OGX Petroleo & Gas Participacoes SA, the worst-performing major oil company this year, declared a field commercially viable just two days after scrapping offshore projects and warning that its only producing wells may close. Shares headed for the biggest weekly loss on record.
The Remora field, in a block partly owned by Malaysia’s Petroliam Nasional Bhd. off Rio de Janeiro in the Campos basin, was declared commercial in a statement posted on the Brazilian oil regulator’s website. The block is one of two where Petronas agreed to buy 40 percent stakes on May 8. The second, partly owned by Petronas, was declared commercial in April 2012.
OGX shares have lost about 50 percent in three days since the oil producer controlled by billionaire Eike Batista said it was closing fields. The stock’s 92 percent decline this year, amid a series of missed targets, is the biggest slump among more than 500 oil producers worth at least $100 million, according to data compiled by Bloomberg. OGX fell 13 percent to 39 centavos at the close in Sao Paulo.
“I don’t know if it solves the situation or not -- I don’t think so,” Henrique de la Rocque, a Rio-based money manager at Basif Gestao de Recursos, said of OGX’s partnership with Petronas. “The positive impact amid everything else is very small.”
OGX will have to be more cautious when developing Tubarao Martelo and other fields in Campos to avoid investing in deposits that aren’t profitable after disappointing results at Tubarao Azul, its first production project, said Cleveland Jones, a geology professor at Rio de Janeiro State University. While OGX was successful at identifying deposits, it rushed into production without properly testing flow rates, he said.
“Now they’re going to have to be even more careful than before and produce on a test basis for several months,” Jones said by phone. “Their last hope is something that could take even longer.”
The company plans to start producing at Tubarao Martelo before the end of this year, according to information on its website. OGX has already drilled wells and is waiting on the delivery of a production vessel to start pumping from the field.
Declaring a field commercial doesn’t ensure it will be developed. After saying in March that the Tubarao Tigre, Tubarao Gato and Tubarao Areia fields were commercial, OGX said this week that it plans to return the three licenses because it lacks the technology to develop them. In the same statement, the company said its only producing oil field, Tubarao Azul, may be shut down in 2014 after a technical review.
OGX is still within the allowed period to return the fields if it wishes to, the regulator’s press office said in an e-mailed response to questions. The regulator, known as ANP, would have to then analyze the documentation from OGX before deciding whether a fine is applicable or not, according to the statement.
“The sale of the participation in blocks BM-C-39 and BM-C-40 guarantees the necessary funds to meet short-term obligations,” the Rio-based company said today in a separate regulatory statement, referring to the two oil blocks where Petronas bought stakes. OGX also said it may exercise a $1 billion put option granted by Batista to help meet payments.
Petronas agreed in May to pay $850 million for the two blocks. It’s scheduled to pay $250 million once the deal is approved by the Brazilian oil regulator, which may occur this year. Another $500 million will be paid after oil production starts and the remainder when certain output targets are met.
Barclays Plc estimates that OGX may finish the quarter with about $150 million in cash, while Credit Suisse Group AG said this week that it may be left with $13 million by year-end, assuming it doesn’t receive any payment from Petronas.