Oleo e Gas Participacoes SA (OGX) is in danger of losing its 40% stake in a Brazilian offshore oil concession if it is unable to repay $31 million that it owes its two partners, Qgep Participacoes SA (BVMF:QGEP3) and Barra Energia, both of which hold a 30% stake in the concession, reports Jeff Fick for The Wall Street Journal.
OGX owner Eike Batista has already lost at least $30 billion this year, and the oil company that was once his prize asset has struggled to meet production targets. The company filed for protection from creditors back in October, but it wasn’t behind on its payments at that point. Last week OGX made a $5.8 billion deal that swaps debt for shares, and there may be an infusion of capital as part of the deal as well.
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QGEP and Barra Energia splitting OXG’s costs
In the meantime QGEP and Barra Energia are splitting OXG’s costs between them, and QGEP has gone to some lengths to reassure investors that their interests are being protected under the terms of the concession contract, with both CEO Lincoln Guardardo and CFO Paula Costa addressing the issue. QGEP says that the Brazilian National Petroleum Agency (ANP) has ordered OGX to prove that it is in compliance with the concession contract, an important step for QGEP to take action against its business partner.
OGX exploring three other blocks
Even if OGX is able to come up with the money, there is no guarantee that the field will be able to hit production targets, though it is located in the offshore Santos Basin which is already home to several multi-billion dollar discoveries. OGX also has stakes in three other blocks that are in early exploratory stages with French company Perenco and Chinese firm Sinochem International Corporation (SHA:600500) While it doesn’t seem to have fallen behind on these other projects, having long-term liabilities with what seem to be pretty serious cash flow issues is a dangerous situation for any company.
The company said in a statement that it is “aware of its obligations to its partners and is seeking alternative sources of capital, as is already publicly known, in order to meet its obligations.” For its investors, the lack of specifics must be unsettling.