Morning, ladies and gentlemen, and welcome to the Energean half year 2026 results call. After the speaker's remarks, there will be a question and answer session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. If you have joined via Zoom browser, please click the reactions button at the bottom of your Zoom page and select raise hand. If you have dialed in by phone, please use star nine on your keypad to raise your hand and star six to unmute. For those watching our live stream, we ask that you please use the ask a question tab in the top right hand of your player to ask your anonymous question.
We will repeat these instructions before we begin the Q&A section of this call. I will now hand over to Energean CEO, Mathios Rigas. Please go ahead.
Good morning, everyone, and thank you for joining our half year results call today. If we may start with the first slide of the presentation, please. I would like to start with some introductory remarks. I will hand over to Panos to go through our financial results, and then I'll pick up again, to go through our operations and business outlook. First half was a very strong half for Energean. We're entering the second half of 2026 for a position of real strength. Free cash flow is up 36%. Profits after tax up, net debt down, and all while we're in the peak of our investment program of Katlan. The first half, obviously, we saw the shutdown due to the security issues in Israel, but that's behind us. We're already exceeding 180,000 barrels of oil equivalent production in August. All our operations are doing extremely well.
Israel, we're seeing strong gas demand. Oil production is up following the second oil train that we completed, and all our business units are performing at or above expectations. Egypt, that I will focus on a lot more today, we have a new investment program that I will outline later, and that is the next phase of our organic growth. Beyond that, we are focused on our exploration activities in Greece and the other parts of the portfolio and the inorganic opportunities that will form a core part of our growth strategy going forward. Overall, a very strong first half, with the second half being even stronger, leading us to the very positive results that we are announcing today. With that, let me hand over to Panos to take you through the numbers, and then I'll come back to go through the business. Thank you.
Thank you, Mathios. Good morning, everyone. Moving to the next slide, please. As per Mathios introduction, the company recorded a solid first half of the year, despite the highly volatile geopolitical environment our assets are located, and the 41 days of shutdown of production in our largest producer. More specifically, our production was down 12% compared to last year, mainly driven by that shutdown in our Karish asset. Our total top line was down by only 8% as the production impact was partially offset by the higher oil prices. You will see, however, the gas price the first half were lower compared to the same period in 2025. But with the current strength of European gas prices, we expect 2026 gas revenues to catch up, if not surpass, the equivalence of 2025. Moving to the next slide and to our cost line analysis.
We have managed to keep our cost base well under control and within budgets and guidance, despite the highly inflationary environment in all countries of operation. That result in a six-month EBITDA of just 5% off the 2025 results. Combined with some favorable movements in effects with the strengthening of the dollar and lower taxation, we recorded a 45% increase to our profit after tax at $160 million. Another important metric is the increased operating cash flow to over $500 m illion, $550 million, driven by the reduction in EGPC receivables from $215 million in the start of the year down to only $75 million. We are now seeing an impressive normalization of EGPC receivables, and we are now more confident than ever on the strength of our assets in the country.
As expected, CapEx has been at $350 million, well within our 2026 guidance and reflecting progress to our Katlan project, whilst ABEX continues to be both deferred and managed in the most cost-effective way, recording only $4 million spent in the first half of the year. Finally, another metric of free cash flow, which includes both cash flow from operations and cash flows from investing, recorded an impressive number of over $350 million the first half of the year, which is 35% higher than the same period last year. Next page, please. Moving to page seven. A little bit more details of our net cash flow performance for the period. Again, highlighting that this $88 million of net cash flow was delivered in a period that our largest producer was down for more than 40 days.
The Katlan project in full capital intensive mode and European gas prices relatively softer than the same period last year. But of course, the $500 m illion of cash flow from operation gave us the chance to fully fund all our projects, interest and coupons, our dividends, as well as reduce our debt by almost $50 million. Next page eight, a very repetitive slide for those that follow us the last few years, but extremely important to explain our differentiated debt capital structure.
As we are currently in a capital intensive period with our Katlan project, we expect our leverage ratio to stay around the 2.5x-3 x range, with a relatively long weighted average life of debt of our target being consistently more than five, ideally more than six years, and a competitive, given both the sector and the country risk, weighted cost of debt of circa 7%. What gives us the ability to have this favorable debt profile? Clearly, the ownership of more than a billion worth of floater, the only one fully operational in the Med. The 18-year reserve life, one of the longest compared with our peers, and more than $ 20 billion contracted top line through long-term gas contracts in Israel and Egypt with floor price and take or pay provisions running well into the late 2030s.
