Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) ("Ithaca" or the "Company") provides an operations update and guidance on the outlook for the year ahead.
Les Thomas, Chief Executive Officer, commented:
"The painstaking electrical inspection programme on the FPF-1 is nearing completion and the vessel will shortly be ready for start-up of the Stella field. While this will have taken longer than planned, the transformational step it delivers for the business remains undiminished. The Company moves into 2017 in good health, with increasing cashflow, continued deleveraging and the launch of the low cost Harrier satellite development."
The producing asset portfolio has performed well over the last twelve months, with production running ahead of guidance largely as a result of solid performance from the Cook field, for which the Company took over operatorship in March 2016. Average production during the year was approximately 9,300 boepd (92% oil).
2017 Production Outlook
Average production in 2017 is anticipated to be in the range of 19,000 to 22,000 boepd (approximately 75% oil). This range reflects the updated Stella start-up schedule, the programme of planned maintenance shutdowns during the year and sensitivities associated with the performance of those operational programmes.
Greater Stella Area Development
The Company's 2017 operational programme is dominated by start-up of the Stella field and the commencement of Harrier field development activities.
Stella Start-up Schedule
Preparation for start-up of the Stella field is well advanced, with only completion of the previously announced fault remediation works on the FPF-1 electrical junction boxes outstanding prior to the delivery of first hydrocarbons. The inspection and repair programme has been progressing well, with the work now in the latter stages of completion, although challenging offshore weather conditions have impacted the pace of activities on the vessel at times. Conclusion of the work is now expected to push the commencement of Stella production into February 2017.
In line with the Company's strategy for building out the GSA production hub, investment in the Harrier field development programme will commence during 2017. The development involves drilling of a multilateral well into the two reservoir formations on the field, with the well tied back via a 7.5 kilometre pipe to an existing slot on the Stella main drill centre manifold for onward export and processing of production on the FPF-1.
The GSA joint venture has contracted with Ensco Offshore UK Limited for the provision of a heavy duty jack-up drilling rig, which is expected to arrive on location in the second quarter of this year. The drilling programme is forecast to be completed in the second half of 2017 and the subsea infrastructure installation activities in summer 2018, resulting in the anticipated start-up of Harrier production in the second half of 2018.
The net capital expenditure associated with execution of the development over 2017-18 is approximately $75 million, equating to a development cost of significantly less than $10/boe1. This represents a cost reduction of approximately fifty percent from that originally forecast. The substantial reduction in capital expenditure is driven by both detailed well engineering design work that has enabled the move away from drilling two individual wells to one multilateral and securing attractive contracting terms across the supply chain.
During the fourth quarter of 2016 the Company extended its commodity hedging position by a further 2.9 million barrels of 2017 and 2018 oil production. Taking into account these additional volumes, the Company now has 7,600 boepd (85% oil) hedged at an average floor price of $50/boe for the 18 months to 30 June 2018. Full commodity price upside exposure has been retained on 60% of the volumes hedged and upside exposure to $60/boe has been retained on a further 25% of the hedged volumes.
Forecast 2017 unit operating expenditure is anticipated to be approximately $18/boe. This is nearly 30% lower than the unit cost guidance for 2016 and reflects the benefit of production start-up from the Stella field.
Net 2017 capital expenditure is forecast to total approximately $70 million. The majority of this 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 forecast expenditure is also inclusive of any additional Stella start-up costs, which are expected to be minimal.
The Company continued to delever the business ahead of first hydrocarbons from the Stella field during 2016, with net debt of $598 million at 31 December 2016; down $67 million since the start of the year and over $200 million since its peak in the first half of 2015.
boe Barrels of oil equivalent
boepd Barrels of oil equivalent per day
- ENDS -
RBC Capital Markets
In accordance with AIM Guidelines, John Horsburgh, BSc (Hons) Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and Subsurface Manager at Ithaca is the qualified person that has reviewed the technical information contained in this press release. Mr Horsburgh has over 15 years operating experience in the upstream oil and gas industry.
1. The estimated development cost per barrel is based on Harrier reserves information contained in the independent reserves assessment performed by Sproule International Limited, effective as of 31 December 2015, and prepared in accordance with the Canadian Oil and Gas Evaluation Handbook maintained by the Society of Petroleum Engineers (Calgary Chapter), as amended from time to time.
References herein to barrels of oil equivalent ("boe") are derived by converting gas to oil in the ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl") of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 bbl, utilising a conversion ratio at 6 Mcf: 1 bbl may be misleading as an indication of value.
All references to dollars ($) in this press release refer to the United States dollar (USD).
About Ithaca Energy
Ithaca Energy Inc. (TSX: IAE, LSE AIM: 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.
Some of the statements and information in this press release are forward-looking. Forwardlooking 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, inspection and remediation times, well completion times, development schedules, risks associated with operations, 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", "forecast" and similar expressions, and the negatives thereof, whether used in connection with operational activities, including remaining FPF-1 work activities prior to Stella first hydrocarbons and the timing thereof, the timing of Stella start-up and first hydrocarbons, production forecasts, duration and timing of planned maintenance shutdowns, Harrier development activities and the timing thereof, the timing of Harrier startup, anticipated capital expenditures and activities associated therewith, anticipated operating expenditures, estimated development costs, or otherwise, are intended to identify forwardlooking 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 forwardlooking statement is based except as required by applicable securities laws. Any "financial outlook" contained in this press release, as such term is defined by applicable securities laws, is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.
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 ended 30 September 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).