Getting Closer - RBC Update Excerpt Only one month ago this analyst had a $3.25 target. This was released after market close today and target has increased to $3.50.
Athena first oil and Hurricane appraisal well provide near
term catalysts alongside longer term production growth
story
Ithaca can outline a clear path to quadrupling production from ~5,000b/d to over
20,000b/d in H2/13. In the near-term, we believe completion of the Athena
development (anticipated in March 2012) can be the catalyst to drive a re-rating
of the stock towards our new core NAV of C$3.11/share (or 198p). During H1/12
the Hurricane appraisal well can also add impetus to the Greater Stella Area
development hub. We continue to rate Ithaca Outperform with a revised $3.50 (or
225p) Price Target.
Athena valuation not impacted by modest delays:
We are looking for Ithaca to
confirm the refurbished FPSO is on its way to the field later in January to
increase confidence in a March first oil date. Development costs are broadly on
budget and the FPSO day rate is not payable until production has started. In our
view, good initial production updates through Q2/12 could boost the stock and
build expectations in the potential for reserve gains on the 24mmbbl field (IAE
22.5%).
Hurricane appraisal seeking upside within Stella hub:
The upcoming well is
targeting upside to the ~5mmboe currently booked as 2P reserves for the 1985
discovery (IAE 54.7%). If successful, the liquids-rich discovery could be
onstream in 2014 given management’s stated intention to prioritise liquids
production over gas and the planned additional capacity within the current
development concept. We estimate the well could add ~5% to our NAV and
further enhance the economics of the Stella area.
New NAV and Financials:
The ~10% rise in our NAV to C$3.51/share (or
223p) has been driven by our increased understanding of the tax benefits from
ownership of the FPF-1 vessel to be used in the Stella development which we
estimate provides a ~$60m boost to the value of Ithaca’s stake in the project. We
have amended our financial forecasts to include production from Stella in late
2013. Although significant execution risk remains (offtake routes should be
confirmed shortly ahead of FDP submission), the inclusion of Stella volumes in
our model demonstrates the significant growth trajectory of Ithaca’s production
and cash flows between 2011 and 2014 (see exhibits 1&2).
RBC Europe Limited currently acts as Broker to Ithaca Energy.
Priced as of prior trading day's market close, EST (unless otherwise noted).