OGX Reports Third Quarter 2009 Results

November 11, 2009 7:40 PM EST

- Drilling Initiated with Two Successful Wells -

- New Estimates of Volume Certified by D&M: Net Risked Prospective Resources of 6.7 billion and Net Contingent Resources of 212 million boe -

- US$ 4.4 billion in cash exceeds exploratory capex needs for over 3 years -

RIO DE JANEIRO--(BUSINESS WIRE)-- OGX S.A. (Bovespa: OGXP3; OTC: OGXPY) announced its third quarter results today. The following financial and operating information is presented on a consolidated basis, pursuant to Brazilian corporate law, in thousands of reais (R$), unless stated otherwise.

"This has been a very significant period for OGX. In less than two years since the formation of the Company, we were able to initiate our drilling campaign, gain valuable knowledge about our portfolio and already show substantial results," noted Paulo Mendonca, OGX's General Executive Officer. "In our first wholly-owned well, OGX-1, in the shallow waters of the Campos Basin, we made a discovery of an estimated 500 million to 1.5 billion barrels of oil which we believe is the beginning of a highly promising campaign in this area. More broadly, we see this discovery as a validation of our geological model and exploration strategy.

"Furthermore, we have taken the information obtained through the drilling of OGX-1 and turned it over to our technical team for additional analysis. We expect that they will refine the interpretation of the seismic data for the Campos basin taking into consideration this new knowledge, further reducing the exploratory risk associated with the next prospects to be drilled," added Mr. Mendonca.

Third Quarter and Subsequent Events:

    --  On August 16th, drilling was initiated on well 1-MRK-2A-SPS, located in
        the BM-S-29, block in the shallow waters of the Santos Basin where
        indications of oil and gas were found. OGX holds a 65% working interest
        while Maersk Oil, the operator, holds 35%;
    --  On September 17th, drilling was initiated on well 1-OGX-1-RJS, located
        in the BM-C-43 block, in the shallow waters of the southern part of the
        Campos Basin. The drilling of this first well was concluded in less than
        a month and resulted in a discovery of an estimated 500 million to 1.5
        billion barrels of recoverable oil;
    --  On October 22nd, drilling was initiated on well 1-OGX-2-RJS, located in
        the BM-C-41 block, in the shallow waters of the southern part of the
        Campos basin. Drilling in this block is still in progress;
    --  OGX acquired a 70% participation in each of seven exploratory onshore
        blocks in the Parnaiba Basin, in the state of Maranhao. This Basin is
        considered a high potential new frontier for onshore gas production, as
        the drilling of a well there in 1987 confirmed the presence of
        hydrocarbons. In parallel to this acquisition, OGX signed a Memorandum
        of Understanding with MPX Energia S.A. ("MPX"), an EBX Group Company
        focused on power generation. The objective of this agreement is to
        formalize the transfer, subject to ANP approval, of OGX's participation
        to a new special purpose vehicle in which OGX and MPX would hold
        respectively 66.7% and 33.3% interests, as well as the intention of
        executing an agreement for the sale of the gas to be produced;
    --  OGX's controlling shareholder, Chairman and CEO, Mr. Eike Batista,
        acquired an additional 1.5% stake in OGX through the purchase of
        2,423,975 global depositary receipts (GDRs), representing 484,795 common
        shares, increasing his overall ownership position to approximately 62%;
    --  Secured a fifth drilling rig, Ocean Star, from Diamond Offshore
        Netherlands B.V. This decision reflects the Company's positive outlook
        regarding the potential of OGX's prospects supported by additional
        analysis of the 3D seismic data, as well as recent successes in the
        drilling campaign;
    --  Cash position at the end of the third quarter reached US$4.4 billion
        (R$7.8 billion)

DeGolyer & MacNaughton Report

On November 9th, we disclosed the results of two reports prepared by DeGolyer & MacNaughton (D&M) which certify the new estimates of OGX s potential resources. The Prospective Resource Report certifies our net risked prospective resources at 6.7 billion barrels of oil equivalent ("boe") and the Contingent Resources Report, certified net contingent resources at 212 million boe. Both reports were prepared with information available as of September 30th 2009.

D&M has over 70 years of experience as a leading consultant in reserve certification for the oil and natural gas industry with extensive knowledge of the Brazilian sedimentary basin. D&M was responsible for our first appraisal report in March of 2008 which estimated 4.8 billion boe of net risked resources with an average probability of success of 27% based primarily on 2D seismic data.

The newly-issued Prospective Resource Report, which replaces the previously issued report from March of 2008, certified our risked resources at 6.7 billion boe for the entire portfolio with an average probability of success of 34.5%. This report was based on recently acquired seismic data for the five blocks located in the southern part of the Campos basin and for the five blocks in the Espirito Santo basin. This report also includes preliminary volume estimates based on a few existing seismic lines in the onshore blocks recently acquired in the Parnaiba basin, in the Maranhao state.

