Echo Energy share price, company news, analysis and interviews

Echo Energy plc (LON:ECHO) Chief Executive Officer Martin Hull caught up with DirectorsTalk to discuss the new gas contracts, delivering on strategy, improved creditor situation, their recent production update and progress in 2023.

Q1: Martin, could you give us more detail on the news regarding the gas contracts that you released, and explain why it is so helpful to Echo Energy?

A1: We’re really pleased with these contracts, they reflect the hard work we’ve done with our partners to get the best commercial deal.

So, what we actually announced was two new gas sales contracts where we have locked in prices and volumes for the next 12 months. The sales under these contracts actually start in May this year and they will end in April 2024. The committed volume is 4.8 million cubic feet a day and the weighted average price is $4.48 per MMBtu. Importantly, that’s an increase on last year.

Another really important feature, and it’s really a very positive feature, is that the buyers will pay a cash advance of $1 million gross. That money is available to us  now, even though sales don’t actually start until May and there’s no financing costs associated with that cash.

Additionally, we’re building flexibility in terms of the volumes so we’ve got a guaranteed buyer and a price but lots of flexibility to makes sales on the spot market if those prices go higher.

Q2: What can you tell us about the impact on the company and how it helps deliver on your strategy?

A2: These contracts deliver 3 key things:

• The price is up on last year. In a tough market where international prices have recently weakened, that’s a real win and increased prices means increased revenues and it’ll boost our cashflow, that goes straight to shareholder value,
• Also, we’re getting the upfront cash advance of $1 million gross. That is paid now without any costs, and that’s a great way to fund a business like ours and fund our growth strategy. We can put that money to work straight away driving production growth.
• Lastly, there’s the volume flexibility and the advantage of that is huge. In some ways we’re getting the best of both worlds, we’re getting downside protection with the guaranteed price but we’re also getting upside exposure with the flexibility around the volumes. In a seasonal gas market like Argentina, where there are big swings between summer and winter gas prices, that flexibility allows us to trade our gas and to take advantage of the best possible price at any given moment.

Q3: Now, your creditor situation is also improving materially, could you talk us through that, and what it means for your overall financial position?

A3: It is clear that the pandemic was a difficult time for the business, like many other companies we couldn’t sell some of our products and hence our revenues declined. That resulted in building up a trade creditor balance.

Now, things have changed and we are in a very different position. As we have discussed, demand for our product is up and we’re securing good or even very good prices. We are seeing that progress come through to our balance sheet so at the end of June 2022, our latest interims, our share of JV creditors was about $12 million, today we are estimating that it is now reduced to $9.3 million at year end. That is a significant move and it’s a move in the right direction. More than that, if we’re using the current international exchange rate, that falls much further still to less than $5 million, again that’s a real change from where it was. Now, I think that demonstrates the real progress that we’re making in the business and it’s turnaround from the problems of the pandemic.

The other thing I think we announced and it’s worth noting is that cash balances, we had cash balances of more than $1 million at the beginning of this year, again real progress.

Q4: I saw your recent production update, it seems like encouraging progress. What are your thoughts?

A4: Yes, you’re very right, it was really an encouraging production update that we gave, and it’s positive to see production growing and the benefits of the efforts that we’ve been making over the last 12 months really coming through.

I guess I’d highlight two things:

• Over the whole year of 2022, the company produced a total of more than 530 thousand barrels of oil equivalent, most of that was gas but the metrics is barrels of oil equivalent. That’s a substantial number, it really is, for a company of our market size.
• Beyond that the Q4 figures were up, again, and significantly up on the quarter before. Total volumes were up quarter on quarter by around 13%. Even more positively, Q4 represented the 9th consecutive quarter of liquids growth, that again is real progress.

Of course there is much more to do, we’ve already set out our near term plan to grow production beyond 2,000 barrels a day equivalent and we’re continuously working towards that. Obviously growing production takes time and investment, and like all companies we have been seeing some cost inflation in the business, at least in Argentine Peso terms. These increases in revenues through the new gas contracts and also the upfront payments and the reduction in creditors all enable us to advance that growth and drive forward the production increases.

Q5: So, it sounds like a really good start to 2023?

