Energean plc (ENOG) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Energean Trading Update Conference Call. I would now like to hand the conference over to Matthaios Rigas, CEO. Please go ahead.

Good morning, everyone, and a very happy new year. Good morning, everyone. A very happy New Year from me to all of you. Thank you for joining us today in what is a trading update and our guidance for 2022 -- '23, sorry. Starting with Page 3 of the presentation. I want to highlight the record financial results of the last year with $730 million (sic) [ $737 million ] of revenues and EBITDAX of $419 million, a fantastic year for us. And I want to remind everyone that we only started with our big flagship projects in 2018. Before that, we were a company that was producing just on Greece. And today, we are on track to become a $2.5 billion revenue generator and a $1.75 billion EBITDAX producer. And these are great numbers that have been achieved with hard work and delivery of all of our promises. And that's, I think, the key message. We said in March of 2018, when we took the final investment decision on Karish, that we would deliver a project, a major project, and we delivered it in 2022. This is 4.5 years with COVID in between. I think this is a remarkable achievement that brings us to where we are today with a solid foundation to continue our future. Our group liquidity, one of the key targets for us to make sure that all our projects are continuously fully funded stood at $719 million. This is due to the excellent job that our team has done, not only to produce cash flows, but also to raise capital at the right point in time for us. As I mentioned earlier, Karish came on stream, a fantastic achievement. The FPSO is being commissioned. And I know that some may have expressed concerns why ramp-up hasn't achieved the rates we were hoping for. But I think the key message here is that the gas that we delivered is on spec. So the wells have delivered exactly as planned with the liquidity yields that we were expecting and commissioning within February will be finished. I remind everyone, again, this is a major capital project that we delivered in 4.5 years. No issues that we didn't expect, no issues that cannot be handled. So firmly on track to finish everything by February and start to ramp up or continue to ramp up to achieve the results that we expect to see in 2023. But Energean, as I've said many times before, it's not just about delivery of existing projects. It's not just about stable cash flow and predictability of a dividend stream, which is the bedrock of our business, we have committed to clients to deliver gas to them for the next 15 years. And we are going to do that, that will generate the cash flow we expect to pay the dividends we promised. It's also about growth. During 2022, we drilled 5 wells and discovered approximately 75 bcm of gas through our drilling campaign. Just a small reminder also, in 2018, when we started with Karish and Tanin, we were having 67 bcm, 68 bcm of gas to deal with, and we've created the company that you see today. We promised in the beginning of '22, we would double the resource base of Energean pretty much that's what we did. So we have in our hands today exactly the same amount that Energean started on in 2018. What we plan to do with this gas is to deliver a project, and we will talk about that later today that will allow us to double the size of the company over the next years. So think about us as a company that will deliver a stable cash flow and dividend stream, but we'll also focus on growth, focus on growth in gas, in the mediterranean that we know well. There's still a lot of opportunities to deliver. We have a number of projects that we're working on. We'll cover them later. They are all on track to get to the 200,000 barrel a day mark, but then we will also continue to grow. The third key highlight for today is on the corporate side and the ESG side. We did deliver our first dividend during 2022, $60 (sic) [ $0.60 ] per share, $1.20 annualized, 2 quarters of dividends, representing a yield of about 7.5% during 2022. We will continue. We will continue to pay our quarterly dividend as we promised it. Beyond that, and although ESG issues and CO2 issues during the crisis of 2022 were not at the top of the agenda, top of the agenda was security of supply and affordable energy, especially in Europe. We are firmly committed to our 2050 net zero strategy, and we are on track to reduce our near-term carbon emissions to about 7 or 8 kilos of CO2 per barrel of oil equivalent. Our commitment to ESG and our commitment to the strategy that we have outlined a couple of years back has resulted in a significant increase in our CDP scoring to A- from B outperforming the E&P global average, which is about C. So moving to Page 4, just a quick overview of our production. We've had 41,000 barrels of oil equivalent a day, 75% of that gas, obviously, the majority coming from Egypt, demonstrating the importance of the acquisition of the Edison assets for us during 2022. For 2023, and I'm switching now to Page 5 of the presentation. We expect to be around 140,000 barrel a day equivalent mark. Obviously, Karish will ramp up to our initial 6.5 bcm per year capacity, giving us roughly 100,000 barrels equivalent of production. Egypt, Abu Qir were continuously optimizing the production, both the wells and the facilities. We expect Egypt to give us about 30,000 barrels of production equivalent, both of the countries, gas, a big chunk of our Israel production, obviously, gas. But most importantly, gas that is sold either to Israeli buyers of long-term gas contracts, but also to the Egyptian government through an improved gas price we achieved in 2022. The last group of countries, Greece continues to produce. Italy, Croatia and the U.K., an additional 10,000 barrels during 2023, giving us a total expected of 140,000 barrels midpoint. Obviously, we hope and we will do our best to increase that. And with that, I would like to hand over to Panos to take us through our financial results.

