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Batista' s woes deepen as he suspends development of Brazil oil fields

 

BY LUCIANA MAGALHAES AND ROGERIO JELMAYER

SAO PAULO -- The financial and credibility woes of Brazilian billionaire Eike Batista deepened Monday after his group' s flagship oil firm OGX Petroleo e Gas Participacoes suspended development of three oil fields and halted construction of oil platforms by sister company OSX Brazil.

OGX, which had $1.1 billion in cash at the end of the first quarter, will now focus on its Tubarao Martelo field, with the first oil expected in the fourth quarter of 2013.

The decision aims to save OGX cash, and to use it in developing what the group considers to be its best asset, according to two people familiar with the company. The idea is not to completely abandon the other wells, but to wait to develop them at a more propitious time in the future.

OGX said Monday it has suspended development of the Tubarao Tigre, Tubarao Gato, and Tubarao Areia offshore oil fields in Brazil. The company also acknowledged problems regarding production at its first oil field, called Tubarao Azul.

"There is no technology currently available that would economically allow any additional investment aiming to increase the field' s production curve," OGX said in a statement.

Shares in OGX plunged on Monday, losing 30% in morning trading, to 0.54 Brazilian reais ($0.24). OGX bonds, maturing in 2018, however, were up slightly, gaining 1.6%, but trading at a mere 31.50 cents to the dollar, considered to be default level. Shares in naval construction company OSX were down 8.57% at BRL1.28.

Once the richest man in Brazil, Mr. Batista is now rushing to sell assets in his infrastructure empire and meet its financial obligations after a credibility crisis was triggered a year ago, when OGX reported production levels much below expectations. Since 2011, the net worth of his companies has shrunk by the equivalent of around $25 billion.

According to a recent report by HSBC, OGX is likely to end 2013 in a tight cash position, as it had $1.1 billion in cash and forecasted investments of $500 million for the year.

"The perspectives for OGX are increasingly negative; this ends up reflected in the entire group," said Eduadro Carlier, an equity portfolio manager at Schroder Investment in Sao Paulo. The firm overseas a portfolio worth BRL500 million. "I still think there are some good assets in the group, but some of the companies are in a very troubled situation," he said.

Another Brazilian investor, who asked not to be named, said he wouldn' t even consider putting money into OGX. He added that he is concerned about the group' s creditors and wondered what kind of guarantees they hold.

Large Brazilian banks, including Itau Unibanco Holding, Banco Bradesco and Banco BTG Pactual, had lent around $5 billion to Mr. Batista' s firms as of the end of March, according to four people with knowledge of the situation.

Dow Jones Newswires

07/01/2013

 

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