OGX - Second Quarter 2011 Results

RIO DE JANEIRO--(BUSINESS WIRE)--

OGX Petróleo e Gás Participações S.A. OGXP today announced its results for the second quarter of 2011. The financial and operating data 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 Reais, except where otherwise indicated.

"We remain focused on executing our business plan, which has advanced significantly as we have intensified our appraisal campaign and performed additional drill-stem tests, all of which are essential in converting our resources into reserves. With the recent bond issuance as well as the significant progress made in the past three months, we are not only technically but financially prepared to proceed towards production,” commented Mr. Paulo Mendonça, General Executive Officer and Exploration Officer for OGX.

From the perspective of our drilling campaign, highlights of the second quarter include the drilling of 11 appraisal wells in the Campos Basin and 2 in the Parnaíba Basin, two successful drill-stem tests performed in horizontal wells in the Campos Basin and the declaration of commerciality for two fields in the Parnaíba basin, confirming our projections and attesting to the excellent execution of our business plan. In addition, we drilled wildcat wells that continue to demonstrate the great potential of our portfolio.

With respect to the commencement of production, important steps have been achieved in the past three months including the arrival of the newly built vessel Aker Wayfarer which will be used throughout the system installation, as well as the final stage of commissioning for the FPSO OSX -1. In addition, the construction of the turret, a disconnectable buoy which is part of the OSX-1 mooring system, has been completed and is already in the mobilization process to Brazil.

Second Quarter Highlights and Subsequent Events:

• Intensification of the appraisal campaign in Waimea (OGX-50D, OGX-53D and OGX-55HP), Waikiki (OGX-41D, OGX-44HP and OGX-45D), Pipeline (OGX-39HP, OGX-40D, OGX-42D and OGX-48D), Illimani (OGX-43D) and Fuji (OGX-54D and OGX-56D) accumulations located in the Campos Basin;
• Declaration of commerciality for the California and Fazenda São José accumulations in the Parnaíba Basin, for which the newly designations are Gavião Azul and Gavião Real Fields;
• Performance of drill-stem test for the first horizontal well (OGX-44HP) in the Waikiki accumulation, with excellent results;
• Important discoveries in the Parnaíba basin through the drilling of wells OGX-38 and OGX-46D;
• Significant discoveries in the Santos basin through the drilling of wells OGX-30 and OGX-47;
• Performance of a drill-stem test for the first horizontal well (OGX-39HP) in the Pipeline accumulation with very good results;
• Initiated drilling of well OGX-55HP, the second horizontal well in the Waimea accumulation;
• Raised US$ 2.563 billion through a bond issuance; and
• Announcement of the Company's business plan for discoveries in the Campos and Parnaíba Basins.

Campos Basin

Among the activities performed in the second quarter of 2011 in Campos Basin we can highlight the intensification of the successful appraisal campaign, the results of drill-stem tests in Waikiki and Pipeline accumulations, the drilling of wildcat wells, and the arrival and preparation of equipment for the start-up of production. On June 6, we formally announced our business plan relating to discoveries made in the basin.

During the quarter we intensified our appraisal campaign in the Waimea, Waikiki, Pipeline, Illimani and Fuji accumulations. In Waimea, we concluded the drilling of well OGX-50D encountering a hydrocarbon zone with 52 meters of net pay in the Albian section. In addition, we initiated the drilling of wells OGX-53D and OGX-55HP, which are still ongoing. In the Waikiki accumulation, we have concluded the OGX-41D, OGX-44HP and OGX-45D wells. The directional well OGX-41D found a net pay of 92 meters in the Albian section and was the pilot well for OGX-44HP, which was horizontally drilled for more than 1,000 meters in Albian-Cenomanian reservoirs. The well OGX-45D, which was intended to test the limits of the Waikiki accumulation, discovered hydrocarbons only in the Maastrichtian section, indicating an additional potential in sandstone reservoirs which extend towards the Ingá-Peró Complex. In the Pipeline accumulation, wells OGX-39HP, OGX-40D, OGX-42D and OGX-48 were drilled, identifying the presence of hydrocarbons in the Albian section with net pays of more than 1,000 (horizontal column), 107, 82 and 12 meters, respectively. In the Illimani accumulation, we have concluded well OGX-43D which confirmed the extent of the reservoirs in the Albian section and identified a net pay of 50 meters. Finally, we began the drilling of wells OGX-54D and OGX-56D in the Fuji accumulation, both of which are still in progress.

