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 on-going investment activities."
Greater Stella Area 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 term 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% to 33%, adding approximately 4 MMboe1 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 kilometres from the GSA hub and is estimated by Ithaca to contain gross contingent resources ("1C" to "3C") in the range of 4-28 MMboe2.
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 $6 million, with the transactions expected to complete in the second half of 2016.
Production & Operations
The producing asset portfolio has performed well over H1 2016, with production running ahead of guidance largely as a result of solid performance from the Cook and Dons Area fields. Average production for the H1 2016 was 9,378 boepd (93% oil).
Full year base production guidance, excluding any contribution from start-up of the Stella field during 2016, remains unchanged at 9,000 boepd. 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 boepd net to Ithaca.
Financials
Cashflow from Operations
Despite an approximate 30% fall in Brent and lower production primarily resulting from removal of high cost assets from the portfolio, the business delivered $82 million cashflow from operations in H1-2016. Adjusting for the one-off hedging gains realised in Q1-2015 and onerous contract provisions, H1-2016 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.
Hedging
The Company's future commodity hedged position remains unchanged from that announced at the previous quarter's financial results. During H1-2016 approximately 13,500 boepd (55% oil) of commodity hedges were realised at an average price of $59/boe. This resulted in hedging cash gains of $58 million during the period.
Approximately 9,400 boepd (48% oil) is hedged in the second half of 2016 at an average price of $58/boe. In the first half of 2017 approximately 7,000 boepd (50% oil) is hedged at an average price of $60/boe. In total, as at the 1 July 2016 these future hedges were valued at $47 million based on prevailing oil and gas forward curves at that time.
Operating Expenditure
Operating costs in H1-2016 continued on the downward trend established in 2015, with an average unit cost of $25/boe delivered during the period. This represents a substantial 17% or $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 $25/boe over the course of this year and the guidance is accordingly revised down from $30/boe. The forecast unit operating costs for the Stella field remain unchanged at $10-12/boe.
Capital Expenditure
Total capital expenditure in 2016 is forecast to be approximately $50 million, the majority of which relates to the GSA.
Net Debt
As planned, during H1-2016 the Company continued to delever the business ahead of first hydrocarbons from the Stella field. Net debt at 30 June 2016 was $606 million, down from $665 million at the end of 2015 and over 25% or $200 million since the peak of over $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 $730 million of available debt ahead of planned first hydrocarbons from the GSA, which provides in excess of $120 million of funding headroom.
Tax
The Company had a UK tax allowances pool of over $1,600 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.
Further Information
GSA Development Film
A short film capturing the work that has been completed on the Stella development and sail-away of the FPF-1 from Gdansk is available on the Company's website (www.ithacaenergy.com).
H1-2016 Financial Results Conference Call
A conference call and webcast for investors and analysts will be held today at 12.00 BST (07.00 EDT). Listen to the call live via the Company's website (www.ithacaenergy.com) or alternatively dial-in on one of the following telephone numbers and request access to the Ithaca Energy conference call: UK +44 203 059 8125; Canada +1 855 287 9927; US +1 866 796 1569. A short presentation to accompany the results will be available on the Company's website prior to the call.
Glossary
| boe | Barrels of oil equivalent |
| boepd | Barrels of oil equivalent per day |
| MMboe | Million barrels of oil equivalent |
| RBL | Reserves Based Lending facility |
- ENDS -
Notes
In accordance with AIM Guidelines, John Horsburgh, BSc (Hons) Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and Subsurface Manager at Ithaca is the qualified person that has reviewed the technical information contained in this press release. Mr Horsburgh has over 15 years operating experience in the upstream oil and gas industry.
1. The Vorlich field interest and estimated reserves reflect assumed unitisation across licences P1588 and P363. The estimated reserves are based on the independent reserves assessment performed by Sproule International Limited ("Sproule"), effective as of 31 December 2015, and prepared in accordance with the Canadian Oil and Gas Evaluation Handbook maintained by the Society of Petroleum Engineers (Calgary Chapter), as amended from time to time.
