Energean Oil & Gas Regulatory News (ENOG)

ENERGEAN ISRAEL LIMITED

Unaudited interim condensed consolidated financial statements

AS OF 31 MARCH 2022

INDEX

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ENERGEAN ISRAEL LIMITED

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

ENERGEAN ISRAEL LIMITED

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

ENERGEAN ISRAEL LIMITED

For the period of three months ended 31 March 2022 (Unaudited):

For the period of three months ended 31 March 2021 (Unaudited):

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 1: GENERAL

A. Energean Israel Limited (the "Company") was incorporated in Cyprus on 22 July 2014 as a private company with limited liability under the Companies Law, Cap. 113. Its registered office is at Lefkonos 22, 1st Floor, 2064, Nicosia, Cyprus.

B. The Company and its subsidiaries (the "Group") has been established with the objective of exploration, production and commercialisation of natural gas and crude oil. The Group's main activities are performed in Israel by the Company's Israeli Branch.

C. The Group's core assets as of 31 March 2022 are comprised of:

(1) The Company holds 80% interests in four licenses, blocks 55, 56, 61 and 62 (together, "Zone D") in Israel's Exclusive Economic Zone ("EEZ").

D. COVID-19: Despite COVID-related challenges experienced during the period (mainly at the Admiralty Yard in Singapore, where the Karish FPSO was built), the Group has made solid progress on its flagship Karish project, offshore Israel. The FPSO sailed away from Singapore and has arrived on location in Israel at June 5, 2022. The Company expects approximately three - four months of commissioning before first gas, which expected at Q3 this year.

NOTE 2: ACCOUNTING POLICIES AND BASIS OF PREPARATION

These unaudited interim condensed consolidated financial statements for the three months ended 31 March 2022, have been prepared in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU). The unaudited interim condensed consolidated financial statements do not include all the information and disclosures that are required for the annual financial statements and must be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2021.

These unaudited interim financial statements have been prepared on a going concern basis.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 3: FINANCIAL POSITION

A. Property, Plant and Equipment:

1) Composition:

(*) The additions to Petroleum and Gas assets are mainly due to the development costs of

Karish field which mainly relate to the EPCIC contract (FPSO, Sub Sea and On-shore construction

cost).

(**) The borrowing costs capitalised are mainly due to the secured senior notes.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 3: FINANCIAL POSITION (Cont.)

2) Cash flow statement reconciliations:

(*) The amount includes payment of US$10.85 million which has been paid in 2021 to the

sellers of Karish and Tanin leases.

B. Intangible Assets:

1) Composition: 

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 3: FINANCIAL POSITION (Cont.)

2) Cash flow statement reconciliations:

C. Senior secured Notes:

1) Issuance of US$2,500,000,000 senior secured notes:

On 24 March 2021 ("Issue Date"), Energean Israel Finance Ltd (a subsidiary of the Company, held 100%) announced on closing of an offering of US$2,500,000,000 senior secured notes.

The Notes were issued in four series as follows:

The interest on each series of the Notes will be paid semi-annually, on 30 March and on 30 September of each year.

The Notes are listed for trading on the TACT Institutional of the Tel Aviv Stock Exchange Ltd. (the "TASE").

With regards to the Indenture document, signed on 24 March 2021 with HSBC BANK USA, N.A (the "Trustee"), no Indenture default or Indenture event of default has occurred and is continuing.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 3: FINANCIAL POSITION (Cont.)

2) Restricted cash:

As of 31 March 2022 the restricted cash of the Company includes:

o  Long term restricted cash of US$100 million Debt Payment Fund that would be released upon achieving three quarters annualized production of 3.8 BCM/year.

o  Short term restricted cash of US$35.6 million to cover the Interest Reserve Account for the accrued interest of the senior Secured Notes till 30 June 2022.

3) Credit rating:

Moody's assigns Ba3 rating the senior secured notes, and S&P Global assigns BB- rating the senior secured notes.

D. Fair value measurements:

The information set out below provides information about how the Group determines the fair values of various financial assets and liabilities.

The fair values of the Group's non-current liabilities measured at amortised cost are considered to approximate their carrying amounts at the reporting date.

The carrying value less any estimated credit adjustments for financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to their short term-nature.

The fair value hierarchy of financial assets and financial liabilities that are not measured at fair value (but fair value disclosure is required) is as follows:

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 3: FINANCIAL POSITION (Cont.)

E. Trade and other payables:

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 3: FINANCIAL POSITION (Cont.)

(1) The change in Trade payables and accrued expenses represents mainly timing differences and levels of work activity in Karish project. Trade payables are non-interest bearing.

(2) In December 2016, the Company acquired the Karish and Tanin offshore gas fields for US$40 million closing payment with an obligation to pay additional consideration of US$108.5 million plus interest inflated at an annual rate of 4.6% in ten equal annual payments. As at 31 March 2022 the total discounted deferred consideration was approx. US$58 million (as at 31 December 2021: approx. US$57million).

The Sale and Purchase Agreement ("SPA") includes provisions in the event of Force Majeure that prevents or delays the implementation of the development plan as approved under one lease for a period of more than ninety (90) days in any year following the final investment decision ("FID") date. In the event of Force Majeure, the applicable annual payment of the remaining consideration will be postponed by an equivalent period of time, and no interest will be accrued in that period of time as well.

