OTTO ENERGY LIMITED — Proxy Solicitation & Information Statement 2009

Apr 1, 2009

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2 April 2009

Manager of Company Announcements ASX Limited Level 6, 20 Bridge Street SYDNEY NSW 2000

By E‐Lodgement

NOTICE OF MEETING

Please find attached the Notice of Meeting and Explanatory Memorandum dispatched to shareholders for a General Meeting to be held on 30 April 2009.

Yours faithfully

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Emma McCormack Company Secretary

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OTTO ENERGY LIMITED ABN 56 107 555 046

NOTICE OF MEETING

TIME : 2.30 pm (WST) DATE : 30 April 2009 PLACE : 32 Delhi Street, West Perth, Western Australia

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting. NOTE: RSM Bird Cameron has prepared the Independent Expert’s Report and has provided an opinion that it believes the proposals as outlined in Resolutions 3 and 4 are fair and reasonable to Shareholders of the Company whose votes are not to be disregarded on Resolutions 3 and 4. It is recommended that all Shareholders read the Independent Expert’s Report in full. Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the Company Secretary on (08) 9322 7600 .

CONTENTS PAGE

Notice of Meeting (setting out the Resolutions)	2
Explanatory Statement (explaining the Resolutions)	5
Glossary	12
Annexure A: Sub‐underwriting Options Terms and Conditions	14
Annexure B: Independent Expert's Report	15
Proxy Form

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

The meeting of the Shareholders of Otto Energy Limited which this Notice of Meeting relates to will be held at 2.30 pm (WST) on 30 April 2009 at:

Otto Energy Limited, 32 Delhi Street, West Perth, Western Australia

YOUR VOTE IS IMPORTANT

The business of the Meeting affects your shareholding and your vote is important.

VOTING IN PERSON

To vote in person, attend the Meeting on the date and at the place set out above.

VOTING BY PROXY

To vote by proxy, please complete and sign the proxy form enclosed with this Notice of Meeting as soon as possible and either:

• (a) send the proxy form by post to the Company ‐ Otto Energy Limited, PO Box 1263, West Perth, Western Australia 6872;

• (b) deliver the proxy form to the Company’s Registered Office – 945 Wellington Street, West Perth, Western Australia; or

• (c) by facsimile to the Company on facsimile number INT + 61 8 9322 7602,

so that it is received not later than 2.30pm (WST) on 28 April 2009.

Proxy forms received later than this time will be invalid.

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NOTICE OF MEETING

Notice is given that a meeting of Shareholders of Otto Energy Limited will be held at the Company’s offices, 32 Delhi Street, West Perth, Western Australia at 2.30pm (WST) on 30 April 2009.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the Meeting are those who are registered Shareholders on 28 April 2009 at 5pm (WST).

Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the glossary of the Explanatory Statement.

AGENDA

The Explanatory Statement to this Notice of Meeting describes the matters to be considered at the Meeting.

SPECIAL BUSINESS

RESOLUTION 1 – RATIFICATION OF PRIOR ISSUE OF SHARES

To consider and, if thought fit, to pass, with or without amendment, the following Resolution as an ordinary resolution :

“That, for the purposes of ASX Listing Rule 7.4, and for all other purposes, Shareholders ratify the allotment and issue of up to 73,901,079 Shares at an issue price of $0.07 each to the persons and on the terms and conditions set out in the Explanatory Statement accompanying this Notice of Meeting.”

Voting Exclusion : The Company will disregard any votes cast on Resolution 1 by persons who participated in the issue and any associates of such persons. However, the Company need not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote in accordance with the proxy form, or it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

RESOLUTION 2 – ISSUE OF SHARES TO A DIRECTOR

To consider and, if thought fit, to pass, with or without amendment, the following Resolution as an ordinary resolution:

“That, for the purposes of ASX Listing Rule 10.11, section 208 of the Corporations Act and for all other purposes, approval is given for the grant of up to 5,000,000 Shares to Mr John Jetter (or his nominee), on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 2 by Mr Jetter and any of his associates, however the Company need not disregard a vote if, it is cast by a person as a proxy for a person who is entitled to vote in accordance with the discretion on the proxy form, or it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a director on the proxy form to vote as the proxy decides.

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RESOLUTION 3 – GRANT OF FIXED AND FLOATING CHARGE TO A SUBSTANTIAL HOLDER

To consider and, if thought fit, to pass, with or without amendment, the following Resolution as an ordinary resolution:

“That, for the purposes of ASX Listing Rule 10.1, section 208 of the Corporation Act and for all other purposes approval is given for the Company to grant a Fixed and Floating Charge to Santo Holding AG on the terms and conditions set out in the Explanatory Statement.”

Independent Expert’s Report: Shareholders should carefully consider the Independent Expert’s Report prepared by RSM Bird Cameron for the purposes of shareholder approval. The Independent Expert’s Report comments on the fairness and reasonableness of the transaction to the Shareholders of the Company whose votes are not to be disregarded on Resolution 3. The Independent Expert has determined that the transaction is fair and reasonable to the Shareholders of the Company whose votes are not to be disregarded on Resolution 3.

Voting Exclusion: The Company will disregard any votes cast on Resolution 3 by Santo Holding AG and any of its associates, however the Company need not disregard a vote if, it is cast by a person as a proxy for a person who is entitled to vote in accordance with the discretion on the proxy form, or it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a director on the proxy form to vote as the proxy decides.

RESOLUTION 4 – GRANT OF FIXED AND FLOATING CHARGE TO A SUBSTANTIAL HOLDER

To consider and, if thought fit, to pass, with or without amendment, the following Resolution as an ordinary resolution:

“That, for the purposes of ASX Listing Rule 10.1, section 208 of the Corporation Act and for all other purposes approval is given for the Company to grant a Fixed and Floating Charge to Molton Holdings Ltd on the terms and conditions set out in the Explanatory Statement.”

Independent Expert’s Report: Shareholders should carefully consider the Independent Expert’s Report prepared by RSM Bird Cameron for the purposes of shareholder approval. The Independent Expert’s Report comments on the fairness and reasonableness of the transaction to the Shareholders of the Company whose votes are not to be disregarded on Resolution 4. The Independent Expert has determined that the transaction is fair and reasonable to the Shareholders of the Company whose votes are not to be disregarded on Resolution 4.

Voting Exclusion: The Company will disregard any votes cast on Resolution 4 by Molton Holdings Ltd and any of its associates, however the Company need not disregard a vote if, it is cast by a person as a proxy for a person who is entitled to vote in accordance with the discretion on the proxy form, or it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a director on the proxy form to vote as the proxy decides.

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RESOLUTION 5 – ISSUE OF SUB‐UNDERWRITING OPTIONS

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

“That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, approval is given for the Company to issue up to 31,185,329 Sub‐underwriting Options to Santo Holding AG (or its nominee) on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion : The Company will disregard any votes cast on Resolution 5 by Santo Holding AG and any of its associates, however the Company need not disregard a vote if, it is cast by a person as a proxy for a person who is entitled to vote in accordance with the discretion on the proxy form, or it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a director on the proxy form to vote as the proxy decides.

RESOLUTION 6 – ISSUE OF SUB‐UNDERWRITING OPTIONS

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

“That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, approval is given for the Company to issue up to 31,185,329 Sub‐underwriting Options to Molton Holdings Ltd (or its nominee) on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on Resolution 6 by Molton Holdings Ltd and any of its associates, however the Company need not disregard a vote if, it is cast by a person as a proxy for a person who is entitled to vote in accordance with the discretion on the proxy form, or it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a director on the proxy form to vote as the proxy decides.

DATED: 23 MARCH 2009

BY ORDER OF THE BOARD

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MR IAN MACLIVER DIRECTOR

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EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the information of the Shareholders in connection with the business to be conducted at the Meeting.

The purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions in the Notice of Meeting.

SPECIAL BUSINESS OF THE MEETING

1. RESOLUTION 1 – RATIFICATION OF PRIOR PLACEMENT OF SHARES

1.1 Background

On 20 March 2009, the Company announced it was undertaking a capital raising comprising:

• (i) the placement of approximately 73.9 million Shares at an issue price of $0.07 per Share ( Placement Shares ) to raise approximately $5.17 million ( Placement ); and

• (ii) a fully underwritten pro‐rata non‐renounceable 3 for 4 entitlements issue to raise approximately $29.75 million ( Entitlement Issue ).

The Placement Shares are to be issued under the Company’s 15% capacity pursuant to ASX Listing Rule 7.1 on or about 27 March 2009. The Entitlement Issue is expected to close on 21 April 2009 with Shares issued and holding statements dispatched on 28 April 2009.

The Entitlement Issue is fully underwritten by Euroz Securities Limited ( Euroz ).

Euroz has entered into sub‐underwriting agreements with two of the Company’s Shareholders Santo Holding AG ( Santo ) and Molton Holding Ltd ( Molton ). Santo and Molton have each agreed to priority sub‐underwrite up to 28,766,877 Shortfall Shares at $0.07 per New Share. Euroz has agreed that if there is a Shortfall, the Shortfall Shares will be allocated to Santo and Molton before they are allocated to any other general sub‐underwriters. If the Shortfall is less than 57,533,753 Shares, Santo and Molton will only be required to sub‐underwrite half of the Shortfall Shares. Santo and Molton have also each given firm commitments to Euroz to take up all their Entitlements and agreed to subscribe for a further 28,571,428 Shares pursuant to a general sub‐underwriting agreement with Euroz.

Euroz is not required to pay Santo and Molton a fee for the priority sub‐underwriting. However the Company has agreed to issue Santo and Molton options as their fee for agreeing to take up their Entitlements and agreeing to the priority sub‐underwriting with Euroz ( Sub‐underwriting Options ).

The Company has agreed (subject to Shareholder approvals) to issue each of Santo and Molton with 31,185,329 Sub‐underwriting Options. The exercise price for the Sub‐underwriting Options is $0.07 each and the Sub‐underwriting Options will expire on 30 June 2010.

1.2 Regulatory Requirements – ASX Listing Rule 7.4

ASX Listing Rule 7.1 requires that a listed company obtain shareholder approval prior to the issue of shares, or securities convertible into shares, representing more than 15% of the issued capital of that company in any 12 month period.

ASX Listing Rule 7.4 sets out an exception to ASX Listing Rule 7.1. This rule provides that where a company in general meeting ratifies the previous issue of securities made without shareholder

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approval under ASX Listing Rule 7.1, those securities shall be deemed to have been made with shareholder approval for the purposes of ASX Listing Rule 7.1.

Resolution 1 seeks Shareholder ratification pursuant to ASX Listing Rule 7.4 for the issue of up to 73,901,079 Shares issued by the Company. By ratifying this issue of Shares, the Company will retain the capacity to issue securities in the future up to the 15% threshold without the requirement to obtain Shareholder approval.

Pursuant to, and in accordance with ASX Listing Rule 7.5, the following information is provided in relation to Resolution 1:

• (a) the total number of Shares allotted was 73,901,079 Shares;

• (b) the issue price of each of the Shares was $0.07 per Share;

• (c) the Shares issued were all fully paid ordinary shares in the capital of the Company ranking equally in all respects with the Company’s existing issued Shares;

• (d) the Shares were allotted and issued to sophisticated and institutional clients of the lead manager to the Placement, Euroz Securities Limited. The Shares are to be allotted or about 27 March 2009;

• (e) the funds raised by the Placement (together with the funds raised from the Entitlement Issue) are intended to be used:

• to repay Director and Shareholder Loans;

• to fund exploration wells in Italy and Argentina;

• to meet permit costs in Philippines;

• to undertake drilling and planning development in Turkey; and

• for working capital purposes.

2. RESOLUTION 2 – ISSUE OF SHARES TO A DIRECTOR

2.1 Background

It is proposed that Mr John Jetter (or his nominee) be issued 5,000,000 Shares in consideration for services he has provided to the Company over the last year including his contribution to the capital raising completed in June 2008, his contribution to ongoing farm‐out negotiations and corporate initiatives and in particular in the time spent and services provided by Mr Jetter in negotiating the Company’s recent Capital Raising. Mr John Jetter was actively involved in and spent considerable time reviewing, drafting and negotiating the terms and conditions of the recent Capital Raising in particular the terms and conditions of the Shareholder Loan Agreements, Varied Shareholder Loan Agreements and sub‐underwriting agreements.

Under the Company’s current circumstances it is considered appropriate for Mr Jetter to be compensated through the issue of Shares rather than payment of cash compensation.

2.2 Regulatory Requirements ‐ ASX Listing Rule 10.11

ASX Listing Rule 10.11 requires the Company to obtain Shareholder approval by ordinary resolution prior to the issue of securities to a related party of the Company.

Mr Jetter is related party of the Company as he is a Director of the Company. Accordingly, Shareholder approval for the issue of Shares to Mr Jetter (or his nominee) pursuant to Resolution 2, is required by ASX Listing Rule 10.11.

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The issue of Shares to Mr Jetter (or his nominee) will not be included in the calculation of whether the Company has used its 15% placement capacity for the purposes of ASX Listing Rule 7.1 because Shareholder approval is being obtained pursuant to ASX Listing Rule 10.11.

2.3 Regulatory Requirements ‐ ASX Listing Rule 10.13

For the purposes of ASX Listing Rule 10.13, the following information is provided in relation to the issue of Shares to Mr Jetter (or his nominee) pursuant to Resolution 2:

• (a) the maximum number of Shares be issued to Mr Jetter (or his nominee) is 5,000,000 Shares;

• (b) the Shares will be issued not later than one month after the date of this Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules);

• (c) the Shares will be issued for nil cash consideration. The Shares are proposed to be issued as consideration for executive services provided to the Company by Mr Jetter as outlined in Section 2.1 above;

• (d) the Shares issued will be fully paid ordinary shares that will rank equally in all respects with the Shares already on issue; and

• (e) no funds will be raised from the issue of the Shares.

2.4 Section 208 of the Corporations Act

The proposed issue of the Shares to Mr Jetter for services rendered to the Company constitutes a “financial benefit” as defined in the Corporations Act. Further, Mr Jetter is a “related party” of the Company as defined under the Corporations Act because he is a Director of the Company. Accordingly, the proposed grant of Shares to Mr Jetter (or his nominee) will constitute the provision of a financial benefit to a related party of the Company.

It is the view of the Directors that the exceptions under the Corporations Act to the provision of financial benefits to related parties may not apply in the current circumstances and so the Directors have determined to seek Shareholder approval under section 208 of the Corporations Act to permit the issue of the Shares to Mr Jetter.

2.5 Regulatory Requirements – sections 217 to 227 of the Corporations Act

In addition to the information in Section 2.3 above, the following information is provided pursuant to section 219 of the Corporations Act in relation to Resolution 2:

• (a) the related party to whom the Resolution 2 would permit the financial benefit to be given is Mr Jetter (or his nominee);

• (b) the nature of the financial benefit proposed to be given is the issue of 5,000,000 Shares for no cash consideration for services rendered;

• (c) Mr Rick Crabb, Dr Jaap Poll, Mr Ian Macliver and Mr Rufino Bomasang (who do not have an interest in Resolution 2) recommend Shareholders approve the issue of Shares under Resolution 2 to Mr Jetter as consideration for services rendered as they are of the view that this is an appropriate form of compensation for such services under the Company’s current circumstances, rather than a cash payment as compensation; and

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• (d) Mr John Jetter declined to make a recommendation to Shareholders in respect of Resolution 2 as he has a material personal interest in the outcome of the Resolution 2 by virtue of the proposed issue of Shares to him (or his nominee).

