13th Aug 2015 08:18
LONDON (Alliance News) - Ithaca Energy Inc Thursday reported a wider pretax loss in the first half of 2015 as revenue tanked due to the fall in oil prices, but the company has increased production and hedged around half of its production at an attractive price for the next two years.
The company also said its operating costs are due to fall to only USD25 per barrel once its Stella field development is completed, giving it a healthy margin in a world of lower oil prices and the company also slashed capital expenditure for the rest of the year and 2016.
The UK North Sea-focused oil and gas company reported a USD18.4 million pretax loss for the first half of 2015, widening from a USD2.5 million loss a year earlier as revenue plummeted to USD129.5 million from USD199.6 million as its average oil price fell 43% year-on-year.
Alongside the fall in revenue, the company booked higher finance costs of USD20.9 million compared to USD12.0 million a year earlier, made a USD4.0 million loss on foreign exchange compared to a USD1.8 million gain and exploration costs leapt to USD29.1 million from only USD2.5 million.
However, that was offset by a USD25.2 million gain from the disposal of its Ithaca Petroleum Norge AS subsidiary to a subsidiary of the Hungarian-listed company MOL PLC for USD60 million and a USD19.3 million gain from financial instruments, mainly from its hedges.
The company made the USD19.3 million net gain mainly from its hedges worth over USD110 million over the next two years, averaging around half of its production, or 6,400 barrels of oil per day at USD70 per barrel until June 2017.
That is very favourable to the current oil price which was trading at around USD50 per barrel on Thursday morning, falling from around USD115 per barrel in June 2014. Although the company said its current hedging price has also fallen in line with the fall in Brent prices over the last year.
Average production in the half came in at 12,578 barrels of oil equivalent per day after rising from 10,528 barrels a year earlier, which was in line with guidance for the full year of 12,000 barrels of oil per day.
Although production is currently above guidance levels, the company has plans to conduct some maintenance work in the second half which will hamper production slightly.
Accompanying the hedges and increased production is a fall in operating costs, which dropped 29% to USD35 per barrel, and this is expected to fall to around USD25 per barrel once the Stella field in the North Sea is up and running, it said.
The Brent breakeven price of its operations will fall to below USD10 per barrel of oil once Stella is producing due to hedges, it added.
Capital expenditure is also being slashed and is expected to total around USD150 million in 2015, which would be down around 60% from 2014. Around two-thirds of the expenditure will be spent on the Stella area. In the first half, expenditure totalled USD100 million.
That will be followed by capital expenditure falling by a third in 2016 to around USD50 million, of which half relates to completion of Stella start-up works.
"Despite a challenging oil price environment, the company delivered strong cashflow from operations in the first half of the year, driven by solid production performance, reduced operating costs and substantial hedging gains," said Chief Executive Les Thomas.
Ithaca shares were up 4.2% to 38.55 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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