Strategy and Competitive Advantages

Strategy
Competitive Advantages

 

Strategy

OGX´s Strategies are:

Implement an effective and value-driven exploratory campaign

OGX is committed to an exploratory campaign focused on minimizing exploratory risks and optimizing cash flow generation, thus maximizing shareholder value. Obtaining high-quality 3D seismic data prior to drilling has been integral to its exploratory strategy, as it allows the Company to identify and adequately map additional prospects and improve the interpretation of data in its current prospects, thereby reducing drilling risk as well as other exploratory risks. OGX has already acquired existing 3D seismic data relevant to all of our blocks obtained during the ANP’s Ninth Bidding Round and processed and interpreted the majority of it. 

OGX believes that the experience, know-how and seismic interpretation skills of its exploration team, which previously led to substantial discoveries of reserves in Brazil, will be a valuable resource for its exploratory activities. The Company’s primary focus is drilling, evaluating and demonstrating commercial viability, appraising and, as soon as possible, starting development of the potential discoveries in the southern region of the Campos Basin. OGX intends to develop its potential discoveries while simultaneously continuing its exploratory campaign in other areas. Following its initial drilling in the Campos Basin, which represents an area of lower exploratory risk and significant potential volumes of oil and natural gas, the Company expects to drill in the highly promising Santos Basin and proceed with new frontier exploration blocks located in the Espírito Santo and Pará-Maranhão Basins. Meanwhile, new 2D and 3D seismic data for the Panaíba Basin will be studied.

OGX intends to accomplish these campaigns in a cost-efficient manner, taking advantage of the economies of scale of its current portfolio of 29 exploration blocks, which will allow the Company to better negotiate the acquisition or long-term leasing of equipment. Management believes that the location of OGX-operated exploration blocks will allow for greater availability of equipment and facilitate logistics during the Company’s exploratory campaign.

 

Pursue growth opportunities capitalizing on its superior knowledge of the Brazilian basins

OGX´s differentiated and thorough knowledge of the Brazilian basins is essential to its pursuit of growth opportunities in both established and untapped basins. Although the Company believes that there are substantial discoveries to be made in the Campos, Santos, Espírito Santo, Pará-Maranhão and Parnaíba Basins, Brazil’s vast territory still offers other attractive areas that have not been fully explored, such as the Pelotas and Jequitinhonha Basins, among others. Industry experts have estimated the potential prospective resources yet to be discovered in Brazil to be between approximately 70-100 billion boe. Management expects OGX’s growth strategy to be realized through its participation in future ANP bidding rounds and the execution of new ventures and farm-in agreements such as the contract  with Maersk for the block BM-S-29.
 

Develop value-adding partnerships

In addition to its existing strategic alliances, OGX intends to establish new joint ventures and partnerships with other leading companies in the oil and natural gas industry. OGX will pursue value-adding strategic alliances in order to acquire access to additional high quality acreage and to enhance its equipment, technology and resource base. These relationships may also allow the Company to share the financial and operational risks faced by companies in the oil and natural gas industry.

Continue to build a qualified team of professionals to sustain our growth

OGX has succeeded in recruiting a team of first-rate professionals that supply the in-house intellectual capital necessary to implement the Company´s business plan. OGX is committed to continuously recruiting the best professionals in order to support its growth, and it will continue to promote incentives that encourage maximum commitment from key employees by firmly aligning their interests with those of the Company and its shareholders.

Competitive Advantages

OGX´s Six Core Pillars

High-potential, geologically-diversified portfolio strategically positioned in five sedimentary basins (Campos, Santos, Espírito Santo, Pará-Maranhão and Parnaíba Basin)

The Company´s portfolio currently consists of 22 offshore exploration blocks in Campos, Santos, Espírito Santo and Pará-Maranhão Basins and 7 onshore exploration blocks located in the Parnaíba Basin, in the state of Maranhão. Based on information contained in the DeGolyer & MacNaughton Reports, the Company´s exploration blocks hold Net Prospective Resources (mean estimate) of 6.7 billion barrels of oil equivalent, considering an average probability of success of 34.5%, and 212 million barrels of oil equivalent.

