Energean plc (LSE: ENOG TASE: אנאג) is pleased to announce its half-year results for the six months ended 30 June 2023 ("H1 2023").

Operational Highlights:

·      Production for the period was 105.9 kboed, near triple that of H1 2022

·      Karish production currently steady at ~6 bcm/yr equivalent

o  Completion of commissioning under the gas sales agreements ("GSAs") achieved in April, with Practical Completion under the EPCIC with Technip achieved in June

o  Optimisation activities on the FPSO and subsea systems have progressed well, and the Energean Power FPSO achieved 97% uptime in August. Efficiency levels have followed a similarly positive trajectory and production is currently steady, averaging around 570 mmscfd (~6 bcm/yr equivalent) over the last three weeks

·      Key growth projects on track

o  Energean Power FPSO capacity increase to 8 bcm/yr on track for delivery by year-end 2023

o  Positive results achieved at the second and third NEA/NI (Egypt) development wells, reinforcing Energean's view that the results from NEA#6 would have no read-across to the remainder of the field; NEA#5 came onstream in July 2023 and is producing in line with pre-drill expectations, whilst PY#1 testing has delivered results in line with expectations. Remaining two wells expected onstream in 2023

o  Cassiopea, Italy (Energean 40%), development progressing in line with expectations: pipelaying complete and subsea installation activities progressing well

o  Final investment decision ("FID") on Katlan (Israel)[1] expected in late 2023

o  Orion 1X exploration well, Egypt, drilling expected to commence in Q4 2023

·      Guidance

o  2023 production guidance revised to 120 - 130 kboed (from 125 - 140 kboed), reflecting start-up issues that have now been substantially overcome

o  On track to deliver near-term targets of 200 kboed, $2.5 billion revenues, $1.75 billion EBITDAX and leverage  c.1.5x in H2 2024

Financial Highlights:

·      Delivered strong financial results, underpinned by the contribution of Karish and despite the softer commodity price environment

o  Revenues of $587.6 million, a 73% increase (H1 2022: $339.0 million)[2]

o  Adjusted EBITDAX of $345.2 million, a 74% increase (H1 2022: $198.2 million)

o  Cash Cost of Production of $12.1/boe, a 37% decrease (H1 2022: $19.2/boe)

o  Group cash as of 30 June 2023 was $357.9 million, including restricted amounts of $11.5 million, and total liquidity was $897.4 million.

o  In July 2023, Energean's subsidiary, Energean Israel Finance Limited ("Energean Israel"), issued a $750 million bond, the primary purpose of which was to repay Energean Israel's March 2024 bond[3]. The newly issued bond matures in 2033, and extends Energean's weighted average debt maturity from just over five to over six years

o  Group leverage (Net debt/annualised Adjusted EBITDAX[4]) reduced to 3.9x (FY 2022: 6.0x)

Corporate Highlights:

·      Q2 2023 dividend of 30 US$ cents/share declared today, in line with Energean's dividend policy, scheduled to be paid on 29 September 2023

o  Following this payment, cumulative dividends of $266 million (150 US$ cents/share) will have been returned to shareholders

·      Scope 1 and 2 emissions intensity of approximately 11.0 kgCO2e/boe, a 36% reduction versus H1 2022

Financial Summary

Mathios Rigas, Chief Executive of Energean, commented:"

Energean is now a major energy producer in the Eastern Mediterranean, almost tripling our production in H1 2023 compared to H1 2022. We have also significantly increased our revenue and EBITDAX by 73% and 74% compared to H1 2022, successfully refinanced our 2024 Energean Israel bond, and paid four consecutive dividends to our shareholders, with the fifth declared today.

"On Karish, the Energean FPSO achieved 97% uptime in August and, although ramp-up and commissioning was slower than originally expected, Karish is now producing at around 6 bcm/yr. We are pleased with the positive demand in the market for our gas and will continue to focus on optimising production efficiency."

On our growth projects, which target to increase production to 200 kboed by H2 2024, Karish North and the FPSO capacity increase projects (Israel), NEA/NI (Egypt) and Cassiopea (Italy) are all progressing well. We remain focused on delivering our near-term targets of 200 kboed, $2.5 billion of revenues, $1.75 billion of EBITDAX and leverage of c.1.5x.""

We are also preparing for FID on Katlan[8] later in the year. Given the export potential from the Katlan licence[9], we plan to engage with local and international buyers to market our gas. Elsewhere, we look forward to the spudding of the Orion-1X exploration well next quarter, offshore Egypt, with our partner Eni. Finally, in line with our stated net zero policy target, our emissions intensity further reduced by 36% to 11.0 kgCO2e/boe versus H1 2022.

"We continue to be disciplined and focused on stable predictable cashflows, which underpin Energean's goals of consistent returns to shareholders, low leverage and growth through responsibly produced energy."

