Otto Energy Limited Stock Market Press Releases and Company Profile

Perth, Sep 1, 2008 AEST (ABN Newswire) - Otto Energy Limited (ASX:OEL)(PINK:OTTEF) recently released its Quarterly Report for the period ended 30 June 2008. What can you tell us about the corporate milestones met so far this year, and what investors can look forward to in the next 6-12 months?

CEO Alex Parks

We've had several highlights in what has been a busy quarter. The FPSO (Floating Production, Storage and Offloading vessel) is on site at the Galoc Oil Field (OEL indirect interest 18.28%) offshore Philippines and we were awarded additional offshore acreage in that country with SC69. We launched the farm-out process for our Philippines blocks SC50, 51 and 55, we completed a four well drilling campaign in Turkey with a 100% success rate, and now have sufficient gas volumes to commit to a development there. Furthermore we confirmed our farm-in to the block in the Po Valley, Italy, as well as being finally awarded our Argentina licence.

Over the next six to 12 months, investors can look forward to an active exploration and development drilling program across all of our assets. In our non-operated onshore licences, we have an active drilling program starting with the Gazzata-1 well in Italy in November and two wells on the huge Santa Rosa Dome prospect in Argentina in early 2009, as well as more exploration and development drilling in Turkey prior to gas production starting there in mid 2009.

As operator we are in advanced stages of the planning for two important wells in the Philippines in the first half of 2009 with drill site surveys in progress, and, of course, we expect to start generating cash flow from our first producing asset with oil production from the Galoc field.

corporatefile.com.au

What is the timetable to first production from Galoc Oil Field? What is the remaining commissioning schedule?

CEO Alex Parks

We are hoping to be on production in the coming weeks at Galoc. There were some issues which delayed the start up due to Typhoon Fengshen and usual teething problems with a new installation however we now believe that we are close to first oil.

It is difficult to fathom unless you have actually witnessed the operations in person, just how massive a feat of engineering these offshore installations are. Every effort is made to ensure the system is ready before flowing oil, as once the system is full of oil it is that much more difficult to make adjustments on the subsea equipment in particular.

The important thing for investors to understand is that the critical elements of the project are made up of: the reservoir, the wells, and the surface equipment. Nature controls the reservoirs, our well engineering has proved to have been successful and we know we can flow oil from it. So the final element is the subsea equipment and the processing equipment, i.e. the FPSO. Whilst we've had a short term problem due to delays and damage caused by bad weather, it is the one element of the project that can, and will, be rectified.

We have not yet finished commissioning the system and whilst we think we have addressed the teething problems now, it is a sequential process and there may be a few more adjustments required before we can flow oil, but overall assuming there are no more typhoons or other unforeseen problems, we should see production from the Galoc field commence in the coming weeks.

corporatefile.com.au

What flow rates do you expect from Galoc? When do you expect to be able to better assess the upside potential above the current 2P Reserves of 23.5 million barrels of oil (100% basis)?

CEO Alex Parks

Production will come on gradually, building up to an expected stable rate of between 15,000 and 20,000 barrels per day (100% basis). Once we have one or two months of production data, we will better understand the longer term potential of the field. However, the results of the development wells drilled earlier this year have given us a lot of encouragement. We discovered better quality reservoir sands with higher oil saturations. These better field properties, combined with the higher oil price, means that we will almost certainly move to a second phase of development, which would involve drilling potentially two additional development wells around 18 months from first oil, from a part of the Galoc field not drained by our current two production wells.

corporatefile.com.au

How much is the delay of first oil from Galoc costing Otto? What impact is it having on the Company's cash reserves?

CEO Alex Parks

Whilst the deferral of the revenue from Galoc is frustrating and prevents us taking on new projects, the current operations are not costing Otto much at all because it is the responsibility of the contractor, Rubicon, to repair the system. The JV will not start paying for the FPSO lease until the riser and FPSO are operational. Until then, the JV is only liable for the cost of the support operations.

Otto has no drilling activities scheduled until later in the year when we spud Gazzata-1 in Italy, and we don't foresee any other major expenditures occurring before then. As such, provided Galoc does come on-stream in the next couple of months, we can wait out the delays at Galoc with our cash reserves remaining quite adequate.
corporatefile.com.au

Once online, Galoc will be Otto's first producing asset. How will the new cash stream be used by the Company?

CEO Alex Parks

Subject to the oil price and the production rates, Otto expects to receive between $US50 and US$100 million over the next 12 to 18 months, after repayment of the GPC debt. This will all be invested back into our exploration program.

