ECHO.L Regulatory News (ECHO)

15 April 2020

Echo Energy plc

("Echo" or "the Company") 

Argentina Operational Update

Santa Cruz Sur monthly cash outflows reduced by 50%

Echo Energy, the Latin American focused upstream oil and gas company, provides a further update on production and operations, and on progress in relation to cost reduction and cash management initiatives to ensure cash flow positive operations at Santa Cruz Sur and substantially reduce costs at the corporate level.

Production and Operational Update

Daily production and operations in the field continue with delivery of produced gas to customers continuing without interruption. Production over the period from 1 November 2019 to 10 April 2020 reached an aggregate of 393,254 barrels of oil equivalent (boe) net to Echo (including 88,728 barrels (bbls) of oil and condensate and 1,827 million standard cubic feet (mmscf) of gas).

As a response to prevailing oil prices and the Company's expectation of achieving higher gas prices moving into the southern hemisphere autumn and winter, the Company and its partners in Santa Cruz Sur have decided to focus field operations on the production of gas and, as part of this initiative, ten producing oil wells have been temporarily shut in, reducing gross oil production by approximately 130 bbl of oil per day in the first instance. Shutting in oil wells that have low associated gas will enable resources in the field to focus on gas production and will also assist in managing ongoing monthly cash costs. The temporarily shut in oil wells can be brought back online in around five days when global oil prices recover.

To further preserve value, and as a result of progress made in reducing operating costs at Santa Cruz Sur, the Company confirms that of the 25,813 bbls of oil (net to Echo) currently held in storage, it now intends to sell only approximately 13,200 bbls of oil (net to Echo) in the mid-April cargo, holding the remaining 12,613 bbls of oil in field storage tanks with the intention of selling these barrels at a later date. 

Cost Reduction and Cash Management

Substantial progress has been made with cost reduction initiatives in the Santa Cruz Sur assets as a response to prevailing commodity prices. At the end of April 2020 the Company and its partners expect to have reduced monthly operating cash outflows at Santa Cruz Sur by 50% over 2019 levels through substantial cost reductions of ongoing operations and deferments or cancelation of non essential activities in the current environment whilst maintaining safe and sustainable operations.

Additionally, the Company and its partners are pleased to confirm an agreement to extend an existing gas contract, for further two months until 30 June 2020, with a key customer covering a peak volume in June 2020 of 4.77 mmscfd. The extension secures advantageous pricing of US$ 4.2 per mmbtu (calculated with the official exchange rate of the Government of Argentina). The Company also confirms that cash receipts of US$ 360,434, as indicated in the Company's 25 March 2020 announcement, have now been received and customers continue to pay for delivered volumes in line with normal payment terms.

At a corporate level, in accordance with our previously stated aim of preserving cash, defferals and cost reductions are being rigorously pursued. Through a combination of contract renegotiation, cost cutting and expense deferrals which started to come into effect from 1 April 2020, monthly general and administrative outflows will be reduced by around 50% of corporate budget. All Echo Board members have agreed to defer 25% of their fees/salaries for a period of 3 months with effect from 1 April 2020.

Campo Limite Test Update

Due to the ongoing international travel restrictions as a result of the COVID-19 pandemic, key personnel and equipment required to continue testing of the Campo Limite well from outside of Argentina have been delayed. As a result, a decision has now been made to temporarily suspend the completion and conventional inflow testing of the well at the present time until there is clarity as to when the present restrictions will be lifted. The Company looks forward to resuming the exploration well test when conditions allow and reiterates that this project remains a priority 2020 growth project for the Company and its partners.

As a result of the decision to temporarily suspend the completion and testing of the Campo Limite well, the Eagle workover rig, owned by Echo and its partners in the Santa Cruz Sur assets, has accordingly been temporarily redeployed to commence a standard programme of well interventions and maintenance. The first well intervention being undertaken, in the Chorillos block, is assessing the production potential of bringing a historical well back online in a small field that currently produces around 20 bopd. The new production potential of the currently non-producing well is now estimated at 41 bopd when brought into production, following a swab test that produced a cumulative 280 bbls of oil over 48-hour period.

As recently announced by the Company, progress in relation to the restructuring of the Company's existing debt is ongoing and the Company looks forward to updating shareholder on progress in due course.

Martin Hull, Echo's Chief Executive, commented:

"We have moved quickly to materially reduce our expenditure during this period of low oil prices and uncertainty arising from the COVID-19 pandemic. 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. Combined with continuing progress in the restructuring of Echo's debt, these efforts provide the Board with significant confidence for the future."

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Note

The assignment of Echo's 70% non-operated participation in the Santa Cruz Sur licences is subject to the authorisation of the Executive Branch of Santa Cruz's Province, which is part of the overall process of title transfer that is proceeding as anticipated.

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.