Accelerating Exploration and Production Activities to Boost Cash Flows

Wednesday 9 January 2013, Amsterdam

OGX was incorporated in July 2007 and has raised funds of $9.1 bn since its incorporation. The company approached several secondary market sources, such as private placement, IPO and bond issuance in order to meet capital requirements for its initial operations. These proceeds were mainly utilized towards the acquisition of concession rights and support for the company’s exploration activities through seismic data acquisition and interpretation, procurement of required equipment and the drilling of several wildcat/exploration wells. The company has been reasonably efficient in the execution of its exploration activities, and reported an overall success rate of around 84.7% for its recent drilling activities during 2009–Q3 2012. OGX reported around 30 offshore discoveries in the Campos and Santos basins and four onshore discoveries in the Parnaiba basin until Q3 2012. One of the company’s discoveries in the Campos basin has reached the production stage, while other discoveries are in the initial appraisal and development stages. OGX has begun to generate cash flows over a short period of time, which shows the effectiveness of its business strategy.

Currently, OGX’s operations are concentrated in the Campos basin, where the company holds interest in seven offshore exploration blocks. These blocks are located at a shallow depth of around 120 meters. The company drilled 68 wells in this basin between Q3 2009 and Q3 2012, and recorded a success rate of around 90%. It has discovered around 4.1 m barrels (MMbbl) of resources in the basin so far. Moreover, OGX has already declared 395 MMbbl of resources in the basin as commercial. These resources are located in the Tubarão Azul field (Wiamea discovery: 110 MMbbl) and Tubarão Martelo field (Wiakiki discovery: 285 MMbbl). The Wiamea discovery commenced production in January, 2012 from its first production well OGX-26HP. OGX installed an additional well in May 2012, OGX-68HP, to support production. Despite this addition, production levels from these wells have been below the company’s earlier expectations. In Q1 2012, the company reported that it expected production/well of around 40–50 thousand barrels per day (Mbbl/d). However, in Q3 2012, OGX reported an average defined production level of five Mbbl/d per well, excluding production optimization procedures. The company sought approval for the drilling of its first injection well in the Wiamea discovery in Q3 2012. This injection well is expected to support the optimization of production from this discovery. Analysis expect the company’s production optimization activities to increase production from the Campos basin. However, OGX’s success in optimizing production from these wells will be a key factor in determining the company’s capability to monetize its assets.

Moreover, the company is also working on the development of the Waikiki discovery in the Campos basin. OGX drilled two wells in this discovery until Q3 2012, and expects to have commenced production by the second half of 2013. Furthermore, the company also reported two new discoveries in the Campos basin, including the Itacoatiara and the Honolulu discoveries. More discoveries in the nearby locations are expected to reduce development costs through the sharing of infrastructure and technical knowledge, thereby improving operational economics. Apart from the Campos basin, OGX is also working on the development of its Gavião Real and Gavião Azul gas fields in the Parnaiba basin, where it is currently involved in the construction of the gas treatment unit. The company expects to have commenced production from this basin by the second half of 2012. It will be the first production in the basin.

New production additions from these targets will boost OGX’s production volumes in the long term and provide it with additional cash flows. These cash flows can be utilized for the funding of exploration and development activities for other targets, such as the pre-salt  hydrocarbons discovered recently in the Santos basin and other discoveries. These discoveries are the first of their kind in Brazil in terms of shallow depth, compared to other discoveries in the country. Currently, OGX is involved in collecting more information about its pre-salt discovery. This additional information is expected to play a vital role in designing appraisal and development plans for this discovery. In addition to this, OGX’s exploration activities also target the Pará Maranhão basin and Espírito Santo basin in Brazil; however, the company’s activities in these basins are in the initial exploration stages, with no major drilling being carried out and no major discoveries reported so far.

OGX has effectively aligned its operational focus and balanced its investments in exploration and development activities, which will enable it to utilize its capital resources in an efficient way. Following its strategic operational alignment, OGX has been able to commence production over a short period of time since its inception. The company‘s production is expected to increase in future, subject to the success of production optimization in the Wiamea discovery and new production additions from upcoming assets.  A higher production level will reduce the company’s dependence upon external sources of funding, and fuel organic growth.
OGX Petroleo e Gas Participacoes SA, Company Intelligence Report

OGX Petroleo e Gas Participacoes SA, Company Intelligence Report

Publish date : December 2012
Report code : ASDR-44109
Pages : 44

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