Ithaca Energy plc (ITH) Earnings Call Transcript

Hello, everyone, and thank you for joining the Ithaca Energy plc H1 2025 Financial Results Conference Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Yaniv Friedman, Executive Chairman. Yaniv, please go ahead.

Hello. Thank you. Good morning, everyone. Thank you for joining our first half 2025 results conference call. My name is Yaniv Friedman, and I'm the Executive Chairman of Ithaca. And if you'll go to Slide 2, you can see who's going to be with me on the call today as presenters: Luciano Vasques, our Chief Executive Officer; and Iain Lewis, our Chief Financial Officer. We'll cover first half highlights, strategic and operational highlights, financial overview, closing remarks. And then we'll deal with any questions that might come up. If you'll move to Slide 5, we'll cover the highlights of the first half of 2025. We, I must say, debated internally to use the word excellent, right? It doesn't sound like a very modest way of presenting, but we've ended up saying, well, these are really excellent results. So we've had excellent H1 2025 performance, I think, executing on strategic and operational objectives and delivering strong production, strong financials and value-led investment and growth. Just to summarize, close to 124,000 barrels a day of production in the first half with over $1.1 billion of adjusted EBITDAX on kind of the investment lags over, $850 million of investments in 2025 supporting production upside. If you're looking at our balance sheet, strong balance sheet with 0.32x at EBITDAX leverage ratio, returning back $167 million of dividends that we're announcing today as part of our $500 million dividend target for 2025. So we're announcing today $167 million of dividend. And we're evolving. We're investing in the long term. We've done 2 transactions that we'll mention again in our core U.K. market, and we're seeing a very strong reason to invest in our organic project as well. If you move to the next slide and look at our strategy. So as we said, successfully executing the group's organic and inorganic value oriented growth and strategy with a clear vision to scale, stability and strength. We've optimized production across our portfolio, delivering high uptime performance and supporting our upward revision in the full year 2025 production guidance that I'll speak to in a second. We're seeing significant momentum on unlocking long-term value in our West of Shetland projects, an area that we're targeting that we think is also critical to U.K. energy security in the future. We've continued execution on consolidation strategy in the UKCS and increasing our interest in assets that we like, like Seagull and Cygnus, assets that we're in, and that meet all of our investment criteria. And we're maintaining an active but patient pursuit of international opportunities, in line with our focused international expansion strategy. And at the same time, as always, we're focused on delivering attractive shareholders' return. So we're reaffirming our dividend target of $500 million for 2025, announcing $167 million of dividend today. And as we're seeing our -- right now where the business is, we're expecting to accelerate a dividend of $133 million to be paid in December in 2025 due to the excellent year-to-date performance and our cash generation. That would total $500 million of cash distributions in the year 2025. Maybe just a reminder here. Our policy is 1/3 of our dividend paid in August, 2/3 paid in April of the following year on behalf of the full year. So we're in a position where we are right now, and we expect that we'll be able to accelerate that. If we'll move to the next slide, Slide 7, and Iain will pitch in here and talk through this with me. So with where we're seeing now 2025, we're seeing an improved outlook. We're seeing excellent operational performance and value-driven investment that allows us at this point to be comfortable with upgrading our production. So if we look at our previous guidance, right, so our previous guidance was 109,000 to 119,000 barrels a day of production. We're increasing that to 119,000 to 125,000 barrels a day production with a midpoint of 122,000 barrels a day production. There is a specific slide that explains this. And we're seeing this coming from our organic assets, and I'll talk through that, but I'll first let Iain jump into the other guidance.

