A Pareto Securities report addresses how the various joint venture wells of the firm derisk potential upside to its share price.
In a Sept. 17 research note, analyst Tom Erik Kristiansen reported that Pareto Securities raised its target price on Eco Atlantic Oil & Gas Ltd. (EOG:TSX.V; ECAOF:OTCMKTS; ECO:LSE) after the energy company and its partners discovered oil at the Joe prospect on offshore Guyana's Orinduik block. The new target price is GBp235, up from GBp200, and compares to Eco Atlantic's current share price of GBp156.
Kristiansen highlighted that this new oil discovery, and the second consecutive discovery in the Tertiary fairway, helps derisk these same-play prospects and thus, potential upside to the company's share price. The new Joe discovery boosts the total discovered resources on the block to more than 370 million barrels gross. The second discovery at Tertiary helps derisk further upside potential of another roughly 430 million barrels of oil equivalent.
"If proven up by further drilling success (next wells to be drilled toward the end of 2020), this would lift our valuation of Eco Atlantic to about GBp250 per share before attaching any value on the deeper potential at the block," commented Kristiansen.
The analyst added that Carapa-1, a neighboring well that Eco Atlantic does not have an interest in, slated for drilling by year-end, also could have a similar effect. "If successful, this would help derisk the shallow water Cretaceous fairway on Eco Atlantic's acreage that is yet to be tested."
Generally, regarding all of Eco Atlantic's joint Guyana assets, Kristiansen wrote that "while several milestones remain and the uncertainty is high, we estimate greater than five times' upside potential to the current share price if the deeper potential is proven up by future drilling success. We see downside to about GBp120 per share if all future exploration wells are unsuccessful."
As for funding, Eco Atlantic has the necessary capital for at least five more wells.
Overall, Kristiansen pointed out that "with its recent discoveries and exposure to the hottest exploration region in the world," Eco Atlantic makes an attractive acquisition target, most likely for the other large oil companies in the area, including its partners Total and Qatar Petroleum.
Pareto has a Buy rating on Eco Atlantic.
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Disclosures from Pareto Securities AS, Eco Atlantic Oil & Gas, September 17, 2019
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