South and Central American oil and gas company Echo Energy (LSE:ECHO) has confirmed plans to workover three existing wells and drill four new exploration wells across its Argentinian assets this year. The first step of Echo’s 18-month work programme for its 50/50 farm-in with local firm CGC will begin next month with three back-to-back workovers of existing wells at its Fraccion D site.
Each workover is expected to take 10 days and cost $0.55m per well. All three sites will be put on an extended well test prior to any sanction of commercialisation.
Between May and August, Echo will then drill four back-to-back-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 (£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 expects 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 to contract to CGC since 2016.
In the fourth quarter of the year, Echo then expects to initiate a seismic programme at its prospective Tapi Like exploration block, as a first step towards a planned first exploration drill in 2019. A previous Competent Persons Report of the reservoir identified an inventory of 41 leads with five of these individual leads containing in excess of 1Tcf and up to 3.8Tcf of gas.
The reservoir is expected to contain more than 22Tcf of gross unranked potential gas in total.
Fiona MacAulay, chief executive of Echo, said:
‘I am delighted to report that we are making real progress as we move towards the commencement of our operational programme this year. It is very pleasing that we have been able to move so rapidly to the operational phase after the completion of the transaction to enter Argentina.
‘We are now ready to initiate an exciting programme of back-to-back workovers, exploration drilling, seismic acquisition and prospect generation. Our onshore exploration wells are all located close to existing facilities and in the success case can be commercialised into gas hungry markets at advantaged pricing in very short order.We look forward to updating investors on our progress in due course.’
Upside potential
Echo’s shares were off slightly following the release of today’s news, down 0.8pc to 12.7p at the time of writing.
However, as we wrote last month, the total farm-in agreement offers significant potential upside and two of the projects 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.
As a result, any weakness in Echo’s share price could be worth taking advantage of.
Speaking to ValueTheMarkets.com, Macaulay was naturally bullish about the scale of the opportunity Echo is pursuing.
‘We have a definite first mover advantage in Argentina. There are very few places in the world that equity investors can invest in our sector in this country. We have an excellent local partner and a fantastic team on the ground. With the financing now in place our goal is to seize the initiative here to deliver outstanding shareholder returns,’ she said.
Macaulay, who has 24m options exercisable at 16.1p ensuring her interest are heavily aligned with shareholders, believes the market will soon see the value for early entry in Argentina as Echo continues to deliver strong newsflow.
‘We have a really exciting year ahead of us, with lots of anticipated news flow. We will be conducting near field exploration drilling at 4 to 5 locations, any of which could prove to be a catalyst for a significant rerate in our company’s valuation. Our cash balance was already strong and we further bolstered that a month ago, meaning we are full funded for our planned work programme,’ she said.