OGX 2012 Third Quarter Results

OGX Petróleo e Gás Participações S.A. (Bovespa: OGXP3), Brazil’s largest private oil and natural gas exploration company, announces its third quarter results for 2012.

GTU Process Plant View

GTU Process Plant View

Key Financial Metrics3Q 2012YTD 2012
Revenues (R$ mm) 150.7 150.7
EBITDA – Pro forma¹ (R$ mm) (51.6) (305.1)
Net Profit (Loss) (R$ mm) (343.6) (887.1)
Realized oil price per barrel (US$)² 95 95
CAPEX (R$ mm) (1,115) (3,186)
Production volume (kboepd) 9.3 9.7 ³
Notes:
¹ Considers OGX Campos
² Refers to the cargo booked as revenues (delivered on July 26, 2012)
³ Production volume from January 31, 2012 to September 30, 2012

Luiz Carneiro, Chief Executive Officer of OGX, said: “OGX reached a new and important milestone in the third quarter, posting revenues from the sale of approximately 800,000 barrels for the first time since the company began commercial production. We are pleased to note that we have achieved this milestone, and, besides that we obtained an 80% success rate in our exploratory and appraisal campaign since the beginning of the year.”

“Production is progressing well and is on schedule in the Campos Basin, and a third production well in the Tubarão Azul Field will be connected in the coming weeks. In exploration, we began drilling new prospects in the Campos Basin where we continue to have strong expectations for our activities. In addition, we are continuing to develop the Tubarão Martelo Field, in the Campos Basin, and the Gavião Real Field project in the Parnaíba Basin where we expect to begin commercial gas production in early 2013. We expect to invest about US$1.2 billion towards capital expenditures in 2013 to continue delivering on our potential in both exploration and production,” Carneiro continued.

KEY HIGHLIGHTS

Production:

OGX’s production activities are progressing according to schedule.

  • Attained total production volume of 856,800 boe in 3Q12 in the Tubarão Azul Field (Campos Basin)
  • Drilled three production wells in the Tubarão Martelo Field (Campos Basin), projected to come on-stream late 2013 after the arrival of FPSO OSX-3
  • Third production well in the Tubarão Azul Field, TBAZ-1HP, under completion and to be connected to the FPSO OSX-1 in the coming weeks
  • Final stage of reservoir engineering for FPSO OSX-2 installation, with delivery scheduled for 2H13
  • All the production wells in the Gavião Real Field, in the Parnaíba Basin, have been drilled and are in the process of completion and connection to the Gas Treatment Unit (GTU). Commercial production is scheduled to begin in early 2013
  • Sale of approximately 800,000 barrels of oil, in October, to Reliance Industries Ltd.

Exploration:

OGX continued its successful exploratory campaign in the third quarter.

  • Receipt of environmental authorization from the Brazilian Environmental and Natural Renewable Resources Institute (IBAMA) to drill in the BM-C-37 and BM-C-38 blocks in the Campos Basin
  • New important discoveries of hydrocarbons in the Bom Jesus accumulation in the Parnaíba Basin
  • Submitted the winning bid for a block in the Lower Magdalena Valley Basin upon participating in Colombia’s 2012 National Agency of Hydrocarbonates (ANH)
  • Obtained Operator A qualification from Brazil's National Petroleum Agency (ANP), allowing OGX to operate blocks in deep waters and ultra-deep waters, in addition to shallow waters and onshore

Other:

  • In October, Eike Batista, controlling shareholder of OGX, granted the Company an option to require him to purchase up to US$1.0 billion of new common shares of OGX at a price of R$6.30 per share, conditional upon the Company’s additional capital requirement and the absence of more favorable alternatives

2013 OUTLOOK

Besides the increased focus on its production campaign, OGX has interesting prospects to be drilled in the coming months.

