OGX Scrambles to Stay Afloat

The company's only producing oil field, Tubarao Azul, has produced a fraction of what the company initially anticipated. The field produced 9.7 thousand barrels of oil equivalent per day in June 2013, and it is expected that it will be shut-down sometime next year.

In the past year, OGX has witnessed several mishaps that have triggered a rapid decline in its share price. Earlier this month, the company defaulted on $1 billion of bonds after missing a $45 million interest payment on dollar notes due 2022, OGX said in a regulatory filing. The company has a 30-day grace period, which started Oct. 1, before Moody's Investors Service and Fitch Ratings will call it a default.

Eike Batista is currently seeking to renegotiate debt and avoid bankruptcy. Financial advisors representing the company and its bondholders are meeting this week to further discuss a debt restructuring plan.

"OGX has been making losses for a while, since 2Q 2010, and these losses are growing," Hannah Mumby, analyst at Evaluate Energy, said to Rigzone. "This lack of profit is then leading to a lack of cash and that is exasperating the problems the company faces, as they just don't have the funds to grow their production and reduce their debt burden at the same time."

As the company tries to restructure its debt, a possible investor, Malaysian-oil and gas company Petroliam Nasional Berhad, or Petronas, agreed to pay as much as $850 million for a 40 percent stake in BM-C-39 and BM-C-40 blocks, which holds the Tubarao Martelo field, with part of the payment hinging on output, according to a May 6 press release.

The oil field is estimated to hold as much as 108.5 million barrels of oil equivalent, but OGX originally stated that it may hold 285 million. The company is preparing to start production at the field by year-end and if it produces as anticipated, revenue from the field in the coming two decades, based on proven, probable and possible reserves, may reach $11.2 billion, DeGolyer & MacNaughton reported in OGX's regulatory filing. Output next year could reach 6.2 million barrels of oil.

But now that OGX is considering bankruptcy protection and the amount of the Tubarao Martelo reserves being much lower than originally reported, the company may sell all of its shares in the field to Petronas, according to a Reuters report. Without new investment, the company could run out of cash to pay debt and finance expansion before year-end. In September, Fitch rating service downgraded OGX bonds to C, verifying high risk of an imminent default.


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