Brazil Oil Outlook Is Uncertain as Bond, Share Offers Cancelled

    --Brazilian oil companies cite market conditions in deal cancellations

    --Unclear whether Petrobras, OGX troubles contaminating rest of sector

    --But investors are still flush with cheap cash, fund manager notes

    By Jeff Fick

    RIO DE JANEIRO--Two players in Brazil's burgeoning oil and natural gas industry canceled separate offers of shares and bonds late Thursday, but it's unclear whether troubles at heavyweights Petrobras (PBR, PETR4.BR) and OGX (OGXP3.BR, OGXPY) played a role in shelving the deals.

    Drill-rig operator QGOG Constellation SA postponed its initial offering of shares while oilfield services company Schahin Oil and Gas Ltd. canceled a debt offer, both citing poor market conditions, with the reversal coming the same week Petrobras and OGX disappointed investors and sent their shares tumbling to new lows.

    Despite the failed launch of the two deals, global investors are flush with cheap cash and on the lookout for returns, said Rogerio Freitas, who manages about $100 million in assets for Rio de Janeiro's Teorica Investimentos.

    QGOG had planned an initial public offering of shares on the New York Stock Exchange that could have raised up to $578 million, while Schahin planned to issue $685 million in seven-year senior unsecured notes. Both companies have contracts with Petrobras.

    Given current market liquidity, the postponement of the two deals likely reflected individual issues rather than disillusionment with investments in Brazil's oil and gas industry. "There will always be demand when good assets with a good outlook are on offer, depending on the price," Mr. Freitas said. "I doubt that Petrobras and OGX contaminated the market as a whole."

    Petrobras reported the company's lowest annual profit since 2004 on Monday, with Chief Executive Maria das Gracas Foster adding that 2013 would likely be another "difficult" year. The company also slashed its common-share dividend to less than half of what preferred shares will pay. That sent Petrobras's common shares to the lowest level since 2008.

    OGX, meanwhile, continued to disappoint investors with lower-than-expected crude oil output at its lone producing field. OGX shares hit a 52-week low before recovering slightly Friday.

    "Clearly, we all know that Petrobras isn't going to fail," said Marco Aurelio de Sa, head of trading at Miami-based Credit Agricole Securities. "But the company's negative moment is affecting the sector as a whole."

    In comments to investors after Petrobras's earnings release, Ms. Foster reiterated that the company was focused on boosting efficiency and controlling costs as it carries out a $237 billion investment plan through 2016. But Ms. Foster warned that production would likely remain flat this year as ongoing maintenance of aging offshore platforms continues through the first half of 2013. New platforms will come onstream in the second half of the year, although crude oil output isn't expected to grow significantly until 2014, she added.

    The result is that investors are looking at companies with big ties to Petrobras as riskier investments, Mr. Sa said.

    --Rogerio Jelmayer in Sao Paulo contributed to this report.

    -Write to Jeff Fick at