Aug. 24 (Bloomberg) -- Brazilian billionaire Eike Batista’s OGX Petroleo e Gas Participacoes SA will show in the next two months whether the eight-month rally that made the company the priciest of the world’s biggest energy stocks is justified.

OGX surged 115 percent this year on speculation Batista, Brazil’s richest man, will be successful in extracting crude from one of the largest oil prospects. Rio de Janeiro-based OGX began drilling last week, 14 months after its share sale marked Brazil’s biggest initial public offering at the time. OGX said it plans to tell investors by October whether it found oil.

All four companies that Batista’s Grupo EBX mining group took public since 2006 more than doubled this year, and each faces a juncture in the next two months that may cause shares to rise or fall as much as 20 percent, said Eduardo Favrin, head of equity at HSBC Global Asset Management’s Brazil unit.

“In September and October, you’re going to have critical definitions for the businesses,” said Sao Paulo-based Favrin, who oversees about $4 billion in stocks, including Batista’s OGX, MMX Mineracao e Metalicos SA and MPX Energia SA.

MPX, a utility, should give a “clearer picture” for results of a Colombian coal mine by September, according to UBS AG. EBX is in talks with China’s Wuhan Iron & Steel Group to sell a stake in mining company MMX, and Itau Unibanco Holding SA said a deal or refinancing “seems urgent.” LLX Logistica SA, Batista’s logistics company, may benefit from talks between MMX and Wuhan because it provides services for mining projects, Favrin said. All of Batista’s companies are based in Rio.

Wuhan Meeting

A delegation from Wuhan will meet with representatives from EBX in Brazil this week to discuss the MMX stake, according to Paulo Gouvea, an EBX director.

OGX sank 5 percent to 1,132.59 reais in Sao Paulo trading. MMX fell 3.1 percent and MPX dropped 1.2 percent. LLX slipped 0.6 percent, while the Bovespa stock index rose 0.1 percent.

Batista, 52, declined a request for an interview for this story. Gouvea said the coming months “are full of good things” for Batista’s companies. MMX’s “negotiations are progressing,” he said in a telephone interview from Rio.

“Mother Nature always brings surprises but we are very optimistic” about the OGX drilling, Gouvea said.

OGX’s rally this year sent shares to 60.3 times reported earnings, the most expensive of the world’s 50 biggest oil and gas companies by market value, according to data compiled by Bloomberg. MPX fetches 28.4 times reported earnings, the most expensive of Brazil’s 20 biggest utilities, Bloomberg data show.

‘No Room for Error’

“At these levels you’re betting that the guys will deliver, so there’s no room for error,” said Eric Conrads, a Mexico City-based hedge fund manager at ING Investment Management, which oversees $12 billion in emerging-market assets. “It’s make-it-or-break-it at this stage.”

HSBC’s Favrin expects Batista will come through.

“These are the types of things you can’t anticipate, but everything is leading us to believe that the results are going to be positive,” he said.

Batista jumped to 61st from 142nd on Forbes magazine’s annual list of billionaires in March after the OGX offering and a $5.5 billion sale of two MMX iron ore mine projects to London- based Anglo American Plc last year.

‘King of IPOs’

“Eike’s the king of IPOs,” said Joao Carlos Cavalcanti, a Sao Paulo-based mining rival who was Batista’s partner five years ago in Rio-based IRX Mineracao Ltda., an iron-ore prospecting company that later became a part of MMX. “He’s a paper salesman. Now he’s going to have to prove what he’s got.”

Batista, whose father was chief executive officer of the company now known as Vale SA, the world’s biggest iron ore producer, got his start in mining in the early 1980s when he struck out into the Brazilian Amazon to join a gold rush. He says he bought a mine at age 24, made a $6 million profit in the first year and once had a bodyguard kill a man who drew a gun during a money dispute.

“I’m a massive creator of wealth,” he told reporters in Rio after the Anglo sale was announced in January 2008.

OGX raised 5.87 billion reais ($3.21 billion) in its June 2008 IPO as investors bet Batista could match Brazil’s state- controlled Petroleo Brasileiro SA’s success at finding oil. OGX’s current valuations aren’t reflective of the company because it has yet to record any revenue, Gouvea said.

“I’m surprised we even have a P/E,” he said. “The value of our business is under the ground.”

4.8 Billion Barrels

OGX has an estimated 4.8 billion barrels of oil in the 2,625-square-mile concession it won from the government in November 2007 in four of the nation’s offshore basins, according to the company’s press office. The estimate uses a so-called success rate of 27 percent, meaning it considers most drilling attempts will not find oil or gas deposits sufficient to merit development.

OGX and Copenhagen-based Maersk Oil started drilling the BM-S-29 field on Aug. 16 in the Santos basin, about 174 miles from the Tupi field. Petrobras, as the Rio-based state energy company is known, estimates Tupi contains as much as 8 billion barrels of oil, the largest find in the western hemisphere since Mexico’s Cantarell in 1976.

“We have several prospects of very low risk in Santos and in Campos,” OGX Chief Executive Officer Paulo Mendonca said in a meeting with journalists on Aug. 17 at his office in Rio. “That makes us very optimistic.”

ING’s Conrads said he doesn’t own any of Batista’s stocks because the potential for declines in the event OGX drilling comes up dry or MMX’s Wuhan deal fails. On Aug. 6, Lima-based Maple Energy Plc plunged 46 percent after saying it found no oil in its first well in Peru’s Santa Rosa prospect.

“If they deliver, the stocks will keep going up,” Conrads said. “But if they don’t, they’ll go down pretty nicely and I wouldn’t want to be there.”

Markets

Brazil’s Bovespa index climbed 1.9 percent last week, the sixth straight advance. Gafisa SA and Cyrela Brazil Realty SA Empreendimentos e Participacoes, Brazil’s largest homebuilders, rose 18 percent and 13 percent, respectively, for the biggest gains in the measure.

The real increased 1 percent last week to 1.8299 per U.S. dollar. The yield on the zero-coupon local-currency bonds due January 2011 climbed two basis points, or 0.02 percentage point, to 9.75 percent.

The following is a list of events in Brazil this week:

Event                           Date
Trade Balance- Weekly           Aug. 24
FIPE CPI- Weekly                Aug. 25
FGV Consumer Confidence         Aug. 25
IBGE CPI IPCA-15                Aug. 25
Current Account-Monthly         Aug. 25
Foreign Investment              Aug. 25
Total Outstanding Loans         Aug. 26
Central Government Budget       Aug. 26
Nominal Budget Balance          Aug. 27
Primary Budget Balance          Aug. 27
Net Debt/GDP                    Aug. 27
FGV Inflation IGP-M (MOM)       Aug. 28
FGV Inflation IGP-M (YOY)       Aug. 28

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net

Last Updated: August 24, 2009 16:42 EDT