NewMed Energy - Limited Partnership (NWMD) Earnings Call Transcript & Summary

Thank you for joining us today for the NewMed Energy Financial Results of 2024 Webinar. [Operator Instructions] As a reminder, this conference is being recorded. I'm pleased to introduce Yossi Abu, CEO of NewMed Energy. Yossi, you may begin.

Thank you very much, everybody, for joining us this afternoon basically to cover our financial reports for 2024 and Q4 2024. So with your permission, I will start with the key highlights. And I think that we basically met our target for 2024 when we met production of a little bit short of 1.1 Bcf a day average a year. In the fourth quarter, we arrived to 1.06 Bcf a day. And our target for 2025 is reaching a bit higher than 1.1 Bcf, getting to 11.6 BCM target to our guidance for 2025. We will cover today as well our brownfield expansion. So we will deal with the third gathering line that we are due to finish by the end of the year, early next year, taking us from the 1.2 Bcf a day capacity currently that we have to the 1.4 Bcf a day early next year. We're, as well, progressing with the Phase 1b of Leviathan. We submitted the full updated development plan to our oil commissioner for an approval. And we are continuing with the FEED process to be able to take investment decision by mid this year. On top of that, on Aphrodite field, we already agreed with the development plan with the Cypriot government, they approved our submitted development led. And we signed recently an MOU between Cyprus, Egypt and Aphrodite partners in order to develop the field and supply the gas to the Egyptian market, we'll cover that as well. We announced this morning another $60 million dividend, a total of $250 million dividend for 2024. It's around 6% dividend yield for NewMed Energy. And our target is basically to continue with this dividend policy in parallel to the investment in developing Leviathan second phase and developing Aphrodite. The main reason is because we basically build Leviathan in a modular way. So we will have increase in sales this year and next year and the following year. And together with another debt, we'll be able to continue and maintain investment, a reasonable debt position and dividend stream. So the production summary, if I'm taking the average year, as I mentioned, we arrived to 11.2 Bcf, around 1.1 -- 11.2 BCM this year, around 1.1 Bcf a day in sales. From a pricing perspective, the average price of this year is very similar to the average price of last year, mainly because of our position in vis-a-vis Brent in our agreement, I will touch that. And as you can see, in all our agreements, we built a floor price that will protect us from the downside of the Brent and we can enjoy as well some of the upside. So you can see month by month since we started production in Leviathan where we are achieving the average price with respect to the Brent price, and that gives us a long-term stability to understand exactly what's going to be our income many years to come. And thus, we can continue and invest and serve dividend. So the fourth quarter, as you can see, we basically sell around 2.7 BCM in the fourth quarter. It was a little bit short of the last quarter. So we arrived to $264 million sales. EBITDA we reached $181 million, $10 million less than Q4 2023; and net profits of $120 million. But when we are looking on the average yield, we basically increased our sales at around $40 million. This is due mainly to the additional condensate sales that we have. And we reached EBITDA of $785 million. And in net profit, we increased our net profit in more than 20% from $434 million to $525 million in 2024. So meaningful increase in the net profit for NewMed Energy. When we look on the expansion of second phase of Leviathan, so we are definitely running with our timetable and continue with the expansion. We received from the oil commissioner a green light or the boundaries for the new gas agreement for second phase. We receive approval to export between 118 BCM to 145 BCM on top of all the agreements that -- to export that we already have. So in order to -- basically the first agreement to Egypt was 64 BCM total TCQ in the agreement. As we announced this morning, we are targeting for a new agreement with Egypt with addition more than 100 BCM in addition to the 64, and this is under negotiation. We are going as well to sign more agreements in the local market to cover second phase of Leviathan. As I mentioned, we submitted to the Israeli Oil Commissioner for his approval the updated development plan for Leviathan including the second phase. That includes 3 additional producing wells, including subsea systems and as well the expansion of the platform. We are going to expand the platform to add 2 additional treatment trains to the 3 that already exist. That will bring us to a capacity of 2.1 Bcf a day, 21 BCM a year. And if we will add the fourth gathering line, so we'll reach even 2.3 Bcf a day for the facility. The CapEx that we currently have for second phase is $2.4 billion. This is on top of the $500 million that we are already investing in FEED, and we are targeting to take investment decision mid this year. In parallel to the upstream activity and increasing the upstream capability, we are working as well to increase the midstream capability in order to have more routes to and more capacity to the Egyptian market. So EMG, we are due to finish the looping of Ashdod-Ashkelon that will allow us to bring more gas to the EMG pipeline. Currently, EMG working in 600 million SCF a day, we are estimating that post the looping of Ashdod-Ashkelon, we'll be in 850. Out of it, 650 belong to Leviathan capacity. It's a Leviathan capacity. That will be by Q1 2026. On top of that, we are increasing the capacity in the FAJR pipeline adding compression system in Jordan. That compression system that's due to come by -- in the first half of 2026 will bring us to 700, 750 Mcf a day to Leviathan capacity. And basically, together with Nitzana, which we are estimating 600 million SCF a day total capacity, which Leviathan capacity is 300, Leviathan will have 1.6 Bcf a day to the Egyptian market. This is more than enough to cover all our activity, including Phase 2. On the Aphrodite field, we approved the development plan that we submitted to the Cypriot government. So the Cypriot government is aligned with us, including milestone to the activity, and we are very keen to develop this project. We submitted the development plan that basically we'll have a floater that will treat around 800 million SCF a day, 8 BCM a year and the target is to sell it to the Egyptian market. We signed MOU with that with the Cypriot government, with the Egyptian government in order to establish the framework and the umbrella for the development of Aphrodite and we are entering into a negotiation with respect to a new GSPA to cover that capacity to the Egyptian market. On top of that activity, we are also preparing our new discoveries for future development and we have 3 main activities. One is Block I in offshore Israel, triangle of Israel, Cyprus and Lebanon in the north. This is a partnership between SOCAR, BP and NewMed, 1/3, 1/3, 1/3. And we are basically due to receive the block and to sign the license during this month. And in this license, SOCAR is the operator. This is an area that yet to be explored in the Israeli offshore, and that's an area which is sitting very close to Tamar, Leviathan, Karish, Tanin so in the heart of the activity. And we are really keen to start a 3D campaign there to understand whether we have leads and prospects to lead -- to drill. In Morocco, we received a very large license. That license in size, it's equivalent to all the offshore in Israel. And what we are doing right now we are in the middle of 3D reprocessing campaign in order to analyze all the data that have been there for the last year and basically trying to, again, identify the leads and the prospects. And based on the reprocessing, we'll decide whether we are going to drill or we need more 3D work on the area. And this is in the -- we are in the middle of the campaign. And in Bulgaria, we just signed agreement to farm into Han Asparuh, it's offshore license built by OMV. OMV Petrom is the operator. Our first prospect to be drilled and there's potentially more prospect there is a 2 Tcf prospect with high chance of geological success. We're talking about 43%, very promising from our side. And this license is really sitting in the triangle of Romania, Bulgaria and Turkey in between the discoveries in the Turkish EEZ and the Romanian EEZ. So same geological concept, and we hope -- and we really hope to see the same result, meaning commercial discoveries. Our target is to start the well -- to start and drill the well during Q4 this year. Now I'll move to Tzachi, Tzachi Habusha, our CFO, to cover the P&L and the financial report and then we'll come back to me for final words and questions.

