Suspicion grows over events that led Batista’s oil firm to bankruptcy

Suspicious investors are asking Brazil’s federal prosecutors to examine the role of both regulators and the stock exchange in the collapse of Eike Batista’s oil company, the former OGX Petróleo e Gás, reports FT.com (susbs. required).

OGX, the flagship of Batista’s five public "X" companies – the X representing the tycoon's presumed ability to act as a business multiplier – finally sank in late October, becoming Latin America's largest corporate default in history.

Stockholders, led by minority investor, Aurélio Valporto are now claiming that something fishy went on there. They believe there is a contradiction between information released to shareholders regarding the company’s oil discoveries and later changes in the firm’s plans. OGX, which has changed its name to Óleo e Gás Participações, ended up halting production and development of oil fields originally considered to have high production potential.

“Public prosecution is our only light at the end of the tunnel,” Valporto told FT, adding that he wants an answer on why Batista sold 56 million of his shares in the company a few days before OGX revealed it was suspending its only three producing oil wells.

Reserves questioned

Last month, a Brazilian newspaper said OGX knew since 2012 that oil reserves in its oil fields in the Campos basin could be much lower than initially estimated. The company replied to this accusation by saying it always kept the market informed about its production projects “as soon as the analyses were completed, to avoid divulging incomplete information."

As late as 2012, Batista still touted estimates of more than 10 billion barrels of oil equivalent in pre-salt resources in Brazil's Atlantic Ocean offshore coastal São Paulo, but many of OGX's wells came up dry and failed to fulfill those estimates.

OGX’s promise has also proved costly for other Brazilian companies, such as Petrobras. The state oil firm has divested assets outside Brazil to help reduce debt that it incurred by investing in complex drilling technology and services to tap into the hyped oil resources. Consequently, Petrobras reduced its international operations from a presence in 23 countries during 2012 to 17 countries as of November 2013.

Eike, as he prefers to be called, founded OGX only five years ago with $1.3 billion.