Market Overview

OGX Announces 2011 Fourth Quarter and Full-Year Results


OGX Petróleo e Gás Participações S.A. (Bovespa: OGXP3) today announced its results for the fourth quarter and year ended December 31, 2011. The financial and operational data below 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 (R$), except where otherwise indicated.

“Since its creation just over four years ago, OGX has established new paradigms and set new parameters for the global oil and gas industry. A prime example is the production of our first oil in just over two years following the discovery of Waimea, which awarded our efforts throughout 2011. OGX has taken bold actions, and the results followed quickly, with the discovery of billions of barrels in Campos, Santos and Parnaíba; the production in Waimea (Campos Basin); and our first commercialization contracts now signed. With a clear entrepreneurial vision and a unique portfolio of assets, we have become a reference point for global E&P companies, successfully executing our operations and demonstrating an excellent capacity to raise the necessary capital for the future development of our portfolio. Our long-term goal is to become a premier oil and gas company that will significantly contribute to Brazil's continued development of its natural resources,” commented Eike Batista, CEO of OGX.

Paulo Mendonça, General Manager and Exploration Officer for OGX, added: “We achieved many key milestones during 2011 and in the beginning of 2012. In our exploration campaign, we drilled 47 wildcat, appraisal and production wells and increased our knowledge about our accumulations, including the first discovery of a shallow-water pre-salt reservoir in the Santos Basin. We produced our first oil through solid execution by our management and operational teams, and sold it at an excellent market price. In addition, we raised US$2.6 billion through our first bond issue, allowing us to continue developing our discoveries. We see 2012 as an important year for achieving stable production in our first producing well, beginning to declare commerciality of our accumulations in the Campos Basin and increasing our production, with another two producing wells that we expect to be connected to FPSO OSX-1 by mid-year.”

In addition to the significant achievements in the Campos Basin in 2011, OGX also discovered important developments in the Santos and Parnaíba Basins. After the successful drill-stem tests in the Natal and Maceió accumulations, OGX confirmed the discovery of a pre-salt reservoir with hydrocarbons in the shallow waters of the Santos Basin, reinforcing the enormous potential of Brazilian sedimentary basins. In the Parnaíba Basin, where the Company declared commerciality of two accumulations last year, OGX has a 70% success rate in its 10 appraisal wells. The Company expects to begin production in this basin in the second half of the year, with an estimated available production capacity of approximately 6 million m3/day in 2013 when the thermoelectric projects come on-stream.

Throughout 2012, OGX will continue with the appraisal campaign of its portfolio and will begin drilling in unexplored areas, constantly maintaining focus on maximizing the cash flow of its current assets.

2011 Highlights and Subsequent Events:

  • OGX's portfolio potential updated to 10.8 billion boe of net potential resources based on new estimates for Campos, Parnaíba and the first estimates of the Colombian basins
  • Fundraising of US$2,563 billion through a bond issue, providing significant financial flexibility
  • Drilling of 47 wells in 2011, including wildcat, appraisal and production wells in the Campos, Santos, Parnaíba and Espírito Santo basins
  • Drill-stem tests, license attainment and preparation of the OGX-26HP well to begin production
  • Arrival of the first production unit, FPSO OSX-1, in Brazil in early October
  • Beginning of production at the Waimea accumulation in January 2012
  • First oil sale agreement with Shell signed, priced at a US$5.50 discount from Brent (market reference price)
  • Acquisition of a 20% stake from Maersk in BM-C-37 and BM-C-38 in the Campos Basin, taking OGX's interest to 70%, and becoming the operator
  • Drill-stem tests performed on the Maceió (OGX-47) and Natal (OGX-11D) accumulations in the Santos Basin, both with excellent results
  • Discovery of hydrocarbons in a pre-salt microbialite reservoir in the shallow waters of the Santos Basin (OGX-63 appraisal well, named ‘Fortaleza')
  • Declaration of commerciality and beginning of the development of two gas fields – Gavião Real and Gavião Azul – in the Parnaíba Basin, with the drilling of 6 production wells
  • Acquisition of a 50% stake in block PN-T-102 in the Parnaíba Basin, through OGX Maranhão, and assumption of operational control
  • Fundraising of R$600 million, through OGX Maranhão, for the development of the Gavião Real and Gavião Azul fields in the Parnaíba Basin

Campos Basin

2011 was marked by major achievements in the Campos Basin with regards to both the expansion of OGX's exploration campaign and the start of the first oil production in the Waimea accumulation.

