Petronas to Buy Stakes Offshore Brazil from OGX at $850M

KUALA LUMPUR - Malaysia's Petroliam Nasional Bhd. is the latest Asian state-owned oil company to snap up significant stakes in overseas oil-and-gas assets with its planned purchase of 40% stakes in two offshore blocks in Brazil's Tubarao Martelo oil field from independent oil producer OGX Petroleo e Gas Participacoes SA.

The proposed $850 million acquisition, which requires regulatory approval, follows last year's 5.18 billion Canadian dollar ($5.16 billion) acquisition by the Malaysian company, known as Petronas, of Progress Energy Resources Corp. Petronas's massive Canadian deal was overshadowed by an even bigger deal that occurred around the same time, with China's state-owned Cnooc Ltd. paying $15.1 billion for Canada's Nexen Inc.

Malaysia has the third-largest oil-and-gas reserves in the Asia-Pacific region, but it is struggling to maintain its status as a net exporter of fossil fuels. With domestic oil demand outstripping production, which is declining as the country's oil fields mature, the interruption of oil shipments from Sudan due to a dispute between the recently independent South Sudan and its northern neighbor has intensified Malaysia's search for overseas energy sources.

"We expect Petronas to continue its hunt for overseas assets," said Aaron Tan, an energy analyst at Kuala Lumpur-based MIDF Research.

The International Energy Agency has forecast Malaysia will become a net oil importer by 2017, but Malaysia's finance ministry has said the country's oil-and-gas reserves are sufficient to meet demand until 2029.

Nevertheless, Petronas has scope to purchase significant overseas reserves with a capital-expenditure budget of 300 billion ringgit (US $106 billion) for the 2011-2015 period, according to analysts. Nearly two-thirds of the budget will likely to be spent on exploration and acquiring existing energy assets.

The state-owned firm's exploration arm, Petronas-Carigali Sdn. Bhd., has qualified to bid for exploration blocks in Brazil in mid-May--the first such auctions to be held in four years.

Petronas began acquiring energy assets in the early 1990s, mostly in developing countries. It has amassed hydrocarbon interests in more than 20 countries.

Petronas's purchase of stakes in the two Tubarao Martelo blocks, with reserves estimated at 145 billion barrels of oil will give OGX much-needed cash to fund fresh investments. OGX is also planning to participate in the mid-May auction, which has attracted more than 60 qualified bidders from 18 countries.

The Malaysian and Brazilian companies announced the deal in separate statements.

The Brazilian oil producer said Petronas has a call option to purchase 5% of OGX's total capital stock at a price of 6.30 Brazilian reais ($3.15) per share from billionaire Eike Batista, who owns a controlling stake in the company.

The call option can be exercised at any time until April 2015 and won't involve the issuance of new shares, as they will come from the current controlling shareholder, OGX said.

Tubarao Martelo--"hammerhead shark" in Portuguese--will likely start producing crude oil by the end of this year. The field, located in the Campos Basin, has a total recoverable volume of 285 million barrels, according to OGX's projections.

In a note earlier this week, analyst Paula Kovarsky, at Brazilian investment bank Itau BBA, said confirmation of the sale of a stake in Tubarao Martelo would likely be neutral, if not negative, for OGX's stock performance.

At first, investors will probably welcome the cash inflow and the fact that another firm is willing to pay a good valuation for one of OGX's assets, the analyst said. "But we would expect the subsequent mark-to-market of the rest of the portfolio to exert downside pressure on current trading."

Disappointing production levels at OGX's Tubarao Azul oil field have hurt the firm's shares since 2012, sowing doubts about Mr. Batista's ability to achieve production goals and fund investments.

OGX's shares closed at 1.97 reais a share on Tuesday, down 86% from a year ago but well up from its year-to-date low of 1.22 reais, hit April 17.

OGX's troubles have triggered a credibility crisis that affected other companies in Mr. Batista's industrial conglomerate, with interests in areas such as logistics, mining and shipbuilding.

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


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