LONDON (Alliance News) - Ithaca Energy Inc Monday said it made a pretax loss in the first quarter of the year following a fall in production, but is gearing up for a material rise in production later this year when its Stella development comes online in the second half of 2016.
Ithaca had managed to remain profitable in the first nine months of 2015 but ultimately reported a hefty USD326.4 million loss for the full year in 2015, and said Monday that it continued to generate a loss in the first three months of the current year.
Ithaca said its pretax loss amounted to USD16.5 million in the first quarter, compared to the USD8.4 million profit generated a year earlier as revenue declined as a result of lower production and prices to USD33.3 million from USD70.4 million.
Despite lowering its cost of sales to USD44.1 million in the quarter from USD74.9 million a year earlier, they still outstripped revenue to produce a USD10.9 million operating loss compared to the USD5.0 million gross loss reported a year before.
The main reason Ithaca managed to book a profit in the first quarter of 2015 was a GBP29.1 million gain from its hedging programme, which dropped to USD5.2 million in the most recent quarter.
Expenditure on administrative activities, finance and exploration all fell year-on-year and Ithaca also produced a small foreign exchange gain in the period compared to a loss the year before.
Importantly, Ithaca did make a profit after tax of USD17.7 million following a USD34.2 million tax credit, compared to the USD26.1 million loss after tax the year before as Ithaca paid USD34.5 million in tax.
One of the main reasons for the reduction in revenue was production dropping to 8,997 barrels of oil equivalent per day in the first quarter from the 12,489 barrels of oil per day a year earlier.
Production was expected to fall as Ithaca has a full year target of only 9,000 barrels of oil per day after producing an average of 12,066 barrels of oil per day during the whole of 2015 whilst the average oil price was materially lower at only USD36 per barrel compared to USD58 a year ago.
Battling lower prices, Ithaca has reduced its unit operating costs by 24% year-on-year to USD25 per barrel from USD33, and the company said it is reducing costs faster than planned as it aims to get that cost to around USD20 per barrel for the whole year.
Ithaca also has hedges in place over 8,800 barrels of oil per day, almost its entire production, starting from the end of March until the middle of 2017 at USD61 per barrel, giving a mark-to-market value of around USD94.0 million.
Brent was trading at USD49 per barrel on Monday morning.
Ithaca is preparing for a significant step-up in production later this year through the Stella development, which is set to begin producing in September this year. That will allow the company's overall production to more than double to 20,000 to 25,000 barrels of oil equivalent per day.
Stella will also be the driver behind operating costs falling to USD20 per barrel by the year-end.
Ithaca seems to have been cautious with incorporating production from Stella into its full year guidance figures, stating it will depend on exactly when production will start from the field.
However, initial rates are expected to produce around 16,000 barrels of oil equivalent per day to Ithaca, which is 77% higher than current production rates. Once added to existing production, Stella would see group production come in around 2.7 times higher than it is now.
Ithaca holds a 54.66% stake in Stella whilst fellow London-listed Petrofac Ltd owns a 20% interest. Dyas is the other partner that holds the remaining balance.
"Ithaca has maintained the strong momentum generated in 2015 throughout the first quarter, with Stella progressing on track, further downward pressure on operating costs and reaffirmation of our financial strength. We have a solid foundation to take us forward beyond the start-up of Stella, enabling execution of a balanced and flexible future investment programme that can be tailored for the commodity price environment while meeting our priority of reducing debt," said Chief Executive Les Thomas.
Capital expenditure for the full year remains set at USD50.0 million. Ithaca said costs on producing assets is expected to fall to a range of USD10.0 to USD25.0 million every year from 2017 onwards, with USD25.0 to USD75.0 million per year set aside for "further investment opportunities".
Net debt stood at USD630.0 million at the end of March from USD665.0 million at the end of December as Ithaca used its cashflow generation to pay down debt after it hit a peak of USD800.0 million in the first half of 2015. Ithaca has USD730.0 million worth of available debt moving forward.
Ithaca shares were up 5.2% to 45.25 pence per share on Monday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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