Energean Oil & Gas Regulatory News (ENOG)

Energean Oil & Gas plc

("Energean" or the "Company")

Results For Half Year Ended 30 June 2018 London, 12 September 2018 - Energean Oil and Gas plc (LSE: ENOG), the independent oil and gas exploration and production company focused on the Eastern Mediterranean, announces its half-year results for the half year ended 30 June 2018 ("1H 2018").

Mathios Rigas, Chief Executive, Energean Oil & Gas commented:

"During the period we made substantial progress in de-risking our flagship Karish and Tanin development project. We signed a lump-sum, turnkey EPCIC contract with TechnipFMC, simplifying project management and reducing our financial risk exposure, and secured $12 billion of future revenue by signing 12 firm Gas Sales Agreements to deliver a total of 4.2 bcm/yr. Over the next 18 months we aim to prove up sufficient resource to fill the 3.8 bcm/yr of spare capacity in our Karish FPSO, delivering significant incremental value to our stakeholders. Our independent reserves auditor has identified 7.5 Tcf of Israeli prospective resource with a high geological probability of success, which gives us confidence that we can meet this target whilst adhering to our exploration strategy to target resource that can be quickly and economically monetised. We look forward to the results from the Karish North exploration well in 2Q 2019."

Operational and Financial highlights

· Raised $460 million through Premium London Stock Exchange IPO, the largest Oil & Gas IPO for nearly four years.

· Arranged $1,275 million of project financing with an attractive estimated average margin of 4%.

· Took Final Investment Decision for Karish-Tanin in March 2018; on track to deliver first gas in 1Q 2021.

· Increased net 2P reserves to 349 mmboe, a more-than-six times increase versus the 51 mmboe identified at the point of Listing.

· Identified 7.5 Tcf of gross prospective resources offshore Israel with a high geological chance of success.

· Committed to the high impact Karish North exploration well, commencing 1Q 2019 and targeting 1.3 Tcf and 16 million bbls of gross recoverable prospective resource (Energean 70%) with a volume weighted geological chance of success of 69%.

· Delivered 3,801 bopd of production, a 50% increase versus the comparable period for 2017.

· Drilled an Extended Reach Horizontal well into Prinos North; well contributed > 1,000 bopd in 1H 2018.

· Reduced production costs by 27% to $19/bbl (1H 2017: $26/bbl); costs per barrel forecast to reduce further.

1. 1H 2018 revenue includes sale of one versus two cargoes sold in the equivalent period in 2017; increased production in the period is reflected in the increase of inventory. The sales volume impact, due to timing of cargoes in the first half of the year, is offset by higher realised pricing; in 1H 2018 Energean achieved an average sales price of $57.7/bbl (1H 2017: $43.5/bbl). Adjusted EBITDAX is defined on Page 11.2. After working capital movements3. Before acquisitions and disposals

4Q18 Outlook

· 2018 Full Year production guidance narrowed to 4,000 - 4,250 bopd (previously 4,000 - 4,500 bopd) due to replacement of Prinos infill drilling with the Epsilon Extended Reach Well. Energean expects production to grow to more than 10,000 bopd by 2021.

· First steel cut on the FPSO hull.

· Complete planning for Karish North exploration well.

· Early production from the Epsilon field via the Extended Reach Well.

· Drilling of one vertical well and commencement of a second at Epsilon.

· Continue early stage seismic operations

· Secondary listing on the Tel Aviv Stock Exchange.

Enquiries

A presentation to analysts will be held at 09:30am today at the offices of Stifel Nicolaus. Conference call details are provided below. The presentation slides will be available on the website as soon as possible after the event.

Dial in numbers:

United Kingdom Toll-Free: 08003589473

United Kingdom Toll: +44 3333000804

Israel Toll: +972 37207697

Israel Toll-Free: 1809213407

Greece Toll: +30 21121111509

Greece Toll-Free: 0080033153417

PIN: 54065548#

Chairman's Statement

Simon Heale, Chairman of Energean Oil & Gas, said:

March 2018 marked Energean's admittance to the Premium Listing Segment of the London Stock Exchange with subsequent entry to the FTSE 250 following June's index review. We are very pleased with the response we have had from the investment community and are pursuing a secondary listing on the Tel Aviv Stock Exchange in the months ahead, further expanding the accessibility of our East Mediterranean Oil & Gas story to a wider pool of investors.

Your Board is confident that Energean will continue to deliver value for shareholders by focusing on operational excellence, effective project delivery, risk mitigation and disciplined capital allocation, all guiding principles of Energean's management strategy. Whilst continuing to focus on delivering our flagship Karish and Tanin development on time and on budget, we will continue to assess both organic and inorganic growth opportunities that we believe will deliver value to all of our stakeholders.

On behalf of the Board, I would like to thank the Management Team and all of our colleagues for their hard work in delivering the results and progress that are set out in this report and to thank our new and existing shareholders for their continued support. We look forward to the rest of the year and beyond with confidence.

Operational Review

Israel

Karish and Tanin Development

Energean sanctioned the 2.4 Tcf (gross, Energean 70%) Karish and Tanin development in March 2018. Operations are progressing in line with expectations and the development remains on track for first gas in 1Q 2021, the first delivery milestone being first steel cut on the FPSO before 2018 year end. To date, Energean has contracted gas sales of 4.2 bcm/yr, leaving 3.8 bcm/yr of spare capacity in its FPSO for the monetisation of future discoveries. Over the next 18 months, Energean aims to fill this capacity and believes this should deliver significant additional value for all of our stakeholders.

