Echo Global Logistics, Inc.
Annual Report 2021

Plain-text annual report

264206 Echo Annual Report cov-ifc.qxp 06/09/2022 11:04 Page 1 Echo Energy plc Annual Report 2021 264206 Echo Annual Report cov-ifc.qxp 06/09/2022 11:04 Page 2 Annual Report 2021 Echo Energy is a balanced, Latin America focussed, full cycle energy Company with a portfolio centred on the onshore Austral basin, Argentina. The portfolio comprises a significant production base, with enhancement opportunities, in combination with high impact exploration acreage. Echo Energy’s growth strategy targets both near-term, lower risk options across the energy spectrum alongside longer-term acquisitions, with a disciplined approach to delivering shareholder value from its existing portfolio and new opportunities. Echo maintains its philosophy of equitable treatment and open communication with all our stakeholders and the communities in which we operate. Financial Statements Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Statement of Changes in Equity 38 38 44 45 46 47 Company Statement of Changes in Equity 48 Consolidated Statement of Cash Flows Company Statement of Cash Flows Notes to the Financial Statements Shareholder Information 49 50 51 80 Contents Strategic Report Key Highlights Chairman’s and CEO’s Statement Business Model Strategy and KPIs Assets Portfolio Operational Review Sustainability Review Managing Risks Stakeholder Engagement Financial Review Governance Corporate Governance Statement Health and Safety Review The Team Directors’ Remuneration Report Directors’ Report Statement of Directors’ Responsibilities 1 1 3 5 6 8 9 11 13 15 18 21 23 23 30 31 33 35 37 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 1 Strategic Report Key Highlights Santa Cruz Sur l Production capacity increased during the period pursuant to Santa Cruz Sur facilities upgrades in Q1 2021. l Average net daily production in 2021 was: – – – 8.0 mmscf/d of natural gas 222 bbls/d of oil and condensate Total: 1,554 boepd l Net cumulative production in 2021 was: – – – Natural gas: 2,918 mmscf Oil and condensate: 81,076 bbls Total: 567,371 boe l Reserves and resources at end 2021 were: – – 1P (Proved): 2.53 MMboe 2P (Proved & Probable): 3.15 MMboe – MMboe Contingent Resources (High Estimate): 5.39 MMboe l Announced a five-year Cooperation Agreement with GTL International S.A., which has interests in both the hydrocarbon and renewables sector. l l l Began process of reopening oil wells that had been shut-in during 2020. Developed new customers for liquids products. VAT refunds received in Argentina (US $0.5 million) and additional credit balances (approx. US$0.7m) are being amortised until the end of 2022, benefiting cashflow for 2021 and 2022. Post Period End Highlights l New gas contracts for 2022-2023, which was significantly above the 2021 annual pricing. l Agreement by the Santa Cruz Sur partners to materially increase Santa Cruz Sur production by c.40% above average H1 2022 production levels. l Post period fundraising and conditional debt restructuring. Corporate COVID-19 l Major travel restrictions imposed by the Argentine government impacted local operations at the continued intermittently through the year. l Continued to address challenges presented by COVID-19. – – Liaised with partners to ensure on-ground employees and personnel continue to operate in a safe environment. Remote working maintained in the UK, with a smaller Guildford office now in place when ‘normal’ working conditions returned to the UK. Annual Report 2021 1 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 2 Strategic Report Key Highlights (continued) Financial l Revenue of US $11.1 million in 2021 (US $11.1 million in 2020). l l 8% saving in Administration expenses due to a reduction in corporate staff. Secured improved pricing with average net oil prices for the period of US $43.3/bbl (2020: US $22.8/bbl) and a 2H average Gas price of US $2.7/mmbtu, although total gas production was down 23% year-on-year. Debt Restructuring l Successfully restructured all corporate dates including the following: – – extending bond maturity date and deferring all cash payments until repayment of the principal on the Lombard Odier debt facility. extending bond maturity date and deferring all cash payments to May 2025 on the Eurobonds. l Extension of Spartan loan facility by 2 years to March 2024, deferring interest and principal. £127,500 of remaining £850,000 principal converted into shares. 2 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 3 Strategic Report Chairman’s and Chief Executive Officer’s Statement Echo Energy, similar to many companies in the oil and gas sector, faced exceptional challenges during 2021, with the global pandemic impacting all aspects of the Company’s operations and finances.. We are delighted to report however that Echo now, buoyed by recent structural increases in commodity prices, the delivery of production enhancing opportunities and the recently launched conditional debt restructuring process, is both underpinned by much firmer foundations and positioned as a regional platform for growth. We are grateful to shareholders, lenders and partners for their continued support throughout the year. Argentina Santa Cruz Sur (SCS) The SCS assets provide material production and, revenues from a strong reserves base. The SCS portfolio also includes significant upside from relatively low risk production enhancement opportunities combined with exciting higher impact projects. During 2021 the Company began to restore previously shut-in liquids production which was supported by infrastructure upgrades. Improved market conditions enabled Echo Energy to capitalise on this by executing cashflow enhancing production opportunities. Throughout the period liquids production increased quarter-on-quarter and production during 2021 averaged 1,554 boepd throughout the year net to the Company’s 70% interest (including 8.0 MMscf/d of gas). Total net cumulative production was 567,371 boe (including 2,918 mmscf of gas) in the year. Both infrastructure maintenance and the commercial focus on high-quality blends at Santa Cruz Sur led to an increased frequency of oil sales during Q4 2021. This increase in liquids production helped to offset the expected natural decline in gas production over the year. Post period, work to optimise production and improve infrastructure has continued, especially relating to the provision of power generation capacity at some of the key producing assets, and this work continues. In 2021 the Company was able to increase the proved SCS reserves base, after considering production in the year, and the impact of eventual licence expiry. The Company estimates that, as at 31 December 2021, the SCS reserve base stood at an estimated 2.53 MMboe for 1P (Proved) and 3.15 MMboe for 2P (Proved & Probable) each net to the Company’s 70% non-operated working interest. The assignment of Echo's 70% non-operated participation in the Santa Cruz Sur licences is subject to the authorisation of the Executive Branch of Santa Cruz's Province, which is part of the overall process of title transfer that is proceeding as anticipated. Finance Revenue for the period remained constant at US $11.1 million in 2021 (US $11.1 million in 2020). Whilst prices increased, particularly in oil during the year, there remained production challenges which resulted in the flat revenue year-on-year . Losses for the year reduced to US $11.6 million, compared to US $27.0 million in 2020, reflecting the expected trend toward recovery, in 2022. The SCS asset joint venture continues to have high creditor balances, as a result of difficult trading conditions in 2020 and 2021. Whist the level of local creditors remains a key concern, the Company is working exceptionally hard to mitigate any risk and to reduce the balances in a controlled manner, whilst not at the cost of future investment in order to further increase production and increase SCS asset value. Whilst management are prudently reporting a material uncertainty in respect of going concern, management have prepared the financial statements on a going concern basis based on the post year end proposed debt restructuring, the current level of revenue and cash generation and the sensitivities considered in respect of the cashflow forecasts, and the mitigating actions that could be taken to conserve cash in a worse-case scenario. Annual Report 2021 3 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 4 Strategic Report Chairman’s and Chief Executive Officer’s Statement (continued) Post period conditional debt restructuring and fundraising On 12 August 2022, the Company announced the conditional conversion of an aggregate of €15.0 million of existing debt principal, together with accrued interest thereon, into new Ordinary Shares – the significant majority of which is proposed to be converted into new Ordinary Shares at a price of 0.45p. In doing so, the Company also confirmed that it would be proposing a conditional reduction of the coupon on the remaining €10.0 million of Euro Note debt (the “Notes”) from 8% to 2% with suspension of further cash interest payments for two years and an extension on maturity on the remaining Notes to 2032. The Company subsequently announced publication of its proposals to restructure the Notes on 5 September 2022. The debt restructuring remains conditional on both the approval of the holders of the Note and on the approval of the Company’s shareholders. The changes are aimed at comprehensively restructuring and strengthening the Company’s balance sheet and accelerating growth. On 14 August 2022 the Company was also pleased to confirm that it had successfully raised £600,000 (before expenses) pursuant to a placing of new ordinary shares. The net proceeds of this placing provided the Group with additional resources to fund working capital, including expenses related to the proposed debt restructuring, and enable operating cashflows in Argentina to be focused on activities in country in the near term, including the plan to increase production by c. 40% over approximately the next 6 months. Outlook and Continuing Growth 2021 was a year that saw important progress for Echo both operationally and commercially, which culminated in early July 2022 with the Company confirming an agreement by the Santa Cruz Sur partners to materially increase Santa Cruz Sur production by c.40% above average H1 2022 production levels. We will continue to prioritise the delivery of the production focused operational programme and the important conditional debt restructuring announced in August this year. Subject to the successful completion of the debt restructuring, we see a very positive outlook for Echo as we accelerate our production led activities on the ground and take advantage of the many regional growth opportunities. James Parsons Martin Hull Non-Executive Chairman Chief Executive Officer 4 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 5 Strategic Report Business Model Key Resources l Diversified portfolio of exploration and production licences in Latin America l Supportive institutional lenders l Active business development focus l l Prudent cost management with strong focus on safe and efficient operations Leading regional partners Explore & Produce Committed to targeting acreage positions that have the capacity to deliver substantial portfolio value through the E&P cycle, initiating drilling campaigns that will provide the opportunity to significantly increase our reserves and resources base. Our gas-dominated production achieves premium pricing in the domestic Argentinian market on long-term contracts. Grow We have demonstrated our origination and deal-making capability and continue to seek new corporate and high-impact asset acquisition opportunities across the energy spectrum, which further strengthens our position. Echo looks to add value to our existing assets by optimising the asset infrastructure, efficiently drilling new wells and/or initiating and completing workovers. Monetise Executing commercial agreements at strategically correct points in time to ensure that the value of the portfolio is maximised to the benefit of the shareholders. Our team is experienced and set up to execute such deals. How We Create Value We have an energy focused agenda and operate in proven hydrocarbon basins that benefit from existing infrastructure, enabling us to create value through an active operational programme whilst simultaneously building the business through further acquisitions. We create value by acquiring high- quality acreage, generating high-grade opportunities while operating with a cost-effective focus. This allows us to maximise the risk reward profile of the business while actively pursuing merger and acquisition opportunities across the energy spectrum Echo’s market position and size enables it to be a nimble and proactive player in Latin America. Annual Report 2021 5 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 6 Strategic Report Strategy and KPIs The Key Performance Indicators (“KPIs”) are how we measure the performance of our board of directors, executive team and staff against the strategic objectives of the business. Echo has strategic objectives focused on the following five areas: Growth, Asset Performance, Safety & Environment, Funding and Corporate. How the Board has delivered against these new metrics in 2021 is evidenced in the Performance column below. 2021 KPI MEASURE PERFORMANCE 1. GROWTH Diversify asset base with further asset or corporate acquisitions to build on the existing Argentinian position Mature longer-term opportunities in to leverage Echo’s commercial and technical capabilities across the wider energy spectrum Mature the Bolivian opportunities Develop opportunity pipeline and inventory After successful integration of the SCS assets during 2020, the Group successfully matured the Monte Aymond project, proving this to be an exciting commercial project Identify and collaborate with suitable Partners at low cost Post-period signed an exclusive option agreement to enter the Chilean market with a 70% interest in a 3MW solar project with LAS (Land and Sea S.A) Formalise relationships in country Echo signed a cooperation agreement with GTL International S.A over a five-year period. Both companies intend to collaborate and jointly assess new opportunities across the full energy spectrum 2. ASSET PERFORMANCE Oil and gas production Daily production Increase productivity of the existing assets Increase in boepd of existing wells 3. SAFETY AND ENVIRONMENT Sustained high quality safety, reporting and performance As expected throughout the year with delivery of gas continuing uninterrupted to customers during the period. COVID-19 has not hindered production. Liquids production increased in each quarter throughout the year Installed pipeline on time and on budget and Phase 1 oil brought onstream, with a decision made to maximise value over volume and focus on the highest quality blends Systems for HSE reporting and review of Operator HSE systems have been implemented. All non-routine operations are subject to a rigorous HSE review with the Operator prior to start up 6 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 7 Strategic Report Strategy and KPIs (continued) 2021 KPI MEASURE PERFORMANCE 4. FUNDING Fund the subsequent development of new business ventures and continued operational programme Identify opportunities to monetise assets following success Successful fund raises Successful additional funding through issue of equity, to allow Echo to pursue value accretive transactions Increase production from asset base SCS cost reduction/deferment measures were implemented in the field, and the Company has successfully navigated through 2021’s challenging economic times Improve corporate level debt status, allowing increased flexibility and options Restructuring of Company bonds Effective debt restructuring of all existing long- term loans, enhancing cashflow and strategic flexibility available to the Company 5. CORPORATE Safety and environment Cost control Maintain transparent relationship with investors Regular investor engagement Staff diversity Maintain a clean safety record with no significant incidents in periods of production and operation under Company operated control Progress made with large reductions to G&A both in the field and at corporate level. Pipeline installed on time and on budget Web-based investor forums were held and direct investor enquiries answered. Maintained a measured approach to expectation No additional hiring required given operating circumstances, although Accounting staff departures were/are to be replaced like-for-like 2021 KPIs The 2021 performance of the business and its staff will be measured across both financial and operational functions and is captured in a corporate scorecard. The scorecard is made up of various KPIs and is tracked throughout the year. The Board’s and executives’ performance are judged on the delivery of the desired outcomes and a summary of these targets is listed below: l Maximise shareholder value from the Santa Cruz Sure assets acquired in Q4 2019; l l Identify and mature high-quality opportunities for the operational programme; Continue to seek opportunities to diversify asset base with further asset or corporate acquisitions; l Mature the Bolivian opportunities in the portfolio; l Pursue opportunities to monetise assets following success; and l Maintain cost control with expenditures appropriate to size and scale of company. General corporate and operational objectives include HSE, sustainability, cost control, investor support, and staff diversity. The assets in Santa Cruz Sur provides a strong revenue-generating gas-dominated production base underpinned by a material reserve base, with significant proved reserves. Echo continues to be highly leveraged to the commodity-price super-cycle, which is forecast to continue post-period. Annual Report 2021 7 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 8 Strategic Report Assets The SCS assets represent the material production base of the Company. The assets consist of five production concessions, which produce gas and oil that contribute significant revenues to the Company. The assets are located in the east of the onshore Austral basin, with infrastructure in place for gas transport by pipeline to Buenos Aires and oil sales at the Punta Loyola terminal for both domestic and export sales. Echo Energy has an exciting and well-defined growth portfolio across the risk-reward spectrum. The assets provide a balanced opportunity set with short payback periods with optionality and flexibility. The gas-dominated production achieves premium pricing in the domestic Argentinian market on long- term contracts. The Company is looking to enhance these existing assets with new opportunities across the energy spectrum in Latin America, utilising its reputation for M&A and commercial innovation. Multiple opportunities exist within the current portfolio to increase base production as energy demand continues to increase bringing on existing wells or undertaking low cost/low risk/high value production enhancement opportunities with short payback times. The project portfolio includes targeted infrastructure projects, a well-defined work over programme, and new development wells on existing assets. The assets also contain impact exploration upside, which includes recommencing the Campo Limite (CLi.x-1001) well test. These combined opportunities provide a risk-reward-cost balance providing optionality to enable flexible decision making with cashflow reinvestment. Licence Tapi Aike Status Exploration Echo Participation Expiry Non-operator 19% Withdrew effective April 2020 Area (km2) 5,187 Campo Bremen Production Concession Non-operator 70% April 2026 Chorrillos Océano Moy Aike Production Concession Non-operator 70% April 2026 Production Concession Non-operator 70% August 2026 Production Concession Non-operator 70% April 2026 Palermo Aike Production Concession Non-operator 70% August 2026 687 647 108 714 537 8 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 9 Strategic Report Portfolio The Company is well positioned to build a diversified energy portfolio with a strong cash generating E&P foundation to support value accretive activities across the energy spectrum, whilst remaining high-leveraged to the continued upswing in the global commodity price super-cycle. Echo is a significant acreage holder in the Austral basin, onshore Argentina, with over 2,600 km2 of licence area containing 12 oil and gas fields and 82 production wells. This demonstrates Echo Energy’s commitment to the future of exploration and production potential of this part of Argentina. Oil and gas production from SCS is revenue generating for the Company, and the portfolio of opportunities provides a flexible and range of well-balanced risk-reward upside options. Santa-Cruz Sur is a gas dominated portfolio, and the Company’s majority 70% non-operated interest provides an ability to significantly influence operational strategy. This gas focused E&P portfolio is appropriate for energy transition, and long-term premium-priced gas contracts driving locked-in cashflow to support further opportunities. The portfolio is balanced across the risk-reward spectrum with shorty- payback periods and focused on low-risk opportunities, infrastructure enhancement and cashflow reinvestment. Following a successful auction process for industrial clients, the Company secured new gas sales contracts for the twelve-month period in May 2021 at significant a premium to contracted rates from the previous year. These new contracts provided for a 126% increase over annual industrial pricing achieved the previous year. In 2021 the Company was able to increase the proved reserves base, after considering production in the year, and the impact of eventual licence expiry. The assignment of Echo's 70% non-operated participation in the Santa Cruz Sur licences is subject to the authorisation of the Executive Branch of Santa Cruz's Province, which is part of the overall process of title transfer that is proceeding as anticipated. 