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Hi Tamovv,
I've nothing to add numbers wise until I see the detail on the 2022 final numbers and 2023 guidance. But your view that CapEx will be lower than 2022 and your expectations on the 'conventional' tax are interesting.
I'm new to Ithaca 2.0 and looking forward to getting up to speed on their operations with the finals presentation.
But I wonder if enough has changed wrt Cambo financing to cause much change from confirmation of the $450m-$550m 2023 CapEx made only last Nov. Also, I never expected 'spades in the ground' on either project in 2023 so I don't see a significant 2023 CapEx impact.
The 2022 H1 acquisitions added a significant deferred tax asset, which should reduce their exposure to 'conventional' tax in the last half year and 2023. That's my expectation, but stand to be corrected. We'll know more later this month.
Error noted, so getting to 1.000-1.100 mUSD FCF rather than 1.200 mUSD.
Overall statement still the same, should be a close race between ITH and HBR in terms of FCF, whereas HBR runs 2,5x the daily output.
From 2024 on HBR is in the lead again - all else equal - due to the expiration of the very poor 2024 gas hedges.
Thanks londoner!
"The Group achieved an estimated average production for Q4 2022 of 80.8 kboe/d, ahead of management guidance of 77–80 kboe/d"
Q4-run rate given in the last trading update was already higher than FY guidance, this made me use an optimistic 82 kboed having in mind this flagship project captain with the following information:
"C71 well online in October, C72 completion activities ongoing", so I assumed during Q4 with 80,8 run-rate Captain did not deliver full contribution.
However,...thats not the topic for now ;)
CapEx 2023 are a questionmark, I agree, but since I´ve highlighted them complaining about financing issues with Cambo, I don´t expect much progress with the leggacy Siccar Point projects this year, so I am using 300 mUSD (slightly reduced from 2022 because of completion of work at Captain).
250m Admin&Financing based on H1-2022 run rate, assuming lower indebtness covers interest rate increase. This assumption should be on the safe side, because debt reduced more than interest fees have risen proportionally.
D&A 600 mUSD based on H1-2022 run rate.
Thus my rough P&L looks like:
EBITDAX 2,1 bUSD
- 0,25 Admin/Finance - 0,6 D&A
EBT 1,25 bUSD with 15% effective tax rate for corporation+supplemental tax (based on H1-2022 details) = 187,5 mUSD
EBT.WFT 1,6 bUSD with 35% EPL tax rate = 560 mUSD EPL charge
So Net earnings approx. 0,5 USD -> FCF (adding D&A) of approx. 1,2 bUSD as stated below.
But agree, I am always on the rather optimistic side!
Tamovv, your understanding of puts, swap and collars looks good to me, but premiums are paid on the puts and swaps. This may only be a couple of $s - depends on how tight the contracts are to forward pricing at the time the contract is purchased.
You describe Ithaca's hedging information as complex. I'd describe it as detailed. Broken down by quarters is considerably more informative than the average year numbers provided by other companies, given the volatility of pricing. Also, it highlights gaps in the schedule - I wonder if Ithaca took advantage of the pop in gas prices in Dec to add collars to 2023 Q4. The next update will tell us.
Given volumes and Opex It's relatively easy to work out the EBITDAX numbers but for FCF you need EPL, CapEx, finance costs, etc.
You've assumed 82Kboepd for 2023 but latest guidance is still the 72-80 number provided at the time of the IPO. CapEx guidance is also wide, but higher than 2022.
I've made estimates for 2022 Q4 and 2023 Q1 EBITDAX of $530m and $580m respectively. But I'm holding off on a FCF estimate for 2023 till we get fresh guidance later this month. My preliminary look points to $800-$900m FCF in 2023, but that is a very rough estimate, with volumes and CapEx the biggest unknowns.
With todays prices of 117 p/therm and 81$/boe for Brent it get to 96 mUSD heding loss for oil, but 230 mUSD hedging gain for gas, so overall hedging gain of approx. 134 mUSD for ITH, not bad compared to HBRs hedging loss of 1.850 mUSD this year...
Thus, I see ITH at 2,1 bUSD EBITDAX this year despite massive drop in the UK gas price. This should result in 1,2 bUSD FCF this year, so even better than HBR despite the fact I have assumed 82 kboed compared to 195 kboed at HBR...
Please correct me if I have made any mistake!
Hi guys,
just trying to wrap my head around Ithacas heding for 2023.
