Echo Energy, the Latin American-focused upstream oil and gas company, announces its unaudited interim accounts for the period ended 30 June 2019.

Highlights

• Restructuring of the Argentine portfolio consolidating the Company's focus on the Tapi Aike licence and its multi-Tcf exploration potential
• Safe and successful completion of Tapi Aike seismic acquisition campaign
• Extensive preparation for upcoming Tapi Aike exploration drilling campaign commencing Q4 2019
• Rigorous evaluation of growth opportunities to maximise shareholder return
• Continued cost efficiency focus leading to substantial reductions in administration costs

Martin Hull, Chief Executive Officer, commented:
"The first half of 2019 was a period of change for Echo, one in which we successfully restructured our asset portfolio and re-focused the Company on Tapi Aike and our growth strategy. As we continue to progress towards the spud of our first Tapi Aike well in Q4 2019, we continue to be excited by the potential identified and look forward to providing updates as appropriate. "

Argentina

Restructuring
Echo originally secured access to the Fracción C, Fracción D and Lagunas De Los Capones ("CDL") concessions in 2017 pursuant to the CDL farm-out agreement entered into with Compañia General de Combustibles S.A. ("CGC"). The Company and CGC subsequently completed a number of workovers and drilled four exploration wells across the assets. The exploration wells were designed to test the various plays which run through the CDL licences. The results of the drilling campaign were disappointing and, while hydrocarbons were present in several of the exploration wells, they were not capable of being produced at commercial rates. As a result, the Company considered that no substantial commercial upside remained in the CDL licences while they delivered declining production to Echo Energy at an unacceptable financial return for shareholders.

The Board subsequently reviewed Echo's onshore Argentinian portfolio with a view to establishing the best way forward in terms of risk/reward balance and capital allocation. The early seismic indications from the Tapi Aike seismic acquisition campaign served to reinforce the Company's positive view of Tapi Aike as Echo's key strategic priority. Utilising the Company's funds in support of the Tapi Aike drilling campaign was therefore a key consideration.

In order to deliver this strategy, the Company negotiated and agreed with CGC an accelerated close to the initial phase of works on the CDL concessions. CGC agreed to waive any outstanding work commitments, including the previously agreed CDL seismic commitment. The seismic campaign on CDL was expected to cost approximately US$ 11 million and would have been funded 100% by Echo. CGC took on all outstanding liabilities on the CDL concessions. In addition, no deferred cash payment was paid by Echo to CGC on the agreed early completion of the initial phase. This reduced Echo's near-term capital requirements by a further US$ 2.5 million. Residual well costs from the drilling campaign in the initial phase have been fully impaired in the current financial results. Echo withdrew from its interests and liabilities under the CDL concessions prior to the commencement of the second stage of works in accordance with the terms of the farm-out agreement thereby enabling Echo to focus its capital on Tapi Aike.

In order to accelerate activities on higher margin exploration potential, Echo and CGC also agreed to revised equity and cost-sharing arrangements on the Tapi Aike licence. The prior arrangements saw Echo hold a 50 per cent. interest with an agreement to pay 65 per cent of drilling costs across the four well drilling campaign. Echo and CGC agreed an amendment to the terms of Echo's participation in the Tapi Aike licence such that Echo now holds a 19 per cent interest and pay 19 per cent of future costs, ending the previous carry arrangement and significantly lowering the Company's capital needs with regard to the drilling programme whilst maintaining a material stake in the licence. CGC also released US$ 2.06 million of Echo cash reserves previously required for the CDL Initial Phase which will be applied by Echo to fund future drilling in Tapi Aike.

Tapi Aike Operations
Tapi Aike remains one of the most exciting and underexplored licence blocks in the Austral Basin. The acreage has three previous wells that show indications of gas from drilling and logs, and historical  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.

In June Echo announced the safe and efficient completion of the new 3D seismic survey across its Tapi Aike licence and that processing of the acquired data had commenced. Acquired seismic data is now being processed by respected independent processing houses in Buenos Aires. The processing of the eastern cube (Chiripa Oeste, 414 km²) data was carried out by Wellfield Services LTDA and completed post period. Interpretation of the processed seismic data has highlighted an amplitude feature previously recognised during the interpretation of the 2D seismic. The processing of the western cube (Travesia de Arriba, 790 km²) data is being undertaken by Seismic Prospect S.R.L.. Analyses on these processed data is currently being conducted by a team of geophysical specialists on behalf of the operator, and, independently by Echo.

