TIDMENOG
RNS Number : 0583U
Energean PLC
23 March 2023
ENERGEAN ISRAEL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2022
ENERGEAN ISRAEL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2022
INDEX
Page
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Independent Auditor's Report 2-4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Financial Position 6
Consolidated Statements of Changes in Equity 7
Consolidated Statements of Cash Flows 8
Notes to the Consolidated Financial Statements 9-47
- - - - - - - - - - - - - - - - - - - -
Kost Forer Gabbay Tel: +972-3-6232525
& Kasierer Fax: +972-3-5622555
144 Menachem Begin ey.com
Road, Building A,
Tel-Aviv 6492102,
Israel
INDEPENT AUDITOR'S REPORT
To the Shareholders of E nergean Israel Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of
Energean Israel Limited and its subsidiaries (the Group), which
comprise the consolidated statements of financial position as at 31
December 2022 and 2021, and the consolidated statements of
comprehensive income, consolidated statements of changes in equity
and consolidated statements of cash flows for the years then ended,
and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Group as at 31 December 2022
and 2021, and its consolidated financial performance and its
consolidated cash flows for the years in the period then ended in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
Basis for opinion
We conducted our audits in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report. We are independent of the Group in accordance with the
International Code of Ethics for Professional Accountants
(including International Independence Standards) (IESBA Code), and
we have fulfilled our other ethical responsibilities in accordance
with the IESBA Code. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements of the current period. These matters were addressed in
the context of the audit of the financial statements as a whole,
and in forming the auditor's opinion thereon, and we do not provide
a separate opinion on these matters. For the matter below, our
description of how our audit addressed the matter is provided in
that context.
We have fulfilled the responsibilities described in the
Auditor's responsibilities for the audit of the financial
statements section of our report, including in relation to this
matter. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of
material misstatement of the financial statements. The results of
our audit procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion on the
accompanying financial statements.
Accounting for first production
Key audit matter description
The company achieved first gas from the Karish Main Field on 26
October 2022. This gave rise to various accounting implications
which required judgements to be made by management, including:
-- Continued capitalisation of borrowing costs;
-- Identification of the cash generating unit (CGU) for the purposes of impairment testing;
-- Unit of account and method of depreciation; and
-- Presentation of royalties in the income statement.
Refer to Accounting policies (pages 13-28); and Notes 10 and 21
(e) of the Consolidated Financial Statements.
Our response to the risk
Our procedures in evaluating these significant judgements made
by management included:
-- Testing the appropriateness of borrowing costs capitalised
throughout the year with a particular focus on those capitalised
after the date of commercial production from Karish Main. We
verified that borrowing costs capitalised after this date were
attributed to the continued development of Karish North, the Field
Support Vessel (FSV) and the 2nd oil train and met the criteria for
capitalisation in line with the requirements of IAS 23 Borrowing
Costs;
-- Challenging the conclusion that the Oil and Gas Assets
represent a single CGU in accordance with IAS 36 Impairment of
Assets, by considering whether the cash flows associated with the
Karish Main, Karish North and Tanin fields which utilise the common
FPSO infrastructure are separately identifiable;
-- Critically assessing management's determination of the single
unit of account, which impacts the costs which are eligible to be
capitalised and the rate of depreciation on the Karish asset. This
was done through performing enquiries and inspecting both
supporting and contrary evidence. We performed procedures over the
depreciation calculation by reconciling management's assumptions to
our work performed over reserves, and testing for clerical
accuracy; and
-- Verifying the presentation of royalties payable to the
Israeli state as a gross cost of sale expense (as opposed to a
deduction from revenue) within the Income Statement is appropriate
and in accordance with the requirements of IFRS 15 Revenue from
Contracts with Customers.
Risk of inappropriate estimation of oil and gas reserves
Key audit matter description
The estimation and measurement of oil and gas reserves is
considered to be a significant risk as it impacts many material
elements of the financial statements including impairment,
decommissioning, deferred tax asset recoverability and
depreciation, depletion and amortisation (DD&A).
Reserve estimation is complex, requiring technical input based
on geological and engineering data. Management's reserves estimates
are provided by external specialists (D&M).
The company's reserve portfolio as at 31 December 2022 included
proven and probable reserves (2P) reserves of 940 Mmboe and
contingent resources (2C) reserves of 47 Mmboe.
Refer to Accounting policies (pages 13-28); and Notes 10, 12 and
17 of the Consolidated Financial Statements.
Our response to the risk
-- We confirmed our understanding of the Company's oil and gas
reserve estimation process and the control environment implemented
by management including both the transfer of source data to the
management's reserves specialists and subsequently the input of
reserves information from the specialist reports into the
accounting system;
-- We obtained and reviewed the most recent third-party reserves
and resources reports prepared by these specialists and compared
these for consistency between other areas of the audit including
the Company's reserves models, DD&A, the calculation of the
decommissioning provision, deferred tax asset recoverability and
the Directors' going concern assessment;
-- We assessed the qualifications of management's specialists;
Responsibilities of management and those charged with governance
for the consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRSs as adopted by the European Union, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
22 March, 2023 A Member of Ernst & Young Global
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARED 31 DECEMBER 2022
2022 2021
Notes $'000 $'000
-------------------------------------------- ------ -------- --------
Revenue 5 27,122 -
Cost of sales 6 (31,017) -
------------------------------------------------ ------ -------- --------
Gross loss (3,895) -
Administrative expenses 6 (12,252) (5,200)
Exploration and evaluation expenses 6 (1,819) (50)
Other expenses 6 (1,102) (461)
Other income 6 54 19
------------------------------------------------ ------ -------- --------
Operating loss (19,014) (5,692)
Financial income 8 6,379 7,849
Financial expenses 8 (29,811) (18,526)
Foreign exchange gain/(loss), net 8 (3,087) 520
------------------------------------------------ ------ -------- --------
Loss for the year before tax (45,533) (15,849)
Taxation income 9 10,951 5,017
------------------------------------------------ ------ -------- --------
Net loss for the year (34,582) (10,832)
Other comprehensive income (loss)
:
Items that may be reclassified subsequently
to profit or loss:
Gain/(loss) on cash flow hedge for
the year - 2,278
Reclassification to profit/(loss)
upon realisation - 4,641
Income tax relating to items that
may be reclassified subsequently to
profit/(loss) 12 - (1,591)
------------------------------------------------ ------ -------- --------
Other comprehensive income/(loss)
for the year - 5,328
------------------------------------------------ ------ -------- --------
Total comprehensive loss for the
year (34,582) (5,504)
------------------------------------------------ ------ -------- --------
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
YEARED 31 DECEMBER 2022
2022 2021
Notes $'000 $'000
---------------------------------- -------- --------- ---------
ASSETS:
NON-CURRENT ASSETS:
Property, plant and equipment 10 2,926,313 2,245,267
Intangible assets 11 143,554 20,141
Other accounts receivable 13 108 6,463
Loan to related party 22(E)(4) - 346,000
Restricted cash 1 6(C) - 100,000
Deferred expenses 13 - 22,958
Deferred tax asset 12 22,886 11,575
-------------------------------------- -------- --------- ---------
3,092,861 2,752,404
------------------------------------- -------- --------- ---------
CURRENT ASSETS:
Trade and other receivables 13 82,611 22,769
Inventory 14 8,313 -
Restricted cash 1 6(C) 71,778 99,729
Cash and cash equivalents 1 5 24,825 349,827
-------------------------------------- -------- --------- ---------
187,527 472,325
------------------------------------- -------- --------- ---------
TOTAL ASSETS 3,280,388 3,224,729
-------------------------------------- -------- --------- ---------
EQUITY AND LIABILITIES:
EQUITY:
Share capital 19(A) 1,708 1,708
Share Premium 212,539 572,539
Retained losses (70,528) (35,946)
-------------------------------------- -------- --------- ---------
TOTAL EQUITY 143,719 538,301
-------------------------------------- -------- --------- ---------
NON-CURRENT LIABILITIES:
Senior secured notes 1 6(C) 2,471,030 2,463,524
Decommissioning provisions 1 7 84,299 35,525
Trade and other payables 1 8 210,241 113,264
-------------------------------------- -------- --------- ---------
2,765,570 2,612,313
------------------------------------- -------- --------- ---------
CURRENT LIABILITIES:
Trade and other payables 1 8 371,099 74,115
-------------------------------------- -------- --------- ---------
TOTAL LIABILITIES 3,136,669 2,686,428
-------------------------------------- -------- --------- ---------
TOTAL EQUITY AND LIABILITIES 3,280,388 3,224,729
-------------------------------------- -------- --------- ---------
22 March 2023
------------------------------------ ---------------- ---------------
Date of approval of the consolidated Panagiotis Benos Matthaios Rigas
financial statements Director Director
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARED 31 DECEMBER 2022
Share Share Other Accumulated Total
capital Premium reserves losses equity
$'000 $'000 $'000 $'000 $'000
--------------------------------- -------- --------- --------- ----------- ---------
Balance as of 1 January
2021 1,708 572,539 (5,328) (25,114) 543,805
Loss for the year - - - (10,832) (10,832)
Other comprehensive income,
net of tax - - 5,328 - 5,328
---------------------------------- -------- --------- --------- ----------- ---------
Total comprehensive income
(loss) - - 5,328 (10,832) (5,504)
---------------------------------- -------- --------- --------- ----------- ---------
At 1 January 2022 1,708 572,539 - (35,946) 538,301
---------------------------------- -------- --------- --------- ----------- ---------
Loss for the year - - - (34,582) (34,582)
Transactions with shareholders:
Share premium reduction,
see note 19(E) - (360,000) - - (360,000)
---------------------------------- -------- --------- --------- ----------- ---------
Balance as of 31 December
2022 1,708 212,539 - (70,528) 143,719
---------------------------------- -------- --------- --------- ----------- ---------
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARED 31 DECEMBER 2022
Notes 2022 2021
$'000 $'000
-------------------------------------------- -------- ----------- -------------
Operating activities
Loss for the year before tax (45,533) (15,849)
Adjustments to reconcile loss before
taxation to net cash provided by operating
activities:
Depreciation, depletion and amortisation 6 11,435 93
Loss from disposal on property, plant
and equipment 6 1,102 23
Payments for customers 5, 13 - (22,958)
Amortisation of payment made in advance
to customers 5, 13 18,031 -
Other expenses 6 - 438
Finance Income 8 (6,379) (7,849)
Finance expenses 8 29,811 18,526
Exploration costs written off 6 1,819 50
Net foreign exchange loss (gain ) 8 3,087 (520)
------------------------------------------------ -------- ----------- -------------
Cash flow from operations before working
capital 13,373 (28,046)
------------------------------------------------ -------- ----------- -------------
Decrease (increase) in trade and other
receivables (40,272) (119)
Increase in inventories (8,313) -
Increase (decrease) in trade and other
payables 27,952 (528)
------------------------------------------------ -------- ----------- -------------
Cash from operations (7,260) (647)
------------------------------------------------ -------- ----------- -------------
Income taxes paid (590) (72)
------------------------------------------------ -------- ----------- -------------
Net cash used in operating activities (7,850) (28,765)
------------------------------------------------ -------- ----------- -------------
Investing activities
Payment for exploration and evaluation,
and other intangible assets 11(B) (50,332) (5,152)
Advance payment from future sale of
property, plant and equipment (INGL) 17,371 5,673
Payment for purchase of property, plant
and equipment 10(C) (278,396) (291,760)
Loan granted to related party * 2 2(E) - (346,000)
Proceeds from disposal of property,
plant and equipment 10(C) 188 -
Movement in restricted cash, net 1 6(C) 127,951 (199,729)
Interest received 3,178 587
------------------------------------------------ -------- ----------- -------------
Net cash used in investing activities (180,040) (836,381)
------------------------------------------------ -------- ----------- -------------
Financing activities
Senior secured notes issuance 1 6(C) - 2,500,000
Transaction costs in relation to senior
secured notes issuance 1 6(C) - (39,506)
Senior secured notes - interest paid 1 6(C) (128,906) (66,600)
Drawdown of borrowings 1 6(A) - 118,000
Repayment of borrowings 1 6(A) - (1,268,000)
Repayment of loan from related parties 22(E) - (16,000)
Other finance cost paid 16 (2,461) (46,138)
Finance costs paid for deferred licence
payments 10(C) (1,501) (3,494)
Repayment of obligations under leases 16 (1,085) (585)
------------------------------------------------ -------- ----------- -------------
Net cash generated from (used in) financing
activities (133,953) 1,177,677
------------------------------------------------ -------- ----------- -------------
Net increase (decrease) in cash and
cash equivalents (321,843) 312,531
------------------------------------------------ -------- ----------- -------------
Cash and cash equivalents at beginning
of year 349,827 37,421
Effect of exchange differences on cash
and cash equivalents (3,159) (125)
------------------------------------------------ -------- ----------- -------------
Cash and cash equivalents at end of
year 15 24,825 349,827
------------------------------------------------ -------- ----------- -------------
* The loan to related party was repaid as part of the Share
Premium Capital reduction, see note 19(E).
