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Echo Energy PLC - Final Results

RNS Number : 7402P
Echo Energy PLC
12 June 2020
 

12 June 2020

 

Echo Energy plc

("Echo" or "the Company" and together with its subsidiaries the "Group") 

 

Final Results for the Year Ended 31 December 2019

 

Echo Energy plc, the Latin American focused upstream oil and gas company, is pleased to announce its audited results for the financial year ended 31 December 2019.

 

2019 Highlights

 

·   Completed acquisition of 70% non-operating interest in five mature producing blocks, Santa Cruz Sur, in November 2019:

 

-        Estimated reserve base as of end 2019 was 3.8 MMboe 1P & 12.1 MMboe 2P*

 

-        Producing at 2,505 boepd net to Echo (70% interest) in November and December 2019

 

-        Total production in November and December 2019 of 152,819boe

 

-        Campo Limite exploration well (spud in Q4 2019) on Palermo Aike block at Santa Cruz Sur

 

·   Completed 3D seismic acquisition over 1,200km2 in Tapi Aike

 

·   Delivered first well in 4Q 2019  at (Chiripa Oeste) Tapi Aike

 

·   Successful restructuring of asset portfolio and US $1m reduction of G&A expenses over 2018 levels

 

Commenting, Martin Hull, Echo's Chief Executive Officer, said:

 

"We started 2019 with the seismic acquisition campaign across Tapi Aike, safely acquiring 1,200km² worth of quality data on schedule and on budget and then ended the year with our first well in the Tapi Aike block, the culmination of a tremendous amount of work. During the year we successfully restructured our portfolio, relinquishing assets without future growth, 'rightsized' our interest in Tapi Aike and made the important acquisition of producing assets with a strong reserves base in Santa Cruz Sur. This brought cash-generation into the business along with a pipeline of development opportunities and additional near field exploration potential, with a second exploration well spud before year end. Although 2020 has brought with it some very serious global challenges, the work Echo accomplished in 2019, and the team that we have in place, means we are well positioned to meet these challenges and maximise the value creation potential from our existing portfolio and look to positively move forward with further future value creation opportunities. "

 

* Evaluated in accordance with the Petroleum Resource Management System ("PRMS")

 

For further information, please contact:

 

Echo Energy

Martin Hull, Chief Executive Officer

 

via Vigo Communications

Vigo Communications (PR Advisor)

Patrick d'Ancona

Chris McMahon

 

+44 (0) 20 7390 0230

Cenkos Securities (Nominated Adviser)

Ben Jeynes

Katy Birkin

 

+44 (0) 20 7397 8900

Shore Capital (Corporate Broker)

Jerry Keen

+44 (0) 20 7408 4090

 

Note

 

The information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

bbl(s) means barrel(s) of oil; bcf means billion cubic standard feet of gas; boe means barrels of oil equivalent; boepd means barrels of oil equivalent per day; MMboe means million barrels of oil equivalent; MMbbl means million barrels of oil; MMscf means million standard cubic feet of gas; MMscf/d means million standard cubic feet of gas per day;  bopd means barrels of oil per day; and mmbtu means million British thermal units.

 

Chairman's and Chief Executive Officer's Statement

Activities across 2019 have continued apace for Echo as it continues to execute against its Latin American growth strategy. In line with this strategy, the Company secured a significant production asset and reserve base in Santa Cruz Sur ("SCS") in November 2019, which has enabled the Company to diversify its portfolio and brings with it a revenue stream capable of further growth.

Argentina

Santa Cruz Sur

In November 2019, Echo completed the acquisition of a 70% non-operated working interest in the Santa Cruz Sur package of five mature producing blocks from Petrolera El Trebol S.A. ("PETSA"), a subsidiary of Phoenix Global Resources plc.  The addition of these assets has provided material production to the Group as the foundation of a balanced, revenue-generating portfolio with a strong reserves base. These assets also bring significant upside from relatively low-risk production enhancement opportunities and exciting near-term drilling opportunities.

At the end of 2019 Santa Cruz Sur's 1P net Echo reserves base stood at an estimated 3.8 MMboe for 1P and 12.1 MMboe respectively for 2P (net to a 70% interest) illustrating the significance of this acquisition. At year end 2018 the Company had no reserve base, and at the end of 2019 the SCS transaction has enabled the Company to book material reserves.

Prior to Echo's acquisition of the SCS licences on 1 November 2019, production across the 5 licences in H1 2019 period was approximately 3,687 boepd (2,581 boepd, including 587bbls of oil per day net production to a 70% interest). Total net production in the period from 1 November 2019 to 31 December 2019 net to Echo was 34,466 bbls of oil and 710 MMscf of gas.

The Campo Limite exploration well ("CLix-1001") on the Palermo Aike concession was spud in late December 2019. The cost of this well, corresponding to Echo's interest, was paid for by the previous owner of the concession, PETSA, as part of the acquisition agreement. At year end drilling of the well had begun targeting a conventional Springhill reservoir on a structure located two kilometres from the Chilean border. Post-period, the well reached total depth on 20 January 2020 and completion and testing will be required to assess the commerciality of the well. Unfortunately, testing of this well has been interrupted due to travel restrictions imposed as a result of the global Covid-19 pandemic. Well testing activities will resume as soon as practicable and the project remains a priority for 2020.

Tapi Aike

The Tapi Aike block remains one of the most underexplored licence blocks in the basin. The acreage has three wells with interpreted gas presence, existing 2D seismic and partial 3D seismic. The block also benefits from the identification of three highly prospective independent gas exploration plays and one oil play. For much of 2019 the activity on the licence focused on the 3D seismic acquisition programme, with UGA Seismic S.A. ("UGA") shooting a total of 1,200 km2 of new 3D seismic data across the Tapi Aike licence. The seismic acquisition was completed on time and on budget and the data was subsequently processed by highly experienced teams: Wellfield Services Ltda. for Chiripa Oeste and Seismic Prospect S.R.L. for Travesia de Arriba, both based in Buenos Aires. In Novemberthe Company and its partner  spudded the Campo La Mata exploration well ("CLM x-1") on the newly acquired eastern cube (Chiripa Oeste). The primary target of the well was a stratigraphic trap ("Magallanes 20"), with secondary targets in deeper and shallower intervals. At year end we had reached total depth and the initial wireline log results were sufficiently encouraging to move to completion and hydraulically stimulate the formation and test the well. Post-period, we undertook these testing operations and announced a non-commercial gas discovery in February 2020. Interpretation of the newly acquired 3D seismic continues to progress and at year end processing on the western cube (Travesia de Arriba) was progressing.

Bolivia 

As announced in our half-year report in September 2019, the Board believes that while there is potential on the Huayco and Rio Salado blocks, the opportunities present there are not currently compatible with the Company's strategy, in part due to the extremely high cost of exploration drilling on the block and the soft farm-out market. Echo continues to evaluate the best route to maximise shareholder value in relation to the Bolivian position.

Corporate

2019 has seen management changes with the appointment of Martin Hull as Chief Executive Officer and Fiona MacAulay stepping down from the Board as Non-Executive Director.

Following the drilling campaign on the Fracción C, Fracción D, and Laguna De Los Capones concessions ("CDL"), the Board conducted a portfolio review and seeing relatively limited remaining upside for shareholders in CDL, in May 2019 the Company negotiated and agreed an accelerated close of the initial phase of works on CDL with Compañia General de Combustibles S.A. ("CGC"). This resulted in Echo withdrawing from its interests and liabilities under the CDL concessions prior to the commencement of the second stage of works on CDL in accordance with the terms of the CDL farm-out agreement thereby enabling Echo to focus on Tapi Aike.   Echo now holds a 19% interest in the Tapi Aike licence, ending the previous carry arrangement and significantly lowering its capital needs with regard to the drilling programme.

 

Post-Period Events

Post-period, 2020 has delivered some extremely challenging conditions from a human and an economic perspective. The impact of the OPEC+ price war combined with the demand destruction caused by Covid-19 created unprecedented downward forces on the oil and gas price and for the first time, we witnessed negative pricing for WTI. The Company acted quickly to mitigate the impact of these challenges and engaged in a renegotiation of the Company's debt, which has recently been successfully concluded. The Company has materially reduced its G&A and capital expenditure with reductions and deferrals which have resulted in lower field costs. The reduction of field costs was a stated aim following the SCS acquisition. The Company has also refocused its attention on its producing gas assets which benefit from a more robust pricing environment. We believe that the rapid actions which the Company has taken to reduce costs and streamline the operational part of the business stands us in good stead to weather this unprecedented storm and to grow the business as global activity and demand returns. We believe we have the right team in place to do this and look forward positively to the opportunities ahead.