Additionally, we obtained the results of the drill-stem tests in horizontal wells OGX-39HP and OGX-44HP in the Pipeline and Waikiki accumulations, respectively. The test in well OGX-39HP, which is the first horizontal well in the Pipeline accumulation, indicated good reservoir conditions, implying a production capacity of around 10,000 barrels per day and oil of approximately 19° API. The test in well OGX-44HP identified oil of approximately 23° API and a production potential of 40,000 barrels per day, which will be limited to a flow rate of 15,000 to 20,000 barrels per day per well to optimize oil recovery from the reservoir.

Continuing with our wildcat drilling campaign, well OGX-33 was drilled in the Chimborazo accumulation and identified a net pay of 42 meters in the Albian section. We have also drilled well OGX-52 in the Tambora accumulation, which has identified a net pay of 96 meters in the Albian section and we have initiated OGX-58DP well also in this accumulation that is still ongoing.

The commencement of OGX's production is scheduled for October/November this year in the Campos Basin. The first project in the Waimea Complex will take place through an Extended Well Test (EWT) and will have an anticipated production of up to 20,000 barrels per day from well OGX-26HP.

All of the critical equipment for the start-up of production has been secured. The wet christmas tree and the electric submersible pumping system are already installed and other equipment such as flexible lines, moorings and piles (which are part of the FPSO mooring system) and the installation vessel have already been delivered. The FPSO OSX-1 is ready in the shipyard in Singapore and the turret (a buoy, part of the mooring system) is in the mobilization process to Brazil.

Below are the discoveries made and ongoing wells in the Campos Basin:

DISCOVERIES IN THE QUARTER

Well

Block

Prospect

Rig

Coast Distance

Water Depth

Net Pay

Drilling Area¹

OGX-33

BM-C-41

Chimborazo

Pride Venezuela

84 Km

127m

Albian: 42m

-

OGX-41D

BM-C-39 /

Waikiki -2 D

Ocean Lexington

90 Km

110m

Albian: 92m

2C

BM-C-40

OGX-40D

BM-C-41

Pipeline -2 D

Sea Explorer

79 Km

130m

Albian: 107m

2C

OGX-43D

BM-C-41

Illimani -1 D

Ocean Ambassador

80 km

140 m

Albian: 50m

Delineation

OGX-44HP

BM-C-39/

Waikiki

Ocean Lexington

90 Km

110m

Albo-Cenomanian: 1.063m (horizontal column)

2C

BM-C-40

OGX- 48

BM-C-41

Pipeline - 4

Ocean Ambassador

75 Km

128m

Albian: 12m

3C

OGX-42D

BM-C-41

Pipeline -3 D

Pride Venezuela

78 Km

120m

Eocene: 6m Albian: 82m

3C

OGX-50D

BM-C-41

Waimea – 3 D

Sea Explorer

84 Km

131m

Santonian: 1,7m Albian: 52m

1C

OGX-45D

BM-C-40

Waikiki – 3 D

Ocean Lexington

96 Km

109m

Maastrichtian: 5m

Delineation

OGX-39HP

BM-C-41

Pipeline Horizontal

Ocean Star

77 Km

128m

Albian: 1.000m(horizontal column)

