HRT’s 63 percent plunge in Sao Paulo trading in 2012 makes it the worst-performing stock on the BM&FBovespa Small Cap index, topping the 57 percent drop for Batista’s OGX Petroleo & Gas Participacoes SA (OGXP3), which is the biggest decline on the benchmark Bovespa index.
Rio de Janeiro-based HRT, a company backed by Goldman Sachs Group Inc. and BlackRock Inc., needs more cash to finish exploring Amazon fields that it said could hold as much as 357 million barrels of crude. Investors aren’t as optimistic after HRT failed to find oil and delayed drilling at exploration blocks from Namibia to Brazil’s Solimoes Basin.
“It’s complicated to invest in a company where you don’t know how they will transform the product into money,” said Lucas Brendler, who helps manage about 6 billion reais ($2.97 billion) at Banco Geracao Futuro de Investimento in Porto Alegre, Brazil. “HRT doesn’t show the market a reasonable form of monetizing those gas volumes in the Solimoes Basin. The Namibia prospects are very frontier.”
HRT dropped 2.9 percent to 4.05 reais at 12:35 p.m. in Sao Paulo, while OGX declined 0.2 percent.
HRT said this week it may sell a stake in onshore exploration blocks in Brazil’s northern Solimoes Basin after $804 million of spending since 2011 turned up no commercial oil. In an e-mailed response to questions, company officials said HRT slowed down drilling to carry out more research and has enough cash to cover exploration costs through the first half of 2014.
“The area east of the Solimoes Basin has greater potential to produce oil,” Chief Executive Officer Marcio Rocha Mello said in an e-mailed response to questions. “Discoveries made until now, together with seismic studies of the area in the southern basin, are positive factors for partners.”
OGX cut oil production targets as much as 75 percent at its first oil project in a June 26 report, causing shares to slump 40 percent in two days and prompting Batista to replace four top executives, including Chief Executive Officer Paulo Mendonca. Each of its first two wells pumped about 5,000 barrels a day, compared with original plans to pump 20,000 daily.
HRT raised about $1.5 billion in an initial public offering two years ago, estimating at the time that its blocks in Brazil and Namibia may hold a combined 1.53 billion barrels of oil and equivalents.
The company has made five natural gas discoveries, which is more complicated to transport because it has no pipelines in the area. It also reported a dry hole in June.
“The areas they have in Brazil have a lot of potential for gas and not much for oil,” said Adriano Pires, head of the Brazilian Center for Infrastructure, a research firm known CBIE. “And Namibia hasn’t shown any good results.”
HRT’s plan to diversify and hedge any exploration risks have been undermined by Brazilian government delays in offering new exploration tracts, Pires said. HRT is interested in bidding for licenses under the so-called Round 11 auction the government plans to hold in May, Mello has said. Brazil hasn’t offered any exploration areas since 2008.
“HRT, if it enters a bidding round and buys something, it could have a different outlook,” Pires said in a telephone interview from Rio.
Mello said in April that HRT and its partner TNK-BP, Russia’s third-largest oil producer, are studying plans to use a liquefied natural gas tanker to transport the fuel from its Solimoes blocks or could build a nearby fertilizer plant that would use gas as a feedstock. The companies plan to complete a study for the so-called gas-to-liquids project by the end of the first quarter of 2013, TNK-BP senior vice president Chris Einchcomb said in Moscow on Sept. 27.
“I am very frustrated every second of my life, but we’ll get there because we’ll persevere,” Mello said in an Aug. 10 conference call. “We just need to perform and deliver what we promised and we will, but this takes time.”
HRT, which previously said it would start drilling at its Namibian blocks in 2011, now plans to begin next year. Chariot Oil & Gas Ltd. (CHAR), a U.K. oil exploration company, announced it drilled its second dry hole off Namibia’s coast early last month in an area about 100 kilometers (62 miles) away from HRT’s assets.
Chariot’s dry wells don’t reduce the chances of success at HRT’s areas, Mello said on Sept. 10. Namibia’s geology is similar to Brazil’s Campos and Santos offshore basins that hold the largest discoveries in the Americas since Mexico found Cantarell in 1976, he said.
“If they find oil in Namibia it will be worth a lot of money,” Auro Rozenbaum, an analyst at Banco Bradesco SA, said in an interview from Sao Paulo. “Otherwise it will be worth zero.”
To contact the reporter on this story: Peter Millard in Rio de Janeiro at email@example.com