Eco Atlantic Oil & Gas (LSE:ECO) was sitting at 44.3p with a £81m market cap on Tuesday after announcing that it will proceed with exploration at its partly-owned Orinduik block off the shore of Guyana.
Alongside partner Total and operator Tullow Oil, Eco has entered the first renewal period of an Orinduik Petroleum Agreement signed in January 2016. The decision takes effect next month and will see the JV partners retain control of Orinduik for three more years. At this point, they will have the option to enter a second renewal period.
Orinduik, which is 15% owned by Eco, covers 1,800km2 and is adjacent to ExxonMobil’s Stabroek Block, where 6 billion barrels of recoverable oil equivalent is estimated to span 13 discoveries. The block is estimated to contain nearly four billion boe of gross unrisked prospective resources across 15 leads.
The work completed on Orinduik by Eco and its partners to date has far exceeded the original licence commitments required within the initial phase of the Orinduik Petroleum Agreement. To recap, the partners completed a 2,550km2 3D seismic programme in 2017 and drilled two exploration wells this year that both led to discoveries – called Jethro-Lobe and Joe-1.
Jethro-Lobe, which was announced in August 2019 following the drilling of the Jethro-1 exploration well, encountered an initial 180.5ft of net high-quality oil pay located in Lower Tertiary sandstone reservoirs. This supported recoverable oil resources and confirmed the continuance of a petroleum system onto Orinduik, updip of prolific discoveries at the nearby, ExxonMobil-operated Stabroek Block.
Shortly afterwards, in September 2019, the JV partners announced that another discovery had been made by a second exploration well called Joe-1. The well encountered 52ft of continuous thick sandstone of the Upper Tertiary age, opening up a new play and further proving up the presence of recoverable oil resources at Orinduik. Meanwhile, thinner sands above and below the principal discovery indicated the possibility for incremental pay.
Eco took a significant hit last month after revealing that the two Orinduik discoveries were mobile, heavy crudes with high sulphur content. However, as we have previously highlighted, this could represent a considerable over-reaction by the market.
Not only is there strong demand for heavy oil with high sulphur content (many refineries continue to operate profitably using the product) but there are even concerns of a shortage due to various global sanctions. What’s more, Eco and its partners are still just at the start of their efforts at Orinduik. Only one billion of the four billion boe estimated to be contained on the block are expected to be found in its tertiary horizons – the ones unlocked by Jethro-Lobe and Joe. The three-billion-barrel balance is thought to be located in a deeper Cretaceous play. This horizon, which the Orinduik partners are yet to open up, is expected to hold older lighter oil such as in Liza discovery on the neighbouring block.
As Eco’s president and chief executive Gil Holzman put it in Tuesday’s update: ‘We are very pleased that the JV Partners have unanimously elected to enter into the next phase of exploration and development at the Orinduik Block.
‘We have met and exceeded all of the licence commitments to date and stand ready to further appraise and explore the significant hydrocarbon potential of the Orinduik Block licence, both in the proven discoveries of the Tertiary layer and in the deeper Cretaceous layer, estimated to hold an additional 3.2 bn barrels of oil (gross unrisked prospective (P50) resource) according to the CPR resource report published in March 2019.
‘As we look to next year, we will continue to work closely with all our stakeholders, including our host Governments and the JV Partners, to determine the budget and drilling programme for 2020, and we look forward to publishing an updated CPR on Orinduik Block and sharing our upcoming plans on our Namibian and Guyanese licences over the coming months.’