Fitch Ratings has upgraded
The Outlook is Stable. Fitch has also upgraded Energean's senior secured notes to 'BB' from 'B+'. The Recovery Rating is 'RR3'.
The upgrade reflects Energean's enlarged output from a ramp-up of production in the Karish field. It also reflects our expectation that EBITDA net leverage will decline to below 2x by 2025 from 6.3x in 2022.
Energean's 'B+' Long-Term IDR reflects its strong gas-weighted growth prospects in
We view potential short-term material disruptions or a shut-down in production in
Key Rating Drivers
Project Completion Drives Upgrade: Energean nearly tripled its production during 1H23, driven by the successful ramp-up of the Karish field. The company is the sole indirect owner and operator of the offshore Karish,
Severe Shock to Operating Environment: The conflict between
Clear Path to Deleveraging: We expect Energean's Fitch-calculated EBITDA net leverage, on a consolidated basis and including operating company-level project-finance debt, to decline in 2023 to 3.3x under Fitch's base-case commodity-price assumptions and assessment of cash flows from the Israeli assets based on the floor price. We expect the metric to decline further to 2.8x in 2024, before it normalises at 1.5x-2.0x as its Israeli assets fully ramp up production.
Defined Dividend Policy: Energean is expected to pay dividends of at least
Consolidated Profile: Energean's holding company notes are structurally subordinated to debt located at operating companies, which mainly consist of
Senior Secured Rating: We rate the senior secured notes using a generic approach for 'BB' category issuers, which reflects the relative instrument ranking in the capital structure. Given a large share of debt ranking more senior to notes, the Recovery Rating for the notes is 'RR3' to reflect a lower relative call on EV. This results in the senior secured rating being notched up once from the IDR.
Israel-Focused Gas Producer: Over 70% of Energean's production comes from
Low Re-contracting Risk: Fitch expects Energean would be able to replace customers in the event of a contract termination or other unforeseen event, given high demand in
Improving Cost of Production: Energean's cost structure has significantly fallen to
Derivation Summary
Fitch rates Energean one notch lower than
We rate Energean one notch above
Key Assumptions
Key Assumptions Within Our Rating Case for the Issuer:
Oil and gas prices to 2027 in line with our base case price deck
Production from Karish field for 2024 at 76kboe/d, taking into account a hypothetical operational disruption resulting in six months of lost production
Consolidated production volumes of 120kboe/d in 2023, 116kboe/d in 2024 and peaking at around 185-190kboe/d in 2025
Capex averaging around
No insurance proceeds
Israeli gas sold at contractual floor price of
Dividend payments of
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
De-escalation of geopolitical risk will be a pre-requisite for positive rating action
Maintaining EBITDA net leverage below 1.0x on a sustained basis
Continued prudent financial management at EISL, ensuring sound distributable cash flow generation
Increasing 1P reserve levels
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Significant escalation of the conflict that will lead to material reduction in production due to closure of Israeli fields and/or damage to EISL's operations on a protracted basis
EBITDA net leverage rising above 2.0x on a sustained basis
Significant gas sales contract terminations at EISL
Negative post-dividend free cash flow on a sustained basis, due to capex overruns, production delays or high dividend payments
Liquidity and Debt Structure
Comfortable Liquidity: Energean does not have any immediate external funding needs and liquidity is strong, with no maturities until 2026. At end-1H23 Energean's liquidity was
Issuer Profile
Energean is an international independent gas-focused oil and gas company focused on the exploration, development and production of gas and oil assets in the Mediterranean.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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