Ithaca Energy - Fleshing Out The Buy CaseApr. 13, 2015 1:26 PM ET
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Summary
- The combination of huge reserves and steep production growth will bode well for this E&P.
- The company is well hedged to weather the storm.
- A minor delay of oncoming production was blown out of proportion by the market.
- Although drilling in the North Sea is very capital intensive, the company is near the end of its CapEx cycle and will produce significant FCF in the future.
I wrote a piece on Ithaca Energy (OTCPK:IACAF) about a week ago, laying out my rationale for why this company will prove to be highly cash generating in the years to come. Since then, it has rallied about 20%, however, my conviction has only become stronger.
In this piece, I want to flesh out the reasons why I think the company is undervalued and the market punished the stock unjustifiably. To prevent too much overlap with my former article, I suggest you read it.
The End of the CapEx cycle
A very important aspect that one should consider when investing in E&P companies is that the necessary amount of CapEx spending on a per-barrel basis differs significantly depending on geographical and geological factors. While the company reports often tout operating and EBITDA breakeven costs, a full cost calculation including CapEx per barrel (or D&A per barrel) should also be considered.
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To read more, go to:
https://seekingalpha.com/article/3066506-ithaca-energy-fleshing-out-the-buy-case