Echo Energy plc (LON:ECHO), the Latin American focused energy company, has provided an operational update regarding its Santa Cruz Sur assets, onshore Argentina for H1 2022 to 30 June 2022. In addition, the Company confirms the agreement by the Santa Cruz Sur partners to a plan to materially increase Santa Cruz Sur production by c.40% above average H1 2022 production levels.
H1 2022 Production and Operational Update
Production over the period from 1 January 2022 to 30 June 2022 has continued to remain strong and reached an aggregate of 261,290 boe net to Echo during the period, including 48,600 bbls of oil and condensate and 1,280 MMscf of gas.
Net liquids production in Q2 2022 averaged 272 bopd, an increase over Q1 levels (Q1 2022: 265bopd) despite, as previously announced, a 35-day maintenance and upgrade programme on the Oceano field during the quarter, when oil and gas production from the field was temporarily brought offline.
Net gas production averaged 6.8 MMscf/d during Q2 2022 (Q1 2022: 7.4 MMscf/d), with Q2 2022 production again impacted as a result of the Oceano field production being brought temporarily offline for maintenance and upgrades to the compressor and associated infrastructure.
As previously announced, the successful upgrade to the compressor was an important and planned operational milestone and has resulted in substantial increases to production from the Oceano field since being being brought back on line, with the full impact expected to be seen in future quarterly production figures.
Santa Cruz Sur – Production and Infrastructure Enhancement Plan
The Company is additionally pleased to announce that the Santa Cruz Sur joint venture partners have agreed to a detailed plan to materially increase production at Santa Cruz Sur and to improve the quality of sales liquids from the Santa Cruz Sur assets (the “Enhancement Plan”).
Over a six month period, anticipated to commence in Q3 2022, the Santa Cruz Sur partners intend to seek to increase production by approximately 40% from the levels previously achieved over H1 2022. If achieved, the Enhancement Plan would increase total daily production from Santa Cruz Sur to around 2,000 boepd, net to Echo’s 70% interest in Santa Cruz Sur.
Under the newly agreed Enhancement Plan, the Santa Cruz Sur partners will seek to increase production levels through the recommissioning and bringing into production of existing oil wells currently offline. Around 30 or more wells from the existing well stock are intended to be gradually brought back into production over the six month period utilising an existing pulling rig and field personnel owned and employed by the Santa Cruz Sur joint ventures. The re-opening of the existing wells could increase production levels by up to c. 240 bopd of liquids and 2 MMsf/d of associated gas, net to Echo.
The plan to bring existing wells in to production under the Enhancement Plan is in addition to, and will come ahead of, previously announced intentions regarding identified portfolios of well workover candidates in respect of Santa Cruz Sur resource/reserves not currently in production.
The additional producing wells will be supported by infrastructure upgrades to sustain and contribute to elevated production levels. Intended infrastructure upgrades under the Enhancement Plan will be focussed around three operational priorities.
The first is the installation of additional electrical power generation capacity across the Cerro Molino Oeste, El Indio Oeste and Oceano fields. Installation is anticipated to take a month from commencement. A second set of planned infrastructure improvements will be focused on the maintenance and optimisation of the compressors at Cerro Norte and Campo Bremen to enable the increased volumes of associated gas to be processed and then sold into the main gas export line. This operation is anticipated to take approximately three months from commencement and will be carried out with the intention of minimising any disruption to existing gas production, although some temporary impact is expected.
The third set of infrastructure upgrades will prioritise a substantial increase of quality of Santa Cruz liquid blends. This will be achieved through the the installation of mercury removal facilities at Cerro Norte. When operational, this facility will enable premium export pricing to be achieved for a higher volume of liquids than is currently the case. During H1 2022, the higher-quality export liquid blends achieved on average a premium of US$ 21 per bbl over lower-quality blends. The operation from installation to commissioning is anticipated to take around four months from commencement.
The Company estimates that, on completion, the aggregate effect of the three sets of infrastructure upgrades described above could, including the up to 240 bopd of liquids and up to 2 MMsf/d of associated gas (net to Echo) that would be expected to be delivered from the well reopening programme, result in up to an additional 600 boepd of production net to the Company.
With the agreement between the Santa Cruz Sur partners as to the Enhancement Plan, the delivery of the intended operations is expected to require an estimated US$2.1 million (gross to 100% Santa Cruz Partnership) to deliver in full over the entire duration of the Enhancement Plan’s implementation and, notwithstanding existing Santa Cruz Sur joint venture creditor balances of an estimated (unaudited) c.$13.9m ($9.7m net to Echo’s 70% interest) as at 30 April 2022, the Santa Cruz Sur partners currently believe that a significant proportion of the cost of the Enhancement Plan can be met from existing, and to be increased, Santa Cruz Sur cash flows.
In advancing the Enhancement Plan, the Santa Cruz Sur partners intend to engage with the local province in respect of a proposed extension to the term of the Santa Cruz Sur licences.
This Enhancement Plan is the agreed next step for production growth from Santa Cruz Sur and is focused on low-risk infrastructure upgrades to sustain the increased production from existing well stock. In addition, the Santa Cruz Sur assets includes a portfolio of other opportunities across the risk-reward spectrum and additional cash flows which would be delivered from the implementation of the Enhancement Plan will broaden the scope for portfolio choices in bringing additional existing reserves and resources into production.
The Company looks forward to continuing to update shareholders on progress on these plans throughout this year.
Martin Hull, Chief Executive Officer of Echo, commented:
“Following a strong H1 2022 of production, we are pleased to announce an important and material step in the Company’s strategy to deliver organic growth from the Santa Cruz Sur assets. The ability to now materially increase production levels from Santa Cruz Sur is a result of the right choices that were made during the Pandemic creating a strong operational platform on which to build. Having stabilised the business, we are now able to pivot the asset towards the current momentum in commodity prices. By significantly increasing production we drive a virtous circle of cash flow strengthening our financial position and providing additional potential for future growth. This is underpinned by the strong pipeline of identified opportunities within the Santa Cruz Sur asset base. We look forward to working with our Partners on this and to further update the market as our work programme progresses.”
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; boepd means barrels of oil equivalent per day; bbl means barrel; MMscf means million standard cubic feet of natural gas; and MMscf/d means million standard cubic feet of natural gas per day. The information contained in this announcement has been reviewed by Echo Energy’s Vice President, Exploration, Dr. Julian Bessa Msc, DPhil, MBA ,a Fellow of the Geological Society and President of the Petroleum Exploration Society of Great Britain.