Overview
Energean Oil & Gas Plc (ENOG) is an oil and gas exploration and production (E&P) company that produces crude oil and natural gas. The company’s activities include exploration, production and development of oil and natural gas properties. Energean’s gas platform includes onshore plant with storage, offshore loading, desulphurisation and power generation facilities. The company operates its offices in Greece, Cyprus, Israel, the UK, Montenegro and Egypt. The group has 16 wells and 13 E&P licenses. The Company has proven plus feasible reserves of 38 million barrels of oil and 6 billion cubic feet of gas and 8.3 Bcf of gas at its Prinos Basin and 2C resources of 32 MMbbls of oil and Katakolo fields. ENOG has exploration potential in the other licences mainly in the offshore Western Greece, Montenegro, and Israel. Its shares are listed on the London Stock Exchange (LSE) and on the Tel Aviv Stock Exchange.

Key Statistics

 

Management

Simon Heale is the Non-Executive Chairman of the Board. The Chief Executive Officer of the group is Mathios Rigas, and the Chief Financial Officer is Panos Benos.

Top Shareholders


(Source: TR)

Trading and Operational Update (as on 15^th May 2019)

Energean released its 1Q trading and operational update recently. Israel project remains on track. For Greece, the company reiterated its 2021 production target but recalibrated its 2019 guidance and capex.

Energean's flagship project in Israel remains on track with management firmly reiterating that first gas from Karish is still expected in 1Q 2021. The company recently entered into a letter of intent to participate in the development of a pipeline to Cyprus and supply gas to an electricity producer in Cyprus.

In Greece, the company reiterated its 2021 target to grow production above 10 thousand bopd. Tactically, in 2019, Energean made a decision to optimise its Prinos development approach to underpin the current production and optimise the long-term profitability of the basin by prioritising the pressure support efforts over drilling two new wells (they are now planned to be drilled in 2020 vs 2H 2019 before). This resulted in 2019 production guidance moderated to 4.3-4.8 thousand bopd vs 5-5.5 thousand bopd reported earlier (Energean's 1Q production was 3.9 thousand bopd on an average).

Financial Highlights (FY 2018, US$ Mn)


(Source: Annual Report, Company Website)

The company’s revenue rose by 56.4 per cent to $90.3 million as compared with the financial year 2017 data of $57.8 million. Adjusted EBITDAX stood at $52.4 million, an increase of 153.6 per cent against the $20.7 million in 2017. Depreciation rose by 91 per cent to $34.3 million as compared with the financial year 2017 data of $18 million, due to a surge in the capital expenditure.

Working interest production from Greece averaged at 4,053 boepd, a surge of 45 per cent as compared with the financial year 2017 data of 2,803 boepd. This increase was because of the progress made through the development drilling programme and continued reservoir management of the asphaltene precipitation. Prinos production stood at $6.4 per bbl. Revenue in the financial year 2018 increased on account of higher realised prices and volumes.

In the Prinos infrastructure, the spare processing capacity provides a high level of operational leverage. This has resulted in a 29.1 per cent decrease in per barrel production costs, from $24.7 per bbl in FY17 to $17.6 per bbl in FY18.

The company incurred SG&A costs of $12.1 million in 2018, up by 89 per cent from the previous year 2017 data of $6.4 million, due to the additional administrative cost and staffing associated with the growth of the Group’s portfolio. In the financial year 2019, the company expects SG&A costs to be around $15 million, driven by the additional costs associated with a full year of being listed on the TASE and LSE, and the continued surge in the size of the business.

Financing costs decreased from $22.9 million in 2017 to $13.5 million in 2018, and are composed mainly of interest expense of $15.1 million on the RBL and project finance facilities added the interest expense of $5.7 million on long term payables.

Capital expenditure stood at $494.6 million, of which $97.2 million was invested in Greece, $396.5 million in Israel, and $1.3 million in other geographical areas. Cash capital expenditure stood at $293.6 million.

Key Performance Indicators



Adjusted EBITDAX

Adjusted EBITDAX is calculated as profit or loss for the period, adjusted for discontinued operations, taxation, depreciation and amortisation, other income and expenses, net finance costs and exploration costs. The Group presents adjusted EBITDAX as it is used in assessing the Group’s growth and operational efficiencies because it illustrates the underlying performance of the Group’s business by excluding items not considered by management to reflect the underlying operations of the Group. The adjusted EBITDAX surged from $20.7 million in FY17 to $52.4 million in FY18.



