ANNUAL REPORT 2022
ACHIEVING OUTSTANDING
BUSINESS DELIVERY AS
A PARTNER OF CHOICE IN
THE GULF OF MEXICO
CONTENTS
OVERVIEW
About Otto
Company Focus
2022 Highlights
Areas of Activity
Chairman’s Report
Executive Management
CORPORATE
Strategic Focus
Capital Management
Risk Management
Reserves & Prospective Resources
FINANCIAL PERFORMANCE
Financial Highlights
Financial Summary
Liquidity Summary
OPERATIONAL PERFORMANCE
Operating Summary
Asset Overview
GOVERNANCE
Board of Directors
Corporate Governance
FINANCIAL REPORT
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
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OTTO ENERGY
ANNUAL REPORT 2022 01
OVERVIEW
ABOUT OTTO
Otto Energy Limited is an Australian-listed ASX oil and gas
exploration and production company with a regional focus
on North America. As of 30 June 2022, the Company had
established non-operated interests in onshore Texas and
the offshore Gulf of Mexico (GoM) as follows:
SOUTH
MARSH
ISLAND 71
STATUS
LIGHTNING
FIELD
GREEN
CANYON 21
EAVES
FIELD
MOSQUITO
BAY WEST
OYSTER
BAYOU
SOUTH
Producing
Producing
Producing
Completing
Completing
Drilling*
LOCATION
Offshore shallow
waters of the
Gulf of Mexico
Onshore
Matagorda
County, Texas
Offshore deep
waters of the
Gulf of Mexico
Onshore Lavaca
County, Texas
Offshore
state waters,
Terrebone Parish,
Louisiana
Offshore
state waters,
Terrebonne
Parish, Louisiana
OWNERSHIP STRUCTURE
50% WI
37.5% WI
16.7% WI
10.3% WI
30.0% WI
30.0% WI
NRI
40.6%
OPERATOR
Byron
Energy
PRODUCT MIX
Oil with
associated gas
production
28.2%
13.3%
7.7%
22.4%
22.7%
Hilcorp
Talos
Energy
Forza
Operating
Castex
Energy
Castex
Energy
Gas/Condensate
Oil with
associated gas
production
Gas/Condensate
Gas/Condensate
Oil with
associated gas
production
*Announced as a discovery post year-end on 18 July 2022.
02 OTTO ENERGY
ANNUAL REPORT 2022
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 both onshore and
offshore. This is complimented 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 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.
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.
OVERVIEW
OTTO ENERGY
ANNUAL REPORT 2022 03
OVERVIEW
COMPANY FOCUS:
STRUCTURED
FOR THE FUTURE
PILLAR
02
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
01
Maximize
Base
Business
Delivery
Optimize production
delivery from the
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
03
Deliver
Inorganic
Growth
Identify and capture
growth in value
returns through any
or all 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.
04 OTTO ENERGY
ANNUAL REPORT 2022
OVERVIEW
2022
HIGHLIGHTS
Total WI revenue
Net profit before tax
US$51.1m
29%
US$19.8m
528%
Net profit after tax
EBITDA
US$15.5m
3548%
US$27.1m
564%
STRATEGIC ACHIEVEMENTS
80%
REDUCTION
of debt to
US$2.3 million
US$5.8m
GAIN
on successful sale of
11,000,000 shares of
Pantheon stock
SUCCESSFUL
gas condensate
discovery at
Mosquito Bay
West
SUCCESSFUL
gas condensate
discovery at
Eaves
OTTO ENERGY
ANNUAL REPORT 2022 05
NEW ORLEANS
OVERVIEW
AREAS OF
ACTIVITY
GULF OF
MEXICO
HOUSTON
EAVES FIELD
10.3%
Otto Working Interest
7.7%
Otto Net Revenue Interest
1 well
Status – Completing at 30 June 2022
– Commenced production in
September 2022
GULF OF MEXICO
LIGHTNING
FIELD
37.5%
Otto Working Interest
28.2%
Otto Net Revenue Interest
2 wells
Status – Producing From
2,602 boe/day
Gross Production
(100% basis, at 30 June 2022)
18.5%
Liquids Proportion of 2P Reserves
06 OTTO ENERGY
ANNUAL REPORT 2022
SOUTH MARSH
ISLAND 71
SM 71
50%
Otto Working Interest
40.6%
Otto Net Revenue Interest
3 wells
Status – Producing From
2,468 boe/day
Gross Production
(100% basis, at 30 June 2022)
90%
Liquids Proportion of 2P Reserves
MOSQUITO BAY
WEST
30%
Otto Working Interest
22.35%
Otto Net Revenue Interest
1 well
Status – Completing at 30 June 2022
– Commenced production in
August 2022
13%
Liquids Proportion of 2P Reserves
OYSTER BAYOU
SOUTH
30%
Otto Working Interest
22.65%
Otto Net Revenue Interest
1 well
Status – Drilling at 30 June 2022
– Commenced production in
September 2022
GREEN CANYON 21
GC 21
16.7%
Otto Working Interest
13.3%
Otto Net Revenue Interest
1 well
Status – Producing From
145 boe/day
Gross Production (June 2022 Quarter)
90%
Liquids Proportion of 2P Reserves
OVERVIEW
PRODUCTION
Otto Energy considers the US Gulf Coast a
core region for its production focus. As of
30 June 2022, Otto was producing oil and
gas from three projects in the Gulf Coast:
South Marsh Island 71 (SM 71), Lightning
and Green Canyon 21 (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.
EXPLORATION
During the current fiscal year, Otto drilled
four exploration wells (Schindler #2, Vick #1,
Mosquito Bay West and Oyster Bayou South).
Of these, the Vick #1, Mosquito Bay West and Oyster
Bayou South wells were all successful discoveries
and began production post year-end. The Schindler #2
encountered gas shows, but the sands were too tight to
be producible.
Additionally, Otto holds approximately 3.3 million shares
in Pantheon Resources pls (LSE: PANR), the operator of
various current projects in Alaska, including the Talitha
Unit where Otto retains a 0.5% of 8/8ths ORRI.
OTTO ENERGY
ANNUAL REPORT 2022 07
OVERVIEW
CHAIRMAN’S
REPORT
FINANCIAL DELIVERY
Total WI revenue
US$51.1m 29%
FY21: US$39.7m
Attributable to higher crude oil, natural gas and NGL
prices.
Net operating revenue
US$40.6m 35%
FY21: US$30.1m
EBITDAX
US$30.2m 348%
FY21: US$6.7m
As a result of higher revenues, higher gain on
investments, lower impairment charges, and lower
derivative costs.
EBITDA
US$27.1m 564%
FY21: US$4.1m
Net Income before tax
US$19.8m
FY21: -US$4.6m
Net Income after tax
US$15.5m
FY21: -US$0.5m
Last year, I began my chairman’s
statement by saying that the
previous 12 months had been one
of the most significant periods of
global change and transformation
ever seen. A year later these
challenges, combined with the
war in Ukraine and international
economic uncertainties, have
resulted in even greater shifts the
energy sector and the world.
Energy security and energy poverty are very real issues
across the globe, creating great volatility in the demand
for, pricing of and sourcing of energy options. Collectively,
there is a continuing need to find real solutions to reduce
the impacts we have on the world.
Set against the backdrop of the past year’s complex
challenges, Otto’s strategy, together with its excellent
operational results, has seen us deliver one of the best
financial results in our company’s history. There has been
an 80% reduction in debt through the year, to a remaining
US$2.3 million at balance date.
08 OTTO ENERGY
ANNUAL REPORT 2022
CASHFLOW
Net operating cashflow (pre-exploration)
US$21.1m
FY21: US$18.9 million
Free cashflow (operating net investing)
US$24.9m
FY21: US$3.8 million
Boosted by partial sale of Pantheon Resources
shareholding during the year.
Otto has an outstanding asset base that generates
meaningful cash flow with significant long-term value.
Recent discoveries at Eaves, Mosquito Bay West and
Oyster Bayou South, together with planned recompletion
activities at South Marsh 71 and Green Canyon 21, will
further boost cash flow outlook and are an example of our
ability to add value to the base business.
STRUCTURED FOR THE FUTURE
We have demonstrated focus and resilience by delivering
record results in 2021-2022, and are looking to the
future with determination and resolve. Building on this
momentum, we are well- positioned with a strong balance
sheet, a robust production base and significant operational
cashflow to enable growth of the company and its value to
shareholders.
The Otto team can rapidly evaluate and execute on
accretive acquisition opportunities that meet established
criteria. We continue to assess opportunities to remain
active in our drilling program, whilst maintaining financial
flexibility. We are, as always, committed to growing
shareholder value and positioning for sustained success.
We will deliver this
with a focus on:
• Maintaining financial and
operating discipline,
• Further streamlining
corporate structure to reduce
complexity and costs.
• Expanding capture of high value
potential prospects and PDP
acquisitions,
• Continuing to build scale and portfolio
diversity in our asset base and product mix,
• Maintaining transparency and rigour in the
performance management of our business.
RECOGNITIONS
I want to recognize 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 acknowledge the contribution and 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 am confident that the change accelerated over the last
year only creates more opportunity for the company and
shareholders, sure in the belief that Otto is positioned to
thrive, achieving even greater levels of success in the
years to come.
I look forward to sharing Otto’s continued progress as we
forge ahead, building a long-term sustainable business
where every customer, partner, investor, supplier and
employee can benefit in the shared value of our business
success.
MICHAEL J. UTSLER
Executive Chairman, Chief Executive Officer
and Managing Director
OTTO ENERGY
ANNUAL REPORT 2022 09
OVERVIEW
EXECUTIVE
MANAGEMENT
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.
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 was a
former non-executive director of Oil
Search Limited and Innovative Asset
Solutions Group. He was appointed
non-executive director of Santos
Limited on 3 May 2022. He holds a B.S.
in Petroleum Engineering from the
University of Oklahoma.
10 OTTO ENERGY
ANNUAL REPORT 2022
OVERVIEW
OTTO ENERGY
ANNUAL REPORT 2022 11
PHILIP TRAJANOVICH
Senior Commercial Manager
JULIE DUNMORE
Group Financial Controller
Bachelor of Commerce (Hons)
B.Comm(UWA), CA, GAICD, FGIA
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.
CORPORATE
12 OTTO ENERGY
ANNUAL REPORT 2022
CORPORATE
STRATEGIC
FOCUS
Our strategy is based on optimizing our existing assets
and building a diversified, low break-even cost portfolio
of additional quality assets. The results of successfully
delivering this strategy will optimize the value of Otto
and the returns we create for our shareholders.
SHAREHOLD RETURNS
PARTNER OF CHOICE
TOP QUARTILE TSR
LEADING KPI’S LAGGING KPI’S
PILLAR
01Maximize
Base
Business
Delivery
Optimize production
delivery from the
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
02Optimize
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
03Deliver
Inorganic
Growth
Identify and capture
growth in value returns
through any or all 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.
EFFICIENT PROCESSES AND PRACTICES
PEOPLE AND ORGANIZATION
OTTO ENERGY
ANNUAL REPORT 2022 13
CORPORATE
DRIVEN BY
TRANSFORM OEL TO BUILD SCALE
Capture future value initiatives
• Otto to leverage fiscal and operating portfolio to position
itself to create industry scale
BUILD THE COMPANY
Maximising inorganic and organic growth opportunities
• Develop/deliver on existing field growth
• Leverage technical and commercial access to 4-6 drilling options
• Pursue/capture PDP acquisitions
• Sell/merge assets or companies
REBASE THE COMPANY
Drive performance excellence and transparency in our delivery
• Strengthen balance sheet
• Establish disciplined low cost operating model
• Overhaul processes and practices to enhance transparency
2024
2023
2022
2021
2020
WHILE GOVERNED BY
OUR CORE VALUES
INTEGRITY
DISCIPLINE
EXCELLENCE
TEAMWORK
We say what
we will do and
do what we say
and our actions
re-enforce that
culture
We set ourselves
challenging
goals, we define
our boundaries
and earn our
space through
consistyent
delivery
We plan, do,
measure, learn
and consistently
strive to
continuously
improve
We challenge
with respect but
deliver as one
team
PARTNER
OF CHOICE
We will be
recognised and
valued for our
competency and
expertise in how
and what we
deliver
14 OTTO ENERGY
ANNUAL REPORT 2022
CORPORATE
CAPITAL
MANAGEMENT
The foundation of our strategy is disciplined capital management. We have a
clear hierarchy for 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.
SUSTAINING CAPITAL
We prioritize capital expenditures to ensure the safety of
operations and continuity of production. Sustaining capital
is funded from operating cash flows.
STRONG, FLEXIBLE BALANCE SHEET
We are focused on maintaining a strong, flexible balance
sheet with access to sufficient liquidity to fund the next
phase of growth. Our long-term target gearing is ~50%.
CORPORATE LEVEL FINANCE
We are focused on evaluating the marketplace to address
project financing and/or infrastructure opportunities.
We will continue to assess the viability of selling assets
or even the Company to optimize value capture.
COMMODITY PRICE HEDGING
We may utilize hedging instruments to minimize exposure
to short term price fluctuations by using a series of swaps,
costless collars and/or puts.
CURRENT ECONOMIC
ASSUMPTIONS
Given the volatility in commodity prices, we
continuously monitor the market to make sure we use
the latest economic indicators for our planning and
budgeting. The tables below show the vast changes
from 2021 to 2022.
2021
MARKET
WTI Oil (US/bbl)
Henry Hub (US/MMbtu)
Carbon Tax
LOW
50
2.7
15
MID
60
3
25
HIGH
70
3.4
35
RATES
USD
Inflation Rate
SOFR
0.76%
2%
0.25%
ACQUISITIONS/CAPITAL RETURNS
2022
We recognize capital returns are a key component of
shareholder value. Accordingly, future merger and
acquisition activities will only be considered when
adequate capital is available, the opportunities are value
accretive, and the combination is assessed against organic
growth options and capital management alternatives.
MARKET
WTI Oil (US/bbl)
Henry Hub (US/MMbtu)
Carbon Tax
LOW
81
4.5
10
MID
91
5.4
19
HIGH
101
6.4
20
RATES
USD
Inflation Rate
SOFR
0.75%
4.7%
1.5%
OTTO ENERGY
ANNUAL REPORT 2022 15
CORPORATE
CAPITAL ALLOCATION FRAMEWORK
Our capital allocation framework sets clear target investment
criteria for oil and gas investments we are targeting. Using these
criteria while maintaining balance sheet and financial discipline
allows us to build a diversified folder which is robust against
changes in pricing and demand.
OIL AND GAS
ONSHORE AND OFFSHORE
GULF OF MEXICO
INVESTMENT
FOCUS
TARGETED
CHARACTERISTICS
KEY ATTRIBUTES
• Generate high returns to continue funding growth from
existing cash flows
• Leverage existing infrastructure to lower costs
of development and reduce risks
• High cash flow generation
• Shorter payback periods
• Quick to tie-in to markets
• Multiple market access potentials
• Resilient to commodity pricing
• Upside potential
Our technical, commercial and financial operating models combined with our disciplined capital allocation
processes includes the consistent approach to assessing new investment opportunities, the potential impacts
on our balance sheet and overall portfolio, the product mix and its potential for marketing premiums and the
overall returns on those investments.
PERFORMANCE OBJECTIVES
BASE AND ORGANIC
GROWTH OPTIONS
Base business + organic options
(3-year group targets)
INORGANIC GROWTH
OPPORTUNITIES
Facilitated by underlying base business
Key targeting criteria
Base business outcome
(3 years forward)
Base outcome incl. exercise of
organic options (3 years forward)
ROACE > 20%
ROACE > 17.5%
IRR > 75% (Success case)
IRR > 75% (Success Case)
IRR > 25% (Full cycle)
IRR > 25% (Full Cycle)
FCF > US$40M
Gearing – <10%
FCF > US$40M
Gearing – <10%
Year on year metrics
ROACE > 15%
ROE > 15%
DROI (15) > 25%
NAV growth > 10% CAGR
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
16 OTTO ENERGY
ANNUAL REPORT 2022
CORPORATE
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 deliver our strategic objectives,
continued growth, and success.
We are committed to managing risk 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, 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 2022 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 and future markets.
An overview of our strategic and material risks we have
identified and seek to manage through controls and
mitigations include:
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.
• Operating risk is managed wherever possible via operator
and partner selection, joint venture partner meetings,
real time data receipt and review, technical reviews and
audits.
OTTO ENERGY
ANNUAL REPORT 2022 17
CORPORATE
FINANCE
CLIMATE CHANGE
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.
At times, Otto will employ commodity price hedging to
manage commodity price risk and allow Otto to achieve
specific business objectives.
• 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.
• We are exposed to credit risk; our counterparties
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. Credit risk evaluation is a key part
of Otto’s evaluation of financial counterparts and working
interest partner’s capability.
• 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 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 operation 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.
INNOVATION
• 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 & 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.
18 OTTO ENERGY
ANNUAL REPORT 2022
CORPORATE
SOCIAL LICENSE TO OPERATE
COMMODITY PRICE RISK MANAGEMENT
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.
Otto derives its revenue from the sale of oil and natural
gas. As a result, the Company’s revenues are determined
by prevailing oil and natural gas prices. Otto sells its
production to purchasers pursuant to sales agreements,
with sales prices tied to regional 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 swaps, and the Company has no
three-way collars or short puts.
• As of 30 June 2022, Otto had approximately 54% of
its forecasted oil production for the next three months
(July 2022 – September 2022) hedged at a weighted
average LLS price of US$57.50 per bbl as follows:
MONTH
July 2022
August 2022
September 2022
VOLUME
(Bbls)
17,219
16,440
15,221
PRICE LLS
($/BBl)
$56.77
$57.03
$58.83
• 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.
ENVIRONMENTAL SOCIAL &
GOVERNANCE (ESG)
• Environmental Social and Governance (ESG) risks are
present in Otto’s operations and business locations.
As a non-operator SEMS evaluation in partner selection,
tracking of operational environmental data combined
with COVID 19 and other safety protocols allow Otto to
monitor and manage environmental risks.
• Otto has a comprehensive governance framework
starting with the procedures for the selection and
appointment of the board of directors, board committees,
associated policies and procedures, the corporate
delegation of authority, and independent external financial
and reserves audits.
• Otto’s social related policies include its Security
Trading Policy, Continuous Disclosure and Shareholder
Communication Policy, Anti Bribery and Corruption Policy
and Active Whistleblower policy.
