Energean plc

("Energean" or the "Company")

 

2023 Full Year Results

 

London, 21 March 2024 - Energean plc (LSE: ENOG, TASE: ££) is pleased to announce its audited full-year results for the year ended 31 December 2023 ("FY 2023").

 

Mathios Rigas, Chief Executive Officer of Energean, commented:

"2023 was another transformational year for Energean. We grew production by 200% year-on-year, reached c. 150 kboed peak production and brought NEA/NI online on time and on budget. Despite the challenging geopolitical environment, all of our operations were managed without any impact from the regional conflicts. Since the year-end, the start-up of Karish North and the second gas export riser mean we are now able to utilise the FPSO's maximum gas capacity and our production guidance illustrates the next step towards our near-term target of 200 kboed.

 

"We also had a strong year financially, generating full-year revenues of $1,420 million and adjusted EBITDAX of $931 million. As a result, we have reduced our leverage ratio by 50% to 3x. These strong results coupled with our long-term gas contracting strategy, which underpins our dividend policy, has seen us return approximately $370 million[1] (210 US$ cents/share) to shareholders since our inaugural payment in Q3 2022.

 

"We are looking beyond our near-term targets and this is reflected in our new Morocco country entry project and in Italy, where we see a new era for the industry following the annulment[2] of prohibitive laws, thereby releasing previously restricted acreage. We also remain alert to opportunities that fit our key business drivers (paying a reliable dividend, deleveraging, growth, and our commitment to Net Zero[3]) and can move quickly to take advantage when they arise.

 

"On sustainability, we are contributing to Israel's transition away from coal as well as its, and the wider region's, energy security - helping to meet the growing demand for natural gas. We further reduced our emissions intensity and have now delivered an 86% reduction from our original 2019 baseline. We are also now rated AAA by MSCI[4]. Our Prinos Carbon Storage ("CS") project will add another pillar and help decarbonise heavy industries in Southeast Europe, in line with our commitment during COP28.

 

"Our ongoing success is due to the entire global team working together during what has been a challenging period in the East Mediterranean. I am proud to lead such a diverse and dedicated team and as we continue to grow, our commitment to integrity, corporate sustainability and operational excellence will remain."

 

Operational Highlights

·      First major step-up in production achieved.

o  FY23 production of 123 kboed (83% gas), up 200% year-on-year, primarily as a result of a full-year of production from Karish (Israel).

o  Day-to-day production in Israel continues to be unimpacted by the ongoing geopolitical developments.

o  FPSO uptime (excluding planned shutdowns) was 99%[5] in Q4 2023.

·      Key growth projects complete.

o  The NEA/NI development (Egypt) was completed in December 2023.

o  Karish North and the second gas export riser were brought online in February 2024.

·      Confirmed year-end 2P reserves of 1,115 mmboe, stable year-on-year before produced 2023 volumes and demonstrating material reserves life of around 19 years[6].

·      New gas contract signed in Israel in February 2024.

o  Adds circa $2 billion of revenues over the life of the contract and is in line with the Group's strategy to secure long-term reliable cash flows.

·      Morocco country entry through farm-in to Chariot Limited's Lixus and Rissana licences, expected to complete imminently.

 

Financial Highlights

·      Strong financial performance, underpinned by a full-year of production from Karish.

o  2023 sales and other revenues of $1,420 million, representing a 93% increase (2022: $737 million).

o  2023 adjusted EBITDAX of $931 million, representing a 121% increase (2022: $422 million).

o  2023 profit after tax of $185 million was a significant improvement versus the previous year (2022: $17 million). Profit after tax was negatively impacted by $100 million of deferred tax charges.

o  Group cash as of 31 December 2023 was $372 million (including restricted amounts of $26 million) and total liquidity was $607 million.

o  50% reduction in Group leverage to 3x (FY 2022: 6x).

o  No immediate debt maturities following Energean Israel's bond refinancing in July 2023.

·      Q4 2023 dividend of 30 US$cents/share declared on 22 February 2024 and scheduled to be paid on 29 March 2024[7].

o  A total of 210 US$cents/share (approximately $370 million), including the Q4 2023 dividend¹, returned to shareholders since maiden payments began.

·      42% year-on-year reduction in carbon emissions intensity to 9.3 kgCO2e/boe and an 86% reduction since our original baseline year[8], ahead of schedule with the Group's stated 2019-2025 target.

Outlook

·      2024 production guidance reiterated at 155 - 175 kboed (production to end-February was 144 kboed; 82% gas), a significant step up towards Energean's near-term targets.