1P (Proved) reserves at year end were 2.53 MMboe, which is around 0.5 Mmboe higher than would otherwise be the case given these factors on the previous year’s figures. The original acquisition of the SCS assets in 2019 was based on proved reserves economics. Current proved reserves per December 2020 remain similar to those at acquisition, adjusted for production and date of licence expiry. At the start of the year, the Company announced a five-year Cooperation Agreement with GTL International S.A, which has interests in both the hydrocarbon and renewables sectors. Both companies continue to collaborate and combine skill sets to jointly promote their business development initiatives in the wider region, and identify and assess new business development opportunities across the full energy spectrum Average net daily production 2021 1,554 boepd Total production net to Echo 2021 567,371 boe Net 1 P (Proved) reserves 2.53 MMboe Company Reserves & Resources are classified in accordance with the Society of Petroleum Engineers’ PRMS 2018 update and are shown in accompanying tables as estimated by the Company as at 31 December 2021. Santa Cruz Sur Net Reserves Oil (MMbbls) Gas (Bcf) Oil Equivalents (MMboe) Proved Proved, Proved, Proved & Probable Proved & Probable Proved & Probable Proved Probable & Possible Proved Probable & Possible Proved Probable & Possible Reserves Net to 70% Working Interest 0.61 0.77 0.89 10.76 13.36 14.84 2.53 3.15 3.53 Annual Report 2021 9 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 10 Strategic Report Portfolio (continued) Santa Cruz Sur Net Contingent Resources Contingent Resources Net to 70% Working Interest Oil (MMbbls) Gas (Bcf) Oil Equivalents (MMboe) Low Best High Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate 0.00 0.92 0.98 0.00 22.89 24.78 0.00 4.99 5.39 Santa Cruz Sur Net Prospective Resources Prospective Resources (Bcf) Net to 70% working interest Low Estimate Best Estimate High Estimate Gas (bcf) 10.3 43.0 458.2 Oil (MMbbls) 0.4 1.0 2.8 MMboe 2.1 8.2 79.1 10 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 11 Strategic Report Operational Review Santa Cruz Sur During the year the Company began to restore previously shut-in liquids production which was supported by infrastructure upgrades. Improved market conditions enabled Echo Energy to capitalise on this by executing cashflow enhancing production opportunities. Throughout the period liquids production increasing quarter-on-quarter throughout. Production Production remained in line with expectation in 2021. Average daily production throughout the year net to the Company was 1,554 boepd (including 8 MMscf/d of gas). Total net cumulative production was 567,371 boe (including 2,918 MMscf of gas) in the year. Continued Infrastructure Investment for Driving Production Increases As the economic recovery continued into 2021, expenditures of approximately US $0.3 million were injected by the Company to replace and upgrade parts of the Santa Cruz Sur pipeline infrastructure and reduce maintenance costs. By June 2021, Echo successfully delivered the project, demonstrating the effectiveness of the Company’s in-country operational capability and enabling production previously shut-in in April 2020 to be systematically brought back on line. The electrical infrastructure in the field was also upgraded to support the first tranche of production from the Campo Molino and Chorillos oil fields. The investment was designed to provide sufficient power to support sustained production from the Springhill reservoir from the associated wells. It was also part of the Company’s strategy to control critical infrastructure that was previously rented from contractors. With the focus to increase revenue, every quarter throughout the period saw an increase in liquids production delivering upon the Company’s strategy to leverage the marked upswing in global commodity prices. Net to Echo, liquids production did increase from an average of 198 bopd in Q1 2021 to 239 bopd in Q4 2021. This has continued post period, with net liquids production in Q1 2022 showing a further 12% over Q4 2021 levels. Q1 2022 represents the sixth quarter in row a of liquid production increases from the Santa Cruz Sur asset. Production levels from the reactivated oil wells continue to indicate that the shut-in period has not had a detrimental impact on reservoir behaviour. Liquids production at Santa Cruz Sur can cater for a variety of blend types, as and when required from customers. Given the opportunity presented by improving markets, and significant increases in realisable prices for high-quality products, the Company has optimised its commercial position by focussing production and sales on the higher-quality blends, the prices of which have rebound more quickly than other blends. The portfolio is balanced across the risk-reward spectrum with shorty-payback periods and focused on low-risk opportunities. This includes the well intervention programme, which consists of 39 oil and gas opportunities divided into three tiers. The robustness of this programme was demonstrated in quarter four where the first candidate in the programme was successfully tested to bring non- producing reserves back into production. With continued economic tailwinds and new infrastructure installed in the field, Echo now has the capacity to commission incremental enhancement projects within its portfolio. The reinvestment of available cashflow to drive further production increases remains an ongoing focus. The pipeline upgrades also provide additional capacity for those production enhancement projects that have been identified in the Company’s opportunity portfolio at SCS. Annual Report 2021 11 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 12 Strategic Report Operational Review (continued) Exploration Upside Campo Limite remains a potentially material well for the Company which could increase reserves and resources in the Palermo Aike concession and open up additional commercial options in the area. Well testing activities remain an operational and commercial focus and work remains ongoing to optimise commercial arrangements to enable activities to resume. Post Period Events In May the Company announced new gas contracts for 2022-2023, which was significantly above the 2021 annual pricing and reflected the strong competition amongst customers to secure gas supplies. These contracts have a term of 12 months, starting in May 2022, with a 65% increase in average annual contract pricing over the 2021-2022 contracts. It is anticipated that the increased revenues will provide additional resources that could be applied towards the acceleration of the Company’s operational programme to increase production whilst also being applied to the outstanding Santa Cruz Sur Joint Venture historical creditor balances. At the end of May 2022, Echo Energy confirmed that daily gas production has materially increased in the Oceano field which delivers gas to residential suppliers. This was a result of a successful facilities maintenance and upgrading programme focussed on improvements in efficiency, reliability and load capacity of the gas facilities at Oceano. In early July 2022 the Company confirmed an agreement by the Santa Cruz Sur partners to materially increase Santa Cruz Sur production by c.40% above average H1 2022 production levels. This is an important next step for production growth and is focused on low-risk infrastructure upgrades to sustain the increased production from existing well stock. Over a six-month period, anticipated to commence in Q3 2022, the Joint Venture intends to seek to increase production by approximately 40% H1 2022. If achieved, this Enhancement Plan would increase total daily production from Santa Cruz Sur to around 2,000 boepd, net to Echo’s 70%. This Enhancement Plan is the agreed next step for production growth from Santa Cruz Sur and is focused on low-risk infrastructure upgrades to sustain the increased production from existing well stock. Around 30 or more wells from the existing well stock are intended to be gradually brought back into production over the six-month period utilising an existing pulling rig owned by the Joint Venture. This plan is in addition to and will come ahead of full execution of the workover portfolio and will be supported by infrastructure upgrades to sustain and contribute to elevated production levels. Intended infrastructure upgrades will be focussed around three operational priorities; installation of additional electrical power generation capacity, maintenance, and optimisation of the compressors to enable the increased volumes of associated gas to be processed and then sold into the main gas export line and, prioritise a substantial increase of quality of the Santa Cruz liquid blends. In advancing production increases, the Santa Cruz Sur partners also announced an intention to engage with the local province around an extension to the term of the Santa Cruz Sur licences. 12 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 13 Strategic Report Sustainability Review As a corporate citizen operating across Latin America and in the UK, Echo believes in conducting a business that brings positive impact in the medium to long term, drives progress and respects the resources on which our future depends. Our Corporate and Social Responsibility (“CSR”) Objectives Echo seeks to manage and maintain positive and respectful relationships with our stakeholders. To meet these objectives, Echo aims to: l Protect the health, safety and wellbeing of our staff, contractors and the local communities our operations impact upon; l Manage and maintain positive and respectful relationships with the communities with which we conduct business and in which we operate; l Maintain a high standard of care for the natural environment and adopt appropriate environment management systems on our contract areas; and l Reduce our environmental footprint by efficient use of resources, management of water and energy consumption and management of waste and emissions. Anti-Bribery and Corruption (“ABC”) Echo has zero tolerance for bribery, corruption or unethical conduct in our business. Our policies require compliance with all applicable ABC laws, in particular, the UK Bribery Act, and the Argentine Foreign Corrupt Practices Act. The majority of our operations are based in Argentina. The Transparency International’s Corruption Perception Index (“CPI”) assesses corruption in the public sector when ranking different countries. In 2021, the CPI ranked Argentina 96 out of 180 participating countries worldwide with a score of 38/100. Bolivia is ranked 128 out of 180 with a score of 30/100. By comparison, the UK is ranked at 11 out of 180 with a score of 78/100. Echo operates in a competitive market and faces competition in securing and maintaining licence interests, forming partnerships, attracting, and retaining the most efficient service providers and building cooperative relationships with all stakeholders. We are very aware of the pressures and challenges that we face. However, we are committed to upholding the highest levels of corporate and operational behaviour and our objective is to develop our business responsibly and with integrity at all levels. We have a system of documented ABC policies and procedures that provide a consistent policy framework which all staff are issued with and trained in. Our policy and training encompass anti-bribery and corruption, gifts and entertainment, third-party representatives and whistle blowing. Social Responsibility Echo is committed as an organisation beyond our core business objectives, to be a responsible and ethical participant in the global community. Placing great consideration and aim to protect the health, safety and wellbeing of our staff, contractors, and the local communities. Environmental Responsibility Echo is very conscious of the natural environment in which it operates, and the Company works hard to minimise its impact on that environment. Echo is committed to the responsible stewardship of the environment and, on the conclusion of the Company’s operations, and to return our sites to the condition in which Echo found them. Echo seeks to operate from compact drill sites in order to minimise disruption to the natural habitat. Echo is also committed to working closely with our partners and the various agencies in the jurisdictions in which it operates to make sure that all environmental and other regulations are fully satisfied as the Company undertakes its activities. The health and safety of our employees, contractors and partners on our sites is also paramount and more information is available in the Health, Safety and Environment (“HSE”) review. Annual Report 2021 13 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 14 Strategic Report Sustainability Review (continued) Diversity and Inclusion Everyone at Echo is proud to embrace a culture of inclusivity across our organisation. Echo is an equal opportunities employer and has a stated policy as part of its Code of Conduct to deal fairly and equitably with all our employees in the workplace. The Company is dedicated to encouraging inclusion and diversity at all levels of the business, acknowledging that a more diverse workforce, with the right mix of skills, experience, culture, ethnicity, nationality, gender, and knowledge, can make a valuable contribution to the Company. Echo has made a commitment to extend equal employment opportunities to all, irrespective of race, colour, gender, sexual orientation, religion or belief, age, nationality, ethnicity, marital or civil partnership status, pregnancy and maternity, or disability. In addition, the Group not only provides direct support to employees, should they have any issues or concerns, by way of appropriate HR functions but also offers external training should it be deemed necessary. Echo strives to maintain high levels of ethical and business practices at all times and has implemented clearly defined policies to assist employees with these issues. The primary aim is to protect the health, safety and wellbeing of our staff, partners, contractors, and the local communities in which the Company operates, moreover, Echo desires to go that one step further and invest in the future and sustainability of our business, our communities and our environment. 14 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 15 Strategic Report Managing Risks Echo is dedicated to managing the risks of the business in a structured manner. Our internal risk management system has five key steps in dealing with risks. The five key steps in dealing with risk are: 1. 2. Identify Assess 3. Mitigation options 4. Manage and execute 5. Review Identified risks and mitigation options are summarised in the risk management table which provides a continual reference point for operations and review. Risk Management Table Assessment Risk Description Mitigation of Risk Level Operational Risk Operational incidents Operations carry risks of health, safety and environmental incidents typical of the industry Operations are not executed as planned and result in cost overruns Litigation exposure High HSE ethic with Joint Venture (“JV”) procedures in place to deliver a safe operation. Echo also influences the Operator through its majority stake in the JV Ensuring staff are competent and appropriately trained Reputational damage Appropriate insurance Subsurface and surface risk to production Reservoirs do not perform as expected and do not provide an adequate return on investment Monitor all current and future production carefully tracking daily performance Wells opened up after a period of shut in may underperform due to well integrity of reservoir issues Establish new sources of production through maturation of workover programmes and new drilling on existing assets with business development to diversify risk Strategic Risk Political instability Fiscal and political pressure in either the UK or Latin America could result in changes to the investment landscape post COVID-19, delaying projects and changing the potential value associated with the assets Argentina and Bolivia have a history of expropriation but in very different forms Work with our local partners to manage any situation that may arise and build strong relationships with governments and local authorities Assess the political climate on a regular basis to ensure the best possible awareness when making investment decisions Annual Report 2021 15 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 16 Strategic Report Managing Risks (continued) Assessment Risk Description Mitigation of Risk Level Breach of Bribery Act The Company, its contractors or partners, breach the UK Bribery Act leading to prosecution and reputational damage Maintain and continuously improve the Company Anti- Bribery policy, Risk Assessment procedure and ensure that all staff are suitably trained All vendors and contractors will be risk assessed and all contracts awarded will have strict requirements to adhere to the policy Macroeconomic uncertainty Relates to the movement in macroeconomic parameters e.g. foreign exchange (“FX”) rates, interest rates and inflation Management of the Group’s cash position and FX exposure Treasury policy developed for the treatment of JV cash in Argentina COVID-19 pandemic Risk of interruption to operations, continued global downturn in demand for hydrocarbons Loss of key personnel Can happen through resignation, illness, injury, or death Valuable knowledge and relationships could be lost Implemented procedures with operators to ensure operations continued safely Where appropriate shut-in productions to preserve value in wells Adaptable working practices and systems in place to facilitate working from home Travel policy in place to ensure safe business travel activity Knowledge sharing across disciplines to minimise impact of lost capacity Can result in a lack of leadership and direction Adequate remuneration to ensure staff retention Portfolio diversification Echo is exposed to a range of E&P assets located in one jurisdiction exacerbating political risk Active process to evaluate new business opportunities in Latin America to secure additional asset beyond existing jurisdictions Argentina company registration The Government of Santa Cruz does not assign the title of acquired assets to Echo Through our local lawyers and CGC continue the support to the local authorities ahead of the final approval 16 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 17 Strategic Report Managing Risks (continued) Assessment Risk Description Mitigation of Risk Level Financial Risk Insufficient funding There are insufficient funds for the Company to meet its financial obligations or carry out new capital investment opportunities Raise equity following operational success to take advantage of share price strength in order to fund future activities Echo is dependent on the availability of external finance to fund the development of new discoveries Cost overruns on the operational work programme and/or delay in payments from sales of existing hydrocarbon production Control finances through annual budgeting and variance analysis Negotiate and manage commercial contracts that provide certainty and allow for flexibility if required Delay capital expenditure and other discretionary spending Annual Report 2021 17 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 18 Strategic Report Stakeholder Engagement Echo considers collaborative engagement with all stakeholders as vital for our business. It remains at the core of what we do. Stakeholders include not only our shareholders, lenders, and our partners, but also our suppliers & customers, our workforce, governments & regulators, and the communities in which we operate. By maintaining regular dialogue, we receive feedback on our strategy, performance and governance which can then be factored into the Board’s decision-making process. The table below, describes how the directors of the Company have regard for the matters set out in Section 172(1) of the Companies Act 2006 these are: (a) the likely consequences of any decision in the long-term (b) the interests of the Company’s employees, (c) the need to foster the Company’s business relationships with suppliers, customers, and others, (d) the impact of the Company’s operations on the community and the environment, (e) the desirability of the Company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the Company. This table forms the Board’s statement on such matters as required by the Act. Further information regarding Echo’s assessment of environmental and community issues associated with our operations, can be found in the Sustainability Review on page 13 and in the HSE Review on page 30. Review of the key decisions and issues discussed in Board meetings and by various committees in 2021 is contained in the Corporate Governance Statement from page 23 to 29. Why is it important to engage? How do we engage? Shareholders Lenders Echo seeks to develop an investor base of long- term holders that are aligned with our strategy. By clearly communicating our strategy and objectives, we maintain continued support for what we do. Important issues include: l Sustainable financial and operational performance l Continued execution of E&P projects Upstream oil and gas is a capital intensive business and by maintaining supportive relationships with our lending group, we can ensure access to long-term debt finance that enables us to invest in high quality assets that generate sustainable long-term cash flows. Important issues include: l Sustainable financial and operational performance l Capital allocation l Refinancing plan There is regular dialogue between both institutional and retail investors through meetings, calls, conferences, presentations and our virtual “Time with the Team” Q&As. With the Covid-19 pandemic face to face meetings with shareholders have been limited over the last year, although the shareholders did have the opportunity to meet with members of the Board face to face at the General meeting held in August 2021. Management continued to engage with shareholders during the year on a virtual basis. Echo has continued to fulfil our obligations and engage with noteholders such that we were able to restructure our existing long-term debts, through renegotiation and issue of warrants and equity. Highlights include: l Restructuring of the Company Bonds to include the removal of all cash interest payments; and extension of maturity to May 2025 l Amendment of the $5Million Euro Lombard debt facility with maturity extended to April 2025 l Extension of the Spartan £1m loan by two years and restructuring of the interest payments. 