OTTO ENERGY
ANNUAL REPORT 2022 19
CORPORATE
RESERVES &
PROSPECTIVE
RESOURCES
On 23 August 2022 the Company released its statement of reserves and
prospective resources as at 30 June 2022. The statement of reserves
included SM 71, Lightning, GC 21, Eaves and Mosquito Bay West, 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 2022 are summarised below
(see additional disclosures provided in the following pages and appendices):
RESERVES SUMMARY 30 JUNE 2022
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%)
OIL
(MbbL)
2,327
4,741
351
7,419
4,813
12,232
2,598
14,830
GAS
(MMcf)
15,228
15,466
11,689
42,383
25,997
68,380
28,134
96,514
MBOE
4,865
7,318
2,299
14,482
7,299
21,781
7,287
29,068
OIL
(MbbL)
895
810
100
1,805
944
2,749
666
3,415
NET
GAS
(MMcf)
4,499
3,659
3,339
11,497
6,995
18,492
7,884
26,376
MBOE
1,645
1,420
657
3,722
2,110
5,832
1,980
7,812
2,928
25,925
7,249
1,115
7,970
2,442
CHANGES TO RESERVES AND RESOURCES SINCE 30 JUNE 2021
OTTO ENERGY LIMITED GRAND TOTAL - RESERVE RECONCILIATION (OTTO ENERGY NRI SHARE)
GAS (MMCF)
OIL (Mbbl)
MBOE
Remaining
6/30/2021
Production
2022
Additions &
Revisions
Remaining
6/30/2022
Remaining
6/30/2021
Production
2022
Additions &
Revisions
Remaining
6/30/2022
Remaining
6/30/2021
Production
2022
Additions &
Revisions
Remaining
6/30/2022
Proved (1P)
Probable
Proved+
Probable
(2P)
Possible
Proved+
Probable+
Possible (3P)
2,140
982
365
0
30
(38)
1,805 11,905
8,235
944
1,705
1,297 11,497
6,995
0 (1,240)
4,122
2,355
649
246
(245)
3,722
2,110
3,122
665
365
0
(8)
1
2,749 20,140
7,838
666
1,705
0
57 18,492
7,884
46
6,477
1,971
649
1
9
5,832
1,980
3,787
365
(7)
3,415 27,978
1,705
103 26,376
8,448
649
10
7,812
20 OTTO ENERGY
ANNUAL REPORT 2022
CORPORATE
CONTINGENT AND PROSPECTIVE RESOURCES AS AT 30 JUNE 2022
CONTINGENT RESOURCES
PROSPECT
SM 71 F-3ST (D5)
WORKING
INTEREST
50.00%
NET
REVENUE
INTEREST CASE
40.63%
P10
P50
P90
SM 71 F-5ST (D5)
50.00%
40.63%
P10
P50
P90
8/8THS
OIL
(MMbbls)
1.71
0.86
0.01
1.32
0.67
0.02
GAS
(BCF)
1.03
1.64
2.25
1.23
2.11
2.98
MMBOE
1.88
1.13
0.39
1.53
1.02
0.51
PROSPECT
Lightning G-6
WORKING
INTEREST
37.50%
NET
REVENUE
INTEREST CASE
28.57%
P10
P50
P90
SM 71 B65 Sand
50.00%
40.63%
P10
P50
P90
Prospective Resources Cautionary Statement
8/8THS
OIL
(MMbbls)
0.94
0.625
0.33
1.24
0.77
0.31
GAS
(BCF)
31.40
21.250
11.10
1.24
0.93
0.62
MMBOE
6.18
4.167
2.18
1.45
0.93
0.41
OTTO NET REVENUE INTEREST
MMBOE
GAS
(BCF)
0.42
0.67
0.91
OIL
(MMbbls)
0.69
0.35
0.00
0.50
0.86
1.21
0.54
0.27
0.01
GAS
(BCF)
8.97
6.071
3.17
OIL
(MMbbls)
0.27
0.179
0.10
0.50
0.38
0.25
0.50
0.31
0.12
0.76
0.46
0.16
0.62
0.41
0.21
1.76
1.190
0.62
0.59
0.38
0.17
PROSPECTIVE RESOURCES
OTTO NET REVENUE INTEREST
MMBOE
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.
OTTO ENERGY
ANNUAL REPORT 2022 21
(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 price assumptions used in the independent report
represent forward-prices (CME Nymex) as at 30 June 2022.
CORPORATE
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 USA for more than
fifty years. Ryder Scott Company does not have any
financial interest or own any shares in the Company.
The fees paid to Ryder Scott Company are not contingent
on the reserves outcome of the reserves report.
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 included in this report
have been prepared using definitions and guidelines
consistent with the 2007 Society of Petroleum Engineers
22 OTTO ENERGY
ANNUAL REPORT 2022
ASX Reserves and Resources Reporting Notes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
The reserves and prospective resources information in this document is effective as at
30 June, 2022 (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)
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.
GLOSSARY
Bbl
barrels
bcf
Bcfe
boe
Bopd
Btu
EUR
Mcfg
billion cubic feet
billion cubic feet equivalent
barrels of oil equivalent
barrels of oil per day
British Thermal Units
MMcf
MBL
MMBL
Mboe
million cubic feet
thousand barrels of oil
million barrels of oil
thousand barrels of oil equivalent
MMboe million barrels of oil equivalent
MCF
thousand cubic feet
Economic Ultimate Recovery
mmbtu million British Thermal Units
thousand cubic of gas
NRI
net revenue interest
Mcfgpd
thousand cubic feet of gas per day
OTTO ENERGY
ANNUAL REPORT 2022 23
FINANCIAL
PERFORMANCE
24 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL PERFORMANCE
FINANCIAL
HIGHLIGHTS
FINANCIAL PERFORMANCE
US$40.6m
Operating Revenue,
net of royalties
LIQUIDITY PERFORMANCE
US$26.8m
Cash Balance
at 30 June 2022
RATIO METRICS
41%
Return on Average
Capital Employed
US$30.2m
EBITDAX
US$15.5m
Net Income after tax
US$2.3m
Debt Balance
at 30 June 2022, to be paid
off by 30 September 2022
US$24.9m
Free Cash Flow
(operating net investing)
3%/4%
Gearing / Debt to Equity
28%
Return on Equity
OTTO ENERGY
ANNUAL REPORT 2022 25
FINANCIAL PERFORMANCE
FINANCIAL
SUMMARY
In FY 2022 we achieved a reported net profit after tax of US$15.5 million,
the highest since 2015. Strong sales revenue resulting from increased
market pricing in FY 2022 was a key contributor to this.
US$('000)
30 June 2022
30 June 2021
30 June 2020
30 June 2019
KEY METRICS
Operating Revenue, net of Royalties
EBITDAX
EBITDA
EBIT
Profit from discontinued operations
Net Income (Loss) after tax
KEY RATIOS
Return on Equity(%)
Return on Assets (%)
ROACE (%)
Earnings (US cps)
OTHERS
Adjusted EBITDAX (1)
Adjusted EBITDA (1)
Adjusted EBIT (1)
40,557
30,203
27,048
21,947
-
15,514
28.0%
23.2%
41.5%
0.32
30,711
27,556
22,455
30,137
6,749
4,073
(1,755)
4,188
(450)
-1.1%
-0.7%
-3.3%
-0.01
29,114
26,438
20,610
23,028
20,873
7,806
1,036
-
(1,358)
-3.0%
-2.4%
2.1%
-0.05
16,699
3,632
(3,138)
31,258
23,484
(14,365)
(19,372)
-
(18,409)
-49.5%
-45.3%
-63.6%
-0.95
23,484
(14,365)
(19,372)
NET PROFIT AFTER TAX (NPAT) US$ (‘000)
20,000
15,000
10,000
5,000
-
(5,000)
(10,000)
(15,000)
(20,000)
2019
2020
2021
2022
CREATING
VALUE
We delivered a reported
NPAT
US$15.5m
the highest since 2015.
Our strong NPAT
performance was
underpinned by increased
oil and gas prices,
consistent operational
performance and proactive
decisions.
26 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL PERFORMANCE
ROACE %
50%
30%
10%
-10%
-30%
-50%
-70%
2019
2020
2021
2022
IMPROVEMENT IN EARNINGS US$ (‘000)
50,000
40,000
30,000
20,000
10,000
-
(10,000)
(25,000)
(30,000)
2019
2020
2021
2022
EXCEPTIONAL
RETURNS
An increase in Return on
Average Capital Employed
(ROACE), demonstrating
enhanced profitability
versus the investments
made by the Company.
EBITDAX
EBITDA
EBIT
348%
564%
1300%
as a result of higher
operating revenues and
lower derivative and
impairment expenses.
Return on Equity
Return on Assets
28%
23%
as a result of higher
operating revenues and
lower derivative and
impairment expenses.
Net operating revenue
EBITDAX
EBITDA
EBIT
IMPROVEMENT IN RETURNS %
40%
20%
0%
-20%
-40%
2019
2020
2021
2022
Return on equity
Return on assets
OTTO ENERGY
ANNUAL REPORT 2022 27
FINANCIAL PERFORMANCE
LIQUIDITY
SUMMARY
We continued to prudently manage our cash flow by reducing our debt
balance by 80% to US$2.3 million, while simultaneously increasing our
cash balance by 141% to US$26.8 million, as of balance date.
US$ ('000), except ratios
BALANCE SHEET
Cash
Accounts Receivable
Marketable Securities
Total Current Assets
Accounts Payable
Total Current Liabilities
Total Debt
CASH FLOWS
Net cash from operating activities
Net cash from investing activities
KEY RATIOS
Working Capital
Debt to Equity (%)
Gearing Ratio
Current Ratio
30 June 2022
30 June 2021
30 June 2020
30 June 2019
26,764
5,191
3,558
38,900
3,375
12,992
2,300
14,989
9,939
25,908
4%
3%
3.0
11,100
3,884
8,129
23,550
1,675
14,730
11,500
16,551
2,111
-
26,942
1,958
10,470
20,700
7,383
3,311
-
11,932
4,473
4,646
-
15,232
(11,477)
(721)
(16,581)
(13,161)
(9,029)
8,820
29%
19%
1.6
16,472
46%
30%
2.6
7,286
n/a
n/a
2.6
28 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL PERFORMANCE
IMPROVEMENT IN LEVERAGE
Ratio %
50%
40%
30%
20%
10%
0%
Debt balance US$(‘000)
$25,000
$20,000
$15,000
$10,000
$5,000
-
2019
2020
2021
2022
Debt to equity ratio
Gearing ratio
US$ debt
IMPROVEMENT IN FREE CASH FLOW US$ (‘000)
45,000
35,000
25,000
15,000
5,000
(5,000)
(15,000)
(25,000)
2019
2020
2021
2022
Opex
G&A
Exploration & development
Financal costs
Free cash flow (deficit)
Balance date cash
US$26.8m
Residual equity
interest held in
Pantheon Resources plc
(LSE: PANR) at fiscal
year-end valued at:
US$3.6m
plus an additional 0.5%
ORRI in the Talitha Unit, a
significant operating area of
Pantheon.
Balance date debt
(drawn credit facility)
US$2.3m
to be paid off by
30 September 2022.
Net operating cashflow
(pre-exploration)
US$21.1m
FY21: US$18.9 million
Net operating cashflow
(post exploration)
US$15.0m
FY21: US$15.2 million
Free cashflow
(operating net investing)
US$24.9m
FY21: US$3.8 million,
boosted by partial sale
of Pantheon Resources
shareholding during the
year.
Debt repayment
US$9.2m
during the year.
OTTO ENERGY
ANNUAL REPORT 2022 29
OPERATIONAL
PERFORMANCE
30 OTTO ENERGY
ANNUAL REPORT 2022
OPERATIONAL PERFORMANCE
OPERATING
SUMMARY
During the current fiscal year, Otto drilled four
exploration wells (Schindler #2, Vick #1, Mosquito Bay
West and Oyster Bayou South). Of these, the Vick #1,
Mosquito Bay West and Oyster Bayou South wells were
all successful discoveries and began production post
year-end. The Schindler #2 encountered gas shows, but
the sands were too tight to be producible.
Subsequent to year-end, Mosquito Bay West, Oyster Bayou South and Vick #1
began production. These three wells alone are expected to increase the Company’s
production by over 30%. Additionally, recompletion operations at Green Canyon 21 and
South Marsh 71 are expected to increase production even further.
(Mboe)
PRODUCTION VOLUMES (Mboe)
PRODUCTION VOLUMES
South Marsh 71
Lightning
Green Canyon 21
US$ (‘000)
CASH FLOWS US$ (‘000)
CASH FLOWS
Net operating revenue
Capital expenditures
RESERVES (Mboe)
Proved
Probable
Possible
30 June 2022
30 June 2021
30 June 2020
439
398
8
498
590
18
527
420
-
40,557
(6,480)
30,137
(14,931)
23,028
(27,395)
3,722
2,110
1,980
4,122
2,355
1,971
4,820
3,234
3,664
OTTO ENERGY
ANNUAL REPORT 2022 31
OPERATIONAL PERFORMANCE
PRODUCTION (Mboe)
1,200
1,000
800
600
400
200
-
2020
2021
2022
SM 71
Lightning
GC 21
CAPITAL EXPENDITURES US$ (‘000)
30,000
25,000
20,000
15,000
10,000
5,000
-
2020
2021
2022
RESERVES (Mboe)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
2020
2021
2022
Proved
Probable
Possible
32 OTTO ENERGY
ANNUAL REPORT 2022
• SM 71 and Lightning
production continue to
exceed independently
calculated production
profiles.
• Advancing recommendations
for development potential at
Lightning.
• Began GC 21 recompletion
to shallower DTR 10 Sand
in August 2022, with first
production from the DTR 10
sand expected in Q3 CY 2022.
• Completed SM 71
recompletion of F2 well in
August 2022, with production
resuming in September 2022.
• During the current fiscal
year, Otto drilled four
exploration wells (Schindler
#2, Vick #1, Mosquito Bay
West and Oyster Bayou
South).
• Of these, the Vick #1,
Mosquito Bay West and
Oyster Bayou South
wells were all successful
discoveries and began
production post year-end.
• The Schindler #2
encountered gas shows, but
the sands were too tight to
be producible.
• Does not include Oyster
Bayou South which was
discovered post year-end.
• Oyster Bayou South adds
an additional 1P reserves of
0.4 MMboe, 2P reserves of
0.4 MMboe, and 3P reserves
of 0.4 MMboe.
• When Oyster Bayou
South is added to FY 2022
discoveries, the Company
has replaced 90% of its FY
2022 net production on a
proved basis, and over 100%
on a 2P basis.
OPERATIONAL PERFORMANCE
ASSET
OVERVIEW
NORTH AMERICA
GULF OF MEXICO
Otto Energy considers the Gulf of Mexico its core region for exploration, development
and production focus. As of 30 June 2022, Otto produced oil and gas from three
projects in the Gulf of Mexico: SM 71, Lightning, and GC 21. Post year-end, Otto
added three more projects: Mosquito Bay West, Oyster Bayou South and Vick #1.
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, Talos Energy (NYSE: TALO), Castex Energy and Forza Operating, resulting in nine producing
wells over six core assets.
SUMMARY OF GULF OF MEXICO ASSETS AS AT 30 JUNE 2022
ASSET
South Marsh Island 71
(SM 71)
Lightning
Green Canyon 21 (GC 21)
Eaves (Vick #1)
Mosquito Bay West
Oyster Bayou South
*Began production post year-end
NUMBER
OF WELLS
3
OTTO WI
50.0%
OTTO NRI
JOINT VENTURE
PARTNER
40.6% Byron Energy
2
1
1
1
1
37.5%
16.7%
10.3%
30.0%
30.0%
28.2% Hilcorp
13.3% Talos Energy
7.7% Forza Operating
22.4% Castex Energy
22.7% Castex Energy
STATUS
Producing
Producing
Producing
Completing *
Completing *
Drilling *
OTTO ENERGY
ANNUAL REPORT 2022 33
OPERATIONAL PERFORMANCE
PRODUCTION VOLUMES AND SALES REVENUE
30 June 22
31 Mar 22
31 Dec 21
30 Sept 21
91,995
12,353
851
105,199
$11.3
$107.66
61,134
378,266
4,886
444,286
$3.1
$6.85
-
13,295
121
13,417
$0.6
$42.28
102,184
88,693
1,787
192,664
2,117
62%
$15.0
$77.91
99,951
13,340
715
114,006
$10.5
$91.99
75,566
387,056
4,645
467,266
$2.4
$5.09
-
13,055
191
13,246
$0.5
$37.85
112,545
90,905
1,680
205,130
2,279
62%
$13.4
$65.48
107,431
14,463
816
122,710
$9.1
$73.86
85,277
432,312
4,455
522,044
$2.7
$4.94
-
14,973
249
15,222
$0.5
$35.44
121,644
101,488
1,808
224,940
2,445
61%
$12.3
$54.50
91,511
15,906
1,106
108,523
$7.3
$67.09
69,145
499,836
5,624
574,604
$2.5
$4.27
-
17,764
301
18,065
$0.6
$31.62
103,035
116,976
2,344
222,356
2,417
57%
$10.4
$46.61
WI Share (before royalties) (USD)
CRUDE OIL (barrels)
South Marsh 71
Lightning Field
Green Canyon 21
Total oil production
Total oil sales revenue ($’million)
Avg oil price ($/Bbl)
NATURAL GAS (thousand cubic feet)
South Marsh 71
Lightning Field
Green Canyon 21
Total gas production
Gas revenue ($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)
34 OTTO ENERGY
ANNUAL REPORT 2022
OPERATIONAL PERFORMANCE
We have demonstrated focus and resilience
by delivering record results in 2021-
2022, and are looking to the future with
determination and resolve.”
OTTO ENERGY
ANNUAL REPORT 2022 35
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. 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 sands on 15 October 2020.
Detailed bottomhole pressure and reservoir performance
data collected after hook-up and first production indicate
a smaller reservoir in the MP sands than originally
anticipated.
In August 2022, the Seadrill Sevan Louisiana drilling rig
was mobilized to location at GC 21 to begin a recompletion
of the well in the shallower DTR 10 sand, which is where
70% of the well reserves are expected to reside. Initial
production from the DTR 10 sand is expected to begin in
Q3 CY 2022.
The recompletion is expected to cost approximately
US$35.5 million (US$5.9 million, net to Otto), which will
be paid out of existing free cash flow.
OPERATIONAL PERFORMANCE
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.
In September 2022, the F2 well was successfully
recompleted in the J1 sand and resumed production.
Once the completion fluids are fully produced, the flowing
tubing pressure will be evaluated with respect to reservoir
support and a final flowrate will be established.
The SM 71 lease ranks number two of all currently active
oil producing leases in the Gulf of Mexico shelf, with the
SM71 F3 and F1 ranked as the number one and number
three 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
36 OTTO ENERGY
ANNUAL REPORT 2022
OPERATIONAL PERFORMANCE
EXPLORATION AND APPRAISAL
MOSQUITO BAY WEST
EAVES PROSPECT
The Mosquito Bay West prospect was spud on 22 May 2022
in state waters in Terrebonne Parish, Louisiana, and safely
drilled down to a target depth of 14,867’ MD (Measured
Depth) / 12,967’ TVD (True Vertical Depth) ahead of
schedule. The well encountered a proved net gas pay of
111 feet TVT (True Vertical Thickness) across five separate
Miocene intervals, plus another 10 feet TVT potential pay
in one other sand that is considered probable or possible.
This represents a higher net pay count than Otto was
originally expecting.
First production began in August 2022 and continues
to produce strongly at a rate of 205 bbl/d of oil and
3.3 MMscf/d of gas (750 boe/d 8/8ths) at a 3544 psi FTP
and a conservative 16.5/64th choke setting as released to
the ASX on 12 September 2022. The Condensate Gas Ratio
(CGR) of approximately 62 bbl/MMscf is significantly
higher than Otto’s pre flowback estimate of 26 bbl/MMscf.
The well continues to unload and is in the early stages
of production and is still being optimized. Otto holds a
30% WI and a 22.35% NRI in this field.
This well is expected to cost Otto US$3.3 million, funded
from existing cash reserves.
OYSTER BAYOU SOUTH
The Oyster Bayou South prospect was spud on 27 June
2022 in state waters in Terrebonne Parish, Louisiana,
and safely drilled down to a target depth of 14,137’ MD
(Measured Depth) / 13,064’ TVD (True Vertical Depth)
ahead of schedule. The well encountered proved net gas
pay of 68 feet TVT (True Vertical Thickness) Miocene pay,
consistent with Otto’s expectations.
First production began in September 2022 at a rate of
807 bbl/d of oil and 4.6 MMscf/d of gas (1,574 boe/d
8/8ths) at a 3614 psi FTP (Flowing Tubing Pressure) and
a conservative 15/64th choke setting as released to
the ASX on 12 September 2022. The well was originally
expected to flow at an initial oil rate of 150 bbl/d. The well
continues to unload and is in the early stages of production
and is still being optimized. Otto holds a 30% WI and a
22.65% NRI in this field. This well is expected to cost Otto
US$3.3 million, to be funded from existing cash reserves.
