3rd QUARTER 2014 RESULTS
Rio de Janeiro, December 23, 2014 – Óleo e Gás Participações S.A. – Under Judicial Recovery [traded on the São Paulo Stock Exchange (Bovespa) under the code OGXP3] today announced its results for the 3rd Quarter of 2014.
MANAGEMENT MESSAGE
Over the past months, OGPar continued to improve its operational performance as well as its balance sheet while successfully concluding one of the final steps in its judicial recovery process.
Production from the four wells in the Tubarão Martelo field totaled 1.157 million barrels of oil in the third quarter of 2014, reaching an average rate of 12,600 barrels of oil per day. Production for the past nine months totaled about 3 million barrels of oil.
The Tubarão Azul field produced an average of 3,400 barrels of oil per day in the third quarter 2014, with total production reaching 310,000 barrels of oil in the same period. Production in the past nine months reached 923,000 barrels of oil.
Financial performance as a result continued to improve. Sales for the nine months to date grew 42% compared to the same period last year and the company posted a positive EBITDA of R$149 million. This demonstrates that management continues to be focused on making OGPar a healthy company that generates cash from producing assets while controlling costs and investing in new assets to ensure results in the medium term.
Subsequently to the third quarter, on October 16th, OGPar and its subsidiaries completed their credit capitalization, one of the last critical steps in the company’s restructuring plan that will allow the OGPar Group to fully emerge from bankruptcy. Shares in OGX Petróleo e Gás were delivered to creditors registered under the restructuring plan, thereby freeing OGPar, OGX and OGX Austria of any pre-petition debt as stated under the judicial recovery plan. Having eliminated from its balance sheet USD 5.7 billion in debt, OGPar is now able to focus on developing its production activities in the Tubarão Martelo and Tubarão Azul fields.
EVENTS POST REPORTING DATE – DEBT CONVERSION
The Capitalization of credits, completed on October 16th, 2014, entailed a conversion of almost 14 billion Reais (R$ 13,800,970,749.52) of debt into shareholder equity in OGX P&G, with R$ 862,559.86 going to paid-in capital and R$ 13,800,108,198.66 to the capital reserve. During this process, 86,255,986 new common shares were issued at a price of R$ 160.00 per share and distributed to creditors in the proportion to their respective debts held in OGX P&G, as required under the Judicial Recovery Plan.
Immediately after the aforementioned allocation, Company recorded the accounting adjustments related to the application of ICPC 16 – Extinguishment of Financial Liabilities through the issuance of Equity instruments (IFRIC 19) and therefore reclassified part of the capital reserve balance to 3Q/14 profit & loss, in such a way that the net impact in capital reserve plus paid-in capital corresponded to the fair value of shares issued.
Notwithstanding debt extinguishment was formalized in an Extraordinary Shareholders' General Meeting, held on October 16, 2014, on September 30, 2014 all the precedent conditions necessary to the debt/equity conversion have already been met, hence, pursuant the judicial recovery plan the conversion was already mandatory. Due to that, on September 30, 2014, Company recorded in its accounting books the extinguishment of such debts with the related impact in equity accounts.
See the following variation of the equity of OGPar in 2014 with emphasis on the effects of the conversion:
Results Release
?Equity in December 31, 2014:
Gain on loss of control: Non-controlling portion:
Equity results:
Pro-rata stock options:
Currency translation adjustments: Others:
Equity in September 30, 2014:
(9,734,360)
6,997,227 (818,361) 3,708,041
10,495 (6,872) 3,359 107,629
Post-capitalization, credit holders will hold a combined 71.43% stake in the total paid-in capital of OGX P&G. As a result, the corporate structure of the OGPar Group will be as follows:
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The Brazilian Securities Commission (CVM) gave OGX P&G a Category A Issuer Registration qualification and the listing of its shares was approved by the BM&FBovespa S.A., as per the Notices of Material Events published on September 18 and October 16, 2014, respectively, thus making OGX P&G eligible to carry out the debt conversion.
