ANNUAL REPORT 2021
Contents
2 OVERVIEW
2
Company Focus
3
Highlights of the Year
4
Areas of Activity
6
About Otto
8
Chairman’s Report
10
Executive Management
12 CORPORATE
13
Strategy
14
Capital Management
16
Risk Management
18
Commodity Price Risk Management
20
Reserves and Prospective Resources
28 OPERATING AND FINANCIAL REVIEW
29
Operational and Financial Highlights
30
Operating Summary
32
Financial Summary
34
Liquidity Summary
36
Asset Overview
40 GOVERNANCE
41
Board of Directors
42 FINANCIAL REPORT
45
Director’s Report
59
Remuneration Report
OT TO ENERGY A NNUAL REPOR T 2021 | 1
COM PANY FOCU S
Implementing our strategy –
building our future
PILLAR 1
PILLAR 2
MAXIMIZE BASE
BUSINESS
DELIVERY
OPTIMIZE
ORGANIC GROWTH
IN EXISTING
ASSETS
PILLAR 3
DELIVER
INORGANIC
GROWTH
Commercialize
the resources-to-
reserves-to-production
progression of
lower risk and cost
opportunities, resulting
in higher margin
returns in the existing
base business.
Optimize production
delivery from our
three existing assets
within our portfolio,
safely and sustainably.
Simplify our business
through the continued
targeting of cost
reductions and
efficiencies in order to
drive lowest operating
costs and breakeven
costs of supply and
deliver highest viable
margin returns.
Identify and capture
growth in value
returns through any or
all of three lenses:
A
further lower risk,
higher margin
infrastructure-led
prospect participation.
B
value accretive
acquisitions, sales or
mergers.
C
direct potential to
return to shareholders
via dividend,
stock buybacks or
distributions.
2 | OTTO ENERGY ANNUAL REP ORT 2021
OVERVIEW
Highlights of the Year
Otto Energy Limited is an oil and gas exploration and production
company with a regional focus on North America, concentrating on
the Gulf of Mexico region near-term.
EAR NI N GS
$30.1m
Net revenue (US$)
31%
$29.1m
74%
Adjusted EBITDAX1 (US$)
CAS H FLOW
$18.9m
80%
$15.2m
2200%
Net operating cashflow
(pre-exploration – US$)
Net operating cashflow
(post-exploration – US$)
KE Y D RIVERS
17%
38%
Increase in production to
3,032 boe/d at 56% liquids
Increase in total WI revenue
to US$39.7 million
NO N- CORE ASSET DISPOSAL
Profit realized on successful sale
of Borealis Alaska LLC subsidiary
to Pantheon Resources Plc.
for 14,272,592 shares of PANR.
$8.0m
(US$)
1 Considered to be non-IFRS financial information. Refer to audited financial statements released on 27 September 2021
and Appendix 1 for the IFRS information and a reconciliation.
OT TO ENERGY ANNUAL REPORT 2021 | 3
OVERVIEW
Areas of Activity
HOUSTON
N EW
O RLEANS
LIGH TNIN G FI ELD
37.5%
Otto Working Interest
28.2%
Otto Net Revenue Interest
2 wells
Status – Producing From
3,254 boe/day
Gross Production (100%
basis, at 30 June 2021)
15%
Liquids Proportion of
2P Reserves
GULF OF
MEXIC O
G ULF OF M EXIC O
SOUTH MA RSH ISLAND 71
SM 7 1
50%
Otto Working Interest
40.6%
Otto Net Revenue Interest
3 wells
Status – Producing From
2,822 boe/day
Gross Production (100%
basis, at 30 June 2021)
89%
Liquids Proportion of
2P Reserves
GREEN CA NYON 21
G C 2 1
16.7%
Otto Working Interest
13.3%
Otto Net Revenue Interest
1 well
Status – Producing From
228 boe/day
Gross Production
(June 2021 Quarter)
91%
Liquids Proportion of
2P Reserves
4 | OT TO ENER GY ANNUAL REPORT 2021
OVERVIEW
Production
GUL F OF ME XIC O
Otto Energy considers the US Gulf Coast a core region
for its production focus. Today, Otto produces oil and
gas from three projects in the Gulf Coast: 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 and the most prolific basin in the US. Otto’s
focus in the Gulf region is on evaluating the Pliocene
and Miocene gas and liquids rich proven areas. 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 and gas pricing
environment. Additionally, the significant and extensive
technical data available gives Otto the ability to reduce
its costs of finding and developing, and lowering the
overall risk involved in upstream exploration and
production. Adding to the advantages of focusing on
the Gulf region is the availability of significant market
options, with about half of the US fossil fuel refining and
processing capacity being located in the Gulf region.
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.
Exploration
PANTHEON RESOURCES
Otto holds approximately 14.3 million shares in
Pantheon Resources Plc (LSE: PANR), which is
the operator of the recently formed Talitha Unit
in Alaska. This unit is located on the North Slope
where Pantheon holds a 100% working interest in its
various projects. All projects are located adjacent to
the major Trans Alaska Pipeline System (TAPS) and
the Dalton Highway. Pantheon recently completed
drilling of the Talitha #A well to a targeted depth of
approximately 3,200 metres. The well has now been
logged, with testing of four major oil-bearing zones
underway.
Otto also retains a 0.5% of 8/8ths ORRI over any
future production from the Talitha Unit.
OT TO ENERGY ANNUAL REPORT 2021 | 5
OVERVIEW
About Otto
Otto Energy Limited is an Australian-listed oil and gas exploration and
production company with a regional focus on North America.
Otto has established non-operating interests in three fields located
in onshore Texas, the offshore Gulf of Mexico (GoM) shelf and in
the shallower zone within a deepwater area of the Gulf of Mexico.
This includes gas/condensate production from the Lightning discovery
onshore Matagorda County, Texas and oil with associated gas production
from the South Marsh Island 71 (SM 71) and Green Canyon 21 (GC21)
fields in the offshore Gulf of Mexico.
Otto’s commercial and technical capabilities to
screen, identify, pursue and actively capture resource
development potentials within the onshore and
offshore Gulf of Mexico remains a core company
focus. The Gulf of Mexico basin is the most prolific
hydrocarbon basin in the US. It is considered a
significantly mature hydrocarbon province but
continues to yield highly attractive discoveries onshore
and offshore. This is complemented by having a well-
established regulatory regime, both federal and state,
with low royalty rates. The extensive infrastructure
from a facilities and pipeline transport perspective
also enables lower development costs along with
greater access to premium oil and gas sales markets.
Commercially, the capacity to actively market and/or
hedge oil or gas production from operations provides
strong cashflow from these assets, underpinning
growth in value for shareholders for years to come.
Otto has a clear strategy to deliver shareholder
value, through building a strong production and
financial base of assets, and will look to optimize
the portfolio through with disciplined investments in
infrastructure-led development. These efforts have
strengthened Otto’s financial capacity and continue
to do so. We take a disciplined and prudent approach
to capital management, ensuring management of
financial risks and maintaining a resilient financial
position. This allows us to maximize the value
delivered from our portfolio of opportunities.
6 | OT TO ENER GY ANNUAL REPORT 2021
OVERVIEW
The Company is
continuing to enhance
its underlying value
delivery, while building
on a track record of being
recognized as a potential
partner of choice”
Technology and innovation are essential to Otto’s
long-term sustainability. We are growing our
energy business, as well as seeking to partner
with operators who are using technology to reduce
emissions and the carbon footprint of our products.
The Company is continually working to bring down
its direct and indirect costs. Enhancing operating
margins ensures that Otto can continue to find
opportunities in the volatile business of developing
energy solutions to meet future demands, while
growing sustainable value for shareholders.
We are committed to upholding our values of
integrity, discipline, excellence, teamwork and
being a partner of choice. Otto’s success is driven
by its people and their capabilities. We aim to
manage access to a diverse, high performing
workforce while keeping a prudent footprint in
size and efficiency. We recognize that enduring,
meaningful relationships with all stakeholders are
fundamental to maintaining our license to operate
and exist. We actively seek to build relationships
with stakeholders by creating and sharing our
knowledge, while building resilience and gaining
access to new opportunities. Our proven track
record and distinctive capabilities are underpinned
by years of experience and skills, making us a
partner of choice.
OT TO ENERGY A NNUAL REPOR T 2021 | 7
OVERVIEW
Chairman’s Report
Dear Shareholders,
This past fiscal year has seen a critical period of change in the world,
as well as for Otto Energy.
The continuing challenges and uncertainties experienced in the face
of COVID-19 have resulted in dramatic shifts within the energy sector
in terms of demand for, pricing of and expectations around actions to
reduce the impacts on our industry.
At Otto Energy, we have put tremendous efforts
into stabilizing, simplifying and positioning the
Company, as well as optimizing efficiencies
that will enable us to continue to grow greater
value. It has been a year that compelled a rethink
about our purpose, ambition for the future and,
importantly, resetting the strategy that will guide
us there.
Otto’s response to this challenging backdrop has driven:
• the establishment of a clear and structured strategy
• realizing year-on-year production improvements
(increase of 17%)
• taking actions to reduce operational and structural
costs (62% reduction in field lifting costs per boe,
and 28% reduction in non-field lifting costs per boe)
• making operational improvements across the entire
business
• increasing transparency and rigour in the
performance management of our business
• a focus on how we can commercialise the potential
for growth
It is clear our resilience can be further strengthened by:
• continuing to prioritise cash flow generation –
operating net investing (increase of 122%)
• constantly challenging costs
• maintaining disciplined capital management and
technical due diligence
• building greater brand recognition and broadening
our investor base
We are clear in our
purpose to deliver low
cost, high value energy
that meets consumer
needs”
8 | OT TO ENER GY ANNUAL REPORT 2021
OVERVIEW
Positioning Otto Energy
for the Future”
Underscoring the events of the past year has been a
growing confidence in the development and execution
of our refreshed strategy. It represents the right
roadmap for Otto Energy to position itself to deliver
greater value going forward for all stakeholders.
We are clear in our purpose to deliver low cost, high
value energy that meets consumer needs. Otto is
equally focused on its goal of being a preferred energy
partner, now and in coming years.
We look to the future with determination and resolve.
I extend my sincere gratitude to Otto’s leadership team
and all those who have showed such commitment in
helping to achieve the necessary changes, through
these very testing times.
I also wish to recognize the contribution and wise
counsel of my fellow board members. On behalf of the
Board, I thank our shareholders for their support and
continuing endorsement of our plans.
I look forward to sharing Otto’s continued progress,
as we stride ahead.
Michael J. Utsler
Executive Chairman, Chief Executive Officer
and Managing Director
OT TO ENERGY A NNUAL REPOR T 2021 | 9
OVERVIEW
Executive Management
MICHAEL J. UTSLER
Executive Chairman, Chief
Executive Officer
and Managing Director
B.S. Petroleum Engineering
Mike was appointed Chief Executive
Officer and Managing Director
of the Company on 11 September
2020, and Executive Chairman
on 19 November 2020. Mike 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.
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.
10 | OTTO ENE RGY ANNUAL REPORT 2021
OVERVIEW
PHILIP TRAJANOVICH
Senior Commercial Manager
JULIE DUNMORE
Group Financial Controller
Bachelor of Commerce (Hons)
Bachelor of Commerce (UWA)
Ms. Dunmore is the Group Financial
Controller having joined Otto Energy
in June 2018. Ms Dunmore has over
20 years experience in financial and
management accounting primarily
within the oil and gas industry.
Ms. Dunmore’s previous experience
includes Regional Finance Manager
(SEA) for Crondall Energy, Project
Finance Manager at Clough
Engineering and Wesfarmers Group
accountant. Ms. Dunmore is a
Chartered Accountant, Graduate of
the Australian Institute of Company
Directors and a Fellow of the
Governance Institute of Australia.
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.
OT TO ENERGY ANNUAL REPORT 202 1 | 11
Corporate
12 | OTTO ENERGY ANNUAL REPORT 2021
CORP ORATE
Strategy
SHAREHOLD RETURNS
PARTNER OF CHOICE
TOP QUARTILE TSR
LEADING KPI’S LAGGING KPI’S
1
r
a
l
l
i
P
2
r
a
l
l
i
P
3
r
a
l
l
i
P
EFFICIENT PROCESSES AND PRACTICES
PEOPLE AND ORGANIZATION
PILLAR 1
MAXIMIZE BASE
BUSINESS DELIVERY
Optimize production delivery from our three existing
assets within our portfolio, safely and sustainably.
Simplify our business through the continued targeting
of cost reductions and efficiencies in order to drive
lowest operating costs and breakeven costs of supply
and deliver highest viable margin returns.
PILLAR 2
OPTIMIZE ORGANIC GROWTH
IN EXISTING ASSETS
Commercialize the resources-to-reserves-to-
production progression of lower risk and cost
opportunities, resulting in higher margin returns
in the existing base business.
PILLAR 3
DELIVER INORGANIC GROWTH
Identify and capture growth in value returns through
any or all of three lenses: A) further lower risk, higher
margin infrastructure-led prospect participation,
B) value accretive acquisitions, sales or mergers,
and C) direct potential to return to shareholders via
dividend, stock buybacks or distributions. Growth
opportunities can be captured through exploration,
mergers, acquisitions, or expansions. Our opportunity
management framework is flexible and adaptable
with the primary objective of realizing the value of an
opportunity whilst mitigating the risk of a sub-optimal
outcome. We aim to identify and progress a suite of
commercially attractive and sustainable opportunities
that complement our existing assets, enable portfolio
diversity, and optimize our commercial position.
We continue to monitor and assess growth
opportunities through mergers and acquisitions on
a case-by-case basis.
OT TO ENERGY ANNUAL REPORT 202 1 | 13
Free Cash Flow
Net Operating Revenue (US$'000)
Breakeven Costs
Net Operating Revenue (US$'000)
Net Operating Revenue (US$'000)
35,000
Net Operating Revenue (US$'000)
35,000
30,000
Breakeven Costs
Breakeven Costs
$12.00
Breakeven Costs
Improvement in Leverage
Improvement in Leverage
Improvement in Leverage
2019
2021
2019
2020
25,000
2021
(10,000)
(20,000)
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
2020
20,000
2021
2019
(20,000)
2020
Opex
Oil Hedges
G&A
Exploration & Development
2021
15,000
Finance Costs
Free Cash Flow (Deficit)
2019
Opex
Oil Hedges
G&A
Exploration & Development
Finance Costs
10,000
Free Cash Flow (Deficit)
Opex
G&A
Exploration & Development
Finance Costs
600
Free Cash Flow (Deficit)
Oil Hedges
Capital Expenditures (US$'000)
2019
2020
2019
Capital Expenditures (US$'000)
55,000
2020
2019
$60.00
Capital Expenditures (US$'000)
55,000
$50.00
45,000
2020
2021
Capital Expenditures (US$'000)
Improvement in Earnings
Free Cash Flow
Free Cash Flow
50,000
Free Cash Flow
50,000
40,000
50,000
40,000
30,000
40,000
30,000
20,000
30,000
20,000
10,000
20,000
10,000
-
10,000
-
(10,000)
-
(10,000)
(20,000)
2019
D
P
O
B
800
700
500
400
300
200
100
0
800
700
600
500
400
300
200
100
0
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
u
t
b
m
M
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
D
P
O
B
u
t
b
m
M
D
P
O
B
u
t
b
m
M
800
700
600
500
400
300
200
100
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
$80.00
$70.00
$60.00
$50.00
$30.00
Q4 CY21
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
Q3 CY21
$40.00
Q4 CY21
Q1 CY22
$20.00
Q2 CY22
Q3 CY21
BOPD hedged
Q1 CY22
Q2 CY22
Hedged Prices
Q3 CY22
Q3 CY21
Q4 CY21
Gas Hedges
Q1 CY22
BOPD hedged
Q2 CY22
Hedged Prices
Q3 CY22
25,000
Q3 CY21
Q4 CY21
Q1 CY22
Gas Hedges
Q2 CY22
40,000
Q3 CY22
BOPD hedged
Hedged Prices
Gas Hedges
BOPD hedged
40,000
Hedged Prices
Jul-21
Aug-21
Sep-21
Jul-21
Aug-21
Sep-21
Mmbtu hedged
Oct-21
Nov-21
Hedged Prices
Dec-21
Jul-21
Aug-21
Sep-21
Mmbtu hedged
Oct-21
$0.50
Nov-21
Hedged Prices
Dec-21
Mmbtu hedged
$0.00
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
$80.00
$70.00
$60.00
$40.00
55,000
$30.00
45,000
$20.00
40,000
$10.00
35,000
$0.00
30,000
25,000
20,000
15,000
10,000
$4.00
5,000
$3.50
-
$3.00
$2.50
$1.50
12,000
$1.00
$0.50
10,000
$0.00
8,000
6,000
4,000
2,000
-
30,000
25,000
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
-
-
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
12,000
10,000
10,000
8,000
8,000
6,000
6,000
4,000
4,000
2,000
2,000
-
-
2019
$80.00
$70.00
$50.00
$40.00
$30.00
$20.00
$10.00
Q3 CY22
$0.00
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
Dec-21
$0.00
$4.00
$3.50
2019
$3.00
$2.50
$1.50
$1.00
Nov-21
$0.50
$0.00
35,000
30,000
2020
5,000
-
55,000
45,000
40,000
35,000
30,000
20,000
15,000
10,000
5,000
-
12,000
Oct-21
10,000
8,000
6,000
4,000
2,000
-
$12.00
$10.00
$8.00
$6.00
2020
$4.00
$2.00
2021
$-
40,000
30,000
20,000
10,000
-
2020
(10,000)
(20,000)
2021
40.0%
20.0%
0.0%
-20.0%
2020
-100.0%
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
Oil Hedges
D
P
O
B
u
t
b
m
M
800
700
600
500
400
300
200
100
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Gas Hedges
2019
2021
(20,000)
2020
Net operating revenue
Adjusted EBIT1
2021
2019
2020
2021
Net operating revenue
Adjusted EBIT1
Adjusted EBITDAX1
Improvement in Returns
40.0%
20.0%
20.0%
0.0%
0.0%
-20.0%
-20.0%
-40.0%
2019
-40.0%
-60.0%
-60.0%
-80.0%
-80.0%
-100.0%
-20.0%
2020
40.0%
20.0%
0.0%
-40.0%
-60.0%
-80.0%
-100.0%
Return on Equity (%)
Earnings (US cps)
2019
2019
2021
2021
2019
Proved
2020
Probable
-40.0%
Possible
2021
Proved
2020
Probable
-60.0%
Possible
2021
Proved
Probable
Possible
-80.0%
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
$10.00
$8.00
$6.00
$4.00
$2.00
$-
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
20,000
10,000
2021
2021
Historical
Historical
Improvement in Earnings
Historical
Improvement in Earnings
Historical
40,000
Improvement in Earnings
40,000
30,000
2021
30,000
20,000
20,000
10,000
10,000
-
-
(10,000)
2019
(20,000)
-
(10,000)
2019
2019
2020
2019
(10,000)
(20,000)
Net operating revenue
Adjusted EBITDAX1
800
2021
Adjusted EBITDA1
1,200
2020
1,000
2020
2021
2021
Adjusted EBITDAX1
Adjusted Net Income (Loss) before tax1
Adjusted EBITDA1
600
2019
Reserves (Mboe)
2020
Reserves (Mboe)
12,000
2021
$2.00
2020
Reserves (Mboe)
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Improvement in Returns
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Improvement in Returns
40.0%
200
-
2019
Adjusted Net Income (Loss) before tax1
Adjusted EBITDA1
400
Reserves (Mboe)
$2.00
Improvement in Returns
2019
2020
ROACE (adjusted EBIT) (%)1
(20,000)
-
2019
ROACE (adjusted EBIT) (%)1
Return on Assets (%)
Gearing (%)
(10,000)
50,000
1,200
200
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Earnings (US cps)
Return on Assets (%)
Gearing (%)
Earnings (US cps)
Gearing (%)
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
Free Cash Flow
Free Cash Flow
GC 21
2020
IMPROVEMENT IN FREE CASH FLOW (US$000)
2021
50,000
SM 71
1,000
40,000
30,000
2020
1,200
50,000
Lightning
40,000
2019
2020
40,000
1,000
2021
2021
800
600
30,000
20,000
10,000
30,000
20,000
10,000
-
-100.0%
Return on Equity (%)
Return on Assets (%)
-
400
ROACE (adjusted EBIT) (%)1
(10,000)
800
20,000
10,000
600
-
400
(10,000)
2019
200
(20,000)
Improvement in Leverage
0.5
0.4
0.3
2021
CORP ORATE
2021
0.2
2021
0.1
0.5
0.4
0.3
0.2
0.1
-
0.5
0.4
0.3
0.2
0.1
-
2019
0.5
0.4
0.3
0.2
0.1
-
Capital Management
1,000
1,200
2020
2019
-
1,200
PRODUCTION (MBOE)
Debt to Equity Ratio
1,200
1,000
US$Debt (US$000)
800
1,000
800
600
400
200
-
600
400
200
-
800
600
400
200
-
2019
Free Cash Flow
1,200
1,000
800
600
400
-
$25,000
$20,000
$15,000
$25,000
$20,000
$15,000
$10,000
2019
$10,000
2020
$5,000
2021
2019
2020
Debt to Equity Ratio
US$Debt (US$000)
2021
$25,000
$20,000
$15,000
$10,000
$25,000
$20,000
$15,000
$10,000
$5,000
$5,000
$-
$-
$5,000
Debt to Equity Ratio
2020
US$Debt (US$000)
2021
$-
Debt to Equity Ratio
$-
US$Debt (US$000)
2021
2019
Free Cash Flow
2020
2021
2019
Free Cash Flow
50,000
SM 71
2020
Lightning
GC 21
2021
Net Operating Revenue (US$'000)
Breakeven Costs
1,200
Free Cash Flow
50,000
2020
SM 71
40,000
SM 71
1,000
50,000
2021
40,000
40,000
Lightning
30,000
30,000
20,000
800
30,000
20,000
10,000
600
20,000
10,000
-
10,000
400
-
(10,000)
-
(10,000)
200
(10,000)
(20,000)
(20,000)
2019
Lightning
GC 21
2021
GC 21
Net Operating Revenue (US$'000)
35,000
2019
2019
30,000
2020
25,000
35,000
30,000
2020
Opex
25,000
G&A
2020
Exploration & Development
20,000
Finance Costs
15,000
Free Cash Flow (Deficit)
(20,000)
2020
-
Opex
G&A
Opex
G&A
Oil Hedges
Exploration & Development
2019
800
2019
200
(20,000)
-
2020
Opex
Oil Hedges
2019
2021
Exploration & Development
Oil Hedges
800
2020
Opex
Oil Hedges
2019
G&A
800
G&A
20,000
2021
15,000
SM 71
2020
Finance Costs
10,000
Lightning
2021
Exploration & Development
2020
Lightning
2021
Free Cash Flow (Deficit)
GC 21
Exploration & Development
Finance Costs
700
Finance Costs
SM 71
600
Free Cash Flow (Deficit)
GC 21
5,000
700
SM 71
600
2020
Lightning
500
D
P
O
B
G&A
Opex
Exploration & Development
800
Finance Costs
2020
The foundation of our strategy is disciplined capital management. We have a clear hierarchy for
Lightning
allocating capital, which takes into consideration a range of macroeconomic scenarios to stress test
our portfolio, inform our decision making and ensure we maintain an adequate liquidity position.
$70.00
-
$80.00
Oil Hedges
SM 71
GC 21
D
P
O
B
2019
200
400
300
500
400
500
800
700
600
700
700
Free Cash Flow (Deficit)
2021
600
Oil Hedges
800
300
200
0
• Sustaining capital – We prioritize capital expenditures to ensure the safety of operations and continuity of
300
$70.00
700
500
production. Sustaining capital is funded from operating cash flows.
400
600
300
200
$60.00
100
500
• Strong, flexible balance sheet – We are focused on maintaining a strong, flexible balance sheet with access to
Q4 CY21
$30.00
D
sufficient liquidity to fund the next phase of growth. Our long-term target gearing is ~50%. In addition, we are
P
O
$20.00
actively pursuing multiple corporate funding options and strategic levers to ensure balance sheet strength.
B
Q3 CY21
Q4 CY21
Q3 CY21
0
$40.00
100
$50.00
40,000
400
300
200
200
100
$50.00
55,000
Q3 CY21
45,000
$40.00
600
D
P
O
B
100
0
$30.00
Gas Hedges
35,000
$10.00
• Corporate level finance – We are focused on evaluating the marketplace to address project financing and/or
30,000
BOPD hedged
100
Q3 CY21
Q4 CY21
Q2 CY22
Q3 CY22
$20.00
Q1 CY22
Gas Hedges
40,000
infrastructure opportunities. We will continue to assess the viability of selling assets to optimize value capture.
Q4 CY21
• Commodity price hedging – We utilize hedging instruments to minimize exposure to short term price fluctuations
$10.00
Gas Hedges
Hedged Prices
Q3 CY22
35,000
BOPD hedged
Q3 CY21
Q1 CY22
Q2 CY22
25,000
40,000
20,000
100
$0.00
0
500
400
D
P
O
B
0
by using a series of swaps, costless collars and/or puts.