Thank you, Matthaios. Good morning to everyone, and happy new year. As Matthaios mentioned, 2022 was not only a key year with critical milestones for our company, but a record year in terms of revenue and profitability of our producing assets. . We produced above 41,000 barrels a day, 75% of that is gas. We recorded revenues well above $700 million. Most importantly, we did keep our cost of production well under control at similar levels to last year in spite of the huge inflationary pressures, the world and especially our industry had to deal with. We spent $700 million in CapEx. This is roughly $100 million less than what we have guided, but that is just something that has been shifted in '23. Liquidity of $0.5 billion, actually, we have available lines that take that number close to $0.75 billion and a net debt position of $2.5 billion. Again, not only we did met -- meet our dividend commitment as communicated in early 2022, but we actually accelerated that by a quarter. So we paid 2 quarters of $0.30 each that takes us to the $0.60 per share. And we're very confident we will continue with not only our minimum commitment, but we'll do our best to overshoot that. In 2023, our guidance is to achieve close to 3.5x or 4x our production levels of '22. We have guided 130,000 to 160,000 barrels a day. Our cash cost of production doubled to what it was next year, and I want that to compare that versus the production increase. As you can see, we continue being an extremely low-cost producer and that reflects our ability to sustain and be profitable whatever the volatility of commodity prices. Our CapEx numbers remain roughly the same with 1/2 of $100 million [ $50 million ] coming from last year on Karish. But actually, it's going to be the first year since our IPO, that most of that development exploration commitment shifts outside Israel and especially in our Cassiopea and Egyptian projects that are getting very close to getting into production. Finally, our consolidated net debt will stay roughly at the same levels. We're guiding $2.6 billion to $2.8 billion, but I'm pretty confident we will be at the lower range, if not lower than that. Moving to next slide, Slide 7. We have been emphasizing for a long time, and I think that has served us very well, especially being able to navigate these difficult times with COVID. Our commitment to a strong balance sheet, a capital structure to allow a company of our size and growth profile to meet #1 now our dividend commitment to our shareholders, at least $1 billion by end of 2025. We've started with $50 million per quarter. And we aim, while -- when we meet our medium-term targets to get that number closer, if not higher than $100 million per quarter. Number two, our organic growth. Our 4 sanction projects are well underway. One has been delivered, although we do have some growth projects attached to it, and we will be discussing that in the next slides. And of course, the development or for newly discovered resources in the Olympus area that we're very excited about, and we will be communicating our plans much more clearly in the next few months. Third pillar, M&A. Our M&A transactions have served us very, very well until now. We are very happy for the transactions that we have done and executed. But I have to say, we're equally happy for the ones that we didn't do, and we lost to others because of price mainly. So we do stay disciplined. We do want and we do assess all available opportunities in the region. But we do have some very high investment hurdles to meet internally. And now we need to add another one that no transaction will undermine our dividend commitment and the shareholder returns we have started delivering to our shareholders. Finally, our target for a sustainable long-term leverage is still a high focus and a key focus for us. We expect our leverage position to drop well below 1.5x in the next 18 to 24 months. I have said a few times that the first maturities in the Israeli bonds are the ones that are attracting most of our attention now, especially the 2024 ones are the ones that we will try to refinance when and if the market is there. We're not in under stress, but of course, we need to keep our debt profile being the long and strong one that we have had in the past. I want to remind everyone that our current debt profile has an average life of 4.5 years and an average cost of debt of just above 5%. That compares with reserves that have an average life of more than 15 years and this is not stale reserves at the very end. We're talking about assets that have very long plateau well into the next decade. So a lot of room to optimize this debt profile even further. But of course, our focus remains to reduce our leverage to a more sustainable and long-term level. Moving to next page. As Matthaios mentioned, our ESG commitment has brought us in best-in-class in our sector, not with both statements and glossy presentations, but with very specific actions and strategic choices we have and continue making. Our increased gas production with our newly sanctioned projects as well as asset optimization that has been initiated in all our legacy assets has put us on track to reduce our carbon intensity well below the 10 kilos per barrel of oil equivalent, which is less than half the sector average. Of course, our efforts on developing the Prinos CCS, the only advanced type of asset in this -- in the region at least, are progressing well. We have completed the pre-FEED, which is getting analyzed. And of course, we will be keeping you posted on our next steps. All the above, of course, have been well recognized by the independent and the reputable agencies that have upgraded our rating. CDP has increased us to A- from B. Maala Index rating to platinum from gold. And of course, we still have maintained the AA from MSCI for a second year running. Moving to Slide 10. 2022 was a key year for our Karish project, where we met key milestone. And throughout the year, we were focusing on sell away from Singapore, then the attention shifted to first gas, then the wells opening and if they deliver as expected, that they do. And of course, our first sales have been recorded towards the last weeks of 2022. Now this is all behind us. 2023, very, very soon, and that is Q1, we will be completing our commissioning phase and reaching our initial capacity of over 6 bcm per year. And of course, with our growth projects, the Karish North tieback, the second riser and the oil train installed in the second half of the year, we expect to reach a final capacity of 8 bcm per year. On Page 11, we have outlined here, all our projects. Our medium-term targets now, it doesn't look that long and the path to achieve that. We're talking about the next 18 months, the company that ended 2022 with 40,000 barrels will produce 5x to 6x more that. And this is on the back of sanctioned projects that as of today, at least, we have no reason to believe they're not on track. As I said before, we're spending heavily now in our projects outside Israel. NEA/NI is the first one that we expect to achieve first gas from the first well in the next few weeks. And of course, the other 3 wells are expected to come on stream throughout 2023. Then Karish North and the growth projects are expected to be completed in -- towards the mid-year and Q3 2023. Cassiopea is getting into its final status. We expect alongside NEA/NI to bring that very important gas field, the only gas field that will come on stream in Italy and the whole of the South East Europe on stream in the next years, at least based on what we understand, and that is on track, of course. And the Epsilon project that we expect to bring on stream in 2024. The end result is going to be a production well above 200,000 barrels a day. This is not going to be a plateau that we will reach only for a few months or a couple of years. This is a plateau that will stay at similar levels for the rest of the decade and well into the 2030. 75% of our projects are gas. And of course, the profile of that revenue and barrels -- barrels of oil equivalent do enjoy a protection of lower prices or fixed prices, especially in Israel and Egypt. So Matthaios, back to you for Olympus Area development options. Matthaios?

