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Eco Atlantic set to exploration catalysts as it brings Total into Guyana venture

Last updated: 10:30 26 Sep 2017 EDT, First published: 09:48 26 Sep 2017 EDT

Offshore oil operations
Total will initially pay US$1mln to Eco

Eco Atlantic Oil & Gas Ltd (LON:ECO, CVE:EOG) has significantly boosted its position offshore Guyana with a new deal potentially adding another blue-chip oiler to the Orinduik exploration project.

It has landed a potential new tie-up with French major Total, putting itself in the kind of sweet spot that most investors could hope for.

Total joins Tullow, operator with a 60% stake, and Eco should have cash to cover its share of a potentially transformational exploration programmes.

Importantly, holding 15% it will retain a material but manageable equity stake in the project which is in what is becoming a high profile exploration frontier.

The project is located in an area that has already been substantially de-risked by world-class successes. In the neighbourhood, Exxon has discovered some 2.25bn to 2.75bn barrels of crude, and plans to start production from the Liza field in 2020.

Total is paying US$1mln to Eco in order to secure an option for a 25% stake in the asset, which it can exercise for an additional payment of US$12.5mln.

The option is exercisable up to 30 days following the completion of the new 3D seismic data being processed and interpreted – it is expected to take 2-3 months  from the end of the programme (September 5).

Eco will retain 15% of Orinduik alongside Tullow with 60% and Total with 25%.

Advancing Orinduik

Contractor Schlumberger earlier this month completed a seismic exploration programme, spanning some 2,500 square kilometres, and the results due in the coming months are expected to define targets for a future drill programme.

The seismic results will be a potential catalyst for Eco and they will also now trigger Total’s option arrangement.

Eco highlighted on Tuesday that drilling costs will be in the order of US$35mln per well, or US$5.25mln net to the AIM-quoted explorer.

In theory, should Total take up its option, it means that Eco will be funded to progress to exploration drilling.

Brokers says it’s a de-risking move

Panmure Gordon described it as a “de-risking” transaction for Eco and suggested that the timing of the option deal may mean that upcoming seismic results can potentially add more value to the share price.

“Whilst the block is a hotspot due to Exxon’s huge success on the nearby Stabroek block, the need for capital to fund wells would always hang over the share price even if seismic interpretation was very positive,” the broker said in a note.

“Whilst the option deal places additional emphasis on the results of the seismic, this does come at a far lower cost to shareholders, and more than justifies the dilution in the working interest in my view.”

Elsewhere, Cenkos described it as “a great deal for Eco, which will see it through a significant (although currently undetermined) programme on the block, which clearly has huge prospectivity. “

Gil Holzman ‘extremely happy’

Eco chief executive, in a statement, said: “We are extremely happy to complete this agreement with Total SA, one of the world's largest oil companies.”

“The deal not only validates the quality of the Orinduik block as a highly prospective license, it also validates Eco's long term strategy - to identify highly prospective assets in frontier basins, with favourable Petroleum Agreement terms, and with world class partners.”

He added: “The deal proceeds will recoup all our expenses on the expanded 3D program and fund us for drilling a minimum of two wells based on current well costs.

“We have approximately US$4 million in cash currently and once the Option is exercised Eco will be in a very strong position to be fully funded through the next few years which is expected to include several drill programs.

“This deal is also expected to introduce into Guyana yet another significant global player and we look forward to working with Total as well as Tullow in the years to come."

Shares were up 8.8% to 18.5p in late afternoon trade on Tuesday.

--Updates for share price--

Exciting time for Eco (Atlantic) as it passes on first seismic data to Total

Eco (Atlantic) Oil & Gas Ltd (LON:ECO CVE:EOG) CEO Gil Holzman tells Proactive they've forwarded on the first batch of seismic data shot by Tullow Oil (LON:TLW) over the Orinduik field. French giant Total has an option to take a 25% working interest in Orinduik from Eco for a payment...

on 02/22/2018