Proposed Acquisition of Edison E&P and Placing of New Ordinary Shares to Raise Up to US$265 Million

Source Press Release
Company Energean Oil & Gas PlcEdison SpA 
Tags Financing, Equity Financing, Debt Financing, Corporate Deals, Deals, Upstream Activities
Date July 04, 2019

Highlights

·      Acquisition of Edison E&P for US$750 million initial consideration and US$100 million contingent consideration

·      Creates one of the largest independent E&P companies on the London and the Tel Aviv Stock Exchanges

·      Enlarged 2P reserves of 639 mmboe and trajectory to produce up to 200 kboe/d

·      Contributes EBITDAX of US$434 million and Operating Cash Flow of US$302 million

·      Funding of initial consideration through US$265million equity placing and US$600million committed bridge loan facility

Energean (LSE: ENOG, TA: אנאג) the oil and gas producer focused on the Mediterranean is pleased to announce that it has entered into a conditional sale and purchase agreement to acquire Edison Exploration & Production S.p.A. ("Edison E&P") from Edison S.p.A. ("Edison") (the "Acquisition") for US$750 million, to be adjusted for working capital, with additional contingent consideration of US$100 million payable following first gas from the Cassiopea development (expected 2022), offshore Italy.

Edison E&P's portfolio of assets includes producing assets in Egypt, Italy, Algeria, the UK North Sea and Croatia, development assets in Egypt, Italy and Norway and balanced-risk exploration opportunities across the portfolio. The Edison E&P portfolio adds working interest 2P reserves of 292 mmboe and 2018 net working interest production of 69 kboe/d.

The Acquisition of Edison E&P on attractive metrics is in line with Energean's stated strategy of creating the leading independent, gas-focused E&P company in the Mediterranean. It will significantly increase Energean's scale and diversification by adding a complementary portfolio of accretive development, appraisal and exploration opportunities, whilst immediately contributing EBITDAX and cashflow to support the Enlarged Group's strategic growth and medium term ambition to start paying a dividend.  

Highlights of the Acquisition

Significant increase in reserves

·    The Enlarged Group will have a total of 639 mmboe of 2P reserves and will be one of the largest independent E&P companies listed on the London and the Tel Aviv Stock Exchanges.

Diversification and expansion of low cost production stream

·    The Enlarged Group is expected to produce more than 140 kboe/d in 2021, when the Karish and Tanin development project comes onstream, with a trajectory to approximately 200 kboe/d once the Energean Power FPSO reaches full capacity.

·    Majority of portfolio operated with high working interest positions and operatorship on a number of key production and development assets.

·    Majority of Energean and Edison E&P's gas is sold under fixed priced gas contracts, providing stability and predictability to cash flow, helping mitigate impact of oil price volatility.

Complementary and experienced operating teams

·    Edison E&P brings 282 employees, which combined with the existing Energean team, will provide highly skilled and experienced coverage of all key geographies of the combined portfolio.

Gas focused, complementing Energean's strategic commitment to transition fuels

·    Gas contributes 76% of Edison E&P's 2P reserves and 80% of its 2018 production, complementing Energean's gas-focused transition fuel growth strategy.

Immediate EBITDAX contribution

·    Edison E&P adds 2018 EBITDAX of US$434 million and Operating Cash Flow of US$302 million, materially enhancing Energean's current cash flow ahead of Karish and Tanin First Gas. It supplements the long-term profile with sustainable cash flows that are largely shielded from commodity price fluctuations due to the gas sales agreements in place and supports the Company's medium-term ambition to pay a dividend.

Near term growth further amplified

·    Edison E&P complements and augments Energean's growth profile into the 2020s through key developments with attractive IRRs and material Mediterranean gas focused exploration opportunities.

Enhanced newsflow potential

·    The Enlarged Group has enhanced potential for a consistent stream of newsflow from production and development assets, as well as additional, balanced risk exploration opportunities.

Increased scale to support strategic growth plans

·    Acquisition creates the leading full cycle, independent, gas-focused E&P company in the Mediterranean and will increase Energean's prominence and profile in the region and its ability to attract new investment opportunities.

Transfer of E&P business and operating team from a European Utility to an E&P-focused management team

·    European Utilities as a sector have been retreating from hydrocarbon investment for several years. By enabling the Edison E&P assets and highly experienced teams to operate with the support and input from an E&P-investment focused parent company, Energean believes that significant value can be created across the portfolio.

Aligned, entrepreneurial management team with a track record of value creation

·    Management team with significant shareholdings and investor alignment with a track record of value creation through acquisitions, rapid developments and asset improvement.

Financing of the Acquisition

The initial consideration for the Acquisition is US$750 million, to be adjusted for working capital, with additional contingent consideration of US$100 million payable following first gas at the Cassiopea development.  Edison will also receive an 8% royalty on profit production resulting from future discoveries made by upcoming exploration wells in the North Thekah Offshore and North East Hap'y Blocks, offshore Egypt.

