2022 Full Year Results

RNS Number : 9346T
Energean PLC
23 March 2023
 

 

 

 Energean plc

("Energean" or the "Company")

 

2022 Full Year Results

 

London, 23 March 2023 - Energean plc (LSE: ENOG, TASE: א) is pleased to announce its audited full-year results for the year ended 31 December 2022 (" FY 2022 ").

 

Mathios Rigas, Chief Executive of Energean, commented:

" 2022 was a year of transformation for Energean - where a long-held vision became an operational reality. It was a year of positive delivery. We commenced production from the only FPSO in the strategically vital Eastern Mediterranean region, paid dividends to our shareholders, and laid the foundation for our future growth through the discovery and de-risking of new natural gas resources adjacent to our infrastructure. Energean was the sole owner-operator of five deepwater wells, which drove a 20% increase in our reserve base, and marked the 15th consecutive year of reserve and resource base increases for Energean. We are proud to be on track to deliver between 4.5 and 5.5 bcm of gas into the Israeli domestic gas market this year, contributing towards the security of energy supply of the region and improving the living conditions of the Israeli public through the reduction of emissions from the displacement of coal-fired power generation.

"The first quarter of 2023 has continued the positive trend. Production from Karish is in line with our expectations, and in February we supplied the first Israeli hydrocarbon liquids export cargo to international markets. In Egypt, we achieved first gas at NEA/NI with three further wells due to come onstream during the year. In Italy, we are the third largest producer of natural gas and look forward to increasing our contribution towards the country's energy supply. And in Greece, we are continuing our efforts to explore the untapped resources of the country.

"The remainder of 2023 will see us present the development concept for the Olympus Area, offshore Israel, and increase the capacity of the Energean Power FPSO to 8 bcm/yr. This is alongside delivery of production in line with guidance plus on-target returns, as promised, to our shareholder base. Through our gas contracting strategy we are in a unique position to have a very predictable and stable cashflow despite turbulence and challenges in the international financial markets.

"We are committed to investing in projects where we can create value for all stakeholders. The global energy crisis is not over - the global gas market remains dangerously tight and benefitted from a mild European winter, but thousands of industrial jobs are now at risk not just to price but also to availability. We therefore hope that governments understand the value of enhanced domestic and regional energy production, that can only be delivered through long-term investment."

Highlights

· Delivered first gas from Karish in October 2022

Production and ramp up in line with expectations

Energean is now sequentially notifying gas buyers that the commissioning period under the gas sales and purchase agreements ("GSPAs") has ended and the start date for commercial obligations has commenced. The Company expects to have completed this process for all gas buyers by the end of March 2023

· Initiated hydrocarbon liquid exports from Karish field to international markets

· Delivered first production from NEA/NI, Egypt, in March 2023

· On track to deliver 200 kboed production target in 2H 2024

· Confirmed year-end 2P reserves of 1,161 mmboe (+20% increase versus end-2021) representing a reserve replacement ratio of 1400%

Including the addition of 31 bcm (approximately 206 mmboe) of 2P reserves in the Olympus Area, offshore Israel, that have now been certified by Energean's reserves auditor, Degolyer and McNaughton ("D&M")

· Delivered strong financial performance, underpinned by strong commodity prices

2022 revenues of $737.1 million, represented a 48.3% increase (2021: $497.0 million)

2022 EBITDAX of $421.6 million, represented a 98.8% increase (2021: $212.1 million)

2022 profit-after-tax of $17.3 million was an improvement on last year's loss (2021: $(96.2) million). Profit after tax was negatively impacted by $119.4 million of windfall taxes in Italy[1], which we expect have been applied on a one-off basis

Group cash as of 31 December 2022 was $502.7 million (including restricted amounts of $74.8 million) and total liquidity was $720.0 million. In March 2023, Energean signed a $350 million term loan which, although expected to remain undrawn, provides additional financial flexibility

· Announced dividend strategy and initiated dividend payments

Cumulative dividends paid of 60 US$ cents with a further 30 US$ cents declared and will be paid on 30 March 2023, representing an annualised yield of approximately 9%[2].

· Carbon Disclosure Project ("CDP") rating increased to A- (from B), outperforming the global average for E&Ps of C

 

Outlook

· 2023 production guidance confirmed at 131 - 158 kboed, including 4.5 - 5.5 bcm of gas from Karish

· Mid-term targets now considered near-term: on track to achieve production, financial targets and leverage targets in 2H 2024[3] through execution of key development projects

Karish growth projects to increase the capacity of the Energean Power FPSO are on track for year-end 2023, following which Israel production is expected to be 140 - 155 kboed on plateau

Three additional wells to be brought onstream at NEA/NI by year-end 2023, following which production in Egypt is expected to be more than 40 kboed

Cassiopea expected to deliver first gas in 2024, following which production in Italy is expected to be approximately 20 kboed

· Communication of development concept for the Olympus Area expected in the coming months

· Orion-1X well, Egypt, (Energean 30%, expected to farm down to 18%) expected to spud in late 2023, slightly delayed due to rig availability

· Declaration of quarterly dividends in line with previously communicated policy

$50 million per quarter initially, rising to $100 million per quarter following achievement of near-term targets

Cumulative dividends of at least $1 billion by end-2025

Post-2025 target to maintain a progressive dividend policy, underpinned by existing reserve volumes

 

Financial Summary

 

 

 

FY 2022

FY 2021

% Change

Average working interest production

kboed

41.2

41.0

0.5%

Sales and other revenue

$ million

737.1

497.0

48.3%

Cash Cost of Production

$ million

284.3

261.6

8.7%

Adjusted EBITDAX[4]

$ million

421.6

212.1

98.8%

Profit/(loss) after tax

$ million

17.3

(96.2)

118.0%






Capital expenditure

$ million

728.8

403.5

80.6%

Exploration expenditure

$ million

141.0

48.7

189.5%

Decommissioning expenditure

$ million

8.9

2.7

229.6%






Cash (including restricted amounts)

$ million

502.7

930.5

(46.0%)

Net debt - consolidated

$ million

2,518.2

2,016.6

24.9%

Net debt - plc excluding Israel

$ million

143.8

102.6

40.2%

Net debt - Israel

$ million

2,374.4

1,914.0

24.1%

 

 

Webcast & conference call

A webcast will be held today at 08:30 GMT / 10:30 Israel Time

 

Webcast: https://edge.media-server.com/mmc/p/o83rjj7h

 

Conference call registration link: https://register.vevent.com/register/BI8d6748462e8b4aa68a4f11f2d7e52ef2

 

After completing your conference call registration you will receive dial-in details on screen and via email. Please note the dial-in pin number is unique and cannot be shared.

The presentation slides will be made available on the website shortly at www.energean.com .

Enquiries

For capital markets: ir@energean.com

Kate Sloan, Head of IR and ECM    Tel: +44 7917 608 645

 

For media: pblewer@energean.com

Paddy Blewer, Head of Corporate Communications   Tel: +44 7765 250 857



 

Operational Review

Production and Reserves

Full year 2022 working interest 2P reserves were 1,161 mmboe, a 20% increase versus 2021 (965 mmboe) and representing a reserve replacement ratio of 1400%. The year-on-year changes are due mainly to:

· Certification of 2P reserves of 31 bcm (approximately 206 mmboe) in the Athena, Zeus and Hera structures in block 12, Olympus Area, Israel

· Offset by 15 mmboe of production across the portfolio


2022 2P Reserves

mmboe (% gas)

2021 2P Reserves

mmboe (% gas)

% increase / (decrease)

Israel

940 (89%)

744 (86%)

26%

Egypt

99 (87%)

103 (87%)

(4%)

Rest of Portfolio

122 (38%)

119 (59%)

3%

Total

1,161 (84%)

965 (81%)

20%

 

Production

 

In 2022, total production was 41.2 kboed

 

· Production excluding Israel was 35.7 kboed, the mid-point of the guidance range of 34.0 - 37.0 kboed.

 

· Israel 2022 production was lower than forecast due to the project being in the commissioning phase in 2022, as previously communicated.

 

2023 is expected to be a critical year for Energean and a key step towards its near-term goal of 200 kboed, which it expects to achieve in 2H 2024 (annualised). Energean maintains the guidance range of 131 - 158 kboed that was communicated in its January trading update

 

· Underlying production (excluding Israel) is expected to increase by approximately 12% at the mid-point of the guidance range (2023: 37.0 - 43.0 kboed), benefitting from contribution by the NEA/NI development, offshore Egypt.

 

· Israel gas production is expected to be between 4.5 and 5.5 bcm of sales; year-to-date production has ramped up in line with expectations.

Further to the progress of commissioning activities on the Karish Field and the Energean Power FPSO, Energean is now sequentially notifying gas buyers that the commissioning period under the GSPAs has ended and the start date for commercial obligations has commenced. Energean expects to have completed this process for all gas buyers by the end of March 2023.

 

· The first sale of Karish hydrocarbon liquids was completed in February 2023, and Energean expects Israel to contribute 15 - 18 kboed of hydrocarbon liquids production in 2023, at an estimated one lifting per month.

 


2022

kboed (% gas)

2021

kboed (% gas)

% increase / (decrease)

Israel

5.4 (92%)

-

-

Egypt

25.1 (87%)

29.1 (87%)

(14%)

Rest of portfolio

10.7 (40%)

11.9 (36%)

(10%)

Total

41.2 (75%)

41.0 (72%)

0%

 



 

Development

Israel - Karish Growth Projects

During 2023, Energean will complete installation of the second gas export riser and second oil train, whilst also delivering first production from Karish North. Combined, these projects will increase the total capacity of the FPSO to a maximum of 8 bcm/yr.

· The second export riser and the Karish North flowline were transported from the UK to Israel in March 2023. The riser will be installed shortly and will connect the production facilities on the FPSO to the pipeline-to-shore.

· Key upcoming activities ahead of Karish North first gas include installation of the Karish North manifold, umbilical and spool, ahead of opening of the well before year-end 2023.

· Construction of the second oil train is progressing in line with expectations in Dubai. The oil train will be installed and commissioned in-situ, and is expected to be ready to process hydrocarbon liquids by year-end 2023.

Israel - Olympus

D&M has certified 31 bcm (approximately 206 mmboe) of 2P reserves and 37 bcm (approximately 237 mmboe) of unrisked prospective resources in the Olympus Area, which is located in block 12 and the Tanin lease, offshore Israel. The associated Competent Person's Report ("CPR") will be made available on Energean's website.

The addition to Energean's development portfolio was a direct result of its successful 2022 growth drilling campaign. The Zeus and Athena wells, both in block 12, discovered 25 bcm (approximately 167 mmboe) of natural gas resources. D&M's analysis determined that the proximate Hera prospect, was also sufficiently de-risked to be classified as 2P reserves. Together, these total 31 bcm of 2P reserves, as mentioned above.

Energean is finalising the development concept for the combined 68 bcm of reserves and de-risked prospective resources that will underpin this development. Several development concepts are under evaluation, and Energean is focused on delivering the optimal solution to align with its goal of maximising stakeholder returns.

The CPR provides an indicative profile and economics for one of these potential options, although readers should note that D&M includes only the Olympus 2P within the overall profile, whilst the actual development will also envisage the development of the 37 bcm of de-risked prospective resources. The production profile in the CPR envisages the Olympus development being positioned between that of Karish North and Tanin, with block 12 economics benefitting compared to those of Tanin owing to its closer proximity to the FPSO and absence of royalties payable to the original seller of the Karish and Tanin leases.

Energean is also considering development options to access key regional export markets and also to further increase the overall capacity of its infrastructure through the addition of a third gas processing train.

