Ithaca Energy Share Discussion Threads

[ngms27] 13/7/2016 13:49

By 2017 it won't be 25K more like 23K due to depletion on the other assets.

[steve73] 13/7/2016 13:14

OK - I see what you're saying.. they've never actually quoted a FY target... only a target excluding FPF, and then the expected rate that FPF will operate at - keeping the actual period of production a bit flexible..

Thanks for clarification.. Roll on 2017 for 25 kbopd..!

[steve73] 13/7/2016 13:04

"annualized" to me means annual average.. Certainly they've previously cited FY production of 16k. I still think they'll fall well short of this..

What is FPF-1 design throughput? (Assuming all the wells are available). Then "annulise" the 9weeks production over the whole year and add it to the 9k from everything else.

[ngms27] 13/7/2016 12:46

I also believe production from Stella is forecast to be 16000 boepd net to Ithaca BUT it will take several weeks to ramp up to this production level.

[hashertu] 13/7/2016 12:35

Steve73. I think the key word is "annualised".

"Full year base production guidance, excluding any contribution from start-up of the Stella field during 2016, remains unchanged at 9,000 boepd. The additional production contribution resulting from the start-up of Stella during the year will depend on the exact timing of first hydrocarbons from the field. Prompt ramp up of production is anticipated following first hydrocarbons, leading to an expected initial annualised production rate of approximately 16,000 boepd net to Ithaca"

[steve73] 13/7/2016 12:18

I've just had a chance to digest the update in detail (to try to reconcile some of the points being raised today..)

The thing that worries me is that they are still projecting a 2016 FY production forecast of 16mboepd. They say that the FY projection excluding Stella is on target for 9mboepd, (and the H1 figure of 9.4 supports this as reasonable). So this suggest that Stella is expecting to contribute a full year average of 7mboepd.

They claim that sailaway is due in 2 weeks, with first oil production commencing 3 months after sailaway. Means first oil is expected to commence on or around 25th Oct, leaving just 9.5 weeks of production (assuming there are no further delays, and they are able to ramp up to full flow straight away.)

This means Stella will need to produce at 7 x 52 / 9.5 or around 38.5 mbopd to achieve their 2016 FY forecast.

I'll be honest, I can't recall actually seeing what FPF-1 is designed to process.

But their FY 2017 forecast is only 25 mboepd in total, so I very much doubt they'll be able to make their target for 2016.

Can anyone shed further light on this?

[ngms27] 13/7/2016 11:59

I'm not upset I sold on a double at all. I'm suggesting the the risk / reward from here is a different kettle of fish and that people shouldn't invest blindly.

The longer the POO weakness the higher the risk of IAE doing a Debt for Equity swap and existing shareholders being stuffed.

Like I've said sail away and first oil will likely produce fresh recent highs but then choppy waters lay ahead IMHO.

[whiskeyinthejar] 13/7/2016 11:03

"WHAT IS NOT included. It doesn't include debt repayment for example only interest. Given the short term nature of the debt this is massive as I've previously highlighted."

I know break even doesn't include capital repayment. Break even is where ALL costs are covered. But with a break even under $30, I think there's a more than fair chance they will be able to repay a considerable amount of debt and refinance the rest. Even at oil under $40.


"RBL is based on the ability to pay the debt from the production of the reserves NOT some arbitrary figure for the value of the asset in the ground. Thus it is based on free cash flow from the production."

Of course its not arbitrary. banks use actuaries to value the reserves. Reserves based lending. Clue is in the name. They look forward at what the assets will produce, not backwards.

Look. Everyone knows you are upset that you sold too soon. 35p IIRC. But you are totally wrong here imo.

[frazboy] 13/7/2016 10:48

Why don't you go short ngms? I'm not being facetious - it's a valid strategy, and I'm considering it too but I feel that there may be whooping and excitement when Stella comes on which may push the price higher still. And, you're right it was a bargain at 17p - fantastic value option mone on POO, not so now.

[ngms27] 13/7/2016 10:35

Nope you are wrong, look at slide 5 again and then consider WHAT IS NOT included. It doesn't include debt repayment for example only interest. Given the short term nature of the debt this is massive as I've previously highlighted.

RBL is based on the ability to pay the debt from the production of the reserves NOT some arbitrary figure for the value of the asset in the ground. Thus it is based on free cash flow from the production.

Given the material change in POO I have highlighted that even with $25 per barrel free cash flow after the Stella start up IAE aren't going to be even close to paying off the RBL by it's maturity date.

