HOA Agreement on Otto's Indonesian Farm-Out to BHP Lapses
Otto Energy Limited provides the following update with respect to its farm out negotiations for the deepwater exploration block Service Contract 55 (SC55) located offshore southwest Palawan Island in the Philippines.
As announced to ASX on Dec. 22, 2008, Otto entered into a conditional heads of agreement (HoA) with BHP Billiton Petroleum Pty Limited (BHP Billiton) to farm out 60% of its equity in SC55. The HoA with BHP Billiton was conditional on a number of obligations including finalizing farm‐in and joint operating agreements and obtaining all necessary government and joint venture approvals by March 31, 2009. The Company advises that all the necessary conditions and approvals have not been achieved and consequently the HoA has lapsed. The Company advises that discussions with BHP Billiton in respect to SC55 are continuing despite the lapse of the HoA.
Otto remains confident that a farmout of SC55 will be achieved.
Revised Capital Raising
As a result of the increased timing and completion risk associated with a potential SC55 farm out, Otto has restructured the previously announced $35 million capital raising (Initial Capital Raising).
The restructured raising (Revised Capital Raising) will now be for up to a maximum of A$31.5 million. The Revised Capital Raising will consist of the following:
- The initial placement of A$5.2 million that completed on 27 March 2009 (Completed Placement).
- An additional placement at a price of 7 cents per share to raise A$5.1 million (Second Placement). The Second Placement will be made in two tranches. The first tranche of A$4.3 million will be placed to Otto's major shareholders Santo Holding AG and Molton Holdings Ltd (Major Shareholders) and will be completed immediately following the re‐instatement of Otto's placement capacity under ASX Listing Rule 7.1, the subject of Resolution 1 at the general meeting to be held on 30 April 2009. The second tranche of $A800,000 will be placed to Otto directors and will be subject to shareholder approval to be sought at a separate general meeting scheduled for May 27, 2009.
- A pro‐rata non‐renounceable entitlement issue (Revised Entitlement Issue) to raise a maximum of approximately A$21.2 million at a price of 5 cents per share, which will be underwritten to the extent of A$15.7 million. Under the Revised Entitlement Issue, each shareholder eligible to participate will be offered three (3) new ordinary shares for every four existing shares held at the record date of 20 April, 2009. An indicative Revised Capital Raising timetable is attached to this release.
The Company advises that the non‐renounceable entitlement issue (Initial Entitlement Issue) announced to ASX on March 20, 2009 which formed part of the Initial Capital Raising has been withdrawn. There were no valid entitlement and acceptance forms received from shareholders pursuant to the Initial Entitlement Issue and the offer document was not dispatched to shareholders. Otto shares will trade with the entitlement to participate in the Revised Entitlement Issue until the Ex‐Entitlement date being Tuesday April 14, 2009.
Full details of the Revised Entitlement Issue will be set out in an offer document to be lodged with ASX and dispatched to shareholders in accordance with the attached indicative timetable.
As a result of the HoA lapsing and restructuring of the capital raising, Euroz Securities Limited (Euroz) has terminated its previous underwriting commitment associated with the Initial Capital Raising. Otto is pleased to advise that Euroz has entered into a new underwriting agreement in respect of the Revised Capital Raising (Underwriting Agreement) under which Euroz will underwrite up to A$15.7 million of the Revised Entitlement Issue. The Major Shareholders have confirmed their intention to take up their full entitlements under the Revised Entitlement Issue and to sub-underwrite a portion of any shortfall up to a maximum investment of A$4.3 million each.
The underwritten component of the Revised Entitlement Issue, plus the Completed Placement and Second Placement will raise a minimum of A$25.9 million.
Use of Proceeds
The Revised Capital Raising proceeds will be used to:
- Fund upcoming exploration wells in Italy and Argentina;
- Undertake development of the Edirne gas project in Turkey;
- Repay Shareholder and Director Loans (outlined below); and
- Working Capital.
Otto has reviewed its forward expenditure and commitments and corporate overhead structure and will reduce its financial commitments and overheads in light of the restructured capital raising. Since production recommenced at the Galoc oil field in February 2009, the field has maintained over 95% uptime and is currently producing at rates of approximately 13,000 – 14,000 barrels of oil per day. The next cargo of approximately 340,000 barrels is scheduled to take place on 5 April 2009.
Shareholder and Director Loans
Otto currently has a fully drawn short term loan facility (Shareholder Loan Facility) totalling US$7 million provided by the Major Shareholders. Directors have also provided a short term unsecured loan facility of A$1.53 million (Director Loans). The Director Loans are from Messrs Rick Crabb, Ian Macliver, Jaap Poll and John Jetter and bear interest at a rate of 12% per annum accruing daily and payable on repayment of the loan funds. The Shareholder Loan Facility and Directors Loans will be repaid from the funds raised pursuant to the Revised Capital Raising.
As a result of the Revised Capital Raising and continued support of the Major Shareholders, the Company has agreed to amend the exercise price of the 31 million sub‐underwriting options proposed to be issued to the Major Shareholders (as announced to ASX on March 20, 2009) as part of the Initial Capital Raising to 5 cents per share (expiry June 30, 2010), in consideration for their firm and priority sub‐underwriting commitments under the Revised Capital Raising. As a consequence of the amended exercise price, Otto intends to withdraw Resolutions 5 and 6 from the agenda of its general meeting to be held on April 30, 2009 which seeks approval of such sub‐underwriting options. The issue of the sub‐underwriting options is subject to shareholder approval which will be sought at a separate meeting scheduled for May 27, 2009.
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