As I said before, during 2022, we discovered and derisked a total of 75 roughly bcm of gas in Israel. And that equates to the volumes that we had when we started with our project in 2018. So the question is what do you do with this gas. And we have a number of options. The most boring obvious one is the jet backfill, the FPSO continue producing 8 bcm for a longer period of time, extend our plateau, push back the Tanin development. As you can see from Page 12, the Block 12 discoveries are closer to our FPSO, so lower CapEx, giving us a huge NPV boost if we just optimize the production. Is that what we would like to do? No, that's not our first choice. Our first choice is to either increase the FPSO capacity, and the technical team is already looking at options of what we can do to bring in other gas train on to allow us to use this great machine that we built, which is exactly the reason why we chose an FPSO. We wanted to have the option to commercialize discoveries that are sitting next to the main production hub. And our strategy is proving to be the correct one. So either we increase the FPSO capacity and continue to sell to the Israeli market. And I will ask Nick to comment a little bit about the commercial situation in Israel or we have the big gas demand that has been created in the region. Increase, obviously, with what happened with the war between Russia and Ukraine, giving us a region that needs gas. And I've said it many times before, when you have gas in the region that needs gas, you will find solutions. We have an option to go to Egypt, that we communicated before that we have signed an MOU with the Egyptian government to allow us to commercialize gas to Egypt. Or we can go north into Cyprus and then into Europe with new pipelines, either with partners or with industry or financial partners to minimize the CapEx impact on us and access much higher priced markets like the European one that we can get to perhaps 2 cycles. So I think what I want to conclude with on this slide is that we have always kept in mind that our strategy is to get the safest, quickest and highest return sales that we can achieve. And we've proven back in 2018. We were just -- or this was just a piece of paper, PowerPoint presentation, and we convinced the Israeli buyers to trust us, and we've proven that we can deliver on our promises. We now have a much more solid production base. We have infrastructure in place. We have an FPSO pipeline that go to Israel pipeline that connect us to Egypt, development options that we can bring this gas into Europe. We will be communicating our plans and taking an FID on the Olympus area within 2023. More specifically, we target to that in the first half of 2023. With the demand for gas we see in the region, I have no worries that this gas would bring a significantly higher price than what we have achieved to date in the start of our project. Nick, do you want to say a few words about the commercial situation in Israel?