I want to clarify something for the avoidance of any doubt, despite these obvious strengths of our assets and contracts, our medium-term leverage target is not to stay at three times, but it is to bring it down to two times. We expect that after the completion of the Katlan project, this is the target of our company. Finally, page nine. Our guidance for the full year 2026 shouldn't surprise anyone. If we can move to next slide, please. Thank you. Those figures shouldn't surprise anyone, as we are still aiming for a production of more than 130,000 bpd . Our cost base to stay at around $ 300 million, with $ 200 million of royalties and a G&A at the usual $ 35 million range. That hasn't really changed the last few years.
On development CapEx, we expect progress to Katlan to continue as planned, so we keep our guidance at around the $ 800 million-$ 850 million mark. We revise both our exploration decommissioning expenditure, where we do see scope for even further reductions by the end of 2026. Finally, we keep our net debt guidance at around the $ 3.3 billion mark. Given our ongoing projects, we are at peak net debt, expected to soften as we progress and as the Katlan startup, and the Katlan project is completed in the beginning of 2027. Thank you all. Mathios, back to you.
Thank you, Panos, and thank you for a great financial performance this year and beyond. Let me go through our operations. Next slide, please. I will start with HSE, which has been, as always, a very key focus for us, a very solid performance of our teams, despite multiple operations. Something that makes me extremely proud is to see Energean, an independent that is able to do offshore operations, even in war zones, deep water, in parallel drilling with a deep water drilling rig, heavy lift operations, bringing in second oil train modules, all with exceptional HSE statistics. That gives everyone confidence to continue and invest more in Israel and of course, in the other countries of operation. Next, please. Group production, as we said before, is peaking at the moment at 182,000 bpd .
When we listed the company back in 2018, we had set a target that we would be a 200,000 bpd business, when all our projects were on stream. We are pretty close, with the exception of the projects that have not performed so far, like Cassiopea in Italy. We are very close to the goal that we had set. 182,000 bpd , consisting mostly from gas, from our operations in Israel and Egypt. Oil plays a very big role, also in our operations, and especially with the oil prices, as of today being $100 bbl . That plays a major role in our cash flow and operations. Our outlook for 2026 remains stable. We reiterate our guidance that we will be around the 130,000 bpd- 140,000 bpd mark, giving us solid financial results, as Panos alluded to earlier. Next one, please.
I will focus on the second oil train, because I think this was a very important operation for us, and this was a key target that we had discussed in previous results and investor calls. We have increased our oil production capacity to 31,000 bbl of oil a day. We have already tested the system to 25,000 bpd , and we are gradually opening the wells, the oil-rich wells that we have in Karish to test as much oil as we can or produce as much oil as we can. 32% of Israel revenues comes from liquids. This is something that investors need to be aware because obviously our focus is gas.
But as I said earlier, oil plays a major role, and we are benefiting from the higher oil prices today, and we have averaged $88.40 bbl in Q2, in Israel because of the strength of the oil price. Another important statistic is that we are by far the largest oil producer in Israel, with Karish producing more than three times the oil production of Leviathan and Tamar combined. We believe that there is a lot more that we can do and a lot more we can produce, and our technical team is totally focused on unlocking the oil potential of our assets offshore in Israel. We are the only ones that have the infrastructure to produce it, both from our existing licenses, but also from new licenses that we are targeting from the upcoming bid rounds.
The infrastructure that we have built, the second oil train is a great example, gives us the opportunity to unlock value even from smaller accumulations that could be around our infrastructure. Next, please. It is not only oil, of course, our focus remains gas. We have announced a new gas sales and purchase agreement with Sorek, another $1.4 billion of secured revenue that brings our total contracted revenue to $22 billion over the next two decades. This demonstrates the strength of the gas demand in Israel, which we see increasing. We see an incremental 10 BCM gas demand growth over the next two decades in the country, and we feel very comfortable to continue selling gas to our Israeli buyers.
Of course, we are developing the Nitzana pipeline to take advantage of export opportunities, but Israel remains a very strong market for us and a very key focus for our operations and gas sales. It is important to note that we have now all major new power stations contracted with us. Sorek, Kesem, and Dalia too, are all expected to be online around the end of the next decade, and we are looking to do a lot more in a country that, despite the geopolitical challenges, remains a fantastic place to do business. Next, please. How will we fuel the growth and the future? Our Katlan development, a major development that we started and is getting very close to completion, has seen all the major milestones complete. We have completed two subsea campaigns.