Outlined below is other information, which is known to the Company or any of its Directors, which may be reasonably required by Shareholders to make a decision whether it is in the best interests of the Company to pass Resolution 2:

• (a) the proposed Resolution 2 if approved would have the effect of giving power to the Directors to issue up to 5,000,000 Shares to Mr Jetter (or his nominee);

• (b) if Shareholders approve the issue of Shares to Mr Jetter the effect will be to dilute the shareholding of existing Shareholders by approximately 1% based on the number of Shares on issue as at the date of the Notice of Meeting;

• (c) the highest, lowest and last price of Shares on ASX during the 12 months preceding the date of this Notice is as follows:

	Date	Price
Highest	20 May 2008	$0.525
Lowest	23 March 2009	$0.072
Last Trading Price	23 March 2009	$0.081

The value of the 5,000,000 Shares proposed to be issued to Mr Jetter based on the last trading price of $0.081 is $405,000;

• (d) as at the date of this Notice of Meeting, Mr Jetter has a relevant interest in 7,069,231 Shares and 6,000,000 options in the Company;

• (e) Mr Jetter currently receives $50,000 per annum from the Company for his services as a non‐ executive Director;

• (f) the Shares issued will be fully paid ordinary Shares in the Company and shall rank pari passu with existing Shares;

• (g) the primary purpose for the issue of Shares to Mr Jetter is as consideration for services rendered to the Company;

• (h) under the Australian Equivalent of IFRS, the Company is required to expense the value of the Shares in the statement of financial performance for the current financial year. Other than as disclosed in this Explanatory Statement, the Directors do not consider from an economic and commercial point of view, there are any costs or detriments including opportunity costs or taxation consequences or the Company or benefits foregone by the Company in issuing the Shares pursuant to Resolution 2; and

• (i) the Directors are not aware of any other information that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass Resolution 2.

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3. RESOLUTIONS 3 AND 4 – GRANT OF FIXED AND FLOATING CHARGE TO A SUBSTANTIAL HOLDER

3.1 Background

In December 2008 the Company entered into Shareholder Loan Agreements with two of its major shareholders, Santo and Molton (together the Lenders ) whereby the Lenders each agreed to provide the Company with a USD2.5 million loan facility, subject to the terms of the Shareholder Loan Agreements. In March 2009 the Lenders each agreed to provide an additional USD1.0 million in loan funds subject to the terms of the Varied Shareholder Loan Agreements. The total amount intended to be advanced under the Varied Shareholder Loan Agreements with each Lender is therefore USD3.5 million (total USD7.0 million) (the Loans ).

The Varied Shareholder Loan Agreements with each Lender are on the same terms.

Under the Varied Shareholder Loan Agreements the Company has agreed to grant a fixed charge over its shareholding in Edirne Enerji Petrol Arama Uretim Ve Ticaret Limited Sirketi ( Edirne ). In this regard the Company has entered into two separate charges, one with each Lender, in each case granting a first priority fixed charge over a 50% shareholding in Edirne ( Edirne Charges ). Edirne is a subsidiary of the Company which holds Otto’s interest in its Turkish assets being its Edirne License, Catalca and Ortakoy Licenses. The Company holds 99.5% of the shares in Edirne, with the other .05% (1 share) being held by a director of the Company as bare trustee for the Company.

The Varied Shareholder Loan Agreements provide that the Company will seek shareholder approval for the grant of fixed and floating charges ( Fixed and Floating Charges ) over all the Company’s assets other than assets which the Company agrees with the Lenders will be excluded. At the date of this notice, the Lenders have agreed to exclude the Company’s interest in the Galoc Oil Field from the Fixed and Floating Charges. A separate Fixed and Floating Charge will be granted to each Lender and these will replace the Edirne Charges which will be released.

The Loans are repayable on the earlier of 31 August 2009 or the date which falls 7 business days after the completion of the Entitlement Issue ( Termination Date ). The funds raised from the Entitlement Issue will used (among other things) to repay the Loans. Assuming the Loans are fully repaid by 1 May 2009, the Company will not be required to grant the Fixed and Floating Charge.

In certain limited circumstances (for example, if the Company was to become insolvent), the Lenders could require the Loans to be repaid before the Termination Date and, if the Company was unable to make the repayment, the Lenders could enforce the security (being the Edirne Charges or the Fixed and Floating Charges, as the case may be).

Interest accrues daily on the outstanding amount of the Loans at a rate of 12% per annum and is payable in one lump sum on the Termination Date. A USD25,000 establishment fee was paid at the time the Varied Shareholder Loan Agreements became effective. A further USD60,000 fee is payable to each Lender when the Loans are repaid in full.

3.2 Regulatory Requirements – ASX Listing Rule 10.1

ASX Listing Rule 10.1 provides that an entity (or any of its subsidiaries) must not acquire a substantial asset from, or dispose of a substantial asset to, a substantial holder if the person and the person’s associates have a relevant interest, or had a relevant interest at any time in the six months before the transaction, in at least 10% of the total votes attached to the voting securities.

As at the date of this Notice of Meeting the Lenders are both substantial shareholders in the Company, each holding a 19.3% interest in the Company.

'Dispose' is defined in the ASX Listing Rules as meaning to dispose of something, or agree to dispose

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of something by any means, whether directly or through another person, and includes the use of an asset as collateral. The proposed grant of the Fixed and Floating Charge is therefore included within the definition of 'dispose' for the purposes of ASX Listing Rule 10.1.

An asset is a 'substantial asset' for the purposes of ASX Listing Rule 10.1 if its value, or the value of the consideration for it is, or in ASX’s opinion is, 5% or more of the equity interests of the company as set out in the latest accounts given to ASX under the ASX Listing Rules.

Based on the Company’s interim report for the half year ended 31 December 2008 lodged with ASX on 16 March 2009, the Company’s equity interests were $141,991,206. As a result, an asset will be a ‘substantial asset’ of the Company if it is valued at or above $7,099,560. The Fixed and Floating Charges will be over substantially all the Company’s assets excluding the Company’s interest in the Galoc Oil Field. The value of the assets secured by each of the Fixed and Floating Charges is greater than $7,099,560 (ie, the value of the assets secured by each of the Fixed and Floating Charges is greater than 5% of the equity interests of the Company as set out in the latest accounts given to ASX under the ASX Listing Rules).

Accordingly, the Company is seeking shareholder approval under Resolutions 3 and 4 for the purposes of ASX Listing Rule 10.1 to approve the grant of the Fixed and Floating Charges to each of the Lenders.

Shareholder approval sought for the purpose of ASX Listing Rule 10.1 must include a report on the proposed disposal from an independent expert. Accompanying this Explanatory Statement is an independent expert’s report from RSM Bird Cameron ( Independent Expert’s Report ). The Independent Expert’s Report concludes that the proposed disposals are fair and reasonable to the Shareholders of the Company whose votes are not to be disregarded on Resolutions 3 and 4. It is recommended that all Shareholders read the Independent Expert’s Report in full.

4. RESOLUTIONS 5 AND 6 – ISSUE OF SUB‐UNDERWRITING OPTIONS

4.1 Regulatory Requirements – ASX Listing Rule 7.1

ASX Listing Rule 7.1 provides that the prior approval of the shareholders of the Company is required for an issue of equity securities if the securities will, when aggregated with the securities issued by the Company during the previous 12 months, exceed 15% of the number of securities on issue at the commencement of that 12 month period.

