It will pay US$7mln in cash plus US$1.5mln worth of shares, each priced at 2.91p, and potentially US$1.5mln of deferred consideration contingent on reserve increases before October 2020 – as part of the deal Echo pledges to fund the vendor’s costs in a new well planned in the fourth quarter.
The transaction will give Echo non-operated 70% interests in five blocks which host production.
These assets are located in the Austral basin, adjacent the flagship Tapi Aike exploration project.
Echo will support the transaction with an equity raise, conditionally agreeing to issue £4.85mln of new shares priced at 2.5p and a €5mln convertible debt facility with Lombard Odier Asset Management. It additionally issues share warrants over a further 74.2mln new shares, exercisable at 3p.
The acquired 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).
Echo highlighted that it is intended that the assets’ natural decline curve would be offset via a programme of well workovers.
"This acquisition is a significant milestone for Echo and demonstrates that we are delivering on our growth strategy,” said Martin Hull, Echo chief executive.
“On completion, the acquisition would mark a positive rebalancing of the portfolio to provide both exciting exploration upside coupled with highly material revenues for a company of Echo's size.
“Not only will these assets broaden our footprint strategically within the Austral Basin, but with material positive cashflow they will add optionality in terms of how we finance the business in the months and years ahead.”
Hull added: “Importantly, we are acquiring the assets at an attractive price and a substantial discount to proved reserve valuation, with the potential to maximise the upside of the resource base as we look to access the portfolio's 2P opportunities.
“This value accretive transaction will create a new platform from which to grow Echo and adds many catalysts to our existing drilling programme at Tapi Aike."