By Dr. Michael Green

There looks to be no let-up in the speed of progress at Eco, with news this morning that rig mobilisation is underway for the Gazania-1 well in South Africa. This was accompanied by a short update on Namibia, which speaks volumes. We have to say that it looks as though investors are just starting to see the unfurling of the really enviable news flow, with plenty of drilling activity.

Eco is an oil and gas exploration company focused on the offshore Atlantic Margins and today the board confirmed that the Island Innovator rig, owned by Island Drilling Company AS, had been released and mobilised.

The rig is now under contract to Eco and its JV partners and will move on to the Gazania-1 well on Block 2B, 25km offshore the Northern Cape in Orange Basin, South Africa. The rig is expected to arrive and spud by the end of September 2022, although, as with all these sorts of matters, timing is subject to weather conditions.

The Gazania-1 prospect is targeting a 300 million barrel light oil resource. The well will take approximately 25 days to drill, and the JV partners plan to seal and plug the well after the test, with no equipment being left on the sea floor. Importantly, the partners also have approved the option to drill a sidetrack well contingent on a discovery in the main target.

The JV partnership in respect of Block 2B comprises Eco Atlantic (50% WI and Operator), Africa Energy Corp (27.5% WI), Panoro 2B Limited, a subsidiary of Panoro Energy ASA (12.5% WI), and Crown Energy AB (10% WI). If the well is successful, it means that Eco could potentially end up adding 150 million barrels of light oil resource. In our view, this potential is just not reflected at all in the current share price. As we have seen many times over in this sector, the run up to drilling and spudding the well can see a lot of attention focused on the stock.

This latest announcement also included an update on Namibia, with the company announcing the signing of Joint Operating Agreements with NAMCOR, the National Petroleum Corporation of Namibia, concerning the company’s four operated offshore Petroleum Licence (PEL) interests – PEL 97 (Cooper), PEL 98 (Sharon), PEL 99 (Guy), and PEL 100 (Tamar) where it has an 85% WI across all four PELs.

Namibia has seen two significant hydrocarbon discoveries made over the past year. Firstly, there was the TotalEnergies discovery of light oil with associated gas on the Venus prospect, located in block 2913B in the Orange Basin. Secondly, the Block 2913A discovery (JV Partners – Shell, Qatar Energy and Namcor) which represented a play opening light oil discovery at the Graff prospect in both the primary and secondary targets.

These probably represent two of the biggest global hydrocarbon discoveries this year, which serves to make Eco’s strategic acreage far more valuable. As one of the largest licence holders in the region, the company is well placed and seeking to progress its operations quite rapidly. Given what has been occurring over there, it should really come as no surprise that there is a huge growing interest in Namibia by all majors and IOC’s. With the JOA’s sorted, Eco’s blocks are now in the perfect shape for further exploration and farm out activity.

Activity does seem to be hotting up as the leading global oil, gas and energy resource Upstream Online has just spilled the beans that Chevron is set to enter a converted block offshore Namibia. The article states, “US supermajor Chevron is set to take a majority stake in a highly coveted ultra-deepwater block offshore Namibia, just north of TotalEnergies’ huge Venus discovery, according to multiple sources. Upstream understands that a farm-in deal covering what is probably one of the most sought-after licences in the Orange basin has almost been wrapped up and is due to be announced soon. If confirmed, the transaction will mark Chevron’s first entry into southern Africa since its aborted foray into South Africa’s nascent onshore shale gas play some years ago….”

At the time of the company’s latest announcement Colin Kinley, Co-founder and Chief Operating Officer of Eco had this to say, “We are excited to get underway with our drilling campaign at Block 2B in the Orange Basin offshore South Africa. A successful outcome at the Gazania-1 well has the potential to be transformational for Eco and our JV partners.”

“We are also pleased to have signed JOA’s with NAMCOR in relation to the PEL’s we operate offshore Namibia. With all of the recent operational success we have seen recently in Namibia, we are excited to be one of the largest offshore licence holders in the region and look forward to working with NAMCOR to generate value for the benefit of all.”

There is no doubt that it is a very exciting time for Eco as the company has a very strong financial position (US$37 million) to fund all its current planned exploration needs in South Africa, Namibia and Guyana. This includes the drilling of the Gazania-1 well in September and additional near-term wells on Guyana Orinduik Block and in Block 3B/4B.

Whilst looking at developments in South Africa, we must point out that reading between the lines we believe that there is a farm out deal in the offing. Last heard, Eco was waiting for satisfaction of the conditions required to complete the acquisition of an additional 6.25% Participating Interest in Block 3B/4B, Orange Basin offshore South Africa, for a consideration of US$10 million, which would give the company a total 26.5% interest in the Block.

To us all of this looks like the first step before the big boys of the oil and gas industry getting involved given the proximity to recent discoveries. The acquisition announcement did mention that the board was seeing growing interest in the entire Orange Basin and in particular Block 3B/4B. We can guess that there are likely to be more than a handful of the biggest oil companies in the world itching to get involved in this play, which would serve to offer a big increase to Eco’s return.

Truth is that to excite a big oil company they would need at least 40-50% of the block. The local player Riocure now has a 53.75% interest but in a farm out deal couldn’t go lower than 20% due to Black Empowerment legislation in South Africa – which would only free up a 33% interest. What we see going on is that Eco’s acquisition of the additional 6.25% interest could provide the balance. If the major wants a 50% stake, then Eco and its strategic alliance partner Africa Oil could demand a rich carry.

Apart from the countdown to one of the biggest drills this year globally, we clearly see that there is a farm out deal on Block3B/4B on the cards. Plus, there looks to be some developments afoot in Namibia. Together with the likelihood that drill targets for Guyana could be announced.

There is no doubt that Eco is exploring for oil and gas in some of global hotspots in todays’ hydrocarbon world – offshore Namibia and offshore South Africa, along with offshore Guyana. In January 2022 we updated our research coverage on the company with a Conviction Buy stance and a target price of 114.65p, when the stock was trading at 23.75p. There is potentially a lot of excitement to be generated in this stock over the coming months so we are more than happy to conform our stance at the current price of 28.75p.

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