A5: Absolutely, definitely a good start with strong and growing production, increased prices and an improving balance sheet.

We consider Echo Energy to have real potential, our assets deliver multiple growth options through the workover campaign and the infrastructure upgrades. We continue to have a very large reserve position, relative to our current production, and with the success of balance sheet restructuring last year, we are now excellently placed to really capitalise on those opportunities.

So, again, a very good start to 2023.

Echo Energy plc (LON:ECHO) Chief Executive Officer Martin Hull caught up with DirectorsTalk to discuss result of the bondholder meeting, the key points of the restructuring, operational progress and what’s in store for the company beyond the near term.

Q1: First off, why is today’s news so important for Echo Energy?

A1: Today’s news is really positive for the company and for all of our stakeholders. By reaching agreement with our bond holders, the people who own our debts, we are finally now able to restructure our balance sheet. It’s something we wanted to do and frankly needed to do for a long time.

It marks a real step change in the business. It’s a break from the past and it enables us to move forward onto much firmer financial footing. I must say I’m very grateful to the bondholders for their constructive discussions and really their ongoing support.

We’ve made a lot of progress recently operationally, and of course that’s something that the team and I are very focused on and we’re keen to maintain that momentum as we continue to increase production. But today’s announcement is very much part of the overall picture for the business, and it is really very much part of continuing that positive momentum.

Q2: Could you just remind us of the key points of the restructuring?

A2: Although it’s been a rather complicated process, the deal itself is very simple. So, what we’ve agreed to do is to convert the majority of our outstanding debt into equity at a price of 0.45p. That price is a large premium, it’s more than 70% to our current share price, and I’m must say that’s a real vote of confidence in our equity from our debt holders and we believe it is strongly creative to shareholder value.

So, the remaining debt about €10 million of bonds is extended until 2032 and critically at an interest rate of only 2%. Financing a business at such low cost in this market really is extraordinary, it is cheaper than any mortgage you’re likely to see out there and certainly cheaper than the UK’s government’s 10-year debt priced at the moment. That is a sense of a scale of what we have achieved with this agreement.

Overall, the company’s long term debt reduces from more than €30 million to €10 million and is now extended by 10 years, again, it really does transform our balance sheet.

Q3: Now, you mentioned operational progress in recent months. Could you just provide us with an update?

A3: So, you’ll remember a few months ago you and I spoke about our announced plan to increase production by 40%. We did an interview which broke that plan down in a lot of detail and I would encourage investors to revisit that and look at the detailed presentation.

What I’m really delighted to be doing is now delivering on that plan. So, we’ve achieved the first priority of delivering and installing the new power generators, we’re on track to completing the second priority, which is to upgrade the compressors, including at Oceano, and we made announcement about positive progress on that earlier this week. We’re also making progress in upgrading our rig and bringing forward the time when we’ll be opening up our extensive well portfolio.

Now importantly, we are already seeing the benefits of those efforts in our production. Q3 production was up on Q2 and in fact, it marked the eighth quarter in a row of liquids production increase. Perhaps more importantly, we’ve also seen a significant increase in the production capacity, we are now being consistently producing at rates of over 1,600 BOE per day. We’re already well on the way to meeting our near term targets.

Q4: What’s in store for Echo Energy beyond the near term?

A4: Our priority remains delivery of the near term production growth plan and I’m very focused and the team is very focused and so is our partner very focused on doing that in Argentina as we speak.

Nevertheless, we believe there remains big potential, really huge potential within the assets in excess of the 40% production increase. This is something we’ve talked about before and you can see our extensive reserve portfolio. What we want to do is access that so we have an extensive portfolios of workovers in the pipeline and plans to grow through production through the workover programme and we also want to bring those extensive reserves into production.

The transformation of the balance sheet following today’s announcement really brings all over that forward and that potential within reach. We are no longer spending money servicing debt, instead we can invest it into our assets.

Echo Energy plc (LON:ECHO) Chief Executive Officer Martin Hull caught up with DirectorsTalk for an exclusive interview to discuss their latest production & operational update, production and infrastructure enhancement plan and other opportunities in the portfolio.

Q1: Martin, this morning Echo Energy put out an important RNS. Can you just tell us a little bit more about that?

