UPDATE 3-Brazil's OGX falls 35 pct as budget cuts put focus on survival
* Three prospects dumped; Tubarão Azul output may end in 2014
* OGX to cancel ship orders, pay OSX $449 mln in compensation
* Shares of sister firm OSX fall as much as 11 pct
(Rewrites throughout, adds industry comment, updates prices)
RIO DE JANEIRO, July 1 (Reuters) - Brazilian billionaire Eike Batista's flagship oil company OGX Petroleo e Gas SA slashed capital spending on Monday and pulled the plug on three offshore oil prospects, the latest move by his EBX Group to bolster finances and avert collapse.
OGX shares fell as by as much as 35 percent, touching a record low. Once Brazil's second largest oil company by market value and a symbol of Brazil's now-stalling, decade-long commodities boom, OGX shares are trading at less than 3 percent of their all-time high.
"OGX has just sent a statement that alters practically the entire outlook on which market expectations for the company have been based," Luiz Caetano, an oil and gas analyst with Planner Corretora in Sao Paulo, said in a note to investors on Monday.
"We are now at a new level, one of survival rather than growth," he added.
OGX's move comes as the six-year-old company struggles to turn a series of promising offshore discoveries into producing fields. Production from OGX's first offshore field, Tubarão Azul, began in early 2012 at levels far below expectations. This raised concern that OGX would soon be unable to generate revenue to finance new fields and production ships, drill new wells, and meet debt payments.
The plunge in the share price of OGX and other EBX Group companies has sliced more than $20 billion from Batista's fortune. Most of his wealth is tied up in his companies and this has led investors to question the billionaire's ability to meet his own promises.
As shares fell and project delays mounted, Batista offered to backstop EBX's oil, mining, shipbuilding, transport and electricity companies with billions in new cash that he may no longer have.
Many now believe Batista's entire EBX empire is on the verge of collapse.
"This is very bad news," said Luis Gustavo Pereira, a strategist at Futura Corretora in Sao Paulo. "Things were not looking good for OGX in the coming year - now they look even more critical."
THREE DEAD SHARKS
OGX will cut costs by suspending the development of the Tubarão Tigre, Tubarão Gato and Tubarão Areia offshore areas northeast of Rio de Janeiro, the company said in a securities filing on Monday. In English the field names mean "Tiger Shark," "Cat Shark" and "Sand Shark."
OGX's three producing wells at Tubarão Azul, or "Blue Shark," the company's only active offshore field, could stop oil and natural gas production as soon as next year, OGX said. In addition to lower than expected initial output, Tubarão Azul has suffered equipment and reservoir problems.
The Rio de Janeiro-based OGX also asked shipbuilding sister-firm OSX Brasil SA to stop building several oil platforms slated for the canceled projects. OGX said it no longer considers Tubarão Tigre, Tubarão Gato and Tubarão Areia commercially viable.
OGX will pay OSX $449 million in cash as compensation.
After falling as much as 11 percent, OSX trimmed losses to fall 6.3 percent to 1.32 reais in early afternoon trading in Sao Paulo. OGX trimmed losses to fall 25 percent to 59 centavos.
Pressure to make cuts has been mounting on OGX for months as concern about the chance of default on its 8.94 billion reais ($4.01 billion) of debt mounted.
OGX bonds due in 2018 and 2022 have been losing value since March, tumbling to less than one-third of their face value in a sign of higher default risk.
In May, Batista sold 70.5 million shares in OGX for $57 million, cutting his stake to 59 percent from 61 percent. He sold the shares for less than one-third of what he has promised to pay for new shares.
The promise to buy the new shares, known as a put option, requires Batista to buy up to $1 billion of OGX stock at 6.30 reais a share by April 2014 if the OGX board finds it necessary.
In June, three prominent board members with the responsibility of deciding when to request the put, resigned.
Fitch Rating Service downgraded OGX debt to "CCC," indicating it was at high risk of default. Selling stock below the put price raised speculation that Batista lacks the cash to honor his promise. ($1 = 2.2263 Brazilian reais)
(Reporting by Silvio Cascione and Asher Levine; Additional reporting by Danielle Assalve and Guillermo Parra-Bernal in Sao Paulo; Writing by Jeb Blount; Editing by Gerald E. McCormick, Jeffrey Benkoe and Chris Reese)