REG - Energean PLC - Announcement Pursuant to UK Listing Rule 7.3
29/08/2024 07:00
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RNS Number : 0699C Energean PLC 29 August 2024
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH
JURISDICTION
ANNOUNCEMENT PURSUANT TO UK LISTING RULE 7.3
For immediate release
Energean plc
("Energean" or the "Company")
Strategic sale of Egypt, Italy and Croatia portfolio
London, 29 August 2024 - Energean plc (LSE: ENOG, TASE: אנאג) is pleased
to provide further information regarding the strategic sale of its Egyptian,
Italian and Croatian portfolio to an entity controlled by Carlyle
International Energy Partners ("Carlyle") (the "Transaction") as announced on
20 June 2024 (the "Original Announcement").
This announcement is made on the basis that the Transaction amounts to a
significant transaction for the purposes of UKLR 7.3 (as came into effect on
29 July 2024). This announcement includes the additional information required
to be disclosed in accordance with the requirements of UKLR 7.3.1R and UKLR
7.3.2R (as required by UKLR TP 6 6.5R(2) for a mid-flight transaction) and is
supplemental to, and should be read in conjunction with, the Original
Announcement. Certain information contained in the Original Announcement
(accessible at Energean's website
(https://ir.q4europe.com/Solutions/Energean/3784/newsArticle.aspx?storyid=16136172)
) is restated in this announcement.
Transaction terms and consideration
On 19 June 2024, Energean plc entered into a sale and purchase agreement (the
"Sale and Purchase Agreement") with CIEP Spin BidCo Limited (the "Buyer"), an
entity controlled by Carlyle, pursuant to which the Buyer agreed to purchase
the entire issued share capital of Energean Capital Limited (the "Target").
The Target is the intermediate holding company of Energean's Egypt, Italy and
Croatian assets. The consideration for the acquisition of the Target comprises
a total enterprise value of up to $945 million, of which $820 million is firm,
plus a $/boe contingent payment linked to the recent Location B well in Egypt.
This is over a 3x increase versus the original acquisition value of $284
million in 2020 1 , equalling an EV/2P multiple of $5.4/boe (versus
c.$1.2/boe) 2 .
The economic effective date of the Transaction is 31 December 2023 ("Effective
Date").
After enterprise value to equity value adjustments as at the Effective Date,
Energean will receive:
· $504 million upfront cash consideration upon completion of
the Transaction ("Completion").
· Working capital/cash adjustments between the Effective Date
and the date of Completion ("Completion Date").
· $139 million vendor loan (the "Vendor Loan") to be repaid
with a 6 years and 3 months tenor plus interest at SOFR + 7% in year one, plus
0.5% for each year thereafter.
· $125 million capped contingent consideration, inflated at
the US CPI from 1 January 2024 onwards, varying from nil to $125 million (as
inflation adjusted) depending on:
o Working interest Italian oil and gas production over the period
2025-2028 exceeding annual reference volumes, based off the Proved Developed
Reserves and Proved Reserves respectively as taken from the YE23 Competent
Person's Report ("CPR") report 3 ; and
o Brent and Italian PSV gas prices over the period 2025-2028 exceeding an
annual reference price 4 .
o The contingent payment due is based on 25% of the incremental commodity
price multiplied by the actual production and payable on an annual basis in
respect of the years 2025-28.
· An uncapped contingent payment for the recently drilled Location
B well in Egypt.
o This payment will be calculated based off (i) the 2P reserves (as
determined by an independent auditor at YE24) plus (ii) the actual 2024
production, that are in excess of the below pre-drill estimated volumes:
§ $2.00 per boe for gas in excess of 8,672,924 boe;
§ $5.00 per boe for oil in excess of 0 boe;
§ $4.50 per boe for condensate in excess of 490,055 boe; and
§ $3.75 per boe for LPG in excess of 539,060 boe.
o The first $15 million of any payable amount shall be payable in cash in
Q3 2025 and any balance due shall be payable (at Carlyle's option) either in
cash or as a corresponding increase in the principal amount of the Vendor
Loan.
Sale Portfolio
In 2020, Energean acquired Edison E&P, which included production,
development and exploration assets in Egypt, Italy and Croatia. Energean's
portfolio of assets in these countries has net working interest 2P reserves of
150 mmboe (70% gas) (D&M YE23 CPR) and 2023 net working interest
production of 34 kboe/d (73% gas).
These assets generated Adjusted EBITDAX of $264 million in 2023. The gross
assets attributable to the Transaction as at 31 December 2023 were $1.67
billion. Total liabilities attributable to the Transaction as at 31 December
2023 were $1.27 billion, of which $516 million was provision for
decommissioning.
Strategic Rationale
Energean's strategy is to be the leading independent gas-focused E&P in
the Mediterranean and beyond. The Group has taken the decision to sell certain
non-core geographies, where at least $7.5 million per annum of G&A savings
have been identified, in line with its key business drivers to:
· Be cashflow accretive: the Transaction is expected to be
immediately free cash flow accretive. The Group expects to redefine its
dividend policy upon Completion.
· Focus on gas and gas development: the Transaction enables
management to focus on its core gas-weighted assets, underpinned by Israel and
the recent farm-in to the Anchois field in Morocco, to maximise asset
monetisation, free cash flow generation and returns to shareholders.
· Achieve our growth objectives: moving forward, Energean will
continue to evaluate existing organic growth opportunities within its
portfolio, as well as inorganic opportunities beyond the Mediterranean in the
wider EMEA region, particularly where there is long-term policy support for
gas and coal phase-out.
· Deliver upon our Net Zero commitments: the Transaction will
accelerate the Group's decarbonisation efforts whereby post-close the Group's
scope 1 and 2 emissions intensity will reduce by around 40% to ~5 kgCO2e/boe,
accelerating its 2035 target of 4-6 kgCO2e/boe by 10 years. This is in
addition to the Group's focus on creating a Carbon Storage Hub in Greece and
the wider Mediterranean region via its EnEarth subsidiary.
Use of Proceeds and Dividend Policy
Energean expects sufficient cash proceeds at Completion to be able to repay in
full the $450 million PLC corporate bond and facilitate a special dividend of
up to $200 million.
In light of the Transaction, the Board will undertake a review of the
Company's dividend policy and near-term targets and expects to redefine its
dividend policy upon Completion.
Conditionality and timing to Completion
Completion of the Transaction is conditional upon customary regulatory
approvals in Italy and Egypt together with antitrust approvals in Italy, Egypt
and Common Market for Eastern and Southern Africa ("COMESA"). The Transaction
constitutes a significant transaction under the UK Listing Rules. Following
the implementation of the UKLRs on 29 July 2024, the Transaction is no longer
subject to the approval of the Company's shareholders. The Transaction is
subject to the conditions being satisfied by a longstop date of 20 March 2025
(or such other date as may be agreed by Energean and Carlyle), with Completion
targeted to occur by year-end 2024.
Staff employed by Energean Italy (which includes Croatia) and Energean Egypt
will continue their employment under Carlyle's ownership, which they have
committed to guarantee for 18-months post-Completion, providing continuity for
staff and contributing to ongoing operational reliability and safety.
Additional Information
Appendix 1 and Appendix 2 to this announcement contain further information
regarding the terms of the Transaction as required by UKLR 7.3.1R and UKLR
7.3.2R. Appendix 3 includes certain defined terms used in this announcement.
Advisors
Rothschild & Co is acting as the Company's financial advisor and White
& Case is acting as the Company's legal counsel.
Enquiries
For capital markets: ir@energean.com (mailto:ir@energean.com)
Kyrah McKenzie, Investor Relations Manager Tel: +44 (0) 7921 210 862
For media: pblewer@energean.com (mailto:pblewer@energean.com)
Paddy Blewer, Corporate Communications Director & Head of CSR Tel: +44 (0) 7765 250 857
Forward looking statements
This announcement contains statements that are, or are deemed to be,
forward-looking statements. In some instances, forward-looking statements can
be identified by the use of terms such as "projects", "forecasts", "on track",
"anticipates", "expects", "believes", "intends", "may", "will", or "should"
or, in each case, their negative or other variations or comparable
terminology. Forward-looking statements are subject to a number of known and
unknown risks and uncertainties that may cause actual results and events to
differ materially from those expressed in or implied by such forward-looking
statements, including, but not limited to: general economic and business
conditions; demand for the Company's products and services; competitive
factors in the industries in which the Company operates; exchange rate
fluctuations; legislative, fiscal and regulatory developments; political
risks; terrorism, acts of war and pandemics; changes in law and legal
interpretations; and the impact of technological change. Forward-looking
statements speak only as of the date of such statements and, except as
required by applicable law, the Company undertakes no obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. The information contained in this
announcement is subject to change without notice.
Appendix 1
Additional Information
PART A
The following information is required to be disclosed in accordance with the
requirements of UKLR 7.3.1R (as required by UKLR TP 6.2R(3) and UKLR TP
6.5R(2) for a mid-flight transaction) and was not required to be included in
the Original Announcement.
