Prinos field rescue effort now at the finance ministry

A government effort to rescue offshore Prinos, Greece’s only producing field, in the north, is now in the hands of the finance ministry following preceding work at the energy ministry, sources have informed.

The field, like the wider upstream industry, has been impacted by the pandemic and plunge in oil prices.

Deputy finance minister Theodoros Skylakakis is now handling the Prinos rescue case following the transfer of a related file from the energy ministry.

According to the sources, three scenarios are being considered. A financing plan through a loan with Greek State guarantees appears to be the top priority. A second option entails the utilization of an alternate form of state aid. The other consideration involves the Greek State’s equity participation in the Prinos field’s license holder, Energean Oil & Gas.

The European Commission will need to offer its approval to any of these options as they all represent forms of state aid.

Energy ministry sources have avoided offering details but are confident a solution is in the making.

Rescue talks for Prinos, Greece’s only producing field, making progress

Talks between Energean Oil & Gas and officials at the energy and economy ministries for a solution to rescue offshore Prinos, Greece’s only producing field in the north, are making progress, sources have informed.

Heightened Turkish provocations in the Aegean Sea over the past few days – the neighboring country sent a survey vessel into Greece’s EEZ – and greater US presence in the wider southeast Mediterranean region, are two developments that have injected further urgency into the Prinos field rescue talks.

The east Mediterranean is at the core of geopolitical developments that promise to create new political and energy sector conditions.

US oil corporation Chevron, America’s second-biggest energy group, has joined fellow American upstream giant ExxonMobil in the east Mediterranean with a five billion-dollar acquisition of Noble Energy.

This takeover by the California-based buyer adds to the Chevron portfolio the gigantic Leviathan gas field in Israel’s EEZ, as well as the Aphrodite gas field, situated within the Cypriot EEZ and estimated to hold 4.5 trillion cubic feet.

It also offers Chevron prospective roles in the East Med pipeline, to supply Europe via the Leviathan field, and Egypt’s LNG infrastructure, all elevating the petroleum group into a dominant regional player.

Israel and Cyprus recently ratified the East Med agreement, as has Greece, while Italy appears to be examining the prospect.

In another regional development, the Total-ENI-ELPE consortium is preparing to conduct seismic surveys at licenses south and southwest of Crete, and an environmental study southeast of Crete has been approved by Greek authorities. Also, oil majors with interests in Cyprus’ EEZ have planned a series of drilling operations for 2021.

Meanwhile, Turkey, trespassing into both Greek and Cypriot EEZ waters, consistently cites a memorandum recently signed with Libya as support for its actions, as well as its refusal to sign the UN’s International Law of the Sea treaty, strongly disagreeing with an article that gives EEZ and continental shelf rights to island areas.

Greek government officials are well aware that closure of the Prinos field amid such precarious conditions would lead to major consequences, not just economic and social, as would be the case under normal conditions, but also geopolitical.

Ministry still examining Energean Prinos rescue plan

The energy ministry is continuing its close examination of a business plan delivered by Energean Oil & Gas for the rescue of its Prinos offshore oil field in northern Greece, requiring investments totaling 75 million euros in 2020 and 2021 if the venture is to be kept afloat following the negative impact of  lower oil prices and the pandemic, according to the company.

“The ministry is continuing to examine the data provided by the company as well as the business plan. They have determined the size of the necessary funds at 75 million euros but we, too, need to verify this,” an energy ministry official informed.

Early signs of a petroleum market rebound are encouraging but this does not mean that the market has fully recovered, the official added.

The ministry acknowledges the potential damage closure of the oil field would have on the local economy and, as a result, is looking for solutions, the official added.

Energean officials have stressed that time is running out for the oil field’s rescue, urgently needing a solution to remain viable.

The government will need to utilize the EU’s temporary state aid framework to ensure financial support for the Prinos oil field, Greece’s only producing field at present, and its necessary investments.

Energean: Karish pipe laying, subsea systems completed

Energean, the oil and gas producer focused on the Mediterranean, has announced that partner TechnipFMC has successfully completed, on time, the laying of the gas sales pipeline and the main deep-water installations of the subsea production systems for its Karish and Tanin Development project, offshore Israel, describing the step as a key milestone.

Pipelay vessel Solitaire completed the core installation of a 30’’ and 24’’ pipeline of 90.3 km length, at depths of up to 1,700 metres, Energean’s announcement noted. The full pipeline installation, including a significant Tie In Manifold structure (TIM-Water Depth 72m) and the pre-commissioning program, is expected to be completed in 4Q 2020, well within the project schedule, it added.

The pipeline was laid at an average rate, excluding the beach pull, of 4,578 meters per day which represents a world-class performance by TechnipFMC, Energean explained.

The construction support vessel Normand Cutter completed the installation of the production manifold and subsea isolation valve foundations and structures. The Installation of the three sets of risers (2×10” and 1×16”) that will connect the three producing wells to the FPSO and then to the Gas Sales Pipeline is expected to commence in 4Q 2020 and be completed in 1Q 2021, according to the statement.

More than 400 personnel have worked on these offshore operations, during which zero Lost Time Injuries occurred, Energean noted, adding the overall physical progress of the Karish Development project now stands at c. 80% complete.

On behalf of Energean, Vincent Reboul Salze, Project Director – Karish EPCIC, stated: “We are very satisfied with the current installation performance on the subsea scope until now. The East Med in spring has proven to be a favorable environment and the pipelay performance has been remarkable on all aspects.”

Crisis’ impact on Prinos looked at, Energean up against time

The energy ministry has turned to specialized consulting firm assistance for a detailed analysis on the pandemic’s financial impact on the Prinos offshore oil field in northern Greece, the country’s only producing field at present.

The energy ministry’s secretary-general Alexandra Sdoukou, handling the matter on behalf of the ministry, is currently holding talks on a daily basis with officials at Energean Oil & Gas, the field’s license holder.

The company wants emergency government support amid the extraordinary market conditions, energypress sources have informed.

The two sides are believed to be closely examining related data to determine the extent of the financial damage, for this project, due to the plunge in international oil prices, prompted by lower demand amid the widespread lockdown.

Energean Oil & Gas has invested 50 million euros between September, 2019 and May to keep production flowing at Prinos, an aging field, sources noted.

Sustainability is becoming a growing challenge at this venture, employing a workforce of approximately 270 employees, market authorities have noted. A cutdown in operating costs is seen as essential.

A cash injection for “Epsilon”, a fresher field in the area also licensed to Energean, could be made as a support for the company. Another option may entail financial support by the Greek State in exchange for a stake in Energean. Alternatively, state guarantees could be offered for a bank loan.

The finance ministry is also expected to become involved in the Prinos rescue effort. Much work lies ahead before any decisions can be reached. These will require European Commission approval.

Gov’t examining pandemic’s impact on Prinos oil field

The pandemic’s financial impact on offshore Prinos, Greece’s only producing oil field, south of Kavala, is being closely examined by government officials and specialized advisors, energypress sources have informed.

Conclusions have yet to be reached on the extent of the financial damage to the Prinos oil field, licensed to Energean Oil & Gas, but it appears the government will seek financial support for this venture through the European Commission’s Directorate-General for Competition.

Though it is still considered too early for any decisions, the government has apparently already recognized the damage inflicted on Prinos by the pandemic and subsequent drop in demand and oil prices.

The Greek government has pledged production continuity and job protection for Prinos, as was recently highlighted by deputy energy minister Gerassimos Thomas.

Limits have been exhausted to keep Prinos operating, Energean Oil & Gas officials have pointed out, stressing the cost burden on the company.

 

Gov’t committed to Prinos oil field sustainability, deputy tells

The government is committed to supporting the sustainability of the offshore Prinos oil field in the country’s north, Greece’s only producing unit, heavily impacted by the coronavirus pandemic’s effects on the global economy, including record-low oil prices, deputy energy minister Gerasimos Thomas pledged last night in response to questions raised by MPs of the leftist Syriza party and KKE, the Greek Communist Party.

“We are committed to the oil field’s uninterrupted production, an effort through which jobs will be protected,” Thomas stated.

The government is currently negotiating with Energean Oil & Gas, license holder and operator of the offshore field, south of Kavala, for a solid solution, the deputy minister also informed.

A detailed announcement will be made once these talks have been completed and the government has shaped its proposals, the deputy minister told parliament after Syriza MP Soultana Eleftheriadou criticized him for being too vague with his remarks.

Thomas made note of the European Commission’s new framework for state aid as one of the solutions being worked on by the government. This framework provides flexibility, he pointed out.

The deputy minister also made reference to a government support plan for the Kavala region that includes the development of an underground gas storage facility at a virtually depleted offshore gas field south of Kavala, and an upgrade of the city’s port.

Energean’s Competent Persons Report for Karish North completed

Energean Oil and Gas, the oil and gas producer focused on the Mediterranean, has announced the completion of an independent Competent Persons Report by DeGolyer and MacNaughton (D&M) on the Karish North Field, offshore Israel, and submission of an addendum to the Field Development Plan (FDP) to the State of Israel’s Ministry of Energy for Karish North.

Highlights

  • Karish North certified to contain gross 2C resources of 1.2 Tcf (33.7 bcm) of gas and 39 million barrels of liquids (mmbbls). This represents a total of 250 million barrels of oil equivalent (mmboe), of which 84% is gas. 
  • Delivers a 32% uplift to Energean’s previous Karish North resource best estimate, including approximately 0.3Tcf (9 bcm) of gas plus 5mmbbls of liquids, a total of approximately 60 mmboe (of which 90% is gas).
  • Total gross 2P + 2C across the Karish, Tanin and Karish North  is now estimated to be almost 3.5 Tcf (99 bcm) of gas plus 82 mmbbls of liquids, a total of  698 mmboe (88% of which is gas).
  • 0.6bcm/yr contingent Gas Sales and Purchase Agreements (GSPAs) will now be converted to firm; firm GSPAs will now deliver approximately 5.6bcm/yr of gas sales on plateau, with FPSO capacity of 8bcm/yr.
  • Energean continues to actively market additional gas volumes to secure additional long-term cash flows that are largely insulated from global commodity price fluctuations.
  • Energean has also submitted an addendum to the Karish and Tanin FDP, to cover the Karish North development, envisaging a production capacity of up to 300mmscf/d (approximately 3 bcm/yr), initially from one well.
  • Karish North Final Investment Decision (FID) expected during 2H 2020 with first gas in 2022.

Mathios Rigas, CEO of Energean said:

“I am delighted that 2C resources atKarish North are some 32% ahead of where we had initially expected. This has enabled us not only to convert 0.6bcm/yr of contingent contracts into firm, but also to continue targeting additional gas sales opportunities that will be incremental to the 5.6bcm/yr of firm gas sales that we now expect to deliver on plateau.We are very pleased to be developing a world-class gas resource of 700 millionboe and look forward to more gas discoveries in our acreage in Israel and the wider Eastern Med region.” 

Details of D&M CPR

Reserves & Resources

Following a full analysis of the results of both the Karish North discovery well and the side-track, D&M has certified that the Karish North field contains gross 2C contingent resources of 1.2Tcf (33.7 Bcm) of gas plus 39.4 million barrels of liquids (Energean 70%), a total of approximately 250mmboe. This represents a significant uplift of 0.3 Tcf (8.5 Bcm) of gas plus 5.4 million barrels of liquids (approximately 60mmboe) to Energean’s previous best estimate of Karish North volumes. Best estimate Gas Initially In Place (GIIP) is now 1.7Tcf (approximately 48 bcm).

Gross and working interest 1C, 2C and 3C are shown in the tables below.

In the CPR, Karish North resources are classified as contingent ahead of FID being taken on the project, which is expected during 2H 2020. Once FID has been taken resource volumes are expected to be reclassified as reserves, to the extent that they are underpinned by GSPAs.

D&M’s estimates are based on the results of the Karish North exploration and appraisal campaigns that were completed in 2019, coupled with an analysis of the recently re-processed and re-calibrated 3D seismic. The uplift in resource volumes largely results from the new conclusion that the Karish East structure is a part of the Karish North and Karish North-East structures, which were included in Energean’s original resource estimates. Following analysis of the re-processed and re-calibrated 3D seismic, Energean’s internal view is aligned with that of D&M, that Karish North, Karish North-East and Karish East form one structure.

Revised Gross Contingent Resource Volumes

Liquids

mmbbls

Sales Gas

Bcf

Sales Gas

Bcm

Total Oil Equivalent

mmboe

1C

21.4

642.7

18.2

135

2C

39.4

1,190.8

33.7

250

3C

55.6

1,701.7

48.2

357

Revised Working Interest Contingent Resource Volumes

Liquids

mmbbls

Sales Gas

Bcf

Sales Gas

Bcm

Total Oil Equivalent

mmboe

1C

15.0

449.9

12.7

95

2C

27.6

833.6

23.6

175

3C

38.9

1,191.2

33.9

250

Total, independently verified gross 2P reserves and 2C resources in the Karish and Tanin leases (Energean 70%) are now 3.5Tcf of gas (98.6 Bcm) and 82 million barrels of liquids, a total of approximately 698 million barrels of oil equivalent. Total gross recoverable 2P + 2C across theKarish and Tanin leases is presented in the following table.

Revised Gross 2P Reserve + 2C Resource Volumes

Liquids

mmbbls

Sales Gas

Bcf

Sales Gas

Bcm

Total Oil Equivalent

mmboe

Karish[1]

38.5

1,503.6

42.6

305

Karish North3

39.4

1,190.8

33.7

250

Tanin2

4.1

785.9

22.2

143

Total

82.0

3,480.3

98.6

698

Revised Working Interest 2P Reserves + 2C Resources

Liquids

mmbbls

Sales Gas

Bcf

Sales Gas

Bcm

Total Oil Equivalent

mmboe

Karish[2]

27.0

1052.5

29.8

213

Karish North3

27.6

833.6

23.6

175

Tanin2

2.9

550.1

15.5

100

Total

57.4

2436.2

69.0

489

Commercial & Financial Impact

Finalisation of the CPR results in the conversion of 0.6bcm/yr of conditional GSPAs to firm contracts. Energean Israel’s firm GSPAs now deliver sold volumes of 5.6bcm/yr on plateau. The CPR enables Energean to continue marketing its gas resources into the growing Israeli domestic market and key regional export markets, securing additional long-term cash flows that are largely insulated from global commodity price fluctuations.

