TIDMENOG
RNS Number : 8369F
Energean PLC
24 March 2022
ENERGEAN ISRAEL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2021
INDEX
Page
-----
Independent Auditor's Report 2-4
Consolidated Statements of Financial Position 5
Consolidated Statements of Comprehensive Income 6
Consolidated Statements of Changes in Equity 7
Consolidated Statements of Cash Flows 8
Notes to the Consolidated Financial Statements 9-66
- - - - - - - - - - - - - - - - - - - -
Kost Forer Gabbay Tel: +972-3-6232525
& Kasierer Fax: +972-3-5622555
144 Menachem Begin ey.com
Road, Building A,
Tel-Aviv 6492102,
Israel
INDEPENT AUDITOR'S REPORT
To the Shareholders of E nergean Israel Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of E
nergean Israel Limited and its subsidiaries (the Group), which
comprise the consolidated statements of financial position as at 31
December 2021 and 2020, and the consolidated statements of
comprehensive income, consolidated statements of changes in equity
and consolidated statements of cash flows for the years then ended
, and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Group as at 31 December 2021
and 2020, and its consolidated financial performance and its
consolidated cash flows for the years in the period then ended in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union.
Basis for opinion
We conducted our audits in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report. We are independent of the Group in accordance with the
International Code of Ethics for Professional Accountants
(including International Independence Standards) (IESBA Code), and
we have fulfilled our other ethical responsibilities in accordance
with the IESBA Code. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements of the current period. These matters were addressed in
the context of the audit of the financial statements as a whole,
and in forming the auditor's opinion thereon, and we do not provide
a separate opinion on these matters. For the matter below, our
description of how our audit addressed the matter is provided in
that context.
We have fulfilled the responsibilities described in the
Auditor's responsibilities for the audit of the financial
statements section of our report, including in relation to this
matter. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of
material misstatement of the financial statements. The results of
our audit procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion on the
accompanying financial statements.
Karish / Tanin development project spend
Key audit matter description
Karish / Tanin development costs incurred during the year ended
31 December 2021 and capitalised within Oil and Gas properties
(including capitalised borrowing costs): $ 432 million (2020: $ 497
million) Refer to Accounting policies (page 12-27); and Notes 3e,
3t and 5 of the Consolidated Financial Statements. The Karish /
Tanin development attained Final Investment Decision (FID) in March
2018 and consequently there has been significant project-related
expenditure since this date. The main contractor is TechnipFMC
through a lump sum EPCIC contract to deliver the FPSO and related
subsea infrastructure. We focused on the risks of inappropriate
capitalisation of costs in accordance with IAS 16: Property, Plant
and Equipment (IAS 16) and the completeness of project cost
accruals recorded as at 31 December 2021.
Our response to the risk
We performed audit procedures focused on capitalisation criteria
and the completeness of accruals for the key elements of costs
incurred for the Karish / Tanin (including Karish North)
development.
These procedures included:
-- Understanding the criteria used by management to assess
whether costs should be capitalised or expensed;
-- Verifying that the capitalisation criteria were met for costs
that we selected on a sample basis as part of our audit procedures
relating to the project costs;
-- Reviewing the agreements with the major project contractors,
including the agreements with TechnipFMC which accounted for
approximately 36% of the development costs incurred in the year, to
understand the nature of services to be provided and the associated
milestones;
-- Obtaining a listing of project cost accruals at 31 December
2021, validating a sample of costs to supporting documents and
comparing to the contractual milestones for the development project
work;
-- Performing a search for unrecorded liabilities through
reviewing invoices received and cash payments made after the
reporting date. We compared these to the project costs accrued by
management and assessed whether there were any material
omissions.
Responsibilities of management and those charged with governance
for the consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRSs as adopted by the European Union, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the
Group's financial reporting process.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
23 March, 2022 A Member of Ernst & Young Global
ENERGEAN ISRAEL LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(US Dollars in thousands, unless otherwise stated)
31 December
-------------------------
2021 2020
------------ -----------
Note US Dollars in thousands
--------- -------------------------
ASSETS:
NON-CURRENT ASSETS:
Property, plant and equipment 5 2,245,267 1,813,523
Intangible assets 6 20,141 13,807
Other accounts receivable 7 6,463 43
Loan to related party 19(E)(10) 346,000 -
Restricted cash 9(C)(3) 100,000 -
Deferred expenses 18(D) 22,958 -
Deferred tax asset 13(C) 11,575 7,839
------------ -----------
2,752,404 1,835,212
------------ -----------
CURRENT ASSETS:
Trade and other receivables 7 22,769 1,304
Restricted cash 9(C)(3) 99,729 -
Cash and cash equivalents 8 349,827 37,421
------------ -----------
472,325 38,725
------------ -----------
TOTAL ASSETS 3,224,729 1,873,937
============ ===========
EQUITY AND LIABILITIES:
EQUITY:
Share capital 12(A) 1,708 1,708
Share Premium 572,539 572,539
Other reserves 12(D) - (5,328)
Accumulated deficit (35,946) (25,114)
------------ -----------
TOTAL EQUITY 538,301 543,805
------------ -----------
NON-CURRENT LIABILITIES:
Senior secured notes 9(C) 2,463,524 -
Provision for decommissioning 10 35,525 38,399
Trade and other payables 11 113,264 84,360
2,612,313 122,759
------------ -----------
CURRENT LIABILITIES:
Borrowings 9(A) - 1,093,965
Trade and other payables 11 74,115 90,489
Loans from related parties 19(E)(9) - 16,000
Derivative financial instrument 12(D) - 6,919
74,115 1,207,373
------------ -----------
TOTAL LIABILITIES 2,686,428 1,330,132
------------ -----------
TOTAL EQUITY AND LIABILITIES 3,224,729 1,873,937
============ ===========
23 March 2022
------------------------------------ ---------------- ---------------
Date of approval of the consolidated Panagiotis Benos Matthaios Rigas
financial statements Director Director
The accompanying notes are an integral part of the consolidated
financial statements.
ENERGEAN ISRAEL LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(US Dollars in thousands, unless otherwise stated)
Year ended
31 December
-------------------------
2021 2020
------------ -----------
Note US Dollars in thousands
---- -------------------------
Administrative expenses 14 (5,200) (3,909)
Exploration and evaluation expenses 14 (50) (502)
Other expenses 14 (461) (2,701)
Other income 14 19 -
------------ -----------
Operating loss (5,692) (7,112)
Financial income 15 7,849 201
Financial expenses 15 (18,526) (326)
Foreign exchange gain 15 520 1,862
------------ -----------
Loss for the year before tax (15,849) (5,375)
Income tax 13 5,017 495
------------ -----------
Net loss for the year (10,832) (4,880)
============ ===========
Other comprehensive income (loss)
:
Items that may be reclassified subsequently
to profit or loss:
Gain (loss) on cash flow hedge for
the year 2,278 (7,483)
Reclassification to profit/(loss)
upon realisation 4,641 -
Income tax relating to items that
may be reclassified subsequently to
profit /(loss) 13 (1,591) 1,721
------------ -----------
Other comprehensive income (loss)
for the year 5,328 (5,762)
------------ -----------
Total comprehensive loss for the year (5,504) (10,642)
============ ===========
The accompanying notes are an integral part of the consolidated
financial statements.
ENERGEAN ISRAEL LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(US Dollars in thousands, unless otherwise stated)
For the year ended 31 December 2021:
Share Accumulated Total
Share capital Premium Other reserves losses equity
------------- -------- -------------- ----------- --------
US Dollars in thousands
--------------------------------------------------------------
Balance as of 1 January
2021 1,708 572,539 (5,328) (25,114) 543,805
Changes during Year 2021:
Comprehensive income (loss):
Loss for the year - - - (10,832) (10,832)
Other comprehensive income,
net of tax - - 5,328 - 5,328
------------- -------- -------------- ----------- --------
Total comprehensive income
(loss) - - 5,328 (10,832) (5,504)
------------- -------- -------------- ----------- --------
Balance as of 31 December
2021 1,708 572,539 - (35,946) 538,301
============= ======== ============== =========== ========
For the year ended 31 December 2020:
Share Accumulated Total
Share capital Premium Other reserves losses equity
------------- -------- -------------- ----------- --------
US Dollars in thousands
--------------------------------------------------------------
Balance as of 1 January
2020 1,676 540,071 434 (20,234) 521,947
Changes during Year 2020:
Comprehensive loss:
Loss for the year - - - (4,880) (4,880)
Other comprehensive loss,
net of tax - - (5,762) - (5,762)
------------- -------- -------------- ----------- --------
Total comprehensive loss - - (5,762) (4,880) (10,642)
Transactions with shareholders:
Shares issuance 32 32,468 - - 32,500
Balance as of 31 December
2020 1,708 572,539 (5,328) (25,114) 543,805
============= ======== ============== =========== ========
The accompanying notes are an integral part of the consolidated
financial statements.
ENERGEAN ISRAEL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US Dollars in thousands, unless otherwise stated)
Year ended
31 December
-------------------------
2021 2020
------------- ----------
Note US Dollars in thousands
--------- -------------------------
Cash flows from operating activities:
Loss for the year before tax (15,849) (5,375)
------------- ----------
Adjustments for :
Depreciation and amortisation 14 93 294
Loss from disposal on property, plant and
equipment 14 23 2,452
Payments for buyers compensation 18(D) (22,958) -
Unwinding of discount on provision for
decommissioning 15 675 -
Other expenses 14 438 -
Finance Income 15 (7,849) (201)
Finance expenses 15 17,851 326
Exploration costs written off 14 50 492
Net foreign exchange gain 15 (520) (1,862)
(28,046) (3,874)
Changes in working capital:
Decrease (increase) in other receivables (119) 2,027
Decrease in other payables (528) (622)
------------- ----------
(647) 1,405
Income taxes paid (72) -
------------- ----------
Net cash used in operating activities (28,765) (2,469)
------------- ----------
Cash flows from investing activities:
5(C),
Payment for purchase of oil & gas leases 5(F) (10,850) (10,850)
Payment for purchase of intangible assets 6(B) (5,152) (8,006)
Loan granted to related party 19(E)(10) (346,000) -
Advance payment from future sale of property,
plant and equipment (INGL)* 5(H) 5,673 22,229
Payment for purchase of property, plant
and equipment 5(C) (280,910) (374,135)
Proceeds from disposal of property, plant
and equipment 5(C) - 532
Movement in restricted cash 9(C)(3) (199,729) -
Interest received 587 223
------------- ----------
Net cash used in investing activities (836,381) (370,007)
------------- ----------
Cash flows from financing activities:
Senior secured notes issuance 9(C) 2,500,000 -
Transaction cost in relation to senior
secured notes issuance 9(C) (39,506) -
Senior secured notes - interest paid 9(C) (66,600) -
Proceeds from shares issuance 12(B) - 32,500
Drawdown of borrowings 9(A) 118,000 320,000
Repayment of borrowings 9(A) (1,268,000) -
Loan from related parties 19(E)(9) - 16,000
Repayment of loan from related parties 19(E)(9) (16,000) -
Debt arrangement fees paid - (5,050)
Finance cost paid 9 (46,138) (61,102)
Finance costs paid for deferred license
payments 5(F) (3,494) (3,993)
Repayment of obligations under leases 9 (585) (368)
------------- ----------
Net cash generated from financing activities 1,191,677 297,987
Net increase (decrease) in cash and cash
equivalents 312,531 (74,489)
Cash and cash equivalents at beginning
of year 37,421 110,488
Effect of exchange rate fluctuations on
cash held (125) 1,422
------------- ----------
Cash and cash equivalents at end of year 8 349,827 37,421
============= ==========
The accompanying notes are an integral part of the consolidated
financial statements.
* Regarding classification of the amounts received from INGL
from financing activities to investing activities. Refer to Note
3(W)
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, 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, 1(st) Floor, Strovolos, 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 its Israeli Branch.
c. As of 31 December 2021, the Company had investments in the following subsidiaries:
Name of subsidiary Country Principal Shareholding Shareholding
of incorporation activities
/ registered
office
At 31 December At 31 December
2021 2020
(%) (%)
560A rue
Energean de Neudorf,
Israel Finance L-2220, Financing
SARL* Luxembourg activities 0 100
121, Menachem
Begin St.
Azrieli
Sarona Tower,
POB 24,
Energean Tel Aviv
Israel Transmission 67012039 Gas transportation
LTD Israel license holder 100 100
121, Menachem
Begin St.
Azrieli
Sarona Tower,
POB 24,
Energean Tel Aviv
Israel Finance 67012039 Financing
LTD Israel activities 100 100
* The company was liquidated during December 2021 due to full repayment of the senior
facility loan in April 2021.
d. The Group's core assets as of 31 December 2021 are comprised of:
Country Asset Working interest Field phase
-------- ---------------------------------- ----------------- ------------
Israel Karish (including Karish North) 100% Development
Israel Tanin 100% Development
Israel Blocks 12, 21, 23, 31 100% Exploration
Israel Four licences Zone D (1) 80% Exploration
(1) The Company holds 80% interests in four licences, blocks 55,
56, 61 and 62 (together, "Zone D") in Israel's Exclusive Economic
Zone ("EEZ").
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 2: - BASIS OF PREPARATION
The following accounting policies have been applied consistently
in the consolidated financial statements for all periods presented,
unless otherwise stated.
a. Basis of presentation of the financial statements:
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union (EU).
These consolidated financial statements have not been prepared
in accordance with the requirements of the Cyprus Companies Law,
Cap.113 and are not intended for statutory filing in Cyprus.