Thanks, Yaniv. Good morning, everyone. So yes, very glad to be able to announce that we're guiding lower on OpEx with a range that's narrowed, and this is despite FX rates strengthening in the past few months. So we've seen GBP against the USD increase from a low in January and the kind of early $1.20s to $1.35 today. And that affects OpEx, CapEx and all the way through the GBP side of the income statement. However, we explained later that we're very well hedged and naturally hedged. This is purely accounting offset, so it does drive increases in some of the midpoints. But we've more than offset those OpEx -- FX additions with cost savings. So glad to see that we're able to reduce the guidance for the year. You can see the FX impact on producing asset CapEx. There's about $30 million comes through that from an FX perspective. But we've also chosen to add a couple of activities into the year to increase production. And you'll see that in the production guidance, but also in the closeout of the year expected production rates. Rosebank CapEx, again, about $20 million of FX generated increase here, relatively minor updates and -- on the Rosebank CapEx program as we'll explain later progress we made on all fronts. And then a minor uplift in the cash tax payment guidance as well, up to $270 million to $300 million. So you can see the significant capital investment. As Yaniv has pointed out for the year, that comes through those numbers, but excellent production guidance and lowered OpEx. That means we're able to reaffirm the target for dividends of $500 million for the year, but also accelerate $133 million of that final -- or the April payment. We expect we'll do that into December because of the strong performance in the year. Yaniv?

Thanks, Iain. And if we move to Slide 8. I think this is really just to explain the production upgrade just to avoid any confusion because, as you know, we're being very active and acquisitive. So we've announced 2 acquisitions and just to see how this plays -- everything plays in together. So our full year production guidance at the beginning of the year was 105,000 to 115,000 barrels that was issued on March 26 and are already reflected in the acquisitions of JAPEX U.K. that we've announced on March 25, just the day before our annual results. Q1 production, we've upgraded it to 109,000 to 119,000. This is to reflect the acquisition of the 46% stake in Cygnus from Spirit. And this just assumes completion dates of October 1, 2025. We can say that we've received NSTA approval for this, and we're now proceeding towards completion that we expect to be indeed on -- in early October. And now we're upgrading production to 119,000 to 125,000 barrels a day due to excellent H1 operational performance and really risk mitigation following summer shutdowns period and increased capital investment that support upside and expected acceleration of our interim dividend. But if you look at the slide, so you can see the March 26 guidance, then the acquisition of Cygnus that added kind of 4,000 barrels on -- starting October 1, the revised guidance then to 109,000 to 119,000. But what we want to show here is really the organic performance delivery and risk mitigation that adds about 8,000 barrels a day of production that allows us to, what we call, the organic asset delivery that allows us to move guidance to 119,000 to 125,000. And we spoke last time, and if you'll take a look at our previous presentation, about efficiency and debottlenecking and cost control, this is where it's all coming from. So this is kind of our upgraded guidance for 2025. Luciano, why don't you walk us through strategic operational highlights, please?

