Otto Energy plans $35m raising

West Perth-based Otto Energy plans to raise $35 million with the majority underwritten by Euroz Securities and funds to be applied to the repayment of shareholder and director loans.

Otto said $5.2 million of the funds will be raised through an institutional placement which consists of 73.9 million shares priced at seven cents each.

The remaining $29.7 million will be raised through a non-renounceable entitlements issue, priced at seven cents each, with major shareholders Santo Holding and Molton Holdings committing to their full entitlement of the offer.

Both shareholders have also agreed to sub-underwrite a shortfall of the issue of up to $9 million each.

The entitlement issue is underwritten by Euroz.

Otto said funds raised will be used to fund upcoming exploration wells in Italy and Argentina and undertake development of its Edirne gas project in Turkey.

The company will also use the funds to repay a $US7 million loan provided by Santo and Molton and a $A1.53 million loan from the company directors including chairman Rick Crabb.

Otto already receives revenue from the Galoc oil joint venture in the Philippines.

The announcement is below:

Otto Energy (Otto) (ASX: OEL) is pleased to announce a capital raising of approximately $35 million via an institutional Placement and underwritten Entitlement Issue.

Placement

Otto has agreed to place approximately 73.9 million shares at A$0.07 per share to raise approximately A$5.2 million.

The Placement has been strongly supported by institutional, professional and sophisticated investors of Euroz Securities Limited ("Euroz") who will also have the opportunity to participate in the Entitlement Issue.

Entitlement Issue

The Company also intends to offer existing shareholders the opportunity to subscribe for additional shares at A$0.07 per share pursuant to a pro‐rata non‐renounceable Entitlement Issue to raise a further A$29.7 million ("Entitlement Issue").

The Entitlement Issue has been fully underwritten by Euroz. Two of Otto's major shareholders Santo Holding AG ("Santo") and Molton Holdings Ltd ("Molton") have confirmed their intention to take up their full Entitlement and to sub‐underwrite a proportion of any shortfall up to a maximum investment of A$9 million each.

Under the Entitlement Issue, shareholders will be able to subscribe for additional shares at A$0.07 per share on the basis of 3 new shares for every 4 shares held at the record date of Tuesday 31 March 2009.

Shares issued under the Placement will be entitled to participate in the Entitlement Issue.

An indicative Entitlement Issue timetable is attached to this release.

Use of Proceeds

The proceeds of the Placement and Entitlement Issue will be used to:

- Fund upcoming exploration wells in Italy and Argentina;
- Undertake development of the Edirne gas project in Turkey;
- Repay Shareholder and Director Loans (outlined below); and
- Working Capital.

Galoc Project Non Recourse Debt Facility

As at 28 February 2009 the net to Otto Galoc Project non recourse debt facility totalled approximately US$8.8 million, following a principal re‐payment net to Otto of approximately US$1.6 million at the end of February. A second principal re‐payment net to Otto of approximately US$1.6 million is scheduled to be paid at the end of March 2009, with the remainder of the facility being repaid from ongoing cashflow from the Galoc Field.

Shareholder and Director Loans

Otto currently has a fully drawn short term loan facility totalling US$5 million with the Santo and Molton ("Shareholders"). The Shareholders have each agreed to provide the Company with an additional US$1 million each, increasing the total facility to US$7 million until the funds from the Entitlement Issue have been received ("Shareholder Loan Facility").

Key terms of the revised Shareholder Loan Facility include:

- Interest is payable at 12% per annum accruing daily and payable on repayment of the Shareholder Loans;

- The Shareholder Loans are secured by two separate charges, one with each Shareholder, in each case granting a first priority fixed charge over a 50% shareholding in Edirne Energy Limited, which holds the Company's Turkish assets; and

- The Company is also required to seek shareholder approval to grant two separate fixed and floating charges (one to each Shareholder) over substantially all the Company's assets (excluding the Galoc Oil Field), which will replace the fixed charges over the Edirne shares. A Notice of Meeting in this regard will be sent to shareholders shortly. As it is intended that the Shareholder Loan Facility will be repaid with funds received from the Entitlement Issue, this security may not be granted.

Directors have also agreed to provide a short term unsecured loan facility of A$1.53 million ("Director Loans"). The Director Loans are from Messrs Rick Crabb, Ian Macliver, Jaap Poll and John Jetter and bear interest at a rate of 12% per annum accruing daily and payable on the repayment of the loan funds.

The funds from the Shareholder Loan Facility and Director Loans will be used as a bridging facility to meet the Company's short term expenditure commitments, including the US$1.6 million principal payment on the Galoc project non recourse facility.

The Shareholder Loan Facility and Directors Loans will be repaid from the funds raised pursuant to the Entitlement Issue.

Shareholder Sub‐underwriting

The Company has agreed, (subject to shareholder approval) to grant Santo and Molton approximately 31 million Underwriting Options ($0.07, 30 June 2010) each, in consideration for their firm commitment and the priority sub‐underwriting of the Entitlement Issue. The Otto board has also resolved, subject to shareholder approval, to provide John Jetter with 5 million shares for negotiating Otto's funding facilities, sub‐underwriting arrangements and the provision of corporate advice.

Otto's CEO Alex Parks said, "We are very pleased by the positive response to the share Placement and underwriting of the Entitlement Issue. Otto's two major shareholders and Directors have confirmed their support for Otto and its world class asset portfolio by confirming their participation in the Entitlement Issue".