James Parsons - Non-Executive Chairman

Martin Hull - Chief Executive Officer

 

 

Operational Review

Significant milestones achieved in Tapi Aike exploration alongside the acquisition of a material production and reserve base.

Strengthened Argentinian Portfolio

Tapi Aike

For Echo, 2019 was a year of significant milestones for operational activity in the Tapi Aike exploration licence, as the Company completed an extensive 3D seismic acquisition programme, leads were upgraded to prospects following processing and interpretation of this newly acquired seismic data. Technical work matured these prospects to drill-ready status, culminating in the spud of the first exploration well, Campo La Mata x-1, in November 2019.

Mobilisation of the seismic crew began in December 2018 and the extensive seismic acquisition programme was completed in June 2019. Following a competitive tender process, the 3D seismic acquisition was undertaken by Argentinian contractor UGA who have considerable experience executing projects in the Austral Basin. The project was completed without any Lost Time Incidents and with minimum environmental impact.

The acquisition was split across two areas in order to focus on the most prospective parts of the Tapi Aike licence, after high grading the portfolio of leads based on existing 2D seismic and well data. Firstly, the Chiripa Oeste survey, covering 414km2 in the east of the licence, aimed to better define a series of high negative amplitude features. The survey was designed to subsequently allow high quality amplitude versus offset ("AVO") analysis to further de-risk the prospectivity of the amplitude features.

The resulting Chiripa Oeste 3D seismic volume was processed by Wellfield Services and successfully demonstrated that the high amplitude features were present in the target intervals on the 3D data. Echo subsequently undertook advanced geophysical analysis by working with rock physics and AVO experts in collaboration with the operator CGC. This work identified the presence of Class III AVO anomalies that aided the high grading of prospects and the finalisation of the CLM x-1 well location.

Immediately following completion of the Chiripa Oeste seismic acquisition, the seismic equipment mobilised to the Travesia de Arriba survey, a 790km2 area in the west of the Tapi Aike licence. Here the aim of the 3D seismic shot was to better image the target reservoir intervals. Seismic acquisition was successfully completed in June 2019 and the seismic equipment demobilised. Processing of the 3D volume by Seismic Prospect S.R.L. is near completion and will be followed by geological and geophysical interpretation to finalise a well location.

The CLM x-1 exploration well in the Chiripa Oeste 3D area was spudded in November 2019 using the Petreven H-205 rig. It was drilled to a TD of 2,513m TVD, with the primary objective, the Magallanes 20 interval encountered at approximately 2,181m TVD. Additionally, two secondary targets existed, the Magallanes 60 and the Anita formation at approximately 1,977m TVD and 2,265m TVD respectively. The well encountered gas shows elevated above background levels whilst drilling through each target interval, including 1,000,000 parts per million ("ppm") in the Anita formation which indicated that the gas chromatography machine was fully saturated. Following the acquisition of 38m of core and wireline log analysis multiple zones of interest were identified. The results were sufficiently encouraging to move to completion and testing of the well, by rigless mechanical stimulation using coiled tubing and nitrogen lift. Post-period the well was hydraulically tested and stimulated and, on 19 February 2020, the Company announced it as a non-commercial gas discovery. To achieve the threshold of commerciality, it is estimated the well would require a stabilised production rate across the intervals of approximately 1.0 MMscf/d, which was not achieved from the Anita and Magallanes 20 targets. The secondary Anita target flowed at surface at an estimated rate of up to 0.57 MMscf/d with an estimated average rate of 0.35 MMscf/d. The Anita target also yielded condensate with an API gravity of 50 degrees, with a flow rate as measured at the well head at an estimated 7.5 to 18 bbls/d. The primary Magallanes 20 target flowed at surface at an estimated rate up to 0.28 MMscf/d with an estimated average rate of 0.25 MMscf/d. No condensate was retrieved from the interval. Whilst the lack of commerciality from the tested intervals was disappointing, the CLM x-1 well has proven the presence of a working petroleum system on the Chiripa Oeste 3D seismic in Tapi Aike, with the Class III amplitude vs offset characteristics being a successful predictor of the presence of gas.

Santa Cruz Sur

Exploration

Following demobilisation from the CLM x-1 location in December 2019, the Petreven H-205 rig mobilised to the Campo Limite (CLix-1001) well location in the Palermo Aike concession, part of the Santa Cruz Sur assets.

The target for the CLix-1001 well is a conventional Springhill sandstone reservoir, where a truncation geometry on to a basement high has been identified on 3D seismic. The target is supported by a negative seismic amplitude anomaly and by gas encounters in nearby legacy wells. Having spud in late December 2019, post-period the reservoir was encountered at 2,124m in January 2020. Initial analyses of the wireline log data highlighted a zone of interest comprised of fine-grained sandstones and coincided with elevated gas shows of 193,000 ppm against a background of 20,000 ppm. The presence of elevated gas shows in the target section combined with wireline log data was positive and has resulted in the Company taking the decision to move to completion and testing.

Completion and testing initially commenced at the end of February 2020 as planned but were temporarily suspended due to travel restrictions imposed by the Argentine authorities in response to the Covid-19 pandemic. Testing will resume as soon as practically possible.

Production

From 1 November 2019 Echo has been entitled to its 70% working interest share of production from the Santa Cruz Sur assets. The table below details average production by concession for November-December 2019. The Santa Cruz assets bring an important reserve base.

 

 

Financial Review

Echo engaged in a busy and diverse operational programme for the year ended 31 December 2019. The year began with the completion of the Tapi Aike seismic acquisition programme and ended with two exploration wells drilled, the first in Tapi Aike and a second in the newly acquired Santa Cruz Sur assets. These were made possible by the careful management of cash balances and the recapitalised balance sheet following the Santa Cruz Sur transaction, and associated fundraising. The Group exited the year with a plan to further initiate cost cutting in G&A and in-field operations with the new operator in Santa Cruz Sur.

Having exited the CDL asset on 19 May 2019, Echo had no revenue until the completion of the Santa Cruz Sur acquisition on 11 of November. Following the completion of seismic acquisition and two new exploratory drills, the Group loss for the year was US $13.3 million (2018: US $24.4 million).  The working capital profile of the Group has fluctuated in 2019 as it stopped, then returned to being a non-operating producer and as such the Group exited the year with a cash balance of US $1.7 million (2018: US $15.6 million).

Income Statement

Revenue of US $2.6 million (2018: Nil restated) was composed of US $1.4 million in oil sales (2018: Nil restated) and US $1.2 million in gas sales realised (2018: Nil restated).

Ø Average net oil price realised for the period was US $51.52/bbl.

Ø Gas sales were 15.5 million m3 with average realised price being US $2.36/mmbtu.

Ø Operational costs of US $3.1 million (2018: Nil restated). Operational costs for the SCS assets reflect period of exit by prior operator. Post-period Echo and the new operator are proactively working to implement an ambitious cost cutting programme.

Ø Value of stock of crude oil US $0.4 million (2018: US $0.7 million) was based on a discounted Brent price.

Ø Exploration expenses of US $0.6 million (2018: US $0.8 million) largely relates to on-going business development activity, including due diligence and on-going activity in Bolivia. Echo's interests in Bolivia are all pre-licence thus no costs relating to Bolivia have been capitalised.

Ø Gross administration expenses were US $1.0 million lower than in 2018 reflecting the management's continued focus on cost control across the Group while the team also contracted slightly to reflect changes in operational activity. Changes to the executive team in 2019, and amendments post-period in early 2020, have reduced our gross administrative spend going forward. Professional advisor fees this year related mainly to the new Santa Cruz Sur asset acquisition at the end of the year and were US $0.7 million (2018: US $0.9 million). Administration costs included the non-cash cost of options of US $0.4 million (2018: US $0.7 million).

Ø Finance costs are composed of interest payable costs of US $1.9 million (2018: US $2.0 million), the amortisation of debt fees, the unwinding of the discount on the debt issue, foreign exchange losses and the accretion of right of use assets bringing total finance fees to US $5.5 million (2018: US $4.0 million). Echo hold a substantial VAT receivable balance in Argentina, the devaluation of the Argentine Pesos has resulted in exchange losses of US $1.2 million (2018: US $0.05 million).

 

As Echo seeks to find success through the drill bit, exploration costs in the year have led to a loss from continuing operations of US $10.0 million in the year (2018: US $9.7 million).

