Otto Energy Updates on Drilling at SM-71 #1 Discovery in the Gulf of Mexico

Australia's Otto Energy Ltd. (Otto or the Company) provided Tuesday the following update on the SM-71 #1 well located at the South Marsh Island Block 71 in the Gulf of Mexico.

Completion of Logging and Casing Operations

Otto has been advised by Operator, Byron Energy Inc., a subsidiary of Byron Energy Limited (Byron), that a quad combo porosity logging run has been acquired and 7.625 inch casing has been run and cemented to a depth of 6,820 feet measured depth (2,078 meters)/6,471 feet true vertical depth (1,972 meters).

Based on the initial logging results, Otto has determined preliminary estimates of net True Vertical Thickness (TVT) oil pay counts for the SM71 #1 well are as follows:

  • I3 Sand 17 feet TVT Net Oil Pay
  • J Sand 24 feet TVT Net Oil Pay
  • D5 Sand 91 feet TVT Net Oil Pay

The quad combo log, which includes neutron/density and sonic porosity data, is currently undergoing complete analysis, however, log experts, including those from Baker Hughes, confirm that the log demonstrates the presence of oil across all three pay intervals identified in the Company’s previous ASX release (April 20). These zones are correlative and analogous to productive zones from the SM71 and adjacent SM72 Fields. A final, processed version of the log will be available later this week and will be used for further analysis to determine final net pay counts in the I3 Sand, J Sand and D5 Sands. Additionally, Isotube samples from each sand interval have been sent to a laboratory for full analysis of hydrocarbon properties including estimates of API gravity and BTU content.

The SM 71 reserve and resource estimates, incorporating the results of the SM 71 #1 well, will be updated as soon as practicable by independent reserves certifier, Collarini and Associates.

Deepening of Well to Test Further Oil Potential

Given the excellent results delivered in the drilling to date, the joint venture has elected to deepen the well by approximately 600 feet/182 meters to the original planned TD of the SM71 #1 well to ensure the entire package of D5 Sand lobes have been evaluated. Further the D6 Sand, a secondary pre-drill target lies below the D5 Sand and will also be evaluated by deepening the well. The cost to deepen the well to the original permitted depth of 7452 feet measured depth (MD)/6,900 feet TVD (2,272 meters MD/2,104 meters TVD) will be within the original AFE well cost estimate.

Current operations are installing and testing blow out preventers, picking up 3.5 inch drill pipe prior to re-commencing drilling operations mid-week. The well should reach total depth late this week.

Otto’s Managing Director, Matthew Allen said: “The SM-71 #1 well has delivered an excellent start to Otto’s drilling campaign in the Gulf of Mexico and is an early vindication of Otto’s entry into the region through its staged, optional, farm-in transaction with Operator, Byron Energy. We are very encouraged by these results and look forward to evaluating the deeper D6 sand interval in the coming week, which has the potential to add further to the success of this well. Pleasingly, and due to operational efficiency, the cost of testing of this deeper target is expected to remain within the original AFE amount. We are seeing significant shareholder value being created with this drilling campaign and we look forward to achieving our goal of a return to production in 2017.”

Overview of Otto farm-in with Byron Energy

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.

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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