These consolidated financial statements have been prepared on
the historical cost basis except for derivative financial
instruments that have been measured at fair value using the
significant accounting policies and measurement bases summarised in
Note 3.
The group has prepared the financial statements on the basis
that it will continue to operate as a going concern, as explained
below.
b. The financial statements are presented in U.S. Dollars and
all values are rounded to the nearest thousand US Dollars except
where otherwise indicated.
c. New and amended accounting standards and interpretations:
The Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
New standards and interpretations that are in issue but not yet
effective are listed below:
-- Annual improvements to IFRS 2018-2020 - 1 January 2022
-- Property, Plant and Equipment: Proceeds before intended use
(Amendments to IAS 16) - 1 January 2022
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) - 1 January 2022
-- Reference to the Conceptual Framework (Amendments to IFRS 3) - 1 January 2022
-- Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2) - 1 January 2023
-- Definition of Accounting Estimates (Amendments to IAS 8) - 1 January 2023
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12) - 1 January 2023
-- Classification of Liabilities as Current or Non-current
(Amendments to IAS 1) and Deferral of Effective Date of Amendment -
1 January 2024
The adoption of the above standard and interpretations is not
expected to lead to any material changes to the Group's accounting
policies or have any other material impact on the financial
position or performance of the Group.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 2: - BASIS OF PREPARATION (Cont.)
d. Basis of consolidation:
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) as detailed in Note 1 above. Control is achieved
when the Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect
those returns through its power over the investee. Specifically,
the Group controls an investee if and only if the Group has:
-- Power over the investee
-- Exposure, or rights, to variable returns from its involvement with the investee, and
-- The ability to use its power over the investee to affect the
amount of the investor's returns
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group. All intragroup
transactions, balances, income and expenses are eliminated in full
on consolidation.
e. Going Concern:
The Group carefully manages the risk of a shortage of funds by
closely monitoring its funding position and its liquidity risk. The
Going Concern assessment covers the period up to 31 March 2023 'the
Forecast Period'. Cash forecasts are regularly produced based on,
inter alia, the Group's latest life of field production, budgeted
expenditure forecasts, price estimates based on signed GSPAs,
liquids production and headroom under its debt facilities. In
addition, on a regular basis, the Group performs sensitivity tests
of its liquidity position to evaluate adverse impacts that may
result from changes to the macro economic environment.
In March 2021 the Group raised $2.5billion through the issuance
of senior secured notes mainly to refinance its $1.45bn Project
Finance Facility and to fund capital and exploration expenditure,
including Karish and Karish North. The Senior Secured Notes do not
have any maintenance covenants, the first principle repayment is
not expected before 2024 and the Notes achieved blended fixed rate
of 5.2%, removing exposure to floating rates.
First gas remains on track for Q3 2022.
The Group also identifies risks to liquidity to formulate
appropriate and timely mitigation strategies in order to manage the
risk of funds shortfalls and to ensure the Group's ability to
continue as a going concern.
After careful consideration, the Directors are satisfied that
the Group has sufficient financial resources to continue in
operation for the foreseeable future, for the Forecast Period to 31
March 2023. As such, the Directors continue to adopt the going
concern basis in preparing the consolidated financial
statements.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Policies:
The principal accounting policies and measurement bases used in
the preparation of the consolidated financial statements are set
out below. These policies have been consistently applied to all
periods presented in the consolidated financial statements unless
otherwise stated.
b. Functional and presentation currency and foreign currency:
1. Functional and presentation currency:
Items included in the financial statements of the Group are
measured using the currency of the primary economic environment in
which the Group operates ("the functional currency").
For each entity, the Group determines the functional currency
and items included in the financial statements of each entity are
measured using that functional currency.
The functional currency of the Company is U.S. Dollars (US$).
The U.S. Dollar is the currency that influences future sales
prices, revenue estimates and also highly affect its
operations.
The presentation currency of the consolidated financial
statements is US dollar.
2. Transactions and balances:
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
monetary assets and liabilities denominated in foreign currencies
are recognised in the profit or loss. Such monetary assets and
liabilities are translated the functional currency exchange rates
at the reporting date. Non-monetary items that are measured in
terms of historical cost denominated in a foreign currency are
translated at the exchange rates prevailing at the date of the
transaction and are not subsequently remeasured.
c. Intangible assets - Exploration and evaluation expenditures:
The Group adopts the successful efforts method of accounting for
exploration and evaluation costs. Pre-licence costs are expensed in
the period in which they are incurred. All licence acquisition,
exploration and evaluation costs and directly attributable
administration costs are initially capitalised as intangible assets
by field or exploration area, as appropriate. All such capitalised
costs are subject to technical, commercial and management review,
as well as review for indicators of impairment at least once a
year. This is to confirm the continued intent to develop or
otherwise extract value from the discovery. When this is no longer
the case, the costs are written off through the statement of
comprehensive income (loss). When proved reserves of oil and gas
are identified and development is sanctioned by management, the
relevant capitalised expenditure is first assessed for impairment
and (if required) any impairment loss is recognised, then the
remaining balance is transferred to oil and gas properties.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
d. Commercial reserves:
Commercial reserves are proven and probable oil and gas
reserves, which are defined as the estimated quantities of crude
oil, natural gas and natural gas liquids which geological,
geophysical and engineering data demonstrate with a specified
degree of certainty to be recoverable in future years from known
reservoirs and which are considered commercially producible. There
should be a 50 per cent statistical probability that the actual
quantity of recoverable reserves will be more than the amount
estimated as proven and probable reserves and a 50 per cent
statistical probability that it will be less.
e. Oil and gas properties - assets in development:
Expenditure is transferred from 'Exploration and evaluation
assets' to 'Assets in development' which is a subcategory of 'Oil
and gas properties' once the work completed to date supports the
future development of the asset and such development receives
appropriate approvals. After transfer of the exploration and
evaluation assets, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities such as
platforms, pipelines and the drilling of development wells,
including unsuccessful development or delineation wells, is
capitalised within 'Assets in development'.
Any costs incurred in testing the assets to determine whether
they are functioning as intended, are capitalised, net of any
proceeds received from selling any product produced while testing.
Where these proceeds exceed the cost of testing, any excess is
recognised in the statement of comprehensive income. When a
development project moves into the production stage, all assets
included in 'Assets in development' are then transferred to
'Producing assets' which is also a sub-category of 'Oil and gas
properties. The capitalisation of certain construction/development
costs ceases, and costs are either regarded as part of the cost of
inventory or expensed, except for costs which qualify for
capitalisation relating to 'Oil and gas properties' asset
additions, improvements or new developments.
f. Depletion and amortisation:
All expenditure carried within each field will be amortised from
the commencement of production on a unit of production basis, which
is the ratio of oil and gas production in the period to the
estimated quantities of commercial reserves at the end of the
period plus the production in the period, generally on a
field-by-field basis or by a group of fields which are reliant on
common infrastructure.
g. Impairments of oil & gas properties:
The Group assesses assets or groups of assets, called
cash-generating units (CGUs), for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset or CGU may not be recoverable; for example, changes in the
Group's assumptions about commodity prices, low field utilisation,
significant downward revisions of estimated reserves or increases
in estimated future development expenditure or decommissioning
costs. If any such indication of impairment exists, the Group makes
an estimate of the asset's or CGU's recoverable amount.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Where there is evidence of economic interdependency between
fields, such as common infrastructure, the fields are grouped as a
single CGU for impairment purposes. A CGU's recoverable amount is
the higher of its fair value less costs of disposal and its value
in use. Where the carrying amount of a CGU exceeds its recoverable
amount, the CGU is considered impaired and is written down to its
recoverable amount.
Fair value less costs of disposal is the price that would be
received to sell the asset in an orderly transaction between market
participants and does not reflect the effects of factors that may
be specific to the Group and not applicable to entities in
general.
For discount the future cash flows the Group calculates
CGU-specific discount rates. The discount rates are based on an
assessment of a relevant peer group's pre-tax Weighted Average Cost
of Capital (WACC). The Group then adds any exploration risk premium
which is implicit within a peer group's WACC and subsequently
applies additional country risk premium for CGUs. Where conditions
giving rise to impairment subsequently reverse, the effect of the
impairment charge is also reversed as a credit to the income
statement, net of any amortisation that would have been charged
since the impairment.
The revesal is limited such that the carrying amount of the
asset exceeds neither its recoverable amount, nor the carrying
amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years.
h. Other property, plant and equipment:
Other property, plant and equipment comprise of furniture,
fixtures and equipment.
Initial recognition :
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation and borrowing costs. The purchase price or
construction cost is the aggregate amount paid and the fair value
of any other consideration given to acquire the asset.
Depreciation:
1. Depreciation of other property, plant and equipment is
calculated on the straight--line method so as to write-off the cost
amount of each asset to its residual value, over its estimated
useful life. The useful life of each class is estimated as
follows:
Years
Property leases and leasehold improvements 3 - 10
Furniture, fixtures and equipment 5 - 7
2. Depreciation of the assets in the course of construction
commences when the assets are ready for their intended use, on the
same basis as other assets of the same class.
3. An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or when no
future economic benefits are expected
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
from its use or disposal. Any gain or loss arising on
derecognition of the asset (Calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is
included in the statement of profit or loss when the asset is
derecognised.
4. The assets' residual values and useful lives are reviewed,
and adjusted if appropriate, at each reporting date.
Repairs, maintenance, and renovations:
Expenditure for routine repairs and maintenance of property,
plant and equipment is charged to the profit or loss in the year in
which it is incurred. The cost of major improvements and
renovations and other subsequent expenditure are included in the
carrying amount of the asset when the recognition criteria of IAS
16 'Property, Plant and Equipment' are met. Major improvements and
renovations capitalised are depreciated over the remaining useful
life of the related asset.
i. Other intangible assets:
Computer software:
Costs that are directly associated with identifiable and unique
computer software products controlled by the Group and that will
generate economic benefits exceeding costs beyond one year are
recognised as intangible assets. Subsequently computer software is
carried at cost less any accumulated amortisation and any
accumulated impairment losses.
Costs associated with maintenance of computer software
programmes are recognised as an expense when incurred.
Computer software costs are amortised using the straight--line
method over their useful live, of between three and five years,
which commences when the computer software is available for
use.
j. Impairment of non-financial assets:
At each reporting date, the Group reviews the carrying amounts
of its depreciable property, plant and equipment and intangible
assets to determine whether there is any indication that those
assets have suffered an impairment loss. Impairment is assessed at
the level of cash-generating units (CGUs) which, in accordance with
IAS 36 'Impairment of Assets', are identified as the smallest
identifiable group of assets that generates cash inflows, which are
largely independent of the cash inflows from other assets. This is
usually at the individual royalty, stream, oil and gas or working
interest level for each property from which cash inflows are
generated.
An impairment loss is recognised for the amount by which the
asset's carrying value exceeds its recoverable amount, which is the
higher of fair value less costs of disposal (FVLCD) and
value-in-use (VIU). The future cash flow expected is derived using
estimates of proven and probable reserves, a portion of resources
that is expected to be converted into reserves and information
regarding the mineral, stream and oil & gas properties,
respectively, that could affect the future recoverability of the
Group's interests. Discount
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
factors are determined individually for each asset and reflect
their respective risk profiles.
Assets are subsequently reassessed for indications that an
impairment loss previously recognised may no longer exist. An
impairment charge is reversed if the conditions that gave rise to
the recognition of an impairment loss are subsequently reversed and
the asset's recoverable amount exceeds its carrying amount.
Impairment losses can be reversed only to the extent that the
recoverable amount does not exceed the carrying value that would
have been determined had no impairment been recognised
previously.
Exploration and evaluation assets are tested for impairment when
there is an indication that a particular exploration and evaluation
project may be impaired. Examples of indicators of impairment
include a significant price decline over an extended period, the
decision to delay or no longer pursue the exploration and
evaluation project, or an expiration of rights to explore an area.
In addition, exploration and evaluation assets are assessed for
impairment upon their reclassification to producing assets (oil and
gas interest in property, plant and equipment).
In assessing the impairment of exploration and evaluation
assets, the carrying value of the asset would be compared to the
estimated recoverable amount and any impairment loss is recognised
immediately in profit or loss.
k. Leases:
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at the date of
inception. The arrangement is assessed to determine whether
fulfilment is dependent on the use of a specific asset (or assets)
and the arrangement conveys a right to use the asset (or assets),
even if that asset is (or those assets are) not explicitly
specified in an arrangement. The Group is not a lessor in any
transactions, it is only a lessee.
The Group applies a single recognition and measurement approach
for all leases, except for short-term leases and leases of
low-value assets. The Group recognises lease liabilities to make
lease payments and right-of-use assets representing the right to
use the underlying assets.
1. Right-of-use assets:
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Right-of-use assets are depreciated on a straight-line basis
over the shorter of the lease term and the estimated useful lives
of the assets, as follows:
- Property leases 2 to 5 years
- Motor vehicles and other equipment 1 to 3 years
- Fiber Optic 14 years
If ownership of the leased asset transfers to the Group at the
end of the lease term or the cost reflects the exercise of a
purchase option, depreciation is calculated using the estimated
useful life of the asset.
The right-of-use assets are also subject to impairment.
2. Lease liabilities:
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating the lease, if
the lease term reflects the Group exercising the option to
terminate.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease
payments made.
In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease term,
a change in the lease payments (e.g., changes to future payments
resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an option to
purchase the underlying asset.
3. Short-term leases and leases of low-value assets:
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered to be low value.
Lease payments on short-term leases and leases of low value assets
are recognised as expense on a straight-line basis over the lease
term.