 

Egypt

NEA/NI

In January 2021, Energean sanctioned the NEA/NI project, located in shallow water, offshore Egypt and adjacent to the producing Abu Qir field. First gas from NEA/NI was successfully delivered in March 2023 from the NEA#6 well, approximately two years and two months following final investment decision.

NEA/NI contains an estimated 39 mmboe[5] of 2P reserves (88% gas) with net working interest production expected to peak at 15 - 20 kboed (88% gas) in 2024. The development leverages existing infrastructure and involves the subsea tieback of four wells to Energean's North Abu Qir PIII platform; the first well is now onstream with the remaining three wells expected onstream during 2023.

 

Abu Qir drilling programme

Following the completion of the NEA/NI drilling programme, Energean expects to use the El Qaher-1 rig to drill four production wells on the Abu Qir licence. First gas from these wells is expected throughout 2024. 

Rest of portfolio

Cassiopea, Italy

First gas from Cassiopea (W.I. 40%) is expected in 2024. Onshore work is progressing well and offshore installation activities are expected to begin in Q2 2023. The operator expects to start drilling activities in the summer 2023, which includes two new wells and two recompletions.

Epsilon, Greece

First oil from Epsilon continues to be expected in 2024. The installation of the platform jacket at the field is expected to take place in Q2 2023.

 

Exploration and Appraisal

Egypt

North East Hap'y Offshore

Orion X1 well (Energean, 30%), located on the North East Hap'y block, offshore Egypt, is expected to spud in late 2023, which has been delayed due to rig availability. Energean expects to farm down its interest in the licence to 18% ahead of spudding the well.

Rest of Portfolio

The Izabela-9 well (Energean, 70%) located offshore Croatia, is expected to spud in Q2/Q3 2023.

Energean also expects to participate in two exploration wells (W.I. 40%), offshore Sicily in Italy, with its partner ENI (60%) in 2024. The low-risk Gemini and Centauro prospects are located close to the Cassiopea development, for which the infrastructure contains tie-in points for future discoveries.

 

2023 Guidance


FY 2023

Production

 

Israel (kboed)

94 - 115

(including 4.5 - 5.5 bcm of sales gas)

Egypt (kboed)

28 - 32

Rest of portfolio (kboed)

9 - 11

Total production (including Israel, kboed)

131 - 158

Total production (excluding Israel, kboed)

37 - 43

 

 

Consolidated net debt ($ million)

2,600 - 2,800



Cash Cost of Production (operating costs plus royalties)


Israel ($ million)

350 - 400

Egypt ($ million)

50 - 60

Rest of portfolio ($ million)

200 - 240

Total Cash Cost of Production ($ million)

600 - 700

 

 

Development and production capital expenditure


Israel ($ million)

140 - 160

Egypt ($ million)

140 - 150

Rest of portfolio ($ million)

300 - 330

Total development & production capital expenditure ($ million)

580 - 640



Exploration expenditure ($ million)

40 - 60



Decommissioning expenditure ($ million)

30 - 40

Corporate Review

HSE

In 2022, Energean delivered another strong HSE record with zero serious injuries recorded. The Loss Time Injury Frequency ("LTIF") Rate of 0.47 (2021: 0.33) and Total Recordable Incident Rate ("TRIR") of 1.18 (2021: 0.77) were lower than their respective targets of 0.50 and 1.20.

 

Financing

Energean ended 2022 with total available liquidity of $720 million (2021: approximately $1 billion), including undrawn amounts of $174 million under the Revolving Credit Facility signed in September 2022[6]. Following the signature of the term loan in March 2023, liquidity has increased to over $1 billion. This position ensures that the Company is well-funded for its projects-under-development.

Energean undertook a series of refinancings in 2021, which fixed nearly all of the Company's exposure to floating rates; Energean's average cost of debt in 2022 was 5.25% and substantially unimpacted by the global rise in interest rates. The only facility within Energean's capital structure that is impacted by global interest rate rises is the €90.5 million Greek facility and therefore the impact of the rate rises on the overall cost of debt has been minimal.

In 2024, the first tranche of Energean Israel Finance Limited's senior secured notes, is set to mature. The note is for an amount of $625 million and carries a coupon rate of 4.5%. Energean is currently considering its options to refinance this note, the preferred option for which is a repeat structure issuance in the debt capital markets.

Energean remains committed to its near-term target of reducing leverage, which it defines as net debt / EBITDAX, to below 1.5x. The company's EBITDAX stream is underpinned by long-term contracts with floor pricing provisions and take-or-pay and/or exclusivity provisions, which gives the Board confidence that, in the absence of additional projects, maintaining gross debt within the business at or around current levels represents an appropriate capital structure.

On the 17 March 2023 Energean also signed an unsecured $350 million two year term loan facility, which offers additional financial flexibility for the Group. The loan is expected to remain undrawn.

ESG and Climate Change

Energean is committed to net zero emissions by 2050 and industry-leading disclosure of its energy transition intentions.

Emissions reduction

Energean maintains a rolling carbon intensity reduction plan and currently anticipates a reduction in carbon emissions intensity of 7 - 9 kgCO2/boe by 2025, a reduction of more than 85% versus the base year of 2019, the key driver being the influence of Karish, which has a very low carbon emissions intensity of 4 - 5 kgCO2/boe. The Group recorded full-year 2022 emissions intensity of 16.0 kgCO2/boe, a 13% year-on-year reduction, and expects to further reduce emissions intensity to 7 - 9 kgCO2/boe in 2023.

The Prinos CCS project proposal is to provide long-term storage for carbon dioxide emissions captured from both local and more remote emitters, and is proposed to be a scaleable CO2 injection and storage project leveraging existing onshore and offshore infrastructure that is fully owned and operated by Energean.

ESG ratings and affirmation

In December 2022, the Carbon Disclosure Project ("CDP") upgraded its Climate Change rating for Energean to A-, from B in the previous year, outperforming the global average of E&P peers of C. Also in 2022, Energean was rated AA by MSCI (for the second year running), 76 out of 280 for E&Ps by Sustainalytics (top 30%), platinum by the Maala Index (increased from gold) and awarded the "Best ESG Energy Growth Strategy Europe 2022" by CFI for a second year running.

In August 2022, Energean was confirmed as a constituent of the FTSE4Good Index Series, following the its June 2022 review. The FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong ESG practices.

Energean has also continued to comply with the Task Force on Climate Related Financial Disclosure ("TCFD") recommendations, full disclosure on which will be provided in the Annual Report and Accounts.

Financial Review

Financial results summary

 

2022

2021

Change from 2021

Average working interest production (kboepd)

41.2

41.0

0.5%

Revenue ($m)

737.1

497.0

48.3%

Cash cost of production ($m)

284.3

261.6

8.7%

Cost of production ($/boe)

18.9

17.5

8.1%

Administrative & selling expenses ($m)

45.9

43.0

6.7%

Operating profit ($m)

232.2

32.1

623.4%

Adjusted EBITDAX ($m)

421.6

212.1

98.8%

Profit/ (Loss) after tax ($m)

17.3

(96.2)

118.0%

Cash flow from operating activities ($m)

272.2

132.5

105.4%

Capital expenditure ($m)

869.8

407.9

113.2%

Cash capital expenditure ($m)

460.2

452.2

1.8%

Net debt ($m)

2,518.2

2,016.6

24.9%

Net debt/equity (%)

387.3

281.2

37.7%

 

Revenue, production, and commodity prices

Revenue increased by $240.1 million (2021: $497.0 million) to $737.1 million primarily a result of higher realised commodity prices. The Group's realised weighted average pre-hedging oil and gas price for the year was $81.2/bbl (2021: $57.1/bbl) and $11.2/mcf (2021:5.2 $/mcf), respectively. 

Working interest production averaged 41.2 kboepd in 2022 (2021: 41.0 kboepd), with the Abu Qir gas-condensate field, offshore Egypt, accounting for over 60% of total output.

Adjusted EBITDAX amounted to $421.6 million (2021: $212.1 million). The increase from 2021 was due to higher revenue partially offset by slightly higher operating costs from the enlarged group. Included within revenue is the realised loss on the PSV (Italian gas price) hedges of $55.2 million, excluding this lost revenue would result in an adjusted EBITDA of $476.8 million; which is an increase of $264.7million (124.5%) compared to 2021.

Cash cost of production

Cash production costs for the period were $18.9 /boe (2021: $17.5/boe). The increase in cash unit production cost was primarily driven by increased royalties paid (2022: $45.8 million, 2021:$24.8million) and increased energy costs across the group. The cash production costs excluding royalties are $238.5 million (2021: $236.8million) and the related cost per boe is $15.9 (2021: $:15.8)

Depreciation, impairments and write-offs

Depreciation charges before impairment on production and development assets decreased by 14.6% to $83.3 million (2021: $97.5 million) with the related decrease in the depreciation unit expense to $5.5/boe (2021: $6.5/boe).

The Group recognised a pre-tax impairment charge of $27.6million (2021: $0million) in 2022, a result of revisions to decommissioning estimates on the Group's non-producing assets, in Italy and UK.. The Group performed an impairment assessment at 31 December 2022 and did not identify any cash generating units ("CGU") for which a reasonably possible change in a key assumption would result in impairment or impairment reversal, except for the Vega oil field in Italy. An 8% decrease in Brent prices would eliminate the current headroom of the Vega CGU. 

Management has considered how the Group's identified climate risks and climate related goals may impact the estimation of the recoverable amount of cash-generating units and as part of the impairment assessment has run sensitivity scenarios for the IEA's 2022 WEO climate scenarios (Stated Policies Scenario (STEPS), Announced Pledges Scenario (APS) and Net-Zero Emissions by 2050 Scenario (NZE)). The Groups CGUs in Italy (Vega) and Greece are the most sensitive to the impact of the IEA scenarios, which applied, with no management mitigating actions taken, could result in impairment.

The anticipated extent and nature of the future impact of climate on the Group's operations and future investment, and therefore estimation of recoverable value, is not uniform across all cash-generating units. There is a range of inherent uncertainties in the extent that responses to climate change may impact the recoverable value of the Group's CGUs, with many of these being outside the Group's control. These include the impact of future changes in government policies, legislation and regulation, societal responses to climate change, the future availability of new technologies and changes in supply and demand dynamics.

Exploration and evaluation expenditure and new ventures

During the period the Group expensed $71.4 million (2021: $87.7 million) for exploration and new ventures evaluation activities. This includes impairment costs of $65.7million ($82.1 million) for projects that will not progress to development, primarily Glengorm; Energean will exit the Glengorm licence  within 2023.

In addition, new ventures evaluation expenditure amounted to $5.8 million (2021: $5.6 million), mainly related to pre-licence and time-writing costs.

General and administrative (G&A) expenses

Energean incurred G&A costs of approximately $45.9 million in 2022 (2021: $43.0 million). Cash SG&A was $36.0 million (2021: $34.8 million).

Cash G&A excludes certain non-cash accounting items from the Group's reported G&A. Cash G&A is calculated as follows: Administrative and Selling and distribution expenses, excluding depletion and amortisation of assets and share-based payment charge that are included in G&A.

 

2022 ($m)

2021 ($m)

Administrative expenses

45.9

43.0

Less:



Depreciation

3.9

2.5

Share-based payment charge included in G&A

6.0

5.7

Cash G&A

36.0

34.8

 

 

Net other expenses

Net other expenses of $1.0 million in 2022 (2021: $10.9 million income) includes restructuring costs ($3.2million), net reversal of expected credit loss  provisions of $7.9 million and other non-recurring items. In 2021 the amount predominantly related to $6.8 million of income due to a decrease in estimates of decommissioning provisions for certain UK producing assets, representing the amount of the decrease that was in excess of their book value.

