RETURNING TO PRODUCTION
ANNUAL REPORT
2017
b
ANNUAL REPORT 2017OTTO ENERGY CONTENTS
Chairman’s Report
Managing Director’s Report
Strategy
Asset Overview
Summary of Assets
Reserves Statement
Financial Report 2017
Alaska
• Underexplored
conventional oil and
gas basin
• >10billion BOE of oil
and gas per USGS
2005 survey
Perth
Head Office
Louisiana/Gulf of Mexico
• Over 80 years of production
• ~20% of North American production
comes from GoM
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4
6
8
16
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19
1
ANNUAL REPORT 2017 OTTO ENERGY CHAIRMAN’S
REPORT
Dear Shareholders,
It is my pleasure to present the 13th
Annual Report to shareholders as
Otto Energy continues on its evolution
into a North American focused oil and
gas explorer and producer.
The first steps of this strategy were taken in 2015 and
Otto has continued to maintain its discipline and focus in
developing and selecting new opportunities. This discipline
has served the Company well as the global energy markets
adapt to shifting paradigms. Otto has a strategy that will
enable it to thrive and flourish in this new world order.
Our strategy going forward is to remain highly disciplined
in our evaluation of investment opportunities, and to
only invest when the risk/reward equation justifies the
investment. In an environment of lower oil prices for
longer periods, we will invest only in projects that are
profitable below current oil prices.
The energy business will always involve risk and uncertainty
and we cannot promise success on every occasion. We can
promise to be as rigorous as humanly possible in our due
diligence before investing shareholder money.
That having been said, we note the IEA’s predictions that
from 2018 onwards they expect a gradually widening supply
gap to develop. Notwithstanding the increasing global
focus on environmental issues and new technologies,
global demand for oil is still growing, which augers well for
Otto’s future.
I thank you the shareholders for your continued support,
the directors for their guidance, and the management and
staff for their commitment.
John Jetter
Chairman
2
ANNUAL REPORT 2017OTTO ENERGY
3
ANNUAL REPORT 2017 OTTO ENERGY MANAGING
DIRECTOR’S
REPORT
Dear Shareholders,
The year has seen Otto continue to
build upon the foundation set in 2015
to establish a North American oil and
gas business.
The energy sector globally continues to evolve and respond
to changing dynamics at the macro level. Growth in supply
from North American shale projects, acceleration in the
viability of renewable energy projects and soft global
demand growth have all been factors to drive sentiment in
the junior oil and gas sector.
Otto has positioned itself in a counter-cyclical manner in the
Gulf of Mexico by building a business that is robust for the
energy business model of the future.
The attraction of the Gulf of Mexico lies in the mature nature
of the infrastructure and the technical understanding of the
petroleum system. The use of new technology in seismic
processing has enabled overlooked opportunities to be
unlocked. The investment boom in shale oil projects has
depleted capital available for exploration and development in
conventional fields, despite the economics of conventional oil
being as or more robust. There is opportunity for a company
such as Otto to grow a business with key partnerships in the
Gulf of Mexico whilst the focus is currently elsewhere.
4
ANNUAL REPORT 2017OTTO ENERGY
Otto’s strategy is to build a business based upon the following
key characteristics:
• Miocene/Pliocene geology
in amplitude supported
prospects, a proven play trend in the Gulf of Mexico;
•
•
Investing capital into drilling rather than building our
own prospect inventory through seismic;
Seeking early cashflow and production, typically
between 12 to 18 months from discovery to first oil;
• Close to export infrastructure to reduce capex and cycle
•
times;
Focusing on shallow water projects (<300 feet) to keep
capital expenditure requirements manageable; and
• Chasing high liquid yield projects which
improve
economics.
The first phase of this strategy is to build a business
delivering approximately 5,000 barrels of oil per day net to
Otto in order to establish a cashflow generating base from
which to enable growth. There is sufficient existing inventory
of drillable prospects for Otto to do this on a non-operated
basis and to partner with select companies who undertake
robust geotechnical work. Otto is very pleased with our
existing working relationships with key partners and looks
to build upon these relationships in the future.
The development of the South Marsh Island 71 project is a
key platform of Otto’s current business in the Gulf of Mexico
and we look forward to returning to the ranks of producers
in the very near future. Otto has an active exploration
program in the coming fiscal year and in the success case
expansion of the production base from these discoveries.
Otto has a growing pipeline of new business and drilling
opportunities from which to expand this business in both the
Gulf of Mexico and Alaska. The drilling program will provide
opportunities for Otto’s shareholders to gain exposure to
these prolific oil and gas regions.
The support of the Otto shareholders continues to be very
positive as we undertake the evolution in the company’s
strategy. We were very pleased to secure funding for the
SM 71 development through the US$8.2 million convertible
note issue announced in May 2017. The convertible note has
attractive terms and has a conversion price set at A$0.055
supporting the future value of Otto’s share price.
Otto will utilize its strong balance sheet to invest in new
opportunities, including the recently announced exploration
drilling opportunity at South Timbalier 224, to look to build
upon the early success seen in the Gulf of Mexico.
throughout
The support of Otto’s shareholders, staff and my fellow
directors
this period has been greatly
appreciated. Thank you once again for your ongoing support
of Otto Energy and I look forward to reporting upon a
similarly very successful year in FY2018.
Matthew Allen
Managing Director
5
ANNUAL REPORT 2017 OTTO ENERGY
US GULF OF MEXICO STRATEGY
Through its new venture and business development activities, Otto has
identified a number of opportunities in the Gulf of Mexico shelf and
onshore that are available on attractive terms.
Otto’s strategy in the Gulf of Mexico is to add highly profitable incremental
increases in production and cashflow through farming in to projects that
meet specific criteria - projects that are ready to drill with high margins
(low opex), high chance of success and near term production through
early drilling and rapid development.
THE FOCUS IS ON PROSPECTS WITH THE
FOLLOWING CHARACTERISTICS:
• Miocene/Pliocene geology which are amplitude supported
•
•
Investing capital into drilling, not seismic
Seeking early cashflow/ROI - Approximately 12-18 months from
exploration to production
•
Shallow water (<300 feet) – keeping capex manageable
• High liquids yields to increase margins
6
ANNUAL REPORT 2017OTTO ENERGY ALASKA STRATEGY
Otto’s strategy for its Alaskan acreage is to drill a minimum of two
game-changer exploration wells as soon as possible. The targets
have been identified using 3D seismic data and multiple reservoir
intervals can be tested in each well.
7
ANNUAL REPORT 2017 OTTO ENERGY ASSET
OVERVIEW
OTTO ENERGY NORTH AMERICA
GULF OF MEXICO
In December 2015, Otto entered into an agreement with
Byron Energy giving it rights to elect to participate in up
to four drilling opportunities in the Louisiana onshore and
shallow water offshore continental shelf area. To date,
two of these opportunities have been drilled, leading to a
discovery and the booking of reserves.
The Gulf of Mexico (GOM) region is one of the most prolific oil
and gas producing regions on earth. Commercial extraction
of petroleum resources dates from the early decades of the
1900s, with first offshore production commencing in 1938.
Today, the federally-administered GOM Outer Continental
Shelf alone accounts for about a fifth of all crude oil
produced in the USA.
Geologically there exists a key combination of a thick layer
of evaporites (salt), rich biological deposits (which, when
subjected to the right conditions, forms light producible
oil and gas) and thick sand layers. Near the northern gulf
margin in particular, a delta created by the Mississippi
River has been building for tens of millions of years.
These deltaic sand grains are well sorted and round in
shape, forming the ideal high-porosity rock for a petroleum
reservoir. The buoyancy and flowing effect of the underlying
salt creates the structures and traps necessary for the
natural collection of oil.
Today, about half of the USA’s fossil fuel refining and
processing capacity is along the GOM. The high density
and availability of production platforms for development of
new discoveries contributes to low production costs in this
region, making projects viable even in a sustained, low oil
price environment. Louisiana and the nearby shelf region
are characterized by a ready market and low sovereign risk.
These factors, in combination with the low-risk drilling
updip of previously productive sand intervals, have led Otto
to make the northern Gulf of Mexico region a substantial
focus of its forward strategy.
9
ANNUAL REPORT 2017 OTTO ENERGY DEVELOPMENT SOUTH MARSH ISLAND 71
SM 71
Given success within
the B65,
additional development wells would
be drilled in due course with scope
to utilize all six available slots on the
platform.
As at 30 June 2017, Byron has
continued to progress the platform
jacket and deck modifications at
Laredo’s onshore facility in Galveston,
Texas. Modifications of the
jacket
portion of the production platform
Painting
have been completed.
operations are underway with a new
coating system being applied to the
top of the jacket and all deck areas.
As each deck is completed, the yard
will install instrument and electrical
systems, hang interconnect piping
and install skid mounted production
equipment. Unless weather issues
arise, the decks will be re-stacked
and commissioning is expected to
begin shortly. Load out of the jacket
and decks is anticipated by mid to late
October.
is
to complete
Byron advises that all permitting
is underway with regulators and
the
expectation
design,
installation
and commissioning of the tripod by
November 2017. Pipeline installation
should be completed by the end of
2017.
fabrication,
Through the drilling of the SM 71
#1 well
in April-May 2016, Otto
has earned a 50% participating
interest (equal to a 40.625% net
revenue interest) in the SM 71 licence
with WI 2P reported reserves of 2,795
Mboe to Otto.
Drilling of SM 71 #1 intersected four
separate hydrocarbon bearing sand
intervals of which three will ultimately
be completed. The well bore has been
temporarily suspended awaiting tie-
in to production infrastructure. Otto
expects that first production will
be delivered in January 2018 from SM
71. Additional follow-up opportunities
are
salt
around
being progressed.
dome
this
In 2016 the joint venture procured a
tripod platform to be modified for use
at the SM 71 location.
The joint venture plans to initially
complete the SM 71 #1 well in the
D5 Sand and drill an additional
development well
into this same
interval to optimise field drainage.
Both wells are expected to record
initial flow rates of 1,500 to 2,000
bopd (gross field production) similar
to those recorded on the adjacent
SM 72 and SM 73 blocks.
During drilling of this second well
the oil prospective B65 Sand interval
will be penetrated. This has the
scope to double the present block
reserve base.
of
inversion data
post-drill seismic
shows promising results defining
the D5 Sand extent and delineating
the future B65 Sand target. B65
sands contain a 2.9 MMboe WI
Prospective Resource.
Interpretation
LOCATION:
Louisiana -
Offshore Gulf
of Mexico
AREA:
12.16 km2
OTTO’S
INTEREST:
50.00%
with Byron
Energy LTD
(Operator)
10
ANNUAL REPORT 2017OTTO ENERGY SPECIFICATIONS
Manned Tripod
Robust oil and gas throughput
to handle future exploration
success
6 x well capacity Oil
4,500 Bopd from wells on SM 71
15,000 Bopd throughput
Gas
20,000 Mcfpd from
wells on SM 71
75,000 Mcfpd throughput
Water
5,000 Bwpd
Notice: This data is owned by and is a trade secret of WesternGeco and is protected by U.S. and international copyrights. The use of
this data is restricted to companies holding a valid use license from WesternGeco and is subject to the confidentiality terms of that
license. The data may not be disclosed or transferred except as expressly authorized in the license. Any unauthorized disclosure, use,
reproduction, reprocessing or transfer of this data is strictly prohibited.
11
ANNUAL REPORT 2017 OTTO ENERGY EXPLORATION SOUTH TIMbALIER 224
ST 224
Enterprise Offshore 264 Jackup Rig
LOCATION:
Louisiana -
Offshore Gulf
of Mexico
AREA:
20.23 km2
OTTO’S
INTEREST:
25.00%
Otto has secured a farm-in to the
South Timbalier 224 licence in the
Gulf of Mexico shelf area. Located in
170 feet/52 metres of water, the block
contains a large amplitude supported,
high condensate to gas ratio (CGR)
gas condensate prospect delineated
by 3D seismic.
Several existing production platforms
fall within tie-back distance of the
proposed well, making development
of any discovered hydrocarbons both
quick and cost effective.
The operations are being conducted by
respected and experienced operator,
W&T Offshore Inc.
Under the terms of the participation
agreement, Otto will be required to
fund 25% of the initial test well in the
ST 224 lease (up to casing point) to earn
a 25% working interest. The financial
commitment is currently estimated at
US$2.7 million (Otto share of dry hole
costs) including funds to evaluate the
well using wireline techniques and in
a failure case to P&A the location. Otto
also paid US$56,250 in back costs.
FORWARD PLAN
The operator has commenced the well
permitting process and secured the
Enterprise Offshore 264 jack-up drilling
rig to undertake the drilling operations
in Q4 2017.
12
ST 224 location showing nearby wells, platforms and pipeline facilities.
ANNUAL REPORT 2017OTTO ENERGY EXPLORATION bIVOUAC PEAK
LOCATION:
Inshore
Louisiana -
Gulf of Mexico
AREA:
10 km2
OTTO’S
INTEREST:
45.00% -
Earning via
staged farm-
in with Byron
Energy Ltd
(Operator)
BYRONENERGY LIMITED
Otto has the option to acquire a 45%
working interest in the Bivouac Peak
lease, which covers approximately
2,500 acres of highly prospective
acreage
in the transitional zone
inshore southern Louisiana. Byron
has identified multiple prospects at
both the Middle and Lower Miocene
levels
stacked
demonstrating
amplitude and AVO
(amplitude
versus offset) support. Follow-up
drilling options have been identified
at the Lower Miocene level that could
increase the scale of the overall
opportunity.
An independent resource estimate
for Bivouac Peak was prepared by
Collarini Associates, which assigned
a Prospective Resource to Otto’s
proposed 45% working
interest
(33.525% net revenue interest) of
7,196 Mbbl of oil and 79,950 Bcf of
gas.
Significant production exists
in
the adjacent Miocene sequence
at the Little Bay field (>45 Bcf gas
and 5 MMbbl condensate) and the
Atchafalaya Bay field (>100 Bcf gas
and 0.6 MMbbl condensate). With
infrastructure
nearby production
already in place, any successful well
at Bivouac Peak would be capable of
being brought into production within
6-12 months of discovery.
interest
Otto has the ability to earn a 45%
working
(33.525% net
revenue interest) through the funding
of 60% of the cost of the first well
drilled at Bivouac Peak. Any costs
above US$6 million (Otto share) in
respect of the first well and all future
expenditure will be in accordance
interest
with Otto’s participating
(45%).
FORWARD PLAN
Otto is awaiting a well proposal from
the operator prior to committing to
participate in the first exploration well.
Otto expects the operator to defer
drilling until the SM 71 development
is completed and producing.
Cris I – Cib Op Trend
Active Production
Prospect Acreage
13
ANNUAL REPORT 2017 OTTO ENERGY EXPLORATION ALASKA
LOCATION:
Onshore
Norte Slope
Alaska
AREA:
2,234 km2
OTTO’S
INTEREST:
8%-10.8%
Great Bear
Petroleum
Operating
(Operator)
GREAT BEAR ACREAGE -
OVERVIEW
Through its agreement with Great
Bear Petroleum Operating LLC
(‘Great Bear’) in 2015, Otto acquired
between an 8% and 10.8% working
interest (equivalent to 56,712 net
acres) in two areas of Alaskan North
Slope exploration acreage held by
Great Bear.
exploring
Great Bear is a private exploration
exclusively
company
focused
on
developing
and unconventional
conventional
the North Slope
resources on
of Alaska.
and
is
the
Great Bear
dominant
exploration acreage holder in this
highly prospective basin holding
574,716 gross acres in a major play
fairway south of the Prudhoe Bay
and Kuparuk giant oil fields. Great
Bear has undertaken significant
exploration work on the acreage since
2011 including:
• Acquisition and processing of
approximately 2,970 km2 of 3D
seismic data (1,170 km2 in 2016).
• Drilling of two unconventional
wells
three primary
stratigraphic
cored
which
unconventional targets.
test
Existing 3D seismic has allowed
development of an extensive prospect
portfolio which includes at least 4 well
locations.
Otto’s exposure on the first 3 wells is
limited to US$2.6 million/well.
NEARBY ALASKA ACTIVITY
Adjacent to Otto Energy acreage,
exploration success by other North
Slope operators continues:
•
In March 2017,
the Repsol/
Armstrong Horseshoe-1 well
immediately to the west of Otto’s
acreage resulted in a significant
conventional
discovery
which is estimated to contain
approximately 1.2 billion barrels
of recoverable light oil.
oil
• C o n o c o P h i l l i p s / A n a d a r k o
recently announced a Nanushuk
Formation discovery of greater
than 300 MMbbl.
• Caelus Energy discovered 2.4
Bbbl EUR light oil at Smith Bay in
October 2016.
•
88 Energy have drilled and are
presently testing the
Icewine
#2 unconventional HRZ well to
the immediate south of Otto’s
acreage.
• Drilling
of
conventional
a
exploration well (Alkaid-1) which
specifically targeted a 3D defined
Brookian reservoir.
The extensive, modern 3D seismic
coverage, existing well control and
proximity to the all-weather Dalton
Highway and Trans-Alaskan Pipeline
System (TAPS) means the acreage is
well positioned for exploration.
14
ANNUAL REPORT 2017OTTO ENERGY EXPLORATION ALASKA (CONTINUED)
FORWARD PLAN
House Bill 111 (HB111) was passed by the Alaska Legislature on 15 July
2017. This has terminated the previous arrangement whereby cash rebates
were funded by Alaska and instead implementing future deductibility
against production royalties.
No funding agreement has yet been reached for accrued cash rebates up
to 30 June 2017.
Great Bear are resolving outstanding exploration rebate claims with the
Alaska government and sourcing additional equity investment ahead of a
planned drilling campaign in early 2018.
There are multiple permitted drilling locations which will form the basis of
a significant conventional exploration campaign.