Production is second-half weighted due to:

o  Peak gas demand during the summer driving maximum gas output from the Energean Power FPSO.

o  Cassiopea (Italy) first gas expected in the summer of 2024.

·      Focused on backfilling the Energean Power FPSO and meeting growing gas demand in Israel and the region.

o  The start of the Katlan (Israel) development will extend the gas production plateau and has potential for exports.

·      New areas of development underway to grow the current business base:

o  Morocco farm-in expected to complete imminently; appraisal well planned for Q3 2024.

o  In March 2024, a court ruling annulled the PITESAI plan and its associated acts in Italy. This ruling[9] has unlocked previously restricted acreage in addition to those already identified and highlighted by Energean.

·      Quarterly dividend payments intended to be declared in line with previously communicated dividend policy.

·      Evaluating all opportunities, with continued capital discipline, that are dividend accretive, meet Energean's deleveraging targets, achieve its growth objectives and contribute to the Group's Net Zero target. 

 

Financial Summary

 

		FY 2023	FY 2022	% Change
Average working interest production	Kboed	123	41	200%
Sales and other revenue	$ million	1,420	737	93%
Cash Cost of Production	$/boe	11	19	(42%)
Adjusted EBITDAX[10]	$ million	931	422	121%
Profit after tax	$ million	185	17	988%
Cash flow from operating activities	$ million	656	272	141%
Development and production expenditure	$ million	487	729	(33%)
Exploration expenditure	$ million	57	140	(59%)
Decommissioning expenditure	$ million	19	9	111%
		31 December 2023	31 December 2022	% Change
Cash (including restricted amounts)	$ million	372	503	(26%)
Net Debt	$ million	2,849	2,518	13%
Leverage (Net Debt / Adjusted EBITDAX)	$ million	3x	6x	50%

 

 

Conference Call

 

A webcast will be held today at 08:30 GMT / 10:30 Israel Time.

 

Webcast: https://brrmedia.news/ENOG_FY23

Dial-In: +44 (0) 33 0551 0200

Dial-in (Israel only): +972 (0) 3 376 1321

Confirmation code (if prompted): Energean Results

 

The presentation slides will be made available on the website shortly at www.energean.com

 

Enquiries

For capital markets: ir@energean.com

 

Kyrah McKenzie, Investor Relations Manager                                        Tel: +44 7921 210 862                                  

For media: pblewer@energean.com

 

Paddy Blewer, Head of Corporate Communications                                                Tel: +44 7765 250 857

 

 

Operational Review

HSE

In 2023, Energean delivered another strong HSE record with zero serious injuries recorded. The Loss Time Injury Frequency ("LTIF") Rate was 0.47 (2022: 0.47) and the Total Recordable Incident Rate ("TRIR") was 1.09 (2022: 1.18).

Reserves

Full year 2023 working interest 2P reserves were 1,115 mmboe, stable year-on-year before produced 2023 volumes (47 mmboe) and demonstrating material reserves life of around 19 years[11].

	2023 2P Reserves mmboe (% gas)	2022 2P Reserves mmboe (% gas)	% Increase / (Decrease)
Israel	926 (89%)	940 (89%)	(1%)
Egypt	70 (88%)	99 (87%)	(29%)
Rest of Portfolio	119 (37%)	122 (38%)	(2%)
Total	1,115 (83%)	1,161 (84%)	(4%)

 

Production and Operational Update

In 2023, total production was 123 kboed (83% gas), up 200% year-on-year primarily due to the first full year of production from Karish (Israel).

	2023 kboed (% gas)	2022 kboed (% gas)	% Increase / (Decrease)
Israel	87 (89%)	5 (92%)	1640%
Egypt	25 (86%)	25 (87%)	0%
Rest of portfolio	11 (34%)	11 (40%)	0%
Total	123 (83%)	41 (75%)	200%

 

2024 is expected to be another significant year for Energean and a material step towards its near-term targets. Group production in the first two-months of 2024 was 144 kboed (82% gas). Energean reiterates the guidance range of 155 - 175 kboed that was communicated in its January trading update, which is weighted towards the second half of the year owing to:

·      Peak gas demand during summer in Israel driving maximum gas output from the Energean Power FPSO.

·      The start-up of Cassiopea (Italy), expected in the summer of 2024.

 

Israel

Production

In the 12-months to 31 December 2023, working interest production from Israel averaged 87 kboed (89% gas). Commercial sales for the majority of Energean's long-term gas sale and purchase agreements ("GSPAs") began in April 2023. Slower than expected commissioning and ramp-up resulted in lower than expected production from Karish in the first half of the year. This was overcome, with production successfully increased in Q3 to the FPSO's initial capacity and uptime increased in Q4 to 99%[12]. Peak gas demand from Energean's GSPAs was seen during Q3. Day-to-day production was and continues to be unimpacted as a result of the ongoing geopolitical developments. 

