Results For Half Year Ended 30 June 2020
Energean plc
("Energean" or the "Company")
Results for Half Year Ended 30 June 2020
London, 10 September 2020 - Energean plc (LSE: ENOG TASE:א), the independent gas-focused producer focused on the Mediterranean, announces its half-year results for the six months ended 30 June 2020 ("1H 2020").
Mathios Rigas, Chief Executive, Energean commented:
"Despite some COVID-19-related disruptions, in the year-to-date we have made solid progress on our flagship gas project in Israel, which is scheduled to deliver first gas in 2H 2021. We have successfully performance-tested all three Karish development wells, delivered a resource upgrade at Karish North, completed the installation of the 8 bcm/yr capacity, 90km pipeline that will deliver Energean's gas sales (currently at 5.6 bcm/yr) into the Israeli domestic market, completed the hull of our FPSO in China and moved it to Singapore, and have commenced heavy lifting operations.
"In the second half of the year, we look forward to completing our acquisition of Edison E&P, which, alongside the Karish project, will further secure our long-term, resilient cash flow profile and option-rich portfolio. Following completion of the deal, around 70% of our future production will be sold under long-term gas sales agreements that will largely insulate us against oil price volatility. We will continue to own and operate the majority of our asset base and are well-funded for all of our projects.
"On the ESG front we received an award for "Best ESG Energy Growth Strategy in Europe 2020", recognising our efforts and focus on achieving our stated net zero target and our overall focus to comply with the United Nations' 17 Sustainable Development Goals ("SDGs").
"As we move into an exciting and transformational period for the business, I would like to personally thank my colleagues around the world for their hard work and commitment to driving the business forward and keeping one another safe and well during these challenging times."
Highlights
Energean
· Completed installation of the 90km gas pipeline that will connect the Energean Power FPSO to the national natural gas transmission system in Israel
· The electrical house ("Ehouse") module was lifted onto the FPSO hull at the Admiralty Yard, Singapore on 24 August 2020 marking the start of the FPSO hull and topsides integration campaign
· Subsea and onshore works for the Karish project progressing in line with expectations; installation of the production manifold and subsea isolation valves was completed during June 2020, and installation of the FPSO anchoring system in August 2020
· Analysis of the results of performance testing during clean-up operations of the three Karish Main development wells indicates a significantly higher liquids content than had previously been envisaged
· The Israel Ministry of Energy approved the Karish North Field Development Plan ("FDP") during August 2020
· During 1H 2020, Energean increased debt capacity by $395 million through its $175 million upsizing of the Israel project finance facility and the signing of a new $220 million reserve-based lending facility ("RBL") to fund the Edison E&P acquisition, significantly enhancing financial flexibility
· Cash and undrawn debt facilities of $872.5 million[1] as at 30 June 2020
· In August 2020, Energean was rated at gold level by MAALA, the Israel CSR standards-setting organisation and will be rated under the Maala Index on the Tel Aviv Stock Exchange going forward
Edison E&P transaction (subject to transaction close)
· Entered into further amendments to the Sale and Purchase Agreement ("SPA") for the acquisition of Edison E&P, following which, inter alia, the gross consideration for the transaction is $284 million[2], down from an original sum of $750 million; the Algerian asset and Norwegian subsidiary will be excluded from the transaction perimeter
· Under the amended SPA, the net consideration that would have been payable had completion occurred on 30 June 2020, would have been $190 million; Energean does not expect this number to change materially before actual completion
· $220 million RBL facility signed with ING, Natixis and Deutsche Bank to fund the acquisition and ongoing working capital
· Shareholders voted unanimously in favour of the transaction at a general meeting held on 20 July 2020
Combined business results
· 1H 2020 pro forma production[3] was 52.1 kboed, compared with full year guidance of 44.5 - 51.5 kboed
· 1H 2020 pro forma revenue3 was $177 million and operating cash flow3 was $68 million
Outlook
· Completion of the acquisition of Edison E&P will occur following the remaining Conditions Precedent to the transaction ("CPs") being fulfilled, expected in 4Q 2020
· The Company's independent reserves auditors, DeGolyer and MacNaughton ("D&M"), are preparing a revised Competent Persons Report ("CPR") following completion of the Karish Main drilling programme to refine reserve and resource estimates in the fields; Energean expects to publish the results of this report in the coming weeks
· Continued progress on the integration of the topsides in the Admiralty Yard, Singapore, with sailaway to Israel expected in summer 2021 and first gas in 2H 2021
· Installation of the risers that will connect the production wells to the FPSO is expected to commence in 4Q 2020 and to be completed in 1Q 2021, marking completion of the subsea works required ahead of arrival of the Energean Power FPSO
· Final Investment Decision ("FID") on the 1.2 Tcf (34 bcm, gross) Karish North project is expected before year end 2020
· Outcome of discussions with the Greek Government, initiated as part of the strategic review of the Prinos area assets, regarding a financing package to support continued investment in the Prinos area is expected in 4Q 2020
· 2020 pro forma full year production guidance is maintained at 44.5 -51.5 kboed[4]
· 2020 pro forma capital expenditure guidance reduced to $635 - 705 million4 , a $75 - 125 million reduction on guidance issued in June 2020 ($760 - 780 million), primarily due to i) rescheduling of expected milestone payments under the Karish EPCIC contract; and ii) expected timing of capital expenditure on Edison E&P's NEA project, Egypt
Key financial data
Energean's interim standalone income statement and operating cash flow is driven almost entirely by the Prinos area assets, investment in which has been significantly reduced as a result of the ongoing strategic review. 1H 2020 revenue is derived from one cargo lifting; a second cargo was lifted on 14 July 2020 and, therefore, the associated production is not reflected in 1H 2020 revenues.
Edison E&P's financial results for the period are presented below both on a standalone basis and also combined with Energean's 1H 2020 results to arrive at pro forma results for the period. The locked box of the acquisition is 1 January 2019; all economic results after this date belong to Energean, subject to closing of the transaction, expected 4Q 2020.
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Energean standalone 1H 2020 $m |
Edison E&P standalone[5] 1H 2020 $m |
Energean + Edison pro forma 1H 2020[6] $m |
Energean standalone 1H 2019 $m |
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Production (kboed) |
2.1 |
50.0 |
52.1 |
3.9 |
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Sales and other revenue |
2.1 |
174.7 |
176.8 |
40.0 |
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Cash cost of production plus G&A |
15.7 |
108.6 |
124.3 |
18.0 |
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Adjusted EBITDAX[7] |
(8.9) |
65.0 |
56.1 |
24.0 |
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Operating cash flow[8] |
(14.5) |
82.1 |
67.6 |
23.7 |
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Development capital expenditure |
237.9 |
11.9 |
249.8 |
309.6 |
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Exploration capital expenditure |
5.3 |
66.4 |
71.7 |
37.3 |
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Cash capital expenditure |
243.3 |
79.0 |
322.3 |
541.4 |
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Net debt |
861.4 |
NA[9] |
861.4 |
390.4 |
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Net debt including Energean's pro-rata share of Israel debt only (excluding Kerogen minority) ($ million) |
597.4 |
NA10 |
597.4 |
597.4 |
Energean's stand-alone loss after tax for the period ended 30 June 2020 was $77.3 million (30 June 2019: $4.5 million), which is stated after a non-cash impairment charge of $63.0 million that reflects the lower commodity price outlook.
Enquiries
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Investors and Analysts |
Tel: +44 7917 608645 |
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Kate Sloan, Head of Investor Relations and Equity Capital Markets
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Media |
Tel: +30 210 8174 242 |
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Sotiris Chiotakis |
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Conference call
A conference call for analysts and investors will be held at 08:00am BST today. Please register your participation in this morning' conference call at the following link. You will be given the option to either participate via webcast or dial in.
https://secure.emincote.com/client/energean/energean001
The presentation slides will be made available on the website shortly www.energean.com.
Energean Operational Review
ESG
In July 2020, Maala, the Israel CSR standards-setting organisation, rated Energean at gold level and the shares will be included in the MaalaIndex on the Tel Aviv Stock Exchange.
In August 2020, Energean was awarded Best ESG Energy Growth Strategy for Europe 2020, with highlights by the judging panel including: commitment to the UN's Global Compact and net-zero emissions goal; commitment to sustainability; the linking of executive incentive pay to performance against ESG targets; and commitment to transparent disclosure of emissions tracking.
Israel
Despite COVID-related challenges experienced during the period, Energean has made solid progress on its flagship Karish project, offshore Israel. The project remains on track to deliver first gas in 2H 2021.
Reserves, resources and production
Well performance testing
During 1H 2020, Energean Israel successfully assessed the performance of all three development wells during clean-up operations. Results from production measurement confirmed that each of the three wells will be capable of delivering up to the individual well design limit of 300 mmscfd (approximately 3 bcm/yr per well) and that, combined, the three wells will be able to produce to the 8 bcm/yr capacity of the Energean Power FPSO.
Liquids production
All three development wells encountered high quality liquids with samples measured at 48 API. Analysis of the results of performance testing during clean-up operations of the three Karish Main development wells indicates a significantly higher liquids content than had previously been envisaged. Liquids production potential will be quantified as part of the upcoming CPR of the Karish, Karish North and Tanin fields.
CPR
As announced on 9 April 2020, D&M certified gross (Energean, 70%) contingent resources of 1.2 Tcf (33.7 bcm) of gas and 39 mmbbl of liquids in the Karish North field, a 32% uplift to Energean's previous estimates. Following issuance of this CPR, combined total gross (Energean, 70%) 2P reserves plus 2C resources in the Karish, Karish North and Tanin fields were estimated to be 99 bcm (almost 3.5 Tcf) of gas and 82 mmbbls of liquids, a total of 698 mmboe (88% gas).
Following completion of the drilling and performance testing of the three development wells in Karish Main, Energean has engaged D&M to produce a CPR to refine and confirm reserve and resource volumes across the Karish Main, Karish North and Tanin fields. Energean expects to announce the results of this CPR in the coming weeks.
Gas Sales and Purchase Agreements ("GSPAs")
Energean Israel (Energean, 70%) has signed GSPAs for the supply of 5.6 bcm/yr of gas on plateau. Over the life of the contracts, the GSPAs account for approximately 75% of the current 2P reserve plus 2C resource base of 99 bcm. Having secured sufficient resources to fill the FPSO for a number of years, Energean's near-term strategy is to secure the necessary offtake to fill the remaining 2.4 bcm/yr of spare capacity in the Energean Power FPSO. Energean is assessing a number of opportunities in both the Israeli domestic market, as well as key export markets in order to meet this target.
Project progress
Subsea and onshore
The pipelay vessel Solitaire and construction support vessel Normand Cutter arrived offshore Israel in May 2020. Installation of the 90km gas pipeline that will deliver gas from the Energean Power FPSO to Israel has now been completed, well within the project schedule, and pre-commissioning is expected to be complete around year-end.
Installation of the subsea equipment at the Karish field is progressing in line with expectations. All long-lead items (the christmas trees and wellheads, manifold and subsea isolation valves) have been delivered by the suppliers. Installation of the manifold and subsea isolation valves was completed during June 2020 and installation of the FPSO anchoring system was completed in August 2020. Looking forward, installation of the three sets of risers that will connect the three producing wells to the FPSO is expected to commence in 4Q 2020 and to be completed in 1Q 2021, marking the end of the subsea works that are required to be completed ahead of arrival of the Energean Power FPSO.
Onshore, the works are progressing well and the whole system is expected to be ready to receive first gas in 2Q 2021, well ahead of expected hook-up of the FPSO.
Energean Power FPSO progress and key milestones
The Energean Power FPSO hull arrived at the Sembcorp Marine Admiralty Yard in Singapore on 15 April 2020. On arrival, Energean was informed of a temporary halt to operations at the yard, which was intended to reduce the risk of COVID-19 transmission.
The yard re-opened on 2 June 2020, although government restrictions and associated health checks being performed in the workers' dormitories resulted in a slow ramp-up in the workforce over the course of June and July. A major ramp up of the workforce occurred during August 2020 and in the first week of September the workforce on the project averaged more than 480 workers per day.
Installation of the topside modules onto the FPSO hull has now commenced; the Ehouse module, which contains all the FPSO control equipment and electrical switchgear, was successfully lifted onto the Energean Power hull on the 24 August 2020; and heavy lifting operations for the remaining modules are expected to commence in the coming weeks.
Following commencement of the lifting campaign, topsides integration and pre-commissioning is expected to take approximately 10-11 months, following which the FPSO is expected to sailaway from Singapore to Israel. Energean is working with its contractors to mitigate the schedule impacts experienced to date and has identified options such as shift optimisation and productivity improvement measures, which could reduce this 10-11 month period to sailaway.
First gas from the project is expected during 2H 2021.
The health and safety of its workers remains of paramount importance to the Company and it supports all necessary measures to prevent further transmission of COVID-19.
Greece
Working interest production from the Prinos area averaged 2.1 kboed during 1H 2020 with full year production expected to be between 1.5 - 2.0 kboed. There was one cargo shipment of 212 kbbls during 1H 2020 that occurred on 29 March 2020, which generated $1.9 million of revenue. A second cargo of 211 kbbls was sold on 14 July 2020, generating $7.6 million of revenues that are not included within 1H 2020 revenues.
At the end of 2019, Energean decided to place its Prinos area assets under strategic review, during which investment has been limited, resulting in current production levels. Energean is in discussions with the Greek government, which, if successful, could result in a capital injection through a combined debt and equity package. Any equity would relate solely to the subsidiary in which the Prinos area assets are held. Should this financing package materialise, Energean could recommence work on the Epsilon project, which could add approximately 2 kbopd upon first oil from the three vertical wells that have been pre-drilled. These three wells plus the drilling of further wellstock could result in commercialisation of the 44 mmboe of working interest 2P reserves and 2C resources held within the field.
Exploration
In Ioannina, interpretation of the newly acquired seismic lines has been completed and a drill-or-drop decision will be taken in 2H 2020. In Aitoloakarnania, the joint venture is awaiting approval of its environmental action plan before commencing the 2D seismic acquisition campaign.
In Montenegro, Energean has been granted a one-year extension to the first exploration period, which now ends on 15 March 2022.
Edison E&P acquisition (subject to transaction close)
Third amendment to the SPA
As announced on 29 June 2020, Energean has entered into further amended terms for its acquisition of Edison E&P following which, inter alia, the Norwegian subsidiary will be formally excluded from the transaction perimeter. Combined with the previously announced exclusion of the Algerian asset, $466 million of total reductions to the original gross consideration have been agreed. The gross consideration for the transaction[10] is now $284 million, which compares to the original sum of $750 million.
Under the amended SPA, the net consideration had completion occurred on 30 June 2020 (which would have taken into account 18 months of business results since the locked-box date of 1 January 2019), would have been $190 million, before taking the positive hedging position of €14 million into account. Energean does not expect the net consideration to change materially before actual completion.
Under the amended SPA the $100 million Cassiopea contingent payment will now vary between $0 and $100 million, depending on future Italian gas prices at the point in time at which first gas production is delivered from the field, currently anticipated in 2023.
Acquisition financing
As previously announced, on 20 June 2020, Energean signed a $220 million RBL with ING, Natixis and Deutsche Bank. The RBL replaced the outstanding $255 million acquisition bridge facility and is available for both debt and issuance of letters of credit ("LCs"). The RBL has an accordion option of up to $200 million, for a total facility limit of up to $420 million.
The RBL has a tenor of six years from the closing date and is subject to semi-annual redeterminations. The interest rate is LIBOR plus a margin of 4.75% per annum during the first, second and third years after closing, and 5.75% thereafter. The RBL carries covenants that are customary for this type of facility.
In addition to the RBL, Energean has entered into a standalone bilateral LC facility with ING. The facility will be for an amount up to GBP 80 million provided for the purpose of issuing LCs for United Kingdom decommissioning obligations and obligations under the United Kingdom licences and does not impact upon the availability of the new RBL.
This RBL, along with the cash held in Energean plc, will be used to fund the net consideration, as outlined above, plus transaction costs and ongoing working capital requirements of the combined portfolio.
