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OGX Goes From Worst to First on Output Gains: Corporate Brazil

January 16, 2013

OGX Goes From Worst to First on Output Gains

Rio de Janeiro-based OGX’s 2012 output disappointment coincided with lower-than-expected results at state-run Petroleo Brasileiro SA, the world’s biggest producer in deep waters. Photographer: Dado Galdieri/Bloomberg

OGX Petroleo & Gas Participacoes SA (OGXP3), Brazil’s worst-performing stock last year, is posting the best rally among global peers as the oil producer controlled by billionaire Eike Batista boosts output.

OGX, which lost 68 percent in 2012, gained 19 percent this year before today, the most among 126 stocks in the FTSE All- World Oil & Gas Producers Index. (AWOGPU) The company is also leading gains on Brazil’s benchmark Bovespa index, which rose 1.3 percent in the period.

A steady flow of positive news from OGX -- from the startup of a well on Dec. 31 to a nearby oil discovery -- is showing investors that Batista can deliver on long-delayed output promises, said Lucas Brendler, who helps manage about 5 billion reais ($2.5 billion) at Geracao Futuro Corretora. OGX, which Batista vowed would end 2012 with daily output of at least 40,000 barrels, is producing about a quarter of that.

“These are points in OGX’s favor after opening a gap with investors by not reaching the proposed targets,” Brendler said by telephone from Porto Alegre, Brazil. “It’s starting to show signs that the recovery of investors’ confidence can be something closer to reality.”

Delays last year triggered a stock selloff that wiped out 10.8 billion reais in the oil startup’s market value in one month. OGX declined to comment on its stock performance in an e- mailed response to questions.

Last year, OGX had initial output of more than 15,000 barrels a day at its first well before production slid, then stabilized at about 10,000 combined barrels at the first two wells.

Output Disappointments

Rio de Janeiro-based OGX’s 2012 output disappointment coincided with lower-than-expected results at state-run Petroleo Brasileiro SA (PETR4), the world’s biggest producer in deep waters. Petrobras, as the producer is known, has been unable to tap so- called pre-salt fields fast enough to compensate for declining output in the Campos Basin, where OGX’s main deposits are located. Petrobras’s output fell last year for the first time since 2007 and the government delayed an auction for offshore licenses, the first in six years, until May.

OGX said Jan. 4 that it started output at a third well at Tubarao Azul, its first field in Campos, without disclosing potential productivity targets. Speculation output will be better than expected this year is encouraging investors to buy the stock, said Rogerio Freitas, who helps manage about $50 million including OGX shares at hedge fund Teorica Investimentos.

“If the well has good production numbers, the share price will rise,” he said in a telephone interview from Rio de Janiero, adding that he bought OGX shares late last year. “We like it at 4.50 reais; it makes sense for us. When it was at these levels we increased our position.”

January Output

The stock closed little changed at 5.20 reais in Sao Paulo. Petrobras, Brazil’s largest oil producer, gained 0.1 percent. QGEP Participacoes SA (QGEP3), another private oil explorer based in Rio, also was little changed.

OGX said in a statement yesterday that production at its third well is overcoming adjustments before being stabilized. The company plans to release the average production for January early next month, it said.

The company, which started oil production in January 2012, this year is expected to post its first earnings before interest, taxes, depreciation and amortization since its founding in 2007. Ebitda in 2013 is forecast to be 572.2 million reais, compared with an estimated loss of 675.6 million reais last year, according to the median of six analyst estimates compiled by Bloomberg in the past four weeks.

Analysts Ratings

Of 18 analysts who rate OGX, 13 recommend buying the stock and two say sell, according to data compiled by Bloomberg.

Petrobras said Jan. 9 it found high quality oil in the Espirito Santo basin near four of OGX’s exploration blocks, prompting speculation that OGX will make similar discoveries. QGEP, OGX’s partner at the Atlanta and Oliva fields in the Santos Basin, also said Jan. 11 that production may start earlier than expected in late 2014. The news helped justify OGX’s purchase of a 40 percent stake in the concession last year that was initially criticized by investors, Geracao’s Brendler said.

Still, OGX’s rebound is most likely due to the fact that it fell so much last year, said Arthur Byrnes, who manages almost $1 billion at Deltec Asset Management LLC in New York. The stock is benefiting from stronger oil prices as well as investors who may have sold Petrobras after recent disappointments, he said.

‘Bouncing’

“A lot of times worst performers become good performers early the next year,” Byrnes said, adding that he holds OGX bonds after selling his stock when the oil producer restated targets. “I wouldn’t necessarily say that something great is happening in OGX other than bouncing from the bottom.”

Investors are waiting for OGX to release data in early February on how the third well performs during its first month of production, Teorica’s Freitas said. Last year, OGX reported initial output of more than 15,000 barrels a day at its first well. Production then declined and stabilized at about 5,000 barrels at each of the first two wells, causing the stock to drop more than 40 percent in two days in June.

“With good production numbers, new fields coming on line, increasing volumes, it will go to 7 reais and not 5,” he said.

To contact the reporters on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net; Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net; Jessica Brice at jbrice1@bloomberg.net


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