• Ithaca Energy is a leading UK independent exploration and production company, operating the majority of its 2P reserves and 2C resources
• Ithaca Energy has a balanced portfolio between oil and gas assets, with gas representing c. 35% of production in the first nine months of 2022
• Ithaca Energy achieved this market positioning through a combination of organic growth and value-accretive acquisitions
• Ithaca Energy has a track record of material value creation, delivering a 5.4x increase in equity value between 2018 and 30 June 2022
• Ithaca Energy has access to flagship assets, with stakes in six of the top ten largest fields in the UKCS, including the two largest undeveloped discoveries, Cambo and Rosebank, to drive organic growth
• Ithaca Energy's goal is to continue to increase value while generating attractive and sustainable shareholder distributions
• Ithaca Energy will seek to achieve outstanding performance through operational excellence, maintaining financial discipline, appropriately incorporating an ESG mindset to achieve net zero by 2040 and by employing an industry leading workforce, while always maintaining a staunch focus on safety
• Ithaca Energy's ambition is to become a key player in providing energy security to the UK
Ithaca Energy, a leading UK independent exploration and production company focused on the UK North Sea, is pleased to announce that it intends to publish today a Registration Document and is considering proceeding with an initial public offering (the "IPO" or the "Offer"). Ithaca Energy is considering applying for admission of its ordinary shares to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange ("Admission").
Introduction to Ithaca Energy - a leading UK independent exploration and production company with production and development activities on the UK Continental Shelf ("UKCS")
• Ithaca Energy has significant scale: as at 30 June 2022, Ithaca Energy had 2P reserves of 244 mmboe, aggregate 2C contingent resources of 302 mmboe and delivered a reserves replacement ratio of c. 230% over the period from 1 January 2019 to 30 June 2022. The Company believes that it has sufficient development opportunities within its portfolio to enable production to be increased to over 100 kboe/d in the medium-term.
• Ithaca Energy has significant control and flexibility over its strategic, operational and financial priorities: Ithaca Energy's portfolio consists of 28 producing field interests in the UKCS, of which Ithaca Energy is the operator of eight fields, which account for the majority (c. 63%) of the Group's 2P reserves and 2C resources, as at 30 June 2022.
• Ithaca Energy has delivered robust financial performance: during the six months ended 30 June 2022, Ithaca Energy's average daily production (oil and gas) on a net working interest basis was c. 66.7 kboe/d, the Group's revenue was c. $1,338 million, Adjusted EBITDAX was c. $907 million, profit after tax was c. $1,558 million, and the Group had net cash from operating activities of $989 million. For the six months ended 31 December 2022, the Group's management estimate average daily production (oil and gas) on a net working interest basis to be c. 76-81 kboe/d.
• Ithaca Energy has seen a period of significant M&A driven growth centred upon two transformational acquisitions: the acquisitions of Chevron's portfolio in the UKCS and Siccar Point Energy ("Siccar Point") gave the Group stakes in six of the top ten largest oil and gas fields in the UKCS, including Cambo and Rosebank, two of the largest undeveloped discoveries in the UKCS. These transformational acquisitions also provided Ithaca Energy with a material, long-life resource base with the second largest resource base of independent oil and gas companies in the UKCS.
• Ithaca Energy's strategy is centred on increasing value while generating attractive and sustainable shareholder distributions: to execute on this, Ithaca Energy will focus on (i) building projects with strong economics which provide resilience to the portfolio through the commodity price cycle; (ii) boosting existing assets by maximising recovery, improving efficiency, emphasising cost control and driving digitalisation; and (iii) buying value accretive assets across the asset lifecycle. Ithaca Energy is targeting annualised dividends of 15-30% of post-tax net cash from operating activities through the cycle. In the near-term, the Group has a firm expectation of paying a dividend in 2023 of $400 million with an ambition of an annual dividend of $420 million in 2024.
• Ithaca Energy's ambition is to have one of the lowest carbon emission portfolios in the UKCS: the Group has set a goal of reducing its combined Scope 1 and Scope 2 CO2 and CO2 equivalent emissions from operated assets by 25%, based on 2019 levels, by 2025, which is greater than current North Sea Transition Deal ("NSTD") commitments. The Group is also committed to achieving net zero by 2040 on a net equity basis, 10 years ahead of NSTD commitments.
