Otto Energy's (ASX:OEL) capital raise raises suspicions from shareholders

Otto Energy (OEL) has completed a share placement and an institutional entitlement offer totalling roughly $7.8 million
Further to the nearly $8 million already raised, OEL is seeking to raise another $9.7 million via a retail entitlement offer — sparking concerns from shareholders
The money will be used to fund the South Marsh Island development well in the Gulf of Mexico, as well as other developments and for working capital
The company says it’s a tough ask for investors to raise so much capital at this point in time
However, it believes it’s in the best long-term interests of all stakeholders to ensure OEL has the money to pursue its development and production goals
Otto is down 37.5 per cent today with shares trading for 0.5 cents each

Gas explorer Otto Energy (OEL) has completed a share placement worth ~$1.4 million and an institutional entitlement offer worth ~$6.4 million.

The monies will be used to fund the reimbursement of its 50 per cent stake in the South Marsh Island development well in the Gulf of Mexico as well as other future developments, and for working capital.

The placement

The placement raised a total of $1.38 million through the issue of approximately 231 million shares at 0.6 cents per share. Shares issued under the placement will rank equally with existing shares on issue and have been allotted to commence trading today.

The Institutional offer

The institutional entitlement offer raised a total of $6.4 million through the issue of approximately 1,074 million shares at 0.6 cents per share. The institutional entitlement offer saw the take-up of 536.9 million shares by institutional investor Molton Holdings in its capacity as an existing institutional investor in the company.

8.3 million shares were issued to other institutional investors through an institutional bookbuild, and 528.7m institutional shortfall shares were issued to Molton in its capacity as sub-underwriter of the entitlement offer.

Shares issued under the institutional entitlement offer will rank equally with existing shares on issue and are expected to be allotted on 8 April.

The retail entitlement offer

Further to the roughly $7.8 million already raised, OEL is seeking to raise another $9.7 million via a retail entitlement offer. The offer is partially underwritten and will be executed through the issue of approximately 1,617 million shares at 0.6 cents per share on the basis of one new share for every one share held as at 7 pm AEST tonight.

The entitlement offer is non-renounceable and entitlements will not be tradeable or otherwise transferrable. The offer extends to shareholders in Australia, New Zealand, the United Kingdom, Hong Kong, Singapore and Cambodia.

The Retail Offer Booklet, containing full details of the entitlement offer, will be sent to eligible retail shareholders on 3 April. The retail entitlement offer will open on April 3 and close at 5:00 pm Sydney time on 16 April (unless extended).

Capital raised to shore up future

The company knows it’s a tough ask investors to raise so much capital at this point in time. However, it says it’s in the best long-term interests of all stakeholders to ensure OEL has the money to pursue its development and production goals.

The company can now proceed unheeded with development at the South Marsh Island well, among others, and assures investors the cashflow situation won’t be a problem going forward.

Chairman Ian Boserio assured shareholders the business strategy will see strong returns in the near future.

“Despite the dramatic shift in global oil prices, Otto is fortunate to hold assets that produce at relatively high margins. We are confident that it is these types of assets which will still produce positive cashflow even at the current oil prices,” Ian explained.

“The team at Otto has spent considerable time working on our forward-looking budget and cashflows. We see it as an imperative to strip out all unnecessary costs,” he continued.

The Board have resolved to immediately cut their directors fees by 50% for the next six months.

“I fully appreciate that shareholders are unhappy that we have to raise capital in the current circumstances. At the same time, I would like to emphasise that Otto has good projects and once we are at full production later in 2020 the increased income should have a beneficial impact” Ian concluded.

The company says Otto’s focus will be on maintaining a strong balance sheet with sufficient liquidity for all existing development activities during 2020 and beyond. The majority of the company’s production through 2022 is hedged at an average of $56 USD per barrel, which insulates Otto from the worst of the oil price crash. For the next six months at least, the company intends to focus solely on protecting its existing business and assets, in the hope it’ll be in an even stronger position post-pandemic if or when oil prices begin to rebound.

Otto is down 37.5 per cent today with shares trading for 0.5 cents each as at 2 pm AEDT.

Fri, 19 Apr	Last	Change
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Otto Energy’s (ASX:OEL) capital raise raises suspicions from shareholders