Edison Initiates Coverage on Otto Energy
LONDON, February 19, 2015 /PRNewswire/ --
Edison Investment Research, a leading international investment research firm, announces the initiation of full coverage of Otto Energy.
Otto Energy (OEL) is an ASX-listed E&P with interests in two operated permits in the offshore Philippines (SC55 and SC73) and two non-operated blocks onshore Tanzania (Kilosa-Kilombero and Pangani). The Philippines is a proven oil and gas province, and Otto's Tanzanian licences lie to the south of proven basins in Uganda and Kenya. On 12 December 2014, Otto received from Nido Petroleum an offer of US$108m for its 33% share in the operated Galoc oil field in the Philippines, surpassing a previous offer by Risco Energy. The sale, completed on 17 February 2015, represents a material change in strategy for Otto and was agreed at a propitious time given the oil price decline. Following a proposed c US$58m capital return to shareholders, Otto will retain sufficient cash to fund its planned exploration activities over the next 18-24 months. In particular, the company plans to drill the 95mmbbl Hawkeye-1 deepwater oil prospect in the Philippines in Q315. In January 2015 Otto announced a deal to farm down a 15% WI in its SC55 licence to PNOC (down to 78.2% WI). It may further reduce its interests in the Philippines and in its Tanzanian blocks (50% WI) before drilling to mitigate exploration risks and fund its drilling plan.
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The stock is trading below our core NAV valuation of A$0.11/share, which is based on Galoc sale proceeds minus G&A. Within this, the capital return represents A$0.064/share. Our A$0.22/share RENAV includes Hawkeye (assuming a full cost carry) plus two committed wells in Tanzania, which can be funded at Otto's current WI. There is further upside if Otto secures carries for its other prospects.
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SOURCE Edison Investment Research
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