Through the establishment of an American Depositary Receipts (“ADR”) Program, the custodian of bonds due in 2018 and 2022 will hand over the American Depositary Shares (“ADS”) to the bondholders through the Depository Trust Company (“DTC”). Each ADS will represent one share in OGX P&G. All the shares issued as a result of the capital increase will have the same economic, political and other rights, including any OGX P&G share delivered in the form of ADS for bonds due in 2018 and 2022.
OPERATING PERFORMANCE PRODUCTION
CAMPOS BASIN PRODUCTION Tubarão Azul field
A - Production
The Tubarão Azul Field produced a total of 310,000 barrels of oil in the third quarter 2014, reaching an average rate of 3,400 barrels of oil per day. The increase in production in 3Q14 compared to 3Q13 is due to the fact that the OGX-26HP well resumed production in February 2014, following the renewal of the
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agreement to carry out tests using the FPSO OSX-1 vessel and the resulting lowered costs for chartering the FPSO.
The Company intends to continue production at the Tubarão Azul field at least until March 2015, as disclosed to the market on October 20, 2014.
Total Production (thousand bopd)
?27
246
367
310
3Q13 1Q14 2Q14 3Q14
B – FPSO OSX-1
The detailed breakdown of the Tubarão Azul Field’s OSX-1 FPSO can be found below:
(i) EBITDA pro forma; (ii) daily costs; (iii) bbls costs.
During the first semester the costs of leasing the FPSO OSX-1 and the respective O&M services, which were revised and significantly reduced to US$ 35,000 per day and US$ 85,000 per day, respectively remained stable in 3Q14.
However, costs effectively incurred this year are slightly higher than the currently agreed ones as these were impacted by the 2014 sale of inventories that were built up in 2013 with higher costs compared to the current ones.
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?Results Release
In R$ thousands, except as indicated otherwise
??YTD Q3/14
?208
?815,411
?208.05
??169,644
?- (17,854)
(23,415) (44,278) (40,409)
(2,591)
??(128,547)
?41,097
?24.23% 50.40
???Costs of the product sold
?EBITDA
Daily Cost (USD '000) Tubarão Azul
FPSO OSX 1
Descrição
Days of operation Offloadings - in barrels (bbls) Unit price - R$ / bbls
Sales revenue (net of freight)
Sales taxes Royalties Leasing O&M Logistics Others
% EBITDA / Gross revenue EBITDA / barrel - (R$/barrel)
Total: USD 272.9 th./d
Cost per barrel (USD '000) Tubarão Azul
????????5.5 37.9 85.8
49.7
21.8
1.4 9.7
23.9
Total: USD 69.5 th./bbl
??94.0
Royalties Leasing O&M Logistics Others
Development of the Tubarão Martelo Field A - Production
Royalties Leasing O&M Logistics Others
12.7
?????????????Since production began in December 2013, output at the Tubarão Martelo has totaled 3.3 million barrels of oil. With the third and fourth well now on-stream (on July 3, 2014 and September 4, respectively), the field produced 1,157,000 barrels of oil in the third quarter of 2013, reaching an average rate of 12,600 barrels of oil per day.
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?Results Release
Total Production (thousand bopd)
?331
967
869
1.157
??????B – OSX3 FPSO
4Q13 1Q14 2Q14 3Q14
?On September 12, 2014 the Company signed the charter party agreement for the OSX-3 FPSO, the main terms of which were disclosed in the Notice of Material Event issued by the Company on December 24, 2013. The agreement calls for the following:
(i) Reduction of the daily charter rate to a fixed rate of US$ 250,000, valid from the date the vessel was delivered, i.e. November 19, 2013;
(ii) Alteration of OGX’s rights in relation to the charter party agreement (“Charter Party”) so that OGX has the right to terminate such agreement at any time, without owing any penalty for termination, provided that determined events are heeded;
(iii) Inclusion of acquisition rights in favor of OGX to acquire the bonds issued by OSX 3 Leasing B.V. (“Bonds”) under certain circumstances, if the Bonds have not been refinanced on or after their due date or if the OSX-3 FPSO has not been sold prior to such date;
(iv) Inclusion of the right for Nordic Trustee ASA (“Trustee of the Bonds”) to cancel the Charter Party (a) with an advance notice of 24 months if the Bonds have not been fully paid or acquired by March 20, 2015 and (b) immediately, with a prior notice of 45 days, should there be a default on the Bonds solely
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?Results Release
for lack of compliance by OGX with its obligation to pay the charter rate as per the terms of the Charter Party (as amended);
(v) Inclusion of determined termination rights for OSX-3 and the Trustee of the Bonds, and the right to raise the charter rate to US$ 265,000 instead of US$ 250,000 in certain cases, should OGX not post guarantee in the amount of US$ 25 million in favor of OSX-3 and the Trustee of the Bonds, in order to guarantee its obligations under the Charter Party (which can be executed in the event of default on the part of OGX on its obligation to pay the charter rate as per the terms of the Charter Party).