NOTE 1: - GENERAL
a. Energean Israel Limited (the "Company") was incorporated in
Cyprus on 22 July 2014 as a private company with limited liability
under the Companies Law, Cap. 113. Its registered office is at
Lefkonos 22, 1(st) Floor, Strovolos, 2064 Nicosia, Cyprus.
b. The Company and its subsidiaries (the "Group") has been
established with the objective of exploration, production and
commercialisation of natural gas and crude oil. The Group's main
activities are performed in Israel by its Israeli Branch.
c. As of 31 December 2022, the Company had investments in the following subsidiaries:
Name of subsidiary Country of incorporation Principal Shareholding Shareholding
/ registered office activities
At 31 December At 31 December
2022 2021
(%) (%)
--------------------- --------------------------- -------------------- ----------------- -----------------
121, Menachem
Begin St.
Azrieli Sarona
Energean Israel Tower, POB 24, Gas transportation
Transmission Tel Aviv 67012039 license
LTD Israel holder 100 100
121, Menachem
Begin St.
Azrieli Sarona
Tower, POB 24,
Energean Israel Tel Aviv 67012039 Financing
Finance LTD Israel activities 100 100
d. The Group's core assets as of 31 December 2022 are comprised of:
Country Asset Working interest Field phase
-------- --------------------------- ----------------- ------------
Israel Karish 100% Production
Israel Tanin 100% Development
Israel Blocks 12, 21, 23, 31 100% Exploration
Israel Four licences Zone D (1) 0% Exploration
(1) The Company held an 80% interest in four licences, blocks
55, 56, 61 and 62 (together, "Zone D"), in Israel's Exclusive
Economic Zone ("EEZ"). Following Energean's submission of a formal
notice of relinquishment to the Ministry of Energy, the licences
expired at the end of their term on 27 October 2022.
NOTE 2: - Basis of preparation and presentation of financial information
The following accounting policies have been applied consistently
in the consolidated financial statements for all periods presented,
unless otherwise stated.
a. Basis of presentation of the financial statements:
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union (EU).
These consolidated financial statements have not been prepared
in accordance with the requirements of the Cyprus Companies Law,
Cap.113 and are not intended for statutory filing in Cyprus.
These consolidated financial statements have been prepared on
the historical cost basis except for derivative financial
instruments that have been measured at fair value using the
significant accounting policies and measurement bases summarised in
Note 3.
The group has prepared the financial statements on the basis
that it will continue to operate as a going concern, as explained
below.
b. The financial statements are presented in U.S. Dollars and
all values are rounded to the nearest thousand US Dollars except
where otherwise indicated.
c. New and amended accounting standards and interpretations:
The following amendments became effective as at 1 January
2022:
-- Annual improvements to IFRS 2018-2020
-- Reference to the Conceptual Framework - Amendments to IFRS 3
-- Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
-- Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
-- IFRS 9 Financial Instruments - Fees in the '10 per cent' test
for derecognition of financial liabilities
None of the above amendments had a significant impact on the
consolidated financial statements of the Group.
New and amended standards and interpretations in issue but not
yet effective for the 2022 year end:
-- IFRS 17 Insurance Contracts - 1 January 2023
-- Amendments to IFRS 17 Insurance contracts: Initial
Application of IFRS 17 and IFRS 9 - Comparative Information - 1
January 2023
-- Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2) - 1 January 2023
-- Definition of Accounting Estimates (Amendments to IAS 8) - 1 January 2023
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12) - 1 January 2023
-- Amendments to IAS 1 - Classification of Liabilities as
Current or Non-current and Non-current Liabilities with Covenants -
1 January 2024
-- Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) - 1 January 2024
The adoption of the above standard and interpretations is not
expected to lead to any material changes to the Group's accounting
policies or have any other material impact on the financial
position or performance of the Group.
d. Basis of consolidation:
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) as detailed in Note 1 above. Control is achieved
when the Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect
those returns through its power over the investee. Specifically,
the Group controls an investee if and only if the Group has:
-- Power over the investee
-- Exposure, or rights, to variable returns from its involvement with the investee, and
-- The ability to use its power over the investee to affect the
amount of the investor's returns
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group. All intragroup
transactions, balances, income and expenses
NOTE 2: - Basis of preparation and presentation of financial information (Cont.)
are eliminated in full on consolidation.
e. 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 up to 30 June 2024 'the
Forecast Period'. Cash forecasts are regularly produced based on,
inter alia, the Group's latest life of field production, budgeted
expenditure forecasts, price estimates based on signed GSPAs and
oil price forward curves., In addition, on a regular basis, the
Group performs sensitivity tests of its liquidity position to
evaluate adverse impacts that may result from changes to the macro
economic environment and downside scenarios to budgeted production
forecasts. The Group does this to identify risks to liquidity to
formulate appropriate and timely mitigation strategies in order to
manage the risk of funds shortfalls and to ensure the Group's
ability to continue as a going concern.
In March 2021 the Group raised $2.5billion through the issuance
of senior secured notes mainly to refinance its $1.45bn Project
Finance Facility and to fund capital and exploration expenditure,
including Karish and Karish North. The Senior Secured Notes do not
have any maintenance covenants, the first principle repayment is
due on March 2024. The Notes carry a blended fixed rate of 5.2%,
with no exposure to floating rates.
The Energean Power FPSO arrived on location in Israel on 5 June
2022 and first gas from the Karish project was achieved on 26
October 2022.
After careful consideration, the Directors are satisfied that
the Group has sufficient financial resources to continue in
operation for the foreseeable future, for the Forecast Period to 30
June 2024. As such, the Directors continue to adopt the going
concern basis in preparing the consolidated financial
statements.
NOTE 3: - Significant accounting policies
Accounting Policies:
The principal accounting policies and measurement bases used in
the preparation of the consolidated financial statements are set
out below. These policies have been consistently applied to all
periods presented in the consolidated financial statements unless
otherwise stated.
a) Functional and presentation currency and foreign currency:
1. Functional and presentation currency:
Items included in the financial statements of the Group are
measured using the currency of the primary economic environment in
which the Group operates ("the functional currency").
For each entity, the Group determines the functional currency
and items included in the financial statements of each entity are
measured using that functional currency.
The functional currency of the Company is U.S. Dollars (US$).
The U.S. Dollar is the currency that influences future sales
prices, revenue estimates and also highly affect its
operations.
The presentation currency of the consolidated financial
statements is US dollar.
2. Transactions and balances:
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
monetary assets and liabilities denominated in foreign currencies
are recognised in the profit or loss. Such monetary assets and
liabilities are translated the functional currency exchange rates
at the reporting date. Non-monetary items that are measured in
terms of historical cost denominated in a foreign currency are
translated at the exchange rates prevailing at the date of the
transaction and are not subsequently remeasured.
b) Intangible assets - Exploration and evaluation expenditures:
The Group adopts the successful efforts method of accounting for
exploration and evaluation costs. Pre-licence costs are expensed in
the period in which they are incurred. All licence acquisition,
exploration and evaluation costs and
NOTE 3: - Significant accounting policies (Cont.)
directly attributable administration costs are initially
capitalised as intangible assets by field or exploration area, as
appropriate. All such capitalised costs are subject to technical,
commercial and management review, as well as review for indicators
of impairment at least once a year. This is to confirm the
continued intent to develop or otherwise extract value from the
discovery. When this is no longer the case, the costs are written
off through the statement of comprehensive income (loss). When
proved reserves of oil and gas are identified and development is
sanctioned by management, the relevant capitalised expenditure is
first assessed for impairment and (if required) any impairment loss
is recognised, then the remaining balance is transferred to oil and
gas properties.
c) Commercial reserves:
Commercial reserves are proven and probable oil and gas
reserves, which are defined as the estimated quantities of crude
oil, natural gas and natural gas liquids which geological,
geophysical and engineering data demonstrate with a specified
degree of certainty to be recoverable in future years from known
reservoirs and which are considered commercially producible. There
should be a 50 per cent statistical probability that the actual
quantity of recoverable reserves will be more than the amount
estimated as proven and probable reserves and a 50 per cent
statistical probability that it will be less.
d) Oil and gas properties - assets in development:
Expenditure is transferred from 'Exploration and evaluation
assets' to 'Assets in development' which is a subcategory of 'Oil
and gas properties' once the work completed to date supports the
future development of the asset and such development receives
appropriate approvals. After transfer of the exploration and
evaluation assets, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities such as
platforms, pipelines and the drilling of development wells,
including unsuccessful development or delineation wells, is
capitalised within 'Assets in development'.
Proceeds from any oil and gas produced while bringing an item of
property, plant and equipment to the location and condition
necessary for it to be capable of operating in the manner intended
by management (such as samples produced when testing whether the
asset is functioning properly) has been recognised in profit or
loss in accordance with IFRS 15 Revenue Recognition. The Group
measures the cost of those items applying the measurement
requirements of IAS 2 Inventories. When a development project moves
into the production stage, all assets included in 'Assets in
development' are then transferred to 'Producing assets' which is
also a sub-category of 'Oil and gas properties. The capitalisation
of certain construction/development costs ceases, and costs are
either regarded as part of the cost of inventory or expensed,
except for costs which qualify for capitalisation relating to 'Oil
and gas properties' asset additions, improvements or new
developments.
e) Depletion and amortisation:
All expenditure carried within each field will be amortised from
the commencement of production on a unit of production basis, which
is the ratio of oil and gas production in the period to the
estimated quantities of commercial reserves at the end of the
period plus the production in the period, generally on a
field-by-field basis or by a group of fields which are reliant on
common infrastructure.
f) Impairments of oil & gas properties:
The Group assesses assets or groups of assets, called
cash-generating units (CGUs), for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset or CGU may not be recoverable; for example, changes in the
Group's assumptions about commodity prices, low field utilisation,
significant downward revisions of estimated reserves or increases
in estimated future development expenditure or decommissioning
costs. If any such indication of impairment exists, the Group makes
an estimate of the asset's or CGU's recoverable amount.
Where there is evidence of economic interdependency between
fields, such as common infrastructure, the fields are grouped as a
single CGU for impairment purposes. A CGU's recoverable amount is
the higher of its fair value less costs of disposal and its value
in use. Where the carrying amount of a CGU exceeds its recoverable
amount, the CGU is considered impaired and is written down to its
recoverable amount.
NOTE 3: - Significant accounting policies (Cont.)
Fair value less costs of disposal is the price that would be
received to sell the asset in an orderly transaction between market
participants and does not reflect the effects of factors that may
be specific to the Group and not applicable to entities in
general.
For discount the future cash flows the Group calculates
CGU-specific discount rates. The discount rates are based on an
assessment of a relevant peer group's pre-tax Weighted Average Cost
of Capital (WACC). The Group then adds any exploration risk premium
which is implicit within a peer group's WACC and subsequently
applies additional country risk premium for CGUs. Where conditions
giving rise to impairment subsequently reverse, the effect of the
impairment charge is also reversed as a credit to the income
statement, net of any amortisation that would have been charged
since the impairment.
The reversal is limited such that the carrying amount of the
asset exceeds neither its recoverable amount, nor the carrying
amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years.
g) Other property, plant and equipment:
Other property, plant and equipment comprise of furniture,
fixtures and equipment.
Initial recognition:
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation and borrowing costs. The purchase price or
construction cost is the aggregate amount paid and the fair value
of any other consideration given to acquire the asset.
Depreciation:
1. Depreciation of other property, plant and equipment is
calculated on the straight--line method so as to write-off the cost
amount of each asset to its residual value, over its estimated
useful life. The useful life of each class is estimated as
follows:
Years
Property leases and leasehold improvements 3 - 10
Furniture, fixtures and equipment 5 - 7
2. Depreciation of the assets in the course of construction
commences when the assets are ready for their intended use, on the
same basis as other assets of the same class.
3. An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (Calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the statement of profit or loss
when the asset is derecognised.
4. The assets' residual values and useful lives are reviewed,
and adjusted if appropriate, at each reporting date.
Repairs, maintenance, and renovations:
Expenditure for routine repairs and maintenance of property,
plant and equipment is charged to the profit or loss in the year in
which it is incurred. The cost of major improvements and
renovations and other subsequent expenditure are included in the
carrying amount of the asset when the recognition criteria of IAS
16 'Property, Plant and Equipment' are met. Major improvements and
renovations capitalised are depreciated over the remaining useful
life of the related asset.
h) Other intangible assets:
Computer software:
Costs that are directly associated with identifiable and unique
computer software products controlled by the Group and that it is
probable that these products will generate economic benefits
exceeding costs beyond one year are recognised
NOTE 3: - Significant accounting policies (Cont.)
as intangible assets. Subsequently computer software is carried
at cost less any accumulated amortisation and any accumulated
impairment losses.
Costs associated with maintenance of computer software programs
are recognised as an expense when incurred.