4 . Other leases outside the scope of IFRS 16
Leases to explore for or use minerals, oil, natural gas and
similar non-regenerative resources are outside the scope of IFRS 16
and are recognised as exploration and
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
evaluation costs or as oil and gas assets, as appropriate.
l. Financial instruments - initial recognition and subsequent measurement:
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
1. Financial assets:
Initial recognition and measurement:
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or
loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient, the Group initially measures a financial
asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs. Trade
receivables that do not contain a significant financing component
or for which the Group has applied the practical expedient are
measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of
principal and interest (SPPI)' on the principal amount
outstanding. This assessment is referred to as the SPPI test and is
performed at an instrument level.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Subsequent measurement:
For purposes of subsequent measurement, financial assets are
classified in four categories:
- Financial assets at amortised cost (debt instruments);
- Financial assets at fair value through profit or loss - The
Group does not hold such financial assets as of December 31,
2021
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Financial assets at amortised cost:
The Group measures financial assets at amortised cost if both of
the following conditions are met:
- The financial asset is held within a business model with the
objective to hold financial assets in order
to collect contractual cash flows ; and
- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment under the expected credit loss model. Gains and losses
are recognised in profit or loss when the asset is derecognised,
modified or impaired.
The Group's financial assets at amortised cost includes trade
receivables.
Derecognition :
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) when the rights to receive cash flows from
the asset have expired.
Impairment of financial assets:
The Group recognises an allowance for expected credit losses
(ECLs) for all debt
instruments not held at fair value through profit or loss. ECLs
are based on the difference between the contractual cash flows due
in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at an
approximation of the original effective interest rate. The
expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to
the contractual terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for which
there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a
simplified approach in calculating ECLs. Therefore, the Group does
not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
,
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in
default when internal or external information indicates that the
Group is unlikely to receive the outstanding contractual amounts in
full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
2. Financial liabilities:
Initial recognition and measurement:
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, loans, , derivative financial instruments and
borrowings.
Subsequent measurement:
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised, modified and through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on
acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bearing loans and
borrowings.
Derecognition:
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the statement of
profit or loss.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
3. Offsetting of financial instruments:
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
m. Derivative financial instruments and hedge accounting:
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as
interest rate swaps to hedge its interest rate risks. Such
derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into
and are subsequently remeasured at fair value. Derivatives are
carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges which applicable to
the Group are classified as Cash flow hedges when hedging the
exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognised asset or
liability or a highly probable forecast transaction or the foreign
currency risk in an unrecognised firm commitment.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it wishes
to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge.
A hedging relationship qualifies for hedge accounting if it
meets all of the following effectiveness requirements:
-- There is 'an economic relationship' between the hedged item and the hedging instrument.
-- The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
-- The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.
Hedges that meet all the qualifying criteria for hedge
accounting are accounted for, as described below:
Cash flow hedges
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve,
while any ineffective portion is recognised immediately in the
statement of profit or loss. The cash flow hedge reserve is
adjusted to the lower of the
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
cumulative gain or loss on the hedging instrument and the
cumulative change in fair value of the hedged item attributable to
the hedged risk.
If cash flow hedge accounting is discontinued, the amount that
has been accumulated in OCI must remain in accumulated OCI if the
hedged future cash flows are still expected to occur. Otherwise,
the amount will be immediately reclassified to profit or loss as a
reclassification adjustment. After discontinuation, once the hedged
cash flow occurs, any amount remaining in accumulated OCI must be
accounted for depending on the nature of the underlying
transaction.
n. Equity instruments:
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Ordinary shares
Ordinary shares are classified as equity and measured at their
nominal value. Any premiums received on issue of share capital
above its nominal value, are recognised as share premium within
equity. Associated issue costs are deducted from share premium.
Other components of equity include the following:
Retained losses includes all current and prior period retained
losses.
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve.
o. Share-based payments:
Employees (including senior executives) of the Group receive
remuneration in the form of share-based payments, whereby employees
render services as consideration for equity instruments issued and
charge upon vesting by the Ultimate Parent Company (Energean
plc).
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Equity-settled transactions :
The fair value of the equity settled awards has been determined
at the date of grant of the award allowing for the effect of any
market-based performance conditions.
That cost is recognised in employee benefits expense, together
with a corresponding increase in trade payables since the awards
upon vesting is being charged by the Ultimate Parent Company, over
the period in which the service and, where applicable, the
performance conditions are fulfilled (the vesting period). The
cumulative expense recognised for equity-settled transactions at
each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Ultimate Parent
Company's (Energean plc) best estimate of the number of equity
instruments that will ultimately vest. The expense or credit in the
statement of profit or loss for a period represents the movement in
cumulative expense recognised as at the beginning and end of that
period.
Service and non-market performance conditions are not taken into
account when determining the grant date fair value of awards, but
the likelihood of the conditions being met is assessed as part of
the Ultimate Parent Company's best estimate of the number of equity
instruments that will ultimately vest. Market performance
conditions are reflected within the grant date fair value. Any
other conditions attached to an award, but without an associated
service requirement, are considered to be non-vesting conditions.
Non-vesting conditions are reflected in the fair value of an award
and lead to an immediate expensing of an award unless there are
also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest
because non-market performance and/or service conditions have not
been met. Where awards include a market or non-vesting condition,
the transactions are treated as vested irrespective of whether the
market or non-vesting condition is satisfied, provided that all
other performance and/or service conditions are satisfied.
p. Fair value measurement:
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either: in the
principal market for the asset or liability or in the absence of a
principal market, in the most advantageous market for the asset or
liability.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or
by selling it to another market participant that would use the
asset in its highest and best use.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities, for which fair value is measured or
disclosed in the financial statements, are categorised within the
fair value hierarchy, described as follows, based on the
lowest-level input that is significant to the fair value
measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
- Level 2 - Valuation techniques for which the lowest-level
input that is significant to the fair value measurement is directly
or indirectly observable.
- Level 3 - Valuation techniques for which the lowest-level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
reassessing categorisation (based on the lowest-level input that is
significant to the fair value measurement as a whole) at the end of
each reporting period.
q. Cash and cash equivalents and restricted cash:
Cash and cash equivalents comprise of cash in hand, demand
deposits and also deposits, with a maturity of three months or
less, that are subject to an insignificant risk of changes in their
fair value.
The cash reserves retained as a bank security pledge in respect
of bank guarantees are defined as restricted cash and held in
designated bank deposits accounts to be used only for the purposes
of the capital commitments.
Release of cash from the accounts can only be made with the
approval of the lender when specified expenditure milestones are
met. The current and non-current classification of the bank
security pledges is determined by the forecast expenditure of the
capital commitments.
Restricted cash comprises balances retained in respect of the
Group's Senior Secured Notes and cash collateral provided under a
letter of credit facility for issuing bank guarantees for Group's
activities in Israel (see Note 18). The nature of the restrictions
on these balances mean that they do not qualify for classification
as cash equivalents.
The cash reserves retained as a bank security pledge in respect
of bank guarantees are defined as restricted cash and held in
designated bank deposits accounts to be used only for the purposes
of the capital commitments.
Release of cash from the accounts can only be made with the
approval of the lender when specified expenditure milestones are
met. The current and non-current classification of the bank
security pledges is determined by the forecast expenditure of the
capital commitments.
Restricted cash comprises balances retained in respect of the
Group's Senior Secured Notes and cash collateral provided under a
letter of credit facility for issuing bank guarantees for Group's
activities in Israel (see Note 18). The nature of the restrictions
on these balances mean that they do not qualify for classification
as cash equivalents.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
r. Provisions:
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and a reliable estimate of the amount can be made.
Where the Group expects a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually
certain. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at
the end of the reporting period, taking into account the risk and
uncertainties surrounding the obligation. The expense relating to a
provision is presented
in profit or loss net of any reimbursement. If the effect of the
time value of money is material, provisions are discounted using a
current pre-tax rate that reflects, when appropriate, the risks
specific to the liability. When discounting is used, the increase
in the provision due to the passage of time is recognised as a
finance cost.
Decommissioning provision:
Provision for decommissioning is recognised in full when the
related facilities are installed. A corresponding amount equivalent
to the provision is also recognised as part of the cost of the
related property, plant and equipment.
The amount recognised is the estimated cost of decommissioning,
discounted to its net present value at a risk-free discount rate,
and is reassessed each year in accordance with local conditions and
requirements. Changes in the estimated timing of decommissioning or
decommissioning cost estimates are dealt with prospectively by
recording an adjustment to the provision, and a corresponding
adjustment to property, plant and equipment. The unwinding of the
discount on the decommissioning provision is included as a finance
cost
s. Retirement benefit costs regarding the employees by the directly owned Branch in Israel:
The Israeli Branch has defined contribution plans pursuant to
section 14 to the Severance Pay in Israel Law under which the
Israeli Branch pays fixed contributions and will have no legal or
constructive obligation to pay further contributions if the fund
does not hold sufficient amounts to pay all employee benefits
relating to employee service in the current and prior periods.
Contributions to the defined contribution plan in respect of
severance or retirement pay are recognised as an expense when
contributed concurrently with performance of the employee's
services.
t. Borrowing costs:
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Excluded from the above capitalisation policy are any qualifying
assets that are inventories that are produced, in large quantities
on a repetitive basis.
Borrowing costs include interest expense on loans, and bank
overdrafts on an effective rate basis as well as other bank charges
and are included in the statement of profit or loss.
u. Tax:
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the
financial statements because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation
of taxable profit, based on tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
Current and deferred tax assets and corresponding liabilities
are offset when there is a legally enforceable right to set off
current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and
the Group intends to settle its tax assets and liabilities on a net
basis.
The Group recognises tax provision liabilities for anticipated
tax issues based on if it is probable, defined as more likely than
not, that additional taxes will be due. This assessment is based on
all available evidence and, where appropriate, in the light of
external advice. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such
differences will impact the income tax liability in the period in
which such determination is made.
v. Levies:
Levies imposed on the Company by government entities through
legislation, are accounted for pursuant to IFRIC 21 according to
which the liability for the levy is recognized only when the
activity that triggers payment occurs.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 3: - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
w. Restatement of comparatives in Consolidated Cash Flow
Statement
The Company has changed the classification of the amounts
received from INGL from financing activities to investing
activities. These cash inflows represent the contribution received
from INGL in relation to the onshore section of the Karish and
Tanin infrastructure and the near shore section of pipeline
extending to approximately 10km offshore. For further information
on the INGL transaction refer to note 11(5).
The Company previously presented the contributions from INGL as
financing activities as this was reflective of the length of time
between their receipt from INGL and when Energean is expected to
complete the construction of this infrastructure. The Company has
reconsidered the treatment and considers that the cash inflows from
INGL should be classified as investing activities in accordance
with IAS 7 as they do not meet the definition of a financing
activity, which is 'activities that result in changes in the size
and contribution of the contributed equity and borrowings of the
entity'. Comparative figures for the 2020 financial year have been
restated as follows.
As previously Reclassification Restated
Stated of prepayments ($'000)
($'000) from INGL ($'000)
-------------------------------- -------------- ------------------- ----------------
Advance payment from future
sale of property, plant
and equipment (INGL) - 22,229 22,229
-------------------------------- -------------- ------------------- ----------------
Net Cash used in Investing
activities (392,236) 22,229 (370,007)
================================ ============== =================== ================
Advance payment from future
sale of property, plant
and equipment (INGL) 22,229 (22,229) -
-------------------------------- -------------- ------------------- ----------------
Net cash inflow from financing
Activities 320,216 (22,229) 297,987
-------------------------------- -------------- ------------------- ----------------
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 4: - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of these consolidated financial statements in
conformity with IFRS requires the use of accounting estimates and
assumptions, and also requires management to exercise its
judgement, in the process of applying the Group's accounting
policies.
Estimates, assumptions and judgement applied are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. Although these estimates,
assumptions and judgement are based on management's best knowledge
of current events and actions, actual results may ultimately
differ.
1. Critical judgements in applying the Group's accounting policies:
The following are significant management judgements in applying
the accounting policies of the Group that have the most significant
effect on the financial statements:
Carrying value of intangible exploration and evaluation assets
:
Amounts carried under intangible exploration and evaluation
assets represent active exploration projects. Capitalised costs
will be written off to the income statement as exploration costs
unless commercial reserves are established, or the determination
process is not completed and there are no indications of impairment
in accordance with the Group's accounting policy. The process of
determining whether there is an indicator for impairment or
calculating the impairment requires critical judgement. The key
areas in which management has applied judgement and estimation are
as follows: the Group's intention to proceed with a future work
programme; the likelihood of licence renewal or extension; the
assessment of whether sufficient data exists to indicate that,
although a development in the specific area is likely to proceed,
the carrying amount of the exploration and evaluation asset is
unlikely to be recovered in full from successful development or by
sale; and the success of a well result or geological or geophysical
survey.
2. Estimation uncertainty:
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities, are discussed below:
Carrying value of property, plant and equipment :
The Group assesses impairment at each reporting date by
evaluating conditions specific to the Group that may lead to
impairment of assets. Where an indicator of impairment exists, the
recoverable amount (which is the higher of fair value less costs to
sell and value in use) of the cash-generating unit to which the
assets belong is then estimated based on the present value of
future discounted cash flows.
For oil and gas assets, the expected future cash flow estimation
is based on a number of factors, variables and assumptions, the
most important of which are estimates of reserves, future
production profiles, oil prices and costs. In most cases, the
present value of future cash flows is most sensitive to estimates
of future oil price, estimates of reserves, estimates of
development costs and discount rates.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 4: - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
(Cont.)
