Financial results for Ithaca Energy

Ithaca Energy Inc. announced its quarterly financial results for the three months ended 30 June 2016 and half year results for the six months ended 30 June 2016.

Solid cashflow generation during 1H16:

• Average production of 9378 boed – ahead of 9000 boed guidance.
• Sustained reduction in unit operating costs – full year guidance lowered to US$25/boe prior to Stella start-up, down US$5/boe or 17%, in line with 1H16 performance.
• US$82 million cashflow from operations, driven by reduced operating costs and hedging (cashflow per share US$0.20).
• Earnings of US$46 million excluding mark-to-market of future commodity hedges, US$6 million unadjusted (earnings per share US$0.02).

Continued deleveraging of the business being delivered ahead of Stella start-up – strong liquidity position:

• Net debt reduced from a peak of over US$800 million in the first half of 2015 to US$606 million at 30 June 2016.
• Over US$120 million of funding headroom – total debt availability in excess of US$730 million following semi-annual RBL redetermination in April 2016.
• Significant commodity price protection remains in place – 8200 boed hedged from end 1H16 to mid 2017 at an average price of US$59/boe.

‘FPF-1 modifications programme completed and vessel approaching Stella field location:

• On track for Stella first hydrocarbons in November 2016, three months after sail-away.

Long-term value of the Greater Stella Area (GSA) hub enhanced by future move to oil pipeline exports and expansion of satellite portfolio:

• Access secured to major oil export pipeline for future production and initial tie-in works completed, allowing switch from tanker loading to pipeline export during 2017 – reduces fixed operating costs, enhances operational uptime and improves reserves recovery.
• Interest in ‘Vorlich’ discovery increased to approximately 33%1 and a 75% interest and operatorship acquired in the nearby ‘Austen’ discovery.

Strong outlook – material near-term step-change in production and cashflow:

• Production set to more than double to 20 - 25000 boed and unit operating costs to reduce to under US$20/boe with start-up of production from the Stella field.
• Attractive set of future investment opportunities within the portfolio – ability to tailor the capital investment programme to the prevailing economic outlook.
• Increasing financial flexibility – focus on delivering continued deleveraging of the business within a balanced capital investment programme.

Les Thomas, Chief Executive Officer, commented: “The business has continued to perform well over the first half of the year. Production is running ahead of guidance, operating costs have been further reduced and we have continued deleveraging the business. It has been particularly pleasing to announce the recent sail-away of the FPF-1, the quality and completeness of which means we move forward into the operational phase of the Stella development with confidence. We remain focused on getting to first production safely and efficiently, whilst ensuring we secure the long term value of the hub through our ongoing investment activities.”

GSA development

The FPF-1 modifications programme, which has been undertaken by Petrofac in the Remontowa shipyard in Poland, was completed in July 2016. Importantly, all the onshore scope and testing work scheduled for completion in the yard has been completed as planned, avoiding costly carry over of unfinished work offshore. The vessel has been materially upgraded to accommodate the requirements of the GSA hub. Additional buoyancy and enhancements to the marine systems have been undertaken to extend the operational life of the vessel and entirely new topside oil and gas processing facilities have been installed.

Following the completion of deep water marine system trials, the FPF-1 commenced its tow to the Stella field location in early August 2016. It is anticipated that the period from sail-away to first hydrocarbons is approximately three months. Following the tow the FPF-1 will be moored on location using twelve pre-installed anchor chains. The dynamic risers and umbilicals that connect the subsea infrastructure to the vessel will then be installed. Thereafter, commissioning of the various processing and utility systems that can only be undertaken on location with hydrocarbons from the field will be completed.

GSA oil pipeline

Access to the Norpipe oil pipeline system has been secured for future GSA production, allowing a switch from tanker loading during 2017. This move will significantly reduce the fixed operating costs of the GSA facilities and enhance operational uptime, resulting in improved reserves recovery and increasing the long -erm value of the GSA as a production hub.