• Ithaca Energy plays an important role in UK energy security, a key focus of the UK Government: Ithaca Energy intends to utilise its significant reserves and operational capabilities to play a key role in delivering security of domestic energy supply from the UKCS. The Company's management believes that its strategy is in line with the UK Government's energy security strategy to maximise economic recovery of the UKCS as part of reducing reliance on imported fossil fuels. This will include Ithaca Energy's operatorship of Cambo, one of the largest pre-FID projects in the UKCS and one of only five oil and gas projects highlighted for accelerated progress in the UK Government's recently announced Growth Plan 2022.
Gilad Myerson, Executive Chairman of Ithaca Energy, said:
"I am incredibly proud of the transformation Ithaca Energy has undergone over the past three years to become one of the UK's leading independent oil and gas companies. Following the Siccar Point acquisition, Ithaca Energy now has material scale and portfolio longevity, with significant growth opportunities.
Our strategy is simple - by buying, building and boosting assets we aim to increase value while generating attractive and sustainable returns to shareholders. Our track record of value creation is exceptionally strong and we have a deeply experienced team in place who will continue to deliver.
Our strategy is aligned with the UK Government's Energy Security Strategy and we are proud to be investing in the UK at a time when domestic energy security could not be more important.
I am very excited for what lies ahead and to welcome new shareholders on board as we continue our journey in the public markets."
Alan Bruce, Chief Executive Officer of Ithaca Energy, said:
"With the opportunities we have ahead of us, there has never been a more exciting time to be leading Ithaca Energy.
Our mission is to help meet the energy needs of the UK while operating in a sustainable manner. Our goal is to maximise value through the safe, efficient and responsible development and production of our assets.
Our people are core to everything we do and their safety is my number one priority. I would like to thank them all for their continued hard work and ongoing commitment to the business."
Idan Wallace, Chief Executive Officer of Delek Group Ltd. ("Delek"), said:
"Delek has invested a large amount of capital in Ithaca Energy since we acquired it in 2017, delivering significant value for our shareholders.
A London listing is the natural next step, allowing Ithaca Energy to flourish as an independent company with its own capital allocation policy and the potential to generate substantial value for all its shareholders.
I am proud of the work the Ithaca Energy team has done and Delek looks forward to supporting Ithaca Energy as a long-term shareholder."
Potential Offer Highlights
Should Ithaca Energy proceed with an IPO, the current expectation is that:
• The Company's shares would be admitted to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange.
• The Offer would comprise new ordinary shares to be issued by Ithaca Energy. Ithaca Energy will use the net proceeds of the Offer (in the following order) to (i) repay existing shareholder debt; and (ii) pay the IPO fees and expenses. DKL Energy Limited, an entity ultimately owned by Delek, may also sell existing shares in the Company, subject to the amount of gross proceeds raised. Ithaca Energy will retain no net proceeds from the Offer, with all net proceeds ultimately being received by Delek.
• Delek would reduce its current ownership stake in Ithaca Energy, based on the gross proceeds raised, but would remain as a controlling shareholder.
• The Directors believe an Offer and Admission would be a natural progression for Ithaca Energy and will:
o allow Ithaca Energy to have an independent capital allocation policy that is beneficial to the Company;
o allow Ithaca Energy to grow organically, return capital to shareholders and pursue a value accretive M&A strategy;
o provide Ithaca Energy sufficient liquidity to repay existing shareholder debt;
o create a liquid market in the Company's ordinary shares for all shareholders; and
o provide Ithaca Energy access to a wider range of capital-raising options that may be of use in the future.
• Immediately following Admission, the Company intends to have a free float of at least 10% of issued share capital and expects that it would be eligible for inclusion in the FTSE UK indices.
• In addition, it is expected that up to a further 15% of the Offer will be made available pursuant to an over-allotment option. Ithaca Energy will not receive any proceeds from the sale of over-allotment shares (all of which will ultimately be received by Delek).
• Ithaca Energy has engaged Goldman Sachs International ("GoldmanSachs International") and Morgan Stanley & Co. International plc ("MorganStanley") to act as Joint Global Co-ordinators, HSBC Bank plc ("HSBC"), Jefferies International Limited and Jefferies GmbH ("Jefferies") and Merrill Lynch International ("BofASecurities") to act as Joint Bookrunners, and ING Bank N.V. ("ING") to act as Co-Lead Manager, in the event the Offer proceeds.
A copy of the Registration Document will be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism once approved by the FCA. A copy of the Registration Document will also be available online at www.ithacaenergy.com, subject to certain access restrictions.
Access to supplemental information for bona-fide, unconnected research analysts: Unconnected sell side research analysts can obtain additional information, including details of a potential virtual presentation, which may be held by the Company on Thursday 20 October 2022 at 10:00 UK , by emailing Kathryn Reid, Head of Corporate Affairs & Communications, at Ithaca Energy on kathryn.reid@ithacaenergy.com by no later than 12:00 UK on Wednesday 19 October 2022. Ithaca Energy reserves the right to not hold a management presentation.
