Otto Energy taps into strong oil market sales revenues in the Gulf of Mexico

Oil production company Otto Energy (ASX: OEL) has provided an update regarding its ongoing operations at its flagship South Marsh Island Block 71 in the Gulf of Mexico — to the delight of its shareholders, as well as those of Byron Energy (ASX: BYE).

The two oilers each hold a 50% working interest in SM 71 with Otto operating through its wholly owned subsidiary Otto Energy (Louisiana), while the operator, Byron Energy Ltd, operating via wholly-owned subsidiary Byron Energy Inc.

Otto Energy said that production from the SM 71 F platform began via two wells on the 23rd and 25th March 2018, with a third oil well commencing production two weeks later on April 6th.

In summary, platform produced 83,000 barrels of oil and 55.5 mm cubic feet of natural gas, with Otto’s share amounting to 41,500 barrels and 27.7 million cubic feet, given the 50:50 split on the project.

Otto also reports that during a planned “shut-in” period by the pipeline operator, Crimson Gulf, the company was able to conduct several improvements to the oil and gas production system on the platform.

Most of these improvements were focused on resizing valves to optimise production levels and minimising downtime.

Otto Energy confirmed that all three wells were returned to production 4 days ago at a combined rate of 4,650 barrels of oil per day (bopd) and 3,200 cubic feet of gas per day (mcfgpd) which Otto says is “over 90% of the platform’s throughput capacity”.

“Based on these rates, Otto’s daily sales would be approximately 2,325 bopd and 1,600 mcfgpd on a 50% working interest basis”, according to Otto Energy.

Market impact

The impact on Otto’s cash flows is significant and helped Otto Energy shares jump up around 18% to $0.065 per share this afternoon.

The oiler reported its daily revenue from its oil sales is equal to US$149,730 per day and US$4.5 million per month, while its gas sales are generating US$3,840 per day and US$116,800 per month.

Its net cash operating profit stands at US$120,666 per day and US$3.6 million per month once all operating costs and government royalties are included.

Furthermore, Otto Energy said that its Louisiana light sweet crude oil type was currently fetching a premium of 2.50 per barrel over and above West Texas Intermediate.

The high-flying oiler reported that its realised oil price in the month of March is around US$68 per barrel with the company receiving a net price of approximately US$64.40 per barrel before the application of federal royalties which currently stand at 18.75%.

“The production levels at SM 71 are very pleasing, particularly in the current price environment. With the project value calculated from the expected cash flows from SM 71, Otto’s market capitalisation currently represents around two times EBITDA so we see significant upside for investors,” said Matthew Allen, managing director of Otto Energy.

“The significant cash flow now being generated from SM 71 will fund Otto’s strategy of building a pipeline of growth opportunities within the Gulf of Mexico,” declared Mr Allen.