OGX Gets Boost to 6.7B Barrels, Expects Vesuvio Reserves to Rise

RIO DE JANEIRO (Dow Jones), Nov. 10, 2009

Brazilian oil and gas company OGX Petroleo e Gas Participacoes SA said late Monday it increased its risked oil resources after an analysis by consultants DeGolyer & MacNaughton.

The consultants certified potential risked resources of 6.7 billion barrels of oil equivalent, or BOE. A previous report had put risked resources at 4.8 billion BOE. A second report pegged contingent resources at 212 million BOE.

DeGolyer & MacNaughton certified the higher number after evaluating fresh seismic data from five blocks in the southern Campos Basin, five blocks in the Espirito Santo Basin and seven inland blocks in the Parnaiba Basin, OGX said.

"We are now reviewing our business plan to map out the resources required in order to drill the wells and convert faster our resources into reserves," CFO Marcelo Torres said during a conference call with analysts.

Torres said OGX will expedite its drilling campaign in light of the increased estimate, planning 27 wells in 2010. Some 26 wells will be drilled offshore, with a single onshore well planned for the Parnaiba Basin.

OGX's drilling plans will increase to 79 total wells over the next four years, up from 51 wells, Torres added. The company will drill 72 offshore wells and seven onshore wells in that period.

OGX shares tumbled 3.2% to 1,471.00 Brazilian reals ($857.73) in early trade on the Sao Paulo Stock Exchange.

The report also pegged OGX's recent Vesuvio prospect at a resource of 1.4 billion BOE, at the top of the range of 500 million to 1.5 billion recoverable BOE. OGX officials expect that figure to go higher with additional appraisal wells.

"The area is very big and the well was very, very successful and we probably will announce an increase," said Paulo Ricardo, OGX's executive manager for data interpretation. "The next range will probably be much bigger."

Vesuvio was OGX's first well drilled in the offshore Campos Basin, where more than 85% of Brazil's crude oil is produced. The prospect is located in the Campos-Basin's BM-C-43 block. OGX retains a 100% stake in the block.

OGX's cash position will allow the company to ramp up its aggressive drilling campaign with ease, CFO Torres said, noting the company currently has $4.5 billion in cash on hand.

"We would need only $2 billion to drill all the wells over the next three to four years," Torres said. While the company does need to compensate for stakes purchased at future concession auctions and possible farm-in deals, OGX doesn't anticipate a return to the market to raise funds for the next few years, the executive added.

In June 2008, the company raised 6.7 billion Brazilian reals ($3.59 billion) in Brazil's then-largest initial public offering.

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