OTTO ENERGY LIMITED
2020
Annual Report
DELIVERING VALUE
Green Canyon 18 produ ctio n p la t fo r m
Green Canyon 18 produ ctio n p la t fo r m
CONT E NTS
2
OV ERV IEW
3
4
5
6
8
About Otto
Areas of Activity
Highlights of the Year
Chairman’s Report
Executive Management
10
OPERATIN G AND FINANCIAL REVI EW
11
13
15
Financial Summary
Strategy
Asset Overview
22
CORPORATE
23
24
33
34
36
39
54
Commodity Price Risk Management
Resources & Prospective Resources
GOV ERN AN CE
Board of Directors
FIN ANCIAL REPORT 2020
Director’s Report
Remuneration Report
01
OVE RV IEW
OVERVIEW
ABOU T OTTO
Otto Energy Limited is an oil and gas exploration and production company with
a regional focus on North America. The Company is continuing to deliver value
and building on its track record to be recognized as a partner of choice.
Otto has a clear strategy to deliver shareholder
value through building a strong production
and financial base of assets, optimizing the
portfolio through disciplined investments
in exploration and development and driving
effective cost management. These efforts are
resulting in a strengthening of its balance
sheet and creating a robust financial capacity
from which to build value.
Otto holds attractive exploration and appraisal
assets in the prolific petroleum provinces of the
onshore and offshore Gulf of Mexico and Alaska.
The Company’s exploration portfolio has led
to discovering two of the top twelve largest
Gulf of Mexico Shelf and Gulf coast Onshore
fields based on resources found over the past
few years. Otto continues to leverage access to
high quality exploration potential in the Gulf of
Mexico through its access and use of technology
and experience.
Otto has quality production from two fields
on stream in the Gulf of Mexico Shelf and
onshore Texas. This includes oil production
from the South Marsh Island 71 (SM 71) oil field
in the shallow water Gulf of Mexico (Louisiana)
and gas/condensate production from the
Lightning discovery onshore Matagorda County,
Texas. Development is underway at the Green
Canyon 21 (GC 21) oil discovery in the Gulf of
Mexico and is expected to commence production
in October 2020.
Otto’s abilities to actively market and hedge
oil production from its operations is providing
cashflow from these assets which will underpin
its growth in value for shareholders for years to
come. Going forward, technology and innovation
will remain essential to the Company’s long-
term sustainability. The Company is working
to bring down costs and find solutions in this
volatile business of developing energy solutions
to meet demands.
33
ANNUAL REPORT 2020 ARE A S OF ACTIVITY
Operating Partner
Hilcorp Energy
Byron Energy
Talos Energy
Otto Energy
d
n
e
r
O T
V
e A
n
e
c
o
O li g
Lightning
37.5% WI
(Producing)
Beluga
37.5% WI
(Expected to spud
in October 2020)
Miocene Trend
Pliocene Trend
SM71
50% WI
(Producing)
OVER VIEW
GC21
16.67% WI
(Production expected
in October 2020)
4
OVERVIEW
20 2 0 HI GHLIGHTS
Otto Energy Limited is an oil and gas exploration and production company with a regional focus on
North America, focused on the Gulf of Mexico region near-term.
STRONG BASE BUSINESS
946
742
Reserves1
Mboe
8,754
11,717
10,153
Production
Mboe
194
2018
2019
2020
2018
2019
2020
Proved
Probable
Possible
PREPARED FOR GROWING VALUE
Net revenue of US$23 million
Successful US$8.8 million capital raise
EBITDAX2 of US$20.9 million
New US$55 million bank credit facility
New management team and
40% reduction in office operating costs
board members
for FY2021
MOMENTUM FOR GROWING VALUE
Expected to spud Beluga well
in October 2020
Production from GC 21 expected to
begin in October 2020
1Refer to Reserves & Prospective Resources statement for the year ended 30 June 2020 on pages 24 - 32 of this report for additional disclosures
2 Refer to ASX announcement, Financial Report for the year ended June 2020, released 25 September 2020 for notes regarding non-IFRS
information and reconciliation.
5
ANNUAL REPORT 2020 OVER VIEW
CH AI R MAN’S RE PORT
Dear Shareholders,
Otto Energy’s Annual Report is being released at a time of unprecedented global
disruption, in a world that is dramatically changed from a year ago.
From both a health and economic standpoint,
the effects of COVID-19, in tandem with the
significant downturn in the international oil
and gas industry, has created a challenging
backdrop against which the Company is striving
to execute, and deliver, its business objectives.
Against this background, Otto achieved the
following encouraging results in 2020:
• Continued development of the Lightning
Field and Green Canyon 21 discovery
• 28% increase in production to 946,445 boe
• EBITDAX of US$20.9 million
• 31% increase in Proved Reserves (1P) to 4.8
MMboe (net to Otto)
• 13% increase in 2P Reserves to 8.1 MMboe
(net to Otto)
• 15% increase in 3P Reserves to 11.7 MMboe
(net to Otto)
• 93% lift in NPAT (smaller loss after
income tax)
• Completion of an A$13.8 million (US$8.8
million) capital raise, before costs
• Negotiation of a three-year US$55 million
credit facility with Macquarie Bank
OUR RESPONSE
Despite achieving a number of key milestones,
Otto was not immune to the precipitous decline
in commodity prices and corresponding
significant devaluing of its share price and
value during the period. Importantly, the board
responded quickly by adjusting the Company’s
management and operations. This response
included making leadership changes,
examining all spending, and aggressively
reducing overhead in the face of this downturn.
The Company will rigorously continue to pursue
these initiatives, including a disciplined forward
capital allocation and targeting of further
reductions in costs and overhead.
The appointment of Mike Utsler as Managing
Director after this reporting period and the
focus on executing a disciplined strategic
and value enhancing review, is demonstration
of our ongoing efforts to optimize the
Company’s assets in order to create great
shareholder value.
OUR FOCUS
Building on last year’s strategic focus to
establish a solid production base, Otto now
has three core asset hubs as a foundation
for generating meaningful free cash flow.
Our first asset, the flagship South Marsh
Island 71 (SM71) field, accounted for 56% of
FY2020 production and continues to be a strong
performer. The second asset, Lighting Field,
delivered 44% of FY2020 production and has
ramped up to the steady state production levels
that were anticipated when production began
in May 2019. The third asset, Green Canyon 21
(GC21), is nearing the final stages of completion
and development, with production expected in
October 2020.
6
OVERVIEW
C HAI RMAN’S REPORT CONTINUED
OUR DISCOVERIES
ACKNOWLEDGEMENTS
During the year, progress was made in the
development of each of our fields, in alignment
with our continuing efforts to create long-
term shareholder value. At GC21, Otto drilled
beyond the commercially successful DTR-10
sands to the deeper MP sands, announcing a
discovery. In the Lighting Field, we drilled our
second well, Green #2, beginning production
in February 2020. There is the potential to fully
develop this extensive area of discovery with
additional wells. In March 2020, we participated
in the drilling of a fourth well at SM71.
Unfortunately, COVID-19 forced us to temporarily
abandon this well; we are hopeful of being able
to sidetrack it in the future.
OUR FINANCES
Otto significantly strengthened its balance
sheet in the past year, making it one that can
facilitate the building of a robust future.
The Company entered into a debt facility
agreement with Macquarie Bank that provides
access of up to US$55 million for existing
and future developments. We also conducted
a successful equity raise of US$8.8 million.
Additionally, Otto undertook an aggressive
reduction in its operational costs of circa 40%,
combined with the hedging of our crude oil
production prices through 2022. This yielded
substantial benefits during the volatile oil
price period.
As we move into 2021, we are confident that
the Company’s outlook is bright, due to a
strengthened balance sheet and the anticipated
overall increase in production and cashflow
from our assets. These factors provide the
ability to pursue the disciplined development
of our existing captured resource base, and to
selectively invest in high quality infrastructure-
led exploration.
I want to acknowledge and thank Otto’s staff
for their hard work and dedication, as well as
my fellow board members for their diligence
and counsel. I also thank our shareholders and
stakeholders for their continuing support in what
remains a challenging operating environment
globally. I look forward to working with our
new CEO and MD, Mike Utsler, and my fellow
board members as we vigorously implement
our strategic goals. These goals are designed
to protect, create and realise value for our
shareholders – in a timely and resolute manner.
John Jetter
Chairman
7
ANNUAL REPORT 2020 OVER VIEW
EXE C UTIVE
MAN AGEMENT
Sergio Castro
Chief Financial Officer
BBA Accounting, CPA, CFE
Sergio joined Otto Energy in December 2019
as Chief Financial Officer. Prior to joining Otto,
Sergio was Vice President and Treasurer of
Contango Oil & Gas Company for over 13 years.
Prior to that, Sergio was a consultant for UHY
Advisors TX, LP; a lead credit analyst for
Dynegy Inc. and an auditor for Arthur Andersen
LLP, where he specialized in energy companies.
Sergio was honorably discharged from the U.S.
Navy in 1993 as an E-6, where he served onboard
a nuclear powered submarine. He received a
BBA in Accounting in 1997 from the University of
Houston graduating summa cum laude. Sergio is
a CPA and a Certified Fraud Examiner.
Will Armstrong
Vice President Exploration and
New Ventures
B.S. in Geology, M.S. in Geology, emphasis in
Geophysics and Hydrogeology
Prior to joining Otto, Will worked with Tri-C
Resources, a private oil and gas company,
developing Gulf Coast conventional prospects
for drilling. Prior to this, he screened Gulf Coast,
Offshore GOM, and Deepwater GOM prospects
for Continental Land & Fur and worked as a
geophysical consultant, generating Offshore
and Gulf Coast prospects on behalf of Houston
Energy, Westport Resources, and Petroquest
Energy. Prior to consulting, Will generated
prospects for several oil & gas companies,
including Newfield Exploration, where he was
a founding member and Tenneco Oil Company.
Will graduated with a B.S. in Geology, minor in
Mathematics, from Grand Valley State College
in 1985. He also graduated from Wright State
University with a M.S. in Geology, emphasis in
Geophysics and Hydrogeology, in 1987.
8
OVERVIEW
EXE C UTIVE MANAGEM ENT CONTINUED
Kevin Small
Philip Trajanovich
Chief Geophysicist and Executive Director
Senior Commercial Manager
B.S Geophysical Engineering
Bachelor of Commerce (Hons)
Kevin has over forty years’ experience in the
Gulf of Mexico both onshore and offshore,
and has been responsible for the generation,
farm-in, drilling and development of numerous
Gulf Coast discoveries. Kevin brings extensive
networks and relevant experience to Otto’s
Gulf Coast business. Prior to joining Otto,
Kevin worked with Tri-C Resources, a private
oil and gas company, developing Gulf Coast
conventional prospects for drilling. Prior to
that, he worked for Bluestreak Exploration
Group developing prospects exclusively for
LLOG Exploration which resulted in successful
discoveries on the Gulf of Mexico Shelf and
deepwater. Kevin was the Exploration Manager
and a founding member of the Houston office
of Westport Oil and Gas Company, ultimately
helping them go public. Kevin also has worked
for the Superior Oil Company and McMoran Oil
and Gas, starting his career in 1978. During his
time with LLOG, Westport, and McMoRan, he has
drilled wells with cumulative production of over
692 BCFG and 82 MMBO.
Philip was engaged by Otto as a commercial
manager in July 2016 and has worked in both
the Perth and Houston offices since that time.
Prior to joining Otto, Philip was Commercial
Manager at Aurora Oil and Gas and its
subsequent acquirer Baytex Energy for over
four years, focused on the Eagleford shale
unconventional play. Philip has also worked
with ConocoPhillips as an Asset Manager for
nearly three years and Woodside Energy as a
Commercial Adviser for over seven years.
Philip has gained extensive experience in all
facets of upstream oil and gas operations and
commercial structures internationally and
within the USA. Philip graduated with a B.Com
with First Class Honors from the University of
Western Australia in 2001.
9
ANNUAL REPORT 2020 02
OPERATING
AND FINANCIAL
REV IE W
OPERATING AND FI NAN CI AL R EVI E W
FINA NC IAL SUMMARY
US$(‘000)
Key Metrics
Operating Revenue, net of royalties
EBITDAX1
EBITDA1
EBIT1
NPAT
Net cash outflow from operating activities
Investement expenditures:
Exploration spend
Development spend
Key Ratios
Return on equity (%)
ROACE (%)
Earnings (US cps)
Gearing (%)
Sales Volumes
Oil /Liquids (Mboe)
Gas (Mboe)
30 June 2020
30 June 2019
23,028
20,873
7,806
1,036
(1,358)
(721)
(11,189)
(16,206)
(0.03)
2.1
(0.05)
0.41
31,258
23,484
(14,365)
(19,372)
(18,409)
(13,161)
(36,867)
(8,904)
(0.50)
(63.6)
(0.95)
0
586,427
360,018
563,250
178,376
Against a challenging year, Otto has seen an improvement in its financials driven by the increasing
of production, lowering of costs, successful oil hedging combined with a successful raising of both
equity and the negotiations of a three year US$55 million credit facility.
1 Refer to Otto Energy ASX Announcement “2020 Annual Financial Results Summary” released 25 September 2020
11
ANNUAL REPORT 2020 O PER ATI NG AND FIN AN C IAL R EVIEW
FINANCIAL SUMMARY CONTINUED
2019
NPAT reconciliation
5,971
354
2020
(1,358)
24,782
(18,409)
(8,230)
(864)
(1,605)
(3,357)
T
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2
0
2
Key movements
SALES REVENUE
Despite the increase in production during the current year due to the Lightning field, as Green #1
produced for the entire year and Green #2 commenced production in February 2020, sales revenue
decreased during the year due to lower realised prices.
FINANCE COSTS
Finance costs increased during the year as a result of the Company’s new three year US$55 million
credit facility with Macquarie Bank entered into in November 2019.
EXPLORATION EXPENDITURES
Exploration expenses decreased during the year in line with a decrease in exploration activity
in FY2020.
GAIN ON DERIVATIVES
In connection with the Macquarie Bank credit facility, the Company entered into commodity price
hedge instruments to minimize exposure to short term price fluctuations. As a result of the decrease
in commodity prices, the mark-to-market value of these commodity instruments increased in value.
12
OPERATING AND FI NAN CI AL R EVI E W
STR ATEGY
Otto’s strategy has been focused over the past year on building a strong base production,
growing free cash flow and delivering shareholder value.
Execution of this strategy resulted in the Company focusing on facilitating the completion of the
further development of Lightning (Green #2 well completion and tie-in) and the Green Canyon 21
discovery (facilities expansion at GC 18, completion and tie-back of the GC 21 well expected to
come on line in October 2020).
In recent years, investor expectations of the upstream oil and gas sector have evolved from
rewarding growth, often for growth’s own sake and without regard to whether that growth came
from an efficient use of capital, to a renewed focus on returns, cost reduction and generation of
free cash flow.
Otto agrees with this sentiment and believes that maintaining a prudent capital structure and
generating economic returns that build long-term value is the best way to achieve stock price
appreciation. Below are some of the key components to this strategy moving forward.
A STRONG FOUNDATION –
AN ATTRACTIVE ASSET PORTFOLIO
CONTROLLING COSTS,
IMPROVING CASH FLOW
Otto’s Gulf of Mexico assets are complementary,
as SM 71 provided stable production and
meaningful free cash flow, while the Lightning
field provided meaningful growth. Together
these core assets provide the Company with a
portfolio of high-quality producing assets with
attractive returns on capital. Additionally, the
Gulf of Mexico assets have a relatively shallow
decline that make for stable, predictable cash
flow generation with minimal capital investment
required going forward.
Another key strategic initiative the team began
in early 2020 and will continue into FY 2021 is
to align its cost structure to be more consistent
with the size of the Company and its activity
level. The Company has already taken difficult
steps such as streamlining management and
reducing personnel costs, and will continue to
look at items such as office space, legal fees,
consultant use, and optimizing the costs of being
a public company.
OPTIMIZING THE PORTFOLIO
Optimizing Otto’s asset portfolio can take many
different forms, from keeping the asset and
optimizing current production and improving
capital efficiency, to divesting of the asset to
accelerate future cash flows and minimize
operational risk. Divesting of assets also
allows the seller to reduce debt, enhance
liquidity, and reducing future asset retirement
obligations (the buyer assumes the future cost of
decommissioning the asset), which all serve to
strengthen the Company’s balance sheet.
STRENGTHENING THE BALANCE SHEET
AND MANAGING RISK
Otto’s objective has been to maintain a simple
capital structure, providing the Company with
valuable optionality for discretionary capital.
Otto can reinvest capital into growth, use it to
strengthen its balance sheet, and/or return some
to shareholders – depending on which alternative
offers the best returns for shareholders.
The Company’s cash balance at year-end 2020
was $16.6 million, compared to $7.4 million at the
end of 2019, despite its drilling and development
programs during the year.
13
ANNUAL REPORT 2020 O PER ATI NG AND FIN AN C IAL R EVIEW
ST RAT EGY CONTI NUED
STRENGTHENING THE BALANCE SHEET
AND MANAGING RISK CONTINUED
That increase in cash was made possible by the
proceeds of a A$13.8 million (US$8.8 million)
capital raise, before costs, in March 2020 and its
new credit facility with Macquarie Bank.
Otto’s credit facility matures in November 2022
and the Company is currently in compliance
with all bank facility covenants. Additionally,
the Company has the financial wherewithal
to service its debt through maturity, even if it
chooses to allocate capital to new development
opportunities that may come along.
From a risk management perspective,
Otto utilizes hedging to price-protect a
significant portion of its cash flow profile,
thereby protecting its capital budget and
preserving liquidity. At year-end the Company
was hedged close to the maximum 80% of
forecasted PDP production and was monitoring
market conditions to opportunistically layer-on
hedges for the remainder of 2020 and beyond.
LOOKING FORWARD – OUR 2021 PLAN
Otto’s plan for fiscal year 2021 is
straightforward. First, the Company’s capital
budget is expected to be funded primarily
through internally generated cash flow,
and if necessary, temporary borrowings under
its credit facility. Although a company cannot
create value by focusing solely on cost control,
Otto is taking a conservative approach to
investing during this low and volatile commodity
price environment and striving to maintain a low
financial risk profile. The Company maintains a
watchful eye on commodity price markets and
may adjust its capital budget during the year,
up or down, to align its investments with
expected cash flow and forecasted full cycle
returns. Disciplined capital management is the
name of the game for Otto in FY 2021. The Otto
team is committed to setting the stage for
long-term value creation. We work diligently
each day to identify opportunities that will
create, or result in, the best potential for
generating shareholder value.
1414
OPERATING AND FI NAN CI AL R EVI E W
ASSE T OVERVIEW
NOR TH AMERICA
GULF OF MEXICO
Otto Energy considers the Gulf of Mexico a core region for its exploration and production
focus. Today, Otto produces oil and gas from three projects in the Gulf of Mexico: SM 71,
Lightning and GC 21.
The Gulf of Mexico (GoM) region is one of the most prolific oil and gas producing regions on earth.
About half of the USA’s fossil fuel refining and processing capacity is along the GoM. The high
density and availability of production platforms utilised for the development of primary reservoirs
contributes to low production costs in the region, making projects viable even in a sustained,
low oil price environment.
Otto has focused on a partnership strategy in the GoM to build a portfolio of diverse, conventional
oil and gas opportunities. Otto’s current operating partners in the Gulf of Mexico are Byron Energy
(ASX: BYE), Hilcorp Energy, and Talos Energy (NYSE: TALO), resulting in six producing wells over
three core assets, plus a fourth potential core asset currently being drilled.
Summary of Gulf of Mexico Assets as at 30 June 2020
Asset
Gulf of Mexico Region
South Marsh Island (SM 71)
Lightning
Green Canyon 21 (GC 21)
Beluga
Number of
Wells
Otto
Working
Interest (WI)
Otto Net
Revenue
Interest (NRI)
Join Venture Partner
Notes
3
2
1
1
50.00%
37.50%
40.63%
Byron Energy
28.21%
Hilcorp Energy
Production
Production
16.67%
13.34%
Talos Energy (Operator) /
EnVen Energy Ventures, LLC
Production expected
in October 2020
18.75%
15.00%
Hilcorp Energy
Expected to spud in
October 2020
15
ANNUAL REPORT 2020 O PER ATI NG AND FIN AN C IAL R EVIEW
ASSE T OVERVIEW CONTINUED
Production Volumes and Sales Revenue WI Share
(before royalties) (USD)
30 September
2019
31 December
2019
31 March
2020
30 June
2020
Crude Oil (Barrels)
South Marsh 71
Lightning Field
Total oil production
Total oil sales revenue ($'million)
Avg oil price ($/Bbl)
132,063
127,211
102,768
11,123
3,791
16,771
143,186
$ 8.20
131,002
$ 7.32
119,539
$ 5.34
97,756
24,328
122,084
$ 2.74
$ 57.27
$ 55.88
$ 44.70
$ 22.44
Avg oil price - including hedges ($/Bbl)
$ 56.64
$ 53.80
$ 49.56
$ 35.06
Natural gas (thousand cubic feet)
South Marsh 71
Lightning Field
Total gas production
Total gas sales revenue ($’million)
Avg gas price ($/MMbtu)
Natural gas liquids (barrels)
South Marsh 71
Lightning Field
Total NGL production
148,267
344,504
492,771
$ 1.10
$ 2.23
–
16,038
16,038
125,422
112,670
238,092
$ 0.57
$ 2.39
–
5,265
5,265
70,354
547,460
617,814
$ 1.20
$ 1.85
–
24,507
24,507
56,266
755,166
811,432
$ 1.40
$ 1.66
–
24,806
24,806
Total NGL sales revenue ($’million)
$ 0.19
$ 0.08
$ 0.41
$ 0.27
Avg NGL price ($/Bbl)
$ 11.77
$ 15.80
$ 16.55
$ 10.82
Total (barrels of oil equivalent)
South Marsh 71
Lightning Field
Total production
Total daily production (Boe/d)
Total revenue ($’million)
Total equivalent price ($/Boe)
156,774
148,115
84,578
27,834
241,353
175,949
2,623
1,912
114,494
132,521
247,015
2,714
107,134
174,995
282,129
3,100
$ 9.49
$ 7.97
$ 6.90
$ 4.39
$ 39.32
$ 45.30
$ 27.94
$ 15.55
Total equivalent price - including hedges ($/Boe)
$ 38.95
$ 43.75
$ 30.30
$ 21.01
16
OPERATING AND FI NAN CI AL R EVI E W
ASSET OVERVI EW CONTINUED
PR OD UCTION
SOUTH MARSH ISLAND 71
Otto owns a 50% Working Interest (‘WI’) and a 40.625% Net Revenue Interest (‘NRI’) in the
South Marsh Island block 71 (SM 71), with Byron Energy Limited (‘Byron’) the operator, holding an
equivalent WI and NRI. Water depth in the area is approximately 137 feet.