Drilling of exploratory wells

  • Campos Basin: 5-6 wells in the BM-C-37 and BM-C-38 blocks (1-2 wells to be initiated in 2012)
ProspectBlock

Total Estimated

Recoverable Volume

(PMean)

Working Interest

OGX Estimated

Recoverable Volume

(PMean)

Spud date
Cozumel BM-C-37 209-270 mmboe 70% 146-189 mmboe 4Q12
Tulum BM-C-37 194-280 mmboe 70% 136-196 mmboe 4Q12
Cancun BM-C-37 184-294 mmboe 70% 129-206 mmboe 1Q13
Viedma BM-C-38 245-313 mmboe 70% 172-219 mmboe 1Q13
Cotopaxi BM-C-38 30-40 mmboe 70% 21-28 mmboe 1Q13
Total-861-1,196 mm boe70%603-837 mm boe-
  • Santos Basin: 1 well until the concession for exploration ends in March 2013
  • Parnaíba Basin: 10 wells
  • Espírito Santo Basin: 3 wells, together with Perenco, the operator of the blocks
  • Updated certification of estimated reserves and resources

Capex

  • 2013 Annual estimate: US$1.2 billion

With the end of the exploratory concession periods for the Campos and Santos Basins approaching, the Company is gradually downsizing its rig fleet to accommodate a transition from the exploration campaign to the production phase in these basins, resulting in a reduction of its capex for 2013.

FINANCIAL HIGHLIGHTS

Expenses

OGX spent US$588 million in the third quarter. Compared to the previous quarter, the Company had a slight increase given expenditures in its onshore operations (GTU final assembly and two additional rigs) and in the development of Tubarão Martelo and Tubarão Azul fields. The Company has begun to optimize and rationalize its expenses, mainly in exploration, while it moves towards the development phase. At the end of September, the Company returned one of its offshore rigs, which should impact the exploration capex in the first quarter of 2013.

Cash position

OGX maintains a solid cash position of approximately US$2.5 billion. Considering the fourth quarter operations, OGX expects to end 2012 with a cash position of approximately US$1.8–1.9 billion.

CAMPOS BASIN

  • Extended Well Test concluded in the Tubarão Azul Field (OGX-26HP)
  • Total production of 856,800 boe in the quarter
  • Delivery of one shipment of approximately 800,000 barrels to Shell in July
  • Delivery of one shipment of approximately 800,000 barrels to Reliance Industries in October
  • Receipt of environmental authorization from IBAMA to start drilling in the BM-C-37 and BM-C-38 blocks of the Campos Basin
  • Commencement of drilling in Cozumel prospect, BM-C-37 block

Tubarão Azul Field Development

Since commencing production on January 31, the Tubarão Azul Field has produced more than 2.5 million barrels of oil and delivered four shipments. Average daily production in the nine months of production from January 31 to October 31 was 9.7 kboepd, and, this quarter alone, average daily production was 9.3 kboepd. FPSO OSX-1 continues to perform very well, with an average operating efficiency of 98.5% since first oil.

The OGX-26HP well was reconnected to FPSO OSX-1 during the first week of August, after having been closed for slightly over a month to allow for the replacement of the centrifugal submersible pump. Since then, the two production wells, OGX-26HP and OGX-68HP, have again been producing in line with expectations with stable flows rates of above 5.0 kboepd on average per well.

The third production well in the field, TBAZ-1HP, is under completion and will begin connection to FPSO OSX-1 in the coming weeks. It is expected to come on-stream at the beginning of December.

The average daily production in October amongst all wells in the Tubarao Azul Field was 10.3 kboepd, which is in line with previous months.

In July, OGX made the final shipment delivery of approximately 800,000 barrels under the Company’s first sales contract with Shell, marking the commencement of the Company’s revenues generation after the declaration of commerciality in the Tubarão Azul Field, resulting in sales revenues of R$150.7 million.

On October 15, following the declaration of commerciality and the conclusion of the Extended Well Test (EWT), the fourth shipment of approximately 800,000 barrels was delivered to Reliance Industries Ltd., one of the world's largest refineries and India's largest private company.