Shareholder vote
On 29 June 2020, Energean issued its prospectus and shareholder circular. A general meeting was held on 20 July 2020, at which shareholders voted unanimously in favour of the transaction.
Government approvals
Good progress has been made in obtaining the necessary government approvals for the updated transaction. Golden Power approval has now been granted in Italy and the approval from the Ministry of Economic Development is expected shortly. Updated approvals in France & Greece and comfort letter in the UK are anticipated in the coming weeks. Egypt is still planned to be the final approval for logistical reasons.
Completion timeline
Energean expects the transaction to close in 4Q 2020. Completion will occur as soon as all outstanding government approvals for the revised transaction have been granted and the carve outs of the Algerian asset and Norwegian subsidiary, which are progressing well, have been completed.
Edison E&P operational review
The information provided in the following Edison E&P operational review has been obtained from Edison E&P internal reports.
Southern Europe
Producing assets
Edison E&P's Southern European assets delivered average working interest production of 9.7 kboed (55% gas) during 1H 2020, towards the top end of the full year guidance range of 8 - 10.5 kboed.
In order to preserve capital in the current commodity price environment much of the activity previously planned for 2020 has been deferred, including the Calipso and Leoni sidetracks (both Italy), which will now be included in the 2021 programme.
Argo Cassiopea
In light of the macro environment, Edison E&P is working closely with ENI to streamline this development project. First gas continues to be expected during 2023.
Exploration and appraisal
In Croatia, Edison E&P expects to spud the Irena-2 appraisal well in 4Q 2020. It will target the same gas-bearing horizon that was successful in Irena-1 and, in the event of a success, the well will be suspended for future production.
Egypt
Abu Qir
Egypt delivered 38 kboed of production during 1H 2020, approximately 90% of which was gas (200 mmcfd / 1 bcm), ahead of full year 2020 market guidance of 34 - 37 kboed (of which 90% is gas: 197 - 215 mmcfd or 2.0 - 2.2 bcm). The four-well infill drilling programme has been deferred until after start-up of the NEA / NI greenfield development.
NEA / NI
Contractor commercial bids for the Engineering, Procurement, Installation and Commissioning ("EPIC") contracts were received during August 2020 and are currently being assessed by Edison E&P. Edison E&P and Energean expect to take FID on the NEA project later in 2020.
Exploration
In June 2020, Edison E&P submitted a formal request to enter the second exploration period in the North East Hap'y Offshore block (Edison E&P, 30%). Although the exploration well drilled during the first exploration phase did not find commercial hydrocarbons, Edison E&P and ENI are evaluating a large, Zohr-like structure for a potential well in the second exploration phase.
Following completion of the commitment well in the North Thekah Offshore licence, Edison E&P has decided to relinquish the licence.
Receivables
At 30 June 2020, net receivables (after provision for bad and doubtful debts) in Egypt were $212 million (31 December 2019: $222 million), of which $131 million (31 December 2019: $126 million) were classified as overdue. $82 million of the overdue receivables balance is currently held by EGPC as collateral for exploration financial commitments on the North Thekah, North East Hap'y and South Idku exploration licences. All three wells have now been drilled and completed and the amounts held as collateral are expected to be released into the pool of receivables available for recovery.
Cash collection from EGPC during the period was $101 million.
United Kingdom
Production
1H 2020 production in the UK North Sea was 2.3 kboed (35% gas, 0.02 bcm). This is ahead of full year guidance of 1 - 2 kboed primarily due to better-than-forecast uptime.
Perenco has shut in the Trent field, awaiting higher gas prices before resuming production. As Trent is the host facility for production from the Tors fields, the Tors fields are currently offline. Production from the Tors fields represents approximately 10% of the full year budget. As such, this shut in is not expected to materially impact performance against the full year guidance range.
Appraisal
The two-well Glengorm appraisal campaign is expected to commence in late 2020.
2020 pro forma guidance - combined business[11]
| FY 2020 Guidance
| 1H 2020 |
Production |
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Egypt (kboe/d) | 34 - 37 | 38.1 |
Southern Europe (kboe/d) | 9.5 - 12.5 | 11.7 |
UK North Sea (kboe/d) | 1 - 2 | 2.3 |
Total pro forma production (kboe/d) | 44.5 - 51.5 | 52.1 |
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Financials | 2020 | 1H 2020 |
Consolidated net debt ($ million) | 1,400 - 1,450[12] | 861.4 |
Net debt including Energean's pro-rata share of Israel debt only (excluding Kerogen minority) ($ million) | 1,100 - 1,12512 | 597.4 |
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Operating Costs & G&A |
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- Israel ($ million) | - | - |
- Egypt ($ million) | 55 - 60 | 26.5 |
- Southern Europe ($ million) | 105 - 125 | 74.5 |
- UK North Sea ($ million) | 25 - 30 | 17.9 |
- Energean G&A ($ million) | 15 | 5.3 |
- Edison G&A ($ million) | 25 - 30 | Included in Southern Europe opex |
Operating costs & G&A ($ million) | 225 - 260 | 124.2 |
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Development and production capital expenditure |
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- Israel ($ million) | 475 - 525 | 235.3 |
- Egypt ($ million) | 20-30 | 5.6 |
- Southern Europe ($ million) | 35 - 40 | 7.3 |
- UK North Sea ($ million) | 10 - 15 | 1.5 |
- Other ($ million) | - | 0.5 |
Total Pro Forma Development & Production Capital Expenditure ($ million) | 540 - 610 | 250.2 |
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Exploration Expenditure |
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- Israel ($ million) | 5 | 4.8 |
- Egypt ($ million) | 70 | 58.3 |
- Southern Europe ($ million) | 5 | 0.7 |
- UK North Sea ($ million) | 15 | 7.1 |
Total Exploration Expenditure ($ million) | 95 | 70.9 |
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Decommissioning expenditure ($ million) | - | - |
Energean Financial Review
Financial results summary
| 1H 2020
| 1H 2019
| Change |
Av. daily working interest production (kboed) | 2.1 | 3.9 | (46.2%) |
Sales revenue ($m) | 2.1 | 40.0 | (94.8%) |
Realised oil price ($/boe) | 9.1 | 58.3 | (84.4%) |
Cost of production[13] ($m) | 10.4 | 13.5 | (23.0%) |
Cost of production per barrel ($/boe) | 27.5 | 19.0 | 44.7% |
SG&A | 6.9 | 5.5 | 25.5% |
Adjusted EBITDAX[14] ($m) | (8.9) | 24.0 | (137.1%) |
(Loss) after tax ($m) | (77.3) | (4.5) | (1618%) |
Cash flow from operating activities ($m) | (14.5) | 23.7 | (161.2%) |
Capital expenditure ($m) | 244.3 | 346.9 | (29.6%) |
| 1H 2020
| FY 2019
| Change |
Net debt (cash) ($m) | 861.4 | 561.6 | 53.4% |
Net debt including Energean's pro-rata share of Israel debt only (excluding Kerogen minority) ($ million)[15] | 597.4 | 367.8 | 62.4% |
Net debt / equity (%) | 72.7% | 44.5% | 63.2% |
Revenue, production and commodity prices
Working interest production from Greece averaged 2.1 kbopd, a decrease of 46.2% for the period (1H 2019: 3.9 kbopd). 1H 2020 revenue was $2.1 million, a 94.8% decrease for the period (1H 2019: $40.0 million).
The reduction in revenue for the period reflects i) the reduced production levels at Prinos which has resulted from the reduced level of investment during the period of strategic review and fewer cargo liftings; and ii) the lower commodity price environment. During 1H 2020, there was one shipment of 212 kbbls (1H 2019: 669 kbbls through two shipments), which occurred on 29 March 2020. This generated $1.9 million of revenue (1H 2019: $39.4 million) and reflected a net realised price of $9.1/bbl (1H 2019: $58.3/bbl).
During 1H 2020, the average Brent price was $40/bbl versus $64.2/bbl in 1H 2019. Pricing of the first cargo of the year was based on April 2020 commodity prices, during which Brent averaged $18.5/bbl, underpinning the level of revenues for the period.
A second cargo was sold on 14 July 2020, generating $7.6 million of revenues. 211 kbbls of crude were lifted, reflecting a net realised price of $35.9/bbl.
1H 2020 Revenue of $2.1 million includes $0.2 million in relation to sulphur sales (1H 2019: $0.6 million).
Cost of production
Cost of production is a non-IFRS measure that is used by the Group as a useful indicator of the Group's underlying cash costs to produce hydrocarbons. The Group uses the measure to compare operational performance period-to-period, to monitor cost and assess operational efficiency. Cost of production is calculated as cost of sales, adjusted for depreciation and hydrocarbon inventory movements.
The spare processing capacity in the Prinos infrastructure provides a high level of operational leverage. Consequent to the reduced investment during the strategic review, production has declined between 1H 2019 and 1H 2020 and this has resulted in a 44.5% increase in per barrel cost of production, from $19/bbl in 1H 2019 to $27.5/bbl in 1H 2020. Cost saving initiatives have been launched to reduce the overall cost of production required to produce Prinos field oil. These initiatives are largely responsible for the reduction in costs from $13.5 million during 1H 2019 to $10.4 million during 1H 2020.
Depreciation, impairments and write-offs
Depreciation charges on production and development assets before impairments decreased by 33% to $11.6 million (1H 2019: $17.3 million) due to decreased production and reduced capital expenditure in the Prinos area. On a per barrel of production basis, this represented a 20% increase to $30/bbl (1H 2019: $25/bbl).
During the period, indicators for impairment were identified for the Prinos cash generating unit. This was due to a reduction in both short-term and long-term commodity price assumptions, combined with a change in the Group's forecasts for production from the Prinos area assets. As a result, Energean recognised an impairment charge of $63.0 million in 1H 2020 (1H 2019: $nil).
Selling, General and Administrative expenses ("SG&A")
Energean incurred SG&A costs of $6.9 million in 1H 2020. This represents a 25% increase versus the comparable period last year (1H 2019: $5.5 million) and is due to increased share-based payment charges and the additional staffing and administrative costs caused by the rapid growth of the Group's portfolio and the efforts associated with developing the projects.
Other income and expenses
Other expenses of $15.8 million (1H 2019: $3.5 million) include several one-off items that are not expected to be incurred in future years. These include $8.4 million of transaction costs in relation to the Edison E&P acquisition, a write-down of $4.9 million relating to the disposal of the Energean Force rig unit, and $1.5 million of restructuring costs that relate to cost saving initiatives in the Prinos area assets.
Other income of $8.9 million (1H 2019: $2.0 million) includes the $5.0 million termination fee that was payable by Neptune Energy in relation to the termination of its sale and purchase agreement to buy the UK North Sea and Norwegian subsidiaries, pursuant to Energean's acquisition of Edison E&P, and $3.9 million of other income related to waivers obtained for specific accounts payables balances in the Greek subsidiary. Other income in 1H 2019 was limited to $2.0 million, which related mainly to a bank liability that was written off during the period.
Finance income / costs
Net finance income in 1H 2020 was $0.8 million (1H 2019: net finance costs of $5.9 million), composed of $3.6 million (1H 2019: $8.2 million) of finance costs after capitalisation and $4.4 million (1H 2019: $2.2 million) of finance income.
During 1H 2020 in Israel, Energean incurred $34.1 million (1H 2019: $7.4 million) of interest expenses relating to the senior credit facility for the Karish development and additional finance arrangement fees, $3.3 million (1H 2019: $3.5 million) of interest expenses in relation to the deferred acquisition payments that are payable to the sellers of the Karish and Tanin leases and $0.4 million of other commitment charges, representing gross finance expenses of $37.8 million (1H 2019: $11.0 million). This amount has been fully capitalised onto the balance sheet.
Energean incurred $5.7 million (1H 2019: $7.2 million) of interest expenses in relation to its Greek RBL facilities, of which $2.7 million (1H 2019: $1.4 million) was capitalised on the balance sheet.
The primary component of interest income was a $3.9 million contribution resulted from the revised estimated loan cash flow in the entity that holds Energean's Greek assets.
Crude oil hedging
Energean has no crude oil hedges outstanding as of 30 June 2020 (1H 2019: $nil).
Taxation
Energean recorded taxation income of $21.8 million in 1H 2020 (1H 2019: $1.4 million tax expense), composed primarily of deferred taxation income, the majority of which is related to impairment losses for the Greek assets.
Adjusted EBITDAX
Adjusted EBITDAX is a non-IFRS measure used by the Group to measure business performance. It is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, share-based payment charge, impairment of property, plant and equipment, other income and expenses, net finance costs and exploration and evaluation expenses. The Group presents adjusted EBITDAX as it is used in assessing the Group's growth and operational efficiencies as it illustrates the underlying performance of the Group's business by excluding items not considered by management to reflect the underlying operations of the Group.
| 1H 2020 $m | 1H 2019 $m |
Adjusted EBITDAX[16] | (8.9) | 24.0 |
Reconciliation to profit / (loss): |
|
|
Depreciation and amortisation | (12.8) | (17.7) |
Share-based payment charge | (1.2) | (0.5) |
Impairment losses | (63.0) | - |
Exploration and evaluation expense | (0.5) | (0.5) |
Other expenses | (15.8) | (3.5) |
Other income | 8.9 | 2.0 |
Finance income | 4.4 | 0.8 |
Finance cost | (3.6) | (6.7) |
Net foreign exchange gain/(loss) | (6.6) | (1.0) |
Taxation income / (expense) | 21.8 | (1.4) |
Profit / (loss) from continuing operations | (77.3) | (4.5) |
Operating cash flow
In 1H 2020, Energean recorded a cash outflow from operations before working capital of $15.2 million, versus a cash inflow of $20.9 million in 1H 2019. After working capital movements, the cash outflow in 1H 2020 was $14.5 million versus a cash inflow of $23.7 million in 1H 2019. The year-on-year decrease in operating cash flow has been driven by the reduction in revenues delivered between the two periods and $7.5 million of expenditure relating to acquisition costs for the proposed acquisition of Edison E&P paid in the period. As discussed above, this reduction in revenues during the period is due to i) a lower level of production and consequent lower number of barrels sold; ii) timing of liftings; and iii) the lower commodity price environment.
Capital expenditure
Capital Expenditure is defined as additions to property, plant and equipment and intangible exploration and evaluation assets less lease asset additions, asset additions due to decommissioning provisions, capitalised share-based payment charge, capitalised borrowing costs and certain other non-cash adjustments. The Directors believe that capital expenditure is a useful indicator of the Group's organic expenditure on oil and gas development assets, exploration and evaluation assets incurred during a period because it eliminates certain accounting adjustments such as capitalised borrowing costs and decommissioning asset additions.
|
| ||
| 1H 2020 |
| 1H 2019 |
| $m |
| $m |
Additions to property, plant and equipment | 279.8 |
| 336.7 |
Additions to intangible exploration and evaluation assets | 6.8 |
| 37.5 |
Less: |
|
|
|
Capitalised borrowing cost | (40.6) |
| (12.4) |
Leased assets additions and modifications | (0.9) |
| (9.8) |
Capitalised share-based payment charge | (0.0) |
| (1.2) |
Capitalised depreciation | (0.3) |
| (1.6) |
Change in environmental rehabilitation provision | (0.5) |
| (2.4) |
Total capital expenditures | 244.3 |
| 346.8 |
Movement in working capital | (1.1) |
| 194.4 |
Cash capital expenditures per the cash flow statement | 243.2[17] |
| 541.2 |
The breakdown of capital expenditures during 1H 2020 and 1H 2019 was as follows:
| 1H 2020 | 1H 2019 |
| Capital expenditure $m | Capital expenditure $m |
Development and Production |
|
|
Israel | 234.9 | 263.4 |
Greece | 2.5 | 46.2 |
Other | 0.1 | - |
Total | 237.5 | 309.6 |
|
|
|
Exploration and Appraisal |
|
|
Israel | 4.8 | 30.2 |
Greece | 0.3 | 2.5 |
Montenegro | 0.4 | 4.6 |
Total | 5.5 | 37.3 |
Net cash / debt and gearing ratio
Net debt is defined as the Group's total borrowings less cash and cash equivalents. Management believes that net debt is a useful indicator of the Group's indebtedness, financial flexibility and capital structure because it indicates the level of borrowings after taking account of any cash and cash equivalents that could be used to reduce borrowings. The Group defines capital as total equity and calculates the gearing ratio as net debt divided by capital.
