Heads Up – Echo Energy

The first HEADS UP of 2019 goes to ECHO ENERGY. (First published on Jan 30th 2019, exclusively to ShareHub subscribers).

Echo Energy, is a Latin American focused upstream oil and gas company, with an active operational programme in 2019.

On Jan 8th 2019, the company issued an update on operations

“Further to the Company’s announcement of 11 December 2018, the Company confirms that the equipment required for the stimulation of the EMS-1001 well, drilled in June 2018 on the Company’s Fracción C licence, onshore Argentina, has now arrived on site and that stimulation operations have commenced.” END.

Assuming progress has gone ahead as planned, results from the early stage work should be coming through shortly. Investors looking for high risk vs high reward but with a decent platform to fall back on such as core production streams and cash in the bank… look no further…

The company has a two well Stimulation Programme lined up meaning that if EMS-1001 disappoints, they have ELM-1004 to follow straight after.

During 2018, the Company drilled four wells across the Company’s onshore licences in Argentina (Fracción C licence).  The first (ELM 1004) and third (EMS-1001) of these wells were initially successful with the Company announcing on 21 June 2018 that the third well in the sequence was considered potentially material following interpretation from the wireline logs. 

Current Production

In 2018, the Company successfully completed four well interventions (CSo-96, CSo-104, CSo-21, and CSo-80) in the Cañadon Salto Field, onshore Argentina (Fracción D licence).  On 22 October 2018 the Company announced that these wells had achieved stable production levels. Production from these wells has contributed to a total Company average net production in the year to 12 November, of 876 barrels of oil equivalent per day.

Following the success of these workovers and the associated production uplift, the Company has identified a number of additional candidates for well interventions and expects these operations to commence this quarter (Q1). 

The Company is also evaluating the potential for gas development projects within the Fracción D licence, with a view to monetising existing undeveloped 2C resources.

Key Asset: Tapi Aike

The Company’s primary objective in acquiring its Argentinean business was to secure access to the high impact Tapi Aike exploration acreage.  

Tapi Aike – Seismic Acquisition.
3D seismic’s over 1200km2 on the Company’s high impact Tapi Aike exploration should be underway soon as per last years update and cited to take approximately 4 months.

The Company believes that the Tapi Aike licence offers a compelling multi Tcf exploration proposition and, following completion of the upcoming seismic acquisition programme and subsequent data interpretation, the Company currently expects to define an initial 4 well exploration drilling programme with each well estimated to cost between US$2 million and US$5 million net to Echo.

Cash: Cash balances of £26.1 million as at 30 June 2018
Debt: Approx £12m via Bond 8% per annum. Warrants attached exercise price of at 15.1875p. Bonds due May 2022.
Market cap: £41.3m
Current Share Price: 8.65p

The cash pile will have reduced from June 2018 but with ops running low for the last 6 months due to delays, the cash pile should not have reduced dramatically. With close to 1000bopd production, the Bond 8% interest should be comfortable to manage along with capex. Should well stimulation plans go to plan, production could rise significantly and potentially enhances plans for Tapi Aike.

The share price looks cheap based on cash balance and production levels. Throw in the active well plan and the risk vs reward is compelling. Not for the faint hearted and key risks remain. As with all stocks, research thoroughly and do not invest more than you can afford to lose. Please read the risk warnings in the sidebar.

Target Price: 25p (Multibagger potential)