RBC Report RBC Europe Limited
James Hosie, CFA (Analyst)
0131 222 3695
james.hosie@rbccm.com
Victoria McCulloch, CA
(Associate)
+44 131 222 4909
victoria.mcculloch@rbccm.com
Outperform
TSX: IAE; AIM: IAE
Price: CAD 1.89
All market data in CAD; all financial data in USD.
August 13, 2013
Ithaca Energy
Q2/13 Results Highlights: Solid Performance
Impact: Pro-forma results highlight merits of Valiant deal;
expectations for 2013 production nudged lower, but key Stella
development making good progress.
First Impression
Q2/13 actuals in-line: Considering the several acquisition-related one-off
items in the financial statements, Q2/13 results were broadly in line with
our forecasts: revenue of $128m (v. $115m estimate), net income of $52m
(v. $40m estimate), operating cash flow of $65m (v. $78m estimate), and
net debt of $346m (v. $402m estimate). The Valiant acquisition completed
in April, enabling Ithaca to book revenues for almost half of the reporting
period.
Pro-forma results highlight strong cash generation: Including the assets
acquired from Valiant for the whole period, Ithaca averaged 14,300boe/
d during H1/13, generating cash flow from ongoing operations of $187m.
Significant tax loss pools helped Ithaca achieve operating net backs in
excess of $70/boe. In our view, the figures highlight the merits of the
Valiant deal, which has provided Ithaca with a larger, diversified, and
profitable North Sea production base.
2013 guidance update: Management’s commentary indicates that proforma
2013 net production is likely to be toward the lower end
of its previous 14,000–16,000boe/d guidance range. Additional Q3/13
downtime at Cook and the recent shut-in of the Athena P4 well is not
reflected in our current 14,800boe/d forecast.
Stella development progressing well: The first development well is
proceeding as planned, currently drilling in the horizontal reservoir
section. We expect news of a flow test in September. Subsea infrastructure
installation benefited from this summer's good weather, while progress
is also being made with the preparation of the floating production unit
in Poland. There is no change to our expectation of first production in
mid-2014.
Solid outlook: Stella rightly remains the focus and is making good
progress. We do not view the slight lowering of expectations for 2013
production as a cause for concern, as downside risks appear to be related
to timing and maintenance issues rather than reservoir performance.
The production portfolio is generating strong cash flows and we see
the potential for Ithaca to pursue further deals to expand its North Sea
production/development portfolio.
RBC Europe Limited currently acts as Broker to Ithaca Energy
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