As you and many of us know, future of SC55 is still not secure and there are many 'Ifs and Buts' surrounding it. But, probability of positive news are more than negative news IMO. For reasoning and logic for that, you can refer my previous posts in OEL thread.
I know you are an ardent supporter of Swala and so is me. If you analyze more in detail, Otto and Swala has many similarities and have blue-sky potential assets in kitty that can make Market go frenzy if they succeed. Below is my perspective of Pros and Cons of investing with Otto,
Pros:
* Positive cash flow
* Production assets
* Currently trading below its Proven resource value. With FPSO and Mooring upgrade done in 2012, expect a very good Production up-time
* Diversified portfolio with assets in Proven OIL Play of Philippines and most exciting exploration area of EARS
* Key Prospect of Otto, SC55 is located near Malampaya gas field which has Produced multi-billion dollars in revenue. Geology of SC55 and Malampaya are similar and Chance of Discovery and Success are very good based on 3-D seismic
* Duhat is a on-shore target with mean estimate of 34mmbls and high estimate of 88mmbls. Exploration drill costs are low for Duhat and if we succeed there, expect a positive cash flow for years to come with very good base for sustained development
* Exciting 2-D seismic results in K-K/Pangani where Otto holds 50% W.I. Expect more exciting news from our EARS region
* Less risk of share dilution
* One of the best Management Team and definitely the Ones we can trust
* Actively engaged to diversify the assets more and possibly more acreage in EARS via farm-in or JV
* Galoc success proves capability of Otto as an Operator. Technical expertise & learning from Galoc has been vast and would be very handy in future
* Galoc North prospect could add more reserves in future and is located in the proven and producing Galoc OIL region
* Success in only one of Cinco or Hawkeye or Duhat or Kilosa or Kidatu or Kilombero or Mvungwe or Moshi targets has the potential to make Otto a multi-bagger. Point to note is, we might have many prospects in our 5 basins in Tanzania. This in a way de-risks chance of OIL discovery and probability of commercial OIL success is very high
* 3 basins viz., Kilombero, Mvungwe and Moshi are estimated to be Neogene plays with potential hydrocarbon traps and large structures
Cons:
* Future of SC55, which is our best shot for next drilling phase is still a question mark. There is a possibility Otto may relinquish the license if they are not able to find farm-in partners. Though chances are low, it is a huge risk and certainly there is FEAR OF LOSING our best asset and hence muted response from Market
* Future of Duhat is in contrast to SC55 with only similarity being possibility of relinquishment. Duhat 1 and 2 have been failures with unexpected outcomes both times. Whether Management would risk it one more time and enter drilling is still a riddle with no definite answers
* K-K/Pangani prospects though exciting would take its own time to mature. Though Kito prospect is planned for Q4 2014 drill, COS is 8-9% and that is very low for a on-shore target. Though low COS is attributed to many factors, Kito prospect is a high risk as failure to find OIL would send wrong signals about prospectivity
* Drilling areas has to be carefully studied and not hurried. Failure to find Commercial Oil not only sends wrong signal to Market but would hit hardly on the cash register and hard earned cash from Production assets would go in vain and if there are more failed drills, there could be dilution or debt needed to fund future exploration
* Number of shares issued is on a higher side and success in our basins has to be very good to be a better multi-bagger
Personally, I believe Otto has more Pros than its Cons and one of the best stocks available in ASX Market to invest. Currently, Otto is trading below its Galoc valuation of Proven resources and is a NO BRAINER to buy below 10c. With potential to be multi-bagger and on the least double bagger in 12 months, I am more than happy to invest with Otto. With uncertainty surrounding SC55 and Duhat, this is the best opportunity to invest as post farm-in, we will not be trading anything below 10c and probability of finding a quality farm-in partner soon is very high. These are my opinions only, DYOR.!
OEL Price at posting:
9.8¢ Sentiment: LT Buy Disclosure: Held
(20min delay)