Nevertheless, since the FPSO OSX-3 new contract signing, the oil Brent price suffered a sharp drop from USD 97.11 to USD 61.06 (closing of 12.15.2014) causing, in the Companies opinion, glaring contract imbalance. Consequently, On December 22, 2014, OGX P&G released a Material Fact confirming that it has obtained a court decision on a preliminary basis to reduce the charter value of the FPSO OSX-3 daily rate from US$ 250,000/day to US$ 130,000/day, given by the judgment of the Bankruptcy Court in Rio de Janeiro, in the face of OSX 3 Leasing BV, as the vessel owner, as well as Nordic Trustee Asa, as assignee of rights under the vessel charter.
C –TUBARÃO MARTELO EBITDA
The detailed breakdown of the Tubarão Martelo Field’s OSX-3 FPSO can be found below:
(i) EBITDA pro forma; (ii) daily costs; (iii) bbls costs.
The daily leasing cost of the OSX-3 that was effectively incurred is slightly below the US$ 250,000 that was initially contracted, after successful negotiations for retroactive application of the new daily rate agreed upon in November of 2013, which was reverted as a provision for cost made in 2013 based on the rate previously agreed to, in the amount of roughly US$ 430,000/day.
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?In R$ thousands, except as indicated otherwise
FPSO OSX 3
Descrição
Days of operation Offloadings - in barrels (bbls) Unit price - R$ / bbls
Sales revenue (net of freight)
Sales taxes Royalties Leasing O&M Logistics Others
% EBITDA / Gross revenue EBITDA / barrel - (R$/barrel)
Results Release
??YTD Q3/14
?235
?2,484,325
?210.32
??522,504
?- (61,109)
(128,316) (66,803) (75,095)
(5,797)
??(337,120)
?185,384
?35.48% 74.62
???Costs of the product sold
?EBITDA
Daily Cost (USD '000) Tubarão Martelo
10.8 113.7
238.7
Cost per barrel (USD '000) Tubarão Martelo
1.0 10.7
22.6
????????139.7
124.3
Total: USD 627.1 th. /d
13.2
11.7
Total: USD 59.3 th. /bbl
????Royalties Leasing O&M Logistics Others
C – NEW CERTIFICATION
Royalties Leasing O&M Logistics Others
???????????A new certification of reserves for the Tubarão Martelo Field, which was prepared by DeGolyer & MacNaughton (dated July 31, 2014), was obtained on October 13, 2014, as disclosed by way of a Notice of Material Event. The main difference compared to the previous certification, which was obtained in 2013, is that Proven Reserves (1P) were estimated at 15 million barrels. As previously mentioned in this Release, since it started production, the Tubarão Martelo Field produced 3.3 million barrels of oil up to September 2014. Its remaining reserves have been estimated as per the following table:
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?Results Release
Tubarão Martelo OGX BM-C-39 and BM-C- Campos 15.0 78.5 103.6 40
DEVELOPMENT OF THE SANTOS BASIN
Development of the Atlanta and Oliva Fields (“BS-4”)
The tests that were conducted at the two horizontal wells of the Field’s Early Production System (SPA) have indicated that each well should reach a daily production capacity of 12,000 barrels of oil, which is the upper limit of the range estimated before the tests. During tests at the second well, the electrical submersed pump was placed on the ocean floor as an alternative to being placed at the bottom of the well. This option should be used by the Consortium during the development of the field because it represents a more cost-effective solution.