The initial consideration will be funded through a US$600 million committed bridge loan facility (the "Committed Bridge Loan Facility") and up to US$265 million of equity financing through the Placing announced today. The total debtand equity capital raised has been sized to cover both the initial consideration and working capital requirements of the Enlarged Group.

The US$600 million committed bridge loan facility is expected to be replaced in H2 2019 using a combination of a reserve based facility and/or corporate debt. The US$100 million of contingent consideration is expected to be funded by the combined free cash flow of the Enlarged Group as well as any incremental reserve based facility and/or corporate debt capacity. Energean is also evaluating the potential sale of non-core assets of the Enlarged Group.

Placing

Energean also announces today the launch of a placing with institutional investors of new ordinary shares of 1 pence each in the capital of Energean (the "Placing Shares") to raise up to £211 million (approximately US$265 million) (before expenses) (the "Placing").

The number of Placing Shares to be issued by the Company will not exceed 19.99% of the existing issued share capital of the Company.

The Placing will be conducted through an accelerated bookbuilding process which will be launched immediately following this Announcement.  Certain Energean Directors, their related parties and senior managers of Energean have indicated their intention to participate in the Placing up to an aggregate amount of approximately £3 million (approximately US$3.8 million). Any related party transactions as a result of such participation by Energean Directors would constitute exempt small transactions pursuant to paragraph 1 of Annex 1 to Chapter 11 of the Listing Rules. The Placing is not conditional upon Completion. The Placing is subject to the terms and conditions set out in Appendix 1 (which forms part of this Announcement).

The net proceeds of the Placing will be used to part-fund the Acquisition, with the remaining Acquisition consideration being funded through the Committed Bridge Loan Facility.

Mathios Rigas, Chief Executive of Energean, commented:"

The acquisition of Edison E&P establishes Energean as the leading independent, gas focused E&P company in the Mediterranean with a mainly operated, low cost, gas weighted portfolio, with the capability, focus and team to prosper in our rapidly changing industry. It will diversify Energean into a multi-country, multi-asset, full-cycle E&P company with scale, material cash flows, significant growth and portfolio optionality.  Edison E&P brings with it an exceptional team and I look forward to working with them as we build on the multiple opportunities ahead of us.""

Together, our priority is to maximise the economic value of the combined portfolio, whilst retaining as a key priority delivery of Karish and Tanin First Gas into Israel in Q1 2021. Since 2007, Energean has delivered significant growth and value for our investors and this acquisition is the next important step on this growth and value journey."

The Acquisition is subject to relevant anti-trust and regulatory approvals. Since the Acquisition constitutes a reverse takeover for the purposes of the Listing Rules, Energean will need to seek shareholder approval and re-admission of its ordinary shares to the Official List upon completion of the Acquisition, which is targeted by Q4 2019.

Energean will in due course send a circular to Energean Shareholders convening a general meeting to approve the Acquisition.  The Energean Board considers the Acquisition to be in the best interests of Energean and the Energean Shareholders as a whole.  Accordingly, the Energean Board intends to recommend that Energean Shareholders vote in favour the resolution in respect of the Acquisition to be proposed at the Energean General Meeting, as the Energean Directors intend to do in respect of their own beneficial holdings of 41,640,468 Energean Shares, representing, in aggregate, approximately 27.8% of the total issued share capital of Energean as at 3 July 2019, being the Last Practicable Date. Shareholders currently representing approximately 53.7% of the issued share capital of the Company have given irrevocable undertakings to the Company to vote their shares in favour of the resolution to approve the Acquisition at the General Meeting.

Morgan Stanley is acting as global coordinator and joint bookrunner, Stifel is acting as joint bookrunner and Peel Hunt and RBC (trading as RBC Capital Markets) ("RBC") are acting as co-lead managers in respect of the Placing.

A conference call for analysts and investors will be held today at 8.00a.m. Dial-in details are set out below:

United Kingdom Toll-Free: 08003589473                                                                    PIN: 45071357#
United Kingdom Toll: +44 3333000804              
Greece Toll: +30 2112111509                             
Israel Toll: +972 37207679   

Proposed Acquisition of Edison E&P

Placing of New Ordinary Shares to raise up to US$265 million

1.         Introduction

Energean is pleased to announce that it has entered into a conditional sale and purchase agreement to acquire Edison Exploration & Production S.p.A. ("Edison E&P") from Edison S.p.A. ("Edison") (the "Acquisition") for US$750 million, to be adjusted for working capital, with additional contingent consideration of US$100 million payable following first gas from the Cassiopea development, offshore Italy. Edison will also receive an 8% royalty on profit production resulting from future discoveries made by upcoming exploration wells in the North Thekah Offshore and North East Hap'y Blocks, offshore Egypt.

Edison E&P's portfolio of assets includes producing assets in Egypt, Italy, Algeria, the UK North Sea and Croatia, development assets in Egypt, Italy and Norway, and balanced-risk exploration opportunities across the portfolio. The Edison E&P portfolio adds working interest 2P reserves of 292 mmboe and 2018 net working interest production of 69 kboe/d (49 kboe/d on a net entitlement basis).