Net debt reconciliation | 1H 2020 $m | 1H 2019 $m | 31 December 2019 $m |
EBRD facilities | 138.0 | 157.2 | 159.8 |
Israel Project Finance facility ($1,450m) | 956.0 | 276.6 | 756.2 |
Edison reserve-based lending facility ($220m) | - | - |
|
Total borrowings | 1,094.0 | 433.8 | 916.0 |
Cash and cash equivalents | (232.5) | (43.5) | (354.4) |
Total net debt / (cash) | 861.5 | 390.3 | 561.6 |
Capital | 1,184.7 | 1,084.7 | 1,260.7 |
Gearing ratio | 72.7% | 36.0% | 44.5% |
Net debt excluding Kerogen minority reconciliation | 1H 2020 $m | 1H 2019 $m | 31 December 2019 $m |
Total net debt / (cash) | 861.5 | 390.3 | 561.6 |
Kerogen minority pro-rata (30%) share of Israel debt | (264.1) | (73.5) | (193.7) |
Net debt including Energean's pro-rata share of Israel debt only (excluding Kerogen minority) | 597.4 | 316.8 | 367.9 |
Israel senior credit facility
In March 2020, Energean Israel increased the size of its senior credit facility amount from $1.275 billion to $1.45 billion.
New reserve-based lending facility
In June 2020, Energean signed a new RBL with a group of lending banks in order to fund a portion of the cash consideration to be paid by the Company for the acquisition of Edison E&P, to fund transaction costs and for general corporate purposes. The new facility is composed of a single senior secured revolving reserve-based credit facility of up to $220 million, which may be drawn by way of loans or LCs. The facility limit may be increased by up to $200 million (for a total facility limit of up to $420 million) subject to certain conditions contained in the accordion provisions of the new facility.
In connection with the new RBL, Energean has entered into a standalone bilateral LC facility with ING Bank N.V. for up to GBP 80 million, provided for the purpose of issuing LCs for the United Kingdom decommissioning obligations and obligations under the United Kingdom licences. This LC facility does not impact upon the availability of the new reserve-based lending facility
The new RBL is drafted on the basis of a customary reducing borrowing base facility arrangement whereby the maximum amount that can be drawn on any date is calculated as the lesser of the total commitments (currently $220 million) and the borrowing base amount, which is subject to customary semi-annual redeterminations.
The new reserve-based lending facility has a tenor of six years from the closing date. The interest rate is LIBOR plus a margin of 4.75% during the first, second and third years after closing, and 5.75% thereafter. The facility contains customary covenants, which include, but are not limited to i) net debt to EBITDAX ratio of 3.5x; and ii) EBITDAX to finance charges of greater than 2x.
Greek reserve-based lending facility
In January 2020, Energean made a prepayment under its EBRD RBL of $19 million, to coincide with the commencement of the loan amortisation. Its lenders, for both the EBRD facility and the Romanian tranche of the loan, simultaneously cancelled undrawn commitments under the loan. As such, the loan should be considered fully drawn. Amortisation on the RBL is currently $19 million for each six-month period until maturity in October 2023.
In June 2020, Energean Oil and Gas S.A. Limited, a wholly owned subsidiary of Energean, agreed a waiver with its lenders under the EBRD RBL under which all financial covenant ratios have been waived until October 2021. The next redetermination of the loan borrowing base has also been agreed as October 2021, rather than the customary six-month period.
Principal risks and uncertainties
Effective risk management is fundamental to achieving our strategic objectives and protecting our personnel, assets, shareholder value and our reputation. The Board has overall responsibility for determining the nature and extent of the risks it is willing to take in achieving the strategic objectives of the Group and ensuring that such risks are managed effectively. A key aspect of this is ensuring the maintenance of a sound system of internal control and risk management. For all the known risks facing the business, Energean attempts to minimise the likelihood and mitigate the impact. Energean has a zero tolerance to financial fraud or ethics non-compliance and ensures that HSE risks are managed to levels that are as low as reasonably practicable.
COVID-19 related risks
Operating during the COVID-19 outbreak
The main event of the first half of 2020 was undoubtedly the COVID-19 pandemic, which has negatively impacted international economic activity, the oil industry and the capital markets. The economic environment, largely shaped by the COVID-19 pandemic, has been exceptionally tough for the profitability of Energean. The social and economic impact of the pandemic significantly hurt demand for hydrocarbons and caused a sharp drop in oil and gas prices.
The future impacts of COVID-19 are impossible to predict and could include i) uncertainty around commodity prices ii) uncertainty around the recovery of demand and iii) potentially, new waves of infection and associated impacts on operations.
Even in these extraordinary times, Energean continued to deliver progress on the Karish project and achieve a number of key milestones, while safeguarding the health and safety of its employees, contractors and suppliers.
Operations: FPSO: Prior to COVID-19, the hull sailaway from China had been delayed to 31 March 2020, a delay of 3.5 months from the scheduled date of 15 December 2019. This delay could have been extended even further due to the COVID-19 outbreak. However, due to measures taken by the Company and its contractors, work progressed well at the yard in China and the hull was able to sailaway to Singapore during April 2020. Upon arrival in Singapore, Energean was informed of a temporary halt to operations in the yard, designed to limit the spread of COVID-19. The yard reopened on 2 June 2020 but, due to ongoing restrictions imposed by the Singaporean government and designed to further limit the spread of COVID-19, the build-up in the workforce in the yard was slow. During early August, a significant number of new workers were allowed back onto the project and an isolated lift of the E-house occurred on 24 August 2020 with full lifting operations expected to commence in the coming weeks. Subsea operations on the project have proceeded in line with the plan and have not been materially affected by COVID-19. First gas from the project is on track for in 2H 2021. The company has issued force majeure notices to its Israeli gas sales customers to mitigate any penalties arising from the delays to first gas that were caused by COVID-19.
Moreover, Energean has taken steps to quickly understand and mitigate the potential impact on its wider supply chain from the COVID-19 threat.
People: In this environment, effective communication plans are in place to respond to the changing demands of the crisis. As part of its HSE policies, the Company already has an adequate communicable-illness policy in place. The Company has also issued safety precautions, including remote-working guidelines in order to enable Energean's people to stay safe and to protect each other and their communities. Energean personnel have demonstrated the ability to respond to difficult conditions, providing optimism for the future.
Business continuity is continuously tested in light of all potential COVID-19 threat events with an emphasis on employees, supply chain contacts, stakeholders and the completion of the Edison E&P acquisition.
Overview of other key risks
The Group's principal risks for the remaining six months of the year are set out below:
Strategic risks
· Failure to deliver the Karish gas field project, offshore Israel, on schedule and/or within budget.
· Risks related to the acquisition of Edison E&P, including:
o Completion, since the acquisition is subject to the satisfaction (or waiver) of certain conditions.
o Integration, since the success of the transaction will depend on Energean's ability to integrate Edison E&P, including bringing together the cultures and capabilities of both organisations in an effective manner.
Financial risks
· Financial ability and flexibility risk
· Treasury and trading risk
· Liquidity risk and restricted funding risk
The above financial risks encompass the risk of erosion of financial strength and value through revenue deterioration and inadequate liquidity / funding due to adverse commodity price movements, poor capital and cost discipline and poor balance sheet management.
Political and regulatory risks
· Risk of disruption due to local community and political influence in Israel: the risk of loss or damage to relationships with the Israeli government and other stakeholders, jeopardising the Company's ability to conduct business.
· Risk of disruption to business due to political, economic and military conditions in Israel and the region. The Company, with an expanding presence in the Middle East and the Eastern Mediterranean, operates in a historically sensitive geopolitical environment where exposure to a range of political developments at the local or regional level could result in business disruption. The Company has furthermore pursued new opportunities in countries where political, economic and social transition may take place. Political instability changes to the regulatory environment or taxation, international sanctions, expropriation or nationalisation of property, civil strife, strokes, insurrection, acts of terrorism or war may disrupt or curtail existing operations and/or future business development activities. Such eventualities may also affect the recovery of company assets or result in additional costs, particularly given the long-term nature of major projects involving significant capital expenditure.
· Climate change abatement legislation may have a material adverse effect on the oil and gas industry. Risk of loss due to climate change legislation and regulatory initiatives restricting emissions of greenhouse gases.
Operational, counterparty and conduct risks
· HSE Inherently hazardous industry subject to comprehensive legislation. The risk of loss resulting from inadequate procedures and processes, technical failure, human errors or external events. Climate change legislation and regulatory initiatives restricting emissions of greenhouse gases.
· Cyber security risk. The risk of loss resulting from inadequate procedures and processes, technical failure, human error or external events.
· Corporate Reputation and Culture/Ethics/Compliance Risk. Risk of a major breach of Energean's values, Energean's Corporate Culture and Business Ethics Policy, lease agreements or major laws and regulations with a potential to seriously damage the Company's reputation or result in criminal prosecution, severe fines or material unexpected costs.
· Counterparty risk. The risk of loss or damage due to counterparties' default or otherwise failure to fulfil their obligations. Once the Edison E&P transaction complete, this includes the recoverability of receivables from EGPC
These risks are consistent with those identified at 31 December 2019. The Board continues to actively monitor the effect of Covid-19 on global oil and gas markets and the Company's operations. However, in respect to the identification of principal risks, the primary risks associated with Covid-19 are considered to be embedded within the existing principal risks, including the potential impact of the pandemic on commodity price volatility and access to capital. Further information detailing the way in which these risks are mitigated can be found in Energean's 2019 Annual Report and Accounts, which is available at www.energean.com.
Events since 30 June 2020
Shareholders voted unanimously in favour of the acquisition of Edison E&P at a general meeting that was held on 20 July 2020.
Activity in the Admiralty Yard in Singapore has accelerated since 30 June 2020. In the first week of September, the workforce on the project averaged more than 480 workers per day.
The E-house was lifted on 24 August 2020 with the full lifting programme expected to commence in the coming weeks.
Going Concern Statement
The Group carefully manages its risk to a shortage of funds by monitoring its funding position and its liquidity risk.
Cash forecasts are regularly produced based on, inter alia, the Group's latest life of field production and expenditure forecasts, management's best estimate of future commodity prices (based on recent forward curves) and the Group's borrowing facilities.
In addition, on a regular basis, the Group performs sensitivity tests of its liquidity position for changes in crude oil price, production rates and expected completion of various ongoing projects.
In March 2020 the price of oil collapsed following a disagreement between OPEC+ countries on production levels. This fall in price was compounded by the perceived lack of future demand for oil caused by disruptions to businesses and economic activity as a result of COVID-19. Whilst the OPEC+ countries, together with a wider group of producers, subsequently agreed to lower daily production levels, the continuing uncertainty over the future demand for oil as a result of the continuing impact of COVID-19 is restricting the recovery of the oil price.
The impact of COVID-19 and the current economic environment has been considered as part of the going concern assessment. The Group's going concern assessment has taken account of potential impacts of COVID-19 and the current economic environment to create an adjusted base case. This reflects the current business disruption including (i) delay to key projects, (ii) deterioration in economic conditions and the resulting impact on oil and gas prices and (iii) the ability to operate effectively during a period of remote working.
The Group's adjusted base case includes the below actions, with a base case forecast assumed oil price of US$45/bbl in 2H 2020 and US$50/bbl 2021 and PSV gas prices of €12.5/ MWh in 2H 2020 and €15.0/ MWh in 2021, respectively and production in line with prevailing rates.
1. Edison E&P Acquisition:
· In May 2020, Energean announced that it entered into further amended terms for its proposed acquisition of Edison E&P following which, inter alia, the Norwegian subsidiary will be formally excluded from the transaction perimeter. As a result of the above adjustments, the gross consideration for the transaction has been reduced to $284 million from an original enterprise value of $750 million.
· On 20 June 2020, Energean signed a $220 million Reserve Based Lending facility ("RBL") with ING, Natixis and Deutsche Bank in order to fund a portion of the cash consideration to be paid by the Company for the acquisition of Edison E&P, to fund transaction costs and for general corporate purposes. The facility limit may be increased by up to $200 million (for a total facility limit of up to $420 million) subject to certain conditions contained in the accordion provisions of the new facility.
2. Karish Field Development, Israel:
· In March 2020 the Karish Project Finance Facility was increased by $175 million to ensure the Group is well funded for any impact of delay on the project (particularly prudent in light of COVID-19 and recent market turbulence).
· A portion of the facility can also be used for further developments in Israel and for appraisal expenditure.
· The Project Finance Facility is available during construction and currently has $420 million still available.
3. Greek RBL
In June 2020, the Group agreed a waiver with its lenders under the EBRD reserve-based lending facility whereby all financial covenant ratios have been waived until October 2021. The next redetermination of the borrowing base has also been agreed as October 2021, rather than the customary six-month period.
Forecast liquidity has been assessed under a number of stressed scenarios and a reverse stress test performed to support this assertion.
The sensitivities are designed to model potential downside scenarios relating to COVID19, whereby the Group experiences:
· A period of depressed economic activity across the entire going concern period, with resulting reduction in revenues as a result of sustained reduced oil & gas prices;
· Further delays in its key projects Karish in Israel, NEA in Egypt and Cassiopea in Italy, including the impact of delay in supply of goods and materials.
This is done to identify risks to liquidity and covenant compliance and enable management to formulate appropriate and timely mitigation strategies in order to manage the risk of funds shortfalls or covenant breaches and to ensure the Group's ability to continue as a going concern.
Should a more extreme downside scenario occur, prudent mitigating actions that can be executed in the necessary timeframe could be taken such as a tightening of operating cost and reductions in other discretionary exploration and development expenditures.
In forming an assessment on the Group's ability to continue as a going concern and its review of the forecasted cashflow of the Group over the next 16months (from the date of approval of the interim condensed consolidated financial statements) the Board has made significant judgements about:
· the duration of the low oil price environment; and
· the Group's ability to implement the mitigating actions within the Group's control
After careful consideration, the Directors are satisfied that the Group has sufficient financial resources to continue in operation for the foreseeable future, for a period of not less than 12 months from the date of this report. For these reasons, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements.
Statement of Directors' responsibilities
The Directors confirm that to the best of their knowledge:
1) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
2) The interim management report contains a fair review of the information required by FTR 4.2R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
3) The interim management report includes a true and fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
Mathios Rigas Panos Benos
Chief Executive Officer Chief Financial Officer
9 September 2020 9 September 2020
Forward looking statements
This announcement contains statements that are, or are deemed to be, forward-looking statements. In some instances, forward-looking statements can be identified by the use of terms such as "projects", "forecasts", "anticipates", "expects", "believes", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results and events to differ materially from those expressed in or implied by such forward-looking statements, including, but not limited to: general economic and business conditions; demand for the Company's products and services; competitive factors in the industries in which the Company operates; exchange rate fluctuations; legislative, fiscal and regulatory developments; political risks; terrorism, acts of war and pandemics; changes in law and legal interpretations; and the impact of technological change. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this announcement is subject to change without notice.
