Brazil OGX, MPX Joint Venture Declares Natural Gas Field Commercial

OGX Maranhao, a joint venture formed by two of Brazilian billionaire Eike Batista's companies, declared a natural gas field in Brazil's northeast commercially viable Wednesday, paving the way for production that will be used to fire much-needed power plants.

The Bom Jesus discovery is estimated to hold between 200 billion and 500 billion cubic feet of natural gas, according to a regulatory filing by MPX Energia S.A. (MPXEY, MPXE3.BR). MPX, the energy arm of Mr. Batista's EBX Group, holds a 33% stake in OGX Maranhao. Mr. Batista's oil company, OGX Petroleo e Gas Participacoes SA (OGXPY, OGXP3.BR), holds the remaining 67%.

Mr. Batista's companies are developing an electricity-producing complex in northeast Brazil's Parnaiba state, building natural gas-fired power plants alongside a series of natural gas fields discovered in the country's Parnaiba Basin. The power plants will boost Brazil's electric generation capacity and help offset low reservoirs in Brazil's hydroelectric system, which has caused concerns about possible energy rationing.

Hydroelectric dams provide about 85% of Brazil's power, and drought in the country's southeast has reduced reservoir levels to dangerously low levels. The government, however, has brushed off concerns about rationing last seen a decade ago and is pushing forward with measures to reduce electric energy tariffs under concession-renewal agreements.

A development plan for the field will be submitted to local regulators soon, when the find is expected to be renamed Gaviao Branco, or white hawk, OGX and MPX said in separate statements.

Gaviao Branco will join two other natural gas fields already under development in the Parnaiba Basin: Gaviao Real, or royal hawk, and Gaviao Azul, or blue hawk. Earlier this week, MPX said that the first turbine at the Parnaiba I gas-fired power plant was connected to the national electricity grid for testing. Parnaiba I is expected to start delivering 676 megawatts of electricity in April, while the Pecem II plant in Ceara state will start delivering 365 megawatts in June.

Gaviao Branco and Gaviao Azul are expected to produce about six million cubic meters of per day in 2013, doubling current land-based natural gas production in Brazil, OGX said last year. In addition to the fields, the complex includes a gas-treatment facility and pipelines that link the fields to the MPX power plants.