Following the initial discovery by Otto and Byron in 2016, oil and gas production from the SM 71 F
platform began in late March 2018 from two wells with the third well coming on-line in early April
2018. The F1 and F3 wells are completed in the primary D5 Sand reservoir and the F2 well
is completed in the B55 Sand, a secondary production horizon.
In March 2020, the joint venture with Byron spudded the F5 development well. Due to increased
uncertainty of continuing operations related to the impact of COVID-19 on operations, the wellbore
was temporarily abandoned in a manner that allows it to be efficiently sidetracked in the future when
the uncertainty relating to the COVID-19 pandemic has dissipated and also at a time where oil price
volatility stabilizes.
The SM 71 F facility has now produced over 2.5 million barrels of oil (gross) and 3.2 billion cubic
feet of gas (gross). In December 2019, the joint venture installed a new, upgraded compressor at the
platform, which allows for the wells to be managed in a more consistent, stable manner.
17
ANNUAL REPORT 2020 O PER ATI NG AND FIN AN C IAL R EVIEW
ASSE T OVERVIEW CONTINUED
PR OD UCTION
LIGHTNING
The Green #1 well on the Lightning prospect in Matagorda County, Texas commenced drilling in
early December 2018 and began producing in May 2019. Wireline logs indicated 180 feet of net pay,
significantly in excess of pre-drill expectations. Through participation in the drilling of the Lightning
exploration well, Otto earned a 37.5% working interest in the leases covering the Lightning prospect.
The Green #2 well commenced drilling in October 2019 and was completed in the Tex Miss 1 interval
with 66 feet of perforations out of a total of 146 feet of calculated net pay. Further perforations may
eventually be added to the well. Construction of upgraded facility and flowlines was completed and
the well began production in early February 2020, with the capacity of the sales tap increased to
approximately 36 MMscf/day.
Production performance since start-up of the field has continued to deliver strong results with both
wells combined currently producing approximately 22.4 MMscf/day and 628 bbl/day of condensate.
The joint venture is considering the potential for further wells in the field to fully develop the
extensive area of the Lightning discovery. There is the potential for up to five wells being required to
ultimately develop the entire Lightning accumulation.
Lightning Location Map
18
OPERATING AND FI NAN CI AL R EVI E W
ASSET OVERVI EW CONTINUED
DE V ELOPMENT
GREEN CANYON 21
In March 2019, Otto announced that it has entered into a joint venture with Talos Energy (NYSE: TALO)
that resulted in it earning a 16.67% working interest in the Green Canyon 21 (GC 21) lease in the Gulf
Mexico through paying 22.22% of the cost of the drilling of the ‘Bulleit’ appraisal well in GC 21.
The ‘Bulleit’ appraisal well commenced drilling in May 2019. In June 2019, The Company announced
that the upper target, the DTR-10 sand, was intersected and a commercial outcome was confirmed.
Drilling operations continued through the deeper exploration target, the MP sands, where a discovery
was announced in August 2019. Results of the two sands are as follows:
• DTR-10 interval – approximately 140 net feet of TVD oil pay encountered; and
• MP interval – approximately 110 net feet of TVD oil pay encountered.
The “Bulleit” well was tied back to the Talos owned and operated Green Canyon 18 (GC 18A) facility
approximately 10 miles (~16 km) west and production is expected to begin in October 2020.
GC21 and GC18 location map
19
ANNUAL REPORT 2020 O PER ATI NG AND FIN AN C IAL R EVIEW
ASSE T OVERVIEW CONTINUED
EXP LORATION
HILCORP PROGRAM
In July 2018, Otto announced that it had entered into a joint venture with Hilcorp Energy to drill an
eight well portfolio of onshore or state waters prospects located in Texas and Louisiana, with Hilcorp
as operator. Four wells have now been drilled (Big Tex, Lightning, Don Julio 2 and Mustang) with
Lightning being a discovery (see discussion on Mustang below). The next prospect is Beluga, which is
expected to commence drilling in October 2020.
Gulf Coast Package - Prospective Resources as of 30 June 2020
Prospect
Working
Interest
Net Revenue
Interest
Gas (BCF)
Prospective Resources
8/8ths
Oil
(MMbbls)
Otto Net Revenue Interest
Mmboe
Gas (BCF)
Oil
(MMbbls)
Mmboe
Mean
Mean
Mean
Mean
Mean
Mean
Beluga1
Tarpon
Mallard
37.50%
37.50%
37.50%
30.00%
28.50%
29.06%
21.25
161.97
7.79
1.21
9.21
0.45
4.75
36.21
1.75
6.38
46.16
2.26
0.36
2.62
0.13
1.43
10.32
0.51
1 Refer to Otto Energy ASX Announcement “Annual Reserves and Resources Statement” released 24 September 2020
EXP LORATION
ALASKA (CENTRAL BLOCKS)
Through its agreements with Great Bear Petroleum Operating (“Great Bear Operating”), Otto acquired
its position in Alaska in 2015. In January 2019, Pantheon acquired Great Bear Petroleum Ventures I
LLC and Great Bear Petroleum Ventures II LLC (collectively: Great Bear Ventures).
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. The existing 3D seismic has allowed development of an extensive prospect portfolio
which includes several well locations.
In September 2020, Pantheon announced that its application to form the Talitha Production Unit of
44,373 acres is complete and eligible for approval. Otto has a 10.8% working interest in these Talitha
Unit leases. After a public comment period which closes on 12 October 2020, the Alaska Department
of Natural Resources will make a decision on the application. Otto’s exposure on the first two wells is
limited to US$2.6 million per well.
20
OPERATING AND FI NAN CI AL R EVI E W
ASSET OVERVI EW CONTINUED
Alaska Central North Slope - Prospective Resources as of 30 June 2020
Prospect
Working
Interest
Net Revenue
Interest
Gas (BCF)
Prospective Resources
8/8ths
Oil
(MMbbls)
Otto Net Revenue Interest
Mmboe
Gas (BCF)
Oil
(MMbbls)
Mmboe
Talitha Unit
10.80%
9.45%
–
483.0
483.00
–
45.64
45.64
Mean
Mean
Mean
Mean
Mean
Mean
PLUGGE D AND A BA NDONED
MUSTANG
In July 2019 Otto announced that the initial exploration well on the Mustang prospect had discovered
57 feet of net hydrocarbon pay. Once completed, however, flow testing revealed that the well would
not produce in commercial quantities, and the well was subsequently plugged and abandoned during
the quarter ended 31 December 2019.
R E LIN QU IS HED
VR 232
In June 2018, Byron Energy acquired 100% of Vermillion Block 232. Pursuant to the terms of a
Participation Agreement, Otto elected to participate in VR 232 at a fifty percent (50%) working
interest. In May 2019, Otto acquired Byron Energy’s 50% interest in, and operatorship of, VR 232
at no cost, resulting in Otto owning 100% of the lease block.
After reviewing high quality 3D seismic data set over the SM 71 area (including VR 232), this lease
block was released in May 2020.
RELINQU IS HED
ALASKA (WESTERN BLOCKS)
In June 2018 Otto acquired a 22.5% working interest in four leases, consisting of 22,710 acres,
from Great Bear Petroleum Ventures II LLC. The first well on these leases, the Winx-1, commenced
drilling on 15 February 2019 and intersected all pre-drill targets safely and efficiently, with a
comprehensive wireline logging program successfully run and completed.
Petrophysical analysis of the wireline logging program indicated low oil saturations in the primary
Nanushuk Topset objectives; testing and fluid sampling indicated that reservoir quality and fluid
mobility at this location was insufficient to warrant production testing. Winx-1 was subsequently
plugged and abandoned.
These lease blocks were relinquished in May 2020.
21
ANNUAL REPORT 2020 03
CO RPOR ATE
CORPORATE
CO MM ODITY PR ICE
RI SK MA NAGEMENT
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s
revenues are determined, to a large degree, by prevailing oil and natural gas prices.
Otto sells its production to purchasers pursuant to sales agreements, with sales prices
tied to industry standard published index prices, subject to negotiated price adjustments.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price
fluctuations by using a series of swaps, costless collars and/or puts. Unrealized gains or losses
associated with hedges vary period to period, and are a function of hedges in place, the strike prices
of those hedges and the forward curve pricing for the commodities being hedged. Currently, all of
Otto’s hedges are oil swaps, and the Company has no three-way collars or short puts.
As of 30 June 2020, Otto had a total hedge book of 318,840 barrels of oil hedged through September
2022 via swaps, at a weighted average LLS price of $54.60 as follows:
Months
July – December 2020
January – December 2021
January – September 2022
Volume (Bbls)
Weighted Avg Price (LLS)
90,664
184,616
43,560
$ 56.71
$ 53.71
$ 54.00
In July 2020, the Company entered into additional hedges for 66,000 barrels for 2020 and 54,074
barrels for 2021, resulting in a Weighted Average LLS Price of $50.11 for the remainder of CY 2020
and $51.62 for CY 2021 (on forecast SM71 and Lightning volumes). In August 2020, the Company
entered into additional hedges for 66,358 barrels for CY2022, resulting in a Weighted Average LLS
Price of $49.20 for CY 2022 (on forecast SM71 and Lightning volumes). Refer to the subsequent
events section of the report.
23
ANNUAL REPORT 2020 C OR POR ATE
RESERVES &
PROSPECTIVE RESOURCES
On 23 September 2020 the Company released its statement of reserves and
prospective resources as at 30 June 2020.
The statement of reserves included SM 71, Lightning and GC 21. The reserves for SM 71 were compiled by Mr
Ed Buckle B.S. Chemical Engineer (Magna Cum Laude), a full-time contractor of the Company, and audited by
Collarini Energy Experts, a specialized consulting services firm with hydrocarbon reserve appraisal expertise.
The results for Lightning and Green Canyon were compiled by independent consultant Ryder Scott Company.
Otto Energy Limited net reserves and resources for all fields as at 30 June 2020 are summarised below (see
additional disclosures provided in the following pages and appendices):
Reserves Summary 30 June 2020
Total
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proven (1P)
Probable
Gross (100%)
Net
Oil (MbbL)
Gas (MMcf)
Mboe
Oil (MbbL)
Gas (MMcf)
Mboe
3,515
25,888
7,831
1,343
7,692
2,625
466
6,694
1,581
6,034
20,303
9,417
10,015
52,885
18,829
8,583
34,897
14,400
165
874
2,382
1,720
4,102
1,807
5,909
1,929
487
5,002
1,708
14,623
4,820
9,088
3,234
23,711
8,054
11,142
3,663
34,853
11,717
Proven Plus Probable (2P)
18,598
87,782
33,229
Possible
5,879
38,102
12,229
Proven Plus Probable Plus Possible (3P)
24,477
125,884
45,458
Total Prospective Resource
(best estimate, unrisked)
Prospective Resources Cautionary Statement
–
–
–
49,071
55,146
58,262
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.
24
CORPORATE
RESE RVES & P ROSPECTIVE RESOU RCE S CONTINUED
Changes to reserves and resources since 30 June 2019:
Otto Energy Limited Grand Total - Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Proved (1P)
2,282
421
522
2,382
8,320
1,796
8,099 14,624
3,669
721
1,872
4,820
Probable
2,417
0
(698)
1,719
6,100
0
2,987
9,088
3,434
–
(200)
3,234
Proved Plus
Probable (2P)
4,699
421
(176)
4,102 14,420
1,796 11,086 23,711
7,103
721
1,672
8,054
Possible
1,371
0
435
1,806
10,071
–
1,071
11,142
3,050
–
613
3,663
Proved Plus
Probable Plus
Possible (3P)
6,070
421
259
5,907 24,492
1,796 12,157 34,853 10,153
721
2,285 11,717
25
ANNUAL REPORT 2020 C OR POR ATE
RE SE R VES & PROSPECTIVE RESOU RCE S CONTINUED
SOUTH MARSH ISLAND 71 RESERVES AND RESOURCES STATEMENT
Comment on the changes to reserves and resources:
• SM 71 has now recovered over 2.5 MMbbl of oil and 3.2 Bcf of gas since production commenced in March
2018 and is currently producing approximately 2,700 bopd of oil and 1.5 Mscf/day of gas;
•
•
The D-5 sand continues to produce water free;
The SM 71 F5 well reached final, total depth on 21 March 2020, with LWD logs indicating 36 feet TVT net gas
pay in the primary D-5 sand target. The joint venture elected to temporarily abandon the well, resulting in
the reclassification of previously booked PUD and ProbUD reserves to the Possible classification. Without the
impact of the recategorisation, proved EUR would have increased by 240 MBOE; and
• Reserves in the B-65 sand that were classified as Probable in last year’s report are now considered
Prospective Resource.
SM71
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proven (1P)
Probable
Proven Plus Probable (2P)
Possible
Proven Plus Probable Plus Possible (3P)
Total Prospective Resource
(best estimate, unrisked)
Gross (100%)
Net (40.625%)
Oil (MbbL)
Gas (MMcf)
Mboe
Oil (MbbL)
Gas (MMcf)
Mboe
2,812
2,451
3,221
1,142
996
1,308
269
–
3,081
1,652
4,733
3,209
7,942
134
–
291
–
109
–
55
–
118
–
2,585
3,512
1,251
1,051
1,426
1,205
1,853
3,790
5,365
4,342
3,933
8,132
9,298
671
1,922
1,304
3,226
490
753
1,541
2,179
1,764
1,598
3,305
3,777
770
850
912
313
345
370
SM 71 Field - Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Proved (1P)
2,080
378
(451)
1,251
1,581
338
(191)
1,052
2,343
434
(483)
1,426
Probable
2,278
–
(1,608)
670
1,473
–
(983)
490
2,524
–
(1,771)
753
Proved Plus
Probable (2P)
4,358
378
(2,058)
1,922
3,054
338
(1,175)
1,541
4,867
434
(2,254)
2,179
Possible
1,092
–
212
1,304
756
–
1,008
1,764
1,218
–
380
1,598
Proved Plus
Probable Plus
Possible (3P)
5,450
378
(1,847)
3,225
3,810
338
(167)
3,305
6,085
434
(1,874)
3,777
Note: gas volumes reported above exclude a 2% shrinkage factor.
Otto holds a 37.5% working interest (28.214% net revenue interest) in Lightning through a wholly owned subsidiary
Otto Energy USA Inc. The operator, Hilcorp, holds the remaining working interest.
26
CORPORATE
RESE RVES & P ROSPECTIVE RESOU RCE S CONTINUED
LIGHTNING RESERVES AND RESOURCES STATEMENT
Comment on the changes to reserves and resources:
• First production from Green #1 commenced from the Lightning field in May 2019 following the successful
discovery and development of the field. The second well, Green #2, began production in February 2020.
Production performance since start-up of the field has continued to deliver strong results with both wells
combined currently producing approximately 22.4 MMscf/day and 628 bbl/day of condensate; and
•
The joint venture is considering the potential for further wells in the field to fully develop the extensive area
of the Lightning discovery. There is the potential for up to five wells being required to ultimately develop the
entire Lightning accumulation.
Lightning
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proven (1P)
Probable
Gross (100%)
Net (28.214%)
Oil (MbbL)
Gas (MMcf)
Mboe
Oil (MbbL)
Gas (MMcf)
Mboe
703
197
452
23,437
4,609
6,560
1,290
15,060
2,962
1,352
45,057
8,861
808
26,939
5,298
201
56
129
386
231
617
274
891
–
6,696
1,317
1,874
4,302
369
846
12,872
2,532
7,696
1,513
20,568
4,045
9,144
1,798
29,712
5,843
–
–
Proven Plus Probable (2P)
2,160
71,996
14,159
Possible
960
32,005
6,294
Proven Plus Probable Plus Possible (3P)
3,120
104,001
20,453
Total Prospective Resource
(best estimate, unrisked)
–
–
–
Lightning Field - Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
202
139
43
227
386
6,739
1,458
7,590 12,872
1,326
286
1,492
2,532
92
231
4,627
3,069
7,696
910
603
1,513
341
43
319
617 11,366
1,458 10,659 20,568
2,236
286
2,096
4,045
Proved (1P)
Probable
Proved Plus
Probable (2P)
Possible
279
(5)
274
9,315
(171)
9,144
1,832
(34)
1,798
Proved Plus
Probable Plus
Possible (3P)
620
43
314
891 20,682
1,458 10,488 29,712
4,068
286
2,062
5,843
Otto holds a 50% working interest (40.625% net revenue interest) in SM 71 through a wholly owned subsidiary Otto
Energy (Louisiana) LLC. The operator, Byron Energy Limited (ASX:BYE) holds the remaining 50% working interest.
27
ANNUAL REPORT 2020 C OR POR ATE
RE SE R VES & PROSPECTIVE RESOU RCE S CONTINUED
GREEN CANYON 21 RESERVES AND RESOURCES STATEMENT
Comment on the changes to reserves and resources:
•
The “Bulleit” appraisal well commenced drilling on 6 May 2019. On 13 June 2019, the Company announced
that the upper target, the DTR-10 sand, was intersected and a commercial outcome was confirmed. On 8
August 2019 Otto announced the deeper MP sands were intersected and a net 110 feet of TVD oil pay was
intersected in a high-quality reservoir.
• Completion operations continue on schedule for first production late in the third quarter
of CY 2020.
Green Canyon 21
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proven (1P)
Probable
Gross (100%)
Net (13.333%)
Oil (MbbL)
Gas (MMcf)
Mboe
Oil (MbbL)
Gas (MMcf)
Mboe
–
–
5,582
5,582
6,123
–
–
–
–
5,243
6,455
5,243
6,455
6,753
7,249
–
–
745
745
818
–
–
700
700
902
–
–
862
862
968
Proven Plus Probable (2P)
11,705
11,996
13,704
1,563
1,602
1,830
Possible
1,710
1,755
2,002
228
234
267
Proven Plus Probable Plus Possible (3P)
13,415
13,751
15,706
1,791
1,836
2,097
Total Prospective Resource
(best estimate, unrisked)
–
–
–
–
–
–
Bulleit Field (GC 21) - Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
Remaining
6/30/2019
Production
2019
Additions &
Revisions
Remaining
6/30/2020
0
0
0
0
0
0
0
0
0
745
818
745
818
1,563
1,563
228
228
0
1,791
1,791
0
0
0
0
0
0
–
0
–
700
902
700
902
1,602
1,602
234
234
0
1,836
1,836
0
0
0
0
0
0
–
0
–
862
968
862
968
1,830
1,830
267
267
0
2,097
2,097
Proved (1P)
Probable
Proved Plus
Probable (2P)
Possible
Proved Plus
Probable Plus
Possible (3P)
Otto holds a 16.67% working interest (13.333% net revenue interest) in the Green Canyon 21 block through a wholly
owned subsidiary Otto Energy (Gulf Two) LLC. The operator, Talos Energy (NYSE: TALO), and another party own the
remaining working interest.
28
CORPORATE
RESE RVES & P ROSPECTIVE RESOU RCE S CONTINUED
PROSPECTIVE RESOURCES AS AT 30 JUNE 2020
Refer to comments and notes below the tables for commentary on recent activity related to
Prospective Resources.
