SOURCE: Ithaca Energy Inc.

November 14, 2016 02:00 ET

Ithaca Energy Inc.: Q3-2016 Financial Results

ABERDEEN, SCOTLAND--(Marketwired - Nov 14, 2016) - Ithaca Energy Inc. (TSX: IAE) (AIM: IAE)

TSX: IAE; LSE: IAE

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

Ithaca Energy Inc.

Third Quarter 2016 Financial Results

14 November 2016

Ithaca Energy Inc. (TSX: IAE) (LSE AIM: IAE) ("Ithaca" or the "Company") announces its quarterly financial results for the three months ended 30 September 2016 ("Q3-2016" or the "Quarter") and the nine months ended 30 September 2016 ("YTD-2016").

Highlights

Solid cashflow generation in the first nine months of the year

  • Average production of 9,585 boepd -- ahead of 9,000 boepd guidance
  • Further unit operating cost reductions -- currently running at $23/boe, under the previously lowered full year guidance of $25/boe, and set to reduce further upon Stella start-up
  • $117 million cashflow from operations, driven by reduced operating costs and hedging (cashflow per share $0.28)
  • Earnings of $12 million excluding non-cash mark-to-market of future hedges and non-cash accounting tax charge resulting from reduction in UK tax rates1

Strong liquidity position

  • Additional commodity price hedging executed -- extends and enhances the downside protection below $50/bbl while retaining upside exposure
  • Continued deleveraging ahead of Stella start up with net debt reduced from a peak of over $800 million in the first half of 2015 to $598 million at 30 September 2016
  • Completed semi-annual RBL redetermination in October 2016 with over $110 million of funding headroom -- total debt availability in excess of $710 million

Exciting outlook - nearing material step-change in the business

  • Stella first hydrocarbons anticipated around the end of November 2016 -- vessel hook-up programme completed and offshore commissioning and preparation for start-up well advanced
  • Production set to more than double to 20-25,000 boepd and unit operating costs to reduce to under $20/boe with start-up of production from the Stella field
  • Oil export pipeline laid and initial tie-in works completed, allowing switch from tanker loading to pipeline export during 2017 -- reduces fixed operating costs, enhances operational uptime and improves reserves recovery
  • Completed additional acquisitions in the "Vorlich" discovery, increasing Ithaca's position to approximately 33%2
  • Acquired a 75% interest and operatorship in the nearby "Austen" discovery
  • Increasing financial flexibility -- focus on delivering continued deleveraging of the business within a balanced capital investment programme

Les Thomas, Chief Executive Officer, commented:
"The business has continued to perform in line with the strong momentum achieved over recent quarters. Production is running ahead of guidance, operating costs are coming in lower than forecast and we continue deleveraging the business. Significant progress has been made with the offshore commissioning programme on Stella and we are fast approaching start-up of the field. As such, we remain sharply focused on ensuring all the commissioning tasks are fully completed as planned in order to deliver a safe and efficient ramp-up of production from the field."

Greater Stella Area Development
Significant progress has been made on the final stages of the Stella development programme since the FPF-1 floating production facility departed Poland in August 2016. The FPF-1 was safely towed to the field, moored on location and the dynamic risers and umbilical connecting the subsea infrastructure to the vessel installed. The subsea commissioning programme has recently been completed by Technip, with all the infield flowlines flushed and ready for the start-up of production. Connection and operational trials for the "Single Anchor Loading" system have also been completed for the fleet of shuttle tankers that are available for oil exports from the FPF-1.

The FPF-1 offshore commissioning programme is on-going, involving preparation of the topsides processing and utility systems for the introduction of hydrocarbons. This work is well advanced, with the operations team focused on completing the required inspections and associated readiness activities required to enable a safe and efficient start-up of the wells. It is anticipated that this work will be completed around the end of this month and enable start-up of Stella production.

As previously reported, significant progress has also been made during the Quarter on the work programme associated with switching from tanker loading to oil pipeline exports for the Greater Stella Area in 2017. Following installation of a connection point on the Norpipe system in summer 2016, a 44 kilometre spurline from the FPF-1 to the Norpipe system was successfully installed in September 2016. The key outstanding activities that now remain to be completed are the manufacture and installation of pipeline export pumps on the FPF-1 and the final subsea connections that need undertaking immediately prior to the switchover.

GSA Satellite Acquisitions
In October 2016 the Company completed the previously announced acquisition of 100% of licence P1588 (Block 30/1f) from ENGIE E&P UK Limited ("ENGIE E&P"), INEOS UK SNS Limited and Maersk Oil North Sea Limited.

Licence P1588 contains approximately 10-20% of the Vorlich discovery, with the balance of the discovery located in licence P363 (Block 30/1c). When taking into account the P363 licence interest acquired from TOTAL E&P UK Limited in January 2016, these transactions increase Ithaca's overall interest in the Vorlich discovery by around 16%, to approximately 33%.

Completion of the other satellite acquisition, ENGIE E&P's 75% interest and operatorship in the "Austen" discovery, is anticipated prior to the end of the year.

Production & Operations
The producing asset portfolio has performed well over YTD-2016, with production running ahead of guidance largely as a result of solid performance from the Cook field. Average YTD-2016 production was 9,585 boepd (92% oil).

It is anticipated that full year base production, excluding any contribution from the start-up of the Stella field during 2016, will be modestly ahead of the 9,000 boepd guidance range. 

During the final quarter of the year base production volumes will be reduced compared to the previous quarters as a result of the planned maintenance shutdown of the Brent Pipeline System that serves the Company's Northern North Sea fields, which is now expected to take approximately four weeks.