Unrealised loss on derivatives

The Group has recognised unrealised loss on derivative instruments of $5.2 million (2021: $21.5million) related to the Cassiopea contingent consideration. A contingent consideration of up to $100.0 million is payable and determined on the basis of future Italian gas prices recorded at the time of the commissioning of the field, which is expected in 2024.

As at 31 December 2022, the two- year Italian gas (PSV) futures curve indicated higher pricing than that at the date of acquisition, with a forward price in excess of €20/Mwh. As a result, the fair value of the Contingent Consideration as at 31 December 2022 was estimated to be $86.3 million based on a Monte Carlo simulation (31 December 2021: $78.5 million).

Net financing costs

Financing costs before capitalisation for the period were $236.7 million (2021: $278.4 million). Finance costs include: $167.4 million of interest expenses incurred on Senior Secured notes (2021: $107.0 million), $1.5million on debt facilities (2021: $96.7 million), $14.7million of interest expenses relating to long-term payables (2021:$4.1 million), $37.4million unwinding of discount on deferred consideration, contingent consideration, convertible loan notes and decommissioning provisions (2021: $27.8 million); $15.6 million commissions for guarantees and other bank charges of (2021: $17.8 million). The 2021 finance costs included $18.1million for unamortised debt issuance costs under the Greek and Egypt RBL, written off due to repayments prior to their maturity dates.

Net finance costs include foreign exchange losses of $22.2 million (2021: $6.9 million) and finance income of $9.6 million (2021: $3.0 million), including Interest income from time deposits.

Taxation

Energean recorded tax charges of $89.7 million in 2022 (2021: $5.4 million), split between a current year tax expense of $200.1 million (2021: $44.6 million), and a deferred tax credit of $110.4 million (2021: credit $39.2 million) and representing an effective tax rate of 84% (2021: 6%).

The increase in current tax from 2021 is primarily a result of the windfall tax in Italy. During 2022, Italy introduced: 1) a windfall tax in the form of a law decree which imposed a 25% one-off tax on profit margins that rose by more than $5.26 million (€5.0 million) between October 2021 and April 2022 compared to the same period a year earlier. The amount of the windfall tax paid by Energean Italy was $29.3million and 2) in November 2022, Italy introduced a new windfall tax that imposed a 50% one-off tax, calculated on 2022 taxable profits that are 10% higher than the average taxable profits between 2018-2021. This amount has a ceiling equal to 25% of the value of the net assets at end-2021. Based on this, Energean would be required to pay an additional one-off tax of $92.8 million (€87.0 million) in June 2023.

Operating cash flow

Cash from operations before tax and movements in working capital was $311.3million (2021: $131.7 million). After adjusting for tax and working capital movements, cash from operations was $272.2 million (2021: $132.5 million).

Capital Expenditure

During the year, the Group incurred capital expenditure of $869.8 million (2021: $407.9 million). Capital expenditure mainly consisted of development expenditure in relation to the Karish Main and Karish North Fields in Israel ($534.5 million) , NEA/NI project in Egypt ($107.9 million), Cassiopea field in Italy ($77.0 million), Scott field in UK ($9.2 million) and exploration expenditures in Athena, Zeus, Hermes and Hercules in Israel ($123.0 million).

Net Debt

As at 31 December 2022, net debt of $2,518.2million (2021: $2,016 million) consisted of $2,500 million Israeli senior secured notes, $450 million of corporate senior secured notes, $63.5million draw down of the Greek loans and $50 million of convertible loan notes, less deferred amortised fees, equity component of convertible loan ($10.5 million) and cash balances of $502.7 million. Net debt excluding Israel is $143.8 million (2021: $102.6 million).

In accessing the debt capital markets, Energean is only exposed to floating interest rates for the Greek loan. Refer to note 26.3 in the financial statements for the interest risk sensitivity.

Credit ratings

Energean maintains corporate credit ratings with Standard and Poor's (S&P) and Fitch Ratings (Fitch).

On 4 November 2021 Energean plc was assigned its first corporate credit ratings from S&P and Fitch, following the issuance of the $450 million senior secured notes which mature in 2027.

· In February 2023 S&P upgraded the ratings from B to B+ for both Energean plc  corporate and the senior secured notes maturing in 2027, with Stable Outlook. This reflects first gas from the Karish field in Israel and associated track record of production.

· Fitch assigned a B+ corporate credit rating to Energean plc and B+ rating for the senior secured notes maturing in 2027.  In November 2023 the Outlook was upgraded to Positive to reflect the improvement in financial performance since 2021, due to stronger price environment and timely delivery projects including the Karish gas field in Israel.

Risk management

Principal risks

There are no significant changes to the headline principal risks from those disclosed in the 2022 Interim results. A full description of Energean's principal risks is disclosed in the strategic review of the 2022 Annual Report & Accounts.

Liquidity risk management and going concern

The Group carefully manages the risk of a shortage of funds by closely monitoring its funding position and its liquidity risk. The going concern assessment covers the period from the date of approval of the Group Financial Statements on 22 March 2023 to 30 June 2024 'the Assessment Period'. The Assessment Period has been extended such that it includes the $625 million bond repayment due in March 2024.

As of 31 December 2022 the Group's available liquidity was approximately $720 million.  This available liquidity figure includes: (i) c. $43 million of undrawn facility under the EUR100 million loan backed by the Greek State signed in December 2021 for the development of the Prinos Area in Greece, including the Epsilon development; and (ii) c. $174 million available under the $275 million Revolving Credit Facility ('RCF') signed by the Group in September 2022 (with the remainder being utilized to issue Letters of Credit for the Group's operations). Subsequent to 31 December 2022, the Group signed a $350 million Term Loan Facility. The Group has a $625 million bond, at the Energean Israel level, maturing in March 2024.  Management expects to refinance this bond during 2023; however, for the purposes of the Going Concern assessment it has been assumed that the bond is repaid in full and not refinanced.

The going concern assessment is founded on a cashflow forecast prepared by management, which is based on a number of assumptions, most notably the Group's latest life of field production forecasts, budgeted expenditure forecasts, estimated of future commodity prices (based on recent published forward curves) and available headroom under the Group's debt facilities.  The going concern assessment contains a 'Base Case' and a 'Reasonable Worst Case' ('RWC') scenario.

 

The Base Case scenario assumes Brent at $80/bbl in 2023 and $75/bbl in 2023 and PSV (Italian gas price) at EUR50/MWH in 2023 and EUR45/MWH in 2024. A reasonable ramp-up of production from the Karish Field is assumed throughout the going concern assessment period, with prices for gas sold assumed at contractually agreed prices. Under the Base Case, sufficient liquidity is maintained throughout the going concern period.

 

The Group also routinely performs sensitivity tests of its liquidity position to evaluate adverse impacts that may result from changes to the macro-economic environment, such as a reduction in commodity prices. These downsides are considered in the RWC going concern assessment scenario. The Group is not materially exposed to floating interest rate risk since the majority of its borrowings are fixed-rate.  The Group also looks at the impact of changes or deferral of key projects and downside scenarios to budgeted production forecasts in the RWC.

The two primary downside sensitivities considered in the RWC are: (i) reduced commodity prices; (ii) reduced production - these downsides are applied to assess the robustness of the Group's liquidity position over the Assessment Period.  In a RWC downside case, there are appropriate and timely mitigation strategies, within the Group's control, to manage the risk of funding shortfalls and to ensure the Group's ability to continue as a going concern.  Mitigation strategies, within management's control, modelled in the RWC include deferral of capital expenditure on operated assets, deferral or cancellation of exploration and/or discretionary spend and exercise of rights under contractual arrangements to improve liquidity. Under the RWC scenario, after considering mitigation strategies, liquidity is maintained throughout the going concern period.

Reverse stress testing was also performed to determine what commodity price or production shortfall would need to occur for liquidity headroom to be eliminated. The conditions necessary for liquidity headroom to be eliminated are judged to have a remote possibility of occurring, given the diversified nature of the Group's portfolio and the 'natural hedge' provided by virtue of the Group's fixed-price gas contracts in Israel and Egypt.  In the event a remote downside scenario occurred, prudent mitigating strategies, consistent with those described above, could also be executed in the necessary timeframe to preserve liquidity. There is no material impact of climate change within the Assessment Period and therefore it does not form part of the reverse stress testing performed by management.

In forming its assessment of the Group's ability to continue as a going concern, including its review of the forecasted cashflow of the Group over the Forecast Period, the Board has made judgements about:

Reasonable sensitivities appropriate for the current status of the business and the wider macro environment; and

the Group's ability to implement the mitigating actions within the Group's control, in the event these actions were required.

After careful consideration, the Directors are satisfied that the Group and Company has sufficient financial resources to continue in operation for the foreseeable future, for the Assessment Period from the date of approval of the Group Financial Statements on 22 March 2023 to 30 June 2024. For this reason, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

Events since December 2022

On the 9 February 2023 Energean declared its 4Q dividend of US$30 cents per share, to be paid on 30 March 2023.

On the 17 March 2023 Energean also signed an unsecured $350 million two year term loan facility, which offers additional financial flexibility for the Group. The loan is expected to remain undrawn.

 

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 production, capital expenditure, cash capital expenditure, net debt and gearing ratio and are explained below.

Cash cost of production

Cash cost of 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. Cash cost of production is calculated as cost of sales, adjusted for depreciation and hydrocarbon inventory movements.

($m)

2022

2021

Cost of sales

358.9

345.1

Less:

 


  Depreciation

(79.4)

(94.6)

  Change in inventory

4.7

11.1

Cost of production1

284.3

261.6

Total production for the period (kboe)

15,038.0

14,963.5

Cash cost of production per boe ($/boe)

18.9

17.5

1Numbers may not sum due to rounding

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.

($m)

2022

2021

Adjusted EBITDAX

421.6

212.1

Reconciliation to profit/(loss):

 


Depreciation and amortisation

(83.4)

(97.5)

Share-based payment

(6.0)

(5.7)

Exploration and evaluation expense

(71.4)

(87.7)

Impairment loss on property, plant and equipment

(27.6)

-

Other expense

(15.2)

(7.0)

Other income

14.1

17.9

Finance expenses

(107.3)

(97.4)

Finance income

9.6

3.0

Unrealised loss on derivatives

(5.2)

(21.5)

Net foreign exchange

(22.2)

(6.9)

Taxation income/(expense)

(89.7)

(5.4)

Profit/ (Loss) for the year

17.3

(96.2)

 

 

 

 

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 less decommissioning asset additions, right-of-use asset additions, capitalised share-based payment charge and capitalised borrowing costs:

($m)

2022

2021

Additions to property, plant and equipment

877.7

521.4

Additions to intangible exploration and evaluation assets

141.0

54.8

Less:

 


Capitalised borrowing cost

109.2

181.0

Impairment of property, plant and equipment

27.9


Leased assets additions and modifications

2.0

8.7

Lease payments related to capital activities

(12.7)

(10.9)

Capitalised share-based payment charge

0.2

0.2

Capitalised depreciation

0.6

0.2

Change in decommissioning provision

21.7

(11.0)

Total capital expenditure

870.0

408.0

Movement in working capital

(409.8)

44.3

Cash capital expenditure per the cash flow statement

460.2

452.3

 

 

Cash Capital Expenditure

($m)

2022

2021

Payment for purchase of property, plant and equipment

395.8

403.5

Payment for exploration and evaluation,
and other intangible assets

64.4

48.7

Total Cash Capital Expenditure

460.2

452.2

 

Net debt/(cash) 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 total equity.