The Vick #1 well, within the Eaves Prospect in Lavaca
County, Texas, was spud on 9 December 2021 and reached
9,242’ TVD on 22 December 2021. The well was logged
and cored across multiple intervals, encountering a total
of 12 feet of net pay in the shallower Yegua formation as
expected. In the Wilcox sand targets, the well encountered
16 feet of net pay. The Wilcox was encountered across
three separate sands as expected. During completion
operations, a completion attempt was initially made in
the deeper Wilcox section, however the well was plugged
back and completed in the shallower Yegua interval
at approximately 5,450 feet TVD, with first production
commencing in September 2022 as additional rig time was
required for testing of the various Wilcox objectives.
Total costs to drill, complete and bring this well to
production were approximately US$0.2 million, net to Otto.
SCHINDLER WELL
The Schindler #2 well in Colorado County, TX was spud on
14 October 2021 and reached 13,658’ TVD on 3 December
2021. The well encountered 11 separate gas shows in the
primary Wilcox objective, however triple combo wireline
log evaluations indicated that the sands were too tight to
be producible. The well has been plugged and abandoned
with a total final cost of approximately US$0.9 million,
net to Otto.
SOUTH TIMBALIER 48 LEASE
Otto was notified as being the apparent high bid on the
South Timbalier 48 (ST 48) at OCS Lease Sale 257 held
in November 2021. Otto bid the minimum entry price of
US$125,000 and was confirmed as the high bidder on
ST 48. In January 2022, a United Sates federal judge
invalidated the results of the lease sale. In August 2022,
however, the US Inflation Reduction Act (2022) was signed
into law which reinstated Lease Sale 257. See “Significant
events after the balance date” for additional information.
PANTHEON SHAREHOLDING (LSE: PANR)
On 21 October 2021, the Company announced that it had
successfully sold 11,000,000 shares of Pantheon Resources
Plc (LSE: PANR) (Pantheon) in exchange for approximately
US$10.5 million. The Company continues to own 3,272,592
shares of PANR, valued at approximately US$3.6 million
as at 30 June 2022, as well as a 0.5% of 8/8ths overriding
royalty interest (ORRI) in any future production from the
Talitha Unit in Alaska, which is operated by Pantheon.
OTTO ENERGY
ANNUAL REPORT 2022 37
GOVERNANCE
38 OTTO ENERGY
ANNUAL REPORT 2022
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 was a
former non-executive director of Oil
Search Limited and Innovative Asset
Solutions Group. He was appointed
non-executive director of Santos
Limited on 3 May 2022. 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 will step down
as Chairman of the Audit and Risk
Committee at the end of the FY 2022
reporting period.
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.
OTTO ENERGY
ANNUAL REPORT 2022 39
GOVERNANCE
BOARD OF DIRECTORS CONTINUED
PAUL SENYCIA
Non-Executive Director
JOHN MADDEN
Non-Executive Director
BSc Hons (Mining Engineering),
ACSM, MAppSc (Geophysics)
BCom (Melb), FCPA, FGIA, FTIA,
MAICD
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.
Mr Senycia was instrumental in the
implementation of Otto’s US strategy.
A seasoned oil and gas professional,
trained as an exploration geoscientist,
Mr Senycia has over 35 years of
international oil and gas experience
in both commercial and technical
aspects of the business. This
was gained with large and small
companies worldwide including Shell,
Woodside and Beach Petroleum. Over
the last twenty years Mr Senycia
has accumulated substantial Gulf of
Mexico expertise both on the shelf
and in the deep water, including deal
capture, asset management and
project divestment activities.
Mr Senycia is a member of the
Audit and Risk Committee and the
Remuneration and Nomination
Committee.
Mr Madden has over 40 years’
experience with a proven track
record encompassing administrative,
acquisitions, business analysis,
community consultation, corporate
secretarial functions, feasibility
studies, financing (including equity
raising for listed and unlisted
entities), IPO on AIM market, planning
and strategic studies, accounting and
taxation. These experiences were
gained through positions held at both
major and junior mining companies
at corporate and operating levels.
Mr Madden is an executive director
of AKORA Resources Limited. He
did three years of post-university
study/exams for membership of CPA
Australia and another two years to
get membership of the Australian
Instituted of Chartered Secretaries
now Governance Institute of
Australia and one year
for Taxation Institute of
Australia. He is also
a Member of the
Institute of Company
Directors (MAICD).
40 OTTO ENERGY
ANNUAL REPORT 2022
GOVERNANCE
CORPORATE
GOVERNANCE
OTTO ENERGY CORPORATE GOVERNANCE
In fulfilling its obligations and responsibilities to its various
stakeholders, the Board supports a strong system of
corporate governance, to ensure that the management of
Otto is conducted in order to maximise shareholder value
in a proper and ethical manner.
Otto is committed to a high level of corporate governance,
a culture that practices highly ethical behaviours, integrity
and respect. We believe that adopting and operating in
accordance with high standards of corporate governance
is essential for long term high performance and sustained
value creation.
Otto follows the ASX Corporate Governance Council’s
Corporate Governance Principles and Recommendations.
Throughout the year, Otto complied with all the ASXCGC
Recommendations. These principles and practices are
reviewed regularly and revised as appropriate to reflect
changes in law and developments in corporate governance.
Our Corporate Governance Statement reports on Otto’s
key governance principles and practices.
The Corporate Governance Statement discusses
arrangements in relation to our Board of Directors,
committees of the Board, shareholders, risk management
and internal control, the external auditor relationship,
and inclusion and diversity.
The Chairman of the Board, Mr Michael Utsler, is
an executive director. The Chairman of the Board is
responsible for leadership and effective performance of
the Board. The Chairman’s responsibilities are set out in
more detail in the Board Charter.
Mr Utsler is also a non-executive Director of Santos
Limited and a non-executive Director of Integrated Asset
Solutions.
Our website contains copies of Board and committee
charters and copies of many of the policies and documents
mentioned in the Corporate Governance Statement.
The website is updated regularly to ensure that it reflects
Otto’s most current corporate governance information.
Our corporate governance model is illustrated below.
Shareholders
Board
Executive
Chairman
Audit & Risk Committee
Nominations & Remuneration Committee
Independent Assurance
Management Governance & Assurance
External Financial Audit
External Reserves Audit
Strategic Focus
Financial Model
Core Values
Risk Management
Production &
Cost Management
Operating Model &
Authorities
Refer to Otto’s Website for more information on Corporate
Governance Policies (ottoenergy.com/corporate-governance)
OTTO ENERGY
ANNUAL REPORT 2022 41
FINANCIAL
REPORT
42 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORT
CONTENTS
FINANCIAL REPORT
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
42
44
45
73
74
75
76
77
78
113
114
118
OTTO ENERGY
ANNUAL REPORT 2022 43
DIRECTOR’S REPORT
For the year ended 30 June 2022
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
Mr John Madden – Non-Executive Director
Company Secretary
Ms Kaitlin Smith
Key Executives
Principal registered office
in Australia
Houston Office
Share Registry
Auditors
Securities Exchange Listing
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
717 Texas Avenue
Suite 1200
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
Level 9, Mia Yellagonga Tower 2
5 Spring Street
Perth WA 6000
Tel: + 61 8 6382 4600
Fax: + 61 8 6382 4601
Australian Securities Exchange
ASX Code: OEL
Website address
www.ottoenergy.com
ABN
56 107 555 046
DIRECTOR’S REPORT
For the year ended 30 June 2022
and the auditors’ report thereon.
Directors
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 2022
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 John Madden who was appointed 1 July 2022.
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 is a former non-executive director of Oil Search Limited and Innovative Asset Solutions Group. He was appointed
non-executive director of Santos Limited on 3 May 2022.
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 Geoff Page MBA, CPA, FCMA, FGIA
Director (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
44 OTTO ENERGY
ANNUAL REPORT 2022
2
3
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
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 2022
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 John Madden who was appointed 1 July 2022.
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 is a former non-executive director of Oil Search Limited and Innovative Asset Solutions Group. He was appointed
non-executive director of Santos Limited on 3 May 2022.
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 Geoff Page MBA, CPA, FCMA, FGIA
Director (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
OTTO ENERGY
ANNUAL REPORT 2022 45
3
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
and a member of the Remuneration and Nomination Committee. Mr Page will step down as Chairman of the Audit
and Risk Committee at the end of the FY 2022 reporting period.
Mr John Madden BCom (Melb), FCPA, FGIA, FTIA, MAICD
Director (Independent Non-Executive)
Appointed Non-Executive Director 1 July 2022
Mr Madden has over 40 years’ experience with a proven track record encompassing administrative, acquisitions,
business analysis, community consultation, corporate secretarial functions, feasibility studies, financing (including
equity raising for listed and unlisted entities), IPO on AIM market, planning and strategic studies, accounting and
taxation. These experiences were gained through positions held at both major and junior mining companies at
corporate and operating levels. Mr Madden is an executive director of AKORA Resources Limited. He did three years
of post-university study/exams for membership of CPA Australia and another two years to get membership of the
Australian Instituted of Chartered Secretaries now Governance Institute of Australia and one year for Taxation
Institute of Australia. He is also a Member of the Institute of Company Directors (MAICD).
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:
Canyon 21 (GC 21).
Director
Mr J Jetter
Mr P Senycia
Mr G Page
Mr M Utsler
Mr J Madden
Principal activities
Number of
Ordinary Shares
57,881,668
8,691,134
-
5,000,000
2,000,000
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 2022.
(US$1.4 million).
Operating and Financial Review
During the year ended 30 June 2022, the Company drilled four exploration wells (Schindler #2, Vick #1, Mosquito Bay
West and Oyster Bayou South). Of these, the Vick #1, Mosquito Bay West and Oyster Bayou South wells were all
successful discoveries, while the Schindler #2 encountered gas shows, but the sands were too tight to be producible.
Subsequent to year-end, Eaves (Vick #1), Mosquito Bay West and Oyster Bayou South all began production. These
three wells alone are expected to increase the Company’s net production by greater than 30%. Additionally,
recompletion operations began at Green Canyon 21 and South Marsh 71 which are expected to increase production
even further. See “Significant events after the balance date” for additional information.
During the current fiscal year, the Company also successfully sold 11,000,000 shares of Pantheon Resources Plc (LSE:
PANR) (Pantheon) in exchange for approximately US$10.5 million.
DIRECTOR’S REPORT
For the year ended 30 June 2022
Financial Summary
Total profit after tax for the year ended 30 June 2022 was approximately US$15.5 million (2021: loss of US$0.5 million).
This improvement was primarily driven by higher revenues and higher gain on investments, as well as lower
impairment charges, finance costs, and derivative costs. Partially offsetting this increase in net profits after tax were
higher exploration expenditures, administrative costs, and income tax expense, as well as lower profits from disposal
of assets and discontinued operations.
Net revenue for the current year was approximately US$40.6 million (2021: US$30.1 million), a 35% increase from the
prior fiscal year due to a 75% increase in crude oil prices, a 26% increase in natural gas and a 114% increase in the
price received for natural gas liquids. This increase in revenue was partially offset by a 24% decrease in production
due to normal field declines, combined with the operator of the Lightning field reducing flowrates in May 2021 and
October 2021 as part of a reservoir depletion and optimization strategy. This generated an operating gross profit of
approximately US$31.1 million (2021: US$19.9 million), an increase of 56%, as gathering and production charges
remained relatively consistent to prior year.
Gain on investments for the current year was approximately US$5.8 million (2021: US$0.2 million) which was
attributable to the shares of Pantheon Resources Plc (LSE: PANR) held by the Company. Of this amount, approximately
US$4.3 million was related to the gain on the sale of 11,000,000 shares, while the remaining US$1.5 million was the
gain on the increase in value of the remaining 3,272,492 shares. See Pantheon Shareholding section below for
additional information.
Impairment charges for the current year were nil, compared to approximately US$12.85 million for the prior fiscal
year as a result of cost overruns and lower than expected performance from the MP sands on the Bulleit well at Green
Finance costs (including amortisation of borrowing costs, interest, and commitment fees) for the current year totaled
approximately US$2.1 million (2021: US$2.9 million), a 27% decrease due to a lower outstanding principal balance on
the Company’s credit facility with Macquarie Bank which was established in November 2019.
Net loss on derivative financial instruments for the current year was approximately US$6.6 million (2021: US$10.3
million). Of this amount, US$8.8 million was a realized loss (2021: US$0.6 million) as a result of higher crude oil prices.
Exploration expenditures during the current year were approximately US$3.2 million (2021: US$2.7 million), an 18%
increase as a result of its drilling activities during the year, including the Mosquito Bay West, Oyster Bayou South, Vick
#1 and Schindler #2 wells.
Administrative and other expenses for the current year were approximately US$5.2 million (2021: US$4.2 million), a
23% increase due to restructuring expenditures and other administrative costs.
Income tax expense for the current year was approximately US$4.3 million (2021: US$5,000) as a result of US
Corporate and State tax (US$2.9 million) and Danish corporate income tax (CIT) on the PANR share price appreciation
Profit on disposal of assets for the current year was nil, compared to a gain of approximately US$8.0 million for the
prior fiscal year, as a result of the Company’s sale of its subsidiary, Borealis Alaska LLC to Pantheon Resources Plc.
Profit from discontinued operations for the current year was nil, compared to a gain of approximately US$4.2 million
in the prior year due to the reversal of the Foreign Currency Translation Reserve associated with the dissolution of
Otto Energy Philippines Inc.
46 OTTO ENERGY
ANNUAL REPORT 2022
4
5
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Financial Summary
Total profit after tax for the year ended 30 June 2022 was approximately US$15.5 million (2021: loss of US$0.5 million).
This improvement was primarily driven by higher revenues and higher gain on investments, as well as lower
impairment charges, finance costs, and derivative costs. Partially offsetting this increase in net profits after tax were
higher exploration expenditures, administrative costs, and income tax expense, as well as lower profits from disposal
of assets and discontinued operations.
Net revenue for the current year was approximately US$40.6 million (2021: US$30.1 million), a 35% increase from the
prior fiscal year due to a 75% increase in crude oil prices, a 26% increase in natural gas and a 114% increase in the
price received for natural gas liquids. This increase in revenue was partially offset by a 24% decrease in production
due to normal field declines, combined with the operator of the Lightning field reducing flowrates in May 2021 and
October 2021 as part of a reservoir depletion and optimization strategy. This generated an operating gross profit of
approximately US$31.1 million (2021: US$19.9 million), an increase of 56%, as gathering and production charges
remained relatively consistent to prior year.
Gain on investments for the current year was approximately US$5.8 million (2021: US$0.2 million) which was
attributable to the shares of Pantheon Resources Plc (LSE: PANR) held by the Company. Of this amount, approximately
US$4.3 million was related to the gain on the sale of 11,000,000 shares, while the remaining US$1.5 million was the
gain on the increase in value of the remaining 3,272,492 shares. See Pantheon Shareholding section below for
additional information.
Impairment charges for the current year were nil, compared to approximately US$12.85 million for the prior fiscal
year as a result of cost overruns and lower than expected performance from the MP sands on the Bulleit well at Green
Canyon 21 (GC 21).
Finance costs (including amortisation of borrowing costs, interest, and commitment fees) for the current year totaled
approximately US$2.1 million (2021: US$2.9 million), a 27% decrease due to a lower outstanding principal balance on
the Company’s credit facility with Macquarie Bank which was established in November 2019.
Net loss on derivative financial instruments for the current year was approximately US$6.6 million (2021: US$10.3
million). Of this amount, US$8.8 million was a realized loss (2021: US$0.6 million) as a result of higher crude oil prices.
Exploration expenditures during the current year were approximately US$3.2 million (2021: US$2.7 million), an 18%
increase as a result of its drilling activities during the year, including the Mosquito Bay West, Oyster Bayou South, Vick
#1 and Schindler #2 wells.
Administrative and other expenses for the current year were approximately US$5.2 million (2021: US$4.2 million), a
23% increase due to restructuring expenditures and other administrative costs.
Income tax expense for the current year was approximately US$4.3 million (2021: US$5,000) as a result of US
Corporate and State tax (US$2.9 million) and Danish corporate income tax (CIT) on the PANR share price appreciation
(US$1.4 million).
Profit on disposal of assets for the current year was nil, compared to a gain of approximately US$8.0 million for the
prior fiscal year, as a result of the Company’s sale of its subsidiary, Borealis Alaska LLC to Pantheon Resources Plc.
Profit from discontinued operations for the current year was nil, compared to a gain of approximately US$4.2 million
in the prior year due to the reversal of the Foreign Currency Translation Reserve associated with the dissolution of
Otto Energy Philippines Inc.
OTTO ENERGY
ANNUAL REPORT 2022 47
5
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Production and Development
Reserves Statement as at 30 June 2022
On 23 August 2022 the Company released its statement of reserves and resources as at 30 June 2022 which included
Otto’s existing fields at South Marsh 71 (SM 71), Green Canyon 21 (GC 21), and Lightning in Matagorda County, TX
(Lightning), plus its new discoveries at Eaves and Mosquito Bay West. The Oyster Bayou South discovery was made
subsequent to year-end and is therefore not included in the year-end results. The prospective resources cover SM 71
and Lightning. The summary statement of reserves and prospective resources as at 30 June 2022 and changes to
reserves and resources since 30 June 2021 is set out below. Full details including the reconciliations and notes on the
statements are included in the ASX release of 23 August 2022.
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)
2,327
4,741
351
7,419
4,813
12,232
2,598
Gross (100%)
Gas (MMcf)
15,228
15,466
11,689
42,383
25,997
68,380
28,134
Mboe
4,865
7,318
2,299
14,482
7,299
21,781
7,287
Oil (MbbL)
895
810
100
1,805
944
2,749
666
Net
Gas (MMcf)
4,499
3,659
3,339
11,497
6,995
18,492
7,884
Mboe
1,645
1,420
657
3,722
2,110
5,832
1,980
14,830
96,514
29,068
2,928
25,925
7,249
3,415
1,115
26,376
7,812
7,970
2,442
Changes to reserves and resources since 30 June 2021
Otto Energy Limited Grand Total - Reserve Reconciliation (Otto Energy NRI Share)
Gas (MMCF)
Oil (Mbbl)
MBOE
Remaining
6/30/2021
Production
2022
Additions &
Revisions
Remaining
6/30/2022
Remaining
6/30/2021
Production
2022
Additions &
Revisions
Remaining
6/30/2022
Remaining
6/30/2021
Production
2022
Additions &
Revisions
Remaining
6/30/2022
Proved (1P)
Probable
2,140
982
Proved+Probable (2P)
3,122
Possible
Proved+Probable+
Possible (3P)
665
3,787
365
0
365
0
365
30
(38)
(8)
1
(7)
1,805
11,905
1,705
1,297
11,497
944
8,235
0
(1,240)
6,995
2,749
20,140
1,705
666
7,838
0
3,415
27,978
1,705
57
46
103
18,492
7,884
26,376
4,122
2,355
6,477
1,971
8,448
649
649
649
246
(245)
1
9
10
3,722
2,110
5,832
1,980
7,812
Proved reserves total approximately 3.7 MMboe and consist of six PDP wells and one PUD well at Lightning (Green #3),
compared to 4.1 MMboe as of 30 June 2021. This decrease is predominantly due to production of 649 Mboe (NRI)
through FY 2022 at the Company’s Lightning and SM 71 fields, partially offset by the addition of new reserves
attributable to Mosquito Bay West and Eaves.
Proved plus Probable reserves total approximately 5.8 MMboe as a result of an additional well at Lightning (Green #4),
plus an additional 0.9 MMboe of probable reserves from remaining assets. This compares to 6.5 MMboe as of 30 June
2021, a decrease attributable to 1P production and a downward revision at Lightning associated with the operator of
the field reducing flowrates to protect the reservoir, partially offset by the addition of new reserves attributable to
Mosquito Bay West and Eaves.
