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Market Update: Tuesday 8 December 2020

Echo Energy: Welcome boost to oil production as fields reopen

Energy Prices         

Brent Oil US$48.6/bbl vs US$48.3/bbl yesterday

WTI Oil US$45.9/bbl vs US$46.2/bbl yesterday

Natural Gas US$2.46/mmbtu vs US$2.45/mmbtu yesterday

Oil Price News 

Prices fell yesterday as pandemic measures strengthened

Brent Crude fell 0.9% to US$48.79, WTI fell 1.1% to US$45.76 on Monday and continued this downtrend overnight

Renewed lockdowns in California, Germany and South Korea are impacting demand expectations

California has enacted a stay at home order which affects 85% of the population in the state

France might delay loosening of lockdown restrictions as the downward trend in cases flattened with shops reopening last month

Prices have also been impacted by news that the US is preparing to impose sanctions on at least 12 Chinese officials for their roles in disqualification of elected opposition legislators in Hong Kong (Reuters)

It is being reported Iran has instructed its oil ministry to prepare installations for production and sale of crude oil at full capacity within three months

OPEC+ agreed to ease oil output cuts by 500,000 barrels in January last week which provides hope of a controlled exit from the production cuts

Traders will now look to data from the API and US government on inventories and US legislators efforts to provide a pandemic aid package

Expectations are for crude inventories to fall with refined with refined stockpiles rising according to a Reuters poll

Gas Price News

Natural gas prices also fell yesterday with warm weather expected in the US over the next 8-14 days

The outlook does not show any tropical storms forming in the next 48hrs

Gas contracts for January slipped as much as 7.5% yesterday as traders hopes of a cold winter ebbed away 

EIA data showed natural gas supply remained the same for the second week running, averaging 95.8Bcf/day

Company News

Echo Energy: Welcome boost to oil production as fields reopen

Share price: 0.42p, Market Cap: £4.4m

Echo has provided a much-anticipated update on operations at its Santa Cruz Sur blocks onshore Argentina.

As a result of the continued improvement in market conditions, the Company continues to bring oil wells back into production that had been shut in earlier this year.

Since November 2020, three additional Springhill fields and one Tobifera field have now been brought back online in the Chorrillos and Palermo Aike licences increasing gross oil production by around 50bopd to approximately 300bopd (c.210bopd net to Echo's 70% interest).

This recent increase in oil production represents an uplift of approximately 19% across the Santa Cruz Sur assets.

Gross gas production from Santa Cruz Sur continues at a rate of 14MMscf/d (10MMscf/d net to Echo's 70% interest).

Encouragingly, management has confirmed that the production levels from individual wells previously shut in continues to indicate that the shut-in period has not had a determinantal impact on reservoir behaviour.

The programme to restore previously shut-in production is ongoing and given these positive results, and continuing market improvements, the Company and its partners are reviewing options to accelerate production reopening.

In addition, post-shut in production levels at the Palermo Aike field suggests that new opportunities may be available to capture additional production potential.

In this field, post-shut in pressure and production data indicate the potential for significantly increased production levels through a combination of production optimisation on the existing field and, later, with new development wells.

With just the existing well stock, the data indicates a gross production potential of between 126bopd and 189bopd (88bopd to 132bopd net to Echo's 70% interest) subject to availability of increased liquid storage and separation facilities at the field.

This compares to an estimated restricted gross production rate of 31bopd pre-shut in earlier this year.

The Palermo Aike field was historically overlooked due to a lack of infrastructure in the area, which restricted production rates.

However, the seven-month shut in period and subsequent production start-up has provided important subsurface data to assess the field's potential in more detail.

The Company now believes that there is also commercial potential with future development wells targeting other parts of the field.

These will be assessed and included in the portfolio of production opportunities across the Santa Cruz Sur assets as the 2021 operational plan is progressed.

Our take: Further to recent announcements on the debt restructuring and fundraise which have provided Echo with a materially strengthened financial platform, and positive steps to recoup and streamline  VAT payments in country, the positive news flow has continued with the reopening of previously shut-in fields leading to material production increases.

Research – Oil & Gas

Sam Wahab - 0203 470 0473 / 0784 385 5037

sam.wahab@spangel.co.uk

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

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Sources of commodity prices

Oil Brent, WTI

- ICE

Natural Gas

- NYMEX

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Read the latest issue of the OGV Energy magazine HERE.