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Echo Energy managing costs in Argentinean production business

Snapshot

  • Portfolio boosted by Santa Cruz Sur deal
  • Acquired assets produce 2,481 boepd
  • Seeks to manage costs
  • Negotiating to restructure loan notes
oil workers

Quick facts: Echo Energy PLC

Price: 0.55 GBX

AIM:ECHO
Market: AIM
Market Cap: £3.91 m
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How it is doing

Production operations

On 5 February 2020, Echo revealed the positive impact of its acquired Santa Cruz Sur production assets in Argentina.

Production for the period - starting on the effective date of the acquisition, 1 November 2019, and ending on 31 January 2020 - averaged 2,481 barrels oil equivalent (boe) per day.

That average rate comprised around 560 barrels of oil and condensate per day, plus around 11.5mln cubic feet of gas per day.

Aggregate production for the period amounted to 228,249 boe.

A total of four liftings of crude and condensate took place during the period, with pricing equivalent to US$52.10 per barrel. A fifth lifting is currently in process and is due to complete in the coming days. Delivery of gas continued without disruption through the period.

Palermo Aike

On 20 January, Echo Energy PLC (LON:ECHO) told investors that drilling and wireline logging is now complete for the Campo Limite exploration well (CLix-1001), and, amid encouraging results the explorer and its partners will now move the well into testing.

The company, in a statement, revealed the CLix-1001 encountered the targeted Springhill formation, at a depth of 2,124 metres, and, wireline logging has highlighted a zone of interest which coincides with elevated gas shows.

“The presence of elevated gas shows in the target section combined with wireline log data is positive and has resulted in the company and the operator taking the decision to move to completion and testing,” Echo said.

“The company cautions that completion of the well test and analyses of the results is needed to conclusively establish the presence of producible gas.”

Echo said that testing will be enabled by the well’s completion by the Petreven H-205 rig for which mobilisation is currently being scheduled.

Tapi Aike

The initial results from the CLM x-1 well, announced 19 February, were disappointing with non-commercial discoveries made in two zones.

The well’s primary target (Lobe C) and secondary target (Anita) both contained gas but did not flow at sufficient rates in testing to be considered commercially viable.

Lobe C flowed 0.28mln cubic feet per day, with the average estimated at 0.25mln and there was no condensate. Anita was stimulated and tested at a peak estimated rate of 0.57mln cubic feet per day, with the average estimated at 0.35mln. It also yielded condensates between 7.5 to 18 barrels per day.

The company noted that the minimum threshold for the well’s commerciality was estimated at 1mln cubic feet per day. It will now consider tests of additional secondary zones in the well.

Earlier in January, Echo carried out perforation and started stimulation operations for the Campo La Mata x-1 well.

On 6 January it said that would move on to stimulate deeper secondary targets shortly thereafter.

In 2019, Echo completed a seismic acquisition campaign and conducted extensive preparations for an upcoming drill programme.

Processed data from the 414 square kilometre eastern cube highlighted an amplitude feature similar to one identified during the interpretation of the 2D seismic. Analysis focused on the geological understanding of this feature and where to drill.

More processing took place for the larger, 790 square km West Cube of Tapi Aike.

Santa Cruz Sur asset package

Echo in 2019 agreed to acquire the Santa Cruz Sur asset package, giving the company non-operated 70% interests in five blocks which host production adjacent to Tapi Aike.

The assets have two decades of production history, had 13.7mln barrels of 2P reserves at the end of 2018, and last year generated around US$31.9mln of revenue and US$8.2mln of earnings (EBITDA).

Responding to market volatility amidst the coronavirus pandemic, Echo recently moved to cut costs at its Santa Cruz Sur operations.

It said it was exploring all options available to it to preserve existing cash resources at a corporate level and, together with the operator of Santa Cruz Sur, has identified and prioritised a number of field operating cost reductions to seek to ensure that operations are sustainable at current commodity prices.

Joint evaluation in Bolivia

Away from Argentina, Echo has an involvement in the neighbouring Latin American country of Bolivia, where it is currently partnered in a joint evaluation agreement with Pluspetrol for the Huayco block in the prolific Tarija basin.

Tarija is believed to be home to 85% of Bolivia’s gas reserves.

Echo is also waiting for a permit on the onshore Rio Salado Block.

 

Debt renegotiation

Echo has sought to make changes to its debt arrangements, with the aim of deferring cash interest payments for a year.

It has already reached agreement over its £1mln loan facility (which carries 12% interest), rolling up interest into loan principal (resuming after March 2021).

The repayment schedule has also been amended - £100,000 is due in March 2021, followed by three quarterly payments of £50,000 and then the £750,000 balance would be paid in March 2022.

Negotiations are ongoing with holders of Echo’s €5mln secured convertible notes, carrying 8% interest.

The noteholders have indicated their continued support of the company, and said they will waive their default rights in the wake of March’s non-payment.

Elsewhere, the company said it continues in its attempt to amend its Luxembourg-listed €20mln secured notes, which also carry 8% interest, which was also due an interest payment on March 31.

It added that it is working to convene a noteholders meeting so that there can be a vote to enable a proposed restructuring.

Interest payments due on 31 March were not paid.

Interims

In September, the exploration company reported a US$7.87mln loss for the six months to June, including a US$2.79mln impairment of intangible assets and US$1.94mln of admin expenses.

Echo ended June with some US$4.12mln of cash and equivalents.

 

Inflexion points

More Tapi Aike test results

Palermo Aike well results

Movement on acreage in Bolivia

Economic situation stabilises in Argentina

 

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