Reserves and resources

Post-period end, the August 2018 NSAI CPR has approved the conversion of 2.2 Tcf of contingent resources into 2P reserves. 0.2 Tcf of gas relating to the B sands remains within the contingent category. Advancement of the B unit volumes into reserves is dependent on demonstration of commercial deliverability and connected volume to development wells, which should be achieved through testing one or more of the wells.

Contracting structure and critical path items

Energean has contracted TechnipFMC under a turnkey, lump sum EPCIC contract to provide the full suite of FPSO and SURF services during the construction phase. Energean believes that this contracting structure is a key contributor to risk mitigation and that, by minimising contractor interfaces, project management will be simplified.

Technip has subcontracted COSCO to provide the FPSO hull, which will be built at the Fabricator yard in Zhoushan, China. Steel cut is expected by year-end 2018; Energean believes that this is a key milestone to demonstrate that the project is on track. Energean has chosen a new-build FPSO based on an existing design and will adopt a spread moored system, which it believes reduces technical risk on the field. Hull completion is expected to take 12 months. The hull will then travel to the Sembcorp Admiralty Yard in Singapore for installation of the Siemens-built topsides. Energean expects the FPSO to sail away from Singapore in late 2020 ahead of first gas in 2021.

Stena and Halliburton have been selected to provide drilling services, and Wood Group will provide operations and maintenance services once production has commenced.

Gas sales agreements

Energean has executed firm contracts to sell 4.2 bcm/yr of gas into the Israeli domestic market. The contracts have been signed at an average duration of 16 years and an average price of $4.1/mcf (floor $4.0/mcf). The take-or-pay component averages 75%. Energean has an additional contract option with Dalia to sell up to 0.7 bcm/yr.

Energean continues to engage with buyers in the domestic Israeli market and believes that growing demand should result in additional gas sales opportunities that can be leveraged if more gas is discovered. The Company believes that the plan to transfer IEC stations into the private sector offers an opportunity to engage in a competitive sales process with Tamar and Leviathan to enter into long term sales contracts with ex-IEC stations. Energean is also able to consider export markets for any future gas discoveries and has offered sales of 0.5 to 0.8 bcm/yr to Cyprus via a pipeline that could be installed by the early 2020s.

Prospective resources

Energean received an updated CPR for its Israeli acreage in August 2018 from its independent reserves auditors, NSAI. This was the first independent assessment of the new Blocks awarded in the recent offshore licensing round. The CPR recognises gross recoverable prospective resources of 212 bcm (7.5 Tcf) of gas and 101 million barrels of liquids (Energean 70%) and covers both the Karish and Tanin leases alongside the five new exploration Blocks. The results of the updated CPR are consistent with Energean's view that its acreage contains a number of attractive near-field prospects where potential discoveries can be quickly and economically monetised. The Karish FPSO is being built with gas production and processing capacity of 8 bcm/yr, which Energean aims to fill over the next 18 months. Energean Israel (Energean 70%) has sold 4.2 bcm/yr of discovered gas volumes, leaving 3.8 bcm/yr of available FPSO capacity for the potential tie-back of future discoveries.

Exploration drilling

In June 2018, Energean made the decision to drill the Karish North prospect with a planned spud date before the end of March 2019, subject to necessary approvals. Karish North is located within Energean's Karish lease and will be drilled immediately prior to the three development well programme that will target Karish Main. In the success case, Karish North is expected to take 45 days to drill and is budgeted at $25 million. The well will be completed as a potential producer in the event a discovery is made with a view to tie back to the Karish FPSO in the future.

The August 2018 NSAI CPR estimated that Karish North contains 1.3 Tcf of gross recoverable prospective resources (Energean 70%). In a success case, additional volumes could i) further underpin existing gas sales contracts; ii) justify additional gas sales volumes; and/or iii) enable Energean to delay Tanin development, replacing $700 million of capital expenditure currently planned for 2024-2025 with tie-back costs of just $100 million.

Following commitment of Karish North Energean has six remaining slots in the Stena drilling contract. The August 2018 CPR identified 7.5 Tcf plus 101 million barrels of gross recoverable prospective resources. Post the drilling of Karish North this leaves a further 6.2 Tcf plus 85 million barrels of gross prospective resource that could be targeted by further exploratory drilling.

Greece

Prinos, Prinos North

Working interest production from Greece averaged 3,801 boepd, an increase of 50% versus the comparable period in 2017 (1H 2017: 2,534 boepd) and in line with expectations. The year-on-year uplift is primarily due to successful management of asphaltene precipitation and continued execution of the development drilling programme. Nine of 25 planned development wells have been drilled to date and the field currently produces from eleven wells, supported by four injectors. Energean is narrowing its Full Year 2018 production guidance to 4,000 - 4,250 bopd (from 4,000 - 4,500 bopd previously), as it has replaced previously planned Prinos infill drilling with the Epsilon Extended Reach well, which impacts timing of production delivery.

In 1H 2018 Energean delivered average production costs of $19 per barrel (1H 2017: $26); the year-on-year reduction reflects increased production against a broadly fixed cost base. Energean expects production cost for the full year 2018 to average approximately $17-19 per barrel, with further reductions expected as production from the Prinos Area grows.

In 1H 2018, Energean drilled an Extended Reach c.4000m horizontal well in the Prinos North satellite to exploit attic oil. This well produced at an average rate of over 1000 boepd in 1H 2018.