In the eastern cube, Chiripa Oeste, five areas have now been selected for surface location permits and an environmental impact assessment covering these locations has been submitted to the provincial authorities. One of these five locations will be selected to drill the La Vanguardia x-1 well, the first well of the proposed Tapi Aike exploration drilling programme. It is currently anticipated that the La Vanguardia x-1 will be drilled to an approximate depth of 3,000 metres using the Petreven H-205 rig. Subsurface interpretation continues and the La Vanguardia x-1 well location and well design will be finalised once this analysis has been completed. The well currently remains on course to be spud in Q4 2019.

In the western cube, Travesia de Arriba, processing of the 3D seismic data continues. Based on current data, five broad areas have been selected in which to initiate environmental studies and commence surface permitting.

Bolivia

Continuing with last year's efforts in Bolivia, the Company has been working to progress the exploration opportunity in Huayco and Rio Salado, both in a new joint evaluation agreement with Pluspetrol Bolivia Corporation SA ("Pluspetrol") and a Technical Evaluation Agreement with YPFB (Yacimientos Petrolíferos Fiscales Bolivianos) signed with Echo in October 2018. This agreement allowed the Company to purchase and integrate three new - recently acquired and not previously available - 2D lines across the licences into the model. This information has allowed the upgrade and completion of the geological and structural model which improves any business opportunity over these assets.

The acquisition of an interest by Echo in Huayco and/or Rio Salado remains contingent on final commercial terms being agreed. Accordingly, the Company does not currently have an interest or the right to acquire any interest at this stage during the evaluation period. Echo continues to evaluate the best route to maximise shareholder value in relation to the Bolivian position.

Financial

• The restructuring of the licence portfolio and early exit from the CDL producing assets meant that Echo only participated in production for the first four months of the period. The unwinding of the inventory position and removal of residual CDL assets from the balance sheet led to a total comprehensive loss for the period of US$ 7.7 million.
• Gross administration costs of US$ 2.4 million (30 June 2018: US$ 4.2 million) reflect management's drive to reduce overheads. A reduction in the non-cash cost of share options of US$ 0.6 million for the six months ended 30 June 2019, versus the same period last year, reflects staff departures and the fact that no new issues of options to staff in 2019. Third party costs are significantly down on the prior year. Net timewriting was reduced by US$0.3 million versus H1 2018.
• Oil revenue for the period was US$ 2.1 million with prices realised averaging US$ 52/bbl versus US$ 65.23 for H1 2018.
• Opex costs for the reporting period only included costs to Apri 2019. Opex costs were lower than equivalent costs for the prior period on a like for like basis largely driven by the devaluation of the Argentine Peso. On the other hand, the unwinding of the inventory position of US$ 0.7million was a cost driver in the period.
• Exploration expenses of US$ 0.3million included US$ 0.2 million of timewriting, largely for evaluation of possible acquisition targets. External consultant costs were lower than in 2018, however exploration expenditure with third parties is expected to increase in the second half of 2019 with increased evaluation activity following the receipt of the Tapi Aike processed data.
• Financial income is generated largely from treasury placings, the movement of the Euro denominated debt against the US Dollar and offset by devaluation of Argentine Peso tax balances.
• Finance costs are composed of an actual cash cost of US$ 1.0million with the amortisation of debt fees, the unwinding of the discount on the debt issue and the accretion of right of use assets bringing finance fees to a total of US$ 2.3 million.
• The impairment of the CDL assets including expenditure on the EMS-1001 fracking programme and other trailing well costs, in addition to a seismic prepayment of US$ 1.3 million which was foregone as part of the restructuring, resulted in an impairment charge in the period of US$ 2.8 million.

With progress continuing apace on the Tapi Aike seismic interpretation programme, the value of intangible assets reflects expenditure on Tapi Aike seismic acquisition at the original carried cost of 65%. Having funded the full seismic programme in Tapi Aike, Echo retained a cash balance of US$ 4.1 million at the end of the period.

Link to Echo Energy Argentina country profile