OEL - (Otto) Multi based, Gambling Stock.

[shasta]

You have to wonder why the company is so hell bent on getting its cash level up. My bet they are looking at drilling a few prospects this year and clearly with more cash they can be in a better position when farming down service contracts. Recent language from the company suggests they will step up and drill if they cannot obtain farm outs you have to wonder if this is a sneaky way of trying to put a bit of pressure for BHP to sign on the dotted line. Would be great to see a farm in onshore SC 51 step up and take a stake to drill a well in offshore SC51.

The cash will likely be earmarked for Galoc phase 2 id imagine. OEL should be able to raise more funds during 2011 to drill other targets, surely the market will see the extra Galoc income as justification for stumping up more cash for the "drill & thrill" investors.

So long as OEL do the minimum necessary workin requirements to retain there deep water permits, then Galoc income alone should support the share price.

[boysy]

But one would think that otto due to the direct interest might not have to front any cash if GPC take on some debt to cover their share of galoc phase #2 costs. To be honest it seems as though galoc phase #2 may be some time away. One has to think the company has a greater need for the cash in the shorter term to drill some targets as you mention it will be interesting on the farm out front.

[shasta]

But one would think that otto due to the direct interest might not have to front any cash if GPC take on some debt to cover their share of galoc phase #2 costs. To be honest it seems as though galoc phase #2 may be some time away. One has to think the company has a greater need for the cash in the shorter term to drill some targets as you mention it will be interesting on the farm out front.

Im just viewing any farm outs as icing on the cake at this stage (& of course BHP will spark OEL alight if they do sign up), maybe OEL wants to fund its own projects in future, i'd be happy to take the extra risk to drill those deep water targets themselves, they can always get a partner onboard once hydrocarbons are found in commercial quantities to bring it into production.

I forgot re Galoc that GPC would incur the debt thru that vehicle, but any down time would require OEL to be self funding, & thats where Alex Park fell down, when Galoc had problems & OEL had to raise funds due to GPC's debt, hopefully Paul Moore is aware of this & is stashing the cash "just in case"

Nice position to be in at the moment, plenty of cash rolling in, & drillable targets

[jdg]

hey boysy and shasta,

what is the situation with GPC debt funding Galoc? i thought that it was debt funded, but the loans were from the JV partners. i recall that OEL was accounting for 'income' from GPC as loan repayments until relatively recently when the debt was paid off and now it's recorded as revenue. i was unaware that GPC had gained external debt (from outside the JV) for Galoc development. but i may have that quite wrong - i wasn't invested in OEL until quite some time after Galoc was brought on line. i'd be really pleased for any clarification.

trust you guys had a great weekend.

-j

[shasta]

hey boysy and shasta,

what is the situation with GPC debt funding Galoc? i thought that it was debt funded, but the loans were from the JV partners. i recall that OEL was accounting for 'income' from GPC as loan repayments until relatively recently when the debt was paid off and now it's recorded as revenue. i was unaware that GPC had gained external debt (from outside the JV) for Galoc development. but i may have that quite wrong - i wasn't invested in OEL until quite some time after Galoc was brought on line. i'd be really pleased for any clarification.

trust you guys had a great weekend.

-j

There hasnt been any official news re debt funding, we are merely speculating that GPC will raise debt to cover Galoc phase 2 costs, which will affect cashflows to OEL initially.

As far as i know, GPC is debt free & paying out all galoc cashflows as "dividends" to OEL & other shareholders

[boysy]

Spot on shasta GPC would have the opportunity to take on debt if it chose to do so. Clearly this would result in Galoc not receiving further dividends until the debt had been paid off. As shasta said GPC took on the debt to fund galoc in the first place and didnt start to pay dividends to Otto until all debt had been cleared. Will be some time untill the funds are actually required one would think Otto are in a far better financial position than other Galoc partners. Plenty of news in the coming weeks one would think we should get an update on drilling i SC 51 hopefully a farm out and news on other fronts.

[jdg]

thanks for clarifying that.

given the fact that some jv partners are not in a great position to fund phase II, perhaps that gives greater prospect to GPC raising debt.

i'd be pleased to hear from the co what the current thinking is here, and a rough idea of a timeline. certainly there have been no noises to suggest phase II is imminent.

but news regarding Duhat-1 can't be too far away. that will actually be a pretty exciting drill. quick and cheap with a low chance of success but the possibility of a very big payday. great stuff.

-j

[boysy]

Yes from what i hear they are trying to get the well positioning as good as possible for phase #2. The issue was getting a better understanding of Galoc a little known fact is 80% of production comes from 1 well and 20% from the other. This time round they want to get the best possible flow and resources from the filed hence the longer time they are taking to committing to phase #2. If they do go ahead with phase #2 development one would only hope they would give an update on the reserves in the field we know there is a significant discrepancy between what Otto state ( much more conservative figure)the reserves are and what nido states ( a much higher figure of 1p,2p and 3p based on independent assessment by GC&A). Either way GC&A assessment was based on old data one would think with much higher uptime achieved this should help in determining a new reserve figure.

[shasta]

Yes from what i hear they are trying to get the well positioning as good as possible for phase #2. The issue was getting a better understanding of Galoc a little known fact is 80% of production comes from 1 well and 20% from the other. This time round they want to get the best possible flow and resources from the filed hence the longer time they are taking to committing to phase #2. If they do go ahead with phase #2 development one would only hope they would give an update on the reserves in the field we know there is a significant discrepancy between what Otto state ( much more conservative figure)the reserves are and what nido states ( a much higher figure of 1p,2p and 3p based on independent assessment by GC&A). Either way GC&A assessment was based on old data one would think with much higher uptime achieved this should help in determining a new reserve figure.

Galoc is still producing ~8500 bopd which must be good for the overall reserves to be more in line with NDO figures, but i have no issue with OEL being conservative!

While its still producing around this level (& with the Brent oil price looking strong) theres no real rush to "boost" the production levels just yet.

With the Opex + Capex costs totalling $US29/bbl, leaves plenty of profit margin at current oil prices (Galoc oil is at a slight discount to the Brent oil price)

GPC's other shareholder (Vitol GPC Investments) must be pretty flush, given they effectively hold 40% of Galoc (3400 bopd net).

Roll on the next GC&A assessment, due end of June?

[boysy]

One would think for the planning of Phase #2 they would be able to generate some more detailed in house revision of the reserve estimate i wouldnt be surprised if this was released in the phase #2 announcement if and when they choose to further develop the field.