Ithaca Energy announces Q1-2017 financial results - updates operations
Monday, May 15, 2017
Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) (“Ithaca” or the “Company”) announces its financial results for the three months ended 31 March 2017 (“Q1-2017” or the “Quarter”).

Q1-2017 financial highlights

  • Average production of 9,337 barrels of oil equivalent per day (“boepd”)
  • Unit operating expenditure reduced to $21/boe, down from $23/boe average rate in 2016
  • Cashflow from operations of $30 million, resulting in a netback of $36/boe
  • Earnings of $11 million
  • Downside commodity price hedging in place to mid-2018 – 6,800 boepd at an average floor of $49/boe from 1 April 2017
FPF-1 commissioning and operations update

  • Stella field started up mid-February 2017 – producing at constrained rates to minimise gas flaring until gas processing systems fully available
  • Commissioning of gas export compressors well advanced – one export train fully commissioned and the second materially completed
  • Initial gas exports to the CATS pipeline system delivered with the first export compressor in April 2017 – gas exports currently temporarily suspended until later this month while mechanical repairs are completed on the FPF-1 sea water lift pumps that are required for gas system cooling
  • Once both gas export compressors are fully operational, Stella remains forecast to add approximately 16,000 boepd net initial annualised production to the production portfolio
  • Average full year 2017 production is forecast to be in the range of 18,000 to 19,000 boepd, reflecting the expected schedule for the step-up in Stella production rates
Greater Stella Area development activities progressing to plan

  • Harrier field development programme commenced - development well drilling in progress with start-up of production expected in the second half of 2018
  • Good progress continues to be made on the FPF-1 modifications required to enable the switch from oil tanker loading to pipeline export in the second half of 2017
  • Vorlich development planning on-going – identification of the optimal development solution and preparation for submission of a field development plan
  • Additional 25% interest in the Ithaca-operated Austen discovery acquired from Premier Oil
Delek cash takeover offer

  • The offer of C$1.95 per share was accepted by holders of 318,833,909 common shares, resulting in Delek owning 94.2% of the issued and outstanding shares of the Company, including the shares it owned prior to announcement of the transaction
  • Delek has announced it intends to carry out a compulsory acquisition of the remaining shares for the same cash consideration as the offer
Greater Stella Area Development

Following first hydrocarbons from the Stella field in mid-February 2017, operational activities on the FPF-1 have been centred on completion of the dynamic commissioning programme required on the gas processing systems on the vessel. During this programme, oil production continues to be maintained at constrained rates in order to minimise gas flaring.  The oil processing facilities on the FPF-1 have been performing well and an initial cargo of approximately 235,000 barrels of oil was exported via shuttle tanker from the field in April 2017. Oil production to date from the field has been limited to approximately 1,900 boepd net to Ithaca.

Dynamic commissioning activities on the gas processing facilities are now well advanced. The first of the two gas export compressors has been fully commissioned, with initial gas exports into the CATS pipeline system achieved in late April 2017, and commissioning of the second export compressor has also been materially completed. Gas exports have temporarily been suspended until replacement of the drive motors on the FPF-1 sea water lift pumps that provide cooling for the gas processing systems has been completed. As a consequence, it is forecast that gas exports from the first compressor will recommence later this month, stepping up to full production rates in early June 2017 once commissioning of the second export compressor is completed.

Once both gas export compressors are fully operational, Stella remains forecast to add approximately 16,000 boepd net initial annualised production to the Company’s asset portfolio.

GSA Oil Export Pipeline

Good progress continues to be made on the FPF-1 modifications required to enable the switch from oil tanker loading to pipeline exports via the Norpipe system during 2017.  All the main items of equipment required to be installed on the FPF-1 have now been transferred on to the vessel and work is progressing to plan on installation of the pipeline export pumps. Upon completion of the necessary tie-ins to the existing facilities on the vessel, the final subsea connections that need to be undertaken immediately prior to the switchover from shuttle tanker to pipeline export will be completed by Technip.

Harrier Development

Development drilling on the Harrier field commenced as planned in April 2017. The ENSCO 122 heavy duty jack-up rig is being used to drill a multilateral well into the two reservoir formations on the field, with the well scheduled for completion in the second half of 2017.

The Harrier well is to be tied back via a 7.5 kilometre pipeline to an existing slot on the Stella main drill centre manifold for onward export and processing of production on the FPF-1. The subsea infrastructure installation activities are scheduled for summer 2018, resulting in the anticipated start-up of Harrier production in the second half of 2018.