($m)

2022

2021

Current borrowings

45.6

-

Non-current borrowings

2,975.3

2,947.1

Total borrowings

3,020.9

2,947.1

Less: Cash and cash equivalents and bank deposits

(427.9)

(730.8)

Restricted cash

(74.8)

(199.7)

Net Debt

2,518.2

2,016.6

Total equity

650.2

717.1

Gearing Ratio

387.3%

281.2%

 

Forward looking statements

This announcement contains statements that are, or are deemed to be, forward-looking statements. In some instances, forward-looking statements can be identified by the use of terms such as "projects", "forecasts", "on track", "anticipates", "expects", "believes", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results and events to differ materially from those expressed in or implied by such forward-looking statements, including, but not limited to: general economic and business conditions; demand for the Company's products and services; competitive factors in the industries in which the Company operates; exchange rate fluctuations; legislative, fiscal and regulatory developments; political risks; terrorism, acts of war and pandemics; changes in law and legal interpretations; and the impact of technological change. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this announcement is subject to change without notice.

 

 



 

Group Income Statement

 


 



YEAR ENDED 31 DECEMBER 2022 

 

 

 

 

2022

 

 

2021

 

Notes

$'000

 

 

$'000

Revenue

4

737,081



496,985

Cost of sales

5a

(358,930)



(345,112)

Gross profit

 

378,151

 


151,873

 






Administrative expenses

5b

(45,942)



(42,973)

Exploration and evaluation expenses

5c

(71,395)



(87,678)

Impairment of property, plant and equipment

8

(27,628)



-

Other expenses

5d

(15,161)



(7,019)

Other income

5e

14,133



17,884

Operating profit

 

232,158

 


32,087

 

 

 

 


 

Finance income

6

9,572



2,950

Finance costs

6

(107,315)



(97,380)

Unrealised loss on derivatives

17

(5,203)



(21,477)

Net foreign exchange (losses)/gains

6

(22,207)



(6,922)

Loss before tax

 

107,005

 


(90,742)

 






Taxation expense

7

(89,734)



(5,412)

Loss for the year

 

17,271

 

 

(96,154)

 

 

 

 

 

 

Attributable to:






Owners of the parent


17,271



(96,046)

Non - controlling interests


-



(108)

 

 

17,271

 

 

(96,154)

 

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






Basic

2

$0.10

 


($0.52)

Diluted

2

$0.12



($0.52)

 



 

Group Statement of Comprehensive Income

 




YEAR ENDED 31 DECEMBER 2022

 





 

 

2022

 

 

2021

 

 

 

$'000

 

 

$'000

 

Profit/(Loss) for the year

 

17,271

 

 

(96,154)

 

Other comprehensive profit/(loss):

 





 

Items that may be reclassified subsequently to profit or loss






 

Cash Flow hedges






 

  Gain/(loss) arising in the period


11,665



(6,182)

 

  Income tax relating to items that may be  reclassified to profit or loss


(2,799)



1,546

 

Exchange difference on the translation of

foreign operations, net of tax 


6,996



(12,781)

 

 


15,862



(17,417)

 

Items that will not be reclassified subsequently to profit or loss






 

Remeasurement of defined benefit pension plan


267



(165)

 

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


(64)



40

 



203



(125)

 

Other comprehensive profit/(loss) after tax

 

16,065

 

 

(17,542)

 

 






 

Total comprehensive profit/(loss) for the year

 

33,336

 

 

(113,696)

 

 






 

Total comprehensive loss attributable to :

 





 

Owners of the parent


33,336



(113,590)

 

Non-controlling interests


-



(106)

 

 

 

33,336

 

 

(113,696)

 

 

 

 

 

 


Group Statement of Financial Position

YEAR ENDED 31 DECEMBER 2022

 

 

2022

 

 

2021

 

  Notes

$'000

 

 

$'000

ASSETS






Non-current assets

 





Property, plant and equipment

8

4,231,904



3,499,473

Intangible assets

9

296,378



228,141

Equity-accounted investments


4



4

Other receivables

13

26,940



52,639

Deferred tax asset

10

242,226



154,798

Restricted cash

12

2,998



100,000



4,800,450



4,035,055

Current assets

 





Inventories


93,347



87,203

Trade and other receivables

13

337,964



288,526

Restricted cash

12

71,778



99,729

Cash and cash equivalents

11

427,888



730,839



930,977



1,206,297

Total assets

 

5,731,427

 

 

5,241,352

 






EQUITY AND LIABILITIES

 





Equity attributable to owners of the parent

 





Share capital


2,380



2,374

Share premium


415,388



915,388

Merger reserve


139,903



139,903

Other reserves


16,557



7,488

Foreign currency translation reserve


(5,827)



(12,823)

Share-based payment reserve


25,589



19,352

Retained earnings


56,208



(354,559)

Total equity

 

650,198

 

 

717,123

Non-current liabilities

 





Borrowings

14

2,975,346



2,947,126

Deferred tax liabilities

1 0

56,114



67,425

Retirement benefit liability


1,675



2,767

Provisions

15

809,727



801,026

Other payables

16

318,058



225,987

 

 

4,160,920

 

 

4,044,331

Current liabilities

 





Trade and other payables

16

756,874



454,986

Current portion of borrowings

14

45,550



-

Derivative financial instruments


-



12,546

Current tax liability

7

109,509



-

Provisions

15

8,376



12,366



920,309

 

 

479,898

Total liabilities


5,081,229

 

 

4,524,229

Total equity and liabilities

 

5,731,427

 

 

5,241,352

 


Group Statement of Changes in Equity

YEAR ENDED 31 DECEMBER 2022

 


Share capital

Share premium

Hedges and Defined Benefit plans reserve1

Equity component of convertible bonds2

Share based payment reserve3

Translation reserve4

Retained earnings

Merger reserves

Total

Non-controlling interests

Total


$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

At 1 January 2021

2,367

915,388

1,792

-

13,419

(42)

(144,734)

139,903

928,093

266,299

1,194,392

Loss for the period

 

 

 


 

 

(96,046)

 

(96,046)

(108)

(96,154)

Remeasurement of defined benefit pension plan

 

 

(125)

 

 

 

 

 

(125)

 

(125)

Hedges net of tax



(4,638)






(4,638)

2

(4,636)

Exchange difference on the translation of foreign operations






(12,781)



(12,781)


(12,781)

Total comprehensive income

-

-

(4,763)

-

-

(12,781)

(96,046)

-

(113,590)

(106)

(113,696)

Transactions with owners of the company









 


 

Share capital increase in subsidiary





5,940




5940

 

5,940

Employee share schemes

7




(7)




-


-

Acquisition of non-controlling

Interests

-

-

-

10,459

-

-

(113,779)

-

(103,320)

(266,193)

  (369,513)

At 1 January 2022

2,374

915,388

(2,971)

10,459

19,352

(12,823)

(354,559)

139,903

717,123

-

  717,123

Profit for the period







17,271


17,271

-

17,271

Remeasurement of defined benefit pension plan



203






203

-

203

Hedges, net of tax



8,866






8,866

-

8,866

Exchange difference on the translation of foreign operations






6,996



6,996


6,996

Total comprehensive income

-

-

9,069

-

-

6,996

17,271

-

33,336

-

33,336

Transactions with owners of the company

Share based payment charges





6,243




6,243


6,243

Exercise of Employee Share Options

6




(6)




-


-

Share Premium Reduction


(500,000)





500,000


-


-

Dividends (note 18)







(106,504)


(106,504)


(106,504)

At 31 December 2022

2,380

415,388

6,098

10,459

25,589

(5,827)

56,208

139,903

650,198

-

  650,198










 


 

 

1 Reserve is used to recognise remeasurement gain or loss on cash flow hedges and actuarial gain or loss from the defined benefit pension plan. In the Statement of Financial Position this reserve is combined with the 'Equity component of convertible bonds' reserve.

2 Refers to the Equity component of $50million of convertible loan notes, which were issued in February 2021 and have a maturity date of 29 December 2023.

3 Share-based payments reserve is used to recognise the value of equity-settled share-based payments granted to parties including employees and key management personnel, as part of their remuneration.

4 Reserve is used to record unrealised exchange differences arising from the translation of the financial statements of entities within the Group that have a functional currency other than US dollar.


Group Cashflows Statement

YEAR ENDED 31 DECEMBER 2022

 

 

 

 

 

 

2022

 

2021

 

Note

$'000

 

$'000

Operating activities

 




Profit/ (Loss) before taxation

 

107,005

 

(90,742)

Adjustments to reconcile loss before taxation to net cash provided by operating activities:





Depreciation, depletion and amortisation

8, 9

83,360


97,451

Impairment loss on property, plant and equipment1

8

 27,628


-

Loss from the sale of property, plant and equipment


1,102


36

Impairment loss on intangible assets

9

65,550


82,125

Defined benefit (gain)


(351)


(4,061)

Movement in provisions

15

(4,742)


(4,462)

Compensation to gas buyers

4

18,029


(22,958)

Change in decommissioning provision estimates


-


(10,198)

Finance income

6

(9,572)


(2,951)

Finance costs 

6

107,315


97,374

Unrealised loss on derivatives

17

5,203


21,477

Expected credit loss (ECL) on trade receivables


565


(1,853)

Non-cash revenues from Egypt2


(57,766)


(39,100)

Impairment loss on inventory


1,207


-

Share-based payment charge


6,044


5,734

Net foreign exchange loss

6

22,207


6,922

Cash flow from operations before working capital


372,784


136,648

(Increase) in inventories


(10,278)


(16,484)

(Increase)/Decrease in trade and other receivables


(74,454)


46,351

Increase/(Decrease) in trade and other payables


23,405


(34,726)

Cash from operations


311,457


131,789

Income tax (paid)/received


(39,304)


715

Net cash inflow from operating activities


272,153


132,503

Investing activities

 




Payment for purchase of property, plant and equipment

8

(395,753)


(403,503)

Payment for exploration and evaluation, and other intangible assets  9

(64,414)


(48,674)

Acquisition of a subsidiary, net of cash acquired


-


841

Movement in restricted cash


124,953


(199,729)

Proceeds from disposal of property, plant and equipment


227


-

Amounts received from INGL related to the future transfer  16

of property, plant and equipment

17,371


5,673

Interest received


9,675


2,609

Net cash outflow for investing activities


(307,941)


(642,783)

Financing activities

 




Drawdown of borrowings

14

63,463


175,000

Repayment of borrowings

14

-


(1,807,140)

Senior secured notes Issuance

14

-


3,068,000

Acquisition of non-controlling interests


(30,000)


(175,000)

Transaction costs related to acquisition of non-controlling interest

-


(1,677)

Repayment of obligations under leases


(14,023)


(10,852)

Debt arrangement fees paid


-


(48,377)

Finance cost paid for deferred license payments


(1,501)


(3,494)

Finance costs paid


(178,914)


(136,694)

Dividends paid


(106,504)


-

Net cash (outflow)/inflow financing activities


(267,479)


1,059,765






Net (decrease)/increase in cash and cash equivalents


(303,267)


549,485

Cash and cash equivalents at beginning of the period


730,839


202,939

Effect of exchange rate fluctuations on cash held


316


(21,585)

Cash and cash equivalents at end of the period

11

427,888


730,839

 

1 The impairment of property, plant and equipment is a result of changes in the decommissioning provision.

2 Non-cash revenues from Egypt arise due to taxes being deducted at source from invoices as such revenue and tax charges are grossed up to reflect this deduction but no cash inflow or outflow results.

