Eco Atlantic Oil & Gas
LON: ECO
TSXV: EOG
Synopsis:
Eco Atlantic is an Atlantic margin-focused Oil & Gas Exploration Company with materially de-risked and high-prospective impact license areas in offshore Guyana, Namibia, and South Africa. ECO is currently drilling in their BLOCK 2B
Company History
2011-2015
Eco listed on the TSX. The company procured 4 offshore blocks in Namibia and acquired 2D & 3D seismic data. Eco also obtained a farm-in partner, Tullow Oil, for the Cooper Block Namibia.
Eco gained 100% interest in the Orinduik Block, Guyana. ExxonMobil’s exploration well in the Stabroek block, Guayana, discovers +1B Barrels.
2017-2018
Eco had their IPO on the London Stock Exchange at 16p. The company reached a farm-out deal of 25% of their WI with Total Energies in preparation for drilling in Guyana.
2019
Two oil discoveries were booked at the Jethro-1 and Joe-1 well sites, in Guayana. Both wells encountered high-quality reservoirs containing mobile heavy crude. The total drilling cost for Eco was ~$10.6M for both wells.
2020
Eco released their Competent Person's Reports for Guyana stating a 29% increase in gross prospective resources. The company negotiated the reissuance and establishment of a new 10-year life cycle for all four of their Namibia Licenses.
2021
Eco spent time maturing their prospects in Orinduik, Guyana. Eco undertakes equity Investment in JHI providing Eco exposure to 2 exploration wells on Canje Block, Guyana.
2022
Eco acquired the Azinam Group and their portfolio in Namibia and S Africa. Deal reached via non-cash agreement granting AziNam 16.65% equity stake in Eco. Low-risk SA exploration well currently drilling. Orinduik Block partners to select drill targets for Guyana with an ambition to drill in early 2023. Acquired a further 6.25% WI in Block 3B/4B, South Africa.
Assets
South Africa
The recent acquisition of the AziNam Group saw Eco Atlantic acquire the company's entire exploration interest in return for a 16.5% equity stake in Eco. The deal provided Eco with a 50% working interest and operatorship in Block 2B in the Orange Basin, offshore South Africa, along with a material working interest of 26.25% in the 3B/4B Block.
Orange Basin
The Orange Basin extends from Namibia to South Africa covering an area of 191,600 km2 with 145,000 km2 of the basin located within South African waters.
In 2013, private independent HRT tested the basin’s first deepwater play and encountered thick source rocks as well as recovering light oil from several thin layers. Although the results were sub-commercial, the well data proved that the basin was efficient for generating oil.
Just recently in 2022, TotalEnergy made a significant discovery of light oil with associated gas on their Venus-1 prospect in the basin. An independent assessment evaluates Venus-1 to contain at least 3 billion barrels of recoverable oil which could produce as much as 250,000 barrels per day. Shell’s Graff-1 well also made a discovery in 2022 which is estimated to contain 2 billion barrels of oil equivalent.
Block 2B
Block 2B covers 3,062km2 off the west coast of South Africa with water depths ranging from 50 to 200 meters and is estimated to contain over 1 billion barrels of oil equivalent. The main area of interest, A-J graben, is a typical rift basin, similar to Ugandan and Kenyan plays that have major oil accumulations discovered by Africa Energy.
The block has a previous high-quality oil discovery by Soekor’s A-JI well drilled in 1988. Testing of the well flowed 191 barrels of oil per day at 36° API oil although it was not commercially viable. A 686km2 3D seismic campaign supports the up-dip prospectivity of the A-J1 discovery where the Ganzania-1 well is to be drilled.
The Ganzania-1 well is currently drilling at the site location targeting 349 MMbbl with a depth of around 2,800 meters. The Gazania-1 prospect is targeting 300 million barrels of light oil resources. The well is estimated to cost $34 million with Eco funding 75% of the well costs ($25.5 million). The breakeven price for discovery is estimated to be 5MMbbl and an oil price of US$60.