The proposed issue of up to 31,185,329 Sub‐underwriting Options pursuant to Resolution 5 and up to 31,185,329 Sub‐underwriting Options pursuant to Resolution 6 will exceed the 15% threshold referred to in Listing Rule 7.1. Accordingly, shareholder approval under Listing Rule 7.1 is sought to allow the number of securities issued not to be included in the calculation under Listing Rule 7.1. This will allow the Company to have the flexibility to issue equity securities in the future up to the 15% threshold without the requirement to obtain Shareholder approval.

In compliance with the information requirements of Listing Rule 7.3 Shareholders are advised of the following particulars in relation to the proposed issue of securities pursuant to Resolutions 5 and 6:

• (a) the maximum number of securities to be issued to each of Santo and Molton is 31,185,329 Sub‐underwriting Options (62,370,658 Sub‐underwriting Options in total);

• (b) the Sub‐underwriting Options will be issued to each of Santo and Molton in consideration for each of them agreeing to take up their Entitlements and the priority sub‐underwriting of the Entitlement Issue as outlined in Section 1.1 of the Explanatory Statement;

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• (c) the Sub‐underwriting Options will be allotted to Santo (or its nominee) and Molton (or its nominee);

• (d) the Sub‐underwriting Options will be issued on the terms and conditions set out in Annexure A;

• (e) no funds will be raised from the issue of the Sub‐underwriting Options to Santo and Molton. The Sub‐underwriting Options are proposed to be issued as consideration for Santo and Molton agreeing to take up their Entitlements and the priority sub‐underwriting of the Entitlement Issue as outlined in Section 1.1 of the Explanatory Statement ;

• (f) the Sub‐underwriting Options will be issued no later than three (3) months after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules); and

• (g) it is intended that allotment of the Sub‐underwriting Options will occur on one date.

Directors' Recommendations

The Board unanimously recommends that Shareholders vote in favour of Resolutions 5 and 6.

RESPONSIBILITY FOR INFORMATION

The information concerning the Company contained in this Explanatory Statement, including information as to the views and recommendations of the Directors has been prepared by the Company and is the responsibility of the Company.

The Explanatory Statement does not take into account the individual investment objectives, financial situation and particular needs of individual Shareholders. If you are in doubt as to what you should do you should consult your legal, financial or professional adviser prior to voting.

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GLOSSARY

ASX means ASX Limited.

ASX Listing Rules means the Listing Rules of ASX.

Board means the current board of directors of the Company.

Capital Raising means the capital raising described in Section 1.1.

Company means Otto Energy Limited (ABN 56 107 555 046).

Corporations Act means the Corporations Act 2001 (Cth).

Directors mean the current directors of the Company.

Entitlement means the entitlement to subscribe for 3 New Shares for every 4 Shares held by Shareholders at the record date pursuant Entitlement Issue.

Entitlement Issue means the non‐renounceable pro‐rata rights issue for Shares pursuant to the Offer Document dated 3 April 2009.

Excluded Assets means:

• a) the interests of the Otto in the Galoc Oil Field in the Philippines comprising the indirect shareholding (held through its subsidiary Norsian Energy Limited) of 100% of the shares in Colag UK Limited and 100% of Colag (BVI) Limited; and

• b) any other assets that are agreed between the Company and the Lender.

Explanatory Statement means this explanatory statement to the Notice of Meeting.

Fixed and Floating Charge means the proposed fixed and floating charge to be granted over all the or substantially all the Company's assets (other than the Excluded Assets) to each of the Lenders.

Independent Expert's Report means the independent expert report prepared by RSM Bird Cameron included the Explanatory Statement in Annexure B.

Lenders means Santo and Molton.

Meeting means the general meeting of Shareholders convened by the Notice of Meeting.

Molton means Molton Holding Ltd.

Notice of Meeting means the notice of meeting which forms part of this Explanatory Statement.

Resolutions means the resolutions set out in the Notice of Meeting, or any one of them, as the context requires.

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Santo means Santo Holding AG.

Section means a section of the Explanatory Statement.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

Shareholder Loan Agreements means the Shareholder Loan Agreements between the Company and each of the Lenders dated 8 December 2008.

Sub‐underwriting Options means the options proposed to be issued on the terms and conditions outlined in Annexure A.

USD means United State dollars.

Varied Shareholder Loan Agreements means the Shareholder Loan Agreements as varied and restated pursuant to the first variation deed dated on or about 17 March 2009.

WST means Western Standard Time.

$ means Australian dollars

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ANNEXURE A: SUB‐UNDERWRITING OPTIONS TERMS AND CONDITIONS

The terms and conditions of the Sub‐underwriting Options are as follows:

• a) each Sub‐underwriting Option entitles the holder, when exercised, to one (1) Share in the issued capital of the Company;

• b) a holding statement will be issued for the Sub‐underwriting Options;

• c) it is not currently intended that the Company will make an application to ASX for official quotation of the Sub‐underwriting Options;

• d) the exercise price of the Sub‐underwriting Options is $0.07 per Sub‐underwriting Option;

• e) the Sub‐underwriting Options will expire on 30 June 2010 (5pm WST);

• f) the Sub‐underwriting Options are transferable subject to the Corporations Act, ASX Listing Rules, the constitution of the Company and any other applicable laws;

• g) the Sub‐underwriting Options are exercisable by delivering to the registered office of the Company a notice in writing stating the intention of the option holder to exercise a specified number of Sub‐underwriting Options. The exercise of only a portion of the Option held does not affect the holder’s right to exercise the balance of any Sub‐underwriting Options remaining;

• h) all Shares issued upon exercise of the Sub‐underwriting Options will rank pari passu in all respects with the Company’s then issued Shares. The Company will apply for official quotation by ASX of all Shares issued upon exercise of the Sub‐underwriting Options within the timeframe prescribed by the ASX Listing Rules;

• i) there are no participating rights or entitlements inherent in the Sub‐underwriting Options and holders will not be entitled to participate in new issues of capital offered to shareholders of the Company during the currency of the Sub‐underwriting Options. However, the Company will ensure that, for the purpose of determining entitlements to any issue, Option holders will be notified of the proposed issue at least seven (7) business days before the record date of any proposed issue. This will give the Option holders the opportunity to exercise the Sub‐ underwriting Options prior to the date for determining entitlements to participate in any such issue;

• j) in the event of any reorganisation (including consolidation, subdivision, reduction or return) of the issued capital of the Company prior to the expiry date of the Sub‐underwriting Options, all rights of the Sub‐underwriting Option holder will be varied in accordance with the ASX Listing Rules; and

• k) in the event of a pro rata issue or bonus issue of securities by the Company, the exercise price and the number of underlying securities over which the Sub‐underwriting Options may be exercised (as applicable) will be varied in accordance with ASX Listing Rule 6.22.

14

ANNEXURE B: INDEPENDENT EXPERT’S REPORT

15

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8 St Georges Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 8 9261 9100 F +61 8 9261 9101 www.rsmi.com.au

E-mail: andy.gilmour@rsmi.com.au Direct Telephone: 08 9261 9447 Direct Facsimile: 08 9261 9120 AJG: MJA OTTO

23 March 2009

The Directors Otto Energy Limited 32 Delhi Street WEST PERTH WA 6872

Dear Sirs

Independent Experts Report and Financial Services Guide

1. Introduction

• 1.1. This report has been prepared to accompany the Notice of Meeting and Explanatory Memorandum for a General Meeting Shareholders of Otto Energy Limited (“Otto Energy” or “the Company”) to be held on 30 April 2009 at which Shareholder approval will be sought for a number of Resolutions, including Resolutions 3 to 4 for the following transactions (“Proposed Transactions”):-

Resolution 3 – Grant of Fixed and Floating Charge to a Substantial Shareholder

That for the purposes of ASX Listing Rule 10.1, section 208 of the Corporations Act and for all other purposes approval is given for the Company to grant a Fixed and Floating Charge to Santo Holding AG on the terms and conditions set out in the Explanatory Statement.

