Brazil's OGX to reduce exploration, focus on production
BY MATTHEW COWLEY
SAO PAULO--Brazilian oil company OGX Petroleo will cut back its exploration efforts and focus on production, billionaire businessman Eike Batista said Wednesday, as he sought to reassure unsettled investors.
OGX's shares in Sao Paulo crashed 25% on Wednesday, to 6.24 Brazilian reais ($2.98), after the company reported weaker-than-expected crude oil production from its wells. The firm said the two wells in its Tubarao Azul oil field would each produce 5,000 barrels per day, well below expectations.
"The company is changing from an exploration company to a production company," Mr. Batista said on a conference call with analysts. "We're going to produce lots of oil," he said, adding that the company is targeting production of at least 250,000 per day.
Mr. Batista played up the firm's track record on drilling success, saying that after drilling 100 wells it has had a hit ratio of more than 85% in the three basins where it's drilled. At the same time, he said that the firm was planning to reduce those exploration efforts.
"I would like to stress that throughout my career I have been a businessman that has taken a lot of risks in developing lots of projects," Mr. Batista said. "The only risk I have never taken is the financial risk of not being able to execute my projects."
The company reduced output from the wells because pressure at the bottom of the well would fall to dangerous levels, according to OGX executives. The firm will have to inject more water than originally expected into the reservoir to lift pressure levels, they said.
Roberto Monteiro, OGX's chief financial officer, said the company plans to save $1 billion per year by reducing the number of drilling wells to three from six by the end of the first quarter of 2013, and may also seek to reduce $600 million per year spending on seismic and geological data.
"The most important expense that we have in OGX is the rig fleet. So that's were we have to attack," Monteiro said. "It's a completely natural process [to reduce exploration efforts at this time. We have to do that because we're focusing more on development."
The firm will still be able to drill 12 wells or more per year, he said. "Even with three rigs we can still do some exploration."
The company plans to drill one more production well this year, possibly towards the end of the year, followed by a fourth well next year, he said. The company would have two wells attached to each of its two production platforms, he said.
Monteiro said the firm is in a "comfortable" situation in terms of its finances, and won't need to tap capital markets. "We're fully funded," the executive said.
The disappointing news from OGX knocked down the shares of other companies in the EBX group which is controlled by Mr. Batista, many of which are in pre-operational stages.
LLX Logistica SA (LLXL3.BR), his transportation company, fell 7.5% to BRL2.23, while mining company MMX Mineracao & Metalicos SA (MMXM3.BR) slid 5.7% to BRL6.11, rounding out the top three decliners on the Ibovespa.
"The EBX group of companies...[has] in excess of $9 billion in cash to fulfill all our commitments to production," Mr. Batista said.
Dow Jones Newswires