By Sabrina Lorenzi and Niluksi Koswanage
RIO DE JANEIRO/KUALA LUMPUR Aug 27 Shares of
OGX Petróleo e Gas Participações SA slid 14.8 percent
on Tuesday as the troubled oil producer abandoned its plan to
purchase several oil exploration licenses and its venture with
the Malaysian state oil company appeared to be in serious
OGX shares tumbled their most in six weeks, closing at 0.69
reais. Shares of the oil company, controlled by embattled tycoon
Eike Batista, are the biggest decliners in Brazil's Bovespa
benchmark index this year, down 84 percent.
In a plan to reduce risks in exploration and production and
to protect cash, Rio de Janeiro-based OGX agreed to return nine
blocks for which it bid alone in a recent government oil-license
auction. OGX will pay a fine of 3.42 million reais ($1.41
million) for not acquiring the areas, according to a securities
In addition, Malaysia's Petroliam Nasional Bhd, or Petronas,
tied a payment of $850 million for a 40 percent stake in two
blocks of the 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 told reporters
in Kuala Lumpur that OGX's "debt restructuring has to happen
first" for the deal with Malaysia's state oil company to be
"The proceeds from this sale are the main source of funding
for OGX at this time," Marcus Sequeira, an analyst with Deutsche
Bank Securities, wrote in a note to clients on Tuesday.
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. Analysts say the company may run out of
cash by September.
Batista has seen his fortune, listed as the world's
seventh-biggest last year by Forbes Magazine, fall by more than
$25 billion over the past 18 months. Grupo EBX has suffered from
a series of project delays, mounting assumption of debt and
dwindling confidence in some of its main companies.
OGX's 8.375 percent bond due in 2022 traded at
around 17 cents on the dollar on Tuesday, deep into distressed
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 owns more than half of OGX's outstanding bonds.
The selection of Rothschild followed a recent move by OGX to
hire Blackstone Group LP to help "review its capital
Petronas is not involved in OGX's debt restructuring plan,
The Tubarão Martelo field straddles the two blocks in which
Petronas is buying a 40 percent stake. The field is located
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.
Brazilian regulator ANP has not approved the Petronas-OGX
deal because Petronas has yet to present the necessary financial
guarantees to back up the purchase, a government source told
Reuters late on Monday.
OGX gave up on the acquisition of blocks 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 it needed to "review the exposure
to exploration and production risk," the filing said.
OGX's current lack of liquidity, as well as the realization
by Batista and OGX management that it would be difficult to sell
stakes in those blocks at favorable terms in the short run,
likely was behind the decision to return the blocks, Sequeira
said. BP Plc and Brazil's Petra Energia were among the
companies that lost out to OGX in the bidding for some of those
OGX will stay in the blocks it acquired jointly with Exxon
Mobil Corp, France's Total SA and Brazil's
QGEP Participações SA, the filing said.
"The strategy of risk concentration proved to be very
detrimental to the company," Sequeira added. "We find it
difficult to believe that management was unaware of these
In a separate filing, Batista pledged to inject as much as
$50 million into shipbuilder OSX Brasil 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 under
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.
Shares of OSX, which counts OGX as its biggest customer,
closed 20.8 percent lower at 0.99 reais, their biggest one-day
drop on record.