Balance Sheet

 

CDL Licences

At the end of 2018 Echo took the decision to fully impair the value of the CDL assets as at 31 December 2018 (US $15.2 million). The completion of the fractural stimulation in early 2019 meant that there were further impairment costs in 2019 of US $2.8 million. CGC took on all outstanding liabilities on the CDL concessions and agreed to waive all outstanding work commitments. Additionally, CGC released US $2.06 million of Echo cash previously earmarked for CDL which was partially redirected towards the Tapi Aike drilling campaign costs.

 

Tapi Aike Licence

As a result of the Argentinian portfolio review, Echo also proceeded with restructuring its participation in the Tapi Aike license. Upon acquiring the Tapi Aike licence Echo had agreed to carry CGC for 65% of the work programme costs during the initial three-year period. Under the restructured participation Echo now holds a 19% interest and will pay 19% of costs in Tapi Aike, ending the previous carry arrangement and significantly lowering the Company's capital obligations. Echo funded the seismic acquisition campaign at 65% per the original commitment and this process was completed in June 2019. In November 2019, Echo commenced its drilling campaign in Tapi Aike, with initial well costs capitalised and expenditure continuing into 2020 with operations.

 

Santa Cruz Sur Licences

In October 2019 Echo announced its proposed acquisition of a 70% non-operated interest in the Santa Cruz sur package of five mature producing blocks from PETSA, a subsidiary of Phoenix Global Resources plc. Purchase of the assets was finalised on 11 November 2019 for a non-contingent fee of US $8.5 million and a contingent cash consideration of US $1.5 million if as of 1 October 2020 there is an increase in the proven reserves attributable to the Santa Cruz Sur assets. Production in the assets began to accrue to Echo from 1 November 2019 the effective date of the acquisition. Between 1 November 2019 and 31 December 2019 there was a total 24,149 bbls of oil net sold by Echo, with sales totalling US $1,395,355. Gas revenues in the period were US $ 1,190,713 for 15.5m3. At the end of December 2019, the exploration well CLix-1001 in the Palermo Aike license spud. As part of the acquisition agreement, the costs of the CLix-1001 that correspond to Echo's interest will be paid for by PETSA, the previous owner of the interest. Echo will reimburse up to 60% of these costs at a later date in a mixture of cash and ordinary shares. Total reimbursement will not exceed the maximum amount of US $1.1 million

 

Financing

The early exit from the CDL producing assets and the acquisition late in the year of the SCS assets, meant that Echo only participated in production for the first four and last two months of 2019. To fund the acquisition of the Santa Cruz Sur assets, the Company raised aggregate proceeds of US $12.8 million, consisting of approximately US $6.1 million through the issue of 193,820,000 new ordinary shares in the Company at a subscription price of 2.5 pence per new ordinary share and a €5 million secured convertible debt facility provided by Lombard Odier Asset Management (Europe) Limited and associated grant of warrants to subscribe for 74,200,000 ordinary shares exercisable at 3.0 pence per Ordinary Share. Proceeds from the subscription and the debt facility were applied towards the cash consideration of the SCS acquisition. Placing funds were subsequently used to fund operational activity in Argentina.

 

Working Capital

The year-on-year change in the working capital profile of Echo reflects the move away from producing activities for six months of the year, before a return in November 2019 via the acquisition of the Santa Cruz Sur concession working interest. The high level of receivables as at 31 December 2019 includes US $1.0 million from PETSA, the vendor of the Santa Cruz Sur concession working interest, reflecting post acquisition working capital adjustments. Trade receivables and accrued income from operations are US $2.2 million (2018: US $1.1 million) with additional joint venture receivables of US $0.9 million (2018: US $0.7 million). Echo's high level of investment in the previous period has built-up a VAT and retention tax balance of US $4.1 million. At the end of 2019 legislation was enacted which enables Echo to submit a claim for VAT balances that are more than six months old.  The trade payables value at year end recognises Echo's share of payables for both Argentine joint ventures of US $4.9 million.

 

As at 31 May 2020 Group unaudited cash balances were US $1.1 million. Whilst the directors remain acutely cost conscious and value focused, the Group recognises that in order to pursue organic and inorganic growth opportunities and fund on-going operations it may require access to additional funding. This may be sourced through debt finance, joint venture equity or share issues.

 

Post Balance Sheet

Echo moved quickly to materially reduce expenditure during this period of low oil prices and uncertainty arising from the Covid-19 pandemic. Substantial progress has been made with cost reduction initiatives in the Santa Cruz Sur assets. As previously announced, the Company has been exploring all options available to it to preserve existing cash resources. As part of its programme to conserve cash the Company announced that it would be asking the holders of its debts to defer all cash interest payments during 2020. At a meeting of the holders of the Company's EUR 20 million Luxembourg listed notes held on  22 May 2020 consent was given to waive the event of default in relation to the non-payment by the Company of quarterly note interest on 31 March 2020. This restructuring followed earlier amendments to the Company's existing £1.0million secured loan and €5million secured facility such that no interest payments will be required of the Company during 2020. Instead, 2020 interest under the loan instruments shall accrue and be calculated on the last business day of December 2020 so as to form part of the principal amount of the instruments and no interest payments shall be made until March 2021.

 

Echo continues to work collaboratively with partners to prioritise higher margin gas sales and focus our workover rig at Santa Cruz Sur on potential near term upside of rehabilitating existing wells, whilst deferring non-essential activities and maintaining critical operations. Combined with continuing progress in the restructuring of Echo's debt, these efforts provide the Board with significant confidence for the future.

 

 

Consolidated Statement of Comprehensive Income

Year ended 31 December 2019

 

 

 

 

 

 

Notes

 

Year to

31 December 2019

 

US $

 

Year to

31 December 2018

Restated

US $

Continuing operations

 

 

 

 

 

 

 

Revenue

4

2,586,069

-

Cost of sales

5

(3,127,542)

-

Gross profit

 

(541,473)

-

Exploration expenses

 

(647,546)

(800,683)

Administrative expenses

 

(3,797,861)

(4,956,914)

Impairment of intangible assets

 

-

-

Impairment of property, plant and equipment

 

-

-

Operating loss

 

(4,986,880)

(5,757,597)

Financial income

 

92,445

99,361

Financial expense

6

(5,475,616)

(4,002,312)

Derivative financial gain/(loss)

 

339,219

-

Loss before tax

 

(10,030,832)

(9,660,548)

Taxation

 

-

-

Loss from continuing operations

 

(10,030,832)

(9,660,548)

Discontinued operations

 

 

 

Profit/(loss) after taxation for the year from discontinued operations

7

(3,441,230)

(14,804,618)

Loss for the year

 

(13,472,062)

(24,465,166)

Other comprehensive income:

 

 

 

Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax)

 

 

 

Exchange difference on translating foreign operations

 

182,478

507,849

Total comprehensive loss for the year

 

(13,289,584)

(23,957,317)

Loss attributable to:

Owners of the parent

 

 

(13,472,062)

 

(24,465,166)

Total comprehensive loss attributable to:

Owners of the parent

 

 

(13,289,584)

 

(23,957,317)

Loss per share (cents)

8

 

 

Basic

 

(2.61)

(5.49)

Diluted

 

(2.61)

(5.49)

Loss per share (cents) for continuing operations

 

 

 

Basic

 

(1.94)

(2.17)

Diluted

 

(1.94)

(2.17)

 

 

 

 

               

 

Consolidated Statement of Financial Position

Year ended 31 December 2019

 

 

 

 

Notes

 

 

31 December 2019

US $

 

 

31 December 2018

US $

Non-current assets

 

 

 

   Property, plant and equipment

9

1,101,210

335,612

   Other intangibles

10

20,573,586

1,559,931

 

 

21,674,796

1,895,543

Current Assets

 

 

 

   Inventories

11

420,844

802,184

   Other receivables

12

8,677,279

6,911,075

   Cash and cash equivalents

13

1,698,012

15,609,303

 

 

10,796,135

23,322,562

Current Liabilities

 

 

 

   Trade and other payables

14

(7,022,255)

(2,200,432)

   Derivative financial liabilities

15

(728,783)

-

 

 

(7,751,038)

(2,200,432)

Net current assets

 

3,045,097

21,122,130

Total assets less current liabilities

 

24,719,893

23,017,673

Non-current liabilities

 

 

 

   Loans due in over one year

16

(20,604,302)

(15,914,380)

   Provisions

 

(2,940,000)

-

   Right of use liability

 

-

(50,709)

 

 

(23,544,302)

(15,965,089)

Total Liabilities

 

(31,295,340)

(18,165,521)