The table below shows the pro-forma OSX-1 EBITDA after the delivery of the first shipments:

Delivered cargos

1st 1

2nd 1

3rd 2

4th 3

Total
Delivery Date 03/28/2012 4/21/2012 07/26/2012 10/15/2012
Operation Period 51 days 27 days 98 days 80 days

Production related to the shipments -

in barrels (bbls)

547,376 246,809 789,774 809,495 2,393,454
R$ ('000)
Net Revenue118,00355,996150,686169,145493,830
Sales Taxes - - - - -
Royalties (10,687) (4,938) (14,842) (15,772) (46,239)
Leasing (24,078) (13,222) (52,708) (41,998) (132,006)
OSX Services (13,944) (7,236) (28,071) (22,499) (71,750)
Logistics (12,005) (7,410) (27,795) (18,405) (65,615)
Others (871) 36 (1,183) (1,529) (3,547)
EBITDA56,41823,22626,08768,942174,673
% EBITDA / Net Revenue 47.81% 41.48% 17.31% 40.76% 35.37%
EBITDA / barrel - (R$/barrel) 103.07 94.11 33.03 85.17 72.98
Notes:

1 Sales occurred during the Extended Well Test and before the declaration of commerciality - not accounted in Results and recorded as a reduction of "Fixed Assets"

2 Sale occurred after the Extended Well Test and declaration of commerciality - recorded as net revenues

3 Sale occurred after the Extended Well Test and declaration of commerciality - recorded as net revenues. Net figure of expenses associated with the sale of freight costs

As shown in the table above, the delivery of the third cargo presented an EBITDA / barrel relatively lower than the first and second cargos due to: i) lower production during the 98-day production period resulting from the need to close the OGX-26HP well for just over a month to allow for the replacement of the centrifugal submersible pump; ii) lower revenue (discount already applied) resulting from a decrease in oil prices (Brent) from USD 122 per barrel at the time of the first cargo to USD 95 per barrel at the time of the third cargo; iii) an increase in costs resulting from currency fluctuations upon the devaluation of the exchange rate by 14% rate from March 28 to July 26; and iv) an increase in logistics costs (boats and fuel) resulting from the IBAMA requirement to use support boats, which did not exist at the time of the first and second cargos.

In the fourth cargo, with production of the two wells stabilized and a better realized oil price, profitability of the operation improved.

The following table demonstrates the effective daily rates (in USD) of each of the costs associated with the FPSO OSX-1 operation:

Daily Cost (USD '000)

1st cargo

2nd cargo

3rd cargo

4th cargo

Average

Leasing (268) (262) (268) (259) (264)
OSX Services (155) (143) (143) (139) (144)
Logistics (134) (147) (141) (113) (131)
Others (10) 1 (6) (9) (7)
Total(567)(551)(557)(520)(546)

Tubarão Martelo Field Development

Following the declaration of commerciality of the field and OGX’s submission of a Development Plan, ANP granted the Company authorization to begin drilling the production wells in this field. OGX is now concluding the drilling and completing the 3 horizontal production wells (TBMT-2HP, TBMT-4HP and TBMT-6HP). We expect these wells to be connected to FPSO OSX-3, which is scheduled to arrive by 3Q13. The Tubarão Martelo Field is scheduled to come on-stream by 4Q13.

It is important to note that during last week we are performing a production test of the TBMT-2HP well and so far the results within expectations.

Campos Basin Exploration Campaign

On October 5, OGX obtained environmental authorization from IBAMA to begin drilling in the BM-C-37 and BM-C-38 blocks. This authorization will allow the Company to advance its exploratory campaign in this very promising region, where it plans to apply the expertise of its technical team and two of its rigs to continue drilling wildcat and appraisal wells.

Below we highlight results obtained in the third quarter:

Villarrica: We have concluded drilling the wildcat well in the accumulation, OGX-87, and identified 8 meters of net pay in the Maastrichtian section and 2 meters in the Paleocene section.

Fuji: We have finished drilling the fourth appraisal well of the accumulation, OGX-90D, where we discovered 2 meters of net pay in the Albian section.

Cozumel: We have commenced drilling the wildcat well of the accumulation, OGX-99, which is still in progress.

PARNAÍBA BASIN

  • Receipt of Operating License to begin production of natural gas
  • 2 important discoveries of hydrocarbons in the Bom Jesus accumulation
  • Commenced drilling 5 exploratory wildcat wells

Development of the Gavião Real and Gavião Azul fields

Development of Gavião Real Field project is on schedule and has progressed substantially in recent months, with two rigs focused on production development. The drilling of all 16 production wells planned for this phase of the project has already been concluded, of which 11 have already been completed and the remaining 5 are in the process of completion and connection to the GTU. We also concluded the drilling of the first water disposal well, GVR-15D, which will work in conjunction with the second disposal well (GVR-16D), in drilling progress.

