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Fitch: OGX's Turbarao Azul Field Abandonment Neutral to Negative for Credit Quality



  Fitch: OGX's Turbarao Azul Field Abandonment Neutral to Negative for Credit
  Quality

Business Wire

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'.

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
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
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
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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.

Contact:

Fitch Ratings
Primary Analyst
Ricardo Carvalho
Senior Director
+55-11- 4503-2627
Fitch Ratings Brasil Ltda.
Alameda Santos, 700 - 7o. andar - Sao Paulo - SP - CEP: 0141-1008-100
or
Secondary Analyst
Director
Lucas Aristrizabal
+1-312-368-3260
or
Committee Chairperson
Daniel Kastholm
Managing Director
+1-312-368-2070
or
Media Relation:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
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