TIDMECHO
RNS Number : 7664Y
Echo Energy PLC
09 May 2023
9 May 2023
Echo Energy plc
("Echo" or the "Company")
Proposed Partial Sale of Santa Cruz Sur Assets, Issue of Option
on a Producing Columbian Portfolio and Equity Issue at a
Premium
Echo Energy, the Latin American focused energy company,
announces the execution of a binding Term Sheet for a transaction,
subject inter alia to shareholder approval, designed to provide
much needed funding for the Company through the sale of 65% of the
Company's 70% of the current Working Interest in Santa Cruz Sur to
Selva Maria Oil S.A. and Interoil Exploration and Production ASA
(the "Buyers") for a cash consideration of up to GBP1.725M, an
award of an option to purchase a producing Columbian portfolio and
the issue of equity in Echo Energy PLC at 0.065 pence per share (a
more than 100% premium to the closing price on 5 May). This
transaction would enable the Company to retain a much smaller
interest in Santa Cruz Sur, whilst also seeing the Company's
liability for the previously announced significant in-country
creditors and other liabilities reduced significantly. In addition
the transaction would see the Buyer providing in country licence
financial guarantees and provides a potentially attractive entry
point into Columbia.
The Proposed Transaction
Pursuant to the term sheet and subject to contract, Echo will
sell 65% per cent of its current 70% Working interest in the Santa
Cruz Sur assets to Selva Maria Oil SA and Interoil Exploration
& Production ASA. On Completion the Company Echo therefore will
retain a 5% working interest in the assets, will have an option to
buy another 5% back and will have an indirect exposure through
equity in the Operator.
Total consideration for the sale is up to GBP1.725M of
which:
-- Consideration of GBP825,000 with:
-- An upfront payment of GBP75,000 on execution of transaction
documents, with the balance of GBP750,000 due on completion once
shareholder approval has been obtained.
-- Payment in kind of GBP400,000 via transfer of Interoil shares
upon completion, providing upside exposure to the Santa Cruz asset
via an equity position in the Operator
-- Additional contingent payment of GBP400,000 should production
from the assets rise to 4,000 boepd (gross).
-- Further contingent payment of GBP100,000 should production
from the assets rise to 6,000 boepd (gross)
Furthermore the Buyers will provide a financial guarantee to
cover Echo's remaining 5% interest which is a critical step to
enabling the securing of the licence extension and was not
something Echo could easily achieve on its own.
Echo will also retain an option to repurchase a 5% interest in
the asset for a consideration of GBP100,000 over a 6 month period,
providing optionality in the event licence extension or other value
catalysts are achieved
Additionally the transaction will provide the Company with the
option to acquire an interest in Interoil's Colombian assets (for a
consideration and on terms to be agreed in future) after drilling
and testing of an exploration well on the Maná Licence. The Company
can recover twice the cost of that well from associated
production.
Further to the above, Selva Maria Oil SA and Interoil
Exploration & Production ASA have agreed to subscribe to
approximately 115.38 million shares at a price of 0.065 pence per
share (raising GBP75,000). This represents a more than 100% premium
to the closing share price on 5 May, the last trading day prior to
announcement. Such an issue of equity would take place following
completion and is likely to be subject to a capital reorganisation
(likely requiring shareholder approval) and meeting other
regulatory obligations.
Benefits of Transaction to Echo
This transaction fundamentally:
-- Addresses the Company's near-term funding challenges by
providing near term funding, enabling the Company to walk away from
the significant in-country creditors which had build up during the
COVID-19 period and providing access to funding for the Santa Cruz
assets.
-- Provides continued exposure (both directly through the
retained 5%, the contingent payments, the further 5% option and the
indirect holding in the Operator) to a well funded Santa Cruz
portfolio, likely with a licence extension supported by the
guarantee.
-- Provides the company a new platform from which to move
forward with an option on a strong Columbian portfolio with its
corresponding lower risk jurisdiction and a clean balance sheet
whilst still receiving cash flow from its 5% position in the
producing assets of Santa Cruz Sur.