GSA satellite acquisitions

As previously announced, the company has entered into sale and purchase agreements (“SPA”) to increase its interest in the Vorlich discovery from approximately 17 - 33%, adding approximately 4 million boe of net proven and probable reserves. An SPA has also been signed for the acquisition of a 75% interest and operatorship of the Austen discovery. Austen lies approximately 30 km from the GSA hub and is estimated by Ithaca to contain gross contingent resources (“1C” to “3C”) in the range of 4 - 28 million boe.

Initial considerations are payable at completion of the acquisitions, with additional contingent payments at FDP approval and upon reaching reserves recovery thresholds. The acquisition costs including potential future contingent payments total under US$6 million, with the transactions expected to complete in the second half of 2016.

Production and operations

The producing asset portfolio has performed well over 1H16, with production running ahead of guidance largely as a result of solid performance from the Cook and Dons Area fields. Average production for the 1H16 was 9378 boed (93% oil).

Full year base production guidance, excluding any contribution from start-up of the Stella field during 2016, remains unchanged at 9000 boed. The additional production contribution resulting from the start-up of Stella during the year will depend on the exact timing of first hydrocarbons from the field. Prompt ramp up of production is anticipated following first hydrocarbons, leading to an expected initial annualised production rate of approximately 16 000 boed net to Ithaca.

Financials

Despite an approximate 30% fall in Brent and lower production primarily resulting from removal of high cost assets from the portfolio, the business delivered US$82 million cashflow from operations in 1H16. Adjusting for the one-off hedging gains realised in 1Q15 and onerous contract provisions, 1H16 cashflow from operations has remained broadly flat compared to the same period in 2015. This performance highlights the benefit of the commodity hedges the company has in place and significant operating costs savings that have been secured through re-setting of the cost base.

The company’s future commodity hedged position remains unchanged from that announced at the previous quarter’s financial results. During 1H16 approximately 13 500 boed (55% oil) of commodity hedges were realised at an average price of US$59/boe. This resulted in hedging cash gains of US$58 million during the period.

Approximately 9400 boed (48% oil) is hedged in the second half of 2016 at an average price of US$58/boe. In the first half of 2017 approximately 7000 boed (50% oil) is hedged at an average price of US$60/boe. In total, as at the 1 July 2016 these future hedges were valued at US$47 million based on prevailing oil and gas forward curves at that time.

Operating costs in 1H16 continued on the downward trend established in 2015, with an average unit cost of US$25/boe delivered during the period. This represents a substantial 17% or US$5/boe saving on forecast unit operating expenditure for the existing assets prior to Stella start-up. This has been achieved as a result of cost reductions secured across the portfolio, with the Cook and Wytch Farm fields delivering the most significant savings.

It is anticipated that unit operating costs from the existing producing fields will remain around US$25/boe over the course of this year and the guidance is accordingly revised down from US$30/boe. The forecast unit operating costs for the Stella field remain unchanged at US$10 - 12/boe.

Total capital expenditure in 2016 is forecast to be approximately US$50 million, the majority of which relates to the GSA.

As planned, during 1H16, the company continued to delever the business ahead of first hydrocarbons from the Stella field. Net debt at 30 June 2016 was US$606 million, down from US$665 million at the end of 2015 and over 25% or US$200 million since the peak of over US$800 million in the first half of 2015.

Deleveraging of the business continues to remain a core priority of the company, with a step change in the debt reduction profile achievable following the start-up of Stella production.

The business is fully funded with strong liquidity, having over US$730 million of available debt ahead of planned first hydrocarbons from the GSA, which provides in excess of US$120 million of funding headroom.

The company had a UK tax allowances pool of over US$1600 million at 30 June 2016. At current commodity prices the pool is forecast to shelter the company from the payment of corporation tax over the medium term.

Edited from source by Stephanie Roker

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/15082016/financial-results-for-ithaca-energy/