TIDMECHO
RNS Number : 5199Y
Echo Energy PLC
14 January 2022
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14 January 2022
Echo Energy plc
("Echo" or the "Company")
Argentinian Production Update,
Chilean Solar Acquisition,
Issue of Equity
Echo Energy, the Latin American focused upstream energy company,
is pleased to provide a Q4 2021 production update regarding its
Santa Cruz Sur assets, onshore Argentina.
In addition, further to Echo's long stated intention to leverage
its commercial and technical capabilities across the wider energy
spectrum, including solar, the Company is pleased to announce its
entry into the Chilean solar energy market with the entry of an
option agreement to purchase a 70% interest in a 3MW solar project
in Chile (the "Option") and the forming of a partnership with
Chilean company, Land & Sea SpA ("LAS"), a highly experienced
developer of solar projects in Chile, to fund, construct and
operate the project.
Q4 2021 Argentinian Production Update
During Q4 2021 daily operations in the field at Santa Cruz Sur
continued with the delivery of produced gas and liquids to key
industrial customers and total 2021 cumulative production from
Santa Cruz Sur net to Echo's 70% interest reached an aggregate of
567,370 boe (including 2,920 MMscf of gas).
During Q4 2021, net liquids production averaged 240 bopd whilst
net gas production averaged 7.0 MMscf/d. These production levels
have been achieved despite a province-wide strike that temporarily
reduced production levels over a six-day period in mid-December.
Production for the first eight days of 2022 has been strong, with
liquids production net to Echo averaging 262 bopd and net gas
production averaging 8.3 MMscf/d.
As previously announced, the successful implementation of the
Company's strategy with the commercial focus on high-quality blends
at Santa Cruz Sur, has continued to lead to an increased frequency
of liquids sales throughout Q4 2021. Total liquids sales net to
Echo over Q4 2021 reached 25,881 bbls which is an increase of 71%
over the previous quarter (Q3 2021: 15,050 bbls).
Entry into Chilean Solar Market - Highlights
-- Option in relation to the 3 MW Vincente Méndez solar project
(the "Project") and Joint Venture with LAS, a highly experienced
developer of solar projects in Chile
-- On exercise of the Option, Echo will loan 100% of capex to
construct the Project in return for a 70% indirect equity interest
in the Zorro Solar SpA holding the rights to the Project (the
"Project SPV") with the remaining 30% interest in the Project SPA
held by LAS
-- Entry into the Project requires no upfront acquisition
payment and instead provides Echo with access to attractive 'ground
floor terms'
-- LAS will manage the Project locally, without a management
fee, whilst Echo will maintain its 70% controlling interest in the
Project SPV
-- Following construction and on the sale of the Project, the
construction loan provided will be repaid to Echo at 4% interest,
with remaining sale proceeds split 70% Echo and 30% LAS, after
reimbursement of US$100,000 of historical LAS costs
-- If the option is exercised by Echo, gross construction capex
for the Project is currently estimated at US$2.6 million and Echo
will control the timing of expenditure
Under the Option agreement, the Company has the right to acquire
a 70% interest in the Project, subject to certain conditions
including the provision by the Company of the funding described
below, with the intention to form a Joint Venture to construct and
operate the Project. The Option is exercisable by the Company, in
its sole discretion, at any time during the period up to 4 weeks
from the date on which sufficient documentation has been provided
to the Company required to enable a Final Investment Decision
("FID"). Echo's current intention is to exercise the Option
providing final documentation, including supplier and service
contracts, is provided confirming the attractiveness of potential
Project returns and the availability of non-recourse or project
finance funds sufficient to meet Echo's potential capex
obligations. Further announcements will be made by the Company in
this regard as appropriate.
By diversifying its asset portfolio via the entry of the Option,
Echo will be well placed to capitalise on a new business segment
that has the potential to provide low risk, stable cash flows, and
attractive risk weighted returns that can support future
investments in the base business in Santa Cruz Sur, whilst
capitalising on complementary skills sets and geographic focus.