Since HBR hedged gas 2023 so poorly (please find my corresponding post at HBR thread), I realized to have to focus more on hedging.
Ithaca shows a schedule on page 20 of their presentation dated 30 Nov. last year.
Harbours schedule was straight forward and easy to understand for me, Ithacas looks more complex with Puts, Swaps and collar floors. As said before, I am not an O&G guy, so dealing with this for the first time.
Lets ignore oil for the while, because all prices are close to market price at the moment. But for gas, I see Puts, Swaps and Collar Floors at 195-248 p/therm, which is twice the current market price level!
I understood that:
A gas put gives Ithaca the right to sell for i.e. 200 p/therm in Q2/Q3 2023 (so only executed if favorable)
A swap is a binding agreement to sell for the given price, i.e. 217 p/therm in Q1 2023
A Collar floor seems to combine calls with puts to fix some range around a an expected price, so in my calc. I would keep things simple as handle a collar similar to a put (since we are significantly above the current market price at the moment)
Please correct me if I´m wrong, in the meanwhile I will start building a model to calculate the potential hedging gain for Ithaca this year.
What can we expect?
Thanks., londoner7. You are correct. My bad.
tornado10, my interpretation is that there will be 3 payments of c.$133m making a total of $400m for 2023 paid as follows:
1st payment next week
2nd payment after the 2023 interims
3rd payment after the 2023 finals - that would be Mar 2024, so 2x cash payments this year.
For the 2024 financial year, (1/3 of $420m) $140m paid after the 2024 interims, and the final dividend of $280m paid after the finals are announced Mar 2025.
@londoner7 - Ithaca plans on paying 3X$133M dividend in 2023.
Planned divi is 400M in 2023 and $420M in 2024.
See prospectus §3.1.6 on p. 5; §3.5 on p. 81; §16.1 on p. 122.
Tamov
I think the key challenge with Cambo is finding 1or 2 partners and the risk that Labour pull the investment allowance in 2024/25 right in middle of development.
Cambo is affordable for Ithaca but it would be high risk to push ahead as 100% operator.
“Barclays forecasts a net debt reduction from $1.1bn (£910mn) at the end of 2022 to just $193mn by the end of this year.”
Really?
That would imply FCF for 2023 of net debt reduction (1,100-193) + Dividends (2x $133m) = $1,173m.
I suspect an error in the Barclays forecast or the reporting.
Ithaca’s net debt at the end of Sept 2022 was $1,100m. I’ve pencilled in a further $300m reduction in Q4 for an end of year debt of $800m.
This correction to the Barclays number points to FCF for 2023 of $873m, which is ahead of the $845m I’d anticipated. However, until Ithaca release their 2022 result and guidance for 2023, these are rough estimates.
I’m new to Ithaca 2.0 but I like what I’ve seen so far. I’m looking forward to the results release 29th March. Later than most, but Q1 will be largely known, and pricing will benefit from their gas hedging in Q1. It will be interesting to see if Ithaca captured the August bounce in gas pricing with additional hedges for 2023 Q4.
Interesting to read the comments on financing Cambo, but I suspect the challenge to the development will continue to be political. As the Barclays analyst says, if Ithaca achieve the debt reduction expected in 2023 they'll be "well positioned" for the capital costs of development. An impending sale of Shell's stake may also be a factor on the timeline.
@Stevo what do you think of the article? Is this tactics of Ithacas board?
I mean, as you have described, the investment allowence reduces investment risk SIGNFICANTLY whereas also turned North Sea investment projects into lower profitable ones (high risk high reward -> low risk low reward).
So the overall "financing" shouldn´t be a big deal, because, if I recall you correctly, the allowance can be drawn against due taxes in the very same year, so the investment CF comes from non-spent taxes as part of the OCF or not?
I'm not sure the market even realise yet that the update is out? Some boys will wake up by 3pm I take it.
Also Ftse250 inclusion will hopefully push the sp back to 250p
Absolutely a good strong trading update, as expected.
If only the UK government would stop bending over to the woke brigade and the green zealots, and would allow domestic oil and gas companies to prosper, this share would double instantly. Even with the current mob running the asylum, the shares represent a good value. I will definitely sit on them and collect the dividend. Will decide later on where the dividend money goes. But especially my pension account the sun is going to be significant. Hope this continues for a long time. Are we expecting approval on fields very soon? That also would be welcome!