We have installed two modules on the FPSO already, two heavy lift operations, very complex, in parallel with live gas production and drilling next to these operations. We have now completed the two development wells, Athena and Zeus. We are remaining to finish the subsea campaign in the second half of 2026, and we're targeting first gas from Athena and Zeus in the first half of 2027, as we have indicated before. Project remains on budget and on schedule. As you can see from the map on this slide, we are working gradually from east to west. We started with Karish North. We're moving now to Athena and Zeus. We have Apollo and Hera, and we still have the remaining gas accumulations of Tanin to be developed in the future to continue selling gas to the Israeli and the international markets of the region.
Beyond this gas that we've already discovered and is already either developed, producing or remains undeveloped, ready to be produced, if I go to the next slide, please. There is a next phase of growth for us in Israel. Israel has a new exploration bid round that has been announced. You can see on this slide the zones that are being offered. We are very keen to get new acreage. We know the geology very well, and we have the benefit of owning the infrastructure that allows us to develop oil and gas accumulations that will exist next to our FPSO, next to our pipelines. This is a key focus for us for 2026 and 2027, obviously.
Israel is in election period, but it is continuing a long-term energy strategy of being energy independent and an exporter of gas and energy to the region, and being one of two operators in the country, Chevron being the other one. We are very keen to expand our production and exploration potential in the country. We believe that there's a lot more to be discovered in Israel and a lot more to be developed. In the previous bid round, we were effectively excluded from getting any licenses, given our position in the country. Now that most of our gas has been sold, we are back into a proper competitive environment, and we look to get more licenses and expand our business in Israel. Next slide, please. I want to focus on Egypt. Egypt, as Panos said, has given us the highest-ever year of collections.
Our net receivables are down to about $75 million, the lowest ever, and this is a strategy that the country has followed and a strategy that has increased the confidence of us and other investors to invest in Egypt. We are focused on our existing assets. If I can go to the next slide, please. Which, as of today, have reached an agreement to merge the three concessions. This is something we've talked about over the past year. Abu Qir, North El Amriya and North Idku are being merged into one concession. Terms have now been agreed with EGPC. We are improving fiscal terms and gas prices, and on the back of these improved fiscal terms and the improved collections, we are committing $150 million to a new investment program in Egypt.
A program that unlocks development projects that allow us to be confident that production can be doubled from the existing areas. Beyond that, we are adding exploration acreage from the deep horizon of Abu Qir that was not part of our concession until now, where we see 4 TCF of exploration potential, probably more than 4 TCF of exploration potential. This is sitting right next or under our existing platforms and pipelines and infrastructure, so very low development cost and very fast time to market. Egypt is a core country for Energean, a country that we look to invest more in our existing concessions and in new opportunities that we are evaluating. Next, please. Beyond Egypt, obviously, the big exploration target for 2027 is Block 2 in Greece. It is a very big prospect, 1,000 sq km . I repeat what I have said in previous presentations.
Together with ExxonMobil and HELLENiQ ENERGY, but with Energean as the operator, we are planning to drill the well. The rig has been contracted. We are targeting to spot the well in early second quarter of 2027. We are waiting for Stena Drilling to give us the final timetable, but we are very confident that we will be drilling a very high impact well, obviously with the risks of a deepwater frontier exploration well, but with the massive potential that we see over 9 TCF of prospective gas resource that could bring a substantial new area of operation for us and our partners. Next, I will focus very briefly on the remaining business operations. Can I have the next slide, please? Italy, operated production remains stable, about 8,000-9,000 barrels a day.
We are looking to optimize production and increase cash flow and profitability, taking advantage, obviously, of high oil and European gas prices. In Greece, we will be focusing just on the Epsilon development. Prinos is reaching the end of its life, but Epsilon remains a key focus for us. 27 million bbl of 2P reserves in an OECD country with fantastic fiscal terms remains a very nice project for us. Croatia, the Irena project development is continuously progressing. First gas expected in H1 2027, and we are adding now an additional exploration well in Isabella 9. A small but extremely profitable operation in Croatia. In U.K. decommissioning, Garrow and Kilmar platforms have been safely removed.
