Ithaca note from Finncap and dated 2nd March “Stella development update - a BUY recommendation for Ithaca, which Ithaca has suffered yet another delay to the Stella field coming onstream, which will now occur in Q2 2016 rather than Q3 2015 as previously guided. Although clearly disappointing, we feel that the long-term investment case is largely unchanged – just pushed back.
- Delayed again. Petrofac has notified the company that the modifications to the floating production facility are delayed. Consequently, Stella will now come onstream in Q2 2016 rather than in Q3 this year as previously guided. The net impact to Ithaca is $10m, but the real impact is the delay of new production coming onstream and the build-up of significant cash flow.
- So what happened? There is no specific reason for the delay. Ultimately, the conversion of the floating production facility is taking longer to complete. A new “lower-risk” timetable has now been put in place to prevent further slippage.
- Debt still covered. The capex on Stella is now largely spent and peak debt (US$850m) will be reached in Q2. Existing production is cash flow-positive and sufficient to meet the scheduled repayments, although repayments will now only accelerate in 2016 rather than in 2015. The hedge at US$102/bbl covering 6,300bbl/d of production is a crucial factor in these calculations.
- Investment case unchanged. Despite the delay, our investment case is unchanged. Stella will add 16,000boe/d of net new high margin production from
Q2 2016.
- Valuation and recommendation. We have updated our model to take this delay into account. We continue our coverage with a Buy recommendation but reduce our target price to 136p from 170p previously.”