REG - Energean PLC - Energean Israel Full Year 2023 Accounts
21/03/2024 07:15
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RNS Number : 7120H Energean PLC 21 March 2024
ENERGEAN ISRAEL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2023
ENERGEAN ISRAEL LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2023
INDEX
Page
Independent Auditor's Report 2-4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Financial Position 6
Consolidated Statements of Changes in Equity 7
Consolidated Statements of Cash Flows 8
Notes to the Consolidated Financial Statements 9-44
- - - - - - - - - - - - - - - - - - - -
Kost Forer Gabbay & Kasierer Tel: +972-3-6232525
144 Menachem Begin Road, Building A, Fax: +972-3-5622555
Tel-Aviv 6492102, Israel ey.com
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Energean Israel Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of Energean Israel
Limited (the Company) and its subsidiaries (together,the Group), which
comprise the consolidated statements of financial position as at 31 December
2023 and 2022, 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 2023 and 2022, 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 judgement, 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.
Estimation of oil and gas reserves
Key audit matter description
The estimation and measurement of oil and gas reserves is considered to be a
significant risk as it impacts many material elements of the financial
statements including impairment, decommissioning, recoverability and
depreciation, depletion and amortisation (DD&A).
Reserve estimation is complex, requiring technical input based on geological
and engineering data. Management's reserves estimates are provided by external
specialists (D&M).
The Company's reserve portfolio as at 31 December 2023 included proven and
probable reserves (2P) reserves of 926 Mmboe and contingent resources (2C)
reserves of 47.2 Mmboe.
Our response to the risk
· We confirmed our understanding of the Company's oil and gas reserve
estimation process and the control environment implemented by management
including both the transfer of source data to the management's reserves
specialists and subsequently the input of reserves information from the
specialist reports into the accounting system;
· We obtained and reviewed the most recent third-party reserves and
resources reports prepared by these specialists and compared these for
consistency between other areas of the audit including the Company's reserves
models, DD&A, the calculation of the decommissioning provision and the
Directors' going concern assessment;
· We assessed the qualifications of management's specialists;
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
judgement 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
20 March, 2024 A Member of Ernst & Young Global
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2023
Notes 2023 2022
$'000 $'000
Revenue 5 939,836 27,122
Cost of sales 6 (444,054) (31,017)
Gross profit (loss) 495,782 (3,895)
Administrative expenses 6 (14,339) (12,252)
Exploration and evaluation expenses 6 (50) (1,819)
Other expenses 6 (190) (1,102)
Other income 6 37 54
Operating profit (loss) 481,240 (19,014)
Finance income 8 11,319 6,379
Finance costs 8 (169,467) (29,811)
Net foreign exchange losses 8 (8,483) (3,087)
Profit (loss)for the year before tax 314,609 (45,533)
Taxation (expense)/income 9 (71,800) 10,951
Net profit (loss) for the year 242,809 (34,582)
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF 31 DECEMBER 2023
Notes 2023 2022
$'000 $'000
ASSETS:
NON-CURRENT ASSETS:
Property, plant and equipment 10 2,797,831 2,926,313
Intangible assets 11 168,165 143,554
Other receivables 13 5,365 108
Deferred tax asset 12 - 22,886
2,971,361 3,092,861
CURRENT ASSETS:
Trade and other receivables 13 130,135 82,611
Inventories 14 7,141 8,313
Restricted cash 16(A) 22,482 71,778
Cash and cash equivalents 15 286,625 24,825
446,383 187,527
TOTAL ASSETS 3,417,744 3,280,388
EQUITY AND LIABILITIES:
EQUITY:
Share capital 19(A) 1,708 1,708
Share Premium 212,539 212,539
Retained earnings (losses) 74,781 (70,528)
TOTAL EQUITY 289,028 143,719
NON-CURRENT LIABILITIES:
Senior secured notes 16(A) 2,588,492 2,471,030
Decommissioning provisions 17 92,613 84,299
Deferred tax liabilities 12 46,985 -
Trade and other payables 18 127,044 210,241
2,855,134 2,765,570
CURRENT LIABILITIES:
Trade and other payables 18 273,582 371,099
TOTAL LIABILITIES 3,128,716 3,136,669
TOTAL EQUITY AND LIABILITIES 3,417,744 3,280,388
20 March 2024
Date of approval of the consolidated financial statements Panagiotis Benos Matthaios Rigas
Director Director
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2023
Share capital Share Premium Accumulated losses Total equity
$'000 $'000 $'000 $'000
Balance as of 1 January 2022 1,708 572,539 (35,946) 538,301
Loss for the year - - (34,582) (34,582)
Transactions with shareholders:
Share premium reduction, see note 19(c) - (360,000) - (360,000)
At 1 January 2023 1,708 212,539 (70,528) 143,719
Profit for the year - - 242,809 242,809
Transactions with shareholders:
Dividend, see note 19(d) - - (97,500) (97,500)
Balance as of 31 December 2023 1,708 212,539 74,781 289,028
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2023
Notes 2023 2022
$'000 $'000
Operating activities
Profit (Loss) for the year before tax 314,609 (45,533)
Adjustments to reconcile loss before taxation to net cash provided by:
operating activities:
Depreciation, depletion and amortisation ( ) 6 187,721 11,435
Loss from sale of equipment ( ) 6 - 1,102
Compensation to gas buyers, payment made in advance ( ) 5, 13 4,929 18,031
Exploration and evaluation expenses ( ) 6 - 1,819
Other expenses ( ) 6 190 -
Finance Income ( ) 8 (11,319) (6,379)
Finance expenses ( ) 8 169,467 29,811
Net foreign exchange loss ( ) 8 8,483 3,087
Cash flow from operations before working capital 674,080 13,373
Increase in trade and other receivables (67,207) (40,272)
Decrease/(increase) in inventories 1,172 (8,313)
(Decrease)/increase in trade and other payables (21,079) 27,952
Cash from operations 586,966 (7,260)
Income taxes paid (397) (590)
Net cash inflows from/(used in) operating activities 586,569 (7,850)
Investing activities
Payment for purchase of property, plant and equipment 10(C) (213,322) (278,396)
Payment for exploration and evaluation, and other intangible assets 11(B) (98,909) (50,332)
Amounts received from INGL related to transfer of property, plant and 18(4) 56,906 17,371
equipment
Proceeds from disposal of property, plant and equipment 10(C) 2 188
Movement in restricted cash, net 16(A) 49,296 127,951
Interest received 11,194 3,178
Net cash outflow used in investing activities (194,833) (180,040)
Financing activities
Senior secured notes issuance 16(A) 750,000 -
Transaction costs in relation to senior secured notes issuance 16(A) (17,634) -
Senior secured notes repayment 16(A) (625,000) -
Senior secured notes - interest paid 16(A) (128,906) (128,906)
Dividends paid 19(D) (97,500) -
Other distribution (*) 22(E) (4,383) -
Other finance cost paid 16 (560) (2,461)
Finance costs paid for deferred license payments 18(2) (2,496) (1,501)
Repayment of obligations under leases 16 (3,321) (1,085)
Net cash outflow used in financing activities (129,800) (133,953)
Net increase (decrease) in cash and cash equivalents 261,936 (321,843)
Cash and cash equivalents at beginning of year 24,825 349,827
Effect of exchange differences on cash and cash equivalents (136) (3,159)
Cash and cash equivalents at end of year 15 286,625 24,825
* The loan to related party was repaid as part of the Share Premium Capital
reduction, see note 19(C).
