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    OF fms ae not compa wih ho Goole Chrome POF ewer pin Chrome sors shoul save th form. hen reopen and complete wth Adobe ead rere toe 3/csS ‘evita nena Internal assessment: Group 3 individual candidate cover sheet Arrival date:. 20 April/20 October ‘Session MAY 2016 ‘School number: eica name: Please retain a copy of this form either using the Save as function or by printing a copy ~ Complete this form in the working language of your schoo! (English, French or Spanish). + Attach one completed copy of this form to the work of each candidate represented in the sample. + After completing this form it must be printed and then signed by the teacher and candidate to confirm the authenticity of the work. Subject LeveL Candidate Candidate session name: number: Title(s) and dates of work: (complete if appropriate) [7 Shovld Ewecagan Oil 2 Gas S.A. avert iv Lhe YL development of the » Feld wa fal PLloilovice emvifonment fe inctrake WS gvohebility [ho Bort” ‘Teacher declaration: To the best of my knowledge, the material submitted is.the authentic work of the candidate, Toole | Signature oae: [ oufoulaee Candidate declaration: | confirm that this work is my own work and is the final version. | have acknowledged each use of the words or ideas of another person, whether writen, oral or visual. Candidate's signature: | date: | 34/B/2ose ‘Types of work undertaken (to be completed by teacher) (for example, written assignmentessay/case sludyitieldwork/portiolioiphotographylvideo/computer) Business management SL: the issue or problem selected for the commentary must relate to the SL syllabus and refer rectly to a single business organization (Business management guide, February 2014, pago 73) Other relevant information (where appropriate) Teacher support (where a candidate could not have completed the work without substantial support, please indicate) Please turn over International Baccalaureate 3ICS (page 2) School name: Candidate name! ~_] subject Business ana Management | Levet AL Assessment criteria: Complete the boxes for the appropriate subject a Ee, fF [¢ |] [1 | Tot 03 02 | 03 025 History HL and SL: 0 08 02 [03 | 04 030 ‘Geography HL and St. 0 03 06 0-25 Philosophy HL and SL: ° 05 o2 | 03 | 08 | o2 | 02 | ozs Paychology HL: ° 02 o4 | 08 | 02 020 Psychology Sk: o 02 03 | 03 020 Social and cultural anthropology HL: 0 i 0s 020 Social and cultural anthropology SL: ° 03 02 | 02 | o2|o2| oz | ov Business management HL: 4 o4 | 02 | 02 025 Business management SL: 0 03 o7 | o4 | os 030 ITGS HL and SL: 0 8 0s 030 Word religions SL: 0 [Moderator except economics) Senior moderator (except xanomics) ‘Assessment criteria: Economics only D = F Tote Economics (HL & SL): “3 04 5 ey ox “Gi cs] cr “Ga! cn| 4s) 3 Commentaries (C1/C2/C3) 0 (Moderator (economics) Senior moderator (economics) Please note: if group work has been undertaken please include a separate sheet to send with the internal assessment sample indicating the nature and extent of teacher direction and the proportion of group and individual work. Business Management Internal Assessment ‘Source: htip://statbank.gr/energean-ol-gas! Candidate Name: Candidat er: Examination Session: May 2016 Research Question: Should Energean Oil & Gas S.A. invest in the development of the Epsilon field in a falling oil price environment to increase its profitability by 2017? Word Count: Research Proposal: 472 Executive summary: 196 Written Commentary: 1991 To Whom It May Concern We hereby confirm that conducted an interview for his business internal assessment project regarding the Epsilon Project. 20.10.2015 17.40.2018 20110.2015 17.10.2015 Business IA Acknowledgement To start | would like to give my sincere gratitude to my supervisor and IB professor, Ms . Furthermore | would like to thank Energean for offering me the opportunity to explore and access data to a such highly confidential project. Finally | would like to express my appreciation to not only for offering me their precious time to conduct an interview, but also for their consistent help in the construction of this Paper. Business IA Abstract The paper is designed to assist Energean Oil & Gas S.A., with its Final Investment Decision (FID) towards the investment of an oil field located in northern Greece named Epsilon. The conduction of six interviews and the usage of a thorough built SWOT analysis, the qualitative data was assessed, wile a profit and loss, and a break even analysis examine the quantitative data of the project. The qualitative analysis prove that Energean currently has a strong advantage towards the execution of the project, while similar disadvantages have been faced previously, proving that the firms experienced managing team can overcome these difficulties through hard work and determination. ‘Additionally, the quantitative research proves that Energean is obligated to perform this project as it does not only suffer to break even with the current low oil prices, but also experiences a financial stretch on its cash-flow which needs urgent assistance. Moreover in order for Energean to take advantage of the low oil prices and accomplish the project with lower costs and a sizeable pool of labour, Energean should invest in the development of the Epsilon field in a falling oll price environment to increase its profitability by 2017. Word count: 196 Business IA Research Proposal Research Question he mer field it iron increase its it 72 Rational Energean oil & gas S.A. is the only company producing oil and gas in Greece. It employees 400 people and the company’s production today is 2.000 barrels of crude oil a day. At current oil prices the company is operating at break even. Energean oil & gas S.A. has discovered a new oil field named Epsilon in northern Greece that can produce an additional 3.000 barrels a day. However this development requires 100 million dollar of investment, At current low oil prices of $45/bbI the management of the company assesses the economic profitability of the project. | have chosen this topic to analyse the benefits and the risks associated with this investment in order to help the management come up with the Final