Eco Atlantic Oil & Gas (LSE:ECO) told investors today that 3D seismic has revealed expanded resource targets at its Orinduik Block, an encouraging sign for its option agreement on the area with major oil player Total. The company rose 5.8pc, or 1.8p, to 32.8p after reporting that the latest set of data on the 3D seismic survey has helped to identify ‘many more interesting features and targets’ across the block.
Eco added that all the data interpreted on Orinduik so far has firmed up previously outlined targets and identified additional, potentially sizeable, structures. Interpreting this additional data has meant processing the 3-D seismic has taken longer than expected, but Colin Kinley, Eco’s chief operating officer, said multiple exploration targets could significantly boost resources and economics.
Any additional discoveries will be encouraging for investors, given that Eco is currently waiting for Total to decide on whether to acquire a 25pc working interest in Orinduik out of Eco’s 40pc stake for $12.5m. If it does choose to exercise this option – Eco’s CEO Gil Holzmann told us he expects a decision within 3-4 months in February – then Eco will be fully funded for its share of the costs of up to four exploration wells.
The 1,800km2 Orinduik Block is in the prospective Suriname Guyana basin, South America near a series of major discoveries by oil giant ExxonMobil (NYSE:XOM). Alongside Tullow Oil (LSE:TLW), which owns a 60pc stake in Orinduik, ECO is currently processing and interpreting 2,550km2 of seismic data on the block.
Kinley said: The existence of multiple exploration targets on the block will be very significant, not only in the resource numbers, but also in the economics of this shallow water play, in terms of both drilling and potential development for our partnership, and for Guyana. The dataset will be released to Total as per the Farm-out Option agreement, and we believe this thoroughness with regards to processing and interpretation, should lead to a heightened resource estimate to that based on the historic 2D seismic.
“Eco continues to work closely with all parties, including Total, to ensure that upon completion of the interpretation and delivery of all data, a decision with regards to the previously announced Farm-out Option can occur in a timely fashion. We are pleased that we have the opportunity to work closely with some of the world’s leading explorationists and look forward to working the entire team together as we narrow down our initial drilling targets on the path forward.’
Last month, we wrote that for a business with a market cap below £50m, Eco has an impressive number of strings to its bow. Firstly, it has a stable cash balance of CAD$16.4m (£9.3m), which could soon increase by a further $12.5m (£8.9m) if Total exercises its option. Not only does this fully fund the firm for its existing projects, but it also allows it to go out and explore further – especially considering it now has the hefty weight of African Oil Corp behind it.
Secondly, and perhaps most importantly, Eco is taking great effort to stick to its stated strategy of targeting early-stage opportunities in highly prospective, under-explored, politically stable jurisdictions. This has led it to end up in Guyana and Namibia before many of the major oil players and to partnerships with big names like Total, Tullow Oil and African Oil. And with mammoth names like ExxonMobil circling the areas it is based on, who knows what could happen?
As Holzmann put it to us at the time: ‘At the sign of first oil, we could become the target of some sort of rich deal by one of the big players who doesn’t need us to do the development and exploration for them. If they like our assets, then I can think of many business scenarios with numerous companies.’
With the shares coming off a bit over the last two months and only rising slightly today in spite of such promising news, it could still be worth having a punt on Eco in anticipation of a jump later this year. Once Total makes its option decision, the floodgates could open.