otto - foresee the future

Galoc Production:
Galoc Phase I is in Production with ~ 4500 bopd (1500 bopd for Otto, 33.2% working interest) and provides good cash flow. Galoc Phase II has completed 95 days of work in a smooth way and is 20 days away from drilling completion followed by hook-up with FPSO. In 2 months, Galoc will be producing 12000 bopd (4000 bopd for Otto) and is set to increase Production by 167%. This will significantly re-rate the SP and take it to next level in short term.

Post Galoc Phase II, North Galoc exploration drilling is planned and could further boost SP with mean resource estimated at 15 MMbbls, worth 8cps (2 cps risked)

Cinco Prospect SC55:
SC55 is the most interesting prospect with huge potential for Otto and if drilling is successful, Otto shares could be multi-bagger in near future. With BHP as the operator, probability of successful drilling is more. SEP clearance was a hindrance in the SP growth in last 6 months and with all pre-requisites in place, SP will go up in phases with news flow (DOE clearance, booking of drill rig, drilling updates). Cinco is targeting 2.1 Tcf and 74MMbbls and if proven, expected SP is $1.10/sh on success (22 cps risked). With BHP to drill first well and option to drill second well, Otto will not have any expenditure and could prove to be the major driver of SP.

Hawkeye Prospect SC55:
Hawkeye prospect is planned for Q2/2014 and the project is as exciting and even more than Cinco prospect. Success case of Hawkeye is estimated at $1.50/sh (23 cps risked) and if Cinco and Hawkeye meets the expectation, SP could be potentially $2.60/sh which is staggering (~ 30 times the current SP).

Duhat Prospect SC51:
With Duhat-1 failure, much was expected out of Duhat-2 and more precautions were taken from the lessons learnt with Duhat-1. Unfortunately, Duhat-2 proved out to be a failure again with unforeseen circumstances. Still, Management does not rule out drilling Duhat-2 again and when I called them last time, they informed that decision will be taken in Sep-Oct/2013. With Working Interest of 80% and mean resources estimated at 34 MMbbls (range is 1 to 88 MMbbls), it is worth 44cps on success (3cps risked). With less exploration drilling costs compared to potential and ROI, Duhat is worth the risk and hopefully Management takes a good decision.

Lampos, Lampos South and Managau East SC69:
As per last quarter update, SC69 is planned for farm-down process. With good 3-D seismic results and target drills already identified, SC 69 could add more value to the already exciting portfolio of Otto. With mean estimated resource at ~250 MMbbls, SC69 is valued at 88cps on success (9cps risked).

SC73:
Service Contract 73 has been awarded to Otto last week and adds significant value to current Portfolio of assets held by Otto. With 3000 km 2D seismic data available covering the block, it will help in decision making for the prospect.

Kilosa-Kilombero and Pangani, Tanzania Prospects:
Though at initial stage, potential of East African assets in Tanzania are huge and not appreciated yet. With 50% interest in area covering ~ 34000 sq.km along the East African Rift System where Tullow and African Oil had huge success, Otto has very high probability of success for Oil Production in future (Swala is the Operator).

Also, it is expected that Swala would bag license for Eyasi whose geology is similar to true rift where Tullow and African Oil had success. Swala is looking for partner for Eyasi and it is possible that Otto could partner them similar to Kilosa-Kilombero and Pangani. It is also possible that Tullow or other company could partner with Swala for Eyasi, if awarded but probability of partnering with Otto is more since they have already established a working relation in Tanzania ( I hold both Otto and Swala shares and would be happy with whoever Swala partners as long as they are awarded the license)

Kilosa-Kilombero and Pangani license covers 5 basins and chances of drilling success is high. Kilosa-Kilombero has three entire rift basins which is bigger in size than Albertine Graben in Uganda and Lokichar basin (>2b barrels of oil). Pangani has two basins with evidence of hydrocarbon seep and Oil potential. Even with 10% of its potential in Tanzania, Otto will have huge increase in SP in future.

In two years’ time, Otto could be multi-bagger taking only Tanzanian assets into consideration and seismic results would give a better understanding of the potential. Land value of license held by Otto alone is worth ~5cps (using valuation from Swala assessment and calculating for Otto)

It is very rare to find a company with least probability of downside and huge upside potential in current market and for sure, Otto is one of the best among them. It might take some time for Otto to prove the resources but if proven, SP will not be anywhere near the current SP. Smart investment is identifying a company when SP is low with good upside potential and investing in it for better ROI in future. Otto has very good assets portfolio, highly professional Management team and all ingredients for a bright future.

These are my opinions only based on Facts, Analyst Researches and Company updates and reasons for my investment with Otto. Your suggestions are welcome as long as it is constructive.