Due to the effects of the COVID-19 pandemic which constitute a Force Majeure event, the deferred payment due in March 2022 was postponed.

(3) The sales consideration received in advance is related to the agreement with Israel Natural Gas Lines ("INGL") for the transfer of title (the "hand over") of the near shore and onshore part of the infrastructure that will deliver gas from the Energean Power FPSO into the Israeli national gas transmission grid. It is intended that the hand over to INGL will become effective at least 90 days after the delivery of first gas from the Karish field which expected in Q3-2022. Following Hand Over, INGL will be responsible for the operation and maintenance of this part of the infrastructure.

As of 31 March 2022, the sales consideration received in advance presented as short term liability (on 31 December 2021 was presented under long term payables).

(4) In March 2022 the company signed the amendment to EPCIC contract to delay part of the payments according to agreed schedule.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 4: COMPREHENSIVE INCOME

A. Operating loss:

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 4: COMPREHENSIVE INCOME (Cont.)

B. Net finance income (expenses):

(1) See also Note 3(C)(1).

(2) See also Note 3(A).

NOTE 5: TAXATION

A. Tax income:

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 5: TAXATION (Cont.)

B. Deferred tax:

The deferred taxes, driven from the activity in Israel by the Israeli Branch of the Company, are computed at the average tax rate of 23%, based on the tax rates that are expected to apply upon reversal. The deferred taxes are presented in the statement of financial position as non-current assets. Below are the items for which deferred taxes were recognised:

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 6: SIGNIFICANTS EVENTS AND TRANSACTIONS DURING THE REPORTING PERIOD

A. Gas supply agreement with the Israel Electric Company

In March 2022, Energean signed a gas supply agreement with the Israel Electric Company.The gas price will be determined in each period, with volumes determined on a daily basis.Starting upon the commencement of first gas production from Karish, the agreement willbe valid for an initial one-year period with an option to extend subject to ratification byboth parties

B. Offshore Israel during March 2022:

The company started the drilling of three wells during March 2022. See also Note 7(D).

NOTE 7: SIGNIFICANTS EVENTS AND TRANSACTIONS AFTER THE REPORTING PERIOD

A. Share Premium Capital reduction:

On 8 April 2022 the Company reduced its share premium capital at the amount of 360 million USD and credited against it the loan to its shareholder at the amount of $US346 million and the accrued interest to receive as of 8 April 2022.

B. Termination of contract with Gas Buyer

In May 2022, further to the claims raised by the parties in the related arbitration proceedings (including the counterclaim filed by Energean seeking a declaration that Energean is entitled to terminate the GSPA as well as damages), Dalia and the Company agreed to end all claims and disputes between them. Both sides agreed that the Dalia GSPA (which represents up to 0.8 billion cubic meter ("bcm") per year was lawfully terminated, that the arbitration proceedings are terminated, and that neither party owes or will be liable to the other for any payment in connection with and due to the Dalia GSPA, the arbitration proceedings and the facts subject thereof. This was agreed to be final and unappealable.

C. Contract signed with new Gas Buyer

In May 2022 Company has signed a new GSPA, representing up to 0.8 bcm/year , to supply gas to the East Hagit Power Plant Limited Partnership ("EH Partnership"), a partnership between the Edeltech Group and Shikun & Binui Energy.

The GSPA is for a term of approximately 15 years, for a total contract quantity of up to 12 bcm. The contract contains provisions regarding floor pricing, offtake exclusivity and a price indexation mechanism.

D. Athena Gas Discovery

Commercial discovery made by the Athena exploration well, Block 12, in the A, B and C sands. Preliminary analysis indicates that the Athena discovery contains recoverable gas volumes of 8 bcm on a standalone basis.

This discovery is particularly significant as it de-risks an additional 50 bcm of mean unrisked prospective resources across Energean's Olympus Area (total 58 bcm including Athena). The Olympus Area is Energean's newly defined area which includes Athena, plus the undrilled prospects on Block 12 and the adjacent Tanin Lease.

ENERGEAN ISRAEL LIMITED

 (Amounts in thousands US Dollars, unless otherwise stated)

NOTE 7: SIGNIFICANTS EVENTS AND TRANSACTIONS AFTER THE REPORTING PERIOD (Cont.)

E. Claim submitted under the Karish-Tanin SPA

On 31 May 2022, NewMed Energy LP (previously named Delek Drilling LP) ("NewMed") filed a lawsuit against the Company before the Tel Aviv District Court. The claim is for the amount of US$65.1 million plus interest and indexation, constituting the outstanding consideration under the SPA (see Note 3(E)(2)). The residual remedy requested is US$10.85 million plus interest and indexation, reflecting the annual payment for the year 2021. The claim is purportedly based on a payment acceleration mechanism set in the SPA, combined with NewMed's rejection of the Company's Force Majeure claim. The claim is being assessed by the Company together with its legal advisors.

F. The FPSO sailed away from Singapore and has arrived on location in Israel on 5 June 2022.