18 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 19 Strategic Report Stakeholder Engagement (continued) Why is it important to engage? How do we engage? Partners Sharing of risk is a fundamental component of our industry and by maintaining aligned and collaborative relationships with our joint venture partners, we can ensure that maximum value can be extracted from our operations in a safe and sustainable manner. Echo ensures that we maintain an open dialogue with both partners in the SCS licences. We seek to ensure that all partners are aligned around common objectives for the asset and maintain safe and efficient operations. Important issues include: Highlights include: l Operational performance & HSE l Continue to maintain production within l Project ranking and work programmes Argentina l Budget setting Customers & Suppliers The SCS supply chain is managed by our partners who operate on our behalf. We have further developed strong relationships with key corporate suppliers. Important issues include: l Contract management strategy l Uninterrupted service for customers l Enhance value Workforce Our current and future success is underpinned by our ability to engage, motivate, and adapt our workforce. Creating the right environment for employees where their various strengths are recognised and their contributions are valued, helps to ensure that we can deliver our shared objectives. Important issues include: l Group strategy l Diversity of thinking l Corporate culture l Benefit in country from the stronger commodity prices Echo signed a cooperation agreement with the Bolivian Company GTL International S.A over a five-year period with the intention to collaborate and jointly assess new opportunities across the full energy spectrum. The Company successfully formed a partnership with the Chilean company, Land & Sea SpA, (LSA) with the option to purchase a 70% interest in a 3MW solar project in Chile. Engagement with suppliers usually takes place with the operator but we are closely involved and help shape the strategy and timing. Sales of crude are also negotiated by the operators, but our regional representative works in collaboration with our partners to negotiate contracts and timings. Highlights include: The Company secured two new gas sales contracts at significant premiums to both prevailing spot market rates and 2020 contracted rates. These contracts have a term of 12 months, with gas sales beginning in May 2021. During 2021, internal communications continued so employees were kept informed of all the workstreams across the Company and helped to raise key issues with directors and executives. Highlights include: l Production & strategy updates l Educational presentations from each sector of Echo l All staff involvement on CSR initiatives Annual Report 2021 19 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 20 Strategic Report Stakeholder Engagement (continued) Why is it important to engage? How do we engage? Governments & Regulators Communities & Environment Maintaining respectful and collaborative relationships with our host governments and local regulatory authorities is vital to our ‘licence to operate’. We believe that the strength of these relationships will allow us to make a sustainable and beneficial contribution to the regions in which we operate. Important issues include: l Licence attribution l Identifying and securing new opportunities l Providing views on upcoming legislation and factors that are important to the industry l CSR commitments Minimal environmental impact in the localities in which we operate ultimately help Echo reach its corporate objectives as well as just being the right thing to do. Building and maintaining the Company’s reputation fosters Echo’s long- term goals and the support and commitment of all employees. Important issues include: l Operating in an open and honest and socially responsible manner l Social responsibility initiatives Management continues to work closely with the government in country. The Company managed to successfully monetise a portion of the Argentine VAT owed to the Company in 2021. The business now reduces the remaining balance owing by netting-off payments otherwise due for VAT. It is anticipated these credit balances will be depleted by the end of 2022. Echo has engaged with all employees to choose community projects to support. All employees trained in ABC standards and all counterparties must adhere to these. Regular engagement with operator HSE officers occurs through operational committee meetings maintaining positive focus on health, safety, and the environment. 20 Echo Energy plc 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 21 Strategic Report Financial Review Another difficult year for Echo and all businesses, due to the ongoing pandemic and further lockdowns, but despite this . the Company has been able to successfully continue its operations and produce critical energy products in Argentina. Income Statement The Group’s loss from continuing operations for the year to 31 December 2021 was US $11.6 million (2020: US $15.3 million) and total Group loss including discontinued operations was of US $11.6 million (2020: US $26.0 million). Whilst cost of sales increased by $1.7 million (13%) in the year due to expenditure on production not incurred in 2020 and inflationary salary costs, the reduction in losses is a result of reduced finance expense and gains on debt revaluations. For the year ended 31 December 2021, Group revenue was US $11.1 million (2020: US $11.1 million), The spilt between the two commodity revenue sources were: l Oil sales – US $ 4.1 million (2020: $2.8 million) l Gas sales – US $ 7.0 million (2020: $8.3 million) The increase in Oil sales was a result of some wells re-opening and production increasing after their closures in 2020 (due to the lack of demand caused by the pandemic) combined with price increases Echo achieved an average net oil price for the period of US $43.3/bbl (2020: US $22.8/bbl), and an average Gas price of US $2.7/mmbtu (2020: US $1.6mmbtu). Group operational costs were US $15.1 million (2020: US $13.4 million): l Exploration expenses of US $0.2 million (2020: US $0.2 million) relates to on-going business development activity in Latin America. l Gross administration expenses of US $3.0 million in 2021 were US $0.3 million (8%) lower than in 2020, reflecting the management’s continued focus on cost control across the Group. l Finance costs are largely composed of net foreign exchange losses of US $1.0 million (2020: US $4.4 million), interest payable and unwinding of discount costs of US $3.4 million (2020: US $4.9 million), and the amortisation of debt fees. Balance Sheet Careful management of cash balances, successful debt renegotiation and equity fund raises supported business flexibility and stability. The Group ended the period with US $0.7 million cash at bank compared to the prior year balance of US $0.7 million. The other receivables balance of US $2.1 million (2020: US $7.2 million) principally comprise of recoverable Argentine Value Added Tax and trade debtors. SCS joint venture receivables have been eroded due to Echo not fully paying SCS cash calls. The trade and other payables balance of USD $16.0 million is mainly comprised of Joint venture payables of US $15.0 million (2020: US $9.7 million). The Group’s non-current liabilities are represented by US $28.8 million (2020: US $27.3 million) of unlisted debt instruments due in over a year, and US $3.0 million (2020: US $3.0 million) abandonment provisions. Annual Report 2021 21 264206 Echo Annual Report pp01-pp22.qxp 06/09/2022 11:05 Page 22 Strategic Report Financial Review (continued) Post Balance Sheet – Improved Market Environment and Outlook Note 32 provides more detail around some of the extensive debt restructuring in 2022, as well as raising funds through share issues. This restructuring, in combination with significant price increases in the sector as a whole, enables the Company to operate from a significantly more stable platform from which to focus on increasing revenue, invest in its producing asset, and release capital which can instead be invested directly into the business to accelerate growth projects or support future acquisitions. In light of this, and the anticipated improved market conditions, the Board looks confidently to the future. This Strategic Report was approved by the Board on 5 September 2022 and signed on its behalf by: Martin Hull Chief Executive Officer 5 September 2022 22 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 23 Governance Corporate Governance Statement Strong corporate governance is a key building block that allows an organisation to be successful Dear Shareholder As the Chairman of the Company, it is my pleasure to present the Corporate Governance Statement for the year ended 31 December 2021. I firmly believe that strong corporate governance enables an organisation to grow successfully and to win confidence of the stakeholders. The Board is committed to good governance across the business, at an executive level and throughout its operations. The importance of solid governance within the organisation has been highlighted during 2021, which has been a challenging year for the business and for the economy as a whole with the global pandemic together with the downturn in the oil and gas sector. A strong foundation has helped steer the business through these challenging times. Following the adoption of the Quoted Companies Alliance Corporate Governance Code in 2018 (the “QCA Code”) the Company embarked on compliance and adherence to the corporate governance practices recommended by the QCA Code. The QCA Code requires AIM listed companies to adopt a “comply or explain” approach in respect of the recommended guidelines and the Board maintains that the Company complies with the QCA code in all aspects of the business. The QCA has ten principles of corporate governance that the Company has committed to apply within the foundations of the business. These principles are listed below and the Board and employees across the business work to ensure that these principles are adhered to as much as the Company is able. Both within the annual report and accounts and on the corporate website, stakeholders can see how the Company complies with these principles. The Board not only sets expectations for the business but also works towards ensuring that strong values are set and carried out by the directors across the business. A strong corporate culture is paramount to the success of a business. The Board strives to ensure that the objectives of the business, the principles and risks are underpinned by values of good governance that are fed down throughout the organisation. The importance of engaging with our shareholders underpins the essence of the business, ensuring that there are numerous opportunities for investors to engage with both the Board and executive team. During the period under review, there had been no major changes to the corporate governance structure of the Company. James Parsons Non-Executive Chairman Annual Report 2021 23 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 24 Governance Corporate Governance Statement (continued) The Principles of the QCA Code The QCA Code has ten principles of corporate governance that the Company has committed to apply within the foundations of the business. The table below sets out the principles and how the Company applies them: QCA Code Principle Disclosure 1. 2. 3. 4. 5. Explain the Company’s business model and strategy, including key challenges in their execution (and how those will be addressed). Seek to understand and meet shareholder needs and expectations. Explain the ways in which the company seeks to engage with shareholders. Take into account wider stakeholder and social responsibilities and their implications for long-term success. Explain how the business model identified the key resources and relationships on which the business relies. Explain how the Company obtains feedback from stakeholders. Describe how the Board has embedded effective risk management in order to execute and deliver strategy. This should include a description of what the board does to identify, assess and manage risk and how it gets assurance that the risk management and related control systems in place are effective. Identify those directors who are considered to be independent; where there are grounds to question the independence of a director, through length of service or otherwise, this must be explained. Describe the time commitment required from directors (including non-executive directors). Include the number of meetings of the Board (and any committees) during the year, together with the attendance record of each director. 6. Identify each director. Describe the relevant experience, skills and personal qualities and capabilities that each director brings to the board (a simple list of current and past roles is insufficient); the statement should demonstrate how the board as a whole contains (or will contain) the necessary mix of experience, skills, personal qualities (including gender balance) and capabilities to deliver the strategy of the Company for the benefit of the shareholders over the medium to long-term. See pages 5-7 of Annual Report. See website disclosures: Principle Two AIM Rule 26. See website disclosures: Principle Three AIM Rule 26 and section 172 disclosure page 37 and pages 18-20. See page 15 of Annual Report. James Parsons and Christian Yates are considered to be independent. The Chief Executive Officer is expected to devote substantially the whole of his time to the duties with the Company. The non-executives have a lesser time commitment. It is anticipated that each of the non- executives, including the chairman will dedicate 12 days a year. See page 29 Annual Report. See pages 31-32 Annual Report. See pages 31-32 Annual Report. Explain how each director keeps his/her skillset up to date. See page 31 Annual Report. Where the board or any committee has sought external advice on a significant matter, this must be described and explained. No such advice was sought in 2021. 6. Where external advisers to the Board or any of its committees have been engaged, explain their role. 24 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 25 Governance Corporate Governance Statement (continued) 7. 8. 9. 10. Describe any internal advisory responsibilities, such as the roles performed by the Company secretary and the senior independent director, in advising and supporting the Board. The Company secretary helps keep the Board up to date on areas of new governance and liaises with the Nomad on areas of AIM requirements. The Company secretary has frequent communication with both the chairman and the chief executive officer and is available to other members of the Board if required. Include a high-level explanation of the Board performance effectiveness process. See page 27 Annual Report. Where a board performance evaluation has taken place in the year, provide a brief overview of it, how it was conducted and its results and recommendations. Progress against previous recommendations should also be addressed. Include in the Chair’s corporate governance statement how the culture is consistent with the Company’s objectives, strategy and business model in the strategic report and with the description of principal risks and uncertainties. The statement should explain what the Board does to monitor and promote a healthy corporate culture and how the board assesses the state of the culture at present. No such evaluation took place in 2021. However, the Chairman and the directors are mindful of the performance of the Board as a whole and ensure that each director works to support the Executive team and deliver as best they can for the business. See page 23 Annual Report. See website disclosures Principle Eight AIM Rule 26. Maintain governance structures and processes that are fit for purpose and support good decision making by the board. Roles and responsibilities of the Chair, CEO and other directors with commitments. Describe the roles of the committees. See website disclosures: Principle Nine AIM Rule 26. See pages 27-28 Annual Report. Describe the work of any board committees undertaken during the year. See page 27 Annual Report. Include an audit committee report (or equivalent report if such committee is not in place). See page 27 Annual Report. Include a remuneration committee report (or equivalent report if such committee is not in place). See page 28 Annual Report. If the Company has not published one or more of the disclosures set out under Principles 1-9, the omitted disclosures must be identified and the reason for their omission explained. N/A Annual Report 2021 25 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 26 Governance Corporate Governance Statement (continued) The Board The Board comprises the non-executive chairman, two non-executive directors and the Chief Executive Officer (CEO). The CEO has a strong executive team to offer the support required to fulfil the demands of the business and to deliver the strategy to stakeholders. The Board has significant industry, financial, public markets and governance experience, possessing the necessary mix of experience, skills, personal qualities and capabilities to deliver the strategy of the Company for the benefit of the shareholders over the medium to long-term. The role of the chairman and CEO are split in accordance with best practice. The chairman has the responsibility of ensuring that the Board discharges its responsibilities and is also responsible for facilitating full and constructive contributions from each member of the Board in determination of the Group’s strategy and overall commercial objectives. The CEO leads the business and the executive team ensuring that strategic and commercial objectives are met. The CEO is accountable to the Board for the operational and financial performance of the business. The Board as a whole is kept abreast with developments of governance and AIM regulations. The Company’s lawyers provide updates on governance issues and the Company’s NOMAD provides annual board room training as well as the initial training as part of a director’s onboarding. The directors have access to the Company’s NOMAD, Company secretary, lawyers and auditors and are able to obtain advice from other external bodies as and when required. The 2021 performance of the business and its staff will be measured across both financial and operational functions and is captured in a corporate scorecard. The scorecard is made up of various KPIs and is tracked throughout the year. The Board and executives’ performance within the year was judged on the delivery of certain desired outcomes. James Parsons, Non-Executive Chairman, was appointed to Board in March 2017. James is a qualified accountant and has a BA (Hons) in Business Administration. James brings a wealth of knowledge and expertise to lead the business forward. He is a specialist in restructuring, funding and transforming companies and has strong public markets experience. Martin Hull, CEO, was appointed to the Board in October 2018, initially holding the position of chief financial officer (“CFO”). Martin has over 18 years’ experience in oil and gas investment banking at Rothschild. Martin, with his experience on many transactions at both the corporate and asset level, including debt and equity, has the knowledge to drive the business forward. His transaction experience and contacts in the energy sector will prove invaluable to building the Company. Marco Fumagalli, Non-Executive Director, was appointed to the Board in March 2017. Marco is a qualified accountant and holds a degree in Business Administration. Marco, with his financial background, provides the experience required as chairman of the audit committee to challenge the business internally and also the Group auditors. Stephen Whyte, Non-Executive Director was appointed to the Board in March 2017. Stephen’s background provides the Board with the operational expertise to review and challenge decisions and opportunities presented both within the formal arena of the boardroom and as called upon when needed by the executives. He stepped down from the Board in June 2022. 26 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 27 Governance Corporate Governance Statement (continued) Christian Yates, Non-Executive Director was appointed to the Board in January 2022. Christian has experience of advising and promoting investments in renewable energy since 2009. He brings to the Board experience within the renewables sector, including wind, waste to energy and BESS. Gavin Graham, Non-Executive Director was appointed to the Board in November 2018 and stepped down from the Board in January 2022. Board Performance The directors consider seriously the effectiveness of the Board, committees and individual performance. The Board meets formally five times a year with ad hoc board meetings as the business demands. There is a strong flow of communication between the directors, in particular the relationship between the CEO and the chairman. The agenda is set with the consultation of both the CEO and chairman, with consideration being given to both standing agenda items and the strategic and operational needs of the business. Resulting actions are tracked for appropriate delivery and follow up. In addition to the above, the directors have a wide knowledge of the business and requirements of directors’ fiduciary duties. The directors have access to the Company’s NOMAD and auditors if and when required. They are also able, at the Company’s expense, to obtain advice from external bodies if required. During the year, the Board continuously strived to further strengthen the governance structure already in place. Regular consultations are held with the Company’s NOMAD, Company Secretary and lawyers in respect of compliance with the QCA Code, Companies Act and other statutory requirements, and to ensure that best practices are followed. An effective investor relation strategy was maintained and regulatory disclosure obligations were met, through a consistent flow of news releases to the market. All members of the Board are well acquainted and understand global regulations on ethical business practices and ensure that adequate internal policies and a supervisory mechanism is established in the business, through senior management. Whilst being mindful of the size and stage of development of the Company, the Board reviews and ensures the highest level of governance is maintained at all levels. Matters Reserved for the Board The directors adopted a schedule of those matters that should be reserved for the Board. Those matters include: – – – Approval of the Group’s strategy and objectives; Approval of the Group budgets, including operating and expenditure budgets; Growth of activities into new business or geographical locations; – Material changes to the Group’s structure and management; and – Changes to the Company’s listing, governance or business processes. Annual Report 2021 27 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 28 Governance Corporate Governance Statement (continued) Board Committees The Board has established an audit committee, a remuneration and a nominations committee. At present, a decision has been made not to establish an HSE committee due to the fact that the Company is non-operating and still in the developing stage. The HSE matters are dealt with within the Board meetings. Audit Committee Report The audit committee is comprised of Marco Fumagalli and Christian Yates. Stephen Whyte stepped down as a member of the Committee in January 2022 when Christian joined. Mr Fumagalli chairs the audit committee. The committee generally meets twice a year. The committee has engaged Crowe UK LLP to act as external auditors and they are also invited to attend committee meetings, unless they have a conflict of interest. The CEO and the Financial Controller of the Company also join the Committee by invitation. An important part of the role of the committee is its responsibility for reviewing and monitoring the effectiveness of the Group’s financial reporting, internal control policies, and procedures for the identification, assessment, and reporting of risk. The audit committee is also responsible for overseeing the relationship with the external auditor. The main functions of the audit committee include: – – Reviewing and monitoring internal financial control systems and risk management systems on which the Company is reliant; Considering annual and interim accounts and audit reports; and – Making recommendations to the Board in relation to the appointment and remuneration of the Company’s auditor as well as annually reviewing and monitoring their independence, objectivity, and effectiveness. During 2021 the audit committee: – Met with the Company’s auditor; – – Approved the audited year end and interim financial statements; and Recommended to shareholders the re-appointment of the Company’s auditor, Crowe U.K. LLP. Remuneration Committee report Until Gavin Graham’s departure in January 2022, he chaired the Committee, with both Marco Fumagalli and Stephen Whyte also being members of the Committee. With Gavin’s departure from the Board James Parsons assumed the position of Chair of the Committee, with Stephen remaining a member until his departure in June 2022. The Remuneration Committee meets at least twice a year to consider all material elements of the remuneration policy of the Company, including directors’ and executive remuneration. During the year ended 31 December 2021, the Committee met twice times and the following matters were included in its deliberations: – – – – – – Assessed the performance targets of the executive director; Reviewed the pay and benefits of the executive director in line with the achievement of his 2021 scorecard; Reviewed and recommended the salary increments and bonus awards to the staff; Agreed the 2022 performance targets for the executive director; A mid-year review of the 2021 scorecard; and Determination of the awards to be made under the Company’s EMI scheme. 