Investment Decision (FID). Areas of syllabus to be covered + SWOT analysis + Break even analysis + Investment appraisal analysis, + Cash Flow analysis + Internal Rate of Return + Finance and accounting Sources + Institute of Energy for South East Europe (IENE) research (September 2015) + International Energy Agency (IEA) research (November 2014) + Energean Oil & Gas S.A. website, and corporate profile + Presentation by Energean Oil & Gas S.A, at South East Europe oil and gas exhibition and conference (November 2015, Athens) + Presentation by Energean Oil & Gas S.A, CEO at Balkans oil and gas summit (November 2015-Dubrovnik) + Law 2779/99 Concession Agreement for Prinos and south Kavala areas + Energean Oil & Gas S.A. published financial statements + Greece- Economic Forecast summary OECD (June 201) + Greece- Economic and political outlook Economist Intelligence Unit (EIU) (September 2015) Organisations and individuals to be approached through Interviews + Energean oil & gas S.A. + Mathios Rigas- CEO + Steve Moore- Technical Director + Panos Benos- CFO + Dimitris Gontikas, Managing Director of Kavala Oil (A subsidiary of Energean Oil & Gas) + Hellenic Hydrocarbon Management Company + Profesor Sofia Stamataki- President + Charalamibides and Partners Law firm + John Charalambides- Managing Partner Business IA Methods to be used to collect and analyse data, and the reasons to be using them Primary and secondary resources will be used in order to support my research question. Primary research (Interviews with senior management of Energean oil & gas S.A., and Hellenic Hydrocarbon Management company) Secondary research— IENE research, IEA research, Articles and Presentations included in sources The order of activities and timescale of the project In order to conduct this paper, firstly secondary data will be collected, then the interviews will take place. The raw data will then be analysed into the formation of the internal assessment Anticipated Difficulties Confidentiality of information Energean oil & gas S.A. is the only oll and gas company in Greece so there is no competitive market data available, so sources are limited to company information and publicly available data. Highly specialised area that requires technical understanding of the project. ‘The company is operating in Northern Greece (Kavala) so i will have to travel several times. Action Plan that sets out the order of activities and time scale of the project 1. Collection of available data 2. Interviews with senior management Energean oil & gas S.A. 3._ Interviews with Government officials, 4. Analysis of company’s financial statements 5. Financial projections of company's profitability investment under research Analysis of financing options for the project . Internal Assessment project plan, the next 10 years with or without the xo Word Count: 492 Business IA Business [A Table of context Chapter 1: Background Information Introduction Research Question Methodology Employed Chapter 2: Main Results And Findings Qualitative Findings Quantitative Findings Chapter 3: Analysis and Discussion Qualitative Analysis Quantitative Analysis Chapter 4: Conclusion, Recommendation & Limitations Conclusion & Recommendation Limitations Chapter 5: Bibliography Websites Books Interviews Chapter 6: Appendices Appendix A: Interviews Appendix B: Energean's Final Accounts Appendix C: Law 2779/99 Appendix D: IRR Calculations And Usefulness Appendix E: Pictures From Trip To Kavala Business IA ©C©CS2BMVYYN ANNA Page 1 Chapter Introduction Background Information Energean Oil & Gas S.A. is the only firm producing oil in Greece. The firm currently produces 2.000 barrels of crude oil a day in Northern Greece whilst employes 400 people. The company’s vision is “to become the leading independent exploration and production company in the Mediterranean and North Africa where we already hold five licenses in Greece and Egypt.” 1Energean's primary objective is “to create value for all our stakeholders and be capable of sustainable economic growth."2 Energean is currently undergoing a 200 million dollar investment to increase its production to 10,000 bbl as it is suffering to break-even due to the current low oil prices, Energean’s board is discussing whether it should further invest in a new area named Epsilon, located near their current production fields. Epsilon is a field which has already been discovered, but due to an unfortunate event the production stopped and the field was destroyed. The deposit consisted of 32 million barrels of reserves and had a daily production of 3.000 barrels.° In order for this field to re-enter production and assist Energean with its oil it requires a 100 million dollar investment. At the current low prices of $45/bbl (per barrel) the firms management team is assessing the projects economic profitability. Research Question environment to increase its profitability by 20172 Methodology Employed Primary research was approached through the interview of 6 leading experts in the field of oil and gas and the use secondary research was accomplished through published research and economic Papers, whilst also Energean’s corporate profile contained all further information required. + "The Energean Story." Energean Gil & Gas S.A. Energean Oil & Gas S.A., n.d, Web. 10 Jan. 2016. . Ibid 3 Interview: 17/10/2015, Steve Moore— Technical Director of Energean Oil & Gas S.A. Appendix AP. 19. 2 4 Interview: 17/10/2015, Panos Benos—CFO of Energean Oil & Gas S.A. Appendix AP. 14 Q. 1 Business IA Page 2 Chapter 2: Main Results And Findings Qualitative Findings SWOT ANALYSIS A SWOT analysis is a qualitative investigation examining the firms internal strengths and weaknesses whilst also the external environments opportunities and threats.® This is a necessary method of analysis for the paper, as a final investment decision requires both quantitative and qualitative research to be conducted. —>Strengths Energean strongly benefits as it is the only firm producing oil in Greece for the past 9 years.