Perth, Dec 15, 2008 AEST (ABN Newswire) - Otto Energy Limited (ASX:OEL)(PINK:OTTEF) advise that Oil production commenced at the Galoc Oil Field on 9 October 2008. Initial production was up to 18,000 barrels of oil per day (bopd) and the rate of production has now stabilised at 13,000-14,000 bopd. To date, the field has produced over 770,000 barrels (bbls).
The inaugural Galoc offtake of approximately 300,000 bbls was successfully completed on 8 November 2008. A second offtake of around 300,000 bbls occurred on 4 December 2008. The third offloading, a large cargo of approximately 400,000 bbls, is scheduled to take place late December 2008. Buyers have been secured for all cargos, with a fourth cargo scheduled for offloading in January 2009 which has also been contracted for sale.
Galoc oil is a light and desirable crude, with analysis showing the mercury content is in the range of 1-4 parts per billion, which is negligible and has no negative impact on refining as demonstrated by the sale of all cargos to four different refineries in four separate countries.
Otto owns a 31.38% shareholding in Galoc Production Company W.L.L. (GPC) which is the field Operator and which holds a 58.29% working interest in the Licence, giving Otto an 18.3% indirect interest.
Whilst production at the Galoc Oil Field has continued at a steady rate, the delays experienced to reaching first oil combined with the recent fall in oil prices have resulted in revenues generated from Galoc being significantly less than originally budgeted. This has resulted in GPC being unable to meet all its original debt repayments under the non-recourse portion of the project's debt facility from production cashflow.
Otto's share of the original debt facility across the field was US$20.42m (comprising a recourse and non-recourse component). Otto has contributed US$6.91m to repayments against the facility with its share of the current amount owing being US$13.51m.
GPC has agreed with the banks to a "cash sweep" priority repayment program for the non-recourse portion of the debt facility (Otto share US$10.4m). All available GPC revenues after deducting operating costs are therefore currently being applied to the repayment of this debt facility. Cash dividend payments to Otto will be delayed until the GPC debt has been repaid, which is expected to be sometime in the late second/early third quarter of 2009, depending on oil price and production rates. The banks have retained the right to accelerate the repayment of the non-recourse debt facility.
Philippines Farm Out
Otto is in the final stages of negotiations with respect to the farm out of its Philippines deep water licence SC55, which it hopes to conclude in early 2009.
Turkey - Edirne Gas Project
Negotiations with potential gas buyers are progressing with strong interest from a number of significant Turkish parties. The Edirne Joint Venture hopes to enter into a Gas Sales Agreement in early 2009, with "first gas" from its Edirne Licence expected in the second half of 2009. A three well drilling program is scheduled to commence in January 2009.
Italy - Bastiglia-Cento Exploration Drilling
Otto's first well in the Po Valley Basin of Italy, Gazzata-1, is scheduled to spud in January 2009 subject to the receipt of the necessary permits.
Argentina - Santa Rosa Licence Exploration Drilling
Otto's first well on the Santa Rosa prospect in Argentina is expected to be drilled in first half of 2009. Short Term Financing Facility Secured
The Company has secured a US$5 million short term facility from two of its major shareholders. This facility will be used to fund the Company's working capital requirements until cash dividends commence from GPC. This facility is currently unsecured and repayable by 31 March 2009. An interest rate of 12% is payable on repayment of the loan. The facility may be extended to 31 August 2009, subject to the Company granting security in favour of the lenders over assets in the Company.
Given the current low price of oil, the Company cannot rule out the possibility of raising additional funds in the first quarter 2009 through the equity capital markets to repay this facility and provide additional funds to meet expenditure commitments. Such a decision will be dependent on oil prices and production rates achieved at Galoc over the next few months, the timing of financial commitments for exploration and development activities and finalisation of farm out negotiations.
Commenting on the company position Alex Parks CEO of Otto Energy said, "Amid tough market conditions, it is prudent to plan for the worst while hoping for a speedy turnaround. Global recessionary forces have lead to uncertainty and broad deterioration in the stock market everywhere, with many peer oil and gas companies also being affected. But we shouldn't be too shaken by short-term volatility, because Otto is a sustainable company with significant growth potential. Our exploration drilling programs in Turkey, Italy and Argentina in the first half of 2009 offer substantial upside in the near term, and we're progressing farm out negotiations and drilling plans for the Philippines. Otto retains the fundamentals to become a successful oil and gas company in the mid to longer term."
Contact
Jill Thomas
Investor Relations Manager
Tel: +61 (8) 6467 8800
Mobile: +61 439 440 016
Email: thomas@ottoenergy.com
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