Proved plus Probable plus Possible reserves totaled approximately 7.8 MMboe as a result of an additional well at
Lightning (Green #5), plus an additional 0.6 MMboe of possible reserves from remaining assets. This compares to 8.4
MMboe as of 30 June 2021, a decrease attributable to 1P production and a downward revision at Lightning associated
with the operator of the field reducing flowrates to protect the reservoir, partially offset by the addition of new reserves
attributable to Mosquito Bay West and Eaves.
48 OTTO ENERGY
ANNUAL REPORT 2022
6
7
DIRECTOR’S REPORT
For the year ended 30 June 2022
performance at SM 71 and Lightning.
Production and Revenue Summary
Contingent and Prospective resources totaled approximately 2.4 MMboe as a result of additional resources at SM 71
and Lightning. This compares to 2.1 MMboe at 30 June 2021, an increase associated with continued superior
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 producing fields at SM71, Lightning and GC 21 for the year ended 30 June 2022.
One barrel of oil, condensate or NGL is the energy equivalent of six Mcf of natural gas.
Total Oil (Bbls)
Total Gas (Mcf)
Total NGLs (Bbls)
Total BOE
Total (Boe/d)
Percent Liquids (%)
FY 2022
FY 2021
% Change
450,439
537,496
2,008,200
2,910,974
59,949
84,042
845,088
1,106,700
2,315
60%
3,032
56%
Total WI Revenue (US$MM)
$
51.07 $
39.72
Oil WI revenue ($millions)
Avg oil price ($/Bbl)
38.2 $
26.0
84.71 $
48.35
Gas WI revenue ($millions)
Avg gas price ($/Mcf)
10.7 $
5.34 $
12.3
4.23
NGL WI revenue ($millions)
Avg NGL price ($/Bbl)
2.2 $
1.4
36.35 $
16.98
Total WI revenue ($millions)
Avg WI price ($/Boe)
51.1 $
39.7
60.43 $
35.90
$
$
$
$
$
$
$
$
-16%
-31%
-29%
-24%
-24%
8%
29%
47%
75%
-13%
26%
53%
114%
29%
68%
Otto’s hydrocarbon sales for the current year equate to 2,315 Boe/d, a 24% decrease over the prior fiscal year primarily
driven by normal field declines, combined with the operator of the Lightning field reducing flowrates in May 2021 and
again in October 2021 in order to protect the reservoir. Planned recompletions combined with upcoming new
production is expected to deliver growth in production going forward.
Notes
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
transportation, gravity, and pipeline loss allowances.
3.
Lightning crude sells against the WTI Houston crude marker. Deductions are applied for transportation and
4. On average, 1 Mscf = 1.10 MMbtu for SM 71 raw gas production. The thermal content of SM 71 gas may vary
5. On average, 1 Mscf = 1.25 MMbtu for GC 21 raw gas production. The thermal content of GC 21 gas may vary
6. On average, 1 Mscf = 1.10 MMbtu for Lightning raw gas production. The thermal content of Lightning gas may
gravity.
over time.
over time.
vary over time.
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
Contingent and Prospective resources totaled approximately 2.4 MMboe as a result of additional resources at SM 71
and Lightning. This compares to 2.1 MMboe at 30 June 2021, an increase associated with continued superior
performance at SM 71 and Lightning.
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 producing fields at SM71, Lightning and GC 21 for the year ended 30 June 2022.
One barrel of oil, condensate or NGL is the energy equivalent of six Mcf of natural gas.
FY 2022
FY 2021
% Change
Total Oil (Bbls)
Total Gas (Mcf)
Total NGLs (Bbls)
Total BOE
Total (Boe/d)
Percent Liquids (%)
Total WI Revenue (US$MM)
Oil WI revenue ($millions)
Avg oil price ($/Bbl)
Gas WI revenue ($millions)
Avg gas price ($/Mcf)
NGL WI revenue ($millions)
Avg NGL price ($/Bbl)
Total WI revenue ($millions)
Avg WI price ($/Boe)
450,439
2,008,200
59,949
845,088
2,315
60%
51.07 $
537,496
2,910,974
84,042
1,106,700
3,032
56%
39.72
38.2 $
84.71 $
26.0
48.35
10.7 $
5.34 $
12.3
4.23
2.2 $
36.35 $
1.4
16.98
51.1 $
60.43 $
39.7
35.90
$
$
$
$
$
$
$
$
$
-16%
-31%
-29%
-24%
-24%
8%
29%
47%
75%
-13%
26%
53%
114%
29%
68%
Otto’s hydrocarbon sales for the current year equate to 2,315 Boe/d, a 24% decrease over the prior fiscal year primarily
driven by normal field declines, combined with the operator of the Lightning field reducing flowrates in May 2021 and
again in October 2021 in order to protect the reservoir. Planned recompletions combined with upcoming new
production is expected to deliver growth in production going forward.
Notes
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.
OTTO ENERGY
ANNUAL REPORT 2022 49
7
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
South Marsh Island 71 (SM 71) – Offshore Gulf of Mexico (137 feet)
Lightning – Onshore Matagorda County, Texas
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 F5 well was spud and announced as a potential
discovery. Due to uncertainty 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. The field is operated by Byron Energy.
In September 2022, the F2 well was successfully recompleted in the J1 sand and resumed production. Once the
completion fluids are fully produced, the flowing tubing pressure will be evaluated with respect to reservoir support
and a final flowrate will be established.
The SM 71 lease ranks number two of all currently active oil producing leases in the US Gulf of Mexico shelf, with the
SM71 F3 and F1 ranked as the number one and number three active oil producing wells. Production and revenue for
the year ended 30 June 2022 and 2021 was as follows:
SM 71 Production Volumes
WI (50.0%)
Oil (bbls)
Gas (Mscf)
Total (Boe)
Total (Boepd)
NRI (40.6%)
Oil (bbls)
Gas (Mscf)
Total (Boe)
Total (Boepd)
SM 71 Sales Revenue
WI (50.0%)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per Mcf
Total – US$million
NRI (40.6%)
Total – US$million
FY 2022
FY 2021
% Change
390,888
291,122
439,408
445,336
315,237
497,876
1,204 1,364
317,597
236,536
357,019
361,836
256,131
404,525
978 1,108
-12%
-8%
-12%
-12%
-12%
-8%
-12%
-12%
FY 2022
FY 2021
% Change
$
$
$
$
$
$
33.1 $
21.5
84.69
$
48.34
1.8 $
1.0
6.12 $
3.24
34.9 $
22.5
28.4 $
18.3
54%
75%
75%
89%
55%
55%
Production volumes for the current year were below production volumes for the prior year due to normal field
declines. Sales revenues increased as a result of the 75% increase in crude oil prices and 89% increase in natural gas
prices received. Production was approximately 1,234 Boe/d as of 30 June 2022. The following table sets forth certain
information with respect to SM71 reserves as of 30 June 2022:
The first well in this field, Green #1, commenced production in June 2019 while the second well, Green #2, commenced
production in February 2020. Production and revenue for the year ended 30 June 2022 and 2021 was as follows:
Lightning Volumes
WI (37.5%)
Oil (bbls)
FY 2022
FY 2021
% Change
NRI (28.2%)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oil - $ per bbl
Gas - $million
Gas – $ per Mcf
NGLs - $million
NGLs – $ per bbl
56,062
83,416
1,697,469
2,548,511
59,088
82,285
398,062
590,453
1,091
1,618
42,179
62,759
1,277,118
1,917,413
44,456
61,908
299,488
444,236
821
1,217
4.8 $
4.0
84.99
$
48.53
8.8 $
5.20 $
11.2
4.38
2.1 $
1.4
36.35
$
17.02
$
$
$
$
$
$
$
$
-33%
-33%
-28%
-33%
-33%
-33%
-33%
-28%
-33%
-33%
18%
75%
-21%
19%
53%
114%
-5%
-5%
Lightning Sales Revenue
WI (37.5%)
Oil - $million
FY 2022
FY 2021
% Change
Total – US$million
15.7 $
16.6
NRI (28.2%)
Total – US$million
11.8 $
12.5
Production volumes for the current year were lower than production volumes for the prior year due to normal field
declines, combined with Hilcorp, the operator of the Lightning field, reducing flowrates in May 2021 and October 2021
in order to protect the reservoir. Sales revenues increased as a result of a 75% increase in crude oil prices received, a
19% increase in natural gas prices received and a 114% increase in the price received for natural gas liquids. Production
was approximately 976 Boe/d as of 30 June 2022.
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 significantly larger in area and
potentially thicker than the Tex Miss 1, but indicates lower permeability. Future wells (potentially Green #3) might
test the ability to stimulate the Tex Miss 2/3 zone and unlock its significant upside potential.
50 OTTO ENERGY
ANNUAL REPORT 2022
8
9
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Lightning – Onshore Matagorda County, Texas
The first well in this field, Green #1, commenced production in June 2019 while the second well, Green #2, commenced
production in February 2020. Production and revenue for the year ended 30 June 2022 and 2021 was as follows:
Lightning Volumes
WI (37.5%)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
NRI (28.2%)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Lightning Sales Revenue
WI (37.5%)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per Mcf
NGLs - $million
NGLs – $ per bbl
Total – US$million
NRI (28.2%)
Total – US$million
FY 2022
FY 2021
% Change
56,062
83,416
1,697,469
2,548,511
59,088
82,285
398,062
590,453
1,091
1,618
42,179
62,759
1,277,118
1,917,413
44,456
61,908
299,488
444,236
821
1,217
-33%
-33%
-28%
-33%
-33%
-33%
-33%
-28%
-33%
-33%
FY 2022
FY 2021
% Change
$
$
$
$
$
$
$
$
4.8 $
4.0
84.99
$
48.53
8.8 $
5.20 $
11.2
4.38
2.1 $
1.4
36.35
$
17.02
15.7 $
16.6
11.8 $
12.5
18%
75%
-21%
19%
53%
114%
-5%
-5%
Production volumes for the current year were lower than production volumes for the prior year due to normal field
declines, combined with Hilcorp, the operator of the Lightning field, reducing flowrates in May 2021 and October 2021
in order to protect the reservoir. Sales revenues increased as a result of a 75% increase in crude oil prices received, a
19% increase in natural gas prices received and a 114% increase in the price received for natural gas liquids. Production
was approximately 976 Boe/d as of 30 June 2022.
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 significantly larger in area and
potentially thicker than the Tex Miss 1, but indicates lower permeability. Future wells (potentially Green #3) might
test the ability to stimulate the Tex Miss 2/3 zone and unlock its significant upside potential.
OTTO ENERGY
ANNUAL REPORT 2022 51
9
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Green Canyon 21 (GC 21) – Offshore Gulf of Mexico
The GC 21 well, operated by Talos Energy, commenced production from the deeper MP sands in October 2020. In
August 2022, recompletion operations began in the shallower DTR-10 sand, which is where 70% of the well reserves
are expected to reside. This recompletion is budgeted to cost approximately US$35.5 million (US$5.9 million, net to
Otto), to be paid out of existing free cash flow. Initial production from the DTR 10 sand is expected to begin in
September 2022. Production and revenue from the MP sands for the years ended 30 June 2022 and 2021 were as
follows:
DIRECTOR’S REPORT
For the year ended 30 June 2022
Exploration and Appraisal
Mosquito Bay West
GC 21 Production Volumes
WI (16.67%)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
NRI (13.3%)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
GC 21 Sales Revenue
WI (16.67%)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per Mcf
NGLs - $million
NGLs – $ per bbl
Total – US$million
NRI (13.3%)
Total – US$million
FY 2022
FY 2021
% Change
3,488 8,744
19,609
47,226
862 1,756
7,618
18,372
21
50
2,791 6,996
15,687
37,781
689 1,404
6,095
14,697
17
40
-60%
-58%
-51%
-59%
-59%
-60%
-58%
-51%
-59%
-59%
FY 2022
FY 2021
% Change
$
$
$
$
$
$
$
$
0.3 $
0.4
83.1 $
47.3
0.1 $
5.9 $
0.1
2.8
0.0 $
0.0
36.5 $
15.3
0.4 $
0.6
0.3 $
0.5
-30%
76%
-12%
111%
17%
138%
-24%
-24%
Production volumes for the current year were lower than production volumes for the prior year due to normal field
declines. Sales revenues decreased as a result of the decrease in production, partially offset by the 76% increase in
crude oil prices received, the 111% increase in natural gas prices received and a 138% increase in the price received
for natural gas liquids. Production was approximately 25 Boe/d as of 30 June 2022. The following table sets forth
certain information with respect to GC 21 reserves as at 30 June 2022. The proved producing reserves are from the
MP sand, while all remaining reserves are from the DTR-10:
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)
Oil (MbbL)
-
3,902
-
3,902
3,393
7,295
1,063
8,358
-
Gross (100%)
Gas (MMcf)
1
2,341
-
2,342
2,036
4,378
638
Mboe
-
4,292
-
4,292
3,732
8,024
1,169
Oil (MbbL)
Net (13.336%)
Gas (MMcf)
-
521
-
521
453
974
142
-
313
-
313
272
585
85
Mboe
-
573
-
573
498
1,071
156
5,016
9,193
1,116
670
1,227
-
-
-
-
-
The Mosquito Bay West prospect was spud on 22 May 2022 in state waters in Terrebonne Parish, Louisiana, and safely
drilled down to a target depth of 14,867’ MD (Measured Depth) / 12,967’ TVD (True Vertical Depth) ahead of schedule.
The well encountered a proved net gas pay of 111 feet TVT (True Vertical Thickness) across five separate Miocene
intervals, plus another 10 feet TVT potential pay in one other sand that is considered probable or possible. This
represents a higher net pay count than Otto was originally expecting. The well began producing post year-end in
August 2022. See “Significant events after the balance date” for additional information. This well is expected to cost
Otto US$3.3 million, funded from existing cash reserves. The following table sets forth certain information with respect
to Mosquito Bay West reserves as of 30 June 2022:
Mosquito Bay West
Gross (100%)
Net (13.336%)
Oil (MbbL) Gas (MMcf) Mboe
Oil (MbbL) Gas (MMcf)
Mboe
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Possible
Proved Plus Probable (2P)
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource
(best estimate, unrisked)
Eaves Prospect
-
-
149
149
54
203
46
249
-
5,945
1,140
5,945
2,176
8,121
1,851
1,140
417
1,557
355
9,972
1,912
-
-
-
-
-
-
-
-
33
33
12
45
10
55
-
-
-
1,329
1,329
486
1,815
414
2,229
-
The Vick #1 well, within the Eaves Prospect in Lavaca County, Texas, was spud on 9 December 2021 and reached 9,242’
TVD on 22 December 2021. The well was logged and cored across multiple intervals, encountering a total of 12 feet of
net pay in the shallower Yegua formation as expected. In the Wilcox sand targets, the well encountered 16 feet of net
pay. The Wilcox was encountered across three separate sands as expected. During completion operations, a
completion attempt was initially made in the deeper Wilcox section, however the well was plugged back and
completed in the shallower Yegua interval at approximately 5,450 feet TVD, with first production expected in
September 2022 as additional rig time was required for testing of the various Wilcox objectives. Total costs to drill,
complete and bring this well to production were approximately US$0.2 million, net to Otto. See “Significant events
after balance date” for additional information. The following table sets forth certain information with respect to Eaves
Prospect reserves as of 30 June 2022:
Eaves
Gross (100%)
Net (13.336%)
Oil (MbbL) Gas (MMcf) Mboe
Oil (MbbL) Gas (MMcf)
Mboe
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Possible
Proved Plus Probable (2P)
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resource
(best estimate, unrisked)
-
-
-
-
-
-
-
-
-
331
331
215
546
546
-
-
-
-
55
55
36
91
91
-
-
-
-
-
-
-
-
-
-
-
-
-
25
25
16
41
41
-
-
-
-
-
-
255
255
93
348
79
427
-
4
4
3
7
7
-
-
-
-
52 OTTO ENERGY
ANNUAL REPORT 2022
10
11
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
Exploration and Appraisal
Mosquito Bay West
The Mosquito Bay West prospect was spud on 22 May 2022 in state waters in Terrebonne Parish, Louisiana, and safely
drilled down to a target depth of 14,867’ MD (Measured Depth) / 12,967’ TVD (True Vertical Depth) ahead of schedule.
The well encountered a proved net gas pay of 111 feet TVT (True Vertical Thickness) across five separate Miocene
intervals, plus another 10 feet TVT potential pay in one other sand that is considered probable or possible. This
represents a higher net pay count than Otto was originally expecting. The well began producing post year-end in
August 2022. See “Significant events after the balance date” for additional information. This well is expected to cost
Otto US$3.3 million, funded from existing cash reserves. The following table sets forth certain information with respect
to Mosquito Bay West reserves as of 30 June 2022:
Mosquito Bay West
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)
Eaves Prospect
Gross (100%)
Oil (MbbL) Gas (MMcf) Mboe
-
1,140
-
1,140
417
1,557
355
-
5,945
-
5,945
2,176
8,121
1,851
-
149
-
149
54
203
46
249
9,972
1,912
-
-
-
Net (13.336%)
Oil (MbbL) Gas (MMcf)
-
33
-
33
12
45
10
55
-
-
1,329
-
1,329
486
1,815
414
2,229
-
Mboe
-
255
-
255
93
348
79
427
-
The Vick #1 well, within the Eaves Prospect in Lavaca County, Texas, was spud on 9 December 2021 and reached 9,242’
TVD on 22 December 2021. The well was logged and cored across multiple intervals, encountering a total of 12 feet of
net pay in the shallower Yegua formation as expected. In the Wilcox sand targets, the well encountered 16 feet of net
pay. The Wilcox was encountered across three separate sands as expected. During completion operations, a
completion attempt was initially made in the deeper Wilcox section, however the well was plugged back and
completed in the shallower Yegua interval at approximately 5,450 feet TVD, with first production expected in
September 2022 as additional rig time was required for testing of the various Wilcox objectives. Total costs to drill,
complete and bring this well to production were approximately US$0.2 million, net to Otto. See “Significant events
after balance date” for additional information. The following table sets forth certain information with respect to Eaves
Prospect reserves as of 30 June 2022:
Eaves
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%)
Oil (MbbL) Gas (MMcf) Mboe
-
55
-
55
36
91
-
-
331
-
331
215
546
-
-
-
-
-
-
-
-
-
-
546
-
91
-
Net (13.336%)
Oil (MbbL) Gas (MMcf)
-
-
-
-
-
-
-
-
-
-
-
-
25
25
16
41
41
-
Mboe
-
4
4
3
7
7
-
-
-
OTTO ENERGY
ANNUAL REPORT 2022 53
11
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
Schindler Well
The Schindler #2 well in Colorado County, TX was spud on 14 October 2021 and reached 13,658’ TVD on 3 December
2021. The well encountered 11 separate gas shows in the primary Wilcox objective, however triple combo wireline log
evaluations indicated that the sands were too tight to be producible. The well has been plugged and abandoned with
a total final cost of approximately US$0.9 million, net to Otto.
South Timbalier 48 Lease
Otto was notified as being the apparent high bid on the South Timbalier 48 (ST 48) at OCS Lease Sale 257 held in
November 2021. Otto bid the minimum entry price of US$125,000 and was confirmed as the high bidder on ST 48. In
January 2022, a United Sates federal judge invalidated the results of the lease sale. In August 2022, however, the US
Inflation Reduction Act (2022) was signed into law which reinstated Lease Sale 257. See “Significant events after the
balance date” for additional information.
Oyster Bayou South
The Oyster Bayou South prospect was spud on 27 June 2022 in state waters in Terrebonne Parish, Louisiana and
announced as a successful discovery on 18 July 2022. See “Significant events after balance date” for additional
information.