The accompanying notes are an integral part of the consolidated financial
statements.
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 2023, the Company had investments in the following
subsidiaries:
Name of subsidiary Country of incorporation / registered office Principal activities Shareholding Shareholding
At 31 December 2023
At 31 December 2022
(%)
(%)
Energean Israel Transmission LTD 121, Menachem Begin St. Gas transportation license holder 100 100
Azrieli Sarona Tower, POB 24,
Tel Aviv 67012039 Israel
Energean Israel Finance LTD 121, Menachem Begin St. Financing activities 100 100
Azrieli Sarona Tower, POB 24,
Tel Aviv 67012039 Israel
d. The Group's core assets as of 31 December 2023 were comprised of:
Country Asset Field Working interest Field phase
Israel Karish (*) Karish Main 100% Production
Israel Karish (*) Karish North 100% Development
Israel Tanin (*) Tanin 100% Development
Israel Block 12 Katlan 100% Appraisal
Israel Blocks 21, 23, 31 Hercules and Hermes 100% Exploration
(*) The concession agreement expires in 2044.
NOTE 2: - Basis of preparation and presentation of financial information
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.
The consolidated financial statements have been prepared on the historical
cost basis.
The consolidated financial statements have been prepared on a going concern
basis. The principal accounting policies adopted by the Group are set out
below.
b. The financial statements are presented in U.S. Dollars and all
values are rounded to the nearest thousand
dollars except where otherwise indicated.
c. 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 from the date of approval of the Group Financial
Statements on 20 March 2024 to 30 June 2025 ('the Assessment 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 and oil price forward curves. 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
and downside scenarios to budgeted production forecasts. The Group does this
to identify 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.
On 11 July 2023, Energean Israel Finance Ltd. completed the offering of US$750
million aggregate principal amount of senior secured notes with a fixed annual
interest rate of 8.500%. The proceeds from the Offering, were released from
escrow in September 2023 and were used to a) refinance the $625 million notes
due in 2024 (redemption date on 30 September 2023), b) pay fees and expenses
associated with this refinancing, c) contribute towards funding the interest
payment reserve account and d) contribute towards the payment of the final
deferred consideration to Kerogen.
The going concern assessment is founded on a cashflow forecast prepared by
management, which is based on a number of assumptions, most notably the
Group's latest life of field production forecasts, budgeted expenditure
forecasts, estimated of future commodity prices (based on recent published
forward curves). The going concern assessment contains a 'Base Case' and a
'Reasonable Worst Case' ('RWC') scenario.
The Base Case scenario assumes Brent at $80/bbl in 2024 and $75/bbl in 2025. A
reasonable production from the Karish field is assumed throughout the going
concern assessment period, with prices for gas sold assumed at contractually
agreed prices. Under the Base Case, sufficient liquidity is maintained
throughout the going concern period.
The Group also routinely performs sensitivity tests of its liquidity position
to evaluate adverse impacts that may result from changes to the macro-economic
environment, such as a reduction in commodity prices. These downsides are
considered in the RWC going concern assessment scenario. The Group is not
exposed to floating interest rate risk since its borrowings are fixed-rate.
The Group also looks at the impact of changes or deferral of key projects and
downside scenarios to budgeted production forecasts in the RWC.
The two primary downside sensitivities considered in the RWC are: (i) reduced
commodity prices; (ii) reduced production - these downsides are applied to
assess the robustness of the Group's liquidity position over the Assessment
Period. The conditions necessary for liquidity headroom to be eliminated are
judged to have a remote possibility of occurring, given the 'natural hedge'
provided by virtue of the Group's fixed-price gas contracts.
Under the RWC scenario, liquidity is maintained throughout the going concern
period.
NOTE 2: - Basis of preparation and presentation of financial
information (Cont.)
In forming its assessment of the Group's ability to continue as a going
concern, including its review of the forecasted cashflow of the Group over the
Forecast Period, the Board has made judgements about:
• reasonable sensitivities appropriate for the current status of the
business and the wider macro environment; and
• the Group's ability to implement the mitigating actions within the Group's
control, in the event these actions were required.
After careful consideration, the Directors are satisfied that the Group has
sufficient financial resources to continue in operation for the foreseeable
future, for the Assessment Period from the date of approval of the Group
Financial Statements on 20 March 2024 to 30 June 2025. For this reason, they
continue to adopt the going concern basis in preparing the Group financial
statements.
Israel-Hamas conflict- The Group continues to monitor the ongoing conflict
between the State of Israel and Hamas. While the situation has not impacted
the Company's production from the FPSO, it is not possible to predict whether
the conflict will have a material adverse effect on our future earnings, cash
flows and financial conditions.
d. New and amended accounting standards and interpretations:
The following amendments became effective as at 1 January 2023:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
· Definition of Accounting Estimates (Amendments to IAS 8)
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12)
· International Tax Reform - Pillar Two Model Rules (Amendments to
IAS 12)
None of the above amendments had a significant impact on the Group's
consolidated financial statements. The amendments on International Tax Reform
- Pillar Two Model Rules introduce a mandatory exception in IAS 12 'Income
Taxes' to recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes.
New and amended standards and interpretations in issue but not yet effective
for the 2023 year end:
· Amendments to IAS 1 - Classification of Liabilities as Current or
Non-current and Non-current Liabilities with Covenants - 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.
e. 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.
NOTE 3: - Material accounting policies
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.
a) 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'').
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 the Group's operations.
The presentation currency of the Group's consolidated financial statements is
U.S. Dollar.
NOTE 3: - Material accounting policies (Cont.)
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 using 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.
b) 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.
c) 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.
d) 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'.
Proceeds from any oil and gas produced while bringing an item of property,
plant and equipment to the location and condition necessary for it to be
capable of operating in the manner intended by management (such as samples
produced when testing whether the asset is functioning properly) has been
recognised in profit or loss in accordance with IFRS 15 Revenue Recognition.
The Group measures the cost of those items applying the measurement
requirements of IAS 2 Inventories. 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.
e) 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.
NOTE 3: - Material accounting policies (Cont.)
f) Impairments of oil & gas properties:
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 of the future cash flows the Group calculates CGU-specific
discount rate. The discount rate is 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 Israel.
g) 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
factors are determined individually for each asset and reflect their
respective risk profiles.
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.
h) 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.
NOTE 3: - Material accounting policies (Cont.)
i) 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.
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
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.
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 evaluation costs or as oil and gas assets, as
appropriate. Please refer to notes c and e above.
j) 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. 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, 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.
NOTE 3: - Material accounting policies (Cont.)
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- 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.
Impairment of financial assets:
For trade receivables and contract assets, the Group applies a simplified
approach in calculating allowance for expected credit losses (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.
2. Financial liabilities:
Initial recognition and measurement:
The Group's financial liabilities include trade and other payables and senior
secured notes.
Subsequent measurement:
Loans and borrowings:
After initial recognition, interest-bearing liabilities such as senior secured
notes 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.
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.
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.
k) 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
that have been issued.
NOTE 3: - Material accounting policies (Cont.)
