Eco Atlantic (LSE:ECO | TSXV:EOG)
Eco Atlantic has formed a new renewables company to develop an exclusive pipeline of low-cost, high-yield solar energy projects.
It represents a major structural investment into renewables by the Africa-focused oil and gas explorer.
Bosses said the move added a “highly relevant and attractive asset” to its wider portfolio.
The new company, called Eco Atlantic Renewables, will be 70% owned by Eco Atlantic and 30% owned by renewable energy developer Nepcoe Capital Partners.
It was formed to tap into the attractive economics driving renewable solar energy demand, and to support Eco Atlantic’s growth over the next decade.
The joint venture has secured exclusivity to a potential pipeline of more than 2GW of solar photovoltaic projects in Southern Europe.
2020 full year results reinforced Eco Atlantic’s strong cash position, with $18m in the bank and zero debt. A current £50m market cap company primes the company for a re-rate as it broadens its focus into new renewables growth markets.
Eco Atlantic co-founder and CEO Gil Holzman said:
“The creation of Eco Atlantic Renewables is very exciting, and the recent shift in energy market dynamics presents compelling, near term opportunities and the potential to grow yet another ground-breaking independent energy company.”
Eco Atlantic will provide a shareholder loan of up to $6m for its 70% stake, to be repaid from monetising solar PV assets, from third party investment or from future project cash flows. Eco will retain its majority interest in the JV on repayment.
First solar builds
The JV’s first acquisition is the 100% owned 10.57MW Kozanic project in Greece, acquired on 25 January 2021 for €1.1m. This is a fully-licensed and permitted ready-to-build project with an IRR of 9% unlevered and 13% levered.
The JV is also in advanced exclusive negotiations for a 31.25MW project in Spain.
Eco Atlantic Renewables is targeting 12%-18% IRR for each of its solar projects, with each held in a separate Special Purpose Vehicle (SPV). This SPV structure will help aid funding and asset-level deals, as well as setting up Eco Atlantic for agreements with state utilities.
In its first full year of operation, Eco Altantic Renewables is targeting the development and construction of 100MW of operating grid-connected projects as well as securing the rights to 800MW of projects.
European solar projects represent some of highest-growth renewables markets in the world, Eco Atlantic noted, with “advantageous land prices in prime locations and with premium offtake prices”.
Regulated revenues and long-term fixed power purchase agreements also make these attractive and sustainable investment opportunities.
Gil Holzman noted:
“Our decision to form this new majority held renewable energy company was partly driven by a lack of oil and gas acquisition opportunities that are as good and as prospective as the ones we already hold.
We are not a management team that likes to sit and wait for outcomes. Following several months of extensive strategic work and identification of multiple projects by the management team and Board of Directors, this exciting opportunity has crystalised.
“The creation of Eco Atlantic Renewables is a clear demonstration that Eco Atlantic is responding to the changing marketplace. We have structured the new venture in such a way that our oil and gas assets in Guyana and Namibia remain the core of our business, we have retained adequate near term financing and both of our regions continue to demonstrate significant potential for our shareholders.”
Holzman said his company was assessing the potential for shareholders to directly participate in the growth of the new renewables JV.
As part of the deal, Eco Atlantic retains the right to nominate a majority of the Eco Atlantic Renewables board. The renewables company will remain independent of Eco Atlantic in terms of management and governance, as well as any future equity or debt finance funding.
More upside in Guyana and Namibia
The company as a whole will maintain its focus on oil and gas exploration, seeing considerable upside from its offshore Guyana and Namibia assets.
Eco said it will be able to deliver significant value for shareholders from these projects as soon as its Orinduik Block partners Total (LSE:TTA) and Tullow Oil (LSE: TLW) finalise drill target selection in Q2 2021. The Orinduik Block in offshore Guyana is next door to the ExxonMobil (NYSE: XOM) Stabroek block, where the US giant has discovered more than 9 billion barrels of oil equivalent.
Eco Atlantic has a substantial track record of being able to successfully negotiate farm-out deals on its projects, and Guyana is no exception.
December 2020 also saw Eco Atlantic successfully renew all four of its licenses in Walvis Bay in Namibia, where together its assets have the potential for over 2.3bn barrels of oil equivalent.
Eco Atlantic began trading on Canada’s TSX-V market in 2011, teaming up with Tullow and Total in Guyana ahead of its dual-listing in London in 2017.