Computer software costs are amortised using the straight--line
method over their useful live, of between three and five years,
which commences when the computer software is available for
use.
i) Impairment of non-financial assets:
At each reporting date, the Group reviews the carrying amounts
of its depreciable property, plant and equipment and intangible
assets to determine whether there is any indication that those
assets have suffered an impairment loss. Impairment is assessed at
the level of cash-generating units (CGUs) which, in accordance with
IAS 36 'Impairment of Assets', are identified as the smallest
identifiable group of assets that generates cash inflows, which are
largely independent of the cash inflows from other assets. This is
usually at the individual royalty, stream, oil and gas or working
interest level for each property from which cash inflows are
generated.
An impairment loss is recognised for the amount by which the
asset's carrying value exceeds its recoverable amount, which is the
higher of fair value less costs of disposal (FVLCD) and
value-in-use (VIU). The future cash flow expected is derived using
estimates of proven and probable reserves, a portion of resources
that is expected to be converted into reserves and information
regarding the mineral, stream and oil & gas properties,
respectively, that could affect the future recoverability of the
Group's interests. Discount
factors are determined individually for each asset and reflect
their respective risk profiles.
Assets are subsequently reassessed for indications that an
impairment loss previously recognised may no longer exist. An
impairment charge is reversed if the conditions that gave rise to
the recognition of an impairment loss are subsequently reversed and
the asset's recoverable amount exceeds its carrying amount.
Impairment losses can be reversed only to the extent that the
recoverable amount does not exceed the carrying value that would
have been determined had no impairment been recognised
previously.
Exploration and evaluation assets are tested for impairment when
there is an indication that a particular exploration and evaluation
project may be impaired. Examples of indicators of impairment
include a significant price decline over an extended period, the
decision to delay or no longer pursue the exploration and
evaluation project, or an expiration of rights to explore an area.
In addition, exploration and evaluation assets are assessed for
impairment upon their reclassification to producing assets (oil and
gas interest in property, plant and equipment).
In assessing the impairment of exploration and evaluation
assets, the carrying value of the asset would be compared to the
estimated recoverable amount and any impairment loss is recognised
immediately in profit or loss.
j) Leases:
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at the date of
inception. The arrangement is assessed to determine whether
fulfilment is dependent on the use of a specific asset (or assets)
and the arrangement conveys a right to use the asset (or assets),
even if that asset is (or those assets are) not explicitly
specified in an arrangement. The Group is not a lessor in any
transactions, it is only a lessee.
The Group applies a single recognition and measurement approach
for all leases, except for short-term leases and leases of
low-value assets. The Group recognises lease liabilities to make
lease payments and right-of-use assets representing the right to
use the underlying assets.
k) Right-of-use assets:
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses,
NOTE 3: - Significant accounting policies (Cont.)
and adjusted for any remeasurement of lease liabilities. The
cost of right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date less any lease
incentives received.
Right-of-use assets are depreciated on a straight-line basis
over the shorter of the lease term and the estimated useful lives
of the assets, as follows:
- Property leases 2 to 5 years
- Motor vehicles and other equipment 1 to 3 years
- Fiber Optic 14 years
If ownership of the leased asset transfers to the Group at the
end of the lease term or the cost reflects the exercise of a
purchase option, depreciation is calculated using the estimated
useful life of the asset.
The right-of-use assets are also subject to impairment.
Lease liabilities:
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating the lease, if
the lease term reflects the Group exercising the option to
terminate.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease
payments made.
In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease term,
a change in the lease payments (e.g., changes to future payments
resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an option to
purchase the underlying asset.
Short-term leases and leases of low-value assets:
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered to be low value.
Lease payments on short-term leases and leases of low value assets
are recognised as expense on a straight-line basis over the lease
term.
Other leases outside the scope of IFRS 16:
Leases to explore for or use minerals, oil, natural gas and
similar non-regenerative resources are outside the scope of IFRS 16
and are recognised as exploration and
evaluation costs or as oil and gas assets, as appropriate.
Please refer to notes c and e above.
l) Financial instruments - initial recognition and subsequent measurement:
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
1. Financial assets:
Initial recognition and measurement:
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or
loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
NOTE 3: - Significant accounting policies (Cont.)
characteristics and the Group's business model for managing
them. With the exception of trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient, the Group initially measures a financial
asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs. Trade
receivables that do not contain a significant financing component
or for which the Group has applied the practical expedient are
measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
(SPPI)' on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Subsequent measurement:
For purposes of subsequent measurement, financial assets are
classified in four categories:
- Financial assets at amortised cost (debt instruments);
- Financial assets at fair value through profit or loss - The
Group does not hold such financial assets as of December 31,
2022
Financial assets at amortised cost:
The Group measures financial assets at amortised cost if both of
the following conditions are met:
- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment under the expected credit loss model. Gains and losses
are recognised in profit or loss when the asset is derecognised,
modified or impaired.
The Group's financial assets at amortised cost includes trade
receivables.
Derecognition:
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) when the rights to receive cash flows from
the asset have expired.
Impairment of financial assets:
The Group recognises an allowance for expected credit losses
(ECLs) for all debt
instruments not held at fair value through profit or loss. ECLs
are based on the difference between the contractual cash flows due
in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at an
approximation of the original effective interest rate. The
expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to
the contractual terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for which
there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a
simplified approach in calculating ECLs. Therefore, the Group does
not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date.
NOTE 3: - Significant accounting policies (Cont.)
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in
default when internal or external information indicates that the
Group is unlikely to receive the outstanding contractual amounts in
full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
2. Financial liabilities:
Initial recognition and measurement:
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, loans, , derivative financial instruments and
borrowings.
Subsequent measurement:
Loans and borrowings:
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised, modified and through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on
acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bearing loans and
borrowings.
Derecognition:
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the statement of
profit or loss.
3. Offsetting of financial instruments:
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
m) Derivative financial instruments and hedge accounting:
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as
interest rate swaps to hedge its interest rate risks. Such
derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into
and are subsequently remeasured at fair value. Derivatives are
carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges which applicable to
the Group are classified as Cash flow hedges when hedging the
exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognised asset or
liability or a highly probable forecast transaction or the foreign
currency risk in an unrecognised firm commitment.
NOTE 3: - Significant accounting policies (Cont.)
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it wishes
to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge.
A hedging relationship qualifies for hedge accounting if it
meets all of the following effectiveness requirements:
-- There is 'an economic relationship' between the hedged item and the hedging instrument.
-- The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
-- The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.
Hedges that meet all the qualifying criteria for hedge
accounting are accounted for, as described below:
Cash flow hedges
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve,
while any ineffective portion is recognised immediately in the
statement of profit or loss. The cash flow hedge reserve is
adjusted to the lower of the cumulative gain or loss on the hedging
instrument and the cumulative change in fair value of the hedged
item attributable to the hedged risk.
If cash flow hedge accounting is discontinued, the amount that
has been accumulated in OCI must remain in accumulated OCI if the
hedged future cash flows are still expected to occur. Otherwise,
the amount will be immediately reclassified to profit or loss as a
reclassification adjustment. After discontinuation, once the hedged
cash flow occurs, any amount remaining in accumulated OCI must be
accounted for depending on the nature of the underlying
transaction.
n) Equity instruments:
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Ordinary shares
Ordinary shares are classified as equity and measured at their
nominal value. Any premiums received on issue of share capital
above its nominal value, are recognised as share premium within
equity. Associated issue costs are deducted from share premium.
Other components of equity include the following:
Retained losses includes all current and prior period retained
losses.
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve.
o) Share-based payments:
Employees (including senior executives) of the Group receive
remuneration in the form of share-based payments, whereby employees
render services as consideration for equity instruments issued and
charge upon vesting by the Ultimate Parent Company (Energean
plc).
Equity-settled transactions:
The fair value of the equity settled awards has been determined
at the date of grant of the award allowing for the effect of any
market-based performance conditions.
That cost is recognised in employee benefits expense, together
with a corresponding increase in trade payables since the awards
upon vesting is being charged by the Ultimate Parent Company, over
the period in which the service and, where applicable, the
performance conditions are fulfilled (the vesting period). The
cumulative expense recognised for equity-settled transactions at
each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Ultimate Parent
Company's (Energean plc) best estimate of the number of equity
instruments that will ultimately vest. The expense or credit in the
statement of profit or loss for a period represents the movement in
cumulative expense recognised as at the beginning and end of that
period.
NOTE 3: - Significant accounting policies (Cont.)
Service and non-market performance conditions are not taken into
account when determining the grant date fair value of awards, but
the likelihood of the conditions being met is assessed as part of
the Ultimate Parent Company's best estimate of the number of equity
instruments that will ultimately vest. Market performance
conditions are reflected within the grant date fair value. Any
other conditions attached to an award, but without an associated
service requirement, are considered to be non-vesting conditions.
Non-vesting conditions are reflected in the fair value of an award
and lead to an immediate expensing of an award unless there are
also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest
because non-market performance and/or service conditions have not
been met. Where awards include a market or non-vesting condition,
the transactions are treated as vested irrespective of whether the
market or non-vesting condition is satisfied, provided that all
other performance and/or service conditions are satisfied.
p) Fair value measurement:
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either: in the
principal market for the asset or liability or in the absence of a
principal market, in the most advantageous market for the asset or
liability.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or
by selling it to another market participant that would use the
asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities, for which fair value is measured or
disclosed in the financial statements, are categorised within the
fair value hierarchy, described as follows, based on the
lowest-level input that is significant to the fair value
measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
- Level 2 - Valuation techniques for which the lowest-level
input that is significant to the fair value measurement is directly
or indirectly observable.
- Level 3 - Valuation techniques for which the lowest-level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
reassessing categorisation (based on the lowest-level input that is
significant to the fair value measurement as a whole) at the end of
each reporting period.
q) Cash and cash equivalents and restricted cash:
Cash and cash equivalents comprise of cash in hand, demand
deposits and also deposits, with a maturity of three months or
less, that are subject to an insignificant risk of changes in their
fair value.
The cash reserves retained as a bank security pledge in respect
of bank guarantees are defined as restricted cash and held in
designated bank deposits accounts to be used only for the purposes
of the capital commitments.
Release of cash from the accounts can only be made with the
approval of the lender when specified expenditure milestones are
met. The current and non-current classification of the bank
security pledges is determined by the forecast expenditure of the
capital commitments.
Restricted cash comprises balances retained in respect of the
Group's Senior Secured Notes and cash collateral provided under a
letter of credit facility for issuing bank guarantees for Group's
activities in Israel (see Note 16C). The nature of
NOTE 3: - Significant accounting policies (Cont.)
the restrictions on these balances mean that they do not qualify
for classification as cash equivalents.
The cash reserves retained as a bank security pledge in respect
of bank guarantees are defined as restricted cash and held in
designated bank deposits accounts to be used only for the purposes
of the capital commitments.
Release of cash from the accounts can only be made with the
approval of the lender when specified expenditure milestones are
met. The current and non-current classification of the bank
security pledges is determined by the forecast expenditure of the
capital commitments.
r) Inventories:
Inventories comprise hydrocarbon liquids and natural gas,
consumables and other spare parts. Inventories are stated at the
lower of cost and net realisable value. Cost is determined using
the monthly weighted average cost method. The cost of finished
goods and work in progress comprises raw materials, direct labour,
other direct costs and related production overheads. It does not
include borrowing costs. Net realisable value is the estimated
selling price in the ordinary course of business, less estimated
costs of completion and estimated costs necessary to make the sale.
Spare parts consumed within a year are carried as inventory and
recognised in profit or loss when consumed.
The Group assesses the net realisable value of the inventories
at the end of each year and recognises in the consolidated
statement of profit or loss the appropriate valuation adjustment if
the inventories are overstated. When the circumstances that
previously caused impairment no longer exist or when there is clear
evidence of an increase in the inventories' net realisable value
due to a change in the economic circumstances, the amount thereof
is reversed.
s) Provisions:
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and a reliable estimate of the amount can be made.
Where the Group expects a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually
certain. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risk and
uncertainties surrounding the obligation. The expense relating to a
provision is presented in profit or loss net of any reimbursement.
If the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects, when
appropriate, the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Decommissioning provision:
Provision for decommissioning is recognised in full when the
related facilities are installed. A corresponding amount equivalent
to the provision is also recognised as part of the cost of the
related property, plant and equipment.
The amount recognised is the estimated cost of decommissioning,
discounted to its net present value at a risk-free discount rate,
and is reassessed each year in accordance with relevant conditions
and requirements. Changes in the estimated timing of
decommissioning or decommissioning cost estimates are dealt with
prospectively by recording an adjustment to the provision, and a
corresponding adjustment to property, plant and equipment. The
unwinding of the discount on the decommissioning provision is
included as a finance cost
t) Revenue
Revenue from contracts with customers is recognised when control
of the gas/ hydrocarbon liquids are transferred to the customer at
an amount that reflects the consideration to which the Group
expects to be entitled in exchange for those goods or services. The
Group has concluded that it is the principal in its revenue
arrangements because it typically controls the goods or services
before transferring them to the customer.