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 earnings (losses) includes all current and prior period retained
earning (losses).
l) Dividend payments
Dividend distributions payable to equity shareholders are included in other
liabilities when the dividends have been approved in a general meeting prior
to the balance sheet date.
m) 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).
n) Fair value measurement:
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.
o) Cash and cash equivalents and restricted cash:
Cash and cash equivalents comprise of cash in hand and time deposits, with a
maturity of three months or less, that are subject to an insignificant risk of
changes in their fair value.
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 16A).
The nature of the restrictions on these balances mean that they do not qualify
for classification as cash equivalents.
p) Inventories:
Inventories comprise hydrocarbon liquids and natural gas, consumables and
other spare parts. Inventories are stated at the lower of cost and net
realisable value. Cost is determined using the weighted average cost method.
The cost of finished goods and work in progress comprises raw materials,
direct labour, other direct costs and related production overheads. It does
not include borrowing costs. Net realisable value is the estimated selling
price in the ordinary course of business, less estimated costs of completion
and estimated costs necessary to make the sale. Spare parts consumed within a
year are carried as inventory and recognised in profit or loss when consumed.
NOTE 3: - Material accounting policies (Cont.)
q) 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 relevant 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.
r) Revenue
Revenue from contracts with customers is recognised when control of the gas/
hydrocarbon liquids are transferred to the customer at an amount that reflects
the consideration to which the Group expects to be entitled in exchange for
those goods or services. The Group has concluded that it is the principal in
its revenue arrangements because it typically controls the goods or services
before transferring them to the customer.
In Israel royalties are levied by the government. The government can request
that these royalty payments be made in cash or in kind. In the current year
and in prior year the government has requested cash payments be made and
therefore the Group has not made any royalty payments in kind. As such the
Group obtains control of all the underlying reserves once extracted, sells the
production to its customers and then remits the proceeds to the royalty holder
and is therefore considered to be acting as the Principal.
Sale of natural gas and hydrocarbon liquids
Sales revenue represents the sales value, net of VAT, of actual sales volumes
to customers in the year.
The Group's accounting policy under IFRS 15 is that revenue is recognised when
the Group satisfies a performance obligation by transferring hydrocarbon
liquids or gas to its customer. The title to hydrocarbon liquids and gas
typically transfers to a customer at the same time as the customer takes
physical possession of the hydrocarbon liquids or gas. Typically, at this
point in time, the performance obligations of the Group are fully satisfied.
The revenue is recorded when the hydrocarbon liquids or gas has been
physically delivered to a vessel or pipeline.
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.
Excluded from the above capitalisation policy are any qualifying assets that
are inventories that are produced in large quantities on a repetitive basis.
NOTE 3: - Material accounting policies (Cont.)
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.
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.
NOTE 4: - Critical accounting estimates and judgments
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 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.
Identification of cash generating units (note 10):
In considering the carrying value of property, plant and equipment the Group
has to make a critical judgement in relation to the identification of the
smallest cash generating unit to which those assets are allocated.
The Israel development is one CGU, all the production from both the Karish
Main and Karish North fields is processed through the FPSO and flows through
one pipeline onto gas buyers and therefor there are no separate cash inflows.
NOTE 4: - Critical accounting estimates and judgments (Cont.)
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 (note 10):
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 and gas price, estimates of reserves, estimates of
development costs and discount rates.
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 (Note 10, 11, 12 and 17):
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 the income statement
• 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 liabilities (Note 17):
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 require
estimation. Therefore, significant estimates and assumptions are made in
determining the provision for decommissioning. The discount rate applied to
determine the carrying amount of provisions provides a source of estimation
uncertainty as referred to in IAS 1.
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.
Discount rate applied is reviewed regularly and adjusted following the changes
in market rates.
NOTE 4: - Critical accounting estimates and judgments (Cont.)
The Group considers the impact of climate change on environmental restoration
and decommissioning provisions, specifically the timing of future cash flows,
and has concluded that it does not currently represent a key source of
estimation uncertainty. Changes to legislation, including in relation to
climate change, are factored into the provisions when the legislation becomes
enacted.
Deferred taxes (Note 12):
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. The management regards 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.
NOTE 5: - Revenues
2023 2022
$'000 $'000
Revenue from gas sales ((1)) 679,410 45,153
Revenue from hydrocarbon liquids sales ((2)) 265,355 -
Compensation to customers ((3)) (4,929) (18,031)
Total revenue 939,836 27,122
((1)) Sales gas for 2023 totaled approximately (4.4 bcm) and between 26
October 2022 and 31 December 2022 totaled approximately 0.28 bcm.
((2)) Sales from hydrocarbon liquids for 2023 totaled approximately 3.492
mmbbl (the Company did not sell hydrocarbon liquids during 2022).
((3)) During 2021 and in accordance with the GSPAs signed with a group of gas
buyers, the Company paid compensation to these counterparties following delays
to the supply of gas from the Karish project. The compensation is deducted
from revenue, as variable consideration, as the gas is delivered to the gas
buyers, in accordance with IFRS 15 Revenue Recognition.
NOTE 6: - Operating profit (loss) before taxation
2023 2022
$'000 $'000
(a) Cost of sales
Staff costs (Note 7) 9,766 1,174
Energy cost 3,652 1,030
Royalty payable (Note 21 (e)) 167,179 8,128
Depreciation (Note 10) 185,884 10,976
Other operating costs ((4)) 76,997 12,440
Oil stock movement (Note 14) 576 (2,731)
Total cost of sales 444,054 31,017
(b) General & administration expenses
Staff costs (Note 7) 3,163 2,121
Share-based payment charge (note 20) 730 214
Depreciation and amortisation (Note 10, 11) 1,837 459
Auditor fees ((3)) 356 254
Other general & administration expenses ((2)) 8,253 9,204
Total administrative expenses 14,339 12,252
(c) Exploration and evaluation expenses
Exploration costs written off ((1)) - 1,518
Other exploration and evaluation expenses 50 301
Total exploration and evaluation expenses 50 1,819
(d) Other expenses
Loss from disposal of property, plant and equipment 190 1,102
Total other expenses 190 1,102
(e) Other income
Other income 37 54
Total other income 37 54
((1)) Zone D: On 27 July 2022, the Company sent a formal notice to the
Ministry of Energy notifying relinquishment of Zone D and discontinuation of
related work. As such, the licences subsequently expired on 27 October 2022.
Capitalised costs associated with Zone D were written off during 2022 (Note
11).
((2)) The Other general & administration expenses mainly consists of legal
expenses, intercompany management fees and external advisors fees.
((3)) In addition to the services outlined in the preceding table, the
Company's auditor also rendered services related to the senior secured notes
issuance in 2023. These services were capitalized as transaction costs.
((4)) Other operating costs comprise of insurance costs and planned
maintenance costs.
