Echo Energy plc (LON:ECHO), the Latin American focused upstream oil and gas company, has provided a commercial update regarding the Company’s gas sales from the producing Santa Cruz Sur assets, onshore Argentina.
The Company confirms that, following a successful auction process for industrial clients, it has secured two new gas sales contracts at significant premiums to both prevailing spot market rates and 2020 contracted rates.
The Contracts have a term of 12 months, with gas sales beginning in May 2021, and provide for a 126% increase over annual industrial contract pricing previously achieved by the Company in May 2020 and a 39% premium above current local spot price.
The Contracts provide gross 6.5 MMscf/d of committed production, 4.6 MMscf/d net to Echo, at an average price of $2.64 per mmbtu, with the Company able to elect to sell additional volumes of up to 1.9 MMscf/d net to Echo under the Contracts. This optionality, at the election of the Santa Cruz Sur partners, provides flexibility to respond to market conditions including rising spot prices.
As a result of the Contracts, a minimum of approximately 70% of gross daily gas production from Santa Cruz Sur allocated to industrial customers will now be committed under secured contracts until April 2022.
Martin Hull, Chief Executive Officer of Echo Energy, commented:
“We have previously commented on the improving market conditions for our business as commodity prices increase, and the Company’s ability to secure these new contracts with industrial customers via a competitive auction process reflects the increasingly supportive commercial environment. It is encouraging to now go further and see the improved market conditions translate to tangible improvements in future revenue. We believe that as a result of these agreements, our contracted gas USD revenues for the year could be as much as 50 per cent higher when compared to May 2020 to April 2021, meaning they will deliver a material improvement in cashflow during 2021. We continue to pursue an innovative and flexible commercial strategy, enabling Echo to secure this type of premium pricing. These contracts also confirm that the Company is viewed as a reliable and attractive supplier to the Argentine industrial sector, and can achieve strong pricing for our output.”