Ithaca buys stake in Vorlich discovery

Ithaca Energy, a North Sea oil and gas operator, has signed a sale and purchase agreement with Total E&P UK to acquire a 20% non-operated interest in Licence P363 (block 30/1c), in the UK North Sea, effective July 1, 2015.

The licence is operated by BP plc and contains approximately 80-90% of the Vorlich discovery, implying an approximately 17% interest in the overall discovery. Vorlich is located approximately 10 kilometres north of Ithaca’s Greater Stella Area (GSA) hub.

Ithaca informed on Tuesday that sail-away of the floating production unit FPF-1 to the GSA in the UK North Sea was expected to be delayed by six to twelve weeks causing further delays of the first oil from Stella.

Vorlich was discovered and appraised in 2014 with exploration well 30/1f-13A,Z and 13Z. The well encountered hydrocarbons in a Palaeocene sandstone reservoir in block 30/1c and a subsequent side-track into block 30/1f confirmed the westerly extension of the discovery. According to Ithaca, it is estimated that Vorlich contains gross proven and probable reserves of 20-30 MMboe1.

In line with the requirements of the Vorlich licence, the work program for 2016 is centered on the preparation and submission for approval of a Field Development Plan (FDP) by the end of the year, the company said. A minimal consideration is payable at completion of the transaction, with additional contingent payments at FDP approval and upon reaching a reserves recovery threshold.

The acquisition is expected to complete in the first quarter of 2016 and is subject to normal regulatory approvals. The company explained that at completion the consideration paid will be subject to normal industry adjustments to reflect costs incurred since the effective date.

Capex reduction

Ithaca also said on Tuesday it anticipated net 2016 capital expenditure to total approximately $50 million, a reduction of over 40% compared to the previous year. The main part of this expenditure relates to the GSA, including the activities required to prepare the Vorlich FDP for approval.

According to Ithaca, its forecast 2016 unit operating expenditure prior to Stella start-up is anticipated to be approximately $30/boe, reflecting the benefit of removing the higher cost assets from the production portfolio and the impact of the supply chain cost reduction initiatives completed in 2015. Upon the start-up of production from the Stella field, unit operating expenditure is forecast to fall below $25/boe, Ithaca said.

Lower net debt

According to the company, its net debt was reduced from a peak of over $800 million in the first half of the year to $665 million at December 31, 2015. This reduction reflects the benefit of strong operating cashflow generation, lower capital expenditures and the cash received from sale of the non-core Norwegian business as well as proceeds of the premium equity placing completed in October 2015, Ithaca explained.

The company said that the net debt level at the end of 2015 was lower than anticipated primarily as a result of movements in working capital.