Trading Statement & Operational Update

RNS Number : 2246B

Energean Oil & Gas PLC

29 January 2020

 

Energean Oil & Gas plc

Trading Statement & Operational Update

("Energean" or the "Company")

London, 29 January 2020 - Energean Oil and Gas plc (LSE: ENOG, TASE: אנאג) is pleased to provide an update on recent operations and the Group's trading performance in 2019 together with guidance for 2020. This information is unaudited and subject to further review.

Mathios Rigas, Chief Executive, Energean commented:

"Karish and Tanin is on track to deliver first gas in 1H 2021 and we have now secured 5.0 bcm/yr of firmly contracted gas sales to Israeli domestic buyers, 1.3 bcm/yr of contingent gas sales and 2.0 bcm/yr of potential sales to be discussed under a Letter of Intent with Greece's DEPA. With the above we are fast approaching our goal to fill the capacity of the Energean Power. We are already looking at growth opportunities on the resource side from our nine blocks in Israel and on potential additional infrastructure capacity that will allow us to expand gas sales in the region. With the expected closing of the acquisition of Edison E&P and subsequent sale of the North Sea assets to Neptune, we will further enhance our position in our core markets, substantially increase our reserves and production and realise immediate operating cash flow. Post completion, the combined portfolio will establish a material long-term cash flow profile that supports our ambition to pay a sustainable dividend.

I look forward to continuing this positive momentum in 2020, with a key focus on delivering Karish; closing and integrating Edison E&P; and continuing the sustainable growth of Energean, maximising value for all of our stakeholders."

"2019 has undoubtedly been the year that climate change has dominated the energy discussion; Sustainability continues to be at the core of Energean's gas-focused strategy and in 2019, we became one of the first E&P Companies in the world to commit to net zero carbon emissions by 2050 and we are targeting over 70% reduction in our carbon intensity over the next three years, with a firm intention to continue our reduction efforts until we achieve our net zero target.  In 2019, we also continued to deliver upon our exemplary HSE track record with one million hours free of Lost Time Incidents in Energean sites plus four million man hours in the FPSO construction yard in China."

Highlights

·    Energean expects that year end 2019 Working Interest reserves and resources[1] will be 554 million boe, a 38% increase on 2018 year end, driven primarily by the 190 mmboe Karish North Discovery.

·    The Karish development is on track to deliver first gas in 1H 2021.

·    5.0 Bcm/yr of firm Gas Sales and Purchase Agreements ("GSPAs) signed in Israel, with a further 1.3 Bcm/yr of contingent contracts and 2.0 Bcm/yr of potential sales to be discussed under a Letter of Intent, demonstrating significant progress on our ambition to fill the 8 Bcm/yr capacity of our FPSO.

·    2019 average Working Interest production of 3.3 kbopd. Cost of Production was approximately $21 /bbl.

·    2019 full year revenue is expected to be approximately $76 million. Capital expenditure was $721 million.

·    At 31 December 2019, Energean had net debt of $557 million, including the non-recourse $638 million of net project finance debt within Energean Israel. Cash and undrawn facilities were $834 million[2].

Edison E&P (subject to closing)

·    Energean is working to close its acquisition of Edison E&P as soon as possible in 2020, with approval from Italy anticipated shortly. Formal approvals from Egypt are expected soon after shareholder approval at the EGM.

·    The acquisition is now expected to exclude the Algerian Asset. An update will be provided on the appropriate settlement on the total transaction consideration once this has been agreed.

·    Exclusive of the Algeria, the UK North Sea and Norway, Edison E&P delivered Operating Cash Flow of $212 million during 2019. Capital expenditure was $61 million[3].

·    The updated Italian EIA approval on Cassiopea has been received by Edison E&P. The development is progressing as planned with First Gas expected in 2022.

·    Exclusive of Algeria and the UK North Sea assets, 2019 average Working Interest production was 56 kboe/d (64 kboe/d inclusive of these assets).

Outlook:

·    Expected closing of the Edison E&P acquisition and subsequent sale of the North Sea assets to Neptune as soon as possible in 2020.

·    Following successful appraisal of the 190 mmboe Karish North discovery, Energean expects to issue an updated CPR and Field Development Plan. Energean Final Investment Decision on the Karish North development is expected during 2020.

·    Drilling of the Zeus exploration well plus two contingent exploration wells offshore Israel.