15
ANNUAL REPORT 2017 OTTO ENERGY SUMMARY OF ASSETS
SUMMARY OF ASSETS AS AT 30 JUNE 2017
OTTO
WORKING
INTEREST
OTTO NET
REVENUE
INTEREST
ASSET
JOINT
VENTURE
PARTNERS
NOTES
Louisiana/Gulf of Mexico
South Marsh Island
70*/71, Outer
Continental Shelf
50%
40.625%
Byron Energy
(operator)
50% WI
South Timbalier 224
25%
19.5625%
Bivouac Peak,
Louisiana Near-shore
45%
Earning
via staged
farm-in
with Byron
Energy Ltd
(Operator)*
33.525%
Alaska North Slope
8 – 10.8%
6.67 – 9.45%
W&T Offshore
(operator)
39% WI
Other Private US
Companies
Byron Energy
(operator)
36% WI
35% WI
Metgasco
10% WI
Private US Investor
10% WI
Alaska
Great Bear
Petroleum
Operating LLC
(operator)
Haliburton Energy
Services, Inc
67.0% -
89.2% WI
0.0% -
25.0% WI
Otto participated in
successful discovery well,
earning entitlement in April
2016.
Otto to participate in an
initial test well in the ST224
lease to earn a 25% working
interest.
Option well
*Earn in subject to Otto
participating in one
exploration well.
152 leases covering 2,234km2
make up the Great Bear
Alaskan North Slope Acreage
Otto entry made in August
2015. Capped contribution to
3 wells.
*SM 70 expired on 31 July 2017.
Note: If Vermillion 232 lease is ultimately awarded to Byron Energy Ltd, Otto will have a right to acquire a 50% working interest/40.625% net
revenue interest, leaving Byron with a 50% working interest/40.625% net revenue interest. Should Byron ultimately not acquire VR 232, Otto
will have a right to acquire 50% of SM 74, on same terms, for an amount equal to a gross one hundred thirty-three percent (133%) of Otto’s
fifty percent (50%) interest share of certain acquisition costs, including the Dry Hole Costs of an Initial Test Well (as defined in the Participation
Agreement between Byron and Otto) incurred by Byron plus an amount equal to a gross fifty percent (50%) of certain other acquisition expenses
(as defined in the Participation Agreement) incurred and paid by Byron. Otto’s rights to acquire further new assets under the Participation
Agreement expired effective 31 March 2017.
Definitions
“$m” means USD millions of dollars
“bbl” means barrel
“bbls” means barrels
“Mbbl” means thousand barrels
“Mboe” means thousand barrels of oil equivalent (“bOE”) with a
BOE determined using a ratio of 6,000 cubic feet of natural gas
to one barrel of oil – 6:1 conversion ratio is based on an energy
equivalency conversion method and does not represent value
equivalency
16
“MMscf” means million standard cubic feet
“MMboe” means million barrels of oil equivalent (“bOE”) with a
BOE determined using a ratio of 6,000 cubic feet of natural gas
to one barrel of oil – 6:1 conversion ratio is based on an energy
equivalency conversion method and does not represent value
equivalency
ANNUAL REPORT 2017OTTO ENERGY RESERVES STATEMENT
RESERVES AND PROSPECTIVE RESOURCES AS AT 30 JUNE 2017
OTTO ENERGY WORKING INTEREST (WI) %
OTTO ENERGY NET REVENUE INTEREST (NRI) %
RESERVES
OIL
(MbbLS)
GAS
(MMSCF)
MbOE
(6:1)
RESERVES
OIL
(MbbLS)
GAS
(MMSCF)
MbOE
(6:1)
SM-71 (undeveloped), WI (50%)
SM-71 (undeveloped), NRI (40.625%)
Proved (1P)
Probable Reserves
Proved and Probable
(2P)
715
1,778
496
1,302
798
1,995
2,494
1,798
2,793
Proved (1P)
Probable Reserves
Proved and Probable
(2P)
581
1,445
403
1,058
648
1,621
2,026
1,461
2,269
Possible Reserves
660
455
736
Possible Reserves
536
370
598
Proved, Probable and
Possible (3P)
Prospective Resource
(Undeveloped, best
Estimate, Unrisked)
3,153
2,254
3,529
OIL
(MbbLS)
GAS
(MMSCF)
MbOE
(6:1)
Proved, Probable and
Possible (3P)
Prospective Resource
(Undeveloped, best
Estimate, Unrisked)
2,562
1,831
2,867
OIL
(MbbLS)
GAS
(MMSCF)
MbOE
(6:1)
SM-71, WI (50%)
2,956
26,445
7,366
SM-71, NRI (40.625%)
2,402
21,495
5,985
Alaska WI (10.8%)
70,000
-
70,000
Alaska NRI (9 - 9.45%) †
Bivouac Peak WI
(45%) *
7,196
79,950
20,520
Bivouac Peak NRI
(33.525%) *
58,333 -
61,250
-
58,333 -
61,250
5,361
59,562
15,288
*Earn in subject to Otto participating in one exploration well
†Precise weighted average royalty split unknown, volumetric range
provided based on 12.5 to 16.67% royalty range.
RESERVES RECONCILIATION
OTTO ENERGY WORKING INTEREST (WI) %
RESERVES
OIL (MbbL)
GAS (MMSCF)
SM-71 (undeveloped), Otto (50% WI)
Proved (1P)
Probable Reserves
Proved and Probable (2P)
Possible Reserves
Proved, Probable and Possible (3P)
30 June
2016
716
1,778
2,495
665
3,159
n
o
i
t
c
u
d
o
r
P
-
-
-
-
-
n
i
-
m
r
a
F
-
-
-
-
-
s
n
o
i
s
i
v
e
R
(1)
-
(1)
(5)
(6)
30 June
2017
30 June
2016
715
1,778
2,494
660
3,153
497
1,302
1,799
459
2,258
n
o
i
t
c
u
d
o
r
P
-
-
-
-
-
n
i
-
m
r
a
F
-
-
-
-
-
s
n
o
i
s
i
v
e
R
(1)
-
(1)
(4)
(4)
OTTO ENERGY NET REVENUE INTEREST (NRI) %
RESERVES
OIL (MbbL)
GAS (MMSCF)
SM-71 (undeveloped),
net to Otto (40.625%)
30 June
2016
Proved (1P)
Probable Reserves
Proved and Probable (2P)
Possible Reserves
Proved, Probable and Possible (3P)
582
1,445
2,027
540
2,567
n
o
i
t
c
u
d
o
r
P
-
-
-
-
-
n
i
-
m
r
a
F
-
-
-
-
-
s
n
o
i
s
i
v
e
R
(1)
-
(1)
(4)
(5)
30 June
2017
30 June
2016
581
1,445
2,026
536
2,562
404
1,058
1,462
373
1,835
n
o
i
t
c
u
d
o
r
P
-
-
-
-
-
n
i
-
m
r
a
F
-
-
-
-
-
s
n
o
i
s
i
v
e
R
(1)
-
(1)
(3)
(4)
30 June
2017
496
1,302
1,798
455
2,254
30 June
2017
403
1,058
1,461
370
1,831
17
ANNUAL REPORT 2017 OTTO ENERGY RESERVES STATEMENT
(vi)
(vii)
(viii)
(ix)
in place
Otto has controls
for reserves estimation and reporting,
competency, staff accreditation and external reserves
evaluations (LR 5.39.5).
to provide assurance
including staff
Reserves are as originally announced to the ASX on
18 September 2017, and Otto is not aware of any new
information or data that materially affects the information
included in the referred market announcement and all the
material assumptions and technical parameters underpinning
the estimates in the relevant market announcement continue
to apply and have not materially changes (LR 5.43.2).
Prospective resources are reporting on a best estimate
basis (LR 5.28.1).
All of Otto’s reserves and prospective resources (except
for those designated as Alaska) are located in the shallow
water of the Gulf of Mexico, offshore Louisiana, USA.
Furthermore, all of Otto’s reserves are undeveloped as at
30 June 2017.
PROSPECTIVE RESOURCES CAUTIONARY
STATEMENT
The estimated quantities of petroleum that may potentially be recovered
by the application of future development projects relate to undiscovered
accumulations. These estimates have both an associated risk of
discovery and a risk of development. Further appraisal and evaluation is
required to determine the existence of a significant quantity of potentially
moveable hydrocarbons.
RESERVES CAUTIONARY STATEMENT
Oil and gas reserves and resource estimates are expressions of judgment
based on knowledge, experience and industry practice. Estimates that
were valid when originally calculated may alter significantly when new
information or techniques become available. Additionally, by their very
nature, reserve and resource estimates are imprecise and depend to
some extent on interpretations, which may prove to be inaccurate. As
further information becomes available through additional drilling and
analysis, the estimates are likely to change. This may result in alterations
to development and production plans which may, in turn, adversely
impact the Company’s operations. Reserves estimates and estimates
of future net revenues are, by nature, forward looking statements and
subject to the same risks as other forward looking estimates.
COMPETENT PERSONS REPORT
The information in this report that relates to oil and gas resources in
relation to Alaska was compiled by technical employees of Great Bear
Petroleum, the Operator of the Alaska acreage, and subsequently
reviewed by Mr Paul Senycia BSc (Hons) (Mining Engineering), MAppSc
(Exploration Geophysics), who has consented to the inclusion of such
information in this report in the form and context in which it appears.
Mr Senycia is an employee of the Company, with more than 30 years
relevant experience in the petroleum industry and is a member of The
Society of Petroleum Engineers (SPE). The resources included in this
report have been prepared using definitions and guidelines consistent
with the 2007 Society of Petroleum Engineers (SPE)/World Petroleum
Council (WPC)/ American Association of Petroleum Geologists (AAPG)/
Society of Petroleum Evaluation Engineers (SPEE) Petroleum Resources
Management System (PRMS). The resources information included in this
report are based on, and fairly represents, information and supporting
documentation reviewed by Mr Senycia. Mr Senycia is qualified in
accordance with the requirements of ASX Listing Rule 5.41 and consents
to the inclusion of the information in this report of the matters based on
this information in the form and context in which it appears.
The reserve and contingent resource information in this report in relation
to SM 71 and Bivouac Peak is based on information compiled by technical
employees of independent consultants Collarini Associates, under the
supervision of Mr Mitch Reece BSc PE. Mr Reece is the President of
Collarini Associates and is a registered professional engineer in the
State of Texas and a member of the Society of Petroleum Evaluation
Engineers (SPEE), Society of Petroleum Engineers (SPE), and American
Petroleum Institute (API). The reserves and resources included in this
report have been prepared using definitions and guidelines consistent
with the 2007 Society of Petroleum Engineers (SPE)/World Petroleum
Council (WPC)/American Association of Petroleum Geologists (AAPG)/
Society of Petroleum Evaluation Engineers (SPEE) Petroleum Resources
Management System (PRMS). The reserves and resources information
reported in this Statement is based on, and fairly represents, information
and supporting documentation prepared by, or under the supervision of,
Mr Reece. Mr Reece is qualified in accordance with the requirements of
ASX Listing Rule 5.41 and consents to the inclusion of the information
in this report of the matters based on this information in the form and
context in which it appears.
RESERVES AND RESOURCES
REPORTING NOTES
(i)
The reserves and prospective resources information in this
document is effective as at 30 June, 2017 (Listing Rule
(LR) 5.25.1).
(ii)
(iii)
(iv)
(v)
The reserves and prospective resources information in this
document has been estimated and is classified in accordance
with SPE-PRMS (Society of Petroleum Engineers Petroleum
Resources Management System) (LR 5.25.2).
The reserves and prospective resources information in this
document is reported according to the Company’s economic
interest in each of the reserves and net of royalties (LR 5.25.5).
The reserves and prospective resources
information
in this document has been estimated and prepared using the
deterministic method (LR 5.25.6).
There has been no material changes to reserves or resources
from the previous year.
18
ANNUAL REPORT 2017OTTO ENERGY
FINANCIAL
REPORT
2017
FINANCIAL REPORT 2017
CONTENTS
FINANCIAL REPORT 2017
CONTENTS
Corporate Directory
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Audit Report to the Members of Otto Energy Limited
Additional ASX Information
21
22
42
43
44
45
46
47
77
78
82
Annual General Meeting
The Annual General Meeting of Otto Energy Limited will be held on 29 November 2017
20
20
ANNUAL REPORT 2017OTTO ENERGY
CORPORATE DIRECTORY
CORPORATE DIRECTORY
Directors
Mr John Jetter – Non-Executive Chairman
Mr Matthew Allen – Managing Director and Chief Executive Officer
Mr Ian Macliver – Non-Executive Director
Mr Ian Boserio – Non-Executive Director
Company Secretary
Mr David Rich
Key Executives
Principal registered office
in Australia
Share Registry
Auditors
Securities Exchange Listing
Mr Matthew Allen – Managing Director and Chief Executive Officer
Mr Paul Senycia – Vice President Exploration and New Ventures
Mr David Rich – Chief Financial Officer and Company Secretary
32 Delhi Street
West Perth WA 6005
Tel: + 61 8 6467 8800
Fax: + 61 8 6467 8801
Link Market Services Limited
Level 12 QV1 Building
250 St Georges Terrace
Perth WA 6000
Tel: + 61 8 9211 6670
Fax: + 61 2 9287 0303
BDO Audit (WA) Pty Ltd
38 Station Street
Subiaco WA 6008
Tel: + 61 8 6382 4600
Fax: + 61 8 6382 4601
Australian Securities Exchange
Level 8, Exchange Plaza
2 The Esplanade
Perth WA 6000
ASX Code: OEL
Website address
www.ottoenergy.com
ABN
56 107 555 046
21
21
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
The Directors present their report together with the consolidated financial statements of the Group comprising
Otto Energy Limited (referred to as ‘Otto’ or the ‘Company’) and its subsidiaries for the financial year ended 30
June 2017 and the auditors’ report thereon.
Directors
The Directors in office at any time during the financial year and until the date of this report are set out below.
All Directors were in office for the entire period.
Mr John Jetter BLaw, BEcon, INSEAD
Chairman (Independent Non-Executive)
Appointed Non-Executive Director 10 December 2007, Non-Executive Chairman 25 November 2015
Mr John Jetter is the former Managing Director, CEO and head of investment banking of JP Morgan in Germany
and Austria, and a member of the European Advisory Council, JP Morgan London. Mr Jetter has held senior
positions with JP Morgan throughout Europe, focusing his attention on major corporate clients advising on some
of Europe's largest corporate transactions. Mr Jetter has been a non-executive Director of Venture Minerals
Limited since June 2010 and Peak Resources Limited since April 2015 and is a member of the Remuneration and
Nomination Committee.
Mr Matthew Allen BBus, FCA, F Fin, GAICD
Managing Director and Chief Executive Officer
Appointed 24 June 2015
Mr Matthew Allen was appointed Chief Executive Officer in February 2014 and Managing Director in June 2015.
Mr Allen joined Otto Energy in 2009 as Chief Financial Officer and has played an integral role in implementing
Otto’s strategy since joining Otto. Prior to joining Otto, Mr Allen worked for Woodside Energy for over 8 years
in leadership roles in a number of Woodside business units, including within Woodside’s overseas businesses in
Africa.
Mr Allen’s experience lies in the operation and management of oil & gas companies with particular focus on
strategic, commercial and financial aspects of the business. Mr Allen has global upstream experience in the USA,
Asia, Africa, Australia and the Middle East. He is a Fellow of Chartered Accountants Australia and New Zealand,
Fellow of the Financial Services Institute of Australasia and Graduate Member of the Australian Institute of
Company Directors.
Mr Ian Macliver BCom, FCA, SF Fin, FAICD
Director (Independent Non-Executive)
Appointed 7 January 2004
Mr Ian Macliver is Managing Director of Grange Consulting Group Pty Ltd, which provides specialist corporate
advisory services to listed and unlisted companies. Mr Macliver has held senior executive and Director roles in
both resource and industrial companies, specifically responsible for capital raising and other corporate
initiatives. Mr Macliver has been the non-executive Chairman of Western Areas Limited since November 2013,
and non-executive Director since October 2011. Mr Macliver was a non-executive Director of Rent.com.au
Limited (formerly Select Exploration Limited) from September 2010 to June 2015 and a non-executive Director
of Range Resources Limited from June to August 2014. Mr Macliver is a member of the Audit and Risk
Management Committee and the Remuneration and Nomination Committee.
22
22
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Mr Ian Boserio BSc Hons First Class (Geophysics), BSc (Geology)
Director (Independent Non-Executive)
Appointed 2 September 2010
Mr Ian Boserio brings to the Otto Board more than 30 years international experience in the oil and gas business,
focused predominantly on exploration and management. Mr Boserio was formerly at Shell as the Australian New
Business Manager, prior to that he led the Shell Australia and New Zealand exploration team developing its gas
portfolio for LNG development. Mr Boserio also worked with Shell internationally, including roles in Australia,
North Sea, Middle East, India and Indonesia, including a five year secondment into Woodside. He is currently co-
owner and technical director of private oil and gas company Pathfinder Energy Pty Ltd. Mr Boserio is a member
of the Audit and Risk Management Committee.
Company Secretary
Mr David Rich BCom, FCA, GAICD, AGIA, Grad.Dip.CSP
Appointed 31 January 2017
Mr Rich is an experienced public company CFO with the last 15 years as CFO of ASX listed upstream oil and gas
companies with international interests including Australia, Europe, Asia, Africa and the USA.
Mr Neil Hackett resigned as Company Secretary effective 31 January 2017.
Director’s interests
As at the date of this report, the interests of the Directors in the shares and rights of Otto Energy Limited were:
Director
Mr J Jetter
Mr M Allen
Mr I Macliver
Mr I Boserio
Principal activities
Number of
ordinary shares
16,589,175
5,243,000
4,549,721
-
Number of
convertible notes
200,000
-
-
-
Number of
rights
-
3,100,000
-
-
The principal activity of the Group continued to be investment in oil and gas exploration, development and
production mainly in North America.
Dividends
No dividend has been declared for the year ended 30 June 2017.
Review of operations
A review of the operations of the Group during the financial year and the results of those operations are set out
below. In addition to this, as at year end the Company no longer has interests in Tanzania with the Pangani
licence expiring and the Company withdrawing from the Kilosa-Kilombero JOA. Further details are set out below
in the significant changes in the state of affairs.
Gulf of Mexico
Strategy
Through its new venture and business development activities, Otto has identified a number of opportunities in
the Gulf of Mexico shelf and onshore that are available on attractive terms.
23
23
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Otto’s strategy in the Gulf of Mexico is to add highly profitable incremental increases in production and cashflow
through farming in to projects that meet specific criteria - projects that are ready to drill with high margins (low
operating costs), high chance of success and near term production through early drilling and rapid development.
