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Thanks for the detailed input, appreciated
Https://www.telegraph.co.uk/business/2024/05/03/north-sea-oil-drilling-net-zero-deadline/
Worth a read …..licences for extra 20 years of North Sea drilling
Tornado, thanks for the heads up on the data.
I've mentioned before that Ithaca's reported numbers have been higher than the NSTA data. No idea why but applying previous corrections get me to 59,950 boepd for Q1.
SQZ reported that Erskine came back online mid/late April.
(In March, Erskine and Pierce were still offline, but there were nice jumps in Schiehallion and Captain)
The North Sea Transition Authority (NSTA) has issued 31 new exploration licences as part of the third tranche of its latest Licensing Round, with firms including Hartshead Resources, Neptune Energy and Perenco UK among the winners.
Neptune Energy: 44/13a, 44/16c, 44/17b, 44/18a, 44/23a
https://www.energyvoice.com/oilandgas/north-sea/exploration-production/552821/breaking-nsta-reveals-winners-of-latest-north-sea-licensing-round/#:~:text=33rd%20Licensing%20Round,in%20the%20Southern%20North%20Sea.
As per my calculation, based on data published today (https://hub.arcgis.com/datasets/ba8b7b78d3a74edc88293011981ce2d7_0/data ):
Oil: 40.3Kbbl/d. Gas: 17.1Kboe/d. Total: 57.4 Kboe/d.
(a reminder: Feb numbers are 34.6 / 18.4 / 53 respectively. Jan numbers are 42.6 / 20.2 / 62.8)
Which means, that if I'm correct in my calculations, we should expect Q1 average production to be:
39.2 Kbbl/d oil, 18.6 Kboe/d gas, and total of 57.8 Kboe/d.
Many thanks londoner, as usual. Couldn´t agree more, so I just comment to provide some additional colour on Deleks potential reasoning for the ITH IPO itself back then.
As a longterm Delek shareholder, I was in the middle of the Covid crash, leaving Delek in a badly over-leveraged situation with credit-rating downgrades below investment grade and a going concern warning for almost two years in their reporting and results.
Delek managed to negotiate a "memorandum" with the consortium of lendings banks. Just to recall from my memory, Delek must not pay dividens until credit rating has improved materially and New Med Energy (they tried to IPO through revise merger with Capricorn for instance) or Ithaca IPOd to increase the potential short term liquidity (by being able to sell own shares against the market in "financial pressure situations" creating additional freefloat).
Thus, the 90/10 Ithaca IPO was the basis for the current Delek Group dividend payments according to my memory.
The fact that Delek believes Ithaca is undervalued with its current market cap. is also strongly reflected the option londoner already mentioned, so they can get back that 1% from Eni, they had to painfully sell at these cheap levels right now.
As I already mentioned several times here, I am slightly disappointed by the fact that the 500m dividend announcement was/is not enough to sufficiently support the stock price. I still plan to add on these levels, breaking with all balancing rules of my portfolio. Hopefully HBR will present positive news on its AGM next Thursday, resulting in a SP above 310 Pence again, so I can continue rotating from HBR into ITH to collect even more of this very juicy 20% dividend offered to people who are willing to collect Deleks forced ITH stock sells.
To close on my previous post.
I’ve made the point, here or on another board, that the Ithaca chairman seems confident that the final fiscal outcome under Labour will be supportive – he referred to it as the Norway model (or some such wording). It is my working assumption that the EPL with be increased to 38%, the additional allowance will be removed but full capex allowance (x1) will be maintained against EPL.
Linnn, thanks for posting the detail of Moody’s assessment. I wasn’t able to access your original link.
It’s good to see that Moody’s didn’t flag any concerns with the merger. Interesting metrics on debt, which I interpreted as a $1.5bn future debt capacity, against 100K boepd production, as supported by the rating.
