Gulf Coast Package
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.
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.
About Hilcorp Energy
Founded in 1989, Hilcorp is one of the largest privately held oil and natural gas companies in North America. Hilcorp specializes in reinvigorating legacy oil and gas fields across North America; including in the US Gulf Coast, Alaska and the Rockies and currently produces approximately 325,000 boepd. To put this into context, Australia’s largest oil and gas company, Woodside, produces ~230,000 boepd.
Hilcorp has nearly 2,000 employees and has been consistently recognized for its strong culture, values and ethics both within the firm and in the communities in which it operates.
Otto is very pleased to be partnering with a Gulf Coast operator with proven capability to take exploration prospects into production.
Impact on Strategy
Otto has a clear strategy to grow production in the Gulf of Mexico to 5,000 boepd by the end of 2020. More specifically Otto’s target area for new opportunities lies within the Pliocene, Miocene and Oligocene reservoir systems of the US Gulf of Mexico shelf and Gulf Coast where capital costs are manageable for Otto and the availability of infrastructure means the time from discovery to production is short. Otto is deploying its experienced technical team to find attractive, low risk drill opportunities in this area to provide high-margin oil and gas production growth.
This growth strategy is underpinned by the strong production and cashflow from Otto’s 50% owned SM 71 oil field in the Gulf of Mexico shelf which is currently producing approximately 2,000 bopd Otto’s share.
The Hilcorp eight well portfolio is a significant step toward the 5,000 boepd and puts Otto into partnership a large and well-respected operator in the region. In addition it offers further potential through follow-up drilling and a right of offer on further Hilcorp Gulf Coast farmouts.
Details of the Drilling Program
Information regarding the eight wells is set out below.
The range of prospective resources for each prospect is set out below.
Prospective Resources Cautionary Statement
The estimated quantities of petroleum that may potentially be recovered by the application of future development projects relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons.
Below is a graphical representation showing how this portfolio fits with Otto’s existing assets.
Risked Summary data - 8 Well Portfolio, Gross (8/8ths)
Portfolio-level risked information for the eight well portfolio is set out below. These are probabilistic additions of each prospect’s expectation curve, using a monte carlo approach. Refer to the Competent Person’s Statement for further information on these calculations.