The focus is on prospects with the following characteristics:
Miocene/Pliocene geology which are amplitude supported
Investing capital into drilling, not seismic
Seeking early cashflow/ROI – Approximately 12-18 months from exploration to production
Shallow water (<300 feet) – keeping capex manageable
High liquids yields to increase margins
Operational review
In December 2015, Otto entered into an agreement with Byron Energy giving it rights to elect to participate in
up to four drilling opportunities in the Louisiana onshore and shallow water offshore continental shelf area. To
date, two of these opportunities have been drilled, leading to a discovery and the booking of reserves.
The Gulf of Mexico (GOM) region is one of the most prolific oil and gas producing regions on earth. Commercial
extraction of petroleum resources dates from the early decades of the 1900s, with first offshore production
commencing in 1938. Today, the federally-administered GOM Outer Continental Shelf alone accounts for about
a fifth of all crude oil produced in the USA.
Geologically there exists a key combination of a thick layer of evaporites (salt), rich biological deposits (which,
when subjected to the right conditions, forms light producible oil and gas) and thick sand layers. Near the
northern gulf margin in particular, a delta created by the Mississippi River has been building for tens of millions
of years.
These deltaic sand grains are well sorted and round in shape, forming the ideal high-porosity rock for a
petroleum reservoir. The buoyancy and flowing effect of the underlying salt creates the structures and traps
necessary for the natural collection of oil.
Today, about half of the USA’s fossil fuel refining and processing capacity is along the GOM. The high density
and availability of production platforms for development of new discoveries contributes to low production costs
in this region, making projects viable even in a sustained, low oil price environment. Louisiana and the nearby
shelf region are characterized by a ready market and low sovereign risk. These factors, in combination with the
low-risk drilling updip of previously productive sand intervals, have led Otto to make the northern Gulf of Mexico
region a substantial focus of its forward strategy.
South Marsh Island 71 (SM 71)
Through the drilling of the SM 71 #1 well in April-May 2016, Otto has earned a 50% participating interest
(equal to a 40.625% net revenue interest) in the SM 71 licence with WI 2P reported reserves of 2,795 Mboe to
Otto.
Drilling of SM 71 #1 intersected four separate hydrocarbon bearing sand intervals of which three will ultimately
be completed. The well bore has been temporarily suspended awaiting tie-in to production infrastructure. Otto
expects that first production will be delivered in January 2018 from SM 71. Additional follow-up opportunities
around this salt dome are being progressed.
In 2016 the joint venture procured a tripod platform to be modified for use at the SM 71 location.
The joint venture plans to initially complete the SM 71 #1 well in the D5 Sand and drill an additional development
well into this same interval to optimise field drainage. Both wells are expected to record initial flow rates of
1,500 to 2,000 bopd (gross field production) similar to those recorded on the adjacent SM 72 and SM 73 blocks.
During drilling of this second well the oil prospective B65 Sand interval will be penetrated. This has the scope to
double the present block reserve base. Interpretation of post-drill seismic inversion data shows promising results
defining the D5 Sand extent and delineating the future B65 Sand target. B65 sands contain a 2.9 MMboe WI
Prospective Resource. Given success within the B65, additional development wells would be drilled in due
course with scope to utilize all six available slots on the platform.
24
24
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
As at 30 June 2017, Byron had continued to progress the platform jacket and deck modifications at Laredo’s
onshore facility in Galveston, Texas. Modifications of the jacket portion of the production platform have been
completed.
Forward Plan
Painting operations are underway with a new coating system being applied to the top of the jacket and all deck
areas. As each deck is completed, the yard will install instrument and electrical systems, hang interconnect piping
and install skid mounted production equipment. Unless weather issues arise, the decks will be re-stacked and
commissioning is expected to begin shortly. Load out of the jacket and decks is anticipated by mid to late
October.
Byron advises that all permitting is underway with regulators and expectation is to complete the design,
fabrication, installation and commissioning of the tripod by November 2017. Pipeline installation should be
completed by the end of 2017.
South Timbalier 224 (ST 224)
Since year end, Otto has secured a farm-in to the ST 224 licence in the Gulf of Mexico shelf area. Located in 170
feet/52 metres of water, the block contains a large amplitude supported, high condensate to gas ratio (CGR) gas
condensate prospect delineated by 3D seismic.
Several existing production platforms fall within tie-back distance of the proposed well, making development of
any discovered hydrocarbons both quick and cost effective.
The operations are being conducted by respected and experienced operator, W&T Offshore Inc.
Under the terms of the participation agreement, Otto will be required to fund 25% of the initial test well in the
ST 224 lease (up to casing point) to earn a 25% working interest. The financial commitment is currently estimated
at US$2.7 million (Otto share of dry hole costs) including funds to evaluate the well using wireline techniques
and in a failure case to P&A the location. Otto also paid US$56,250 in back costs.
Forward Plan
The operator has commenced the well permitting process and secured the Enterprise Offshore 264 jack-up
drilling rig to undertake the drilling operations in Q4 2017.
Bivouac Peak
Otto has the option to acquire a 45% working interest in the Bivouac Peak lease, which covers approximately
2,500 acres of highly prospective acreage in the transitional zone inshore southern Louisiana. Byron has
identified multiple prospects at both the Middle and Lower Miocene levels demonstrating stacked amplitude
and AVO (amplitude versus offset) support. Follow-up drilling options have been identified at the Lower Miocene
level that could increase the scale of the overall opportunity.
An independent resource estimate for Bivouac Peak was prepared by Collarini Associates, which assigned a
Prospective Resource to Otto’s proposed 45% working interest (33.525% net revenue interest) of 7,196 Mbbl of
oil and 79,950 Bcf of gas.
Significant production exists in the adjacent Miocene sequence at the Little Bay field (>45 Bcf gas and 5 MMbbl
condensate) and the Atchafalaya Bay field (>100 Bcf gas and 0.6 MMbbl condensate). With nearby production
infrastructure already in place, any successful well at Bivouac Peak would be capable of being brought into
production within 6-12 months of discovery.
Otto has the ability to earn a 45% working interest (33.525% net revenue interest) through the funding of 60%
of the cost of the first well drilled at Bivouac Peak. Any costs above US$6 million (Otto share) in respect of the
first well and all future expenditure will be in accordance with Otto’s participating interest (45%).
Forward Plan
Otto is awaiting a well proposal from the operator prior to committing to participate in the first exploration well.
Otto expects the operator to defer drilling until the SM 71 development is completed and producing.
25
25
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Alaska
Strategy
Otto’s strategy for its Alaskan acreage is to drill a minimum of two game-changer exploration wells as soon as
possible. The targets have been identified using 3D seismic data and multiple reservoir intervals can be tested
in each well.
Operational review
Through its agreement with Great Bear Petroleum Operating LLC (‘Great Bear’) in 2015, Otto acquired between
an 8% and 10.8% working interest (equivalent to 56,712 net acres) in two areas of Alaskan North Slope
exploration acreage held by Great Bear.
Great Bear is a private exploration company focused exclusively on exploring and developing conventional and
unconventional resources on the North Slope of Alaska.
Great Bear is the dominant exploration acreage holder in this highly prospective basin holding 574,716 gross
acres in a major play fairway south of the Prudhoe Bay and Kuparuk giant oil fields. Great Bear has undertaken
significant exploration work on the acreage since 2011 including:
Acquisition and processing of approximately 2,970 km2 of 3D seismic data (1,170 km2 in 2016).
Drilling of two unconventional stratigraphic test wells which cored three primary unconventional targets.
Drilling of a conventional exploration well (Alkaid-1) which specifically targeted a 3D defined Brookian
reservoir.
The extensive, modern 3D seismic coverage, existing well control and proximity to the all-weather Dalton
Highway and Trans-Alaskan Pipeline System (TAPS) means the acreage is well positioned for exploration.
Existing 3D seismic has allowed development of an extensive prospect portfolio which includes at least 4 well
locations.
Otto’s exposure on the first 3 wells is limited to US$2.6 million/well.
Forward Plan
House Bill 111 (HB111) was passed by the Alaska Legislature on 15 July 2017. This has terminated the previous
arrangement whereby cash rebates were funded by Alaska and instead implementing future deductibility
against production royalties.
No funding agreement has yet been reached for accrued cash rebates up to 30 June 2017.
Great Bear are resolving outstanding exploration rebate claims with the Alaska government and sourcing
additional equity investment ahead of a planned drilling campaign in early 2018.
There are multiple permitted drilling locations which will form the basis of a significant conventional exploration
campaign.
Nearby Activity
Adjacent to Otto acreage, exploration success by other North Slope operators continues:
In March 2017, the Repsol/Armstrong Horseshoe-1 well immediately to the west of Otto’s acreage resulted
in a significant conventional oil discovery which is estimated to contain approximately 1.2 billion barrels of
recoverable light oil.
Conoco Phillips/Anadarko recently announced a Nanushuk Formation discovery of greater than 300
MMbbl.
Caelus Energy discovered 2.4 Bbbl EUR light oil at Smith Bay in October 2016.
88 Energy have drilled and are presently testing the Icewine #2 unconventional HRZ well to the immediate
south of Otto’s acreage.
26
26
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Financial summary
The Group recognised a loss after income tax for the year of $5.25 million (2016: loss $20.09 million). The net
loss for the financial year ending 30 June 2017 was mainly due to the fact that Otto had no production and hence
no sales revenue for the year. The main focus of the Company was on the development of the SM 71 oil project
in the Gulf of Mexico and on business development activities in order to mature a portfolio of potential growth
assets in the Gulf of Mexico. Administration costs were reduced during the year from $5.711 million to $4.374
million due to an overall focus on costs.
Exploration costs for the year were down significantly from $41.479 million in 2016 to $0.905 million due to
delays in Alaska, disputes in Tanzania and a focus on the SM 71 development in the Gulf of Mexico.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year were as follows:
•
•
On 26 May 2017 the Company announced that its subsidiary, Otto Energy (Tanzania) Pty Ltd (‘OET’), and
Swala Oil and Gas (Tanzania) Plc (‘Swala’) had entered into settlement and other commercial arrangements
in respect of the various claims and disputes concerning both the Pangani and Kilosa-Kilombero Licences,
onshore Tanzania. Under the arrangements OET has withdrawn from the Kilosa-Kilombero JOA and Swala
has assumed the rights and obligations in respect of OET's 50% participating interest.
On 29 May 2017 the Company announced that it had entered into binding agreements to raise $8.2 million
via an issue of secured convertible notes to Molton Holdings Limited, a major Otto shareholder ($8 million),
and Mr John Jetter, Otto’s Chairman ($0.2 million). Key terms of the convertible notes are set out in the
notice of meeting released to the ASX on 23 June 2017. Funds raised via the issue will be used to develop
Otto’s SM 71 oil project. The funds were received and the notes issued on 2 August 2017.
Significant events after the balance date
Convertible notes issue
On 29 May 2017 the Company announced that it had entered into binding agreements to raise $8.2 million via
an issue of secured convertible notes to Molton Holdings Limited, a major Otto shareholder ($8 million), and Mr
John Jetter, Otto’s Chairman ($0.2 million). Key terms of the convertible notes are set out in the notice of
meeting released to the ASX on 23 June 2017. Funds raised via the issue will be used to develop Otto’s SM 71
oil project.
On 25 July 2017 a general meeting of shareholders approved the issue of the notes. The funds were received
and the notes issued on 2 August 2017.
Exploration – farm in to ST 224
On 3 July 2017 Otto announced it had farmed into the South Timbalier 224 (‘ST 224’) lease in the Gulf of Mexico
shelf. Under the terms of the participation agreement, Otto will be required to fund 25% of the initial test well
in the ST 224 lease (up to casing point) to earn a 25% working interest. The financial commitment is currently
estimated at $2.7 million (Otto share of dry hole costs). Otto has since paid $56,250 in back costs.
ST 224 contains a large, amplitude supported, high CGR, gas condensate exploration prospect located in the
prolific Bul. 1 trend. The operator, respected and experienced GOM focused company W&T Offshore Inc., has
commenced the well permitting process and secured the Enterprise Offshore 264 jack-up drilling rig to drill the
prospect in late 2017.
27
27
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
SM 71 oil development
Since 30 June 2017 the following material events have occurred in relation to the SM 71 oil development in the
Gulf of Mexico (Otto 50% working interest):
•
•
The Bureau of Safety and Environmental Enforcement (‘BSEE’) approved an extension of the lease term over
SM 71 through to 30 November 2017 based on a submitted activity schedule. Under the approved activity
schedule, operations for drilling of SM 71 #2 well and completion of SM 71 #1 well are expected to
commence before the end of November.
Hurricane Harvey passed through the Houston area beginning on 25 August 2017 producing a deluge of rain
and high winds in the Galveston area over a five-day period. The operator of the SM 71 project, Byron Energy
Ltd (Byron, ASX: BYE), reported that on 30 August 2017 construction operations had resumed at the Laredo
Construction yard in Galveston, Texas after the passage of Hurricane Harvey. There were no reports of major
injury or significant damage at the yard.
• On 12 September 2017 Otto announced that a drilling contract had been signed by Byron with Ensco Plc for
the Ensco 68 jack-up rig to carry out the SM 71 drilling and completion program. The Ensco 68 will be
available before the end of November 2017 to follow the installation of the tripod production facility on the
lease. The contract will allow the joint venture to drill the SM 71 F2 well and then complete the SM 71 F2
and SM 71 F1 (previously referred to as SM 71 #1) wells.
•
Since year end Otto has approved an Authority for Expenditure (AFE) totalling $1,576,850 (Otto 50% share)
for the SM 71 pipeline installation, facility installation, hookup and commissioning. This amount is not
included in the commitments note in the financial statements.
Swala settlement
Under a settlement agreement signed on 25 May 2017 with Swala Oil and Gas (Tanzania) Plc (‘Swala’) in relation
to the Pangani Licence in Tanzania, Swala agreed to pay Otto $800,000 on or before 31 August 2017. As at the
date of this report no payment has been received from Swala. In accordance with the terms of the settlement
agreement, Otto has applied to the Federal Court for judgment against Swala in the amount of $800,000 plus
costs and interest. The $800,000 receivable has been fully provided for as a doubtful debt in the financial
statements.
No other matters or circumstances have arisen since 30 June 2017 that have significantly affected, or may
significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in
future financial years.
Likely developments and expected results
Likely developments in the operations of the Group that were not finalised at the date of this report included:
•
•
•
Development of the SM 71 oil field is expected to be completed over the coming months with production
commencing in January 2018;
Participation in an exploration well in ST 224 in the Gulf of Mexico in late 2017; and
Participate for up to a fifty percent (50%) working interest in the Gulf of Mexico Vermillion Area Block 232
(‘VR 232’) licence, if Byron is awarded that licence (currently appealing rejection of bid). Should Byron
ultimately not acquire VR 232, Otto will acquire a 50% working interest in SM 74 on the same terms.
Additional comments on expected results of certain operations of the Group are included in the Review of
Operations above.
28
28
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
In accordance with its objectives, the Group intends to participate in a number of exploration and appraisal wells
and will consider growing its exploration effort by farm-in, permit application and/or acquisition within its
existing operational focus area of North America with a specific target of the Gulf of Mexico. Further information
on likely developments in the operations of the Group and the expected results of operations have not been
included in this annual financial report because the Directors believe it would be likely to result in unreasonable
prejudice to the Group.
Environmental regulation and performance
So far as the Directors are aware, there have been no breaches of environmental conditions of the Group’s
exploration or production licences. Procedures are adopted for each exploration program to ensure that
environmental conditions of the Group’s tenements are met.
Directors’ meetings
The number of meetings of Directors (including meetings of committees of Directors) held during the year and
the numbers of meetings attended by each Director were as follows:
Director
Mr J Jetter
Mr M Allen
Mr I Macliver
Mr I Boserio
Board meetings
Number
eligible to
attend
7
7
7
7
Number
attended
7
7
7
7
Audit and risk
management
committee
Remuneration and
nomination
committee
Number
eligible to
attend
-
-
2
2
Number
attended
-
-
2
2
Number
eligible to
attend
1
-
1
-
Number
attended
1
-
1
-
Indemnification and insurance of Directors and officers
During the financial year, the Company paid a premium of $41,034 to insure the Directors and officers of the
Company and its controlled entities, and the managers of each of the divisions of the Group.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be
brought against the officers in their capacity as officers of entities in the Group, and any other payments arising
from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities
that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of
their position or of information to gain advantage for them or someone else or to cause detriment to the
Company. It is not possible to apportion the premium between amounts relating to the insurance against legal
costs and those relating to other liabilities.
Proceedings on behalf of company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings
on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose
of taking responsibility on behalf of the Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under
section 237 of the Corporations Act 2001.
29
29
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, and in accordance with that instrument, amounts in the consolidated financial statements and
Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise indicated.
Non-audit services
The following non-audit services were provided by the entity's auditor, BDO Australia. The Directors are satisfied
that the provision of non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means
that auditor independence was not compromised.
BDO Australia received or are due to receive the following amounts for the provision of non-audit services:
Other assurance services
Tax compliance services
Tax consulting and tax advice
Remuneration services
Auditor’s independence declaration
The auditor’s independence declaration is included on page 42 of this report.
2017
US$
2016
US$
-
28,687
18,970
-
47,657
198
23,805
25,558
7,048
56,609
30
30
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Remuneration report (audited)
The Directors of the Company have prepared this remuneration report to outline the overall remuneration
strategy, policies and practices which were in place by the Group in 2017. This structure includes the share
rights and option plans approved by the shareholders in 2013 and again at the Company’s Annual General
Meeting on 16 November 2016. The report has been prepared in accordance with Section 300A of the
Corporations Act 2001 and its regulations.
Otto Energy’s remuneration policy is designed to ensure that the level and form of compensation achieves
certain objectives, including:
a) attraction and retention of employees and management to pursue the Group’s strategy and goals;
b) delivery of value-adding outcomes for the Group;
c)
d)
fair and reasonable reward for past individual and Group performance; and
incentive to deliver future individual and Group performance.
Remuneration consists of base salary, superannuation, short term incentives (STI) and long term incentives (LTI).
Remuneration is determined by reference to market conditions and performance. Performance is evaluated at
an individual level as well as the performance of the Group as a whole.
The remuneration policies and structure in 2017 were generally the same as for 2016.