INDEPENDENT REVIEW REPORT TO ENERGEAN PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and notes 1 to 26. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
9 September 2020
Condensed Consolidated Income StatementSix months ended 30 June 2020
|
|
|
30 June (Unaudited) |
|||
|
|
|
2020 |
|
2019 |
|
|
|
$'000 |
|
$'000 |
|
Consolidated income statement |
Notes |
|
|
|
|
Revenue |
4 |
2,070 |
|
40,012 |
|
Cost of Sales |
5(a) |
( 17,934 ) |
|
(28,611) |
|
Gross (loss)/profit |
|
( 15,864 ) |
|
11,401 |
|
|
|
|
|
|
|
Administrative expenses |
5(b) |
(6,853) |
|
(5,345) |
|
Selling and distribution expenses |
5(c) |
(72) |
|
(199) |
|
Exploration and evaluation expenses |
5(d) |
(529) |
|
(547) |
|
Impairment of property, plant and equipment |
10 |
(63,005) |
|
- |
|
Other expenses |
5(e) |
( 15,843 ) |
|
(3,451) |
|
Other income |
5(f) |
8,914 |
|
1,994 |
|
Operating (loss)/profit |
|
(93,252) |
|
3,853 |
|
Finance Income |
6 |
4,383 |
|
2,220 |
|
Finance Costs |
6 |
(3,563) |
|
(8,160) |
|
Net foreign exchange loss |
6 |
(6,637) |
|
(1,020) |
|
Loss before tax |
|
(99,069) |
|
(3,107) |
|
|
|
|
|
|
|
Taxation income / (expense) |
8 |
21,801 |
|
(1,381) |
|
Loss for the period |
|
(77,268) |
|
(4,488) |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Owners of the parent |
|
(76,826) |
|
(4,450) |
|
Non-controlling Interests |
|
(442) |
|
(38) |
|
|
|
(77,268) |
|
(4,488) |
|
|
|
|
|
|
|
Basic and diluted total loss per share (cents per share) |
||||
|
Basic |
9 |
($0.43) |
|
($0.03) |
|
Diluted |
9 |
($0.43) |
|
($0.03) |
Condensed Consolidated Statement of Comprehensive IncomeSix months ended 30 June 2020
|
|
| 30 June (Unaudited) | ||
|
| 2020 |
| 2019 |
|
| $'000 |
| $'000 |
Consolidated statement of comprehensive income |
|
|
| |
Loss for the year |
| (77,268) |
| (4,488) |
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
Items that may be reclassified subsequently to profit or loss |
|
|
|
|
Cash Flow Hedge, net of tax |
| (8,878) |
| 691 |
Exchange difference on the translation of foreign operations, net of tax |
| (1,075) |
| (971) |
Other comprehensive loss after tax |
| (9,953) |
| (280) |
|
|
|
|
|
Total comprehensive loss for the period |
| (87,221) |
| (4,768) |
|
|
|
|
|
Total comprehensive loss attributable to: |
|
|
|
|
Owners of the parent |
| (84,116) |
| (4,937) |
Non-controlling Interests |
| (3,105) |
| 169 |
|
| (87,221) |
| (4,768) |
|
||||||
|
|
|
30 June 2020 (Unaudited) |
|
|
|
|
|
|
Notes |
$'000 |
|
|
$'000 |
|
|
ASSETS |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
Property, plant and equipment |
10 |
2,096,475 |
|
|
1, 902,271 |
|
|
Intangible assets |
11 |
78,406 |
|
|
71,876 |
|
|
Goodwill |
|
75,800 |
|
|
75,800 |
|
|
Other receivables |
15 |
3,660 |
|
|
4,076 |
|
|
Deferred tax asset |
12 |
54,270 |
|
|
33,038 |
|
|
|
|
2,308,611 |
|
|
2, 087,061 |
|
|
Current assets |
|
|
|
|
|
|
|
Inventories |
14 |
10,810 |
|
|
6,797 |
|
|
Trade and other receivables |
15 |
56,488 |
|
|
59,892 |
|
|
Cash and cash equivalents |
13 |
232,459 |
|
|
354,419 |
|
|
Non-current assets classified as held for sale |
16 |
1,500 |
|
|
- |
|
|
|
|
301,257 |
|
|
421,10 8 |
|
|
Total assets |
|
2,609,868 |
|
|
2,5 08 , 169 |
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
Equity attributable to owners of the parent |
|
|
|
|
|
|
|
Share capital |
17 |
2,367 |
|
|
2,367 |
|
|
Share premium |
17 |
915,388 |
|
|
915,38 8 |
|
|
Merger reserve |
17 |
139,903 |
|
|
139,903 |
|
|
Other reserve |
|
(353) |
|
|
5,86 2 |
|
|
Foreign currency translation reserve |
|
(20,339) |
|
|
(19,2 6 4) |
|
|
Share-based payment reserve |
|
11,457 |
|
|
10,094 |
|
|
Retained earnings |
|
(130,146) |
|
|
( 53,320 ) |
|
|
Equity attributable to equity holders of the parent |
|
918,277 |
|
|
1,0 01 , 030 |
|
|
Non-controlling interests |
18 |
266,367 |
|
|
259,72 2 |
|
|
Total equity |
|
1,184,644 |
|
|
1,2 60 , 752 |
|
|
Non-current liabilities |
|
|
|
|
|
|
|
Borrowings |
19 |
1,055,818 |
|
|
877,932 |
|
|
Deferred tax liabilities |
12 |
70,315 |
|
|
73,381 |
|
|
Retirement benefit liability |
20 |
4,110 |
|
|
4,265 |
|
|
Provisions |
21 |
13,82 1 |
|
|
13,145 |
|
|
Other payables |
22 |
61,555 |
|
|
72,401 |
|
|
|
|
1,205,61 9 |
|
|
1,041,124 |
|
|
Current liabilities |
|
|
|
|
|
|
|
Trade and other payables |
22 |
170,467 |
|
|
168,10 8 |
|
|
Current portion of borrowings |
19 |
38,040 |
|
|
38,052 |
|
|
Derivative financial instruments |
7 |
10,966 |
|
|
- |
|
|
Provisions |
21 |
132 |
|
|
133 |
|
|
|
|
219,605 |
|
|
206,29 3 |
|
|
Total liabilities |
|
1,425,224 |
|
|
1,247,41 7 |
|
|
Total equity and liabilities |
|
2,609,868 |
|
|
2,5 08 , 169 |
|
Condensed Consolidated Statement of Changes in EquitySix months ended 30 June 2020
|
|
|
Share Capital |
Share Premium 1 |
Other Reserve 2 |
Share based payment reserve 3 |
Translation Reserve 4 |
Retained earnings |
Merger reserve 5 |
Total |
Non Controlling Interests |
Total |
|
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
|
At 1 January 2019 |
2,066 |
658,805 |
5,907 |
6,617 |
(15,513) |
29,993 |
139,903 |
827,778 |
260,045 |
1,087,823 |
|
Loss for the period |
- |
- |
- |
- |
- |
(4,450) |
- |
(4,450) |
(38) |
(4,488) |
|
Cash flow hedge , net of tax |
- |
- |
484 |
- |
- |
- |
- |
484 |
207 |
691 |
|
Exchange difference on the translation of foreign operations |
- |
- |
- |
- |
(971) |
- |
- |
(971) |
- |
(971) |
|
Total comprehensive income |
- |
- |
484 |
- |
(971) |
(4,450) |
- |
(4,937) |
169 |
(4,768) |
|
Transactions with owners of the company |
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares |
2 |
- |
- |
- |
- |
- |
- |
2 |
- |
2 |
|
Share plan reserve |
- |
- |
- |
1,691 |
- |
- |
- |
1,691 |
- |
1,691 |
|
At 30 June 2019 |
2,068 |
658,805 |
6,391 |
8,308 |
(16,484) |
25,543 |
139,903 |
824,534 |
260,214 |
1,084,748 |
Condensed Consolidated Statement of Changes in EquitySix months ended 30 June 2020 |
| Share Capital | Share Premium1 | Other Reserve2 | Share based payment reserve3 | Translation Reserve4 | Retained earnings | Merger reserve5 | Total | Non Controlling Interests | Total |
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
At 1 January 2020 | 2,367 | 915,388 | 5,862 | 10,094 | (19,264) | (53,320) | 139,903 | 1,001,030 | 259,722 | 1,260,752 |
Loss for the period | - | - | - | - | - | (76,825) | - | (76,825) | (442) | (77,267) |
Cash flow hedge, net of tax | - | - | (6,215) | - | - | - | - | (6,215) | (2,663) | (8,878) |
Exchange difference on the translation of foreign operations | - | - | - | - | (1,075) | - | - | (1,075) | - | (1,075) |
Total comprehensive income | - | - | (6,215) | - | (1,075) | (76,825) | - | (84,115) | (3,105) | (87,220) |
Transactions with owners of the company | - | - | - | - | - | - | - | - | - | - |
Share capital increase in subsidiary (note 18) | - | - | - | - | - | - | - | - | 9,750 | 9,750 |
Share plan reserve | - | - | - | 1,363 | - | - | - | 1,363 | - | 1,363 |
At 30 June 2020 | 2,367 | 915,388 | (353) | 11,457 | (20,339) | (130,145) | 139,903 | 918,278 | 266,367 | 1,184,645 |
1 The share premium account represents the total net proceeds on issue of the Company's shares in excess of their nominal value of £0.01 per share less amounts transferred to any other reserves.
2 Other reserves are used to recognise remeasurement gain or loss on cash flow hedge and actuarial gain or loss from the defined retirement benefit plan.
3 The share-based payments reserve is used to recognise the value of equity-settled share-based payments granted to parties including employees and key management personnel, as part of their remuneration.
4 The foreign currency translation reserve is used to record unrealised exchange differences arising from the translation of the financial statements of entities within the Group that have a functional currency other than US dollar.
5 Refer to note 17
Condensed Consolidated Statement of Cash FlowsSix months ended 30 June 2020
|
|
||||
|
|
30 June (Unaudited) |
||||
|
|
|
2020 |
|
2019 |
|
|
|
Note |
$'000 |
|
$'000 |
|
|
Operating activities |
|
|
|
|
|
|
Loss before taxation |
|
(99,06 9 ) |
|
(3,107) |
|
|
Adjustments to reconcile profit/(loss) before taxation to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation , depletion and amortisation |
10, 11 |
12,787 |
|
17,704 |
|
|
Impairment loss on property, plant and equipment |
10 |
63,005 |
|
- |
|
|
Impairment on asset held for sale |
10 |
4,935 |
|
- |
|
|
(Decrease)/increase in provisions |
|
(192) |
|
50 |
|
|
Finance income |
6 |
(4,383) |
|
(755) |
|
|
Finance costs |
6 |
3,563 |
|
6,695 |
|
|
Other liabilities written back |
5(f) |
(3,839) |
|
(1,283) |
|
|
Share-based payment charge |
23 |
1,332 |
|
527 |
|
|
Net foreign exchange gain/(loss) |
6 |
6,637 |
|
1,020 |
|
|
Cash flow from operations before working capital adjustments |
|
(15,224) |
|
20,851 |
|
|
(Increase) in inventories |
|
(4,012) |
|
(2,314) |
|
|
Decrease/(increase) in trade and other receivables |
|
4,565 |
|
(1,507) |
|
|
Increase in trade and other payables |
|
225 |
|
6,754 |
|
|
Cash flow from operations |
|
(14,446) |
|
23,784 |
|
|
Taxes paid |
|
(55) |
|
(133) |
|
|
Net cash (outflow)/inflow from operating activities |
|
(14,501) |
|
23,651 |
|
|
Investing activities |
|
|
|
|
|
|
Payment for purchase of property, plant and equipment |
|
(231,178) |
|
(503,181) |
|
|
Payment for exploration and evaluation, and other intangible assets |
|
(12,077) |
|
(38,202) |
|
|
Proceeds from disposal of property plant and equipment |
|
150 |
|
- |
|
|
Interest received |
|
470 |
|
725 |
|
|
Net cash used in investing activities |
|
(242,635) |
|
(540,658) |
|
|
Financing activities |
|
|
|
|
|
|
Proceeds from issue of share capital |
|
- |
|
2 |
|
|
Drawdown of borrowings |
19 |
200,000 |
|
363,474 |
|
|
Repayment of borrowings |
19 |
(19,021) |
|
- |
|
|
Proceeds from capital increases by non-controlling interests |
18 |
9,750 |
|
- |
|
|
Advance payment from future sale of property, plant and equipment (INGL) |
22 |
- |
|
5,090 |
|
|
Repayment of obligations under leases |
|
(4,713) |
|
(454) |
|
|
Debt arrangement fees paid |
|
(6,170) |
|
(8,449) |
|
|
Finance cost paid for deferred license payments |
|
(3,993) |
|
(4,492) |
|
|
Finance costs paid |
|
(34,197) |
|
(14,689) |
|
|
Net cash from financing activities |
|
141,656 |
|
340,482 |
|
|
Net decrease in cash and cash equivalents |
|
(115,480) |
|
(176,525) |
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
At beginning of the period |
|
354,419 |
|
219,822 |
|
|
Effect of exchange rate fluctuations on cash held |
|
(6,480) |
|
153 |
|
|
At end of the period |
13 |
232,459 |
|
43,450 |
|
Notes to the Condensed Interim Consolidated Financial Statements
1. Corporate Information
Energean plc (the 'Company') was incorporated in England & Wales on 8 May 2017 as a public company with limited liability, under the Companies Act 2006. Its registered office is at 44 Baker Street, London W1U 7AL, United Kingdom. The Company and all subsidiaries controlled by the Company, are together referred to as "the Group".
The Group has been established with the objective of exploration, production and commercialisation of crude oil and natural gas in Greece, Israel, North Africa and the wider Eastern Mediterranean. On 29th of May 2020 the Company following shareholder approval at the Annual General Meeting of the Company, changed its name from Energean Oil & Gas plc to Energean plc.
The Group's core assets as of 30 June 2020 are comprised of:
|
|
Asset |
Country |
Group's working interest |
Partner's working interest |
Field Phase |
|||||||
|
1. |
Karish 1 |
Israel |
70% |
30% |
Development |
|||||||
|
2. |
Tanin 1 |
Israel |
70% |
30% |
Development |
|||||||
| 3 | Blocks 12, 21, 22, 23, 31 | Israel | 70% | 30% | Exploration | |||||||
| 4. |
Four
licenses |
Israel | 56% | 44% | Exploration | |||||||
|
5. |
Prinos |
Greece |
100% |
N/A |
Production |
|||||||
|
6. |
Prinos North |
Greece |
100% |
N/A |
Production / undeveloped |
|||||||
|
7. |
South Kavala |
Greece |
100% |
N/A |
Production |
|||||||
|
8. |
Epsilon |
Greece |
100% |
N/A |
Undeveloped |
|||||||
|
9. |
Prinos exploration area |
Greece |
100% |
N/A |
Exploration |
|||||||
|
10. |
Katakolo |
Greece |
100% |
N/A |
Undeveloped |
|||||||
|
11. |
Ioannina |
Greece |
40% |
60% |
Exploration |
|||||||
|
12. |
Aitolokarnania |
Greece |
40% |
60% |
Exploration |
|||||||
|
13. |
Block 26 |
Montenegro |
100% |
N/A |
Exploration |
|||||||
|
14. |
Block 30 |
Montenegro |
100% |
N/A |
Exploration |
|||||||
|
|
||||||||||||
1 Energean Israel holds 100% interests in Karish and Tanin leases and in Blocks 12, 21, 22, 23 and 31 and 80% interests in four licenses in Zone D in Israel's Exclusive Economic Zone ("EEZ") with Israeli Opportunity holding the remaining 20%. At 30 June 2020, Energean Israel is a subsidiary in which the Group holds a 70% economic interest. Kerogen Capital holds the remaining 30% of Energean Israel.
The principal operations of the Group are in Greece, Israel and Montenegro.
Subsidiaries
|
Name of subsidiary |
Country of incorporation / registered office |
Principal activities |
Shareholding
At 30 June 2020 |
Shareholding
At 31 December 2019 |
|
Energean E&P Holdings Ltd |
22 Lefkonos Street , 2064 Nicosia, Cyprus |
Holding Company |
100 |
100 |
|
Energean Capital Ltd |
22 Lefkonos Street , 2064 Nicosia, Cyprus |
Holding Company |
100 |
100 |
|
Energean MED Limited |
44 Baker Street, London W1U 7AL, United Kingdom |
Oil and gas exploration, development and production |
100 |
100 |
|
Energean Oil & Gas S.A. |
32 Kifissias Ave. 151 25 Marousi Athens, Greece |
Oil and gas exploration, development and production |
100 |
100 |
|
Energean International Limited |
22 Lefkonos Street , 2064 Nicosia, Cyprus |
Oil and gas exploration, development and production |
100 |
100 |
|
Energean Israel Limited |
22 Lefkonos Street , 2064 Nicosia, Cyprus |
Oil and gas exploration, development and production |
70 |
70 |
|
Energean Montenegro Limited |
22 Lefkonos Street , 2064 Nicosia, Cyprus |
Oil and gas exploration, development and production |
100 |
100 |
|
Energean Israel Finance SARL |
560A rue de Neudorf, L-2220, Luxembourg |
Financing activities |
70 |
70 |
|
Energean Israel Transmission LTD |
9, Metsada St., Bnei Brak 5120109 ISRAEL |
Gas transportation license holder |
70 |
70 |
|
Energean Hellas Limited |
Lefkonos 22 St., 2064, Nicosia, Cyprus |
Holding Company |
100 |
- |
|
Energean Egypt Limited |
Lefkonos 22 St., 2064, Nicosia, Cyprus |
Holding Company |
100 |
- |
2. Basis of preparation
2.1 Basis of preparation
The unaudited condensed consolidated interim financial statements for the six months ended 30 June 2020 included in this interim report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union, and unless otherwise disclosed have been prepared on the basis of the same accounting policies and methods of computation as applied in the Group's Annual Report for the year ended 31 December 2019.
