Eco Atlantic Oil & Gas (LSE:ECO) dipped 0.9pc to 83.3p on Friday morning after announcing a second drilling location for its Orinduik Block, based offshore Guana.
The £138.1m business, which remains close to all-time highs, said that a prospect called Joe located in around 650m of water will be drilled in mid-July. Joe is a 150MMboe Upper Tertiary target with a 43.2pc chance of success, as estimated in a recently published report over Orinduik by Gustavson Associates.
Eco, which owns 15pc of Orinduik, made the decision alongside its partners Total and Tullow, which hold 25pc and 60pc of the asset respectively. Tullow is also Orinduik’s operator. An exploration well will be completed at Joe by Stena Forth Drill Ship, which has already been contracted by the partners to drill its first target, Jethro Lobe, in early-June.
The net cost of drilling Joe for Eco will be $3m, significantly less than the anticipated $9.6m it expects to spend on drilling Jethro-Lobe. The firm said this is because the cost of mobilising and demobilising Stena Forth have all been incorporated into the value of the first well. As previously announced, Eco is funded fully for its 2019 Orinduik drilling campaign and beyond. Indeed, in Friday’s update, the firm said it had an impressive current cash balance of $19m.
Eco’s chief operating officer Colin Kinley said: ‘The approval, at this stage, of a second well is a clear indication of the Partners’ risking of Orinduik. All of the Partners support a two well drilling campaign targeting close to 370 million barrels of Gross Prospective Resources (P50 Best) at 43.2% risking, which is well above industry averages anywhere in the world.’
Meanwhile, president and chief executive Gil Holzman added: ‘We are now set for a transformational period in the life of our company. With exceptional Partners, a strong cash balance, and an inventory of many high impact drilling targets in the most exciting oil province in the world, we hope to deliver significant value to shareholders in the near term.’
The Orinduik Block is adjacent and updip to ExxonMobil and Hess Corporation’s Stabroek Block, on which twelve discoveries have been announced, and over 5.5bn boe recoverable resources are estimated.
Earlier this month, Eco revealed a 35pc increase in the estimated P50 gross prospective oil resources at Orinduik. Quoting a Competent Person’s Report written by Gustavson Associates, Eco’s best estimate is that Orinduik could contain 3.99bn barrels of oil.
With its 15% retained interest in Orinduik, Eco’s shares responded well to the news, trading at 91.25p. However, speaking exclusively to ValueTheMarkets.com at the time, Holzman said this might only be the beginning.
After so much disappointment on AIM in the oil and gas exploration space over recent years, Eco’s stock has remained in high demand. Since the beginning of the year, it has risen from 37.2p. A big part of the attraction to the Orinduik project is the quality of the partners Eco has secured in Tullow and Total, the latter of which exercised its option to acquire 25% in September 2018. In total, Total paid $13.5m to secure its stake, a significant sum for the project at this stage. What was it that attracted such strong commercial interest?
As Holzman put it to us: ‘the quality of the project speaks for itself. The technical aspects of Orinduik were already exciting. Our original CPR (11 September 2018), which was based only on the Cretaceous targets, delivered extremely promising numbers.
‘However, Exxon’s recent Hammerhead discovery has had a significant impact on Orinduik. Hammerhead extends into Orinduik, so our block is already subject to a small discovery. But what is much more promising is that it has opened up a whole new play. We are now also looking at Tertiary age targets and today’s updated CPR reflects this latest development.’