Key management personnel disclosed in this report are:
Directors
Mr John Jetter
Mr Matthew Allen
Mr Ian Macliver
Mr Ian Boserio
Executives
Mr Paul Senycia
Mr David Rich
Mr Matthew Worner
Mr Craig Hasson
Non-Executive Chairman
Managing Director and Chief Executive Officer
Non-Executive Director
Non-Executive Director
Vice President Exploration and New Ventures
Chief Financial Officer and Company Secretary, commenced 28 February 2017 and
31 January 2017 respectively
Commercial Manager, ceased 1 July 2017
Chief Financial Officer, ceased 28 February 2017
Remuneration governance
Role of the Remuneration and Nomination Committee
The Remuneration and Nomination Committee’s role is to review and recommend remuneration for key
management personnel and review remuneration policies and practices including Company incentive schemes
and superannuation arrangements.
The Committee considers independent advice, where circumstances require, on the appropriateness of
remuneration to ensure the Group attracts, motivates and retains high quality people. An advisor was retained
for the 2016 calendar year review.
The ASX Listing Rules require that the maximum aggregate amount of remuneration to be allocated among the
non-executive Directors be approved by shareholders in a general meeting. In proposing the maximum amount
for consideration by shareholders and in determining the allocation, the Remuneration and Nomination
Committee takes account of the time demands made on Directors and such factors as fees paid to non-executive
Directors in comparable Australian companies.
The Remuneration and Nomination Committee comprises of two non-executive Directors.
31
31
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Remuneration arrangements for Directors and executives are reviewed by the Remuneration and Nomination
Committee and recommended to the Board for approval. The Remuneration and Nomination Committee
considers external data and information, where appropriate, and may engage independent advisors where
appropriate to establish market benchmarks.
Remuneration arrangements are determined in conjunction with the annual review of the performance of
Directors, executives and employees of the Group. Performance of the Directors and the CEO of the Group is
evaluated by the Board, assisted by the Remuneration and Nomination Committee. The CEO reviews the
performance of executives with the Remuneration and Nomination Committee. These evaluations take into
account criteria such as the achievement toward the Group’s performance benchmarks and the achievement of
individual performance objectives.
Non-executive director remuneration policy
Non-executive Directors of the Group are remunerated by way of fees, statutory superannuation, and LTI’s
where applicable. Fees are set to reflect current market levels based on the time, responsibilities and
commitments associated with the proper discharge of their duties as members of the Board.
The current base fees were last reviewed in February 2017. Non-executive Directors’ fees are determined within
an aggregate non-executive Directors’ fee pool limit, which is periodically recommended for approval by
shareholders. The maximum currently stands at A$500,000 per annum and was approved by shareholders at
the Annual General Meeting in January 2008.
Directors’ fees
The following fees have applied:
Base fees
Chair
Other non-executive Directors
Other non-executive Directors (Philippines based) (i)
Additional fees
Audit and Risk Management Committee Chair
Director of Otto Energy Investments Limited
Director of Otto Energy Philippines Inc.
From 1 July 2016 to
30 June 2017
From 1 July 2015 to
30 June 2016
A$ 125,000
A$ 75,000
-
A$ 10,000
-
US$ 12,000
A$ 125,000
A$ 75,000-90,000
US$ 30,000
A$ 10,000
US$ 22,000
US$ 22,000
(i) Mr R Bomasang resigned as non-executive Director of Otto Energy Limited on 25 November 2015
Retirement allowances for non-executive Directors
In line with ASX Corporate Governance Council, non-executive Directors’ remuneration does not include
retirement allowances. Superannuation contributions required under the Australian superannuation guarantee
legislation continue to be made and are deducted from the Directors’ overall fee entitlements.
Appointment
The term of appointment is determined in accordance with the Company’s Constitution and is subject to the
provisions of the Constitution dealing with retirement, re-election and removal of Directors of the Company.
The Constitution provides that all Directors of the Company, other than the Managing Director, are subject to
re-election by shareholders by rotation every three years during the term of their appointment.
32
32
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Directors and executive remuneration policy and framework
The remuneration arrangement for Directors and executives of the Group for the year ended 30 June 2017 is
summarised below.
The remuneration structure in place for the year ended 30 June 2017 applies to all employees including key
management personnel and staff members of the Group. The Group‘s remuneration structure has three
elements:
a)
b)
c)
fixed annual remuneration (FAR) or base salary (including superannuation);
short term incentive (STI) award which provides a reward for performance in the past year; and
long term incentive (LTI) award which provides an incentive to deliver future Company performance.
Executive remuneration mix
In accordance with the Group’s objective to ensure that executive remuneration is aligned to Group’s
performance, a significant portion of the executives’ target pay is “at risk”.
a)
Fixed annual remuneration (FAR) or base salary (including superannuation);
To attract and retain talented, qualified and effective employees, the Group pays competitive base salaries
which have been benchmarked to the market in which the Group operates. The Group compiles competitive
salary information on companies of comparable size in the oil and gas industry from several sources. Where
appropriate, information is obtained from surveys conducted by independent consultants and national and
international publications. In the past the Board had engaged independent advisors to review the remuneration
levels paid to the Group’s key management personnel. An advisor was retained for the 2016 calendar year
review.
FAR is paid in cash and is not at risk other than by termination. Individual FAR is set each year based on job
description, competitive salary information sourced by the Group and overall competence in fulfilling the
requirements of the particular role.
There is no guaranteed base pay increases included in any executives’ contracts.
Superannuation contributions required under the Australian superannuation guarantee legislation continue to
be made and are deducted from the executives overall FAR entitlements.
b)
Short-term incentives
Executives have the opportunity to earn an annual short-term incentive (STI) if predefined targets are achieved.
The CEO and other members of the executive team have an STI opportunity of approximately 20% of FAR. The
targets are reviewed annually.
STI awards for the executive team in the 2017 financial year were based on the scorecard measures and
weightings as disclosed below. Specific targets were set by the Board and the Remuneration and Nomination
Committee and are aligned to the Company’s strategic and business objectives.
Performance category
Health, safety & environment
Total shareholder return
Asset specific
New business development
Leadership
Weighting
10%
25%
30%
25%
10%
33
33
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
The Board and Remuneration and Nomination Committee are responsible for assessing whether the predefined
targets are met. The Committee review in February 2017 concluded that no STI would be awarded for the 2016
calendar year. The basis for the Committee’s conclusion was that despite the satisfactory performance against
the established targets, the continued weak oil price environment and uncertain future with regards to the
company’s exploration program were sufficient to warrant no STI payments in this instance.
Accordingly, there were no STI bonuses paid in the year to 30 June 2017.
c)
Long-term incentives
The Group believes that encouraging its employees to become shareholders is the best way of aligning their
interests with those of its shareholders. Long-term incentives are provided to certain employees via the Otto
Energy Limited Performance Rights and Employee Share Option Plans which were approved by shareholders at
the 2013 Annual General Meeting and again at the 2016 Annual General Meeting.
The Otto Energy Limited Performance Rights and Employee Share Option Plans are designed to provide long-
term incentives for employees to deliver long-term shareholder returns. Under the plans, participants are
granted performance rights or options which only vest if certain performance conditions are met and the
employees are still employed by the Group at the end of the vesting period. Participation in the plan is at the
Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed
benefits.
The amount of performance rights that will vest depends on vesting period and/or Otto Energy Limited’s total
shareholder return (‘TSR’), including share price growth, dividends, and capital returns. For the rights on issue
during, and at the end of the year, the rights for the CEO and other members of the executive team were based
on TSR performance only. Other employees’ rights were based 50% on time and 50% on TSR. The TSR
performance required for all rights on issue is 10% per annum, compounding from the date of grant to the
measurement date. If the TSR vesting condition is not met on a measurement date (no rights vest), the
performance rights do not lapse and continue to exist as unvested performance rights to be retested at the next
measurement date or expiry date, whichever is later.
On the measurement date of 1 February 2017 4,200,000 performance rights held by key management personnel
vested based on TSR, as the TSR from 3 October 2014 (grant date) to 1 February 2017 was 29.47% (using a grant
date share price of A$0.0285 after adjustment for the 2015 dividend and capital return) which is above the
required 10% p.a. compounded rate of 24.92%. A total of 2,466,668 rights granted to key management
personnel on 23 April 2015 and 14 August 2015 did not vest and hence continued to exist to be tested at the
next measurement date. A total of 1,900,000 rights held by key management personnel have since lapsed upon
cessation of employment.
Once vested, the performance rights are automatically converted into shares. Performance rights are granted
under the plan for no consideration.
Four maximum LTI organisational benchmarks have been established as a percentage of individual FARs. These
four levels reflect the increased involvements of each level in pursuing and achieving the Company’s goals. These
benchmarks are set out in the following table.
Organisational level
MD/CEO
Management
LTI Organisational Benchmarks
50%
40%
Professional
and technical
30%
Support staff
10%
The total number of performance rights granted is subject to being reduced proportionately so that the total
number for performance rights is within:
i)
the Board’s determined cap on the total number of performance rights which are issued as LTI awards in a
given year; and
any discretionary cap on the total number of rights on issue at any given time.
34
ii)
34
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
The Board has established an initial guideline that the total number of performance rights to be issued in a single
year will be capped at 1.7% of the fully paid issued capital of the Company as at the end of the prior year. In the
event that the potential total number of performance rights exceeds the cap then all awardees receive a pro-
rated reduced number of performance rights. This cap is at the discretion of the Board and may be altered
depending on the prevailing context.
Share trading policy
The trading of shares issued to participants under any of the Company’s employee equity plans is subject to, and
conditional upon, compliance with the Company’s Securities Trading Policy. Executives are prohibited from
entering into any hedging arrangements over unvested rights under the Company’s Performance Rights Plan.
While the Employee Share Option Plan does not specifically prohibit holders from entering into hedging
arrangements over options, the Board would include such restrictions in any offer under the Plan. The Company
would consider a breach of this policy as gross misconduct which may lead to disciplinary action and potentially
dismissal.
Voting and comments made at the Group’s 2016 Annual General Meeting
Otto Energy Limited received more than 96% of “yes” votes on its remuneration report for the 2016 financial
year. The Company did not receive any specific feedback at the Annual General Meeting or throughout the year
on its remuneration practices.
Performance of Otto Energy Limited
The Corporations Act requires disclosure of the Company’s remuneration policy to contain a discussion of the
Company’s earnings and performance and the effect of the Company’s performance on shareholder wealth in
the reporting period and the four previous financial years. The table below provides a five year financial
summary.
Net profit/(loss) after tax
(US$’000)
Share price at year end
(AUD)
Basic earnings/(loss)
(US cents per share)
Return of capital
(AU cents per share)
Total dividends
(AU cents per share)
30 June 2013
30 June 2014
30 June 2015
30 June 2016
30 June 2017
745
13,295
16,404
(20,086)
(5,247)
0.038 *
0.047 *
0.069
0.07
1.16
-
-
-
-
1.42
5.64
0.76
0.044
(1.70)
-
-
0.025
(0.44)
-
-
* After deducting the $0.0564 per share return of capital to shareholders on 26 June 2015.
35
35
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Details of remuneration
The following table shows details of the remuneration received by Directors and executives of the Group for the
current and previous financial year.
Remuneration and other terms of employment for the Managing Director & Chief Executive Officer and other
executives are formalised in service agreements. Each of these service agreements provides for performance
related conditions and details relating to remuneration are set out below.
Fixed remuneration
Variable remuneration
Total
Year
Salary and
fees
Super-
annuation
Other
benefits
(ii)
Termination
benefits
Cash
bonus
Performance
rights (i)
A$
A$
A$
A$
A$
A$
Annual
and long
service
leave
A$
-
-
-
-
A$
125,000
111,875
-
47,565
445,000
14,512
453,241
34,092
77,626
77,626
51,447
68,493
-
101,545
-
-
-
-
-
-
-
-
-
4,519
30,000
30,000
7,374
7,374
23,553
6,507
-
-
-
-
-
-
1,429
5,263
-
-
-
-
-
-
699,073
14,512
860,345
34,092
60,927
48,400
1,429
5,263
346,000
31,820
401,888
20,715
101,887
3,061
-
-
185,500
(17,025)
237,523
19,919
320,000
6,710
325,347
16,651
953,387
964,758
24,566
57,285
35,000
35,000
9,679
-
24,231
27,600
30,400
30,000
99,310
92,600
1,652,460
39,078
160,237
1,825,103
91,377
141,000
1,020
1,248
907
-
1,441
1,557
1,754
1,545
5,122
4,350
6,551
9,613
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
132,370
-
-
-
-
-
-
-
-
-
125,000
111,875
-
52,084
73,316
564,257
86,758
108,883
718,237
-
-
-
-
-
-
-
-
-
-
-
-
-
85,000
85,000
75,000
75,000
-
101,545
73,316
849,257
86,758
108,883
1,143,741
-
73,316
487,156
86,986
108,883
654,720
-
-
-
-
-
115,534
-
(54,298)
272,219
-
53,000
67,082
406,681
86,115
-
19,822
464,801
-
52,077
21,997
447,617
218,485
-
-
192,063
38,840
197,962
1,339,710
1,509,018
218,485
-
112,156
2,188,967
-
278,821
306,845
2,652,759
36
Directors
Mr J Jetter (iii)
Mr R Crabb (iv)
Mr M Allen
Mr I MacIiver
Mr I Boserio
Mr R Bomasang (v)
Total Director
remuneration
Executives
Mr P Senycia
Mr D Rich (vi)
Mr C Hasson (vii)
Mr M Worner (viii)
Total executive
remuneration
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
36
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
(i) Performance rights have been valued using a hybrid Monte Carlo and Hull-White model. Further details of
the Performance Rights Plan is contained in the Remuneration Report on pages 38 to 41 and Note 20.
(ii) Car parking provided by the Company.
(iii) Mr J Jetter was appointed as non-executive Chairman on 25 November 2015.
(iv) Mr R Crabb resigned as non-executive Chairman on 25 November 2015.
(v) Mr R Bomasang resigned as non-executive Director on 25 November 2015.
(vi) Mr D Rich appointed as Chief Financial Officer and Company Secretary on 28 February 2017 and 31 January
2017 respectively.
(vii) Mr C Hasson ceased as Chief Financial Officer on 28 February 2017. Share-based payment expense is
negative due to reversal on cessation of employment.
(viii) Mr M Worner ceased as Commercial Manager on 1 July 2017.
The relative proportions of remuneration that are linked to performance and those that are not are as follows:
Fixed and other
2016
2017
At risk – STI
At risk – LTI
2017
2016
2017
(i)
2016
Directors
Mr J Jetter
Mr R Crabb (ii)
Mr M Allen
Mr I Macliver
Mr I Boserio
Mr R Bomasang (iii)
Executives
Mr P Senycia
Mr D Rich (iv)
Mr C Hasson (v)
Mr M Worner
100%
-
87%
100%
100%
-
85%
100%
120%
95%
100%
100%
73%
100%
100%
100%
70%
-
71%
83%
-
-
-
-
-
-
-
-
-
-
-
-
12%
-
-
-
13%
-
13%
12%
-
-
13%
-
-
-
15%
-
(20%)
5%
-
-
15%
-
-
-
17%
-
16%
5%
(i) Since long-term incentives are provided exclusively by way of performance rights or options, the percentages
disclosed also reflect the value of remuneration consisting of performance rights and options, based on the
value of performance rights or options expensed during the year.
(ii) Mr R Crabb resigned as non-executive Chairman on 25 November 2015.
(iii) Mr R Bomasang resigned as non-executive Director on 25 November 2015.
(iv) Mr D Rich was appointed as Chief Financial Officer and Company Secretary on 28 February 2017 and 31
January 2017 respectively.
(v) Mr C Hasson ceased as Chief Financial Officer on 28 February 2017. At risk - LTI is negative due to reversal of
share-based payments on cessation of employment.
Service agreements
On appointment to the Board, all non-executive Directors enter into a service agreement with the Company in
the form of a letter of appointment. The letter summarises the Board policies and terms, including
remuneration, relevant to the office of Director.
Remuneration and other terms of employment for the Managing Director and Chief Executive Officer, Chief
Financial Officer and other executives are also formalised in service agreements. Each of these service
agreements provide for the provision of performance related cash bonuses, and participation, when eligible, in
the Otto Energy Limited Performance Rights and Employee Share Option Plans. Other major provisions of the
agreements relating to remuneration are set out below.
37
37
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
All contracts with executives may be terminated early by either party with notice, per individual agreement,
subject to termination payments as detailed below.
Name
Mr Matthew Allen
Managing Director and Chief
Executive Officer
Mr Paul Senycia
Vice President Exploration
Manager and New Ventures
Mr David Rich
Chief Financial Officer and
Company Secretary
Mr Matthew Worner
Commercial Manager
Commencement of
contract
24 June 2015
Base salary including
superannuation
$A
$475,000
(i)
Termination
benefit
6 months base salary
(ii)
1 January 2016
$381,000
3 months base salary
9 January 2017
$150,000 (iii)
3 months base salary
9 March 2015
$350,400
1 months base salary
(i) Base salaries quoted are as at 30 June 2017; they are reviewed annually by the Board and the Remuneration
and Nomination Committee.
(ii) Termination benefits are payable on early termination by the Company, other than for gross misconduct.
(iii) Mr Rich’s contract (and hence base salary) is based on 50% of full time with additional hours paid on a pro-
rata basis.
Share-based compensation
Otto Energy Limited has two forms of share based compensation for key management personnel. They are
performance rights and options.
Performance rights over equity instruments granted
Performance rights granted to the key management personnel were granted as remuneration unless otherwise
noted. The rights granted have no exercise price and are exercisable from the date of vesting. Details of vesting
periods are set out at Note 20. All rights expire on the earlier of their expiry date or termination of individual’s
employment. Performance rights granted carry no dividend or voting rights.
The value of rights included in remuneration for the year is calculated in accordance with Australian Accounting
Standards. The assessed fair value at grant date of the performance rights is allocated equally over the period
from grant date to vesting date and the amount is included in the remuneration tables. Where rights vest fully
in the year, the full value of the rights is recognised in remuneration for that year.
The value of performance rights at the grant date is calculated as the fair value of the rights at grant date, using
a hybrid Monte Carlo and Hull-White model, multiplied by the number of rights granted.
No adjustment is made to the value included in remuneration or the financial results where the right ultimately
has a lesser or greater value than as at the date of grant. The inputs into the fair value calculation of the rights
granted and outstanding as at 30 June 2017 are set out in the following table. No performance rights were
granted in the year to 30 June 2017.
