Australia-listed Byron Energy Limited (Byron or the Company) announced Friday that its wholly owned subsidiary, Byron Energy Inc. has entered into a binding participation agreement (PA) with Otto Energy (Louisiana) LLC, a wholly owned subsidiary of Otto Energy Limited (Otto). This agreement covers three of Byron's existing projects, with Otto contributing up to $17.3 million in drilling costs and past expenditure recovery, as part of a staged farm out program, to advance the three projects. The injection of this funding through a staged program will substantially reduce Byron’s need for capital and could ultimately lead to three new wells being drilled by Byron during calendar year 2016, offering Otto an attractive, accelerated entry into an established basin.
Under the PA, Otto pays a disproportionate share of drilling costs to earn 50 percent of Byron's interest in three projects: South Marsh Island 6, South Marsh Island 70/71 and Bivouac Peak. After drilling of the program’s initial SM 6 #2 well, Otto will then have a short option period to elect to participate in the SM 71 #1 well; in the event Otto elects to participate in SM 70/71, Otto will reimburse Byron for a portion of past costs on the SM 6 lease and the SM 70/71 leases. After the drilling of SM 71 #1 well, Otto will have earned an option to participate in the drilling of the first well on Bivouac Peak leases.
If all three wells are ultimately drilled, the end result will bring $17.3 million in funding for Byron’s existing projects. Should Otto elect not to participate in further drilling after the drilling of SM 6 #2 well, Otto will not earn the option to participate in the SM 70/71 leases and the agreement will cease.
Otto will also have the option of participating for up to a 50 percent interest in one new asset acquired by Byron, if any, through to March 2017 by paying 66.67 percent of related drilling costs or acquisition costs, and proportionate treatment of related expenses.
SM 6: Under the PA, Otto will participate in the drilling of the SM 6 #2 well during the March 2016 quarter. Otto will pay 66.67 percent of the estimated dry hole costs to earn a 50 percent working interest in the SM 6 lease. Otto's promoted exposure will be capped at $5.3 million of the estimated $8.0 million dry hole cost, after which both companies will bear their own proportionate interests. At earning depth, Otto will have the right to elect to participate in the drilling of the SM 71 #1 well. Upon a positive election at SM 71, Otto will reimburse Byron for past costs at SM 6 of $2.1 million as well as past costs at SM 70/71 of $0.9 million.
SM 71: At SM 71, Otto will pay 66.67 percent of the expected $4.5 million dry hole costs to earn a 50 percent working interest in the SM 71 and SM 70 leases. Otto's promoted drilling exposure will be capped at $3.0 million, after which both companies will bear their own proportionate interests. At earning depth, Otto can elect to participate in Byron's Bivouac Peak Project.
Bivouac Peak: Should Otto decide to participate in Byron's recently acquired Bivouac Peak leases, Otto will pay 66.67 percent of Byron’s share of the drilling costs to earn a 45 percent share of the Bivouac Peak leases. Otto's drilling contribution will be capped at $6.0 million based on a dry hole estimate of $10 million. Otto will also reimburse Byron for 50 percent of Byron's past costs in the project at the time of election.
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