Energean plc (ENOG) Earnings Call Transcript & Summary

Thank you, and good morning, everyone. We are very pleased to be announcing our 2021 results to date, which are in line with what we had guided the market in our trading update in January, record financial results from 2021 driven primarily from a very strong operational performance. And the key message that we are reiterating today is that our flagship project, Karish, is on track for first gas in the third quarter of 2022. We will be talking about that during the call today. Today, also, we will be announcing our first dividend policy, which we consider to be sector leading. We are very confident about our ability to produce sustainable and stable cash flows from our Israeli and Egyptian business, which is underpinned by long-term gas contracts, giving us predictability of our numbers for the future, and giving us the confidence to be announcing a very strong dividend policy to reward our loyal shareholders. But Energean is not just about Karish. We are a business that is investing also in growth, continuously. We have 4 projects that are ongoing at the moment beyond the main flagship Karish project. And on top of that, we have just started, a week ago, our drilling program in Israel. It's a program that could end up with 5 deepwater drilling wells. It's the largest drilling program in the Mediterranean. And it is coming in a time where the Mediterranean, the region, Europe needs a lot of gas, and the discussion today has moved away from ESG being the key topic of discussion to security of supply and affordable energy being key drivers behind all the European Union countries and of course, the region that we operate. So our strategy has always been to be long gas in the region that needs gas and for the wrong reasons, unfortunately, because of the war, which we are very sorry about, obviously, we are seeing this to put us in the spotlight for the energy needs of the region that we will be talking about later today. Last but not least, in these introductory remarks, our ESG strategy is continuing on our path to be a net 0 emitter, despite the fact that this is not the first and most important topic in these days, we are continuing on our path to net 0. So just a quick snapshot of our results on Page 4 of the presentation. We are delivering -- We have delivered a significant increase in revenues, EBITDAX and great receivable reduction from Egypt and fully integrated the Edison E&P business in 2021. Beyond that, our finance team raised $3 billion in the capital markets, giving us a very stable, predictable debt profile over the future, not exposed to interest rate fluctuations. And we landed the year with more than $1 billion of liquidity, putting us in a very strong financial position. We continue to be very disciplined. We continue our growth and our path to leading the sector with respect to our returns from dividends, from growth, from projects that we operate and from a very disciplined capital allocation policy. On the ESG side, as you can see on Slide 5, we continued the reduction of our carbon intensity to levels below what we initially targeted. We published our first climate change policy. We are buying green electricity for our Italian and Greek sites, reducing our Scope 1 and Scope 2 emissions. And we are continuing the work on our CCS project in Greece that would lead us to the net 0 strategy and path that we have we have announced. With that, I would like to hand over to Panos, our CFO, Panos Benos, to walk you through our results, and I'll return back once he's finished.

