Double success for Energean – IPO and FID

Energean put the East Med on the map this week propelling the region into the headlines.

Energean debuted on the London Stock Exchange at the beginning of this week with its Initial Public Offering and USD460 million of new money putting the company’s market capitalisation at just under USD1 billion. The company’s flagship asset is its 70% stake in the Karish & Tanin gas fields offshore Israel which contain 2.4tcf of gas and 33mmboe of light hydrocarbon liquids. First gas is targeted for 2021. The company also has producing assets in Greece and an exploration portfolio throughout the Aegean region.

In the same week Energean reached Final Investment Decision on the Karish & Tanin development giving the green light to commence the USD1.6 biliion project. USD405 million from the IPO proceeds will be used to fund Energean’s 70% share of the project and partner Kerogen will fund its 30% stake. A USD1.275 billion bank facility will also be used to fund this ambitious project.

Energean has secured long-term gas agreements with some of the largest private power producers and industrial companies in Israel. To date it has contracted for the purchase of a total of 61bcm over a period of 16 years, at an annual rate of c.4.2bcm p.a..

The East Med has become a hot play for gas and Karish & Tanin follow in the footsteps of giant gas fields in the region including Leviathan, Zohr and Aphrodite. Energean is set to become an exciting story to follow as industry interest in the East Med grows and the demand for its gas becomes increasingly important being in the centre of short gas MENA countries and the doorstep of Europe.

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Leviathan and Aphrodite gas to fuel ELNG at Idku

As widely reported, Shell has been in talks to buy gas from Israel’s Leviathan field and Cyrpus’ Aphrodite field. It is understood that Shell are looking to contract up to 10bcm p.a. for 10 years in a deal worth up to USD25 billion.

Shell would use the gas to properly restart LNG exports from Egyptian LNG at the Idku liquefaction plant. BG Group was the operator of the plant prior to its acquisition by Shell and previously had a non-binding 15 year deal to source gas from Leviathan – this deal stalled amid the takeover by Shell and regulatory hurdles in Israel.

Leviathan is owned by Delek Drilling (45.34%), Noble Energy (39.66% operator) and Ratio Oil Exploration (15%). The field is on track to target first gas by end 2019.

Aphrodite is owned by Noble (35% operator), Delek Drilling (30%) and Shell (35%). Aphrodite lies in Block 12, offshore Cyprus and was discovered in 2011. BG Group farmed into 35% of the field from Noble Energy in November 2015 for USD165 million. Its commercialisation was previously called into question given the resource was too small to justify export infrastructure to mainland Europe or Egypt. However with the recent Calypso discovery in Block 6, which operator Eni has dubbed as a “Zohr like” play, Cypriot gas could finally take off.

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Dolphinus and the wider Egyptian gas hub story

Dolphinus was established with the main aim of becoming a “reliable and stable supplier of gas to major industrial gas distributors and consumers in Egypt”. It was co-founded by prominent Egyptian entrepreneurs Dr. Alaa Arafa, Eng. Khaled Abu Bakr and Mohamed Khalifa.

As a first step in its strategy, Dolphinus entered into a 64bcm, 10 year gas supply contract with Noble Energy and Delek Drilling for their gas in Israel (see Israel's Leviathan and Tamar gas to be sold into Egypt).

This is a welcome move for Egypt as Dolphinus can act as “middleman” for sourcing Israeli gas into Egypt. The two countries are still embroiled in a lawsuit over compensation to Israel when Egypt stopped supplying gas to the former in 2014 under a long term contract after Egypt ran into domestic supply shortages. Dolphinus therefore acts as a politically clean way to buy gas from Israel.

Dolphinus sees Egypt becoming a regional gas hub and looks to take part in that story by playing to the as import side of the story. Egypt has the right ingredients to be a hub. The country has a long history with gas, being an exporter for decades up until 2014 before needing to import gas in the last few years. This means the country has much of the infrastructure in place from domestic gas grids, cross-border pipelines, LNG facilities and access to FSRU capabilities.

While Egypt remains short gas, it is on the verge of being able to export again given the recent large discoveries in the offshore and also the emerging ability to re-export gas sourced from another country. This introduces the concept of Egypt being a gas trader, albeit currently at very early stages.

The existence of LNG export facilities means that the country has the ability (as it did before) to ship gas to a wide variety of destinations and is not reliant on pipeline infrastructure to penetrate markets. Being on the doorstep of the East Med allows Egypt to tap abundant sources of gas and the developing gas import dynamics means that the country is no longer tied to domestic supply sources to feed LNG – the issue back in 2014 when domestic demand outstripped supply and led to LNG facilities to call force majeure and stop exports.

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Israel's Leviathan and Tamar gas to be sold into Egypt

Noble Energy and Delek Drilling announced plans in February to export gas to Egypt. The plan is to supply 64bcm over a 10 year period to Egypt’s Dolphinus Holdings – 32bcm from Leviathan and 32bcm from Tamar.

Each field is contracted up to 3.5bcm p.a. or c.350mmcfpd and will bring the partners USD15 billion over the life of the supply contract. The contracted price and terms are in line with other supply contracts from these fields which is based on a Brent linked formula.

Source: Delek Drilling, February 2018

Leviathan is owned by Delek Drilling (45.34%), Noble Energy (39.66% operator), Ratio Oil Exploration (15%). The field is on track to target first gas by end 2019 and with the extra 350mmcfpd to Dolphinus brings contracted sales close to 900mmcfpd, just below the 1bcfpd target. The first phase of the field is planned to deliver 1.2bcfpd from four wells.

Source: Noble Energy, November 2017 with 525mmcfpd firm GSPAs at the time

Tamar is owned by Isramco Negev (28.75%), Noble Energy (25% operator), Delek Drilling (22%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest Infrastructures (3.5%) – this reflects the ownership post the recent sale of 7.5% by Noble Energy to Tamar Petroleum as reported previously (Tamar Petroleum to raise bonds to finance acquisition of Tamar from Noble and Israel capital cycle: Noble sells down Tamar to fund Leviathan).

The export route for the gas to Egypt is still to be decided but could utilise existing infrastructure or a new pipeline. At the end of February Noble Energy, Delek Drilling and Dolphinus were reported to be considering acquiring the Arish-Ashkelon pipeline owned by the East Mediterranean Gas company (otherwise known as the EMG pipeline).

Source: Delek Drilling, February 2018

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