In some jurisdictions in which the Group operates royalties are
levied by the government. The government can request that these
royalty payments be made in cash or in kind. In the current year
and in prior years the government has requested cash payments be
made and therefore the Group has not made any royalty payments in
kind. As such the Group obtains control of all the underlying
reserves once extracted, sells the production to its customers and
then
NOTE 3: - Significant accounting policies (Cont.)
remits the proceeds to the royalty holder and is therefore
considered to be acting as the Principal.
Sale of natural gas and hydrocarbon liquids
Sales revenue represents the sales value, net of VAT, of actual
sales volumes to customers in the year.
The Group's accounting policy under IFRS 15 is that revenue is
recognised when the Group satisfies a performance obligation by
transferring hydrocarbon liquids or gas to its customer. The title
to hydrocarbon liquids and gas typically transfers to a customer at
the same time as the customer takes physical possession of the
hydrocarbon liquids or gas. Typically, at this point in time, the
performance obligations of the Group are fully satisfied. The
revenue is recorded when the hydrocarbon liquids or gas has been
physically delivered to a vessel or pipeline.
u) Retirement benefit costs regarding the employees by the directly owned Branch in Israel:
The Israeli Branch has defined contribution plans pursuant to
section 14 to the Severance Pay in Israel Law under which the
Israeli Branch pays fixed contributions and will have no legal or
constructive obligation to pay further contributions if the fund
does not hold sufficient amounts to pay all employee benefits
relating to employee service in the current and prior periods.
Contributions to the defined contribution plan in respect of
severance or retirement pay are recognised as an expense when
contributed concurrently with performance of the employee's
services.
v) Borrowing costs:
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
Excluded from the above capitalisation policy are any qualifying
assets that are inventories that are produced, in large quantities
on a repetitive basis.
Borrowing costs include interest expense on loans, and bank
overdrafts on an effective rate basis as well as other bank charges
and are included in the statement of profit or loss.
w) Tax:
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the
financial statements because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation
of taxable profit, based on tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
Current and deferred tax assets and corresponding liabilities
are offset when there is a legally enforceable right to set off
current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and
the Group intends to settle its tax assets and liabilities on a net
basis.
The Group recognises tax provision liabilities for anticipated
tax issues based on if it is probable, defined as more likely than
not, that additional taxes will be due. This assessment is based on
all available evidence and, where appropriate, in the light of
external advice. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such
differences will impact the income tax liability in the period in
which such determination is made.
NOTE 3: - Significant accounting policies (Cont.)
x) Levies:
Levies imposed on the Company by government entities through
legislation, are accounted for pursuant to IFRIC 21 according to
which the liability for the levy is recognized only when the
activity that triggers payment occurs.
NOTE 4: - Critical accounting estimates and judgments
The preparation of these consolidated financial statements in
conformity with IFRS requires the use of accounting estimates and
assumptions, and also requires management to exercise its
judgement, in the process of applying the Group's accounting
policies.
Estimates, assumptions and judgement applied are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. Although these estimates,
assumptions and judgement are based on management's best knowledge
of current events and actions, actual results may ultimately
differ.
1. Critical judgements in applying the Group's accounting policies:
The following are significant management judgements in applying
the accounting policies of the Group that have the most significant
effect on the financial statements:
Carrying value of intangible exploration and evaluation
assets:
Amounts carried under intangible exploration and evaluation
assets represent active exploration projects. Capitalised costs
will be written off to the income statement as exploration costs
unless commercial reserves are established, or the determination
process is not completed and there are no indications of impairment
in accordance with the Group's accounting policy. The process of
determining whether there is an indicator for impairment or
calculating the impairment requires critical judgement. The key
areas in which management has applied judgement and estimation are
as follows: the Group's intention to proceed with a future work
programme; the likelihood of licence renewal or extension; the
assessment of whether sufficient data exists to indicate that,
although a development in the specific area is likely to proceed,
the carrying amount of the exploration and evaluation asset is
unlikely to be recovered in full from successful development or by
sale; and the success of a well result or geological or geophysical
survey.
2. Estimation uncertainty:
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities, are discussed below:
Carrying value of property, plant and equipment:
The Group assesses impairment at each reporting date by
evaluating conditions specific to the Group that may lead to
impairment of assets. Where an indicator of impairment exists, the
recoverable amount (which is the higher of fair value less costs to
sell and value in use) of the cash-generating unit to which the
assets belong is then estimated based on the present value of
future discounted cash flows.
For oil and gas assets, the expected future cash flow estimation
is based on a number of factors, variables and assumptions, the
most important of which are estimates of reserves, future
production profiles, oil prices and costs. In most cases, the
present value of future cash flows is most sensitive to estimates
of future oil price, estimates of reserves, estimates of
development costs and discount rates.
NOTE 4: - Critical accounting estimates and judgments (Cont.)
A change in the assumptions could materially change the
recoverable amount. In the event that future circumstances vary
from these assumptions, the recoverable amount of the Group's
development and production assets could change materially and
result in impairment losses or the reversal of previous impairment
losses.
Hydrocarbon reserve and resource estimates:
The Company's oil and gas development and production properties
are depreciated on a unit of production basis at a rate calculated
by reference to developed and undeveloped proved and probable
commercial reserves (2P developed and undeveloped) which are
estimated to be recoverable with existing and future developed
facilities using current operating methods, determined in
accordance with the Petroleum Resources Management System published
by the Society of Petroleum Engineers, the World Petroleum Congress
and the American Association of Petroleum Geologists.
Commercial reserves are determined using estimates of oil and
gas in place, recovery factors and future oil prices. The level of
estimated commercial reserves is also a key determinant in
assessing whether the carrying value of any of the Company's oil
and gas properties has been impaired. As the economic assumptions
used may change and as additional geological information is
produced during the operation of a field, estimates of recoverable
reserves may change. Such changes may impact the Company's reported
financial position and results which include:
-- Depreciation and amortisation charges in profit or loss may
change where such charges are determined using the units of
production method, or where the useful life of the related assets
change.
-- Impairment charges in profit or loss
-- Provisions for decommissioning may change - where changes to
the reserve estimates affect expectations about when such
activities will occur and the associated cost of these
activities.
-- The recognition and carrying value of deferred tax assets may
change due to changes in the judgements regarding the existence of
such assets and in estimates of the likely recovery of such
assets
Decommissioning costs:
There is uncertainty around the cost of decommissioning as cost
estimates can vary in response to many factors, including from
changes to market rates for goods and services, to the relevant
legal requirements, the emergence of new technology or experience
at other assets. The expected timing, work scope, amount of
expenditure, discount and inflation rates may also change.
Therefore, significant estimates and assumptions are made in
determining the provision for decommissioning.
The estimated decommissioning costs are reviewed annually by
management and the results of this review are then assessed
alongside estimates from operators. Provision for environmental
cleanup and remediation costs is based on current legal and
contractual requirements, technology and price levels.
Deferred taxes:
The Group has recognised deferred tax assets in respect of
losses and other temporary differences to the extent that it is
probable that there will be future taxable profits against which
the losses and other temporary differences can be utilised. The
Group has considered their carrying value at each balance sheet
date and concluded that based on management's estimates, sufficient
taxable profits will be generated in future years to recover such
recognised deferred tax assets.
These estimates are based on forecast performance and where tax
losses are subject to expiration, the estimates take into account
the expected reversal patterns of taxable temporary differences
compared to the future reversal of deductible temporary
differences.
For additional details, see also Note 12.
The management regard the deferred tax asset in relation to tax
losses and other temporary differences as recoverable, despite the
loss-making situation that currently exists, based on its best
estimate of future sources of taxable income.
NOTE 5 : - Revenues
2022 2021
$'000 $'000
-------------------------------- --- -------- --------
Revenue from gas sales (1) 45,153 -
Compensation to customers (2) (18,031) -
------------------------------------- -------- --------
Total revenue 27,122 -
(1 ) Sales gas between 26 October 2022 and 31 December 2022
totaled approximately 0.28 bcm.
(2) During 2021 and in accordance with the GSPAs signed with a
group of gas buyers, the Company paid compensation to these
counterparties due to the fact the gas supply date is taking place
beyond a certain date as defined in the GSPAs (being 30 June 2021).
The compensation is accounted for as variable consideration under
IFRS 15 Revenue Recognition, as a deduction from revenue once
production commences and gas is delivered to the gas buyers.
NOTE 6: - Operating loss before taxation
2022 2021
$'000 $'000
---------------------------------------------- ---------- -------- --------- ---------
(a) Cost of sales
Staff costs (Note 7) 1,174 -
Energy cost 1,030 -
Royalty payable (Note 21 (e)) 8,128 -
Depreciation and amortisation (Note 10) 10,976 -
Other operating costs 12,440 -
Stock movement (Note 14) (2,731) -
---------------------------------------------------------- -------- --------- ---------------
Total cost of sales 31,017 -
(b) General & administration expenses (c) (d)
Staff costs (Note 7) 2,121 1,278
Share-based payment charge 214 166
Depreciation and amortisation (Note 10,
11) 459 93
Auditor fees 254 255
Other general & administration expenses 9,204 3,408
---------------------------------------------------------- -------- --------- ---------------
Total administrative expenses 12,252 5,200
(e) Exploration and evaluation expenses
Exploration costs written off (1) 1,518 -
Other exploration and evaluation expenses 301 50
---------------------------------------------------------- -------- --------- ---------------
Total exploration and evaluation expenses 1,819 50
(f) Other expenses
Reversal of prior period provision - 5
Loss from disposal of property, plant and
equipment (2) 1,102 23
Write down of assets - 433
---------------------------------------------------------- -------- --------- ---------------
Total other expenses 1,102 461
(g) Other income (h) (i)
Other income 54 19
---------------------------------------------------------- -------- --------- ---------------
Total other income 54 19
NOTE 6: - Operating loss before taxation (Cont.)
(1) Zone D: On 27 July 2022, the Company sent a formal notice to
the Ministry of Energy notifying relinquishment of Zone D and
discontinuation of related work. As such, the licences subsequently
expired on 27 October 2022. Capitalised costs associated with Zone
D were written off during 2022 (Note 11).
(2) During 2022 the Company recorded a loss on disposal of
surplus equipment approximately US$0.83 million. In addition, the
company recorded a loss from selling materials and an impairment of
materials of US$0.27 million.
NOTE 7: - Staff costs
The average monthly number of employees employed by the Group
was:
2022 2021
$'000 $'000
----------------------------------------------- -------- -----------
Salaries 7,953 3,814
Other staff costs 1,397 165
Social insurance costs and other funds 575 943
Share-based payments 410 369
Payroll Cost capitalised in oil & gas
assets (6,826) (3,847)
----------------------------------------- ----------------- ---------------
3,509 1,444
Total payroll cost in cost of sales 1,174 -
Total payroll cost in administration
expenses 2,335 1,444
----------------------------------------- ----------------- ---------------
Total payroll cost 3,509 1,444
Number of employees
Administration 27 18
Technical 43 17
---------------------------------------- ------------------ -------------
Total 70 35
NOTE 8: - Net finance income/(expenses)
2022 2021
$'000 $'000
-------------------------------------------------------- --- ---------- ---------
Interest on bank borrowings (1) - 76,890
Interest on senior secured notes (1) 136,412 101,856
Interest expense on long terms payables (1) 14,660 4,092
Interest on shareholders loan (2) - 9
Less amounts included in the cost of qualifying
assets (3) (123,634) (169,813)
------------------------------------------------------------- ---------- ---------
27,438 13,034
Finance and arrangement fees 4,713 16,675
Other finance costs and bank charges 1,118 64
Loss on interest rate hedges (1) - 7,002
Unwinding of discount on provision for decommissioning
(4) 1,230 675
Unwinding of discount on right of use asset
(1) 1,035 152
Less amounts included in the cost of qualifying
assets (3) (5,723) (19,076)
------------------------------------------------------------- ---------- ---------
2,373 5,492
------------------------------------------------------------ ---------- ---------
Total finance costs 29,811 18,526
------------------------------------------------------------- ---------- ---------
Interest income from time deposits 3,165 1,447
Interest income from loans to related parties
(5) 3,214 6,402
------------------------------------------------------------- ---------- ---------
Total finance income 6,379 7,849
Net foreign exchange gain/(losses) (3,087) 520
------------------------------------------------------------- ---------- ---------
Net finance income/(expense) (26,519) (10,157)
------------------------------------------------------------- ---------- ---------
(1) See also Note 16.
(2) See also Note 22(E)(3).
(3) See also Note 10(A).
(4) See also Note 17.
(5) See also Note 22(E)(4).
NOTE 9: - Taxation
1. Corporate Tax rates applicable to the Company:
Israel:
The Israeli corporate tax rate is 23% in 2022 and 2021.
Cyprus:
For its activity in Cyprus, the Company is subject to
corporation tax on its taxable profits at the rate of 12.5%.
2. The Income and Natural Resources Taxation Law, 5771-2011 - Israel:
In April 2011, the Knesset passed the Income and Natural
Resources Tax Law, 5771-2011 ("the Law"). The implementation of the
law led to a change in the taxation rules applicable to the Group's
income, including among others, oil and gas profits levy according
to a mechanism determined in the law and cancellation of the
depletion allowance.