We have a number of wells coming up including in Italy, Argentina, the Philippines and the development project in Turkey. In total, that will amount to between 6 and 14 wells, depending on drilling successes, over the next 12- 18 months. In combination with our farm outs, we expect to be spending around US$30-$50 million (Otto share) on exploration drilling in the next two years.

The remaining cash flow will be used to fund the Edirne gas development project in Turkey as well as for additional appraisal and development drilling if we have success with the exploration wells. If the oil price remains over US$100per barrel, we may consider committing funds to other growth areas such as accelerated seismic programmes and new ventures.

Overall, we'll be in a very strong financial position once Galoc comes on stream.

corporatefile.com.au

Otto has launched a farm out program to secure joint venture partners for drilling programmes at your Philippines acreage in SC50, SC51 and SC55. How is the farm out process going? What sort of a response have you had from industry so far? When do you expect to have partners in place?

CEO Alex Parks

The major reason we're farming out this acreage is because we have very high equity positions with currently 85% to 80% working interest in each block. We launched the farm out process for all three blocks simultaneously because companies might be interested in participating in one, two or even all three of the blocks.

We've had a good response from the industry so far. There are over 40 confidentiality agreements in place and we have prepared the data for each asset so that each party can review them at the same time. Every company we've given the farm out presentation to has subsequently signed a confidentiality agreement expressing an interest in examining the data in further detail, which is very encouraging Overall, we are confident we will attract suitable farm-in partners for each block.

Currently we are meeting with interested parties and inviting them to view the data both online and in our offices. We've requested indicative offers be submitted by the middle of September, with negotiations following. We should be in a position to announce one or more farm outs during the last quarter 2008 or first quarter 2009, depending on the length of negotiations and finalising the paperwork.

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What exploration activities do you plan for the Philippines acreage being farmed out? Can you explain the play concepts and prospectivity of each block (SC50: Calauit oil field; SC51: Argao prospect; SC55: Deep water block)?

CEO Alex Parks

SC50 is a block off north-west Palawan and it contains the Calauit and Calauit South oil discoveries, which were made in 1991 and 1992 respectively. The Calauit field contains somewhere between 12 and 75 million barrels of oil in place and we're aiming to drill an appraisal well during the first quarter of 2009 and conduct flow testing. Depending on the results, we will then commit to an extended production test and subsequently a full field development. We're looking for a farm-in partner to share the appraisal drilling costs. Otto acquired 3D seismic over the Calauit fields during 2007, which allowed us to identify what we believe are the sweet spots of the reservoir, so we're targeting a relatively low risk appraisal programme with a view to optimising the development.

SC51 is a pure exploration play in the Cebu/Bohol Strait between Cebu Island and Bohol Island offshore from a proven petroleum system and this licence contains the very attractive Argao prospect. Argao has eight "stacked" potential reservoir/seal pairs, so with one well we can target eight potential reservoirs. During 2007, we acquired 3D seismic to de-risk the block and an added attraction is that a small gas cap is clearly identified on the crest of the second shallowest structure with significant down dip potential for oil. The area is definitely oil prone, so an indication of the presence of gas is encouraging and it indicates that the reservoir seal has integrity. Overall, we consider SC51 a relatively low risk exploration play and we look forward to drilling it during the first half of 2009. There is also a follow up target to the north of Argao, called Bahay, which has similar characteristics to Argao, with three stacked reservoir levels. In total, Argao and Bahay have pre drill estimates of well over 100 million barrels of recoverable oil for the potential upside case.

SC55 is a deep water block where Otto has acquired 1,400 km of 2D seismic to identify and mature several leads. We're looking for a partner to commit to drilling a deep water well, which we anticipate would be drilled in 2010. Before then, we want to acquire an extensive 3D seismic survey with a view to firming up some of the 15-plus leads we've already identified in the block, eight of which could quite comfortably contain over a 1 billion barrels of oil in terms of size.

The SC55 block is in an excellent geological location. There's plenty of oil to the south-west off the coast of Borneo and to the north-west with the Sampaguita/Reed Bank area, which is reported to host multi Tcf of wet gas. Also, there is the Malampaya field to the north, which is the largest field in the Philippines with 3.5 Tcf of gas and several hundred million barrels of oil in place. Our licence sits in the middle of this prolific oil and gas fairway with a proven and active petroleum system. We think that our block has significant oil and gas potential.

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In May 2008, Otto announced it was awarded Service Contract 69 (Area 8) - what is the play concept and prospectivity of this block? What are your exploration plans for this block and is it part of the farm out programme currently underway?