Gulf Coast Package
Prospect
Working
Interest
Net Revenue
Interest
Gas (BCF)
Prospective Resources
8/8ths
Oil
(MMbbls)
Otto Net Revenue Interest
Mmboe
Gas (BCF)
Oil
(MMbbls)
Mmboe
Mean
Mean
Mean
Mean
Mean
Mean
Beluga1
Tarpon
Mallard
37.50%
37.50%
37.50%
30.00%
28.50%
29.06%
21.25
161.97
7.79
1.21
9.21
0.45
4.75
36.21
1.75
6.38
46.16
2.26
0.36
2.62
0.13
1.43
10.32
0.51
1 Refer to Otto Energy ASX Announcement “Annual Reserves and Resources Statement” released 24 September 2020
Alaska Central North Slope
Prospect
Working
Interest
Net Revenue
Interest
Gas (BCF)
Prospective Resources
8/8ths
Oil
(MMbbls)
Otto Net Revenue Interest
Mmboe
Gas (BCF)
Oil
(MMbbls)
Mmboe
Talitha Unit
10.80%
9.45%
–
483.0
483.00
–
45.64
45.64
Mean
Mean
Mean
Mean
Mean
Mean
Comment on the changes to reserves and resources:
• Mustang (Thunder Gulch #1): In July 2019 Otto announced that the initial exploration well on
the Mustang prospect had discovered 57 net feet of pay. Once completed, however, flow testing
revealed that the well would not produce in commercial quantities, and the well was subsequently
plugged and abandoned during the quarter ended 31 December 2019.
• Alaska Central North Slope: On 7 September 2020, the operator of the Alaska North Slope,
Pantheon Resources PLC (AIM: PANR) announced that its application to form the Talitha
Production Unit of 44,373 acres is complete and eligible for approval. After a public comment
period which closes on 12 October 2020, the Alaska Department of Natural Resources will make
a decision on the application.
29
ANNUAL REPORT 2020 C OR POR ATE
RE SE R VES & PROSPECTIVE RESOU RCE S CONTINUED
N OT E S TO RESE RVES AND RESOURCES STATEMENT
Reserves and Resources Governance
Otto’s reserves estimates are compiled annually. Otto engages Ryder Scott Company, a qualified external
petroleum engineering consultant, to conduct an independent assessment of the Lightning Field and Green
Canyon 21 reserves on behalf of Otto. Ryder Scott Company is an independent petroleum engineering consulting
firm that has been providing petroleum consulting services in the USA for more than fifty years. Ryder Scott
Company does not have any financial interest or own any shares in the Company. The fees paid to Ryder Scott
Company are not contingent on the reserves outcome of the reserves report.
The reserves for SM 71 were compiled by Mr Ed Buckle B.S. Chemical Engineer (Magna Cum Laude), a full-time
contractor of the Company, and audited by Collarini Energy Experts. Collarini Energy Experts is a specialized
consulting services firm with hydrocarbon reserve appraisal expertise.
The individual at Collarini Energy Experts responsible for the audit is a petroleum engineer with more than 45
years of experience in the petroleum industry and 39 years of experience in evaluation of oil and gas assets.
Collarini Energy Experts does not have any financial interest or own any shares in the Company. The fees paid to
Collarini Energy Experts are not contingent on the reserves outcome of the reserves report.
COMPETENT PERSONS STATEMENT
The information in this report that relates to oil and gas reserves and resources at the Lightning Field and Green
Canyon 21 was compiled by technical employees of independent consultants Ryder Scott Company, under the
supervision of Mr. Ali Porbandarwala PE. Mr. Porbandarwala is a Senior Vice President at Ryder Scott Company
and is a registered professional engineer in the State of Texas and a member of the Society of Petroleum
Engineers (SPE). He has a B.S. Chemical Engineering from the University of Kansas and an MBA from the
University of Texas. The reserves 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 information reported in this Statement are based on,
and fairly represents, information and supporting documentation prepared by, or under the supervision of
Mr. Porbandarwala. Mr. Porbandarwala 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 information in this report that relates to oil and gas reserves and resources at SM 71 was compiled by
Mr Ed Buckle B.S. Chemical Engineer (Magna Cum Laude), a full-time contractor of the Company, and audited
by Collarini Energy Experts. Mr Buckle has 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 Buckle. Mr Buckle 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.
30
CORPORATE
RESE RVES & P ROSPECTIVE RESOU RCE S CONTINUED
COMPETENT PERSONS STATEMENT CONTINUED
The information in this report that relates to oil and gas prospective resources in relation to the Gulf Coast
Package (Beluga, Tarpon and Mallard) in the Gulf of Mexico was compiled by technical employees of Hilcorp
Energy Company, the Operator of the Gulf Coast Package, and subsequently reviewed by Mr Ed Buckle B.S.
Chemical Engineering (Magna Cum Laude) who has consented to the inclusion of such information in this
report in the form and context in which it appears.
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 statements.
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.
PRICING ASSUMPTIONS
Oil price assumptions used in the independent report represent forward prices (CME Nymex) as at 30 June 2020.
ASX RESERVES AND RESOURCES REPORTING NOTES
(i)
(ii)
(iii)
(iv)
(v)
The reserves and prospective resources information in this document is effective as at
30 June, 2020 (Listing Rule (LR) 5.25.1)
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 prospective resource net of
royalties (LR 5.25.5)
The reserves and prospective resources information in this document has been estimated and
prepared using the probabilistic method (LR 5.25.6)
The reserves and prospective resources information in this document has been estimated
using a ratio of 6,000 cubic feet of natural gas to one barrel of oil. This conversion ratio is
based on an energy equivalency conversion method and does not represent value equivalency
(LR 5.25.7)
31
ANNUAL REPORT 2020 C OR POR ATE
RE SE R VES & PROSPECTIVE RESOU RCE S CONTINUED
ASX RESERVES AND RESOURCES REPORTING NOTES CONTINUED
(vi)
(vii)
The reserves and prospective resources information in this document has been estimated
on the basis that products are sold on the spot market with delivery at the sales point on the
production facilities (LR 5.26.5)
The method of aggregation used in calculating estimated reserves was the arithmetic
summation by category of reserves. As a result of the arithmetic aggregation of the
field totals, the aggregate 1P may be a very conservative estimate and the aggregate
3P may be a very optimistic estimate due to the portfolio effects of arithmetic summation
(LR 5.26.7 & 5.26.8)
(viii) Prospective resources are reported on a best estimate basis (LR 5.28.1)
(ix)
For prospective resources, the estimated quantities of petroleum that may potentially
be recovered by the application of a future development project(s) relate to undiscovered
accumulations. These estimates have both an associated risk of discovery and a risk of
development. Further exploration, appraisal and evaluation is required to determine the
existence of a significant quantity of potentially moveable hydrocarbons (LR 5.28.2)
(x)
The reserve numbers assume some investment over the life of the field outlined above.
G LOSS ARY
Bbl = barrels
bcf = billion cubic feet
Mcfgpd = thousand cubic feet of gas per day
MMcf = million cubic feet
Bcfe = billion cubic feet equivalent
MBL = thousand barrels of oil
boe = barrels of oil equivalent
Bopd = barrels of oil per day
Btu = British Thermal Units
MMBL = million barrels of oil
Mboe = thousand barrels of oil equivalent
MMboe = million barrels of oil equivalent
EUR = Economic Ultimate Recovery
MCF = thousand cubic feet
Mcfg = thousand cubic of gas
mmbtu = million British Thermal Units
32
04
G OVE RNA NCE
GOVERN ANCE
BOA R D OF DIRE CTOR S
John Jetter
Executive Chairman
BLaw, BEcon, INSEAD
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 from April 2015 to
December 2019. Mr Jetter is a member of the
Remuneration and Nomination Committee.
Paul Senycia
Non-Executive Director
BSc Hons (Mining Engineering), ACSM,
MAppSc (Geophysics)
Mr Paul Senycia was appointed to the Board on 24
April 2018 and became a non-executive director
on 1 January 2019. Mr Senycia joined Otto in
2010 as Exploration Manager, and from 2015 until
1 December 2018 led the Company’s technical
operations. Mr Senycia was instrumental in the
implementation of Otto’s US strategy.
A seasoned oil and gas professional, trained as
an exploration geoscientist, Mr Senycia has over
35 years of international oil and gas experience
in both commercial and technical aspects of the
business. This was gained with large and small
companies worldwide including Shell, Woodside
and Beach Petroleum. Over the last twenty
years Mr Senycia has accumulated substantial
Gulf of Mexico expertise both on the shelf and
in the deep water, including deal capture, asset
management and project divestment activities.
34
GOV ERNANCE
BOARD OF DIRECTORS CONTINUED
Kevin Small
Geoff Page
Executive Director and Chief Geophysicist
Non-Executive Director
B.S Geophysical Engineering
MBA, CPA, FCMA, FGIA
Mr Geoff Page was appointed 17 July 2020
as Non-Executive Director. He also became
Chairman of the Audit and Risk Committee on
1 August 2020. He is a finance professional with
over 20 years of senior finance, accounting
and management experience gained globally
within a number of industries. He has over 10
years of board experience gained in several
different firms.
Mr Page is a member of CPA Australia,
Fellow Member of the Chartered Institute of
Management Accountants and a Fellow Member
of the Governance Institute of Australia.
Mr Small was appointed to the Board on 29
January 2019. Mr Small has over forty years’
experience in the Gulf of Mexico both onshore
and offshore, and has been responsible for the
generation, farm-in, drilling and development
of numerous Gulf Coast discoveries. Mr Small
brings extensive networks and relevant
experience to Otto’s Gulf Coast business.
Prior to joining Otto, Mr Small worked with
Tri-C Resources, a private oil and gas company,
developing Gulf Coast conventional prospects for
drilling. Prior to that, he worked for Bluestreak
Exploration Group developing prospects
exclusively for LLOG Exploration which resulted
in successful discoveries on the Gulf of Mexico
Shelf and deepwater. Mr Small was the
Exploration Manager and a founding member
of the Houston office of Westport Oil and Gas
Company, ultimately helping them go public.
Mr Small also has worked for the Superior Oil
Company and McMoran Oil and Gas, starting
his career in 1978. During his time with LLOG,
Westport, and McMoRan, he has drilled wells
with cumulative production of over 692 BCFG
and 82 MMBO.
In addition to his executive director role, Mr Small
is employed as Chief Geophysicist for Otto.
35
ANNUAL REPORT 2020 05
FINANCIAL
REP ORT 2 020
FINANCIAL REPORT 2020
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
1
2
32
33
34
35
36
37
78
79
83
Annual General Meeting
The Annual General Meeting of Otto Energy Limited will be held on 19 November 2020.
In light of the novel coronavirus outbreak, and for the health and well-being of our stockholders, employees
and directors, this year’s Annual General Meeting will be conducted as a virtual meeting, which will be held
exclusively online via the Internet as a virtual web conference at http://www.ottoenergy.com on 19 November
2020 at 5pm AEST.
37
ANNUAL REPORT 2020FINANCIAL REPORT 2020 CORPORATE DIRECTORY
Directors
Mr John Jetter – Non-Executive Chairman
Mr Michael Utsler - Managing Director and Chief Executive Officer
Mr Geoff Page – Non-Executive Director
Mr Paul Senycia – Non-Executive Director
Mr Kevin Small – Executive Director
Company Secretary
Ms Kaitlin Smith
Key Executives
Mr Michael Utsler – Managing Director and Chief Executive Officer
Mr Will Armstrong – Vice President Exploration and New Ventures
Mr Sergio Castro – Chief Financial Officer
Mr Kevin Small – Chief Geophysicist
Principal registered office
in Australia
Houston Office
Share Registry
Auditors
Ground Floor
70 Hindmarsh Square
Adelaide SA 5000
Tel: + 61 8 6467 8800
Fax: + 61 8 6467 8801
Two Allen Center
1200 Smith Street
Houston, TX 77002
Tel: +1 713-893-8894
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
Securities Exchange Listing
Australian Securities Exchange
ASX Code: OEL
Website address
www.ottoenergy.com
ABN
56 107 555 046
38
1
FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
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 2020 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 except for Mr Geoff Page who was appointed 17 July 2020,
Mr Matthew Allen who resigned on 10 June 2020, Mr Ian Boserio who resigned on 1 April 2020, Mr Ian
Macliver who resigned on 21 November 2019 and Mr Michael Utsler who was appointed 11 September 2020.
Mr John Jetter BLaw, BEcon, INSEAD
Chairman (Non-Executive)
Appointed Non-Executive Director 10 December 2007; Appointed Non-Executive Chairman 25 November
2015; Retired as Chairman but remained as Non-Executive Director 21 November 2019; Re-appointed Non-
Executive Chairman 1 April 2020; Appointed Executive Chairman 10 June 2020; Re-appointed Non-Executive
Chairman 11 September 2020
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 from April 2015 to December 2019.
He is Chairman of the Remuneration and Nomination Committee.
Mr Jetter will seek re-election at the Annual General Meeting in 2020 as a Non-Executive Director.
Mr Michael Utsler
Managing Director and Chief Executive Officer
Appointed 11 September 2020
Mr Michael Utsler was appointed Managing Director and Chief Executive Officer on 11 September 2020. Mr
Utsler is an oil and gas executive with more than 40 years of experience in senior international oil and gas
sector roles, including 15 years in the Gulf of Mexico and 5 years as Chief Operating Officer of Woodside in
Australia. His career has encompassed senior executive, leadership and board roles with Amoco, BP,
Woodside and New Fortress Energy. He holds a B.S. in Petroleum Engineering from the University of
Oklahoma.
Mr Paul Senycia BSc (Hons), MAppSc
Director (Independent Non-Executive)
Appointed Executive Director 24 April 2018; Became Non-Executive Director 1 January 2019
Mr Paul Senycia is a seasoned geoscientist with over 35 years of international oil and gas experience in both
commercial and technical aspects of the business. Mr Senycia has held senior roles in large and small
companies worldwide including Shell, Woodside and Beach Petroleum. Over the last twenty years Mr Senycia
has accumulated substantial Gulf of Mexico expertise both on the shelf and in the deep water. This has
included deal capture, asset management and project divestment activities. Outside the Gulf of Mexico, Mr
Senycia has worked in Europe, Asia, Africa and Australasia both on and offshore.
Up until his retirement on 31 December 2018, Mr Senycia was the Vice President – Exploration and New
Ventures for the Company. Mr Senycia is a member of the Audit and Risk Management Committee and
Remuneration and Nomination Committee. Mr Senycia has not held any other directorships in the last three
years.
Mr Kevin Small BSc Goephysical Engineering (Hons)
Director (Executive)
Appointed Executive Director 29 January 2019
Mr Kevin Small is an exploration geoscientist with over forty years’ experience in the Gulf of Mexico both
onshore and offshore, and has been responsible for the generation, farm-in, drilling and development of
2
39
ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
numerous Gulf Coast discoveries. Mr Small brings extensive networks and relevant experience to Otto’s Gulf
Coast business.
Prior to joining Otto Mr Small worked with Tri-C Resources, a privately owned Houston based oil and gas
company, developing Gulf Coast conventional prospects for drilling. Between 2003 and 2012, Mr Small
worked for Bluestreak Exploration Group developing prospects exclusively for LLOG Exploration which
resulted in successful discoveries on the Gulf of Mexico Shelf and Deepwater. Mr Small was the Exploration
Manager and a founding member of the Houston office of Westport Oil and Gas Company between 1996 and
2003, ultimately helping them go public in October 2000. Mr Small also has worked for the Superior Oil
Company and McMoran Oil and Gas. During his time with LLOG, Westport, and McMoRan. Mr Small drilled
wells with cumulative production of over 692 BCFG and 82 MMBO. Mr Small has not held any other
directorships in the last three years.
Mr Geoff Page
Director (Independent Non-Executive)
Appointed Non-Executive Director 17 July 2020
Mr Geoff Page is a finance professional with over 20 years of senior finance, accounting and management
experience gained globally within a number of industries. He has over 10 years of board experience gained
in several different firms. Mr Page is a member of CPA Australia, Fellow Member of the Chartered Institute
of Management Accountants and a Fellow Member of the Governance Institute of Australia. Mr Page is
Chairman of the Audit and Risk Committee.
Mr Matthew Allen BBus, FCA, F Fin, GAICD
Former Managing Director and Chief Executive Officer
Appointed Managing Director 24 June 2015; Resigned 10 June 2020
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 Boserio BSc Hons First Class (Geophysics), BSc (Geology) GAICD
Former Chairman (Independent Non-Executive)
Appointed Non-Executive Director 2 September 2010; Appointed Deputy Chairman 8 September 2019;
Appointed Chairman 21 November 2019; Resigned 1 April 2020
Mr Ian Boserio brought to the Otto Board more than 35 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. While with Otto, he was co-owner and technical director of private oil and gas company
Pathfinder Energy Pty Ltd. Mr Boserio was a former member of the Audit and Risk Management Committee
and Chairman of the Remuneration and Nomination Committee.
Mr Ian Macliver BCom, FCA, SF Fin, FAICD
Former Director (Independent Non-Executive)
Appointed Non-Executive Director 7 January 2004; Resigned 21 November 2019
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
40
3
FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
2013, and non-executive Director since October 2011. Mr Macliver was the former Chairman of the Audit and
Risk Management Committee.
Company Secretary
Ms Kaitlin Smith BCom (Acc), CA
Appointed 2 November 2019
Ms Smith provides Company Secretarial and Accounting services to various public and proprietary
companies. She holds a Bachelor of Commerce (Accounting) and is a Chartered Accountant. Ms Smith
replaces Mr David Rich who resigned as Chief Financial Officer and Company Secretary on 2 November
2019.
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 P Senycia
Mr K Small
Mr G Page
Mr M Utsler
Principal activities
Number of
Ordinary Shares
57,881,668
8,691,134
49,486,383
-
-
Number of
Rights
1,804,667
2,769,000
4,840,000
-
-
The principal activity of the Group is oil and gas exploration, development, production and sales in North
America.
Dividends
No dividend has been declared for the year ended 30 June 2020.
Operating and Financial Review
During the year ended 30 June 2020 Otto participated in a second well at the Lightning field (Green #2), which
commenced production in February 2020. The Company’s Green Canyon 21 “Bulleit” appraisal well reached
target depth in August 2019 and completion activities are expected to conclude in September 2020. Otto also
participated in the drilling and/or testing of two other exploration/appraisal wells, one of which did not result
in a commercial discovery and the other of which was temporarily abandoned due to increased uncertainty
surrounding COVID-19.
Financial Summary
Otto’s net revenue from production during the year was US$23.0 million (2019: US$31.3 million) generating
an operating gross profit of US$12.7 million (2019: US$23.4 million). Costs of production included US$6.6
million for amortisation of oil and gas properties (2019: US$5.0 million). Revenue was down 26% from FY2019
due to lower oil and liquids prices attributed to the impact of the price war between OPEC and non OPEC
members, Covid-19 as well as planned ramp down in production rates on SM71 in response to the sharp
decline in demand as per the ASX release of 31 March 2020.
4
41
ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
Under Otto’s accounting policy, exploration expenses are expensed as incurred and for the year Otto’s
exploration expenditure was US$13.1 million (2019: US$37.8 million) which included exploration expenditure
for the following wells: Green Canyon 21, SM-71 F5 and Mustang.
Overall the Group recognised a loss after income tax for the year of $1.4 million (2019: loss $18.4 million).
Administration costs were US$4.8 million, down from US$5.1 million in 2019. This includes business
development costs of US$0.4 million (2019: US$0.7 million) and the costs of establishing the office and
management team in Houston.
Finance costs include amortisation of borrowing costs of US$0.7 million (2019: US$0.2 million) and interest
and commitment fees on the Macquarie debt facility of $1.65 million.
Included in the Consolidated Statement of Profit or Loss and Other Comprehensive Income is $6.0 million of
gains on derivative financial instruments of which $1.8 million is realized gains.
The Company had a successful capital raise totaling approximately A$13.8 million (before costs) undertaken
during the year to fund the exploration drilling. A detailed review of the operations of the Group during the
financial year are set out below.
In response to the decrease in oil and gas prices, management announced initiatives to reduce corporate
costs. Among these initiatives were a 50% reduction in director fees and reductions in base salaries of 46%
for Houston based executives and staff. These cost reduction initiatives, the hedging program and production
ramp down actions have been taken to ensure that the company is positioned to ride through the current
market challenges. Full details of cost reduction initiatives are included in the ASX release of 6 April 2020.
During the year, management identified impairment indicators in relation to the Group’s oil and gas assets
being the effects of the Covid-19 pandemic and significant decline in oil prices; and the carrying value of the
oil and gas assets exceeding market capitalization as at 30 June 2020. This led to the Group assessing the
recoverable amount of the Group’s oil and gas assets in accordance with relevant accounting standards. No
impairment was recorded for the year ended 30 June 2020.
The Group will continue to assess the impact of Covid-19 on existing projects and operations. The duration
and spread of the pandemic and regulations imposed by governments continue to be closely monitored to
determine any future impact on the Group.
Production and Development
Reserves Statement as at 30 June 2020
On 24 September 2020 the Company released its statement of reserves and resources as at 30 June 2020
which included Otto’s offshore leases at South Marsh 71 (“SM 71”) and Green Canyon 21 (“GC 21”), and its
Lightning Field lease in Matagorda County, TX. The prospective resources cover Alaska, onshore leases
along the Gulf Coast, and SM 71. The summary statement of reserves and prospective resources as at 30
June 2020 and Changes to reserves and resources since 30 June 2019 is set out below. Full details including
the reconciliations and notes on the statements are included in the ASX release of 24 September 2020.
