FYI for All NEWBIES to IAE... RBC OUTPERFORMFebruary 25, 2015
Ithaca Energy Further Delay at Stella;
First oil now Q2/16 Our view: We anticipate this second delay to the Stella project will surprise and frustrate investors. However we believe the financial impact on Ithaca is limited with net debt remaining ~$850m. That said we forecast this level of debt will remain in place until Stella comes onstream next year.
Key points: Stella First Oil Delayed to Q2/16: Completion by Petrofac of the Stella floating production facility (FPF-1) modifications are delayed from Q2/15 to Q1/16. Slower progress on vessel commissioning has pushed back the sail-away date. This is despite efforts made by Petrofac (also 20% equity partner in the Stella field) to expedite work following the initial delay announced May 2014. As a result first oil from the key Greater Stella Area hub is now expected Q2/16 (vs Q3/15). Although academic, given the delay, all other aspects of the project including development drilling and subsea infrastructure are either completed or expected to be completed Q2/15.
This delay is clearly frustrating but results in just $10m additional net costs to Ithaca and peak net debt remains relatively unchanged (around $850m from $1bn total debt facilities). Ongoing delays to the Stella project will likely test investors patience but we remain enthusiastic about the transformational potential (doubles production at materially lower operating costs). We maintain our Outperform rating but lower our Price Target to C$1.80/share (110p/share) from C$2.00.
Progress Report: Mechanical completion of the FPF-1 is now expected Q3/15. Significantly the vessel and risers have been designed to enable year round installation so sail-away is not limited to any weather window. Aside from the FPF the majority of subsea infrastructure has been installed and the remaining elements should be installed Q2/15. The company has already completed four development wells (all testing between 10-12.5kboe/d; ~45kboe/d combined) in the Andrew reservoir derisking the 30kboe/d annualised production forecast from Stella. The fifth (and final) development is close to completion with a clean-up flow test expected next month. This well is drilled into the deeper Ekofisk chalk reservoir where production rates are expected to be lower (but more sustainable) than the previous Andrew sandstone reservoir wells.
Debt Position Stable: Despite the delay on Stella we forecast peak net debt remains ~$850m (in-line with company guidance). This reflects a strong hedging position (6,300b/d at $102/bbl until mid 2016), relatively predictable 2015 capex and production guidance that assumed no contribution from Stella. The debt position is funded from $1bn debt facilities that include $300m five-year senior bonds, $610m RBL and $100m corporate facility. Redetermination of the RBL is scheduled through April 2015.
Near Term Newsflow: In addition to the Stella Ekofisk result next month the company will provide a reserves update and FY14 results 31st March.