1 November 2017
Echo Energy plc
("Echo" or the "Company")
Country Entry: Argentina
Signature of Onshore Farm-In Agreement covering 4 assets
Echo Energy plc, the South and Central American focused upstream gas company, is pleased to announce that it has entered into a binding farm-in agreement (the "Farm-In") with Compañía General de Combustibles S.A. ("CGC"), a privately-owned subsidiary of the Argentinian conglomerate Corporación América International, for the acquisition by Echo of a 50% interest in each of the Fracción C, Fracción D, Laguna de los Capones and Tapi Aike licences, onshore Argentina (the "Transaction").
The Fracción C, Fracción D, Laguna de los Capones and Tapi Aike licences (the "Licences") all sit in the prolific Austral Basin of Santa Cruz province in Argentina and cover a total of 11,153 square kilometres. The Transaction will provide the Company with a compelling blend of multi Tcf exploration potential, appraisal and production.
Completion of the Transaction is conditional, inter alia, on receipt of third party, legal and regulatory approvals or consents in relation to the Transaction, including Echo shareholder approval.
The Transaction is expected to deliver:
· A material position in Argentina with a well-respected local strategic partner.
· Access to multi Tcf exploration potential on the Tapi Aike licence.
· Access to transformational exploration and appraisal potential across the Fracción C and Fracción D licences.
· Existing gross production of approximately 11.4 MMscfe/d on the Fracción C & D licences, with potential to significantly increase current production to approximately 80 MMscfe/d, underpinned by strong local Argentinian gas prices.
· First drilling in Q1 2018, followed by a period of significant drilling and operational activity.
· Technical Operatorship of the Fracción C & D licences.
The Company would like to invite investors to a live Q & A session hosted via the Company website at 11:00 a.m. (UK time) on 2 November 2017.
Fiona MacAulay, Chief Executive Officer, commented:
"Echo was launched in March this year to secure multi Tcf potential onshore gas assets across South and Central America counter cyclically. This transaction is a transformational acquisition in the region and will form the backbone of our gas business, blending exploration, appraisal and production.
Echo is now positioned as a leading regional gas explorer with a unique platform for growth and a staged work programme. In line with its strategy, the Company will continue to review further opportunities in the region.
We will now focus on completing this transaction and expect to be drilling our first well in Q1 2018."
Tapi Aike Licence
The Tapi Aike licence, which is one of the largest new block awards in Argentina (5,187 square kilometres), benefits from 3,400 kilometres of existing 2D seismic and 3 existing gas discoveries. The Company internally estimates that Tapi Aike block has multi Tcf exploration potential (unrisked gas originally in place).
The consideration for Tapi Aike is:
· No upfront cash consideration.
· Echo to carry CGC for 15% of total Tapi Aike work programme costs during the initial work programme period of 3 years (4 in the event of tight gas classification).
· The work programme over that period comprises reprocessing of selected existing 2D and 3D seismic, acquisition of 1,200 square kilometres of 3D seismic and the drilling of 4 exploration wells. Echo's carry of CGC for the entire work programme anticipated to be in the order of US$9 million (anticipated gross work programme costs in the order of US$60 million).
· Work programme in the first year following completion of the Transaction is anticipated to comprise re-processing and seismic acquisition planning and initiation.
Fracción C & D Licences
Fracción C, which surrounds the Laguna de los Capones licence, is a 5,288 square kilometre area and includes 3 existing production facilities and a gas export pipeline connecting directly to the main pipeline to Buenos Aires (Transportadora de Gas del Sur S.A.). The licence area benefits from 1,192 square kilometres of 3D seismic in addition to extensive 2D seismic coverage and existing gross production of 11.0 MMscfe/d. The Company internally estimates that exploration potential in the block is in excess of 1 Tcfe on a gross unrisked gas initially in place basis.
Fracción D is a 280 square kilometre licence with existing production facilities and a small initial level of production. The Company has identified significant development, appraisal and exploration potential with the field, estimated by the Company to contain gross unrisked gas in place of a mid-case of 183 Bcfe (341 Bcfe upside case, 98 Bcfe low case). The area has a proven gas cap already penetrated by a number of wells. The work programme is designed to explore, appraise and bring into production these resources utilising existing production facilities and a 28 kilometre pipeline to the gas metering point.