1C

OGX-52

BM-C-41

Tambora

Ocean Ambassador

93Km

128m

Albian: 96m

-

ONGOING WELLS

Well

Block

Prospect

Rig

Coast Distance

Water Depth

Status

Net Pay

Drilling Area¹

OGX-53D

BM-C-41

Waimea – 2D

Pride Venezuela

84Km

131m

In progress since 07/10/11

1C

OGX-54

BM-C-41

Fuji - 2

Ocean Lexington

81 Km

136m

In progress since 07/25/11

Delineation

OGX-55HP

BM-C-41

Waimea – 3HP

Sea Explorer

84 Km

131m

In progress since 07/24/11

1C

OGX-56D

BM-C-41

Fuji – 1 D

Ocean Star

83 Km

133m

In progress since 07/26/11

3C

OGX-58DP

BM-C-41

Tambora

Ocean Ambassador

93Km

128m

In progress since 08/07/11

-

¹ As per D&M's Dec/10 reports

Parnaíba Basin

During this quarter, we made important discoveries in this basin and presented to the ANP declarations of commerciality for the Gavião Azul and Gavião Real fields. The development plans for these fields have already been submitted by OGX, who are still in the process of analyzing them.

We concluded the drilling of four wells, including two wildcat wells, OGX-34 and OGX-46D, and two appraisal wells, OGX-38 and OGX-51DP, which identified net pays of 23, 15, 43 and 8 meters, respectively, in the Devonian section. We also started the drilling of wildcat well, OGX-49, and appraisal well, OGX-57, which are still in progress.

Following the seismic campaign in this basin, we engaged a second seismic team during the quarter to focus on the southern blocks, while the first team remains focused on seismic in the northern blocks.

The Gavião Azul and Gavião Real fields will be the first natural gas fields developed by OGX. We expect that gas production in this basin will start in the second half of 2012, as announced in our business plan for the discoveries made in this basin. We estimate that these fields will reach a production level of 5.7 million m³/day in 2013, which corresponds to total production of 1.1 Tcf of gas. Natural gas produced in the region is expected to be the supply source for thermoelectric power plants to be built by MPX Energia SA, an EBX Group company, in association with Petra Energia SA, both of which are partners with OGX in this basin.

MPX has entered into a term sheet with Bertin Energia e Participações to acquire two projects, which are still awaiting ANEEL's approval, that have the authorization for the construction of thermoelectric power plants with a total capacity of 660 MW. MPX intends to transfer these licenses acquired in the A-5 auction in 2008 to the Parnaíba Thermoelectric Complex, where it already has a prior installation license to implement 3,722 MW. This acquisition represents an important step in the integration of natural gas production provided by OGX Maranhão, to power generation in the Parnaíba Basin.

Below are the discoveries made and ongoing wells in the Parnaíba basin:

DISCOVERIES IN THE QUARTER

Well

Block

Prospect

Rig

Coast Distance

Water Depth

Net Pay

Drilling Area¹

OGX-34

PN-T-68

Bom Jesus

QG-1

Onshore Block

Devonian: 23m

-

OGX-38

PN-T-68

Fazenda São José

BCH-05

Onshore Block

Devonian: 43m

3C

OGX-46D

PN-T-68

Califórnia - D

QG-1

Onshore Block

Devonian: 15m

3C

OGX-51DP

PN-T-68

Califórnia - 2 DP

QG-1

Onshore Block

Devonian: 8m

3C

ONGOING WELLS

Well

Block

Prospect

Rig

Coast Distance

Water Depth

Net Pay

Drilling Area¹

OGX-49

PN-T-68

Fazenda São José Adjacent

BCH-05

Onshore Block

In progress since 06/24/11

-

OGX-57

PN-T-68

Fazenda São José - 2

QG-1

Onshore Block

In progress since 07/30/11

3C

¹ As per D&M's Dec/10 reports

We have recently approved the leasing agreement of two additional onshore drilling rigs for the production development plan in Parnaíba Basin.