 

 

 

1. Basis of preparation and presentation of financial information 

Whilst the financial information in this preliminary announcement has been prepared in accordance with UK-adopted International Accounting Standards (UK-adopted IAS) and with the requirements of the United Kingdom Listing Authority (UKLA) Listing Rules, this announcement does not contain sufficient information to comply with IFRS. The Group will publish full financial statements that comply with IFRS in April 2022. The financial information for the year ended 31 December 2022 does not constitute statutory accounts as defined in sections 435 (1) and (2) of the Companies Act 2006. The group and parent company financial statements for the year ended 31 December 2021 have been delivered to the Registrar of Companies; the auditor's report on these accounts was unqualified, did not include a reference to any matters by way of emphasis and did not contain a statement under Section 498 (2) or Section 498 (3) of the UK Companies Act 2006.

 

The accounting policies applied are consistent with those adopted and disclosed in the Group's financial statements for the year ended 31 December 2022. There have been a number of amendments to accounting standards and new interpretations issued by the International Accounting Standards Board which were applicable from 1 January 2022, however these have not any impact on the accounting policies, methods of computation or presentation applied by the Group. Further details on new International Financial Reporting Standards adopted will be disclosed in the 2022 Annual Report and Accounts.

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2022 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.



 

2. Earnings/ (Loss) per share

Basic earnings per ordinary share amounts are calculated by dividing net income for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted income per ordinary share amounts are calculated by dividing net income for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued if dilutive employee share options were converted into ordinary shares.

 


2022

 

2021


$'000

 

$'000

Total profit/(loss) attributable to equity shareholders

17,271


(96,046)

Effect of dilutive potential ordinary shares1

4,054


-


21,325


(96,046)

Basic weighted average number of shares

177,931,019


177,278,840

Dilutive potential ordinary shares

 6,714,731


-

Diluted weighted average number of shares

184,645,750


177,278,840

Basic earnings/(loss) per share

$0.10/share

$(0.54)/share

 

Diluted earnings/ (loss) per share

$0.12/share

$(0.54)/share

 

 

1 The $4.1million is the unwinding of the discount on the convertible loan notes (as disclosed in note 9) that will no longer be incurred on conversion to shares.  

 

3. Segmental reporting

The information reported to the Group's Chief Executive Officer and Chief Financial Officer (together the Chief Operating Decision Makers) for the purposes of resource allocation and assessment of segment performance is focused on four operating segments: Europe, (including Greece, Italy, UK, Croatia), Israel, Egypt and New Ventures (Montenegro and Malta).

The Group's reportable segments under IFRS 8 Operating Segments are Europe, Israel and Egypt. Segments that do not exceed the quantitative thresholds for reporting information about operating segments have been included in Other.

 

Segment revenues, results and reconciliation to profit before tax

The following is an analysis of the Group's revenue, results and reconciliation to profit/(loss) before tax by reportable segment:

($'000)

Europe

Israel

Egypt

Other & inter-segment transactions

Total

Year ended 31 December 2022

Revenue from Oil

206,959

 - 

 - 

 - 

206,959

Revenue from Gas

328,506

45,153

156,264

-

529,923

Other

(31,298)

(18,031)

57,131

(7,603)

199

Total revenue

504,167

27,122

213,395

(7,603)

737,081

Adjusted EBITDAX1

262,655

(4,498)

164,581

(1,125)

421,613

Reconciliation to profit before tax:

 





Depreciation and amortisation expenses

(27,199)

(12,112)

(43,266)

(783)

(83,360)

Share-based payment charge

(1,423)

(214)

(89)

(4,318)

(6,044)

Exploration and evaluation expenses

(61,071)

(1,819)

-

(8,505)

(71,395)

Impairment loss on property, plant and equipment

(27,628)

 - 

 - 

 - 

(27,628)

Other expense

(5,742)

(1,102)

-

(8,317)

(15,161)

Other income

1,284

54

12,067

728

14,133

Finance income

3,777

6,379

1,705

(2,289)

9,572

Finance costs

(32,395)

(29,811)

(858)

(44,251)

(107,315)

Unrealised loss on derivatives

(5,203)

-

-

-

(5,203)

Net foreign exchange gain/(loss)

4,065

(3,085)

(7,498)

(15,689)

(22,207)

Profit/(loss) before income tax

111,120

(46,208)

126,642

(84,549)

107,005

Taxation income / (expense)

(42,283)

10,951

(57,766)

(636)

(89,734)

Profit/(loss) from continuing operations

68,837

(35,257)

68,876

(85,185)

17,271

Year ended 31 December 2021

Revenue from oil

165,496

-

-

144

165,640

Revenue from Gas

137,468

-

133,503

(2)

270,969

Other

12,156

-

55,446

(8,226)

60,376

Total revenue

316,120

-

188,949

(8,084)

496,985

Adjusted EBITDAX1

88,288

(4,969)

130,634

(1,881)

212,072

Reconciliation to profit before tax:

 





Depreciation and amortisation expenses

(55,001)

(93)

(41,626)

(731)

(97,451)

Share-based payment charge

(967)

(231)

-

(4,523)

(5,721)

Exploration and evaluation expenses

(86,490)

(50)

-

(1,138)

(87,678)

Other expense

(2,150)

(461)

(1,543)

(2,865)

(7,019)

Other income

16,065

19

1,851

(51)

17,884

Finance income

13,450

7,849

985

(19,334)

2,950

Finance costs

(28,318)

(18,526)

(9,059)

(41,477)

(97,380)

Unrealised loss on derivatives

(21,477)

-

-

-

(21,477)

Net foreign exchange gain/(loss)

31,000

520

479

(38,921)

(6,922)

Profit/(Loss) before income tax

(45,600)

(15,942)

81,721

(110,921)

(90,742)

Taxation income / (expense)

29,026

5,017

(39,100)

(355)

(5,412)

Profit/(Loss) from continuing operations

(16,574)

(10,925)

42,621

(111,276)

(96,154)

 

1 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, share-based payment charge, impairment of property, plant and equipment, other income and expenses (including the impact of derivative financial instruments and foreign exchange), net finance costs and exploration and evaluation expenses.

 

The following table presents assets and liabilities information for the Group's operating segments as at 31 December 2022 and 31 December 2021, respectively :

Year ended 31 December 2022 ($'000)

Europe

Israel

Egypt

Other & inter-segment transactions

Total

Oil & Gas properties

536,874

3,264,364

409,732

(14,440)

4,196,530

Other fixed assets

13,365

4,750

17,325

(65)

35,375

Intangible assets

48,249

219,354

20,639

8,136

296,378

Trade and other receivables

141,509

82,611

131,453

(17,609)

337,964

Deferred tax asset

244,394

-

-

(2,168)

242,226

Other assets

883,576

24,933

96,942

(382,497)

622,954

Total assets

1,867,967

3,596,012

676,091

(408,643)

5,731,427

Trade and other payables

220,706

540,459

50,563

114,505

926,233

Borrowings

61,437

2,471,030

-

488,429

3,020,896

Decommissioning provision

724,457

84,299

-

-

808,756

Current tax payable

109,468

-

-

41

109,509

Other liabilities

124,201

40,882

18,498

32,254

215,835

Total liabilities

1,240,270

3,136,670

69,061

635,229

5,081,229

Other segment information

 

 

 

 

 

Capital Expenditure2






  Property, plant and equipment

85,840

537,527

105,792

(368)

728,791

  Intangible, exploration
  and evaluation assets

12,143

124,718

193

3,970

141,024

Year ended 31 December 2021 ($'000)

 

 

 

 

 

Oil & Gas properties

537,600

2,584,828

342,528

(9,694)

3,455,262

Other fixed assets

16,578

3,917

24,076

(360)

44,211

Intangible assets

74,868

95,941

20,484

36,848

228,141

Trade and other receivables

164,131

22,769

102,605

(979)

288,526

Deferred tax asset

154,798

-

-

-

154,798

Other assets

674,157

379,248

98,720

(81,711)

1,070,414

Total assets

1,622,132

3,086,703

588,413

(55,896)

5,241,352

Trade and other payables

197,865

74,115

25,511

152,216

449,706

Current tax payable

4,932

-

-

347

5,279

Borrowings

-

2,463,524

-

483,602

2,947,126

Decommissioning provision

766,573

35,525

-


802,098

Other liabilities

113,808

180,689

24,663

858

320,018

Total liabilities

1,083,178

2,753,853

50,174

637,024

4,524,229

Other segment information

 

 

 

 

 

Capital Expenditure2






  Property, plant and equipment

72,782

247,463

52,085

(14,330)

358,000

  Intangible, exploration
  and evaluation assets

40,523

6,342

215

3,329

50,409

 

2 Capital expenditure is defined as additions to property, plant and equipment and intangible exploration and evaluation assets less decommissioning asset additions, right-of-use asset additions, capitalised share-based payment charge and capitalised borrowing costs.

 

Segment cash flows

Year ended 31 December 2022 ($'000)

Europe

Israel

Egypt

Other & inter-segment transactions

Total

Net cash from / (used in) operating activities

225,780

(7,850)

66,946

(12,723)

272,153

Cash outflow for investing activities

(287,490)

(180,040)

(54,229)

213,818

(307,941)

Net cash from financing activities

54,977

(133,953)

(2,528)

(185,975)

(267,479)

Net increase/(decrease) in cash and cash equivalents

(6,733)

(321,843)

10,189

15,120

(303,267)

Cash and cash equivalents at beginning of the period

71,312

349,827

19,254

290,446

730,839

Effect of exchange rate fluctuations on cash held

(6,451)

(3,159)

(2,617)

12,543

316

Cash and cash equivalents at end of the period

58,128

24,825

26,826

318,109

427,888

Year ended 31 December 2021  ($'000)






Net cash from / (used in) operating activities

43,394

(28,764)

128,659

(10,785)

132,504

Cash outflow from investing activities

(99,040)

(490,381)

(53,553)

191

(642,783)

Net cash from financing activities

120,446

831,677

(132,414)

240,056

1,059,765

Net increase/(decrease) in cash and cash equivalents

64,800

312,532

(57,308)

229,462

549,486

Cash and cash equivalents at beginning of the period

13,609

37,421

76,240

75,669

202,939

Effect of exchange rate fluctuations on cash held

(7,093)

(125)

322

(14,690)

(21,586)

Cash and cash equivalents at end of the period

71,316

349,828

19,254

290,441

730,839

 



 

4. Revenue


2022

 

2021


$'000

 

$'000

Revenue from crude oil sales

206,959


165,924

Revenue from gas sales

529,923


270,969

Revenue from LPG sales

21,747


20,945

Revenue from condensate sales

35,384


34,126

Compensation to gas buyers

(18,031)


-

Gain/(Loss) on forward transactions

(55,189)


(285)

Petroleum products sales

2,697


4,618

Rendering of services

1,001


688

Revenue from contracts with customers

724,491


496,985

Other operating income-lost production insurance proceeds

12,590


-

Total revenue

737,081

 

496,985

 

During August 2021 and in accordance with the GSPAs signed with a group of gas buyers, the Group agreed to pay compensation to these counterparties due to the fact the gas supply date is taking place beyond a certain date as defined in the GSPAs (being 30 June 2021). The compensation is accounted as variable purchase consideration and deducted from revenue as gas is delivered to the offtakers.

Proceeds related to lost production under the business interruption insurance policy of $12.6million (2021: $0million).

100% of the gas produced at Abu Qir (Egypt) is sold to EGPC under a Brent-linked gas price.  The gas price is determined based on Brent prices trading within a certain range, as set out in the agreement, and contains both a floor price and a cap, limiting volatility and exposure to commodity price fluctuations .