Thank you, Matthaios. Good morning from me, as well. As announced a few weeks back, 2021 was a record year for Energean, driven not only by the recovery of commodity prices in the second half of the year, but mainly because of our asset performance in Egypt and Italy. In summary, we recorded working interest products 41,000 barrels of oil equivalent, sales of around $0.5 billion, EBITDAX of well above $200 million, operating cash flow of $133 million. Our capital expenditure of $400 million, mainly for our project in Israel and a net debt position of $2 billion, with liquidity in excess of $1 billion, including the undrawn facility we have in Greece. Moving to Page 8 and what Matthaios mentioned, only a year post closing the Edison acquisition, we recorded a significant reduction of our receivable position in Egypt down to $95 million. We expect this trend to continue in 2022 as we work with our partner in EGPC to enhance our gas production in the country in the next few months with an early development. Moving to Page 9. We haven't changed much from what we presented a few weeks back. Our '22 guidance remains on track. Production of 35,000 to 40,000 barrels of oil equivalent from our producing assets, enhanced to around 70,000 barrels from the Karish volumes we expect to come on stream in Q3 of this year. Development CapEx of $700 million, which includes our ongoing Karish project, the Karish North tieback, the second riser and second oil train. In Italy, the Cassiopea gas field, in Egypt, the NEA/NI tieback and in Greece, our Epsilon project. Exploration. We have launched a drilling campaign in March, and the $100 million number includes the Isabella appraisal drilling plan for this year in the U.K. We expect our consolidated net debt position by end of this year to peak at just over $2.5 billion. Our medium-term targets, as we have been presenting for the past year or so, remains unchanged and reflects the position of the company, in the next 24 to 30 months, with all our fully sanctioned funding projects coming on stream. I want to clarify that the price assumptions for those medium-term targets have remained unchanged. We're using a $60, $65 oil long-term price and EUR 15, EUR 20 per megawatt hour type of price assumptions, which currently seems a little bit, not only conservative, but on the unrealistic side. Turning to Page 10 and 11 in 2021, ahead of what we consider to be a transformational year for Energean, we optimized our capital structure, refinancing all our debt facilities in the bond markets. As of end of 2021, our debt profile had an average life of 6 years, fixed cost of 5.5% and no exposure to floating rates. This was achieved by a combination of nonrecourse project bonds in Israel for a total of $2.5 billion, split in 4 equal tranches. The first tranche maturing in 2024 and the last one in 2031. A nonrecourse 8-year loan of EUR 100 million in Greece for the Epsilon development. And finally, $450 million senior secured corporate bond maturing in 2027, backed by our producing assets in Egypt and Italy. Moving to Page 13 and 14, and our result of the performance of the producing assets, clear visibility of first gas inquiries in the next few months and our optimized capital structure and strong liquidity position, we're confident that Energean in 2022 will transfer from a highly capital intensive development story to a more balanced investment return company, with the introduction of a credible and reliable dividend stream. We target our first dividend to be paid no later than Q4 '22. We target the total dividend paid to be at least $1 billion by end of 2025. Our initial cash payment to be at least $50 million per quarter, rising or ramping up to $100 million per quarter, alongside our growth profile that has been very -- it's very clear to all our investors. This dividend stream is based on what we consider to be very conservative profiles, both production and price-wise and allows the group to continue pursuing growth opportunities as well as the rapid deleverage we expect to achieve very quickly post Karish first gas. As we have repeatedly said in the past, our dividend policy and shareholder return targets are underpaid by long-term gas contracts in Israel and Egypt, with floor price protection mechanism and high take-or-pay provisions representing more than 70% of the profile of the business. This is further supported by our liquids production in Italy, Israel and Greece, and of course, our gas production in Italy, which is PSV-linked and currently enjoys strong profitability. Matthaios, back to you.

Thank you, Panos. I'd like to hand over to our Technical Director, Steve Moore, who will walk you through the project updates in Karish and the other projects in the portfolio.