If the Ganzania-1 well is a success, Eco would consider side-tracking the well to the south beyond the fault into the Pelargonium prospect. Several other younger prospects have been identified. One such prospect, Namaqualand, is located directly above Ganzania and Pelargonium. This prospect will also be tested by the Ganzania-1 well as a secondary target
Eco Atlantic holds a 50% participating interest and is the operator of the block. Partners include Africa Energy Corp (27.5%), Panoro Energy (12.5%), and Crown Energy (10%). Prospective Resources net to Eco Atlantic: 174.5MMbbl
Block 3B/4B
Located 120-250kms offshore in western South Africa and directly south of the multi-billion barrels discoveries in offshore Namibia, Block 3B/4B covers an area of 17,581km² and lies in water depths ranging from 300-2500m.
Eco and its partners are currently reprocessing a large dataset of 10,000km² of 3D seismic surveys which will be used to define targets for a potential drilling campaign next year.
A considerable number of wells (32) were drilled in the shallower waters to the east of 3B/4B with most encountered gas shows as well as oil on the margin however their extent is believed to be localized. Encouragingly, in the area surrounding 3B/4B, overburden thicknesses decrease and the more laterally extensive Aptian source rock, similar to those in Namibia, is proposed to be oil-prone.
Eco has a 26.25% working interest in Block 3B/4B with Africa Oil being the operator and having a 20% WI as well as Ricocure having a 53.75% WI.
Guyana
The Guyana-Suriname Basin is an Atlantic-margin basin on the northeast coast of South America. The United States Geological Survey ranks the Guyana-Suriname basin as the world’s second-most prospective and under-explored offshore basins with current estimates stating that 13.6 billion barrels of oil and 32 trillion cubic feet of natural gas are still yet to be discovered
Countless discoveries have been made in the basin, with ExxonMobil hitting 23 well successes in the Stabroek license area alone, totaling an estimate of over 10 billion barrels of recoverable oil. Mobil anticipates that four floating storage and offloading vessels will be in operation on the Stabroek block by the end of 2025.
In 2019, Tullow along with Eco and other partners had two discoveries inboard of the Stabroek slope channel on the Orinduik license. Jethro-1 found 55m of net oil in Lower Tertiary high-quality sands and Joe-1 found 14m of high-quality oil pay in Upper Tertiary sands. Both discoveries reported having found heavy oil (10-15°API) with high sulfur content.
Read Eco’s Competent Persons Report for Certain Assets in Offshore Guyana
Orinduik Block
The 1800km2 Block is situated in 70-1,400m waters some 170 km offshore of Guyana and is located 11km up-dip from ExxonMobil’s recent Liza discovery (currently producing 120,000 bbl/d) and 6km up-dip from the Hammerhead discovery (60 m high-quality, oil-bearing sandstone reservoir).
The prospective resource estimates for the block are 4,527 MMBOE identified across a total of 11 Leads on the Orinduik Block with most leads having a 30% or better chance of success.
In 2019, the collective of partners drilled the Jethro-Lobe well which had oil discoveries over a 55m lower Tertiary sandstone reservoir. The prospect was estimated to hold 216 mmbbl and had a CoS of 43.2%. Later in the year, drilling commenced on the Joe-1 prospect with discoveries being made in 16m of continuous thick sandstone.
Eco’s share price soared from 70p to around 170p within the space of a few months however when fluid samples were taken in both of the wells, results suggest that the recovered samples were heavy crudes and not the light crudes preferred by refineries. This news sent the share price crashing down. Eco however has since made the case that the crude is not too dissimilar to the commercial heavy crudes in the North Sea, Gulf of Mexico, and the Campos Basin in Brazil, Venezuela, and Angola, with high sulfur content. Analysis to date suggests that while the crudes are deemed to be heavy, the oil is mobile, located in high-quality porous sand accessible via horizontal drilling.
Eco and its partners are currently considering further targets in the Block and devising drilling plans for 2023.
