Ithaca Energy plc (“Ithaca Energy” or the “Group”)
Full Year 2022 Results
Transformational year for Ithaca Energy, positioning the Group for long-term value creation
Ithaca Energy plc today announces its audited full year results for the year ended 31 December 2022.
Key financial performance indicators (KPIs)
Tier 1 process safety events
Serious injury and fatality frequency
Scope 1 and 2 emissions (tCO2e)
Green house gas intensity (kgCO2e/boe)
1 Non-GAAP measure
Gilad Myerson, Executive Chairman, commented: “2022 has been a transformational year for Ithaca Energy, evidenced by material M&A activity, including the landmark acquisition of Siccar Point Energy, adding both scale and longevity to our existing portfolio. We have executed against our strategy, to buy, build, and boost assets, with the year culminating in the Group’s IPO on the London Stock Exchange in November 2022, and subsequent inclusion in the FTSE 250 index in March 2023.
Ithaca Energy has a sizeable portfolio of cash generative assets together with a strong pipeline of development opportunities that support an attractive growth trajectory. Our core focus in 2023, will be on prioritising investment across our current high-value portfolio to maximise sustainable shareholder returns.
The UK oil and gas industry experienced significant fiscal instability with the introduction and subsequent revision of the Energy Profit Levy in 2022. In its revised form, the Energy Profit Levy, and the fiscal uncertainty it has created, brings material and negative unintended consequences for financing capacity, JV partner alignment, and the free cash flow generation required to support continued investment. We continue to look towards the UK government to create an economic environment that encourages investment in the UK North Sea.”
Alan Bruce, Chief Executive Officer, commented: “I believe we can look back on 2022 with a great deal of satisfaction. It was a year in which we completed three significant transactions while also delivering organic growth, cementing Ithaca Energy’s position as one of the leading independent exploration and production companies operating in the UK North Sea. We continued to demonstrate our ability to deliver projects, safely and responsibly, while defining an emissions reduction roadmap that reflects our ambition to have one of the lowest carbon portfolios in the UK Continental Shelf.
Our people have always been the key to our success, and I’d like to recognise and thank both our offshore and onshore teams for their hard work and tireless dedication. We also welcome our new Board members who bring unrivalled sector knowledge and a valuable blend of complementary skills to the Group.”
Ithaca Energy will host an in person and virtual presentation and Q&A session for investors and analysts at 09:00 (BST) today, 30 March 2023, accessible via our website: https://investors.ithacaenergy....
Operator Assisted Dial-In: United Kingdom (Local): +44 20 3936 2999 United Kingdom (Toll-Free): +44 808 189 0158 Global Dial-In Numbers Access Code: 455997
2022 in review
Delivering material scale and portfolio longevity in 2022
With three acquisitions completed in 2022, including the transformative acquisition of Siccar Point Energy, we continued to build our track record of delivering material value creation, and positioned Ithaca Energy as a substantial North Sea enterprise, with a portfolio of significant scale and longevity. Our impressive growth story, delivered through both organic growth and value-accretive M&A activity, supported the Group’s successful admission to the premium segment of the London Stock Exchange in November 2022.
In scale, we now rank as the second largest independent in the UK Continental Shelf (“UKCS”) by resources and third largest by production. Our diverse portfolio includes interests in six of the top ten assets by reserves in the UKCS, more than any other player, including significant stakes in two of the three largest undeveloped discoveries in the UKCS, Cambo and Rosebank.
In 2022, we increased our 2P Proven and Probable reserves to 228 mmboe at 31 December 2022 (2021: 184 mmboe). The addition of Siccar Point Energy’s portfolio materially enhanced our portfolio longevity with a highly competitive reserves-to-production ratio of 19 years, among the highest in the UKCS.
Our production in 2022 rose to an average of 71.4 kboe/d (2021: 56.5 kboe/d). In the first half of the year production averaged 66.7 kboe/d, increasing to 76.1 kboe/d in the second half of the year reflecting material producing asset additions following the completion of M&A transactions in the year, including the acquisition of Marubeni in Q1 2022 and both Summit and Siccar Point Energy in Q2 2022.
In Q4 2022, strong operational performance resulted in average production of 80.8 kboe/d, delivering ahead of management guidance of 77–80 kboe/d.
Operating costs in 2022 of $496.0 million, representing a net unit opex cost of $19.0 /boe (2021: $18.0/boe), increased from 2021 ($371.1 million) substantially driven by higher cost of fuel gas and diesel. Q4 2022 net opex of $136.7 million, was toward the lower end of management guidance of $130 - $150 million.
