Echo Energy Regulatory News (ECHO)

30 September 2019

Echo Energy

("Echo" or the "Company")

Interim Results

Echo Energy, the Latin American-focused upstream oil and gas company, announces its unaudited interim accounts for the period ended 30 June 2019.

Highlights

·; Restructuring of the Argentine portfolio consolidating the Company's focus on the Tapi Aike licence and its multi-Tcf exploration potential

·; Safe and successful completion of Tapi Aike seismic acquisition campaign

·; Extensive preparation for upcoming Tapi Aike exploration drilling campaign commencing Q4 2019

·; Rigorous evaluation of growth opportunities to maximise shareholder return

·; Continued cost efficiency focus leading to substantial reductions in administration costs

Martin Hull, Chief Executive Officer, commented:

"The first half of 2019 was a period of change for Echo, one in which we successfully restructured our asset portfolio and re-focused the Company on Tapi Aike and our growth strategy. As we continue to progress towards the spud of our first Tapi Aike well in Q4 2019, we continue to be excited by the potential identified and look forward to providing updates as appropriate. "

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Chairman and Chief Executive Officer's Statement

The first six months of 2019 have seen significant change as Echo moved successfully to restructure its portfolio in Argentina. With the completion of the restructuring, Echo has been able to improve its financial position and refocus its resources on the exploration of the Tapi Aike block and on the Company's growth strategy. Echo continued with the seismic acquisition programme for Tapi Aike which was successfully completed on time and on budget in June 2019.

Argentina

Restructuring

Echo originally secured access to the Fracción C, Fracción D and Lagunas De Los Capones ("CDL") concessions in 2017 pursuant to the CDL farm-out agreement entered into with Compañia General de Combustibles S.A. ("CGC"). The Company and CGC subsequently completed a number of workovers and drilled four exploration wells across the assets. The exploration wells were designed to test the various plays which run through the CDL licences. The results of the drilling campaign were disappointing and, while hydrocarbons were present in several of the exploration wells, they were not capable of being produced at commercial rates. As a result, the Company considered that no substantial commercial upside remained in the CDL licences while they delivered declining production to Echo Energy at an unacceptable financial return for shareholders.

The Board subsequently reviewed Echo's onshore Argentinian portfolio with a view to establishing the best way forward in terms of risk/reward balance and capital allocation. The early seismic indications from the Tapi Aike seismic acquisition campaign served to reinforce the Company's positive view of Tapi Aike as Echo's key strategic priority. Utilising the Company's funds in support of the Tapi Aike drilling campaign was therefore a key consideration.

In order to deliver this strategy, the Company negotiated and agreed with CGC an accelerated close to the initial phase of works on the CDL concessions. CGC agreed to waive any outstanding work commitments, including the previously agreed CDL seismic commitment. The seismic campaign on CDL was expected to cost approximately US$ 11 million and would have been funded 100% by Echo. CGC took on all outstanding liabilities on the CDL concessions. In addition, no deferred cash payment was paid by Echo to CGC on the agreed early completion of the initial phase. This reduced Echo's near-term capital requirements by a further US$ 2.5 million. Residual well costs from the drilling campaign in the initial phase have been fully impaired in the current financial results. Echo withdrew from its interests and liabilities under the CDL concessions prior to the commencement of the second stage of works in accordance with the terms of the farm-out agreement thereby enabling Echo to focus its capital on Tapi Aike.

In order to accelerate activities on higher margin exploration potential, Echo and CGC also agreed to revised equity and cost-sharing arrangements on the Tapi Aike licence. The prior arrangements saw Echo hold a 50 per cent. interest with an agreement to pay 65 per cent of drilling costs across the four well drilling campaign. Echo and CGC agreed an amendment to the terms of Echo's participation in the Tapi Aike licence such that Echo now holds a 19 per cent interest and pay 19 per cent of future costs, ending the previous carry arrangement and significantly lowering the Company's capital needs with regard to the drilling programme whilst maintaining a material stake in the licence. CGC also released US$ 2.06 million of Echo cash reserves previously required for the CDL Initial Phase which will be applied by Echo to fund future drilling in Tapi Aike.

Tapi Aike Operations

Tapi Aike remains one of the most exciting and underexplored licence blocks in the Austral Basin. The acreage has three previous wells that show indications of gas from drilling and logs, and historical 2D seismic and partial 3D seismic. The block also benefits from the identification of three highly prospective independent gas exploration plays and one oil play.