2. Estimates of the gross 1C to 3C contingent resource (Development Pending) range associated with the Austen discovery have been prepared by Ithaca, effective as of 1 July 2016, and not by an independent qualified reserves evaluator or assessor. These figures are estimates only and the actual results may be greater than or less than the estimates provided herein, with the resource range reflecting uncertainties and risks associated with compartmentalisation of the reservoir. There is no certainty that it will be commercially viable to produce any portion of these resources.
The estimates of reserves and resources stated herein for individual properties may not reflect the same confidence level as estimates of reserves and resources for all properties, due to the effects of aggregation. The well test results disclosed in this press release represent short-term results, which may not necessarily be indicative of long-term well performance or ultimate hydrocarbon recovery therefrom.
The Company's total proved and probable reserves at 31 December 2015 plus the estimated reserves associated with the Vorlich licence acquisition from TOTAL, which completed in July 2016, were 57 MMboe. These reserves were independently assessed by Sproule, a qualified reserves evaluator.
References herein to barrels of oil equivalent ("boe") are derived by converting gas to oil in the ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl") of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 bbl, utilising a conversion ratio at 6 Mcf: 1 bbl may be misleading as an indication of value.
About Ithaca Energy
Ithaca Energy Inc. (TSX: IAE; LSE: IAE) is a North Sea oil and gas operator focused on the delivery of lower risk growth through the appraisal and development of UK undeveloped discoveries and the exploitation of its existing UK producing asset portfolio. Ithaca's strategy is centred on generating sustainable long term shareholder value by building a highly profitable 25kboe/d North Sea oil and gas company. For further information please consult the Company's website www.ithacaenergy.com.
Non-IFRS Measures
"Cashflow from operations" and "cashflow per share" referred to in this press release are not prescribed by IFRS. These non-IFRS financial measures do not have any standardised meanings and therefore are unlikely to be comparable to similar measures presented by other companies. The Company uses these measures to help evaluate its performance. As an indicator of the Company's performance, cashflow from operations should not be considered as an alternative to, or more meaningful than, net cash from operating activities as determined in accordance with IFRS. The Company considers cashflow from operations to be a key measure as it demonstrates the Company's underlying ability to generate the cash necessary to fund operations and support activities related to its major assets. Cashflow from operations is determined by adding back changes in non-cash operating working capital to cash from operating activities.
"Net debt" referred to in this press release is not prescribed by IFRS. The Company uses net drawn debt as a measure to assess its financial position. Net drawn debt includes amounts outstanding under the Company's debt facilities and senior notes, less cash and cash equivalents.
Forward-looking Statements
Some of the statements and information in this press release are forward-looking. Forward-looking statements and forward-looking information (collectively, "forward-looking statements") are based on the Company's internal expectations, estimates, projections, assumptions and beliefs as at the date of such statements or information, including, among other things, assumptions with respect to production, drilling, construction and maintenance times, well completion times, risks associated with operations, required regulatory, partner and other third party approvals, commodity prices, future capital expenditures, continued availability of financing for future capital expenditures, future acquisitions and dispositions and cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. When used in this press release, the words and phrases like "anticipate", "continue", "estimate", "expect", "may", "will", "project", "plan", "should", "believe", "could", "target", "in the process of", "on track","set to" and similar expressions, and the negatives thereof, whether used in connection with operational activities, anticipated period from sail-away to Stella first hydrocarbons, production forecasts, anticipated ramp-up of production following Stella first hydrocarbons,, projected operating costs, anticipated capital expenditures and capital programme, anticipated effects of securing access to the GSA oil export pipeline, the anticipated timing of completion of the Vorlich and Austen license acquisitions, expected future payments associated with such license acquisitions, assumed unitisation across licences P1588 and P363 containing the Vorlich discovery, statements related to reserves and resources other than reserves, the planned independent assessment of the Austen property, the planned commissioning and offshore hook up activities associated with the FPF-1, portfolio investment opportunities, expected tax horizon of the Company, or otherwise, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations, or the assumptions underlying these expectations, will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon. These forward-looking statements speak only as of the date of this press release. Ithaca Energy Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based except as required by applicable securities laws.
Additional information on these and other factors that could affect Ithaca's operations and financial results are included in the Company's Management Discussion and Analysis for the quarter and six months ended 30 June 2016 and the Company's Annual Information Form for the year ended 31 December 2015 and in reports which are on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).
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