Gulf of Mexico oil driller Otto Energy (ASX:OEL) has reported its first full half of revenue, after its part-owned well in the area started production in March.

That is, however, after the operator of the well — Byron Energy (ASX:BYE)retrieved some tools they lost down one of the wells in the SM 71 oil field.

But the share price has plunged: an update on the Winx-1 well in Alaska did not provide comprehensive proof of large oil shows and the shares fell as low as 11 per cent, down to 5.7c, before recovering.

Drilling at the Winx-1 well, operated by 88 Energy (ASX:88E), found “weak to moderate oil shows”. The operator warned of “potentially high water saturation”, a problem in oil wells because it has to be separated from the oil.

Otto corporate advisor Mark Lindt told Stockhead the Alaskan well was a legacy well and one they’d spent just $3 million on, so it wasn’t an important part of the portfolio.

Mr Lindt says while operator 88 Energy says there are hydrocarbon shows, it’s too early to assume it’ll be commercial or non-commercial.

A Morgans research note blamed the price plunge on “half-cooked announcements made by OEL’s two joint venture partners (RMP and 88E) on Friday evening… and as a result appear to have felt compelled to update the market on Friday night before Winx even hit its primary target.”

But the other project is doing okay

The important parts of the Otto portfolio are in the Gulf of Mexico, which is also where the company is making all of its money.

Otto made $17.3 million from its half share of oil and gas produced from the field in the six months to December, for a gross profit — revenue minus cost of sales only — of $14.3m.

Once other corporate costs were taken into account, the loss was $4.5m, a 46 per cent decrease from the last six months of 2017.

Otto shares over the last 12 months.

Moving from explorer to producer is a big deal for any kind of resources company, not least because it means they can start generating regular cash.

The majority of that revenue, about 91 per cent, came from oil. Otto’s share for the six months was 301,835 barrels of oil and 469,098 Mcf (thousand cubic feet) of gas.

Riding the oil price

Those numbers also benefited from the oil price peaking midway through the half, and suffered from the rapid dive that followed.

Brent, the North Sea oil price benchmark, peaked at $US86.74 in October before plunging to an 18-month low in December of $US49.93.

Prices have slowly picked back up since then, to sit around $US56.

Otto’s SM 71 field plugs right into a pipeline that deals in light sweet Louisiana crude, a premium oil which commands the premium Brent price. 

The US oil benchmark, West Texas Intermediate (WTI) usually trades at a discount to Brent. 

Number 3 is online

A third well in the Gulf of Mexico SM 71 field was modified in October and began producing at “appropriate” rates, the company said.

The field has now produced over 1m barrels of oil and paid back the initial exploration and development costs.

The total proven and probable (2P) reserve of the field, including both Byron’s and Otto’s shares, is 14.5m barrels of oil and 13.4m cubic feet of gas.

‘Reserves’ refer to oil or gas discoveries that are commercially recoverable using existing technology while a resource is an initial, untested estimate. A 2P means it’s proven and probable, while a 3P includes ‘possible’.

Mr Lindt says another key main focus is a discovery with Hilcorp in a separate seven- well onshore and offshore drilling program.

He says they made what has been deemed a discovery at the second of two wells drilled, called ‘Lighting’, and they expect to have flow rates for that in the next week.

Otto has exploration tenements in Texas.