TIDMENOG

RNS Number : 4682K

Energean PLC

02 September 2021

 
Energean Israel Limited 
 Unaudited interim condensed consolidated financial statements 
 30 June 20 21 
 

ENERGEAN ISRAEL LIMITED

Unaudited interim condensed consolidated financial statements

AS OF 30 JUNE 2021

INDEX

 
                                                               Page 
                                                              ----- 
 
 Interim condensed consolidated statement of financial 
  position                                                      1 
 
 Interim condensed consolidated statement of comprehensive 
  income                                                        2 
 
 Interim condensed consolidated statement of changes 
  in equity                                                     3 
 
 Interim condensed consolidated statement of cash 
  flows                                                         4 
 
 Notes to the interim condensed consolidated financial 
  statements                                                   5-17 
 

- - - - - - - - - - - - - - - - - - - -

ENERGEAN ISRAEL LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Amounts in thousands US Dollars, unless otherwise stated)

 
                                                                 31 December 
                                                  30 June 2021       2020 
                                                 -------------  ------------ 
                                                   Unaudited       Audited 
                                                 -------------  ------------ 
                                         Note      US Dollars in thousands 
                                      ---------  --------------------------- 
ASSETS: 
 NON-CURRENT ASSETS: 
   Property, plant and equipment         3(A)        2,093,951     1,813,523 
   Intangible assets                     3(B)           17,537        13,807 
   Other accounts receivable                             1,039            43 
   Loan to related party                 6(B)          175,884             - 
   Long term restricted cash           3(C)(3)         100,000             - 
   Deferred tax asset                     5              8,849         7,839 
                                                 -------------  ------------ 
                                                     2,397,260     1,835,212 
                                                 -------------  ------------ 
 
 CURRENT ASSETS: 
   Trade and other receivables                           8,652         1,304 
                                       3(C)(3), 
   Short term restricted cash            6(C)          166,241             - 
   Cash and cash equivalents                           731,584        37,421 
                                                 -------------  ------------ 
                                                       906,477        38,725 
                                                 -------------  ------------ 
 
TOTAL ASSETS                                         3,303,737     1,873,937 
                                                 =============  ============ 
 
EQUITY AND LIABILITIES: 
EQUITY: 
   Share capital                                         1,708         1,708 
   Share premium                                       572,539       572,539 
   Other reserves                                            -       (5,328) 
   Accumulated losses                                 (32,661)      (25,114) 
                                                 -------------  ------------ 
   TOTAL EQUITY                                        541,586       543,805 
                                                 -------------  ------------ 
 
 
 NON-CURRENT LIABILITIES: 
   Secured Senior Notes                3(C)(3)       2,459,910             - 
   Provisions for decommissioning                       34,708        38,399 
   Trade and other payables              3(E)           90,430        84,360 
                                                 -------------  ------------ 
                                                     2,585,048       122,759 
                                                 -------------  ------------ 
 
 CURRENT LIABILITIES: 
   Current borrowings                  3(C)(1)               -     1,093,965 
   Trade and other payables              3(E)          174,698        90,489 
   Loans from related parties          3(C)(2)               -        16,000 
   Derivative financial instrument       3(D)            2,405         6,919 
                                                 -------------  ------------ 
                                                       177,103     1,207,373 
                                                 -------------  ------------ 
 
TOTAL LIABILITIES                                    2,762,151     1,330,132 
                                                 -------------  ------------ 
 
TOTAL EQUITY AND LIABILITIES                         3,303,737     1,873,937 
                                                 =============  ============ 
 
 
 01 September 2021 
------------------    -----------------    ---------------- 
                       Panagiotis Benos     Matthaios Rigas 
                           Director             Director 
 

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

ENERGEAN ISRAEL LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Amounts in thousands US Dollars, unless otherwise stated)

 
                                                          For the period   For the period 
                                                           of six months    of six months 
                                                             ended 30         ended 30 
                                                             June 2021        June 2020 
                                                         ---------------  --------------- 
                                                            Unaudited        Unaudited 
                                                         ---------------  --------------- 
                                                   Note       US Dollars in thousands 
                                                  -----  -------------------------------- 
 