NOTE 7: - Staff costs
The average monthly number of employees employed by the Group was:
2023 2022
$'000 $'000
Average number of employees 98 70
2023 2022
$'000 $'000
Wages and salaries 9,500 6,961
Bonuses 963 538
Expenses related to pension plans 2,699 1.396
Social insurance costs and other funds 906 575
Other staff costs 908 455
Share-based payments 730 410
Payroll Cost capitalised in oil & gas assets (1,809) (6,826)
Payroll Cost capitalised in intangible assets (238) -
13,659 3,509
Total payroll cost in cost of sales 9,766 1,174
Total payroll cost in administration expenses 3,893 2,335
Total payroll cost 13,659 3,509
NOTE 8: - Net finance income/(expenses)
2023 2022
$'000 $'000
Interest on Senior Secured Notes (Note 16) 161,918 136,412
Interest expense on long terms payables (Note 18(2)) 7,159 14,660
Less amounts included in the cost of qualifying assets (Note 10(A)) (17,415) (123,634)
151,662 27,438
Finance and arrangement fees 3,855 4,713
Other finance costs and bank charges 1,403 1,118
Unwinding of discount on trade payable (Note 18(3)) 8,753 -
Unwinding of discount on provision for decommissioning (Note 17) 3,401 1,230
Unwinding of discount on right of use asset 636 1,035
(1)
Less amounts included in the cost of qualifying assets (Note 10(A)) (243) (5,723)
17,805 2,373
Total finance costs 169,467 29,811
Interest income from time deposits 11,319 3,165
Interest income from loans to related parties (Note 22(E)(3)) - 3,214
Total finance income 11,319 6,379
Net foreign exchange losses (8,483) (3,087)
Net finance costs (166,631) (26,519)
NOTE 9: - Taxation
1. Corporate Tax rates applicable to the Company:
Israel:
The Israeli corporate tax rate is 23% in 2023 and 2022.
Cyprus:
For its activity in Cyprus, the Company is subject to corporation tax on its
taxable profits at the rate of 12.5%.
Starting from 1 January 2024, the company's control and management shall be
transferred from the Republic of Cyprus ("Cyprus") to the United Kingdom
("UK") and as such the company's tax residency will be migrated from Cyprus to
UK. See Note 24.
2. The Income and Natural Resources Taxation Law, 5771-2011 -
Israel- the main provisions of the law are as follows:
In April 2011, the Knesset passed the Income and Natural Resources Tax Law,
5771-2011 ("the Law"). 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.
3. Taxation charge:
2023 2022
$'000 $'000
Current income tax charge (1,929) (360)
Deferred tax relating to origination and reversal of temporary differences (69,871) 11,311
(Note 12)
Total taxation income (expense) (71,800) 10,951
NOTE 9: - Taxation (Cont.)
4. 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:
2023 2022
$'000 $'000
Profit (loss) before tax 314,609 (45,533)
Tax credit at the applicable tax rates of 23% ((1)) (72,360) 10,473
Impact of different tax rates ((2)) 8 331
Temporary differences in respect of different tax recognition, resulting in 764 -
timing differences
Permanent differences - non deductible ((3)) (174) (137)
Permanent differences additional expenses for Cyprus tax ((4)) - 314
Other adjustments (38) (19)
Taxation income (71,800) 10,962
Effective tax rate 23% 24%
(1) ) For the reconciliation of the effective tax rate, the statutory
tax rate of the Israeli Branch of 23% has been used.
(2) ) Energean Israel Limited (Cyprus) is subject to corporation tax
rate of 12.5%.
(3) ) 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.
(4) ) 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 10: - Property, Plant and Equipment
a. Composition:
Oil and gas Assets Leased assets Furniture, fixtures and equipment Total
$'000 $'000 $'000 $'000
Cost:
At 1 January 2022 2,241,783 4,009 829 2,246,621
Additions 514,373 731 1,165 516,269
Disposals (900) - - (900)
Capitalised borrowing cost 129,357 - - 129,357
Capitalised depreciation 632 - - 632
Change in decommissioning provision 47,544 - - 47,544
Total cost at 31 December 2022 2,932,789 4,740 1,994 2,939,523
Additions 135,126 12,246 396 147,768
Handover to INGL((1)) (111,448) - - (111,448)
Capitalised borrowing cost 17,658 - - 17,658
Change in decommissioning provision 4,913 - - 4,913
Total cost at 31 December 2023 2,979,038 16,986 2,390 2,998,414
Depreciation:
At 1 January 2022 433 693 228 1,354
Charge for the year 10,976 134 297 11,407
Capitalised to petroleum and gas assets - 632 - 632
Disposals (433) - - (433)
Write down of the assets 250 - - 250
Total Depreciation at 31 December 2022 11,226 1,459 525 13,210
Charge for the year 183,898 2,966 509 187,373
Total Depreciation at 31 December 2023 195,124 4,425 1,034 200,583
At 31 December 2022 2,921,563 3,281 1,469 2,926,313
At 31 December 2023 2,783,914 12,561 1,356 2,797,831
The additions to oil & gas assets in 2023 are primarily due to development
costs for the FPSO, Karish North and 2(nd) Oil Train. The additions in 2022
are primarily due to development costs for the Karish field, incurred under
the EPCIC contract, FPSO, subsea and onshore construction.
((1)) Handover to INGL took place on 22 March 2023, please refer to Note
18(4).
b. Depreciation expense for the year has been recognised as
follows:
2023 2022
$'000 $'000
Cost of sales 185,884 10,976
Administration expenses 1,489 431
Capitalised depreciation in oil & gas assets - 632
Total 187,373 12,039
NOTE 10: - Property, Plant and Equipment (Cont.)
c. Cash flow statement reconciliations:
2023 2022
$'000 $'000
Additions and disposals to property, plant and equipment, net 58,891 692,902
Associated cash flows
Payments and receipts for additions to property, plant and equipment, net (156,414) (278,396)
Non-cash movements/presented in other cash flow lines
Capitalised borrowing costs (17,658) (129,357)
Right-of-use asset additions (12,246) (731)
INGL hand over 111,448 -
Capitalised share-based payment charge - (196)
Capitalised depreciation - (632)
Change in decommissioning provision (4,913) (47,544)
Lease payments related to capital activities 3,321 1,085
Movement in working capital 17,571 (237,131)
d. Details of the Group's rights in petroleum and gas assets
are presented in note 1.
NOTE 11: - Intangible Assets
a. Composition:
Exploration and evaluation assets Software licences Total
$'000 $'000 $'000
Cost:
At 1 January 2022 20,141 255 20,396
Additions 123,005 1,713 124,718
Write off of exploration and evaluation costs ((1)) (1,277) - (1,277)
At 1 January 2023 141,869 1,968 143,837
Additions 24,597 362 24,959
At 31 December 2023 166,466 2,330 168,796
Amortisation:
At 1 January 2022 - 255 255
Charge for the year - 28 28
Total Amortisation at 31 December 2022 - 283 283
Charge for the year - 348 348
Total Amortisation at 31 December 2023 - 631 631
At 31 December 2022 141,869 1,685 143,554
At 31 December 2023 166,466 1,699 168,165
Additions to exploration and evaluation assets are primarily related to the
growth drilling programme undertaken offshore Israel and related to Katlan.
NOTE 11: - Intangible Assets (Cont.)
Block 12 ("Katlan") offshore Israel - Gas Discovery:
During 2022 the Company's growth drilling programme discovered gas in Block
12, offshore Israel. Successful exploration wells were drilled into the
Athena and Zeus prospects, resulting in the award of 2P reserves by Energean's
reserve auditor, D&M. The Hera prospect shared sufficient geological and
seismic attributes to also be classified as 2P reserves. As a result, and in
accordance with the Company's Competent Person's Report ("CPR") as of 31
December 2023, Block 12 is estimated to contain 2P reserves of 31.9 bcm and
5.4 mmboe of hydrocarbon liquids. Energean expects to take FID upon the
finalisation of EPC ("Engineering, Procurement and Construction") terms, which
are currently under negotiation.