1. Sale and Purchase Agreement
The Sale and Purchase Agreement consists of a share sale and purchase
agreement between Energean and CIEP Spin BidCo Limited, an entity controlled
by Carlyle, for the acquisition of 100% of the share capital of Energean
Capital Limited (a wholly owned subsidiary of the Company). In addition,
Energean and the Buyer will enter into a tax deed at Completion to govern the
allocation of tax liabilities relating to the Target Group prior to and with
effect from the Effective Date. At Completion, the Company (as lender) will
also enter into a facility agreement with CIEP Spin MidCo 2 Limited (as
borrower), an entity controlled by Carlyle, which will govern the terms of the
Vendor Loan.
Other terms
Completion is conditional upon customary regulatory approvals in Italy and
Egypt together with antitrust approvals in Italy, Egypt and COMESA. The
Transaction constitutes a significant transaction under the UK Listing Rules.
Following the implementation of the UKLRs on 29 July 2024, the Transaction is
no longer subject to the approval of the Company's shareholders. Pursuant to
the Sale and Purchase Agreement, the Target is also required to transfer the
North Sea Assets (together with certain other non-Target Group assets
currently held by the Target Group which are primarily for the benefit of the
Group), to the Company on or prior to Completion. The Purchaser and Seller
will also seek to procure the release of guarantees given by the Group in
relation to the Target Group and by the Target Group in relation to the Group
respectively.
The Transaction is subject to the conditions being satisfied by a longstop
date of 20 March 2025 (or such other date as may be agreed by Energean and
Carlyle) (the "Longstop Date").
Prior to Completion, Energean shall procure that the business of the Target
Group is conducted in the ordinary course of business and shall not, without
the written consent of the Buyer (not to be unreasonably withheld, delayed or
conditioned) undertake certain specified actions.
The consideration for the Transaction is subject to certain customary
adjustments including an equity adjustment calculated on the equity value of
the Target for the period from the Effective Date until the Completion Date.
To the extent that this equity adjustment is below a threshold amount of $10
million, it will be paid by the Buyer in cash on Completion. Where the equity
adjustment exceeds such threshold amount, the amount in excess of such
threshold amount will be added to the amount of the Vendor Loan.
Energean has provided certain indemnities to the Buyer in respect of the
operations of the Target Group, together with certain customary warranties
(including inter alia with respect to incorporation, capacity, and authority,
ownership of the assets of the Target Group and insolvency). Energean's
liability for a relevant claim made by the Buyer is subject to a number of
contractual limitations, including a customary cap on Energean's total
liability in respect of all claims under the SPA (excluding certain claims
relating to indemnities and pre-Completion "leakage" to the Group from the
Target Group).
Either Energean or the Buyer has a right to terminate the Sale and Purchase
Agreement if any of the conditions have not been satisfied or waived by the
Longstop Date. The Sale and Purchase Agreement may also be terminated by the
Buyer for any breach of certain fundamental warranties and the occurrence of
certain material adverse events affecting the Target Group following signing,
subject to customary rights to remedy.
The Sale and Purchase Agreement is governed by English law. Any dispute
arising in respect of the Sale and Purchase Agreement shall be referred to and
finally resolved by arbitration under the Rules of the London Court of
International Arbitration.
Non-Completion
If Completion does not occur in certain specified circumstances the Buyer will
be liable to pay Energean an amount which is material by reference to the
overall value of the transaction by way of liquidated damages (the
"Non-Completion Payment").
2. Vendor Loan Agreement
In connection with the Transaction, at Completion Energean will enter into a
vendor loan agreement (the "Vendor Loan Agreement") under which Energean as
lender (the "Lender") will make available a senior secured facility to CIEP
Spin Midco 2 Ltd as borrower (the "Borrower") (the Borrower being the indirect
parent company of the Buyer) and such facility will be deemed to be utilised
through the Vendor Loan on a cashless basis by way of a deduction from the
purchase price payable to Energean by the Buyer in respect of the
Transaction.
The precise Vendor Loan amount is to be confirmed on the Completion Date in
accordance with the purchase price mechanics set out in the Sale and Purchase
Agreement, but prior to any equity adjustment for the period between the
Effective Date and the Completion Date the Vendor Loan amount is
$139,180,124.
The security arrangements under the Vendor Loan Agreement consist of (i) an
English law governed share charge granted by CIEP Spin Holdco Ltd ("Topco") in
respect of the entire issued share capital of the Borrower and an assignment
of intercompany receivables owed by the Borrower to Topco; and (ii) an English
law governed assignment of intercompany receivables (A) owed by the Borrower
to Topco; and (B) owed to the Borrower by its subsidiaries (which will include
the Target Group on Completion).
The Vendor Loan will have a tenor of 6 years and 3 months from the Completion
Date and shall be repaid in full on its termination date, subject to any
voluntary or mandatory prepayments that occur prior to this date. The Borrower
can voluntarily prepay the Vendor Loan with 5 business days' notice. The
Vendor Loan contains mandatory prepayment events which are customary for this
type of facility, along with certain customary restrictions on the activities
of the Borrower by way of affirmative and negative covenants. The Vendor Loan
Agreement also includes customary event of default provisions for this type of
facility, including cross-payment default to the RBL facility.
The interest rate is Term SOFR plus a margin of 7% per annum which is
increased by an additional 0.50% per annum for each anniversary of the Vendor
Loan Agreement until the fifth anniversary where the margin will be 9.50% per
annum until the final repayment date. For the first two years after the
Completion Date, interest shall be paid as "payment in kind" (PIK) and shall
capitalise and be compounded with the outstanding amount of the Vendor Loan on
a quarterly basis unless the Borrower elects to pay the interest in cash.
Following the initial two-year period, the interest then becomes payable in
cash on a quarterly basis unless the Borrower elects for the interest to be
payable as PIK subject to the total number of interest periods for which the
Borrower may elect to pay interest as PIK being no more than 12 months in
aggregate and there being no more than four PIK elections in total. For any
interest period in which PIK applies, the interest will be increased by an
additional premium of 0.25% per annum multiplied by the number of interest
periods in respect of which the PIK interest applies.
3. Effects of the Transaction
The implementation of the Transaction is expected to have the following
impacts or effects on Energean.
3.1 Material risks
The Directors consider the following to be the material risk factors related
to the Transaction, material new risk factors to Energean as a result of the
Transaction, or existing material risk factors to Energean which will be
affected by the Transaction. These risks do not purport to be a comprehensive
list of all potential risks in relation to the Transaction and do not include
additional risks relating to the Transaction that are not presently known to
the Directors, or which the Directors deem immaterial in the context of the
Transaction. The risks described herein are based on information known at the
date of this announcement but may not be the only risks to which the Group is
or might be exposed. Additional risks and uncertainties, which are currently
unknown to the Company or that the Company does not currently consider to be
material, may adversely affect the business of the Group and could have
material adverse effects on the business, financial condition, results of
operations and future prospects of the Group.
3.1.1 Material risks relating to the Transaction not proceeding
The implementation of the Transaction is subject to the satisfaction of
certain conditions and the conditions might not be satisfied or waived. The
Transaction is conditional upon the satisfaction or, where applicable, waiver
of the following conditions:
· regulatory approvals in Italy and Egypt;
· anti-trust approvals in Italy, Egypt and COMESA; and
· transfer of the North Sea Assets from the Target Group to a
member of the Group.
There is no guarantee that these conditions will be satisfied or, where
permitted, waived by the long stop date of 20 March 2025 or at all. Failure to
satisfy or obtain waiver of any condition may result in the Transaction not
being completed. The Sale and Purchase Agreement may also be terminated for
any breach of certain fundamental warranties and the occurrence of certain
material adverse events affecting the Target Group following signing, subject
to customary rights to remedy.
If the Transaction is not completed, or the Sale and Purchase Agreement is
terminated, the Group will not receive any of the consideration payable in
respect of it. This would prejudice its ability to create shareholder value by
being unable to repay the 2027 PLC Notes in full prior to their scheduled
maturity and facilitate a special dividend of up to $200 million.
If Completion does not occur, or the Sale and Purchase Agreement is
terminated, the Company will also have incurred significant costs and
management time in connection with the Transaction, which it will not be able
to recover (other than through the Non-Completion Payment, to the extent
applicable). It will also not realise the anticipated benefits of the
Transaction and its ability to implement its stated strategy may be
prejudiced.
3.1.2 Material risks relating to the Group which result from the
Transaction
3.1.2.1 Warranties and indemnities in the Sale and Purchase Agreement
The Sale and Purchase Agreement contains certain warranties and indemnities
from Energean in favour of the Buyer which are customary in nature. Energean's
total liability in respect of all claims is subject to a customary cap
(excluding certain claims relating to indemnities and pre-Completion "leakage"
to the Group from the Target Group). If Energean is required in the future to
make payments under any of the warranties or indemnities the costs of such
payments could have an adverse effect on its business, financial condition and
results of operations.
