Ithaca Energy announces full year 2023 results

Robust 2023 operational and financial performance with continued strategic delivery, supporting long- term value creation

Ithaca Energy, a leading UK independent exploration and production company, has announced its audited full year results for the year ended 31 December 2023.

Financial key performance indicators (KPIs)

Other KPIs

1 Non-GAAP measure (see pages 77 to 79)

2023 Strategic and Operational Highlights

• Full year production of 70.2 thousand barrels of oil equivalent per day (kboe/d), in line with previously stated guidance of 68–74 kboe/d
  • Underpinned by high levels of production efficiency across our operated asset base of 84%
  • Production split 66% liquids and 34% gas
• Increase in Year-end 2P reserves and 2C resources to 544 mmboe (2022: 512 mmboe)
• Significant progress across our strategic goals in 2023, delivering against our BUY, BUILD and BOOST

BUY

• Completed acquisitions of the remaining 40% stake in Fotla and 30% stake in Cambo, at minimal near-term cost, providing full control over pre-Final Investment Decision (FID) work programme and timing

BUILD

• FID taken to progress Phase I of the Rosebank development, the UK’s largest undeveloped discovery with all major contracts awarded and work underway to upgrade the Petrojarl Knarr FPSO
• Pre-FID work continues across the Group’s high-value greenfield and brownfield development portfolio including:
  • Actively engaging with potential farm-in partners to enable the future progression of Cambo and Fotla towards FID, subject to fiscal and market conditions
  • Awarded license milestone extensions from 31 March 2024 to 31 March 2026 for Cambo field, on 19 March 2024
  • Captain Electrification FEED study matured to support FID in 2024, subject to market and fiscal conditions
  • Marigold Unitisation and Unit Operating Agreement executed with work progressing on preparation of a Field Development Plan
  • Fotla development concept selection in 2024
  • Successful exploration drilling at the K2 prospect (Ithaca Energy working interest 50%) and appraisal drilling at non-operated Leverett field, with good flow rates achieved (Ithaca Energy working interest 12%)

BOOST

• Captain Enhanced Oil Recovery (EOR) Phase II project now substantially complete (>90%), supporting first Phase II polymer injection into the subsea wells in summer 2024 with the remaining project scopes to completion including commissioning and subsea tie-in activities

2023 Financial Highlights

Key financial highlights in-line with estimated results provided in FY 2023 Trading Update on 15 February 2024

• Adjusted EBITDAX of $1,723 million (2022: $1,916 million) on revenues of $2,319 million (2022: $2,599 million)

• Net cash flow from operating activities of $1,291 million (2022: $1,723 million)
• Net Operating costs of $524 million, representing a net unit opex cost of $20.5/boe (2022: $19.0/boe) at the bottom end of lowered management guidance of $525-$575 million. Operating cost performance reflects the success of the Group’s internal cost optimisation projects and stringent cost control, and improved FX rates.
• Trading performance benefited from the Group’s active hedging policy with $266 million of hedge gains in the year due to realised oil prices of $85/bbl before hedging (2022: $100/bbl) and $82/bbl after hedging (2022: $91/bbl) and gas prices of $76/boe before hedging (2022: $149/boe) and $111/boe after hedging (2022: $137/boe)

• Net producing asset capital cost of $393 million, at the bottom end of management guidance of $390-$435 million reflecting reduction in planned activity

• Net capital spend of $97 million on Rosebank development project, in line with management guidance of $90-$110 million and reflecting the meaningful activity in 2023 as project activity ramps up to support a targeted first oil date of 2026/27
• Strong cash flow generation supported continued deleveraging of the business, reporting a reduction in adjusted net debt from $971.2 million to $571.8 million, representing a Group leverage position of 0.33x (2022: 0.51x), with the Group’s Reserve Based Lending Facility fully paid down
• Third Interim 2023 dividend declared of $134 million payable in April 2024, delivering against our IPO commitment of a total 2023 dividend of $400 million, representing ~30% of post-tax CFFO for the year

Guidance and Outlook 2024

• We expect full year 2024 production in range of 56-61 kboe/d reflecting:
  • A reduction in investment in near-term projects as a direct result of the Energy Profits Levy including deferred or cancelled projects at the Greater Stella Area, Montrose Arbroath Area, Elgin Franklin Area and Alba
  • Longer path to Captain EOR II polymer well driven peak production, which is now expected in 2026. Ultimate reserve recovery of EOR Phase I and II remains unchanged
  • Operational issues at non-operated Pierce and Schiehallion fields and compressor issues at Erskine’s host facility (Lomond) impacting production in Q1 2024
• FY 2024 net operating cost guidance range of $540–590 million driven partly by tariff revenue reductions in the Greater Stella Area due to third party field production decline
• FY 2024 net producing asset capital cost guidance range of $335-385 million (excluding pre-FID projects and Rosebank development)
• FY 2024 net Rosebank project capital cost guidance range of $190-230 million
• FY 2024 cash tax guidance of $345-355 million
• Drawdown on unutilised capex carry arrangements of $150 million
• Reaffirming dividend policy for 2024 targeting dividend at the top end of our capital allocation policy range of 15 - 30% post-tax CFFO

