Otto Energy (ASX: OEL) has received Philippines Department of Energy approval for the reassignment of 60% equity in Service Contract 55 in the offshore Palawan Basin from BHP Billiton (ASX: BHP) to Otto.
The company had on 21 January executed agreements with BHP to terminate the farm-out agreement with BHP agreeing to pay US$3 million to Otto upon approval of the reassignment, which will increase Otto’s stake to 93.18%.
BHP will pay a further US$24.5 million to Otto upon completion of the first exploration well in SC55.
Otto will soon update the market to revisions to the work commitment timing once correspondence is received from the DOE.
The Sub-Phase 4 commitment to drill an exploration well will be revised to late 2014 as a result of the suspension due to force majeure in 2013.
It is also several months into a farm-out process to introduce a new joint venture partner to participate in the drilling of the Hawkeye-1 exploration well.
Otto is targeting suitably qualified partners with deepwater experience to join the exploration program and several suitable companies with SE Asia operations have commenced technical due diligence reviews of the available data.
Completion of the farm-out process is anticipated to be completed and a new partner secured by mid-2014.
The company has commenced drilling planning preparations, including development of well designs, planning studies and equipment procurement reviews.
It has also invited expressions of interest from drilling rig owners to determine availability of drilling units to drill the Hawkeye-1 exploration well within the required timeframe.
Hawkeye is a turbidite clastic reservoir target in 1,690 metres of water with top reservoir prognosed to be at 2,732 metres, and is also prospective for a carbonate gas/condensate trend, with the potential for an oil charge.
Success would not only be value accretive for Otto, which has oil production at the Galoc oil field and a market cap. of circa $106 million, it will also open up other possible drilling locations in SC55 that could provide further valuation growth.
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