OGX Reports Net Loss of $2 Billion

A troubled Brazilian oil and gas company OGX, owned by once a billionaire Eike Batista, has reported a massive quarterly net loss of R$4.7 billion (around USD 2 billion).

The results were impacted by expenses of R$3.6 billion (around USD 1.54 billion) related to the impairment of the investments carried out in Tubarão Azul, Tubarão Tigre, Tubarão Gato and Tubarão Areia fields as it was concluded that their development would not be economically viable. The company then, consequently, called off the construction of FPSO OSX-4 and FPSO OSX-5, as well as WHP-1, WHP-3 and WHP-4 by OSX,  resulting in a cash  disbursement of approximately US$449 million in compensation to OSX.

Additionally, the day rate for the leasing contract of FPSO OSX-2, which have been used for the fields’ development, will be paid to OSX, as per the terms of the contract, commencing in January 2014 up until the unit is sold or dispatched to another location.

OGX’s main expenditures were US$348 million in the second quarter. This number is roughly in line with the previous quarter, when the Company began its Capex rationalization process in order to gradually return its drilling rigs.

However, despite the decline in expenditures, the company’s cash holdings decreased by approximately US$822 million, ending at US$326 million in 2Q13. The reduction was mainly driven by the cash disbursement of US$369 million to OSX (part of the US$449 million agreed).

Rig fleet reduced

With the suspension of the development of the above mentioned fields, OGX also revealed it will be reducing its rig fleet by the end of the year, to two offshore rigs.

Luiz Carneiro, Chief Executive Officer of OGX, commented:

“OGX is currently focusing its efforts on adapting its operations and developing a new business plan that  will allow the resized company to pursue its focused exploration and production aims.” 

The company, in its quarterly release, also said that it has hired The Blackstone Group, the largest alternative investment firm in the world,  as financial advisor to advise OGX on its ongoing efforts to assess its capital structure.

No more a billionaire

The company’s owner, Eike Batista, who once said his aim was to surpass Bill Gates as the biggest billionaire in the world, recently lost his billionaire status. This time last year he was the world’s seventh wealthiest man with net worth of 34.5 billion. Now, according to the Bloomberg billionaire index, his net worth has tumbled to ‘only’ $200 million.

On June 14, 2013, Fitch downgraded OGX’s foreign currency Issuer Default Rating to ‘CCC’ from ‘B-’, due to increased uncertainty about the willingness and ability of OGX controlling shareholder Eike Batista to honor the company’s USD1 billion put option. Funding for OGX’s capex program is vital to increasing oil production, so a default on the put option would further tighten the company’s liquidity position.

Also, Reuters last month quoted an analyst who said that OGX is now fighting for survival.