Eco holds a 15% WI in the block with TOQAP holding a 25% WI and Tullow being the operator holding a 60% interest.
Canje Block - JHI Investments
Eco Atlantic has acquired a 6.4% interest in JHI Associates Inc, a private company, who holds a 17.5% WI in the 4,800km2 Canje Exploration Block. Earlier this year Eco Atlantic was close to acquiring JHI’s 17.5% interest worth around $52m however the deal fell through after the parties failed to reach an agreement on the lock-up terms.
The exploration activities to date on the block have been:
Bulletwood-1 well encountered high-quality reservoirs however they were non-commercial hydrocarbons.
Jabillo-1, showed no evidence of commercial hydrocarbons
Sapote-1, recorded hydrocarbon shows while drilling. ExxonMobil continues to work to define the reservoir’s properties.
The Canje Block is operated by ExxonMobil and is held by working interest partners Esso Exploration & Production (35%), TotalEnergies (35%), JHI Associates (17.5%), and Mid-Atlantic Oil & Gas (12.5%).
Namibia
Recently, massive oil and gas reserves have been discovered off the coast of Namibia generating major interest throughout the petroleum industry. In February 2022, The Graff-1 well operated by Shell discovered an estimated 700MMbl+ barrels of oil equivalent with some reports stating the drill encountered at least one 60-m hydrocarbon layer in an upper reservoir. Venus-1’s well, operated by TotalEnergies, had a monumental discovery with conservative estimates indicating discoveries of over 3b barrels of oil equivalent.
Prior to these deepwater discoveries, drilling in Namibia had focused mainly on shallow water targets with Texaco in 1974 having a large gas discovery in the Kudu gas fields. Subsequent appraisal wells sunk by other various operators confirmed Kudu as having 1.3Tcf estimates with a potential of up to 9 Tcf. However, at the time there was a limited gas market in the coal-generating southern African region so the basin fields were not explored further.
In 2013, HRT drilled the Wingat-1 and Murombe-1 prospects with both wells encountering thick (around 200m) mature Aptian source rocks with Wingat recovering light oil from several thick lenses within the interval. Although the result was sub-commercial, the wells proved the efficiency of the Apitan source for generating oil.
Eco Atlantic was an early entrant into Namibia, now being the 2nd largest acreage holder in areas where petroleum systems have already been proven by previous drilling (HRT). The company holds permits to 4 offshore blocks in the Walvis Basin holding a large % of working interest. All the blocks are covered with 2D seismic data as well as having a combined total of ~2000km2 of 3D seismic data. In 2021, a renewed 10-year life cycle for the licensed areas was granted by the Namibian government.
Cooper Block
The Cooper Block (PEL 97) is situated in shallow waters (100-500m) and covers approximately 5,788 km2. Eco acquired 1,100 km2 of 3D seismic data in 2014. At the time, Tullow Oil and AziNam both entered as farm-in partners however in 2018, Tullow announced their departure from the Block.
Eco is the Operator of the Block and holds an 85% Working Interest. They have also partnered with NAMCOR (10% Working Interest) and Tangi Trading Enterprise (5% Working Interest).
Sharon Block
The Sharon Block (PEL 98) is situated in shallow water (100-500m) and covers approximately 5,700 km2.
Eco acquired 22,922km of 2D seismic data with their farm-in partner at the time, AziNam. The company has ambitions to acquire over 1,000km2 of 3D seismic data in the near future. Eco has since relinquished the eastern half of the Block, which was not a priority, due to the shallow section and additional requirements under the exploration license.
Eco holds an 85% Working Interest in the Sharon Block and is the Operator. Eco is partnered with NAMCOR (10% Working Interest) and Titan Oil and Gas (5% Working Interest).
Guy Block
The Guy Block (PEL 99) is situated in deep water (1,500-3,000m) and covers approximately 11,457 km2. Eco has both 1,000km2 of 2D survey data as well as 870km2 of 3D seismic data.