·    The Energean Power FPSO hull is expected to sailaway from China in March 2020. FPSO sailaway from Singapore is still anticipated around Year End 2020.

·    Strategic review of the Prinos Area assets initiated.

·    2020 pro forma group production[4] is expected to be between 42.5 - 50.0 kboe/d[5].

·    2020 pro forma consolidated group capital expenditure of $995 million[6], of which $620 million is to be spent in Israel.

·    Decisions on FID at Katakolo (Greece) and Drill or Drop on both Ioannina (Greece) and Montenegro.

Edison E&P Acquisition

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

Average Working Interest production from the Edison E&P portfolio during 2019 was 64.2 kboed:

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

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

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

In December 2019, ENI and Edison E&P received the renewal of the Italian EIA approval on Cassiopea. The development is now progressing in line with expectations, with first gas expected during 2022.

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

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

No material capex is expected to be incurred in Edison E&P before closing, except for committed exploration and sanctioned developments.

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

Energean expects that year end 2019 Working Interest reserves and resources[8] will be 554 million boe, a 38% increase on 2018 year end. The table below is preliminary and subject to finalisation.

		Israel[9]				Greece					Total
	Oil Mmbls	Gas Bcf		Total mmboe	Oil Mmbls		Gas Bcf		Total mmboe	Oil Mmbls		Gas Bcf		Total mmboe
Commercial Reserves
At 1 Jan 2019	22	1,558		298	49		5		49	71		1,563		347
Revisions	7	(99)		(11)	5		2		6	12		(97)		(5)
Production				0	(1)		0		(1)	(1)		0		(1)
At 31 Dec 2019	29	1,460		287	53		7		54	82		1,466		341
Contingent Resources
At 1 Jan 2019	1	133		24	29		8		30	29		141		54
Revisions & Discoveries	27	618		136	18		25		23	45		643		159
At 31 Dec 2019	27	751		160	47		33		53	74		784		213
Total Commercial Reserves & Contingent Resources
1 Jan 2019	23	1,692		322	77		13		79	100		1,704		402
31 Dec 2019	56	2,211		448	100		40		106	156		2,250		554

Israel

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

Gas Sales & Purchase Agreements ("GSPAs")

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

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

Key development activities for 2020

·    2020 Drilling Programme

Energean completed the drilling of the three Karish Main development wells during 2019. Completions are currently being run and the Christmas Trees are expected to be installed before end 1Q 2020. All three development wells will then be ready for integration with the Sub Sea infrastructure and Hook Up to the FPSO.

Energean expects to spud the Zeus exploration well, targeting 0.6 Tcf of Gas Initially in Place ("GIIP") in March 2020. In addition to Zeus, Energean is preparing to drill two additional exploration wells during 2020, which will be contingent on the results from Zeus. Prospects being evaluated for drilling include Athena (0.6 Tcf GIIP, Block 12), Hera (0.4 Tcf GIIP, Block 12) and Poseidon (1.0 Tcf GIIP, Block 21). Following this campaign, the rig will be released to another operator, which will execute a 3-4 well campaign in the region. Following this campaign, Energean intends to take the rig back for the remaining options under its drilling contract.

Following the Zeus exploration well, Energean has five remaining drilling options under its contract with Stena Drilling.

Exploration activities during the second half of 2020 will focus on the analysis of well results and the re-processing, integration and evaluation of seismic data.

·    FPSO Hull and Topsides

The hull sailaway date from the Cosco Yard in China has been deferred to 31 March, a delay of 3.5 months. However, excellent progress has been made on the topsides at the Admiralty Yard in Singapore and it is still anticipated that the integrated Hull and Topsides will sailaway from Singapore to Israel around Year End 2020 with first gas from the project anticipated during 1H 2021.

·    Subsea Installation and Pipeline

During 2020, all components of the subsea production system will be installed using vessels provided by TechnipFMC.

The sales gas pipeline will be installed with activities commencing close to shore in territorial waters and then moving progressively offshore towards the FPSO location.

·    Karish North

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

Greece

In Greece, total reserves and contingent resources have seen a 34% year-on-year increase, to 106 mmboe. This has resulted from the new discoveries in the Epsilon reservoir and reprocessing and interpretation of data at Katakolo.

