• Portfolio of eight, high probability of success, technically independent prospects, generated off new proprietary 3D seismic
• Large prospective resource provides material upside upon success through oil and gas production growth
• Highly experienced and privately owned US Gulf Coast operator Hilcorp Energy to execute drilling and development program
• Identified access to infrastructure ensures a rapid, low capex pathway from discovery to production upon success
• Attractive deal terms with potential for further opportunity beyond the initial eight wells
• Program complements Otto’s existing drilling campaign at Bivouac Peak in the GoM and Alaska North Slope, providing shareholders with exposure to 10 wells over the next 18 months
• Program funded with Placement and Underwritten Entitlement Offer to raise A$20 million

Otto Energy has entered into a joint venture with Hilcorp Energy which will see it earn a 37.5% working interest in an eight well portfolio of prospects in the Onshore/Near Shore USA Gulf Coast (Gulf of Mexico). The wells will be drilled by Hilcorp, a highly experienced, privately-owned operator based in Houston, over the next 18 months. The Company is undertaking a capital raising of approximately $20 million via an institutional Placement and a fully-underwritten, accelerated non-renounceable Entitlement Offer to fund its US$37.5 million share of the drilling program. The capital raising will complement cash on hand and future cash flows from Otto’s 50% owned SM 71 producing oil field in the Gulf of Mexico to fund Otto’s full exploration program over the next 18 months, including Bivouac Peak and Alaska.

Otto’s Managing Director, Matthew Allen, commented: 
“This program provides an outstanding opportunity to execute our strategic objective of becoming a 5,000 boepd producer in the Gulf of Mexico by the end of 2020. It represents an exciting time for Otto shareholders, with the program complementing our near-term exploration campaigns at Bivouac Peak in the GoM and in Alaska.

“The eight independent prospects announced today are in our geological and geographical sweet spot and provide a unique opportunity to substantially grow our Gulf of Mexico business in one transaction with an outstanding operator and partner in Hilcorp.”

Details of the Agreement

Under a Joint Exploration and Development Agreement (JEDA) with Hilcorp Energy Otto has committed to an eight well drilling program with an estimated cost of US$75 million (100%). Otto will earn a 37.5% working interest by paying 50.0% of the costs of drilling and either setting casing or plugging and abandoning the well plus lease acquisition costs at each of the eight prospects. The estimated cost of the commitment to Otto is US$37.5 million. US$4 million will be paid immediately to cover initial land and other costs.

Well Cap - Otto has the option to discontinue participation in each prospect well if actual costs exceed the approved expenditure budget by 20%. If Otto elects to not continue, it will forfeit rights to that prospect. If Otto proceeds, costs from then on will be at working interest percentages.

Program Cap - Once Otto has incurred a total amount relating to the initial eight wells of US$42.5m, it will have the option to elect (but not the obligation) to participate in the remaining undrilled prospects in the initial eight well program at working interest percentages. If Otto elects to not participate in any undrilled prospects, it will forfeit rights in those prospects.

Additional Upside

Should either the Tarpon or Mustang prospects be successful then Otto has ground floor rights (ie pays only its working interest) to participate in the nearby Damsel and Corsair/Hellcat opportunities. These wells are in addition to the eight wells.

Under the JEDA Otto has a right of first offer to a subsequent Gulf Coast program, if Hilcorp elect to offer such a program to third parties.