Otto Energy : Quarterly Activities & Cashflow Report

THREE MONTHS ENDED 31 DECEMBER 2016

QUARTERLY HIGHLIGHTS Corporate:

• Continued assessment of new business opportunities

• Closing cash balance of US$16.95m.

  Appraisal/Development:

• Louisiana/Gulf of Mexico - South Marsh Island 71 - Joint venture proposal to modify design concept to a manned platform which allows direct tie-in to sales pipelines and significantly enhances project economics

  Exploration:

• Louisiana/Gulf of Mexico - South Marsh Island 71 - Post drill inversion interpretation highlights prospective B65 sands which can be tested during additional SM71 development drilling - 2.3 MMboe Net Prospective Resource

• Louisiana/Gulf of Mexico - Bivouac Peak - Operator advises exploration well in Louisiana Transition Zone expected to spud in 2017. Initial well will test multiple amplitude supported objectives with potential of 15.3 MMboe Net Prospective Resource

• Alaska - Drilling target 'Raptor' identified

• Tanzania - Seeking extension to allow drilling of Kito-1 exploration well in 2H 2017

  THREE-MONTH OUTLOOK

• Louisiana/Gulf of Mexico - South Marsh Island 71 -submit all necessary development permits and continue refurbishment of tripod jacket, decks and production equipment in readiness for first production in Q4 2017

• Louisiana/Gulf of Mexico - Bivouac Peak - Operator to progress plans to spud well during 2017

• Alaska - Progress drilling plans

• Tanzania - Progress request for extension beyond 20 February 2017 and plan for drilling in 2H 2017

• Business Development - progress screening of new business opportunities with similar characteristics to the SMI-71 discovery with near term drilling

Alaska

Seismic acquisition 1H 2016

Drilling targets identified

Louisiana/Gulf of Mexico

Recent discovery SMI 70/71 Production expected 2H 2017

Staged options for up to 2 more wells

Tanzania

Kito Prospect

Perth Head Office

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32 Delhi St West Perth WA 6005, Australia | PO BOX 1414, West Perth WA 6872 Australia T: [phone] F: [phone] E: [e-mail] ASX Code: OEL

APPRAISAL/DEVELOPMENT LOUISIANA/GULF OF MEXICO - SOUTH MARSH ISLAND 70/71 Location: Offshore Gulf of Mexico Area: 34.29 km2 Otto's Interest: 50.00% - Earning via staged farm-in with Byron Energy Ltd (Operator)

Otto exercised its option to participate in the drilling of one well in SM-70/71 which lies in a water depth of 131 feet. Combined production from the licences totals 5.9MMbbl and 16Bcf of gas.

Through the drilling of the SM-71 #1 well in April-May 2016, Otto has earned a 50% participating interest (equal to a 40.625% revenue interest) in the licences with net 2P reported reserves of 2,271 Mboe to Otto. During the quarter Otto was advised that it is now officially on the licence.

Drilling of SM-71 #1 intersected four separate hydrocarbon bearing sand intervals that have been completed and suspended awaiting tie-in to production infrastructure. Otto expects that first production will be delivered in Q4 2017 from SMI-71. Additional follow-up opportunities around this salt dome are being progressed.

As advised in August 2016, the joint venture has already procured a tripod platform and commenced work to modify the facility for use at the SMI-71 location. Further work undertaken by Byron in respect of the facility has led to a proposal to modify the design concept to a manned platform from the previously proposed unmanned facility.

The proposed manned structure will have the capacity to produce 4,500 Bopd and 5.0 Mmcfpd of gas. Access to adjacent oil and gas sales trunk lines are available on SMI-71 and those lines will be utilized for oil and gas export once production commences. Significant progress has already been made on the refurbishment of the jacket section of the platform and following completion of engineering design work, construction work on the deck portions will begin.

The incremental cost of the proposed manned facility utilizing the platform previously acquired by the joint venture is currently estimated at US$ 3.0 million net to Otto. This incremental cost is more than offset by the benefit of reduced future operating costs and also the ability to deliver higher production rates and project economics. Otto's net contribution to the cost of the single well development is presently estimated at US$9 million (excluding decommissioning and restoration bonds), which can be funded from existing cash reserves.

The joint venture plans to initially complete the SMI-

71 #1 well in the D5 Sand with expectations of recording initial flow rates of 1500 to 2000 bopd (gross field production) similar to those recorded on the adjacent SMI-72 and SMI-73 blocks. After completion of the SMI-71 #1 well there is potential to drill up to four additional development wells, some of which will be able to target Prospective Resources in the B65 interval which has scope to double the present reserve base of the block. Post drill inversion interpretation shows promising results defining the D5 sand extent and delineating future B65 sand targets, the B65 sands contain a 2.3 MMboe Net Prospective Resource.

Otto, has indicated it's in-principle support for the manned facility, subject to receiving Byron's final proposed authority for expenditure and development plan. The final development plan is subject to JV approval.