In May 2014, the Company and the operator released the results of the Atlanta Field’s reserves certification report (dated March 31, 2014), performed by independent consultants Gaffney, Cline & Associates (GCA). The main highlights of the report were that 1P reserves were estimated at 147 million barrels, 2P reserves were estimated at 191 million barrels and 3P reserves were estimated at 269 million barrels.
As Material Fact released on December 17, 2014, the Consortium responsible for the development of Atlanta Field has signed a contract establishing the chartering and operations of the production unit Petrojarl I (“FPSO” - Floating, production, storage, and offloading), which belongs to Teekay Offshore Partners L.P.
The production unit will be customized in order to fulfill the specific needs to operate in the Field and it is expected to arrive for lease within 14 months.
The production is scheduled to begin mid 2016. During the first phase, it is expected to produce 25 thousand barrels per day (kbpd), capable of reaching 30 thousand barrels per day with up to three producing wells, and two of which were already drilled and equipped with horizontal wet christmas tree and submerged pump. The unit Petrojarl I will be capable of storing 180 thousand barrels, its contract is for a five year period and includes a termination clause from the third year.
???Field Operator
???????Block (s) Basin
???????Reserves (mmbbl)
???????Proven Proven + Probable
?????????Proven +
Probable + Possible
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?Results Release
The EPS Capex, considering two wells, sums US$ 520 million. The Consortium is evaluating the possibility of drilling a third production well, which would increase the EPS Capex. The total operational costs are estimated in US$ 480 thousand per day, and includes costs for leasing, services, logistics, insure, abandonment fund, and others. All the values announced consider the total of the Consortium.
The average annual production for Atlanta Field is projected based on 2P reserves, in accordance with the Field Development Plan. The Company highlights that the 3P reserves are unchanged with 269 million bbl. The production resultant from the Definitive System (DS) is based on the assumption of hiring a FPSO with higher capacity, starting from 2019 and additional wells drilling. Find as follows:
2016 13 13
2017 30 30
2018 30 30
?????(kbpd)
???????EPS Production
SD Production Total
????????????????????????????????2019 13 2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
21 34 74 74 76 76 60 60 46 46 38 38 33 33 29 29 25 25 23 23 20 20 19 19
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?Results Release
2031 18 18
2032 17 17
2033 16 16
The projection above represents an estimation based on the operator’s expectations and assumptions determined and are vulnerable to several risks and uncertainties.
First oil at the Oliva Field is expected for 2021, considering that the viability of this field is linked to the operation of the Atlanta Field.
QGEP is the BS-4 block’s operator, where the Atlanta and Oliva Fields are located, and holds 30% of the Consortium and they have as partners OGX P&G and Barra Energia, holding 40% and 30% stake, respectively.
Sale of OGX Maranhão (currently Parnaíba Gas Natural S.A.– PGN)
On October 30, 2013, OGPar and OGX P&G signed a subscription agreement with Cambuhy Investimentos Ltda. (“Cambuhy”), Eneva S.A. and DD Brazil Holdings S.a.r.l. (“E.ON”) whereby, subject to the terms and conditions stipulated therein, Cambuhy and E.ON agreed to invest in Parnaíba Gás Natural S.A. (“PGN”) a total amount of approximately R$ 250 million by way of a capital increase. Such capital increase was carried out in 1Q2014 (on February 19), reducing OGX P&G’s equity interest in PGN from 66.66% to 36.36%. Also on October 30, 2013, the Company and Cambuhy signed a Share Subscription Agreement whereby Cambuhy agreed to acquire from the Company its remaining share in PGN for a purchase price of R$ 200 million, readjusted according to the variation in the Brazilian Comprehensive Consumer Price Index (IPCA). On August 6, 2014 the competitive process called for in the Judicial Recovery Plan was carried out and Cambuhy made the minimum bid of R$ 200 million. Payment of such an amount and the effective disposal depends on certain conditions precedent, among them a final unappealable decision on the Judicial Recovery process. Associated to this sale agreement, a flow of payments was agreed in the amount of R$ 145 million, which PGN is due to pay to OGX P&G as per their cost-sharing agreement. Of this total, R$ 70 million was received by September 30, 2014 and a further R$ 20 million was received by October 30, 2014, as per the terms of the agreement. Also associated with such negotiations, for US$ 3 million, MPX Energia Gmbh agreed to acquire from OGX Netherlands B.V., an indirect overseas subsidiary of OGPar, the total number of shares that it held in
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?Results Release
Parnaíba BV, while also agreeing to make a capital injection of US$ 22 million in Parnaíba B.V. so that the latter could settle the debt it has in the same amount with OGX Netherlands B.V.
