Otto Energy Faces Reserve Reclassification Risks Amid Production Declines

Overview of Otto Energy’s 2025 Reserves Update

Otto Energy Limited (ASX, OEL) has released its annual reserves and resources statement as of 30 June 2025, providing a comprehensive snapshot of its asset base primarily located in the US Gulf Coast region. The report, independently prepared by Ryder Scott Company, highlights a measured decline in proved reserves consistent with ongoing production, while underscoring the company’s robust financial position and operational stability.

Net proved reserves (1P) have decreased by 10% to 1.8 million barrels of oil equivalent (MMboe), reflecting the natural depletion from production volumes during the fiscal year. This decline aligns with the company’s steady output of approximately 1,320 barrels of oil equivalent per day (boe/d), with nearly half of this production comprising liquids, a valuable component in the energy mix.

Reserves Dynamics and Field Performance

The proved plus probable reserves (2P) saw a more pronounced 24% reduction to 2.5 MMboe, influenced not only by production but also by the reclassification of certain reserves, notably at the Lightning field in Texas. The Green #3 well at Lightning was downgraded from probable to possible reserves, reflecting a cautious reassessment of its development potential.

Despite these decreases, Otto reported reserve additions at key fields, a 167 Mboe increase at Lightning and 45 Mboe at Green Canyon 21 (GC 21) in the deepwater Gulf of Mexico, driven by stronger-than-expected field performance and successful well recompletions. These gains partially offset declines elsewhere, such as at Oyster Bayou.

Contingent and Prospective Resources and Lease Relinquishment

The contingent and prospective resources category experienced a significant drop to 2.0 MMboe, primarily due to the relinquishment of the ST 48 lease during the year. This move reduced the company’s exposure to undeveloped and exploratory assets, signaling a strategic focus on core producing fields and near-term development opportunities.

Otto’s reserves portfolio now anticipates production lives ranging from 10 years for proved reserves to over 14 years when including possible reserves, with plans for multiple recompletions and new well developments, particularly at Lightning.

Financial Position and Outlook

Complementing its operational update, Otto Energy reported a strong cash position of US$14.9 million as of 30 June 2025, providing a solid financial buffer to support ongoing operations and potential development activities. The company’s focus remains on leveraging its high-quality production base across five key assets, including South Marsh Island 71, Lightning, Green Canyon 21, Mosquito Bay West, and Oyster Bayou South.

While the reserves declines reflect the natural lifecycle of oil and gas assets, the company’s strategic reserve additions and steady production underpin a resilient operational profile. The independent assessment by Ryder Scott Company, adhering to industry-standard SPE-PRMS guidelines, lends credibility and transparency to these figures.