° This has resulted to the creation of a strong and stable team which has worked together in difficult situation. Prior to their cooperation the managing team has experience from large multinationals such as shell, BP, and Marathon Oil.” Further to the firm experiences, risk is reduced significantly as to previous exploration, 2D and 3D seismic have been applied on the field of Epsilon. Also the firm benefits largely compared to the last exploration attempt, as it has the assistance of a Tender Assist Barge “Energean Force” and a Platform Supply Vessel “Energy Valiant” which not only significantly reduce the costs of the investment but also can be used by the firm more efficiently, more productively and environmentally friendly, as stated by Dimitris Gontikas— Managing Director of Kavala Oil. Image 1: Tender Assist Barge “Energoan Force {Image 2: Platform Supply Vessel “Enorgy Valiant ‘Source: Energean Oil & Gas website? —> Weaknesses Despite the strengths stated above, Energean oil & Gas has several weaknesses in operating the project. Energean is already undergoing a 100 million dollar investment which is by itself challenging and highly demanding to employees."° By adding another project into the firms portfolio both the managers and the employees might loose focus and fail to achieve both projects resulting to the distraction and failure of both investments. Due to the significant decrease in the global oil price Energean is experiencing a financial stretch on the companies cash-flow. The firm will suffer to burden the additional expenditure required to successfully drill Epsilon field. 5 Lominé, Loykie, Martin Mwenda Muchena, and Robert A. Pierce. Business Management: Course Companion. N.p. ‘p.m. Print, "The Energean Story." Energean Oil & Gas S.A, Energean Oil & Gas S.A, n.d. Web. 10 Jan. 2016. . 7 oid ® Interview: 17/10/2015, Dimitris Gontikas— Managing Director of Kavala Oil P. 12 Q. 1. 9 "Operations." Energean Oil & Gas S.A. Energean Oil & Gas S. Web, 12 Jan, 2016. Opportunities This investment at this moment has two strong opportunities. Firstly oil prices are really low reaching $39/bb| and thus firms are selling assets, employees are being declared redundant and all the firms around the world struggle to break even. This results to the availability of both labor and machinery. The pool of labor has increased significantly as has the cost of equipment, machinery, and services resulting to the ability of energean to select from a larger and a much cheaper rate. For example oil rig rental rates have fallen above 40% in the past 5 years." If the company increases production through the investment in Epsilon substantial cash-flow that could reach 250 milion dollars EBDA that could create funding in order to acquire additional assets from the struggling market, as stated by Energean’s CEO in his latest presentation. 12 —>Threats A significant threat is the cil price. At the moment the oil price is at $39/bbl and as seen from most predictions itis not willing to significantly rise."® With the oil price averaging the past 5 years above $100/bbl the firm had a large amount of retained earning reinvested within the firm. Now-days the firm is struggling to break even, making losses at the current price and production. Another threat the firm faces is the political instability, represented in the picture below: Image 3: Political instability 8 years at Prinos- 11 Ministers of Energy raat MayZ0uz: Tina Bill ——G.Papaantaninny —eggelos Uvieratos Source: CEO presentation at Capital Link Conference."* The image shows an environment in which 11 different individuals have been granted with the position of a Minister of Energy in the past 8 years. Finally the political party of Syriza in its pre- election period had announced that they would revoke the licences and priority would be given to the state owned firm.'S 1 PennEnergy Editorial Stat. "Drilling Rig Prices Falling." Pennenergy. PennEnergy, 9 Jan. 2015. Web. 2 Oct. 2015, -. 12 Rigas, Mathios, "Greece ~ Energy Sector Trends, Developments & Outlook." Capital Link New York/ New York, December 14 Th , 2015The Regional Energy Scene (p.d.):n. pag. Energean Oil & Gas S.A., 14 Dec. 2015. Web. 11 Jan, 2016. . 18 "Brent Crude Oil (NYMEX)." NYMEX Brent Crude Oil : NYMEX Futures Quotes and Market Prices. N.p., n.d. Web. 20 Nov. 2015. “Rigas, Mathios. "Greece — Energy Sector Trends, Developments & Outlook." Capital Link New York/ New York, December 14 Th , 2015The Regional Eneray Scene (n.¢,):n. pag. Energean Oil & Gas S.A., 14 Dec. 2015. Web. 11 Jan. 2016. . 15 Walstad, Andreas, E6 Syriza to Shake up Greece's Energy Privatisation Policies (n.d): n. pag. Energy Policy Weekly. 29 Jan, 2015, Web. 16 Dec. 2015. Business IA Page 4 Quantitative Findings In order to accurately calculate and construct a profit and loss table in a firm operating in the oil sector one need to take a minimum of 3 scenarios. The analysis is based on 3 different scenarios on the predictions of oil prices made by Berenberg bank.'® Further the scenarios do not take into consideration the impact of the investment on the current producing wells and are based on the current oil production. The firm currently produces 2000 bartels of oil a day and as stated in the introduction the Epsilon oil field has a potential production of 3000 barrels of oil per day."” The firms current production will decrease annually 5% and the Epsilon field will have a constant production for 6 years averaging 3000 barrels a day and then it will start decreasing with a 5% rate.'® Further both the operating costs and the depreciation where given by Panos Benos.'? ‘Taxation and royalties where calculated through the usage of the Law 2779/99. Finally the firms dividend is calculated through the observation of payments in previous years.2" ‘Table 1: Profit and Loss for Energean Oil & Gas with oil price at $50/bb| | uss (mation) 2016 | 2017| 2018 2018| 2020| 2021| 2022 20231 2024 2025| 2026 OU Price ($/obN) 60| 80 so/ 50] 50/50 50/50/50 so{ Current Producing | 2,000 1,900 | 1,805. 1,718| 1,628] 1,548 1,470, 1,997) 1,827] 1,260) 1,197 | wells (ob!) ja | Eoetcn Preition Hae Son0| 50 3,000 8,000] 3,000 3,000] 2,850 2.708 | 2,572 ‘Anual Revenue 365| 347| 87.7| 220| 845| 83.0 wal e02| 762| 72.4] 608] “Royalty 00| 00| 26| 26| 25) 25| 24] 24) 2a| 22| 21 Operating Costs | 9c 340| 940| 940| 04.0| 94.0, 940) 94.0) 34.0 Depreciation 10.0] 100) 1 10. Earnings before tax 39.5| 97. 