Energean ramps up in weaker price environment

Israel offshore gas producer Energean (ENOG) has lowered 2023 guidance after a slower ramp-up at its Karish field, and while production tripled in the first half compared with 2022, profits did not follow as the gas price came down. The company has established itself as a significant gas producer in the past year, bringing Karish into production and continuing exploration work to expand the field.

Management may have been hoping for more from the gas price, however. Profits were hit in the first half by a more relaxed gas market that saw realised prices come down by half compared with a year ago. Operating cash flow rose 59 per cent in the first half to $233mn (£147mn), with the difference coming from the new revenue from Israel. Energean also has producing assets in Europe and Egypt. The former saw a significant decline in sales because of the lower prices, while Egypt was flat. 

For the full year, the company has guided 120,000-130,000 barrels of oil equivalent per day (boepd), cutting the forecast for a second time this year, which was initially 131,000-158,000boepd. The company said it had “substantially overcome” start-up issues at Karish that had brought on the revision. Stifel forecasts a quick improvement in the second half – “[Karish] has driven Energean’s overall production to three times the level delivered last year, and in the next 12 months we estimate production is set to roughly double again,” said analyst David Round. 

Energean is trading on 2.2 times 2023 Ebitda currently – using the consensus estimate of $1.2bn –  and moves to around 0.75 times Ebitda using the 2024 estimate. It should hit free cash flow next year as well, which should partly come to investors in the form of a higher payout. Buy. 

Last IC View: Buy, 1,206p, 23 Mar 2023