   Administrative expenses                         4(A)          (1,735)          (1,887) 
   Other expenses                                  4(A)             (28)            (385) 
                                                         ---------------  --------------- 
 
   Operating loss                                                (1,763)          (2,272) 
 
   Finance income                                  4(B)            1,808              169 
   Finance costs                                   4(B)          (9,436)             (26) 
   Foreign exchange gain                           4(B)            (727)              242 
                                                         ---------------  --------------- 
 
   Loss for the period before taxes                             (10,118)          (1,887) 
 
   Tax income                                       5              2,571              413 
                                                         ---------------  --------------- 
 
Net loss for the period                                          (7,547)          (1,474) 
                                                         ---------------  --------------- 
 
Other comprehensive income (loss) : 
 
Items that may be reclassified subsequently 
 to profit or loss: 
Gain (loss) on Cash flow hedge for the 
 period                                                            2,278         (11,530) 
Reclassification adjustment for items 
 included in loss on realisation                                   4,641                - 
Tax relating to items that may be reclassified 
 subsequently to profit or loss                                  (1,591)            2,652 
                                                         ---------------  --------------- 
 
Other comprehensive income (loss) for 
 the period                                                        5,328          (8,878) 
                                                         ---------------  --------------- 
 
Total comprehensive income (loss) for 
 the period                                                      (2,219)         (10,352) 
                                                         ===============  =============== 
 

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

ENERGEAN ISRAEL LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Amounts in thousands US Dollars, unless otherwise stated)

For the period of six months ended 30 June 2021 (Unaudited):

 
                                   Share      Share       Other     Accumulated    Total 
                                   capital    Premium    reserves      losses      equity 
                                 ---------  ---------  ----------  ------------  -------- 
 
 Balance as of 1 January 2021      1,708     572,539     (5,328)     (25,114)     543,805 
 
 Changes during period: 
 Comprehensive Income (Loss): 
   Loss for the period               -          -           -         (7,547)     (7,547) 
   Other comprehensive income, 
    net of tax                       -          -         5,328          -         5,328 
                                 ---------  ---------  ----------  ------------  -------- 
 Balance as of 30 June 2021        1,708     572,539        -        (32,661)     541,586 
                                 =========  =========  ==========  ============  ======== 
 
 

For the period of six months ended 30 June 2020 (Unaudited):

 
                                     Share      Share       Other     Accumulated    Total 
                                     capital    Premium    reserves      losses      equity 
                                   ---------  ---------  ----------  ------------  --------- 
 
 Balance as of 1 January 2020        1,676     540,071       434       (20,234)     521,947 
 
 Changes during period: 
 Comprehensive Loss: 
   Loss for the period                 -          -           -         (1,474)     (1,474) 
   Other comprehensive loss, 
    net of tax                         -          -        (8,878)         -        (8,878) 
                                   ---------  ---------  ----------  ------------  --------- 
 Total comprehensive loss              -          -        (8,878)      (1,474)     (10,352) 
                                   ---------  ---------  ----------  ------------  --------- 
 
 Transactions with shareholders: 
   Shares issuance                     32       32,468        -            -         32,500 
                                   ---------  ---------  ----------  ------------  --------- 
 Balance as of 30 June 2020          1,708     572,539     (8,444)     (21,708)     544,095 
                                   =========  =========  ==========  ============  ========= 
 
 

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

ENERGEAN ISRAEL LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Amounts in thousands US Dollars, unless otherwise stated)

 
                                                     For the period   For the period 
                                                      of six months    of six months 
                                                      ended 30 June    ended 30 June 
                                                          2021             2020 
                                                    ---------------  --------------- 
                                                       Unaudited        Unaudited 
                                                    ---------------  --------------- 
                                                         US Dollars in thousands 
                                                    -------------------------------- 
Cash flows from operating activities 
 : 
    Loss for the period before tax                         (10,118)          (1,887) 
                                                    ---------------  --------------- 
 
