The Guyana oil discoveries need more capital expenditure than expected but are still producible, according to Eco Atlantic Oil & Gas Ltd (LON:ECO)(CVE:EOG).
Shares in the oiler dropped on Wednesday following a disappointing update on the quality of the reservoir, revealing heavier crude than expected with high sulphur content.
WATCH: Eco Atlantic's Gil Holzman discusses analysis on Joe and Jethro discoveries
Extra investment will be needed to flow it to surface, although Eco Atlantic is hoping to tap into the market gap left by Venezuela, where production has tanked leaving many refineries on the US Gulf Coast thirsty for its heavy oil.
The Jethro-1 discovery has 8,500 PSI pressure which increases drive efficiency, while the 90 degrees Celsius of estimated flowing wellhead temperature will boost oil mobility.
The AIM-listed oiler is planning the next steps with joint venture partners Tullow Oil plc (LON:TLW) and Total SA (LON:TTA), potentially testing additional targets, as the block is estimated to hold 20 prospects.
SP Angel echoed the market opportunity for heavy oil, mentioning in a note that this update should be “taken into context” considering high-sulphur oil has been produced in many basins such as the North Sea, Gulf of Mexico and Angola.
Analysts at Hargreaves Lansdown did not question the market potential, but the outcome in terms of returns.
"Heavy and sulphurous crudes are expensive to refine and as a result attract bargain basement prices, that significantly undermines the commercial value of Tullow’s Guyana assets – although the company hasn’t given up hope of finding more profitable oil elsewhere in the basin," equity analyst Nicholas Hyett said in a release.
“The issue is the relative challenge of surfacing the oil. In our case we see many supporting ingredients that suggest the oil is commercial and producible,” chief executive Gil Holzman told Proactive in an interview.
“I think the market is extremely overreacting, especially the size of the prospects we have there and the additional exploration programme that we are about to table next year,” Holzman concluded.
Shares dropped 50% to 63.3p on Wednesday afternoon.