Energean to gobble up Edison E&P in $750m acquisition

Mediterranean-focussed oil and gas producer Energean has entered into a conditional sale and purchase agreement to acquire Edison Exploration & Production from Edison S.p.A., it announced on Thursday, for $750m.

The FTSE 250 company said that consideration was liable to be adjusted for working capital, with additional contingent consideration of $100m payable following first gas from the Cassiopea development, offshore Italy, expected in 2022.

It said Edison E&P's portfolio of assets included producing assets in Egypt, Italy, Algeria, the UK North Sea and Croatia, development assets in Egypt, Italy and Norway and balanced-risk exploration opportunities across the portfolio.

The Edison E&P portfolio would add working interest 2P reserves of 292 million barrels of oil equivalent, and 2018 net working interest production of 69,000 barrels of oil equivalent per day.

Energean said the acquisition of Edison E&P on “attractive metrics” was in line with its stated strategy of creating the “leading independent, gas-focused” exploration and production company in the Mediterranean.

It said it would “significantly increase” its scale and diversification, by adding a complementary portfolio of accretive development, appraisal and exploration opportunities, while immediately contributing EBITDAX and cash flow to support the enlarged group's strategic growth and medium-term ambition to start paying a dividend.

The company explained that the majority of the Edison E&P portfolio was operated with high working interest positions and operatorship on a number of key production and development assets.

It also said the majority of Energean and Edison E&P's gas was sold under fixed priced gas contracts, providing stability and predictability to cash flow, helping mitigate impact of oil price volatility.

Edison E&P would bring with it 282 employees, which combined with the existing Energean team, would provide “highly skilled and experienced” coverage of all key geographies of the combined portfolio, the board said.

Gas contributed 76% of Edison E&P's 2P reserves and 80% of its 2018 production, complementing Energean's gas-focused transition fuel growth strategy.

Edison E&P would adds 2018 earnings before interest, tax, depreciation, amortisation and exploration expenses (EBITDAX) of $434m and operating cash flow of $302m, which the board said would “materially enhance” Energean's current cash flow ahead of Karish and Tanin first gas.

It would supplement the long-term profile with sustainable cash flows that were largely shielded from commodity price fluctuations, due to the gas sales agreements in place, and supported the company's medium-term ambition to pay a dividend.

Edison E&P would “complement and augment” Energean's growth profile into the 2020s, the directors added, through key developments with attractive internal rates of return, and material Mediterranean gas-focussed exploration opportunities.

The acquisition would create the leading full cycle, independent, gas-focused exploration and production company in the Mediterranean, and would increase Energean's prominence and profile in the region and its ability to attract new investment opportunities.

Energean said the initial consideration for the acquisition of $750m would be adjusted for working capital, with additional contingent consideration of $100m payable following first gas at the Cassiopea development.

Edison would also receive an 8% royalty on profit production resulting from future discoveries made by upcoming exploration wells in the North Thekah Offshore and North East Hap'y Blocks, offshore Egypt.

The initial consideration was being funded through a $600m committed bridge loan facility, and up to $265m of equity financing through a new placing.

Energean said the total debt and equity capital raised had been sized to cover both the initial consideration, and the working capital requirements of the enlarged group.

The $600m committed bridge loan facility was expected to be replaced in the second half of 2019 using a combination of a reserve-based facility and corporate debt.

Energean explained that the $100m of contingent consideration was set to be funded by the combined free cash flow of the enlarged group, as well as any incremental reserve-based facility and corporate debt capacity.

It said it was also evaluating the potential sale of non-core assets of the enlarged group.

”The acquisition of Edison E&P establishes Energean as the leading independent, gas focused exploration and production company in the Mediterranean with a mainly operated, low cost, gas weighted portfolio, with the capability, focus and team to prosper in our rapidly changing industry,” said Energean chief executive officer Mathios Rigas.

“It will diversify Energean into a multi-country, multi-asset, full-cycle exploration and production company with scale, material cash flows, significant growth and portfolio optionality.

“Edison E&P brings with it an exceptional team and I look forward to working with them as we build on the multiple opportunities ahead of us.”

Rigas said the enlarged group’s key priority would be to maximise the economic value of the combined portfolio, while retaining as a key priority delivery of Karish and Tanin First Gas into Israel in the first quarter of 2021.

“Since 2007, Energean has delivered significant growth and value for our investors and this acquisition is the next important step on this growth and value journey.”