  Adjustments for : 
    Depreciation and amortization                                50              149 
    Loss from disposal on property, plant 
     and equipment                                               23                - 
    Increase in provisions for decommissioning                  343                - 
    Other expenses                                                5                - 
    Finance income                                          (1,808)            (169) 
    Finance expenses                                          9,093               26 
    Net foreign exchange gain (loss)                            727            (242) 
                                                    ---------------  --------------- 
                                                            (1,685)          (2,123) 
  Changes in working capital: 
    Decrease (increase) in other receivables                  (183)              327 
    Increase (decrease) in trade and other 
     payables                                                 (932)              437 
                                                    ---------------  --------------- 
                                                            (1,115)              764 
 
Net cash generated used in operating 
 activities                                                 (2,800)          (1,359) 
                                                    ---------------  --------------- 
 
Cash flows from investing activities 
 : 
    Payment for purchase of oil & gas leases               (10,850)         (10,850) 
    Payment for purchase of intangible 
     assets                                                 (3,682)          (7,971) 
    Payment for purchase of property, plant 
     and equipment                                         (97,615)        (209,090) 
    Movement in restricted cash                           (266,241)                - 
    Interest received                                           123              198 
                                                    ---------------  --------------- 
Net cash used in investing activities                     (378,265)        (227,713) 
                                                    ---------------  --------------- 
 
Cash flows from financing activities 
 : 
    Senior secured notes issuance                         2,500,000                - 
    Transaction cost in relation to senior 
     secured notes issuance                                (37,218)                - 
    Proceeds from shares issuance                                 -           32,500 
    Drawdown of borrowings                                  118,000          200,000 
    Repayment of borrowings                             (1,268,000)                - 
    Loan to related party                                 (175,884)                - 
    Loan repayment from related parties                    (16,000)                - 
    Debt arrangement fees paid                                    -          (5,050) 
    Finance cost paid                                      (41,861)         (28,799) 
    Finance costs paid for deferred license 
     payments                                               (3,494)          (3,993) 
    Repayment of obligations under leases                     (169)            (174) 
                                                    ---------------  --------------- 
Net cash generated from financing activities              1,075,374          194,484 
                                                    ---------------  --------------- 
 
Net decrease in cash and cash equivalents                   694,309         (34,588) 
    Cash and cash equivalents at the beginning 
     of the period                                           37,421          110,488 
    Effect of exchange rate fluctuations 
     on cash held                                             (146)             (54) 
                                                    ---------------  --------------- 
 
Cash and cash equivalents at the end 
 of the period                                              731,584           75,846 
                                                    ===============  =============== 
 

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

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 1:    GENERAL 

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

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

   C.      The Group's core assets as of 30 June 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 licenses Zone D (1)            80%              Exploration 
 

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

D. COVID-19: Despite COVID-related challenges experienced during the period (mainly at the Admiralty Yard in Singapore, where the Karish FPSO is being completed), the Group has made solid progress on its flagship Karish project, offshore Israel. The project expected to deliver first gas in mid-2022. The health and safety of its workers remains of paramount importance to the Company, and it supports all necessary measures to prevent further transmission of COVID-19.

   NOTE 2:    ACCOUNTING POLICIES AND BASIS OF PREPARATION 

These unaudited interim condensed consolidated financial statements for the six months ended 30 June 2021, have been prepared in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU). The unaudited interim condensed consolidated financial statements do not include all the information and disclosures that are required for the annual financial statements and must be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2020.

