ANNUAL REPORT
2023
CONTENTS
OVERVIEW
About Otto
Areas of Activity
Chairman’s Report
CEO’s Report
Executive Management
OPERATIONAL PERFORMANCE
Asset Overview
CORPORATE
Reserves and Prospective Resources
GOVERNANCE
Board of Directors
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
02
02
04
06
07
08
10
10
14
14
18
18
20
21
22
53
54
55
56
57
58
94
95
99
OTTO ENERGY
ANNUAL REPORT 2023 01
OVERVIEW
ABOUT OTTO
Otto Energy Limited is an Australian-listed (ASX: OEL)
oil and gas exploration and production company with a
core focus on the US Gulf Coast. As of 30 June 2023, the
Company had established non-operated interests in the
Gulf of Mexico (GoM) and on-shore Texas as follows:
SOUTH MARSH
ISLAND 71
LIGHTNING
FIELD
GREEN
CANYON 21
MOSQUITO
BAY
STATUS
Producing
LOCATION
Offshore shallow waters of
the Gulf of Mexico
Producing
Producing
Producing
Onshore Matagorda County,
Texas
Offshore deep waters of the
Gulf of Mexico
Offshore state waters,
Terrebonne Parish,
Louisiana
WORKING INTEREST (WI) / NET REVENUE INTEREST (NRI)
50% / 40.6%
37.5% / 27.8%
16.7% / 13.3%
30.0% / 22.4%
OPERATOR
Byron Energy
Hilcorp
Talos Energy
Castex Energy
FY23 AVG DAILY PRODUCTION (WI)
856 Boe/d
990 Boe/d
48 Boe/d
201 Boe/d
PRODUCT MIX
Oil with associated
gas production
Gas/Condensate
Oil with associated
gas production
Gas/Condensate
02 OTTO ENERGY
ANNUAL REPORT 2023
OVERVIEW
The US Gulf Coast region is one of the most prolific oil and gas producing regions which includes one of the most
prolific basins 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 attractive royalty rates. The extensive infrastructure from a facilities and
pipeline transport perspective 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 value for shareholders for years to come.
As set out in the ASX announcement dated 29 March 2023, Otto has initiated a formal review process to
maximise shareholder value. The process, led by Seaport Global and Adelaide Equity Partners, and supervised
by a Board Sub Committee of Independent Directors, includes an assessment of a potential partial or full sale of the
Company and/or its assets. The strategic review was initiated due to the Directors’ belief that Company’s shares
have traded at a significant discount relative to the intrinsic value of the underlying assets, notwithstanding that
Otto is debt free with a strong balance sheet and has significant free cash flow. While we continue negotiations, we
will only recommend a transaction if and when we obtain terms which are in the best interests of all shareholders.
OYSTER
BAYOU
STATUS
Producing
LOCATION
Offshore state waters,
Terrebonne Parish,
Louisiana
WI/NRI
30.0% / 22.8%
OPERATOR
Castex Energy
EAVES
Shut-in
Onshore
Lavaca County,
Texas
SOUTH
TIMBALIER 48
Prospect
Offshore shallow waters
of the Gulf of Mexico
10.3% / 7.7%
100%/87.5%
Forza Operating
FY23 AVG DAILY PRODUCTION (WI)
208 Boe/d
5 Boe/d
PRODUCT MIX
Oil with associated
gas production
Gas/Condensate
TBD
n/a
TBD
OTTO ENERGY
ANNUAL REPORT 2023 03
OVERVIEW
AREAS OF ACTIVITY
EAVES FIELD
10.3%
Otto Working Interest
7.7%
Otto Net Revenue Interest
1 well
Status – Shut-In at 30 June 2023
HOUSTON
NEW ORLEANS
LIGHTNING
FIELD
37.5%
Otto Working Interest
27.8%
Otto Net Revenue Interest
2 wells
Status – Producing
2,305 boe/day
Gross Production
(100% basis, at 30 June 2023)
29%
Liquids Proportion of 2P Reserves
SOUTH MARSH
ISLAND 71
SM 71
50%
Otto Working Interest
40.6%
Otto Net Revenue Interest
3 wells
Status – Producing
1,285 boe/day
Gross Production
(100% basis, at 30 June 2023)
88%
Liquids Proportion of 2P Reserves
04 OTTO ENERGY
ANNUAL REPORT 2022
GULF OF MEXICO MOSQUITO BAY
WEST
30%
Otto Working Interest
22.4%
Otto Net Revenue Interest
1 well
Status – Producing
489 boe/day
(100% basis, at 30 June 2023)
29%
Liquids Proportion of 2P Reserves
OYSTER BAYOU
SOUTH
30%
Otto Working Interest
22.8%
Otto Net Revenue Interest
1 well
Status – Producing
342 boe/day
(100% basis, at 30 June 2023)
70%
Liquids Proportion of 2P Reserves
GREEN CANYON 21
GC 21
16.7%
Otto Working Interest
13.3%
Otto Net Revenue Interest
1 well
Status – Producing
970 boe/day
Gross Production
(100% basis, at 30 June 2023)
89%
Liquids Proportion of 2P Reserves
OVERVIEW
GULF OF
MEXICO
SOUTH
TIMBALIER 48
100%
Otto Working Interest
87.5%
Otto Net Revenue Interest
Exploration Prospect
5yr initial lease term
OTTO ENERGY
ANNUAL REPORT 2023 05
GULF OF MEXICO OVERVIEW
CHAIRMAN’S REPORT
This time last year I did not expect to be back for a third time
writing this report as Chairman. I thank the Board for its
trust and confidence in re-electing me.
We talk every year about the challenging market and
geopolitical environment. The last 12 months have been
no different. Energy, and oil and gas in particular, are
commodities affected not only by normal market supply and
demand, but often by global politics. The ongoing war in
Ukraine and climate change are currently major influences
on the price of energy, and for oil and gas companies
navigating this uncertain global environment is never easy.
Against that backdrop I am pleased to report that
operationally and financially our business is in better shape
than ever before. Whilst GC21 has been a disappointment
given the numerous delays and cost overruns experienced,
it is now finally in production, so that all five of our projects
(SM71, Lightning, Mosquito Bay, Oyster Bayou and GC21)
are operating and contributing to the bottom line at a time of
elevated oil prices.
Although we have had to report a loss after tax of
US $7.0 million for the financial year ended 30 June 2023,
this was due entirely to the cost overruns and lower
estimated production profile at GC21 resulting in a US $19.8
million impairment charge. Our operating profit for the year
was US $21.7 million, and we are currently generating a
healthy monthly cashflow as I am writing this report.
A $0.008 per share. We will seek approval for this return at
the forthcoming Annual General Meeting on 30 November
2023. Subject to approval by the Australian Taxation Office,
this capital will be returned tax free to shareholders.
This return equates to a 40% return on our recent share
price of A $0.02.
Earlier this year we announced a strategic review of our
business and initiation of an M&A process leading to the
likely sale of the company. This process has proven more
difficult and protracted than expected partly due to the
difficult market and political environment mentioned. On one
hand energy prices are high leading to strong profitability,
but the uncertain political environment and high interest
rate environment makes companies reluctant to invest.
Whilst we continue negotiations, we will only recommend
a transaction if and when we obtain terms which are in the
best interests of all shareholders.
I would like to thank our management team for their
continued commitment and achievements, and my fellow
Board members for their thoughtful advice and counsel.
On behalf of the Board I would like to also thank our
shareholders for their continued support.
As a consequence the Board is recommending a significant
return of capital to shareholders of up to A $40.0 million, or
JOHN JETTER
Chairman
06 OTTO ENERGY
ANNUAL REPORT 2023
OVERVIEW
CEO’S REPORT
The strategic options process that was announced
in late March 2023 has taken longer than
anticipated, partially due to the challenges
already mentioned. We are continuing to evaluate
opportunities to enhance shareholder value.
In closing, I want to thank the Board of Directors
for their guidance and support, as well as our
management team for their dedication and
committment to Otto’s success. I also want to
thank our shareholders for their ongoing support.
STEVE HEROD
Chief Executive Officer
I am very pleased to be making my first report to
shareholders as CEO of Otto Energy. The energy industry
continues to evolve and the upstream sector faces many
challenges – including geopolitical factors such as the war in
Ukraine, levels of inflation not seen in many years, increased
regulatory scrutiny and reduced investor interest in oil and
gas due to climate change concerns. However, demand for
oil and gas remains strong and provides opportunites.
The Company had a solid year ending 30 June 2023 with
production of 2,308 Boe/d, of which 56% was liquids.
Net operating revenue was US $33.4 million, driven by
an average oil price of US $80.00 per barrel. Otto’s net
operating cash flow (pre-exploration) was US $19.8 million.
Subsequent to year end, we received an initial payment of
US $5.8 million for our insurance claim at Green Canyon 21,
further improving liquidity.
Operationally, Otto partcipated in two exploration
discoveries in the shallow waters of the Gulf of Mexico at
Mosquito Bay West and Oyster Bayou South with production
starting in August and September 2022, respectively.
At Green Canyon 21, recompletion operations were
completed in May 2023 and production commenced from
both DTR-10 zones.
Your Company is in excellent financial position with no debt
and over US $30.0 million in cash. Subject to shareholder
approval at the Annual General Meeting on 30 November
2023, we will return up to A $40.0 million to shareholders in
early 2024. This return of capital is a significant first step in
our plan to reward shareholders.
OTTO ENERGY
ANNUAL REPORT 2023 07
OVERVIEW
EXECUTIVE
MANAGEMENT
STEVE HEROD
Chief Executive Officer
SERGIO CASTRO
Chief Financial Officer
B.S. Finance & Management
BBA Accounting, CPA, CFE
Steve has over 40 years experience
in the oil and gas industry in the USA,
together with a distinguished career
both as an entrepreneur and CEO.
He has successfully completed
numerous M&A transactions creating
significant shareholder value.
He was co-founder of Petrohawk
Energy Corporation and lead the
successful sale of Petrohawk to BHP
in a multi-billion dollar transaction.
He subsequently was CEO of Grizzly
Energy which he also successfully
divested. Steve graduated in 1981
from Oklahoma State University with
a B.S. in Finance and Management.
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
Senior 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.
08 OTTO ENERGY
ANNUAL REPORT 2023
OVERVIEW
OTTO ENERGY
ANNUAL REPORT 2023 09
JULIE DUNMORE
Group Financial Controller
B.Comm(UWA), CA, GAICD, FGIA
Julie is the Group Financial
Controller having joined Otto Energy
in June 2018. Julie has over 20
years experience in financial and
management accounting primarily
within the oil and gas industry.
Julie’s previous experience includes
Regional Finance Manager (SEA) for
Crondall Energy, Project Finance
Manager at Clough Engineering
and Wesfarmers Group accountant.
Julie is a Chartered Accountant,
Graduate of the Australian Institute of
Company Directors and a Fellow of the
Governance Institute of Australia.
PHILIP TRAJANOVICH
Senior Vice President
Commercial and Land
Bachelor of Commerce (Hons)
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.
OPERATIONAL PERFORMANCE
ASSET OVERVIEW
North America: Gulf of Mexico
GULF OF
MEXICO
Otto Energy considers the US Gulf Coast its core region for exploration,
development and production focus. As of 30 June 2023, Otto produced oil
and gas from five projects in this region: SM 71, Lightning, GC 21, Mosquito
Bay West and Oyster Bayou South.
The Gulf Coast 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
Gulf Coast. 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 Gulf Coast
and has built a portfolio of diverse, conventional oil and gas
opportunities. Otto’s current operating partners are Byron
Energy (ASX: BYE), Hilcorp Energy, Talos Energy (NYSE:
TALO) and Castex Energy, resulting in eight producing
wells over five core assets.
SUMMARY OF ASSETS AS AT 30 JUNE 2023
Number
of wells
3
2
1
1
1
1
-
Otto WI
50.0%
37.5%
16.7%
30.0%
30.0%
10.3%
100%
Otto NRI
40.6%
27.8%
13.3%
22.4%
22.8%
7.7%
87.5%
Operator
Byron Energy
Hilcorp
Talos Energy
Castex Energy
Castex Energy
Forza Operating
TBD
Status
Producing
Producing
Producing
Producing
Producing
Shut-In
Prospect
Asset
South Marsh Island 71 (SM71)
Lightning
Green Canyon 21 (GC21)
Mosquito Bay West
Oyster Bayou South
Eaves
South Timbalier 48
10 OTTO ENERGY
ANNUAL REPORT 2023
OPERATIONAL PERFORMANCE
Lightning
Otto owns a 37.5% WI and a 27.8% NRI in the
in Matagorda County, Texas, with
Lightning Field
Hilcorp Energy Limited (Hilcorp) the operator, holding
the remaining interest. Otto earned its 37.5% WI 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.
The Lightning prospect was initially leased to a level
in excess of 99%. For the unleased interest, the parties
owning the unleased interest were carried for the
drilling of the two wells. Prior to payout, the parties
earned a share of production in relation to their WI,
and share in relation to their carried WI attributable to
the unleased mineral interest. At payout, the carried
share of production reverted to the unleased interests.
Beginning in FY2023, Otto’s NRI in relation to Green
#1 and Green #2 was 27.8%, compared to the prior
28.2%, factoring in this change.
Reinterpretation of the 3D seismic by the operator confirms
that there are multiple levels of hydrocarbon pay in the
Lightning field. While production is currently from the
upper Tex Miss 1 zone, the lower Tex Miss 2/3 zone was
tested in both wells while they were being drilled. The Tex
Miss 2/3 zone appears to be aerially significantly larger
and potentially thicker than the Tex Miss 1. In both tests,
production from the Tex Miss 2/3 zone has indicated
that the zone has lower permeability than the Tex Miss 1
and has not been able to establish steady production. It
is planned that a future well will be designed to test the
ability to stimulate the Tex Miss 2/3 zone and unlock the
significant upside potential.
Base production from Lightning continues to meet
expectations. There is the potential for additional wells
to be drilled to ultimately develop the entire Lightning
accumulation.
OTTO ENERGY
ANNUAL REPORT 2023 11
South Marsh Island 71
Otto owns a 50% WI and a 40.6% 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
temporarily abandoned
SM71 F5 wellbore was
in a manner that allows
in
the future.
it to be sidetracked
In September 2022, the F2 well was successfully
recompleted in the J1 sand and resumed production.
In late June 2022, traces of water were detected from
the F3 well. At that time, the F3 well had a 2% water cut.
During the month of June 2023, the average water cut in
the F3 well was approximately 78%, which is consistent
with Otto’s mapping and reservoir modelling. The F1
well, updip to the F3, continues to produce water-free. Base
production from SM 71 continues to meet expectations.
OPERATIONAL PERFORMANCE
Green Canyon 21
Otto owns a 16.7% WI and a 13.3% NRI in Green
in the Gulf of Mexico, with
Canyon 21 (GC 21)
the
Talos Energy
remaining
in
GC-21 by paying 22.2% of the cost of drilling the
‘Bulleit’ appraisal well. Water depth in the area is
approximately 1,200 feet.
the operator, holding
interest. Otto earned
its 16.7% WI
(Talos)
‘Bulleit’ appraisal well
located at GC 21
The
commenced production from the deeper MP sands in
October 2020. In August 2022, recompletion operations
began in the shallow DTR-10 sands. During operations,
an issue with the casing hanger in the wellhead caused
by strong loop currents was discovered. Due to additional
equipment being required, operations were suspended
and resumed
in February 2023, with production
beginning on 22 March 2023.
After a few days of production from the DTR-10
sands, well diagnostics indicated that the lower DTR-
10 completion was not contributing to well production
and the well was only seeing a contribution from the
upper completion. Well intervention operations were
completed in mid-May 2023 and the well is currently
producing from both DTR-10 zones.
In January 2023, Otto and the operator both filed a
Control of Well event insurance claim regarding the
recompletion at GC 21. Both claims are being reviewed
by the same insurance adjuster. During the recompletion,
the tubing string, control lines, casing and clamps were
damaged. A review is underway to determine how
increased loop eddy currents contributed to these failures.
The insurance carriers have confirmed the merits of the
claim and the Company received an initial insurance
payment of US$5.8 million in August 2023. No assurance
can be made as to the amount or timing of any potential
additional insurance claim proceeds.
12 OTTO ENERGY
ANNUAL REPORT 2023
Mosquito Bay West
The Mosquito Bay West prospect was spud in May
2022 in state waters in Terrebonne Parish, Louisiana, and
safely drilled 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 the well has
cumulatively produced over 49,000 bbls of oil and 1,000
MMcf of gas (8/8ths). Otto holds a 30% WI/22.4% NRI
in this field.
EXPLORATION
AND APPRAISAL
OPERATIONAL PERFORMANCE
Oyster Bayou South
The Oyster Bayou South prospect was spud in June
2022 in state waters in Terrebonne Parish, Louisiana,
and safely drilled 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 and the well
has cumulatively produced over 163,000 bbls of oil and
470 MMcf of gas (8/8ths). Beginning in November 2022,
the well began producing small amounts of water, with
a water cut of approximately 10%. Since then, the water
rate has continued to increase while the oil rate has
declined. During June 2023, the average water cut in
the well was approximately 78%. Otto holds a 30%
WI/22.8% NRI in this field.
Eaves Prospect
The Vick #1 well, within the Eaves Prospect in Lavaca
County, Texas, was spud in December 2021 and reached
9,242’ TVD in December 2021.
The well was
logged and cored across multiple
intervals and was completed in the shallow Yegua
interval at approximately 5,450 feet TVD, where
it
encountered 12 feet of net pay. Production from the Vick
#1 well began in September 2022 and has cumulatively
produced over 530 Bbls of oil and 95 MMcf of gas (8/8ths).
The well was shut in on 22 April 2023 and remained shut in
as of 30 June 2023, as the well has reached the end of its
economic life. Otto owns a 10.3% WI/7.7% NRI in this field.
