Highlights:

· Hercules 205 drilling rig mobilised to drilling location in SM 6
· The SM6 #2 well will spud within the next week
· Primary target of the well is the G 20 Sand

Byron Energy Ltd (ASX: BYE) (“Byron” or the “Company”) is pleased to advise that the Hercules 205 drilling rig has been mobilised to the SM 6 #2 well location. The well is expected to spud about 6 days after rig mobilisation. Once on location, the rig will install new 30” conductor guides on the existing 72” caisson, drive 30” conductor pipe and then commence drilling the SM 6 #2 well.

The SM6 #2 well is the first well to be drilled as part of Byron’s farm-out to Otto Energy Limited (“Otto”) (ASX:OEL), announced on 11 December 2015. In order to earn a 50% working interest (equal to a 40.625% net revenue interest) in the South Marsh Island block (“SM 6”), Otto will contribute 66.67% of the total estimated costs of the SM 6 #2 well of $US 8.0 million ($US5.3 million Otto and $US2.7 million Byron). Any costs above $US 8.0 million in respect of the SM 6 #2 well and all future expenditure in SM 6 will be in accordance with Byron’s and Otto’s respective working interest (Byron 50%/Otto 50%).

SM 6 #2 will be drilled in water depth of approximately 65 feet (20 metres), with a planned total measured depth of approximately 9,516 feet (2,900 metres) and total vertical depth of 9,138 feet (2,785 metres). It is anticipated that the well will take approximately 40 days to drill and evaluate.

The well will be drilled on a prospect in the south west corner of a major salt dome in SM 6, located offshore Louisiana, 216 km southwest of New Orleans, Louisiana, USA. The SM 6 #2 well will be drilled to only test the un-pressured (shallow) section of the South West Prospect. The primary target is the G 20 Sand, not penetrated by the SM 6 #1 BP 02 well drilled in mid-2014. As previously reported the SM 6 #1 BP 02 well:-

· encountered two hydrocarbon bearing sands with combined net pay of 82 feet (25 metres) in the F40 Sand and several thin hydrocarbon bearing sands with combined net pay of 17 feet (5 metres) in the F30 Sand;

· was cased and suspended inside a caisson in July 2014; and

· was completed for future production in July 2015; the Hercules 205 drilling rig was used to re-enter the well and perforated the lower of the two hydrocarbon bearing sand lobes in the F40 Sand.

SM 6 #2 will target undeveloped 3P gross reserves of 3.2 mmbo and 2.5 bcf (2.6 mmbo and 2.0 bcf net to Byron pre the Otto earn-in) in the G 20 Sand, based on an independent reserves estimate for prepared by Collarini Associates (“Collarini”), based in Houston, Texas, USA. Collarini attributed total undeveloped 3P reserves of 4.3 mmbo and 13.3 bcf (net to Byron pre the Otto earn-in) to the SM 6 block. In addition, Collarini attributed a total prospective resource of 7.2 mmbo and 118.4 bcf to the SM 6 block (net to Byron pre the Otto earn-in).

Byron, through its wholly owned subsidiary Byron Energy Inc. (the operator), currently has a 100% working interest and an 81.25% net revenue interest in SM 6. Otto will earn a 50% working interest in SM 6 by paying a disproportionate 66.67% share of drilling costs of the SM 6 #2 well, plus reimbursing a portion of Byron’s past costs.

If Otto earns an interest in the SM 6 block, Byron’s working and net revenue interests will be reduced by 50% at the earn-in point, to 50% and 40.625% respectively.

Byron’s Chief Executive Officer, Maynard Smith said: “We are pleased to announce the imminent drilling of SM 6 #2 well under the farm-out agreement with Otto, announced in December 2015. The SM 6 #2 well can be drilled and, if successful, brought on production within the next year under the Production Handling Agreement (“PHA”) Byron has executed with the offset operator, Fieldwood. The PHA, which substantially reduces development costs of the SM 6 project, combined with the relatively low lease operating expenses in the shallow waters of the Gulf of Mexico (“GOM”) result in attractive project returns, even in the current oil price environment. SM 6, as a conventional GOM shallow water project, is expected to have higher initial production rates as well as lower production decline rates, on a per well basis, compared to a typical shale oil project, thus providing greater leverage to a rising oil price.”

In addition Mr Smith said, “We hope success with SM 6 #2 cements the relationship between Byron and Otto, with Otto going on to exercise its option to drill SM 71 #1. In addition to its commitment to drill SM 6 #2, Otto has an option to earn a 50% working interest in Byron's South Marsh 70/71 blocks (“SM 70/71”) by paying a disproportionate 66.67% share of drilling costs of the SM 71 #1 well and reimbursing a portion of Byron’s SM 70/71 past costs.”

Byron will advise when SM 6 #2 well spuds. Beyond that, Byron will issue progress reports as material developments occur.
Additional information on the Byron’s farm-out to Otto can be found in Byron’s ASX release of 11 December 2015. Additional information on the SM 6 block and the SM #2 well can be found in Byron’s Investor Presentation released to the ASX on 23 December 2015.