Echo Energy shares slide on 'disappointing' gas discovery

(Sharecast News) - Latin America-focussed upstream oil and gas company Echo Energy announced a non-commercial gas discovery at the Campo La Mata Exploration well in the Tapi Aike licence on Wednesday, following completion of testing on the lower secondary target, being 'D3' or 'Anita', and the primary target, being 'Magallenes 20' or 'Lobe C'.
The AIM-traded firm said the lower secondary Anita target was perforated over an eight metre interval between 2,395 metres and 2,403 metres, and then mechanically stimulated.

Following clean out operations, the secondary target flowed at surface at an estimated rate of up to 0.57 million standard cubic feet per day, with an estimated average rate of 0.35 million standard cubic feet per day.

The Anita target also yielded condensate with an API gravity of 50 degrees, with a flow rate as measured at the well head at an estimated 7.5 to 18 barrels per day.

Echo said the presence of condensate was in line with the mud-log, with 25% of higher-end non-methane components, and with the Anita target elsewhere in the basin.

The primary Lobe C target was perforated over a three metre interval between 2,214 metres and 2,217 metres, and mechanically stimulated.

Following clean out operations, the well flowed at surface at an estimated rate up to 0.28 million standard cubic feet per day, with an estimated average rate of 0.25 million standard cubic feet per day.

No condensate was retrieved from the interval, which was in line with the mud-log showing 93% methane.

To achieve the threshold of commerciality, it was expected that the well would require a stabilised production rate across the intervals of approximately one million standard cubic feet per day, which was not achieved from the Anita and Lobe C targets.

As a result, testing of the shallower Magallanes 60 interval, which was the upper secondary target of the CLM x-1 well, and the Magallanes 40 interval was now under consideration, with the objective, in aggregate with the flow rates achieved from the intervals already tested, of seeking to exceed the commercial threshold.

Echo said those additional sand intervals showed elevated gas shows during drilling and, while there could be no assurance that further testing or commerciality of the well would follow, further technical work would now be undertaken by the Tapi Aike partners to aid the consideration of whether testing of those additional intervals should be undertaken.

In the interim, the CLM x-1 well would be shut in for evaluation, and the well head pressure would be measured during this time.

While the lack of commerciality from the tested intervals was "disappointing", Echo said the CLM x-1 well had proven the presence of a working petroleum system on the Chiripa Oeste 3D seismic in Tapi Aike, with the class III amplitude versus offset (AVO) characteristics being a successful predictor of the presence of gas.

The data and information collected to date from the CLM x-1 well would be used to calibrate and further enhance the predictive capability of the 3D data acquired last year, to identify other drilling locations that could be commercial.

Following the gas discovery as a result of the well result, it was expected that the Tapi Aike partnership would qualify for an extra year on the first exploration period.

An extension would take the current exploration licence phase to four years expiring on 7 September 2021 without additional commitments, enabling additional technical work to identify commercially viable drill locations.

The operator of the Tapi Aike licence would request the additional year from the Santa Cruz Province, and no issues were expected in obtaining the additional licence year.

Echo added that the Tapi Aike partnership was evaluating the independent plays in the recently-processed western seismic, or Travesia de Arriba, with a view to drilling a well in that area later in the year.

Separately, the company said testing operations at the recently-drilled Campo Limite, or CLix-1001, well at Santa Cruz Sur were expected to begin, as scheduled, in the second half of February.

"It is a disappointment that our initial exploration well at Tapi Aike has returned non-commercial flow rates from the tested intervals," said chief executive officer Martin Hull.

"Data from the CLM-x-1 well will now be used to calibrate and further inform our subsurface model and the joint venture partnership will use this enhanced dataset to identify future drilling locations on the licence It is anticipated that the second Tapi Aike Exploration well will spud in the second half of 2020."

Hull added that at Santa Cruz Sur, the firm expected to begin testing "shortly" on the recently-drilled Campo Limite well.

"We look forward to updating the market on the results of the CLix-1001 testing operations in due course."

At 1500 GMT, shares in Echo Energy were down 26.83% at 1.5p.