weekend lounge short term trading 6 -8th dec, page-31

Entry for STT List
Otto Energy (OEL)
Market Cap: $95 million as at 4/12/13
$20 million cash, undrawn debt $11.2 million.

Otto is an Australian oil and gas company with assets in the Philippines and Eastern Africa, which is currently receiving plenty of attention through Swala Energy (SWE).

The assets located in the Philippines I expect to drive Otto's SP upwards in the short term. Just last week, the management team delivered the second phase of drilling the Galoc oil field, which will triple Otto's total revenues. Total production from the Galoc field in 2014 is expected to be worth $120 million net to Otto... more than their current market cap.

The other field that will deliver short term impact to the SP in my opinion is Service Contract 55 (SC55). Several analyst reports have labelled that this prospect is worth an unrisked $0.37 cents to the company. This has been Otto's so called "company maker" for some time, yet the drilling of this prospect has run into numerous problems during the past few years. Otto was in an agreement with BHP Billiton that they would earn 60% interest in the project upon the completion of 2 wells. However, last month BHP pulled out of the project due to their cost cutting procedures being implemented by their new management.

Since this occurred, Otto has secured a "Letter of Intent" that has been agreed by both companies. Once all the legal paperwork has been completed, Otto will regain BHP's 60% working interest, leaving them with a 93% interest in the prospect. I expect a farmout announcement to be made in the next few weeks, and a possible work program for 2014 approved by the Philippines government following the agreement of larger partner being recruited by Otto. This is an attractive opportunity for large corporations, as comprehensive 3d seismic has been completed, with Otto already reporting interest from several parties (my guess is Shell will be signed on board).

The above news flow that will be released to the market in the next few weeks, and once investors wake up to the fact that Otto is on track to produce $120 million worth of oil in 2014,(with a market cap of less than this) should see a favourable short term appreciation in the SP.