Ithaca Energy Earnings Fall Quoting Oil Price Drop

Published at 11:15AM - 19/11/14

Ithaca Energy, the Aberdeen-based oil producer focused in the North Sea, has posted an 80pc earnings drop for Q3. It says this has been primarily driven by recently falling oil prices. However, the company’s leadership team has said that it has strong measures now in place to protect Ithaca against any further slides.

Ithaca Energy made post-tax profits of $8 million in June-September, which compared to the previous year’s Q3 earnings of $43 million. The company report notes that the price received for oil plummeted from $113 per barrel in 2013 to $101 on average this year. Brent crude prices have fallen to c. $80 since the conclusion of Q3, within an environment of increasingly weak demand and growing supply.

America’s shale production boom has coincided with declining growth in China, which has led to fears that prices may yet plummet further unless OPEC nations take steps to reduce supplies and force prices to rise accordingly.

Graham Forbes, the CEO of Ithaca, said that it was important to note that the business was in a strong position financially despite the effect of falling oil prices, and all debt covenants had been met. He added that future company revenues had been underpinned with a range of financial hedging methods in case of future adverse oil-price fluctuations. Oil companies use hedging products to sell and buy commodities at fixed prices that are set well in advance. These hedges are options and can be taken up as needed or left to lapse if market conditions turn out to be favourable.

Forbes added that any further Brent drops would be mitigated by price hedging measures which averaged $102 a barrel. Ithaca has put hedging arrangements in place until the middle of 2016, which will allow it to cover its oil production costs from assets brought on stream at costs of $20 a barrel.

Analysts noted that the business’s leadership team shows no loss of drive in maximising its North Sea business, despite ongoing concerns from Oil & Gas UK and other operators about the elevated operational costs of producing in the area.

Ithaca is apparently still certain that it can achieve healthy returns with an operational strategy that will see its undeveloped assets being brought on stream, acquiring new production assets and carrying out new exploration activity for fresh finds. It bought three UK production fields in July for $163 million from Japanese firm Sumitomo, and it is still actively assessing potential new assets.

It also successfully bid for three new exploration licences in the latest round. Mr Forbes also added that the profit decline had been partially driven by a series of scheduled shutdowns for maintenance. Underlying operational cash flow was $44 million within the quarter.

Ithaca plans to produce 16,000 b/oe daily — a figure boosted by its confidence in the Stella field drilling activity. Production on the field will now happen in the middle of the coming year, as the work in Poland on the floating production installation is taking longer to complete than planned.

Last updated on 02:08PM - 24/11/14