3.1.2.2 Energean will be exposed to the Buyer's credit risk on the
Vendor Loan and the contingent payments
In part consideration for the Transaction, Energean will make the Vendor Loan
with a nominal amount of $139 million (prior to any equity adjustment for the
period between the Effective Date and the Completion Date). The Vendor Loan is
repayable upon maturity, being the date falling 6 years and 3 months following
Completion, unless repaid prior to this date in accordance with its terms. In
addition, the Buyer has agreed to pay further amounts related to the working
interest Italian oil and gas production and the recently drilled Location B
well in Egypt (the "Contingent Consideration"). For the Italian working
interests, such contingent payment will be based off production volumes and
the average Brent Crude Oil Price and Italian PSV Gas Price during the
calendar years 2025, 2026, 2027 and 2028 relative to annual reference
production volumes and prices. For the Location B well in Egypt such
contingent payment will be calculated based off (i) the 2P reserves (as
determined by an independent auditor at YE24) plus (ii) the actual 2024
production, that are in excess of certain agreed pre-drill estimated volumes.
The first $15 million of any payable amount in respect of the Location B well
contingent consideration shall be payable in cash in Q3 2025 and any balance
due shall be payable (at the Buyer's option) either in cash or as a
corresponding increase in the principal amount of the Vendor Loan.
Carlyle has not provided any guarantee in respect of the repayment of the
Vendor Loan or the payment of the Contingent Consideration. Energean will
therefore be subject to the credit risk of the Buyer and there can be no
assurance that the Buyer will be able to repay the Vendor Loan in accordance
with its terms or the Contingent Consideration. Therefore, there is a risk
that Energean may not be repaid in full pursuant to the Vendor Loan and
receive the full consideration due in respect of the Transaction.
3.1.2.3 The amount of the Contingent Consideration for the Italian working interests is subject to determination by reference to production volumes and yearly averages for the Brent Crude Oil Price and Italian PSV Gas Price
The Sale and Purchase Agreement provides for a $125 million capped contingent
consideration, inflated at the US CPI from 1 January 2024 onwards, varying
from nil to $125 million (as inflation adjusted) which is payable on the
following reference prices and production volumes being met (subject to
certain adjustments in the event of new windfall taxes being levied on the
relevant profits).
Year 2025 2026 2027 2028
$/bbl (oil reference price) 77.33 73.56 70.00 70.00
Oil production trigger (mmbbl) 1.794 1.666 1.55 1.444
€/MWh gas reference price 29.87 29.16 25.00 25.00
Gas production trigger (mmscf) 26,918 24,551 21,574 19,063
A conversion factor of 3.412 mcf to 1 MWh applies in converting net production
from mcf to MWh
If the production volumes or the average Brent Crude Oil Price or Italian PSV
Gas Price in any of those calendar years is below the minimum threshold, no
Contingent Consideration with respect to the Italian working interests will be
payable in respect of that calendar year. Prices for crude oil and natural gas
can fluctuate widely. Among the factors that can or could cause these price
fluctuations are: (a) the level of consumer demand; (b) domestic and worldwide
supplies of crude oil and natural gas; (c) the price and quantity of imported
and exported crude oil and natural gas; (d) domestic and international
drilling activity; (e) the actions of other crude oil and natural gas
exporting nations; (f) weather conditions and changes in weather patterns; (g)
the availability, proximity and capacity of appropriate transportation
facilities, gathering, processing and compression facilities and refining
facilities; (h) worldwide economic and political conditions, including
political instability or armed conflict in oil and gas producing regions; (i)
the price and availability of, and demand for, competing energy sources,
including alternative energy sources; (j) the nature and extent of
governmental regulation, including environmental regulation, regulation of
derivatives transactions and hedging activities, tax laws and regulations and
import and export laws and regulations; (k) the level and effect of trading in
commodity futures markets, including trading by commodity price speculators
and others; and (l) the effect of worldwide energy conservation measures.
Energean has, and will have, no control or influence over the Brent Crude Oil
Price or Italian PSV Gas Price or production volumes for the Italian working
interests and cannot accurately predict these for the four calendar years
applicable to the Contingent Consideration with respect to the Italian working
interests. Accordingly, there can be no assurance that any element of the
Contingent Consideration with respect to the Italian working interests will
become due and payable.
3.1.2.4 The amount of the Contingent Consideration payable by the Buyer to Energean is subject to determination by reference to 2P reserves and 2024 production from the Location B well in Egypt
The Sale and Purchase Agreement provides for a potential uncapped additional
contingent consideration payable in respect of the recently drilled Location B
well in Egypt, where such contingent payment will be calculated based off (i)
the 2P reserves (as determined by an independent auditor at YE24) plus (ii)
the actual 2024 production, that are in excess of the following pre-drill
estimated volumes (using a conversion factor of one boe equals 5,650.4 cubic
feet as applicable):
· $2.00 per boe for gas in excess of 8,672,924 boe;
· $5.00 per boe for oil in excess of 0 boe;
· $4.50 per boe for condensate in excess of 490,055 boe; and
· $3.75 per boe for LPG in excess of 539,060 boe.
If the 2P reserves (as determined by an independent auditor at YE24) plus the
actual 2024 production from the Location B well are less than such pre-drill
estimated volumes, the Buyer shall not be required to pay any amount in
respect of the Contingent Consideration.
3.1.3 Existing material risks to the Group which will be impacted
by the Transaction
3.1.3.1 The Group may be unable to implement its strategy
Energean's strategy is to be the leading independent gas-focused E&P in
the Mediterranean and beyond. The Transaction enables management to focus on
its core gas-weighted assets, underpinned by Israel and the recent farm-in to
the Anchois field in Morocco, to maximise asset monetisation, free cash flow
generation and returns to shareholders. In addition, Energean will continue to
evaluate existing organic growth opportunities within its portfolio, as well
as inorganic opportunities beyond the Mediterranean in the wider EMEA region,
particularly where there is long-term policy support for gas and coal
phase-out. There can be no assurance that the Group will be able to continue
to implement this strategy successfully (for a variety of reasons, including
the availability of, or competition for, additional growth opportunities) or
that future oil and gas prices will support this business model in future. Any
failure to do so could materially adversely affect the reputation, financial
condition and/or operating results of the Group.
3.1.3.2 Without the addition of reserves through exploration,
acquisition or development activities, the Group's reserves and production
will decline over time as reserves are exploited
The Group's future oil and gas reserves, production and cash flows to be
derived therefrom are highly dependent on its success in exploiting its
current reserve and resource base. The Transaction will result in the disposal
of assets with net working interest 2P reserves of 150 mmboe (70% gas)
(D&M YE23 CPR) and 2023 net working interest production of 34 kboe/d (73%
gas). Without the addition of reserves through exploration, acquisition or
development activities, the Group's reserves and production will decline over
time as reserves are exploited. A future increase in the Group's reserves will
depend not only on its ability to develop present properties (including the
Karish and the Katlan fields, in respect of which FID was announced on 23 July
2024), but also on its ability to select and acquire suitable producing
properties or prospects. If such efforts are unsuccessful, the Group's total
reserves may not increase or may decline, which could have a material adverse
effect on its business, financial condition, prospects and results of
operations.
3.1.3.3 Following Completion, the Group's assets will be concentrated in
Israel, making it vulnerable to risks associated with having nearly all of its
production in one country
Following Completion, the Group's oil and gas assets will continue to be
concentrated in Israel (given Israel represented approximately 83% of the
Group's 2P reserves of 1,115 mmboe prior to the implementation of the
Transaction). As a result of this concentration, the Group's assets may be
disproportionately exposed to the effect of regional supply and demand
factors, regional and domestic geopolitical and security risks, delays or
interruptions of production from wells caused by processing or transportation
capacity constraints, governmental regulation, availability of equipment,
equipment failure, facilities, personnel or services market limitations,
weather events, or interruption of the processing or transportation of oil and
gas.
Since 7 October 2023 and the conflict between Israel and Hamas in Gaza, there
is greater geopolitical and security risk in the region, and essential
infrastructure systems (such as the Energean Power FPSO offshore Israel) may
be targets for missile fire and sabotage operations. Any potential damage
thereto may cause significant damage and disrupt or disable the production and
operations from the Karish and Karish North fields (the "Karish Fields") for a
period and to an extent that may be material. While the Karish field has
continued to produce in line with guidance and with no disruption to its
operations since the start of the military conflict, any event that impacts
production from this field could have a material adverse impact on the
business, results of operations, cash flows, financial condition and prospects
of the Group.
3.2 Financial Effects of the Transactions
The gross assets attributable to the Transaction as at 31 December 2023 were
$1.67 billion. Total liabilities attributable to the Transaction as at 31
December 2023 were $1.27 billion, of which $516 million was provision for
decommissioning. The Target Group generated Adjusted EBITDAX of $264 million
in 2023.
The Directors believe that the Transaction will improve operating cash flows
as a result of removing decommissioning liabilities and capex commitments
associated with the Target Group with sufficient cash proceeds at Completion
to be able to repay in full the 2027 PLC Notes and facilitate a special
dividend of up to $200 million.
