Report on Ithaca Energy-OilBarrel,comSTOP PRESS:
September 05, 2012
Investor Hope That Hurricane Will Blow Away Ithaca’s Troubles At Athena
Summer drilling has yielded good results for Canada’s Ithaca Energy. The Calgary E&P, which is listed on the TSX and AIM, announced this week that its Hurricane appraisal well had flowed 24 million cubic feet per day of gas with 1,200 barrels per day of condensate, making this a real candidate for development as part of Ithaca’s Greater Stella Area production hub in the Central North Sea.
This is a good result for a company that has seen its share price rollercoaster over the past year, travelling up on news of third party interest in the North Sea producer and plummeting back down when in May the company ceased discussions with potential suitors.
It’s easy to see why the company would make good fodder for predators. This is a solid company, reporting Q2 pre-tax profits of US$21.7 million on revenues of US$36 million and a mid-year cash position of US$132 million. With production set to hit 25,000 bpd within two years Ithaca would be a material addition to companies seeking to boost near-term production numbers. And there’s a sweetener to any deal as Ithaca has almost US$350 million of UK tax losses available.
But Ithaca didn’t see the kind of numbers that would realise the value of its portfolio, which includes established production, a pipeline of development projects and exploration. Having decided to go it alone, backed by a US$400 million lending facility from BNP Paribas, Ithaca has been making steady progress in delivering its business plan.
A key milestone was reached in late May when the Athena oilfield, after many years on the drawing board, was finally brought onstream. But shortly thereafter the company confirmed that one of the four production wells on the field has a blockage that is impeding production. Hydraulic interventions are underway and have, so far, lifted output from the ailing well from 300 to 600 bpd but further work with an ROV is planned, at a cost of US$120,000 net to Ithaca. If this doesn’t work, the company could face having to hire a rig for the operation. This news didn’t reassure the markets and saw further pressure on the share price over the summer.
Now the company is seeking to build up its GSA hub, where the Stella and Harrier fields are under development. The development plan envisages a production hub over the Stella field, with first production expected in the second half of 2013 at a rate of 30,000 barrels of oil equivalent per day, higher than initially anticipated, with oil and condensate production prioritized over gas in the early years to maximise revenues. The next key milestone is the contract award for the modification of the floating production unit.
Hurricane is a good addition to this development cluster, having intersected 32 feet of Eocene Rogaland sandstone with an average porosity of 28 per cent and 20 feet of Palaeocene Andrew sandstone reservoir, similar to the main reservoir in the Stella field, some ten kilometres to the east. The Andrew reservoir is good quality with average porosity of 26 per cent and could be part of a more extensive Andrew sand unit in the area. Chief technical officer Nick Muir said the well “clearly demonstrated the significant potential of the Andrew reservoir play fairway in the Company's Greater Stella Area”.
Ithaca has a 54.66 per cent interest in Hurricane alongside Dyas with 25.34 per cent and Petrofac with 20 per