Updated FDP

Energean has also submitted an addendum to the Karish and Tanin FDP, to cover theKarish North development, to the State of Israel’s Ministry of Energy Technical Department. Energean expects to take Final Investment Decision (FID) on the project in 2H 2020, with first gas expected during 2022. The FDP addendum envisages that two wells will be required to develop the greater Karish North structure. Phase 1 of the Karish North development will include the drilling of one well, tied back to the Energean Power FPSO, for the delivery of first gas in 2022. Phase 2 will include the drilling of a second production well around 2025, to optimise gas recoveries. The FDP allows for the production of up to 300mmscf/d through a dual flow line, which it is envisaged can be produced by a single well to start off with; Karish North reservoir properties are similar to those at Karish main. 

Energean is a London Premium Listed FTSE 250 and Tel Aviv 35 Listed E&P company with operations offshore Israel, Greece and the Adriatic. In March 2018, Energean took Final investment Decision on its flagship Karish and Tanin development, offshore Israel, which, following the discovery of Karish North, is estimated to contain approximately 700 million barrels of oil equivalent (Energean plc 70%), of which 88% is gas. Energean Israel’s firm Gas Sales and Purchase Agreements now deliver sold volumes of 5.6bcm/yr on plateau, providing sustainable, long-term cash flows that are underpinned by hard floor pricing and take-or-pay provisions.

Energean also has nine exploration licences offshore Israel, and a 25-year exploitation licence for the Katakolo offshore block in western Greece and additional exploration potential in its other licences in western Greece and Montenegro.

On 4 July 2019, Energean announced the conditional acquisition of Edison E&P for $750 million plus $100 million of contingent consideration. On 3 April 2020 it was announced that the acquisition agreement had been amended to exclude Edison E&P’s Algerian assets, accompanied by a reduction to the consideration of approximately $150 million. On 14 October 2019, Energean announced the conditional disposal of Edison E&P’s Norwegian and UK North Sea assets to Neptune Energy for $250 million plus $30 million of contingent consideration. These transactions are expected to close in 2020.

Greek upstream investments suspended, oil crisis hits hard

The current oil crisis, prompted by a Saudi-Russian price war and lower demand amid the coronavirus pandemic, comes as the latest setback for the upstream sector. The oil price slide, during which prices have plummeted to levels as low as 25 dollars per barrel, had added to the strain already felt by investors as a result of excessive bureaucracy in the Greek market.

Upstream players, troubled by the overall uncertainty, are believed to have suspended their investment plans despite a mild market rebound over the past few days, lifting oil prices to levels between 33 and 34 dollars per barrel.

Energean Oil & Gas’ Katakolo license off western Peloponnese and the Gulf of Patras license, co-owned by Hellenic Petroleum (ELPE) and Energean, rank as Greece’s two most mature upstream projects.

An environmental study for the Katakolo license has not yet been approved by the energy ministry. Even if it had, Energean would not move ahead with the venture under the existing market conditions. Current oil price levels would simply not cover investment costs.

Just before Christmas, investors behind the Gulf of Patras license were given an 18-month extension to begin drilling at this project, taking the date to June, 2021. Regional port facilities had been deemed insufficient by the consortium. All activity for this investment has also been suspended, sources informed.

Energean to utilize measures for crisis-hit Prinos field

Energean Oil & Gas, whose offshore Prinos oil field in the country’s north has been heavily impacted by the coronavirus pandemic’s effects on the global economy, including record-low oil prices, intends to utilize relief measures offered by the Greek government for various sectors, including the upstream industry.

The government’s relief measures, introduced to help enterprises weather the financial impact of the unprecedented coronavirus crisis, promise respite in a variety of forms, including tax payment delays, VAT discounts as well as employee allowances covering suspended work contracts.

Energean, which has invested tens of millions of euros to keep upstream  activities alive in Greece, now needs to reduce its Prinos operating costs and keep production flowing. A disruption of production and resumption at a latter date is not technically feasible. Prinos is Greece’s only producing oil field.

The oil price plunge has made big impact on the Prinos field, an old high-cost venture whose production costs are estimated at 21.5 dollars per barrel.

This specific field produces heavy crude of higher refining demands. Subsequently, Energean sells the unit’s output to BP at price levels that are between 7 and 8 dollars lower per barrel compared to Brent prices.

Production at Prinos is declining. Output peaked at 4,000 barrels per day in 2018 but fell to 3,300 in 2019 and is projected to slide further in 2020, officials noted.

Energean has cut back on investments at Prinos by 80 million dollars.

International crude prices plunged from 66 dollars to less than 25 dollars per barrel in the first quarter. Prices have not fallen so low since 2003.

 

Energean Oil & Gas continues strong growth trajectory in 2019

Energean Oil and Gas, the oil and gas producer focused on the Mediterranean, has announced its audited full-year results for the year ended 31 December 2019 (“FY 2019”). Having grown its reserve base at 39% year-on-year, Energean is now at its next transition point as the company begins converting this into cash flows and production, de-risking investment case and moving closer to the medium-term goal of paying a sustainable dividend, the company noted in a statement.  

Mathios Rigas, Chief Executive Officer, Energean Oil & Gas commented:

“Energean continued its strong growth trajectory in 2019, becoming firmly established as a leading, FTSE 250 E&P independent. 

“The COVID-19 pandemic and OPEC+ price war have put us into uncertain times, but we are well-placed to weather the challenges. Once the Edison E&P transaction is completed, around 70% of our production will be sold under long-term gas sales agreements that insulate our future revenues against oil price volatility. Following completion of the Edison E&P transaction, we will continue to own and operate the majority of our asset base, and are well-funded for all of our projects. This will ensure that we can respond quickly and appropriately to the macro environment and take the right decisions to protect our business and our shareholders, as demonstrated by the $155 million cut to our 2020 capex guidance. The crisis finds Energean well prepared with full discretion on our non-Israeli capex programme and a very strong balance sheet further strengthened only recently by a further $175 million committed funding for our Karish project, demonstrating the strength of our banking relationships and the commitment of our lenders to the project. 

“In the coming weeks, you will see our FPSO hull sailaway from China to Singapore, a key milestone in the delivery of first gas from Karish, which is on track for 1H 2021. During 2019 we completed the drilling of the three development wells of Karish, confirmed excellent productivity rates from the wells and made a new discovery (Karish North) in Israel that we intend to develop in 2021. We continued to gain market share in Israel securing additional long-term gas contracts and bringing us closer to our target to maximise capacity utilisation of our FPSO. We expect the Edison E&P transaction to close during 2020, which, based on the agreed locked-box date of 1 January 2019, allows us to benefit from the robust results delivered by the business during 2019, including $152 million of Free Cash Flow from the assets to be acquired. This, combined with the receivables recovered in Egypt, exclusion of the Algerian assets from the transaction perimeter and our onward disposal of the North Sea assets to Neptune Energy, contributes to a low effective purchase price.  

“Fully committed to lead also on the ESG front, Energean became the first E&P company globally to commit to net zero emissions by 2050, and we have a firm plan to reduce carbon intensity by 70% over the next three years. 

“I look forward to continuing to deliver positive momentum and sustainable growth to maximise value for all of our stakeholders”.  

Highlights

  • Karish was 72% physically complete at 31 December 2019 and remains on track to deliver first gas in 1H 2021.  Firm gas sales of 5.0 bcm/yr with a further 0.6 bcm/yr to be converted to a firm basis immediately on publication of a satisfactory Karish North CPR, expected at the end of March 2020.
  • Post-period end, two of the three Karish development wells successfully flowed during clean-up operations, confirming that each will be capable of delivering up to the design limit of 300 mmscf/d (c.3 bcm/yr). The third development well is currently in the clean-up phase and production performance is expected to be similar, confirming that the three wells will be able to produce to the 8 bcm/yr capacity of the FPSO.
  • Increased 2P reserves and 2C resources to 558 MMboe, representing a 39% year-on-year increase, before any contribution from the Edison E&P acquisition. Energean is at a transition point in its history, from which it will convert this growth in reserves to growth in production and cash flow.
  • 2019 average Working Interest production was 3.3 kbopd from the Prinos field. Cost of production was approximately $21.5 /bbl.
  • 2019 full year revenue  was $76 million. Adjusted EBITDAX was $36 million. Capital expenditure was $685 million.
  • Recognised a $71 million impairment charge on the Prinos area, reflecting a reduction in Energean’s oil price assumptions and a change in the Group’s Prinos field production forecast.
  • Energean retains significant liquidity. At 31 December 2019, Energean had cash and undrawn facilities of $834 million, excluding the undrawn $600 million acquisition bridge facility.
  • Became the first E&P company globally to commit to net zero emissions by 2050 and have a firm plan to reduce carbon intensity by 70% over the next three years.

 

Financial Summary 

 

FY 2019

FY 2018

 

$m

$m

Sales revenue

75.7

90.3

Cost of production ($/boe)

21.5

17.6

Operating profit / (loss)

(93.9)

23.8

Adjusted EBITDAX

35.6

52.4

Operating cash flow

36.3

62.7

Capital expenditure

685.1

494.6

Cash capital expenditure

954.6

293.6

Net debt (cash)

561.6

(75.6)

 Edison E&P Acquisition (subject to closing)

  • In July 2019, Energean agreed to acquire Edison E&P for $750 million of up-front consideration, adding immediate cash flows, EBITDAX and incremental growth opportunities. In October 2019, Energean agreed to sell Edison E&P’s UK and Norwegian subsidiaries to Neptune Energy for $250 million of up-front consideration.
  • Raised $265 million of equity and $600 million of bridge financing to fund the acquisition. The take-out of the bridge facility using a Reserve Based Lending (“RBL”) Facility of up to $525 million plus a bridge to disposal of up to $250 million for the UK and Norway Assets is progressing as expected.
  • Carve out of the Algerian assets from the transaction perimeter has been agreed in principle at an effective price of $155 million, based on an effective transaction date of 1 January 2019; the carve out remains subject to a signed, amended SPA.
  • Excluding Algeria, UK and Norwegian subsidiaries, Edison E&P delivered Free Cash Flow of $152 million during 2019.
  • Exclusive of Algeria and the UK and Norwegian subsidiaries, 2019 average Edison E&P working interest production was 56 kboe/d (64 kboe/d inclusive of these assets).
  • In January 2020, Edison E&P received the updated Environmental Impact Assessment (“EIA”) approval on the Cassiopea development, offshore Italy. The development is progressing as planned with first gas expected in early 2023. 

Outlook

  • Closing of the Edison E&P acquisition and subsequent sale of the UK and Norwegian subsidiaries to Neptune Energy will occur once the remaining conditions precedent to the transaction are fulfilled, which is expected during 2020. Energean is working with Edison E&P to fulfil these conditions precedent as soon as possible.
  • The Energean Power FPSO hull for the Karish gas project is expected to sailaway from China to Singapore in the coming weeks, and from Singapore to Israel around YE 2020.
  • Energean expects to issue an updated CPR for the successfully appraised Karish North discovery, around end 1Q 2020. An updated Field Development Plan (“FDP”) will be submitted to the Israeli government in 2Q 2020.
  • 2020 pro forma group production (including the assets to be acquired from Edison E&P) is expected to be between 42.5 – 50.0 kboe/d. Production in the first two months of 2020 averaged 52.4 kboe/d.
  • 2020 pro forma consolidated group capital expenditure (including the assets to be acquired from Edison E&P) of $840 million, an adjustment to the net consideration, the quantum of which is being agreed, on previous guidance following actions taken by management in the last two weeks. $580 million will be spent in Israel and $140 million is fully discretionary.
  • Decisions on FID at Katakolo (Greece) and Drill or Drop on both Ioannina (Greece) and Montenegro; outstanding financial commitment across these licences of $1 million.
  • Strategic review of the Prinos Area assets progressed; results expected in 2020. Capital expenditure on the assets, including Epsilon, will be minimised whilst the review is concluded. 

Operational Review 

Business Resilience and Current Response to the Macro Environment

Energean notes the recent fall in global oil prices and highlights its resilience to fluctuations in the global commodity prices. In addition, Energean has not currently suffered any delays due to the Coronavirus.

Defensive Reserve and Production Mix

  • 70% of Energean’s 2P reserve and 2C resource base will be gas once the Edison E&P transaction completes.
  • Once the Edison E&P transaction completes, around 70% of 2020 – 2025 expected production and 60% of Energean’s 2P and 2C reserve and resource base is gas that will be sold under Gas Sale & Purchase Agreements (“GSPAs”) that are largely insulated from fluctuations in the Brent price:
    • Israel gas is expected to account for 34% of 2020 – 2025 expected production and 49% of the reserve and resource base. Israel gas is sold subject to long-term GSPAs with some of the largest domestic independent power plant and industrial customers. All GSPAs have floor pricing and take-or-pay provisions, with no price no re-openers. One contract that has a limited amount of Brent exposure, representing less than 2% of current contracted gas sales.
    • Egypt gas[3] is expected to account for 37% of 2020 – 2025 expected production and 16% of the reserve and resource base. This gas is being sold to EGPC under the concession agreement. In Abu Qir, at prices of between $40 and $72 Brent, the gas price is $3.50 / mmBTU ($3.71/mcf). At $35/bbl, the gas price is $3.16 / mmBTU ($3.35/mcf). In NEA, the gas price has been agreed at a $4.60/mmBTU ($4.77/mcf). At prices between $40 and $25, the gas price gradually reduces to the floor price of $4.45/mmBTU.

Well-Funded for Current Activities and Working Capital

  • The Group retains significant liquidity and at 31 December 2019, Energean had cash of $354 million and undrawn facilities of $480 million, excluding the undrawn $600 million acquisition bridge facility. At 28 February 2020 (and after reflecting the project finance facility increase effected on 16 March 2020), Energean had undrawn facilities of $620 million, excluding the acquisition bridge facility.

Israel Project Finance Facility

  • In Israel, cash and undrawn facilities were US$555 million. On 16 March 2019, the project finance was increased to $1.45 billion, providing an additional $175 million of liquidity for the Karish project and future appraisal activity in Israel. The project finance facility aids the defensive nature of Energean’s funding position and is largely unaffected by volatility in the oil price because:
    • It is non-recourse to the parent;
    • There are no redeterminations for the duration of its tenor;
    • Interest payments and other project costs are covered by the sizing of the facility; and
    • Due to the nature of the GSPAs underpinning the Karish and Tanin projects’ revenues, fluctuations in the oil price do not materially affect the cashflow covenants in the facility.
  • Energean’s Karish development is being executed largely through a lump-sum, turnkey EPCIC contract with TechnipFMC, which helps to protect the Company against capital expenditure overruns.
  • Liquidated damages payable by the Company resulting from any potential delay to the project are broadly back-to-back with any liquidated damages payable to gas buyers that may arise from late delivery of first gas. This limits Energean’s commercial exposure to any future delay. 

