• July 2013
    M T W T F S S
    « Jun   Aug »
    1234567
    891011121314
    15161718192021
    22232425262728
    293031  
  • Pages

  • Marginalia

  • Accumulations

Doubting Eike | OGX and the ANP

img-3633-foto-de-arquivo-de-eike-batista-ceo-do-grupo-ebx-durante-uma

Source:  Portal ClippingMP.

Recent developments in the saga of Eike Batista, X-man, vertical integrator and rivaled only by the late Steve Jobs as the subject of magazine covers in which the  word “genius” gets thrown around a lot.

Valor obtains the views of a number of anonymous insiders. I translate mostly in order to familiarize myself with the technical jargon involved, so pardon any errors.

The National Petroleum Agency (ANP) of Brazil has not approved the OGX development plan for production at the Tubarão Azul –“Blue Shark” – field in the Campos basin.

It is now studying a new version of the plan submitted  on April 30. Blue Shark was the first well in the region to produce petroleum, but is due to halt production in 2014 for reasons of economic inviability.  A source at the federal agency told Valor that technical experts do not agree with estimates of the volume of oil located in the area. “ANP did not approve it at the time because it did not feel comfortable with the volume projections.”

Whereas a declaration of commerciality is a unilateral decision by the would-beproducers, effective production can only be calculated (1) based on ANP approval of the Development of Production Plan, or (2) when production constitutes so-called “first oil.”

At that point, a 27-year concession is granted.  If it has no commercial potential, the land in question is to be returned to the federal union.

6fmds1giuiy8itia3njnlvnei

ANP has not approved the OGX development plan for the Blue Shark field in the Campos Basin.  It is now deliberating over a new version of the plan, produced Abril 30.  The field was the first to produce petroleium, but is due to shut down in 2014 for reasons of economic inviability.  A source at the agency told Valor that the technical experts did not agree with estimates of the volume of oil located in the area. “The agency withheld approval because at the time it did not feel confortable with the estimated volumes,” the source said.

Whereas the declaration of commerciality is a unilateral decision by the producers, actual production can only be carried out with the approval of the Plan for Development and Production by the regulatory body, or if it is production what is known as “first oil.” At that point, a 27-year concession is granted.  If it is not commercially viable, the land must be returned to the owership of the federal union.

Officially, the press office of the ANP says that the agency has until September to analyze the new plan for Blue Shark, which will define the investments needed, including wells and platforms, based on estimates of the volume of oil in the reserve.  With each request for information or review by the ANP, OGX gains a new deadline of 180 working days.

OGX issued a certification of commerciality for part of the Waimea complex (where Blue Shark, Tiger Shark, Cat Shark and Sand Shark are located) in May 2012. Blue Shark was discovered in December 2009 and one year later the company presented its Plan for Evaluation of Discovery (PAD).  The oil and gas division of the Eike Batista group declared the commerciality of the field in May 2012, at the same time as it presented its development plan.

Because OGX was authorized to perform a Long-Term Test (TLD) on Blue Shark, the ANP believes that the risk was assumed by the investor and so there was no reason to deny the company the right to invest its own assets and assume this risk, according to an ANP official who spoke with Valor.  It remains unclear whether this field will still be developed, despite the weight of losses relative to prior investments on its balance sheet, or whether it will be offered to another investor.

Blue Shark was the first  OGX oil field to produce petroleum (it extracts natural gas in Maranhão). Three wells were drilled and Platform OSX-1, which belongs to the leasing unit of the OSX shipmaking division and is currently for sale, was built.  The field proved commercially inviable and is scheduled to shut down production in 2014, the company said in a July 1 statement.

Hammerhead, on the other hand, which is part of the Waikiki complex, is scheduled to start production in December. Its development plan has the approval of the ANP and therefore, according to the source, the agency felt comfortable accepting the request to use future production in the area as collateral for the R$ 700 million Minimal Exploratory Program. In this way, OGX will be able to acquire the 13 concessions it obtained during the May auction, so long as it pays a R$ 376 million bonus.

The ANP has yet to rule on the sale of 40% of Hammerhead to the Malaysian multinational. Another agency source says there are problems with documentation and that the deal awaits final approval by the antitrust agency CADE to put the case  to a vote in plenary session. Only after receiving this approval will OGX receive the US$250 million first parcel of a payment totaling US$ 850 million.  The second parcel, worth US$ 500 milhões, will be paid after “first oil.”.

The lack of consensus over the volumes extractable from Blue Shark indicate that OGX management is fully aware of the risks involved in exploring the area.  In an article published Friday in Valor, Eike said that according to a report by the DeGolyer & MacNaughton (D&M) consultancy,  the “prognosis” is that OGX controls 10.8 billion barrels and prospective barrels of oil …  D&M has a world-class reputation and serves as an auditor to Petrobras, including assets acquired through the onerous rights process.

“My technical team told me the same thing, day after day,” said Batista in the article. “I did not invest in petroleum without surrounding myself with those who I and the market know to be the best qualified professionals available,” said Batista.

This statement surprised OGX executives . “The risk were always reported and described in detail in our reports.” “Just read them,” said one executive. “It was not interesting to dwell on this factor, however, because at the time OSX was being created and needed orders for the production of platforms,” says another exec, who requested anonymity.

The former executive also questions Batista’s statement that he had not been properly informed by his technical team.  “Eike Batista is a salesman who knowns his market well and makes a point of always having the last word on every subject. For a long time, he was President and CEO of the company.  The problem is that all he wanted to hear was good news, and would ridicule the realists on his team.  As to the rest, he paid them no attention at all,” he said.

In the same article, Batista said he still believes in OGX and that in recent months the company has been reinvented. Sources say it is better to wait to see the results of this process. Creditors and investors await the next chapter and hope that what they are witnessing is not the obituary of Eike Batista.