Trading Statement & Operational Update

Source Company Press Release
Company Energean plc
Tags Corporate: Corporate Results, Guidance, Country: Croatia, Egypt, Greece, Israel, Italy, United Kingdom, Financial - Costs & Metrics: Capital Expenditures, Segment: CCS/CCUS, Sustainability: ESG/CSR, Upstream: Drilling Activity, Upstream News
Date May 18, 2023

Energean plc (LSE: ENOG, TASE: אנאג) is pleased to provide an update on recent operations and the Group's trading performance in the 3-months to 31 March 2023.

Highlights - Financial and Corporate

·      Revenues for the period were $288.8 million, a 69% increase versus Q1 2022 ($170.7 million)

·      EBITDAX for the period was $162.2 million, a 81% increase versus Q1 2022 ($89.6 million)

·      Group cash as of 31 March 2023 was $379.6 million (including restricted amounts of $11.5 million) and total liquidity was $943.5 million

·      Q1 2023 dividend of 30 US$ cents/share declared today, scheduled to be paid on 30 June 2023

·      Emissions intensity[1] for the period was 11.1 kgCO2e/boe, a 36% reduction versus Q1 2022 (17.2 kgCO2e/boe)

o  Emissions intensity1 in the four-months to 30 April 2023 was 10.1 kgCO2e/boe

Highlights - Operational

·      Production for the period was 94.4 kboed, a 161% increase versus Q1 2022 (36.1 kboed)

o  Production in the four-months to 30 April 2023 was 100.0 kboed (82% gas)

·      Commercial period under the gas sales agreements in Israel commenced for gas buyers on or before 1 April 2023[2], with production continuing to ramp up

·      Three hydrocarbon liquid cargoes cumulating in approximately 1 million bbls from Karish sold to Vitol year to date

·      The second gas export riser was successfully installed at Karish in March 2023; followed by key Karish North infrastructure in March and April 2023

·      Olympus development concept chosen to align with strategy to optimise free cash flows and shareholder value

o  Tie-back to Energean Power FPSO, with Olympus prioritised over Tanin

o  Production plateau maintained by monetising newly discovered resources that do not incur seller royalties nor carry export restrictions

o  Focus maintained on capital discipline: Lower cost development versus Tanin driving lower capital expenditure for the next phase of tie-backs to the Energean Power FPSO; plus avoiding significant capital expenditure to add capacity through FPSO expansion projects or a new FPSO/FPU

o  Production expected to underpin existing gas sales agreements plus target international markets that can be accessed through existing and planned third party infrastructure

Outlook

·      Full year production guidance revised to 125 - 140 kboed (from 131 - 158 kboed) due primarily to:

o  Revised gas sales forecast in Israel with full year quantities now expected to be 4.5 - 5.0 bcm (versus 4.5 - 5.5 bcm) due to the ramp up profile of buyer offtake and ongoing optimisation of the operations of the Energean Power FPSO

o  Higher-than-expected decline from NEA#6 in Egypt following the positive initial flow rates. There is no expected read-across to the PY#1 and NI#1 wells; extended flow testing is required at NEA#5 to confirm no read-across for this well. These three remaining NEA/NI wells are expected onstream over the course of 2023; NEA#5 drilling was completed in May 2023 with results in line with pre-drill geological expectations.

·      Karish growth projects on track for completion by end-2023

·      On track to deliver near-term targets of 200 kboed, $2.5 billion revenues, $1.75 billion EBITDAX and leverage < 1.5x in 2H 2024, and pay dividends in line with previously communicated policy

·      Final investment decision on the Olympus Area expected in late 2023

·      Orion 1X spud expected towards the end of the year 

Mathios Rigas, Chief Executive Officer of Energean, commented:

"We are ramping up production from the Karish field and have seen four months of solid gas and liquids production in Israel, whilst optimising the operations of the Energean Power FPSO. Our Israeli gas contracts have moved to commercial status and our buyers are increasing nominations. This year, Energean expects to supply a significant proportion of Israel's gas demand.

"This is why we are moving quickly to develop our newly discovered Olympus Area resource, as efficiently as possible. As there is limited incremental capex, the initial development concept is in line with our stated commitment to remain capital disciplined. With no seller royalty payments or export restrictions, this strategy will create sustainable value for all our stakeholders and allow us to maintain and grow our stated sector-leading dividend policy."