Furthermore, Chile is a country with world class renewable energy
resources; an established renewable energy industry and fiscal
regime; excellent infrastructure; and ambitious energy transition
targets.
Following careful analysis of multiple renewable energy
projects, the Echo Board believe the Option to acquire an interest
in the Project provides an important and exciting opportunity in
the continued growth of the Company.
The Vincente Méndez Solar Project
The Vincente Méndez solar project is located 4 km from Chillan,
a city of around two hundred thousand people, in central Chile,
less than 0.2 km from the grid connection point and near to
trunkline electricity and transport infrastructure to the capital
Santiago. In this area, where solar radiation levels are similar to
Mediterranean Europe, 3 MW capacity is expected to produce around
5,800 MWh/year, which is approximately double the average output of
a UK solar plant of the same size.
Importantly, the Project will be part of the Chilean PMGD Scheme
(Pequeños Medios de Generación Distribuida) which provides access
to a favourable and stabilised long-term price regime and a fast-
tracked approval process. These aspects make the project low risk
to the Company in the construction phase and attractive to
potential future purchasers / investors once operational.
Following any FID and successful commercial negotiation of
construction contracts, total gross capex for the Project is
currently anticipated to be approximately US$2.6 million. Subject
to FID, construction is expected to begin in Q2 2022 and to
complete in Q3 2023.
Whilst Echo will maintain a controlling equity interest in the
Project SPV, on the ground, the Project will be led by LAS, who
have demonstrated their expertise by managing solar projects
through construction to operation, most recently, a similar 3 MW
solar plant with another international partner. The Company's
partnership with LAS also provides access to LAS' pipeline of
similar solar projects already in the planning stage, which can be
used by the Company to scale up the renewables business. The
Company expects to be able to secure project finance to fund this
project in due course.
Terms of the Option agreement
The transaction has been structured to ensure that the project
is low risk to the Company, whilst providing exposure to the
potential upside associated with the interest, with no capital risk
prior to FID. LAS are responsible for any remaining costs prior to
the exercise of the Option and FID and the timing of FID is
controlled by the Company.
Following a FID, when the Project cost has been accurately
defined with contracts, the Company will fund 100% of the Project
capex in the form of a loan to the Project SPV. In the event of any
future sale of the Project post-construction, the proceeds would be
utilised to cover the 4% per annum interest on the loan, the loan
principal and a US$100k historical cost reimbursement to LAS. The
remaining net proceeds would then be distributed according to the
partner's working interests.
If following construction, the attractiveness of pricing in the
wholesale power markets is such that the JV believes it would be
preferable to retain the project and sell electricity into the
grid, the cash flows generated from electricity sales will be used
to satisfy the historical cost repayment obligations in the same
way. As at 31 December 2021 the Project SPV had estimated net
assets of approximately US$100,000.
Key Project milestones
Currently the Project is approaching Ready-To-Build ("RTB")
status, with LAS securing permits with relevant authorities and
finalising the Engineering, Procurement & Construction ("EPC")
contract and the provision of solar panels. Following successful
FID, it is expected that the Project would begin construction
around Q2 2022. The completion of construction and commencement of
commercial operations, when electricity is supplied to the grid, is
currently anticipated around Q3 2023.
Echo Energy post transaction
This transaction is the next step towards becoming a full
spectrum energy company leveraging the Company's Latin America
strategic focus and strong relationships. The Company's base
business in the Santa Cruz Sur assets in Argentina remains robust
and a vital component of the ongoing business. In combination this
transaction provides the Company with the ability, on exercise of
the option, to better diversify the Company's portfolio, across
commodity type and country risk, yet is still positioned to take
advantage of strengthening oil and gas prices and production
enhancement opportunities. Going forward the Company is well
positioned to grow its renewables business and provide stable cash
flows to further support investment activities in Santa Cruz
Sur.
