Otto Energy Limited has executed final binding agreements with BHP Billiton Petroleum to terminate the farm-out agreement between the two parties over Service Contract 55 (SC55), offshore the Philippines.
Otto has submitted a request to the Philippines Department of Energy (DOE) for re-assignment of BHPB’s 60% working interest to Otto, taking Otto’s working interest in SC55 to 93.18%.
The key terms of the termination deeds provide for the following:
• Upon approval of the re-assignment by the DOE, Otto will accept the re-assignment of BHPB’s 60% working interest and BHPB will pay US$3.0m to Otto;
• Otto to lodge a Sub-Phase 4 work program and budget with the DOE, to drill the Hawkeye-1 exploration well;
• BHPB will pay a further US$24.5m to Otto upon completion of drilling the first exploration well in SC55; and
• BHPB has no enduring rights to any future exploration outcomes or obligations.
Otto has briefed the DOE of the intention to undertake drilling of the 3D seismically defined and DHI (Direct Hydrocarbon Indicator) supported Hawkeye-1 exploration well in Sub-Phase 4. Hawkeye is a turbidite clastic reservoir target in 1,690 metres of water with top reservoir prognosed to be at 2,732 metres. Drilling could start as early as Q4 2014.
Otto says that SC55 contains a number of distinct exploration play types including the carbonate gas/condensate trend, that has the potential for an oil charge, and the turbidite clastic prospects. The permit provides material opportunity and a series of possible drilling targets in an exploration campaign that will be undertaken during the remaining term of the service contract.
The company has started drilling planning preparations, including development of well designs, planning studies and the necessary equipment procurement required to undertake this programme. Otto has invited expressions of interest from drilling rig owners to determine availability of drilling units to drill the Hawkeye-1 exploration well within the required timeframe.
Otto has started a farm-out process intended to introduce a new partner into the joint venture to participate in the drilling of the Hawkeye-1 exploration well. Otto is targeting suitably qualified partners to join the program.
A number of parties have commenced due diligence reviews of the data room ahead of the formal launch of the farm-out campaign.
Otto has engaged with the DOE regarding the revised timing of the work program commitments following the suspension due to delays in the receipt of the Strategic Environmental Plan(SEP) Clearance. It is expected that this
revised timing will be the subject of a separate announcement shortly.
Otto Chief Executive Officer Gregor McNab said: “The termination of the farm-out agreement with BHPB represents a favourable outcome for Otto shareholders, providing us with material funding to allow drilling in SC55. This licence is a material and high potential permit with a number of exciting prospects and leads within it. We have commenced drilling planning activities and we look forward to unlocking the value from this permit
through drilling the first well. The prospectivity of the carbonate trend, including the Cinco prospect, and the Hawkeye turbidite clastic prospect demonstrates the high impact potential to be tested by exploration drilling in SC55.”
Press Release, January 21, 2014