Gas Hedges
Q3 CY21
Q2 CY22
Q1 CY22
Q4 CY21
BOPD hedged
Q3 CY22
$0.00
Hedged Prices
35,000
40,000
300
200
0
D
P
O
B
$80.00
400
• Acquisitions/capital returns – We recognize that capital returns are a key component of shareholder value.
35,000
10,000
40,000
Hedged Prices
Gas Hedges
BOPD hedged
Gas Hedges
Accordingly, future merger and acquisition activities will only be considered when adequate capital is available,
5,000
$4.00
the opportunities are value accretive, and the combination is assessed against organic growth options and
capital management alternatives.
40,000
25,000
20,000
25,000
30,000
15,000
30,000
35,000
35,000
$3.50
-
30,000
u
t
b
m
M
15,000
30,000
25,000
20,000
$50.00
Capital Expenditures (US$'000)
$60.00
BOPD hedged
Q1 CY22
$10.00
Q2 CY22
Hedged Prices
$40.00
Q4 CY21
$30.00
Q1 CY22
40,000
Q2 CY22
35,000
$20.00
$20.00
BOPD hedged
Q1 CY22
35,000
Q2 CY22
Hedged Prices
Q3 CY22
GC 21
2021
$80.00
$70.00
2019
$60.00
Capital Expenditures (US$'000)
$40.00
$50.00
2020
55,000
Capital Expenditures (US$'000)
55,000
$50.00
2020
$30.00
2021
45,000
40,000
2021
$-
Improvement in Earnings
Historical
Historical
Improvement in Earnings
2021
$4.00
2021
0.4
Historical
2021
Improvement in Earnings
Historical
Improvement in Earnings
Historical
40,000
2021
Historical
Improvement in Earnings
40,000
30,000
2021
Net Operating Revenue (US$'000)
Breakeven Costs
Net Operating Revenue (US$'000)
35,000
Net Operating Revenue (US$'000)
35,000
30,000
35,000
30,000
30,000
25,000
25,000
20,000
25,000
20,000
15,000
20,000
15,000
15,000
10,000
10,000
5,000
Breakeven Costs
$12.00
$10.00
10,000
5,000
-
$8.00
5,000
-
-
2019
$6.00
2019
Capital Expenditures (US$'000)
Capital Expenditures (US$'000)
55,000
2019
$4.00
Capital Expenditures (US$'000)
55,000
$2.00
2020
45,000
2020
2021
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Improvement in Earnings
40,000
30,000
20,000
10,000
2019
2019
-
Breakeven Costs
$12.00
$10.00
$8.00
$6.00
2020
2020
$4.00
$2.00
2021
$-
40,000
30,000
20,000
10,000
$12.00
$10.00
$8.00
$6.00
2021
$2.00
$-
40,000
30,000
20,000
10,000
Breakeven Costs
$12.00
Breakeven Costs
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
$10.00
$8.00
$6.00
$4.00
$2.00
$-
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
2021
20,000
30,000
20,000
10,000
20,000
10,000
-
10,000
-
(10,000)
-
(10,000)
(20,000)
2019
2019
$3.00
2019
$2.50
Reserves (Mboe)
2020
12,000
(20,000)
2021
2019
Reserves (Mboe)
(10,000)
2020
(20,000)
2021
Net operating revenue
Net operating revenue
Adjusted EBIT1
Adjusted EBITDAX1
Adjusted Net Income (Loss) before tax1
Improvement in Returns
Adjusted EBITDA1
2020
Reserves (Mboe)
12,000
10,000
2021
Net operating revenue
Adjusted EBITDA1
Adjusted EBIT1
Adjusted EBITDAX1
Adjusted Net Income (Loss) before tax1
Improvement in Returns
40.0%
2021
$1.00
12,000
10,000
8,000
$0.50
10,000
8,000
6,000
$0.00
8,000
6,000
4,000
6,000
4,000
2,000
4,000
2,000
-
2,000
-
-
Improvement in Returns
40.0%
20.0%
2019
2019
0.0%
2019
-20.0%
Proved
2020
-20.0%
Probable
Proved
2020
2019
Probable
-40.0%
Possible
2021
40.0%
20.0%
0.0%
2020
-60.0%
Possible
-80.0%
-100.0%
20.0%
0.0%
-20.0%
2019
-40.0%
Possible
2020
2021
-60.0%
-80.0%
-100.0%
4,000
2,000
-
2019
Improvement in Returns
40.0%
20.0%
40.0%
20.0%
0.0%
20.0%
0.0%
-20.0%
0.0%
-20.0%
-40.0%
-40.0%
2019
2020
-60.0%
-60.0%
-80.0%
2019
-20.0%
2020
-40.0%
2021
-60.0%
-80.0%
-100.0%
2021
Net Operating Revenue (US$'000)
35,000
30,000
25,000
2021
20,000
2021
2021
Finance Costs
15,000
2021
Free Cash Flow (Deficit)
10,000
Free Cash Flow (Deficit)
$80.00
$70.00
$60.00
2019
$50.00
$20.00
$10.00
$0.00
$80.00
$70.00
$60.00
$40.00
$30.00
$20.00
$10.00
Q3 CY22
$0.00
5,000
-
$80.00
$70.00
2019
$60.00
45,000
$40.00
40,000
$30.00
30,000
$10.00
25,000
$0.00
20,000
15,000
10,000
5,000
$4.00
-
$3.50
2019
$3.00
Reserves (Mboe)
2020
$2.50
$2.00
12,000
$1.50
$4.00
$3.50
$2.50
$2.00
$1.50
$1.00
$0.50
Dec-21
$0.00
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
$4.00
$3.50
$3.00
$2.00
$1.50
30,000
Q3 CY22
10,000
5,000
-
55,000
45,000
20,000
15,000
10,000
5,000
-
4,000
2,000
-
Improvement in Leverage
Improvement in Leverage
Improvement in Leverage
0.5
0.4
0.3
0.2
0.1
-
0.5
0.4
0.3
0.2
0.1
-
0.5
0.4
0.3
0.2
0.1
-
$25,000
$20,000
$15,000
$10,000
2019
1,200
2020
$5,000
1,000
1,200
1,000
800
600
400
200
-
1,200
2021
1,000
800
600
400
200
-
$-
800
600
400
200
-
800
600
400
200
-
800
600
400
200
-
800
600
400
200
-
2019
2020
Improvement in Leverage
Improvement in Leverage
Improvement in Leverage
0.5
0.3
0.2
0.1
-
2019
1,200
600
400
200
-
2020
1,200
2021
1,000
800
200
-
0.5
0.4
0.3
0.2
0.1
-
2019
2020
1,200
1,000
2021
800
600
400
200
-
2019
0.5
0.4
0.3
2021
0.2
0.1
-
2020
1,200
1,000
800
600
400
200
-
2020
1,200
SM 71
1,000
2021
800
600
400
200
-
800
600
400
200
-
2019
2020
2019
Debt to Equity Ratio
2021
US$Debt (US$000)
2019
2020
-
2020
(10,000)
2021
2019
2020
(10,000)
-
2019
(20,000)
2021
2020
(10,000)
(20,000)
Net operating revenue
1,000
Adjusted EBITDAX1
Adjusted EBITDA1
2020
(20,000)
2020
Net operating revenue
Adjusted EBIT1
Adjusted EBITDAX1
Adjusted Net Income (Loss) before tax1
Adjusted EBITDA1
2021
800
Net operating revenue
Adjusted EBIT1
Adjusted EBITDAX1
Adjusted Net Income (Loss) before tax1
Adjusted EBITDA1
2020
2021
2021
2021
Adjusted EBIT1
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted Net Income (Loss) before tax1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Improvement in Returns
Improvement in Returns
40.0%
2019
2019
2020
2019
2020
1,200
2021
SM 71
Lightning
GC 21
2021
1,000
Lightning
1,000
GC 21
2021
$25,000
$20,000
$15,000
$10,000
2020
2019
$25,000
$20,000
$15,000
$10,000
$-
2019
Debt to Equity Ratio
2020
$5,000
US$Debt (US$000)
2021
Debt to Equity Ratio
$5,000
2020
US$Debt (US$000)
2021
$-
2019
Debt to Equity Ratio
2021
US$Debt (US$000)
2020
Debt to Equity Ratio
2021
US$Debt (US$000)
Debt to Equity Ratio
US$Debt (US$000)
$25,000
$20,000
$15,000
$10,000
$5,000
$25,000
$25,000
$20,000
$20,000
$15,000
$15,000
$10,000
$5,000
$-
$10,000
2021
$5,000
$-
$-
2019
2020
2021
SM 71
2020
Lightning
GC 21
2021
SM 71
2020
Lightning
GC 21
2021
2019
SM 71
Lightning
2021
GC 21
2019
2019
1,200
1,200
2020
1,000
2020
SM 71
1,200
Lightning
1,000
GC 21
2021
$0.00
25,000
Hedged Prices
$4.00
$3.50
$3.00
2019
$2.00
0
$1.50
Jul-21
Aug-21
10,000
$1.00
Sep-21
Mmbtu hedged
Oct-21
8,000
Nov-21
Hedged Prices
Dec-21
6,000
$0.50
$0.00
Jul-21
Aug-21
Sep-21
$1.00
Oct-21
Mmbtu hedged
Nov-21
Dec-21
8,000
$0.50
$0.00
$0.00
Hedged Prices
6,000
Jul-21
Aug-21
Sep-21
Oct-21
Mmbtu hedged
Nov-21
$0.50
Hedged Prices
Dec-21
6,000
Mmbtu hedged
$0.00
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
4,000
2,000
-
2019
2020
Proved
-40.0%
Probable
2021
2020
Proved
Probable
Possible
-60.0%
2021
Proved
Probable
Possible
-80.0%
-100.0%
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Earnings (US cps)
Return on Assets (%)
Gearing (%)
ROACE (adjusted EBIT) (%)1
Return on Equity (%)
Earnings (US cps)
Return on Assets (%)
Gearing (%)
ROACE (adjusted EBIT) (%)1
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
Earnings (US cps)
Gearing (%)
2019
SM 71
Lightning
GC 21
2019
SM 71
Lightning
2021
GC 21
2020
SM 71
Lightning
GC 21
2021
SM 71
Lightning
GC 21
2021
-80.0%
2021
-100.0%
-100.0%
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Return on Equity (%)
Earnings (US cps)
Return on Assets (%)
Gearing (%)
600
ROACE (adjusted EBIT) (%)1
Return on Equity (%)
Earnings (US cps)
Return on Assets (%)
Gearing (%)
400
ROACE (adjusted EBIT) (%)1
2019
2020
2021
2019
SM 71
2020
Lightning
GC 21
2021
SM 71
2020
Lightning
GC 21
2021
40,000
30,000
14 | OTTO ENE RGY ANNUAL REPORT 2021
35,000
25,000
u
t
b
m
M
30,000
25,000
20,000
15,000
10,000
5,000
0
u
t
b
m
M
20,000
15,000
10,000
5,000
0
u
t
b
m
M
25,000
20,000
15,000
10,000
5,000
0
u
t
b
m
M
$4.00
u
t
b
m
M
20,000
15,000
10,000
15,000
$3.50
10,000
10,000
$3.00
5,000
5,000
$2.50
0
5,000
0
Jul-21
$3.00
$2.50
$2.50
Reserves (Mboe)
$2.00
Reserves (Mboe)
$2.00
Jul-21
Aug-21
$1.50
Sep-21
12,000
Oct-21
10,000
Nov-21
$1.00
Aug-21
$1.50
12,000
Sep-21
$1.00
Mmbtu hedged
Oct-21
10,000
Nov-21
Hedged Prices
Dec-21
8,000
$0.50
CORP ORATE
BASE AND ORGANIC GROWTH OPTIONS
INORGANIC GROWTH OPPORTUNITIES
Base business + organic options
Facilitated by underlying base business
(3-year group targets)
Key targeting criteria
S
E
V
I
T
C
E
J
B
O
E
C
N
A
M
R
O
F
R
E
P
Base business
outcome
(3 years forward)
Base outcome
incl. exercise of
organic options
(3 years forward)
Year on year metrics
ROACE > 20%
ROACE > 17.5%
ROACE > 15%
IRR > 75%
(Success case)
IRR > 75%
(Success Case)
IRR > 25%
(Full cycle)
IRR > 25%
(Full Cycle)
ROE > 15%
DROI (15) > 25%
FCF > US$40M
FCF > US$40M
NAV growth > 10% CAGR
Gearing
– < 10%
Gearing
– < 10%
Gearing – 45-65%
Debt to equity
– < 10%
Debt to equity
– < 10%
Debt to equity ratio – < 50%
Drives strong operating cash flow
and balance sheet
Drives effective capital allocation discipline
OT TO ENERGY ANNUAL REPORT 2021 | 15
CORP ORATE
Risk Management
Our approach to risk management enables us to take risk for reward, protect against negative impacts
and improve our resilience to emerging risks. Otto recognizes that risk is inherent in our business,
and the effective management of risk is vital to delivering our strategic objectives, continued growth,
and success. We are committed to managing risks in a proactive and effective manner as a source
of competitive advantage. We apply a structured and comprehensive approach to the identification,
assessment, and treatment of current risks as well as being able to respond to emerging risks.
Our risk management framework provides a single
consolidated view of risks across the Company to
quantify our full risk exposure and prioritize risk
management and governance. The framework is
aligned with the intent of the International Standard
ISO31000 for risk management, providing line of
sight of risk at appropriate levels of the organization,
including the executive team and the Board, based
on defined materiality thresholds. Our assessment
of risk considers both financial and non-financial
exposures, including health and safety, environment,
finance, reputation, and brand, legal and compliance,
social and culture. The framework requires a quarterly
review by the executive team and the Board to evaluate
the strategic risk profile, the effectiveness of the risk
being managed and our resilience to emerging risks.
The Board reviewed and confirmed in 2021 that the
risk management framework is sound, and that Otto is
operating with due regard to the risk appetite endorsed
by the Board.
Climate change and the transition to a lower-carbon
economy influences Otto’s strategy, presenting both
risk and opportunity in the operation of our existing
assets or commercialization of our growth portfolio.
We leverage our risk management framework to
ensure an integrated and coordinated approach to the
management of climate change across the business.
The risks posed by the transition to a lower-carbon
economy are recognized given changes in policy,
regulation, or social expectations in current or future
markets.
An overview of the strategic and material risks we have
identified and seek to manage through controls and
mitigations include:
16 | OTTO ENE RGY ANNUAL REPORT 2021
OPERATIONS
• Maintaining the technical integrity and operational
performance of our assets is essential to protecting
our people, the environment, our license to operate
and the financial capacity to support existing business
and growth opportunities. Failure to deliver safe,
reliable, and efficient operations could result in a
sustained, unplanned interruption to production,
which can lead to not meeting production forecasts,
delivery of the base business or generate revenue to
support growth.
• Our operating assets are subject to operating hazards
associated with major accident events, cyber-attacks,
extreme weather events and disruptions within global
supply chains that may ultimately lead to a loss
of hydrocarbon containment or additional costs.
Safe operation is fundamentally embedded through
an extensive framework of controls that deliver strong
operational performance in our base business.
FINANCE
Otto’s financial performance and resilience may be
impacted by key factors such as:
• Management of financial risks. An inability to fund the
delivery of strategic portfolio objectives could prevent
Otto from unlocking value, weaken financial resilience
and result in a loss of shareholder value.
• Commodity prices are variable and are impacted by
global economic factors and beyond Otto’s control.
• Demand for and pricing of our products remain
sensitive to external economic and political factors,
weather, natural disasters, introduction of new and
competing supply, changes in buyer preferences for
differing products and price regimes.
• Insufficient liquidity to meet financial commitments
and fund growth opportunities could have a material
adverse effect on our operations and financial
performance.
• Our financing costs could be affected by interest rate
fluctuations or a change in applicable interest rate
benchmarks such as LIBOR.
CORP ORATE
• We are exposed to credit risk; our counterparties
INNOVATION
could fail or could be unable to meet their payment
or performance obligations under contractual
arrangements. The delivery of our strategic portfolio
objectives requires significant capital expenditure,
supported by strong underlying cashflows.
• A flexible approach to capital management enables
this overall level of investment in the different areas
of our business and the mix to be adjusted to reflect
the external environment. Our capital management
strategy focuses on capital allocation, capital
discipline and capital efficiency.
• We maintain insurance in line with industry practice
and sufficient to cover normal operational risks.
However, Otto is not insured against all potential risks
because not all risks can be insured and because
of constraints on the availability of commercial
insurance in global markets.
• Insurance coverage is determined by the availability
of commercial options and cost/benefit analysis,
considering Otto’s risk management program.
Losses that are not insured could impact Otto’s
financial performance. For example, Otto does not
purchase insurance for the loss of revenue arising
from an operational interruption.
CLIMATE CHANGE
• Climate change is impacting the way that the world
produces and consumes energy, and this is expected
to accelerate in time. Climate change also requires
adaptation to physical change. This will impact the
transition to a lower carbon economy and may impact
demand (and pricing) for fossil fuels.
CYBER SECURITY RISKS
• Regulatory and compliance obligations are increasing
for data protection and security of critical infrastructure.
Failure to safeguard the confidentiality, integrity and
availability of digital data and information could have an
adverse effect on Otto’s operating performance.
• Otto’s technology systems may be subject to both
unintentional and intentional disruption, for example
cybersecurity attack. We are committed to the
protection of our people, assets, reputation, and brand
through securely enabled digital technologies. Digital
risks are identified, assessed, and managed based
on the business criticality of our people and systems,
and may be required to be segregated and isolated.
Our exposure to cyber risk is managed by a control
framework that ensures cyber events are identified,
contained, and recovered in a timely manner.
• We focus on maintaining our competitive advantage
by delivering value through new ideas, technologies,
or diversified products. The practical application
of innovation delivers near-term value to our base
business and in the longer-term, transforms and
creates opportunities to thrive in a lower carbon
economy.
• Failure to build, embed, leverage and support
innovation may result in a significant threat to the
competitive advantage of our base business and our
longer-term sustainability. We drive the practical
application of innovation through an entrepreneurial,
opportunity-focused, agile approach.
PEOPLE AND CULTURE
• Otto must maintain sufficient talent, capability,
capacity, and a strong organizational culture.
An engaged and enabled workforce underpins our
ability to deliver base business, future growth and
to identify and capture new opportunities.
SOCIAL LICENSE TO OPERATE
Our business performance is underpinned by our
social license to operate, that requires compliance
with legislation and the maintenance of a high level of
ethical behavior and social responsibility. Our business
activities are subject to extensive regulation and
government policy in each of the countries where we
do business. Failure to comply may impact our license
to operate.
• Stakeholders have evolving expectations
of social responsibility and ethical decision
making. These are changing at a rate faster than
governments can introduce or amend regulation.
• A significant or continuous departure from national
or local laws, regulations or approvals may result in
negative social and cultural impacts, reputation and
brand, and loss of license to operate.
• Violation of international anti-bribery and corruption
laws may expose Otto to fines, criminal sanctions,
and civil suits, and negatively impact our international
reputation. Otto proactively maintains and builds
our social license to operate through the application
of our values, effective stakeholder engagement
strategies, our regulatory compliance framework and
our anti-fraud and corruption program.
OT TO ENERGY ANNUAL REPORT 202 1 | 17
CORP ORATE
Commodity Price
Risk Management
Free Cash Flow
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
50,000
index prices, subject to negotiated price adjustments.
40,000
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
30,000
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 swaps, and the Company has no
20,000
three-way collars or short puts.
10,000
OIL HEDGES
-
As of 30 June 2021, Otto had a total hedge book of 249,889 barrels of oil hedged through September 2022
2020
via swaps, at a weighted average LLS price of US$50.19 as follows:
2019
2021
(10,000)
(20,000)
Months
Volume (Bbls)
Weighted Avg Price (LLS)
G&A
July – December 2021
Opex
Exploration & Development
Finance Costs
122,650
Free Cash Flow (Deficit)
US$50.47
January – September 2022
Oil Hedges
127,239
US$49.92
D
P
O
B
800
700
600
500
400
300
200
100
0
Gas Hedges
40,000
35,000
30,000
25,000
20,000
15,000
u
t
b
m
M
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
18 | OTTO ENE RGY ANNUAL REPORT 2021
10,000
5,000
0
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Net Operating Revenue (US$'000)
Breakeven Costs
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
2019
2020
2021
Historical
2021
Capital Expenditures (US$'000)
Improvement in Earnings
55,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Reserves (Mboe)
12,000
10,000
8,000
6,000
4,000
2,000
-
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
2019
2020
2021
SM 71
Lightning
GC 21
2019
2020
2021
Improvement in Returns
2019
2021
2020
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
2019
2020
2021
SM 71
Lightning
GC 21
$25,000
$20,000
$15,000
$10,000
$5,000
$-
2019
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
Improvement in Leverage
0.5
0.4
0.3
0.2
0.1
-
1,200
1,000
800
600
400
200
-
1,200
1,000
800
600
400
200
-
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
Free Cash Flow
Net Operating Revenue (US$'000)
Breakeven Costs
2019
2020
2021
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
Oil Hedges
800
700
600
CORP ORATE
D
P
O
B
500
400
300
200
GAS HEDGES
100
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
Additionally, the Company had a natural gas hedge book of 180,143 Mmbtu of natural gas hedged through
December 2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
$0.00
0
Q4 CY21
Q1 CY22
Q3 CY21
Q3 CY22
Q2 CY22
Months
BOPD hedged
Hedged Prices
Volume (Mmbtu)
Weighted Avg Price (HSC)
July – December 2021
Gas Hedges
180,143
US$3.11
u
t
b
m
M
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
2019
2020
2021
Historical
2021
Capital Expenditures (US$'000)
Improvement in Earnings
55,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Reserves (Mboe)
12,000
10,000
8,000
6,000
4,000
2,000
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
2019
2020
2021
SM 71
Lightning
GC 21
2019
2020
2021
Improvement in Returns
2019
2021
2020
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
$25,000
$20,000
$15,000
$10,000
$5,000
$-
2019
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
Improvement in Leverage
0.5
0.4
0.3
0.2
0.1
-
1,200
1,000
800
600
400
200
-
1,200
1,000
800
600
400
200
-
For the fiscal year ended 30 June 2021, the Company recorded a loss on hedging of approximately US$10.3 million.
Of this amount, US-$0.6 million was realized, while the remaining US-$9.7 million was unrealized.
-
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
2019
2020
2021
SM 71
Lightning
GC 21
OT TO ENERGY ANNUAL REPORT 202 1 | 19
CORP ORATE
Reserves and
Prospective Resources
On 8 September 2021 the Company released its statement of reserves and prospective resources
as at 30 June 2021. The statement of reserves included SM 71, Lightning and GC 21, and were all
compiled by independent consultant Ryder Scott Company.
Otto Energy Limited’s net reserves and resources for all fields as at 30 June 2021 are summarised below
(see additional disclosures provided in the following pages and appendices):
RESERVES SUMMARY 30 JUNE 2021
Total
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable
Plus Possible (3P)
Total Prospective Resource
(best estimate, unrisked)
Gross (100%)
Net
Oil (MbbL) Gas (MMcf)
Mboe
Oil (MbbL) Gas (MMcf)
Mboe
3,196
4,595
452
8,243
4,935
13,178
2,584
17,814
9,193
15,060
42,067
29,631
71,698
27,507
6,166
6,127
2,962
15,255
9,873
25,128
7,168
1,231
779
129
2,139
982
3,121
665
5,297
2,306
4,302
11,905
8,235
20,140
7,838
2,114
1,162
846
4,122
2,355
6,477
1,971
15,762
99,205
32,296
3,786
27,978
8,448
3,250
24,300
7,300
930
6,930
2,085
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.
CHANGES TO RESERVES AND RESOURCES SINCE 30 JUNE 2020
Otto Energy Limited Grand Total – Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
2,382
1,719
438
196
2,140 14,625
2,411
(308)
11,905
4,820
840
145
4,122
0
(737)
982
9,088
0
(853)
8,235
3,234
(879)
2,355
4,102
438
(541)
3,122 23,712
2,411
(1,161)
20,140
8,054
840
(735)
6,477
Proved (1P)
Probable
Proved Plus
Probable (2P)
Possible
1,807
0
(1,142)
665 11,142
(3,304)
7,838
3,664
(1,692)
1,971
Proved Plus
Probable Plus
Possible (3P)
5,908
438
(1,683)
3,787 34,854
2,411
(4,465)
27,978 11,717
840
(2,427)
8,448
20 | OTTO ENE RGY ANNUAL REPORT 2021
CORP ORATE
SOUTH MARSH ISLAND 71 RESERVES AND RESOURCES STATEMENT
Comment on the changes to reserves and resources:
• SM 71 has now recovered approximately 3.4 MMbbl of oil and 3.8 Bcf of gas since production commenced
in March 2018.
• The D-5 sand continues to produce water free.
• Production performance has exceeded expectations, resulting in the reclassification of some reserves from
Probable to Proved. Additionally, some reserves were reclassified out of Possible and into Contingent/
Prospective resources.