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

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION 
   A.      Property, Plant and Equipment: 
   1)      Composition: 
 
                               Petroleum             Furniture, 
                                and Gas   Leased      fixtures 
                                 Assets    Assets   and equipment    Total 
                               ---------  -------  --------------  --------- 
                                          US Dollars in thousands 
                               --------------------------------------------- 
 Cost: 
 At 1 January 2020             1,238,724    469         337        1,239,530 
 Additions                      404,613     365         298         405,276 
 Disposals                      (2,984)    (230)         -          (3,214) 
 Capitalised borrowing cost     92,170       -           -          92,170 
 Capitalised depreciation         288        -           -            288 
 Change in decommissioning 
  provision                     38,125       -           -          38,125 
 Transfers from Exploration 
  and evaluation assets         41,822       -           -          41,822 
                               ---------  -------  --------------  --------- 
 Total cost at 31 December 
  2020                         1,812,758    604         635        1,813,997 
 Additions                      162,282     57           13         162,352 
 Disposals                       (23)        -           -           (23) 
 Capitalised borrowing cost     122,175      -           -          122,175 
 Capitalised depreciation         106        -           -            106 
 Change in decommissioning 
  provision                     (4,034)      -           -          (4,034) 
 Total cost at 30 June 2021    2,093,264    661         648        2,094,573 
                               ---------  -------  --------------  --------- 
 
 Depreciation: 
 At 1 January 2020                 -        185          63           248 
 Expensed for the year             -         -           80           80 
 Disposals                         -       (142)         -           (142) 
 Capitalised to petroleum 
  and gas assets                   -        288          -            288 
                               ---------  -------  --------------  --------- 
 Total Depreciation at 31 
  December 2020                    -        331         143           474 
 Expensed for the period           -         -           42           42 
 Capitalised to petroleum 
  and gas assets                   -        106          -            106 
                               ---------  -------  --------------  --------- 
 Total Depreciation at 30 
  June 2021                        -        437         185           622 
                               ---------  -------  --------------  --------- 
 
 Net Property, Plant and 
  Equipment at 31 December 
  2020                         1,812,758    273         492        1,813,523 
                               =========  =======  ==============  ========= 
 Net Property, Plant and 
  Equipment at 30 June 2021    2,093,264    224         463        2,093,951 
                               =========  =======  ==============  ========= 
 

- The additions to Petroleum and Gas assets for the period of six months ended 30 June 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 US$112.43 million (for the year ended 31 December 2020: US$280.09 million).

- The borrowing costs capitalised for the period of six months ended 30 June 2021 at the amount of US$122.18 million (for the year ended 31 December 2020: US$92.17 million) are mainly due to the Senior Facility Loan for Karish development at the amount of US$89.96 million (for the year ended 31 December 2020: US$80.72 million) and due to the secured senior notes at the amount of US$29.47 million for the period of six months ended 30 June 2021 (Nil for the year ended 31 December 2020). The weighted average interest rates used for the capitalisation of the borrowing cost was 7.33% (31 December 2020: 8.78%).

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 
   2)      Cash flow statement reconciliations: 
 
                                              For the period  For the year 
                                               of six months    ended 31 
                                                 ended 30       December 
                                                 June 2021        2020 
                                              --------------  ------------ 
                                                  Dollars in thousands 
                                              ---------------------------- 
 
Additions to property, plant and equipment           280,576       574,467 
Less 
capitalised borrowing costs                        (122,175)      (92,170) 
Right-of-use asset additions                            (57)         (365) 
Capitalised share-based payment charge                  (65)          (65) 
Capitalised depreciation                               (106)         (288) 
Change in decommissioning provision                    4,034      (38,125) 
Transfers from Intangible Assets                           -      (41,822) 
                                              --------------  ------------ 
Total                                                162,207       401,632 
Movement in working capital                         (53,742)      (17,179) 
                                              --------------  ------------ 
Cash capital expenditures per the cash 
 flow statement (*)                                  108,465       384,453 
 

(*) The amount includes payment of US$10 . 85 million which has been paid each period in 2021 and 2020 to the sellers of Karish and Tanin leases.