Okay. On Page 16, we can see the production performance. As Panos has said, we ran ahead of the budget in 2021, largely on the back of a good performance in Egypt and Italy. Assets that we have acquired from Edison and integrated into the operating organization in Energean. In Egypt, the focus was on reducing the ongoing natural decline from the gas fields before we bring in the additional wells from NEA/NI, that's focused on simple, cheap modifications and optimization of the compression systems, and standard cleanout, stimulations, et cetera, of older gas wells worked very well and performed somewhat ahead of what we were expecting. Italy, we're getting -- it's a big portfolio in Italy. We're getting to know the portfolio. To be honest, we feel it's a treasure chest of jewels that we're still understanding. There's lots and lots of opportunities, and we started to leverage some of those in 2021 and will continue in 2022. Biggest thing was to acquire for no cost, the ENI shares in Rospo and Vega oil fields, giving us the opportunity to go and optimize production further this year in those areas. We turn to Page 17. We'll talk a little bit about Karish as Matthaios said at the start. We're on track to start up gas and oil production in Q3. Major milestones in the last few weeks, a couple of months has been the final connection of the onshore system. We focus a lot on the FPSO. We have to remember that this is an integrated project with well subsea pipeline, the very important onshore plant, which was completed middle of last year. We've now linked that into the INGL systems. So we're all ready for gas to flow through the onshore facility into the pipeline system. 10 days ago, we took the FPSO into dry dock. This picture here actually shows it now clean. We've taken 700 tonnes of muscles of the hull work, repainting it to stop any further growth, and then it will leave and go to Israel. And as I say, first gas will be in quarter 3 2022. If we now flick on over Page 18 onto 19. We'll take you through a little bit of detail on each of the growth projects that have been mentioned. The first page, Page 19, looks at 3 projects -- 2 contracts with 3 projects within the 2 contracts. The first is around increasing the capacity of the FPSO to cope with the gas contracts that we've -- what Nick has managed to sell. And also, to cope with the larger-than-anticipated liquids that we found when drilling the central part of Karish Main, where we were surprised to find a lot more oil than we had originally envisaged. These projects were all sanctioned at start of 2021. They're on track, and they will complete second half of 2023. This will bring the oil processing capacity to 32,000 barrels a day and allow the full FPSO capacity of 8 Bcm per year to be utilized. The second project is the development of Karish North. Karish North is a very simple project, largely because we designed Karish North into the Karish Main, scoped even before we drilled Karish North. We are very confident that it would be a success, and it will tie back by the end of 2023 as well. In Egypt, as well as looking at opportunities, we found a wealth of opportunities to drill infill wells, we prioritized 4 of those. We're developing the adjacent NEA/NI discoveries of the Yazzi, Python and North Idku wells. This targets 53 million barrels of reserves, and we'll be producing the first gas before the end of this year. As you can see from the map, there are 3 further discoveries yet to be developed, which we're studying to see how we can bring those back and further enhance production. The chart shows that over the next few years, production will actually grow in Egypt towards a target of above 40,000 barrels per day. On Page 21, we see an overview of the Cassiopea project. This is the development of the Argo and Cassiopea fields operated by ENI. It will almost double production -- equity production for energy in Italy and is 100% gas, biogenic gas, no liquids. And in parallel, we'll be -- there's a number of additional exploration, strong appraisal prospects in the area will tie back to these facilities. So further growth envisaged beyond 2024, 2025. Finally, on Page 22, a quick overview of the Epsilon project. Epsilon has been designed as a tieback satellite and tieback to our Prinos field. Targets, again, 53 million barrels of oil. This time, almost all oil and little gas. Project is nearing completion. The platform will be installed imminently, in a couple of months' time, and drilling will start after everything is hooked up towards the back end of this year. We've designed this facility so that produces oil for the next 10, 15 years and then we'll be an extension to our CCS facility in Prinos, so everything has been designed to be dual purpose going forward. And I think now we hand over to Nick for the commercial update.

Thank you, Steve. So if we move on to Slide 24, a slide which by now, probably many of you are familiar with. Showing on the left-hand side, our gas sales, long-term contracts in Israel. I think as is also now been mentioned at some length in the last update and in stock exchange announcements, we have an ongoing arbitration dispute with one of our customers, and both sides have made their claims in that dispute. And we will not talk about it anymore. But needless to say, because of that, we have sent a notice saying that we deem the contract to have been terminated as a result of which we are back out in the market. Marketing those volumes, so remarketing, if you like, and finding very, very strong demand in the market, both in domestic markets in Israel and in adjacent regional markets. So we fully expect to recontract that gas within a very short period of time. Moving on to the future. If you can perhaps hold in your mind Slide 14, which we glanced over earlier on, the growth in upside to our price portfolio, I think as Panos said, our cash flows are underpinned by these long-term contracts and its very strong East net gas market, which you can see there now on Slide 25, continual growth, which will underpin our future gas exploration efforts. But the oil story that Steve has mentioned and the Italy story, which he also mentioned, all giving us good exposure at the moment to current commotions price upside. So if we can move forward to Slide 26, we will talk about the drilling program this year. We have 5 well programs, 3 wells are firm, 2 are still under option, and we have started talking to the market about those wells to test the market to see the understanding of this player in the market in general. We're targeting another 100 Bcm of gas, which effectively, is doubling our existing resource. And as I said, the regional market is particularly strong at the moment. A lot of demand for our gas. So keep hearing some more good news on gas sales coming up following what we expect a positive set of the exploration results. I'll hand you back now to Matthaios.