Following Completion, the Group will no longer receive the contribution that
the Target Group currently makes to the Group's financial results. In the
Group's forthcoming interim consolidated financial results for the six months
ended 30 June 2024, which are expected to be published by 11 September 2024,
the Target Group will be presented as a disposal group held for sale and
discontinued operations in accordance with IFRS 5. As a result, comparative
financial information will be restated in the Interim Consolidated Income
Statement for the six months ended 30 June 2023 to present the financial
results for the disposal group in the prior period as discontinued operations.
4. Other information
4.1 No persons are proposed to be appointed as directors of
the Company in connection with the Transaction.
4.2 There are no key individuals important to the business
of the Target Group (who are not already engaged by the Target Group).
5. Board's opinion
The Transaction is, in the opinion of the Directors, in the best interests of
the shareholders of the Company as a whole.
PART B
The following information is required to be disclosed in accordance with the
requirements of UKLR 7.3.2R (as required by UKLR TP 6.2R(3) and UKLR TP
6.5R(2) for a mid-flight transaction) and was not required to be included in
the Original Announcement.
1. Financial Information
Appendix 2 includes the financial information on the Target required in
accordance with UKLR 7 Annex 2 Part 2.
2. Legal and arbitration proceedings
2.1 Group
There are no governmental, legal or arbitration proceedings (including any
such proceedings which are pending or threatened of which the Company is
aware), during a period covering at least the previous 12 months preceding the
date of this announcement, which may have, or have had in the recent past
significant effects on the Company and/or the Group's financial position or
profitability, save for the following:
Tsabar Oil & Gas Ltd., et al., vs Energean Israel, EEPH, Energean Oil
& Gas S.A., Mathios Rigas and Efstathios Topouzoglou
On 6 November 2019, Tsabar Oil & Gas Ltd., Nammax Oil & Gas Ltd. and
Med Sea Ltd. (together, the "Tsabar Group"), which entities are beneficially
controlled by Beny Steinmetz, issued a claim against Energean Israel Limited
("Energean Israel"), EEPH, Energean Oil & Gas S.A., Mathios Rigas and
Efstathios Topouzoglou (together, the "Respondents"), in respect of what was
described in the claim as "Energean's interests" in the project related to the
Karish and Tanin gas reservoirs, offshore Israel (the "Interests" and the
"Project", respectively). The Tsabar Group claims, inter alia, that the
Respondents breached agreements and understandings allegedly reached in
respect of the Tsabar Group's commercial stake in the Project, should the
Israeli Petroleum Commissioner not approve its participation. The Tsabar Group
is seeking a declaratory relief stating that it is entitled to a share of
20%-25% in the Interests or financial compensation estimated at $146.7
million; or, in the alternative, a declaratory relief stating that it is
entitled to a share in the Project of at least 10% or to a financial
compensation estimated at $172.6 million. The Israeli Petroleum Commissioner
has suspended any participation by the Tsabar Group, as controlled by Mr
Steinmetz, in the potential acquisition of any interest in Karish-Tanin. On
the basis of legal advice obtained to date, the Tsabar Group's claim is
considered more likely than not to be dismissed, and the matter is being
defended vigorously. The Statement of Defence of the Respondents, filed in the
Israeli courts on 21 May 2020, stated, among other things, that the alleged
agreements and understandings described by the Tsabar Group in its claim never
existed. The Respondents further noted that the Tsabar Group has failed to
show any evidence that these alleged agreements and understandings existed and
did not include even minimal details of any such agreement in its statement of
claim. The Respondents also argued that the Tsabar Group's claim should be
dismissed due to failure to state a claim and bad faith.
A preliminary hearing took place in February 2023. Following the hearing, the
Court decided to bifurcate the questions of liability and damage, so claims
regarding the damages will only be heard if the Respondents are found to be
liable. The Court also referred the Tsabar Group and Respondents to mediation,
which was concluded after several meetings. During 2023, the Tsabar Group and
the Respondents completed the documents discovery stage and are currently at
the witness statements stage of proceedings. The Tsabar Group filed their
affidavits on 3 January 2024 and the submission date for the Respondents'
affidavits is set for 1 September 2024. Another Court hearing is currently
scheduled for September 2024.
2.2 Target Group
There are no governmental, legal or arbitration proceedings (including any
such proceedings which are pending or threatened of which the Company is
aware), during a period covering at least the previous 12 months preceding the
date of this announcement, which may have, or have had in the recent past
significant effects on the Target Group's financial position or profitability,
save for the following:
MATTM vs. Edison S.p.A. and others for the indemnification of environmental
damages arising from the Vega field
On 30 May 2018, the Italian Ministry of Environment ("MATTM") filed a law suit
before the "Tribunale civile di Catania" (a court in Catania) against Edison
and others asking for indemnification of certain environmental damages
(quantified in an aggregated amount of €76.5 million plus interest, for
which each defendant could be jointly liable) allegedly caused by the waste
disposal activities (mainly water re-injection) carried out by Edison S.p.A.
("Edison") as operator of the Vega field between 1989 and 2007.
In July 2022, the Court issued a decision rejecting MATTM's indemnification
claim. This decision was subsequently appealed by MATTM before the Court of
Appeal. On 4 June 2024, MATTM's appeal was rejected.
MATTM's may bring a further appeal before the Court of Cassation. If the claim
by MATTM is successful, Energean Italy (as the owner of the Vega concession)
may be liable to contribute to, or satisfy in full, any payment of this
indemnification claim, and it is not possible to quantify any potential
payment at this stage. Edison has provided an indemnity to the Target in the
Edison Acquisition Agreement (as defined below) in respect of any liability
suffered by any member of the Target Group in respect of this claim.
Energean Italy - Energean Sicilia / Italian Tax Authority - windfall taxes and
real estate taxes
First windfall tax - Energean Italy
In connection with windfall profit tax introduced by the Italian Ministry of
Finance in March 2022, Energean Italy paid a total amount of approximately
€27 million.
In October 2023, Energean Italy engaged "Studio Salvini law firm", a
specialist tax advisor, to advise on the possibility of appealing against the
application of the decree pursuant to which windfall profit tax was introduced
as unconstitutional and to assist with the preparation of the reimbursement
request. On 7 November 2023, Energean Italy filed a reimbursement request for
the full amount of the tax paid during 2022 and after 90 days the tax
authority did not respond, thereby rejecting the request. Following this,
Energean Italy filed a claim before the tax court at the end of March 2024.
On 27 June 2024, Constitutional Court Ruling No. 111/2024 was published, which
declared that the windfall tax is constitutionally compatible, except for
certain details that are not relevant to the case filed by Energean Italy. A
hearing before the tax court was scheduled for 15 July 2024, but it was
postponed by the judge to enable Energean Italy to analyze the impact of the
Constitutional Court Ruling on its case. The next hearing is set for 9
December 2024. At the next hearing the judge will analyse the claims
concerning a breach of EU law and will consequently decide if the cases must
be referred to the EU Court of Justice.
Second windfall tax (EU Solidarity Contribution) - Energean Italy and Energean
Sicilia
In December 2022, a further windfall tax was introduced in Italy following EU
Regulation pursuant to which Energean Italy paid €85 million in June 2023.
Energean Italy and Energean Sicilia filed a reimbursement request on 22
December and 29 December 2023 respectively, which amounted to approximately
€87 million (€84 million for Energean Italy and €2.9 million for
Energean Sicilia) and after 90 days the tax authority did not respond, thereby
rejecting the request. Energean Italy filed a claim before the tax court in
March 2024 and Energean Sicilia filed a claim in April 2024. The hearing for
Energean Italy's case before the tax court was scheduled for 15 July 2024, but
it was postponed, and a new date has not been set yet. At the next hearing the
judge will analyse the claims concerning a breach of EU law and will
consequently decide if the cases must be referred to the EU Court of Justice.
The hearing for Energean Sicilia case has not yet been scheduled.
Imposta Municapale Unica and Tassa sui Servizi Indivisibili Comunali real
estate tax litigations brought by Municipality of Scicli relating to offshore
platforms, penalties, sanctions and interest, with reference to tax years
2016-2019
On 9 December 2020, the Municipality of Scicli issued a claim in relation to
the Vega platform A for alleged unpaid taxes, penalties and legal sanctions
for a total amount of €32,923,152.99 for the period from 2016 to 2019.
On 25 January 2021, Energean Italy submitted an application to the
Municipality of Scicli for cancellation of the tax assessment, which was
rejected. On 8 February 2021, Energean Italy filed an appeal against the above
tax assessment with the Ragusa Provincial Tax Commission.
On 9 December 2021, the CTP of Ragusa upheld the request for cancellation of
the tax assessment. At the hearing of 12 October 2023, the case was referred
for a decision, which is awaited.
3. Significant change
3.1 Group
There has been no significant change in the financial position of the Group
since 31 December 2023, the end of the most recent financial period for which
historical financial information of the Group has been published.
3.2 Target Group
There has been no significant change in the financial position of the Target
Group since 31 December 2023, the end of the most recent financial period for
which historical financial information of the Target Group has been published.
