Gulf Coast Package

Under a Joint Exploration and Development Agreement (JEDA) with Hilcorp Energy Otto committed to an eight well drilling program with an estimated cost of US$75 million (100%). The first well, Big Tex, has been drilled - see below.

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 was 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.

Additional Upside

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.

Details of the Drilling Program

Information regarding the remaining six wells is set out below.

Prospective Resources

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.

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.

 

Lightning Well - Significant Discovery

On 4 February 2019 Otto advised that the initial exploration well, Green #1, testing the Lightning prospect in Matagorda County Texas, has reached final total depth of 15,218ft MD (15,216ft TVD). A quad combo wireline logging suite, including dipole sonic, has subsequently been acquired over the target Frio-Tex Miss sand intervals which are Oligocene in age.

Through participation in the drilling of the Lightning exploration well, Otto has earned a 37.5% working interest in the leases covering this prospect.

Petrophysical evaluation of the logging data indicates the presence of a total net hydrocarbon filled sand interval of 180 feet. This petrophysical evaluation has been undertaken using historical parameters for production performance in the play trend. Dependent upon porosity and water saturation cutoffs applied, there is potential for an additional 150 feet of net pay in the well.

Pre-drill prospective resource estimates for the Lightning prospect, as first announced on 4 December 2018, assumed a P50 net hydrocarbon bearing reservoir thickness of 31 feet with a P10 net hydrocarbon bearing reservoir thickness of 75 feet. Estimates of reserves will take some months to calculate and will be further refined with production data. Otto will update the market as soon as these numbers are available.

Further evidence supporting the presence of movable hydrocarbons occurred during drilling where strong gas shows, including C5+, were recovered at surface. Indications during drilling showed several sand intervals have the potential for liquids yields significantly higher than the pre-drill estimates. Fluid composition and liquids yield will be determined during well clean-up operations and ultimately production.

The Operator has run a 5½” production liner in the well and is commencing preparations for completion and subsequent tie back to a nearby sales pipeline. The drilling rig will be released and mobilized to the drilling location for the next prospect in the Gulf Coast program with Hilcorp, Don Julio 2, in the coming week. A completion rig will be used to install production equipment and bring the well into operation.

The development plan is to deliver production into one of two nearby multi-phase sales pipelines via a 4” export line to be laid from the well. Otto expects these operations to take approximately 45 days with first production from the well by the end of March 2019.