The Contingent Resources Report certified our net contingent resources at 212 million boe in the Parnaiba Basin, based on data derived from a well drilled in 1987 on block PN-T-68, where hydrocarbons were discovered.

The table below shows the new numbers:

In million of boe

                       Total                   Total      OGX        Total       OGX
                                  Probability
Basin          Blocks  Unrisked   of           Risked     Risked     Contingent  Contingent

                       Resources  Success(2)   Resources  Resources  Resources   Resources
                       (1)

Campos         7       9,350      44.1%        4,124      3,693      -           -

Santos         5       6,659      27.0%        1,796      1,688      -           -

Espirito       5       5,017      32.6%        1,634      817        -           -
Santo

Para-Maranhao  5       2,104      21.3%        447        447        -           -

Parnaiba       7       186        19.9%        37         26         303         212

Total          29      23,317     34.5%        8,039      6,672      303         212

               (1) Gross Prospective Resources

               (2) Pg = Probability of geological success

OGX Drilling Campaign

The drilling campaign on our wholly-owned and operated blocks was initiated on September 17th with the drilling of well 1-OGX-1 in block BM-C-43 in shallow waters of the southern part of the Campos Basin. The rig Ocean Ambassador took 27 days to drill all mapped targets and encountered an oil column of over 200 meters and sandy reservoirs (net pay) of 57 meters. Based on the well information and existing 3D seismic data interpretation, OGX estimates a recoverable oil volume of between 500 million and 1.5 billion barrels.

As a consequence of this excellent result, we have raised the priority given to drilling activity in the Campos Basin during 2009. Data derived from the initial drilling is being evaluated by our technical team in conjunction with the seismic interpretation. This work will improve our understanding and help to "de-risk" future targets.

Drilling of one additional well in the southern part of the Campos Basin has been initiated. Ocean Ambassador, the rig also responsible for drilling of OGX-1, commenced work on well OGX-2 on October 22nd . This well is located on the BM-C-41 block, 77 km from the coast of the Rio de Janeiro state at a water depth of approximately 130 m.

Drilling on BM-S-29 is still in progress, with very promising results so far.

Upcoming Events

For the coming months, we expect to highlight results related to the ongoing drilling activity on wells OGX-2, as well as the initiation of drilling for wells OGX-3, OGX-4 and OGX-5, all located in the Campos Basin. The drilling of well OGX-2, located in block BM-C-41, was initiated on October 22nd and it is estimated that it will take approximately 60 days to reach all of the targets. The drilling of well OGX-3 will be initiated in a few days and it is anticipated that it will also be concluded in about 60 days. It is currently expected that the drilling of the wells OGX-4 and OGX-5 will be initiated in December and concluded in the beginning of 2010.

In the next few months, we expect to acquire new seismic data for the Parnaiba basin, as only a small part of the seven blocks is currently covered by sparse 2D seismic. This new data should increase our confidence in the mapped prospects and help us to identify new structures. We expect to initiate drilling in this area by mid 2010.

At the Board of Directors meeting held on October 7th, the Board approved a stock split which is subject to approval at the next Shareholders Meeting. The proportion of the split, 100 newly issued shares of OGX stock for one existing OGX share, is intended to promote liquidity and expand the shareholder base. We expect this split to occur in December.

Financial Highlights

"We ended this quarter with R$7.8 billion in cash, essentially flat with the prior quarter despite having incurred additional charges related to the initiation of our drilling campaign. Interest income on our cash investment associated with an efficient cost management helped us to optimize our financial resources. Our strong cash position is a critical element supporting the implementation of our business plan into the next few years," noted Marcelo Torres, Chief Financial and Investor Relations Officer.

At the beginning of the Exploratory Campaign, OGX put in place an insurance program to cover risks associated with its operations. OGX purchased the following policies: (i) Property with Maximum Insurance Limit ("MIL") of US$ 38 million for both onshore and offshore operations, (ii) Third Party Liability with MIL of US$ 100 million for each occurrence, and (iii) Control of Well with MIL of US$ 250 million for the Santos Basin and MIL of US$ 125 million for the Campos Basin. This coverage is valid for 18 months from September 16th, 2009.

Main Accounts                        3Q09       2Q09        Variance   YTD09

Net Financial Results                13,845     (107,357 )  121,202    150,050

Exploration Expenses                 (12,577 )  (12,594  )  17         (80,681 )

General and Administrative Expenses  (28,547 )  (24,187  )  (4,360  )  (69,600 )

Net Loss                             (31,856 )  (148,819 )  116,963    (33,088 )

Main Accounts                  09/30/2009  06/30/2009  Variance

Intangibles                    2,293,958   2,052,672   241,286

Property, plant and equipment  18,898      16,980      1,918

Cash and cash equivalents      7,790,067   7,854,954   (64,887 )

Net Financial Results

The net financial gain of R$ 13.8 million was mainly driven by the financial income of R$ 180 million in the period, partially offset by the negative impact on the Mark to Market ("MtM") position in comparison to the previous quarter (R$ 72.9 million) and the realized losses of the foreign exchange hedge position (R$ 92.7 million).

