OGX Hammerhead Oil Reserves Estimate Cut in DeGolyer Report

OGX Petroleo & Gas Participacoes SA’s venture with Petroliam Nasional Bhd. holds less than 40 percent of the oil reserves that the explorer run by former billionaire Eike Batista announced last year, a DeGolyer & MacNaughton report shows.

The Tubarao Martelo field off Rio de Janeiro’s coast may hold as much as 108.5 million barrels of oil, including proven, probable and possible reserves, or 3P, the oil-reserves auditing company said in a report posted on OGX’s website today. That compares with 285 million recoverable barrels announced by OGX in April 2012, when it declared the field commercial, without explaining how the estimate was obtained at the time.

Proved reserves, or 1P, were estimated to be zero because of the “uneconomic nature of the project,” DeGolyer said.

OGX is preparing to start production at Tubarao Martelo, or Hammerhead Shark, after an oil platform operated by its sister company OSX Brasil SA arrived this week. The cut in estimated reserves comes two days after OGX missed a $45 million payment on foreign bonds amid negotiations with creditors.

“You need money for those things,” said Eric Conrads, who manages about $750 million of Latin American stocks at ING Investment Management. “They have to go through a debt restructuring.”

Petronas, as the Malaysian state-run partner is known, in May agreed to pay as much as $850 million for 40 percent of Tubarao Martelo, with part of the payment hinging on output. The first payment is pending Brazilian regulatory approval.

Drilling Tests

The field’s proven and probable reserves, or 2P, amount to 87.9 million barrels of oil equivalent, DeGolyer said. The report follows additional drilling tests carried out after OGX announced the previous estimates.

The “Lack of 1P reserves is concerning” and “intriguing for a field that should start up in a couple of months,” Morgan Stanley analyst Bruno Montanari said in a note to clients.

OGX was unchanged from yesterday at 22 centavos at 1:10 p.m. in Sao Paulo. It’s down 95 percent this year.

Revenue from the field in the coming two decades, based on proven, probable and possible reserves and price and cost premises supplied by OGX could reach $11.2 billion, DeGolyer said. Output next year may reach 6.2 million barrels of oil, DeGolyer said.

On July 1, OGX said it would scrap development of three offshore fields because they weren’t commercially viable and that it may shut down its Tubarao Azul field next year. That would make Tubarao Martelo its only oil producing field.

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