TIDMENOG
RNS Number : 0666K
Energean PLC
30 December 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Energean plc
("Energean" or the "Company")
Proposed acquisition of Kerogen Capital's 30% shareholding in
Energean Israel Limited
London, 30 December 2020 - Energean plc (LSE: ENOG, TASE: ) ))
is pleased to announce that it has entered into a conditional Sale
and Purchase Agreement ("SPA") with Kerogen Investments No.38
Limited ("Kerogen") , an affiliate of Kerogen Capital, for the
proposed acquisition of Kerogen's 30% shareholding in Energean
Israel Limited ("EISL", the "Minority Interest" and the
"Acquisition", respectively), which would result in Energean owning
100% of EISL's share capital.
Highlights - Acquisition
-- Acquisition to acquire Kerogen's 30% shareholding in EISL for
a total consideration of between $380 million and $405 million (the
"Total Consideration")
-- The Total Consideration includes:
o An up-front payment of $175 million (the "Up-Front
Consideration")
o Deferred cash consideration amounts totalling between $155
million and $180 million, which are expected to be funded from
future cash flows and optimisation of the group capital structure,
post-first gas from the Karish project
o $50 million of convertible loan notes (the "Convertible Loan
Notes"), which have a maturity date of 29 December 2023 a strike
price of GBP 9.50 and a zero-coupon rate
-- The Acquisition adds 2P reserves of 29.5 billion cubic metres
("Bcm") of gas and 30 million barrels of liquids, representing
approximately 219 million barrels of oil equivalent ("MMboe") in
total, to the Company
o The enlarged Energean group will have 2P reserves of 974 MMboe
(80% gas) and a working interest production trajectory to more than
200 thousand barrels of oil equivalent per day ("kboed")
(approximately 80% gas), once Karish and Karish North are producing
at plateau rates
-- Energean believes that the Acquisition will be highly value
accretive and that the Total Consideration represents attractive
valuation metrics, including:
o A 43% discount to the estimated Enterprise Value ("EV") of the
Minority Interest, based on the latest 2P CPR valuation
estimates[1]
o A price of approximately 1x the forecast Minority Interest
annual EBITDAX, which is expected to be approximately $400 million
per year when the gas sales profile is on plateau
o An equity acquisition price of between $1.74 and $1.85 per 2P
barrel of oil equivalent ("boe")[2]
o A leverage-accretive acquisition that is well within
Energean's target to keep its corporate net debt / EBITDAX ratio
below 2.0x
-- Taking a 100% interest in EISL will enable Energean to fully
control its capital structure, enhancing its ability to maximise
total shareholder returns
-- The Acquisition is subject to shareholder, regulatory and
other customary approvals. Energean expects to close the
Acquisition in 1Q 2021
The Energean board of directors ("the Board") has unanimously
approved the Acquisition and will recommend it to Energean
shareholders in the upcoming circular, which Energean expects to
publish in late January / early February 2021.
Highlights - Karish Update
-- The Energean Power FPSO is expected to sailaway from
Singapore to Israel in 3Q 2021 and to deliver first gas in 4Q
2021.
-- Energean estimates that the Karish project will generate
Carbon Dioxide emissions intensity of less than 4.5 kg CO2e/boe
once production is on plateau. This represents approximately 25% of
the current global average for the oil & gas industry
-- In December 2020, the Karish project was awarded a safety and
health award recognition for safety excellence and maintaining high
HSE standards in Singapore.
Mathios Rigas, Chief Executive Officer of Energean,
commented:
"The Acquisition represents a unique opportunity, given our
existing, unrivalled understanding of the assets and the fact that
the position significantly enhances Energean's cash flow, whilst
generating no incremental G&A costs. It allows us to
consolidate our interests in Israel, enabling us to further
generate long-term value by capitalising on the production growth
and upside potential of our acreage offshore Israel; and is
supportive of our ambition to be the leading independent,
gas-producer in the Mediterranean.
"Having now closed the Edison acquisition, Energean has 2P
reserves of almost 1 billion barrels of oil equivalent, 80% of
which is gas; and we are now at a key transition point, in which
these reserves will be turned into long-term cash flows that will
support our medium-term ambition to pay a meaningful, sustainable
dividend to our shareholders.
"I would like to thank Kerogen for their support and involvement
in the Karish development over the last four years. Together, we
will have delivered a project that will provide diversity and
security of gas supply to Israel, whilst also helping to remove
significant amounts of CO2 annually from Israel's emissions by
enabling the switch from coal to natural gas."
Jason Cheng, Chief Executive Officer of Kerogen Capital,
commented:
"We deeply value the partnership formed with Energean over the
recent years, where together, we have seen substantial progress
made in advancing the Karish development and expanding the overall
resource base. During this process, we have also found Israel to be
a favourable jurisdiction for energy investing.
