Echo Energy plc (LON:ECHO) Chief Executive Officer Martin Hull caught up with DirectorsTalk to discuss result of the bondholder meeting, the key points of the restructuring, operational progress and what’s in store for the company beyond the near term.
Q1: First off, why is today’s news so important for Echo Energy?
A1: Today’s news is really positive for the company and for all of our stakeholders. By reaching agreement with our bond holders, the people who own our debts, we are finally now able to restructure our balance sheet. It’s something we wanted to do and frankly needed to do for a long time.
It marks a real step change in the business. It’s a break from the past and it enables us to move forward onto much firmer financial footing. I must say I’m very grateful to the bondholders for their constructive discussions and really their ongoing support.
We’ve made a lot of progress recently operationally, and of course that’s something that the team and I are very focused on and we’re keen to maintain that momentum as we continue to increase production. But today’s announcement is very much part of the overall picture for the business, and it is really very much part of continuing that positive momentum.
Q2: Could you just remind us of the key points of the restructuring?
A2: Although it’s been a rather complicated process, the deal itself is very simple. So, what we’ve agreed to do is to convert the majority of our outstanding debt into equity at a price of 0.45p. That price is a large premium, it’s more than 70% to our current share price, and I’m must say that’s a real vote of confidence in our equity from our debt holders and we believe it is strongly creative to shareholder value.
So, the remaining debt about €10 million of bonds is extended until 2032 and critically at an interest rate of only 2%. Financing a business at such low cost in this market really is extraordinary, it is cheaper than any mortgage you’re likely to see out there and certainly cheaper than the UK’s government’s 10-year debt priced at the moment. That is a sense of a scale of what we have achieved with this agreement.
Overall, the company’s long term debt reduces from more than €30 million to €10 million and is now extended by 10 years, again, it really does transform our balance sheet.
Q3: Now, you mentioned operational progress in recent months. Could you just provide us with an update?
A3: So, you’ll remember a few months ago you and I spoke about our announced plan to increase production by 40%. We did an interview which broke that plan down in a lot of detail and I would encourage investors to revisit that and look at the detailed presentation.
What I’m really delighted to be doing is now delivering on that plan. So, we’ve achieved the first priority of delivering and installing the new power generators, we’re on track to completing the second priority, which is to upgrade the compressors, including at Oceano, and we made announcement about positive progress on that earlier this week. We’re also making progress in upgrading our rig and bringing forward the time when we’ll be opening up our extensive well portfolio.
Now importantly, we are already seeing the benefits of those efforts in our production. Q3 production was up on Q2 and in fact, it marked the eighth quarter in a row of liquids production increase. Perhaps more importantly, we’ve also seen a significant increase in the production capacity, we are now being consistently producing at rates of over 1,600 BOE per day. We’re already well on the way to meeting our near term targets.
Q4: What’s in store for Echo Energy beyond the near term?
A4: Our priority remains delivery of the near term production growth plan and I’m very focused and the team is very focused and so is our partner very focused on doing that in Argentina as we speak.
Nevertheless, we believe there remains big potential, really huge potential within the assets in excess of the 40% production increase. This is something we’ve talked about before and you can see our extensive reserve portfolio. What we want to do is access that so we have an extensive portfolios of workovers in the pipeline and plans to grow through production through the workover programme and we also want to bring those extensive reserves into production.
The transformation of the balance sheet following today’s announcement really brings all over that forward and that potential within reach. We are no longer spending money servicing debt, instead we can invest it into our assets.