Thank you, Yossi. Thank you all for joining us today. I would like to share a few points regarding the financial -- the annual financial statements. Let's go to the bottom line. As was mentioned, we are summarizing 2024 with revenues of approximately $1.14 billion and about 11.2 BCM, which were produced from Leviathan reservoir. These are higher figures compared to 2023, which ended with revenues of $1.1 billion and 11 BCM in this year. NewMed net income for 2024 stands at approximately $525 million, about 21% higher than last year's profit of $433 million. The growth in NewMed net income is mainly due to an increase in natural gas and condensate sales and the reduction in net financial expenses, as I will expose later. The net profit in Q4 is approximately $120 million compared to $102 million in the same period last year, about 18% higher. Here is a very good slide that we can see the main changes in the net profit compared to the same period last year. So the net revenues for 2024 increased by $39 million. This includes a $1.1 million increase due to a better average gas price per MMBtu and a $20.6 million increase due to higher natural gas sales. In addition, we received in 2024, as Yossi mentioned, about $17 million from the sale of condensate, which started in March 2024. We also present a decrease -- a material decrease in net financial expenses of $82 million. This is mainly due to the reevaluation of Karish and Tanin royalties, the full repayment of Leviathan bond series June '23 and the implementation of the buyback programs. Other factors, as you can see affecting our net income include a $14 million increase in operating expenses and about a $14 million increase in tax expenses. Two points regarding the balance sheet report. First, our financial assets related to Karish and Tanin royalties. That asset was recognized following the sale of NewMed interest in Karish and Tanin leases in 2016. As of the date of these financial statements, the fair value of these assets is approximately $278 million, which presented in long-term assets and short-term receivables. Second, the total debt is about $1.6 billion, consisting of Leviathan bonds with maturity dates in 2025, 2027 and 2030. The 2025 series is presented in short-term liabilities with the buyback deducted. This bond with the fixed interest rates place us in a strong financial position and positively impact our financial costs. We have also significantly reduced our debt position. And by the end of June 2023, we repaid the Leviathan bond in the amount of $500 million. As of the report approval date, we repurchased approximately $135 million for Leviathan bond series June '25, and we are fully prepared for the next repayment of series June '25. The reduction in 2021 is due to the repayment of Tamar bonds and Series A bonds. Last slide is about the distribution. So as Yossi mentioned, the partnership declared a $60 million profit distribution, following a total distribution of $250 million during 2024, which has been paid. Yossi, that concludes the key points regarding the annual financial statements. Thank you all. Thank you.

