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Petronas Abandons Batista’s OGX as Martelo Project Backer

Petronas Twin Towers
A Petroliam Nasional Bhd. (Petronas) gas station stands in front of the Petronas Twin Towers (KLCC), background center, at night in Kuala Lumpur. Photographer: Goh Seng Chong/Bloomberg

OGX Petroleo & Gas Participacoes SA, the Brazilian explorer that filed for bankruptcy protection last month, lost Malaysia’s Petroliam Nasional Bhd. as a financial backer for its most promising field.

Petronas, as the company is known, canceled a contract to buy a 40 percent stake in two offshore exploration blocks that include the Tubarao Martelo field, Rio de Janeiro-based OGX said in a statement late yesterday. The company, controlled by former billionaire Eike Batista, said it’s studying legal options.

OGX was counting on $850 million from the Petronas sale to develop the Martelo field where it plans to start output this year. The company, which expects to run out of cash in the last week of December, needs about $250 million to sustain operations through April, it said in an Oct. 23 presentation to Rothschild, the adviser hired by its bondholders.

OGX became the first Brazilian oil producer to seek protection from creditors last month when it filed in a Rio state court for a so-called judicial recovery, declaring total debts of 11.4 billion reais ($5 billion). Petronas had set as a pre-condition to the Martelo deal that OGX restructure its debt, Shamsul Azhar Abbas, chief executive officer of Malaysia’s state energy company, said in August.

A press official for OGX, who asked not to be named according to corporate policy, said the company still plans to start producing at Martelo this year. Petronas spokesman Azman Ibrahim in Kuala Lumpur didn’t reply an e-mail seeking comment.

Initial Success

OGX’s initial success finding oil in shallow waters off the coast of Rio sparked a stock market rally that made it more valuable than other established producers, including Repsol SA. The company’s cash fell to about $82 million at the end of September, it said in a separate document dated Oct. 7 and released after talks with bondholders collapsed.

Batista founded OGX in 2007 and it became the pillar of his group of commodities and logistics companies, transforming him into Brazil’s richest man. When OGX moved from exploration to production it encountered more complicated and compartmentalized geology than expected and started abandoning projects it had previously declared commercial.

Martelo may hold as much as 108.5 million barrels of oil, including proven, probable and possible reserves, DeGolyer & MacNaughton, an oil-reserves auditing company, said in a report posted on OGX’s website Oct. 3.

Entering Brazil

OGX dropped 6.7 percent to 14 centavos at the close in Sao Paulo after falling 97 percent in the last 12 months, erasing about 15 billion reais in market value. The company’s $2.56 billion in bonds due in 2018 traded at 9.50 cents on the dollar.

Petronas announced the stake purchase agreement with OGX in May, saying the company saw the acquisition as an opportunity to enter into oil exploration and production in Brazil. OGX would get $250 million from the sale once the deal was completed and another $500 million when the field started producing oil, the Brazilian company said at the time. The remaining $100 million would be paid in three separate installments after meeting some output targets, OGX said.

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