Echo Energy plc (LON:ECHO), the Latin American focused full cycle energy Company, has announced its audited results for the financial year ended 31 December 2020.
2020 Highlights:
· Fourfold increase in revenue to US $11.1 million (2019: US $2.6 million)
· Favourable fiscal environment have led to the receipt of certain VAT payments, improving business cashflow.
· Santa Cruz Sur net daily production in 2020 totalled 1,966 boepd:
– 10.2 mmscf/d of natural gas
– 259 bbls/d of oil and condensate
· In 2020, Echo’s net cumulative production was 0.72 MMboe:
– 3,750 mmscf of natural gas
– 94,693 bbls oil and condensate
· Company estimated reserves and resources as at 31 December 2020 net to Echo’s 70% interest:
– 1P (Proved): 3.13 MMBoe
– 2P (Proved & Probable): 4.06 MMboe
– Contingent Resources (High estimate): 7.20 MMboe (Best estimate 6.51 MMboe)
· Adapted swiftly during the period to challenges presented by COVID-19, reorganisation along value chains enabled Echo to lower operating costs and improve efficiencies
Post period end
· Company successfully completed the restructuring of both the Company’s EUR 20.0m 8.0% secured notes and the Company’s EUR 5.0m 8.0% secured convertible debt facility loan. This represented a landmark step for the business by materially improving the financial outlook through the deferral of maturity until Q2 2025 and no cash interest payments prior to the maturity date. The agreement, with the support of the debt holders not only substantially strengthens the balance sheet it enables for the reinvestment of cashflow into the business to drive further growth.
· Secured new gas sales contracts at premium rates to the prevailing spot markets in early Q1 2021.
· Echo entered into a cooperation agreement with GTL International S.A. (“GTLI”) to seek future opportunities in Bolivia.
Martin Hull, Echo Energy Chief Executive, commented:
“Echo’s resilience during a very challenging year has ensured that we have been able to continue our operations efficiently and build firm foundations commercially and operationally despite the difficult external conditions. Not only have we made significant cost-saving efforts across the Company and rebalanced our financial position to provide increased flexibility, but we have also achieved tremendous operational progress across our SCS assets where we currently benefit from a favourable fiscal environment and attractive gas sales agreements with key customers. Moving forward, we are excited by the continuing expansion opportunities at our SCS assets, where we aim to maximise production potential, and we are also encouraged by the potential for new hydrocarbon and/or renewable energy prospects in neighbouring Bolivia and elsewhere in the Region. The framework for 2021 and beyond has now been set in place, and we look forward to capitalising on our various growth catalysts.”
Chairman’s and Chief Executive Officer’s Statement
Similar to many businesses and the communities in which Echo Energy plc operates, the Company faced unprecedented challenges during 2020 with the global pandemic having an impact upon all aspects of the Company’s operations and fundamentally changing the financial environment in which we operate. Your Company has emerged from these challenges operationally stronger, financially more robust (following the successful debt restructuring) with a renewed focus on its positive growth strategy. This is testament to the strength of the underlying business, the combined efforts of team and partners and at times the patience of shareholders and wider stakeholders. We are grateful for your support throughout the turbulent year.
2020 marked the first full year of operations at the Santa Cruz Sur (“SCS”) assets following the successful integration of the acquisition completed in November 2019. The acquisition of the 70% interest in SCS was an important step in delivering against our strategy of building a full cycle Latin America focussed energy Company.
With its strong asset base and improved financial flexibility Echo is now very well placed to benefit from an active operational programme and is highly leveraged to improving economic and market conditions.
Argentina
Santa Cruz Sur
The SCS assets provide material production, generating material cash flow from a strong reserves base. The portfolio also includes significant upside from relatively low risk production enhancement opportunities combined with exciting higher impact projects.
Production remained in line with expectations during 2020 after a decision was made in April 2020, to temporarily shut in the majority of oil production and focus on gas. This was a response to the significant oil price drop at the end of Q1 2020. Average daily production throughout the year net to the Company was 1,966 boepd (including 10.2 MMscf/d of gas). Total net cumulative production was 720,000 boe (including 3,750 MMscf of gas) in the year.