Highlights of the Exploration Campaign

During 2011, OGX intensified its exploratory campaign in the Campos Basin, drilling 31 wells, including 5 appraisal, 21 wildcat and 5 horizontal production wells. The Company made important discoveries throughout the year, such as the Carambola B (MRK-5), Osorno (OGX-31) and Tambora (OGX-52) accumulations.

The main focus of OGX's campaign was the appraisal of its discoveries in the basin. Significant results were achieved in the Waimea, Waikiki, Pipeline, Illimani, Fuji, Ingá, Osorno, Tambora and Peró accumulations. The results of the campaign were very important to appraise the different accumulations, giving the Company's confidence in its geological assumptions for the basin. Approximately 90% of the wildcat wells showed the presence of hydrocarbonate reservoirs. In 2012, OGX will continue drilling wildcat wells in the blocks where it has a 100% stake and, most importantly, will accelerate drilling in two blocks where the Company has recently increased its participation to become the operator (BM-C-37 and BM-C-38).

With the transfer of the operation to OGX, the Company will use its operating structure to drill approximately six wells in the BM-C-37 and BM-C-38 blocks to confirm the extension of the accumulations discovered and test the existence of prospects that are yet to be drilled. OGX will carry out all of the studies and tests that are necessary to convert the Company's resources into reserves.

Below are highlights of the significant results that OGX achieved in the quarter:

Waimea: Concluded drilling of the OGX-55HP and OGX-60HP wells, as well as the OGX-65D well, in which 97 net pay meters were identified in the Albian section, which was the pilot for the OGX-68HP well, another of the accumulation's horizontal wells.

Fuji: Concluded the OGX-69 well, in which hydrocarbons were found in the Albian section with a net pay of approximately 38 meters.

Pipeline: Concluded the drilling of the OGX-70 well, where the limits of the structure were tested, but nonetheless found a sealed reservoir without hydrocarbons. OGX also drilled the OGX-72 well, the seventh wildcat well in this accumulation, where it found an excellent hydrocarbon zone with 129 meters of net pay in the Albian section.

Illimani: Completed another wildcat well, OGX-61, with approximately 9 meters of net pay in the Albian section.

Ingá: Concluded the drilling of the OGX-64 well, in which 23 meters of net pay were identified in the Santonian section, in addition to the OGX-67 and OGX-71 wells, in which the reservoir's limits were tested, having observed reservoirs without hydrocarbons.

Osorno: Concluded drilling of the OGX-73 well, in which 37 net pay meters were found in the Albian section.

Tambora: Began drilling the first wildcat well, OGX-75, which is still in progress.

Peró: Began drilling the first wildcat well of this accumulation, OGX-76, which is still in progress.

Highlights of Production Startup in Waimea

Preparation for Production:

After the discovery of the Waimea accumulation through well OGX-3 in December 2009, OGX began preparing for the production of its first oil. During the past two years, the Company has focused on appraising the accumulation and, after an important drill-stem test in the OGX-26HP horizontal well in January 2011, began contracting the necessary production equipment. In mid-2011, OGX held a public hearing and, in September, the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) granted the preliminary and installation licenses. With these licenses, OGX began the installation of the subsea equipment at the OGX-26HP well, using the Aker Wayfarer vessel, which installed the FPSO OSX-1 mooring system, and connected the wells through flexible lines. OGX successfully installed all of the subsea equipment (piles, cables, chains and middle water arch). The buoy (a detachable turret) was then mobilized in order to begin installation and connection to the flexible lines. Afterwards, the team connected the flexible lines and umbilicals and the wet christmas tree to the buoy. In December 2011, with the buoy installed, the Company waited for the arrival of FPSO OSX-1 to the site to begin hooking the buoy up to it.

