Monday morning saw Eco Atlantic Oil & Gas (LSE:ECO) announce a further strengthening of the potential offered by its part-owned Orinduik block off the shore of Guyana. The firm was up 2.4% at 43p a share after revealing that Orinduik’s gross prospective resources had risen 29% to 5,141 million barrels of oil equivalent (“MMboe”) in an updated competent persons report (“CPR”).
The increase came down mainly to the notable discovery of light oil by Repsol and Total E&P last month in the Cretaceous section of the Kanuku block to the south of Orinduik. Eco, which owns a 15% in Orinduik alongside operator Tullow Oil (60%) and Total E&P (25%) said the discovery de-risks its own Cretaceous play significantly.
“The Cretaceous pathway of lighter weight oils from the source kitchen to the north, through the Liza sands and through the recent discovery of light oil in Carapa-1 to the south confirms our theory and interpretation of transmission of high-quality oil across the Cretaceous sand channels and traps within the Orinduik Block,” said company co-founder and chief operating officer Colin Kinley.
As a result, the 11 leads within Orinduik’s Cretaceous section are now estimated to contain around 3,936 MMboe, with two specifically being identified as containing more than 725 MMboe each. Meanwhile, the majority of block-wide leads are now thought to have a 30% or better chance of success, while leads in the area’s Tertiary-aged horizons are estimated to contain 1,204 MMboe.
Orinduik has also been de-risked significantly by the discoveries of over 8 billion barrels of oil by ExxonMobil in a block immediately to the east.
The Orinduik partners will now meet to evaluate their recent drilling results, define drilling targets, and consider the budgets and dates for future drilling. For its part, Eco is in a strong position, being fully funded for its share of further appraisal and exploration drilling at Orinduik of up to $120 million gross thanks to its healthy £20 million cash position (latest figure).
With a £77.3 million market cap, Eco remains well below the 132p highs at which it sat in November last year. Like its partners at Orinduik, a significant amount of value was wiped away from the company when it was revealed that two discoveries on the block contained heavy crudes with high sulphur content.
Although this form of oil is more difficult to recover than its lighter counterpart, there remains a significant market in place for its use, potentially making the market’s response look like something of an over-reaction. Heavy crude oil with high sulphur content remains pivotal for many oil refineries and many fields continue to produce such petroleum profitably (think Enquest’s Kraken field and Equinor’s Mariner fields in the North Sea).
As Kinley put it in Monday’s release: “Our choice was to first test the Tertiary section and to take the risk of opening a new play and a new opportunity for Guyana. As previously announced, this younger section delivered a significant resource of heavy oil pay. Heavy oil is more challenging to produce than conventional lighter oils, but remains a marketable hydrocarbon with increasing demand world-wide, as other heavy oil resources have dropped offline.”
Given the majority of Orinduik’s prospective resources lie in the Cretaceous horizon, where light oil has been proven, Monday’s CPR upgrade signal a bright future for Eco and strengthens the case for it being undervalued.