Hartleys note

Slabbo posted this on the BYE thread

Otto’s Gulf mission backed Wednesday, 16 December 2015
Haydn Black

OTTO Energy's curious decision to splash about in the Gulf of Mexico, a prolific but not always happy hunting ground for Australian companies, has at least one broker excited.


Hartleys analyst Simon Andrew yesterday gave the farm-in with well-credentialed minnow Byron Energy his approval in a research note.


“We like the transaction because it is in a prolific hydrocarbon province, is low cost (opex and capex) and close to infrastructure. In addition, the staged nature of the farm-in gives Otto the optionality to spend upon success but also to preserve capital,” he said.


It is a cheap entry too, just $US1.6 per barrel for the known 2P reserves within the two shallow water offshore leases and one onshore lease, Louisiana.


Otto is now expected to drill four wells in 2016, two on the North Slope of Alaska and none each in the Gulf of Mexico and Tanzania, but that could rise to a total of six wells with success.


The base case work program will cost $US18 million compared to Otto's current cash of $US34 million with additional wells also fully funded.


The first well in the South Marsh Island 6 block will spud early next year, with Otto funding 66% for a 50% working interest (40.625% net revenue interest).


SMI-6 lies in 20m of water over part of the South Marsh salt dome that has historically produced 40 million barrels and 253 billion cubic feet of gas, but new seismic processing techniques used by Byron have defined untapped hydrocarbon accumulations on the edge of the salt dome.


A 2014 well drilled by Byron was hampered by mechanical issues, it did encounter hydrocarbons in the F30 and F40 sands but never reached the primary G, H and I sands.


Producers could be easily tied into a production facility located just 7km away.


With success Otto will pay Byron an additional $2.1 million in back costs, or Otto can withdraw with no further exposure beyond the $5.2 million spent.


The second and third phases have similar conditions and will see Otto spend a further $10 million.


Andrew placed a speculative buy on Otto and values the company at six cents per share.


The company last traded at just $0.024.