Yes. Thank you, Matthaios. Yes. I think just talking back to what Matthaios just said there. I think one of the advantages we had in our first project was simplicity and focus. We made a decision very early on about the development concept. We were helped by the fact that the gas in Karish continuing with the domestic market. So we were successful by that focus and by moving quickly. This time around, we have more options, which is obviously like a blessing and a curse, as Matthaios said, the regional market has warmed up significantly. So we can look at and are looking at both potentially taking this gas to Egypt and to Cyprus. But also, obviously, the Israeli market is still a very strong and growing market helped also by the export of other Israeli resources into Egypt. We're already seeing the effects of that even during commissioning and that we are entering into spot agreements to help us with that commissioning road with parties who aren't long-term customers. So if you like, there's a displacement of demand from Israel into Egypt, and we're able to continue to fill that. There's also the ongoing privatization process with IEOC. The electricity authority have identified that there's further need for electricity generation in Israel that needs to be satisfied by gas, while the solar still builds up. So we're sitting in the middle of 3 hot markets, access to Europe, access to Egypt and access to Israel. So our challenge this year is to decide which is the best and to pursue that with the same degree of focus that we pursued the initial development. So you should expect to hear something about that as we go through the year.

Thank you, Nick. Turning to Page 13. I want to mention that Energean is not just about the production from Karish, about the existing discovered resource, but also we're looking at further organic growth through our exploration portfolio. We have a well coming up in Egypt, North East Hap'y, together with Eni. Eni has 70%, we have 30% today. We are expecting to be able to fund this down to retain about 18%. And this is a very important well for us and for Egypt. We expect this well to be spudded in 2023. In addition, in Egypt, we expect to sign the new exploration license that we have been awarded onshore East Bir El Nous and that's in Energean and INA. Croatia, we have our Izabela-9 exploration well, where we have a 70% share. And obviously, in Greece, we completed the Block 2 3D survey very recently, we are analyzing results. And once we have information, we will be able to decide on a drill or drop commitment. The same also with our block in Ioannina. So it's not a big exploration portfolio, but Energean is not about risky frontier exploration. We have said it many times before. For us, exploration is money we can afford to lose. But with the excellent results we've seen from our drill bits operations in Israel, we are confident with our exploration team being able to analyze and guide us to take the right decisions, to continue the growth of the company outside of Israel as well. So let me close with the key catalysts that we see coming. Obviously, the big one to finish the commissioning process that a few weeks in front of us in February, we expect the FPSO to be fully commissioned and the ramp up to more than 6 bcm a year capacity to be achieved. In Egypt, first gas of our project NEA/NI, as Panos said, in a couple of weeks in February, we expect to see gas flowing from NEA/NI. And that will obviously continue with the next wells that we will bring on stream during the year. Karish debottlenecking complete by the end of 2023. That means the 2 big projects, oil, the second riser and the second oil train to be installed, that's on track to allow us to get to the 8 bcm mark. There is going to be a new CPR that we will issue and a development concept for Olympus area that will set the foundations for our growth. Again, first half 2023 expected. All of that, of course, is built on the back of our quarterly dividend in line with the policy that we've announced and hoping, as Panos said, to be able to increase that from the level that we've been able to pay in 2022. Capital structure remains -- capital discipline remains a core priority for us. So we're already thinking about the options to refinance our 2024 bonds looking at the markets and we'll be doing what we've done many times before, taking the right decisions and act in the market at the best possible time for us. Last but not least, we continue with our net zero strategy. We continue to be focused on ESG. We continue to be focused to be best-in-class, not only in operations, but also being a good corporate citizen and delivering on all our promises on the operational, environmental, social and governance front. With that, I want to thank you for your attention and open the floor for any questions.

[Operator Instructions] And your first question comes from the line of David Round from Stifel.

