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HRT Leads Brazilian Oil Startup Losses as Output Falters

HRT Chief Executive Officer Marcio Mello
HRT Chief Executive Officer Marcio Mello said yesterday on a conference call that Chariot’s failure to find commercial quantities of hydrocarbons in its Kabeljou well at the Nimrod prospect doesn’t affect HRT’s outlook and drilling plans for Africa. Photographer: Paulo Fridman/Bloomberg

HRT Participacoes em Petroleo SA, Latin America’s worst-performing initial public offering in two years, is losing its appeal to potential partners for oil exploration in Namibia after a competitor’s well in the African nation failed to yield crude.

The value of HRT’s Namibian exploration licenses, the only offshore areas held by the Rio de Janeiro-based oil startup, is falling after Chariot Oil & Gas Ltd. drilled a second dry hole, said Banco Itau BBA SA analysts Paula Kovarsky and Diego Mendes. Before the Namibia disappointment, the company expected to fetch $460 million by selling a third of its exploration licenses, according to the Itau analysts.

Fledgling Brazilian oil companies are being punished by equity investors for failing to deliver on promises. HRT said it would become the biggest oil company in Brazil after Petroleo Brasileiro SA by 2015 by tapping light oil in Brazil’s Amazon region. So far it has only found small quantities of less-valuable natural gas. Billionaire Eike Batista’s OGX Petroleo & Gas Participacoes SA’s first two wells are yielding about 5,000 barrels a day, 75 percent less than it expected.

“There’s no positive way to look at the results in Namibia for HRT,” T.J. Conway, a research and advisory manager at New York-based Energy Intelligence Group, said in a telephone interview from Washington D.C.

HRT, which went public in Sao Paulo in Oct. 2010, is the worst-performing IPO in Latin American after losing about 84 percent of its value, according to Bloomberg data. OGX lost 72 percent and state-run Petrobras fell 12 percent in the period. The benchmark Bovespa index dropped 16 percent.

Carcara Discovery

QGEP Participacoes SA, another startup based in Rio, has lost 36 percent since its IPO on Feb. 8, 2011. The company recovered some of the losses following the Aug. 13 discovery of a large column of oil at the Carcara field, where it has a 10 percent stake.

HRT Chief Executive Officer Marcio Mello said yesterday on a conference call that Chariot’s failure to find commercial quantities of hydrocarbons in its Kabeljou well at the Nimrod prospect doesn’t affect HRT’s outlook and drilling plans for Africa.

“The Nimrod prospect was our largest target in the south but there are still other areas of interest,” Guernsey, Channel Islands-based Chariot said yesterday in a statement.

HRT expected to sell a third of its Namibia assets for $460 million, including $100 million for past costs, according to Itau analysts. HRT hasn’t provided an official target price for the Namibia assets, according to a company response to questions yesterday.

‘Not Attractive’

“Even if it still happens, valuation will not be that attractive, providing only small relief to the company’s cash position,” Kovarsky and Mendes wrote in the report. “Without the farm-out, the company’s cash runs out by the end of 2013.”

The company won’t sell a stake in Namibia if the price isn’t right, Wagner Peres, the head of HRT’s Namibia operations, said on the conference call yesterday. HRT has enough cash on hand to cover operations until July, 2014, Mello said yesterday.

HRT said Aug. 10 it was slowing its exploration campaign in the Solimoes basin in the Amazon to collect more data. Preserving the company’s cash position is a priority, Mello said.

Chariot’s dry well was over 100 kilometers (62 miles) away from HRT’s closest drilling prospect and the negative results don’t reduce the chances of success at HRT’s areas, Mello said. HRT plans to drill its first well in early 2013, the company said yesterday in an e-mailed response to questions.

‘Not Concerned’

“Most of the companies we are negotiating with are not concerned about this result,” Mello said. “Our prospects are far away, completely independent.”

Namibia’s geology is similar to Brazil’s Campos and Santos offshore basins that hold the largest discoveries in the Americas since Mexico discovered Cantarell in 1976, Mello said. The company has collected three-dimensional images of its prospects and has tracked natural oil seeps along the ocean floor to identify drilling sites, he said. The company has leased a rig from Transocean Ltd. to drill the first four wells in Namibia, the company said in May.

Chariot’s Kabeljou well was one of HRT’s “last hopes” this year for positive data, Emerson Leite, an analyst at Credit Suisse said in a research report yesterday. Credit Suisse cut HRT to the equivalent of hold from buy after Chariot announced the dry hole.

“We would now prefer to wait for the company to prove its geological thesis in either Solimoes and Namibia before getting exposure to the shares,” Leite said.

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