Energean also announces today the launch of a placing with institutional investors of new ordinary shares of 1 pence each in the capital of Energean (the "Placing Shares") to raise up to £211 million (US$265 million) (before expenses) (the "Placing").  The Placing is not conditional upon Completion. The Placing is subject to the terms and conditions set out in Appendix 1 (which forms part of this Announcement).

The net proceeds of the Placing will be used to part-fund the initial consideration for the Acquisition, with the remaining initial consideration being funded through the Committed Bridge Loan Facility.

The facility agreement in respect of the Committed Bridge Loan Facility will be entered into between, amongst others, the Company and certain financial institutions as lenders, security agent and facility agent (the "Bridge Facility Agreement"). Pursuant to the terms of the Bridge Facility Agreement, the Company will grant security over its assets in favour of the security agent.

The Acquisition is subject to relevant anti-trust and regulatory approvals, as described further in paragraph 7 (Principal Terms of the Acquisition) of this Announcement.  Since the Acquisition constitutes a reverse takeover for the purposes of the Listing Rules, Energean will need to seek shareholder approval and re-admission of its ordinary shares to the Official List upon completion of the Acquisition.

Completion of the Acquisition is expected  in Q4 2019.

2.         Background to and reasons for the Acquisition

2.1       Background

Since its Initial Public Offering in March 2018, Energean has continued to focus on its strategy of becoming the leading independent, gas-focused E&P company in the Mediterranean, driven by development of the 2.4 Tcf Karish and Tanin gas fields, offshore Israel. To accelerate this strategy, Energean sought to assess acquisition opportunities within its core region of focus on a case-by-case basis, focusing only on opportunities that would create meaningful value for shareholders.

The Acquisition of Edison E&P on attractive metrics will significantly increase Energean's scale and diversification by adding a complementary gas-focused portfolio of accretive development, appraisal and exploration opportunities, whilst immediately contributing EBITDAX and cashflow to support the group's strategic growth and medium-term ambition to start paying a dividend.  The key highlights are outlined below.

Significant Increase in Reserves

The Acquisition delivers significant additional scale to Energean's reserve base, which secures and reinforces the Company's production profile longevity and further growth potential.

Edison E&P's portfolio contains 292 mmboe of working interest 2P reserves. Combined with Energean's existing 347 mmboe 2P reserve base, the Enlarged Group will have a total of 639 mmboe of 2P reserves, the distribution of which is outlined below, and will be one of the largest independent E&P companies by reserves listed on the London Stock Exchange.

Country  2P Reserves - mmboe  % of combined business portfolio 
Israel  297  46% 
Egypt  152  24% 
Italy  85  13% 
Greece  50  8% 
Norway  26  4% 
Algeria  24  4% 
UK North Sea  1% 
Croatia  <1% 

Diversification and Expansion of low cost Production Stream

The Acquisition increases the number of countries in which Energean operates from four to nine, and the number of countries in which it produces from one to six. Diversification has been a strategic target of Energean's M&A strategy, in order to spread risk across the portfolio.

Edison E&P's 2018 working interest production was 69 kboe/d. Looking ahead, the Enlarged Group is expected to produce more than 140 kboe/d in 2021, when the Karish and Tanin development comes onstream, with a trajectory to approximately 200 kboe/d once the Energean PowerFPSO reaches full capacity.

Complementary and experienced operating teams

Edison E&P brings 282 employees, which combined with the existing Energean team, will provide highly skilled and experienced coverage of all key geographies of the combined portfolio. Edison will provide transitional services to the Enlarged Group, ensuring a seamless integration process.

Gas focused, complementing Energean's Strategic Commitment to Transition Fuels

Energean's growth strategy is focused on gas, demonstrated by the fact that its existing production stream is expected to be in excess of 85% gas once the Karish and Tanin development comes onstream, a project that is enabling the Israeli economy to transition from coal to gas. Gas contributed 76% of Edison E&P's 2P reserves and 80% of its 2018 production, which complements Energean's stated, gas-focused transition fuel growth strategy.

The majority of Energean and Edison E&P's gas is sold under fixed priced gas contracts, providing stability and predictability to cash flow and helping to mitigate the impact of ongoing price volatility in the oil markets.

Immediate EBITDAX Contribution

Edison E&P's reserve base consists primarily of producing assets, resulting in 2018 EBITDAX of US$434 million and operating cash flow of US$302 million. This materially enhances Energean's current cash flow ahead of Karish and Tanin First Gas (expected in Q1 2021) and to amplify the position thereafter, supporting Energean's medium-term target to start paying a dividend.

Edison E&P generated US$621 million of revenues in 2018 and Energean reported US$90 million for the same period. Edison E&P's low unit operating costs of US$14.1/boe are accretive to Energean, which reported US$18/boe in 2018.

Near Term Growth Further Amplified

Edison E&P has two key, near-term development assets (NEA in Egypt and Cassiopea in Italy) that are expected to complement and amplify Energean's existing growth profile. Energean views these development assets as highly attractive, delivering estimated IRRs of 23% and 20%, respectively. Further information on the assets is provided below.