Net Assets

 

1,175,591

7,052,584

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

   Share capital

 

5,190,877

4,444,999

   Share premium

 

64,817,662

58,329,880

   Warrant reserve

 

11,142,290

11,142,290

   Share option reserve

 

1,159,580

1,195,106

   Foreign currency translation reserve

 

(2,277,812)

(2,095,334)

   Retained earnings

 

(78,857,006)

(65,964,357)

Total Equity

 

1,175,591

7,052,584

 

 

Consolidated Statement of Changes in Equity

Year ended 31 December 2019

 

 

 

Retained earnings

US $

 

 

Share capital

US $

 

 

 

Share

premium

US $

 

 

 

Warrant reserve

US $

 

Share option

reserve

US $

Foreign currency translation reserve

US $

 

 

 

Total equity

US $

1 January 2018

(42,608,243)

4,065,713

39,888,089

11,241,239

961,676

(1,587,485)

11,960,989

Loss for the year

(9,660,548)

-

-

-

-

-

(9,660,548)

Discontinued operations

(14,804,618)

-

-

-

-

-

(14,804,618)

Exchange Reserve

507,849

-

-

-

-

(507,849)

-

Total comprehensive loss for the year

 

(23,957,317)

 

-

 

-

 

-

 

-

 

(507,849)

 

(24,465,166)

New shares issued

-

379,286

19,890,017

-

-

-

20,269,303

New share warrants exercised

88,931

-

10,018

(98,949)

-

-

-

Share issue costs

-

-

(1,458,244)

-

-

-

(1,458,244)

Share options lapsed

512,272

-

-

-

(512,272)

-

-

Share-based payments

-

-

-

-

745,702

-

745,702

31 December 2018

(65,964,357)

4,444,999

58,329,880

11,142,290

1,195,106

(2,095,334)

7,052,584

 

 

 

 

 

 

 

 

1 January 2019

(65,964,357)

4,444,999

58,329,880

11,142,290

1,195,106

(2,095,334)

7,052,584

Loss for the year

(10,030,832)

-

-

-

-

-

(10,030,832)

Discontinued operations

(3,441,230)

-

-

-

-

-

(3,441,230)

Exchange Reserve

182,478

-

-

-

-

(182,478)

-

Total comprehensive loss for the year

 

(13,289,584)

 

-

 

-

 

-

 

-

 

(182,478)

 

(13,472,062)

New shares issued

-

745,878

6,924,246

-

-

-

7,670,124

Share issue costs

-

-

(436,464)

-

-

-

(436,464)

Share options lapsed

396,935

-

-

-

(396,935)

-

-

Share-based payments

-

-

-

-

361,409

-

361,409

31 December 2019

(78,857,006)

5,190,877

64,817,662

11,142,290

1,159,580

(2,277,812)

1,175,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows

Year ended 31 December 2019

 

 

 

Year to

31 December 2019

US $

 

Year to

31 December 2018

US $

Cash flows from operating activities

 

 

 

Loss from continuing operations

 

(10,030,832)

(9,660,548)

Loss from discontinued operations

 

(3,441,230)

(14,804,618)

 

 

(13,472,062)

(24,465,166)

Adjustments for:

 

 

 

   Depreciation and depletion of property, plant and equipment

 

190,383

361,073

   Depreciation and depletion of intangible assets

 

369,874

-

   Gain on disposal of property, plant and equipment

 

22,040

(39,873)

   Impairment of intangible assets and goodwill

 

2,802,239

14,148,371

   Impairment of property, plant and equipment

 

-

1,068,751

   Share-based payments

 

361,409

745,702

   Financial income

 

(352,579)

534,243

   Financial expense

 

5,738,338

3,301,747

   Derivative financial gain

 

(339,219)

-

 

 

8,792,485

(4,345,152)

Decrease/(Increase) in inventory

 

381,341

(802,184)

(Increase) in other receivables

 

(3,359,213)

(6,142,997)

(Decrease)/increase in trade and other payables

 

3,753,130

(1,212,590)

Cash used in operations

 

9,567,743

(12,502,923)

Net cash used in operating activities

 

(3,904,319)

(12,502,923)

Cash flows from investing activities

 

 

 

Purchase of intangible assets

 

(19,245,768)

(13,208,302)

Purchase of property, plant and equipment

 

(979,164)

(1,357,593)

Net cash used in investing activities

 

(20,224,932)

(14,565,895)

Cash flows from financing activities

 

 

 

Proceeds from debt

 

5,434,727

-

Debt issue costs

 

(388,852)

-

Interest received

 

180,648

146,038

Interest paid

 

(2,085,954)

(2,744,284)

Repayment of right of use liability

 

(156,269)

(161,356)

Issue of share capital

 

7,670,124

20,269,303

Share issue costs

 

(436,464)

(1,458,244)

Net cash from financing activities

 

10,217,960

16,051,458

Net (decrease)/increase in cash and cash equivalents

 

(13,911,291)

(11,017,360)

Cash and cash equivalents at 1 January 2018

 

15,609,303

26,626,663

Cash and cash equivalents at 31 December 2018

 

1,698,012

15,609,303

 

 

Notes to the Financial Statements

Year ended 31 December 2019

1. Accounting Policies                                                                                                                                   

General Information                                                                                                                                                    

The financial information contained in this announcement does not constitute the Company's statutory financial statements for the year ended 31 December 2019 but has been extracted from them. Those financial statements will delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors have reported on these financial statements and their report was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006. The report highlights a material uncertainty in relation to going concerns as follows:

"Material uncertainty related to going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in Note 2 in the financial statements concerning the Group's ability to continue as a going concern. Further funds will be required to finance the Group's and Company's pursuit of organic and inorganic growth opportunities and fund on-going operations. The Group is rigorously pursuing the aim of preserving cash, deferrals and cost reductions. If cash flow from existing sources was not sufficient to meet the Group's commitments the Directors expect to source additional funding through debt finance, joint venture equity or share issues. However, there are no binding agreements in place to date. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern."

The Company's functional currency is the United States dollar (US $). Transactions arising in currencies other than the US $ are translated at average exchange rates for the relevant accounting period, with material transactions being accounted at the rate of exchange on the date of the transaction.

The principal accounting policies are summarised below:                                                              

(a) Basis of preparation                                                                                                                               

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. These financial statements are for the year 1 January 2019 to 31 December 2019. The comparatives shown are for the year 1 January 2018 to 31 December 2018.

                               

New standards and interpretations not applied                                                                                              

At the date of authorisation of these financial statements, a number of standards and interpretations were in issue but not yet effective. The directors do not anticipate that the adoption of these standards and interpretations, or any amendments to existing standards as a result of the annual improvements cycle, will have a material effect on the financial statements in the year of initial application

(b) Basis of consolidation                                                                                                                                           

The Group financial statements consolidate the financial statements of the Company and its subsidiaries under the acquisition method. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.          

 

(c) Joint Arrangements

A joint arrangement is one in which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Certain of the Group's licence interests are held jointly with others. Accordingly, the Group accounts for its share of assets, liabilities, income and expenditure of these joint operations, classified in the appropriate statement of financial position and income statement headings.

 

(d) Revenue

Revenue comprises the invoice value of goods and services supplied by the Group, net of value added taxes and trade discounts. Revenue is recognised in the case of oil and gas sales when goods are delivered and title has passed to the customer. This generally occurs when the product is physically transferred into a pipeline or vessel. Echo recognised revenue in accordance with IFRS 15. Our joint venture partner markets gas and crude oil on our behalf. Gas is transferred via a metred pipeline into the regional gas transportation system, which is part of national transportation system, control of the gas passes at the point at which the gas enters this network, this is the point at which gas revenue would be recognised. Gas prices vary from month to month based on seasonal demand from customer segments and, production in the market as a whole. Our partner agrees pricing with their portfolio of gas clients based on agreed pricing mechanisms in multiple contracts. Some pricing is regulated by government such as domestic supply. Oil shipments are priced in advance of a cargo and revenue is recognised at the point at which cargoes are loaded onto shipping vessel at terminal.

 

(e)  Property, plant and equipment                                                                                                       

Property, plant and equipment is stated at cost, or deemed cost less accumulated depreciation, and any recognised impairment loss. Land is stated at cost and is not depreciated. Depreciation is charged so as to write off the cost or valuation of assets less any residual value over their estimated useful lives, using the straight- line method, on the following bases:      

        

Fixtures & fittings                                            12% to 33.3% straight-line                                                

Motor vehicles                                                  25% straight-line         

                                                                    

Oil and gas properties are depleted on a unit of production basis commencing at the start of commercial production or depreciated on a straight-line basis over the relevant asset's estimated useful life. Expenditure is depreciated on a unit of production basis; the depletion charge is calculated according to the proportion that production bears to the recoverable reserves for each property. Depletion will not be charged on an asset in the course of construction, depletion commences when the asset is brought into use.