A change in the assumptions could materially change the
recoverable amount. In the event that future circumstances vary
from these assumptions, the recoverable amount of the Group's
development and production assets could change materially and
result in impairment losses or the reversal of previous impairment
losses.
Hydrocarbon reserve and resource estimates:
The Company's oil and gas development and production properties
are depreciated on a unit of production basis at a rate calculated
by reference to developed and undeveloped proved and probable
commercial reserves (2P developed and undeveloped) which are
estimated to be recoverable with existing and future developed
facilities using current operating methods, determined in
accordance with the Petroleum Resources Management System published
by the Society of Petroleum Engineers, the World Petroleum Congress
and the American Association of Petroleum Geologists.
Commercial reserves are determined using estimates of oil and
gas in place, recovery factors and future oil prices. The level of
estimated commercial reserves is also a key determinant in
assessing whether the carrying value of any of the Company's oil
and gas properties has been impaired. As the economic assumptions
used may change and as additional geological information is
produced during the operation of a field, estimates of recoverable
reserves may change. Such changes may impact the Company's reported
financial position and results which include:
-- Depreciation and amortisation charges in profit or loss may
change where such charges are determined using the units of
production method, or where the useful life of the related assets
change
-- Impairment charges in profit or loss
-- Provisions for decommissioning may change - where changes to
the reserve estimates affect expectations about when such
activities will occur and the associated cost of these
activities
-- The recognition and carrying value of deferred tax assets may
change due to changes in the judgements regarding the existence of
such assets and in estimates of the likely recovery of such
assets
Decommissioning costs:
There is uncertainty around the cost of decommissioning as cost
estimates can vary in response to many factors, including from
changes to market rates for goods and services, to the relevant
legal requirements, the emergence of new technology or experience
at other assets. The expected timing, work scope, amount of
expenditure, discount and inflation rates may also change.
Therefore significant estimates and assumptions are made in
determining the provision for decommissioning.
The estimated decommissioning costs are reviewed annually by
management and the results of this review are then assessed
alongside estimates from operators. Provision for environmental
cleanup and remediation costs is based on current legal and
contractual requirements, technology and price levels .
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 4: - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
(Cont.)
Deferred taxes :
The Group has recognised deferred tax assets in respect of
losses and other temporary differences to the extent that it is
probable that there will be future taxable profits against which
the losses and other temporary differences can be utilised. The
Group has considered their carrying value at each balance sheet
date and concluded that based on management's estimates, sufficient
taxable profits will be generated in future years to recover such
recognised deferred tax assets.
These estimates are based on forecast performance and where tax
losses are subject to expiration, the estimates take into account
the expected reversal patterns of taxable temporary differences
compared to the future reversal of deductible temporary
differences.
For additional details, see also Note 13(C).
The management regard the deferred tax asset in relation to tax
losses and other temporary differences as recoverable, despite the
loss-making situation that currently exists, based on its best
estimate of future sources of taxable income.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 5: - PROPERTY, PLANT AND EQUIPMENT
a. Composition:
Furniture,
Oil and Leased fixtures
Gas Assets Assets and equipment Total
----------- ------- -------------- ---------
US Dollars in thousands
-----------------------------------------------
Cost:
At 1 January 2020 1,238,724 469 337 1,239,530
Additions (1) 404,613 365 298 405,276
Disposals (2,984) (230) - (3,214)
Capitalised borrowing cost
(3) 92,170 - - 92,170
Capitalised depreciation 288 - - 288
Change in decommissioning
provision 38,125 - - 38,125
Transfers from Exploration
and evaluation assets (2) 41,822 - - 41,822
----------- ------- -------------- ---------
Total cost at 31 December
2020 1,812,758 604 635 1,813,997
Additions (1) 243,346 3,405 194 246,945
Disposals (23) - - (23)
Capitalised borrowing cost
(3) 188,889 - - 188,889
Capitalised depreciation 362 - - 362
Change in decommissioning
provision (3,549) - - (3,549)
Total cost at 31 December
2021 2,241,783 4,009 829 2,246,621
----------- ------- -------------- ---------
Depreciation:
At 1 January 2020 - 185 63 248
Charge for the year (Note
14) - - 80 80
Disposals - (142) - (142)
Capitalised to petroleum
and gas assets - 288 - 288
----------- ------- -------------- ---------
Total Depreciation at 31
December 2020 - 331 143 474
Charge for the year (Note
14) - - 85 85
Capitalised to petroleum
and gas assets - 362 - 362
Write down of the assets 433 - - 433
----------- ------- -------------- ---------
Total Depreciation at 31
December 2021 433 693 228 1,354
----------- ------- -------------- ---------
Net Property, Plant and
Equipment at 31 December
2020 1,812,758 273 492 1,813,523
=========== ======= ============== =========
Net Property, Plant and
Equipment at 31 December
2021 2,241,350 3,316 601 2,245,267
=========== ======= ============== =========
(1) The additions to Oil and Gas assets for the year ended 31
December 2021 are mainly due to the development costs of Karish
field which relate to the EPCIC contract (FPSO, Sub Sea and
On-shore construction cost) at the amount of approx. US$124 million
(31 December 2020: approx. US$280 million) and development costs of
Karish North at the amount of approx. US$31 million. (31 December
2020: approx. US$49 million).
(2) The Company's Board of Directors has approved on December
2020 the Final Investment Decision ("FID") to proceed with the
Karish North Development Project, offshore Israel. As a result all
amounts related Karish North field that were classified under
Intangible assets reclassified as Property, Plant and Equipment, in
line with the Group's accounting policy (Note 6).
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 5: - PROPERTY, PLANT AND EQUIPMENT (Cont.)
(3) The borrowing costs capitalised for the year ended 31
December 2021 at the amount of approx. US$ 189 million (31 December
20 20 : approx. US$ 92 million) are mainly due to the Senior
Facility Loan for Karish development at the amount of approx. US$93
million (31 December 2020: approx. US$81 million) that was fully
repaid in April 2021 and due to the senior secured notes issued
during 2021 at the amount of approx. US$89 million for the year
ended 31 December 2021. The weighted average interest rates used
for the capitalisation of the borrowing cost was 6.38% (31 December
2020: 8.78%). See also Note 9.
b. Depreciation expense for the year has been recognised as follows:
31 December
-------------------------
2021 2020
------------ -----------
US Dollars in thousands
-------------------------
Administration expenses (Note 14) 85 80
Capitalised depreciation in oil & gas
assets 362 288
------------ -----------
Total 447 368
============ ===========
c. Cash flow statement reconciliations:
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Additions to property, plant and equipment 432,624 574,467
Less
Capitalised borrowing costs (188,889) (92,170)
Right-of-use asset additions (3,405) (365)
Capitalised share-based payment charge (203) (65)
Capitalised depreciation (362) (288)
Change in decommissioning provision 3,549 (38,125)
Transfers from intangible assets - (41,822)
Total 243,314 401,632
Movement in working capital 48,446 (17,179)
------------- ----------
Cash capital expenditures per the cash
flow statement (*) 291,760 384,453
(*) The amount includes payment of US$10 . 85 million which has
been paid each year in 2021 and 2020 to the sellers of Karish and
Tanin leases.
d. Details of the Group's rights in the petroleum and gas assets:
Type of Valid date of Group's
Right right the right share
------------- --------- ---------------- --------
Karish I/17 Lease 10 August 2044 100%
Tanin I/16 Lease 10 August 2044 100%
e. Karish North Final Development Plan ("FDP") approval:
The FDP of Karish North was approved by the Israeli Petroleum
Commissioner in August 2020.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 5: - PROPERTY, PLANT AND EQUIPMENT (Cont.)
f. Technip EPCIC Contract:
On 2 March 2018, the Group entered into a lump-sum turnkey
engineering, procurement, construction, installation and
commissioning contract with Technip UK Limited, Technip France SA
and the Israeli branch of Technip Ships One Limited (together,
"Technip") in respect of the development of the Karish field (the
"Technip EPCIC Contract").
As at 31 December 2021, the completion of the project as defined
in the EPCIC (Practical Completion Date) is estimated to occur on Q
3 2022. Technip undertakes to remedy any defects in the work
noticed within 21 months of completion, to be extended up to 33
months for defects in modifications and repairs. The Technip EPCIC
Contract provides for daily liquidated damages for delays of more
than 22 days from the target completion date of 31 March 2021
subject to Force Majeure events as defined in the EPCIC contract.
Technip provided a performance bond equal to 10% of the contract
price for up to six months beyond the completion date, reducing
thereafter to 5% until no earlier than the end of the defects
liability period.
Pursuant to the Technip EPCIC Contract, Energean Israel has
agreed to pay Technip approximately US$1.4 billion
(multi-currency), with an option to hedge all non-US Dollar
amounts. The contract price is payable in accordance with defined
milestones, subject to satisfaction of Energean Israel. Energean
Israel is entitled to set off amounts owed to Technip against
amounts due from Technip (including any liquidated damages), and to
withhold payment for defective work and disputed amounts in any
invoice.
The Technip EPCIC Contract also contains provisions typical for
a contract of this kind regarding variation, intellectual property,
force majeure, dispute resolution, sanctions, the duty to cooperate
and reporting, including regarding monthly reports and
documentation of milestone payment claims.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 6: - INTANGIBLE ASSETS
a. Composition:
Exploration
and evaluation Software
assets Licence Total
--------------- -------- --------
US Dollars in thousands
-----------------------------------
Cost:
At 1 January 2020 49,574 160 49,734
Additions (1) 6,539 95 6,634
Write off of exploration and
evaluation costs (Note 14) (492) - (492)
Transfers to property, plant
and equipment (2) (41,822) - (41,822)
--------------- -------- --------
At 31 December 2020 13,799 255 14,054
Additions (1) 6,342 - 6,342
At 31 December 2021 20,141 255 20,396
--------------- -------- --------
Amortisation:
At 1 January 2020 - 33 33
Charge for the year (Note 14) - 214 214
Total Amortisation at 31 December
2020 - 247 247
--------------- -------- --------
Charge for the year (Note 14) - 8 8
Total Amortisation at 31 December
2021 - 255 255
Net Intangible assets at 31 December
2020 13,799 8 13,807
=============== ======== ========
Net Intangible assets at 31 December
2021 20,141 - 20,141
=============== ======== ========
(1) The additions to Intangible assets for the year ended 31
December 2021 are mainly due to the surveys, seismic and related
works for the Israeli offshore exploration blocks (for the year
ended 31 December 2020 mainly related to drilling associated costs
for Block 12 licence and Karish North prior classifying it to
property, plant and equipment).
(2) See Note 5(A)(2).
b. Cash flow statement reconciliations:
31 December
-------------------------
2021 2020
----------- ------------
US Dollars in thousands
-------------------------
Additions to intangible assets 6,342 (35,680)
Less
Transfers to property, plant and equipment - 41,822
----------- ------------
Total 6,342 6,142
Movement in working capital (1,190) 1,864
----------- ------------
Cash capital expenditure per the cash
flow statement 5,152 8,006
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 6: - INTANGIBLE ASSETS (Cont.)
c. Details on the Group's rights in the intangible assets:
Type of Valid date Group's
Right right of the right interest
---------------- --------- --------------- ----------
14 January
Block 12 Licence 2024 100%
14 January
Block 21 Licence 2024 100%
14 January
Block 22* Licence 2021 100%
14 January
Block 23 Licence 2024 100%
14 January
Block 31 Licence 2024 100%
Block 55 (Zone 27 October
D) Licence 2022 80%
Block 56 (Zone 27 October
D) Licence 2022 80%
Block 61 (Zone 27 October
D) Licence 2022 80%
Block 62 (Zone 27 October
D) Licence 2022 80%
* Relinquished
d. Additional information regarding the Exploration and Evaluation assets:
1. In December 2017, the Group was granted five licences to
search for gas and oil in Block 12, Block 21, Block 22, Block 23
and Block 31, which are located in the economic waters of the State
of Israel. The licences were granted for a period of 3 years, from
15 January 2018 to 14 January 2021 (hereinafter: the "Original
Period").
On 19 October 2021, the Ministry of Energy in Israel ("MOE")
extended Licence "12"/407 (Block 12) by two (2) years until 14
January 2024. In addition, the Ministry of Energy in Israel
extended the Licences "21"/408, "23"/410, and "31"/411 (Blocks 21,
23 and 31) by four (4) months until 14 January 2024 .
The licences period may be extended for another four years, two
periods of two years each, subject to compliance with the
provisions of the licences.
Block 22 licence expired in January 2021, see also Note 14.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 7: - OTHER RECEIVABLES
31 December
--------------------------
2021 2020
------------- -----------
US Dollars in thousands
--------------------------
Current
Financial items
Other receivables (*) 21,275 13
Accrued interest income 901 41
------------- -----------
22,176 54
Non-financial items
Deposits and prepayments 590 447
Deferred Insurance expenses - 443
Refundable VAT 3 360
------------- -----------
593 1,250
22,769 1,304
============= ===========
Non-current
Financial items
Accrued interest income from related
parties ( ** ) 6,402 -
------------- -----------
6,402 -
Non-financial items
Deposits and prepayments 61 43
------------- -----------
61 43
6,463 43
============= ===========
(*) This amount includes an amount of $21.2m receivable from
INGL as a result of the relevant milestones being achieved, in line
with the agreement. See Note 11(5) for further details
( ** ) See also Note 19 (E)(4).