SM71
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved 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
2,685
496
-
3,181
734
3,915
734
1,924
292
-
2,216
656
2,872
637
3,006
545
-
3,551
843
4,394
840
1,091
202
-
1,293
298
1,591
298
782
119
-
901
267
1,168
259
1,221
221
-
1,442
343
1,785
341
4,649
3,509
5,234
1,889
1,427
2,126
2,650
4,300
3,370
760
1,220
963
SM 71 Field – Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Proved (1P)
1,251
367
408
1,292
1,052
261
109
900
1,427
411
426
1,442
Probable
670
(372)
298
490
(223)
267
752
(409)
343
Proved Plus
Probable (2P)
1,922
367
35
1,590
1,541
261
(114)
1,167
2,178
411
16
1,785
Possible
1,304
(1,006)
298
1,764
(1,505)
259
1,598
(1,256)
341
Proved Plus
Probable Plus
Possible (3P)
3,225
367
(970)
1,888
3,305
261
(1,619)
1,426
3,776
411
(1,240)
2,126
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.
OT TO ENERGY ANNUAL REPORT 202 1 | 21
CORP ORATE
LIGHTNING RESERVES AND RESOURCES STATEMENT
Comment on the changes to reserves and resources:
• First production from Green #1 commenced from Lightning 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.
• 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
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable
Plus Possible (3P)
Total Prospective Resource
(best estimate, unrisked)
Gross (100%)
Net (28.214%)
Oil (MbbL) Gas (MMcf)
Mboe
Oil (MbbL) Gas (MMcf)
Mboe
472
197
452
1,121
808
1,929
787
15,730
6,560
15,060
37,350
26,939
64,289
26,232
3,094
1,290
2,962
7,346
5,298
12,644
5,159
2,716
90,521
17,803
135
56
129
320
231
551
225
776
4,494
1,874
4,302
10,670
7,696
18,366
7,494
884
368
846
2,098
1,514
3,612
1,474
25,860
5,086
600
20,000
3,930
170
5,710
1,122
Lightning Field – Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
386
231
617
275
64
64
0
0
0
322 12,873
2,108
(94)
10,671
2,532
415
(16)
2,098
231
7,696
0
7,696
1,514
0
1,514
553 20,569
2,108
(94)
18,367
4,045
415
(16)
3,612
(50)
225
9,144
(1,650)
7,494
1,799
(325)
1,474
892
64
(50)
778 29,713
2,108
(1,743)
25,861
5,844
415
(341)
5,086
Proved (1P)
Probable
Proved Plus
Probable (2P)
Possible
Proved Plus
Probable Plus
Possible (3P)
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.
22 | OTTO ENE RGY ANNUAL REPORT 2021
CORP ORATE
GREEN CANYON 21 RESERVES AND RESOURCES STATEMENT
Comment on the changes to reserves and resources:
• The “Bulleit” appraisal well located at GC 21 commenced production from the deeper MP Sand on 15 October
2020 at rates that were less than what the collected rock property data and analogue reservoirs would suggest.
A technical assessment of the MP Sand production performance was completed. Detailed bottomhole pressure
and reservoir performance data indicate a smaller reservoir than originally anticipated. While additional
technical work is ongoing, the currently favoured path forward is to move away from the MP Sand and execute a
recompletion of the well in the shallower DTR-10 Sand in mid CY 2022, to be funded out of existing free cash flow.
• This assessment has resulted in the downward revision of Proved, Probable and Possible reserves in the MP Sand.
Green Canyon
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable
Plus Possible (3P)
Total Prospective Resource
(best estimate, unrisked)
Gross (100%)
Net (28.214%)
Oil (MbbL) Gas (MMcf)
Mboe
Oil (MbbL) Gas (MMcf)
Mboe
39
3,902
-
3,941
3,393
7,334
1,063
160
2,341
-
2,501
2,036
4,537
638
66
4,292
-
4,358
3,732
8,090
1,169
5
521
-
526
453
979
142
8,397
5,175
9,259
1,121
-
-
-
-
21
313
-
334
272
606
85
691
-
9
573
-
582
498
1,080
156
1,236
-
Bulleit Field (GC 21) – Reserve Reconciliation (Otto Energy NRI Share)
Oil (Mbbl)
Gas (MMCF)
MBOE
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
Remaining
6/30/2020
Production
2020
Additions &
Revisions
Remaining
6/30/2021
745
818
1,563
228
7
0
7
0
(212)
(365)
526
453
700
902
42
(324)
(630)
334
272
862
968
14
(266)
(470)
582
498
(577)
979
1,602
42
(954)
606
1,830
14
(736)
1,080
(86)
142
234
(149)
85
267
(111)
156
1,791
7
(663)
1,121
1,836
42
(1,103)
691
2,097
14
(847)
1,236
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.
OT TO ENERGY ANNUAL REPORT 202 1 | 23
CORP ORATE
PROSPECTIVE RESOURCES AS AT 30 JUNE 2021
Refer to comments and notes below the tables for commentary on recent activity related to Prospective Resources.
SOUTH MARSH 71
Prospect
Working
Interest
Net
Revenue
Interest
Contingent / Prospective Resources
8/8ths
Otto Net Revenue Interest
Gas (BCF) Oil (MMbbls) Mmboe
Gas (BCF) Oil (MMbbls) Mmboe
Mean
Mean
Mean
Mean
Mean
Mean
SM 71 F3 ST (D5)
50.00%
40.63%
SM 71 F5 ST
50.00%
40.63%
SM 71 B65 Sand
50.00%
40.63%
2.22
1.23
0.85
0.56
1.32
0.77
0.93
1.53
0.91
0.63
0.35
0.24
0.16
0.38
0.22
0.26
0.44
0.26
LIGHTNING
Prospect
Lightning
Working
Interest
Net
Revenue
Interest
Prospective Resources
8/8ths
Otto Net Revenue Interest
Gas (BCF) Oil (MMbbls) Mmboe
Gas (BCF) Oil (MMbbls) Mmboe
Mean
Mean
Mean
Mean
Mean
Mean
37.50%
28.57%
20.00
0.60
3.93
5.71
0.17
1.12
Comment on the changes to prospective resources:
BELUGA
The Beluga #1 well was spud in October 2020 and drilled to approximately 13,800 ft MD to the base of the target
formation. Wireline logs were run in the well and evaluated, and it was determined that sub-commercial quantities
of hydrocarbons were encountered. The well was therefore plugged and abandoned.
TARPON/MALLARD
In October 2020, the Company and Hilcorp mutually agreed to remove all remaining prospects from the eight-well
Gulf Coast exploration package due to current market conditions, except for Beluga. The Beluga well concluded
the Hilcorp Package 1 program, with no additional drilling required under this agreement.
TALITHA UNIT
On 20 January 2021, the Company announced that it had sold its subsidiary, Borealis Alaska LLC (Borealis),
which holds a 10.8% interest in the 44,463-acre Talitha Unit in Alaska, to Pantheon. Under the terms of the sale,
Otto received 14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR) in exchange for
Borealis Alaska LLC. On 29 March 2021, the Company announced that the sale of Borealis had been completed,
following approval by the Alaskan Department of Natural Resources.
24 | OTTO ENE RGY ANNUAL REPORT 2021
Our success is driven
by our people and their
capabilities and we aim
to manage access to a
diverse, high performing
workforce while
maintaining a prudent
footprint in size and
efficiency”
OT TO ENERGY ANNUAL REPORT 2021 | 25
CORP ORATE
NOTES TO RESERVES 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 reserves
on behalf of Otto. Ryder Scott Company is an
independent petroleum engineering consulting
firm that has been providing petroleum consulting
services in the US 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.
COMPETENT PERSONS STATEMENT
The information in this report that relates to oil and
gas reserves 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 contingent and potential resources was compiled
by Mr Ed Buckle B.S. Chemical Engineer (Magna
Cum Laude), a full-time contractor of the Company.
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
26 | OTTO ENE RGY ANNUAL REPORT 2021
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.
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 and gas price assumptions used in the independent
report represent forward-prices (CME Nymex) as
at 30 June 2021.
CORP ORATE
ASX RESERVES AND RESOURCES REPORTING NOTES
(vii) 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.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
The reserves and prospective resources
information in this document is effective as at
30 June 2021 (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)
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)
GLOSSARY
Bbl
bcf
Bcfe
boe
barrels
billion cubic feet
MMcf million cubic feet
MBL
thousand barrels of oil
billion cubic feet equivalent
MMBL million barrels of oil
barrels of oil equivalent
Mboe
thousand barrels of oil equivalent
Bopd
barrels of oil per day
MMboe million barrels of oil equivalent
Btu
EUR
British Thermal Units
MCF
thousand cubic feet
Economic Ultimate Recovery
mmbtu million British Thermal Units
Mcfg
thousand cubic of gas
NRI
net revenue interest
Mcfgpd thousand cubic feet of gas per day
OT TO ENERGY ANNUAL REPORT 202 1 | 27
Operating
And Financial
Review
28 | OTTO ENERGY ANNUAL REPORT 2021
OPERATING AND FINANCIAL RE VIE W
Operational and
Financial Highlights
O PER ATIN G SUMMARY
17%
97%
62%/28%
Increase in production
to 3,032 boe/d at
56% liquids
Operational reliability
– 97% uptime at
SM 71/Lightning
Reduction in Field1
and Non-Field
Lifting Costs
F IN AN CIAL SUMMARY
19%
Gearing Ratio
39%
Adjusted ROACE2
$17.9m
Adj. Net Income
before tax (US$)
LIQ UI DIT Y SUMMARY
29%
Debt to Equity Ratio
$11.1m
Cash Balance at
30 June 2021 (US$)
$11.5m
Debt Balance at
30 June 2021 (US$)
1 Please refer to the audited financial statements released on 27 September 2021 and Appendix 1 for calculation.
2 Considered to be non-IFRS financial information. Refer to audited financial statements released on 27 September 2021
and Appendix 1 for the IFRS information and a reconciliation.
OT TO ENERGY ANNUAL REPORT 202 1 | 29
2019
2020
2021
Historical
2021
-
Production Volumes (Mboe)
Capital Expenditures (US$'000)
Improvement in Earnings
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Reserves (Mboe)
Improvement in Returns
1,200
1,000
800
600
400
200
-
2019
2020
2021
2019
2021
2020
Free Cash Flow
Net Operating Revenue (US$'000)
Breakeven Costs
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
Oil Hedges
D
P
O
B
u
t
b
m
M
800
700
600
500
400
300
200
100
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Gas Hedges
2019
2020
2021
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
55,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
12,000
10,000
8,000
6,000
4,000
2,000
-
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
2019
2020
2021
Proved
Probable
Possible
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
Oil Hedges
D
P
O
B
u
t
b
m
M
800
700
600
500
400
300
200
100
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Gas Hedges
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
Free Cash Flow
2019
2020
2021
SM 71
Lightning
GC 21
NET OPERATING REVENUE (US$000)
Net Operating Revenue (US$'000)
2019
2020
2021
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Improvement in Leverage
OPERATING AND FINANCIAL RE VIE W
Operating Summary
0.5
0.4
0.3
0.2
0.1
$25,000
$20,000
$15,000
$10,000
$5,000
2019
South Marsh 71
Lightning
Green Canyon 21
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
30 June 2021
30 June 2020
30 June 2019
$-
498
590
18
527
420
-
726
15
-
30,137
(14,931)
23,028
(27,395)
31,258
(45,771)
4,122
2,355
1,971
4,820
3,234
3,664
3,670
3,432
3,050
2020
2021
Cash Flows (US$000)
Net operating revenue
Capital expenditures
Reserves (Mboe)
Proved
Probable
Possible
2019
PRODUCTION (MBOE)
SM 71
Lightning
GC 21
1,200
1,000
800
600
400
200
-
• SM 71 production continues
to exceed independently
calculated production profile.
• Second well at Lightning began
production in February 2020.
• Advancing recommendations
for recompletion and
development potential at
SM 71 and Lightning.
• GC 21 planned recompletion to
shallower DTR 10 Sand in mid
CY 2022, with first production
expected in Q3 CY 2022.
Breakeven Costs
$12.00
• Total WI revenue increased
by 38% to US$39.7 million
(FY20: US$28.8 million),
attributable to increased
production and higher crude oil,
natural gas and NGL prices.
$10.00
$8.00
$6.00
• Net operating revenue
increased by 31% to US$30.1
million (FY20: US$23.0 million).
$4.00
$2.00
$-
2019
2020
2021
Historical
2021
30 | OTTO ENE RGY ANNUAL REPORT 2021
Capital Expenditures (US$'000)
Improvement in Earnings
55,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
12,000
10,000
8,000
6,000
4,000
2,000
-
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
2019
2020
2021
2019
2021
2020
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Reserves (Mboe)
Improvement in Returns
2019
2020
2021
SM 71
Lightning
GC 21
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
2019
2020
2021
SM 71
Lightning
GC 21
$25,000
$20,000
$15,000
$10,000
$5,000
$-
2019
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
Improvement in Leverage
0.5
0.4
0.3
0.2
0.1
-
1,200
1,000
800
600
400
200
-
1,200
1,000
800
600
400
200
-
Free Cash Flow
Free Cash Flow
Net Operating Revenue (US$'000)
Net Operating Revenue (US$'000)
Breakeven Costs
Breakeven Costs
Reserves (Mboe)
Reserves (Mboe)
RESERVES (MBOE)
Improvement in Returns
Improvement in Returns
Jul-21
Jul-21
Aug-21
Aug-21
Sep-21
Sep-21
Oct-21
Oct-21
Nov-21
Nov-21
Dec-21
Dec-21
Mmbtu hedged
Mmbtu hedged
Hedged Prices
Hedged Prices
12,000
12,000
10,000
10,000
8,000
8,000
6,000
6,000
4,000
4,000
2,000
2,000
-
-
35,000
35,000
30,000
30,000
25,000
25,000
20,000
20,000
15,000
15,000
OPERATING AND FINANCIAL RE VIE W
10,000
10,000
5,000
5,000
-
-
2019
2019
2020
2020
2021
2021
Capital Expenditures (US$'000)
Capital Expenditures (US$'000)
CAPITAL EXPENDITURES (US$000)
55,000
55,000
45,000
45,000
40,000
40,000
35,000
35,000
30,000
30,000
25,000
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
-
-
2019
2019
2020
2020
2021
2021
2019
2019
2020
2020
2021
2021
Opex
Opex
G&A
G&A
Exploration & Development
Exploration & Development
Finance Costs
Finance Costs
Free Cash Flow (Deficit)
Free Cash Flow (Deficit)
Q3 CY21
Q3 CY21
Q4 CY21
Q4 CY21
Q1 CY22
Q1 CY22
Q2 CY22
Q2 CY22
Q3 CY22
Q3 CY22
BOPD hedged
BOPD hedged
Hedged Prices
Hedged Prices
$80.00
$80.00
$70.00
$70.00
$60.00
$60.00
$50.00
$50.00
$40.00
$40.00
$30.00
$30.00
$20.00
$20.00
$10.00
$10.00
$0.00
$0.00
$4.00
$4.00
$3.50
$3.50
$3.00
$3.00
$2.50
$2.50
$2.00
$2.00
$1.50
$1.50
$1.00
$1.00
$0.50
$0.50
$0.00
$0.00
50,000
50,000
40,000
40,000
30,000
30,000
20,000
20,000
10,000
10,000
-
-
(10,000)
(10,000)
(20,000)
(20,000)
Oil Hedges
Oil Hedges
D
D
P
P
O
O
B
B
u
t
u
b
t
b
m
m
M
M
800
800
700
700
600
600
500
500
400
400
300
300
200
200
100
100
0
0
40,000
40,000
35,000
35,000
30,000
30,000
25,000
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
0
0
Gas Hedges
Gas Hedges
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
55,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
12,000
10,000
8,000
6,000
4,000
2,000
-
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
Oil Hedges
D
P
O
B
u
t
b
m
M
800
700
600
500
400
300
200
100
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Gas Hedges
2019
2020
2021
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
Free Cash Flow
Net Operating Revenue (US$'000)
Breakeven Costs
BREAKEVEN COSTS (US$/BBL)
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
2019
2020
2021
Historical
2021
Capital Expenditures (US$'000)
Improvement in Earnings
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
2019
2020
2021
2019
2021
2020
$12.00
$12.00
$10.00
$10.00
$8.00
$8.00
$6.00
$6.00
$4.00
$4.00
$2.00
$2.00
$-
$-
Improvement in Earnings
Improvement in Earnings
40,000
• Removed all remaining
40,000
Historical
Historical
2021
2021
2019
2019
2020
2020
2021
2021
Debt to Equity Ratio
Debt to Equity Ratio
US$Debt (US$000)
US$Debt (US$000)
$25,000
$25,000
$20,000
$20,000
$15,000
$15,000
$10,000
$10,000
$5,000
$5,000
$-
$-
30,000
30,000
prospects from the eight-
well Gulf Coast exploration
package with Hilcorp; ‘addition
by subtraction’ given market
conditions had deteriorated.
20,000
20,000
10,000
10,000
-
-
(10,000)
(10,000)
2019
2019
• Successful sale of 100%-owned
Borealis Alaska LLC subsidiary
to Pantheon Resources Plc for
14.27 million Pantheon shares
(LSE: PANR) on 20 January
2021 which reduces the need
for further capital expenditures.
Net operating revenue
Net operating revenue
Adjusted EBIT1
Adjusted EBIT1
(20,000)
(20,000)
40.0%
40.0%
• Production profile continues to
exceed expectations, resulting
20.0%
in reserve additions at H1 FY21
20.0%
and again at year-end.
0.0%
0.0%
• DTR-10 Sand recompletion
2019
2019
-20.0%
-20.0%
in mid CY 2022 will allow for
access to additional proved
reserves.
-40.0%
-40.0%
-60.0%
-60.0%
2020
2020
2021
2021
Adjusted EBITDAX1
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBITDA1
Adjusted Net Income (Loss) before tax1
Adjusted Net Income (Loss) before tax1
2020
2020
2021
2021
2019
2019
2020
2020
2021
2021
SM 71
SM 71
Lightning
Lightning
GC 21
GC 21
Improvement in Leverage
Improvement in Leverage
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
-
-
1,200
1,200
1,000
1,000
800
800
600
600
400
400
200
200
-
-
1,200
1,200
1,000
1,000
800
800
600
600
400
400
200
200
-
-
$25,000
$20,000
$15,000
$10,000
$5,000
$-
• Breakeven costs of US$8.40/
Bbl, down from US$11.00/
Bbl historically.
Improvement in Leverage
0.5
• Achieved by carefully analyzing
and driving down controllable
operating expenses, employee
benefits, administrative,
licensing, legal and advisory/
consultant costs.
0.3
0.4
0.2
• Will continue to monitor and
control.
0.1
-
OT TO ENERGY ANNUAL REPORT 202 1 | 31
1,200
2019
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
1,000
800
600
400
200
-
1,200
1,000
800
600
400
200
-
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Reserves (Mboe)
Improvement in Returns
2019
2020
2021
SM 71
Lightning
GC 21
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
2019
2020
2021
SM 71
Lightning
GC 21
2019
2019
2020
2020
2021
2021
Proved
Proved
Probable
Probable
Possible
Possible
-80.0%
-80.0%
-100.0%
-100.0%
Return on Equity (%)
Return on Equity (%)
Earnings (US cps)
Earnings (US cps)
Return on Assets (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
ROACE (adjusted EBIT) (%)1
Gearing (%)
Gearing (%)
2019
2019
2020
2020
2021
2021
SM 71
SM 71
Lightning
Lightning
GC 21
GC 21
OPERATING AND FINANCIAL RE VIE W
Financial Summary
US$‘000
Key Metrics
Operating Revenue, net of Royalties
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Unrealized gain (loss) on derivatives
Impairment expense
Net Income (Loss) before tax
Profit from discontinued operations
Total comprehensive loss for year, after tax
Key Ratios
Return on Equity(%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
30 June 2021
30 June 2020
30 June 2019
30,137
29,114
26,438
20,610
17,890
(9,673)
(12,850)
(4,633)
4,188
(450)
-1.1%
-0.7%
39.1%
-0.01
18.8%
23,028
16,699
3,632
(3,138)
(5,530)
4,174
-
(1,356)
-
(1,358)
-3.0%
-2.4%
-6.4%
-0.05
29.9%
31,258
23,484
(14,365)
(19,372)
(18,407)
-
-
(18,407)
-
(18,409)
-49.5%
-45.3%
-63.6%
-0.95
n/a
1 Considered to be non-IFRS financial information. Refer to audited financial statements released on 27 September 2021
and Appendix 1 for the IFRS information and a reconciliation.
32 | OTTO ENE RGY ANNUAL REPORT 2021
Net Operating Revenue (US$'000)
Breakeven Costs
30,000
Net Operating Revenue (US$'000)
Breakeven Costs
$10.00
$12.00
$12.00
$8.00
$10.00
$6.00
$8.00
$4.00
OPERATING AND FINANCIAL RE VIE W
$6.00
$2.00
$4.00
$-
Historical
$2.00
IMPROVEMENT IN EARNINGS (US$000)
Improvement in Earnings
$-
40,000
Historical
30,000
Improvement in Earnings
2021
2021
20,000
40,000
10,000
30,000
-
20,000
(10,000)
10,000
(20,000)
-
(10,000)
(20,000)
2019
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
2020
Adjusted EBITDA1
2021
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
2019
2020
2021
Opex
G&A
2019
Exploration & Development
Finance Costs
2020
Free Cash Flow (Deficit)
2021
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
Capital Expenditures (US$'000)
2019
2020
2021
2019
2020
2021
Capital Expenditures (US$'000)
40,000
Free Cash Flow
Free Cash Flow
50,000
40,000
30,000
50,000
20,000
40,000
10,000
30,000
-
20,000
(10,000)
10,000
(20,000)
-
(10,000)
Oil Hedges
(20,000)
Oil Hedges
600
D
P
O
B
D
P
O
B
u
t
b
m
M
u
t
b
m
M
800
700
500
800
400
700
300
600
200
500
100
400
0
300
200
100
40,000
35,000
40,000
25,000
35,000
20,000
30,000
15,000
25,000
10,000
20,000
5,000
15,000
0
10,000
5,000
0
Gas Hedges
0
Gas Hedges
30,000
$80.00
$70.00
$60.00
$50.00
$80.00
$40.00
$70.00
$30.00
$60.00
$20.00
$50.00
$10.00
$40.00
$0.00
$30.00
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$4.00
$2.50
$3.50
$2.00
$3.00
$1.50
$2.50
$1.00
$2.00
$0.50
$1.50
$0.00
$1.00
$0.50
$0.00
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
35,000
25,000
35,000
20,000
30,000
15,000
25,000
10,000
20,000
5,000
15,000
-
10,000
5,000
-
55,000
45,000
35,000
55,000
30,000
45,000
25,000
40,000
20,000
35,000
15,000
30,000
10,000
25,000
5,000
20,000
15,000
-
10,000
5,000
12,000
8,000
12,000
6,000
10,000
4,000
8,000
2,000
6,000
-
4,000
2,000
-
2019
2020
2021
2019
2020
2021
Reserves (Mboe)
-
10,000
Reserves (Mboe)
2019
2020
2021
Proved
Probable
Possible
2019
2020
2021
Proved
Probable
Possible
40.0%
-20.0%
20.0%
-40.0%
0.0%
-60.0%
-20.0%
-80.0%
-40.0%
-100.0%
-60.0%
-80.0%
-100.0%
Improvement in Returns
expenditures.
40.0%
• Adjusted Net Income before tax1 of US$17.9 million (FY20: -US$5.5 million).
2020
2020
2021
2021
20.0%
IMPROVEMENT IN RETURNS
lower admin (G&A) costs, and the gain on sale of Borealis Alaska LLC.
Adjusted Net Income (Loss) before tax1
2019
2019
Improvement in Returns
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
0.0%
• Adjusted EBITDAX1 increased by 74% to US$29.1 million (FY20: US$16.7 million), as a result of higher revenues,
• Adjusted EBITDA1 increased by 628% to US$26.4 million (FY20: US$3.6 million), as a result of less exploration
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
• Ongoing implementation of organisation-wide cost reduction and efficiency drive.
• 62% reduction in field lifting costs per boe (operating expenses, business development, exploration costs),
compared to prior period.
• 28% reduction in non-field lifting costs per boe (G&A costs), compared to prior period, across multiple areas
including employee benefits, administrative, licensing, legal and advisory/consultant costs.
1 Considered to be non-IFRS financial information. Refer to audited financial statements released on 27 September 2021
and Appendix 1 for the IFRS information and a reconciliation.
