Petronas Bolsters Brazil's Batista with $850m OilField Buy

Source: Reuters 5/8/2013, Location: South America

Petronas has agreed to pay $850 million for a stake in a Brazilian offshore oil field, bolstering its billionaire owner Eike Batista who is unloading assets to keep his energy businesses afloat.

Petronas, which is expanding abroad to shore up future earnings as production slows at home, also said it has an option to buy a 5 percent stake in OGX Petroleoe Gas SA , the Batista company that controls the fields.

The purchase of 40 percent of two blocks off the coast of Rio de Janeiro extends a Petronas buying spree that included a $5.1 billion acquisition of Canadian oil and gas firm Progress Energy Corp.

Batista was Brazil's richest man until lower than expected output from OGX, an oil exploration and production company founded in 2007 and the flagship of his EBX Group, sent the company's shares plunging.

Troubles at OGX also pulled down the market value of other EBX companies, cutting Batista's fortune by $20 billion in the past year. He is now under pressure to divest up to half of his 60 percent to 70 percent stake in EBX so that his firms can find funds for expansion.

Petronas has the option to buy 5 percent of OGX for 6.3 reais a share. That stake would be worth $160 million, based on calculations from its shares outstanding.

"The interest demonstrated by Petronas to acquire 5 percent in our company in the future shows the quality of our team of executives and our opportunities for growth," OGX Chief Executive Luiz Carneiro said in a statement.

Batista, 56, who holds several powerboat championship titles and once predicted he would be the world's richest man by 2015, has been busily making deals to shore up his companies.

On March 7, he announced a partnership with Brazilian investment bank BTG Pactual Group, run by fellow Brazilian billionaire Andre Esteves. The bank has helped to find buyers for stakes in EBX companies and improved their access to capital.

On March 28, German energy company E.ON SE more than doubled its stake in Batista's natural gas producer MPX Energia SA to 36 percent from 11.7 percent, for 2.1 billion reais ($1.0 billion).

MAKING DEALS

Petronas is leading a rise in overseas acquisitions by Malaysian firms, as they outgrow their home economy and look to generate more profits. World Bank data shows Malaysian investment abroad steadily rose to 5 percent of GDP in 2011, the latest year for which data is available, after a drop to 3 percent in 2009 at the height of the financial crisis.

Outbound M&A from Malaysia so far this year would reach $2.27 billion with Petronas's latest buy.

The deal will also be Petronas's first foray into Brazil, which has one of the world's largest hydrocarbon reserves, including 145 billion barrels of estimated oil reserves. In contrast, Malaysia's reserves amounted to 5.9 billion barrels at the end of 2011.

Petronas said it will take up 40 percent of OGX's interest in Blocks BM-C-39 and BM-C-40, located in shallow waters 95 km (59 miles) offshore from Rio de Janeiro state and containing the Tubarao Martelo field, which is currently under development.

Bank of America Merrill Lynch advised Petronas on the acquisition.

Tubarao Martelo, which means "Hammerhead Shark", is considered an easier field for oil extraction than other fields owned by OGX.

Petronas is looking to make other acquisitions in the South American country. It's exploration arm Carigali has qualified to bid for exploration blocks at an auction in Brazil on May 14 and 15, the first such sale in four years.

While the state oil firm, which finances nearly half of Malaysia's federal budget, has been picking up assets overseas for future growth, it is also investing about $42 billion in Malaysia's 10-year Economic Transformation Programme for the period to 2020, which includes prospecting in marginal fields and building petrochemical complexes.

Batista's OGX started off flying high as a rapid exploration programme and a series of promising offshore discoveries by OGX and other Brazilian oil companies sent its shares surging.

But when OGX produced its first oil from the Tubarao Azul or "Blue Shark" field in 2012, output was disappointing. Flows were well below those expected by Batista and other executives and the shares plunged.

The shares have fallen 55 percent so far this year and nearly 90 percent since it started output in early 2012. Investors were concerned that the cash flow from oil will be insufficient to build platforms and production systems to develop existing discoveries and pay for debt and future exploration.


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