Australia’s oil and gas explorer Otto Energy has farmed into Houston Energy’s South Timbalier 224 (ST 224) lease in the Gulf of Mexico for a 25% working interest.
Otto said on Monday that, as a result of the deal, the operator W&T Offshore would have a 39 percent stake in the license while Otto, Houston Energy, and another private US company would have 25, 11, and 25 interest, respectively.
Under the terms of the farm-in, Otto will be required to fund 25 percent of the initial test well (up to casing point) to earn a 25 percent working interest in the ST 224 license. The financial commitment for Otto is currently estimated at $2.7 million, including funds to evaluate the well using wireline techniques and in a failure case to P&A the location. Otto will also pay $81,250 in back costs.
Should a development proceed at ST 224, Houston Energy will be entitled to a back-in after payout at the point where Otto recovers its share of all exploration and development expenditures from its share of net project revenues.
ST 224 contains a large, amplitude supported, high CGR, gas condensate exploration prospect which is expected to be drilled in the fourth quarter of 2017. The prospect is surrounded by analog high CGR discoveries which present a similar amplitude expression on 3D seismic data making this a very attractive low-risk exploration opportunity.
The prospect sits in approximately 170 feet of water and has a relatively shallow target depth. Several existing production platforms fall within a tie-back distance of the proposed well, enhancing economics and making the development of any discovered hydrocarbons more cost effective.
Otto’s Managing Director, Matthew Allen, said: “We are excited to secure a 25 percent interest in the highly prospective ST 224 lease partnering with an experienced Gulf of Mexico operator in W&T Offshore and Houston Energy a very successful Gulf of Mexico prospect generator. This complements our existing SM 71 development in the Gulf of Mexico which is due to commence production in late 2017.
“The farm in structure with no promote on the initial test well, and a back-in after payout only in the success case after all costs have been recovered minimizes upfront entry costs. In the success case, pre-drill economics support a very robust development project at current oil price which W&T Offshore has indicated could have first production by end 2018.”