The portfolio also includes additional potential from infill-drilling, field life extension projects, appraisal opportunities and balanced risk exploration opportunities, including two material, near-term exploration wells offshore Egypt.

Enhanced News Flow Potential

The Enlarged Group has enhanced potential for a consistent stream of news flow from production and development assets, as well as additional, balanced risk exploration opportunities.

Key upcoming events include:

·    Final Investment Decision at the NEA development, Egypt, expected in Q4 2019

·    North Thekah Offshore exploration well (Edison E&P 85%, Op, Ratio Oil 15%), Egypt, targeting 7.5 Tcf GIIP. Results expected Q4 2019/Q1 2020.

·    North East Hap'y exploration well (Edison E&P 30%, ENI 70% Op), Egypt, targeting 10 Tcf GIIP. Results expected Q1 2020.

·    Royee Offshore exploration well (Edison E&P 20% Op, Ratio Oil 70%, Israel Opportunity Energy Resources 10%), Israel, targeting 3.5 Tcf GIIP, expected Q4 2019

Increased Scale to support Strategic Growth Plans

The Acquisition creates a leading full cycle, independent gas-focused E&P company in the Mediterranean and will increase Energean's prominence and profile in the region and its ability to attract new investment opportunities. The Enlarged Group's diversification, increased scale, operating capabilities and footprint will position Energean for further strategic growth. Country entries into Egypt and Algeria, in particular, provide a footprint for further activity.

Transfer of E&P Business and Operating Team from a European Utility to an E&P-focused management team

Over the last few years, European Utilities have retreated from investment in Upstream activities. The Energean management team has a track record of creating value both through acquisitions and organically. By enabling the Edison E&P assets and highly experienced teams to operate with the support and input from an E&P-investment focused parent company, Energean believes that significant value can be created across the portfolio.

Additionally, Energean management which has delivered considerable value to shareholders to date, are significant shareholders of the business and thus aligned with investors.

2.2       Financing of the Acquisition

The initial consideration for the Acquisition is US$750 million, to be adjusted for working capital, with additional contingent consideration of US$100 million payable following first gas at the Cassiopea development. Edison will also receive an 8% royalty on profit production resulting from future discoveries made by upcoming exploration wells in the North Thekah Offshore and North East Hap'y Blocks, offshore Egypt.

The initial consideration will be funded through a US$600 million committed bridge loan facility and up to US$265 million of equity financing through the Placing announced today. The total debt and equity capital raised has been sized to cover both the initial consideration and working capital requirements of the Enlarged Group. The US$600 million committed bridge loan facility is expected to be replaced in H2 2019 using a combination of reserve based facility and/or corporate debt. The US$100 million of contingent consideration is expected to be funded by the combined free cash flow of the Enlarged Group as well as any incremental reserve based facility and/or corporate debtcapacity. Energean is also evaluating the potential sale of non-core assets of the Enlarged Group.

Energean today also entered into a standby underwriting agreement with Morgan Stanley for a total commitment amount of US$265 million for the purposes of providing fund certainty in connection with the Acquisition. Following successful completion of today's Placing, the standby underwriting agreement will terminate.

3.         Expected Timetable of Key Events

Admission of Placing Shares.......................................................................................................................    8 July 2019 
Regulatory Approvals and Partner Consents...............................................................................................        H2 2019 
Reserve Based Facility and Corporate Debt Takeout of Bridge Facility.......................................................        H2 2019 
Publication of Circular and EGM.................................................................................................................        Q4 2019 
Publication of Enlarged Group Prospectus and Technical Readmission......................................................        Q4 2019 

Completion of the Acquisition is expected in Q4 2019.

4.         Information on Edison E&P

4.1       Edison E&P Portfolio Overview

The Edison E&P portfolio consists of a material, Mediterranean-focused reserve base with assets across Egypt, Italy, Algeria, Croatia, Norway and UK, and net working interest 2P reserves of 292 mmboe (76% gas). The portfolio delivered 2018 working interest production of 69 kboe/d (80% gas). 

Country  2P Reserves - mmboe  2019 Expected Net Production - kboe/d 
Egypt  152  50 
Italy  85  11 
Norway  26 
Algeria  24 
UK 
Croatia  <1 

4.2       Egypt

Edison E&P's Egyptian portfolio is full-cycle, consisting of production at the 100% owned and operated Abu Qir field, development at the 100% owned and operated NEA field and exploration optionality that most notably includes three wells that are expected to spud before year end 2019.

4.2.1    Abu Qir

Working Interest:  100% (via Abu Qir Petroleum Co.) 
Operator:  Abu Qir Petroleum Co. 
WI 2P Reserves:  131 mmboe (86% gas) 
2019 Expected Net Production:  50 kboe/d 
Cumulative Net Capex - next 5 years:  c.US$350 MM 
2018 year-end receivables balance (of which overdue):  US$240 MM (US$147 MM) 

The Abu Qir concession is a gas and condensate field located in the shallow waters of Abu Qir Bay in the Nile Delta of Egypt. It is one of the largest gas producing hubs in Egypt, is composed of three fields (Abu Qir, North Abu Qir and West Abu Qir) and consists of an operating network of six interconnected platforms, each of which is linked to the local market via a pipeline. Abu Qir is a long-term producing asset with net working interest 2P reserves of 131 mmboe (86% gas).