28 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 29 Governance Corporate Governance Statement (continued) Nominations Committee report The Nominations Committee consists of Stephen Whyte and Christian Yates, with Stephen Chairing the Committee, until his departure in June 2022, from which point James Parsons took over as Chair. The Committee will meet as and when required. The terms of reference for the Committee were approved by the Board. The Nominations Committee is responsible for Board recruitment and succession planning. Keeping under review the leadership of the organisation and ensuring that the Board has the right skill set required for the business. During the year ended 31 December 2021, the Committee met once and the following matters were included in its deliberations: – – Approval of the terms of reference of the Committee; and Board composition and planning given the decision to move into the renewables sector. The directors’ attendance at scheduled board meetings and board committees during 2021 is detailed in the table below: Board Scheduled Board Ad Hoc Nominations Director Meeting Meeting* Audit Remuneration Committee James Parsons (chairman) 4 9 – – – Marco Fumagalli 4 9 2 2 – Stephen Whyte 4 9 2 2 1 Martin Hull 4 9 – – – Gavin Graham 4 9 – 2 1 Total meetings 4 9 2 2 1 * Ad hoc meetings: Additional meetings called for a specific matter generally of a more administrative nature not requiring full Board attendance Annual Report 2021 29 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 30 Governance Health and Safety Review 2021 Echo is committed to conducting its business and operations in a manner that safeguards the health of employees, contractors and the public, and minimises the impact of operations on the environment. The Company is committed to ensure that these objectives are achieved through: – – – – Providing all employees with training of a high standard and only using equipment that is certified and appropriate for its scope; Using only qualified contractors, who can work to the highest possible HSE standards; Ensuring near-misses and incidents, whether Echo or partner operated, are fully investigated and improvements implemented; Fostering a working culture where openness and reporting leads to standout operational and health, safety and environmental performance; and – Working with our operating partners to make sure that health and safety hazards and environmental impacts have been fully assessed and appropriately mitigated. HSE performance is regularly reported to the Board, which ensures that appropriate resources are provided to achieve these objectives in full. Where the Company participates in, but does not operate joint ventures, it seeks to ensure that similar standards are adopted by its operators. These commitments are in addition to our basic obligation to comply with applicable laws and regulations where we work. In the Santa Cruz Sur assets, the Company has been instrumental in maturing an infrastructure project that upgrades brownfield pipelines to modern materials with a lower corrosion risk. 30 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 31 Governance The Team Board of Directors James Parsons Non-Executive Chairman In addition to his role as Non-Executive Chairman at Echo Energy plc, James is currently Chairman of Ascent Resources plc, Coro Energy plc and Corcel Plc . James has over 20 years’ experience in the fields of strategy, management, finance and corporate development in the energy industry. He started his career with the Royal Dutch Shell Group where he spent 12 years working in Brazil, the Dominican Republic, Scandinavia, the Netherlands and London. James was previously Chief Executive at Sound Energy Plc for eight years, is a qualified accountant and has a BA Honours in Business Economics. Martin Hull Chief Executive Officer Martin has over 18 years’ experience in oil & gas investment banking at Rothschild & Sons in London where he was a Managing Director in the global energy team with a focus on Latin America and Africa. Previously he was Head of Oil & Gas, SE Asia, based out of Singapore. Martin has corporate finance expertise across the value chain with a particular focus on the upstream sector. He has advised on numerous transactions, including debt and equity, at both the corporate and asset level. Martin holds a BA (Hons). Marco Fumagalli Non-Executive Director Marco is a founding Partner at Continental Investment Partners SA, a Swiss based investment firm, and leading shareholder in Nusakan plc (formerly Greenberry plc), a cornerstone shareholder in Echo Energy. Previously a Group Partner at 3i; Marco is a qualified accountant. Stephen Whyte Non-Executive Director Stephen Whyte has over 30 years’ experience in the oil and gas industry. He was chief operating officer and executive director for Exploration and Production at Galp Energia until 2014 and Senior Vice President, Commercial at BG Group. He had previously spent a total of 14 years with Shell and six years with Clyde Petroleum. Stephen is currently a Board observer of Nostrum Oil and Gas plc on behalf of Bondholders. Stephen resigned from the Board in June 2022. Christian Yates Non-Executive Director Christian joined the Company is January 2022. He has been investing and advising on and promoting investments in renewable energy since 2009. Christian is chairman of Gresham House Renewable Energy VCT 2 plc, one of two listed investment companies he co-founded in 2010. Christian has significant experience across sections including renewable energy (wind, waste to energy and BESS). Dr Gavin Graham Non-Executive Director Dr Graham resigned from the Board in January 2022. Annual Report 2021 31 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 32 Governance The Team (continued) Executive Team Martin Hull Chief Executive Officer Martin has over 18 years’ experience in oil & gas investment banking at Rothschild & Sons in London where he was a Managing Director in the global energy team with a focus on Latin America and Africa. Previously he was Head of Oil & Gas, SE Asia, based out of Singapore. Martin has corporate finance expertise across the value chain with a particular focus on the upstream sector. He has advised on numerous transactions, including debt and equity, at both the corporate and asset level. Martin holds a BA (Hons) from Exeter University. Dr Julian Bessa VP of Exploration Dr Bessa is a geologist with over 20 years of exploration experience across Latin America, including at BG Group plc where he spent time as Bolivian Exploration Manager and VP Exploration Brazil. Additionally, Julian has managed significant exploration programmes offshore Uruguay and Honduras. Julian has a D.Phil from the University of Oxford and an MBA from the Rotterdam School of Management. 32 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 33 Governance Directors’ Remuneration Report The remuneration committee, which consists of the non-executive directors, along with the Board as a whole is committed to attracting and retaining talent within the boardroom and the wider executive group to ensure the success of the Company. The remuneration committee works to ensure that the policies and framework are in place to reward staff for achievements and targets met, which in turn creates value for shareholders. The Company offers a fixed remuneration package of salary, pension and certain benefits. In addition, there is a discretionary bonus award and EMI/share option scheme in place. As the business grows it may consider implementing a performance related LTIP for senior executives and executive directors. Martin Hull’s contract contains a six month notice period and a twelve month change of control clause. The bonus and option awards are presented to the remuneration committee by the CEO for approval. The bonus awards are made to individuals taking account of their own performance and the Company’s performance as a whole over the previous year. Members of the executive team have their level of bonus reviewed in line with their individual scorecards that are agreed at the beginning of the financial year. The amount of bonus and options awarded is set within a pre-agreed range for each level of staff. In 2021 the Remuneration Committee at that time awarded Martin Hull with a £43k bonus for successfully restructuring the debt. Given the on-going challenging market conditions which faced the Company it was agreed that this bonus would only be paid when the company had sufficient cash resources. The £43k has yet to be paid but is accounted for as accrued salary. In January 2022 the Remuneration Committee at that time awarded a further bonus of 20% of Mr Hull’s base salary at that time which would also be paid when the Company has sufficient cash resources and has not yet been paid. The CEO’s scorecard, bonus award and options granted are agreed by the remuneration committee. A pension scheme is provided to all employees into which, subject to certain criteria, the Company contributes 5% of the individual’s base salary. Chairman and Non-Executive Directors’ Fees The fees paid to the Chairman and non-executive directors are set at a level both in line with the market and to appropriately reward and retain individuals of a high calibre. The fees paid reflects the level of commitment and contribution to the Company. Fees are paid monthly in cash and are inclusive of all committee roles and responsibilities. Annual Report 2021 33 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 34 Governance Directors’ Remuneration Report (continued) Remuneration of Directors 2021 Cash Taxable Total Total Salary Pension Bonus award benefit 2021 2020 (US $) (US $) (US $) (US $) (US $) (US $) Executive Director Martin Hull** 344,700 13,700 59,288 6,016 423,704 708,724 Non-Executive Director James Parsons 110,304 – – – 110,304 84,210 Stephen Whyte 56,531 – – – 56,531 54,135 Marco Fumagalli 54,135 – – – 54,135 54,135 Gavin Graham 54,135 – – – 54,135 54,135 **Martin Hull took a reduction in salary for 2021, annual salary is now £250,000 (US $344,700 using the year avg rate of GBP £1: US $1.3788 Share Options Awards Options Options Acquisition held at held at Date of Exercisable Price per share 1.1.21 31.12.21 Grant Date (cents)* 000’s 000’s Martin Hull 24.10.19 11.12.23 8.87 12,000 12,000 Martin Hull 19.12.19 20.12.22 3.52 23,000 23,000 Martin Hull 28.01.21 28.01.22 0.89 – 8,000 Martin Hull 28.01.21 28.01.23 0.89 – 8,000 Martin Hull 28.01.21 28.01.24 0.89 – 8,000 James Parsons 09.03.17 09.03.20 2.20 24,000 24,000 Stephen Whyte 09.03.17 09.03.20 2.20 4,000 4,000 Marco Fumagalli 09.03.17 09.03.20 2.20 4,000 4,000 Share Options Awards *Calculated at the exchange rate of GBP £1: US $1.3536 No directors exercised options in the year ended 31 December 2021. This Remuneration Report was approved by a duly authorised committee of the Board on 5 Sept 2022 and signed on its behalf by: James Parsons Non-Executive Chairman 5 September 2022 34 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 35 Governance Directors’ Report The directors submit their report and accounts for the financial year ended 31 December 2021. The comparative period is the year ended 31 December 2020. Principal Activities Echo Energy plc is the holding Company for a group of companies. The Group’s principal long-term focus is developing as a full-cycle exploration led, gas focused E&P Company in Latin America. The Group’s growth strategy is to deliver shareholder value from both the existing asset portfolio and new opportunities. Results and Dividends Turnover for the year was US $11,124,487 (2020: US $11,126,520), and the loss before tax from continued operations was US $11,770,112 (2020: US $15,267,535). The directors have not declared any, dividend in respect of the year ended 31 December 2021 (2020: US $Nil). Future Developments The Group will continue to optimise value creation and efficiency in the SCS assets. In addition, and as announced in January 2022, the Company is forming a partnership with a Chilean company, Land & Sea SpA and has acquired an option to purchase a 70% interest in a 3MW solar project in Chile. Details of plans of the SCS assets, the solar project in Chile and other future developments are discussed in the Strategic Report on page 3 of this report. Directors The directors who served during the period were as follows: James Parsons Marco Fumagalli Stephen Whyte Martin Hull Dr Gavin Graham Post year-end, Gavin Graham resigned and Christian Yates was appointed on 17 January 2022. Subsequently, Stephen Whyte resigned on 27 June 2022. Directors’ Insurance The Group has taken out an insurance policy to indemnify the directors and officers of the Group against liability when acting for the Group. Auditor Each person who is a director at the date of approval of this annual report confirms to the best of their knowledge that: – – – so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and the director has taken all steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the auditor is aware of that information. This information is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. A resolution to reappoint the auditor Crowe U.K. LLP. will be proposed at the Annual General Meeting. Annual Report 2021 35 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 36 Governance Directors’ Report (continued) Directors’ Shareholding and Interests in Shares Directors and connected persons No. of shares at 31.12.21 James Parsons – Marco Fumagalli 10,029,716 Stephen Whyte – Martin Hull 600,000 Gavin Graham – Subsequent Events Events which have occurred since 31 December 2021 are included in Note 32 to the attached financial statements. The financial information for the year to 31 December 2021 has been prepared assuming the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Despite the consolidated statement of financial position showing a negative net asset position at 31 December 2021, the outlook for the Group has materially changed post period. The business market took a positive upturn from early 2021, with gas and liquid prices increasing significantly through 2021 and again into 2022. Average Gas prices in July 2022 are US$4.53 (mmbtu, converted at ARS$133.57 to US$1) compared with December 2020 of US$1.59 (mmbtu, converted at ARS$82.6 to US$1). The same period has seen Liquids (m3) sell at US$51 in July 2022 compared to US$28.8 in December 2020. In Q2 2021 Echo saw the conclusion of the Company’s unlisted debt restructuring, materially changing Echo’s business position and the subsequent Post Balance Sheet restructure in August 2022 has reduced the debt even further (by €15m plus accrued interest), whilst extending the remaining debt’s repayment period by two years (to 2032) and reducing the coupon rate from 8% to 2%. The share placing raised £0.6m in the UK for working capital and potential asset enhancement funding. Post year end deals with customers allowing for a prepayment of $1.6m in May 2022, in combination with a large increase in cash receipts from higher prices from June 2022 onwards has alleviated the immediate creditor concern in Argentina. Considering these factors, the Company is in a materially more robust position post period. The Company confirms that operations at the SCS assets are predicted to be cash flow positive at the revised oil and gas price levels. Information Set Out in the Strategic Report The directors have chosen to set out the following information relating to the assessment of financial risk on both page 17 of the Strategic Report, and in Note 22 of the Financial Statements. Martin Hull Chief Executive Officer 5 September 2022 36 Echo Energy plc 264206 Echo Annual Report pp23-pp37 GOVERNANCE.qxp 06/09/2022 10:34 Page 37 Governance Statement of Directors’ Responsibilities Directors are responsible for preparing the Strategic Report, the Directors’ Report, and the Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with UK- adopted international accounting standards and applicable law. Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Company and the Group for that period. In preparing these financial statements the directors are required to: – Select suitable accounting policies and then apply them consistently; – Make judgements and accounting estimates that are reasonable and prudent; – – State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and to disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Strategic Report, the Directors’ Report, other information included in the Annual Report and Financial Statements are prepared in accordance with applicable laws in the United Kingdom. The maintenance and integrity of the Company’s website is the responsibility of the directors: the work carried out by the auditor does not involve the consideration of these matters and accordingly, the auditor accepts no responsibility for any changes that may have occurred in the accounts since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in the Annual Report may differ from legislation in other jurisdictions. We confirm to the best of our knowledge: – – The Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertaking included in the consolidation taken as a whole. The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. The Annual Report and Financial Statements, taken as a whole, are fair, balanced, understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. Martin Hull Chief Executive Officer Annual Report 2021 37 264206 Echo Annual Report pp38-pp43 INDEPENDENT AUDITOR.qxp 06/09/2022 10:36 Page 38 Financial Statements Independent auditor’s report to the members of Echo Energy Plc Qualified opinion We have audited the financial statements of Echo Energy Plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended 31 December 2021, which comprise: • • • • • the Group statement of comprehensive income for the year ended 31 December 2021; the Group and Parent Company statements of financial position as at 31 December 2021; the Group and Parent Company statements of changes in equity for the year then ended; the Group and Parent Company statements of cash flows for the year then ended; and the notes to the financial statements, including a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the Group and Parent Company financial statements is applicable law and UK-adopted international accounting standards and as regards the parent as applied in accordance with the provisions of the Companies Act 2006. In our opinion, except for the possible effects of the matter descried in the basis for qualified opinion section of our report: • • • • the financial statements, give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2021 and of the Group’s loss for the year then ended; the Group’s financial statements have been properly prepared in accordance with UK-adopted international accounting standards; the Parent company financial statements have been properly prepared in accordance with UK adopted International Accounting Standards as applied in accordance with the provisions of the Companies Act 2006: and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for qualified opinion Due to the limitations of the joint venture operator’s computerised system to identify the dates of addition of materials and spare parts, we have not been able to perform tests to confirm their valuation. We have also been unable to obtain reasonable assurance by alternative procedures regarding the valuation of materials and spare parts in inventories at the year-end. As a result, we have not been able to determine whether any adjustments would have been necessary to the valuation of the inventories of materials and spare parts as at 31 December 2021, which are included in the statement of financial position at $359,000, and to the relevant expense in the statement of comprehensive income, which amount to $497,000. In addition, were any adjustment to the inventories balance to be required, the strategic report would also need to be amended. We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to note 2 in the financial statements, which indicates the group and company requires further funding through debt financing, joint venture equity or share issues in order to fund ongoing operations. As stated in note 2, these events or conditions, along with the other matters as set forth in note 2, indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 38 Echo Energy plc 264206 Echo Annual Report pp38-pp43 INDEPENDENT AUDITOR.qxp 06/09/2022 10:36 Page 39 Financial Statements Independent auditor’s report to the members of Echo Energy Plc (continued) In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and company’s ability to continue to adopt the going concern basis of accounting included the following: • • • • • reviewed and challenged management’s going concern assessment and assumptions used covering a minimum of 12 months from the date of approval of these financial statements; tested mathematical accuracy of the models used by management in their assessment; discussed with management and evaluated their assessment of the group and the company’s liquidity requirement; assessed the reasonableness of management’s budget/forecasts, including comparison to actual results achieved in the year and the evaluation of downside sensitivities; and considered the company’s options in raising further funding. