2019 Annual Report and Accounts
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Delivering value through the energy transition Energean Annual Report 2019 CONTENTS Energean is a gas-focused Strategic Report Delivering value 01 independent E&P company, About us 02 2019 Highlights 04 with a balanced portfolio Chairman’s statement 06 Chief Executive’s review 08 of assets across the Our business model 12 Market overview 14 Eastern Mediterranean. Our strategy 18 Our strategy in action 20 OUR FOCUS Our key performance indicators 28 Review of operations 30 Our focus is on discovering, developing Corporate Social Responsibility 36 and monetising gas in the Eastern Financial review 50 Mediterranean to deliver value to all of our Risk management 58 Principal risks 60 stakeholders. Sustainability and ESG are at the core of this focus and in that context, Corporate Governance we were the first E&P company in the world Chairman’s letter 81 to commit to net zero emissions by 2050. Board of Directors 82 Corporate governance report 86 OUR KEY STRATEGIC ACTIVITIES Audit & Risk Committee report 92 Nomination & Governance Our key strategic activities include Committee report 95 developing reserves, adding Health, Safety & Environment Committee report 97 hydrocarbons, optimising production Remuneration Committee report 98 and, following completion of the proposed Group Directors’ report 111 Edison E&P acquisition, integrating our Statement of Directors’ responsibilities 114 enlarged portfolio. Financial Statements OUR PORTFOLIO Independent auditor’s report to the members of Energean Oil & Gas plc 116 Our portfolio is 80% gas-weighted and, Group income statement 123 inclusive of the to-be-acquired Edison E&P Group statement of business, spans eight countries across the comprehensive income 124 Group statement of financial position 125 Mediterranean. We are headquartered in Group statement of changes in equity 126 London; our shares are listed on the Main Group statement of cash flows 128 Market of the London Stock Exchange and Notes to the consolidated financial statements 130 we have a secondary listing on the Tel Aviv Company statement of Stock Exchange. We are a component of financial position 182 the FTSE 250 and TA-35 indices. Company statement of changes in equity 183 Company accounting policies 184 Notes to the Company financial statements 187 Other Information Payments to governments 192 Transparency disclosure 194 Net reserves & resources by field – Energean standalone 196 Glossary 198 Company information 200 The disclosure in this report is complemented by our online ESG disclosure, which can be found at energean.com/sustainability/corporate-responsibility/ Delivering value through the Strategic report energy transition At Energean, we firmly believe that the energy transition is a crucial choice for the sustainable future of both society and Corporate governance business, and “gas, as a transition fuel, is the way forward.” With our 80% gas-weighted portfolio, we are already on the energy transition journey. By 2022, production from our existing portfolio will reach more than 130,000 boepd, the majority of which will be gas. One of the key highlights of 2019 was our commitment to net Financialstatements zero emissions* by 2050, making us the first E&P company in the world to do so. This puts Energean at the forefront of the oil and gas sector’s climate change initiatives and showcases our commitment to ESG and reducing our CO2 emissions. Sustainable development is integral to our corporate Other information philosophy and remains core to our organisation. We are committed to creating value for all our stakeholders, and becoming the leading gas-focused, sustainable, independent E&P company in the Eastern Mediterranean. Our aim is to create near-term and lasting benefits for all our stakeholders, guided by our corporate values and principles. * Includes Scope 1 and 2 emissions only. Get the latest investor news online at energean.com Energean Energean @Energean Energean | Annual Report 2019 01 ABOUT US Energean key facts Energean 558 MMboe 2P reserves and 2C at a glance resources 3.3 kboepd WI production in 2019 The leading independent, gas-focused, sustainable 3 countries of operations across E&P company in the Eastern Mediterranean. the Mediterranean Energean is a London Premium Listed FTSE 250 and Tel Aviv 35 Listed E&P company with Edison E&P key facts operations in Israel, Greece and the Adriatic. Our flagship project is the 2.3 tcf Karish and Tanin 239 MMboe of 2P reserves1,2 development offshore Israel, where we are building 56.4 kboepd WI production in 20192 the only FPSO in the Eastern Mediterranean to produce first gas in 1H 2021. 