In early January, 2012, OGX obtained the last necessary license (Operational License) from IBAMA, authorizing the operation of the FPSO OSX-1 unit and the respective submarine structures for the Extended Well Test (EWT) and production development in Waimea. FPSO OSX-1, which arrived in Brazil at the beginning of October, went through final commissioning processes and inspections before being cleared for operation at the Waimea accumulation. In mid-January, OGX finished connecting the buoy to FPSO OSX-1 and, on January 31, 2012, the first oil production began through the EWT in just over two years after the discovery of the Waimea accumulation, a record for the industry.

The challenges of this operation and the complexity of the project have given OGX valuable experience that will help the Company execute future projects more efficiently.

Production Performance:

Since the beginning of the EWT on January 31, 2012, OGX has enjoyed strong operating performance, with all equipment working effectively at both FPSO OSX-1 and well OGX-26HP (submerged centrifugal pump). In addition, the reservoir has confirmed excellent characteristics. OGX's team tested various flow levels between 10,000 – 18,000 barrels/day, seeking to assess the behavior of the reservoir and establish optimum production flow.

In February, OGX achieved average production of 11,100 barrels/day and operating efficiency of 95%, an excellent result for the first month of a start-up production facility. The Company estimates that production at this well will remain between 10,000 – 13,000 barrels/day for the next several months, without water injection into the reservoir.

Strategy for Declaring Commerciality and Next Steps:

OGX plans to announce Waimea's commerciality after obtaining additional and conclusive data about the reservoir, which should occur in the second quarter of this year. After this, the Waimea Development Plan will be submitted to the Agência Nacional do Petróleo Gás Natural e Biocombustíveis (ANP) and, when approved, the Company expects to connect two additional horizontal wells already drilled and potentially a fourth production well, which should increase production to around 40,000 – 50,000 bpd by 2H2012.

The beginning of Waimea's EWT is a landmark for OGX and signals the beginning of a new phase in the commercialization of our resources, with the first shipment of 600,000 barrels expected to be dispatched to Shell at the end of March of this year, beginning the Company's cash generation. OGX has become the first private Brazilian company to produce offshore oil in Brazil, which is a landmark for a company that has only been operating for a little more than four years. The Waimea accumulation, which was discovered in December of 2009, is the first to start producing for OGX in the Campos Basin, and is expected to be followed by Waikiki in 2013, intensifying the field's development.

Production Projections in 2013:

To proceed with OGX's production growth, the Company anticipates receiving two additional FPSOs, OSX-2 and OSX-3, in mid-2013. Both are already under construction in Singapore by SBM and Modec, respectively. The projects are running on schedule, with an average of 30% of the work already completed and financing guaranteed.

Specifically to support OSX in the financing of FPSO OSX-3, which will be used in the Waikiki complex, OGX has contracted DeGolyer and MacNaughton (D&M) to certify Waikiki's contingent resources. As opposed to previous reports that were separated by sedimentary basins, the scope of this report was only one accumulation in the Campos Basin, resulting in the certification of contingent resources of 212 mboe (2C) and 302 mboe (3C).

Below is a summary of the wells, both finished and in progress, in the Campos Basin:










OGX-61     BM-C-41     Illimani - 2   Ocean Ambassador   87 km   124m   Albian: 9m   3C
OGX-65D     BM-C-41     Waimea – 4D   ENSCO 5002   83 km   135m   Albian: 97m   1C
OGX-64DP     BM-C-40     Ingá - 1 DP   Ocean Lexington   93 km   105m   Santonian: 23m   3C
OGX-69     BM-C-41     Fuji - 4   ENSCO 5002   81 km   125m   Albian: 38m   3C
OGX-70     BM-C-41     Pipeline - 5   Ocean Lexington   80 Km   123m   -   3C
OGX-60HP     BM-C-41     Waimea – 2D   ENSCO 5004   84 Km   132m  

Albian: >1,000m



OGX-67     BM-C-40     Ingá - 2   Ocean Ambassador   93 km   111m   -   3C
OGX-71     BM-C-40     Ingá - 3   Ocean Ambassador   93 km   112m   -   3C
OGX-73     BM-C-41     Osorno - 1   Ocean Ambassador   78 km   130m   Albian: 37m   N/A²
OGX-72     BM-C-41     Pipeline - 7   Ocean Lexington  
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