Energean plc, the independent gas-focused producer focused on the Mediterranean, announces its half-year results for the six months ended 30 June 2020 ("1H 2020").
Mathios Rigas, Chief Executive, Energean commented:
"Despite some COVID-19-related disruptions, in the year-to-date we have made solid progress on our flagship gas project in Israel, which is scheduled to deliver first gas in 2H 2021. We have successfully performance-tested all three Karish development wells, delivered a resource upgrade at Karish North, completed the installation of the 8 bcm/yr capacity, 90km pipeline that will deliver Energean's gas sales (currently at 5.6 bcm/yr) into the Israeli domestic market, completed the hull of our FPSO in China and moved it to Singapore, and have commenced heavy lifting operations.
"In the second half of the year, we look forward to completing our acquisition of Edison E&P, which, alongside the Karish project, will further secure our long-term, resilient cash flow profile and option-rich portfolio. Following completion of the deal, around 70% of our future production will be sold under long-term gas sales agreements that will largely insulate us against oil price volatility. We will continue to own and operate the majority of our asset base and are well-funded for all of our projects.
"On the ESG front we received an award for "Best ESG Energy Growth Strategy in Europe 2020", recognising our efforts and focus on achieving our stated net zero target and our overall focus to comply with the United Nations' 17 Sustainable Development Goals ("SDGs").
"As we move into an exciting and transformational period for the business, I would like to personally thank my colleagues around the world for their hard work and commitment to driving the business forward and keeping one another safe and well during these challenging times."
- Completed installation of the 90km gas pipeline that will connect the Energean Power FPSO to the national natural gas transmission system in Israel
- The electrical house ("Ehouse") module was lifted onto the FPSO hull at the Admiralty Yard, Singapore on 24 August 2020 marking the start of the FPSO hull and topsides integration campaign
- Subsea and onshore works for the Karish project progressing in line with expectations; installation of the production manifold and subsea isolation valves was completed during June 2020, and installation of the FPSO anchoring system in August 2020
- Analysis of the results of performance testing during clean-up operations of the three Karish Main development wells indicates a significantly higher liquids content than had previously been envisaged
- The Israel Ministry of Energy approved the Karish North Field Development Plan ("FDP") during August 2020
- During 1H 2020, Energean increased debt capacity by $395 million through its $175 million upsizing of the Israel project finance facility and the signing of a new $220 million reserve-based lending facility ("RBL") to fund the Edison E&P acquisition, significantly enhancing financial flexibility
- Cash and undrawn debt facilities of $872.5 million as at 30 June 2020
- In August 2020, Energean was rated at gold level by MAALA, the Israel CSR standards-setting organisation and will be rated under the Maala Index on the Tel Aviv Stock Exchange going forward
Edison E&P transaction (subject to transaction close)
- Entered into further amendments to the Sale and Purchase Agreement ("SPA") for the acquisition of Edison E&P, following which, inter alia, the gross consideration for the transaction is $284 million, down from an original sum of $750 million; the Algerian asset and Norwegian subsidiary will be excluded from the transaction perimeter
- Under the amended SPA, the net consideration that would have been payable had completion occurred on 30 June 2020, would have been $190 million; Energean does not expect this number to change materially before actual completion
- $220 million RBL facility signed with ING, Natixis and Deutsche Bank to fund the acquisition and ongoing working capital
- Shareholders voted unanimously in favour of the transaction at a general meeting held on 20 July 2020
Combined business results
- 1H 2020 pro forma production was 52.1 kboed, compared with full year guidance of 44.5 - 51.5 kboed
- 1H 2020 pro forma revenue3 was $177 million and operating cash flow3 was $68 million
- Completion of the acquisition of Edison E&P will occur following the remaining Conditions Precedent to the transaction ("CPs") being fulfilled, expected in 4Q 2020
- The Company's independent reserves auditors, DeGolyer and MacNaughton ("D&M"), are preparing a revised Competent Persons Report ("CPR") following completion of the Karish Main drilling programme to refine reserve and resource estimates in the fields; Energean expects to publish the results of this report in the coming weeks
- Continued progress on the integration of the topsides in the Admiralty Yard, Singapore, with sailaway to Israel expected in summer 2021 and first gas in 2H 2021
- Installation of the risers that will connect the production wells to the FPSO is expected to commence in 4Q 2020 and to be completed in 1Q 2021, marking completion of the subsea works required ahead of arrival of the Energean Power FPSO
- Final Investment Decision ("FID") on the 1.2 Tcf (34 bcm, gross) Karish North project is expected before year end 2020
- Outcome of discussions with the Greek Government, initiated as part of the strategic review of the Prinos area assets, regarding a financing package to support continued investment in the Prinos area is expected in 4Q 2020
- 2020 pro forma full year production guidance is maintained at 44.5 -51.5 kboed
- 2020 pro forma capital expenditure guidance reduced to $635 - 705 million4 , a $75 - 125 million reduction on guidance issued in June 2020 ($760 - 780 million), primarily due to i) rescheduling of expected milestone payments under the Karish EPCIC contract; and ii) expected timing of capital expenditure on Edison E&P's NEA project, Egypt
Key financial data
Energean's interim standalone income statement and operating cash flow is driven almost entirely by the Prinos area assets, investment in which has been significantly reduced as a result of the ongoing strategic review. 1H 2020 revenue is derived from one cargo lifting; a second cargo was lifted on 14 July 2020 and, therefore, the associated production is not reflected in 1H 2020 revenues.
Edison E&P's financial results for the period are presented below both on a standalone basis and also combined with Energean's 1H 2020 results to arrive at pro forma results for the period. The locked box of the acquisition is 1 January 2019; all economic results after this date belong to Energean, subject to closing of the transaction, expected 4Q 2020.
Energean's stand-alone loss after tax for the period ended 30 June 2020 was $77.3 million (30 June 2019: $4.5 million), which is stated after a non-cash impairment charge of $63.0 million that reflects the lower commodity price outlook.