Ithaca Energy halves capital expenditure for 2020

Oil and gas company Ithaca Energy has more than halved its capital expenditures for the year due to the double threat posed by the coronavirus pandemic and the sharp oil price drop.

In its operational and trading update, Ithaca Energy said on Tuesday that its planned issuance of the financial results for the twelve months ended December 31, 2019, has been delayed as a consequence of the UK Financial Conduct Authority’s guidance on the publication of results and its request for companies to follow a moratorium on announcements until mid-April given the level of business and economic uncertainty.

Les Thomas, Chief Executive Officer, commented: “With the abrupt emergence over recent weeks of a more challenging macroeconomic environment, it is clear that we need to accelerate our on-going efforts to further reduce the breakeven cost of our assets and our near-term investment programs.

“This will allow us to proactively manage our financial profile in the face of a potentially “lower for longer” commodity price outlook. These objectives are core to the transformation program that is already underway in the business following the acquisition, with the themes of process simplification, operational efficiency and value creation at the heart of the various work programs.”

Beyond the risk to personnel, the most significant Covid-19 risk to the business is a potential shutdown of production resulting from an infection arising amongst the offshore workforce at one of the facilities serving the most material assets in the portfolio, Captain and the Greater Stella Area.

To minimize this risk, the company has reduced the number of personnel on each of its operated offshore facilities to a minimum level required to safely maintain production and execute any critical maintenance work scopes. Measures have also been taken to minimize the risk of infected personnel traveling offshore and in the event of a suspected case arising on one of the installations, the ability to isolate and transport to shore any individuals.

Since the start of the Covid-19 situation, no related incidents have occurred offshore and the company is now at minimum manning levels across its operated assets.

According to Ithaca, management of the Covid-19 situation has naturally required certain planned 2020 capital investment programs to be stopped and deferred until a time when normal offshore operations can resume.

This includes the Alba infill drilling campaign that started at the end of 2019, along with offshore works associated with preparation for the resumption of platform drilling on the Captain field later this year.

The recent dramatic fall in the oil price has also dictated the need for the company’s wider 2020 capital expenditure plans to be revisited as part of proactively preserving the liquidity and cash flow resilience of the business.

The steps that have been taken to reduce and rephase the planned capital expenditure program include deferment of the Fotla exploration well, a reduction in activities on the Jacky decommissioning program and the Hurricane development.

Similar actions have also been taken across the non-operated asset portfolio, with operators delaying the beginning of planned infill drilling activities.

It is estimated that the 2020 capital investment program will reduce from the previously guided level of approximately $250 million to a maximum of around $120 million.

The majority of deferred capital work programs are not specifically centered on activities that are scheduled to materially impact 2020 production.

The significant exception to this is the completion of the Vorlich (34% working interest) field development program, the execution of which is now being hindered by Covid-19 related restrictions to offshore construction activities; both in terms of completion of the remaining subsea infrastructure installation activities and also the remaining FPF-1 related work scopes.

All efforts are on-going to minimize any delay to the field start-up schedule of mid-2020. Vorlich accounted for approximately 6% of the production guidance issued at the start of the year.

Ithaca’s 2020 production guidance of 70,000 to 75,000 boepd, approximately 65% liquids, had been announced at the start of the year.

This range reflected the expected timing for completion of various infill drilling campaigns, start-up of the Vorlich field, the program of planned maintenance shutdowns across the portfolio and sensitivities associated with the timing and performance of these operational programs.

The forecast clearly did not account for potential operational disruptions arising from the management of the evolving Covid-19 situation. It is broadly forecast that the potential negative impact of Covid-19 on the initial production guidance could be around 10%. This does not take into account any potential disruption that may arise should excess global oil supply require production cutbacks in order for terminals to manage physical storage and processing constraints.

The company’s 2020 unit operating expenditure is forecast to reduce from $17/boe to approximately $15/boe, incorporating the potential production impact associated with managing the Covid-19 situation. This operating expenditure includes field, host facility, and export infrastructure costs.

The General and Administration (G&A) costs of the business are estimated to be approximately $1/boe in 2020.