"We see this transaction as accretive for both Kerogen and
Energean. For Kerogen, it enables the successful value creation to
date to be captured, with some upside participation through the
convertible notes. For Energean, this represents a unique
opportunity to consolidate ownership of its flagship asset. We wish
Energean every success going forward in delivering this project of
national significance."
Enquiries
Investors and Analysts
Kate Sloan, Head of IR & Tel: +44 (0)7917 608 645
ECM
Media
Sotiris Chiotakis Tel: +30 6932663877
Consideration for the Acquisition
Energean has entered into a conditional SPA with Kerogen to
acquire Kerogen's 30% shareholding in EISL, which would result in
Energean owning 100% of EISL's share capital. The Acquisition has
an economic reference date of 1 January 2021 and the Total
Consideration consists of:
-- $175 million of Up-Front Consideration
-- Deferred consideration of between $125 million and $150
million (the "Deferred Cash Consideration"), the latest allowable
payment of which will be 30 calendar days following Practical
Completion of the Karish project (as defined under EISL's contract
with TechnipFMC). Before Practical Completion, Energean has the
option, at its sole discretion, to pay the Deferred Cash
Consideration at any point, in accordance with the following
schedule:
Payment Date Amount Payable
(US$ millions)
On or before 31 March 2021 125.0
----------------
On or before 30 April 2021 127.5
----------------
On or before 31 May 2021 130.0
----------------
On or before 30 June 2021 132.5
----------------
On or before 31 July 2021 135.0
----------------
On or before 31 August 2021 137.5
----------------
On or before 30 September 2021 140.0
----------------
On or before 31 October 2021 142.5
----------------
On or before 30 November 2021 145.0
----------------
On or before 31 December 2021 147.5
----------------
After 31 December 2021 or at Practical
Completion 150.0
----------------
-- A further $30 million of deferred cash consideration, payable
on 31 December 2022 (the "Additional Deferred Consideration")
-- $50 million of convertible loan notes, which have a maturity
date of 29 December 2023, a strike price of GBP 9.50 and
zero-coupon rate.
If the Deferred Cash Consideration is paid following Practical
Completion of the Karish Project (as defined under EISL's contract
with TechnipFMC), the Total Consideration will be $405 million. If
Energean elects to pay the Deferred Cash Consideration earlier than
31 December 2021, the Total Consideration could be reduced by up to
$25 million, to $380 million.
Financing of the Acquisition
The Up-Front Consideration for the Acquisition is $175 million
and is expected to be funded through a combination of existing
Energean Group funds and a new Energean Group loan facility.
The Deferred Cash Consideration will be between $125 million and
$150 million, depending on the point at which Energean elects to
make the payment. The Additional Deferred Payment is $30 million.
These deferred payments are expected to be funded from future cash
flows and optimisation of the group capital structure both pre- and
post-first gas.
The $50 million Convertible Loan Notes have the following
features.
-- The strike price is GBP 9.50, representing a premium of 36%
to the Energean share price as at market close the day before this
announcement, with a maturity date of 29 December 2023.
-- At an exchange rate of 1.35 USD/GBP and 177.1 million shares
in issue, conversion would, if exercised, result in dilution of
approximately 2% of the Company's issued share capital.
-- The Convertible Loan Notes attract no coupon rate and Kerogen
can call for conversion at any point during the term of the
Convertible Loan Notes; conversion events carry a minimum
conversion value of $5 million and have a subsequent 90-day period
between the submission of any subsequent conversion notice.
-- The option for cash settlement is only available to Kerogen at maturity
Approvals
The Acquisition is subject to approval by the Israeli Petroleum
Commissioner, which is expected to take approximately two
months.
The Acquisition constitutes a Related Party Transaction and
Class 1 Transaction for the purposes of the Listing Rules and
therefore Energean will be required to publish a circular and to
seek shareholder approval at an EGM before completion of the
Acquisition.
Issuance of the ordinary shares that may be issued pursuant to
the Convertible Loan Notes will also require shareholder approval,
which will be sought as part of the abovementioned circular and
EGM.
Directors' Recommendation
The Board has unanimously approved the Acquisition and will
recommend in the upcoming circular that Energean's shareholders
vote in favour of the Acquisition.
Proposed timetable of events
Publication of Circular End-January / Early-February 2021
EGM and shareholder votes Mid-Late February 2021
Closing of the Acquisition End-February / Early March 2021
Reasons for the Acquisition
Background
EISL holds a 100% working interest in the Karish and Tanin
leases, offshore Israel. As announced on 10 November 2020, a recent
independent Competent Persons Report ("CPR") by DeGolyer and
MacNaughton ("D&M") certified gross 2P reserves of 98.2 Bcm
(3.5 Tcf) of gas and 99.6 million barrels ("MMbbls") of liquids
across the Karish, Karish North and Tanin fields, representing
approximately 729 million barrels of oil equivalent. The Company's
flagship Karish gas development project is expected onstream in 4Q
2021.