35.1 | Corporate tax os| o2| 103] 99) 95| 91) @8| 85| 75| 66) 57 "Net income 19 20.6, 285| 27.4, 264| 254) 225| 197) 170 | Dridena a] zza| a] 205 70a] wea] wea] a] 20] | Retained Eamings | 05 ; sy 7a) 74 68] 66) 63, 56, 49) 439 + Farid, Asad, and Jaideep Pandya. Oil Field Services Handbook. Duncan, OK: Haliburton Services, 1978. 10 July 2015, Web. 25 July 2015. 17 Interview: 20/10/2018, Mathios Rigas— CEO of Energean Oil & Gas S.A. Appendix P. 10.0. 3 12 Interview: 17/10/2015, Steve Moore— Technical Director of Energean Oil & Gas S.A, Appendix AP. 13 @. 3 "8 Interview: 17/10/2018, Panos Benos—CFO of Energean Oil & Gas S.A. Appendix AP. 14. 2 = Law 2779/99, See appendix C, P. 19 21 Energean Final accounts, See appendix B, P. 16 Business IA ‘uss (mutton) | 2016 2017| 2018) 2019 Oil Price ($/obl) 70| 70] 70| 70 Current 1,808) 1,715 Producing wells, (ob) | Epsilon 3,000 3,000 3,000) 3,000) 3,000 | 3,000 | 2,860 | 2,708| 2,572, Production (bb) | AnualRevenue | 51.1 48.5 | 122.8) 120.5) 1183, 112.3 | 106.7| 101.4) 96.3 Royalty 37| 36) 36 a4) 32) 30) 29 Operating Costs | 340, 34.0| 34.0| 34.0| 94.0| 94.0] 940, 34.0| 34.0, 340) 24.0 10.0 10.0) 10. Depreciation Earnings betore | 17.1) 145) 75.1| 728| 70.7 49.4 tax | Conporate tax 43| 3.6] 1a8| 182] 17.7) 172) 167) 162) 149) 136) 12.4 Net income i28| 109| 563| 546) 530| 51.5) 50.1| 487) 446| 408| 97.1 Dividend a6| 22] 422| 410] 308] s86| 976) 965) 935| 906| 278 Retained 32| 27| 141| 137| 138) 129) 125) 122) 112) 102) 93 Earnings | | ri a Seas as USS (million) | 2016 | 2017| 2018 2019 2020| 2021, 2022| 2023, 2024| 2025) 2026 Oil Price (Sfob1) | 100] 100/ 100] 100/ 100/ 100| 100| 100, 100 Current 2,000 | 1,900 | 1,808] 1,715) 1,629] 1,548 | 1,470] 1,897 | 1,27 Producing wells (bb!) | | Epsiton | 3,000 | 2,850] 2,708 | 2,572 Production (bbl) Anual Revenue 160.5| 152.5 Royalty . . 2| 51] 50) 49 Operating Costs x 0) 34.0 | Depreciation 100 | Earnings before .0| 35. 0 | 114.3 tax Corporate tax 98 88| a15| 307| 300| 203| 286) 279) 260) 22.4 Net income 223) 265| 946) 922| 69.9| e728) e57| 037| 7.9 674 pwicene | 21.9 199| 709) 69.1| 67.4| 658| 643) e28| 58.4| 543) 503 Retained 73| 66| 236) 230| 225) 219) 21.4 209| 19.5| 181| 168 Earninge “| | = eee Business IA Page 6 The investments Internal Rate of Return (IRR) for each oil price can be calculated from the tables above.22 Table 4: \n field IRR_(For IRR D. coi [iar | 2015| 2016| 2017| 2018] 2019] 2020/ 2021] 2022] 2023] 2024) 2025] 2026 price Price |-2.2% -200 14 04 231 222 213 205 198 190 168 14.8 128 ‘$50/ bbl Price | 94% 200 86 a2 422 410 98 O86 976 965 35 06 278 $70 bbl) Price | 21.8% $100/ bbl 200 21.9 19.9 709 69.1 67.4 658 643 628 584 543 503 According to a presentation by the firms CEO | present below Energean's break even points. The graph below represents the correlation of the break-even price of oil to the company’s daily production. Bre n ery Source: CEO presentation at Capital Link Conference.2° The graph shows that when the firm produces 2000 barrels of crude oil a day breaks even at a price of $47.5/obl which is higher than current oil prices. As oil production increases break even significantly drops to levels even below $20/bb| (company production > 6000 barrels of crude oil a day) which is a result of the fact that the company has a fixed operating cost base (also visible in the firms cash flow reports) since it controls infrastructure that can handle 30,000 barrels of crude oil a day without any additional investment.2* 22 See appendix D, P. 20 for calculations of the IRR. 2 Rigas, Mathios, "Greece ~ Energy Sector Trends, Developments & Outlook." Capital Link New York/ New York, December 14 Th , 2018The Regional Energy Scene (n.d. n. pag. Energean Oil & Gas S.A. 14 Dec. 2015. Web. 11 Jan. 2016. . Business IA Page 7 Chapter 3: Analysis and Discussion Qualitative Analysis In evaluation through this SWOT analysis several significant qualitative data where revealed. Energean benefits to a great extent due to its well built and experienced managing team whilst also to its existing assistant vessels. Both the assistant vessels and the managing team are anticipated to reduce the investments costs while also increase productivity and operate environmentally friendly. The firm though faces several significant disadvantages. Energean is already undergoing a challenging 100million dollar investment in an environment where the oil price is below $29/obl resulting to Energean experiencing a financial stretch on the companies cash-flow. In addition, Energean is not only suffering from the low oil price. Industry prices have fallen drastically and the pool of labour from which it can choose to operate the new investment is expanding daily. Further the development of the Epsilon field can increase the firms cash-flow to a 250million dollars EBDA which can generate funding in order to acquire assets which are struggling due to the low oil prices. Though the firm has to face the struggles of the low oil prices which do not allow the firm to break even. Finally the political instability in Greece has increased the difficulty of the task while the risk has increased further due to statements made by government officials towards revoking Energean’s licences. Quantitative Analysis Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero.” Table 1 From the Table 1 above it is obvious that Energean in 2015 and 2016, before the impact of additional production from the Epsilon field, is breaking even at a $50/bbl oil price as Earnings Before Tax are $2.5 million and $0.7 million respectively. It should be noted that current oil price is. $35/bbI so if this price was applied the Company would not be financially viable in 2016, When the new Epsilon production is added in 2017 the Company generates $41 million of Earnings Before Tax at the $50/bbI price and can withstand even lower oil prices. Analysis of Table 2 Using a $70/bbl price Energean has significant cash-flow generation even without the addition of the Epsilon production as in 2015 and 2016 Earnings Before Tax are $17 million and $14 million