UPDATE 1-OGX may use future oil output to guarantee new rights -source

Wed Jul 10, 2013 2:15pm EDT

Related Topics

* OGX committed to over $1 bln in exploration at May auction
    * Regulator requires financial guarantees by the end of July


    By Rodrigo Viga Gaier
    RIO DE JANEIRO, July 10 (Reuters) - OGX Petroleo e Gas SA
, the oil and gas unit of Brazilian billionaire Eike
Batista's EBX Group, may be allowed to use future output from
its offshore Tubarão Martelo field to guarantee new exploration
rights bought in May, a source at Brazil's oil regulator, the
ANP, told Reuters on Wednesday.
    A lack of cash at the company, which has struggled with
lower than expected oil output, has led it to offer non-cash
guarantees to ANP that it will perform required exploration work
on Brazilian oil and gas blocks it won in a May auction. 
    Rio de Janeiro-based OGX declined to comment.
    
    OGX and partners purchased 13 exploration blocks at the
so-called Brazil 11th Round Auction, paying 370 million reais up
front for the rights. In the 10 blocks OGX bought alone, it is
committed to investing at least 2.6 billion reais ($1.2
billion)on exploration activities and is required to post a bond
ensuring its ability to meet that commitment. 
    OGX must provide the guarantee by the end of July or risk
losing its rights. Other companies such as state-controlled oil
company Petroleo Brasileiro SA, known as Petrobras,
regularly use expected future production to provide exploration
guarantees, the ANP said. 
    On Monday, Rio de Janeiro-based OGX said it is seeking
partners to help honor its commitments. OGX said in May that MPX
Energia SA, a sister company in the EBX Group, agreed
to take 50 percent of four onshore gas blocks in Brazil's
northeastern state of Maranhão.
    OGX produced 23,000 barrels of oil and natural gas
equivalent in June, most of it from an onshore natural gas
partnership with MPX. MPX uses the gas to generate electricity.
    OGX company though has recently scaled back operations,
declaring three planned oil fields "non-commerical" and saying
its only producing offshore oil field, Tubarão Azul, may cease
producing next year, only two years after production started.
    OGX, whose debt is rated at near-default levels, will likely
shrink to a fraction of its former size as part of a wide
restructuring of Batista's EBX Group, a source with direct
knowledge of Batista's plans told Reuters last week.
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