EISL also owns a 100% working interest in four exploration
blocks (Blocks 12, 21, 23, 31) offshore Israel that offer low-risk,
near-infrastructure drilling opportunities to be targeted by its
next drilling programme, which is expected to commence in early
2022. The CPR estimated gross best estimate risked prospective
resources across the Karish and Tanin leases and Block 12 of 62.0
Bcm of gas plus 33.4 MMbbls of hydrocarbon liquids.
EISL also has an 80% working interest in a further four
exploration blocks in Zone D, offshore Israel.
Significant increase in 2P reserves and prospective
resources
The Acquisition adds 2P reserves of 29.5 Billion cubic metres
("Bcm") of gas and 30 million barrels of liquids; representing
approximately 219 million barrels of oil equivalent ("MMboe"). The
enlarged Energean group will have 974 MMboe of 2P reserves, an
increase of 29% on the previous position.
Bcm MMbbls MMboe
Energean existing Working Interest
2P in Israel 69 70 511
---- ------- ------
Energean ex- Israel Working Interest 24 96 245
---- ------- ------
Total existing Energean reserves 93 165 755
---- ------- ------
Acquired Minority Interest position 29 30 219
---- ------- ------
Total reserves post-completion 123 195 974
---- ------- ------
% increase 32% 18% 29%
---- ------- ------
Attractive metrics
The acquisition is being transacted at:
-- An equity acquisition price / 2P boe of between $1.74 and
$1.85 with incremental upside from the additional prospective
resources that the Acquisition delivers to the Company. When taking
into account the current Minority Interest net debt position of
$340 million, this represents an EV / 2P boe of between $3.29 and
$3.40
-- A price of approximately 1x the forecast Minority Interest
annual EBITDAX, which is expected to be approximately $400 million
per year when the gas sales profile is on plateau
-- A level that achieves payback within three years, including
the ongoing capital expenditure associated with completing the
Karish project in 4Q 2021 plus the new investments expected for
Karish North
-- A 43% discount to the estimated EV of the Minority Interest,
based on 2P CPR valuation estimates[3]
The estimated discount to NAV is based on the following:
-- The CPR valued the 2P reserves associated with the Karish,
Karish North and Tanin fields at $3.1 billion, discounted to 30
June 2020 and using a 10% discount rate. Discounted to 1 January
2021, to align with the economic reference date of the Acquisition,
the total valuation would have been an estimated $3.5 billion. The
estimated value of the Minority Interest in the assets would
therefore have been approximately $1.0 billion
-- At 22 December 2020, $1.15 billion had been drawn down from
the $1.450 billion project finance facility and EISL held cash of
approximately $15 million; the minority interest in the net debt
position is therefore approximately $340 million
-- The CPR valuation, adjusted for the net debt position in
EISL, gives an estimated EV for the Minority Interest of
approximately $710 million
-- At a Total Consideration of $405 million, this is a 43%
discount to the estimated EV of the Minority Interest
Capital structure optimisation
Full control over EISL would enable Energean to optimise its
capital structure, to include the funding of the Karish and Karish
North projects; refinancing of the project finance facility and
improved cost of funding; and movement of capital between EISL and
Energean plc, especially following first gas from Karish. Energean
believes that this will enhance its ability to maximise the total
shareholder returns generated by the projects.
Gas-focused, complementing Energean's strategic commitment to
net-zero
86% of Energean's 2P reserves and 82% of production on plateau
in Israel will be gas, therefore, Energean believes that the
Acquisition is well-aligned with its gas-focused transition fuel
strategy.
Energean estimates that the Karish project will generate Carbon
Dioxide emissions intensity of less than 4.5 kgCO2e/boe once
production is on plateau, which is approximately 75% lower than the
current global average for the oil & gas industry.
The Karish project is integral to Israel's target of replacing
coal-fired power generation with gas. This transition will reduce
Israel's CO2 emissions significantly each year. As such, the
project is well-aligned with Energean's strategic commitment to
help transition to a net-zero carbon world.
Near-term growth further amplified
EISL has signed gas sales and purchase agreements to supply its
customers with 7.4 Bcm/yr of Karish gas on plateau and associated
oil production is expected to achieve a plateau rate of
approximately 28 kboed, a total production level of approximately
158 kboed (82% gas).