It's Chris Wheaton, actually standing in for David this morning. Guys, very well done for actually getting first gas and the position you're in at the moment, that's fantastic news. Three questions, if I may, please. Firstly, one operational on the commissioning, then one more strategic, then one more financial. Could you perhaps -- on the first question, the commissioning, could you perhaps talk through what gives you the confidence on saying that you'll be a few weeks away from the commission? And clearly, you've got to get the right number of people doing the right jobs at the right kind of speed to get through that. I'm interested in whether you could talk through that process a bit more. Secondly, on the strategic -- the [ Chevron ] partners are looking at floating LNG solution potentially. Interestingly, Nick, in his segment in this call talked about 3 end markets of Egypt, Israel -- sorry, Egypt, Israel and Europe. Is that potentially a fourth also with LNG as well as potentially beyond that just those regional markets? And lastly, another question on finance. If you're going to go to 8 bcm capacity, what's the right level of debt with -- you ought to have a steady state with that kind of level of production and cash flows. I would have thought if you were to weight your cash flows or weight your cash flows by contract length. I would have thought a duration -- debt duration of sort of 10 to 15 years would be more appropriate for your business. I'll probably stop there.

Chris, thanks for the questions. First one is what gives us the confidence. I think we've been through discussions like this many times before, even from last year. The question where are you confident you will be able to leave Singapore. Are you confident that you will be able to deliver first gas. Now obviously the question -- that's a very valid question. Are you confident you will deliver on commissioning. The answer is absolutely, yes, we are confident. I can outline to you a very detailed list of what has been achieved, prefer probably to do this offline, if you want, and dedicate a session, if you want to go in deep guide into commissioning discussions about sales gas compressors. I'm sure Steve would love to give you all the details. I would like to stay with what I said before. We are confident we will deliver the full commissioning by February. And this is only couple of months after we brought the facility on stream. I don't think I want to go into a very detailed list of technical questions, but very happy to dedicate a session if you want to talk about the kit. As I said before, what gives me the confidence is the fact that -- and the most important question for me here was the deliverability of the wells. The deliverability of the reservoir and what we've seen so far is exactly what we expected. The liquid yields are exactly as we expected. The wells are producing what they were expected to produce. The spec of gas is as expected. So the key issues that could have been encountered, and obviously, none of them was encountered because of the excellent design and the work that the technical team did gives me the confidence. The rest is fine-tuning of machines. And that is something that's doable and manageable. What would have been an issue or a risk would have been subsurface or issues with wells, which obviously doesn't exist. That gives me the confidence. Now on your second question, the strategic question. And the second question about FLNG and the announcements of Chevron and then going out. First of all, we never talk about competitors. We never talk about what they plan to do. What we do, of course, is talk about projects that will happen and will bring to our shareholders, the results and the dividends that we promised. If someone decides that they want to spend a few billion dollars to build a LNG and a floating LNG offshore in Israel, and this has to happen in the deepwaters of Israel because in my personal opinion is that the Israelis will not allow a nearshore development, meaning this has to be a deepwater LNG project. We would be very happy to use it, very happy to use it is an excellent option. It's actually exactly the same position that we took on the East Med gas pipeline. And I had a question in previous sessions like this, whether we believe in the East Med gas pipeline. My answer was exactly the same. If they build it, we will use it. But in the meantime, we want to deliver gas to customers, and we want to deliver cash flow. So we are looking continuously at the best option, whether that is to sell more gas to Israel or to Egypt or from Cyprus into Europe to bring cash flow today, not in 5 or 10 years. This is our target. And as I said, if they build it, we will be very happy to use it. I remind you also that there is a pipeline that brings gas into Egypt that has already 2 LNG terminals that people can use to export gas to the world. Obviously, you have to go through an existing pipeline network and rely on the Egyptian government, which has been an excellent partner for us throughout -- for years, and we trust them despite the problems that Egypt has as a country to access those terminals without the need to spend billions of dollars. So I hope I covered that second question. I'll let Panos deal that debt one.