Thank you, Nick. Perhaps, this program, as I mentioned earlier, is the largest drilling program in the EastMed at the moment. We have some very exciting prospects in Block 12. The well was spudded earlier in March. We expect results by the end of April, beginning of May, and that will unlock the next phase of growth for Energean, for which we're very excited about. A couple of comments before we open the floor to questions on our road map to net zero, which is continuing. As you can see on Page 28, we have continued to reduce our carbon intensity. And we are firmly on our path to get down to levels of 7 kilos of CO2 per barrel of oil equivalent once we have all our production on stream. That will be followed by the CCS projects and hydrogen projects in Greece, which have been approved for funding by the recovery and resilience fund, so we are getting access to European Union funding to continue to mature these projects, which are going to allow us to play the role that the industry can play in the decarbonization of the European Union industry. So with that, I would like to close our remarks and open the floor to questions by highlighting what our key milestones are for 2022. Of course, the big one is first gas from Karish, and we've repeated and we're repeating again that we are on track for Q3 to see first gas flowing from our wells. As I said, in January, when we last spoke in our trading update, the last remaining big milestone was to see the FPSO in the dry dock to clean it and not bring any species that we don't want at the Mediterranean. We delivered on that milestone on the 14th of March. It's a 2-week schedule that would lead the FPSO to get out of the dry dock, then Technip will be doing the final preparation for sail-away into the Mediterranean. The other big announcement or milestone that we are expecting in the next month is the results of both the Athena well in Block 12, that as we saw in the previous slides, could lead us to 20 Bcm with a very high probability of success, but more importantly, derisks a lot more resource in Block 12 that would allow us to pursue our exports -- funding export gas opportunities in the region that needs a lot of gas. We have our first gas from NEA/NI that is scheduled for the second half towards the end of the year. And of course, rewarding our shareholders with dividends, which Panos outlined in what we consider to be a sector-leading dividend policy, stable and predictable dividends is what Energean is going to be about, plus growth, plus deleveraging. That is going to be our targets and our medium-term plan, always looking to commercialize new opportunities very fast, as we've done until now. So we continue on our vision to be the leading EastMed gas player. And of course, in today's environment and backdrop, this position is a very strong one when every country in the Mediterranean, including Israel that is on track for 20 Bcm gas demand. Egypt, that is expected to reach 80 Bcm and of course, Europe, with less reliance on Russian gas, are a fantastic place to be for a gas producer, and that is the role that we will be playing over the next coming years. With that, I want to thank you for your attention and open the floor to any questions.

[Operator Instructions] Your first question today comes from the line of David Round from Stifel.

Obvious place to start, I suppose, is the dividend. So really, just interested in understanding the thought process behind the $1 billion number, which is obviously a pretty impressive number. But if I look at your forecast, it would also leave you with quite a lot of capital in reserves. So to what extent is the dividend policy about just setting a sensible but sector leading level at this stage? And we could therefore see it move higher? Or do you actually have specific reinvestment M&A opportunities in mind that you need to reserve capital for?

David. Let me take this, Panos. We are, obviously, very confident about our ability to generate cash flows, which are underpinned by the long-term gas contracts we have in Israel. And that gives us the confidence to be announcing this dividend policy. The level of which, as you said correctly, is as I'm using your words, impressive. Now, we also are very conservative when it comes to capital allocation, and we want to see deleveraging, because the last thing we want is to see a business that is overleveraged. These are mistakes that the E&P sector has done, and we don't want to repeat them. In terms of opportunities, as said earlier, we've started a drilling campaign that could lead us to drill 5 wells that, as we said before, could discover another 100 Bcm that would open the door for the next growth phase of Energean. I've said many times, we will not become a never-ending investment story that doesn't return money back to its shareholders. So the combination of a very stable and predictable dividend, growth capability, with additional capital and deleveraging, all 3 are extremely important to us. Of course, if we produce results above expectations, we will reconsider and think about readjusting those dividend levels. But at this point, we feel very confident that we can return $1 billion over the next 3.5 years, and that's what we are targeting to do over the next -- until 2025. So you know very well, but we are totally aligned, because the management team has a very strong shareholding in this company. So we're totally aligned with shareholders, we're totally aligned with the key drivers and goals, which are the 3 that I mentioned before.

