Energean transforms its east Med business: CEO

Greek explorer Energean has raised its sights for production growth following two sizeable acquisitions in the past few months. It also raised a $2.5bn bond – and all from the comfort of its own offices. “COVID-19 aside, it has been an amazing year,” CEO Mathios Rigas told NGW in an April 19 interview.

Energean's buyout of partner Kerogen’s 30% stake in Energean Israel in February adds 2P reserves of 29.5bn m³ of gas and 30mn barrels of liquids, representing 219mn boe in all. Its acquisition of Edison, which closed late last year, has multiplied both production and reserves.

But the company remains focused on the eastern Mediterranean, with Egypt and Israel being its major areas for the foreseeable future. It also remains heavily weighted towards gas, which comprised 72% of the 44,000 barrels of oil equivalent/day of working interest output in Q1 2021 and around 87% of its 2P reserves in Israel and Egypt.

Rigas told NGW that Edison “gives us a much stronger base to work from. Before Edison, we had two projects: oil in Greece and gas off Israel. We now have Italy and Egypt as well, so we will have four countries. We are in the process of looking for a buyer for the UK business." (See table.) The UK business is only 22% gas, however.

Energean's gain from Edison 

 Source: Energean

The Edison acquisition was also a good price, Rigas said: the net commitment of $203mn excludes the $220mn of receivables due from the Egyptian government. And when Energean took the final investment decision on the Abu Kir field area (NEA-NI) for $230mn, and showed Cairo its intentions to invest were serious, the government repaid $70mn. The Abu Kir area development involves four wells, all subsea tie-backs, which TechnipFMC will do in 18-20 months.

Egypt pays $4.6/mn Btu for Abu Kir, which is a high price for Egyptian offshore gas, he said; but the price needs to be seen as part of the much larger quantity of gas the company is selling at other prices.

Edison retained its Algeria business as the government blocked the sale – as it had with Occidental's planned sale of fellow US independent Anadarko’s assets to Total a few years ago. Resource nationalism remains on the agenda in Algiers.

“We are very glad not to be involved in Algeria,” he said. “We have some $2bn of business in the east Mediterranean so we do not need Algeria as well.” 

Israel business coming along

Construction work on the Karish project offshore Israel is 95% complete and the company has made “solid progress with the floating production, storage and offtake vessel,” he said. That is being built in Singapore and the government has imposed lockdown measures, so that is beyond its control.

There is no penalty payment due for the delay to first gas, but one specific group is owed $20mn. However this sum is more than covered by overrun payments that TechnipFMC owes Energean, he said.

“The majority of our contracts have force majeure protection and our customers understand our position. Our customers are anyway covered by deliveries from Tamar: that produces 7.4bn m³/yr and so will our Karish field at plateau. We beat the [Israeli] Leviathan project for two privatised power station gas supply contracts, which is now exporting gas to Egypt and Jordan,” he said.

Israel is planning to close down its coal-fired power plants starting in 2023 and that is when the second wave of gas-fired power contracts can start delivering. The government wanted adequate competition from the upstream before risking security of supply by switching from coal, he said.

“All our gas is sold to local markets on local terms: there is no Brent crude oil indexation, or gas hub pricing. The eastern Mediterranean is a very local market: only Egypt has LNG and that is an exporter,” he said.

The price in Israel is set by a floor price plus an escalator, set by the government, which takes a basket of fuel prices and inflation. “The only exception is gas we sell to a refinery that produces oil products,” he said. “And in Egypt we sell to the state EGPC/Egas at directly negotiated prices. Our cash flow is very predictable as 70% of our business is underpinned by long-term gas sales contracts.”

Sustainability

Energean says it was the first exploration and production company to commit to net zero. At that time, its average intensity was 60 kg CO₂ equivalent/boe produced. That is the 2019 baseline but this year it will be 20 kg and by the end of 2022 it will be down to 6 kg CO₂ equivalent/boe he said.

“We will buy all our electricity from renewable sources to account for our Scope 2 emissions and we are connecting the Prinos oilfield in Greece to a carbon capture and storage (CCS) facility. We do not want to buy carbon credits, we want to take action.

“As CCS needs a higher carbon price than today’s to make a standalone investment economic, Energean is looking for enhanced oil recovery (EOR) using CO₂ injection. There are three ways to make CCS work: government funding, EU funding and EOR. Nobody will invest if shareholders are not rewarded,” he said.

He said that the EU should include financing for gas projects in its Green Deal, as to omit them risks higher costs, less reliable supplies and less security of supply. “I often ask governments which they would prefer: to import gas or to produce it in their country. But everyone wants to be the leader in the energy transition,” he said.

“Greece uses its domestically produced lignite for 40% of its power generation and yet it has announced it will close the plants in two years’ time without having an alternative plan lined up,” he said.

Israel is aiming for 60% gas, 40% renewable electricity for its power mix. There is no wind and only a limited amount of land for solar. “That shows Israel understands the importance of energy independence, of not relying on imports. The EU, and that includes Greece, by contrast wants to shut everything that relies on fossil fuels down. People will wake up to the costs of the transition and what it means for them personally. I talk about this wherever I go, although the argument seems to have been lost,” he said.