   B.      Intangible Assets: 
   1)      Composition: 
 
                                  Exploration 
                                 and evaluation  Software 
                                     assets       License   Total 
                                ---------------  --------  -------- 
                                      US Dollars in thousands 
                                ----------------------------------- 
Cost: 
At 1 January 2020                   49,574         160      49,734 
Additions                            6,539          95      6,634 
Write off of exploration 
 and evaluation costs                (492)          -       (492) 
Transfers to property, plant 
 and equipment                     (41,822)         -      (41,822) 
                                ---------------  --------  -------- 
At 31 December 2020                 13,799         255      14,054 
Additions                            3,738          -       3,738 
At 30 June 2021                     17,537         255      17,792 
                                ---------------  --------  -------- 
 
Amortisation: 
At 1 January 2020                      -            33        33 
Expensed for the year                  -           214       214 
Total Amortisation at 31 
 December 2020                         -           247       247 
                                ---------------  --------  -------- 
Expensed for the period                -            8         8 
Total Amortisation at 30 
 June 2021                             -           255       255 
 
Net Intangible assets at 
 31 December 2020                   13,799          8       13,807 
                                ===============  ========  ======== 
Net Intangible assets at 
 30 June 2021                       17,537          -       17,537 
                                ===============  ========  ======== 
 

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 

- The additions to Intangible assets for the period of six months ended 30 June 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 licenses and Karish North prior classifying it to property, plant and equipment ).

   2)      Cash flow statement reconciliations: 
 
                                              For the period  For the year 
                                               of six months    ended 31 
                                                 ended 30       December 
                                                 June 2021        2020 
                                              --------------  ------------ 
                                                  Dollars in thousands 
                                              ---------------------------- 
Additions to property, plant and equipment             3,738      (35,680) 
Less 
Transfers to Fixed Assets                                  -        41,822 
Total                                                  3,738         6,142 
Movement in working capital                             (56)         1,864 
Cash capital expenditures per the cash 
 flow statement                                        3,682         8,006 
 
   C.      Borrowings: 
   1)      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 billion, providing an additional US$175 million of liquidity for the Karish project and certain activities in Israel (the "Project Finance Facility").

Once drawn, interest in respect of the Project Finance Facility was charged at LIBOR + 3.75% over months 1 to 12, LIBOR + 4.00% over months 13 to 24, LIBOR + 4.25% over months 25 to 36 and LIBOR + 4.75% over months 37 to 45. There was a commitment fee of 30% of the applicable margin.

The Project Finance Facility was designated to mature in December 2021 and had a bullet repayment on maturity. On 13 January 2021, the Company agreed with its Project Finance Facility lenders a nine- month extension for the facility maturity date, from December 2021 to September 2022.

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 US$2.02 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, in favor of the Project Finance Facility lenders, terminated.

In addition, the Company terminated the standby letter of credit for US$125 million in favor of the Project Finance Facility lenders, and as such the PCG granted by the parent company Energean E&P Limited at the same amount terminated.

   2)      Short term loan from ultimate parent company repayment: 

On 5 January 2021, the Company paid Energean PLC the short-term loan amounted US$16 million.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 
   3)      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 will be 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.

   a.      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.

   b.      Collateral: 

The Company had undertook to provide the following collateral in favor of the Trustee:

1. 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 licenses (Block 12, Block 21, Block 23, Block 31 and 80% of the licenses under "Zone D") and the INGL Agreement.

2. Floating charge over all of the present and future assets of Energean Israel Limited and Energean Israel Finance Ltd.

3. Energean Power FPSO (subject to using commercially reasonable efforts, including obtaining Israel Petroleum Commissioner approval and any other applicable governmental authority).

   c.       Reserves accounts: 

On 29 April 2021, following the escrow release as stated above, the Company funded its reserves account as follow:

1. 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 6 months forward.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 

2. US$100 million Debt Payment Fund that would be released upon achieving three quarters annualized production of 3.8 BCM/year.

