Echo Energy PLC (LON:ECHO) has told investors it is adapting its production operation in Argentina to focus on gas, and, at the same time, it is taking steps to cut costs.
The moves come amidst the coronavirus (COVID-19) pandemic and weak oil prices, with an expectation of higher gas prices as the southern hemisphere moves into the autumn and winter.
The company noted that it has just extended an existing gas contract with a key customer for two further months, covering peak volumes of 4.77mln cubic feet of gas per day in June 2020, which secures an advantageous price of US$4.2 per mmbtu.
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In a statement, Echo said ten of its producing oil wells are being temporarily shut-in, reducing daily output by around 130 barrels of oil per day. It expects that these wells can be restarted within around five days, once global oil prices improve.
Echo noted that by pausing oil production from wells with low associated gas production it will also assist in the management of monthly cash costs.
The company also said it will hold onto more crude in storage, to achieve better prices in the future. Of the 25,813 barrels currently in storage, the company expects to retain around 12,613 barrels and sell around 13,200 barrels.
With the cost-cutting, the company said it anticipates a 50% reduction in cash outflows by the end of April, compared to last year’s levels.
"We have moved quickly to materially reduce our expenditure during this period of low oil prices and uncertainty arising from the COVID-19 pandemic,” said Martin Hull, Echo chief executive.
“I am pleased with progress made, in collaboration with Echo's partners, to prioritise higher-margin gas sales and focus our workover rig on the potential near term upside of rehabilitating existing wells, whilst deferring non-essential activities and maintaining critical operations.”
Echo also told investors that it's planned well testing at the Campo Limite project has now been delayed, due to travel and transport restrictions. The company has, meanwhile, redeployed the rig - which is owned by the company - to a programme of well interventions and maintenance.
The first planned intervention, as an example, will be in the Chorillos block - which is producing around 20 barrel per day (bopd) - and it will assess the production potential of a historical well. It is presently not in production but present estimates anticipate potential for around 41 bopd after a swab test saw cumulative production of 280 barrels of oil over 48 hours.
Efforts to restructure the company’s debt is ongoing, the group added.