 

Sales for the year ended 31 December (Kboe)

2022

2021

Egypt (net entitlement)

Gas

3,698

6,351

LPG

244

394

Condensate

286

553

Italy

Oil

2,440

2,083

Gas

1,406

1,474

Israel

Gas

1,781


UK

Gas

73

40

Oil

245

271

Croatia

Gas

38

57

Greece



Oil

-

403

Total

10,211

11,626

 

5. Operating profit/(loss)

 




2022

 

2021

 




$'000

 

$'000

 

(a)

Cost of sales

 




 


Staff costs


52,904


64,564

 


Energy cost


15,947


11,578

 


Flux Cost


36,970


11,561

 


Royalty payable


45,770


24,759

 


Other operating costs


132,688


149,133

 


Depreciation and amortisation


79,362


94,647

 


Oil stock movement


(1,707)


(15,501)

 


Stock overlift/underlift movement


(3,004)


4,371

 


Total cost of sales

 

358,930

 

345,112


(b)

Administration expenses

 




 


Staff costs


17,977


16,759

 


Other General & Administration expenses


15,960


15,444

 


Share-based payment charge included in administrative expenses


6,044


5,714

 


Depreciation and amortization


3,889


2,480

 


Auditor fees


2,072


2,273

 

 

Total a dministration expenses

 

45,942

 

42,973

 

(c)

Exploration and evaluation expenses

 




 


Staff costs for Exploration and evaluation activities


3,012


3,695

 


Exploration costs written off (Note 9)


66,371


82,122

 


Other exploration and evaluation expenses


2,012


1,861

 


Total e xploration and evaluation expenses


71,395

 

87,678


(d)

Other expenses

 




 


Transaction costs in relation to Edison E&P acquisition

 

-


2,052

 


Intra-group merger costs

 

3,212


605

 


Loss from disposal of Property plant & Equipment

 

1,102


36

 


Write-down of inventory

 

1,207


581

 


Expected credit losses

 

3,043


-

 


Provision for litigation and claims

 

1,198


520

 


Write down of property, plant and equipment costs

 

-


779

 


Other expenses 

 

5,399


2,446

 


Total other expenses


15,161

 

7,019

 

(e)

Other income

 




 


Reversal of expected credit loss allowance

 

10,970


1,853

 


Profit from sale of inventory

 

1,643


-

 


Change in estimates of decommissioning provisions

 

-


7,836

 


Change in estimate of defined benefit obligation

 

-


3,463

 


Reversal of provision for litigation and claims

 

-


4,494

 


Other income

 

1,520


238

 


Total other income


14,133

 

17,884

 

 

6. Net finance cost


 

2022

 

2021


Notes

$'000

 

$'000





Interest on bank borrowings

14

1,527


96,678

Interest on Senior Secure Notes

14

167,372


106,993

Interest expense on long term payables

16

14,660


  4,101

Interest expense on short term liabilities


54


  55

Less amounts included in the cost of qualifying assets

8, 9

(123,635)


(174,153)

 

 

  59,978

 

  33,674

Finance and arrangement fees


11,334


  12,420

Commission charges for bank guarantees


2,118


  2,404

Unamortised financing costs related to Greek RBL and Egypt RBL



  18,108

Other finance costs and bank charges


2,136


  2,972

Loss on interest rate hedges


-


  7,002

Unwinding of discount on right of use asset


2,159


  1,316

Unwinding of discount on provision for decommissioning


21,495


  8,722

Unwinding of discount on deferred consideration


7,098


  12,854

Unwinding of discount on convertible loan


4,054


  3,159

Mark-to-market on contingent consideration


2,667


  1,626

Less amounts included in the cost of qualifying assets


(5,724)


  (6,877)

Total finance costs

 

  107,315

 

  97,380

Interest income from time deposits


  (9,572)


  (2,950)

Total finance income

 

  (9,572)

 

  (2,950)

Foreign exchange (gain)/losses


  22,207


  6,922

Net financing (income)/costs

 

  119,950

 

  101,352

 

7. Taxation

(a) Taxation charge

 

2022

 

2021

 

$'000

 

$'000

Corporation tax - current year

(199,563)


(44,922)

Corporation tax - prior years

(583)


353

Deferred tax (Note 10)

110,412


39,157

Total taxation (expense)/income

(89,734)

 

(5,412)

 

(b) Reconciliation of the total tax charge

The Group calculates its income tax expense by applying a weighted average tax rate calculated based on the statutory tax rates of each country weighted according to the profit or loss before tax earned by the Group in each jurisdiction where deferred tax is recognised or material current tax charge arises.

The effective tax rate for the period is 84% (31 December 2021: -6%).

The tax (charge)/credit of the period can be reconciled to the loss per the consolidated income statement as follows:

 

 

2022

 

2021


$'000

 

$'000

Profit/ (Loss) before tax

107,005

 

(90,742)

 




Tax calculated at 27.5% weighted average rate (2021: 29.5%)1

(29,453)


29,721

Impact of different tax rates2

(9,960)


(5,176)

Utilisation of unrecognised deferred tax/
(Non recognition of deferred tax)

83,737


2,953

Permanent differences3

(16,341)


(34,470)

Foreign taxes

(54)


(244)

Windfall tax4

(119,425)


-

Tax effect of non-taxable income & allowances

2,217


1,348

Other adjustments

128


103

Prior year tax

(583)


353

Taxation (expense)

(89,734)

 

(5,412)

 

1 For the reconciliation of the tax rate, the weighted average rate of the statutory tax rates in Greece (25%), Cyprus (12.5%) Israel (23%), Italy (24%), United Kingdom (19%/40%/55.07%) and Egypt (40.55%) was used weighted according to the profit or loss before tax earned by the Group in each jurisdiction, excluding fair value uplifts profits.

2 "Impact of different tax rates" mainly consisted of the Italian regional taxes (IRAP).

3 Permanent differences mainly consisted of non-deductible expenses (-$15.0m), consolidation differences ($2.8m) and foreign exchange differences (-$4.1m).

4 During 2022, Italy introduced: 1) a windfall tax in the form of a law decree which imposed a 25% one-off tax on profit margins that rose by more than $5.26 million (€5.0 million) between October 2021 and April 2022 compared to the same period a year earlier. The amount of the windfall tax paid by Energean Italy was $29.3mil and 2) In November 2022, Italy introduced a new windfall tax that imposed a 50% one-off tax, calculated on 2022 taxable profits that are 10% higher than the average taxable profits between 2018-2021. This amount has a ceiling equal to 25% of the value of the net assets at end-2021. Based on this, Energean would be required to pay an additional one-off tax of  $92.8 million ( €87.0 million) in June 2023. In addition, the Energy (Oil and Gas) Profits Levy (EPL) was announced by the UK Government on 26 May 2022 and legislated for in July 2022. This was a new, temporary 25% (to be increased to 35% from 1st January 2023) levy on ring fence profits of oil and gas companies. This was in addition to Ring Fence Corporation Tax which is charged at 30% and the Supplementary Charge which is charged at 10%. The Group's exposure to the EPL is de minimis.

8 Property, plant & equipment

 

Property, Plant & Equipment at Cost ($'000)

Oil and gas assets1

Leased assets2

Other property, plant and equipment

Total

At 1 January 2021

3,430,329

50,841

60,237

3,541,407

Additions

345,180

6,428

1,623

353,231

Lease modification

-

2,261

-

2,261

Disposal of assets

(23)

-

(34)

(57)

Capitalised borrowing cost

178,891

-

-

178,891

Capitalised depreciation

227

-

-

227

Change in decommissioning provision

(13,174)

-

-

(13,174)

Transfer from Intangible assets

14,317

-

26

14,343

Foreign exchange impact

(57,960)

(2,285)

(2,806)

(63,051)

At 31 December 2021

3,897,787

57,245

59,046

4,014,078

Additions

742,665

1,195

1,534

745,394

Lease modification

-

831

-

831

Disposal of assets

(900)


-

(900)

Capitalised borrowing cost

109,184

-

-

109,184

Capitalised depreciation

632

-

-

632

Change in decommissioning provision

21,685

-

-

21,685

Other movements

(241)

37

(74)

(278)

Foreign exchange impact

(31,388)

(596)

(388)

(32,372)

At 31 December 2022

4,739,424

58,712

60,118

4,858,254

Accumulated Depreciation and Impairment

At 1 January 2021

376,643

6,979

50,513

434,135

Charge for the period





Expensed

81,234

12,274

1,998

95,506

Impairments

774

-

-

774

Disposal of assets

-

-

21

21

Foreign exchange impact

(16,129)

(151)

449

(15,831)

At 31 December 2021

442,522

19,102

52,981

514,605

Charge for the period





Expensed

71,464

10,091

1,171

82,726

Impairment

27,878

-

-

27,878

Disposal of assets

-

-

-

-

Foreign exchange impact

1,030

105

6

1,141

At 31 December 2022

542,895

29,298

54,157

626,350

Net carrying amount

At 31 December 2021

3,455,265

38,143

6,065

3,499,473

At 31 December 2022

4,196,530

29,414

5,960

4,231,904

 

1 Included within the carrying amount of Oil & Gas assets are development costs of the Karish field related to the Sub Sea and On-shore construction. In line with the agreement with Israel Natural Gas Lines ("INGL"), the transfer of title ("hand over") of these assets to INGL is expected to occur in Q1 2023.

2 Included in the carrying amount of leased assets at 31 December 2022 is right of use assets related to Oil and gas properties and Other property, plant and equipment of $21.3 million and $8.1 million respectively. The depreciation charged on these classes for the year ending 31 December 2022 was $7.9 million and $2.1 million respectively.

 

Borrowing costs capitalised for qualifying assets during the year are calculated by applying a weighted average interest rate of 5.16% for the year ended 31 December 2022 (for the year ended 31 December 2021: 5.49%).

The additions to Oil & Gas properties for the year ended 31 December 2022 are mainly due to development costs of Karish field related to the EPCIC contract (FPSO, Sub Sea and On-shore construction cost) at the amount of $534.5 million, development cost for Cassiopea project in Italy at the amount of $56.7 million and NEA/NI project in Egypt at the amount of $107.9 million.

The impairment recognised above of $27.9 million (2021: $0 million) was a result of a change to the decommissioning estimate on certain fields in Italy and the UK where the recoverable amount was lower than the carrying value, subsequent to recognising the change in estimate. The remaining change in decommissioning provision of $21.7 million was in relation to fields across the group whereby the recoverable amount exceeded the carrying value.

