Sunday, February 19, 2017

Energean: A Greek success - IN CYPRUS / CYPRUS WEEKLY

February 19, 2017
Charles Ellinas

Energean is a private exploration and production group focused on Greece, the Adriatic, the East Med and North Africa. It is the only oil and gas producer in Greece. It has been much in the news recently following its acquisition of the Tanin and Karish gas-fields offshore Israel.

Energean has its roots in the successful development of the Prinos oil-field offshore Kavala in Greece. At a time of crisis in the global oil and gas sector, Energean managed to grow into a leading player in the region with a balanced portfolio of oil and gas production, low-risk development projects and high-impact low-cost exploration assets.

Some vital statistics
Energean Oil & Gas SA, based at Marousi Athens, was founded 35 years ago, but the company as we know it today emerged in 2007 with the acquisition of the licences for hydrocarbon exploration and exploitation at the Prinos oilfield offshore Kavala in the northern Aegean. Having negotiated a 25-year extension to this licence, it embarked on an exploration and drilling programme between 2009-2014. The outcome of this was to successfully increase proved reserves to 30 million barrels, from a very low base and expectation of just 2 million in 2007. With the development of North Prinos, by 2016 it increased proved and contingent reserves to 60 million barrels and production to 5,000b/d, and is now employing 450 staff. This despite reports in 1985 that Prinos had been depleted!

During its four-year development and investment plan to 2018, costing about $200 million, Energean will be completing drilling of 15 development wells at Prinos, installing an unmanned platform at the Epsilon field, increasing production to 10,000b/d and maximising resource recovery through a water-injection programme – it is well on the way to achieving these.

The company is also operating a small natural gas-field offshore Kavala. This is over 90% depleted, but it is still producing about 20,000 m3/d. Energean has submitted to the Greek State a plan to convert the almost depleted field into an Underground Gas Storage.

Other plans
Based on this success, the company is proceeding with plans to further develop identified offshore oil-fields at Epsilon in the North Aegean and West Katakolo in western Greece.

Further upside potential could come from the exploration of:
  • Egypt, at the onshore [West] Kom Ombo block
  • Ioannina, an onshore block with similar geology to a wider region (Italy, Croatia, Albania) with big discoveries and already producing fields
  • Aitoloakarnania, onshore in western Greece
  • Montenegro, offshore blocks 26 and 30 – the concessions were approved by Montenegro’s parliament on December 28
But its most spectacular venture was the acquisition of Tanin and Karish gas-fields last year.

Plans for Tanin and Karish
The deal to acquire Tanin and Karish is part of the Israeli government’s Gas Framework, which was ratified last year. The fields are about 40km apart and 100km offshore Haifa and close to Tamar and Leviathan, at about 1,600m water-depth. They were discovered in 2011 and 2013 respectively and are estimated to hold 2.4tcf natural gas and 14 million – 18 million barrels of condensate (a form of light oil). Energean, through a fully-owned subsidiary in Cyprus, bought these from Delek Group in August 2016 at $148 million plus royalties, with 100% ownership.

Israel’s Petroleum Commissioner approved the deal in December 2016. Following that, Energean outlined its development plan based on the use of a Floating Production, Storage and Offloading vessel (FPSO) and a pipeline to shore as the quickest and most competitive route to producing first gas.

Mathios Rigas, Energean’s CEO, said “the development through an FPSO will enable Energean to maximise the recovery of reserves and minimise environmental impact … with minimal onshore installations needed”.

“The use of the FPSO will result in delivering gas at competitive prices for the benefit of Israeli consumers and the Israeli economy.”

He also said: “In the next 3-6 months maximum we will bring in a financial partner … that will work with us to share the risk and help us develop the project”.

Energean intends to submit a Field Development Plan by the middle of the year, with the target to produce first gas by 2020. It has already appointed [TechnipFMC] to carry out the FEED design. The estimated cost of this development is $1.3 billion -$1.5 billion. Rigas said that he expects that a combination of local and international banks will help finance this.

Given that, in accordance to the Gas Framework, development of Leviathan is tied to Tanin and Karish coming on stream first, the project has the full support of the government. This is essential if it is to secure the prerequisite gas sales agreements required to proceed to FID, planned for December. A key client could be state-owned Israel Electricity Corporation. It should be pointed out the Gas Framework requires that all gas must be sold to the domestic Israeli market.

Energean is targeting to achieve gas sales agreements for a total of 3bcm/y to make the development commercially viable. This has its challenges as, at present, the Israeli energy market is close to saturation in terms of natural gas, all provided by Tamar. But Energean believes its development plan will enable it to offer competitive prices, well below Tamar, thus making it easier to find buyers. This remains to be seen.

Successful development of Tanin and Karish is also a big milestone for Israel in developing its gas strategy, by bringing international investors and competition in the local market.

Successful strategy
Energean is a rare success story in a region riddled with financial and geopolitical problems and with Greece still saddled with a huge debt crisis and lack of growth. During its formative 2007-2016 period, Energean saw eight Prime Ministers and 12 Ministers of Energy come and go in Greece. Despite this, it forged on.

It attributes this success to its focus on finance before the oil- price crisis. It repaid all its debts by 2014, secured its cashflow through a long-term oil off-take contract with BP, it reduced its OPEX, raised equity before the oil price collapse and secured low-cost debt from EBRD.

Going against the trend, Energean took advantage of the oil-price crisis and its financial strength and invested in the development of low-risk assets, increasing oil production, at very low break-even costs, and building a quality exploration and exploitation portfolio.

Energean successfully boosted oil production in Greece, after years of neglect and decline by the state, and single-handedly led a dramatic recovery of domestic oil production through a drilling and modernisation programme, enhancing recovery from existing oil-fields.

Energean’s development of Tanin and Karish could potentially benefit Cyprus through future synergies with Aphrodite. This, and potential synergies with Cyprus needs for natural gas for power generation, are options worth pursuing.