Energean Operational Review

Production

H1 2023 average working interest production was 105.9 kboed (82% gas), up 199% year-on-year primarily due to the ramp-up of production from Karish in Israel.

In Israel, commercial sales under the GSAs began in April 2023. Slower than anticipated commissioning and ramp-up led to slightly lower than expected production from Karish in the first half of the year. Optimisation activities on the FPSO and subsea systems have progressed well, and the Energean Power FPSO achieved 97% uptime in August. Efficiency levels have followed a similarly positive trajectory and production is currently steady, averaging around 570 mmscfd (~6 bcm/yr equivalent) over the last three weeks.

Moving into 2024, production will benefit from the start-up of the Karish growth projects, which will see an increase in capacity of the infrastructure from 6.5 bcm/yr to 8.0 bcm/yr.

In Egypt, production in July averaged 26.5 kboed following the start-up of NEA#5 in July. Production from NEA#5 has performed in line with expectations at 25 mmscfd (4.3 kboed).

FY 2023 guidance is revised to 120 - 130 kboed (from 125 - 140 kboed), reflecting Karish start-up issues that have now been substantially overcome. Energean's FY 2023 guidance for Israel is second half weighted due to: (1) six months of commercial sales under the GSAs in H2 versus three months in H1 and (2) higher production uptime and efficiency versus H1.

Development

Israel - Karish Growth Projects

Completion of the three projects, which will increase the FPSO's gas processing capacity to 8 bcm/yr (at 100% efficiency), remains on track for the end of the year.

1.     Second gas export riser

The second gas export riser was installed in March 2023. Pre-commissioning activities are ongoing.

2.     Karish North

On Karish North, the majority of infrastructure has been installed ahead of commissioning activities; the manifold was installed in April 2023 and the umbilical and production spool were installed in August 2023. The KN-01 production well was drilled in 2022 as part of the wider drilling campaign.   

3.     Second oil train

The module is scheduled to be installed on the FPSO in Q4 2023.

Israel - Katlan

The field development plan for Katlan, which covers the Katlan licence (formerly Block 12) and parts of the Tanin lease, was submitted to the Israeli Government in August 2023 for approval. In August 2023, Energean signed a Letter of Award on FEED with Technip UK Limited. FID continues to be expected before year-end 2023.

Egypt

The NEA/NI development reached first gas in March 2023. Two wells are currently onstream, NEA#5 and NEA#6, the former which was brought online in July 2023. NEA#5 is producing in line with pre-drill expectations of around 25 mmscfd. Of the remaining two wells, which are expected to come onstream later this year, PY#1 was completed and tested at 20 mmscfd, in line with prognosis, in August 2023, and NI#1 is expected to spud in September 2023.

At 30 June 2023, net receivables (after provision for bad and doubtful debts) in Egypt were $143.1 million (31 Dec 2022: $116.5 million), of which $107.8 million (31 Dec 2022: $40.9 million) was classified as overdue.

Rest of Portfolio

In Italy, first gas remains on track for Cassiopea for 2024. Pipelaying was completed in July and subsea installation activities are on track.

Exploration and Appraisal

The Orion-1X (Energean, 30%), located on the North East Hap'y Concession, offshore Egypt, is expected to spud in Q4 2023. Energean is finalising the farm out of 11% of its working interest (new ownership expected to be 19%).

The Izabela-9 well (Energean, 70%) located offshore Croatia, is expected to spud in Q4 2023.

In Greece, drill or drop decisions on the Ioannina licence (Energean, 100%) and Block 2 (Energean, 75%) are expected to be made in 2024.

Energean Corporate Review

ESG and Climate Change

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

Energean's scope 1 and 2 emissions intensity in H1 2023 was estimated to be approximately 11.0 kgCO2e/boe, a 36% reduction versus H1 2022. FY 2023 emissions intensity are expected between 9.5 - 10.5 kgCO2e/boe.

Environmental, Social and Governance ("ESG") Reporting and Ratings

Energean is pleased to provide an update on its ESG ratings and recognitions:

·      Maala (Israel) - platinum rating re-iterated in July 2023

·      FTSE4Good Index Series - confirmed as a constituent of the index for the second year running following the June 2023 review

·      MSCI - AA rating re-confirmed in July 2023 (third year running as AA)

·      Sustainalytics - Outperformer rating maintained in April 2023; ranked 50 out of 299 oil and gas producers

Financing

In July 2023, Energean issued $750 million of senior secured notes, at its subsidiary Energean Israel Finance Ltd ("Energean Israel"), maturing in 2033 with a coupon rate of 8.5%[10]. This extends Energean Israel's weighted average life of debt to more than six years and increases its weighted average interest rate to 6.13% (from 5.25%).

The funds were raised to repay Energean Israel's $625 million notes due in March 2024 and pay fees and expenses associated with this refinancing, contribute towards funding the interest payment reserve account, and contribute towards the payment of the final deferred consideration to Kerogen.