I repeat, I remind everyone we have become the operators of our decommissioning projects to control costs, we are carrying tax losses of over GBP 700 million, which obviously we would look to monetize and use in the business environment of the U.K. North Sea. Next slide, please. I will finish with a couple of slides. Can I have the next one? The outlook and M&A, I know that many of you have possibly seen leaks that have been in the market. I will not comment on leaks, so I would preempt any question about things that may or may not happen. But I will outline what our strategy is. We remain focused on our core areas, which is the Mediterranean, and West Africa. These are the countries that we know, we understand, we know how to operate.
Given our deepwater operating capabilities, which I consider to be unique for a company of our size, we are targeting assets that either majors consider non-core or too small for them but are too big for the independents and countries that are looking for new investors, companies that have the technical and financial capability to work in the deep waters of those core countries. Our goal is very clear. We want to diversify production. We want to have three pillars of production: Israel, Egypt, and one in West Africa, all of a similar or equal weighting. We want to build at least a new core hub in the near future and increase our cash flow, which allows us, obviously, to increase our returns to shareholders. We remain totally focused on strict capital allocation. We want leverage, as Panos said, to be reduced.
Although I have to comment on leverage that with $22 billion of secured revenue in Israel, I feel pretty good about the strength of the balance sheet and our ability to service all our debt obligations. That, I think, is very obvious from the support we get, both from the bond markets and our banks and other private credit markets. Finally, can I have the last slide, please? Wrapping it all up. 2026 is a very strong year despite the geopolitical challenges. Full-year production of 130,000 bpd- 140,000 bpd , with August over 180,000 bpd , gives us the momentum we want to get into the last quarter of this year and achieve all our stated objectives. Egypt, this for me, is extremely important. The signing of the three concessions into one.
The new investment program unlocks a significant potential to double our Egyptian production and targets substantial gas upside in a country that needs gas desperately. There is gas imports today in Egypt, both from Israel and from LNG FSRUs, and the focus of the Egyptian government is to increase domestic production, and that remains our focus as well. In Israel, our Katlan project remains on target. That will be a step change in our EBITDAX given that Katlan does not have any royalties as Karish, and has also the export rights that allow us to target higher-priced gas molecules that we can sell either locally or internationally. Block 2, as I said earlier, remains a big, I would call it, dream for Greece, but also a key target for us, given the strength of the relationship with ExxonMobil and the size of the prize.
This remains a very big focus for us for 2027. Deleveraging, strengthening the balance sheet, increasing cash flow, allowing us to return money to shareholders, and being one of the biggest ones, that is a very strong message to everyone that we remain focused on returns to our shareholders and strength of our business going forward. Last but not least, we are targeting transformational M&A opportunities in our existing core countries and West Africa. As everybody remembers, all those that have followed us from day one, when we started with the Greek asset, then with the Edison acquisition, then with the Karish acquisition, we have built this business from what was a 1,000 bpd business in Greece to what is today 180,000 bpd business. A business that we listed at GBP 4 in 2018, trading at over GBP 8 today and returning substantial amounts of dividends to shareholders.
Energean is entering the next cycle of growth from a position of strength with a very strong core business, delivering on the business plan, as you heard from Panos with our numbers, which are very strong, giving us the base to go into our next phase of growth. With that, I want to thank everybody for participating and open the floor to questions.
Ladies and gentlemen, we will now begin our Q&A session. If you have a question and are using the Zoom app, we ask that you please use the raise hand function at the bottom of your Zoom screen or by clicking the three dots on the black bar at the bottom of your screen. Alternatively, if you have joined via Zoom browser, please click the reactions button at the bottom of your Zoom page and select Raise Hand. If you have dialed in by phone, please use star nine on your keypad to raise your hand and star six to unmute. Once your name has been announced, you can ask your question. If you want to withdraw your question, please lower your hand using the raise hand function or star nine if you have dialed in.
For those watching our live stream, we ask that you please use the Ask a Question tab in the top right hand of your player to ask your anonymous question to be read out. Thank you, and a moment for the first question, please. Our first question comes from Werner Riding with Peel Hunt. Please unmute your line and ask your question.
Hi. Thank you. I have a question on capital allocation. As peak CapEx rolls off next year when you move into a stronger phase of cash generation, what balance sheet or free cash flow milestones would you need to see before your thoughts move back to higher shareholder returns, which you have talked about are important? Related to that, just based on what you see, your expectations, can you both reduce debt and pay a higher dividend in 2027?