Yes. On the debt, we have communicated that below 1.5x leverage is what we consider to be a good sustainable level. Now below 1.5x does not mean 0. We have made some strategic choices of how to build this company, how to monetize the reserves. And I think this is something that we need to spend more time with you and to wonder how to explain how we differentiate ourselves versus our peers. We do not have a profile of production in the next 3 to 4 years that is dropping off the cliff, okay? We have the platform that is sustainable until the end of the decade, and we have contracts that take us well into the end of the next decade. So on top of that, we're not exposed to the volatility of the commodity prices that has unfortunately and fortunately made and destroy fortune of other E&P companies. This is not a profile that we want to build since the beginning, and that's why 70% to 75% of those future cash flows are protected through floor pricing or fixed pricing in Egypt. So based on that and based on the fact that we have a 15-year type of reserve life, if we wouldn't be doing justice to anyone to delever to levels of 0, 0.5%. So that will play a role to the capital structure of Energean. We will continue tapping and using the DCM markets to the extent we can and to the extent they can serve us, and we think they recognize the -- how robust our cash flows and profitability are now. This is a year that, obviously, we have still a few projects ongoing. The massive project is behind us, which was Karish, and as Matthaios has mentioned, that was a huge, huge milestone for us. And now going forward, 75% of that profile we're showing on our presentation has been sanctioned, but we're still in a period that we are bringing on stream key projects that will get us into this target rate of over 200,000 barrels a day. So deleveraging is happening already. As you can see at the corporate level, we have a net debt of roughly $100 million over an EBITDA that is well above $400 million, although we're not giving final results now. So we are already very low leverage on the producing assets. As Karish is ramping up, the total leverage of the company will be hitting those numbers. Now from '24, '25 onwards, let's have this discussion when the time comes. But again, below 1.5x, it is a target, but that shouldn't be confused with the target of being 0 leverage company.

And your next question comes from the line of Werner Riding from Peel Hunt.

Probably another one for you -- yourself, Panos, on the dividend, which you described as progressive as Karish ramps up currently at $50 million a quarter, increasing to a minimum of $100 million. So just wondering what sort of increments we can expect this to increase by on a quarterly basis? And do you expect these increases to start this year? The first question.

Okay. I don't think I'm in a position right now to promise an increase this year. We are definitely targeting that we target to increase the dividend stream as soon as possible. Again, it will depend on how quickly we meet those production targets. And as I said, we have no reason to believe that we will not. All our projects are scheduled to be delivered as expected. So that's -- I cannot comment anymore if this year we will see an increase? Definitely, are more than it was. We would like to see this happening this year. Will we go straight to $100 million? No, you will have to factor in that it will be staged and we will reach that $100 million at the point that we have reached the 200,000 barrels a day, and that is reflected well with our cost base as well. So it will be gradual. We're talking about medium-term targets, guys, but you can understand now we're talking about 18 months. So this is it where -- it's happening. So bear with us a few more months, and hopefully, we will be a little bit more clear.

Yes, sure. That's great. That's clear. Second one is just a brief one on the U.K. assets at this point. Given the recent appraisal well on Izabela. Are they to be disposed by this year?

We've said many times that the U.K. is a non-core area for us. But at the same time, we're very happy to work with the assets and take them all the way to the commissioner base and maximize the value for us. The market been obviously hit by the windfall tax. And a lot of the players have had issues that we're reading in the press, obviously. Whether there is a market to dispose of those assets or not, I don't want to comment on today. The key point is, as I said before, they are non-core but we're very happy to work with the assets. They're a very tiny part of our business and a very small part of what we have in our plan to achieve the 200,000 barrels a day. We didn't see, obviously, the upsides from exploration wells that operators were hoping for. It's a non-operated position. We generally don't like being in a non-operated position. We like to be in control of our destiny. As you have seen from all of our other operations. Israel, we're 100%, obviously, and operating Egypt is the same. This is a type of business we like to do where we can take decisions and create value rather than sit back and wait for others to take the decisions for us. So we will see. I think most likely, we will continue working with these assets. But if there is an opportunity, I'm sure Nick and the commercial team will take it. And everything that we do, as Panos said before, is based on what maximizes shareholder return. That's what we focus on. If a sale is better than working with the assets, we will take it. If not, we will just look at the assets to the end.

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

Happy New Year. I have two, please. The first is on CapEx. You mentioned that some CapEx was shifted into 2023. I was just hoping you could give some color on the breakdown of this, I think you said around $100 million that was shifted, please? And then my second question is a very quick one. You mentioned that you've been selling to customers during the commissioning process that aren't long-term customers. Is there any likelihood that these customers actually become long-term customers at some point?

Let me take the first one and then Nick can comment on the second. The CapEx is around $100 million, $120 million, if I'm not mistaken. There has been safety -- this is linked directly to commissioning milestones that we will have to sign of the Technip, when commissioning finishes. So it's very clear, it is linked to commissioning milestones. The EPCIC contract is very clear. There are some commitments that have to be met from our main contractor. When those are met, of course, they will -- those -- these CapEx numbers will crystallize. Nick, do you want to comment on the question on...