Medium-Term

• Beyond 2024, the Group expects production growth through the medium-term with a return towards 80 kboe/d by 2027, as we see the full benefit of investment in our Captain EOR Phase II project and first production from the sanctioned Rosebank development
• Strategic M&A focus on adding complementary cash-generative production portfolios that will support our investment in long-term organic growth opportunities to build a portfolio of significant scale and longevity
• Continued focus on advancing high-value development projects and preserving optionality across our portfolio while prioritising capital allocation to maximise sustainable shareholder returns

Exclusivity Agreement for a potential transformational combination with Eni S.p.A.’s UK Business

• Ithaca Energy today announces that it has entered into an exclusivity agreement (the “Exclusivity Agreement”) in relation to a potential transformational combination with substantially all of Eni S.p.A.’s (“Eni”) UK upstream assets including the recently acquired Neptune Energy assets, excluding certain assets including Eni’s CCUS and Irish sea assets (the “Potential Combination”)
• Pursuant to the Exclusivity Agreement, Eni has granted Ithaca Energy exclusivity in respect of the assets the subject of the Potential Combination for a period of four weeks from the date of this announcement. Ithaca Energy and Eni have entered into the Exclusivity Agreement to allow time to separately progress the contractual documentation required in connection with the Potential Combination.

Key highlights of the Potential Combination

• Eni will contribute its UK business in exchange for the issuance of new Ithaca Energy shares to Eni, with Eni anticipated to hold between 38% and 39% of the enlarged issued share capital of Ithaca Energy following completion
• Eni has a well-diversified asset base across four key hubs: Elgin Franklin, J-Area, Cygnus and Seagull; Ithaca Energy is already a partner in the Elgin Franklin and Jade fields
• Eni’s UK business had 2023 pro forma production of 40-45 kboe/d and 2P reserves of c.100 mmboe as at 31 December 20231
• The Potential Combination would represent a value-accretive opportunity for Ithaca Energy’s shareholders, supporting delivery of the Company’s BUY, BUILD and BOOST strategy
• The Potential Combination would:
  • Add significant scale and diversification to Ithaca Energy’s business: Significantly growing pro-forma production to above 100 kboe/d, creating the 2nd largest independent operator in the UKCS by production2
  • Create a leading UKCS portfolio: Enhancing Ithaca Energy’s status as the largest independent operator by resource, holding stakes in 6 of the 10 largest fields3
  • Enable material future growth for Ithaca Energy: Boost near-term cash flows to unlock growth from Ithaca Energy’s development projects whilst supporting shareholder returns
  • Create a long-term strategic partnership with Eni: Eni would become a major shareholder in the enlarged group supportive of delivery of Ithaca Energy’s BUY, BUILD and BOOST strategy. It is contemplated that Ithaca Energy would have access to Eni’s leading technical expertise to drive future growth.
• Ithaca Energy anticipates that the Potential Combination will require shareholder approval as a Class 1 transaction. Additionally, as Eni UK will hold between 38% and 39% of the voting rights of Ithaca Energy at completion of the Potential Combination, a mandatory offer would normally be required under Rule 9 of the UK Code on Takeovers and Mergers (the “Takeover Code”). However, given that Delek Group will still hold shares carrying more than 50% of the voting rights following completion of the Potential Combination, the UK Panel on Takeover and Mergers (the “Panel”) have granted a dispensation from Rule 9 pursuant to note 5 (b) of Rule 9 under the Takeover Code. Accordingly, completion of the Potential Combination will not be conditional upon and will not require approval by Ithaca Energy’s independent shareholders in relation to a Rule 9 waiver.
• Although the discussions are at an advanced stage, there can be no certainty that a Potential Combination will occur, nor as to the final terms or timing on which a Combination might be concluded.

Executive Chairman, Gilad Myerson, commented: 'I am delighted to share the news that we have entered into an Exclusivity Agreement with Eni S.p.A to explore a transformational combination with Eni UK’s upstream assets. We believe this potential combination would be a strong strategic fit with Eni UK’s cash generative portfolio complementing Ithaca Energy’s high-quality, long-life asset base with significant development opportunity.

Eni has a proven track record of value creation through its strategic satellite model with regional exploration and production companies including successful joint ventures in Norway and Angola with Vår Energi and Azule Energy respectively. We look forward to updating the markets in the coming month.'

Interim Chief Executive Officer and Chief Financial Officer, Iain Lewis, commented: 'We have made material progress in 2023, executing against our BUY, BUILD and BOOST strategy including the milestone sanctioning of Phase I of the Rosebank development and the significant progress towards delivering our Captain EOR Phase II project.

I am pleased to share a strong set of financial results for 2023, despite the significant fiscal and political headwinds we have faced in the year. The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea, with projects across our operated and non-operated deferred or cancelled. The extension of the Energy Profits Levy by a further year to a sunset date of March 2029, highlights the continued fiscal uncertainty our sector faces.'

Original announcement link

Source: Ithaca Energy