Development

In February 2024, Energean brought Karish North and the second gas export riser online, enabling utilisation of the FPSO's maximum gas capacity. The Energean Power FPSO now has four production wells in operation, increasing well stock redundancy and flexibility to meet the demand requirements of Energean's gas buyers. The second oil train will be installed as soon as feasible.

Energean intends to develop the Katlan/Tanin area in a phased development. Phase 1 includes the Athena, Zeus, Hera and Apollo accumulations, for which the field development plan was approved by the Israeli Government in December 2023. Energean expects to take FID upon finalisation of EPC terms, which are currently under negotiation. Energean expects to be granted a 30-year production licence for Katlan from the Israeli Government in the upcoming weeks.

 

Technip

In February 2024, Energean signed an amendment to the terms of the deferred payment agreement with Technip and reduced the amount to $210 million. This remaining amount will be paid in twelve equal quarterly instalments starting in March 2024. Deferred amounts do not incur any interest. Energean's 2024 capital expenditure guidance does not include this amount, as it was accrued in 2022.

Eshkol Energies Generation LTD

Also in February 2024, Energean Israel Limited signed a new GSPA with Eshkol Energies Generation LTD, majority owned by Dalia Energy Companies Ltd, for the supply of an initial quantity of 0.6 bcm/yr[13], rising to 1 bcm/yr from 2032 onwards. The GSPA is for a term of approximately 15 years, for a total contract quantity of up to approximately 12 bcm and represents circa $2 billion in revenues over the life of the contract. The contract contains provisions regarding floor and ceiling pricing, take or pay and price indexation (not Brent-price linked). The GSPA has been signed at levels that are in line with the other large, long-term contracts within Energean's portfolio.

Egypt

Production

In the 12-months to 31 December 2023, working interest production from Egypt averaged 25 kboed (86% gas). The NEA/NI project achieved first gas from the first well (NEA#6) in March 2023, followed by the second (NEA#5) in July 2023 and then the remaining two in December 2023 (PY#1 and NI#1). The latter three wells are performing in line with expectations at 73 mmscfd (15 kboed). The NEA#6 well ceased production in November 2023 owing to higher than expected rates of decline. There is no read-across of this on the other wells. The project was delivered in line with budget.

An infill well (NAQPII#2) on the Abu Qir field was brought online in January 2024 and is producing in line with expectations at 19 mmscfd (4 kboed). Energean continues to evaluate other infill and exploration opportunities around its Abu Qir hub.

Production Licences

Conversations are ongoing with the Egyptian authorities to merge Energean's three production concessions (Abu Qir, NEA and NI) into a single concession. The resultant single concession is expected to streamline the fiscal conditions and extend the economic life of the fields.

Receivables

At 31 December 2023, net receivables (after provision for bad and doubtful debts) in Egypt were $147 million (31 December 2022: $117 million), of which $114 million (31 December 2022: $41 million) was classified as overdue.

Exploration

The Orion X1 exploration well (W.I. 19%[14]) reached the target reservoir in March 2024. Preliminary results indicate that the well contains no commercial hydrocarbons. Further appraisal activity is contingent upon the completion of post-drilling well analysis.

Rest of the Portfolio

In the 12-months to 31 December 2023, working interest production from the rest of the portfolio averaged 11 kboed (34% gas).

Italy

First gas from Cassiopea (W.I. 40% non-operator) is expected in the summer of 2024. Pipelaying activities were completed in July 2023 and drilling operations began in November 2023, with the first production well completed in January 2024. The remaining offshore and onshore work is progressing well.

In March 2024, the administrative court of Lazio (Rome) ruled in favour on a claim presented by Energean and several other operators, annulling the PITESAI plan and its applicable acts[15]. The annulment of these restrictive laws allows potential new activities either on exploration acreages or in existing leases in addition to those highlighted by Energean in its January 2024 Trading and Operations Update. Energean welcomes this decision and looks forward to progressing certain concessions.

Greece

Energean's Prinos CS project in Greece has been included by the European Commission as a Project of Common Interest. Non-binding memoranda of understandings have been signed for c.5 million tonnes per annum of storage and EUR 150 million of grants have been committed. Energean is advancing the conversion of its exploration licence into a storage permit.

