Ithaca reports “robust” half year but warns of “long-term damage”

Ithaca Energy (LON: ITH) has hailed “robust” cash flow but has warned about the “ongoing impact” of the UK government’s oil and gas fiscal policies and the “long-term damage” they will cause.

Ithaca, which is set to become one of the North Sea’s largest producers when its merger with Italian firm Eni completes later this year, revealed its net income had fallen in the first half of the year but insisted its net cash flow, which also declined compared to the same period last year, remained “robust” despite reduced production and lower gas prices.

It confirmed that Rosebank, the controversial oil field in which it has a 20% stake, is on track for first oil in 2026/27 having completed the installation of all nine subsea structures ahead of schedule in July in a “key milestone”.

Windfall tax

Ithaca highlighted the “ongoing impact” of the Energy Profits Levy (EPL) to investment and the “long-term damage further changes to the fiscal regime make to the achievability of the UK’s energy security and decarbonisation objectives”.

The firm recorded net income of $105.7 million (£80m) in the first half of 2024, a substantial drop on the first half of 2023 which saw $159.6 million (£122m).

Ithaca said net income was impacted negatively by post-tax decommissioning liability related impairment charges of $19 million (£14.5m).

Net cash flow was 20% lower compared to 2023, with the company recording $559.8 million (£427.3m).

Ithaca Energy interim chief executive officer and chief financial officer Iain Lewis said the company saw continued execution of its strategic priorities and a “strong period” of cash flow generation in the first half of the year.

“With a robust liquidity position at the end of H1 and increased financial strength from
the addition of Eni UK’s unlevered assets, following completion, we have significant financial firepower to support the delivery of the group’s strategy and returns to shareholders, while supporting a pathway to investment grade,” Lewis said.

Cambo, Fotla and Schiehallion

In addition to progress at the Rosebank development, Ithaca highlighted completion of the Captain enhanced oil recovery (EOR) phase two project, which will double net production at the field as it reaches peak production in 2026.

The company is also progressing farm-down processes for its Cambo and Fotla projects. Ithaca will aim to complete development concept selection for Fotla in the second half of the year, with a final investment decision “subject to fiscal conditions”.

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Elsewhere, Ithaca said production at its non-operated joint venture fields were impacted by operational issues. This included delayed start-up and curtailed production at Pierce, productivity issues at the Jade J13 well, and ongoing operational issues at Schiehallion.

At Schiehallion, Ithaca said operator BP is experiencing issues with the Glen Lyon FPSO, with a return to full capacity expected in late Q3.

Overall, Ithaca recorded around 53,000 barrels of oil equivalent per day (boe/d), compared to just under 76,000 boe/d in the same period last year.

Ithaca and Eni deal

Panmure Gordon research analyst Ashley Kelty said the tie-up with Eni was the “key development” for Ithaca in the first half of 2024.

“A large pool of tax losses will help to ameliorate the impact of the penal UK fiscal regime, although we think this is still a bold move to double down on the UK in the face of an openly hostile (and ill informed) government,” Kelty said.

Difficulties remain for Ithaca in closing the deal however, Kelty said, with its parent firm Delek “having to place out a large number of shares just to maintain the free float”.

“This could create an overhang and potential drag on the shares in the coming months,” he said.

“The results were a miss vs consensus, and the downgrade to guidance is a concern, although the ability to close the deal arguably remains a bigger worry.”