Funding position ex-Israel

  • Energean’s business excluding Israel had cash and undrawn facilities of $279 million at 31 December 2019.

Flexibility over capital investment programme

  • The Prinos Basin and Katakolo assets are fully-owned and operated, providing absolute flexibility over discretionary capital expenditure.
  • Energean’s exploration assets have minimal outstanding firm commitments, again giving Energean flexibility over capital expenditure.
  • Energean’s 2020 capital expenditure guidance benefits from strong funding and its discretionary nature:
    • 2020 pro forma consolidated group (including the proposed acquisition of Edison E&P) capital expenditure has been reduced to $840 million, from $995 million. The majority of this decrease is due to i) deferral of Cassiopea[4] expenditure; ii) deferral of Epsilon expenditure; and iii) deferral of the $35 million Zeus exploration well; results from the Karish North CPR are expected to be sufficient to ensure that Energean has enough gas to be able to participate in upcoming GSPA opportunities in Israel. This has allowed Energean to defer investment and conserve capital without impacting potential cash flow-driven returns for its shareholders.
    • $580 million relates to Karish development and is funded by the project finance facility.
    • A further $140 million is fully discretionary for 2020, principally relating to capital expenditure in Egypt and various projects in Italy. 

Israel

Karish-Tanin development project

Energean is on track to deliver first gas from its Karish project in 1H 2021. As of 31 December 2019, physical progress on the project was approximately 72% complete, the drilling of the three Karish Main development wells had been completed and significant progress had been made on the hull and topsides of the Energean Power FPSO. The FPSO Hull is expected to sailaway from China to Singapore in the coming weeks, signalling delivery of a key intermediate milestone towards delivery of first gas in 1H 2021. 

FPSO progress and key milestones

FPSO keel laying took place successfully at the COSCO Yard, Zhoushan, China, in April 2019 and in October 2019 the hull was undocked and floated out from COSCO Shipyard’s dry dock.

To date, in 2020, despite Coronavirus, the workforce in the COSCO yard has been maintained above 550 people. The FPSO Hull sailaway is expected in the coming weeks and it is due to arrive in the Admiralty Yard in Singapore shortly thereafter. Good progress has been made on construction of the topsides in Singapore, and Energean is working with TechnipFMC to mitigate the impact of the deferred sailaway from China on Practical Completion of the project and is on schedule to deliver first gas in 1H 2021. 

Gas sales and purchase agreements

During 2019, Energean agreed an additional 0.8 Bcm/yr of new and increased contracted and unconditional (“firm”) GSPAs and 0.4 Bcm/yr of contracted and conditional (“contingent”) GSPAs with gas buyers. In early 2020, a further contingent GSPA for up to 0.2 Bcm/yr was signed.

Total contracted gas sales are now as follows:

Contracted and Unconditional GSPAs

  • c.5 Bcm/yr (484 mmcfd)

Contracted and Conditional GSPAs

  • IPM Beer Tuvia: 0.4 Bcm/yr (39 mmcfd) of sales post-2024. Energean may supply additional gas pre-2024 at the option of both counterparties. The IPM contract is conditional, inter alia, on Energean certifying additional 2P reserve volumes and will be converted to firm GSPAs immediately on issuance of the Karish North CPR shortly.
  • New Contract: Up to 0.2 Bcm/yr (19 mmfcd) of sales, under which supply ramps up between 2022 and 2025. The new contract is also conditional, inter alia, on Energean certifying additional 2P reserve volumes. Energean expects the contract to be converted into firm upon publication of the Karish North CPR shortly.
  • Or Contract: 0.7 Bcm/yr (68 mmcfd) of sales to Or Power, which depends on Or Power succeeding in its application to receive a new licence from the Electricity Authority to construct a new power generation plant in Israel and successfully completing this project.

In the medium term, Energean aims to secure both the resource and offtake for the remaining spare capacity in its 8 bcma (775mmcfd) capacity FPSO, whilst bearing in mind the need for capital conservation in the current market environment. 

All GSPAs contain take-or-pay and floor pricing provisions, which reduce the risks associated with Energean’s cash flow generation profile and limit Energean’s exposure to global commodity price fluctuations. 

Energean is also evaluating gas export monetisation options, including the markets of southern Europe. As part of this strategy, the Company signed a Letter of Intent (“LOI”) in January 2020 with the Public Gas Corporation of Greece for the potential sale and purchase of 2 Bcm/yr of natural gas from Energean’s fields in Israel through the proposed East Med Pipeline. At this stage, there is no commitment to supply this gas and Energean views the LOI as a longer-term option for monetisation of its gas resources. 

2019 Drilling Campaign

During 2019, Energean drilled the KM-01, KM-02, KM-03 development wells and the Karish North exploration well and sidetrack. Completions and installation of the Christmas Trees on those three development wells was the focus of operations during 1Q 2020; clean-up of two wells is complete and one is ongoing, following which the wells will be ready for integration with the subsea infrastructure and hook up to the FPSO.

The three development wells are expected to deliver 5.0 bcm/yr (484 MMscfd) of firm contracted gas into the Israeli domestic market commencing in 1H 2021. During 2020, successful results were achieved from production measurement performed during clean-up of the KM-02 and KM-01 development wells. Both wells flowed at a maximum rate of 120 million standard cubic feet per day (MMscf/d) of natural gas, limited only by the capacity of the surface equipment. Performance modelling confirms that each well will be capable of delivering at the 300 MMscf/d design capacity when connected to the FPSO. Clean-up of the third development well, KM-03 has commenced and the results of production measurement, which are expected to be similar, will be announced to the market in due course. Energean is confident that the three development wells can produce at combined rates of 800 mmscf/d, which is sufficient to fill the capacity of the FPSO. 

The Karish North field was discovered in April 2019, with appraisal confirming initial best estimate recoverable resources of 0.9 Tcf (25 bcm) of gas plus 34 MMbbl of light oil/condensate. An independent CPR is being prepared and results will be communicated to the market shortly. On publication of this CPR, 0.6 bcm/yr of contingent GSPAs are expected to be immediately converted to firm GSPAs. The company is preparing a field development plan, envisaging a tie-back to the Energean Power FPSO. A final investment decision on that project, which is estimated to cost circa $125 million, is anticipated during 2020, with first gas during 2022. 

Exploration Programme

Energean has decided to defer its exploration activity on Block 12. Results from the Karish North CPR are expected to be sufficient to ensure that Energean has sufficient gas resources  to be able to participate in upcoming GSPA opportunities in Israel. This has allowed Energean to defer investment and conserve capital without impacting potential cash flow-driven returns for its shareholders.

The Zeus and Athena prospects remain very attractive and Energean intends to re-visit its investment decision in due course. 

Acreage

Energean also added to its Israeli acreage in 2019. The Company, as part of a joint venture with Israel Opportunity, was awarded four new licences – 55, 56, 61 and 62 – in Zone D of the Israeli EEZ. The licences are situated approximately 45 kilometres off the coast of Tel Aviv and represent a strong potential source of upside in Energean’s Israel portfolio. 

Greece

Production

At the end of 2019, Energean decided to place its Prinos area assets under strategic review, the results of which will be communicated to the market once complete.  Working interest production from Greece averaged 3,312 boepd during 2019, however, investment in Prinos, Prinos North and Epsilon will continue to be limited whilst this strategic review is concluded and 2020 production is, therefore, expected to be in the range of 2,000 to 2,500 boepd, assuming no contribution from Epsilon. Output from Prinos and Prinos North is to be maintained through rig-less activities requiring limited expenditure.

Due to higher-return capital allocation priorities, Energean no longer carries a medium-term production target for the Prinos area asset; future production will be a function of the level of investment in the assets. 

Development – 2019 Overview

During 2019, all three Epsilon Lamda platform development wells were drilled successfully. As previously announced, additional pay was encountered in the deeper and dolomitic zones of the Epsilon reservoir. This resulted in an NSAI-audited reserve and contingent resource increase of 26 MMboe, to 44 mmboe.

At Katakolo, award of the EIA is expected in 2Q 2020 with potential Final Investment Decision thereafter. NSAI-audited Katakolo reserves are 14 MMboe, a 36% increase on 2018.

The proposed underground gas storage project in South Kavala saw a positive development in 4Q 2019 when an amendment to the law was passed on 10 December 2019, making it possible for the regulating energy authority to regulate the tariff. This paves the way for a tender for the project, which is expected in 2020. On 11 March 2020, the Greek Energy and Finance Ministries signed a decision to allow the country’s state-asset sales fund to proceed with an international tender to construct, maintain and operate an underground gas storage facility at the South Kavala field, with the first step a cost-benefit study.  The right to exploit the facility will be 50 years. 

Exploration

In Ioannina, interpretation of the newly acquired seismic lines is ongoing and a drill-or-drop decision will be taken in 1H 2020. The quality of acquired seismic was a major improvement when compared to historic vintages and the lines have identified two prospective trends with multiple analogue prospects. Further, the new 2D seismic has verified the existing geological model, de-risking existing prospectivity. The seismic lines were acquired with minimal environmental impact and Energean and the operator, Repsol, have agreed to plant trees in areas away from the 2D seismic lines. The outstanding net financial commitment on the Ioannina block is less than $0.5 million.

In Aitoloakarnania, the operator, Repsol, is carrying out the necessary environmental studies in preparation for the 2D seismic acquisition campaign, which is expected to commence in 2Q 2020, subject to permitting. The outstanding net financial commitment on the Aitoloakarnania is less than $3 million.

In February 2020, Energean signed an agreement for the acquisition of Total’s 50% stake in, and operatorship of, Block 2, offshore Western Greece, providing further material exploration opportunities in its core area of the Eastern Mediterranean with limited financial exposure. Energean’s net remaining expenditure (at 50% Working Interest and post including consideration) towards satisfaction of the minimum work obligation, which includes 1800 kilometres of 2D seismic acquisition and processing, is approximately €0.5 million. Energean believes that this is a highly attractive transaction in the context of the early stage prospectivity identified on the block.

Work to date on the licence has identified that Block 2 contains part of a large four-way closure at the Top Jurassic Apulia platform. The prospect is believed to be an analogue to the Vega field, offshore Italy, which Edison E&P operates with a 60% Working Interest. The structure is covered by sparse 2D seismic and could be de-risked through the seismic acquisition programme to be executed as part of the minimum work obligation. 

Montenegro

In February 2019, Energean commissioned PGS for the acquisition of a new 3D seismic survey over Blocks 26 and 30. The PGS Ramform Titan, one of the best seismic acquisition vessels in the world, deployed 14 geo-streamers, 6.5 kilometres for each streamer length, using a triple source array to cover a total area of 338 square kilometres. The 3D seismic survey substantially fulfils the licence commitment for both blocks 26 & 30 with a net outstanding financial commitment of less than $0.5 million.

Results from the seismic survey have identified a number of shallow gas prospects and deeper carbonate prospects have been identified through interpretation of the newly acquired seismic data. Energean is awaiting final data in order to confirm the primary prospect. The Ministry of Economy in Montenegro confirmed that Energean will receive an extension to the first exploration phase to 15 March 2021, with a drill-or-drop decision due by year end 2020. 

Energean Reserves and Resources

Energean increased 2P reserves and 2C resources to 558 MMboe, up 39% year-on-year, before any contribution from the Edison E&P acquisition. Energean’s reserves and resources benefitted from two discoveries during 2019, the Karish North discovery in Israel, which added 190 mmboe, and the Epsilon Deeper and Dolomitic Zones, which added 25 mmboe. 

Israel

Greece

Total

Oil

Gas

Total

Oil

Gas

Total

Oil

Gas

Total

Commercial Reserves

mmbbls

Bcf

mmboe

mmbbls

Bcf

mmboe

mmbbls

Bcf

mmboe

1 January 2019

22

1,558

298

49

5

49

71

1,563

347

Revisions

7

(99)

(11)

8

1

8

15

(98)

(3)

Disposals

Transfer from contingent resources

(2)

(2)

Production

(1)

(1)

(1)

(1)

31 December 2019

29

1,460

287

54

6

55

83

1,465

342

Contingent Resources

1 January 2019

0.7

133

23

33

15

35

33

148

58

Additions

 

Revisions and Discoveries

23

618

134

20

22

24

43

640

156

Disposals and relinquishments

Transfer to commercial reserves

31 December 2019

24

751

157

53

37

59

76

788

216

Total Commercial Reserves & Contingent Resources

1 January 2019

23

1,692

321

81

20

84

104

1,711

405

31 December 2019

53

2,211

444

107

43

114

159

2,253

558

Edison E&P acquisition

In July 2019, Energean agreed to acquire Edison E&P for $750 million plus $100 million of contingent consideration. Energean raised $265 million of new equity and $600 million in bridge financing from leading international banks to fund the deal. Energean is in the process of refinancing the acquisition bridge facility using an RBL, which is expected to be sized at up to $525 million, plus a $250 million bridge to disposal for the UK and Norway assets.

Energean is working actively to close the acquisition as soon as possible, with approval from Italian regulatory authorities anticipated soon. Formal approval from Egyptian regulatory authorities is expected soon after shareholder approval at the EGM. As announced on 23 December 2019, the transaction will now exclude the Algerian assets. Carve out of the Algerian assets from the transaction perimeter has been agreed in principle at an effective price of $155 million, based on an effective transaction date of 1 January 2019; the carve out remains subject to a signed, amended SPA.

In October 2019, Energean agreed to sell Edison E&P’s UK North Sea and Norway assets to Neptune Energy for $250 million (plus up to $30 million contingent consideration). The deal is aligned with Energean’s strategy of optimising its portfolio and the stated goal of disposing of non-core assets. The onward sale is expected to complete as soon as is practicable following the close of the acquisition of Edison E&P. 

Edison E&P financials

During 2019, Edison E&P delivered the following financial results. These results have been prepared on the basis of Edison E&P’s accounting policies and are subject to adjustments when included in Energean’s upcoming Circular and Prospectus.

Edison E&P financials are presented on a pro forma basis and are unaudited.

 

Edison E&P

 

2019 – $ million

Edison E&P exclusive UK North Sea, Norway & Algeria

2019 – $ million

Revenue

531

433

Operating Costs (including G&A)

255

196

EBITDAX

276

237

Operating Cash Flow

252

212

Development and Production Capital Expenditure

136

33

Exploration Expenditure

49

28

At 31 December 2019, net receivables (after provision for bad and doubtful debts) in Egypt were $222 million, of which $126 million were classified as overdue (31 December 2018: $240 million net receivables, of which $106 million were classified as overdue). A further payment for $55 million was received in January 2020.