Total net capital expenditure (excluding decommissioning) in 2022 of $405 million (2021: $388 million), reflected investment activity across our asset base including the Captain EOR Phase II development; Abigail subsea-tieback development, well-work at Erskine and Alba; appraisal drilling at Isabella; and a successful development drilling campaign at Jade. Q4 2022 net capex (excluding decommissioning) of $105 million was in-line with management guidance of $100 – $120 million.
Safety is our non-negotiable, number-one priority and is central to our business success. We empower our people to be Safety Leaders, with the right and responsibility to act in line with our Stop Work Authority and always adhering to the Life Saving Rules.
During 2022, our serious incident and fatalities record remained at zero, as it has since 2019. There were no Tier 1 and two Tier 2 process safety events during the year. We saw an increase in occupational safety events as activity levels increased resulting in an expanded and less experienced workforce across the industry. Further, onsite management engagement has been more challenging during the COVID-19 pandemic, and so our focus has been on reducing the administrative burden faced by work-site leaders to provide more time for field verification of safety critical tasks.
Our expertise extends across the full life cycle of E&P operations. In 2022, we have grown our reserves base organically, through investment programmes focused on production enhancement, satellite field developments, and exploration and appraisal activities.
Our development expertise came to the fore in 2022, with large programmes focused around our infrastructure hubs including the subsea tie-in of the Abigail field to FPF-1, just 10 months after final development consent. We made material progress during the year on Phase II of our pioneering polymer enhanced oil recovery development programme, to maximise recovery rates from the Captain field. We have executed a significant proportion of the project’s offshore work scope including the installation of the process modules, pipework, B28 flow line and riser caisson, drilling and completion of first stage II well UB05P. In September 2022, Captain Enhanced Oil Recovery Phase l reached a significant milestone of 10 million barrels of oil production through the polymer flood enhanced oil recovery method.
Our production performance in 2022 has been supported by strong production efficiency performance, reflecting our commitment to maximise asset value through operational excellence. Most notably at FPF-1, where our focus on value and our willingness to invest to drive operational efficiency and uptime improvements, has resulted in a significant increase in production efficiency in 2022 to above 90%, from an average of 60% in 2021. Across our portfolio, we have launched digitalisation initiatives to ensure safe and efficient operations, delivering increased uptime and cost savings.
In response to the North Sea Transition Authority call for applications in the UKCS 33rd Offshore Oil and Gas Licensing Round, we drew on our in-house exploration and appraisal expertise to apply ahead of the closing date on 12 January 2023. Targeting adjacent upside potential to existing infrastructure and greenfield developments, we submitted nine applications, five as proposed operator of the licence. We expect the first licences will be awarded from Q2 2023.
We made significant progress in sharpening our decarbonisation focus in 2022. We formalised our plans to significantly reduce emissions and exceed industry targets by optimising our current portfolio in the short- term, and fundamentally transitioning the portfolio in the medium to long-term.
We acknowledge that the energy transition is a fundamental challenge to our industry and the targets we have set for decarbonisation are difficult to achieve. Our well-defined roadmap of emission reduction initiatives supports an ambitious goal to achieve a 25% reduction in Scope 1 and 2 CO2 and CO2e emissions from our operated assets by 2025 (against a 2019 baseline). Our medium-term target is to shift from higher to lower-emission intensity assets. As assets such as FPF-1 and Alba come to the natural end of their life, they will be replaced by lower-intensity fields such as Rosebank and Cambo. In parallel, we are evaluating technologies which could materially reduce emissions at Captain. In the long-term, we are committed to supporting the North Sea Transition Deal (“NSTD”) and intend to achieve Net Zero by 2040 (on a Scope 1 and 2 net equity basis), ten years ahead of current NSTD commitments.
As we embark on our journey as a publicly listed company, we have established a robust and balanced capital allocation framework that will support our ambition to deliver continued growth while providing attractive shareholder returns.
We expect that, subject to no material downward pressure on oil and gas prices and a stable fiscal regime, our cash flow generation will satisfy capital expenditure requirements to sustain current production levels of between 70-90 kboed/d; maintain a leverage position below 1.5x net debt to adjusted EBITDAX; deliver shareholder returns; and provide additional financial flexibility to facilitate further value-accretive growth opportunities.
During 2022, our diversified, high-quality asset base generated free cash flow of $1,135 million. This strong cash flow generation supported a rapid deleveraging trajectory, with the Group reporting net debt of $971.2 million, representing a net debt to adjusted EBITDA ratio of 0.5x at the year-end.
