Ithaca Energy plans to double-down on UK investment through a merger with Eni, despite the threat of punitive taxes under an incoming Labour government.
Analysts have questioned the mooted merger unveiled Wednesday, given that Ithaca also revealed a $500m impairment linked to the government’s windfall tax.
They pointed to Harbour Energy, the UK’s largest producer, which has instead moved to buy assets overseas with Wintershall DEA to reduce its exposure to the British fiscal regime.
That comes as Labour is promising yet another change to the system if it wins power, increasing the windfall tax and removing investment allowances.
Setting out the reasoning to hone in on the UK, Ithaca (LON: ITH) chairman Gilad Myerson tells Energy Voice he’s confident that the next party in power, whichever that might be, will arrive “at the right decision” to support domestic oil and gas production.
Myerson said that, given the UK relies on oil and gas for around 80% of its energy – and 50% of its overall need is imported – there’s a decision to be made on whether to produce domestically or not.
“If we import energy, we are reliant on other countries for energy security, we are providing other countries with jobs, we are providing other countries with tax revenues, and we are increasing our own CO2 per barrel.
“With that in mind, the obvious conclusion is that the UK should be looking to generate its own energy, and generate its own oil and gas, rather than import.
“If you look at other countries, OECD and non-OECD, everybody is now doubling down on energy security and local production. The United States, Canada, Australia, Norway, and if you go into the non-OECD, Saudi Arabia, the, the Emirates, Qatar, Brazil, India, China, Russia, all these countries are doubling down on their own production.
“The UK, we believe, will eventually make the right decisions because currently 80% of the UK’s energy is oil and gas, it’s not going to decline as fast as many believe, and therefore we want to be a core producer of energy for the UK.”
Myerson also noted on an investor call earlier that much of the synergies on operations, relationships and capabilities lie within the UK.
The move would create a “powerhouse” in the UK sector to create one of the largest players in the basin, with more than 100,000 barrels of production per day and 650 million barrels of reserves.
That includes stakes in 34 production assets including key hubs such as Cygnus, the J-Area and Elgin-Franklin.
Aberdeen operations
© SYSTEMThe deal, should it go through, would see the merger of Ithaca Energy and Eni’s UK operations – the latter having recently acquired the business of Neptune Energy.
Both of these have significant operations in Aberdeen and Mr Myerson said the move could see everyone brought under one building.
He was asked whether redundancies are likely.
“We haven’t finished analysing the deal in its entirety,” he said.
“We are still in the process of forming the agreement but I don’t expect a huge amount of redundancies.
“Obviously it would make sense to be in one building, have one operating house, but they are bringing operatorship of Cygnus, which is an outstanding asset, and they have an outstanding team, and I think there will be a lot of cross pollination of skills and technicalities between the two organisations.”
Unlocking Cambo
Mr Myerson also said the entry of the Italian major as a partner on the Cambo oilfield could unlock it, though questions remain on the timeline for FID.
Read more below:
The next Azule or Var Energi
Myerson said the Eni deal is seeking to replicate success of the Italian major in other parts of the world, notably in Norway with private equity house HitecVision and Angola with BP.
The exclusivity agreement gives the pair four weeks to put pen to paper on th merger, which would see Eni own between 38% and 39% of the enlarged group.
Myerson said: “We very much welcome the potential partnership with Eni. They’re an outstanding operator, very entrepreneurial organisation, they bring significant strengths into such a partnership.
“We’ve seen it elsewhere, we’ve seen it in Var Energi, where the parties with Hitec Vision has yielded fantastically capable and value generating company, we’ve seen it in Azule, where the partnership with BP has once again created a fantastic company.
“And we’re hoping to create the type of a partnership in the UK.”
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