Edison E&P has been operating Abu Qir since it won the licence tender in 2008, and this 10+ year track record of operating this low-risk producing asset reinforces the ability to realise further upside from infill drilling opportunities that can be developed quickly and cost effectively using existing infrastructure.

100% of the gas produced at Abu Qir is sold to EGPC under a Brent-linked gas price. At Brent prices of between US$40/bbl and US$72/bbl the gas price is US$3.5/mmBTU, limiting volatility and exposure to commodity price fluctuations. There is a gas price floor of US$1.29/mmBTU.

Edison E&P's receivables position at 31 December 2018 was US$280 million, of which $147 million was classified as overdue. The overdue receivables balance has improved from $324 million at 31 December 2016, in line with the Egyptian Ministry of Petroleum's plans to settle total arrears for International Oil Companies by the end of 2019, and in part due to through agreements in place to accelerate the recovery of overdue receivables at this asset through direct or independent marketing of condensate and service cost offset.  

In line with other Egyptian production sharing contracts, there are no decommissioning liabilities associated with Abu Qir and the other Egyptian assets.

4.2.2    NEA

Working Interest:  100% (via Petro Amriya Co.) 
Operator:  Petro Amriya Co. 
WI 2P Reserves:  20 mmboe (88% gas) 
Expected start-up year:  2022 
Cumulative Net Capex to start-up:  c.US$110 MM 
Asset IRR:  20% 

The NEA concession is a 100% owned and operated gas and condensate field located offshore of the Western Nile Delta in Egypt and next to Abu Qir. The asset holds net working interest 2P reserves of 20 mmboe (88% gas).  

The asset's two fields Python and Yazzi are expected to be developed across, and produced through, the existing Abu Qir gas infrastructure, generating significant synergies and cost savings versus a standalone development. Beyond these two fields, there is further upside from the North Idku development, which is located adjacent to NEA and is expected to be tied-back to NEA infrastructure. Energean management estimates cumulative net capex to start-up of production of approximately US$110 million (which equates to US$5.6/boe unit development capex and an internal rate of return of 20%. The development plan for this asset assumes four shallow water subsea wells integrated with the Abu Qir facilities whereby topside facilities are to be hosted onboard the North Abu Qir PIII Platform and operated remotely. No expansion of the existing onshore gas processing plant is required.

From a commercial perspective, Edison E&P is in advanced discussions to agree a revised gas price at NEA of US$4.60/mmbtu.  

The Company estimates that there are 2.9 billion boe net un-risked resources across Edison E&P's exploration acreage in Egypt, which is primarily split across three main exploration assets:

(a)        North Thekah Offshore holds huge gas potential (the Ameeq prospect holds un-risked recoverable resources (P50) of approximately 795 mmboe net to Edison E&P) via an extension of the Tamar sand play in Egypt. Following an initial assessment of 3D seismic data on the asset, spud is targeted by the end of 2019 and is expected to target the Ameeq prospect. Ratio Oil recently farmed-into a 15% stake at this asset, with Edison E&P holding the remaining 85% stake as operator.

(b)        The North East Hap'y acreage provides additional gas exploration potential (the Volans East and Hydrus prospects hold P50 gas-in-place of approximately 12 tcf) adjacent to North Thekah Offshore. Following an initial assessment of 3D seismic data on the asset, drilling is targeted in H1 2020, and is expected to target the Volans East prospect (10 tcf, gross, unrisked P50 prospective resources). Edison E&P recently completed on the farm down of 70% of this asset to ENI (operator). Edison E&P retains the residual 30%.

(c)        The South Idku concession is located in the onshore Nile Delta region and is primarily a gas play with secondary light oil potential. This asset includes three prospects with total resources of approximately 100 mmboe in place. Following an initial assessment of 3D seismic data on the asset, drilling is targeted by the end of 2019.

4.3       Italy

Edison E&P's Italian portfolio consists primarily of production and development, but also includes near-field, infrastructure-led exploration optionality. In 2018, total production was 11 kboe/d, of which approximately 50% was operated and 50% was non-operated. Edison E&P has a strategic partnership in Italy with ENI, which is the Operator for the majority of Edison E&P's non-operated licences. Cassiopea is the key development opportunity, contributing approximately 35% of overall Italian reserves and expected to more than double Italian production, at peak.

4.3.1    Cassiopea

Working Interest:  40% 
Partners:  Eni (60%) 
Operator:  Eni 
WI 2P Reserves:  31 mmboe (100% gas) 
Expected start-up year:  2022 
Cumulative Net Capex to start-up:  c.US$240 MM 
Asset IRR:  23% 

Cassiopea is an offshore gas development asset located in the Strait of Sicily, offering medium-to-long term growth for Edison E&P. It is the largest greenfield gas development in Italy and, once onstream, is expected to be one of the country's largest producing gas fields. Net peak production is expected to be 14 kboe/d.