Best of luck all, Cheap
Here we go: https://www.investegate.co.uk/ithaca-energy-plc--ith-/rns/dividend-declaration-and-trading-update/202302161223101843Q/
Interim Dividend confirmed, offers 17% yield at current valuation.
I added ITH yesterday, to me they look like a very good dividend stock going forward, with around 18% indicated from this SP level. In fact the IPO Prospectus stated there will be a maiden dividend in Q123, so I felt it prudent to invest before the SP jumps when the dividend is declared, which I imagine will be soon.
I plan to compound this investment, reinvesting any dividends to boost the return initially, then hold long term.
For anyone mulling ITH over, please see the informative posts and attachments in posts on this BB, thanks to the posters involved.
Stu
There's no doubt that Ithaca compares unfavourably to HBR and ENQ on a enterprise value versus production volume metric. I'm in both ENQ and HBR and that simple metric has kept me out of Ithaca.
However, there's a lot of operational stuff I prefer with Ithaca - their near term exploration and development which alleviates the EPL to a greater extent and the potential of Rosebank or Cambo getting clearance. While there's political concerns on NS development, it's my working assumption that if either field gets clearance it will not be reversed by an incoming Labour government.
Near term the gas hedging works in Ithaca's favour, particularly during this quarter (2023 Q1), which I estimate will beat their 2022 Q3 EBITDAX number, producing higher FCF and a good reduction in net debt, which will lower the EV and improve the EV v Prod metric to some degree. I see Ithaca's Q1 realised oil & gas price c.$100, about $30 above HBR's and $15 above ENQ. How much that changes my preferred metric, FCF yield on EV, will be clearer in a few months, as will the impact of the EPL on all three companies.
The near term outlook has prompted me to open a relatively small position here. Nice to be back after being kicked out by the bid in 2017.
https://opendata-nstauthority.hub.arcgis.com/datasets/NSTAUTHORITY::-nsta-field-production-points-pprs-wgs84/explore?filters=eyJGSUVMRE5BTUUiOlsiQUJJR0FJTCJdfQ%3D%3D&location=55.810026%2C-0.511550%2C6.00&showTable=true
In October (partial month production, first oil): Oil 1,819 bbl/d Gas 547 boe/d.
In November (first full-month production): 4,590 bbl/d oil, 1,297boe/d gas. A total of 5,887 boe/d
A nice addition to 2022 numbers. Q4 numbers will probably top 80Kboe/d IMHO, maybe even >83Kboe/d.
FTSE-250, here we come!
Thanks Tommo. I think you're looking at it the wrong way.
First, Ithaca's 2023 production numbers will be no where near 2022's. Much higher (Pierce, Abigail, Captain EOR)
Second, Ithaca's hedging is much much better than Harbour's. HBR hedged its 2023 gas at 42p/therm (!) - Ithaca at 220p!
Third, the big elephant in the room: the EPL. Ithaca is pretty immune from it, HBR is not. See, https://www.energyvoice.com/oilandgas/north-sea/473395/harbour-energy-windfall-tax/
Fourth, deferred tax: HBR would finish it this year, Ithaca would have it for at least 3-4 years.
Fifth, Ithaca's share in Cambo & Rosebank offer huge upside, provided they are approved.
In sum, 2022 production numbers do not tell the whole story. Far from it. Ithaca's upside is much larger than HBR and ENQ, IMHO.
Probably end of March. Earlier on in March - inclusion in FTSE-250. Then Q4 and annual report. And then - dividends.
And Jeffries said this:
Jefferies initiated coverage of Ithaca Energy today with a buy rating and 245p price target helping send shares 3.25% higher.
The broker said this represents 38% upside for a company it believes to have the highest pro forma 2P reserves life among North Sea peers but which is now trading at almost a 20% dividend yield post-IPO on increased UK oil & gas taxation.
An “additional tax hit is an unavoidable impact to all UK producers but Ithaca's consistent, coherent strategy focused on growth and returns is a compelling proposition” it said.
Also - did anyone know when trading update will be due?
Thansk, Cheap
Interesting that Goldman rates this at 284p.
Obviously broker ratings are to be taken with a pinch of salt but at the same time Goldman's ratings are always important to the market.
https://www.morningstar.co.uk/uk/news/AN_1671528901097103800/london-broker-ratings-ubs-cuts-sage%3B-goldman-jefferies-like-ithaca.aspx