Mathios, L et me take that. Look, of course, the situation as it stands today, it makes us cautiously optimistic that we will be able to do that. We have a very solid operating cash flow, starting from the top line and keeping the costs down in all our operations, and that applies in all our assets, from the smallest in Italy, down to the biggest in Israel. With a little bit of help and a tailwind from the very strong commodity prices, we are confident we are going to get there. As you may have seen, and I think in our presentation, we have made the point, we are chasing and looking for a couple of transformational M&A opportunities.
Those will have to get into the mix. We do like non-recourse asset-based leverage to do that. Again, staying within and not breaching that 3x leverage position we are today. But within the bigger frame of a wider business, we will need to reevaluate anything. Our commitment to returns, credible returns, repetitive returns through dividends to our shareholders stays intact. I cannot right now tell you the specific timing that we will be getting those returns back to what we had used as shareholders. But given the continued geopolitical volatility, the capital intensity of Katlan currently, and of course, our lookout for big M&A transactions, I think it would be premature to give you a specific date.
What I want to give you factually is that our existing assets will start getting into a much more solid free cash flow position from Q2 next year when Katlan will be behind us. Ceteris paribus, effectively the same assets right now would be providing enough cash flows for us to consider increasing both dividends and reducing the leverage.
Great. That's clear. Thank you.
Thank you. Our next question comes from David Round with Stifel. Please unmute your line and ask your question.
Morning, guys. Thanks for the presentation. Firstly, on the power station contract, good to see that come in. My understanding was that the security situation in Israel over the last couple of years had slowed down a number of these awards. Is this something we can read into? Is this a sign that things are returning to normal and we might see a few more of these? The second question, please. Interested in Israel again, just how you intend to balance production from Karish and Katlan next year, before Nitzana comes on stream. Just wondering, I guess, is there a way to balance or to benefit from the higher liquids at Karish and then the better terms at Katlan at the same time? Is that how you're thinking about it? Thank you.
Thanks for the questions, David. I travel to Israel very often. I'm there pretty much every month. The security situation that you mentioned is or has been a challenge, but life in Israel continues. The economy grows. The strength of the economy, you can see it from the results, and the shekel, the demand for electricity continues to grow. There is a lot of additional electricity demand coming from data centers, and Israel is effectively an energy island, not connected to any other country, so it needs its own energy supply. The answer to your question is, I don't see any slowdown in award of licenses for power stations. I do see, in fact, the opposite. I do see new licenses being awarded. I do see new demand coming.
As I mentioned earlier, the 10 BCM demand growth in Israel that we forecast or others forecast for us as well is there, driven primarily from electricity demand. At the same time, Egypt has incremental demand. The 120 million people and growing with existing production in Egypt declining needs gas coming from Israel and from other sources. Overall, I don't see any signs of slowdown of gas demand in the region, and we haven't even started talking about exports of gas to Europe through the LNG terminals of Egypt. The demand is not the issue. It's the resource, and that's why I focused a lot today on the new bid round and unlocking new potential. How do we plan to manage production? We plan to maximize sales of gas and obviously, through proper management of the reservoirs, optimize the recovery from our wells.
We don't want to be pulling wells too hard. We don't want to see water coming into our wells. We've seen other projects in the region, in Egypt, that pulled wells very hard and ended up with gas declined rates because of water influx. So reservoir management is a top priority. Diversification of number of wells producing the gas we need is extremely important. We have four today. We are adding two more. These are big wells. Our wells are doing 300 million scf a day each. These are world-class wells. We will be managing the reservoirs. Our priority, obviously, is to maximize cash flow and the returns, but beyond that, we want to optimize reservoir management, because with the wrong management of the reservoir, there's going to be no cash flow. So that is our top priority, how we continue to produce the FPSO at the maximum capacity.
Fill the shoulder months, because that is the only weakness of the market there. We have the slow months of the spring and the fall, where we don't have the same demand that we have in the summer. In the summer, even if we had double the gas capacity in the FPSO, we could sell it to the region. So the constraint in the summer is the capacity of the FPSO, and the target is to maximize sales in the slow months.
Okay. Very clear. Thank you.
Thank you. Our next question comes from Alice Winograd with Morgan Stanley. Please unmute your line and ask your question.
Hi. Good morning. Congratulations on results. First, on the Egypt concession merger, there is a couple of things I was hoping you might be able to elaborate on, please. First, what do you expect can be the immediate improvement to the existing business in the region after this becomes effective? You alluded to better fiscal terms, higher gas price. Is there anything you can guide us on that? Second, there is also reference of potential to be unlocked there in terms of future growth and resources in the region. How would you frame this underpins either growth or longevity for the Energean production more generally? For instance, under what timeline can this be unlocked? Will this support more near-term growth or longer-term potential, if I can put it like that?