((1)) Zone D: On 27 July 2022, the Company sent a formal notice to the
Ministry of Energy notifying the relinquishment of Zone D and discontinuation
of related work. As such, the licences subsequently expired on 27 October
2022.
b. Cash flow statement reconciliations:
2023 2022
$'000 $'000
Additions to intangible assets 24,959 123,441
Associated cash flows
Payment for additions to intangible assets (98,909) (50,332)
Non-cash movements/presented in other cash flow lines
Write off of exploration and evaluation costs - 1,277
Movement in working capital 73,950 (74,386)
c. Details on the Group's rights in the intangible assets:
Right Type of right Valid date of the right Group's interest as at 31 December 2023
Block 12 Licence 13 January 2025 100%
Block 21 Licence 13 January 2025 100%
Block 23 Licence 13 January 2025 100%
Block 31 Licence 13 January 2025 100%
d. Additional information regarding the Exploration and
Evaluation assets:
As of 31 December 2023, the Group held four licences to explore for gas and
oil in Block 12, Block 21, Block 23 and Block 31, which are located in the
economic waters of the State of Israel. On January 2024 the licences were
extended until 13 January 2025, and they may be extended for a further one
year.
NOTE 12: - 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.
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.
NOTE 12: - Deferred taxes (Cont.)
Below are the items for which deferred taxes were recognised:
Property, plant and equipment & intangible assets Right of use asset Tax losses Deferred expenses for tax Staff leaving indemnities Accrued expenses and other short‑term liabilities and other long‑term Decommissioning provision Total
liabilities
$'000 IFRS 16 $'000 $'000 $'000
$'000 $'000
$'000
$'000
At 1 January 2023 (40,344) (754) 56,415 6,209 167 1,193 - 22,886
Increase/(decrease) for the year through:
Profit or loss (20,706) (2,134) (47,432) (2,127) 170 2,358 - (69,871)
At 31 December 2023 (61,050) (2,888) 8,983 4,082 337 3,551 - (46,985)
At 1 January 2022 (12,632) (762) 4,750 11,031 94 923 8,171 11,575
Increase/(decrease) for the year through:
Profit or loss (27,712) 8 51,665 (4,822) 73 270 (8,171) 11,311
At 31 December 2022 (40,344) (754) 56,415 6,209 167 1,193 - 22,886
2023 2022
$'000 $'000
Deferred tax liabilities (63,938) (41,098)
Deferred tax assets 16,953 63,984
(46,985) 22,886
NOTE 13: - Trade and other receivables
2023 2022
$'000 $'000
Current
Financial items
Trade receivables
Trade receivables 114,139 37,491
Other receivables ((1)) 6,994 999
Refundable VAT 1,196 37,131
122,329 75,621
Non-financial items
Accrued interest income 1,015 888
Prepayments 461 159
Deferred expenses ((2)) - 4,929
Prepaid expenses 6,330 1,014
7,806 6,990
Total current trade and other receivables 130,135 82,611
Non-current
Non-financial items
Prepaid expenses 4,852 -
Deposits and prepayments 513 108
Total non-current trade and other receivables 5,365 108
((1)) Other receivables mainly comprise the consideration receivable from
INGL as discussed in Note 18(4).
((2)) Deferred expenses relate to compensation to gas buyers following delays
to the supply of gas from the Karish project. This compensation is treated as
variable consideration under IFRS 15 Revenue Recognition and therefore,
reduced from gas sales following commencement of production, please refer also
Note 5.
The table below summarises the maturity profile of the Group receivables:
31 December 2023 ($'000) Carrying amounts Contractual cash flows 3 months or less 3-12 months
Trade receivables 114,139 114,139 114,139 -
Refundable VAT and excise 1,196 1,196 1,196 -
Short term other receivables 6,994 6,994 1,930 5,064
Total 122,329 122,329 117,265 5,064
31 December 2022 ($'000) Carrying amounts Contractual cash flows 3 months or less 3-12 months
Short term trade and other receivables 37,491 37,491 37,491 -
Refundable VAT and excise 37,131 37,131 19,113 18,018
Short term other receivables 999 999 999 -
Total 75,621 75,621 57,603 18,018
NOTE 14: - Inventories
2023 2022
$'000 $'000
Hydrocarbon liquids 1,685 2,367
Natural gas 553 383
Raw materials and supplies 4,903 5,563
Total 7,141 8,313
NOTE 15: - Cash and cash equivalents
2023 2022
$'000 $'000
Cash at bank and in hand 264,143 14,825
Banks short-term deposits 22,482 10,000
Total 286,625 24,825
Bank deposits comprise short-term deposit accounts that are readily
convertible into known amounts of cash. The effective interest rate on
short‑term bank deposits was 4.585% for the year ended 31 December 2023
(year ended 31 December 2022: 1.115% %).
NOTE 16: - Senior secured notes
a. Senior secured notes:
On 24 March 2021 (the "Issue Date"), Energean Israel Finance Ltd (a 100%
subsidiary of the Company) issued US$2,500,000,000 of senior secured notes.
The proceeds were primarily used to prepay in full the Project Finance
Facility.
On 11 July 2023, Energean Israel Finance Ltd. Ltd completed the offering of
US$750 million aggregate principal amount of senior secured notes with a fixed
annual interest rate of 8.500%. The funds were released from escrow in
September 2023 and were used to repay Energean Israel's $625 million notes due
in March 2024 and pay fees and expenses associated with this refinancing,
contribute towards funding the interest payment reserve account, and
contribute towards the payment of the final deferred consideration to Kerogen.
The Notes were issued in four equal tranches as follows:
Series Maturity Annual fixed Interest rate 31 December 2023 31 December 2022
Carrying value $'000 Carrying value $'000
US$ 625 million 30 March 2024 4.500% - 620,461
US$ 625 million 30 March 2026 4.875% 619,932 617,912
US$ 625 million 30 March 2028 5.375% 618,145 616,767
US$ 625 million 30 March 2031 5.875% 616,762 615,890
US$ 750 million 30 September 2033 8.5% 733,653 -
US$2,625 million 2,588,492 2,471,030
The interest on each series of the Notes is paid semi-annually, on 30 March
and on 30 September of each year.
The Notes are listed 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.
NOTE 16: - Senior secured notes (Cont.)
Collateral:
The Company has provided/undertakes to provide 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, insurance policies, the Company's exploration licences 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. The Energean Power FPSO.
Restricted cash:
As of 31 December 2023, the Company had short-term restricted cash of US$22.48
million (31 December 2022: US$71.8 million), which will be used for the March
2024 interest payment.
Credit rating:
The senior secured notes have been assigned a Ba3 rating by Moody's and a BB-
rating by S&P Global.
