Byron Energy Finds Oil, Gas at South Marsh Island Block 71 in GOM

Australia's Otto Energy Ltd. (Otto or the Company) announced Wednesday that it has been advised by Operator, Byron Energy Inc., a subsidiary of Byron Energy Limited (Byron), that the SM-71 #1 well located at the South Marsh Island Block 71 in the Gulf of Mexico has completed drilling to the final target measured depth at 6,843 feet (2,086 meters) or 6,477 feet (1,974 meters) True Vertical Depth.

During drilling a number of discrete hydrocarbon bearing sands have been intersected and preliminary evaluation completed using Logging While Drilling (LWD) tools. The following hydrocarbon indications have been observed to date:

(i) I3 Sand – a hydrocarbon saturated gross sand thickness of approximately 20 feet (6 meters)
(ii) J sand – a hydrocarbon saturated gross sand thickness of approximately 30 feet (9 meters)
(iii) D5 sand – a hydrocarbon saturated gross sand thickness of approximately 100 feet (30 meters)

Indications of oil were seen on cuttings from the D5 sand interval and all hydrocarbon bearing zones demonstrated elevated wet gas readings.

Based on preliminary interpretation of these results it appears that a significant proportion of these hydrocarbon bearing sands will result in net hydrocarbon pay, however net pay counts cannot be determined until a porosity log is run and may be determined to be less than the gross sand amounts reported here.

The D5 Sand, which was the primary target of this well exhibits excellent quality, is within the range of predrill expectations, and confirms the RTM technology used to delineate the prospect. The J Sand, which was a secondary target, was found within predrill expectations and was intersected 220 feet (67 metres) up-dip of the highest productive well in the J Sand interval. The I3 Sand, which was not included in the predrill estimates, will enhance the project economics. The I3 sand interval does not appear to have been produced in offset wells on SM 71.

Current operation is to run in to the hole with a bit to address excess wall-cake build up and verify the hole's condition prior to running porosity logs. Whilst drilling to total depth below the D5 Sand, a pressure transition was intersected which required an increase in mud weight to control the well. The higher mud weight suppressed gas ingress, but will require additional conditioning of the wellbore.

The preliminary results from these three discrete hydrocarbon intervals are considered of commercial value to warrant the completion and ultimate production of the well. This will be done by running a 7.625 inch production liner and suspension of the well for future production. The joint venture will now move forward with development planning and has already initiated discussions with an offset operator to cost effectively produce the hydrocarbons from this well.

The SM 71 #1 well targeted two objective sands. The first target was the J Sand, which has been assigned by Collarini and Associates gross proved and probable undeveloped reserves of 0.8 million barrels of oil and 0.5 Bcf of gas, equivalent to 0.33 million barrels of oil and 0.2 Bcf of gas net to Otto’s 50 percent working interest and 40.625 percent net revenue interest. The primary target was the D5 sand, which has been assigned, by Collarini and Associates, gross prospective resources of 5.6 million barrels of oil and 4.1 Bcf of gas, equivalent to 2.3 million barrels of oil and 1.7 bcf of gas net to Otto’s 50 percent working interest and 40.625 percent net revenue interest.

The SM 71 #1 well is the second well to be drilled as part of the farm-in with Byron announced in December 2015. The SMI-71 #1 well has been drilled to the earning depth and Otto has earned a 50 percent working interest in the SMI70 /71 licenses.

Otto’s Managing Director, Matthew Allen said: “Otto is very pleased with the results of the SM-71 #1 well coming in at the high end of our forecasts. This discovery cements Otto’s initial position in the Gulf of Mexico, with our partner Byron Energy, and will form the basis for Otto’s continued investment in this high value play. We look forward to developing this opportunity and seeing Otto return to production in 2017.”

The SMI-71 lease is part of a portfolio of low cost, high chance of success, conventional oil and gas opportunities located both onshore and offshore the Gulf of Mexico, which Otto has the option to participate in as part of the transaction.

In order to earn a 50 percent working interest (equal to a 40.625 percent revenue interest) in the SMI-71 Lease, Otto will contribute 66.67 percent of the costs of the well (estimated at $3.0 million net to Otto)). Any costs above this amount in respect of the SM-71 #1 well and all future expenditure on the license will be in accordance with Otto and Byron’s participating interest (Otto 50 percent).

Otto is able to fund all activities under the Participation Agreement with Byron Energy from existing cash resources.

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