As fortunes wane for Brazilian billionaire Eike Batista, his OGX Petroleo & Gas Participacoes SA oil company probably will demand another $1 billion from its biggest shareholder as soon as next month.
OGX will likely exercise the right to sell shares to Batista to carry out its business plan and bid for Brazilian oil blocks in May after the company’s cash holdings shrank, analysts including Banco Bradesco SA’s Auro Rozenbaum and Banco Itau SA’s Paula Kovarsky said.
Shares in Batista’s public companies declined as much as 84 percent in the past year after OGX cut oil output targets, erasing more than $25 billion of his personal fortune. A failed bond sale by his OSX Brasil SA shipbuilder this month signals investors aren’t willing to put money into his natural resources and logistics startups, Rozenbaum said.
“There’s no appetite in the debt market and they are kind of short on cash,” Rozenbaum said by phone from Sao Paulo. The stock option “is the way to get financial relief.”
In October, Batista agreed to buy as much as $1 billion of shares in Rio de Janeiro-based OGX at 6.30 reais each by April 30, 2014, to guarantee enough cash to expand the company’s exploration portfolio. A revenue shortfall, rising spending and difficulties in finding partners leaves the company reliant on Batista’s pledge to fund $1.3 billion of investments planned for this year, said Kovarsky, the fourth most accurate oil analyst of the 19 who follow the stock.
The per-share purchase price is more than twice yesterday’s close of 2.39 reais. OGX rose 0.8 percent to 2.41 at 12:55 p.m. in Sao Paulo.
OGX’s spending plan “puts additional pressure on the company’s cash position, requiring the exercise of the $1 billion put option,” Kovarsky said in a note to clients.
Cash holdings fell 42 percent in 2012 to $1.66 billion after dry wells cost the company about $343 million, OGX said March 26. The amount fell short of a target set in November to hold as much as $1.9 billion by the end of last year.
Higher costs and lower-than-expected output led OGX to post a net loss of 1.14 billion reais ($568 million) in 2012, more than the losses of its six previous years combined and the worst annual result for any of Batista’s publicly traded units, according to data compiled by Bloomberg. Losses at the billionaire’s interlinked commodities and logistics startups jumped 163 percent last year to 2.48 billion reais, the data show.
OGX is interested in competing for exploration areas on and off the coast of northeastern Brazil that the government is offering in the so-called Round 11 auction in May, Chief Financial Officer Roberto Monteiro said in a conference call yesterday. The company didn’t include potential bids in its 2013 spending plan and may sell stakes in existing assets to finance the purchase of new areas, he said, adding OGX has no plans to sell more debt.
“We have the possibility of farming down some of our assets, we have a majority in all our assets,” Monteiro said. “Any participation in the bid round will come from a lot of capital discipline.”
OGX’s press department didn’t respond to an e-mail and phone call seeking comments.
Batista can also raise money by selling a stake in OGX to another oil company, said Joao Brugger, who helps manage 300 million reais at Leme Investimentos Ltda., including OGX shares.
“Partnerships would be the most intelligent way to finance,” Brugger said by phone from Florianopolis, Brazil. “A strategic partner like he did with his energy company.”
Brazilian billionaire Andre Esteves’s Grupo BTG Pactual this month agreed to help manage the finances of Batista’s companies. BTG provided Batista’s EBX Group Co. holding company with a $1 billion line of credit as part of the deal, a person with direct knowledge of the accord said earlier this month.
It would make sense for Batista to reduce his stake in his companies between 20 percent and 30 percent, Esteves told newspaper Estado de S. Paulo in an interview published March 24.
Batista’s MPX, a power company that buys natural gas from OGX, said on March 26 that it’s in “advanced talks” to sell a stake to EON SE, Germany’s biggest utility.
The first two wells at OGX’s Tubarao Azul field off the coast of Brazil’s Rio state are producing a little less than 10,000 barrels a day, Chief Executive Officer Luiz Carneiro said in a March 26 earnings report. The company originally planned to pump as much as 20,000 barrels a day from each well at Tubarao Azul and is scaling back estimates for recoverable volumes at the field after production missed targets.
“They are far from previous expectations,” Rozenbaum said. “They need this solution, considering the alternative is there, this is the way.”