Otto Energy has announced that it has entered into an agreement with Byron Energy for the staged farm-in for participating interests in to up to three lease areas held by Byron in the Louisiana Gulf of Mexico (GOM) area.
The transaction with Byron will provide Otto with exposure to a portfolio of low cost, high chance of success, conventional oil and gas opportunities located both onshore and offshore US in a prolific oil and gas province surrounded by existing infrastructure.
The leases are located in the shallow waters of the Outer Continental Shelf (OCS) of the GOM (SMI-6 and SMI-70/71) and onshore (Bivouac Peak), Louisiana.
The transaction with Byron Energy is in the form of a staged, optional farm-in to up to 3 assets with election points for Otto at the conclusion of drilling events. Otto will participate in the drilling of one well at SMI-6 commencing in 1Q 2016 – participation in SMI-71 is at Otto’s election and will be based on the technical and operational outcomes of the SMI-6 well. The election to proceed with entry into Bivouac Peak will be after the drilling of SMI-71. As consideration for the transaction, Otto will reimburse Byron Energy for past costs commensurate with the interest being acquired along with a promoted share of costs for one well in each license.
“Otto has taken the opportunity to grow its portfolio in the US post its entry into the Alaskan North Slope earlier in 2015, as it views the shallow water Gulf of Mexico as providing exposure to assets which remain robust even when viewed against the current backdrop of low oil prices,” said Matthew Allen, Otto’s managing director. “The extensive seismic dataset which exists over these blocks provides a strong base for the upcoming drilling program which [Otto] expects to commence in Q1 2016. The first well offshore Gulf Coast Louisiana will commence in Q1 2016 with Otto having the opportunity to participate in two further wells during the course of 2016. If successful, these wells will be completed for production, with first oil expected in 2017.”
Lease SMI-6, lying in a water depth of 65 ft, has had a total production of 18 MMbbl and 36 Bcf of gas. Drilling by Byron in 2015 saw the SMI-6 #1 BP02 well completed for production in the sand interval around 100m above the primary target interval – this drilling intersected 100 feet of net pay sands. Drilling of the SMI-6 #2 well will earn Otto the rights to the following net revenue interests:
Drilling is planned for Q1 2016 with Otto earning a 50% participating interest (equal to a 40.625% revenue interest) in the block. The estimated well cost for the drilling in SMI-6 is US$8 million. Otto will pay 66.67% of these costs ($5.3 million). Any costs above this amount in respect of the SMI-6 well and all future expenditure on the license will be in accordance with Otto and Byron’s participating interest (Otto 50%).
Following the drilling in SMI-6, Otto has the option to earn a 50% participating interest in SMI-70/71 through the drilling of one well. SMI-70/71 lies to the south of SMI-6 in a water depth of 131 ft and combined production from the blocks totals 5.9 MMbo and 16Bcf of gas.
Drilling of the well will earn Otto the rights to the following net revenue interests:
Drilling is also expected in Q1 2016 with an expected total well cost of $4.5 million. Otto will pay 66.67% of these costs ($3 million). Any costs above this amount in respect of the SMI-6 well and all future expenditure on the license will be in accordance with Otto and Byron’s participating interest (Otto 50%).
Image: GOM leases/Otto Energy
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