38
38
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Year ended 30 June 2017 – TSR based performance rights
1 February
2017 (i)
14 August
2015
31 December
2017 (ii)
1 February
2018
14 August
2015
31 December
2017 (ii)
1 February
2019
14 August
2015
31 December
2017 (ii)
1 February
2017 (i)
23 April
2015
31 December
2019
1 February
2018
23 April
2015
31 December
2019
1 February
2019
23 April
2015
31 December
2019
1 February
2018
3 October
2014
31 December
2018
Measurement date
Grant date
Expiry date
Rights on issue at
year end:
Mr M Allen
Mr P Senycia
Mr M Worner
466,667
466,667
466,666
-
-
-
-
-
-
-
766,667
766,667
766,667
766,667
-
766,666
800,000
766,666
800,000
-
-
Total rights on issue
at year end
Share price at grant
date – A$
Expected volatility
Expected dividend
yield
Risk free rate
Fair value – A$
Total value – A$
466,667
466,667
466,666
1,533,334
1,533,334
1,533,332
1,600,000
0.06
65.2%
Nil
1.96%
0.04
18,667
0.06
60.4%
Nil
1.96%
0.04
18,667
0.06
57.8%
Nil
1.96%
0.04
18,667
0.11
47.7%
Nil
1.95%
0.06
92,000
0.11
51.2%
Nil
1.90%
0.07
0.11
51.2%
Nil
1.90%
0.07
107,333
107,333
0.09
53.2%
Nil
2.60%
0.06
96,000
(i) The measurement date has been rolled forward to 1 February 2018 for the rights on issue at year end except for those held by Mr M
Worner that will be tested at expiry on 31 December 2017 being six months following cessation of employment.
(ii) Expiry date of rights granted to Mr M Worner amended following his resignation on 1 July 2017.
Year ended 30 June 2016 – TSR based performance rights
Measurement
date
Grant date
Expiry date
Rights on issue
at year end:
Mr M Allen
Mr P Senycia
Mr C Hasson
1 February
2017
14 August
2015
31 December
2019
1 February
2018
14 August
2015
31 December
2019
1 February
2019
14 August
2015
31 December
2019
1 February
2017
23 April
2015
31 December
2019
1 February
2018
23 April
2015
31 December
2019
1 February
2019
23 April
2015
31 December
2019
1 February
2016
3 October
2014
31 December
2018
1 February
2017
3 October
2014
31 December
2018
1 February
2018
3 October
2014
31 December
2018
-
-
-
-
-
-
-
-
-
766,667
766,667
766,667
766,667
766,666
766,666
800,000 (i)
800,000 (i)
466,667 (ii)
466,667 (ii)
466,666 (ii)
500,000 (i)
800,000 (i)
800,000 (i)
500,000 (i)
800,000
800,000
500,000 (ii)
Mr M Worner
466,667
466,667
466,666
-
-
-
-
-
-
466,667
466,667
466,666
2,000,001
2,000,001
1,999,998
2,100,000
2,100,000
2,100,000
0.06
0.06
0.06
0.11
0.11
0.11
0.09
65.2%
60.4%
57.8%
47.7%
51.2%
51.2%
51.3%
Nil
1.96%
0.04
Nil
1.96%
0.04
18,667
Nil
1.96%
0.04
18,667
Nil
1.95%
0.06
Nil
1.90%
0.07
Nil
1.90%
0.07
Nil
2.60%
0.05
0.09
52.4%
Nil
2.60%
0.05
0.09
53.2%
Nil
2.60%
0.06
Total value – A$
18,667
120,000
140,000
140,000
105,000
105,000
126,000
Total rights on
issue at year end
Share price at
grant date – A$
Expected
volatility
Expected
dividend yield
Risk free rate
Fair value – A$
(i) These rights vested during the 2017 financial year.
(ii) These rights were forfeited when Mr C Hasson resigned on 28 February 2017.
The expected price volatility is based upon the historic volatility (based on the remaining life of the options),
adjusted for any expected changes to future volatility due to publicly available information.
No cash benefit is received by key management personnel of the Group, until the sale of the resultant shares,
which cannot be done unless and until the rights have vested and the shares issued.
39
39
ANNUAL REPORT 2017 OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
The number of performance rights over ordinary shares held, granted to, vested and/or lapsed/expired by
Directors and executives of Otto Energy Limited as part of compensation during the year ended 30 June 2017 is
set out below.
Key Management
Personnel
Directors
Mr J Jetter
Mr M Allen
Mr I MacIiver
Mr I Boserio
Executives
Mr P Senycia
Mr D Rich
Mr C Hasson
Mr M Worner
Balance at
start of year
Granted as
compensation
Vested and
exercised
Lapsed/
expired
Balance at
end of year
-
4,700,000
-
-
4,700,000
4,700,000
-
2,900,000
1,400,000
9,000,000
-
-
-
-
-
-
-
-
-
-
-
(1,600,000)
-
-
(1,600,000)
-
-
-
-
-
-
3,100,000
-
-
3,100,000
(1,600,000)
-
(1,000,000)
-
(2,600,000)
-
-
(1,900,000)
-
(1,900,000)
3,100,000
-
-
1,400,000
4,500,000
Options over equity instruments granted
Options granted to the Directors and executives are granted as remuneration unless otherwise noted. Options
are issued under the Employee Option Plan. There were no options issued during the financial year.
Shareholding
The number of shares in the Company held during the financial year by key management personnel of the Group,
including their personally related parties, is set out below:
Key Management
Personnel
Balance at
start of year
Granted/
purchased
during the
year
Received through
conversion of
performance rights
during the year
Sold
during
the year
Balance at
end of year
Directors
Mr J Jetter
Mr M Allen
Mr I MacIiver
Mr I Boserio
Executives
Mr P Senycia
Mr D Rich
Mr C Hasson
Mr M Worner
16,089,175
3,643,000
4,549,721
-
24,281,896
1,600,000
-
-
-
1,600,000
500,000
-
-
-
500,000
-
-
-
-
-
-
1,600,000
-
-
1,600,000
1,600,000
-
1,000,000
-
2,600,000
-
-
-
-
-
16,589,175
5,243,000
4,549,721
-
26,381,896
(1,600,000)
-
-
-
(1,600,000)
1,600,000
-
1,000,000 (i)
-
2,600,000
(i) Mr C Hasson’s closing balance is as at 28 February 2017 being his last day of employment.
40
40
ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ REPORT
For the year ended 30 June 2017
Outstanding balances arising from sales/purchases of goods and services
There are no balances outstanding at the end of the reporting period in relation to transactions with key
management personnel and their related parties (2016: nil).
Diversity
Proportion of women employees at 30 June 2017
Whole organisation*
Senior executive positions
Board
Number
2/10
0/4
0/4
Proportion
20%
0%
0%
*Includes three non-executive Directors
Performance rights
Date granted
3 October 2014
23 April 2015
14 August 2015
Date of expiry
31 December 2018
31 December 2019
31 December 2017
Number
1,620,000
4,650,000
1,400,000
7,670,000
No performance right holder has any right under the performance rights to participate in any other share issue
of the Company or any other entity. There were no options on issue at 30 June 2017.
No options or performance rights were granted as remuneration to key management personnel during the year.
Details of performance rights and options granted to key management personnel are disclosed on pages 38 to
40.
This report is made in accordance with a resolution of Directors.
Mr I Macliver
Director
18 September 2017
41
41
ANNUAL REPORT 2017 OTTO ENERGY
AUDITOR’S INDEPENDENCE
DECLARATION
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
Australia
FOR THE YEAR ENDED 30 JUNE 2017
DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF OTTO ENERGY LIMITED
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
As lead auditor of Otto Energy Limited for the year ended 30 June 2017, I declare that, to the best of
Australia
my knowledge and belief, there have been:
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF OTTO ENERGY LIMITED
2. No contraventions of any applicable code of professional conduct in relation to the audit.
As lead auditor of Otto Energy Limited for the year ended 30 June 2017, I declare that, to the best of
my knowledge and belief, there have been:
This declaration is in respect of Otto Energy Limited and the entities it controlled during the period.
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2. No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Otto Energy Limited and the entities it controlled during the period.
Jarrad Prue
Director
BDO Audit (WA) Pty Ltd
Jarrad Prue
Perth, 18 September 2017
Director
BDO Audit (WA) Pty Ltd
Perth, 18 September 2017
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN
77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK
company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under
Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
42
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN
77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK
company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under
Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
ANNUAL REPORT 2017OTTO ENERGY
CONSOLIDATED STATEMENT
OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2017
FOR THE YEAR ENDED 30 JUNE 2017
Note
2017
US$’000
2016
US$’000
Revenue and other income
Profit on disposal of property, plant and equipment
Exploration expenditure
Finance costs
Administration and other expenses
Loss before income tax
Income tax expense
Loss after income tax for the year
Other comprehensive income that may be recycled to
profit or loss
Total other comprehensive income
Total comprehensive loss for the year
Earnings per share
Basic loss per share (US cents)
Diluted loss per share (US cents)
2
3
4
4
6
5
5
139
2
(905)
(48)
(4,374)
(5,186)
(61)
(5,247)
27,093
13
(41,479)
(5,711)
-
(20,084)
(2)
(20,086)
-
(5,247)
-
(20,086)
(0.44)
(0.44)
(1.70)
(1.70)
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
43
43
ANNUAL REPORT 2017 OTTO ENERGY
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
AS AT 30 JUNE 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended 30 June 2017
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
Non-current assets
Oil and gas properties
Property, plant and equipment
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Non-current liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
Note
2017
US$’000
2016
US$’000
7
9
10
11
12
10
13
14
14
15
16
12,199
116
384
12,699
6,272
28
475
6,775
19,474
1,611
317
1,928
241
241
2,169
17,305
20,309
107
414
20,830
2,717
73
-
2,790
23,620
722
197
919
224
224
1,143
22,477
81,895
13,737
(78,327)
17,305
81,895
13,662
(73,080)
22,477
The above consolidated statement of financial position should be read in conjunction with the accompanying
notes.
44
44
ANNUAL REPORT 2017OTTO ENERGY
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Contributed
equity
Share-based
payments
reserve
US$’000
US$’000
Foreign
currency
translation
reserve
US$’000
Balance at 1 July 2015
Loss for the period
Other comprehensive income
Total comprehensive loss for the year
81,104
-
-
-
9,222
-
-
-
Transactions with owners in their
capacity as owners:
Equity benefits issued to employees
Shares issued as consideration for the
acquisition of Borealis Petroleum Pty Ltd
Balance at 30 June 2016
Balance at 1 July 2016
Loss for the period
Other comprehensive income
Total comprehensive loss for the year
Transactions with owners in their
capacity as owners:
Equity benefits issued to employees
Balance at 30 June 2017
-
252
791
81,895
81,895
-
-
-
-
9,474
9,474
-
-
-
Accumulated
losses
Total
US$’000
US$’000
(52,994)
(20,086)
-
(20,086)
41,520
(20,086)
-
(20,086)
-
252
-
(73,080)
(73,080)
(5,247)
-
(5,247)
791
22,477
22,477
(5,247)
-
(5,247)
4,188
-
-
-
-
-
4,188
4,188
-
-
-
-
81,895
75
9,549
-
4,188
-
(78,327)
75
17,305
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes.
45
45
ANNUAL REPORT 2017 OTTO ENERGY
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2017
Note
2017
US$’000
2016
US$’000
Cash flows from operating activities
Funds received from BHPB and Pryce Gases for Hawkeye Well
Receipts from recharges to joint venture
Payments to suppliers and employees
Payments for exploration and evaluation
Interest received
Income tax paid
Other income
Net cash outflow from operating activities
8
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for development and evaluation
Bond for development asset
Net cash outflow from investing activities
Cash flows from financing activities
Transaction costs relating to convertible notes issue
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash
Cash and cash equivalents at the end of the financial year
7
-
-
(4,232)
(659)
113
(61)
24
(4,815)
(4)
2
(2,896)
(175)
(3,073)
(225)
(225)
(8,113)
20,309
3
12,199
26,042
942
(4,554)
(41,150)
82
(2)
-
(18,640)
(6)
34
(2,277)
(2,249)
-
-
-
(20,889)
41,206
(8)
20,309
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
46
46
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
ABOUT THIS REPORT
Otto Energy Limited (referred to as ‘Otto’ or the ‘Company’) is a for-profit entity limited by shares, incorporated
and domiciled in Australia. Its shares are publicly traded on the Australian Securities Exchange. The nature of
operations and principal activities of Otto and its subsidiaries (referred to as the ‘Group’) are described in the
Directors’ Report.
The consolidated general purpose financial report of the Group was authorised for issue in accordance with a
resolution of the Directors on 18 September 2017.
Basis of preparation
The financial report is a general purpose financial report which:
has been prepared in accordance with the requirements of the Corporations Act 2001, Australian
Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards
Board (AASB) and International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB);
has been prepared on a historical cost basis, except for certain financial instruments which have been
measured at fair value;
presents reclassified comparative information where required for consistency with the current year’s
presentation; and
adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are
relevant to the Group and effective for reporting periods beginning on or before 1 July 2016. Refer to
note 27 for further details.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group. A list of controlled
entities (subsidiaries) is contained in note 18.
Subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be
consolidated from the date that control ceases. In preparing the consolidated financial statements, all
intercompany balances and transactions, income and expenses and profits and losses resulting from intra-group
transactions have been eliminated.
Currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of
the primary economic environment in which the entity operates (‘the functional currency’). The consolidated
financial statements are presented in United States dollars, which is Otto Energy Limited’s functional and
presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in profit or loss.
Rounding of amounts
The amounts contained in these financial statements have been rounded to the nearest thousand dollars ($’000)
unless otherwise stated, in accordance with ASIC Instrument 2016/191.
47
47
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
ABOUT THIS REPORT (continued)
Other accounting policies
Significant and other accounting policies that summarise the measurement basis used and are relevant to an
understanding of the financial statements are provided throughout the notes to the consolidated financial
statements.
Key estimates and judgements
In applying the Group’s accounting policies, management has made a number of judgements and applied
estimates of future events. Judgements and estimates which are material to the financial report are found in
the following notes:
Note 6
Note 11
Note 14
Note 20
Income tax
Oil and gas properties
Provisions
Share-based payments
48
48
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
Segment information
Revenue and other income
Exploration expenditure
Financial performance
1.
2.
3.
4. Other expenses
5.
6.
7.
8.
Earnings per share
Income tax
Cash and cash equivalents
Reconciliation of loss after income tax to net cash outflow from
operating activities
Trade and other receivables
Operating assets and liabilities
9.
10. Other assets
11. Oil and gas properties
12. Property, plant and equipment
13. Trade and other payables
14. Provisions
Capital structure, financial instruments and risk
15. Contributed equity
16. Reserves
17. Financial instruments
Interest in joint operations
Other disclosures
18. Subsidiaries
19.
20. Share-based payments
21. Related parties
22. Auditor’s remuneration
23. Contingent liabilities
24. Commitments
25. Events after the reporting period
26. Parent entity disclosures
27. New accounting standards and interpretations
50
51
51
52
52
53
55
55
56
56
57
59
59
59
61
62
62
65
66
66
70
71
71
72
72
74
75
49
49
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
FINANCIAL PERFORMANCE
1. Segment information
The Group has identified its operating segments based on the internal management reports that are reviewed
and used by the executive management team in assessing performance and in determining the allocation of
resources. The operating segments identified by management are based on the geographical locations of the
business which are as follows: Australia, Gulf of Mexico (USA), Alaska (USA) and Other. Discrete financial
information about each of these operating segments is reported to the executive management team on at least
a monthly basis.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Board. Management has
determined that based on the report reviewed by the Board and used to make strategic decisions, the Group
had four reportable segments during 2017.
The prior year financial statements included Tanzania and Philippines as reportable segments due to ongoing
operations in those countries, however during 2017 the Group did not actively operate in the Philippines and
only undertook minor work in Tanzania as there were disputes within the joint venture that led to the Group
withdrawing from the Kilosa-Kilombero JOA in May 2017. The Pangani PSA expired in February 2017. As the
primary focus of the Board and management in 2017 is on the Gulf of Mexico and Alaska, these are considered
the reportable segments. The prior year comparatives have been restated to reflect the 2017 reportable
segments.
The segment information for the reportable segments for the year ended 30 June 2017 is as follows:
2017
Revenue and other income
Profit on disposal of property, plant
and equipment
Exploration expenditure
Finance costs
Administration and other expenses
Loss before income tax
Income tax expense
Loss after income tax for the year
Total non-current assets
Total assets
Total liabilities
Australia
US$’000
137
Gulf of
Mexico
(USA)
US$’000
Alaska
(USA)
Other
Consolidated
US$’000
US$’000
2
-
US$’000
139
-
2
-
(40)
(2,756)
(2,657)
-
(2,657)
328
12,848
660
-
(366)
(8)
(964)
(1,338)
-
(1,338)
6,447
6,447
1,225
-
(267)
-
(31)
(298)
-
(298)
-
7
10
-
(272)
-
(623)
(893)
(61)
(954)
-
172
274
2
(905)
(48)
(4,374)
(5,186)
(61)
(5,247)
6,775
19,474
2,169
50
50
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
1. Segment information (continued)
The segment information for the reportable segments for the year ended 30 June 2016 is as follows:
2016
Revenue and other income
Profit on disposal of property, plant
and equipment
Exploration expenditure
Administration and other expenses
Loss before income tax
Income tax expense
Loss after income tax for the year
Total non-current assets
Total assets
Total liabilities
Australia
US$’000
1,039
Gulf of
Mexico
(USA)
US$’000
-
Alaska
(USA)
Other
Consolidated
US$’000
-
US$’000
26,054
US$’000
27,093
12
-
(2,782)
(1,731)
-
(1,731)
73
20,548
452
(7,897)
-
(230)
(8,127)
-
(8,127)
2,717
2,717
470
(14,910)
-
(66)
(14,976)
-
(14,976)
-
-
-
1
(18,672)
(2,633)
4,750
(2)
4,748
-
355
221
13
(41,479)
(5,711)
(20,084)
(2)
(20,086)
2,790
23,620
1,143
2017
US$’000
2016
US$’000
2. Revenue and other income
Interest income
BHPB reimbursed for Hawkeye expenditure
Farm in option with Pryce Gases
Other income
113
-
-
26
139
82
23,732
2,310
969
27,093
Recognition and measurement
Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised when
it can be reliably measured and when it is probable that economic benefits will flow to the Group.
