30 Dec 2020

Kerogen signs agreement to exit Energean Israel

Kerogen is pleased to announce that it has entered into a Sale and Purchase Agreement with our listed joint venture partner and project operator Energean plc (“Energean”) for the sale of our 30% shareholding in Energean Israel Limited (“EISL”). The transaction is conditional upon Energean shareholder, regulatory and other customary approvals with completion expected end Q1 2021. Upon completion, Energean will own 100% of EISL’s share capital.

The total fixed consideration to be received is between $380 million and $405 million depending on the timing of payment of the deferred consideration. This represents a gross MoIC* of 3.0x to 3.2x. This total consideration includes Kerogen retaining some ongoing participation through $50 million of convertible loan notes. Including around $340 million in net debt, the enterprise value of the transaction is around $720-$745 million or $3.29-$3.40 EV / 2P boe.

Key transaction terms:

  • Divestment of Kerogen’s 30% shareholding in EISL for a total consideration of between $380 million and $405 million (the “Total Consideration”)
  • The Total Consideration includes the following elements:
    1. A payment of $175 million on completion
    2. Deferred consideration of between $125 million and $150 million depending on the timing of payment
      • $150 million is payable shortly after Practical Completion of the Karish project, currently forecast for early 2022; or
      • $125 million if paid on or before 31 March 2021, and increasing by $2.5 million each month thereafter, capped at $150 million
    3. An additional $30 million of deferred cash consideration, payable on 31 December 2022
    4. $50 million of convertible loan notes which have a maturity date of 29 December 2023, a strike price of GBP 9.50 per share and a zero-coupon rate

Since our initial investment in EISL in late 2016, key milestones have been successfully met, in line with or above our stated investment thesis.  These included initial gas offtake sales, significant debt and equity financings leading to FID of the Karish development in March 2018, the successful discovery of Karish North, and the increase in gas offtake to 7.4 bcm per annum (vs. 4.2 bcm per annum at FID) to in essence fully utilise the FPSO capacity.

We believe this transaction represents an attractive outcome for LPs, enabling the successful value creation to date to be captured, while also mitigating against the remaining project execution steps and follow-on capital requirements.

Jason Cheng, Managing Partner and CEO of Kerogen Capital, commented:

“We deeply value the partnership formed with Energean over the recent years, where together, we have seen substantial progress made in advancing the Karish development and expanding the overall resource base. During this process, we have also found Israel to be a favourable jurisdiction for energy investing.

“We see this transaction as accretive for both Kerogen and Energean. For Kerogen, it enables the successful value creation to date to be captured, with some upside participation through the convertible notes.  For Energean, this represents a unique opportunity to consolidate ownership of its flagship asset. We wish Energean every success going forward in delivering this project of national significance.”

Mathios Rigas, Chief Executive Officer of Energean, commented:

“The acquisition represents a unique opportunity, given our existing, unrivalled understanding of the assets. It allows us to consolidate our interests in Israel and is supportive of our ambition to be the leading independent, gas-producer in the Mediterranean.

I would like to thank Kerogen for their support and involvement in the Karish development over the last four years. Together, we will have delivered a project that will provide diversity and security of gas supply to Israel, whilst also helping to remove significant amounts of CO2 annually from Israel’s emissions by enabling the switch from coal to natural gas.”

* Gross multiple on invested capital, before deductions for taxes