Batista Well Shutdown to Disappoint OGX Investors, Itau Says

OGX Petroleo e Gas Participacoes SA shares are poised to fall after billionaire Eike Batista’s oil company shut two of the three wells at its only producing field, Itau Unibanco Holding SA (ITUB4) and Banco Santander SA said.

“These technical problems further increase our concerns on the company’s ability to effectively produce from the Campos carbonates,” Itau analysts Paula Kovarsky and Diego Mendes wrote in a research report after the close of trading yesterday. “We expect a negative market reaction to the news.”

Unstable power supply damaged production pumps last month at the Tubarao Azul field, where output was already a fraction of original estimates, OGX said in a filing yesterday. The Rio de Janeiro-based company said it’s producing from a third well that was only shut for two days as a precaution. Crude output fell 26 percent in March to 8,300 barrels a day on the mechanical malfunctions.

OGX (OGXP3) shares have lost 90 percent over the past year after disappointing production at Tubarao Azul. The company encountered more compartmentalized geology than it was expecting at the reservoir, inhibiting the flow of oil. OGX’s lower-than- expected revenue has weighed on other companies in Batista’s natural resources and logistics group that supply the producer with goods and services.

The company will restart well 68HP in mid-May after completing repairs and then fix the pump at well 1HP before resuming output, it said yesterday. OGX didn’t provide production estimates for April or May. Itau expects the 1HP well to remain shut until mid-June.

Shares Rebound

In February, before the stoppages, Tubarao Azul pumped 11,300 barrels a day, compared with an installed capacity of about 60,000 barrels a day at the production vessel it contracted for the project. OGX plans to start producing from an additional two fields in the Campos Basin by year-end.

Natural gas output rose to 6,800 barrels of oil equivalent per day in March at the Gaviao Real field on land, it said.

Poor March production and news that two wells will remain out of commission for another one to two months and will weigh on shares, Santander analysts Felipe Reis and Alex Sciacio wrote in a note to clients dated today.

OGX rose 3.7 percent to 1.40 reais in Sao Paulo trading yesterday, rebounding from a 13 percent slump on April 15.

To contact the reporter on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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