Australia-listed Byron Energy Ltd.’s wholly owned subsidiary, Byron Energy Inc., has entered into a binding participation agreement (PA) with Otto Energy (Louisiana) LLC, a wholly owned subsidiary of Otto Energy Ltd.
This agreement covers three of Byron's existing projects, with Otto contributing up to $17.3 million in drilling costs and past expenditure recovery, as part of a staged farm-out program, to advance the three projects. The injection of this funding through a staged program will reduce Byron’s need for capital and could ultimately lead to three new wells being drilled by Byron during calendar year 2016.
Under the PA, Otto pays a disproportionate share of drilling costs to earn 50% of Byron's interest in three projects: South Marsh Island 6, South Marsh Island 70/71 and Bivouac Peak. After drilling of the program’s initial SM 6 #2 well, Otto will then have a short option period to elect to participate in the SM 71 #1 well; in the event Otto elects to participate in SM 70/71, Otto will reimburse Byron for a portion of past costs on the SM 6 lease and the SM 70/71 leases. After the drilling of SM 71 #1 well, Otto will have earned an option to participate in the drilling of the first well on Bivouac Peak leases.
If all three wells are ultimately drilled, the end result will bring $17.3 million in funding for Byron’s existing projects. Should Otto elect not to participate in further drilling after the drilling of SM 6 #2 well, Otto will not earn the option to participate in the SM 70/71 leases and the agreement will cease.
Otto will also have the option of participating for up to a 50% interest in one new asset acquired by Byron, if any, through to March 2017 by paying 66.67% of related drilling costs or acquisition costs, and proportionate treatment of related expenses.