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Eco (Atlantic) Oil & Gas Ltd to buy stake in JHI Associates Inc to gain exposure to Canje Block

Eco also announced a private placement with strategic partner Africa Oil Corp. and Charlestown Energy Partners LLC to raise about C$6.1mln

Eco (Atlantic) Oil & Gas Ltd (LON:ECO, TSX‐V:EOG) said it agreed to acquire up to a 10% interest in JHI Associates Inc, a private Canadian deepwater exploration company, giving Eco immediate exposure to an active drilling programme in the Canje Block, offshore Guyana.

The Canje Block is operated by ExxonMobil and held by working interest partners Esso Exploration & Production Guyana Ltd (35%), Total E&P Guyana B.V. (35%), JHI Associates (BVI) Inc. (17.5%) and Mid-Atlantic Oil & Gas Inc. (12.5%).

The 2021 multi-well exploration programme on the Canje Block seeks to test the extension of the prolific hydrocarbon system which has resulted in over 9 bln barrels of oil equivalent of recoverable resources being discovered in the adjacent Stabroek Block since 2015, said Eco.

Acquiring the JHI stake will increase Eco’s presence in the Guyana-Suriname basin to include a three-well drilling programme, with the first two firm wells on the Canje Block drilling in 2021 and at least one on the Orinduik Block, subject to partner approval. 

The Jabillo-1 well is currently being drilled on the Canje Block with results expected in July, while the Sapote-1 well, in the eastern portion of the Canje Block, is scheduled to be drilled in the third quarter of this year.

“While we eagerly anticipate resuming drilling activity on our Orinduik block next year, pending partner approvals, and we have made sure to preserve sufficient funding for that, we are very excited that we now have two imminent Guyana wells in our portfolio as well as additional multiple prospects inventory on the Canje Block,” said Eco chief executive Gil Holzman.

“Since 2014, Eco has strongly focused on the hydrocarbon potential offshore Guyana, and this strategic deal with JHI marks the beginning of a wider presence and potential increased future collaboration in the basin.” 

Eco subscribed for 5.0mln new shares in JHI at a price of US$2.0 per share, representing 6.4% of JHI’s enlarged share capital, and has been issued a warrant to subscribe for a further 9.16mln new shares at an exercise price of US$2.0 each for an 18-month period. If the JHI Warrant is exercised in full, Eco will hold a 10% interest in JHI.

In addition, Keith Hill, a non-executive director of Eco, will join JHI board.

“We are very pleased to have Eco team up with the two most knowledgeable operating partners in the basin and believe the Canje Block has the potential to hold resources comparable to the world class Stabroek Block which is undoubtedly the most successful exploration campaign in recent history,” said Hill.

“Combining this with the holdings in the Orinduik Block, Eco is well positioned to be part of the historic oil development in Offshore Guyana,” he added.

Success at the project would be “material” for Eco, said analysts at broker Berenberg. 

“Exxon has not provided firm guidance on the Jabillo-1 prospect; however, previously published information indicates pre-drill estimates of up to 1bnbbl… A 1.75% indirect interest would clearly result in net exposure of 17.5mmbbl in the event of a discovery on that scale.

Based on the fiscal terms of the Orinduik Block, where Eco holds 15%, the analysts calculated an unrisked pre-drill net present value of USD6.0-7.0/boe, equating to cUSD105m-120m net to Eco versus a current market cap of circa US$60m.

“Drilling success should provide material NAV upside and de-risk the Sapote-1 well and any additional prospects on the Canje Block.”

Strategic partner lifts stake in Eco

In a separate statement, Eco announced a private placement with strategic partner  and Charlestown Energy Partners LLC, a private equity firm, to raise about C$6.1mln (£3.6mln)

Africa Oil subscribed for 5.9mln new shares in Eco at a price of C$0.41 each and will be granted the same number of warrants to acquire common shares at the same price over a two-year duration.

Charlestown Energy has also subscribed for 9.0 mln new shares at C$0.41 each and will be issued the same number of warrants on equivalent terms.

As a result, Africa Oil will increase its interest in Eco to 19.99% and Charlestown Energy will lift its stake to 4.51%, both before any exercise of warrants.

The subscription by Africa Oil is a related party transaction.

“Our strategic partners at Africa Oil are further increasing their shareholding through the placement, and we welcome the investment from Charlestown Energy Partners which provides Eco with additional funds for the JHI transaction and enables the second well on Canje Block, Sapote-1, and preserves enough cash for the drilling in our Orinduik Block,” said said Eco CEO Holzman.

“Eco and Africa Oil are committed to jointly seek, analyse and fund exploration opportunities, and Eco greatly appreciates their technical contribution and capital support as we move forward.”

Analysts at broker Berenberg said in their view the JHI deal “is a positive piece of business development, providing near-term drilling with potential to generate material NAV upside in the event of success”.

The broker’s price target was adjusted to 125p from 135p, taking into account the new shares to be issued in the placement and updated currency moves.

–Adds broker comment–

Read More: Eco (Atlantic) Oil & Gas Ltd to buy stake in JHI Associates Inc to gain exposure to Canje Block

2021-06-28 05:24:00

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