respectively. The addition of Epsilon generates significant earnings for the Company reaching $75 million in 2017. if Table. At the very high $100/obl Energean enjoys the benefit of having a stable operating cost base that remains constant at $34 million/year and generates very high earnings of $39 and $35 million respectively in 2015 and 2016 that increase to $126 million in 2017 25"Intermal Rate of Return (IRA). Investing Answers. Financial Dictionary, n.d. Web. 25 Oct. 2015. , 28 See appendix D, P. 20 for more explanation of the IRR. Business IA Page 8 Analysis of Table 4 ‘The Table above demonstrates that the $200 million investment has @ negative IRR at a $50/bbl price, however at the $70/bbl price the investment can return 9%, which is considered marginal in the environment where Greek Government Bonds for the equivalent period return 8-9%. The IRR of the Investment reaches 21% if the oil prices reaches $100/bbl. It should be noted that no Terminal Value has been assumed and only the Dividends received have been used for the calculation of the IRR, which is a very conservative assumption, however no additional investment for additional capex has been assumed which is probably optimistic. As a result | consider the calculations an accurate reflection of the Investment Returns expected from the new investment in the Epsilon Project Chapter 4: Conclusion, Recommendation & Limitations Conclusion & Recommendation Energean has suffered from the recent oil price drop and at current oil prices the Company can not even cover its operating cost base as its break-even point at current production of 2,000 bbls/day is $47.5/bbI. As a result the Company's Management has to seek approval from Shareholders to invest in the development of the Epsilon field in order to increase production to above 5000 bbls/ day and secure the financial viability of the company. The Company's shareholders will be asked to fund a project that can generate investment IRR's which at a price of $50/bbI are negative, however ensure the financial viability of the Company and in the event that Oil prices increase to levels of $70/obI can reach 9% or in the positive scenario of oil prices returning to $100/bbl can exceed 21.8%. Apart from the oil price risk the political instability of the Country that imposes limitation in the financial markets for the Company are the biggest challenge as the development risk is manageable. | would recommend the investment in the Epsilon as a downside protection for the Company with significant upside in the event that oil prices rebound as expected by the market Limitations This paper has several limitations. Although access was granted to some of Energean’s files, confidentiality was an issue which the firm was extremely strict about and a large amount of data was not accessible. In addition to the confidentiality problem, Energean is the only firm operating in the oll and gas industry in Greece resulting to the lack of publicly available data, and the data found could have been biased. Despite my prior summer internship within the firms economic department, the oil and gas industry is a highly specialised area which requires a lot of technical understanding. Finally the company is operating in Northern Greace (Kavala) which is not easily accessible from my base (Athens, Greece) Business 1A Page 9 Chapter 5: Bibliography Websites 1. "Brent Crude Oil (NYMEX)." NYMEX Brent Crude Oil : NYMEX Futures Quotes and Market Prices. N.p., n.d, Web. 20 Nov. 2015. . 2. “Internal Rate of Retum (IRR)." Investing Answers. Financial Dictionary, n.d. Web. 25 Oct. 2015, . 3. "Operations." Energean Oil & Gas S.A. Energean Oil & Gas S.A., n.d. Web. 12 Jan, 2016. -. 4, PennEnergy Editorial Staff. "Drilling Rig Prices Falling." Pennenergy. PennEnergy, 9 Jan. 2015. Web. 2 Oct. 2015. . 6. “The Energean Story." Energean Oil & Gas S.A. Energean Oil & Gas S.A., n.d. Web. 10 Jan. 2016, . 7. Walstad, Andreas. E6 Syriza to Shake up Greece's Energy Privatisation Policies (n.d.): n. pag. Energy Policy Weekly. 29 Jan. 2015. Web. 16 Dec. 2015. Books 1, Lominé, Loykie, Martin Mwenda Muchena, and Robert A. Course Companion. N.p.:n.p., n.d. Print. ierce. Business Management: 2. Stimpson, Peter, and Alex Smith. Business Management for the IB Diploma. N.p.: n.p., n.d. Print. Interviews 4. Interview: 17/10/2015, Dimitris Gontikas— Managing Director of Kavala Oil 2. Interview: 17/10/2015, Steve Moore— Technical Director of Energean Oil & Gas S.A. 3. Interview: 17/10/2018, Panos Benos— Finance Director of Energean Oil & Gas S.A. 4, Interview: 20/10/2015, Mathios Rigas— CEO of Energean Oil & Gas S.A. 5. Interview: 20/10/2015, John Charalambides— Managing partner in Charalambides and partners law firm 6. Interview: 25/10/2015, Sofia Stamataki— President of Hellenic Hydrocarbon Managing Company Business IA Page 10 Chapter 6: Appendices Appendix A: Interviews Interview: 20/10/2015. Mathios Rigas— CEO of Energean Oil & Gas S.A. 1. What is the main key towards the success of the Epsilon project? The development of the Epsilon field is the Flagship project for Energean in 2016. It represents our future and we aim to bring the field in production as soon as possible. The first and most important risk that we have covered is the estimation of the reserves to be produced. This has been verified by the discovery well that was drilled in 204, the appraisal well we drilled in 2011and reconfirmed by the new 3D seismic that we shot in 2015. The key towards the success is the execution of the drilling and facilities installation on time and on budget. 2. To what extent do you believe your team can execute the project economically and efficiently? The drilling of the wells for Epsilon are a continuation of the successful track record Energean has in the past years drilling wells in the basin. We have in house all the expertise to drill the wells on time and on budget and since we own the drilling rig (Energean Force) we control totally the costs of driling. Design, construction and installation of the new unmanned platform is going to be more challenging as we have not installed a platform in Greece since the seventies, however, the combination of a standard proven design and the Project Management by experienced engineers that have managed a lot more complex projects makes us confident that the execution of the project will be done in the most economic and efficient manner. 