Eco Atlantic Oil & Gas holds an 85% working interest with NAMCOR holding a 10% working interest and Lotus Explorations holding a 5% working interest.
Tamar Block
The Tamar Block (PEL 100) is situated in deep water (2,500 -3,000m) and covers approximately 5,648 km2. 1000km2 of 2D seismic data has been acquired and has been interpreted by Eco.
Eco Atlantic holds an 85% working interest in the Block and is the operator of the license area. Eco is partnered with NAMCOR (10% working interest) and Moonshade Investment (5% working interest).
Forward-looking activities
South Africa
Drilling of the Gazania-1 Well, South Africa currently occuring
If the campaign is successful, undertake appraisal studies
Continuation of technical studies of 3B/4B Orange Basin offshore South Africa
Guyana
Announcement of drilling target in the Orinduiuk Block
Undertake Orinduiuk Block exploration campaign in 2023
Namibia
Obtain farm-out partners for Namibian blocks
Determine financing structure for Namibian blocks
Undertake exploration campaign on Namibian blocks
Overall can expect 4-5 exploration wells within the next 2 years
Resource Estimates & Working Interest Summary
Working Interest
Management Team
Moshe Peterburg
Non-executive Chairman
Over 30 years of experience in Africa. Founder of a number of private businesses, including renewable energy companies Better Planet and B ecologic.
Gil Holzman
President & Chief Executive Officer
Over 25 years of experience in the global mining and energy sectors. Successfully managed a portfolio of private and publicly listed resource and energy companies. Extensive international negotiation expertise and has completed multiple corporate acquisitions and asset mergers
Colin Kinley
Chief Operating Officer
40 years of project management and executive oversight of large-scale companies and projects in the energy, civil, and mining sectors. CEO of Kinley Exploration; Director of Marimaca Copper, Director of Excelsior Mining Corp, and CEO of Jet Mining Pty.
Helmut Angula
Non-Executive Director
Over 25 years of experience in the Namibian Government. Served as Deputy Minister of Mines & Energy. Ex-Minister of Fisheries & Marine Resources, Finance, Agriculture, Water & Rural Development and Works & Transport
Keith Hill
Independent Director
Over 35 years of experience in the oil industry including 23 years with the Lundin Group, in addition to senior positions at Occidental Petroleum and Shell Oil. President and CEO of Africa Oil Corp, Director of Africa Energy, JHI Associates Inc, Impact Oil and Gas, TAG Oil, and previously of Shamaran Petroleum
Risks
Exploration risk
As with any exploration play, there is always the risk that a well could turn out to be a duster. However, Eco has extensive 2D and 3D seismic datasets, previous exploration well data in most of the basins that the company holds assets in as well as information from nearology discoveries in surrounding blocks. All of this material supports choosing prospects that have the highest chance of drilling success and commercial discovery. It must be said that nothing is certain and only the drill bit will do the talking.
Weather Conditions Risk
This risk is more specific to the outer Orange Basin blocks. During certain times of the year, these areas can experience powerful storm fronts and waves which can pose a threat to drilling operations. Although it is likely that companies factor in this potential danger when planning their exploration operations.
Sovereign risk
Whilst South Africa, Guyana, and Namibia have had numerous E&P ventures in their country, this does not exclude the sovereign risk factor. South Africa is ranked on the Corruption Perceptions Index as 70/180 whilst Guyana is 87/180 and Namibia is 58/180. These are not that bad compared to other countries around the world.
These countries do have well-established and robust fiscal frameworks, which have seen a plethora of E&P companies operate in the country. Whilst one shouldn’t place all weighing on whether Tier 1 operates in the region, it does provide supportive reinforcement that the government and related policies can foster O&G activities.
