Ithaca to become UK reserves powerhouse with Eni deal – analysis

The potential Ithaca Energy (LON: ITH) combination with Eni’s UK assets stands to bring the firm’s reserves above that of Harbour Energy, according to analysis.

The exclusivity agreement, outlined in Ithaca’s results on Wednesday,  covers a “potential transformational combination” with substantially all of Eni’s UK upstream assets, including the recently acquired Neptune Energy assets.

According to Yvonne Telford, research director for Westwood Global Energy, Ithaca’s takeover of Eni UK assets will see the firm become the fourth largest player in the country, based on remaining reserves.

She writes: “Ithaca has built its UK portfolio through a series of acquisitions and is currently the fifth largest company.

“Post-merger, the combined Ithaca and Eni portfolio will become the fourth largest player, moving it ahead of Harbour Energy in the UK.”

In Harbour Energy’s 2023 annual report, it was shared that, “on an entitlement basis”, reserves were 357 mmboe on 31 December 2023.

However, the firm says that its 2P reserves and 2C resources at the end of 2023 stood at 880mmboe (million barrels of oil equivalent).

In Ithaca’s presentation this week the firm outlined that, following a successful acquisition of Eni’s UK assets, it will hold 650mmboe in reserves.

© Supplied by AJL

Ms Telford commented: “In its webcast on the proposed deal and the release of its 2023 full year results, Ithaca cited fiscal instability and future uncertainty as major issues in the decision-making for large future investments, such as Cambo, Fotla and Marigold.

“However, with this possible deal, Ithaca is demonstrating a commitment to the UK and, is continuing to pursue growth opportunities through UK assets rather than internationally, at least for now.”

The move comes as other firms, including the UK’s largest producer of oil and gas Harbour Energy, look to diversify their portfolios by looking overseas to avoid the political uncertainty looming over the UK hydrocarbons industry.

After acquiring Wintershall Dea last year and expanding its portfolio overseas Harbour Energy’s overall reserves came to 1.1 billion barrels.

Ithaca outlined this potential deal as it noted a $500m impairment linked to the UK government’s controversial energy profits levy (EPL), or windfall tax.

Ithaca said in an investor call yesterday that 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 around 650 million barrels of reserves.

In an interview with Energy Voice Ithaca chairman Gilad Myerson said: “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.”

Ithaca takeover ‘seems logical’ for Eni

Ms Telford explained that ahead of its Neptune acquisition, Eni had “had minimal production interests in the UK” as it turned its focus towards the country’s carbon capture storage (CCS) market.

Italian oil giant Eni completed its takeover of the Aberdeen-based Neptune Energy in January for $4.9 billion.

Eni has acquired the firm’s entire operation, save for Norway – which went to Var Energi, a firm that is also partially owned by Eni, through a separate deal – and the business in Germany, which has had its own carve-out.

The acquired Neptune business comprised assets in Algeria, Egypt, Indonesia, Netherlands, UK, and a pre-development asset in Australia.

© SYSTEM

“Based on its strategy to merge regional businesses into standalone JVs [joint ventures], such as Vår Energi in Norway and Azule Energy in Angola (a 50/50 JV with BP though the combination of the two Angolan subsidiary companies), a merger for the UK business seems logical,” Ms Telford explained.

Previously it had been considered by Westwood that Eni might be HitecVision subsidiary Aberdeen’s NEO Energy as a “more likely outcome.”

Ms Telford added: “In 2018, Eni and HitecVision agreed the merger of Eni’s Norway business with HitecVision subsidiary Point Resources, the ownership split 69.6% and 30.4% respectively.

“In 2020, the joint venture established Vårgrønn to focus on renewable energy projects. Vår Energi was listed on the Oslo stock exchange in February 2022, with Eni currently retaining 63.04% of its shareholding, although HitecVision has monetised is interests through the sale of its shares and now holds 4.3% in the company.

“In March, Bloomberg reported that HitecVision was considering sale options for its NEO Energy subsidiary, with a merger with Eni a feasible option.”