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Overview of our audit approach Materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified. Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be US$160,000 (2020: US$215,000), which represents 1.0% of the Group’s total assets which we have considered to be the appropriate benchmark for an exploration company. Materiality for the Parent Company financial statements as a whole was set at $112,000 (2020: $160,000) based on 1% of the parent company’s total assets. We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. This is set at $115,000 (2020: $150,500) for the group and $80,000 (2020: $112,000) for the parent. Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. We agreed with the Audit Committee to report to it all identified errors in excess of US$3,500. Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds. Overview of the scope of our audit We audit the parent company and its subsidiary companies. Our audit approach was developed by obtaining an understanding of the group’s activities, the key functions undertaken on behalf of the Board by management and the overall control environment. Based on this understanding we assessed those aspects of the group and subsidiary companies transactions and balances which were most likely to give rise to a material misstatement and were most susceptible to irregularities including fraud or error. Specifically, we identified what we considered to be key audit matters and planned our audit approach accordingly. We also engaged local specialist to assist us with review on Argentinian tax matters. Annual Report 2021 39 264206 Echo Annual Report pp38-pp43 INDEPENDENT AUDITOR.qxp 06/09/2022 10:36 Page 40 Financial Statements Independent auditor’s report to the members of Echo Energy Plc (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the basis for qualified opinion section and the ‘Material uncertainty related to going concern’ section, we have determined the following key audit matters. This is not a complete list of all risks identified by our audit. Key audit matter How the scope of our audit addressed the key audit matter Revenue recognition Revenue consists of oil and gas sales from Argentina. We considered the risk that revenue was recognised in an incorrect accounting period or prior to delivery being made to the customer. (Accounting policy 1(d), Note 4) Carrying value of O&G Properties and Exploration and Evaluation expenditure Echo owns both exploration and evaluation assets and producing assets, we have considered the risk that these assets are impaired. (Accounting policy 1(e) & 1(g), Note 16 & 17) Our work focused on validating whether revenue has been recognised in accordance with the accounting policy. We reviewed the compliance of the accounting policy, along with the disclosures, per the requirements of IFRS 15. We have agreed a sample of sales to underlying documentation to confirm revenue was being recognised in accordance with the policies. We also reviewed cut off to ensure revenue is recognised in the correct period. We have reviewed management’s assessment which included their internal model which concluded that there are no facts or circumstances that suggest the carrying amount of the asset exceeds the recoverable amount. This includes: • Challenging management’s inputs and assumptions in the valuation model to available market data and other sources of evidence; and • Assessed the application of discount rate, market price and reserves. The ‘Interest in subsidiary undertakings’ and ‘Amounts receivable from Group undertakings’ in relation to the companies with operations in Argentina recoverability is supported by the internal model prepared to support the carrying value of exploration assets and so are considered and discussed within the ‘Carrying value of O&G Properties and Exploration and Evaluation expenditure’ above. We are satisfied that there is adequate headroom in the internal model of the CGU to support the recoverability of ‘Interest in subsidiary undertakings’ and ‘Amounts receivable from Group undertakings’. In respect of the Bolivian company we have considered management’s assessment of recoverability and have considered the following sources of evidence for potential indications of impairment: • Board minutes and budgets setting out the group’s plans for the continued commercial appraisal; and • Discussing plans and intentions with management. Interest in Carrying value of subsidiary and Amounts receivable from Group undertakings (Company only) undertakings We have considered the risk that Interest in subsidiary undertakings and Amounts receivable from Group undertakings assets are impaired. (Note 2 & 18) 40 Echo Energy plc 264206 Echo Annual Report pp38-pp43 INDEPENDENT AUDITOR.qxp 06/09/2022 10:36 Page 41 Financial Statements Independent auditor’s report to the members of Echo Energy Plc (continued) Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion. Other information The directors are responsible for the other information contained within the annual report. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning the valuation of materials and spare parts held in inventories of $359,000 at 31 December 2021. We have concluded that where the other information refers to the inventory balance or related balances, such as expenses, it may be materially misstated for the same reason. Opinion on other matter prescribed by the Companies Act 2006 Except for the possible effects if the matter described in the basis for qualified opinion section of our report, in our opinion based on the work undertaken in the course of our audit • • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception Except for the matter described in the basis for qualified opinion section of our report in light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. Arising solely from the limitation on the scope of our work relating to inventories, referred to above: • we have not obtained all the information and explanations that we considered necessary for the purpose of our audit. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made. Annual Report 2021 41 264206 Echo Annual Report pp38-pp43 INDEPENDENT AUDITOR.qxp 06/09/2022 10:36 Page 42 Financial Statements Independent auditor’s report to the members of Echo Energy Plc (continued) Responsibilities of the directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 37, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: We obtained an understanding of the legal and regulatory frameworks within which the company operates, focusing on those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. The laws and regulations we considered in this context were the Companies Act 2006, UK and Argentinian taxation legislation, health & safety law and environmental agency legislation. We identified the greatest risk of material impact on the financial statements from irregularities, including fraud, to be the override of controls by management, judgement surrounding the capitalisation of exploration & evaluation assets and inappropriate revenue recognition. Our audit procedures to respond to these risks included enquiries of management about their own identification and assessment of the risks of irregularities, sample testing on the posting of journals and reviewing accounting estimates for biases. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. These inherent limitations are particularly significant in the case of misstatement resulting from fraud as this may involve sophisticated schemes designed to avoid detection, including deliberate failure to record transactions, collusion or the provision of intentional misrepresentations. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 42 Echo Energy plc 264206 Echo Annual Report pp38-pp43 INDEPENDENT AUDITOR.qxp 06/09/2022 10:36 Page 43 Financial Statements Independent auditor’s report to the members of Echo Energy Plc (continued) Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Matthew Stallabrass (Senior Statutory Auditor) for and on behalf of Crowe U.K. LLP Statutory Auditor London Annual Report 2021 43 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 44 Financial Statements Consolidated Statement of Comprehensive Income Year ended 31 December 2021 Continuing operations Revenue Cost of sales Notes 4 5 Gross profit Exploration expenses Administrative expenses Operating loss Financial income Financial expense Derivative financial gain/(loss) Loss before tax Taxation Loss from continuing operations Discontinued operations Profit/(loss) after taxation for the year from discontinued operations Loss for the year Other comprehensive income: Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax) Exchange difference on translating foreign operations Total comprehensive loss for the year Loss attributable to: Owners of the parent Total comprehensive loss attributable to: Owners of the parent Loss per share (cents) Basic Diluted Loss per share (cents) for continuing operations Basic Diluted 6 8 9 10 13 11 14 Year to 31 December 2021 US$ Year to 31 December 2020 US$ 11,124,487 (15,147,779) (4,023,292) (205,651) (2,965,548) (7,194,491) 4,355,334 (8,993,432) 62,477 (11,770,112) – 11,126,520 (13,437,010) (2,310,490) (215,512) (3,240,934) (5,766,936) 7,142 (10,174,047) 666,306 (15,267,535) – (11,770,112) (15,267,535) – (10,724,108) (11,770,112) (25,991,643) 211,820 (1,041,955) (11,558,292) (27,033,598) (11,558,292) (27,033,598) (11,558,292) (27,033,598) (0.93) (0.93) (0.93) (0.93) (3.38) (3.38) (1.99) (1.99) The notes on pages 51 to 79 form part of these financial statements. 44 Echo Energy plc 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 45 Financial Statements Consolidated Statement of Financial Position Year ended 31 December 2021 Non-current assets Property, plant and equipment Intangibles assets Current Assets Inventories Trade and other receivables Cash and cash equivalents Current Liabilities Trade and other payables Derivative financial liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Loans due in over one year Provisions Total Liabilities Net Liabilities Equity attributable to equity holders of the parent Share capital Share premium Warrant reserve Share option reserve Foreign currency translation reserve Retained earnings Total Equity 31 December 2021 US$ 31 December 2020 US$ Notes 16 17 19 20 21 23 24 27 28 25 26 26 26 2,674,405 7,131,907 2,552,693 8,511,622 9,806,312 11,064,315 1,365,225 2,108,438 742,339 4,216,002 541,230 7,229,263 682,159 8,452,652 (16,023,500) – (16,023,500) (11,807,498) (13,249,146) (62,477) (13,311,623) (4,858,970) (2,001,186) 6,205,345 (28,768,380) (3,039,911) (31,808,291) (47,831,791) (27,276,015) (2,979,956) (30,255,971) (43,567,594) (33,809,477) (24,050,627) 7,209,086 64,977,243 12,177,786 1,522,499 (3,531,587) (116,164,504) 6,288,019 64,961,905 11,373,966 1,417,285 (3,319,767) (104,772,035) (33,809,477) (24,050,627) These financial statements were authorised for issue and approved by the board of directors on 5 September 2022 Martin Hull Company registration number 05483127 The notes on pages 51 to 79 form part of these financial statements. Annual Report 2021 45 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 46 Financial Statements Company Statement of Financial Position Year ended 31 December 2021 Non-current assets Property, plant and equipment Intangible assets Interest in subsidiary undertakings Amounts receivable from Group undertakings Current assets Other receivables Cash and cash equivalents Current liabilities Trade and other payables Derivative financial liabilities Net current liabilities Non-current liabilities Loans due in over one year Total Liabilities Net (Liability)/Assets Equity Share capital Share premium Warrant reserve Share option reserve Foreign currency translation reserve Retained earnings Equity Shareholders’ Funds Notes 16 17 18 20, 29 20 21 23 24 31 December 2021 US$ 31 December 2020 US$ 2,177 445,585 16,005,044 11,813,525 8,039 326,869 16,005,044 12,504,108 28,266,330 28,844,060 172,589 37,008 209,596 (864,697) – (864,697) (655,100) 156,034 437,230 593,264 (3,306,206) (62,477) (3,368,684) (2,775,420) 27,678,195 26,068,640 27 (28,768,380) (27,276,015) (28,768,380) (29,633,077) (27,276,015) (30,644,699) (1,157,151) (1,207,374) 25 26 26 26 7,209,086 64,977,243 12,177,786 1,522,499 (2,255,402) (84,788,362) 6,288,019 64,961,905 11,373,966 1,417,285 (2,255,402) (82,993,147) (1,157,151) (1,207,374) These financial statements were authorised for issue and approved by the board of directors on 5 September 2022 The Company has not presented its own profit and loss account. Its loss for the year was US$1,961,039 (2020: US$10,045,487). Martin Hull Company registration number 05483127 The notes on pages 51 to 79 form part of these financial statements. 46 Echo Energy plc 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 47 Financial Statements Consolidated Statement of Changes in Equity Year ended 31 December 2021 Foreign Share currency Retained Share Share Warrant option translation Total earnings capital premium reserve reserve reserve equity US$ US$ US$ US$ US$ US$ US$ 1 January 2020 (78,857,006) 5,190,877 64,817,662 11,142,290 1,159,580 (2,277,812) 1,175,591 Loss for the year (15,267,535) – – – – – (15,267,535) Discontinued operations (10,724,108) – – – – – (10,724,108) Exchange Reserve – – – – – (1,041,955) (1,041,955) Total comprehensive loss for the year (25,991,643) – – – – (1,041,955) (27,033,598) New shares issued – 1,097,142 467,935 – – – 1,565,077 Warrants – – (231,676) 231,676 – – – Share issue costs – – (92,016) – – – (92,016) Share options lapsed 76,614 – – – (76,614) – – Share-based payments – – – – 334,319 – 334,319 31 December 2020 (104,772,035) 6,288,019 64,961,905 11,373,966 1,417,285 (3,319,767) (24,050,627) 1 January 2021 (104,772,035) 6,288,019 64,961,905 11,373,966 1,417,285 (3,319,767) (24,050,627) Loss for the year (11,558,292) – – – – – (11,558,292) Discontinued operations – – – – – – Exchange Reserve – – – – – (211,820) (211,820) Total comprehensive loss for the year (11,558,292) (211,820) (11,770,112) New shares issued – 646,265 813,207 – – – 1,459,472 Warrants exercised – 274,803 105,484 (19,362) – – 360,925 Warrants – – (823,182) 823,182 – – – Share issue costs – – (80,171) – – – (80,171) Share options lapsed 165,824 – – – (165,824) – – Share-based payments – – – – 271,038 – 271,038 31 December 2021 (116,164,504) 7,209,086 64,977,243 12,177,786 1,522,499 (3,531,587) (33,809,477) The notes on pages 51 to 79 form part of these financial statements. Annual Report 2021 47 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 48 Financial Statements Company Statement of Changes in Equity Year ended 31 December 2021 Foreign Share currency Retained Share Share Warrant option translation Total earnings capital premium reserve reserve reserve equity US$ US$ US$ US$ US$ US$ US$ 1 January 2020 (73,024,274) 5,190,877 64,817,662 11,142,290 1,159,580 (2,255,402) 7,030,733 Loss for the year (10,045,487) – – – – – (10,045,487) Discontinued operations – – – – – – – Total comprehensive loss for the year (10,045,487) – – – – – (10,045,487) New shares issued – 1,097,142 467,935 – – – 1,565,077 Warrants issued – – (231,676) 231,676 – – – Share issue costs – – (92,016) – – – (92,016) Share options lapsed 76,614 – – – (76,614) – – Share-based payments – – – – 334,319 – 334,319 31 December 2020 (82,993,147) 6,288,019 64,961,905 11,373,966 1,417,285 (2,255,402) (1,207,374) 1 January 2021 (82,993,147) 6,288,019 64,961,905 11,373,966 1,417,285 (2,255,402) (1,207,375) Loss for the year (1,961,039) – – – – – (1,961,039) Discontinued operations – – – – – – – Total comprehensive loss for the year (1,961,039) – – – – – (1,961,039) New shares issued – 646,265 813,207 – – – 1,459,472 Warrants Exercised – 274,803 105,484 (19,362) – – 360,925 Warrants issued – – (823,182) 823,182 – – – Share issue costs – – (80,171) – – – (80,171) Share options lapsed 165,824 – – – (165,824) – – Share-based payments – – – – 271,038 – 271,038 31 December 2021 (84,788,362) 7,209,086 64,977,243 12,177,786 1,522,499 (2,255,402) (1,157,151) Share premium reserves represents the amounts subscribed for share capital in excess of the nominal value of the shares issued, net of cost of issue. Warrant reserve represents the cumulative fair value of share warrants granted which are not lapsed, cancelled or exercised. Share options reserve represents the cumulative fair value of share options granted. Foreign currency translation reserve arises on the retranslation of the prior period results and financial position of foreign operations into presentation currency. Retained earnings represents the cumulative net gains and losses recognised in the income statement. The notes on pages 51 to 79 form part of these financial statements. 48 Echo Energy plc 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 49 Financial Statements Consolidated Statement of Cash Flows Year ended 31 December 2021 Cash flows from operating activities Loss from continuing operations Loss from discontinued operations Adjustments for: Depreciation and depletion of property, plant and equipment Depreciation and depletion of intangible assets Loss on disposal of property, plant and equipment Impairment of intangible assets and goodwill Share-based payments Right of use liability Financial income Financial expense Exchange differences Derivative financial gain Decrease/(Increase) in inventory (Increase)/Decrease in other receivables increase in trade and other payables Net cash used in operating activities Cash flows from investing activities Purchase of intangible assets Purchase of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Interest received Bank fees and other finance costs Issue of share capital Share issue costs Warrants exercise Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January 2021 Foreign exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at 31 December 2021 Year to 31 December 2021 US$ Year to 31 December 2020 US$ (11,558,292) – (15,267,535) (10,724,108) (11,558,292) (25,991,643) 127,656 1,498,431 1,858 – 271,038 – (4,355,334) 8,993,432 (5,612,490) (62,477) 862,114 (823,995) 5,120,825 5,072,974 9,369,804 (1,538,194) 182,211 1,874,810 10,822 10,383,461 334,319 (64,180) (7,142) 10,174,047 (2,265,180) (666,306) 19,956,862 (120,386) 311,275 5,844,002 6,034,891 112 (118,716) (251,226) (470,637) (1,644,516) (369,942) (2,115,153) 249,351 (169,991) 1,459,472 (80,171) 360,925 7,142 (189,520) 1,565,077 (92,016) – 1,819,586 1,290,682 123,270 682,159 (63,090) 742,339 (824,360) 1,698,012 (191,493) 682,159 The notes on pages 51 to 79 form part of these financial statements. Annual Report 2021 49 264206 Echo Annual Report pp44-pp50 FINANCIAL TABLES.qxp 06/09/2022 10:36 Page 50 Financial Statements Company Statement of Cash Flows Year ended 31 December 2021 Cash flows from operating activities Loss from continuing operations Loss from discontinued operations Loss before taxation Adjustments for: Provision against amounts owing by subsidiary undertakings Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Impairment of intangible assets and goodwill Share-based payments Right of use liability Financial income Financial expense Derivative financial gain (Increase)/Decrease in other receivables (Decrease)/Increase in trade and other payables Decrease/(Increase) in amounts owing by subsidiary undertakings Net cash used in operating activities Cash flows from investing activities Purchase of intangible assets Net cash (used in)/from investing activities Cash flows from financing activities Interest received Issue of share capital Share issue costs Net cash from financing activities Net (decease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January 2021 Foreign exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at 31 December 2021 Year to 31 December 2021 US$ Year to 31 December 2020 US$ (1,961,039) (9,721,880) (323,607) (1,961,039) (10,045,487) – 5,862 – 118,716 271,038 – – (475,965) (62,477) (142,826) (16,555) (142,872) 690,583 13 104,552 9,119 323,607 334,319 (64,180) (1,847) 7,673,678 (666,306) 7,712,955 87,640 711,533 (481,022) 531,156 (1,572,709) 318,151 (2,014,381) (118,716) (118,716) (288,475) (288,475) – 1,459,472 (80,171) 1,847 1,565,076 (92,016) 1,379,301 1,474,907 (312,124) 437,230 (88,099) 37,008 (827,949) 1,259,468 5,711 437,230 The notes on pages 51 to 79 form part of these financial statements. 50 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 51 Financial Statements Notes to the Financial Statements Year ended 31 December 2021 1. ACCOUNTING POLICIES GENERAL INFORMATION These financial statements are for Echo Energy plc (“the Company”) and subsidiary undertakings (“the Group”). The Company is registered, and domiciled, in England and Wales and incorporated under the Companies Act 2006. The nature of the Company’s operations and its principal activities are set out in the Directors’ Report on page 35. The Company's functional currency is the United States dollar (US $). Transactions arising in currencies other than the US $ are translated at average exchange rates for the relevant accounting period, with material transactions being accounted at the rate of exchange on the date of the transaction. The Group presents its financial information in US $. Transactions relating to subsidiary undertakings that have a different functional currency to US $ are treated as follows: ➢ Assets and liabilities for each financial reporting date presented (including comparatives) are translated at the closing rate of that financial reporting period. ➢ Income and expenses for each income statement (including comparatives) is translated at exchange rates at the dates of transactions. For practical reasons, the Company applies average exchange rates for the period. ➢ All resulting changes are recognised as a separate component of equity. ➢ Equity items are translated at exchange rates at the dates of transactions. The principal accounting policies are summarised below: (a) Basis of preparation The financial statements have been prepared in accordance with UK-adopted international accounting standards. These financial statements are for the year 1 January 2021 to 31 December 2021. The comparatives shown are for the year 1 January 2020 to 31 December 2020. New standards and interpretations not applied At the date of authorisation of these financial statements, a number of standards and interpretations were in issue but not yet effective. The directors do not anticipate that the adoption of these standards and interpretations, or any amendments to existing standards as a result of the annual improvements cycle, will have a material effect on the financial statements in the year of initial application. (b) Basis of consolidation The Group financial statements consolidate the financial statements of the Company and its subsidiaries under the acquisition method. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Annual Report 2021 51 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 52 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 (c) Joint Arrangements A joint arrangement is one in which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Certain of the Group’s licence interests are held jointly with others. Accordingly, the Group accounts for its share of assets, liabilities, income and expenditure of these joint operations, classified in the appropriate statement of financial position and income statement headings. (d) Revenue Revenue comprises the invoice value of goods and services supplied by the Group, net of value added taxes and trade discounts. Revenue is recognised in the case of oil and gas sales when goods are delivered and title has passed to the customer. This generally occurs when the product is physically transferred into a pipeline or vessel. Echo recognised revenue in accordance with IFRS 15. Our joint venture partner markets gas and crude oil on our behalf. Gas is transferred via a metred pipeline into the regional gas transportation system, which is part of national transportation system, control of the gas passes at the point at which the gas enters this network, this is the point at which gas revenue would be recognised. Gas prices vary from month to month based on seasonal demand from customer segments and, production in the market as a whole. Our partner agrees pricing with their portfolio of gas clients based on agreed pricing mechanisms in multiple contracts. Some pricing is regulated by government such as domestic supply. Oil shipments are priced in advance of a cargo and revenue is recognised at the point at which cargoes are loaded onto shipping vessel at terminal. (e) Property, plant and equipment Property, plant and equipment is stated at cost, or deemed cost less accumulated depreciation, and any recognised impairment loss. Land is stated at cost and is not depreciated. Depreciation is charged so as to write off the cost or valuation of assets less any residual value over their estimated useful lives, using the straight- line method, on the following bases: Fixtures & fittings Motor vehicles 12% to 33.3% straight-line 25% straight-line Oil and gas properties are depleted on a unit of production basis commencing at the start of commercial production or depreciated on a straight-line basis over the relevant asset’s estimated useful life. Expenditure is depreciated on a unit of production basis; the depletion charge is calculated according to the proportion that production bears to the recoverable reserves for each property. Depreciation will not be charged on an asset in the course of construction, depreciation commences when the asset is brought into use and will be depleted according to the proportion that production bears to the recoverable reserves for each property. (f) Property right of use asset The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right of use lease is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before commencement date plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted using the incremental borrowing rate of the individual Company which is the lessee. 52 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 53 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 (g) Other intangible assets – exploration and evaluation costs Exploration and evaluation (E&E) expenditure comprises costs which are directly attributable to researching and analysing exploration data. It also includes the costs incurred in acquiring mineral rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. When it has been established that a mineral deposit has development potential, all costs (direct and applicable overhead) incurred in connection with the exploration and development of the mineral deposits are capitalised until either production commences or the project is not considered economically viable. In the event of production commencing, the capitalised costs are amortised over the expected life of the mineral reserves on a unit of production basis. Other pre-trading expenses are written off as incurred. Where a project is abandoned or is considered to be of no further interest, the related costs are written off. (h) Impairment of tangible and intangible assets excluding goodwill At the date of each statement of financial position, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (CGU) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (i) Taxation Current taxation Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted, or substantively enacted, by the balance sheet date. Deferred taxation Deferred tax is the tax expected to be payable or recoverable on differences between the current year amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax assets are recognised to the extent the temporary difference will reverse in the foreseeable future and it is probable that future taxable profit will be available against which the asset can be utilised. Annual Report 2021 53 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 54 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 Deferred tax is recognised for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint ventures, to the extent it is probable that the temporary difference will reverse in the foreseeable future. (j) Conversion of foreign currency Foreign currency transactions are translated at the average exchange rates over the year, material transactions are recorded at the exchange rate ruling on the date of the transaction. Assets and liabilities are translated at the rates prevailing at the balance sheet date. The Group has significant transactions and balances denominated in Euros and GBP. The year-end exchange rate to USD was US $1 to GBP £0.7388 and US $1 to €0.8790 (2020: US $1 to GBP £0.7319, US $1 to €0.8178) US $1 to ARS $102.397 (2020: US $1 to ARS $86.250) and the average exchange rate during 2021 was US $1 to GBP £0.7253 (2020: US $1 to GBP £0.7793). In the Company financial statements, the income and expenses of foreign operations are translated at the exchange rates ruling at the dates of the transactions. The assets and liabilities of foreign operations, both monetary and non-monetary, are translated at exchange rates ruling at the balance sheet date. The reporting currency of the Company and group is United Stated Dollars (US $). (k) Share-based payments The fair value of equity instruments granted to employees is charged to the income statement, with a corresponding increase in equity. The fair value of share options is measured at grant date, using the binomial option pricing model or Black-Scholes pricing model were considered more appropriate, and spread over the period during which the employee becomes unconditionally entitled to the award. The charge is adjusted to reflect the number of shares or options that vest. (l) Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables Trade and other receivables are initially measured at fair value and are subsequently reassessed at the end of each accounting period. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. 54 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 55 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 (l) Financial instruments Equity instruments Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32: l They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and l Where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the financial instrument is classified as a financial liability. (m) Borrowings Borrowings are recognised initially at the fair value of the proceeds received which is determined using a discount rate which reflects the cost of borrowing to the Group. In subsequent periods borrowings are recognised at amortised costs, using an effective interest rate method. Any difference between the fair value of the proceeds costs and the redemption amount is recognised as a finance cost over the period of the borrowings. (n) Inventory Echo has chosen to value crude oil inventories, a commodity product, at net realisable value, the value is based on a discounted observable year-end market price. Other inventory items are valued at the lower of net realisable value and cost. (o) Going Concern The financial information has been prepared assuming the Group will continue as a going concern. Please see note 2 Accounting Estimates and Judgements for an extended disclosure on this issue. (p) Government assistance grants Government assistance grants such as the Coronavirus Job Retention Scheme (CJRS) which relates to staff who have been furloughed due to COVID-19 are recognised as income and have been included in the consolidated statement of comprehensive income as other income. During 2021, the Group received grants totalling US $23,118 for furloughed staff. Grants ceased, in line with Government policy, during H2 of 2021. Annual Report 2021 55 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 56 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 2. ACCOUNTING ESTIMATES AND JUDGEMENTS GOING CONCERN The financial information has been prepared assuming the Group will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Despite the consolidated statement of financial position showing a negative net asset position at 31 December 2021, the outlook for the Group has materially changed post period. 2021 represented a year of financial stabilisation and then progress and improvement, particularly driven by a marked increase in energy commodity prices, following the worst impacts of the COVID 19 pandemic in 2020. Production of oil & gas stabilised during the year after the falls in 2020 and increased in the final quarter of the 2021. The successful restructuring of all the company’s loans during the year means that minimal cash servicing of these loans is required during 2022 materially improving the cashflow outlook and enabling greater investment on increasing production levels further improving revenues. Post period the improvement has continued. The company has executed new gas sales agreements for the majority of its gas production. Average Gas prices in July 2022 are US$4.53 (mmbtu, converted at ARS$133.57 to US$1) compared with December 2020 of US$1.59 (mmbtu, converted at ARS$82.6 to US$1). The same period has seen Liquids (m3) sell at US$51 in July 2022 compared to US$28.8 in December 2020. Post year end agreements with customers allowing for a prepayment receipt of $1.6m in April 2022, in combination with a revenue increase in cash receipts from June 2022 has alleviated the immediate creditor concern in Argentina, whilst the additional share offering has raised further funds in the UK. However, financial challenges remain ahead for the company as it emerges and recovers from the impact of the covid pandemic and whilst the company forecast the SCS assets to be cashflow positive at prevailing oil and gas price levels in the long term, there is still a short term requirement for additional funding through debt financing, joint venture equity or share issues. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern. The directors have formed a judgement based on Echo’s proven success in raising capital and a review of the strategic options available to the group, that the going concern basis should be adopted in preparing the financial statements. USE OF ESTIMATE AND JUDGEMENTS The preparation of financial statements in conforming with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities as at the balance sheet date and the reported amount of revenues and expenses during the period. Actual outcomes may differ from those estimates. The key sources of uncertainty in estimates that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities, within the next financial year, are the impairment of assets and the Group’s going concern assessment. AMOUNTS CAPITALISED TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION In accordance with the Group policy, expenditures are capitalised only where the Group holds a licence interest in an area. All expenditure relating to the Bolivian company has been expensed to the statement of comprehensive income, as the Group has not yet been assigned any licence interests in the country. The Group has capitalised its participation in the SCS assets. 56 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:37 Page 57 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 VALUATION OF ASSETS Expenditures recognised as exploration and evaluation (“E&E”) assets are tested for impairment whenever facts and circumstances suggest that they may be impaired, which includes when a licence is approaching the end of its term and is not expected to be renewed, or there are no substantive plans for continued exploration or evaluation of an area, or whilst development of a licence is still likely to proceed in an area but there are indications that the E&E assets are unlikely to be recovered in full. When considering whether E&E assets are impaired the Group first considers the IFRS 6 indicators. IFRS 6 requires an entity to assess whether E&E assets require impairment when facts and circumstance suggest that the carrying amount of the assets may exceed their recoverable amount, these include: l l l l The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future and is not expected to be renewed; Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; Sufficient data exists to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the E&E assets is unlikely to be recovered in full from successful development or by sale. DETERMINATION AND VALUATION OF DERIVATIVE FINANCIAL LIABILITIES Determination of derivative financial liabilities Judgement is requirement when determining the classification of financial instruments in terms of liability or equity. These judgements include an assessment of whether the financial instrument include any embedded derivative features, whether they include contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether that obligation will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Valuation of derivative financial liabilities The Group has issued warrants over ordinary shares as fundraising commission in respect of debt fundraisings during the year which can be converted to share capital at the option of the holder. These warrants are accounted for as an embedded derivative which is recognised at fair value through profit or loss. The Directors estimated the fair value of the derivative component using the Black Scholes option pricing model, as described in note 24. This required making certain estimates on the share price volatility of the Group which inevitably involved a degree of judgement and the actual outcome may vary. CARRYING VALUE OF INVESTMENT IN SUBSIDIARIES In determining whether parent company investments in subsidiaries have been impaired, we review subsidiary assets and liabilities to determine whether Group investment is recoverable. A determination was made that because of ongoing negotiations and Company strategic intent, investment would ultimately still be recoverable. However, the Group recognises that in order to pursue organic and inorganic growth opportunities and fund on-going operations it may require additional funding. This funding may be sourced through debt finance, joint venture equity or share issues. Annual Report 2021 57 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 58 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 3. BUSINESS SEGMENTS The Group has adopted IFRS 8 Operating Segments. Per IFRS 8, operating segments are regularly reviewed and used by the board of directors being the chief operating decision maker for strategic decision-making and resources allocation, in order to allocate resources to the segment and assess its performance. The Group’s reportable operating segments are as follow: a. Corporate and Administrative b. c. Santa Cruz Sur Bolivia Performance is based on assessing progress made on projects and the management of resources used. Segment assets and liabilities are presented inclusive of inter-segment balances. Reportable segments are based around licence activity, although the reportable segments are reflected in legal entities, certain corporate cost costs collate data across legal entities and the segmental analysis reflects this. Information regarding each of the operations of each reportable segment within continuing operations is included in the following table. All revenue, which represents turnover, arises within Argentina and relates to external parties: Corporate & Administrative Santa Cruz Sur Bolivia Total US $ US $ US $ US $ Year to 31 December 2021 Revenues Cost of sales Exploration expense Administration expense Financial income Financial expense Derivative financial gain Depreciation Income tax Loss before tax Non-current assets Assets Liabilities Year to 31 December 2020 Revenues Cost of sales Exploration expense Administration expense Financial income Financial expense Derivative financial gain Depreciation Income tax Loss before tax Non-current assets Assets Liabilities 58 Echo Energy plc 23,118 (205,651) (2,316,947) 4,105,983 (3,630,018) 62,477 11,101,369 (15,147,779) (510,807) 249,351 (5,362,783) (4,879) (122,777) (1,961,039) 2,089,878 2,306,271 (29,633,059) (9,670,649) 8,260,790 12,224,994 (18,189,591) 45,503 – (215,512) (3,036,478) 1,771 (8,801,106) 666,306 11,081,017 (13,437,010) – – 5,371 (1,372,978) – 11,124,487 (15,147,779) (205,651) (2,965,547) 4,355,334 (8,993,432) 62,477 (127,656) (11,770,112) 9,806,312 14,022,314 (47,831,773) 11,126,520 (13,437,010) (215,512) (3,240,934) 7,142 (10,174,047) 666,306 (137,792) (632) (138,424) (544,355) (508,951) (9,123) – – – (204,456) – 37 – (101,151) – (1,936,878) – (1,031) – (2,039,060) – (11,339,516) 383,790 3,994,325 (30,791,002) (3,723,600) 11,053,602 15,858,507 (12,732,808) (204,419) (373,077) (335,865) (43,784) (15,267,535) 11,064,315 19,516,967 (43,567,594) 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 59 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 The geographical split of non-current assets arises as follows: United Kingdom South America Total US $ US $ US $ 31 December 2021 Property, plant and equipment 2,177 2,672,228 2,674,405 Other intangible assets 445,585 6,686,322 7,131,907 31 December 2020 Property, plant and equipment 8,039 2,544,654 2,552,693 Other intangible assets 326,869 8,184,753 8,511,622 4. REVENUE Year to Year to 31 December 31 December 2021 2020 US $ US $ Oil revenue 4,060,802 2,784,248 Gas revenue 7,036,861 8,279,416 Other income 26,824 62,856 Total Revenue 11,124,487 11,126,520 5. COST OF SALES Year to Year to 31 December 31 December 2021 2020 US $ US $ Production costs 12,024,454 10,021,578 Selling and distribution costs 1,684,320 1,567,963 Movement in stock of crude oil (181,274) (89,410) Depletion 1,620,279 1,936,879 Total Costs 15,147,779 13,437,010 6. EXPENSES AND AUDITOR’S REMUNERATION Year to Year to 31 December 31 December 2021 2020 US $ US $ The operating loss is stated after charging the following amounts: Depreciation of property, plant and equipment – owned 127,656 182,211 Loss/(Gain) on disposal of property, plant and equipment 1,858 – Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 53,977 61,007 Fees payable to the overseas auditor and its associates for other services: – Corporate finance services 11,456 9,370 – Audit and subsidiaries 10,499 23,400 Share based payments 271,038 334,319 Annual Report 2021 59 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 60 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 7. STAFF COSTS AND NUMBERS The average number of persons employed by the Group during the year including executive directors is analysed below: Year to Year to 31 December 31 December 2021 2020 Administration 7 9 Group employment costs – all employees including executive directors: Year to Year to 31 December 31 December 2021 2020 US $ US $ Wages and salaries 1,066,589 1,770,037 Social security costs 131,487 221,908 Pension contributions 45,764 51,557 Share-based payments – equity-settled 271,038 334,319 Total 1,514,878 2,377,821 Directors’ remuneration is set out in the Directors Remuneration Report on page 33 of this report. Remuneration of Key Personnel is set out in the table below. Year to Year to 31 December 31 December 2021 2020 US $ US $ Wages and salaries 583,974 713,134 Social security costs 103,329 115,286 Bonus 59,288 313,706 Pension Contributions 25,099 25,787 Private Health Insurance 13,107 13,293 Share Based Payments 244,383 274,834 Total 1,029,180 1,456,040 8. FINANCIAL INCOME Year to Year to 31 December 31 December 2021 2020 US $ US $ Interest income 249,351 7,142 Net foreign exchange gain 4,105,983 – Total 4,355,334 7,142 60 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 61 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 9. FINANCIAL EXPENSE Year to Year to 31 December 31 December 2021 2020 US $ US $ Interest payable 11,912 1,991,535 Net foreign exchange losses 5,122,810 4,409,732 Unwinding of discount on long term loan 3,394,647 2,936,831 Amortisation of loan fees 234,101 614,913 Accretion of right of use liabilities – 2,293 Unwinding of abandonment provision 59,955 39,956 Finance cost of holding bonds – 11,971 Bank fees and overseas transaction tax 170,007 166,816 Total 8,993,432 10,174,046 10.DERIVATIVE FINANCIAL GAIN/LOSS Year to Year to 31 December 31 December 2021 2020 US $ US $ Fair value gain 62,477 666,306 Total 62,477 666,306 Represents fair value gain on valuation of derivatives instruments at period end. 11. DISCONTINUED OPERATIONS On 22 December 2020 the Company announced that it had allowed the lapse of the option to re-enter the Tapi Aike asset. This resulted in Echo finally withdrawing its interests and liabilities under the Tapi Aike concessions prior to the drilling of the next exploration well in the Tapi Aike Western cube. The results of the discontinued operations, are presented below: Year to Year to 31 December 31 December 2021 2020 US $ US $ Impairment of the historic cost and carrying value of intangible assets – (10,724,108) Operating (loss)/gain after liquidation – (10,724,108) (Loss)/Gain on ordinary activities before taxation – (10,724,108) Taxation – – (Loss)/Gain for the year from discontinued operations – (10,724,108) Annual Report 2021 61 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 62 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 The cash flows associated with the discontinued operations are: Year to Year to 31 December 31 December 2021 2020 US $ US $ Operations – – Investing – – Financing – – Net cash out flow – – 12. JOINT ARRANGEMENTS As described in both the strategic and governance reports, in particular in the Financial Review, Echo has joint arrangements within the SCS concessions. The Group accounts for its share of assets, liabilities, income and expenditure of these joint operations in accordance with its equity interest in each. Echo holds 70% of the SCS working interest Our joint venture assets and liabilities are separately disclosed throughout the financial statements. 