This asset will be developed with four subsea wells (consisting of two new wells and two re-completions), with an optimised subsea production system and sealine using existing facilities for shore approach, a wells control system and chemical injection from an existing Eni platform, and onshore gas treatment, in synergy with Gela Refinery operations.  Cassiopea is expected to optimise the gas export sealine using existing facilities for shore approach.

There is a gas sale and purchase agreement with Edison at Cassiopea, which is expected to remain in place following the Acquisition.

There is additional upside potential from the Cassiopea asset through the Gemini and Centauro prospects, which hold estimated recoverable resources of 9.7 mmboe (Pmean). These reservoirs have strong geological and geophysical similarities with the Cassiopea discovery and they are estimated to have a 90% geological chance of success. These prospects are expected to be drilled in 2021 at a cost of approximately US$30 million (net).

4.3.2    Other Key Assets in Italy

Working Interest:  60%  62%  49%  85% 
Partners:  Eni (40%)  Eni (38%)  Eni (51%)  GasPlus (15%) 
Operator:  Edison E&P  Edison E&P  Eni  Edison E&P 
WI 2P Reserves:  8 mmboe (100% oil)  14 mmboe (100% oil)  6 mmboe (100% gas)  5 mmboe (4% gas) 
2019 Expected Net Production:  1 kboe/d  2 kboe/d  3 kboe/d  1 kboe/d 

The Edison E&P portfolio in Italy also includes (i) Vega, an offshore oil field located in the Sicilian Channel; (ii) Rospo Mare, an offshore oil field located in the Adriatic Sea; (iii) Clara North West, a gas field located in the Adriatic Sea; and (iv) Sarago Mare, an offshore oil field located in the Adriatic Sea.

These assets have marketing agreements in place with key long term buyers, including BP at Vega, Total at Rospo Mare, API at Sarago Mare and Edison at Clara North West.

Energean management estimates a total decommissioning spend through life-of field at Edison E&P's Italian assets of approximately US$540 million (of which approximately US$100 million is expected to be due over the next 10 years). There is a decommissioning provision of approximately €390 million (approximately US$450 million) in place on the Italian assets as of year-end 2018.

Energean is committed to optimising decommissioning activities and spend at these assets through initiatives such as proactive interaction with local government and/or regulatory bodies, delaying decommissioning through field life extension projects and grouping adjacent assets for decommissioning operations, amongst others.

5.         Other Assets

5.1       Reggane, Algeria

Working Interest:  11% 
Partners:  Sonatrach (40%),  Repsol (29%), Wintershall DEA (20%) 
Operator:  Repsol 
WI 2P Reserves:  24 mmboe (100% gas) 
2019 Expected Net Production:  5 kboe/d 
2018 Net Exploration Recovery opening balance:  US$56 MM 

Reggane is a large, long life gas development that came onstream in 2017 with plateau production rate achieved in August 2018 and is operated by Repsol. The asset is comprised of six gas fields with 8 producing wells drilled since the start of development drilling in 2015. Edison E&P holds an 11% stake, which represents net working interest 2P reserves of 24 mmboe (100% gas). It is a self-funded asset, in which capex requirements are limited to infill drilling and maintenance capex.

Produced gas is transported by pipeline as part of the approximately 210km gathering network to the existing national gas evacuation system where it is marketed. An offtake agreement with Sonatrach is in place and was signed for a period of 12 years from production plateau.

5.2       Izabela, Croatia

Working Interest:  70% 
Partners:  INA (30%) 
Operator:  Edina 
WI 2P Reserves:  2 mmboe (100% gas) 
2019 Expected Net Production:  1 kboe/d 

Izabela is an offshore gas asset located in the Croatian Adriatic Sea. It is a two-platform structure with five producing wells and came onstream in 2014. The production profile at Izabela is expected to decline, however to be offset by near-term development optionality at this asset.  

Potential development upside at this asset includes the Irena development, which could be a two-well concept tied-back to Izabela. If the development concept is pursued, production startup could be targeted for 2022. Produced gas can be marketed into either the Italian or Croatian markets via existing infrastructure already in place in both countries. 

5.3       Norway

Edison E&P's Norweigan portfolio is growth-oriented, consisting of two developments and a range of exploration opportunities.

5.3.1    Nova

Working Interest:  15% 
Partners:  Wintershall DEA (45%), Cairn (20%) Spirit Energy (20%) 
Operator:  Wintershall DEA 
WI 2P Reserves:  14 mmboe (34% gas) 
Expected start-up year:  2021 
Cumulative Net Capex to start-up:  c. US$170 MM 
Asset IRR:  30% 

Nova is an oil and gas field currently under development that is expected to produce 8 kboe/d (net) at peak. The development concept is a tie-back to Gjoa with first oil expected in 2021. The development plan is currently on schedule and on budget with the Plan for Development and Operation submitted in May 2018 and approximately 15% of the project completed by year-end 2018. All the key subsea, topside and drilling rig contracts have already been awarded.