OT TO ENERGY ANNUAL REPORT 202 1 | 33
$25,000
$20,000
$25,000
$15,000
$20,000
$10,000
$15,000
$5,000
$10,000
$-
$5,000
$-
Improvement in Leverage
0.5
Improvement in Leverage
0.4
2019
2019
2019
2019
0.5
0.3
0.4
0.2
0.3
0.1
0.2
-
0.1
-
1,200
1,000
800
1,200
600
1,000
400
800
200
600
-
400
200
-
1,200
1,000
800
1,200
1,000
600
400
800
200
600
400
-
200
-
Debt to Equity Ratio
US$Debt (US$000)
Debt to Equity Ratio
US$Debt (US$000)
2021
2021
SM 71
Lightning
GC 21
SM 71
Lightning
GC 21
2021
2021
2020
2020
2020
2020
2019
2019
2020
2020
SM 71
Lightning
GC 21
SM 71
Lightning
GC 21
2021
2021
OPERATING AND FINANCIAL RE VIE W
Liquidity Summary
US$000, except ratios
Balance Sheet – Assets
Cash
Accounts Receivable
Marketable Securities
Total Current Assets
Balance Sheet – Liabilities
Accounts Payable
Total Current Liabilities
Total Debt
Key Ratios
Working Capital
Debt to Equity (%)
Current Ratio
Quick Ratio
Cash Ratio
30 June 2021
30 June 2020
30 June 2019
11,100
3,884
8,129
23,550
1,675
14,730
11,500
8,820
29%
1.6
1.6
1.3
16,551
2,111
-
26,942
1,958
10,470
20,700
16,472
46%
2.6
1.8
1.6
7,383
3,311
-
11,932
4,473
4,646
-
7,286
n/a
2.6
2.3
1.6
34 | OTTO ENE RGY ANNUAL REPORT 2021
Free Cash Flow
Net Operating Revenue (US$'000)
Breakeven Costs
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
Oil Hedges
D
P
O
B
u
t
b
m
M
800
700
600
500
400
300
200
100
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Gas Hedges
2019
2020
2021
Opex
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
BOPD hedged
Hedged Prices
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
55,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
12,000
10,000
8,000
6,000
4,000
2,000
-
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
2019
2020
2021
Historical
2021
Capital Expenditures (US$'000)
Improvement in Earnings
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Reserves (Mboe)
Improvement in Returns
2019
2020
2021
2019
2021
2020
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
OPERATING AND FINANCIAL RE VIE W
Improvement in Leverage
IMPROVEMENT IN LEVERAGE
0.5
0.4
0.3
0.2
0.1
-
$25,000
$20,000
$15,000
$10,000
$5,000
$-
2019
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
• Balance date cash of US$11.1 million.
1,200
• Balance date cash equivalents (marketable securities) of US$8.1 million.
1,000
• Balance date debt (drawn credit facility) of US$11.5 million, to be paid off by 30 September 2022.
800
Free Cash Flow
IMPROVEMENT IN FREE CASH FLOW (US$000)
Net Operating Revenue (US$'000)
Breakeven Costs
50,000
600
40,000
400
30,000
200
20,000
10,000
-
-
(10,000)
(20,000)
1,200
2019
2020
2021
2019
SM 71
Lightning
2020
GC 21
2021
Opex
1,000
G&A
Exploration & Development
Finance Costs
Free Cash Flow (Deficit)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Oil Hedges
800
• Net operating cashflow (pre-exploration) of US$18.9 million (FY20: US$10.5 million).
• Net operating cashflow (post exploration) of US$15.2 million (FY20: -US$0.7 million).
800
$80.00
600
• Free cashflow (operating net investing) of US$3.8 million (FY20: -US$17.3 million).
700
$70.00
• Debt repayment of US$9.2 million during the year.
400
600
$60.00
$50.00
$40.00
$30.00
2019
2020
2021
$20.00
2019
2020
2021
Historical
2021
Capital Expenditures (US$'000)
Improvement in Earnings
55,000
45,000
40,000
35,000
30,000
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$-
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
-100.0%
2019
2020
2021
2019
2021
2020
$25,000
$20,000
$15,000
$10,000
$5,000
$-
2019
2020
2021
Debt to Equity Ratio
US$Debt (US$000)
Improvement in Leverage
0.5
0.4
0.3
0.2
0.1
-
1,200
1,000
800
600
400
200
-
1,200
1,000
800
600
400
200
-
SM 71
Lightning
GC 21
OT TO ENERGY ANNUAL REPORT 202 1 | 35
$10.00
25,000
Q3 CY21
Q4 CY21
Q1 CY22
Q2 CY22
Q3 CY22
$0.00
BOPD hedged
Hedged Prices
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Mmbtu hedged
Hedged Prices
20,000
15,000
10,000
5,000
-
12,000
10,000
8,000
6,000
4,000
2,000
-
2019
2020
2021
Net operating revenue
Adjusted EBITDAX1
Adjusted EBITDA1
Adjusted EBIT1
Adjusted Net Income (Loss) before tax1
Reserves (Mboe)
Improvement in Returns
2019
2020
2021
SM 71
Lightning
GC 21
2019
2020
2021
Proved
Probable
Possible
Return on Equity (%)
Return on Assets (%)
ROACE (adjusted EBIT) (%)1
Earnings (US cps)
Gearing (%)
2019
2020
2021
SM 71
Lightning
GC 21
D
P
O
B
200
-
500
400
300
200
100
0
Gas Hedges
u
t
b
m
M
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
OPERATING AND FINANCIAL RE VIE W
Asset Overview
NORTH AMERICA
GULF OF MEXICO
Otto Energy considers the Gulf of Mexico its core region for exploration, development 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 US 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.
SUMMARY OF GULF OF MEXICO ASSETS AS AT 30 JUNE 2021
Asset
Gulf of Mexico Region
South Marsh Island 71
(SM 71)
Lightning
Green Canyon 21
(GC 21)
Number
of Wells
Otto
Working
Interest
Otto
Net Revenue
Interest
Joint Venture
Partner
3
2
1
50.00%
40.63%
Byron Energy
37.50%
28.21%
Hilcorp Energy
16.67%
13.34%
Talos Energy (Operator)/
Enven Energy Ventures, LLC
Status
Producing
Producing
Producing
36 | OTTO ENE RGY ANNUAL REPORT 2021
OPERATING AND FINANCIAL RE VIE W
QUARTERLY PRODUCTION VOLUMES AND SALES REVENUE
WI Share (before royalties) (USD)
30 Jun 21
31 Mar 21
31 Dec 20
30 Sep 20
Crude oil (barrels)
South Marsh 71
Lightning Field
Green Canyon 21
Total oil production
Total oil sales revenue (US$’million)
Avg oil price (US$/Bbl) – pre-hedges
Avg oil price (US$/Bbl) – post-hedges
Natural gas (thousand cubic feet)
South Marsh 71
Lightning Field
Green Canyon 21
Total gas production
Gas revenue (US$millions)
Avg gas price (US$/Mmbtu)
Natural gas liquids (barrels)
South Marsh 71
Lightning Field
Green Canyon 21
Total NGL production
NGL revenue (US$millions)
Avg NGL price (US$/Bbl)
Total (barrels of oil equivalent)
South Marsh 71
Lightning Field
Green Canyon 21
Total production (Boe)
Total daily production (Boe/d)
Percent liquids (%)
Total revenue (US$’million)
Avg WA price (US$/Boe) – pre-hedges
Avg WA price (US$/Boe) – post-hedges
112,232
113,496
110,393
18,437
1,916
21,410
1,425
22,962
5,403
109,215
20,607
n/a
132,585
136,331
138,758
129,822
8.3
62.88
54.14
94,085
563,559
7,416
665,060
2.0
3.00
-
19,581
347
19,929
0.4
20.78
127,913
131,945
3,500
263,357
2,894
58%
10.8
41.00
36.60
7.4
54.52
50.41
79,715
621,573
16,436
717,724
6.6
9.03
-
22,313
558
22,871
0.5
21.07
126,782
147,319
4,722
278,823
3,098
57%
14.5
52.06
50.05
5.4
38.93
42.03
83,515
693,344
23,374
800,233
2.1
2.64
-
24,090
851
24,941
0.3
11.68
124,312
162,609
10,150
297,071
3,229
55%
7.8
26.40
27.85
4.8
37.12
42.12
57,922
670,035
n/a
727,957
1.5
1.99
-
16,301
n/a
16,301
0.2
14.45
118,869
148,581
n/a
267,449
2,907
55%
6.6
24.59
27.01
OT TO ENERGY ANNUAL REPORT 202 1 | 37
OPERATING AND FINANCIAL RE VIE W
PRODUCTION
SOUTH MARSH ISLAND 71
Otto owns a 50% Working Interest (WI) and a 40.625%
Net Revenue Interest (NRI) in South Marsh Island 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.
The F1 and F3 wells began producing in March 2018
from the primary D5 Sand reservoir, while the F2 well
began production in April 2018 from the B55 Sand.
In March 2020, the joint venture spudded the F5 well
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. Recompletion potential for the F2 well and
re-entry potential for the F5 are being targeted for CY
2022, consistent with our current planning and budget.
The SM 71 lease ranks number three of all Gulf of
Mexico active oil producing leases on the US Gulf of
Mexico shelf, with the SM71 F3 and F1 ranked as the
number one and number two active oil producing wells.
Base production from SM 71 continues to produce at
or above expectations.
LIGHTNING
Otto owns a 37.5% WI and a 28.2% 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 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 production is currently
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.
Resource progression is currently targeted for
CY 2022, consistent with our current planning and
budget. Seismic data and mapping are ongoing to
develop specific well proposals for Green #3 and #4.
Base production from Lightning continues to produce
at or above expectations. There is the potential for up to
five wells being required to ultimately develop the entire
Lightning accumulation.
GREEN CANYON 21
Otto owns a 16.67% WI and a 13.34% 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 located at GC 21
commenced production from the deeper MP Sand
on 15 October 2020 after experiencing multiple
weather delays in reaching stabilized production
rates. These rates were less than what the collected
rock property data and analogue reservoirs would
suggest. A technical assessment of the MP Sand
production performance was completed. Detailed
bottomhole pressure and reservoir performance data
collected after hook-up and first production indicate
a smaller reservoir than originally anticipated.
While additional technical work is ongoing, the
currently favoured path forward is to move away from
the MP Sand and execute a recompletion of the well
in the shallower DTR-10 Sand.
A DTR-10 recompletion will require the procurement
of long lead items from manufacturers, which are
expected to cost approximately US$3.5 million
(US$0.6 million, net to Otto) with payment expected
for such items in Q3 CY 2021. Due to deepwater rig
availability, weather, timing and long lead items, the
recompletion is expected to begin in mid CY 2022, at
an estimated remaining cost (after long lead items) of
approximately US$28.5 million (US$4.75 million, net to
Otto), with production immediately following in mid to
late CY 2022. These costs are expected to be paid out
of existing free cash flow.
38 | OTTO ENE RGY ANNUAL REPORT 2021
OPERATING AND FINANCIAL RE VIE W
While full-cycle economics have been eroded, it
is estimated that point-forward economics for the
recompletion are highly positive and strongly value
accretive.
EXPLORATION
HILCORP PROGRAM
In October 2020, the Company and Hilcorp mutually
agreed to remove all remaining prospects from the
eight-well Gulf Coast exploration package due to
current market conditions, except for Beluga.
The Beluga #1 well was spud in October 2020 and
was drilled to approximately 13,800 ft MD to the base
of the target formation. Wireline logs were run in
the well and evaluated, and it was determined that
sub-commercial quantities of hydrocarbons were
encountered. The well was therefore plugged and
abandoned. The well was drilled for approximately
US$1.8 million, net to Otto, which was below AFE
estimated costs and in fewer days than planned.
This well concludes the Hilcorp Package 1 program,
with no additional drilling required under this
agreement.
ALASKA NORTH SLOPE (CENTRAL BLOCKS)
On 20 January 2021, the Company announced that
it had sold its subsidiary, Borealis Alaska LLC
(Borealis) which holds a 10.8% interest in the 44,463-
acre Talitha Unit in Alaska, to Pantheon. Under the
terms of the sale, Otto received 14,272,592 shares in
Pantheon Resources Plc (London Stock Exchange:
PANR) in exchange for Borealis Alaska LLC. The
shares were subject to a lock up period through
30 June 2021.
On 29 March 2021, the Company announced that
the sale of Borealis had been completed, following
approval by the Alaskan Department of Natural
Resources. In addition to the shares, Otto also
maintains an existing 0.5% of 8/8ths overriding royalty
interest (ORRI) in any future production from the
Talitha Unit.
On 19 April 2021, Pantheon announced that
operations at the Talitha #A well had concluded
for the season.
As of 30 June 2021, these shares were valued
at approximately US$8.2 million.
OT TO ENERGY ANNUAL REPORT 2021 | 39
Governance
40 | OTTO ENE RGY ANNUAL REPORT 2021
GOVERNANCE
Board of Directors
MICHAEL J.
UTSLER
Executive Chairman,
Chief Executive Officer
and Managing Director
B.S. Petroleum
Engineering
Mike was appointed Chief
Executive Officer and
Managing Director of the
Company on 11 September
2020, and Executive
Chairman on 19 November
2020. Mike 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. Mike
joined Oil Search Limited
on 30 April 2021 as an
Independent Non-Executive
Director. He holds a B.S.
in Petroleum Engineering
from the University of
Oklahoma.
JOHN
JETTER
Non-Executive
Director
GEOFF
PAGE
Non-Executive
Director
BLaw, BEcon, INSEAD
MBA, CPA, FCMA, FGIA
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 Chairman
of the Remuneration and
Nomination Committee and
a member of the Audit and
Risk Committee.
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
the Remuneration and
Nomination Committee.
Mr Page is also a member
of CPA Australia, Fellow
Member of the Chartered
Institute of Management
Accountants and a Fellow
Member of the Governance
Institute of Australia.
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 31
December 2018 led the
Company’s technical
operations.
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.
Mr Senycia is a member
of the Audit and Risk
Committee and the
Remuneration and
Nomination Committee.
OT TO ENERGY ANNUAL REPORT 202 1 | 41
Financial
Report
42 | OTTO ENE RGY ANNUAL REPORT 2021
FINANCIAL RE PORT
FINANCIAL REPORT 2021
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
44
45
73
74
75
76
77
78
116
117
121
Annual General Meeting
The Annual General Meeting of Otto Energy Limited will be held on 17 November 2021.
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 17 November 2021 at 1pm
AEST.
OT TO ENERGY ANNUAL REPORT 202 1 | 43
CORPORATE DIRECTORY
Directors
Mr Michael Utsler – Executive Chairman, Chief Executive Officer and
Managing Director
Mr John Jetter – Non-Executive Director
Mr Geoff Page – Non-Executive Director
Mr Paul Senycia – Non-Executive Director
Company Secretary
Ms Kaitlin Smith
Key Executives
Principal registered office
in Australia
Houston Office
Share Registry
Auditors
Mr Michael Utsler – Executive Chairman, Chief Executive Officer and
Managing Director
Mr Will Armstrong – Vice President Exploration and New Ventures
Mr Sergio Castro – Chief Financial Officer
Mr Philip Trajanovich – Commercial and Land Manager
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
44 | OTTO ENE RGY ANNUAL REPORT 2021
1
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
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 2021
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 Michael
Utsler who was appointed 11 September 2020 and Mr Kevin Small who resigned 30 April 2021.
Mr Michael Utsler
Executive Chairman, Chief Executive Officer and Managing Director
Appointed 11 September 2020
Mr Michael Utsler was appointed Managing Director and Chief Executive Officer on 11 September 2020 and Executive
Chairman on 19 November 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
Utsler joined Oil Search Limited on 30 April 2021 as an Independent Non-Executive Director.
Mr John Jetter BLaw, BEcon, INSEAD
Director (Independent 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;
Retired as Chairman but remained as Non-Executive Director 19 November 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 and a member of the Audit and Risk Committee.
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 Committee and Remuneration and Nomination
Committee. Mr Senycia has not held any other directorships in the last three years.
Mr Kevin Small BSc Geophysical Engineering (Hons)
Director (Executive)
Appointed Executive Director 29 January 2019, resigned 30 April 2021
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 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
OT TO ENERGY ANNUAL REPORT 202 1 | 45
2
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
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 Small resigned as Executive Director on 30
April 2021 and remains with the Company as Chief Geophysicist.
Mr Geoff Page MBA, CPA, FCMA,FGIA
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
and a member of the Remuneration and Nomination 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.
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 G Page
Mr M Utsler
Principal activities
Number of
Ordinary Shares
57,881,668
8,691,134
-
5,000,000
Number of
Rights
1,804,667
2,769,000
-
-
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 2021.
Operating and Financial Review
During the year ended 30 June 2021, the Company’s Green Canyon 21 “Bulleit” well commenced production on 15
October 2020. Otto also participated in drilling the final well in the Hilcorp exploration program, the Beluga well,
which was drilled in October 2020 and ultimately plugged and abandoned after sub-commercial quantities of
hydrocarbons were encountered.
On 20 January 2021, the Company successfully sold its Borealis Alaska LLC subsidiary to Pantheon Resources Plc for
14,272,592 shares in Pantheon stock (London Stock Exchange: PANR). As of 30 June 2021, these shares were valued at
approximately US$8.2 million.
46 | OTTO ENE RGY ANNUAL REPORT 2021
3
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Financial Summary
Total loss after tax for the year ended 30 June 2021 was US$0.5 million after recognizing profit from discontinued
operations of US$4.2 million on the reversal of the Foreign Currency Translation Reserve associated with the
dissolution of Otto Energy Philippines Inc. in June 2021. Consolidated net loss after income tax from continuing
operations for the year ended 30 June 2021 was US$4.6 million (2020: net loss of US$1.4 million). This increase in
losses was primarily driven by a non-cash impairment charge on Green Canyon 21 (US$12.85 million) and non-cash
losses on derivative financial instruments (US$9.67 million), partially offset by higher sales revenues, a profit on
disposal of assets, lower exploration expenditures, and lower administrative costs. Excluding the non-cash effects of
impairment charges (US$12.85million), profit from discontinued operations (US$4.2 million) and the unrealized
derivatives losses (US$9.67 million), the Company would have realized net income before tax of US$17.9 million for
the current year, compared to net loss before tax of US$5.4 million for the previous year after excluding unrealized
gains on derivatives (US$4.0 million), an improvement of 430%.
Net revenue for the current year was US$30.1 million (2020: US$23.0 million), a 31% increase from FY 2020 due to
higher production as a result of Green #2 producing for an entire year during FY 2021 and higher crude oil, natural gas
and NGL prices. This generated an operating gross profit of US$19.9 million (2020: US$12.7 million), an increase of
57%, as costs of production remained relatively equal to prior year.
Profit on disposal of assets was approximately US$8.0 million as a result of the Company’s sale of its subsidiary,
Borealis Alaska LLC to Pantheon Resources Plc.
Loss on derivative financial instruments was US$10.3 million for the current year (2020: gain of US$6.0 million). Of
this amount, US$9.7 million was unrealized (2020: unrealized gain on derivative US$4.0 million) as a result of the mark-
to-market value of expected higher future crude oil prices.
Impairment charges for the current year were US$12.85 million (2020: nil), as a result of cost overruns and lower than
expected performance on the Bulleit well at Green Canyon 21 (GC 21) since beginning production in October 2020.
The Company incurred lower exploration expenditures during the current year of US$2.7 million (2020: US$13.1
million), as well as lower administrative costs during the current year of US$4.2 million (2020: US$4.8 million), for a
total decrease of US$11.0 million, or 61%. While the majority of the decrease is attributable to less drilling
expenditures during the current year (only drilling the Hilcorp-operated Beluga well), the remaining decrease reflects
the corporate cost cutting initiatives, including a 40% reduction in key management personnel compensation (see
Note 24).
Finance costs, including amortisation of borrowing costs, totalled US$2.7 million for the current year (2020: US$2.4
million), which include interest and commitment fees on the Macquarie debt facility.
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 2021
On 9 September 2021 the Company released its statement of reserves and resources as at 30 June 2021 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 SM 71. The summary statement of reserves and prospective
resources as at 30 June 2021 and changes to reserves and resources since 30 June 2020 is set out below. Full details
including the reconciliations and notes on the statements are included in the ASX release of 9 September 2021.
Proved reserves totalled approximately 4.1 MMboe, compared to 4.8 MMboe as of 30 June 2020. This decrease is
predominantly due to production at the Company’s Lightning and SM 71 fields, partially offset by the reclassification
of SM 71 reserves from Probable to Proved as a result of its advanced production profile.
OT TO ENERGY ANNUAL REPORT 202 1 | 47
4
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Proved plus Probable reserves totaled approximately 6.5 MMboe as a result of an additional well at Lightning (Green
#4), plus an additional 2.4 MMboe of probable reserves on existing assets. This compares to 8.1 MMboe as of 30 June
2020, a decrease attributable to the reclassification of SM 71 reserves from Probable to Proved and the write-down
of MP Sand reserves at GC 21.
Proved plus Probable plus Possible reserves totaled approximately 8.4 MMboe as a result of an additional well at
Lightning (Green #5), plus an additional 1.9 MMboe of possible reserves on existing assets. This compares to 11.7
MMboe as of 30 June 2020, a decrease attributable to revisions at Lightning, the write-down of MP Sand reserves at
GC 21, and the reclassification of some SM 71 Possible reserves to Contingent and Prospective resources.
Contingent and Prospective resources totaled approximately 2.1 MMboe as a result of additional resources at SM 71
and Lightning. This compares to 58.3 MMboe at 30 June 2020, a decrease attributable to excluding Beluga as this well
was drilled during the fiscal year and subsequently plugged and abandoned, and also excluding Tarpon and Mallard as
these prospects will no longer be drilled. Another reason for the decrease is the removal of the Company’s interest in
the Talitha Unit in Alaska which was sold to Pantheon Resources Plc for 14,272,592 shares in Pantheon (PANR) in
January 2021. This decrease in Contingent and Prospective resources was partially offset by the reclassification of
some SM 71 Possible reserves to Contingent and Prospective resources.
Total
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource (best
estimate, unrisked)
Oil (MbbL)
3,196
4,595
452
8,243
4,935
13,178
2,584
Gross (100%)
Gas (MMcf)
17,814
9,193
15,060
42,067
29,631
71,698
27,507
Mboe
6,166
6,127
2,962
15,255
9,873
25,128
7,168
Oil (MbbL)
1,231
779
129
2,139
982
3,121
665
Net
Gas (MMcf)
5,297
2,306
4,302
11,905
8,235
20,140
7,838
Mboe
2,114
1,162
846
4,122
2,355
6,477
1,971
15,762
99,205
32,296
3,786
27,978
8,448
3,250
24,300
7,300
930
6,930
2,085
Changes to reserves and resources since 30 June 2020
Otto Energy Limited Grand Total - Reserve Reconciliation (Otto Energy NRI Share)
Gas (MMCF)
Oil (Mbbl)
MBOE
Proved (1P)
Probable
Proved+Probable (2P)
Possible
Proved+Probable+
Possible (3P)
Remaining
6/30/2020
2,382
1,719
4,102
1,807
Production
2020
438
0
438
0
Additions &
Revisions
196
(737)
(541)
(1,142)
Remaining
6/30/2021
2,140
982
3,122
665
Remaining
6/30/2020
14,625
9,088
23,712
11,142
Production
2020
2,411
0
2,411
Additions &
Revisions
(308)
(853)
(1,161)
(3,304)
Remaining
6/30/2021
11,905
8,235
20,140
7,838
Remaining
6/30/2020
4,820
3,234
8,054
3,664
Production
2020
840
840
Additions &
Revisions
145
(879)
(735)
(1,692)
Remaining
6/30/2021
4,122
2,355
6,477
1,971
5,908
438
(1,683)
3,787
34,854
2,411
(4,465)
27,978
11,717
840
(2,427)
8,448
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 its three producing fields at SM71, Lightning and GC 21 for the year ended 30 June
2021. One barrel of oil, condensate or NGL is the energy equivalent of six Mcf of natural gas.
48 | OTTO ENE RGY ANNUAL REPORT 2021
5
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
Production Volumes and Sales Revenue
WI Share (before royalties) (USD)
Crude oil (barrels)
South Marsh 71
Lightning Field
Green Canyon 21
Total oil production
Total oil sales revenue ($'million)
Avg oil price ($/Bbl) - pre-hedges
Avg oil price ($/Bbl) - post-hedges
Natural gas (thousand cubic feet)
South Marsh 71
Lightning Field
Green Canyon 21
Total gas production
Gas revenue ($millions)
Avg gas price ($/Mmbtu)
Natural gas liquids (barrels)
South Marsh 71
Lightning Field
Green Canyon 21
Total NGL production
NGL revenue ($millions)
Avg NGL price ($/Bbl)
Total (barrels of oil equivalent)
South Marsh 71
Lightning Field
Green Canyon 21
Total production (Boe)
Total daily production (Boe/d)
Percent liquids (%)
Total revenue ($'million)
Avg WA price ($/Boe) - pre-hedges
Avg WA price ($/Boe) - post-hedges
Notes
30-Jun-21
31-Mar-21
31-Dec-20 30-Sep-20
112,232
18,437
1,916
132,585
$
$
$
8.3 $
$
$
62.88
54.14
94,085
563,559
7,416
665,060
$
$
2.0 $
3.00 $
113,496
21,410
1,425
136,331
$
7.4
54.52 $
50.41 $
110,393
22,962
5,403
138,758
5.4 $
38.93 $
42.03 $
79,715
621,573
16,436
717,724
6.6
83,515
693,344
23,374
800,233
$
9.03 $
2.1 $
$
2.64
109,215
20,607
n/a
129,822
4.8
37.12
42.12
57,922
670,035
n/a
727,957
1.5
1.99
-
19,581
347
19,929
$
$
0.4 $
$
20.78
-
22,313
558
22,871
$
0.5
21.07 $
-
24,090
851
24,941
0.3 $
11.68 $
-
16,301
n/a
16,301
0.2
14.45
127,913
131,945
3,500
263,357
2,894
58%
10.8 $
$
$
41.00
36.60
126,782
147,319
4,722
278,823
3,098
57%
14.5
$
52.06 $
50.05 $
124,312
162,609
10,150
297,071
3,229
55%
7.8 $
26.40 $
27.85 $
118,869
148,581
n/a
267,449
2,907
55%
6.6
24.59
27.01
$
$
$
1. Otto sells its high-quality crude produced at SM 71 at Louisiana Light Sweet crude (“LLS”) crude pricing which is
a premium to West Texas Intermediate (“WTI”) pricing. Deductions are applied for transportation, gravity, and
pipeline loss allowances.
