Eco Atlantic (Eco)’s acquisition of an increased stake in Block 3B/4B (offshore South Africa) for a total consideration of $10m (c85% equity) plus a £10mln fundraise at a premium to the price is a clear positive, says Berenberg.
The deal provides Eco with increased exposure to highly prospective exploration acreage that is likely to provide drilling catalysts in 2023, though during the second half of 2022 the focus is likely to be on the Gazania-1 well.
“The placing increases South African representation on the register and ensures that Eco remains well funded for activity across the portfolio regardless of the outcome of the Gazania-1 well – on completion, the company will have US$38m in cash versus an expected net well cost of cUS25mln.
Gazania-1, offshore South Africa, currently is scheduled to take 25 days to drill and complete the well, which is targeting over 300mmboe gross (Eco 50% and operator) across the Gazania and Namaqualand structures.
"The fiscal terms in South Africa are very attractive (5% royalty and 20% tax, after generous capex deductions), which – combined with a 35% chance of success – contributes to an expected monetary value (EMV) of the well of $497m (109p per share)."
Success here would be transformational for Eco, added Berenberg.
Elsewhere, Tullow’s results from the Kanuku licence, offshore Guyana, are likely to set the agenda for Orinduik where it is the operator and Eco has a 15% interest.
Buy Eco (Atlantic) is the broker’s view with a target price of 126p