In light of my previous comment on the proposed $500m dividends in 2024 and 2025 I was pleased to see this by Moody’s:
“Stated commitment to its conservative financial policies that prioritise balance sheet strength over shareholder remuneration. Ithaca's ambition to distribute up to $500 million to shareholders in each of 2024 and 2025 represents a material step up from the $400 million amount declared over 2023 results. That said, Moody's views the company's ambition as commensurate with the stated capital allocation framework, supported by the cashflow-generative nature of Eni's assets and the robust commodity price environment.”
I was surprised that Moody’s didn’t refer to the possibility of a change to the UK fiscal regime under Labour.
Stu, you say. “it seems like Delek feel they currently own too large a proportion of Ithaca,”
I’ve wondered about the reasons for this merger. My understanding is that ahead of the IPO, Delek expected a good dividend return from Ithaca to provide cash to the rest of their operations. The 10% free float following IPO was the minimum allowed under LSE rules, so I think it’s reasonable to assume they have faith in the Ithaca’s long-term prospects. The increase in the EPL to 35% just after the IPO reduced their return expectations, which were that after the initial 3-stage dividend payment they were anticipating a c.$430m annual (gross) dividend from Ithaca. This is in accordance with the CFFO (15%-30%) payout metric.
Post the increase in the EPL and resultant impacts on capital plans and production, estimates on this board for the gross dividend payment this financial year have been below $200m at 30% CFFO. There is also the uncertainty of the fiscal regime under a future Labour government. We don’t know who approached who, but I’d guess Delek see the merger with ENI as a hedge against the worst possible fiscal outcome, which I see as an increase in the EPL to 38% and the removal of all allowances associated with the EPL. If that were to occur the ENI assets provide a higher level of cash return because of the much lower level of supporting Capex, but of course this falls away c.50% by 2030. On the other hand, Ithaca is entering a growth phase which largely kicks off 2-3 years from now as the polymer enhancements to Captain kicks in and Rosebank production starts up.
The merger provides cash to pay a higher dividend while also covering the Capex demands on Ithaca’s assets. Hence, the provision to pay up to $500m (gross) in 2024 and 2025. Incidentally, Ithaca has substantial UK corporate tax credits to cover the merged business for the next few years. Of course, with EPL still to be paid.
It was interesting to see how Ithaca presented this dividend allocation in the recent presentation. It seemed to me they went to some length to emphasise the 30% CFFO metric still applied, and the top up will be a special dividend from the surplus pot labelled ‘evolve’. Perfectly valid, but interesting to note the strength of the point.
As I said in my previous post, pro forma the new $500m payment equates to $308m under the ‘old money’. This is shy of $430m but substantially better than below $200m. I guess from Delek’s view 2027 cash flows will be even more supportive of a $500m+ dividend – which is also my basis for holding Ithaca.
If the new labour fiscal regime is supportive of capital investment in the North Sea, Ithaca has a healthy pipeline of projects, which are detailed with anticipated capital costs in Delek’s latest results.
If anyone disagrees with any part of my assessment, please comment.
Thanks for the degree of clarification londoner7, I wasn't too sure what to make of the recently announced (potential) collaboration with Eni - to me it seems like Delek feel they currently own too large a proportion of Ithaca, and Eni would like greater reserves for the long term. Both hoping for the amount of Levy enforced to decrease medium term possibly.
Personally happy to hold and accumulate at the current share price and dividend level londoner7 suggests.
Stu
Montesa, I believe you’ve read too much into the transaction.
On 17th April notice was released that 339m Ithaca shares had been moved to a custody account to cover the issue of bonds to Delek. Essentially, these shares are collateral for bond debt taken on by Delek, which is nothing to do with Ithaca.
These are the key lines:
“Transfer to a new custody account under a Pledge Agreement in relation to a series of Israeli Bonds issued by Delek Group on 14.4.2024.”
“No change in the beneficial owner of the shares.”
Yesterday’s news is the release of 200m Ithaca shares from the custody account (an unwind), presumably surplus to the collateral requirement.