Corporate and Administration
Board of Director Changes
Effective 1 July 2022, the Company appointed Mr John Madden as an independent non-executive director of the
Company.
Pantheon Shareholding (LSE: PANR)
On 21 October 2021, the Company announced that it had successfully sold 11,000,000 shares of Pantheon Resources
Plc (LSE: PANR) (Pantheon) in exchange for approximately US$10.5 million. The Company continues to own 3,272,592
shares of PANR, valued at approximately US$3.6 million as at 30 June 2022, as well as a 0.5% of 8/8ths overriding
royalty interest (ORRI) in any future production from the Talitha Unit in Alaska, which is operated by Pantheon.
Commodity Price Risk Management
Otto derives its revenue from the sale of oil and natural gas. As a result, the Company’s revenues are determined, to
a large degree, by prevailing oil and natural gas prices. Otto sells its production to purchasers pursuant to sales
agreements, with sales prices tied to industry standard published index prices, subject to negotiated price
adjustments.
Otto typically utilizes commodity price hedge instruments to minimize exposure to short term price fluctuations by
using a series of swaps, costless collars and/or puts. Unrealized gains or losses associated with hedges vary period to
period, and are a function of hedges in place, the strike prices of those hedges and the forward curve pricing for the
commodities being hedged. Currently, all of Otto’s hedges are swaps, and the Company has no three-way collars or
short puts.
For the fiscal year ended 30 June 2022, the Company recorded a loss on hedging of approximately $6.6 million, as the
hedged price was consistently below prevailing market prices. As of 30 June 2022, Otto had approximately 54% of its
forecasted oil production for the next three months (July 2022 – September 2022) hedged at a weighted average LLS
price of US$57.50 as follows:
Month
July 2022
August 2022
September 2022
Volume (Bbls)
Price LLS ($/Bbl)
17,219
16,440
15,221
$56.77
$57.03
$58.83
DIRECTOR’S REPORT
For the year ended 30 June 2022
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
Company.
Operating Risk
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
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.
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.
54 OTTO ENERGY
ANNUAL REPORT 2022
12
13
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
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.
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.
OTTO ENERGY
ANNUAL REPORT 2022 55
13
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
Where possible, Otto also seeks to reduce the likelihood or impact of such risks through commercial agreements
where possible.
Significant events after the balance date
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 2022 was approximately US$26.8 million (including US$5.0 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 with Macquarie Bank Limited (Macquarie) (the Credit Facility). The initial commitment under the Credit
Facility was US$25 million available under Tranche A1, US$10 million available under Tranche A2, and US$20 million
(subject to further credit approval from Macquarie) available under Tranche B. The Credit has an interest rate of LIBOR
plus 8.0% per annum and is secured by substantially all of the Company’s oil and gas producing assets.
As of 30 June 2022, the Company had drawn US$25 million under Tranche A1 and had repaid US$22.7 million, resulting
in a closing debt balance of US$2.3 million. Tranche A2 expired undrawn as of 30 June 2022. 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. As a result of the Company’s A$17.5 million non-renounceable entitlement offer in March 2020, the
exercise price has been adjusted down to A$0.079.
On 27 August 2021, the Company announced that it had issued 30,000,000 options 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 $0.02 per option with an expiry date of 27 August 2024 and 10,000,000 options have an exercise price of
$0.025 per option and an expiry date of 27 August 2024.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year were as follows:
•
•
Successful commercial gas condensate discovery at Vick #1 well, within the Eaves Prospect in Lavaca County, Texas
Successful commercial gas condensate discovery at Mosquito Bay West.
No matters or circumstances have arisen since 30 June 2022 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:
•
•
•
•
•
•
•
The Oyster Bayou South prospect was spud on 27 June 2022 in state waters in Terrebonne Parish, Louisiana, and
safely drilled down to a target depth of 14,137’ MD (Measured Depth) / 13,064’ TVD (True Vertical Depth) ahead
of schedule. The well encountered proved net gas pay of 68 feet TVT (True Vertical Thickness) Miocene pay,
consistent with Otto’s expectations.
First production began in September 2022 at a rate of 807 bbl/d of oil and 4.6 MMscf/d of gas (1,574 boe/d 8/8ths)
at a 3614 psi FTP (Flowing Tubing Pressure) and a conservative 15/64th choke setting as released to the ASX on
12 September 2022. Oyster Bayou South was originally expected to flow at an initial oil rate of 150 bbl/d. The well
continues to unload and is in the early stages of production and is still being optimized. Otto holds a 30% WI /
22.65% NRI in this field. This well is expected to cost Otto US$3.3 million, to be funded from existing cash reserves.
The Mosquito Bay West well commenced production in August 2022 as released to the ASX on 18 August 2022
and continues to produce strongly at a rate of 205 bbl/d of oil and 3.3 MMscf/d of gas (750 boe/d 8/8ths) at a
3544 psi FTP and a conservative 16.5/64th choke setting as released to the ASX on 12 September 2022. The
Condensate Gas Ratio (CGR) of approximately 62 bbl/MMscf is significantly higher than Otto’s pre flowback
estimate of 26 bbl/MMscf. The well continues to unload and is in the early stages of production and is still being
optimized. Otto holds a 30% WI and a 22.35% NRI in this field.
Eaves (Vick #1) well commenced production in September 2022. The Eaves well was originally expected to flow
at an initial gas rate of 1.5 MMscf/d. The well continues to unload and is in the early stages of production and is
still being optimized. Otto holds a 10.2% WI / 8.2% NRI in this field. This well cost Otto US$0.2 million and was
funded from existing cash reserves.
Recompletion operations began at GC 21 in August 2022, as released to the ASX on 18 August 2022, to recomplete
the well uphole to the DTR-10 sand, which contains 70% of the original proven reserves attributed to this well.
The Seadrill Sevan Louisiana drilling rig was mobilized to location where it initially underwent pre-acceptance rig
maintenance. The rig has cut and removed production tubing associated with the previously productive zone in
the MP Sand. Cement has been pumped and set in the well with a packer to be set beneath the DTR-10 zone. The
well will then be perforated and a frac pack run in the well prior to flow back to sales, expected in CY Q3 2022, as
released to the ASX on 12 September 2022. Otto holds a 16.67% WI / 13.33% NRI in this lease. The recompletion
is expected to cost Otto $5.9 million, to be paid out of existing free cash flow.
Recompletion operations began on the F2 well in the J1 sand at SM 71 in August 2022 with production resuming
in September 2022, as released to the ASX on 12 September 2022. The recompletion is estimated to cost Otto
$0.95 million, to be paid out of existing free cash flow.
On 16 August 2022, the US Inflation Reduction Act (2022) was signed into law by President Biden. The Act
reinstates Lease Sale 257 and provides that high bidders are to be awarded leases, which Otto anticipates to occur
in the near term.
On 23 August 2022 the Company released its statement of reserves and prospective resources for SM 71,
Lightning, Green Canyon 21, Mosquito Bay West and Eaves as at 30 June 2022. The reserves were compiled by
Otto’s independent consultant Ryder Scott Company. The summary statement of reserves and prospective
resources as at 30 June 2022 and Changes to reserves and resources since 30 June 2021 is set out in the
Production and Development section of this Director’s Report. For full details refer to ASX release dated 23
August 2022.
56 OTTO ENERGY
ANNUAL REPORT 2022
14
15
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Significant events after the balance date
No matters or circumstances have arisen since 30 June 2022 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:
•
•
•
•
•
•
•
The Oyster Bayou South prospect was spud on 27 June 2022 in state waters in Terrebonne Parish, Louisiana, and
safely drilled down to a target depth of 14,137’ MD (Measured Depth) / 13,064’ TVD (True Vertical Depth) ahead
of schedule. The well encountered proved net gas pay of 68 feet TVT (True Vertical Thickness) Miocene pay,
consistent with Otto’s expectations.
First production began in September 2022 at a rate of 807 bbl/d of oil and 4.6 MMscf/d of gas (1,574 boe/d 8/8ths)
at a 3614 psi FTP (Flowing Tubing Pressure) and a conservative 15/64th choke setting as released to the ASX on
12 September 2022. Oyster Bayou South was originally expected to flow at an initial oil rate of 150 bbl/d. The well
continues to unload and is in the early stages of production and is still being optimized. Otto holds a 30% WI /
22.65% NRI in this field. This well is expected to cost Otto US$3.3 million, to be funded from existing cash reserves.
The Mosquito Bay West well commenced production in August 2022 as released to the ASX on 18 August 2022
and continues to produce strongly at a rate of 205 bbl/d of oil and 3.3 MMscf/d of gas (750 boe/d 8/8ths) at a
3544 psi FTP and a conservative 16.5/64th choke setting as released to the ASX on 12 September 2022. The
Condensate Gas Ratio (CGR) of approximately 62 bbl/MMscf is significantly higher than Otto’s pre flowback
estimate of 26 bbl/MMscf. The well continues to unload and is in the early stages of production and is still being
optimized. Otto holds a 30% WI and a 22.35% NRI in this field.
Eaves (Vick #1) well commenced production in September 2022. The Eaves well was originally expected to flow
at an initial gas rate of 1.5 MMscf/d. The well continues to unload and is in the early stages of production and is
still being optimized. Otto holds a 10.2% WI / 8.2% NRI in this field. This well cost Otto US$0.2 million and was
funded from existing cash reserves.
Recompletion operations began at GC 21 in August 2022, as released to the ASX on 18 August 2022, to recomplete
the well uphole to the DTR-10 sand, which contains 70% of the original proven reserves attributed to this well.
The Seadrill Sevan Louisiana drilling rig was mobilized to location where it initially underwent pre-acceptance rig
maintenance. The rig has cut and removed production tubing associated with the previously productive zone in
the MP Sand. Cement has been pumped and set in the well with a packer to be set beneath the DTR-10 zone. The
well will then be perforated and a frac pack run in the well prior to flow back to sales, expected in CY Q3 2022, as
released to the ASX on 12 September 2022. Otto holds a 16.67% WI / 13.33% NRI in this lease. The recompletion
is expected to cost Otto $5.9 million, to be paid out of existing free cash flow.
Recompletion operations began on the F2 well in the J1 sand at SM 71 in August 2022 with production resuming
in September 2022, as released to the ASX on 12 September 2022. The recompletion is estimated to cost Otto
$0.95 million, to be paid out of existing free cash flow.
On 16 August 2022, the US Inflation Reduction Act (2022) was signed into law by President Biden. The Act
reinstates Lease Sale 257 and provides that high bidders are to be awarded leases, which Otto anticipates to occur
in the near term.
On 23 August 2022 the Company released its statement of reserves and prospective resources for SM 71,
Lightning, Green Canyon 21, Mosquito Bay West and Eaves as at 30 June 2022. The reserves were compiled by
Otto’s independent consultant Ryder Scott Company. The summary statement of reserves and prospective
resources as at 30 June 2022 and Changes to reserves and resources since 30 June 2021 is set out in the
Production and Development section of this Director’s Report. For full details refer to ASX release dated 23
August 2022.
OTTO ENERGY
ANNUAL REPORT 2022 57
15
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Likely developments and expected results
DIRECTOR’S REPORT
For the year ended 30 June 2022
Rounding of amounts
Likely developments in the operations of the Group that were not finalised at the date of this report included:
•
Recompletion of GC 21 in the shallower DTR-10 Sand.
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)
Remuneration and
nomination committee
(RNC)
Number
eligible to
attend
10
10
10
10
Number
attended
10
10
9
10
Number
eligible to
attend
2
-
2
2
Number
attended
2
-
2
2
Number
eligible to
attend
1
-
1
1
Number
attended
1
-
1
1
Director
Mr J Jetter
Mr M Utsler
Mr P Senycia
Mr G Page
Indemnification and insurance of Directors and officers
During the financial year, the Company paid a premium of approximately US$149,000 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.
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, and in accordance with that instrument, amounts in the consolidated financial statements and Directors’
Report have been rounded off to the nearest thousand dollars, unless otherwise indicated.
Non-audit services
The following non-audit services were provided by the entity's auditor, BDO Australia. The Directors are satisfied that
the provision of non-audit services is compatible with the general standard of independence for auditors imposed by
the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor
independence was not compromised.
BDO Australia received or are due to receive the following amounts for the provision of non-audit services:
Tax compliance services
Tax consulting and tax advice
2022
US$
9,217
9,581
18,798
2021
US$
13,433
6,970
20,403
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 2022. This structure includes the share rights and option plans
approved by the shareholders at the Company’s Annual General Meeting on 19 November 2019. The report has been
prepared in accordance with Section 300A of the Corporations Act 2001 and its regulations.
Otto Energy’s remuneration policy is designed to ensure that the level and form of compensation achieves certain
objectives, including:
a)
attraction and retention of employees and management to pursue the Group’s strategy and goals;
b) delivery of value-adding outcomes for the Group;
c)
d)
fair and reasonable reward for past individual and Group performance; and
incentive to deliver future individual and Group performance.
Remuneration consists of base salary, superannuation, short term incentives (STI) and long term incentives (LTI).
Remuneration is determined by reference to market conditions and performance. Performance is evaluated at an
individual level as well as the performance of the Group as a whole.
Key management personnel disclosed in this report are:
Directors
Mr John Jetter
Mr Paul Senycia
Mr Geoff Page
Non-Executive Director
Non-Executive Director
Non-Executive Director
Mr Michael Utsler
Executive Chairman, Chief Executive Officer and Managing Director
58 OTTO ENERGY
ANNUAL REPORT 2022
16
17
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
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:
2021
US$
2022
US$
Tax compliance services
Tax consulting and tax advice
9,217
9,581
18,798
13,433
6,970
20,403
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 2022. This structure includes the share rights and option plans
approved by the shareholders at the Company’s Annual General Meeting on 19 November 2019. The report has been
prepared in accordance with Section 300A of the Corporations Act 2001 and its regulations.
Otto Energy’s remuneration policy is designed to ensure that the level and form of compensation achieves certain
objectives, including:
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.
Key management personnel disclosed in this report are:
Directors
Mr John Jetter
Mr Paul Senycia
Mr Geoff Page
Mr Michael Utsler
Non-Executive Director
Non-Executive Director
Non-Executive Director
Executive Chairman, Chief Executive Officer and Managing Director
OTTO ENERGY
ANNUAL REPORT 2022 59
17
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
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
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. 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.
DIRECTOR’S REPORT
For the year ended 30 June 2022
Directors’ fees
The following fees have applied:
Base fees
Chair(i)
Non-executive Directors
Additional fees
Audit and Risk Management Committee Chair
Remuneration Committee Chair
position held from 19 November 2020.
From 1 May
From 1 April
2021 to 30
June 2022
2020 to 30
April 2021
-
A$75,000
A$75,000
A$45,000
A$10,000
A$5,000
A$5,000
-
(i)
Mr M Utsler was appointed as Executive Chairman on 19 November 2020, no Non-Executive Chair
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 2022 is
summarised below.
The remuneration structure in place for the year ended 30 June 2022 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.
Element
Purpose
Performance Metrics
Potential Value
Fixed annual
remuneration (FAR)
Provide competitive
market salary including
superannuation and non-
monetary benefits
Nil
STI
LTI
Reward for performance
replacement
HSSE, EBITDA,
production reserve
TSR Improvements,
individual performance
Alignment to long term
TSR Performance, vesting
shareholder value
over 3 year period
Reviewed in line with
market positioning
CFO – 35% of FAR
Other Execs – 30% of
FAR
FAR
CFO – 30% of FAR
Other Execs – 30% of
60 OTTO ENERGY
ANNUAL REPORT 2022
18
19
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Directors’ fees
The following fees have applied:
Base fees
Chair(i)
Non-executive Directors
From 1 May
2021 to 30
June 2022
From 1 April
2020 to 30
April 2021
-
A$75,000
A$75,000
A$45,000
Additional fees
Audit and Risk Management Committee Chair
Remuneration Committee Chair
(i)
A$5,000
-
Mr M Utsler was appointed as Executive Chairman on 19 November 2020, no Non-Executive Chair
position held from 19 November 2020.
A$10,000
A$5,000
Appointment
The term of appointment is determined in accordance with the Company’s Constitution and is subject to the provisions
of the Constitution dealing with retirement, re-election and removal of Directors of the Company. The Constitution
provides that all Directors of the Company, other than the Managing Director, are subject to re-election by
shareholders by rotation at least every three years during the term of their appointment.
Directors and executive remuneration policy and framework
The remuneration arrangement for Directors and executives of the Group for the year ended 30 June 2022 is
summarised below.
The remuneration structure in place for the year ended 30 June 2022 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.
Element
Purpose
Performance Metrics
Potential Value
Fixed annual
remuneration (FAR)
Provide competitive
market salary including
superannuation and non-
monetary benefits
Nil
STI
LTI
Reward for performance
HSSE, EBITDA,
production reserve
replacement
TSR Improvements,
individual performance
Alignment to long term
shareholder value
TSR Performance, vesting
over 3 year period
Reviewed in line with
market positioning
CFO – 35% of FAR
Other Execs – 30% of
FAR
CFO – 30% of FAR
Other Execs – 30% of
FAR
OTTO ENERGY
ANNUAL REPORT 2022 61
19
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Executive remuneration mix
DIRECTOR’S REPORT
For the year ended 30 June 2022
c)
Long-term incentives
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”.
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
a)
Fixed annual remuneration (FAR) or base salary (including superannuation);
General Meeting.
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 2022 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.
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. A corporate scorecard and the
weighting of individual and corporate performance to determine executive STI was implemented for the 2021 calendar
year. Executive STI is based on individual performance against KPI’s and the company’s performance against the
corporate scorecard. Individual performance is weighted at 50% and corporate performance at 50% to determine the
STI outcome.
Feature
Max opportunity
Description
CFO 35% of FAR, Other Executives 30% of FAR
(50% company performance x 50% individual contribution)
Metric
Weighting
Reason for selection
Company performance (50%)
HSSE
Financial metrics:
production (MMBOE),
capex and opex spend,
EBITDA
Resource / reserve
replacement
Share price / TSR
improvements
10%
60%
15%
15%
Individual performance (50%)
Specific to individuals
100%
Reflects company non-
financial values
Reflects improvements
in both revenue, cost
control and production
metrics.
Focus of the group’s
growth strategy
Alignment with
shareholder returns
Target metrics have
been chosen that are
critical to individual roles
Delivery of STI
STI award is paid in cash in the quarter following the end of the calendar year.
prevailing context.
Board discretion
STI awards are issued at the discretion of the Board.
62 OTTO ENERGY
ANNUAL REPORT 2022
20
21
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 2022.
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, 15 November 2020 and 15 November
2021 measurement dates, the TSR hurdle was not met and the performance rights will continue to exist and be tested
at expiry date. The number of remaining performance rights issued in December 2018 held by executives and directors
as of 30 June 2022 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
expiry date. The number of remaining performance rights issued in November 2017 held by executives and directors
as of 30 June 2022 is 2,788,667.
The total number of remaining performance rights on issue held by executives and directors as of 30 June 2022 is
11,925,667.
year; and
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
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
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
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 2022.
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, 15 November 2020 and 15 November
2021 measurement dates, the TSR hurdle was not met and the performance rights will continue to exist and be tested
at expiry date. The number of remaining performance rights issued in December 2018 held by executives and directors
as of 30 June 2022 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
expiry date. The number of remaining performance rights issued in November 2017 held by executives and directors
as of 30 June 2022 is 2,788,667.
The total number of remaining performance rights on issue held by executives and directors as of 30 June 2022 is
11,925,667.
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.
OTTO ENERGY
ANNUAL REPORT 2022 63
21
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
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 2021 Annual General Meeting
At its 2021 Annual General Meeting, the Company received approximately 96% of “yes” votes on its remuneration
report for the 2021 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 2021 Annual General Meeting were
carried on a poll.