Financials
Cashflow from Operations
Despite continued weakness in commodity prices over the period, the business has delivered YTD-2016 cashflow from operations of $117 million. This performance highlights the benefit of the commodity hedges the Company has in place and significant operating costs savings that have been secured through re-setting of the cost base.

Hedging
During the recent pick-up in Brent prices the Company extended its commodity hedging position by a further 1.5 million barrels of 2017 oil production. Of this volume half has been hedged using collars with a floor price of $46/bbl and a celling price of $60/bbl and the other half has been hedged using put options with a floor price of $53/bbl. 

Taking into account the additional volumes, the Company now has 7,800 boepd (71% oil) hedged at an average floor price of $52/boe for the 15 months to December 2017. Full commodity price upside exposure has been retained on 50% of the volumes hedged and upside exposure to $60/boe has been retained on a further 20%.

Operating Expenditure
Over the course of 2016 operating costs have continued the downward trend established in 2015, with the business delivering a YTD-2016 unit operating expenditure of $23/boe. This is under the previously lowered full year guidance for the existing producing asset base of $25/boe and represents a substantial 23% saving on the $30/boe level originally forecast for the existing producing asset base at the start of the year. Following the start-up of production from the Stella field this cost is forecast to reduce to under $20/boe, reflecting the lower unit operating costs associated with the field.

Capital Expenditure
Total capital expenditure in 2016 is now forecast to increase from $50 million to $60 million. This increase is a result of the accelerated GSA oil export pipeline installation operations, the total project cost of which remains unchanged. Of the total 2016 expenditure approximately $50 million is expected to be paid this year, with the balance due in 2017.

Net Debt
The Company has continued to delever the business ahead of first hydrocarbons from the Stella field, with net debt reduced to $598 million at 30 September 2016; down $67 million since the start of the year and over $200 million since its peak in the first half of 2015.

During October 2016 the Company completed its semi-annual reserves based lending ("RBL") facilities review, resulting in an available RBL borrowing capacity of over $410 million. When combined with the $300 million senior unsecured notes that are in place, the business has a total debt capacity of over $710 million.

Tax
The Company had a UK tax allowances pool of over $1,750 million at 30 September 2016. At current commodity prices the pool is forecast to shelter the Company from the payment of corporation tax over the medium term.

During the year the UK government reduced Corporation Tax rates levied on E&P companies by 10% and effectively abolished Petroleum Revenue Tax charges. As a result of these changes, the last of which was enacted during the Quarter, a one-off non-cash deferred tax charge of $61.7 million is reflected in the YTD-2016 Income Statement.

Q3-2016 Financial Results Conference Call
A conference call and webcast for investors and analysts will be held today at 12.00 GMT (07.00 EST). Listen to the call live via the Company's website (www.ithacaenergy.com) or alternatively dial-in on one of the following telephone numbers and request access to the Ithaca Energy conference call: UK +44 203 059 8125; Canada +1 855 287 9927; US +1 855 442 0877. A short presentation to accompany the results will be available on the Company's website prior to the call.

Glossary
boe Barrels of oil equivalent
boepd Barrels of oil equivalent per day
RBL Reserves Based Lending facility

The unaudited consolidated financial statements of the Company for the three and nine month periods ended 30 September 2016 and the related Management Discussion and Analysis are available on the Company's website (www.ithacaenergy.com) and on SEDAR (www.sedar.com). All values in this release and the Company's financial disclosures are in US dollars, unless otherwise stated.

Notes

1. Year to date earnings loss of $64.4 million adjusted by the total loss on financial instruments of $25.3 million (less tax at 40%) and one-off non-cash deferred tax charges of $61.7 million arising from changes in UK tax rates during the year.
2. The Vorlich field interest reflects assumed unitisation across licences P1588 and P363. 

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.

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.

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 www.ithacaenergy.com.

Non-IFRS Measures
"Cashflow from operations" and "cashflow per share" referred to in this press release are not prescribed by IFRS. These non-IFRS financial measures do not have any standardised meanings and therefore are unlikely to be comparable to similar measures presented by other companies. The Company uses these measures to help evaluate its performance. As an indicator of the Company's performance, cashflow from operations should not be considered as an alternative to, or more meaningful than, net cash from operating activities as determined in accordance with IFRS. The Company considers cashflow from operations to be a key measure as it demonstrates the Company's underlying ability to generate the cash necessary to fund operations and support activities related to its major assets. Cashflow from operations is determined by adding back changes in non-cash operating working capital to cash from operating activities.

"Net debt" referred to in this press release is not prescribed by IFRS. The Company uses net drawn debt as a measure to assess its financial position. Net drawn debt includes amounts outstanding under the Company's debt facilities and senior notes, less cash and cash equivalents.

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, required regulatory, partner and other third party approvals, commodity prices, 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","set to" and similar expressions, and the negatives thereof, whether used in connection with operational activities, the planned activities and durations associated with the FPF-1 offshore commissioning and hook-up programme, the anticipated timing of Stella first hydrocarbons, production forecasts, projected operating costs, anticipated capital expenditures and capital programme, anticipated effects of securing access to the GSA oil export pipeline and the expected timing of securing such access, the anticipated timing of completion of the Austen license acquisition, assumed unitisation across licences P1588 and P363 containing the Vorlich discovery, portfolio investment opportunities, expected tax horizon of the Company, planned maintenance shutdowns and the effects thereof, 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 Discussion and Analysis for the three and nine month periods ended 30 September 2016 and the Company's Annual Information Form for the year ended 31 December 2015 and in reports which are on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

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