I think 40% is a fair amount of cash, but this amount will almost certainly go up (see below from chatgpt query some months back), so stand by my post. The other point I was making is companies accumulate provisions for decomm over life of asset, so I think 80-90% payout ratio is likely an overestimate of what can be paid out while still provisioning for maintenance capex, decomm and dare I say it, more drilling noting OEL has minority share in many of its assets.
I still think OEL is at an attractive valuation for what it's worth- there is a reason I'm a holder.
From chatgpt
As of 30 June 2024, Otto Energy Limited (OEL) has recorded US$6.08 million in non-current provisions for decommissioning liabilities related to several assets in the Gulf of Mexico and state waters in Louisiana. These provisions represent the present value of estimated decommissioning expenditures expected to be settled at the end of each field’s productive life, in line with their 2P production profiles.
The U.S. Bureau of Ocean Energy Management (BOEM) issued its final rule titled “Risk Management and Financial Assurance for OCS Lease and Grant Obligations” on 15 April 2024, effective from 29 June 2024. This rule significantly increases the supplemental financial assurance required from lessees on the federal outer continental shelf. Key points include:
- Companies must satisfy one of two financial criteria: having an investment-grade credit rating or maintaining a favorable ratio of reserves to decommissioning liabilities.
- If neither criterion is met, lessees must provide assurance based on a probabilistic (P70) decommissioning cost estimate from the Bureau of Safety and Environmental Enforcement (BSEE).
- Lessees may request to phase in payments over three years.
- BOEM will begin issuing notices, and full implementation is expected to take up to 24 months.
Otto Energy’s management believes the rule will apply to its interest in GC 21 (Green Canyon 21) but not SM 71. They estimate their maximum exposure related to GC 21 could be US$3.8 million, and that third-party surety can likely be used to meet the new requirement. As of the report date, Otto had not received a notice from BOEM regarding this rule.
On Trump and Potential Policy Reversals:
While Donald Trump has expressed support for reducing regulatory burdens on the oil and gas industry in the past, there is no certainty he will roll back the BOEM’s new financial assurance rule if re-elected. Regulatory changes depend on administrative priorities, legal processes, and broader political dynamics. Even if a reversal is attempted, it would likely face procedural and legal challenges.
Would you like a summary of which Otto assets are most affected by this rule?
(20min delay)