A1: This morning’s announcement is really very important and it’s also a very positive one. It provides the market with two key updates on important bits of information, the first is the Q2 production update and secondly, we’ve also announced an agreement with our partners for a very clear and detailed near term plan to increase our production.

Q2: Can you tell us more about the production update then first?

A2: So, we’ve announced a strong quarter of production, total average daily production across oil and gas was 1,400 barrels of oil equivalent a day, total liquids production was up again and it’s the seventh quarter in a row that liquids production has increased. Look, that that’s great news and it’s real testament to the work that’s been done in the field by the operational teams and the planning that’s associated with that.

Importantly in this quarter, we also had a big milestone as we upgraded a compressor in the Oceano field. In order to do that, we took the field offline for 35 days as we undertook the work, but since we brought it back, the production has been very encouraging, production is up over 20% which is great news.

So, all in all, to have produced these strong production rates for the quarter whilst also upgrading the infrastructure is really very encouraging.

Q3: Now, you announced today a production and infrastructure enhancement plan, why have you announced this now?

A3: The ability for us as a company to increase production levels from our Santa Cruz Sur assets is really the result of the right choices that were made during the pandemic. We created a stronger operational platform, despite the challenges, and we can now build on that.

So, having stabilised the business, we are now ready and we’re very keen be able to pivot towards growth, growth that we believe exists within the portfolio, within these assets and also with that growth, now is the time to take advantage of the current momentum in commodity prices.

So, in May, our revenue increased by over 100% versus April and that’s been supported by new gas contracts, which were at large premium to last year. This increased revenue is really a catalyst in now been able to proceed with the production increases that we’ve announced.

I think it’s very important to stress that this plan is in addition to the workover plan, one which I’ve talked about previously, those workovers remain additional opportunities and will provide further upside in due course.

For now we’re very focused on the near term production increases, which provide maximum bang for our buck. Also importantly, this plan has been agreed by all the partners in the joint venture and with our key stakeholders in the field.

Q4: Could you just talk us through then the production and infrastructure enhancement plan?

A4: Absolutely and again, this is really important and positive milestone for the company, it’s the first time that we’ve been able to come to the market with a detailed plan and a timeline to deliver a material increase in production.

So, the plan is designed to increase production at the Santa Cruz Sur asset and also to improve the quality of our liquid blends for those assets, and hence to get the highest average price for our sales liquids. Over a six month period, the partners intend to increase total production by approximately 40% from the levels that we’re in today and now if achieved, it would increase the company’s net production to around 2,000 barrels of oil equivalent a day. Also, I want to stress that the preparation for some of these activities is commencing immediately.

So, how will we do that? Well, the production increase is going to be driven by recommissioning and bringing back into production existing oil wells which are currently offline, and we estimate we’re going to do about 30 plus wells. These wells will be gradually brought back into production over that six month period.

In addition to bringing those wells back online, we’re going to increase and upgrade our infrastructure so that we can sustain, but also contribute to the elevated production levels.

In terms of the infrastructure, we’ve got three operational priorities:

First is to increase the electrical generation capacity so we’re going to install new generators to some of our fields, we estimate that this will take about a month.

Second is the maintenance and optimisation of the compressors and remember, we’ve done that with one of our compressors in the Oceano field, and we saw the positives of that, but we’re going to do it now with our other compressors. That will allow us to increase the volumes of gas that can be processed and critically sold via the main gas export pipeline to the customers in Buenos Ayres where we get the highest prices. Now, we think this will take around three months to achieve those compressor upgrades but we’re also going to do it with the intention of minimising the disruption to existing production so we’re going to continue producing and try and optimise things as we go.

Thirdly, there’s going to be the installation of a new impurity removing facility for our liquids and this will substantially increase the quality of all our blends, enabling us to command a premium price for the product that we produce. Installation and commissioning of these facilities we estimate at the moment to be around four months. To emphasise the importance of that and the value of that impurity removal facility, to give you an example, the difference in the sales price between our lowest quality blends and our highest quality blends can be up to $30 a barrel. Therefore you can see that by improving that, from moving from low quality to high quality, it can have a huge positive commercial impact on the company.