Resolution 4 – Grant of Fixed and Floating Charge to a Substantial Shareholder

That for the purposes of ASX Listing Rule 10.1, section 208 of the Corporations Act and for all other purposes approval is given for the Company to grant a Fixed and Floating Charge to Molton Holdings Ltd on the terms and conditions set out in the Explanatory Statement.

• 1.2. The Directors have requested that RSM Bird Cameron Corporate Pty Ltd, being independent and qualified for the purpose, express an opinion in accordance with Listing Rule 10.10.2 stating whether in our opinion the Proposed Transactions as set out in Resolutions 3 and 4 above are fair and reasonable to Shareholders not associated with each of the respective Proposed Transactions (“the Non-Associated Shareholders”).

Liability limited by a RSM Bird Cameron Corporate Pty Ltd scheme approved under ABN 82 050 508 024 Professional Standards Licensed Investment Adviser Legislation No 255847

Major Offices in: RSM Bird Cameron Corporate Pty Ltd is Perth, Sydney, an independent member firm of RSM Melbourne, Adelaide International, an affiliation of independent and Canberra accounting and consulting firms.

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2. Summary and Conclusion

• 2.1. In our opinion and for the reasons set out in Sections 7 and 8 of this Report, Resolutions 3 and 4 in respect of the Proposed Transactions are fair and reasonable to the Non-Associated Shareholders of Otto Energy.

• 2.2. This opinion is based on our view that the advantages outweigh any disadvantages and consequently the Non-Associated Shareholders will be better off if the Proposed Transactions proceed than if they do not.

• 2.3. In our opinion:

• Given the Company’s history of losses (accumulated losses as at 31 December 2008 were $20.24 million), negative cash flows, significant expenditure requirements on exploration assets and limited assets against which a bank would consider securing debt, it is unlikely that Otto Energy would have been able to borrow comparable levels of funds provided under the Proposed Transactions;

• It would have also been unlikely that the Company would be able to secure the funding on the same or better terms including the same security from a third party financier; and

• Not approving the Proposed Transactions would increase the risk that Otto Energy will not be able to continue as a going concern.

• 2.4. The ultimate decision by Non-Associated Shareholders whether to approve each of the Proposed Transactions should be based on each Non- Associated Shareholder’s assessment of each of the Proposed Transactions. If in doubt about the Proposed Transactions or matters dealt with in this report, Shareholders should seek independent professional advice. This opinion should be considered in conjunction with, and not independently of, the information set out in the remainder of this Report.

Page 2 of 18

3. Report Structure

• 3.1. The remainder of our report is divided into the following sections:-

Section

	Page
1.	Introduction....................................................................................................................1
2.	Summary and Conclusion.............................................................................................2
3.	Report Structure............................................................................................................3
4.	Summary of Proposed Transactions............................................................................4
5.	Purpose of this Report..................................................................................................6
6.	Background ....................................................................................................................8
7.	Evaluation.....................................................................................................................11
8.	Other Factors Taken Into Consideration In Forming Our Opinion.......................13

Appendices

A Declarations and Disclaimers B Sources of Information C Financial Services Guide

Page 3 of 18

4. Summary of Proposed Transactions

• 4.1. On 8 December 2008 the Company entered into separate Shareholder Loan Agreements with Santo Holding AG (“Santo”) and Molton Holdings Ltd (“Molton”) for US$2.5 million each (i.e. US$5 million total). As at the date of this report Santo and Molton each have 19.3% shareholding in the Company.

• 4.2.

• The main terms of the Shareholder Loan Agreements were:-

• Lenders – Santo and Molton;

• Principal loan amount - US$2.5 million for both shareholder loans;

• Interest rate – 12% per annum, payable monthly in arrears on termination date;

• Each loan had a US$25,000 establishment fee and a US$ 25,000 extension fee;

• Termination date – the earlier of 31 March 2009 and the date 7 business days after a planned equity raising or extended to 31 August 2009, subject to the granting of agreed security by Otto Energy; and

• Security – to be agreed.

• 4.3. In March 2009 the Santo and Molton each agreed to provide the Company with an additional US$1 million in loan funds subject to the terms of new shareholder loan agreements (“Varied Shareholder Loan Agreements”) which replaced the previous agreements of 8 December 2008 and are on the following terms :-

• Lenders – Santo and Molton;

• Principal loan amount – initial draw downs of US$2.5 million and new loans of US$1.0 million for both shareholder loans;

• Interest rate – 12% per annum, payable monthly in arrears on termination date;

• Each loan has a US$25,000 establishment fee and a US$60,000 termination fee;

• Termination date – the earlier of 31 August 2009 and the date 7 business days after the pro-rata entitlement issue to raise approximately A$30 million (“Entitlement Issue”) has closed (refer to para 4.8 below); and

• Security – a fixed and floating charge over all or substantially all of the Otto Energy’s assets other than certain excluded assets including Otto’s interest in Galoc Oil field.

• 4.4. Accordingly, the Varied Shareholder Loan Agreements referred to in 4.3 above are the current agreements and include the Proposed Transactions for the purposes of our opinion.

Page 4 of 18

4.5. The events of default under the Varied Shareholder Loan Agreements are:-

• Otto Energy becomes insolvent;

• Otto Energy breaches a term on the Varied Shareholder Loan Agreements and the breach is not remedied within 5 business days of notification;

• A representation or warranty given under the Varied Shareholder Loan Agreements is incorrect or misleading in a material way; and

• Any event of default occurs under any security granted in connection with the Varied Shareholder Loan Agreements.

• 4.6. In the event of default Santo and Molton may elect by notice to Otto Energy to terminate its obligations and demand repayment of the debt.

• 4.7. At the date of this report the balances of the loans under the Varied Shareholder Loan Agreements are each US$ 3.5 million plus interest accumulated at the rate of 12% per annum.

• 4.8. The Company entered into a trading halt on 17 March 2009 relating to a proposed Capital Raising which includes the underwritten Entitlement Issue referred to in 4.3 above.

• 4.9. Santo and Molton will have the same entitlements as all ordinary shareholders under the Entitlement Issue.

Page 5 of 18

5. Purpose of this Report

ASX Listing Rules

• 5.1. ASX Listing Rule 10.1 states that an entity must ensure that it does not acquire a substantial asset from, or dispose of a substantial asset to a substantial holder (of 10% of the voting rights) or an associate of a substantial holder without the approval of holders of the entity’s ordinary securities.

• 5.2. Santo and Molton each own 94,977,498 of the Company’s issued share capital being approximately 19.3% each of the Company’s issued share capital as at the date of this Report and are therefore both substantial shareholders within the meaning of ASX Listing Rule 10.1.

• 5.3. Under ASX Listing Rules Interpretations and Definitions (Chapter 19) disposal of an asset includes using an asset as collateral.

• 5.4. An asset is a substantial asset if its value or the value of the consideration for it is 5% or more of the equity interests of the Company as set out in its latest accounts given to the ASX. The equity of the Company as at 31 December 2008 was $141,991,206. Hence the assets are substantial if their value is greater than $7,099,560. The book value of the security to be provided under each of the Proposed Transactions as at 31 December 2008 is approximately $65.8 million. The book value of the security is therefore over 5% of the equity interests of the Company as set out in the latest accounts given to the ASX and therefore the security given is a substantial asset.

• 5.5. Accordingly, the Company is seeking the approval of holders of the Otto Energy ordinary securities whose votes are not to be disregarded with respect to each of Resolutions 3 and 4 (“Non-Associated Shareholders”) for each of the Proposed Transactions in accordance with ASX Listing Rule 10.1.