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 2018
30 June 2019
30 June 2020
30 June 2021
30 June 2022
(5,194)
(18,409)
(1,358)
0.064
(0.37)
-
-
0.054
(0.95)
-
-
0.007
(0.05)
-
-
(450)
0.008
(0.01)
-
-
15,514
0.013
0.32
-
-
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 ENERGY
ANNUAL REPORT 2022
22
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FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
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OTTO ENERGY
ANNUAL REPORT 2022 65
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
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ANNUAL REPORT 2022
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DIRECTOR’S REPORT
For the year ended 30 June 2022
4
2
The relative proportions of remuneration that are linked to performance and those that are not, are as follows:
Fixed and other
At risk – STI
At risk – LTI (i)
2022
2021
2022
2021
2022
2021
Directors
Mr J Jetter
Mr P Senycia
Mr M Utsler
Mr G Page
Mr K Small(ii)
Executives
Mr S Castro
Mr W Armstrong
Mr P Trajanovich
98%
99%
73%
100%
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72%
67%
96%
91%
100%
100%
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92%
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90%
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33%
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2%
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3%
(i)
Since long-term incentives are provided exclusively by way of performance rights or options, the percentages disclosed
also reflect the value of remuneration consisting of performance rights and options, based on the value of performance
(ii)
Mr K Small resigned as Director in April 2021. 2021 remuneration disclosure includes remuneration from 1 July 2020 to
rights or options expensed during the year.
30 April 2021
Performance against key measures for LTI:
Metric
LTI
Performance
rights issued
2018
Performance
rights issued
2017
Target
Performance
Impact on Incentive Reward
No vesting for the fiscal year ended 2022
15% 3 year TSR
TSR hurdle rate
Performance rights rolled
10% 3 year TSR
TSR hurdle rate
Performance rights rolled
not met
not met
over to next measurement
date in November 2023
over to next measurement
date in November 2022
Service agreements
to the office of Director.
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
Remuneration and other terms of employment for the Managing Director/ 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.
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25
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
The relative proportions of remuneration that are linked to performance and those that are not, are as follows:
Fixed and other
2021
2022
At risk – STI
At risk – LTI (i)
2022
2021
2022
2021
Directors
Mr J Jetter
Mr P Senycia
Mr M Utsler
Mr G Page
Mr K Small(ii)
Executives
Mr S Castro
Mr W Armstrong
Mr P Trajanovich
98%
99%
73%
100%
-
68%
72%
67%
96%
91%
100%
100%
89%
92%
90%
90%
-
-
27%
-
-
32%
28%
33%
-
-
-
-
9%
8%
7%
10%
2%
1%
-
-
-
-
-
-
4%
9%
-
-
2%
-
3%
-
(i)
(ii)
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 K Small resigned as Director in April 2021. 2021 remuneration disclosure includes remuneration from 1 July 2020 to
30 April 2021
Performance against key measures for LTI:
Target
Performance
Impact on Incentive Reward
15% 3 year TSR
10% 3 year TSR
No vesting for the fiscal year ended 2022
TSR hurdle rate
not met
TSR hurdle rate
not met
Performance rights rolled
over to next measurement
date in November 2023
Performance rights rolled
over to next measurement
date in November 2022
Metric
LTI
Performance
rights issued
2018
Performance
rights issued
2017
Service agreements
On appointment to the Board, all non-executive Directors enter into a service agreement with the Company in the
form of a letter of appointment. The letter summarises the Board policies and terms, including remuneration, relevant
to the office of Director.
Remuneration and other terms of employment for the Managing Director/ 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.
OTTO ENERGY
ANNUAL REPORT 2022 67
25
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 7
2
DIRECTOR’S REPORT
For the year ended 30 June 2022
Name
Mr Michael Utsler
Managing Director and
Chief Executive Officer(i)
Mr Sergio Castro(ii)
Chief Financial Officer
Mr W Armstrong(ii)
VP, Exploration and New
Ventures
Mr P Trajanovich(ii)
Senior Commercial
Manager
Commencement of
contract
11 September 2020
Base salary including
superannuation/other
retirement benefits(ii)
$US per annum
$300,000
Termination benefit(iii)
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)
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.
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 2022 financial year. The
inputs into the fair value calculation of the rights granted and outstanding as at 30 June 2022 are set out in the
following table
68 OTTO ENERGY
ANNUAL REPORT 2022
26
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FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
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(
OTTO ENERGY
ANNUAL REPORT 2022 69
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022
DIRECTOR’S REPORT
For the year ended 30 June 2022
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 2022 is set out below.
Key Management
Personnel
Balance at start
of year
Granted as
compensation
Vested and
exercised
Lapsed/
expired
Number
%
Balance at end
of year
Directors
Mr J Jetter
Mr P Senycia
Mr M Utsler
Mr G Page
1,804,667
2,769,000
-
-
4,573,667
Executives
Balance at start
of year
Granted as
compensation
Mr S Castro
Mr P Trajanovich
Mr W Armstrong
Total
-
-
7,352,000
7,352,000
11,925,667
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vested and
exercised
Lapsed/
expired
Number
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,804,667
2,769,000
-
-
4,573,667
Balance at end
of year
-
-
7,352,000
7,352,000
11,925,667
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 ENERGY
ANNUAL REPORT 2022
28
29
DIRECTOR’S REPORT
For the year ended 30 June 2022
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
Balance at start of
Personnel
year
Purchased
during the
year
Received through
conversion of
performance rights
during the year
Sold
during
the year
Balance at end
of year
Directors
Mr J Jetter
Mr M Utsler
Mr P Senycia
Mr G Page
Executives
Mr W Armstrong
Mr S Castro
Mr P Trajanovich
57,881,668
5,000,000
8,691,134
71,572,802
750,000
758,000
1,508,000
73,080,802
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,881,668
5,000,000
8,691,134
71,572,802
750,000
758,000
1,508,000
73,080,802
-
-
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 (2021: nil).
End of Remuneration Report
Diversity
Proportion of women employees at 30 June 2022:
Whole organisation*
Senior executive
positions
Board
Number
Proportion
3/10
0/4
0/3
30%
0%
0%
*Includes three non-executive Directors
Performance rights on issue at 30 June 2022
Date granted
29 November 2017
15 November 2018
21 December 2018
Date of expiry
29 November 2022
15 November 2023
Number
2,788,667
1,785,000
15 November 2023
19,371,000
23,944,667
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Shareholding
The number of shares in the Company held during the financial year by key management personnel of the Group,
including their personally related parties, is set out below:
Key Management
Personnel
Balance at start of
year
Purchased
during the
year
Received through
conversion of
performance rights
during the year
Sold
during
the year
Balance at end
of year
Directors
Mr J Jetter
Mr M Utsler
Mr P Senycia
Mr G Page
Executives
Mr W Armstrong
Mr S Castro
Mr P Trajanovich
57,881,668
5,000,000
8,691,134
-
71,572,802
750,000
-
758,000
1,508,000
73,080,802
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,881,668
5,000,000
8,691,134
-
71,572,802
750,000
-
758,000
1,508,000
73,080,802
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 (2021: nil).
End of Remuneration Report
Diversity
Proportion of women employees at 30 June 2022:
Whole organisation*
Senior executive
positions
Board
Number
3/10
0/4
Proportion
30%
0%
0/3
0%
*Includes three non-executive Directors
Performance rights on issue at 30 June 2022
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
29
OTTO ENERGY
ANNUAL REPORT 2022 71
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 DIRECTOR’S REPORT
For the year ended 30 June 2022
Options on issue at 30 June 2022
Beneficiary
Date granted
Date of expiry
Exercise
Price
Adjusted
Exercise
Price
Number
Macquarie Bank
Limited
Fosters Stockbroking
Fosters Stockbroking
4 November 2019
4 November 2023
$A0.080
$A0.079
42,500,000
27 August 2021
27 August 2021
27 August 2024
27 August 2024
$A0.020
$A0.025
-
-
20,000,000
10,000,000
72,500,000
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 2022.
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 2022
72 OTTO ENERGY
ANNUAL REPORT 2022
30
FINANCIAL REPORTDIRECTOR’S REPORTFor the year ended 30 June 2022 Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
Level 9, Mia Yellagonga Tower 2
5 Spring Street
Perth WA 6000
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 2022, 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 2022
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
ANNUAL REPORT 2022 73
OTTO ENERGY
CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2022
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2022
FINANCIAL REPORT
Note
2022
US$’000
2021
US$’000
Operating Revenue (Net)
Cost of sales
Gross profit
Other income
Profit on disposal of subsidiary
Gain on investments at fair value (net of transaction costs)
Exploration expenditure
Impairment
Finance costs
Losses on derivative financial instruments
Administration and other expenses
Profit/(loss) before income tax
Income tax expense
Profit/(loss) from continuing operations
Profit from discontinued operations
Profit/(loss) for the year after tax
Other comprehensive income that may be recycled to
profit or loss
Total other comprehensive income
Total comprehensive profit /(loss) for the year
Earnings per share from continuing operations
Basic and diluted profit/(loss) per share (US cents)
Earnings per share attributable to the ordinary equity
holders of the company
Basic and diluted profit/(loss) per share (US cents)
2
3
2
4
5
13
6
15
6
8
7
7
40,557
(9,504)
31,053
8
-
5,847
(3,155)
-
(2,107)
(6,642)
(5,164)
19,840
(4,326)
15,514
-
15,514
30,137
(10,198)
19,939
203
7,971
158
(2,676)
(12,850)
(2,878)
(10,313)
(4,187)
(4,633)
(5)
(4,638)
4,188
(450)
-
15,514
-
(450)
0.32
(0.10)
0.32
(0.01)
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
74 OTTO ENERGY
ANNUAL REPORT 2022
32
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2022
Operating Revenue (Net)
Cost of sales
Gross profit
Other income
Profit on disposal of subsidiary
Gain on investments at fair value (net of transaction costs)
Exploration expenditure
Impairment
Finance costs
Losses on derivative financial instruments
Administration and other expenses
Profit/(loss) before income tax
Income tax expense
Profit/(loss) from continuing operations
Profit from discontinued operations
Profit/(loss) for the year after tax
Note
2022
US$’000
2021
US$’000
40,557
(9,504)
31,053
8
-
-
5,847
(3,155)
(2,107)
(6,642)
(5,164)
19,840
(4,326)
15,514
15,514
-
-
30,137
(10,198)
19,939
203
7,971
158
(2,676)
(12,850)
(2,878)
(10,313)
(4,187)
(4,633)
(5)
(4,638)
4,188
(450)
-
(450)
2
3
2
4
5
13
6
15
6
8
7
7
Other comprehensive income that may be recycled to
profit or loss
Total other comprehensive income
Total comprehensive profit /(loss) for the year
15,514
Earnings per share from continuing operations
Basic and diluted profit/(loss) per share (US cents)
Earnings per share attributable to the ordinary equity
holders of the company
0.32
(0.10)
Basic and diluted profit/(loss) per share (US cents)
0.32
(0.01)
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
For the year ended 30 June 2022
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2022
Note
2022
US$’000
2021
US$’000
Current assets
Restricted cash
Cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Prepayments
Other assets
Total current assets
Non-current assets
Oil and gas properties
Right-of-use assets
Property, plant and equipment
Other financial assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings (net of transaction costs)
Derivative financial instruments
Lease liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings (net of transaction costs)
Derivative financial instruments
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
9
9
11
12
12
12
13
12
14
16
15
17
16
15
17
18
19
5,000
21,764
5,191
3,558
3,289
98
38,900
32,774
-
147
375
33,296
72,196
3,375
1,949
3,310
-
4,358
12,992
-
-
-
3,752
3,752
16,744
55,452
5,380
5,720
3,884
8,129
348
89
23,550
36,963
242
201
375
37,781
61,331
1,675
8,179
4,703
151
22
14,730
1,950
809
123
3,820
6,702
21,432
39,899
133,170
10,506
(88,224)
55,452
133,223
10,414
(103,738)
39,899
The above consolidated statement of financial position should be read in conjunction with the accompanying
notes.
32
33
OTTO ENERGY
ANNUAL REPORT 2022 75
FINANCIAL REPORT CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2022
For the year ended 30 June 2022
Contributed
equity
Share-based
payments
reserve
US$’000
US$’000
Foreign
currency
translation
reserve
US$’000
Accumulated
losses
Total
US$’000
US$’000
Balance at 1 July 2020
Loss for the year
Profit from discontinued operations
Total comprehensive loss for the year
Transactions with owners in their
capacity as owners:
Issue of shares (net of costs)
Equity benefits issued to employees
Foreign currency translation
Balance at 30 June 2021
Balance at 1 July 2021
Profit for the year
Profit from discontinued operations
Total comprehensive profit for the year
Transactions with owners in their
capacity as owners:
Share issue costs
Equity benefits issued to advisors- Note
23
Equity benefits issued to employees
Balance at 30 June 2022
133,242
-
-
-
(19)
-
-
133,223
133,223
-
-
-
10,509
-
-
-
-
(95)
-
10,414
10,414
-
-
-
(53)
-
-
86
-
133,170
6
10,506
4,188
-
-
-
-
-
(4,188)
-
-
-
-
-
-
-
-
-
(103,288)
(4,638)
4,188
(450)
44,651
(4,638)
4,188
(450)
-
-
-
(103,738)
(103,738)
15,514
-
15,514
-
-
-
(88,224)
(19)
(95)
(4,188)
39,899
39,899
15,514
-
15,514
(53)
86
6
55,452
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes.
76 OTTO ENERGY
ANNUAL REPORT 2022
34
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF CASHFLOW
For the year ended 30 June 2022
CONSOLIDATED STATEMENT OF CASHFLOWS
For the year ended 30 June 2022
Note
2022
US$’000
2021
US$’000
Cash flows from operating activities
Oil and Gas Sales (net)
Other income
Payments to suppliers and employees
Payments on settlement of derivative financial instruments
Payments for exploration and evaluation
Interest paid (net of interest received)
Income tax paid
Net cash inflow from operating activities
10
Cash flows from investing activities
Proceeds from sale of investments
Payments for property, plant and equipment
Payments for development and evaluation
Bond for development asset
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Loan repayments
Transaction costs relating to borrowings
Transaction costs relating to equity instruments
Net cash outflow from financing activities
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
39,170
-
(8,185)
(8,844)
(6,086)
(1,061)
(5)
14,989
10,482
(149)
(394)
-
9,939
(9,200)
(3)
(53)
(9,256)
15,672
11,100
(8)
26,764
28,370
203
(7,216)
(640)
(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
There is no impact on the statement of cashflows from discontinued operations in the prior year. The above
consolidated statement of cash flows should be read in conjunction with the accompanying notes.
35
OTTO ENERGY
ANNUAL REPORT 2022 77
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
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 2022.
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 2021. 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 ENERGY
ANNUAL REPORT 2022
36
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
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
37
OTTO ENERGY
ANNUAL REPORT 2022 79
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
Segment information
Revenue and other income
Cost of sales
Financial performance
1.
2.
3.
4. Gain on investments at fair value
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
Exploration expenditure
operating activities
Operating assets and liabilities
11. Trade and other receivables
12. Other 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
86
86
88
89
90
90
91
94
95
95
96
98
99
99
104
104
105
109
109
109
110
110
111
112
80 OTTO ENERGY
ANNUAL REPORT 2022
38
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
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 2022. Reportable segments exclude results from discontinued operations.
The segment information for the reportable segments for the year ended 30 June 2022 is as follows:
2022
Operating Revenue
Cost of Production
Gross Profit
Other income
Gain on investments at fair value (net of
transaction costs)
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
30 June 2022
Total non-current assets
Total assets
Total liabilities
Gulf of Mexico
(USA)
US$’000
40,557
(9,504)
31,053
8
-
(3,155)
-
(2,099)
(6,642)
(3,741)
15,424
(2,945)
12,479
33,294
52,791
14,908
Other
Consolidated
US$’000
-
-
-
-
5,847
-
-
(8)
-
(1,423)
4,416
(1,381)
3,035
2
19,405
1,836
US$’000
40,557
(9,504)
31,053
8
5,847
(3,155)
-
(2,107)
(6,642)
(5,164)
19,840
(4,326)
15,514
33,296
72,196
16,744
39
OTTO ENERGY
ANNUAL REPORT 2022 81
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
1. Segment information (continued)
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
Gain on investments at fair value
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
30 June 2021
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 ENERGY
ANNUAL REPORT 2022
Gulf of Mexico
(USA)
US$’000
Other
Consolidated
US$’000
US$’000
30,137
(10,198)
19,939
178
-
-
(2,476)
(12,850)
(2,877)
(10,313)
(3,037)
(11,436)
-
(11,436)
37,777
47,350
21,099
-
-
-
25
7,971
158
(200)
-
(1)
-
(1,150)
6,803
(5)
6,798
4
13,981
333
30,137
(10,198)
19,939
203
7,971
158
(2,676)
(12,850)
(2,878)
(10,313)
(4,187)
(4,633)
(5)
(4,638)
37,781
61,331
21,432
2022
US$’000
2021
US$’000
33,111
1,830
-
34,941
(6,534)
28,407
289
96
34
419
(82)
337
21,524
1,021
-
22,545
(4,212)
18,333
414
127
28
569
(107)
462
40
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
2. Revenue and other income (continued)
Lightning Sales(ii) (iv)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Lightning Operating Revenue (Net)
Total Operating Revenue (Net)
Interest income(iii)
Other income
2022
US$’000
2021
US$’000
3,429
6,232
2,152
11,813
40,557
2022
US$’000
8
-
8
2,890
7,058
1,394
11,342
30,137
2021
US$’000
1
202
203
(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$33.1 million) from Gulf of Mexico SM71 and Gross oil revenue (US$0.3 million) from
Gulf of Mexico GC-21, were sold to the same single customer. Net gas revenue (US$1.8 million) from Gulf
of Mexico SM71, net oil revenue (US$3.4 million) and net gas revenue (US$8.4 million) from Lightning were
all sold to different single customers. Net gas revenue (US$0.13 million) 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.
41
OTTO ENERGY
ANNUAL REPORT 2022 83
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
3. Cost of Sales
Cost of Sales
Gathering and Production charges
Amortisation of capitalised developments – Note 13
Total Cost of Sales
2022
US$’000
2021
US$’000
4,588
4,916
9,504
4,624
5,574
10,198
2022
US$’000
2021
US$’000
4. Gain on investments at fair value
Gain on fair value of Pantheon Resources Plc shares (net of
transaction costs)
Total Gain on fair value of investments
5,847
5,847
158
158
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 retained 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. A profit on sale of US$7.97 million was recognised in the consolidated statement of
profit or loss and other comprehensive income at 30 June 2021. On 21 October 2021, the Company announced
that it had successfully sold 11,000,000 shares of Pantheon Resources Plc (LSE: PANR) (Pantheon) in exchange
for approximately US$10.5 million. The Company continues to own 3,272,592 shares of PANR, valued at
approximately US$3.6 million as at 30 June 2022, as well as a 0.5% of 8/8ths overriding royalty interest (ORRI)
in any future production from the Talitha Unit in Alaska, which is operated by Pantheon.
Gain on investments (net of transaction costs) for the current year was US$5.8 million (2021: US$0.2 million),
which was attributable to the shares of Pantheon Resources Plc (LSE: PANR) held by the Company. Of this
amount approximately US$4.1 million was related to the gain on the sale of 11,000,000 shares, while US$1.7
million was the gain on the increase in value of the remaining 3,272,492 shares.
5. Exploration expenditure
Exploration expenditure – Gulf of Mexico/Gulf Coast
Exploration expenditure – Alaska North Slope
2022
US$’000
2021
US$’000
3,155
-
3,155
2,476
200
2,676
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.