I’d also say, I mentioned some timelines there, we are planning to do these upgrades in parallel, at least some of them, so it’s not going to be one after the other but we’re working to optimise things and do them in parallel.

Q5: Can you give us any more detail then?

A5: Well, specifically on the wells which is obviously a key driver to the whole production increase, what we’re going to do is we’re going to use our existing pulling rig, it’s called the Eagle rig, and field personnel already employed by the Santa Cruz Sur  joint venture partners. There’s some work to do to upgrade the rig and this is being programmed and worked through as we speak.

The installation of the additional power generation capacity will actually be the first activity and we expect to start that in the next 10-14 days, once contracts have been signed and the arrangements are in place so we are going to put additional generation capacity in three of our five wells.

Again, once all the wells are aligned and the power generation and compressor infrastructure upgrades been completed, we expect production increases net Echo Energy of 40%, which is approximately 600 barrels of oil equivalent day and we’ll do that by the end of the six-month period.

Q6: How much will this cost?

A6: So, this is something we’ve been very focused on and we only wanted to bring it to the market once all the partners had agreed and we could really cost it out so it’s been a big, big piece of work to get to here.

Net to Echo, we expect the delivery of these activities to cost just below $1.5 million with the expenditure spread over six month period and that’s $1.5 million of CapEx so for example, the impurity removal facilities are expected to cost net to the company 70% around $400,000.

Importantly, notwithstanding our existing Santa Cruz Sur joint venture creditor balance, some of them we’ve been very focused in keeping the market updated on, the partners view is the currently we think that we can fund a significant portion of this cost from existing, and of course soon to be increased cash flows and revenues from the assets themselves.

Again, this is something we’ve talked about a little bit before, but by significantly increasing production and revenues, we really drive a virtuous circle of cash flow that improves the production performance and allows us to be more flexible going forward with a stronger financial position.

Q7: Finally, what can you tell us about other opportunities in Echo Energy’s portfolio? Where did they sit?

A7: Our immediate strategy is very much to deliver organic growth from Santa Cruz Sur assets and the plan that we’ve announced today does this from the existing well stock, it doesn’t require new wells, it’s just our existing well stock. However, across our portfolio, we’ve got many other opportunities across the risk reward spectrum which is a great position for us to be in. With the additional cash flows which we’re going to deliver from this plan that we announced today, I will again enable us to broaden the scope of choices that we can make in bringing additional reserves and resources into production, reserves and resources that already exist and we know about and we want to bring them into production as quickly as possible.

Our focus today is very much on the plan that we’ve announced. So, again, the plan doesn’t include the well workovers that we’ve talked about before, they remain out there as future opportunities so an additional to that.

Of course, we’re also working very hard on other opportunities in our portfolio. We’ve talked about the new gas developments potential at Monte Aymond and also, when we have the cash flow, the successful testing of the Campo Limite well. They sit out there into two clear opportunities for us in the future.

We work very closely with our partners and we’re looking forward to doing that and updating the market as we go and delivering this very clear plan that we’ve got in place and that we’ve announced today.

Echo Energy plc (LON:ECHO) Chief Executive Officer Martin Hull caught up with DirectorsTalk for an exclusive interview to discuss highlights from the interim results, restructuring of debt, operational activity to come and how the current commodity price environment has played into their thinking.

Echo Energy is a full cycle exploration-led gas focused AIM listed E&P with exciting asset base in Latin America. Now, the company has published interim results for the six months ended 30th of June 2021 and joining me today to discuss the results is CEO Martin Hull.

Q1: You’ve just published your interim results, can you talk us through the highlights and what they mean for the group in 2021?

A1: So, we publish them on Thursday and overall, these are really a very encouraging set of results and they reflect the progress that we’ve made over the last six months, but also wider than that over, over the last year from the depths of the pandemic.

I think there’s three key highlights that I’d talk investors through.

The first is that revenues are up, remember this is for the period up until June this year, and whilst revenues are up, that was before the higher gas price contracts kicked in. So, it was only for a couple of months, but certainly before the increased oil production that we’ve announced recently and also the higher oil prices that we’re seeing across the board now. So, good to see that revenues are up.