(f) Property right of use asset                                                                                                                   

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right of use lease is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before commencement date plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted using the incremental borrowing rate of the individual company which is the lessee.

                               

(g) Other intangible assets - exploration and evaluation costs                                                  

Exploration and evaluation (E&E) expenditure comprises costs which are directly attributable to researching and analysing exploration data. It also includes the costs incurred in acquiring mineral rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. When it has been established that a mineral deposit has development potential, all costs (direct and applicable overhead) incurred in connection with the exploration and development of the mineral deposits are capitalised until either production commences or the project is not considered economically viable. In the event of production commencing, the capitalised costs are amortised over the expected life of the mineral reserves on a unit of production basis. Other pre-trading expenses are written off as incurred. Where a project is abandoned or is considered to be of no further interest, the related costs are written off.

 

(h) Impairment of tangible and intangible assets excluding goodwill                                    

At the date of each statement of financial position, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).  Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit ("CGU") to which the asset belongs.

 

The recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.                        

(i) Taxation

Current taxation                                                                                                                                                             

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the tax authorities.  The tax rates and the tax laws used to compute the amount are those that are enacted, or substantively enacted, by the balance sheet date.
                                                                                                                 

 

Deferred taxation                                                                                                                                                           

Deferred tax is the tax expected to be payable or recoverable on differences between the current year amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit.                                                                                       

Deferred tax assets are recognised to the extent the temporary difference will reverse in the foreseeable future and it is probable that future taxable profit will be available against which the asset can be utilised.

Deferred tax is recognised for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint ventures, to the extent it is probable that the temporary difference will reverse in the foreseeable future.                                                                       

(j) Conversion of foreign currency                                                                                                                          

Foreign currency transactions are translated at the average exchange rates over the year, material transactions are recorded at the exchange rate ruling on the date of the transaction. Assets and liabilities are translated at the rates prevailing at the balance sheet date. The Group has significant transactions and balances denominated in euros and GBP. The year-end exchange rate to USD was US $1 to GBP £0.7649 and US $1 to €0.8906 (2018: US $1 to GBP £0.7837, US $1 to Euro €0.8729 ) US $1 to ARS $0.01724 and the average exchange rate during 2019 was US $1 to GBP £0.7822 (2018: US $1 to GBP £0.7489).   

 

In the company financial statements, the income and expenses of foreign operations are translated at the exchange rates ruling at the dates of the transactions. The assets and liabilities of foreign operations, both monetary and non-monetary, are translated at exchange rates ruling at the balance sheet date. The reporting currency of the company and group is United Stated Dollars (US $).              

                                                                                                       

(k) Share-based payments         

                                                                                                                               

The fair value of equity instruments granted to employees is charged to the income statement, with a corresponding increase in equity. The fair value of share options is measured at grant date, using the binomial option pricing model or Black-Scholes pricing model where considered more appropriate, and spread over the period during which the employee becomes unconditionally entitled to the award. The charge is adjusted to reflect the number of shares or options that vest, except where forfeiture is due to market-based criteria.

 

(l) Financial instruments                                                                                                                                             

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

                                               

Trade and other receivables                                                                                                      

Trade and other receivables are initially measured at fair value and are subsequently reassessed at the end of each accounting period.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.                                                                                                                           

 

Financial liabilities and equity                                                                                                                 

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.            

                                               

Trade payables                                                                                                                                

Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

 

Equity instruments

Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32:

 

·    They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and 

·    Where the instrument will or may be settled in the Group's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group's own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the financial instrument is classified as a financial liability.

 

(m) Borrowings                                                                                                                                               

Borrowings are recognised initially at the fair value of the proceeds received which is determined using a discount rate which reflects the cost of borrowing to the Group. In subsequent periods borrowings are recognised at amortised costs, using an effective interest rate method. Any difference between the fair value of the proceeds costs and the redemption amount is recognised as a finance cost over the period of the borrowings.

 

(n) Inventory

Echo has chosen to value crude oil inventories, a commodity product, at net realisable value, the value is based on a discounted observable year-end market price. Other inventory items are valued at the lower of net realisable value and cost.

 

(o) Going Concern

The financial information has been prepared assuming the Group will continue as a going concern. Please see Note 2 Accounting Estimates and Judgements for an extended disclosure on this issue.

 

 

2. Accounting Estimates and Judgements                                                                                                             

Use of Estimate and Judgements

The preparation of financial statements in conforming with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities as at the balance sheet date and the reported amount of revenues and expenses during the period. Actual outcomes may differ from those estimates. The key sources of uncertainty in estimates that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities, within the next financial year, are the impairment of assets and the Group's going concern assessment.

Amounts Capitalised to the Consolidated Statement of Financial Position

In accordance with the Group policy, expenditures are capitalised only where the Group holds a licence interest in an area. All expenditure relating to the Bolivian assets has been expensed to the statement of comprehensive income, as the Group has not yet been assigned any licence interests in the country. The Group has capitalised its participation in the Tapi Aike licence and the assets acquired in Santa Cruz Sur area. The assignment of Echo´s participation in these Argentine licences is still subject to the authorisation of the Executive Branch of Santa Cruz Province, Echo are supported in this process by their joint venture partner CGC and ROCH and subsequently Interoil & IAG in the Santa Cruz Sur assets,  and the process of title transfer is proceeding as anticipated.

 

Valuation of Assets

Expenditures recognised as exploration and evaluation ("E&E") assets are tested for impairment whenever facts and circumstances suggest that they may be impaired, which includes when a licence is approaching the end of its term and is not expected to be renewed, or there are no substantive plans for continued exploration or evaluation of an

area, or whilst development of a licence is still likely to proceed in an area but there are indications that the E&E assets are unlikely to be recovered in full.
                                                                                                                                               

When considering whether E&E assets are impaired the Group first considers the IFRS 6 indicators. IFRS 6 requires an entity to assess whether E&E assets require impairment when facts and circumstance suggest that the carrying amount of the assets may exceed their recoverable amount, these include:    

                                                                                                                 

·    The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future and is not expected to be renewed;

·    Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;

·    Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area;

·    Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the E&E assets is unlikely to be recovered in full from successful development or by sale.                                                                                                                      

In 2018 the CDL assets were written down, Echo decided to leave the license and impaired the balance sheet values as at the end of 2018, the cost of subsequent licence activity in early 2019 was impaired in the current accounting period. The determination of recoverable amounts in any resulting impairment test requires judgement around key assumptions, such as future costs, both capital and operating. There are no indications of impairment on the Tapi Aike asset or the SCS assets.                                                               

Included within receivables are amounts due in respect of VAT of US $ 1.9 million, whilst the reclaim has been submitted to the tax authorities the repayment has yet to be approved. Whilst the company believes that the claim complies with local law and consequently have not recognised any impairment provision such a provision would be required in the event of any adverse finding by the tax authority. This matter is expected to be resolved within the next 12 months.

Determination of derivative financial liabilities

Judgement is requirement when determining the classification of financial instruments in terms of liability or equity. These judgements include an assessment of whether the financial instrument include any embedded derivative features, whether they include contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether that obligation will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

 

Valuation of derivative financial liabilities

The Group has issued warrants over ordinary shares as fundraising commission in respect of debt fundraisings during the year which can be converted to share capital at the option of the holder. These warrants are accounted for as an embedded derivative which is recognised at fair value through profit or loss. The Directors estimated the fair value of the derivative component using the Black Scholes option pricing model, as described in Note 15. This required making certain estimates on the share price volatility of the Group which inevitably involved a degree of judgement and the actual outcome may vary.

 

Inter-Group Balances

In determining whether parent company investments in subsidiaries have been impaired, we review subsidiary assets and liabilities to determine whether Group investment is recoverable. The only entity where an impairment trigger might be recognised was the Bolivian entity where the Group holds no licence assets. A determination was made that because of ongoing negotiations and Company strategic intent, investment would ultimately still be recoverable.                                  

                                               

Going Concern                                                                                                                                 

The financial information has been prepared assuming the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations.