NOTE 8: - CASH AND CASH EQUIVALENTS
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Cash at bank and in hand 45,827 34,461
Banks time deposits 304,000 2,960
------------- ----------
349,827 37,421
============= ==========
Bank demand deposits comprise deposits and other short-term
money market deposit accounts that are readily convertible into
known amounts of cash.
The effective interest rate on short--term bank deposits was
0.383% for the year ended 31 December 2021 (year ended 31 December
2020: 0.815%).
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 9: - BORROWING AND SECURED NOTES
a. US$1.45 billion senior project facility:
On 2 March 2018, the Group entered into a senior secured project
finance for its Karish project amounting to US$1.275 billion and on
16 March 2020, the senior credit facility was increased to US$1,450
million (the "Project Finance Facility").
The Project Finance Facility was charged at LIBOR plus margin of
3.75%-4.75% There was a commitment fee of 30% of the applicable
margin.
During 2019, the Group signed a hedge contract for 50% of the
facility notional, to hedge the 3 months LIBOR component of the
facility. As of 31 December 2020, the group recognised derivative
liability at the amount of US$6,919 thousands, net from tax, see
also Note 12(D). The hedge contract was terminated during Q3 2021
and the liability was fully paid.
As of 29 April 2021, the Group withdrew US$1,268 million from
the Project Finance Facility (31 December 2020: US$1,150 million)
and the amortised carrying value of the loan was US$1,225 million
(including short term accrued interest at the amount of approx.
US$2 million as part of trade and other payables).
On 29 April 2021, the Company fully repaid the Project Finance
Facility and, as such, the ultimate parent company guarantee
("PCG") granted by Energean plc in the amount of US$90 million and
the standby letter of credit for US$125 million the PCG granted by
the parent company Energean E&P Limited at the same amount , in
favor of the Project Finance Facility lenders, terminated.
b. Short term loan from ultimate parent company repayment - See Note 19(E)(3):
On 5 January 2021, the Company paid Energean plc the short-term
loan amounted US$16 million.
c. 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 issued in four series as follows:
- Notes in an aggregate principal amount of US$625 million,
maturing on 30 March 2024, with a fixed annual interest rate of
4.500%.
- Notes in an aggregate principal amount of US$625 million,
maturing on 30 March 2026, with a fixed annual interest rate of
4.875%.
- Notes in an aggregate principal amount of US$625 million,
maturing on 30 March 2028, with a fixed annual interest rate of
5.375%.
- Notes in an aggregate principal amount of US$625 million,
maturing on 30 March 2031, with a fixed annual interest rate of
5.875%.
The interest on each series of the Notes will be paid
semi-annually, on 30 March and on 30 September of each year,
beginning on 30 September 2021.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 9: - BORROWING AND SECURED NOTES (Cont.)
1. Satisfaction of the escrow release conditions and release from escrow of proceeds of the US$2,500,000,000 senior secured notes offering:
On 29 April 2021 Energean Israel Finance Ltd has satisfied the
escrow release conditions in respect of its US$2.5 billion
aggregate principal amount of the Notes offering, completed by it
on 24 March 2021. As a result of satisfying the said escrow release
conditions, the proceeds of the Offering have been released from
escrow.
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.
2. Collateral:
The Company had provided the following collateral in favor of
the Trustee:
a. First rank Fixed charges over the shares of Energean Israel
Limited, Energean Israel Finance Ltd and Energean Israel
Transmission Ltd, the Karish & Tanin Leases, the gas sales
purchase agreements ("GSPAs"), several bank accounts, Operating
Permits (once issued), Insurance policies, the Company exploration
licences (Block 12, Block 21, Block 23, Block 31 and 80% of the
licences under "Zone D") and the INGL Agreement.
b. Floating charge over all of the present and future assets of
Energean Israel Limited and Energean Israel Finance Ltd.
c. Energean Power FPSO (the Company had undertaken to use
commercially reasonable efforts, including obtaining Israel
Petroleum Commissioner approval and any other applicable
governmental authority, in order to provide this).
3. Reserves accounts:
On 29 April 2021, following the escrow release as stated above,
the Company funded its reserves account as follow:
a. US$163.3 million Interest Payment Account for the accrued
interest prior to practical completion, accrued interest until 30
June 2022 (less coupons actually paid) and from 30 June 2022 the
Interest Reserve Account will be funded six months forward. On 24
September 2021, the Company released US$66.6 million from its
interest reserve account due to coupons payment at amount of
US$66.6 million. As of 31 December 2021, the Interest Reserve
Account balance is approx. US$96.8 million.
b. US$100 million Debt Payment Fund that would be released upon
achieving three quarters annualised production of 3.8 BCM/year.
c. Principal Reserve Fund will be funded 50% an upcoming
maturity within 12 months for the 3 year and 5 year Notes, and 75%
of an upcoming maturity within 18 months for the 7 year and 10 year
Notes.
4. Credit rating:
Moody's assigns Ba3 rating the senior secured notes, and S&P
Global assigns BB- rating the senior secured notes.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 9: - BORROWING AND SECURED NOTES (Cont.)
d . Reconciliation of liabilities arising from financing activities:
Borrowings
costs
including
amotisation
of Foreign Fair Reclassi-fication 31
1 January Cash Cash arrangement exchange value to short December
2021 inflows Outflows Additions Disposals fee impact Other changes term 2021
--------- --------- ----------- --------- --------- ----------- -------- ------- ----------------- ---------
US Dollars in thousands
----------------------------------------------------------------------------------------------------------------------------
2021
Senior
secured
notes - 2,500,000 (106,105) - - 101,856 - - - (32,227) 2,463,524
Borrowings 1,093,965 118,000 (1,290,936) - - 76,890 - 2,081 - - -
Long-term
payables 28,979 5,673 - 17,817 - 2,036 (968) - - - 53,537
Lease
liabilities 270 - (585) 3,405 - 152 (28) - - - 3,214
Loans from
related
parties 16,000 - (16,000) - - - - - - - -
Deferred
licence
payments (1) 69,518 - (14,344) - - 2,056 - - - - 57,230
Liability
held
to hedge
long-term
borrowings 6,919 - (6,988) - - 7,002 - - (6,933) - -
--------- --------- ----------- --------- --------- ----------- -------- ----- ------- ----------------- ---------
1,215,651 2,623,673 (1,434,958) 21,222 - 189,992 (996) 2,081 (6,933) (32,227) 2,577,505
========= ========= =========== ========= ========= =========== ======== ===== ======= ================= =========
(1) Cash outflows relate to finance costs paid for deferred
licence payments of approx. US$3,494 thousands and payment for
purchase of oil & gas leases of US$10,850 thousands which are
included in the cash flows from financing and investing activities
respectively, in the Consolidated Statement of Cash Flows.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 9: - BORROWING AND SECURED NOTES (Cont.)
Borrowings
costs
including
amotisation
1 of Foreign Fair Reclassi-fication 31
January Cash Cash arrangement exchange value to short December
2020 inflows Outflows Additions Disposals fee impact changes term 2020
------- ------- -------- --------- --------- ----------- -------- ------- ----------------- ---------
US Dollars in thousands
--------------------------------------------------------------------------------------------------------------
2020
Borrowings
(1) 756,216 320,000 (61,437) - - 80,720 - - (1,534) 1,093,965
Long-term
payables 5,306 22,229 - - - 476 968 - - 28,979
Lease
liabilities 283 - (368) 365 (81) 70 1 - (262) 8
Loans from
related
parties - 16,000 - - - - - - - 16,000
Deferred
licence
payments (2) 78,139 - (14,843) - - 6,222 - - (14,344) 55,174
Liability
(asset)
held to
hedge
long-term
borrowings
(1) (564) - (4,664) - - 4,664 - 7,483 - 6,919
------- ------- -------- --------- --------- ----------- -------- ------- ----------------- ---------
839,380 358,229 (81,312) 365 (81) 92,152 969 7,483 (16,140) 1,201,045
======= ======= ======== ========= ========= =========== ======== ======= ================= =========
(1) See Note 9(A).
(2) Cash outflows relate to finance costs paid for deferred
licence payments of approx. US$3,993 thousands and payment for
purchase of oil & gas leases of US$10,850 thousands which are
included in the cash flows from financing and investing activities
respectively, in the Consolidated Statement of Cash Flows.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 10: - PROVISION FOR DECOMMISSIONING
For the year ended
-------------------------
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
At 1 January 38,399 -
New provisions - 38,125
Changes in estimates (3,549) -
Unwinding of discount 675 274
At 31 December 35,525 38,399
------------- ----------
Current provisions - -
Non-current provisions 35,525 38,399
The decommissioning provision represents the present value of
decommissioning costs relating to three wells of Karish main.
The decommissioning provision represents the present value of
decommissioning costs relating to oil and gas properties, which are
expected to be incurred up to 2041, when the producing oil and gas
properties are expected to cease operations. These provisions have
been created based on the Group's internal estimates. Assumptions
based on the current economic environment have been made, which
management believes form a reasonable basis upon which to estimate
the future liability. These estimates are reviewed regularly to
take into account any material changes to the assumptions. However,
actual decommissioning costs will ultimately depend upon future
market prices for the necessary decommissioning works required that
will reflect market conditions at the relevant time.
Furthermore, the timing of decommissioning is likely to depend
on when the fields cease to produce at economically viable rates.
This, in turn, will depend upon future oil and gas prices, which
are inherently uncertain.
The discount rate applied on 31 December 2021 is 1.95% (31
December 2020: 1.45%).
Depreciation will be commenced based on the depletion method
(for accounting purposes), upon commercial production.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 11: - TRADE AND OTHER PAYABLES
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Current
Financial items
Trade accounts payable (1) 32,611 68,706
Accrued expenses (1) 3,167 1,628
Payables to related parties (2) 1,079 3,381
Accrued expenses to related parties (2) 2,444 -
Deferred licence payments (3) - 14,344
Other finance costs accrued (4) 32,227 2,081
Current lease liabilities 1,011 262
------------- ----------
72,539 90,402
Non-Financial items
VAT payable 1,217 -
Social insurance and other taxes 132 87
Income taxes 227 -
------------- ----------
1,576 87
74,115 90,489
============= ==========
Non-current
Financial items
Accrued Expenses to related parties (2) 294 199
Long term lease liabilities 2,203 8
Deferred licence payments (3) 57,230 55,174
------------- ----------
59,727 55,381
Non-Financial items
Contract Liability (INGL) (5) 53,537 28,979
------------- ----------
53,537 28,979
113,264 84,360
============= ==========
(1) The main balance of the Trade Payables and Accrued expenses
as of 31 December 2021 relates to development costs for a total
amount of approx. US$3 2 million (2020: approx. US$69 million) at
trade accounts payable and approx. US$3 million (2020: approx. US$1
million) at the accrued expenses. The change in trade payables
represents mainly timing differences and levels of work activity in
Karish project. Trade payables are non-interest bearing.
(2) See Note 19(C).
(3) In December 2016, the Company acquired the Karish and Tanin
offshore gas fields for US$40.0 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 December 2021 the total discounted deferred
consideration was approx. US$57 million (As at 31 December 2020:
approx. US$70 million).. The Sale 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
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 11: - TRADE AND OTHER PAYABLES (Cont.)
of time as well.
Due to the effects of the COVID-19 pandemic which constitute a
Force Majeure event , postponing the deferred payment due in March
2022 by the number of days that such Force Majeure event last. As
of 31 December 2021, Force Majeure event length has not been
finalised as the COVID-19 pandemic continue to affect the progress
of the project, and as such, the deferred payment due in March 2022
will be postponed accordingly. See also note 18(H)
(4) As of 31 December 2021, the balance is mainly accrued
interest related the Senior Security Notes (see also Note 9(C)). As
of 31 December 2020, the balance is mainly accrued interest related
the project finance loan.
(5) The contract liability refer to sales consideration received
in advance following an 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. As consideration, INGL will pay the Company 369
million ILS, represents as of 31 December 2021 approximately US$119
million for the infrastructure being built by the Company which
will be paid in accordance with milestones detailed in the
agreement. The total payments received as of 31 December 2021 at
the amount of approx. 110 million ILS, represents approx. US$33
million. Because the advance received is for the period more than
one year, the effective interest is recognized.
The agreement covers the onshore section of the Karish and Tanin
infrastructure and the near shore section of pipeline extending to
approximately 10km offshore. It is intended that the hand over to
INGL will become effective at least 90 days after the delivery of
first gas from the Karish field which expected in Q 3 2022.
Following Hand Over, INGL will be responsible for the operation and
maintenance of this part of the infrastructure.
NOTE 12: - EQUITY
a. Share capital:
31 December 2021 31 December 2020
--------------------- ---------------------
Number Number
of shares US$ of shares US$
---------- --------- ---------- ---------
Authorised, issued and
fully paid
Ordinary A shares of
US$1 each 1,708,415 1,708,415 1,708,415 1,708,415
b. Share capital issuance:
On 7 January 2020 the Company issued 32,500 new ordinary shares
issuance at US$1,000 per share subscription price for total
consideration of US$32.5 million.
The Company's two shareholders participated pro-rata such that
the ownership of the Company remained 70% Energean E&P Holdings
Limited and 30% Kerogen.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 12: - EQUITY ) Cont. (
c. Company's shareholders transaction completion:
On 29 December 2020, Energean E&P Holdings Limited entered
into a conditional sale and purchase agreement to acquire Kerogen
Investments No. 38 Limited's entire interest in Energean Israel
Limited, which constitutes 30% of the total issued share capital of
Energean Israel Limited, and completion took place during February
2021. Please refer to 20(A).
d. Other reserves:
During 2019, the Group signed a hedge contract for 50% of the
facility notional, to hedge the 3 months LIBOR component of the
facility. As of 31 December 2020, the Group recognised derivative
financial liability at the amount of US$6,919 thousands, net from
tax. See also Note 9 ) A). All derivatives are recognised at fair
value on the balance sheet with valuation changes recognised
immediately in the income statement, unless the derivatives have
been designated as a cash flow hedge.