2023 guidance

Energean Financial Review

Financial results summary

Revenue, production and commodity prices

Group working interest production averaged 105.9 kboed, an increase from the prior period as a result of commencement of production in Israel; accounting for approximately 66% of total output. The production split was 82% gas (H1 2022: 73%) and 18% liquids (H1 2022: 27%). Production in Italy and Egypt was in line with H1 2022 and H1 2023 included the re-start of production at Prinos, Greece.

H1 2023 revenue was $587.6 million, a 73.3% increase from the prior period primarily due to the sales from Israel which constitute 59% (H1 2022: 0%) of the total revenue. The lower commodity prices realised in H1 2023 contributed to the revenues achieved for the period. During H1 2023, the average Brent oil price was $79.6/bbl (H1 2022: $104.9/bbl) and the average PSV (Italian gas) price was $15.0/mcf (H1 2022: $32.4/mcf). Gas sales were $408.2 million (H1 2022: $211.2 million) with a realised weighted average price of $5.2/mcf (H1 2022: $10.4/mcf). Liquid, crude and petroleum product sales were $182.2 million (H1 2022: $145.3 million), with a realised weighted average price of $64.6/boe (H1 2022: $87.5/boe).

Adjusted EBITDAX for the period was $345.2 million (H1 2022: $198.2 million), the increase of 74.2% is predominantly a result of the higher revenue achieved due to the commencement of Israel production.

Included within the June 2023 inventory balance is 426 kbbl of liquids in Israel and 582 kbbl in Italy which were subsequently sold in July 2023 for a total of $62.4 million. In line with Energean's accounting policy all oil inventory is carried at the lower of cost and net realisable value. Therefore, the above inventory is reflected at cost in the interim financial statements.   

Underlying cash production costs

Total cash production costs for the period were $231.1 million of which 47% is related to new production in Israel, cash production costs for the rest of the Group excluding Israel amounted to $123.1 million (H1 2022: $123.3 million). The unit costs for the period were $12.1 /boe (H1 2022: $19.2 /boe), this decrease is primarily driven by the increased production, as applied to a primarily fixed cost base. As set out in note 5 of the financial statements, a significant contributor to production costs is royalties (payable in Italy and Israel). Excluding royalties, production costs would be $158.2 million (H1 2022: $111.7 million) and $8.3/boe (H1 2022: $17.4/boe).

Depreciation, impairments and write-offs

Depreciation charges on production and development assets increased to $116.0 million (H1 2022: $33.9 million), due to the commencement of production at Karish. On a per barrel of oil equivalent of production basis, this represented a 13.2% increase, to $6.0/boe (H1 2022: $5.3/boe). The increase is due to Israel production commencing. During the current period and comparative prior period no impairment of cash generating units (CGUs) was recognised. An impairment reversal of $21.9 million was recognised due to the decrease in the decommissioning provision estimate in Italy and UK (driven by the increased discount rates applied).

Other income and expenses

Other expenses of $2.2 million (H1 2022: $8.8 million) includes a $1.3 million expected credit loss adjustment on trade receivables.

Other income of $7.2 million (H1 2022: $1.6 million) relates predominantly to reversal of prior period provisions that were reassessed in the current year based on the latest facts and circumstances.

Finance income / costs

Net finance costs in H1 2023 were $106.4 million (H1 2022: $35.9 million).  Finance costs, after capitalisation of interest, comprise of $79.0 million (H1 2022: $19.8 million) of interest on borrowings and other finance costs of $34.8 million (H1 2022: $18.7 million).  Other finance costs include debt arrangement fees and unwinding of the discount on the right of use assets, decommissioning provisions, deferred consideration, convertible loan notes and contingent consideration. The increase in the net finance costs is a result of the decrease in the amount of borrowing costs capitalised as a result of production commencing in Israel ($7.7 million was capitalised in H1 2023 compared to $71.7 million in H1 2022).   Finance income was $7.3 million for the period (H1 2022: $2.7 million).

Taxation

Energean recorded a tax expense of $65.3 million in H1 2023 (H1 2022: net income tax recovery of $8.9 million). The tax expense includes corporation tax charges of $30.5 million and deferred tax charges of $34.8 million. The increase in tax expense from the prior period is a result of the increase in taxable profits and the movement in deferred tax, mainly due to the utilisation of tax losses in Israel and Italy. In H1 2022 a deferred tax asset was recognised on Italian tax losses which has partially been utilised in H1 2023. Taxation charges in the period ended 30 June 2023 included $25.8 million (H1 2022: $27.1 million) relating to taxes (non-cash in nature) being deducted at source in Egypt.