 

 

9. Intangible assets

($'000)

Exploration and evaluation assets

Goodwill

Other Intangible assets

Total

Intangibles at Cost

At 1 January 2021

158,213

101,146

22,355

281,714

Additions

47,995

-

2,413

50,408

Capitalised borrowing costs

2,202

-

-

2,202

Change in decommissioning provision

2,141



2,141

Transfers to property, plant and equipment

(265)

-

(14,078)

(14,343)

Exchange differences

(4,953)

-

(983)

(5,936)

31 December 2021

205,333

101,146

9,707

316,186

Additions

139,911

-

1,113

141,024

Other movements

-

-

280

280

Exchange differences

(6,890)

-

(125)

(7,015)

At 31 December 2022

338,354

101,146

10,975

450,475

Accumulated amortisation and impairments

At 1 January 2021

3,004

-

2,894

5,898

Charge for the period

-

-

1,946

1,946

Impairment

82,125

-

-

82,125

Exchange differences

(1,850)

-

(74)

(1,924)

31 December 2021

83,279

-

4,766

88,045

Charge for the period

39

-

595

634

Impairment

47,240

18,310

-

65,550

Exchange differences

(110)

-

(22)

(132)

31 December 2022

130,448

18,310

5,339

154,097

Net carrying amount

At 31 December 2021

122,054

101,146

4,941

228,141

At 31 December 2022

207,906

82,836

5,636

296,378

 



 

 

10. Net deferred tax (liability)/ asset

 

Deferred tax (liabilities)/asse-ts

Property, plant and equipment

Right of use asset IFRS 16

Decom

Prepaid expenses and other receivables

Inve-

ntory

Tax losses

 

 

Deferred expenses for tax

Reti-rement benefit liability

Accrued expenses

and other short‑term liabilities

Total

 

$'000

$'000

$'000

$'000

$'000

$'000

 

$'000

$'000

$'000

1 January 2021

(123,543)

(292)

8,877

(4,651)

695

165,841

-

1,050

9,470

57,447

Increase / (decrease) for the period through:

 


 

 

 

 

 

 

 

 

profit or loss

9,848

(718)

  50,808

890

(254)

(32,501)

5,020

  (932)

 

  6,996

 

39,157

other comprehensive income









1,586

1,586

Reclassifications in the current period

(28,442)

-

33,644

2,025

(233)

(4,903)

 

6, 010

  200

  (8,301)

-

Exchange difference

1,584

20

(3,889)

165

(25)

(8,257)


(52)

(363)

(10,817)

31 December 2021

(140,553)

(990)

89,440

(1,571)

183

120,180

11,030

266

9,388

87,373

Increase / (decrease) for the period through:

 










profit or loss

(11,836)

(103)

  41,688

1,642

265

83,814

(4,822)

 

  (22)

 

  (214)

 

110,412

other comprehensive income








(64)

(2,799)

(2,863)

Exchange difference

3,466

15

(4,882)

115

(8)

(6,986)


(15)

(515)

(8,810)

31 December 2022

 

(148,923)

 

(1,078)

 

126,246

 

186

 

440

 

197,008

 

6,208

 

165

 

5,860

 

186,112

 

 

 

 

 

2022

2021

 

 

 

$'000

$'000

Deferred tax liabilities



(56,114)

(67,425)

Deferred tax assets



242,226

154,798

 

 

 

186,112

87,373

 

At 31 December 2022 the Group had gross unused tax losses of $1,093.8 million (as of 31 December 2021: $1,123.8 million) available to offset against future profits and other temporary differences. A deferred tax asset of $197.0 million (2021: $120.2 million) has been recognised on tax losses of $799.2 million, based on the forecasted profits. The Group did not recognise deferred tax on tax losses and other differences of total amount of $546.3 million.

 

In Greece, Italy and the UK, the net DTA for carried forward losses recognised in excess of the other net taxable temporary differences was $69.2 million, $33.0 million and $16.7 million (2021: $59.3 million, $0.19 million and $13.8 million) respectively. An additional DTA of $124.6 million (2021: $81.4 million) arose primarily in respect of deductible temporary differences related to property, plant and equipment, decommissioning provisions and accrued expenses, resulting in a total DTA of $242.3 million (2021: $154.9 million). During the period, Italy recognised a DTA of $33.4million on tax losses of $139.0 million in accordance with its latest tax losses utilisation forecast.

 

Greek tax losses (Prinos area) can be carried forward without limitation up until the relevant concession agreement expires (by 2039), whereas the tax losses in Israel, Italy and the United Kingdom can be carried forward indefinitely. Based on the Prinos area forecasts (including the Epsilon development), the deferred tax asset is fully utilised by 2030. In Italy, deferred tax asset of $111.2 million recognised on decommissioning costs scheduled up to the year the Italian assets expect to enter into a declining phase assuming available profits from Cassiopea and other long lived assets. In the UK, decommissioning losses are expected to benefit from tax relief up until 2027 in accordance with the latest taxable profits forecasts.

 

On 3 March 2021 it was announced in the UK budget that the UK non-ring fence corporation tax rate will increase from 19% to 25% with effect from April 2023. The Group does not currently recognise any deferred tax assets in respect of UK non-ring fence tax losses and therefore this rate change did not impact the tax disclosures.

 

Energean UK Limited with activities in the UKCS is subject to the newly introduced UK Energy Profits Levy (EPL) with effect from the 26 May 2022. For the tax reconciliation of Energean UK the weighted average tax rate of 55.07% (40% for the RFCT and 15.07% for the weighted average EPL rate) was used. The company generated EPL losses during 2022.

 

11. Cash and cash equivalents

 


2022

 

2021


$'000

 

$'000

Cash at bank

427,888


729,390

Deposits in escrow

-


  1,449


  427,888

 

  730,839

 

Bank demand deposits comprise deposits and other short-term money market deposit accounts that are readily convertible into known amounts of cash. The effective interest rate on short‑term bank deposits was 1.716% for the year ended 31 December 2022 (year ended 31 December 2021: 0.386%).

Deposits in escrow comprise mainly cash retained as a bank security pledge for the Group's performance guarantees in its exploration blocks. These deposits can be used for funding the exploration activities of the respective blocks.

 

12. Restricted Cash

Restricted cash comprises cash retained under the Israel Senior Secured Notes and the Greek State Loan requirement as follows:

Current

Total short-term restricted cash at 31 December 2022 was $71.8 million. $3 million for bank guarantees and $68.8 million for the debt payment fund which will be used for the March 2023 coupon payment of $64.4 million.

Non-Current

$2.8 million: $2.2 million required to be restricted in Interest Service Reserve Account ('ISRA') in relation to the Greek Loan Notes and $0.6 million for Prinos Guarantee.

 



 

13. Trade and other receivables

 

2022

($'000)

2021

($'000)

Trade and other receivables - Current

Financial items



Trade receivables

215,215

178,804

Receivables from partners under JOA

4,539

5,138

Other receivables

2,344

38,683

Government subsidies1

3,025

3,212

Refundable VAT

89,400

42,376

Receivables from related parties (note 27)

-

1

 

314,523

268,214

Non-financial items



Deposits and prepayments2

15,084

17,139

Deferred insurance expenses

1,983

2,095

Other deferred expenses3

4,929


Accrued interest income

1,445

1,078


23,441

20,312


337,964

288,526

Trade and other receivables - Non-Current

Financial items



Other tax recoverable

14,701

16,478


14,701

16,478

Non-financial items



Deposits and prepayments

11,726

12,337

Other deferred expenses3


22,958

Other non-current assets

513

866


12,239

36,161

Total trade and other receivables

26,940

52,639

 

1 Government subsidies relate to grants from Greek Public Body for Employment and Social Inclusion (OAED) to financially support the Kavala Oil S.A. labour cost from manufacturing under the action plan for promoting sustainable employment in underdeveloped or deprived districts of Greece, such as the area of Kavala. In September 2020, the Greek Government issued a law and a subsequent ministerial decision whereby any legal person who has launched legal proceedings in relation to the aforementioned employment costs, may set off such receivables against tax liabilities provided the judicial proceedings already commenced are abandoned. Energeaninvestigated the process and potential benefits of this approach decided to apply for the set off which has been approved and the first offset was in January 2023 of €587k ($626k).

2 Included in deposits and prepayments, are mainly prepayments for goods and services under the GSP Engineering, Procurement, Construction and Installation Contract (EPCIC) for Epsilon project.

3. In accordance with the GSPAs signed with a group of gas buyers, the Company has agreed to pay compensation to these counterparties due to the fact the gas supply date is taking place beyond a certain date as defined in the GSPAs (being 30 June 2021). The compensation, amounting to $23 million) has been fully paid in 2021. The compensation presented as a non-current asset (under the caption deferred expenses) and will be accounted for as variable consideration and deducted from revenue as gas is delivered to the offtakers.

 

14. Borrowings

 

 

2022

 

2021

 

 

$'000

 

$'000

Non-current

 

 



Bank borrowings - after two years but within five years





4.5% Senior Secured notes due 2024 ($625 million)


620,461


617,060

4.875% Senior Secured notes due 2026 ($625 million)


617,912


615,966

Convertible loan notes ($50 million)


-


41,495

Bank borrowings - more than five years

 

 

 

 

6.5% Senior Secured notes due 2027 ($450 million)


442,879


442,107

5.375% Senior Secured notes due 2028 ($625 million)


616,767


615,451

5.875% Senior Secured notes due 2031 ($625 million)


615,890


615,047

BSTDB Loan and Greek State Loan Notes


61,437



Carrying value of non-current borrowings

 

2,975,346

 

2,947,126






Current





Convertible loan notes ($50 million)


45,550


-

Carrying value of current borrowings

 

45,550

 

-






Carrying value of total borrowings

 

3,020,896

 

2,947,126

 

The Group has provided security in respect of certain borrowings in the form of share pledges, as well as fixed and floating charges over certain assets of the Group.

$2,500,000,000 senior secured notes

On 24 March 2021, the Group completed the issuance of $2.5 billion aggregate principal amount of senior secured notes.

The Notes have been issued in four series as follows:

· Notes in an aggregate principal amount of $625 million, maturing on 30 March 2024, with a fixed annual interest rate of 4.500%.

· Notes in an aggregate principal amount of $625 million, maturing on 30 March 2026, with a fixed annual interest rate of 4.875%.

· Notes in an aggregate principal amount of $625 million, maturing on 30 March 2028, with a fixed annual interest rate of 5.375%.

· Notes in an aggregate principal amount of $625 million, maturing on 30 March 2031, with a fixed annual interest rate of 5.875%.

The Notes are listed for trading on the TACT Institutional of the Tel Aviv Stock Exchange Ltd. (the "TASE").

The Company had undertaken to provide the following collateral in favour of the Trustee:

· First rank Fixed charges over the shares of Energean Israel Limited, Energean Israel Finance Ltd and Energean Israel Transmission Ltd, the Karish & Tanin Leases, the gas sales purchase agreements ("GSPAs"), several bank accounts, Operating Permits (once issued), Insurance policies, the Company exploration licenses (Block 12, Block 21, Block 23, Block 31) and the INGL Agreement.

· Floating charge over all of the present and future assets of Energean Israel Limited and Energean Israel Finance Ltd.

· Energean Power FPSO (subject to using commercially reasonable efforts, including obtaining Israel Petroleum Commissioner approval and any other applicable governmental authority).

Kerogen Convertible Loan

On 25 February 2021, the Group completed the acquisition of the remaining 30% minority interest in Energean Israel Limited from Kerogen Investments No.38 Limited, Energean now owns 100% of Energean Israel Limited. This resulted in a reduction of the Group's reported non-controlling interest balance to $nil at 31 December 2021.

The total consideration includes 

· An up-front payment of $175 million paid at completion of the transaction

· Deferred cash consideration amounts totalling $180 million (out of which $30 million paid in December 2022). The deferred consideration is discounted at the selected unsecured liability rate of 9.77% (please refer to note 16).

· $50 million of convertible loan notes (the "Convertible loan notes"), which have a maturity date of 29 December 2023, a strike price of £9.50, adjusted for dividend payments up to maturity date, and a zero-coupon rate.

 

$450,000,000 senior secured notes

On 18th November 2021, the Group completed the issuance of $450 million of senior secured notes, maturing on 30 April 2027 and carrying a fixed annual interest rate of 6.5%.

The interest on the notes is paid semi-annually on 30 April and 30 October of each year, beginning on 30 April 2022.

The notes are listed for trading on the Official List of the International Stock Exchange ("TISE").

The issuer is Energean plc and the Guarantors are Energean E&P Holdings, Energean Capital Ltd, and Energean Egypt Ltd.

