Echo Energy shares plunge as it confirms negative cash flow in Argentina
Latin America-focussed upstream oil and gas company Echo Energy updated the market on the continued falls in global oil prices on Tuesday.
The AIM-traded firm noted that, in its update on 6 March, its confirmed that in the context of the then-prevailing global oil prices, it was intending to put in place an additional unsecured standby credit facility, initially of £0.4m and up to £1.0m, to provide it with access to additional working capital in the short term, if required.
That included in the event of a continued decline in oil demand, driven by “recent global events”.
Since that announcement, and while the company said it was still expecting seasonal improvements in realised gas prices during March and into the Argentinian autumn and winter months, global oil prices had declined “significantly”.
“The company confirms that, prior to cost reductions, operations at the Santa Cruz Sur assets are not currently cash flow positive at prevailing oil and gas price levels,” Echo said in its statement.
“The company's existing cash resources, even if supplemented by the proceeds of the additional facility, will not be sufficient to sustain operations at legacy Santa Cruz Sur cost levels beyond the short term.”
As a result, the board said it was exploring “all options available” to preserve existing cash resources at a corporate level and, together with the operator of Santa Cruz Sur, had identified and prioritised a number of field operating cost reductions to ensure that operations were sustainable at current commodity prices, noting that gas prices were expected to continue to increase in the coming winter period.
Such actions could include a delay in the ongoing activities relating to the testing of the Campo Limite CLix-1001 well at Palermo Aike, the board noted.
“The company is aware of efforts from industry participants in Argentina, including regional authorities, service providers and energy producers to seek the introduction of supportive measures to enable the continued investment in, and smooth functioning of, the domestic Argentinian exploration and production industry.
“In the past such measures have included the stabilisation of domestic oil prices at levels in excess of international market pricing.”
Further announcements would be made, as appropriate, in due course, Echo said.
At 1308 GMT, shares in Echo Energy were down 61.54% at 0.25p.