Edison E&P production

Average Working Interest production from the Edison E&P portfolio during 2019 was 64.2 kboed. Average 2019 production from the assets to be retained by Energean was 56.4 kboe/d and, for this set of assets, pro forma 2020 production guidance is a range of 42.5 – 50.0 kboe/d. Average Working Interest production in the first two months of 2020 is estimated to have been 52.4 kboe/d.

During 2020, Energean expects Egyptian production to average 32 – 37 kboe/d, Italy to average 8 – 10 kboe/d and Croatia to average 0.5 kboe/d. After an initial reduction during 2020 due to the natural depletion of the fields, production is expected to rise again in the medium term mainly due to new developments; Cassiopea in Italy, Yazzi/NEA/NI in Egypt and, potentially, Irena in Croatia. Production is also expected to be enhanced through the drilling of additional wells at Abu Qir; four locations have been identified for near-to-medium term drilling that, if sanctioned (noting that these wells represent discretionary capital expenditure), would target a combined 30 mmboe of reserves for a total budget of c.$90 million.  

Country

2020 Pro Forma Production Guidance

  • kboe/d

2019 Average Working Interest Production – kboe/d[5]

Italy

8 – 10

10.4

Egypt

32 – 37

45.5

Croatia

0.5

0.5

Edison E&P Assets to be Acquired

42.5 – 50.0

56.4

Algeria

 

5.2

UK

 

2.5

Total

 

64.2

Edison E&P reserves

As at 30 June 2018, the Edison E&P assets to be acquired had 2P reserves of 239 mmboe of working interest 2P reserves according to an independent CPR prepared by DeGolyer and MacNaughton. The reserves report is currently being updated to reflect an effective date of 31 December 2019 and will be published in the Shareholder Circular, to be sent to shareholders in connection with the acquisition. The new CPR is expected to reflect a corresponding decrease in reserves as a result of 18 months of production. Reserve replacement has been limited over the period due to limited investment associated with the disposals process and change of control. 

Edison E&P Development

Italy  – Argo Cassiopea

In December 2019, ENI and Edison E&P received the renewal of the Italian EIA approval on Cassiopea (ENI 60% Op., Edison E&P 40%). The development consists of four subsea wells (two new wells and two re-completed wells) and uses a subsea production system with a 60 kilometre pipeline to shore, where gas compression and treatment will be performed inside the existing Gela refinery. The drilling campaign is expected to be undertaken between 1Q and 3Q 2022 and the subsea installation campaign 2Q to 4Q 2022, with first gas expected in early 2023. The development is expected to add an estimated 60 mmscf/d (10 kboe/d) of net production.

Egypt – NEA/NI

The NEA and NI assets are satellite fields of the Abu Qir gas-condensate asset. Edison E&P has a 100% working interest in both accumulations. The development concept includes four subsea wells, to be drilled in water depths ranging from 30 to 85 metres, and tied back to the North Abu Qir III platform. A final investment decision is expected in mid-2020 with first gas expected 18 months later. The development will target an estimated 52 million barrels of working interest 2P reserves at a total cost of approximately $200 million.  

The development will add limited operating costs to the Abu Qir complex, resulting in attractive netbacks.

Expected peak production from the NEA / NI development is an incremental 90 mmscf/d plus 1 kbopd of condensate.

Croatia

Edison E&P expects to spud the Irena-2 appraisal well in 2Q 2020. It will target the same gas-bearing horizon that was successful in Irena-1 and, in the event of a success, the well will be suspended for future production.

Edison E&P Exploration

In Egypt, the Ameeq well, which is being drilled on the North Thekah Offshore Block, spudded on 18 January 2020.

In Italy, an additional two firm exploration wells will be drilled into the Gemini and Centauro prospects, which are adjacent to the Cassiopea field, in 2022. These wells will target a combined c.9.7 mmboe of gross prospective resources and each has a Geological Chance of Success of 90%. If successful, the wells would be tied back to the Cassiopea subsea system. 

2020 Guidance – pro forma for the combined business, includes Edison E&P

The production and financial data below reflects the Edison E&P forecasts for the full year. Edison E&P will be consolidated into Energean’s financial statements from the date of transaction completion, which is expected later in 2020. Energean will benefit from net cash flows between the locked-box date of 1 January 2019 and the date of transaction completion through an adjustment to the variable consideration.

 

2020

 

Jan & Feb 2020 Performance

 

Production

 

 

 

     Egypt (kboe/d)

32 – 37

40.2

 

     Italy (kboe/d)

8 – 10

9.7

 

     Greece (kboe/d)

2 – 2.5

2.2

 

     Croatia (kboe/d)

0.5

0.3

 

Total Pro Forma Production (kboe/d)

42.5 – 50.0

52.4

 

 

 

 

 

Financials

2020

Discretionary Amount

 

Operating Costs & G&A ($ million)

225 – 250

 

 

 

 

Development and Production Capital Expenditure

 

 

 

  • Israel ($ million)

580

Funded by project finance facility

  • Egypt ($ million)

100

100

70 million NEA/NI; $20 million Abu Qir facilities; $8 million Abu Qir wells

  • Italy ($ million)

75

40

All discretionary apart from $25 million investment in Cassiopea and $10 million in Leoni

  • Greece ($ million)

5

100% owned and operated, Epsilon investment deferred

  • Croatia ($ million)

10

Appraisal well committed, capacity to delay exists

Total Pro Forma Development & Production Capital Expenditure ($ million)

770

140

 

 

 

 

 

Exploration Capital Expenditure (Firm)

 

 

 

  • Israel ($ million)

5

 

  • Egypt ($ million)

60

 

  • Italy ($ million)

 

  • Greece ($ million)

5

 

  • Croatia ($ million)

 

  • Other ($ million)

 

Total Pro Forma Exploration Capital Expenditure ($ million)

70

 

Financial review

Focused on maintaining strong financial discipline

Revenue, production and commodity prices

Working interest crude production from Greece averaged 3,312 bopd, a decrease of 18% for the period (2018: 4,053 bopd). The decrease in production was due to the decision to put the Prinos Area assets under strategic review following the review of capital allocation that was initiated earlier in the year. As a result, investment in Prinos and Prinos North was limited to $14.0 million during the period, while this process was being undertaken.

Prinos crude is sold at a $6.6/bbl. discount to Urals Med blend, adjusted for final cargo API. In 2019 the average sales price achieved was $58/bbl.

Depreciation, impairments and write-offs  

Depreciation charges before impairment on production and development assets increased by 15% to $39.1 million (2018: $34.3 million) due to increased capital expenditure invested in Greece during 2018, along with finance lease assets’ depreciation recorded for the first time in 2019 (IFRS 16 adoption). The Group recognised a gross impairment charge of $71.1 million in 2019 (2018: $nil). In the period, indicators of impairment were noted for the Prinos CGU, being a reduction in both short-term (Dated Brent forward curve) and long-term price assumptions and a change in the Group’s Prinos field production forecast, which have resulted in an impairment of $71.1 million in the carrying value of the Prinos CGU. 

Selling, general and administrative (SG&A) expenses 

Energean incurred SG&A costs of $13.7 million in 2019. This represents a 13% increase on the previous year (2018: $12.1 million) and is due to the additional staffing and administrative costs associated with the continued growth of the Group’s portfolio and the efforts associated with developing the Karish project.

For the full year 2020 Energean expects stand-alone SG&A costs to be $15.0 million. Edison E&P adds an estimated additional $30 million on a pro forma basis.

Other expenses

Other expenses of $21.6 million (2018: $1.1 million) consist predominantly of the direct costs incurred in 2019 relating to the proposed acquisition of Edison’s E&P business.

Finance costs

Financing costs before capitalisation for the period were $48.9 million (2018: $22.7 million). Included within this balance is $34.4 million of interest (2018: $12.2 million), of which $7.0 million relates to interest incurred on the RBL facility and $27.4 million on the Karish project finance facility. In addition, there was $7.2 million (2018: $5.7 million) of interest expenses relating to long term payables representing future payments to the previous Karish/Tanin licence holders. This was offset by capitalised borrowing costs of $39.9 million (2018: $9.3 million). The remainder of the total finance costs expensed relate primarily to finance and arrangement fees and other finance costs and bank charges. Total finance cost expensed amounted to $9.0 million (2018: $13.5 million).

Crude oil hedging

Energean had no hedges during the period and has no outstanding crude oil hedges at year-end. Energean will keep its hedging position under review.

Taxation               

Energean recorded tax income of $20.5 million in 2019 (2018: $15.5 million tax income) primarily associated with the deferred tax impact of the impairment losses associated with the Prinos assets.

Operating cash flow

Cash from operations before movements in working capital was $18.5 million (2018: $53.9 million). After adjusting for working capital movements, cash from operations was $36.3 million, a 42.1% decrease on the comparable period (2018: $62.7 million). The decrease is driven by reduced production and revenue in the period and due to $8.1 million of direct transaction costs for the proposed acquisition of Edison E&P in 2019, which have been recorded under operating activities.

Financial results summary

Metric

2019

2018

Av. Daily working interest production (kboed)

3.3

4.1

Sales revenue ($M)

75.7

90.3

Realised oil price ($/boe)

57.6

61.3

Cost of oil production ($m)

25.9

26.0

Cost of production per barrel ($/boe)

21.5

17.6

Administrative & selling expenses ($m)

13.7

12.1

Adjusted EBITDAX ($m)

35.6

52.4

Cash flow from operating activities ($m)

36.3

62.7

Capital expenditure ($m)

685.1

494.6

Cash capital expenditure ($m)

954.6

293.6

Net debt (cash) ($m)

561.6

(75.6)

Net debt/equity (%)

44.5%

(6.95)%

Non-IFRS measures

The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting principles. These non-IFRS measures include adjusted EBITDAX, cost of oil production, capital expenditure, cash capex, net debt and gearing ratio and are explained below.

Cost of oil production

Cost of oil production is a non-IFRS measure that is used by the Group as a useful indicator of the Group’s underlying cash costs to produce hydrocarbons. The Group uses the measure to compare operational performance period to period, to monitor costs and to assess operational efficiency. Cost of oil production is calculated as cost of sales, adjusted for depreciation and hydrocarbon inventory movements. 

 

2019

 

2018

$M

$M

Cost of sales

65.6

58.8

Less

          Depreciation

(36.6)

(33.9)

          Change in inventory

(2.9)

1.1

Cost of oil production

25.9

26.0

Total production for the period (boe)

1,208,978

1,479,367

Cost of oil production per boe ($)

21.5

 

17.6

Prinos production fell by 18% in 2019. This has resulted in a 22% increase in per barrel production costs, from $17.6/bbl. in 2018 to $21.5/bbl.

Adjusted EBITDAX 

Adjusted EBITDAX is a non-IFRS measure used by the Group to measure business performance. It is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, other income and expenses (including the impact of derivative financial instruments and foreign exchange), net finance costs and exploration costs. The Group presents adjusted EBITDAX as it is used in assessing the Group’s growth and operational efficiencies, because it illustrates the underlying performance of the Group’s business by excluding items not considered by management to reflect the underlying operations of the Group. 

 

2019

2018

Metric

$M

$M

Adjusted EBITDAX

35.6

52.4

Reconciliation to profit/(loss):

 

 

Depreciation and amortisation

(39.1)

(34.3)

Exploration and evaluation expense

(0.8)

(2.1)

Impairment loss on property, plant and equipment

(71.1)

Other expenses

(21.6)

(1.1)

Other income

3.1

8.9

Finance expenses

(9.0)

(13.5)

Finance income

2.5

1.7

Gain on derivative

96.7

Net foreign exchange

(3.9)

(23.5)

Taxation income/(expense)

20.5

15.5

(Loss)/income for the year

(83.8)

100.8

Capital expenditure

Capital expenditure is a useful indicator of the Group’s organic expenditure on oil and gas assets and exploration and appraisal assets incurred during a period. Capital expenditure is defined as additions to property, plant and equipment and intangible exploration and evaluation assets excluding decommissioning, capitalised depreciation, less capitalised borrowing cost.

 

2019

2018

Metric

$M

$M

Additions to property, plant and equipment

670.6

502.0

Additions to intangible exploration and evaluation assets

61.7

6.2

Less

 

Capitalised borrowing costs

(39.9)

(9.3)

Capitalised depreciation

(1.9)

(2.6)

Change in decommissioning provision

(5.4)

(1.8)

Total

685.1

494.6

Capital expenditure was $685.1 million, of which $611.9 million was invested in Israel, $68.4 million in Greece (Epsilon – $45.2 million) and $4.9 million in Montenegro.

Cash capital expenditure in 2019 was $954.5 million (FY 2018: $293.6 million).

 

2019

2018

Cash Capital Expenditure

$M

$M

Payment for purchase of property, plant and equipment

897.2

290.1

Payment for purchase of intangible assets

57.4

3.5

Total

954.5

293.6

Net cash/debt and gearing ratio

Net debt is defined as the Group’s total borrowings less cash and cash equivalents. Management believes that net debt is a useful indicator of the Group’s indebtedness, financial flexibility and capital structure because it indicates the level of borrowings after taking account of any cash and cash equivalents that could be used to reduce borrowings. The Group defines capital as total equity and calculates the gearing ratio as net debt divided by capital.

Net debt reconciliation           

 

 

2019

 

2018

 

 

$M

 

$M

Net Debt

Current borrowings

38.1

Non-current borrowings

877.9

144.3

Total borrowings 

916.0

144.3

Less: Cash and cash equivalents and bank deposits

(354.4)

(219.9)

Net (Funds)/Debt (1)

561.6

(75.6)

Total equity  (2)

1,260.8

1,087.8

Gearing Ratio (1)/(2):

44.54%

(6.95%)

In July 2019, Energean raised $265.1 million through the issuance of new ordinary shares on LSE and TASE. Net of cash transaction costs of $8.2 million this contributed $256.9 million of cash to the Group in 2019 .

Edison E&P acquisition

In July 2019, Energean agreed to acquire Edison Exploration & Production S.p.A. from Edison S.p.A. for $750 million, to be adjusted for working capital, with additional contingent consideration of $100 million payable following first gas from the Cassiopea development (expected early 2023), offshore Italy.

Energean also agreed to sell the UK and Norwegian subsidiaries of Edison E&P to Neptune Energy for $250 million, to be adjusted for working capital, with additional contingent consideration of up to $30 million. The sale is contingent on Energean completing upon its acquisition of Edison E&P and is expected to close as soon as is reasonably practicable after close of the Edison E&P transaction.