The company undertook to provide the following collateral in favour of the Security Trustee:

· Share pledge of Energean Capital Ltd, Energean Egypt Ltd, and Energean Italy Ltd

· Fixed charges over the material bank accounts of the Company and the Guarantors (other than Energean Egypt Services JSC)

· Floating charge over the assets of Energean plc (other than the shares of Energean E&P Holdings)

Energean Oil and Gas SA ('EOGSA') loan for Epsilon/ Prinos Development

On 27 December 2021 EOGSA entered into a loan agreement with Black Sea Trade and Development Bank for €90.5 million to fund the development of Epsilon Oil Field. The loan is subject to an interest rate of EURIBOR plus a margin of 2% on 90% of the loan (guaranteed portion) and 4.9% margin on 10% of the loan (unguaranteed portion). The loan has a final maturity date 7 years and 11 months after first disbursement.

On 27 December 2021 EOGSA entered into an agreement with Greek State to issue €9.5 million of notes maturing in 8 years with fixed rate -0.31% plus margin. The margin commences at 3.0% in year 1 with annual increases, reaching 6.5% in year 8. 

At 31 December 2022, $43 million (€40 million) remains undrawn. 

Revolving Credit Facility ('RCF')

On 8 September 2022, Energean signed a three-year $275 million RCF with a consortium of four banks, led by ING Bank N.V. The RCF provides additional liquidity for general corporate purposes, if required. Under its current business plan, Energean expects the RCF to remain undrawn, apart from $101 million (as at 31 December 2022) of Letters of Credit ("LCs"), which replace the LCs that relate to certain assets in the UK, Italy, Egypt and Greece that were issued under the previous facility with ING on a one-for-one basis. The interest rate, if drawn by way of loans, is 5% + SOFR.

Capital management 

The Group defines capital as the total equity and net debt of the Group. Capital is managed in order to provide returns for shareholders and benefits to stakeholders and to safeguard the Group's ability to continue as a going concern.

Energean is not subject to any externally imposed capital requirements. To maintain or adjust the capital structure, the Group may put in place new debt facilities, issue new shares for cash, repay debt, engage in active portfolio management, adjust the dividend payment to shareholders, or undertake other such restructuring activities as appropriate.

 



2022

 

2021



$'000

 

$'000

Net Debt

 




Current borrowings


45,550


-

Non-current borrowings


2,975,346


2,947,126

Total borrowings 


3,020,896


2,947,126

Less: Cash and cash equivalents

(427,888)

(202,939)

Restricted cash

(74,776)

-

Net Debt (1)

 

2,518,232

 

2,016,558

Total equity  (2)


650,198


717,123

Gearing Ratio (1)/(2):

 

387.3%

 

281.2%

 

 

15. Provisions

($'000)

Decommissioning

Provision for litigation and other claims

Total

At 1 January 2021

865,127

16,408

881,535

New provisions

-

520

520

Change in estimates

(18,808)

(4,494)

(23,302)

  Recognised in property, plant and equipment

(13,174)

 

(13,174)

  Recognised in Intangible assets

2,202

 

2,202

  Recognised in profit& loss

(7,836)

 

(7,836)

Payments

(2,653)

-

(2,653)

Unwinding of discount

8,722

-

8,722

Currency translation adjustment

(50,290)

(1,140)

(51,430)

At 31 December 2021

802,098

11,294

813,392

Current provisions

12,366

-

12,366

Non-current provisions

789,732

11,294

801,026

At 1 January 2022

 

 

 

New provisions

-

1,619

1,619

Change in estimates

49,313

(551)

48,762

  Recognised in property, plant and equipment

21,685

 

21,685

  Recognised in profit& loss

27,628

 

27,628

Payments

(8,898)

(344)

(9,242)

Reclassification

-

(1,568)

(1,568)

Unwinding of discount

21,495

-

21,495

Currency translation adjustment

(55,251)

(1,104)

(56,355)

At 31 December 2022

808,757

9,346

818,103

Current provisions

8,376

-

8,376

Non-current provisions

800,381

9,346

809,727

 

Decommissioning provision

The decommissioning provision represents the present value of decommissioning costs relating to oil and gas properties, which are expected to be incurred up to 2042 when the producing oil and gas properties are expected to cease operations. The future costs are based on a combination of estimates from an external study completed in previous years and internal estimates. These estimates are reviewed annually to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required that will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend upon future oil and gas prices and the impact of energy transition and the pace at which it progresses which are inherently uncertain. The decommissioning provision represents the present value of decommissioning costs relating to assets in Italy, Greece, UK, Israel and Croatia. No provision is recognised for Egypt as there is no legal or constructive obligation as at 31 December 2022.

 

 

Inflation assumption

Discount rate assumption

Cessation of production assumption

Spend in 2022

2022 ($'000)

2021 ($'000)

Greece

1.6%- 2.2%

4.6%

2034

-

13,036

17,058

Italy

5.2%- 2.0%

3.3%

2023-2042

7,616

519,749

527,801

UK

3.7%

4.1%

2023-2031

1,281

176,063

203,246

Israel

2.3%-2.7%

4.1%

2042

-

84,299

35,525

Croatia

5.2%- 2.0%

3.3%

2032

15,610

18,467

Total

 

 

 

8,897

808,757

802,097

 

16. Trade and other payables

 

2022

($'000)

2021

($'000)

Trade and other payables-Current1

Financial items



Trade accounts payable

298,091

109,525

Payables to partners under JOA2

58,336

43,499

Deferred licence payments due within one year

13,345

-

Deferred consideration for acquisition of minority

144,326

167,228

Other creditors

34,644

12,043

Short term lease liability

9,208

8,253


557,950

340,548

Non-financial items



Accrued expenses3

98,650

64,823

Contract Liability4

56,230


Other finance costs accrued

39,672

36,693

Social insurance and other taxes

4,372

7,643


198,924

109,159


756,874

449,707

Trade and other payables-Non-Current

Financial items



Trade and other payables5

169,360

-

Deferred licence payments6

38,488

57,230

Contingent consideration

86,320

78,450

Long term lease liability

23,063

36,172


317,231

171,852

Non-financial items



Contract Liability

-

53,537

Social insurance

827

598


827

54,135


318,058

225,987

1The statement of financial position as at 31 December 2022 presents current tax liabilities separately from the current portion of trade and other payables. Comparative amounts of $5,279,000 have been reclassified accordingly.

2 Payables related to operated Joint operations primarily in Italy.

3 Included in trade payables and accrued expenses in 2022 and 2021, are mainly Karish field related development expenditures (mainly FPSO and Sub Sea construction cost), development expenditure for Cassiopea project in Italy and NEA/NI project in Egypt.

4 In June 2019, Energean signed a Detailed Agreement with Israel Natural Gas Lines ("INGL") for the transfer of title (the "hand over") of the nearshore and onshore part of the infrastructure that will deliver gas from the Karish and Tanin FPSO into the Israeli national gas transmission grid. As consideration, INGL will pay Energean 369 million Israeli New Shekels (ILS), which translates to approximately $115 million, for the infrastructure being built by Energean in accordance with milestones detailed in the agreement. The agreement covers the onshore section of the Karish and Tanin infrastructure and the near shore section of pipeline extending to approximately 10km offshore. The amount included in the contract liability line above represents the amount received as of 31 December 2022 from INGL. The handover to  INGL is expected to be effective in Q1 2023.

5 The amount represents an amount payable to Technip in respect of costs incurred starting 1 April 2022 until completion, in terms of the EPCIC contract. The amount is payable in eight equal quarterly deferred payments due after practical completion date and therefore has been discounted at 5.831%. p.a. (being the yield rate of the senior secured loan notes, maturing in 2024, at the date of entering into the settlement agreement).

6 In December 2016, Energean Israel acquired the Karish and Tanin offshore gas fields for $40.0 million closing payment with an obligation to pay additional consideration of $108.5 million plus interest inflated at an annual rate of 4.6% in ten equal annual payments. As at 31 December 2022 the total discounted deferred consideration was $51.8 million (as at 31 December 2021: $57.23 million). The Sale and Purchase Agreement ("SPA") includes provisions in the event of Force Majeure that prevents or delays the implementation of the development plan as approved under one lease for a period of more than ninety (90) days in any year following the final investment decision ("FID") date. In the event of Force Majeure the applicable annual payment of the remaining consideration will be postponed by an equivalent period of time, and no interest will be accrued in that period of time as well. Due to the effects of the COVID-19 pandemic which constitute a Force Majeure event, the deferred payment due in March 2022 would be postponed by the number of days that such Force Majeure event last. As of 31 December 2021 Force Majeure event length has not been finalised as the COVID-19 pandemic continues to affect the progress of the project, and as such the deferred payment due in March 2022 was postponed accordingly.

 

17. Contingent consideration

The share purchase agreement (the "SPA") dated 4 July 2019 between Energean and Edison SpA provides for a contingent consideration of up to $100.0 million subject to the commissioning of the Cassiopea development gas project in Italy. The consideration was determined to be contingent on the basis of future gas prices (PSV) recorded at the time of first gas production at the Cassiopea field, which is expected in 2024. No payment will be due if the arithmetic average of the year one (i.e., the first year after first gas production) and year two (i.e., the second year after first gas production) Italian PSV Natural Gas Futures prices is less than €10/Mwh when first gas production is delivered from the field. US$100 million is payable if that average price exceeds €20/Mwh.

 

The fair value of the Contingent Consideration is estimated by reference to the terms of the SPA and the simulated PSV pricing by reference to the forecasted PSV pricing, historical volatility and a log normal distribution, discounted at a cost of debt.

Noting the natural gas future prices for PSV are currently in excess of the €20/MWh (the threshold for payment of $100 million), we estimate the fair value of the Contingent Consideration as at 31 December 2021 to be $86.3 million based on a Monte Carlo simulation.


 

 

 Contingent consideration

2022

 

1 January

78,450

 

Fair value adjustment

7,870


31 December

86,320

 


 

 

18. Dividends

In September 2022, Energean declared its maiden quarterly dividend. In total, Energean returned US$0.60/share to shareholders in 2022, representing two-quarters of dividend payments. No dividend was proposed in respect of the year ended 31 December 2021.

 

 

US$ Cents per share

Total dividend paid

$'000


2022

2021

2022

2021

Dividends announced and paid in cash

 

 

 

 

Ordinary shares





September

30

-

53,252

-

December

30

-

53,252

-

 

60

-

106,504

-

 

 

19. Events after the reporting period

On the 9 February 2023 Energean declared its 4Q dividend of US$30 cents per share, to be paid on 30 March 2023.

On the 17 March 2023 Energean signed an unsecured $350 million two year term loan facility, which offers additional financial flexibility for the Group. The loan is expected to remain undrawn.



[1] During 2022, Italy introduced: 1) a windfall tax in the form of a law decree which imposed a 25% one-off tax on profit margins that rose by more than 5 million euros between October 2021 and April 2022 compared to the same period a year earlier. The amount of the windfall tax paid by Energean Italy was $29.3 million and 2) In November 2022, Italy introduced a new windfall tax that imposed a 50% one-off tax, calculated on 2022 taxable profits that are 10% higher than the average taxable profits between 2018-2021. This amount has a ceiling equal to 25% of the value of the net assets at end-2021. Based on this, Energean would be required to pay an additional one-off tax of €87 million in June 2023.

[2] Based on 21 March 2023 share price of GBp 11.00

[3] On an annualised basis

[4] Adjusted EBITDAX is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, share-based payment charge, impairment of property, plant and equipment, other income and expenses, net finance costs and exploration and evaluation expenses.

[5] Including 10 mmboe that is located in the Abu Qir licence, but will be developed through the NEA/NI development

[6] $101 million of the total facility is reserved for the issuance of Letters of Credit

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