Second, just on your comments about M&A, you apparently have continued interest in West Africa, even after the Angola deal fell through. I guess you alluded to this potentially having a similar weighting in the mix over time as there is for Israel and Egypt. What is your view with regards to increasing commodity exposure, right, in the business? Because, of course, Israel and Egypt today have different dynamics there in terms of pricing. Thank you.
Thank you, Alice. Great questions. Egypt terms, unfortunately, I can't give details of the gas prices, which are substantially higher than the ones we have today. I remind you, we are selling all our gas to EGAS and EGPC, so it's all government contracts. Improved fiscal terms come from combining the cost pool of Abu Qir with Nani, which means that we can offset the $250 million investment that was made in Nani from our Abu Qir production, which is a very old and mature production, and that improves the level of the cost pool that we have to depreciate. We will guide the market when we're ready, and we're able to announce those terms. I have to make sure that everybody's clear.
These are terms that have been agreed, but they remain subject to the approval by the Egyptian parliament, and that should take a couple of months until they become effective from, I hope, January 1, 2027. The timeline and what it unlocks. First of all, it extends the life of Abu Qir, which otherwise would be ending its life around the beginning of the next decade. That gives us more reserves because we have a longer tail from Abu Qir. We stated that we are targeting to double production from Abu Qir, and this is from very well-defined targets that the team has identified, which are either sidetracks from existing wells or new wells, which would be classified as exploration wells, but with a very high probability of success next to infrastructure. So very easy to monetize.
The investment program of $ 50 million, to answer your question, is committed over the next five years, and that's the horizon where we see gradually the production increasing. But the big prize is not just the production increase. The big prize is the exploration potential. It's the deep horizon of Abu Qir, where I mentioned earlier, we see more than 3 TCF of potential. We will be shooting new seismic, and we will be planning to drill a well that is more risky, obviously. We would be looking for partners there, and that would give the equivalent of another Karish if it comes in. I remind you, Karish and Tanin was 3.5 TCF. So we're talking about another Israel, potentially sitting under our existing infrastructure without the need to invest billions of dollars to unlock it. So big focus on the exploration and Egypt's upside.
Abu Qir will increase its production, but if we are looking for the transformational organic growth opportunities, this potential sitting next to infrastructure is a very big focus for us going forward. The M&A in West Africa, which was your last question, obviously, yes, you're right, the Angola deal fell through. I think that this is a sign of the times where with the high commodity prices, we do see a lot more local players wanting to play a role. But deep water is not an easy place to operate. You need to know what you're doing. You need to have capabilities. You need to have the ability to finance, because these projects are requiring a lot of money and a lot of technical capabilities.
The mistake that should be avoided by the West African countries, in my view, is to end with operators that don't have the capabilities to drill wells or fund new developments, because then they will end up with stranded gas and oil and a dream to produce more. So deep water operating capabilities and funding capabilities are extremely important, and that's what we bring to the table. We do see opportunities in West Africa. We do see opportunities from producing assets. We do see opportunities also from discovered undeveloped resources, which is, if you want our specialty, this is exactly what we did in Israel. If you take the Israel model, where we took over in 2016, Karish. Karish was a Karish and Tanin 3.5 TCF undeveloped.
Very few people were interested because it was too small for the majors, but it was too big for the independents. Similar models we are chasing in West Africa, and we do see a lot of opportunities there with obviously the challenges of each country that we need to navigate. On this, I think if we are able to navigate production, development, drilling, deep water complex operations in the middle of a war zone, I think we are pretty well positioned to navigate the complexities of a West African country.
Thank you.
Thank you. Our next question comes from James Carmichael with Berenberg. Please unmute your line and ask a question.
Hi. Morning, guys. Just a couple of quick ones. I think you answered some of this when speaking today, but I guess it was just looking at the read-through gas price in the historic agreement, and it looks a little bit higher than maybe we would have expected based on the previous average value. Just wondering if there is anything fundamental that has changed in the Israeli market since you last signed a contract or, and how you expect pricing to evolve. I guess you sort of touched on the higher demand element. Then just looking at the 2028 notes refinancing, just wondering whether the expectation should be roll that through with conventional bonds or if there are any other structures that you are thinking about bringing onto the balance sheet. Thanks.