Okay. Great. And can I just ask a follow-up then. There was a new gas contract recently. Are you able to comment on how material that could be, I suppose, whether you knew that was coming in before you set your 2022 production guidance? And also, whether it could lead to any follow-on contracts there?

I will give you the backdrop. Nick can comment further if he wants. Did we know about the contract? We are continuously in the market. We know everything that -- and every demand for gas that is out there. Israel just finished the privatization of another power station called Hagit. The winner of that power station is an existing client. We are negotiating. Obviously, we haven't made any announcements yet. That is a contract that we are chasing to replace the volumes that we have from potentially, losing from Dalia. Beyond that, the spot contract with IEC is a contract that is extremely important, because that will allow us to pretty much fill the boat, as we've said before. Any excess capacity over and above the contracted volumes, any capacity over and above the volumes that are take or pay, if customers decide not to take them, probably will be taken up by spot contracts. Now, the problem we have today is that we have more demand than what we can satisfy. And we have signed an MOU with EGAS for exports of gas to Egypt. That is up to 3 Bcm. Clearly, we cannot fulfill that until we find more resource, which is exactly why we're drilling those wells. So our problem right now is -- and it's a good problem to have, is having more resource to sell in a market that cries for gas. The spot exposure to IEC allows us to have flexibility and fill the entire 8 Bcm capacity of the pipeline and the FPSO that we have today. But one more comment on the commercial side, which we seem to forget. This project will be producing close to 30,000 barrels of oil a day of very high-quality oil, and we've just signed an agreement with Vitol to cooperate in the marketing of this crude, with today's prices at significantly above $100. That is a huge boost in cash flows coming from the liquid stream. And that -- those liquids, depending on the results of the Karish Main 4 well could be increased because the second well in the sequence is an appraisal well of Karish Main. The reason we're drilling that well is because we believe that there is more potential for liquids in our blocks, more potential for liquids in the region. And we have the FPSO with an 800,000 barrel storage capacity, able to process and export those liquids. So looking back 3 years when we decided to build an FPSO and take it 100 kilometers away from the shores of Israel, it's proven to be absolutely the right decision because that allows us not only to produce gas from Karish and oil from Karish, but also, to commercialize very quickly, the volumes from Block 12, if we find gas in the Athena well, or produce more oil from the other block. So coming back to your question, the spot contracts with IEC allows us to fill the boat regardless to the boat. I mean, obviously, fill the pipelines and the capacity with gas, depending on who and what take-or-pay volumes are being consumed by the other customers.

Just one thing to add, sorry, on that is the point that Matthaios made at the beginning that we -- it's good to be long gas. And at the moment, the -- we are targeting 100 Bcm, as Matthaios said, to get back to that long position. The spot contract was sought very much by IEC. They were looking to diversify their sources of supply Israel [indiscernible] and supply to mining. We've seen 2 peak demand days this winter in the power sector as well -- normally has its peak in the summer. So we would expect all of our power customers to make that maximum, but rest to be taken, as I said, as Matthaios said by IEC, maximizing our production of gas next year. And the oil on top of that, of course, which is a nice 50 API sweet oil.

Your next comes from the line of Nathan Piper, Investec.

I just wanted to ask of you kind of wider questions. So first of all, on the EastMed export pipeline into Europe. Do you think -- well, this might be a rhetorical question. Do you think the events over the last few months are going to move that project forward more quickly, with a bit more conviction from all sides? That's the first question. Secondly, with interest rates going up, do you think you will be able to refinance at a lower average interest rate than the 5.5% you've got at the moment? And then I guess lastly, can you outline how levels of interest in any farm out discussions you're having on some of your exploration assets in Israel?

