Echo Energy plc (LON:ECHO), the Latin American focussed full cycle energy Company, has announced its audited results for the twelve months ended ended 31 December 2021.
2021 Highlights
· Production capacity increased during the period pursuant to Santa Cruz Sur facilities upgrades in Q1 2021
· Average net daily production in 2021 was:
o 8.0 mmscf/d of natural gas
o 222 bbls/d of oil and condensate
o Total: 1,554 boepd
· Net cumulative production in 2021 was:
o Natural gas: 2,918 mmscf
o Oil and condensate: 81,076 bbls
o Total: 567,371 boe
· Reserves and resources at end 2021 were:
o 1P (Proved): 2.53 MMboe
o 2P (Proved & Probable): 3.15 MMboe
o MMboe Contingent Resources (High Estimate): 5.39 MMboe
· Announced a five-year Cooperation Agreement with GTL International S.A., which has interests in both the hydrocarbon and renewables sector
· Began process of reopening oil wells that had been shut-in during 2020
· Developed new customers for liquids products
· VAT refunds received in Argentina (US $0.5 million) and additional credit balances (approx. US$0.7m) are being amortised until the end of 2022, benefiting cashflow for 2021 and 2022
Post Period End Highlights
· New gas contracts for 2022-2023, which was significantly above the 2021 annual pricing
· Agreement by the Santa Cruz Sur partners to materially increase Santa Cruz Sur production by c.40% above average H1 2022 production levels
· Post period fundraising and conditional debt restructuring
Martin Hull, Echo Energy Chief Executive, commented:
“Despite significant challenges, 2021 was an important year for Echo and one which has changed the outlook for the Company for the positive, with work across a range of fronts in 2022 only reinforcing that direction of travel. With progress made on the ground operationally and supported by much higher prevailing commodity prices and premium pricing in gas contracts, the recently announced comprehensive restructuring and strengthening of our balance sheet, once completed, will ensure we have much firmer foundations for the business financially, and a platform from which we will be able to pursue the many opportunities that exist within our portfolio. We look forward to updating investors on our activities in the rest of this year and beyond.”
Chairman’s and Chief Executive Officer’s Statement
Echo Energy, similar to many companies in the oil and gas sector, faced exceptional challenges during 2021, with the global pandemic impacting all aspects of the Company’s operations and finances. We are delighted to report however that Echo now, buoyed by recent structural increases in commodity prices, the delivery of production enhancing opportunities and the recently launched conditional debt restructuring process, is both underpinned by much firmer foundations and positioned as a regional platform for growth. We are grateful to shareholders, lenders and partners for their continued support throughout the year.
Argentina
Santa Cruz Sur
The Santa Cruz Sur (“SCS”) assets provide material production and revenues from a strong reserves base. The SCS portfolio also includes significant upside from relatively low risk production enhancement opportunities combined with exciting higher impact projects.
During 2021 the Company began to restore previously shut-in liquids production which was supported by infrastructure upgrades. Improved market conditions enabled Echo Energy to capitalise on this by executing cashflow enhancing production opportunities. Throughout the period liquids production increased quarter-on-quarter and production during 2021 averaged 1,554 boepd throughout the year net to the Company’s 70% interest (including 8.0 MMscf/d of gas). Total net cumulative production was 567,371 boe (including 2,918 mmscf of gas) in the year. Both infrastructure maintenance and the commercial focus on high-quality blends at Santa Cruz Sur led to an increased frequency of oil sales during Q4 2021. This increase in liquids production helped to offset the expected natural decline in gas production over the year. Post period, work to optimise production and improve infrastructure has continued, especially relating to the provision of power generation capacity at some of the key producing assets, and this work continues.
In 2021 the Company was able to increase the proved SCS reserves base, after considering production in the year, and the impact of eventual licence expiry. The Company estimates that, as at 31 December 2021, the SCS reserve base stood at an estimated 2.53 MMboe for 1P (Proved) and 3.15 MMboe for 2P (Proved & Probable) each net to the Company’s 70% non-operated working interest. 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.
Finance
Revenue for the period remained constant at US $11.1 million in 2021 (US $11.1 million in 2020). Whilst prices increased, particularly in oil during the year, there remained production challenges which resulted in the flat revenue year-on-year. Losses for the year reduced to US $11.6 million, compared to US $27.0 million in 2020, reflecting the expected trend toward recovery, in 2022.
