Batista’s OGX Plummets After Cash and Earnings Shrink: Rio Mover

OGX Petroleo & Gas Participacoes SA, the oil unit of former billionaire Eike Batista, slumped the most in two weeks after it reported a 72 percent cash drop in the second quarter and a record loss on unprofitable fields.

OGX, as the Rio de Janeiro-based explorer is known, fell 7.4 percent to 63 centavos in Sao Paulo today, the biggest drop since Aug. 2. The stock, which traded at 1.3 times its three-month daily average volume, lost 86 percent this year, making it the worst-performing stock in Brazil.

The company posted a record loss of 4.7 billion reais ($2 billion) for the quarter yesterday and said it had $326 million of cash after pump failures at its only crude-producing field forced it to shut wells. The cash position was almost equal to its capital spending of $316 million in the period.

“We expect the market to focus on the cash position, which weakened faster than our expectation,” Banco Itau SA analysts Paula Kovarsky and Diego Mendes said in a note to clients today. “The balance sheet contributes to our negative view on the stock and we expect this to weigh on the stock’s performance.”

OGX is selling assets and cutting costs to help pay interest on its $3.6 billion in international bonds and finance its projects. Its net loss widened from 390 million reais a year earlier after it wrote off 3.6 billion reais from the value of four oil fields in the Campos Basin, three of which it plans to return to Brazil’s oil regulator after unsuccessful exploration.

Blue Shark

The company may halt output at Tubarao Azul, or Blue Shark, next year after missing targets. The field is currently shut on pump malfunctions at three wells. Itau was expecting OGX to lose 1.3 billion reais in the quarter, according to a July 24 report.

First oil at OGX’s Tubarao Martelo project may be delayed to January from a previous fourth-quarter target if weather is unfavorable, Carlos Bellot, chief executive officer of sister company OSX Brasil SA, said today on a conference call. OSX is supplying the company with the production unit for the field and OGX needs to start producing at Tubarao Martelo to get a $500 million payment from partner Petroliam Nasional Bhd, or Petronas.

OGX also said yesterday it hired Blackstone Group LP, the world’s largest private-equity firm, as financial adviser to review its capital structure. The company said it plans to reduce its offshore drilling fleet to two units from three by the end of the year to help cut costs.

Mubadala Development Co., the Abu Dhabi sovereign-wealth fund, is in talks to buy some of Batista’s assets for about $1 billion, two people with direct knowledge of the matter said earlier this week.

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