Oleo e Gas Participacoes SA (OTC:OGXPF) Q2 2014 Earnings Conference Call August 15, 2014 2:00 PM ET
Paulo Narcelio - Chief Executive Officer
Gilberto Lima - Director of Exploration
Daniel Meirelles - Controller
Márcia Mainenti - Investor Relations Manager
Good afternoon ladies and gentlemen. At this time we would like to welcome everyone to OGpar Second Quarter of 2014 Earnings Conference Call. Today with us we have Paulo Narcelio, CEO, CFO in our office; Gilberto Lima, Director of Exploration; Daniel Meirelles, Controller; and Márcia Mainenti, Investor Relations Manager.
We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the Company’s presentation. After OGpar remarks are completed there will be a question-and-answer section, at that time further instructions will be given. (Operator Instructions). We have simultaneous webcast that maybe accessed through OGpar IR Web site. ogpar.riweb.com.br. The slide presentation maybe downloaded from this Web site. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call for one week.
Before proceeding let me mention that forward statements are based on the beliefs and assumptions of OGpar management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of OGpar and could cause results to differ materially from those expressed and set forward looking statements.
Now I will turn the conference over to Mr. Paulo Narcelio, who will start the presentation. Mr. Narcelio, you may begin the conference.
Good afternoon everyone, thank you for joining OGpar second quarter earnings results conference call. We couldn’t start this call without mentioning that the most important event in the second quarter was the approval of the organization plan or by its subsidiaries. OGX, OGX International and OGX Austria. By the vast majority of creditors at the creditors meeting held on June 3rd and subsequently ratified by the District Court of Rio de Janeiro. Just to mention by the way we had 90% approval in this creditors meeting.
Now moving on to Slide 3; where we show the operating performance in the second quarter. I am delighted to highlight that the Company has been successful in concentrating its efforts of Tubarão Martelo and Tubarão Azul field operations, represented by the progressive cash flow of R$49 million excluding expenses with restructuring of approximately R$29 million.
Production from the Tubarão Martelo field totaled R$869,000 barrels in the quarter reaching another daily production of 9.5000 barrels, since its production start up in December 2013 the Tubarão Martelo field produced 2.2 million barrels of oil.
Production in the field served well, began in July
Tubarão Azul field produces an average of 4,000 barrels per 100 per day in the second quarter with total production reaching 367,000 barrels in the same period. In the first half of 2014 the production is total 613,000 barrels.
The factors mentioned above contribute that OGpar sales revenue of R$293 million in the second quarter of 2014, supported mainly by the Tubarão Martelo production. On August the bidding process of Petróleo, Gás Natural was realized and the Company has agreed to sell the remaining stake of 36.36%, it is affiliated company for R$200 million and the sale will be completed in the final judgment of the courts reorganization process.
Now turning on to the table on Slide 4. You can see a summary of the Company’s results in the first half of 2014 compared to the same period last year. OGpar net revenues totaled R$514 million in the first half of 2014 corresponding to the sale of 2.4 million barrels of oil representing 27% over the same period last year. Again as we mentioned before to the Tubarão Martelo field because it started the production in December 2013.
EBITDA we further have of this year total of R$180 million with an EBITDA margin of approximately 21%. Net income in the first half of 2014 was R$516 million which compares to our net loss of R$5.5 billion in the same period last year. This resulted mainly due to a number of factors. First of all the production portfolio was more focused in productive assets such as Tubarão Martelo and Tubarão Azul.
Tubarão Martelo for example closed the first half of the year with super boosting results and generated an EBITDA of R$141 million. Tubarão Azul field which has started production in February this year contributed with an EBITDA of R$32 million. In this quarter we also saw a 43% reduction in general and administrative expenses. We have a leaner headcount that is in line with the Company’s current needs and a cost reduction program which includes moving to our new office and negotiation of agreement with some suppliers.
And finally we have had gains in foreign exchange valuation specially realized exchange gains, these were worth about R$700 million. All the factors that I just stated were partially offset by; restructuring cost in the amount of R$50 million, a provision for inventory losses of R$155 million and the provision for contingencies of R$54 million due to the enforcement Colombian regulatory agency of bank guarantees. Income tax payable totaling R$145 million which were offset with tax losses.
Looking at our CapEx the highlight of our investment for development of Tubarão Martelo and Atlanta and Oliva fields. The total CapEx incurred by the Company in the first half of 2014 was approximately R$549 million.