4. Material Contracts
4.1 Group
The following contracts (not being contracts entered into in the ordinary
course of business) have been entered into by members of the Group (i) within
the two years immediately preceding the date of this document which are or may
be, material or (ii) which contain any provision under which any member of the
Group has any obligation or entitlement which is material to the Group as at
the date of this announcement:
4.1.1 Sale and Purchase Agreement
Details of the Sale and Purchase Agreement are set out in paragraph 1 of Part
A of this Appendix 1.
4.1.2 2026 EIFL Notes, 2028 EIFL Notes and 2031 EIFL Notes
Overview
On 24 March 2021, Energean Israel Finance Ltd. ("EIFL") issued: (i) the 2026
EIFL Notes; (ii) the 2028 EIFL Notes; and (iii) the 2031 EIFL Notes in three
equal tranches of $625,000,000 under an indenture between EIFL and HSBC Bank
USA, N.A. as trustee (the "Trustee") dated 24 March 2021 as amended on 9
January 2023 (the "Indenture"). Under the Indenture, EIFL also issued a
further tranche of notes due March 2024 in the amount of $625,000,000 which
were redeemed in full on 30 September 2023 following the issue of the 2033
EIFL Notes.
Interest and Maturity
The 2026 EIFL Notes were issued in the aggregate principal amount of
$625,000,000 and will mature on 30 March 2026. Subject to redemption,
prepayment, repayment, or discharge in part or in full prior to the maturity
date, the principal amount shall be paid on the scheduled maturity date. The
2026 EIFL Notes bear interest at the rate of 4.875%. Interest on the 2026 EIFL
Notes is paid semi-annually in arrears and is payable on 30 March and 30
September.
The 2028 EIFL Notes were issued in the aggregate principal amount of
$625,000,000 and will mature on 30 March 2028. Subject to redemption,
prepayment, repayment, or discharge in part or in full prior to the maturity
date, the principal amount shall be paid on the scheduled maturity date. The
2028 EIFL Notes bear interest at the rate of 5.375%. Interest on the 2028 EIFL
Notes is paid semi-annually in arrears and is payable on 30 March and 30
September.
The 2031 EIFL Notes were issued in the aggregate principal amount of
$625,000,000 and will mature on 30 March 2031. Subject to redemption,
prepayment, repayment, or discharge in part or in full prior to the maturity
date, the principal amount shall be paid on the scheduled maturity date. The
2031 EIFL Notes bear interest at the rate of 5.875%. Interest on the 2031 EIFL
Notes is paid semi-annually in arrears and is payable on 30 March and 30
September.
Security and guarantees
The 2026 EIFL Notes, the 2028 EIFL Notes and the 2031 EIFL Notes (together,
the "Initial EIFL Notes") are secured by:
· a first priority Cypriot fixed pledge granted in favour of HSBC
Bank USA, N.A. as collateral agent (the "Collateral Agent") by Energean
E&P Holdings Limited ("EEPH") on its rights and interests in the shares of
Energean Israel Limited (the "Sponsor") ("EEPH Collateral");
· first priority pledges granted in favour of the Collateral Agent
by the Sponsor with a first priority Israeli fixed charge over its rights and
interests in, amongst other things, its shares in EIFL and Energean Israel
Transmission Ltd. ("Transco"), certain leases, licences and permits for
hydrocarbon interests, certain accounts of the Sponsor, certain material
contracts and certain assets, a first priority Marshall Island fixed pledge on
the Energean Power FPSO and a first priority Israeli floating charge on its
rights and interests in all of its platforms, pipelines, plant and machinery
and all of its present and future tangible and intangible assets of any kind
whether contingent or absolute (the "Sponsor Collateral"); and
· first priority pledges granted in favour of the Collateral Agent
by EIFL with a first priority Israeli fixed charge over its rights and
interests in respect of the Sponsor Loan Agreement, as defined below (and the
respective promissory notes issued by the Sponsor) and EIFL's accounts and a
first priority Israeli floating charge on its rights and interests in and to
all of its present and future tangible and intangible assets of any kind
whether contingent or absolute (the "Issuer Collateral", and, together with
EEPH Collateral and Sponsor Collateral, the "Collateral").
The Initial EIFL Notes are not guaranteed by the Company, EEPH, the Sponsor or
any member of the Target Group.
Ranking
The Initial EIFL Notes are secured on a first-priority basis by the Collateral
and constitute senior secured debt obligations of EIFL ranking pari passu with
the 2033 EIFL Notes.
Certain Covenants and Events of Default
The Indenture contains a number of covenants that, among other things,
restrict EIFL's ability to:
· sell assets;
· incur additional debt;
· create on incur liens; and
· engage in prohibited activities.
In addition, the Indenture contains certain customary information covenants
and events of default.
Furthermore, pursuant to the sponsor loan agreement dated 24 March 2021
between EIFL, the Sponsor and the Trustee (the "Sponsor Loan Agreement"), the
Sponsor, EIF and Transco are restricted (subject to certain exemptions) from:
· selling the working interests in the Sponsor group's projects or
other property assets;
· subject to certain distribution conditions, make distributions on
its equity;
· incur additional debt;
· create or incur liens; and
· engage in prohibited activities.
The Sponsor Loan Agreement also contain covenants that limit the EEPH's
ability to create or incur liens on the EEPH Collateral.
EIFL and the Sponsor have also established various bank accounts that are
pledged in favour of the Collateral Agent. Each account has a specified
purpose related to the project, and the cash flows and allocation of funds in
such accounts are governed by the relevant accounts agreement.
Each of these covenants is subject to certain exceptions and qualifications.
4.1.3 2033 EIFL Notes
Overview
On 11 July 2023, EIFL issued the 2033 EIFL Notes as additional notes under the
Indenture, pursuant to a supplemental indenture to the Indenture entered into
on 11 July 2023 with an aggregate principal amount of $750,000,000. The 2033
EIFL Notes constitute a separate series from each series of the Initial EIFL
Notes under the Indenture but are treated as a single class with the Initial
EIFL Notes for all other purposes under the Indenture, including with respect
to waivers, amendments, redemptions and offers to purchase.
Interest and Maturity
The 2033 EIFL Notes were issued in the aggregate principal amount of
$750,000,000 and will mature on 30 September 2033. Subject to redemption,
prepayment, repayment, or discharge in part or in full prior to the maturity
date, the principal amount shall be paid on the scheduled maturity date. The
2033 EIFL Notes bear interest at the rate of 8.500%. Interest on the 2033 EIFL
Notes is paid semi-annually in arrears and is payable on 30 March and 30
September.
Security and guarantees
The 2033 EIFL Notes are secured by the Collateral.
The 2033 EIFL Notes are not guaranteed by the Company, EEPH, the Sponsor or
any member of the Target Group.
Ranking
The 2033 EIFL Notes are secured on a first-priority basis by the Collateral
and constitute senior secured debt obligations of EIFL ranking pari passu with
the 2026 EIFL Notes, the 2028 EIFL Notes and the 2031 EIFL Notes.
Certain Covenants and Events of Default
The 2033 EIFL Notes are subject to the same covenants and conditions as the
Initial EIFL Notes under the Indenture, the Sponsor Loan Agreement and the
accounts agreements. For further details see the sub-section entitled "Certain
Covenants and Events of Default" under paragraph 4.1.2 of Part B of this
Appendix 1.
4.1.4 Revolving Credit Facilities
On 8 September 2022, the Company entered into: (i) a super senior
multicurrency revolving facility agreement (the "Super Senior RCF") with ING
Bank N.V. ("ING"), Goldman Sachs International, J.P. Morgan Securities plc and
Morgan Stanley Bank International Limited as mandated lead arrangers and
original lenders (the "RCF Lenders"), the Target, Energean Egypt Ltd and EEPH
as guarantors (the "RCF Guarantors") and ING as the facility agent (the
"Facility Agent") pursuant to which the RCF Lenders made available to the
Company a multicurrency revolving loan facility in the aggregate amount of
$183,333,333 (the "Super Senior Commitment"); and (ii) a senior secured
multicurrency revolving facility agreement (the "Senior RCF", and, together
with the Super Senior RCF, the "Revolving Credit Facilities") with the RCF
Lenders as mandated lead arrangers and original lenders, the Guarantors and
the Facility Agent as the facility agent, pursuant to which the RCF Lenders
made available to the Company a multicurrency revolving loan facility in the
aggregate amount of $91,666,667 (the "Senior Commitment", and, together with
the Super Senior Commitment, the "Original Commitments").
On 19 May 2023, the Original Commitments were increased in accordance with the
terms of the Super Senior RCF and the Senior RCF so that the Super Senior
Commitment was increased to $200 million and the Senior Commitment was
increased to $100 million meaning the total commitments under the Revolving
Credit Facilities were $300,000,000.