Morocco Country Entry

As announced on 7 December 2023, Energean has agreed to farm-in to Chariot Limited's ("Chariot", AIM:CHAR) Rissana (W.I. 37.5% operator) and Lixus (W.I. 45% operator) licences, the latter includes the 18 bcm (gross)[16] Anchois gas development.

Completion of the Morocco farm-in is expected imminently, upon receipt of the remaining approvals from the Moroccan Authorities.

Energean (Operator) and Chariot plan to drill an appraisal well on the Anchois field in Q3 2024.

Financing

Energean ended 2023 with total available liquidity of $607 million (2022: $720 million), including undrawn amounts of $235 million under its Revolving Credit Facilities.

In July 2023, Energean issued $750 million of senior secured notes via its subsidiary Energean Israel Finance Ltd ("Energean Israel"), maturing in 2033 with a coupon of 8.5%. The funds were used primarily to repay Energean Israel's $625 million notes due in March 2024. As a result of this refinancing, Energean's weighted average life of debt has been extended to more than six years and results in a weighted average interest rate of 6.13%. 

In October 2023, the $350 million unsecured plc term loan facility was amended and restated to a $120 million unsecured RCF.

Energean remains committed to its near-term target of reducing leverage, which is defined as net debt / adjusted EBITDAX to around 1.5x.

Kerogen Investments No. 38 Limited

In 2023, the remaining two consideration items to Kerogen Investments No. 38 Limited ("Kerogen") as part of the 2020 acquisition of the 30% minority interest in Energean Israel Limited were completed:

·      In July 2023, the remaining deferred consideration ($150 million) to Kerogen was paid.

·      In December 2023, Kerogen exercised its option to convert its $50 million of convertible loan notes into shares. This resulted in the issuance of 4,422,013 new ordinary shares ("New Ordinary Shares") at a conversion price of GBP 8.3843 per New Ordinary Share. The New Ordinary Shares were admitted to trading on the London and Tel Aviv Stock Exchanges on 20 December 2023.

 

ESG and Climate Change

Energean is committed to net zero scope 1 and 2 emissions by 2050 and industry-leading disclosure of its energy transition intentions.

Emissions Reduction

The Group recorded full-year 2023 scope 1 and 2 emissions intensity of 9.3 kgCO2/boe, a 42% year-on-year reduction, and a 86% reduction versus its original baseline year (2019), ahead of schedule for its stated 2019-2025 target. Energean expects to further reduce emissions intensity to 8.5 - 9.0 kgCO2/boe in 2024.

Energean maintains a rolling carbon intensity reduction plan and currently targets to halve its emissions intensity to 4.0-6.0 kgCO2/boe by 2035. Energean intends to reach this medium-term target through the advancement of CCS, electrification and natural-based solution projects.

ESG Ratings and Affirmations

In 2023, Energean has continued to receive strong ESG ratings across the major ESG rating agencies. This includes:

·      Carbon Disclosure Project ("CDP") Climate Change rating maintained at A- and aligned with all recommended pillars of the Task Force on Climate Related Financial Disclosure ("TCFD").

·      MSCI rating increased to AAA from AA, in the top 17% of our sector.

·      Sustainalytics ranked in the top 18% of our sector, up from the top 30% in 2022.

·      Maala Index rating maintained at platinum.

·      Constituent of the FTSE4Good Index Series.

2024 Guidance

	FY 2024
Production
Israel (kboed)	115-130
Egypt (kboed)	29-31
Rest of portfolio (kboed)	11-14
Total production (kboed)	155-175
Consolidated net debt ($ million)	2,800-2,900
Cash Cost of Production (operating costs plus royalties)
Israel ($ million)	350-380
Egypt ($ million)	30-40
Rest of portfolio ($ million)	190-210
Total Cash Cost of Production ($ million)	570-630
Development and production capital expenditure
Israel ($ million)	150-200
Egypt ($ million)	30-50
Rest of portfolio ($ million)	220-250[17]
Total development & production capital expenditure ($ million)	400-500
Exploration expenditure ($ million)	130-170[18]
Decommissioning expenditure ($ million)	40-50

 

Financial Review

 

Financial results summary

	2023	2022	Change from 2022
Average working interest production (kboepd)	123	41	200%
Revenue ($m)	1,420	737	93%
Cash cost of production ($m)	475	284	67%
Cost of production ($/boe)	11	19	(42%)
Administrative & selling expenses ($m)	43	46	(7%)
Operating profit ($m)	598	232	158%
Adjusted EBITDAX ($m)	931	422	121%
Profit after tax ($m)	185	17	988%
Cash flow from operating activities ($m)	656	272	141%
Capital expenditure ($m)	544	870	(37%)
Cash capital expenditure ($m)	541	460	18%
Net debt ($m)	2,849	2,518	13%
Leverage Ratio (Net debt/ Adjusted EBITDAX)	3	6	(50%)

 

 

Revenue, production, and commodity prices

Revenue increased by $683 million to $1,420 million (2022: $737 million) primarily as a result of the successful ramp-up of production from our flagship Karish gas field, located offshore Northern Israel, to its initial capacity. The Group's realised weighted average oil and gas price for the year was $72/bbl (2022: $81/bbl) and $5/mcf (2022: $11/mcf), respectively. 