Thank you, Nathan. Let me take the first question. Panos will answer the interest rate and refinancing, and we'll come back to your question about the farm out. On the East Med pipeline, in the last months, we saw a white paper coming from the U.S. saying that they didn't support this pipeline, then we heard discussions that it's back on the agenda very recently because of what happened. This is a pipeline that goes through 3,500 meters of water depth. It has technical challenges and has commercial challenges. If the European Union decides that security of supply is as important as we believe it is, then a $5 billion or $6 billion investment in the big scheme of things is immaterial. So I don't see much change for now. I see a lot of talk. Politicians in Europe are starting to realize and have a reality check that gas will play a dominant role in the energy mix and security of supply is important. We have already 2 LNG terminals in Egypt that have capacity with our pipeline that go to those terminals. So there are existing export routes that are competing with this pipeline. So I think we have to see the commercial logic, and we have to see the geopolitics. But at the end of the day, this is a project that, if it happens, we will use it. If it doesn't happen, we have enough demand in the region that we showed in the back. We see 120 Bcm in just Egypt, Israel, Jordan and Palestine, regardless of European Union demand, and we haven't even started to talk about Turkey, if Turkey comes back into the mix. So I don't think that demand for gas is going to be an issue for our region. Now, the European Union has different issues to deal with. Panos, do you want to comment on the interest rates and the refinancing?

Yes, yes. Nathan, look, I'll comment to what as a company we can control and plan for. So yes, the interest rate environment, how it will develop, we cannot control. We can run scenarios about it, but we definitely cannot control. What we control and we have good confidence is our cash flows. And the profile we have can service our existing commitments, '24, '26, '27 and obviously, as planned. The need for any refinancing. And if there is a need, will be very limited, nowhere near the $3 billion we raised in '21. But most importantly, one of our key targets and expectations is very rapidly post the first gas, number one, the deleveraging to be very visible even in a group consolidated basis. And the rating agencies to appreciate and acknowledge that by a very rapid upgrade in the rating. So the combination of all this, we feel confident that it will not affect our cost of debt if we feel that we need to go back in the market in the next 3 or 4 years, both the quantum of that debt raise, as well as the fact that we expect a very rapid upgrade in our credit rating, I think, give us enough comfort and confidence that any debt offering will not carry a higher cost than what we already have.

Nick, do you want to comment on the farm out process?

Yes. Briefly, it's in the early days, yet. Obviously, saw it mentioned in the press recently, we have had a good strong amount of interest from significant players in the region and some new interest from globally, but it's really too early to comment on what's going to happen there. As Matthaios said, these are optional wells. But looking at our conservative cash flow profiles, we're not required to do this farm out in order to drill them. But if we get a compelling commercial offer, then we're always happy to look at those commercial company.

I suppose, maybe just to develop that, a touch, Nick. How would you characterize those discussions relative to interest in the region over the years that you've been there? So I guess, the Eastern Med has become a more fashionable geography, I think. But how would you assess the interest in that part of the world?

Yes, certainly, yes, Nathan, you're right. It's a fashionable geography, and I think more of the players now than a few years ago, are saying yes to Israel. I think that might be part of your question. Israel has been problematic for some companies in terms of their willingness to invest. But recent diplomatic and geopolitical moves have made -- it's easier for many of the majors to contemplate entering Israel. And I think once that rubicon has been crossed. If you were to get hold of and look at, for example, a creaming curve of the various active basins in place in the region. The one for the Israel side of the basin is still climbing vertically. So I think that will provide a lot of interest. Obviously, there's gas significant -- 3 significant gas field, gas developments already. But as you've seen from our presentation, there's a lot more there. So we're confident, we're comfortable, we're going to want to drill these things anyway. We've got, as Matthaios said, sort of an eye to the future in terms of developing them. As you said, we don't want to be a never-ending investment story. So to build another investment in the size of Karish is going to cost a fair bit of money and that might be something that we would welcome a partner on. So it's a matter of timing, I think, rather than necessity. I would say, if we get the right offer, then we'll be very happy to talk about that.

Your next question comes from the line of Rachel Fletcher from Morgan Stanley.