Summary of Ithaca Energy's Key Strengths
Material scale and longevity
• Ithaca Energy is one of the largest independent oil and gas companies in the UKCS, ranking second by resources and third by production.
• Portfolio longevity has been materially enhanced by the acquisition of Siccar Point, as evidenced by a highly competitive reserves to production ratio of 19 years, among the highest in the UKCS.
• For the six months ended 31 December 2022, subject to certain assumptions, the Group's management estimate average daily production (oil and gas) on a net working interest basis to be c. 76-81 kboe/d, remaining steady at c. 74-80 kboe/d for the year ended 31 December 2023.
• Ithaca Energy believes that it has sufficient development opportunities within its portfolio to enable production to be increased to over 100 kboe/d in the medium-term.
• Ithaca Energy has interests in six of the top ten assets by reserves on the UKCS, more than any other player, including significant interests in the two largest undeveloped discoveries in the UKCS, the Cambo and Rosebank fields.
Operating excellence as an established operator focused on safe and efficient operations
• Ithaca Energy maintains a strong focus on costs. In the short-term average unit operating expenditure per barrel is expected to modestly rise due to current inflation levels, with the Group having a mid-term ambition to reduce average unit operating expenditure per barrel, as its portfolio transitions to earlier life assets, subject to the impact of inflation and hydrocarbon price driven operating costs.
• Ithaca Energy's operational capabilities are evidenced by the performance track record on the FPF-1 floating production facility which improved from c. 60% to c. 95% production efficiency within six months of it becoming the operator.
• Safety is at the core of Ithaca Energy's operating excellence, with a Serious Incident Frequency of zero from 2019 to 2022 year to date.
Development expertise and a strong growth pipeline
• Ithaca Energy has significant development expertise and has undertaken large development programmes focussed around its infrastructure hubs, including the first and second phases of the ongoing pioneering polymer enhanced oil recovery ("EOR") development programme, which aims to maximise recovery rates from Captain, the Alba drilling programme and initiatives at Abigail, Erskine and Vorlich.
• With Ithaca Energy's blend of assets, the Directors believe that it has a strong pipeline ahead with significant opportunities to organically sustain and grow the Group's reserves, including at the Cambo, Rosebank, Marigold, Fotla, MonArb Area, Isabella and Tornado fields.
• As operator of its key assets, Ithaca Energy is well positioned to effectively manage the nature, timing and amount of capital expenditure invested in its assets.
Return-oriented business with material cash flow generation to drive growth and shareholder returns
• Ithaca Energy's diversified, high quality asset base generates strong free cash flow. In the six months ended 30 June 2022, the Group generated net cash from operating activities of c. $989 million (or $81.7/boe) from 66.7 kboe/d (of which c. 64% were liquids).
• Ithaca Energy's strong cash flow generation has supported a rapid deleveraging trajectory. As at 30 June 2022 the Group's net debt to adjusted EBITDAX ratio was 0.9x.
• Ithaca Energy protects the balance sheet through an ongoing oil and gas price hedging strategy that aims to provide 75% downside protection whilst giving the Company 50% upside exposure, subject to hedge availability.
• Ithaca Energy has free cash flow of c. $689 million for the six months ended 30 June 2022, which significantly exceeds its capital expenditure requirements.
• Ithaca Energy expects that, subject to oil and gas prices, such cash flow will satisfy capital expenditure requirements to maintain current production levels, maintenance of a leverage position below 1.5x net debt to adjusted EBITDAX, deliver shareholder returns, and provide additional financial flexibility and liquidity headroom to facilitate value-accretive growth projects and incremental distributions.
Decarbonisation focus with a well-defined emissions-reduction strategy
• Ithaca Energy plans to significantly reduce emissions and exceed industry targets by optimising its current portfolio in the short-term and fundamentally transitioning the portfolio over the medium to long-term.
• Ithaca Energy has developed a goal of reducing its scope 1 and 2 CO2 and CO2 equivalent emissions from its operated assets by 25% in 2025 (against a 2019 baseline).
• Ithaca Energy's medium-term target is to shift to lower emission intensity assets by ceasing production on and decommissioning higher emission intensity assets such as FPF-1 and Alba and bringing on stream lower emission intensity assets such as Rosebank and Cambo.
• In the long-term, Ithaca Energy is committed to supporting the NSTD and intends to achieve net zero by 2040 (based on the Group's equity interest in all of its fields), ten years ahead of current NSTD commitments.