Working interest production averaged 123 kboepd in 2023 (2022: 41 kboepd), with the Karish gas field accounting for over 70% of total output.

Adjusted EBITDAX amounted to $931 million (2022: $422 million). The increase from 2022 was due to higher revenue complimented by slightly lower operating costs.

Cash cost of production

During the period, our cash unit production costs decreased to $11 per barrel of oil equivalent (boe), compared to $19/boe in 2022. This reduction was primarily due to the increased production for the year coming from the successful ramp-up of production from the Karish gas field in Israel. In addition, the Egyptian currency, has fallen sharply against the US dollar, also leading to a reduction of the cost per bbl in Egypt. Excluding royalties of $186 million (2022: $46 million), our cash production costs amounted to $289 million in 2023, (2022: $238 million including only 2 months of production in Israel). Consequently, the related cost per boe excluding royalties decreased to $6.4 in 2023, down from $15.9 in 2022.

Depreciation, impairments and write-offs

Depreciation charges before impairment on production and development assets increased to $306 million (2022: $83 million) with the related increase in the depreciation unit expense to $6.8/boe (2022: $5.5/boe).

The Group's impairment assessment did not identify any cash generating units for which a reasonably possible change in a key assumption would result in impairment or impairment reversal.

Management has considered how the Group's identified climate risks and opportunities (as discussed in the Strategic Report) may impact the estimation of the recoverable amount of cash-generating units in the impairment assessments. The anticipated extent and nature of the future impact of climate on the Group's operations and future investment, and therefore estimation of recoverable value, is not uniform across all cash-generating units. There is a range of inherent uncertainties in the extent that responses to climate change may impact the recoverable value of the Group's cash-generating units. These include the impact of future changes in government policies, legislation and regulation, societal responses to climate change, the future availability of new technologies and changes in supply and demand dynamics.

The Group has incorporated carbon pricing when preparing discounted cash flow valuations. Carbon prices are incorporated based on currently enacted legislation (where relevant). Carbon costs are based on the forecast carbon price per tonne/CO2e, multiplied by estimated Scope 1 and 2 emissions for the relevant operation(s).

As part of the impairment assessment the Group has run sensitivity scenarios based on the International Energey Agency's (IEA) 2023 World Energy Outlook climate projections including Stated Policies Scenario (STEPS), Announced Pledges Scenario (APS) and Net-Zero Emissions by 2050 Scenario (NZE).  These specific scenarios were not directly applied in the assets valuation for financial reporting purposes. This is because no single scenario fully aligns with the management consensus on the assumptions market participans may use in appraising the Group's assets. The assessment revealed that the Group's CGUs in Italy and Greece, particularly the Vega field, are significantly affected by these scenarios due to their sensitivity to fluctuations in Brent oil prices. Conversely, the Group's assets in Israel and Egypt are less influenced by these scenarios, attributed to the localized approach to price definition.

Exploration and evaluation expenditure and new ventures

During the period the Group expensed $34 million (2022: $71 million) for exploration and new ventures evaluation activities. This includes impairment costs of $29 million (2022: $66 million) for projects that will not progress to development, primarily Isabella in the UK.

In addition, new ventures evaluation expenditure amounted to $5 million (2022: $5 million), mainly related to pre-licence assessment costs.

General and administrative (G&A) expenses

Energean incurred G&A costs of approximately $43 million in 2023 (2022: $46 million). Cash SG&A was $31 million (2022: $36 million).

Cash G&A excludes certain non-cash accounting items from the Group's reported G&A. Management uses this alternative performance measure to monitor the Group's performance, as it assists in making informed decisions about capital allocation . Cash G&A is calculated as follows: Administrative and Selling and distribution expenses, excluding depletion and amortisation of assets and share-based payment charge that are included in G&A.