Absolutely. Good morning, everyone. So now we are on the strategic and operational highlights. If you go to the first slide when we show the graph of the safety and environmental stats. So excellent operational delivery. Clearly, it means being good at all what we do in the industrial activities, starting from, of course, safety and environmental performance. Besides, the good performance go typically hand-in-hand. So here we go. We continue to be at 0 with our serious incident counts, both Tier 1 process safety incident, environmental events. And our trends, our metrics are showing the positive tendency that continues. Our recordable incident frequency is at 1.14 incident per million man hours, which is less than half of what we closed 2024. And actually, it was 2.6 after half the first year of 2024. And our emissions are also driving down, a combination of asset quality, of course, but also of steady operations because steady operations means that we have less serious emissions as well and emission-reducing activities. So all in all, the right trend that we want to show. Our approach and focus on "perfect day" that we've spoke about in our previous appointments continues, delivering its results, and it is also not only in the safety space but also in, by and large, in all our operation. If we can go to the next slide, please. In fact, our better performance of the first half fits at the base of our upward revision that Yaniv have just explained with the new guidance between 119,000 and 125,000 barrel per day at the end of the year. In particular, what has allowed this upgrade are 3 elements, I would say. One is better performance of some of the fields in terms of simply plateau production; two, an enhanced focus on extracting locked-in potential, both across wells and facilities and also an increased production efficiency, both the operated and the non-operated assets. In particular, it means an increased availability of all our plants. And this I remind includes also the turnaround maintenance, which this year is particularly heavy. It covers 10 assets across our major producing fields. It has progressed very well, and it is ongoing. And we are going to be completing all of them in a few weeks. We can go to next slide, please. So going to some specific example, let's touch on Captain where we have progressed well on our 13th drilling campaign. We're starting up 2 wells, C73 and C7,4, the work-over of C47. So this is well progressing. And talking about maintenance after the arrival at the beginning of June of the flotel, we have started our own plan with our substantial program, which is focused on life extension of this important field. The flotel will remain on campaign until the end of the year. The turnaround maintenance is currently ongoing, and it's also progressing in line with our plan. The production performance has also continued to be strong on Captain with good response on the polymer patterns, which have overperformed our expectations. We can go to next slide to touch on one other key field, which is the J area operated by Harbour Energy. This has also delivered a remarkable performance this year, in particular with Talbot, with both a higher-level production and an extended plateau versus the initial expectation. And also there was a good contribution of Jocelyn South. You remember a field that was discovered at the end of last year and what -- was put in production in March this year. On the basis of this good performance, a further well on July East Flank has been sanctioned. It's being drilled as we speak and expect it to become -- to be coming on production by the end of the year. And we've also sanctioned a stimulation on Joanne with a very quick payback. So this is also expected to deliver additional production within the end of the year using an immediate availability of the PBLJ semi-sub rig. If we go to the next slide. Now we talk about -- we talked about our first pillar in the strategy. Now let's move on if you want the second pillar, which is, in fact, our aim to unlock the many organic growth opportunities of our portfolio. And of the several activities, we want to focus here on the ones around the key region of the U.K. North Sea. That is the West of Shetland, the most promising area where we see the major greenfield opportunities. In particular, 3 fields, which are the one that we are focusing right now. And these are, of course, Rosebank operated by Equinor with whom we continue to have a good cooperation as partners. The project is well progressing, as we will still speak about it in a minute. And then 2 projects which are operated by us, Cambo and Tornado. These 2 are both in the pre-FID stage, Cambo having undergone a technical refreshing on both facilities and execution strategy. We'll talk about it as well. And we've just started the tendering phase. Tornado is a gas development field to be tied back to the Shetland Gas Plant by the Greater Laggan Area, the subsea gathering system. And we have submitted in April the concept selection study, which has obtained the NSTA's no objection, if you want, in less than 3 months. So the next step will be now to progress and submit the field development plan and the environmental statement. These fields are all in a strategical area, not just for Ithaca, but for the United Kingdom as a whole. Furthermore, the development and the addition of new facilities may in turn continue unlocking further near field opportunities, so leveraging on the logistics and synergy on facilities, which are going to be installed. If we go to the next slide, please. We can focus on Rosebank, we can zoom into Rosebank. So following the issue of the new Environmental Impact Assessment guidance, which was published, if you remember, in June this year, the engagement with OPRED to start working on the revised environmental statement. Now the joint venture is actively preparing its submission, which will allow, in turn, to obtain the reapproval of the production consent in 2026. And this is as far as the regulatory element is concerned. If we go to the execution of the project on the next slide, the project is progressing steadily towards the production time line of end '26, beginning '27, and this is true on 2 fronts. On one side, the FPSO refurbishment in Dubai, which has now reached the mechanical completion stage and have started the commissioning activities. The last works on the hull, on the thruster, and moving chains will be executed in dry dock still in the same yard in the late Q3 and early Q4 this year. And the focus now is in completing all the yard works to ensure that the sail away can take place with finished FPSO, which will allow to minimize any carryover activity while then offshore. The second front are all the subsea activities being executed in the North Sea. They have progressed extremely well, and all the scope necessary to be completed prior to the arrival of the FPSO has been -- will be finished in September, ahead of the drilling activities, which are going to start in Q1 2026. With that, I will complete here. I'll leave it to Yaniv maybe to speak about Cambo, which is our operated projects still in the West of Shetland. Yaniv?