The Company continues to evaluate other opportunities in the
renewable energy space in Latin America with its local partners,
alongside its existing investment programme including the ongoing
well workover programme in its Santa Cruz Sur portfolio. This
innovative, low risk structure transaction is indicative of how the
Company will aim to bring further assets into the Company at a low
upfront cost to shareholders.
Issue of equity and warrants
The Company announces that it has raised gross proceeds of
GBP660,000 through the issue of 143,478,260 new ordinary shares in
the Company (the "Subscription Shares") at 0.46 pence per share
(the "Subscription Price") to new investors pursuant to a direct
subscription with the Company (the "Subscription"), conditional on
admission of the Subscription Shares to trading on AIM.
In connection with the Subscription, the Company has issued
65,217,391 warrants to subscribe for new Ordinary Shares
exercisable at 0.65 pence per new Ordinary Share at any time until
the second anniversary of issue (the "First Subscription Warrants")
subject to admission of the Subscription Shares to trading on
AIM.
In addition, the Company has also conditionally agreed to issue
a further 78,260,869 warrants to subscribe for new Ordinary Shares
exercisable at 0.65 pence per new Ordinary Share at any time until
the second anniversary of issue (the "Second Subscription
Warrants") subject to the receipt of the necessary share issuance
authorities at the Company's 2022 annual general meeting.
The Subscription Shares will, when issued, rank pari passu in
all respects with the Company's existing ordinary shares of 0.25
pence each ("Ordinary Shares") and application will be made for the
Subscription Shares to be admitted to trading on AIM ("Admission").
Admission is expected to take place on or around 8.00 a.m. on 24
January 2022.
The net proceeds of the Subscription of approximately GBP600,000
will add to the Company's working capital resources and be applied
towards the formation of the solar project Joint Venture to
construct and operate the Project. As at 30 December 2021 the
Company's unaudited cash balance, excluding Echo's 70% entitlement
to cash balances held by the Santa Cruz Sur joint venture in
Argentina, was approximately US$520,000.
Following Admission, the Company's issued share capital will
comprise 1,452,491,345 Ordinary Shares. Each Ordinary Share has one
voting right and no shares are held in treasury and this figure may
be used by shareholders in the Company as the denominator for the
calculation by which they will determine if they are required to
notify their interest in, or a change to their interest in, the
share capital of the Company under the Financial Conduct
Authority's Disclosure Guidance and Transparency Rules.
Martin Hull, Chief Executive Officer of Echo Energy,
commented:
"I am very pleased to be able to announce our first steps into
the solar energy space via the entry of the partnership with LAS
and this option agreement. The resultant JV represents what we hope
will be the start of a long and fruitful relationship with LAS.
This agreement is another example of Echo leveraging its in-house
transactional capabilities to bring exciting and potentially highly
value accretive assets into the business while at the same time
minimising upfront cost to its shareholders.
Our Santa Cruz Sur assets provide Echo with a very robust base
business, highlighted by the strong production numbers at the start
of this year, and a strong foundation on which to add a new
business segment. Chile is a sweet spot for renewable energy in
Latin America, and our entry to the region diversifies our
geographic footprint whilst providing near term catalysts as we
progress the new project.
Our focus remains on balancing risk and reward in the most
efficient way possible for our shareholders - as we broaden the
range of our energy investment opportunities, we will be able to
identify the best paths to value creation across both hydrocarbons
and renewables, whilst also positioning the business for the energy
transition."
For further information, please contact:
Echo Energy via Vigo Communications
Martin Hull, Chief Executive Officer
Vigo Consulting (IR & 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)
Anita Ghanekar +44 (0) 20 7408 4090
Note
The assignment of Echo's 70% non-operated participation in the
Santa Cruz Sur licences is subject to the authorisation of the
Executive Branch of Santa Cruz's Province, which is part of the
overall process of title transfer that is proceeding as
anticipated. bopd means barrels of oil per day; bbl means barrel;
MMscf means million standard cubic feet of gas per day; and MMscf/d
means million standard cubic feet of gas per day
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END
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January 14, 2022 07:36 ET (12:36 GMT)
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