In July 2018 Energean discovered oil pay intervals in the deeper Kazaviti and D horizons in the PA-32 well, which was drilled into a central field location. Based on well logs, both reservoir units were predicted to be of low permeability (

As at 1 January 2018 Prinos and Prinos North contained 2P reserves of 21.7 mmboe and 2C resources of 23.8 mmboe. Energean has commissioned an updated CPR for its Greek assets for the end of 2018.

Epsilon

Drilling started at the Epsilon (Energean 100%) development project in July 2018. The initial development was planned to consist of three vertical production wells tied into a new unmanned jacket, Lamda, which is currently being built in the Constanza yard in Romania. A further three-to-five vertical production wells will be drilled in later years to fully exploit the field reserves. First production from the Epsilon vertical well development is expected late 2019; delivery of the Lamda platform is the critical path item.

An additional early production extended reach well, EA-H3, spudded in late July 2018, and is being drilled into the Epsilon accumulation from the Prinos Alpha platform. This well will accelerate first production to 2H 2018 and will drawdown the reservoir pressure, allowing subsequent Epsilon wells to identify flow units and connectivity within the reservoir sands.

As of 1 January 2018 Epsilon contained 2P reserves of 18.4 mmbbls and production is included within the NSAI CPR forecast 1P and 2P profiles. The updated CPR, commissioned for end of 2018, will include a revised view on Epsilon reserves, taking the updated development programme into account.

Katakolo

Energean's Katakolo development contains independently certified 2P reserves of 10.5 mmbbls (Energean: 100%). The asset is held as a 25 year production licence with no outstanding commitments.

Energean has started the environmental and social impact assessment, which it expects to submit during 4Q 2018. Either Final Investment Decision or a farm-down will follow approval of the environmental and social impact assessment; Energean will proceed with the option that delivers the most value for shareholders. If Final Investment Decision is taken in 4Q 2018, first oil will be in 2020. Gross capex for the development is estimated at $60 million.

Exploration

Western Greece

Energean farmed down its position in the Aitoloakarnania and Ioannina Blocks to Repsol in March 2017, reflecting the company's disciplined approach to managing exploration risk. Repsol took a 60% interest in, and operatorship of, the assets and will pay 90% of the costs of upcoming seismic work, capped at $49.9 million.

NSAI's August 2017 CPR included best estimate unrisked prospective resources of 103.3 Bcf of natural gas and 187.1 million barrels of liquids for Energean's Western Greece acreage.

New Ventures

Montenegro

Energean was awarded Blocks 30 and 26, offshore Montenegro, in March 2017. Over 4Q 2018 and 1H 2019, Energean plans to acquire a new 3D seismic survey to improve the seismic imaging and help de-risk the trap definition, whilst also satisfying the commitments associated with the first exploration phase. Energean expects this first exploration phase to cost less than $5 million, in line with its strategy to minimise commitments across its exploration portfolio. ENI has entered into four neighbouring blocks to those held by Energean. Energean believes that ENI's commitments include the drilling of one exploration well, which has the potential to de-risk the Energean acreage.

M&A Opportunities

Energean Management continues to look at inorganic growth opportunities within the East Mediterranean region. All opportunities are considered within our key guiding principle of disciplined capital allocation to ensure that Energean delivers maximal value for all key stakeholders.

HSE

Energean experienced two Lost Time Incidents (LTIs) on the Energean Force during April 2018. The severity of these LTIs was medium and caused no irreversible damage. No LTIs were experienced in other months in the first half.

No environmental incidents occurred during 1H 2018 and Energean recorded good environmental performance. Environmental KPIs in 1H 2018 were within the expected range, demonstrating lower (better) specific values for greenhouse gas emissions, specific energy consumption and specific water consumption versus those recorded in 2017.

During the first half of 2018 Energean received the Approved Environmental Terms for the Prinos Development Project and the consent of the Environmental Scoping Report for the West Katakolo Development.

Outlook

Energean expects an active 18 months ahead. In Israel, it is on track with its Karish Main development with no change to the expectation that first steel will be cut before year end. Development drilling is expected to start in 1H 2019. Energean will soon look to start proving up additional hydrocarbons that can be easily monetised as evidenced by the planned spud of the Karish North exploration well before the end of 1Q 2019. In Greece, it will continue to focus on optimising production. The forward work programme is currently being finalised; well phasing and contribution will be the key drivers of 2019 production levels. Further guidance will be provided in early 2019. Finally, Energean will also continue to evaluate M&A opportunities that it believes to be value accretive to all stakeholders. 

Financial Review

Financial results summary

4. Cost of sales before inventory movements and depreciation.

5. Page 11 defines Adjusted EBITDAX, which Energean uses as a core business KPI.

6. Before acquisitions and disposals.

7. 2P and 2C numbers reflect the reclassification from the August 2018 NSAI Competent Persons' Report.

Revenue, Production and commodity prices

Working interest production from Greece averaged 3,801 boepd, an increase of 50% for the period (1H 2017: 2,534 boepd). The increase in production is due to continued management of asphaltene precipitation and progress through the development drilling programme.

Prinos production is sold at a $6.4/bbl discount to Urals Med blend, adjusted for final cargo API. 1H 2018 revenue includes sale of one cargo (417,566 barrels) versus two cargoes (569,134 barrels in total) sold in the equivalent period in 2017; the increased production in the period is reflected in the increase of inventory, representing barrels available for sale, of 270,220 barrels. On 26 July 2018, the company sold a 408,856 barrel cargo with a realised price of $68/bbl.