On 23 December 2019, Energean announced that Edison S.p.A. had received a letter from the Algerian authorities, which invited Edison to discuss the transaction with Sonatrach. Energean and Edison E&P subsequently agreed to exclude the asset from the transaction perimeter.  Carve out of the Algerian assets from the transaction perimeter has now been agreed in principle at an effective price of $155 million, based on an effective transaction date of 1 January 2019; the carve out remains subject to a signed, amended SPA.

Financing of the acquisition

The initial consideration was supported by a $600 million committed bridge loan facility underwritten by ING and Morgan Stanley, and S$265 million of equity financing. The total debt and equity capital raised was sized to cover both the initial consideration and working capital requirements of the enlarged group.

The bridge loan facility is expected to be replaced in 2020 using a reserve based facility and a bridge facility for the onward sale of the UK and Norwegian assets to Neptune Energy. The $100 million of contingent consideration is expected to be funded by the combined free cash flow of the Enlarged Group as well as any incremental reserve based facility capacity.

Placing

In July 2019, Energean also launched a placing with institutional investors of new ordinary shares of 1 pence each in the capital of Energean to raise up to £211 million (approximately $265 million) before expenses.

Proposed Edison E&P acquisition – 2019 financial results

During 2019, Edison E&P delivered the following financial results. These results have been prepared on the basis of Edison E&P’s accounting policies and are subject to adjustments when included in Energean’s upcoming Circular and Prospectus.

 

Edison E&P

Edison E&P exclusive of the UK, Norway and Algeria assets

 

2019 – $m

2019 – $m

Revenue

531

433

Operating costs

255

196

EBITDAX

276

237

Operating cash flow

252

212

Development and production capital expenditure

136

33

Exploration expenditure

49

28

Liquidity risk management and going concern

The Group carefully manages its risk to a shortage of funds by monitoring its funding position and its liquidity risk. Cash forecast are regularly produced and sensitivities run for different scenarios including change in Brent prices, different production rates and future capital expenditure investment profile.

Short-term cash forecasts have been stress-tested in light of the significant oil price reduction seen in early March 2020, with a primary scenario using an average price of $35.0/bbl for 2020 and $42.5/bbl for 2021, and a downside sensitivity run at $30/bbl average for both 2020 and 2021.

In this scenario, the Group would also target a further rationalisation of its cost base, including cuts to discretionary capital expenditure and operating cost. As at 31 December 2019, the Group had cash and undrawn facilities of $834.2 million million. Post-period end, Energean has also successfully increased its Israel Project Finance Facility by $175million to $1.45 billion (from $1.275 billion), providing additional headroom on its Karish development.

The Group’s revised forecasts show that the Group will be able to operate within its current debt facilities and has sufficient financial headroom for the 12 months from the date of approval of the 2019 Annual Report and Accounts. In arriving at this conclusion, the Directors also had regard to the Group’s ability to raise necessary funding as and when needed. In 2019, the Group successfully raised gross proceeds of $265.1 million through a private placement on the London and Tel Aviv Stock Exchanges. The Group also raised a $600 million bridge facility to provide funds for its acquisition of Edison E&P. The Group expects to replace this with a Reserve Based Lending (“RBL”) Facility (of up to $525m, of which between $400 and $450million is expected to be available) plus a Bridge to Disposal Facility (of up to $250million) for the sale of the UK and Norway assets to Neptune Energy. The purpose of the RBL will be to fund the acquisition, refinance the Greek RBL and provide headroom over the medium term for capital expenditure within the Group (excluding Israel).   

Based on an assessment of the Group’s cash flow forecasts under various scenarios, including the identification of associated risks and mitigants, the Directors have concluded that they have a reasonable expectation that the Group will continue in operational existence for a 12 month period from the date of approval of the 2019 Annual Report and Accounts and have therefore adopted the going concern basis in preparing the Group and parent company financial statements.

Coronavirus

Energean continues to monitor the ongoing COVID-19 outbreak, accessing the advice by the World Health Organisation and Public Health England to ensure that best-practice precautions are being applied. Clear information and health precautions on how employees should protect themselves and reduce exposure to, and transmission of, a range of illnesses along with general advice has been communicated across the organization.

Coronavirus has not yet affected Energean’s operations, but in the event that the COVID-19 outbreak escalates, Energean has contingency plans in place that will be followed.

Events since 31 December 2019

Energean is exposed to macro-economic risks, including pandemic diseases that could have a material adverse effect on its operations. We continue to monitor the recent Coronavirus outbreak, which is causing global economic disruption and may impact our performance in 2020. To date, the Coronavirus has not had a material impact on Energean’s activities. However, at present, it is not possible to predict whether the outbreak will have a material adverse effect on our future earnings, cash flows and financial condition.

On 6 March 2020, OPEC and non-OPEC allies (OPEC+) met to discuss the need to cut oil supply to balance oil markets in the wake of the Coronavirus outbreak, which has had a material adverse impact on oil demand. OPEC+ failed to reach agreement and on 7 March 2020, Saudi Aramco cut its Official Selling Prices, prioritizing market share over pricing. As a result, oil prices have fallen materially, which may have a material adverse impact on the component of Energean’s future earnings that are linked to oil prices.

In January 2020, Energean reduced the size of it EBRD Reserve Based Lending Facility to $161 million.

On 16 March 2020, Energean Israel signed a $175 million increase in its project finance facility, which is now sized at $1,450 million, increasing liquidity available to the company. 

Group Income Statement

 

YEAR ENDED 31 DECEMBER 2019    

 

 

2019

 

 

2018

 

Notes

$’000

 

 

$’000

Revenue

6

75,749

90,329

Cost of sales

7a

(65,552)

 

 

(60,019)

Gross profit

10,197

30,310

 

Administrative expenses

7b

(13,305)

(11,666)

Selling and distribution expenses

(345)

(453)

Exploration and evaluation expenses

 

(801)

(2,102)

Impairment of property, plant and equipment

10

(71,115)

 

 

Other expenses

7c

(21,584)

 

 

(1,118)

Other income

7d

3,095

 

 

8,869

Operating (loss)/profit

(93,858)

23,840

 

 

 

 

 

 

Finance income

8

2,496

1,735

Finance costs

8

(9,002)

(13,471)

Gain on derivative

5

96,709

Net foreign exchange losses

8

(3,933)

 

 

(23,521)

(Loss)/profit before tax

(104,297)

85,292

 

Taxation income

9

20,531

 

 

15,527

(Loss)/profit for the year

 

(83,766)

 

 

100,819

 

 

 

 

 

 

Attributable to:

 

Owners of the parent

(83,313)

105,279

Noncontrolling interests

 

(453)

 

 

(4,460)

 

 

(83,766)

 

 

100,819

 

Basic and diluted total (loss)/earnings per share (cents per share)

2

 

 

 

 

Basic

($0.50)

$0.80

Diluted

 

($0.50)

 

 

$0.79

 


 

Group Statement of Comprehensive Income

 

YEAR ENDED 31 DECEMBER 2019

 

 

 

2019

 

 

2018

 

 

$’000

 

 

$’000

Consolidated statement of comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit for the year

 

(83,766)

 

 

100,819

 

Other comprehensive loss:

 

Items that may be reclassified subsequently to profit or loss

 

Cash Flow Hedge, net of tax

 

434

 

 

Exchange difference on the translation of foreign operations

 

(3,751)

 

 

(4,288)

 

 

(3,317)

 

 

(4,288)

 

Items that will not be reclassified subsequently to profit or loss

 

Remeasurement of defined benefit pension plan

(466)

(444)

Income taxes on items that will not be reclassified to profit or loss

 

117

 

 

107

(349)

(337)

Other comprehensive loss after tax

 

(3,666)

 

 

(4,625)

 

Total comprehensive (loss)/income for the year

 

(87,432)

 

 

96,194

 

Total comprehensive (loss)/income attributable to:

 

Owners of the parent

(87,109)

100,856

Non-controlling interests

 

(323)

 

 

(4,662)

 

 

(87,432)

 

 

96,194

 

 

 

 

 


Group Statement of Financial Position

YEAR ENDED 31 DECEMBER 2019

 

 

2019

 

 

2018

 

 Notes

$’000

 

 

$’000

ASSETS

 

Non-current assets

ͮ

Property, plant and equipment

10

1,902,271

1,341,704

Intangible assets

11

71,876

10,555

Goodwill

75,800

75,800

Other receivables

4,076

71,845

Deferred tax asset

33,038

15,532

 

 

2,087,061

 

 

1,515,436

Current assets

 

Inventories

 

6,797

9,912

Trade and other receivables

12

59,892

32,883

Cash and cash equivalents

354,419

219,822

421,108

262,617

Total assets

 

2,508,169

 

 

1,778,053

 

EQUITY AND LIABILITIES

 

Equity attributable to owners of the parent

 

Share capital

13

2,367

2,066

Share premium

13

915,388

658,805

Merger reserve

139,903

139,903

Energean’s Prinos oil field pressured by price slump

The oil-price plunge in international markets has placed under pressure  Greece’s only producing oil field, Epsilon, an old, high-cost unit operated by Energean Oil & Gas at an estimated 20 dollars per barrel.

Energean has made a considerable, long-running effort to keep Greece’s sole oil field alive through major investment, required to achieve acceptable production levels. However, production at this oil field is unprofitable during times of deflated oil prices, as is the case at present.

Major international credit institutions are nowadays offering far less financial support to oil-producing ventures as a result of negative conditions affecting the upstream sector. Widespread climate-change policies have not helped, while the situation has now been made worse by the ongoing oil-price crisis.

Energean’s Prinos offshore oil field, in Greece’s north, is currently producing smaller amounts after hitting a record level of 4,000 barrels per day in 2018. Last year, production at the oil field fell to 3,300 barrels per day. The current year is expected to be even more challenging, pundits have noted.

Energean is now placing greater emphasis on fully developing its neighboring Epsilon oil field. The company is awaiting the construction of a new platform, a project undertaken by a consortium of Romanian companies, so that production at Epsilon may commence in approximately one year.

Energean to acquire Total’s stake in Block 2, offshore Greece

Energean, the oil and gas producer focused on the Mediterranean, has signed an agreement for the acquisition of Total’s stake in Block 2, offshore Western Greece, providing further material exploration opportunities in its core area of the Eastern Mediterranean with limited financial exposure, the company has announced.

The deal further enhances the future growth potential of Energean’s portfolio and medium-term optionality to deliver value to all stakeholders, the company noted. 

On completion, Energean would acquire Total’s entire 50% Working Interest share and Operatorship. Energean’s net remaining expenditure towards satisfaction of the minimum work obligation, which includes 1800km of 2D seismic acquisition and processing – activity which Energean believes could significantly de-risk the prospectivity of the licence – is approximately €0.5 million. Energean believes this is a highly attractive transaction in the context of the early stage prospectivity identified on the Block.

Work to date on the licence has identified that Block 2 contains part of a large, potential target comprising of a four-way closure at the Top Jurassic Apulia platform. The prospect is thought to be an analogue to the Vega field offshore Italy, in which Edison E&P operates with a 60% working interest. The structure is covered by sparse 2D seismic which could be de-risked through the seismic programme that will be acquired as part of the minimum work programme.

The feature straddles the Greek and Italian maritime border with approximately 60% of the prospect within the Block 2 license with the remaining area part in Italian waters. Edison E&P, of which Energean expects to complete its acquisition during 1H 2020, as well as holding a 25% Working Interest in Block 2 also participates in the adjacent 84F.R-EL block offshore Italy, pending award. Post completion of the Edison E&P transaction, Energean will then own a 75% Working Interest in Block 2. Hellenic Petroleum owns the remaining 25% Working Interest.

RAE given 5 months to set Kavala underground gas storage charges

RAE, the Regulatory Authority for Energy, has been given five months to determine the pricing policy, regulated earnings and WACC for a planned underground gas storage facility at a depleted offshore gas field in the south Kavala region, according to an imminent joint ministerial decision, energypress understands.

The launch date of the project’s tender will depend on funding for project studies through the EU’s Connecting Europe Facility (CEF) program. This essentially means that the privatization fund TAIPED will need to officially launch the project within the first half of this year to avoid missing out on CEF funds.

The project’s investment cost is estimated at between 300 and 400 million euros.

France’s Engie as well as Energean Oil & Gas and GEK-Terna have formed a three-member consortium named Storengy in anticipation of the tender. DESFA, the gas grid operator, is also expected to participate in the tender.

The project, promising gas storage capacity of 360 million cubic meters, is considered vital for Greece as it will be able to maintain strategic reserves for considerable time periods.

Its development will help boost the performance level and strategic role of the Revythoussa LNG terminal just off Athens, and the prospective Alexandroupoli FSRU in the country’s northeast, as these will be able to supply the wider region greater gas quantities via the IGB and TAP gas pipelines.

The south Kavala project has been classified as a PCI project, offering EU funding opportunities, seen as crucial for the investment’s sustainability, according to some analysts.

Energean offers FPSO Hull update, work in China continuing

Energean Oil and Gas, the oil and gas producer focused on the Mediterranean, has issued an update on the potential impacts of the Novel Coronavirus on the construction of the Energean Power FPSO Hull, which is currently being built in Liuheng Island, China, and the overall project timetable. Work on the hull is ongoing and, at this stage, Energean reiterates that the Karish Project remains on track to deliver First Gas in 1H 2021.

The Novel Coronavirus was recently identified in China and has spread to most provinces within China and several other countries, leading the World Health Organisation to declare the virus a “Public Health Emergency of International Concern”. In order to prevent the spread of the virus, several countries, including China, have issued emergency travel and transportation restrictions, which have had an immediate impact on the availability of labour and resources in affected areas, including Liuheng Island.

Energean has received a notice under its EPCIC contract with TechnipFMC in relation to the travel restriction constituting a Force Majeure event, potentially entitling TechnipFMC to claim an extension of time under the EPCIC contract. Energean has, in turn, issued corresponding notices to its buyers of Karish gas and other relevant counterparties.

The rapidly evolving nature of these circumstances is such that it is impossible, at this stage, to determine the overall impact, if any, on Energean’s project timeline. However, work is still progressing well in the Chinese yard with approximately 550 staff on site; and Energean is working actively with TechnipFMC to ensure that all appropriate measures are being taken to avoid or mitigate any delay. Based on the information available at this stage, Energean still expects the Karish Project to remain on track and deliver First Gas in 1H 2021. Energean shall provide further updates as the situation clarifies.