The 11 wells already completed have been tested with open choke (3/4") and showed average flow rates of 400,000 - 500,000 m3/day each.

In addition, at the end of September, we obtained the Operating License from the Environmental and Natural Resources Secretary of the State of Maranhão (SEMA/MA) authorizing production of natural gas in the Gavião Real and Gavião Azul fields.

The project is in its final stages as described by the current activities at the site: i) mechanical and instrument assembly, electrical wiring and instrumentation; ii) test of control networks in the clusters and the GTU; iii) pipelines in place; iv) construction of the administrative buildings with offices, workshop and laboratories, all in pre-fabricated metallic structures; and v) leakage tests in the tanks in final phase.

Natural gas production at the Gavião Real Field will begin in the fourth quarter of this year, with the commissioning of the GTU and the MPX Parnaíba Thermoelectric Complex turbines. Commercial generation of power will begin in 2013.

Parnaíba Basin Exploratory Campaign

After the discovery of the Bom Jesus accumulation last year, identified through the OGX-34 well, the Company drilled appraisal wells to test the extent of this accumulation. In addition to the drilling and well test of the OGX-88 well in July, we also concluded the drilling of another two appraisal wells in the region in 3Q12, OGX-91D and OGX-95, both of which contained discoveries of hydrocarbons in the Carboniferous section of 23 and 4 meters of net pay, respectively. After the evaluation of the results from the wells, OGX submitted the Discovery Evaluation Plan (PAD) for the region to the ANP, which has already been approved.

We have initiated the drilling of five new prospects in this basin – Santa Maria (OGX-92), Rio Corda (OGX-93), Peritoró (OGX-96), Basílios (OGX-97) and Norte California (OGX-98). The OGX-92 and OGX-93 wells were concluded in the Fazenda Santa Maria and Rio Corda prospects; however, neither well showed indications of hydrocarbons. Currently, 3 exploratory wells are still in progress - the first exploratory well in the PN-T-50 block in the Peritoró prospect, OGX-96, OGX-97 in the Basílios prospect and OGX-98 in the Norte California prospect.

SANTOS BASIN

In the quarter, we finished drilling the OGX-89D appraisal well of the Natal accumulation, where we discovered 7 meters of net pay in the Santonian section, proving the extension of the accumulation.

We also concluded the drilling of the OGX-85 well, where we have confirmed microbiolite limestone with presence of gas and light oil, identified in sandstone and volcanic rocks, as reported to the ANP. The Company is still analyzing the economic viability of this discovery.

Finally, we are currently drilling the OGX-94DA well, in the Curitiba accumulation, where we have already discovered 32 meters of net pay in the Santonian/Campanian section. The drilling is still in progress aiming for the Albian section and we expect to have more information in the coming weeks.

Going forward, OGX will go through the assessment of the full set of data from the Santos Basin to define the ring fence of potential fields and the development plan for the area.

In September, we returned the BM-S-29 exploratory block, in which OGX had a 100% stake, to the ANP. After the conclusion of the Discovery Evaluation Plan (PAD) period for this area, the Company decided not to continue its development.

OTHER BASINS

Espírito Santo Basin

Although we did not drill in this basin in 3Q12, we plan to resume our exploration campaign before the end of the exploration period in October 2014 with drilling in the southern blocks of the basin (BM-ES-39, BM-ES-40 and BM-ES-41), considered a new and promising area for oil and natural gas.

Also, in October, we returned the BM-ES-38 exploratory block, in which OGX had a 50% stake, to the ANP after having analyzed the results obtained in the block.

Colombia

This quarter, OGX finalized the acquisition of 2D and 3D seismic data in the Lower Magdalena Valley Basin (VIM-5 block), and plans to commence drilling the first exploration well in Colombia in 2013. Also, in October, we participated in Colombia’s 2012 ANH Round, and had the winning bid for another block in the Lower Magdalena Valley Basin, VIM-19, only waiting for ANH’s confirmation.

OTHER OGX HIGHLIGHTS

Exploration and Development Equipment

In accordance with our plan to gradually return our drilling rigs as a part of our transition to a production-focused campaign in the Campos and Santos Basins, in September, we returned the Ocean Ambassador rig upon completion of the drilling of the TMBT-4HP well and the expiration of our contract with Diamond Offshore.