Thanks, Luciano. Maybe just to look at this. So we kind of have the West of Shetland strategy. And if you go back to one of our slides,in Q2, we had a slide that shows our production profile and reshoring at our 2P Reserves and 2C Reserves in blue and green. And my comment there was we could take those 2C reserves and really tie that back into kind of economic development. Cambo is one example. So Luciano talked through this, and we have about 210 million, 220 million barrels of oil equivalent in Cambo and Tornado that we would like to progress as part of our West of Shetland strategy. And when we're looking at Cambo, and just really zoom on that for a second, we see the potential to unlock long-term value. So we've completed the technical refresh. Some of it was also utilizing technical capabilities of Eni that we have through our technical services agreement, with them being a material shareholder in Ithaca. And that was focused on development optimization and see how we maximize project value and mitigate risks. Alongside that, we've got an 18-month license extension through September 30, 2027, from the NSTA that is supporting project progression, and we're updating the field development plan, environmental statement that we're seeing a pathway through FID. With EPL kind of changes expected, we hope to get regulatory clarity and fiscal clarity going forward. This will allow us as we progress this and derisk this towards FID also to introduce potentially partners into the project. So overall, we're seeing value in our undeveloped West of Shetland project and plan to take them forward. Alongside this and kind of talked about our kind of strategy, so kind of fourth pillar is really consolidation of in our core UKCS market. I spoke to this in the past. I'll just mention, we've announced 2 not insignificant transactions in the first half of 2025. One acquisition that we've already completed, the acquisition from JAPEX of additional working interest in Seagull and really delivering on every investment criteria that we have from IRR to DPI to payment period, operating cash margins and emissions. And what we've announced last quarter on the acquisition of 46% in Cygnus, bringing our working interest to 85%. We're operators in Cygnus as well through the Eni transaction. Together, this adds about 17,000 barrels of oil equivalent of pro forma production to our portfolio. Cygnus, obviously, being the largest gas asset in the U.K., so we'd like to do more of this. We'd like to find accretive assets to our portfolio. And so we're executing a lot of strategies. Iain, do you want to give us a financial overview?