Oil from this asset is expected to be transported to the Mongstad Terminal in Norway via Gjoa infrastructure and gas to the St. Fergus Terminal in the UK via Gjoa infrastructure. 

5.3.2    Dvalin

Working Interest:  10% 
Partners:  Wintershall DEA (55%), Petoro (35%) 
Operator:  Wintershall DEA 
WI 2P Reserves:  12 mmboe (96% gas) 
Expected start-up year:  2020 
Cumulative Net Capex to start-up:  c.US$70 MM 
Asset IRR:  46% 

Dvalin is a gas and condensate development that is expected to contribute net production of 5 kboe/d at peak. The development concept is a tieback to the Heidrun Platform and first gas is expected in 2020. The development plan is currently on schedule and budget with the Plan for Development and Operation approved in March 2017 and over 40% of the project completed by end of Q3 2018. All the key subsea, topside and drilling rig contracts have already been awarded.

Gas from this asset is expected to be transported either to the Nyhamna processing plant via the Polarled pipeline or to enter the Gassled network to be transported to the UK and Continental Europe.

5.4       UK

Edison E&P's UK business consists of production and appraisal assets. The producing asset base is mature with some decommissioning ongoing, although there is substantial scope for decommissioning at the key fields, Scott and Telford, to be delayed beyond the currently expected start date of 2025. In January 2019, Total announced the 250 mmboe (gross) Glengorm discovery, in which Edison E&P holds a 25% working interest, substantially increasing the value associated with Edison E&P's UK portfolio.

5.4.1    Scott & Telford

Working Interest:  10%  16% 
Partners:  Nexen (42%), Total (27%), Dana (21%)  Nexen (80%), Total (4%) 
Operator:  Nexen  Nexen 
WI 2P Reserves:  2 mmboe (10% gas)  1 mmboe (15% gas) 
2019 Expected Net Production:  2 kboe/d  1 kboe/d 

The Scott and Telford assets are mature producing oil and gas assets located in the Central North Sea. Scott is a two-platform structure with twelve producing wells. Production started in 1993 and oil is transported from this asset to Cruden Bay via the Forties infrastructure network. Telford currently has three producing wells and is tied-back to the Scott platform. Production started in 1996 and oil and gas are transported from this asset via the Forties and Scottish Area Gas Evacuation System (SAGE) networks, respectively.

5.4.2    Glengorm

Working Interest:  25% 
Partners:  Nexen (50%), Total (25%) 
Operator:  Nexen 
Announced reserves by CNOOC Limited at discovery:  62.5 mmboe 

In January 2019, CNOOC Limited announced the largest UK North Sea gas discovery in ten years on the Glengorm prospect, which is located in the West Central Graben region. The discovery is close to existing infrastructure and offers tie-back possibilities, such as the Elgin-Franklin platform and the Culzean project, amongst others.

5.4.3    Other Assets in the UK

The rest of the UK North Sea portfolio consists of other mature producing assets located in the Southern Gas Basin. The production profile at these assets is expected to decline with decommissioning anticipated in the near- to medium-term, however there is optimisation potential from these assets by delaying the scope of this decommissioning.

5.5       Edison E&P Financial Information

Sales Revenue:  621 million 
Unit Cost of Production (US$/boe):  14 
Adjusted EBITDAX:  434 million 
Profit before Tax  73 million 
Operating Cash Flow:  302 million 
Capital Expenditure:  160 million 
Gross Assets  2,472 million 
Book Value  1,240 million 

(1) All financial information is based on unaudited accounts.

6.         Operational Update

At the Prinos area in Greece, average production for H1 2019 was 4,032 bopd net to Energean.  As previously announced, Energean is currently implementing a cost reduction programme which is expected to realise cost savings of approximately US$30-40 million in the Prinos area in 2019. Following the completion of the Epsilon wells, EL-1 and EL-2, and the discovery of the deeper reservoirs comprising further upside potential in the Epsilon field, drilling of EL-3 has commenced. Technical work is ongoing to update the Epsilon field development plan in order to monetise both the A reservoir and the deeper reservoir. Additionally, a new CPR for Epsilon is being undertaken with the Company's reserves auditors.

In Israel, operations for the development of Energean's flagship Karish and Tanin project are on track, with the pipeline beach crossing at D'or having been completed in the period, with pipeline installation from Karish to D'or expected to begin imminently. The drilling of the three Karish Main production wells is continuing on schedule, as is work on the Hull and Topsides of the Energean Force FPSO, with sailaway from the Cosco Yard expected in Q4 2019.

7.         Principal terms of the Acquisition

Energean and Edison have today entered into the Purchase Agreement in respect of the Acquisition, pursuant to which Energean has agreed, on the terms and subject to the conditions of the Purchase Agreement, to acquire Edison E&P from Edison for US$750 million in cash, to be adjusted for working capital. In addition, Energean has agreed to pay a further US$100 million in cash following first production at Cassiopea, Italy (expected 2022).  Edison will also receive an 8% royalty on profit production resulting from discoveries made by exploration wells drilled in the North Thekah Offshore and North East Hap'y Blocks in Q4 2019 / Q1 2020.