Energean highlights the importance of guaranteeing the health and safety of its employees and contractors and will act in accordance with instructions and guidance from the UK and Chinese health authorities.

Energean releases update on recent operations, performance

Energean Oil and Gas has provided an update on recent operations and the Group’s trading performance in 2019 together with guidance for 2020. This information is unaudited and subject to further review.
Mathios Rigas, Chief Executive, Energean commented: “Karish and Tanin is on track to deliver first gas in 1H 2021 and we have now secured 5.0 bcm/yr of firmly contracted gas sales to Israeli domestic buyers, 1.3 bcm/yr of contingent gas sales and 2.0 bcm/yr of potential sales to be discussed under a Letter of Intent with Greece’s DEPA. With the above we are fast approaching our goal to fill the capacity of the Energean Power. We are already looking at growth opportunities on the resource side from our nine blocks in Israel and on potential additional infrastructure capacity that will allow us to expand gas sales in the region. With the expected closing of the acquisition of Edison E&P and subsequent sale of the North Sea assets to Neptune, we will further enhance our position
in our core markets, substantially increase our reserves and production and realise immediate operating cash flow. Post completion, the combined portfolio will establish a material long-term cash flow profile that supports our ambition to pay a sustainable dividend. I look forward to continuing this positive momentum in 2020, with a key focus on delivering Karish; closing and integrating Edison E&P; and continuing the sustainable growth of Energean, maximising value for all of our stakeholders.”
“2019 has undoubtedly been the year that climate change has dominated the energy discussion; Sustainability continues to be at the core of Energean’s gas-focused strategy and in 2019, we became one of the first E&P Companies in the world to commit to net zero carbon emissions by 2050 and we are targeting over 70% reduction in our carbon intensity over the next three years, with a firm intention to continue our reduction efforts until we achieve our net zero target. In 2019, we also continued to deliver upon our exemplary HSE track record with one million hours free of Lost Time Incidents in Energean sites plus four million man hours in the FPSO construction yard in China.”

Highlights

Energean expects that year end 2019 Working Interest reserves and resources will be 554 million boe, a 38% increase on 2018 year end, driven primarily by the 190 mmboe Karish North Discovery.
The Karish development is on track to deliver first gas in 1H 2021.
Subject to finalisation of Netherland Sewell and Associates Competent Persons’ Reports. 2C resources for Karish
North are based on management estimates. Stated before Edison E&P assets are taken into account 

5.0 Bcm/yr of firm Gas Sales and Purchase Agreements (“GSPAs) signed in Israel, with a further 1.3 Bcm/yr of contingent contracts and 2.0 Bcm/yr of potential sales to be discussed under a Letter of Intent, demonstrating significant progress on our ambition to fill the 8 Bcm/yr capacity of our FPSO.
2019 average Working Interest production of 3.3 kbopd. Cost of Production was approximately $21 /bbl.
2019 full year revenue is expected to be approximately $76 million. Capital expenditure was $721 million.
At 31 December 2019, Energean had net debt of $557 million, including the non-recourse $638 million of net project finance debt within Energean Israel. Cash and undrawn facilities were $834 million.
Edison E&P (subject to closing)
Energean is working to close its acquisition of Edison E&P as soon as possible in 2020, with approval from Italy anticipated shortly. Formal approvals from Egypt are expected soon after shareholder approval at the EGM.
The acquisition is now expected to exclude the Algerian Asset. An update will be provided on the appropriate settlement on the total transaction consideration once this has been agreed.
Exclusive of the Algeria, the UK North Sea and Norway, Edison E&P delivered Operating Cash Flow of $212 million during 2019. Capital expenditure was $61 million3.
The updated Italian EIA approval on Cassiopea has been received by Edison E&P. The development is progressing as planned with First Gas expected in 2022.
Exclusive of Algeria and the UK North Sea assets, 2019 average Working Interest production was 56 kboe/d (64 kboe/d inclusive of these assets).

Outlook

Expected closing of the Edison E&P acquisition and subsequent sale of the North Sea assets to Neptune as soon as possible in 2020.
Following successful appraisal of the 190 mmboe Karish North discovery, Energean expects to issue an updated CPR and Field Development Plan. Energean Final Investment Decision on the Karish North development is expected during 2020.
Drilling of the Zeus exploration well plus two contingent exploration wells offshore Israel.
The Energean Power FPSO hull is expected to sailaway from China in March 2020. FPSO sailaway from Singapore is still anticipated around Year End 2020.
Strategic review of the Prinos Area assets initiated.
2020 pro forma group production4 is expected to be between 42.5 – 50.0 kboe/d5.
2020 pro forma consolidated group capital expenditure of $995 million6, of which $620 million is to be spent in Israel.
Decisions on FID at Katakolo (Greece) and Drill or Drop on both Ioannina (Greece) and
Montenegro.

Edison E&P Acquisition

Energean is working actively to close its Acquisition of Edison E&P as soon as possible, with approval from Italy anticipated shortly. Formal approvals from Egypt are expected soon after EGM approval. As announced on 23 December 2019, the transaction is now expected to exclude the Algerian Asset; Energean will provide an update on the settlement to the total transaction consideration once this has been agreed. Energean does not expect the exclusion of the Algerian Asset from the transaction perimeter to affect its ability to close the transaction on the remainder of the assets.
Average Working Interest production from the Edison E&P portfolio during 2019 was 64.2 kboed:

Country 2019 Average Working Interest Production –
kboe/d
7
Italy 10.4
Egypt 45.5
Croatia 0.5
Edison E&P Assets to be Acquired 56.4
Algeria 5.2
UK 2.5
Total 64.2

During 2019, Edison E&P delivered the following financial results. These results have been prepared on the basis of Edison E&P’s accounting policies and are subject to adjustments when included in Energean’s upcoming Circular and Prospectus.

Edison E&P
2019 – $ million
Edison E&P exclusive UK North
Sea, Norway & Algeria
2019 – $ million
Revenue 531 433
Operating Costs 255 196
EBITDAX 276 237
Operating Cash Flow 252 212
Development and Production
Capital Expenditure
136 33
Exploration Expenditure 49 28

In December 2019, ENI and Edison E&P received the renewal of the Italian EIA approval on Cassiopea. The development is now progressing in line with expectations, with first gas expected during 2022.
Gas has been converted to boe using a conversion factor of 5.8 mcf/boe. Numbers may not sum due to rounding. 

At 31 December 2019, net receivables (after provision for bad and doubtful debts) in Egypt were $222 million, of which $126 million were classified as overdue (31 December 2018: $240 million net receivables, of which $106 million were classified as overdue). A further payment for $55 million was received in January 2020.
The Ameeq well, which is being drilled on the North Thekah Offshore Block, spudded on 18 January 2020.
No material capex is expected to be incurred in Edison E&P before closing, except for committed exploration and sanctioned developments.

Reserves and Resources (exclusive of the Edison E&P portfolio)

Energean expects that year end 2019 Working Interest reserves and resources will be 554 million boe, a 38% increase on 2018 year end. The table below is preliminary and subject to finalisation.

Israel Greece Total
Oil
Mmbls
Gas
Bcf
Total
mmboe
Oil
Mmbls
Gas
Bcf
Total
mmboe
Oil
Mmbls
Gas
Bcf
Total
mmboe
Commercial Reserves
At 1 Jan 2019 22 1,558 298 49 5 49 71 1,563 347
Revisions 7 (99) (11) 5 2 6 12 (97) (5)
Production 0 (1) 0 (1) (1) 0 (1)
At 31 Dec 2019 29 1,460 287 53 7 54 82 1,466 341
Contingent Resources
At 1 Jan 2019 1 133 24 29 8 30 29 141 54
Revisions &
Discoveries
27 618 136 18 25 23 45 643 159
At 31 Dec 2019 27 751 160 47 33 53 74 784 213
Total Commercial Reserves & Contingent Resources
1 Jan 2019 23 1,692 322 77 13 79 100 1,704 402
31 Dec 2019 56 2,211 448 100 40 106 156 2,250 554

Israel

Energean’s Karish development project remains on track to deliver first gas into the Israeli domestic market in 1H 2021. Physical progress on the project as of 31 December 2019 was 72% complete.

Gas Sales & Purchase Agreements (“GSPAs”)

In January 2020, Energean signed a further GSPA that will add between 0.1 and 0.2 Bcm/yr of contingent gas sales. Energean now has firm gas sales agreements in place for 5.0 bcm/yr on plateau. The new contingent agreement adds a further 0.2 Bcm/yr, I.P.M Beer Tuvia contingent contract adds a further 0.4 Bcm/yr (both contingent, inter alia, on the booking of additional reserves from Karish North or other sources), and Or adds 0.7 Bcm/yr, increasing total potential domestic GSPAs to 6.3 Bcm/yr. During 2020 a
further IEC power plant (Ramat Hovav) is expected to be privatised. Energean notes that the first privatisation (Alon Tavor), which was completed in 2019, resulted in a GSPA for Energean with MRC, the winning bidder.

Subject to finalisation of NSAI reports Israel reserves and resources shown at 70% working interest

In January 2020, Energean and the Public Gas Corporation of Greece (“DEPA”) signed a Letter of Intent (“LOI”) for the potential sale and purchase of 2 Bcm/yr of natural gas from Energean’s fields in Israel through the proposed East Med Pipeline. The LOI provides a further option to monetise future discoveries across Energean’s nine leases in Israel, with clear visibility on a path to filling the capacity of the FPSO and potentially leading to the need to expand the capacity of Energean’s infrastructure in Israel. The LOI was signed concurrently with the Intergovernmental Agreement on the East Med Pipeline, which has a proposed capacity of 10 Bcm/yr and will connect Greece, Israel and the Republic of Cyprus to Italy and the rest of the EU and is currently envisaged to be operational by 2025 subject to FID by the promoters of the pipeline, IGI Poseidon.
Key development activities for 2020

2020 Drilling Programme

Energean completed the drilling of the three Karish Main development wells during 2019. Completions are currently being run and the Christmas Trees are expected to be installed before end 1Q 2020. All three development wells will then be ready for integration with the Sub Sea infrastructure and Hook Up to the FPSO.
Energean expects to spud the Zeus exploration well, targeting 0.6 Tcf of Gas Initially in Place (“GIIP”) in March 2020. In addition to Zeus, Energean is preparing to drill two additional exploration wells during 2020, which will be contingent on the results from Zeus. Prospects being evaluated for drilling include Athena (0.6 Tcf GIIP, Block 12), Hera (0.4 Tcf GIIP, Block 12) and Poseidon (1.0 Tcf GIIP, Block 21). Following this campaign, the rig will be released to another operator, which will execute a 3-4 well campaign in the
region. Following this campaign, Energean intends to take the rig back for the remaining options under its drilling contract.
Following the Zeus exploration well, Energean has five remaining drilling options under its contract with Stena Drilling.
Exploration activities during the second half of 2020 will focus on the analysis of well results and the reprocessing, integration and evaluation of seismic data.
FPSO Hull and Topsides The hull sailaway date from the Cosco Yard in China has been deferred to 31 March, a delay of 3.5 months.
However, excellent progress has been made on the topsides at the Admiralty Yard in Singapore and it is still anticipated that the integrated Hull and Topsides will sail away from Singapore to Israel around Year End 2020 with first gas from the project anticipated during 1H 2021.
Subsea Installation and Pipeline
During 2020, all components of the subsea production system will be installed using vessels provided by TechnipFMC.
The sales gas pipeline will be installed with activities commencing close to shore in territorial waters and then moving progressively offshore towards the FPSO location.

Karish North

Energean expects to submit an updated Field Development Plan to address the tie-back of the 0.9 Tcf (25 Bcm) plus 34 mmbbls Karish North discovery in 1H 2020. A CPR is also expected during 1H 2020.

Greece

In Greece, total reserves and contingent resources have seen a 34% year-on-year increase, to 106 mmboe. This has resulted from the new discoveries in the Epsilon reservoir and reprocessing and interpretation of data at Katakolo.
Energean has decided to place its Prinos Area assets under strategic review. Investment in Prinos and Prinos North will remain limited whilst this work is concluded. Energean delivered average 2019 FY production of 3.3 kbopd. Due to limited investment resulting from the strategic review, 2020 production is expected to be in the range of 2.0 to 2.5 kbopd. The Energean Force remains smart-stacked in Phillipos Port; 2020 production from Prinos and Prinos North will be maintained through rig-less activities requiring
limited expenditure.
During 2019, all three Epsilon Lamda platform development wells were successfully drilled. As previously announced, additional pay was encountered in the deeper and dolomitic zones of the Epsilon reservoir.
This is expected to result in a reserve and contingent resource increase of 16 mmboe. The jacket for the Lamda platform is 80 – 85% complete in the Constanza shipyard.
At Katakolo, award of the EIA is expected in 2Q 2020 with potential Final Investment Decision thereafter.
Katakolo reserves are expected to be 14 mmbbls, a 33% increase on 2019.
The Underground Gas Storage project in South Kavala saw a positive development in 4Q 2019 when an amendment to the law was passed on 10 December. A paragraph was added at the end of article 93, making it possible for the Regulating Energy Authority to pass regulation on the tariff. This paves the way for a tender for the project, which is expected during 2020.

Exploration

In Ioannina, interpretation of the newly acquired seismic lines is ongoing and a drill-or-drop decision will be taken in 1H 2020. The quality of acquired seismic was a major improvement when compared to historic vintages and the lines have identified two prospective trends with multiple analogue prospects. Further, the new 2D seismic has verified the existing geological model, de-risking existing prospectivity. The seismic
lines were acquired with minimal environmental impact and Energean and the operator, Repsol, have agreed to plant trees in areas away from the 2D seismic lines.
In Aitoloakarnania, the operator, Repsol, is carrying out the necessary environmental studies in preparation for the 2D seismic acquisition campaign, which is expected to commence in 2Q 2020, subject to permitting.

In Montenegro, a number of shallow gas prospects and deeper carbonate prospects have been identified through interpretation of the newly acquired seismic data. Energean is awaiting final data in order to confirm the primary prospect. The Ministry of Economy in Montenegro confirmed that Energean will receive an extension to the first exploration phase to 15 March 2021, with a drill-or-drop decision by year end 2020.

Financial and Corporate Update

Guidance is provided in relation to Energean’s full year reporting to 31 December 2019 in advance of the Group’s Full Year Results release on 19 March 2020. Guidance figures have not been audited and may be subject to further review and amendment.