OGX believes that the geological diversity of its portfolio is an important competitive advantage. Based on its technical work to date, the Company has identified around 50 prospects within its 29 offshore exploration blocks containing potential reservoirs in different geologic zones: Lower Cretaceous, Upper Cretaceous and Tertiary. In addition, most of the Company’s offshore blocks are located in shallow waters (up to 400 meters deep), allowing for greater access to equipment and lower capital expenditures for exploration, development and production, which OGX expects to be significantly lower when compared to capital expenditures in deepwater blocks.

Distinguished and experienced management and exploration team with a remarkable track record

The OGX team is highly qualified, has a proven industry track record and includes some of the most experienced professionals in the Brazilian oil industry. Management is headed by General Executive Officer and E&P Officer, Mr. Paulo Mendonça, the former head of Petrobras’ Exploration Division from 2002 to 2007. Mr. Mendonça’s career at Petrobras spanned 34 years, a time during which he also served as General Manager of the Petrobras E&P Sergipe-Alagoas business unit, General Manager of the Petrobras E&P business unit in Colombia and Exploration Manager for the Americas and the Middle East.

The Company´s Chief Financial Officer, Marcelo Torres, has over 15 years of investment banking experience, including with Dresdner Kleinwort and Banco Pactual. During his investment banking career, Mr. Torres participated in and led a variety of cross border mergers and acquisitions transactions, primarily in the energy sector with a focus on Latin America, the United States and Europe.

The exploration team includes senior geologists, geophysicists and petroleum engineers such as Luiz Reis, former General Manager of Petrobras’ Exploration Projects and former President of Petrobras America; Celso Martins, former General Manager of Petrobras’ Applied Geophysics and Exploration Division; Paulo Ricardo dos Santos, former General Manager of Petrobras Energia’s Exploration Division (PESA) and former Petrobras Exploratory Interpretation Manager in the Campos, Espírito Santo and Jequitinhonha Basins; Edmundo Marques, former Exploratory Interpretation Manager in the Santos and Equatorial Margin Basins for Petrobras; José Sartori, former Manager of Petrobras’ Oversight of Exploration Projects Division; Roberto Toledo, former General Manager of Petrobras’ International Production, Reserves and Reservoir Division; Ernani Porsche, former General Manager of Petrobras’ Exploration Portfolio; Flavio Burda, geophysicist and former Senior Consultant to Petrobras for the Campos Basin; and Ronaldo Baldi, geophysicist and former Senior Consultant at Petrogal, El Paso and Petrobras, with expertise in various basins in Brazil and abroad.

Under the leadership of Mr. Mendonça, Petrobras participated in the most successful exploratory campaign in Brazilian history. This campaign resulted in the discovery of over nine billion boe, with an exploratory success rate of more than 60% in deepwater and 50% in shallow water and onshore exploration.

The Production and Development Director is Mr. Reinaldo Belotti, with 31 years of experience at Petrobras, where he was the former head of E&P Special Shared Services, former Chief Executive Officer of Petrobras America Inc. and former Production Manager of Campos Basin.

In addition, Francisco Gros is the Vice Chairman of our Board of Directors. Mr. Gros has served as President of Petrobras, of the Brazilian National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social) – BNDES, of the Central Bank (on two different occasions), and as a Commissioner of the CVM. In the private sector, Mr. Gros has been a member of the Board of Directors and Chief Executive Officer at several Brazilian public companies and multinationals. He served as Chief Executive Officer of OGX from December 2007 until April 2008.

OGX´s fundamental philosophy, supported by its founder and controlling shareholder Eike F. Batista, is to align the interests of key members of the management and technical teams with those of our investors through stock option grants.  The Company believes that this approach has been an important contributor to the growth and successful performance of OGX and other companies within the EBX Group. Additionally, non-compete agreements from key members of its management and exploration team ensure their continued commitment to executing the Company’s Business Plan.