We continue to focus on our Net Zero stated path through continuous reductions in our carbon intensity. We are and will remain a responsible hydrocarbon producer. We are committed to being the best version of Energean we can be: provide a secure and reliable energy supply, support our communities and underwrite the transition."

Production

Average working interest production for the three months to 31 March 2023 was 94.4 kboed, increasing to 100 kboed (82% gas) for the 4-months to 30 April 2023.

Energean's full year production guidance is significantly second half-weighted due to the timing of its projects, and particularly the ramp up of production from Karish. Energean is adjusting its full year 2023 production guidance range to 125 - 140 kboed (from 131 - 158) kboed for reasons outlined in the country-specific sections below.

In Israel:

·      Commercial sales under the gas sales agreements commenced on or before 1 April 2023[3] following the completion of commissioning under the GSPAs.

·      Energean is narrowing its full year gas production guidance to 4.5 - 5.0 bcm (from 4.5 - 5.5 bcm), reflecting the above commencement date of commercial sales and the ramp up profile of buyer offtake from long-term contracted gas buyers (i.e. excluding spot sales) as they exit their obligations to other suppliers, combined with completion of activities to optimise the operations of the Energean Power FPSO.

·      Energean has sales contracts with aggregate Annual Contracted Quantities ("ACQ") of 7.4 bcm on plateau. Buyers nominate volumes on a daily basis up to their Daily Contracted Quantities (ACQ divided by 365 days). On an annual basis the take-or-pay averages 75% of the ACQs.

·      Oil production guidance reduced to between 13 and 16 kboed (previously 15 - 18 kboed) reflecting  the revision to the expected management of production between the wells. There has been no change to the estimated hydrocarbon liquids yields across the fields.

In Egypt:

·      As previously reported, NEA#6 delivered first gas on 6 March 2023. Initial rates were in line with expectations, but subsequently, the rate of decline has been higher than expected.

·      NEA#5 completed drilling in May 2023, with results in line with pre-drill expectations. The well will be flow tested ahead of first gas later this year. The El Qaher-1 rig has now moved to drill the PY#1 well, after which NI#1 will be drilled. These three remaining NEA/NI wells are expected onstream over the course of 2023; there is no expected read-across to the PY#1 and NI#1 wells; extended flow testing is required at NEA#5 to confirm no read-across for this well.

·      Abu Qir is performing in line with expectations

·      As a result of the impact on NEA#6, Energean is revising its 2023 production guidance for Egypt to 23 - 25 kboed (from 28 - 32 kboed) 

Rest of portfolio:

·      1Q 2023 production of 10.9 kboed was towards the top end of the guidance range following continued strong production across the Italian portfolio. Full year guidance is narrowed to 10 - 11 kboed 

  Three-months to 31 March 2023 Kboed  Three-months to 31 March 2022 Kboed  % change  Four-months to 30 April 2023 Kboed  FY 2023 guidance Kboed 
Israel  59.0 (inc. 0.7 bcm of sales gas)  64.5 (inc. 1.1 bcm of sales gas)  92 - 104 kboed (including 4.5 - 5.0 bcm of sales gas) 
Egypt  24.6  25.2  (2%)  24.9  23 - 25 
Rest of portfolio  10.9  10.9  0%  10.7  10 - 11 
Total production (including Israel)  94.4[4]  36.1  162%  100.04  125 - 140 

Development

Israel - Karish Growth Projects

The completion of the second gas export riser, second oil train and Karish North projects will increase the total gas processing capacity of the Energean Power FPSO to a maximum of 8 bcm/yr (at 100% uptime). Energean has made good progress on these projects in the year-to-date: the second gas export riser was successfully installed in March 2023; the Karish North flowline in March 2023; and the Karish North manifold in April 2023. Completion of this suite of projects remains on track for the end of the year. 

Israel - Olympus

The Olympus area is planned to be developed as a tie-back to the Energean Power FPSO, prioritised over the Tanin development, which is now expected to be deferred into the 2030s. The development concept has been selected to align with Energean's strategy of maximising shareholder value, which this concept achieves by optimising the free cash flow profile of the business because:

·      Olympus resources can be developed at lower cost than those of Tanin due to closer proximity to the FPSO, resulting in lower capex for the next phase of tie-backs

·      Significant capital expenditure on FPSO expansion projects is avoided as well as new major infrastructure investments

·      Olympus resources carry no seller royalties: gas produced from the Karish and Tanin reservoirs bears 7.5% / 8.25% (pre-and post Sheshinsky levy) royalty on the value of production at the wellhead

Energean expects to submit the final field development plan for the Olympus Area to the Israeli Government in 3Q 2023 for approval and take final investment decision before year-end 2023.