Experienced management team with proven track record, delivering significant value at pace
• Ithaca Energy has a high-calibre executive leadership team with significant and diverse UK North Sea oil and gas industry experience.
• Ithaca Energy has a strong recent track record of identifying, executing and delivering organic growth and value accretive M&A activity having completed four acquisitions in nine months, including the transformative acquisition of Siccar Point.
• The strong integration capabilities of the management team have also helped to deliver significant synergies and unlock value from acquired portfolios.
• The management team's expertise extends across all aspects of the exploration and production life cycle with significant experience in exploration, development projects, production and well operations and decommissioning.
Summary of Ithaca Energy's Strategy
Evolve the portfolio by developing projects in the pipeline with a focus on strong economics
• Ithaca Energy intends to deliver on its strong growth pipeline by advancing its diversified portfolio of developments and expects this to underpin material growth. The key development assets include Cambo and Rosebank, the two largest undeveloped fields in the UK.
• Ithaca Energy's development opportunities also include the second phase of the Captain EOR programme ("Captain EOR II"). Captain EOR II is sanctioned, on schedule and on budget with the investment having been supported by the first phase of the Captain EOR programme that is delivering ahead of target. The Group is expected to double net production at the field to c. 40 kboep/d and provide gross 2P reserves of c. 28 mmboe. There is a material potential upside with the Captain EOR II activity, with the field having stock-tank oil initially in place of c. 1 billion boe with c. 36% of volumes recovered.
• Ithaca Energy's pipeline of low-cost developments also includes Marigold and Fotla, with gross 2P reserves plus 2C resources of 29 mmboe and 16 mmboe respectively. These represent potential low-cost developments which are expected to be tied back to existing infrastructure.
Optimise current asset performance through deep operational expertise
• Leveraging the skills and experience of the Group's geoscience, engineering and commercial teams, Ithaca Energy believes there are further opportunities to optimise the performance of its existing producing assets.
• Ithaca Energy intends to use established technologies to target increased recovery volumes and maximise the recovery of in-place hydrocarbons. This is evidenced by its use of advanced EOR technology to maximise recovery rates on the operated Captain field. This technology gives Ithaca Energy the potential to enhance resource recovery from the Captain field as well as potentially other fields.
• Ithaca Energy has a particular focus on maximising production efficiency and uptime initiatives to drive revenue realisation.
• Ithaca Energy maintains a strong focus on costs and is targeting a reduction in unit operating expenditure per barrel in the medium-term. Ithaca Energy has a mid-term ambition to reduce average unit operating expenditure per barrel, as its portfolio transitions to earlier life assets, subject to the impact of inflation and hydrocarbon price driven operating costs.
• Ithaca Energy's non-operated assets consist of a diverse portfolio of 24 assets, representing c. 45% of current production. Ithaca Energy works closely and proactively with the field operators and licence partners to identify and drive the execution of opportunities to increase returns and enhance production across the portfolio.
Maximise the Group's value and deliver attractive and sustainable shareholder distributions
• Ithaca Energy's profitable and resilient asset base provides a foundation to deliver value to shareholders. It generates significant positive free cash flow as a consequence of its material oil and gas production and low unit operating expenditure combined with the self-funded capital expenditures required to sustain and grow production.
• Ithaca Energy is targeting annualised dividends of 15-30% of post-tax net cash from operating activities through the cycle.
• In the near-term, Ithaca Energy has a firm expectation of a dividend in respect of the year ending 31 December 2023 of $400 million with an ambition of an annual dividend of $420 million for the year ending 31 December 2024.
Pursue value accretive acquisitions, consolidating the UK North Sea
• Ithaca Energy intends to continue employing a disciplined approach to evaluating inorganic growth opportunities.
• Ithaca Energy believes that the UKCS offers various consolidation opportunities through which the Group can continue delivering strategic, high-quality acquisitions which can further enhance its reserves base and maintain the longevity of its business model.
• Oil majors and larger international oil and gas players are increasingly reallocating capital into new energies to achieve their ESG targets and also prioritising other regions as they look to satisfy reducing corporate production targets.
• Ithaca Energy believes that there are now few independent operators, of both operational and financial strength and supported by proven M&A execution capabilities and integration expertise, focused on the UK North Sea which can acquire assets from these players.
• Ithaca Energy believes the balance between the availability of UKCS acquisition opportunities and competition from other operators has moved in the Company's favour and that it is strongly positioned to continue to lead consolidation due to basin expertise, execution capabilities and a strong financial position.