3. 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.

   d.      Credit rating: 

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

   D.      Fair value measurements: 

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

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

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

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

 
                                 Fair value hierarchy as of 30 June 2021 
                              --------------------------------------------- 
                                          Dollars in thousands 
                              --------------------------------------------- 
                               Level 1     Level 2     Level 3     Total 
Financial assets 
Trade and other receivables       -         7,337         -        7,337 
Loan to related party             -        175,884        -       175,884 
Long term restricted cash      100,000        -           -       100,000 
Short term restricted cash     166,241        -           -       166,241 
Accrued interest income           -          990          -         990 
Cash and cash equivalents      731,584        -           -       731,584 
                              ---------  -----------  ---------  ---------- 
Total                          997,825     184,211        -      1,182,036 
                              ---------  -----------  ---------  ---------- 
Financial liabilities 
Secured Senior Notes (*)          -       2,494,285       -      2,494,285 
Derivative liability              -         2,405         -        2,405 
Trade and other payables 
 - long term                      -        90,269         -        90,269 
Trade and other payables 
 - short term                     -        140,319        -       140,319 
      Total                       -       2,727,278       -      2,727,278 
                              ---------  -----------  ---------  ---------- 
 

(*) Include short term accrued interest for the Secured Senior Notes in the amount of US$34,375 thousands as part of trade and other payables.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 
 
                                 Fair value hierarchy as of 31 December 
                                                  2020 
                              -------------------------------------------- 
                                          Dollars in thousands 
                              -------------------------------------------- 
                               Level 1     Level 2    Level 3     Total 
Financial assets 
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                      -        84,161        -        84,161 
Trade and other payables 
 - short term                     -        88,520        -        88,520 
Total                             -       1,291,646      -      1,291,646 
                              ---------  -----------  --------  ---------- 
 

(*) Include short term accrued interest in the amount of US$2,081 thousands as part of trade and other payables.

Fair values of derivative financial instruments :

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 Group held financial instruments at fair value on 30 June 2021 related to interest rate derivatives. 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 of 30 June 2021, the Group recognized derivative liability at the amount of US$2.4 million.

As of 30 June 2021, the Group's interest rate derivatives are Level 2 (31 December 2020: Level 2). There were no transfers between fair value levels during the year.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 
   E.      Trade and other payables: 
 
                                            30 June    31 December 
                                           ---------  -------------- 
                                             2021          2020 
                                           ---------  -------------- 
                                            US Dollars in thousands 
                                           ------------------------- 
Current 
Financial items 
Trade accounts payable (1)                   131,519          68,706 
Accrued expenses (1)                           6,141           1,628 
Payables to related parties                    2,344           3,381 
Deferred license payments due within 
 one year (2)                                      -          14,344 
Interest payable (3)                          34,375           2,081 
Current lease liabilities                        154             262 
                                           ---------  -------------- 
                                             174,533          90,402 
 
Non-Financial items 
Social insurance and other taxes                 135              87 
Income taxes                                      30               - 
                                           ---------  -------------- 
                                                 165              87 
 
                                             174,698          90,489 
                                           =========  ============== 
Non-current 
Financial items 
Accrued Expenses to related parties              161             199 
Long term lease liabilities                       32               8 
Sales consideration received in advance 
 (INGL) (4)                                   35,525          28,979 
Deferred license payments (2)                 54,712          55,174 
                                           ---------  -------------- 
                                              90,430          84,360 
 
                                              90,430          84,360 
                                           =========  ============== 
 

(1) The main balance of the Trade Payables and Accrued Expenses as of 30 June 2021 relates to development costs for a total amount of US$134.45 million (31 December 2020: US$68.72 million), US$130.69 million (31 December 2020: US$67.59 million) included in trade payable and US$3.76 million (31 December 2020: US$1.13 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) 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 30 June 2021 the total discounted deferred consideration was US$54.71 million (as at 31 December 2020: US$69.52 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 of time as well.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 3:    FINANCIAL POSITION (Cont.) 

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 30 June 2021, Force Majeure event length has not been finalised as the COVID-19 pandemic continue to affect the progress of the project, and in such the deferred payment due in March 2022 will be made after 1 July 2022.