I'll take the gas price. Panos will answer the refinancing. Gas price in Israel is gradually increasing, obviously not as much as in Europe. The benefit that Israel has is that through the long-term contracts that we brought to the market, there's a lot of stability in the energy prices. There's no energy price inflation. They don't suffer from the peaks of gas prices that we see in Europe or in the U.S. or other places, and that allows the economy to be strong and resilient. We have a very different model when we agree to sign long-term contracts. Obviously, we lock ourselves into nearly fixed price contracts, but that gives us the stability of cash flow that I mentioned earlier, the $22 billion of secured revenues that allow us to have a solid base business. We do see prices ticking higher.
But obviously, this is linked to inflation, this is linked to the general environment and the competitive environment in Israel. But I don't see prices shooting up through the roof because of the nature of those contracts, but we do see higher prices. The target in the next phase of contracts is to bring our contract prices closer to the export markets that everybody else is enjoying, given that our next phase of production does not have the export limits that we talked about earlier and allow us to get even higher gas prices. But for us, this is a long-term game. This is another spot, take advantage of gas prices today. Prices will go up, will go down. We are long-term focused, and I'll let Panos talk about the refinancing of the bonds.
Yes, sir. Thank you, Mathios. Look, on the refinance, this is now getting into our radars. We have never ambushed or surprised when it comes to our debt management. So now we're getting to that 18-month mark. Our bondholders and our banks, we're talking to them on a regular basis. We don't want to effectively ambush anyone with what we do with our debt profile. There is a make whole in those notes that is dropping a lot from the start of 2027. We have a lot of options. The current bonds in the secondary market, they are trading very well, despite the volatility in the market. We have a good presence to the bond markets, both for the Israeli bonds and the PLC bonds. So we don't expect any drama, and we don't expect any excitement around that. For us, it is regular tapping of the markets.
We will explore other avenues if those are more cost competitive. I think that will benefit everyone, even the existing bondholders, if there is another route. But yes, this is key for us, and we expect anywhere between the next three to six months, those bonds to be refinanced again with the usual type of seven to 10-year tenure, pushing that out to the late 2030s. We do have the capacity, the new gas contracts that carry the same provisions, the same protections, allow us to continue printing long-term debt that fits our assets and of course, our balance sheet profile.
Great. Thanks for the comment, guys.
Thank you. Our next question comes from Mark Wilson from Jefferies. Please unmute your line pressing star six and ask your question.
Hello. Good morning. Thank you for the questions. Excellent results considering everything that's going on. Very impressive. My first question was going to be on Israel pricing, but you've answered that. Thank you for that. Let me just end with regarding M&A opportunities and the manner of execution of them. It does seem to me that one big change in the sector in the past one, maybe two years, is the availability of credit for such opportunities. Just a few years ago, for example, reserve-based lending facilities almost disappeared from the market. I just wonder if you could expand on your commentary regarding that side of things for some of these opportunities that may be available out there, some of which are obviously quite life-size. Thank you.
Look, if I heard you correctly because the line wasn't clear, but if the question was about funding sources, about those type of M&A opportunities, yes, you're right. The market and the debt capital markets and the credit capacity seems to be pretty enhanced and favorable currently. Of course, all the projects that we're looking have this similar long-term profile that we have and we like and we prefer to manage. Currently, we will focus mostly on non-recourse debt and try to max this out when it comes to specific targets. That is always a priority. Then we will see if and at what cost we can fund the rest. The current environment is not only the credit availability, but it provides a very positive cash flow for any asset you agree to buy.
That means the current price environment allows for a nice positive carry in whatever M&A transaction you do. It seems that whatever price you assume as a lock box date of X, by the time you close, especially if it is a producing asset, ultimately, the final money that you need to pay is less than the headline price. The combination of those makes us pretty confident that we will not ambush anyone, meaning specifically the shareholders, with any surprise tap, and that's the priority. The other metric that we will always comply with is that we will not disturb the current leverage position of the company, as well as the medium targets when it comes to dropping that leverage.
We will definitely not do something to increase the current leverage ratios, even at a group level, and it won't disturb the medium-term targets to reduce that to the two times we explained. But yes, the credit availability is good. That makes M&A more executable. Most importantly, the current price environment allows us to factor in a better closing price to the headline one agreed.
Thank you. Our next question is a written question from Thomas Streater with Streater Research. With oil and gas supply uncertainty from the Middle East, are you seeing more exploration and development activity in the greater Mediterranean region? If so, is this impacting pricing for equipment and service providers for Energean? Thank you, Thomas Streater.
