Promising Brazilian oil firm files for bankruptcy protection

The Brazilian petroleum firm OGX Petroleo e Gás Participações SA, once the jewel of a former multi-billion-dollar conglomerate run by magnate Eike Batista, announced on Wednesday that it was seeking bankruptcy protection from its creditors.

A once-renowned billionaire who was admired in his home country for his rise from humble beginnings to become at one time the seventh-richest man in the world, Batista could now face the largest-ever corporate bankruptcy proceeding in Latin America.

OGX stock has lost close to 100 percent of its value in the last few months, dropping to 0.16 reals (or seven cents of a US dollar) on Wednesday -- the lowest level since it first debuted on the BM&FBovespa stock exchange.

OGX raced against the clock to find new investors while at the same time trying to reach an agreement with creditors to renegotiate part of its 11.2-billion-real ($5.1 billion) debt load.

At the beginning of October, company officials announced that they would not be able to pay some $45 million in interests on bonds issued abroad that were scheduled to mature on November 1.

If the filing is accepted, a judge will have to set new deadlines for negotiations with creditors

The company agreed to a 30-day deadline to negotiate with creditors and “adopt the necessary measures.” Talks took place in New York and Rio de Janeiro, where OGX is based, but they ended this week without an agreement.

If the filing is accepted, a judge will have to set new deadlines for negotiations with creditors, including mediating all future meetings in an effort to keep OGX from going bankrupt. The case was filed in the Corporate Division of the Justice Tribunal of Rio de Janeiro State.

A court-approved deal granting the petroleum firm protection would prevent minority shareholders from selling their stock.

OGX, which was the leading component of Batista’s EBX conglomerate, was formed in 2007 to buy oil concessions being sold at the time by state-run Petrobras to pump crude in 21 offshore oil fields south of Rio de Janeiro. It was organized with money from private investors and formed partnerships: OGX Petroleo e Gás Participações S.A., OGX Petroleo e Gás S.A., OGX Internacional and OGX Austria.

His debut in the oil market was so successful that seven months later Batista managed to raise more than $3 billion in an initial public offering in what was at the time the biggest IPO in Brazilian history.

The markets were wrong for believing in his hallucinations”

On October 15, 2010, OGX reached its financial peak with a market value of 75.2 billion reals (more than $34 billion) and the stock price listed at 23.27 reals ($10.60) per share.

But the euphoria began to subside last year when the oil firm acknowledged that the promising Blue Shark field would not produce anything like what it had expected and the company's stock began to decline. Soon afterwards, OGX also had to reduce by a third its initial projections at the Hammerhead Shark field. In both cases, company officials cited technical difficulties in extracting crude several kilometers below sea level as the reasons for the miscalculations.

According to O Globo columnist Miriam Leitão, Batista “encouraged speculation and artificially inflated the market value of projects that weren’t even yet mature.”

“The government and the markets were wrong for believing in his hallucinations,” she said.