Operator A Qualification

In October, OGX obtained qualification of Operator A from the ANP, allowing the Company to operate blocks located in deepwaters and ultra-deepwaters, in addition to shallow waters and onshore, where Operator B already operates.

Controlling Shareholder Put Option

On October 24, OGX’s controlling shareholder, Eike Batista, granted the Company the right to demand his subscription of up to US$1.0 billion new common shares of OGX at a price of R$6.30 per share (the “Option”). The Option, which expires after April 30, 2014, is conditional upon the Company’s additional capital requirement and the absence of more favorable alternatives, which will be determined by the majority of the independent board members on the Company´s Board of Directors.

The option reflects Mr. Batista’s confidence in the technical expertise and quality assets of the Company, as well as the new opportunities that the oil and gas industry offers to OGX.

People Management

OGX closed 3Q12 with 382 employees and 6,111 third party service providers responsible for conducting all administrative, exploration and oil production activities, up approximately 6% over the same period of the previous year. In addition to our strategy of contracting internationally respected suppliers to conduct operating activities, we maintain a high-performance, streamlined structure focused on managerial excellence. Our team is composed of professionals with broad experience in the oil and gas sector, in addition to young professionals with great potential, educated at the country’s leading universities.

UPCOMING EVENTS

OGX has several important events planned for the coming months, including:

  • Connection of the third production well in the Tubarão Azul Field
  • Beginning of GTU commissioning and gas production in the Parnaíba Basin
  • Results of tests and drilling in the Santos Basin
  • Drilling important prospects in blocks BM-C-37 and BM-C-38 in the Campos Basin
  • Continuation of the exploration and wildcat campaigns in the Santos, Parnaíba and Espírito Santo basins

FINANCIALS

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.

R$ ('000)
INCOME STATEMENT9M129M113Q123Q11
Net revenue150,686-150,686150,686-150,686

Cost of goods sold (COGS) 1

(124,599) - (124,599) (124,599) - (124,599)
Exploration expenses (172,567) (125,157) (47,410) (36,231) (50,175) 13,944
General and administrative expenses (158,611) (179,653) 21,042 (41,462) (71,820) 30,358
EBITDA(305,091)(304,810)(281)(51,606)(121,995)70,389
Depreciation (part of COGS) (14,665) (3,039) (11,626) (11,574) (1,210) (10,364)
Amortization (part of COGS) (7,337) (4,170) (3,167) (3,798) (1,692) (2,106)
Stock option (47,291) (22,477) (24,814) (41,701) (4,131) (37,570)
Dry/subcommercial wells/areas (460,235) - (460,235) (294,712) - (294,712)
EBIT(834,619)(334,496)(500,123)(403,391)(129,028)(274,363)
Financial revenue 222,237 345,749 (123,512) 60,146 102,823 (42,677)
Financial expense (329,153) (133,170) (195,983) (127,305) (101,589) (25,716)
Net financial results (106,916) 212,579 (319,495) (67,159) 1,234 (68,393)
Currency exchange (366,080) (4,191) (361,889) (26,764) (12,723) (14,041)
Derivatives 18,294 (81,815) 100,109 (4,205) 150,318 (154,523)
EBT(1,289,321)(207,923)(1,081,398)(501,519)9,801(511,320)
(-) Income tax 389,151 30,625 358,526 157,900 (35,779) 193,679
Net profit (loss) for the year- Pro forma(900,170)(177,298)(722,872)(343,619)(25,978)(317,641)
OGX Campos Merger 13,102 - 13,102 - - -
Net profit (loss) for the year- Book value(887,068)(177,298)(709,770)(343,619)(25,978)(317,641)
Attributed to:
Non controlling interests (21,306) (17,167) (4,139) (288) (8,488) 8,200
Controlling shareholders (865,762) (160,131) (705,631) (343,331) (17,490) (325,841)
Note:

1 This balance does not include parts of COGS related to depreciation, amortization and royalties that are disclosed in specific lines of the table above

R$ ('000)
BALANCE SHEETSep 30, 2012Dec 31, 2011Sep 30, 2012Dec 31, 2011
ASSETSLIABILITIES AND EQUITY
Current assetsCurrent Liabilities
Cash and cash equivalents 5,058,579 5,367,451 Trade payables 755,296 431,931
Marketable securities 3,443 52,290