Cost of oil production per boe

In the Prinos infrastructure, the spare processing capacity provides a high level of operational leverage. The cost of oil production declined by 29.1 per cent to 17.6 per bbl as compared with the financial year 2017 of 24.7 per bbl.


 
Cash flow from operating activities

Cash from operations (before movements in the working capital) stood at $53.9 million, an increase of 197 per cent as compared to the previous year data. Reported cash flow from operations climbed by 115 per cent to $62.7 million against the $29.1 million in 2017.

Financial Ratios


(Source: Thomson Reuters)

The reported gross margin in FY2018 surged by 17.8 per cent to 33.6 per cent against 15.8 per cent reported last year for the same period. The reported EBITDA margin of 56.3 per cent for the FY2018 stood higher than the industry median of 35.4 per cent. Net margin reported was 111.6 per cent for the financial year 2018, reflecting an increase of 92 per cent when compared with the last year data. Return on equity for the current financial year stood at 23.6 per cent which was higher than the industry median of 12.9 per cent. On the liquidity front, the company’s current ratio of 0.68 was lower than the industry median of 1.46, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the company stood at 0.17x which was lower as compared to the industry median of 0.40x, reflecting that the company is less leveraged as compared to its peers. 

Share Price Performance


Daily Chart as at May-29-19, before the market closed (Source: Thomson Reuters)

On May 29, 2019, at the time of writing (before the market closed, at 1:30 pm GMT), ENOG shares were trading at GBX 803, up by 1.389 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 867/GBX 469.50. At the time of writing, the share was trading 7.38 per cent lower than the 52w High and 71.03 per cent higher than the 52w low. Stock's average traded volume for 5 days was 78,023.60; 30 days - 114,612.27 and 90 days – 127,706.22. The average traded volume for 5 days was down by 31.92 per cent as compared to 30 days average traded volume. The outstanding market capitalisation was around £1.22 billion.

Valuation Methodology
Method 1: EV/EBITDA Multiple Approach (NTM)



To compare Energean Oil & Gas PLC with its peers, EV/EBITDA multiple has been used. The peers are SOCO International PLC (NTM EV/EBITDA was 1.34x), Indus Gas Ltd (NTM EV/EBITDA was 19.67x), Parkmead Group PLC (NTM EV/EBITDA was 45.45x), Egdon Resources PLC (NTM EV/EBITDA was 17.22x), and Europa Oil And Gas Holdings PLC (NTM EV/EBITDA was 14.94x). The mean of EV/EBITDA (NTM) of the company’s peers was 19.50x (approx.)

Method 2: Price to Earnings Multiple Approach (NTM)



To compare Energean Oil & Gas PLC with its peers, P/E multiple has been used. The peers are Cairn Energy PLC (NTM P/E was 22.38x), SOCO International PLC (NTM P/E was 18.25x), Lundin Petroleum AB (NTM P/E was 21.51x), Phoenix Global Resources PLC (NTM P/E was 40.60x), and Europa Oil And Gas Holdings PLC (NTM P/E was 39.05x). The mean of P/E (NTM) of the company’s peers was 28.36x (approx.)

Growth Perspective and Risk Assessments

In the financial year 2019, the company will deliver favourable results and the company will see significant progress across the asset portfolio. The group looks forward to delivering the four well drilling programme in Israel, which could underpin the significant growth in the resources and reserves base. The company will continue to see positive demand for Tanin and Karish gas, and future gas sales agreements will target both the key regional export markets and a growing domestic market.

The medium-term goal of the company is to utilise fully the 8 bcm/yr FPSO, which will deliver good incremental economic returns for the shareholders. In Greece, the company recently achieved first oil from the Epsilon satellite development, and the ongoing drilling programme should see the production to be further enhanced in 2019. The company has well established internal control systems which help them to mitigate the risks associated with the working of the company. The company might face macro headwinds with respect to higher commodity input prices and the Brexit uncertainties.

Conclusion

The company had shown improvement in its top-line performance in the current financial year. Despite the company’s profitability had declined but it is still above the industry median. The company was able to increase its production in the current financial year. The company’s expected cost of production will rise in 2019 due to higher commodity input prices and local inflation. Energean Oil & Gas PLC share price is also inching towards 52w high, while there are more possibilities for future growth and surge in the price level.
Based on the  fundamental prospects and support from valuation done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 792 (as on 28th May 2019) with an indicative low double-digit upside potential based on 19.50x NTM EV/EBITDA multiple (approx.) on FY20E EBITDA (approx.) and 28.36x NTM Price to Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.79 GBP.
*The “Buy” recommendation is valid for the current price as covered in the report (as on May-29-19).

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