I have a couple. The first is on the Israeli gas purchase agreement that you signed with IEC for a year. How should we think about the gas prices for the volumes sold to IEC? And also, are you likely to extend this agreement? And then second, something that's been touched upon in today's presentation, but I wanted a little bit more about your ability to send gas to Europe. So obviously, the majority of gas from Karish is already contracted, but if the Block 12 drilling program is successful, are you looking to potentially send that gas to Europe? And how are you thinking about commercializing those volumes?

Okay. Well, I think the first question about IEC, we've already touched on. This is -- it is a 1-year contract, but it's extendable by agreement by the parties. And what it really does is provides us with a spot framework as those people who remember how the European OTC gas trading market developed way back then. We have the framework. So effectively, we have the ability to sign short-term deals with IEC. In terms of the pricing, as I say, the market -- the regional market has a very strong demand at the moment. We know that gas is being exported by other companies to Egypt at oil-link prices, which we have made clear. So those export prices are strong. And obviously, if those companies continue to export gas as we're looking to do long term, it's unlikely that short-term, gas will be completely delinked in Israel to that. So we're seeing the first steps, if you like, in a regional market and a regional market price. We don't -- there's not a lot of liquidity. There are bottlenecks in infrastructure, both commercial and physical, but they're gradually filling away and being dealt with. And that sort of leads us on to the, if you like, the next question that you asked about exports to Europe. As Matthaios said, there are existing LNG facilities in Egypt, which are not full on a long-term basis, certainly. Egypt has itself a very strong demand. We talked about the East Med pipeline and potential deferment of get that's there. But effectively, that LNG capacity already ties us in a fashion to European prices. So our gas could lead to you by that route once we've made these discoveries in Block 12, 21, 23 and 31. We may see more infrastructure developments. But certainly, as I say, there's a route there. We're not short of local market and market prices are becoming more interconnected as we move forward.

One more comment on this from me. Block 12 is not subject to any royalties to the seller of the Karishan [indiscernible]. So regardless of what happens with the European markets, the discovery of gas in Block 12 has a huge value for us because it -- worst-case scenario, just replaces the Main volumes which are pushed out in the future. It reduces CapEx and it increases significantly the NPV impact on our volumes. So our starting point is that as soon as we find gas, we have a big jump in value just by reduced [ work piece ]. Of course, we will assess what Nick said. We will look at export options, we look at the local market and we will always look to sell not only to the highest priced market, but also, to the one that has the lowest CapEx and gives us the highest impact and the highest value for our money. Israel, I repeat what I said before, 20 Bcm. It's a market that is very well developed, pays well, pays on time, no credit risk, on our buyers -- also very limited credit risk from our buyers. So we don't have to sell to you. We will sell the market that gives us the best return.

[Operator Instructions] Your next question comes from the line of Matthew Smith, Bank of America.

So I just wanted to sort of come back to the topic of potential development options, development concepts again. And I suppose these are obviously hard question to answer when you sort of don't know today what sort of resources you might be sort of sitting on in the future, subject to these exploration wells. But I suppose, you have already signed an MOU with EGAS. So there must sort of be a design on the table ready to sort of satisfy that contract. So I was wondering if you could just talk us through that a bit, what the sort of pipeline optionality could be onshore sort of direct to the LNG facilities. Whether it depends on what other people do in the regions in terms of their export plans? And then equally, I just wanted to touch upon, if I could, the timing of the farm-down discussions on your exploration licenses. I suppose in a perfect world, I think you've obviously declared quite a high degree of confidence in these prospects. It seemed that you'd be in a stronger commercial position to farm-down those exploration licenses sort of post exploration results, but I appreciate our exploration is an uncertain game. But I'd just be interested to hear your take on that around the timing of the farm-down processes, please.

