This has to be one of the most exciting periods in the history of offshore Guyana.
Indeed, the small South American country has turned into a hotbed of oil and gas discovery, and Eco Atlantic Oil and Gas (LON: ECO | CVE: EOG) was one of the first companies on the scene to snap up what could be very lucrative territory.
The firm’s latest update—and one many have been waiting on—is the spudding of the Sapote-1 well in Guyana’s Canje Block. It could very well could mean game-changing things for the firm.
Here, Eco’s president and chief executive officer Gil Holzman took time to speak with ValueTheMarkets about the scale of the opportunity on offer in detail.
Sapote-1 – a new well at the heart of an offshore Guyana boom
As mentioned, oil and gas exploration has hit its stride in offshore Guyana, with continuous major discoveries. As Holzman himself puts it:
“Offshore Guyana is the hottest oil basin in the world right now. It’s the most prolific and through our investment into JHI and our own Orinduik we have the best potential for additional discovery.”
Eco Atlantic’s exposure to the boom in particular comes from its deal to acquire a 10% interest in private company JHI Associates. JHI, in turn, has a 17.5% interest in Guyana’s Canje Block.
Canje is a highly prospective block located in Guyana’s premier basin. It lies approximately 265km northeast of the country’s capital city, Georgetown.
ExxonMobil (NYSE: XOM) is operator at the Canje Block. And, as Holzman notes, it “knows the Guyana basin better than anyone else”. Indeed, the oil major has already 20 offshore wells to date off the country’s shores, having started exploration activity in the area all the way back in 2008.
In fact, Exxon now produces 125,000 barrels a day locally. The oil major plans in place to ramp that up to 250,000 with a second FPSO. An FPSO a floating production system able to separate out the natural gas, oil, water, and impurities from subsea reservoirs.
It’s not just the prospectivity of the wider region of offshore Guyana that makes the Canje Block so special, either. There are impressive nearby discoveries, too.
Sapote-1 lies in the Canje Block’s south eastern section, around 50km to the north of the blockbuster Stabroek Block’s Haimara discovery. ExxonMobil estimates Stabroek’s gross recoverable resource at over eight billion oil equivalent barrels from multiple discoveries. Haimara encountered around 207 feet of high-quality, gas-condensate bearing sandstone reservoir.
Likewise, Sapote-1—the well recently spudded by Exxon—is also 60km northwest of the colossal Maka Central discovery in offshore Suriname. There, operators including Total have encountered approximately 164 feet of high-quality, oil-bearing sandstone reservoir.
This one discovery could triple Eco Atlantic market cap
Given its great location in a hotbed of oil & gas discovery, Sapote-1 could potentially dramatically transform Eco Atlantic.
Indeed, Holzman describes the target as “one of the largest ever drilled in on this block, perhaps in all Guyana”. So, given that “most of the discoveries made in Guyana are in excess of half a billion barrels”, Sapote-1 could well prove to be a sweet enough target to live up to the soft native fruit native it is named after.
Specifically, the intention with Sapote-1 is to test Upper Cretaceous reservoirs on the Canje Block. It should take up to 60 days to drill. The Stena DrillMax drillship will drill the well, located in 2,550 meters of water.
The well is the third drilled at the Canje Block in 2021, with the previous two drilled by Exxon failing to find evidence of commercial hydrocarbons.
However, if there is a discovery this time around, then this single well has the power to change everything for Eco Atlantic. In fact, it could “easily triple” the company’s current £57 million market cap, according to Holzman.
Excitingly, Eco Atlantic’s ambitions aren’t limited to Guyana, either. The company also boasts licences covering approximately 28,593km² off the shore of southern Namibia.
Here, the plan is to drill two high-impact deepwater wells in the fourth quarter of 2021. TotalEnergies will operate one, Royal Dutch Shell (LON: RDSA | LON: RDSB) the other.
These, Holzman points out, would make the company’s portfolio “even more attractive and valuable”.
Plenty of share price catalysts coming down the line
The same day Eco Atlantic announced the Sapote-1 spud, it also posted results for its first quarter – ended June 30.
From these figures, Holzman highlights the company’s choice to enforce a “very strict expenses regime” in the quarter. Indeed, alongside falling travel and general & administrative expenses all falling, the business also cut salaries due to reduced activity in the face of ongoing Covid uncertainty.
As Holzman explains:
“We managed to preserve a lot of cash that we always like to put into work in the form of exploration and in additional wells being drilled.”
In fact, at the end of June, the firm had close to US$5 million in cash and cash equivalents and no debt. From there, Eco Atlantic went on to raise almost US$5 million more in a private placement in July to fund the JHI deal.
Building on this, Holzman highlights his firm’s “very strong and stable financial position”, which sets Eco Atlantic up perfectly for “potentially near-term and big oil discoveries, which are already paid for”.
Overall, then, this is a well-funded company able to achieve its ambitions while making good use of its funds.
And the firm is certainly putting those funds to use, with Holzman forecasting “a lot of catalysts in the near term” when it comes to a re-rate of the firm’s share price. This includes the aforementioned drilling in Namibia, alongside drilling at another Guyana project called the Orinduik Block in the current quarter.
Uncovering the true value in Eco Atlantic
While the enormous discoveries across Guyana are courting great interest, the reality is that Eco Atlantic currently remains significantly under-the-radar.
In fact, less than ideal results from prior drilling have spooked some investors, causing the share price to sink from more than 150p in late 2019 from close to 26p today.
However, what many may not realise is that this could have—in fact—created a significant buying opportunity.
After all, as Holzman highlights, success at Sapote-1 could be transformational for the company, multiplying the value of its interest many times over.
Likewise, Eco Atlantic and its partners have already learned so much about Guyana from their efforts to date, even if the biggest rewards still remain to be found. This experience is invaluable, and all efforts so far have only given the company a greater appetite for success
It stands to reason, then, that there’s potential here to reap large rewards at a bargain price.
What’s called for is what Holzman describes as a “a fresh and objective set of eyes” to see the “huge value” the firm can create over the upcoming twelve months.
The bottom line is, Sapote-1 could prove to be the greatest discovery yet in the entire region. The time to get a piece of that discovery at this price is unlikely to come round again.