Of significant note is that Mr. Angula, a previous heavyweight Namibian politician, sits on Eco’s board of directors. Further reducing the sovereign risk in Namibia
Capital Structure
So far, Eco Atlantic has been extremely diligent in how they have approached its exploration efforts. The team has employed a sharp business strategy by obtaining farm-in partners who have back-paid costs that Eco has spent to date. This has led to only a few capital raises being undertaken since listing which has reduced shareholder dilution. Additionally, post the COVID outbreak, Eco Atlantic has been prudent with its cash burn rate which has seen a reduction of compensation to officers, directors, and consultants.
Personal Remarks
In what could be deemed as the biggest small-cap company in the exploration and production world, Eco Atlantic presents a very compelling opportunity with a working interest in some of the world's most promising basins.
The Gaznzania-1 well in Block 2B presents a significant near-term catalyst for both company and shareholders alike. This potential company-making event targeting 349 MMbbl, is deemed to have lower exploration risk given the data interpretation and previous 1988 oil discovery on the block. If interested in taking a position, these next few days could be the final few before results are announced.
If this campaign is successful, shareholders could expect the share price to be trading multiple times higher than the current price… could shareholders even see a return to the 2019 share price highs of $2.78?
Beyond Block 2B, Eco has ambitions to undertake a follow-up drilling campaign in Block 3B/4B however operator Africa Oil Corp has yet to release further details. Don’t discount the significance of this outer block given their nearology to the recent discoveries Blocks 3B/4B could add substantial value to Recon’s asset holding.
2023 is likely to see further exploration of the highly attractive Orinduik Block in offshore Guyana which is operated by Tullow Oil. Although previous oil discoveries were deemed uncommercial given their heavy crudes during the assessment, the block’s conglomerate is eager to drill the other remaining prospects in the region especially given that the block is next door to ExxonMobil’s enormous 10b BBoe discovery.
The true jewel for Eco is its offshore holdings in Namibia. Given the recent substantial discoveries made by Shell and TotalEnergy, global interest has been sparked with many companies returning to the region after years of unsuccessful exploration. Eco Atlantic is in an attractive position holding vast working interest (85%) in 4 blocks that they can leverage in order to obtain advantageous farm-in partners. Once partnerships and project financing have been struck, one would expect Eco to move swiftly with their exploration campaigns in Namibia. Having Mr. Angula, a previous country politician, on the company's board also provides supportive avenues for the company to promptly advance its ambitions.
The prospective resource estimates net to Eco Atlantic is on an elephant scale of their own. Across their entire 8 exploration blocks, the company has a net attributed interest totaling 8,249 MMboe and 7.4Tcf.
While these blocks are still yet to be explored and brought into production, the upside potential for the shareholders currently dwarfs today's prices. Given that many of these basins have large seismic datasets plus have been significantly de-risked due to previous discoveries, it is more of a question of WHEN than IF.
What is most impressive is the management team at Eco, who so far have proven themselves highly capable of producing high-value add targets for shareholders. The company has collaborated with some of the world's leading E&P companies to secure attractive deals with which Eco has been able to retain a large amount of working interest. This sophisticated strategy has ensured that Eco Atlantic shareholders have experienced limited dilution and since inception, the company has only needed to raise US$15m yet has explored for more than US $100m. This approach is expected to continue as Eco seeks further partnerships with its offshore Namibian assets.
Whilst I own shares in this company, it is important to note that entering this close to spud presents a less attractive risk-to-reward ratio especially when the share price is currently hinged on the binary drilling risk of Block 2B in South Africa. They will either have success which will send the share price far north or they will be unsuccessful sending the price south. I encourage members of Slack Capital to heavily consider such risk and determine if the play fits their current portfolio and if it does then to devise a conservative trading strategy.
That being said given the world-class license areas that the company holds, Eco Atlantic provides a captivating long-term opportunity. Or given the size of the overall prize, the company could be at the sights of a Takeover offer if they are able to prove that any of its acreages have commercial quantities of oil and gas.
Portiss,
Thanks for the very interesting and valuable research and comments into ECO.
Can I recommend that you have a look at RLT and KKO as well?
Kind regards, keep up the good work
Polyh