Echo Energy shares spike as gas flows at Argentina workover campaign (ECHO)

Echo Energy (LSE:ECHO) has successfully flowed gas to surface on the first well in its much-anticipated three-well workover campaign in Argentina, leading shares to rise sharply. Well CSo-85 at Echo’s onshore Fracción D asset was perforated across the Springhill Formation and successfully flowed gas to surface without intervention. Following this, the well flowed through Echo’s rig de-gassing system at an estimated rate of 2mmscf/d through a 20/64 inch choke with a tubing head pressure of 1,100psi.

A full testing unit is expected on site within the next two weeks to carry out a multi-rate, extended flow and build-up test. A rig, mobilised earlier this month, will also move to the well this weekend to commence workover operations.

Fiona MacAulay, chief executive officer of Echo, said: ‘We are delighted that the first step of this exciting workover campaign has been safely and successfully completed, re-entering the well and establishing gas flow to the wellhead without any requirement for artificial lift. Once the full testing unit is in place we will analyse the well performance during the scheduled long-term test. In this fast-moving operational phase, the Quintana-01 rig will be moved directly to the second well in the workover campaign to complete and perforate a similar gas zone. We will update the market as the programme continues and also look forward to welcoming shareholders at our next regional event in Newcastle on 24 April 2018.

Today’s news and the workover programme form the first steps of Echo’s 18-month work programme for its 50/50 farm-in with CGC on several Argentinian assets. Following the workovers, Echo will drill four exploration wells across its producing licences in Fraccion C and Laguna De Los Capones.

The wells have a combined post-tax unranked net present value to Echo of $112.2m (c.£81.1m) and are expected to take around 15 days to drill, costing some $1.8m each. All four exploration wells have an expected success rate of between 36pc and 40pc. Echo has already received approval for one of the wells and hopes to get permits for the other three by April. The business has already secured a rig for the drilling programme, which it said has an excellent operation and safety track record and has been on contract to CGC since 2016.

In the fourth quarter, Echo will start a seismic programme at its Tapi Aike exploration block, aiming for a first drill in 2019. An inventory of 41 leads with five of these individual leads containing more than 1Tcf and up to 3.8Tcf of gas has previously been reported at the reservoir. The site is expected to hold more than 22Tcf of gross unranked potential gas in total.

Following today’s news, Echo’s shares were up 12.8pc, or 1.8p, to 15.4p, as at the time of writing. We have previously covered the potential upside for Echo Energy and pointed to it as a buying opportunity at the end of last month when it was sat at around 12.5p, around 30pc below its placing price.

As we wrote earlier this year, the total farm-in agreement offers significant potential upside, and two of Echo’s projects are already producing oil and gas. Furthermore, the company has more than enough cash on its books to cover the estimated £26.9m total costs of the farm-in agreement.

Author: Daniel Flynn

Disclosure: The author of this piece does not own shares in the company covered in this article

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