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OGX gets relief in Petronas deal

BY JEFF FICK

RIO DE JANEIRO -- OGX  will get enough cash up front from the sale of an offshore oil field to Petronas to alleviate cash concerns and participate in an upcoming auction of oil and natural gas exploration concessions.

OGX, the flagship of Eike Batista' s industrial empire, will get $250 million in cash now after selling a 40% stake in the Tubarao Martelo field to Petronas, but the rest of the $850 million purchase price will be disbursed in steps, a person familiar with the deal said. OGX will receive $500 million when the field starts production, currently expected by end 2013, with the remaining $100 million based on operational goals, the person said.

The company declined to comment on the payment schedule.

Despite the stepped out payments, the deal eases a cash crunch at OGX after disappointing crude oil production at the company' s first oil field undermined revenues and raised questions about the company' s ability to carry out its investment plans. In April, OGX reorganized its finances and submitted guarantees to participate in Brazil' s 11th round auction of exploration acreage scheduled for next week, the country' s first such auction in five years.

"Now, OGX can comfortably participate in the auction" said Luana Mello Helsinger, an analyst at GBM. "The deal offers some short term relief in terms of cash, and gives the company a chance to participate in the auction and expand its portfolio, which is the lifeblood of any oil company."

OGX also will have the cash it needs to carry out the rest of its exploration and development investments, according to analysts. The company had $1.7 billion in cash on hand at the end of 2012, with plans to invest about $1.3 billion this year. Before the Petronas deal, disappointing oil output meant that OGX' s debt payments and spending likely would have burned through the company' s cash by the end of 2014, said Dany Rappaport, a fund manager at Sao Paulo based InvestPort.

The Petronas deal was aimed at improving the company' s debt conditions ahead of a heavy schedule of payments next year, Mr. Rappaport said. OGX will need to "clean up its house" and restructure itself as a firm focused "on less ambitious growth, because the debt market is closed to the company," he said.

OGX still faces operational questions after two of the company' s three production wells at the Tubarao Azul field were shut down for repairs, Mr. Rappaport noted. The troubles caused crude oil output at the field to drop to 1,800 boepd in April, down from 8,300 boepd in March, OGX said.

"Certainly the Petronas deal is a positive event, but is it going to transform OGX into an operationally efficient company? I don' t know" Mr. Rappaport said. "So far, the company hasn' t been able to produce."

Dow Jones Newswires

05/09/2013

 

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