All discoveries across these licences are expected to be brought on stream rapidly and with low incremental costs due to the proximity to existing infrastructure.
The consideration payable for Fracción C, Fracción D and Laguna de los Capones will be:
· US$2.5 million cash on signature of the Farm-In.
· Echo to meet 100% of the costs of the initial 18 month work programme (the carry by Echo of CGC's 50% working interest estimated to be between US$9 million and US$12 million) which will include:
o Reprocessing and analysis of existing 3D seismic in the Laguna de los Capones licence.
o Acquisition of c.500 square kilometres of 3D seismic on the Fracción C licence.
o Drilling and testing of 4 exploration wells on the Fracción C licence and their completion as producing wells following a success case.
o Workover of 3 wells on the Fracción D licence and the drilling, testing and completion (or abandonment) of 1 new well in Fracción D contingent on satisfactory results arising from the workovers.
o Acquisition of c.230 square kilometres of 3D seismic in the Fracción D licence subject to satisfactory results arising from the workovers / contingent development well. This seismic requirement may be transferred to the Fracción C licence.
· A deferred cash payment of US$2.5 million on completion of the initial term work programme.
· After the completion of the initial term work programme, the Company has the option to progress to the second term on the licences for which a provisional work programme has been envisaged including expanding the total seismic acquisition across the blocks (including that acquired in first term) to 2,000 square kilometres and drilling a further 8 exploration wells across the licences.
· On election by the Company to progress to the second term, the total carry of CGC's interests by Echo (including all expenditure in the initial term) would be capped at a total of US$35 million and during the term a second deferred payment of US$5 million would be payable which may at the election of the Company be deferred to development costs.
· CGC and the Company will enter into a joint operating agreement on completion of the Transaction with Echo being appointed as Technical Operator of the Fracción C, Fracción D and Laguna De Los Capones licence areas.
The initial consideration payments and the initial term work programme costs under the Transaction can be met from the Company's existing cash balances.
Should the Transaction not be completed by 29 December 2017 or a subsequent date which the parties may mutually agree (the "Closing Date"), the Farm-In will lapse uncompleted and the initial US$2.5 million payment in relation to Fracción C and D will not be refundable, other than to the extent of US$0.5 million in certain limited circumstances. In the event that the Company fails to gain Echo shareholder approval for the Transaction, a further sum of US$2.5 million will be payable by the Company to CGC. This additional US$2.5 million payment would be refundable in certain limited circumstances.
Suspension of Ordinary Shares
By virtue of its size, the Transaction constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies. Accordingly, the Company's Ordinary Shares will remain suspended from trading on AIM, pending publication of an AIM admission document or an announcement that the Transaction has been terminated.
As part of the AIM admission document a competent persons report in respect of the Licences is being prepared by the internationally recognised Gaffney, Cline & Associates.
Further announcements will be made, as appropriate, in due course and, following completion of the Transaction, investors will be invited to view the Company's new Argentinian portfolio in forthcoming investor trips to the region.
This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
For further information please contact:
Echo Energy plc Fiona MacAulay, CEO Will Holland, CFO |
[email protected] [email protected] |
Smith & Williamson (Nominated Adviser) Azhic Basirov David Jones Ben Jeynes |
+44 (0)20 7131 4000 |
Hannam & Partners (Advisory) LLP (Financial Adviser and Corporate Broker) Giles Fitzpatrick Andrew Chubb Ernest Bell |
+44 (0)20 7907 8500 |
Vigo Communications (PR Adviser) Patrick d'Ancona Chris McMahon Ali Roper |
+44 (0)20 7830 9700 |
The information contained in this announcement has been reviewed by Echo Energy's Vice President, Exploration, Dr. Julian Bessa Msc, DPhil, a Fellow of the Geological Society and a Member of the Petroleum Exploration Society of Great Britain. The Company's internal estimates are made in accordance with SPE standards.
Tcfe means trillion standard cubic feet of gas equivalent; Tcf means trillion standard cubic feet of gas; Bcfe means billion standard cubic feet of gas equivalent; Mscf means thousand standard cubic feet of gas; MMscfe/d means million standard cubic feet of gas equivalent per day; and mboepd mean thousand barrels of oil equivalent per day.