42
84 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
5. Exploration expenditure (continued)
Exploration expenditure in relation to the Gulf of Mexico/Gulf Coast includes the exploration drilling of the
Schindler #2 (US$1.0 million), Vick #1 (US$0.2 million), Mosquito Bay West (US$1.6 million) and Oyster Bayou
South (US$0.2 million) prospects.
6. Other expenses
i) Finance costs
Interest and commitment fees on borrowings
Interest expense leases
Amortisation of borrowing costs
Accretion of decommissioning fund
Other
Total finance costs/ (income)
ii) Administration and other expenses
Employee benefits expense
Defined contribution superannuation expense
Share-based payment (reversal)/expense
Other employee benefits expenses
Total employee benefits expense
Depreciation expense(i)
Right-of-use assets
Right-of-use assets – buildings
Right-of-use assets – plant and equipment
Total depreciation expense right-of-use assets
Property, plant and equipment
Furniture and equipment
Total depreciation expense
Corporate and other costs
Business development
Foreign currency (gains)/losses
Total administration and other expenses
2022
US$’000
2021
US$’000
1,061
(14)
1,020
28
12
2,107
57
92
3,138
3,287
119
-
119
66
185
1,306
443
(57)
1,692
5,164
1,805
25
1,023
23
2
2,878
49
(95)
2,454
2,408
138
22
160
94
254
1,177
361
(13)
1,525
4,187
(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$5.1 million (2021: US$5.8
million)
43
OTTO ENERGY
ANNUAL REPORT 2022 85
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
7. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company,
excluding any costs of servicing equity (other than dividends), by the weighted average number of ordinary
shares, adjusted for the bonus element.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential
ordinary shares, and the weighted average number of additional ordinary shares that would have been
outstanding assuming the conversion of all dilutive potential ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
Profit/(loss) after tax from continuing operations (US$’000)
Profit after tax from discontinued operations (US$’000)
Profit/(loss) attributable to owners of the Company (US$’000)
Weighted average number of ordinary shares on issue for basic and
diluted earnings per share (number)
Basic and diluted profit/(loss) per share from continuing operations
(US cents)
Basic and diluted profit per share from discontinued operations (US
cents)
Basic and diluted profit/(loss) per share attributable to owners of the
Company (US cents)
8.
Income tax
The components of tax expense comprise:
Current tax(i)
Deferred tax – origination and reversal of temporary differences
Prior period under provision(i)
Reconciliation of income tax expense to prima facie tax payable:
Profit/(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
86 OTTO ENERGY
ANNUAL REPORT 2022
2022
2021
15,514
-
15,514
(4,638)
4,188
(450)
4,795,009,773
4,795,009,773
0.32
-
0.32
(0.10)
0.09
(0.01)
2022
US$’000
2021
US$’000
4,247
-
79
4,326
19,839
-
19,839
(5,952)
(1,754)
-
(110)
238
4,326
5
-
-
5
(4,633)
4,188
(445)
(133)
1,188
-
(1,753)
704
5
44
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
8.
Income tax (continued)
Deferred tax assets
Temporary differences
– provisions and other corporate costs
– exploration and evaluation costs
Deferred tax assets brought to account
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
2022
US$’000
2021
US$’000
(22)
-
(22)
8,547
4
8,529
(8,324)
(205)
-
235
-
235
7,819
12,450
20,504
(9,473)
(11,031)
-
2022
US$’000
2021
US$’000
8,324
(8,324)
-
9,473
(9,473)
-
(i)Income tax expense primarily relates to US Corporate and State taxes (US$2.9 million) and the Danish mark to
market corporate income tax incurred on the Pantheon shares held by Otto Energy Alaska LLC, a subsidiary of
Otto Energy (Galoc Investment 1) ApS and Otto Energy (Galoc Investment 2) ApS ($US1.4 million).
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.
45
OTTO ENERGY
ANNUAL REPORT 2022 87
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
8.
Income tax (continued)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on
a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised
in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively
Key estimates and judgements
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant
judgement is required in determining the worldwide provision for income taxes. There are certain transactions
and calculations undertaken during the ordinary course of business for which the ultimate tax determination is
uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law operating in
the respective jurisdiction. 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. In particular
for the Group’s US based tax losses, significant judgement has been applied in determining the availability of
losses which can be used to offset taxable income.
9. Cash and cash equivalents
Cash at bank and on hand
Restricted cash – debt service reserve account (DSRA)
Balance at end of period
2022
US$’000
2021
US$’000
21,764
5,000
26,764
5,720
5,380
11,100
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.
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$5 million.
The DSRA may only be applied in reduction of the loan.
88 OTTO ENERGY
ANNUAL REPORT 2022
46
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
10. Reconciliation of profit/(loss) after income tax to net cash outflow from operating activities
2022
US$’000
2021
US$’000
Profit (Loss) after income tax
Non-cash items:
Impairment
Depreciation expense – furniture and equipment
Foreign currency translation reserve reversal
Profit on sale of subsidiary
Gain on investments at fair value
Share-based payments
(Gain) Loss on derivative instruments at fair value
Finance costs
Amortisation of capitalised developments – see note 3
Other non-cash items
Change in assets and liabilities:
Increase in trade and other receivables
Decrease in other assets
Decrease in trade and other payables
Increase/(Decrease) in provisions
Net cash inflow from operating activities
Changes in financing liabilities arising from cash flow and
non-cash flow items
Borrowings
Balance at the start of the year
Repayment on borrowings
Borrowing transaction costs
Amortisation borrowing costs
Balance at the end of the year
15,514
(450)
-
185
-
-
(5,847)
92
(2,202)
1,038
4,916
(56)
(1,387)
(2,870)
1,254
4,352
14,989
10,129
(9,200)
-
1,020
1,949
12,850
254
(4,188)
(7,971)
(158)
(95)
9,673
1,071
5,574
238
(1,767)
407
(24)
(182)
15,232
18,306
(9,200)
-
1,023
10,129
47
OTTO ENERGY
ANNUAL REPORT 2022 89
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
OPERATING ASSETS AND LIABILITIES
11. Trade and other receivables
Trade receivables(i)
Other receivables
2022
US$’000
2021
US$’000
5,177
14
5,191
3,791
93
3,884
Recognition and measurement
Other receivables are initially recognised at fair value and subsequently measured at amortised cost less an
allowance for uncollectible amounts.
Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments
carried at amortised cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk. The Group makes use of a simplified approach in accounting for trade and other
receivables as well as contract assets and records the loss allowance at the amount equal to the expected
lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external
indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
The Group considers a financial asset in default when contractual payment are 90 days past due. However, in
certain cases, the Group may also consider a financial asset to be in default when internal or external information
indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into
account any credit enhancements held by the Group.
(i)
Trade receivable relates to June 2022 Lightning (net of royalties), SM 71 and GC-21 oil and gas sales (before
deduction of SM 71 and GC-21 royalties).
12. Other assets
Current
Financial assets at fair value through profit or loss(i)
Prepayments(ii)
Other assets
Non-current
Bonds(ii)
2022
US$’000
2021
US$’000
3,558
3,289
98
6,945
375
375
8,129
348
89
8,566
375
375
(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. On 21 October 2021, the Company announced that
it had successfully sold 11,000,000 shares of Pantheon Resources Plc (LSE: PANR) (Pantheon) in exchange
48
90 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
12. Other assets (continued)
for approximately US$10.5 million. The Company continues to own 3,272,592 shares of PANR, valued at
approximately US$3.6 million as at 30 June 2022.
(ii) Net cash calls in advance for Mosquito Bay West and Oyster Bayou South (US$3.05 million)
(iii) Development bond for SM 71 (US$0.3 million), GC-21 (US$0.05 million)
(cid:3)
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$5.847 million (2021:US$0.158 million) was
recognised through profit and loss at reporting date. (PANR GBP0.894 and USD/GBP exchange rate 1.216).
13. Oil and gas properties
Producing and development assets
At cost
SM71 balance at beginning of year
SM71 expenditure for the year
SM71 amortisation of assets
SM71 balance at end of year
Lighting balance at beginning of year
Lightning expenditure for the year
Lightning amortisation of assets
Lightning balance at end of year
2022
US$’000
2021
US$’000
14,960
(104)
(3,558)
11,298
4,640
16
(1,210)
3,446
18,890
70
(4,000)
14,960
5,984
(42)
(1,302)
4,640
49
OTTO ENERGY
ANNUAL REPORT 2022 91
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
13. Oil and gas properties (continued)
GC-21 balance at beginning of year
GC-21 expenditure for the year
GC-21 impairment
GC-21 amortisation of assets
GC-21 balance at end of year
Vick #1 balance at beginning of year
Vick #1 expenditure for the year
Vick #1 balance at end of year
Mosquito Bay West balance at beginning of year
Mosquito Bay West expenditure for the year
Mosquito Bay West balance at end of year
2022
US$’000
2021
US$’000
17,363
683
-
(147)
17,899
-
96
96
-
35
35
14,919
15,566
(12,850)
(272)
17,363
-
-
-
-
-
-
Total Oil and Gas Properties
32,774
36,963
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.
50
92 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
13. Oil and gas properties (continued)
Where these contributions relate to a prepayment for exploratory or early stage drilling activity, prior to a
decision on the commerciality of a well having been made, the costs are expensed in profit or loss 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.
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.
No impairment indicators were identified on oil and gas assets at 30 June 2022.
51
OTTO ENERGY
ANNUAL REPORT 2022 93
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
13. Oil and gas properties (continued)
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 2022. 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 assets 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.
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
2022
US$’000
2021
US$’000
3,134
241
3,375
1,526
149
1,675
Recognition and measurement
Trade payables are initially recognised at their fair value and subsequently measured at amortised cost. They
represent liabilities for goods and services provided to the Group prior to the end of the financial year that are
unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these
goods and services. The amounts are unsecured and generally paid within 30 days of recognition.
52
94 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
15. Derivative financial instruments
Current liability
Balance at the beginning of the year
Unrealised losses on oil and natural gas price fixed swaps
Current oil price fixed swaps – held at fair value through profit or loss
Non-current liability
Balance at the beginning of the year
Unrealised losses on oil and natural gas price fixed swaps
Non-current oil and natural gas price fixed swaps – held at fair value
through profit or loss
Total derivative financial instrument liabilities
Realised losses on oil and natural gas price fixed swaps
Unrealised gains/(losses) on oil and natural gas price fixed swaps
Total loss on derivative financial instruments
2022
US$’000
2021
US$’000
4,703
(1,393)
3,310
809
(809)
-
3,310
(2,907)
7,610
4,703
(1,254)
2,063
809
5,512
2022
US$’000
2021
US$’000
(8,844)
2,202
(6,642)
(640)
(9,673)
(10,313)
Recognition and measurement
Derivatives are initially recognised at their fair value when the Group becomes a party to the
contract and are subsequently measured at fair value through profit or loss. The Group has not adopted Hedge
Accounting under AASB 9 Financial Instruments.
16. Interest bearing loans and borrowings
Borrowings
2022
US$’000
2021
US$’000
Current Secured
Principal outstanding at the end of the year
Less: Unamortised facility transaction costs at the end of the year
Net borrowings at the end of the year
2,300
(351)
1,949
9,200
(1,021)
8,179
Non – Current Secured
Principal outstanding at the end of the year
Less: Unamortised facility transaction costs at the end of the year
Net borrowings at the end of the year
-
-
-
2,300
(350)
1,950
53
OTTO ENERGY
ANNUAL REPORT 2022 95
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
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 and subsequent amendments in the 30 June 2021 Annual Report.
At 30 June 2022, US$25 million was drawn under the Facility and US$22.7 million had been repaid. 42.5 million
options vested in November 2019 and an expense of US$0.5 million 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$0.35 million is offset
against the facility borrowings of US$2.3 million. Total capitalised transaction and fair value of options relating
to the facility agreement are US$3.1 million of which US$1.0 million was amortised during the period (2021:
US$1.0 million). The facility agreement has certain financial covenants that the Company has to comply with. All
such financial covenants have been complied with in accordance with the facility agreement.
17. Provisions
Current
Employee benefits
Tax(i)
Non-current
Employee benefits (ii)
Decommissioning fund – GC-21 Bulleit(iii)
Decommissioning fund – Lightning(iii)
Decommissioning fund – SM 71 (iii)
Decommissioning fund – Vick #1(iii)
2022
US$’000
2021
US$’000
37
4,321
4,358
17
1,679
194
1,836
26
3,752
18
4
22
-
1,694
175
1,951
-
3,820
(i)
Provision for income tax expense primarily relates to US Corporate and State taxes (US$2.9 million) and
the Danish mark to market corporate income tax incurred on the Pantheon shares held by Otto Energy
Alaska LLC, a subsidiary of Otto Energy (Galoc Investment 1) ApS and Otto Energy (Galoc Investment 2)
ApS ($US1.4 million).
(ii) The non-current provision for employee benefits includes amounts not expected to be settled within the
next 12 months.
(iii) The total present value of the estimated expenditure required to decommission the wells and facilities.
The expenditure is expected to be settled at the end of the field life for the 2P production profile.
Recognition and measurement
Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and
long service leave when it is probable that settlement will be required and they are capable of being measured
reliably.
96 OTTO ENERGY
ANNUAL REPORT 2022
54
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
17. Provisions (continued)
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.
55
OTTO ENERGY
ANNUAL REPORT 2022 97
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
CAPITAL STRUCTURE, FINANCIAL INSTRUMENTS AND RISK
18. Contributed equity
Share capital
Balance at beginning of year
Shares issued – transaction costs
Balance at end of year
2022
(Number)
4,795,009,773
-
4,795,009,773
2021
(Number)
4,795,009,773
-
4,795,009,773
2022
(US$’000)
133,223
(53)
133,170
2021
(US$’000)
133,242
(19)
133,223
(i) Share transaction costs relate to non-recoverable GST applicable to the following 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.
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). 42.5 million options were issued to Macquarie under this
agreement and vested in November 2019.
On 27 August 2021, the Company announced that it had issued 30 million options to Foster Stockbroking Pty Ltd
pursuant to the terms of an Equity Capital Markets Advisory Agreement. Of these, 20 million options have an
exercise price of $0.02 per option with an expiry date of 27 August 2024 and 10 million options have an exercise
price of $0.025 per option and an expiry date of 27 August 2024.
Performance rights
Information relating to the Otto Energy Employee Performance Rights Plan, including details of performance
rights issued, exercised and lapsed during the financial year and performance rights outstanding at the end of
the reporting period, is set out in Note 23.
Recognition and measurement
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
98 OTTO ENERGY
ANNUAL REPORT 2022
56
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
19. Reserves
Share-based payments reserve
Share-based payments reserve
Balance at beginning of year
Share-based payment expense
Balance at end of year
2022
US$’000
2021
US$’000
10,506
10,506
10,414
10,414
2022
US$’000
2021
US$’000
10,414
92
10,506
10,509
(95)
10,414
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 issued as
part of advisory consideration. Refer to Note 23 for further details of these plans.
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.
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.
57
OTTO ENERGY
ANNUAL REPORT 2022 99
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
20. Financial instruments (continued)
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 may 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% (2021: 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
2022, 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 2022 the Group’s exposure to the risk of changes in the market interest rates relates to interest
income on cash and cash equivalents held on term deposit with Australian financial institutions and interest rate
risk on borrowings. The restricted cash in the debt service reserve account held by Macquarie and cash held in
US bank accounts is non-interest bearing so excluded from this analysis.
The financial instruments exposed to movements in variable interest rates are as follows:
Cash on interest bearing term deposit
Borrowings (excludes capitalised borrowing costs)
2022
US$’000
2021
US$’000
21
(2,300)
(2,279)
5,720
(11,500)
(5,780)
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.
The 2.0% sensitivity (2021:1% sensitivity) is based on reasonably possible changes, over a financial year, using
an observed range of historical short term deposit rate movements over the last 3 years.
Judgements of reasonably possible movements
Increase 200 basis points (2021:100 basis points)
Decrease 200 basis points (2021:100 basis points)
100 OTTO ENERGY
ANNUAL REPORT 2022
Effect on post tax losses
Increase/(decrease)
2022
US$’000
2021
US$’000
46
(46)
58
(58)
58
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
20. Financial instruments (continued)
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, 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 swaps, and the
Company has no three-way collars or short puts.
For the fiscal year ended 30 June 2022, the Company recorded a loss on hedging of approximately $6.6 million,
as the hedged price was consistently below prevailing market prices. As of 30 June 2022, Otto had
approximately 54% of its forecasted oil production for the next three months (July 2022 – September 2022)
hedged at a weighted average LLS price of US$57.50 as follows:
Month
July 2022
August 2022
September 2022
Volume (Bbls)
Price LLS ($/Bbl)
17,219
16,440
15,221
$56.77
$57.03
$58.83
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 2022. An increase in forward prices would increase 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 an increase of US$0.33 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 a decrease of US$0.33
million of the fair value of the derivative financial liability held at fair value through the profit or loss.
e) Credit risk
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that
will result in a financial loss to the Group. Credit risk arises from the financial assets of the Group, which comprise
trade and other receivables and deposits with banks and financial institutions.
To manage credit risk from cash and cash equivalents, it is the Group’s policy to only deposit with banks
maintaining a minimum independent rating of ‘AA’, ‘A+’ or ‘A-‘. Contracts for the sale of production from SM
71, GC-21 and Lightning are with creditworthy customers and counterparties.
Receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts
in the ordinary course of business is not significant. At reporting date no receivables were overdue.
The maximum exposure to credit risk at reporting date was as follows:
Cash and cash equivalents
Trade and other receivables
2022
US$’000
2021
US$’000
26,764
5,191
31,955
11,100
3,884
14,984
59
OTTO ENERGY
ANNUAL REPORT 2022 101
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
20. Financial instruments (continued)
f)
Liquidity risk
Liquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset.
It is the policy of the Board to ensure that the Group is able to meet its financial obligations and maintain the
flexibility to pursue attractive investment opportunities through the Group maintaining sufficient working
capital and access to further funding when required through debt, equity or other means.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows with scenario
analysis. As at reporting date the Group had sufficient cash reserves to meet its current requirements and no
receivables were overdue. The contractual maturity analysis of payables at the reporting date was as follows:
Carrying
Value
US$’000
Total
US$’000
Less than
1 year
US$’000
Between
1-2 years
US$’000
Between
2-5 years
US$’000
3,375
1,675
-
274
3,375
1,675
-
274
1,949
10,129
1,949
10,129
3,375
1,675
-
151
1,949
8,179
-
-
-
123
-
1,950
-
-
-
-
-
-
Trade and other payables
2022
2021
Lease liabilities
2022
2021
Borrowings
2022
2021
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 96% equity and 4% debt (2021: 75% equity and 25% 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 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 3,272,592 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.
102 OTTO ENERGY
ANNUAL REPORT 2022
60
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
20. Financial instruments (continued)
Judgements of reasonably possible movements
Increase 10%
Decrease 10%
i)
Fair values
Effect on post tax losses
Increase/(decrease)
2022
US$’000
2021
US$’000
356
(356)
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
Financial assets at fair value through profit and loss
Total financial assets measured at fair value
Financial liabilities measured at fair value
Level 1
Level 2
Level 3
Derivative financial liabilities at fair value through profit and loss
Derivative financial liabilities at fair value through profit and loss(i)
Derivative financial liabilities at fair value through profit and loss
Total financial liabilities measured at fair value
Level 1
Level 2
Level 3
2022
US$’000
2021
US$’000
3,558
-
-
3,558
8,129
-
-
8,129
2022
US$’000
2021
US$’000
-
3,310
-
3,310
-
5,512
-
5,512
(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 2022 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 2022 as disclosed in note 12.
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.