The consolidated financial statements have been prepared on a historical cost basis and are presented in US Dollars, which is also the Company's functional currency, rounded to the nearest thousand dollars ($'000) except as otherwise indicated.
The US dollar is the currency that mainly influences sales prices and revenue estimates, and also highly affects its operations. The functional currencies of the Group's main subsidiaries are as follows: for Energean E&P Holdings Ltd, Energean Oil & Gas S.A and Energean Montenegro is Euro, for Energean International Limited and Energean Israel Limited is US$.
Comparative figures for the period to 30 June 2019 and 31 December 2019 are for the period ended on that date.
The interim financial statements do not constitute statutory accounts of the Group within the meaning of Section 435 of the Companies Act 2006 and do not include all the information and disclosures required in the annual financial statements. The interim financial statements, should be read in conjunction with the Group's Annual Report and Accounts for the year ended 31 December 2019, which were prepared in accordance with IFRSs as adopted by the European Union and which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified with no reference to matters to which the auditor drew attention by way of emphasis and no statement under s498(2) or s498(3) of the Companies Act 2006.
Going concern
The Group carefully manages its risk to a shortage of funds by monitoring its funding position and its liquidity risk.
Cash forecasts are regularly produced based on, inter alia, the Group's latest life of field production and expenditure forecasts, management's best estimate of future commodity prices (based on recent forward curves) and the Group's borrowing facilities.
In addition, on a regular basis, the Group performs sensitivity tests of its liquidity position for changes in crude oil price, production rates and expected completion of various ongoing projects.
In March 2020 the price of oil collapsed following a disagreement between OPEC+ countries on production levels. This fall in price was compounded by the perceived lack of future demand for oil caused by disruptions to businesses and economic activity as a result of COVID-19. Whilst the OPEC+ countries, together with a wider group of producers, subsequently agreed to lower daily production levels, the continuing uncertainty over the future demand for oil as a result of the continuing impact of COVID-19 is restricting the recovery of the oil price.
The impact of COVID-19 and the current economic environment has been considered as part of the going concern assessment. The Group's going concern assessment has taken account of potential impacts of Covid-19 and the current economic environment to create an adjusted base case. This reflects the current business disruption including (i) delay to key projects, (ii) deterioration in economic conditions and the resulting impact on oil and gas prices and (iii) the ability to operate effectively during a period of remote working.
The Group's adjusted base case includes the below actions, with a base case forecast assumed oil price of US$45/bbl in 2H 2020 and US$50/bbl 2021 and PSV gas prices of €12.5/ MWh in 2H 2020 and €15.0/ MWh in 2021, respectively and production in line with prevailing rates.
4. Edison E&P Acquisition:
· In May 2020, Energean announced that it entered into further amended terms for its proposed acquisition of Edison E&P following which, inter alia, the Norwegian subsidiary will be formally excluded from the transaction perimeter. As a result of the above adjustments, the gross consideration for the transaction has been reduced to $284 million from an original enterprise value of $750 million
· On 20 June 2020, Energean signed a $220 million Reserve Based Lending facility ("RBL") with ING, Natixis and Deutsche Bank in order to fund a portion of the cash consideration to be paid by the Company for the acquisition of Edison E&P, to fund transaction costs and for general corporate purposes. The facility limit may be increased by up to $200 million (for a total facility limit of up to $420 million) subject to certain conditions contained in the accordion provisions of the new facility
5. Karish Field Development, Israel:
· In March 2020 the Karish Project Finance Facility was increased by $175 million to ensure the Group is well funded for any impact of delay on the project (particularly prudent in light of COVID-19 and recent market turbulence)
· A portion of the facility can also be used for further developments in Israel and for appraisal expenditure
· The Project Finance Facility is available during construction and currently has $420 million still available
6. Greek RBL
In June 2020, the Group agreed a waiver with its lenders under the EBRD reserve-based lending facility whereby all financial covenant ratios have been waived until October 2021. The next redetermination of the borrowing base has also been agreed as October 2021, rather than the customary six-month period.
Forecast liquidity has been assessed under a number of stressed scenarios and a reverse stress test performed to support this assertion.
The sensitivities are designed to model potential downside scenarios relating to Covid-19, whereby the Group experiences:
· A period of depressed economic activity across the entire going concern period, with resulting reduction in revenues as a result of sustained reduced oil & gas prices;
· Further delays in its key projects Karish in Israel, NEA in Egypt and Cassiopea in Italy, including the impact of delay in supply of goods and materials.
This is done to identify risks to liquidity and covenant compliance and enable management to formulate appropriate and timely mitigation strategies in order to manage the risk of funds shortfalls or covenant breaches and to ensure the Group's ability to continue as a going concern.
Should a more extreme downside scenario occur, prudent mitigating actions that can be executed in the necessary timeframe could be taken such as a tightening of operating cost and reductions in other discretionary exploration and development expenditures.
In forming an assessment on the Group's ability to continue as a going concern and its review of the forecasted cashflow of the Group over the next 16 months (from the date of approval of the interim condensed consolidated financial statements) the Board has made significant judgements about:
· the duration of the low oil price environment; and
· the Group's ability to implement the mitigating actions within the Group's control
After careful consideration, the Directors are satisfied that the Group has sufficient financial resources to continue in operation for the foreseeable future, for a period of not less than 12 months from the date of this report. For these reasons, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements.
New and amended accounting standards and interpretations
The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of the new standards and interpretations effective as of 1 January 2020. None of the amendments that are effective as of 1 January 2020 had significant impact on the Group's interim condensed consolidated financial statements.
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective as at 1 January 2020. Several amendments and interpretations apply for the first time in 2020, but do not have an impact on the interim condensed consolidated financial statements of the Group.
Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact future periods should the Group enter into any business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no impact on the consolidated financial statements of the Group.
2.2 Approval of accounts
These unaudited condensed interim consolidated financial statements were approved by the Board of Directors on 9th September 2020.
3. Segmental Reporting
The information reported to the Group's Chief Executive Officer and Chief Financial Officer (Chief Operating Decision Makers) for the purposes of resource allocation and assessment of segment performance is focused on four operating segments: Greece (including production asset of Prinos and non-producing assets of Ioannina, Katakolo and Aitolokarnania), Israel, Montenegro (including two non producing exploration assets) and New Ventures.
The Group's reportable segments under IFRS 8 Operating Segments are Greece and Israel. Segments that do not exceed the quantitative thresholds for reporting information about operating segments have been included in Other.
Segment revenues, results and reconciliation to profit before tax
The following is an analysis of the Group's revenue, results and reconciliation to profit before tax by reportable segment:
|
|
Greece |
Israel |
Other & intercompany transactions |
Total |
|
|
$'000 |
$'000 |
$'000 |
$'000 |
|
Six months ended 30 June 2020 (unaudited) |
|
|
|
|
|
Revenue[18] |
5,339 |
- |
(3,269) |
2,070 |
|
Adjusted EBITDAX[19] |
(4,584) |
(2,084) |
(2,180) |
( 8,848 ) |
|
Reconciliation to profit before tax: |
|
|
|
|
|
Depreciation and amortisation expenses |
(12,448) |
(149) |
(190) |
(12,787) |
|
Share-based payment charge |
(13) |
(39) |
(1,102) |
(1,154) |
|
Exploration and evaluation expenses |
(183) |
- |
(346) |
(529) |
|
Impairment loss on property, plant and equipment |
(63,005) |
- |
- |
(63,005) |
|
Other expenses |
( 6,995 ) |
(385) |
(8,463) |
( 15,843 ) |
|
Other income |
3,913 |
- |
5,001 |
8,914 |
|
Finance income |
4,094 |
169 |
120 |
4,383 |
|
Finance costs |
(3,449) |
(26) |
(88) |
(3,563) |
|
Net foreign exchange gain/(loss) |
(262) |
243 |
(6,618) |
(6,637) |
|
Loss before income tax |
(82,932) |
(2,271) |
(13,866) |
(99,069) |
|
Taxation income |
20,999 |
413 |
389 |
21,801 |
|
Loss for the period |
(61,933) |
(1,858) |
(13,477) |
(77,268) |
|
Six months ended 30 June 2019 (unaudited) |
|
|
|
|
|
Revenue |
42,537 |
- |
(2,525) |
40,012 |
|
Adjusted EBITDAX |
26,831 |
(1,329) |
(1,454) |
24,048 |
|
Reconciliation to profit before tax: |
|
|
|
|
|
Depreciation and amortisation expenses |
(17,483) |
(12) |
(209) |
(17,704) |
|
Share-based payment charge |
(211) |
(38) |
(238) |
(487) |
|
Exploration and evaluation expenses |
(2) |
(54) |
(491) |
(547) |
|
Other income/(expense) |
1,407 |
- |
(2,864) |
(1,457) |
|
Finance income |
1,757 |
743 |
(280) |
2,220 |
|
Finance costs |
(7,847) |
(233) |
(80) |
(8,160) |
|
Net foreign exchange gain/(loss) |
(1,888) |
851 |
17 |
(1,020) |
|
Profit/(loss) before income tax |
2,564 |
(72) |
(5,599) |
(3,107) |
|
Taxation expense |
(1,344) |
(26) |
(11) |
(1,381) |
|
Loss) for the period |
1,220 |
(98) |
(5,610) |
(4,488) |
The following table presents assets and liabilities information for the Group's operating segments as at 30 June 2020 and 31 December 2019, respectively:
|
|
Greece |
Israel |
Other & intercompany transactions |
Total |
|
|
$'000 |
$'000 |
$'000 |
$'000 |
|
Six months ended 30 June 2020 (unaudited) |
|
|
|
|
|
Oil & Gas properties |
230,335 |
1,855,061 |
(1,149) |
2,084,247 |
|
Other property, plant and equipment |
7,474 |
800 |
3,954 |
12,228 |
|
Intangible assets |
17,682 |
130,227 |
6,297 |
154,206 |
|
Other assets |
98,068 |
110,493 |
149,126 |
357,687 |
|
Non-current assets classified as held for sale |
1,500 |
- |
- |
1,500 |
|
Total assets |
355,059 |
2,096,581 |
158,228 |
2,609,868 |
|
Borrowings |
137,859 |
955,999 |
- |
1,093,858 |
|
Other liabilities |
64,800 |
256,208 |
10,358 |
331,366 |
|
Total liabilities |
202,659 |
1,212,207 |
10,358 |
1,425,224 |
|
Other segment information |
|
|
|
|
|
Capital Expenditure: |
|
|
|
|
|
- Property, plant and equipment |
2,514 |
234,879 |
525 |
237,918 |
|
- Intangible, exploration and evaluation assets |
331 |
4,849 |
260 |
5,440 |
|
Year ended 31 December 2019 |
|
|
|
|
|
Oil & Gas properties |
302,327 |
1,582,202 |
(87 8 ) |
1, 883,651 |
|
Other fixed assets |
16,253 |
558 |
1,80 9 |
18,6 20 |
|
Intangible assets |
16,059 |
125,501 |
6,116 |
147,676 |
|
Other assets |
77,529 |
145,524 |
235,16 9 |
45 8 , 222 |
|
Total assets |
412,168 |
1,853,785 |
242,216 |
2,5 08,169 |
|
Borrowings |
159,76 8 |
756,216 |
- |
915,984 |
|
Other liabilities |
85,705 |
235,345 |
10,38 3 |
331,43 3 |
|
Total liabilities |
245,473 |
991,561 |
10,383 |
1,247,41 7 |
|
Capital Expenditure: |
|
|
|
|
|
- Property, plant and equipment |
59,481 |
565,413 |
( 748 ) |
624,146 |
|
- Intangible, exploration and evaluation assets |
8,941 |
47,085 |
4,937 |
60,963 |
Segment Cash flows
|
|
Greece |
Israel |
Other & intercompany transactions |
Total |
|
|
$'000 |
$'000 |
$'000 |
$'000 |
|
Six months ended 30 June 2020 (unaudited) |
|
|
|
|
|
Net cash from (used in) operating activities |
(6,209) |
(1,359) |
(6,933) |
(14,501) |
|
Net cash (used in) investing activities |
(14,380) |
(227,713) |
(542) |
(242,635) |
|
Net cash from financing activities |
19,746 |
194,484 |
(72,574) |
141,656 |
|
Net increase/(decrease) in cash and cash equivalents |
(843) |
(34,588) |
(80,049) |
(115,480) |
|
Cash and cash equivalents at end of the period |
5,273 |
75,846 |
151,340 |
232,459 |
|
Six months ended 30 June 2019 (unaudited) |
|
|
|
|
|
Net cash from (used in) operating activities |
25,806 |
(3,062) |
907 |
23,651 |
|
Net cash (used in) investing activities |
(37,851) |
(495,612) |
(7,195) |
(540,658) |
|
Net cash from financing activities |
7,515 |
333,348 |
(381) |
340,482 |
|
Net increase/(decrease) in cash and cash equivalents |
(4,530) |
(165,326) |
(6,669) |
(176,525) |
|
Cash and cash equivalents at end of the period |
84 |
31,601 |
11,765 |
43,450 |
4. Revenue
|
|
30 June (Unaudited) |
||
|
|
2020 |
|
2019 |
|
|
$'000 |
|
$'000 |
|
Crude oil sales |
1,914 |
|
39,417 |
|
Petroleum products sales |
156 |
|
595 |
|
Total revenue |
2,070 |
|
40,012 |
During 1H 2020, there was one shipment of 212 kbbls (1H 2019: 669 kbbls through two shipments), which occurred on 29 March 2020. Pricing of the first cargo of the year was based on April 2020 commodity prices, during which Brent averaged $18.5/bbl reflected a net realised price of $9.1/bbl (period ended 30 June 2019: weighted average of $58.3). A second cargo was sold on 14 July 2020 reflecting a net realised price of $35.9/bbl.
