Energy: Otto JV strikes more oil in the Gulf of Mexico; shares climb

Otto Energy (ASX:OEL) and its joint venture partners have hit oil paydirt in the Gulf of Mexico, but it will cost a few million dollars more than expected due to a few hiccups along the way.

Drilling of the Green Canyon 21 (GC 21) “Bulleit” well intersected 110 feet of oil in the deeper MP sands target.

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The latest oil discovery follows the commercial oil discovery made in the shallower DTR-10 sand package in June.

The well, which has now been suspended as a future producer, is operated by Talos Energy, which owns a 50 per cent stake, and the remaining interest is split between EnVen Energy Ventures (33.33 per cent) and Otto Energy (16.67 per cent).

The attempt to drill to the deeper objective MP sands had been delayed due to poor hole conditions and compromised drilling operations requiring side-tracking.

On top of that, the passing of Hurricane Barry required the rig to disconnect to ensure safe operations.

This has meant a significant cost overrun from the original estimation of Otto’s share of $US9m.

Otto says it now expects its share will increase by about $US6.5m to $US7.5m.

But investors aren’t fazed, sending shares up 13.6 per cent to 5c this morning.

Otto managing director Matthew Allen said GC 21 “Bulleit” had been a very challenging well to drill but it was crucial to the company delivering on its production target.

“This is Otto’s fourth commercial discovery in the Gulf of Mexico and will be a highly important well in delivering the planned 5,000 bopd [barrels of oil per day] production target by the end of 2020,” he told investors on Thursday morning.

“Combined with Otto’s existing production assets already on stream, the completion of the GC 21 field in the first half of 2020 will see Otto deliver on this important milestone target.”

Otto is in “late stage” negotiations with a group of major financial institutions to secure development capital funding for the GC 21 development and the company’s other oil and gas projects.

Now the well has been proven as commercial, Otto can finalise the financing negotiations.

The well is slated for completion in the first half of 2020.

In other ASX energy news:

New Standard Energy (ASX:NSE) has received a cash flow query from the ASX. The company said it is taking steps to secure more cash and it is also trying to pick up some overseas projects to weather the difficult Australian tight gas market.

“While the market conditions of the Australian tight gas market continue to be challenging, the company intends to focus on searching for overseas projects for potential acquisitions and has been engaged in looking at new opportunities in Morocco and South Sudan,” New Standard said.

Entek Energy (ASX:ETE) has now rebranded as XCD Energy (ASX:XCD) after receiving shareholder approval for the name change.