EXPLORATION
EQUATORIAL MARGIN EXPLORATION PORTFOLIO (BLOCKS OF THE 11th ROUND OF BIDS)
OGpar continues its exploration campaign in the four blocks acquired during the 11th Round of Bids, which are located in deep waters of the Ceará and Potiguar basins (POT-M-475 – 65% OGpar; CE-M-603 and POT-M-762 - 50% OGpar; CE-M-661 - 30% OGpar). At present, the companies serving as operators for these four blocks are conducting bids for acquisition of 3D seismic data that comprise the Minimum Exploratory Program (PEM) for the respective concession agreements. The drilling campaign, which seeks to investigate these blocks’ prospects, is expected to begin at the end of 2016.
OPERATIONS IN COLOMBIA
In continuity to the Material Facts released on April 25 and July 11 of 2014, in the last December 19, 2014 the Company concluded the sale of: 100% stake of the blocks in the Vale Inferior Magdalena basin (“VIM- 5” and “VIM-19) and 100% economic rights of the blocks in the Cesar Rancheria basin (“CR-2”, “CR-3” and “CR-4”), as announced and legally approved by the Agencia Nacional de Hidrocarburos (“ANH”). OGX will temporarily remain as the operator of the CR-2, CR-3 and CR-4 blocks.
The sale of VIM-5 and VIM-19 blocks assumes: (I) a payment of about US$30 million and (II) royalties of 3% on revenue generated by the blocks hydrocarbon sales; exemption of Company’s regulatory commitment (estimated value of US$75 million); refund of US$7.7 million that were pledged as collateral to the credit letters required by ANH.
The sale of CR-2, CR-3 and CR-4 blocks assumes an initial transfer of 70% stake, while OGX temporarily remains as operator and with a 30% stake, as well as equally exempts the Company’s regulatory commitment in the value of US$72 million, which was already due in ANH’s charge process. In addition it provides a refund of US$6.3 million that were pledged as collateral to the credit letters required by ANH.
The offer’s terms and conditions are aligned to the Company’s Reorganization Plan and restructuring process, since it exempts the Company from mandatory exploration costs and regulatory contingencies, as well as providing short term cash flow that improves the company’s liquidity.
PERSONNEL MANAGEMENT
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?Results Release
OGpar ended the third quarter 2014 with 139 employees on its payroll and 724 outsourced employees responsible for all administrative functions, as well as O&G exploration and production activities. This represents a 7.8% decrease compared to the previous quarter. These 3Q14 figures do not include Parnaíba Gás Natural S.A.’s employees.
FINANCIAL PERFORMANCE
The following financial and operational information is presented on a consolidated basis, in accordance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board – IASB, and in Brazilian Reais (R$), except as indicated otherwise.
Statements of Income (Loss)
Despesas administrativas e gerais
EBITDA
R$ ('000)
??DEMONSTRAÇÃO DOS RESULTADOS YTD Set/14 YTD Set/13 ? ($) (reapres.) (*)
Q3/14 Q3/13 ? ($) (reapres.)