(3) As at 30 June 2021 include accrued interest for the senior secured notes in amount of US$34,375 thousands (as at 31 December 2020 short term accrued interest for the Project Senior Facility Loan in the amount of US$2,081).

(4) The sales consideration received in advance is related to the agreement with Israel Natural Gas Lines ("INGL") for the transfer of title (the "hand over") of the near shore and onshore part of the infrastructure that will deliver gas from the Enegran Power FPSO into the Israeli national gas transmission grid. There were no additional proceeds received during the period of six months ended 30 June 2021. On 1 July 2021 the Company received the fourth payment at the amount of 18.39 million ILS (approx. US$5.64 million) from INGL. It is intended that the hand over to INGL will become effective shortly after the delivery of first gas from the Karish field expected in mid-2022.

   NOTE 4:    COMPREHENSIVE INCOME 
   A.      Operating loss: 
 
                                                For the period of 
                                                 six months ended 
                                                      30 June 
                                            -------------------------- 
                                                2021          2020 
                                            ------------  ------------ 
                                              US Dollars in thousands 
                                            -------------------------- 
 General & administration expenses 
 Payroll costs                                       719           474 
 Depreciation and amortisation (Notes 
  3(A) and 3(B))                                      50           149 
 Auditor fees (*)                                    118            56 
 Other General & administration expenses             848         1,208 
                                            ------------  ------------ 
 Total administrative expenses                     1,735         1,887 
 
 Other expenses 
 Reversal of prior period provision                    5             - 
 Loss from property, plant and Equipment 
  disposal                                            23             - 
 Other expenses                                        -           385 
                                            ------------  ------------ 
 Total other expenses                                 28           385 
 

(*) In addition to the auditor fees included at the administrative expenses, for the period of 6 months ended on 30 June 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.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 4:    COMPREHENSIVE INCOME (Cont.) 
   B.      Net finance income (expenses): 
 
                                                 For the period of 
                                                  six months ended 
                                                       30 June 
                                             -------------------------- 
                                                 2021          2020 
                                             -------------  ----------- 
                                               US Dollars in thousands 
                                             -------------------------- 
 
 Interest on bank borrowings (1)                    76,890       31,907 
 Effective interest on secured senior 
  notes (2)                                         33,791            - 
 Interest expense on long terms payables 
  (1)                                                  458        3,345 
 Interest on shareholders loan                           9            - 
 Less amounts included in the cost of 
  qualifying assets (3)                          (106,823)     (35,252) 
                                             -------------  ----------- 
                                                     4,325            - 
 
 Finance and arrangement fees                       13,074        2,183 
 Other finance costs and bank charges                   29           26 
 Interest expenses from Hedging                      6,988          398 
 Unwinding of discount on decommissioning 
  liabilities                                          343            - 
 Interest on obligations for leases                     29           34 
 Less amounts included in the cost of 
  qualifying assets (3)                           (15,352)      (2,615) 
                                             -------------  ----------- 
 Total finance costs                                 9,436           26 
 
 Interest income from time deposits                    818          169 
 Interest income from loans to related 
  parties (4)                                          990            - 
 Total finance income                                1,808          169 
 
 Net foreign exchange gain (losses)                  (727)          242 
 
 Net finance income (expenses)                     (8,355)          385 
                                             =============  =========== 
 

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

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

(3) See also Note 3(A).

(4) See also Note 6(B).

   NOTE 5:    TAXATION 
   A.      Tax income (expense): 
 
                                        For the period of 
                                         six months ended 
                                              30 June 
                                    -------------------------- 
                                         2021          2020 
                                    --------------  ---------- 
                                      US Dollars in thousands 
                                    -------------------------- 
 
 Corporation tax - current year               (30)           - 
 Corporation tax - prior years                   -         (1) 
 Deferred tax                                2,601         414 
                                    --------------  ---------- 
 Total taxation income (expense)             2,571         413 
 

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 5:    TAXATION (Cont.) 
   B.      Deferred tax: 

