After filing to conclude its judicial recovery process, OGX, jewel of the crown of the former Empire X of Eike Batista, faces important challenges to overcome in the coming months. With difficulties to honor its investment commitments and living with risks of having its only source of revenue generation interrupted as early as next year, the oil company intends to seek for a strategic partner and/or the capital market later this year to raise funds which will allow it to consolidate itself as a sustainable company in the long term.
President of OGX, Paulo Narcélio, says that once the judicial reorganization is completed, the first priority will be to resolve the debt it holds with its partners in the Atlanta project in the Santos Basin in the next 60 days. The end of the recovery still depends on a favorable opinion from Delloite and the approval of the judge responsible for the proceeding, at the 4th Business Court of the District of the Capital of Rio. On Friday, the market reacted well to the request to close the recovery, OGX increased 35% and those of OGPar, the holding company, 56%.
OGX holds a 40 percent stake in Atlanta, but has been unable to honor calls for capital injections in the field’s development and has opened a process to sell a portion of its share in the project. In 2017 alone, the company’s estimated investments in the development of the field are around US $ 50 million. According to data from the company itself, at the end of the first quarter the oil company already accumulated a debt of R $ 92.4 million with its partners (Queiroz Galvão Exploration and Production and Barra Energia).
“The moment is now to look forward to the BS-4 [Atlanta project].” There is an initial challenge of putting back credits with the partners”.
According to Narcélio, the company wants to keep between 10% and 20% of the concession. The executive says that the company already has proposals on the table, but that the understanding is that the asset “would be worth more than the offer that is being made.” As plan B, the company considers, as an alternative, to sell its 6.22% stake in Eneva (former MPX) to raise funds to pay off debts.
If it does not equate the debt, the National Petroleum Agency (ANP) can intervene in the consortium and OGX is in danger of having its stake diluted, compromising its future cash generation.
In addition to the sale of assets, OGX plans to use a strategic partner or capital market later this year to capitalize. Narcélio said that the company wants to launch in the coming months a new brand for the company, with the objective of changing the image of the oil company in front of the market.
“Resolving this situation [end of judicial recovery and debt settlement with Atlanta partners] is to look forward to the long term. We intend to get a strategic investor or re-access the capital market via new share issuance”.
The company’s capitalization, according to the executive, will allow OGX to invest in revitalizing the Tubarão Martelo field in the Campos Basin post-salt to extend the useful life of the asset. The company’s only source of revenue today, Tubarão Martelo produces 7.7 thousand barrels per day of oil, but its useful life, if no new investments are made, runs out in May of next year.
According to Narcélio, the field revitalization project should require investments of up to US $ 75 million, to extend its useful life by 2021, and to allow an additional production of 7 million to 10 million barrels, at a level of 9 thousand barrels per day. The executive also said that the intention is to start investing in October and that the idea is to find a financial equation for the investment to be paid over the life of the project. In 2017, the company estimates revenues of $ 113.4 million with the production of Tubarão Martelo.
“Before we were in a situation we had neither time nor money. Now [with the end of the recovery] we have a little more time to get the money,” he says.