Santos Basin

In the second quarter of 2011, we continued our exploratory campaign and achieved important results testing classic targets and new geological models. We have concluded the drilling of well OGX-30, which confirmed a new play in fractured carbonates in the Albian age, showing a significant gas column and a large structured area. This discovery enabled us to confirm this new geological model for the region so that we can begin the appraisal campaign.

The recent discovery in sandstones in the Santonian age in well OGX-47, in the Maceió accumulation, contributed significantly to the development of our assets in this region and, when combined with the discoveries already made in the basin, will generate greater economies of scale and cost-effectiveness. We intend to focus on the appraisal campaign and proceed with the development of the production model for the region.

Below are the discoveries made and ongoing wells in the Santos basin:

DISCOVERIES IN THE QUARTER

Well

Block

Prospect

Rig

Coast Distance

Water Depth

Net Pay

OGX-30

BM-S-58

Salvador

Ocean Quest

105 Km

151 m

Albian: 50m

ONGOING WELLS

Well

Block

Prospect

Rig

Coast Distance

Water Depth

Status

Net Pay

OGX-47

BM-S-59

Maceió

Ocean Quest

110 Km

185m

In progress since 05/24/11

Santonian: 51m

OGX currently has nine rigs at its disposal, including six semi-submersible rigs, two onshore rigs and one jack-up for drilling in the Campos, Santos, Parnaíba and Pará-Maranhão basins. Eight rigs are in operation and one is currently being mobilized.

Marketing

With respect to marketing the oil from the Campos Basin, OGX has prospects among large refiners in South America, the U.S., Europe and the Middle-East. The majority of these refiners have shown interest in acquiring the Waimea oil and the Company believes it will be able to build solid and long-term commercial relationships with these firms. Waimea oil has an API gravity of about 20° and is adequate for processing in various refineries around the world. It is expected that prior to production OGX will sign a sales contract for the first oil produced.

As for the Parnaíba Basin, OGX plans to sell the gas produced in the first project to the thermoelectric generation complex being built in the area by MPX.

Upcoming Events

The Company expects important events to occur in the coming months, including: (i) the arrival of FPSO OSX-1 and start of production in the Waimea accumulation in October/November 2011, through an extended well test, (ii) continuation of the intensive appraisal campaign, mainly in the Campos Basin, (iii) start of exploratory campaigns in the Espírito Santo and Pará-Maranhão Basins in the second half of the year, (iv) results of drill-stem tests in horizontal wells which will become production wells, (v) acquisition of seismic data for our blocks located in the Lower Magdalena Valley Basin, Colombia, and (vi) continuation of the appraisal campaign in the Parnaiba Basin.

The announcement of the business plan, combined with the imminent initiation of the production campaign, represents an important milestone for the Company and lends credibility to its long-term strategy of becoming the largest private producer of oil and gas in Brazil. In addition, there are opportunities for continued growth for OGX, including the discoveries in the Santos Basin which have yet to be developed, the potential of other good assets owned by the Company in the Espírito Santo, Pará-Maranhão and Colombian Basins, as well as possible new concessions expected to be obtained in the next ANP bidding rounds in Brazil.

Financial Performance

OGX ended the quarter with a solid cash position of R$ 7.0 billion (US$ 4.5 billion). The Company raised US$ 2.563 billion through a bond issuance on June 3, 2011, the largest high yield issuance ever made in the Oil & Gas industry.

In R$ (‘000)

Main Accounts		2Q11		2Q10		Variance		2H11
Net Financial Results		(30,157)		135,548		(165,705)		(12,256)
Financial Income		160,159		151,292		8,867		290,760
Financial Loss		(190,316)		(15,744)		(174,572)		(303,016)
Exploration Expenses		(42,689)		(25,252)		(17,437)		(74,982)
General and Administrative Expenses		(87,047)		(57,119)		(29,928)		(130,486)
Net profit (loss) for the period		(108,757)		57,791		(166,548)		(142,641)

Main Accounts		06/30/2011		12/31/2010		Variance
Intangibles		5,932,045		4,589,418		1,342,627
Cash*		7,012,272		4,788,166		2,224,106

*Cash and Cash Equivalents + Marketable Securities

Net Financial Result

The net financial result was a negative R$ 30.2 million in the period, due mainly to the following items: income from financial investments of R$ 106.0 million, the positive effect of R$ 16.5 million (related to the contracted amount of US$ 901 million in foreign currency NDF operations) on the result of fair value on derivative operations ("mark to market") and realized net losses due to derivative financial instruments associated with foreign exchange hedge in the amount of R$ 138.4 million.

