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.
Highlights
- 2016 average production totalled approximately 9,300 boepd – exceeding full year guidance of 9,000 boepd
- Forecast first hydrocarbons from the Stella field scheduled for February 2017, with the electrical junction box inspection and remediation work programme nearing completion
- 2017 production anticipated to be in the range of 19,000 to 22,000 boepd, reflecting the updated Stella start-up schedule
- Harrier field development programme launched – development drilling to be completed in 2017, with start-up of production expected in the second half of 2018
- Forecast 2017 unit operating expenditure of approximately $18/boe, down nearly 30% on 2016 due to the positive impact of low cost Stella volumes on the production portfolio
- Forecast 2017 capital investment programme of $70 million, primarily centred on Greater Stella Area (“GSA”) activities, including development drilling on the Harrier field
- Downside commodity price protection extended into 2018 – average volume of 7,600 boepd hedged to mid-2018 at an average floor price of $50/boe
- Net debt at 31 December 2016 reduced to $598 million, down $67 million from the start of 2016
Les Thomas, Chief Executive Officer, commented:
“The painstaking electrical inspection programme on the FPF-1 is nearing completion and the vessel will shortly be ready for start-up of the Stella field. While this will have taken longer than planned, the transformational step it delivers for the business remains undiminished. The Company moves into 2017 in good health, with increasing cashflow, continued deleveraging and the launch of the low cost Harrier satellite development.”
Further Information
2016 Production
The producing asset portfolio has performed well over the last twelve months, with production running ahead of guidance largely as a result of solid performance from the Cook field, for which the Company took over operatorship in March 2016. Average production during the year was approximately 9,300 boepd (92% oil).
2017 Production Outlook
Average production in 2017 is anticipated to be in the range of 19,000 to 22,000 boepd (approximately 75% oil). This range reflects the updated Stella start-up schedule, the programme of planned maintenance shutdowns during the year and sensitivities associated with the performance of those operational programmes.
Greater Stella Area Development
The Company’s 2017 operational programme is dominated by start-up of the Stella field and the commencement of Harrier field development activities.
Stella Start-up Schedule
Preparation for start-up of the Stella field is well advanced, with only completion of the previously announced fault remediation works on the FPF-1 electrical junction boxes outstanding prior to the delivery of first hydrocarbons. The inspection and repair programme has been progressing well, with the work now in the latter stages of completion, although challenging offshore weather conditions have impacted the pace of activities on the vessel at times. Conclusion of the work is now expected to push the commencement of Stella production into February 2017.
Harrier Development
In line with the Company’s strategy for building out the GSA production hub, investment in the Harrier field development programme will commence during 2017. The development involves drilling of a multilateral well into the two reservoir formations on the field, with the well tied back via a 7.5 kilometre pipe to an existing slot on the Stella main drill centre manifold for onward export and processing of production on the FPF-1.
The GSA joint venture has contracted with Ensco Offshore UK Limited for the provision of a heavy duty jack-up drilling rig, which is expected to arrive on location in the second quarter of this year. The drilling programme is forecast to be completed in the second half of 2017 and the subsea infrastructure installation activities in summer 2018, resulting in the anticipated start-up of Harrier production in the second half of 2018.
The net capital expenditure associated with execution of the development over 2017-18 is approximately $75 million, equating to a development cost of significantly less than $10/boe1. This represents a cost reduction of approximately fifty percent from that originally forecast. The substantial reduction in capital expenditure is driven by both detailed well engineering design work that has enabled the move away from drilling two individual wells to one multilateral and securing attractive contracting terms across the supply chain.
Financials
Hedging
During the fourth quarter of 2016 the Company extended its commodity hedging position by a further 2.9 million barrels of 2017 and 2018 oil production. Taking into account these additional volumes, the Company now has 7,600 boepd (85% oil) hedged at an average floor price of $50/boe for the 18 months to 30 June 2018. Full commodity price upside exposure has been retained on 60% of the volumes hedged and upside exposure to $60/boe has been retained on a further 25% of the hedged volumes.
Operating Expenditure
Forecast 2017 unit operating expenditure is anticipated to be approximately $18/boe. This is nearly 30% lower than the unit cost guidance for 2016 and reflects the benefit of production start-up from the Stella field.
Capital Expenditure
Net 2017 capital expenditure is forecast to total approximately $70 million. The majority of this expenditure relates to the GSA, primarily being Harrier development activities plus completion of the GSA oil export pipeline investment programme and Vorlich field development planning activities. The forecast expenditure is also inclusive of any additional Stella start-up costs, which are expected to be minimal.
Net Debt
The Company continued to delever the business ahead of first hydrocarbons from the Stella field during 2016, with net debt of $598 million at 31 December 2016; down $67 million since the start of the year and over $200 million since its peak in the first half of 2015.