Energean plc: 2022 Full Year Results

Mathios Rigas, Chief Executive of Energean, commented:

“2022 was a year of transformation for Energean – where a long-held vision became an operational reality. It was a year of positive delivery. We commenced production from the only FPSO in the strategically vital Eastern Mediterranean region, paid dividends to our shareholders, and laid the foundation for our future growth through the discovery and de-risking of new natural gas resources adjacent to our infrastructure. Energean was the sole owner-operator of five deepwater wells, which drove a 20% increase in our reserve base, and marked the 15^th consecutive year of reserve and resource base increases for Energean.  We are proud to be on track to deliver between 4.5 and 5.5 bcm of gas into the Israeli domestic gas market this year, contributing towards the security of energy supply of the region and improving the living conditions of the Israeli public through the reduction of emissions from the displacement of coal-fired power generation.

“The first quarter of 2023 has continued the positive trend. Production from Karish is in line with our expectations, and in February we supplied the first Israeli hydrocarbon liquids export cargo to international markets. In Egypt, we achieved first gas at NEA/NI with three further wells due to come onstream during the year. In Italy, we are the third largest producer of natural gas and look forward to increasing our contribution towards the country’s energy supply. And in Greece, we are continuing our efforts to explore the untapped resources of the country.

“The remainder of 2023 will see us present the development concept for the Olympus Area, offshore Israel, and increase the capacity of the Energean Power FPSO to 8 bcm/yr. This is alongside delivery of production in line with guidance and deliver on-target returns, as promised, to our shareholder base. Through our gas contracting strategy we are in a unique position to have a very predictable and stable cashflow despite turbulence and challenges in the international financial markets.

“We are committed to investing in projects where we can create value for all stakeholders. The global energy crisis is not over – the global gas market remains dangerously tight and benefitted from a mild European winter, but thousands of industrial jobs are now at risk not just to price but also to availability. We therefore hope that governments understand the value of enhanced domestic and regional energy production, that can only be delivered through long-term investment.”

Highlights

• Delivered first gas from Karish in October 2022
• Production and ramp up in line with expectations
• Energean is now sequentially notifying gas buyers that the commissioning period under the gas sales and purchase agreements (“GSPAs”) has ended and the start date for commercial obligations has commenced. It expects to have completed this process for all gas buyers by the end of March 2023
• Initiated hydrocarbon liquid exports from Karish field to international markets
• Delivered first production from NEA/NI, Egypt, in March 2023
• On track to deliver 200 kboed production target in 2H 2024
• Confirmed year-end 2P reserves of 1,161 mmboe (+20% increase versus end-2021) representing a reserve replacement ratio of 1400%
• Including the addition of 31 bcm (approximately 206 mmboe) of 2P reserves in the Olympus Area, offshore Israel, that have now been certified by Energean’s reserve auditor, Degolyer and McNaughton (“D&M”)
• Delivered strong financial performance, underpinned by strong commodity prices
• 2022 revenues of $737.1 million, represented a 48.3% increase (2021: $497.0 million)
• 2022 EBITDAX of $421.6 million, represented a 98.8% increase (2021: $212.1 million)
• 2022 profit-after-tax of $17.3 million, was an improvement on last year’s loss (2021: $(96.2) million). Profit after tax was negatively impacted by $119.4 million of windfall taxes in Italy^[1], which are expected to have been applied on a one-off basis
• Group cash as of 31 December 2022 was $502.7 million (including restricted amounts of $74.8 million) and total liquidity was $720.0 million. In March 2023, Energean signed a $350 million term loan providing additional financial flexibility
• Announced dividend strategy and initiated dividend payments
• Cumulative dividends paid of 60 US$ cents with a further $30 US$ cents declared and not paid, representing an annualised yield of approximately 9%^[2].
• Carbon Disclosure Project (“CDP”) rating increased to A- (from B), outperforming the global average for E&Ps of C

Outlook

• 2023 production guidance confirmed at 131 – 158 kboed, including 4.5 – 5.5 bcm of gas from Karish
• Mid-term targets now considered near-term: on track to achieve production, financial targets, and leverage targets in 2H 2024^[3] through execution of key development projects
• Karish growth projects to increase the capacity of the Energean Power FPSO are on track for year-end 2023, following which Israel production is expected to be more than 140 – 155 kboed
• Three additional wells to be brought onstream at NEA/NI by year-end 2023, following which production in Egypt is expected to be more than 40 kboed
• Cassiopea expected to deliver first gas in 2024, following which production in Italy is expected to be approximately 20 kboed
• Communication of development concept for the Olympus Area expected in the coming months
• Orion X1 well, Egypt, (Energean 30%, expected to farm down to 18%) expected to spud in late 2023, slightly delayed due to rig availability
• Declaration of quarterly dividends in line with previously communicated policy
• $50 million per quarter initially, rising to $100 million per quarter following achievement of near-term targets
• Cumulative dividends of at least $1 billion by end-2025
• Post-2025 target to maintain a progressive dividend policy, underpinned by existing reserve volumes

Financial Summary

^[4] During 2022, Italy introduced: 1) a windfall tax in the form of a law decree which imposed a 25% one-off tax on profit margins that rose by more than 5 million euros between October 2021 and April 2022 compared to the same period a year earlier. The amount of the windfall tax paid by Energean Italy was $29.3 million and 2) In November 2022, Italy introduced a new windfall tax that imposed a 50% one-off tax, calculated on 2022 taxable profits that are 10% higher than the average taxable profits between 2018-2021. This amount has a ceiling equal to 25% of the value of the net assets at end-2021. Based on this, Energean would be required to pay an additional one-off tax of €87 million in June 2023.

^[4] Based on 21 March 2023 share price of GBp 11.00

^[4] On an annualised basis

^[4] Adjusted EBITDAX is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, share-based payment charge, impairment of property, plant and equipment, other income and expenses, net finance costs and exploration and evaluation expenses.