Eco Atlantic Oil & Gas (LSE:ECO) hit 174.5p on Monday, after announcing the second oil discovery in as many months at its 15pc-owned Orinduik Block. Located off the coast of Guyana in South America, the Joe-1 exploration well was drilled to a depth of 2,175 meters and hit a “high-quality, oil-bearing sandstone reservoir with a high porosity”. For a company to have such success on back-to-back wildcat drills is extremely rare, and Eco CEO Gil Holzman believes this is a portent of even greater things to come.
The second strike
Wireline logging and sampling from Joe-1 confirmed that the Joe prospect, which is estimated to hold 150MMbbls of gross prospective resources, is a high quality, oil-bearing sandstone reservoir. Furthermore, the well encountered 16m of continuous thick sandstone, proving that recoverable oil is present.
And that’s not all. The Orinduik partners (Eco owns the 1,800km2 asset alongside operator Tullow Oil (60pc) and Total E&P (25pc)) have identified additional thinner sands above and below the primary discovery. They believe that these merit further investigation, and it is possible that these sands could yield even more recoverable oil.
Results of this further evaluation remain to be seen, but the critical point in yesterday’s news is that the second Orinduik discovery at Joe-1 has opened up an entirely new play. This is the first time that moveable hydrocarbons have been encountered in the upper tertiary horizon, marking an exciting development for Eco and its partners in Guyana.
Critically, the news came just weeks after Eco and its partners announced their first discovery on the Orinduik Block from an exploration well called Jethro-1. The well found that a prospect called Jethro-Tull, which is estimated to hold 250MMbbls of gross prospective resources, comprises a high-quality oil-bearing sandstone reservoir like Joe. The results far exceeded pre-drill expectations, encountering 55m of net high-quality oil pay in Orinduik’s lower tertiary horizon. This supports recoverable oil resources and proves up the lower tertiary play for future exploration.
A diagram showing Joe-1 and Jethro-1’s positioning on Orinduik’s numerous oil horizons (Source: Company)
Orinduik’s wider potential
An updated competent persons report (CPR) released in March this year indicated that the Orinduik Block contains best estimate prospective resources of 3,981MMboe oil. Of this figure – which increases to 7,215MMboe oil in the high estimate case – Eco’s net share is an impressive 597.3MMboe oil based on its 15pc stake. With this in mind, Eco’s chief executive and co-founder Gil Holzman told us that the partners’ ability to de-risk two significant horizons within the asset is ‘truly transformational’ for his firm:
‘Few firms enjoy two hits out of two wells – especially when these were not appraisal wells but exploration wells. When combined with Jethro, Joe’s success proves that our theory of shallow low-cost plays in Guyana exists. With two proven oil discoveries on our block in two separate horizons, and with multiple drilling targets in front of us, we are in a great place to develop a world-class asset.’
Compounding the opportunity offered by the discoveries at Jethro and Joe, Holzman also points to ExxonMobil’s recent string of significant discoveries on the Stabroek block immediately adjacent to Orinduik. The major has enjoyed a drilling success rate of 90pc here to-date, discovering more than 6,000MMbbls of recoverable oil. Perhaps most notably, Exxon’s massive Hammerhead discovery in Guyana’s tertiary horizon is thought to extend into Orinduik, further de-risking the play when combined with Eco and its partners’ discoveries.
Now that this year’s two-well drilling programme has completed, the Orinduik partners are ready to press on. The businesses are completing a detailed evaluation of the Jethro, Joe, and Hammerhead extension oil reservoirs on the Orinduik Block.
Elsewhere, Holzman highlights that a jack-up rig is due to drill a well called Carapa-1 well on a nearby Guyana licence later this month. The well – which is 37.5pc held by Eco’s partner Tullow – will test Guyana’s cretaceous oil horizon – also present on the Orinduik block. A result is due in the final quarter of this year.
With an opportunity in place for Orinduik’s cretaceous play to be proven alongside its tertiary plays, Holzman says Eco will soon formulate a future drilling programme for the block with its partners. Key to this will be last September’s CPR, which identified numerous exploration leads, many of which will have been de-risked significantly by recent newsflow. Among these leads, 591MMboe of gross prospective resources has been identified across five Tertiary prospects, while 3,176MMboe has been indicated across nine Cretaceous candidates.
‘Following the two discoveries and the opportunity presented by Hammerhead, Orinduik now looks like a big pool of oil traps when looked at with fresh eyes. The data gathered in the last month or so really strengthens our ability to interpret the field for future development – where the real opportunity lies,’ says Holzman.
‘Once we have results from the three different horizons, the upper tertiary which is now proven, the lower tertiary that we established from Jethro, and later Carapa towards the end of October, then we will get together around the drawing table and come up with an exploration and appraisal plan for the next year. We now have a clear path to making further discoveries and value creation for shareholders.’
Stellar funding position
Finally, as it stands, Eco is in a highly advantageous position when it comes to funding this work. Thanks to a $12.5m payment from Total in the wake of its Orinduik farm-in deal last year and a $17m placing in April, the firm had CAD$39.7m (£24.11m, $29.96m) in cash and cash equivalents as at the end of June 2019. This comes in spite of its obligation to contribute $7m and $3m to the drilling of Jethro-1 and Joe-1, respectively. According to Holzman, this gives the business the scope to fund the drilling of up to six additional Orinduik wells at current prices:
‘This is very exciting as the de-risking from Jethro and Joe gives us a few targets that we are very confident about going to drill and immediately encountering oil. We have a very successful team of experts from Tullow, Total and ourselves around the table and are highly enthused about the months to come – our confidence in Orinduik is increasing with every hole we drill.’
Eco’s stock has pulled back to 158p in recent days. However, with six fully funded wells to come at Orinduik for Eco, if Holzman’s view that the Block is a “big pool of oil traps” is confirmed, then further upside in the share price is definitely on the cards. It is even quite possible that the company might attract takeover interest. With all the recent exploration success there has been off the coast of Guyana, Eco could make a highly attractive target for a major international firm that is looking to enter this hot oil province and increase its reserves. Whatever the case, 2020 looks increasingly bright for Eco Atlantic.