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Otto Energy (ASX:OEL) - Managing Director & CEO, Matthew Allen
Managing Director & CEO, Matthew Allen
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  • Oil explorer Otto Energy (OEL) has had to make stark changes to its operations and outlook amid the COVID-19 pandemic and oil price crash
  • The company has been fairly transparent so far in admitting it’s definitely not business as usual for virtually any part of its operations
  • Output at its flagship South Marsh Island 71 project has been cut to volumes supported by hedged sales to avoid the worst of the slump
  • In addition to the reductions in directors fees and a capital raise announced in recent weeks, Otto is also stripping back its Houston office
  • Cuts include unpaid furloughs, reduced hours and reductions of 30 per cent in base salaries for staff and contractors
  • The company says it’s now in a strong position to weather the pandemic and price crash storms
  • Otto Energy ended the day back where it started on Monday, with shares priced at 0.5 cents each

Oil explorer Otto Energy (OEL) has had to mark stark changes to its operations and outlook amid the COVID-19 pandemic and oil price crash.

The company has been fairly transparent so far in admitting it’s definitely not business as usual for virtually any part of its operations. Otto says its immediate plan is now focused on protecting its existing business and assets and completing the Green Canyon 21 development program.

Oil crash a car crash — but Otto’s insured

Otto was feeling the full brunt of the oil price crash, and has accordingly made deep cuts in production volumes at its flagship South Marsh Island 71 project. Output has been cut to approximate volumes supported by hedged sales as a means of avoiding the worst of the slump.

Given the oil price has already recovered around US$10 per barrel compared to its lowest ebb, the company says it will continuously assess the situation and adjust production volumes as the market dictates. The hedging agreement at least means Otto can continue some production, albeit it at a poorer margin than during full production.

COVID cost-cutting

In addition to the reductions in directors fees and a capital raise announced in recent weeks, Otto is also stripping back its Houston office to free up some cash. Office running costs will be reduced by approximately 40 per cent against the current budget, and by 50 per cent compared to actual costs for last financial year. Otto will achieve this through a series of initiatives, including unpaid furloughs, reduced hours and reductions of 30 per cent in base salaries for staff and contractors.

Otto’s Managing Director and CEO, Matthew Allen, says the company’s operating in times of unprecedented uncertainty.

“The rapidity of change in the current business conditions presents significant challenges for any business to respond and change direction. Otto has worked across the board and staff to significantly change the cost base of the organisation to ensure that it remains viable through the current industry downturn,” Matthew noted.

“There are going to be significant challenges across the industry as major demand destruction, soaring global oil storage and interrupted supply chains due to COVID-19 play through.”

Managing Director and CEO Matthew Allen

“The company has implemented some tough initiatives in recent weeks, and I would like to thank the Board, staff and shareholders of Otto for the continued support that they have shown the company,” he continued.

Where To From Here?

Otto now seems well-positioned to ride out the worst of the global calamities it’s facing.

Keeping production down to what is covered by hedge agreements mitigates the damage to Otto’s otherwise high-margin operations until the oil price recovers. And capital raising efforts have reaped the required rewards to keep the company solvent for the foreseeable future, even if it was an eye-watering dilution for shareholders.

At least they are consoled by the fact both the board and Managing Director will be taking up their full entitlements in the current capital raise — showing some faith in the company’s outlook.

Cost-cutting and austerity measures have also delivered some degree of assurance the company will stay above water. Just how well Otto can ride the waves remains to be seen, but it seems so far to have accounted for the worst of possibilities.

The company’s plans to continue development at Green Canyon have not yet been fully fleshed out amid the current pandemic-and-price-crash scenario, though one might imagine a degree of caution being deployed in regard to capital expenditure and increased production. Watch this space.

Otto Energy ended the day back where it started on Monday, with shares priced at 0.5 cents each.

OEL by the numbers
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