42
5
FINANCIAL REPORT 2020 43
DIRECTOR’S REPORT For the year ended 30 June 2020 6 Changes to reserves and resources since 30 June 2019: Production and Revenue Summary The table below sets forth production and revenue information associated with Otto’s sales of natural gas, oil and natural gas liquids ("NGLs") from the two producing fields at SM71 and Lightning for the year ended 30 June 2020. One barrel of oil, condensate or NGL is the energy equivalent of six Mcf of natural gas. ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
Production Volumes and Sales Revenue
WI Share (before royalties) (USD)
Crude oil (barrels)
South Marsh 71
Lightning Field
Total oil production
Total oil sales revenue ($'million)
Avg oil price ($/Bbl)
Avg oil price - including hedges ($/Bbl)
Natural gas (thousand cubic feet)
South Marsh 71
Lightning Field
Total gas production
Total gas sales revenue ($'million)
Avg gas price ($/MMbtu)
Natural gas liquids (barrels)
South Marsh 71
Lightning Field
Total NGL production
Total NGL sales revenue ($'million)
Avg NGL price ($/Bbl)
Total (barrels of oil equivalent)
South Marsh 71
Lightning Field
30-Sep-19
31-Dec-19
31-Mar-20
30-Jun-20
$
$
$
$
$
$
$
132,063
11,123
143,186
8.20
57.27
56.64
148,267
344,504
492,771
1.10
2.23
-
16,038
16,038
0.19
11.77
156,774
84,578
127,211
3,791
131,002
7.32
55.88
53.80
102,768
16,771
119,539
5.34
44.70
49.56
$
$
$
97,756
24,328
122,084
2.74
22.44
35.06
$
$
$
125,422
112,670
238,092
0.57
2.39
70,354
547,460
617,814
1.2
1.85
$
$
56,266
755,166
811,432
1.4
1.66
$
$
-
5,265
5,265
0.08
15.80
148,115
27,834
175,949
1,912
7.97
45.30
43.75
$
$
$
$
$
-
24,507
24,507
0.41
16.55
-
24,806
24,806
0.27
10.82
$
$
114,494
132,521
247,015
2,714
6.90
27.94
30.30
107,134
174,995
282,129
3,100
4.39
15.55
21.01
$
$
$
$
$
$
$
$
$
$
$
$
$
241,353
Total production
2,623
Total daily production (Boe/d)
9.49
Total revenue ($'million)
Total equivalent price ($/Boe)
39.32
Total equivalent price - including hedges ($/Boe)38.95
$
$
$
Notes
1. Otto sells its high-quality Louisiana Light Sweet crude (“LLS”) produced at SM 71 at a premium to West
Texas Intermediate (“WTI”) based on current LLS versus WTI price differentials. Deductions are then
applied for transportation, oil shrinkage, basic sediment & water (BS&W), and other applicable
adjustments.
2. On average, 1 Mscf = 1.10 MMbtu in June for SM 71 production. The thermal content of SM 71 gas may
vary over time.
South Marsh Island 71 (SM 71) – Offshore Gulf of Mexico. Otto WI 50.0%
Otto owns a 50% Working Interest (“WI”) and a 40.625% Net Revenue Interest (“NRI”) in the South Marsh
Island block 71 (“SM 71”) in the Gulf of Mexico, with Byron Energy Limited (“Byron”) the operator, holding an
equivalent WI and NRI. Water depth in the area is approximately 137 feet.
Following the initial discovery by Otto and Byron in 2016, oil and gas production from the SM 71 F platform
began in late March 2018 from two wells with the third well coming on-line in early April 2018. The F1 and
F3 wells are completed in the primary D5 Sand reservoir and the F2 well is completed in the B55 Sand, a
secondary exploration target.
In March 2020, the joint venture spudded the F5 development well in this field and announced a potential
discovery on 23 March 2020. Due to increased uncertainty of continuing operations related to the impact of
COVID-19 on operations, the SM71 F5 wellbore was temporarily abandoned in a manner that allows it to be
efficiently sidetracked in the future when the uncertainty relating to the COVID-19 pandemic has dissipated
and also at a time where oil price volatility stabilizes.
The SM 71 F facility has now produced over 2.4 million barrels of oil (gross) since initial production began.
The facility has also produced over 3.1 billion cubic feet of gas (gross).
44
7
FINANCIAL REPORT 2020
45
DIRECTOR’S REPORT For the year ended 30 June 2020 8 In December 2019, the joint venture installed a new, upgraded compressor at the platform, which allows for the wells to be managed in a more consistent, stable manner. This results in more accurate monthly sales nominations, more predictable operating costs and overall better reservoir management. The following table sets forth certain information with respect to our SM71 reserves as of 30 June 2020: Lightning – Onshore Matagorda County, Texas. Otto WI 37.5% Otto owns a 37.5% Working Interest (“WI”) and a 28.2% Net Revenue Interest (“NRI”) in the Lightning Field in Matagorda County, Texas, with Hilcorp Energy Limited (“Hilcorp”) the operator, holding the remaining interest. Otto earned its 37.5% working interest in this field by paying 50.0% of the cost of drilling the initial Green #1 well. The first well in this field, the Green #1, commenced production in June 2019, while the second well, the Green #2, commenced drilling in October 2019 and commenced production in February 2020. Reinterpretation of the 3D seismic by the operator confirms that there are multiple levels of hydrocarbon pay in the Lightning field. While the Green #1 and Green #2 wells are currently producing from the upper Tex Miss 1 zone, the lower Tex Miss 2/3 zone was tested in both wells while they were being drilled. The Tex Miss 2/3 zone appears to be aerially significantly larger and potentially thicker than the Tex Miss 1. In both tests, production from the Tex Miss 2/3 zone has indicated that the zone has lower permeability than the Tex Miss 1 and has not been able to establish steady production. It is planned that a future well will be designed to test the ability to stimulate the Tex Miss 2/3 zone and unlock the significant upside potential from this zone in future drilling campaigns. The following table sets forth certain information with respect to our Lightning reserves as of 30 June 2020: ANNUAL REPORT 2020FINANCIAL REPORT 2020 46
DIRECTOR’S REPORT For the year ended 30 June 2020 9 Green Canyon 21 (GC 21) – Offshore Gulf of Mexico. Otto WI 16.67% Otto owns a 16.67% Working Interest (“WI”) and a 13.34% Net Revenue Interest (“NRI”) in Green Canyon 21 (“GC-21”) in the Gulf of Mexico, with Talos Energy (“Talos”) as operator. Otto earned its 16.67% working interest in GC-21 by paying 22.22% of the cost of drilling the “Bulleit” appraisal well. The “Bulleit” appraisal well commenced drilling in May 2019. In June 2019, the Company announced that the upper target, the DTR-10 sand, was intersected and a commercial outcome was confirmed. In August 2019 Otto announced the deeper MP sands were intersected and a net 110 feet of TVD oil pay was intersected in a high-quality reservoir. While drilling the deeper objective MP sands, poor hole conditions and compromised drilling operations requiring sidetracking of this well. In addition, poor weather conditions resulted in delayed operations and as a result, the cost of drilling the GC-21 “Bulleit” well exceeded the pre-drill estimates of US$9.0m net to Otto. As of 30 June 2020, the Company had invested approximately $16.1 million to drill and complete this well. Completion and hook-up operations for this well are underway. Talos will complete the well as a subsea tieback with a standard completion, tying back to the Talos operated GC 18A Platform, approximately 10 miles (~16 km) west of the “Bulleit” well. The platform is currently being upgraded and first production continues to be expected in late Q3 CY 2020. The following table sets forth certain information with respect to our Green Canyon reserves as of 30 June 2020: FINANCIAL REPORT 2020 47
DIRECTOR’S REPORT For the year ended 30 June 2020 10 Exploration and Appraisal Gulf Coast Package - Hilcorp On 31 July 2018 Otto announced that it had entered into a joint venture with Hilcorp Energy as operator, which will see the Company earn a 37.5% working interest in an eight well portfolio of prospects in the Onshore/Near Shore USA Gulf Coast (Gulf of Mexico). Otto will earn a 37.5% working interest by paying 50.0% of the costs of drilling and either setting casing or plugging and abandoning the initial exploration well plus lease acquisition costs at each of the eight prospects. Four wells have now been drilled (Big Tex, Lightning, Don Julio 2 and Mustang) with Lightning being a discovery. In July 2019 Otto announced that the initial exploration well on the Mustang prospect had discovered 57 feet of net hydrocarbon pay. Once completed, however, flow testing revealed that the well would not produce in commercial quantities, and the well was subsequently plugged and abandoned during the quarter ended 31 December 2019. Vermillion 232 (VR 232) In June 2018, Byron Energy acquired 100% of Vermillion Block 232. Pursuant to the terms of a Participation Agreement, Otto elected to participate in VR 232 at a fifty percent (50%) working interest. In May 2019, Otto acquired Byron Energy’s 50% interest in, and operatorship of, VR 232 at no cost, resulting in Otto owning 100% of the lease block. After reviewing high quality 3D seismic data set over the SM 71 area (including VR 232), this lease block was released in May 2020. Alaska Western Blocks In June 2018 Otto acquired a 22.5% working interest in four leases, consisting of 22,710 acres, from Great Bear Petroleum Ventures II LLC. The first well on these leases, the Winx-1, commenced drilling on 15 February 2019 and intersected all pre-drill targets safely and efficiently, with a comprehensive wireline logging program successfully run and completed. Petrophysical analysis of the wireline logging program indicated low oil saturations in the primary Nanushuk Topset objectives; testing and fluid sampling indicated that reservoir quality and fluid mobility at this location was insufficient to warrant production testing. Winx-1 was subsequently plugged and abandoned. These lease blocks were relinquished in May 2020. ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
Alaska Central Blocks
Through its agreements with Great Bear Petroleum Operating ("Great Bear Operating") in 2015, Otto has
in the leases held by Pantheon Resources plc
between an 8% and 10.8% working
(AIM:PANR)(“Pantheon”) on the Alaskan North Slope (“Central Blocks”). The leases are in a major play
fairway south of the Prudhoe Bay and Kuparuk giant oil fields.
interest
In January 2019, Pantheon acquired Great Bear Petroleum Ventures I LLC and Great Bear Petroleum
Ventures II LLC (collectively: Great Bear Ventures).
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.
The existing 3D seismic has allowed development of an extensive prospect portfolio which includes at least
4 well locations.
Otto’s exposure on the first two wells is limited to US$2.6m/well. Otto had no activity in this area during the
year ended 30 June 2020.
Corporate and Administration
Houston Office
During the previous fiscal year (30 June 2019), the Company completed the establishment of its Houston
office and appointment of a US-based technical team. The final component was the hiring of Mr Sergio
Castro as Chief Financial Officer in December 2019.
Executive Changes
In June 2020, the Company announced that Mr Matthew Allen stepped down as Chief Executive Officer and
from the Board as Managing Director following the completion of his two-year assignment to Houston. Mr
Allen has agreed to remain with the Company as a senior advisor for a period of six months to assist with an
orderly leadership transition to a new successor.
In September 2020, the Company announced that Mr Michael J. Utsler had been hired as the Company’s new
Chief Executive Officer and Managing Director. Refer to the subsequent events section of the report.
Related Parties
Effective 1 April 2020, the Board of Directors engaged Mr John Jetter to serve as a consultant to the Company,
to perform any services required by the Company. Under the terms of the consultancy agreement, Mr Jetter
is to consult for a maximum of three days per week at a rate of AUD$2,500 per day. For the fiscal year ended
30 June 2020, Mr Jetter earned AUD$80,000 under this consultancy agreement.
Commodity Price Risk Management
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are
determined, to a large degree, by prevailing oil and natural gas prices. Otto sells its production to purchasers
pursuant to sales agreements, with sales prices tied to industry standard published index prices, subject to
negotiated price adjustments.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price
fluctuations by using a series of swaps, costless collars and/or puts. Unrealized gains or losses associated
with hedges vary period to period, and are a function of hedges in place, the strike prices of those hedges
and the forward curve pricing for the commodities being hedged. Currently, all of Otto’s hedges are oil swaps,
and the Company has no three-way collars or short puts.
As of 30 June 2020, Otto had a total hedge book of 318,840 barrels of oil hedged through September 2022 via
swaps, at a weighted average LLS price of $54.60 as follows:
In July 2020, the Company entered into additional hedges for 66,000 barrels for 2020 and 54,074 barrels for
2021, resulting in a Weighted Average LLS Price of $50.11 for the remainder of CY 2020 and $51.62 for CY
2021 (on forecast SM71 and Lightning volumes). In August 2020, the Company entered into additional hedges
for 66,358 barrels for CY2022, resulting in a Weighted Average LLS Price of $49.20 for CY 2022 (on forecast
SM71 and Lightning volumes). Refer to the subsequent events section of the report.
48
11
FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
Months
Volume (Bbls)
Weighted Avg Price (LLS)
July – December 2020
January – December 2021
January – September 2022
90,664
184,616
43,560
$56.71
$53.71
$54.00
Strategy
The Company’s near-term strategic goal is to grow production in the Gulf of Mexico to 5,000 boepd by the
end of 2020. Through successful exploration, Otto has built a portfolio of three conventional oil and gas
properties in the US Gulf of Mexico and Gulf Coast with two in production and one in the development stage.
These three projects are expected to take Otto close to its goal when each is in full production (anticipated
by late-2020).
For FY 2021 and 2022, Otto will likely minimize its drilling program and use excess cash flow for working
capital and to reduce borrowings outstanding under the Company’s Credit Facility. The Company will
continue to make balance sheet strength a priority by reducing its general and administrative expenses
where possible. Otto retains the flexibility to be aggressive in its drilling program should commodity prices
improve.
Key Risks
The key areas of risk, uncertainty and material issues that could affect the achievement of Otto’s goals and
delivering on its targets are described below. Note that this is not an exhaustive list of risks that may
potentially affect the Company.
Operating Risk
Sustained, unplanned interruption to production may impact Otto’s financial performance and its ability to
fund its forward programs. The facilities in which Otto currently has a non-operated working interest and
third party pipelines, refineries and gas plants which are utilized for sales and transportation of
hydrocarbons are subject to operating hazards associated with major accident events, cyber-attack and
weather events, which can result in a loss of hydrocarbon containment, diminished production, additional
costs, environmental damage and harm to people or reputation. This risk also extends to unexpected sub-
surface outcomes.
Otto has insurance cover for a number of these risks where it is appropriate and commercially justifiable to
do so. For example, Otto has insurance cover for property damage, but does not have cover for loss of profits
as the cost is prohibitive.
As Otto is non-operator, the operating risks are extended to include the performance of the operator. These
risks could include inadequate resourcing or systems, misalignment of interest, inadequate capture or
provision of data and information, poor financial position or unfavourable or inadequate agreement with the
operator. Consequences of poor performance by an operator could extend to operational incidents, financial
loss, loss of opportunity, non-compliance, legal disputes or less than optimal financial returns from the field.
Otto seeks to manage the risks around performance of the operator by entering into ventures with operators
who have demonstrated competencies and financial capacity. Through its due diligence Otto seeks to ensure
that the operator’s reputation is sound and that Otto’s interests are in alignment before committing to
participation.
Unsuccessful Exploration and Oil and Gas Reserves Depletion Risk
Without additions to reserves through exploration and development drilling success or acquisitions, Otto’s
oil and gas production, and hence revenues and cash flows, will decrease over time as production from
existing fields declines naturally. The rate of decline is dependent on reservoir characteristics.
12
49
ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
Exploration for and development of reserves may be unsuccessful or unprofitable due to a number of factors
that are inherent in the oil and gas industry and are outside Otto’s control. These include the risk that Otto
will not discover commercially productive reservoirs or discovers reservoirs that do not produce sufficient
revenues to return a profit. Drilling and development operations may be curtailed, delayed or cancelled as a
result of other sub-surface, mechanical or environmental factors or events causing significant financial
losses.
Otto seeks to mitigate the risk of unsuccessful exploration by having an exploration strategy based around a
strict set of criteria including geographical restrictions, probabilities of success, partner and operator
capacity and reputation (including drilling contractors) and required rates of return. Otto then seeks to
ensure that it has suitably qualified and experienced staff and advisors to generate and evaluate
opportunities within the set criteria. Any acquisition of reserves is subject to the same discipline.
Where possible, Otto also seeks to reduce the likelihood or impact of such risks through commercial
agreements where possible.
Key Management Risk
As Otto is a non-operator of its key interests, it has a small management team. Having a suitably qualified
and reputable operating team in place with appropriate relationships and experience in the Gulf of Mexico
oil and gas business is critical to Otto’s success so far and in the future. The loss of the services of members
of the Houston operating team could have a negative impact on the Company’s operations and relationships.
Particularly in the short term until suitable replacements could be recruited. Otto does not maintain or plan
to obtain any insurance against the loss of any key management personnel.
Commodity price risk
Otto’s revenues, profitability and generation of cash flows depend significantly on crude oil and natural gas
prices. Oil and natural gas prices are volatile and low prices could have a material adverse impact on
profitability and cash flow. There are a number of factors that can cause fluctuations in price that are beyond
the control of Otto.
Otto monitors and analyses the oil and gas markets and seeks to reduce price risk where reasonable and
practical. The Company has policies and procedures for entering into hedging contracts to mitigate against
the fluctuations in oil price and exchange rates.
Borrowings
On 4 November 2019 the Company announced it had entered into a three-year senior secured US$55 million
term debt facility (Facility) with Macquarie Bank Limited (Macquarie). This Facility is to be used to fund the
Company’s current and future developments, including Green Canyon 21 and any new discoveries arising
from the remainder of the current programs.
The initial commitment under the Facility is US$35 million with an additional US$20 million subject to further
credit approval from Macquarie. Key Terms of the Facility include:
•
• US$25 million available under Tranche A1. As of 30 June 2020, the Company has drawn the US$25
million available under this tranche, and had repaid $4.3 million, resulting in a closing balance of
$20.7 million. Repaid amounts are not available to be re-borrowed;
Additional US$10 million available under Tranche A2 until 31 December 2020, upon successful
exploration or commencement of commercial production at Green Canyon 21;
Interest rate of LIBOR plus 8.0% per annum;
•
• Matures in November 2022 (36 months from initial drawdown);
•
Quarterly principal repayments commenced 31 March 2020;
•
Senior secured non-revolving facility with security over US based assets; and
•
The Facility may be cancelled by the Company after 12 months without penalty once any drawn funds
are repaid.
As of 30 June 2020, the Company was in compliance with all of its financial covenants.
50
13
FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
Option Issue
In addition to customary upfront fees payable to Macquarie, the Company issued to Macquarie 42.5 million
options to subscribe for fully paid ordinary shares in the Company at an exercise price of A$0.08 to access
Tranche A1. A further 42.5 million options will be issued on initial draw of Tranche A2 and will expire four
years after issue date.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year were as follows:
•
•
•
•
•
In August 2019, Otto announced a discovery in the deep MP sands with its GC-21 “Bulleit” well.
Approximately 110 net feet of TVD oil pay was intersected in a high-quality reservoir. This will be the
reservoir from which the well will produce when it comes on-line in in late Q3 CY 2020.
In November 2019, the Company entered into a three-year senior secured US$55 million Facility with
Macquarie. This Facility will be used to fund the Company’s current and future developments.
In December 2019, the joint venture with Hilcorp drilled its second well in the Lightning Field, the Green
#2, and commenced production in February 2020.
In March 2020, the joint venture with Byron spudded the F5 development well at SM71 and announced
a potential discovery. Due to increased uncertainty of continuing operations related to the impact of
COVID-19 on operations, the wellbore was temporarily abandoned in a manner that allows it to be
efficiently sidetracked in the future when the uncertainty relating to the COVID-19 pandemic has
dissipated and also at a time where oil price volatility stabilizes.
In April 2020, Otto completed a capital raising of approximately A$13.8 million (US$8.8 million) before
costs through a placement and a 1 for 1 accelerated non-renounceable entitlement offer as set out
below.
a) The Placement raised a total of approximately A$1.4 million, through the issue of approximately
231 million shares at A$0.006 per share.
b) The Institutional Entitlement Offer raised a total of A$6.4 million through the issue of approximately
1,074 million shares at A$0.006 per share. The Institutional Entitlement Offer saw take-up of 536.9
million shares by Molton Holdings Limited, in its capacity as an existing institutional investor; 8.3
million shares to other institutional investors and 528.7 million shortfall shares to Molton Holdings
Limited in its capacity as sub-underwriter of the Entitlement Offer.
c) A total of A$6.0 million was raised from the Retail Entitlement Offer through the issue of 1,000
million shares at A$0.006 per share.
Euroz Securities Limited acted as Lead Manager and Underwriter to the Entitlement Offer, Adelaide Equity
Partners Limited as Financial Advisor and Steinepreis Paganin acted as legal advisor. Euroz Securities
Limited were appointed Managers to the offer.
The funds were raised to be used in conjunction with cash flows from Otto’s 50% owned SM 71 oil field and
37.5% owned Lightning gas/condensate discovery to fund the Company’s development program and for
general working capital.
Significant events after the balance date
No matters or circumstances have arisen since 30 June 2020 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 apart from those listed below:
• Board and Executive Changes
On 17 July 2020, the Company appointed Mr Geoff Page as a Non-Executive Director of the Company
and as Chairman of the Audit and Risk Committee. Mr Page is a finance professional with over 20 years
of senior finance, accounting and management experience gained globally within a number of
industries. He has over 10 years of board experience gained in several different firms.