During 2021 with the repayment of the senior facility loan, the
fair value differences, previously recognized in other
comprehensive income, were recognised immediately as finance costs.
See Note 20(E). The derivative contract was terminated during
September 2021.
e. Shares rights:
An ordinary share gives the shareholder the right to vote on
matters put before all of the shareholders of the Company. One
share equals one vote. An ordinary share also provides the
shareholder with the right to receive a share of the Company's
profits by way of dividends.
NOTE 13: - INCOME TAX AND LEVIES
a. Corporate Tax rates applicable to the Company:
1. Israel:
The Israeli corporate tax rate is 23% in 2021 and 2020
2. Cyprus:
For its activity in Cyprus, the Company is subject to
corporation tax on its taxable profits at the rate of 12.5%.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 13: - INCOME TAX AND LEVIES ) Cont. (
b. The Income and Natural Resources Taxation Law, 5771-2011 - Israel:
In April 2011, the Knesset passed the Income and Natural
Resources Tax Law, 5771-2011 ("the Law"). The implementation of the
law led to a change in the taxation rules applicable to the Group's
income, including among others, oil and gas profits levy according
to a mechanism determined in the law and cancellation of the
depletion allowance.
The main provisions of the law are as follows:
The imposition of an oil and gas profits levy at a rate to be
set as set out below. The rate of the levy will be calculated
according to a proposed R factor mechanism, according to the ratio
between the net accrued revenues from the project and the
cumulative investments as defined in the law. A minimum levy of 20%
will be levied at the stage where the R factor ratio reaches 1.5,
and when the ratio increases, the levy will increase gradually
until the maximum rate of 50% until the ratio reaches 2.3. In
addition, it was determined that the rate of the levy as stated
will be reduced starting in 2017 by multiplying 0.64 by the
difference between the corporate tax rate prescribed in section 126
of the Income Tax Ordinance for each tax year and the tax rate of
18%. In accordance with the corporate tax rate from 2018 onwards,
the maximum rate will be 46.8%.
In addition, additional provisions were prescribed regarding the
levy, inter alia, the levy will be recognised as an expense for the
purpose of calculating income tax; The limits of the levy shall not
include export facilities; The levy will be calculated and imposed
for each reservoir separately (Ring Fencing); Payment by the owner
of an oil right calculated as a percentage of the oil produced, the
recipient of the payment will be liable to pay a levy according to
the amount of the payment received, and this amount will be
subtracted from the amount of the levy owed by the holder of the
oil right.
The law also sets rules for the unification or separation or
consolidation of oil projects for the purposes of the law.
In accordance with the provisions of the Law, the Group is not
yet required to pay any payment in respect of the said levy, and
therefore no liability has been recognised in the financial
statements in respect of this payment.
c. Deferred taxes:
The Group is subject to corporation tax on its taxable profits
in Israel at the rate of 23%. The Capital Gain Tax rates depends on
the purchase date and the nature of asset. The general capital tax
rate for a corporation is the standard corporate tax rate.
Tax losses can be utilised for an unlimited period, and tax
losses may not be carried back.
Tax losses occurring during the development or construction
phases are to be deducted at the depreciation rate of the asset
under development in respect of which they were created.
According to Income Tax (Deductions from Income of Oil Rights
Holders) Regulations, 5716-1956, the exploration and evaluation
expenses of oil and gas assets are deductible in the year in which
they are incurred.
The Group expects that there will be sufficient taxable profit
in the following years and that deferred tax assets, recognised in
the consolidated financial statements of the Group, will be
recovered.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 13: - INCOME TAX AND LEVIES (Cont.)
Below are the items for which deferred taxes were
recognised:
Accrued
Property, expenses
plant Right and other
and of short--term
equipment use liabilities
& asset Deferred Staff and other Provisions
intangible IFRS Derivative Tax expenses leaving long--term Derivative for
asset 16 asset losses for tax indemnities liabilities liability decommissioning Total
---------- ----- ---------- ------- -------- ----------- ----------- ---------- --------------- -------
US Dollars in thousands
----------------------------------------------------------------------------------------------------------------
At 1 January 2021 (12,140) (62) - 9,325 - 63 293 1,591 8,769 7,839
Increase
(decrease)
for the year
through:
Profit or loss (492) (700) - 1,436 5,020 31 630 - (598) 5,327
Reclassifications
in
the current year - - - (6,011) 6,011 - - - - -
Other comprehensive
income - - - - - - - (1,591) - (1,591)
---------- ----- ---------- ------- -------- ----------- ----------- ---------- --------------- -------
At 31 December 2021 (12,632) (762) - 4,750 11,031 94 923 - 8,171 11,575
========== ===== ========== ======= ======== =========== =========== ========== =============== =======
At 1 January 2020 (2,347) (65) (130) 7,948 - 35 178 - - 5,619
Increase
(decrease)
for the year
through:
Profit or loss (9,793) 3 - 1,377 - 28 115 - 8,769 499
Other comprehensive
income - - 130 - - - - 1,591 - 1,721
---------- ----- ---------- ------- -------- ----------- ----------- ---------- --------------- -------
At 31 December 2020 (12,140) (62) - 9,325 - 63 293 1,591 8,769 7,839
========== ===== ========== ======= ======== =========== =========== ========== =============== =======
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 13: - INCOME TAX AND LEVIES (Cont.)
31 December
-------------------------
2021 2020
------------ -----------
US Dollars in thousands
-------------------------
Deferred tax liabilities (13,394) (12,202)
Deferred tax assets 24,969 20,041
------------ -----------
11,575 7,839
============ ===========
d. Taxation charge:
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Tax - current year (1) (310) (4)
Deferred tax 5,327 499
------------- ----------
Total taxation income 5,017 495
============= ==========
(1) The tax is related to Energean Israel Finance Ltd and
Energean Israel Finance S.a.r.l. in Luxemburg.
e. Reconciliation of the total tax charge:
The reconciliation between the tax expense, assuming that all
the income, expenses, gains and losses in profit or loss were taxed
at the statutory tax rate of Israel and the taxes on income
recorded in profit or loss is as follows:
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Loss before tax (15,849) (5,375)
Tax credit at the applicable tax rates
of 23% (1) 3,645 1,236
Impact of different tax rates (2) 653 -
Tax effect of non-taxable income &
allowances (6) 624 -
Reassessment of recognised deferred
tax asset in the current period (3) 127 -
Permanent differences ( 4 ) (24) (153)
Non recognition of deferred tax on
current year losses ( 5 ) - (588)
Other adjustments (8) -
============= ==========
Taxation income 5,017 495
============= ==========
Effective tax rate 32% 9%
============= ==========
(1) For the reconciliation of the effective tax rate, the
statutory tax rate of the Israeli Branch of 23% has been used since
the deferred tax comes from the Israeli Branch operations.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 13: - INCOME TAX AND LEVIES (Cont.)
(2) Energean Israel Limited (Cyprus) is subject to corporation
tax rate of 12.5%.
The Head Office of Energean Israel Finance S.a.r.l is subject to
corporation tax in Luxemburg on its taxable profits at the rate of
17% (Effective interest rate: corporate income tax, solidarity
surtax and municipal business tax - 25%).
(3) Reassessment of prior periods Deferred Tax Assets at the
amount of approx. US$64 thousands, and tax effect for deferred
taxes related environmental rehabilitation from prior years at the
amount of approx. US$63 thousands.
(4) Permanent differences consisted of non-deductible expenses
with the majority derived from the Israeli Branch and, inter alia,
related to refreshments, accommodation, donations and
travelling.
(5) Non recognition of deferred tax on current period losses in
2020 were derived mainly from the capital loss the Company incurred
in Israel for fixed assets disposal due to failure to forecast
capital gains tax in Israel in the foreseeable future that can be
offset from.
(6) The Cypriot Income Tax Law (ITL) provides for a notional
interest deduction (NID) from the taxable profits of entities
financing their operations through new equity. In view of this, the
Company proceeded with the relevant calculation regarding the new
equity used to finance asset.
NOTE 14: - OPERATING LOSS BEFORE TAXATION
Year ended
31 December
--------------------------
2021 2020
------------ ------------
US Dollars in thousands
--------------------------
General & administration expenses
Payroll costs (Note 17) 1,278 891
Share-based payment charge included
in administrative expenses 166 81
Depreciation and amortisation 93 294
Auditor fees (1) 255 208
Other General & administration expenses 3,408 2,435
------------ ------------
Total administrative expenses 5,200 3,909
============ ============
Exploration and evaluation expenses
Exploration costs written off (2) - 492
Other exploration and evaluation expenses 50 10
------------ ------------
Total exploration and evaluation expenses 50 502
============ ============
Other expenses
Reversal of prior period provision 5 -
Loss from property, plant and equipment
disposal (3a) 23 2,452
Write down of assets 433 -
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 14: - OPERATING LOSS BEFORE TAXATION (Cont.)
Year ended
31 December
--------------------------
2021 2020
------------ ------------
US Dollars in thousands
--------------------------
Other exceptional expenses (3b) - 249
------------ ------------
Total other expenses 461 2,701
============ ============
Other income
Gain from disposal 19 -
------------ ------------
Total other income 19 -
============ ============
(1) In addition to the auditor fees included at the
administrative expenses, for the year ended on 31 December 2021,
the Company incurred US$250 thousands for audit of special purpose
and reporting accountant services in relation to the issuance of
the senior secured notes as part of the borrowing costs.
(2) Exploration and evaluation expenses - Block 22:
Block 22 licence expired in January 2021. The Company expensed
it as "write off" to exploration costs in 2020 (Note 6).
(3) Other exceptional expenses:
a) Loss from disposal on property, plant and equipment
The Company sold surplus equipment mainly from its Subsea
equipment to third parties during Q4 2020 for the amount of approx.
US$532 thousands, the book value for the said assets was approx.
US$2,984 thousands and as such recorded the loss on disposal of
approx. US$2,452 thousands to other exceptional expenses.
b) An amount of approx. US$239 thousands in 2020 is related to a
financial sanction imposed on the Company by the Ministry of
Environmental Protection in Israel in connection with discharges to
the sea at the drilling campaign.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 15: - NET FINANCE INCOME (EXPENSES)
Year ended
31 December
--------------------------
2021 2020
------------- -----------
US Dollars in thousands
--------------------------
Interest on bank borrowings (1) 76,890 76,678
Effective interest on senior secured
notes (1) 101,856 -
Interest expense on long terms payables
(1) 4,092 6,698
Interest on shareholders loan (2) 9 18
Less amounts included in the cost
of qualifying assets (3) (169,813) (83,394)
------------- -----------
13,034 -
Finance and arrangement fees 16,675 4,042
Other finance costs and bank charges 64 52
Interest expenses from Hedging (1) 7,002 4,664
Unwinding of discount on decommissioning
liabilities (4) 675 274
Interest on obligations for leases
(1) 152 70
Less amounts included in the cost
of qualifying assets (3) (19,076) (8,776)
------------- -----------
5,492 326
Total finance costs 18,526 326
Interest income from time deposits 1,447 201
Interest income from loans to related
parties (5) 6,402 -
Total finance income 7,849 201
Net foreign exchange gain 520 1,862
Net finance income (expenses) (10,157) 1,737
============= ===========
(1) See also Note 9.
(2) See also Note 19(E)(3).
(3) See also Note 5(A).
(4) See also Note 10.
(5) See also Note 19(E)(4).
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 16: - SHARE BASED PAYMENTS
Analysis of share-based payment charge:
Year ended
31 December
-------------------------
2021 2020
------------ -----------
US Dollars in thousands
-------------------------
Energean 2018 Long Term Incentive
Plan 305 146
Energean Deferred Share Bonus Plan 64 -
------------ -----------
Total share-based payment charge 369 146
============ ===========
Capitalised to property, plant and
equipment assets 203 65
Expensed as administration expenses 166 81
Total share-based payment charge 369 146
============ ===========
Energean plc's 2018 Long Term Incentive Plan (LTIP)
Under the LTIP, Senior Management can be granted nil exercise
price options, normally exercisable from three to ten years
following grant provided an individual remains in employment. The
size of awards depends on both annual performance measures and
Total Shareholder Return (TSR) over a period of up to three years.
There are no post-grant performance conditions. No dividends are
paid over the vesting period; however, Energean plc's Board may
decide at any time prior to the issue or transfer of the shares in
respect of which an award is released that the participant will
receive an amount (in cash and/or additional Shares) equal in value
to any dividends that would have been paid on those shares on such
terms and over such period (ending no later than the Release Date)
as the Board may determine. This amount may assume the reinvestment
of dividends (on such basis as the Board may determine) and may
exclude or include special dividends.
The weighted average remaining contractual life for LTIP awards
outstanding at 31 December 2021 was one year (31 December 2020: 1.5
years).
All the amount related to share-based payment is recognised as
liability since Energean plc charges the Group, using the share
price at grant date, for the shares issued upon vesting.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 16: - SHARE BASED PAYMENTS (Cont.)
Deferred Share Bonus Plan (DSBP)
Under the DSBP, the portion of any annual bonus above 30 per
cent of the base salary of a Senior Executive nominated by the
Remuneration Committee was deferred into shares.