The sales volume impact, due to timing of cargoes in the first half of the year, is offset by higher realised pricing; in 1H 2018 Energean achieved an average sales price of $57.7/bbl (1H 2017: $43.5/bbl).

Cost of production

Cost of oil production is a non-IFRS measure that is used by the Group as a useful indicator of the Group's underlying cash costs to produce hydrocarbons. The Group uses the measure to compare operational performance period-to-period, to monitor cost and assess operational efficiency. Cost of oil production is calculated as cost of sales, adjusted for depreciation and hydrocarbon inventory movements.

The spare processing capacity in the Prinos infrastructure provides a high level of operational leverage. This has resulted in a 27% reduction in per barrel production costs, from $26.2 in 1H 2017 to $19.2 in 1H 2018. As production grows, Energean expects operating costs to continue to fall, reaching less than $10 /boe if the NSAI 2P production profile were to be achieved. Energean guides to full year operating costs of $17 - 19 /bbl.

Depreciation

Depreciation increased by 61.7% to $13.0 million (1H 2017: $8.0 million) due to increased production and capex invested in Greece. On a per barrel of production basis, this represented a 7.8% increase to $18.9/boe (1H 2017: $17.5/boe) reflecting the increased capex.

Sales, General and Administrative expenses

Energean incurred S, G & A costs of $5.1 million in 1H 2018. This represents a 91% increase versus the comparable period last year (1H 2017: $2.7 million) and is due to the additional staffing and administrative costs caused by the rapid growth of the Group's portfolio, the efforts associated with developing the projects, and additional requirements associated with being a Premium listed entity. For the full year Energean expects S, G & A costs to be between $9m and $10m.

Other income

Other income of $7.5 million includes a reversal of a provision for the Greek tax and transfer pricing penalties relating to fiscal years 2006-2011, which were the subject of an appeal that was ruled in Energean's favour in July 2018.

Finance costs

Financing costs for the period were $6.5 million, and are composed mainly of $7.4 million of interest expenses on the EBRD and RBL facilities secured on Energean's producing Greek assets, offset by capitalised interest of $1.4 million. The decrease versus the previous period (1H 2017: $18.7 million) is associated with the conversion of a shareholder loan to preference shares at the end of 1H 2017.

Derivative financial instruments

The gain on derivative of $96.7 million is a result of the valuation of a derivative financial instrument, measured at fair value at the end of each reporting date, which related to Energean Israel Limited Class B Shares that the Group had a contingent commitment to acquire in the event of an exit (IPO or sale). The methodology used to value the shareholding multiplied the estimated probability of an exit event (IPO or sale) by the estimated difference between the consideration payable and the estimated value of the B shares. The gain recognised in 1H 2018 (1H 2017: $ nil) reflects the increase in probability of an exit event to 100% when Energean listed on the London Stock Exchange on 21 March 2018. Following execution on the contingent commitment the derivative financial asset has been derecognised and transferred to the cost of investment in Energean Israel Limited.

Crude oil hedging

In order to mitigate price risk and take advantage of the April spike in Brent prices, Energean decided to hedge 30% of anticipated sales volumes for 2018. On April 13th, Energean entered a hedging trade with Britannic Trading Limited, selling 150,000 bbls for each of the anticipated 400,000 bbl liftings in July, September and December at an average price of $69.39/bbl.

Taxation

Energean recorded tax income of $5.3 million in 1H 2018 (1H 2017: $9.1 million tax expense).

Adjusted EBITDAX

Adjusted EBITDAX is a non-IFRS measure used by the Group to measure business performance. It is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, other income and expenses (including the impact of derivative financial instruments and foreign exchange), net finance costs and exploration costs. The Group presents adjusted EBITDAX as it is used in assessing the Group's growth and operational efficiencies as it illustrates the underlying performance of the Group's business by excluding items not considered by management to reflect the underlying operations of the Group.

8. Numbers may not sum due to rounding

Operating cash flow

Cash from operations before movements in working capital was $16.5 million, representing a 153% increase on the comparable period (1H 2017: $6.5 million). After adjusting for working capital movements, cash from operations was $16.9m, a 5.6% increase on the comparable period (1H 2017: $16.0 million).

Capex

Cash capex in 1H 2018 amounted to $136.4 million (1H 2017: $26.0 million). $96.3 million was invested in Israel and $40.0 million in Greece.

Energean guides to $470 million of accrued capex for the year. Cash capex will be contingent on payment timing at the end of the year.

Goodwill

Energean has recorded $75.8 million of goodwill (1H 2017: $ nil ) in respect of the acquisition of Energean Israel Limited. In accordance with IAS 12, Energean is required to recognise a deferred tax liability in relation to the forward liability assumed, the provision for which is calculated as the tax rate of Israel (23%) multiplied by the difference between the assigned fair value and the tax bases of assets acquired. The offsetting accounting entry to this is goodwill. None of this goodwill will be deductible for tax purposes.

Net cash / debt and gearing ratio

Net debt is defined as the Group's total borrowings less cash and cash equivalents. Management believes that net debt is a useful indicator of the Group's indebtedness, financial flexibility and capital structure because it indicates the level of borrowings after taking account of any cash and cash equivalents that could be used to reduce borrowings. The Group defines capital as total equity and calculates the gearing ratio as net debt divided by capital.

In March 2018, Energean raised $460.0 million through its Premium List IPO. Net of cash transaction costs of $19.5 million this contributed $440.5 million of cash.

