OGX Petróleo e Gás Participações SA (OTC PINK: OGXPY) is probably the biggest oil and gas company you've never heard of.
That's understandable, considering it has not yet produced a single barrel of commercial oil. But this Brazilian company could soon be on par with the likes of Exxon Mobil Corp. (NYSE: XOM), CNOOC Ltd. (NYSE ADR: CEO) and state-owned local rival Petroleo de Brasileiro SA (NYSE ADR: PBR).
Since its initial public offering (IPO) in 2008, OGX's resource base has more than doubled from 4.8 billion barrels of oil equivalent (boe) to 10.8 billion boe. It has drilled 52 wells in the last 20 months, with a success rate of over 90%, as it prepares for its first commercial production this fall.
OGX's first long-term well test is expected to produce about 20,000 barrels of oil a day starting this fall. And the company already has ordered the long lead items needed to ramp up production to 150,000 boe per day by 2014. From there, OGX is expected to ramp up its production to 1.4 million boe per day in 2019.
In simple terms, this oil and gas company is conducting the largest private sector exploratory campaign in the history of Brazil.
So it's time to buy Petróleo e Gás Participações S.A. (**).
The Next Energy Super Giant
There are about 123 billion barrels of oil buried beneath the waters of Brazil's coast. And OGX - an up-and-coming producer that hardly anyone in the United States has heard of - will play a big part in extracting those crude deposits.
That is why I like this investment so much.
Could you imagine getting a tip about Exxon Mobil before mainstream investors ever found out about it?
Well, that's essentially what we have here. So let's take a closer look.
OGX was built from scratch in 2007 with the goal of creating a large, focused private energy company to profit from the Brazilian exploration boom that was just getting underway at the time. In June 2008, OGX became the largest primary IPO in the history of Brazil, raising $4.3 billion (6.7 billion reals).
Today, it has reserves and a production growth path that rivals some of the smaller members of the Organization of Petroleum Exporting Countries (OPEC).
OGX has built up an amazing list of offshore and onshore exploration licenses in South America. It has 22 offshore exploration blocks covering an area of about 7,000 square kilometers, and 12 onshore exploration blocks covering another 21,500 square kilometers.
What's more is that these 34 exploratory blocks include the Campos, Santos, Espírito Santo, Pará-Maranhão, and Parnaíba basins, which means OGX's asset portfolio is well diversified. These projects amount to net potential resources of 10.8 billion boe.
OGX estimates that it will be able to produce about 1.4 million boe per day by 2020.
Even more impressive, OGX estimates that each barrel of oil it produces will have an average capital investment cost of $2.00 and operating expenditures equal to just $16.00 per barrel. If these numbers are correct, the company is going to have a significant margin advantage over most companies, which pay twice as much.
Finally, the company just closed an unsecured bond issue, securing $4 billion that will fund its expansion through 2014. While I expect that the company will still need to dilute its shareholders at some point in the next decade, I don't see a need for another capital call in the near term.
The company is poised to have one of the strongest growth curves in oil super giants history. It is going to be an extremely long-term investment, and should not be considered a trading vehicle.
(**) Special Note of Disclosure: Jack Barnes has no interest in OGX Petróleo e Gás Participações S.A. (ADR OTC: OGXPY).
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Comphania Energetica de Minas Gerais (NYSE ADR: CIG)]
News and Related Story Links:
- Money Morning News Archive:
Previous "Buy, Sell or Hold" Features. - JackBarnes.com:
Confessions of a Macro Contrarian. - OGX Petróleo e Gás Participações SA:
OGX Announces Business Plan for the Campos and Parnaíba Discoveries - Money Morning:
The Outlook for Gold and the Dollar Make Newmont Mining Corp. (NYSE: NEM) a "Buy"
[epom]