Energean earnings surge despite gas price drop

Profits at Energean (ENOG) surged last year as its Karish project hit full production, despite its proximity to the conflict that has hit the Middle East. The Karish field, offshore Israel, is right next to the maritime border with Lebanon, and supplies much of the gas used in Israeli power plants, although it avoided the suspension seen at the Tamar field closer to Gaza. Energean said its production had not been impacted by the war. 

The company reported operating cash flow for 2023 of $874mn (£684mn), a 132 per cent increase on the year before. This was even with an average realised gas price of $5 per mcf, less than half of the 2022 figure. The average oil price was down from $82 a barrel to $72. 

Helping balance this out was added production, and Energean will grow this again in 2024. New addition Karish North hit production last month, maxing out the capacity of Energean’s floating, production, storage and offloading (FPSO) ship. The company expects to increase production by around a third again this year, with the mid-range guidance at 165,000 barrels of oil equivalent per day (boepd). 

On top of Karish North, new production in Egypt that was brought online last year will further add to sales in 2024. The NEA/NI development will push Egyptian production up from 25,000 boepd to 29,000-31,000 boepd. 

Growth will come at a cost, of course, with capital spending expected at $400mn-$500mn this year. This is level with 2023, but down a third on 2022. 

Debt is set to remain high as well, with the company choosing development spending over cutting net debt significantly. It is guided at $2.8bn-$2.9bn for the end of this year, with finance costs at $268mn. On a positive note, the company has pushed out maturities in the past year.

Energean has kept its earnings growth trajectory despite weaker prices and the conflict in its main operating country. Buy. 

Last IC View: Buy, 1,145p, 7 Sep 2023