SOURCE: Ithaca Energy Inc

January 12, 2016 02:00 ET

Ithaca Energy Inc.: Operations Update & 2016 Outlook

CALGARY, AB--(Marketwired - Jan 12, 2016) - Ithaca Energy Inc. (TSX: IAE) (LSE: IAE)

Not for Distribution to U.S. Newswire Services or for Dissemination in the United States

Ithaca Energy Inc.

Operations Update & 2016 Outlook

12 January 2016

Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) ("Ithaca" or the "Company") provides an operations update and guidance on the outlook for the year ahead.

In 2016 production is forecast to more than double to approximately 25,000 barrels of oil equivalent per day ("boepd") after Stella start-up

  • Average production in 2015 totalled approximately 12,100 boepd -- exceeding full year guidance of 12,000 boepd
  • Base production in 2016, excluding any contribution associated with start-up of the Stella field during the year, is anticipated to be approximately 9,000 boepd (95% oil)
  • Sail-away of the "FPF-1" from Poland is expected to be delayed by six to twelve weeks due to slippage in completion of certain commissioning milestones
  • Forecast first hydrocarbons from the Greater Stella Area ("GSA") now anticipated in the third quarter of 2016, increasing production by approximately 16,000 boepd net to Ithaca

The Company has strengthened its GSA position with the acquisition of a strategic non-operated interest in the high quality "Vorlich" discovery from TOTAL E&P UK Limited

  • Acquired an approximate 17% interest in the Vorlich discovery, located ten kilometres from the GSA hub - estimated gross proven and probable reserves of 20-30 million barrels of oil equivalent ("MMboe")1
  • Minimal initial consideration, with potential contingent payments upon future milestones
  • Vorlich appraisal programme was completed in 2014, with submission of the Field Development Plan ("FDP") scheduled for late 2016

Deleveraging process underway, with strong hedging position and falling unit operating cost base supporting future cashflow generation

  • Net debt at 31 December 2015 of $665 million, reflecting the benefits of the deleveraging measures taken during the year
  • Forecast 2016 capital expenditure of approximately $50 million, a reduction of over 40% on the previous year
  • Average volume of 10,000 boepd (52% oil) hedged until mid-2017 at approximately $61/boe
  • Forecast 2016 unit operating expenditure associated with base production volumes of approximately $30/boe, reducing to sub $25/boe upon Stella start-up

Les Thomas, Chief Executive Officer, commented:
"With many positive actions taken over the last year Ithaca enters 2016 in a position to continue generating positive cashflow from operations, even at current low commodity prices, and to deliver transformational first production from the Stella development."

"We remain confident that good returns can be made in the North Sea, with a rigorous, cost and risk conscious approach to selective investment in high quality assets. We believe that today's difficult environment actually provides an opportunity for the Company as a focused player in the sector, as demonstrated by the acquisition of our interest in Vorlich."

Further Information

2015 Production
Average production in 2015 was 12,100 boepd (94% oil), slightly higher than the full year guidance of 12,000 boepd as a result of solid operational performance across the main fields.

2016 Production Outlook
Base production in 2016, excluding any contribution associated with start-up of the Stella field during the year, is anticipated to be approximately 9,000 boepd (95% oil). This reflects the cessation of production from the Athena and Anglia fields, no significant capital investment on the existing producing assets during the year and restricted production rates for the Pierce field in the first half of 2016 due to the need to complete remedial works on the subsea gas injection flowline.

The additional production contribution during the year resulting from the start-up of Stella will depend on the exact timing of first hydrocarbons from the field. Prompt ramp up of production is anticipated following first hydrocarbons, leading to an initial annualised production rate of approximately 16,000 boepd net to Ithaca.

Greater Stella Area Development
The focus of the on-going GSA development activities remain centred on completion of the FPF-1 modifications programme that is being undertaken by Petrofac in the Remotowa shipyard in Poland. Completion of this programme remains the critical path item for delivering first production from Stella.

Planned sail-away of the FPF-1 from Poland at the end of the first quarter of 2016 is now expected to be delayed by six to twelve weeks due to slippage in completion of certain commissioning milestones and the requirement for some marine system re-work in order to ensure the vessel meets the required sail-away certification standards. Based on this schedule it is forecast that first hydrocarbons from the Stella field will be in the third quarter of 2016.

All costs of modifying the FPF-1 above the contract cost cap continue to be fully paid by Petrofac. Under the terms of the previously announced FPF-1 incentivisation agreement, a delay in sail-away of the vessel will reduce any potential incentive payment made by Ithaca to Petrofac. The agreement provides for Petrofac to earn up to $34 million dependent on the timing of sail-away of the FPF-1, with the maximum payment achieved for delivering sail-away from the shipyard prior to the end of March 2016 and reducing to zero for sail-away after 31 July 2016.

As previously noted, all the subsea infrastructure that is required to be installed prior to the arrival of the FPF-1 on location is in place and all five Stella development wells have been successfully drilled and tested.

Vorlich Discovery - GSA Satellite Addition
A sale and purchase agreement has been signed with TOTAL E&P UK Limited to acquire a 20% non-operated interest in Licence P363 (block 30/1c), effective 1 July 2015 (the "Effective Date"). The licence is operated by BP plc and contains approximately 80-90% of the Vorlich discovery, implying an approximately 17% interest in the overall discovery. Vorlich is located approximately 10 kilometres north of the GSA hub. 

Vorlich was discovered and appraised in 2014 with exploration well 30/1f-13A,Z and 13Z. The well encountered hydrocarbons in a Palaeocene sandstone reservoir in block 30/1c and a subsequent side-track into block 30/1f confirmed the westerly extension of the discovery. It is estimated that Vorlich contains gross proven and probable reserves of 20-30 MMboe1.