The Acquisition is subject to relevant anti-trust, regulatory and shareholder approvals. As the Acquisition constitutes a reverse takeover for the purposes of the Listing Rules, Energean will need to seek re-admission of its ordinary shares to the Official List upon completion of the Acquisition.

Under the terms of the Purchase Agreement, a 100% subsidiary of the Company, expected to be Energean Capital Limited (the "Purchaser"), will acquire the shares in Edison E&P. 

Edison has provided customary warranties to the Purchaser, subject to certain limitations, plus indemnities to cover specific identified risks including (i) claims from the National Iranian Oil Corporation and costs and liabilities arising from closure of the Iranian branch of Edison International S.p.A., (ii) certain environmental claims in relation to operations in Italy and (iii) any loss incurred from inclusion by OFAC on the Specifically Designated and Blocked Persons list of PB Tankers and FSO Alba Marina and the resolution of these sanctions

Edison has also provided customary interim covenants on the conduct of business of Edison E&P prior to Completion.

Completion of the Acquisition is conditional on the satisfaction or waiver, of certain conditions including regulatory approvals in Italy, Norway, Egypt, UK, Algeria, Greece, France and Israel, anti-trust approval in Israel, the approval of Energean's shareholders for the transaction, the approval of the Circular and Prospectus by the FCA and lifting of US sanctions on FSO Alba Marina and resumption of operations at Rospo Mare, Italy.

Completion of the Acquisition is subject to a longstop date of 10 months after signing, which may be extended for up to a further 2 months to satisfy certain regulatory conditions if not obtained by that date. The Purchase Agreement may also be terminated for any breach of certain fundamental warranties and the occurrence of any material adverse event affecting Edison E&P following signing.

If Completion does not occur due to a breach by the Purchaser of any of its obligations under the Purchase Agreement, Energean will be liable to pay Edison an amount equal to US$15 million by way of liquidated damages. If Completion does not occur due to the failure to obtain (i) Israeli anti-trust approval, (ii) the approval of the Company's shareholders to the Acquisition or (iii) the approval of the Prospectus for Re-Admission by the FCA, Energean is required to pay Edison an amount equal to US$5 million. 

The Company has also received irrevocable undertakings from shareholders currently representing approximately 53.7% of the Company's issued share capital that they would vote in favour of the Acquisition.

8.         The Placing

Energean also announces today the launch of a placing with institutional investors of new ordinary shares of 1 pence each in the capital of Energean (the "Placing Shares") to raise up to £211 million (US$265 million) (before expenses) (the "Placing").

The number of Placing Shares to be issued by the Company will not exceed 19.99 per cent. of the existing issued share capital of the Company.

The Placing will be conducted through an accelerated bookbuilding process which will be launched immediately following this Announcement.  Certain Energean Directors, their related parties and senior managers of Energean have indicated their intention to participate in the Placing up to an aggregate amount of approximately £3 million (approximately US$3.8 million). Any related party transactions as a result of such participation by the Energean Directors would constitute exempt small transactions pursuant to paragraph 1 of Annex 1 to Chapter 11 of the Listing Rules.

The Placing Shares, when issued, will rank pari passu in all respects with each other and with the ordinary shares of the Company ("Ordinary Shares").

Applications will be made (i) to the FCA for admission of the Placing Shares to the premium listing segment of the Official List, (ii) to London Stock Exchange for admission to trading on its main market for listed securities (together, "Admission") and (iii) to the Tel Aviv Stock Exchange for listing of the Placing Shares.  It is expected that Admission will become effective on or around 8 July 2019 and that dealings in the Placing Shares will commence at that time.  The Placing is conditional, among other things, upon Admission becoming effective and the placing agreement between Energean, Morgan Stanley, Stifel, Peel Hunt and RBC (the "Placing Agreement") not being terminated in accordance with its terms.  Appendix 1 (which forms part of this Announcement) sets out further information relating to the Placing Agreementand the terms and conditions of the Placing.

The Placing is not conditional upon Completion of the Acquisition.  In the event that the Acquisition does not Complete, the Energean Directors would consider, in light of circumstances at the time, the appropriate use of the funds raised.

Morgan Stanley is acting as global coordinator and joint bookrunner, Stifel is acting as joint bookrunner and Peel Hunt and RBC are acting as co-lead managers, in respect of the Placing.  The book will open with immediate effect following this Announcement.  The timing of the closingof the book and allocations are at the discretion of  Morgan Stanley and Energean.  

Your attention is drawn to the detailed terms and conditions of the Placing set out in Appendix 1.

9.         Placing Statistics

Number of Ordinary Shares in issue before the Placing  153,326,901 
Gross proceeds of the Placing  up to £211 million (approximately US$265 million) 

10.       Further information

Further details in relation to the Acquisition will be set out in the Circular which is expected to be published in due course.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd