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Echo Energy Plc: THE INVESTMENT CASE

Echo Energy to follow a strong Latin American beat after Bolivian intro

Echo has ‘two fantastic opportunities’ in Huayco and Rio Salado in Bolivia
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INVESTMENT OVERVIEW: ECHO The Big Picture
Bolivia has two big neighbours that are crying out for gas
Few oil and gas companies have joined AIM surrounded by as much expectation as Echo Energy Plc (LON:ECHO).
 
Established through the refinance and relaunch of Independent Resources by the team that built the hugely successful Sound Energy PLC (LON:SOU), and chaired by its chief executive James Parsons, Echo has been dubbed Sound II.
 
New chief executive Fiona MacAulay, who joined Echo five weeks ago from South Atlantic explorer Rockhopper, acknowledges the Sound link but recent moves suggest its path is likely to be very different, certainly in respect of where their interest lies.
 
For a start, Hannam & Partners recent appointment as Echo’s new broker is a big sign of intent for a company currently valued at about £39mln (at 11p).
 
Hannam & Partners is the boutique set up by colourful financier Ian Hannam, dubbed ‘King of the Dealmakers’ for his role as a mover and shaker among the mining and oil titans in the last decade.
 
Exactly the right brand for Echo says MacAulay, who adds it would be “incredibly disappointing” if Echo is the same size in three years.
 
“We are small, agile, and don’t mind taking a risk, so this is absolutely the way for us to go.”
 
The broker also has a strong Latin/US contingent with Spanish speakers and there is no mistaking that Latin America is where her interest lies.

WATCH: Echo Energy 'in the right postcode' with Bolivian assets - CEO Fiona MacAulay

Bolivia 'a fantastic opportunity'

That already includes Bolivia, where Echo has ‘two fantastic opportunities’ in Huayco and Rio Salado.
 
These are 'multi-Tcf potential' gas assets with Shell on one side and Spanish giant Repsol on the other.
 
Repsol has already started drilling its acreage and Shell is slated to start in the next six months.
 
Huayco is at an earlier stage, but here Echo will reprocess seismic data with the option of taking an 80% operated stake if it decides to move to the drill phase.
 
Rio Salado surrounds Huayco, though different licences, and the seismic extends across both said MacAulay.
 
So for little more than the cost of the work at Huayco, Echo gets to assess the potential of an area of 250 sq km which includes the Rio Salado acreage.
 
It will incur costs of between US$1-1.5mln to carry out the seismic, for which it is funded, but a decision to drill, if that’s what the company decides after the technical work has been completed, will need more cash.
 
MacAulay is excited by the potential.
 
As well as contracts to supply gas to Argentina and Brazil that it needs to fulfil, Bolivia has a growing domestic need and the government is keen to get as much exploration underway as possible.
 
In addition, the infrastructure is in place with pipelines and processing facilities close by, while UK – Argentine relations have thawed to the point where Echo is being offered UK export finance to ship to Argentina.
 

Scope for M&A

MacAulay’s CV shows spells at Mobil, Amerada and the start of the international exploration business at BG so Bolivia is likely to be only the beginning of the journey.
 
Central America and even places as far north as the Caribbean are also on the radar.
 
After three months getting the right people in place, the next year will all be about the portfolio, making sure each of the bits are filled, there is adequate newsflow, milestones people can recognise and a balance of risk.
 
“That will involve some high risk/ high reward exploration and some lower risk assets, but there has to be the potential to add value, growth needs to be material. “
 
“A lot of small companies have underutilised Latin American assets”.
 
And the role of a consolidator is something that seemingly appeals.
 
“A few management teams should be nervous.”
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Echo has ‘two fantastic opportunities’ in Huayco and Rio Salado in Bolivia

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