Austen Discovery

The Company entered into a sales and purchase agreement with Premier Oil E&P UK Limited in May 2017 to acquire its 25% interest in licence P1823 (Block 30/13b) for a nominal consideration. The licence contains the Ithaca-operated Austen discovery.  The transaction, which is effective as of 1 January 2017 and expected to complete in the second half of 2017, will result in the Company being the sole owner of the licence. The Austen discovery is located approximately 30 kilometres south-east of the Greater Stella Area hub.

Production & Operations

Production in the first quarter of 2017 averaged 9,337 boepd (Q1 2016: 8,997 boepd). This represented a 4% increase on production in Q1 2016 predominantly due to higher volumes from the Pierce field, along with a modest contribution from the Stella field, offsetting natural decline on the Dons area fields.

Average production in 2017 is forecast to be in the range of 18,000 to 19,000 boepd (80% oil), reflecting the schedule for the step-up in Stella production rates and the other previously noted planned maintenance shutdowns scheduled for the asset portfolio during the year.


The Company’s commodity hedging position remains unchanged since the start of 2017. As of 1 April 2017 the Company has 6,800 boepd (90% oil) hedged at an average floor price of $49/boe for the 15 months to 30 June 2018. Full commodity price upside exposure has been retained on 65% of the volumes hedged and upside exposure to $60/boe has been retained on a further 25% of the hedged volumes.

Operating Expenditure

Net unit operating costs in Q1-2017 were $21/boe, down from an average of $23/boe in 2016. This reduction was achieved through continued downward pressure on operating costs across the portfolio and the benefit of a modest contribution during the quarter from lower cost Stella field production.

Forecast 2017 net unit operating expenditure is anticipated to be approximately $18/boe, reflecting the anticipated positive impact on unit costs of Stella field production.

Capital Expenditure

The planned capital expenditure programme for 2017 is forecast to total approximately $70 million. Of this, approximately $8 million was incurred in Q1-2017. The majority of the 2017 expenditure relates to the GSA, primarily being Harrier development activities plus completion of the GSA oil export pipeline investment programme and Vorlich field development planning activities.


The Company had a UK tax allowances pool of over $1,700 million at 31 March 2017. At current commodity prices, the pool is forecast to shelter the Company from the payment of corporation tax over the medium term.

Net Debt & Credit Facilities

Net debt at 31 March 2017 was $614 million, up slightly on the year-end total of $598 million due to working capital movements and the timing of initial sales receipts from Stella field production.

Net debt is forecast to reduce significantly over the course of 2017 as the operating cashflows of the business step up materially as a consequence of Stella production.

Ithaca’s existing bank debt facilities and senior notes have maturities in late 2018 and mid-2019, respectively. During 2017 the Company will assess the options to refinance these credit facilities and the associated debt maturity profiles.

Delek Takeover Offer

On 6 February 2017 the Company announced that it had entered into a definitive support agreement with Delek Group Ltd ("Delek") on the terms of a cash takeover bid for all of the issued and to be issued common shares of Ithaca not currently owned by Delek for C$1.95 per share (the “Offer”). The Offer was made by DKL Investments Limited (the “Offeror”), an affiliate of Delek and Ithaca's largest shareholder at the time the Offer was announced.

On 20 April 2017 the conditions of the Offer were satisfied, with the Offer being accepted by holders of 241,293,465 of the issued and outstanding common shares of the Company. As required by securities laws, the Offer was subsequently extended until 3 May 2017, following which a further 77,540,444 common shares were tendered. Consequently, upon completion of the Offer, the Offeror became the owner of 400,699,334 common shares, including the shares already owned by the Offeror prior to announcement of the takeover, representing 94.2% of the issued and outstanding shares of the Company.

Following completion of the Offer, Delek has subsequently notified the Company of its intention to carry out a compulsory acquisition by the Offeror of all the remaining issued and outstanding common shares of Ithaca not currently owned by the Offeror for the same cash consideration as the Offer under and subject to the Business Corporations Act (Alberta). As a consequence, the Company will be seeking to cancel its admission to trading on the AIM market of the London Stock Exchange and to voluntarily delist from the TSX following completion of the compulsory acquisition. Further details on this will be announced in due course.

Following completion of the compulsory acquisition and proposed delisting, the Company will continue to report its annual and quarterly financial statements as required by the terms of the indenture for the $300 million senior notes due July 2019.

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