Overstated oil estimate pulls down OGX stock

OGX, the Brazilian oil and gas company responsible for the largest private-sector exploratory campaign in Brazil, today disclosed the results of the reports prepared by petroleum consultants DeGolyer & MacNaughton ("D&M"), which estimate new volume of resources held by the Company in Brazil's Campos and Parnaiba basins and three basins in Colombia. These reports indicate net potential resources for OGX of 5.7 billion barrels of oil equivalent ("boe") in the Campos Basin, 1.0 billion boe in the Parnaíba Basin and 1.1 billion boe in Colombia. When combined with the estimates from the previous report for the Santos, Espírito Santo and Pará-Maranhão Basins (Sep/09), these new results present a total volume of net potential resources of 10.8 billion boe.

The report by oil-field auditors DeGolyer and MacNaughton released on Friday showed a nearly 60 percent jump in the company's potential oil resources, but the Deutsche researchers noted that the crude found in recent exploration activity carried a higher degree of risk.

Potential resources refer to estimates, often based on seismic and geological data, of the amount of oil in a given reservoir that could be recovered. The estimates are less certain than proven reserves.

Batista on Monday described the DeGolyer and MacNaughton report as overly conservative and insisted the company would demonstrate the reserves situation was in fact optimistic.

OGX is seeking $2 billion in financing to finance investments, Batista said, adding it could be through a bond issue or by receiving money upfront for future oil production.

Repeated discoveries in Campos basin pushed OGX stock up

The company throughout 2009 reported repeated discoveries in the shallow water Campos Basin that helped push its stock up more than four-fold between the start of that year and the end of 2010. Its valuation has at times rivaled that of mid-sized oil companies with significant production profiles such as Spain's Repsol and  Devon.

Though reserves are significantly overstated, investors likely to remain interested in OGX's shallow water offshore field

Local securities firm BTG Pactual also lowered their price target for the company. Gustavo Gattass, BTG's senior energy analyst, described the report as "more anticlimactic than bullish."

Frank McGann, an oil analyst with Bank of America Merrill Lynch, said in a report that "though the 10.8 billion boe (barrels of oil equivalent) headline figure did not disappoint, a closer look at the underlying data suggests that this number is significantly overstated."

However BTG, along with analysts from other banks, said investors will likely remain interested in OGX's portfolio of shallow water offshore fields that are cheaper to produce than those in the deep-water region known as the subsalt that is dominated by state-oil company Petrobras. 

OGX 2011 March Institutional Presentation

http://docsearch.derrickpetroleum.com/pageNav/view1/docId/11444-0000/OGX-2011-March-Institutional-Presentation.html

Brazil - sitting on a gold-mine of oil and gas reserves!!!!!

In a dynamic industry such as oil & gas, the recent discoveries in the presalt layers off Brazil could rank as the biggest in the world in several decades. Due to these significant discoveries, the Brazilian government has been grappling with how to structure and regulate exploration, drilling, and the potential for a large influx of foreign investment.

What is pre-salt?

• The pre-salt region is located approximately 170 miles off the coast of Brazil in the Atlantic Ocean. The region likely ranges from Espírito Santo to Santa Catarina State, measuring 497 miles in length and 124 miles in width.
• The region is named “pre-salt” because the oil is held beneath deep and ultra-deep waters, around 3,000 meters of sand and rock, and an additional layer of salt that, in places, reaches thicknesses of over 2,000 meters, making extraction challenging.

 …. tip of an iceberg!!

Over the span of 10 to 15 years, the industry’s deepwater capabilities has progressed manifold along with the realization that the largest prospects lay in deeper and deeper waters. The string of discoveries in the pre-salt region have proven the same.

• In 2006, Petrobras discovered the Tupi field in the Santos Basin which holds estimated reserves of about 5 to 8 billion barrels.
• In September 2010, the Brazilian Government announced the discovery of the Libra field which is said to be largest oil field discovered anywhere in the world since the enormous Kashagan find (over 17 billion barrels) in Kazakstan in 2000.
• Devon Energy, which holds 6 exploration blocks in the pre-salt, announced an discovery in the Campos Basin , quite close to the Jubarte field.
• The  Petrobras as operator and 45% owner, has made an important discovery of very light oil in the ultra-deep waters of the Santos Basin.
• Maersk Oil has discovered oil in the offshore Campos Basin in a license jointly owned with the Brazilian independent OGX.

Source: Derrick Petroleum Planned Exploration Wells Database

As a result of recent major discoveries, oil and natural gas potential reserves in Brazil are now recognized as some of the largest in the world. . Hence, many foreign players are ready to dip their toes in the waters off Brazil.

Source: Derrick Petroleum E&P Transactions Database

The combination of vast untapped potential oil and natural gas resources with a favorable regulatory framework positions Brazil as one of the most attractive petroleum regions in the world today.