South Timbalier 48 Lease
Otto was notified as being the apparent high bidder on 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 and
awarded the lease to Otto for a primary term of five years.
Pantheon Shareholding (LSE: PANR)
The Company owns 3,272,592 shares of Pantheon Resources Plc (LSE: PANR) (Pantheon) valued at US$0.5 million
as at 30 June 2023 (June 2022:US$3.6 million), 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 2023 13
CORPORATE
RESERVES AND
PROSPECTIVE
RESOURCES
On 30 August 2023, the Company released its statement of reserves and
prospective resources as at 30 June 2023. The statement of reserves covered
SM 71, Lightning, GC 21, Mosquito Bay West and Oyster Bayou South, and
were compiled by independent consultant Ryder Scott Company.
Otto Energy Limited’s net reserves and resources for all fields as at 30 June 2023 are summarised below
(see additional disclosures provided in the following pages and appendices):
RESERVES SUMMARY
30 JUNE 2023
TOTAL
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable
Plus Possible (3P)
Total Contingent and Prospective Resources
(best estimate, unrisked)
CHANGES TO RESERVES
SINCE 30 JUNE 2022
GROSS (100%)
NGL
GAS
(Mbbl)
(MMcf)
630
17,979
301
8,968
-
-
931
26,947
993
28,558
1,924
55,505
1,085
32,577
3,009
88,082
OIL
(MbbL)
3,164
516
-
3,680
3,735
7,415
2,388
9,803
MBOE
6,791
2,311
-
9,102
9,488
18,590
8,902
27,492
MBOE
OTTO NET REVENUE INTEREST
OIL
(MbbL)
878
174
-
1,052
912
1,964
558
2,522
GAS
(MMcf)
4,593
2,210
-
6,803
7,112
13,915
8,225
22,140
NGL
(Mbbl)
172
80
-
252
262
514
293
807
1,815
622
-
2,437
2,360
4,797
2,222
7,019
7,040
44,590
-
14,472
4,700
24,160
-
8,727
OTTO ENERGY LIMITED GRAND TOTAL - RESERVE RECONCILIATION (OTTO ENERGY NRI SHARE)
GAS (MMCF)
MBOE
OIL/NGL (Mbbl)
Production
Additions &
FY2023
Revisions
(128)
230
373
0
Remaining
6/30/2022
1,805
944
Remaining
6/30/2023
1,304
1,174
Remaining
6/30/2022
11,472
6,979
Production
FY2023
1,657
0
Additions &
Revisions
(3,012)
133
Remaining
6/30/2023
6,803
7,112
Remaining
6/30/2022
3,718
2,107
Production
FY2023
649
0
649
0
Additions &
Revisions
(632)
253
Remaining
6/30/2023
2,437
2,360
(379)
242
4,797
2,222
2,749
666
373
0
102
185
2,478
851
18,451
7,884
1,657
0
(2,879)
341
13,915
8,225
5,825
1,980
3,415
373
287
3,329
26,335
1,657
(2,538)
22,140
7,805
649
(137)
7,019
Proved (1P)
Probable
Proved+
Probable
(2P)
Possible
Proved+
Probable+
Possible (3P)
14 OTTO ENERGY
ANNUAL REPORT 2023
CORPORATE
CONTINGENT AND PROSPECTIVE RESOURCES
AS AT 30 JUNE 2023
CONTINGENT RESOURCES
PROSPECT
SM 71 F3 ST (D5)
SM 71 F5 ST (D5)
WORKING
INTEREST
50.0%
50.0%
NET
REVENUE
INTEREST
40.6%
40.6%
GAS (BCF)
P50
1.64
2.11
PROSPECT
SM 71 B65 Sand
Lightning
ST 48
WORKING
INTEREST
50.0%
37.5%
100.0%
NET
REVENUE
INTEREST
40.6%
27.8%
87.5%
GAS (BCF)
P50
0.93
21.25
18.66
8/8THS
OIL
(MMbbls)
P50
0.86
0.67
8/8THS
OIL
(MMbbls)
P50
0.77
0.63
4.11
OTTO NET REVENUE INTEREST
OIL
(MMbbls)
P50
0.35
0.27
GAS (BCF)
P50
0.67
0.86
Mmboe
P50
0.46
0.41
Mmboe
P50
1.13
1.02
PROSPECTIVE RESOURCES
OTTO NET REVENUE INTEREST
OIL
(MMbbls)
P50
0.31
0.17
3.60
GAS (BCF)
P50
0.38
5.92
16.33
Mmboe
P50
0.38
1.16
6.32
Mmboe
P50
0.93
4.17
7.22
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.
OTTO ENERGY
ANNUAL REPORT 2023 15
of Petroleum Geologists (AAPG)/Society of Petroleum
(SPEE) Petroleum Resources
Evaluation Engineers
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.
judgment based on
Reserves Cautionary Statement
Oil and gas reserves and resource estimates are
knowledge,
expressions of
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
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.
information becomes available
further
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
report represent
at 30 June 2023.
forward-prices
in
the
independent
(CME Nymex) as
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.
included
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.
is a Senior Vice President at
Mr. Porbandarwala
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
from the University of
B.S. Chemical Engineering
Kansas and an MBA from the University of Texas.
The reserves
this report have been
in
prepared using definitions and guidelines consistent
the 2007 Society of Petroleum Engineers
with
(SPE)/World
(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
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.
fairly represents,
Petroleum
Council
information
The
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
than 30 years
Company. Mr Buckle has more
relevant experience
industry and
is a member of The Society of Petroleum Engineers
(SPE). The resources included in this report have been
prepared using definitions and guidelines consistent
with the 2007 Society of Petroleum Engineers (SPE)/
World Petroleum Council (WPC)/ American Association
in the petroleum
16 OTTO ENERGY
ANNUAL REPORT 2023
CORPORATE
ASX Reserves and Resources Reporting Notes
(i)
The reserves and prospective resources information in this document is effective as at 30 June, 2023
(Listing Rule (LR) 5.25.1)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
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
bcf
Bcfe
boe
barrels
billion cubic feet
billion cubic feet equivalent
barrels of oil equivalent
Bopd
barrels of oil per day
MMcf
million cubic feet
MBL
thousand barrels of oil/natural gas liquids
MMBL million barrels of oil/natural gas liquids
Mboe
thousand barrels of oil equivalent
MMboe million barrels of oil equivalent
British Thermal Units
MCF
thousand cubic feet
Estimated Ultimate Recovery
mmbtu million British Thermal Units
Btu
EUR
Mcfg
thousand cubic of gas
Mcfgpd
thousand cubic feet of gas per day
NRI
WI
net revenue interest
working interest
OTTO ENERGY
OTTO ENERGY
ANNUAL REPORT 2023 17
ANNUAL REPORT 2023 17
GOVERNANCE
GOVERNANCE
BOARD OF
DIRECTORS
18 OTTO ENERGY
ANNUAL REPORT 2023
JOHN JETTER
Chairman
(Non-Executive Director)
BLaw, BEcon, INSEAD
Mr John Jetter is the former Managing
Director, CEO and head of investment
banking of JP Morgan in Germany,
Austria, and Switzerland, 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 a member of the Audit
and Risk Committee and
Remuneration and Nomination
Committee, and former Chairman of
the Remuneration and Nomination
Committee having resigned from that
role on 19th June 2023.
GOVERNANCE
PAUL SENYCIA
Deputy Chairman
(Non-Executive Director)
JOHN MADDEN
Non-Executive Director
GEOFF PAGE
Non-Executive Director
BCom (Melb), FCPA, FGIA, MAICD
MBA, CPA, FCMA, FGIA
Mr Geoff Page was appointed 17 July
2020 as non-executive director. He is
a finance professional with over 20
years of senior finance, accounting
and management experience gained
globally within a number of industries.
He has over 10 years of board
experience gained in several different
firms. Mr Page is a member of CPA
Australia, Fellow Member of the
Chartered Institute of Management
Accountants and a Fellow Member of
the Governance Institute of Australia.
Mr Page is a member of the Audit and
Risk Committee and Remuneration
and Nomination Committee.
BSc Hons (Mining Engineering), ACSM,
MAppSc (Geophysics)
Mr Paul Senycia was appointed to the
Board on 24 April 2018 and became a
non-executive director on 1 January
2019. Mr Senycia joined Otto in 2010
as Exploration Manager, and from
2015 until 31 December 2018 led
the Company’s technical operations.
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 was appointed Chairman
of the Remuneration and Nomination
Committee on 19th June 2023.
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. He is also a Member of
the Institute of Company Directors
(MAICD). Mr Madden is Chairman of
the Audit and Risk Committee and
a member of the Remuneration and
Nomination Committee.
OTTO ENERGY
ANNUAL REPORT 2023 19
FINANCIAL REPORT
FINANCIAL
REPORT 2023
FINANCIAL REPORT 2023
CONTENTS
Corporate Directory
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Audit Report to the Members of Otto Energy Limited
Additional ASX Information
21
22
53
54
55
56
57
58
94
95
99
Annual General Meeting
The Annual General Meeting of Otto Energy Limited will be held on 30 November 2023.
4
W
This year’s Annual General Meeting will be conducted as a physical meeting on 30 November 2023 at
Further details will be provided in the Company’s notice of Annual General Meeting.
pm A
ST.
20 OTTO ENERGY
ANNUAL REPORT 2023
1
FOR THE YEAR ENDED 30 JUNE 2023
FINANCIAL REPORT
CORPORATE DIRECTORY
Directors
Mr John Jetter – Non-Executive Chairman
Mr Paul Senycia – Non-Executive Deputy Chairman
Mr John Madden – Non-Executive Director
Mr Geoff Page – Non-Executive Director
Company Secretary
Key Executives
Ms Kaitlin Smith
Principal registered office
in Australia
Houston Office
Share Registry
Auditors
Securities Exchange Listing
Website address
ABN
Mr Steve Herod – Chief Executive Officer
Mr Will Armstrong – Senior VP Exploration and New Ventures
Mr Sergio Castro – Chief Financial Officer
Mr Philip Trajanovich – Senior VP Commercial and Land
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
www.ottoenergy.com
56 107 555 046
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 2023 and the auditors’ report thereon.
OTTO ENERGY
ANNUAL REPORT 2023 21
2
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Directors
The Directors in office at any time during the financial year and until the date of this report are set out below.
Mr John Jetter BLaw, BEcon, INSEAD
Chairman (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; Re-appointed
Non-Executive Chairman 19 June 2023.
Mr John Jetter is the former Managing Director, CEO and head of investment banking of JP Morgan in Germany,
Austria, and Switzerland, 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 a
member of the Audit and Risk Committee and Remuneration and Nomination Committee, and former Chairman
of the Remuneration and Nomination Committee having resigned from that role on 19
Mr Paul Senycia BSc (Hons), MAppSc
Deputy Chairman (Independent Non-Executive)
Appointed Executive Director 24 April 2018; Became Non-Executive Director 1 January 2019; Appointed Deputy
Chairman 19 June 2023
June 2023.
th
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
th
Audit and Risk Committee and was appointed Chairman of the Remuneration and Nomination Committee on 19
June 2023. Mr Senycia has not held any other directorships in the last three years.
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. He
is also a Member of the Institute of Company Directors (MAICD). Mr Madden is Chairman of the Audit and Risk
Committee and a member of the Remuneration and Nomination Committee.
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 a member
of the Audit and Risk Committee and Remuneration and Nomination Committee.
22 OTTO ENERGY
ANNUAL REPORT 2023
3
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Mr Michael Utsler
Executive Chairman, Chief Executive Officer and Managing Director
Appointed 11 September 2020 and departed 19 June 2023.
Mr Michael Utsler was appointed Managing Director and Chief Executive Officer on 11 September 2020 and
Executive Chairman on 19 November 2020. He departed as a Director of the Company on 19 June 2023. 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.
Company Secretary
Ms Kaitlin Smith BCom (Acc), CA, FGIA
Appointed 2 November 2019
Ms Smith is an experienced Company Secretary, finance and corporate governance professional and has held
Company Secretary and CFO roles within ASX listed and unlisted entities. She is a Chartered Accountant, fellow
Director’s interests
member of the Governance Institute of Australia and holds a Bachelor of Commerce (Accounting).
As at the date of this report, the interests of the Directors in the shares and rights of Otto Energy Limited were:
Director
Mr J Jetter
Mr P Senycia
Mr J Madden
Mr G Page
Principal activities
Number of
Ordinary Shares
Number of
Rights
57,881,668
8,691,134
2,000,000
-
1,116,000
669,000
-
-
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 2023.
Operating and Financial Review
During the year ended 30 June 2023, the Company commenced production from Mosquito Bay West, Oyster
Bayou South, and Vick #1 (Eaves). Additionally, recompletion operations were completed at Green Canyon 21
and South Marsh 71 F-2 well, which increased production from both wells.
The Company also made its final payment under its existing credit facility and became debt-free, plus its hedge
book has been closed out, delivering full exposure to current prices.
Finally, the Company launched a process to assess a range of value realisation opportunities, including
Financial Summary
shareholder return options, available to the Company and its shareholders.
Total loss after tax for the year ended 30 June 2023 was US$7.0 million (2022: US$15.5 million profit). This loss
was primarily driven by a $19.8 million impairment on Green Canyon 21, as well as a loss on investments, lower
net operating revenues, higher cost of sales, and higher administrative costs. Partially offsetting this decrease in
net profits after tax were a gain on derivatives, an income tax reversal, and lower finance costs and exploration
expenditures.
OTTO ENERGY
4
ANNUAL REPORT 2023 23
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Net operating revenue for the current year was US$33.4 million (2022: US$40.6 million), an 18% decrease from
the prior fiscal year due to a 6% decrease in crude oil prices, a 14% decrease in natural gas prices and a 36%
decrease in the price received for natural gas liquids. Production for the period remained relatively consistent
with the prior year, as normal field declines were offset by increased production at Green Canyon 21 as a result
of the recompletion, plus new production at Mosquito Bay West, Oyster Bayou South and Vick #1 (Eaves).
Cost of Sales for the current year were US$11.7 million (2022: US$9.5 million), a 24% increase due to higher
gathering and production charges and higher amortization of producing assets as a result of the increased
production at Green Canyon 21, Mosquito Bay West, Oyster Bayou South and Vick #1 (Eaves). This generated an
operating gross profit of approximately US$21.7 million (2022: US$31.1 million), a decrease of 30%.
Impairment charges for the current year were US$19.8 million (2022: nil) as a result of cost overruns and lower
than expected performance from the Bulleit well at Green Canyon 21. See Note 13 to the Consolidated Financial
Statements for additional information.
Loss on investments for the current year was US$3.0 million (2022: US$5.8 million gain) which was attributable
to the 3,272,492 shares of Pantheon Resources Plc (LSE: PANR) held by the Company. See Pantheon
Shareholding section below for additional information.
Administrative and other expenses for the current year were approximately US$6.4 million (2022: US$5.2
million), a 25% increase partly due to costs associated with the ongoing strategic options process, the departure
of Mr Mike Utsler, the appointment of Mr Steve Herod and restructuring expenditures.
Gain on derivative financial instruments for the current year was US$1.5 million (2022: US$6.6 million loss) as a
result of softening crude oil prices between June 2022 and September 2022.
Income tax expense for the current year was a benefit of US$2.9 million (2022: US$4.3 million expense), which
was attributable to the reversal of US federal income tax expense booked in the prior fiscal year, as a result of the
Company being able to utilize previously incurred net operating losses.
Finance costs (including amortisation of borrowing costs, interest, and commitment fees) for the current year
totaled US$1.1 million (2022: US$2.1 million), a 50% decrease due to a lower average outstanding principal
balance on the Company’s credit facility with Macquarie Bank during the current fiscal year.
Exploration expenditures during the current year were US$3.0 million (2022: US$3.2 million), a 6% decrease
due to less drilling and exploration activities during the year.
24 OTTO ENERGY
ANNUAL REPORT 2023
5
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Production and Development
Reserves Statement as at 30 June 2023
On 30 August 2023 the Company released its statement of reserves and resources as at 30 June 2023. The
statement of reserves included Otto’s fields at South Marsh 71 (SM 71), Green Canyon 21 (GC 21), Lightning in
Matagorda County, TX (Lightning), Mosquito Bay West and Oyster Bayou South, and were independently
prepared by Ryder Scott Company. The contingent and prospective resources cover SM 71, Lightning and South
Timbalier 48 (ST 48). The summary statement of reserves and contingent & prospective resources as at 30 June
2023 and changes to reserves and resources since 30 June 2022 is set out below. Full details including the
Gross (100%)
Total
reconciliations and notes on the statements are included in the ASX release of 30 August 2023.
Net
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Contingent and
Prospective Resources
(best estimate, unrisked)
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
630
301
-
931
993
1,924
1,085
17,979
8,968
-
26,947
28,558
55,505
32,577
3,164
516
-
3,680
3,735
7,415
2,388
Mboe
6,791
2,311
-
9,102
9,488
18,590
8,902
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
172
80
-
252
262
514
293
4,593
2,210
-
6,803
7,112
13,915
8,225
878
174
-
1,052
912
1,964
558
Mboe
1,815
622
-
2,437
2,360
4,797
2,222
9,803
88,082
3,009
27,492
2,522
22,140
807
7,019
7,040
44,590
-
14,472
4,700
24,160
-
8,727
Changes to reserves and resources since 30 June 2022
Otto Energy Limited Grand Total - Reserve Reconciliation (Otto Energy NRI Share)
Gas (MMCF)
Oil/NGL (Mbbl)
MBOE
Remaining
6/30/2022
Production
FY23
Additions &
Revisions
Remaining
6/30/2023
Remaining
6/30/2022
Production
FY23
Additions &
Revisions
Remaining
6/30/2023
Remaining
6/30/2022
Production
FY23
Additions &
Revisions
Remaining
6/30/2023
Proved (1P)
Probable
1,805
944
Proved+Probable (2P)
2,749
Possible
Proved+Probable+
Possible (3P)
666
3,415
373
0
373
0
373
(128)
230
102
185
287
1,304
1,174
2,478
11,472
1,657
(3,012)
6,803
6,979
0
133
7,112
18,451
1,657
(2,879)
13,915
851
7,884
0
341
8,225
3,718
2,107
5,825
1,980
3,329
26,335
1,657
(2,538)
22,140
7,805
649
0
649
0
649
(632)
253
(379)
242
2,437
2,360
4,797
2,222
(137)
7,019
Estimated proved reserves total approximately 2.4 Mmboe and consist of eight PDP wells, compared to 3.7 Mmboe
as of 30 June 2022. This decrease is predominantly due to production of 649 Mboe on a net revenue interest basis
(“NRI”) through FY 23, the reclassification of a proved undeveloped well at Lightning (Green #3) to probable, and
downward revisions at GC 21, partially offset by the addition of new reserves attributable to Oyster Bayou South.
