Agreed Orchy. Very surprising that site operator IAE suddenly claims decomm costs have doubled to £60m at Athena & no RNS. How can anyone get an estimate so wrong? I have followed IAE for some time & was waiting for the markets to settle before buying in, but now reconsidering. Trap Oil picks up part of the bill, who picks up remainder? DAVBRO, if your there amigo, I withdraw this tip.
no iae rns ??
Update re Athena Decommissioning Costs Trapoil (AIM: TRAP), the independent oil and gas exploration, appraisal and production company focused on the UK Continental Shelf ("UKCS") region of the North Sea announces that it has received an updated report detailing current estimates of the Athena decommissioning costs by Ithaca Energy Inc. ("Ithaca"), the operator of the Athena Field (the "Report"). The Report, which has been independently prepared by Petrex Ltd on behalf of the partnership, estimates that the Athena decommissioning costs will be approximately £60.0 million (approximately £9.0 net to Trapoil), the majority of which relate to the well abandonment. This represents an increase of £24.0 million from the 2010 estimate of £36.0 million (of which approximately £5.4 million was net to Trapoil). All costs have been updated to reflect current rig rates and expected utilisation.
Time to panic? time to buy?
I am down around 40% on my average buying price due to the two fold reasons of IAE reducing it's daily output guidance for 2014 and the fall in oil price. I have three options SELL - Thus my losses become permanent. HOLD - How long will it take for me to break even IF the share price recovers. BUY- Thus lowering my average price IF the share recovers. Before considering the latter I needed to consider the facts on which I originally invested in IAE to see if they still held up with the fall in share price. Does IAE have sufficient funds to operate for the future in place or does it need to issue shares which at this low price would massively dilute earnings in future. IAE had around $300 m headroom at 30/9/14 on 5+ year terms. What is production cost - so at what point would producing a barrel of oil become unprofitable? - last figure I can find stated was around $40 - BUT on the estimate of running costs given in the 3Q update these would now seem to be higher ($60m with one off $12m exceptional = $48m on a consolidated 10800 bbd in a 92 day Q = $48.3 per barrel. This should fall in Q4 if costs stay similar but production increases. ( IF crude price fell to $50 b then nearly all US shale oil would be unprofitable and would not expand and probably much would be mothballed, thus removing some/all of the current surplus from market and prices would then rise). At $80 AIE and costs of $50 still makes a profit of $30 b or at 10,800 = $ 324K per day as around half is hedged at $102 the average price would be $91 = $442K per day (based on 10,800 bbd). So even at $80 or lower IAE is still very profitable. I know that some of the fields has profits taxed at rates up to 75% (most at 50%) but for some of the fields IAE has tax credits and pays no/little tax. From the cash flow and borrowings IAE has been investing in discovery and development some has been wasted (recent dry well in Lupus) other is invested in improving/prolonging existing fields output and the development of Stella. Stella is the game changer for IAE it will produce 16000 bdoe at a lower cost than the current $40-48 probably nearer the low $30's so at $80 around $45 b gross profit with the massive capital expenditure already and still to be made this will flow tax free into IAE at $720k a day. Could Stella be delayed beyond mid 2015 ? possibly. Could the oil price fall below $80 and stay there? possibly But IF Stella is not delayed and oil stays at $80 b or more then this time next year the 3Q results will be showing a cash flow in excess of $1m dollars a day or put another way IAE will be on a PE of 1 at the current share price! Please DYOR and check remember the share price may still fall further BUT on a longer term outlook this share would seem to have exceptional forward prospects even at $80 oil.
Q3-2014 Operations Update
Ithaca has safeguarded at least half of current production against potential oil price falls: "For the two year period from 1 July 2014 the Company has approximately 6,400 bopd hedged at an average price of $102/bbl (approximately 70% swaps / 30% puts). Additionally the Company has in place a gas price floor of £0.58/therm (~$10/MMbtu) for 190 million therms (~20 billion cubic feet) of production from the Stella field via put options."
Does anyone know what the cost of production per oil barrel is for Ithaca?
Yes if oil price improves. POO (there's an acronym for price of oil) has dropped from a high around 120 to around 80. If your production costs are around 40 then profits are halved. Hence IMHO HUR & IAE shares trashed. Just have to wait for the Arabs to shut the taps off. Or am I being simplistic?
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