Ithaca Energy (LON: ITH) has said the UK Government windfall tax has “severely dampened” North Sea investment, warning the firm’s production will drop next year.
The London-listed operator said there’s been “deferral or cancellation” of investment at its own Greater Stella Area (GSA), along with developments it is partnered on like TotalEnergies’ Elgin-Franklin and Repsol Sinopec’s Montrose/ Arbroath fields.
Ithaca, which is partnered on some of the UK’s largest untapped discoveries like Cambo and Rosebank, also said the pace of investment on its pre-FID (final investment decision) projects has also slowed due to the EPL.
It said it is continuing to highlight to the Treasury the impact of fiscal uncertainty on its “ability to make critical decisions on large scale capital investments”.
Ithaca’s 100% owned GSA is expected to produce more than 5,000 barrels less in 2024, with “Energy Profits Levy related investment decisions driving the reduction”.
The firm said it is reviewing “inorganic opportunities” to increase medium-term production.
“As capital investment plans are being drawn up for 2024 and beyond, both Ithaca Energy and our diverse partner groups, are reconsidering the attractiveness of capital deployment opportunities in the context of an enduring Energy Profits Levy in what we would consider to be a return to normal commodity prices.”
Reporting its half-year results today, Ithaca Energy said it took Energy Profits Levy (windfall tax) charges of $223m for the period.
The firm said it is continuing to work towards an FID “in the near-term” on the Equinor-operated Rosebank in the west of Shetland.
Price floor
© Supplied by Ithaca EnergyA price floor on the windfall tax was imposed this year which could see it end if prices hit $71.40 per barrel for oil and £0.54 per therm for gas, for two consecutive quarters.
However, on current projections, analysts have said it is unlikely that prices will fall to those levels, meaning the price floor will have no impact.
A review of the UK tax regime is ongoing, which Ithaca said it has contributed to and urged an updated price floor which better reflects the market.
Chairman Gilad Myerson said: “The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea and Ithaca Energy’s own investment programme across its diverse high-quality operated and non-operated asset base.
“We continue to constructively engage with the UK government to highlight the impact of the current fiscal regime to the industry’s outlook and to the UK government’s stated energy security and Net Zero ambitions.”
Ithaca Energy results
For its half-year results, Ithaca Energy reported adjusted net income of $253.2m, up from $233.4m in the same period in 2022, on adjusted EBITDAX of $979.7m, up from $907.4m.
Management reaffirmed a commitment to a total dividend to shareholders of $400m for the 2023 financial year.
A second tranche was announced today, with total payouts so far this year at $266m.
© Supplied by DCT Media/ Wullie MaThe firm hailed strong production of 75,755 barrels of oil equivalent per day, up 13% on H122’s 66,700, mainly due to acquired assets last year .
Ithaca said its production was split 66% oil and 34%gas.
Non-operated production was impacted by “delayed start-up and curtailed production” of the Shell Pierce field, which Shell confirmed completion of in April.
A number of “unplanned outages” at the BP Schiehallion in the west of Shetland have also now been resolved.
Production guidance for the full year was reaffirmed as 68-74,000 boe/d
Heading into the second half of the year, Ithaca is planning a series of maintenance campaigns, including a 25-day turnaround at Captain ahead of the next stage of its enhanced oil recovery project (Phase 2).
The firm said a number of wells have now been drilled for Captain EOR Phase 2, with polymer injection into the subsea wells will take place in 2024.
Ithaca said Front End Engineering Design work is also ongoing to explore electrification of the Captain field to decarbonise the asset.
Chief executive Alan Bruce said: “We are pleased to share a strong set of results for the first half of 2023, with growing Adjusted EBITDAX as a result of production of over 75 kboe/d in the period. Production efficiency across our operated assets has been high demonstrating our strong operational capabilities.
“We continue to take a disciplined approach to capital investment including at our Captain asset where we are progressing the EOR Phase II project construction activities as well as evaluating emissions reduction options. We reported successful exploration drilling at our K2 prospect in July which further strengthens our high-quality development portfolio.”
