Fitch: OGX's Turbarao Azul Field Abandonment Neutral to Negative for Credit
SAO PAULO & CHICAGO -- July 2, 2013
Fitch Ratings views OGX Petroleo e Gas Participacoes S.A.'s (OGX) decision to
cease the development of its Turbarao Azul Field as neutral to negative for
the company's credit quality given the already sluggish production performance
and tightening liquidity position. On July 1, 2013, OGX announced its
intention to suspend the development of this field due to technical
limitations resulting from the compartmentalization of the formation, which
makes it uneconomical to develop with today's technologies. The reduction in
anticipated production volumes due to the abandonment of Turbarao Azul Field
will increase the company's cash needs, as operational expenses are expected
to remain largely unchanged while production volumes are reduced. Fitch
currently rates OGX 'CCC/CCC(bra)', with a Negative Outlook.
OGX's liquidity will be pressured by the lease obligations related to three
floating, production, storage and offloading platforms (FPSOs), OSX-1, OSX-2,
and OSX-3, while only one will actually be producing; OSX-3 at Turbarao
Martelo Field. OSX-1 is currently connected to the three wells which
production will be suspended. OSX-2 is expected to be delivered by year end
and OGX will begin making lease payments for this unit in January 2014. These
units could potentially be used by OGX in another location.
OGX's cash needs could be estimated at approximately USD300 million in 2014,
assuming the full exercise of the put option, a capex of USD1.5 billion
(including the USD449 million payment to OSX), and the collection from
Petronas of USD250 million this year and USD500 million in 2014. The potential
underperfomance of Turbarao Martelo Field (with a targeted level of 5,000 to
7,000 barrels per day), the unavailability of the put option and/or invoices
from Petronas could pressure OGX's credit quality.
OGX's cash needs could be higher, if any of the above mentioned conditions do
not materialize. OGX's outstanding USD3.7 billion bonds limit the company's
ability to raise additional debt. The company could potentially recur to asset
sales to cover any cash needs.
On June 14, 2013, Fitch downgraded OGX's foreign currency Issuer Default
Rating to 'CCC' from 'B-', due to increased uncertainty about the willingness
and ability of OGX controlling shareholder Mr. Eike Batista to honor the
company's USD1 billion put option. Funding for OGX's capex program is vital to
increasing oil production, so a default on the put option would further
tighten the company's liquidity position.
Additional information is available at 'www.fitchratings.com'.
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