 

In the first quarter of 2020 the oil price has been affect by the global spread of COVID-19 and the resultant reduction in oil demand, oil prices have continued to decline significantly. The Company confirms that, prior to cost reductions, operations at the Santa Cruz Sur assets are not currently cash flow positive at prevailing oil and gas price levels. The Company's existing cash resources will not be sufficient to sustain operations at legacy Santa Cruz Sur cost levels beyond the short term. Substantial progress has been made with cost reduction initiatives in the Santa Cruz Sur assets as a response to prevailing commodity prices.

 

During the first half of 2020 the Company and its operating partners are working to substantially reduce monthly operating cash outflows at Santa Cruz Sur through a combination of cost reductions and deferments.

 

At a corporate level, in accordance with our previously stated aim of preserving cash, deferrals and cost reductions are being rigorously pursued. Through a combination of contract renegotiation, cost cutting and expense deferrals which started to come into effect from 1 April 2020, monthly general and administrative outflows will be reduced by around 50% of corporate budget.

 

The Group recognises that in order to pursue organic and inorganic growth opportunities and fund on-going operations it will require additional funding. This funding may be sourced through debt finance, joint venture equity or share issues. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern. The directors have formed a judgement based on Echo's proven success in raising capital and a review of the strategic options available to the Group, that the going concern basis should be adopted in preparing the financial statements.            

 

 

3. Business Segments     

The Group has adopted IFRS 8 Operating Segments. Per IFRS 8, operating segments are regularly reviewed and used by the board of directors being the chief operating decision maker for strategic decision-making and resources allocation, in order to allocate resources to the segment and assess its performance. The Group's reportable operating segments are as follow:

 

           

a.            Corporate and Administrative

b.            Santa Cruz Sur
c.            Tapi Aike

d.            Bolivia
e.            Eastern Austral Basin (discontinued) 

                                                                             

Performance is based on assessing progress made on projects and the management of resources used. Segment assets and liabilities are presented inclusive of inter-segment balances. Reportable segments are based around licence activity, although the reportable segments are reflected in legal entities, certain corporate cost costs collate data across legal entities and the segmental analysis reflects this.

 

Information regarding each of the operations of each reportable segment within continuing operations is included in the following table.

 

All revenue, which represents turnover, arises within Argentina and relates to external parties:

 

Corporate & Administrative

US $

 

Santa Cruz Sur

US $

 

Tapi Aike

US $

 

Bolivia

US $

 

Total

US $

Year to 31 December 2019

 

 

 

 

 

Revenues

-

2,586,069

-

-

2,586,069

Cost of sales

-

(3,127,542)

-

-

(3,127,542)

Exploration expense

(587,640)

-

(40,043)

(19,863)

(647,546)

Administration expense

(3,545,328)

-

-

(252,533)

(3,797,861)

Financial income

92,445

-

-

-

92,445

Financial expense

(5,475,203)

-

-

(413)

(5,475,616)

Derivative financial gain

339,219

-

-

 

339,219

Depreciation

175,798

373,212

-

15,822

564,832

Income tax

-

-

-

-

-

Loss before tax

(9,176,507)

(541,473)

(40,043)

(272,809)

(10,030,832)

 

 

 

 

 

 

Non-current assets

233,174

10,871,059

10,566,890

3,673

21,674,796

Assets

6,943,503

14,154,248

11,328,060

45,120

32,470,931

Liabilities

(23,142,362)

(7,205,500)

(905,979)

(41,499)

(31,295,340)

 

 

 

Parent Company

US $

 

Eastern

Austral Basin

US $

 

 

Tapi Aike

US $

 

 

Bolivia

US $

 

 

Ksar Hadada

US $

 

 

Consolidation

US $

 

 

Total

US $

Year to 31 December 2018

 

 

 

 

 

 

 

Revenues

-

8,841,309

-

-

-

-

8,841,309

Cost of sales

-

(8,217,029)

-

-

-

-

(8,217,029)

Exploration expense

(322,909)

(98,410)

-

(379,364)

-

-

(800,683)

Administration expense

(19,077,748)

(264,117)

(47,223)

(295,468)

(26,844)

14,578,339

(5,133,061)

Impairment of intangible assets

(700,536)

(13,447,835)

-

-

-

-

(14,148,371)

Impairment of property, plant and equipment

-

(1,068,751)

-

-

-

-

(1,068,751)

Financial income

778,943

(654,367)

(25,914)

(1,493)

200

1,992

99,361

Financial expense

(3,826,027)

(165,491)

(4,973)

(5,814)

(7)

-

(4,002,312)

Depreciation

(142, 873)

(202,081)

-

(16,119)

-

-

(361,073)

Income tax

-

-

-

-

-

-

-

Loss before tax

(23,148,277)

(15,074,691)

(78,110)

(682,139)

(26,651)

14,580,331

(24,429,537)

 

 

 

 

 

 

 

 

Non-current assets

9,155,775

(3,003,937)

1,203,726

(567,514)

(1,577,127)

(3,315,380)

1,895,543

Assets

24,201,534

4,357,142

2,081,351

(536,303)

(1,577,070)

(3,308,549)

25,218,105

Liabilities

(16,594,151)

(1,405,022)

(123,842)

(41,330)

(1,176)

-

(18,165,521)

Consolidation adjustments in respect of assets relate to the impairment of intercompany assets.

The geographical split of non-current assets arises as follows:

 

 

4. Revenue

 

Year to

31 December 2019

US $

Year to

31 December 2018

US $

Restated

Oil revenue

1,395,356

-

Gas revenue

1,190,713

-

Total Revenue

2,586,069

-

Revenue arising from operations in the CDL licences has been reclassified as part of discontinued operations.

 

 

5. Cost of Sales

 

Year to

31 December 2019

US $

Year to

31 December 2018

US $

Restated

Production costs

2,794,339

-

Selling and distribution costs

311,161

-

Movement in stock of crude oil

(351,170)

-

Depletion

373,212

-

Total Costs

3,127,542

-

Cost of sales arising from operations in the CDL licences has been reclassified as part of discontinued operations.

 

6. Financial Expense

 

Year to

31 December 2019

US $

Year to

31 December 2018

US $

Interest payable

1,940,527

2,039,418

Net foreign exchange losses

1,247,936

-

Unwinding of discount on long term loan

1,688,536

1,283,309

Amortisation of loan fees

464,283

457,485

Accretion of right of use liabilities

17,401

53,192

Bank fees and overseas transaction tax

116,933

168,906

Total

5,475,616

4,002,312

 

 

7. Discontinued Operations

On 20 May 2019 the Company announced that it had negotiated an accelerated close of the initial phase of works on the CLD concession with CGC. This resulted in Echo withdrawing its interests and liabilities under the CDL concessions prior to the commencement of the second stage of works. Following the winding down of operations in Tunisia Independent Resources (Ksar Hadada) Ltd was dissolved in June 2019, all assets have been fully impaired in prior periods.

 

The results of the discontinued operations, are presented below:

 

The cash flows associated with the discontinued operations are:

 

 

8. Loss Per Share

The calculation of basic and diluted loss per share at 31 December 2019 was based on the loss attributable to ordinary shareholders. The weighted average number of ordinary shares outstanding during the year ending 31 December 2019 and the effect of the potentially dilutive ordinary shares to be issued are shown below.

 

 

Year to

31 December 2019

Year to

31 December 2018

Net loss for the year (US $)

(13,472,062)

(24,465,166)

Basic weighted average ordinary shares in issue during the year

515,840,359

445,515,538

Diluted weighted average ordinary shares in issue during the year

515,840,359

445,515,538

Loss per share (cents)

 

 

Basic

(2.61)

(5.49)

Diluted

(2.61)

(5.49)

 

In accordance with IAS 33 and as the entity is loss making, including potentially dilutive share options in the calculation would be anti-dilutive.

Deferred shares have been excluded from the calculation of loss per share due to their nature. Please see Note 25 for details of their rights.

