Otto Energy Ltd ("Otto") (ASX: OEL), as operator of the producing Galoc oil field joint venture, offshore the Philippines, announces the Final Investment Decision (FID) approving the Phase II development of Galoc. The total project cost represents capital expenditure of US$188 million (100%) with Otto funding US$62 million based on its 33% working interest.
The Phase II development, which has the support of the joint venture, will require the drilling of two subsea wells, tied back to the existing Floating Production, Storage & Offloading (FPSO) facility. The delivery of Phase II and ongoing production operations will be managed by Otto as Operator of the Galoc oil field and the SC14C joint venture.
Total field production rates at Galoc are expected to increase from the current 5,600 barrels of oil per day (BOPD) delivered from the existing two wells, to more than 12,000 BOPD following start-up of the additional two new subsea wells. A second production riser and control umbilical will be installed which will further improve system reliability.
The joint venture has secured the Diamond Offshore owned "Ocean Patriot" semi-submersible drilling rig which will execute the firm two development well program. The contract includes an option, to be exercised by the Joint Venture, to drill a third exploration well in the northern area of the Galoc field. A final decision on the northern exploration well is planned for 4Q 2012 and this can be drilled immediately following the Phase II development well campaign.
Significant subsurface work has been completed to support the Phase II FID and Otto has commissioned a review of remaining oil reserves by an independent consulting firm, RISC. RISC has reviewed the Galoc oil field reserves in accordance with the SPE, WPC, AAPG and SPEE Petroleum Resource Management System definitions, guidelines and auditing standards.
Following successful performance of the field after recommissioning in April 2012, the Contractor Entitlement Reserves (remaining recoverable volumes) for the Galoc oil field have increased by 156% to 8.9 MMbbls on a Proven (1P) and by 134% to 13.4 MMbbls on a Proven and Probable (2P) basis. This translates to an Otto Net Entitlement Reserves of 2.9 MMbbls (1P) and 4.4 MMbbls (2P). These increases are attributable to higher well recoveries based on pressure data analysis and booking of reserves from previously reported contingent resources. A detailed breakdown of Reserves is shown in Appendix A.
Future reserve and resource increases are likely to come from incorporation of the results of the recent 3D seismic not yet incorporated into the RISC report, successful appraisal/exploration activities on the field, further in-fill drilling, facilities optimisation and tertiary recovery.
Otto will fund its share of the Galoc Phase II capital expenditure from a combination of ongoing production revenue from existing operations and project finance debt. Otto has mandated BNP Paribas to arrange a US$37.4m project finance term loan secured against Otto's interests in the Galoc field with a 3 year tenor. It is expected that the facility will achieve financial close in Q4 2012 with first drawdown required in early 2013. Argonaut has acted as corporate advisor to Otto throughout this transaction.
The joint venture partners have either made the necessary undertakings that they have their financing in place or are in the process of satisfying conditions precedent to achieve financial close, to satisfy funding their respective shares of the project.