• 5.6. Where ASX Listing Rule 10.1 approval is sought, shareholders must be presented with a report on the transaction from an independent expert. The report must state whether the transaction is fair and reasonable to non-associated shareholders.

• 5.7. In determining whether each transaction is “fair and reasonable” we have given regard to the views expressed by the Australian Securities and Investment Commission (“ASIC”) in their Regulatory Guide 111 Content of Expert Reports (“RG 111”).

• 5.8. RG 111 provides ASIC’s views on how an expert can help security holders make informed decisions about transactions. Specifically it gives guidance to experts on how to evaluate whether or not a proposed transaction is fair and reasonable.

• 5.9.

• RG 111 states that the expert report should focus on:

• The issues facing the security holders for whom the report is being prepared; and

• The substance of the transaction rather than the legal mechanism used to achieve it.

Page 6 of 18

• 5.10. Although RG 111 does not indicate what is considered fair and reasonable in the specific context of a disposal by a company of a substantial asset, it does provide some guidance as to the considerations relevant in determining whether the transactions are fair and reasonable.

• 5.11. In assessing whether the Proposed Transactions are fair and reasonable to the NonAssociated Shareholders we have considered the likely advantages and disadvantages of the Proposed Transactions for the Non-Associated Shareholders in the event that they proceed or do not proceed. On this basis the transactions will be fair and reasonable if the Non-Associated Shareholders will be better off if each of the Proposed Transactions are accepted than if they are not.

• 5.12. In undertaking our analysis we have considered:-

• The value of the security provided by the Company in comparison with the loan funds received;

• The terms of the Varied Shareholder Loan Agreements;

• The future prospects of the Company if the Proposed Transactions do not proceed; and

• Any other commercial advantages and disadvantages to the Non-Associated Shareholders as a consequence of the Proposed Transactions proceeding.

Page 7 of 18

6. Background

• 6.1. Otto Energy is an oil and gas company, which, was focussed on oil and gas exploration until late 2007 when it acquired an indirect interest in the Galoc Oil Field (“Galoc asset”), a near term production asset. The interest in the Galoc Oil Field was acquired to give Otto Energy operating cash flow. Oil production from the Galoc Field commenced in October 2008.

• 6.2. Otto Energy has recorded negative cash flow from operating activities and investing activities in the years ended 30 June 2007, 30 June 2008 and the half year ended 31 December 2008.

• 6.3. The circumstances that have created the need for the Proposed Transactions are as follows:-

• During November and December 2008 the Company raised US$5 million in shareholder loans to fund working capital commitments of the Company until cash dividends commenced from Galoc oil production;

• It was planned to simultaneously complete a capital raising and to use the proceeds of this capital raising to repay the loans. Repayment of those loans before 31 March 2009, as planned, would have meant that no security was required to be given for those loans;

• As a result of a number of factors, including the global market economic downturn and volatility in world markets, the Company deferred the original planned capital raising;

• Extension of the original shareholder loans beyond 31 March 2009 required the provision of the proposed fixed and floating charges;

• Additional cash flow needs created by issues that have arisen in relation to the Galoc asset resulted in the Company requiring further cash and therefore the loan funding is increased to US$7 million (“new Shareholder Loans”); and

• Under the terms of the Varied Shareholder Loan Agreements security in the form of a fixed and floating charge over the Company’s assets, excluding the Galoc assets, is required to be given (subject to shareholder approval).

• 6.4. Contemporaneously with the Proposed Transactions the Company is progressing with a capital raising which includes a Placement to raise approximately $5 million and an underwritten Entitlement Issue to raise approximately $30 million. Part of the proceeds of this capital raising will be used to repay the US$7 million of Shareholder Loans.

Page 8 of 18

Balance Sheet

• 6.5. Otto Energy’s latest accounts presented to the ASX are for the six months to 31 December 2008. The balance sheets as at 31 December 2008 and 30 June 2008 are set out in the table below.

	Reviewed Audited 31-Dec-08 30-Jun-08 $m $m
Reference
Current Assets
Cash & cash equivalents Trade & other receivables Other	7.53 5.03
	5.42 19.20
	0.07 0.10
Total Current Assets	13.02 24.33
Non-Current Assets
Trade and other 6.6 Plant & equipment Intangibles 6.6	35.68 15.82
	0.47 0.35
	49.33 35.43
Exploration & evaluation	52.31 31.82
Total Non-Current Assets	137.79 83.42
Total Assets	150.81 107.75
Current Liabilities
Trade & other payables	1.36 0.99
Borrowings	7.24 -
Employee Entitlements	0.12 0.07
Total Current Liabilities	8.72 1.06
Non Current Liabilities
Trade & other payables	0.04 0.02
Provision for restoration	0.06 0.05
Total Non Current Liabilities	0.10 0.07
Total Liabilities	8.82 1.13
Net Assets	141.99 **106.62 **
Equity
Issued capital	122.94 118.06
Reserves	39.29 3.99
Accumulated losses	(20.24) (15.43)
	141.99 **106.62 **

Table 1 – Otto Energy balance sheets

6.6. The balances of $35.68 million and $49.33 million as at 31 December 2008, totalling $85.01 million, relate to the Company’s indirect interest in the Galoc Oil Field, and under the Varied Shareholder Loan Agreements are excluded from assets available as security under the Proposed Transactions.

• 6.7. Therefore the security that is proposed under the Proposed Transactions will cover the assets recorded in the balance sheet at book value of $150.81 million less the Galoc assets stated at $85.01 million resulting in a net figure of $65.80 million.

• 6.8. However, while this is a book figure, it is made up substantially of exploration and evaluation assets that need more funds to be spent on them and generally are not the type of assets that arms length financiers require to secure debt.

Page 9 of 18

Financial Performance

• 6.9. The Company has reported the following in the last two and a half years:

		Period ended	Year ended	Year ended
		31-Dec-08	30-Jun-08	30-Jun-07
	Reference	$m	$m	$m
Financial Performance
Net loss after tax		(4.80)	(10.70)	(2.80)
The net loss has been determined after:
Unrealised foreign exchange gain (loss)		0.05	(6.40)	-
Share based payment expense		(1.3)	(2.55)	(0.13)
Cash Flow
Net cash used in operating activities		(8.97)	(17.46)	(7.32)
Net cash used in investing activities	6.10	(5.97)	(63.49)	(2.27)

Table 2 – Otto Energy Income Statements and Cash Flow extracts

• 6.10. The 30 June 2008 figures include the $58.5 million purchase of the Galoc assets.

• 6.11. We note from the Interim Report for the Half Year ended 31 December 2008 that the auditors, BDO Kendalls, have indicated “the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern.”

• 6.12. We also note that from December 2008 to late February 2009 production ceased at Galoc which has further delayed cash flows from that investment to the Company.

Level of Funding Provided and Level Required

• 6.13. The level of funding provided by the Shareholder Loans was US$5 million from 8 December 2008 which was increased to US$7 million plus accrued interest from 17 March 2009.

• 6.14. The level of funding represents the only source of interest bearing debt on the balance sheet of the Company.

• 6.15. There is no other source of debt on the Company’s balance sheet, however, we note that the Company’s indirect investment in the Galoc Oil Field which is operated by Galoc Production Company W.L.L. (“GPC”) contains substantial debt which is secured by the Galoc assets. The Galoc assets would provide the best security for a potential financier being oil assets in production, however these are secured by the debt of GPC over the Galoc Field and therefore they are not available to any lender to Otto Energy and are the excluded assets within the Proposed Transactions.

• 6.16. Funds raised from the underwritten Entitlement Issue will be used to repay the new Shareholder Loans as soon as it is completed.