??(5,879)
(1,858)
(8,927)
7,069
??(5,879)
(14,402)
8,523
??8,523
(1,858) -
(8,927) -
-
(2,118,736)
7,069 -
????6,178,866 3,708,041
(14,402) -
(7,641,536)
6,178,866 11,349,577
6,178,866 3,186,383
6,178,866 5,305,119
????9,881,028
17,536,966
9,363,391 -
11,491,054 -
????????(7,227)
9,873,801
-
9,873,801
(14,366)
17,522,600
-
17,522,600
(5,962)
9,357,429 -
-
-
9,357,429
(7,299)
11,483,755 -
(839)
-
11,482,916
?????????Ganho na perda de controle Resultado de equivalência patrimonial
Resultado financeiro líquido
EBT
Lucro (Prejuízo) líquido - TOTAL
Note:
(i)
?EBIT
(7,655,938)
7,139
(7,648,799)
-
(7,648,799)
(2,127,663) -
1,337
(2,126,326) -
839 -
(2,125,487)
(-) Imposto de renda
(i) (i) This balance corresponds to the sum of (a) the gain arising on the loss of control over OGX P&G, amounting to R$ 6,997,227 and (b) the effect of R$ (818,361) related to measuring the non-controlling stake at fair value.
Due to the extinguishment of the pre-petition and post-petition liabilities adherent to the Plan, through the issuance of OGX P&G equity instruments, OGPar lost its control over OGX P&G and, therefore, according to accounting rules, Company is not consolidating the financial information of the aforementioned entity anymore. OGX P&G results are current outlined in OGPar profit and loss as “equity results”. For comparison purposes, 2013 results previously presented on a consolidated basis are now, represented on a deconsolidated basis.
We highlight the following effects on the nine-months period net income of OGPar:
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?Results Release
a) Equity on OGX P&G results from January 1st to September 30, 2014
R$ mil
12,655,354 28.57% 3,615,635
92,406
3,708,041
R$ mil
9,768,808
99.99% 28.57% 71.43%
(6,977,860) (19,367) Total (6,997,227)
??Equity on OGX P&G results from January 1st to September 30, 2014:
- Results of OGX P&G on September 30, 2014
- Stake of OGPar on OGX P&G Subtotal
Equity in others companies
Total
b) Gain arising on the loss of control over OGX P&G:
Equity results on OGX P&G before the extinguishment of
debt through the issuance of equity instruments , except
A for net income/loss from January 1st to September 30, 2014
Lost share dilution
Previous stake
Actual stake
B Stake lost
???????????C = A* B
D Others
Gain arising on loss of control
??C+ D
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?c) Marking at fair value of non-controlling shareholders
Shareholders equity of OGX P&G after on the extinguishment of debt through the issuance of equity instruments
OGPar’s stake on OGX P&G after on the extinguishment of debt throught the issuance of equity instruments
A Subtotal I
Market value of OGX P&G before on the conversion
OGPar’s stake on OGX P&G after on the extinguishment of debt throught the issuance of equity instruments
B Subtotal II
B-A Fair value adjustment of non-controlling stake
Results Release
R$ mil
3,349,810
28.57%
957,041
485,403
28.57%
138,679
(818,361)
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?OGpar Contacts
Investors:
Márcia Mainenti Marianna Sampol ri@ogpar.com.br +55 21 3916-4545
Media:
Cibele Flores cibele.flores@ogpar.com.br +55 21 3916-4505
LEGAL NOTICE (CAVEAT)
Results Release
?This document contains some statements and information related to the Company that reflect the current view and/or expectations of the Company and its Management with respect to its business plan. Such statements include, among others, all the affirmations that denote forecasts, projections or indications or implications of results, future achievements or performance, including those containing such words and terms as “believe”, “forecast”, “expect”, “contemplate”, “will probably result” or other words or expressions with similar meanings. Such affirmations are subject to a series of marked risks, uncertainties and premises. We alert that a series of important factors may make actual results that differ to a material degree from the plans, objectives, expectations, estimates and intentions expressed in this document. Under no circumstances whatsoever may be the Company or its Board Members, officers, representatives or employees be held accountable with respect to any third parties (including investors) for any decisions of acts of investing or conducting business made on the basis of the information and statements contained in this presentation, or for any indirect damages, loss of income or the like. The Company has no intention of supplying any potential holders of shares with a revision of the affirmations or analysis of the differences between our statements and actual results. This presentation does not contain all the information required for a complete appraisal of investment in the Company. Each investor should thus conduct their own appraisal, including as regards the risks associated with making investment decisions.
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