 

 

9. Property, Plant and Equipment

 

 

PPE - O&G

Properties

US $

CDL Licence Areas

Discontinued

 US $

 

Fixtures & Fittings

US $

Property Right-of-Use

Assets

US $

 

 

Total

US $

 

31 DECEMBER 2019

 

 

 

 

 

 

Cost

 

 

 

 

 

1 January 2019

1,270,832

156,554

334,625

1,762,011

 

Exchange differences

-

-

-

-

 

Additions

-

-

-

979,164

 

Disposals

-

(1,270,832)

(25,432)

(24,821)

(1,321,085)

 

31 December 2019

979,164

-

131,122

309,804

1,420,090

 

Depreciation

 

 

 

 

 

 

1 January 2019

1,270,832

66,400

89,167

1,426,399

 

Exchange differences

-

-

-

-

 

Charge for the year

-

38,279

148,766

190,383

 

Impairment charge

-

-

-

-

 

Disposals

-

(1,270,832)

(13,313)

(13,757)

(1,297,902)

 

31 December 2019

3,338

-

91,366

224,176

318,880

 

Carrying amount

 

 

 

 

 

 

31 December 2019

975,826

-

39,756

85,628

1,101,210

 

31 December 2018

-

-

90,155

245,458

335,612

 

31 DECEMBER 2018

 

 

 

 

 

 

Cost

 

 

 

 

 

 

1 January 2018

-

-

95,632

363,058

458,690

 

Exchange differences

-

-

-

-

-

 

Additions

1,270,832

-

79,848

334,625

1,685,305

 

Disposals

-

-

(18,926)

(363,058)

(381,984)

 

31 December 2018

1,270,832

-

156,554

334,625

1,762,011

 

Depreciation

 

 

 

 

 

 

1 January 2018

-

-

37,352

36,306

73,658

 

Exchange differences

-

-

-

(686)

(686)

 

Charge for the year

202,081

-

32,833

126,159

361,073

 

Impairment charge

1,068,751

-

 

 

1,068,751

 

Disposals

-

-

(3,785)

(72,612)

(76,397)

 

31 December 2018

1,270,832

-

66,400

89,167

1,426,399

Carrying amount

 

 

 

 

 

31 December 2018

-

-

90,155

245,458

335,612

31 December 2017

-

-

58,279

326,752

385,031

 

Included within property, plant and equipment are amounts of US $942,976 in relation to assets in construction and as a result are not depleted on the unit of production basis, this will commence when they are available for use.

 

 

10. Other Intangible Assets 

Exploration and Evaluation

 

Argentina

Exploration & Evaluation

US $

 

CDL Licence Areas

Discontinued

US $

 

Ksar Hadada

Exploration Acreage

US $

 

 

Total

US $

31 DECEMBER 2019

 

 

 

 

Cost

 

 

 

 

1 January 2019

1,559,930

14,148,371

2,043,430

17,751,731

Additions

16,443,530

2,802,239

-

19,245,769

Disposals

-

(16,950,610)

(2,043,430)

(18,994,040)

Decommissioning Asset

2,940,000

-

-

2,940,000

31 December 2019

20,943,460

-

-

20,943,460

Impairment and depletion

 

 

 

 

1 January 2019

-

14,148,371

2,043,430

16,191,801

Disposals

-

(16,950,610)

(2,043,430)

(18,994,040)

Depletion

369,874

-

-

369,874

Impairment charge for the year

-

2,802,239

-

2,802,239

31 December 2019

369,874

-

-

369,874

Carrying amount

 

 

 

 

31 December 2019

20,573,586

-

-

20,573,586

31 December 2018

1,559,931

-

-

1,559,931

31 DECEMBER 2018

 

 

 

 

Cost

 

 

 

 

1 January 2018

2,500,000

-

2,043,429

4,543,429

Additions

14,479,134

-

-

14,479,134

Transfer to PP&E

(1,270,832)

-

 

(1,270,832)

31 December 2018

15,708,302

-

2,043,429

17,751,731

Impairment

 

 

 

 

1 January 2018

-

-

2,043,429

2,043,429

Impairment charge for the year

14,148,371

-

-

14,148,371

31 December 2018

14,148,371

-

2,043,429

16,191,800

Carrying amount

 

 

 

 

31 December 2018

1,559,931

-

-

1,559,931

31 December 2017

2,500,000

-

-

2,500,000

 

All intangible assets relate to oil & gas activities. The Group's oil and gas assets were assessed for impairment as at 31 December 2019. Two CGU's were recognised: the SCS licence concession and the Tapi Aike licence concession. Impairment assessments are prepared on the basis of comparing the present value of discounted cash flows with the carrying value of the assets.

 

The post balance sheet uncertainty relating to COVID-19, the duration and effect on local markets, cannot yet be accurately quantified, however, the impairment assessment reflected reduced production levels as announced by Echo post period to reflect demand conditions in the market and relatively conservative pricings assumptions.

 

 

11. Inventories

 

31 December 2019

31 December 2018

 

US $

US $

Crude oil

420,844

744,298

Parts and supplies

-

57,886

Total

420,844

802,184

Crude oil inventories are measured at Net Realisable Value, other inventory items are measured at the lower of cost and net realisable value.

 

 

12. Other Receivables

 

31 December 2019

31 December 2018

 

US $

US $

Current

 

 

Trade receivables

1,002,295

731,416

Accrued income

1,181,838

420,690

Other receivables

6,056,470

3,672,157

Prepayments

436,676

2,086,812

Total

8,677,279

6,911,075

Other receivables in the Group and the Company principally comprise recoverable Value Added Tax and joint venture receivables. The directors consider that the carrying amount of trade and other receivables approximated their fair value.

 

 

13. Cash and Cash Equivalents

 

31 December 2019

31 December 2018

 

Group

US $

Group

US $

Cash held by joint venture partners

300,746

576,909

Cash and cash equivalents

1,397,266

15,032,394

Total

1,698,012

15,609,303

Echo have advanced cash to our joint venture partners; this cash is held by our partners in a ring-fenced account. We recognise our equity share of the balance held.

 

 

14. Trade and Other Payables

 

31 December 2019

31 December 2018

 

Group

US $

Group

US $

Trade payables

398,216

539,835

Taxation and social security costs

253,439

112,262

Non-trade payables

9,156

73,620

Accruals

92,386

92,861

Right of Use Liability

64,180

166,098

Other loans

1,290,963

-

Joint venture payables

4,913,915

1,215,756

Total

7,022,255

2,200,432

 

               

15. Derivative financial liabilities

 

 

31 December 2019

US $

 

31 December 2018

US $

Embedded derivative

728,783

-

Total

728,783

-

 

The embedded derivative represents the warrants issued along with the convertible debt facility with Lombard Odier Asset Management (Europe) Ltd (Note 16). It is recognised at fair value through profit or loss. On conversion to Company's shares, the fair value of the embedded derivative is transferred to equity.

 

The fair values on the grant date and each reporting date were determined using the Black Scholes option pricing model. The following key assumptions were used in determining the derivative's fair value at the reporting date:

 

 

Warrants

12 November 2019

 

31 December 2019

 

Market stock price

2.9p

2.3p

Option strike price

3.0p

3.0p

Volatility

65.55%

67.29%

Expiration of the option

3 years

2.9 years

Risk-free rate

0.79%

0.79%

 

An increase of 10% in the volatility measure would result in an increase in the year end fair value of USD $96,733 with a reduction in the gain.

 

Level 3 fair value measurements

Warrants instruments are deemed to be Level 3 liabilities under the fair value hierarchy as fair value measures of these liabilities are not based on observable market data. The movement in their fair values is shown in the table below:

 

 

16. Loans Due in Over One Year

 

Short Term Loans (see also Note 15):

 

 

 

Balance as at

31 December 2018

US $

 

Amortised finance charges less cash

interest paid

US $

 

 

Exchange

adjustments

US $

 

 

31 December

2019

US $

Other loans

1,157,090

84,881

48,992

1,290,963

Total

1,157,090

84,881

48,992

1,290,963

 

On 22 May 2017 the Company announced that Nusakan plc ("Nusakan") subscribed for five-year non-amortising secured bonds with an aggregate issue value of €20million ("the €20m Bonds"). Alongside the Bonds, the Company issued 169,402,469 warrants to subscribe for new ordinary shares in the Company at an exercise price of 15.1875 pence per ordinary share and an exercise period of   approximately five years, concurrent with the terms of the Bonds to Nusakan ("the Warrants"). The Bonds are secured over the share capital of Echo Energy Limited. The Bonds have an 8% coupon and were issued at a 20% discount to par value. A total cash fee of GBP £1.7 million (€2 million) was payable by the Company.

 

The Warrants were recorded within equity at fair value on the date of issuance and the proceeds of the notes net of issue costs were recorded as non-current liability. The coupon rate for the Bonds ensures that the Company's on-going cash out-flow on interest payments remains low, conserving the Company's cash resources. The effective interest rate is approximately 21.55%. The five-year secured Bonds are due in May 2022.

 

As part of the acquisition of the Santa Cruz Sur assets, the Company announced  on 21 October 2019 that it had entered into a secured convertible debt facility with Lombard Odier Asset Management (Europe) Ltd ("Lombard Odier") for a five-year non-amortising €5.0 million 8.0% secured convertible debt facility (the "€5m Loan") maturing in 2022. Of the €5million received, as described in Note 24, €0.97m (US $1.1m) has been allocated to the warrants which were issued alongside the €5m Loan and are recorded as a financial liability and held at fair value through the profit or loss.