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32 Delhi St West Perth WA 6005, Australia | PO BOX 1414, West Perth WA 6872 Australia T: [phone] F: [phone] E: [e-mail] ASX Code: OEL

EXPLORATION ASSETS LOUISIANA/GULF OF MEXICO - BIVOUAC PEAK Location: Offshore Gulf of Mexico Area: 10 km2 Otto's Interest: 45.00% - Earning via staged farm-in with Byron Energy Ltd (Operator)

Otto has the option to acquire a 45% working interest in the Bivouac Peak lease, which covers approximately 2,500 acres of highly prospective acreage in the transitional zone onshore southern Louisiana. Byron has identified multiple prospects at both the Middle and Lower Miocene levels demonstrating stacked amplitude and AVO (amplitude versus offset) support. Follow-up drilling options have been identified at the Lower Miocene level that could increase the scale of the overall opportunity.

An independent resource estimate for Bivouac Peak was prepared by Collarini Associates, which assigned a Prospective Resource net to Otto's proposed 45% working interest (33.525% net revenue interest) of 5,361 Mbbl of oil and 59,562 Bcf of gas.

Additional geological and geophysical work is being undertaken by the joint venture in order to progress to drilling of the first well in the lease.

Significant production exists in the adjacent Miocene sequence at the Little Bay field (>45 Bcf gas and 5 MMbbl condensate) and the Atchafalaya Bay field (>100 Bcf gas and 0.6 MMbbl condensate).

With nearby production infrastructure already in place, any successful well at Bivouac Peak would be capable of being brought into production within 6- 12 months.

Otto has the ability to earn a 45% working interest (33.525% net revenue interest) through the funding of 60% of the cost of the first well drilled at Bivouac Peak. Any costs above US$6 million (Otto share) in respect of the first well and all future expenditure will be in accordance with Otto's participating interest (45%). An initial well is planned at Bivouac Peak in 2017.

OTTO BIVOUAC PEAK NET PROSPECTIVE RESOURCES1

GROSS		NET TO OTTO		NET TO OTTO
Oil (Mbbl)	Gas (MMcf)	Oil (Mbbl)	Gas (MMcf)	MBOE (6:1)
15,990	177,666	5,361	59,562	15,288

1. Subject to election by Otto to participate in the first well drilled in the Bivouac Peak acreage.

Note: Mbbl = thousand barrels; MMcf = million standard cubic feet; MBoe = thousand barrels of oil equivalent ("BOE") with a BOE determined using a ratio of 6,000 cubic feet of natural gas to one barrel of oil - 6:1 conversion ratio is based on an energy equivalency conversion method and does not represent value equivalency

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32 Delhi St West Perth WA 6005, Australia | PO BOX 1414, West Perth WA 6872 Australia T: [phone] F: [phone] E: [e-mail] ASX Code: OEL

EXPLORATION ASSETS (CONTINUED) ALASKA Location: Onshore North Slope Alaska Area: 2,259 km2 Otto's Interest: 8%-10.8% - Great Bear Petroleum Operating (Operator) Great Bear Acreage - Overview

Through its agreements with Great Bear Petroleum Operating ("Great Bear") in 2015, Otto acquired between an 8% and 10.8% working interest (equivalent to 58,334 net acres) in two areas of Alaskan North Slope exploration acreage held by Great Bear.

Great Bear is a private exploration company focused exclusively on exploring and developing conventional and unconventional resources on the North Slope of Alaska.

Great Bear is the dominant exploration acreage holder in this highly prospective basin; holding 579,374 gross acres in a major play fairway south of the Prudhoe Bay and Kuparuk giant oil fields. Great Bear has undertaken significant exploration work on the acreage since 2011 with a cumulative spend in excess of US$200 million, supported by generous tax rebates from the State of Alaska.

The work conducted by Great Bear includes:

• Acquisition and processing of approximately 2,970 km2 of 3D seismic data (1,170 km2 in 2016).

• Drilling of two unconventional stratigraphic test wells which cored three primary unconventional targets. Results from these wells indicate that the majority of the Great Bear acreage is expected to be liquids rich. These wells also encountered light oil in various conventional formations.

• Drilling of a conventional exploration well (Alkaid-

1) which specifically targeted a 3D defined Brookian reservoir. The Alkaid well results are under evaluation.

The extensive, modern 3D seismic coverage, existing well control and proximity to the all-weather Dalton Highway and Trans-Alaskan Pipeline System (TAPS) means the acreage is well positioned for exploration.

Existing 3D seismic has allowed development of an extensive prospect portfolio which includes at least 4 well locations.

The Raptor Prospect is a conventional all season drilling target on the Dalton Highway where a drilling permit has already been obtained

Otto's exposure on the first 3 wells is limited to US$2.6M/well.

Nearby Alaska Activity

Adjacent to Otto Energy acreage, exploration success by other North Slope operators continues to be achieved:

• Repsol/Armstrong made significant discoveries in the Brookian Nanushuk Formation in 2014-2015. Armstrong are about to spud the Horseshoe-1 well immediately to the west of Otto's acreage

• Caelus Energy discovered 2.4 Bbbl EUR light oil at Smith Bay in 2016.

• ConocoPhillips/Anadarko recently announced Nanushuk Formation discovery of greater than 300 MMbbl.

• 88 Energy to drill the exciting Icewine #2 unconventional HRZ well during H1 2017 to the immediate south of Otto's acreage.

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32 Delhi St West Perth WA 6005, Australia | PO BOX 1414, West Perth WA 6872 Australia T: [phone] F: [phone] E: [e-mail] ASX Code: OEL