	2023 ($m)	2022 ($m)
Administrative expenses	43	46
Less:
Depreciation	5	4
Share-based payment charge included in G&A	7	6
Cash G&A	31	36

 

Net other expenses

Net other expenses of $2 million in 2023 (2022: $1 million income) includes reversal of provision for legal claims of $3 million, expected credit loss provisions of $4 million and other non-recurring items.

Unrealised loss on derivatives

The Group has recognised unrealised loss on derivative instruments of $7 million (2022: $5 million) related to the Cassiopea contingent consideration. A contingent consideration of up to $100.0 million is payable and determined based on future Italian gas prices recorded at the time of the commissioning of the field, which is expected in the summer of 2024.

As at 31 December 2023, the two-year Italian gas (PSV) futures curve indicated higher pricing than that at the date of acquisition, with a forward price in excess of ?20/Mwh. As a result, the fair value of the contingent consideration as at 31 December 2023 was estimated to be $91 million based on a Monte Carlo simulation (31 December 2022: $86 million).

Net financing costs

Financing costs before capitalisation for the period were $268 million (2022: $237 million). Finance costs include: $193 million of interest expenses incurred on Senior Secured notes (2022: $167 million), $6 million on debt facilities (2022: $2 million), $7 million of interest expenses relating to long-term payables (2022: $15 million), $51 million unwinding of discount on deferred consideration, contingent consideration, long-term payables, convertible loan notes and decommissioning provisions (2022: $37 million); $11 million commissions for guarantees and other bank charges of (2022: $16 million).

Net finance costs include foreign exchange losses of $17 million (2022: $22 million) and finance income of $19 million (2022: $10 million), including Interest income from time deposits.

Taxation

In 2023, Energean recorded tax charges totalling $159 million, compared to $90 million in 2022. This comprised a current year tax expense of $59 million (down from $200 million in 2022) and a deferred tax expense of $100 million (compared to a credit of $110 million in 2022), resulting in an effective tax rate of 46% (down from 84% in 2022).

The decrease in current tax from 2022 was primarily due to a one-off windfall tax of $119 million charged in Italy in 2022. Additionally, the current tax expense for Italy and Egypt decreased by $13 million and $10 million respectively compared to the previous year.

Regarding deferred tax movement, both Italy and Israel realised previously recognised deferred tax assets due to the utilisation of tax losses, amounting to $15 million and $47 million respectively. Furthermore, Italy reassessed its deferred tax asset recognised on decommissioning provision, resulting in a reduction of $20 million.

Operating cash flow

Cash from operations before tax and movements in working capital was $874 million (2022: $373 million). After adjusting for tax and working capital movements, cash from operations was $656 million (2022: $272 million).

Capital Expenditure

During the year, the Group incurred capital expenditure of $544 million (2022: $870 million). Capital expenditure mainly comprise development expenditure in relation to the Karish Main and Karish North Fields in Israel ($148 million), NEA/NI project in Egypt ($123 million), Cassiopea field in Italy ($161 million), and exploration expenditures in Katlan, Athena, Zeus, Hermes and Hercules in Israel ($25 million) and in North East Happy and East Bir El Nus in Egypt ($26 million).

Net Debt

As at 31 December 2023, net debt of $2,849 million (2022: $2,518 million) consisted of $2,500 million Israeli senior secured notes, $450 million of corporate senior secured notes and $64 million draw down of the Greek loans, less deferred amortised fees and cash, bank deposits and restricted cash balances of $372 million. On 11 July 2023 Energean priced the offering of $750 million aggregate principal amount of senior secured notes. Net debt excluding Israel is $569 million (2022: $144 million).

In accessing the debt capital markets, Energean is only exposed to floating interest rates for the Greek loan and Revolving Credit Facility ('RCF').

Credit ratings

Energean maintains corporate credit ratings with Standard and Poor's (S&P) and Fitch Ratings (Fitch). In November 2023:

·      S&P affirmed 'B+' ratings on Energean and its senior secured notes maturing in 2027 however the Outlook was revised to Negative from Stable. The negative outlook reflects the escalated geopolitical and security risk in Israel.  The ratings were affirmed at B+ as Energean's assets remain fully operational, cash flows have not been affected and the conflict is expected to have limited impact on Energean's operations in Israel.

·      Fitch upgraded Energean plc's corporate credit rating to 'BB-' from 'B+' with Stable Outlook. Energean's senior secured notes maturing in 2027 were also upgraded to 'BB' from 'B+'. Key drivers for the upgrade were: production performance, driven by the successful ramp-up of the Karish field, Energean's clear path to deleveraging, defined Dividend Policy, low re-contracting risk and improving cost of production.

