OGX Can Keep Oil Blocks Under Bankruptcy With Funds, Brazil Says

OGX Petroleo & Gas Participacoes SA, former billionaire Eike Batista’s oil company, would be allowed to keep its blocks if it files for bankruptcy protection provided it has the funds to operate them, Brazil’s oil regulator said.

If OGX fails to meet obligations including exploration, development and production investments and the financial capability to deal with spills or accidents, the Rio de Janeiro-based company would be stripped of its concession licenses the regulator, known as ANP, said today. OGX would be the first producer to seek bankruptcy protection in Brazil since ANP was formed in 1998 if the company requests that option, the regulator said in an e-mailed reply to questions.

OGX said today it failed to reach an agreement with holders of dollar-denominated bonds as the venture that once helped Batista become the world’s eighth-richest person heads toward Latin America’s biggest corporate debt default. Earlier this month, two people with direct knowledge said OGX was considering filing for bankruptcy protection late October or early November. If the company files it would have 60 days to submit a restructuring plan after a judge accepts its filing.

“OGX, like other concessionaires acting in Brazil, can only continue with its current exploration and production programs if they demonstrate that they have the financial qualification to exercise the activity,” the ANP said.

Officials at OGX have declined to comment on a possible bankruptcy filing.

Unchartered Territory

The regulator would probably allow OGX to keep operating its concessions as Brazil is trying to increase oil production, Leonardo Theon de Moraes, a bankruptcy lawyer at Sao Paulo-based Mussi, Sandri & Pimenta Advogados, said by telephone.

This is unchartered territory for Brazil’s oil regulators, said Nelson Narciso Filho, who was an ANP director for four years through 2010.

“As a regulator, I’ve never seen anything like this,” he said in a telephone interview from Rio. “This is something totally new. Certainly it’s not business as usual.”

Shares of OGX, which Batista founded in 2007, lost 95 percent in the past 12 months, the worst-performing stock among 73 members of the Brazilian benchmark Ibovespa Index, after a series of missed output targets. The stock dropped 21 percent to 23 centavos at the close in Sao Paulo today, the most since Sept. 30.

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