Estimated proved plus probable reserves total approximately 4.8 Mmboe, compared to 5.8 Mmboe as of 30 June
2022. This decrease is predominantly attributable to 1P production of 649 Mboe (NRI) through FY 23 and
downward revisions at GC 21, partially offset by the addition of new reserves attributable to Oyster Bayou South
and upward revisions at SM 71.
Estimated proved plus probable plus possible reserves totaled approximately 7.0 Mmboe, compared to 7.8 Mmboe
as of 30 June 2022. This decrease is predominantly attributable to 1P production of 649 Mboe (NRI) through FY
23 and downward revisions at GC 21 and SM 71, partially offset by the addition of new reserves attributable to
Oyster Bayou South and upward revisions at Lightning.
Contingent and prospective resources totaled approximately 8.7 Mmboe as a result of additional resources at SM
71, Lightning, and ST 48. This compares to 2.4 Mmboe at 30 June 2022, an increase associated with ST 48 which
was awarded to the Company in November 2022 from OCS Lease Sale 257.
OTTO ENERGY
ANNUAL REPORT 2023 25
6
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Production and Revenue Summary
The table below sets out production and working interest (“WI”) revenue information associated with Otto’s
sales of natural gas, oil and natural gas liquids (“NGLs”) from its fields at SM71, Lightning, GC 21, Vick #1,
Mosquito Bay West and Oyster Bayou South for the year ended 30 June 2023. One barrel of oil, condensate or
NGL is the energy equivalent of six Mcf of natural gas.
FY 2023
FY 2022
% Change
Total Oil (Bbls)
Total Gas (Mcf)
Total NGLs (Bbls)
Total BOE
Total (Boe/d)
Percent Liquids (%)
403,922
450,439
2,203,444
2,008,200
71,371
842,533
2,308
56%
59,949
845,088
2,315
60%
Total WI Revenue (US$MM)
$ 44.1 $ 51.1
Oil revenue ($millions)
Avg oil price ($/Bbl)
$ 32.3 $ 38.2
$ 79.99
$ 84.71
Gas revenue ($millions)
$ 9.8 $ 10.7
Avg gas price ($/Mmbtu)
$ 4.50 $ 5.21
NGL revenue ($millions)
$ 1.7 $ 2.2
Avg NGL price ($/Bbl)
$ 23.37
$ 36.35
Total revenue ($millions)
$ 43.7 $ 51.1
Avg WA price ($/Boe)
$ 51.93
$ 60.43
-10%
10%
19%
0%
0%
-7%
-14%
-15%
-6%
-9%
-14%
-23%
-36%
-14%
-14%
Otto’s hydrocarbon sales for the current year equate to 2,308 Boe/d, which is consistent with the prior fiscal year
primarily driven by new production from Mosquito Bay West, Oyster Bayou South, and Vick #1 (Eaves Prospect),
as well as recompleting GC 21. The increased production from these new wells was offset by normal field
declines.
Notes
1.
2.
3.
4.
5.
6.
7.
Otto sells its high-quality crude produced at SM 71, Mosquito Bay West, and Oyster Bayou South 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.
GC 21 crude is a medium sour grade and sells against the Bonito Sour crude market. Deductions are applied
for transportation, gravity, and pipeline loss allowances.
Lightning crude sells against the WTI Houston crude market. Deductions are applied for transportation and
gravity.
On average, 1 Mscf = 1.10 Mmbtu for SM 71 raw gas production. The thermal content of SM 71 gas may vary
over time.
On average, 1 Mscf = 1.25 Mmbtu for GC 21 raw gas production. The thermal content of GC 21 gas may vary
over time.
On average, 1 Mscf = 1.10 Mmbtu for Lightning raw gas production. The thermal content of Lightning gas
may vary over time.
On average, 1 Mscf = 1.12 Mmbtu for Mosquito Bay West and Oyster Bayou South raw gas production. The
thermal content of Mosquito Bay West and Oyster Bayou South gas may vary over time.
26 OTTO ENERGY
ANNUAL REPORT 2023
7
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
South Marsh Island 71 (SM 71) – Offshore Gulf of Mexico
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 sidetracked in the future. The field is operated by Byron
Energy.
In late June 2022, traces of water were detected from the F3 well. At that time, the F3 well had a 2% water cut.
During the month of June 2023, the average water cut in the F3 well was approximately 78%, which is consistent
with Otto’s mapping and reservoir modelling. The F1 well, updip to the F3, continues to produce water-free.
In September 2022, the F2 well was successfully recompleted in the J1 sand and resumed production. On 2 June
2023, the F2 well was shut in for pressure buildup, and remained shut-in until 23 July 2023.
SM 71 Production Volumes
Production and WI revenue for the year ended 30 June 2023 and 2022 was as follows:
WI (50.0%)
% Change
Oil (bbls)
FY 2023
FY 2022
276,164
390,888
-29%
NRI (40.6%)
SM 71 Prices
WI (50.0%)
Gas (Mscf)
Total (Boe)
Total (Boepd)
Oil (bbls)
Gas (Mscf)
Total (Boe)
Total (Boepd)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per Mmbtu
Total – US$million
218,413
312,566
291,122
439,408
856
1,204
224,383
177,460
253,960
317,597
236,536
357,019
696
978
-25%
-29%
-29%
-29%
-25%
-29%
-29%
FY 2023
FY 2022
% Change
$
$
$
$
$
22.3 $
33.1
80.76
$
84.69
1.3 $
5.09 $
1.8
6.12
23.6 $
34.9
-33%
-5%
-28%
-17%
-32%
Production volumes for the current year were below production volumes for the prior year due to normal field
decline, as well as the F2 well being shut in for 57 days during the year for recompletion operations and later for
pressure build up. All three wells had 19 days of partial downtime during the year due to installing gas lift at F1
and F2, as well as for compressor issues. During the prior year, the wells were down for 19 days due to Hurricane
Ida, and later for repairs at a 3
party oil sales pipeline. Sales revenues for the current year were also lower than
the prior year due to this 29% decrease in production, as well as a 5% decrease in oil prices received and a 17%
decrease in natural gas prices received. Production, on a WI basis, was approximately 643 Boe/d as of 30 June
SM71
2023. The following table sets out certain information with respect to SM 71 reserves as of 30 June 2023.
Gross (100%)
Net (40.6%)
rd
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
23
3
Mboe
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
57
7
1,385
263
-
1,648
1,293
164
-
1,457
1,101
2,749
367
1,026
2,483
324
3,116
2,807
Mboe
1,658
297
-
1,955
1,317
3,272
435
563
107
-
670
482
61
-
543
447
1,117
149
382
925
121
3,707
1,266
1,046
-
64
45
109
14
123
666
120
-
786
529
1,315
175
1,490
-
26
18
44
6
50
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Contingent and
Prospective Resources
(best estimate, unrisked)
2,300
4,680
-
3,080
930
1,910
-
1,248
OTTO ENERGY
ANNUAL REPORT 2023 27
8
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Lightning – Onshore Matagorda County, Texas
The first well in this field, Green #1, commenced production in June 2019 while the Green #2, commenced
production in February 2020. Production and WI revenue for the year ended 30 June 2023 and 2022 was as
Lightning Volumes
follows:
WI (37.5%)
% Change
Oil (bbls)
FY 2022
FY 2023
56,062
49,965
-11%
NRI (27.8%)
Lightning Sales Revenue
WI (37.5%)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per Mmbtu
NGLs - $million
NGLs – $ per bbl
Total – US$million
1,545,836
1,697,469
53,828
361,432
990
59,088
398,062
1,091
37,225
42,179
1,151,751
1,277,118
40,109
269,292
738
44,456
299,488
821
-9%
-9%
-9%
-9%
-12%
-10%
-10%
-10%
-10%
FY 2023
FY 2022
% Change
$
$
$
$
$
$
$
4.0 $
4.8
80.59
$
84.99
6.6 $
4.24 $
8.8
5.20
1.3 $
2.1
24.97
$
36.35
12.0 $
15.7
-15%
-5%
-25%
-19%
-37%
-31%
-24%
Beginning in FY2023, Otto’s NRI in the Lightning field decreased from 28.2% to 27.8%. The Lightning prospect
was initially leased to a level in excess of 99%. For the unleased interest, the parties owning the unleased interest
were carried for the drilling of the two wells. Prior to payout, the parties earned a share of production in relation
to their WI, and share in relation to their carried WI attributable to the unleased mineral interest. At payout, the
carried share of production reverted to the unleased interests.
Production volumes for the current year were lower than production volumes for the prior year due to normal
field decline. Sales revenues for the current year were also lower than the prior year due to this 9% decrease in
production and the reduced NRI, as well as a 5% decrease in oil prices received, a 19% decrease in natural gas
prices received, and a 31% decrease in NGL prices received. Production, on a WI basis, was approximately 864
Boe/d as of 30 June 2023.
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.
28 OTTO ENERGY
ANNUAL REPORT 2023
9
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
The following table sets out certain information with respect to Lightning reserves as of 30 June 2023.
Lightning
Gross (100%)
Net (27.8%)
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective
Resources (best estimate,
unrisked)
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
133
59
124
55
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
476
211
-
687
746
1,433
961
14,833
6,560
-
21,393
23,236
44,629
29,928
445
197
-
642
697
1,339
898
Mboe
3,393
1,501
-
4,894
5,316
10,210
6,847
2,237
74,557
2,394
17,057
3,818
1,688
-
5,506
5,980
11,486
7,702
19,188
-
179
194
373
250
623
Mboe
893
395
-
1,288
1,399
2,687
1,801
4,488
-
192
208
400
267
667
630
21,250
-
4,172
170
5,920
-
1,157
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 shallow DTR-10 sands. During operations, an issue with the
casing hanger in the wellhead caused by strong loop currents was discovered. Due to additional equipment being
required, operations were suspended and resumed in February 2023, with production beginning on 22 March
2023.
After a few days of production from the DTR-10 sands, well diagnostics indicated that the lower DTR-10
completion was not contributing to well production and the well was only seeing a contribution from the upper
completion. Well intervention operations were completed in mid-May 2023 and the well is currently producing
from both DTR-10 zones.
In January 2023, Otto and the operator both filed a Control of Well event insurance claim regarding the
recompletion at GC 21. Both claims are being reviewed by the same insurance adjuster. During the recompletion,
the tubing string, control lines, casing and clamps were damaged. A review is underway to determine how
increased loop eddy currents contributed to these failures. The insurance carriers have confirmed the merits of
the claim and the Company received an initial insurance payment of US$5.8 million in August 2023. The insurance
claim is for a maximum total amount of $8.7 MM (Otto share, net of deductible), but no assurance can be made as
to the amount or timing of any potential additional insurance claim proceeds.
GC 21 Production Volumes
Production and WI revenue for the year ended 30 June 2023 and 2022 was as follows:
WI (16.67%)
13,892 3,488
Oil (bbls)
FY 2022
FY 2023
% Change
298%
NRI (13.3%)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
14,942
19,609
1,172 862
17,554 7,618
48
21
11,113 2,791
11,953
15,687
937 689
14,043 6,095
38
17
-24%
36%
130%
130%
298%
-24%
36%
130%
130%
OTTO ENERGY
ANNUAL REPORT 2023 29
10
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
GC 21 Sales Revenue
WI (16.67%)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per Mmbtu
NGLs - $million
NGLs – $ per bbl
FY 2023
FY 2022
% Change
$ 1.0 $ 0.3
$ 70.05
$ 83.07
$ 0.1 $ 0.1
$ 2.82 $ 5.89
$ 0.02 $ 0.03
$ 20.81
$ 36.47
236%
-16%
-56%
-52%
-22%
-43%
Total – US$million
$ 1.0 $ 0.4
140%
Production volumes for the current year were higher than production volumes for the prior year due to
recompletion activities in the shallow DTR-10 sands. Sales revenues also increased as a result of the
recompletion activities, partially offset by a 16% decrease in oil prices received, a 52% decrease in natural gas
prices received, and a 43% decrease in NGL prices received. Production, on a WI basis, was approximately 162
Boe/d as of 30 June 2023. The following table sets out certain information with respect to GC 21 reserves as of
30 June 2023.
Green Canyon 21
Gross (100%)
Net (13.3%)
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
66
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
9
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resources
(best estimate, unrisked)
Mosquito Bay West
1,194
-
-
1,194
1,803
2,997
1,026
1,015
-
-
1,015
1,532
2,547
872
4,023
3,419
-
-
Mboe
1,429
-
-
1,429
2,158
3,587
1,228
4,815
-
-
-
66
100
166
57
223
-
159
-
-
159
241
400
137
120
-
-
120
182
302
103
537
-
405
-
Mboe
188
-
-
188
284
472
162
634
-
-
-
-
9
13
22
8
30
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. The well began producing in August 2022. Production and WI revenue for the year ended 30 June
Mosquito Bay West Production Volumes
2023 and 2022 was as follows:
Oil (bbls)
WI (30.0%)
FY 2022
-
FY 2023
14,769
% Change
n/a
NRI (22.4%)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
283,312
-
11,290
-
73,278
-
201
-
11,003
-
211,068
-
8,411
-
54,592
-
150
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
30 OTTO ENERGY
ANNUAL REPORT 2023
11
n/a
n/a
n/a
n/a
n/a
n/a
90
461
-
551
526
1,077
257
1,334
-
FINANCIAL REPORT
FY 2023
$ 1.1
FY 2022
$ -
% Change
n/a
DIRECTOR’S REPORT
For the year ended 30 June 2023
Mosquito Bay West Sales Revenue
WI (30.0%)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per MMbtu
NGLs - $million
NGLs – $ per bbl
$ 77.87
$ -
$ 1.2
$ -
$ 4.30
$ -
$ 0.2
$ -
$ 17.77
$ -
Total – US$million
$ 2.5
$ -
The following table sets out certain information with respect to Mosquito Bay West reserves as of 30 June 2023.
Mosquito Bay West
Gross (100%)
Net (22.4%)
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
16
83
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
4
18
3
12
13
56
-
69
70
139
33
437
2,244
-
2,681
2,561
5,242
1,250
172
6,492
-
-
Mboe
102
513
-
615
592
1,207
287
1,494
-
-
99
95
194
46
240
-
15
16
31
7
38
-
-
Mboe
22
107
-
129
125
254
60
314
-
22
21
43
10
53
-
-
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resources
(best estimate, unrisked)
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. Production and WI revenue for
Oyster Bayou South Production Volumes
the year ended 30 June 2023 and 2022 was as follows:
Oil (bbls)
WI (30.0%)
FY 2022
-
FY 2023
49,067
% Change
n/a
NRI (22.8%)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oil (bbls)
Gas (Mscf)
NGLs (bbls)
Total (Boe)
Total (Boepd)
Oyster Bayou South Sales Revenue
WI (30.0%)
Oil - $million
Oil - $ per bbl
Gas - $million
Gas – $ per MMbtu
NGLs - $million
NGLs – $ per bbl
131,096
-
5,081
-
75,998
-
208
-
37,260
-
99,548
-
3,858
-
57,710
-
158
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
FY 2023
$ 3.8
FY 2022
$ -
% Change
n/a
$ 78.46
$ -
$ 0.6
$ -
$ 5.24
$ -
$ 0.1
$ -
$ 19.35
$ -
Total – US$million
$ 4.5
$ -
n/a
n/a
n/a
n/a
n/a
n/a
OTTO ENERGY
12
ANNUAL REPORT 2023 31
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
The following table sets out certain information with respect to Oyster Bayou South reserves as of 30 June 2023.
Oyster Bayou South
Gross (100%)
Net (22.8%)
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
15
Proved Producing
Proved Behind Pipe
Proved Undeveloped
Proved (1P)
Probable
Proved Plus Probable (2P)
Possible
Proved Plus Probable Plus
Possible (3P)
Total Prospective Resources
(best estimate, unrisked)
Eaves Prospect
127
-
-
127
64
191
64
401
-
-
401
203
604
203
255
-
807
-
Mboe
209
-
-
209
105
314
105
419
-
Oil (MbbL) Gas (MMcf) NGL (Mbbl)
3
83
29
-
-
-
29
14
43
15
58
-
-
83
42
125
42
167
-
-
-
-
3
2
5
2
7
Mboe
46
46
23
69
24
93
-
-
-
-
-
-
15
7
22
7
29
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, with first production in September 2022. The
well has cumulatively produced over 530 bbls of oil and 95 MMcf of gas (8/8ths).
During FY 2023, on a WI basis, the Vick #1 well produced approximately 1,706 Boe. The well was shut-in on 22
April 2023, and remained shut in as of 30 June 2023, as the well has reached the end of its economic life.
Exploration and Appraisal
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. ST 48 was
Corporate and Administration
awarded to the Company effective 1 November 2022 for a primary term of five years.
Board of Director Changes
Effective 19 June 2023, Mr Michael Utsler departed as Executive Chairman, Chief Executive Officer, and Managing
Director. Mr John Jetter was appointed as non-executive Chairman of the Company and Mr Paul Senycia was
Pantheon Shareholding (LSE: PANR)
appointed Deputy Chairman of the Company effective 19 June 2023.