3. What is the potential production of Epsilon based on its previous drilling? ‘The appraisal well we drilled in 2011 produced 3,000 bbis/day. This was a horizontal well that gave us a lot of valuable information from the field. Our engineers are confident we can produce higher volumes from the new wells, however, | prefer to be conservative and assume that we will reach the same level and maintain a plateau of 3,000 bbls for a longer period 4. If you exclude revenues in what other aspect can epsilon benefit Energean? The biggest challenge for Energean will be to prove that we can deliver a new project on time and on budget. Apart from the financial benefits we look forward to broadening our experience and bringing in house expertise of designing, constructing and commissioning new facilities. In addition Energean will create more jobs in Kavala and further strengthen its ties with the local community that we support and rely on. Finally Energean will be established as the leading player in the East Med as in the low oil price environment that we are experiencing no other company has a plan to drill 15 wells. Business IA Page 11 1. How important is the oil sector for the government of Greece? Greece is an under explored country and we still don't know what is the potential of oil and gas resources that the company has the Greek government has set as a total priority the expiration of oil and gas reserves of the country 2. What do you believe is the oil and gas potential is Greece? The only proven reserves in Greece those of the business field which are 30 million barrels of oil proven by energy I'm always in gas exploration potential of west in Greece still remains unexplored the government strongly believes that west in Greece is the continuation of the geology from a Albania with major discoveries have been made we don't know yet what is the potential that we strongly believe that substantial amount of Orland gas can be found as proven by the discovery of Sharon in a baby out in 2014 where they discovered 200 million barrels of oil 3. Will international oil companies come to Greece for the expiration of oil and gas? Major international oil companies have already expressed strong interest explore offshore and on short Greece for oil and gas reserves Detroit price environment is not very favourable and the recent political turmoil of the country does not help to track major companies and the government is promoting! Tension of the country and organising major marketing meetings where the potential of Greece is promoted we strongly believe that when the first discoveries are made by the smaller explorers the big major firms will follow. We have seen this in occur in countries like Cyprus and other places around the world, it's the way the business works. 4, What extent do you believe the Prinos oil fields can help Greece towards recovery? The Prinos oil field is the only production Greece has and is currently producing 2000 barrels a day, the company employs 400 people company is investing a substantial amount of money to increase production to 10,000 barrels a day and hopefully later to increase furthermore up to 30,000 a day. If these levels are achieved and the oil price rebounds then the Prinos oil field can play a very important role in adding both revenues to the local community and the central government but most importantly adding jobs which are very desperately needed by the Greek economy and Kavala but in the country as a whole field is a very important investment happening at the moment by the gentleman gas and we believe it can substantially help the Greek economy towards covered Business IA Page 12 7A Di nik lor of 1. You are managing the only operation of oil & gas in Greece. What is your biggest challenge? Greece is a very beautiful country with long history in tourism. Kavala and the nearby island of Thassos rely heavily on Tourism income so one of our primary objectives is to ensure that the industrial activity of oil & gas production coexists with the Tourism & Fishing industries of the area. Safety of personnel and infrastructure is probably the biggest challenge as the facilities are 30 years old and the field has a very high concentration of H2S. We have managed, however, to achieve a fantastic track record over the past 30 years. | have to mention, however, that the oil price collapse, which of course is outside our control, poses a major challenge for the continuation of our investment programme. Moreover a huge challenge is to achieve economies of scale whilst they are now achieved through the purchase of the 2 new assistance vessels, which the firm can operate more efficient and environmentally friendly. 2. The Prinos field has been producing for the past 30 years, how does is contribute to the local economy? The operations in Kavala give employment to 400 people and at least another 1000 indirect jobs are supported by the activity. We are the second biggest employer in the area and we try to support as many local businesses in the area. Kavala Oil has contributed at least €100 million to the local economy in the past 5 years 3. How do you cooperate with the local Technical Institute? The Technical Institute of Kavala is a strategic partner for us and we cooperate very closely as we need to hire young graduates that are trained to meet the requirements of the industry. We offer summer internships, and also have post graduate students conduct research projects related to our activities. We offer scholarships and employee the top graduates every year. 4. It is well known that the Gold Mine in Halkidiki had problems Do you face any problems with the local community or the central government? Kavala Oil has been a very responsible Corporate Citizen. We have always given priority to Safety, protection of the environment and local employment. We have a very active Corporate Responsibility Programme supporting people in need and as a result our relationship with the local community is excellent. This is proven by the fact that we are able to operate, drill new wells, and produce oil without ever having any problems with the local people. Our relationship with the Central Government and more specifically with the Ministry of Energy has been always very positive. Despite the fact that Ministers keep changing and there is political instability in the country, oil & gas has not experienced any major changes to the tax and legal system. 