Notes on Athena from the prospectusIn order to put the recent Athena test flows in context, it is helpful to refer to the prospectus on the IPO. Pertinent items include Athena flow comparisons with the neighboring Scapa field flows and comparisons to production flows with Scapa field initial flow tests, the Athena development plans and the projected costs, as well as the Athena production and revenue estimates....
"The Athena Prospect is a potential development project located in the Central Graben of the UKCS immediately west of the Claymore and Scapa Fields. Two (2) wells previously drilled on the block tested oil from sections of lower Scapa sands ranging from 1,000 to 1,500 ft. thick. Well number 12 tested 1,302 bbls/d from the lower Scapa while well number 7 tested 847 bbls/d from a similar interval. These rates are not dissimilar to those rates achieved in the Scapa field on drill stem test. On completion, rates on the order of 4,500 bbls/d were achieved from Scapa field wells.21 [21 Source: Deloitte& Touche LLP, Deloitte Field Reports - United Kingdom, October 2005].
While the upper Scapa zone in the 14-18-7 well is wet, management interpretation of 3-D seismic over the block suggests that a location exists where the sand will be structurally higher to both of the previous wells and possibly oil laden."
"Development Plan
Ithaca UK has one (1) firm well commitment to the shallower of 2,865 metres or 15 metres below base Cretaceous, in order to maintain the licence. Ithaca UK has commenced FEED studies and plans to drill a well in the fourth quarter of 2006 to appraise the upper Scapa sand, and to subsequently directionally drill into the lower Scapa sand for production. If this well is successful, up to 3 additional wells could be drilled for production."
"For Athena, the development and gross cost assumptions are an additional appraisal well at US$15.0 million; and three (3) development wells at US$17.5 million each (two (2) of which are water injectors).Facilities costs comprise a subsea system, pipeline tie-back and host platform modifications at a total cost of US$87.5 million. The operating expense assumptions are based on a US$0.37/bbl variable cost to cover operations and water injection plus an export tariff of US$3.20/bbl. The appraisal well on Athena is currently envisaged to be to the south of the feature. The development drilling may include a quasi-horizontal well(s) that will target the attic sweep area. Assumptions and qualifications relating to costs, prices for future production and other matters are summarized in the notes to the following tables".
[ In the reserves report it is noted “Athena crude oil is discounted US$2.50 to the Brent marker price. Price escalation starts in 2009 for oil and 2010 for gas.” Pg 58. See also pg 69
Estimated production volumes for oil and NGL for 2008 reflected in the estimates of future net revenue [from the GCA Report] are about 2,750,000 barrels for an average daily production of about 7534 BOPD. At $50 net back, this would work out to be about $137,500,000 in 2008 net revenue. The Athena field accounts for approximately 92% of this production [Barbara the balance]. Natural gas production is projected at 2.2 BCF with a projected price of $8.50 USD per MCF, for a total gas revenue of $18,700,000 [Mostly from Barbara].
So, with the Athena test confirming commerciality and that IAE is much more likely now to acheive the net field revenue projected in the prospectus of about $156,000,000 in 2008, [on about 67MM FD shares, and no debt ][unless the 3.4% production royalty to repay the non-recourse convertible [into 3MM shares] drilling loan on the Athena well is considered debt-but it is included in the FD shares], and over about 56MM cash on hand to develop Athena, Barbara and Beatrice, they are off to a very good start indeed. Even with 5MM in OH, and a 50% tax rate, given DDA of about 20%, thats about $90MM USD in cash flow in 08, or almost $1.34 USD per FD share. Given that IAE is selling for less than 2X projected 08 CF, the shares are selling for substantially less than it's peers on a projected CF basis. That multiple should improve as the development plans come to fruition.