The Company continues to own 3,272,592 shares of PANR, valued at approximately US$0.5 million as at 30 June
2023, as well as a 0.5% of 8/8ths overriding royalty interest (ORRI) in any future production from the Talitha
Commodity Price Risk Management
Unit in Alaska, which is operated by Pantheon.
Otto derives its net operating revenue from the sale of oil and natural gas. As a result, the Company’s net
operating 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 may occasionally utilize 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.
32 OTTO ENERGY
ANNUAL REPORT 2023
13
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
For the fiscal year ended 30 June 2023, the Company recorded a gain on derivatives of approximately $1.5
Strategy
million. As of 30 June 2023, Otto had no open hedge positions.
As set out in the ASX announcement dated 29 March 2023, the Company has initiated a formal review process to
maximise shareholder value. The process, led by Seaport Global and Adelaide Equity Partners, and supervised
by a Board Sub Committee of Independent Directors, includes an assessment of a potential partial or full sale of
the Company and/or its assets. The strategic review was initiated due to the Directors’ belief that Company’s
shares have traded and continue to trade at a significant discount relative to the intrinsic value of the underlying
assets, notwithstanding that Otto is debt free with a strong balance sheet, has significant free cash and positive
cash flow. The Board remains confident of a positive outcome to this process which, if successful, would enable
the Company to adequately reward shareholders by various methods, including a return of capital to
shareholders from the proceeds of a sale of the Company’s assets.
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
Operating Risk
affect the Company.
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 a 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. Otto seeks to ensure that the operator’s reputation
is sound, and that Otto’s interests are in alignment before committing to participation. Once committed, the risk
is further mitigated through joint venture partner meetings, real time data receipt and review, and technical
Unsuccessful Exploration and Oil and Gas Reserves Depletion Risk
reviews and audits.
Without additions to reserves through exploration and development drilling success or acquisitions, Otto’s oil
and gas production, and hence net operating revenues and cash flows, will decrease over time as production
from existing fields declines naturally. The rate of decline is dependent on reservoir characteristics and may vary
materially from estimates.
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 revenue 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
OTTO ENERGY
ANNUAL REPORT 2023 33
14
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
suitably qualified and experienced staff and advisors to generate and evaluate opportunities within the set
criteria. Any acquisition of reserves is subject to the same discipline.
Where possible, Otto also seeks to reduce the likelihood or impact of such risks through commercial agreements
Reserves Recovery Risk
where possible.
The process of estimating oil and natural gas reserves is complex. It requires interpretations of available
technical data and many assumptions, including assumptions relating to economic factors. Any significant
inaccuracies in these interpretations or assumptions could materially affect the estimated quantities of our
reserves at 30 June 2023.
In order to prepare our year-end reserve estimates, our independent consultant projected our production rates
and timing of development expenditures. Our independent consultant also analyzed available geological,
geophysical, production and engineering data. The extent, quality and reliability of this data can vary and may
not be under our control. The process also requires economic assumptions about matters such as crude oil and
natural gas prices, operating expenses, capital expenditures, taxes and availability of funds. Therefore, estimates
of oil and natural gas reserves are inherently imprecise.
Actual future production, crude oil and natural gas prices, net operating revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will most likely vary
from our estimates. Any significant variance could materially affect the estimated quantities of our reserves. In
addition, our independent consultant may adjust estimates of proved reserves to reflect production history,
Financial Risk
drilling results, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
Otto’s financial performance and resilience may be impacted by key factors such as:
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.
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.
Insufficient liquidity to meet financial commitments and fund growth opportunities could have a material
adverse effect on our operations and financial performance.
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
Key Management Risk
performance.
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.
34 OTTO ENERGY
ANNUAL REPORT 2023
15
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
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 attacks. 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
Commodity price risk
timely manner.
Otto’s net operating 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.
One such factor is the transition to lower carbon sources of energy in many parts of the world (driven by ESG
and climate change concerns) which may affect demand for Otto’s products, including crude oil, natural gas and
NGLs, which in turn may affect the price received (or expected to be received) for these products. Material
adverse price impacts (including as a result of the energy transition) may affect the economic performance
(including as to margins and cash flows) of, and longevity of production from, Otto’s production assets, and
ultimately the financial performance of Otto. The Company monitors and analyses the oil and gas markets and
seeks to reduce price risk where reasonable and practical.
The Company may utilize commodity price hedge instruments to minimize exposure to short term price
fluctuations by using a series of swaps, costless collars and/or puts. The Company evaluates market prices and
sensitivities from time to time to determine when it would be appropriate to enter into these hedges.
Environmental Social & Governance (ESG) Risks
Environmental Social and Governance (ESG) risks are present in Otto’s operations and business locations. As a
non-operator, Safety and Environmental Management Systems (SEMS) evaluation in partner selection and
tracking of operational environmental data allow Otto to monitor and manage environmental risks. Otto also 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.
Climate Change Risk
Climate change and the transition to a lower-carbon economy presents both risk and opportunity in the
operation of our existing assets, commercialization of our growth portfolio, and in the way that the world
produces and consumes energy. 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
Technology Risks
in current and future markets.
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.
16
OTTO ENERGY
ANNUAL REPORT 2023 35
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Regulatory Risks
Our business performance is underpinned by our social license to operate, that requires compliance with
legislation and the maintenance of a high level of ethical behavior and social responsibility. Our business
activities are subject to extensive regulation and government policy in each of the countries where we do
business. Failure to comply may impact our license to operate.
Stakeholders have evolving expectations of social responsibility and ethical decision making. These are changing
at a rate faster than governments can introduce or amend regulation. A significant or continuous departure from
national or local laws, regulations or approvals may result in negative social and cultural impacts, reputation and
brand, and loss of license to operate.
Violation of international anti-bribery and corruption laws may expose Otto to fines, criminal sanctions, and civil
suits, and negatively impact our international reputation. Otto proactively maintains and builds our social license
to operate through the application of our values, effective stakeholder engagement strategies, our regulatory
compliance framework and our anti-fraud and corruption program.
Liquidity and Debt
Otto’s cash on hand at 30 June 2023 was approximately US$25.9 million, with the Company having no
outstanding debt.
On 4 November 2019 the Company announced it had entered into a senior secured US$55 million term debt
facility with Macquarie Bank Limited (
) made up of Tranche A1 (US$25 million),
Tranche A2 (US$10 million), and Tranche B (US$20 million, subject to further credit approval).
) (the
Macquarie
Credit Facility
As of 30 June 2023, the Company had drawn and repaid the entire US$25 million available under Tranche A1,
resulting in a closing debt balance of nil. Tranche A1 is therefore no longer available to borrow. The Company is
currently terminating this facility. The Credit Facility is secured by substantially all of the Company’s oil and gas
producing assets. 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, which expire in November 2023. 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 discovery and production at Oyster Bayou South.
Commenced production at Mosquito Bay West discovery.
Commenced production at Vick #1 (Eaves) discovery.
Completed recompletion at GC 21 and commenced production from the DTR-10 sands.
Awarded South Timbalier 48 (ST 48).
Announcement of strategic options process.
36 OTTO ENERGY
ANNUAL REPORT 2023
17
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Significant events after the balance date
No matters or circumstances have arisen since 30 June 2023 that have significantly affected, or may significantly
affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial
years apart from those listed below:
On 9 August 2023, Otto received an AFE from the operator of the Vick #1 well to plug and abandon this well,
at a cost of US$11,000, net to Otto.
As of 11 August 2023, Otto had received proceeds of US$5.8 million in relation to a Control of Well insurance
claim at GC 21. During the recompletion, the tubing string, control lines, casing and clamps were damaged. A
review is underway to determine how increased loop eddy currents contributed to these failures.
On 30 August 2023 the Company released its statement of reserves and prospective resources as at 30 June
2023. The reserves were compiled by Otto’s independent consultant Ryder Scott Company and covered SM
71, Lightning, GC 21, Mosquito Bay West and Oyster Bayou South. The contingent and prospective resources
covered SM 71, Lightning and ST 48. The summary statement of reserves and resources as at 30 June 2023
and changes to reserves and resources since 30 June 2022 is set out in the Production and Development
section of this Director’s Report. For full details refer to ASX release dated 30 August 2023.
Likely developments and expected results
Likely developments in the operations of the Group that were not finalised at the date of this report included:
Termination of the Company’s credit facility with Macquarie.
Resolution and/or conclusion of the Company’s strategic options process.
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:
D
Merger and
Acquisition
Committee
Audit and risk
management
Committee (ARC)
Remuneration and
nomination
committee (RNC)
Board meetings
i
r
e
c
t
o
r
Mr J
Jetter
Mr M
Utsler
Mr P
Senycia
Mr G
Page
Mr J
Madden
Number
eligible
to
attend
10
10
10
10
10
Number
attended
9
10
10
10
9
Number
eligible
to
attend
12
10
12
-
12
Number
attended
12
10
12
-
11
Number
eligible
to
attend
2
-
2
2
2
Number
attended
2
-
2
2
1
Number
eligible
to
attend
7
-
7
7
7
Number
attended
7
-
7
7
7
18
OTTO ENERGY
ANNUAL REPORT 2023 37
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Indemnification and insurance of Directors and officers
During the financial year, the Company paid a premium of approximately US$145,000 (2022: 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.
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 Audit (WA) Pty Ltd. 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 Audit (WA) Pty Ltd received or are due to receive the following amounts for the provision of non-audit
services:
2023
2022
Tax compliance services
Tax consulting and tax advice
Auditor’s independence declaration
The auditor’s independence declaration is included on page
Remuneration report (audited)
of this report.
53
US$
7,757
-
7,757
US$
9,217
9,581
18,798
The Directors of the Company have prepared this remuneration report to outline the overall remuneration
strategy, policies and practices which were in place during 2023. 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.
38 OTTO ENERGY
ANNUAL REPORT 2023
19
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
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) incentive to deliver future individual and Group performance.
fair and reasonable reward for past individual and Group performance; and
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.
Directors
Key management personnel disclosed in this report are:
Mr John Jetter
Mr Paul Senycia
Mr John Madden
Mr Geoff Page
Mr Michael Utsler
Executives
Non-Executive Chairman
Non-Executive Deputy Chairman
Non-Executive Director
Non-Executive Director
Executive Chairman (through 19 June 2023)
Mr Steve Herod
Mr Will Armstrong
Mr Sergio Castro
Mr Philip Trajanovich
Remuneration governance
Chief Executive Officer
Senior Vice President Exploration and New Ventures
Chief Financial Officer
Senior Vice President Commercial and Land
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 the four 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 long term
incentives (LTI) where applicable. Fees are set to reflect current market levels based on the time, responsibilities
OTTO ENERGY
20
ANNUAL REPORT 2023 39
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
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 in office at the time received a grant of performance rights on 15 November 2018
following approval by shareholders at the Company’s Annual General Meeting. These performance rights expire
on 15 November 2023. The grant was based on 50% of fixed annual remuneration (FAR). The Board believes
that the issue constituted reasonable remuneration having considered the peer group comparisons, the recent
history of the Company, the experience of each of the Directors and the responsibilities involved in that office.
Retirement allowances for non-executive Directors
In line with ASX Corporate Governance Council, non-executive Directors’ remuneration does not include
retirement allowances. Superannuation contributions required under the Australian superannuation guarantee
legislation continue to be made and are deducted from the Directors’ overall fee entitlements.
Directors’ fees
The following fees have applied:
Base fees:
2023
(16 Jun
2023 – 30
Jun 2023)
2023
(1 Jul 2022
– 15 Jun
2023)
2022
(1 Jul 2021
– 30 Jun
2022)
Non-executive Directors
Additional fees:
A$75,000
A$75,000
A$75,000
Chairman
Deputy Chairman
Audit and Risk Management Committee Chair
Remuneration Committee Chair
Appointment
A$60,000
A$60,000
A$10,000
A$5,000
-
-
A$10,000
A$5,000
-
-
A$10,000
A$5,000
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 2023 is
summarised below.
The remuneration structure in place for the year ended 30 June 2023 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.
40 OTTO ENERGY
ANNUAL REPORT 2023
21
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Purpose
Element
Performance Metrics
Potential Value
Fixed annual
remuneration (FAR)
Provide competitive
market salary including
superannuation and
non-monetary benefits
Nil
Reward for
performance
Alignment to long term
shareholder value
HSSE, EBITDA,
production reserve
replacement
TSR Improvements,
individual performance,
net operating revenue
targets
TSR Performance,
vesting over 3 year
period
STI
LTI
Executive remuneration mix
Reviewed in line with
market positioning
CFO 35% of FAR,
Other Execs 30% of FAR
plus net operating
revenue bonus pool
capped at 2% gross
revenue if gross
revenue >$30M
CFO – 30% of FAR
Other Execs – 30% of
FAR
In accordance with the Group’s objective to ensure that executive remuneration is aligned to Group’s
performance, a significant portion of the executives’ target pay is “at risk”.
a) Fixed annual remuneration (FAR) or base salary (including superannuation);
To attract and retain talented, qualified, and effective employees, the Group pays competitive base salaries which
have been benchmarked to the market in which the Group operates. The Group compiles competitive salary
information on companies of comparable size in the oil and gas industry from several sources. Where
appropriate, information is obtained from surveys conducted by independent consultants and national and
international publications. In the past the Board has engaged independent advisors to review the remuneration
levels paid to the Group’s key management personnel. An advisor was not retained for the 2023 or 2022 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. A corporate scorecard and the weighting of individual and
corporate performance to determine executive STI was implemented for the 2022 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. A net operating revenue pool capped at 2% of gross net operating revenue is available to be distributed
at Board discretion if net operating revenue targets are met. 2022 calendar year net operating revenue target
>$US30 million (2021 calendar year: >$US25 million). STI award is paid in cash in the quarter following the end
of the calendar year.
OTTO ENERGY
ANNUAL REPORT 2023 41
22
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Feature
Description
Max opportunity
CFO 35% of FAR, Other Executives 30% of FAR
Weighting
Metric
(50% company performance x 50% individual contribution)
Reason for selection
2022 Calendar
year
actual
outcome
Company performance (50%)
HSSE
5%
45%
25%
Financial metrics:
production
(MMBOE), capex
and opex spend,
EBITDA
Resource / reserve
replacement
Share price / TSR
improvements
Individual performance (50%)
25%
Reflects company
non-financial values
5%
Reflects
improvements in
both net operating
revenue, cost
control and
production metrics.
Focus of the group’s
growth strategy
Alignment with
shareholder returns
41%
23%
2%
Other Cash
Payments
Delivery of STI
Board discretion
Specific
individuals
to
100%
Target metrics have been chosen that
are critical to individual roles
Net operating revenue pool capped at 2% of gross revenue
distributed at Board discretion if net operating revenue target met.
Net operating revenue target for 2022 calendar year $US30 million
(2021 > US25 million).
STI award is paid in cash in the quarter following the end of the calendar year.
Net Operating
Revenue
US$44 million
STI awards are issued at the discretion of the Board.
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.
42 OTTO ENERGY
ANNUAL REPORT 2023
23
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
No rights were issued for the year ended 30 June 2023.
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 continue to exist
and will be tested at expiry date. The number of remaining performance rights issued in December 2018 held by
executives and directors as of 30 June 2023 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%. The TSR hurdle was not met
on the expiry date of 29 November 2022 and the remaining performance rights expired.
The total number of remaining performance rights on issue held by executives and directors as of 30 June 2023
is 9,137,000.
The total number of performance rights granted is subject to being reduced proportionately so that the total
number for performance rights is within:
i)
the Board’s determined cap on the total number of performance rights which are issued as LTI awards in a
given year; and
ii)
any discretionary cap on the total number of rights on issue at any given time.
The Board has established an initial guideline that the total number of performance rights to be issued in a single
year will be capped at 1.7% of the fully paid issued capital of the Company as at the end of the prior year. In the
event that the potential total number of performance rights exceeds the cap then all awardees receive a pro-
rated reduced number of performance rights. This cap is at the discretion of the Board and may be altered
depending on the prevailing context.
The Board exercised its discretion regarding the cap for the 2018 grants and issued 25,489,002 performance
rights to executives and directors. The Board discretion was exercised considering the following important
factors:
i)
ii)
the total 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 new, highly qualified and
experienced executives 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 2022 Annual General Meeting
At its 2022 Annual General Meeting, the Company received approximately 99% of “yes” votes on its
remuneration report for the 2022 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 2022 Annual
General Meeting were carried on a poll.
OTTO ENERGY
ANNUAL REPORT 2023 43
24
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Performance of Otto Energy Limited
The Corporations Act requires disclosure of the Company’s remuneration policy to contain a discussion of the
Company’s earnings and performance and the effect of the Company’s performance on shareholder wealth in the
reporting period and the four previous financial years. The table below provides a five-year financial summary.
30 June
2019
30 June
2020
30 June
2021
30 June
2022
30 June
2023
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
(18,409)
(1,358)
0.054
(0.95)
-
-
0.007
(0.05)
-
-
(450)
0.008
(0.01)
-
-
15,514
(7,006)
0.013
0.32
-
-
0.015
(0.15)
-
-
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 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:
44 OTTO ENERGY
ANNUAL REPORT 2023
25
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OTTO ENERGY
ANNUAL REPORT 2023 45
FINANCIAL REPORT
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46 OTTO ENERGY
ANNUAL REPORT 2023
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
The relative proportions of remuneration that are linked to performance and those that are not, are as follows:
At risk – STI
At risk – LTI
Fixed and other
2022
2023
2023
2022
2023
(i)
2022
Directors
Mr J Jetter
Mr P Senycia
(iii)
Mr M Utsler
Mr G Page
Executives
Mr J Madden
(ii)
(iv)
Mr S Herod
Mr S Castro
Mr W Armstrong
Mr P Trajanovich
(i)
100%
100%
81%
100%
100%
57%
64%
69%
69%
98%
99%
73%
100%
-
-
68%
72%
67%
-
-
19%
-
-
43%
36%
31%
31%
-
-
27%
-
-
-
32%
28%
33%
-
-
-
-
-
-
-
-
-
2%
1%
-
-
-
-
-
-
-
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 J Madden appointed non-executive director 1
Mr M Utsler departed as Chief Executive Officer and Managing Director on 19 June 2023
Mr S Herod was appointed Chief Executive Officer on 20
June 2023
July 2022
(ii)
(iii)
(iv)
Transaction related bonuses:
Mr Herod will be entitled to receive a cash bonus if there is a liquidity event that results in a return of capital to
the Company’s shareholders (including a takeover, merger, scheme of arrangement, sale of assets, share buy-back,
special dividend, or a series of liquidity events) that arises from the signing of definitive documents during Mr
Herod’s employment not later than 1 March 2024. The maximum amount of the cash bonus is US$300,000.
