Fitch Downgrades OGX IDRs to 'B-'/'BB+(br)'; Outlook Revised to Negative
RIO DE JANEIRO & NEW YORK -- May 17, 2013
Fitch Ratings has downgraded OGX Petroleo e Gas Participacoes S.A.'s (OGX)
foreign and local currency Issuer Default Rating (IDR) to 'B-' from 'B' and
its long-term National Scale rating to 'BB+(br)' from 'BBB-(br)'.
Fitch has also downgraded the rating of the company's USD2.6 billion and
USD1.1 billion notes to 'B-/RR4' from 'B/RR4'. OGX's wholly owned subsidiary,
OGX AUSTRIA GMBH, is the issuer of both notes. These notes are unconditionally
and irrevocably guaranteed by OGX, OGX Petroleo e Gas Ltda. and OGX Campos
Petroleo e Gas S.A.
The Rating Outlook has been revised to Negative from Stable.
KEY RATING DRIVERS
The rating downgrades reflect concern about OGX's liquidity due to its
aggressive acquisition of 13 exploratory blocks during a time in which the
company is implementing an aggressive investment program and is struggling to
bring oil and gas production on line. The exploratory blocks acquisition is
valued at approximately USD190 million and has to be paid upfront within the
next few months. Committed minimum investments for these blocks amount to
USD350 million in the five-year exploratory period, which will further
pressure OGX's cash needs.
OGX continues to face operating challenges. During April, its three production
wells were halted due to technical issues at the centrifugal submersible pump
in well OGS-68HP, and unstable electrical generation at OSX-1 which affected
the production in the other two wells. Of the three wells, one was very
quickly put back into production. The second one is expected to restart
production in May, and the third well in June.
As of March 31, 2013, OGX had USD4.0 billion of total debt and only USD1.1
billion of cash and marketable securities. OGX's ambitious capital expenditure
program of approximately USD 1.3 billion in 2013 and low-to-negative EBITDA
(depending upon the speed of recovery in production volumes) is expected to
result in a large cash flow deficit during 2013.
Fitch believes there is a high likelihood that OGX will need to exercise a
USD1 billion put option against its controlling shareholder in 2013 to fund a
portion of its negative cash flow. The recent decision by the company to sell
a 40% stake in blocks BCM-39 and BCM-40 to Petronas is positive, but is not
large enough to address all of the company's funding needs. Upon the
regulators' approval of such transaction, probably during the second half of
2013, OGX is expected to receive USD250 million. An additional USD500 million
would be received following the beginning of production of oil in these
blocks, which is anticipated to occur in the first quarter of 2014. OGX would
receive subsequent payments upon reaching certain production volumes.
Following recent events, Fitch has adjusted the production volumes imbedded in
its base case scenario to about 10,000 barrels of oil equivalent per day
(boepd) in 2013; 46,000 boepd in 2014 and 94, 000 boepd in 2015. Considering
Fitch's oil price deck, Fitch has reduced its EBITDA projection to
approximately USD1.5 billion by 2015 from the previous 2 billion. Should
production volumes materialize at the new indicated level, Fitch expects OGX
to report negative free cash flow over the next three years, highlighting
OGX's liquidity risk. In 2015, Fitch expects leverage to be about 4.0x, after
adjusting debt for operating leases
OGX's ratings may be downgraded if its liquidity risks continue to increase.
If the company encounters additional execution issues with its exploratory and
development plan, further negative rating actions could occur.
A positive rating action could result from satisfactory production volumes,
coupled with lower uncertainties regarding reserves and liquidity.
OGX is a Brazilian oil and gas company created in 2007, 61.2% owned by EBX
Group. OGX has a portfolio of 49 blocks in Brazil and Colombia. In Brazil,
OGX's blocks are located in the Campos, Santos, Espirito Santo, Para-Maranhao
and Parnaiba Basins.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Oil and Gas Exploration and Production Companies' (Aug.9, 2012).
Applicable Criteria and Related Research
Rating Oil and Gas Production Companies
Corporate Rating Methodology
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Ricardo Carvalho, +55-11- 4503-2627
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7o. andar - Sao Paulo - SP - CEP: 01418-100
Lucas Aristrizabal, +1-312-368-3260
Daniel Kastholm, CFA, +1-312-368-2070
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
Press spacebar to pause and continue. Press esc to stop.