The main provisions of the law are as follows:
The imposition of an oil and gas profits levy at a rate to be
set as set out below. The rate of the levy will be calculated
according to a proposed R factor mechanism, according to the ratio
between the net accrued revenues from the project and the
cumulative investments as defined in the law. A minimum levy of 20%
will be levied at the stage where the R factor ratio reaches 1.5,
and when the ratio increases, the levy will increase gradually
until the maximum rate of 50% until the ratio reaches 2.3. In
addition, it was determined that the rate of the levy as stated
will be reduced starting in 2017 by multiplying 0.64 by the
difference between the corporate tax rate prescribed in section 126
of the Income Tax Ordinance for each tax year and the tax rate of
18%. In accordance with the corporate tax rate from 2018 onwards,
the maximum rate will be 46.8%.
In addition, additional provisions were prescribed regarding the
levy, inter alia, the levy will be recognised as an expense for the
purpose of calculating income tax; The limits of the levy shall not
include export facilities; The levy will be calculated and imposed
for each reservoir separately (Ring Fencing); Payment by the owner
of an oil right calculated as a percentage of the oil produced, the
recipient of the payment will be liable to pay a levy according to
the amount of the payment received, and this amount will be
subtracted from the amount of the levy owed by the holder of the
oil right.
The law also sets rules for the unification or separation or
consolidation of oil projects for the purposes of the law.
In accordance with the provisions of the Law, the Group is not
yet required to pay any payment in respect of the said levy, and
therefore no liability has been recognised in the financial
statements in respect of this payment.
NOTE 9: - Taxation (Cont.)
3. Taxation charge:
2022 2021
$'000 $'000
---------------- --- -------------------- --------
Tax - current
year (360) (310)
Deferred tax 11,311 5,327
--------------------- -------------------- --------
Total taxation
income 10,951 5,017
4. Reconciliation of the total tax charge:
The reconciliation between the tax expense, assuming that all
the income, expenses, gains and losses in profit or loss were taxed
at the statutory tax rate of Israel and the taxes on income
recorded in profit or loss is as follows:
2022 2021
$'000 $'000
------------------------------------------ -------- --------
Loss before tax (45,533) (15,849)
Tax credit at the applicable tax rates
of 23% (1) 10,473 3,645
Impact of different tax rates (2) 331 653
Permanent differences - non deductible
(3) (137) 624
Reassessment of recognised deferred tax
asset in the current period - 127
Permanent differences additional expenses
for Cyprus tax (4) 314 (24)
Other adjustments (19) (8)
---------------------------------------------- -------- --------
Taxation income 10,962 5,017
---------------------------------------------- -------- --------
Effective tax rate 24% 32%
---------------------------------------------- -------- --------
(1) For the reconciliation of the effective tax rate, the
statutory tax rate of the Israeli Branch of 23% has been used since
the deferred tax comes from the Israeli Branch operations.
(2) Energean Israel Limited (Cyprus) is subject to corporation
tax rate of 12.5%.
(3) Permanent differences consisted of non-deductible expenses
with the majority derived from the Israeli Branch and, inter alia,
related to refreshments, accommodation, donations and
travelling.
(4) The Cypriot Income Tax Law (ITL) provides for a notional
interest deduction (NID) from the taxable profits of entities
financing their operations through new equity. In view of this, the
Company proceeded with the relevant calculation regarding the new
equity used to finance asset.
NOTE 10: - Property, Plant and Equipment
a. Composition:
Furniture,
Oil and Leased fixtures
gas Assets assets and equipment Total
$'000 $'000 $'000 $'000
------------------------------ ----------- ------- -------------- ---------
Cost:
At 1 January 2021 1,812,758 604 635 1,813,997
Additions (1) 243,346 3,405 194 246,945
Disposals (23) - - (23)
Capitalised borrowing cost
(2) 188,889 - - 188,889
Capitalised depreciation 362 - - 362
Change in decommissioning
provision (3,549) - - (3,549)
------------------------------- ----------- ------- -------------- ---------
Total cost at 31 December
2021 2,241,783 4,009 829 2,246,621
Additions (1) 514,373 731 1,165 516,269
Disposals (900) - - (900)
Capitalised borrowing cost
(2) 129,357 - - 129,357
Capitalised depreciation 632 - - 632
Change in decommissioning
provision 47,544 - - 47,544
------------------------------- ----------- ------- -------------- ---------
Total cost at 31 December
2022 2,932,789 4,740 1,994 2,939,523
Depreciation:
At 1 January 2021 - 331 143 474
Charge for the year - - 85 85
Capitalised to petroleum and
gas assets - 362 - 362
Write down of the assets 433 - - 433
------------------------------- ----------- ------- -------------- ---------
Total Depreciation at 31
December 2021 433 693 228 1,354
Charge for the year (3) 10,976 134 297 11,407
Capitalised to petroleum and
gas assets - 632 - 632
Disposals (433) - - (433)
Write down of the assets 250 - - 250
------------------------------- ----------- ------- -------------- ---------
Total Depreciation at 31
December 2022 11,226 1,459 525 13,210
At 31 December 2021 2,241,350 3,316 601 2,245,267
------------------------------- ----------- ------- -------------- ---------
At 31 December 2022 2,921,563 3,281 1,469 2,926,313
------------------------------- ----------- ------- -------------- ---------
(1) The additions to oil & gas assets are primarily due to
development costs for the Karish field, incurred under the EPCIC
contract. Works relate primarily to the FPSO, subsea and onshore
construction.
(2) Capitalised borrowing costs relate primarily to the secured
senior notes.
(3) Production from the Karish project was achieved on 26
October 2022.
b. Depreciation expense for the year has been recognised as follows:
2022 2021
$'000 $'000
-------------------------------------- ------ ------
Cost of sales 10,976 -
Administration expenses 431 85
Capitalised depreciation in oil & gas
assets 632 362
-------------------------------------- ------ ------
Total 12,039 447
c. Cash flow statement reconciliations:
2022 2021
$'000 $'000
------------------------------------------------------ --- ----------- ---------
Additions to property, plant and equipment 692 ,902 432,624
Associated cash flows
Payment for additions to property,
plant and equipment (278,208) (291,760)
Non-cash movements/presented in other
cash flow lines
Capitalised borrowing costs (129,357) (188,889)
Right-of-use asset additions (731) (3,405)
Capitalised share-based payment charge (196) (203)
Capitalised depreciation (632) (362)
Change in decommissioning provision (47,544) 3,549
Movement in working capital (236,234) 48,446
d. Details of the Group's rights in petroleum and gas assets:
Valid date of the
Right Type of right right Group's share
------------- --------------- ------------------- --------------
Karish I/17 Lease 10 August 2044 100%
Tanin I/16 Lease 10 August 2044 100%
NOTE 11: - Intangible Assets
a. Composition:
Exploration
and evaluation Software
assets licences Total
$'000 $'000 $'000
---------------------------------- --------------- --------- -------
Cost:
At 1 January 2021 13,799 255 14,054
Additions (1) 6,342 - 6,342
----------------------------------- --------------- --------- -------
At 1 January 2022 20,141 255 20,396
Additions (1) 123,005 1,713 124,718
Write off of exploration and
evaluation costs (2) (1,277) - (1,277)
----------------------------------- --------------- --------- -------
At 31 December 2022 141,869 1,968 143,837
Amortisation:
At 1 January 2021 - 247 247
Charge for the year - 8 8
----------------------------------- --------------- --------- -------
Total Amortisation at 31 December
2021 - 255 255
Charge for the year - 28 28
----------------------------------- --------------- --------- -------
Total Amortisation at 31 December
2022 - 283 283
At 31 December 2021 20,141 - 20,141
----------------------------------- --------------- --------- -------
At 31 December 2022 141,869 1,685 143,554
----------------------------------- --------------- --------- -------
(1) Additions to exploration and evaluation assets are primarily
due to the drilling programme undertaken offshore Israel.
Block 12 offshore Israel -Gas Discovery:
During 2022 the Company's growth drilling programme discovered
gas resources in Block 12, offshore Israel. Successful exploration
wells were drilled into the Athena and Zeus prospects, resulting in
the award of 2P reserves by Energean's reserve auditor, D&M.
The Hera prospect shared sufficient geological and seismic
attributes to also be classified as 2P reserves. As a result, and
in accordance with the Company's Competent Person's Report ("CPR")
as of 31 December 2022, Block 12 is estimated to contain 2P
reserves of
NOTE 11: - Intangible Assets (Cont.)
31.3 bcm and 5.4 mmboe of hydrocarbon liquids. The Company
expects to take financial investment decision in 2023.
(2) Zone D: On 27 July 2022, the Company sent a formal notice to
the Ministry of Energy notifying the relinquishment of Zone D and
discontinuation of related work. As such, the licences subsequently
expired on 27 October 2022.
b. Cash flow statement reconciliations:
2022 2021
$'000 $'000
---------------------------------------------- -------- -------
Additions to intangible assets 123,441 6,342
Associated cash flows
Payment for additions to intangible assets 50,332 (5,152)
Non-cash movements/presented in other cash
flow lines
Write off of exploration and evaluation costs 1,277 -
Movement in working capital (74,386) (1,190)
c. Details on the Group's rights in the intangible assets:
Group's interest
Valid date of as at 31 December
Right Type of right the right 2022
---------- --------------- ----------------- -------------------
Block 12 Licence 14 January 2024 100%
Block 21 Licence 14 January 2024 100%
Block 23 Licence 14 January 2024 100%
Block 31 Licence 14 January 2024 100%
d. Additional information regarding the Exploration and Evaluation assets:
As of 31 December 2022, the Group held four licences to explore
for gas and oil in Block 12, Block 21, Block 23 and Block 31, which
are located in the economic waters of the State of Israel. The
licences are valid till 14 January 2024, although this may be
extended for a further four years; composed of two periods of two
years, subject to compliance with the provisions of the
licences.
NOTE 12: - Deferred taxes
The Group is subject to corporation tax on its taxable profits
in Israel at the rate of 23%. The Capital Gain Tax rates depends on
the purchase date and the nature of asset. The general capital tax
rate for a corporation is the standard corporate tax rate.
Tax losses can be utilised for an unlimited period, and tax
losses may not be carried back.
According to Income Tax (Deductions from Income of Oil Rights
Holders) Regulations, 5716-1956, the exploration and evaluation
expenses of oil and gas assets are deductible in the year in which
they are incurred.
The Group expects that there will be sufficient taxable profit
in the following years and that deferred tax assets, recognised in
the consolidated financial statements of the Group, will be
recovered.
NOTE 12: - DEFERRED TAXES (Cont.)
Below are the items for which deferred taxes were
recognised:
Right
of use
asset
Accrued
expenses
and other
Property, short --
plant term liabilities
and equipment Deferred and other
& intangible expenses long -- Derivative
assets IFRS 16 Tax losses for tax Staff leaving indemnities term liabilities liability Decommissioning provision Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------------------------------- --- ------------- -------- ----------- -------- ------------------------- ---------------- ----------- -------------------------- -------
At 1 January 2022 (12,632) (762) 4,750 11,031 94 923 - 8,171 11,575
Increase/(decrease)
for the year through:
Profit or loss (27,712) 8 51,665 (4,822) 73 270 - (8,171) 11,311
At 31 December 2022 (40,344) (754) 56,415 6,209 167 1,193 - - 22,886
------------------------------------------------- ------------- -------- ----------- -------- ------------------------- ---------------- ----------- -------------------------- -------
At 1 January 2021 (12,140) (62) 9,325 - 167 293 1,591 8,769 7,839
Increase/(decrease)
for the year through:
Profit or loss (492) (700) 1,436 5,020 31 630 - (598) 5,327
Reclassifications in
the current year - - (6,011) 6,011 - - - - -
Other comprehensive
income - - - - - - (1,591) - (1,591)
At 31 December 2021 (12,632) (762) 4,750 11,031 94 923 - 8,171 11,575
------------------------------------------------- ------------- -------- ----------- -------- ------------------------- ---------------- ----------- -------------------------- -------
2022 2021
$'000 $'000
------------------------- -------- --------
Deferred tax liabilities (41,099) (13,394)
Deferred tax assets 63,985 24,969
----------------------------- -------- --------
22,886 11,575
NOTE 13: - Trade and other receivables
2022 2021
$'000 $'000
----------------------------------------------- ------- -------
Current
Financial items
Trade receivables 37,491 -
Other receivables (1) 999 21,275
Refundable VAT 37,131 3
Accrued interest income 888 901
--------------------------------------------------- ------- -------
76,509 22,179
Non-financial items
Prepayments 159 430
Deferred expenses (3) 4,929 -
Prepaid expenses 1,014 160
--------------------------------------------------- ------- -------
6,102 590
Total current trade and other receivables 82,611 22,769
--------------------------------------------------- ------- -------
Non-current
Financial items
Accrued interest income from related parties
(2) - 6,402
Non-financial items
Deposits and prepayments 108 61
--------------------------------------------------- ------- -------
Total non-current trade and other receivables 108 6,463
--------------------------------------------------- ------- -------
(1) In 2021 this amount included a US$21.2 million receivable
from INGL resulting from relevant milestones being achieved, in
line with the agreement. See Note 18(4) for further details.