Purpose
The purpose of entering into the Super Senior RCF was: (i) to refinance
letters of credit previously issued under an existing bilateral letter of
credit facility that the Company entered into with ING on 18 November 2021;
and (ii) for financing the Company's general corporate purposes including
working capital requirements and exposure under letters of credit. Under the
Super Senior RCF, the Company may utilise the Super Senior Commitment by way
of Letters of Credit, the aggregate amount of which shall not exceed
$200,000,000.
The purpose of entering into the Senior RCF was for general corporate purposes
including working capital requirements. Pursuant to the terms of the Senior
RCF, the Company is only entitled to draw from the Senior Commitment where the
Super Senior Commitment has been fully utilised.
The Revolving Credit Facilities may not be used at any time to redeem, defease
or repurchase the 2027 PLC Notes.
Interest and Maturity
Under the Revolving Credit Facilities, the interest rate applied to any
amounts drawn as loans is set at 5% plus SOFR.
The Revolving Credit Facilities have a duration of 36 months from the date of
signing (which was 7 September 2022) and the Company shall be able to draw
funds under the facilities until the date falling 30 days prior to this date.
Security and Guarantees
The Revolving Credit Facilities are secured by the PLC Notes Collateral (as
defined below) pursuant to the terms of an intercreditor agreement between,
among others, the Company and GLAS Trust Corporation Limited as security agent
dated 18 November 2021 (as amended on 8 September 2022) relating to the PLC
Notes Indenture (as defined below) (the "Intercreditor Agreement").
The Revolving Credit Facilities are guaranteed by the RCF Guarantors on an
irrevocable and unconditional joint and several basis.
Ranking
The Super Senior RCF ranks as super senior secured obligations of the Company
and the Senior RCF ranks as senior secured obligations of the Company. The
Super Senior RCF will receive priority ahead of the 2027 PLC Notes and the
Senior RCF with respect to the receipt of proceeds of enforcement of the
collateral securing the Revolving Credit Facilities.
Financial Covenant
The Revolving Credit Facilities require that the Fixed Charge Coverage Ratio
for each four-quarter period, for which financial statements are prepared in
accordance with the terms and conditions of the Revolving Credit Facilities,
be at least 2.25:1.
Certain Covenants and Events of Default
The Revolving Credit Facilities contain undertakings and representations and
warranties by the Company and the RCF Guarantors that are customary for
agreements of this nature. Certain representations and warranties are repeated
at specified dates, including the date that any utilisation request is
submitted and the date a utilisation is made.
The Revolving Credit Facilities contain customary event of default provision.
4.1.5 2027 PLC Notes
Overview
On 18 November 2021, the Company issued the 2027 PLC Notes with an aggregate
principal amount of $450,000,000 under an indenture between the Company and
GLAS Trust Company LLC as trustee (the "PLC Notes Trustee") and GLAS Trust
Corporation Limited as security agent dated 18 November 2021 (the "PLC Notes
Indenture").
Interest and Maturity
The 2027 PLC Notes were issued in the aggregate principal amount of
$450,000,000 and will mature on 30 April 2027. Subject to redemption,
prepayment, repayment, or discharge in part or in full prior to the maturity
date, the principal amount shall be paid on the scheduled maturity date. The
2027 PLC Notes bear interest at the rate of 6.5%. Interest on the 2027 PLC
Notes is paid semi-annually in arrears and is payable on 30 April and 30
October.
Guarantees and Security
The 2027 PLC Notes are jointly and severally guaranteed on a senior secured
basis by EEPH, the Target and Energean Egypt Ltd (the "PLC Note Guarantors").
The guarantees provided by the PLC Note Guarantors are subject to the terms of
the Intercreditor Agreement.
The 2027 PLC Notes are secured by contractual first priority liens over, among
other things, the shares of Energean Italy S.p.A., Energean Capital Ltd,
Energean Egypt Ltd, material bank accounts of the Company and the PLC Note
Guarantors, material intercompany loans owed by the Company or the PLC Note
Guarantors to non-guarantor group entities, and a floating charge over all of
the assets of the Company (other than its shares in EEPH) (the "PLC Notes
Collateral").
The 2027 PLC Notes are not guaranteed by Energean Israel Limited or any
subsidiaries of Energean Israel Limited.
Ranking
The 2027 PLC Notes are senior secured obligations secured by first priority
liens over the PLC Notes Collateral, but receive proceeds from any enforcement
of security over the PLC Notes Collateral only after any obligations under
certain indebtedness including the Super Senior RCF has been paid in full. The
2027 PLC Notes rank pari passu in right of payment with all existing and
future secured obligations of the Company. The 2027 PLC Notes are structurally
subordinated to all existing and future obligations of the Company's
subsidiaries that do not guarantee the 2027 PLC Notes, including the 2026 EIFL
Notes, the 2028 EIFL Notes, the 2031 EIFL Notes, and the 2033 EIFL Notes. The
2027 PLC Notes are guaranteed on a senior basis by the PLC Note Guarantors
subject to certain limitations.
Certain Covenants and Events of Default
The PLC Notes Indenture governing the 2027 PLC Notes contains a number of
covenants that, among other things, restrict the Company's ability to:
· incur additional debt and issue guarantees and preferred stock;
· make certain payments including dividends and other distributions
with respect to outstanding share capital;
· repay or redeem subordinated debt or share capital;
· create or incur certain liens;
· impose restrictions on the ability of subsidiaries to pay
dividends or other payments to the Company;
· make certain investments, acquisitions or loans;
· sell, lease or transfer certain assets, including shares of any
restricted subsidiary of the Company;
· guarantee certain types of other indebtedness of the Company or
its restricted subsidiaries without also guaranteeing the 2027 PLC Notes;
· merge or consolidate with other entities, or make certain asset
sales; and
· enter into certain transactions with affiliates.
Each of these covenants is subject to certain exceptions and qualifications.
In addition, the PLC Notes Indenture contains certain customary information
covenants and events of default.
4.1.6 Karish Engineering, Procurement, Construction, Installation
and Commissioning Contract
Energean Israel entered into lump-sum turnkey engineering, procurement,
construction, installation and commissioning contracts with Technip UK Limited
("Technip UK"), Technip France SA and the Israeli branch of Technip Ships One
Limited (together, "Technip") in respect of the development of the Karish
field, including the construction and delivery of the Energean Power FPSO,
effective 2 March 2018, as subsequently amended (the "Technip Karish EPCIC
Contract").
Completion of the project was initially scheduled to occur no later than 31
March 2021. Such date was subsequently extended to 30 August 2022. A practical
completion certificate was issued by Energean Israel to Technip on 18 June
2023.
Pursuant to the Technip Karish EPCIC Contract, Energean Israel agreed to pay
Technip approximately $1.39 billion for delivery of the project. The Technip
Karish EPCIC Contract contains typical EPCIC contractor warranties and certain
mutual indemnities for a contract of this kind. A defects correction period is
available for 21 months following practical completion, to be extended by up
to 12 months for defects in modifications and repairs. Under the terms of an
amendment agreement between Energean Israel and Technip signed in February
2024, the remaining amount payable under the Technip Karish EPCIC Contract has
been reduced to $210 million (payable in twelve equal quarterly deferred
payments starting in March 2024) and Energean Israel has taken responsibility
for the performance of certain outstanding works.
Energean Israel is entitled to set off amounts owed to Technip against amounts
due from Technip, and to withhold payment for defective work and disputed
amounts in any invoice. The total cumulative liability of Technip to Energean
Israel under the Technip Karish EPCIC Contract shall not exceed a cap based on
the contract price, subject to exceptions. A performance bond equal currently
to 5% of the contract price has been provided by Technip and will remain in
place until no earlier than the end of the defects correction period.
4.1.7 Katlan Integrated Engineering, Procurement, Construction and
Installation Contract
Energean Israel entered into an integrated engineering, procurement,
construction and installation contract with TechnipFMC through its subsidiary
Technip UK in respect of the subsea development of the Katlan field, effective
15 April 2024 (the "TechnipFMC Katlan iEPCI™ Contract"). The TechnipFMC
Katlan iEPCI™ Contract is part of the Katlan development project. The
capital expenditure of the overall development is expected to be approximately
US$1.2 billion. This capital expenditure includes a four-well-slot tieback
capacity to a single large approximately 30 kilometre production line, which
can be used by future Katlan area phases, an upgrade of the Energean Power
FPSO topsides related to MEG treatment, injection and storage (which will
benefit all future subsea tie-back developments) and drilling the first two
production wells of the Katlan development.
The contract includes an agreed milestone schedule on the basis of which
payment is to be made. Mechanical completion of the project is scheduled to
occur no later than 31 December 2026.
The TechnipFMC Katlan iEPCI™ Contract provides for customary daily
liquidated damages for delays, which are subject to cap based on a percentage
of the contract price.
The contract contains typical EPCI contractor warranties including an
undertaking to correct or remedy any works that do not comply with such
warranties. Technip UK's aggregate liability to Energean Israel under the
TechnipFMC Katlan iEPCI™ Contract shall not exceed a cap based on the
contract price, subject to exceptions.