In June Echo announced the safe and efficient completion of the new 3D seismic survey across its Tapi Aike licence and that processing of the acquired data had commenced. Acquired seismic data is now being processed by respected independent processing houses in Buenos Aires. The processing of the eastern cube (Chiripa Oeste, 414 km2) data was carried out by Wellfield Services LTDA and completed post period. Interpretation of the processed seismic data has highlighted an amplitude feature previously recognised during the interpretation of the 2D seismic. The processing of the western cube (Travesia de Arriba, 790 km2) data is being undertaken by Seismic Prospect S.R.L.. Analyses on these processed data is currently being conducted by a team of geophysical specialists on behalf of the operator, and, independently by Echo.

In the eastern cube, Chiripa Oeste, five areas have now been selected for surface location permits and an environmental impact assessment covering these locations has been submitted to the provincial authorities. One of these five locations will be selected to drill the La Vanguardia x-1 well, the first well of the proposed Tapi Aike exploration drilling programme. It is currently anticipated that the La Vanguardia x-1 will be drilled to an approximate depth of 3,000 metres using the Petreven H-205 rig. Subsurface interpretation continues and the La Vanguardia x-1 well location and well design will be finalised once this analysis has been completed. The well currently remains on course to be spud in Q4 2019.

In the western cube, Travesia de Arriba, processing of the 3D seismic data continues. Based on current data, five broad areas have been selected in which to initiate environmental studies and commence surface permitting.

Bolivia

Continuing with last year's efforts in Bolivia, the Company has been working to progress the exploration opportunity in Huayco and Rio Salado, both in a new joint evaluation agreement with Pluspetrol Bolivia Corporation SA ("Pluspetrol") and a Technical Evaluation Agreement with YPFB (Yacimientos Petrolíferos Fiscales Bolivianos) signed with Echo in October 2018. This agreement allowed the Company to purchase and integrate three new - recently acquired and not previously available - 2D lines across the licences into the model. This information has allowed the upgrade and completion of the geological and structural model which improves any business opportunity over these assets.

The acquisition of an interest by Echo in Huayco and/or Rio Salado remains contingent on final commercial terms being agreed. Accordingly, the Company does not currently have an interest or the right to acquire any interest at this stage during the evaluation period. Echo continues to evaluate the best route to maximise shareholder value in relation to the Bolivian position.

Financial

The restructuring of the licence portfolio and early exit from the CDL producing assets meant that Echo only participated in production for the first four months of the period. The unwinding of the inventory position and removal of residual CDL assets from the balance sheet led to a total comprehensive loss for the period of US$ 7.7 million.

·; Gross administration costs of US$ 2.4 million (30 June 2018: US$ 4.2 million) reflect management's drive to reduce overheads. A reduction in the non-cash cost of share options of US$ 0.6 million for the six months ended 30 June 2019, versus the same period last year, reflects staff departures and the fact that no new issues of options to staff in 2019. Third party costs are significantly down on the prior year. Net timewriting was reduced by US$0.3 million versus H1 2018.

·; Oil revenue for the period was US$ 2.1 million with prices realised averaging US$ 52/bbl versus US$ 65.23 for H1 2018.

·; Opex costs for the reporting period only included costs to Apri 2019. Opex costs were lower than equivalent costs for the prior period on a like for like basis largely driven by the devaluation of the Argentine Peso. On the other hand, the unwinding of the inventory position of US$ 0.7million was a cost driver in the period.

·; Exploration expenses of US$ 0.3million included US$ 0.2 million of timewriting, largely for evaluation of possible acquisition targets. External consultant costs were lower than in 2018, however exploration expenditure with third parties is expected to increase in the second half of 2019 with increased evaluation activity following the receipt of the Tapi Aike processed data.

·; Financial income is generated largely from treasury placings, the movement of the Euro denominated debt against the US Dollar and offset by devaluation of Argentine Peso tax balances.

·; Finance costs are composed of an actual cash cost of US$ 1.0million with the amortisation of debt fees, the unwinding of the discount on the debt issue and the accretion of right of use assets bringing finance fees to a total of US$ 2.3 million.

·; The impairment of the CDL assets including expenditure on the EMS-1001 fracking programme and other trailing well costs, in addition to a seismic prepayment of US$ 1.3 million which was foregone as part of the restructuring, resulted in an impairment charge in the period of US$ 2.8 million.

With progress continuing apace on the Tapi Aike seismic interpretation programme, the value of intangible assets reflects expenditure on Tapi Aike seismic acquisition at the original carried cost of 65%. Having funded the full seismic programme in Tapi Aike, Echo retained a cash balance of US$ 4.1 million at the end of the period.

