Brazil’s Richest Man Eike Batista Risks Losing Oil Business; What Does This Mean For Brazil?

 @PReyMallen on July 09 2013 5:24 AM

Oh, how the mighty have fallen. Brazil’s richest entrepreneur, named by Forbes the wealthiest man in the Southern Hemisphere and seventh-richest in the world, might be losing his fortune -- and that does not bode well for his country, whose economy has slowed down precipitously in the last year.

Eike Batista, president of EBX -- a group of companies that cover construction, mining, energy, entertainment and, moreover, oil and gas -- had a fortune of $34.5 billion in March 2012. The big kahuna of Batista’s empire had been OGX (OTCMKTS:OGXPY), a company focusing on energy research founded in 2007 that in under five years gave him two-thirds of his wealth -- and that now is slowly but steadily dropping in the marketplace.

Back in 2012, Batista’s aspirations were to become No. 1 on Bloomberg’s list of richest people in the world, above Mexican telecom tycoon Carlos Slim, and with such predictions he charmed investors and partners alike. But in a sudden turn of events, last May he dropped off the 100 wealthiest list. In early June, he dropped off the 200 wealthiest list. Rio de Janeiro newspaper O Globo reported that his once-enormous fortune has dropped to $4.8 billion, an 86 percent decline in a little over a year.

As history would have it, Batista’s former golden egg goose is the reason for his crisis: OGX published a statement on  July 1, saying that its only working oil field, Turbarão Azul in Bacia de Campos, could stop producing in 2014. Three other fields, located in the same area, have been considered unproductive by the company, saying that there is no technology advanced enough to make them economically viable.

The news made the company’s shares drop by 27 percent in São Paulo.

“There is much to be explained about Turbarão Azul’s collapse,” wrote O Globo’s columnist Miriam Leitão. “Last year OGX declared the profitability of the site. If a year ago it was profitable, then how can it not be this year?”

“Who protects the investors against something like this?” she asked.

Batista, who barely three years ago appeared on Charlie Rose's show as the personification of a promising Brazil, is now showing the cracks of an economy that might have hit its ceiling. Brazil's GDP went from growing 7.5 percent in 2010 to a much slower 0.9 percent in 2012, according to the World Bank.

Batista, 57, who grew up in Switzerland, Germany and Belgium, began in the business world at 21, when he started a company that bought gold extracted from mines in the Amazon. In less than two years, he had made $6 million and bought the first of his eight mines. Fortune had always been on his side -- until now.

Barely a year ago, Brazil’s most-read magazine Veja called the entrepreneur the model of a “new capitalism that is not ashamed of showing off how much money it has.” The question is if Batista, and Brazil, bragged a little too early -- and if they will have reasons to show off a year from now.

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