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Eco Atlantic - most undervalued oil exploration play of 22' ?

  • Shell recently made Graff-1 hydrocarbon discovery in Namibia

  • Eco Atlantic (Eco) is the largest offshore acreage holder in Namibia

  • Eco is planning to spud a high impact Gazania well in Q4 in nearby acreage. Eco is an operator with 50% interest.

  • Gazania is a cheap well (20 MUSD), close to shore, targeting 350 mln bbl recoverable.

  • Gazania is a robust, "missed-pay" prospect, de-risked by a downdip discovery well in 1988.

  • Eco Atlantic's market cap is 4 -10x lower than the other oil & gas explorers with upcoming high impact wells.

We have been watching ECO Atlantic (ECO) for the last 2 years - patiently waiting for the comeback of this skilled explorer, which had positioned early in the three hottest offshore oil & gas regions: Guyana, Namibia and South Africa. Guyana has proven reserves in excess of 12 Bln bbl and is a playground of majors such as Exxon, Total, Hess. Offshore Namibia/South Africa is an emerging play, with Shell, Total, Exxon already in the basin and discoveries since 2019 delivering in excess of 1Bln bbl. Recent acquisition of Azinam by Eco Atlantic makes the company one of the most attractive junior oil & gas explorers and adds high quality acreage in South Africa's Orange Basin just to the south of Shell's recently made Graff-1 discovery and Total's Venus prospect (drilling). Eco and partners plan to spud Gazania well in this highly prospective acreage in Q4 22'. Azinam transaction details can be found in Eco Atlantic press release. Transaction is expected to be completed by end of January 2022. Azinam is a private company owned by Seacrest Capital and PGS (seismic company). Azinam will receive 16.5% stake in Eco Atlantic by issuance of the new shares.

High impact wells planned in Africa, including Gazania, Graff-1 and Venus wells. Source: IHS Markit.

What are comparable peers trading at?

Typical market cap of junior exploration company targeting a high impact well reaches 400-500 MUSD before the spud of the well. Eco Atlantic currently trades 4-10x below it's comparable peers. In our view this can be attributed to the stock being significantly oversold as a result of 2019 heavy oil discovery in Guyana in Orinduik block, which had turned into corporate governance scandal for operator Tullow Oil. Eco Atlantic did not have significant catalysts to lift the company in 2020/21, however, acquisition of Azinam portfolio, 50% share of Gazania well and recent Shell discovery in Orange Basin change the game.

Furthermore, Eco Atlantic holds large and attractive acreage holding in two hot exploration basins. Eco is a prime acquisition targets for majors or oil companies backed by private equity that kept limited investments in exploration and will need additional resources.

Table showing market caps of other explorers with high impact wells (planned or drilling).

CGX Energy's share price shows how explorers can re-price in run up to the drilling of a high impact well. We already seeing a share price move in Eco Atlantic as a result of Azinam acquisition and nearby Graff-1 discovery. If successful, Total's Venus and CGX's Kawa-1 wells could add to further re-pricing.

CGX Energy stock price development.

Potential 2022 Catalysts for ECO Atlantic

  • Azinam acquisition - PENDING

  • Shell makes discovery in Orange Basin - CHECK

  • Total makes discovery in Orange Basin

  • CGX and Fronterra make discovery in Guyana

  • Farm-ins into Eco licenses

  • Spud of Gazania well in Q4 22 in Orange Basin

  • Drilling announced in Guyana blocks

  • Oil price increase on low supply and high demand

Eco Atlantic properties

Azinam and Eco Atlantic combined acreage in Namibia in blue. Eco Atlantic is the largest offshore acreage holder in Namibia. Source: Eco Atlantic website.


Namibia saw limited exploration over the years, with only uncommercial discoveries made. High resolution 2D and 3D seismic was acquired offshore Namibia in recent years by PGS and lead to juniors and majors entering the acreage. Shell's Graff-1 and Total's Venus wells in the Orange basin have been long awaited. Shell's Graff-1 well is shaping into a potentially large discovery (according to rumors), with Venus data expected in the next weeks. Eco Atlantic was early entrant into Namibia and is the largest acreage holder in Namibia. Eco holds acreage in the areas where petroleum system is already proven by previous drilling. Eco forms a highly attractive acquisition target for new majors wanting to enter the basin.

Eco Atlantic position in South Africa after Azinam merger in blue. Source: Eco Atlantic website.

South Africa

Through the acquisition of Azinam, Eco Atlantic owns significant acreage position in Orange Basin, south-east of Shell's discovery. Gazania well (Block 2B) is a drill ready prospect, where Eco owns 50% and is an operator. The planned spud for the well is in Q4 22' and the rig is currently being contracted.

There is already pre-existing discovery downdip of Gazania well, which was drilled in 1988 on 2D seismic and found mix of residual and live oil. The well is interpreted to have tagged Gazania prospect around oil water contact. 3D seismic data acquired in recent years supports extension of discovery to the east, which will be tested in the upcoming drilling campaign. The well is targeting 349 mln bbl (Best Estimate Gross Prospective Resources). Other partners in the license include: Africa Energy 27.5%, Panoro Energy 12.5%, Crown Energy AB 10%. Gazania is a shallow water well (150m) and the cost of the well is estimated to be c. 20 MUSD. This is a cheap offshore well. The project is located c. 20 km from the land and breakeven price for discovery is estimated to be 50 mln bbl and 60 USD/bbl oil price. This is significantly cheaper than many frontier projects, where breakeven discovery size can be 150-200 mln bbl. For those interested to learn more about Gazania you can check out technical video from Africa Energy: We will share our review of geology and exploration plays in Orange Basin in the next write-up.

Conceptual geological section showing Gazania prospect. Source: Africa Energy company presentation.

Gazania well and nearby prospects.

Eco Atlantic acreage position in Guyana in blue.

Guyana Eco holds 15% in Ordinuik block in Guyana where heavy oil Joe and Jethro discoveries were made in 2019. Discoveries may be commercial and are currently being evaluated. Further drilling targets are also being assessed, with focus on light oil plays. According to recent communication by the company, Gazania well in South Africa is likely to be followed by well in Orinduik block in Guyana. In 2021 ECO acquired 6.4% share in private company JHI and indirectly owns 1% of Exxon's Canje block.

South Africa and Namibia in an urgent need for energy

Southern african countries heavily rely on coal in their energy mix.

Southern African countries belong to the region where coal is the main source of energy - contributing to 60% of generated energy. This is a huge contrast to other regions of Africa where coal contributes to less than 10% of generated energy.

Over the last years coal reserves in Mozambique/South Africa have been declining and impacting the growth of southern african grid capacity. There is a high demand for cheap energy in this region. Lack of energy is limiting economic growth and keeping more people below the poverty line. Renewables are part of solution in the region, but stable baseload sources are desperately needed.

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