Given the Company's large creditor position which originated
from the COVID-19 period where the asset was sub-economic, 100%+
per annum inflation in Argentina and Argentine currency exchange
controls, which have prevented funds being withdrawn from the
country without significant penalties, the raising of additional
equity for an Argentine business has been challenging. Having
continued to explore all means of raising required near term
funding, the Directors therefore see this alternative, which
addresses the Company's near-term funding challenge whilst
providing continued exposure to Santa Cruz Sur, both through the
retained 5% and the equity position in the Operator, and also a
pathway to revenue generating assets in Columbia, as highly
attractive at this juncture.
Transaction Subject to Shareholder Agreement
The transaction requires additional execution of a Sales &
Purchase Agreement and a financial guarantee provided by the buyers
for the benefit of Echo for the National Secretary of Energy &
the Province of Santa Cruz. In addition the proposed option remains
subject to agreement between the parties and completion will then
require shareholder approval at an Extraordinary Shareholders'
Meeting of the Company to be held within 25 calendar days from
execution of documents by all parties.
Vision For the Future
This transaction puts the Company on a much more financially
stable trajectory with the transfer of liabilities associated with
the Company's current working interest in the assets to the buyers.
A decision has been made to significantly reduce the Company's
corporate level cost base.
The Buyers will provide a financial guarantee for Company
sufficient to meet domestic regulatory requirements. This is
expected to help secure a 10-year licence extension for the Santa
Cruz Sur assets as the new majority parties can fund the asset
requirements to increase production. The Company will continue to
have exposure to production upside through the contingent payments,
and moving forward will continue to receive its 5% share of
production revenue plus has the option to repurchase a further 5%
interest at a price of GBP100,000.
The option to enter Colombia provides an opportunity to rebuild
the E&P portfolio in a new territory that does not suffer the
macro inflationary and economic factors that Argentina does. It is
a much more business friendly jurisdiction with a vibrant
small-medium cap E&P sector - an exciting growth
opportunity.
Revenue Receipts
The Company confirms that it has received some of, but not all
of, the expected c. ARS$ 135 million (c.GBP0.5m) revenue in
Argentina around the end of April. The Company continues to expect
that the remaining revenue will be paid to the company and is
working with the operator and suppliers to accelerate its payment.
The signing of the binding termsheet demonstrating a pathway to a
stronger financial footing is considered an important step in this
process. Prior to the receipt of this revenue or the completion of
the proposed transaction the financial situation at the company
remains challenging. Current cash balances in the UK bank accounts
are below GBP50,000.
Production from the Company's assets in Argentina remains
stable. Production over the period from 1 January 2023 to 05 May
2023 was an aggregate of 148,503 boe net to Echo, including 23,104
bbls of oil and condensate and 752 MMscf of gas. Average total
daily production during the same period net to Echo was 1,198
boepd, with 6.07 MMscf/d gas and 186 bopd liquid.
Martin Hull, Chief Executive Officer of Echo Energy, commented:
'This is a transformational moment for the Company as we look to
put our recent challenges behind us and create a new, stronger and
more financially robust platform from which to take the Company
forward. Not only does it immediately improve our balance sheet, it
also brings optionality with the Colombian opportunity, as well as
giving us continuing revenues, with additional upside should the
Buyers of the asset interest be able to deliver the investment and
production growth that our financial limitations have prevented us
from doing. I am excited about the future and the opportunities
that lie before us and look forward to progressing the transaction
in the coming weeks and updating shareholders on our progress.'
For further information, please contact:
Echo Energy via Vigo Consulting
Martin Hull, Chief Executive Officer
Vigo Consulting (IR & PR Advisor)
Patrick d'Ancona
Finlay Thomson +44 (0) 20 7390 0230
Cenkos Securities (Nominated Adviser)
Ben Jeynes
Adrian Hadden +44 (0) 20 7397 8900
Zeus (Corporate Broker) +44 (0) 20 3829 5000
Simon Johnson (Corporate Broking)
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END
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