Deal involving the Karish gas fields could be worth $405m

London-based energy exploration and production company Energean has reached an agreement to consolidate ownership of the Karish gas fields in Israel.

The company has made a deal to acquire a 30 per cent shareholding in Energean Israel Limited (EISL), resulting in the UK-listed company owning 100% of EISL’s share capital.

Energean has entered into a conditional sale and purchase agreement with an affiliate of the private equity fund manager Kerogen Capital, which currently owns the 30% stake.

Under the terms of the sale and purchase agreement, Energean will acquire the 30% stake for a total consideration of between $380m and $405m.

The total consideration includes an up-front payment of $175m as well as deferred cash consideration amounts totalling between $155m and $180m.

The deferred cash is expected to be funded from future cash flows, optimisation of the group capital structure, and gas from the Karish gas field, which is being developed in Israel.

The total consideration also includes $50m in convertible loan notes, which have a maturity date of 29 December 2023, a strike price of £9.50, and a zero-coupon rate.

Reserves boost

Energean says that the acquisition will significantly increase its total and probable reserves (2P reserves).

In a statement, Energean said that the acquisition will add 2P reserves of 29.5 billion cubic metres of gas and 30 million barrels of liquids, representing approximately 219 million barrels of oil equivalent (boe) in total, to the company.

Once the deal has been completed, Energean believes it will have 2P reserves of 974 million boe, of which 80 per cent will be gas.

It will also have a working interest production trajectory to more than 200,000 boe a day (boe/d), once the Karish main field and Karish North field are producing at plateau rates.

In its statement, Energean said: “Taking a 100 per cent interest in EISL will enable Energean to fully control its capital structure, enhancing its ability to maximise total shareholder returns.”

The acquisition is subject to shareholder, regulatory and other customary approvals.

Energean expects to close the acquisition in the first quarter of 2021.

The Energean board of directors has unanimously approved the acquisition and will recommend it to Energean shareholders in the upcoming circular, which Energean expects to publish in late January or early February 2021.

Energean made the final investment decision for the Karish development project in March 2018.

Field development

The Karish main field will be the first asset to be developed in the Karish and Tanin blocks by the Energean group.

Karish was selected as the initial development as it was the largest discovery and was expected to provide the highest yield of liquid per volume of produced gas.

It was also the closest discovery to shore.

London-based TechnipFMC was awarded a lump sum engineering, procurement, construction and installation (EPCI) contract for the project.

Scotland-based Stena Drilling completed the drilling of three development wells during 2019.

Energean has decided to develop the Israeli fields using an “Energean Power” Floating Production Storage Offloading (FPSO) facility that will be installed 90km offshore.

When it is operational it will become the first FPSO ever to operate in the Eastern Mediterranean.

The FPSO will have a gas treatment capacity of 800 million standard cubic feet a day and a liquids storage capacity of 800,000 barrels.

In its latest statement, Energean said that the “Energean Power” FPSO is expected to sail from Singapore to Israel in the third quarter of 2021 and to deliver first gas in the fourth quarter of 2021.

The acquisition deal with Kerogen Capital follows on from a recent acquisition deal with the Italian energy company Edison.

On 17 December 2020, Energean announced that it had completed its acquisition of Edison Exploration & Production from the parent company Edison.

The gross consideration for the transaction, as at the locked box date of 1 January 2019, was $284m.

Commenting on the latest acquisition deal with Kerogen Capital, Mathios Rigas, CEO of Energean, said: “The acquisition represents a unique opportunity, given our existing, unrivalled understanding of the assets and the fact that the position significantly enhances Energean’s cash flow, whilst generating no incremental general and administrative costs.

“It allows us to consolidate our interests in Israel, enabling us to further generate long-term value by capitalising on the production growth and upside potential of our acreage offshore Israel; and is supportive of our ambition to be the leading independent, gas-producer in the Mediterranean.

“Having now closed the Edison acquisition, Energean has 2P reserves of almost 1 billion barrels of oil equivalent, 80 per cent of which is gas; and we are now at a key transition point, in which these reserves will be turned into long-term cash flows that will support our medium-term ambition to pay a meaningful, sustainable dividend to our shareholders.

“I would like to thank Kerogen for their support and involvement in the Karish development over the last four years.

“Together, we will have delivered a project that will provide diversity and security of gas supply to Israel, whilst also helping to remove significant amounts of CO2 annually from Israel’s emissions by enabling the switch from coal to natural gas.”

Jason Cheng, CEO of Kerogen Capital, said: “We deeply value the partnership formed with Energean over the recent years, where together, we have seen substantial progress made in advancing the Karish development and expanding the overall resource base.

“During this process, we have also found Israel to be a favourable jurisdiction for energy investing.

“We see this transaction as accretive for both Kerogen and Energean.

“For Kerogen, it enables the successful value creation to date to be captured, with some upside participation through the convertible notes.

“For Energean, this represents a unique opportunity to consolidate ownership of its flagship asset.

“We wish Energean every success going forward in delivering this project of national significance.”

This article is published by MEED, the world’s leading source of business intelligence about the Middle East. MEED provides exclusive news, data and analysis on the Middle East every day. For access to MEED’s Middle East business intelligence, subscribe here.