2. GC 21 crude is a medium sour grade and sells against the Bonito Sour crude marker. Deductions are applied for
3.
transportation, gravity, and pipeline loss allowances.
Lightning crude sells against the WTI Houston crude marker. Deductions are applied for transportation and
gravity.
4. On average, 1 Mscf = 1.10 MMbtu for SM 71 raw gas production. The thermal content of SM 71 gas may vary
over time.
5. On average, 1 Mscf = 1.25 MMbtu for GC 21 raw gas production. The thermal content of GC 21 gas may vary
over time.
6. On average, 1 Mscf = 1.10 MMbtu for Lightning raw gas production. The thermal content of Lightning gas may
vary over time.
OT TO ENERGY ANNUAL REPORT 202 1 | 49
6
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
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.
The F1 and F3 wells began producing in March 2018 from the primary D5 Sand reservoir, while the F2 well began
production in April 2018 from the B55 Sand. In March 2020, the joint venture spudded the F5 well 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. Recompletion potential for the F2 well and re-entry potential for the F5 are being targeted
for CY 2022, consistent with our current planning and budget.
The SM 71 lease ranks number three of all Gulf of Mexico active oil producing leases on the US Gulf of Mexico shelf,
with the SM71 F3 and F1 ranked as the number one and number two active oil producing wells.
Base production from SM 71 continues to produce at or above expectations. The following tables set forth certain
information with respect to SM71 production and sales for the twelve months ended 30 June 2021, and reserves as
of 30 June 2021:
SM 71 Production Volumes
Oil (bbls)
WI
Gas (Mscf)
Total (Boe)
Total (Boepd)
NRI
Oil (bbls)
Gas (Mscf)
Total (Boe)
Total (Boepd)
SM 71 Sales Revenue
WI
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per MMbtu
Total – US$million
NRI
Total – US$million
30-Jun-21
31-Mar-21
112,232
94,085
127,913
1,406
91,189
76,444
103,930
1,142
113,496
79,715
126,782
31-Dec-20 30-Sep-20
109,215
57,922
118,869
1,292
110,393
83,515
124,312
1,409 1,351
92,216
64,769
103,011
89,694
67,856
101,003
1,145 1,098
88,737
47,062
96,581
1,050
30-Jun-21
31-Mar-21
31-Dec-20 30-Sep-20
$
$
$
$
$
$
7.0 $
$
62.81
6.2 $
54.31 $
4.3
38.75
$
$
4.0
36.94
0.3 $
3.29 $
0.3 $
$
2.77
0.2
2.45
$
$
0.1
2.10
7.4 $
6.5
$
4.5 $
4.2
6.0 $
5.2
$
3.7 $
3.4
SM71
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Oil (MbbL)
2,685
496
-
3,181
Gross (100%)
Gas (MMcf)
1,924
292
-
2,216
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource (best
estimate, unrisked)
734
3,915
734
4,649
2,650
50 | OTTO ENE RGY ANNUAL REPORT 2021
Mboe
3,006
545
-
3,551
843
4,394
840
Oil (MbbL)
1,091
202
-
1,293
Net (40.625%)
Gas (MMcf)
782
119
-
901
267
1,168
259
298
1,591
298
1,889
Mboe
1,221
221
-
1,442
343
1,785
341
3,509
5,234
1,427
2,126
656
2,872
637
4,300
3,370
760
1,220
963
7
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
Lightning – Onshore Matagorda County, Texas. Otto WI 37.5%
Otto owns a 37.5% WI and a 28.2% 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 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 production is currently 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. Resource progression is currently targeted for CY 2022, consistent with our current planning and
budget. Seismic data and mapping are on-going to develop specific well proposals for Green #3 and #4.
Base production from Lightning continues to produce at or above expectations. The following tables set forth certain
information with respect to Lightning production and sales for the twelve months ended 30 June 2021, and reserves
as of 30 June 2021:
Lightning Volumes
Oil (bbls)
WI
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
NRI
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Lightning Sales Revenue
WI
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per MMbtu
NGLs - $million
NGLs – $ per bbl
Total – US$million
NRI
Total – US$million
30-Jun-21
31-Mar-21
18,437
563,559
19,581
131,945
1,450
13,871
424,002
14,732
99,271
1,091
21,410
621,573
22,313
147,319
31-Dec-20 30-Sep-20
20,607
670,035
16,301
148,581
1,615
22,962
693,344
24,090
162,609
1,637 1,767
16,108
467,651
16,788
110,838
17,276
521,648
18,124
122,341
1,232 1,330
15,504
504,112
12,264
111,787
1,215
30-Jun-21
31-Mar-21
31-Dec-20 30-Sep-20
$
$
$
$
$
$
$
$
1.2 $
$
63.25
1.2 $
55.74 $
0.9
$
39.55 $
0.8
38.03
1.7 $
2.96 $
6.2 $
10.01 $
1.9
$
2.67 $
1.4
1.98
0.4 $
$
20.75
0.5 $
21.10 $
$
0.3
11.76 $
0.2
14.45
3.3 $
7.9 $
3.1
$
2.4
2.4 $
5.9 $
2.3
$
1.8
OT TO ENERGY ANNUAL REPORT 202 1 | 51
8
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Lightning
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource (best
estimate, unrisked)
Oil (MbbL)
472
197
452
1,121
808
1,929
787
Gross (100%)
Gas (MMcf)
15,730
6,560
15,060
37,350
26,939
64,289
26,232
Mboe
3,094
1,290
2,962
7,346
5,298
12,644
5,159
Oil (MbbL)
135
56
129
320
231
551
225
Net (28.214%)
Gas (MMcf)
4,494
1,874
4,302
10,670
7,696
18,366
7,494
Mboe
884
368
846
2,098
1,514
3,612
1,474
2,716
90,521
17,803
600
20,000
3,930
776
170
25,860
5,086
5,710
1,122
Green Canyon 21 (GC 21) – Offshore Gulf of Mexico. Otto WI 16.67%
Otto owns a 16.67% WI and a 13.34% 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 located at GC 21 commenced production from the deeper MP sands on 15 October 2020
after experiencing multiple weather delays in reaching stabilized production rates. These rates were less than what the
collected rock property data and analogue reservoirs would suggest. A technical assessment of the MP Sand production
performance was completed. Detailed bottomhole pressure and reservoir performance data collected after hook-up
and first production indicate a smaller reservoir than originally anticipated. While additional technical work is ongoing,
the currently favoured path forward is to move away from the MP Sand and execute a recompletion of the well in the
shallower DTR-10 Sand.
A DTR-10 recompletion will require the procurement of long lead items from manufacturers, which are expected to cost
approximately US$3.5 million (US$0.6 million, net to Otto) with payment expected for such items in Q3 CY 2021. Due
to deepwater rig availability, weather, timing and long lead items, the recompletion is expected to begin in mid CY 2022,
at an estimated remaining cost (after long lead items) of approximately US$28.5 million (US$4.75 million, net to Otto),
with production immediately following in mid to late CY 2022. These costs are expected to be paid out of existing free
cash flow.
While full-cycle economics have been eroded, it is estimated that point-forward economics for the recompletion are
highly positive and strongly value accretive. The following tables set forth certain information with respect to GC 21
production and sales for the twelve months ended 30 June 2021, and reserves as of 30 June 2021:
52 | OTTO ENE RGY ANNUAL REPORT 2021
9
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
30-Jun-21
31-Mar-21
31-Dec-20 30-Sep-20
1,916
7,416
347
3,500
38
1,533
5,932
278
2,800
31
1,425
16,436
558
4,722
52
1,140
13,149
446
3,778
42
5,403
23,374
851
10,150
110
4,323
18,699
680
8,120
88
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
30-Jun-21
31-Mar-21
0.12 $
$
63.57
31-Dec-20
0.08
$
52.83 $
0.22
40.09
0.02 $
2.31 $
0.05
2.77
$
$
0.06
2.83
0.01 $
$
22.14
$
0.01
19.90 $
0.01
9.60
30-Sep-20
n/a
n/a
n/a
n/a
n/a
n/a
0.15 $
0.14
$
0.29
n/a
0.12 $
0.11
$
0.22
n/a
$
$
$
$
$
$
$
$
Oil (MbbL)
39
3,902
-
3,941
3,393
7,334
1,063
Gross (100%)
Gas (MMcf)
160
2,341
-
2,501
2,036
4,537
638
Mboe
66
4,292
-
4,358
3,732
8,090
1,169
Oil (MbbL)
5
521
-
526
453
979
142
Net (13.336%)
Gas (MMcf)
21
313
-
334
272
606
85
Mboe
9
573
-
582
498
1,080
156
8,397
5,175
9,259
1,121
691
1,236
-
-
-
-
-
-
GC 21 Production Volumes
Oil (bbls)
WI
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
NRI
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
GC 21 Sales Revenue
WI
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per MMbtu
NGLs - $million
NGLs – $ per bbl
Total – US$million
NRI
Total – US$million
Green Canyon 21
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource (best
estimate, unrisked)
Exploration and Appraisal
Gulf Coast Package - Hilcorp
In October 2020, the Company and Hilcorp mutually agreed to remove all remaining prospects from the eight-well
Gulf Coast exploration package due to current market conditions, except for Beluga. The Beluga #1 well was spud in
October 2020 and was drilled to approximately 13,800 ft MD to the base of the target formation. Wireline logs were
run in the well and evaluated, and it was determined that sub-commercial quantities of hydrocarbons were
encountered. The well was therefore plugged and abandoned. The well was drilled for approximately US$1.8 million,
net to Otto, which was below AFE estimated costs and in fewer days than planned.
This well concludes the Hilcorp Package 1 program, with no additional drilling required under this agreement.
OT TO ENERGY ANNUAL REPORT 202 1 | 53
10
FINANCIAL REPORT
DIRECTOR’S REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
For the year ended 30 June 2021
DIRECTOR’S REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
For the year ended 30 June 2021
Alaska North Slope (Central Blocks)
Alaska North Slope (Central Blocks)
Alaska North Slope (Central Blocks)
Alaska North Slope (Central Blocks)
On 20 January 2021, the Company announced that it had sold its subsidiary, Borealis Alaska LLC (Borealis) which holds
On 20 January 2021, the Company announced that it had sold its subsidiary, Borealis Alaska LLC (Borealis) which holds
a 10.8% interest in the 44,463-acre Talitha Unit in Alaska, to Pantheon. Under the terms of the sale, Otto received
a 10.8% interest in the 44,463-acre Talitha Unit in Alaska, to Pantheon. Under the terms of the sale, Otto received
14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR) in exchange for Borealis Alaska LLC. The
14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR) in exchange for Borealis Alaska LLC. The
shares were subject to a lock up period through 30 June 2021.
shares were subject to a lock up period through 30 June 2021.
On 20 January 2021, the Company announced that it had sold its subsidiary, Borealis Alaska LLC (Borealis) which holds
On 20 January 2021, the Company announced that it had sold its subsidiary, Borealis Alaska LLC (Borealis) which holds
a 10.8% interest in the 44,463-acre Talitha Unit in Alaska, to Pantheon. Under the terms of the sale, Otto received
a 10.8% interest in the 44,463-acre Talitha Unit in Alaska, to Pantheon. Under the terms of the sale, Otto received
14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR) in exchange for Borealis Alaska LLC. The
14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR) in exchange for Borealis Alaska LLC. The
shares were subject to a lock up period through 30 June 2021.
shares were subject to a lock up period through 30 June 2021.
On 29 March 2021, the Company announced that the sale of Borealis had been completed, following approval by the
On 29 March 2021, the Company announced that the sale of Borealis had been completed, following approval by the
Alaskan Department of Natural Resources. In addition to the shares, Otto also maintains an existing 0.5% of 8/8ths
Alaskan Department of Natural Resources. In addition to the shares, Otto also maintains an existing 0.5% of 8/8ths
overriding royalty interest (ORRI) in any future production from the Talitha Unit.
overriding royalty interest (ORRI) in any future production from the Talitha Unit.
On 29 March 2021, the Company announced that the sale of Borealis had been completed, following approval by the
On 29 March 2021, the Company announced that the sale of Borealis had been completed, following approval by the
Alaskan Department of Natural Resources. In addition to the shares, Otto also maintains an existing 0.5% of 8/8ths
Alaskan Department of Natural Resources. In addition to the shares, Otto also maintains an existing 0.5% of 8/8ths
overriding royalty interest (ORRI) in any future production from the Talitha Unit.
overriding royalty interest (ORRI) in any future production from the Talitha Unit.
On 19 April 2021, Pantheon announced that operations at the Talitha #A well had concluded for the season.
On 19 April 2021, Pantheon announced that operations at the Talitha #A well had concluded for the season.
On 19 April 2021, Pantheon announced that operations at the Talitha #A well had concluded for the season.
On 19 April 2021, Pantheon announced that operations at the Talitha #A well had concluded for the season.
As of 30 June 2021, these shares were valued at approximately US$8.2 million.
As of 30 June 2021, these shares were valued at approximately US$8.2 million.
As of 30 June 2021, these shares were valued at approximately US$8.2 million.
As of 30 June 2021, these shares were valued at approximately US$8.2 million.
Corporate and Administration
Corporate and Administration
Corporate and Administration
Corporate and Administration
Executive Changes
Executive Changes
Executive Changes
Executive Changes
In September 2020, the Company announced that Mr Michael J. Utsler had been hired as the Company’s new Chief
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.
Executive Officer and Managing Director.
In September 2020, the Company announced that Mr Michael J. Utsler had been hired as the Company’s new Chief
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.
Executive Officer and Managing Director.
Related Parties
Related Parties
Related Parties
Related Parties
Effective 1 April 2020, the Board of Directors engaged Mr John Jetter to serve as a consultant to the Company, to
Effective 1 April 2020, the Board of Directors engaged Mr John Jetter to serve as a consultant to the Company, to
Effective 1 April 2020, the Board of Directors engaged Mr John Jetter to serve as a consultant to the Company, to
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
perform any services required by the Company. Under the terms of the consultancy agreement, Mr Jetter is to consult
perform any services required by the Company. Under the terms of the consultancy agreement, Mr Jetter is to consult
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 2021, Mr
for a maximum of three days per week at a rate of AUD$2,500 per day. For the fiscal year ended 30 June 2021, Mr
for a maximum of three days per week at a rate of AUD$2,500 per day. For the fiscal year ended 30 June 2021, Mr
for a maximum of three days per week at a rate of AUD$2,500 per day. For the fiscal year ended 30 June 2021, Mr
Jetter earned AUD$62,500 under this consultancy agreement. This consultancy agreement ceased in September 2020
Jetter earned AUD$62,500 under this consultancy agreement. This consultancy agreement ceased in September 2020
Jetter earned AUD$62,500 under this consultancy agreement. This consultancy agreement ceased in September 2020
Jetter earned AUD$62,500 under this consultancy agreement. This consultancy agreement ceased in September 2020
on the appointment of Mr Utsler as Chief Executive Officer and Managing Director
on the appointment of Mr Utsler as Chief Executive Officer and Managing Director
on the appointment of Mr Utsler as Chief Executive Officer and Managing Director
on the appointment of Mr Utsler as Chief Executive Officer and Managing Director
Commodity Price Risk Management
Commodity Price Risk Management
Commodity Price Risk Management
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
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
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
agreements, with sales prices tied to industry standard published index prices, subject to negotiated price
adjustments.
adjustments.
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are determined, to
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
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
agreements, with sales prices tied to industry standard published index prices, subject to negotiated price
adjustments.
adjustments.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price fluctuations by
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
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
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 swaps, and the Company has no three-way collars or
commodities being hedged. Currently, all of Otto’s hedges are swaps, and the Company has no three-way collars or
short puts.
short puts.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price fluctuations by
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
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
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 swaps, and the Company has no three-way collars or
commodities being hedged. Currently, all of Otto’s hedges are swaps, and the Company has no three-way collars or
short puts.
short puts.
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022 via
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022 via
swaps, at a weighted average LLS price of US$50.19 as follows:
swaps, at a weighted average LLS price of US$50.19 as follows:
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022 via
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022 via
swaps, at a weighted average LLS price of US$50.19 as follows:
swaps, at a weighted average LLS price of US$50.19 as follows:
Months
Months
Months
Months
Volume (Bbls)
Volume (Bbls)
Weighted Avg
Weighted Avg
Volume (Bbls)
Volume (Bbls)
Price (LLS)
Price (LLS)
Weighted Avg
Weighted Avg
Price (LLS)
Price (LLS)
July - December 2021
July - December 2021
July - Decem ber 2021
July - Decem ber 2021
122,650
122,650
122,650
122,650
US$50.47
US$50.47
January - September 2022
January - September 2022
January - Septem ber 2022
January - Septem ber 2022
127,239
127,239
127,239
127,239
US$49.92
US$49.92
US$50.47
US$50.47
US$49.92
US$49.92
Additionally, the Company had a natural gas hedge book of 180,143 Mmbtu of natural gas hedged through December
Additionally, the Company had a natural gas hedge book of 180,143 Mmbtu of natural gas hedged through December
2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
Additionally, the Company had a natural gas hedge book of 180,143 Mmbtu of natural gas hedged through December
Additionally, the Company had a natural gas hedge book of 180,143 Mmbtu of natural gas hedged through December
2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
Months
Months
Months
Months
Volume (Mmbtu)
Volume (Mmbtu)
Weighted Avg
Weighted Avg
Volume (Mmbtu)
Volume (Mmbtu)
Price (HSC)
Price (HSC)
Weighted Avg
Weighted Avg
Price (HSC)
Price (HSC)
July - December 2021
July - December 2021
July - December 2021
July - December 2021
180,143
180,143
180,143
180,143
US$3.11
US$3.11
US$3.11
US$3.11
54 | OTTO ENE RGY ANNUAL REPORT 2021
11
11
11
11
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
For the fiscal year ended 30 June 2021, the Company recorded a loss on hedging of approximately US$10.3 million as
a result of these hedges.
Strategy
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. 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.
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.
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.
OT TO ENERGY ANNUAL REPORT 202 1 | 55
12
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
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.
Liquidity and Debt
Otto’s cash on hand at 30 June 2021 was approximately US$11.1 million (including US$5.4 million of restricted cash in
a Macquarie debt service reserve account). On 4 November 2019 the Company announced it had entered into a three-
year senior secured US$55 million term debt facility (Debt Facility) with Macquarie Bank Limited (Macquarie). The
initial commitment under the Debt Facility was 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 immediately under Tranche A1. As of 30 June 2021, the Company had drawn the
US$25 million available under this tranche, and had repaid US$13.5 million, resulting in an ending debt
balance of US$11.5 million. Repaid amounts are not available to be re-borrowed;
Additional US$10 million available under Tranche A2;
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 paid off early without penalty.
On 21 January 2021, the Company announced that the Debt Facility had been amended to extend the expiration date
of Tranche A2 out until 31 March 2022, to establish the timing for a GC 21 mitigation plan, and to establish a minimum
quarterly average production requirement of 1,900 boepd until the GC 21 mitigation is completed (WI volume).
The Company was in compliance with all of its financial covenants throughout the year.
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
(November 2019). A further 42.5 million options will be issued on initial draw of Tranche A2 and will expire four years
after issue date.
56 | OTTO ENE RGY ANNUAL REPORT 2021
13
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year were as follows:
• On 11 September 2020, the Company announced the appointment of new Chief Executive Officer and Managing
Director, Mr Michael Utsler. Mr Utsler is an oil and gas executive with more than 40 years of experience in senior
international oil and gas sector roles.
•
• On 15 October 2020, the “Bulleit” well at GC 21 began producing from the MP reservoir.
•
In October 2020, the Company and Hilcorp mutually agreed to remove all remaining prospects from the eight-
well Gulf Coast exploration package due to current market conditions, except for Beluga.
In October 2020, the Beluga #1 well was spud and drilled to approximately 13,800 ft MD to the base of the target
formation. Sub-commercial quantities of hydrocarbons were encountered, and the well was therefore plugged
and abandoned. This well concludes the Hilcorp Package one program, with no additional drilling required under
this agreement.
• On 20 January 2021, the Company announced that it had sold its subsidiary, Borealis Alaska LLC (Borealis) which
holds a 10.8% interest in the 44,463-acre Talitha Unit in Alaska, to Pantheon Resources in exchange for
14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR).
Significant events after the balance date
No matters or circumstances have arisen since 30 June 2021 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:
• On 23 August 2021, the Company announced that the Debt Facility had been amended to remove all timing and
production requirements associated with the “Bulleit” well at GC 21, and extended the minimum group quarterly
production rate average (WI basis) of 1,900 BOEPD until 31 December 2021, and then reduces it to 1,400 BOEPD
from 1 January 2022 until the maturity date (4 November 2022).
• On 27 August 2021, the Company announced that 30,000,000 options had been issued to Foster Stockbroking
Pty Ltd pursuant to the terms of an Equity Capital Markets Advisory Agreement. Of these, 20,000,000 options
have an exercise price of A$0.02 per option and 10,000,000 options have an exercise price of A$0.025 per option.
All the options expire on 27 August 2024.
• Reserves Statement
On 9 September 2021 the Company released its statement of reserves and prospective resources for SM 71,
Lightning and Green Canyon 21 as at 30 June 2021. The reserves were compiled by Otto’s independent consultant
Ryder Scott Company. The summary statement of reserves and prospective resources as at 30 June 2021 and
Changes to reserves and resources since 30 June 2020 is set out below. For full details refer to ASX release dated
9 September 2021.The individual statements for each field are included in the Production and Development
section above.
Total
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource (best
estimate, unrisked)
Oil (MbbL)
3,196
4,595
452
8,243
4,935
13,178
2,584
Gross (100%)
Gas (MMcf)
17,814
9,193
15,060
42,067
29,631
71,698
27,507
Mboe
6,166
6,127
2,962
15,255
9,873
25,128
7,168
Oil (MbbL)
1,231
779
129
2,139
982
3,121
665
Net
Gas (MMcf)
5,297
2,306
4,302
11,905
8,235
20,140
7,838
Mboe
2,114
1,162
846
4,122
2,355
6,477
1,971
15,762
99,205
32,296
3,786
27,978
8,448
3,250
24,300
7,300
930
6,930
2,085
OT TO ENERGY ANNUAL REPORT 202 1 | 57
(cid:3)
14
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
Changes to reserves and resources since 30 June 2020:
Otto Energy Limited Grand Total - Reserve Reconciliation (Otto Energy NRI Share)
Gas (MMCF)
Oil (Mbbl)
MBOE
Proved (1P)
Probable
Proved+Probable (2P)
Possible
Proved+Probable+
Possible (3P)
Remaining
6/30/2020
2,382
1,719
4,102
1,807
Production
2020
438
0
438
0
Additions &
Revisions
196
(737)
(541)
(1,142)
Remaining
6/30/2021
2,140
982
3,122
665
Remaining
6/30/2020
14,625
9,088
23,712
11,142
Production
2020
2,411
0
2,411
Additions &
Revisions
(308)
(853)
(1,161)
(3,304)
Remaining
6/30/2021
11,905
8,235
20,140
7,838
Remaining
6/30/2020
4,820
3,234
8,054
3,664
Production
2020
840
840
Additions &
Revisions
145
(879)
(735)
(1,692)
Remaining
6/30/2021
4,122
2,355
6,477
1,971
5,908
438
(1,683)
3,787
34,854
2,411
(4,465)
27,978
11,717
840
(2,427)
8,448
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 changing 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:
•
•
•
A recompletion of GC 21 in the shallower DTR-10 Sand
Recompletion of the F2 well and re-entry of the temporarily abandoned F5 well at SM 71
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 licenses. 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
Audit and risk management
Committee (ARC)
Number
eligible to
attend
15
11
15
12
14
Number
attended
14
11
15
10
14
Number
eligible to
attend
-
-
3
-
3
Number
attended
-
-
3
-
3
Remuneration and
nomination committee
(RNC)
Number
eligible to
attend
1
-
1
-
1
Number
attended
1
-
1
-
1
Director
Mr J Jetter
Mr M Utsler(i)
Mr P Senycia
Mr K Small(ii)
Mr G Page(iii)
(i)
(ii)
(iii)
Mr M Utsler was appointed as Chief Executive Officer and Managing Director on 11 September 2020.