CEO Alex Parks

The offshore block SC69 (OEL 70%) is relatively "frontier" acreage. There is approximately 4,500 km of 2D seismic data covering the block, 3,500 km of which is available as digital data. We're currently collating all of that data and we will use it in combination with our knowledge from the SC51 block to fasttrack exploration. There are over 20 identified structures that we want to investigate with further seismic. The block is huge; covering over 7,000 sq km with potential for gas towards the north and west of the block. Cebu Island, the second most populated in the Philippines, lies to the west of the permit and there is a reasonable expectation that in the event of even a modest gas discovery, we would be able to readily commercialise it.

SC69, although adjacent to our SC51 block, is not part of the current farm out package because we want to add more value to the block before we move to the drilling phase. Work will continue there in conjunction with some of our exploration in SC51 and, although we have a relatively modest commitment of only one firm well, we'll look to accelerate exploration based on the geological potential of the block.

corporatefile.com.au

During the quarter, Otto and its joint venture partners completed drilling four wells at the Edirne Gas project in Turkey (OEL 35%). Can you explain the drilling and production test results? What is the potential scale and timeframe to bring it into production?

CEO Alex Parks

During the quarter we drilled four wells in the Edirne licence in the Thrace Basin on the European side of Turkey. Each well discovered gas in relatively shallow layers between 250 and 500 metres depth. We tested three of those wells and they flowed dry gas between 2-4 million standard cubic feet per day. These are very good rates for shallow gas and we now have six gas discoveries in the block ready for development. Our joint venture partner and Operator, Incremental Petroleum, will be developing the project over the next nine to 12 months with the aim of flowing first gas in the middle of 2009. We anticipate production of 6 to 10 million standard cubic feet per day (100% basis) and will tie in further discoveries to maintain that rate for several years. Edirne will provide Otto with a second cash flow stream of somewhere between US$5-10 million per year.

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You have taken a 50% working interest in two onshore oil and gas permits at Bastiglia-Cento in the Po Valley in Italy. What is the history of hydrocarbon production in the region? Why was this a strategic opportunity for OEL?

CEO Alex Parks

These adjacent permits in Italy strengthen Otto's European gas business. The Po Valley has produced over 13 Tcf of gas in its history when it was predominately held by ENI. The acreage was "turned over" during the late 1990s and early 2000s and various companies picked up acreage. Our partners, Ascent Resources, acquired 100% of the two blocks in late 2005 and Otto is farming in for 50% by paying 100% of the first well.

This is an important onshore acquisition for Otto because a truly balanced oil and gas asset portfolio has a combination of oil and gas, onshore and offshore. This gas project is relatively low risk and relatively low cost as discoveries should be easy to commercialise because of its onshore location close to major European markets. In the event of success, it would provide Otto with stable income. The Gazatta-1 well has the potential to be worth over $200 million net to Otto, which equates to around 30 cents a share.

corporatefile.com.au

What are Otto's farm in commitments and exploration plans for these leases in Italy? When will you start drilling there? What is the potential upside to OEL in the case of exploration success?

CEO Alex Parks

Our farm in commitment was to pay for the purchase of some existing seismic data, which we've completed and to drill one well at 100% of the cost to Otto (with a cap). The operator will chip in for anything over and above the anticipated EURO4 million on the well cost. In the event that we have a significant discovery with proven gas reserves of 10 Bcf, we are also obliged to pay 100% of the second well (with a similar cap).

We expect to commence drilling in November and it will take about eight weeks to drill and test. The potential target is somewhere between 40 and 300 Bcf of recoverable gas and our most likely case is about 130 Bcf of gas. In the event of such a discovery, we estimate that it would equate to around 30 cents per share with significant upside potential from "adjacent "lookalike" prospects in the block.

The block has a huge amount of follow up potential. We think there could be as much as 2 Tcf of recoverable gas in the Bastiglia-Cento permits and that represents material production for Otto. We expect to explore and develop the permits quickly and efficiently. There is a very good pipeline infrastructure, a guaranteed gas market, high gas prices and an attractive fiscal regime.

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In May 2008, OEL announced the awarding of the Santa Rosa licence in Argentina. What is OEL's working interest in this project? When do you expect to start exploration activities there? What is the potential upside to OEL in the case of success?

CEO Alex Parks

Otto initially is earning a 32.48% interest in the licence by spending US$1.4 million with an option to increase our equity up to 41.24% by spending a further US$900,000. We were awarded the block in May and work is already underway. We're currently gathering all of the existing data that we didn't have access to previously and awarded an environmental survey in preparation for drilling. We've already identified two firm locations with one contingent appraisal location to drill the Santa Rosa Dome during the first half 2009. The Dome itself is huge. It's almost circular with a diameter of about 20 km. We expect up to 150 metres of reservoir closure sub-surface. It's a relatively shallow structure of just over 1,000 metres of drilling, so we expect drilling will be inexpensive and generally fairly simple. Although the fiscal regime in Argentina is not particularly attractive, the project is in a low cost working environment with good oil infrastructure.