NOTE 16: - Senior secured notes (Cont.)
b. Reconciliation of liabilities arising from financing activities:
1 January Cash outflows Cash inflows Additions Borrowings costs Foreign exchange impact Reclassification 31 December
including amortisation to short term
of arrangement fee
2023 ($'000) 2,526,869 (788,205) 750,000 12,260 170,487 17 (23,184) 2,648,244
Senior secured notes 2,471,030 (771,539) 750,000 - 162,185 - (23,184) 2,588,492
Lease liabilities 4,006 (3,321) - 12,260 636 17 - 13,598
Deferred licence payments ((1)) 51,833 (13,345) - - 7,666 - - 46,154
2022 ($'000) 2,523,968 (142,342) - 731 144,412 100 - 2,526,869
Senior secured notes 2,463,524 )128,906) - - 136,412 - - 2,471,030
Lease liabilities 3,214 (1,085) - 731 1,046 100 - 4,006
Deferred licence payments (1) 57,230 (12,351) - - 6,954 - - 51,833
((1)) Cash outflows relate to finance costs paid for deferred licence payments
of approximately US$2,496 thousands in 2023 and US$1,501 thousand in 2022 and
payment for purchase of oil & gas leases of US$10,850 thousand in 2023 and
2022, which are included in the cash flows from financing and investing
activities respectively, in the Consolidated Statement of Cash Flows.
.
NOTE 17: - Decommissioning provisions
2023 2022
$'000 $'000
At 1 January 84,299 35,525
New provisions 4,913 56,803
Changes in estimates - (9,259)
Unwinding of discount 3,401 1,230
At 31 December 92,613 84,299
Current provisions - -
Non-current provisions 92,613 84,299
As of 31 December 2023, the decommissioning provision represents the present
value of decommissioning costs relating to the four wells for Karish, Karish
North and subsea infrastructure.
The decommissioning provision represents the present value of decommissioning
costs relating to oil and gas properties, which are expected to be incurred up
to 2044, 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 at 31 December 2023 is 4.18% (31 December 2022:
4.15%).
Depreciation is based on the depletion method upon commercial production.
NOTE 18: - Trade and other payables
2023 2022
$'000 $'000
Current
Financial items
Trade accounts payable ((1)) 97,350 209,853
Payables to related parties (Note 22) 19,023 21,028
Deferred licence payments due within one year ((2)) 46,154 13,345
Other creditors ((5)) 32,034 6,712
Income taxes 1,585 6
Short term lease liabilities 4,718 1,792
200,864 252,736
Non-financial items
Accrued expenses ((1)) 16,765 29,404
Other finance costs accrued 55,411 32,227
Contract liability ((4)) - 56,230
Social insurance and other taxes 542 502
72,718 118,363
Total current trade and other payables 273,582 371,099
Non-current
Financial items
Trade and other payables ((3)) 117,796 169,360
Deferred licence payments ((2)) - 38,488
Long term lease liabilities 8,880 2,214
126,676 210,062
Non-financial items
Accrued expenses to related parties 368 179
368 179
Total non-current trade and other payables 127,044 210,241
((1) ) Trade payables and accrued expenses relate primarily to
development expenditure on the Karish project, with the main contributors
being mainly FPSO, Karish North, Second oil train. Trade payables are
non-interest bearing.
((2) ) In December 2016, Energean Israel acquired the Karish and Tanin
offshore gas fields for $40.0 million closing payment with an obligation to
pay additional consideration of $108.5 million plus interest inflated at an
annual rate of 4.6% in ten equal annual payments. A settlement agreement was
signed on November 2023, whereby it was agreed that the final amount owed
would be paid in two instalments in March ($30.0 million) and May 2024 ($17.4
million). As at 31 December 2023 the total discounted deferred consideration
was $46.2 million (as at 31 December 2022: $51.8 million).
((3) ) The amount represents a long-term amount payable in terms of the
EPCIC contract. Following the amendment to the terms of the deferred payment
agreement with Technip signed in February 2024 the remaining amount payable
under the EPCIC contract has been reduced to $210 million. The amount is
payable in twelve equal quarterly deferred payments starting in March and
therefore has been discounted at 8.668%. p.a. (being the yield rate of the
senior secured loan notes, maturing in 2026, at the date of agreeing the
payment terms).
NOTE 18: - Trade and other payables (Cont.)
((4) ) The contract liability relates to the agreement with Israel
Natural Gas Lines ("INGL") for the transfer of title (the "Hand Over") of the
near shore and onshore segments of the infrastructure that delivers gas from
the Energean Power FPSO into the Israeli national gas transmission grid. The
Hand Over became effective in March 2023. Following the Hand Over, INGL is
responsible for the operations and maintenance of this part of the
infrastructure and the related asset (refer to Note 10) and contract liability
was derecognised. The final consideration ($7million) is receivable within 12
months of handover and is recognised within other receivables (refer to Note
13(1)).
((5) ) The amount comprise mainly royalties payables including $12.1
million (2022:$2.5 million) of royalties payable to third parties. Contractual
royalties are payable to NewMed (previously Delek Drilling) and third-party
holders at a total rate of 7.5%, increasing to 8.25% (with such increase
expected in 2026 for the Karish lease) after the date at which the lease in
question starts to pay the Oil Levy. The royalty payable to NewMed under the
SPA is calculated on the value of the total amount of natural gas and
condensate produced at the wellhead without any deduction (except for natural
gas and Petroleum (as defined under the Petroleum Law) used in the production
process). No contractual royalties under the SPA will be payable on future
discoveries that were not part of the original acquisition of the Karish and
Tanin leases. Royalties under the SPA are deductible for corporate tax and for
the Oil Levy tax base.
NOTE 19: - Equity
a. Share capital:
31 December 2023 31 December 2022
Number of shares Number of shares
US$ 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. 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.
c. Share Premium Capital reduction:
In April 2022 the Company reduced its share premium capital by US$360 million
and credited US$346 million against the shareholder loan account plus accrued
interest.
d. Interim dividend
An interim dividend of US$97.5 million was declared and paid during 2023.
NOTE 20: - Share-based payment
Analysis of share-based payment charge:
2023 2022
$'000 $'000
Energean 2018 Long Term Incentive Plan 548 329
Energean Deferred Share Bonus Plan 182 81
Total share-based payment charge 730 410
Capitalised to property, plant and equipment assets - 196
Expensed as administration expenses 730 214
Total share-based payment charge 730 410
NOTE 20: - Share-based payment (Cont.)
Energean plc's 2018 Long Term Incentive Plan (LTIP)
Under the Energean plc's 2018 LTIP rules, senior executives may be granted
conditional awards of shares or nil cost options. Awards are subject to
performance conditions including Total Shareholder Return (TSR) normally
measured over a period of three years. Vesting of awards is generally subject
to an individual remaining in employment except in certain circumstances such
as good leaver and change of control. Awards may be subject to a holding
period following vesting. 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 as the Energean plc 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 2023 was 1.32 years, (31 December 2022: 1.22 years).
All amounts related to share-based payments are recognised as liabilities,
because Energean plc charges the Group, using the share price at grant date,
for the shares issued upon vesting.
Deferred Share Bonus Plan (DSBP)
Under the DSBP, a portion of any annual bonus of a senior executive may be
deferred into shares.
Deferred awards are usually granted in the form of conditional share awards.