In line with the requirements of the Vorlich licence, the work programme for 2016 is centred on the preparation and submission for approval of a Field Development Plan ("FDP") by the end of the year.

A minimal consideration is payable at completion of the transaction, with additional contingent payments at FDP approval and upon reaching a reserves recovery threshold. The acquisition is expected to complete in the first quarter of 2016 and is subject to normal regulatory approvals. At completion the consideration paid will be subject to normal industry adjustments to reflect costs incurred since the Effective Date. 

The Company's commodity hedging position remains unchanged. In 2016 a volume of 11,500 boepd (52% oil) is hedged at an average price of $60/boe, with those volumes weighted toward the first half of the year. In the first half of 2017 approximately 7,000 boepd (50% oil) is hedged at an average price of $62/boe.

Capital Expenditure
The Company anticipates net 2016 capital expenditure to total approximately $50 million, a reduction of over 40% compared to the previous year. The main part of this expenditure relates to the GSA, including the activities required to prepare the Vorlich FDP for approval.

Operating Expenditure
Forecast 2016 unit operating expenditure prior to Stella start-up is anticipated to be approximately $30/boe, reflecting the benefit of removing the higher cost assets from the production portfolio and the impact of the supply chain cost reduction initiatives completed in 2015. Upon the start-up of production from the Stella field, unit operating expenditure is forecast to fall below $25/boe.

Net Debt
As anticipated the Company commenced deleveraging the business in 2015. Net debt was reduced from a peak of over $800 million in the first half of the year to $665 million at 31 December 2015. This reduction reflects the benefit of strong operating cashflow generation, lower capital expenditures and the cash received from sale of the non-core Norwegian business as well as proceeds of the premium equity placing completed in October 2015. The net debt level at the end of 2015 was lower than anticipated primarily as a result of movements in working capital.

2015 Financial Results
The Company is scheduled to release its full year 2015 financial results on 23 March 2016 along with the results of its year-end independent reserves evaluation, which is being performed by Sproule International Limited ("Sproule") and will reflect Sproule's future oil and gas price assumptions as of 31 December 2015. A conference call and webcast for investors and analysts will be held on the same day at 12.00 GMT (07.00 EST), with a playback facility being made available on the Company's website later that day. Dial-in details for the call will be included in the press release that accompanies the financial results documentation.

Ithaca Energy    
Les Thomas   +44 (0)1223 650 261 
Graham Forbes +44 (0)1224 652 151
Richard Smith +44 (0)1224 652 172
FTI Consulting    
Edward Westropp +44 (0)203 727 1521
Tom Hufton +44 (0)203 727 1625
Cenkos Securities    
Neil McDonald +44 (0)207 397 8900
Nick Tulloch +44 (0)131 220 6939
RBC Capital Markets    
Daniel Conti +44 (0)207 653 4000
Matthew Coakes +44 (0)207 653 4000

In accordance with AIM Guidelines, John Horsburgh, BSc (Hons) Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and Subsurface Manager at Ithaca is the qualified person that has reviewed the technical information contained in this press release. Mr Horsburgh has over 15 years operating experience in the upstream oil and gas industry.

1 Estimates of the gross reserves associated with the acquisition as disclosed in this press release have been prepared by Ithaca's non-independent qualified reserves evaluator as of January 2016. The reserves estimates contained in this press release are estimates only and the actual results may be greater than or less than the estimates provided herein.  

References herein to barrels of oil equivalent ("boe") are derived by converting gas to oil in the ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl") of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 bbl, utilising a conversion ratio at 6 Mcf: 1 bbl may be misleading as an indication of value.

All references to dollars ($) in this press release refer to the United States dollar (USD).

About Ithaca Energy
Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) is a North Sea oil and gas operator focused on the delivery of lower risk growth through the appraisal and development of UK undeveloped discoveries and the exploitation of its existing UK producing asset portfolio. Ithaca's strategy is centred on generating sustainable long term shareholder value by building a highly profitable 25kboe/d North Sea oil and gas company. For further information please consult the Company's website

Forward-looking Statements
Some of the statements and information in this press release are forward-looking. Forward-looking statements and forward-looking information (collectively, "forward-looking statements") are based on the Company's internal expectations, estimates, projections, assumptions and beliefs as at the date of such statements or information, including, among other things, assumptions with respect to production, drilling, construction and maintenance times, well completion times, risks associated with operations, future capital expenditures, continued availability of financing for future capital expenditures, future acquisitions and dispositions and cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. When used in this press release, the words and phrases like "anticipate", "continue", "estimate", "expect", "may", "will", "project", "plan", "should", "believe", "could", "target", "in the process of", "on track" and similar expressions, and the negatives thereof, whether used in connection with operational activities, sail-away of the FPF-1 vessel, Stella first hydrocarbons, drilling plans, production forecasts, budgetary figures, anticipated net debt, planned maintenance shutdowns, anticipated timing for the release of financial results for the 2015 financial year, the Vorlich reserves, potential developments including the timing and anticipated benefits of acquisitions and dispositions or otherwise, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations, or the assumptions underlying these expectations, will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon. These forward-looking statements speak only as of the date of this press release. Ithaca Energy Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based except as required by applicable securities laws. 

Additional information on these and other factors that could affect Ithaca's operations and financial results are included in the Company's Management's Discussion and Analysis for the quarter ended 30 September 2015 and the Company's Annual Information Form for the year ended 31 December 2014 and in reports which are on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (

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