Mr K Small resigned as Executive Director on 30 April 2021
Mr G Page was appointed Non-Executive Director on 17 July 2020
58 | OTTO ENE RGY ANNUAL REPORT 2021
15
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Indemnification and insurance of Directors and officers
During the financial year, the Company paid a premium of approximately $146,000 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.
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:
2020
US$
2021
US$
Tax compliance services
Tax consulting and tax advice
13,433
6,970
20,403
15,017
31,114
46,131
Auditor’s independence declaration
The auditor’s independence declaration is included on page 73 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 2021. This structure includes the share rights and option plans
approved by the shareholders at the Company’s Annual General Meeting on 19 November 2020. The report has been
prepared in accordance with Section 300A of the Corporations Act 2001 and its regulations.
OT TO ENERGY ANNUAL REPORT 202 1 | 59
16
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Otto Energy’s remuneration policy is designed to ensure that the level and form of compensation achieves certain
objectives, including:
attraction and retention of employees and management to pursue the Group’s strategy and goals;
a)
b) delivery of value-adding outcomes for the Group;
c)
d)
fair and reasonable reward for past individual and Group performance; and
incentive to deliver future individual and Group performance.
Remuneration consists of base salary, superannuation, short term incentives (STI) and long term incentives (LTI).
Remuneration is determined by reference to market conditions and performance. Performance is evaluated at an
individual level as well as the performance of the Group as a whole. The remuneration policies and structure in 2021
were generally the same as for 2020.
Key management personnel disclosed in this report are:
Directors
Mr John Jetter
Mr Paul Senycia
Mr Kevin Small
Mr Geoff Page
Mr Michael Utsler
Non-Executive Director, resigned as Non-Executive Chairman 19 November 2020
Non-Executive Director
Executive Director and Chief Geophysicist; resigned as Executive Director 30 April 2021
Non-Executive Director, appointed 17 July 2020
Executive Chairman, Chief Operating Office and Managing Director, appointed 11
September 2020; Executive Chairman 19 November 2020
Executives
Mr Will Armstrong
Mr Sergio Castro
Mr Philip Trajanovich
Vice President – Exploration and New Ventures
Chief Financial Officer
Senior Commercial Manager
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 three 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
60 | OTTO ENE RGY ANNUAL REPORT 2021
17
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
achievement toward the Group’s performance benchmarks and the achievement of individual performance
objectives.
Non-executive director remuneration policy
Non-executive Directors of the Group are remunerated by way of fees, statutory superannuation, and LTI’s where
applicable. Fees are set to reflect current market levels based on the time, responsibilities and commitments
associated with the proper discharge of their duties as members of the Board. On 6 April 2020, the Company
announced initiatives to reduce costs in its Houston office. Among those was a temporary 50% reduction in Director
fees. Effective 1 April 2021, Director fees were reviewed again and permanently reestablished at approximately 85%
of their original amount. 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.
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(i)
Non-executive Directors
From 1 May
2021 to 30
June 2021
From 1 April
2020 to 30
April 2021
From 1 July
2019 to 31
March 2020
-
A$75,000
A$75,000
A$45,000
A$150,000
A$90,000
A$10,000
A$5,000
A$5,000
-
A$10,000
-
Additional fees
Audit and Risk Management Committee Chair
Remuneration Committee Chair
(i)
Mr M Utsler was appointed as Executive Chairman on 19 November 2020, no Non-Executive Chair
position held from 19 November 2020.
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 2021 is
summarised below.
OT TO ENERGY ANNUAL REPORT 202 1 | 61
18
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
The remuneration structure in place for the year ended 30 June 2021 applies to all employees including key
management personnel and staff members of the Group. The Group‘s remuneration structure has three elements:
a)
b)
c)
fixed annual remuneration (FAR) or base salary (including superannuation);
short term incentive (STI) award which provides a reward for performance in the past year; and
long term incentive (LTI) award which provides an incentive to deliver future Company performance.
Executive remuneration mix
In accordance with the Group’s objective to ensure that executive remuneration is aligned to Group’s performance, a
significant portion of the executives’ target pay is “at risk”.
a)
Fixed annual remuneration (FAR) or base salary (including superannuation);
To attract and retain talented, qualified and effective employees, the Group pays competitive base salaries which have
been benchmarked to the market in which the Group operates. The Group compiles competitive salary information
on companies of comparable size in the oil and gas industry from several sources. Where appropriate, information is
obtained from surveys conducted by independent consultants and national and international publications. In the past
the Board has engaged independent advisors to review the remuneration levels paid to the Group’s key management
personnel. An advisor was not retained for the 2020 or 2021 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 2021.
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 2020 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.
No rights were issued for the year ended 30 June 2021.
62 | OTTO ENE RGY ANNUAL REPORT 2021
19
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
On 15 November 2018 and 21 December 2018, the Company issued a total of 25,489,002 performance rights to
executives 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 and 15 November 2020 measurement
dates, the TSR hurdle was not met and the performance rights will continue to exist and be tested at the next
measurement date. Additionally, 7,456,000 performance rights lapsed upon cessation of employment during the fiscal
year ended 30 June 2021. The number of remaining performance rights held by executives and directors as of 30 June
2021 is 9,137,000.
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 and 29 November 2020
measurement dates, the TSR hurdle was not met and the performance rights will continue to exist and be tested at
the next measurement date. Additionally, 4,134,000 performance rights lapsed upon cessation of employment during
the fiscal year ended 30 June 2021, resulting in 2,788,667 performance rights held by executives and directors as of
30 June 2021.
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 of which 25,489,002 related to executives and directors, 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 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 2020 Annual General Meeting
At its 2020 Annual General Meeting, the Company received approximately 96% of “yes” votes on its remuneration
report for the 2020 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 2020 Annual General Meeting were
carried on a poll.
OT TO ENERGY ANNUAL REPORT 202 1 | 63
20
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Performance of Otto Energy Limited
The Corporations Act requires disclosure of the Company’s remuneration policy to contain a discussion of the
Company’s earnings and performance and the effect of the Company’s performance on shareholder wealth in the
reporting period and the four previous financial years. The table below provides a five-year financial summary.
Net profit/(loss) after
tax (US$’000)
Share price at year end
(AUD)
Basic earnings/(loss)
(US cents per share)
Return of capital
(AU cents per share)
Total dividends
(AU cents per share)
Details of remuneration
30 June 2017
30 June 2018
30 June 2019
30 June 2020
30 June 2021
(5,247)
(5,194)
(18,409)
(1,358)
0.025
(0.44)
-
-
0.064
(0.37)
-
-
0.054
(0.95)
-
-
0.007
(0.05)
-
-
(450)
0.008
(0.01)
-
-
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:
64 | OTTO ENE RGY ANNUAL REPORT 2021
21
FINANCIAL REPORT -
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66 | OTTO ENE RGY ANNUAL REPORT 2021
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
The relative proportions of remuneration that are linked to performance and those that are not are as follows:
Fixed and other
2020
2021
At risk – STI
At risk – LTI (i)
2021
2020
2021
2020
Directors
Mr J Jetter
Mr P Senycia
Mr M Utsler(ii)
Mr G Page(iii)
Mr K Small(iv)
Mr M Allen(v)
Mr I Macliver(vi)
Mr I Boserio(vii)
Executives
Mr S Castro
Mr W Armstrong
Mr P Trajanovich
Mr D Rich(viii)
96%
91%
100%
100%
89%
-
-
-
92%
90%
90%
-
93%
65%
95%
-
96%
95%
100%
100%
100%
93%
95%
67%
-
-
-
-
9%
-
-
-
-
-
10%
-
-
21%
-
-
-
-
-
-
-
-
-
33%
4%
9%
-
-
2%
-
-
-
8%
7%
-
-
7%
14%
5%
-
4%
5%
-
-
-
7%
5%
-
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
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 M Utsler was appointed Chief Operating Office and Managing Director effective 11 September 2020.
Mr G Page was appointed Non-executive Director 17 July 2020
Mr K Small resigned as Director in April 2021. 2021 remuneration disclosure includes remuneration from 1 July 2020 to
30 April 2021
Mr Allen resigned as Managing Director and CEO on 10th June 2020 and remained with the Company as a non-KMP until
December 2020.
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
Performance against key measures for LTI:
Metric
STI
LTI
Performance rights issued 2018
No STI awards set for the fiscal year ended 2021. (i)
No vesting for the fiscal year ended 2021
TSR hurdle rate
not met
15% 3 year
TSR
Target
Performance
Impact on Incentive Reward
Performance rights issued 2017
10% 3 year
TSR
TSR hurdle rate
not met
(i)
A discretionary bonus was paid at discretion of CEO. Refer remuneration table
Performance rights rolled
over to next measurement
date in November 2021
Performance rights rolled
over to next measurement
date in November 2021
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.
OT TO ENERGY ANNUAL REPORT 202 1 | 67
24
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
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 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 Michael Utsler
Managing Director and
Chief Executive Officer(i)
Mr Sergio Castro(iii)
Chief Financial Officer
Mr W Armstrong(iii)
VP, Exploration and New
Ventures
Mr P Trajanovich(iii)
Senior Commercial
Manager(vi)
Commencement of
contract
11 September 2020
Base salary including
superannuation/other
retirement benefits(ii)(iii)
$US per annum
$300,000
Termination benefit(iv)
3 months base salary
9 December 2019
$260,000
3 months base salary
1 August 2018
$240,000
3 months base salary
1 August 2018
$240,000
3 months base salary
(i)
(ii)
(iii)
(iv)
Mr M Utsler was appointed Managing Director and Chief Executive Officer 11 September 2020
Executive contracts are reviewed annually by the Board and the Remuneration and Nomination Committee.
New executive agreements with reduced base salaries are effective 1 May 2021. Base salary above reflects employment
agreements as at 30 June 2021.
Termination benefits are payable on early termination by the Company, other than for gross misconduct.
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 23. All rights expire on the earlier of their expiry date or termination of individual’s employment.
Performance rights granted carry no dividend or voting rights.
The value of rights included in remuneration for the year is calculated in accordance with Australian Accounting
Standards. The assessed fair value at grant date of the performance rights is allocated equally over the period from
grant date to vesting date and the amount is included in the remuneration tables. Where rights vest fully in the year
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 2021 financial year. The
inputs into the fair value calculation of the rights granted and outstanding as at 30 June 2021 are set out in the
following table
68 | OTTO ENE RGY ANNUAL REPORT 2021
25
FINANCIAL REPORT 0
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OT TO ENERGY ANNUAL REPORT 202 1 | 69
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2021
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 2021
is set out below.
Key Management
Personnel
Directors
Mr J Jetter
Mr P Senycia
Mr M Utsler(i)
Mr G Page(ii)
Mr K Small(iii)
Executives
Mr S Castro
Mr P
Trajanovich
Mr W
Armstrong
Balance at
start of year
Granted as
compensation
Vested
and
exercised
Lapsed/
expired
Number
%
Balance on
resignation as
KMP
Balance at
end of year
1,804,667
2,769,000
-
-
4,840,000
9,413,667
Balance at
start of year
Granted as
compensation
-
4,982,000
7,352,000
12,334,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vested
and
exercised
-
-
-
-
-
-
-
-
-
-
-
Lapsed/
expired
-
-
-
-
-
-
(4,982,000)
100%
-
-
(4,982,000)
1,804,667
2,769,000
-
-
-
4,573,667
4,840,000
4,840,000
Balance on
resignation as
KMP
Balance at
end of year
-
-
7,352,000
7,352,000
(i)
(ii)
(iii)
Mr M Utsler was appointed Managing Director and Chief Executive Officer 11 September 2020
Mr G Page was appointed Non-executive Director 17 July 2020
Mr K Small resigned as Director on 30 April 2021. No longer a KMP from 1 May 2021
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.
70 | OTTO ENE RGY ANNUAL REPORT 2021
27
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
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
Directors
Mr J Jetter
Mr M Utsler(i)
Mr P Senycia
Mr G Page(ii)
Mr K Small(iii)
Executives
Mr W
Armstrong
Mr S Castro
Mr P
Trajanovich
Balance at
start of year
Purchased
during the
year
57,881,668
-
8,691,134
-
49,486,383
116,059,185
-
5,000,000
-
-
-
5,000,000
750,000
-
-
-
758,000
1,508,000
117,567,185
-
-
5,000,000
Received
through
conversion of
performance
rights during
the year
Sold
during
the year
Balance on
resignation
as KMP
Balance at
end of year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49,486,383
49,486,383
-
49,486,383
57,881,668
5,000,000
8,691,134
-
71,572,802
750,000
-
758,000
1,508,000
73,080,802
(i)
(ii)
(iii)
Mr M Utsler was appointed Managing Director and Chief Executive Officer 11 September 2020
Mr G Page was appointed Non-executive Director 17 July 2020
Mr K Small resigned as Director on 30 April 2021. No longer a KMP from 1 May 2021
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 (2020: nil).
End of Remuneration Report
Diversity
Proportion of women employees at 30 June 2021:
Whole organisation*
Senior executive
positions
Board
Number
3/12
0/4
Proportion
25%
0%
0/3
0%
*Includes three non-executive Directors
OT TO ENERGY ANNUAL REPORT 202 1 | 71
28
FINANCIAL REPORT DIRECTOR’S REPORT
For the year ended 30 June 2021
Performance rights on issue at 30 June 2021
Date granted
29 November 2017
15 November 2018
21 December 2018
Date of expiry
29 November 2022
15 November 2023
15 November 2023
Number
2,788,667
1,785,000
19,371,000
23,944,667
Options on issue at 30 June 2021
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 to employees at 30 June 2021.
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 59 to 71.
This report is made in accordance with a resolution of Directors.
Mr Michael Utsler
Executive Chairman
28 September 2021
72 | OTTO ENE RGY ANNUAL REPORT 2021
29
FINANCIAL REPORT 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 2021, 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, 28 September 2021
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.
OT TO ENERGY ANNUAL REPORT 202 1 | 73
FINANCIAL REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2021
Note
2021
US$’000
2020
US$’000
Operating Revenue (Net)
Cost of sales
Gross profit
Other income
Loss on disposal of property, plant and equipment
Profit on disposal of subsidiary
Exploration expenditure
Impairment
Finance income/(costs)
Gains/(losses) on derivative financial instruments
Administration and other expenses
Loss before income tax
Income tax expense
Loss from continuing operations
Profit from discontinued operations
Loss for the period after tax
Other comprehensive income that may be recycled to
profit or loss
Total other comprehensive income
Total comprehensive loss for the year
Earnings per share from continuing operations
Basic and diluted loss per share (US cents)
Earnings per share attributable to the ordinary equity
holders of the company
Basic and diluted loss per share (US cents)
2
3
2
4
5
13
6
15
6
8
19
7
7
30,137
(10,198)
19,939
203
-
7,971
(2,676)
(12,850)
(2,720)
(10,313)
(4,187)
(4,633)
(5)
(4,638)
4,188
(450)
23,028
(10,302)
12,726
244
(3)
-
(13,067)
-
(2,392)
5,971
(4,835)
(1,356)
(2)
(1,358)
-
(1,358)
-
(450)
-
(1,358)
(0.10)
(0.05)
(0.01)
(0.05)
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
74 | OTTO ENE RGY ANNUAL REPORT 2021
31
FINANCIAL REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2021
Note
2021
US$’000
2020
US$’000
Current assets
Restricted cash
Cash equivalents
Trade and other receivables
Derivative financial instruments
Financial assets at fair value through profit or loss
Other financial assets
Total current assets
Non-current assets
Oil and gas properties
Right-of-use assets
Derivative financial instruments
Property, plant and equipment
Other financial assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings (net of transaction costs)
Derivative financial instruments
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings (net of transaction costs)
Derivative financial instruments
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
9
9
11
15
12
12
13
15
12
14
16
15
17
16
15
17
18
19
5,380
5,720
3,884
-
8,129
437
23,550
36,963
242
-
201
375
37,781
61,331
1,675
8,179
4,703
151
22
14,730
1,950
809
123
3,820
6,702
21,432
39,899
5,000
11,551
2,111
2,907
-
5,373
26,942
39,793
402
1,254
288
600
42,337
69,279
1,958
8,179
-
139
194
10,470
10,127
-
274
3,757
14,158
24,628
44,651
133,223
10,414
(103,738)
39,899
133,242
14,697
(103,288)
44,651
The above consolidated statement of financial position should be read in conjunction with the accompanying
notes.
OT TO ENERGY ANNUAL REPORT 202 1 | 75
32
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2021
Contributed
equity
Contributed
equity
Share-based
payments
reserve
Share-based
payments
reserve
Foreign
currency
translation
reserve
US$’000
Foreign
currency
translation
reserve
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Accumulated
Accumulated
losses
losses
Total
Total
Balance at 1 July 2019
Balance at 1 July 2019
Loss for the period
Loss for the period
Other comprehensive income
Other comprehensive income
Total comprehensive loss for the year
Total comprehensive loss for the year
125,041
125,041
-
-
-
-
-
-
9,879
9,879
-
-
-
-
-
-
4,188
4,188
-
-
-
-
-
-
(101,930)
(101,930)
(1,358)
(1,358)
-
-
(1,358)
(1,358)
37,178
(1,358)
-
(1,358)
37,178
(1,358)
-
(1,358)
Transactions with owners in their
Transactions with owners in their
capacity as owners:
capacity as owners:
Issue of shares (net of costs)
Issue of shares (net of costs)
Issue of options – Note 23
Issue of options – Note 23
Equity benefits issued to employees
Equity benefits issued to employees
Balance at 30 June 2020
Balance at 30 June 2020
8,201
8,201
-
-
-
-
133,242
133,242
-
528
102
10,509
-
528
102
10,509
-
-
-
-
-
-
4,188
4,188
-
-
-
-
-
-
(103,288)
(103,288)
8,201
528
102
44,651
8,201
528
102
44,651
Balance at 1 July 2020
Balance at 1 July 2020
Gain (loss) for the period
Gain (loss) for the period
Profit from discontinued operations
Profit from discontinued operations
Total comprehensive loss for the year
Total comprehensive loss for the year
133,242
133,242
-
-
-
-
-
-
10,509
-
-
-
10,509
-
-
-
4,188
4,188
-
-
-
-
-
-
(103,288)
(4,638)
4,188
(450)
(103,288)
(4,638)
4,188
(450)
44,651
(4,638)
4,188
(450)
44,651
(4,638)
4,188
(450)
Transactions with owners in their
Transactions with owners in their
capacity as owners:
capacity as owners:
Issue of shares (net of costs)
Issue of shares (net of costs)
Issue of options – Note 23
Issue of options – Note 23
Equity benefits issued to employees
Equity benefits issued to employees
Foreign currency translation
Foreign currency translation
Balance at 30 June 2021
Balance at 30 June 2021
(19)
(19)
-
-
-
-
-
-
133,223
133,223
-
-
(95)
-
10,414
-
-
(95)
-
10,414
-
-
-
(4,188)
-
-
-
-
(4,188)
-
-
-
-
-
-
-
-
-
(103,738)
(103,738)
(19)
(19)
-
-
(95)
(95)
(4,188)
(4,188)
39,899
39,899
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes.
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes.
76 | OTTO ENE RGY ANNUAL REPORT 2021
33
33
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF CASHFLOWS
For the year ended 30 June 2021
Note
2021
US$’000
2020
US$’000
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 inflow /(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 / (loan repayments)
Transaction costs relating to borrowings
Proceeds from issue of shares
Transaction costs - shares
Net cash inflow/(outflow) from financing activities
10
Net (decrease)/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
9
28,370
203
(7,856)
(3,676)
(1,805)
(4)
15,232
(172)
(11,255)
(50)
(11,477)
(9,200)
-
-
(19)
(9,219)
(5,464)
16,551
13
11,100
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
16,551
There is no impact on the statement of cashflows from discontinued operations. The above consolidated
statement of cash flows should be read in conjunction with the accompanying notes.
OT TO ENERGY ANNUAL REPORT 202 1 | 77
34
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
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 28 September 2021.
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 2020. Refer to
note 30 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 21.
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.
78 | OTTO ENE RGY ANNUAL REPORT 2021
35
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
ABOUT THIS REPORT (continued)
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.
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 8
Note 13
Note 17
Note 23
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
OT TO ENERGY ANNUAL REPORT 202 1 | 79
36
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
Segment information
Revenue and other income
Cost of sales
Profit on sale of subsidiary
Exploration expenditure
Financial performance
1.
2.
3.
4.
5.
6. Other expenses
7.
8.
9.
10. Reconciliation of loss after income tax to net cash outflow from
Earnings per share
Income tax
Cash and cash equivalents
operating activities
Operating assets and liabilities
11. Trade and other receivables
12. Other financial assets
13. Oil and gas properties
14. Trade and other payables
15. Derivative financial liabilities
16.
17. Provisions
Interest bearing loans and borrowings
Capital structure, financial instruments and risk
18. Contributed equity
19. Reserves
20. Financial instruments
Interest in joint operations
Other disclosures
21. Subsidiaries
22.
23. Share-based payments
24. Related parties
25. Auditor’s remuneration
26. Contingent liabilities
27. Commitments
28. Events after the reporting period
29. Parent entity disclosures
30. New accounting standards and interpretations
81
82
84
84
84
85
85
86
88
88
90
90
91
95
95
96
97
99
99
100
106
106
107
111
111
112
112
113
114
115
80 | OTTO ENE RGY ANNUAL REPORT 2021
37
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
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 2021. Reportable segments exclude results from discontinued operations.
The segment information for the reportable segments for the year ended 30 June 2021 is as follows:
2021
Operating Revenue
Cost of Production
Gross Profit
Other income
Profit on disposal of subsidiary
Exploration expenditure
Impairment
Finance costs
Losses on derivative financial instruments
Administration and other expenses
Profit (Loss) before income tax from
continuing operations
Income tax expense
Profit (Loss) after income tax from
continuing operations
Total non-current assets
Total assets
Total liabilities
Gulf of Mexico
(USA)
US$’000
30,137
(10,198)
19,939
178
-
(2,476)
(12,850)
(2,877)
(10,313)
(3,037)
(11,436)
-
(11,436)
37,777
47,350
21,099
Other
Consolidated
US$’000
-
-
-
25
7,971
(200)
-
157
-
(1,150)
6,803
(5)
6,798
4
13,981
333
US$’000
30,137
(10,198)
19,939
203
7,971
(2,676)
(12,850)
(2,720)
(10,313)
(4,187)
(4,633)
(5)
(4,638)
37,781
61,331
21,432
OT TO ENERGY ANNUAL REPORT 202 1 | 81
38
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
1. Segment information (continued)
The segment information for the reportable segments for the year ended 30 June 2020 is as follows:
2020
Gulf of Mexico
(USA)
US$’000
Other
Consolidated
US$’000
US$’000
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
2. Revenue and other income
South Marsh 71 (SM71) Sales(i) (iv)
Oil Sales
Gas Sales
Facility Fee
Total Sales
Less: Royalties(i)
SM71 Operating Revenue (Net)
Bulleit Field (GC-21) Sales(i) (iv)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Total Sales
Less: Royalties(i)
GC-21 Operating Revenue (Net)
82 | OTTO ENE RGY ANNUAL REPORT 2021
23,028
(10,302)
12,726
196
(3)
(13,231)
(2,388)
5,971
(4,035)
(764)
-
(764)
42,086
63,199
24,145
-
-
-
48
-
164
(4)
-
(800)
(592)
(2)
(594)
251
6,080
483
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
2021
US$’000
2020
US$’000
21,524
1,021
-
22,545
(4,212)
18,333
414
127
28
569
(107)
462
21,488
965
380
22,793
(4,217)
18,576
-
-
-
-
-
-
39
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
2. Revenue and other income (continued)
Lightning Sales(ii) (iv)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Lightning Operating Revenue (Net)
Total Operating Revenue (Net)
Interest income(iii)
Other income
2021
US$’000
2020
US$’000
2,890
7,058
1,394
11,342
30,137
2021
US$’000
1
202
203
1,581
2,242
629
4,452
23,028
2020
US$’000
68
176
244
(i)
SM71 and GC-21 operating revenue is shown net of royalty payments payable to the (USA) Office of Natural
Resources Revenue.
(ii) Proceeds from the sale of oil and gas from the Lightning field are received net of royalty payments.
(iii) Interest income is recognised using the effective interest rate method.
(iv) Gross oil revenue (US$21.524m) from Gulf of Mexico SM71 and Gross oil revenue (US$0.414m) from Gulf
of Mexico GC-21, were sold to the same single customer. Net gas revenue (US$1.021m) from Gulf of Mexico
SM71, net oil revenue (US$2.890m) and net gas revenue (US$8.452m) from Lightning were all sold to
different single customers. Net gas revenue (US$0.155m) from Gulf of Mexico GC-21 was sold to multiple
different customers.
Recognition and measurement
Revenue from the sale of SM 71 oil & 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 & 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, and at the production facilities for gas which is the point that title passes. Hence
revenue is recognized at a point in time.