Taxes, contributions and profit sharing payable

15,830 26,070
Escrow deposits 14,758 39,039 Salaries and payroll charges 44,701 54,507
Taxes and contributions recoverable 65,464 78,137 Loans and financings 138,738 22,301
Derivative financial instruments 25,295 8,879 Accounts payable to related parties 109,055 96,692
Oil inventories 105,448 - Other accounts payable 16,299 87,807
Other credits 130,187 27,934
1,079,919719,308
5,403,1745,573,730Noncurrent Liabilities
Loans and financings 7,908,034 4,750,113
Provisions 155,217 11,743
8,063,2514,761,856
Noncurrent AssetsShareholders’ Equity
Inventories 230,827 390,071 Capital stock 8,821,134 8,810,307
Taxes and contributions recoverable 154,321 278,810 Capital reserves 185,242 274,109
Deferred income taxes and social contributions 673,306 282,693 Earnings reserves 97,737 -
Credits with related parties 176,278 139,386 Currency translation adjustments 42,086 19,588
Retained earnings (deficit) (1,168,308) (289,444)
Fixed assets 9,019,065 6,172,783
Portion attributed to controlling shareholders 7,977,891 8,814,560
Intangible assets 1,508,756 1,512,724 Portion attributed to non-controlling interests 44,666 54,473
11,762,5538,776,4678,022,5578,869,033
Total Assets17,165,72714,350,197Total Shareholders’ Equity17,165,72714,350,197
R$ ('000)
FIXED ASSETS
Balance as of December 31, 2011:6,172,783
(+) CAPEX
Campos Basin 2,073,746
Santos Basin 513,091
Parnaíba Basin 374,966
Espirito Santo Basin 47,842
Pará Maranhão Basin 45,910
Colombian Basins 0
Corporate 130,483
3,186,038
(+) Borrowing costs123,261
(+) Asset retirement obligation103,047
(-) Gross margin EWT(79,644)
(-) Disposals(98)
(-) Depreciation(26,087)
(-) Write off Dry/Subcommercial wells(460,235)
Balance as of September 30, 20129,019,065
R$ ('000)
LOANS AND FINANCING
Balance as of December 31, 2011: (4,772,414)
(-) New fundings (2,537,689)
(-) Accrued interests (403,775)
(-) Currency exchange (695,957)
(+) Interest paid 336,315
(+) Funding costs 39,032

(-) Amortization of funding costs

(12,284)
Balance as of September 30, 2012(8,046,772)

Earnings Results

We ended 3Q12 with net losses YTD of R$887.1 million, largely without an impact on cash. This net loss is chiefly due to: (a) expenditures with the exploratory campaign of R$172.6 million; (b) general and administrative expenses of R$158.6 million; (c) expenses of R$460.2 million relative to dry wells and sub-commercial areas that represent accounting effects; (d) foreign exchange variation expenses, chiefly unrealized, of R$366.1 million; (e) net financial expenses of R$106.9 million; and (f) the cost of oil sold after the end of the extended well test (EWT) at R$124.6 million. These impacts were partially offset by: (g) net revenue of R$150.7 million from oil sales after the conclusion of the EWT; and (h) the positive impact of income tax and social contribution, the majority of which is deferred, of R$389.1 million.

Exploration Expenses

Exploration expenses increased R$47.4 million year-on-year. This variation was primarily the result of the intensification of seismic campaigns in the Parnaíba Basin and Colombia.

General and Administrative Expenses

General and administrative expenses decreased R$21 million year-on-year, driven by the R$10 million reduction in expenses with profit sharing.

Dry and Sub-commercial Wells

In 3Q12, the Company posted an expense of R$460.2 million with dry wells and sub-commercial areas. Of this amount, R$213.2 million account for previously capitalized expenses in the BM-S-29 block, which was returned in August of 2012. The remaining balance refers to dry or sub-commercial wells.

Foreign Exchange Expense

In 3Q12, the Company posted net foreign exchange expenses of R$366.1 million, compared to a net expense of R$4.2 million in 3Q11, for an increase of R$361.9 million.