4 countries of operations across the Mediterranean 2 In Israel, the Company has already signed firm contracts for 5.0 bcm/yr of 1. Edison E&P reserves are based on CPR report dated 30 June 2018. gas with Israeli offtakers, with a further 1.3 bcm/yr of contingent contracts An updated CPR will be published in the shareholder Circular to reflect a and 2.0 bcm/yr of potential sales to be discussed under a Letter of Intent 31 December 2019 effective date. The updated reserves position (“LOI”) with the Public Gas Corporation of Greece (“DEPA”). should be expected to reflect 18 months of production. 2. Excludes UK, Norway and Algeria. In July 2019, Energean announced the conditional acquisition of Edison E&P for $750 million plus $100 million of contingent consideration. The acquisition adds a world class portfolio of production, development, appraisal and exploration opportunities, with an excellent HSE record. Energean key strengths Strong Operational Effective deal delivery strength execution capabilities +67% 5.0 bcm $750 MM CAGR in reserves firm GSPAs signed, securing $750 + 100 MM contingent and resources 2008-19 Karish project economics consideration: acquisition of Edison E&P +39% H1 2021 $265 MM 2P+2C reserves and on track to deliver equity raise on resource increase YoY* first gas from Karish LSE and TASE 8 wells 25 bcm $600 MM 4 deepwater and (0.9 tcf) gas + 34 MMbbl light oil/ committed bridge loan facility 4 shallow water wells drilled in 2019 condensate Karish North discovery with international banks 02 Energean | Annual Report 2019 Strategic report Corporate governance Where we operate 1. Israel 2. Greece Energean holds a balanced Development Production portfolio of exploration, Karish, 70% Prinos Area, 100% development and production Karish North, 70% Prinos Area, 100% assets, with operations in Tanin, 70% South Kavala, 100% Israel, Greece and Financialstatements Montenegro. The company Exploration Development has interests in 18 leases and Karish, 70% Prinos Area, 100% licences, 11 of which are Tanin, 70% Prinos Area, 100% located offshore Israel. Four Blocks 12, 21, 22, 23, 31, 55, 56, 61 & 62 (all 70%) Prinos Area, 100% of these licences (55, 56, 61, Katakolo, 100% 62 in Zone D) were awarded 3. Montenegro Exploration in July 2019, and added Prinos Area, 100% Other information Exploration further upside to the South Kavala, 100% Block 26, 100% Company’s Israeli portfolio. Katakolo, 100% Block 30, 100% Ioannina, 40% Oil Gas (% ownership) Aitoloakarnania 40% CROATIA MONTENEGRO GREECE CYPRUS ITALY ISRAEL MALTA EGYPT Energean assets Edison E&P assets* * Excluding the Algerian assets, which will be excluded from the transaction, and the UK and Norwegian assets, which will be sold by Energean Energean | Annual Report 2019 03 2019 HIGHLIGHTS Awards Building the sustainable Energy New Company Energy of the Year Company M&A Deal of the E&P company of the future of the Year Year The MSCI ESG Rating places Energean above 63% of the industry’s companies Energean has continued its strong growth trajectory, A flourishing from a €1 million investment in 2017 to a leading E&P company on the Main Market of the London Stock Energean was one of the top 20 companies out Exchange in 2019. We have grown 2P reserves and 2C of a total of 212 industry peers resources from 2 to 558 MMboe (exclusive of the Edison E&P C+ portfolio), representing compound annual growth of around Energean was awarded at 67% CAGR between 2008 and 2019. the “Bravo! Sustainability Dialogues & Awards 2019” for one of its Corporate Our landmark acquisition of Edison E&P adds to this growth story and, once completed, Social Responsibility will substantially enhance our reserves and production, providing immediate operating activities cash flow and EBITDAX. Moreover, the combined portfolio establishes a material presence and long-term cash flow profile that supports our ambition to be the E&P leader of the Eastern Mediterranean and pay a sustainable dividend. Financial* Operational* Sustainability* Revenue Net 2P reserves Emissions2 $76 million -16% 342 MMboe -1% Net Zero 2018: $90.3 million 2018: 347.0 MMboe by 2050 2. Scope 1 & 2 emissions only Cost of production per barrel Net 2C resources Emissions reduction target $21.5 boe +19% 216 MMboe +272% ~70% 2018: $17.6/boe 2018: 58.0 MMboe by 2023 Capital expenditure Average net daily oil production Health and safety $685 million +38% 3,312 bopd -18% > 4 million man hours 2018: $495.0 million 2018: 4,053.0 bopd without LTIs in COSCO Zhoushan shipyard Adjusted EBITDAX1 Total firm GSPAs signed in Israel >1 million man hours $36 million -33% 5 bcm/yr +19% without LTIs in other operations in the Mediterranean 2018: $52.4 million 2018: 4.2 bcm/yr 1. Non-GAAP measure. Refer to page 51 of the finance review for more details Cash from operating activities $36 million -30% 2018: $62.7 million Read more about our performance * Excludes Edison E&P. On pages 28-29 04 Energean | Annual Report 2019 Strategic report Energean in 2019 Corporate governance 2019 marked another year of success for the Company. We maintained an active investment programme and a number of milestones were met. These have laid the foundations for future sustainable growth, which will deliver value to our shareholders.