5. How can Kavala Oil contribute to the Greek Economy? The production in Kavala is very important at local level and if we manage to increase production to the desired levels of 15,000 bbls/day in the first phase and later if we discover more oil to 30,000 bbls, the activity will be able to contribute up to 10% of the country’s oil needs which is a very important contribution. Through Taxes and Royalties there will be income generated for the Central Government and the local municipality and the know how of our people can be also used in activities in other places in Greece. Business IA Page 13 Interview: 17/10/2015, Steve Moore— Technical Director of Energean Oil & Gas S.A. 1. What are the current maximum capabilities of the production facilities located in Kavala? The offshore and onshore facilities in Kavala have a capacity to handle 30,000 bbis/day. The facilities have been built in the late seventies so a certain amount of maintenance is required to maintain the capacity at maximum levels, however Energean is planning on having the full capacity available for the development of the reserves in the Prinos/Prinos North and Epsilon fields 2. What is the anticipated production of the Epsilon field? Epsilon has, according to the subsurface work being done by the Energean team, 32 million barrels of Oil In place. The development plan is designed to maximize recovery of reserves and reach a plateau of 3,000 bbls/day in the first year after installation of the platforms 3. What is the rate for which the production will decrease annually? The Epsilon field is at virgin reservoir pressure and is anticipated to have initially a stable production rate. Water injection will be required from the beginning of the production life of the field to maintain pressure support. Overall we expect a 5%/annum decline in production rates from the field 4, What is one technical advantage Energean has over other firms for the execution of the project? Epsilon is a project that in the current oil price environment is challenging to make it commercially Viable. Energean has the advantage that itis a very low cost local operator that can be innovative and take advantage of local market conditions to drive the development costs to levels that no other international operator can achieve. In addition, the knowledge and experience of operating the Prinos field for the past 30 years is unique and very few other operators can understand and manage the Epsilon reservoir better than Energean. Business IA Page 14 E17 Panos Financ Energes 1. Do you believe Epsilon is an economically viable oil fi id at the current low oil prices? Yes definitely, but an 100million dollar investment is required. Epsilon field is a satellite shallow water oll development tied back to the main Prinos oil & gas field. The development calls for a minimum facilities unmanned platform connected to the main Prinos producing and processing platform via 3km pipeline. The current infrastructure has more than enough spare capacity to handle the increased production from the Epsilon field with no need for additional expenditure. As a result the Epsilon development benefits from: + Low capex per barrel: $100m / 20mb = $5pb (effectively only the cost of the platform and tie back as well as drilling expenditure; there is no need for additional processing, transportation and storage facilities) + Insignificant incremental opex: effectively the incremental Epsilon production will not add any operating expenditure as it will utilise spare capacity available in the existing infrastructure; if anything it is expected that the minimum additional expenditure that may incur will be outweighed by the benefit of the increased associated gas production which will reduce the plant's energy needs 2. What are the operating costs of the Epsilon field? Insignificant as spare capacity in existing infrastructure is being utilised and additional Epsilon associated gas production will be utilised to cover the plant's energy requirements. For screening economics and on the basis of conservative assumption you may add $1m per annum plus $1 per barrel produced 3. What is the desired depreciation value for the investment and why? According to International Accounting Standards, oil & gas investments have to be depreciated in accordance and in line with the field life of the asset; hence the Epsilon field, as per current production estimates will fully get depreciated in 15 yrs 4, What is one economical advantage Energean has over other firms for the execution of the project? Energean is the only company that has proven its ability to deliver oil & gas projects in Greece in the last 15 years; it can leverage on its experience, unparalleled HSE track record as well as its existing operations in the Prinos field. Energean is the only company that can make a project like Epsilon economic given the great synergies it can achieve with the rest of its projects in Kavala and Western Greece. Operational leverage and synergies given its current local and regional focus is the most important economical advantage Energean has. Business IA Page 15 law firm, 1. Are the licences of Energean for the Epsilon field liable to change by the government? In principle, the Government may not change the licenses (including that for Epsilon field) unilaterally. It could be argued however that the Greek State may unilaterally proceed to change the licenses as a result of and be justified on the grounds of public interest. In such a case, the Government would have to prove that, what (i.e. which conditions, circumstances) used to be in favour of the public interest and as such was documented in the tender documentation, the Court of Auditors Act and the Leases (Licenses), is no longer there and no longer exists. Even so, supported that the affected party (Energean) could seek compensation. 