According to this Reuters News story , Fitch on May 17 downgraded OGX debt after it agreed to spend about $540 million to buy and develop 13 Brazilian oil and gas exploration blocks that it picked up at a government auction on May 14. The block purchases will put pressure on OGX cash as the company struggles to get its existing, underperforming offshore oil wells to produce more revenue.

OGX continues to spend money on new projects while it sells stakes in existing assets to raise money — and looks to cut costs. It is likely to tap the equity or debt markets to fund future projects. However, with the stock down more than 80% in the last year, and the company’s credit quality suffering, it may no longer be easy to raise large amounts of cash — and owner Eike Batista’s deep pockets are a little less deep. All these factors point to an uncertain future for OGX.

Below a chart showing OGX performance this year, and another showing its stronger underperformance when compared to Bovespa index (Brazil ETF EWZ).

Bottom Line: Brazil’s OGX Petroleo needs a gusher – in the ground and on its balance sheet. Current projects aren’t ramping up as expected and increasing debt levels and operating expenses are plaguing this oil and gas company.

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3 Responses to Analysis: An Uncertain Future for Eike’s OGX

  1. bang bang malaio says:

    According to the Wall Street Journal they are gushing. Gushing red ink that is. Normally they would be already out of business but in Brazil his offshore Centennial can give money to Lula and Dilma therefore normal rules do not apply.

  2. Jack Ganoza says:

    International investors would not be that dumb the next time around. Whether with OGX or PBR.

    The subsalt oil is extremely expensive to exploit, everybody knows this now. And to extract just sea water + gas + other oil equivalents, the exploration and investment should be onshore, not with the aim of going 7000m below sea level.

    In the meantime, and for the next years, we’ll see the endless parade of road shows, press releases, investors calls, oil and gas forums, loaded with plenty of the same Brazilian demagoguery, hype, presumptuousness.

    And the end of each day, the bottom line will not corroborate the talking and overconfidence. PBR will continue to move their 5-year business plan every month, as it reckons it convenient.

  3. FRANK STEIN says:

    Ganoza is right and the US increased production of oil and gas is another nail in the coffin of oil producers with higher costs, such as those in Brazil.

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