13. TAXATION Year to Year to 31 December 31 December 2021 2020 US $ US $ Tax on profit on ordinary activities Taxation charged based on profits for the period – – UK corporation tax based on the results for the period – – Total tax expense in income statement – – RECONCILIATION OF THE TAX EXPENSE The tax assessed for the year is different from the standard rate of corporation tax in the UK of 19% (2020: 19%). The references are explained below: Year to Year to 31 December 31 December 2021 2020 US $ US $ Loss on ordinary activities before taxation (11,770,112) (15,267,535) Loss from discontinued operations – (10,724,108) Loss for the year before tax (11,770,112) (25,991,643) Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2,236,321) (4,938,412) Effects of: Expenses disallowed for tax purposes 40,246 76,404 Deferred tax not provided – tax losses carried forward 2,196,075 4,862,008 Total current tax – – The parent entity has tax losses available to be carried forward, and further tax losses are available in certain subsidiaries. With anticipated substantial lead times for the Group’s projects, and the possibility that these may expire before their use, it is not considered appropriate to anticipate an asset value for them. The amount of tax losses carried forward for which a deferred tax asset has not been recognised is US $48,711,692 (2020: US $36,729,760). No amounts have been recognised within tax on the results of the equity-accounted joint ventures. 62 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 63 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 14. LOSS PER SHARE The calculation of basic and diluted loss per share at 31 December 2021 was based on the loss attributable to ordinary shareholders. The weighted average number of ordinary shares outstanding during the year ending 31 December 2021 and the effect of the potentially dilutive ordinary shares to be issued are shown below. Year to Year to 31 December 31 December 2021 2020 Net loss for the year (US $) before exchange on translating foreign operations (11,770,112) (25,991,643) Basic weighted average ordinary shares in issue during the year 1,270,891,563 768,598,277 Diluted weighted average ordinary shares in issue during the year 1,270,891,563 768,598,277 Loss per share (cents) Basic (cents) (0.93) (3.38) Diluted (cents) (0.93) (3.38) In accordance with IAS 33 and as the entity is loss making, including potentially dilutive share options in the calculation would be anti-dilutive. Deferred shares have been excluded from the calculation of loss per share due to their nature. Please see Note 24 for details of their rights. 15. LOSS OF THE PARENT COMPANY The parent company is not required to produce its own profit and loss account (or IFRS equivalent) because of the exemption provision in Section 408 of the Companies Act 2006. Annual Report 2021 63 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 64 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 16. PROPERTY, PLANT AND EQUIPMENT (GROUP) PPE – O&G Properties US $ Fixtures & Fittings US $ Property Right-of-Use Assets US $ Total US $ 31 DECEMBER 2021 Cost 1 January 2021 2,621,921 97,255 – 2,719,176 Additions 251,226 – – 251,226 Disposals – (1,858) – (1,858) 31 December 2021 2,873,147 95,397 – 2,968,544 Depreciation 1 January 2021 79,941 86,542 – 166,483 Charge for the year 122,777 4,879 – 127,656 Disposals – – – – 31 December 2021 202,718 91,421 – 294,139 Carrying amount 31 December 2021 2,670,429 3,976 – 2,674,405 31 December 2020 2,541,980 10,713 – 2,552,693 31 December 2020 Cost 1 January 2020 979,164 131,122 309,804 1,420,090 Additions 1,644,460 56 1,644,516 Disposals (1,703) (33,923) (309,804) (345,430) 31 December 2020 2,621,921 97,255 – 2,719,176 Depreciation 1 January 2020 3,338 91,366 224,176 318,880 Charge for the year 76,603 19,980 85,628 182,211 Disposals – (24,804) (309,804) (334,608) 31 December 2020 79,941 86,542 – 166,483 Carrying amount 31 December 2020 2,541,980 10,713 – 2,552,693 31 December 2019 975,826 39,756 85,628 1,101,210 Included within property, plant and equipment are amounts of US $996,505 (2020: US $745,279) in relation to assets in construction and as a result are not depreciation on the unit of production basis, this will commence when they are available for use. 64 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 65 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 16. PROPERTY, PLANT AND EQUIPMENT (COMPANY) Fixtures & Fittings US $ Property Right-of-Use Assets US $ Total US $ 31 DECEMBER 2021 Cost 1 January 2021 92,903 – 92,903 Additions – – – Disposals – – – 31 December 2021 92,903 – 92,903 Depreciation 1 January 2021 84,864 – 84,864 Charge for the year 5,862 – 5,862 Disposals – – – 31 December 2021 90,726 – 90,726 Carrying amount 31 December 2021 2,177 – 2,177 31 December 2020 8,039 – 8,039 31 DECEMBER 2020 Cost 1 January 2020 126,826 309,804 436,630 Additions – – – Disposals (33,923) (309,804) (343,727) 31 December 2020 92,903 – 92,903 Depreciation 1 January 2020 90,744 224,176 314,920 Charge for the year 18,924 85,628 104,552 Disposals (24,804) (309,804) (334,608) 31 December 2020 84,864 – 84,864 Carrying amount 31 December 2020 8,039 – 8,039 31 December 2019 36,082 85,628 121,710 Annual Report 2021 65 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 66 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 17. INTANGIBLE ASSETS (GROUP) SCS Production Assets US $ TA License Areas Discontinued US$ Total US$ 31 DECEMBER 2021 Cost 1 January 2021 10,756,306 – 10,756,306 Additions 118,716 – 118,716 Disposals – – – 31 December 2021 10,875,022 – 10,875,022 Depletion 1 January 2021 2,244,684 – 2,244,684 Disposals – – Depletion 1,375,931 – 1,375,931 Depreciation decommissioning assets 122,500 – 122,500 31 December 2021 3,743,115 – 3,743,115 Carrying amount 31 December 2021 7,131,907 – 7,131,907 31 December 2020 8,511,622 – 8,511,622 31 DECEMBER 2020 Cost 1 January 2020 10,802,524 10,140,936 20,943,460 Additions 228,112 242,525 470,637 Disposals – (10,383,461) (10,383,341) Transfers (274,330) – (274,330) 31 December 2020 10,756,306 – 10,756,306 Depletion and impairment 1 January 2020 369,874 – 369,874 Disposals – (10,383,461) (10,383,461) Depletion 1,752,310 – 1,752,310 Depreciation decommissioning assets 122,500 – 122,500 Impairment charge for the year – 10,383,461 10,383,461 31 December 2020 2,244,684 – 2,244,684 Carrying amount 31 December 2020 8,511,622 – 8,511,622 31 December 2019 20,573,586 – 20,573,586 All intangible assets relate to oil & gas activities. The Group’s oil and gas assets were assessed for impairment at 31 December 2021. The intangibles are held within one CGU, the SCS licence concession. Impairment assessments are prepared on the basis of comparing the present value of discounted cash flows with the carrying value of the assets. 66 Echo Energy plc 264206 Echo Annual Report pp51-pp67 NOTES.qxp 06/09/2022 10:38 Page 67 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 17. INTANGIBLE ASSETS CONTINUED (COMPANY) Argentina Production assets US $ Total US $ 31 DECEMBER 2021 Cost 1 January 2021 326,869 326,869 Additions 118,716 118,716 31 December 2021 445,585 445,585 Impairment 1 January 2021 – – Impairment charge for the year – – 31 December 2021 – – Carrying amount 31 December 2021 445,585 445,585 31 December 2020 326,869 326,869 31 DECEMBER 2020 Cost 1 January 2020 362,001 362,001 Additions 288,475 288,475 Disposals (323,607) (323,607) 31 December 2020 326,869 326,869 Impairment 1 January 2020 – – Impairment charge for the year 323,607 323,607 Disposals (323,607) (323,607) 31 December 2020 – – Carrying amount 31 December 2020 326,869 326,869 31 December 2019 362,001 362,001 Annual Report 2021 67 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 68 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 18. INTEREST IN SUBSIDIARY UNDERTAKINGS Cost 1 January Additions in year 31 December Impairment 1 January Impairment 31 December Carrying amount 31 December 2020 & 2021 Details of the subsidiaries are as follows: Year to 31 December 2021 US$ Year to 31 December 2020 US$ 30,521,648 – 30,521,648 – 30,521,648 30,521,648 14,516,604 – 14,516,590 14 14,516,604 14,516,604 16,005,044 16,005,044 Subsidiary Class of Share % Owned Country of Registration Nature of Business Echo Energy Holdings (UK) Limited Ordinary Echo Energy Argentina Holdings Limited Ordinary Ordinary Echo Energy Tapi Aike Limited Ordinary Eco Energy TA Op Limited 100% England & Wales Holding company 100% England & Wales Holding company 100% England & Wales Holding company 100% England & Wales Holder of Argentinian branch assets Echo Energy C D & LLC Limited Eco Energy CDL Op Limited Ordinary Ordinary 100% England & Wales Holding company 100% England & Wales Holder of Argentinian Echo Energy Bolivia (Hold Co 1) Limited Ordinary Ordinary Echo Energy Bolivia (Op Co 1) Limited 100% England & Wales Holding company 100% England & Wales Holder of Bolivian Echo Energy Bolivia (Hold Co 2) Limited Ordinary Ordinary Echo Energy Bolivia (Op Co 2) Limited 100% England & Wales Holding company 100% England & Wales Dormant branch assets branch assets The registered address for all of the above subsidiaries is: 85 Great Portland Street, London, W1W 7LT 19. INVENTORIES 31 December 2021 31 December 2020 Group Company US$ US$ Group US$ Company US$ Crude oil Parts and supplies Total 691,528 673,697 1,365,225 – – – 510,254 30,976 541,230 – – – These crude oil inventories are held in the SCS assets. 68 Echo Energy plc 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 69 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 20. TRADE AND OTHER RECEIVABLES 31 December 2021 31 December 2020 Group Company US$ US$ Group US$ Company US$ Non-current Amounts owing by subsidiary undertakings Total Current Trade receivables Accrued income Other receivables Prepayments Total – – 11,813,525 11,813,525 – – 12,504,108 12,504,108 387,965 291,336 1,322,407 106,730 2,108,438 – 573,842 82,818 89,771 172,589 1,218,350 – 5,163,981 273,090 7,229,264 – 84,791 71,243 156,034 Other receivables in the Group in 2020 principally comprise recoverable Value Added Tax and joint venture receivables. The directors consider that the carrying amount of trade and other receivables approximated their fair value. 21. CASH AND CASH EQUIVALENTS 31 December 2021 31 December 2020 Group Company US$ US$ Group US$ Company US$ Cash held by joint venture partners Cash and cash equivalents Total 500,719 241,620 742,339 37,008 – 37,008 27,479 654,680 682,159 – 437,230 437,230 Echo have advanced cash to our joint venture partners; this cash is held by our partners in a ring- fenced account. We recognise our equity share of the balance held. 22. FINANCIAL INSTRUMENTS AND TREASURY RISK MANAGEMENT FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The carrying values of financial assets and liabilities are considered to be material equivalent to their fair values. TREASURY RISK MANAGEMENT The Group manages a variety of market risks, including the effects of changes in foreign exchange rates, liquidity and counterparty risk. CREDIT RISK The Group’s principal financial assets are bank balances and cash and other receivables. The credit risk on liquid funds is limited because the counterparties are UK, Argentine and Bolivian banks with high credit ratings. The Group operates with positive cash and cash equivalents as a result of issuing share capital in anticipation of future funding requirements. The Group’s policy is therefore one of achieving high returns with minimal risks. In order to provide a degree of certainty, the Group looks, when appropriate, to invest in short-term fixed-interest treasury deposits giving a low risk profile to these assets. Annual Report 2021 69 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 70 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 In Echo’s SCS assets, acquired in November 2019, operating partner Interoil markets our hydrocarbon, primarily to well established utilities. Echo carries a marginally higher credit risk exposure as Echo deals directly with counterparties for payment, however as the Group’s principal customers are substantial oil and gas utility companies and refiners, as such credit risk is considered to be low. There is no history of credit loss, non-payment or default by the inherited counterparties and the calculated amount of the potential 12-month credit risk loss is not material. The Company has low credit risk in respect of receivables as a result of supplying reputable oil and gas purchasers. All trade debtors have been recovered in full since 1 January 2022. The group has applied the expected credit loss model under IFRS 9. Given current contractual arrangements where pricing has already been determined at the point where receivables from hydrocarbon sales are recognised as revenue, and the fact that contract counterparties are large corporate entities or utilities no provision was made for losses as any potential losses would be immaterial. The maximum exposure due to credit risk for the Group on other receivables and amounts due from equity accounted joint operations during the year was US$1,880,113 (2020: US$3,253,335). No collateral is held in respect of these amounts. The maximum exposure due to credit risk for the Company on intercompany receivables and other receivables during the year was US$27,818,569 (2020: US$28,509,152). No collateral is held in respect of these amounts. Intergroup funding is assessed for indications of impairment on a periodic basis. Investments and subsidiaries and intergroup loans in the amount of US$14,516,604 (2020: US$14,516,604) are considered to be impaired and have been provided against in full. All other amounts are expected to be received in full. CURRENCY RISK The Group’s operations are primarily located in the South America, and the United Kingdom, with the main exchange risk being between the US Dollar and the Argentine Peso. The Argentine Peso has devalued by approximately 19% (2020: 9%) over the year. The Group addressed this risk by minimising exposure to the currency. The majority of Group revenues for the year were denominated in US Dollars but certain liabilities and revenues were denominated in Argentine Pesos. In certain instances the counterparty for settlement of pesos income and expenditure was the same. In these instances pesos balances were offset. Balances were held in dollars until settlement was due, and where short-term pesos balances were held these were placed on overnight deposit. The Group does hold substantial receivable VAT balances denominated in pesos and have sought to expedite recovery to mitigate devaluation losses. At year end the Group held the following cash and cash equivalent balances: US Dollars GBP Sterling Euro Argentine Peso Bolivian Boliviano Total 31 December 2021 US$ 31 December 2020 US$ 5,248 35,419 41 699,578 2,053 742,339 5,835 435,986 – 237,776 2,562 682,159 The consolidated statement of comprehensive income would be affected by US$4,247 (2020: US$43,599) if the exchange rate between US$ and GBP changed by 10%. There would be a loss of US$199,162 (2020: US$21,617) if the exchange rate between the Argentine Peso to the US Dollar weakened by 10%. 70 Echo Energy plc 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 71 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 The Group has exposure to the Euro, Echo hold €25million bond notes, the Group held Euro denominated funds at the beginning of the period to cover servicing of debt during the accounting year. The primary source of funds for the Group in the period was equity raised in GBP, these funds are predominantly translated into USD to fund exploration, acquisition and production activity in Argentina. No hedging products were used during this accounting period, but management actively review currency requirements to assess the suitability of hedging products. The Group consolidated statement of income would be affected by approximately US$2,782,192 (2020: US$2,692,605) by a reasonably possible 10 percentage points fluctuation in the exchange rate between US Dollars and Euros. The VAT regime in Argentina differs from international practise as VAT investment activities are not immediately recoverable but must be offset against revenue streams. The Company made substantial investments in Argentina in 2018,2019 and 2020 and has accordingly built up a material VAT receivable balance. A new mechanism has been approved by government through Law No. 27430 and Decree 813/2018. The mechanism will allow Technical VAT credits associated with the purchase of capital assets from 1 January 2018 to be recovered through application if the Company has not been able to recover the VAT within six months. Echo received a VAT refund during 2021, but going forward withholds VAT received from customers to offset any VAT credit balances. The Group used Blue Chip Swaps during the year to repatriate funds from Argentina to the UK. A Blue-Chip Swap is when a domestic investor purchases a foreign asset and then transfers the purchased asset to an offshore entity. The Group’s Argentine subsidiary purchased shares in highly stable and liquid companies that are traded on both domestic and offshore stock exchanges. These shares were held for a fixed period in accordance with Argentinian regulation. Following the end of the fixed period the shares were sold offshore and the resulting funds were then repatriated to the parent company. This type of transaction is therefore exposed to stock price volatility during the hold period and incurs transaction fees. During the year, the Group swapped 183,678,000 Pesos into $930,733 net of transaction fees and forex losses. INTEREST RATE RISK The Group holds debt instruments that were issued at a fixed rate. As part of the Group’s policy to maximise returns on cash held cash held is placed in interest bearing accounts where possible. During the course of 2021, Echo invested cash into operations and did not hold significant cash balances for prolonged periods of time. The consolidated statement of comprehensive income would be affected by US$30 (2020: US$71) by a 1% point change floating interest rate on a full-year basis. The Group’s actively manages its working capital to ensure the Group has sufficient funds for operations and planned activities. Operational cash flow represents receipts from revenue, together with on-going direct operational support costs, exploration, appraisal, administration and business development costs. The Group manages its liquidity requirements by the use of both short-term and long-term cash flow forecasts. The Group’s policy is to ensure facilities are available as required, to issue equity share capital and form strategic alliances in accordance with long-term cash flow forecasts. The Group currently has no undrawn committed facilities as at 31 December 2021. The Group’s financial liabilities are primarily obligations under joint operations, trade payables and operational costs. All amounts are due for payment in accordance with agreed settlement terms with suppliers or statutory deadlines and all within one year. LIQUIDITY RISK The Group holds Euro denominated long-term debt. See Note 27. Other than long term debts, all financial liabilities are due for settlement within _12 months, although Joint Venture payables will be settled as and when cashflow allows. . The Group held cash balances of US$742,339 (2020: US$682,159). Annual Report 2021 71 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 72 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 The Group does not currently use derivative financial instruments to hedge currency and commodity price risk as it is not considered necessary. Should the Group identify a requirement for the future use of such financial instruments, a comprehensive set of policies and systems as approved by the directors will be implemented. COMMODITY PRICE RISK The Group is now exposed to the risk of fluctuations on prevailing commodity market prices. The Group does not use commodity forward contracts and futures to hedge against price risk in commodities as current volumes and market conditions mean they are not yet appropriate for Echo. A 10% increase in the price of Gas would have increased revenue by approximately US$703,686 (2020: US$827,942). A 10% increase in the price of Oil would have increased revenue by approximately US$406,080 (2020: US$278,425). CAPITAL MANAGEMENT The Group’s legacy strategy has led to its capital structure being a mixture of debt and equity. The directors will reassess the future capital structure when projects under development are sufficiently advanced and restructure accordingly. The Group’s financial strategy is to utilise its resources to further appraise and test the Group’s projects, forming strategic alliances for specific projects where appropriate together with assessing target acquisitions. The Group keeps investors and the market informed of its progress with its projects through regular announcements and raises additional equity finance at appropriate times. CATEGORIES OF FINANCIAL INSTRUMENTS All of the Group’s financial assets are carried at amortised cost. The Group’s embedded derivative is classified at fair value through profit or loss, the remaining Group’s financial liabilities are classified as financial liabilities at amortised cost. 23. TRADE AND OTHER PAYABLES 31 December 2021 31 December 2020 Group Company US$ US$ Group US$ Company US$ Trade payables Taxation and social security costs Non-trade payables Accruals Other loans Joint venture payables 495,379 395,684 39,042 131,137 – 14,962,258 492,190 269,311 39,023 64,173 – – 398,121 354,308 362,878 108,223 2,298,638 9,726,978 329,216 246,549 362,878 68,926 2,298,638 – Total 16,023,500 864,697 13,249,146 3,306,206 72 Echo Energy plc 