The Company estimates that as at 31 December 2020, the SCS reserves base stood at an estimated 3.13 MMboe for 1P (Proved) and 4.06 MMboe for 2P (Proved & Probable) each net to the Company’s 70% non-operated working interest. The reduction in 1P (Proved) reserves from the position as at December 2019 was less than the production from the assets during the year (0.72 MMboe net to Echo) and as such demonstrated the positive impact of the activities undertaken to migrate 2P reserves (Proved & Probable) into the 1P (Proved) category during the period. As commodity prices fell in March 2020, the Company took the financially prudent decision to defer capital expenditure and postpone final investment decisions on select activities. The volumes associated with these activities (6.51 MMboe net to Echo’s 70% interest) have now been reclassified into Contingent Resources from 2P reserves (Proved & Probable), but are expected to return to reserves once future investment decisions are taken, and the current commercial contingencies to development are removed.
The Campo Limite exploration well (“CLi.x-1001”) on the Palermo Aike concession, was successfully drilled in the early months of 2020. As a result of government restrictions imposed in response to the Covid-19 pandemic testing of this well was however interrupted. The well remains a material potential upside for the Company with the potential to increase reserves and resources in the Palermo Aike concession and open up additional commercial options. Well testing activities remain an operational priority and will resume once pandemic constraints are lifted, and within an optimised work schedule. The wider portfolio of opportunities within SCS was expanded by maturing a set of workovers and interventions to increase production. In addition, the Monte Aymond gas project was also assessed as commercially viable and, given the location near to Campo Limite, a hub development approach is being considered. These activities represent an exciting future work programme designed to expand production and generate continuing growth for the future.
Tapi Aike
In line with the Company’s focus within its portfolio on cash generative production and on reducing costs, while maintaining upside exposure, Echo entered into an agreement with the operator of Tapi Aike to reposition the Company’s 19% participating interest in Tapi Aike. This agreement enabled Echo to cease commitments to ongoing pre-drill expenditure at Tapi Aike, whilst maintaining an option for the Company to re-enter the western area of the Licence. At the end of the period, having reviewed all available data, the Company decided to continue with its production led strategy and therefore allowed the option to re-enter the Tapi Aike asset to lapse.
Bolivia
The Board believes that that there remain considerable opportunities across the energy spectrum in Bolivia. Building on existing long-term relationships and to enhance business development initiatives in the country, post period Echo signed a cooperation agreement with GTL International S.A pursuant to which the parties intend to collaborate and jointly assess new opportunities across the full energy spectrum, including solar and wind in the renewables space and E&P opportunities.
Finance
From Q1 2020, the Group sought to strengthen our financial position, firstly through the restructure of the unlisted debt facilities, releasing capital which could then be invested directly into the business to accelerate growth projects or support accretive optionality.
2020 was the Company’s first full year of operations at the SCS assets. As a result, revenue saw a more than fourfold increase over 2019 levels and at more than US $11million represented the largest annual figure in Echo’s history. Despite the material increase in the business’ size and associated complexities, the Board moved quickly to adapt to the realities of the difficult 2020 operating circumstances to preserve cash and reduce costs. General administrative costs, including head office costs, were reduced by approximately 15% from 2019 levels.
In the prior year management reported a material uncertainty in respect of going concern. Based on the post year end 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, management do not consider there to be a material uncertainty in the current year.
Successful debt restructuring
In Q1 2021 the Company successfully completed of the restructuring of both the Company’s Bonds and the Company’s EUR 5.0m 8.0% secured convertible debt facility loan. This represented a landmark step for the business by materially improving the financial outlook through the deferral of maturity until Q2 2025 and no cash interest payments prior to the maturity date. The agreement, with the support of the debt holders not only substantially strengthens the balance sheet it enables for the reinvestment of cashflow into the business to drive further growth.
Outlook and Continuing Growth
Whilst 2020 brought extreme market volatility and a significant decline in commodity prices, 2021 has already seen a markedly improved market environment. As an example, Echo has recently secured gas prices averaging $2.64/mmbtu from industrial clients for the period May 2021 to April 2022 which represents an approximate 126% increase from the corresponding previous year. Similarly, the market for the Company’s liquid production has now normalised with regular sales taking place and global benchmarks returning to pre pandemic levels. These factors combined with the underlying operational and financial progress make for a much-improved outlook in 2021 and beyond.
The Board remains committed to the Latin America energy growth strategy, and, alongside the continued expansion of the SCS portfolio, continues to consider potential growth options. The rapid and ongoing changes to the global energy mix, and the market and political response to the climate change challenge offer considerable potential for companies with the right capabilities and vision. As such Echo expects to consider investments across the energy spectrum in future and assess them against its strict operational and profitability criteria.
The framework for 2021 and beyond has now been established, and we look forward with renewed confidence to capitalising on the opportunities ahead.
James Parsons Martin Hull
Non-Executive Chairman Chief Executive Officer