 

Maturity Analysis

Post balance sheet, given prevailing global oil prices affected by market volatility and the Covid-19 pandemic, as part of a programme to capital expenditure, the Company entered into negotiations with all debt holders to defer cash interest payments in 2020. (See Note 17)

 

Post balance sheet the terms of all loans were renegotiated. (See Note 17)

 

Maturity Analysis

Contractual undiscounted cash flows:

 

 

31 December 2019

US $

 

31 December 2018

US $

Amounts due within one year

1,396,157

1,985,960

Amounts due after more than one year

33,291,406

28,633,503

 

34,687,563

30,619,463

 

 

17. Subsequent Events

Change of operating partner in Santa Cruz Sur

On 1 January 2020, IOG Resources S.A. ("IOG Resources") and Interoil Argentina S.A. ("Interoil") completed a transaction with ROCH S.A., the previous operator of Santa Cruz Sur with a 30% interest, to acquire a 21.66% and an 8.34% interest respectively, in the Santa Cruz Sur assets. Following these transactions, the licence is operated by Selva Maria Oil and Gas S.A. ("Selva Maria"), whilst Interoil is a non-operating partner. Selva Maria is a subsidiary of Intergra Oil and Gas S.A., which guaranteed the obligations of IOG Resources and Interoil under the transaction. Selva Maria will remain operator until Interoil is granted an operator licence from the Argentinian authorities.

 

Results Campo La Mata exploration well

Following the completion of testing on the lower secondary target and the primary target at CLM x-1, the Company announced a non-commercial gas discovery on 19 February 2020. Both targets flowed at a combined averaged rate of 0.60 MMscf/d, short of the estimated required stabilised production rate across all intervals of approximately 1.0 MMscf/d. As a result, testing of the two remaining untested shallower intervals is now under consideration, but in the interim CLM x-1 has been shut-in for further evaluation and well head pressure will be measured during this time. Whilst the lack of commerciality from the tested intervals was disappointing, CLM x-1 proved the presence of a working petroleum system on the Chiripa Oeste 3D seismic in Tapi Aike. The information collected will be used to calibrate and further enhance the predictive capability of the 3D data acquired last year, helping identify other drilling locations on Tapi Aike that could be commercial. Following the gas discovery and CLM x-1 well results, it is anticipated that the partnership will qualify for an extra year on the first Tapi Aike exploration period. An extension will take the current exploration licence phase to four years expiring on 7 September 2021.

 

Oil price volatility

In response to the continuing volatility in the oil markets at the start of 2020 Echo put in place a number of initiatives after exploring all the options to preserve existing cash resources at a corporate level. 

 

As a response to prevailing oil prices and the Company's expectation of achieving higher gas prices moving into the winter and autumn in the southern hemisphere, Echo and its partner in Santa Cruz Sur decided to focus field operations on the production of gas, and as part of this initiative, some producing wells have been temporarily shut-in. Shutting in oil wells that have low associated gas will enable resources in the field to focus on gas production and will help manage cash costs. Temporarily shut-in oil wells can be brought back online in around five days when global oil prices recover.

 

The Company also announced on 15 April 2020 its decision to hold back barrels of oil currently held in field storage tanks with the intention of selling these barrels at a later date when prices may improve.

 

Substantial progress has been made with cost reduction initiatives in the Santa Cruz Sur assets as a response to prevailing commodity prices. In the first half of 2020, the Company and its partners expect to have reduced monthly operating cash outflows at Santa Cruz Sur by 50% over 2019 levels through substantial cost reductions of ongoing operations and deferments, or cancelations of non-essential activities whilst maintaining safe and sustainable operations. Additionally, at a corporate level, in order to preserve cash, deferrals and cost reductions are being rigorously pursued.

 

Covid-19 pandemic

The Covid-19 pandemic has also added to uncertainty, not only in the short term with an unprecedented global fall in demand, but also in the way we are able to conduct our operations both at a corporate level and in the field. As with any oil company, safety is Echo's foremost priority. Echo moved quickly at the start of March 2020 to make sure all its staff and Board members based in the UK and Bolivia could work from home, so that they were already doing so or capable of doing so when the lockdown came to effect in the UK on 23 March 2020. In the field, operations continue as the production of hydrocarbons and supply to the domestic market is deemed to be an essential service.

 

Due to the international travel restrictions as a result of the Covid-19 pandemic, key personnel and equipment required to continue testing of the Campo Limite exploration well from outside Argentina were delayed. As a result, the decision was made to temporarily suspend the completion and conventional inflow testing of the well until there is clarity as to when the restrictions will be lifted. The Company will resume the exploration well test when conditions allow, and this project remains a priority for 2020. Additionally, as a result of the decision to temporarily suspend the completion and testing of the CLix-1001, the Eagle workover rig, owned by Echo and its partners in the Santa Cruz Sur assets, was temporarily redeployed to commence a standard programme of well interventions and maintenance.

 

Echo's already stated aim to cut costs across the Santa Cruz Sur assets and on a corporate level, partly due to the prevailing volatility in the oil markets, coupled with the renegotiation of the debt (detailed below) are further initiatives that will help the Company better navigate the current global conditions brought on by the pandemic. Through the rapidly changing global situation following the outbreak of the Covid-19 pandemic, the Company reacted quickly, adapted, and redeployed to better weather this period of global crisis.

 

Debt Renegotiation

In March 2020, to ensure the business is robustly positioned in the event of continued downward pressure on oil demand and prices driven by recent global events, and as part of its programme to conserve cash, the Company announced that it would enter negotiations with holders of its debt to extend the loans or defer all cash interest during 2020.

 

On 6 March 2020, Echo announced that it had agreed a two-year extension of the Company's existing £1.0m Loan originally provided to the Company in March 2017 and now held by Spartan Class O, a sub fund of Spartan Fund Limited SAC ("Spartan"). The interest rate of the £1m Loan remains unchanged.

 

The Company agreed that the extended Loan will now be repayable as follows: (a) £100,000 on 30 November 2020; (b) four quarterly instalments of £50,000 on the last business day of the relevant month commencing in March 2021; and (c) the balance of £700,000 on 8 March 2022. In connection with the extension of the Loan, Spartan was issued with 3,571,428 warrants to subscribe for new ordinary shares in the Company at a price of 1.4 pence per new share and with an expiry date of 9 March 2022.

 

On 1 April 2020 the Company further announced entry of an amendment to the Company's £1m Loan facility such that interest payment due 31 March 2020 was postponed and no interest payments were required prior to 31 March 2021. With effect from 1 January 2020, interest on the £1m Loan will now accrue at an unchanged annual interest rate of 12.0% and, at the end of each quarterly interest period, be added to the aggregate principal amount owing under the £1m Loan, for payment on maturity. The Company agreed that, as amended, the £1m Loan will now be repayable as follows: (a) £100,000 in March 2021; (b) three quarterly instalments of £50,000 on the last business day of the relevant month commencing in June 2021; and (c) the balance of £750,000, together with accrued interest, on 8 March 2022. The other terms of the £1m Loan remain unchanged.

 

In order to provide parties with the time to conclude an amendment to the €5m Loan, the holder Lombard Odier waived default rights under the €5m Loan for non-payment of the 31 March 2020 interest. The Company duly announced on 14 May 2020 the agreement with Lombard Odier to defer 2020 interest payments such that no interest payments will be due prior to 31 March 2021.

 

On 22 May 2020, the Company announced that at a meeting of the holders of the €20m Bond (the "Noteholders"), the Noteholders gave their consent to waive the event of default in relation to the non-payment by the Company of the quarterly interest due on 31 March 2020. Furthermore, the Company obtained consent to defer quarterly interest payments which would otherwise be due on 31 March 2020, 30 June 2020, 30 September 2020 and 31 December 2020 (the "2020 Interest Payments") such that the 2020 Interest Payments will be payable by the Company on maturity of the bonds in May 2022. The Company will continue to be required to make quarterly interest payments on the €20m Bond in 2021 and 2022. In addition, the Company granted security in the form of a share charge over 100% of the shares in Echo Argentina Holdings Limited. Such security will be shared pari passu between the Noteholders and Lombard Odier in its capacity as lender under the Company's €5m Loan.

 

 

 

 

 

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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Quick facts: Echo Energy PLC

Price: 0.385

Market: AIM
Market Cap: £3.11 m
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