Yes. On the development options, Matthew, we don't need new pipelines because there are -- there's a pipeline network that exists today that has enough capacity via Jordan to go to Egypt, and through the Egyptian network to reach the LNG terminals. So we don't have to build any new pipelines. Obviously, a discovery in Block 12, it needs some offshore infrastructure and a link to either the Israeli network or if we decide that the volumes are big enough to go straight into Egypt to go and have direct access to those networks. I think you said it yourself. It's very difficult to envisage what the development plan is going to be, but I gave you 2 options. One is to go into Israel and through Jordan into Egypt. The other one is to go straight into Egypt and access those LNG export volumes. But before we talk about exports, think about the demand in Egypt, which is growing. Egypt as a country, has a population growth of 2.5% a year. That's 2.5 million people added to the population of Egypt. The economy is growing, there's a huge gas demand in Egypt, and there isn't enough at the moment to cover even the Egyptian needs, unless there are major discoveries in the area. So before we talk about complex export routes through LNG terminals, we are targeting the low-hanging fruit of our region. And I remind you and everyone on the call that back in 2018, '17, when we took the decision to develop Karish, we took the investment decision from award of license in less than 16 months. So we raised money. We took -- We did all the engineering work and took the development to do extremely fast, because that's how we work. And that's the difference between Energean and other major players. There are companies that have discovered gas since 2011 in Cyprus and are still talking about which development plan they will choose. We took an asset, 3.5 Tcf in 16 months. We took it from award of license to FID. Now, with infrastructure in place, those decisions will be taken even faster. So a little bit of patience, not too much, until we have results from the first well that will guide us to the right decision. But as I said before, very clearly, the low-hanging fruit of the region is our top priority. We don't want to be talking about projects, we do projects. And that's what we've proven to do as a business. With respect to the farm-out, you're right. It's not a perfect world. We don't live in a perfect world. And we are taking into consideration very seriously what I said for capital allocation in order to be able to meet our dividend policy, our deleveraging. All of that is part of our thinking. Growth, of course, will follow in parallel with the other 2 vectors. And as Nick said, we don't have to farm down. These are very high post wells in an area that we know, both the rocks and the above surface issues. Because, yes, Israel today is a much different place compared to what we went into back in 2016 with bilateral agreements and regional agreements with countries that before weren't even allowed to touch Israel. And today are business partners, allies, and that has completely changed the dynamic of Israel in the region. I remind you that Israel was a country that imported gas and was relying on gas and now, is export gas and is a self-sufficient country. And that is the result of the gas business and the security of supply that we brought, together with the other operators. So I think it's a little bit more -- again, a little bit more patience until we had the results of the first well that would derisk significantly one of the blocks that we're drilling that will add confidence. We will take into consideration. Obviously, liquidity, gas prices, oil prices around the portfolio. Because Energean is not just about Karish as we've demonstrated today. We have a very strong production base in Egypt that is benefiting from the higher gas prices. Our Egypt gas price is oil price-linked. So we are enjoying much higher revenues and cash flow. Italy is enjoying much stronger results. I remind everyone that when we bought the Edison portfolio, and we paid $250 million for a portfolio that just in 2021, generated $200 million of EBITDA. It's -- obviously, our price are higher today. And we got back a lot of cash from Egypt that people weren't expecting us to get. That has given us the ability to have a $1 billion liquidity at the end of the year. We will take the decision based on all the criteria that I mentioned before. So we want to be able to pay the dividend, and as I said before, if we can pay more, we will. We want to be confident that we will deleverage as per our target of 1.5x leverage and below. Not to take any risk. We removed the refinancing risk last year. It was absolutely the right decision to do. We would have been exposed to interest rate fluctuations to date, and we have been conservative and correct, again, in 2021. And growth will come from all 4 projects that Steve described before, the Karish project and the new project. So I think the message I'm giving you here is that this management team is totally focused on finding the right decision and the right partners, not to expose us to too much risk over and above what we want and what we're comfortable to take. But at the same time, we'll continue to grow aggressively, because that's what Energean is all about.

Thank you. I will now hand the call back for closing remarks.

Well, thank you all for your participation. Thank you for your questions. It has been a very exciting year. 2022 is going to be even more exciting, with first gas coming from Karish. We will all be able to travel a lot more freely. We are beyond COVID restrictions now. So what delayed us, is behind us. And what is in our control, we will continue to deliver as we've promised to our shareholders. So I look forward to seeing you all very soon, and seeing you also in Israel to celebrate first gas later in the year. Thank you all.