14
51
ANNUAL REPORT 2020FINANCIAL REPORT 2020 52
DIRECTOR’S REPORT For the year ended 30 June 2020 15 On 1 September 2020, Mr Philip Trajanovich, the Company’s Commercial and Land Manager resigned to move away from Houston, Texas. The Company subsequently re-hired Mr Trajanovich as a remote consultant. On 11 September 2020, the Company hired Mr Michael Utsler as the Company’s new Chief Executive Officer and Managing Director. Mr Utsler is an oil and gas executive with more than 40 years of experience in senior international oil and gas sector roles, including 15 years in the Gulf of Mexico and 5 years as Chief Operating Officer of Woodside in Australia. His career has encompassed senior executive, leadership and board roles with Amoco, BP, Woodside and New Fortress Energy. He holds a B.S. in Petroleum Engineering from the University of Oklahoma. • Reserves Statement On 24 September 2020 the Company released its statement of reserves and prospective resources forSM 71, Lightning and Green Canyon 21 as at 30 June 2020. The reserves for Lightning and Green Canyon21 were compiled by Otto’s independent consultant Ryder Scott Company, while the reserves for SM 71were compiled by Mr Ed Buckle, a full-time contractor of the Company, and audited by Collarini EnergyExperts. The summary statement of reserves and prospective resources as at 30 June 2020 andChanges to reserves and resources since 30 June 2019 is set out below. For full details refer to ASXrelease dated 24 September 2020.The individual statements for each field are included in the Productionand Development section above.Changes to reserves and resources since 30 June 2019: •Hedging In July 2020, the Company entered into additional hedges for 66,000 barrels for 2020 and 54,074 barrelsfor 2021, resulting in a Weighted Average LLS Price of $50.11 for the remainder of CY 2020 and $51.62for CY 2021 (on forecast SM71 and Lightning volumes). In August 2020, the Company entered intoadditional hedges for 66,358 barrels for CY2022, resulting in a Weighted Average LLS Price of $49.20 forCY 2022 of $49.20 (on forecast SM71 and Lightning volumes).The impact of the Coronavirus (Covid-19) pandemic is ongoing and its impact on the Group has beendisclosed within the Directors Report. It is not practicable to estimate the potential impact, positive orFINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
negative, after the reporting date. The situation is rapidly developing and is dependent on measures
imposed by the Australian Government and other countries, such as maintaining social distancing
requirements, quarantine, travel restrictions and any economic stimulus that may be provided.
Likely developments and expected results
Likely developments in the operations of the Group that were not finalised at the date of this report included:
•
•
Continue completion of the Green Canyon 21 discovery to commence production in late Q3 2020; and
Possible participation in a Green #3 development well at the Lightning Field with Hilcorp
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:
Board meetings
Director
Mr J Jetter
Mr M Allen(i)
Mr I
Macliver(ii)
Mr I
Boserio(iii)
Mr P Senycia
Mr K Small
Number
eligible to
attend
24
22
7
20
24
24
Audit and risk
management
Committee (ARC)
Remuneration and
nomination committee
(RNC)
Number
attended
19
22
6
20
24
24
Number
eligible to
attend
2
-
1
1
2
-
Number
attended
2
-
1
1
2
-
Number
eligible to
attend
-
-
-
1
1
-
Number
attended
-
-
-
1
1
-
(i)
(ii)
(iii)
Mr M Allen resigned as Managing Director on 10th June 2020.
Mr I Macliver resigned as Non-executive Director on 21 November 2019
Mr I Boserio resigned as Non-executive Director on 1 April 2020
Indemnification and insurance of Directors and officers
During the financial year, the Company paid a premium of approximately $115,000 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 willful 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.
16
53
ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
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.
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:
Tax compliance services
Tax consulting and tax advice
2020
US$
15,017
31,114
46,131
2019
US$
13,058
1,410
14,468
Auditor’s independence declaration
The auditor’s independence declaration is included on page 69 of this report.
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 during 2020. This structure includes the share rights
and option plans approved by the shareholders at the Company’s Annual General Meeting on 21 November
2019. 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
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17
FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
evaluated at an individual level as well as the performance of the Group as a whole. The remuneration
policies and structure in 2020 were generally the same as for 2019.
Key management personnel disclosed in this report are:
Directors
Mr John Jetter
Mr Paul Senycia
Mr Kevin Small
Mr Matthew Allen
Mr Ian Boserio
Mr Ian Macliver
Executives
Mr Will Armstrong
Mr Sergio Castro
Mr Philip Trajanovich
Mr David Rich
Non-Executive Chairman
Non-Executive Director
Executive Director and Chief Geophysicist
Former Managing Director and Chief Executive Officer, resigned 10 June 2020
Former Non-Executive Chairman, resigned 1 April 2020
Former Non-Executive Director, resigned 21 November 2019
Vice President – Exploration and New Ventures
Chief Financial Officer, commenced 9 December 2019
Former Senior Commercial Manager, resigned 1 September 2020
Former Chief Financial Officer and Company Secretary, resigned 1 November 2019
Changes since the end of reporting period
Mr Michael Utsler
Mr Geoff Page
Mr Philip Trajanovich
Managing Director and Chief Executive Officer, commenced 11 September 2020
Non-Executive Director, commenced 17 July 2020
Former Senior Commercial Manager, resigned 1 September 2020
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.
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 is currently comprised of two non-executive Directors.
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.
18
55
ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
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 reviewed in June 2018. Prior to this there had been no increase in non-executive director fees
since 2012. 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.
Non-executive Directors received a grant of performance rights on 15 November 2018 following approval by
shareholders at the Company’s Annual General Meeting. The grant was based on 50% of FAR. The Board
believes that the issue constituted reasonable remuneration having considered the peer group comparisons,
the recent history of the Company, the experience of each of the Directors and the responsibilities involved
in that office.
On 6 April 2020, the Company announced initiatives to reduce costs in its Houston office. Among those was
a 50% reduction in director fees.
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.
Directors’ fees
The following fees have applied:
Base fees
Chair
Non-executive Directors
From 1
April 2020
to 30 June
2020
From 1 July
2019 to 31
March 2020
From 1 July
2018 to
30 June
2019
A$75,000
A$45,000
A$150,000
A$90,000
A$ 150,000
A$ 90,000
Additional fees
Audit and Risk Management Committee Chair
A$5,000
A$10,000
A$ 10,000
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 at least every three years during the term of their appointment.
Directors and executive remuneration policy and framework
The remuneration arrangement for Directors and executives of the Group for the year ended 30 June 2020 is
summarised below.
The remuneration structure in place for the year ended 30 June 2020 applies to all employees including key
management personnel and staff members of the Group. The Group‘s remuneration structure has three
elements:
56
19
FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
fixed annual remuneration (FAR) or base salary (including superannuation);
a)
b) short term incentive (STI) award which provides a reward for performance in the past year; and
c)
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 has engaged independent advisors to review the
remuneration levels paid to the Group’s key management personnel. An advisor was not retained for the
2019 or 2020 calendar year reviews.
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
The Board and Remuneration Committee have the discretion to grant annual short-term incentive (STI)
awards to the CEO and other members of the executive team at a certain percentage of FAR. The Committee
did not exercise its discretion to meet to discuss possible STI awards for the fiscal year ended 2020.
During the year cash bonuses were paid to David Rich $A50,000 on successful completion of financing facility
and Paul Senycia $A30,121 as a discretionary bonus.
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 re-approved by
shareholders at the 2019 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, and
administration of, 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 the 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, vesting of the rights for directors, the CEO and other members of
the executive team were based on TSR performance only. If the TSR vesting condition is not met on a
measurement date, no rights vest and those performance rights continue to exist as unvested performance
rights to be retested at the next measurement date or expiry date if there are no further measurement dates.
Once vested, the performance rights are automatically converted into shares. Performance rights are
granted under the plan for no consideration.
20
57
ANNUAL REPORT 2020FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
No rights were issued for the year ended 30 June 2020.
On 15 November 2018 and 21 December 2018, the Company issued a total of 32,668,000 performance rights
to employees, consultants, and directors, based on a flat rate of 50% of FAR. These performance rights vest
over a three-year period with a measurement date of 15 November, expire at the end of five years on 15
November 2023, and have a TSR hurdle of 15% per annum (based on a 90-day VWAP). On the 15 November
2019 measurement date, the TSR hurdle was not met and the performance rights will continue to exist and
be tested at the next measurement date. Additionally, 4,056,000 performance rights lapsed upon cessation
of employment during the fiscal year ended 30 June 2020, resulting in 28,612,000 performance rights
remaining as of 30 June 2020.
On 29 November 2017, the Company issued 14,187,000 performance rights to executives and directors, based
on a flat rate of 33% of FAR. These performance rights vest over a three-year period, expire at the end of five
years, and have a TSR hurdle of 10% per annum (based on 30-day VWAP). On the 29 November 2018
measurement date, 4,729,000 performance rights vested based on a TSR of 19.8%. On the 29 November 2019
measurement date, the TSR hurdle was not met and the performance rights will continue to exist and be
tested at the next measurement date. Additionally, 2,535,333 performance rights lapsed upon cessation of
employment during the fiscal year ended 30 June 2020, resulting in 6,922,667 performance rights remaining
as of 30 June 2020.
On 23 April 2015, the Company issued 6,475,000 performance rights to employees. These performance rights
vest over a three-year period with a measurement date of 1 February, expired on 31 December 2019, and
had a TSR hurdle of 10% per annum (based on a 30-day VWAP). During the fiscal year ended 30 June 2020,
the final 4,630,000 performance rights expired, resulting in no performance rights under this grant
remaining as of 30 June 2020.
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
ii) any discretionary cap on the total number of rights on issue at any given time.
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.
The Board exercised its discretion regarding the cap for the 2018 grants and issued a total of 32,668,000
performance rights, which amounted to 2.1% of the issued capital as at 30 June 2018. The Board discretion
was exercised considering the following important factors:
i)
ii)
the issue amounted to 1.7% of the shares on issue prior to the granting of the rights as there had been
a share issue since 30 June 2018; and
the rights issued included the one-off issue of sign on performance rights to three new, highly qualified
and experienced US staff members recruited to form the US-based technical team as set out in Otto’s
ASX release of 16 July 2018. The sign on performance rights formed an important part of their
remuneration packages and provide incentives linked to increases in shareholder value. Such sign on
benefits are customary in the US.
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. While the Employee Share Option Plan
does not specifically prohibit holders from entering into hedging arrangements over options, the Board
58
21
FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
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 2019 Annual General Meeting
At its 2019 Annual General Meeting, the Company received approximately 83% of “yes” votes on its
remuneration report for the 2019 financial year and the Company did not receive any specific feedback at the
Annual General Meeting on its remuneration practices. All resolutions put to the meeting at the 2019 Annual
General Meeting were passed on a show of hands.
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.
30 June
2016
30 June
2017
30 June
2018
30 June
2019
30 June
2020
(20,086)
(5,247)
(5,194)
(18,409)
(1,358)
0.044
(1.70)
-
-
0.025
(0.44)
-
-
0.064
(0.37)
-
-
0.054
(0.95)
-
-
0.007
(0.05)
-
-
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)
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
US staff and executives are formalised in service agreements. Each of these agreements provides for
performance related conditions and details relating to remuneration are set out in the following table:
22
59
ANNUAL REPORT 2020FINANCIAL REPORT 2020
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61
ANNUAL REPORT 2020FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
The relative proportions of remuneration that are linked to performance and those that are not are as
follows:
Fixed and other
2019
2020
At risk – STI
At risk – LTI (i)
2020
2019
2020
2019
Directors
Mr J Jetter
Mr P Senycia
Mr M Allen
Mr I Macliver(ii)
Mr I Boserio(iii)
Mr K Small
Executives
Mr D Rich(iv)
Mr S Castro(v)
Mr W Armstrong
Mr P
Trajanovich (vi)
93%
65%
95%
100%
100%
96%
67%
100%
93%
95%
88%
88%
92%
88%
88%
96%
83%
-
95%
94%
-
21%
-
-
-
-
33%
-
-
-
-
-
-
-
-
-
10%
-
-
-
7%
14%
5%
-
-
4%
-
-
7%
5%
12%
12%
8%
12%
12%
4%
7%
-
5%5
6%
(i)
(ii)
(iii)
(iv)
(v)
(vi)
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.
Mr I Macliver resigned as Non-executive Director 21 November 2019
Mr I Boserio resigned as Non-executive Director 1 April 2020
Mr D Rich resigned as Chief Financial Officer and Company Secretary effective 1 November 2019
Mr S Castro was appointed Chief Financial Officer effective 9 December 2019
Mr P Trajanovich resigned as Senior Commercial Manager effective 1 September 2020
Performance against key measures for LTI:
Metric
STI
LTI
Performance rights issued 2018
Target
Performance
Impact
Reward
No STI awards set for the fiscal year ended 2020.
No vesting for the fiscal year ended 2020
15% 3 year
TSR
TSR hurdle rate
not met
on
Incentive
Performance rights issued 2017
10% 3 year
TSR
TSR hurdle rate
not met
Performance rights issued 2015
10% 3 year
TSR
TSR hurdle rate
not met
Performance rights rolled
over to next measurement
date in November 2020
Performance rights rolled
over to next measurement
date in November 2020
Performance rights
expired
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 (including executive Directors) are also formalised in service
agreements. Each of these service agreements provide for the provision of performance related cash
62
25
FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
bonuses, and participation, when eligible, in the Otto Energy Limited Performance Rights and Employee
Share Option Plans. For the US staff, terms have been agreed and service agreements formalised. Other
major provisions of the agreements relating to remuneration are set out below.
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
Former Managing
Director and Chief
Executive Officer(i)
Mr Michael Utsler
Managing Director and
Chief Executive Officer(ii)
Mr Kevin Small
Senior Exploration
Consultant(v)
Mr Sergio Castro
Chief Financial Officer
Mr W Armstrong
VP, Exploration and New
Ventures
Mr P Trajanovich
Senior Commercial
Manager(vi)
Commencement of
contract
24 June 2015
Base salary including
superannuation/other
retirement benefits(iii)
$US per annum
$376,833
Termination benefit(iv)
6 months base salary
11 September 2020
$300,000
3 months base salary
1 February 2019
$364,000
3 months base salary
9 December 2019
$343,200
3 months base salary
1 August 2018
$358,636
3 months base salary
1 August 2018
$338,143
3 months base salary
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Mr M Allen was seconded to the Houston office in August 2018. He resigned as Managing Director
and CEO on 10th June 2020. Mr Allen has agreed to remain with the Company as a senior advisor for
a period of 6 months.
Mr M Utsler was appointed Managing Director and Chief Executive Officer 11 September 2020
In April 2020, all executives, with exception of Mr Allen, the outgoing CEO, took a 46% reduction in
pay, to be reassessed in October 2020. Base salaries quoted as at 30 June 2020 are at 100%; they
are reviewed annually by the Board and the Remuneration and Nomination Committee.
Termination benefits are payable on early termination by the Company, other than for gross
misconduct.
Mr Small consulted to the Company as a Senior Exploration Consultant under a 12 month consulting
contract. This contract was replaced with an employment agreement effective 14 October 2019
Mr Trajanovich resigned as Senior Commercial Manager 1 September 2020
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 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 24. 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
26
63
ANNUAL REPORT 2020FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
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 of grant, 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 Hoadley hybrid single share price 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. No performance rights were granted in
2020 financial year. The inputs into the fair value calculation of the rights granted and outstanding as at 30
June 2020 are set out in the following table
64
27
FINANCIAL REPORT 2020 0
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65
’
T
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O
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C
E
R
D
I
ANNUAL REPORT 2020FINANCIAL REPORT 2020
DIRECTOR’S REPORT
For the year ended 30 June 2020
The number of performance rights that will vest depends on the vesting period and/or Otto Energy
Limited’s Total Shareholder Return (“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.
All the rights issued to KMP within the 30 June 2019 financial year require a compound TSR of 15%
per annum from the grant date to the measurement date in order to vest. All rights issued prior to 1
July 2018 require a compound TSR of 10% per annum from the grant date to the measurement date
in order to vest.
The expected price volatility is based upon the historic volatility (based on the remaining life of the
rights), 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.
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 2020 is set out below.
Key
Management
Personnel
Directors
Mr J Jetter
Mr M
Allen(v)
Mr P
Senycia
Mr I
MacIiver(i)
Mr I
Boserio(ii)
Mr K Small
Executives
Mr D Rich(iii)
Mr S Castro
Mr P
Trajanovich
(iv)
Mr W
Armstrong
Balance at
start of year
Granted as
compensation
Vested and
exercised
1,804,667
8,908,000
5,069,000
1,212,667
1,082,333
4,840,000
22,916,667
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Lapsed/
expired
Number
%
Balance at
end of year
-
(2,300,000)
-
26%
1,804,667
6,608,000
(2,300,000)
45%
2,769,000
(1,212,667)
100%
(1,082,333)
100%
-
-
(6,895,000)
-
-
4,840,000
16,021,667
Balance at
end of year
-
Balance at
start of year
4,296,333
Granted as
compensation
-
Vested and
exercised
-
Lapsed/
expired
(4,296,333)
100%
-
4,982,000
7,352,000
16,630,333
-
-
-
-
-
-
-
-
-
-
-
-
-
4,982,000
7,352,000
-
-
(4,296,333)
12,334,000
Mr I Macliver resigned as Non-executive Director 21 November 2019
Mr I Boserio resigned as Non-executive Director 1 April 2020
Mr D Rich resigned as Chief Financial Officer and Company Secretary effective 1 November
2019
Mr P Trajanovich resigned as Senior Commercial Manager effective 1 September 2020
(i)
(ii)
(iii)
(iv)
66
29
FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
(v)
Mr M Allen was seconded to the Houston office in August 2018. He resigned as Managing
Director and CEO on 10th June 2020. Mr Allen has agreed to remain with the Company as a
senior advisor for a period of 6 months.
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 to key management
personnel 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
Purchased
during the
year
Directors
Mr J Jetter
Mr M Allen(v)
Mr P Senycia
Mr I
MacIiver(i)
Mr I Boserio(ii)
Mr K Small
Executives
Mr D Rich(iii)
Mr W
Armstrong
Mr S Castro
Mr P
Trajanovich (iv)
28,940,834
10,770,801
4,711,468
7,490,352
28,940,834
10,770,801
3,979,666
-
3,612,763
12,371,515
67,897,733
-
37,114,868
80,806,169
1,572,195
750,000
-
-
-
-
758,000
3,080,195
70,977,928
-
-
80,806,169
Received
through
conversion
of
performance
rights during
the year
Sold
during
the year
Balance on
resignation
date
Balance at
end of year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,881,668
21,541,602
8,691,134
7,490,352
3,612,763
49,486,383
11,103,115 137,600,787
1,572,195
750,000
-
758,000
1,508,000
12,675,310 139,108,787
1,572,195
(i)
(ii)
(iii)
(iv)
(v)
Mr I Macliver resigned as Non-executive Director 21 November 2019
Mr I Boserio resigned as Non-executive Director 1 April 2020
Mr D Rich resigned as Chief Financial Officer and Company Secretary 1 November 2019
Mr P Trajanovich resigned as Senior Commercial Manager effective 1 September 2020
Mr M Allen was seconded to the Houston office in August 2018. He resigned as Managing
Director and CEO on 10th June 2020. Mr Allen has agreed to remain with the Company as a
senior advisor for a period of 6 months.
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 (2019: nil).
End of Remuneration Report
30
67
ANNUAL REPORT 2020FINANCIAL REPORT 2020 DIRECTOR’S REPORT
For the year ended 30 June 2020
Diversity
Proportion of women employees at 30 June 2020:
Whole organisation*
Senior executive
positions
Board
Number
3/11
0/3
Proportion
27%
0%
0/3
0%
*Includes two non-executive Directors
Performance rights on issue at 30 June 2020
Date granted
29 November 2017
15 November 2018
21 December 2018
Date of expiry
29 November
2022
15 November
2023
15 November
2023
Number
6,922,667
5,775,000
22,837,000
35,534,667
Options on issue at 30 June 2020
Date granted
Date of expiry
4 November 2019
4 November 2023
Exercise
Price
$A0.08
Number
42,500,000
42,500,000
No performance right holder has any right under the performance rights to participate in any other
share issue of the Company or any other entity. There were no options on issue at 30 June 2020.
No options were granted as remuneration to key management personnel during the year. Details of
performance rights and options granted to key management personnel are disclosed on pages 26 to
30.
This report is made in accordance with a resolution of Directors.
Mr John Jetter
Chairman
25 September 2020
68
31
FINANCIAL REPORT 2020 Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
38 Station Street
Subiaco, WA 6008
PO Box 700 West Perth WA 6872
Australia
DECLARATION OF INDEPENDENCE BY PHILLIP MURDOCH TO THE DIRECTORS OF OTTO ENERGY
LIMITED
As lead auditor of Otto Energy Limited for the year ended 30 June 2020, I declare that, to the best of
my knowledge and belief, there have been:
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2. No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Otto Energy Limited and the entities it controlled during the period.
