Small cap oil exploration firm Eco Atlantic Oil & Gas (ECO:AIM) is teaming up with the big boys for a significant drilling campaign offshore Guyana this summer.

Along with its partners Tullow Oil (TLW) and French outfit Total, Eco will drill two wells on the Orinduik block.

The first will go after the Jethro-Lobe prospect, estimated to potentially hold 250m barrels of oil equivalent (boe), while Eco chief executive Gil Holzman tells Shares the identity of the second target should be revealed in the next few weeks.

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Eco reckons Jethro-Lobe has a 44% chance of success, though house broker Berenberg settles for a more conservative 20%. Year-to-date shares in the company have doubled to the current 78p.

The net cost to Eco of drilling Jethro-Lobe is put at $6.7m. With $26m in the bank following a farm-in payment from Total, the company has plenty of cash to fund this well and a second, likely cheaper well, as the initial $6.7m includes the cost of mobilising and demobilising a drilling rig.

WHEN WILL THE MARKET GET THE RESULTS?

The rig in question has already been secured and will head to Guyana in May, with initial results from the first well likely to come out in July or August.

Holzman notes that both wells will be cased, or in other words lined with a large diameter pipe, which will allow the wells to put on production if hydrocarbons are discovered.

Guyana has been an area of industry focus for a number of years with US oil giant ExxonMobil making several large discoveries. It is set to drill an appraisal well on the latest of these finds, Hammerhead, in the second quarter.

Tullow observed alongside 2018 results that it was ‘technically pretty evident’ that the Hammerhead discovery extends into the Orinduik block.

Berenberg notes: ‘An appraisal well on Hammerhead in Q2 2019 should provide a resource estimate. A 300m boe discovery would imply a net value of $44m, or 21p net to Eco Atlantic, assuming 15% of the discovery extends into Orinduik.’

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Issue Date: 06 Mar 2019