July 1 (Bloomberg) -- Billionaire Eike Batista’s OGX Petroleo & Gas Participacoes SA tumbled to record lows as a warning that the company may shut its only producing wells intensified speculation it will have to restructure debt.
OGX shares posted a record 30 percent drop, erasing about $300 million of market value, while its bonds due 2018 fell to 19 cents on the dollar. The Rio de Janeiro-based producer said in a regulatory filing today that it’s considering halting output at the Tubarao Azul field after a technical review and canceled orders for new oil platforms.
Batista’s natural resources and logistics startups made him the world’s eighth richest person in March 2012 with an estimated $34.5 billion fortune. Now he’s scaling back projects and selling assets after net debt at his EBX Group Co. holding almost doubled the combined market value of its units and his own wealth shrank to $4.7 billion. OGX shares have slumped 87 percent this year after missed targets and production delays.
“OGX is on the ropes and could face imminent financial restructuring,” Michael Wang, an analyst at IHS Herold in Norwalk, Connecticut, said by phone. “The company may go bankrupt and not be able to pay its debt.’
OGX informed its shipbuilding sister company OSX Brasil SA that it will pay the lease on the OSX-2 platform until it’s sold or relocated, according to the filing. The company also canceled tentative orders for the OSX-4 and OSX-5 platforms and for three so-called wellhead platforms, or WHPs.
Following today’s announcements, OGX will pay $449 million compensation to OSX, which provides the platform at Tubarao Azul. That’s 39 percent of the oil’s producer’s cash at the end of the first quarter, according to data compiled by Bloomberg.
OGX’s total debt reached 7.99 billion reais in the first quarter from zero two years earlier, the data show. At today’s prices the company’s dollar-denominated bonds total $3.6 billion and its market value is about $800 million.
‘‘You need to restructure the debt or bring cash into the group,” said Eric Conrads, who manages about $750 million of Latin American stocks at ING Investment Management in New York. “Its an unraveling process, stuff needs to happen or else it goes to zero.”
OGX’s dollar bonds due 2018 lost 13 cents to 19 cents at 4:36 p.m. in Sao Paulo, pushing up the yield to 64 percent. OGX’s shares slumped a record 30 percent to 55 centavos, leading declines by Batista-controlled companies. OSX dollar bonds due 2015, which are backed by the OSX-3 platform, slid 3 cents to 85 cents, sending the yield to 21 percent.
OGX has the chance of exercising a $1 billion put option awarded by controlling stakeholder Batista to fund its investment program. The option, which expires April 30, is still a viable funding option, OGX’s press office said today in an e-mailed response to questions. OGX hasn’t filed for bankruptcy protection, the company said.
Banco Itau Unibanco Holding SA, Banco Bradesco SA and Grupo BTG Pactual are among Batista’s biggest creditors, two people familiar with the debt said in March. Bradesco and BTG press officers declined to comment in e-mailed responses to questions. Itau officials didn’t return an e-mail and a telephone call seeking comment.
OGX is also considering requesting Brazil’s oil regulator to suspend the license to develop the Tubarao Tigre, Tubarao Gato and Tubarao Areia offshore fields, where the OSX-2 platform was to be deployed, according to today’s filing. Development of the Tubarao Martelo field, where OGX will use the OSX-3, will continue.
“At this time, there doesn’t exist any type of technology available to make investments in this field financially viable with the aim of increasing its production,” OGX said in reference to Tubarao Azul.
On May 8, OGX sold a 40 percent stake in the Martelo project to Petroliam Nasional Bhd. for $850 million. OGX will receive $250 million once the deal is approved, another $500 million when production starts and $100 million after meeting three separate output targets.
Batista created OSX in 2010 to supply vessels to OGX. While the shipbuilder has sought to diversify its client base, it has yet to supply vessels to other customers. OSX will use 70 percent of OGX’s $449 million payment to conclude OSX-3 and WHP-2, according to the filings. OGX will also continue to meet lease payments for the OSX-1 platform being used at the Tubarao Azul field.
OSX, which rose as much as 5 percent before declining 2.9 percent to 1.36 real, is benefiting from OGX’s commitment to continue paying rental fees on its equipment despite the production failures, said Rogerio Freitas, who helps manage about $100 million at hedge fund Teorica Investimentos.
“OSX will receive leasing payments, and it can still sell the assets,” Freitas said by phone from Rio. “They have the capacity to survive independent of OGX.”
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