Member Info for foresight

1.40

Ithaca Energy Inc6 IAE-AIM January 13, 2017 Minor delay but lower cost and better visibility enhance the investment profile  First oil at Stella is delayed by about a month, reducing the contribution of Stella to FY17 production by the same period.  While this has an impact on FY17e free cash flow, this is negligible to our valuation. More importantly, FY17 opex are estimated at only US$18/boe, below our estimates of US$20/boe. There are opportunities to reduce opex further.  Harrier is expected to reach first oil in 2018, one year earlier than we expected and at a cost of US$40 mm lower than we anticipated. The overall development cost is less than US$6.0/boe.  Ithaca holds numerous discoveries around Stella that would be developed with a similar cost structure to Harrier.  We continue to like the name. Harrier: a very low cost development illustrating Ithaca’s business model. Ithaca is embarking on the development of Harrier. The field will be developed as a tie-back of a multilateral well (two horizontal laterals) to the Stella floating production facility. The field holds circa 13 mmboe 2P reserves net to Ithaca and will be developed at a net cost of only US$75 mm. Ithaca will then develop the Vorlich field (7.4 mmboe net 2P - probable start-up in 2020) and Hurricane (3 mmboe - probable start-up in 2022). Sustainable free cash flow. We have reduced our production profile for 2017 from 25 mboe/d to 21.1 mboe/d. We forecast operating cash flow of about US$240 mm – US$250 mm per year from 2017 to 2019, with free cash flow of about US$160-185 mm per year over the same period. Maintain BUY recommendation with a target price increased from £1.30 to £1.40 per share In light of the cost structure at Harrier, we have reduced our capex expectations in 2018, 2019 and 2020. Our ReNAV has been increased from £1.26 to £1.40 per share. The shares trade at EV/DACF of only 3.5x in 2017, 3.0x in 2018 and 2.4x in 2019. Our new target price is in line with our ReNAV. Last: ▲ Target: BUY £1.01 £1.40

just received First Energy research note with price target upgraded to £1.4.

we need a tanker there rather than supply boats....

Opec should stop production completely for 3 months taking 3bn barrels out of the market. Global stocks would be depleted to zero. Everyone would then max out in production with oil well over $100/bbl. At say 2m barrels a day over production to rebuild stocks - would take 3 years to rebuild at $100+. So they would get at least $50 more per barrel for say 2 years = >$1trillion. If they cut just enough to balance the market then they will encourage new production at a lower price and then need to keep cutting to offset new supply. So they need to go all out and cut or go all out and really damage the competition but not stay in the middle

I was involved in a start up like this and the wells had been shut int for a while and then would not flow. So we had to use nitrogen to lift them and so quite a delay before we could get them cleaned up and flowing. Maybe similar here.

the hyrdorcrbon era will come to an end - so when do companies decide to slow down investment so as to not get caught short putting more money in to a diminishing industry. It could happen quicker than expected. I would not want to be predicting the world too far out - not easy after 100 years of incremental growth.

oil price - $55. Operating cost - $18. Profit per barrel - $37. 55 million barrels reserves so total profit = $2bn. Less debt of $600m = $1.4bn. FX of 1.2 = £1.2bn. Shares outstanding = 415m. Nominal share price = £2.8. Discount for time value of money and corporate effects = say £2. Add risk factor and you're comfortably at the £1.5 mark. If oil is $60 then this £2.5. So the target share price should be £1.5-£2.5 depending on oil price, timing, additional reserves etc etc.

The question is whether Delek will move to take the whole company - they have 20% so a blocking stake and have positioned themselves to be the buyer in future. As SP runs up - you are less likely to see a take out. Delia could use Ithaca as vehicle to do a much bigger deal making them one of the biggest NS players. They want the UK expertise and knowhow I think.

£1.5-£2.5 seems very reasonable at $60 oil and 50+ mmbo reserves but not for a couple of years. Opec at $20 leads to operating profit of $40. $40x 50mmbo = $2bn. Less $600m debt - $1.4bn. =£1bn or £2-3 / share. Discount that and take into consideration corporate effect, we get to £1.5-£2 IMO

I think that have put in a floor - so if oil goes below $50 they protected but keep upside. Costs money but who knows if Opec will come good so sensible i think

We have been hugely lucky to have the delay of more than a year - makes sense to keep oil in the ground when prices are rising. Indeed as the curve is in con tango, we should delay for another year....

The announced delays do get shorter each time... The next one would only be a few days at this rate so Feb either way.

Currently SA pumping 10m bbl at $50 = $500m / day. If they cut to 8m / day, would be at $80 so = $640m/ day revenue. They seem so fixated on market share rather than revenue. But maybe economics rather than vanity will win out and they will see the sense in cutting. If I were in control, I would stop all production in Opec for 3 months and wipe out all global inventories completely. Would take a decade of $100 oil to rebuild them.

Who said what level of inventories are the right amount - I don't understand why the market is so fixated on that number. Historically they are a bit higher, but then again so is consumption so we need high reserves to keep the same protection. We only have one month of global consumption in inventory for the most important commodity there has ever been. Speculators drive the market and want volatility short term. Longer term the fundamentals drive it. The real price is in the $60s so we will swing above and below that IMO

seems we are leaving early january so they need to issue something. If production was a while away would have thought they would have issued something sooner?

agree - there has been massive profits so there will be natural sellers at this juncture.

The bigger story here is that there are several decent discoveries waiting to be tied back to stellar infrastructure which has all been paid for so point forward economics are very good with low operating cost and little capex. Stellar will pay down the debt quickly and enable significant organic growth. Also Delek will want to do more deals - Ithaca has the ambition for mega acquisitions. A stable oil price will enable companies to buy and sell again so if we stay in the c.$60 range, we could have plenty of news flow. So a long term opportunity as well. The net asset value per share is at least £1.5 today. £2.5 is a medium term target.

early january seems to be coming to an end - would have though if we are not on target then they should have issued an rns...

Proved reserves = 55mmbo. Oil price = $60. Operating cost = $40. Profit = $40. $40x55m = $2.2bn. Less $600m debt = $1.6bn. FX of 1.3 = £1.2bn. Divided by 411m shares = £2.9/ share. Discount by half say for time value and corporate effects = real value per share is around £1.5 today once derisked by production start up. Happy New Year