Phillip Murdoch
Director
BDO Audit (WA) Pty Ltd
Perth, 25 September 2020
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275,
an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and
form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
69
ANNUAL REPORT 2020FINANCIAL REPORT 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2020
Note
2020
US$’000
2019
US$’000
Operating Revenue (Net)
Cost of sales
Gross profit
Other income
Loss on disposal of property, plant and equipment
Exploration expenditure
Finance income/(costs)
Gains on derivative financial instruments
Administration and other expenses
Loss before income tax
Income tax expense
Loss after income tax for the year
Other comprehensive income that may be recycled to
profit or loss
Total other comprehensive income
Total comprehensive loss for the year
2
3
2
4
5
5
7
23,028
(10,302)
12,726
244
(3)
(13,067)
(2,392)
5,971
(4,835)
(1,356)
(2)
(1,358)
31,258
(7,833)
23,425
168
(2)
(37,849)
965
-
(5,114)
(18,407)
(2)
(18,409)
-
(1,358)
-
(18,409)
Earnings per share
Basic and diluted loss per share (US cents)
6
(0.05)
(0.95)
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
70
33
FINANCIAL REPORT 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended 30 June 2020
Current assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Other assets
Total current assets
Non-current assets
Oil and gas properties
Right-of-use assets
Derivative financial instruments
Property, plant and equipment
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings (net of transaction costs)
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings (net of transaction costs)
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
Note
2020
US$’000
2019
US$’000
8
10
11
12
14
13
11
12
15
16
17
18
16
17
18
19
20
16,551
2,111
2,907
5,373
26,942
39,793
402
1,254
288
600
42,337
69,279
1,958
8,179
139
194
10,470
10,127
274
3,757
14,158
24,628
44,651
7,383
3,311
-
1,238
11,932
30,982
-
-
106
393
31,481
43,413
4,473
-
-
173
4,646
-
-
1,589
1,589
6,235
37,178
133,242
14,697
(103,288)
44,651
125,041
14,067
(101,930)
37,178
The above consolidated statement of financial position should be read in conjunction with the
accompanying notes.
34
71
ANNUAL REPORT 2020FINANCIAL REPORT 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
Contributed
equity
US$’000
Share-
based
payments
reserve
US$’000
Foreign
currency
translation
reserve
US$’000
Accumulated
losses
Total
US$’000
US$’000
Balance at 1 July 2018
Loss for the period
Other comprehensive income
Total comprehensive loss for the year
Transactions with owners in their
capacity as owners:
Issue of shares (net of costs)
Equity benefits issued to employees
Balance at 30 June 2019
Balance at 1 July 2019
Loss for the period
Other comprehensive income
Total comprehensive loss for the year
Transactions with owners in their
capacity as owners:
Issue of shares (net of costs)
Issue of options – Note 16
Equity benefits issued to employees
Balance at 30 June 2020
90,704
-
-
-
34,337
-
125,041
125,041
-
-
-
8,201
-
-
133,242
9,659
-
-
-
-
220
9,879
9,879
-
-
-
-
528
102
10,509
4,188
-
-
-
-
-
4,188
4,188
-
-
-
-
-
-
4,188
(83,521)
(18,409)
-
(18,409)
21,030
(18,409)
-
(18,409)
-
-
(101,930)
(101,930)
(1,358)
-
(1,358)
-
-
-
(103,288)
34,337
220
37,178
37,178
(1,358)
-
(1,358)
8,201
528
102
44,651
The above consolidated statement of changes in equity should be read in conjunction with the
accompanying notes.
72
35
FINANCIAL REPORT 2020
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Note
2020
US$’000
2019
US$’000
9
Cash flows from operating activities
Oil and Gas Sales (net)
Other income
Payments to suppliers and employees
Payments for exploration and evaluation
Interest received/(paid)
Income tax paid
Net cash outflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for development and evaluation
Bond for development asset
Net cash outflow from investing activities
Cash flows from financing activities
Net proceeds from borrowings / (repayment) of
convertible notes
Transaction costs relating to borrowings
Interest paid on convertible notes
Proceeds from issue of shares
Transaction costs - shares
Net cash inflow from financing activities
Net increase 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
8
24,217
176
(12,341)
(11,189)
(1,582)
(2)
(721)
(418)
(16,206)
43
(16,581)
20,700
(2,545)
-
8,785
(585)
26,355
9,053
7,383
115
32,042
11
(8,504)
(36,867)
157
-
(13,161)
(87)
(8,904)
(38)
(9,029)
(8,100)
-
(2,327)
36,613
(2,375)
23,811
1,621
20,309
(183)
16,551
7,383
The above consolidated statement of cash flows should be read in conjunction with the accompanying
notes.
36
73
ANNUAL REPORT 2020FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
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 25 September 2020.
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 2019.
Refer to note 31 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 22.
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 or 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.
74
37
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
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.
Going concern
Otto’s financial statements have been prepared on a going concern basis.
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 7
• Note 14
• Note 18
• Note 24
Income tax
Oil and gas properties
Provisions
Share-based payments
Impact of Coronavirus (COVID-19) pandemic.
Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic
has had, or may have, on the company based on known information. Other than as addressed in
specific notes, there does not currently appear to be either any significant impact upon the financial
statements or any significant uncertainties with respect to events or conditions which may impact the
company unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-
19) pandemic.
38
75
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
Financial performance
1. Segment information
2. Revenue and other income
3. Cost of sales
4. Exploration expenditure
5. Other expenses
6. Earnings per share
7.
8. Cash and cash equivalents
9. Reconciliation of loss after income tax to net cash outflow
Income tax
from operating activities
Operating assets and liabilities
10. Trade and other receivables
11. Derivative financial instruments
12. Other assets
13. Right of use assets
14. Oil and gas properties
15. Trade and other payables
16. Interest bearing loans and borrowings
17. Lease liabilities
18. Provisions
Capital structure, financial instruments and risk
19. Contributed equity
20. Reserves
21. Financial instruments
Other disclosures
22. Subsidiaries
23. Interest in joint operations
24. Share-based payments
25. Related parties
26. Auditor’s remuneration
27. Contingent liabilities
28. Commitments
29. Events after the reporting period
30. Parent entity disclosures
31. New accounting standards and interpretations
40
41
42
43
43
44
45
46
47
48
48
49
49
49
53
54
55
56
58
59
60
65
65
66
70
71
71
71
72
73
75
76
39
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
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: Gulf of Mexico (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.
The Group had two reportable segments during 2020.
The segment information for the reportable segments for the year ended 30 June 20 is as follows:
2020
Operating Revenue
Cost of Production
Gross Profit
Other income
Loss on disposal of property, plant and
equipment
Exploration expenditure
Finance costs
Gains on derivative financial instruments
Administration and other expenses
Profit (Loss) before income tax
Income tax expense
Profit (Loss) after income tax for the year
Total non-current assets
Total assets
Total liabilities
Gulf of Mexico
(USA)
US$’000
23,028
(10,302)
12,726
196
(3)
(13,231)
(2,388)
5,971
(4,035)
(764)
-
(764)
42,086
63,199
24,145
Other
Consolidated
US$’000
-
-
-
48
-
164
(4)
-
(800)
(592)
(2)
(594)
251
6,080
483
US$’000
23,028
(10,302)
12,726
244
(3)
(13,067)
(2,392)
5,971
(4,835)
(1,356)
(2)
(1,358)
42,337
69,279
24,628
40
77
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
1. Segment information (continued)
The segment information for the reportable segments for the year ended 30 June 2019 is as follows:
2019
Gulf of Mexico (USA)
US$’000
Other
US$’000
Consolidated
US$’000
Operating Revenue
Cost of Production
Gross Profit
Other income
Profit/(loss) on disposal of
property, plant and equipment
Exploration expenditure
Finance costs
Administration and other
expenses
Profit (Loss) before income
tax
Income tax expense
Profit (Loss) after income tax
for the year
Total non-current assets
Total assets
Total liabilities
2. Revenue and other income
South Marsh 71 (SM71) Sales(i) (v)
Oil Sales
Gas Sales
Facility Fee(ii)
Total Sales
Less: Royalties(i)
SM71 Operating Revenue (Net)
Lightning Sales(iii) (v)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Lightning Operating Revenue (Net)
Total Operating Revenue (Net)
78
31,258
(7,833)
23,425
17
-
(33,708)
(119)
(4,154)
(14,539)
-
(14,539)
31,478
38,769
5,555
-
-
-
151
(2)
(4,141)
1,084
(960)
(3,868)
(2)
(3,870)
3
4,644
680
31,258
(7,833)
23,425
168
(2)
(37,849)
965
(5,114)
(18,407)
(2)
(18,409)
31,481
43,413
6,235
2020
US$’000
2019
US$’000
21,448
965
380
22,793
(4,217)
18,576
1,581
2,242
629
4,452
23,028
34,684
3,433
-
38,117
(7,064)
31,053
94
89
22
205
31,258
41
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
2. Revenue and other income (continued)
Interest income(iv)
Other income
2020
US$’000
2019
US$’000
68
176
244
157
11
168
(i) SM71 operating revenue is shown net of royalty payments payable to the (USA) Office of Natural
Resources Revenue. Royalty payments are 18.75% of revenue under the terms of the SM 71 lease.
(ii) Facility fee relates to SM71 F4 slot usage and facility fee
(iii) Proceeds from the sale of oil and gas from the Lightning field are received net of royalty payments.
(iv) Interest income is recognised using the effective interest rate method.
(v) Gross oil revenue ($21.448m) and net gas revenue ($0.965m) from Gulf of Mexico SM71, net oil
revenue ($1.581m) and net gas revenue ($2.871m) from Lightning were all sold to different single
customers.
Recognition and measurement
Revenue is recognised when or as the Group transfers control of goods or services to a customer at
the amount to which the Group expects to be entitled. If the consideration promised includes a variable
component, the Group estimates the expected consideration for the estimated impact of the variable
component at the point of recognition and re-estimated at every reporting period.
Revenue from the sale of SM71 oil and gas is recognised and measured in the accounting period in
which the goods and/or services are provided based on the amount of the transaction price allocated
to the performance obligations. The performance obligation is the supply of oil and gas over the
contractual term; the units of supply represent a series of distinct goods that are substantially the same
with the same pattern of transfer to the customer. The performance obligation is considered to be
satisfied as the customer receives the supply through the pipeline, based on the units delivered. Hence
revenue is recognised over time.
Revenue from Lightning oil sales is recognised upon transfer of the product to the purchaser’s
transportation mode, currently via truck for oil, hence revenue is recognized at a point in time. The
performance obligation for Lightning gas sales is considered to be satisfied as the customer receives
the supply through the pipeline, based on the units delivered. Hence revenue is recognised over time.
3. Cost of Sales
Cost of Sales
Gathering and Production charges
Amortisation of capitalised developments – Note 14
Total Cost of Sales
2020
US$’000
2019
US$’000
3,738
6,564
10,302
2,874
4,959
7,833
42
79
ANNUAL REPORT 2020FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
4. Exploration expenditure
Exploration expenditure – Gulf of Mexico/Gulf Coast
Exploration expenditure – Alaska North Slope
Exploration expenditure – Other
2020
US$’000
2019
US$’000
13,231
(164)
-
13,067
33,708
4,231
(90)
37,849
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 are expensed. Once an exploration
discovery has been determined, evaluation and development expenditure from that point on is
capitalised to the Consolidated Statement of Financial Position as oil and gas properties.
Exploration expenditure in relation to the Gulf of Mexico/Gulf Coast includes the exploration drilling of
SM-71 F5 ($3.6M) and Mustang ($4.1M) prospects as well as costs incurred to 30 June 2020 in the
drilling to the MP sands exploration target in the GC 21 Bulleit well ($4.1M).
2020
US$’000
2019
US$’000
5. Other expenses
i) Finance costs
Interest and commitment fees on borrowings
Interest expense leases
Amortisation of borrowing costs
Accretion of decommissioning fund
Convertible notes
Loss on derivatives
Other
Total finance costs/ (income)
ii) Administration and other expenses
Employee benefits expense
Defined contribution superannuation expense
Share-based payment expense
Other employee benefits expenses
Total employee benefits expense
Depreciation expense(i)
Right-of-use assets
Right-of-use assets – buildings
Right-of-use assets – plant and equipment
Total depreciation expense right-of-use assets
80
1,650
25
679
25
-
-
13
2,392
84
102
3,070
3,256
103
21
124
-
-
-
51
(1,083)
67
-
(965)
80
220
3,214
3,514
-
-
-
43
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
5. Other expenses (continued)
Property, plant and equipment
Furniture and equipment
Total depreciation expense
Corporate and other costs
Business development
Foreign currency (gains)/losses
Total administration and other expenses
2020
US$’000
2019
US$’000
82
206
1,097
391
(115)
1,373
4,835
48
48
675
694
183
1,552
5,114
(i) Depreciation and amortisation charges are included above in Note 3 Cost of sales and Note 5 other
expenses. Total depreciation and amortisation for the Consolidated Entity is $6.8 million (2019:
$5.0 million)
6. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the
Company, excluding any costs of servicing equity (other than dividends), by the weighted average
number of ordinary shares, adjusted for the bonus element.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to
take into account the after income tax effect of interest and other financing costs associated with
dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that
would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
2020
2019
Loss attributable to owners of the Company (US$’000)
Weighted average number of ordinary shares on issue for basic
and diluted earnings per share (number)
Performance rights on issue
Options on issue
Basic and diluted loss per share (US cents)
(1,358)
(18,409)
2,935,246,867
1,946,641,840
35,534,667
42,500,000
(0.05)
46,756,000
-
(0.95)
Due to the Company reporting a loss for the 2020 and 2019 financial years, the impact of potential
shares are not included in calculating diluted EPS.
44
81
ANNUAL REPORT 2020FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
7.
Income tax
The components of tax expense comprise:
Current tax
Deferred tax – origination and reversal of temporary differences
Prior period under 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
Temporary differences
– provisions and other corporate costs
– exploration and evaluation costs
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
Deferred tax liabilities
Temporary differences – Oil and gas properties
Offset by deferred tax assets recognised
Deferred tax liabilities brought to account
2020
US$’000
2019
US$’000
2
-
-
2
(1,356)
(407)
3,172
-
(4,026)
1,263
-
2
337
-
337
7,351
11,358
19,046
(10,579)
(8,468)
-
2
-
-
2
(17,536)
(5,261)
3,445
-
(5,285)
7,103
-
2
566
-
566
7,030
12,491
20,087
(8,861)
(10,660)
-
2020
US$’000
2019
US$’000
10,579
(10,579)
-
8,861
(8,861)
-
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.
Included in the foreign tax losses is tax losses of US$11.4 million that can be offset against future tax
payable on US profits from US Gulf of Mexico operations.
82
45
FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
7.
Income tax (continued)
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 depends on the ability of the entity to satisfy certain tests at the time the
losses are recouped.
8. Cash and cash equivalents
Cash at bank and on hand
Restricted cash – debt service reserve account (DSRA)
Balance at end of period
2020
US$’000
2019
US$’000
11,551
5,000
16,551
7,383
-
7,383
46
83
ANNUAL REPORT 2020FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
8. Cash and cash equivalents (continued)
Recognition and measurement
Cash at bank and on hand 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.
On 2nd November 2019, the Company entered into a three-year senior secured US$55 million term debt
facility (Facility) with Macquarie Bank Limited (Macquarie). Under the terms of the agreement a Debt
Service Reserve Account (DSRA) is required with a balance of at least $5,000,000. The DSRA may only
be applied in reduction of the loan.
9. Reconciliation of loss after income tax to net cash outflow from operating activities
2020
US$’000
2019
US$’000
Loss after income tax
Non-cash items:
Depreciation expense – furniture and equipment
Share-based payments
Gain on derivative instruments at fair value
Finance costs/(income) – see note 5(i)
Amortisation of deferred costs
Other non-cash items
Change in assets and liabilities:
(Increase)/Decrease in trade and other receivables
(Increase) Decrease in other assets
Increase in trade and other payables
Increase/(Decrease) in provisions
Net cash outflow from operating activities
Changes in financing liabilities arising from cash flow and
non-cash flow items
Borrowings
Balance at the start of the year
Proceeds/repayment on borrowings
Borrowing transaction costs
Amortisation borrowing costs
Balance at the end of the year
84
(1,358)
(18,409)
206
102
(4,035)
729
6,564
(360)
1,189
(4,239)
466
15
(721)
-
20,700
(3,073)
679
18,306
48
220
-
(1,284)
4,959
305
784
(1,073)
1,307
(18)
(13,161)
-
-
-
-
-
47
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
OPERATING ASSETS AND LIABILITIES
10. Trade and other receivables
Trade receivables(i)
Other receivables
2020
US$’000
2019
US$’000
2,024
87
2,111
3,213
98
3,311
Recognition and measurement
Other receivables are initially recognised at fair value and subsequently measured at amortised cost
less an allowance for uncollectible amounts.
Impairment
The Group assesses on a forward looking basis the expected credit losses associated with its debt
instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on
whether there has been a significant increase in credit risk. The Group makes use of a simplified
approach in accounting for trade and other receivables as well as contract assets and records the loss
allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient,
the Group uses its historical experience, external indicators and forward looking information to
calculate the expected credit losses using a provision matrix.
The Group considers a financial asset in default when contractual payment are 90 days past due.
However, in certain cases, the Group may also consider a financial asset to be in default when internal
or external information indicates that the Group is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements held by the Group.
(i)
Trade receivable relates to June 2020 Lightning (net of royalties) and SM 71 oil and gas sales
(before deduction of SM 71 royalties).
11. Derivative financial instruments
Current
Oil price fixed swaps – held at fair value through profit or loss
Total current derivative financial instrument assets
Non-current
Oil price fixed swaps – held at fair value through profit or loss
Total non-current derivative financial instrument assets
Total derivative financial instrument assets
2020
US$’000
2019
US$’000
2,907
2,907
1,254
1,254
4,161
-
-
-
-
-
Recognition and measurement
Derivatives are initially recognised at their fair value when the Group becomes a party to the
contract and are subsequently measured at fair value through profit or loss. The Group has not
adopted Hedge Accounting under AASB 9 Financial Instruments.
48
85
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
12. Other assets
Current
Prepayments(i)
Other assets
Non-current
Bonds(ii)
2020
US$’000
2019
US$’000
5,287
86
5,373
600
600
925
313
1,238
393
393
(i)
Included in prepayments in 2020 is $4.5million cash calls paid in advance for Green Canyon GC-
21 development costs.
(ii) Development bond for SM 71 ($325,000), Houston apartment rental bond ($24,960), Great Bear
deposit ($250,000).
Recognition and measurement
Other financial assets are initially measured at fair value. Transaction costs are included as part of the
initial measurement, except for financial assets at fair value through profit or loss. They are
subsequently measured at either amortised cost or fair value depending on their classification.
Classification is determined based on the purpose of the acquisition and subsequent reclassification to
other categories is restricted.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have
expired or have been transferred and the Group has transferred substantially all the risks and rewards
of ownership.
13. Right-of-use assets
Right-of-use assets
Land and buildings – right-of-use
Less: Accumulated depreciation
Plant and equipment – right-of-use
Less: Accumulated depreciation
Total right-of-use assets
14. Oil and gas properties
Producing and development assets
At cost
SM71 balance at beginning of year
SM71 expenditure for the year
SM71 amortisation of assets
SM71 balance at end of year
86
2020
US$’000
2019
US$’000
484
(103)
381
42
(21)
21
402
-
-
-
-
-
-
-
2020
US$’000
2019
US$’000
23,632
768
(5,510)
18,890
27,151
1,440
(4,959)
23,632
49
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
14. Oil and gas properties (continued)
Lighting balance at beginning of year
Lightning expenditure for the year
Lightning amortisation of assets
Lightning balance at end of year
GC-21 balance at beginning of year
GC-21 expenditure for the year
GC-21 balance at end of year
2020
2019
US$’000
US$’000
1,934
5,104
(1,054)
5,984
5,416
9,503
14,919
-
1,934
-
1,934
-
5,416
5,416
Total oil and gas properties including decommissioning assets
39,793
30,982
Recognition and measurement
Producing and development assets
i)
Producing projects are stated at cost less accumulated amortisation and impairment charges.
Development assets 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 as prescribed by the relevant accounting standards.
The carrying value of oil and gas properties is reviewed annually by directors to ensure it is not in excess
of the recoverable amount.
The recoverable amount of an asset or CGU is the greater of its fair value less costs of disposal
(“FVLCD”) and its value-in-use (“VIU”), using an asset’s estimated future cashflows (as described
below) discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
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.
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
when the cash call is 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.
50
87
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
14. Oil and gas properties (continued)
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
fields 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 (2P)
and are reviewed at least annually.
commercially producing
relating
costs
to
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 assets 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.
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.
For GC-21, the well had two planned target intervals. The DTR-10 sand was an appraisal target, having
already been discovered prior to Otto’s involvement. The deeper MP sand was an exploration target.
The accounting for the drilling of the GC-21 Bulleit well involved capitalising drilling costs initially while
the DTR-10 sand was tested. Once the DTR-10 sand was deemed a discovery and casing successfully
set, drilling costs from that point on were then expensed as the well progressed through the exploration
stage of testing the MP sand exploration target. Once the MP Sand was deemed a discovery (as reported
to the ASX on 8th August 2019), the subsequent costs were capitalised.
Impairment
Assets are tested for impairment in line with the accounting policies disclosed in Note 14(i). Whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable, an
88
51
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
14. Oil and gas properties (continued)
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.