Corporate

Echo continued its evaluation of acquisition opportunities in line with its stated growth strategy as we look to expand our portfolio and build value accretive transactions for shareholders.

James Parsons Martin Hull

Chairman Chief Executive Officer

Consolidated Statement of Comprehensive Income

Period ended 30 June 2019

Consolidated Statement of Financial Position

Period ended 30 June 2019

Consolidated Statement of Changes in Equity

Period ended 30 June 2019

Consolidated Statement of Cash Flows

Period ended 30 June 2019

Notes to the Financial Statements

Period ended 30 June 2019

1. Accounting Policies

General Information

These financial statements are for Echo Energy plc ("the Company") and subsidiary undertakings ("the Group"). The Company is registered, and domiciled, in England and Wales and incorporated under the Companies Act 2006.

Basis of Preparation

The condensed and consolidated interim financial statements for the period from 1 January 2019 to 30 June 2019 have been prepared in accordance with International Accounting Standards ("IAS") 34 Interim Financial Reporting as adopted by the European Union and on the going concern basis. They are in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2018 and are expected to be applied for the year ended 31 December 2019.

The comparatives shown are for the period 1 January 2018 to 30 June 2018 and do not constitute statutory accounts, as defined in section 435 of the Companies Act 2006, but are based on the statutory financial statements for the year ended 31 December 2018.

A copy of the Company's statutory accounts for the year ended 31 December 2018 has been delivered to the Registrar of Companies; the accounts are available to download from the Company website at www.echoenergyplc.com.

Going Concern

The financial information has been prepared assuming the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Whilst rigorously pursuing cost control and value maximising strategies, the Group recognises that in order to pursue organic and inorganic growth opportunities and fund on-going operations it will require additional funding. This funding may be sourced through debt finance, joint venture equity or share issues. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern. The directors have formed a judgement based on Echo's proven success in raising capital and a review of the strategic options available to the Group, that the going concern basis should be adopted in preparing the financial statements.

Estimates

The preparation of the interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

1. Accounting Policies

Estimates

In preparing this condensed interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to consolidated financial statements for the year ended 31 December 2018. The key sources of uncertainty in estimates that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities, within the next financial year, are the impairment of assets and the Group's going concern assessment.

Revenue Recognition

Revenue comprises the invoice value of goods and services supplied by the Group, net of value added taxes and trade discounts. Revenue is recognised in the case of oil and gas sales when goods are delivered and title has passed to the customer. This generally occurs when the product is physically transferred into a pipeline or vessel. Echo recognised revenue in accordance with IFRS 15. We have a contractual arrangements with our joint venture partner who markets gas and crude oil on our behalf. Gas is transferred via a metred pipeline into the regional gas transportation system, which is part of the national transportation system, control of the gas is transferred at the point at which the gas enters this network, this is the point at which gas revenue is recognised. Gas prices vary from month to month based on seasonal demand from customer segments and production in the market as a whole. Our partner agrees pricing with their portfolio of gas clients based on agreed pricing mechanisms in multiple contracts. Some pricing is regulated by government such as domestic supply. Echo receive a monthly average of gas prices attained. Oil shipments are priced in advance of a cargo and revenue is recognised at the point at which cargoes are loaded onto a shipping vessel at terminal.

2. Business Segments

The Group has adopted IFRS 8 Operating Segments. Per IFRS 8, operating segments are regularly reviewed and used by the board of directors being the chief operating decision maker for strategic decision-making and resources allocation, in order to allocate resources to the segment and assess its performance.

The Group's reportable operating segments are as follows:

a. Parent Company b. Eastern Austral Basin c. Tapi Aike

d. Bolivia

Performance is based on assessing progress made on projects and the management of resources used. Segment assets and liabilities are presented inclusive of inter-segment balances. Reportable segments are based around licence activity, although the reportable segments are reflected in legal entities, certain corporate costs collate data across legal entities and the segmental analysis reflects this.

Information regarding each of the operations of each reportable segment within continuing operations is included in the following table.

All revenue, which represents turnover, arises within Argentina and relates to external parties:

Consolidation adjustments in respect of assets relate to the impairment of intercompany assets .

~Depreciation is included in administration expenses

Consolidation adjustments in respect of assets relate to elimination of intercompany assets in the Tunisian company.The Tunisian entity Ksar Hadada was dissolved on the 25 June 2019 so there is not comparative data for 2019.

