Echo Energy PLC (LON:ECHO) told investors that it has successfully restructured its relationship with Argentinean firm Compañia General de Combustibles (CGC) with a new arrangement that puts immediate focus on optimising capital allocation.
The small cap exploration and production firm said that the new terms allow it to cease commitments to ongoing pre-drill expenditure at Tapi Aike. It will at least temporarily withdraw from the project, which was 19% owned by Echo. It will retain an ability to re-enter the ‘western cube’ of the licence area.
"We have taken a series of steps in recent months to reinforce our financial platform and deliver innovative mechanisms to reduce upfront cost while maintaining both exploration and development optionality,” Martin Hull, chief executive officer of Echo Energy said in a statement.
“We continue to adapt Echo's strategy for the current oil and gas price environment, with a clear focus on production, cost reduction and on investing where we can most effectively add value for shareholders.
“We are therefore delighted to have restructured our relationship with CGC which will enable us to sharpen our near term strategic focus on our low-risk production and substantial development and exploration opportunities at Santa Cruz Sur,” he added.
Echo will have no funding requirements attached to the licence – where slated programme includes ongoing pre-drill work.
The company noted that in the period before the option is exercised, it will be saving around US$36,000 per month in operating costs – and the cost to enter the option (US$339,000) is equivalent to the amounts that Echo would otherwise incur under the prior arrangement for technical work already executed but not yet settled.
Payment to enter the option is deferred until either Echo receives an expected US$1mln VAT refund from the Argentinean authorities, 12 months from signing the option, or once the well spuds.
The option is exercisable at a cost of US$503,000 which is also equivalent to the cost of technical work which has already been completed. Meanwhile, Echo can still exit the project without further cost.
Hull concluded: “It is important that we retain optionality and can, at the company's discretion, participate in the drilling of the next well at Tapi Aike should we elect to following assessment of the technical data and prevailing commercial circumstances.”