Energean Oil & Gas plc (LON: ENOG) the oil and gas producer focused on the Mediterranean has today announced that it has entered into a conditional sale and purchase agreement to acquire Edison Exploration & Production S.p.A. from Edison S.p.A. for US$750 million, to be adjusted for working capital, with additional contingent consideration of US$100 million payable following first gas from the Cassiopea development (expected 2022), offshore Italy.
Acquisition of Edison E&P for US$750 million initial consideration and US$100 million contingent consideration
· Creates one of the largest independent E&P companies on the London and the Tel Aviv Stock Exchanges
· Enlarged 2P reserves of 639 mmboe and trajectory to produce up to 200 kboe/d
· Contributes EBITDAX of US$434 million and Operating Cash Flow of US$302 million
· Funding of initial consideration through US$265million equity placing and US$600million committed bridge loan facility
Edison E&P’s portfolio of assets includes producing assets in Egypt, Italy, Algeria, the UK North Sea and Croatia, development assets in Egypt, Italy and Norway and balanced-risk exploration opportunities across the portfolio. The Edison E&P portfolio adds working interest 2P reserves of 292 mmboe and 2018 net working interest production of 69 kboe/d.
The Acquisition of Edison E&P on attractive metrics is in line with Energean’s stated strategy of creating the leading independent, gas-focused E&P company in the Mediterranean. It will significantly increase Energean’s scale and diversification by adding a complementary portfolio of accretive development, appraisal and exploration opportunities, whilst immediately contributing EBITDAX and cashflow to support the Enlarged Group’s strategic growth and medium term ambition to start paying a dividend.
Highlights of the Acquisition
Significant increase in reserves
· The Enlarged Group will have a total of 639 mmboe of 2P reserves and will be one of the largest independent E&P companies listed on the London and the Tel Aviv Stock Exchanges.
Diversification and expansion of low cost production stream
· The Enlarged Group is expected to produce more than 140 kboe/d in 2021, when the Karish and Tanin development project comes onstream, with a trajectory to approximately 200 kboe/d once the Energean Power FPSO reaches full capacity.
· Majority of portfolio operated with high working interest positions and operatorship on a number of key production and development assets.
· Majority of Energean and Edison E&P’s gas is sold under fixed priced gas contracts, providing stability and predictability to cash flow, helping mitigate impact of oil price volatility.
Complementary and experienced operating teams
· Edison E&P brings 282 employees, which combined with the existing Energean team, will provide highly skilled and experienced coverage of all key geographies of the combined portfolio.
Gas focused, complementing Energean’s strategic commitment to transition fuels
· Gas contributes 76% of Edison E&P’s 2P reserves and 80% of its 2018 production, complementing Energean’s gas-focused transition fuel growth strategy.
Immediate EBITDAX contribution
· Edison E&P adds 2018 EBITDAX of US$434 million and Operating Cash Flow of US$302 million, materially enhancing Energean’s current cash flow ahead of Karish and Tanin First Gas. It supplements the long-term profile with sustainable cash flows that are largely shielded from commodity price fluctuations due to the gas sales agreements in place and supports the Company’s medium-term ambition to pay a dividend.
Near term growth further amplified
· Edison E&P complements and augments Energean’s growth profile into the 2020s through key developments with attractive IRRs and material Mediterranean gas focused exploration opportunities.
Enhanced newsflow potential
· The Enlarged Group has enhanced potential for a consistent stream of newsflow from production and development assets, as well as additional, balanced risk exploration opportunities.
Increased scale to support strategic growth plans
· Acquisition creates the leading full cycle, independent, gas-focused E&P company in the Mediterranean and will increase Energean’s prominence and profile in the region and its ability to attract new investment opportunities.
Transfer of E&P business and operating team from a European Utility to an E&P-focused management team
· European Utilities as a sector have been retreating from hydrocarbon investment for several years. By enabling the Edison E&P assets and highly experienced teams to operate with the support and input from an E&P-investment focused parent company, Energean believes that significant value can be created across the portfolio.