Exploratory Expenses

Exploratory expenses increased from R$ 25.3 million in the second quarter of 2010 to approximately R$ 42.7 million in the second quarter of 2011 due to expenses related to seismic data acquisition primarily in the Parnaíba, Espírito Santo and Campos Basins, the rent paid to the Brazilian Agency of Petroleum, Natural Gas and Biofuels (ANP) in relation to our exploration blocks, and a performance bond associated with the Minimum Exploration Program. Additionally, we had expenses with technical, environmental and information technology consulting services.

General and Administrative Expenses

General and administrative expenses were mainly impacted by an increase in the number of employees in the Company to 266 in the 2Q11 from 184 people in the same period in the previous year, which resulted in higher personnel and office costs as well as other expenses necessary to manage the operations of the Company and its subsidiaries.

Net Loss

We recorded a net loss of approximately R$ 108.8 million in the quarter ended June 30, 2011, primarily impacted by the increase of our financial expenses over the same period in 2010 (R$ 190.3 million versus R$ 15.7 million), the increase in exploration expenses which totaled R$ 42.7 million in the period and general and administrative expenses in the amount of R$ 87.0 million. The expenses were partially offset by an income tax and social contribution credit of approximately R$ 47.7 million and minority interest of R$ 3.5 million.

Intangible Assets

Intangible assets represent capital expenditures during the pre-operational period for the purchase of concession rights and drilling campaign. The increase in this expenditure in the first half of 2011, equivalent to R$ 1,342.6 million, was due to the continuation of our intense drilling campaign. During the semester, the Company had eight drilling rigs operating in the Campos, Santos and Parnaíba basins.

Cash

The consolidated cash of the Company and its subsidiary totaled approximately R$ 7.0 billion, or US$ 4.5 billion, to support the exploration commitment and development of initial production. Income from domestic and overseas investments in fixed income was R$ 106.0 million in the second quarter. The average rate for domestic investments was 11.75% per year, or 103.56% of CDI (Brazilian Interbank Deposit Certificate), and investments abroad yielded approximately 1.5% per year.

Assets		06/30/2011		12/31/2010
Total Assets		13,824,134		9,988,534
Current Assets		7,363,638		5,083,508
Cash*		7,012,272		4,788,166
Recoverable taxes		309,619		279,334
Others		41,747		16,008
Non-current Assets		6,460,496		4,905,026
Inventory		279,306		223,793
Deferred Taxes		112,043		45,640
Related Parties		71,094		18,551
Investments		-		-
Property, plant and equipment		66,008		27,624
Intangibles		5,932,045		4,589,418

*Cash and cash equivalents + Marketable securities

Liabilities + Shareholders' Equity		06/30/2011		12/31/2010
Total Liabilities and Shareholders' Equity		13,824,134		9,988,534
Current		705,427		736,978
Suppliers		384,698		446,907
Taxes and contributions payable		7,633		23,643
Compensations & benefits		27,889		29,208
Loans and Financing		15,708		-
Financial instruments - derivatives		234,366		225,794
Others		35,133		11,426
Non-current		4,007,280		11,758
Loans and Financing		3,938,823		-
Related parties		68,457		11,758
Minority Interest		20,058		24,653
Shareholders' equity		9,091,369		9,215,145
Capital		8,810,008		8,806,451
Capital reserves		241,382		224,256
Retained earnings (losses)		186,806		185,586
Cumulative conversion adjustments		(4,186)		(1,148)
Accumulated losses		(142,641)		-