The TechnipFMC Katlan iEPCI™ Contract also contains provisions typical for a
contract of this kind regarding suspension, termination, force majeure,
variation, intellectual property, dispute resolution, the duty to cooperate
and reporting, including regarding monthly reports and documentation of
milestone payment claims.
4.1.8 Anchois Farm-In Agreement
On 7 December 2023, Energean entered into a farm-in agreement with Chariot
Limited ("Chariot") (the "Farm-In Agreement") pursuant to which Energean
agreed to farm into a 45% working interest in the Lixus offshore licence,
which contains the Anchois gas development (Chariot 30%, ONHYM 25%), and a
37.5% working interest in the Rissana licence (Chariot 37.5%, ONHYM 25%).
Completion of the Farm-In Agreement was announced in April 2024, following
receipt of the requisite approvals from the Moroccan Authorities. Pursuant to
the Farm-In Agreement, Energean has assumed operatorship for both licences.
As consideration for the interests in the licences, Energean agreed to:
· pay $10 million cash consideration on closing of the transaction;
· carry Chariot for its share of pre-FID costs (which are recoverable
from Chariot's future revenues, see terms below), up to a gross expenditure
cap of $85 million, covering drilling of the appraisal well, all other pre-FID
costs and up to $7 million of seismic expenditure on the Rissana licence; and
· pay $15 million in cash, which is contingent on FID being taken on the
Anchois Development.
Following the drilling of the appraisal well, Energean has the option to
increase its working interest in the Lixus licence (which includes the Anchois
development) by 10%, to 55%. On exercise of this option, the amount payable
would be:
· Chariot's choice between either (i) a 5-year, $50 million of
convertible loan notes with a GBP20 strike price and 0% coupon; or (ii) 3
million Energean plc shares, issued immediately upon exercise of the option
but subject to a lock-up period until the earlier of first gas and 3 years
post FID;
· Energean will pay to Chariot a 7% royalty for every dollar achieved on
gas prices (post transportation costs) in excess of a base hurdle; and
· An agreement to carry Chariot's 20% share of development costs for the
Anchois development with the following terms (i) a net expenditure cap of $170
million, (ii) the carry available for development costs is reduced by costs
carried in the pre-FID phase; and (iii) all carried amounts are recoverable
from 50% of Chariot's future revenues with interest charged at SOFR + 7%.
If the option is not exercised, subject to FID, the partners have agreed to
progress the Anchois development with an ownership structure of Energean 45%,
Chariot 30%, ONHYM 25%. All amounts carried by Energean on behalf of Chariot
would be recoverable from Chariot's future revenues under the same terms as
above.
4.1.9 Edison Acquisition Agreement
Details of the Edison Acquisition Agreement are set out in paragraph 4.2 of
Part B of this Appendix 1. The Company has guaranteed the payment obligations
of the Target under the Edison Acquisition Agreement, including in respect of
the Cassiopea Consideration.
4.2 Target Group
The following contracts (not being contracts entered into in the ordinary
course of business) have been entered into by members of the Target Group (i)
within the two years immediately preceding the date of this document which are
or may be, material or (ii) which contain any provision under which any member
of the Target Group has any obligation or entitlement which is material to the
Target Group as at the date of this announcement:
4.2.1 Edison Acquisition Agreement
The Company (as guarantor), the Target (as purchaser) (the "Edison Purchaser")
and Edison entered into a share sale and purchase agreement on 4 July 2019
(the "Edison Acquisition Agreement") for the acquisition of 100% of the share
capital of Edison E&P (the "Edison Acquisition"). In addition, Edison, the
Edison Purchaser and the Company entered into a tax deed to govern the
allocation of tax liabilities relating to the Edison Acquisition prior to and
with effect from 31 December 2018.
On 2 April 2020, the Company, the Edison Purchaser and Edison entered into an
amendment agreement to the Edison Acquisition Agreement, pursuant to which the
parties agreed (inter alia) to exclude the Algerian interests of Edison
E&P from the perimeter of the Edison Acquisition. On 28 June 2020, the
Company, the Edison Purchaser and Edison entered into a further amendment
agreement to the Edison Acquisition Agreement, pursuant to which the parties
agreed (inter alia) to exclude the Norwegian interests of Edison E&P from
the perimeter of the Edison Acquisition and to amend the contingent
consideration payable in respect of the Cassiopea development, offshore Italy.
Following the exclusion of the Algerian and Norwegian interests from the
transaction perimeter and certain other agreed adjustments, the initial
consideration for the Edison Acquisition was amended to $284 million, to be
adjusted for working capital and on provisions and other adjustments at the
economic reference date of the transaction (1 January 2019) that were provided
for under the original Edison Acquisition Agreement. Edison and Energean also
agreed to amend the terms of the contingent consideration for the Cassiopea
development, offshore Italy, which is payable no later than 90 days after the
first day of the month following the first month in which commercial gas
production from the Cassiopea development has continued on a regular basis for
at least 25 days (the "Cassiopea Consideration"). The revised consideration
varies from between nil and $100 million, depending upon the average of the
year one and year two Italian PSV Natural Gas Futures price at the date of
first gas production. No payment will be due if the arithmetic average of the
year one (i.e., the first year after first gas production) and year two (i.e.,
the second year after first gas production) Italian PSV Natural Gas Futures
prices is less than €10/Mwh (equivalent to approximately $3.4/mcf) when
first gas production is delivered from the field. $100 million is payable if
that average price exceeds €20/Mwh (equivalent to approximately $6.8/mcf).
The Cassiopea Consideration remains outstanding as at the date of this
announcement.
Edison provided certain indemnities to the Edison Purchaser and the Target in
respect of the operations of the Edison E&P group, together with customary
warranties to the Edison Purchaser (including inter alia with respect to
incorporation, capacity, and authority, ownership of the assets of the Edison
E&P group and insolvency), subject to certain limitations.
The Edison Acquisition Agreement is governed by English law. Any dispute
arising in respect of the Edison Acquisition Agreement shall be referred to
and finally resolved by arbitration under the Rules of the London Court of
International Arbitration.
Appendix 2
Financial Information on the Target
The following historical financial information relating to the Target Group's
performance has been extracted without material adjustment from the
consolidation schedules that underlie the Energean plc audited consolidated
financial statements for the 12-month reporting periods ended 31 December 2022
and 31 December 2023. The audit reports in respect of these annual
consolidated financial statements were unqualified, and copies of those
financial statements are available on the Company's website and at its
registered address: Accurist House, 44 Baker Street, London, United Kingdom,
W1U 7AL.
EY LLP served as the auditor for Energean plc during the periods presented and
subsequently up to the date of this announcement.
The historical financial information provided here does not constitute
statutory accounts as defined by section 434 of the Companies Act 2006, nor
does it represent consolidated accounts under UK-adopted International
Financial Reporting Standards. Instead, these figures are carve-out accounts
of the Target Group, assembled under the following assumptions to illustrate
the contribution of the Target Group within the Energean plc group:
· Related Party Transactions: Interest income and expenses,
allowances for related party loans, and costs incurred from transactions
between the Target Group and other entities within the Energean plc group
(continuing operations) were not eliminated in the carve-out accounts,
reflecting the related party transactions for the Target Group.
· Exclusion of Certain Investments: The Target indirectly holds
100% in two Energean plc group companies (the North Sea Assets) that will be
transferred out of the Target Group prior to Completion. As these operations
do not form part of the Target Group, the investment was excluded from the
carve-out accounts presented below.
· Allocation of Central Costs: The carve-out accounts reflect the
allocation of central Energean plc group costs to the Target Group, indicating
services provided centrally. This suggests that the Target Group might have
reported different results if it had operated as a separate business during
the periods presented.
The carve-out accounts were prepared on a basis consistent with the accounting
policies adopted in the Group's latest annual accounts, being the 2023 annual
accounts.
Additional Information
Shareholders are advised to review the full details of the disposal and its
implications for the Energean plc group's financial performance, which will be
provided in the forthcoming announcements and interim consolidated financial
statements. All relevant documents will be made available on the Company's
website and its registered address.
