Otto Energy has entered into binding agreements to raise US$8.2 million to develop the company’s oil project in the South Marsh Island 71 license (SM-71) in the Gulf of Mexico.
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Map of SM-71, from Otto. |
The funds were raised via an issue of secured convertible notes. Terms have been agreed with Molton Holdings Ltd., a major Otto shareholder, who will subscribe for convertible notes with an aggregate face value of $8 million and John Jetter, Otto’s chairman, who will subscribe for convertible notes with an aggregate face value of $0.2 million.
The agreement is subject to shareholder approval at a general meeting to be held in July 2017.
Funds will be used for the construction of the SM-71 manned platform facility, which is already underway and current expectations are that the field will be in production by the end of 2017. Initial flow rates of 1500-2000 b/d (gross field production) are expected from the completion of the first development well.
The issue has a conversion price of A$0.055 per share which represents an 89% premium to the 30-day VWAP (volume weighted average price), an interest rate of 14% and a success fee.
“With the SM-71 development funded, Otto can now utilize some of its existing cash reserves of $14 million for the next stage of growth through participating in exploration drilling of conventional new ventures in the Gulf of Mexico/onshore Louisiana and Alaska,” says Otto Managing Director, Matthew Allen.
The SM-71 #1 well, which lies in a water depth of 131ft, intersected four separate hydrocarbon bearing sand intervals. A production liner has been cemented in the well and it now awaits completion and tie-in to production infrastructure. Otto expects that first production will be delivered in late Q4 2017.
Additional follow-up opportunities around the SM-71 salt dome are being progressed. During 2016 the joint venture procured a tripod platform which after modification will be used for the development of the discovered hydrocarbons from both the current and subsequent development wells.
The manned structure will have the capacity to produce up to 4500 b/d and 5 MMft/d of gas. The platform is intended to be installed in the field area during early Q4 2017.
The joint venture plans to initially complete the SM-71 #1 well within the D5 Sand interval with expectations of recording initial flow rates between 1500-2000 b/d (gross field production). These flow rates are similar to those recorded from wells in the adjacent SM-72 and SM-73 blocks.
After completion of the SM-71 #1 well there is potential to drill up to four additional development wells, some of which will target Prospective Resources in the B65 interval which has scope to significantly increase the present on block reserves base. Interpretation of post-drill seismic inversion data shows promising results defining the D5 sand extent and delineating the future B65 sand targets. The B65 sands contain a 2.3 MMboe Prospective Resource (net to Otto). Otto’s share of the total cost of the SM-71 development (one well) is expected to be in the order of $9.7 million through to completion of the first well at the end of 2017, of which Otto has already spent $1.7 million. Further development wells are estimated to cost in the order of $7 million per completed well ($3.5 million per well Otto share).
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