The news impacting Ithaca’s share price is this item from the merger agreement with ENI:
“….. in order to ensure that the number of ordinary shares in public hands remains at or above 10 per cent., Delek has undertaken to use reasonable endeavours to sell down such number of ordinary shares representing approximately 3 per cent. of the enlarged issued share capital of the Company (the "Delek Sell Down"), prior to Completion.”
3% might not sound much but it is 30m shares into the current free float of 100m shares. As the note says, “use reasonable endeavours”, the wording itself highlights the challenge. Over the next 3-6 months (Q3 completion) Delek need to sell an average of 250K – 450K share per day into a market with typically 500K to 1,000K daily volumes. There were higher volumes around the release of the ENI news, but those higher volumes have now faded.
In a way this is the reverse of a large buyback, except Delek are taking the pain, with ENI accepting their contribution via a call option. To be clear, Delek’s actions are not dilution. Assuming the merger closes in Q3, 635m consideration shares will be issued to ENI.
Although Ithaca is considered ‘independent’, Delek, as the current 90% owner of Ithaca and with two non-execs on the board, will have significant influence over the deal.
I suspect they would have pushed for the provisional agreement to pay up to $500m dividends in 2024 and 2025, ahead of the 30% CFFO metric – I believe that unless there is a problem in Ithaca’s performance or a collapse in oil/gas prices, we will see those $500m dividends.
Pro-rata that is 61.5% x $500m = $308m payable to the holders of the current 1.01bn shares, or $0.3 (24p) per share. A 48p dividend return over the next two year on a current price of 114p is the sweetener to taking those Delek shares coming into the market.
DYOR but from my reading …
Seems yesterday morning at 7.30am pre opening there was an Ithaca news release based around a PDMR and PCA Notification regarding DKL Energy Limited & joint Directors.
Reported on HL platform.
From a Google (I didn’t know !).
“Per MAR Article 19, PDMRs and PCAs must notify regulatory bodies and the issuer if they are undertaking personal transactions with the issuer's financial instruments. To ensure compliance, the issuer must release this information publicly within three working days”
Seems two Ithaca & also DKL Energy Limited Directors were involved (Messrs Wallace & Tshuva) so hence reporting & the ‘in the know market’ likely then reacted in downwards spiral.
Any input or an explanation of why & effects very welcome and will assist me greatly.
Down Down and Down
Ithaca have done the right thing buying my ENI’s UK assets. Better that than paying 70% all in tax burden in the UK. The more stablished players are protected with earnings abroad. So best re invest the money.
They are good people one of the best i have worked with over the last 2-3 years.
If or shall i say when Labour get in that tax rate increases to 80%.
Know wonder all investment goes abroad. All our gas majors are home grown so get hammered also.
Tescos made 3.1 bn profit but screwing the farmers and suppliers is ok in the UK governments eyes.
In some ways it has been like this for years with north sea oil. I have to get to the US t get paid correctly £65k in UK vs $225k US.
Anyways i digress. Ithaca is goi my to regroup in 2024 with lots of drilling 2025 onwards. This is a slow burn a great long term dribble of money to invest.
Dividends in the future also. So do not get disheartened.
@Tamovv - Yesterday's market reaction exposed the harsh truth - we operate in a traders' arena rather than an investors' domain. The herd mentality fixated myopically on the near-term 3% sale, disregarding the seismic 120% production surge projected for 2030. However, my mantra remains unwavering: "Don't argue with the market, exploit it" :)
To me, the crowning jewel of yesterday's presentation was the chart on p.17 (https://ithacaenergy-files.fra1.cdn.digitaloceanspaces.com/Documents/Business-Combination/2024.04.23_Combination-Of-Ithaca-Energy-And-Eni%E2%80%99s-UK-Oil-And-Gas-Assets.pdf). Observe how the combined entity's 2P reserves dwarf Ithaca's current 2C contingent resources, a disparity so vast, it alone is sufficient for me to be in favour of this deal. The synergies Mr. Lewis emphasized in his answer at the end, coupled with the prospects of an elevated credit standing and augmented short-term divis, are the bonus.
