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OIL & GAS | Otto Energy
OTTO ENERGY
Part of an exploration renaissance in the Gulf of Mexico basin
Resource Global Network
OIL & GAS | Otto Energy
Until around four years ago, ASX-listed Otto Energy’s portfolio was centred around its oil and gas assets in Philippines. During this first phase of the company, the focus had been on maximising the value of the core production asset in Philippines, and this culminated in 2013 with the successful completion of the Galoc Phase 2 development. However, by late 2014 Otto had completed the sale of the Galoc field, giving the company balance sheet strength at a crucial moment when oil prices were in freefall and the sector was retracting from some of the more high-risk regions that were invested in at the height of the boom. Otto’s managing director and CEO Matthew Allen explains how the lower oil price environment of 2014 opened up a market of higher quality assets that previously had not been accessible for a company of Otto’s size. “When we exited our assets in Philippines, we spent a lot of time looking for the right opportunity in a low oil price environment. The sector had very dramatically cut capital expenditure and investment all around the globe. “We observed a number of operators, particularly in the Gulf of Mexico, in balance sheet distress and a lot of them had
Resource Global Network exploration commitments ahead of them that they couldn’t fund. “As a result, capital was being diverted into production related enhancements and plug and abandon obligations with the government, and very little was going into exploration expenditure.” Upon seeing this trend in the sector, Otto went about positioning itself as a wellcapitalised non-operator for exploration projects with high quality partners in prolific hydrocarbon basins, such as the Gulf of Mexico. “That’s what we’ve been doing for the last three years, building our exposure in the Gulf of Mexico play and very quickly accelerating into production, which we think is the key to capture the opportunities that wouldn’t normally be available in a higher price environment.”
An exploration renaissance The Gulf of Mexico is a mature oil basin that is undergoing a period of renaissance in terms of new discoveries and increased operator activity. For Allen, the basin has all the ingredients that Otto is looking for: A working petroleum system, relatively low sovereign risk, excellent margins and short cycle times from drilling to cash flow. “The advent of 3D seismic surveying back in the 1990s really transformed what people thought was a mature area and finds like
OIL & GAS | Otto Energy
Resource Global Network the South Marsh Island 71 (SM 71) have
Timing is key
proved that new technology is helping to
“To be able to sell near the peak in 2014, then
uncover more discoveries. It’s a well-proven
invest during the low points of 2015-17 and
basin that, if you have good ideas and good
then have production come onstream right in
technology, is one of the best places to look
the recovery phase, for us we have had a very
for oil.”
fortunate last four years with timing working well for us. We have a significant long reserve
Production commenced at SM 71 in March
life ahead of us in SM 71, it ranks now as one
2018, just two years after it was first
of the top Gulf of Mexico shelf oil producers.”
discovered. Now, the project delivers over US$3 million a month in free cash flow, net
In 2015, Otto partnered with fellow ASX-listed
of royalties and operating costs, and with
oil and gas producer Byron Energy at SM 71
a significant field life, SM 71 is set to be the
in a deal which saw Otto take a 50% working
critical mass on which Otto will grow its
interest in the project and Byron retain
business.
responsibility as operator.
“Our aspiration is to deliver in the first phase
The joint venture (JV) has been mutually
of our business growth in the Gulf a net
beneficial for both parties according to
production target of about 5,000 barrels
Allen, who acknowledges Byron’s depth of
per day (bpd) and we are well on the way to
experience in the Gulf of Mexico and their
delivering on that target in the next three
proven capability in delivering and executing
years.
projects in the region.
“It has been a very significant discovery for us
“We have assembled an excellent team
as a company, and we are looking to build on
here in Houston and are building out our
that initial success in the drilling programme
capability in the area. I rate very highly the
that we now have ahead of us for the next
team that we have here and look forward to
two years.”
building our own capability to operate and develop projects in the future,” he says.
Evaluating his company’s work at the SM 71 project, Allen stresses that timing is perhaps
However, for the foreseeable future Otto
the most important element in the oil and
will continue to focus on working with good
gas industry, and this has been validated by
quality operators like Byron and Hilcorp
the successful fast-tracking of the project into
Energy. The company recently secured an
production.
eight-well Gulf Coast package with tier 1 operator Hilcorp, one of the largest privately held oil and gas companies in North America.
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OIL & GAS | Otto Energy
“Our aspiration is to grow in the first phase of our business growth in the Gulf of Mexico with a net production target of about 5,000 barrels per day� Matthew Allen, managing director and CEO
Resource Global Network
OIL & GAS | Otto Energy
Resource Global Network
Hilcorp is a highly experienced Gulf Coast
Alaskan ambitions
operator and the deal, over 12 months in
Nonetheless, Otto’s chairman John Jetter
the making, represents a significant coup for
said the news was only a short-term setback
Otto. “To have put together eight high quality
with a further eight wells to be drilled in the
drilling opportunities like we have with
Gulf of Mexico and attention is now turning
Hilcorp, that provides some very significant
towards the company’s upcoming drilling
activity and upside in our portfolio.”
programme in the Alaska North Slope. Otto’s technical team has been active in this
At the time of writing, Otto was in the middle
emerging play since late 2017, maturing the
of drilling the first well within the Hilcorp
large-scale Nanushuk prospect.
package, with the company expecting to have that well down to target before the end of
“It’s a really exciting well and a large target,
October. The Hilcorp package provides the
as most targets in Alaska are. It’s elephant
bulk of Otto’s 10 well exploration pipeline.
hunting territory, or so it’s called, and the other end of the spectrum to the Gulf where
Of the two remaining wells, Otto partnered
a few million barrels can be very economic.
with Byron once again at Bivouac Peak in the Gulf of Mexico, but after a disappointing
“But in the North Slope its very much about
drilling campaign the company labelled the
aggregating large volumes, large capital
Bivouac Peak East prospect non-commercial.
OIL & GAS | Otto Energy
investments and infrastructure. We’d like
Allen believes that it has been known for
to have a balance of portfolio depth and
quite some time that the Nanushuk sequence
exposure so it’s a good opportunity for us
contains oil, but it has been overlooked
to participate in and put a little bit of capital
as a development region because of its
towards.”
stratigraphic nature, until recently.
Resource Global Network too complicated to resolve on seismic and even more complicated to develop, but with the likes of Conoco-Phillips, Oil Search and Repsol-Armstrong making big discoveries there in recent years, it has certainly got a lot more attention now. “For the JV consortium that we are involved in with relatively small companies [88 Energy, Red Emperor and Great Bear Petroleum], we’re operating right in the heartland of some of the largest oil companies in the world. Overall, the Nanushuk oil play is an exciting prospect for Otto, with drilling of the first well planned for the first quarter of 2019, once the winter season opens up in Alaska. To conclude, with several exploration wells in the pipeline across the Gulf of Mexico and Alaska, there is a growing belief that Otto is close to achieving its core goal of developing into a premier mid-tier independent oil and gas company, as it executes its current drilling programmes and continues to grow incrementally.
“The Nanushuk sequence is a strong testament to new thinking that’s evolving new discoveries. Previously, it was much
ASX:OEL
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Published by Anderson Murray Media Ltd
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