Energean revenue rises at it presses ahead with developments

Energean Oil and Gas updated the market on its recent operations and its trading performance in 2018, together with guidance for 2019, on Wednesday, reporting that its Karish and Tanin development project in Israel remained on track to deliver first gas into that country’s domestic market in the first quarter of 2021.

The FTSE 250 firm said revenues in 2018 rose 56% year-on-year to $90.3m, with its cost of production falling 29% to $17.6m.

Capital expenditures surged 628%, however, to $492m, though it said it had net cash of $77.3m at year-end, swinging from net debt of $75.6m.

Energean said the next visible milestone would be mobilisation of the Stena Drillship in February, ahead of spudding of Karish North in March.

It said its 2019 drilling programme would target up to 2.3 Tcf of gross prospective gas resources, and was “well aligned” with its exploration strategy to target resources that could be quickly, economically and safely monetised.

Karish North would directly target 1.3 Tcf of gas and 16 million barrels of liquids, gross, with a volume-weighted geological chance of success of 69%.

Energean said it believed that success at Karish North could have a positive read-across to Karish East, with technical analysis indicating that the fault between Karish North and Karish East did not form a barrier and, as a result, did not limit the extent or flow of any hydrocarbons.

Karish East contains gross prospective resources of 0.5 Tcf of gas and 7.5 million barrels of liquids, with a volume-weighted geological probability of success of 70%.

Energean said Karish North would also provide important read-across information for the Karish Main structure.

Drilling of the three Karish Main development wells would immediately follow Karish North, with completion expected by year-end 2019.

“The exploration component of the Karish Main wells consists of drilling into the deeper D sand horizons, which have been proven in the Tamar field - upper D sands - and Aphrodite - lower D sands - discovery,” the Energean board said in its statement.

“Energean believes that Karish Main drilling offers additional upside beyond that reflected in NSAI independent estimates.”

The company said it had a further six options available on the Stena drilling contract at a favourable rig rate.

NSAI had identified additional gross prospective resources of 5 Tcf of gas and 62 million bbls across the Tanin lease and five exploration blocks.

Energean said it was evaluating all potential opportunities to monetise the value of the remaining options.

Following signature of the IPM Beer Tuvia gas sales agreement announced on 2 January, Energean said it had now signed GSPAs for 4.6 BCM/yr from its Karish and Tanin FPSO2, which was being built with a total capacity of 8 BCM/yr.

Energean was targeting filling the remaining 3.4 BCM/yr of FPSO spare capacity in the medium term, which it believed would deliver “attractive” incremental economics.

The company said the IPM agreement had added between 0.265 and 0.38 BCM/yr of gas sales, which was currently expected to commence in approximately 2024, contingent on results of the 2019 drilling programme.

It estimated that the agreement would contribute revenues of around $0.9bn over the life of the contract, bringing total secured revenues to $12.9bn over the life of the fields.

The board said it was continuing to see “strong” incremental demand for its gas, with privatisation of the Alon Tavor power station ongoing and expected to generate additional opportunities to sell gas to the domestic market.

Energean was also evaluating export options to key regional export markets.

The company said its facilities workstream, managed and executed by TechnipFMC under the $1.36bn lump sum turnkey EPCIC contract signed in 2018, was progressing in line with expectations.

First steel cut on the topsides was achieved in December 2018.

In Greece, Energean delivered full-year production of 4,053 bopd, within the stated guidance range of 4,000 to 4,250 bopd.

Fourth quarter production averaged 4,573 bopd, representing the sixth successive quarter of production growth from the Prinos Area.

Four cargoes were lifted during the year, the last of which was on 28 December.

“During 2019, Energean expects to deliver average production of between 5,000 and 6,000 bopd,” the board said.

“The range is driven by assumptions on performance of the Epsilon Extended Reach Well, timing and performance of 2019 wells, workovers, and historic performance and decline of the existing well stock.

“Energean continues to target production of more than 10,000 bopd in 2021.”

The board said the first vertical well of the Epsilon Lamda Platform development, EL-1, was completed successfully in December, and a full set of logs, cores and pressure data had been obtained.

The well encountered the previously-discovered Epsilon A reservoir and found a marginally thicker gross section of 98m with between 40 metres and 45 metres of net pay in the Epsilon A reservoir, as compared to the gross and net thicknesses of 80 metres and 40 metres encountered in past wells.

EL-1 also penetrated the Deeper Epsilon Reservoir, discovering a zone of approximately 82 metres thickness and between 30 metres and 35 metres of net pay, which was ahead of expectations.

A third zone, the Dolomitic Zone, was also penetrated, showing some additional hydrocarbon potential across the 140m drilled.

An update of the Epsilon volumes would be included in the full year-end 2018 CPR to be published in the first quarter of 2019.

First Oil from the Epsilon Extended Reach well was expected in the first quarter of 2019.

The board said the 2019 drilling programme in Prinos would consist of at least two additional wells that would be drilled by Energean's own drilling rig, Energean Force.

It said the Epsilon Vertical Well Platform Development under the EPCiC contract with GSP was expected to achieve first oil at the end of 2019.

On the exploration front, Energean and the operator, Repsol, commenced a seismic acquisition programme in the Ioannina Block in November, and expected to complete the acquisition and processing of 400 square kilometres of data in 2019.

“In the Aitoloakarnania Block, Repsol and Energean expect to complete the first stage of its seismic acquisition programme during 2019.

“Energean is substantially carried through both seismic programmes by Repsol.”

In Montenegro, Energean said it would commence a 338 square kilometre seismic acquisition programme in January.

Acquisition was expected to take two weeks, and full interpretation of the results would follow, with the board expecting to make a drill-or-drop decision on the licenses in the first half of 2020.

Energean added that it was continuing to assess new business opportunities in the Mediterranean region that were aligned with its strategy.

It said it would only pursue opportunities deemed to represent attractive value creation opportunities for shareholders.

Looking at its corporate developments, the company commenced began trading on the Tel Aviv Stock Exchange on 29 October.

Shares are fully transferable and fungible between the two markets, with no new equity issued in association with the listing.

The company was admitted to the Tel Aviv 90 Index on 4 January, and was currently included at 20% of its expected overall weighting.

Looking ahead, Energean said its cost of production was expected to reduce to the range of $14 to $17 per barrel in 2019.

The year-on-year decrease was put down to to operational leverage associated with the forecast increase in production.

It forecast a reduction in operating costs to less than $10 per barrel once production exceeded 10,000 bopd.

Administrative expenses for the year were expected to be $15m.

Energean said it expected accrued consolidated capital expenditure in 2019 to be between $825m and $860m.

“2018 was a very successful year for Energean,” said chief executive officer Mathios Rigas.

“We increased revenues by 56% while reducing cost of production by 29%, made significant progress on our development projects and converted significant volumes of resources into reserves.

“In Israel, Karish and Tanin remains on track for first gas in the first quarter of 2021 and we have secured $12.9 billion of future revenues through 4.6 bcm/yr of contracted gas sales, firmly underpinning the project's economics.”

Rigas said he “looked forward” to continuing that positive momentum in 2019, which would include the drilling of at least six new wells across its acreage in Israel and Greece, targeting “significant increases” in reserves, resources and production.

“In Israel we continue to see increasing demand for our gas and are aiming to fill the 3.4 bcm/yr of spare capacity in our FPSO in the medium term.

“We continue to target value-enhancing opportunities in the Mediterranean area and aim to match the growth achieved over the last decade.”

Energean said it intended to announce its preliminary results for the year ended 31 December on 21 March.