Performance against key measures for LTI:
Target
Metric
Performance
LTI No vesting for the fiscal year ended 2023
rights issued
2018
Performance
rights issued
2017
TSR hurdle rate
not met
15% 3 year TSR
10% 3 year TSR
Performance
TSR hurdle rate
not met
Impact
Reward
on
Incentive
Performance rights rolled
over to next measurement
date in November 2023
Performance rights expired
on 29 November 2022
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.
OTTO ENERGY
ANNUAL REPORT 2023 47
28
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
All contracts with executives may be terminated early by either party with notice, per individual agreement,
subject to termination payments as detailed below.
Name
Commencement of
contract
Base salary including
superannuation/other
retirement benefits
$US per annum
(Effective 1 April
2023)
(i)
Termination benefit
(ii)
$309,000
3 months base salary
Managing Director and
Mr Michael Utsler
Chief Executive Officer
Chief Executive Officer
Mr Steve Herod
Chief Financial Officer
Mr Sergio Castro
VP, Exploration and
Mr W Armstrong
New Ventures
Senior VP Commercial
Mr P Trajanovich
and Land
th
11 September 2020
(departed 19
June
2023)
20 June 2023 for
initial 6-month term
of contract. At will
basis thereafter.
$360,000
During
initial 6-month
term: base salary to end of
initial term. Thereafter,
$50,000
lump sum or
continued participation in
eligible company benefit
plan
selected by
as
Company
3 months base salary
9 December 2019
$267,800
1 August 2018
$247,200
3 months base salary
1 August 2018
$247,200
3 months base salary
(i)
(ii)
Share-based compensation
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.
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 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 2023 financial
year. The inputs into the fair value calculation of the rights granted and outstanding as at 30 June 2023 are set
out in the following table:
48 OTTO ENERGY
ANNUAL REPORT 2023
29
FINANCIAL REPORT
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(
OTTO ENERGY
ANNUAL REPORT 2023 49
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
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 2023
is set out below.
Key Management
Personnel
Directors
Mr J Jetter
Mr P Senycia
(i)
Mr M Utsler
Mr G Page
Mr J Madden
(ii)
Executives
(iii)
Mr S Herod
Mr S Castro
Mr P
Trajanovich
Mr W
Armstrong
Total
Balance at
start of year
Granted as
compensation
Vested
and
exercised
Lapsed/
expired
Number %
Balance at end
of year
688,667
2,100,000
38%
76%
1,116,000
669,000
1,804,667
2,769,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,573,667
Balance at
start of year
-
Granted as
compensation
-
Vested
and
exercised
2,788,667
Lapsed/
expired
Number
%
-
-
-
7,352,000
7,352,000
11,925,667
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,788,667
-
-
-
-
-
-
-
-
-
-
-
-
1,785,000
Balance at end
of year
-
-
-
7,352,000
7,352,000
9,137,000
(i)
(ii)
(iii)
Mr M Utsler departed as Chief Executive Officer and Managing Director on 19 June 2023
Mr J Madden appointed non-executive director 1 July 2022
Mr S Herod was appointed Chief Executive Officer on 20 June 2023
50 OTTO ENERGY
ANNUAL REPORT 2023
31
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Options over equity instruments granted
Options granted to the Directors and executives are granted as remuneration unless otherwise noted. Options
are issued under the Employee Option Plan. There were no options issued to key management personnel
during the financial year.
Shareholding
The number of shares in the Company held during the financial year by key management personnel of the
Group, including their personally related parties, is set out below:
Key
Management
Personnel
(KMP)
KMP balance
at start of
year
Balance on
date ceased
to be KMP
Purchased
during the
year
Holding on
appointment
Received
through
conversion of
performance
rights during
the year
KMP balance
at end of year
Directors
(i)
Mr J Jetter
Mr M Utsler
Mr P Senycia
Mr G Page
Mr J
Madden
(ii)
57,881,668
5,000,000
8,691,134
-
-
-
-
-
-
2,000,000
Executives
71,572,802
2,000,000
(iii)
Mr S
Herod
Mr W
Armstrong
Mr S Castro
Mr P
Trajanovich
-
750,000
-
-
-
-
-
-
-
-
-
-
(5,000,000)
-
-
-
57,881,668
-
8,691,134
-
2,000,000
(5,000,000)
68,572,802
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
750,000
-
758,000
1,508,000
70,080,802
758,000
1,508,000
73,080,802
-
-
2,000,000
Mr M Utsler departed as Chief Executive Officer and Managing Director on 19 June 2023
Mr J Madden appointed non-executive director 1 July 2022
Mr S Herod was appointed Chief Executive Officer on 20 June 2023
(i)
(ii)
(iii)
Outstanding balances arising from sales/purchases of goods and services
-
-
-
-
-
-
-
-
(5,000,000)
There are no balances outstanding at the end of the reporting period in relation to transactions with key
management personnel and their related parties (2022: nil).
End of Remuneration Report
OTTO ENERGY
ANNUAL REPORT 2023 51
32
FINANCIAL REPORT
DIRECTOR’S REPORT
For the year ended 30 June 2023
Diversity
Proportion of women employees at 30 June 2023:
Number
Proportion
Whole organisation*
Senior executive
positions
Board
2/10
0/4
0/4
20%
0%
0%
Performance rights on issue at 30 June 2023
*Includes four non-executive Directors
Date granted
Date of
expiry
Issued to
15 November
2018
21 December
2018
21 December
2018
15 November
2023
15 November
2023
15 November
2023
Options on issue at 30 June 2023
Directors
Executives
Non-executives
12,019,000
21,156,000
Number
1,785,000
7,352,000
Options were held by two separate parties at 30 June 2023 as follows:
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 2024
$A0.020
27 August 2021
27 August 2024
$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 2023.
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
.
38 to 51
This report is made in accordance with a resolution of Directors.
Mr John Jetter
Chairman
28 September 2023
52 OTTO ENERGY
ANNUAL REPORT 2023
33
DIRECTOR’S REPORT
For the year ended 30 June 2023
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
FINANCIAL REPORT
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
DIRECTOR’S REPORT
For the year ended 30 June 2023
Level 9, Mia Yellagonga Tower 2
5 Spring Street
Perth WA 6000
As lead auditor of Otto Energy Limited for the year ended 30 June 2023, I declare that, to the best of
PO Box 700 West Perth WA 6872
Australia
my knowledge and belief, there have been:
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
DECLARATION OF INDEPENDENCE BY PHILLIP MURDOCH TO THE DIRECTORS OF OTTO ENERGY
2. No contraventions of any applicable code of professional conduct in relation to the audit.
LIMITED
This declaration is in respect of Otto Energy Limited and the entities it controlled during the period.
As lead auditor of Otto Energy Limited for the year ended 30 June 2023, 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.
Phillip Murdoch
This declaration is in respect of Otto Energy Limited and the entities it controlled during the period.
Director
BDO Audit (WA) Pty Ltd
Perth
28 September 2023
Phillip Murdoch
Director
BDO Audit (WA) Pty Ltd
Perth
28 September 2023
34
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.
34
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.
OTTO ENERGY
ANNUAL REPORT 2023 53
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2023
Operating Revenue (Net)
Gross profit
Cost of sales
Other income
Gain/(loss) on investments at fair value (net of
transaction costs)
Exploration expenditure
Impairment
Finance costs
Gain/(loss) on derivative financial instruments
Profit/(loss) before income tax
Administration and other expenses
Profit/(loss) from continuing operations
Income tax (expense)/reversal
Profit/(loss) for the year after tax
Note
2
3
2
4
5
13
6
15
6
8
2023
US$’000
2022
US$’000
33,432
21,693
(11,739)
180
(3,029)
(2,977)
(19,800)
(1,055)
1,501
(9,924)
(6,437)
(7,006)
2,918
40,557
31,053
(9,504)
8
5,847
(3,155)
-
(2,107)
(6,642)
19,840
(5,164)
15,514
(4,326)
(7,006)
15,514
Other comprehensive income that may be recycled to
profit or loss
Total comprehensive profit /(loss) for the year
Total other comprehensive income
(7,006)
-
15,514
-
Earnings per share from continuing operations
Earnings per share attributable to the ordinary
Basic and diluted profit/(loss) per share (US cents)
equity holders of the company
Basic and diluted profit/(loss) per share (US cents)
7
7
(0.15)
0.32
(0.15)
0.32
The above consolidated statement of profit or loss and other comprehensive income should be read in
conjunction with the accompanying notes.
54 OTTO ENERGY
ANNUAL REPORT 2023
35
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
2023
US$’000
2022
US$’000
Current assets
Note
Restricted cash
Cash equivalents
Trade and other receivables
Financial assets at fair value through profit or loss
Prepayments
Total current assets
Other assets
Non-current assets
Oil and gas properties
Property, plant and equipment
Total non-current assets
Other financial assets
Total assets
Current liabilities
Trade and other payables
Borrowings (net of transaction costs)
Derivative financial instruments
Total current liabilities
Provisions
Non-current liabilities
Total non-current liabilities
Provisions
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Total equity
Accumulated losses
9
9
11
12
12
12
13
12
14
16
15
17
17
18
19
-
25,851
2,110
529
448
29,015
77
30,687
88
31,775
1,000
60,790
4,648
-
-
6,121
1,473
6,223
6,223
12,344
48,446
5,000
21,764
5,191
3,558
3,289
38,900
98
32,774
147
33,296
375
72,196
3,375
1,949
3,310
12,992
4,358
3,752
3,752
16,744
55,452
133,170
10,506
48,446
(95,230)
133,170
10,506
55,452
(88,224)
The above consolidated statement of financial position should be read in conjunction with the
accompanying notes.
ANNUAL REPORT 2023 55
OTTO ENERGY
36
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2023
Contributed
equity
Accumulated
losses
Total
Share-
based
payments
reserve
US$’000
10,414
-
-
-
86
6
10,506
10,506
-
-
US$’000
133,223
-
-
(53)
-
-
133,170
133,170
-
-
-
-
-
-
-
133,170
-
10,506
US$’000
US$’000
(103,738)
15,514
15,514
39,899
15,514
15,514
-
-
-
(88,224)
(88,224)
(7,006)
(7,006)
-
-
-
(95,230)
(53)
86
6
55,452
55,452
(7,006)
(7,006)
-
-
-
48,446
Balance at 1 July 2021
Loss for the year
Total comprehensive loss for the year
Transactions with owners in their
capacity as owners:
Issue of shares (net of costs)
Equity benefits issued to employees
Foreign currency translation
Balance at 30 June 2022
Balance at 1 July 2022
Loss for the year
Total comprehensive loss for the year
Transactions with owners in their
capacity as owners:
Share issue costs
Equity benefits issued to advisors- Note
23
Equity benefits issued to employees
Balance at 30 June 2023
The above consolidated statement of changes in equity should be read in conjunction with the
accompanying notes.
56 OTTO ENERGY
ANNUAL REPORT 2023
37
FINANCIAL REPORT
CONSOLIDATED STATEMENT OF CASHFLOWS
For the year ended 30 June 2023
Cash flows from operating activities
Note
Oil and Gas Sales (net)
Payments to suppliers and employees
Payments on settlement of derivative financial
instruments
Payments for exploration and evaluation
Interest paid (net of interest received)
Net cash inflow from operating activities
Income tax paid
Cash flows from investing activities
(Payments) / proceeds for purchase/ sale of
investments
Payments for property, plant and equipment
Payments for development and evaluation
Net cash inflow/(outflow) from investing
Bond for development asset
activities
Cash flows from financing activities
10
2023
US$’000
2022
US$’000
36,547
(14,445)
(1,809)
(2,674)
(480)
17,138
(1)
39,170
(8,185)
(8,844)
(6,086)
(1,061)
14,989
(5)
(575)
(5)
(15,052)
(50)
(15,682)
10,482
(149)
(394)
-
9,939
Loan repayments
Transaction costs relating to borrowings
Net cash outflow from financing activities
Transaction costs relating to equity instruments
(2,300)
-
(2,300)
-
(9,200)
(3)
(9,256)
(53)
Net (decrease)/increase in cash and cash
equivalents
Cash and cash equivalents at the beginning of the
financial year
Cash and cash equivalents at the end of the
Effects of exchange rate changes on cash
financial year
(844)
15,672
26,764
(70)
25,851
11,100
(8)
26,764
9
The above consolidated statement of cash flows should be read in conjunction with the accompanying
notes.
ANNUAL REPORT 2023 57
OTTO ENERGY
38
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
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 2023.
Basis of preparation
The financial report is a general purpose financial report which:
Corporations Act 2001
has been prepared in accordance with the requirements of the
, 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 2022.
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.
58 OTTO ENERGY
ANNUAL REPORT 2023
39
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
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
Income tax
Oil and gas properties
Provisions
ANNUAL REPORT 2023 59
OTTO ENERGY
40
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
Financial performance
Cost of sales
Segment information
Exploration expenditure
1.
2. Net operating revenue and other income
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
Operating assets and liabilities
Earnings per share
Income tax
Cash and cash equivalents
operating activities
11. Trade and other receivables
12. Other assets
13. Oil and gas properties
14. Trade and other payables
15. Derivative financial liabilities
16. Interest bearing loans and borrowings
17. Provisions
Capital structure, financial instruments and risk
18. Contributed equity
19. Reserves
20. Financial instruments
Other disclosures
21. Subsidiaries
22. Interest in joint operations
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
61
62
64
64
65
65
66
61
68
69
70
70
71
75
76
76
77
79
80
80
85
85
86
90
90
90
91
92
92
93
60 OTTO ENERGY
ANNUAL REPORT 2023
41
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
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 2023. Reportable segments exclude results from discontinued operations.
2023
The segment information for the reportable segments for the year ended 30 June 2023 is as follows:
Other
Consolidated
Operating Revenue (Net)
Gross Profit
Cost of Production
Other income
Loss on investments at fair value (net of
transaction costs)
Exploration expenditure
Impairment
Finance costs
Gains on derivative financial instruments
Loss before income tax from continuing
Administration and other expenses
operations
Loss after income tax from continuing
Income tax (expense)/ reversal
operations
30 June 2023
Total non-current assets
Total assets
Total liabilities
Gulf of Mexico
(USA)
US$’000
33,432
(11,739)
21,693
154
(215)
(2,977)
(19,800)
(1,049)
1,501
(4,384)
(5,077)
2,924
(2,153)
US$’000
US$’000
-
-
-
26
(2,814)
-
-
(6)
-
(2,053)
(4,847)
(6)
(4,853)
33,432
(11,739)
21,693
180
(3,029)
(2,977)
(19,800)
(1,055)
1,501
(6,437)
(9,924)
2,918
(7,006)
31,772
48,990
10,534
3
11,800
1,810
31,775
60,790
12,344
ANNUAL REPORT 2023 61
OTTO ENERGY
42
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
1. Segment information (continued)
2022
Consolidated
The segment information for the reportable segments for the year ended 30 June 2022 is as follows:
Other
Gulf of
Mexico (USA)
US$’000
US$’000
US$’000
Operating Revenue (Net)
Gross Profit
Cost of Production
Other income
Gain on investments at fair value (net of
transaction costs)
Exploration expenditure
Impairment
Finance costs
Losses on derivative financial
instruments
Profit (Loss) before income tax from
Administration and other expenses
continuing operations
40,557
(9,504)
31,053
8
-
(3,155)
-
(2,099)
(6,642)
15,424
(3,741)
-
-
-
-
5,847
-
-
(8)
-
40,557
(9,504)
31,053
8
5,847
(3,155)
-
(2,107)
(6,642)
4,416
(1,423)
19,840
(5,164)
Profit (Loss) after income tax from
Income tax expense
continuing operations
12,479
(2,945)
3,035
(1,381)
15,514
(4,326)
30 June 2022
Total non-current assets
Total assets
Total liabilities
South Marsh 71 (SM71) Sales
2. Net operating revenue and other income
(i) (v)
Oil Sales
Gas Sales
Total Sales
Less: Royalties
SM71 Operating Revenue (Net)
Bulleit Field (GC-21) Sales
(i)
(ii) (v)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Total Sales
Less: Royalties
GC-21 Operating Revenue (Net)
(ii)
62 OTTO ENERGY
ANNUAL REPORT 2023
33,294
52,791
14,908
2
19,405
1,836
33,296
72,196
16,744
2023
US$’000
2022
US$’000
22,313
1,304
23,617
(4,418)
19,199
971
52
33
1,056
(197)
859
33,111
1,830
34,941
(6,534)
28,407
289
96
34
419
(82)
337
43
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
2. Net operating revenue and other income (continued)
Lightning Sales
(iii) (v)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Lightning Operating Revenue (Net)
Mosquito Bay West Sales
(iii) (v)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Mosquito Bay West Operating Revenue (Net)
Oyster Bayou South Sales
(iii) (v)
Oil Sales
Gas Sales
Natural Gas Liquids Sales
Oyster Bayou South Operating Revenue (Net)
Vick #1 Sales
(iii) (v)
Gas Sales
Vick #1 Operating Revenue (Net)
Total Operating Revenue (Net)
Interest income
(iv)
2023
US$’000
2022
US$’000
2,812
4,482
1,351
8,645
745
831
129
1,705
2,417
507
63
2,987
37
37
3,429
6,232
2,152
11,813
-
-
-
-
-
-
-
-
-
-
33,432
2023
US$’000
40,557
2022
US$’000
180
180
8
8
(i) SM 71 net operating revenue is shown net of royalty payments payable to the (USA) Office of Natural
Resources Revenue. Royalty payments are 18.75% of gross revenue under the terms of the SM 71
lease.