Carve-out income statement of the Target Group for 12 months reporting periods
ending 31 December 2022 and 31 December 2023:
31 December 2023 31 December 2022
'$000 '$000
Revenue 447,491 673,983
Cost of Sales (254,484) (280,475)
Gross profit 193,007 393,508
Administrative expenses (17,207) (20,684)
Exploration and evaluation expenses (2,728) (3,087)
Change in decommissioning provision 35,347 (26,051)
Expected credit loss (4,508) (565)
Other income 6,696 13,217
Other expenses (1,041) (7,267)
Operating profit 209,566 349,071
Finance income 7,231 3,260
Finance costs (32,649) (35,085)
Unrealised loss on derivatives (6,610) (5,203)
Net foreign exchange loss (13,568) (2,646)
Profit before tax 163,970 309,397
Taxation expense (89,556) (116,778)
Profit for the year 74,414 192,619
(Supplementary information)
Adjusted EBITDAX 5 263,904 437,762
Carve-out net asset statement of the Target Group as at 31 December 2023:
31 December 2023
'$000
ASSETS
Non-current assets:
Property, plant and equipment 1,000,749
Deferred tax assets 131,018
Other intangible assets 49,807
Other non-current assets 4
Current assets:
Trade and other receivables 223,162
Loans receivable from related party 179,621
Inventories 75,123
Cash and cash equivalents 11,849
Total assets 1,671,333
LIABILITIES
Non-current liabilities:
Decommissioning provision 496,426
Loans payable to related party 172,294
Long term lease liability 38,254
Other provisions 8,697
Other payables 341
Current liabilities:
Trade and other payables 430,387
Loans payable to related party 98,551
Decommissioning provisions 19,404
Short term lease liability 7,821
Total Liabilities 1,272,175
NET ASSETS 399,158
Appendix 3
Definitions
The following definitions apply throughout this announcement, unless stated
otherwise:
2026 EIFL Notes $625m 4.875% Senior Secured Notes due 2026 issued by EIFL
2027 PLC Notes $450m 6.500% Senior Secured Notes due 2027 issued by PLC
2028 EIFL Notes $625m 5.375% Senior Secured Notes due 2028 issued by EIFL
2031 EIFL Notes $625m 5.875% Senior Secured Notes due 2031 issued by EIFL
2033 EIFL Notes $750m 8.500% Senior Secured Notes due 2033 issued by EIFL
Board the board of the Company comprising the Directors
Borrower CIEP Spin Midco 2 Ltd
Buyer CIEP Spin BidCo Limited
Carlyle Carlyle International Energy Partners
Cassiopea Consideration the contingent consideration of $100m in connection with the Cassiopea
development
Chariot Chariot Limited
Collateral the EEPH Collateral, the Sponsor Collateral and the Issuer Collateral
Collateral Agent HSBC Bank USA, N.A.
COMESA Common Market for Eastern and Southern Africa
Company or Energean Energean plc
Completion completion of the Transaction in accordance with the Sale and Purchase
Agreement
Completion Date the date of Completion
CPR YE23 Competent Person's Report
Directors the directors of the Company
Edison Edison S.p.A.
Edison Acquisition the acquisition by the Edison Purchaser from Edison of 100% of the share
capital of Edison E&P
Edison Acquisition Agreement the share sale and purchase agreement entered into between the Company, the
Edison Purchaser and Edison dated 4 July 2019 (as amended)
Edison E&P Edison Exploration & Production S.p.A., a company incorporated in Italy,
currently named Energean Italy S.p.A.
Edison Purchaser Energean Capital Limited
EEPH Energean E&P Holdings Limited, a company incorporated in Cyprus
EEPH Collateral the first priority Cypriot fixed pledge granted in favour of the Collateral
Agent by EEPH on its rights and interests in the shares of the Sponsor
Effective Date 31 December 2023
EIFL Energean Israel Finance Ltd, a company incorporated in Israel
Energean Israel or Sponsor Energean Israel Limited, a company incorporated in Cyprus
Facility Agent ING (in its capacity as facility agent)
Farm-In Agreement the farm-in agreement entered into between the Company and Chariot dated 7
December 2023
FCA the UK Financial Conduct Authority
FID final investment decision
FSMA Financial Services and Markets Act 2000 (as amended)
Group the Company and its subsidiary undertakings (excluding the Target Group)
Indenture the indenture dated 24 March 2021 as amended on 9 January 2023 between EIFL
and the Trustee
ING ING Bank N.V.
Initial EIFL Notes the 2026 EIFL Notes, the 2028 EIFL Notes and the 2031 EIFL Notes
Intercreditor Agreement the intercreditor agreement between, among others, the Company and GLAS Trust
Corporation Limited dated 18 November 2021
Interests Energean's interests in the Project
Issuer Collateral the first priority pledges granted in favour of the Collateral Agent by the
Issuer
Karish Fields the Karish and Karish North fields
Lender the Company
MATTM the Italian Ministry of Environment
mid-flight transaction as defined in UKLR TP 6.2R
Non-Completion Payment the amount which the Buyer will be liable to pay to Energean where Completion
does not occur due to a material breach by the Buyer of certain of its
obligations under the Sale and Purchase Agreement
North Sea Assets Energean UK Limited and Energean Exploration Limited, companies incorporated
in England and Wales
Original Announcement the original announcement made by the Company on 20 June 2024 in connection
with the Transaction
Original Commitments the Super Senior Commitment and the Senior Commitment
PLC Notes Collateral The contractual first priority liens and floating charge constituting
collateral for the 2027 PLC Notes
PLC Notes Guarantors EEPH, the Target and Energean Egypt Ltd
PLC Notes Indenture the indenture between the Company, the PLC Notes Trustee and GLAS Trust
Corporation Limited as security agent dated 18 November 2021
PLC Notes Trustee GLAS Trust Company LLC
Project the project related to the Karish and Tanin gas reservoirs, offshore Israel
RCF Guarantors EEPH, the Target and Energean Egypt Ltd
RCF Lenders ING, Goldman Sachs International, J.P. Morgan Securities plc and Morgan
Stanley Bank International Limited
Respondents Energean Israel, EEPH, Energean Oil & Gas S.A., Mathios Rigas and
Efstathios Topouzoglou
Revolving Credit Facilities the Super Senior RCF and the Senior RCF
Sale and Purchase Agreement the sale and purchase agreement dated 19 June 2024 between Energean and the
Buyer in respect of the acquisition of the entire issued share capital of the
Target
Senior Commitment $100,000,000
Senior RCF the senior secured multicurrency revolving facility agreement dated 8
September 2022 between the Company, the RCF Lenders, the RCF Guarantors and
the Facility Agent
Sponsor Collateral the first priority pledges granted in favour of the Collateral Agent by the
Sponsor
Sponsor Loan Agreement the sponsor loan agreement dated 24 March 2021 between EIFL, the Sponsor and
the Trustee
Super Senior Commitment $200,000,000
Super Senior RCF the super senior multicurrency revolving facility agreement dated 8 September
2022 between the Company, the RCF Lenders, the RCF Guarantors and the Facility
Agent
Target Energean Capital Limited, a company incorporated in Cyprus
Target Group Energean Capital Limited and its subsidiary undertakings (excluding the North
Sea Assets)
Technip Technip UK, Technip France SA and the Israeli branch of Technip Ships One
Limited
Technip Karish EPCIC Contract the lump-sum turnkey engineering, procurement, construction, installation and
commissioning contracts with Technip in respect of the development of the
Karish field effective 2 March 2018, as subsequently amended
TechnipFMC Katlan iEPCI™ Contract the integrated engineering, procurement, construction and installation
contract with Technip UK in respect of the subsea development of the Katlan
field, effective 15 April 2024
Technip UK Technip UK Limited
Topco CIEP Spin Holdco Limited
Transaction the proposed sale of the entire issued share capital of the Target pursuant to
the Sale and Purchase Agreement
Transco Energean Israel Transmission Ltd.
Trustee HSBC Bank USA, N.A.
Tsabar Group Tsabar Oil & Gas Ltd., Nammax Oil & Gas Ltd. and Med Sea Ltd.
UK Listing Rules or UKLRs the rules and regulations made by the FCA under the FSMA (as came into effect
on 29 July 2024), and as contained in the FCA's publication of the same name
Vendor Loan the senior secured facility made available by the Lender to the Borrower which
will be deemed to be utilised by way of a loan
Vendor Loan Agreement the vendor loan agreement to be entered into in connection with the
Transaction at Completion
All times referred to are London times unless otherwise stated.
All references to legislation in this document are to the legislation of
England and Wales unless otherwise stated. Any reference to any provision of
any legislation shall include any amendment, modification, re-enactment or
extension thereof.
Words importing the singular shall include the plural and vice versa, and
words importing the masculine gender shall include the feminine or neutral
gender.
1 The Edison E&P acquisition also included the UK portfolio, which was
ascribed minimal value.
2 $5.4/boe multiple is based upon the firm EV of $820 million and 150
mmboe of YE23 2P reserves. Using the EV of $945 million, the EV/2P multiple is
$6.3/boe. $1.2/boe multiple is on the EV of $284 million and 239 mmboe
(excludes 4 mmboe of UK volumes) of YE18 2P reserves.
3 Gas production (mmscf): 26,918 (2025), 24,551 (2026), 21,574 (2027),
19,063 (2028). Oil production (mmbbl): 1.794 (2025), 1.666 (2026), 1.55
(2027), 1.444 (2028)
4 Reference price as follows - Brent ($/bbl): 77.33 (2025), 73.56 (2026),
70.00 (2027), 70.00 (2028). PSV gas price (€/MWh): 29.87 (2025), 29.16
(2026), 25.00 (2027), 25.00 (2028).
5 Adjusted EBITDAX is a non-IFRS measure used by the Energean plc group to
measure business performance. It is calculated as profit or loss for the
period, adjusted for taxation, depreciation and amortisation, other income and
expenses (including the impact of derivative financial instruments and foreign
exchange), net finance costs and exploration costs.
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