2019
Total Revenue ($ million) 76
Cost of Production ($ million) 26
EBITDAX ($ million) 36
Operating Cash Flow ($ million) 32
Development & Production Capital Expenditure ($
million)
Israel ($ million) 597
Greece ($ million) 63
Total ($ million) 660
Exploration Capital Expenditure ($ million)
Israel ($ million) 47
Greece ($ million) 9
Montenegro ($million) 5
Total ($ million) 61
Total Net Debt ($ million) 557
Net Debt – Israel ($ million) 638
Cash and Undrawn Facilities ($ million)10 834
Israel – Cash ($ million) 110
Israel – Undrawn Facilities ($ million) 445
Ex Israel – Cash ($ million) 244
Ex Israel – Undrawn Facilities ($ million) 35

Excluding the $600 million acquisition bridge

2020 Pro Forma Guidance

2020
Production
Egypt (kboe/d) 32 – 37
Italy (kboe/d) 8 – 10
Greece (kboe/d) 2 – 2.5
Croatia (kboe/d) 0.5
Total Pro Forma Production (kboe/d) 42.5 – 50.0
Operating Costs ($ million) 225 – 250
Development and Production Capital Expenditure
– Israel ($ million) 590
– Egypt ($ million) 10012
– Italy ($ million) 120
– Greece ($ million) 65
– Croatia ($ million) 10
Total ($ million) 885
Exploration Capital Expenditure (Firm)
– Israel ($ million) 40
– Egypt ($ million) 60
– Italy ($ million)
– Greece ($ million) 10
– Croatia ($ million)
– Other ($ million)
Total ($ million) 110

 

East Med pipeline to upgrade geostrategic role of participants

The EastMed Pipeline Agreement, a trilateral deal signed by the energy ministers of Greece, Cyprus and Israel in Athens yesterday with the leaders of all three countries in attendance, includes provisions for measures to protect and safeguard the pipeline project, sources have informed.

Other details in the agreement, fundamental to the region’s energy developments, include a regulatory and licensing framework facilitating the project’s development, common tax rules, as well as terms enabling the entry of new members and transmission of additional natural gas quantities from existing or new gas fields, including south of Crete, should any new deposits be discovered in the region.

The agreement upgrades the geostrategic roles of Greece and Cyprus and is a crowning achievement for the three-way cooperation established between the two countries and Israel, noted Greek Prime Minister Kyriakos Mitsotakis.

The 2,000-km pipeline is planned to carry between 10 to 20 billion cubic meters of natural gas to Europe via the three countries and Italy.

Addressing the heightened Turkish provocation of late, the Greek leader noted that the pipeline does not pose a threat for any side, adding regional cooperation is open for all provided rules of good neighborliness and international law are respected.

Following up on the recent commencement of production at the Leviathan gas field off the coast of Israel, the EastMed Pipeline Agreement establishes Israel as a key energy player in the region, stressed Israeli Prime Minister Benjamin Netanyahu.

The project promises to offer major collective benefit for the three countries involved as well as the wider region, noted Cypriot President Nicos Anastasiades.

Earlier yesterday, Greek gas utility DEPA and Energean Oil & Gas, active in the wider Mediterranean region, signed a Letter of Intent at the energy ministry through which DEPA will be able to purchase natural gas quantities from Energean, extracting at Israeli gas field licenses.

DEPA, in a company announcement, described the Letter of Intent as a major first step for the East Med project’s commercial viability.

Trilateral East Med agreement set to be signed in Athens today

The energy ministers of Greece, Cyprus and Israel are set to sign a trilateral agreement in Athens this afternoon for the development of East Med, a natural gas pipeline to carry gas to Europe via the three countries and Italy.

The pipeline, planned to measure 2,000 km and offer a capacity ranging between 10 to 20 billion cubic meters, promises to reinforce the Greek-Cypriot-Israeli alliance amid times of heightened Turkish provocation in the region.

Italian economic development minister Stefano Patuanelli, responsible for the country’s energy portfolio, has forwarded a letter of support for the project to Greek energy minister Costis Hatzidakis.

The Greek minister will sign the East Med agreement today with Giorgos Lakkotrypis and Yuval Steinitz, his Cypriot and Israeli counterparts, respectively. Italy is also expected to eventually join the partnership for this project.

Just hours before this signing ceremony, planned for 15:45, Greek gas utility DEPA and Energean Oil & Gas, active in the wider Mediterranean region, will sign a Letter of Intent at the energy ministry.

Importantly, this agreement promises to pave the way for a first commercial agreement reserving natural gas quantities ahead of the East Med pipeline’s construction, as DEPA will commit to purchasing natural gas quantities from Energean, extracting at Israeli gas field licenses. These quantities will represent approximately 20 percent of the East Med pipeline’s initial capacity.

The development prospects of East Med were recently propelled by a decision from IGI Poseidon, a 50-50 joint venture involving DEPA and Italy’s Edison, to accelerate the completion of all pending issues needed for the project’s maturity.

An upcoming East Med Gas Forum, to take place in Cairo January 15 and 16 with participation from the energy ministers of Greece, Cyprus, Israel, Egypt, Jordan and the Palestinian Authority, should help add further dimension to the alliance.

The East Med pipeline, planned as a complementary route to other projects in the wider region, stands as the most mature component of an EU plan entailing the development of an energy corridor to connect new energy sources in the east Mediterranean with European markets, including the southeast European market.

 

Energean SPA for Edison E&P buy awaiting gov’t approvals

A previously announced conditional sale and purchase agreement (SPA) entered by Energean on July 4, 2019 for the acquisition of Edison E&P from Edison remains subject to relevant government approvals, including the consent of the relevant Algerian authorities in respect of the Edison E&P assets located in Algeria, Energean announced in a statement released today.

Energean notes that Edison has received a letter from the Algerian authorities, which invites Edison to discuss the transaction with Sonatrach. In parallel, discussions are ongoing between Energean and Edison to ascertain any requirement for amendments to the SPA. Energean and Edison are also working to agree an appropriate settlement on the total transaction consideration to take into account any exclusion of the Algerian Asset from the transaction perimeter.

Energean does not expect the Algerian discussions to impact upon its ability to close the transaction on the remaining assets in the Edison E&P portfolio. The required government approvals have already been obtained from UK, Norway, France and Greece.

Approvals from Italy and Egypt are anticipated in the near future. Energean is working to complete the Edison E&P acquisition as soon as is possible in 2020, subject to the approval of its shareholders and the other relevant governments.

The sale of Edison E&P’s UK and Norwegian subsidiaries will be completed as soon as is reasonably practicable thereafter, the Energean statement noted.

Kavala underground gas storage tender in first half of 2020, TAIPED announces

A tender for the conversion of a depleted natural gas field in the offshore South Kavala region into an underground gas storage facility will be announced in the first half of 2020, according to privatization fund TAIPED.

The project, estimated to cost between 300 and 400 million euros, is needed for storage of strategic gas reserves.

Steps that will need to be taken in the lead-up to the tender have just been presented by the privatization fund’s administration, confirming that previous legal complexities have now been resolved.

Two steps are needed. A joint ministerial decision must be issued. Also, RAE, the Regulatory Authority for Energy, needs to prepare a regulatory framework offering prospective investors a reliable estimate on earnings they should anticipate, necessary before any binding bids can be submitted.

France’s Engie as well as Energean Oil & Gas and GEK-Terna have formed a three-member consortium named Storengy in anticipation of the tender. DESFA, the gas grid operator, is also expected to participate in the tender.

Ministry amendment to unblock Kavala storage legal complexity

The energy ministry has prepared a legislative amendment needed to overcome a legal complexity that has emerged concerning the development of an underground gas storage facility in the offshore South Kavala region through the utilization of a depleted natural gas field.

The amendment, which could be submitted to parliament today, will not lead to any fundamental changes concerning the project but purely focuses on resolving the legal obstacles obstructing its development, sources informed.

Once ratified, this amendment will pave the way for the publication of a related joint ministerial decision in the government gazette ahead of the asset’s eventual privatization.

Meanwhile, RAE, the Regulatory Authority for Energy, needs to prepare general guidelines determining the project’s pricing policy, regulated earnings, WACC level, as well as a minimum capacity level that will need to be kept vacant by the project’s investor for national energy security reasons.

RAE will have three months to prepare the guidelines once the joint ministerial decision has been published in the government gazette.

TAIPED, the privatization fund, has received an amount worth 1.6 million euros from the European Commission’s Connecting Europe Facility (CEF) to finance engineering studies required for the underground gas storage facility ahead of the privatization tender. This financial development was included in a updated Asset Development Plan (ADP) presented by TAIPED a fortnight ago. The investment’s cost is estimated between 300 and 400 million euros.

France’s Engie, Energean Oil & Gas and GEK-Terna have formed a three-member consortium named Storengy in anticipation of the tender. DESFA, the gas grid operator, is also expected to participate in the tender.

Legal details delay ministerial decision for gas storage facility

A joint ministerial decision concerning the operating regulatory framework for a prospective underground gas storage facility in the offshore South Kavala region has been held back by a latest administrative obstacle.

The decision, prepared by the energy ministry, has been put on hold until legal details are resolved, sources noted.

Despite the emergence of this latest hurdle, the ministry will soon be in a position to clear it, energy minister Costis Hatzidakis announced yesterday.

Meanwhile, RAE, the Regulatory Authority for Energy, has begun preparing general guidelines to determine pricing policy, adjustable earnings, minimum WACC levels, as well as compulsory vacancy levels that will need to be maintained by the project’s developer as support for national energy security.

Once the joint ministerial decision has been published, RAE will have three months to complete the  framework so that bidders will have its details when the time comes to submit binding offers.

TAIPED, the privatization fund, plans to stage a tender offering the underground gas storage facility within the first six months of 2020.

To be developed at a depleted natural gas field, the underground gas storage facility will offer a storage capacity of at least 360 million cubic meters.

The investment’s cost is estimated between 300 and 400 million euros. France’s Engie, Energean Oil & Gas and GEK-Terna have formed a three-member consortium named Storengy in anticipation of the tender.

DESFA, the gas grid operator, is also expected to participate in the tender.

A total of 642 underground gas storage facilities offering an overall capacity of 333 bcm, approximately 11 percent of global gas consumption, operate around the world. In the EU, 126 such facilities offer a total gas storage capacity of about 80 bcm.

Energean honors International Day of Persons with Disabilities

Energean, the oil and gas producer focused on the Mediterranean, has honored the International Day of Disabled Persons across its international locations, the company announced in a statement.

In Israel, Energean supported an event at Rabin elementary school, located in the northern city of Nesher, attended by approximately 100 4th grade students. The aim of the activity was for the children to experience some of the daily challenges faced by disabled people. Activities included communicating in sign language and maneuvering through a room full of obstacles in a wheelchair.

In Kavala, Greece, Energean has continued supporting the School of Special Vocational Education and Training. This year, the company offered its support to an event organised by the school on the International Day of Disabled Persons, and donated equipment for the school’s multi-sensory room, aiding children on the autistic spectrum and with learning difficulties. The school’s multi-sensory room was constructed with proceeds from a crowd-funding effort initiated by Energean.

In the Ilia region, west Peloponnese, Energean made a donation to the Association of Paraplegics and Disabled people, a foundation the company has continued to support and collaborate with.

Mrs. Ilia Rigas, Head of Energean Corporate Social Responsibility, commented:  

“We are very happy and proud for all the initiatives we have undertaken to honor the International Day of Disabled Persons. These events are important to Energean as we continue our efforts to contribute to the United Nations’ 2030 agenda and UN’s effort towards a world that is fully inclusive for persons with disabilities. The initiatives serve the UN’s Sustainable Development Goals, specifically Goal 10, which is to reduce inequalities, and Goal 17, which is partnerships for the Goals.”

“At Energean, December 3rd is celebrated all year round, since it is our philosophy to support, every single day, a world of inclusion, empowerment and equality for Persons with Disabilities.”

ELPE’s Gulf of Patras drilling delayed until ’21, red tape cited

Exploratory drilling by ELPE (Hellenic Petroleum) at its Gulf of Patras license in western Greece will be delayed until 2021 instead of the first quarter of 2020, as was officially planned, or, late 2020, the unofficial target, primarily as a result of bureaucratic obstacles, according to updates offered by company officials at an EAGE (European Association of Geoscientists and Engineers) event just held in Athens.

The Gulf of Patras license was awarded to a consortium comprising ELPE and Edison through an open-door tender launched in 2012 and completed in 2014. Energean Oil and Gas is also involved as a result of its recent acquisition of Edison’s E&P.

The license area, situated between Kefalonia, Achaia and Etoloakarnania, measures 1,419 square kilometers.

Preliminary research work has been completed, identifying wider areas to be explored, including specific drilling spots.

The delay of a concession agreement for a port in the wider region, needed to facilitate drilling needs, has held back the venture.

ELPE has, so far, unsuccessfully sought concession agreements with four ports, Patras, Kyllini, Aigio and Astakos.

Any port that would accept heavy drilling equipment needs to have included such activities in its official operating plan. The detail has prompted bureaucratic issues for ELPE in its effort to secure a port facility.

The project is a high-cost venture as it will be performed in deep-sea territory. Preliminary estimates put the size of the prospective reserves at 140 million barrels.

 

Energean appoints Non-Executive Chairman, Ind. Non-Executive Director

Energean Oil and Gas, the oil and gas producer focused on the Mediterranean, has announce the appointment of Karen Simon (photo), currently Independent Non-Executive Director, as Non-Executive Chairman, replacing Simon Heale, who has retired; and Amy Lashinsky as Independent Non-Executive Director, all effective on 21 November 2019.

Karen Simon is newly retired from J.P. Morgan as a Vice Chairman in the Investment Bank with over 35 years of corporate finance experience with the firm.

Most recently, Ms. Simon headed up Director Advisory Services, a newly established client service at J.P. Morgan focused on public company directors.

From 2004 to 2016, Ms. Simon worked with private equity firms in J.P. Morgan’s Financial Sponsor Coverage group and was promoted to head the European group in 2007 and the North American group in 2013.

Ms. Simon held a number of other senior positions previously, including Co-Head of EMEA Debt Capital Markets and Head of EMEA Oil & Gas coverage.

Ms. Simon spent 20 years of her career working in London and is a dual US/UK citizen. She currently sits on the boards of Aker ASA in Oslo, an industrial investment company, and the Texas Woman’s Foundation, a non-profit charity focused on the needs of underprivileged girls and women across Texas.

Ms. Simon graduated from the University of Colorado and has Masters degrees from Southern Methodist University and from the American Graduate School of International Management.