EBRD Facility Agreements

On 30 January 2018, the Group's existing EBRD Senior Facility Agreement was amended and restated pursuant to the RBL Senior Facility Agreement. The RBL Senior Facility Agreement comprises two facilities i) a facility of up to $105 million with EBRD and the Black Sea Trade and Development Bank as lenders; and ii) a $75 million facility pursuant to which the Export-Import Bank of Romania Eximbank SA and Banca Comerciala Intesa Sanpaolo Romania S.A. (with 95% insurance cover from the Romanian ECA) as lenders. Proceeds from the Romanian Club Facility will finance exclusively 85% of the value attributable to goods and services under the GSP EPCIC. Interest is charged on the $105m component of the loan at LIBOR + 4.9% and on the $75m Romanian facility at LIBOR + 3%.

On 28 February 2018 the Group submitted a request to draw down an amount of $30 million under the RBL Senior Facility Agreement. The drawdown was effected with the conditions precedent being satisfied on 14 March 2018 and was paid to the Group on 23 March 2018.

Karish-Tanin Project Finance

In 1H 2018 Energean secured $1,275 million of senior secured project finance for its Karish-Tanin project. The loan is held at the Energean Israel Limited level (Energean 70%). Once drawn, interest is to be charged at LIBOR + 3.75% over months 1 to 12, LIBOR + 4.00% over months 13 - 24, LIBOR + 4.25% over months 25 - 36 and LIBOR + 4.75% over months 37 - 45. The facility matures in December 2021 and has a bullet repayment on maturity. There is a commitment fee of 30% of the applicable margin. Energean estimates that the weighted average applicable interest rate over the life of the facility will be 4.0%.

Energean expects to start drawing down on the project finance facility in 1H 2019.

Business combination

On 27 March 2018, the Group, following a final investment decision in respect of the Karish and Tanin assets, subscribed for additional shares in Energean Israel for an aggregate consideration of US$266.7 million, payable in cash, increasing its shareholding in Energean Israel to 70% from 50% as Kerogen did not participate in the new share issuance. Upon completion of this subscription, the Group holds 70% of the shares in Energean Israel, with Kerogen Capital holding the remaining 30%. Following the above, Energean Israel is consolidated in Energean's accounts. Energean has applied the acquisition method of accounting as required by IFRS 3. Each identifiable asset and liability has been measured at fair value at the date of acquisition.

Principal risks and uncertainties

Strategic

§ Reserve replacement: the Group's long term future success depends on its ability to find, develop and acquire additional oil and gas reserves that are economically recoverable.

§ Geopolitical: the geopolitical situation in Israel may adversely affect the Group's business.

Health, Safety and Environmental

§ The Group is obliged to comply with health, safety and environmental regulations and cannot guarantee that it will be able to full adherence with these regulations.

Project Execution and Production Operation

§ Project execution: the Group's success will be partly dependent upon completing the Karish-Tanin development on budget and on schedule. Whilst the execution strategy has been designed to mitigate this risk as far as possible, any delay in project delivery could have an impact on the Group's Gas Sales and Purchase contracts.

§ Production: the Group's success will be partly dependent upon continuing production from Prinos; it is exposed to the effects of disruption, delays or interruptions of production from wells in this area.

§ Major cyber or information security incident.

Financial

§ Compliance with financial covenants: the Group's loan agreements are subject to restrictive debt covenants and security arrangements that may impact its ability to finance its operations.

§ Treasury and trading: the Group is exposed to associated risks surrounding foreign exchange and commodity price risk, although seeks to manage these risks where Management believe necessary.

§ Counterparty risks: including exposure to delayed payment, counterparty default or suspension, or termination of sales.

Governance and Compliance

§ Fraud, bribery and corruption.

Events since 30 June 2018

In August 2018, Energean's independent reserves auditor, NSAI, issued a report that covered the Karish and Tanin fields and the five blocks awarded as part of the recent offshore licencing round. 2.2 Tcf of gas and 31.8 million bbls of liquids (gross, Energean 70%) have been converted from contingent resources to 2P reserves, increasing Energean's net 2P reserves from 51 million boe at the point of IPO to 349 million boe. 0.2 Tcf of gas resource and 1 million bbls of liquids in Israel remain in contingent resources, contributing to an overall net company figure of 48 million boe. NSAI also estimated gross unrisked prospective resources of 7.5 Tcf of gas and 101 million bbls of liquids across the Karish and Tanin leases and the five new exploration licences.

Going concern

The Company monitors its funding position and its liquidity risk throughout the year to ensure it has access to sufficient funds to meet forecast cash requirements. Cash forecasts are regularly produced based on the Company's latest production and expenditure forecasts, management's best estimates of future commodity prices (based on Gas Sales Agreements, forward curves, adjusted for the Company's hedging programme) and the Company's borrowing facilities. Sensitivities are run to reflect different scenarios including, but not limited to, changes in oil and gas production rates, changes in commodity prices and delays or cost overruns on major development projects. This is done to identify risks to liquidity and covenant compliance and to enable management to formulate appropriate and timely mitigation policies.

At 30 June 2018, Energean Israel was yet to draw down on the project financing facility that will fund the Karish-Tanin development offshore Israel, and Energean retained sufficient liquidity within the Reserve Based Lending Facility that is funding development activity at Prinos, Prinos North and Epsilon in Greece. Energean retains sufficient financial headroom on the covenant restrictions contained within the various financing facilities, and the Company's forecasts show that this will be maintained for at least the 12 months following the approval of the 2018 Interim Report and Accounts.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, and continue to adopt the going concern basis of accounting in preparing these consolidated interim financial statements.

Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge:

1) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

2) The interim management report contains a fair review of the information required by FTR 4.2R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);

3) The interim management report includes a true and fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

Mathios Rigas Panos Benos

Chief Executive Officer Chief Financial Officer

11 September 2018 11 September 2018

Disclaimer

This report may contain forward-looking statements and information that both represents management's current expectations and beliefs and are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business and with any statement about the future.

Whilst Energean believes that such expectations and beliefs are reasonable in the light of the information available at this time, the actual outcomes may be materially different from the said statements, owing to factors beyond Energean's knowledge or control (or within Energean's control where, for example, the Company decides on a change in strategy).

Energean undertakes no obligation whatsoever to revise any such forward looking statements to reflect any changes (in expectations, beliefs, or circumstances, events, the Group's plans or strategy or otherwise). Accordingly, no reliance may be placed on such forward looking statements or any figures therein.

INDEPENDENT REVIEW REPORT TO ENERGEAN OIL & GAS plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and notes 1 to 28. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

INDEPENDENT REVIEW REPORT TO ENERGEAN OIL & GAS plc (continued)

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Andrew Smyth

Senior Statutory auditor

for and on behalf of Ernst & Young LLP

London

11 September 2018

Approved by the Board on 11th September 2018

1 The share premium account represents the total net proceeds on issue of the Company's shares in excess of their nominal value of 0.01p per share less amounts transferred to any other reserves.

2 Other reserve is used to recognise remeasurement gain or losses on cash flow hedge and actuarial gain or losses from defined retirement benefit plan. Furthermore, other reserve was used to recognise measurement gain from derivative asset, refer to note 8 for further detail of this transaction

3 The share-based payments reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 24 for further details of these plans.

4 The foreign currency translation reserves is used to record unrealised exchange differences arising from the translation of the financial statements of entities within the Group that have a functional currency other than US dollars.

5 Refer to note 18

Notes to the Condensed Interim Consolidated Financial Statements 

1. Corporate Information

Energean Oil & Gas plc (the 'Company') was incorporated in England & Wales on 8 May 2017 as a public company with limited liability, under the Companies Act 2006. Its registered office is at 44 Baker Street, London W1U 7AL, United Kingdom. The Company and all subsidiaries controlled by the Company, are together referred to as "the Group".

The Group has been established with the objective of exploration, production and commercialisation of crude oil and natural gas in Greece, Israel, North Africa and the wider Eastern Mediterranean.

On 16 March 2018 the Company acquired the 50% of the preference shares of Energean Israel Limited ("Energean Israel") from its founding shareholders after paying total consideration of $10 million.

On 21 March 2018 the Company completed the admission of its shares to the Premium Segment of the London Stock Exchange.

On 29 March 2018, the Group, following a final investment decision in respect of the Karish and Tanin assets, subscribed for additional ordinary shares in Energean Israel for an aggregate consideration of $266.7 million, payable in cash. Upon completion of this subscription, the Group holds 70% of the shares in Energean Israel, with Kerogen Capital holding the remaining 30% (refer to note 4).

Based on the above, since 29 March 2018 Energean has consolidated Energean Israel Ltd in its consolidated financial statements.

Subsidiaries

The Income Statement and Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and associated Notes to the Financial Statements for the financial year ended 31 December 2017 included in the 30 June 2018 half yearly financial report do not constitute the Group's statutory accounts, as defined under section 435 of the Companies Act 2006. The Group's statutory financial statements for the financial year ended 31 December 2017 have been audited by the Group's external auditor and filed with Companies House in the United Kingdom. The auditor's opinion on these accounts was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

The Group's condensed consolidated interim financial statements are unaudited but have been reviewed by the auditors and their report to the Company is included on page 16. These condensed consolidated interim financial statements of the Group for the six months ended 30 June 2018 were approved and authorised for issue by the Board of the Directors on 11th September 2018

2. Basis of preparation

2.1 Basis of preparation

The unaudited condensed consolidated interim financial statements for the six months ended 30 June 2018 included in this interim report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union, and unless otherwise disclosed have been prepared on the basis of the accounting policies set out in the Group's Annual Report for year ended 31 December 2017.

The unaudited condensed consolidated interim financial statements are prepared on a going concern basis as the Directors, having considered available relevant information, have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future.

The consolidated financial statements have been prepared on a historical cost basis and are presented in US Dollars, which is also the Company's functional currency, rounded to the nearest thousand dollars ($'000) except as otherwise indicated.

The US dollar is the currency that mainly influences sales prices and revenue estimates, and also highly affects its operations. The functional currencies of the Group's main subsidiaries are as follows: for Energean E&P Holdings Ltd, Energean Oil & Gas S.A., Kavala Oil SA and Energean Montenegro is Euro, for Energean International Limited and Energean Israel Limited is US$.

Comparative figures for the period to 30 June 2017 and 31 December 2017 are for the period ended on that date. The interim financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the consolidated financial statements in the Energean Oil & Gas plc Annual Report and Accounts for the year ended 31 December 2017. The significant judgements made by management in applying these policies, and key sources of estimation uncertainty are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2017, except for the adoption of the following standards and amendments:

New and amended accounting standards and interpretations

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2017, except for the adoption of new standards effective as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The Group applies, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments. The adoption of IFRS 15 did not have a significant impact on the Group's consolidated financial statements that requires restatement of previous financial statements.

