Otto Energy and its partners have ticked off the $US188 million ($182 million) development of the second stage of the Galoc project in the Philippines, a move they say will double oil production by the middle of next year.
Otto operates Galoc and owns 33 per cent of the project, with fellow Perth-based Nido Petroleum holding 23 per cent and local investors rounding out the consortium.
The development will extend the life of the Galoc field to 2020, according to Otto, and double production to about 12,000 barrels of oil a day. Otto will part fund its $US62 million share of the capital expenditure through debt, asking BNP Paribas to arrange a $US34 million project loan secured against its interest in the project.
Nido was still to announce details of how it would pay for its $US43 million contribution, but it is understood part would come from cash flow and part from a $US30 million debt facility with Standard Bank the company announced in July.
With a market capitalisation of $102 million, Otto's $US62 million spend on Galoc was a huge investment for the company. But managing director Gregor McNabb said the project was expected to repay the expenditure handsomely.
Otto took over as operator of Galoc a year ago through a deal with oil trader Vitol, upping its stake from 19 per cent to the 33 per cent it now holds at a cost of about $US18.7 million. It also invested in a substantial upgrade to the production vessel servicing the project.
Mr McNabb said Otto was earning margins of about $50 a barrel from the project, from crude oil sales of about $110/b or above. The BNP facility had a tenor of three years, and the project's rate of return made it a "very significant asset" for the company, he said.
In addition to the two development wells to be drilled as part of the Galoc expansion, Otto would likely extend its investment in the field through an exploration well to the north of the existing operations, he said. The drilling rig mobilised for the development wells would also test the potential of the new area, Mr McNabb said, saving costs.
Otto further extended its position in the Philippines yesterday, doubling its stake to an 80 per cent share in an onshore block on the island of Leyte through a $1.25 million deal with Swan Oil and Gas.Otto shares closed up 0.4¢ at 9¢ yesterday and Nido shares gained 0.1¢ to 3.7¢.
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