Otto Energy Limited (ASX:OEL) has announced that its wholly owned subsidiary, Otto Energy (Louisiana) LLC, has agreed to sell its 50% working interest in South Marsh Island 71 (SM 71) in the Gulf of America to Byron Energy Inc., the operator of SM 71, with US$2.5 million payable in cash at closing and total expected proceeds of approximately US$6.0 million, plus a US$325,000 bond refund.

Key Points

  • Otto Energy has agreed to sell its 50% working interest (40.6% net revenue interest) in SM 71 to Byron Energy Inc., effective 1 September 2026.
  • Consideration comprises US$2.5 million cash at closing, plus all production attributable to Otto's SM 71 interest until 2,928 production hours have accrued, expected in early January 2027.
  • Total expected cash of approximately US$6.0 million, plus a US$325,000 bond refund; after insurance costs, expected value is approximately US$5.9 million.
  • Byron will assume all plugging, abandonment, decommissioning and environmental liabilities for SM 71, secured by a bond of approximately US$2.9 million.
  • Shareholder approval is required under ASX Listing Rule 11.2, with an Extraordinary General Meeting expected on 18 December 2026.

SM 71 Disposal Transaction Terms

The disposal comprises Otto's interest in lease OCS-G 34266, the F001, F002, F003 and F005 wells, the SM 71 "F" platform and associated pipelines, and the SM 71 joint operating agreement. Otto pays a fixed US$115,000 per month towards operating costs during the Seller's Reserved Production period. Byron will also refund Otto's US$325,000 share of the cash collateral for the SM 71 production bond at closing. Otto's provision for plugging, abandonment, decommissioning and environmental liabilities was US$3.05 million at 30 June 2026. On a pro forma basis at 30 June 2026, the disposal would have resulted in a gain of approximately US$0.75 million.

Production Hours Accrued and Hedging Position

As at 31 October 2026, approximately 1,450 of the 2,928 production hours had accrued under the Seller's Reserved Production arrangement. Otto has hedged approximately 50% of its expected oil production for November and December 2026 at fixed prices of US$96.60 and US$94.50 per barrel respectively. The company disclosed that SM 71 contributed approximately 47.8% of Otto's net operating revenue in FY2026 and represents approximately 25.8% of its proved (1P) reserves and 30.2% of its proved plus probable (2P) reserves. Closing is conditional on shareholder approval, representations and warranties remaining true, and no legal or insolvency proceedings restraining the disposal, with a termination right if closing has not occurred by 1 January 2027.

Lightning Sale Process and Shareholder Meeting Timetable

Separate to the SM 71 disposal, Otto disclosed it will commence a process to sell its interest in the Lightning asset during November 2026. A notice of EGM, with an explanatory statement including the Directors' assessment of consideration value, is expected to be despatched to shareholders in mid-November. The Directors recommend shareholders vote in favour of the disposal in the absence of a superior proposal. Resolutions for a proposed 100:1 share consolidation and A$20.0 million return of capital to shareholders are to be put to a vote at the 13 November 2026 Annual General Meeting and are separate from, and not conditional upon, the SM 71 disposal. Otto intends to apply disposal proceeds towards general working capital, ongoing asset management costs, and future returns of capital to shareholders.