5. Operating profit/(loss) before taxation
|
|
|
|
30 June (Unaudited) |
||
|
|
|
|
2020 |
|
2019 |
|
|
|
|
$'000 |
|
$'000 |
|
(a) |
Cost of sales |
|
|
|
|
|
|
Staff costs |
|
6,153 |
|
6,672 |
|
|
Energy cost |
|
2,550 |
|
3,632 |
|
|
Royalty payable |
|
- |
|
28 |
|
|
Other operating costs |
|
1,717 |
|
3,166 |
|
|
Depreciation and amortisation |
|
11,581 |
|
17,301 |
|
|
Stock overlift/underlift movement |
|
( 4,067 ) |
|
(2,188) |
|
|
Total cost of sales |
|
17,934 |
|
28,611 |
|
|
|
|
|
|
|
|
(b) |
Administrative expenses |
|
|
|
|
|
|
Staff costs |
|
2,744 |
|
2,192 |
|
|
Other General & administration expenses |
|
2,570 |
|
2,262 |
|
|
Share-based payment charge included in administrative expenses |
|
1,154 |
|
487 |
|
|
Depreciation and amortisation |
|
385 |
|
404 |
|
|
Total administrative expenses |
|
6,853 |
|
5,345 |
|
(c) |
Selling and distribution expense |
|
|
|
|
|
|
Staff costs |
|
22 |
|
27 |
|
|
Other Selling and distribution expense |
|
50 |
|
172 |
|
|
Total selling and distribution expense |
|
72 |
|
199 |
|
|
|
|
|
|
|
|
(d) |
Exploration and evaluation expenses |
|
|
|
|
|
|
Staff costs for Exploration and evaluation activities |
|
141 |
|
242 |
|
|
Other exploration and evaluation expenses |
|
388 |
|
305 |
|
|
Total exploration and evaluation expenses |
|
529 |
|
547 |
|
(e) |
Other operating expenses |
|
|
|
|
|
|
Transaction costs in relation to future acquisitions |
|
8,405 |
|
2,482 |
|
|
Impairment on asset held for sale |
|
4,935 |
|
- |
|
|
Restructuring costs |
|
1,524 |
|
383 |
|
|
Other indemnities |
|
203 |
|
- |
|
|
Write down of inventory |
|
124 |
|
- |
|
|
Expected credit losses |
|
267 |
|
54 |
|
|
Other expenses |
|
385 |
|
532 |
|
|
|
|
15,843 |
|
3,451 |
|
(f) |
Other income |
|
|
|
|
|
|
Income from accounts payable written off¹ |
|
3,839 |
|
- |
|
|
Write-back bank liabilities 2 ¹ |
|
- |
|
1,283 |
|
|
Proceeds from termination of agreement with Neptune Energy3 |
|
5,000 |
|
- |
|
|
Other income |
|
75 |
|
711 |
|
|
|
|
8,914 |
|
1,994 |
1 Related to derecognition of specific accounts payables balances in the Greek subsidiary following waiver agreements with creditors
2 Related to old bank liability transacted with on European Emission Allowances credits ("EUAs") that became time barred.
3 Related to termination fees paid from Neptune Energy following the termination of the agreement for Neptune Energy to acquire Edison E&P's UK and Norwegian subsidiaries from the Group.
6. Net finance cost
|
|
|
30 June (Unaudited) |
|
||
|
|
|
2020 |
|
2019 |
|
|
|
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
|
Interest on bank borrowings |
|
37,608 |
|
14,732 |
|
|
Interest expense on long term payables |
3,345 |
|
3,580 |
|
|
|
Less amounts included in the cost of qualifying assets |
(37,932) |
|
(11,695) |
|
|
|
|
|
3,021 |
|
6,617 |
|
|
Finance and arrangement fees |
|
2,184 |
|
1,309 |
|
|
Other finance costs and bank charges |
678 |
|
617 |
|
|
|
Unwinding of discount on right of use asset |
116 |
|
168 |
|
|
|
Unwinding of discount on provision for decommissioning |
180 |
|
166 |
|
|
|
Less amounts included in the cost of qualifying assets |
|
(2,616) |
|
(717) |
|
|
Total finance costs |
|
3,563 |
|
8,160 |
|
|
Interest income from time deposits |
(396) |
|
(755) |
|
|
|
Gain from revised estimated loan cash flow |
(3,987) |
|
(1,465) |
|
|
|
Total finance revenue |
|
(4,383) |
|
(2,220) |
|
|
Foreign exchange losses/(gain) |
|
6,637 |
|
1,020 |
|
|
Net financing costs |
|
5,817 |
|
6,960 |
|
7. Fair value measurements
The information set out below provides information about how the Group determines the fair values of various financial assets and liabilities.
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 categorized in level 2 of the fair value hierarchy.
Fair values of derivative financial instruments
The Group held financial instruments at fair value at 30 June 2020 related to interest rate derivatives. 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. Fair value is the amount for which the asset or liability could be exchanged in an arm's length transaction at the relevant date. Where available, fair values are determined using quoted prices in active markets. To the extent that market prices are not available, fair values are estimated by reference to market-based transactions, or using standard valuation techniques for the applicable instruments and commodities involved. Values recorded are as at the balance sheet date, and will not necessarily be realised.
As at 30 June 2020 the Group's interest rate derivatives are Level 2 (31 December 2019: Level 2). There were no transfers between fair value levels during the year.
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 30 June 2020 (Unaudited) |
|
|||
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
Financial assets |
|
|
|
|
|
|
|
Trade and other receivables (note 15) |
|
- |
2,956 |
- |
2,956 |
|
|
Cash and cash equivalents and bank deposits (note 13) |
232,459 |
- |
- |
232,459 |
|
|
|
Total |
|
232,459 |
2,956 |
- |
235,415 |
|
|
Financial liabilities |
|
|
|
|
|
|
|
Financial liabilities held at amortised cost: |
|
|
|
|
|
|
|
Borrowings (note 19) |
|
- |
1,093,858 |
- |
1,093,858 |
|
|
Interest rate derivatives |
|
- |
10,966 |
- |
10,966 |
|
|
Net obligations under finance leases (note 22) |
|
- |
5,436 |
- |
5,436 |
|
|
Deferred licence payments (note 22) |
|
- |
66,474 |
- |
66,474 |
|
|
Total |
|
- |
1,176,734 |
- |
1,176,734 |
|
|
|
|
Fair value hierarchy as at 31 December 2019 |
||||
|
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
Financial assets |
|
|
|
|
|
|
|
Trade and other receivables (note 15) |
|
|
3,528 |
|
3,528 |
|
|
Cash and cash equivalents and bank deposits (note 13) |
354,419 |
|
|
354,419 |
||
|
Total |
|
354,419 |
3,528 |
|
357,947 |
|
|
Financial liabilities |
|
|
|
|
|
|
|
Financial liabilities held at amortised cost: |
|
|
|
|
||
|
Borrowings (note 19) |
|
- |
915,984 |
- |
915,984 |
|
|
Net obligations under finance leases (note 22) |
|
- |
6,111 |
- |
6,111 |
|
|
Deferred licence payments (note 22) |
|
- |
78,139 |
-- |
78,139 |
|
|
Total |
|
|
1,000,234 |
- |
1,000,234 |
|
8. Taxation
(a) Taxation charge
|
|
30 June (Unaudited) |
||
|
|
2020 |
|
2019 |
|
|
$'000 |
|
$'000 |
|
Corporation tax - prior years |
386 |
|
(11) |
|
Deferred tax (Note 12) |
21,415 |
|
(1,370) |
|
Total taxation income / (expense) |
21,801 |
|
(1,381) |
(b) Reconciliation of the total tax charge
The Group calculates its income tax expense as per IAS 34 by applying a weighted average tax rate calculated based on the statutory tax rates of Greece (25%) and Israel (23%) weighted according to the profit or loss before tax earned by the Group in each jurisdiction where deferred tax is recognised. The effective tax rate for the period is -22% (30 June 2019: 44.4%).
The tax (charge)/credit of the period can be reconciled to the loss per the consolidated income statement as follows:
|
|
30 June (Unaudited) |
||
|
|
2020 |
|
2019 |
|
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Profit/(loss) before tax |
(99,069) |
|
(3,107) |
|
|
|
|
|
|
Tax calculated at 24.95% weighted average rate (2019: 25.0%) |
24,724 |
|
777 |
|
Impact of different tax rates |
(19) |
|
(166) |
|
Reassessment of recognized deferred tax asset in the current period |
(90) |
|
(251) |
|
Permanent differences 1 |
(2,608) |
|
(424) |
|
Non recognition of deferred tax on current period losses |
(1,265) |
|
(1,333) |
|
Tax effect of non-taxable income |
625 |
|
|
|
Other adjustments |
47 |
|
27 |
|
Prior year tax |
387 |
|
(11) |
|
Taxation income/(expense) |
21,801 |
|
(1,381) |
1 Permanent differences mainly consisted of non-deductible expenses with the majority relating to transactions costs for the proposed Edison E&P acquisition.
9. Earnings per share
The earnings per share has been calculated by dividing the net profit or loss for the period by the weighted average number of shares outstanding during the period ended 30 June 2020 and 30 June 2019.
|
|
30 June (Unaudited) |
||
|
|
2020 |
|
2019 |
|
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Total (Loss)/Income attributable to equity shareholders |
(76,826) |
|
(4,450) |
|
Effect of dilutive potential ordinary shares |
- |
|
- |
|
|
(76,826) |
|
(4,450) |
|
|
|
|
|
|
|
30 June (Unaudited) |
||
|
|
2020 |
|
2019 |
|
|
Number |
|
Number |
|
Number of shares |
|
|
|
|
Basic weighted average number of shares |
177,089,406 |
|
153,297,878 |
|
Dilutive potential ordinary shares |
- |
|
1,529,538 |
|
Diluted weighted average number of shares |
177,089,406 |
|
154,827,416 |
|
Basic loss per share |
($0.43)/share |
|
($0.03)/share |
|
Diluted loss per share |
($0.43)/share |
|
($0.03)/share |
10. Property, plant and equipment
|
|
Oil and gas properties |
Leased assets |
Other property, plant and equipment |
Total |
|
Property, plant and equipment at Cost |
$'000 |
$'000 |
$'000 |
$'000 |
|
At 1 January 2019 |
1,487,454 |
- |
56,513 |
1,543,967 |
|
Additions |
622, 786 |
123 |
1,238 |
624,1 47 |
|
Adjustment on adoption of IFRS 16 leases |
- |
9,792 |
- |
9,792 |
|
Lease modification |
- |
(699) |
- |
(699) |
|
Capitalized borrowing cost |
39,0 95 |
- |
- |
39,0 95 |
|
Capitalized depreciation |
1,937 |
- |
- |
1,937 |
|
Change in environmental rehabilitation provision |
5,437 |
- |
- |
5,437 |
|
Foreign exchange impact |
(9,546) |
(99) |
(1,052) |
(10,697) |
|
At 1 January 2020 |
2,147,163 |
9,117 |
56,699 |
2,212,9 79 |
|
Additions |
236,901 |
1,812 |
1,048 |
239,761 |
|
Lease modifications |
- |
(959) |
- |
(959) |
|
Transfer to asset held for sale |
(1,627) |
- |
(4,808) |
(6,435) |
|
Capitalized borrowing cost |
39,180 |
- |
- |
39,180 |
|
Capitalised depreciation |
288 |
- |
- |
288 |
|
Change in environmental rehabilitation provision |
534 |
- |
- |
534 |
|
Foreign exchange impact |
(1,809) |
(13) |
(179) |
(2,001) |
|
At 30 June 2020 |
2,420,630 |
9,957 |
52,760 |
2,483,347 |
|
|
|
|
|
|
|
Accumulated Depreciation |
|
|
|
|
|
At 1 January 2019 |
175,122 |
- |
27,141 |
202,263 |
|
Charge for the period |
|
|
|
|
|
-Expensed |
33,206 |
3,019 |
2,577 |
38,802 |
|
-Capitalised to oil and gas properties |
- |
418 |
1,51 9 |
1,93 7 |
|
Impairments |
58,147 |
- |
12,968 |
71,115 |
|
Foreign exchange impact |
( 2,963 ) |
1 1 |
(45 7 ) |
(3,4 09 ) |
|
At 1 January 2020 |
263,512 |
3,448 |
43,74 8 |
310,708 |
|
Charge for the period |
|
|
|
|
|
-Expensed |
10,069 |
1,288 |
1,219 |
12,576 |
|
-Capitalised to oil and gas properties |
- |
288 |
- |
288 |
|
Impairments |
62,452 |
- |
553 |
63,005 |
|
Impairment on asset held for sale |
1,627 |
- |
3,308 |
4,935 |
|
Transfer to asset held for sale |
(1,627) |
- |
(3,308) |
(4,935) |
|
Foreign exchange impact |
350 |
11 |
(66) |
295 |
|
At 30 June 2020 |
336,383 |
5,035 |
45,454 |
386,872 |
|
Net carrying amount |
|
|
|
|
|
At 31 December 2019 |
1, 883 , 651 |
5,669 |
12,95 1 |
1,9 02 , 271 |
|
At 30 June 2020 |
2,084,247 |
4,922 |
7,306 |
2,096,475 |
Included in the carrying amount of leased assets at 30 June 2020 is right of use assets related to Oil and gas properties and Other property, plant and equipment of $1.3 million and $3.6 million respectively.
The depreciation charged on these classes for the six-month ending 30 June 2020 were $1.2 million and $0.1 million respectively
The additions to Oil & gas properties for the period of six months ended 30 June 2020 is mainly due to development costs of Karish field related to the EPCIC contract (FPSO, Sub Sea and On-shore construction cost) at the amount of $161.9 million and development drilling costs at the amount of $49.8 million.
Borrowing costs capitalised for qualifying assets, included in oil & gas properties, for the six months ended 30 June 2020 amounted to $39.2 million (year ended 31 December 2019: $39.1million). The weighted average interest rates used:
· 8.96% (for the six months ended 30 June 2020)
· 9.4 % (for the year ended 31 December 2019)
In 2020 the Group executed an impairment test for the Prinos CGU (Prinos and Epsilon fields). In the period, indicators of impairment were noted for the Prinos CGU, being a reduction in both short-term (Dated Brent forward curve) and long-term price assumptions and a change in the Group's Prinos field production forecast, which have resulted in an impairment of $63.0 million in the carrying value of the Prinos CGU.
The Group applied the following nominal oil price assumptions for impairment assessment in respect of its production asset of Prinos:
|
|
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
|
30 June 2020 |
$40/bbl |
$45/bbl |
$50/bbl |
$55/bbl |
$60/bbl |
$60/bbl inflated at 2% thereafter |
|
|
31 December 2019 |
forward curve ($61.7/bbl) |
forward curve ($58.6/bbl) |
forward curve ($57.2/bbl) |
forward curve ($56.8/bbl) |
forward curve ($57.0/bbl) |
$65.0/bbl
|
$65/bbl inflated at 2% thereafter |
In H1 2020 impairment test the Group applied a 12.01% pre-tax discount rate (2019: 11.9%).
The Group used the value in use in determining the recoverable amount of the cash-generating unit using discounted future cash flows. A reduction in the short and long-term price assumptions by 10% per barrel, are considered to be reasonably possible changes for the purposes of sensitivity analysis. Decreases to oil prices specified above would increase the impairment charge by $77.5 million. A 1 per cent increase in the pre-tax discount rate would increase the impairment by $25.3 million.
Impairment charges for the period also include amount of $4.9 million relating to the disposal of Energean Force rig unit.
11. Intangible assets
|
|
Exploration and evaluation assets |
Other Intangible assets |
Total |
|
|
|
|
$'000 |
$'000 |
$'000 |
|
|
|
Intangibles at Cost |
|
|
|
|
|
|
At 1 January 2019 |
10,310 |
1,641 |
11,951 |
|
|
|
Additions |
60,639 |
324 |
60,963 |
|
|
|
Capitalized borrowing costs |
755 |
- |
755 |
|
|
|
Exchange differences |
(103) |
(24) |
(127) |
|
|
|
At 1 January 2020 |
71,60 1 |
1,94 1 |
73,542 |
|
|
|
Additions |
5,286 |
155 |
5,441 |
|
|
|
Capitalized borrowing costs |
1,368 |
- |
1,368 |
|
|
|
Exchange differences |
(67) |
(5) |
(72) |
|
|
|
At 30 June 2020 |
78,188 |
2,091 |
80,279 |
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation and impairments |
|
|
|
|
|
|
At 1 January 2019 |
261 |
1,135 |
1,396 |
|
|
|
Charge for the period |
- |
252 |
252 |
|
|
|
Exchange differences |
- |
1 8 |
1 8 |
|
|
|
At 1 January 2020 |
261 |
1,405 |
1,666 |
|
|
|
Charge for the period |
- |
211 |
211 |
|
|
|
Exchange differences |
- |
(4) |
(4) |
|
|
|
30 June 2020 |
261 |
1,612 |
1,873 |
|
|
|
|
|
|
|
|
|
|
Net Carrying Amount |
|
|
|
|
|
|
At 31 December 2019 |
71,34 0 |
53 6 |
71,876 |
|
|
|
At 30 June 2020 |
77,927 |
479 |
78,406 |
|
|
Borrowing costs capitalised for qualifying assets for the period ended 30 June 2020 amounted to $1.4 million (31 December 2019: $0.8 million). The weighted average interest rate used was 8.96% (31 December 2019: 9.4%).