Impairment indicators were identified during the period in relation to the significant decline in market
oil prices and the carrying value of net assets of the group (US$44.65m) exceeding market capitalisation
of (US$23m) as at 30 June 2020.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash inflows which are largely independent of the cash inflows from other assets
or groups of assets (cash-generating units).
Recoverable value was calculated using a VIU calculation. The estimated future cash flows for the VIU
calculation are based on estimates, the most significant of which are hydrocarbon reserves (excluding
uncommitted developments), future production profiles, commodity prices, operating costs and
committed development costs.
Estimates of future commodity prices are based on the Group’s best estimate of future market prices
with reference to external market analyst’s forecasts, current spot prices and forward curves.
Average Argus LLS forward prices ($US/bbl) used were:
2021
41.19
2022
42.19
2023
43.29
Average Argus WTI forward prices ($US/bbl) used were:
2021
39.98
2022
41.18
2023
42.28
2024
44.40
2024
43.39
2025+
45.54
2025+
44.53
Average Nymex Henry Hub (LD) forward prices ($US per MMBtu) used were:
2021
2.32
2022
2.54
2023
2.38
2024
2.38
2025
2.39
2026
2.41
2027
2.43
2028
2.46
2029
2.55
2030
2.58
2031+
2.78
The discount rates applied to the future forecast cash flows are based on the weighted average cost of
capital. The pre-tax discount rates that has been applied to non-current assets is 14%.
In the event that future circumstances vary from these assumptions, the recoverable amount of the
Group’s oil and gas assets could change materially and result in impairment losses. The assumptions
made by the Group in performing its impairment considerations reflect conditions existing at 30 June
2020 and the Group’s estimate of future performance including the impact of Covid-19 made as of that
date.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect
impact on others and individual variables rarely change in isolation. Additionally, management can be
expected to respond to some movements, to mitigate downsides and take advantage of upsides, as
circumstances allow. Consequently, it is impractical to estimate the indirect impact that a change in
one assumption has on other variables and hence, on the likelihood, or extent, of impairments under
different sets of assumptions in subsequent reporting periods.
At 30 June 2020, the Group has separately assessed the SM 71, GC-21 Bulleit and Lightning cash-
generating units and determined that no impairment exists and any reasonable changes to the inputs
used in the VIU calculation would not result in impairment.
52
89
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
14. Oil and gas properties (continued)
Amortisation
Estimation of amortisation of the SM 71 and Lightning oil and gas assets is based on the updated 2P
reserves estimate and estimated future development costs as at 30 June 2020. Producing assets are
amortised on a unit of production basis on 2P reserves. The reserves for Lightning and Green Canyon
21 were compiled by Otto’s independent consultant Ryder Scott Company, while the reserves for SM 71
were compiled by Mr Ed Buckle, a full-time contractor of the Company, and audited by Collarini Energy
Experts. The method of amortisation necessitates the estimation of oil and gas reserves over which the
carrying value of the relevant asset will be expensed to profit or loss. See below for judgements relating
to reserve estimates.
There is no amortisation for the GC-21 Bulleit asset as production has not yet commenced.
Reserve Estimates
Estimation of reported recoverable quantities of proved and provable reserves include judgemental
assumptions regarding commodity prices, exchange rates, discount rates and production and
transportation cost for future cash flows. It also requires interpretation of complex geological and
geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs
and their anticipated recoveries. The economic, geological and technical factors used to estimate
reserves may change from period to period. Changes in reported reserves can impact assets’ carrying
amounts, provision for restoration and recognition of deferred tax asses due to changes in expected
future cash flows. Reserves are integral to the amount of depreciation, amortisation and impairment
charged to the income statement.
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.
15. Trade and other payables
Trade payables
Success Fee – convertible note
Other Accrued expenses
2020
US$’000
2019
US$’000
1,720
-
238
1,958
2,874
187
1,412
4,473
90
53
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
15. Trade and other payables (continued)
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.
16. Interest bearing loans and borrowings
Borrowings
Current Secured
Balance at the beginning of the period
Borrowings – at cost
Less: Facility transaction costs – at cost
Add: Facility transaction cost – amortisation
Balance at the end of the period
Non – Current Secured
Balance at the beginning of the period
Borrowings – at cost
Less: Facility transaction costs – at cost
Balance at the end of the period
2020
US$’000
2019
US$’000
-
9,200
(1,700)
679
8,179
-
11,500
(1,373)
10,127
-
-
-
-
-
-
-
-
-
On 2nd November 2019, the Company entered into a three-year senior secured US$55 million term debt
facility (Facility) with Macquarie Bank Limited (Macquarie). This Facility will be used to fund the
Company’s current and future developments, including Green Canyon 21, Lightning and any new
discoveries arising from the remainder of the current programs.
The initial commitment under the Facility is US$35 million with an additional US$20 million subject to
further credit approval from Macquarie.
Key Terms of the Facility include:
The initial US$35 million tranche is committed as follows:
• US$25 million available on facility close (Tranche A1);
•
•
Additional US$10 million committed and available on successful exploration or
commencement of commercial production at Green Canyon 21 (Tranche A2);
Interest rate of LIBOR plus 8.0% per annum;
• Maturity date 36 months from initial drawdown;
•
Quarterly principal repayments commencing 31 March 2020;
54
91
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
16. Interest bearing loans and borrowings (continued)
•
•
Senior secured non-revolving facility with security over US based assets; and
The Facility may be cancelled by the Company after 12 months without penalty once any drawn
funds are repaid.
Option Issue
In addition to customary upfront fees payable to Macquarie, the Company issued to Macquarie 42.5
million options to subscribe for fully paid ordinary shares in the Company. A further 42.5 million options
will be issued on initial draw of Tranche A2 and will expire four years after issue date. The key pricing
terms of the option issue include:
•
42.5 million options at an exercise price of A$0.08 vesting on initial draw down of Tranche A1
funding (6 November 2019) and expiring on 5 November 2023
At 30 June 2020, $25 million was drawn under the Facility and $4.3 million had been repaid. As a result,
42.5 million options vested at the reporting date and an expense of $528,000 has been capitalised
against borrowings and is amortised over the life of the facility. The fair value of the options was
calculated using a Black-Scholes model.
Transaction costs are accounted for under the effective interest rate method. These costs are
incremental costs that are directly attributable to the Facility and include Facility origination fees, legal
fees and other costs relating to the establishment of the Facility. The balance of unamortised
transaction costs (excluding the fair value of options issued) of $2.4 million is offset against the facility
borrowings of $20.7 million. Total capitalised transaction costs relating to the facility agreement are
$2.5 million (excluding fair value of options issued).
The facility agreement has certain financial covenants that the Company has to comply with. All such
financial covenants have been complied with in accordance with the facility agreement.
17. Lease liabilities
Current
Lease liabilities
Total current lease liabilities
Lease liabilities
Total non-current lease liabilities
2020
US$’000
2019
US$’000
139
139
-
-
2020
US$’000
2019
US$’000
274
274
-
-
Lease liabilities relate to the adoption of AASB 16 Leases on 1 July 2019. Details of right-of-use assets
are provided in note 13 and a maturity analysis of lease liabilities is provided in note 21.
92
55
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
18. Provisions
Current
Employee benefits
Tax
Non-current
Employee benefits (i)
Decommissioning fund – GC-21 Bulleit(ii)
Decommissioning fund – Lightning(ii)
Decommissioning fund – SM 71 (ii)
2020
US$’000
2019
US$’000
191
3
194
11
1,673
209
1,864
3,757
170
3
173
17
-
111
1,461
1,589
(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 and
facilities. The expenditure is expected to be settled at the end of the field life for the 2P production
profile.
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 the 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.
56
93
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
18. Provisions (continued)
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.
94
57
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
CAPITAL STRUCTURE, FINANCIAL INSTRUMENTS AND RISK
19. Contributed equity
a) Share capital
Balance at beginning of year
Shares issued – placement
Shares issued – entitlement offers
Shares issued – share purchase
plan
Shares issued – directors
Shares issued on conversion of
notes
Shares issued on exercise of
performance rights
Balance at end of year
(i) Share placements
2020
Number
2,460,464,725
231,109,326(i)
2,103,435,722(ii)
2019
Number
2020
US$’000
2019
US$’000
1,530,928,490
377,038,698(i)
545,159,326(ii)
125,041
780
7,421
90,704
14,235
20,002
-
-
-
-
4,795,009,773
-
-
2,599,211(iii)
-
-
-
-
-
100
4,739,000(iv)
2,460,464,725
-
133,242
-
125,041
a. March 2020 at AU0.06 per share, converted to USD at the exchange rate on the
transaction date of 0.6166. Net of share issue costs.
b. August 2018 at AUD0.059 per share, converted to USD at the exchange rate on the
transaction date of 0.7372. Net of share issue costs.
c. April 2019 at AUD0.053 per share, converted to USD at the exchange rate on the
transaction date of 0.7124. Net of share issue costs.
(ii) Share entitlements:
a.
Institutional entitlement issued April 2020 at AUD0.06 per share, converted to USD at
the weighted average exchange rate on the transaction date of 0.6104. Net of share
issue costs.
b. Retail entitlement issued April 2020 at AUD0.06 per share, converted to USD at the
weighted average exchange rate for the transaction dates of 0.6471. Net of share issue
costs.
c.
d.
Institutional entitlement issued August 2018 at AUD0.059 per share, converted to USD
at the exchange rate on the transaction date of 0.7372. Net of share issue costs.
Institutional entitlement issued April 2019 at AUD0.053 per share, converted to USD at
the exchange rate on the transaction date of 0.7124. Net of share issue costs.
e. Retail entitlement issued August 2018 at AUD0.059 per share, converted to USD at the
exchange rate on the transaction date of 0.7307. Net of share issue costs.
f. Retail entitlement issued April 2019 at AUD0.053 per share, converted to USD at the
exchange rate on the transaction date of 0.7020. Net of share issue costs.
(iii) Shares issued to J Jetter on conversion of 100,000 convertible notes April 2019 at conversion
price AUD0.05418 and converted to USD at 0.7101
(iv) Shares issued on exercise of performance rights November 2018 (4,729,000) and February 2019
(10,000)
58
95
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
19. Contributed equity (continued)
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 59ptimizati 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 24.
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 24.
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.
20. Reserves
Share-based payments reserve
Foreign currency translation reserve
Share-based payments reserve
Balance at beginning of year
Options reserve
Share-based payment expense
Balance at end of year
Foreign currency translation reserve
Balance at beginning of year
Balance at end of year
2020
US$’000
2019
US$’000
10,509
4,188
14,697
9,879
528
102
10,509
4,188
4,188
9,879
4,188
14,067
9,659
-
220
9,879
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 24 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.
96
59
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
20. Reserves (continued)
The FCTR balance has been carried forward since 2011 when the functional currency for the financial
statements of Otto Energy Philippines Inc. was changed from PHP to USD following the election by Otto
Energy Philippines Inc to use USD as it’s functional currency.
21. 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 or Senior Commercial Manager in which they review the effectiveness of the
processes implemented and appropriateness of policies it sets. At all times during the year, and to the
date of this report, the Group did 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.
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 USD to AUD exchange rate on Australian dollar 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 exchange rates. The exposure to currency risk is measured using
sensitivity analysis and cash flow forecasting.
The Board has formed the view that in the ordinary course of business 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.
During the year the company undertook capital raising activities via the issue of new shares on the ASX.
These capital raisings are priced and received in AUD. Over the time period of a capital raising there is
some short-term exposure to movements in the AUD to USD exchange rates.
A hypothetical change of 10% (2019: 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
60
97
ANNUAL REPORT 2020FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
21. Financial instruments (continued)
volatility. At 30 June 2020, 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. At 30 June 2020 the Group’s exposure to the risk of changes in the market interest rates
relates to interest income on cash and cash equivalents held with financial institutions and interest rate
risk on borrowings. The restricted cash in the debt service reserve account held by Macquarie is non-
interest bearing so excluded from this analysis.
The financial instruments exposed to movements in variable interest rates are as follows:
Cash at bank and on hand
Borrowings (excludes capitalised borrowing costs)
2020
US$’000
2019
US$’000
11,551
(20,700)
9,149
7,383
-
7,383
The following sensitivity analysis is based on the interest rate risk exposures in existence at the
reporting date. The 1.0% sensitivity is based on reasonably possible changes, over a financial year,
using an observed range of historical short term deposit rate movements over the last 3 years.
Judgements of reasonably possible movements
Increase 100 basis points
Decrease 100 basis points
iii) Commodity price risk
Effect on post tax losses
Increase/(decrease)
2019
2020
US$’000
US$’000
91
(91)
74
(74)
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are
determined, to a large degree, by prevailing oil and natural gas prices. Otto sells its production to
purchasers pursuant to sales agreements, with sales prices tied to industry standard published index
prices, subject to negotiated price adjustments.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price
fluctuations by using a series of swaps, costless collars and/or puts. Unrealized gains or losses
associated with hedges vary period to period, and are a function of hedges in place, the strike prices of
those hedges and the forward curve pricing for the commodities being hedged. Currently, all of Otto’s
hedges are oil swaps, and the Company has no three-way collars or short puts.
As of 30 June 2020, Otto had a total hedge book of 318,840 barrels of oil hedged through September
2022 via swaps, at a weighted average LLS price of $54.60 as follows:
98
61
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
21. Financial instruments (continued)
Months
Volume (Bbls)
Weighted Avg Price (LLS)
July – December 2020
January – December 2021
January – September 2022
90,664
184,616
43,560
$56.71
$53.71
$54.00
The fair value of the derivative financial instruments held at fair value through profit and loss is based
on forward prices as at 30 June 2020. An increase in forward prices would reduce the fair value of the
derivative financial asset held at fair value through profit and loss. An increase of 10% in trade forward
prices would result in a decrease of $1.32 million of the fair value of the derivative financial asset held
at fair value through the profit or loss. A decrease of 10% in trade forward prices would result in an
increase of $1.32 million of the fair value of the derivative financial asset held at fair value through the
profit or loss.
b) Credit risk
Credit risk is the risk that a contracting entity will not complete its obligation under a financial
instrument that will result in a financial loss to the Group. Credit risk arises from the financial assets
of the Group, which comprise trade and other receivables and deposits with banks and financial
institutions.
To manage credit risk from cash and cash equivalents, it is the Group’s policy to only deposit with banks
maintaining a minimum independent rating of ‘AA’, ‘A+’ or ‘A-‘. Contracts for the sale of production
from SM 71 and Lightning are with creditworthy customers and counterparties.
Receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to
bad debts in the ordinary course of business is not significant. At reporting date no receivables were
overdue.
The maximum exposure to credit risk at reporting date was as follows:
Cash and cash equivalents
Trade and other receivables
c) Liquidity risk
2020
US$’000
2019
US$’000
16,551
6,634
23,185
7,383
3,311
10,694
Liquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or another financial asset.
It is the policy of the Board to ensure that the Group is able to meet its financial obligations and maintain
the flexibility to pursue attractive investment opportunities through the Group maintaining sufficient
working capital and access to further funding when required through debt, equity or other means.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows with
scenario analysis. As at reporting date the Group had sufficient cash reserves to meet its current
requirements and no receivables were overdue.
62
99
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
21. Financial instruments (continued)
The contractual maturity analysis of payables at the reporting date was as follows:
Trade and other payables
2020
2019
Lease liabilities
2020
2019
Borrowings
2020
2019
Carrying
Value
US$’000
Total
US$’000
Less than
1 year
US$’000
Between
1-2 years
US$’000
Between
2-5 years
US$’000
1,958
4,473
413
-
1,958
4,473
413
-
18,306
-
18,306
-
1,958
4,473
139
-
8,179
-
-
-
151
-
-
-
123
-
8,179
-
1,948
-
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while
optimization the potential return to shareholders through the optimization of the debt and equity
balance.
The capital structure of the Group at year end comprises 59% equity and 41% debt (2019: 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 Group may consider raising capital when an opportunity to invest in an opportunity, business or
company is seen as value adding relative to the company’s current share price at the time of the
investment.
d) Equity price risk
The Group is not exposed to equity price risk on its financial liabilities
e) Fair values
The following table shows the carrying amounts and fair values of financial assets, including their levels
in the fair value hierarchy. It does not include fair value information for financial assets not measured
at fair value if the carrying value is a reasonable approximation of fair value. The different valuation
methods are called hierarchies and they are described below:
Financial assets measured at fair value(i)
Derivative financial assets at fair value through profit and loss
Derivative financial assets at fair value through profit and loss
Derivative financial assets at fair value through profit and loss
Total financial assets measured at fair value
Level 1
Level 2
Level 3
2020
US$’000
-
4,161
-
4,161
2019
US$’000
-
-
-
-
100
63
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
21. Financial instruments (continued)
(i) The fair value of the derivatives were determined based on a “mark to market” approach,
calculated based on forward prices relative to contracted prices for contracts held as at 30 June
2020 as disclosed in note 11 and note 21.
Fair value hierarchy
Level 1 – the instrument has quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 – the fair values are measured using inputs (other than quoted prices) that are observable for
the asset or liability either directly or indirectly; or
Level 3 – the fair values are measured using inputs for the assets or liability that are not based on
observable market data.
Cash and cash equivalents, trade and other receivables, trade creditors, other creditors and accruals
have been excluded from the above analysis as their fair values are equal to the carrying values.
64
101
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
OTHER DISCLOSURES
22. 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
Country of
incorporation
Functiona
l currency
Class of
shares
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
Otto Energy (Gulf Two) LLC
Otto Operating LLC(ii)
Otto Energy (Lightning) LLC(iii)
Otto Energy (Patrick Henry) LLC(iv)
23. Interest in operations
a) Operations
Australia
Bermuda
Philippines
Denmark
Denmark
Switzerland
Australia
USA
USA
USA
USA
USA
USA
USA
USA
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
Interest (i)
2020
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2019
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
The Group’s share of the assets, liabilities, revenues and expenses of 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 operations is detailed below. Oil and Gas exploration and production is the
principal activity performed across these assets.
Asset
South Marsh Island 71
VR 232 (i)
Onshore Alaska North Slope – Western Blocks(ii)
Onshore Alaska North Slope – Central Blocks
Lightning
Mustang(iii)
GC-21 (iv)
Country
USA
USA
USA
USA
USA
USA
USA
2020
Group interest
50%
-
-
8 – 10.8%
37.5%
-
16.67%
2019
Group interest
50%
100%
22.5%
8 – 10.8%
37.5%
37.5%
-
65
102
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
23. Interest in operations (continued)
(i) Otto released its interest in VR 232 in May 2020.
(ii) Ott released its interest in the Western Blocks in May 2020
(iii) Otto’s interest in Mustang was on an earn-in basis. As the well was not a commercial discovery
there was no transfer of ownership, therefore no JV interest held at 30 June 2020
(iv) Otto earned it’s 16.67% working interest in GC-21 by paying 22.22% of the cost of drilling the
“Bulleit” appraisal well
b) Commitments through interests in operations
The aggregate of the Group’s commitments through its interests in operations is as follows:
Exploration expenditure commitments – not later than 1 year
Exploration expenditure commitments – Later than one year but
not later than five years
Capital expenditure commitments – not later than 1 year
2020
US$’000
2019
US$’000
6,203
2,901
9,436
18,540
5,744
-
-
5,744
24. Share-based payments
a) Employee share option plan
The establishment of the Employee Share Option Plan was approved by shareholders at the 2016
Annual General Meeting and again at the 2019 Annual General Meeting. The Employee Share Option
Plan is designed to provide long term incentives for employees and key management personnel (KMP)
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.
There were no employee options on issue during the 2020 financial year.
The Company did not grant any employee options during the 2020 or 2019 financial years. During the
year ended 30 June 2020, nil (2019: nil) options expired.
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
66
103
ANNUAL REPORT 2020FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
24. Share-based payments (continued)
rights are granted under the plan for no consideration. Rights granted under the plan carry no dividend
or voting rights.