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on 1 January 2018, bringing together two important aspects of the accounting for financial instruments project: classification and measurement, and impairment.

The effect on the Group of adopting IFRS 9 is, as follows:

Loan modification

IFRS 9 changed accounting for loan modifications, which the Group may experience from time to time. According to IFRS 9, an entity shall recognise any adjustment to the carrying amount of a financial liability arising from a modification or exchange in the statement of comprehensive income at the date of the modification or exchange. According to the new requirements:

• The Company recalculated the amortised cost of the intercompany loan in the amount of $192.8 million as at 30 June 2018 between Energean International Limited (Cyprus) and Energean Oil & Gas S.A. (Greece) when the terms modified (31 December 2017).

As a result, intercompany loan liabilities differed from the liabilities under the loan agreements with the subsequent re-measurement of deferred tax.

• The carrying amount of the intercompany balance is eliminated in the Group's consolidated financial statements. The effect of the deferred tax recalculation was recognised in the statement of comprehensive income at the date of the modification or exchange.

The impact of the loan modification on the statement of financial position at the recognition date was the following:

Several other amendments and interpretations apply for the first time in 2018, but did not have any significant impact on the interim condensed consolidated financial statements of the Group.

3. Segmental Reporting

The information reported to the Group's Chief Executive Officer and Chief Financial Officer (Chief Operating Decision Makers) for the purposes of resource allocation and assessment of segment performance is focused on five operating segments: Greece (including production asset of Prinos and non-producing assets of Ioannina, Katakolo and Aitolokarnania), Israel, Egypt (for the period ended 30 June 2017 included non producing exploration asset of West Kom Ombo), Montenegro (including two non producing exploration assets) and New Ventures.

The Group's reportable segment under IFRS 8 Operating Segments are Greece and Israel. Segments that do not exceed the quantitative thresholds for reporting information about operating segments have been included in Other.

Segment revenues, results and reconciliation to profit before tax

The following is an analysis of the Group's revenue, results and reconciliation to profit before tax by reportable segment:

Segment Cash flows

4. Business combination

At 31 December 2017, the Group held a commitment to acquire 50% of the preference shares in Energean Israel Limited. The recognition of this commitment, which represented a derivative financial instrument, was based on management's estimate of the likelihood of the triggering events occurring (upon either a successful Initial Public Offering ("IPO") or in the event of a sale transaction), the estimated valuation of the Israel entity and the $10 million exercise price. The value of the Israel entity was estimated based on the price negotiated at a similar time with Kerogen as a transaction between market participants which drove the subscription price of $266.7 million for the Energean Israel share issuance.

The Group recognised a derivative financial asset of $93.3 million in the 2017 financial statements. On 21 March 2018, the Group successfully completed an IPO on the London Stock Exchange and the probability of IPO taking place by definition became 100%. At that date the Group re-measured the value of the derivative asset, which was valued at $190 million, representing an increase of $96.7 million since the year end, which has been taken to the income statement. Furthermore, the IPO event crystallised the Group's commitment to purchase the Energean Israel preference shares.

The acquisition of 50% of preference shares in Energean Israel, changing the economic interest over the entity, resulted in accounting for the Energean Israel as a 50% Joint Venture. The derivative asset recognised and re-measured on 16 March 2018 was discharged in consideration for the acquisition of the 50% of the entity's preference shares.

On 29 March 2018, the Group, following a final investment decision in respect of the Karish and Tanin assets, subscribed for additional shares in Energean Israel for an aggregate consideration of $266.7 million, payable in cash. Prior to this subscription, Kerogen Capital Limited ("Kerogen") held 50% of the equity voting shares in Energean Israel and did not participate in the new share issuance. Upon completion of this subscription, the Group holds 70% of the shares in Energean Israel, with Kerogen holding the remaining 30%.

From 29 March 2018, Energean Israel has therefore been consolidated into the Group and represents a business combination for which acquisition accounting is required in line with IFRS 3: Business Combinations.

The identifiable assets acquired and liabilities assumed of the acquiree are recognised as of the acquisition date and measured at fair value as at that date. Any non-controlling interest in the acquiree is also recognised at fair value at the acquisition date. The fair value of the business acquired is represented by the Karish and Tanin oil and gas assets, cash and working capital, offset by certain liabilities including the deferred consideration obligation for the oil & gas licences. The fair value allocation, as mentioned above, has been determined by management using the agreement with Kerogen in December 2017 as a transaction between market participants which drove the subscription price of $266.7 million for the Energean Israel share issuance. This resulted in an aggregate fair value of $682.7 million being allocated to the identifiable assets and liabilities acquired, prior to the recognition of a deferred tax liability of $79.0 million as further described below.

The interim condensed consolidated financial statements include the results of Energean Israel for the three month period ended 30 June 2018. Since the acquisition date Energean Israel's loss included in the consolidated statement of comprehensive income for the reporting period amounted to $8.9 million. If the combination had taken place at the beginning of the year, profit from continuing operations for the period would have been $83.5 million. Post the August 2018 independent Competent Persons Report (CPR), Group's 70% stake in Energean Israel represents 298 mmboe of 2P reserves and 24 mmboe of 2C resources.

The fair values of the identifiable assets and liabilities of Energean Israel have been provisionally estimated as at the date of acquisition and were as follows:

1 Included in Trade and other receivables is an amount of $248.8 million receivable from Energean E&P Holdings due for share capital increases, of which $240.8 million was paid in April 2018.