The straight answer is no. What we do see is increased level of activity in the Mediterranean. Indeed, we are drilling a well in Greece. There is developments being discussed in Cyprus. We have our big projects in Israel. Egypt has increased demand, but the prices that we see from service providers, and I'm talking about drilling rigs, heavy lift vessels, and related service and equipment, is more related to the global demand for oil and gas services, and that is what is affecting the availability of drilling rigs and the pricing. The pricing that we've seen for the drilling rig in Greece, coming up in 2027, is similar to what we saw last year. We haven't seen a substantial or a material increase in the levels of activity.
These are deep water projects, and not everybody can go and drill deep water wells in 2,000 meters of water depth. The projects are in the hands of very few companies, the majors and us. We are the only ones that have drilled wells in Israel in the last, I think, five years now. There isn't that much activity to drive prices, specifically in the Mediterranean. The global situation is a different story, but not because of activity in the Mediterranean.
Thank you. A follow-up from Thomas Streater with Streater Research. As you see it, what is driving the long-term electricity growth in Israel? The country is a technology hub. Are we seeing data centers construction there as part of the electricity demand growth? Does this impact your marketing strategy in any way, or are you limited to selling gas into Israel's grid? Thank you. Thomas Streater.
Yes. The demand is increasing primarily because of the growth of the economy, because of what is happening in the tech sector, and because of the new drive for demand centers in country, which of course, Israel wants data centers to be stationed in Israel also for security reasons. The combination of all three, and if you add on top of that, the lack of wind, because Israel is a country that doesn't have wind, there's very limited renewable potential from wind. Solar is increasing, but it cannot be a replacement for the gas. We do see incremental, in the mix we see incremental electricity supply from solar, but that's it. Does it change our marketing strategy?
As I said earlier, we have been selling to Israel, and we're very confident and happy to continue selling to Israeli buyers, as long as the prices that we see in the next phase of our contracts are in line with the regional gas prices that we see, in Egypt and elsewhere. We want to sell gas to the best buyers. We don't discriminate against buyers. We don't want to be taking unnecessary credit risk. Credit quality is very important. We like to be paid on time, and we like to know our customers, and this is something that is very comfortable for us in Israel. The next phase of our marketing is to cover the Israeli needs, because obviously that remains a priority, but also take advantage of the regional higher gas prices that we see in Egypt and potentially also from the Southeast European market.
Thank you. A final written question from Roshan Vohra from Aegon AM. How are you structuring the Egypt concession merger to avoid the repeat buildup of receivables? Will the new arrangement include any payment security mechanisms? Can you confirm the current drilling status of the Athena and Zeus wells? What are the key milestones between now and first gas in H1 2027?
There is no security if the question is about a potential LC or something like that. It is the confidence in the Egyptian market. We have been operating in Egypt for over 15 years. We have seen all the cycles. Cycles go up and down, and you have to be confident, and you have to be supportive of a country that you do business regardless of the challenges. This is our DNA. We are committed to Israel, we are committed to Egypt, we are committed to Greece, we are committed to the core countries that give us the opportunity to develop our assets. Even in the tough times, even when receivables were at peaks, we always stayed committed to Egypt, and in good faith, negotiated with the government and EGPC, and EGAS, ways to mitigate the challenges.
I do not have a magic solution, but I have a lot of confidence, especially in the new administration, the new minister, and the policy of the president, to maintain this record of no overdues to the industry. This is not just an Energean phenomenon. This is covering the rest of the market. So we remain confident without any specific safety mechanism. Could you repeat the second question, please?
Yes. Can you confirm the current drilling status of the Athena and Zeus wells?
Yes.
Yes. What are the key milestones between now and first gas?
Yes. Thank you. Zeus and Athena have been completed, and in the next, I would say, days if not weeks, the rig will be released. Everything has gone according to plan, and the wells will be hooked up with the remaining production platforms, production facilities. There are obviously more milestones. We have other units that will allow us to continue the project. Nothing related to subsurface. It is all facilities and equipment that are being developed in various parts of the world by Technip, our major contractor. As I said earlier, first half 2027, we will see gas flowing from Athena and Zeus, and then we will move to the other wells, in the next phase of the development of Katlan.
I can give a lot of technical details or I can have a separate call, but I do not think anybody is interested in specific details of the technical session of Katlan. Happy to take the question offline in more details.
Thank you. That is all the questions that we have for now. This concludes today's call. Thank you everyone for joining, and you may now disconnect.