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 2023 was 0.76 year, (31 December 2022 was 0.8 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 21: - Material engagements, commitments and contingencies
a. Material engagements:
Gas Sales Agreements - Energean signed in 2023 spot gas sale and purchase
agreements with four Israeli gas buyers. The gas price and amounts are
determined on a "spot" basis, with no firm commitment by Energean to supply
gas. These agreements are in force for one year and are automatically extended
for additional periods of one year each, unless terminated by the parties.
b. Performance guarantees:
2023 2022
$'000 $'000
Performance guarantees - see Note 21(C) 53,006 97,572
1. Letter of Credit Facility Agreement - In 2021, the Company signed
with a banking corporation a 355 million ILS (approx. US$101 million) facility
for issuing bank guarantees for its operations in Israel. The facility term
ended in April 2023. The facility beard interest of 1.5% for drawn amounts and
0.8% commitment fee for undrawn amounts. The banking corporation security is a
US$112 million PCG granted by Energean plc and cash collateral of US$2.96
million. On 23 July 2023 an extension to the Guarantee Facility Agreement was
signed among Energean Israel Limited, Energean Israel Finance LTD and Bank
Hapoalim for the period until 30 June 2024 with interest of 1.5% for drawn
amounts and 0.8% commitment fee for undrawn amounts. The agreement included a
$70Mmillions Guarantee Facility by Bank Hapoalim backed by $70 million Parent
Company Guarantee by Energean PLC.
NOTE 21: - Material engagements, commitments and contingencies (Cont.)
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$15
million for Karish and US$10 million for Tanin. These Bank guarantees are in
force until June 2024.
Exploration blocks (Blocks 12, 21, 23 and 31)- As part of the requirements of
the exploration and appraisal licences which were granted to the Group, the
Group provided the Israeli Ministry of National Infrastructures, Energy and
Water bank guarantees for the drilling in the amount of US$6 million for all
blocks. The bank guarantees are in force until January 2025.
3. Blocks 12, 23 and 31 Drilling guaranties - As part of the
requirements of the exploration and appraisal licences which granted to the
Group, the Group provided the Israeli Ministry of National Infrastructures,
Energy and Water bank guarantees for the drilling in the amount of US$15
million for all blocks. The bank guarantee for Block 12 is valid until Nov
2024 and the bank guarantees for Block 23&31 are in force until May 2024.
4. Israeli Natural Gas Lines ("INGL") - As of 31 December 2023 a bank
guarantee for the warranty period was issued in total of ILS 9.213M (approx.
US$2.5 million) and is valid until July 2024.
5. Other - As part of the ongoing operations in Israel, the Group
provided as of 31 December 2023 various bank guarantees to third parties and
Israel Custom Authority in Israel which amounted approx. US$4.5 million. The
main bank guarantees are in force until the end of the first half of 2024, the
remaining bank guarantees are in force until the end of the third quarter of
2024.
NOTE 22: - Related parties
a. As of 31 December 2023, the Group's ordinary shares are owned 100% by
Energean E&P Holdings Limited, incorporated in Cyprus.
b. Details of related parties:
Name Country of incorporation / registered office Principal activities Relationship as of 31 December 2023 Relationship as of 31 December 2022
Energean plc 44 Baker Street, London W1U 7AL, United Kingdom Holding company Ultimate Parent company Ultimate Parent company
Energean E&P Holdings Ltd 22 Lefkonos Street, 2064 Nicosia, Cyprus Holding Company Parent company Parent company
Energean Oil & Gas S.A. 32 Kifissias Ave. 151 25 Marousi Athens, Greece Oil and gas exploration, development and production Sister company Sister company
Energean Egypt Limited 22 Lefkonos Street, 2064 Nicosia, Cyprus Oil and gas exploration, development and production Sister company Sister company
Energean International Limited 22 Lefkonos Street, 2064 Nicosia, Cyprus Oil and gas exploration, development and production Sister company Sister company
Energean Italy S.p.a. 31 Foro Buonaparte, 20121 Milano, Italy Oil and gas exploration, development and production Sister company Sister company
Energean Capital Ltd 22 Lefkonos Street, 2064 Strovolos, Nicosia, Cyprus Holding of investments and management services Sister company Sister company
Energean Group Services Limited 44 Baker Street, London W1U 7AL, United Kingdom Oil and gas exploration, development and production Sister company Sister company
Energean Israel Transmission LTD 121, Menachem Begin St. Gas transportation licence holder Subsidiary 100% Subsidiary 100%
Azrieli Sarona Tower, POB 24,
Tel Aviv 67012039 Israel
Energean Israel Finance Ltd 121, Menachem Begin St. Financing activities Subsidiary 100% Subsidiary 100%
Azrieli Sarona Tower, POB 24,
Tel Aviv 67012039 Israel
Prime Marine Energy Inc Trust Company Complex, Ajeltake Roa, Majuro, MH96960, MH (Marshall Islands) Construction of field support vessel A company controlled by a non-executive director and shareholder of Energean A company controlled by a non-executive director and shareholder of Energean
plc plc
Egypt Energy Services JSC Cairo, Egypt Oil and gas exploration, development and production Sister company Sister company
NOTE 22: - Related parties (Cont.)
c. Balances with related parties:
Nature of balance 2023 2022
$'000 $'000
In current liabilities:
Payables to related parties - Note 18:
Energean plc (the ultimate parent company) Trading (4,299) (5,311)
Energean Oil & Gas S.A (under common control) Trading (6,118) (1,911)
Energean International UK branch (under common control) Trading (33) (949)
Energean Group Services (under common control) Trading (4,044) (3)
Energean E&P Holdings Limited (controlling party) Trading (1,386) (8,058)
Energean International Limited (under common control) Trading (286) (164)
Energean Capital Limited (controlling party) Trading (960) (70)
Energean Italy SPA (under common control) Trading (2,865) (4,949)
Energean plc (the ultimate parent company) Share based payments (699) -
Energean Egypt Ltd. Trading - (6,951)
(20,690) (28,366)
In non-current liabilities:
Accrued expenses to related parties - Note 18:
Energean plc (the ultimate parent company) Share based payments (360) (182)
NOTE 22: - Related parties (Cont.)
d. Transactions with related parties:
2023 2022
$'000 $'000
Service received in connection with the oil and gas assets:
Related companies 3,083 8,853
Ultimate and parent company 3,197 8,303
Other related party - Prime Marine Energy Inc see Note 22(E)(2) - 8,060
6,280 25,216
Service received in connection with the intangible assets:
Related companies 3,957 1,858
Ultimate and parent company 2,585 -
6,542 1,858
Service received in connection with senior secure notes:
Ultimate and parent company 1,246 -
Related companies 296 -
1,542 -
Service received in connection with borrowings:
Related companies 1,262 -
Ultimate and parent company 2,855 2,749
4,117 2,749
Service received in connection with cost of sales:
Related companies 1,348 -
Ultimate and parent company 263 -
1,611 -
In administrative expenses:
Related companies 406 1,687
Ultimate and parent company 725 2,512
1,131 4,199
In prepaid:
Ultimate and parent company - 199
e. Additional information:
1. The Group and related companies of Energean Group entered into an
agreement 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 22 (C) and 22 (D).
2. During 2020 Energean Israel, purchased a Field Support Vessel
("FSV") from Prime Marine Energy Inc a company controlled by a non-executive
director and shareholder of Energean plc.
