Otto Energy Announces An Update On Gulf Coast Operation

Otto Energy Limited (ASX: OEL) announced an operational update of Gulf Coast program which is being operated by Hilcorp Energy. It has made a discovery in its wells such as Lightning well and Don Julio2.

Under its Lighting Well Test and Commissioning, the Green #1 well was tested for the Lightning prospect at Matagorda County, Texas which was drilled to 15,218 ft MD/15,216 ft TVD and got suspended on 4 February 2019 after logging multiple pay intervals. The production performance in the play trend was dependent upon porosity, and water saturation cut-offs resultantly show potential for an additional 150 feet of net pay in the well.

Production tubing along with other downhole equipment required to complete the well for production was executed by the operator Hilcorp. The well was perforated over a 28 ft. zone in the lowest intercepted pay zone being the Tex Miss 3 interval on March 7, 2019 (US CST) and undergone initial flow-back tests to identify flow rate and liquids yields calculations. This zone as per condensate gas ratio indicated an impressive 40-45 bbl per MMscf yield which was more than the 10 bbl per MMscf yield at other wells of the location.

The above flow tests were conducted with a very tight choke providing a reliable indication that production from this zone will be in proportion to the nearby producing fields generating highly significant value. The forecast flow rates and choke settings at Lightning will be determined by considering all the received flow test data. Nearby wells such as Freo Tex Mis have produced between 8 and 13 MMscf/d.

Only trace elements of carbon dioxide and hydrogen sulfide were identified by the field samples which indicates that the gas meets the sales specifications for the Houston Ship Channel gas market. Various samples had been gathered from the product stream to conduct laboratory tests to confirm the gas composition for the sales specifications.

Operations to build up out site facilities, laying a flowline along with undertaking a hot tap in a nearby sales gas pipeline has now been started by the operator which has earlier advised that there would be high demand for hot tap crews to fulfill the sales pipeline connection which will likely delay the first production into the second quarter of 2019. The company sooner or later will provide further information on the first production date after securing a hot tap date with the pipeline operators.

The Green #1 well has intercepted multiple pay sands over a 180 ft. interval with only the lowest 28 ft. Tex Mis 3 zone which is currently being brought into the production. The Lightning field will go through a period of analysis once production starts to enhance a full field development. This will involve the re-completion of the well in future into the other producible zones more significant among the well and further drilling of wells in the field. OEL has commenced a process to build maiden reserve volumes on the Lightning discovery in the forthcoming months and will provide further information on the total expected recovery and value once this work is completed.

Under Don Julio 2, The Middleton Trust #1 well, tested the exploration prospect, which has been drilled to an 11,900 ft MD/ 11,799 ft TVD of total depth. An Oligocene age, upper Vicksburg prospect was being tested by the well which was generated on today’s 3D seismic. Using seismic data, the well targeted a typical AVO anomaly but encountered an unexpected volcanic ash bed just above the target interval, generating an AVO “false positive” anomaly. No other known volcanic ash beds have been identified in the area. Sidewall cores and Quad-combo were acquired over the prospective interval once the total depth was reached. Evaluation of the wireline logs indicated that the well had not intercepted producible reservoir and no further indications of hydrocarbons were evident while drilling.

The JV will now move ahead to plug and abandon the well. The operator has effectively managed the drilling operations, and the total cost to OEL is expected to be lesser than the pre-drill estimates of US$3.53 Mn.

In Gulf Coast Forward program, the next well will test the Mustang prospect which is a lower Vicksburg prospect and also Oligocene as per age. The operator currently is in the process of contracting a drilling rig which is suitable for the testing of this prospect and will advise once the well is ready to commence drilling. It is testing a number of geologically independent prospects, which are mainly amplitude supported on modern 3D seismic.

On stock information front, OEL’s share last traded at $0.066, down -1.493% (AEST 2:13 PM March 11, 2019) with the market capitalization of ~$125.64 Mn. Its 52 weeks high has been noted at $0.083 and low at $0.035. Its absolute return for 3 months, 1 year and 5 years are 63.41%, 12.54%, and 45.57% respectively.


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