OGX Petroleo e Gas Participacoes SA shares and bonds fell the most on record after the oil company controlled by Brazilian billionaire Eike Batista cut its first project production targets by as much as 75 percent.
The stock tumbled 25 percent to to close at 6.25 reais in Sao Paulo. OGX dollar bonds fell the most since they were issued in May 2011.
Two other Batista companies, MMX Mineracao e Metalicos SA and LLX Logistica SA, were the second- and third-biggest decliners on Brazil’s main index, falling 12.6 percent and 7.5 percent, respectively. Investors are losing faith in Batista’s companies after OGX cut its targets “below all expectations,” Lucas Brendler, who helps manage about 7 billion reais ($3.4 billion), including OGX shares at Banco Geracao Futuro de Investimento, said by telephone from Porto Alegre, Brazil.
OGX plans to stabilize production at 5,000 barrels a day at each of its first two wells at the Tubarao Azul field, the Rio de Janeiro-based company said late yesterday. OGX had planned to pump as much as 20,000 barrels a day at each well in the Campos Basin. OGX is the main pillar in Batista’s plan to become the world’s richest man from Brazil’s natural resources through a group of interlinked oil, mining, shipbuilding and logistics companies.
“This is yet another setback related to flow rates, adding to market concerns regarding the Campos Basin’s provable potential,” Banco Itau BBA SA analysts Paula Kovarsky and Diego Mendes said in a note to clients yesterday. “It is becoming increasingly clear that the development of Campos will be far more complicated and probably costlier than originally expected.”
OGX has slid 54 percent this year after production and reserves estimates at Tubarao Azul disappointed investors. Brazil’s benchmark stock index is down 6.4 percent. Banco Santander SA lowered OGX’s end-2013 share price target to 9.50 reais from 12.50 reais and reiterated a hold rating.
OGX’s $2.56 billion of 8.5 percent notes due in June 2018 fell 6.26 cents to 91.14 cents on the dollar, according to data compiled by Bloomberg. Yields surged 147 basis points, or 1.47 percentage points, to 10.55 percent, according to data compiled by Bloomberg.
“The company announced weaker-than-expected productivity for its first two wells in the Campos Basin, a development that supports our downgrade and results in our having to reduce our estimates further,” Santander analysts Christian Audi and Vicente Falanga Neto said in a note today.
OGX has cut Tubarao Azul output targets three times since Jan. 18, when it predicted production of up to 20,000 barrels a day per well, according to company statements and conference calls.
Tubarao Azul will still yield a total of 110 million barrels of oil and natural gas over the life of the project, and the 5,000 barrel-a-day production levels are for the initial phase of development, OGX said. The company over the next 12 months will complete two more production wells and two water injection wells, which increase reservoir pressure to improve output, the company said.
“These decisions were made to guarantee a sustainable exploitation of the Tubarao Azul field in line with the best industry practices,” Chief Executive Officer Paulo Mendonca said in the statement.