(2) See also Note 22(E)(4).
(3) Deferred expenses relate to compensation of US$22.9 million
that had been accrued in 2021 following delays to the supply of gas
from the Karish project. It is presented on the balance sheet as a
current asset as it will be treated as variable consideration under
IFRS 15, which will reduce revenue from gas sales once gas delivery
commences. Gas sales from the Karish project was achieved in 2022
and the majority of the deferred expenses balance was deducted from
revenues during 2022, see Note 5.
The table below summarises the maturity profile of the Group
receivables:
31 December Carrying Contractual 3 months
2022 ($'000) amounts cash flows or less 3-12 months
Trade
receivables 37,491 37,491 37,491 -
Refundable
VAT and
excise 37,131 37,131 19,113 18,018
Short term
other
receivables 1,887 1,887 999 888
------------------------ -------------------- ----------------------- -------------------- -----------------------
Total 76,509 76,509 57,603 18,906
3
months
31 December Carrying Contractual or 3-12 1-2
2021 ($'000) amounts cash flows less months years
------------------------ -------------------- ----------------------- ------------------ ------------------ -----------------
Short term
trade and
other
receivables 22,175 22,175 - 22,175 -
Refundable
VAT and
excise 3 3 - 3 -
Short term
other
receivables 901 901 - 901 -
Accrued
interest
income
from
related
parties 6,402 6,402 - - 6,402
------------------------ -------------------- ----------------------- ------------------ ------------------ -----------------
Total 29,481 29,481 - 23,079 6,402
NOTE 14: - Inventories
2022 2021
$'000 $'000
--------------------------- ------ ------
Hydrocarbon liquids 2,367 -
Natural gas 383 -
Raw materials and supplies 5,563 -
------------------------------- ------ ------
Total 8,313 -
NOTE 15: - Cash and cash equivalents
2022 2021
$'000 $'000
-------------------------- ------- --------
Cash at bank and in hand 14,825 45,827
Banks short-term deposits 10,000 304,000
------------------------------ ------- --------
Total 24,825 349,827
Bank deposits comprise short-term deposit accounts that are
readily convertible into known amounts of cash. The effective
interest rate on short--term bank deposits was 1.115% for the year
ended 31 December 2022 (year ended 31 December 2021: 0.383%).
NOTE 16: - Borrowings and secured notes
a. US$1.45 billion senior project facility:
On 2 March 2018, the Group entered into a senior secured project
finance for its Karish project amounting to US$1.275 billion and on
16 March 2020, the senior credit facility was increased to US$1,450
million (the "Project Finance Facility").
As of 29 April 2021, the Group had drawn US$1,268 million from
the Project Finance Facility and the amortised carrying value of
the loan was US$1,225 million (including short term accrued
interest at the amount of approx. US$2 million as part of trade and
other payables).
On 29 April 2021, the Company cancelled and repaid in full
repaid the Project Finance Facility and, as such, the ultimate
parent company guarantee ("PCG") granted by Energean plc for US$90
million and the standby letter of credit for US$125 million issued
in favor of the Project Finance Lenders, was cancelled in full.
b. Short term loan from ultimate parent company repayment - See Note 22(E)(3):
On 5 January 2021, the Company re-paid Energean plc the
short-term loan balance of US$16 million.
c. Issuance of US$2,500,000,000 senior secured notes:
On 24 March 2021 (the "Issue Date"), Energean Israel Finance Ltd
(a 100% subsidiary of the Company) issued US$2,500,000,000 of
senior secured notes. The proceeds were primarily used to prepay in
full the Project Finance Facility.
The Notes were issued in four equal tranches as follows:
31 December 2022 31 December 2021
Series Maturity Annual fixed
Interest Carrying value
rate Carrying value $'000 $'000
------------------ --------------- ------------- --------------------- -----------------
US$ 625 million 30 March 2024 4.500% 620,461 617,060
US$ 625 million 30 March 2026 4.875% 617,912 615,966
US$ 625 million 30 March 2028 5.375% 616,767 615,451
US$ 625 million 30 March 2031 5.875% 615,890 615,047
------------------ --------------- ------------- --------------------- -----------------
US$2,500 million 2,471,030 2,463,524
NOTE 16: - Borrowings and secured notes (Cont.)
The interest on each series of the Notes is paid semi-annually,
on 30 March and on 30 September of each year starting 30 September
2021.
The Notes are listed on the TACT Institutional of the Tel Aviv
Stock Exchange Ltd. (the "TASE").
With regards to the indenture document, signed on 24 March 2021
with HSBC BANK USA, N.A (the "Trustee"), no indenture default or
indenture event of default has occurred and is continuing.
Collateral:
The Company has provided/undertakes to provide the following
collateral in favor of the Trustee:
a. First rank fixed charges over the shares of Energean Israel Limited, Energean Israel
Finance Ltd and Energean Israel Transmission Ltd, the Karish
& Tanin Leases, the gas sales purchase agreements ("GSPAs"),
several bank accounts, operating permits, insurance policies, the
Company's exploration licences and the INGL Agreement.
b. Floating charge over all of the present and future assets of
Energean Israel Limited and Energean Israel Finance Ltd.
c. The Energean Power FPSO.
Restricted cash:
As of 31 December 2022, the Company had short-term restricted
cash of US$71.8 million (31 December 2021: US$196.7 million), $68.8
million for the debt payment fund which will be used for the March
2023 coupon payment of $64.4 million and US$3 million for bank
guarantees (31 December 2021: US$3 million).
Credit rating:
The senior secured notes have been assigned a Ba3 rating by
Moody's and a BB- rating by S&P Global.
NOTE 16: - Borrowings and secured notes (Cont.)
d. Reconciliation of liabilities arising from financing activities:
Borrowings
costs
including
amotisation
of Foreign Fair Reclassi-fication 31
1 January Cash Cash arrangement exchange value to short December
2021 inflows outflows Additions fee impact Other changes term 2021
------------ --------- --------- ----------- --------- ----------- -------- ----- ------- ----------------- ---------
2021 ($'000) 2,523,968 - (142,342) 731 144,412 100 - - - 2,526,869
------------ --------- --------- ----------- --------- ----------- -------- ----- ------- ----------------- ---------
Senior
secured
notes 2,463,524 - ) 128,906) - 136,412 - - - - 2,471,030
Lease
liabilities 3,214 - (1,085) 731 1,046 100 - - - 4,006
Deferred
licence
payments (1) 57,230 - (12,351) - 6,954 - - - - 51,833
------------ --------- --------- ----------- --------- ----------- -------- ----- ------- ----------------- ---------
2021 ($'000) 1,186,672 2,618,000 (1,434,958) 3,405 187,956 (28) 2,081 (6,933) (32,227) 2,523,968
------------ --------- --------- ----------- --------- ----------- -------- ----- ------- ----------------- ---------
Senior
secured
notes - 2,500,000 (106,105) - 101,856 - - - (32,227) 2,463,524
Borrowings 1,093,965 118,000 (1,290,936) - 76,890 - 2,081 - - -
Lease
liabilities 270 - (585) 3,405 152 (28) - - - 3,214
Loans from
related
parties 16,000 - (16,000) - - - - - - -
Deferred
licence
payments (1) 69,518 - (14,344) - 2,056 - - - - 57,230
Liability
held
to hedge
long-term
borrowings 6,919 - (6,988) - 7,002 - - (6,933) - -
(1) Cash outflows relate to finance costs paid for deferred
licence payments of approximately US$1,501 thousands in 2022 and
US$3,494 thousand in 2021 and payment for purchase of oil & gas
leases of US$10,850 thousand in 2022 and 2021, which are included
in the cash flows from financing and investing activities
respectively, in the Consolidated Statement of Cash Flows.
.
NOTE 17: - Decommissioning provisions
2022 2021
$'000 $'000
----------------------- ------- -------
At 1 January 35,525 38,399
New provisions 56,803 -
Changes in estimates (9,259) (3,549)
Unwinding of discount 1,230 675
--------------------------- ------- -------
At 31 December 84,299 35,525
--------------------------- ------- -------
Current provisions - -
Non-current provisions 84,299 35,525
As of 31 December 2022, the decommissioning provision represents
the present value of decommissioning costs relating to the four
wells for Karish , Karish North and subsea infrastructure.
The decommissioning provision represents the present value of
decommissioning costs relating to oil and gas properties, which are
expected to be incurred up to 2042, when the producing oil and gas
properties are expected to cease operations. These provisions have
been created based on the Group's internal estimates. Assumptions
based on the current economic environment have been made, which
management believes form a reasonable basis upon which to estimate
the future liability. These estimates are reviewed regularly to
take into account any material changes to the assumptions. However,
actual decommissioning costs will ultimately depend upon future
market prices for the necessary decommissioning works required that
will reflect market conditions at the relevant time.
Furthermore, the timing of decommissioning is likely to depend
on when the fields cease to produce at economically viable rates.
This, in turn, will depend upon future oil and gas prices, which
are inherently uncertain.
The discount rate applied at 31 December 2022 is 4.15% (31
December 2021: 1.95%).
Depreciation is based on the depletion method upon commercial
production.
NOTE 18: - Trade and other payables
2022 2021
$'000 $'000
----------------------------------------- --------------- ----------
Current
Financial items
Trade accounts payable (1) 209,853 32,611
Payables to related parties (Note 22) 21,028 1,079
Deferred licence payments (2) 13,345 -
Other creditors 6,712 -
Value added tax payable - 1,217
Current lease liabilities 1,792 1,011
--------------------------------------------- --------------- ----------
252,730 35,918
Non-financial items
Accrued expenses (1) 29,404 5,611
Interest payable 32,227 32,227
Contract liability (4) 56,230 -
Social insurance and other taxes 502 132
Income taxes 6 227
--------------------------------------------- --------------- ----------
118,369 38,197
Total current trade and other payables 371,099 74,115
--------------------------------------------- --------------- ----------
Non-current
financial items
Trade and other payables (3) 169,360 -
Deferred licence payments (2) 38,488 57,230
Long term lease liabilities 2,214 2,203
--------------------------------------------------- --------- --------
210,062 59,433
Non-financial items
Accrued expenses to related parties 179 294
Sales consideration received in advance (4) - 53,537
--------------------------------------------------- --------- --------
179 53,831
--------------------------------------------------- --------- --------
Total non-current trade and other payables 210,241 113,264
--------------------------------------------------- --------- --------
(1) Trade payables and accrued expenses relate primarily to
development expenditure on the Karish project, with the main
contributors being FPSO and subsea construction costs and for
drilling activities performed offshore Israel. Trade payables are
non-interest bearing.
(2) In December 2016, the Company acquired the Karish and Tanin
leases for US$40 million of up front consideration plus contingent
consideration of US$108.5 million (paid over 10 equal instalments)
bearing interest at an annual rate of 4.6%. As at 31 December 2022,
the total discounted deferred consideration was US$42 million (31
December 2021: US$57million). The Sale and Purchase Agreement
("SPA") includes provisions in the event of Force Majeure that
prevents or delays the implementation of the development plan as
approved under one lease for a period of more than ninety (90) days
in any year following the final investment decision ("FID") date.
In the event of Force Majeure, the applicable annual payment of the
remaining consideration will be postponed by an equivalent period
of time, and no interest will be accrued in that period of time as
well.
Due to the effects of the COVID-19 pandemic which constitute a
Force Majeure event, the deferred payment due in March 2022 was
postponed accordingly and payment thereof was made in September
2022.
(3) This represents the amount payable to Technip in respect of
the EPCIC contract. Under this contractUS$250 million becomes
payable nine months following the practical completion date (as
defined under that contract), and is payable in eight equal
instalments, bearing no interest. A discount rate of 5.831% has
been applied.
(4) The contract liability relates to the agreement with Israel
Natural Gas Lines ("INGL") for the transfer of title (the "Hand
Over") of the near shore and onshore part of the infrastructure
that will deliver gas from the Energean Power FPSO into the Israeli
national gas transmission grid. The Hand Over became effective in
March 2023. Following Hand Over, INGL is responsible for the
operations and maintenance of this part of the infrastructure.
NOTE 19: - Equity
a. Share capital:
31 December 2022 31 December 2021
--------------------- -------------------- --------------------
Number of Number of
shares US$ shares US$
--------------------- --------- --------- --------- ---------
Authorised, issued
and fully paid
Ordinary A shares of
US$1 each 1,708,415 1,708,415 1,708,415 1,708,415
b. Company's shareholders transaction completion:
On 29 December 2020, Energean E&P Holdings Limited entered
into a conditional sale and purchase agreement to acquire Kerogen
Investments No. 38 Limited's entire interest in Energean Israel
Limited, which constituted 30% of the total issued share capital of
Energean Israel Limited. Completion took place during February
2021. As such, from 31
NOTE 19: - Equity (Cont.)