Thank you very much. So just to build on what you say, basically, as you can see by mid this year, our net debt based on Leviathan will be around $1.1 billion. As you know, net value or NPV of Leviathan is higher than $5 billion, $5.5 billion based on our recent DCF and this is without even the second phase. So what we are targeting to do and this is something that we'll evaluate is to be in the market to raise additional debt in order to, first, give us what we need to invest in the second phase of Leviathan, to invest in Aphrodite, and in parallel, maintaining the dividend policy. And we are considering basically few alternatives. One is to come to the market with additional bullets on Leviathan bond according to the current structure. Another one is opportunities that we have around the Israeli market to raise at the corporate level and as well as some opportunities in, let's call it, in a private debt activity. So this is something that we will see and we are following to see what is the best approach for NewMed. And now we will move to Q&A.

[Operator Instructions] Yes. I believe that basically most of the question I answered through the slides, but we'll go -- let's start with the exploration activity. Basically, when we are taking a license, we are trying to understand and to find out whether we can have kind of additional value to the license. Our expertise in geology is very clear in the region, and we try to find a geological area that they have some similarity to our region. This is why we go to Morocco. This is why we go to the Black Sea. There is some similarity because it's all a geology that based on all the rivers' activity, the Nile in the East Med, the Danube in the Black Sea and [ Boujou ] in Morocco. What we are seeing in Bulgaria in the license in Han Asparuh is a first prospect to be drilled. So this is already approved. This is something that we are running called Vinekh. This is a 2 Tcf potential with 43%. The interesting thing for us is vis-a-vis our activity when we basically have a regional market, the East Med by pipeline. In Bulgaria, we are entering directly to the European market. Bulgaria has connection to other countries, potentially even we can ride on TANAP owned by SOCAR to get into the Balkan in the Italian market and to enjoy the TTF world in terms of prices. So that's kind of what we are seeing. But this is not the only prospect there. We identify more prospects, the OMV as the operator leading the activity. And hopefully, we will come back to the market and say what we have more as we are ready. And so this is for the additional licenses that we have. On the capacity of the Leviathan, the second phase of Leviathan without the fourth gathering line bring us to a capacity of 2.1 Bcf a day. Adding the fourth gathering line bring us to 2.3 Bcf a day, around 23 BCM a year. This is basically the capacity of second phase. I think that we covered the questions. So thank you very much for your participation. If you have any additional question or inquiries, you can approach Guil Bashan, and hope to see you soon.

Thank you very much. I'm looking forward to getting your follow-ups in the coming days. So let's be in touch. Thank you.

Thank you.