It's an absolute fact that material delay to the start up of Stella and the collapse in POO have made it 100% certain that IAE will now have to try and renegotiate the RBL or obtain other funding in order to survive. The problem is they wont get a RBL on the same terms under current conditions.

[whiskeyinthejar] 13/7/2016 10:28

In fact, slide gives more precise break-even figure of $32 on the bar chart. Not just sub $35.

This is made up of $25 operating cost per barrel.

If we use hashertu's updated figure of $20 for operating costs post-Stella then break even is five dollars less at only $27 per barrel.

[whiskeyinthejar] 13/7/2016 10:11

Nope. Break even includes taxes. All in costs are defined in the presentation, bottom of slide 5.

So I suggest you check out slide 5 again. On the slide they compare free cash flow from 2014 with post-Stella break- even. Im sure this is precisely because the $35 break-even price does actually mean everything above the break even figure per barrel is free cash flow.

And reserves based lending is based on undeveloped reserves. Not cash flow. The banks take a view of the value of the assets as security.

[ngms27] 13/7/2016 09:01

The problem you all have is that you think everything above the BE figure per barrel is free cash flow, the reality is it isn't. There are other costs and potential taxes to add in to the mix.

The RBL and Secure Loan Notes were negotiated during a higher POO environment, in the past 18 months it's been very difficult for anyone to get a RBL.
My view is that without a material increase in POO from here in the next 6 months there is no way IAE can meet the debt repayments required for the maturities in September 2018 and 2019 (Secure Notes). There lies the danger. Stella cash flow has been materially delayed and materially reduced since the RBL and Secure Loan Notes were taken out. This is what hit Afren.

So they would have to be successful in debt renegotiation probably next year. This is far from a forgone conclusion. Any acquisitions or exploration are firmly off the table for the foreseeable future unless POO rises well.

It's looking like PMO who are in a similar but larger boat than IAE are going to have to sell assets such as the Falkland Islands to survive.

The waters ahead are certainly choppy.

[whiskeyinthejar] 12/7/2016 18:18

Thanks Ill have a look later.

I shouldn't have quoted an old figure but this 'All-in' cost of $35 from 2014 included admin, interest payments, biscuits. All in costs as they say. Its going to be lower than $35 now I think anyway as North Sea costs have fallen since 2014, we'll have a pipeline etc.

I agree they should do renegotiate terms post Stella. As Ithaca will then have lower risk profile.

[hashertu] 12/7/2016 17:28

WiTJ.
P6 of the AGM presentation says that unit (whatever this is) operating costs are predicted to be $20/boe once Stella starts up.
And the RBL netted off against cash is $306million at the end of Q2.
Assuming that Stella starts up on time, I think IAE will renegotiate the loans early next year, primarily to extend the term, and to provide some firepower for acquisitions.

[ngms27] 12/7/2016 15:32

No but it if you cannot afford to materially pay down debt taken for development during the peak production phase of that development you are screwed. That's what happened to Afren and could happen to IAE in a low oil price environment.

That's why $50 oil is no good for IAE

[whiskeyinthejar] 12/7/2016 15:13

I know the capital repayment isn't included in the break even.

Debts get rolled over if you have a viable business. Afren didn't have a viable business. Having a viable business means paying debt interest and probably not increasing debt. It doesn't necessarily mean paying off debt.

[ngms27] 12/7/2016 14:58

BTW to pay down the near $400m RBL by September 2018 requires $25 free cash flow per barrel from 25000 bopd.

So this could get ugly real quick in a low POO environment that lasts in 2017/18

[ngms27] 12/7/2016 14:55

The RBL has covenants that are checked:
The Company has in place two bank debt facilities, maturing September 2018, totalling $650 million; a senior RBL facility of up to $575 million and a junior RBL facility of up to $75 million. The availability to draw upon the facilities is reviewed by the bank syndicate on a semi-annual basis. The first amortisation step for the RBLs is January 2017, when the facility size will reduce to $535 million. Both RBL facilities are based on conventional oil and gas industry borrowing base financing terms, neither of which have historic financial covenant tests. In addition to the bank debt facilities, the Company has $300 million senior unsecured notes due July 2019

So from January 2017 they have to start paying off capital NOT just interest and they have to pay it ALL by September 2018 leaving them with upto $300m debt on the senior unsecured notes.

Now add that to your projections. Note the payment of this capital isn't in the breakeven figures.

[whiskeyinthejar] 12/7/2016 14:31

I understand perfectly what it means. It means ithaca isn't Afren.

And as I quoted above, there is no covenant problem here so break even is good enough.