Energean has decided to place its Prinos Area assets under strategic review. Investment in Prinos and Prinos North will remain limited whilst this work is concluded.  Energean delivered average 2019 FY production of 3.3 kbopd. Due to limited investment resulting from the strategic review, 2020 production is expected to be in the range of 2.0 to 2.5 kbopd. The Energean Force remains smart-stacked in Phillipos Port; 2020 production from Prinos and Prinos North will be maintained through rig-less activities requiring limited expenditure.

During 2019, all three Epsilon Lamda platform development wells were successfully drilled. As previously announced, additional pay was encountered in the deeper and dolomitic zones of the Epsilon reservoir. This is expected to result in a reserve and contingent resource increase of 16 mmboe.  The jacket for the Lamda platform is 80 - 85% complete in the Constanza shipyard.

At Katakolo, award of the EIA is expected in 2Q 2020 with potential Final Investment Decision thereafter. Katakolo reserves are expected to be 14 mmbbls, a 33% increase on 2019.

The Underground Gas Storage project in South Kavala saw a positive development in 4Q 2019 when an amendment to the law was passed on 10 December. A paragraph was added at the end of article 93, making it possible for the Regulating Energy Authority to pass regulation on the tariff. This paves the way for a tender for the project, which is expected during 2020.

Exploration

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

In Aitoloakarnania, the operator, Repsol, is carrying out the necessary environmental studies in preparation for the 2D seismic acquisition campaign, which is expected to commence in 2Q 2020, subject to permitting.

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

Financial and Corporate Update

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

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

2020 Pro Forma Guidance[11]

	2020
Production
Egypt (kboe/d)	32 - 37
Italy (kboe/d)	8 - 10
Greece (kboe/d)	2 - 2.5
Croatia (kboe/d)	0.5
Total Pro Forma Production (kboe/d)	42.5 - 50.0
Operating Costs ($ million)	225 - 250
Development and Production Capital Expenditure
-      Israel ($ million)	590
-      Egypt ($ million)	100[12]
-      Italy ($ million)	120
-      Greece ($ million)	65
-      Croatia ($ million)	10
Total ($ million)	885
Exploration Capital Expenditure (Firm)
-      Israel ($ million)	40
-      Egypt ($ million)	60
-      Italy ($ million)	-
-      Greece ($ million)	10
-      Croatia ($ million)	-
-      Other ($ million)	-
Total ($ million)	110

Enquiries 

Energean	Tel: [phone]
Kate Sloan, Head of IR
Camarco (Financial PR)	Tel: [phone]
Billy Clegg Owen Roberts Monique Perks

About Energean Oil & Gas plc

Energean is a London Premium Listed FTSE 250 and Tel Aviv 35 Listed E&P company with operations offshore Israel, Greece and the Adriatic. In August 2017 the Company received Israeli Governmental approval for the FDP for its flagship Karish-Tanin gas development project, where it intends to use the only FPSO in the Eastern Mediterranean to produce first gas in 2021. Energean has already signed firm contracts for 5.0 Bcm/yr of gas sales into the Israeli domestic market. Future gas sales agreements will focus on both the growing Israeli domestic market and key export markets.

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

On 4 July 2019, Energean announced the conditional acquisition of Edison E&P for $750 million plus $100 million of contingent consideration. On 14 October 2019, Energean announced the conditional disposal of Edison E&P's Norwegian and UK North Sea assets to Neptune Energy for $250 million plus $30 million of contingent consideration. On 23 December 2019, Energean announced the exclusion of the Algerian assets from the transaction. The acquisition of Edison E&P, exclusive of the Algerian assets is expected to be finalised as soon as possible during 2020.

www.energean.com

---

[1] Subject to finalisation of Netherland Sewell and Associates Competent Persons' Reports. 2C resources for Karish North are based on management estimates. Stated before Edison E&P assets are taken into account

[2] Exclusive of the $600 million acquisition bridge

[3] The effective date of the transaction was 1 January 2019

[4] Reflects Energean + Edison E&P production for the whole year

[5] Exclusive of the UK North Sea and Algerian assets

[6] Excluding acquisition costs

[7] Gas has been converted to boe using a conversion factor of 5.8 mcf/boe. Numbers may not sum due to rounding

[8] Subject to finalisation of NSAI reports

[9] Israel reserves and resources shown at 70% working interest

[10] Excluding the $600 million acquisition bridge

[11] Assumes full year of Edison E&P is consolidated, noting effective date of transaction of 1 January 2019

[12] Includes approximately $70 million relating to the NEA / NI development, which has yet to be sanctioned

 

END

 

 

MSCDDGDBSGDDGGI