The FSV provides 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 enhances
operational efficiencies and economics when compared to the leasing of
multiple different vessels for the various activities. The agreement with
Prime Marine Energy Inc was terminated on 19 October 2022. The FSV is in place
supporting the various activities in Israel since Q3 2023.
NOTE 22: - Related parties (Cont.)
3. On 29 April 2021 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 established 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, 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 which was settled in April 2022 as part of the Company share
premium reduction. See also Note 19.
f. Parent Company Guarantees (PCG):
1. Under the Karish EPCIC. Energean plc provided a PCG dated 27 July
2018, guaranteeing the deferred payment obligations of Energean Israel Limited
under the contract which were amounted to US$250 million which was
subsequently reduced to US$210 million.
2. Purchase Karish and Tanin rights - In order to secure the payments
to the sellers, Energean E&P Holdings Limited, the Parent company, granted
a corporate guarantee to the sellers.
3. As part of a GSPA the Company signed, to secure the agreement
obligations to certain gas buyers, Energean E&P Holdings Limited, the
Parent company, granted a corporate guarantee to certain gas buyers amounting
to US$ 38 million, the parent company guarantee will be in force till June
2024 and from that date reduced to US$ 10 million.
4. As part of the banking corporation security of the Letter of Credit
Facility Agreement Energean plc granted a PCG of US$70 million. The parent
company guarantee will be in force until June 2024.
NOTE 23: - Financial Instruments
Financial risk management objectives
The Group is exposed to market price risk which comprises: foreign currency
risk, credit risk, liquidity risk and capital risk management arising from the
financial instruments it holds. The risk management policies employed by the
Group to manage these risks are discussed below:
a. Foreign exchange risk:
The Group is exposed to foreign exchange risk as it undertakes operations in
various foreign currencies. The key sources of the risk are attributed to the
fact that the Group has certain financial assets (mainly other receivables and
cash and cash equivalents) and financial liabilities (mainly trade and other
payable) with different currencies than the functional currency of the Group,
mainly Israeli Shekel (ILS) United Kingdom Pound Sterling (GBP) and Euro.
The Group's exposure to foreign currency risk at each reporting date is shown
in the table below. The amounts shown are the US$ equivalent of the foreign
currency amounts.
Liabilities Assets
2023 2022 2023 2022
$'000 $'000 $'000 $'000
Israeli New Shekel (ILS) 7,874 9,354 30,441 19,383
United Kingdom Pound (GBP) 28,252 35,905 1,532 1,783
Euro 41,224 28,178 2,279 1,709
Norwegian Krone (NOK) * 7,956 * 22
Total 77,350 81,393 34,252 22,897
NOTE 23: - Financial Instruments (Cont.)
The following table reflects the sensitivity analysis for profit and loss
result for the year and the equity, taking into consideration for the periods
presented foreign exchange variation by +/- 10%.
ILS GBP EURO NOK
Variation Variation Variation Variation
10% -10% 10% -10% 10% -10% 10% -10%
31 December 2023 ($'000)
Profit (loss) before tax 2,242 (2,052) (2,672) 2,429 (3,894) 3,540 * *
Equity 1,727 (1,580) (2,057) 1,870 (2,999) 2,726 * *
31 December 2022 ($'000)
Profit (loss) before tax 1,003 (912) (3,412) 3,102 (2,647) 2,406 (793) 721
Equity 772 (702) (2,627) 2,389 (2,038) 1,853 (611) 555
* Not material in 2023.
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:
2023 2022
$'000 $'000
Restricted cash 22,482 71,778
Trade and other receivables 122,329 75,621
Cash and cash equivalents and bank deposits 286,625 24,825
431,436 172,224
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 are
as follows:
2023 2022
$'000 $'000
A1 3 43
A3 286,615 24,767
Baa3 7 -
B1 - 15
Total 286,625 24,825
The Company has assessed the recoverability of all cash balances and believes
they are carried within the Consolidated Statement of Financial Position at
amounts not materially different to their fair value.
NOTE 23: - 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 balances.
On 24 March 2021, Energean Israel Finance Ltd (a subsidiary of the Company,
held 100%) issued US$2.5 billion senior secured notes.
On 11 July 2023, Energean Israel Finance Ltd completed the offering of US$750
million aggregate principal amount of senior secured notes and repaid Energean
Israel's US$625 million notes due in March 2024, bringing the total amount of
the senior secured notes to US$2,625 million.
Carrying amounts Contractual cash flows 3 months or less 3-12 months 1-2 years 2-5 years More than 5 years
31 December 2023 ($'000) 2,916,032 4,135,421 228,708 156,284 1,086,808 876,716 1,786,905
Senior secured notes ((1)) 2,588,492 3,779,469 96,500 82,266 938,828 876,328 1,785,547
Lease liabilities 13,598 15,223 1,379 4,118 7,980 388 1,358
Deferred license payments ((2)) 46,154 47,400 30,000 17,400 - - -
Trade and other payables - long term 117,796 140,000 - - 140,000 - -
Trade and other payables - short term 149,992 153,329 100,829 52,500 - - -
31 December 2022 ($'000) 2,933,822 3,637,663 285,838 96,432 980,142 878,386 1,396,865
Senior secured notes ((1)) 2,471,030 3,145,703 64,453 64,453 840,625 780,859 1,395,313
Lease liabilities 4,006 4,883 283 729 1,666 653 1,552
Deferred license payments ((2) 51,833 61,741 13,345 - 12,851 35,545 -
Trade and other payables - long term 169,360 186,329 - - 125,000 61,329 -
Trade and other payables - short term 237,593 239,007 207,757 31,250 - - -
((1)) As of 31 December 2023, include short term accrued
interest of US$55,411 (31 December 2022: US$32,227). See Note 18.
((2)) Includes commitment to Karish and Tanin sellers, for
more information see Note 18(2)).
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.
NOTE 23: - Financial Instruments (Cont.)
e. Fair Values of other financial instruments
The following financial instruments are measured at amortised cost and are
considered to have fair values different to their book values.
2023 2022
Book Value $'000 Fair value $'000 Book Value $'000 Fair value $'000
Senior Secured Notes (Note 16) 2,588,492 2,371,125 2,471,030 2,298,125
The fair value of the Senior Secured Notes is within level 2 of the fair value
hierarchy and has been estimated by discounting future cash flows by the
relevant market yield curve at the balance sheet date. The fair values of
other financial instruments not measured at fair value including cash and
short-term deposits, trade receivables and trade and other payables equate
approximately to their carrying amounts.
NOTE 24: - Subsequent events
a) An interim dividend of US$80 million was declared and paid in Q1
2024.
b) On 22 February 2024, Karish North first gas was achieved and the
second gas export riser was completed.
c) In February 2024 the Company has signed a new GSPA with Eshkol
Energies Generation LTD, majority owned Dalia Energy Companies Ltd, for the
supply of an initial quantity of 0.6 bcm/year starting June 2024, rising to 1
bcm/ year from 2032 onwards. The GSPA is for a term of approximately 15 years,
for a total contract quantity of up to approximately 12 bcm. The contract
contains provisions regarding floor and ceiling pricing, take or pay and price
indexation (not Brent-price linked). The GSPA has been signed at levels that
are in line with the other large, long-term contracts within Energean's
portfolio.
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