Ithaca Energy reaches record earnings

  • Business & Finance

Ithaca Energy Inc. releases its financial results for the twelve months ended 31 December 2013, independently assessed year-end reserves and an operations update.

Ithaca Energy reaches record earnings

Les Thomas, Chief Executive Officer commented: “2013 marked a step-change in the development of the Company. Production, cashflow and reserves were all materially enhanced through the acquisition of Valiant. Significant progress and de-risking was achieved on all aspects of the Greater Stella Area development during the year. While delivery of first hydrocarbons from the hub remains the main focus of near term growth, we continue to look for new North Sea opportunities to drive additional longer term shareholder value.”

Financial Results

· $244 million cashflow from operations in 2013 (2012: $90 million), resulting in a more than doubling cashflow per share to $0.81 (2012: $0.35)

· Profit after tax increased by 55% in 2013 to $145 million (2012: $93 million), equating to record earnings per share of $0.48 (2012: $0.36)

· 2013 average realised oil price of $109/bbl (2012: $113/bbl), including a realised hedging gain in the year of $1.60/bbl

· Operating expenditure per barrel of under $40/boe, resulting in a cash netback of approximately $66/boe

· Cash investment in the year totalled approximately $610 million, principally on the acquisition of Valliant and development of the GSA

· Net drawn debt of $348.5 million at 31 December 2013 (zero net drawn debt at 31 December 2012), excluding the Company’s Norwegian tax rebate facility

· UK tax allowances pool of $1,083 million at 31 December 2013. Norwegian tax receivable of $61.4 million

Production & Reserves

Total production increased approximately 120% to 10,392 barrels of oil equivalent per day (“boepd”) in 2013 (2012: 4,673 boepd), driven by the inclusion of production from the Valiant assets from the acquisition completion date of 19 April 2013. Total pro-forma production in 2013, reflecting inclusion of full year production from the Valiant assets, was approximately 13,000 boepd.

The Company had 2P reserves as of 31 December 2013 of 58 MMboe, as independently assessed by Sproule International Limited (“Sproule”). This represents an increase in 2P reserves of over 14% compared to end-2012 driven by the Valiant acquisition.

The 2P reserves post-tax net asset value (“NAV”) discounted at 10% assessed by Sproule as at 31 December 2013 was $1,665 million, up approximately 60% on 2012.

Greater Stella Area

Significant progress was made on execution of the GSA development in 2013. The first two development wells were successfully drilled on the Stella field, with the strong clean-up flow test results achieved by the wells substantially de-risking the initial annualised production forecast for the field of approximately 30,000 boepd, 16,000 boepd net to Ithaca. Approximately 65% of the subsea infrastructure was installed and the dry dock related “FPF-1” floating production facility marine system works were completed and the topsides processing plant construction works commenced.

Contracts have now been awarded by the GSA co-venturers to enable the evacuation of oil from the FPF-1 directly to market via offshore loading to shuttle tankers. The dedicated export solution provides operational certainty and control over peak oil production rates, with the offshore loading infrastructure scheduled to be installed by Technip during the 2014 campaign. It is envisaged that a pipeline connection from the FPF-1 to existing oil export infrastructure will be installed later in field life in order to maximise ultimate reserves recovery.

The heavy lift operations to install the pre-assembled units and key equipment on the main deck of the FPF-1 were completed in January 2014, following close out of the necessary main deck preparation works. The primary focus of the on-going works is the topsides processing plant being installed on the vessel.

The extreme weather over recent months has hampered drilling operations across the North Sea and has resulted in delays in moving the Ensco 100 rig to the drilling location for the next two development wells. This is not scheduled to impact the availability of all four start-up wells in time for arrival of the FPF-1 on location. Drilling of the third development well commenced in March 2014.

The 2014 subsea infrastructure installation programme is scheduled to commence in April and will be completed over several campaigns during the year, culminating in the hook-up of the FPF-1 and risers upon the arrival of the vessel on location.

2014 Operations Update

2014 production guidance remains unchanged in the range of 11,000 to 13,000 boepd, approximately 95% oil. As previously guided, the anticipated schedule of 2014 production enhancement activities means that volumes are forecast to be weighted towards the second half of the year.

Total production in Q1-2014 is estimated to be approximately 9,200 boepd, 95% oil. This is in line with forecast performance for the quarter given the previously announced unplanned shutdown of the Cook field to repair the gas export compressor on the host facility. The Cook field was re-started in February, leading to average production for the Company in March of approximately 11,500 boepd.

The extreme weather over recent months has also resulted in operational delays on sidetracking the Fionn production well, increasing the overall costs of the programme. The reservoir section of the sidetrack was recently drilled, with logs identifying over 100 feet of net reservoir sand of excellent quality, consistent with previous wells on the structure. The well completion is currently being run and it is anticipated that the well will be on-stream in May 2014.

The Don NE acreage that lies adjacent to the Company’s Don Southwest field has been awarded to the Company (40% working interest) by the DECC. Submission of a “Phase 1” Field Development Plan is planned to enable a production well to be drilled on the field from the existing Don Southwest facilities, potentially as early as the end of 2014.

The Company’s capital investment programme in 2014 is forecast to total $350 million.


The Company extended and improved the terms of its long term senior bank debt financing facilities during 2013 following the Valiant acquisition to $710 million; the Reserve Based Lending (“RBL”) facility was increased from $430 million to $610 million and a new five year $100 million corporate facility was established.

New and extended oil sales agreements were also executed during the year with BP Oil International Limited and Shell Trading International Limited, with the Shell agreement allowing the Company to receive up to $70 million of pre-payments for future crude sales to Shell. The terms of this arrangement enabled the Company to further reduce its weighted average cost of debt finance.

Peak funding prior to the start-up of Stella is anticipated to be approximately $600 million from the combined funding facilities of $780 million.

The Company has hedged approximately 2.7 million barrels of future 2014-15 oil production at a weighted average price of around $100 / bbl (approximately 30% puts / 70% swaps). Put options have also been executed to establish a net floor price of £0.58/therm (~$10/MMbtu) for approximately 200 million therms (20 billion cubic feet) of gas sales over gas year’s 2015 and 2016.


The Board of Directors has today appointed Alec Carstairs as a Non-Executive Director of the Company, subject to normal regulatory approvals. Carstairs is a Chartered Accountant and former Head of UK Oil and Gas Mergers and Acquisitions at Ernst & Young LLP. He has over 35 years of experience advising on international oil and gas sector transactions involving companies ranging from new start-ups to multi-national corporations. Carstairs has also been appointed Chairman of the Audit Committee.


Press Release, March 31, 2014

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