Olympus gas production is anticipated to be sold into the Israeli domestic market under the existing gas sales agreements. As there are no export restrictions on gas produced from block 12, production in excess of domestic gas buyer nominations is expected to target demand in Egypt (including international markets through the LNG facilities) and Jordan, utilising existing export infrastructure and spare capacity in the Energean Power FPSO. Exports to Cyprus remain an option provided new pipeline infrastructure is developed by third parties.

Egypt

The remaining three NEA/NI well developments are expected to come onstream later in 2023, following which the project will reach peak production.

At Abu Qir, further infill and exploration targets to support production from the field are being studied for drilling in 2024. 

Italy - Cassiopea

First gas remains on track for 2024. Offshore seabed survey campaigns have been completed ahead of the planned pipeline installation. 

Greece

Energean has begun FEED activities on the Prinos CCS project. 

Croatia

Energean expects to take final investment decision for the Irena gas field development in 2023. The field has 2P reserves of 13.3 Bcf (2.3 MMboe). 

Exploration and Appraisal

The Orion-1X (Energean, 30%), located on the North East Hap'y Concession, offshore Egypt, is expected to spud in late 2023. Energean is finalising the farm out of 12% of its working interest (new ownership is 18%).

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

In Greece, 3D seismic interpretation on Block 2 (Energean, 75%) and a drill or drop decision on the Ioannina licence (Energean, 100%) is expected to be completed in 2023.

On 16 May 2023, Energean submitted notice of its intention to terminate its Montenegrin exploration licences (Blocks 26 and 30). 

Corporate

Financing

Energean intends to refinance its 2024 Energean Israel Limited bond to maintain an efficient capital structure.

ESG

The Group's Scope 1 and 2 carbon emissions intensity in Q1 2023 was estimated to be approximately 11.1 kgCO2e/boe, a 36% reduction versus 2022 emissions levels; and a 83% reduction versus the 2019 base measurement year. Energean expects to further reduce emissions intensity to 7.0 - 9.5 kgCO2/boe in 2023 on its path to net zero by 2050. 

Financial 

The table below presents Energean's key results to 31 March 2023. 

    Three months to 31 March 2023  Three months to 31 March 2022  % change 
Revenues  $ million  288.8  170.7  69% 
Cost of production  $ million  116.5  62.3  87% 
Cost of production  $/boe  13.7  19.2  (29%) 
Cash G&A  $ million  11.7  8.2  42% 
Adjusted EBITDAX  $ million  162.2  89.6  81% 
         
Capital expenditure  $ million  92.8  74.3  25% 
Exploration expenditure  $ million  14.3  5.8  147% 
Decommissioning expenditure  $ million  1.2  0.6  100% 
         
Cash (including restricted amounts)[5]  $ million  379.6  812.7  (53%) 
Net debt - consolidated  $ million  2,646.8  2,148.3  23% 
Net debt - plc excluding Israel  $ million  214.2  119.8  79% 
Net debt - Israel  $ million  2,432.6  2,028.4  20% 

2023 Guidance

Production     
Israel (kboed)  92 - 104  94 - 115 
Egypt (kboed)  23 - 25  28 - 32 
Rest of Portfolio (kboed)  10 - 11  9 - 11 
Total Production (kboed)  125 - 140  131 - 158 
     
Consolidated net debt ($ million)  2,700 - 2,900  2,600 - 2,800 
     
Cash Cost of Production (operating costs plus royalties)     
Israel ($ million)  300 - 350  350 - 400 
Egypt ($ million)  40 - 50  50 - 60 
Rest of portfolio ($ million)  160 - 200  200 - 240 
Total Cash Cost of Production ($ million)  500 - 600  600 - 700 
     
Development and production capital expenditure     
Israel ($ million)  170 - 200  140 - 160 
Egypt ($ million)  140 - 150  140 - 150 
Rest of portfolio ($ million)  270 - 290  300 - 330 
Total development & production capital expenditure ($ million)  580 - 640  580 - 640 
     
Exploration expenditure ($ million)  50 - 60  40 - 60 
     
Decommissioning expenditure ($ million)  20 - 30  30 - 40 
Source: EvaluateEnergy® ©2024 EvaluateEnergy Ltd