Interest income is recognised using the effective interest rate method.
3. Exploration expenditure
Exploration expenditure – Gulf of Mexico - Louisiana
Exploration expenditure – Alaska North Slope
Acquisition costs of Borealis – Alaska North Slope (i)
Exploration expenditure – Philippines
Exploration expenditure – Tanzania
2017
US$’000
2016
US$’000
366
267
-
194
78
905
7,897
447
14,463
17,290
1,382
41,479
(i) During the 2016 financial year, Otto acquired an 8% and 10.8% working interest in two areas of the Alaska
North Slope exploration acreage held by Great Bear. Refer to Note 15(a).
51
51
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
3. Exploration expenditure (continued)
Recognition and measurement
Costs incurred in the exploration stages of specific areas of interest are expensed against the profit or loss as
incurred. All exploration expenditure, including general permit activity, geological and geophysical costs, new
venture activity costs and drilling exploration wells, is expensed as incurred. The costs of acquiring interests in
new exploration licences is expensed. Once an exploration discovery has been determined, evaluation and
development expenditure is capitalised to the Consolidated Statement of Financial Position as oil and gas
properties.
4. Other expenses
Finance costs
Amortisation of borrowing costs
Accretion of decommissioning fund
Total finance costs
Administration and other expenses
Employee benefits expense
Defined contribution superannuation expense
Share-based payment expense
Other employee benefits expenses
Depreciation expense
Depreciation expense – furniture and equipment
Other expenses
Corporate and other costs (net of recharges)
Business development
Foreign currency losses
Total administration and other expenses
5. Earnings per share
2017
US$’000
2016
US$’000
40
8
48
178
75
2,108
2,361
48
48
1,417
498
50
1,965
4,374
-
-
-
160
252
2,430
2,842
88
88
2,339
412
30
2,781
5,711
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding
any costs of servicing equity (other than dividends), by the weighted average number of ordinary shares,
adjusted for the bonus element.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential
ordinary shares, and the weighted average number of additional ordinary shares that would have been
outstanding assuming the conversion of all dilutive potential ordinary shares.
52
52
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
5. Earnings per share (continued)
The following table reflects the income and share data used in the basic and diluted EPS calculations:
2017
2016
Loss attributable to owners of the Company (US$’000)
Weighted average number of ordinary shares on issue for basic and
diluted loss per share (number)
Basic and diluted loss per share (US cents)
(5,247)
(20,086)
1,183,556,077
1,179,788,145
(0.44)
(1.70)
Due to the Company reporting a loss for the 2017 and 2016 financial years, the impact of potential shares are
not included in calculating diluted EPS because they are anti-dilutive.
2017
US$’000
2016
US$’000
6.
Income tax
The components of tax expense comprise:
Current tax
Deferred tax – origination and reversal of temporary differences
Prior period under/(over) provision
Reconciliation of income tax expense to prima facie tax payable:
Loss before income tax
Prima facie income tax at 30%
Difference in overseas tax rates
Non-assessable income
Tax effect of amounts not deductible in calculating taxable income
Benefit of deferred tax assets not brought to account
Prior period under/(over) provision
Income tax expense
Deferred tax assets
Other temporary differences
Tax losses - revenue
Tax losses - foreign
Offset against deferred tax liabilities recognised
Deferred tax assets not brought to account
Deferred tax assets brought to account
7
-
54
61
(5,186)
(1,556)
2,041
(1,980)
585
917
54
61
6,052
6,052
903
4,708
11,663
(1,446)
(10,217)
-
2
-
2
-
(20,084)
(6,025)
(4,391)
(7,173)
2,727
14,864
2
-
6,804
6,804
5,843
10,732
23,379
(1,078)
(22,301)
-
53
53
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
6.
Income tax (continued)
Deferred tax liabilities
Other temporary differences
Offset by deferred tax assets recognised
Deferred tax liabilities brought to account
2017
US$’000
2016
US$’000
1,446
(1,446)
1,078
(1,078)
-
Recognition and measurement
The income tax expense for the period is the tax payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
-
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income
tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than
a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted
by the end of the reporting period and are expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount
and tax bases of investments in foreign operations where the Company is able to control the timing of the
reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on
a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised
in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
Key estimates and judgements
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant
judgement is required in determining the worldwide provision for income taxes. There are certain transactions
and calculations undertaken during the ordinary course of business for which the ultimate tax determination is
uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the
final tax outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the current and deferred income tax assets and liabilities in the period in which such determination
is made.
In addition, the Group recognises deferred tax assets relating to carried forward tax losses to the extent there
are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation jurisdiction
and the same subsidiary against which the unused tax losses can be utilised. However, utilisation of the tax
losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped.
54
54
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
7. Cash and cash equivalents
Cash at bank and on hand
2017
US$’000
2016
US$’000
12,199
12,199
20,309
20,309
Recognition and measurement
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-
term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash at bank earns interest at floating rates based on daily bank deposit rates.
8. Reconciliation of loss after income tax to net cash outflow from
operating activities
Loss after income tax
Non-cash items:
Depreciation expense – furniture and equipment
Acquired exploration and working capital through issue of shares
Share-based payments
Amortisation of borrowing costs
Accretion of decommissioning fund
Other non-cash items
Change in assets and liabilities:
(Increase)/decrease in trade and other receivables
Decrease in other assets
Decrease in inventories
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
Net cash outflow from operating activities
2017
US$’000
2016
US$’000
(5,247)
(20,086)
48
-
75
40
8
(5)
(9)
30
-
271
(26)
(4,815)
88
791
252
-
-
(28)
1
182
2,422
(2,326)
64
(18,640)
55
55
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
OPERATING ASSETS AND LIABILITIES
9. Trade and other receivables
Other receivables
Allowance for doubtful debts (i)
2017
US$’000
2016
US$’000
916
(800)
116
107
-
107
Recognition and measurement
Other receivables are initially recognised at fair value and subsequently measured at amortised cost less an
allowance for uncollectible amounts.
Collectability of trade and other receivables is reviewed on an ongoing basis. Debts that are known to be
uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective
evidence that the Group will not be able to collect the debt. Financial difficulties of the debtor, default payments
or debts more than 60 days overdue are considered objective evidence of impairment.
(i)
Included in other receivables in 2017 is $0.8 million receivable from Swala Oil and Gas (Tanzania) Plc relating
to settlement of the various claims and disputes concerning the Pangani licence. This amount has been fully
provided for as the amount was due on 31 August 2017, but had not been received as at the date of this
report.
10. Other assets
Current
Prepayments
Other assets
Non-current
Convertible note transaction costs (i)
Bonds
2017
US$’000
2016
US$’000
73
311
384
300
175
475
102
312
414
-
-
-
(i)
Represents transaction costs incurred before year end in relation to $8.2 million of secured convertible
notes issued subsequent to year end (refer Note 25). This amount will be offset against the convertible
note liability upon issue of the note subsequent to year end.
Recognition and measurement
Other financial assets are initially measured at fair value. Transaction costs are included as part of the initial
measurement, except for financial assets at fair value through profit or loss. They are subsequently measured
at either amortised cost or fair value depending on their classification. Classification is determined based on the
purpose of the acquisition and subsequent reclassification to other categories is restricted. The fair values of
quoted investments are based on current bid prices. For unlisted investments, the Group establishes fair value
by using valuation techniques. These include the use of recent arm's length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis, and option pricing models.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired
or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
56
56
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
10. Other assets (continued)
Impairment of financial assets
The Group assesses at the end of each reporting period whether there is any objective evidence that a financial
asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the
issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a
borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes
probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an
active market for the financial asset; or observable data indicating that there is a measurable decrease in
estimated future cash flows.
The amount of the impairment allowance for financial assets carried at cost is the difference between the asset’s
carrying amount and the present value of estimated future cash flows, discounted at the current market rate of
return for similar financial assets.
11. Oil and gas properties
Development and evaluation assets
At cost
Balance at beginning of year
Expenditure for the year
Balance at end of year
2017
US$’000
2016
US$’000
2,717
3,555
6,272
-
2,717
2,717
All capitalised development and evaluation costs as at 30 June 2017 relate to the SM 71 oil development in the
Gulf of Mexico (including provision for decommissioning).
Recognition and measurement
i) Producing and development assets
Producing projects are stated at cost less accumulated amortisation and impairment charges. Producing projects
include evaluation, construction, installation or completion of production and infrastructure facilities such as
platforms and pipelines, development wells, acquired development or producing assets, capitalised borrowing
costs and the estimated costs of decommissioning, dismantling and restoration. Evaluation is deemed to be
activities undertaken from the beginning of the definitive feasibility study or testing conducted to assess the
technical commercial viability of extracting a resource before moving into the development phase.
Once an exploration discovery has been determined, subsequent evaluation and development expenditure is
capitalised to the Consolidated Statement of Financial Position as oil and gas properties as it is probable that
future economic benefits associated with the item will flow to the Group. Once such costs are capitalised as oil
and gas properties, they will be tested for impairment and assessed for impairment indicators for periods
thereafter.
The carrying value of oil and gas properties is reviewed annually by directors to ensure it is not in excess of the
recoverable amount. This assessment is based on key estimates, the most significant of which are estimated
hydrocarbon reserves, future production profiles, commodity prices, operating costs and any future
development costs necessary to produce the reserves.
ii) Prepaid drilling and completion costs
Where the Company has a non-operated interest in an oil or gas property, it may periodically be required to
make a cash contribution for its share of the Operator’s estimated drilling and/or completion costs, in advance
of these operations taking place.
57
57
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
11. Oil and gas properties (continued)
Recognition and measurement (continued)
ii) Prepaid drilling and completion costs (continued)
Where these contributions relate to a prepayment for exploratory or early stage drilling activity, prior to a
decision on the commerciality of a well having been made, the costs are expensed in profit or loss as cash call
paid. The Operator notifies the Company as to how funds have been expended and any relevant costs are
reclassified from exploration expense and capitalised to deferred oil and gas properties.
Where these contributions relate to a prepayment for well completion, these costs are capitalised as prepaid
completion costs within oil and gas properties.
iii) Commencement of production
When a well demonstrates commercial feasibility or comes into commercial production, accumulated
development and evaluation expenditure for the relevant area of interest is amortised on a units of production
basis.
iv) Amortisation and depreciation of producing projects
The Group uses the units of production (UOP) approach when amortising and depreciating field-specific assets.
Using this method of amortisation and depreciation requires the Group to compare the actual volume of
production to the reserves and then to apply this determined rate of depletion to the carrying value of the
depreciable asset.
Capitalised producing project costs relating to commercially producing wells are depreciated/amortised using
the UOP basis once commercial quantities are being produced within an area of interest. The reserves used in
these calculations are the proved plus probable reserves and are reviewed at least annually.
Key estimates and judgements
Carrying value of oil and gas assets
Judgement is required to determine when an exploration activity ceases and an evaluation or development
activity commences. Evaluation is deemed to be activities undertaken from the beginning of the definitive
feasibility study or testing conducted to assess the technical commercial viability of extracting a resource before
moving into the development phase. Development includes development wells, construction and installation or
completion of production and infrastructure facilities such as platforms and pipelines.
Circumstances vary for each area of interest and where exploration, evaluation and development activities are
conducted within a continual timeframe as part of the same project or drilling campaign with common service
providers, a degree of estimation is required in determining the amount of costs capitalised as evaluation and
development assets under oil and gas properties.
Assessment of costs associated with non-operated interests is also influenced by notification from the Operator
as to how funds have been expended.
Impairment
Assets are tested for impairment in line with the accounting policies disclosed in Note 11(i) whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating
units).
At 30 June 2017, the Group has assessed the SM 71 cash-generating unit and determined that no impairment
indicators existed.
58
58
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
12. Property, plant and equipment
Recognition and measurement
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over
their estimated useful lives. The following estimated useful lives are used in the calculation of depreciation:
Plant and equipment
Furniture and equipment
5 years
3 - 10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the
asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are
included in profit or loss. When revalued assets are sold, it is Group policy to transfer any amounts included in
other reserves in respect of those assets to retained earnings.
13. Trade and other payables
Trade payables
2017
US$’000
2016
US$’000
1,611
1,611
722
722
Recognition and measurement
Trade payables are initially recognised at their fair value and subsequently measured at amortised cost. They
represent liabilities for goods and services provided to the Group prior to the end of the financial year that are
unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these
goods and services. The amounts are unsecured and generally paid within 30 days of recognition.
14. Provisions
Current
Employee benefits
Decommissioning fund (ii)
Non-current
Employee benefits (i)
Decommissioning fund (ii)
2017
US$’000
2016
US$’000
197
120
317
3
238
241
197
-
197
29
195
224
(i)
(ii)
The non-current provision for employee benefits includes amounts not expected to be settled within the
next 12 months.
The total present value of the estimated expenditure required to decommission the wells for the permit
SM 6 and SM 71. The expenditure is expected to be settled at the end of the field life for the 2P production
profile for SM 71 and in 2017 for SM 6.
59
59
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
14. Provisions (continued)
Recognition and measurement
Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and
long service leave when it is probable that settlement will be required and they are capable of being measured
reliably.
Liabilities recognised in respect of employee benefits expected to be settled within 12 months are measured at
their nominal values using the remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are
measured as the present value of the estimated future cash outflows to be made by the Group in respect of
services provided by employees up to reporting date.
Contributions to superannuation plans are expensed when incurred.
Decommissioning fund
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past
events, it is probable that the Group will be required to settle the obligation and the amount of the provision
can be measured reliably.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where
a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is
the present value of those cash flows. The unwinding of the discount is expensed as incurred and recognised in
the Consolidated Statement of Profit or Loss and Other Comprehensive Income as a finance cost.
Provision is made for the estimated cost of legal and constructive obligations to restore operating locations in
the period in which the obligation arises. The estimated costs are capitalised as part of the cost of the related
project where recognition occurs upon acquisition of an interest in the operating locations. The carrying amount
capitalised is amortised on a unit of production basis during the production phase of the project.
Work scope and cost estimates for restoration are reviewed annually and adjusted to reflect the expected cost
of restoration. The Group accounts for changes in cost estimates on a prospective basis.
Key estimates and judgements
Decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group’s
facilities and properties. The Group assesses its decommissioning provision at each reporting date. The ultimate
decommissioning costs are uncertain and cost estimates can vary in response to many factors, including changes
to relevant legal requirements, the emergence of new restoration techniques or experience at other production
sites. The expected timing, extent and amount of expense can also change. Therefore, significant estimates and
assumptions are made in determining the provision for decommissioning. As a result, there could be significant
adjustments to the provisions established which would affect future financial results. The provision at reporting
date represents management’s best estimate of the present value of the future decommissioning costs required.
60
60
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
CAPITAL STRUCTURE, FINANCIAL INSTRUMENTS AND RISK
15. Contributed equity
a) Share capital
Balance at beginning of year
Shares issued on exercise of
performance rights
Fully paid ordinary shares issued (i)
Balance at end of year
2017
Number
1,181,908,323
2016
Number
2017
US$’000
2016
US$’000
1,164,290,071
81,895
81,104
4,390,001
-
1,186,298,324
100,002
17,518,250
1,181,908,323
-
-
81,895
-
791
81,895
(i)
On 12 August 2015, 17,518,250 fully paid ordinary shares were issued at AUD$0.0685 per share as
consideration for the acquisition of Borealis Petroleum Pty Ltd.
b) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company
in proportion to the number and amount paid on the shares held. On a show of hands every holder of ordinary
shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled
to one vote. The ordinary shares have no par value and the Company does not have a limited amount of
authorised capital.
c) Options
Information relating to the Otto Energy Employee Option Plan, including details of options issued, exercised and
lapsed during the financial year and options outstanding at the end of the reporting period, is set out in Note
20.
d) Performance rights
Information relating to the Otto Energy Employee Performance Rights Plan, including details of performance
rights issued, exercised and lapsed during the financial year and performance rights outstanding at the end of
the reporting period, is set out in Note 20.
Recognition and measurement
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
61
61
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
16. Reserves
Share-based payments reserve
Foreign currency translation reserve
Share-based payments reserve
Balance at beginning of year
Share-based payment expense
Balance at end of year
Foreign currency translation reserve
Balance at beginning of year
Balance at end of year
2017
US$’000
2016
US$’000
9,549
4,188
13,737
9,474
75
9,549
4,188
4,188
9,474
4,188
13,662
9,222
252
9,474
4,188
4,188
The share-based payments reserve is used to recognise the value of share-based payments provided to
employees (including key management personnel) as part of their remuneration, and share options and
performance rights issued as part of consideration for acquisitions. Refer to Note 20 for further details of these
plans.
The foreign currency translation reserve is used to record currency differences arising from the translation of
the financial statements of foreign operations.
17. Financial instruments
The Group is exposed to market risk, credit risk and liquidity risk. The Group’s overall risk management program
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the
financial performance of the Group. The Group uses different methods to measure different types of risk to
which it is exposed.
Otto’s Board of Directors (‘Board’) is responsible for approving Otto’s policies on risk oversight and management
and ensuring management has developed and implemented effective risk management and internal controls.
Risk management is carried out by the senior executives under these policies which have been approved by the
Board. Management identifies, evaluates and, if necessary, hedges financial risks within the Group’s operating
units. The Board then receives reports as required from the Chief Financial Officer in which they review the
effectiveness of the processes implemented and appropriateness of policies it sets. Currently, the Group does
not apply any form of hedge accounting.
a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risk for the Group comprises three types of risk: currency risk, interest rate
risk and commodity price risk.
62
62
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
17.
Financial instruments (continued)
a) Market risk (continued)
i)
Currency risk
The Group’s source currency for the majority of revenue and costs is in US dollars. Given the location of the
group’s offices and operations there is a small exposure to foreign exchange risk arising from the fluctuations in
the US dollar and Australian dollar on cash balances and monetary items at year end.
Currency risk arises where the value of a financial instrument or monetary item fluctuates due to changes in
foreign currency. The exposure to currency risk is measured using sensitivity analysis and cash flow forecasting.
The Board has formed the view that it would not be beneficial for the Group to purchase forward contracts or
other derivative financial instruments to hedge this currency risk. Factors which the Board considered in arriving
at this position included the expense of purchasing such instruments and the inherent difficulties associated
with forecasting the timing and quantum of cash inflows and outflows compared to the relatively low volume
and value of commercial transactions and monetary items denominated in a currency which is not US dollars.
A hypothetical change of 10% (2016: 10%) in the Australian dollar exchange rate was used to calculate the
Group’s sensitivity to foreign exchange rates movements, as this is management’s estimate of possible rate
movements over the coming year taking into account current market conditions and past volatility. At 30 June
2017, management has assessed that the entity’s exposure to foreign exchange movements is immaterial and
therefore no further analysis is provided.
ii)
Interest rate risk
Interest rate risk is the risk that the Group’s financial position will fluctuate due to changes in market interest
rates. The Group’s exposure to the risk of changes in the market interest rates relates to cash and cash
equivalents held with financial institutions. The convertible notes facility that the Group has entered into
subsequent to year end has a fixed interest rate so is not exposed to interest rate risk.
The financial instruments exposed to movements in variable interest rates are as follows:
Cash and cash equivalents
2017
US$’000
2016
US$’000
12,199
12,199
20,309
20,309
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.
The 1.0% sensitivity is based on reasonably possible changes, over a financial year, using an observed range of
historical short term deposit rate movements over the last 3 years.
Judgements of reasonably possible movements
Increase 100 basis points
Decrease 100 basis points
Effect on post tax losses
Increase/(decrease)
2017
US$’000
2016
US$’000
122
(122)
203
(203)
63
63
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
17.
Financial instruments (continued)
a) Market risk (continued)
iii) Commodity price risk
As the Group is currently not generating revenue from oil and gas production it is not directly exposed to
commodity price risk. However during the year the Group has invested in the SM 71 oil development in the Gulf
of Mexico, USA and will continue to invest in the development with production expected to commence in
January 2018. Upon the commencement of production, the Group’s revenue will be exposed to oil price
fluctuations.
Exposure to oil price risk is measured by monitoring and stress testing the Group’s forecast financial position
against sustained periods of low oil prices. This analysis is regularly performed on the Group’s portfolio and, as
required, for discrete projects and acquisitions.
Commodity hedging may be undertaken where the Board of Directors determines that a hedging strategy is
appropriate to mitigate potential periods of adverse movements in commodity price. This will be balanced
against the desire to expose shareholders to oil price upside. Commodity hedging may also be undertaken when
there is a hedging requirement under a lending facility.
b) Credit risk
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that
will result in a financial loss to the Group. Credit risk arises from the financial assets of the Group, which comprise
trade and other receivables and deposits with banks and financial institutions.
To manage credit risk from cash and cash equivalents, it is the Group’s policy to only deposit with banks
maintaining a minimum independent rating of ‘AA’, ‘A+’ or ‘A-‘. Production is expected to commence at SM 71
in January 2018 and the Group intends to only sell oil and gas to creditworthy customers and counterparties.
Receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts
in the ordinary course of business is not significant.
The maximum exposure to credit risk at reporting date was as follows:
Cash and cash equivalents
Trade and other receivables
c)
Liquidity risk
2017
US$’000
2016
US$’000
12,199
116
12,315
20,309
107
20,416
Liquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset.
It is the policy of the Board to ensure that the Group is able to meet its financial obligations and maintain the
flexibility to pursue attractive investment opportunities through the Group maintaining sufficient working
capital and access to further funding when required through debt, equity or other means.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows with scenario
analysis. As at reporting date the Group had sufficient cash reserves to meet its current requirements.
64
64
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
17.
Financial instruments (continued)
c)
Liquidity risk (continued)
The contractual maturity analysis of payables at the reporting date was as follows:
Trade and other payables
2017
2016
Total
US$’000
Less than 1
year
US$’000
Between 1-2
years
US$’000
Between 2-5
years
US$’000
1,611
722
1,611
722
-
-
-
-
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the
potential return to shareholders through the optimisation of the debt and equity balance.
The capital structure of the Group is entirely equity at year end (2016: 100% equity). In determining the funding
mix of debt and equity (total borrowings/total equity), consideration is given to the relative impact of the gearing
ratio on the ability of the Group to service interest and repayment schedules, credit facility covenants and also
to generate adequate free cash available for corporate and oil and gas exploration, development and production
activities. The debt to equity ratio is 0% as at 30 June 2017 (2016: 0%). Subsequent to year end, the Group has
raised $8.2 million through the issue of convertible notes. Refer to Note 25 for further details.
The Group may consider raising capital when an opportunity to invest in a business or company was seen as
value adding relative to the company's current share price at the time of the investment.
OTHER DISCLOSURES
18. Subsidiaries
Significant investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following principal
subsidiaries:
Subsidiaries of Otto Energy Limited
Otto Energy (Tanzania) Pty Limited
Otto Energy Investments Limited
Otto Energy Philippines Inc
Otto Energy (Galoc Investment 1) Aps
Otto Energy (Galoc Investment 2) Aps
GPC Investments SA
Borealis Petroleum Pty Ltd
Borealis Alaska LLC
Otto Energy (USA) Inc
Otto Energy (Louisiana) LLC
Otto Energy (Gulf One) LLC (ii)
Otto Energy (Gulf Two) LLC (ii)
Country of
incorporation
Functional
currency
Class of
shares
Australia
Bermuda
Philippines
Denmark
Denmark
Switzerland
Australia
USA
USA
USA
USA
USA
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
(i) The proportion of ownership interest is equal to the proportion of voting power held.
(ii) Otto Energy (Gulf One) LLC and Otto Energy (Gulf Two) LLC were incorporated on 26 April 2017.
Equity holding (i)
2016
2017
(%)
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
-
100
65
65
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
19. Interest in joint operations
a)
Joint operations
The Group’s share of the assets, liabilities, revenues and expenses of joint arrangement operations have been
incorporated into the financial statements in the appropriate items of the Consolidated Statement of Profit or
Loss and Other Comprehensive Income and Consolidated Statement of Financial Position.
The Group’s interest in joint arrangement assets is detailed below. Exploration is the principal activity
performed across these assets.
Asset
South Marsh Island 70/71
Bivouac Peak
Onshore North Slope
Service Contract 55
Kilosa-Kilombero
Pangani
Country
USA
USA
USA
Philippines
Tanzania
Tanzania
2017
Group interest
50%
45% (i)
8 – 10.8%
68.18% (ii)
- (iii)
- (iv)
2016
Group interest
50%
45%
8 – 10.8%
68.18%
50%
50%
(i) Otto has the right to earn a 45% working interest in the Bivouac Peak lease by drilling 1 exploration well.
(ii) As at 30 June 2017, an agreement has been signed to transfer the permit to existing joint venture partners
but this has not yet been approved by the DOE.
(iii) Under an agreement signed on 25 May 2017, Otto Energy (Tanzania) Pty Ltd (OET) withdrew from the Kilosa-
Kilomero joint venture and Swala Oil and Gas (Tanzania) PLC assumed the rights and obligations in respect
of OET's 50% participating interest.
(iv) Pangani PSA expired on 20 February 2017.
b) Commitments through joint operations
The aggregate of the Group’s commitments through jointly controlled assets is as follows:
Exploration expenditure commitments – not later than 1 year
Capital expenditure commitments – not later than 1 year
20. Share-based payments
a)
Employee share option plan
2017
US$’000
2016
US$’000
2,600
2,956
5,556
8,600
-
8,600
The establishment of the Employee Share Option Plan was approved by shareholders at the 2013 Annual General
Meeting and again at the 2016 Annual General Meeting. The Employee Share Option Plan is designed to provide
long term incentives for senior managers and employees to deliver long term shareholder returns. Under the
plan, participants are granted options at the Board’s discretion and no individual has a contractual right to
participate in the plan or to receive any guaranteed benefits. Options granted under the plan carry no dividend
or voting rights.
The exercise price of options is based on the weighted average price at which the Company’s shares are traded
on the Australian Securities Exchange (ASX) during the week up to and including the date of the grant. An option
may only be exercised after that option has vested and any other conditions imposed by the Board on exercise
are satisfied. Options are granted under the plan for no consideration. Options granted under the plan carry no
dividend or voting rights.
66
66
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
20. Share-based payments (continued)
a)
Employee share option plan (continued)
Set out below are summaries of share options granted under the Employee Share Option Plan:
Grant
date
2017
2 Dec 2013
Exercise
price
Balance
at start
of the
year
Granted
during the
year
Exercised
during the
year
Expired/
forfeited
during the
year
Balance
at end of
the year
Vested and
exercisable
at end of
the year
A$
Number
Number
Number
Number
Number
Number
Expiry
date
2 Dec 2016
0.0549
8,000,000
Weighted average exercise price – A$
0.055
2016
2 Dec 2013
2 Dec 2016
0.0549
8,000,000
Weighted average exercise price – A$
0.055
-
-
-
(8,000,000)
-
-
-
-
-
-
8,000,000
0.055
8,000,000
0.055
The Company has not granted any options during the 2017 or 2016 financial years. During the year ended 30
June 2017, 8,000,000 (2016: nil) options expired.
The weighted average remaining contractual life of share options outstanding at 30 June 2017 was nil (2016:
0.42 years).
b) Performance rights
The Performance Rights Plan was approved by shareholders at the 2013 Annual General Meeting and again at
the 2016 Annual General Meeting. The Performance Rights Plan is designed to provide long term incentives for
senior managers and employees to deliver long term shareholder returns. Participation in the plan is at the
Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed
benefits.
The amount of performance rights that will vest depends on vesting period and/or Otto Energy Limited’s TSR,
including share price growth, dividends, and capital returns. Once vested, the performance rights are
automatically converted to shares. If the vesting condition is not met on a measurement date (no rights vest),
the performance rights will not lapse and will continue to exist as unvested performance rights to be retested
at the next measurement date or expiry date, whichever is later. Performance rights are granted under the plan
for no consideration.
Rights granted under the plan carry no dividend or voting rights.
67
67
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
20. Share-based payments (continued)
b) Performance rights (continued)
Set out below are summaries of rights granted under the Performance Rights Plan:
2017
Fair value
on date of
issue
Balance at
start of the
year
Grant date
3 Oct 2014
Expiry date
31 Dec 2018
3 Oct 2014
31 Dec 2018
23 Apr 2015
31 Dec 2019
23 Apr 2015
31 Dec 2019
23 Apr 2015
31 Dec 2019
23 Apr 2015
31 Dec 2019
14 Aug 2015
31 Dec 2017 (i)
Total
Weighted average exercise price – A$
A$
0.05
0.06
0.06
0.07
0.08
0.09
0.04
Number
4,500,000
2,299,998
2,079,170
4,237,497
79,167
79,166
1,400,000
14,674,998
0.058
Rights
issued
during the
year
Number
-
-
-
-
-
-
-
-
-
Exercised/
vested
Lapsed/
expired
Balance at
end of the
year
Number
Number
Number
(4,286,667)
(43,333)
-
-
-
(60,001)
-
(203,333)
(646,665)
(535,836)
(1,140,831)
(69,167)
(19,165)
-
(4,390,001)
(2,614,997)
0.051
0.064
10,000
1,610,000
1,543,334
3,096,666
10,000
-
1,400,000
7,670,000
0.060
(i) Expiry date of rights granted to M.Worner amended per the plan rules following cessation of his
employment on 1 July 2017.
2016
Fair value
on date of
issue
Balance at
start of the
year
Grant date
3 Oct 2014
Expiry date
31 Dec 2018
3 Oct 2014
31 Dec 2018
3 Oct 2014
31 Dec 2018
23 Apr 2015
31 Dec 2019
23 Apr 2015
31 Dec 2019
23 Apr 2015
31 Dec 2019
23 Apr 2015
31 Dec 2019
14 Aug 2015
31 Dec 2019
Total
A$
0.05
0.06
0.07
0.06
0.07
0.08
0.09
0.04
Rights
issued
during the
year
Number
-
-
-
-
-
-
-
-
1,400,000
Number
4,700,000
2,433,330
166,670
2,079,170
4,237,497
79,167
79,166
Exercised/
vested
Lapsed/
expired
Balance at
end of the
year
Number
Number
Number
-
-
(100,002)
(200,000)
(133,332)
(66,668)
-
-
-
-
-
-
-
-
-
-
4,500,000
2,299,998
-
2,079,170
4,237,497
79,167
79,166
1,400,000
13,775,000
1,400,000
(100,002)
(400,000)
14,674,998
Weighted average exercise price – A$
0.060
0.040
0.070
0.057
0.058
68
68
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
20. Share-based payments (continued)
b) Performance rights (continued)
The fair value of the performance rights granted under the Plan is estimated at the date of grant using the Black-
Scholes valuation model. The following table lists inputs to the models used for the year ended 30 June 2016.
Total Return on Shareholders (‘TSR’) based performance rights
Measurement date
Grant date
Expiry date
Share price at grant date – A$
Expected volatility
Expected dividend yield
Risk free rate
Fair value – A$
1 Feb 2017
14 Aug 2015
31 Dec 2017
0.06
65.2%
Nil
1.96%
0.04
1 Feb 2018
14 Aug 2015
31 Dec 2017
0.06
60.4%
Nil
1.96%
0.04
1 Feb 2019
14 Aug 2015
31 Dec 2017
0.06
57.8%
Nil
1.96%
0.04
The Company has not granted any performance rights during the 2017 financial year.
The weighted average remaining contractual life of performance rights outstanding at 30 June 2017 was 1.9
years (2016: 3.0 years).
The expected price volatility is based on the historic volatility (based on the remaining life of the rights), adjusted
for any expected changes to future volatility due to publicly available information.
For the year ended 30 June 2017, the Group recognised share-based payments expense of $75,351 in the
Consolidated Statement of Profit or Loss and Other Comprehensive Income (2016: $252,201).
Recognition and measurement
The Group has provided benefits to its employees and key management personnel in the form of share-based
payments, whereby services were rendered partly or wholly in exchange for shares or rights over shares. The
Board has also approved the grant of options or performance rights as incentives to attract employees and to
maintain their long-term commitment to the Company. These benefits were awarded at the discretion of the
Board, or following approval by shareholders (equity-settled transactions).
The costs of these equity-settled transactions are measured by reference to the fair value of the equity
instruments at the date on which they are granted. The fair value of performance rights granted is determined
using a hybrid Monte Carlo and Hull-White model. The fair value of options granted is determined by using a
Black-Scholes option pricing technique.
The costs of these equity-settled transactions is recognised, together with a corresponding increase in equity,
over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on
the date on which the relevant employees become fully entitled to the equity instrument (vesting date).
At each subsequent reporting date until vesting, the cumulative charge to the Consolidated Statement of Profit
or Loss and Other Comprehensive Income is the product of (i) the fair value at grant date of the award; (ii) the
current best estimate of the number of equity instruments that will vest, taking into account such factors as the
likelihood of employee turnover during the vesting period and the likelihood of non-market performance
conditions being met and (iii) the expired portion of the vesting period.
69
69
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
20. Share-based payments (continued)
b) Performance rights (continued)
Recognition and measurement (continued)
The charge to the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the period is
the cumulative amount as calculated above less the amounts already charged in previous periods. There is a
corresponding credit to equity.
Until an equity instrument has vested, any amounts recorded are contingent and will be adjusted if more or
fewer equity instruments vest than were originally anticipated to do so. Any equity instrument subject to a
market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided
that all other conditions are satisfied.
If the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had
not been modified. An additional expense is recognised for any modification that increases the total fair value
of the share-based payment arrangement, or is otherwise beneficial to the recipient of the award, as measured
at the date of modification.
If an equity-settled transaction is cancelled (other than a grant cancelled by forfeiture when the vesting
conditions are not satisfied), it is treated as if it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a new equity instrument is substituted for the
cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new
equity instrument are treated as if they were a modification of the original award, as described in the preceding
paragraph.
Key estimates and judgements
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date at which they are granted. The fair value is determined by using either a hybrid
Monte Carlo and Hull-White model or the Black-Scholes model taking into account the terms and conditions
upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled
share-based payments would have no impact on the carrying amounts of assets and liabilities within the next
annual reporting period but may impact profit or loss and equity.
21. Related parties
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other benefits
Termination benefits
Share-based payments
Total USD
Total AUD equivalent
2017
US$
2016
US$
1,277,350
120,903
4,914
167,893
91,861
1,662,921
2,188,967
1,595,673
102,105
7,210
-
251,387
1,956,375
2,652,759
Detailed remuneration disclosures are provided in the remuneration report on pages 31 to 41.
70
70
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
21. Related parties (continued)
Transactions with key management personnel
On 10 May 2017 the Company entered into a sub-lease agreement with Pathfinder Energy Pty Ltd, a company
of which Mr Ian Boserio is a Director. The sub-lease is for a term of 6 months and is in relation to office premises
at 32 Delhi Street, West Perth. A fee of A$2,100 per month is payable. There were no amounts outstanding at
balance date.
22. Auditor’s remuneration
During the year the following fees were paid or payable for services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
BDO Australia
Audit and review of financial statements
Other assurance services
Tax compliance services
Tax consulting and tax advice
Remuneration services
Total remuneration of BDO Australia
Network firms of BDO Australia
Audit and review of financial statements
Tax compliance services
International tax consulting
Total remuneration of network firms of BDO Australia
Non-BDO
Audit and review of financial statements
Tax compliance services
Total remuneration of non-BDO audit firms
Total auditors’ remuneration
2017
US$
2016
US$
36,941
43,717
28,687
-
18,970
-
84,598
35,580
18,000
4,211
57,791
6,556
4,950
11,506
153,895
23,805
198
25,558
7,048
100,326
12,725
-
356
13,081
68,276
-
68,276
181,683
It is the Group’s policy to employ BDO on assignments additional to their statutory audit duties where BDO’s
expertise and experience with the Group are important. These assignments are principally tax advice and due
diligence reporting on acquisitions, or where BDO is awarded assignments on a competitive basis. It is the
Group’s policy to seek competitive tenders for all major consulting projects.
23. Contingent liabilities
Pangani PSA
In 2016 the Joint Venture applied to relinquish the Pangani PSA in Tanzania without conducting further work.
The regulator is processing this request and final Government agreement to terminate the PSA is expected to
be imminent. The Pangani PSA contains a minimum work commitment to drill 1 exploration well with a minimum
spend of US$3,000,000 (OEL share). A thorough technical analysis of Pangani data showed no structures of
commercial interest and the PSA is expected to be terminated without the need for further activity.
