logo-loader

Echo Energy rejigs Argentina arrangements to focus solely on Tapi Aike project

Last updated: 15:30 20 May 2019 BST, First published: 07:34 20 May 2019 BST

oil and gas operations
Drilling is planned for Tapi Aike later this year.

Echo Energy Plc (LON:ECHO) shares shot higher on Monday as the Argentina oil and gas junior reshuffled its priorities and made new arrangements that will allow the acceleration of exploration at the Tapi Aike project.

The group has agreed with its Argentinean partner Compañía General de Combustibles (CGC) that Echo will cut short its participation in the Fracción C, Fracción D, Laguna Los Capones (CDL) group of projects.

That saves some US$11mln of upcoming capex as Echo won’t fund a 3D seismic programme and some US$2.5mln of future acquisition fees will no longer be payable to CGC. Additionally, US$2.06 of the company’s cash held by CGC for work across the CDL assets will now be released.

The attention is now focused solely on the Tapi Aike exploration project, which is seen as a potential ‘multi trillion cubic feet' gas project.

Echo’s decision to walk away from the CDL assets comes after disappointing well testing results - which confirmed sub-commercial discoveries - and a review of the project that concluded there is limited upside to the projects.

READ: Echo Energy “very excited” for rest of 2019

Its participation in the Tapi Aike has concurrently been restructured from the original arrangement, which would have seen the AIM-quoted firm hold 50% of the project and pay 65% of the costs.

Going forward, Echo will own a 19% stake in the asset and it will pay a proportionate 19% share of the project costs.

The CDL savings and the removal of the ‘cost carrying’ arrangement with CGC means that the funding barriers to advance Tapi Aike have reduced significantly for Echo.

It is now intended that the exploration of Tapi Aike will be accelerated.

Seismic exploration work at Tapi Aike continues as planned and Echo highlighted that initial results reinforce ‘the exciting prospectivity’ previously seen from 2D data.

The company expects to complete a seismic survey by the end of the first half, and it aims to begin drilling operations later in the year, with a fourth quarter spud anticipated.

New boss Hull sees a ‘turning point’

Echo Energy, meanwhile, also confirmed the appointment of Martin Hull as the company’s new chief executive.

"I strongly believe that this transaction marks a significant turning point for Echo Energy, providing a much firmer financial footing, nearer term drilling and clearer strategic focus on high reward exploration,” Hull said.

“The restructuring retains a potentially highly material stake in Tapi Aike, offering significant potential upside for equity investors, whilst substantially reducing our capital requirement and accelerating drilling. In addition to delivering the Tapi Aike exploration programme my team and I will now focus on new business development to expand our regional footprint."

In a note to clients, analysts at ‘house’ broker ShoreCapital commented: “With Echo continuing to press ahead with its seismic programme ahead of an exciting drilling campaign at Tapi Aike, we continue to highlight the considerable unrisked potential offered by this high impact project.”

In afternoon trading, shares in Echo Energy were nearly 24% higher at 3.12p.

 -- Adds analyst comment, updates share price --

FTSE starts flat, Unilever jumps on ice cream overhaul - Market Report

The FTSE 100 has opened flat, with the largest gain coming from multinational consumer goods heavyweight Unilever. The company lifted more than 5% in early trading after launching plans to sack 7,500 workers as part of an overhaul of its ice cream business. Over in the pharmaceutical...

2 hours, 10 minutes ago