Energean Oil & Gas Plc (ENOG) is an oil and gas exploration and production 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.

Recent News
Energean Oil and Gas Plc announced the signing of Detailed Agreement for transfer of infrastructure with INGL (Israel Natural Gas Lines). As per the agreement, the company transfer infrastructure and INGL will pay 369 million Israeli New Shekels (US$102 million) to Energean.

Trading and Operational Update
Energean released its 1Q trading and operational update recently. Israel’s Tanin and Karish project remains on track with first gas production in Q1 2021. The company submitted a letter of intent to supply gas in Cyprus. The company will work with private producers to develop projects under the pipeline. The company’s extended reach well delivered first oil with over 1,000 bopd at a steady rate. The company targets to increase production by 2021 to over 10,000 bopd. Energean decided 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. The company combined revised work programme with a cost reduction programme to drive $30 million - 40 million expected capex reduction.

Financial Highlights – Financial Year 2018 (US$, million)

(Source: Annual Report, Company Website)
 
In the financial year ending 2018, 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. Revenue in the financial year 2018 increased on account of higher realised prices and volumes. Adjusted EBITDAX stood at $52.4 million, an increase of 153.6 per cent against the $20.7 million in 2017. 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. 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. 

Share Price Performance

Daily Chart as at July-05-19, before the market closed (Source: Thomson Reuters)

On July 5, 2019, at the time of writing (before the market closed, at 1:36 pm GMT), Energean Oil & Gas Plc shares were trading at GBX 970.00, up by 1.57 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 970/GBX 500. Stock's average traded volume for 5 days was 271,646.20; 30 days - 77,160.20 and 90 days – 122,628.80. The average traded volume for 5 days was up by 252.05 per cent as compared to 30 days average traded volume. The outstanding market capitalisation was around £1.46 billion.

Valuation Methodology


Conclusion
Although the company’s revenue increased significantly in the financial year 2018, the profitability margins have remained stagnant or declined. Thecompany 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. The company will beimpacted by the uncertainties created by the ongoing Brexit, as it will impact the company’s supply chain. As the companyoperates in multiple locations globally, its activities and operations performances can be impacted negatively due to Regulation & compliance risk.

Based on the risk associated and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 955 (as on 4th July 2019) based on 1.80x 28.36x NTM Price to Book (approx.) on FY19E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.79596 GBP.
*The “Sell” recommendation is valid for the current price as covered in the report (as on 5^th July2019).

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