OilVoice - OGX Reports 2009 Results

OGX Reports 2009 Results

Sunday, March 14, 2010

• Successful Execution of Largest Private Exploratory Campaign in Brazil
• Five Wells Yielded Discoveries Estimated Between 2.1 and 4.7 Billion BOE
• R$ 7.3 Billion in Cash at Year-end to Fund Exploration Commitments through 2013

OGX S.A. has announced its 2009 results. The following financial and operating information is presented on a consolidated basis, pursuant to Brazilian corporate law, in thousands of reais (R$), unless stated otherwise.

'2009 was a year of great progress and achievements. From the interpretation of the new 3D seismic, our technical team was able to validate the geological models we developed, which led to the success of our drilling. The five wells drilled in the Campos basin allowed us to identify large accumulations at different geological ages in reservoirs with extremely favorable conditions, revealing the existence of a new oil province in the southern part of the Campos Basin,' commented Mr. Paulo Mendonça, OGX's General Executive Officer. 'These results represent some of the many achievements that have propelled our growth to date. We are still committed to the goal of initiating production in early 2011 and we are extremely motivated to make 2010 another successful year, as we move forward with our extensive exploratory campaign and delimitation process of our discoveries.'

2009 and Subsequent Events:
• Six exploratory wells drilled in the Campos and Santos basins including five which have previously announced volume estimates of 2.1 to 4.7 billion barrels of oil equivalent;
• Initial production expected to begin ahead of schedule in early 2011 and long-term production target aimed at achieving 730 thousand barrels per day by 2015 and 1.380 million by 2019;
• Updated appraisal report issued by Degolyer & MacNaughton (D&M) certifying in 6.7 billion barrels of net risked prospective resources, considering an average probability of success of 34.5%, and 212 million boe of net contingent resources;
• Strategic Cooperation Agreement signed with OSX Brasil S.A. to support the demand for Exploration and Production Units. The equipment will be provided by OSX at competitive prices and will contribute to OGX's compliance with local content requirement obligations under the concession contracts with ANP;
• First production unit FPSO (Floating Production Storage & Offloading), OSX 1, chartered from OSX Brasil S.A. for the period of 20 years;
• 70% participation in seven exploratory onshore blocks acquired in the Parnaíba Basin. In parallel, OGX signed a Memorandum of Understanding with MPX Energia S.A. ('MPX') to formalize the transfer, subject to ANP approval, of OGX's participation to a new special purpose vehicle in which OGX and MPX would hold respectively 66.7% and 33.3% interests, as well as the intention of executing an agreement related to the sale of gas to be produced;
• Company's offshore drilling fleet increased by securing a fifth drilling rig, Ocean Star, from Diamond Offshore Netherlands B.V.;
• Additional 15% of concession rights and obligations obtained for Block BM-S-29, in the Santos Basin. This transaction brought OGX's participation interest in the Block to 65%; Maersk Oil remains the operator;
• OGXP3 included in the Ibovespa index, with a weighting of 0.87%, corresponding to the 34th position in the selected portfolio of 63 stocks;
• OGX's Level I Global Depositary Receipts (GDR) started trading on the over-the-counter market under the symbol 'OGXPY'. Banco Itaú S.A. was hired as the custodian and Bank of New York Mellon as the depositary institution.

Exploratory Campaign
During the first half of 2009, the company focused on the processing and interpretation of new seismic data to determine the location for the first wells drilled in the Campos Basin. This work by the team contributed to the significant increase in volume estimates certified by D&M, as of September 2009, and also to the highly successful drilling campaign.

In August 2009, drilling of well 1-MKR-2B-SPS, located in the block BM-S-29 in shallow waters of the Santos Basin was initiated in partnership with Maersk Oil, the operator. The drilling was concluded and the operator submitted a Discovery Appraisal Plan with ANP.