December 2021 onwards, Energean E&P Holdings limited has
been the sole company's shareholder. Please refer to 22(A).
c. Other reserves:
As at 31 December 2020, the Group recognised derivative
financial liabilities of US$6,919 thousands, net of tax. See also
Note 16)A). All derivatives are recognised at fair value on the
balance sheet with valuation changes recognised immediately in the
income statement, unless the derivatives have been designated as a
cash flow hedge.
During 2021 with the repayment of the senior facility loan, the
fair value differences, previously recognized in other
comprehensive income, were recognised immediately as finance
costs.
d. Shares rights:
An ordinary share gives the shareholder the right to vote on
matters put before all of the shareholders of the Company. One
share equals one vote. An ordinary share also provides the
shareholder with the right to receive a share of the Company's
profits by way of dividends.
5. Share Premium Capital reduction:
In April 2022 the Company reduced its share premium account by
US$360 million.
NOTE 20: - Share-based payment
Analysis of share-based payment charge:
2022 2021
$'000 $'000
------------------------------------- ------- -------
Energean 2018 Long Term Incentive
Plan 329 305
Energean Deferred Share Bonus Plan 81 64
----------------------------------------- ------- -------
Total share-based payment charge 410 369
Capitalised to property, plant and
equipment assets 196 203
Expensed as administration expenses 214 166
----------------------------------------- ------- -------
Total share-based payment charge 410 369
Energean plc's 2018 Long Term Incentive Plan (LTIP)
Under the Energean plc's 2018 LTIP rules, senior executives may
be granted conditional awards of shares or nil cost options. Nil
cost options are normally exercisable from three to ten years
following grant provided an individual remains in employment.
Awards are subject to performance conditions (including Total
Shareholder Return (TSR) normally measured over a period of three
years. Vesting of awards or exercise of nil cost options is
generally subject to an individual remaining in employment except
in certain circumstances such as good leaver and change of control.
Awards may be subject to a holding period following vesting. No
dividends are paid over the vesting period; however, Energean
plc's. Board may decide at any time prior to the issue or transfer
of the shares in respect of which an award is released that the
participant will receive an amount (in cash and/or additional
Shares) equal in value to any dividends that would have been paid
on those shares on such terms and over such period (ending no later
than the Release Date) as the Board may determine. This amount may
assume the reinvestment of dividends (on such basis as the Board
may determine) and may exclude or include special dividends.
The weighted average remaining contractual life for LTIP awards
outstanding at 31 December 2022 was 1.22 years, (31 December 2021:
1.3 years).
All amounts related to share-based payments are recognised as
liabilities, because Energean plc charges the Group, using the
share price at grant date, for the shares issued upon vesting.
NOTE 20: - Share-based payment (Cont.)
Deferred Share Bonus Plan (DSBP)
Under the DSBP, a portion of any annual bonus of a Senior
Executive nominated by the Remuneration Committee may be deferred
into shares.
Deferred awards are usually granted in the form of conditional
share awards or nil-cost options (or, exceptionally, as
cash-settled equivalents). Deferred awards usually vest two years
after award although may vest early on leaving employment or on a
change of control.
The weighted average remaining contractual life for DSBP awards
outstanding at 31 December 2022 was 0.8 year, (31 December 2021 was
0.5 year ).
All the amount related to share-based payment is recognised as
liability since Energean plc charges the Group, using the share
price at grant date, for the shares issued upon vesting.
NOTE 21: - Material engagements, commitments and contingencies
a. Material engagements:
Gas supply agreements:
As of 31 December 2022, the Group has entered into a number of
gas supply agreements with certain buyers in Israel for the
provision of natural gas from the production of Karish and
Tanin.
In general, the weighted average tenor of the GSPAs is 15
years.
The Group has signed Gas Sales and Purchase Agreements
("GSPAs"), for the supply of approximately 7.4 BCM per year on
plateau.
The gas supply agreements contain customary warranties, terms
and provisions for agreements of this nature.
Rig contract signed for 2022 drilling campaign, offshore
israel:
In June 2021, the Company signed on a contract with Stena
Drilling Limited for its 2022 growth drilling programme offshore
Israel.
During the drilling campaign, 6 wells were drilled. The drilling
campaign completed in December 2022.
Termination of contract with gas buyer
In May 2022, further to the claims raised by the parties in the
related arbitration proceedings with Dalia Power Energies LTD
("Dalia") (including the counterclaim filed by the Company seeking
a declaration that Company is entitled to terminate the GSPA),
Dalia and the Company agreed to end all claims and disputes between
the parties. Both sides agreed that the Dalia GSPA (which
represented up to 0.8 bcm/year) was lawfully terminated, that the
arbitration proceedings were terminated, and that neither party
owes or will be liable to the other for any payment in connection
with and due to the Dalia GSPA, the arbitration proceedings and the
facts subject thereof. This was agreed to be final and
unappealable.
Hydrocarbon Liquids Contract:
In October 2022, Energean signed a sale and purchase agreement
with Vitol for the marketing of a number of cargoes of Karish blend
hydrocarbon liquids. The realised price will be market price less
certain freight, logistics and marketing costs. During Q1 2023, the
Company sold two hydrocarbon liquids
b. Commitments:
In acquiring its oil and gas interests, the Group has pledged
that various work programmes will be undertaken on each
permit/interest. The exploration commitments in the following table
are an estimate of the net cost to the Group of
NOTE 21: - Material engagements, commitments and contingencies (Cont.)
performing these work programmes:
2022 2021
$'000 $'000
----------------------------------------- ------- -------
Capital commitments:
Due within one year - 222
--------------------------------------------- ------- -------
- 222
Contingent liabilities:
Performance guarantees - see Note 21(C) 97,572 89,693
--------------------------------------------- ------- -------
c. Performance guarantees:
1. Letter of Credit Facility Agreement The Company signed with a
banking corporation a 355 million ILS (approx. US$101 million)
facility for issuing bank guarantees for its operations in Israel.
The facility term lasts until 30 April 2023. The facility bears
interest of 1.5% for drawn amounts and 0.8% commitment fee for
undrawn amounts.. The banking corporation security is a US$112
million PCG granted by Energean plc and cash collateral of US$2.96
million.
2. Karish and Tanin Leases - As part of the requirements of the
Karish and Tanin Lease deeds, the Group provided as of 31 December
2022 the Israeli Ministry of Energy with bank guarantees of US$25
million. The bank guarantees are in force until 29 June 2023.
3. Blocks 12, 21, 23 and 31 - As part of the requirements of the
exploration and appraisal licences the Group provided as of 31
December 2022 the Israeli Ministry of Energy with bank guarantees
in the amount of US$21 million for all 4 blocks mentioned above.
US$6 million of the bank guarantees are in force until 13 January
2024, US$10 until 13 May 2023 and US$5 million until November
2023.
4. Blocks 55, 56, 61 and 62, also known as "ZONE D" - As part of
the requirements of the exploration and appraisal licences which
granted to the Group during the Israeli 2nd offshore BID in July
2019, the Group provided the Israeli Ministry of Energy in January
2018 with bank guarantees in the amount of US$3.2 million for all 4
blocks mentioned above. The bank guarantees were in force until
relinquish date in October 2022.
5. Israeli Natural Gas Lines ("INGL") - As of 31 December 2022,
the Group provided INGL bank guarantee at the amount of 165.4
million ILS (US$47 million) in order to secure the milestone
payments from INGL. The bank guarantees are in force: 18.26 million
ILS (US$5.2 million) until June 2023 and 147.1 million ILS (US$41.8
million) until November 2023.
6. Transmission licence - As part of the requirements of the
Transmission licence, the Group provided the Israeli Ministry
Energy with bank guarantees of US$0.25 million. The bank guarantee
is in force until 20 September 2023. The bank guarantee will be
renewed each year thereafter as long as the licence is valid, in
accordance with the period of Karish and Tanin Leases.
7. Other - As part of the ongoing operations in Israel, the
Group provided as of 31 December 2022 various bank guarantees to
third parties and Israel Custom Authority in Israel which amounted
US$4.3 million. The main bank guarantees are in force till end of
the first half of 2023, the remaining bank guarantees are in force
till end of third quarter of 2023.
e. Contractual and certain other future obligations
- Contractual royalties are payable to NewMed (previously Delek
Drilling) and third-party holders at a total rate of 7.5%,
increasing to 8.25% (with such increase expected in 2025 for the
Karish lease) after the date at which the lease in question starts
to pay the Levy, less royalties due under existing royalties for
the benefit of third-party royalty holders, to be paid directly to
such third parties. The royalty payable to NewMed under the SPA is
calculated on the value of the total amount of natural gas and
condensate produced at the wellhead without any deduction (except
for natural gas and Petroleum (as defined under the Petroleum Law)
used in the production process). No contractual royalties under the
SPA will be payable on future discoveries that were not part of the
original acquisition of the Karish and Tanin leases. Royalties
under the SPA are deductible for corporate tax and for the Levy tax
base.
NOTE 22: - Related parties
a. As of 31 December 2022, the Group's ordinary shares are owned
100% by Energean E&P Holdings Limited, incorporated in Cyprus.
On 29 December 2020, Energean E&P Holdings Limited entered into
a conditional sale and purchase agreement to acquire Kerogen
Investments No. 38 Limited's entire interest in Energean Israel
Limited, which constitutes 30% of the total issued share capital of
Energean Israel Limited, and completion took place during February
2021.
b. Details of related parties:
Relationship Relationship
Country of incorporation as of 31 as of 31 December
/ registered December 2021
Name office Principal activities 2022
---------------------- ------------------------ ----------------------- --------------- ------------------
Energean plc 44 Baker Street, Holding company Ultimate Ultimate Parent
London W1U 7AL, Parent company company
United Kingdom
Energean E&P 22 Lefkonos Street, Holding Company Parent company Parent company
Holdings Ltd 2064 Nicosia,
Cyprus
Energean Oil 32 Kifissias Oil and gas Sister company Sister company
& Gas S.A. Ave. 151 25 Marousi exploration,
Athens, Greece development and
production
Energean International 22 Lefkonos Street, Oil and gas Sister company Sister company
Limited 2064 Nicosia, exploration,
Cyprus development and
production
Energean Italy Piazza Sigmund Oil and gas Sister company Sister company
S.p.A. Freud no.1, 20154, exploration,
Milano, Italy development and
production
Energean Capital 22 Lefkonos Street, Holding of investments Sister company Sister company
Limited 2064 Strovolos, and management
Nicosia, Cyprus services
Energean Italy Via Aterno, 49 Oil and gas Sister company Sister company
SPA (under - C.da Dragonara exploration,
common control 66020 San Giovanni development and
Teatino (CH production
Energean Group 44 Baker Street, Oil and gas Sister company -
Services Limited London W1U 7AL, exploration,
United Kingdom development and
production
Energean Israel 121, Menachem Gas transportation Subsidiary Subsidiary
Transmission Begin St. licence holder 100% 100%
LTD Azrieli Sarona
Tower, POB 24,
Tel Aviv 67012039
Israel
Energean Israel 121, Menachem Financing activities Subsidiary Subsidiary
Finance Ltd Begin St. 100% 100%
Azrieli Sarona
Tower, POB 24,
Tel Aviv 67012039
Israel
Egypt Energy Cairo, Egypt Oil and gas Sister company Sister company
Services JSC exploration,
development and
production
NOTE 22: - Related parties (Cont.)
c. Balances with related parties:
2022 2021
Nature of
balance $'000 $'000
-------------------------------------- --------------------- -------- -------
In current assets:
Receivables from related parties
- Note 13:
Energean E&P Holdings Limited Long term
(controlling party) interest receivable - 6,402
------------------------------------------ ------------------------- -------- -------
- 6,402
In current liabilities:
Payables to related parties -
Note 18:
Energean plc (the ultimate parent
company) Trading (5,311) (413)
Energean Oil & Gas S.A (under
common control) Trading (1,527) (204)
Energean International UK branch
(under common control) Trading (949) -
Energean Group Services (under
common control) Trading (3) -
Energean E&P Holdings Limited
(controlling party) Trading (8,058) (428)
Energean International Limited
(under common control) Trading (164) (27)
Energean Capital Limited (controlling
party) Trading (70) (7)
Energean Italy SPA (under common
control) Trading (4,949) -
Energean plc (the ultimate parent
company), under accrued expenses Trading - (181)
Energean International UK branch
(under common control), under
accrued expenses Trading - (364)
Egypt Energy Services JSC, under
accrued expenses Trading (6,951) -
Energean Oil & Gas S.A (under
common control) , under accrued
expenses Trading (384) -
Energean Italy SPA (under common
control) , under accrued expenses Trading - (1,899)
------------------------------------------ ------------------------- -------- -------
(28,366) (3,523)
In non-current liabilities:
Accrued expenses to related parties
- Note 18:
Energean plc (the ultimate parent Share based
company) payments (182) (294)
NOTE 22: - Related parties (Cont.)
d. Transactions with related parties:
2022 2021
$'000 $'000
--------------------------------------------------- ------- -------
Service received in connection with the oil
and gas assets :
Related companies 8,853 6,189
Ultimate and parent company 8,303 8,539
Other related party - Prime Marine Energy
Inc see Note 22(E)(2) 8,060 10,273
------------------------------------------------------- ------- -------
25,216 25,001
Service received in connection with the intangible
assets:
Related companies 1,858 1,265
Service received in connection with borrowings:
Ultimate and parent company 2,749 1,966
In administrative expenses:
Related companies 1,687 530
Ultimate and parent company 2,512 239
------------------------------------------------------- ------- -------
4,199 769
In Finance income:
Ultimate and parent company - (6,402)
In prepaid:
Ultimate and parent company 199 -
In Finance costs:
Ultimate and parent company - 12,189
e. Additional information:
1. The Group and related companies of Energean Group entered
into an agreements for the provision of consulting services which
includes administrative, technical, finance and commercial matters
for the development of the Karish and Tanin reservoirs. The
consideration for the said services and the respective balances
presented above at Note 22 (C) and 22 (D).