Can´t wrap my head around todays SP (non) action. Thought the recent drop was caused by weak Q1 production, which is negligible now given the accreditive production for old non-diluted shareholders. Fears about a dividend cut aren´t valid any longer too. So the recent SP drop has been solely caused by political statements / expectations around laber in my opinion, otherwise we should have seen some reversion today.
Q&A session was rather lame today, not many additional useful information in my opinion.
Anyways, I still like the ENI move. My model shows tax loss consumption by the end of 2028 now. Until then the ENI assets contribute to CFFO after tax (also on a 61,5% basis for non-diluted shareholders). Dividends for old shareholders approx. 1,4 bUSD at current commodity prices by end of 2028 at current commodity prices (without any windfall tax 75 to 78% worseing effect of course), which is close to current market cap... Still feels crazy undervalued to me, but maybe I am totally wrong and things around O & G in the UK will indeed turn absolutely terrible under labour and Cambo finally gets cancelled etc.
In any case ITH is a highly political stock and big bet on the industries future. However, the ENI deal de-risked the political exposure for old-shareholders in my opinion given additional optionality, so really don´t understand why there wasn´t any move today. The delek sale of 3% can´t be that disturbing or am I wrong?
Agreed a good deal. The market overreacted previously to the fall in the production forecast and anticipation of a reduction in the dividend.
Well even considering the enlarged shares in issue the impact on the dividend payouts is really negligible now considering the enlarged group will be able to develop it's assets with ease, reduce costs and produce significant amounts of cash for significant further acquisitions. The SP is excellent value for those who look beyond the next dividend payment. Disappointing reaction this morning but anyone with eyes should see there's value to be had here.
Tamovv - “…… might be caught on the too optimistic side again, but this reads between the lines as UK politicians are not complete idiots ……”
🤣🤣🤣
However, it is an election year so anything said by either party should be taken with a generous pinch of salt ……
Well...to be honest, it is actually MUCH MORE than I have been waiting for (expected).
Especially the special dividend announcement in massive news in my opinion.
As I have presented on this board, I was expecting a 2024 dividend of around 180 mUSD given the very weak reported January/February production (and of course all other known headwinds on ITHS dividend capacity).
At a first sight the ENI UK transaction looked fair to be, but not as good as the HBR/Wintershall for example. Now it looks like they are either completely "overpaying" shareholders from debt. capacity (but I doubt ENI is in for the short term slaughter of debt. capacity), or the short term 2024/2025 synergies of the proposed transaction are significant.
I am very pleased to see the new production guidance, taking ENI UK contributions starting from H1 into account. The standalone Ithaca part seems unchanged, thus I see it as reconfirmation that Jan/Feb actual prodution already was included in the initial guidance mentioned presented for the standalone basis.
(up to) 500m dividend for 2024/2025 ("real dividend" payed in two regular tranches, not as the initial 400m "cheat" stretched over 3 tranches) means up to 307,5 mUSD for old shareholders like us on a non-diluted basis. Thats obviously much more than I expected (20,6% forward dividend yield based on yesterdays closing market cap).
Corporate governance is about to improve significantly with Eni directors to be nominated to join. Shareholder structure to be more balanced. The only short term drag on the SP could be Delek forced to sell 3% to the public, but this should be more than overcompensated by the special dividend outlook.
Interesting to see them having mentioning Norway several times during the last Q&A sessions. Now they show Norwegian Var Energi (ENI subsidiary) as a full powerpoint slide success story of Eni. I might be caught on the too optimistic side again, but this reads between the lines as UK politicians are not complete idiots and that there is something useful in the making for UK O&G in general.
No investment advice (I am much more invested in ITH as I should be and thus heavilie biased), but I see the SP flying today.
Https://www.reuters.com/business/energy/ithaca-energy-buy-enis-uk-assets-about-940-mln-2024-04-23/