Batista’s Billions Bounce Back After Crash

By Lucy Jordan, Contributing Reporter

BRASÍLIA, BRAZIL – Shares in Eike Batista’s oil and gas company, OGX Petroleo & Gas Participacoes (OGX), rebounded Monday after a rollercoaster week saw them drop by forty percent last Wednesday and Thursday, temporarily knocking some US$4 billion off the Brazilian billionaire’s personal fortune, according to calculations by Bloomberg.

OGX climbed fifteen percent to R$6.30 Monday, recouping R$0.80 in value following a severe decline last week, triggered when the company reported crude production in two wells that was as much as 75 percent lower than anticipated.

“The Company has defined an ideal flow rate of 5,000 barrels of oil equivalent per day per well for the first two wells,” said a regulatory filing. The figure from the company, which produced its first oil in January of this year, disappointed analysts.

Ricardo Gottschalk, an economist and former Economic Adviser to Sao Paulo state government, said the OGX share prices were based on promises and expectations. “Therefore [they were] vulnerable to pieces of bad news. So what has happened was a price correction downwards,” he said.

A statement from the company tried to downplay the lower-than-expected yield from its only productive well, saying, “OGX remains confident it will recover 110 million barrels of oil equivalent at the Tubarão Azul Field.”

After the plunge in value, Bloomberg reported that Bank of America Merrill Lynch had downgraded OGX’s stock from ‘neutral’ to ‘underperform.’ A report released by the bank said that the disappointing result brought larger assumptions behind the company’s growth into question.

“We see this as a great disappointment that will probably have a longer effect on the assessments made about OGX,” the report added.

Mr. Gottschalk predicted that share prices would continue to rally in the coming months. “Provided no more bad news follows, then the tendency is for OGX share prices to recover gradually, albeit probably not fully.”

However he said that contagion within Batista’s portfolio was inevitable. “Of course the whole Batista conglomerate is affected by that,” he said, adding, “OGX itself will be affected by bad news in other parts of the conglomerate in the future.”

Batista’s EBX conglomerate includes publicly traded companies working in areas such as oil, shipping, logistics and gold. LLX Logistica S.A. has developed the Superporto do Açu, a US$1.6 billion project in São João da Barra, in the north of Rio de Janeiro state. Share prices in LLX sank 7.5 percent on Wednesday and a further eight percent on Thursday, but recouped 4.5 percent to R$2.31 Monday.

Mineracao & Metalicos (MMX), Batista’s mining firm, is entering the final phase of construction of its iron ore export port in Itaguai, on the Sepetiba bay in Rio de Janeiro state. MMX tanked 17 percent Thursday after a drop of 6.9 percent Wednesday. It regained 3.4 percent Monday, reaching R$6.05.

Following the decline in OGX shares, the company announced Friday that Paul Mendonça, who had been president of OGX for two months, would be replaced by Luiz Eduardo Carneiro, CEO of shipping subsidiary OSX.

“The shuffling of his CEOs is positive in that it shows Mr. Batista responds to these events,” said Mr. Gottschalk. “But the fundamental issue is that of lowering expectations so that these are more aligned with reality on the ground.”