2. During 2020 Energean Israel, purchased from Prime Marine
Energy Inc a company controlled by a non-executive director and
shareholder of Energean plc, a Field Support Vessel ("FSV").
The FSV will provide significant in-country capability to
support the Karish project, including FPSO re-supply, crew changes,
holdback operations for tanker offloading, emergency subsea
intervention, drilling support and emergency response. The purchase
of this multi-purpose vessel will enhance operational efficiencies
and economics when compared to the leasing of multiple different
vessels for the various activities. The FSV is currently completing
construction works at a Greek Shipyard. The agreement with Prime
Marine Energy Inc was terminated on 19 October 2022. In December
2022 the FSV was towed to Greece for completion of the works under
Energean's supervision.
3. On 21 December 2020, Energean plc granted a US$16 million
loan to the Company. The loan bore annual interest rates of 3.75%
and 0.144% (total 3.894%) due to LIBOR. The loan was repaid in full
on 5 January 2021.
4. On 29 April 2021 and in accordance with the Senior Secured
Notes financing documents, the Company and its parent company
Energean E&P Holdings Limited entered into a loan agreement
which established that the Company will provide a loan facility of
up to US$500 million to Energean E&P Holdings Limited for a
period of 24 months, The loan and interest (which was determined
upon market conditions) will be paid at the maturity date.
Notwithstanding the above, Energean E&P Holdings Limited may,
at its discretion, repay the loan, in whole or in part, at any time
before 28 April 2023. As of 31 December 2021, US$346 million was
loaned to Energean E&P Holdings Limited which was settled in
2022 as part of the Company share premium reduction. See also Note
19.
NOTE 22: - Related parties (Cont.)
f. Parent Company Guarantees (PCG):
a) Under the Karish EPCIC. Energean plc provided a PCG dated 27
July 2018, guaranteeing the payment obligations of Energean Israel
Limited in relation to certain deferred payments, which are
approximately US$250 million
b) Purchase Karish and Tanin rights - In order to secure the
payments to the sellers as stated at Note 10(A), Energean E&P
Holdings Limited, the Parent company, granted a corporate guarantee
to the sellers.
c) As part of a GSPA the Company signed, to secure the agreement
obligations to certain gas buyers, Energean E&P Holdings
Limited, the Parent company, granted a corporate guarantee to the
gas buyers amounted US$53 million. US$ 38 million of the parent
company guarantee will be in force till June 2024 and US$15 million
of the parent company guarantee expected to be in force till May
2023.
d) As part of the banking corporation security of the Letter of
Credit Facility Agreement Energean plc granted a PCG of US$112
million. The parent company guarantee will be in force until April
2023.
NOTE 23: - Financial Instruments
Financial risk management objectives
The Group is exposed to market price risk which comprises:
foreign currency risk, credit risk, liquidity risk and capital risk
management arising from the financial instruments it holds. The
risk management policies employed by the Group to manage these
risks are discussed below:
a. Foreign exchange risk:
The Group is exposed to foreign exchange risk as it undertakes
operations in various foreign currencies. The key sources of the
risk are attributed to the fact that the Group has certain
financial assets (mainly other receivables and cash and cash
equivalents) and financial liabilities (mainly trade and other
payable) with different currencies than the functional currency of
the Group, mainly Israeli Shekel (ILS) United Kingdom Pound
Sterling (GBP), Euro and Norwegian Krone (NOK).
The Group's exposure to foreign currency risk at each reporting
date is shown in the table below. The amounts shown are the US$
equivalent of the foreign currency amounts.
Liabilities Assets
--------------------------- --------------------------- --------------------
2022 2021 2022 2021
$'000 $'000 $'000 $'000
--------------------------- ----------- ---------- --------- --------
Israeli New Shekel (ILS) 9,354 1,501 19,383 22,442
United Kingdom Pound (GBP) 35,905 9,613 1,783 1,587
Euro 28,178 9,964 1,709 2,073
Norwegian Krone (NOK) 7,956 4,403 22 18
------------------------------- ----------- ---------- --------- --------
Total 81,393 25,481 22,897 26,120
The following table reflects the sensitivity analysis for profit
and loss result for the year and the equity, taking into
consideration for the periods presented foreign exchange variation
by +/- 10%.
ILS GBP EURO NOK
-------------------------------------- -------------------------------------- -------------------------------------- -----------------------------------
Variation Variation Variation Variation
10% -10% 10% -10% 10% -10% 10% -10%
--------- ----------------- ------------------- ------------------- ----------------- ------------------- ----------------- ----------------- ----------------
31
December
2022
($'000)
Profit
(loss)
before
tax 1,003 (912) (3,412) 3,102 (2,647) 2,406 (793) 721
Equity 772 (702) (2,627) 2,389 (2,038) 1,853 (611) 555
--------- ----------------- ------------------- ------------------- ----------------- ------------------- ----------------- ----------------- ----------------
31
December
2021
($'000)
Profit
(loss)
before
tax 2,094 (1,904) (803) 730 (789) 717 (439) 399
Equity 1,612 (1,466) (613) 562 (608) 552 (338) 307
NOTE 23: - Financial Instruments (Cont.)
b. Credit risk:
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the reporting date. The Group has
policies in place to ensure that all of its transactions giving
rise to credit risk are made with parties having an appropriate
credit history and monitors on a continuous basis the ageing
profile of its receivables.
Also, the Group has policies to limit the amount of credit
exposure to any banking institution, considering among other
factors the credit ratings of the banks with which deposits are
held. Credit quality information in relation to those banks is
provided below.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date, without taking account of any collateral obtained,
was:
2022 2021
$'000 $'000
-------------------------------------------- ------- -------
Loan to related party - 346,000
Restricted cash 71,778 100,000
Other receivables 76,509 22,176
Cash and cash equivalents and bank deposits 24,823 349,827
------------------------------------------------ ------- -------
173,110 818,003
Credit quality of cash equivalents and bank deposits:
The credit quality of the banks in which the Group keeps its
deposits is assessed by reference to the credit rating of these
banks. Moody's credit ratings of the corresponding banks in which
the Group keeps its deposits is as follows:
2022 2021
$'000 $'000
------ ------- -------
A1 43 2
A2 24,765 349,764
Ba3 15 61
---------- ------- -------
Total 24,823 349,827
The Company has assessed the recoverability of all cash balances
and believe they are carried within the Consolidated Statement of
Financial Position at amounts not materially different to their
fair value.
c. Liquidity risk:
Liquidity risk is the risk that the Group will encounter
difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another
financial asset.
The Group has procedures with the object of minimizing this risk
such as maintaining sufficient cash and other highly liquid current
assets and by having available an adequate amount of committed
credit facilities.
The following tables detail the Group's remaining contractual
maturity for its financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to
pay. The table includes both interest and principal cash flows.
The Group manages its liquidity risk by ongoing monitoring of
its cash flows. Group management prepares budgets and regular cash
flow forecasts and takes appropriately actions to ensure available
cash deposits and credit lines with the banks are available to meet
the Group's liabilities as they fall due.
On 24 March 2021 ("Issue Date"), Energean Israel Finance Ltd (a
subsidiary of the Company, held 100%) issued US$2.5 billion senior
secured notes.
NOTE 23: - Financial Instruments (Cont.)
Contractual 3 More
Carrying cash months 3-12 1-2 2-5 than 5
) amounts flows or less months years years years
31 December
2022
( $'000) 2,933,822 3,637,663 285,838 96,432 980,142 878,386 1,396,865
------------------------ --------------------- ----------------------- ------------------- ------------------ ------------------- --------------------- ---------------------
Senior
secured
notes (1) 2,471,030 3,145,703 64,453 64,453 840,625 780,859 1,395,313
Lease
liabilities 4,006 4,883 283 729 1,666 653 1,552
Deferred
license
payments
(2) 51,833 61,741 13,345 - 12,851 35,545 -
Trade and
other
payables -
long
term 169,360 186,329 - - 125,000 61,329
Trade and
other
payables -
short
term 237,593 239,007 207,757 31,250 - - -
31 December
2021
( $'000 ) 2,595,790 3,392,739 103,647 65,571 154,390 1,590,116 1,478,721
------------------------ --------------------- ----------------------- ------------------- ------------------ ------------------- --------------------- ---------------------
Senior
secured
notes (1) 2,495,751 3,274,609 64,095 64,811 128,906 1,551,172 1,465,625
Lease
liabilities 3,214 5,444 251 760 790 1,897 1,746
Trade and
other
payables -
long
term (2) 57,230 73,091 - - 24,694 37,047 11,350
Trade and
other
payables -
short
term 39,595 39,595 39,301 - - - -
(1) As of 31 December 2022, include short term accrued interest
of. US$32,227 (31 December 2021: US$32,227). See Note 18.
(2) Includes commitment to Karish and Tanin sellers, for more
information see Note 18(2)).
d. Capital risk management:
Capital includes equity shares and share premium. The Group
manages its capital structure and makes adjustments to it in light
of changes in economic conditions, in order to ensure that it will
be able to continue as a going concern while maximising the return
to shareholders through the optimisation of the debt and equity
balance. To maintain or adjust the capital structure, the Group may
adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares.The Group's overall objectives,
policies and processes remained unchanged from last year.
e. Fair Values :
The fair values of the Group's non-current liabilities measured
at amortised cost are considered to approximate their carrying
amounts at the reporting date.The carrying value less any estimated
credit adjustments for financial assets and financial liabilities
with a maturity of less than one year are assumed to approximate
their fair values due to their short term-nature. The fair value of
the group's finance lease obligations is estimated using discounted
cash flow analysis based on the group's current incremental
borrowing rates for similar types and maturities of borrowing and
are consequently categorised in level 2 of the fair value
hierarchy.
The fair value hierarchy of financial assets and financial
liabilities that are not measured at fair value (but fair value
disclosure is required) is as follows:
Fair value hierarchy as at 31
December 2022
Level 1 Level 2 Total
$'000 $'000 $'000
--------------------------- --------- -------- ---------
Financial assets
Short term restricted cash 71,778 - 71,778
Short term trade and other
receivables - 76,509 76,509
Cash and cash equivalents 24,825 - 24,825
------------------------------- --------- -------- ---------
Total 96,603 76,509 173,112
------------------------------- --------- -------- ---------
Financial liabilities
Senior secured notes (1) 2,298,125 - 2,298,125
Trade and other payables -
long term - 210,062 210,062
Trade and other payables -
short term - 252,730 252,730
------------------------------- --------- -------- ---------
Total 2,298,125 462,792 2,760,917
------------------------------- --------- -------- ---------
NOTE 23: - FINANCIAL INSTRUMENTS (Cont.)
Fair value hierarchy as at 31 December
2021
Level 1 Level 2 Total
$'000 $'000 $'000
--------------------------------------- --- ----------- --- ---------- ----------
Financial assets
Long term trade and other receivables - 6,402 6,402
Loan to related party - 346,000 346,000
Long term restricted cash 100,000 - 100,000
Short term restricted cash 99,729 - 99,729
Short term trade and other receivables - 22,176 22,176
Cash and cash equivalents 349,827 - 349,827
-------------------------------------------- ----------- --- ---------- ----------
Total 549,556 374,578 924,134
-------------------------------------------- ----------- --- ---------- ----------
Financial liabilities
Senior secured notes (1) 2,483,750 - 2,483,750
Trade and other payables - long
term - 59,433 59,433
Trade and other payables - short
term - 35,918 35,918
-------------------------------------------- ----------- --- ---------- ----------
Total 2,483,750 95,351 2,579,101
-------------------------------------------- ----------- --- ---------- ----------
(1) The senior secured notes are measured at amortised cost in
the Company's financial statements. The notes are listed for
trading on the TACT Institutional of the Tel Aviv Stock Exchange
Ltd. (the "TASE"). The carrying amount as of 31 December 2022 was
US$2,471 million and as of 31 December 2021 was US$2,463
million.
NOTE 24: - Subsequent events
Gas Sales Agreements - Energean signed a spot gas sales and
purchase agreement with two Israeli gas buyers. The gas price will
be determined in each period, with purchased amounts determined on
a daily basis. The agreement will be valid for an initial one-year
period with an option to extend subject to ratification by both
parties.
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END
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