Otto Energy Executes LOI to Assume BHP Billiton's Interest in SC55
Otto Energy Limited announced Thursday that it has executed a letter of intent with BHP Billiton Petroleum (Philippines) Corporation (BHPB), proposing to terminate the farm-out agreement between the two parties over Service Contract 55 (SC55), offshore the Philippines. The letter of intent contemplates the re-assignment of BHPB's 60 percent working interest to Otto, taking Otto’s working interest to 93.18 percent, subject to approval of the re-assignment by the Philippines Department of Energy (DOE).
A binding termination agreement is expected to be executed in the coming weeks. The key terms of the letter of intent are as follows:
- Upon approval of the re-assignment by the DOE, Otto will accept the re-assignment of BHPB's 60 percent working interest and BHPB will pay $3 million to Otto
- Otto undertakes to lodge a Sub-Phase 4 work program and budget with the DOE
- BHPB will pay a further $24.5m to Otto upon drilling the first exploration well in SC55
- BHPB has no enduring rights to any future exploration outcomes or obligations
Otto notes that it has access to all 3D seismic data that has been acquired in the permit to date and has commenced a handover process for work undertaken by BHPB as the former operator of SC55.
Upon execution of a definitive agreement, Otto intends to submit a 2014 work program and budget to the DOE outlining the intention to undertake drilling of the 3D seismically defined and DHI (Direct Hydrocarbon Indicator) supported Hawkeye-1 exploration well in Sub-Phase 4. Hawkeye is a turbidite clastic reservoir target in 5,544 feet (1,690 meters) of water with top reservoir prognosed to be at 8,963 feet (2,732 meters).
SC55 contains a number of distinct exploration play types including the carbonate gas/condensate trend, that has the potential for an oil charge, and the turbidite clastic prospects. The permit provides material opportunity and a series of possible drilling targets in an exploration campaign that will be undertaken during the remaining term of the service contract.
The Cinco prospect was identified as part of the 2010 694-square mile (1,800-square kilometer) 3D seismic program undertaken by BHPB that focused on a trend of carbonate prospects and leads with Cinco being analogous to the Malampaya producing gas/condensate field in the Philippines. There is also the potential for an oil charge in the Cinco prospect that is yet to be quantified into a resource estimate. Cinco contains a ‘Best Estimate’ Gas Initially in Place (GIIP) of 2.4 trillion standard cubic feet (Tscf) with a ‘Best Estimate’ Net Prospective Resource of 1.3 trillion cubic feet (Tcf) of gas and 45 million barrels of associated condensate (Condensate Gas Ratio 35 barrels/million standard cubic feet). The Net Prospective Resources assumes working interest post re-assignment of 93.18 percent for Otto and excludes Government Share of profit oil.
The arithmetically aggregated gas/condensate prospect and lead inventory, including Cinco, contains a ‘Best Estimate’ GIIP of ~ 17 Tscf with a ‘Best Estimate’ Net Prospective Resource of ~ 9 Tscf of gas and 320 million barrels of condensate.
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