Ithaca Energy Operations Update & 2016 Outlook
Tuesday 12 January 2016
Ithaca Energy Inc provides an operations update and guidance on the outlook for the year ahead.
In 2016 production is forecast to more than double to approximately 25,000 barrels of oil equivalent per day ("boepd") after Stella start-up.
Average production in 2015 totalled approximately 12,100 boepd – exceeding full year guidance of 12,000 boepd.
Base production in 2016, excluding any contribution associated with start-up of the Stella field during the year, is anticipated to be approximately 9,000 boepd (95% oil).
Sail-away of the “FPF-1” from Poland is expected to be delayed by six to twelve weeks due to slippage in completion of certain commissioning milestones.
Forecast first hydrocarbons from the Greater Stella Area (“GSA”) now anticipated in the third quarter of 2016, increasing production by approximately 16,000 boepd net to Ithaca
The Company has strengthened its GSA position with the acquisition of a strategic non-operated interest in the high quality “Vorlich” discovery from TOTAL E&P UK Limited.
Acquired an approximate 17% interest in the Vorlich discovery, located ten kilometres from the GSA hub – estimated gross proven and probable reserves of 20-30 million barrels of oil equivalent (“MMboe”).
Minimal initial consideration, with potential contingent payments upon future milestones.
Vorlich appraisal programme was completed in 2014, with submission of the Field Development Plan (“FDP”) scheduled for late 2016.
Deleveraging process underway, with strong hedging position and falling unit operating cost base supporting future cashflow generation.
Net debt at 31 December 2015 of $665 million, reflecting the benefits of the deleveraging measures taken during the year.
Forecast 2016 capital expenditure of approximately $50 million, a reduction of over 40% on the previous year.
Average volume of 10,000 boepd (52% oil) hedged until mid-2017 at approximately $61/boe.
Forecast 2016 unit operating expenditure associated with base production volumes of approximately $30/boe, reducing to sub $25/boe upon Stella start-up.
Les Thomas, Chief Executive Officer, commented:
“With many positive actions taken over the last year Ithaca enters 2016 in a position to continue generating positive cashflow from operations, even at current low commodity prices, and to deliver transformational first production from the Stella development.”
“We remain confident that good returns can be made in the North Sea, with a rigorous, cost and risk conscious approach to selective investment in high quality assets. We believe that today’s difficult environment actually provides an opportunity for the Company as a focused player in the sector, as demonstrated by the acquisition of our interest in Vorlich.”
Further Information
2015 Production
Average production in 2015 was 12,100 boepd (94% oil), slightly higher than the full year guidance of 12,000 boepd as a result of solid operational performance across the main fields.
2016 Production Outlook
Base production in 2016, excluding any contribution associated with start-up of the Stella field during the year, is anticipated to be approximately 9,000 boepd (95% oil). This reflects the cessation of production from the Athena and Anglia fields, no significant capital investment on the existing producing assets during the year and restricted production rates for the Pierce field in the first half of 2016 due to the need to complete remedial works on the subsea gas injection flowline.
The additional production contribution during the year resulting from the start-up of Stella 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 initial annualised production rate of approximately 16,000 boepd net to Ithaca.
Greater Stella Area Development
The focus of the on-going GSA development activities remain centred on completion of the FPF-1 modifications programme that is being undertaken by Petrofac in the Remotowa shipyard in Poland. Completion of this programme remains the critical path item for delivering first production from Stella.
Planned sail-away of the FPF-1 from Poland at the end of the first quarter of 2016 is now expected to be delayed by six to twelve weeks due to slippage in completion of certain commissioning milestones and the requirement for some marine system re-work in order to ensure the vessel meets the required sail-away certification standards. Based on this schedule it is forecast that first hydrocarbons from the Stella field will be in the third quarter of 2016.
All costs of modifying the FPF-1 above the contract cost cap continue to be fully paid by Petrofac. Under the terms of the previously announced FPF-1 incentivisation agreement, a delay in sail-away of the vessel will reduce any potential incentive payment made by Ithaca to Petrofac. The agreement provides for Petrofac to earn up to $34 million dependent on the timing of sail-away of the FPF-1, with the maximum payment achieved for delivering sail-away from the shipyard prior to the end of March 2016 and reducing to zero for sail-away after 31 July 2016.
As previously noted, all the subsea infrastructure that is required to be installed prior to the arrival of the FPF-1 on location is in place and all five Stella development wells have been successfully drilled and tested.
Vorlich Discovery – GSA Satellite Addition
A sale and purchase agreement has been signed with TOTAL E&P UK Limited to acquire a 20% non-operated interest in Licence P363 (block 30/1c), effective 1 July 2015 (the “Effective Date”). The licence is operated by BP plc and contains approximately 80-90% of the Vorlich discovery, implying an approximately 17% interest in the overall discovery. Vorlich is located approximately 10 kilometres north of the GSA hub.
Vorlich was discovered and appraised in 2014 with exploration well 30/1f-13A,Z and 13Z. The well encountered hydrocarbons in a Palaeocene sandstone reservoir in block 30/1c and a subsequent side-track into block 30/1f confirmed the westerly extension of the discovery. It is estimated that Vorlich contains gross proven and probable reserves of 20-30 MMboe(1).
In line with the requirements of the Vorlich licence, the work programme for 2016 is centred on the preparation and submission for approval of a Field Development Plan (“FDP”) by the end of the year.
A minimal consideration is payable at completion of the transaction, with additional contingent payments at FDP approval and upon reaching a reserves recovery threshold. The acquisition is expected to complete in the first quarter of 2016 and is subject to normal regulatory approvals. At completion the consideration paid will be subject to normal industry adjustments to reflect costs incurred since the Effective Date.
Financials
Hedging
The Company’s commodity hedging position remains unchanged. In 2016 a volume of 11,500 boepd (52% oil) is hedged at an average price of $60/boe, with those volumes weighted toward the first half of the year. In the first half of 2017 approximately 7,000 boepd (50% oil) is hedged at an average price of $62/boe.
Capital Expenditure
The Company anticipates net 2016 capital expenditure to total approximately $50 million, a reduction of over 40% compared to the previous year. The main part of this expenditure relates to the GSA, including the activities required to prepare the Vorlich FDP for approval.
Operating Expenditure
Forecast 2016 unit operating expenditure prior to Stella start-up is anticipated to be approximately $30/boe, reflecting the benefit of removing the higher cost assets from the production portfolio and the impact of the supply chain cost reduction initiatives completed in 2015. Upon the start-up of production from the Stella field, unit operating expenditure is forecast to fall below $25/boe.
Net Debt
As anticipated the Company commenced deleveraging the business in 2015. Net debt was reduced from a peak of over $800 million in the first half of the year to $665 million at 31 December 2015. This reduction reflects the benefit of strong operating cashflow generation, lower capital expenditures and the cash received from sale of the non-core Norwegian business as well as proceeds of the premium equity placing completed in October 2015. The net debt level at the end of 2015 was lower than anticipated primarily as a result of movements in working capital.
2015 Financial Results
The Company is scheduled to release its full year 2015 financial results on 23 March 2016 along with the results of its year-end independent reserves evaluation, which is being performed by Sproule International Limited (“Sproule”) and will reflect Sproule’s future oil and gas price assumptions as of 31 December 2015. A conference call and webcast for investors and analysts will be held on the same day at 12.00 GMT (07.00 EST), with a playback facility being made available on the Company’s website later that day. Dial-in details for the call will be included in the press release that accompanies the financial results documentation.
Source: Ithaca Energy