High hopes for Eco Atlantic in Guyana
CEO Gil Holzman is confident of a major offshore discovery in Guyana following promising exploration findings
Guyana has been transformed from a hydrocarbon backwater into one of the world's most exciting oil plays in recent years. ExxonMobil has made 13 major oil discoveries in its Stabroek block alone, totalling around 5.5bn boe, and Eco Atlantic CEO Gil Holzman is convinced he can replicate this success.
Frontier exploration and production company Eco Atlantic (with a 15pc share) is preparing to launch a drilling campaign with its partners Tullow (60pc) and Total (25pc) in the Orinduik block offshore Guyana.
"The Stena Forth drillship will sail westwards towards Guyana," says Holzman to Petroleum Economist as his Tullow-contracted drillship leaves West Africa on the way to the first target. "Its course will take around two weeks—then we will prepare to spud the first well."
An initial competent person's report (CPR) was prepared in August-September 2018. Holzman says. "It was based on a 3D seismic that we acquired and processed, and only took the cretaceous targets into consideration."
After the assessment, a discovery was made in the tertiary layer of ExxonMobil's neighbouring Hammerhead prospect. This revealed a clear extension into the Orinduik block, prompting the partners to request a full review of the 3D dataset.
Consultancy Gustavson Associates independently reassessed the partners' Guyana assets to be just short of 4bn bl, between a potential high of 7.2bn bl and a worst-case scenario of 2.01bn bl. "After a few months of hard work, they upgraded the original CPR, which was quoting 2.9bn bl of potential resource, to almost 4bn bl, taking into account additional tertiary targets," Holzman explains.
“The hydrocarbon presence is not even in question”
The updated CPR estimated a 43.2pc geological success rate for both drilling targets, with an appraisal of 214.5mn bl at Jethro-Lobe and 148.3mn bl at Joe, the second target. "The hydrocarbon presence is not even in question," says Holzman, pointing to the extension of Hammerhead. "The geological success rate is a very high score. The same goes for the quality of sands. We know that all the channels on the block are full, the same as over the boundaries in the other Stabroek discoveries."
In Holzman's view, the real questions only concern the integrity of reservoir and where the oil is trapped.
The three partners will focus on a lower tertiary target for the spudding of the first well at Jethro-Lobe, with total depth stretching into the cretaceous. "We budgeted at $45mn, which suggests [a cost of] about $6.5mn to Eco Atlantic," says Holzman. "We calculated 43 days for the entire well, from spud until target depth."
Despite a slight delay to mobilise the drillship, Holzman is quick to stress that it won't affect the cost of the initial well. "We start paying for the rig the minute Tullow Guyana take ownership, which is the day they [Tullow] release the rig. We start counting from the day it begins mobilising," he says.
Source: Petroleum Economist
If all goes smoothly, Holzman says the process could be completed in less than 43 days. "[We are being] quite conservative," he explains. "[because] it's the first well and the target is very deep. We added all the mobilisation and demobilisation cost, extra casing."
By comparison, the second prospect at Joe, which will be immediately drilled by the Stena Forth Drillship after Jethro-Lobe, is budgeted to cost less than half as much as the first target. "It's a bit shallower," Holzman says. "The rig will already be in operation, so everything is going to cost a bit less. The second well is going to cost close to $20mn, so that's $3mn net to us."
The company also has plans to expand its drilling campaign later in the year. In April, Eco Atlantic raised $17mn through the sale of over 16mn shares at 80p per share.
The injection of cash will allow the company to examine the results of its current campaign and target further prospects later this year and next. "The money has been raised to drill an additional five or six wells after this campaign," Holzman says. "Hopefully there will be a discovery in both Jethro-Lobe and Joe, then we will go back to the drawing board and reprocess and reinterpret the entire 3D dataset, both on the west and east sides of the block." The share sale leaves Eco Atlantic with around $35mn in cash—$9.5mn allocated for the first two targets and $25.5mn for future drilling.
Eco Atlantic CEO Gil Holzman is confident
If the partners are successful and achieve a commercial discovery, one of the big questions will be the breakeven cost of any oil discovered. Holzman explains that while a lot will depend on the flow rates and size of the discovery, Phase 1 of ExxonMobil's Liza prospect, which will output 120,000bl/d by 2020, already provides a point of reference.
"The breakeven number for oil in Guyana is $25/bl," he says. "Having said that, they're operating in water that is a little deeper so it might even be the case that our breakeven will be a bit less." But with the current price of oil at $65.62, the margin could be anywhere between $25-65.62/bl.
Holzman is keen to stress the company has a good working relationship with the Guyana government, despite ongoing political uncertainty. In December, the David Granger administration suffered a vote of no-confidence; this is likely to trigger an election later this year but for now the process has been stalled by an appeals process.
"We have good relations in Guyana," he says. "We applied for the block in 2014 with the then government, and then there were elections in 2015. The new government honoured the petroleum agreement and signed it." He says the company maintains a close relationship the with the department of oil in the president's office.
Beyond Guyana, Holzman says he is also a big believer in the potential of Namibia, despite drilling success so far proving elusive . "We're very happy with the blocks. Two of them are drill-ready," he says. "The world's biggest companies—Total, Shell and ExxonMobil—are each going to drill at least one well in the next 12 months. I think Namibia will prove to be the next big oil province."