The balances above which were increased as a result of fair value adjustments being applied upon acquisition are oil & gas properties and deferred tax liabilities.  

Goodwill of $75.8 million has been recognised upon acquisition. An amount of $79.0 million was due to the requirement of IAS 12 to recognise deferred tax assets and liabilities for the difference between the assigned fair values and tax bases of assets acquired and liabilities assumed. The assessment of fair value of such licences is therefore based on cash flows after tax. Nevertheless, in accordance with IAS 12 Sections 15 and 19, a provision is made for deferred tax corresponding to the tax rate of Israel (23%) multiplied by the difference between the acquisition cost and the tax base. The offsetting entry to this deferred tax is goodwill. Hence, goodwill arises as a direct result of the recognition of this deferred tax adjustment ("technical goodwill"). None of the goodwill recognised will be deductible for income tax purposes.

5. Revenue

6. Operating profit/(loss) before taxation

7. Finance cost

The decrease versus the previous period (1H 2017: $18.7 million) is associated with conversion of a shareholders' loan to preference shares at the end of 1H 2017 (refer to note 19).

8. Gain on derivative / 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 financial assets and liabilities measured at amortised cost approximate to 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 Group had one material financial asset are measured at fair value at 31 December 2017 which relates to the Energean Israel B shares.

On 30 June 2017 the Group entered into a Reorganisation Agreement which was subsequently amended by the "Supplementary Agreement" dated 31 October 2017, for full description of this transaction please refer to notes 31.4 and 34.2 of the Company's Annual Report for the year 2017 .

The valuation technique used multiplied the estimated likelihood of an Exit (being an IPO or a Sale) by the estimated difference between the consideration payable under the commitment and the estimated value of the B shares acquired under the commitment. The key input assumptions used in the fair value measurement calculation were the estimated likelihood of an IPO event and value of the B shares. An Exit in the form of a Sale was considered to be of negligible likelihood. The other significant inputs are the transaction prices applicable in an Exit Event, which are contractually agreed amounts, and the discount rate assumption used in the calculation, which was 11.5%. The fair value of the derivative asset was a Level 3 fair value measurement in the fair value measurement hierarchy, because the valuation relied significantly on input assumptions that were unobservable.

On remeasurement on 31 December 2017, the value of the B shares was estimated based on the price negotiated at a similar time with a third party for another tranche of the B shares in a separate transaction. The likelihood of a future IPO occurring was estimated as of 31 December 2017 to be 50% having regard to the considerable progress made to prepare for an IPO as of that date, but also to the fact that there were a number of significant steps not wholly under the control of the Group that remained to be achieved, and the inherent uncertainty in achieving any IPO due to capital market conditions.

Also on 31 October 2017, under the Supplementary Agreement the consideration payable to acquire the B shares in the event of an IPO was reduced from $150 million to $10 million. The resulting increase in the value of the derivative asset of $67.5 million (after applying the 50% IPO likelihood assumption and other discounting effects) is recorded in the consolidated statement of changes in equity as the Supplementary Agreement is a transaction with owners, giving the derivative asset a closing value as of 31 October 2017 of $91.6 million. As of 31 December 2017 the derivative asset was further increased to $93.3 million due to unwinding of the discount applied at the recognition, resulted in additional gain of $1.7 million recorded in profit or loss.

On 16 March 2018 following the acquisition of a 50% economic interest in Energean Israel, as described in note 4 the Group derecognised the derivative asset at total fair value of $190 million.

At the time of the Company's admission to the Premium Segment of the London Stock Exchange on 21 March 2018, the probability of an IPO increased to 100%, increasing the fair value of the derivative to $190 million. The change in fair value of $96.7 million between 31 December 2017 and 30 June 2018 is included in "Gain on derivative" in the consolidated income statement as it is due to changes in measurement assumptions.

Upon recognition, this derivative was the only instrument in the Level 3 category of the fair value hierarchy. There were no transfers in or out of this category in the period, and the only movement in the category relates to the increase in fair value of the derivative.

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:

9. Taxation

(a) Taxation charge

(b) Reconciliation of the total tax charge

The Group calculates its income tax expense based on IAS 34 by applying the estimated weighted-average annual effective income tax rate to pre-tax income for the interim period.

The tax (credit)/charge recognised in the income statement is reconciled to the Group's weighted average tax rate of 6.48% (30 June 2017: 54.5% ). The differences are reconciled below:

10. Discontinued operations

At 31 December 2016, Energean Israel Limited was presented as a wholly owned subsidiary of Energean E&P Holdings Limited. Based on the Kerogen convertible loan and founding shareholder loans, the Group lost control of Energean Israel Limited on 13 June 2017 and was therefore presented as a discontinued operation in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations.

The results of the discontinued operations, which have been included in the consolidated statement of profit or loss for the period ended 30 June 2017, were as follows:

A $1.5 million gain on disposal of the subsidiary was recognised in other income in profit or loss, based on the difference between the consideration received (nil) and the net liability position of Energean Israel Limited as of 13 June 2017 of $1.5 million. 

Details of the cash flows of the discontinued operations which are included in the consolidated statement of cash flows of the period ended 30 June 2017 are as follows:

11. Earnings per share

The earnings per share has been calculated by dividing the net profit or loss for the period by the weighted average number of shares outstanding during the period ended 30 June 2018 and 30 June 2017. There were no potentially dilutive instruments outstanding during any period, therefore the basic and diluted earnings per common share were equal.

12. Tangible assets