 

 

Risk Management

Principal Risks

 

Energean has long identified geopolitical risks as one of the principal risks facing the Group. Considering the events since October 2023, the Group has introduced a new principal risk specifically relating to the increased regional and domestic geopolitical and security risks in Israel. Day-to-day production and payments from domestic gas offtakers have been unimpacted by the geopolitical developments. Energean continues to monitor the situation and has mitigations in place, including an insurance package for certain risks as a result of damage to the assets. There is also a potential compensation mechanism by the Israeli government under the Property Tax and Compensation Fund Law. A full description of the Group's mitigations in relation to this risk can be found in the 2023 Annual Report & Accounts.

 

The remainder of the principal risks are unchanged from those disclosed in the 2023 Interim Results. A full description of Energean's principal risks is disclosed in the 2023 Annual Report & Accounts.

 

Liquidity risk management and going concern

The Group carefully manages the risk of a shortage of funds by closely monitoring its funding position and its liquidity risk. The going concern assessment covers the period from the date of approval of the Group Financial Statements on 21 March 2024 to 30 June 2025 'the Assessment Period'.

As of 31 December 2023, the Group's available liquidity was approximately $607 million. This available liquidity figure includes: (i) c. $115 million available under the $300 million Revolving Credit Facility ('RCF') signed by the Group in September 2022 and as amended in May 2023 (with the remainder being utilized to issue Letters of Credit for the Group's operations) and (ii) c. $120 million under the $120 million Revolving Credit Facility signed up by the Group in October 2023.

The going concern assessment is founded on a cashflow forecast prepared by management, which is based on a number of assumptions, most notably the Group's latest life of field production forecasts, budgeted expenditure forecasts, estimated of future commodity prices (based on recent published forward curves) and available headroom under the Group's debt facilities. The going concern assessment contains a 'Base Case' and a 'Reasonable Worst Case' ('RWC') scenario.

The Base Case scenario assumes Brent at $80/bbl in 2024 and $75/bbl in 2025 and PSV (Italian gas price) at ?30/MWH in 2024 and 2025. A reasonable ramp-up of production from the Karish Field is assumed throughout the going concern assessment period, with prices for gas sold assumed at contractually agreed prices. Under the Base Case, sufficient liquidity is maintained throughout the going concern period.

The Group also routinely performs sensitivity tests of its liquidity position to evaluate adverse impacts that may result from changes to the macro-economic environment, such as a reduction in commodity prices. These downsides are considered in the RWC going concern assessment scenario. The Group is not materially exposed to floating interest rate risk since the majority of its borrowings are fixed-rate. The

Group also looks at the impact of changes or deferral of key projects and downside scenarios to budgeted production forecasts in the RWC.

The two primary downside sensitivities considered in the RWC are: (i) reduced commodity prices; (ii) reduced production - these downsides are applied to assess the robustness of the Group's liquidity position over the Assessment Period. In a RWC downside case, there are appropriate and timely mitigation strategies, within the Group's control, to manage the risk of funding shortfalls and to ensure the Group's ability to continue as a going concern. Mitigation strategies, within management's control, modelled in the RWC include deferral of capital expenditure on operated assets and/or management of operating expenses to improve the liquidity.

Under the RWC scenario, after considering mitigation strategies, liquidity is maintained throughout the going concern period.

Reverse stress testing was also performed to determine what commodity price or production shortfall would need to occur for liquidity headroom to be eliminated. The conditions necessary for liquidity headroom to be eliminated are judged to have a remote possibility of occurring, given the diversified nature of the Group's portfolio and the 'natural hedge' provided by virtue of the Group's fixed-price gas contracts in Israel and Egypt. In the event a remote downside scenario occurred, prudent mitigating strategies, consistent with those described above, could also be executed in the necessary timeframe to preserve liquidity. There is no material impact of climate change within the Assessment Period and therefore it does not form part of the reverse stress testing performed by management.

In forming its assessment of the Group's ability to continue as a going concern, including its review of the forecasted cashflow of the Group over the Forecast Period, the Board has made judgements about:

? Reasonable sensitivities appropriate for the current status of the business and the wider macro environment; and

? the Group's ability to implement the mitigating actions within the Group's control, in the event these actions were required.

After careful consideration, the Directors are satisfied that the Group has sufficient financial resources to continue in operation for the foreseeable future, for the Assessment Period from the date of approval of the Group Financial Statements on 21 March 2024 to 30 June 2025. For this reason, they continue to adopt the going concern basis in preparing the group financial statements.

 

Post balance sheet events

On 21 February 2024 Energean approved its 4Q dividend of US$30 cents per share, to be paid on 29 March 2024.

