NewMed Energy - Limited Partnership (NWMD) Earnings Call Transcript

Hello, everyone, and thank you for joining the NewMed Energy Investor webinar during which we will review the major deals that signed today and also the quarterly report that NewMed published this morning as well. During the call, you can ask questions in the Q&A box. With me today are Chairman of the Board, Gabi Last; our CFO, Tzachi Habusha; and Yossi Abu, CEO. I am Guil Bashan. I will share the presentation and hand over to Yossi. Yossi, please.

Thank you very much, everybody that you join us this afternoon. It's a historic day for us after a long work, and we finally get to signing this deal, which practically is taking forward the second phase of Leviathan field. So during the presentation, obviously, I will start with the deal and present the deal in length, then we'll move to Tzachi Habusha, our CFO, to cover a quarterly report. Then we'll update on additional activities that we have, both in Bulgaria and other places. And we also -- we take you through the story of the dividend announcement. We just announced another $60 million of dividend that added to the $60 million of Q1. So we'll start. So a little bit background on the 130 BCM deals that we just signed. As you know, we take -- we took investment decisions on first phase of Leviathan with a capacity of 1.2 Bcf a day, 12 BCM a year. That basically will start to flow in late 2019, early 2020, and we have 3 countries that we flow. Israel, Jordan and Egypt. The first Egyptian deal, which we signed in 2018 and we updated in '19 was for 60 BCM over 15 years, so roughly 4.5, 4.7 BCM a year. From that deal, we already flow 25, almost 25 this year. So we have 35 BCM left in the capacity of that deal. The new deal is basically add to that additional 130 BCM in 2 layers. The first layer is a 20 BCM, 2 BCM a year that practically start right now early 2026, and it will take the capacity from 4.7 the current flow to 6.7. The second layer is a 110 BCM deal that's based on enlarging the capacity of Leviathan -- second phase of Leviathan that will start roughly in 2029 and will go with us until 2040 and even further down the road. That will be in around 12.5 BCM a year starting when we finish the second phase of Leviathan. What is the second phase of Leviathan? As you know, today, we have 12 BCM capacity. We are on the final stage of installing the third flow line of Leviathan. We finished this project in early next year, so early 2026, that will bring us to 14.5 BCM. The second phase of Leviathan is extra wells and 2 additional treatment system on the platform -- on the current platform of Leviathan that will bring us to anywhere between 21 to 23 BCM of capacity, and this is what we are targeting to do. So practically, once we sign this deal, our expectation is to have final investment decision on the second phase of Leviathan in Q4. We just finished $0.5 billion investment in this project, mainly feed and long-lead items, and we are ready to go forward with this project as we sign this agreement. In this slide, you can see basically in green, all the actual flow of gas to Egypt from the first agreement. So you can see that in 2024, we even reached 7 BCM. What we are expecting to add is 6.5 or 6.7 BCM firm 2026 forward until second phase, it will go up to around 12 BCM over the years. But this is not the end. On top of that, we'll be able to sell spots to the Egyptian market based on availability of the Egyptian market and our availability. One thing is very important about this deal. This is a yearly supply deal rather than a daily or monthly. That will allow us to flow more to the Egyptian market because we'll be able to flow in off-peak months a lot of gas, more than the current flow, and this is important because it will give us the ability to serve both the Israeli market and the Egyptian market due to the seasonality that we have. When we look on the midstream activity, currently, we are flowing gas to Egypt 2 main routes. One is the EMG pipeline. It's going from Ashkelon in the south of Israel to Egypt. This is the offshore pipeline that you see. This is the EMG. The current capacity is around 6.5 BCM. But once we finish the Ashdod-Ashkelon looping, we will be around 8.5, 9 BCM. In addition, we are flowing gas to Egypt to Jordan. Currently, on top of the Jordanian need, around 3.5 BCM capacity we can flow to Egypt. We are installing compression systems. So next year, it will be up to 7 BCM to Jordan to Egypt. And in addition, we are targeting to have a new route both in Israel and in the Egyptian side, which will be able to flow additional 6 to 8 BCM. So what our expectation is the total flow capacity, midstream-wise from the Israeli market to Egypt will be more than the 20 BCM a year, 2 BCF a day and that will allow us not only to sell our firm obligation, but even more spot quantities down the road. So this is with respect to the agreement. To be frank, we developed a great relationship with the Egyptian market, this agreement has really emphasized the importance of Egypt and the most important energy hub in the region, certainly for natural gas. And it's a continuation of what we have. Now we will move to cover the quarterly results, and then we'll come back to cover other activities that we have. Please, Tzachi.

