latest valuation without bhp and sc55

From Argonaut on the Otto website

(Cashflow expected from Galoc to 2022)

Otto Energy Ltd
Otto Empire Rising
Analyst | Dave Wall
Quick Read
Otto is on the cusp of commissioning the Phase II development at its Galoc Oil Field
offshore Philippines (OEL 33% and operator) where production will increase from
4,000bopd to ~12,000bopd. The Company is well placed for growth from a prospective
exploration portfolio both in the Philippines and East Africa with core value of $0.13
underpinned by Galoc. The Philippines exploration effort recently took a hit after the
surprise withdrawal of BHP from SC55, where it was expected to free carry OEL on two
deepwater wells. We carried a total of $0.04 in our valuation for SC55, which has been
written to zero pending clarification on the permit over the next few weeks. We are
initiating coverage on Otto with a BUY recommendation and a price target of $0.13.
Event & Impact | Positive
Galoc Phase II – Operational Excellence (OEL 33%, operator): The Galoc Phase II
development has gone off without a hitch and is on the cusp of commissioning after
successful flow testing of Galoc 5H and 6H at 6,300 and 3,800bopd respectively. The
project has been delivered within 10% of the 2012 FID budget and on schedule.
Production will ramp-up to ~12,000bopd (gross) and deliver US$180m in after tax cash
flow (net to OEL) over the next 8 years. On an NPV basis, this is equivalent to A$0.13.

SC55 – BHP Blindside: Following recent formal approvals the way was clear for BHPB to
free carry OEL through two deepwater wells, targeting large oil and gas potential along a
prospective trend. As part of what may be a regional reallocation of capital, BHPB
informed Otto and the Philippines Department of Energy (DOE) of its intention to
withdraw from the permit and its farm-in agreement with Otto. We interpret that OEL
would seek to recoup any financial penalty (although there is no indication that there
will be one) related to BHPB’s withdrawal. The DOE may grant OEL additional time to
secure a new farm-out to get a well drilled on the permit; however, there is unlikely to
be visibility on this for several weeks at least.

Tanzania – The Right Address: The Company also has >17,000km2 (net) onshore
Tanzania in the East African Rift System, which is prospective for the same play types in
which large discoveries have been made to the north in Kenya. Early seismic indicates
the presence of large structures with drilling possible from



late 2014.
Recommendation
Our recommendation for Otto is centred on core asset value at Galoc, where strong
cashflow is expected until 2022 and Net Present Value of $0.13 has been modelled.
Given the strong cashflows, the Company is well placed for growth at an organic level
from the attractive pipeline of exploration assets or through acquisition. The East African
assets are early stage but are in the right address in what is an emerging onshore
hydrocarbon province. With a core asset underpinning value of $0.13, the surprise
withdrawal of BHPB at SC55 has created a strong buying opportunity. We rate Otto as a
BUY with a price target of $0.13