(ii) GC 21 net operating revenue is shown net of royalty payments totalling 20%.
(iii)
Proceeds from the sale of oil and gas from the Lightning field, Mosquito Bay West, Oyster Bayou South
and Vick#1 wells are received net of royalty payments.
(iv) Interest income is recognised using the effective interest rate method.
(v) Gross oil revenue (US$22.3 million) from Gulf of Mexico SM71 and Gross oil revenue (US$0.97 million)
from Gulf of Mexico GC-21, were sold to the same single customer. Net gas revenue (US$1.3 million)
from Gulf of Mexico SM71, net oil revenue (US$2.8 million) and net gas revenue (US$5.8million) from
Lightning were all sold to different single customers. Net gas revenue (US$0.85 million) from Gulf of
Mexico GC-21 was sold to multiple different customers.
OTTO ENERGY
44
ANNUAL REPORT 2023 63
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
Recognition and measurement
2. Net operating revenue and other income (continued)
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.
Production from Mosquito Bay West and Oyster Bayou South is measured at the wellhead and sent to a
third party owned central processing facility where production is processed and commingled with other
third party production and exported via sales pipeline. Revenue from the sale of Mosquito Bay West and
Oyster Bayou South oil are recognized as liquids are recovered at the termination of the sales pipeline after
it has passed through a liquids recovery plant. Gas is delivered to a regional Natural Gas Liquids (NGL)
extraction plant where NGLs are extracted and the residue gas delivered to a gas sales pipeline. Revenue
for NGLs is recognized at the plant gate after NGLs have been extracted from the raw gas stream, revenue
for gas sales is recognized at inlet to the gas sales pipeline, hence revenue is recognised at a point in time.
2023
US$’000
2022
US$’000
3. Cost of Sales
Gathering and Production charges
Amortisation of capitalised developments – Note 13
Total Cost of Sales
5,900
5,839
11,739
2023
US$’000
4,588
4,916
9,504
2022
US$’000
4. Gain/(loss) on investments at fair value
Gain / (loss) on fair value of Pantheon Resources Plc shares (net of
transaction costs)
Total Gain / (loss) on fair value of investments
(3,029)
(3,029)
5,847
5,847
The Company owns 3,272,592 shares of Pantheon Resources Plc (London Stock Exchange: PANR), as a
result of its 2021 sale of Borealis Alaska LLC to acreage operator Pantheon Resources (Pantheon), which
are valued at US$0.5 million as at 30 June 2023 (2022: US$3.6 million), as well as a 0.5% of 8/8ths
overriding royalty interest (ORRI) in any future production from the Talitha Unit in Alaska,
64 OTTO ENERGY
ANNUAL REPORT 2023
45
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
4. Gain on investments at fair value (continued)
which is operated by Pantheon. Loss on investments (net of transaction costs) for the current year was
US$3.0 million (2022: Gain of US$5.8 million), which was attributable to the shares of Pantheon Resources
Plc (LSE: PANR) held by the Company.
2023
US$’000
2022
US$’000
5. Exploration expenditure
Exploration expenditure – Gulf of Mexico/Gulf Coast
Recognition and measurement
2,977
2,977
3,155
3,155
Costs incurred in the exploration stages of specific areas of interest are expensed against the profit or loss
as incurred. All exploration expenditure, including general permit activity, geological and geophysical costs,
new venture activity costs and drilling exploration wells, is expensed as incurred. The costs of acquiring
interests in new exploration licences are expensed. Once an exploration discovery has been determined,
evaluation and development expenditure from that point on is capitalised to the Consolidated Statement of
Financial Position as oil and gas properties.
Exploration expenditure in relation to the Gulf of Mexico/Gulf Coast includes the exploration drilling of the
Mosquito Bay West (US$0.9 million) and Oyster Bayou South (US$1.7 million) prospects.
2023
US$’000
2022
US$’000
6. Other expenses
Finance Costs
i)
Interest and commitment fees on borrowings
Interest expense leases
Amortisation of borrowing costs
Accretion of decommissioning fund
Other
Total finance cost
ii)
Employee benefits expense
Administration and other expenses
Defined contribution superannuation expense
Share-based payment (reversal)/expense
Other employee benefits expenses
Total employee benefits expense
Depreciation expense
Right-of-use assets
(i)
607
-
351
58
39
1,055
90
-
3,507
3,597
1,061
(14)
1,020
28
12
2,107
57
92
3,138
3,287
Right-of-use assets – buildings
Total depreciation expense right-of-use assets
-
-
119
119
46
OTTO ENERGY
ANNUAL REPORT 2023 65
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
Depreciation expense
6. Other expenses (continued)
Property, plant and equipment
(i)
Furniture and equipment
Total depreciation expense
Corporate and other costs
Business development
Foreign currency (gains)/losses
Total administration and other expenses
2023
US$’000
2022
US$’000
63
63
2,328
379
70
2,777
6,437
66
185
1,306
443
(57)
1,692
5,164
(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$5.9 million (2022:
US$5.1 million)
7. Earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Company,
excluding any costs of servicing equity (other than dividends), by the weighted average number of ordinary
shares, adjusted for the bonus element.
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take
into account the after income tax effect of interest and other financing costs associated with dilutive
potential ordinary shares, and the weighted average number of additional ordinary shares that would have
been outstanding assuming the conversion of all dilutive potential ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS calculations:
2022
2023
Profit/(loss) after tax from continuing operations (US$’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)
66 OTTO ENERGY
ANNUAL REPORT 2023
(7,006)
-
(7,006)
15,514
-
15,514
4,795,009,773
4,795,009,773
(0.15)
-
(0.15)
0.32
-
0.32
47
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
8.
Income tax
2023
US$’000
2022
US$’000
(i)
The components of tax expense comprise:
Current tax
Deferred tax – origination and reversal of temporary differences
Prior period under/ (over) 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
Prior period under/ (over) provision
Income tax expense/(benefit)
Deferred tax assets
(i)
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
6
-
(2,924)
(2,918)
(9,924)
-
(9,924)
(2,977)
(744)
-
6,059
(2,332)
(2,924)
(2,918)
(237)
-
(237)
10,959
4,798
15,520
(7,230)
(8,290)
-
Temporary differences – Oil and gas properties
Offset by deferred tax assets recognised
Deferred tax liabilities brought to account
Income tax expense reversal relates to prior year accrual of US income tax expense not payable.
(i)
Recognition and measurement
7,230
(7,230)
-
4,247
-
79
4,326
19,839
-
19,839
5,952
(1,754)
-
(110)
238
-
4,326
(22)
-
(22)
8,547
4
8,529
(8,324)
(205)
-
8,324
(8,324)
-
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
48
goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or
OTTO ENERGY
ANNUAL REPORT 2023 67
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
8.
Income tax (continued)
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 tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise
those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying
amount and tax bases of investments in foreign operations where the Company is able to control the timing
of the reversal of the temporary differences and it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in
other comprehensive income or directly in equity, respectively.
Key estimates and judgements
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations.
Significant judgement is required in determining the worldwide provision for income taxes. There are
certain transactions and calculations undertaken during the ordinary course of business for which the
ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s
understanding of the tax law 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.
2023
US$’000
2022
US$’000
9.
Cash and cash equivalents
Cash at bank and on hand
Restricted cash – debt service reserve account (DSRA)
Balance at end of period
Recognition and measurement
25,851
-
25,851
21,764
5,000
26,764
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.
In November 2019, the Company entered into a 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) was required with a balance of the greater of 6 months of the forecast debt service or US$5
million. The debt facility was repaid during the year and the DSRA balance of US$5 million repaid to the
49
Company.
68 OTTO ENERGY
ANNUAL REPORT 2023
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
10. Reconciliation of profit/(loss) after income tax to net cash outflow from operating activities
2023
US$’000
2022
US$’000
Profit/(loss) after income tax
Non-cash items:
Impairment
Depreciation expense – furniture and equipment
Foreign currency translation reserve reversal
Profit on sale of subsidiary
(Gain)/ loss on investments at fair value
Share-based payments
Gain on derivative instruments at fair value
Finance costs
Amortisation of capitalised developments – see Note 3
Other non-cash items
Change in assets and liabilities:
Decrease/(increase) in trade and other receivables
Increase in other assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Net cash inflow from operating activities
Changes in financing liabilities arising from cash flow and
non-cash flow items
Borrowings
Balance at the start of the year
Repayment on borrowings
Borrowing transaction costs
Amortisation borrowing costs
Balance at the end of the year
(7,006)
15,514
19,800
63
-
-
3,029
-
(3,310)
409
5,839
320
3,068
(1,648)
(546)
(2,880)
17,138
-
185
-
-
(5,847)
92
(2,202)
1,038
4,916
(56)
(1,387)
(2,870)
1,254
4,352
14,989
1,949
(2,300)
-
351
-
10,129
(9,200)
-
1,020
1,949
ANNUAL REPORT 2023 69
OTTO ENERGY
50
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
OPERATING ASSETS AND LIABILITIES
11.
Trade and other receivables
(i)
Trade receivables
Other receivables
Recognition and measurement
2023
US$’000
2022
US$’000
2,063
47
2,110
5,177
14
5,191
Other receivables are initially recognised at fair value and subsequently measured at amortised cost less
an allowance for uncollectible amounts.
Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt
instruments carried at amortised cost. The impairment methodology applied depends on whether there
has been a significant increase in credit risk. The Group makes use of a simplified approach in accounting
for trade and other receivables as well as contract assets and records the loss allowance at the amount
equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical
experience, external indicators and forward-looking information to calculate the expected credit losses
using a provision matrix.
The Group considers a financial asset in default when contractual payment are 90 days past due. However,
in certain cases, the Group may also consider a financial asset to be in default when internal or external
information indicates that the Group is unlikely to receive the outstanding contractual amounts in full
before taking into account any credit enhancements held by the Group.
(i)
Trade receivable relates to June 2023 Lightning, Mosquito Bay West, Oyster Bayou South (net of
royalties), SM 71 and GC-21 oil and gas sales (before deduction of SM 71 and GC-21 royalties).
2023
US$’000
2022
US$’000
Current
Other assets
12.
(ii)
Financial assets at fair value through profit or loss
Prepayments
Other assets
Non-current
(i)
(iii)
Bonds
Investments
(iv)
3,558
3,289
98
6,945
375
529
448
77
1,054
425
575
1,000
375
The Company continues to own 3,272,592 shares of PANR, valued at approximately US$0.5 million
as at 30 June 2023 (2022: US$3.6 million)
Net cash calls in advance for Lightning, Mosquito Bay West and Oyster Bayou South (US$0.24 million)
Development bond for SM 71 (US$0.325 million), GC-21 (US$0.05 million) and ST48 ($US0.05
million)
Investment in Minotaur Mineral Development Fund 1, LLC
(i)
(ii)
(iii)
(iv)
70 OTTO ENERGY
ANNUAL REPORT 2023
51
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
12. Other assets (continued)
Recognition and measurement
Other financial assets are initially measured at fair value. Transaction costs are included as part of the initial
measurement, except for financial assets at fair value through profit or loss. They are subsequently
measured at either amortised cost or fair value depending on their classification. Classification is
determined based on the purpose of the acquisition and subsequent reclassification to other categories is
restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets
have expired or have been transferred and the Group has transferred substantially all the risks and rewards
of ownership.
Financial assets held at fair value through profit or loss (FVPL)
The Group’s classification of financial assets held at fair value through profit or loss applies to equity
investments which are held for trading or where the FVOCI election has not been applied. They are carried
on the balance sheet at fair value with changes in fair value recognised in profit or loss with any associated
changes in fair value recognised in the income statement.
Financial assets held at fair value through other comprehensive income (FVOCI)
The Group’s classification of financial assets held at fair value through other comprehensive income applies
to equity investments where the Group has made the irrevocable election to present the fair value gains or
losses on revaluation of the asset in other comprehensive income. This election can be made for each
investment; however, it is not applicable to equity investments which are held for trading. These assets are
included in non-current assets unless management intends to dispose of the investment within 12 months
of the reporting date. These instruments are recognised at fair value, with changes in fair value being
recognised directly in other comprehensive income.
Management have elected not to apply the FVOCI election and to hold the equity investment in Pantheon
shares at fair value through profit and loss. The decrease in fair value of US$3.03 million (2022: increase of
US$5.8 million) was recognised through profit and loss at reporting date. (PANR GBP0.13 and USD/GBP
exchange rate 1.271).
2023
US$’000
2022
US$’000
13. Oil and gas properties
Producing and development assets
At cost
SM71 balance at beginning of year
SM71 expenditure for the year
SM71 amortisation of assets
SM71 balance at end of year
Lighting balance at beginning of year
Lightning expenditure for the year
Lightning amortisation of assets
Lightning balance at end of year
11,298
807
(1,460)
10,645
3,446
(62)
(1,538)
1,846
14,960
(104)
(3,558)
11,298
4,640
16
(1,210)
3,446
ANNUAL REPORT 2023 71
OTTO ENERGY
52
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
13. Oil and gas properties (continued)
GC-21 balance at beginning of year
GC-21 expenditure for the year
GC-21 impairment
GC-21 amortisation of assets
GC-21 balance at end of year
Vick #1 balance at beginning of year
Vick #1 expenditure for the year
Vick #1 amortisation of assets
Vick #1 balance at end of year
Mosquito Bay West balance at beginning of year
Mosquito Bay West expenditure for the year
Mosquito Bay West amortisation of assets
Mosquito Bay West balance at end of year
Oyster Bayou South balance at beginning of year
Oyster Bayou South expenditure for the year
Oyster Bayou South amortisation of assets
Oyster Bayou South balance at end of year
2023
US$’000
2022
US$’000
17,899
21,417
(19,800)
(2,243)
17,273
17,363
683
-
(147)
17,899
96
2
(98)
-
35
710
(177)
568
-
677
(322)
355
-
96
-
96
-
35
35
-
-
-
-
Total Oil and Gas Properties
Recognition and measurement
30,687
32,774
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.
53
72 OTTO ENERGY
ANNUAL REPORT 2023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
FINANCIAL REPORT
13. Oil and gas properties (continued)
Prepaid drilling and completion costs
Where the Company has a non-operated interest in an oil or gas property, it may periodically be required
to make a cash contribution for its share of the Operator’s estimated drilling and/or completion costs, in
advance of these operations taking place.
Where these contributions relate to a prepayment for exploratory or early stage drilling activity, prior to a
decision on the commerciality of a well having been made, the costs are expensed in profit or loss when the
cash call is paid. The Operator notifies the Company as to how funds have been expended and any relevant
costs are reclassified from exploration expense and capitalised to deferred oil and gas properties.
Where these contributions relate to a prepayment for well completion, these costs are capitalised as
prepaid completion costs within oil and gas properties.
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.
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
54
to sell and value in use.
OTTO ENERGY
ANNUAL REPORT 2023 73
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
13.
Oil and gas properties (continued)
The Company assessed each cash generating unit (CGU) for indicators of impairment. Impairment
indicators were identified on the GC 21 CGU in relation to cost overruns on the DTR-10 recompletion and
well performance. After a few days of production from the DTR-10 sands, well diagnostics indicated that
the lower DTR-10 completion was not contributing to well production and the well was only seeing a
contribution from the upper completion. Well intervention operations were completed in mid-May 2023.
GC 21 recoverable value was calculated using a VIU (value in use) calculation. The estimated future cash
flows for the VIU calculation are based on estimates, the most significant of which are hydrocarbon reserves
(excluding uncommitted developments), future production profiles, commodity prices, operating costs and
committed development costs.
The basis of reserves in the VIU model was 2P estimated reserve volumes for the DTR-10 well. Gross
(100%) oil 2,996 Mbbl/Gross (100%) gas 2,546MMcf. (2022: Gross (100%) oil 7,295 Mbbl/Gross (100%)
gas 4,378MMcf)
Estimates of future commodity prices are based on the Group’s best estimate of future market prices with
reference to external market analyst’s forecasts, current spot prices and forward curves. Weighted average
estimates are $70/Bbl oil and $3.70/MMBtu gas.
The discount rates applied to the future forecast cash flows are based on the weighted average cost of
capital. The pre-tax discount rates that has been applied to non-current assets is 15%.
In the event that future circumstances vary from these assumptions, the recoverable amount of the Group’s
oil and gas assets could change materially and result in further impairment losses.
Due to the interrelated nature of the assumptions, movements in any one variable can have an indirect
impact on others and individual variables rarely change in isolation. Additionally, management can be
expected to respond to some movements, to mitigate downsides and take advantage of upsides, as
circumstances allow. Consequently, it is impractical to estimate the indirect impact that a change in one
assumption has on other variables and hence, on the likelihood, or extent, of impairments under different
sets of assumptions in subsequent reporting periods.
At 30 June 2023, the Group has assessed the GC 21 Bulleit cash generating unit and determined that there
is an impairment loss of US$19.8 million.
Sensitivity
To the extent oil and gas cash generating units have been written down to their respective recoverable
amounts in the current and prior years, any change in key assumptions on which valuations are based
would further impact asset carrying values. When modelled in isolation, it is estimated that reasonable
changes in key assumptions would result in the following additional impairment:
Oil and gas assets
Production
decrease 5%
US$’000
Discount rate
increase 0.5%
US$’000
Oil and gas price
decrease 10% all
years
US$’000
GC-21
988
88
1,877
There were no impairment indicators identified for the other assets at 30 June 2023.