Financial Statement		2Q11		2Q10		1H11
Operating income (expenses)		(129,736)		(82,371)		(205,468)
Exploration expenses		(42,689)		(25,252)		(74,982)
General and administrative		(87,047)		(57,119)		(130,486)
Equity Method		-		-		-
Financial Income		160,159		151,292		290,760
Financial expenses		(190,316)		(15,744)		(303,016)
Profit (loss) before income tax and social contribution		(159,893)		53,177		(217,724)
Income tax and social contribution		47,667		(5,346)		66,404
Net profit (loss) before Minority Interest		(112,226)		47,831		(151,320)
Minority Interest		(3,469)		(9,960)		(8,679)
Net profit (loss) for the period		(108,757)		57,791		(142,641)
Number of shares *		3,233,690,000		3,232,423,600		3,233,690,000
Profit (loss) per share - R$		(0.03363)		0.01788		(0.04411)

Conference Call:

Thursday, August 11th - 9 a.m. (Brasília Time Zone); 8 a.m. (NY Time Zone)

USA Telephone: +1 888-700-0802

Brazil Telephone: +55 11 4688-6341

Other Countries Telephone: +1 786-924-6977

Access Code: OGX

Webcast in English: www.ccall.com.br/ogx/2q11.htm

Audio will be available three hours after the conference call on: http://ri.ogx.com.br/ptb/s-10-ptb.html

The conference call will be conducted in English with simultaneous translation into Portuguese.

ABOUT OGX

OGX Petróleo e Gás SA is focused on oil and natural gas exploration and production and is conducting the largest private sector exploratory campaign in Brazil. OGX has a diversified, high-potential portfolio, comprised of 29 exploratory blocks in the Campos, Santos, Espírito Santo, Pará-Maranhão and Parnaíba Basins, in Brazil, and 5 exploratory blocks in Colombia, in Middle Magdalena Valley, in Lower Magdalena Valley and in Cesar-Ranchería basins. The total extension area is of approximately 7,000 km² in sea and approximately 34,000 km² in land, with 21,500 km² in Brazil and 12,500 km² in Colombia. OGX relies on an experienced management team and holds a solid cash position, with approximately US$4.5 billion in cash (as of March, 2011) to fund its E&P investments and new opportunities. In June 2008, the company went public raising R$6.7 billion, the largest amount ever raised in a Brazilian primary IPO at that moment. OGX is a member of the EBX Group, an industrial group founded and under the leadership of Brazilian entrepreneur Eike F. Batista, who has a proven track record in developing new ventures in the natural resources and infrastructure sectors. For more information, please visit www.ogx.com.br/ir

LEGAL NOTICE

This document contains Company-related statements and information that reflect the current vision and/or expectations the Company and its management have regarding its business plan. These include, among others, all forward-looking statements that involve forecasts and projections, indicate or imply results, performance or future achievements, and may contain words such as “believe,” “foresee,” “expect,” “consider,” “is likely to result in” or other words or expressions of similar meaning. Such statements are subject to a series of expressive risks, uncertainty and premises. Please be advised that several important factors can cause the actual results to diverge materially from the plans, objectives, expectations, estimations, and intentions expressed in this document. In no event shall the Company or the members of its board, directors, assigns or employees be liable to any third party (including investors) for investment decisions or acts or business carried out based on the information and statements that appear in this presentation, or for indirect damage, lost profit or related issues. The Company does not intend to provide to potential shareholders with a revision of the statements or an analysis of the differences between the statements and the actual results. You are urged to carefully review OGX's offering circular, including the risk factors included therein. This presentation does not purport to be all-inclusive or to contain all the information that a prospective investor may desire in evaluating OGX. Each investor must conduct and rely on its own evaluation, including of the associated risks, in making an investment decision.