The SCS asset joint venture continues to have high creditor balances, as a result of difficult trading conditions in 2020 and 2021. Whist the level of local creditors remains a a key concern, the Company is working exceptionally hard to mitigate any risk and to reduce the balances in a controlled manner, whilst not at the cost of future investment in order to further increase production and increase SCS asset value.
Whilst management are prudently reporting a material uncertainty in respect of going concern, management have prepared the financial statements on a going concern basis based on the post year end proposed debt restructuring, the current level of revenue and cash generation and the sensitivities considered in respect of the cashflow forecasts, and the mitigating actions that could be taken to conserve cash in a worse-case scenario.
Post period conditional debt restructuring and fundraising
On 12 August 2022, the Company announced the conditional conversion of an aggregate of €15.0 million of existing debt principal, together with accrued interest thereon, into new Ordinary Shares – the significant majority of which is proposed to be converted into new Ordinary Shares at a price of 0.45p. In doing so, the Company also confirmed that it would be proposing a conditional reduction of the coupon on the remaining €10.0 million of Euro Note debt (the “Notes”) from 8% to 2% with suspension of further cash interest payments for two years and an extension on maturity on the remaining Notes to 2032.
The Company subsequently announced publication of its proposals to restructure the Notes on 5 September 2022. The debt restructuring remains conditional on both the approval of the holders of the Note and on the approval of the Company’s shareholders. The changes are aimed at comprehensively restructuring and strengthening the Company’s balance sheet and accelerating growth.
On 14 August 2022 the Company was also pleased to confirm that it had successfully raised £600,000 (before expenses) pursuant to a placing of new ordinary shares. The net proceeds of this placing provided the Group with additional resources to fund working capital, including expenses related to the proposed debt restructuring, and enable operating cashflows in Argentina to be focused on activities in country in the near term, including the plan to increase production by c. 40% over approximately the next 6 months.
Outlook and Continuing Growth
2021 was a year that saw important progress for Echo both operationally and commercially, which culminated in early July 2022 with the Company confirming an agreement by the Santa Cruz Sur partners to materially increase Santa Cruz Sur production by c.40% above average H1 2022 production levels. We will continue to prioritise the delivery of the production focused operational programme and the important conditional debt restructuring announced in August this year. Subject to the successful completion of the debt restructuring, we see a very positive outlook for Echo as we accelerate our production led activities on the ground and take advantage of the many regional growth opportunities.
James Parsons Martin Hull
Non-Executive Chairman Chief Executive Officer
Portfolio
The Company is well positioned to build a diversified energy portfolio with a strong cash generating E&P foundation to support value accretive activities across the energy spectrum, whilst remaining high-leveraged to the continued upswing in the global commodity price super-cycle.
Echo is a significant acreage holder in the Austral basin, onshore Argentina, with over 2,600 km2 of licence area containing 12 oil and gas fields and 82 production wells. This demonstrates Echo Energy’s commitment to the future of exploration and production potential of this part of Argentina.
Oil and gas production from SCS is revenue generating for the Company, and the portfolio of opportunities provides a flexible and range of well-balanced risk-reward upside options. Santa-Cruz Sur is a gas dominated portfolio, and the Company’s majority 70% non-operated interest provides an ability to significantly influence operational strategy. This gas focused E&P portfolio is appropriate for energy transition, and long-term premium-priced gas contracts driving locked-in cashflow to support further opportunities. The portfolio is balanced across the risk-reward spectrum with shorty-payback periods and focused on low-risk opportunities, infrastructure enhancement and cashflow reinvestment.
Following a successful auction process for industrial clients, the Company secured new gas sales contracts for the twelve-month period in May 2021 at significant a premium to contracted rates from the previous year. These new contracts provided for a 126% increase over annual industrial pricing achieved the previous year.
In 2021 the Company was able to increase the proved reserves base, after considering production in the year, and the impact of eventual licence expiry. 1P (Proved) reserves at year end were 2.53 MMboe, which is around 0.5 Mmboe higher than would otherwise be the case given these factors on the previous year’s figures. The original acquisition of the SCS assets in 2019 was based on proved reserves economics. Current proved reserves per December 2020 remain similar to those at acquisition, adjusted for production and date of licence expiry.
At the start of the year, the Company announced a five-year Cooperation Agreement with GTL International S.A, which has interests in both the hydrocarbon and renewables sectors. Both companies continue to collaborate and combine skill sets to jointly promote their business development initiatives in the wider region, and identify and assess new business development opportunities across the full energy spectrum
Average net daily production 2021 1,554 boepd
Total production net to Echo 2021 567,371 boe
Net 1 P (Proved) reserves 2.53 MMboe
