- Sale of a majority interest in the Santa Cruz Sur Assets, opportunity to acquire interests in a Producing Colombian Portfolio, Equity Issue at a Premium
- New Conditional Gas Sales Contracts
Echo Energy, the Latin American focused energy company, has announced that, further to the Heads of Terms announced on 9 May 2023, the Company has now signed binding transaction documents, subject to shareholder approval, on broadly the terms outlined in the Heads of Terms.
The Board of the Company is requesting shareholder approval for the partial sale of its Santa Cruz Sur assets on the basis that it:
- Addresses the Company's near-term funding challenges by providing near term funding, enabling the Company to transfer to Buyers the significant in-country creditors which had built up during the COVID-19 period and providing access to funding for the Santa Cruz assets.
- Provides continued exposure (both directly through the retained 5%, the contingent payments, the further 5% option and the indirect holding in the Operator) to a well-funded Santa Cruz portfolio, with the concessions likely to be extended as a result of the provision of guarantee.
- Provides the company a new platform from which to move forward with an opportunity to drill an exploratory well on a strong Colombian portfolio with its corresponding lower risk jurisdiction and a clean balance sheet whilst still receiving cash flow from its 5% position in the producing assets of Santa Cruz Sur.
- Sale and Purchase Agreement ("SPA") signed with Selva Maria Oil S.A. and Interoil Exploration and Production ASA (the "Buyers"), conditional on Echo shareholder approval, for the proposed disposal (the "Proposed Disposal") of 65% out of the Company's current 70% working interest in Santa Cruz Sur for a cash consideration of up to £1.725 million, consisting of:
- a cash consideration of £0.825 million, with an initial cash payment of £75,000 due immediately; and
- contingent cash payments of up to an aggregate of £0.5 million; and
- payment in kind of £0.4 million via issue of new shares of Interoil Exploration and Production ASA ("Interoil") upon completion, providing the Company with additional upside exposure to the Santa Cruz Sur assets.
- The Company would retain a 5% non-operated working interest, with significantly lower exposure to ongoing costs and legacy in-country liabilities.
- As part of the transaction, the Company's remaining 5% working interest would receive a financial guarantee from Selva Maria Oil S.A. for a period of 10 years sufficient to meet the requirements of the Argentine authorities such that all owners of the Santa Cruz portfolio, including the Echo Argentine subsidiaries, will qualify for full title to the concessions and qualify for a 10 year extension to the concessions (the "Guarantee"). The concessions extension is a critical value inflexion point for the concessions.
- The parties intend to evaluate the prospect of the potential future acquisition by the Company of a producing Colombian portfolio from the Buyers resulting from an option to drill an exploratory well therein subject to due diligence and future agreements as to terms (the "Option").
- Interoil to subscribe for 115,384,615 new ordinary shares in Echo, representing 0.02% of the Company's enlarged issued share capital, at an issue price of 0.0625 pence per new ordinary share (the "Issue of Equity"). This price is a 100% premium to the mid-price on 5 May 2023.
The SPA covering the Proposed Disposal, the ancillary Guarantee and the Option, is conditional, inter alia, upon Echo shareholder approval pursuant to Rule 15 of the AIM Rules for Companies and the Issue of Equity is conditional upon, inter alia, a required capital re-organisation of the Company to enable the issue of new ordinary shares at the Issue Price (the "Proposed Reorganisation"). Further details of the Proposed Reorganisation are set out below.
A circular containing detailed information about the Proposed Disposal, the Guarantee, the Option, the Proposed Reorganisation and the Issue of Equity will shortly be published and available from the Company's website at www.echoenergyplc.com.
Background to and reasons for the Disposal
Given the Company's large creditor position which originated from the COVID-19 period where the asset was sub-economic, 100%+ per annum inflation in Argentina and Argentine currency exchange controls, which have prevented funds being withdrawn from the country without significant penalties, the raising of additional equity for an Argentine business has been challenging.
Having continued to explore all means of raising required near term funding, the Directors see the Proposed Disposal as a pathway to address the Company's near-term funding challenge by enabling the Company to transfer to the Buyers the significant in-country creditors that had built up during the COVID-19 period and providing access to funding for the Santa Cruz assets.
The disposal provides continued exposure (both directly through the retained 5%, the contingent payments, the further 5% option and the indirect holding in the Operator) to a well-funded Santa Cruz portfolio, with the concessions likely to be extended as a result of the provision of the guarantee.
Furthermore, the disposal provides the Company a new platform from which to move forward with an option on a strong Colombian portfolio with its corresponding lower risk jurisdiction and a clean balance sheet whilst still receiving cash flow from its 5% position in the producing assets of Santa Cruz Sur.
The Directors do not see a viable alternative to this transaction without a significant improvement in the Argentine macro-economic situation or the availability of alternative funding.
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Source: Echo Energy
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