March 27, 2013 / 4:06 PM / 5 years ago

UPDATE 2-OGX expects Brazil oil-field recovery rate near 25 pct

* Certification could raise or lower recovery rate

* Reserve certification to start by mid-2013

* No decision made on oil-rights auction bids

By Jeb Blount

RIO DE JANEIRO, March 27 (Reuters) - Brazil’s OGX Petroleo e Gas SA, under pressure to prove it can produce more oil revenue, expects to recover about 25 percent of the total oil discovered in its offshore Campos Basin fields northeast of Rio de Janeiro, company officials said on Wednesday.

OGX’s official recoverable amount, or recovery factor, will have to wait until an oilfield certification company completes a review of OGX’s oil and gas resources, exploration chief Paulo de Tarso said on a conference call with investors and reporters.

That certification process will begin in the first half of 2013, he said without indicating when he expected it to end. OGX is controlled by Brazilian billionaire Eike Batista. Previously the company had suggested recovery factors that could be in the neighborhood of 30 percent or more.

The world oilfield recovery average is 35 percent after primary and secondary recovery. Primary recovery is the amount recovered using the natural pressure in the well while secondary recovery involves adding pressure with water and or natural gas injection.

Lower-than-expected output from OGX’s first producing oil wells last year have caused its shares to fall by more than 75 percent since June. This helped cost Batista his title as Brazil’s richest man and has lead to speculation he may have to sell off assets at fire-sale prices to save his EBX oil, energy, port, mining and shipbuilding group from bankruptcy.

The low output also contributed to the company’s 2012 loss of 1.17 billion reais ($581 million), more than double the company’s 2011 loss.

“I don’t want to give a definite recovery factor until the certification process is complete,” De Tarso said. “We don’t want to create problems with expectations.”

OGX shares rose 3.04 percent in Sao Paulo trading in afternoon trading Wednesday, on track for its biggest one-day gain in a week.

Due to geological and financial factors are able to pump and sell far less than the total amount of oil contained in a field.

NEW REVENUE

The company late Tuesday said lower than expected output from the Tubarao Azul field, the company’s first, may lead the Rio de Janeiro-based OGX to accept that the total amount of recoverable oil in the field may have to be reduced.

The company made the statement Tuesday in a press release announcing OGX’s fourth-quarter results. OGX’s net loss fell 14 percent to 286 million reais in the quarter compared with a year-earlier. While lower-than-expected output hurt full-year results, the output provided OGX with its first ever oil revenue.

In mid 2012 the company said Tubarao Azul had total recoverable reserves of 110 million barrels of oil, an amount equivalent to about six days of consumption in the United States.

Output, which was expected to rise as high as 50,000 barrels of oil and natural gas equivalent a day (boepd) this year, has averaged about 10,000 boepd in recent months.

Despite lower-than-expected output form Tubarao Azul, the company will stand by its 110 million barrel estimate of total recoverable oil and natural gas equivalent from the field until the certification process is complete, De Tarso said.

New revenue to fund expansion will come from fields near Tubarao Azul in Brazil’s offshore Campos Basin as well as from gas fields in the onshore Parnaiba Basin in Brazil’s Maranhao state. New wells in the Campos Basin will come on line by the end of 2013 with the arrival of two floating production, storage and offloading ships known as FPSOs, OSX-2 and OSX3.

OGX expects to get $80 to $100 million of earnings before interest, taxes, depreciation and amortization from the Parnaiba gas fields in 2013, Roberto Monterio, OGX’s chief financial officer, said on the call.

OGX’s existing cash balance plus expected revenue from oil and natural gas fields will be enough to cover the company’s 2013 capital spending plan of $1.3 billion, he added. OGX had $1.66 billion of cash at the end of 2012.

That capital spending does not include potential bids for new exploration areas at Brazilian oil-rights auctions that begin in May, De Tarso said.

The company, which was declared eligible to bid at the auctions this week has not decided what areas it might seek, he said.

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