12. Net deferred tax (liability)/ asset
|
Deferred tax (liabilities)/assets |
Property, plant and equipment |
Right of use asset (IFRS 16) |
Prepaid expenses and other receivables |
Inventory |
Tax losses |
Retirement benefit liability |
Accrued expenses and other short‑term liabilities |
Total |
|
|
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
$'000 |
|
At 1 January 2019 |
(150,633) |
- |
(1,705) |
67 6 |
85,614 |
820 |
4,3 90 |
(60,838) |
|
Increase / (decrease) for the period through: |
|
|
|
|
|
|
|
|
|
profit or loss (Note 8) |
11,250 |
(1,074) |
829 |
94 |
6,289 |
70 |
3,203 |
20,661 |
|
other comprehensive income |
- |
- |
(130) |
- |
- |
- |
116 |
(1 4 ) |
|
Exchange difference |
1,3 85 |
(4) |
35 |
(37) |
(1,491) |
23 |
(6 3 ) |
( 152 ) |
|
At 1 January 2020 |
( 137,998 ) |
(1,07 8 ) |
(971) |
733 |
90,412 |
913 |
7,64 6 |
( 40,343 ) |
|
Increase / (decrease) for the period through: |
|
|
|
|
|
|
|
|
|
profit or loss (Note 8) |
17,505 |
496 |
79 |
307 |
3,542 |
(21) |
(493) |
21,415 |
|
other comprehensive income |
- |
- |
2,652 |
- |
- |
- |
- |
2,652 |
|
Exchange difference |
474 |
12 |
4 |
3 |
(224) |
(3) |
(35) |
231 |
|
30 June 2020 |
(120,019) |
(570) |
1,764 |
1,043 |
93,730 |
889 |
7,118 |
(16,045) |
|
|
|
30 June 2020 |
31 December 2019 |
|
|
|
$'000 |
$'000 |
|
Deferred tax liabilities |
|
(70,315) |
(73,381) |
|
Deferred tax assets |
|
54,270 |
33,038 |
|
Net deferred tax assets / (liabilities) |
|
(16,045) |
(40,343) |
As per table above, the deferred tax asset of $54.3 million comes exclusively from the Greek subsidiary Energean Oil & Gas SA and represents the net tax losses available to offset future profits, whereas, the deferred tax liabilities of $70.3 million comes from the Israeli entity and is consisted of a deferred tax liability of $76.0 million included in goodwill as part of the consolidation of Energean Israel Limited by Energean E&P Holdings Limited in 2018, offset by a deferred tax asset of $5.7 million in respect of net tax losses available to offset future profits in Israel.
At 30 June 2020 the Group has unused tax losses of $378.1 million (as of 31 December 2019: $364.4 million) available to offset against future profits. Out of the total tax losses, $339.1 million come from the Greek operations whereas amount of $39.0 million comes from the Israeli operations and specifically the Karish licence which is in the development phase and expected to commence production by 2021.
With respect to the Greek tax losses carried forward, the majority of them ($337.7 million) come from the Prinos exploitation area which is the only producing asset of the Group, whereas an amount of $1.4 million comes from Ioannina, Katakolo and Aitoloakarnania areas which are in the exploration phase.
A deferred tax asset has been recognised as of 30 June 2020 of $93.7 million (as of 31 December 2019: $90.4 million) in respect of such tax losses. This represents the losses which are expected to be utilised based on Group's projection of future taxable profits in the jurisdictions in which the losses reside. It is considered probable based on business forecasts that such profits will be available.
Greece
Tax losses can be utilised to offset taxable profits for a period of time that is dictated by the tax legislation of each licence. The above carried forward unused tax losses arise almost exclusively from the Prinos Area. Tax losses incurred under the Prinos licence (Law2779/1999) can be utilised without limitation to offset taxable profits until the termination of Prinos exploitation area. According to the Ioannina, Katakolo and recently granted Aitoloakarnania lease agreements the losses incurred in respect of a particular exploitation area prior to the commencement of any exploitable production shall be carried forward without any restrictions for such period. From the commencement of any exploitable production and thereafter, the general income tax provisions shall apply in relation to the carrying forward of losses (currently 5 years). 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.
Israel
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. Tax losses occurring during the development or construction phases are to be deducted at the depreciation rate of the asset under development in respect of which they were created. 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.
13. Cash and cash equivalents
|
|
30 June |
|
31 December |
|
|
2020 (Unaudited) |
|
2019 |
|
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Cash at bank |
227,966 |
|
349,85 7 |
|
Restricted bank deposits |
4,493 |
|
4,562 |
|
|
232,459 |
|
354,419 |
Bank demand deposits comprise deposits and other short-term money market deposit accounts that are readily convertible into known amounts of cash. The effective interest rate on short‑term bank deposits was 1.13% for the six months period ended 30 June 2020 (year ended 31 December 2019: 1.68%).
Restricted bank deposits comprise mainly cash retained as a bank security pledge for the Group's performance guarantees in its exploration blocks of Israel, Montenegro, Ioannina and Aitolokarnania. These deposits can be used for funding the exploration activities of respective blocks.
14. Inventories
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
| $'000 |
| $'000 |
Raw materials and supplies | 4,401 |
| 2,312 |
Crude oil | 6,409 |
| 4,485 |
Total inventories | 10,810 |
| 6,797 |
The Group's raw materials and supplies consumptions for the six months ended 30 June 2020 was $0.7 million (year ended 31 December 2019: $1.8million).
In the period ended 30 June 2020 the write-down of crude oil inventory to net realisable value amounted to $5.6 million (31 December 2019: $nil million) which is included in "cost of sales".
15. Trade and other receivables
| 30 June |
| 31 December |
| 2020 (Unaudited) |
| 2019 |
| $'000 |
| $'000 |
Trade and other receivables-Current |
|
|
|
Financial items: |
|
|
|
Derivative financial instruments | - |
| 564 |
| - |
| 564 |
Non-financial items: |
|
|
|
Deposits and prepayments¹ | 19,754 |
| 18,155 |
Deferred insurance expenses | 3,760 |
| 5,338 |
Refundable VAT | 30,090 |
| 30,247 |
Trade receivables | 2,824 |
| 5,383 |
Accrued interest income | 35 |
| 182 |
Receivables from related parties | 25 |
| 23 |
| 56,488 |
| 59,328 |
Total trade and other receivables-Current | 56,488 |
| 59,892 |
Trade and other receivables-Non-Current |
|
|
|
Financial items: |
|
|
|
Government subsidies2 | 2,956 |
| 2,964 |
| 2,956 |
| 2,964 |
Non-financial items: |
|
|
|
Deferred Insurance expenses | - |
| 438 |
Other non-current assets | 704 |
| 674 |
Total trade and other receivables-Non-Current | 3,660 |
| 4,076 |
1 Included in deposits and prepayments, are mainly prepayments for goods and services under the GSP Engineering, Procurement, Construction and Installation Contract (EPCIC) for Epsilon project total amount of $13.3 million.
2 Government subsidies mainly relate to grants from Greek Public Body for Employment and Social Inclusion (OAED) to financially support the Kavala Oil S.A. labour cost from manufacturing under the action plan for promoting sustainable employment in underdeveloped or deprived districts of Greece, such as the area of Kavala.
In December 2015, the Group filed a petition against OAED, and the Greek state itself, seeking the payment of US$2.9 million (€2.5 million). Following several postponements of the hearing initiated by the Greek state, the hearing took place in November 2019 and supported the Group's view that this petition will prevail.
16. Non-current asset classified as held for sale
The carrying amount of assets classified as held for sale at 30 June 2020 is $1.5 million, which relate to the sale of the drilling rig Energean Force. Immediately before the classification of Energean Force as asset held for sale the recoverable amount was estimated for certain items of property, plant and equipment and no impairment loss was identified. Following the classification, a write-down of $4.9 million was recognized on 6 April 2020 to reduce the carrying amount of the assets to their fair value less costs to sell.
17. Share capital
On 30 June 2017, the Company also became the parent company of the Group through the acquisition of the full share capital of Energean E&P Holdings Limited, in exchange for 65,643,120 £0.01 ($0.013) shares in the Company issued to the previous shareholders. As of this date, the Company's share capital increased from £50 thousand ($65k) to £706 thousand ($917k). From that point, in the consolidated financial statements, the share capital became that of Energean plc. The previously recognised share capital of $14.9 million and share premium of $125.8 million was eliminated with a corresponding positive merger reserve recognised of $139,903 thousand. The below tables outline the share capital of the Company.
In July 2019 a total of 23,444,445 new ordinary shares have been placed with institutional investors at a price of £9.00 per Placing Share, raising proceeds of approximately $265.1 million (approximately £211 million) before expenses. The Placing Shares issued represent approximately 15.4 per cent of the issued share capital of the Company prior to the Placing.
| Equity share capital allotted and fully paid | Share capital | Share premium |
| Number | $'000 | $'000 |
Issued and authorized |
|
|
|
At 1 January 2019 | 153,152,763 | 2,066 | 658,805 |
Issued during the year |
|
|
|
- New shares | 23,618,583 | 297 | 256,583 |
- Share based payment | 318,060 | 4 | - |
At 31 December 2019 | 177,089,406 | 2,367 | 915,388 |
- Issued during the period | - | - | - |
At 30 June 2020 | 177,089,406 | 2,367 | 915,388 |
18. Non‑controlling interests
Name of subsidiary | Voting rights | Share of total comprehensive loss | Accumulated balance | ||||
30 June (Unaudited) | 31 December | 30 June (Unaudited) | 30 June (Unaudited) | 31 December | |||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||
% | % | $'000 | $'000 | $'000 | $'000 | ||
|
|
|
|
|
|
| |
Kavala Oil S.A | - | - | - | (9) | 92 | 92 | |
Energean Israel Ltd | 30.00 | 30.00 | (3,105) | 178 | 266,275 | 259,630 | |
Total |
|
| (3,105) | 169 | 266,367 | 259,722 | |
Material partly-owned subsidiaries
Energean Israel Limited
On 29 March 2018, following a final investment decision in respect of the Karish and Tanin assets, after acquiring the 50% founders shares , the Group subscribed for additional shares in Energean Israel for an aggregate consideration of $266.7 million, payable in cash. Since completion of this subscription, the Group holds 70% of the shares in Energean Israel, with Kerogen Capital holding the remaining 30%.
In January 2020 Energean Israel Limited issued and allotted to Energean and Kerogen 32,500 total shares at nominal value of $1,000. Total number of shares issued to Energean was 22,750 and 9,750 to Kerogen, for the 70% and 30% of their holding interest to Energean Israel respectively.
The summarised financial information of Energean Israel Limited for the period ended 30 June 2020, is provided below. This information is based on amounts before inter-company eliminations.
Summarized statement of financial position as at 30 June 2020:
| 30 June 2020 | 31 December 2019 |
| $'000 | $'000 |
Current assets | 110,453 | 145,038 |
Non current assets | 1,919,013 | 1,638,566 |
Current liabilities | (127,881) | (93,169) |
Non-current liabilities | (1,014,012) | (825,011) |
Total equity | 887,573 | 865,424 |
Summarized income statement of:
| 30 June 2020 | 30 June 2019 |
| $'000 | $'000 |
Administration expenses | (1,887) | (1,379) |
Other expenses | (385) | - |
Exploration and evaluation expenses | - | (54) |
Operating loss | (2,272) | (1,433) |
|
|
|
Finance income | 412 | 1,594 |
Finance costs | (26) | (233) |
Loss for the year before tax | (1,886) | (72) |
|
|
|
Tax income/ (expense) | 413 | (26) |
Net loss for the period | (1,473) | (98) |
Other comprehensive loss: |
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
Cash Flow hedge | (11,530) | 897 |
Tax relating to items that may be reclassified subsequently to profit or loss | 2,652 | (206) |
Other comprehensive (loss)/income | (8,878) | 691 |
Total comprehensive income/(loss) for the period | (10,351) | 593 |
19. Borrowings
|
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
| |||
|
| $'000 |
| $'000 |
| |||
Net Debt |
|
|
|
|
| |||
Current borrowings |
| 38,040 |
| 38,052 |
| |||
Non-current borrowings |
| 1,055,818 |
| 877,932 |
| |||
Total borrowings |
| 1,093,858 |
| 915,984 |
| |||
Less: Cash and cash equivalents and bank deposits | (232,459) | (354,419) |
|
| ||||
Net (Funds)/Debt (1) |
| 861,399 |
| 561,565 |
| |||
Total equity (2) |
| 1,184,645 |
| 1,260,752 |
| |||
Gearing Ratio (1/2): |
| 72.71% |
| 44.54% |
| |||
EBRD Senior Facility
On 30 January 2018, the Group's existing EBRD Senior Facility Agreement was amended and restated pursuant to the RBL Senior Facility Agreement. The RBL Senior Facility Agreement comprises two facilities-a facility of up to $105.0 million with EBRD and the Black Sea Trade and Development Bank as lenders and a $75.0 million facility pursuant to which the Export-Import Bank of Romania Eximbank SA and Banca Comerciala Intesa Sanpaolo Romania S.A. (with 95% insurance cover from the Romanian ECA) as lenders. Proceeds from the Romanian Club Facility will finance exclusively 85% of the value attributable to goods and services under the GSP Engineering, Procurement, Construction and Installation Contract (EPCIC) contract. The facility is secured by substantially all of the assets of the subsidiary company Energean Oil & Gas S.A. and a guarantee from Energean E&P Holdings and a pledge of its shares in Energean Oil & Gas S.A. The facility has a seven-year tenor and incurs interest on outstanding debt at US dollar LIBOR01 plus an applicable margin (4.9% for the $105.0 million facility and 3.0% for the $75.0 million facility). As at 31 December 2020 an amount of $145.2 million has been drawn down from the EBRD Senior Facility. In January 2020, the Group made a prepayment of $19 million, to coincide with the commencement of the loan. Its lenders, for both the EBRD facility and the Romanian tranche of the loan, simultaneously cancelled outstanding commitments under the loan. As such, the loan should be considered fully drawn. As at 30 June 2020 the amortised carrying value of the loan was $122.2 million.
EBRD Subordinated Facility
In July 2016, the Group signed a EBRD Subordinated Facility Agreement, a subordinated loan agreement with the EBRD, subsequently amended on 8 March 2017, for a $20 million facility to fund the Group's exploration activities. The facility is subject to an interest rate of 4.9% plus LIBOR01, in addition to fees and commission and an EBITDA participation amount of up to 3.5% of EBITDA (if EBITDA is positive) depending on the amount of the facility drawn.
On 28 February 2018, the Group's existing Subordinated Facility Agreement was amended and restated regarding the Maturity Date and EBITDA participation amount. As at 30 June 2020 $20 million has been drawn down from the EBRD Subordinated Facility (year ended 31 December 2019: $20 million). As at 30 June 2020 the amortised carrying value of the loan was $15.7 million.
Senior Credit Facility for the Karish-Tanin Development:
On 2 March 2018, the Group entered into a senior secured project finance for its Karish-Tanin project amounting to $1,275 million. The loan is held at the Energean Israel Limited level (Energean 70%). Once drawn, interest is to be charged at LIBOR + 3.75% over months 1 to 12, LIBOR + 4.00% over months 13 - 24, LIBOR + 4.25% over months 25 - 36 and LIBOR + 4.75% over months 37 - 45. The facility matures in December 2021 and has a bullet repayment on maturity. There is a commitment fee of 30% of the applicable margin.
In March 2020, the Senior Credit Facility was increased to US$1.45 billion, providing an additional US$175 million of liquidity for the Karish project and future appraisal activity in Israel
As at 30 June 2020 amount of $1,030 million was drawn down from the $1,450 million Karish-Tanin project finance facility (31 December 2019: $830.0 million) and the amortised carrying value of the loan was $956.0 million.
