Interview: Energean's Mathios Rigas targets East Med success
Energean’s boss reveals the secrets of his small company’s achievements in the Eastern Mediterranean
Mathios Rigas sat down in Energean's corporate headquarters in London looking like a satisfied man. His small Greek energy company had recently listed on the London Stock Exchange, raising £330m ($460m), and its just-published results for 2017 were healthy. So, was he a happy man? "Yes, indeed," he told Petroleum Economist in an interview. "It's positive progress. Everything that we've promised we're delivering, and that's a very big part of our story."
Rigas, Energean's chief executive—who started his career after taking an MSc from Imperial College in London—was a founder of the company in Greece a decade ago. To many at that time, the start didn't seem promising. Rigas spent €1m (£880,000) on the near-moribund offshore Prinos oilfield off the north-eastern coast of Greece, betting on it having a successful future. "No one wanted to touch the assets," he said, "because the licence was expiring in a few months and there were financial and legal complications. I took the risk that we'd be able to extend the licence and prove there was more oil in Prinos."
After long and exhausting battles with the Greek authorities, Rigas achieved both goals. Prinos is today Greece's sole producing field, with output just above 4,000 barrels a day, and a target of around 9,000 b/d by 2020. The nearby Epsilon field is being tied into the Prinos platform as part of the expansion programme.
One of Energean's key achievements in this early period, Rigas believes, was its decision to buy a jack-up rig. "We are probably the only company in our segment that owns and operates its own rig. That allows us to have low drilling costs. We're drilling wells at $35,000 a day offshore, which is close to what people are paying for onshore wells. We have an operating cost of lower than $25 a barrel at Prinos."
Aside from "cutting operating costs to the bone", Energean switched its offtake agreement from state-owned Hellenic Petroleum to BP. This enabled the company to distance itself from the Greek economy when it went into crisis and maintain operations throughout that difficult period. The deal with BP was recently extended to November 2025. Energean has other interests in Greece, including a 25-year licence for the offshore Katakalon field in the west, where drilling is expected to begin in 2019. It also has assets in Montenegro and Egypt.
Karish, Tanin challenges
While Energean is keen to expand its Greek operations, its flagship project is offshore Israel. In 2015, the Israeli authorities, in an anti-monopoly measure, ordered Delek and Noble Energy to sell the Karish and Tanin fields, where 2.4 trillion cubic feet of gas had been discovered but not developed. Once again to general surprise, Energean announced its intention to buy the licences. It raised the necessary $148m and in late-2017 concluded lengthy negotiations with the Israeli authorities.
Some analysts said Energean was biting off more than it could chew. Rigas remembers that "this was a tough time because the fields were considered by many people as containing 2.4 trillion cf of stranded gas in deep water, not easy to monetise. The challenge we had was to find the market, find the money and come up with a development plan to make it a commercial reality."
Energean is well on its way to achieving most of these goals. The development plan was approved by the Israeli government in late-2017, with gas sale and purchase agreements concluded with private Israeli power producers for the supply of a total of 4.2bn cubic metres a year (148bn cf/y) for 15 years. A final investment decision was taken in March 2018, with first gas expected in 2021.
These were anxious times. "A lot of people questioned our ability to deliver when we took it over," Rigas said. "The Israeli government also took a risk, trusting a small operator to deliver a $1.6bn deal. But I think it has been proven by what we've done that it's well within our reach. I think we've broken every record in the world in taking over a project and bringing it to FID. It was a fantastic achievement."
Rigas says Energean acts faster than other firms because "we are able to be decisive. I say that because many times oil companies delay projects because no one wants to take a decision and be responsible for moving forward." As an example, he recalled dealing with the question-ahead of FID-of how the gas from Karish and Tanis should be handled: by pipeline to an onshore processing plant; tied back to a platform; or developed offshore.
Energean wasted no time in deciding on the third option ("local communities don't want gas processing equipment spoiling a nice beach, villas and swimming pools"). Then, in another unexpected move-echoing the earlier decision in Greece for the company to operate its own rig-Rigas decided that Energean would be best served by buying a floating offshore production and offloading (FPSO) vessel. It secured financing from four international banks and awarded TechnipFMC, the UK-based energy services firm, a $1.36bn contract to build it.
Rigas remembers people wondering why he didn't lease an FPSO vessel or buy one second hand. "It was a conscious decision that we took," he continued, "without wasting time waiting for consultants' studies. Because we know this is a 30-year production lease, and we need an asset capable of staying for 30 years. And we needed strategically to own this asset"- which will be the first sole "floater" in the Eastern Med.
Filling up the FPSO
Looking at the figures makes Rigas feel comfortable: "Following the installation of the FPSO we will have 8bn cm/y of processing capacity sitting on the sea. We've contracted 4bn cm/y to the Israeli market, so we have another 4bn cm/y spare capacity. Filling that will require no capex except drilling wells." Aside from further production from Karish and Tanin, Energean will have the option of exploring in five more offshore blocks that it acquired in late-2017.
Rigas has no worries about Israeli gas demand. When Karish and Tanin come on stream, they will give Energean about 40% of market share. Domestic demand is expected to rise from 10bn cm/y to 18bn cm/y by 2030. "If we simply maintain our 40% share, no more, then we will fill up our FPSO," Rigas added.
As for the future, the Energean chief executive says he's prepared to look at business options "anywhere we can fly to in three hours from Athens", the company's operations base. "A classic mistake that companies our size make is to spread out to areas they know nothing about, where they don't have competitive edge. Personal relations are very important in our region."
Energean's mission statement, Rigas said, "is to become the leading E&P player in the Eastern Med. That's our playground. We'll never compete with the big guys. Our strength comes from taking over assets that the majors may not want because they're too small, too complicated. They need an operator like us, more flexible and with lower costs to extract value for our shareholders."
Rigas looks fit and is much taller than average. So, it's no surprise to learn that one of his hobbies when he's back in Greece is playing basketball. On the court, he's used to reaching and jumping up high. In his professional life, too, he likes reaching up high—but in that context, it's clear, he always makes sure that his feet are kept firmly on the ground.