 

On 22 February 2024 Karish North first gas was achieved and the second gas export riser was completed.

 

The Orion X1 exploration well reached the target reservoir in March 2024. Preliminary results indicate that well contains no commercial hydrocarbons. Further appraisal activity is contingent upon the completion of post-drilling well analysis. The carrying value of the related capitalised exploration and evaluation expenses as of 31 December 2023 was $23.3 million. There has been no impairment recognized related to this investment.

 

 

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, cost of production, capital expenditure, cash capital expenditure, net debt and gearing ratio and are explained below.

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 costs and to assess operational efficiency. Cash cost of production is calculated as cost of sales, adjusted for depreciation and hydrocarbon inventory movements.

($m)	2023	2022
Cost of sales	760	359
Less:
Depreciation	301	79
Change in inventory	(16)	(4)
Cost of production1	475	284
Total production for the period (kboe)	44,731	15,038
Cash cost of production per boe ($/boe)	11	19

^{1Numbers may not sum due to rounding}

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, other income and expenses (including the impact of derivative financial instruments and foreign exchange), net finance costs and exploration costs. The Group presents Adjusted EBITDAX as it is used in assessing the Group's growth and operational efficiencies, because 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.

($m)	2023	2022
Adjusted EBITDAX	931	422
Reconciliation to profit/(loss):
Depreciation and amortisation	(306)	(83)
Share-based payment	(7)	(6)
Exploration and evaluation expense	(34)	(71)
Change in decommissioning cost	17	(28)
Other expense	(10)	(4)
Other income	8	3
Finance expenses	(250)	(107)
Finance income	19	10
Unrealised loss on derivatives	(7)	(5)
Net foreign exchange	(17)	(22)
Taxation income/(expense)	(159)	(90)
Profit/ (Loss) for the year	185	17

 

Capital expenditure

Capital expenditure is a useful indicator of the Group's organic expenditure on oil and gas assets and exploration and appraisal assets incurred during a period. Capital expenditure is defined as additions to property, plant and equipment and intangible exploration and evaluation assets less decommissioning asset additions, right-of-use asset additions, capitalised share-based payment charge and capitalised borrowing costs:

 

($m)	2023	2022
Additions to property, plant and equipment	533	878
Additions to intangible exploration and evaluation assets	57	141
Less:
Capitalised borrowing cost	18	109
Impairment of property, plant and equipment	-	28
Leased assets additions and modifications	47	2
Lease payments related to capital activities	(16)	(13)
Capitalised depreciation	-	1
Change in decommissioning provision	(3)	22
Total capital expenditure	544	870
Movement in working capital	(3)	(410)
Cash capital expenditure per the cash flow statement	541	460

Cash Capital Expenditure

($m)	2023	2022
Payment for purchase of property, plant and equipment	436	396
Payment for exploration and evaluation, and other intangible assets	105	64
Total Cash Capital Expenditure	541	460

 

Net debt/(cash) and leverage ratio

Net debt is defined as the Group's total borrowings less cash and cash equivalents. Management believes that net debt serves as a valuable indicator of the Group's indebtedness, financial flexibility, and capital structure because it reflects the level of borrowings after accounting for any cash and cash equivalents that could be utilised to reduce borrowings.

The management closely monitors the leverage ratio, as it provides a comprehensive picture of the Group's financial leverage by comparing net debt to EBITDAX. This monitoring is crucial for making informed decisions regarding dividend distributions, ensuring that such payments are made from a position of financial strength. It maintains the balance between rewarding shareholders and sustaining the Group's long-term financial stability.

 

($m)	2023	2022
Current borrowings	80	46
Non-current borrowings	3,141	2,975
Total borrowings	3,221	3,021
Less: Cash and cash equivalents and bank deposits	(347)	(428)
Restricted cash	(25)	(75)
Net Debt	2,849	2,518
Adjusted EBITDAX	931	422
Leverage Ratio (Net debt/ Adjusted EBITDAX)	3	6

 

 

 

Forward Looking Statements

This announcement contains statements that are, or are deemed to be, forward-looking statements. In some instances, forward-looking statements can be identified by the use of terms such as "projects", "forecasts", "on track", "anticipates", "expects", "believes", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results and events to differ materially from those expressed in or implied by such forward-looking statements, including, but not limited to: general economic and business conditions; demand for the Company's products and services; competitive factors in the industries in which the Company operates; exchange rate fluctuations; legislative, fiscal and regulatory developments; political risks; terrorism, acts of war and pandemics; changes in law and legal interpretations; and the impact of technological change. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this announcement is subject to change without notice.