Added to that, cost of sales were down very substantially, by more than 30% versus the period last year and that really demonstrates the success that we’ve had as a management team and as a board and as a company in focusing on the costs, which is something that we needed to do, given the realities of coping with the pandemic. Of course, those things combined to mean a return to profit, not a huge number but great to be in positive territory rather than negative. Again, that represents a huge turnaround from last year.

I think the other thing that we see that come through in these interims is the full effects of the debt restructuring that we succeeded with in March/April time. You can clearly see in these results, a markedly improved balance sheet position and that’s very positive.

So again, a very encouraging set of results overall, of course, challenges remain but certainly we think we’re in a good position now, as we approach the second half of 2021, when those higher oil prices and the higher liquid production that we’ve already announced, we kick on and are seen in the numbers.

Q2: Now, you mentioned the restructuring of debt. I see that you finished the last piece of the debt puzzle, so to speak. Can you tell us why this important?

A2: So again, this has been very recently announced that we restructured what we call the Spartan loan, which was the last remaining of the debt pieces that the company has. This is an important step, the key pieces of it are that we’ve pushed back maturity by two years and we also reduced the interest rate from 12% down to 8%.

Perhaps, more significantly in fact, is what I think is a hugely positive sign of confidence that the loan investors have converted some of their debt into shares in echo but importantly, at a price of 1.25p, and that’s more than a hundred percent premium to the current market price. Of course, I can’t speak for them, but I take that as a a real demonstration of the belief that they, as big investors in us, in both our assets and strategy, and again, that can only be seen as a positive.

The impact of that is that it really provides us with more resources to pursue our investment strategy or a reinvestment strategy. Investors will be aware that we have a number of near-term growth projects and opportunities that we can, and we want to pursue, we want to get after these. These opportunities drive production and they ultimately drive revenue and cashflow.

The constraint for the company has not been our underlying asset base, which we’re very positive about, the constraint has really been about financial resources, reflecting the challenges that we had last year as we went through the pandemic.

These sorts of things that we’ve been delivering or been announcing we’ve been delivering; the innovates restructuring, reworking, and strengthening of the balance sheet, really allow us now to drive on and get after the huge potential that we believe we have in our asset base.

Q3: You described a lot of operational activity in your interims, is there a lot more to come in H2 ‘21 and H1 ‘22?

A3: Yes, absolutely, and that’s what we’re very much focused on. Again, the strength in financial platform really allows us to put our foot down on the accelerator and drive forward the investment across our portfolio.

As we reported in the interims, we’ve already made some excellent progress in the field, we’ve delivered a pipeline upgrade, we’ve delivered some other infrastructure upgrades, and critically that has enabled us to start to bring on the production wells that we shut in last year. We’re beginning to see the effects of that, we’ve announced some details already on that which highlighted a more than 50% increase in oil production.

We continue to work on that, and we’re very focused on that, and investors should expect, as time goes on, more of that sort of news and more updates on the portfolio as those work efforts come through.

I guess to add to that, we are very conscious that our job is to create value for shareholders and that absolutely is what we’re focused on.

Q4: Finally, can you tell us what part the current commodity price environment has played into your thinking?

A4: We are obviously an energy producer and ultimately our revenue is driven by energy prices and that’s a fact.

Importantly, the very substantial increases we’re seeing in global markets are feeding directly into the revenues that we are getting in our monthly sales. This isn’t just about the future, we are seeing the benefits right now. Echo Energy is very much a leverage play on the energy markets and of course, as a result, it’s very positive to see the strength across the market that we see now.

I would add that the higher prices additionally further improve the economics of all those opportunities that that would talk about, the profits get bigger and the paybacks of those near-term development opportunities are shortened. Every project that we look at and that we have in our portfolio looks better at $80 or equivalent higher gas prices than it did only months ago so that can only be a good thing.

I would also add that we are seeing the positive momentum in the markets, not just in oil and gas, but across the wider energy value chain. Of course, in the UK, there’s lots of talk about gas prices, but also electricity prices and other energy prices and we’re seeing that also in some of the geographies that we operate in. We’re seeing improved returns across the whole energy value chain and that’s something that we’re looking at and that we’re interested in.

So, overall it’s clearly a very exciting time to be in the energy space.