TORONTO, Jan. 19 /CNW/ - - Echo Energy Canada Inc. ("Echo Energy")
provides the following update and clarification on certain aspects of the
business and affairs of Echo Energy.
Bank Credit Facility Developments
Following a meeting on January 12, 2009 (the "January 12, 2009 Meeting")
between representatives of Echo Energy's Canadian chartered bank, (the "Bank")
and the President and a director of Echo Energy, the Bank notified Echo Energy
that it has moved the management of Echo Energy's credit facility with the
Bank to the Bank's Financial Restructuring Group. The Bank stated that this
move arose from the Bank's continued concern over Echo Energy's Reserves.
There is currently $5,400,000 owing by Echo Energy to the Bank under the
current demand credit facility, which amount bears interest at the Bank's
prime rate plus a maximum of 1.5% per annum.
At the January 12, 2009 Meeting, the Bank also advised that it had, on
February 6, 2008, notified the former CFO and the former President of Echo
Energy that the Bank had obtained an independent gas production estimate and
forecast (the "Bank's Independent Production Forecast") for Echo Energy (the
"February 2008 Notification"). The Bank noted in the February 2008
Notification that the gas production estimates for 2005, 2006, and 2007 set
out in the Bank's Independent Production Forecast, (i) were significantly
lower than the gas production estimates for those years set out in Echo
Energy's gas reserves reports prepared by Echo Energy's contracted independent
Petroleum Engineering Firm (the "Prior Reserve Reports") and (ii) were much
closer to Echo Energy's actual gas production results in those years than the
production estimates for those years set out in the Prior Reserves Reports.
The Bank's February 2008 Notification also stated that, based upon the gas
production estimates set out in the Bank's Independent Production Forecast,
the Bank required within 60 days of the notification a mandatory $1.3 million
prepayment of the principal balance then due ($6.4 million) under Echo
Energy's credit facility.
The Bank's Independent Production Forecast was not generally disclosed to
Echo Energy's Board of Directors, and was not discovered by Echo Energy's
current management until the January 12, 2009 Meeting.
In June, 2008, and following the Bank's February 2008 Notification, Echo
Energy made a $500,000 payment to the Bank in reduction of the principal
amount of the credit facility. In September, 2008, the Bank and Echo Energy
entered into a new credit facility agreement which among other things
converted the existing credit facility from a line of credit into a demand
loan facility and required monthly principal payments of $50,000. It is now
clear that these events were as a direct result of the issues raised by the
Bank in the February 2008 Notification, including the significant
discrepancies between the Bank's Independent Production Forecast and Echo
Energy's Prior Reserves Reports.
Echo Energy's current senior management is working closely with the Bank
to discover and resolve all of the Bank's outstanding issues in respect of
Echo Energy's credit facility with the Bank.
Prior Reserve Reports
The Echo Energy's Prior Reserves Reports have been previously challenged
by several members of Echo Energy's board of directors, namely Salvatore Fuda,
Joseph Fuda and Oliver Nepomuceno. Among other things, Salvatore Fuda obtained
in February, 2008, in the context of litigation with former management and
directors of Echo Energy, a report from Giffin Koerth, an independent forensic
engineering firm, which among other things stated that, "...there is a
significant discrepancy between production rates and reported reserves as well
as a significant discrepancy between projected and actual production figures",
and which otherwise raised significant doubts about the Prior Reserves
Appointment of Independent Petroleum Engineers
Echo Energy has now retained a leading Calgary petroleum engineering firm
and has commissioned them to independently prepare a report on Echo Energy's
gas reserves and cash flow evaluation for it's annual oil and gas filing (Form
51-101F1) for its year ended December 31, 2008.
Establishment of New Reserves Committee
The Board has also established a Reserves Committee comprised of two
independent directors, namely Andrew Brandt and Thomas Sheppard, along with an
independent advisor to, among other things, (i) oversee the preparation of
Echo Energy's annual oil and gas filings for the year ended December 31, 2008.
and (ii) investigate and report to the board of directors on the apparent lack
of disclosure by Echo energy's then management of the February 2008
Notification, and the Bank's Independent Production Report, to all of the
members of Echo Energy's board of directors, and its shareholders.
About Echo Energy
Echo Energy is a publicly traded energy company with revenue producing
natural gas production operations near Port Burwell Ontario, Canada on the
shores of Lake Erie.
The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this release.
Certain statements in this press release are forward-looking statements
including specifically forward-looking statements relating to management's
approach to operations, estimates of future sales, production and deliveries,
business plans for drilling and development, estimated amounts and timing of
capital expenditures, anticipated operating costs, royalty rates, cash flows,
transportation plans and capacity, anticipated access to infrastructure or
other expectations, beliefs, plans, goals, objectives, assumptions and
statements about future events or performance. The reader is cautioned that
the assumptions used in the preparation of such information, although
considered reasonable by Echo at the time of preparation, may prove to be
incorrect. Actual results achieved during the forecast period will vary from
the information provided herein as a result of numerous known and unknown
risks and uncertainties and other factors. Such factors include, but are not
limited to: general economic, market and business conditions; industry
capacity; competitive action by other companies; fluctuations in oil and gas
prices; the results of exploration and development drilling and related
activities; the uncertainty of estimates and projections relating to
productions, costs and expenses; uncertainties as to the availability and cost
of financing; fluctuations in currency exchange rates; the imprecision in
reserve estimates; risks associated with oil and gas operations, such as
operational risks in exploring for, developing and producing crude oil and
natural gas; risks and uncertainties involving geology of oil and gas
deposits; the weather in the Company's area of operations; the ability of
suppliers to meet commitments; changes in environmental and other regulations;
actions by governmental authorities including changes in laws and increases in
taxes; decisions or approvals of administrative tribunals; the effect of acts
of, or actions against international terrorism; and other factors, many of
which are beyond the control of Echo. There is no representation by Echo that
the actual results achieved during the forecast period will be the same in
whole or in part as those forecasts.
For further information:
For further information: Mr. Charles Edey, Echo Energy Canada Inc.,
(416) 596-1848, email@example.com, http://www.echoenergycanada.com