74 OTTO ENERGY
ANNUAL REPORT 2023
55
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
13. Oil and gas properties (continued)
Amortisation
Estimation of amortisation of the SM 71, GC-21, Mosquito Bay West, Oyster Bayou South and Lightning oil
and gas assets is based on the updated 2P reserves estimate and estimated future development costs as at
30 June 2023. Producing assets are amortised on a unit of production basis on 2P reserves. The estimated
reserves for all fields 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 estimated 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
Recognition and measurement
2023
US$’000
2022
US$’000
4,179
469
4,648
3,134
241
3,375
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.
56
OTTO ENERGY
ANNUAL REPORT 2023 75
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
2023
US$’000
2022
US$’000
Current liability
15.
Derivative financial instruments
Balance at the beginning of the year
Unrealised gains on oil and natural gas price fixed swaps
Current oil price fixed swaps – held at fair value through profit or loss
3,310
(3,310)
-
4,703
(1,393)
3,310
Non-current liability
Balance at the beginning of the year
Unrealised gains on oil and natural gas price fixed swaps
Non-current oil price fixed swaps – held at fair value through profit or
loss
Total derivative financial instrument liabilities
Recognition and measurement
-
-
-
-
809
(809)
-
3,310
Derivatives are initially recognised at their fair value when the Group becomes a party to the
contract and are subsequently measured at fair value through profit or loss. The Group has not adopted
Hedge Accounting under AASB 9
Financial Instruments.
16.
Interest bearing loans and borrowings
Borrowings
Current Secured
2023
US$’000
2022
US$’000
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
On 4 November 2019 the Company announced it had entered into a senior secured US$55 million term
) made up of Tranche A1
debt facility with Macquarie Bank Limited (
(US$25 million), Tranche A2 (US$10 million), and Tranche B (US$20 million, subject to further credit
approval).
) (the
Macquarie
Credit Facility
As of 30 June 2023, the Company had drawn and repaid the entire US$25 million available under Tranche
A1, resulting in a closing debt balance of nil. Tranche A1 is therefore no longer available to borrow. The
Company is currently terminating this facility. The Credit Facility is secured by substantially all of the
Company’s oil and gas producing assets. The Company was in compliance with all of its financial covenants
throughout the year.
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. Total capitalised transaction and fair value of options
relating to the facility agreement were US$3.1 million of which the final US$0.35 million was amortised
during the period (2022: US$1.0 million).
76 OTTO ENERGY
ANNUAL REPORT 2023
57
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
Current
17. Provisions
Employee benefits
Tax
(i)
Non-current
(ii)
(iii)
Employee benefits
Decommissioning fund – GC-21 Bulleit
Decommissioning fund – Lightning
(iii)
Decommissioning fund – SM 71
Decommissioning fund – Mosquito Bay
Decommissioning fund – Oyster Bayou South
Decommissioning fund – Vick #1
(iii)
(iii)
(iii)
2023
US$’000
2022
US$’000
39
1,434
1,473
22
4,148
134
1,859
27
28
5
6,223
37
4,321
4,358
17
1,679
194
1,836
-
-
26
3,752
(iii)
(i)
Provision for income tax expense primarily relates to mark to market corporate income tax incurred
on the Pantheon shares held by Otto Energy Alaska LLC, a subsidiary of Otto Energy (Galoc
Investment 1) ApS and Otto Energy (Galoc Investment 2) ApS ($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.
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
58
OTTO ENERGY
ANNUAL REPORT 2023 77
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
17. Provisions (continued)
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.
78 OTTO ENERGY
ANNUAL REPORT 2023
59
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
CAPITAL STRUCTURE, FINANCIAL INSTRUMENTS AND RISK
18. Contributed equity
Share capital
2023
(Number)
2022
(Number)
2023
(US$’000)
2022
(US$’000)
Balance at beginning of year
Shares issued – transaction costs
Balance at end of year
(i)
4,795,009,773
-
4,795,009,773
4,795,009,773
-
4,795,009,773
133,170
-
133,170
133,223
(53)
133,170
(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.
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.
In November 2019, the Company entered into a 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 $0.025 per option and an expiry date of 27 August 2024.
Performance rights
Information relating to the Otto Energy Employee Performance Rights Plan, including details of
performance rights issued, exercised and lapsed during the financial year and performance rights
outstanding at the end of the reporting period, is set out in Note 23.
Recognition and measurement
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
or options are shown in equity as a deduction, net of tax, from the proceeds.
ANNUAL REPORT 2023 79
OTTO ENERGY
60
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
19. Reserves
Share-based payments reserve
Share-based payments reserve
Balance at beginning of year
Share-based payment expense
Balance at end of year
2023
US$’000
2022
US$’000
10,506
10,506
10,506
10,506
2023
US$’000
2022
US$’000
10,506
-
10,506
10,414
92
10,506
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.
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
61
Group to purchase forward contracts or other derivative financial instruments to hedge this currency risk.
80 OTTO ENERGY
ANNUAL REPORT 2023
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
20. Financial instruments (continued)
Factors which the Board considered in arriving at this position included the expense of purchasing such
instruments and the inherent difficulties associated with forecasting the timing and quantum of cash
inflows and outflows compared to the relatively low volume and value of commercial transactions and
monetary items denominated in a currency which is not US dollars.
A hypothetical change of 10% (2022: 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 2023, 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 2023 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 Westpac Banking
Corporation in Australia and Bank of America in the United States.
The financial instruments exposed to movements in variable interest rates are as follows:
2023
US$’000
2022
US$’000
Cash on interest bearing term deposit
Borrowings (excludes capitalised borrowing costs)
12,052
-
12,052
21
(2,300)
(2,279)
Judgements of reasonably possible movements
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting
date. The 2.0% sensitivity (2022:2% sensitivity) is based on reasonably possible changes, over a financial
year, using an observed range of historical short term deposit rate movements over the last 3 years.
Effect on post tax losses
Increase/(decrease)
2022
2023
US$’000
US$’000
Increase 200 basis points (2022:200 basis points)
Decrease 200 basis points (2022:200 basis points)
d) Commodity price risk
241
(241)
46
(46)
Otto derives its net operating revenue from the sale of oil and natural gas. As a result, the Company’s net
operating 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 may utilize commodity price hedge instruments to minimize exposure to short term price
fluctuations by using a series of swaps, costless collars and/or puts. The Company evaluates market prices
and sensitivities from time to time to determine when it would be appropriate to enter into these hedges.
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
62
OTTO ENERGY
ANNUAL REPORT 2023 81
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
20. Financial instruments (continued)
and the forward curve pricing for the commodities being hedged. For the fiscal year ended 30 June 2023,
the Company recorded a profit on hedging of approximately $1.5 million due to the reversal of unrealized
losses recognised in the previous year. The last remaining hedges expired on 7 October 2022. The fair value
of the derivative financial instruments held at fair value through profit and loss at reporting date is nil.
Currently, there are no hedge instruments in place and the Group is exposed to commodity price risk on
oil and gas revenue. The following sensitivity analysis is based on the commodity price risk exposures in
existence at the reporting date. The 10.0% sensitivity is based on reasonable possible changes.
Judgements of reasonably possible movements
Effect on post tax losses
Increase/(decrease)
2022
2023
US$’000
US$’000
Increase 10%
Decrease 10%
e) Credit risk
3,343
(3,343)
4,056
(4,056)
Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument
that will result in a financial loss to the Group. Credit risk arises from the financial assets of the Group,
which comprise trade and other receivables and deposits with banks and financial institutions.
To manage credit risk from cash and cash equivalents, it is the Group’s policy to only deposit with banks
maintaining a minimum independent rating of ‘AA’, ‘A+’ or ‘A-‘. Contracts for the sale of production from
SM 71, GC-21 and Lightning are with creditworthy customers and counterparties.
Receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad
debts in the ordinary course of business is not significant. At reporting date no receivables were overdue.
The maximum exposure to credit risk at reporting date was as follows:
2023
US$’000
2022
US$’000
Cash and cash equivalents
Trade and other receivables
f) Liquidity risk
25,851
2,110
27,961
26,764
5,191
31,955
Liquidity risk is the risk that Group will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset.
It is the policy of the Board to ensure that the Group is able to meet its financial obligations and maintain
the flexibility to pursue attractive investment opportunities through the Group maintaining sufficient
working capital and access to further funding when required through debt, equity or other means.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows with scenario
analysis. As at reporting date the Group had sufficient cash reserves to meet its current requirements and
no receivables were overdue. The contractual maturity analysis of payables at the reporting date was as
63
follows:
82 OTTO ENERGY
ANNUAL REPORT 2023
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
20.
Financial instruments (continued)
Carrying
Value
US$’000
Total
US$’000
Less than
1 year
US$’000
Between
1-2 years
US$’000
Between
2-5 years
US$’000
Trade and other payables
2023
2022
Borrowings
2023
2022
g) Capital risk management
4,648
3,375
-
1,949
4,648
3,375
-
1,949
4,648
3,375
-
1,949
-
-
-
-
-
-
-
-
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 100% equity (2022: 96% equity and 4% 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.
Judgements of reasonably possible movements
Effect on post tax losses
Increase/(decrease)
2022
2023
US$’000
US$’000
Increase 10%
Decrease 10%
i) Fair values
50
(50)
356
(356)
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:
ANNUAL REPORT 2023 83
OTTO ENERGY
64
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
20.
Financial instruments (continued)
Financial assets measured at fair value
Financial assets at fair value through profit and loss
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
(ii)
2023
US$’000
2022
US$’000
Level 1
Level 2
Level 3
529
-
-
529
2023
US$’000
3,558
-
-
3,558
2022
US$’000
(i)
Derivative financial liabilities at fair value through profit and loss Level 1
Derivative financial liabilities at fair value through profit and
Level 2
loss
Derivative financial liabilities at fair value through profit and
loss
Total financial liabilities measured at fair value
Level 3
-
-
-
-
-
3,310
-
3,310
(i)
No derivative balance held at 30 June 2023. The 30 June 2022 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 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 2023 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.
84 OTTO ENERGY
ANNUAL REPORT 2023
65
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
OTHER DISCLOSURES
Significant investments in subsidiaries
21. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following
principal subsidiaries:
Subsidiaries of Otto Energy Limited
Country of
incorporation
Functiona
l currency
Class of
shares
Ownership
Interest
2023
(%)
2022
(%)
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
(i)
(i)
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
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
(i) Otto Energy (Lightning) LLC and Otto Energy (Patrick Henry) LLC were dissolved during the year
a) Operations
22. Interest in operations
The Group’s share of the assets, liabilities, net operating 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.
2022
2023
Asset
Country
Group WI
Group WI
South Marsh Island 71
Lightning
GC-21
Eaves
Mosquito Bay West
Oyster Bayou South
USA
USA
USA
USA
USA
USA
50%
37.5%
16.67%
10.3%
30%
30%
50%
37.5%
16.67%
10.3%
30%
30%
ANNUAL REPORT 2023 85
OTTO ENERGY
66
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
b) Commitments through interests in operations
22. Interest in operations (continued)
The aggregate of the Group’s commitments through its interests in operations is as follows:
2023
US$’000
2022
US$’000
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
Capital expenditure commitments – later than one year but not later
than five years
(i)
95
-
-
1,667
1,762
2,845
95
6,677
-
9,617
(i) Capital expenditure commitments relate to future GC-21 development activities.
a) Employee share option plan
23. Share-based payments
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 2023 financial year. The Company did not grant any
employee options during the 2023 or 2022 financial years. During the year ended 30 June 2023, nil (202:
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 fully amortised over the life of the facility.
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$26,621)
86 OTTO ENERGY
ANNUAL REPORT 2023
67
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
c) Performance rights
23.
Share-based payments (continued)
The Performance Rights Plan was approved by shareholders at the 2016 Annual General Meeting and again
at the 2019 Annual General Meeting. The Performance Rights Plan is designed to provide long term
incentives for senior managers and employees to deliver long term shareholder returns. Participation in
the plan is at the Board’s discretion and no individual has a contractual right to participate in the plan or to
receive any guaranteed benefits. The amount of performance rights that will vest depends on vesting period
and/or Otto Energy Limited’s TSR, including share price growth, dividends, and capital returns. Once
vested, the performance rights are automatically converted to shares. If the vesting condition is not met on
a measurement date (no rights vest), the performance rights will not lapse and will continue to exist as
unvested performance rights to be retested at the next measurement date or expiry date, whichever is later.
Performance rights are granted under the plan for no consideration. Rights granted under the plan carry
no dividend or voting rights. Any unvested performance rights lapse on cessation of employment or office.
Set out below are summaries of rights granted and outstanding under the Performance Rights Plan:
2023
Balance at
start of the
year
Rights
issued
during
the year
Exercise
d/
vested
Lapsed/
expired
Balance
at end of
the year
Fair
value
on
date
of
issue
A$
Fair
value
on
date
of
issue
US$
Grant date Expiry
date
Number
Number Number
Number
Number
29 Nov 2017
29 Nov 2017
29 Nov 2022
29 Nov 2022
0.02
0.02
0.02
0.01
1,394,333
1,394,334
21 Dec 2018
15 Nov 2023
0.01
0.01
5,919,333
21 Dec 2018
15 Nov 2023
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)
-
-
-
-
-
-
-
-
-
-
(2,788,667)
5,919,333
2,959,667
595,000
3,497,333
595,000
3,497,335
595,000
3,497,332
21,156,000
0.01
ANNUAL REPORT 2023 87
OTTO ENERGY
68
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
Share-based payments (continued)
23.
2022
Fair
value
on
date of
issue
A$
Fair
value
on
date of
issue
US$
Balance at
start of
the year
Rights
issued
during
the year
Exercise/
Vested/
lapsed/
expired
Balance at
end of the
year
Number
Number
Number
Number
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 2023
0.02
0.02
0.01
0.01
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
0.01
0.01
0.02
0.01
0.02
0.01
0.02
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 issues in financial year 2019
Options issued in financial year 2022
Total
2023
US$’000
2022
US$’000
-
-
-
6
86
92
No performance rights were granted under the Plan in the financial year 2023. 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 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.
For the year ended 30 June 2023, the Group recognised share-based payments expense of nil
(2022:US$0.09M) in the Consolidated Statement of Profit or Loss and Other Comprehensive Income
88 OTTO ENERGY
ANNUAL REPORT 2023
69
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
Recognition and measurement
23.
Share-based payments (continued)
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.
ANNUAL REPORT 2023 89
OTTO ENERGY
70
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
24.
Related parties
Key management personnel compensation
2023
US$’000
2022
US$’000
Short-term employee benefits
Post-employment benefits
Other benefits
Termination benefits
Share-based payments
Total USD
Total AUD equivalent
25.
Auditor’s remuneration
1,842
50
125
300
-
2,317
3,457
1,717
46
105
-
3
1,871
2,591
During the year the following fees were paid or payable for services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
2023
US$’000
2022
US$’000
BDO Audit (WA) Pty Ltd
Audit and review of financial statements
Tax compliance services
Tax consulting and tax advice
Total remuneration of BDO Audit (WA) Pty Ltd
Network firms of BDO Audit (WA) Pty Ltd
Audit and review of financial statements
Tax compliance services
International tax consulting
Total remuneration of network firms of BDO Audit (WA) Pty Ltd
Total
58
8
-
66
33
28
39
100
166
56
9
10
75
18
54
78
150
225
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.
Insurance Claim
26.
Contingent assets and liabilities
In January 2023, Otto and the operator of GC 21, both filed a Control of Well event claim with their
respective insurance carriers regarding the recompletion at GC 21. During the recompletion, the tubing
string, control lines and clamps were damaged, and the 14-inch casing was found to be parted below the
mudline. Once the loss of control was encountered, it took numerous attempts, tests, and work to
determine the issues.
71
90 OTTO ENERGY
ANNUAL REPORT 2023
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
26. Contingent assets and liabilities (continued)
The insurance claim is for a maximum amount of US$8.7 million. In August 2023, the Company announced
it had received US$5.8 million in relation to the insurance claim as an interim payment. Refer to Note 28
Events after the reporting period. However, the contingent asset has not been recognised as a receivable
as at 30 June 2023 as the outcome was not finalised at reporting date. No assurance can be made as to the
amount or timing of any additional insurance claim proceeds.
Transaction related bonuses
In March 2023, the Company announced a formal review process to evaluate strategic options to
maximize shareholder value including a potential partial or full sale of the Company and/or its assets.
Seaport Global Securities (in the United States) and Adelaide Equity Partners Limited (in Australia) have
been retained as financial advisors to assist with the process with a transaction-based fee agreed on a
successful outcome. The success fee is dependent on the aggregate consideration and sale structure.
In June 2023, the Company announced a change in management whereby Mr Utsler departed as CEO and
Managing Director on 19 June 2023 with Mr Herod commencing as CEO on 20 June 2023. Mr Herod will be
entitled to receive a cash bonus if there is a liquidity event that results in a return of capital to the
Company’s shareholders (including a takeover, merger, scheme of arrangement, sale of assets, share buy-
back, special dividend, or a series of liquidity events) that arises from the signing of definitive documents
during Mr Herod’s employment not later than 1 March 2024. The maximum amount of the cash bonus is
US$0.3 million. As a separate matter, Mr Utsler will be entitled to receive a cash bonus of US$0.2 million if
there is a liquidity event occurring not later than December 31, 2023 pursuant to the terms and conditions
of a consulting agreement dated 19 June 2023.
a) Exploration expenditure commitments
27. Commitments
Exploration expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
2023
US$’000
2022
US$’000
Not later than 1 year
Later than one year but not later than five years
b) Capital expenditure commitments.
95
-
95
2,845
95
2,940
Capital expenditure contracted for at the reporting date but not recognised as liabilities are as follows:
Not later than 1 year
Later than one year but not later than five years
2023
US$’000
2022
US$’000
-
1,667
1,667
6,677
-
6,677
Capital expenditure commitments relate to future GC-21 development activities.