Now turning to production highlights; on Slide 6 of the presentation we show number of new Tubarão Azul field, growth activities as I had already mentioned presumed in February this year after a series of operational problems with [indiscernible]. Tubarão Azul produces a daily average of 4,000 barrels per day in the second quarter, the total production of 267,000 barrels. In the first half production total 613,000 barrels and an EBITDA of R$32 million which represents a margin of 25%. Leasing cost from FPSO in O&M were revised and reduced significantly in the first quarter of this year remained at 35,000 per day for delivery and 85,000 per day for the OEM. Finally, I would like to remind you that the estimates recoverable volume on this field is about 5.7 million barrels of which 5.4 million barrel have already been produced.
Moving on to slide seven, you can see the Tubarão Martelo production through the data. This was begun its operation in December 2013 through two horizontal wells. The total production of the Tubarão Martelo field in the second quarter was 869,000 barrels reaching probably to an average daily production of 9.5 barrels, 9.5,000 barrels. In the first half of 2013 total production in this field reached 1.8 million barrels with an EBITDA of R$141 million, which point to a margin of 36%. The daily charter rate of the OSX-3 was in good shape to the level of $250,000 per day. The Tubarão Martelo field has already produced 2.2 million barrels since it started operations in December. The estimated corporate volume of this field is about 88 million barrels of oil.
Moving on to slide number eight, about Atlanta and Oliva field we are basically maintaining the information previously disclosed regarding the productivity index as reported in the first quarter earnings release. A busy process for the construction of our FPSO is underway and is expected to be concluded in the third quarter of 2014. According to the operator, first oil at Atlanta is expected at early 2015 while first oil at Olivia is expected for 2021.
Commenting on the exploration assets on slide 10, OGPar continues its exploratory campaign in the four blocks located in the Ceará and Potiguar Basins as a non-operator. At the moment, the operators are conducting bidding process for the acquisition of 3D seismic under the Minimum Exploratory Program of the concession agreements. The drilling campaign that aims to evaluate the exploratory potential is scheduled to start late 2016.
In the same slide, slide number 10, just in regards of the Colombian assets. Just to remind you that according to the material facts disclosed in July, we have the following situations. The ANH, the Colombian agency given the fact the first attempted of selling these assets represented by a farm out contract and they took a decision of cancelling obtaining meeting and then operator of this assets and the construction we have with them related to the blocks of Cesar Ranchería, as well as to execute Standby Letters of credits offered as a collateral in the amount $24 million.
The blocks located in Cesar Ranchería present extreme difficulties in executing any exploratory work, as it is an area characterized by social and environmental complexities, including indigenous communities and environmental protected areas and some other problems. Furthermore, the economic analysis of the area revealed an inappropriate risk of return profile. For this reason the Company is studying measures to reduce any applicable penalties if it’s the case. In the meantime OGpar and same offeror that made the proposal to apply all our blocks in Colombia maintain the amounts of $30 million aiming the assets located in Low Magdalena Valley, under the blocks called VIM-5 and VIM-19. The conclusion of this transaction is subject to certain conditions, including the approval of the ANH, and some other definitive certain conditions still to be consummated.
Now moving on to slide number 12, you can see that this to be giving up for the financial restructuring. The Company has maintained and is committed to a very strong financial discipline. In terms of cash disbursements, it’s worth highlighting that the reduction in operation expenditure from $44 million in the fourth quarter of 2013 to $18 million in the first quarter of 2014, and $10 million in the second quarter of this year is remarkable. It is also worth highlighting that the CapEx is in our estimates and is very ensuring we can honor our commitments with our partners and the LP. As a result, OGPar’s cash disbursement in the second quarter of this year was down 36% compared to the previous quarter. In the same slide on the left chart it’s worth to highlight the operation of cash innovation, which is the best way to show that we are on the right track.
On slide 13, we present the guidance for 2014 with the numbers in dollars to facilitate the monitoring and the analysis, getting that oil price in U.S. currency. For 2015, we estimate a new net revenue of $596 million, EBITDA of $132 million and net investment of $242 million. And just to finish this presentation I would like to emphasize that the Company remains confident in its financial restructuring and its focus in the presentation of judicial realization plan recently approved.
Thank you very much for your attention. Now we can turn to the Q&A session.
Thank you. The floor is now open for questions (Operator Instructions). I will now turn it over to Mr. Paulo Narcelio for final considerations. Mr. Narcelio you may give your final considerations.
Okay, thank you. I hope we have been clear in the explanation about results. Thank you again for joining and also thank you for Marianna and Marshall our Investors Relations team. We are available for, they are available by the way for additional questions whatever you have you can call them any time. so thank you and have a nice day. Bye-bye.
Thank you. This concludes today’s OGPar earnings conference call. You may disconnect your line at this time and have a nice day.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.