OGX struggles as Petronas holds up deal, fields returned

RIO DE JANEIRO/KUALA LUMPUR Tue Aug 27, 2013 1:36pm EDT

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RIO DE JANEIRO/KUALA LUMPUR (Reuters) - Shares in OGX Petróleo e Gas Participações SA (OGXP3.SA) fell for the first day in eight on Tuesday as the troubled oil producer abandoned the purchase of several oil exploration licenses and a venture with Malaysia's Petroliam Nasional Bhd seemed at serious risk.

OGX shed more than 7 percent in early afternoon trading, to 0.74 reais. Shares of the oil company, controlled by embattled tycoon Eike Batista, are the worst-performing in Brazil's Bovespa benchmark index this year with a 82 percent decline.

In a plan to reduce risks in its exploration and production plan and protect cash, Rio de Janeiro-based OGX agreed to return nine blocks for which it bid alone in a recent government oil-licensing auction. OGX will pay a fine of 3.42 million reais ($1.41 million) for not acquiring the areas, according to a securities filing.

In addition, Petronas, as the Malaysian state oil company is known, tied a payment Of $850 million for a 40 percent stake in two blocks of OGX-controlled Tubarão Martelo field to the completion of a debt restructuring plan by the Brazilian firm. OGX needs the cash from the sale to keep drilling for oil and stay current on about $3.6 billion of bonds.

Petronas Chief Executive Shamsul Azhar Abbas said OGX's "debt restructuring has to happen first" for the deal to be finalized. The acquisition of the stake "is still pending clarity with regard to the restructuring exercise," Abbas told reporters in Kuala Lumpur.

Batista, OGX's controlling shareholder, is grappling with a big debt pile and dwindling confidence in his crumbling Grupo EBX conglomerate of mining and energy firms. OGX faces bond interest payments of about $40 million in October and $100 million in December, and analysts have warned the company might run out of cash by September.

DEBT RESTRUCTURING

Batista has seen his fortune - which was listed as the world's seventh-biggest last year by Forbes Magazine - decrease by over $25 billion over the past 1-1/2 years. His Grupo EBX conglomerate of energy, logistics and mining companies has suffered from a series of project delays, rampant assumption of debt and dwindling confidence in some of its main companies.

OGX's 8.375 percent bond due in 2022 traded at 17 cents on the dollar on Tuesday, slightly below Monday's price and deep into distressed territory.

Holders of OGX bonds hired investment bank Rothschild to advise on a potential restructuring, two sources told Reuters last week. Pacific Investment Management Co, the world's largest bond fund known as PIMCO, is leading the so-called creditors' committee, which own more than one-half of OGX's outstanding bonds.

The selection of Rothschild followed a recent move by OGX to hire Blackstone Group LP (BX.N) to help "review its capital structure."

Petronas is not involved in OGX's debt restructuring plan, Abbas said.

The Tubarão Martelo field straddles the two blocks in which Petronas bought a 40 percent stake and is about 95 km (59 miles) off the coast of Rio de Janeiro state. Its estimated 285 million barrels of recoverable oil and natural gas equivalent resources could supply all of Malaysia's oil needs for about 15 months.

Regulator ANP has not approved the deal because Petronas has yet to present the necessary financial guarantees to back up the purchase, a government source told Reuters late on Monday.

'STRATEGIC REVIEW'

OGX gave up on the acquisition of the BAR-M-213, BAR-M-251, BAR-M-389, CE-M-663, FZA-M-184, PN-T-113, PN-T-114, PN-T-153 and PN-T-168, saying the need to "review the exposure to exploration and production risk in its campaign," the filing said.

OGX will stay in the blocks it acquired jointly with Exxon Mobil Corp (XOM.N), France's Total SA (TOTF.PA) and Brazil's QGEP Participações SA (QGEP3.SA), the company said in a securities filing.

In a separate filing, Batista pledged to inject as much as $50 million into shipbuilder OSX Brasil SA (OSXB3.SA) with the proceeds from the sale of part of his holdings in the company. OSX's board of directors exercised a so-called put option by which Batista was forced to inject fresh capital into OSX.

Batista will sell the equivalent of $50 million of his shares in OSX to pay for the capital injection.

News of the stake sale drove OSX down 6.4 percent to 1.17 reais on Tuesday.

($1 = 2.41 Brazilian reais)

(Editing by Guillermo Parra-Bernal, Jeffrey Benkoe and Tim Dobbyn)

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