61
OTTO ENERGY
ANNUAL REPORT 2022 103
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
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 (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)
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
Denmark
Denmark
Switzerland
Australia
USA
USA
USA
USA
USA
USA
USA
USA
USA
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
Interest
2022
(%)
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
2021
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
The Group’s share of the assets, liabilities, revenues and expenses of operations have been incorporated into
the financial statements in the appropriate items of the Consolidated Statement of Profit or Loss and Other
Comprehensive Income and Consolidated Statement of Financial Position.
The Group’s interest in operations is detailed below. Oil and Gas exploration and production is the principal
activity performed across these assets.
Asset
South Marsh Island 71
Lightning
GC-21
Eaves
Mosquito Bay West
Oyster Bayou South
Country
USA
USA
USA
USA
USA
USA
2022
Group working
interest
2021
Group working
interest
50%
37.5%
16.67%
10.3%
30%
30%
50%
37.5%
16.67%
-
-
-
62
104 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
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
23. Share-based payments
a)
Employee share option plan
2022
US$’000
2021
US$’000
2,845
95
6,677
9,617
103
198
-
301
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 2022 financial year. The Company did not grant any
employee options during the 2022 or 2021 financial years. During the year ended 30 June 2022, nil (2021: 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. Under the terms of the options deed, the exercise price is reduced when the company makes a
pro-rata issue to shareholders. Subsequent to the April 2020 share issue, the adjusted exercise price is
$A0.0785. 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.
On 27 August 2021, the Company announced that it had issued 30,000,000 options 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 $0.02 per option with an expiry date of 27 August 2024 and 10,000,000 options have an
exercise price of $0.025 per option and an expiry date of 27 August 2024. These options vested immediately
on issue and were expensed in the accounts at fair value using a Black Scholes model (Tranche A US$59,171,
Tranche B US$26,621)
63
OTTO ENERGY
ANNUAL REPORT 2022 105
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
23. Share-based payments (continued)
c) Performance rights
The Performance Rights Plan was approved by shareholders at the 2016 Annual General Meeting and again at
the 2019 Annual General Meeting. The Performance Rights Plan is designed to provide long term incentives for
senior managers and employees to deliver long term shareholder returns. Participation in the plan is at the
Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed
benefits. The amount of performance rights that will vest depends on vesting period and/or Otto Energy
Limited’s TSR, including share price growth, dividends, and capital returns. Once vested, the performance rights
are automatically converted to shares. If the vesting condition is not met on a measurement date (no rights
vest), the performance rights will not lapse and will continue to exist as unvested performance rights to be
retested at the next measurement date or expiry date, whichever is later. Performance rights are granted under
the plan for no consideration. Rights granted under the plan carry no dividend or voting rights. Any unvested
performance rights lapse on cessation of employment or office.
Set out below are summaries of rights granted and outstanding under the Performance Rights Plan:
2022
Fair
value
on
date of
issue
Grant date
Expiry date
A$
Fair
value
on
date
of
issue
US$
Balance at
start of the
year
Number
Rights
issued
during
the
year
Numb
er
Exercised/
vested
Lapsed/
expired
Balance at
end of the
year
Number
Number
Number
29 Nov 2017
29 Nov 2017
29 Nov 2022
29 Nov 2022
21 Dec 2018
15 Nov 2023
21 Dec 2018
15 Nov 2023
0.02
0.02
0.01
0.02
0.01
1,394,333
1,394,334
0.01
5,919,333
0.01
0.01
2,959,667
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2023
15 Nov 2018
21 Dec 2018
15 Nov 2018
21 Dec 2018
15 Nov 2018
21 Dec 2018
Total
Weighted average exercise price – A$
0.02
0.01
0.03
0.01
0.03
0.01
0.02
0.01
0.02
0.01
0.02
0.01
595,000
3,497,333
595,000
3,497,335
595,000
3,497,332
23,944,667
0.01
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,394,333
1,394,334
5,919,333
2,959,667
595,000
3,497,333
595,000
3,497,335
595,000
3,497,332
23,944,667
0.01
106 OTTO ENERGY
ANNUAL REPORT 2022
64
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
23. Share-based payments (continued)
2021
Grant date
Expiry date
29 Nov 2017
29 Nov 2017
29 Nov 2022
29 Nov 2022
21 Dec 2018
15 Nov 2023
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
Fair
value
on
date
of
issue
A$
0.02
0.02
0.01
0.01
0.02
0.01
0.03
0.01
0.03
0.01
Total
Weighted average exercise price – A$
Fair value
on date
of issue
Balance at
start of
the year
US$
Number
0.02
0.01
0.01
0.01
0.02
0.01
0.02
0.01
0.02
0.01
3,461,333
3,461,334
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
Rights
issued
during
the
year
Numb
er
-
-
-
-
-
-
-
-
-
-
-
Exercise
d/
vested
Lapsed/
expired
Balance at
end of the
year
Number
Number
Number
-
-
-
-
-
-
-
-
-
-
-
(2,067,000)
(2,067,000)
-
-
(1,330,000)
(1,155,334)
(1,330,000)
(1,155,332)
(1,330,000)
(1,155,334)
(11,221,333)
1,394,333
1,394,334
5,919,333
2,959,667
595,000
3,497,333
595,000
3,497,335
595,000
3,497,332
23,944,667
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
Options issued in financial year 2022
Total
2022
US$’000
2021
US$’000
-
-
6
86
92
(126)
2
29
-
(95)
No performance rights were granted under the Plan in the financial year 2022. The amount of performance
rights that will vest depends on the vesting period and/or Otto Energy Limited’s total shareholder return (‘TSR’),
including share price growth, dividends, and capital returns. For the rights on issue during, and at the end of the
year, vesting of the rights for directors, the CEO and other members of the executive team were based on TSR
performance only. The TSR performance required for all rights on issue as at 30 June 2018 is 10% per annum
(based on 30 day VWAP) and for the rights granted during the year ended 30 June 2019 is 15%, compounding
from the date of grant to the measurement date (based on 90 day VWAP).
If 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.
65
OTTO ENERGY
ANNUAL REPORT 2022 107
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
23. Share-based payments (continued)
For the year ended 30 June 2022, the Group recognised share-based payments expense of US$0.09M
(2021:reversal of US$0.09M) in the Consolidated Statement of Profit or Loss and Other Comprehensive Income
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.
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.
108 OTTO ENERGY
ANNUAL REPORT 2022
66
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
24. Related parties
Key management personnel compensation
Short-term employee benefits
Consulting fees
Post-employment benefits
Other benefits
Share-based payments
Total USD
Total AUD equivalent
25. Auditor’s remuneration
2022
US$’000
2021
US$’000
1,717
-
46
105
3
1,871
2,591
1,236
45
33
100
(18)
1,396
1,886
During the year the following fees were paid or payable for services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
2022
US$’000
2021
US$’000
BDO Australia
Audit and review of financial statements
Tax compliance services
Tax consulting and tax advice
Total remuneration of BDO Australia
Network firms of BDO Australia
Audit and review of financial statements
Tax compliance services
International tax consulting
Total remuneration of network firms of BDO Australia
Total
56
9
10
75
18
54
78
150
225
61
14
7
82
24
5
53
82
164
It is the Group’s policy to employ BDO on assignments additional to their statutory audit duties where BDO’s
expertise and experience with the Group are important. These assignments are principally tax advice where BDO
is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major
consulting projects.
26. Contingent assets and liabilities
In January 2021, the Company announced the terms of sale of Borealis Alaska LLC to Pantheon Resources Plc.
Borealis Alaska held a 10.8% working interest in each of the 16 leases in the Talitha unit in Alaska. Under the
terms of the sale Otto retained an existing 0.5% of 8/8ths ORRI in any future production from the Talitha unit.
There are no contingent liabilities at balance date.
67
OTTO ENERGY
ANNUAL REPORT 2022 109
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
27. Commitments
a)
Exploration expenditure commitments
Exploration expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
Later than one year but not later than five years
2022
US$’000
2021
US$’000
2,845
95
2,940
103
198
301
Exploration expenditure commitments at reporting date primarily relate to committed exploration costs on
Mosquito Bay West ($0.7 million) and Oyster Bayou South ($2.0 million).
b) Capital expenditure commitments
Capital expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
Later than one year but not later than five years
2022
US$’000
2021
US$’000
6,677
-
6,677
-
-
-
Capital expenditure commitments at reporting date primarily relate to committed development costs on GC-21
DTR-10 Completions ($5.3 million), SM 71 F2 Well ($0.7 million) and Mosquito Bay West ($0.7 million).
28. Events after the reporting period
No matters or circumstances have arisen since 30 June 2022 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:
•
The Oyster Bayou South prospect was spud on 27 June 2022 in state waters in Terrebonne Parish,
Louisiana, and safely drilled down to a target depth of 14,137’ MD (Measured Depth) / 13,064’ TVD (True
Vertical Depth) ahead of schedule. The well encountered proved net gas pay of 68 feet TVT (True Vertical
Thickness) Miocene pay, consistent with Otto’s expectations.
First production began in September 2022 at a rate of 807 bbl/d of oil and 4.6 MMscf/d of gas (1,574 boe/d
8/8ths) at a 3614 psi FTP (Flowing Tubing Pressure) and a conservative 15/64th choke setting as released
to the ASX on 12 September 2022. Oyster Bayou South was originally expected to flow at an initial oil rate
of 150 bbl/d. The well continues to unload and is in the early stages of production and is still being
optimized. Otto holds a 30% WI / 22.65% NRI in this field. This well is expected to cost Otto US$3.3 million,
to be funded from existing cash reserves.
68
110 OTTO ENERGY
ANNUAL REPORT 2022
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
28. Events after the reporting period (continued)
•
•
•
•
•
•
The Mosquito Bay West well commenced production in August 2022 as released to the ASX on 18 August
2022 and continues to produce strongly at a rate of 205 bbl/d of oil and 3.3 MMscf/d of gas (750 boe/d
8/8ths) at a 3544 psi FTP and a conservative 16.5/64th choke setting as released to the ASX on 12
September 2022. The Condensate Gas Ratio (CGR) of approximately 62 bbl/MMscf is significantly higher
than Otto’s pre flowback estimate of 26 bbl/MMscf. The well continues to unload and is in the early stages
of production and is still being optimized. Otto holds a 30% WI and a 22.35% NRI in this field.
Eaves (Vick #1) well commenced production in September 2022. The Eaves well was originally expected
to flow at an initial gas rate of 1.5 MMscf/d. The well continues to unload and is in the early stages of
production and is still being optimized. Otto holds a 10.2% WI / 8.2% NRI in this field. This well cost Otto
US$0.2 million and was funded from existing cash reserves.
Recompletion operations began at GC 21 in August 2022, as released to the ASX on 18 August 2022, to
recomplete the well uphole to the DTR-10 sand, which contains 70% of the original proven reserves
attributed to this well. The Seadrill Sevan Louisiana drilling rig was mobilized to location where it initially
underwent pre-acceptance rig maintenance. The rig has cut and removed production tubing associated
with the previously productive zone in the MP Sand. Cement has been pumped and set in the well with a
packer to be set beneath the DTR-10 zone. The well will then be perforated and a frac pack run in the well
prior to flow back to sales, expected in CY Q3 2022, as released to the ASX on 12 September 2022. Otto
holds a 16.67% WI and a 13.33% NRI in this lease. The recompletion is expected to cost Otto $5.9 million,
to be paid out of existing free cash flow.
Recompletion operations began on the F2 well in the J1 sand at SM 71 in August 2022 with production
resuming in September 2022, as released to the ASX on 12 September 2022. The recompletion is estimated
to cost Otto $0.95 million, to be paid out of existing free cash flow.
On 16 August 2022, the US Inflation Reduction Act (2022) was signed into law by President Biden. The Act
reinstates Lease Sale 257 and provides that high bidders are to be awarded leases, which Otto anticipates
to occur in the near term.
On 23 August 2022 the Company released its statement of reserves and prospective resources for SM 71,
Lightning, Green Canyon 21, Mosquito Bay West and Eaves as at 30 June 2022. The reserves were
compiled by Otto’s independent consultant Ryder Scott Company. The summary statement of reserves
and prospective resources as at 30 June 2022 and Changes to reserves and resources since 30 June 2021
is set out in the Production and Development section of this Director’s Report. For full details refer to
ASX release dated 23 August 2022.
29. Parent entity disclosures
As at, and throughout the financial year ended 30 June 2022, the parent company of the Group was Otto Energy
Limited.
Summarised statement of profit or loss and other comprehensive
income
Profit/(loss) for the year after tax
Total comprehensive profit/(loss )for the year
2022
US$’000
2021
US$’000
Parent entity
13,641
13,641
(31,918)
(31,918)
69
OTTO ENERGY
ANNUAL REPORT 2022 111
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2022
29. Parent entity disclosures (continued)
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprises:
Share capital
Share based payments reserves
Foreign currency translation reserve
Accumulated losses
Total equity
2022
US$’000
2021
US$’000
5,237
50,647
55,884
415
17
432
5,767
34,315
40,082
183
-
183
55,452
39,899
2022
US$’000
2021
US$’000
133,170
10,506
-
(88,224)
55,452
133,223
10,414
-
(103,738)
39,899
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 2022 and 30 June 2021 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
112 OTTO ENERGY
ANNUAL REPORT 2022
70
FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTFor the year ended 30 June 2022 DIRECTORS’ DECLARATION
DIRECTORS’ DECLARATION
For the year ended 30 June 2022
For the year ended 30 June 2022
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 2022
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 2022 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 2022 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 2022.
On behalf of the Board
Mr M Utsler
Director
28 September 2022
71
OTTO ENERGY
ANNUAL REPORT 2022 113
FINANCIAL REPORT Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
Level 9, Mia Yellagonga Tower 2
5 Spring Street
Perth WA 6000
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 2022, 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 2022 and of its
financial performance for the year ended on that date; and
(ii)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
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.
114 OTTO ENERGY
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
ANNUAL REPORT 2022
Carrying value of Oil and Gas Properties
Key audit matter
How the matter was addressed in our audit
The Group’s carrying value of oil and gas properties as
Our work included but was not limited to the following
disclosed in note 13 represents a significant asset to
procedures:
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 assessment of impairment indicators is complex
and highly judgemental and includes assessing a range
of external and internal factors to determine whether
the assets held within the CGU require impairment in
accordance with Australian Accounting Standard AASB
136 Impairment of Assets. 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;
Assessing the competency and objectivity of, and
work performed by, management’s experts in
respect of the oil & gas reserve estimates;
Evaluating and challenging management’s
assessment of indicators of impairment under the
Australian Accounting Standards for the CGU’s
assets by:
•
•
•
Comparing commodity price assumptions
at 30 June 2022 to independent
consensus forecast;
Evaluating the operating performance of
the assets by reference to actual
production volumes against changes in
reserve reports; and
Assessing economic indicators for
impacts on appropriate discount rates.
Reviewing the Director’s minutes and ASX
announcements for evidence of consistency of
information with management’s assessment of
the carrying value; and
Assessing the adequacy of the related disclosures
in note 13 of the financial report.
OTTO ENERGY
ANNUAL REPORT 2022 115
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 2022, 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.
116 OTTO ENERGY
ANNUAL REPORT 2022
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 17 to 29 of the directors’ report for the
year ended 30 June 2022.
In our opinion, the Remuneration Report of Otto Energy Limited, for the year ended 30 June 2022,
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
28 September 2022
OTTO ENERGY
ANNUAL REPORT 2022 117
ADDITIONAL ASX INFORMATION
ADDITIONAL ASX INFORMATION
As at 13 September 2022
As at 13 September 2022
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
167
204
404
1,752
1,296
3,823
Number of shares
22,568
625,861
3,365,508
77,095,127
4,713,900,709
4,795,009,773
Number of holders
3,602
221
3,823
Number of shares
4,415,484,023
379,525,750
4,795,009,773
There were 1,658 shareholders holding less than a marketable parcel of shares.
Twenty largest shareholders
Name
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
1
2 MONEX BOOM SECURITIES (HK) LTD CLIENT A/C
3
4
5
6
7 MONEX BOOM SECURITIES (HK) LTD CLIENT A/C
8 MR KENNETH JOSEPH HALL
9
CITICORP NOMINEES PTY LIMITED
10 CS THIRD NOMINEES PTY LIMITED
11 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
12 CRANPORT PTY LTD
13 REMOND HOLDINGS PTY LTD
14 MR DOUGAL JAMES FERGUSON
15 MR NEIL DAVID OLOFSSON & MRS BELINDA OLOFSSON
16 MR ANASTASIOS MAZIS
17
18 DARCYTOM PTY LIMITED
18 MR DAVID ELTON
19
20 ASB NOMINEES LIMITED
TROPICAL INVESTMENTS WA PTY LTD
SHENTON JAMES PTY LTD
118 OTTO ENERGY
ANNUAL REPORT 2022
Ordinary shares
Number of shares
2,327,964,444
180,652,398
139,072,441
136,257,179
99,482,875
88,774,366
68,647,101
67,800,000
63,787,354
57,365,565
53,485,823
40,000,000
36,000,000
29,340,000
26,000,000
23,807,812
22,555,555
22,000,000
22,000,000
21,000,000
19,823,524
%
48.55%
3.77%
2.90%
2.84%
2.07%
1.85%
1.43%
1.41%
1.33%
1.20%
1.12%
0.83%
0.75%
0.61%
0.54%
0.50%
0.47%
0.46%
0.46%
0.44%
0.41%
3,545,816,437
73.95%
76
FINANCIAL REPORT ADDITIONAL ASX INFORMATION
As at 13 September 2022
ADDITIONAL ASX INFORMATION
ADDITIONAL ASX INFORMATION
As at 13 September 2022
As at 13 September 2022
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
Twenty largest shareholders
Name
Number of holders
Number of shares
167
204
404
1,752
1,296
3,823
3,602
221
3,823
22,568
625,861
3,365,508
77,095,127
4,713,900,709
4,795,009,773
4,415,484,023
379,525,750
4,795,009,773
Number of holders
Number of shares
There were 1,658 shareholders holding less than a marketable parcel of shares.
1
3
4
5
6
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2 MONEX BOOM SECURITIES (HK) LTD CLIENT A/C
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
7 MONEX BOOM SECURITIES (HK) LTD CLIENT A/C
8 MR KENNETH JOSEPH HALL
9
CITICORP NOMINEES PTY LIMITED
10 CS THIRD NOMINEES PTY LIMITED
12 CRANPORT PTY LTD
13 REMOND HOLDINGS PTY LTD
14 MR DOUGAL JAMES FERGUSON
11 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
15 MR NEIL DAVID OLOFSSON & MRS BELINDA OLOFSSON
16 MR ANASTASIOS MAZIS
17
TROPICAL INVESTMENTS WA PTY LTD
18 DARCYTOM PTY LIMITED
18 MR DAVID ELTON
19
SHENTON JAMES PTY LTD
20 ASB NOMINEES LIMITED
Ordinary shares
Number of shares
%
2,327,964,444
48.55%
180,652,398
139,072,441
136,257,179
99,482,875
88,774,366
68,647,101
67,800,000
63,787,354
57,365,565
53,485,823
40,000,000
36,000,000
29,340,000
26,000,000
23,807,812
22,555,555
22,000,000
22,000,000
21,000,000
19,823,524
3.77%
2.90%
2.84%
2.07%
1.85%
1.43%
1.41%
1.33%
1.20%
1.12%
0.83%
0.75%
0.61%
0.54%
0.50%
0.47%
0.46%
0.46%
0.44%
0.41%
3,545,816,437
73.95%
76
Substantial shareholders
Name
Molton Holdings Limited
Unquoted securities
Ordinary shares
Number of
shares
2,305,859,697
%
48.09%
The unlisted securities of the Company are 23,944,667 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 72,500,000 options on issue as at 30 June 2022.
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
77
OTTO ENERGY
ANNUAL REPORT 2022 119
FINANCIAL REPORT OTTOENERGY.COM