71
71
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
24. Commitments
a)
Exploration expenditure commitments
Exploration expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
2017
US$’000
2016
US$’000
2,600
2,600
8,600
8,600
b) Capital expenditure commitments
Capital expenditure committed to at reporting date but not recognised as liabilities are as follows:
Not later than 1 year
c)
Lease commitments
2017
US$’000
2016
US$’000
2,956
2,956
-
-
The Group leases its corporate offices under a non-cancellable operating lease. The lease has varying terms,
including escalation and renewal rights.
Commitments for minimum lease payments in relation to non
follows:
Not later than 1 year
Later than 1 year but not later than 5 years
cancellable operating leases are payable as
‑
2017
US$’000
2016
US$’000
268
-
268
326
267
593
Recognition and measurement
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as
lessee are classified as operating leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
Commitments are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
25. Events after the reporting period
Convertible notes issue
On 29 May 2017 the Company announced that it had entered into binding agreements to raise $8.2 million via
an issue of secured convertible notes to Molton Holdings Limited, a major Otto shareholder ($8 million), and Mr
John Jetter, Otto’s Chairman ($0.2 million). Key terms of the convertible notes are set out in the notice of
meeting released to the ASX on 23 June 2017. Funds raised via the issue will be used to develop Otto’s SM 71
oil project.
On 25 July 2017 a general meeting of shareholders approved the issue of the notes. The funds were received
and the notes issued on 2 August 2017.
72
72
ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
25. Events after the reporting period (continued)
Exploration – farm in to ST 224
On 3 July 2017 Otto announced it had farmed into the South Timbalier 224 (‘ST 224’) lease in the Gulf of Mexico
shelf. Under the terms of the participation agreement, Otto will be required to fund 25% of the initial test well
in the ST 224 lease (up to casing point) to earn a 25% working interest. The financial commitment is currently
estimated at $2.7 million (Otto share of dry hole costs). Otto has since paid $56,250 in back costs.
ST 224 contains a large, amplitude supported, high CGR, gas condensate exploration prospect located in the
prolific Bul. 1 trend. The operator, respected and experienced GOM focused company W&T Offshore Inc., has
commenced the well permitting process and secured the Enterprise Offshore 264 jack-up drilling rig to drill the
prospect in late 2017.
SM 71 oil development
Since 30 June 2017 the following material events have occurred in relation to the SM 71 oil development in the
Gulf of Mexico (Otto 50% working interest):
•
•
The Bureau of Safety and Environmental Enforcement (‘BSEE’) approved an extension of the lease term over
SM 71 through to 30 November 2017 based on a submitted activity schedule. Under the approved activity
schedule, operations for drilling of SM 71 #2 well and completion of SM 71 #1 well are expected to
commence before the end of November.
Hurricane Harvey passed through the Houston area beginning on 25 August 2017 producing a deluge of rain
and high winds in the Galveston area over a five-day period. The operator of the SM 71 project, Byron Energy
Ltd (Byron, ASX: BYE), reported that on 30 August 2017 construction operations had resumed at the Laredo
Construction yard in Galveston, Texas after the passage of Hurricane Harvey. There were no reports of major
injury or significant damage at the yard.
• On 12 September 2017 Otto announced that a drilling contract had been signed by Byron with Ensco Plc for
the Ensco 68 jack-up rig to carry out the SM 71 drilling and completion program. The Ensco 68 will be
available before the end of November 2017 to follow the installation of the tripod production facility on the
lease. The contract will allow the joint venture to drill the SM 71 F2 well and then complete the SM 71 F2
and SM 71 F1 (previously referred to as SM 71 #1) wells.
•
Since year end Otto has approved an Authority for Expenditure (AFE) totalling $1,576,850 (Otto 50% share)
for the SM 71 pipeline installation, facility installation, hookup and commissioning. This amount is not
included in the commitments note in the financial statements.
Swala settlement
Under a settlement agreement signed on 25 May 2017 with Swala Oil and Gas (Tanzania) Plc (Swala) in relation
to the Pangani Licence in Tanzania, Swala agreed to pay Otto $800,000 on or before 31 August 2017. As at the
date of this report no payment has been received from Swala. In accordance with the terms of the settlement
agreement, Otto has applied to the Federal Court for judgment against Swala in the amount of $800,000 plus
costs and interest. The $800,000 receivable has been fully provided for as a doubtful debt in the financial
statements.
No other matters or circumstances have arisen since 30 June 2017 that has significantly affected, or may
significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in
future financial years.
73
73
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
26. Parent entity disclosures
As at, and throughout the financial year ended 30 June 2017, the parent company of the Group was Otto Energy
Limited.
Summarised statement of profit or loss and other comprehensive
income
Loss for the year after tax
Total comprehensive loss for the year
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprises:
Share capital
Share based payments reserves
Foreign currency translation reserve
Accumulated losses
Total equity
Parent entity
2017
US$’000
2016
US$’000
(3,419)
(3,419)
(3,896)
(3,896)
12,519
25,367
37,886
672
3
675
20,381
20,491
40,872
337
29
366
37,211
40,506
81,895
9,549
118
(54,351)
37,211
81,895
9,474
118
(50,981)
40,506
Guarantees entered into by the parent in relation to the debts of its subsidiaries
Parent company guarantees are extended on a case by case basis. Otto Energy Limited has provided a number
of performance guarantees for subsidiaries under the terms of joint operations operating agreements,
participation agreements and agreements with Governments pertaining to oil & gas exploration.
Otto Energy Limited has a guarantee in place to Byron Energy Inc, for the performance of Otto Energy
(Louisiana) LLC’s obligations in relation to SM 6, SM 70, SM 71 and Bivouac Peak.
Otto Energy Limited has an undertaking in place to ensure that Otto Energy (Tanzania) Pty Ltd meets its
obligations under the Pangani Production Sharing Agreement in Tanzania.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016.
74
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ANNUAL REPORT 2017OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
26. Parent entity disclosures (continued)
Commitments
The parent entity had no capital commitments as at 30 June 2017 and 30 June 2016. The parent entity has a
non-cancellable operating lease payable as follows:
Not later than 1 year
Later than 1 year but not later than 5 years
Significant accounting policies
2017
US$’000
2016
US$’000
268
-
268
326
267
593
The accounting policies of the parent entity are consistent with those of the Group, except for the following:
Investments in subsidiaries are accounted for at cost, less any impairment in the parent entity.
27. New accounting standards and interpretations
New, revised or amended Accounting Standards and Interpretations adopted by the Group
A number of new or amended standards became applicable for the current reporting period. The adoption of
these Accounting standards however, did not have any significant impact on the financial performance or
position of the Group. Any new, revised and amending Accounting Standards or Interpretations that are not yet
mandatory have not been early adopted.
Standards issued but not yet effective
A number of new standards, amendment of standards and interpretations have recently been issued but are not
yet effective and have not been adopted by the Group as at the financial reporting date.
The Group has reviewed these standards and interpretations, and with the exception of the items listed below
for which the final impact is yet to be determined, none of the new or amended standards will significantly affect
the Group’s accounting policies, financial position or performance.
Application date of
standard *
1 January 2018
Application date
for Group *
1 July 2018
Reference
and title
AASB 9
Financial
Instruments
Summary
AASB 9 (December 2014) is a new Principal
standard which replaces AASB 139. This
new Principal version supersedes AASB 9
issued in December 2009 (as amended) and
AASB 9 (issued in December 2010) and
includes a model for classification and
measurement, a single, forward-looking
‘expected loss’ impairment model and a
substantially-reformed approach to hedge
accounting.
75
75
ANNUAL REPORT 2017 OTTO ENERGY
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2017
27. New accounting standards and interpretations (continued)
Standards issued but not yet effective (continued)
Reference
and title
AASB 15
Revenue from
Contracts with
Customers
AASB 16
Leases
Summary
AASB 15 provides a single, principles-based
five-step model to be applied to all
contracts with customers. Guidance is
provided on topics such as the point at
which revenue is recognised, accounting
for variable consideration, costs of fulfilling
and obtaining a contract and various
related matters. New disclosures regarding
revenue are also introduced.
Based on an initial impact assessment, the
new standard is not expected to
significantly impact revenue recognition.
This Standard introduces a single lessee
accounting model and requires a lessee to
recognise assets and liabilities for all leases
with a term of more than 12 months,
unless the underlying asset is of low value.
A lessee is required to recognise a right-of-
use asset representing its right to use the
underlying leased asset and a lease liability
representing its obligation to make lease
payments.
* Designates the beginning of the applicable annual reporting period
Application date of
standard *
1 January 2018
Application date
for Group *
1 July 2018
1 January 2019
1 July 2019
76
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ANNUAL REPORT 2017OTTO ENERGY
DIRECTORS’ DECLARATION
FOR THE YEAR ENDED 30 JUNE 2017
DIRECTORS’ DECLARATION
For the year ended 30 June 2017
In accordance with a resolution of the Directors of Otto Energy Limited, I state that:
1.
In the opinion of the Directors:
a.
b.
c.
d.
the financial statements, notes and the additional disclosures included in the audited 2017
Remuneration Report, comply with Australian Accounting Standards (including Australian Accounting
Interpretations) and the Corporations Act 2001;
the financial statements and notes give a true and fair view of the financial position of the Group as at
30 June 2017 and of its performance for the year ended on that date;
the financial statements and notes comply with International Financial Reporting Standards as disclosed
in the ‘Basis of Preparation’ section within the notes to the 2017 Financial Report; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
2.
This declaration has been made after receiving the declarations required to be made to the Directors in
accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2017.
On behalf of the Board
Mr I Macliver
Director
18 September 2017
77
77
ANNUAL REPORT 2017 OTTO ENERGY
INDEPENDENT AUDIT REPORT
FOR THE YEAR ENDED 30 JUNE 2017
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
Australia
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
Australia
DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF OTTO ENERGY LIMITED
As lead auditor of Otto Energy Limited for the year ended 30 June 2017, I declare that, to the best of
my knowledge and belief, there have been:
INDEPENDENT AUDITOR'S REPORT
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
To the members of Otto Energy Limited
2. No contraventions of any applicable code of professional conduct in relation to the audit.
Report on the Audit of the Financial Report
This declaration is in respect of Otto Energy Limited and the entities it controlled during the period.
Opinion
We have audited the financial report of Otto Energy Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 30 June 2017, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
to the financial report, including a summary of significant accounting policies and the directors’
declaration.
Jarrad Prue
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Director
Act 2001, including:
(i)
BDO Audit (WA) Pty Ltd
Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year ended on that date; and
Perth, 18 September 2017
(ii)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN
77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK
company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under
Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN
77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK
company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under
Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
78
ANNUAL REPORT 2017OTTO ENERGY
INDEPENDENT AUDIT REPORT
FOR THE YEAR ENDED 30 JUNE 2017
Carrying Value of Oil and Gas Properties
Key audit matter
How the matter was addressed in our audit
At 30 June 2017 the carrying value of the asset was
We evaluated management’s assessment of
$6.272 million (2016: $2.717 million), as disclosed in
impairment indicators at 30 June 2017 in accordance
Note 11.
This is a key audit matter due to the significant
carrying value of the oil & gas properties and the
assessment of carrying value requires management to
exercise judgement in identifying indicators of
impairment for the purposes of determining whether
the assets need to be tested for impairment as
disclosed in note 11.
with AASB 136: Impairment of Assets. Our work
included but was not limited to the following
procedures:
•
•
•
•
•
Obtaining and reviewing the reserve report from
the management’s external expert to determine
whether they indicate a significant change that
would impact the value of the asset. This
included assessing the competency and
objectivity of management’s expert;
Benchmarking and analysing management’s oil
and gas price assumptions against external
market data, to determine whether they indicate
a significant change that would impact the value
of the asset;
Reviewing the Director’s minutes and ASX
announcements for evidence of consistency of
information with management’s assessment of
the carrying value;
Considering whether there were any other facts
and circumstances that existed to indicate
impairment testing was required; and
Assessing the adequacy of the related disclosures
in note 11 to the financial report.
79
ANNUAL REPORT 2017 OTTO ENERGY
INDEPENDENT AUDIT REPORT
FOR THE YEAR ENDED 30 JUNE 2017
Measurement & Disclosure of Provisions and Contingencies
Key audit matter
How the matter was addressed in our audit
The group is subject to various laws and regulations in
Our work included but was not limited to the
the jurisdictions to which it operates as well as legal
following procedures:
proceedings which may require management to make
significant judgement in accordance with AASB 137
Provisions, Contingent Liabilities and Contingent
Assets, for recognition, measurement and disclosure
purposes. Refer to note 23 for disclosures relating to
contingencies as at 30 June 2017.
Given the nature of the matter and its potential
material impact on the financial report of Otto Energy
Limited, we deem this to be a key audit matter at 30
June 2017.
•
•
•
•
Assessing management’s position and evaluation
of items of legal proceedings and claims as
either a contingent liability or asset or a
provision in line with the requirements of AASB
137;
Reviewing the Director’s minutes, ASX
announcements, settlement agreements and
correspondence by third party for evidence that
the information is consistent with management’s
assessment of the legal matters and claims;
Reviewing legal invoices and obtained written
representation from solicitors for corroboration
against management’s assessment of the legal
matters; and
Assessing the adequacy of disclosure for
contingencies in note 23 to the financial report.
Other information
The directors are responsible for the other information. The other information comprises the
information contained in the Directors Report for the year ended 30 June 2017, but does not include
the financial report and our auditor’s report thereon, which we obtained prior to the date of this
auditor’s report, and the annual report, which is expected to be made available to us after that date.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other information that we obtained prior to the date
of this auditor’s report, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
When we read the annual report, if we conclude that there is a material misstatement therein, we are
required to communicate the matter to the directors and will request that it is corrected. If it is not
corrected, we will seek to have the matter appropriately brought to the attention of users for whom
our report is prepared.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
80
ANNUAL REPORT 2017OTTO ENERGY
INDEPENDENT AUDIT REPORT
FOR THE YEAR ENDED 30 JUNE 2017
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at:
http://www.auasb.gov.au/auditors_files/ar2.pdf
This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 31 to 41 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the Remuneration Report of Otto Energy Limited, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
BDO Audit (WA) Pty Ltd
Jarrad Prue
Director
Perth, 18 September 2017
81
ANNUAL REPORT 2017 OTTO ENERGY
ADDITIONAL ASX INFORMATION
AS AT 1 SEPTEMbER 2017
ADDITIONAL ASX INFORMATION
As at 1 September 2017
Distribution of shareholdings
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Shareholders by location
Australian holders
Overseas holders
Unmarketable parcels
Number of holders
135
274
572
2,534
812
4,327
Number of shares
27,071
906,719
4,735,138
104,388,658
1,076,240,738
1,186,298,324
Number of holders
4,091
236
4,327
Number of shares
882,594,203
303,704,121
1,186,298,324
There were 1,516 shareholders holding less than a marketable parcel of shares.
Twenty largest shareholders
Name
Sphinx Holdings Ltd
HSBC Custody Nominees (Australia) Limited
1 Molton Holdings Limited
Santo Holding AG
2
J P Morgan Nominees Australia Limited
3
BNP Paribas Nominees Pty Ltd
4
John Jetter (Consolidated Relevant Interest)
5
DBS Vickers Securities (Singapore) Pte Ltd
6
7 Mr Rick Wayne Crabb & Mrs Carol Jean Crabb
8
9
10 Citicorp Nominees Pty Limited
11
12 Mr Brian Lesleigh Williams & Mrs Valerie Ruby Dawn Williams
13 Mr Andrew McCrea Coulter & Mrs Sally Anne Travis
14
15 Mr Timothy Frances Clive McDonnell & Mrs Mila McDonnell
Matthew Gerard Allen (Consolidated Relevant Interest)
16
17 Mr Conran James Smith
18 Mr William George Williams
19
20 Navigator Australia Ltd
Ian Macliver (Consolidated Relevant Interest)
Forsyth Barr Custodians Ltd
Stuart Andrew Pty Ltd
Ordinary shares
Number of
shares
241,910,757
241,910,757
56,626,421
41,040,338
16,589,175
14,020,833
10,395,052
10,227,361
9,153,510
8,871,827
8,814,621
8,400,000
7,890,000
7,141,742
5,888,888
5,243,000
5,119,000
4,900,000
4,549,721
4,540,774
713,233,777
%
20.39%
20.39%
4.77%
3.46%
1.40%
1.18%
0.88%
0.86%
0.77%
0.75%
0.74%
0.71%
0.67%
0.60%
0.50%
0.44%
0.43%
0.41%
0.38%
0.38%
60.12%
82
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ANNUAL REPORT 2017OTTO ENERGY
ADDITIONAL ASX INFORMATION
AS AT 1 SEPTEMbER 2017
ADDITIONAL ASX INFORMATION
As at 1 September 2017
Substantial shareholders
Name
Molton Holdings Limited
Santo Holding AG
Unquoted securities
Ordinary shares
Number of
shares
241,910,757
241,910,757
%
20.39
20.39
The unlisted securities of the Company as at 1 September 2017 are 7,670,000 performance rights. The
performance rights do not carry a right to vote at a general meeting of shareholders.
Vesting date
Expiry date
Exercise price
3 October 2014
23 April 2015
14 August 2015
31 December 2018
31 December 2019
31 December 2017
A$0.00
A$0.00
A$0.00
Number of
performance
rights
Number of
holders
1,620,000
4,650,000
1,400,000
7,670,000
3
3
1
Voting rights
Ordinary shares
In accordance with the Company’s Constitution, on a show of hands every shareholder present in person or by
proxy, attorney or representative of a shareholder has one vote and on a poll every shareholder present in
person or by proxy, attorney or representative of a shareholder has in respect of fully paid shares, one vote for
every share held.
Options
There were no options on issue as at the date of this Financial Report.
Performance rights
There are no voting rights attached to the performance rights.
Corporate governance
The Company’s Corporate Governance Statement for the 2017 financial year can be accessed at
www.ottoenergy.com
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Head Office
32 Delhi Street
West Perth WA 6005
Australia
PO BOX 1414
West Perth WA 6872
Australia
T: + 61 8 6467 8800
F: + 61 8 6467 8801
Email: info@ottoenergy.com
ASX Code: OEL
AbN: 56 107 555 046
ottoenergy.com
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ANNUAL REPORT 2017OTTO ENERGY