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 73 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 24. DERIVATIVE FINANCIAL LIABILITIES Embedded derivative Total 31 December 2021 US$ 31 December 2020 US$ – – 62,477 62,477 The embedded derivative represents the warrants issued along with the convertible debt facility with Lombard Odier Asset Management (Europe) Ltd (Note 27). Warrants were exercised in 2021, therefore no value is attributed at the year end. Level 3 fair value measurements Warrants instruments are deemed to be Level 3 liabilities under the fair value hierarchy as fair value measures of these liabilities are not based on observable market data. The movement in their fair values is shown in the table below: At 1 January Fair value movements recognised through profit or loss Total 31 December 2021 US$ 31 December 2020 US$ 62,477 (62,477) – 728,783 (666,306) 62,477 25. SHARE CAPITAL 31 December 2021 31 December 2020 Group Company US$ US$ Group US$ Company US$ Issued, Called Up and Fully Paid 1,309,013,085 0.31¢ (2020 1,040,050,920 0.31¢) ordinary shares 1 January Equity shares issued 6,288,019 921,067 6,288,019 921,067 5,190,877 1,097,142 5,190,877 1,097,142 31 December 7,209,086 7,209,086 6,288,019 6,288,019 The holders of 0.34¢ (0.25p) ordinary shares are entitled to receive dividends from time to time and are entitled to one vote per share at meetings of the Company. The following shares were issued to be used to support SCS operations and fund potential E&P growth projects as well as for general working capital: • • • • • On 11 January 2021, Echo issued 167,843,138 ordinary shares at 0.51p per share to raise gross proceeds of £856,000 (US$1,167,413). On 1 April 2021, Echo issued 11,473,929 ordinary shares at 0.75p per share to raise gross proceeds of £85,825 (US$118,713). On 16 April 2021, Echo issued 74,200,000 ordinary shares (Warrants exercised) at 0.30p per share to raise gross proceeds of £222,600 (US$307,900). On 19 April 2021, Echo issued 5,245,098 ordinary shares (Warrants exercised) at 0.70p/0.75p per share to raise gross proceeds of £38,026 (US$52,598) On 30 September 2021, Echo issued 10,200,000 ordinary shares at 1.25p per share to raise gross proceeds of £127,500 (US$175,886) No further shares options were issued in the year, however a combination of warrants were issued in relation to fund raises and debt renegotiation. Annual Report 2021 73 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 74 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 Further shares issued during the year was as follows: Date Shares Price (p) Prices (¢) 1 January 2021 1,040,050,920 Shares issued @ .25p 11/01/2021 167,843,138 Shares issued @ .25p 01/04/2021 11,473,929 Shares issued @ .25p 16/04/2021 74,200,000 Shares issued @ .25p 19/04/2021 5,245,098 Shares issued @ .25p 30/09/2021 10,200,000 31 December 2021 1,309,013,085 0.51 0.75 0.30 0.70/0.75 1.25 0.65 1.04 0.41 0.97/1.04 1.72 26. SHARE PREMIUM ACCOUNT 31 December 2021 31 December 2020 Group Company US$ US$ Group US$ Company US$ 1 January Premium arising on issue of equity shares Warrants issued Transaction costs 64,961,905 813,207 (717,698) (80,171) 64,961,905 813,207 (717,698) (80,171) 64,817,662 467,935 (231,676) (92,016) 64,817,662 467,935 (231,676) (92,016) 31 December 64,977,243 64,977,243 64,961,905 64,961,905 (A) SHARE OPTIONS The Group has a share option scheme established to reward and incentivise the executive management team and staff for delivering share price growth. The share option scheme is administered by the remuneration committee. The expected life of the options is based on the expected time through to exercise and is not necessarily indicative of exercise patterns. Share options are valued using the stochastic Black-Scholes model. The inputs to the model are the market price at date of grant, the exercise price set out in the option agreement, expected life, the risk-free rate of return and the expected volatility. A 10-year gilt rate is used as an equivalent to risk free rate and the expected volatility was determined with reference to the Company’s share price. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The cost of options is amortised to the statement of comprehensive income over the service period of the option. Details of the tranches of share options outstanding at the year end are as follows: WAEP* Number (¢) Share Options 31/12/2021 31/12/2021 Outstanding as at 1 January Granted during the year Forfeited during the period Cancelled during the year Options outstanding as at 31 December Exercisable at 31 December *Weighted Average Exercise Price (WAEP) 95,491,107 35,750,000 (8,236,897) (2,750,000) 120,254,120 41,195,714 5 1 4 1 3 3 Number 31/12/2020 102,218,073 – (6,726,966) – 95,491,107 41,010,000 WAEP* (¢) 31/12/2020 5 – 7 – 5 3 The fair values on the grant date and each reporting date were determined using the Black Scholes option pricing model. The following key assumptions were used in determining the derivative’s fair value at the reporting date: 74 Echo Energy plc 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 75 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 The weighted average outstanding life of vested share options is 1.1 years. The weighted average price for outstanding options ranges between 0.6¢ and 103¢ (0.4p and 75.0p). The outstanding share options are not subject to any share performance-related vesting conditions, but vesting is conditional upon continuity of service. The Group recognises total expenses of US$193,662 (2020: US$334,319) related to equity-settled, are share-based payment transactions during the year. A deferred taxation asset has not been recognised in relation to the charge for share-based payments due to the availability of tax losses to be carried forward. (B) WARRANTS OVER ORDINARY SHARES The Company issued warrants over ordinary shares to subscribers of new ordinary shares and as fundraising commission in respect of debt fundraisings completed during the years to 31 December 2021. Details of the tranches of warrants outstanding at the year-end are as follows: WAEP* Number (¢) Warrants 2021 2021 Outstanding as at 1 January Granted during the year Exercised during the year Outstanding as at 31 December 460,222,521 170,939,567 (79,445,098) 551,716,990 10 1 4 9 Number 2020 355,951,093 104,271,428 – 460,222,521 WAEP* (¢) 2020 14 1 – 10 *Weighted Average Exercise Price (WAEP) Warrants values are calculated using the Black Scholes option pricing model using the following inputs. Warrants 11 January 2021 10 June 2021 30 September 2021 Market stock price 0.58p 0.765p 0.6p Option strike price 0.7p 0.7p 0.7p Volatility 99.19% 106.37% 105.89% Expiration of the option 2 years 2 years 1 year Risk-free rate –0.112% 0.068% –0.414% The weighted average price for outstanding warrants as at 31 December 2021 ranges between 1.0¢ and 22.2¢ (0.7p and 16.2p). The residual weighted average contractual life for the warrants is 1.5 years. Annual Report 2021 75 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 76 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 27. LOANS DUE IN OVER ONE YEAR Five-year secured bonds Additional net funding Other loans Total 31 December 2021 US$ (21,385,663) (6,059,126) (1,323,591) 31 December 2020 US$ (22,167,419) (5,766,544) (1,640,693) (28,768,380) (29,574,656) Balance a at 31 December Repayment Amortised Exchange 31 December 2020 of Principle finance charges adjustments 2021 US$ US$ US$ US$ US$ €20 million five-year secured bonds 22,836,146 – 2,542,262 (3,483,241) 21,895,166 €5 million Lombard Odier secured convertible debt facility 5,987,801 – 632,564 (433,223) 6,187,142 Other loans 1,640,692 (384,786) 219,821 (152,136) 1,323,591 Loan fees (668,726) – 153,014 6,209 (509,503) (128,016) Incremental loan fees (221,257) – 81,087 12,154 Total 29,574,656 (384,786) 3,628,748 (4,053,237) 28,768,380 €20 million five-year secured bonds Debt Renegotiation Announced on the 15th August 2022 The company currently seeks Noteholder approval for the restructuring of the Notes to: (a) convert 50% of Notes and accrued interest into new Ordinary Shares at a conversion price of 0.45 pence per Ordinary Share; (b) extend the term of the remaining Notes to 2032; (c) suspend cash interest payments on remaining Notes for two years; and (d) reduce Note coupon to 2% (from 8%) for the remainder of the Note term. The Company intends to propose a fee payable to Noteholders on the same terms as set out under the LO Agreement and further details of the Note Restructuring will be announced, as appropriate, in due course. The Note Restructuring will be subject to the approval of Noteholders and to Echo shareholder approval. €5 million Lombard Odier secured convertible debt facility Debt Renegotiation Announced on the 15th August 2022 The terms of the LO Facility (as amended) were first announced by the Company on 21 October 2019 and as at 31 October 2022, the total outstanding debt and accrued interest of the LO Facility will amount to EUR 6,225,256. Under the LO Agreement, LO has conditionally agreed to the conversion in full of the principal of the LO Facility together with accrued interest on the LO Facility for the periods Q1 2020 to Q2 2021 inclusive into new Ordinary Shares in the Company at a conversion price of 0.45 pence per new Ordinary Share, subject to, inter alia, the approval of Echo shareholders and the Note Restructuring becoming effective. In addition, LO has conditionally agreed pursuant to the LO Agreement to the conversion of the accrued interest on the Facility for periods Q3 2021 to 31 October 2022 inclusive to new Ordinary Shares at a conversion price of 0.25 pence per new Ordinary Share. The accrued interest to 31 October 2022 will amount to EUR 625,803. Accordingly, the Company has conditionally agreed to issue to LO 213,949,943 LO Interest Conversion Shares. 76 Echo Energy plc 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 77 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 Other loans Debt Renegotiation Announced on the 1st October 2021 Maturity extended by 2 years such that the then outstanding remaining principal and accumulated accrued interest will mature on 8 March 2024 (“Maturity”) following four quarterly cash prepayments of £25,000 commencing on 31 March 2023. Interest reduction such that all Loan interest will be accrued and paid on Maturity at a reduced rate of 8% per annum from Amendment (previously 12% per annum) on outstanding principal on a non- compounding basis. 15% of the remaining £850,000 Loan principal, representing £127,500, has now been converted into 10,200,000 new Echo ordinary shares (the “Conversion Shares”) at an effective issue price of 1.25p – a premium of 108% to the closing mid market price. In connection with the Amendment, the Lender has been issued with 3,096,429 warrants to subscribe for new ordinary shares in the Company at a price of 0.7 pence per new ordinary share, exercisable from the date of grant and with an expiry date of 30 September 2022. MATURITY ANALYSIS Contractual undiscounted cash flows: Amounts due within one year Amounts due between one and five years Amounts due over five years 28. PROVISIONS Assessment of decommissioning provision 31 December 2021 US$ – 28,768,380 – 31 December 2020 US$ 2,293,290 35,628,948 – 28,768,380 37,922,238 31 December 2021 US$ 3,039,911 3,039,911 31 December 2020 US$ 2,979,956 2,979,956 Provision has been made for the discounted future cost of abandoning wells and restoring sites to a condition acceptable to the relevant authorities. The provisions are based on Operators’ internal estimate at 31 December 2021, and the movement from the prior year relates to the unwinding of the provision. Assumptions are based on the current experience from decommissioning wells. The estimates are reviewed regularly to take account of any material changes to the assumptions. Actual decommissioning costs will ultimately depend upon future costs for decommissioning which will reflect market conditions and regulations at that time. Furthermore, the timing of decommissioning is uncertain and is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend on factors such as future oil and gas prices, which are inherently uncertain. Annual Report 2021 77 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 78 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 29. RELATED PARTY TRANSACTIONS INTER-GROUP BALANCES In order for individual subsidiary companies to carry out the objectives of the Group, amounts are loaned to them on an unsecured basis. At the year end the following amounts were outstanding: Amounts owed to Echo Energy plc from: Echo Energy Bolivia Op Co 1 Eco Energy CDL Op Limited Eco Energy TA Op Limited 31 December 2021 US$ 31 December 2020 US$ 551,500 1,627,623 9,634,402 380,941 2,488,765 9,634,401 11,813,525 12,504,108 Lombard Odier is a significant shareholder in the Company. Please refer to Note 27 for details of the debt transactions which relate to these counterparties. Phoenix Global Resources plc from whom Echo acquired the SCS assets in late 2019 is also a significant shareholder in the Company following the issue by the Company of consideration shares to Phoenix Global Resources plc in respect of the Company’s acquisition of the SCS assets. 30. CONTROLLING PARTY The directors do not consider there to be a controlling party. 31. COMMITMENTS Echo has no committed expenditure in relation to capital projects in the SCS asset at the end of 31 December 2021. It will continue to pay operational costs as cash called by the Joint venture partner. 32. SUBSEQUENT EVENTS On 14 January 2022, the Company announced that it has raised gross proceeds of £660,000 through the issue of 143,478,260 new ordinary shares in the Company (the "Subscription Shares") at 0.46 pence per share (the "Subscription Price") to new investors pursuant to a direct subscription with the Company (the "Subscription"), conditional on admission of the Subscription Shares to trading on AIM. In connection with the Subscription, the Company has issued 65,217,391 warrants to subscribe for new Ordinary Shares exercisable at 0.65 pence per new Ordinary Share at any time until the second anniversary of issue (the "First Subscription Warrants") subject to admission of the Subscription Shares to trading on AIM. In addition, the Company has also conditionally agreed to issue a further 78,260,869 warrants to subscribe for new Ordinary Shares exercisable at 0.65 pence per new Ordinary Share at any time until the second anniversary of issue (the "Second Subscription Warrants") subject to the receipt of the necessary share issuance authorities at the Company's 2022 annual general meeting. The Subscription Shares will, when issued, rank pari passu in all respects with the Company's existing ordinary shares of 0.25 pence each ("Ordinary Shares") and application will be made for the Subscription Shares to be admitted to trading on AIM ("Admission"). Admission is expected to take place on or around 8.00 a.m. on 24 January 2022. The net proceeds of the Subscription of approximately £600,000 will add to the Company's working capital resources and be applied towards the formation of the solar project Joint Venture to construct and operate the Project. As at 31 December 2021 the Company's unaudited cash balance, excluding Echo's 70% entitlement to cash balances held by the Santa Cruz Sur joint venture in Argentina, was approximately US$520,000. 78 Echo Energy plc 264206 Echo Annual Report pp68-pp79 NOTES 18-32.qxp 06/09/2022 10:39 Page 79 Financial Statements Notes to the Financial Statements (continued) Year ended 31 December 2021 Following Admission, the Company's issued share capital will comprise 1,452,491,345 Ordinary Shares. Each Ordinary Share has one voting right and no shares are held in treasury and this figure may be used by shareholders in the Company as the denominator for the calculation by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules. August 13th 2022 Proposed Debt Restructuring The Company announced a proposed restructuring of its existing debts, pursuant to which the Company has entered into a conditional agreement with Lombard Odier Asset Management (Europe) Limited* ("LO") to, inter alia, convert in full the Company's existing EUR 5.0m 8.0% secured convertible debt facility with LO (the "LO Facility") into new Ordinary Shares at a price of 0.45p per share representing a substantial premium of 75.1% to the closing mid-market price per Ordinary Share of 0.257p on 11 August 2022 (the "LO Agreement"). Highlights • Proposed conversion of an aggregate of €15.0 million of existing debt principal, together with accrued interest thereon, excluding the LO Interest Conversion shares, into new Ordinary Shares at a price of 0.45p representing a 75.1% premium to the closing share price on 11 August 2022. • • Proposed reduction of remaining Note coupon from 8% to 2% with suspension of further cash interest payments for two years. Remaining Note maturity extended to 2032 If completed the Proposed Debt Restructuring will comprehensively restructure and strengthen the Company's balance sheet, transforming the balance of value in favour of equity over debt, enabling the Company to seek to accelerate its growth strategy August 15th 2022 Result of Placing The Placing was oversubscribed and has raised £0.6 million (before expenses) for the Company through the placing of 242,000,000 Placing Shares at the Placing Price of 0.25 pence per share. Subject to shareholder approval, in connection with the Placing, for every one Placing Share subscribed for, the Company intends to grant 1.07 Warrants to the Placees. No fractional part of a Warrant will be issued and fractional entitlements will be rounded down to the nearest whole number. If granted, each Warrant will give the holder the right to subscribe for one new Ordinary Share at a price of 0.25 pence per Ordinary Share for a period of two years from the date of issue. In addition, as set out in the Launch Announcement, under the LO Agreement, LO has agreed to the conversion of accrued interest on the LO Facility for the periods Q3 2021 to 31 October 2022 inclusive to new Ordinary Shares at a conversion price of 0.25 pence per new Ordinary Share ("LO Interest Conversion"). The accrued interest to 31 October 2022 will amount to EUR 625,803.58. Accordingly, the Company has agreed to issue to LO 213,949,943 LO Interest Conversion Shares. Under the same agreement, LO has conditionally agreed to conversion in full of the principal of the LO Facility, however this is contingent on obtaining Noteholder approval for the Notes Restructuring and Shareholder approval of authorities to issue the new Ordinary Shares required on conversion. Further details of the Proposed Debt Restructuring are set out in the Launch Announcement. Annual Report 2021 79 264206 Echo Annual Report pp80-pp82 SHAREHOLDER.qxp 06/09/2022 10:40 Page 80 Financial Statements Shareholder Information AIM Rule 26 information Dealing Information Country of incorporation England & Wales (Registered Number 5483127) Main country of operation Argentina Trading information Shares in Echo Energy plc are only traded on AIM, a market operated by the London Stock Exchange plc, and the Company has not applied or agreed to have any of its securities admitted or traded to any other exchange or platform. There are no restrictions on the transfer of ordinary shares. Address Echo Energy plc 85 Great Portland Street First Floor London W1W 7LT Nominated Adviser Company Secretary Cenkos Securities PLC Amba Secretaries Limited 6 7 8 Tokenhouse Yard 400 Thames Valley Park Drive London Reading, Berkshire EC2R 7AS RG6 1PT Brokers Solicitors Arden Partners plc Fieldfisher 125 Old Broad Street Riverbank House London London EC2N 1ARv W1S 4JU Auditors Registrars Crowe U.K. LLP Link Group 55 Ludgate Hill 10th Floor London Central Square EC4M 7JW 29 Wellington Street Leeds LS1 4DL 80 Echo Energy plc 264206 Echo Annual Report pp80-pp82 SHAREHOLDER.qxp 06/09/2022 10:40 Page 81 Financial Statements Glossary AAPG American Association of Petroleum Geologists AIM Alternative Investment Market API American Petroleum Institute AVO amplitude versus offset bbl(s) barrel(s) bbl(s)/d barrel(s) per day Bcf billion cubic feet Board the Board of Directors of Echo Energy plc boe barrel(s) of oil equivalent boepd barrel(s) of oil equivalent per day bopd barrels(s) of oil per day capex capital expenditure CDL Fracción C, Fracción D, and laguna De Los Capones licences CGC Compañia General de Combustibles S.A. CGU Cash Generating Unit Company Echo Energy plc E&E exploration and evaluation E&P exploration and production FRC Financial Reporting Council G&A general and administration expenses GIIP gas initially in place Group the Company and its subsidiaries HSE health, safety and environment IAPG International Association of Petroleum Geologists IAS International Accounting Standards IFRS UK-adopted international accounting standards IMF-WEO International Monetary Fund – World Economic Outlook ISAs (UK) International Standards on Auditing JEA joint evaluation agreement JV joint venture KPI key performance indicators LNG liquid natural gas MMbbls million barrels MMBOE million barrels of oil equivalent mmbtu million British thermal units MMscf/d million standard cubic feet per day NAV net asset value NOMAD nominated advisor OPEC+ OPEC countries and high exporting non-members like Russia and Kazakhstan opex operations expenditure PETSA Petrolera El Trebol S.A. Pmean mean case ppm parts per million pulling job low cost well intervention to restart/improve production P10 high case (value with a 10% chance of being equalled or exceeded) P50 moderate case (value with a 50% chance of being equalled or exceeded) P90 low case (value with a 90% chance of being equalled or exceeded) QCA Code Quoted Companies Alliance Corporate Governance Code SCS Santa Cruz Sur SPE Society of Petroleum Engineers Annual Report 2021 81 264206 Echo Annual Report pp80-pp82 SHAREHOLDER.qxp 06/09/2022 10:40 Page 82 Financial Statements Glossary (continued) SPEE Society of Petroleum Evaluation Engineers spud to commence drilling a well Tcf trillion cubic feet TD total depth TVD true vertical depth TEA technical evaluation agreement UGA UGA Seismic S.A. WAEP Weighted Average Exercise Price Workover an invasive well intervention involving a rig WPC World Petroleum Council WTI West Texas Intermediary 1C low estimate of contingent resources 2C best estimate of contingent resources 3C high estimate of contingent resources 2P proven plus probable $ / US $ United States Dollar Echo Energy plc Registered office 85 Great Portland Street First Floor London, W1W 7LT info@echoenergyplc.com www.echoenergyplc.com Tel: +44 (0)20 7190 9930 82 Echo Energy plc 264206 Echo Annual Report pp80-pp82 SHAREHOLDER.qxp 06/09/2022 10:40 Page 84 Perivan 264206 

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