This foreign exchange expense is almost entirely non-cash and due to a net foreign exchange exposure of US$2.1 billion. Despite the loss in U.S. dollars exceeding income, the Company opted not to contract hedge instruments for this non-cash exposure as it plans to settle this dollar-denominated liability through revenue from oil sales to be booked in the same currency, production of which began on January 31, 2012. Thus, the net foreign exchange exposure will be protected by a natural hedge to be generated by oil sales.

Financial Result

The R$106.9 million financial expense in 3Q12 is explained by: (a) the un-capitalized interest on financing of R$302.9 million, partially offset by (b) gains on financial investments of R$194.7 million; and (c) other net financial income of R$1.3 million.

Cost of Products Sold

The R$124.6 million cost of goods sold incurred with the oil sales after the EWT is broken down as: (a) expenses with leasing of R$52.7 million; (b) O&M services of R$28.1 million; (c) logistics of R$27.8 million; (d) royalties of R$14.8 million; and (e) others of R$1.2 million.

Net Sales Revenue

The Company’s sales in 3Q12 total R$324.7 (until October total R$493.8 million). Of this total, R$150.7 million earned after the EWT with the sale of a shipment of 789,800 barrels to Shell booked as net sales revenue. Sales prior to the conclusion of the EWT of R$174 million for 794,200 barrels were booked as a reduction in property, plant and equipment.

Balance Sheet

We ended 3Q12 with a solid cash position of R$5.1 billion (equal to US$2.5 billion).

Cash and Cash Equivalents

Cash and cash equivalents totaled R$5.1 billion on September 30, 2012, down R$308.9 million over the balance on December 31, 2012. This decrease is chiefly due to: (a) CAPEX of R$3.2 billion, partially offset by (b) fundraising in 1Q12 of R$2.5 billion; (c) EBITDA from FPSO OSX-1 of R$105.7 million; and (d) restitution of withholding income tax on financial applications of R$156 million.

Property, Plant and Equipment (CAPEX)

Property, plant and equipment represented by capital expenditures during the exploration and development phases include expenses related to drilling campaigns and acquisition of E&P equipment. From December 31, 2011 to September 30, 2012, this balance increased by R$2.8 billion.

Loans and Financing

The R$3.3 billion increase in the balance of loans and financing between December 31, 2011 and September 30, 2012 is due to the transactions listed in the loans and financing table in the appendix.

Conference Call:

Friday, November 9 at 12 P.M. (Brasília Time Zone); 9:00 A.M. (EST)
Telephone (Brazil): +55 11 4688-6341 or +55 11 2104-8901
Telephone Toll-free (US): +1 855 281-6021
Telephone (US): + 1 786 924-6977
Code: OGX
Webcast in Portuguese: www.ccall.com.br/ogx/3t12.htm

Webcast in English: www.ccall.com.br/ogx/3q12.htm

Audio will be available three hours after the conference call on the IR website: www.ogx.com.br/ri
The conference call will be conducted in English with simultaneous translation to Portuguese.

ABOUT OGX

OGX Petróleo e Gás SA is focused on oil and natural gas exploration and production and is conducting the largest private-sector exploratory campaign in Brazil. OGX has a diversified, high-potential portfolio, comprised of 28 exploratory blocks in the Campos, Santos, Espírito Santo, Pará-Maranhão and Parnaíba Basins in Brazil, and 4 exploratory blocks in Colombia, in the Lower Magdalena Valley and the Cesar-Ranchería basins. The total extension area is of approximately 5,675 km² in sea and approximately 36,700 km² on land, with 24,500 km² in Brazil and 12,200 km² in Colombia. OGX relies upon an experienced management team and holds a solid cash position, with approximately US$2.5 billion in cash (as of September 2012) to fund its E&P investments and new opportunities. In June of 2008, the company went public raising R$6.7 billion, which at the time was the largest amount ever raised in a Brazilian 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.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50471992&lang=en

Contacts:

OGX
Investors:
Roberto Monteiro/Eduardo Lucchesi, +55 21 2555 6237
roberto.monteiro@ogx.com.br
eduardo.lucchesi@ogx.com.br
or
Media:
Daniele Rivera, +55 21 2555 7568
daniele.rivera@ogx.com.br
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