The Dome could contain huge amounts of oil even if it contains a fraction of the potential upside of over 200 million barrels of oil recoverable. Our calculations indicate the mid case scenario potentially represents 60 cents per share in terms of potential value in the event we make a discovery. Success in Argentina would be very profitable for Otto.

corporatefile.com.au

OEL recently raised $15.0 million in a share placement. What was this money for? What is your cash balance at present? Do you foresee having to do another capital raising this year?

CEO Alex Parks

We raised the money to make sure we could maintain our momentum regardless of exactly when Galoc started to produce oil. The funds are used to cover site surveys for drilling in the Philippines in particular over Argao and the Calauit well locations. We raised enough funds to cover the purchase of long-lead items for drilling in Italy and the Philippines and to cover overheads until the Galoc field starts to flow. Our cash balance is just over $10 million and that will see us through the next few months. Provided Galoc flows within the next two to three months we don't expect another capital raising this year.

corporatefile.com.au

OEL's major corporate objective is to grow to a $billion market capitalisation company and to be internationally recognised as a partner of choice. What can you tell us about the current Otto team at hand who are driving the Company's mission forward?

CEO Alex Parks

I am really excited about the calibre of people we have assembled who are driving this company forward. Our Chairman is Rick Crabb, a solicitor who specialises in mining, corporate and commercial law and has acted for a number of major foreign companies operating in Australia, as well as Australian companies with offshore projects - he is also Chairman of Paladin Energy. Otto's founder is Dr Jaap Poll, who has over 40 years experience in the international petroleum industry. Furthermore, non executive directors Rufino Boomasang, John Jetter and Ian Macliver all have extensive experience in managing large organisations in Australia and overseas.

My background is that I have been practicing as a Petroleum Engineer for more than 12 years in the UK and Australia. I hold a Masters of Petroleum Engineering degree from London's Imperial College and have held senior management positions for the last 7 years in Perth, including as Managing Director of Troy-Ikoda Australasia and Technical Director of Geoscience and Engineering for RPS Energy (Australia / SE Asia) prior to joining Otto as CEO in 2006.

We've also significantly added to our management team, all of whom have extensive experience with oil and gas majors. Craig Martin, Chief Operating Officer, joined eighteen months ago with extensive offshore experience in a diversity of roles. Richard King, Commercial Manager, recently joined us from Chevron and will oversee negotiation and finalise the farm in agreements on our major exploration blocks in the Philippines.

Jane Secker recently joined as the Calauit project manager, and she has nearly twenty years experience in the oil and gas industry. John Sheppard is our nonoperated assets manager and he also has extensive experience in resources banking and asset management. Stefan Kleffmann joined in May to lead our growing Geoscience and engineering team. We also have a number of IPS drilling consultants in house who are working on the drilling program for the Calauit and Argao wells. In Manila we have a team of twelve including experienced geoscientists to manage our activities on the ground in the Philippines.

From the Board through to our management and technical teams, we have put together a fantastic group of people who bring exceptional oil and gas experience and big business knowledge to the Company.

corporatefile.com.au

In the next two years, OEL will participate in four potential 'company making' wells that could make OEL a significant mid-cap company. Can you describe the mid-term, and longer term, growth strategy and opportunities for Otto?

CEO Alex Parks

Whilst Otto is primarily an exploration company, it's also important to show that our development projects - Galoc, the Turkey gas discoveries and the appraisal and development of the Calauit oil fields - can be executed and developed on time and within budget as these will be the foundations that fund our exploration ambitions.

The cash generated from these developments will be used to fund a significant exploration program. The four wells coming up, including Gazatta-1 in Italy, the Santa Rosa wells in Argentina, Argao and one of the deep water wells in the Philippines, could each comfortably double the current market capitalisation of the Company and would then go on to fund the next stage of growth.

In the mid-term, we'll continue to add new exploration opportunities on two fronts. Firstly, we will further mature our current exploration areas such as SC50, SC51, SC55, SC69, Italy and Argentina and then gradually add new acreage, predominantly through operated assets in South East Asia and in nonoperated assets anywhere in the world.

We have good growth momentum, are opportunity rich and well funded - we believe Otto has all the right ingredients to become a substantial oil and gas company and provide significant returns to our shareholders.

Contact

Media / investor enquiries:
Jill Thomas
TEL: +61 8 6467 8803
thomas@ottoenergy.com


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