Standard & Poor’s Downgrades Batista’s OGX on Low Output
OGX (OGXP3) may need to raise $1 billion from Batista through a put option or sell assets because lower-than-expected production doesn’t cover costs, S&P said in a statement yesterday. It lowered OGX to ’B-’, six levels below investment grade, from ’B’ and may downgrade OGX again this year if it doesn’t make progress toward improving liquidity, the credit rating company said.
“The company would need additional sources of cash,” S&P said in the statement written by analysts Renata Lotfi and Fabiola Ortiz. “We are not expecting the 2014 production to generate sufficient operating cash flows to continue financing capital expenditures and interest payments.”
Rio de Janeiro-based OGX is pumping 11,300 barrels a day at its first project where it hired a production vessel capable of processing almost six times as much oil and costs $263,000 a day. The explorer will probably not connect a fourth well at the Tubarao Azul field after poor results at its most recent well, S&P said.
“We could lower the ratings if the company does not show by the end of 2013 material progress in obtaining additional liquidity sources,” S&P said.
OGX had $1.7 billion in cash at the end of 2013 and plans to spend $1.3 billion this year, the company said in a March 26 earnings release. The $1 billion put option is conditional to capital needs and the absence of more favorable alternatives, OGX said. OGX’s press office didn’t respond to a phone call and e-mail yesterday after normal business hours.
OGX shares have fallen 49 percent this year to 2.22 reais yesterday, more than the 8.8 percent drop in the benchmark stock index.
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