Yes. Of course. Rachel, I think we can say it's a definite possibility. One thing that everyone is aware of is we have sold on long-term contracts, and we have commitments for our existing book reserves. We hope to produce another CPR this year. There is as I said demand Israel over the medium term, and we will be looking at that as well as the other options, as we said, to Egypt, Cyprus and LNG. So yes, the fact that the market is still engaging with us is good. The fact that there is effectively a regional short on gas supply, again, is good. So it's possible, yes, that we will be continuing our relationships with these new buyers.

And your next question comes from the line of Mark Wilson from Jefferies.

I'd like to ask about the -- just to get a bit of picture on the cash flow and net debt dynamics into 2023. Panos, you spoke a lot to deleverage ahead, but guidance is for CapEx to -- for net debt to increase into 2023, and that's with a CapEx number. The guidance that is down in the coming year and obviously, production are ramping up. So could you just explain what is it we're missing here in terms of deleverage into 2023?

Yes, there are 2 concepts here, deleveraging and leverage gives a ratio is net debt-to-EBITDA. The absolute number of net debt -- it is in line and will stay roughly in line with what it was in '22. I remind you that we have guided very similar numbers in '22, 2.6, 2.8. We ended up with 2.5. 2023 is not going to be the year that I expect a massive reduction in the absolute number of net debt. We're still running all our projects in full steam ahead. Our CapEx number is not lower, is exactly the same as we recorded in '22. So 2023 is a big transitional year to achieve the 200,000 barrels a day. We are bringing online 3x, 4x more barrels than we did in '22. And of course, we will continue meeting our dividend commitments. On top of that, we have to factor in, unfortunately, close to $100 million of windfall taxes that we have to pay in Italy. And of course, all these make 2023 the year that we shouldn't be prioritized on reducing the absolute net debt. The leverage, of course, will drop. The EBITDA will be much higher than what it was in '22. And that means the underlying cash flows are much higher to serve is exactly the same debt quantum as we had in '22. We expect to deliver both on absolute terms and on leverage ratios very rapidly from 2024 onwards, but always in a managed way, as I said, because that will always have a key role in our capital structure going forward.

That's great clarity. And then could you just give us the latest on where average pricing stands in Israel and the absolute contracted volumes you've got now on longer-term contracts?

Okay. Yes, pricing is -- in terms of term and spot contracts is higher than when we signed our initial long-term contracts for firm gas supplies. The draw of gas into Egypt, largely on oil-linked prices, which have a net at higher than our price means that prices in Israel for new sources of gas are higher than they were. And if you could just remind me of your -- the second part of your question, I think it was in terms of total quantities.

Yes. The total contracted quantities you've got versus the anticipated 8 bcm capacity. And actually remind us, is there a percentage below that 8 bcm capacity that would be the actual effective volume across the FPSO?

Okay. So we have sold the full 100 bcm of 2P reserves that we currently have in Israel. That provides a plateau, which you have seen in previous presentations of 7.2 bcm a year. So hence, we do have a small amount of capacity available in the FPSO and to the extent that we have any additional reserves booked, we can monetize that immediately through that facility, should we so wish. And that for us will depend on the price that we can achieve in the markets that we can reach. So there's a possibility that we can increase our production once we have the second production riser and the second oil train in place at the end of this year, but it's not the necessity we're positioning for the next phase of development. But if there's an incremental value opportunity there from that extra capacity, then obviously, we'll take that as well.

And your next question comes from the line of Kevan Salisbury from Ninety One Asset Management.

Congratulations on the results this year. I have a few questions, if I may. With regards to your issuance plans for this year, you've spoken about it. And obviously, you've got the '24 notes that you need to -- well, you said that you would like to refi. Do you have any guidance on timing in quantum? And do you expect to maybe take down a bit more than just the refi. That's question number one. Number two, have you had any discussions with the ratings agencies? And do you have any long-term targets for where you'd like your rate to go to? I know you've hinted before that you'd like it to be higher than it is right now. That's question number two. And you just referenced the contingent liability in Italy for the windfall tax of around $100 million or [ EUR 90 million ] or whatever it is. And you said in your release that you've gone to the courts to try and push back on it. Which is the case? Do you think that, that courts can have any results? Or is it just kind of pro forma and you expect to have to pay it out this year? And that's it.

