Energean's lightbulb moment

Energean Oil & Gas (ENOG) is banking on this being acceptable enough for investors, and has used EDF Energy’s growing distaste for fossil fuels to bag a bargain set of assets. The company has agreed to buy EDF’s Edison offshoot for $750m (£601m) upfront, a $100m contingency payment and an 8 per cent royalty on profits from future discoveries. This is a substantially more attractive price than the $2bn-$3bn mooted when news first broke of EDF's intention to sell. Energean raised $265m with a 900p placing to part-fund the deal.

In Edison, Energean bags an 80 per cent gas portfolio that brought in $621m in revenue last year and $302m in operating cash flow from production of 69,000 barrels of oil equivalent (boe) per day. There's also 2.9bn boe of unrisked resourced in Egypt three exploration wells due in the next 18 months. The deal still needs to be ticked off by the Italian government and Energean’s shareholders, although the buyer says it already has 54 per cent approval lined up and so completion should happen by the end of the year. EDF has taken a €400m-€500m (£358m-£448m) writedown on the deal, but said it was happy to be out of a “highly volatile and capital-intensive segment”.

This year-long sales process came as gas-fired plants overtook coal plants in the EU, accounting for 17 per cent of reported power generation compared with 16 per cent from coal in the three months to 31 March, according to energy consultancy EnAppSys, which called it a “dramatic change”. Nuclear accounted for 29 per cent and renewables 38 per cent. 

Energean has been much more of an explorer/developer than producer in the 15 months it has been listed in London, only squeezing out a few thousand barrels of oil equivalent in Greece. In that time, it has largely focused on the Karish project in Israel, which will supply a gas-fired plant from start-up in 2021, replacing a coal-fired power station. However despite limited production to date, it has garnered a reputation for its skill in managing mature assets. This bodes well for the Edison deal, not least because any extension of well life will help push back estimated decommissioning costs of $540m, $100m of which are expected over the coming decade.

Energean chief executive Mathios Rigas said Karish will remain a focus in the enlarged company, and even be improved by “getting access to a great subsurface team and a great engineering team”. Combinations with overlap like this usually see jobs cut from either side, but Energean has said it would keep all of Edison’s 282 employees, with Mr Rigas says savings will come from operating more like a ‘lean’ oil and gas company than a European utility. 

The acquisition keeps Energean’s focus on the Mediterranean, split between Europe and North African assets. Edison’s North Sea and Norwegian assets are up for sale, with $200m proceeds expected. 

The current money maker for Edison is the Abu Qir field in Egypt, although this has been on paper only for Edison in recent months because of non-payment by the government, with $147m overdue. However, the Egyptian government has promised the debt would be cleared by the end of the year under its rescue deal with the International Monetary Fund (IMF). There is also potential to up the reserves in Egypt, with a 2.9 billion boe un-risked resource. Of three imminent exploration wells, one is expected to spud this year and two still need to be drilled, which is planned for the coming 18 months.  

Energean’s broker, RBC, forecasts that the acquisition and Karish moving into production will see pre-tax profits rise rapidly from $10m in 2019 to almost $500m in 2021 at an oil price of $74 a barrel. Mr Rigas said the company would be producing 140,000 boe per day (kboepd) by 2021, “with a clear trajectory to 200kboepd”, compared with 4.1kboepd from the Greek asset in 2018.