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, with a ceiling equal to 25% of the value of the net assets at end-2021. At 30 June this windfall tax is recognised as a payable in the financial statements and subsequent to period end, in July 2023, the windfall tax of $94.5 million (€87.0 million) was paid.

Profit after tax

Profit after tax was $69.8 million (H1 2022: $118.7 million). The decrease compared to the prior period is due to the increased tax expense (H1 2022 was a tax income of $8.9 million), profit before tax increased by 23.0% to $135.0 million (H1 2022: $109.8 million).

Earnings per share

Earnings per share were $0.39 (H1 2022: $0.67). The diluted earnings per share were $0.39 per share (H1 2022: $0.66 per share which consider the dilutive impact of Long Term Incentive Plans (LTIPs), the Deferred Bonus Plans (DBP) and the convertible loan notes.

Operating cash flow

In H1 2023, Energean recorded a cash inflow from operations before changes in working capital of $322.4 million (H1 2022: $159.1 million). After working capital movements and taxation paid, the cash inflow in H1 2023 was $233.0 million (H1 2022: $146.6 million). The year-on-year increase in operating cash flow has been predominantly driven by the growth in revenues delivered between the two periods.

Capital Expenditures

During the period, the Group incurred capital expenditure of $291.5 million (H1 2022: $398.3 million). Capital expenditure mainly consisted of development expenditure in relation to the Karish Main Field, Second Oil train and riser and Karish North Fields ($115.5 million) in Israel, the NEA/NI project in Egypt ($61.2 million) and the Cassiopea field in Italy ($65.9 million). The exploration and appraisal expenditure is primarily for the Olympus development in Israel ($13.3 million) and the North East Hapy and East Bir El-Nus (Block-8) development in Egypt ($2.3 million).

Net Debt

As at 30 June 2023, net debt of $2,715.3 million (FY22: $2,518.2 million) consisted of $2,500 million of Energean Israel senior secured notes, $450 million of Energean plc senior secured notes, $50 million of convertible loan notes, $11 million  of Greek Loan notes, $109 million in relation to the Greek Black Sea Trade Development Bank loan, less deferred amortised fees, the equity component of the convertible loan ($10.5 million) and cash balances of $357.9 million (including $11.5 million of restricted cash).  The debt incurred a weighted average interest rate of 5.4% for the period to 30 June 2023. The Senior Secured Notes (both at  Energean Plc and Energean Israel) have fixed interest rates.

Shareholder Distributions

In line with the Group's dividend policy, Energean returned US$0.60/share to shareholders in H1 2023, representing two-quarters of dividend payments. No dividends were declared in H1 2022.

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, underlying cash cost of production and G&A, capital expenditure, net debt and gearing.

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, share-based payment charge, impairment of property, plant and equipment, other income and expenses, net finance costs and exploration and evaluation expenses. The Group presents adjusted EBITDAX as it is used in assessing the Group's growth and operational efficiencies as 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.

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 cost and assess operational efficiency. Cash cost of production is calculated as cost of sales, adjusted for depreciation and hydrocarbon inventory movements and share based payment charges that are included in cost of sales.

Cash General & Administrative Expense (G&A)

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 distribution expenses, excluding depletion and amortisation of assets and share-based payment charge that are included in G&A.

Energean incurred Cash G&A costs of $17.9 million in H1 2023. This represents a 18.5% increase compared to the prior period. The increase is predominantly due to the cessation of the capitalisation of payroll costs following the start of production in Israel.

Capital Expenditure

Capital Expenditure is defined as additions to property, plant and equipment and intangible exploration and evaluation assets and cash lease payments made in the period, less: lease asset additions, increases/decreases in the asset due to changes in decommissioning provision estimates, capitalised share-based payment charges, capitalised borrowing costs and certain other non-cash adjustments. Management believes that capital expenditure is a useful indicator of the Group's organic expenditure on oil and gas development assets, exploration and evaluation assets incurred during a period because it eliminates certain accounting adjustments such as capitalised borrowing costs and decommissioning asset additions.

Net Debt

Net debt is defined as the Group's total borrowings less cash and cash equivalents and restricted cash held for loan repayments. 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.

19 The share premium account represents the total net proceeds on issue of the Company's shares in excess of their nominal value of £0.01 per share less amounts transferred to any other reserves.

20 The reserve is used to recognise remeasurement gain or loss on cash flow hedges (in 2022 only) and actuarial gain or loss from the defined retirement benefit plan. In the Statement of Financial Position this reserve is combined with the Equity component of convertible bonds' within the caption other reserves.

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

22 The 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.

23 The foreign currency translation 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.

24   Energean plc by special resolution reduced its share premium account, as confirmed by an Order of the High Court of Justice on the 14 June 2022.

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 ('other'). 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 and New Ventures 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:

26Adjusted 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 30 June 2023 and 31 December 2022, respectively:

Segment Cash flows

 Revenue

 Operating profit before taxation

 . Net finance cost