Deferred awards are usually granted in the form of conditional
share awards or nil-cost options (or, exceptionally, as
cash-settled equivalents). Deferred awards usually vest two years
after award although may vest early on leaving employment or on a
change of control.
The weighted average remaining contractual life for DSBP awards
outstanding at 31 December 2021 was 0.5 year (31 December 2020: one
year).
All the amount related to share-based payment is recognised as
liability since Energean plc charges the Group, using the share
price at grant date, for the shares issued upon vesting.
NOTE 17: - STAFF COSTS
Year ended
31 December
--------------------------
2021 2020
------------ ------------
US Dollars in thousands
--------------------------
Salaries 3,814 2,789
Other staff costs 165 202
Social insurance costs and other funds 943 766
Share-based payments 369 149
Payroll Cost capitalised in Oil &
gas assets (3,847) (2,934)
------------ ------------
Total payroll cost at administration
expenses 1,444 972
============ ============
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 18: - MATERIAL ENGAGEMENTS, COMMITMENTS AND CONTINGENCIES
a. Material engagements:
Gas supply agreements :
As of 31 December 2021, the Group has entered into a number of
gas supply agreements with certain buyers in Israel for the
provision of natural gas from the production of Karish and
Tanin.
In general, the weighted average tenor of the GSPAs is 16
years.
The Group signed Gas Sales and Purchase Agreements ("GSPAs"),
for the supply of approximately 7.2 BCM per year on plateau.
The gas supply agreements contained customary warranties, terms
and provisions for agreements of this nature.
Rig Contract Signed for Drilling Campaign, Offshore Israel:
On June 2021, the Company signed on a contract with Stena
Drilling Limited for growth drilling programme offshore Israel
during 2022.
The contract is for the drilling of three wells and two optional
wells, with the first well expected to spud in the first quarter of
2022. The wells are all expected to be drilled during 2022.
b. Commitments:
In acquiring its oil and gas interests, the Group has pledged
that various work programmes will be undertaken on each
permit/interest. The exploration commitments in the following table
are an estimate of the net cost to the Group of performing these
work programmes:
Year ended
31 December
-------------------------
2021 2020
------------ -----------
US Dollars in thousands
-------------------------
Capital commitments:
Due within one year 222 345
222 345
============ ===========
Contingent liabilities:
Performance guarantees - see Note
18(C) 89,693 62,101
============ ===========
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 18: - MATERIAL ENGAGEMENTS, COMMITMENTS AND CONTINGENCIES (Cont.)
c. Performance guarantees:
1. Letter of Credit Facility Agreement - On April 2021, the
Company signed with a banking corporation on a 250 million ILS
(approx. US$80 million) facility for issuing bank guarantees for
the Company activities and needs in Israel. The facility term is 12
months, till 30 April 2022 and can be extended for additional 12
months. The facility bears 1.5% interest rate per annum and 0.8%
commitment fee per annum for the undrawn amount. The banking
corporation security is a US$80 million PCG granted by Energean plc
and cash collateral of US$2.96 million.
2. Karish and Tanin Leases - As part of the requirements of the
Karish and Tanin Lease deeds, the Group provided the Israeli
Ministry of National Infrastructures, Energy and Water with bank
guarantees in the amount of US$10 million for each lease (total
US$20 million). The bank guarantees have been extended during the
first quarter of 2021 and are in force until 31 March 2022.
3. Blocks 12, 21, 22, 23 and 31 - As part of the requirements of
the exploration and appraisal licences which granted to the Group
during the Israeli offshore BID in December 2017, the Group
provided the Israeli Ministry of National Infrastructures, Energy
and Water with bank guarantees in the amount of US$6 million for
all 4 blocks mentioned above (Block 22 relinquished). The bank
guarantees are in force until 13 January 2023. In addition, US$5
million bank guarantee related Block 12 drilling was issued in
November 2021 and is in force until 17 December 2022
4. Blocks 55, 56, 61 and 62, also known as "ZONE D" - As part of
the requirements of the exploration and appraisal licences which
granted to the Group during the Israeli 2nd offshore BID in July
2019, the Group provided the Israeli Ministry of National
Infrastructures, Energy and Water in January 2018 with bank
guarantees in the amount of US$3.2 million for all 4 blocks
mentioned above. The bank guarantees are in force until 28
September 2022.
5. Israeli Natural Gas Lines ("INGL") - As part of the agreement
signed with INGL on June 2019 the Group provided INGL bank
guarantee at the amount of 166 million ILS (approx. US$54 million)
in order to secure the milestone payments from INGL.
The first bank guarantee at the amount of 92 million ILS
(approx. US$30 million) in force until until 21 November 2022.
During June 2021 and November 2021 additional two bank guarantees
were issued to secure INGL's additional milestone payments in total
of 18 million ILS (approx. US$6 million) and 56 million ILS
(approx. US$18 million), accordingly, these bank guarantees are in
force until 30 June 2022 and 30 November 2022, accordingly.
6. Transmission licence - As part of the requirements of the
Transmission licence, the Group provided the Israeli Ministry of
National Infrastructures, Energy and Water with bank guarantees in
the amount of US$250 thousand. The bank guarantee in force until 20
September 2022. The bank guarantee will be renewed each year
thereafter as long as the licence is valid, in accordance with the
period of Karish and Tanin Leases.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 18: - MATERIAL ENGAGEMENTS, COMMITMENTS AND CONTINGENCIES (Cont.)
7 . Other - As part of the ongoing operations in Israel, the
Group provided various bank guarantees to third parties in Israel
which amounted approx. US$2 million. The main bank guarantees are
in force till end of first quarter of 2022, the remaining bank
guarantees are in force till end of third quarter of 2022.
d. Compensation to gas buyers due to late supply - during 2021,
compensated group of gas buyers due to the fact the gas supply date
is taking place beyond a certain date which defined in the GSPAs.
The subject compensation is US$22.9 million.
The compensation presented under long term deferred expenses and
accounted as variable purchase consideration under IFRS 15 hence
recognised in straight line method once production commences and
gas is delivered to the offtakers.
e. Gas buyer request for arbitration and termination notice issuance :
During August 2021 a gas buyer sent a request for the
International Court of Arbitration asking for arbitration on its
rights of termination due to the fact the gas supply date is taking
place beyond a certain date which defined in the GSPA.
On November 2021, the gas buyer served a notice upon the Company
purporting to terminate the GSPA.
On March 9, 2022 the Company filed a statement of Defense, in
which it rejected Gas buyer's arguments and claimed, inter alia,
that Gas buyer termination notices were invalid and in breach of
the relevant contract. The Company filed a counterclaim for damages
due to Gas buyer breach of the contract, estimated at $US105-
$US406 million.
The said contract is under arbitration process which expected to
take place during Q4 2022.
f. Settlement agreement with Hof Hacarmel Regional Council - During October 2021 the
Company signed a settlement agreement with Hof HaCarmel Regional
Council ("Hof
HaCarmel") regarding road construction and drainage fees.
According to the settlement
the Company is required to pay to Hof HaCarmel an amount of ILS
600 thousand,
approx. US$181 thousand instead of Hof HaCarmel's original
demand of ILS 10.28
million, approx. US$3.1 million. The settlement amount paid
during October 2021.
g . Contractual and Certain Other Future Obligations -
Contractual royalties are payable to Delek and third-party holders
at a total rate of 7.5%, increasing to 8.25% (with such increase
expected in 2025 for the Karish lease) after the date at which the
lease in question starts to pay the Levy, less royalties due under
existing royalties for the benefit of third-party Royalty Holders,
to be paid directly to such third parties. The royalty payable to
Delek under the Delek SPA is calculated on the value of the total
amount of natural gas and condensate produced at the wellhead
without any deduction (except for natural gas and Petroleum (as
defined under the Petroleum Law) used in the production process).
No contractual royalties under the Delek SPA will be payable on
future discoveries that were not part of the original acquisition.
Royalties under the Delek SPA are deductible for corporate tax and
for the Levy tax base. See also Note 11(3).
h. Legal cases and contingent liabilities - The Company had no material contingent
liabilities as of 31 December 2021
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 19: - RELATED PARTIES
a. As of 31 December 2020, the Group's ordinary shares were
owned 70% by Energean E&P Holdings Limited, incorporated in
Cyprus, and 30% by Kerogen Investments No. 38 Limited, incorporated
in the British Virgin Islands.
On 29 December 2020, Energean E&P Holdings Limited entered
into a conditional sale and purchase agreement to acquire Kerogen
Investments No. 38 Limited's entire interest in Energean Israel
Limited, which constitutes 30% of the total issued share capital of
Energean Israel Limited, and completion took place during February
2021.
b. Details of related parties:
Country of incorporation
Name / registered office Principal activities Relationship
---------------------- ------------------------ ---------------------------- --------------------
Energean plc 44 Baker Street, Holding company Ultimate Parent
London W1U 7AL, company
United Kingdom
Energean E&P Holdings 22 Lefkonos Street, Holding Company Parent company
Ltd 2064 Nicosia, Cyprus
Energean Oil & 32 Kifissias Ave. Oil and gas exploration, Sister company
Gas S.A. 151 25 Marousi Athens, development and production
Greece
Energean International 22 Lefkonos Street, Oil and gas exploration, Sister company
Limited 2064 Nicosia, Cyprus development and production
Energean Italy Piazza Sigmund Freud Oil and gas exploration, Sister company
S.p.A. no.1, 20154, Milano, development and production
Italy
Energean Capital 22 Lefkonos Street, Holding of investments Sister company
Limited 2064 Strovolos, and management services
Nicosia, Cyprus
Energean Italy Via Aterno, 49 - Oil and gas exploration, Sister company
SPA (under common C.da Dragonara development and production
control 66020 San Giovanni
Teatino (CH
Energean Israel 121, Menachem Begin Gas transportation Subsidiary
Transmission LTD St. licence holder 100%
Azrieli Sarona
Tower, POB 24,
Tel Aviv 67012039
Israel
Energean Israel 121, Menachem Begin Financing activities Subsidiary
Finance Ltd St. 100%
Azrieli Sarona
Tower, POB 24,
Tel Aviv 67012039
Israel
Kerogen Investments 171 Main Street, Independent private Material shareholder
No. 38 Limited Road Town Tortola equity fund manager 30%
(*) VG1110, British specialising in the
Virgin Islands international oil
and gas sector, which
currently holds the
30% of ordinary shares
(*) Since February 2021 Kerogen Investments No. 38 Limited is no
longer a shareholder or related party
of the company.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 19: - RELATED PARTIES (Cont.)
c. Balances with related parties:
31 December
-------------------------
2021 2020
----------- ------------
Nature
of balance US Dollars in thousands
------------ -------------------------
In current assets:
Receivables from related parties
- Note 7:
Long term
Energean E&P Holdings Limited interest
(controlling party) Receivable 6,402 -
----------- ------------
6,402 -
=========== ============
In current liabilities:
Payables to related parties
- Note 11:
Energean plc (the ultimate
parent company) Trading (413) (2,415)
Energean Oil & Gas S.A (under
common control) Trading (204) (738)
Energean International UK
branch (under common control) Trading - (197)
Energean E&P Holdings Limited
(controlling party) Trading (428) (15)
Energean International Limited
(under common control) Trading (27) (2)
Energean Capital Limited (controlling
party) Trading (7) (14)
Energean plc (the ultimate
parent company), under accrued
expenses Trading (181) -
Energean International UK
branch (under common control),
under accrued expenses Trading (364) -
Energean Italy SPA (under
common control) , under accrued
expenses Trading (1,899) -
(3,523) (3,381)
=========== ============
Short term loan from related
parties - Note 19(E)( 3 ):
Energean plc (the ultimate
parent company) - (16,000)
In non-current liabilities:
Accrued expenses to related
parties - Note 11:
Energean plc (the ultimate Share based
parent company) payments (294) (199)
=========== ============
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 19: - RELATED PARTIES (Cont.)
d. Transactions with related parties:
Year ended
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Service received in connection
with the oil and gas assets :
Related companies 6,189 4,514
Parent company 8,539 5,316
Director and shareholder at the
Ultimate Parent Company - see
Note 19(E)(8) 10,273 19,950
------------- ----------
25,001 29,780
============= ==========
Service received in connection
with the intangible assets:
Related companies 1,265 812
============= ==========
Service received in connection
with borrowings:
Parent company 391 1,999
============= ==========
Service received in connection
with senior secured notes:
Parent company 1,575 -
============= ==========
In administrative expenses:
Related companies 530 836
Parent company 239 388
------------- ----------
769 1,224
============= ==========
In Exploration and evaluation
expenses:
Related companies - 96
Parent company - 21
------------- ----------
- 117
============= ==========
In Finance Income:
Parent company (6,402) -
============= ==========
In Finance Costs:
Parent company 12,189 139
============= ==========
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 19: - RELATED PARTIES (Cont.)
e. Additional information:
1. The Group and related companies of Energean Group entered
into an agreements for the provision of consulting services which
includes administrative, technical, finance and commercial matters
for the development of the Karish and Tanin reservoirs. The
consideration for the said services and the respective balances
presented above at Note 19 (c) and 19 (d)
2. Following a competitive tender process, the Company has
entered into an agreement to purchase a Field Support Vessel
("FSV") from Prime Marine Energy Inc., a company controlled by
director and shareholder at Energean plc, for approx. US$35
million. The FSV is being constructed to meet the Company's
specifications and will provide significant in-country capability
to support the Karish project, including FPSO re-supply, crew
changes, holdback operations for tanker offloading, emergency
subsea intervention, drilling support and emergency response. The
purchase of this multi-purpose vessel will enhance operational
efficiencies and economics when compared to the leasing of multiple
different vessels for the various activities.