2. Who has the abandonment liability of the Epsilon platform? According to the licenses, the Greek state has the abandonment liability for all wells/platforms that existed at the time the licenses were awarded to Energean and, as such, were delivered by the State to Energean whereas Energean has the abandonment liability for any new wells/platforms created thereafter. Epsilon platform is a new platform being installed by Energean and therefor falls within Energean’s abandonment liability. 3. What is the tax and royalty rate for the Epsilon project? The tax rate is 25% in aggregate, of which 20% is state tax and 5% is local tax. In addition to tax, the Contractor (Energean) is obliged to pay the Greek State royalties on its annual gross income generated by the sale of petroleum, prior to the deduction of any expenses, according to @ progressive rate in proportion to the average daily production of petroleum, as the latter results based on the total annual production, according to the following table: ‘Table 5: Government Royalty Tax Government Royalty Average Daily Production (bbls) 0% 0-2500 3% 2501-5000 6% 5001-10000 10% >10000 Each of the above rates will apply on the respective quantity of average daily production, according to the above scale (progressive application of the rates). 4, How can lenders or financiers obtain security if energean decides to finance the project? Lenders or financiers may obtain the standard security applied to project finance of this nature such as (a) assignment of offtake agreements (b) assignment of major master services agreements (c) floating charge on oil tanks and (4) security in rem on any assets acquired and owned by Energean (such as offshore support vessels or other assets). Assets that existed at the time the licenses were awarded and were delivered by the Greek state to Energean cannot be offered for security. Business IA. Page 16 Appendix B: Energean’s Final Accounts Energean’s final accounts are available under the section Investors, in Energean's corporate profile but itis locked due to confidentiality. Business IA Beet Page 17 Perey Prt eed Bere) Berea) Breas) st ett Cmte sae aa ran sao obs Conte oga gts xppetatenain eo enetanay seoratSsbro aoa ras0 ses ens sare pt 1 Cn wpe ohn 7m oy cose aoe dean / ete pense 8) e798 se conn am emporio thane see) nase enn aan -tneayan eae oom ase : noe eat Ltn vx et bonne 8) os oe © toemreticretntekerctnctgteeniste caso, sso ene aan -Abomineconremte oss80) non ene ann + ameyarepesunoe ane a0 < Sa Pe en Pree ae Pe Ber eT Tete) eet tie cgcteon woe 300% (0/01/2014 Sijenyiens atone) same sat ous nase septa / te) et onto. e288) som eas aan terre loin pe nt eons os on [tron xin) veronned neice in ssasq 22709] sso [sos atrenc permed nepetsine | ‘asen] ‘ase five ar nohcon At mSoaPipon HARD fsrisbeasSeteches sss sxes| eon] exisd Business IA exenevenssyee espe ney ernie enerBsooc ot oitentenc ennenhoe te eepianient roe pes ya Kectogspoinna ineions ert events Seems Berens srcbonseorvec gozotorats onenhon< Arnau ons mhbnicna seeing hewn netoapebere neuornt vege asa nonnasa eat owen moore neste nome tren iv eegateny Page 18 Perey Perey Pes ered Pree me reer Pree ee Peer 220 220 218 2200 Business IA Page 19 Appendix C: Law 2779/99 2” (ERANSLATION) OFFICIAL GAZETTE OF THE HELLENIC REPUBLIC FIRST SECTION Taras No 296 30th December 1999 LAW No 2779 Ratification of: «) the Contact dated 16.11.1999 and made between the Greck State end the Contractor / Consortium provided for by Law 98/1975, as kbs euenty in force, b) the Contract ested 23.11.1999 and mae between the Greck Sule und KAVALA OL S.A. and of the anrexes J and Ml thereto and olker rovsions ‘THE PRESIDENT OF THE HELLENIC REPUBLIC ‘We onset he following law approved by Parliament: First Article ‘The Contrect {which wan signed in Athens on the 16th of November 1999 betwean the Ceck Stat, onthe ‘ne pict, ard the Contoniums foreed by the following Companies: DENISON MINES LTD, NBLLENIC OVERSEAS HOLDING LTD, WHITE SHIELD GREECE OTL CORPORATION AND POSEIDON PETROLEUM S.A. whick (Consortlim) is the Contractor canceming the Contrast forthe explosion foe and exploitation of flydrocarbons in the mes ofthe Thvacian Sea, nd which (Contract) wes cided sopplemuted and amended by vine of; Law 981975 (Official Gezette No LoUa' 8.1978), Law S29/1977 (Official Gazete No 39/A711.2.1977), Lew 1769/1988 (Official Gazote [No 66/N174.1968) and Law 2155/1993 (Offical Gezette No 116/A79.7.1993)), 1s ratified end hav the ‘lity andthe effect of law and is text (in Greek and in English) reads a follows: ‘Second Article ‘Toe Contract that was slgned In Atbens on the 23rd of November 1999 between the Greek State, on the ‘ops pas, and KAVALA OIL S.A., onthe other pat, i ratified and bas the validity and the effeet ofa law, stent reads fellows: conTRAcT For the exploitation of Hydrocarbons inthe na aren of the Thracian Sea between the GREEK STATE and KAVALAOILS.A, 2 Greece. Environment and Energy. YPEKA. N. i 2 Business IA. 1999. Web. 12 Jan. 2016. 20.5/(1-+IRR)6+19.6/(1 1AR)7+19.0/(1 +1A)8+16.8/(1+1RR)9+14.8/(1+1RR)10+ —> 12.8/(1+IRR)11 IRR= -2.9% rice at $76 (0= -20049.6/(1+IRR)+8.2/(1+IRR)2+42.2/(1 +1AA)3+41.0/(1+1RR)4439.8/(1 1RA)S+ —> 98.6/(1+IRR)6+37.6/(1RA)7+36.5/(1HRR)8+33.5/(1+1RR)9+30.6/(1+IRR)10+ —> 27.8/(141RA)11 = 9.4% Oil price at $100/bbI 0= -200+21.9/(1+IRR)+19.9/(1+IRR)2+70.9/(1+1RR)3+69. 1/(11RR)4+67.4/(11RA)5+ —> 65.8/(1+IRR)6+64.3/(11RR)7+62.8/(1+1RA)8+58.4/(1+1RR)9+54.3/(1+1RR)10+ —> 50.3/(1+IRR)11 Table 6: Epsilon field IRR Results oll IRR 2015 | 2016| 2017] 2018] 2019] 2020) 2021) 2022) 2023) 2024] 2025) 2026 price Price |-23% -200/ 14/ 04) 231 222 2198 205 198 190 168 148| 128 $50/ bbl Price | 9.4% -200 96 82 422 41.0 398 386 97.6 365 335 306 278 ‘$70 bbi Price | 21.8% -200 21,9 198 709 691 674 658 643 628 584 543 503 $too/ bbl 23 "Internal Rate of Return (IRA). Investing Answers. Financial Dictionary, n.d. Web. 25 Oct. 2018.

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