Echo Energy extends Bolivia licence and cuts peso exposure (ECHO)

By Richard Mason


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Echo Energy (LSE:ECHO) announced an extension to its evaluation rights over a block in Bolivia and a major reduction in its exposure to the Argentine peso this morning, sending shares 0.8pc higher to 12.2p.  A letter of intent signed at the first YPFB Bolivian Gas Forum this week will allow Echo to continue its exclusive technical study of the Rio Salado licence area in onshore Bolivia for a further year.

Echo said its work programme for the block would include the interpretation and integration of three 2D seismic lines that transect part of the area and are expected to aid in the definition of a ‘deep multi-tcf structure’. At the end of the technical evaluation agreement, it will have the right to negotiate contract terms across the licence area.

Elsewhere in today’s update, Echo said it has agreed to receive proceeds from all sales of gas from its Argentine assets in dollars instead of Argentine Pesos to further reduce its exposure to the embattled currency. It added that its treasury policy is to hold all cash in GBP, USD, and Euros, reiterating that a collapse in the peso earlier this year resulted in a ‘small net positive effect’ due to a fall in local operating costs.

Finally, it said it sold c.71m standard cubic standard cubic feet of gas into the Argentinian market in August while a further 24m standard cubic feet of gas produced at the wellhead is being utilised for fuel and power. Year-to-date, average pricing across the customer base has been above $4.20/mmbtu through to July 2018. Fiona MacAulay, chief executive officer at Echo, said:

‘We are delighted to have signed an LOI relating to a new Technical Evaluation Agreement which would secure a further period of time to evaluate the prospectivity of this licence area, incorporating additional 2D seismic data not previously available.  During the next 12 months the Company will be in a position both to extend its understanding of the deeper structure and also to incorporate the results of the two important wells currently drilling in the area. We are also very pleased that the strong market for oil exports continues in the region and that receipts in US$ are particularly positive for further reducing the exposure of the Company to the current volatility of the Argentinian Peso.’

Echo dropped by more than 10pc earlier this week after announcing that the CSo-2001(d) well in its Fraccíon D asset is unlikely to contribute economically to the area’s gas production after suffering major pressure depletion. Back in July, it reported that CSo2001(d)- the final well in its four-well back-to-back exploration campaign-had encountered extensive gas and light hydrocarbon shows in Fraccíon D’s Upper Jurassic Tobifera formation. The well was targeting 19.0bcf (gross best case) contingent resources assigned to the prospect in addition to a further 18.7bcf (gross best case) of prospective resources.

However, in this week’s update, the firm announced that a testing programme on the well demonstrated that long-term production from the adjacent Springhill formation had caused significant pressure depletion. As a result, it said the remaining gas in the underlying Tobifera will likely be insufficient to contribute to the Fraccíon D gas project. In an exclusive interview with ValueTheMarkets, MacAulay told us that although the findings are disappointing, the low capex costs of its drilling programme and the ongoing potential on offer in Fraccíon D will mitigate their long-term impact:

‘The gas shows were very impressive when drilling, and the log data was very encouraging, but when we came to test it, the unit was just really depleted. Obviously, we would not have drilled it unless we wanted it to add production and it would have been nice for Cso-2001(d) to add into the gas development we have in Fraccíon D. However, the long-term impacts are likely to be minimal- the wells in this programme are being drilled at less than $1.5m each and are then tested for around $500,000. We are talking about numerous, really low-cost catalysts that, when taken together, can get us to a much bigger scenario.’

Author: Daniel Flynn

The author does not own shares in the company mentioned in this article 


In this article:

Echo Energy

Author: Richard Mason

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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