Aligned, entrepreneurial management team with a track record of value creation
· Management team with significant shareholdings and investor alignment with a track record of value creation through acquisitions, rapid developments and asset improvement.
Financing of the Acquisition
The initial consideration for the Acquisition is US$750 million, to be adjusted for working capital, with additional contingent consideration of US$100 million payable following first gas at the Cassiopea development. Edison will also receive an 8% royalty on profit production resulting from future discoveries made by upcoming exploration wells in the North Thekah Offshore and North East Hap’y Blocks, offshore Egypt.
The initial consideration will be funded through a US$600 million committed bridge loan facility and up to US$265 million of equity financing through the Placing announced today. The total debt and equity capital raised has been sized to cover both the initial consideration and working capital requirements of the Enlarged Group.
The US$600 million committed bridge loan facility is expected to be replaced in H2 2019 using a combination of a reserve based facility and/or corporate debt. The US$100 million of contingent consideration is expected to be funded by the combined free cash flow of the Enlarged Group as well as any incremental reserve based facility and/or corporate debt capacity. Energean is also evaluating the potential sale of non-core assets of the Enlarged Group.
Energean also announced today the launch of a placing with institutional investors of new ordinary shares of 1 pence each in the capital of Energean to raise up to £211 million (approximately US$265 million).
The number of Placing Shares to be issued by the Company will not exceed 19.99% of the existing issued share capital of the Company.
The Placing will be conducted through an accelerated bookbuilding process which will be launched immediately following this Announcement. Certain Energean Directors, their related parties and senior managers of Energean have indicated their intention to participate in the Placing up to an aggregate amount of approximately £3 million (approximately US$3.8 million). Any related party transactions as a result of such participation by Energean Directors would constitute exempt small transactions pursuant to paragraph 1 of Annex 1 to Chapter 11 of the Listing Rules. The Placing is not conditional upon Completion. The Placing is subject to terms and conditions.
The net proceeds of the Placing will be used to part-fund the Acquisition, with the remaining Acquisition consideration being funded through the Committed Bridge Loan Facility.
Mathios Rigas, Chief Executive of Energean Oil & Gas plc, commented:
“The acquisition of Edison E&P establishes Energean as the leading independent, gas focused E&P company in the Mediterranean with a mainly operated, low cost, gas weighted portfolio, with the capability, focus and team to prosper in our rapidly changing industry. It will diversify Energean into a multi-country, multi-asset, full-cycle E&P company with scale, material cash flows, significant growth and portfolio optionality. Edison E&P brings with it an exceptional team and I look forward to working with them as we build on the multiple opportunities ahead of us.”
“Together, our priority is to maximise the economic value of the combined portfolio, whilst retaining as a key priority delivery of Karish and Tanin First Gas into Israel in Q1 2021. Since 2007, Energean has delivered significant growth and value for our investors and this acquisition is the next important step on this growth and value journey.”
The Acquisition is subject to relevant anti-trust and regulatory approvals. Since the Acquisition constitutes a reverse takeover for the purposes of the Listing Rules, Energean will need to seek shareholder approval and re-admission of its ordinary shares to the Official List upon completion of the Acquisition, which is targeted by Q4 2019.
Energean will in due course send a circular to Energean Shareholders convening a general meeting to approve the Acquisition. The Energean Board considers the Acquisition to be in the best interests of Energean and the Energean Shareholders as a whole. Accordingly, the Energean Board intends to recommend that Energean Shareholders vote in favour the resolution in respect of the Acquisition to be proposed at the Energean General Meeting, as the Energean Directors intend to do in respect of their own beneficial holdings of 41,640,468 Energean Shares, representing, in aggregate, approximately 27.8% of the total issued share capital of Energean as at 3 July 2019, being the Last Practicable Date. Shareholders currently representing approximately 53.7% of the issued share capital of the Company have given irrevocable undertakings to the Company to vote their shares in favour of the resolution to approve the Acquisition at the General Meeting.
Morgan Stanley is acting as global coordinator and joint bookrunner, Stifel is acting as joint bookrunner and Peel Hunt and RBC are acting as co-lead managers in respect of the Placing.