Page 10 of 18

7. Evaluation

• 7.1. As previously stated in paragraph 5.11, in assessing whether the Proposed Transactions are fair and reasonable to the Non-Associated Shareholders we have considered the advantages and disadvantages of the Proposed Transactions in the event that they proceed or do not proceed including:

• The value of the security provided by the Company in comparison with the loan funds received (refer this Section);

• The terms of the Varied Shareholder Loan Agreements (refer this Section) ;

• The future prospects of the Company if the Proposed Transaction does not proceed (refer Section 8); and

• Any other commercial advantages and disadvantages to the Non-Associated Shareholders as a consequence of the Proposed Transaction proceeding (refer Section 8).

Value of Security and Loan Funds Received

• 7.2. The Company, under the Varied Shareholder Loan Agreements, has obtained US$7 million of loan funding and under the Proposed Transactions, will grant the lenders a fixed a floating charge over certain assets of the Company with a book value of approximately A$65.80 million.

• 7.3. We note that although the assets provided by the Company as security for the Proposed Transactions have a book value of approximately A$65.80 million, they substantially comprise exploration and evaluation assets that need more funds to be spent on them and generally are not the type of assets that arms length financiers require to secure debt.

• 7.4. In addition, given the Company’s history of losses (accumulated losses as at 31 December 2008 were $20.24 million), negative cash flows, significant expenditure requirements on exploration assets and limited assets against which a bank would consider securing debt, in our opinion it is unlikely that Otto Energy would have been able to borrow comparable levels of funds provided under the Proposed Transactions.

Terms of Varied Shareholder Loan Agreements

• 7.5. The term of the loans is short being required to be repaid no later than 31 August 2009, as the funds have been sought to bridge the Company over a gap in equity funding caused by the worldwide financial crises, resulting decline in stock market valuations and shortage of available funds in capital markets.

• 7.6. Without these funds Otto Energy would have been unable to fund its activities from cash flows from operations.

• 7.7. The interest rate on the loan transactions is 12%.

Page 11 of 18

• 7.8. Comparable rates today are:-

• NAB overdraft account - 9.13%

• NAB term base rate (unsecured) of 9.13% with a risk margin of 1.5% to 5% makes a range of rates from 10.63% to 14.13%

• NAB secured personal loans - 12.19%

• 7.9. Based on the above, the interest rate charged on the Proposed Transactions is within the range of possible rates for these commercial loans, however, this does not take into account the financial position of Otto Energy with losses and negative cash flow.

• 7.10. The fees on the transaction are an upfront fee of $25,000 per Shareholder Loan and a US$60,000 termination fee per Shareholder Loan. In total for the provision of US$7 million fees are US$170,000 or 2.4%. We consider that these are reasonable fees in the Company’s circumstances.

• 7.11. We have considered the default terms and we have not noted any terms that we would consider to be anything other than normal commercial terms.

• 7.12. In our opinion, given the current operating position of Otto Energy and the level of security offered, the Company would be unable to borrow a comparable level of funds from an external financier on the terms offered.

• 7.13. We note that the Company made enquires with a number of financiers without any success in finding an alternative to the Varied Shareholder Loan Agreements.

Page 12 of 18

8. Other Factors Taken Into Consideration In Forming Our Opinion

Future Prospects of Otto Energy if the Proposed Transactions Does Not Proceed

• 8.1. If the Proposed Transactions do not proceed and therefore security is not granted under the Varied Shareholder Loan Agreements by 1 May 2009, then the Company will be in default and the debt will be come due and payable. There is not sufficient cash on hand to pay this debt and we do not believe it is likely that assets could be sold such that their sale proceeds would be available in that time frame.

• 8.2. Based on the current Entitlement Issue timetable the Company expects the funds from the Entitlement Issue will be available to repay the Shareholder Loans by the end of April 2009. In the event that the Entitlement Issue funds are not available, the Company would either have to raise additional funds to repay the Shareholder Loans by 1 May 2009 or be technically insolvent

• 8.3. Non payment of the debt would put the Company into the control of Santo and Molton.

Advantages and Disadvantages

• 8.4. In assessing whether the Non-Associated Shareholders are likely to be better off if the Proposed Transaction proceeds, than if it does not, we have compared various advantages and disadvantages that are likely to accrue to the Non-Associated Shareholders.

Advantages

Advantage 1

• 8.5. Management will be able to focus on completing the Entitlement Issue and through its completion be able to continue the planned development of the Company including paying off the new Shareholder Loans and receiving back the security given for the loans.

Disadvantages

Disadvantage 1

• 8.6. Going ahead with the Proposed Transactions is that Company will tie up certain security for the period while the Shareholder Loans are outstanding.

• 8.7. However, this is only a minor disadvantage, because, given the underwritten Entitlement Issue it is only a short time before the funds will be available to repay the Shareholder Loans and security returned.

Conclusion

• 8.8. In our opinion the advantages and disadvantages of the Proposed Transactions indicate that it is in the best interest of the Non-Associated Shareholders of Otto Energy to approve the Proposed Transactions.

Yours faithfully

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A J GILMOUR Director

Page 13 of 18

APPENDIX A

Declarations and Disclaimers

RSM Bird Cameron Corporate Pty Ltd holds Australian Financial Services Licence 255847 issued by ASIC pursuant to which they are licensed to prepare reports for the purpose of advising clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate reconstructions or share issues.

Qualifications

RSM Bird Cameron Corporate Pty Ltd is beneficially owned by the partners of RSM Bird Cameron (RSMBC) a large national firm of chartered accountants and business advisors.

Mr. Andrew Gilmour is a director of RSM Bird Cameron Corporate Pty Ltd. He is a Chartered Accountant with extensive experience in the field of corporate valuations and the provision of independent expert’s reports for transactions involving publicly listed and publicly unlisted companies in Australia.

Reliance on this Report

This report has been prepared solely for the purpose of assisting the Non-Associated Shareholders of Otto Energy in considering the proposed Transaction. We do not assume any responsibility or liability to any party as a result of reliance on this report for any other purpose.

Reliance on Information

Statements and opinions contained in this report are given in good faith. In the preparation of this report, we have relied upon information provided by the directors and management of Otto Energy and we have no reason to believe that this information was inaccurate, misleading or incomplete. However, we have not endeavoured to seek any independent confirmation in relation to its accuracy, reliability or completeness. RSM Bird Cameron Corporate Pty Ltd does not imply, nor should it be construed that it has carried out any form of audit or verification on the information and records supplied to us.

The opinion of RSM Bird Cameron Corporate Pty Ltd is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time.

In addition, we have considered publicly available information which we believe to be reliable. We have not, however, sought to independently verify any of the publicly available information which we have utilised for the purposes of this report.

We assume no responsibility or liability for any loss suffered by any party as a result of our reliance on information supplied to us.

Disclosure of Interest

At the date of this report, none of RSM Bird Cameron Corporate Pty Ltd, RSMBC, Andrew Gilmour, nor any other member, director, partner or employee of RSM Bird Cameron Corporate Pty Ltd and RSMBC has any interest in the outcome of the proposed Transactions, except that RSM Bird Cameron Corporate Pty Ltd are expected to receive a fee of approximately $15,000 based on time occupied at normal professional rates for the preparation of this report. The fees are payable regardless of whether Otto Energy receives Shareholder approval for the Proposed Transaction, or otherwise.

Consents

RSM Bird Cameron Corporate Pty Ltd consents to the inclusion of this report in the form and context in which it is included with the Explanatory Memorandum to be issued to Shareholders. Other than this report, none of RSM Bird Cameron Corporate Pty Ltd, RSM Bird Cameron Partners or RSMBC has been involved in the preparation of the Notice of General Meeting and Explanatory Statement. Accordingly, we take no responsibility for the content of the Notice of General Meeting and Explanatory Statement as a whole.