The Acquisition increases working interest production by
approximately 47 kboed. Following completion of the Acquisition,
working interest production from the enlarged group is expected to
have a trajectory to more than 200 kboed, once Karish and Karish
North are producing on plateau.
Update on the Karish Project
As of 26 November 2020, the Karish gas development was 86%
complete. Within this, the Energean Power FPSO was 93% complete,
the subsea work 73% complete and the onshore work virtually 100%
complete. The project is expected to deliver first gas into the
Israeli domestic market in 4Q 2021.
Energean Power FPSO progress and key milestones
Following COVID-19-related disruptions in Singapore earlier this
year, the manning profile at the construction yard has now ramped
up towards planned levels, reaching over 1000 people by the end of
November.
The main modules and pipe racks have now been lifted onto the
FPSO hull, signalling near-completion of the first major milestones
of the hull and topside integration campaign. The final lifts, of
module-1 and the flare, will be completed in December 2020 and
January 2021, respectively.
The completed Energean Power FPSO is expected to sailaway from
Singapore to Israel in 3Q 2021 with first gas in 4Q 2021.
Subsea and onshore
Energean's subsea and onshore workstreams have progressed in
line with expectations, despite the challenges of COVID-19.
On the subsea work, the complete FPSO mooring system and the
deepwater subsea production system is now fully installed and the
gas sales pipeline scope is almost completed. In October 2020, the
tie-in manifold was successfully installed and was connected to the
gas sales pipeline in November 2020. The riser installation
campaign is expected to commence, and to be completed during 1Q
2021, which will mark completion of the subsea works required ahead
of arrival of the Energean Power FPSO.
On the onshore, installation of the production rate measurement
system at Dor commenced in August 2020 with mechanical completion
and commissioning expected in 1Q 2021. Installation of the onshore
section of the pipeline commenced in June 2020. Works are
progressing as expected and installation is expected to be complete
in 1Q 2021. Civils work is also progressing well and is expected to
be completed during 2Q 2021. Together, all components of the
onshore are expected to be completed approximately six-months ahead
of first gas into the system.
Minority interest Key Financial Data
At 31 December 2019, Kerogen's 30% stake in EISL
contributed:
-- $432 million of gross assets
-- $157 million of net assets
-- $0.5 million of net losses
The Company believes that the current Minority Interest
financial data is not representative of the value of the assets, or
the future cash flows that will be generated by the assets, due to
the stage of development of the assets contained within EISL.
Inside Information
Some of the information contained within this announcement is
considered by Energean to constitute inside information, as defined
under the EU Market Abuse Regulation, EU No.596/2014. By the
publication of this Announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain. The person responsible for arranging for the release
of this announcement on behalf of Energean is Russell Poynter,
Company Secretary.
About Energean plc
Established in 2007, Energean is a London Premium Listed FTSE
250 and Tel Aviv 35 Listed E&P company with operations in nine
countries across the Mediterranean and UK North Sea. Since IPO,
Energean has grown to become one of the leading independent,
gas-focused E&P companies in the Eastern Mediterranean, with a
strong production and development growth profile. The Company
explores and invests in new ideas, concepts and solutions to
produce and develop energy efficiently, at low cost and with a low
carbon footprint.
Energean's production comes mainly from the Abu Qir field in
Egypt and fields in Southern Europe and the UK. The company's
flagship project is the 3.5 Tcf Karish, Karish North and Tanin
development offshore Israel, where it intends to use the only FPSO
in the Eastern Mediterranean to produce first gas, commencing
4Q-2021. Energean has signed firm contracts for 7.4 Bcm/yr of gas
sales into the Israeli domestic market, which have floor pricing,
take-or-pay and/or exclusivity provisions that largely insulate the
project's revenues against global commodity price fluctuations and
underpin Energean's goal of paying a meaningful and sustainable
dividend.
With a strong track record of growing reserves and resources,
Energean is focused on maximising production from our large-scale
gas-focused portfolio to deliver material free cash flow and
maximise total shareholder return in a sustainable way. ESG and
health and safety are paramount to Energean; it aims to run safe
and reliable operations, whilst targeting carbon neutrality across
its operations by 2050. These aspirations have been significantly
advanced with the completion of the Edison E&P acquisition in
December 2020.
www.energean.com
[1] Based on DeGolyer and MacNaughton CPR 2P valuation, per
report issued in November 2020, assuming a $66/bbl liquids price
($60/bbl Brent and 10% premium) and $4.04/mmbtu gas price
[2] When additionally taking into account the Minority Interest
net debt position of $340 million, the estimated Enterprise Value /
2P boe is between $3.29 to $3.40
[3] Based on DeGolyer and MacNaughton CPR 2P valuation assuming
a $66/bbl liquids price ($60/bbl Brent and 10% premium) and
$4.04/mmbtu gas price
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