Investors may have felt slightly wrong-footed as they picked up the mission statement for Echo Energy - the Independent Resources plc (LON:IRG) reboot led by Sound Energy PLC’s (LON:SOU) James Parsons.
Echo Energy will pursue opportunities in South and Central America, the company revealed on Tuesday.
On the face of it, the new strategy is somewhat at odds with the presumption many investors made as executives of AIM’s Morocco success story parachuted into IRG, which like Sound had been focussed on North Africa and the Mediterranean (with assets in Tunisia, Egypt and Italy).
In a statement the company said it “does not see significant value” in the Egypt and Italy portfolio. It is now making preparations to ‘exit’ the projects and it is in talks with a third party over a potential sale of the Egypt assets. The Tunisia project, meanwhile, are currently “under review”, the company added.
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Echo’s new strategy is - to target low cost ‘multi trillion cubic feet’ onshore gas projects - is on paper quite an ambitious one, albeit, Parsons recent track record in Morocco brings a considerable amount of good will from investors.
It now plans to rapidly acquire a series of assets across the South and Central America region including Bolivia, Colombia and Brazil. The company also said it intends to selectively bring in pre-identified strategic partners to the business to fund and technically de-risk the assets it acquires.
Echo is set to bring in £23mln of new institutional funds – in addition to the £3mln injection announced in March - ahead of its first asset deal.
The funding comprises a £10mln equity investment from Bahamas based Spartan Fund and a €15mln five-year bond (with a 8% coupon and priced at a 20% discount to par) to be issued to cornerstone investor Greenberry PLC.
It is anticipated that the equity terms will see new shares priced ‘at or around market’ when a binding deal is signed. Spartan will also receive share warrants (the number of warrants will be 50% of the new shares issued).
Alongside the fund raise, the company intends to carry out a capital reorganisation, consolidating shares on a 25:1 basis.
Parsons sees ‘window of opportunity’
In the statement, Parsons said: “We see the current environment as one of genuine opportunity for growth focused exploration and production companies.
“There is a window of opportunity for an ambitious company, such as Echo, with supportive backers, existing partnerships and strong regional connectivity to quickly build a portfolio of high impact exploration and appraisal assets on attractive entry terms.
“Today we are pleased to confirm our regional gas strategy which is hinged on high quality multi Tcf potential acreage that will attract majors when the cycle turns.
“As a board we are extremely well connected across the sector and the LATAM region and we look forward to deploying those relationships to build Echo Energy into a mid-cap company."