Gil Holzman, chief executive of Eco Atlantic Oil & Gas (LSE:ECO), says his firm’s confidence in its part-owned Orinduik Block’s ability to deliver transformational amounts of oil is growing with every passing day.
Earlier this week, it was revealed that the offshore Guyana block’s gross prospective resources had risen by 29% to 5,141 million barrels of oil equivalent (“MMboe”) in an updated competent persons report. The increase came down mainly to the notable discovery of light oil by Repsol, Tullow Oil, and Total E&P last month in the Cretaceous section of the Kanuku block to the south of Orinduik.
At the time, 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. Eco’s confidence in Orinduik’s Cretaceous horizon had already been boosted significantly by ExxonMobil’s discovery of eight billion barrels of oil in the same play across several discoveries to the east of the block.
Now that the horizon has been proven both to the south and east, Holzman tells us that the business is more confident than ever that it is sitting on a major opportunity.
“The updated resource report and geological information gathered since the three wells in 2019 are hugely encouraging. We can see from ExxonMobil’s now sixteen discoveries in Stabroek and Carapa in Kanuku that there is light, high-quality, sweet oil both to the north and south of our block in the Cretaceous horizon. We are focused on targeting the Cretaceous horizon at the same depths on the Orinduik licence in the upcoming campaign, as we believe these leads are trapped with oil of the same grade.”
What’s more, Holzman says, because Orinduik sits right on a slope within a channel system, the reservoirs on its licence area are much thicker than those that can be found on the shelf behind it where Kanuku is located. It is likely this point that has led to the identification of two enormous Cretaceous targets at Orinduik that are expected to contain in excess of 725 MMboe each.
All-in-all, 22 prospects have been identified on the block, including 11 leads in the Upper Cretaceous horizon. The majority of these have a chance of success of 30% or higher. With the Cretaceous section of the block holding approximately three-quarters of total gross prospective resources (3,936MMboe), Holzman says it is now all about drilling the horizon and proving up its potential.
“The Cretaceous horizon is where the real opportunity lies – it contains most of Orinduik’s gross prospective resources, and the majority of the targets have more than a 30% chance of success – in exploration terms, this is very healthy.”
At 40p (at writing), Eco’s share price continues to languish 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 significant demand in place for its use, suggesting the market’s response could have been 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).
Holzman tells us that he believes the positive developments on Orinduik’s Cretaceous horizon will start to be factored into Eco’s share price once a date for drilling is firmed up. This milestone should not be too far away, either, with the Orinduik partners scheduled to meet this month 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).
“At the end of last year, we approved a provisional budget and drilling programme with our partners Total and Tullow. That is still subject to a further meeting towards mid-February to analyse the recent discoveries made in Kanuku, our block, and other surrounding blocks. We will pinpoint the drilling targets for 2020. This is still the official plan,” elaborates Holzman.
“The market itself will hopefully wake up and come back again once we have a clear drilling date. Investors will start to look at the prospectivity and the prolific nature of this block and really start to understand that we have many upper Cretaceous light oil targets that will be subject to drilling as soon as practically possible.”
Should Holzman be correct in predicting that continuing news flow and progress will foster a greater understanding of Orinduik’s potential, then investors who enter now before a re-rate could be rewarded.