Production from GC 21 travels from the well via subsea flowline to the Talos owned GC 18 platform where the
production is processed and sent to separate oil and gas transportation pipelines. Revenue from the sale of GC-
21 oil is recognized at the inlet to the Shell Boxer Pipeline where the sale takes place. Gas is transported through
the Manta Ray and Nautilus pipeline systems delivering gas at the Enterprise owned Neptune gas plant where
the gas is processed and NGLs extracted from the gas stream. Revenue is recognized separately at this point for
NGLs and residue gas as each product is sold at this point, hence revenue is recognised at a point in time.
OT TO ENERGY ANNUAL REPORT 202 1 | 83
40
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
3. Cost of Sales
Cost of Sales
Gathering and Production charges
Amortisation of capitalised developments – Note 13
Total Cost of Sales
4. Profit on disposal of subsidiary
Profit on sale of Borealis Alaska LLC
Total Profit on sale of investments
2021
US$’000
2020
US$’000
4,624
5,574
10,198
3,738
6,564
10,302
2021
US$’000
2020
US$’000
7,971
7,971
-
-
On 20 January 2021, Otto advised it had reached agreement to sell the Otto subsidiary, Borealis Alaska LLC
(Borealis) which held a 10.8% interest in the 44,463 acre Talitha Unit in Alaska to the acreage operator Pantheon
Resources (Pantheon). As part of the sale terms, Otto will retain an existing a 0.5% of 8/8ths overriding royalty
interest (ORRI) in any future production from the Talitha Unit. On 29 March 2021, the company advised that
Otto received 14,272,592 shares in Pantheon Resources Plc (London Stock Exchange: PANR) in exchange for
Borealis Alaska LLC. These shares are subject to a lock up period through 30 June 2021. A profit on sale of
US$7,970,594 was recognised in the consolidated statement of profit or loss and other comprehensive income.
5. Exploration expenditure
Exploration expenditure – Gulf of Mexico/Gulf Coast
Exploration expenditure – Alaska North Slope
2021
US$’000
2020
US$’000
2,476
200
2,676
13,231
(164)
13,067
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 the
Beluga (US$2.1M) prospect.
84 | OTTO ENE RGY ANNUAL REPORT 2021
41
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
6. Other expenses
i) Finance costs
Interest and commitment fees on borrowings
Interest expense leases
Amortisation of borrowing costs
Accretion of decommissioning fund
Gain on investments at fair value
Other
Total finance costs/ (income)
ii) Administration and other expenses
Employee benefits expense
Defined contribution superannuation expense
Share-based payment (reversal)/expense
Other employee benefits expenses
Total employee benefits expense
Depreciation expense(i)
Right-of-use assets
Right-of-use assets – buildings
Right-of-use assets – plant and equipment
Total depreciation expense right-of-use assets
Property, plant and equipment
Furniture and equipment
Total depreciation expense
Corporate and other costs
Business development
Foreign currency (gains)/losses
Total administration and other expenses
2021
US$’000
2020
US$’000
1,805
25
1,023
23
(158)
2
2,720
49
(95)
2,454
2,408
138
22
160
94
254
1,177
361
(13)
1,525
4,187
1,650
25
679
25
-
13
2,392
84
102
3,070
3,256
103
21
124
82
206
1,097
391
(115)
1,373
4,835
(i) Depreciation and amortisation charges are included above in Note 6 other expenses and Note 3 Cost of
sales. Total depreciation and amortisation for the Consolidated Entity is US$5.8 million (2020: US$6.8
million)
7. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company,
excluding any costs of servicing equity (other than dividends), by the weighted average number of ordinary
shares, adjusted for the bonus element.
OT TO ENERGY ANNUAL REPORT 202 1 | 85
42
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
7. Earnings per share (continued)
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential
ordinary shares, and the weighted average number of additional ordinary shares that would have been
outstanding assuming the conversion of all dilutive potential ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
Loss after tax from continuing operations
Profit after tax from discontinued operations
Loss attributable to owners of the Company (US$’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 from continuing operations (US cents)
Basic and diluted profit per share from discontinued operations (US
cents)
Basic and diluted loss per share attributable to owners of the
Company (US cents)
8.
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 from continuing operations
Profit before income tax from discontinued operations
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
Income tax expense
Deferred tax assets
Temporary differences
– provisions and other corporate costs
– exploration and evaluation costs
86 | OTTO ENE RGY ANNUAL REPORT 2021
2021
2020
(4,638)
4,188
(450)
(1,358)
-
(1,358)
4,795,009,773
2,935,246,867
23,944,667
42,500,000
(0.10)
35,534,667
42,500,000
(0.05)
0.09
(0.01)
-
(0.05)
2021
US$’000
2020
US$’000
5
-
-
5
(4,633)
4,188
(445)
(133)
1,188
-
(1,753)
704
5
235
-
235
2
-
-
2
(1,356)
-
(1,356)
(407)
3,172
-
(4,026)
1,263
2
337
-
337
43
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
8.
Income tax (continued)
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
2021
US$’000
2020
US$’000
7,819
12,450
20,504
(9,473)
(11,031)
-
7,351
11,358
19,046
(10,579)
(8,468)
-
2021
US$’000
2020
US$’000
9,473
(9,473)
-
10,579
(10,579)
-
Recognition and measurement
The income tax expense for the period is the tax payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income
tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than
a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted
by the end of the reporting period and are expected to apply when the related deferred income tax asset is
realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount
and tax bases of investments in foreign operations where the Company is able to control the timing of the
reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on
a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised
in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively
OT TO ENERGY ANNUAL REPORT 202 1 | 87
44
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
8.
Income tax (continued)
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.
9. Cash and cash equivalents
Cash at bank and on hand
Restricted cash – debt service reserve account (DSRA)
Balance at end of period
2021
US$’000
2020
US$’000
5,720
5,380
11,100
11,551
5,000
16,551
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 the greater of 6 months of the forecast debt service or
US$5,000,000. The DSRA may only be applied in reduction of the loan.
10. Reconciliation of loss after income tax to net cash outflow from operating activities
2021
US$’000
2020
US$’000
Profit (Loss) after income tax
Non-cash items:
Impairment
Depreciation expense – furniture and equipment
Foreign currency translation reserve reversal
Profit on sale of subsidiary
Gain on investments at fair value
Share-based payments
(Gain) Loss on derivative instruments at fair value
Finance costs – see note 6(i)
Amortisation of capitalised developments – see note 3
Other non-cash items
88 | OTTO ENE RGY ANNUAL REPORT 2021
(450)
(1,358)
12,850
254
(4,188)
(7,971)
(158)
(95)
9,673
1,071
5,574
238
-
206
-
-
-
102
(4,035)
729
6,564
(360)
45
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
10. Reconciliation of loss after income tax to net cash outflow
from operating activities (continued)
Change in assets and liabilities:
(Increase)/Decrease in trade and other receivables
(Increase) Decrease in other assets
Increase in trade and other payables
Increase/(Decrease) in provisions
Net cash outflow from operating activities
Changes in financing liabilities arising from cash flow and
non-cash flow items
Borrowings
Balance at the start of the year
Proceeds/repayment on borrowings
Borrowing transaction costs
Amortisation borrowing costs
Balance at the end of the year
2021
US$’000
2020
US$’000
(1,767)
407
(24)
(182)
15,232
18,306
(9,200)
-
1,023
10,129
1,189
(4,239)
466
15
(721)
-
20,700
(3,073)
679
18,306
OT TO ENERGY ANNUAL REPORT 202 1 | 89
46
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
OPERATING ASSETS AND LIABILITIES
11. Trade and other receivables
Trade receivables(i)
Other receivables
2021
US$’000
2020
US$’000
3,791
93
3,884
2,024
87
2,111
Recognition and measurement
Other receivables are initially recognised at fair value and subsequently measured at amortised cost less an
allowance for uncollectible amounts.
Impairment
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments
carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been
a significant increase in credit risk. The Group makes use of a simplified approach in accounting for trade and
other receivables as well as contract assets and records the loss allowance at the amount equal to the expected
lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external
indicators and forward looking information to calculate the expected credit losses using a provision matrix.
The Group considers a financial asset in default when contractual payment are 90 days past due. However, in
certain cases, the Group may also consider a financial asset to be in default when internal or external information
indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into
account any credit enhancements held by the Group.
(i)
Trade receivable relates to June 2021 Lightning (net of royalties), SM 71 and GC-21 oil and gas sales (before
deduction of SM 71 and GC-21 royalties).
12. Other financial assets
Current
Financial assets at fair value through profit or loss(i)
Prepayments
Other assets
Non-current
Bonds(ii)
2021
US$’000
2020
US$’000
8,129
348
89
8,566
375
375
-
5,287
86
5,373
600
600
(i) On 20 January 2021, Otto advised it had reached agreement to sell the Otto subsidiary, Borealis Alaska
LLC (Borealis) which held a 10.8% interest in the 44,463 acre Talitha Unit in Alaska to the acreage operator
Pantheon Resources (Pantheon). As part of the sale terms, Otto will retain an existing a 0.5% of 8/8ths
overriding royalty interest (ORRI) in any future production from the Talitha Unit. On 29 March 2021, the
company advised that Otto received 14,272,592 shares in Pantheon Resources Plc (London Stock
Exchange: PANR) in exchange for Borealis Alaska LLC. These shares are subject to a lock up period through
30 June 2021
(ii) Development bond for SM 71 (US$325,000), GC-21 (US$50,000)
90 | OTTO ENE RGY ANNUAL REPORT 2021
47
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
12. Other financial assets (continued)
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.
Financial assets held at fair value through profit or loss (FVPL)
The Group’s classification of financial assets held at fair value through profit or loss applies to equity investments
which are held for trading or where the FVOCI election has not been applied. They are carried on the balance
sheet at fair value with changes in fair value recognised in profit or loss with any associated changes in fair value
recognised in the income statement.
Financial assets held at fair value through other comprehensive income (FVOCI)
The Group’s classification of financial assets held at fair value through other comprehensive income applies to
equity investments where the Group has made the irrevocable election to present the fair value gains or losses
on revaluation of the asset in other comprehensive income. This election can be made for each investment;
however, it is not applicable to equity investments which are held for trading. These assets are included in non-
current assets unless management intends to dispose of the investment within 12 months of the reporting date.
These instruments are recognised at fair value, with changes in fair value being recognised directly in other
comprehensive income.
Management have elected not to apply the FVOCI election and to hold the equity investment in Pantheon shares
at fair value through profit and loss. The increase in fair value of US$0.158 million was recognised through profit
and loss at reporting date. (PANR GBP0.4125 and USD/GBP exchange rate 1.3807).
13. Oil and gas properties
Producing and development assets
At cost
SM71 balance at beginning of year
SM71 expenditure for the year
SM71 amortisation of assets
SM71 balance at end of year
Lighting balance at beginning of year
Lightning expenditure for the year
Lightning amortisation of assets
Lightning balance at end of year
2021
US$’000
2020
US$’000
18,890
70
(4,000)
14,960
5,984
(42)
(1,302)
4,640
23,632
768
(5,510)
18,890
1,934
5,104
(1,054)
5,984
OT TO ENERGY ANNUAL REPORT 202 1 | 91
48
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
13. Oil and gas properties (continued)
GC-21 balance at beginning of year
GC-21 expenditure for the year
GC-21 impairment
GC-21 amortisation of assets
GC-21 balance at end of year
2021
US$’000
2020
US$’000
14,919
15,566
(12,850)
(272)
17,363
5,416
9,503
-
-
14,919
Total oil and gas properties including decommissioning assets
36,963
39,793
Recognition and measurement
i) Producing and development assets
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.
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.
92 | OTTO ENE RGY ANNUAL REPORT 2021
49
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
13. Oil and gas properties (continued)
iv) Amortisation and depreciation of producing projects
The Group uses the units of production (UOP) approach when amortising and depreciating field-specific assets.
Using this method of amortisation and depreciation requires the Group to compare the actual volume of
production to the reserves and then to apply this determined rate of depletion to the carrying value of the
depreciable asset.
Capitalised producing project costs relating to commercially producing 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.
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.
Impairment
Assets are tested for impairment in line with AASB 136. Whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable, an impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value, which is a product of quantity of reserves, prices, and operating costs, less the cost to sell and value in
use.
Impairment indicators were identified on the GC-21 oil and gas asset during the year in relation to the lower-
than-expected performance and cost overruns on the Bulleit well at Green Canyon (GC-21) as per the following
table.
Drilling
Subsea Tieback
Platform Modifications
Completion Costs
Original Estimated Cost
Updated Estimated Cost
US$millions
US$millions
7.4
10.8
1.4
3.9
23.5
16.7
12.6
3.2
6.7
39.2
OT TO ENERGY ANNUAL REPORT 202 1 | 93
50
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
13. Oil and gas properties (continued)
At 31 December 2020, the Group assessed the GC-21 Bulleit cash-generating unit and determined that there
was a US$US12.8 million impairment loss.
Recoverable value at 31 December 2020 was calculated using a VIU calculation. The estimated future cash flows
for the VIU calculation were 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 were 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, which averaged
US$49.45/Bbl oil and US$2.58/MMBtu gas.
The discount rates applied to the future forecast cash flows were based on the weighted average cost of capital.
The pre-tax discount rates that has been applied to non-current assets was 14%.
Sensitivity
To the extent oil and gas cash generating units have been written down to their respective recoverable amounts
in the current and prior years, any change in key assumptions on which valuations are based would further
impact asset carrying values. When modelled in isolation, it is estimated that changes in key assumptions would
result in the following additional impairment:
Oil and gas assets
GC-21
Production
decrease 5%
US$’000
1,425
Discount rate
increase 0.5%
US$’000
327
Oil and gas price
decrease 10% all years
US$’000
2,985
There were no impairment indicators identified for the other assets at 30 June 2021.
Amortisation
Estimation of amortisation of the SM 71, GC-21 and Lightning oil and gas assets is based on the updated 2P
reserves estimate and estimated future development costs as at 30 June 2021. Producing assets are amortised
on a unit of production basis on 2P reserves. The reserves for SM-71 Lightning and Green Canyon 21 were
compiled by Otto’s independent consultant Ryder Scott Company. 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.
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.
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.
94 | OTTO ENE RGY ANNUAL REPORT 2021
51
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
13. Oil and gas properties (continued)
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.
14. Trade and other payables
Trade payables
Other Accrued expenses
2021
US$’000
2020
US$’000
1,526
149
1,675
1,720
238
1,958
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.
15. Derivative financial instruments
Current assets
Balance at the beginning of the period
Unrealised gains on oil price fixed swaps
Current oil price fixed swaps – held at fair value through profit or loss
Non-current assets
Balance at the beginning of the period
Unrealised gains on oil price fixed swaps
Non-current oil price fixed swaps – held at fair value through profit or
loss
Total derivative financial instrument assets
2021
US$’000
2020
US$’000
-
-
-
-
-
-
-
126
2,781
2,907
-
1,254
1,254
4,161
OT TO ENERGY ANNUAL REPORT 202 1 | 95
52
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
15. Derivative financial instruments (continued)
Current liability
Balance at the beginning of the period
Unrealised losses on oil and natural gas price fixed swaps
Current oil price fixed swaps – held at fair value through profit or loss
Non-current liability
Balance at the beginning of the period
Unrealised losses on oil and natural gas price fixed swaps
Non-current oil and natural gas price fixed swaps – held at fair value
through profit or loss
Total derivative financial instrument liabilities
Realised gains/(losses) on oil and natural gas price fixed swaps
Unrealised gains/(losses) on oil and natural gas price fixed swaps
Total(gain/(loss) on derivative financial instruments
2021
US$’000
2020
US$’000
(2,907)
7,610
4,703
(1,254)
2,063
809
5,512
-
-
-
-
-
-
2021
US$’000
2020
US$’000
(640)
(9,673)
(10,313)
1,936
4,035
5,971
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.
16. Interest bearing loans and borrowings
Borrowings
Current Secured
Principal outstanding
Less: Facility transaction costs
Balance at the end of the period
Non – Current Secured
Principal outstanding
Less: Facility transaction costs
Balance at the end of the period
2021
US$’000
2020
US$’000
9,200
(1,021)
8,179
9,200
(1,021)
8,179
2,300
(350)
1,950
11,500
(1,373)
10,127
96 | OTTO ENE RGY ANNUAL REPORT 2021
53
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
16. Interest bearing loans and borrowings (continued)
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). The key terms of the facility were disclosed in the 30 June
2020 Annual Report.
On 21 January 2021, the company announced an amendment to the Facility. The amendments are as follows:
•
•
•
Extension of access to and utilisation of the US$10 million Tranche A2 through to 31 March 2022
Extension of time to identify and progress the GC 21 partners’ well intervention plans (until 31 July
2021)
In the interim, pending a GC 21 resolution, establish a minimum quarterly production rate average of
1,900 BOEPD
At 30 June 2021, US$25 million was drawn under the Facility and US$13.5 million had been repaid. 42.5 million
options vested in November 2019 and an expense of US$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 of US$1.4 million is offset
against the facility borrowings of US$11.5 million. Total capitalised transaction costs relating to the facility
agreement are US$3.1 million of which $1.0 million was amortised during the period (2020: $0.7 million) The
facility agreement has certain financial covenants that the Company has to comply with. All such financial
covenants have been complied with in accordance with the facility agreement.
17. Provisions
Current
Employee benefits
Tax
Non-current
Employee benefits (i)
Decommissioning fund – GC-21 Bulleit(ii)
Decommissioning fund – Lightning(ii)
Decommissioning fund – SM 71 (ii)
2021
US$’000
2020
US$’000
18
4
22
-
1,694
175
1,951
3,820
191
3
194
11
1,673
209
1,864
3,757
(i)
The non-current provision for employee benefits includes amounts not expected to be settled within the
next 12 months.
(ii) 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.
OT TO ENERGY ANNUAL REPORT 202 1 | 97
54
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
17. Provisions (continued)
Recognition and measurement
Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and
long service leave when it is probable that settlement will be required and they are capable of being measured
reliably.
Liabilities recognised in respect of employee benefits expected to be settled within 12 months are measured at
their nominal values using the remuneration rate expected to apply at the time of settlement.
Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months are
measured as the present value of the estimated future cash outflows to be made by the Group in respect of
services provided by employees up to reporting date.
Contributions to superannuation plans are expensed when incurred.
Decommissioning fund
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past
events, it is probable that the Group will be required to settle the obligation and the amount of the provision
can be measured reliably.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at 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.
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.
98 | OTTO ENE RGY ANNUAL REPORT 2021
55
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
CAPITAL STRUCTURE, FINANCIAL INSTRUMENTS AND RISK
18. Contributed equity
Share capital
Balance at beginning of year
Shares issued – placement
Shares issued – entitlement offers
Balance at end of year
(i) Share placements
2021
Number
4,795,009,773
-
-
4,795,009,773
2020
Number
2021
US$’000
2020
US$’000
2,460,464,725
231,109,326(i)
2,103,435,722(ii)
4,795,009,773
133,242
-
(19)
133,223
125,041
780
7,421
133,242
a. March 2020 at AU0.06 per share, converted to USD at the exchange rate on the transaction
date of 0.6166. Net of share issue costs.
(ii) Share entitlements:
a.
Institutional entitlement issued April 2020 at AUD0.06 per share, converted to USD at the
weighted average exchange rate on the transaction date of 0.6104. Net of share issue costs.
b. Retail entitlement issued April 2020 at AUD0.06 per share, converted to USD at the weighted
average exchange rate for the transaction dates of 0.6471. Net of share issue costs.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company
in proportion to the number and amount paid on the shares held. On a show of hands every holder of ordinary
shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled
to one vote. The ordinary shares have no par value and the Company does not have a limited amount of
authorized capital.
(cid:3)
Options
Information relating to the Otto Energy Employee Option Plan, including details of options issued, exercised and
lapsed during the financial year and options outstanding at the end of the reporting period, is set out in Note
23.
Performance rights
Information relating to the Otto Energy Employee Performance Rights Plan, including details of performance
rights issued, exercised and lapsed during the financial year and performance rights outstanding at the end of
the reporting period, is set out in Note 23.
Recognition and measurement
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
19. Reserves
Share-based payments reserve
Foreign currency translation reserve
2021
US$’000
2020
US$’000
10,414
-
10,414
10,509
4,188
14,697
OT TO ENERGY ANNUAL REPORT 202 1 | 99
56
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
19. Reserves (continued)
Share-based payments reserve
Balance at beginning of year
Options reserve
Share-based payment expense
Balance at end of year
Foreign currency translation reserve
Balance at beginning of year
Balance at end of year
2021
US$’000
2020
US$’000
10,509
-
(95)
10,414
-
-
9,879
528
102
10,509
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 26 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.
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.
Otto Energy Philippines Inc was officially deregistered on 28 June 2021 and the associated foreign currency
translation reserve reversed. This has been presented as profit from discontinued operations within the financial
report.
20. 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.
100 | OTTO ENE RGY ANNUAL REPORT 2021
57
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
20. Financial instruments (continued)
b) 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.
The company will undertake 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. There were no capital raising activities in the current financial
year.
A hypothetical change of 10% (2020: 10%) in the Australian dollar exchange rate was used to calculate the
Group’s sensitivity to foreign exchange rates movements, as this is management’s estimate of possible rate
movements over the coming year taking into account current market conditions and past volatility. At 30 June
2021, management has assessed that the entity’s exposure to foreign exchange movements is immaterial and
therefore no further analysis is provided.
c)
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 2021 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)
2021
US$’000
2020
US$’000
5,720
(11,500)
(5,780)
11,551
(20,700)
(9,149)
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.
The 1.0% sensitivity is based on reasonably possible changes, over a financial year, using an observed range of
historical short term deposit rate movements over the last 3 years.
OT TO ENERGY ANNUAL REPORT 2021 | 101
58
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Financial instruments (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
For the year ended 30 June 2021
For the year ended 30 June 2021
For the year ended 30 June 2021
Judgements of reasonably possible movements
20. Financial instruments (continued)
20. Financial instruments (continued)
20. Financial instruments (continued)
20. Financial instruments (continued)
Judgements of reasonably possible movements
Judgements of reasonably possible movements
Judgements of reasonably possible movements
Judgements of reasonably possible movements
Increase 100 basis points
Decrease 100 basis points
Effect on post tax losses
Increase/(decrease)
2020
2021
US$’000
US$’000
58
(58)
Effect on post tax losses
Effect on post tax losses
Effect on post tax losses
Effect on post tax losses
Increase/(decrease)
Increase/(decrease)
Increase/(decrease)
Increase/(decrease)
2020
2020
2021
2021
2020
2021
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
2021
US$’000
2020
US$’000
91
(91)
58
58
58
(58)
(58)
(58)
91
91
91
(91)
(91)
(91)
91
(91)
d) Commodity price risk
Increase 100 basis points
Increase 100 basis points
Increase 100 basis points
Increase 100 basis points
Decrease 100 basis points
Decrease 100 basis points
Decrease 100 basis points
Decrease 100 basis points
d) Commodity price risk
58
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are determined,
(58)
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 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.
d) Commodity price risk
d) Commodity price risk
d) Commodity price risk
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are determined,
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are determined,
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
to a large degree, by prevailing oil and natural gas prices. Otto sells its production to purchasers pursuant to
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
sales agreements, with sales prices tied to industry standard published index prices, subject to negotiated price
sales agreements, with sales prices tied to industry standard published index prices, subject to negotiated price
adjustments.
adjustments.
adjustments.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price fluctuations
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price fluctuations
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price fluctuations
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
by using a series of swaps, costless collars and/or puts. Unrealized gains or losses associated with hedges vary
by using a series of swaps, costless collars and/or puts. Unrealized gains or losses associated with hedges vary
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
period to period, and are a function of hedges in place, the strike prices of those hedges and the forward curve
period to period, and are a function of hedges in place, the strike prices of those hedges and the forward curve
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
pricing for the commodities being hedged. Currently, all of Otto’s hedges are oil swaps, and the Company has
pricing for the commodities being hedged. Currently, all of Otto’s hedges are oil swaps, and the Company has
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.
no three-way collars or short puts.
no three-way collars or short puts.
no three-way collars or short puts.