Karen Simon, Non-Executive Director and new Chairman, remarked:

“It is a privilege for me to step up as Chairman at Energean, a company with a clear strategy, a strong and growing asset base and a focused, diverse and professional team. I look forward to working closely with colleagues to drive the business forward and create value for our shareholders as we execute our transition fuel strategy. On behalf of the Board I would like to thank Simon [Heale] for his significant contribution to Energean and the entire Energean team offers Simon all best wishes for the future.”

Simon Heale, non-executive Chairman, noted:

“Karen Simon has made a significant contribution to Energean since she became a Non-Executive Director in 2017 and I leave Energean in excellent hands, with listings in London and Tel Aviv, a significant development in Israel and a growing reserves and production base in the Mediterranean. With its gas-weighted strategy and portfolio, Energean is well-placed to address the many challenges and opportunities ahead. It has been an honor to serve on the Board and I wish Energean every success, going forward.”

Amy Lashinsky, the new independent Non-Executive Director, is a co-founder of Alaco, the international risk management company, and a member of its Board.

Ms Lashinsky trained as a securities analyst on Wall Street before joining Kroll in New York in 1985. She moved to London in 1988 to help establish Kroll’s first overseas office where she became Managing Director of its business intelligence unit.

In 1995 Ms. Lashinsky set up Asmara Limited, which was sold to NYSE-listed Armor Holdings in 1998, before founding Alaco in 2002.  Ms Lashinsky graduated from the University of Michigan.

Energean Israel signs GSPA with MRC

Energean Israel and MRC Alon Tavor Ltd. have signed a Gas Sales and Purchase Agreement (GSPA) for the sale of approximately 0.5Bcm/yr, or up to 8 Bcm over the term of the contract, Energean Oil and Gas, the oil and gas producer focused on the Mediterranean, has announced in a statement.

Supply will commence at Karish first gas and the contract term is for a period of 15 years from the date of signature, according to the statement. The GSPA is linked to the Israeli Electricity Production Index and has floor pricing and take-or-pay provisions, the statement added.

Energean estimates the GSPA will add revenues in excess of $1 billion over the term of the contract.

Energean also recently signed a contract amendment with OPCRotem that accelerated the rate of gas consumption and increased annual gas supply by 0.2Bcm/yr. This was accompanied by a shortening of the contract term such that there was no change in the total contract quantity of gas.

Energean now has firm GSPAs for the supply of 5.0Bcm/yr of gas into the Israeli domestic market, excluding the contingent GSPAs that have been signed with I.P.M Beer Tuvia (0.4Bcm/yr) and Or Power Energies (“Or”) (0.7Bcm/yr).

Energean submits applications to import, supply gas to Cyprus

Energean Oil & Gas, the oil and gas producer focused on the Mediterranean, has submitted applications to Cypriot authorities for import and supply of natural gas to Cyprus commencing 2021, the company has announced.

The submission of the applications follows the ‘Karish to Cyprus Preliminary Pipeline Development Plan’ that has already been presented to the Cyprus Energy Regulatory Authority, according to which, natural gas will be transported through pipelines from the Karish offshore block to the “Energean Power” Floating Production, Storage and Offloading unit, and from there through a pipeline to Vassiliko, Cyprus, where it will landfall.

The pipeline from the Energean Power FPSO to Vassiliko will have a total length of 215 kilometres and transport natural gas from the Karish North field, offshore Israel, which contains 25 BCM of discovered recoverable resources. Total investment will be circa $350 million and will be funded by Energean.

The Republic of Cyprus will bear no upfront cost. Provided that there will be no delays in permitting procedures, the project will allow the Republic of Cyprus to receive competitively priced natural gas from 2021.

Moreover, the project will further strengthen Cyprus’ geostrategic role in the Eastern Mediterranean, in accordance with the trilateral cooperation between Cyprus, Israel and Greece and in reference to the East Med Pipeline project that is planned to transport natural gas to Europe.

Mathios Rigas, CEO of Energean, stated:

“Energean’s proposal offers the Republic of Cyprus the option to switch to natural gas as soon as possible, and under the most competitive terms. Execution of the proposal will bring competition to the Cypriot natural gas market, decrease energy costs across the economy and result in enhanced diversity and security of supply. Our proposal enhances the planning of the Republic of Cyprus and the security of supply, as it is supplementary to the LNG import procedures launched by the Cypriot Government.

We expect that the Republic of Cyprus will take advantage of the options that the market offers for the benefit of the Cypriot economy and the consumers”.

Energean has already signed Letters of Intent (LOIs) with all three IPPs that have been granted a license to construct combined cycle power plants in Cyprus – Power Energy Cyprus, Lysarea Energia and Paramount Energy Corporation.

The Energean Power FPSO has a capacity of 8BCM per year and Energean has already signed firm GSPAs with Israeli IPPs and industrial consumers for 4.5 BCM per year for an average period of 16 years as of 2021.

 

Energean releases trading update covering recent activity

Energean Oil and Gas, the oil and gas producer focused on the Mediterranean, has released the following trading update for the period from 30 June 2019 to 12 November 2019.

Highlights

Transaction Update:

  • On track to complete the Edison E&P acquisition around year end 2019 (“Acquisition Completion”). The onward sale of Edison E&P’s UK and Norwegian subsidiaries to Neptune Energy is on track to complete as soon as is reasonably practicable thereafter.
  • Refinancing of the $600 million committed bridge facility with a Reserve Based Lending (“RBL”) facility progressing well; expected to be in place in 4Q 2019, before Acquisition Completion.

Operational:

  • On track to deliver first gas from the Karish Development in early 2021.
  • Completed the drilling of the three development wells required to deliver first gas from Karish.
  • Karish North appraisal confirmed best estimate recoverable resource volumes of 0.9 Tcf (25 Bcm) plus 34 MMbbls of light oil / condensate (combined c.190 mmboe).
  • Signed a Term Sheet with MRC Alon Tavor Power, Ltd., the winning bidder of the Alon Tavor tender, which could add a further 0.5 Bcm/yr of firm gas sales.

Outlook:

  • Committed to drilling the Zeus exploration well in Block 12, Israel, targeting 0.6 Tcf.
  • Full year production guidance maintained at 3,400 – 3,600 bopd.
  • At 30 September 2019, Energean had cash and undrawn debt facilities of $1.6 billion.  

Acquisition of Edison E&P

Energean remains on track to complete the acquisition of Edison E&P, announced on 4 July 2019, around year end 2019 and Edison E&P continues to perform in line with expectations. Energean is progressing the necessary regulatory approvals. To date, approvals have been received in France, Norway and Greece. Approvals are outstanding, and expected shortly, in Italy, Egypt, Algeria and the UK.

The $600 Bridge Loan is expected to be replaced with a reserve-based lending facility before Acquisition Completion. The process is progressing in line with expectations.

Disposal of UK North Sea & Norway Assets to Neptune Energy

Energean remains on track to complete the sale of Edison E&P’s UK and Norwegian subsidiaries to Neptune Energy, as announced on 14 October 2019. The sale is contingent on Acquisition Completion and is expected to close as soon as is reasonably practicable thereafter.

Israel – Karish and Tanin Development

Energean’s Karish and Tanin development project remains on track to deliver first gas into the Israeli domestic market in 2021. During the period, Energean met its key milestones of completing the drilling of the three development wells required to deliver first gas from Karish, appraising the Karish North Discovery and launch of the Energean Power FPSO hull.

Israel – Drilling

As announced on 4 November 2019, Energean has now completed sidetrack appraisal operations at Karish North, confirming best estimate recoverable resources of 0.9 Tcf (25 BCM) plus 34 million barrels of light oil / condensate (combined c.190 mmboe), significantly enhancing Energean’s discovered resource volumes across its Karish and Tanin leases.

Low, Best and High case estimated resources are outlined in the table below. The remaining volumetric uncertainty is largely associated with thinly bedded sections of the reservoir in the B Sand Unit. This potential will be confirmed via acquisition of a core from this section, which is expected to be achieved when the well is completed as a producer.

Low Case Best Estimate High Case
GIIP (Tcf) 1.1 1.3 1.8
GIIP (BCM) 30.0 35.6 51.6
Recoverable Gas (Tcf) 0.7 0.9 1.4
Recoverable Gas (BCM) 19.5 24.9 38.7
Recoverable Liquids (MMbbls) 25.2 34.2 55.0

 

The Karish North Discovery will be developed via a tie-back to the Energean Power FPSO, which will be located 5.4 kilometers away and is being built with 8 Bcm/yr (775 mmcf/d) of capacity. Future GSPAs will target both the growing domestic market and key regional export markets.

As planned, the Stena DrillMax has now moved to complete the three Karish Main development wells. Following completion of these wells, Energean has elected to drill the Zeus exploration well, which is targeting 0.6 Tcf of Gas Initially In Place (“GIIP”) across three reservoir intervals. Zeus is located in Block 12, between the Karish and Tanin leases, and a discovery would be commercialised through the Energean Power FPSO. The Zeus exploration well is expected to cost $35 million (gross).

Energean is assessing options for the remaining five drilling options available under its contract with Stena.

Israel – Commercial

In December 2018, Energean signed a GSPA with I.P.M Beer Tuvia Ltd. (“I.P.M.”) to supply an estimated 5.5 Bcm (c. 0.2 Tcf) of gas over the life of the contract. The contract is contingent, inter alia, on the results of Energean’s 2019 drilling programme and the results from the Karish North exploration well and appraisal sidetrack well significantly increase the likelihood of it becoming unconditional. Inclusive of the I.P.M contract, Energean’s firm contracted gas sales are equivalent to 4.7 Bcm/yr.

Energean has also recently signed a detailed term sheet with MRC Alon Tavor Power, Ltd., the winning bidder in the IEC Alon Tavor tender process. If, as is the express intention of the parties, this is converted into a GSPA, this will add c.0.5 Bcm/year (48 mmcf/d).

Finally, Energean also has a conditional GSPA with Or Power Energies (Dalia) Ltd. (“Or”), which is contingent, inter alia, on certain conditions precedent. The contract is for c.0.7 Bcm/yr (68 mmcf/d). It should be noted that, in common with other GSPAs in Israel where Energean is the seller, Or has an unlimited ability to dispose of gas for alternative end uses.

The weighted average contract price was US$4.22/mmbtu as of 30 September 2019 based on the Israeli electricity production component index, Brent oil price and exchange rates as of that date.

Greece – Prinos Area

Production in the year to 30 September 2019 was 3,577 bopd. Full year production guidance is maintained at 3,400 – 3,600 bopd. Energean’s review of capital allocation is ongoing.

The Epsilon Platform Development remains on track to deliver first oil in 2H 2020.

Additional activities

At Katakolo, legacy 3D seismic re-processing has been finalised in parallel with application for necessary environmental permits. Analysis suggests significant upside to in place volumes. A decision on whether to farm down or take Final Investment Decision will be taken after the results from this analysis have been finalised.

In Ioannina, 2D seismic acquisition has been completed and interpretation is ongoing. In Aitokarnania, activities are focused on the re-processing of existing data and preparation for the new seismic campaign, which is scheduled to start before year end.

In Montenegro, processing and interpretation of the recently acquired 3D seismic survey is ongoing. Results are anticipated before year end 2019. 

Financial Update

Energean recorded revenues of $52.4 million in the 9 months to 30 September 2019, (1Q-3Q 2018:  US$55.4 million). Unit cost of production was $19.8/bbl and Energean maintains Full Year Guidance of $20/bbl.

Revised capital expenditure guidance is shown in the table below. Development capex is reduced by $25 million on expected timing.  Exploration capital expenditure in increased by $8 – 23 million due to the inclusion of the Karish North sidetrack and preparatory activities for the Zeus exploration well, which is expected to be drilled during 2020.

Revised Full Year 2019 Capital Expenditure Guidance

$m

Previous Full Year 2019 Capital Expenditure Guidance

$m

Prinos & Epsilon 70 – 80 70 – 80
Israel – Development 625 650
Total Development & Production Capital Expenditure 695 – 705 720 – 730
Israel Exploration 65 45 – 55
Western Greece 7 – 8 5 – 10
Montenegro 5 5
Total Exploration 77 – 78 55 – 70

 

At 30 September 2019, Energean had net debt of $348.6 million. Gross cash was $393.1 million, offset by $741.7 million of borrowings. As at this date, Energean had $36 million remaining undrawn under its Greece RBL facility, $615 million under the $1.275 billion Karish-Tanin project finance facility and $600 million of debt available under the committed Bridge Facility.

Energean has no crude oil hedges outstanding.

Repsol-Energean given extra year for Ioannina license preliminary stage

A consortium comprising Repsol and Energean Oil & Gas has been granted a one-year extension by EDEY, the Greek Hydrocarbon Management Company, to complete preliminary exploration work at an onshore license in the wider region of Ioannina, northwestern Greece.

Repsol, controlling a 60 percent stake in the consortium, and Energean, holding 40 percent stake, requested an additional year until October 2, 2020, to complete preliminary exploration work at the license.

This is the second deadline extension granted to Repsol-Energean for the license’s preliminary phase. A first extension, granted in 2017, expires next month. The consortium is currently processing new seismic data.

The EDEY extension decision also requires the consortium to complete a second exploration phase, involving deep drilling, by October 2, 2022, should the partners decide to pursue the license further.

The license location’s geological features, featuring rocky terrain, are considered challenging. Also, the two companies have faced resistance, at times extreme, from small groups representing local communities while conducting their seismic research and related activities. The support of local landowners exceeds 90 percent, which has enabled the completion of research work in recent weeks.

Slight delay, to early 2020, likely for Kavala gas storage tender

A tender for the utilization of a depleted natural gas field in the offshore South Kavala region as an underground gas storage facility appears headed for a slight delay and could be launched in early 2020, instead of late 2019, as a result of a deadline extension, from August 28 to September 9, granted to participants of a preceding tender looking to appoint a technical consultant for the project.

Besides the preliminary tender’s deadline extension, granted by the privatization fund TAIPED, a still-undelivered co-ministerial decision to determine the operating regulations of the storage facility is another matter that has increased the likelihood of a delay in the project’s competitive procedure. Even so, a launch by late 2019 has not been entirely ruled out.

The technical consultant will be tasked with preparing the tender’s details and offering TAIPED advice on the level of appropriateness of the plan to convert the depleted natural gas field into a gas storage facility, its equipment and interconnection needs, and other matters.

France’s Engie, Energean Oil & Gas and GEK-Terna have formed a consortium named Storengy in anticipation of the project’s tender.