North Sea-focused Ithaca Energy has said acquisitions are still on the company’s agenda after it generated $160 million (£100m) cash from operations net of costs in the first half in spite of the crude price plunge.

The Aberdeen-based firm noted its strategic priorities include increasing the scale of its North Sea business after feeling the benefit of an acquisition in the first half.

The company achieved a 19 per cent increase in average production which was driven by the $163m purchase of a portfolio of North Sea assets from Sumitomo in July last year.

The increased output helped compensate for the slump in the oil price since June last year, which has left the industry facing big challenges.

North Sea firms have shed 5,000 jobs in response to the fall and sector-watchers have warned more cuts are likely. Concerns about the outlook have increased amid the renewed fall in crude prices seen in recent weeks. This dimmed whatever hopes of recovery were encouraged by a brief rally in spring as refineries geared up for the summer driving season .

On Wednesday an authority on oil and gas markets, the International Energy Agency, cautioned: ““Crude prices sent a strong signal during July and early August that world markets are oversupplied.”

The agency noted factors that could keep prices under pressure, such as the possibility that Iranian output will increase if sanctions on the country are lifted.

The slowdown in China has hit demand for crude.

However, Ithaca has shown that firms can limit the impact of price falls.

In Ithaca’s interim results announcement yesterday, the company’s chief executive Les Thomas noted the company recorded big gains on the deals it struck to hedge against the impact of oil price movements.

The company has agreed to sell an average of 6,400 barrels daily at $70 per barrel until June 2017.

Brent crude traded at around $49 yesterday, compared with $115 in June last year.

Ithaca said the hedges in place will allow it to break even if Brent falls to $10 until the start up of production from the Greater Stella development, which is expected in the second quarter of next year.

Ithaca has also capitalised on moves that services firms have made to try to hang on to business amid the downturn by cutting prices.

The company said it had achieved significant cost savings helped by supply chain contract renegotiations and contractor rate reductions.

Ithaca said its production costs had fallen by 29 per cent compared with the first half of 2014, to $35 per barrel.

The company expects the average cost to fall to $25 when Greater Stella comes onstream, reflecting the benefits of using modern production technology.

The expected start of first production from the Stella development 175 miles east of Aberdeen was pushed back from the original target of late 2014 following delays in work in Poland on the production vessel that will be used on the field.

But Ithaca said development drilling significantly de-risked the initial annualised production forecast for the field of 30,000 barrels oil equivalent per day (boepd), worth 16,000 boepd to the company.

The company said its strategy includes continuing to grow and diversify its cashflow base by securing new producing, development and appraisal assets through targeted acquisitions and licence round participation.

Ithaca generated $102m cash from operations in the first half of 2014.

Ithaca provided $440m against the value of its oil and gas fields in the UK in 2014 to reflect the plunge in oil prices.

Average production increased to 12,578 boepd in the first half from 10,528 boepd in the same period of 2014. Full year guidance remains for output to average 12,000 boepd.

Analysts at Westhouse Securities said Ithaca had achieved a good first half performance in what had been a very challenging period for North Sea firms.

Joint house broker Cenkos Securities said Ithaca was better placed than some peers with a strong balance sheet, material production and a hedging programme limiting downside exposure to low crude prices.

Source: www.heraldscotland.com

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