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022
via swaps, at a weighted average LLS price of US$50.19 as follows:
via swaps, at a weighted average LLS price of US$50.19 as follows:
via swaps, at a weighted average LLS price of US$50.19 as follows:
via swaps, at a weighted average LLS price of US$50.19 as follows:
As of 30 June 2021, Otto had a crude oil hedge book of 249,889 barrels of oil hedged through September 2022
via swaps, at a weighted average LLS price of US$50.19 as follows:
Months
Months
Months
Months
Months
July - December 2021
July - Decem ber 2021
July - Decem ber 2021
July - Decem ber 2021
July - Decem ber 2021
January - Septem ber 2022
January - Septem ber 2022
January - September 2022
January - Septem ber 2022
January - Septem ber 2022
Volume (Bbls)
Volume (Bbls)
Volume (Bbls)
Volume (Bbls)
Volume (Bbls)
122,650
122,650
122,650
127,239
122,650
122,650
127,239
127,239
127,239
127,239
Weighted Avg
Price (LLS)
Weighted Avg
Weighted Avg
Price (LLS)
Price (LLS)
Weighted Avg
Price (LLS)
Weighted Avg
Price (LLS)
US$50.47
US$50.47
US$50.47
US$49.92
US$50.47
US$49.92
US$49.92
US$50.47
US$49.92
US$49.92
Additionally, the Company had a natural gas hedge book 180,143 Mmbtu of natural gas hedged through
Additionally, the Company had a natural gas hedge book 180,143 Mmbtu of natural gas hedged through
Additionally, the Company had a natural gas hedge book 180,143 Mmbtu of natural gas hedged through
Additionally, the Company had a natural gas hedge book 180,143 Mmbtu of natural gas hedged through
December 2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
December 2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
December 2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
December 2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
Additionally, the Company had a natural gas hedge book 180,143 Mmbtu of natural gas hedged through
December 2021 via swaps, at a weighted average Houston Ship Channel price of US$3.11 as follows:
Months
Months
Months
Months
Months
July – December 2021
July – December 2021
July – December 2021
July – December 2021
July – December 2021
Volume (Mmbtu)
Volume (Mmbtu)
Volume (Mmbtu)
Volume (Mmbtu)
180,143
180,143
180,143
180,143
Weighted Avg Price (HSC)
Weighted Avg Price (HSC)
Weighted Avg Price (HSC)
US$3.11
US$3.11
US$3.11
Weighted Avg Price (HSC)
US$3.11
Weighted Avg Price (HSC)
US$3.11
Volume (Mmbtu)
180,143
The fair value of the derivative financial instruments held at fair value through profit and loss is based on
The fair value of the derivative financial instruments held at fair value through profit and loss is based on
The fair value of the derivative financial instruments held at fair value through profit and loss is based on
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 2021. An increase in forward prices would reduce the fair value of the derivative
forward prices as at 30 June 2021. An increase in forward prices would reduce the fair value of the derivative
forward prices as at 30 June 2021. An increase in forward prices would reduce the fair value of the derivative
forward prices as at 30 June 2021. An increase in forward prices would reduce the fair value of the derivative
financial liability held at fair value through profit and loss. An increase of 10% in trade forward prices would
financial liability held at fair value through profit and loss. An increase of 10% in trade forward prices would
financial liability held at fair value through profit and loss. An increase of 10% in trade forward prices would
financial liability held at fair value through profit and loss. An increase of 10% in trade forward prices would
result in a decrease of US$0.55 million of the fair value of the derivative financial liability held at fair value
result in a decrease of US$0.55 million of the fair value of the derivative financial liability held at fair value
result in a decrease of US$0.55 million of the fair value of the derivative financial liability held at fair value
result in a decrease of US$0.55 million of the fair value of the derivative financial liability held at fair value
through the profit or loss. A decrease of 10% in trade forward prices would result in an increase of US$0.55
through the profit or loss. A decrease of 10% in trade forward prices would result in an increase of US$0.55
through the profit or loss. A decrease of 10% in trade forward prices would result in an increase of US$0.55
through the profit or loss. A decrease of 10% in trade forward prices would result in an increase of US$0.55
million of the fair value of the derivative financial liability held at fair value through the profit or loss.
million of the fair value of the derivative financial liability held at fair value through the profit or loss.
million of the fair value of the derivative financial liability held at fair value through the profit or loss.
million of the fair value of the derivative financial liability held at fair value through the profit or loss.
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 2021. An increase in forward prices would reduce the fair value of the derivative
financial liability held at fair value through profit and loss. An increase of 10% in trade forward prices would
result in a decrease of US$0.55 million of the fair value of the derivative financial liability held at fair value
through the profit or loss. A decrease of 10% in trade forward prices would result in an increase of US$0.55
e) Credit risk
e) Credit risk
million of the fair value of the derivative financial liability held at fair value through the profit or loss.
e) Credit risk
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that
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
will result in a financial loss to the Group. Credit risk arises from the financial assets of the Group, which comprise
will result in a financial loss to the Group. Credit risk arises from the financial assets of the Group, which comprise
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.
trade and other receivables and deposits with banks and financial institutions.
trade and other receivables and deposits with banks and financial institutions.
trade and other receivables and deposits with banks and financial institutions.
e) Credit risk
e) 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.
102 | OTTO ENE RGY ANNUAL REPORT 2021
59
59
59
59
59
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
20. Financial instruments (continued)
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, GC-21 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
f)
Liquidity risk
2021
US$’000
2020
US$’000
11,100
3,884
14,984
16,551
6,634
23,185
Liquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset.
It is the policy of the Board to ensure that the Group is able to meet its financial obligations and maintain the
flexibility to pursue attractive investment opportunities through the Group maintaining sufficient working
capital and access to further funding when required through debt, equity or other means.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows with scenario
analysis. As at reporting date the Group had sufficient cash reserves to meet its current requirements and no
receivables were overdue. The contractual maturity analysis of payables at the reporting date was as follows:
Carrying
Value
US$’000
Total
US$’000
Less than
1 year
US$’000
Between
1-2 years
US$’000
Between
2-5 years
US$’000
1,675
1,958
274
413
1,675
1,958
274
413
10,129
18,306
10,129
18,306
1,675
1,958
151
139
8,179
8,179
-
-
123
151
-
-
-
123
1,950
8,179
-
1,948
Trade and other payables
2021
2020
Lease liabilities
2021
2020
Borrowings
2021
2020
g) 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 75% equity and 25% debt (2020: 59% equity and 41% debt)
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
OT TO ENERGY ANNUAL REPORT 2021 | 103
60
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
20. Financial instruments (continued)
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.
h) Equity price risk
The Group is exposed to equity price risk on its equity investments. The group holds 14,272,592 shares in
Pantheon Resources Plc (London Stock Exchange: PANR)
The following sensitivity analysis is based on the equity price risk exposures in existence at the reporting date.
The 10.0% sensitivity is based on reasonable possible changes.
Judgements of reasonably possible movements
Increase 10%
Decrease 10%
i)
Fair values
Effect on post tax losses
Increase/(decrease)
2021
US$’000
2020
US$’000
813
(813)
-
-
The following table shows the carrying amounts and fair values of financial assets and liabilities, 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
Financial assets at fair value through profit and loss(ii)
Financial assets at fair value through profit and loss(i)
Financial assets at fair value through profit and loss
Total financial assets measured at fair value
Financial liabilities measured at fair value(i)
Derivative financial liabilities at fair value through profit and loss
Derivative financial liabilities at fair value through profit and loss
Derivative financial liabilities at fair value through profit and loss
Total financial liabilities measured at fair value
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
2021
US$’000
8,129
-
-
8,129
2021
US$’000
-
5,512
-
5,512
2020
US$’000
-
4,161
-
4,161
2020
US$’000
-
-
-
-
(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 2021 as disclosed in note
15
(ii) The fair value of equity investments was determined based on a “mark to market” approach, calculated
based on the closing price of PANR shares as at 30 June 2021 as disclosed in note 12.
104 | OTTO ENE RGY ANNUAL REPORT 2021
61
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
20. Financial instruments (continued)
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.
OT TO ENERGY ANNUAL REPORT 2021 | 105
62
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
OTHER DISCLOSURES
21. 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
Functional
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
Otto Energy Alaska (Delaware) LLC
Otto Energy Resources Corporation
(Delaware)
Borealis Alaska LLC
Otto Energy (USA) Inc
Otto Energy (Louisiana) LLC
Otto Energy (Gulf One) LLC
Otto Energy (Gulf Two) LLC
Otto Operating LLC
Otto Energy (Lightning) LLC
Otto Energy (Patrick Henry) LLC
22. Interest in operations
a) Operations
Australia
Bermuda
Philippines
Denmark
Denmark
Switzerland
Australia
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USD
USD
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
Ordinary
Ordinary
Ownership
Interest (i)
2021
(%)
100
100
-
100
100
100
100
100
100
-
100
100
100
100
100
100
100
2020
(%)
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.
Country
Asset
South Marsh Island 71
USA
Onshore Alaska North Slope – Central Blocks USA
USA
Lightning
GC-21 (i)
USA
2021
Group interest
50%
-
37.5%
16.67%
2020
Group interest
50%
8 – 10.8%
37.5%
16.67%
(i) Otto earned it’s 16.67% working interest in GC-21 by paying 22.22% of the cost of drilling the “Bulleit”
appraisal well
106 | OTTO ENE RGY ANNUAL REPORT 2021
63
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
22. Interest in operations (continued)
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
2021
US$’000
2020
US$’000
103
198
-
301
6,203
2,901
9,436
18,540
23. 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 2021 financial year. The Company did not grant any
employee options during the 2021 or 2020 financial years. During the year ended 30 June 2021, nil (2020: nil)
options expired.
b) Options issued to external parties
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.
The initial 42.5 million options vested in November 2019 and an expense of US$528,000 has been capitalised
against borrowings and is amortised over the life of the facility. The fair value of the options was calculated
using a Black-Scholes model.
c) Performance rights
The Performance Rights Plan was approved by shareholders at the 2013 Annual General Meeting and again at
the 2016 Annual General Meeting. The Performance Rights Plan is designed to provide long term incentives for
senior managers and employees to deliver long term shareholder returns. Participation in the plan is at the
Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed
benefits. The amount of performance rights that will vest depends on vesting period and/or Otto Energy
Limited’s TSR, including share price growth, dividends, and capital returns. Once vested, the performance rights
are automatically converted to shares. If the vesting condition is not met on a measurement date (no rights
OT TO ENERGY ANNUAL REPORT 2021 | 107
64
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
23. Share-based payments (continued)
vest), the performance rights will not lapse and will continue to exist as unvested performance rights to be
retested at the next measurement date or expiry date, whichever is later. Performance rights are granted under
the plan for no consideration. Rights granted under the plan carry no dividend or voting rights. Any unvested
performance rights lapse on cessation of employment or office.
Set out below are summaries of rights granted and outstanding under the Performance Rights Plan:
2021
Grant
date
29 Nov
2017
29 Nov
2017
Expiry
date
29 Nov
2022
29 Nov
2022
Fair
value on
date of
issue
Fair value
on date of
issue
Balance at
start of
the year
A$
US$
Number
Rights
issued
during
the
year
Numb
er
Exercise
d/
vested
Lapsed/
expired
Balance at
end of the
year
Number
Number
Number
0.02
0.02
0.02
3,461,333
0.01
3,461,334
21 Dec 2018 15 Nov 2023
0.01
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
0.01
0.02
0.01
0.03
0.01
0.03
0.01
Total
Weighted average exercise price – A$
0.01
0.01
0.02
0.01
0.02
0.01
0.02
0.01
5,919,333
2,959,667
1,925,000
4,652,667
1,925,000
4,652,667
1,925,000
4,652,666
35,534,667
0.01
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,067,000)
1,394,333
(2,067,000)
1,394,334
-
-
(1,330,000)
5,919,333
2,959,667
595,000
(1,155,334)
3,497,333
(1,330,000)
595,000
(1,155,332)
3,497,335
(1,330,000)
595,000
(1,155,334)
3,497,332
(11,221,333)
23,944,667
0.01
108 | OTTO ENE RGY ANNUAL REPORT 2021
65
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
23. Share-based payments (continued)
Fair
value on
date of
issue
Fair value
on date of
issue
Balance at
start of
the year
A$
US$
Number
Rights
issued
during
the
year
Numb
er
Exercise
d/
vested
Lapsed/
expired
Balance at
end of the
year
Number
Number
Number
2020
Grant
date
23 Apr
2015
23 Apr
2015
29 Nov
2017
29 Nov
2017
Expiry
date
31 Dec
2019
31 Dec
2019
29 Nov
2022
29 Nov
2022
0.06
0.07
0.02
0.02
21 Dec 2018 15 Nov 2023
0.01
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
15 Nov
2023
0.01
0.02
0.01
0.03
0.01
0.03
0.01
Total
Weighted average exercise price – A$
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
Set out below is the share based payment (reversal)/expense:
Performance rights issued prior to 1 July 2017
Performance rights issues in financial year 2018
Performance rights issues in financial year 2019
Total
2021
US$’000
2020
US$’000
(126)
2
29
(95)
-
1
101
102
No performance rights were granted under the Plan in the financial year 2021. 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).
OT TO ENERGY ANNUAL REPORT 2021 | 109
66
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
23. Share-based payments (continued)
If 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. Any unvested performance rights will lapse on cessation of employment or office under
the Performance Rights Plan.
For the year ended 30 June 2021, the Group recognised share-based payments expense reversal of US$95,500
in the Consolidated Statement of Profit or Loss and Other Comprehensive Income (2020: US$102,942). This
included reversals of US$133,641 for the following forfeited unlisted performance rights.
Number
4,134,000
7,456,000
Details of Lapsed Performance Rights
Unlisted Employee and Director Performance Rights on or before 29 November 2022
Unlisted Employee and Director Performance Rights on or before 15 November 2023
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.
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.
110 | OTTO ENE RGY ANNUAL REPORT 2021
67
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
23. Share-based payments (continued)
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.
24. Related parties
Key management personnel compensation
Short-term employee benefits
Consulting fees(i)
Post-employment benefits
Other benefits
Share-based payments
Total USD
Total AUD equivalent
2021
US$’000
2020
US$’000
1,236,182
44,610
33,198
100,296
(17,708)
1,396,578
1,885,591
1,786,015
55,268
75,201
325,667
79,160
2,321,311
3,464,456
(i) 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 12 months ended 30 June 2021, Mr Jetter earned AUD$62,500 (2020: AUD$80,000) under this
consultancy agreement. With the hiring of Mr Utsler in September 2020, it is not expected that Mr Jetter
will continue to serve as a consultant. Detailed disclosures provided in the remuneration report on pages
59 to 71
25. Auditor’s remuneration
During the year the following fees were paid or payable for services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
BDO Australia
Audit and review of financial statements
Tax compliance services
Tax consulting and tax advice
Total remuneration of BDO Australia
Network firms of BDO Australia
Audit and review of financial statements
Tax compliance services
International tax consulting
Total remuneration of network firms of BDO Australia
2021
US$’000
2020
US$’000
61,481
13,433
6,970
81,884
23,441
4,963
53,290
81,694
52,266
15,017
31,114
98,397
10,139
9,500
-
19,639
OT TO ENERGY ANNUAL REPORT 2021 | 111
68
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
25. Auditor’s remuneration (continued)
Non-BDO
Audit and review of financial statements
Tax compliance services
Total remuneration of non-BDO audit firms
Total
2021
US$’000
2020
US$’000
-
-
-
163,578
1,166
-
1,166
119,202
It is the Group’s policy to employ BDO on assignments additional to their statutory audit duties where BDO’s
expertise and experience with the Group are important. These assignments are principally tax advice where BDO
is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major
consulting projects.
26. Contingent liabilities
There are no contingent liabilities at balance date.
27. Commitments
a) Exploration expenditure commitments
Exploration expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
Later than one year but not later than five years
2021
US$’000
2020
US$’000
103
198
301
6,203
2,901
9,104
Under the Joint Exploration and Development Agreement with Hilcorp dated 31 July 2018, Otto Energy (USA)
Inc was originally required to pay Hilcorp liquidated damages (LD’s) of US$1,000,000 for each prospect that was
not an earned prospect, in the event of a default of the Company’s obligations. As per ASX announcement dated
5 October 2020, Hilcorp and Otto mutually agreed to remove the Tarpon, Oil Lake and Mallard prospects from
the agreement. With Otto’s participation in the drilling of the Beluga well, Otto has no further drilling related
obligations to Hilcorp under the Joint Exploration and Development Agreement.
Under the agreement between Great Bear Petroleum Operating LLC and Borealis Alaska LLC, there was a
remaining commitment to take part in two exploration wells with a capped expenditure of US$2.6 million per
wellI. In the ASX announcement dated 20 January 2021, Otto advised it had reached an agreement to sell the
Otto subsidiary, Borealis Alaska LLC which holds a 10.8% interest in the 44,463 acre Talitha unit in Alaska to the
acreage operator Pantheon Resources subject to Alaskan DNR approval. In the ASX announcement 29 March
2021, Otto advised the sale had been finalised. Accordingly, there are no further drilling obligations in relation
to Borealis Alaska LLC.
112 | OTTO ENE RGY ANNUAL REPORT 2021
69
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
27. Commitments (continued)
b) Capital expenditure commitments
Capital expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
Later than one year but not later than five years
There are no capital expenditure commitments at reporting date.
2021
US$’000
2020
US$’000
-
-
-
9,436
-
9,436
28. Events after the reporting period
No matters or circumstances have arisen since 30 June 2021 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:
•
•
•
On 23 August 2021, the Company announced that the Debt Facility had been amended to remove all
timing and production requirements associated with the “Bulleit” well at GC 21, and extended the
minimum group quarterly production rate average (WI basis) of 1,900 BOEPD until 31 December 2021,
and then reduces it to 1,400 BOEPD from 1 January 2022 until the maturity date (4 November 2022).
On 27 August 2021, the Company announced that 30,000,000 options had been issued to Foster
Stockbroking Pty Ltd pursuant to the terms of an Equity Capital Markets Advisory Agreement. Of these,
20,000,000 options have an exercise price of A$0.02 per option and 10,000,000 options have an exercise
price of A$0.025 per option. All the options expire on 27 August 2024.
On 9 September 2021 the Company released its statement of reserves and prospective resources for SM
71, Lightning and Green Canyon 21 as at 30 June 2021. The reserves were compiled by Otto’s independent
consultant Ryder Scott Company. The summary statement of reserves and prospective resources as at 30
June 2021 and Changes to reserves and resources since 30 June 2020 is set out below. For full details
refer to ASX release dated 9 September 2021.The individual statements for each field are included in the
Production and Development section above.
Total
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource (best
estimate, unrisked)
Oil (MbbL)
3,196
4,595
452
8,243
4,935
13,178
2,584
Gross (100%)
Gas (MMcf)
17,814
9,193
15,060
42,067
29,631
71,698
27,507
Mboe
6,166
6,127
2,962
15,255
9,873
25,128
7,168
Oil (MbbL)
1,231
779
129
2,139
982
3,121
665
Net
Gas (MMcf)
5,297
2,306
4,302
11,905
8,235
20,140
7,838
Mboe
2,114
1,162
846
4,122
2,355
6,477
1,971
15,762
99,205
32,296
3,786
27,978
8,448
3,250
24,300
7,300
930
6,930
2,085
OT TO ENERGY ANNUAL REPORT 2021 | 113
70
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
28. Events after the reporting period (continued)
Changes to reserves and resources since 30 June 2020:
Otto Energy Limited Grand Total - Reserve Reconciliation (Otto Energy NRI Share)
Gas (MMCF)
Oil (Mbbl)
MBOE
Proved (1P)
Probable
Proved+Probable (2P)
Possible
Proved+Probable+
Possible (3P)
Remaining
6/30/2020
2,382
1,719
4,102
1,807
Production
2020
438
0
438
0
Additions &
Revisions
196
(737)
(541)
(1,142)
Remaining
6/30/2021
2,140
982
3,122
665
Remaining
6/30/2020
14,625
9,088
23,712
11,142
Production
2020
2,411
0
2,411
Additions &
Revisions
(308)
(853)
(1,161)
(3,304)
Remaining
6/30/2021
11,905
8,235
20,140
7,838
Remaining
6/30/2020
4,820
3,234
8,054
3,664
Production
2020
840
840
Additions &
Revisions
145
(879)
(735)
(1,692)
Remaining
6/30/2021
4,122
2,355
6,477
1,971
5,908
438
(1,683)
3,787
34,854
2,411
(4,465)
27,978
11,717
840
(2,427)
8,448
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 changing 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.
29. Parent entity disclosures
As at, and throughout the financial year ended 30 June 2021, the parent company of the Group was Otto Energy
Limited.
Summarised statement of profit or loss and other comprehensive
income
Loss for the year after tax
Total comprehensive loss for the year
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
2021
US$’000
2020
US$’000
Parent entity
(31,918)
(31,918)
(38,905)
(38,905)
2021
US$’000
2020
US$’000
5,767
34,315
40,082
183
-
183
5,727
40,728
46,455
293
11
304
39,899
46,151
114 | OTTO ENE RGY ANNUAL REPORT 2021
71
FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2021
29. Parent entity disclosures (continued)
Total equity of the parent entity comprises:
Share capital
Share based payments reserves
Foreign currency translation reserve
Accumulated losses
Total equity
2021
US$’000
2020
US$’000
133,223
10,414
-
(103,738)
39,899
133,242
10,509
118
(97,718)
46,151
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 2021 and 30 June 2020 beyond those listed in Note
29
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.
30. New accounting standards and interpretations
There are no new and amended standards adopted by Otto Energy Limited
OT TO ENERGY ANNUAL REPORT 2021 | 115
72
FINANCIAL REPORT DIRECTORS’ DECLARATION
For the year ended 30 June 2021
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 2021
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 2021 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 2021 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 2021.
On behalf of the Board
Mr M Utsler
Director
28 September 2021
116 | OTTO ENE RGY ANNUAL REPORT 2021
73
FINANCIAL REPORT 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 2021, 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 2021and 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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275,
an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and
form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
OT TO ENERGY ANNUAL REPORT 2021 | 117
FINANCIAL REPORT
Impairment testing of Cash Generating Unit
Key audit matter
How the matter was addressed in our audit
The Group’s carrying value of oil and gas
Our work included but not limited to the following procedures:
properties as disclosed in note 13 represents
a significant asset to the Group and is
comprised of several Cash Generating Units
(“CGUs”). 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 during the year
pertaining to its Bulleit well at Green Canyon
(GC-21) as a result of lower than expected
well performance and cost overruns.
Accordingly, the Group was required to
estimate the recoverable amount of the GC-
21 CGU in accordance with the Australian
Accounting Standards from which an
impairment was recognised as per note 13.
The assessment of impairment is complex and
contains a number of estimates and
judgements. The key judgements and
estimates used in the group’s impairment
assessment are disclosed in note 13 to the
financial report. 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;
•
•
•
•
Considering management’s valuation methodology applied in
measuring the fair value of the respective assets identified
within the GC-21 CGU;
Obtaining and reviewing available reserve data from
management’s 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;
Reviewing the accuracy and integrity of management’s value
in use model;
Challenging key inputs used in the value in use calculation
including but not limited to the following:
•
•
•
In conjunction with our valuation specialist, considering
the appropriateness of 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 where possible; and
•
Performing sensitivity analysis on the commodity
pricing, reserves 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 of GC-21;
and
•
Assessing the adequacy of the related disclosures in note 13
to the financial report.
118 | OTTO ENE RGY ANNUAL REPORT 2021
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 2021, 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.
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.
OT TO ENERGY ANNUAL REPORT 2021 | 119
FINANCIAL REPORT
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included on pages 59 to 71 of the directors’ report for the
year ended 30 June 2021.
In our opinion, the Remuneration Report of Otto Energy Limited, for the year ended 30 June 2021,
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, 27th September 2021
120 | OTTO ENE RGY ANNUAL REPORT 2021
FINANCIAL REPORT
ADDITIONAL ASX INFORMATION
As at 16 September 2021
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
166
210
439
1,860
1,616
4,291
Number of shares
23,156
652,312
3,680,666
82,435,222
4,708,218,417
4,795,009,773
Number of holders
4,079
2238
4,317
Number of shares
4,627,120,876
167,888,897
4,795,009,773
There were 1,919 shareholders holding less than a marketable parcel of shares.
Twenty largest shareholders
Name
CS THIRD NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD
CITICORP NOMINEES PTY LIMITED
1
2
3
4
5
6 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
7 MR JOHN PHILIP DANIELS
8
9
10 MR NEIL DAVID OLOFSSON & MRS BELINDA OLOFSSON
11 MR DOUGAL JAMES FERGUSON
12
13 MR ANASTASIOS MAZIS
14 MR MATTHEW GERARD ALLEN
15 MR THOMAS FRITZ ENSMANN
16 MR ANDREW MCKENZIE & MRS CATHERINE MCKENZIE
17 ASB NOMINEES LIMITED
18 MR DANIEL LEE
19 DANIEL LEE PTY LTD
20 MR KERRY ELDON NOBLE
TROPICAL INVESTMENTS WA PTY LTD
Ordinary shares
Number of shares
2,344,488,621
160,355,138
130,919,019
87,581,664
77,942,143
60,684,395
49,406,330
36,625,112
33,002,776
26,600,000
24,340,000
22,555,555
22,122,603
21,541,602
20,000,000
19,966,667
18,703,524
18,211,778
17,771,431
17,269,563
3,210,087,921
%
48.89%
3.34%
2.73%
1.83%
1.63%
1.27%
1.03%
0.76%
0.69%
0.55%
0.51%
0.47%
0.46%
0.45%
0.42%
0.42%
0.39%
0.38%
0.37%
0.36%
66.95%
OT TO ENERGY ANNUAL REPORT 2021 | 121
78
FINANCIAL REPORT ADDITIONAL ASX INFORMATION
As at 16 September 2021
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
2,788,667
1,785,000
19,371,000
23,944,667
Number of
holders
2
2
4
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 30 June 2021.
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
122 | OTTO ENE RGY ANNUAL REPORT 2021
79
FINANCIAL REPORT 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 TO ENERGY ANNUAL REPORT 2021 | 123
FINANCIAL REPORT OTTOENERGY.COM