By Robin Mayes
Eco Atlantic Oil and Gas (TSX-V; EOG and AIM; ECO)
ECO has been hot in the news this summer having made two excellent discoveries in its Orinduik block offshore Guyana, Heres some background on the company:
ECO is an old-fashioned explorer for oil and is an ‘elephant hunter’. It is extremely high risk and concomitant to that, high reward. It is totally focussed on the Atlantic margins and has excellent acreage in two of the hottest oil and gas regions worldwide, Guyana and Namibia. The management has an excellent mix of skills, good deal makers and technical know-how. As COO, Colin Kinley, has the technical skills and CEO, Gil Holzman, is the deal-maker and company ‘frontman’. All Board members own significant stock and have plenty of stock options. Their interests are aligned with shareholders.
(From the outset I should state I am deeply biased about this stock. I have held it since 2012 and apart from various unit trust type investments, it is my longest hold. Even though I de-risked some time ago, as the share price continues to rise on its drilling success, I have been struggling not to take more profit. For some time, my conviction has been that it will either be acquired or have its Guyana asset bought for a huge premium to the present share price. I am doing my best to hang on until the end game and have the courage of my convictions. As ever, fear and greed are difficult emotions to contend with.)
ECO’s philosophy is simple: acquire large percentage interests in attractive blocks at low entry prices in Atlantic margin frontier plays; work the assets up to drill-ready status over a period of years by shooting 2D, then 3D seismic, funding each stage by farming out to mid-tier and major oil companies. Their partners include Azinam (Seacrest), Tullow, Total and the Qatari National Oil Company.
Their early focus was off-shore Namibia but in recent years the story has largely been about Guyana…..Guyana has been the hottest O&G postcode for the past 3 years as Exxon has had achievement after achievement, having had 13 successful wells out of 14 drills. As wild-cat drilling has a normal hit rate of 15%, you can see why the oil industry’s attention has turned to Guyana. Exxon has over 5 billion BOE recoverable declared to date, clearly a lot more to come.
ECO first applied for the Orinduik block, alongside Tullow, back in 2014 before any discoveries had been made in Exxon’s neighbouring block. A real stroke of luck as it means they have excellent terms of entry. Frontier plays get better terms of entry than a block with a discovery on it. The higher the risk, the better terms of entry you get.
Over the years they shot 3D over the entire block, processed it and farmed out to Total which gave them enough cash to fund their share of the first 3 wells.
Exxon’s discoveries were all in the Cretaceous period, Tullow’s expertise was in Tertiary play discoveries off the West coast of Africa. The geology between this area and the East coast of South America is analogous. Eco and Tullow saw a look-alike prospect crossing their boundary edge into Exxon’s block. They passed on the 3D, Exxon drilled on the back of it and made the massive Hammerhead discovery. Exxon recently drilled two appraisal wells on Hammerhead, both of which were successful. As part of Hammerhead is in Eco’s block, ‘unitisation’ talks are/will be in progress. (This means they haggle and agree who owns what and how to share the income fairly.)
Over the summer ECO and it’s partners, Tullow and Total, have successfully drilled the Jethro-1 discovery and today announced another discovery in the Joe-1 well. Both have massively de-risked all the other Tertiary prospects on the block (2 billion BOE according to the Competent Person’s Report) and pushed ECO up the value curve. Jethro-1 had 55m of net pay and could well have more than 300m BOE recoverable with plenty of upside all around it. Joe-1 has 16m of net pay and more significantly has opened up a whole new geological play in the basin, the Upper Tertiary.
The partners will now re-visit the seismic looking for more Upper Tertiary prospects. Together with the massive discovery at Jethro-1, the discoveries have outdated the CPR. Expect to see an updated version, hopefully by the end of the year. Broker targets will all be re-adjusted northwards of the present £2 target prices.
Eyes will now turn to the well being drilled on the Cretaceous prospect, Carapa, on the block next door which should spud later this month.
In Namibia, ECO has 4 large oil blocks, all have been worked up and two are drill ready. They are in the process of farming out the blocks. Total, Shell, and Exxon are among the majors that have taken positions off-shore Namibia. There will be 3 or 4 wells drilled there over the next year or so. Azinam, Eco’s partner and a subsidiary of Seacrest are planning two wells, one of which hopefully will be on Cooper, a block they share with ECO. I expect some news here in terms of a farm-in partner and firm drilling plans within the next 6 months.
In various interviews, Gil Holzman has made it plain that, whilst they are perfectly prepared to take their assets into production and are fully funded for 5 further wells offshore Guyana, they know that they represent a very juicy morsel to be snapped up by hungry oil companies seeking to add to oil reserves in highly prospective, politically stable jurisdictions. To this end, in July, it was reported by Bloomberg, that ECO had hired the services of Tudor, Pickering, Holt & Co., a company that specialises in advising companies faced with potential suitors. Watch this space!
Big oil discovery offshore Guyana is just the beginning for Eco Atlantic says, CEO Holzman
This article/blog is not financial advice. Do your own research. The fee for this article was donated to http://www.theolivercurdtrust.org/