Echo Energy plc (LON:ECHO) Chief Executive Officer Martin Hull caught up with DirectorsTalk for an exclusive interview to discuss highlights from the interim results, restructuring of debt, operational activity to come and how the current commodity price environment has played into their thinking.
Echo Energy is a full cycle exploration-led gas focused AIM listed E&P with exciting asset base in Latin America. Now, the company has published interim results for the six months ended 30th of June 2021 and joining me today to discuss the results is CEO Martin Hull.
Q1: You’ve just published your interim results, can you talk us through the highlights and what they mean for the group in 2021?
A1: So, we publish them on Thursday and overall, these are really a very encouraging set of results and they reflect the progress that we’ve made over the last six months, but also wider than that over, over the last year from the depths of the pandemic.
I think there’s three key highlights that I’d talk investors through.
The first is that revenues are up, remember this is for the period up until June this year, and whilst revenues are up, that was before the higher gas price contracts kicked in. So, it was only for a couple of months, but certainly before the increased oil production that we’ve announced recently and also the higher oil prices that we’re seeing across the board now. So, good to see that revenues are up.
Added to that, cost of sales were down very substantially, by more than 30% versus the period last year and that really demonstrates the success that we’ve had as a management team and as a board and as a company in focusing on the costs, which is something that we needed to do, given the realities of coping with the pandemic. Of course, those things combined to mean a return to profit, not a huge number but great to be in positive territory rather than negative. Again, that represents a huge turnaround from last year.
I think the other thing that we see that come through in these interims is the full effects of the debt restructuring that we succeeded with in March/April time. You can clearly see in these results, a markedly improved balance sheet position and that’s very positive.
So again, a very encouraging set of results overall, of course, challenges remain but certainly we think we’re in a good position now, as we approach the second half of 2021, when those higher oil prices and the higher liquid production that we’ve already announced, we kick on and are seen in the numbers.
Q2: Now, you mentioned the restructuring of debt. I see that you finished the last piece of the debt puzzle, so to speak. Can you tell us why this important?
A2: So again, this has been very recently announced that we restructured what we call the Spartan loan, which was the last remaining of the debt pieces that the company has. This is an important step, the key pieces of it are that we’ve pushed back maturity by two years and we also reduced the interest rate from 12% down to 8%.
Perhaps, more significantly in fact, is what I think is a hugely positive sign of confidence that the loan investors have converted some of their debt into shares in echo but importantly, at a price of 1.25p, and that’s more than a hundred percent premium to the current market price. Of course, I can’t speak for them, but I take that as a a real demonstration of the belief that they, as big investors in us, in both our assets and strategy, and again, that can only be seen as a positive.
The impact of that is that it really provides us with more resources to pursue our investment strategy or a reinvestment strategy. Investors will be aware that we have a number of near-term growth projects and opportunities that we can, and we want to pursue, we want to get after these. These opportunities drive production and they ultimately drive revenue and cashflow.
The constraint for the company has not been our underlying asset base, which we’re very positive about, the constraint has really been about financial resources, reflecting the challenges that we had last year as we went through the pandemic.
These sorts of things that we’ve been delivering or been announcing we’ve been delivering; the innovates restructuring, reworking, and strengthening of the balance sheet, really allow us now to drive on and get after the huge potential that we believe we have in our asset base.
Q3: You described a lot of operational activity in your interims, is there a lot more to come in H2 ‘21 and H1 ‘22?
A3: Yes, absolutely, and that’s what we’re very much focused on. Again, the strength in financial platform really allows us to put our foot down on the accelerator and drive forward the investment across our portfolio.
As we reported in the interims, we’ve already made some excellent progress in the field, we’ve delivered a pipeline upgrade, we’ve delivered some other infrastructure upgrades, and critically that has enabled us to start to bring on the production wells that we shut in last year. We’re beginning to see the effects of that, we’ve announced some details already on that which highlighted a more than 50% increase in oil production.
We continue to work on that, and we’re very focused on that, and investors should expect, as time goes on, more of that sort of news and more updates on the portfolio as those work efforts come through.
I guess to add to that, we are very conscious that our job is to create value for shareholders and that absolutely is what we’re focused on.
Q4: Finally, can you tell us what part the current commodity price environment has played into your thinking?
A4: We are obviously an energy producer and ultimately our revenue is driven by energy prices and that’s a fact.
Importantly, the very substantial increases we’re seeing in global markets are feeding directly into the revenues that we are getting in our monthly sales. This isn’t just about the future, we are seeing the benefits right now. Echo Energy is very much a leverage play on the energy markets and of course, as a result, it’s very positive to see the strength across the market that we see now.
I would add that the higher prices additionally further improve the economics of all those opportunities that that would talk about, the profits get bigger and the paybacks of those near-term development opportunities are shortened. Every project that we look at and that we have in our portfolio looks better at $80 or equivalent higher gas prices than it did only months ago so that can only be a good thing.
I would also add that we are seeing the positive momentum in the markets, not just in oil and gas, but across the wider energy value chain. Of course, in the UK, there’s lots of talk about gas prices, but also electricity prices and other energy prices and we’re seeing that also in some of the geographies that we operate in. We’re seeing improved returns across the whole energy value chain and that’s something that we’re looking at and that we’re interested in.
So, overall it’s clearly a very exciting time to be in the energy space.