Ithaca Energy (LON:ITH) has announced a deal for a potential merger with Italian oil and gas firm Eni covering the majority of its UK upstream assets.
Ithaca said the exclusivity agreement covers a “potential transformational combination” with substantially all of ENI’s UK upstream assets, including the recently acquired Neptune Energy assets.
Ithaca made the announcements as the company released its full year financial results for 2023, which saw the company post a more than 10% drop in its earnings compared to 2022.
The London-listed operator also said the North Sea Transition Authority granted an extension to its licence covering the Cambo field on 19 March. The licence will now last until 31 March 2026.
Ithaca said the company is “actively engaging with potential farm-in partners to enable the future progression of Cambo and Fotla towards FID, subject to fiscal and market conditions”.
Eni and Ithaca Energy exclusivity agreement
Ithaca also announced an exclusivity agreement with Italian oil and gas firm Eni relating to all of Eni’s UK upstream assets, including its recently acquired Neptune Energy assets.
The agreement excludes certain Eni assets relating to carbon capture, utilisation and storage and other assets in the Irish Sea, Ithaca said.
Eni holds UK assets across four key hubs: Elgin Franklin, J-Area, Cygnus and Seagull.
© Neptune EnergyIthaca Energy is already a partner in the Elgin Franklin and Jade fields
Under the agreement, Eni has granted Ithaca exclusivity for a period of four weeks from today.
Ithaca said Eni will contribute its UK business in exchange for the issuance of new shares in Ithaca, with Eni anticipated to hold between 38% and 39% of the enlarged issued share capital of Ithaca Energy following completion.
Ithaca said the potential combination would add significant scale and diversification to its business, growing pro-forma production to above 100,000 boe/d and create the second largest independent operator in the UK continental self by production.
Upon completion the deal, Ithaca said it would hold stakes in six of the 10 largest fields in the UK North Sea.
© Supplied by Neptune EnergyIthaca said it anticipates the deal will require shareholder approval, however the company said the merger “will not be conditional upon and will not require approval by Ithaca Energy’s independent shareholders” after receiving a waiver from the UK panel on takeovers and mergers.
The company’s major shareholder, Derek Group of Israel, will retain more than 50% of the enlarged business, Ithaca said.
Commenting on the potential merger, Ithaca Energy executive chairman Gilad Myerson said: “”I am delighted to share the news that we have entered into an Exclusivity Agreement with Eni S.p.A to explore a transformational combination with Eni UK’s upstream assets.
“We believe this potential combination would be a strong strategic fit with Eni UK’s cash generative portfolio complementing Ithaca Energy’s high-quality, long-life asset base with significant development opportunity.”
2023 financial results
Ithaca Energy interim chief executive officer Iain Lewis said the company delivered a “strong set of financial results” in 2023, despite “significant fiscal and political headwinds”.
“We have made material progress in 2023, executing against our buy, build and boost strategy including the milestone sanctioning of Phase I of the Rosebank development and the significant progress towards delivering our Captain EOR Phase II project,” he said.
“The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea, with projects across our operated and non-operated deferred or cancelled.
“The extension of the Energy Profits Levy by a further year to a sunset date of March 2029, highlights the continued fiscal uncertainty our sector faces.”
Ithaca recorded net cash flow from operating activities of approximately $1.3bn in 2023, compared to $1.7bn in 2022.
The company’s group adjusted earnings before interest, taxes, depreciation, amortisation and exploration expense (EBITDAX) figure was just over $1.72bn, a drop from the more than $1.92bn recorded in 2022.
Ithaca’s total production also fell slightly, from 71,403 boe/d in 2022 to 70,239 boe/d last year. The company also recorded a rise in the greenhouse gas intensity of its production, increasing from 23.8 kilograms of CO2 emissions per barrel of oil equivalent to 25kg.
Cambo, Fotla and Captain
Elsewhere in its results, Ithaca laid out its achievements against its ‘Buy, Build, Boost’ strategy over the past 12 months.
In 2023, Ithaca completed acquisitions of remaining stakes in Fotla (40%) and Cambo (30%) from Shell and Spirit Energy respectively.
Ithaca said this provided “full control over pre-Final Investment Decision (FID) work programme and timing” for the two fields.
In its ‘Build’ category, Ithaca highlighted FID for the first phase of the Rosebank development alongside Equinor, with “all major contracts awarded and work underway to upgrade the Petrojarl Knarr FPSO”.
© Supplied by Sevan SSP/ SembcorpIthaca also said its Captain electrification FEED study matured to support FID in 2024, with work also progressing on a field development plan for its Marigold project.
Ithaca said it also completed successful exploration at the K2 prospect, where it holds a 50% interest, and appraisal drilling at its non-operated Leverett field with good flow rates achieved.
In its ‘Boost’ category, Ithaca said its Captain enhanced oil recovery (EOR) second phase project is now “substantially complete” (>90%), supporting first phase two polymer injection into the subsea wells in summer 2024.
Drop in Ithaca production in 2024
Looking ahead to the next 12 months, Ithaca said it expects full year 2024 production in the range of 56-61 thousand boe/d.
Ithaca said the drop in production reflects a reduction in investment in near-term projects as a “direct result” of the UK government’s windfall tax on North Sea oil and gas firms.
This reduction in investment includes deferred or cancelled projects at the Greater Stella Area, Montrose Arbroath Area, Elgin Franklin Area and Alba.
Ithaca also expects a “longer path” to peak production from its Captain EOR, which is now anticipated in 2025. Ithaca also highlighted operational issues at its non-operated Pierce and Schiehallion fields, and compressor issues at Erkine’s host facility Lomond, which is impacting production in Q1 2024.
Beyond 2024, Ithaca said it expects production growth through the medium-term with a return towards 80,000 boe/d by 2024 largely due to the Captain EOR and first production from Rosebank.
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