OGX Gives Up Wells and Shares Plummet

07/02/2013 - 08h29

OGX again surprised the market on Monday by announcing that it may stop operations in its single oil field in production, Blue Shark, in the Campos Basin.

The production volume of the field has oscillated since January 2012, always below the initial target of 15 thousand barrels per day per well.

In a statement to the market, the oil company owned by Eike Batista said there is no technology in the world that can increase the production of the field, and therefore it must stop at some point during 2014.

For the same reason, the company decided to discontinue the development plan of the Tiger Shark, Cat Shark and Sand Shark fields in the same block, whose commercial viability was announced in March of this year.

OGX said that in spite of stopping production, it will continue to pay the rent on the platform to OSX, the shipyard group, until it is sold. It will also inject US$449 million into OSX to build two platforms.

The news of the change in OGX plans drastically affected the company's shares, which were already trending downward since June 2012, when the company admitted it would not meet production targets.

The stock closed 29.11% lower yesterday, quoted at R$0.56, far from the peak of R$23.27 (US$ 10.44) reached in October 2010.

The director of the Brazilian Infrastructure Center, Adriano Pires, said that what caused the most surprise was the suspension of the development of three wells that had just been declared commercial.

When contacted about the issue, the CVM (Brazilian Securities Commission) said it does not comment on specific cases.

According to the ANP (National Petroleum Agency), the development plan for Blue Shark is still under analysis. The agency, however, authorized the production forecast of the field since January 2012, which according to the director Florival Carvalho, is a common procedure in the industry.

"As long as there is no geological or reservoir risk, to preserve the production conditions, and there is no environmental or operational risk," Carvalho said to Folha.

The director said that the ANP cannot as yet assess whether it will take back the field, which will be possible only when OGX presents the annual production plan and annual work plan for 2014.

Translated by DAVE WOLIN

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