Echo lays out plans to debottleneck pipelines at Santa Cruz Sur

Latin America-focussed upstream oil and gas company Echo Energy updated the market on operations at its Santa Cruz Sur assets, onshore Argentina on Wednesday, reporting that following continued improvements in market conditions, it had agreed with the Santa Cruz Sur partners to capital expenditure to upgrade and debottleneck the existing liquids pipelines in the assets.

The AIM-traded firm said that would accelerate the return to full oil production, and bring the remaining volumes previously shut in in the second quarter of 2020 back online.

It said the pipeline upgrades would also provide additional capacity for future production enhancement projects that had been identified in the company's opportunity portfolio at Santa Cruz Sur.

Capital expenditure net to Echo's 70% working interest of around $0.28m would be injected by the company to replace and upgrade parts of the infrastructure primarily in the Chorrillos, Campo Molino and Cerro Convento fields, with installation expected to take about 45 days from the conclusion of successful procurement.

It said 10 individual upgrade projects would be completed to enable the upgrade of around 23 kilometres of pipeline.

Echo said it expected that, once the pipelines were fully operational, gross daily liquids production would be restored to levels of between 480 and 600 barrels of oil per day, or 336 to 420 barrels per day net to Echo.

The actual level of production resumed would be dependent on reservoir behaviour and pressure build-up, since the element of production was shut in in April.

In light of current attractive market conditions, the infrastructure project was considered an “attractive investment” with the ability to result in “strong” cash flow generation and a short payback period of months, the board said.

On the production front, Echo said daily operations in the field at Santa Cruz Sur were continuing with the delivery of produced gas to customers as expected.

Production levels remained in line with the company's expectations, with average daily production net to Echo's 70% interest throughout 2020 of 1,966 barrels of oil equivalent per day, including 10.2 million standard cubic feet of gas per day.

Total cumulative production from Santa Cruz Sur during 2020 net to Echo was 720,000 barrels of oil equivalent, including 3,750 million standard cubic feet of gas, with 2021 production remaining “strong”.

Gross cumulative production from Santa Cruz Sur for the period from 1 January to 14 February was 116,040 barrels of oil equivalent, or 81,230 barrels net to Echo.

Given the indications of an improving macroeconomic outlook and, specifically, the increase in oil prices from the start of 2021, Echo said there had been an increased demand for Santa Cruz Sur oil, resulting in improved pricing and, as a result, more frequent oil sales.

Oil sales to date in 2021 had totalled 17,600 barrels net to Echo.

“We are very pleased to be making continued progress across the portfolio as market conditions continue to improve,” said chief executive officer Martin Hull.

“The company's investment in improved and renewed infrastructure at Santa Cruz Sur is both consistent with Echo's commitment to HSE in the field and provides additional capacity for the opportunities the portfolio holds to increase production and revenue.”

Hull said that, with stable production and several growth opportunities to pursue, the board felt “positive” about the company's prospects for 2021, especially having announced progress in the restructuring of the company's balance sheet earlier in the week.

“With a firmer financial footing and material operational upside which we are actively pursuing, I look forward to updating shareholders with further good news in due course.”

At 1238 GMT, shares in Echo Energy were flat at 0.63p.