03.07.2012 17:26
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OGX Austria GMBH -- Moody's changes OGX's rating outlook to negative

Approximately $3.6 billion of rated debt securities affected

New York, July 03, 2012 -- Moody's Investors Service affirmed the B1 ratings of OGX Petróleo e Gás Participações S.A. (OGX) and OGX Austria GmbH and changed the rating outlook to negative from stable.

"The negative rating outlook reflects lower than expected performance from OGX's first two producing wells, negatively impacting cash flows and capital productivity," commented Gretchen French, Moody's Vice President. "OGX's latest setback follows higher debt levels and moderate project delays and cost increases incurred over the past year, which had already diminished flexibility within the B1 rating."

RATINGS RATIONALE

OGX recently announced the results of extended well tests on its first two production wells in the Tubarão Azul field (formerly known as the Waimea Accumulation). The production flow rate of the two wells, OGX-26 and OGX-68, have been restricted to 5,000 barrels of oil equivalent per day (boe/d), which is materially below management's original estimated range of 10,000 - 20,000 boe/d. The lower well performance highlights one of the many risks of bringing contingent oil and gas resources onto production. The main reason for the lower well productivity is a weaker than expected water drive in the reservoir and significant well interference between these first two wells. The compartmentalized and unpredictable nature of the carbonate reservoir could contribute to increased costs to fully develop the field.

OGX's position as an owner of world class hydrocarbon resources remains strong. However, the company's growth rates and returns have been negatively affected by reduced production rates from the initial wells, which will result in lower cash flow and debt capacity for future projects. Furthermore, if OGX is not able to successfully manage its funding needs, cash levels could materially decline by the end of 2013, resulting in constrained liquidity and potentially further reliance on debt funding.

A key consideration will be the results of the drilling of its third producing well in the Tubarão Azul field. Field-wide production is estimated to reach around 15,000 boe/d by year end 2012, far short of the previous expectations of nearly 40,000 boe/d. To address the expected cash flow shortfall, the company is reducing its exploration capital spending in 2013 and 2014 by about $2.1 billion, which will entail reducing its drilling rig commitments to three rigs from six currently and reducing seismic spending. However, the expected reduction in the drilling rig program will not be complete until the fourth quarter of 2013.

OGX's B1 rating could be downgraded if production levels decline, liquidity becomes constrained or debt levels materially rise in order to fund cash flow shortfalls. While unexpected over the near-term given the negative outlook, the B1 rating could be upgraded if OGX is successful in growing production (to over 20,000 barrels of oil equivalent per day) and has made substantial progress on the construction of the two additional FPSOs and wellhead platforms.

The principal methodology used in rating OGX was the Global Independent Exploration and Production Industry Methodology published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Based in Rio de Janeiro, Brazil, OGX is one of the largest independent exploration and production companies in Latin America.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Gretchen French Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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