Achieving this deleveraging in a year when we completed over $1 billion of transactions, and deployed capital of $405 million to deliver continued organic growth, reflects both the strength of our portfolio and our ambitions for further growth.
With a balanced capital allocation policy, through the cycle dividend target of 15-30% of post-tax cash flow from operations, and proven track record of material value creation, we believe Ithaca Energy represents an attractive investment opportunity with significant potential for growth.
We enter 2023 as a public company, with greater scale, diversification, reserves and leadership expertise, better positioned than ever to deliver growth.
With a diverse, high-value portfolio of producing assets and significant brownfield and greenfield development opportunities such as Rosebank, Cambo, Marigold, Fotla, and Tornado and infill drilling at Captain, Alba, Montrose, Schiehallion and Mariner we have considerable investment optionality across our portfolio. Our focus during the year will be on prioritising investment across our current portfolio to maximise shareholder returns.
We will maintain a watching brief on value-accretive acquisition opportunities taking a selective and disciplined approach, as we manage our capital allocation priorities in line with our stated capital allocation framework.
As a result of lower than estimated production in Q1 2023, primarily due to delayed start-up of the non- operated Pierce field, lower than forecasted volumes from Abigail and operational issues at Captain (that have subsequently been resolved), and the impact of the Energy Profit Levy to 2023 capital programmes we provide updated 2023 production guidance of 68-74 kboe/d (revised from 72-80 kboe/d).
We continue to have a strong focus on costs and provide updated net opex guidance of $560 million - $630 million (reduced from $590 million - $680 million). Updated guidance reflects a modest rise in our average opex per barrel from 2022, due to current inflationary pressures and increased fuel and diesel costs. Our mid- term ambition is to drive down our average operating cost per barrel as we transition our portfolio to earlier- life assets with lower operating costs.
As a result of a reduction in scheduled activity across our non-operated portfolio, as a result of the introduction of the Energy Profit Levy, and deferral of activity from 2023 to 2024 we provide updated 2023 net capex guidance of $400 million - $460 million (excluding capital investment for projects awaiting final investment decision), a reduction from previous guidance of $450 million - $550 million.
Revisions in management guidance across production, opex and capex are expected to have limited cash impact at current commodity prices based on mid-point guidance changes. The Group is recommitting to its dividend target of 15-30% of post-tax cash flow from operations and its targeted 2023 dividend of $400 million, as communicated at the time of IPO.
We remain committed to investing in the UK North Sea, however the impact of the revised Energy Profit Levy (“EPL”) announced in November 2022, in particular the removal of the sunset clause, is constraining our ability, and that of our JV partners, to invest. With a reduction in borrowing capacity across the sector as a direct result of EPL, the ability of the oil and gas industry to unlock the benefits of investment programmes across the UKCS to provide critical domestic energy security and meet its Net Zero ambitions is under threat. We continue to constructively engage with the UK government in relation to the future fiscal policy in pursuit of the stability required to make these critical investment decisions.
Kathryn Reid – Head of Investor Relations, Corporate Affairs & Communications
FTI Consulting (PR Advisers to Ithaca Energy)
+44 (0)203 727 1000
Ben Brewerton / Nick Hennis
Ithaca Energy is a leading UK independent exploration and production company focused on the UK North Sea with a strong track record of material value creation. In recent years, the Company has been focused on growing its portfolio of assets through both organic investment programmes and acquisitions and has seen a period of significant M&A driven growth centred upon two transformational acquisitions in recent years. Today, Ithaca Energy is one of the largest independent oil and gas companies in the United Kingdom Continental Shelf (the “UKCS”), ranking second by resources.
With stakes in six of the ten largest fields in the UKCS and two of UKCS’s largest pre-development fields, and with energy security currently being a key focus of the UK Government, the Group believes it can utilise its significant reserves and operational capabilities to play a key role in delivering security of domestic energy supply from the UKCS.
Ithaca Energy serves today’s needs for domestic energy through operating sustainably. The Group achieves this by harnessing Ithaca Energy’s deep operational expertise and innovative minds to collectively challenge the norm, continually seeking better ways to meet evolving demands.
Ithaca Energy’s commitment to delivering attractive and sustainable returns is supported by a well-defined emissions-reduction strategy with a target of achieving net zero by 2040.
Ithaca Energy plc was admitted to trading on the London Stock Exchange (LON: ITH) on 14 November 2022.