great news, page-55

This doesn't make it any more real but its alot easier to read

Stung by BHP Billiton's sudden and unexplained withdrawal from a highly prospective gas exploration venture off the Philippines three weeks ago, Otto Energy yesterday extracted some compensation from its bigger peer to avert a lengthy legal battle.

Otto shares bounced back 8 per cent to 8.5� after it said it had signed a letter of intent with BHP that would govern the restructure of the Service Contract 55, south-west of Palawan Island.

Assuming the LoI is turned into a binding agreement in coming weeks, Otto will take on BHP's 60 per cent stake in SC55, taking its working interest to 93.2 per cent. BHP will pay Otto $US3 million ($3.3 million) once Philippine authorities approve the SC55 stake transfer and $US24.5 million once a first well is drilled.

"This letter of intent with BHP represents a favourable outcome for Otto shareholders, providing us with material funding to allow drilling in SC55," Otto chief executive Gregor McNab said.

"This licence is a material and high potential permit."

Otto's target is to drill Cinco, a prospect containing an estimated potential 2.4 trillion cubic feet of gas, next year.

The well should end years of uncertainty about SC55's value to Otto. Although the Perth company has enjoyed success with the Galoc oil field redevelopment, also off the Philippines, and has exploration potential in Tanzania, SC55 is regarded as a potential game-changer.

Argonaut and GMP Securities yesterday welcomed the BHP deal, saying it positioned Otto to pursue a new farm-out partner. David Wall at Argonaut has a 12.6¢ target price and a *buy * rating on Otto.