Strategically positioned to benefit from Brazil’s vast untapped potential prospective oil and natural gas resources currently estimated between approximately 70-100 billion boe

OGX will continue its efforts to explore Brazil’s vast potential prospective resources estimated to contain, according to industry experts, approximately 70-100 billion boe. Oil and natural gas proven reserves and production in Brazil have grown significantly in recent years. Production has increased with the continued development of major discoveries such as the Marlim and Roncador fields located in the Campos Basin. Growth is expected to continue as production begins in recently discovered fields in the Campos and Santos Basins. According to the ANP, Brazil has 7.5 million km² (1.9 billion acres) of sedimentary areas across more than 40 sedimentary basins, of which 29 are considered to be the main basins for exploration and production activities. Moreover, approximately 96% of these sedimentary areas are not yet subject to concession agreements. In addition, it is expected that the ANP will continue to conduct annual auctions of exploration blocks, enabling OGX to increase the size and value of its portfolio while capitalizing on potential economies of scale and operational synergies.

 

Proven execution capability to implement its business plan

OGX’s proven record of execution is reflected in a number of achievements that demonstrate the Company´s ability to execute complex projects in a short time frame.  These include hiring  a team of first-rate industry professionals, a successful performance in the ANP’s Ninth Bidding Round, raising approximately R$ 6.7 billion in what then was the largest Initial Public Offering (IPO) in Brazil’s history in order to fund the largest private exploratory campaign in the country.

OGX has an efficient organizational structure comprised of some of the most experienced E&P professionals in Brazil, who have all of the skills required to execute the exploratory campaign and to begin to develop future and potential discoveries. OGX is committed and qualified to implement the business plan and create value for its shareholders.

OGX is part 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 the development of new ventures in the natural resources and infrastructure sectors. Among the group companies, we can cite MMX (mining), MPX (energy), LLX (logistics) and OSX (services for the oil and gas).
 

 

Ability to develop value-adding strategic alliances in the oil and natural gas sector and capitalize its synergies within the EBX Group

OGX entered into strategic alliances with leading exploration and production companies in the oil and natural gas sector, such as Maersk and Perenco, to prepare joint bid offers for exploration blocks in the Ninth Bidding Round held by the ANP. Maersk is the Brazilian subsidiary of Maersk Oil and Gas AS, a Danish company ranked among the 25 largest independent oil and natural gas exploration and production companies in the world. Perenco is the Brazilian subsidiary of Perenco S.A., a European company with over 10 years of experience in the E&P sector that has exploration and production activities in 16 countries.

In addition, OGX is currently in negotiations with other international E&P companies interested in pursuing joint venture opportunities in Brazil. It is common within the oil and natural gas industry to enter into strategic alliances to participate in a greater number of exploration blocks while sharing financial, exploratory and other risks. OGX will continue to enter into strategic alliances where its management perceives that they can increase growth and maximize returns to its shareholders.

OGX expects to develop synergies within the EBX Group, allowing the Company to capitalize on the integrated knowledge of the Brazilian infrastructure and commodities industries. OGX expects to leverage the expertise and services of our sister companies such as LLX, a company that will offer integrated logistics infrastructure solutions in Brazil primarily through the ports industry, and MPX, which is developing the largest integrated electricity generation project in Brazil.

 

Committed and well-established shareholder group including our controlling shareholder and founder, Eike F. Batista.

OGX has a strong existing shareholder base, including its controlling shareholder and founder, Mr. Eike F. Batista and other well-established institutional investors such as the Ontario Teachers’ Pension Plan, a Canadian pension plan with net assets of approximately US$100 billion. The Company’s controlling shareholder has entrepreneurial acumen and a proven track record in identifying profitable opportunities in the natural resources sector. For over 25 years, Mr. Eike F. Batista has developed the EBX Group, an industrial group composed of infrastructure and commodity companies with activities in, among other industries, electricity, mining and logistics, both in Brazil and abroad.