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

 
                                                                                 Accrued 
                 Property,                                                      expenses 
                   plant     Right                                              and other 
                    and       of                                               short--term 
                 equipment    use                                              liabilities 
                     &       asset                      Deffered     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 
 2020               (2,347)   (65)       (130)   2,301     5,647           35          178           -                -    5,619 
Increase 
(decrease) for 
the year 
through: 
Profit or loss      (9,793)      3           -   1,014       363           28          115           -            8,769      499 
Other 
 comprehensive 
 income                   -      -         130       -         -            -            -       1,591                -    1,721 
                 ----------  -----  ----------  ------  --------  -----------  -----------  ----------  ---------------  ------- 
 
At 31 December 
 2020              (12,140)   (62)           -   3,315     6,010           63          293       1,591            8,769    7,839 
                 ==========  =====  ==========  ======  ========  ===========  ===========  ==========  ===============  ======= 
 
At 1 January 
 2021              (12,140)   (62)           -   3,315     6,010           63          293       1,591            8,769    7,839 
Increase 
(decrease) for 
the period 
through : 
Profit or loss           46     11           -     858     1,908           22         (11)         553            (786)    2,601 
Other 
 comprehensive 
 income                   -      -           -       -         -            -            -     (1,591)                -  (1,591) 
                 ----------  -----  ----------  ------  --------  -----------  -----------  ----------  ---------------  ------- 
 
At 30 June 2021    (12,094)   (51)           -   4,173     7,918           85          282         553            7,983    8,849 
                 ==========  =====  ==========  ======  ========  ===========  ===========  ==========  ===============  ======= 
 

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 6:    SIGNIFICANTS EVENTS AND TRANSACTIONS DURING THE REPORTING PERIOD 
   A.      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.

   B.      Loan agreement with Energean E&P Holdings Limited: 

On 29 April 2021 (the "Closing Date") and in accordance with the 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 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 the reporting date, US$346 million was loaned to Energean E&P Holdings Limited.

   C.      Letter of Credit Facility Agreement: 

On April 2021, the Company signed with a banking corporation on a 250 million NIS (approx. US$75 million) facility for issuing bank guarantees for the Company activities and needs in Israel. The facility term is 12 months, till 30 April 2022 and can be extended for additional 12 months. The facility bears 1.5% interest rate per annum and 0.8% commitment fee per annum for the undrawn amount. The banking corporation security is a US$ 80 million PCG granted by Energean PLC and cash collateral of US$ 2.96 million.

   D.      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.

   E.      Parent Company Guarantees (PCG): 

As part of the Company gas sales purchase agreements ("GSPAs"), in order to secure the agreement obligations to the gas buyers, Energean E&P Holdings Limited, the Parent company, granted, during June 2021, a PCG to certain gas buyers in the total amount of US$38 million. The parent company guarantee will be in force until June 2024.

ENERGEAN ISRAEL LIMITED

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands US Dollars, unless otherwise stated)

   NOTE 7:    SIGNIFICANTS EVENTS AND TRANSACTIONS AFTER THE REPORTING PERIOD 
   A.      Compensation to gas buyers due to late supply: 

During August 2021 and in accordance with the GSPAs signed with a group of gas buyers, the Company has agreed to pay compensation to these counterparties due to the fact the gas supply date is taking place beyond a certain date as defined in the GSPAs (being 30 June 2021). The compensation will be paid on a monthly basis starting on August 2021 and is estimated at approx. US$23 million. The compensation is accounted as variable purchase consideration under IFRS 15 hence recognised once production commences and gas is delivered to the offtakers.

   B.       Gas buyer request for arbitration: 

During August 2021 a gas buyer sent a request for the International Court of Arbitration ("ICC") 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. If the agreement it is terminated, the Company has identified multiple alternative routes to monetise those gas volumes (being 0.8 Bcm/yr), including both domestic and international markets, and hence is confident of profitably selling them.

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END

IR UAURRANUKRUR

(END) Dow Jones Newswires

September 02, 2021 02:02 ET (06:02 GMT)

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