Okay. So let's move to the financial statements and talk about the quarterly production. So first, as I mentioned before, as you can see in our financial statement, we have summarized the second quarter of 2025 with revenues of approximately $192 million and about 2 BCM produced from Leviathan with a new profit of around $81 million. These are lower figures compared to Q2 2024 with revenues of $295 million, 2.6 BCM and roughly a net profit of $137 million. The net profit decline was because of a decrease in revenues from natural gas and condensate and lower financial income, which was partly offset by lower production costs, depreciation, financial expansion -- expenses and income tax expenses. Leviathan gas sales dropped mainly because of 2 factors. First, a planned 11-day shutdown, mainly for the third gathering line project. This project, as Yossi mentioned before, is going to increase the annual capacity from 12 BCM to over 14 BCM early next year. This shutdown was expected and a part of our 2025 planning. The second factor is regarding the impact of Israel operation in Iran. As mentioned, based on the order from the Ministry of Energy, the activity of Leviathan platform was halted for approximately 12 days as a preventive measure. So it's included if you are taking the 11 days and the 12 days, more than 23 days, we shut down the operation in Leviathan. Alongside these 2 main factors, lower Brent prices compared to Q2 2024 reduced the average gas price per MMBtu. So regarding this gas price, I would like to highlight that Leviathan's long-term contracts include a take-or-pay mechanism and limited exposure to Brent price drops with a floor price per MMBtu. Here is a very good slide, shows the main changes in the net profit compared to the same period last year. So the net revenues for Q2 decreased by $89 million. This includes a $60 million decrease due to lower production, a $26 million decrease due to a lower average price and $2.3 million decrease due to a lower sales of condensate. Other changes include a reduction in operating expenses, $12.4 billion in tax expenses. But the net -- this is a new slide, the net financial debt, we are now sitting on a cash and equivalent cash. So the total net debt is around $1.1 billion, consisting of Leviathan bonds maturing in 2027 and 2030, plus $275 million from a fixed rate long-term bank facility minus cash and equivalents of $390 million. During Q2, we repaid the second series of Leviathan bonds in a total amount of $600 million. Regarding this issue, I would like to remind you that the partnership has a buyback program for 2027 series. I think you'll see -- this concludes the key points regarding the Q2 financial statement. Thank you all.

Thank you very much, Tzachi. Before we go to questions, a few more points that we want to cover with you at this stage. First thing, in addition to the activity with respect to our organic asset, second phase of Leviathan continue to push the development of Aphrodite. We are about to start a very important exploration campaign in the Black Sea in Bulgaria. This exploration campaign could be extremely impactful on NewMed. What we are seeing, we are seeing 2 prospects that we are going to drill starting in Q4 this year and one after one. We'll start with Vinekh. Vinekh, it's 2 to 3 Tcf prospect with a chance of success of a bit higher than 40%. This is a very promising prospect to us, and this is the start. Then we move to Krum. Krum is a prospect which -- a lower chance of success around 32%, but the potential is [ a good Tcf ]. We are sitting in the middle of potential supply to the European market. It could be a mega event for NewMed, and we are very thrilled about this opportunity. So just to cover, as we always say, we would like to provide to our shareholders a very clear and clean dividend stream for many years to come in parallel to the investment in the growth, in parallel to the investment in new activities like Bulgaria and Morocco. But we are doing that, as you can see, quarter-on-quarter. We announced today another $60 million of distribution of dividend to shareholders. This is team up with the $60 million of Q1. So up until now, we have $120 million this year. And our aim is to continue and have -- and based on the cash flow that we are seeing we build Leviathan in a very modular way. So we are 12 BCM now. Early next year, 14.5 BCM. That will allow us to cover the investment of Leviathan second phase. So all of that we build in order to continue and distribute dividend, continue investing growth and keep a very balanced debt on Leviathan bond basis or Leviathan basis and corporate basis. Thank you very much. We'll move to a few Q&A and give us 2 minutes to see what is the question, and we'll come back to you.