ANNUAL REPORT 2023 91
OTTO ENERGY
72
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
28. Events after the reporting period
No matters or circumstances have arisen since 30 June 2023 that have significantly affected, or may
significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs
in future financial years apart from those listed below:
On 9 August 2023, Otto received an AFE from the operator of the Vick #1 well to plug and abandon
this well, at a cost of US$11,000, net to Otto.
As of 11 August 2023, Otto had received proceeds of US$5.8 million in relation to a Control of Well
insurance claim at GC 21. During the recompletion, the tubing string, control lines, casing and clamps
were damaged. A review is underway to determine how increased loop eddy currents contributed to
these failures.
On 30 August 2023 the Company released its statement of reserves and prospective resources as at
30 June 2023. The estimated reserves were compiled by Otto’s independent consultant Ryder Scott
Company and covered SM 71, Lightning, GC 21, Mosquito Bay West and Oyster Bayou South. The
contingent and prospective resources covered SM 71, Lightning and ST 48. The summary statement
of reserves and resources as at 30 June 2023 and changes to reserves and resources since 30 June
2022 is set out in the Production and Development section of this Director’s Report. For full details
refer to ASX release dated 30 August 2023.
29. Parent entity disclosures
As at, and throughout the financial year ended 30 June 2023, the parent company of the Group was Otto
Energy Limited.
2023
US$’000
2022
US$’000
Summarised statement of profit or loss and other
comprehensive income
Profit/(loss) for the year after tax
Total comprehensive profit/(loss) for the year
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
92 OTTO ENERGY
ANNUAL REPORT 2023
Parent entity
(7,006)
(7,006)
13,641
13,641
2023
US$’000
2022
US$’000
10,171
37,922
48,093
331
22
353
5,237
50,647
55,884
415
17
432
48,446
55,452
73
FINANCIAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2023
29. Parent entity disclosures (continued)
Total equity of the parent entity comprises:
Share capital
Share based payments reserves
Foreign currency translation reserve
Accumulated losses
Total equity
2023
US$’000
2022
US$’000
133,170
10,506
-
(95,230)
48,446
133,170
10,506
-
(88,224)
55,452
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 2023 and 30 June 2022 beyond those listed in
Note 26.
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.
ANNUAL REPORT 2023 93
OTTO ENERGY
74
FINANCIAL REPORT
DIRECTORS’ DECLARATION
For the year ended 30 June 2023
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 2023
Corporations Act 2001
Remuneration Report, comply with Australian Accounting Standards (including Australian
Accounting Interpretations) and the
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 2023 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 2023 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.
Corporations Act 2001
2. This declaration has been made after receiving the declarations required to be made to the Directors
in accordance with section 295A of the
for the year ended 30 June 2023.
On behalf of the Board
Mr J Jetter
Chairman
28 September 2023
94 OTTO ENERGY
ANNUAL REPORT 2023
75
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
Level 9
Mia Yellagonga Tower 2
5 Spring Street
Perth, WA 6000
Level 9
PO Box 700 West Perth WA 6872
Mia Yellagonga Tower 2
Australia
5 Spring Street
Perth, WA 6000
Australia
PO Box 700 West Perth WA 6872
INDEPENDENT AUDITOR'S REPORT
INDEPENDENT AUDITOR'S REPORT
To the members of Otto Energy Limited
To the members of Otto Energy Limited
Report on the Audit of the Financial Report
Opinion
Report on the Audit of the Financial Report
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 2023, the
Opinion
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
We have audited the financial report of Otto Energy Limited (the Company) and its subsidiaries (the
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
Group), which comprises the consolidated statement of financial position as at 30 June 2023, the
to the financial report, including a summary of significant accounting policies and the directors’
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
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
to the financial report, including a summary of significant accounting policies and the directors’
declaration.
Act 2001, including:
declaration.
(i)
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its
Act 2001, including:
financial performance for the year ended on that date; and
(ii)
(i)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its
Basis for opinion
financial performance for the year ended on that date; and
(ii)
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Basis for opinion
Report section of our report. We are independent of the Group in accordance with the Corporations
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
Report section of our report. We are independent of the Group in accordance with the Corporations
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
ethical responsibilities in accordance with the Code.
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
We confirm that the independence declaration required by the Corporations Act 2001, which has been
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
given to the directors of the Company, would be in the same terms if given to the directors as at the
ethical responsibilities in accordance with the Code.
time of this auditor’s report.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
given to the directors of the Company, would be in the same terms if given to the directors as at the
for our opinion.
time of this auditor’s report.
Key audit matters
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
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
Key audit matters
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
Key audit matters are those matters that, in our professional judgement, were of most significance in
a separate opinion on these matters.
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia
Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO
International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability
limited by a scheme approved under Professional Standards Legislation.
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.
1
1
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 AUDIT REPORT TO THE MEMBERS OF
INDEPENDENT AUDITOR'S REPORT
OTTO ENERGY LIMITED
For the year ended 30 June 2023
To the members of Otto Energy Limited
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
Tel: +61 8 6382 4600
Fax: +61 8 6382 4601
www.bdo.com.au
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
Level 9
Level 9
PO Box 700 West Perth WA 6872
Mia Yellagonga Tower 2
Mia Yellagonga Tower 2
Australia
5 Spring Street
5 Spring Street
Perth, WA 6000
Perth, WA 6000
PO Box 700 West Perth WA 6872
PO Box 700 West Perth WA 6872
Australia
Australia
INDEPENDENT AUDITOR'S REPORT
Report on the Audit of the Financial Report
INDEPENDENT AUDITOR'S REPORT
Opinion
INDEPENDENT AUDITOR'S REPORT
To the members of Otto Energy Limited
We have audited the financial report of Otto Energy Limited (the Company) and its subsidiaries (the
To the members of Otto Energy Limited
Group), which comprises the consolidated statement of financial position as at 30 June 2023, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
To the members of Otto Energy Limited
Report on the Audit of the Financial Report
Report on the Audit of the Financial Report
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’
Opinion
Opinion
declaration.
Report on the Audit of the Financial Report
We have audited the financial report of Otto Energy Limited (the Company) and its subsidiaries (the
We have audited the financial report of Otto Energy Limited (the Company) and its subsidiaries (the
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Group), which comprises the consolidated statement of financial position as at 30 June 2023, the
Opinion
Group), which comprises the consolidated statement of financial position as at 30 June 2023, the
Act 2001, including:
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
We have audited the financial report of Otto Energy Limited (the Company) and its subsidiaries (the
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its
(i)
Group), which comprises the consolidated statement of financial position as at 30 June 2023, the
to the financial report, including a summary of significant accounting policies and the directors’
to the financial report, including a summary of significant accounting policies and the directors’
financial performance for the year ended on that date; and
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
declaration.
declaration.
of changes in equity and the consolidated statement of cash flows for the year then ended, and notes
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
to the financial report, including a summary of significant accounting policies and the directors’
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Basis for opinion
Act 2001, including:
Act 2001, including:
declaration.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its
(i)
(i)
Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
financial performance for the year ended on that date; and
financial performance for the year ended on that date; and
Act 2001, including:
Report section of our report. We are independent of the Group in accordance with the Corporations
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its
(i)
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
financial performance for the year ended on that date; and
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
Basis for opinion
Basis for opinion
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
ethical responsibilities in accordance with the Code.
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Basis for opinion
We confirm that the independence declaration required by the Corporations Act 2001, which has been
Report section of our report. We are independent of the Group in accordance with the Corporations
Report section of our report. We are independent of the Group in accordance with the Corporations
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
given to the directors of the Company, would be in the same terms if given to the directors as at the
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
time of this auditor’s report.
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
Report section of our report. We are independent of the Group in accordance with the Corporations
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
ethical responsibilities in accordance with the Code.
ethical responsibilities in accordance with the Code.
for our opinion.
APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
We confirm that the independence declaration required by the Corporations Act 2001, which has been
We confirm that the independence declaration required by the Corporations Act 2001, which has been
Key audit matters
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
given to the directors of the Company, would be in the same terms if given to the directors as at the
given to the directors of the Company, would be in the same terms if given to the directors as at the
ethical responsibilities in accordance with the Code.
Key audit matters are those matters that, in our professional judgement, were of most significance in
time of this auditor’s report.
time of this auditor’s report.
our audit of the financial report of the current period. These matters were addressed in the context of
We confirm that the independence declaration required by the Corporations Act 2001, which has been
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
given to the directors of the Company, would be in the same terms if given to the directors as at the
for our opinion.
for our opinion.
a separate opinion on these matters.
time of this auditor’s report.
Key audit matters
Key audit matters
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
Key audit matters are those matters that, in our professional judgement, were of most significance in
for our opinion.
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 of the current period. These matters were addressed in the context of
Key audit matters
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
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.
Key audit matters are those matters that, in our professional judgement, were of most significance in
a separate opinion on these matters.
our audit of the financial report of the current period. These matters were addressed in the context of
1
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
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
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
76
a separate opinion on these matters.
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.
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.
OTTO ENERGY
ANNUAL REPORT 2023 95
1
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.
1
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.
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
OTTO ENERGY LIMITED
For the year ended 30 June 2023
Impairment testing of Cash Generating Unit
Impairment testing of Oil & Gas Properties (Green Canyon 21)
Key audit matter
Key audit matter
How the matter was addressed in our audit
How the matter was addressed in our audit
The Group’s carrying value of oil and gas properties as
The Group’s carrying value of oil and gas properties as
Our work included but not limited to the following
Our work included but not limited to the following
disclosed in note 13 represents a significant asset to
disclosed in note 13 represents a significant asset to
procedures:
procedures:
the Group and is comprised of several Cash Generating
the Group and is comprised of several Cash Generating
Units (“CGUs”). The Australian Accounting Standards
Units (“CGUs”). The Australian Accounting Standards
require the Group to assess whether there are any
require the Group to assess whether there are any
indicators that oil and gas properties may be impaired.
indicators that oil and gas properties may be impaired.
•
•
Assessing the appropriateness of the Group’s
Assessing the appropriateness of the Group’s
categorisation of Cash Generating Units (“CGUs”)
categorisation of Cash Generating Units (“CGUs”)
and the allocation of assets to the carrying value of
and the allocation of assets to the carrying value of
CGUs based on our understanding of the Group’s
CGUs based on our understanding of the Group’s
The Group concluded there was an impairment
The Group concluded there was an impairment
business and internal reporting;
business and internal reporting;
indicator during the year pertaining to its Bulleit well
indicator during the year pertaining to its Bulleit well
at Green Canyon (GC-21) as a result of lower than
at Green Canyon (GC-21) as a result of lower than
expected well performance and cost overruns.
expected well performance and cost overruns.
Accordingly, the Group was required to estimate the
Accordingly, the Group was required to estimate the
recoverable amount of the GC-21 CGU in accordance
recoverable amount of the GC-21 CGU in accordance
with the Australian Accounting Standards from which
with the Australian Accounting Standards from which
an impairment was recognised as per note 13.
an impairment was recognised as per note 13.
The assessment of impairment is complex and contains
The assessment of impairment is complex and contains
a number of estimates and judgements. The key
a number of estimates and judgements. The key
judgements and estimates used in the group’s
judgements and estimates used in the group’s
impairment assessment are disclosed in note 13 to the
impairment assessment are disclosed in note 13 to the
financial report. Accordingly, this matter was
financial report. Accordingly, this matter was
considered to be a key audit matter.
considered to be a key audit matter.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Considering management’s valuation methodology
Considering management’s valuation methodology
applied in measuring the fair value of the respective
applied in measuring the fair value of the respective
assets identified within the GC-21 CGU;
assets identified within the GC-21 CGU;
Obtaining and reviewing available reserve data from
Obtaining and reviewing available reserve data from
management’s external experts to determine
management’s external experts to determine
whether the data has been correctly included in the
whether the data has been correctly included in the
impairment model. This included assessing the
impairment model. This included assessing the
competency and objectivity of management’s
competency and objectivity of management’s
expert;
expert;
Reviewing the accuracy and integrity of
Reviewing the accuracy and integrity of
management’s value in use model;
management’s value in use model;
Challenging key inputs used in the value in use
Challenging key inputs used in the value in use
calculation including but not limited to the
calculation including but not limited to the
following:
following:
In conjunction with our valuation specialist,
In conjunction with our valuation specialist,
considering the appropriateness of the discount rate
considering the appropriateness of the discount rate
used;
used;
Benchmarking and analysing management’s oil and
Benchmarking and analysing management’s oil and
gas price assumptions against external market data;
gas price assumptions against external market data;
Reviewing and analysing the appropriateness of
Reviewing and analysing the appropriateness of
forecasted operating and production costs contained
forecasted operating and production costs contained
within managements model against actuals and
within managements model against actuals and
source documentation where possible; and
source documentation where possible; and
Performing sensitivity analysis on the commodity
Performing sensitivity analysis on the commodity
pricing, reserves and discount rates.
pricing, reserves and discount rates.
Reviewing the Director’s minutes and ASX
Reviewing the Director’s minutes and ASX
announcements for evidence of consistency of
announcements for evidence of consistency of
information with management’s assessment of the
information with management’s assessment of the
carrying value of GC-21; and
carrying value of GC-21; and
•
•
Assessing the adequacy of the related disclosures in
Assessing the adequacy of the related disclosures in
note 13 to the financial report.
note 13 to the financial report.
96 OTTO ENERGY
ANNUAL REPORT 2023
77
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
OTTO ENERGY LIMITED
For the year ended 30 June 2023
Other information
Other information
The directors are responsible for the other information. The other information comprises the
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 2023, but does not include the
information in the Group’s annual report for the year ended 30 June 2023, but does not include the
financial report and the auditor’s report thereon.
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
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
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
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.
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
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.
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
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
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
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
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
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the group to
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
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
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.
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
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
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
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
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
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
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
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.
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
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:
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
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf
This description forms part of our auditor’s report.
This description forms part of our auditor’s report.
OTTO ENERGY
ANNUAL REPORT 2023 97
78
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
OTTO ENERGY LIMITED
For the year ended 30 June 2023
Report on the Remuneration Report
Report on the Remuneration Report
Opinion on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included on pages 38 to 51 of the directors’ report for the
We have audited the Remuneration Report included on pages 38 to 51 of the directors’ report for the
year ended 30 June 2023.
year ended 30 June 2023.
In our opinion, the Remuneration Report of Otto Energy Limited, for the year ended 30 June 2023,
In our opinion, the Remuneration Report of Otto Energy Limited, for the year ended 30 June 2023,
complies with section 300A of the Corporations Act 2001.
complies with section 300A of the Corporations Act 2001.
Responsibilities
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
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
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
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
Australian Auditing Standards.
BDO Audit (WA) Pty Ltd
BDO Audit (WA) Pty Ltd
Phillip Murdoch
Phillip Murdoch
Director
Director
Perth, 28 September 2023
Perth, 28 September 2023
98 OTTO ENERGY
ANNUAL REPORT 2023
79
ADDITIONAL ASX INFORMATION
ADDITIONAL ASX INFORMATION
As at 12 September 2023
Range
Distribution of shareholdings
Number of
holders
Number of shares
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
170
193
388
1,638
1,173
3,562
23,783
582,860
3,226,911
71,858,540
4,719,317,679
4,795,009,773
Number of holders
Number of shares
3,355
207
3,562
4,437,856,587
357,153,186
4,795,009,773
There were 1,370 shareholders holding less than a marketable parcel of shares.
Name
Twenty largest shareholders
CITICORP NOMINEES PTY LIMITED
GLOBAL MOSAIC PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
1
2
3 MONEX BOOM SECURITIES (HK) LTD CLIENT A/C
4
5
6 MR KENNETH JOSEPH HALL
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
7
8 MONEX BOOM SECURITIES (HK) LTD CLIENT A/C
9
10 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
11 PALM BEACH NOMINEES PTY LIMITED
12 MR DOUGAL JAMES FERGUSON
13 MR NEIL DAVID OLOFSSON & MRS BELINDA OLOFSSON
14 MR ANASTASIOS MAZIS
15 SHENTON JAMES PTY LTD
16 TROPICAL INVESTMENTS WA PTY LTD
17 MR JOHN PHILIP DANIELS
18 BNP PARIBAS NOMS(NZ) LTD
19 MR DANIEL LEE
20 DANIEL LEE PTY LTD
Ordinary shares
Number of
shares
%
2,329,472,944
259,524,162
180,652,398
128,031,883
108,839,406
86,000,000
83,032,249
77,197,101
72,963,308
53,784,446
44,599,999
29,340,000
25,050,000
23,807,812
23,000,000
22,555,555
20,485,823
18,278,668
18,211,778
17,771,431
48.58%
5.41%
3.77%
2.67%
2.27%
1.79%
1.73%
1.61%
1.52%
1.12%
0.93%
0.61%
0.52%
0.50%
0.48%
0.47%
0.43%
0.38%
0.38%
0.41%
3,622,598,963
75.55%
80
OTTO ENERGY
ANNUAL REPORT 2023 99
ADDITIONAL ASX INFORMATION
ADDITIONAL ASX INFORMATION
As at 12 September 2023
Name
Substantial shareholders
Ordinary shares
Number of
shares
%
Molton Holdings Limited
2,305,859,697
48.09%
Unquoted securities
The unlisted securities of the Company are 21,156,000 performance rights. The performance rights do not
Performance Rights
carry a right to vote at a general meeting of shareholders.
Grant date
Expiry date
Issued to
Exercise
price
Number of
performance rights
Number of
holders
15 November
2018
21 December
2018
21 December
2018
15 November
2023
15 November
2023
15 November
2023
Directors
A$0.00
Executives
A$0.00
1,785,000
7,352,000
Non-
executives
A$0.00
12,019,000
21,156,000
2
1
1
Ordinary shares
Voting rights
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 2023 held by two separate parties.
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
100 OTTO ENERGY
ANNUAL REPORT 2023
81
ottoenergy.com
ASX: OEL