Matthaios, let me start with number one, and I can answer number 3 as well. So in terms of our intentions for the notes. The first tranche of 2024, yes, ideally, we would like this year to take those out and push them back. But as you understand, this is -- we have to rely on the markets, number one. And if the bondholders are back in the market because in 2022, no one was interested to any type of booked issuance. The market has opened better. And as I said, we are drawing more attention to the right timing to do that. If it's going to be higher or not, it will depend a lot on our plans around Olympus. And if we will continue having some CapEx, as we have said many times, the times that Energean was committing to [ $2 billion ] type of capital expenditure 100% is behind us. But if we are to accelerate this very exciting discoveries we have in Olympus, that obviously, we will need to take that into account. So I can't comment more. All I can say is that, yes, it is our focus for the year. If the opportunity is there and if we get the recognition from the DCM markets of what we have achieved so far after 2 years of what we said we will achieve. And of course, the market conditions are there, we will do it. Now regarding the windfall tax, it's very unfortunate. I think it's what the European Union and U.K., in our view, continue making the same mistakes of trying to find solutions on a very temporary issue by undermining a very long-term and capital-intensive industry. This is not for us trying to change the world. This is something for us feeling that we have every right to argue at court. This is a windfall tax that we think is unfair. But obviously, we have to be realistic. We have the funds to pay those taxes. We will pay those taxes. It's not going to be a contingent liability, will be crystallized liability in our books. It will be paid in June 2023. Of course, the legal aspect of it, we will fight it at court, and we hope and trust we will find the rights.

No, there was a second question about the ratings and the rating agencies. If you want to take that, and then I'll come back on Italy, I'll say a few things about it.

Right. Okay. Rating agencies. We are in very close contact. Of course, you can understand that all 3 of them are contacting us post the first gas. We are keeping them up to date on our commissioning plans. We are hopeful, but we cannot commit that the outlook will be shifting. And as we produce and record sales, we will see a much more tangible type of increase in our rating. We are working very -- we're very focused on that, as you can expect. But obviously, we cannot do anything else but just providing data. The feedback so far is very positive. We do deliver what we say we will deliver. And of course, that has to be taken into consideration and will be taken into consideration of the timing of our bond issuance.

Quick comment from me on Italy. This is not a case of trying, it's not fair. And we understand that governments have taken a decision throughout Europe that affect not just us, but thousands of other companies. Just in Italy, the new tax affects 7,000 companies. So this is not a situation of the Italian government targeting the upstream sector. It is the entire energy sector. What we have seen, of course, which hasn't been mentioned here, is that the Italian government in parallel with putting or imposing this municipal tax has opened the North Adriatic for additional exploration or development of hydrocarbon resources because the government understands that domestic production, especially of gas will be the way out of this crisis. So together with the problem, we have seen a very interesting opportunity to develop more resource in Italy together with ENI. And of course, that is in the market that has the highest return for us. So yes, 2023, we will see a hit. But I think out of this, something very positive will come out for our Italian business, which has produced exceptional results. I'll remind you that when we bought Edison, Italy was the country that nobody wanted to touch because it was a country that was expected to be just a decommissioning of old assets country. Instead of that, we've seen a significant inflow of cash over '22. And yes, some of that will go back to the government. Will we fight it? Yes, we will. But through this, we see a big opportunity to do more in Italy that has been a fantastic country for us despite this big hit.

Really do appreciate it. And if I may, just a very quick follow-up. With regards to the issuance. Is it possible? Or are you even on the table for you to do that issuance at the TopCo level as opposed to at the Israel level? Or is that sorted out and you have to do it at the lower opco level? And that's it for me.

No, we do have options and structural options. Our preference is to keep the refinancing of those notes at Energean Israel level. The form of those cash flows as well as the maturity of the project allows us to -- or at least I feel that it is -- will give us a better -- we'll give to potential bondholders a better clarity, and that means better pricing for us. So we have the option, but I'll be very clear with you, our preference for the time being is to stick with the structure we have and just do it at Energean Isreal level.

This concludes the Q&A session. I will now hand the call back for closing comments.

Well, thank you, everyone, for the participation and excellent questions. As I said before, 2022 was a great year for us. We delivered on the major projects. We are on track for a 200,000 barrel a day mark and our stable cash flow production will give us the dividends we expect. So you, Energean as a company that we'll be delivering on cash flow dividends but also focusing on growth and continuing the fantastic trajectory that we've seen coming from a small producer in Greece into the largest independent E&P player in gas in the East Mediterranean. We're totally focused on our operations, totally focused on delivering results to our shareholders. And we will [indiscernible] what we've always done, deliver on our promises. Thank you very much and look forward to seeing you all in person or in our next update. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.