Exploration Expenses

Exploration expenses were stable quarter-over-quarter, amounting to R$ 12.6 million. In this quarter, our activities were more focused on the interpretation of the seismic data and the beginning of our drilling campaign.

General and Administrative Expenses

General and administrative expenses were predominantly impacted by an increase in the number of employees to 126. This expansion is associated with the ramping up of our drilling campaign.

Net Loss

The net loss of R$ 31.9 million during the third quarter was R$ 117 million lower than that of the previous quarter mainly due to reduced impact of unrealized hedging losses.

Intangible Assets

Intangible assets represent capitalized expenditures occurred during the start-up period, relating to the acquisition of concession rights, minimum work program and well costs related to the exploratory phase. The increase in the third quarter is driven by the initiation of the drilling campaign and the Parnaiba basin farm-in.

Cash and Cash Equivalents

The reduction in Cash and Cash Equivalents was not material (0.8%). Despite the fact that the beginning of the drilling campaign significantly increased payments to suppliers and partners, the financial income generated during the period partially offset this impact. These resources are managed by OGX through Fundo de Investimento em Cotas de Fundos de Investimento Multimercado Credito Privado OGX63 (Investment Fund in Quotas of Private Credit Multi-market Investment Funds), which invests primarily in fixed income securities of the most solid banks in Brazil. The year-to-date average accumulated gross interest rate for the investment funds was equivalent to 118.74% of the Interbank Deposit Certificate rate (CDI).

Assets                               09/30/2009    06/30/2009

Total Assets                         10,306,268    10,098,974

Current                              7,992,412     8,029,322

Cash and cash equivalents            7,790,067     7,854,954

Recoverable taxes                    146,193       144,972

Inventory                            39,359        7,146

Others                               16,793        22,250

Non-current                          2,313,856     2,069,652

Investments                          1,000         -

PPE, net                             18,898        16,980

Intangibles                          2,293,958     2,052,672

Liabilities + Shareholder's Equity   09/30/2009    06/30/2009

Total Liabilities                    10,306,268    10,098,974

Current                              1,171,082     933,107

Suppliers                            13,250        12,731

Taxes and contributions payable      34,096        29,107

Provisions                           642,774       552,174

Compensations & benefits             18,028        3,226

Financial instruments - derivatives  381,820       308,908

Others                               81,114        26,961

Non-current                          2,442         1,370

Related parties                      2,442         1,370

Shareholder's equity                 9,132,744     9,164,497

Capital                              8,799,004     8,798,901

Revenue reserves                     366,828       366,828

Retained losses                      (33,088    )  (1,232     )

P&L                            3Q09        YTD 09        3Q08       YTD 08

Operating income (expenses)

Exploration expenses           (12,577  )  (80,681    )  (18,876 )  (35,250    )

General and administrative     (28,547  )  (69,600    )  (15,895 )  (35,454    )

Financial Income               181,115     704,579       304,249    390,731

Financial expenses             (167,270 )  (554,529   )  (5,133  )  (29,028    )

Profit (loss) before income    (27,279  )  (231       )  264,345    290,999
tax and social contribution

(-) Income tax and social      (4,577   )  (32,857    )  (16,691 )  (121,779   )
contribution

Net profit (loss) for the      (31,856  )  (33,088    )  247,654    169,220
period

Number of shares                           32,320,041               32,319,606

Profit (loss) per shares - R$              (1.0238    )             5.2358

Conference Call Information:

Thursday, 12th - 10:00h (Brazilian Time); 7:00h (NY Time)

Telephone USA: +1 888-700-0802

Telephone Brazil: +55 11 4688-6341

Telephone Other Countries: +1 786-924-6977

Access Code: OGX

Webcast: www.ccall.com.br/ogx/3q09.htm

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

The conference call will be held in English with simultaneous translation to Portuguese.

ABOUT OGX

OGX Petroleo e Gas SA is focused on oil and natural gas exploration and production in Brazilian offshore sedimentary basins and is Brazil's largest private sector oil and gas company in terms of offshore exploration area, with approximately 7,000 km(2), as well as 21,500 km(2) onshore area. OGX has a high potential and diversified portfolio, composed of 29 exploratory blocks in the Campos, Santos, Espirito Santo, Para-Maranhao and Parnaiba Basins. OGX relies on an experienced management team and holds a solid cash position, with more than US$4 billion in cash 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. 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/ri

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.

    Source: OGX S.A.

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