Gulf Coast Package
Under a Joint Exploration and Development Agreement (JEDA) with Hilcorp Energy Otto committed to an eight well drilling program with an estimated cost of US$75 million (100%). There are five wells remaining to be drilled - see below.
Otto will earn a 37.5% working interest by paying 50.0% of the costs of drilling and either setting casing or plugging and abandoning the well plus lease acquisition costs at each of the eight prospects.
Should either the Tarpon or Mustang prospects be successful then Otto has ground floor rights (ie pays only its working interest) to participate in the nearby Damsel and Corsair/Hellcat opportunities. These wells are in addition to the eight wells.
Under the JEDA Otto has a right of first offer to a subsequent Gulf Coast program, if Hilcorp elect to offer such a program to third parties.
About Hilcorp Energy
Founded in 1989, Hilcorp is one of the largest privately held oil and natural gas companies in North America. Hilcorp specializes in reinvigorating legacy oil and gas fields across North America; including in the US Gulf Coast, Alaska and the Rockies and currently produces approximately 325,000 boepd. To put this into context, Australia’s largest oil and gas company, Woodside, produces ~230,000 boepd.
Hilcorp has nearly 2,000 employees and has been consistently recognized for its strong culture, values and ethics both within the firm and in the communities in which it operates.
Otto is very pleased to be partnering with a Gulf Coast operator with proven capability to take exploration prospects into production.
Details of the Drilling Program
Information regarding the remaining five wells is set out below.
1. 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.
Lightning Well - Significant Discovery
The Green #1 well testing the Lightning prospect in Matagorda County, Texas was drilled to 15,218 ft MD/15,216 ft TVD and suspended on 4 February 2019 after logging multiple pay intervals.
Petrophysical evaluation of the logging data indicated the presence of 180 feet of net hydrocarbon pay in multiple sands. This petrophysical evaluation was undertaken using historical parameters for production performance in the play trend. Dependent upon porosity and water saturation cut-offs applied, there is potential for an additional 150 feet of net pay in the well. The pre-drill prospective resource estimates, as first announced on 4 December 2018, had assumed a P50 net hydrocarbon bearing reservoir thickness of 31 feet with a P10 net hydrocarbon bearing reservoir thickness of 75 feet.
The operator, Hilcorp, has run production tubing and other downhole equipment required to complete the well for production.
The well was perforated over a 28-foot zone in the lowest intersected pay zone being the Tex Miss 3 interval on 7 March 2019 (US CST) and underwent initial flow-back tests to determine flow rate calculations and liquids yields.
Over a 15 hour test using an 8/64” choke setting, 1.1 MMscf of gas and 50 bbls of 46 degree API condensate was recovered from the well. No formation water was recovered. The condensate gas ratio from this zone indicates an impressive 40-45 bbl per MMscf yield, significantly in excess of the 10 bbl per MMscf yield from other wells in the area.
The above flow test, which was conducted with a very tight choke, provides a reliable indication that production from this zone will be in line with the nearby producing fields which have been very successful in generating significant value. Choke settings and forecast flow rates at Lightning will be determined incorporating all information received from the flow test. Nearby Freo Tex Mis wells have produced between 8 and 13 MMscf/d.
Field samples indicate that the gas meets the sales specifications for the Houston Ship Channel gas market with only trace elements of hydrogen sulfide and minor volumes of carbon dioxide. Samples have been gathered from the product stream to undertake laboratory analysis to verify the gas composition for sales specification.
Operations to build out site facilities, lay a flowline and undertake a hot tap into a nearby sales gas pipeline have now been commenced by the operator. The operator has advised that there is currently high demand for hot tap crews to undertake the sales pipeline connection and that this will likely delay first production into the second quarter of 2019. Otto will provide further information on the first production date once a hot tap date has been secured with the pipeline operator.
The Green #1 well has intersected multiple pay sands over a 180-foot interval with only the lowest 28 foot Tex Mis 3 zone currently being brought into production. The Lightning field will undergo a period of analysis once production commences to optimize a full field development. This will most likely involve the recompletion of this well in the future into other producible zones higher in the well and the drilling of further wells in the field.