3. On 21 December 2020, Energean plc granted US$16 million loan
to the Company. The loan bearded annual interest rate of 3.75% and
0.144% (total 3.894%) due to LIBOR. The loan repaid in full on 5
January 2021.
4. On 29 April 2021 (the "Closing Date") and in accordance with
the Senior Secured Notes financing documents, the Company and its
parent company Energean E&P Holdings Limited entered into a
loan agreement which establish that the Company will provide a loan
facility of up to US$500 million to Energean E&P Holdings
Limited for a period of 24 months from the Closing Date (the
"Maturity Date"). The loan and interest (which was determined upon
market conditions) will be paid at the maturity date.
Notwithstanding the above, Energean E&P Holdings Limited
may, at its
discretion, repay the loan, in whole or in part, at any time
before 28 April 2023.
As of 31 December 2021, US$346 million was loaned to Energean
E&P
Holdings Limited.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 19: - RELATED PARTIES (Cont.)
5. Parent Company Guarantees (PCG):
a) Under the Karish EPCIC Energean plc provided PCG dated 27
July 2018, guaranteeing the payment obligations of Energean Israel
Limited in relation to certain deferred payments, which are
approximately US$140 million.
b) Purchase Karish and Tanin rights - In order to secure the
payments to the sellers as stated at Note 5(F), Energean E&P
Holdings Limited , the Parent company , granted a corporate
guarantee to the Sellers.
c) As part of GSPA the Company signed in 2020, to secure the
agreement obligations to the gas buyer, Energean E&P Holdings
Limited , the Parent company , granted on 3 December 2020 a
corporate guarantee to the gas buyers amounted US$15 million. The
parent company guarantee will be in force till July 2023 or till
commercial production starts (the earlier). During 2021, a PCG
granted to certain gas buyers in the total amount of US$38 million.
The parent company guarantee will be in force until June 2024.
d) As part of the banking corporation security of the Letter of
Credit Facility Agreement Energean plc granted PCG in amount of
US$80 million. The parent company guarantee will be in force until
April 2022.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 20: - FINANCIAL INSTRUMENTS
Financial risk management objectives
The Group is exposed to market price risk which comprises:
foreign currency risk, credit risk, liquidity risk and capital risk
management arising from the financial instruments it holds. The
risk management policies employed by the Group to manage these
risks are discussed below:
a. Foreign exchange risk:
The Group is exposed to foreign exchange risk as it undertakes
operations in various foreign currencies. The key sources of the
risk are attributed to the fact that the Group has certain
financial assets (mainly other receivables and cash and cash
equivalents) and financial liabilities (mainly trade and other
payable) with different currencies than the functional currency of
the Group, mainly Israeli Shekel (ILS) United Kingdom Pound (GBP) ,
Euro and Norwegian Krone (NOK).
The Group's exposure to foreign currency risk at each reporting
date is shown in the table below. The amounts shown are the US$
equivalent of the foreign currency amounts.
Liabilities as
of Assets as of
31 December 31 December
---------------------------- --------------------------
2021 2020 2021 2020
------------- ------------- ------------ ------------
US Dollars in thousands
--------------------------------------------------------
Israeli New Shekel (ILS) 1,501 32,593 22,442 23,103
United Kingdom Pound
(GBP) 9,613 2,422 1,587 466
Euro 9,964 2,990 2,073 980
Norwegian Krone (NOK) 4,403 248 18 31
------------- ------------- ------------ ------------
Total 25,481 38,253 26,120 24,580
============= ============= ============ ============
The following table reflects the sensitivity analysis for profit
and loss result for the year and the equity, taking into
consideration for the periods presented foreign exchange variation
by +/- 10%.
31 December 2021
-----------------------------------------------------------------------------------------------------------------------------------------------------
US Dollars in thousands
-----------------------------------------------------------------------------------------------------------------------------------------------------
ILS GBP EURO NOK
-------------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
Variation Variation Variation Variation
-------------------------------------- ----------------------------------- ----------------------------------- -----------------------------------
10% -10% 10% -10% 10% -10% 10% -10%
----------------- ------------------- ----------------- ---------------- ----------------- ---------------- ----------------- ----------------
Profit
(loss)
before
tax 2,094 (1,904) (803) 730 (789) 717 (439) 399
Equity 1,612 (1,466) (613) 562 (608) 552 (338) 307
31 December 2020
-------------------------------------------------------------------------------------------------------------------------------------------------
US Dollars in thousands
-------------------------------------------------------------------------------------------------------------------------------------------------
ILS GBP EURO NOK
-------------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
Variation Variation Variation Variation
-------------------------------------- ---------------------------------- ---------------------------------- ---------------------------------
10% -10% 10% -10% 10% -10% 10% -10%
----------------- ------------------- --------------- ----------------- --------------- ----------------- --------------- ----------------
Profit
(loss)
before
tax 5,570 (5,063) 289 (263) 397 (361) 28 (25)
Equity 4,289 (3,899) 222 (202) 306 (278) 21 (19)
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 20: - FINANCIAL INSTRUMENTS (Cont.)
b. Credit risk:
Credit risk arises when a failure by counterparties to discharge
their obligations could reduce the amount of future cash inflows
from financial assets on hand at the reporting date. The Group has
policies in place to ensure that all of its transactions giving
rise to credit risk are made with parties having an appropriate
credit history and monitors on a continuous basis the ageing
profile of its receivables.
Also, the Group has policies to limit the amount of credit
exposure to any banking institution, considering among other
factors the credit ratings of the banks with which deposits are
held. Credit quality information in relation to those banks is
provided below.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk at the
reporting date, without taking account of any collateral obtained,
was:
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
Loan to related party 346,000 -
Restricted cash 100,000 -
Other receivable 22,176 54
Cash and cash equivalents and bank
deposits 349,827 37,421
------------- ----------
818,003 37,475
============= ==========
Credit quality of cash equivalents and bank deposits:
The credit quality of the banks in which the Group keeps its
deposits is assessed by reference to the credit rating of these
banks. Moody's credit ratings of the corresponding banks in which
the Group keeps its deposits is as follows:
31 December
-------------------------
2021 2020
------------- ----------
US Dollars in thousands
-------------------------
A1 2 8
A2 349,764 37,268
B1 61 -
B3 - 145
Total 349,827 37,421
The Company has assessed the recoverability of all cash balances
and believe they are carried within the consolidated Statement of
financial position at amounts not materially different to their
fair value.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 20: - FINANCIAL INSTRUMENTS (Cont.)
c. Liquidity risk:
Liquidity risk is the risk that the Group will encounter
difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another
financial asset.
The Group has procedures with the object of minimizing this risk
such as maintaining sufficient cash and other highly liquid current
assets and by having available an adequate amount of committed
credit facilities.
The following tables detail the Group's remaining contractual
maturity for its financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the Group can be required to
pay. The table includes both interest and principal cash flows.
The Group manages its liquidity risk by ongoing monitoring of
its cash flows. Group management prepares budgets and regular cash
flow forecasts and takes appropriately actions to ensure available
cash deposits and credit lines with the banks are available to meet
the Group's liabilities as they fall due.
On 2 March 2018, the Group entered into a senior secured project
finance for its Karish-Tanin project amounting to US$1,275 million.
On 16 March 2020, the senior credit facility was increased to
US$1,450 billion, providing an additional US$175 million of
liquidity for the Karish project and future appraisal activity in
Israel. As of 29 April 2021, the Group withdrew US$1,268 million
from the Project Finance Facility. See Note 9(A).
On 24 March 2021 ("Issue Date"), Energean Israel Finance Ltd (a
subsidiary of the Company, held 100%) issued US$2.5 billion senior
secured notes.
Contractual 3 More
Carrying cash months 3-12 1-2 than
amounts flows or less months years 2-5 years 5 years
--------------------- ----------------------- ------------------- ------------------ ------------------- --------------------- ---------------------
31 December
2021 US Dollars in thousands
----------------------------------------------------------------------------------------------------------------------------------------------------------
Senior
secured
notes (1) 2,495,751 3,274,609 64,095 64,811 128,906 1,551,172 1,465,625
Lease
liabilities 3,214 5,444 251 760 790 1,897 1,746
Trade and
other
payables -
long
term (2) 57,230 73,091 - - 24,694 37,047 11,350
Trade and
other
payables -
short
term 39,595 39,595 39,301 - 294 - -
--------------------- ----------------------- ------------------- ------------------ ------------------- --------------------- ---------------------
2,595,790 3,392,739 103,647 65,571 154,684 1,590,116 1,478,721
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 20: - FINANCIAL INSTRUMENTS (Cont.)
More
Contractual 3 than
Carrying cash months 3-12 1-2 2-5 5
amounts flows or less months years years years
--------------------- ----------------------- ------------------- --------------------- ------------------ ------------------ ------------------
31 December
20 20 US Dollars in thousands
------------------------------------------------------------------------------------------------------------------------------------------------------
Bank loans
(Borrowings)
(3) 1,096,046 1,202,535 13,278 1,189,257 - - -
Derivative
liability 6,919 6,919 6,919 - - - -
Lease
liabilities 270 363 71 191 101 - -
Loans from
related
parties 16,000 16,000 16,000 - - - -
Trade and
other
payables -
long
term (2) 69,518 89,931 14,344 - 27,190 37,047 11,350
Trade and
other
payables -
short
term 73,914 73,914 73,715 - 199 - -
--------------------- ----------------------- ------------------- --------------------- ------------------ ------------------ ------------------
1,262,667 1,416,981 124,327 1,189,448 27,490 37,047 11,350
(1) As of 31 December 2021 include short term accrued interest
in the amount of approx. US$32,227 (31
December 2020: Nil). See Note 11.
(2) Include commitment to Karish and Tanin sellers, for more information see Note 11(3)).
(3) As of 31 December 2020 include short term accrued interest
in the amount of approx. US$2,081. See Note 11.
d. Capital risk management:
Capital includes equity shares and share premium.
The Group manages its capital structure and makes adjustments to
it in light of changes in economic conditions, in order to ensure
that it will be able to continue as a going concern while
maximising the return to shareholders through the optimisation of
the debt and equity balance. To maintain or adjust the capital
structure, the Group may adjust the dividend payment to
shareholders, return capital to shareholders or issue new
shares.
The Group's overall objectives, policies and processes remained
unchanged from last year.
e. Fair Values :
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 of the group's finance
lease obligations is estimated using discounted cash flow analysis
based on the group's current incremental borrowing rates for
similar types and maturities of borrowing and are consequently
categorised in level 2 of the fair value hierarchy.
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 20: - FINANCIAL INSTRUMENTS (Cont.)
During 2019, the Group signed a hedge contract for 50% of the
facility notional, to hedge the 3 months LIBOR component of the
facility. The hedging contract was ended during September 2021. All
derivatives are recognised at fair value on the balance sheet with
valuation changes recognised immediately in the income statement,
unless the derivatives have been designated as a cash flow hedge.
Fair value is the amount for which the asset or liability could be
exchanged in an arm's length transaction at the relevant date.
Where available, fair values are determined using quoted prices in
active markets. To the extent that market prices are not available,
fair values are estimated by reference to market-based transactions
or using standard valuation techniques for the applicable
instruments and commodities involved. Values recorded are as at the
balance sheet date and will not necessarily be realised.
As at 31 December 2020 the Group's interest rate derivatives are
Level 2. There were no transfers between fair value levels during
the year.
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:
Fair value hierarchy as at 31 December
2021
--------------------------------------------
US Dollars in thousands
--------------------------------------------
Level 1 Level 2 Level 3 Total
--------- ----------- -------- ----------
Financial assets
Long term trade and
other receivables - 6,402 - 6,402
Loan to related party - 346,000 - 346,000
Long term restricted
cash 100,000 - - 100,000
Short term restricted
cash 99,729 - - 99,729
Short term trade and
other receivables - 22,176 - 22,176
Cash and cash equivalents 349,827 - - 349,827
--------- ----------- -------- ----------
Total 549,556 374,578 - 924,134
========= =========== ======== ==========
Financial liabilities
Senior secured notes - 2,495,751 - 2,495,751
Trade and other payables
- long term - 59,727 - 59,727
Trade and other payables
- short term - 40,312 - 40,312
--------- ----------- -------- ----------
Total - 2,595,790 - 2,595,790
========= =========== ======== ==========
ENERGEAN ISRAEL LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US Dollars in thousands, unless otherwise stated)
NOTE 20: - FINANCIAL INSTRUMENTS (Cont.)
Fair value hierarchy as at 31 December
2020
--------------------------------------------
US Dollars in thousands
--------------------------------------------
Level 1 Level 2 Level 3 Total
--------- ----------- -------- ----------
Financial assets
Short term trade and
other receivables - 54 - 54
Cash and cash equivalents 37,421 - - 37,421
--------- ----------- -------- ----------
Total 37,421 54 - 37,475
========= =========== ======== ==========
Financial liabilities
Borrowings - 1,096,046 - 1,096,046
Derivative liability - 6,919 - 6,919
Loans from related parties - 16,000 - 16,000
Trade and other payables
- long term - 55,182 - 55,182
Trade and other payables
- short term - 88,520 - 88,520
--------- ----------- -------- ----------
Total - 1,262,667 - 1,262,667
========= =========== ======== ==========
NOTE 21: - SUBSEQUENT EVENTS
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
will be valid for an initial one-year period with an option to
extend subject to ratification by both parties.
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END
FR UORORURUOUUR
(END) Dow Jones Newswires
March 24, 2022 03:01 ET (07:01 GMT)
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