Page 14 of 18

APPENDIX B

Sources of Information

In preparing this report we have relied upon the following principal sources of information:

• Draft Notice of Annual General Meeting and Explanatory Statement;

• Audited Financial Statements for Otto Energy for the years ended 30 June 2007 and 2008;

• Interim Report for the half year ended 31 December 2008;

• Investor Presentation dated 25 February 2009;

• Various ASX releases in 2008 and 2009;

• Minutes of Directors’ meetings from November 2008 to January 2009;

• 8 December 2008 Shareholder Loan Agreements;

• 17 March 2009 Shareholder Loan Agreements; and

• Information provided to us during meetings and correspondence with management of

• Otto Energy.

Page 15 of 18

APPENDIX C Financial Services Guide

Overview

RSM Bird Cameron Corporate Pty Ltd, ABN 82 050 508 024 (“RSM Bird Cameron Corporate Pty Ltd” or “we” or “us” or “ours” as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you.

In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (“FSG”). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees.

This FSG includes information about:

• who we are and how we can be contacted;

• the services we are authorised to provide under our Australian Financial Services Licence, Licence No 255847;

• remuneration that we and/or our staff and any associates receive in connection with the general financial product advice;

• any relevant associations or relationships we have; and

• our complaints handling procedures and how you may access them.

Financial services we are licensed to provide

We hold an Australian Financial Services Licence, which authorises us to provide financial product advice in relation to:

• deposit and payment products limited to:

• (a) basic deposit products;

• (b) deposit products other than basic deposit products.

• interests in managed investments schemes (excluding investor directed portfolio services); and

• securities (such as shares and debentures).

We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report.

Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report.

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General Financial Product Advice

In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product.

Benefits that we may receive

We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis.

Except for the fees referred to above, neither RSM Bird Cameron Corporate Pty Ltd, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.

Remuneration or other benefits received by our employees

All our employees receive a salary.

Referrals

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

Associations and relationships

RSM Bird Cameron Corporate Pty Ltd is beneficially owned by the partners of RSM Bird Cameron, a large national firm of chartered accountants and business advisers. Our directors are partners of RSM Bird Cameron Partners.

From time to time, RSM Bird Cameron Corporate Pty Ltd, RSM Bird Cameron Partners, RSM Bird Cameron and/or RSM Bird Cameron related entities may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business.

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Complaints Resolution

Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to The Complaints Officer, RSM Bird Cameron Corporate Pty Ltd, P O Box R1253, Perth, WA, 6844.

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

Referral to External Dispute Resolution Scheme

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service (“FOS”). FOS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below.

Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Toll Free: 1300 78 08 08 Facsimile: (03) 9613 6399 Email: info@fos.org.au

Contact Details

You may contact us using the details set out at the top of our letterhead on page 1 of this report.

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OTTO ENERGY LIMITED

ABN 56 107 555 046

Shareholder Details

Name: ………………………………………………………………………………………………………………………………………………………………….

Address: ………………………………………………………………………………………………………………………………………………………………..

Contact Telephone No: ………………………………………………………………………………………………………………………………………….

Contact Name (if different from above): ………………………………………………………………………………………………………………..

Appointment of Proxy

I/We being a shareholder/s of Otto Energy Limited and entitled to attend and vote hereby appoint

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The Chairman Write here the name of the person you of the Meeting OR are appointing if this person is someone other than the Chairman of (mark with an ‘X’) the Meeting.

or failing the person named, or if no person is named, the Chairman of the Meeting, as my/our proxy to attend and act generally at the Meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the Meeting of Otto Energy Limited to be held at the 32 Delhi Street, West Perth, Western Australia on 30 April 2009 at 2.30pm (WST) and at any adjournment of that Meeting.

IMPORTANT

If the Chairman of the Meeting is your nominated proxy, or may be appointed by default, and you have not directed your proxy how to vote, please place a mark in this box with an ‘X’. By marking this box you acknowledge that the Chairman of the Meeting may exercise your proxy even if he has an interest in the outcome of the resolutions and that votes cast by him, other than as a proxy holder, would be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chairman of the Meeting will not cast your votes on the resolutions and your votes will not be counted in computing the required majority if a poll is called. The Chairman of the Meeting intends to vote undirected proxies in favour of each resolution.

Voting directions to your proxy – please mark to indicate your directions

For Against Abstain*

Resolution 1. Ratification of Prior Issue of Shares Resolution 2. Issue of Shares to a Director Resolution 3. Grant of Fixed and Floating Charge to a Substantial Holder Resolution 4. Grant of a Fixed and Floating Charge to a Substantial Holder Resolution 5. Issue of Sub‐underwriting Options Resolution 6. Issue of Sub‐underwriting Options

*If you mark the Abstain box for a particular Resolution, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll. Appointment of a second proxy (see instructions overleaf)

If you wish to appoint a second proxy, state the % of your voting rights applicable to the proxy appointed by this form

PLEASE SIGN HERE This section must be signed in accordance with the instructions overleaf to enable your directions to be implemented

Individual or Shareholder 1 Shareholder 2 Shareholder 3 Sole Director and Director Director/Company Secretary Sole Company Secretary

HOW TO COMPLETE THIS PROXY FORM

OTTO ENERGY LIMITED

ABN 56 107 555 046

Your Name and Address

Please print your name and address as it appears on your holding statement and the Company’s share register. If shares are jointly held, please ensure the name and address of each joint shareholder is indicated. Shareholders should advise the Company of any changes. Shareholders sponsored by a broker should advise their broker of any changes. Please note, you cannot change ownership of your securities using this form.

Appointment of a Proxy

If you wish to appoint the Chairman of the Meeting as your proxy, mark the box. If the person you wish to appoint as your proxy is someone other than the Chairman of the Meeting please write the name of that person. If you leave this section blank, or your named proxy does not attend the Meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a shareholder of the Company.

Votes on Resolutions

You may direct your proxy how to vote by placing a mark in one of the boxes opposite each Resolution. All your shareholding will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any Resolution by inserting the percentage or number of shares you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on a given Resolution, your proxy may vote as he or she chooses. If you mark more than one box on a Resolution your vote on that Resolution will be invalid.

Appointment of a Second Proxy

You are entitled to appoint up to two persons as proxies to attend the Meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the Company Secretary on (08) 9322 7600 or you may photocopy this form.

To appoint a second proxy you must on each Proxy Form state (in the appropriate box) the percentage of your voting rights which are the subject of the relevant proxy. If both Proxy Forms do not specify that percentage, each proxy may exercise half your votes. Fractions of votes will be disregarded.

Signing Instructions

You must sign this form as follows in the spaces provided:

Individual:	where the holding is in one name, the holder must sign.
Joint Holding:	where the holding is in more than one name, all of the shareholders should sign.
Power of Attorney:	to sign under Power of Attorney, you must have already lodged a copy of the Power of Attorney with
	the Company’s share registry. If you have not previously lodged this document for notation, please
	attach a certified photocopy of the Power of Attorney to this form when you return it.
Companies:	where the company has a Sole Director who is also the Sole Company Secretary, this form must be
	signed by that person. If the company (pursuant to section 204A of the Corporations Act) does not have
	a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a
	Director jointly with either another Director or a Company Secretary. Please indicate the office held by
	signing in the appropriate place.

If a representative of the corporation is to attend the Meeting a “Certificate of Appointment of Corporate Representative” should be produced prior to admission. A form of the certificate is either included in the Notice of Meeting or may be obtained from the Company’s share registry.

Lodgement of a Proxy

This Proxy Form (and any Power of Attorney under which it is signed) must be received at the address given below not later than 48 hours before the commencement of the Meeting. Any Proxy Form received after that time will not be valid for the scheduled Meeting.

This Proxy Form (and any Power of Attorney and/or second Proxy Form) may be sent or delivered to the Company’s registered office at Otto Energy Limited, 945 Wellington Street, West Perth, WA or sent by facsimile to the registered office on (08) 9322 7602.