Reconciliation of liabilities arising from financing activities
|
|
|
|
| Non-cash adjustments |
| |||||
| 31 December 2019 | Cash inflows | Cash outflows | Reclassifications | Lease liabilities additions | Lease liabilities modifications | Borrowing costs including amortization of arrangement fees | Gain from revised estimated loan cash flow | Fair value changes | 30 June 2020 | |
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
| 999,552 | 200,000 | (77,474) | 2,832 | 1,813 | (959) | 43,491 | (4,051) | 11,530 | 1,176,734 | |
Long -term borrowings | 877,932 | 200,000 | (57,520) | (342) | - | - | 39,799 | (4,051) | - | 1,055,818 | |
Current portion of long-term borrowings | 38,052 | - | - | (12) | - | - | - | - | - | 38,040 | |
Lease liabilities | 6,111 | - | (4,713) | 3,068 | 1,813 | (959) | 116 | - | - | 5,436 | |
Deferred license payments | 78,139 | - | (14,843) | - | - | - | 3,178 | - | - | 66,474 | |
Hedging instrument for long-term borrowings | (682) | - | (398) | 118 | - | - | 398 | - | 11,530 | 10,966 | |
20. Retirement benefit liability
20.1 Provision for retirement benefits
|
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
|
| $'000 |
| $'000 |
Defined benefit obligation |
| 4,110 |
| 4,265 |
Provision for retirement benefits recognised |
| 4,110 |
| 4,265 |
Allocated as: |
|
|
|
|
Non current portion |
| 4,110 |
| 4,265 |
20.2 Defined benefit obligation
|
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
|
| $'000 |
| $'000 |
At 1 January |
| 4,183 |
| 3,659 |
Current service cost |
| 265 |
| 405 |
Interest cost |
| 16 |
| 61 |
Extra payments or expenses |
| 381 |
| 564 |
Actuarial losses - from changes in financial assumptions |
| - |
| 466 |
Benefits paid |
| (797) |
| (824) |
Exchange differences |
| 62 |
| (66) |
At 30 June / 31 December |
| 4,110 |
| 4,265 |
21. Provisions
| Decommissioning | Litigation and other claims | Total |
| $'000 | $'000 | $'000 |
At 1 January 2019 | 7,530 | - | 7,530 |
New provisions and changes in estimates | 5,437 | 133 | 5,570 |
Unwinding of discount | 320 | - | 320 |
Currency translation adjustment | (142) | - | (142) |
At 31 December 2019 | 13,145 | 133 | 13,278 |
Current provisions | - | 133 | 133 |
Non-current provisions | 13,145 | - | 13,145 |
|
|
|
|
At 1 January 2020 | 13,145 | 133 | 13,278 |
New provisions and changes in estimates | 535 | - | 535 |
Unwinding of discount | 180 | - | 180 |
Currency translation adjustment | (39) | (1) | (40) |
At 30 June 2020 | 13,821 | 132 | 13,953 |
Current provisions | - | 132 | 132 |
Non-current provisions | 13,821 | - | 13,821 |
Decommissioning provision
The decommissioning provision represents the present value of decommissioning costs relating to the Prinos asset in Greece.
According to the Prinos concession agreement ratified by the Greek Law, the Group is obliged to plug only the wells opened resulting from own drilling activities.
The decommissioning provision represents the present value of decommissioning costs relating to oil and gas properties, which are expected to be incurred up to 2034, 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 increase of decommissioning liabilities in 2019 is driven by a reduction in the discount rate used to determine the net present value of the decommissioning provision, following the reduction in Greek government debt rates observed in 2019 and by change in the underlying decommissioning cost estimates.
Reviews of estimated future decommissioning and restoration costs and the discount rate applied are carried out annually.
22. Trade and other payables
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
| $'000 |
| $'000 |
Trade and other payables-Current |
|
|
|
Financial items: |
|
|
|
Deferred licence payments due within one year2 | 14,344 |
| 14,843 |
Short term lease liability | 2,777 |
| 3,541 |
| 17,121 |
| 18,384 |
Non-financial items: |
|
|
|
Trade accounts payable1 | 91,546 |
| 95,919 |
Accrued expenses1 | 54,804 |
| 42,026 |
Other creditors | 2,855 |
| 5,641 |
Other finance costs accrued | 2,049 |
| 2,306 |
Social insurance and other taxes | 2,089 |
| 3,774 |
Income taxes | 3 |
| 58 |
| 153,346 |
| 149,724 |
Total | 170,467 |
| 168,108 |
Trade and other payables-Non Current |
|
|
|
Financial items: |
|
|
|
Deferred licence payments | 52,130 |
| 63,296 |
Long term lease liability | 2,659 |
| 2,570 |
Non-financial items: |
|
|
|
Sales consideration received in advance (INGL) 3 | 5,656 |
| 5,306 |
Social insurance | 1,110 |
| 1,229 |
| 61,555 |
| 72,401 |
1Included in trade payables and accrued expenses in FY2019, are mainly Karish field related development expenditures (mainly FPSO and Sub Sea construction cost) which accounts for a total amount of $98.0 million, $58.4 million included in trade payables and $39.6 million in accrued expenses. The change in trade payables and in other payables represents mainly timing differences and levels of work activity in Karish project. Trade and other payables are non-interest bearing.
2 In December 2016, Energean Israel acquired the Karish and Tanin offshore gas fields for $40.0 million closing payment with an obligation to pay additional consideration of $108.5 million plus interest inflated at an annual rate of 4.6% in ten equal annual payments. As at 30 June 2020 the total discounted deferred consideration was $66.5 million (31 December 2019: $78.1 million).
3 In June 2019, Energean signed a Detailed 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 Karish and Tanin FPSO into the Israeli national gas transmission grid. As consideration, INGL will pay Energean 369 million Israeli new shekel (ILS), approximately $102 million for the infrastructure being built by Energean which will be paid in accordance with milestones detailed in the agreement. The agreement covers the onshore section of the Karish and Tanin infrastructure and the near shore section of pipeline extending to approximately 10km offshore. It is intended that the hand over to INGL will become effective shortly after the delivery of first gas from the Karish field expected in 2Q 2021. Following hand over, INGL will be responsible for the operation and maintenance of this part of the infrastructure.
23. Share based payments
Analysis of share-based payment charge
| 30 June (Unaudited) | ||
| 2020 |
| 2019 |
| $'000 |
| $'000 |
|
|
|
|
Employee Share Award Plan | - |
| 691 |
Energean DSBP Plan | 290 |
| 127 |
Energean Long Term Incentive Plans | 1,075 |
| 873 |
Total share-based payment charge | 1,365 |
| 1,691 |
Capitalised to intangible and tangible assets | 33 |
| 1,164 |
Expensed as administration expenses | 1,154 |
| 487 |
Expensed to exploration and evaluation expenses | 174 |
| 40 |
Expensed as other expenses | 4 |
| - |
Total share-based payment charge | 1,365 |
| 1,691 |
Energean Long Term Incentive Plan (LTIP)
Under the LTIP, Senior Management can be granted nil exercise price options, normally exercisable from three to ten years following grant provided an individual remains in employment. The size of awards depends on both annual performance measures and Total Shareholder Return (TSR) over a period of up to three years. There are no post-grant performance conditions. No dividends are paid over the vesting period; however, Energean'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 30 June 2020 was 1.9 years, number of shares outstanding 1,858,005 and weighted average price at grant date £5.84.
Deferred Share Bonus Plan (DSBP)
Under the DSBP, the portion of any annual bonus above 30 per cent of the base salary of a Senior Executive nominated by the Remuneration Committee was 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 30 June 2020 was 1.3 years, number of shares outstanding 196,514 and price at grant date £6.27.
24. Related parties
24a. Related party relationships
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
The Directors of Energean Plc are considered to be the only key management personnel as defined by IAS 24. The following information is provided in relation to the related party transaction disclosures provided in note 24b below:
Adobelero Holdings Co Ltd. is a beneficially owned holding company controlled by Panos Benos, the CFO of the Group.
Growthy Holdings Co Ltd is a beneficially owned holding company controlled by Matthaios Rigas, the CEO of the Group.
Oil Co Investments Limited is beneficially owned and controlled by Efstathios Topouzoglou, a Non-Executive Director of the Group. The nature of the Group's transactions with the above related parties is mainly financing activities.
Kerogen Capital is an independent private equity fund manager specialising in the international oil and gas sector, which currently holds the 30% of Energean Israel ordinary shares not held by the group.
Seven Maritime Company (Seven Marine) is a related party company controlled by one the Company's shareholder Mr Efstathios Topouzoglou. Seven Marine owns the offshore supply ships Valiant Energy and Energean Wave which support the Group's investment program in northern Greece.
Capital Earth: During the period ended 30 June 2020 the Group received consultancy services from Capital Earth Limited, a consulting company controlled by the spouse of one of Energean's executive directors, for the provision of Group Corporate Social Responsibility Consultancy and Project Management Services.
24b. Related party transactions
Purchases of goods and services
|
|
|
| 30 June (Unaudited) |
| ||
|
|
|
| 2020 |
| 2019 | |
|
|
|
| $'000 |
| $'000 | |
| Nature of transactions |
|
|
|
|
| |
Other related party "Seven Marine" | Vessel leasing |
|
| 1,189 |
| 3,084 | |
Other related party "Capital Earth Ltd" | Consulting services |
|
| 63 |
| 63 | |
|
|
|
| 1,252 |
| 3,147 | |
24c. Related party balances
Payables
|
|
|
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
|
|
|
| $'000 |
| $'000 |
| Nature of balance |
|
|
|
|
|
Seven Marine | Vessel leasing |
|
| 830 |
| 6,105 |
|
|
|
| 830 |
| 6,105 |
25. Commitments and contingencies
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 performing these work programmes:
| 30 June 2020 (Unaudited) |
| 31 December 2019 |
| $'000 |
| $'000 |
Capital Commitments: |
|
|
|
Due within one year | 5,119 |
| 5,425 |
Due later than one year but within two years | - |
| 5,729 |
Due later two years but within five years | - |
| - |
| 5,119 |
| 11,154 |
Contingent liabilities:
Performance guarantees: |
|
|
|
Israel | 38,936 |
| 38,330 |
Greece | 3,857 |
| 3,932 |
Montenegro | 551 |
| 562 |
| 43,344 |
| 42,824 |
Performance guarantees are mainly in respect of committed work programmes and certain financial obligations.
Main issued guarantees:
Karish and Tanin Leases - As part of the requirements of the Karish and Tanin Lease deeds, the Group provided the Ministry of National Infrastructures, Energy and Water with bank guarantees in the amount of US$10 million for each lease (total US$20 million). The bank guarantees were in force until 29 December 2019, and were renewed on November 2019 until 31 March 2021.
Blocks 12, 21, 22, 23 and 31 - As part of the requirements of the exploration and appraisal licences which granted to the Group during the Israeli offshore BID in December 2017, the Group provided the Ministry of National Infrastructures, Energy and Water in January 2018 with bank guarantees in the amount of US$6.5 million for all 5 blocks mentioned above. The bank guarantees are in force until 10 January 2021.
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 Ministry of National Infrastructures, Energy and Water in January 2018 with bank guarantees in the amount of US$3.2 million for all 4 blocks mentioned above. The bank guarantees are in force until 28 September 2020.
Israeli Natural Gas Lines ("INGL") - As part of the agreement signed with INGL on June 2019 the Group provided INGL bank guarantee at the amount of 18.26 million ILS (approx. US$5.3 million) in order to secure the first milestone payment from INGL. The bank guarantee is in force until 30 June 2021.
Israel Custom Authority - As part of the ongoing importation related Karish development, the Group provided the Israeli Custom authority bank guarantees in 2019 at the amount of 12.0 million ILS (approx. US$3.5 million). The bank guarantees are in force until 28 February 2021.
Legal cases and contingent liabilities
The Group had no material contingent liabilities as of 30 June 2020 and 31 December 2019.
26. Subsequent events
On 19 May 2020, Energean announced that it has entered into further amended terms for its proposed acquisition of Edison E&P following which, inter alia, the Norwegian subsidiary will be formally excluded from the transaction perimeter. Combined with the previously announced exclusion of the Algerian asset, $466 million of total reductions to the original consideration have now been agreed. This includes: i) $155 million reduction relating to the exclusion of the Algerian asset from the transaction perimeter; ii) $200 million reduction relating to exclusion of the Norwegian subsidiary from the transaction perimeter; and iii) $111 million of additional reductions relating to the macro environment. The UK North Sea subsidiaries, which includes interests in the large Glengorm and Isabella gas-condensate discoveries, will now be retained within the perimeter of the transaction. Finally, the $100 million Cassiopea contingent payment will now vary between $0 and $100 million, depending on future Italian gas prices at the point in time at which first gas production is delivered from the field.
As a result of the above adjustments, the gross consideration for the transaction has been reduced to $284 million from an original enterprise value of $750 million.
On 20 June 2020, Energean signed a $220 million Reserve Based Lending facility ("RBL") with ING, Natixis and Deutsche Bank in order to fund a portion of the cash consideration to be paid by the Company for the acquisition of Edison E&P, to fund transaction costs and for general corporate purposes. The RBL is available for both debt and issuance of letters of credit. The RBL has a tenor of six years from the closing date and is subject to semi-annual redeterminations. The RBL carries covenants that are customary for this type of facility. The facility limit may be increased by up to $200 million (for a total facility limit of up to $420 million) subject to certain conditions contained in the accordion provisions of the new facility.
In addition to the RBL, Energean has entered into a standalone bilateral letter of credit facility with ING. The facility will be an up to GBP 80 million facility provided for the purpose of issuing letters of credit for United Kingdom decommissioning obligations and obligations under the United Kingdom licences and does not impact upon the availability of the new RBL.
Energean's Shareholders voted 100% in favour of the Edison E&P transaction at a general meeting held on 20 July 2020
[1] Inclusive of the $220 million RBL facility, which will become available to fund completion of the Edison E&P transaction. Excludes the $200 million accordion facility
[2] As at the locked box date of the transaction of 1 January 2019
[3] Inclusive of the Edison E&P transaction, which is subject to close. Energean is entitled to the economic performance of the Edison E&P business from the locked box date of the transaction, 1 January 2019. Results will be consolidated into the Energean financials from the date at which the transaction closes.
[4] The locked box date of the acquisition of Edison E&P is 1 January 2019. All economics after that date belong to Energean. Edison E&P financials will be consolidated into Energean financials from the date of transaction close; economics between the locked box date and the date of transaction close will be reflected in the net consideration payable
[5] All Edison E&P figures are unaudited and are based on Edison E&P management accounts. Numbers are therefore subject to change on conversion to Energean accounting policies. Edison E&P transaction is subject to close, expected 4Q 2020.
[6] Edison E&P results will be consolidated from the date of transaction completion. Energean will benefit from the cash flows between the locked box date of the transaction and the date of completion, represented through an adjustment to the net consideration. Edison E&P transaction is subject to close, expected 4Q 2020.
[7] Adjusted EBITDAX is defined in the Financial Review section
[8] After working capital movements
[9] Edison E&P is being acquired on a cash and debt free basis
[10] As at the locked box date of the transaction of 1 January 2019
[11] All historic Edison E&P numbers are unaudited and subject to change. Forward looking numbers have been sourced from the Edison E&P 2020 full year budget
[12] Year-end net debt guidance assumes that the acquisition of Edison E&P is completed and paid for before year end 2020
[13] Cost of sales before inventory movements and depreciation.
[14] Adjusted EBITDAX is defined later in the financial review. Energean uses Adjusted EBITDAX as a core business KPI.
[15]The senior secured credit facility used to fund the Karish project is held within Energean Israel. The facility is consolidated into Energean's accounts, however, for the purpose of NAV calculations, the 30% that is attributable to Kerogen, should be excluded
[16] Adjusted EBITDAX calculation has been changed to exclude the impact of the non-cash item of share-based payment charges. This adjustment is aligned with the underlying Group's adjusted EBITDAX calculation which excludes the impact of costs which tend to be one-off in nature and the non-cash costs. Comparative EBITDAX has been restated accordingly.
[17] Numbers may not sum due to roundings
[18]The Group supplies 100% of the produced Prinos crude oil to BP Oil International Ltd, until the later of: a) the expiry of the agreement on 1 November 2025 or b) the delivery of twenty-five million barrels.
[19] Adjusted EBITDAX is a non-IFRS measure used by the Group to measure business performance. It is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, share-based payment charge, impairment of property, plant and equipment, other income and expenses (including the impact of derivative financial instruments and foreign exchange), net finance costs and exploration and evaluation expenses.
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