Oleo & Gas Participacoes SA (OGXP3), the oil company controlled by former billionaire Eike Batista, plans to cover costs with revenue from a recently tapped field in a region where the company previously missed output targets.
Oleo & Gas, formerly known as OGX, is also seeking partners and financing to stay in business while it reorganizes under bankruptcy protection, Chief Executive Officer Paulo Narcelio said in Rio de Janeiro today. The Tubarao Martelo field, where the company will have four wells connected by the end of May, is expected to produce about 32,000 barrels a day once it has six to seven operating wells, he said.
“These are average estimates,” Narcelio told reporters after giving a presentation to investors, declining to provide a time frame. “There is an optimal level of production where you can extract the oil in an economically viable way for a good period without exhausting the wells prematurely.”
The company hopes to surpass results from its first project in the Campos Basin where production started strong and then faded after compartmentalized geology hindered the flow of oil. Oleo & Gas completely shut the Tubarao Azul field in July following pump failures at all three wells. The company’s cash slid to $85 million at the end of the third quarter. In October Batista’s company sought protection from creditors in Latin America’s largest corporate debt debacle.
The company needs about $250 million to sustain operations through April, it said in an Oct. 23 presentation to Rothschild, the adviser hired by its bondholders. At the time it said it expected to run out of cash in the last week of December. Oleo & Gas continues to pay salaries and declined to comment on its cash position, Narcelio said.
“The resources needed to operate Tubarao Martelo will come from the production,” Narcelio said. “Every oil barrel sold will be used for operations.”
Batista’s oil venture is close to a deal with creditors to obtain $200 million in fresh funds and to convert debt into equity, two people with direct knowledge of the matter told Bloomberg News earlier this month. Narcelio today declined to comment on negotiations with the company’s creditors.
On Dec. 5, Oleo & Gas started pumping oil at Martelo, where it connected a second well three days later. The company isn’t disclosing current production rates until flows stabilize, Narcelio said today.
Martelo and Azul are both carbonate reservoirs formed from ancient reefs deeper in the earth’s crust than the traditional sandstone reservoirs where state-run Petroleo Brasileiro SA has been producing for decades. Oleo & Gas is negotiating with platform supplier OSX Brasil SA, also controlled by Batista, to reduce rental costs so it can resume output at one of the wells at Tubarao Azul, Narcelio said.
Oleo & Gas’s stock and bonds lost more than 90 percent of their value this year with notes due 2018 trading at 8.5 cents on the dollar. The stock dropped 4.6 percent to close at 21 centavos in Sao Paulo today, the lowest since Dec. 5.
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