The drilling of wells wholly-operated by OGX began in September 2009. By February 2010, the company had concluded the drilling of five wells in the Campos basin which resulted in extremely important discoveries for OGX, amounting to 2.1 to 4.7 billion barrels of oil. This volume estimate by OGX is based upon final well information combined with new seismic data interpretation, and represents a large portion of the D&M risked resources estimated for the current portfolio. Below is a summary of the five wells concluded through February, all of them in the shallow waters of the Campos Basin:
• 1-OGX-1-RJS: Located in the BM-C-43 block, the Vesúvio prospect corresponds to Eocene reservoirs and the volume estimate is approximately 0.5 to 1.5 billion barrels. This was a significant well for the company as it validated the geological model adopted by OGX and, therefore, reduced the exploratory risk on the upcoming prospects;
• 1-OGX-2A-RJS: Pipeline prospect, located in the BM-C-41, has encountered hydrocarbons in five different geological ages: Eocene, Upper Cretaceous, Albian, Aptian and Barremian. The volume estimate for the well of approximately 1 to 2 billion barrels represents a substantial portion of prospective resources estimated by D&M
• 1-OGX-3-RJS: The volume estimate by OGX of between 500 and 900 million barrels exceeds what was calculated in the D&M report. The Waimea prospect was the first to be tested in dynamic conditions through a Cased Hole Drillstem Test and confirmed a production potential of 3,000 barrels per day in a vertical well, which can potentially be increased fivefold in a horizontal well. This well is located in the block BM-C-41 and presented detection of hydrocarbons in the Albian, Aptian and Barremian sections;
• 1-OGX-4-RJS: The prospect, Kilawea, was the first to be drilled in block BM-C-42 and resulted in the detection of an estimated 100 to 200 million barrels from the sandstone reservoirs in the Eocene section;
• 1-OGX-5-RJS: The prospect, Krakatoa, was drilled in block BM-C-43 and evidence of hydrocarbons was detected in the Maastrichtian, Albian and Aptian sections. The estimated volume of between 30 and 90 million barrels corresponds only to the Maastrichtian section. The other sections are being evaluated and the estimated volumes will depend upon drilling of additional wells.

These drillings resulted in the discovery of a new province with significant oil potential in the southern part of the Campos Basin, which consists in a focalization area for the oil migration and has great permeability and porosity characteristics, strongly influenced by volcanism in the region.

OGX concluded 2009 having achieved its goal of drilling six successful wells during the year, while demonstrating the strength of the Company's operating/exploratory strategy, thereby elevating the company to the ranks of the leading Exploration and Production companies in the world.

During 2010, the drilling campaign (27 wells planned) will continue to target the discovery of new oil and gas accumulations, as well as the delineation of the areas where discoveries have already been made. All five of the contracted drilling rigs have been in operation since February 2010, and are expected to be used in the drilling of the offshore wells scheduled for 2010 in the Campos and Santos Basins, five of which have already been initiated in the southern part of the Campos Basin:
• 1-OGX-6-RJS: Etna prospect, being drilled by the rig Ocean Quest in the block BM-C-41, has already encountered an oil-bearing column in the albian section. This prospect showed a strong correlation to the OGX-3 and OGX-2 wells;
• 1-OGX-7-RJS: Huna, being drilled by the rig Ocean Lexington in the block BM-C-42;
• 1-OGX-8-RJS: Fuji, being drilled by the rig Ocean Star in the block BM-C-41;
• 3-OGX-9D-RJS: Vesúvio, being drilled by the rig Ocean Ambassador in the block BM-C-41, Prospect Extensional Directional well;
• 1-OGX-10-RJS: Hawaii prospect, being drilled by the rig Sea Explorer in the block BM-C-42.

Financial Performance
"OGX ended the year in solid financial position, the result of our ability to execute our business plan and efficiently manage our costs. Even with the expansion of our asset portfolio and the costs associated with the start of the drilling of six wells, our cash position at the conclusion of 2009 was R$ 7.3 billion or approximately US$ 4.2 billion. Our financial income for the year was R$ 872.7 million, driven by investments in fixed income assets that generated interest income of approximately 116% of CDI. Our exploratory campaign, for which we have allocated approximately US$ 3 billion over the next four years (2010 to 2013) remains within budget," said Marcelo Torres, OGX's CFO and Investor Relations Officer.

Financial Results
The net financial income of R $ 264.4 million was mainly driven by the interest income of R$ 838.8 million, losses on hedging of future commitments in foreign currency (U.S. dollars) of R$ 220 million and the negative impact of marking-to-market the fair value of financial instruments of R$ 355.6 million.

Exploratory Expenses
The most significant expenses with regard to Exploratory Expenses were related to the acquisition of seismic data (mainly for the Campos, Espírito Santo and Santos basins), the rent paid to ANP for our exploration blocks and the guarantee commission for the Minimum Exploration Program. To a lesser extent, there were expenses related to technical, environmental and information technology consulting services.

Net Profit
Net profit for the year was R$ 10.8 million resulting from net financial income of R$ 264.4 million offset by exploratory costs of R$ 97.9 million, General and Administrative Expenses of R$ 118.0 million and Income Tax and Social Contribution of R$ 37.6 million. The primary reason for the reduction in net profit for 2009 was the increase in financial expenses as compared to 2008.