Set out below are summaries of rights granted and outstanding under the Performance Rights Plan:
2020
Fair
value on
date of
issue
Fair value
on date of
issue
Balance
at start of
the year
Rights
issued
during
the
year
Number Numb
er
Exercis
ed/
vested
Lapsed/
expired
Balance
at end of
the year
Number
Number
Number
US$
A$
0.07
0.02
0.02
0.01
0.06
15 Nov 2023
Expiry
date
31 Dec
2019
31 Dec
2019
29 Nov
2022
29 Nov
2022
Grant
date
23 Apr
2015
23 Apr
2015
29 Nov
2017
29 Nov
2017
21 Dec
2018
21 Dec
2018
15 Nov
2018
21 Dec
2018
15 Nov
2018
21 Dec
2018
15 Nov
2018
21 Dec
2018
Total
Weighted average exercise price – A$
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
0.01
0.01
0.03
0.01
0.03
0.01
0.02
0.05
1,543,334
0.05
3,086,666
0.02
4,729,000
0.01
4,729,000
0.01
0.01
0.02
0.01
0.02
0.01
0.02
0.01
5,919,333
2,959,667
2,396,000
5,533,667
2,396,000
5,533,667
2,396,000
5,533,666
46,756,000
0.02
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,543,334)
(3,086,666)
-
-
(1,267,667)
3,461,333
(1,267,666)
3,461,334
-
-
(471,000)
5,919,333
2,959,667
1,925,000
(881,000)
4,652,667
(471,000)
1,925,000
(881,000)
4,652,667
(471,000)
1,925,000
(881,000)
4,652,666
(11,221,333)
35,534,667
0.01
104
67
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
24. Share-based payments (continued)
2019
Grant
date
23 Apr
2015
23 Apr
2015
29 Nov
2017
29 Nov
2017
29 Nov
2017
21 Dec
2018
21 Dec
2018
15 Nov
2018
21 Dec
2018
15 Nov
2018
21 Dec
2018
15 Nov
2018
21 Dec
2018
Total
Expiry
date
31 Dec 2019
31 Dec 2019
29 Nov 2022
29 Nov 2022
29 Nov 2022
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
Fair
value on
date of
issue
A$
Fair
value on
date of
issue
US$
Balance at
start of the
year
Number
Rights
issued
during
the year
Number
Exercised
/
vested
Lapse
d/
expire
d
Balance at
end of the
year
Number Numb
Number
0.06
0.07
0.03
0.02
0.02
0.01
0.01
0.02
0.01
0.03
0.01
0.03
0.01
0.05
0.05
0.02
0.02
0.01
0.01
0.01
0.02
0.01
0.02
0.01
0.02
0.01
1,543,334
3,096,666
4,729,000
4,729,000
4,729,000
-
-
-
-
-
-
-
-
-
-
-
-
-
5,919,333
2,959,667
2,396,000
5,533,667
2,396,000
5,533,667
2,396,000
5,533,666
er
-
(10,000)
(4,729,000)
-
-
-
-
-
-
-
-
-
-
18,827,000
32,668,000
(4,739,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,543,334
3,086,666
-
4,729,000
4,729,000
5,919,333
2,959,667
2,396,000
5,533,667
2,396,000
5,533,667
2,396,000
5,533,666
46,756,000
68
105
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
24. Share-based payments (continued)
Set out below is the share based payment expense:
Performance rights issued in financial year 2015
Performance rights issues in financial year 2018
Performance rights issues in financial year 2019
Total
2020
US$’000
2019
US$’000
-
1
101
102
13
93
114
220
No performance rights were granted under the Plan in the financial year 2020.
The amount of performance rights that will vest depends on the 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, vesting of the rights for directors, the CEO
and other members of the executive team were based on TSR performance only. The TSR performance
required for all rights on issue as at 30 June 2018 is 10% per annum (based on 30 day VWAP) and for
the rights granted during the year ended 30 June 2019 is 15%, compounding from the date of grant to
the measurement date (based on 90 day VWAP). If the TSR vesting condition is not met on a
measurement date, no rights vest and those performance rights continue to exist as unvested
performance rights to be retested at the next measurement date or expiry date if there are no further
measurement dates.
For the year ended 30 June 2020, the Group recognised share-based payments expense of $102,942 in
the Consolidated Statement of Profit or Loss and Other Comprehensive Income (2019: $219,923). This
included reversals of $54,911 for forfeiture of rights on resignation for Mr Macliver, Mr Rich and Mr
Boserio as the service conditions were not met.
Recognition and measurement
The Group has in previous financial years 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 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 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 any non-market performance conditions being met and (iii) the expired portion of the vesting period.
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.
106
69
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
24. Share-based payments (continued)
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 is treated as if it was 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 a single share price barrier 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.
25. Related parties
Key management personnel compensation
Short-term employee benefits
Consulting fees(i)
Post-employment benefits
Other benefits
Termination benefits
Share-based payments
Total USD
Total AUD equivalent
2020
US$’000
2019
US$’000
1,786,015
55,268
75,201
325,667
-
79,160
2,321,311
3,464,456
2,041,107
-
83,028
356,632
61,676
200,687
2,743,130
3,840,540
(i) John Jetter (Chairman) entered into an agreement dated 24 July 2020 and backdated to 1 April 2020
to provide consultancy services to the Company. Detailed disclosures provided in the remuneration
report on pages 17 to 30
Detailed remuneration disclosures are provided in the remuneration report on pages 17 to 30
70
107
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
26. Auditor’s remuneration
During the year the following fees were paid or payable for services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
2020
US$’000
2019
US$’000
BDO Australia
Audit and review of financial statements
Tax compliance services
Tax consulting and tax advice
Total remuneration of BDO Australia
Network firms of BDO Australia
Audit and review of financial statements
Tax compliance services
International tax consulting
Total remuneration of network firms of BDO Australia
Non-BDO
Audit and review of financial statements
Tax compliance services
Total remuneration of non-BDO audit firms
Total
52,266
15,017
31,114
98,397
10,139
9,500
-
19,639
1,166
-
1,166
119,202
34,450
13,058
1,410
48,918
24,196
11,067
968
36,231
1,160
-
1,160
86,309
It is the Group’s policy to employ BDO on assignments additional to their statutory audit duties where
BDO’s expertise and experience with the Group are important. These assignments are principally tax
advice where BDO is awarded assignments on a competitive basis. It is the Group’s policy to seek
competitive tenders for all major consulting projects.
27. Contingent liabilities
There are no contingent liabilities at balance date.
28. Commitments
a) Exploration expenditure commitments
Exploration expenditure contracted for at the reporting date but not recognised as liabilities are as
follows:
Not later than 1 year
Later than one year but not later than five years
108
2020
US$’000
2019
US$’000
6,203
2,901
9,104
5,234
510
5,744
71
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
28. Commitments (continued)
Under the Joint Exploration and Development Agreement (JEDA) with Hilcorp dated 31 July 2018, in
the event of a default of its obligations, Otto Energy (USA) Inc is required to pay Hilcorp liquidated
damages (LDs) of $1,000,000 for each prospect that is not an earned prospect.
An agreement dated 30th August 2018 between Fairfield Geotechnologies and Otto Energy (USA) was
entered into for the provision of licences of geophysical seismic data. A further $0.5 million is
committed and required to be paid by 30 September 2020.
Under the agreement between Great Bear Petroleum Operating LLC and Borealis Petroleum Pty Ltd,
there is a remaining commitment to take part in two exploration wells with a capped expenditure of
$US2.6 million per well.
b) Capital expenditure commitments
Capital expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
Later than one year but not later than five years
2020
US$’000
2019
US$’000
9,436
-
9,436
-
-
-
Capital expenditure commitments at reporting date relate to committed development costs on GC-21
Bulleit. Commitments are disclosed net of the amount of GST recoverable from, or payable to, the tax
authority.
Lease rentals due on the Group’s exploration leases can be cancelled and the leases relinquished.
Therefore the lease rentals are not non-cancellable and hence are not included in the above.
29. Events after the reporting period
No matters or circumstances have arisen since 30 June 2020 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 apart from those listed below:
• Board and Executive Changes
On 17 July 2020, the Company appointed Mr Geoff Page as a Non-Executive Director of the
Company and as Chairman of the Audit and Risk Committee. Mr Page is a finance professional
with over 20 years of senior finance, accounting and management experience gained globally
within a number of industries. He has over 10 years of board experience gained in several
different firms.
On 11 September 2020, the Company hired Mr Michael J. Utsler as the Company’s new Chief
Executive Officer and Managing Director.
• Reserves Statement
On 24 September 2020 the Company released its statement of reserves and resources as at 30
June 2020 which included Otto’s offshore leases at South Marsh 71 (“SM 71”) and Green Canyon
72
109
ANNUAL REPORT 2020FINANCIAL REPORT 2020 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2020 73 29.Events after the reporting period (continued) 21 (“GC 21”), and its Lightning Field lease in Matagorda County, TX. The prospective resources cover Alaska, onshore leases along the Gulf Coast, and SM 71. •Hedging In July 2020, the Company entered into additional hedges for 66,000 barrels for 2020 and 54,074 barrels for 2021, resulting in a Weighted Average LLS Price of $50.11 for the remainder of CY 2020 and $51.62 for CY 2021 (on forecast SM71 and Lightning volumes). In August 2020, the Company entered into additional hedges for 66,358 barrels for CY2022, resulting in a Weighted Average LLS Price of $49.20 for CY 2022 (on forecast SM71 and Lightning volumes). The impact of the Coronavirus (Covid-19) pandemic is ongoing and its impact on the Group has been disclosed within the Directors Report. It is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. 30.Parent entity disclosures As at, and throughout the financial year ended 30 June 2020, the parent company of the Group was Otto Energy Limited. 2020 2019 US$’000 US$’000 Parent entity Summarised statement of profit or loss and other comprehensive income Loss for the year after tax (38,905) (40,071) Total comprehensive loss for the year (38,905) (40,071) FINANCIAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
30. Parent entity disclosures (continued)
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprises:
Share capital
Share based payments reserves
Foreign currency translation reserve
Accumulated losses
Total equity
2020
US$’000
2019
US$’000
5,727
40,728
46,455
293
11
304
4,536
33,128
37,664
469
17
486
46,151
37,178
2020
US$’000
2019
US$’000
133,242
10,509
118
(97,718)
46,151
125,041
9,878
118
(97,859)
37,178
Guarantees entered into by the parent in relation to the debts of its subsidiaries
Parent company guarantees are extended on a case by case basis. Otto Energy Limited has provided
a number of performance guarantees for subsidiaries under the terms of joint operations operating
agreements, participation agreements and agreements with Governments pertaining to oil & gas
exploration.
Otto Energy Limited has a guarantee in place to Byron Energy Inc, for the performance of Otto Energy
(Louisiana) LLC’s obligations in relation to SM 71.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019 beyond those listed
in Note 27
Commitments
The parent entity had an operating lease on office premises expiring 30 November 2019 which is on
month to month terms as at 30 June 2020 in accordance with the relocation of head office to Houston.
Not later than 1 year
Later than 1 year but not later than 5 years
2020
US$’000
2019
US$’000
2
-
2
11
-
11
74
111
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
30. Parent entity disclosures (continued)
Significant accounting policies
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.
31. New accounting standards and interpretations
New and amended standards adopted by Otto Energy Limited
3(a) The Group has applied the following standard for the first time for their reporting period
commencing 1 July 2019
•
AASB 16 Leases (“AASB 16”)
The Group had to change its accounting policies and make certain adjustments following the adoption
of AASB 16, however adoption did not give rise to any material transitional or reporting date (30 June
2020) adjustments. This is disclosed in note 3(b).
•
AASB Interpretation 23 Uncertainty over Income Tax Treatments
This Interpretation clarifies the application of the recognition and measurement criteria in AASB 112
Income Taxes when there is uncertainty over income tax treatments. The Interpretation addresses
(a) whether an entity considers uncertain tax treatments separately; (b) the assumptions an entity
makes about the examination of tax treatments by taxation authorities; (c) how an entity determines
taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and (d) how an
entity considers changes in facts and circumstances.
The adoption of this Interpretation has had no impact on the current or previous reporting period and
as such there have been no adjustments to the opening balance of accumulated losses.
AASB 16
3(b)
The Group has adopted AASB 16 with a date of initial application of 1 July 2019 using the modified
retrospective approach and applied the practical expedients per AASB16.C10(a) and (c). Lease assets
and liabilities are measured at the present value of future payments on the initial date of application,
being 1 July 2019.
Until 30 June 2019, leases of property, plant and equipment were classified as either finance or
operating leases. Payments made under operating leases (net of any incentives received from the
lessor) were charged to profit and loss on a straight-line basis over the period of the lease.
On adoption of AASB 16, the Group recognized lease liabilities in relation to leases which had previously
been classified as ‘operating leases’ under the principles of AASB 17 Leases. These liabilities were
measured at the present value of the remaining lease payments, discounted using the rate implicit in
the rental lease. The borrowing rate applied to the lease liabilities on 1 July 2019 was 7.75%.
Lease liabilities
Operating lease commitments at 30 June 2019
Discounted using the lessee’s borrowing rate
Lease liability recognised as at 1 July 2019
112
01/07/19
US$’000
292
254
254
75
FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
31. New accounting standards and interpretations (continued)
The Group has not restated comparatives for the reporting period as permitted under the specific
transitional provisions in the standard. The reclassification and the adjustments arising from the new
leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. The impact on the
statement of financial position as at 1 July 2019 on the adoption of AASB16 are noted below:
Lease Liabilities
Current
Non-current
Total Lease Liabilities
Right-of-use assets
Right-of-use - Buildings
Right-of-use – Plant and equipment
Total Right-of-use assets
Prepayments
01/07/19
US$’000
56
198
254
257
19
276
22
The leases recognised by the Group under AASB 16 on transition relate to office building and
equipment. AASB 16 provides a new lessee accounting model which 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. The depreciation of the lease assets and interest on the lease liabilities are recognised in
the consolidated profit or loss and other comprehensive income statement.
In applying AASB 16 for the first time, the Group has used the following practical expedients permitted
by the standard:
•
•
The use of a single discount rate to a portfolio of leases with reasonably similar characteristics
The accounting for leases with a remaining term of less than 12 months as at 1 July 2019 as short-
term leases
Leases accounting policy (applied from 1 July 2019)
When a contract is entered into the Group assesses whether the contract contains a lease. A lease
arises when the Group has the right to direct the use of an identified asset which is not substitutable
and to obtain substantially all economic benefits from the use of the asset throughout the period of
use. The Group separates the lease and non-lease components of the contract and accounts for these
separately. The Group allocates the consideration in the contract to each component on the basis of
their relative stand-alone prices.
Leases as a lessee
Lease assets and lease liabilities are recognised at the lease commencement date, which is when the
assets are available for use. The assets are initially measured at cost, which is the present value of
future lease payments adjusted for any lease payments made at or before the commencement date,
plus any make good obligations and initial direct costs incurred.
Lease assets are depreciated using the straight-line method over the lease term. Periodic adjustments
are made for any remeasurements of the lease liabilities and impairment losses, assessed in
accordance with the Group’s impairment policies.
76
113
ANNUAL REPORT 2020FINANCIAL REPORT 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2020
31. New accounting standards and interpretations (continued)
Lease liabilities are initially measured at the present value of future minimum lease payments,
discounted using the Group’s incremental borrowing rate if the rate implicit in the lease cannot be
readily determined, and are subsequently measured at amortised cost using the effective interest rate.
Minimum lease payments are fixed payments.
The lease liability is remeasured when there are changes in future lease payments arising from a
change in rates, index or lease terms from exercising an extension or termination option. A
corresponding adjustment is made to the carrying amount of the lease assets, with any excess
recognised in the consolidated profit or loss and other comprehensive income statement.
Short term leases and lease of low value assets
Short term leases (lease term of 12 months or less) and leases of love value assets are recognised as
incurred as an expense in the Consolidated Profit or Loss and Other Comprehensive Income Statement.
Low value assets comprise plant and equipment.
114
77
FINANCIAL REPORT 2020 DIRECTORS’ DECLARATION
For the year ended 30 June 2020
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 2020
Remuneration Report, comply with Australian Accounting Standards (including Australian
Accounting Interpretations) and the Corporations Act 2001 and other mandatory professional
reporting requirements;
the financial statements and notes give a true and fair view of the financial position of the Group
as at 30 June 2020 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 2020 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
2020.
On behalf of the Board
Mr J Jetter
Chairman
25 September 2020
78
115
ANNUAL REPORT 2020FINANCIAL REPORT 2020 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
INDEPENDENT AUDITOR'S REPORT
To the members of Otto Energy Limited
Report on the Audit of the Financial Report
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 2020, 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.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
Giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year ended on that date; and
(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 (including Independence Standards) (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.
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.
116
FINANCIAL REPORT 2020 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.
Recoverability of Oil and Gas Properties
Key audit matter
How the matter was addressed in our audit
The Group’s carrying value of oil and gas properties as
Our work included but not limited to the following
disclosed in note 14 represents a significant asset to
procedures:
the Group. The Australian Accounting Standards require
the Group to assess whether there are any indicators
that oil and gas properties may be impaired.
The Group concluded there was an impairment
indicator as the net assets of the Group exceeded its
market capitalisation as at 30 June 2020 and due to the
volatility in the oil price during the financial year.
Accordingly, the Group was required to estimate the
recoverable amount of the assets in accordance with
the Australian Accounting Standards from which no
impairment was recognised.
The assessment of impairment is complex and highly
judgemental and it is affected by future performance
and market conditions. The key judgements and
assumption used in the group’s impairment assessment
are disclosed in note 14 to the financial report. A
reasonable possible change in these key assumptions
could impact the recoverable amount of a cash
generating unit. Accordingly, this matter was
considered to be a key audit matter.
•
•
Assessing the appropriateness of the Group’s
categorisation of Cash Generating Units (“CGUs”)
and the allocation of assets to the carrying value
of CGUs based on our understanding of the Group’s
business and internal reporting;
Obtaining and reviewing available reserve data
from management’s internal and external experts
to determine whether the data has been correctly
included in the impairment model. This included
assessing the competency and objectivity of
management’s expert;
•
Challenging key inputs used in the value in use
calculations including the following:
•
•
•
In conjunction with our valuation specialist,
reviewing the accuracy and integrity of
management’s value in use model and the
discount rate used;
Benchmarking and analysing management’s oil
and gas price assumptions against external
market data;
Reviewing and analysing the appropriateness
of forecasted operating and production costs
contained within managements model against
actuals and source documentation such as
Authorisation for Expenditure Statements
where possible;
117
ANNUAL REPORT 2020FINANCIAL REPORT 2020 Key audit matter
How the matter was addressed in our audit
•
•
Considering the possible impacts of COVID-19;
and
Performing sensitivity analysis on the
commodity pricing, key operating costs and
discount rates.
•
•
Reviewing the Director’s minutes and ASX
announcements for evidence of consistency of
information with management’s assessment of the
carrying value; and
Assessing the adequacy of the related disclosures
in note 14 to the financial report.
Other information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 30 June 2020, but does not include the
financial report and the auditor’s report thereon.
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
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, 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.
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
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.
118
FINANCIAL REPORT 2020 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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.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 17 to 30 of the directors’ report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of Otto Energy Limited, for the year ended 30 June 2020,
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
Phillip Murdoch
Director
Perth, 25 September 2020
119
ANNUAL REPORT 2020FINANCIAL REPORT 2020 ADDITIONAL ASX INFORMATION
As at 16 September 2020
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
Number of shares
166
217
462
2,047
1,848
4,740
25,051
675,505
3,866,783
90,081,250
4,700,361,184
4,795,009,773
Number of holders
Number of shares
4,512
228
4,740
4,608,343,055
186,666,718
4,795,009,773
There were 2,044 shareholders holding less than a marketable parcel of shares.
Twenty largest shareholders
Name
Ordinary shares
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
1
2
3
4
5 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
6 MR JOHN PHILIP DANIELS
7
BNP PARIBAS NOMS PTY LTD
8 MR MATTHEW GERARD ALLEN
9 MR GEORGE EUSTRATIOS MANIOS
10 MR THOMAS FRITZ ENSMANN
11 BLAMNCO TRADING PTY LTD
12 MR DANIEL LEE
13 DANIEL LEE PTY LTD
14 NATIONAL NOMINEES LIMITED
15 MR ANASTASIOS MAZIS
16 MR WILLIAM GEORGE WILLIAMS
17 MR CRAIG GRANT RADFORD & MRS SARAH JANE RADFORD
18 MR EUAN PATRICK DAVID WADSWORTH
19 BRUXNER PACIFIC PTY LTD
20 PANDA INVESTMENTS PTY LTD
Number of
shares
2,327,686,245
178,321,280
124,691,962
78,070,214
51,490,187
31,950,000
22,287,604
21,541,602
21,455,555
20,000,000
20,000,000
18,211,778
17,771,431
16,110,500
16,041,091
15,786,102
15,537,765
15,500,000
15,383,333
15,115,698
3,042,952,347
%
48.54%
3.72%
2.60%
1.63%
1.07%
0.67%
0.46%
0.45%
0.45%
0.42%
0.42%
0.38%
0.37%
0.34%
0.33%
0.33%
0.32%
0.32%
0.32%
0.32%
63.46%
83
120
FINANCIAL REPORT 2020 ADDITIONAL ASX INFORMATION
As at 16 September 2020
Substantial shareholders
Name
Molton Holdings Limited
Unquoted securities
Ordinary shares
Number of
shares
2,305,859,697
%
48.38%
The unlisted securities of the Company are 35,534,667 performance rights. The performance rights do
not carry a right to vote at a general meeting of shareholders.
Performance Rights
Grant date
Expiry date
Exercise price
29 November 2017
15 November 2018
21 December 2018
29 November 2022
15 November 2023
15 November 2023
A$0.00
A$0.00
A$0.00
Number of
performance
rights
6,922,667
5,775,000
22,837,000
35,534,667
Number of
holders
4
3
5
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 42,500,000 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 can be accessed at www.ottoenergy.com
84
121
ANNUAL REPORT 2020FINANCIAL REPORT 2020 AUSTRALIAN OFFICE
Ground Floor
70 Hindmarsh Square
Adelaide SA 5000
PO BOX 1414
West Perth
WA 6872 Australia
T: + 61 8 6467 8800
HOUSTON OFFICE
Suite #1080
Two Allen Center
1200 Smith Street Houston
Texas 77002
T: +1 713-893-8894
Email: info@ottoenergy.com
ASX Code: OEL
ABN: 56 107 555 046
OT TOENERGY.COM