oil producer OGX Petroleo e Gas Participacoes could announce as soon as Tuesday the sale of a 40% stake in the Tubarao Martelo oil field for around $850 million to Malaysian state oil and gas firm Petroliam Nasional Bhd, according to a person familiar with the talks.

The person said the companies are aiming to close the deal on May 7, but it is still unclear whether they will be able to get it done in time. OGX would initially receive around $250 million from the sale and the rest over time, the person also said.

OGX declined to comment. A spokesperson for Petronas couldn't be immediately reached.

Analysts say that fresh funding for OGX, controlled by billionaire Eike Batista, is seen as crucial in allowing the company to participate in the upcoming auction of licenses for oil and gas exploration blocks. Analysts believe the company must buy new fields to be able to diversify its exploration portfolio.

Whether or not Tubarao Martelo--Portuguese for "hammerhead shark"--is the answer to that shortfall depends on when exactly the firm gets the money, analysts said.

The field is located in the Campos Basin, Brazil's most prolific oil region that lies in deep waters off the country's southeast coast. OGX has said it estimates the field has a recoverable volume of 285 million barrels of oil.

Tubarao Martelo is expected to start producing crude oil by the end of this year, according to OGX. At the end of last year, the firm said it was completing drilling operations on three production wells at the field, and the OSX-3 floating production and storage platform is scheduled to arrive in the third quarter.

In a research note, analyst Paula Kovarsky at investment bank Itau BBA said that, if confirmed, Petronas would likely wait until two or three wells are connected for a certain period of time and work as expected before committing any money.

Mr. Batista would still have to put up $1 billion in equity that he has previously promised to commit to the company, if needed, according to Ms. Kovarsky.

The analyst said that, if correct, the implied valuation would be $7.50 per barrel of oil equivalent, which is a 25% discount to Itau BBA's fair value estimate. "A certain discount to fair value was expected, and after all the setbacks faced by OGX in Tubarao Azul, we believe that the valuation for Tubarao Martelo is good."

Bruno Goncalves, an analyst at the Alpes Corretora brokerage agreed, saying that the price is "good" relative to OGX's market capital, which currently stands at 5.9 billion reais ($2.9 billion). "Still, we will need to know how Petronas will pay for the 40% stake (if the sale is confirmed)," the analyst added.

Tubarao Azul is OGX's only existing production field, and it has fallen short of its goals since starting up in June 2012. Disappointment with that field led investors to question the ability of Mr. Batista's firms to generate cash and fund their massive infrastructure projects. Many of Mr. Batista's interests, in areas such as oil, logistics and mining, are in the startup or pre-operational phase.

The concerns have hit shares of OGX hard: they are down 86.7% over the last 12 months. Nonetheless, they have recovered slightly in recent weeks following reports the firm may sell stakes in oil fields. Shares of OGX, were up 2.2% at BRL1.88 Monday afternoon, having been down more than 3% earlier in the session.

The volatility has been attributed to the sale reports as well as expectations about earnings, which are expected to remain weak as the company is only starting to produce, said Joao Pedro Brugger, an analyst at Brazil's Leme Investimentos. OGX is scheduled to report first-quarter results Thursday.

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

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