~Depreciation is included in administration expenses

The geographical split of non-current assets arises as follows:

3. Revenue

4. Cost of Sales

5. Financial Expense

6.Taxation

The Group has tax losses available to be carried forward in certain subsidiaries and the parent company. Due to uncertainty around timing of the Group's projects, management have not considered it appropriate to anticipate an asset value for them. No tax charge has arisen during the six month period to 30 June 2019, or in the six months period to June 2018, or the year to 31 December 2018. 

7. Loss Per Share

The calculation of basic and diluted loss per share at 31 December 2018 was based on the loss attributable to ordinary shareholders. The weighted average number of ordinary shares outstanding during the year ending 31 December 2018 and the effect of the potentially dilutive ordinary shares to be issued are shown below.

In accordance with IAS 33 and as the entity is loss making, including potentially dilutive share options in the calculation would be anti-dilutive.

Deferred shares have been excluded from the calculation of loss per share due to their nature.

8. Property, Plant and Equipment

9. Other Intangible Assets 

Exploration and Evaluation

Physical property, plant and equipment acquired as part of the acquisition of the producing assets in Fracción C,D and LLC (CDL) were transferred from intangible assets and depleted on a unit of production basis during 2018 . A decision was made to impair the assets of CDL following the results of the drilling campaign carried out during 2018 and early 2019. Echo negotiated their exit from the CDL assets at the end of April 2019.

10. Cash and Cash Equivalents

Echo have advanced cash to our joint venture partner, this cash is held by our partner in a ring-fenced account. We recognise our equity share of the balance held.

11. Share Capital

The holders of 0.25p ordinary shares (equivalent to approximately 0.31c) are entitled to receive dividends from time to time and are entitled to one vote per share at meetings of the Company.

12. Share Premium Account

13. Share-Based Payments

(A) Share Options

Details of the tranches of share options outstanding at the year end are as follows:

The weighted average outstanding life of vested share options is 5.7 years. The weighted average price for outstanding options ranges between 2.0¢ and 95.2¢ (1.6p and 75.0p). The outstanding share options are not subject to any share performance-related vesting conditions, but vesting is conditional upon continuity of service.

 (B) Warrants Over Ordinary Shares

Details of the tranches of warrants outstanding at the year-end are as follows:

Warrants values are calculated using the Black Scholes option pricing model within the same inputs variables as discussed for share options. The weighted average price price for outstanding warrants as at 30 June 2019 ranges between 3.8¢ and 20.6¢ (3.0p and 16.2p). The residual weighted average contractual life for the warrants is 3.35 years.

14. Loans Due in Over One Year

On 22 May 2017 the Company announced that Nusakan plc ("Nusakan") subscribed for five-year non-amortising secured bonds with an aggregate issue value of €20million ("the Bonds"). Alongside the Bonds, the Company issued 169,402,469 warrants to subscribe for new ordinary shares in the Company at an exercise price of 15.1875 pence per ordinary share and an exercise period of approximately five years, concurrent with the terms of the Bonds to Nusakan ("the Warrants"). The Bonds are secured over the share capital of Echo Energy Holdings (UK) Limited. The Bonds have an 8% coupon and were issued at a 20% discount to par value. A total cash fee of GBP £1.7 million (€2 million) was payable by the Company.

The Warrants were recorded within equity at fair value on the date of issuance and the proceeds of the notes net of issue costs were recorded as non-current liability. The coupon rate for the Bonds ensures that the Company's on-going cash out-flow on interest payments remains low, conserving the Company's cash resources. The effective interest rate is approximately 21.55%. The five-year secured Bonds are due in May 2022.

Maturity Analysis

Contractual undiscounted cash flows:

15. Subsequent Events

On 9 July 2019 Echo announced that the initial seismic processing of data from the 3D seismic survey conducted over the 414 km2 eastern cube (Chiripa Oeste) had been completed. The 3D seismic on the western cube (Travesia de Arriba) of 790 km2 is currently being processed by Seismic Prospect S.R.L in Buenos Aires following the earlier completion of seismic acquisition.

In a further update on 3 September 2019 Echo announced that progress continued to be made targeting Q4 2019 for first well spud. Five areas have now been selected for surface location permits in Chiripa Oesta and an environmental impact assessment ("EIA") has been submitted to the provincial authorities.

One of these five locations will be selected to drill the future La Vanguardia x-1 well. It is currently anticipated that the La Vanguardia x-1 will be drilled to an approximate depth of 3,000 metres using the Petreven H-205 rig. Subsurface interpretation continues and the La Vanguardia x-1 well location and well design will be finalised once this technical work has been completed. The well currently remains on course to be spud in Q4 2019.