Thanks, Yaniv. Yes, Slide 20, please. Let's just cover some of the key metrics for H1 '25 financial performance. So that strong production of 123, 600 barrels a day with a low OpEx per barrel of $17.5 a barrel in H1 and liquids, gas split. You can see 59% liquids, 41% gas, which, of course, at the year-end, is we've gone through with the addition of material gas volumes from Cygnus will take us more towards 50-50 on our split. All of that drives an EBITDAX of $1.1 billion in the first half and net cash from ops of over $1 billion. There's about $100 million of underlift build through 1H, which is the main difference between EBITDAX and net cash from ops in the first half. Loss for the period, of course, is driven by the one-off EPL extension charge that came through in Q1, standard across the industry. But as we close out the half year, you can see the adjusted net debt is 671 million. The pro forma leverage, I think a company all-time low of 0.32x EBITDAX and had available liquidity of $1.2 billion at the end of the half year. So to dig into Slide 21, please, just for a few more details. This lays out some of the build of the EBITDAX numbers in 1H comparing it with 1H '24 and the full year of '24. Obviously, we're in a lower commodity price environment in the first half of '25. We show the total value from production in like the seventh line from the bottom there on a per barrel basis. And you can see that back in H1 '24, it was $85 a barrel and it was $79 for the whole of '24. So we're $68 as of H1, '25, $68 a barrel average. Total value from production supported by hedge gains, you can see of $23 million in the half year. And you can see that the overall reduction in value from production per barrel from $79 in '24 to $68, so that's an $11 a barrel reduction. When it converts to the EBITDAX, there's only $5 per barrel reduction, and that's because of the operating cost position that we're in and the ability to drive operating costs lower. So you can see that $17 a barrel is where we are for the half year. Our upgraded guidance that we have just provided means that our guidance range on -- in the dollar per barrel term for OpEx is between $17 and $19. We're also aiming for this year to be below $20, and we will be comfortably below that this year and looking to drive into $18 and lower. So moving on to the next slide, and we'll go through some of the balance sheet positions and the protection of the company. So we're doing a lot. We are investing a lot. As the team have gone through, we're deploying a lot of capital. This is off the back of a balance sheet that is strong. The net debt position at the end of Q2 back in June, you see at $671 million with a $750; million senior loans, $150 million in CapEx carry facility and then offset by cash. If we move on to the middle of that slide, the available liquidity, you can see that we have total facilities available, just now at $1.9 billion with a $1.1 billion draw. When you add cash, that means that the available at the end of June, that means that we have total liquidity of $1,229 billion available at the end of the half year. What we're calling out here is that part of the refinancing last year, we negotiated an accordion facility in our RBL. Our borrowing base is materially above the $1 billion credit facility in the RBL. And therefore, we have a technical accordion facility. They are sitting on top of the RBL at $735 million. So our liquidity capacity technically, that gets up towards $2 billion. So you can see that we have material scale and capacity to add assets and to drive the business forward at 0.2x net debt at the end of the half year, one of the lowest leverage rates in our company's history. Slide 23, please. And this is what we've done a few times over the year, explaining how we hedge. We have material hedge value in the business. For the last 2 years, we've delivered $40 million of hedge gains. Our total hedge position at the end of June on the balance sheet was $79 million. And what we've been doing, as always, is hedging at what we believe are peak prices. As prices kick up, we hedge in volume. And that came through actually in June where we had an oil price spike for nearly a couple of weeks, and we added 9 million barrels worth of oil hedges during that time. Those are added to our already very strong gas hedge book. That means that through the rest of this year, we're very well protected and also now through 2026. You can see the kind of volumes that we are protected on at good prices with a lot of our swaps in the kind of 100p a term for gas and in the kind of $70 a barrel a realm from Brent. So continuing our tactical execution of large hedge -- hedging at scale when prices hit the ranges that we like. The next slide is on GBP and FX. We haven't really spent a lot of time explaining to the market what we do in this area. We never want to call out this quarter given the rise in the GBP strength against the U.S. dollar or the U.S. dollar weakening. And you can see here that -- where we are and what we do is we hedge on net basis. So we have GBP uses that's through OpEx and CapEx. Also tax payments are in GBP. We offset those by gas revenue that comes in as well as gas hedging that we do and then GBP hedging and spot purchases. You can see that through 2025, we're entirely sheltered and through '26 as well and beyond. We actually have hedges in the 120s right through 2027, and we're over $85 million in the money at the end of June. So as we see book FX impacts on OpEx, CapEx, it's a no cash impact to the business. We are generating both hedge gains and also additional gas revenue in GBP that offset those increases. So just another way in which we're protecting the business on a net hedge basis to ensure that the cash is managed and cash is protected, so that we can deliver on the investment growth. Okay. Yaniv, back to you.

Thanks, Iain. If we'll move to Slide 26, please, just to summarize our presentation, and we'll open up for questions. So again, an excellent first half of 2025, 124,000 barrels a day production, over $1.1 billion of EBITDAX, strong performance across the business. And I think that we could say cautiously that with an excellent rate, we expect at the end of the year 140,000 barrels per day of production. That will put this us as the largest U.K. producer, at least until Shell and Equinor close their transaction. But it's definitely a milestone for us. We're investing materially across our portfolio to sustain and optimize production. We're focusing on high return, short-cycle return opportunities in our key assets that are supporting our production upside. We're strengthening our balance sheet. Iain talked about our oil hedges and currency hedges. So we're protecting our balance sheet to be able to deliver back to our shareholders what we said we'd deliver. And we're returning, as mentioned, $167 million of dividend that we're declaring today and expected to accelerate a second dividend of $133 million in this year and obviously supporting and reaffirming our 2025 dividend target of $500 million and the total cash payment in 2025 of $500 million. And at the same time, we continue to evolve the business, focusing on execution of our consolidated strategy in our core U.K. market, increasing stakes in assets that we like with significant upside potential. And as Luciano mentioned, also continued projection to mature our West of Shetland strategy, which we see as a key element of U.K. energy security and Ithaca growth in the future. I'll pause here, and we'll open it up for questions.

[Operator Instructions] Our first question comes from Chris Wheaton from Stifel.

I would also use the word excellent on your operational performance in 2Q, Yaniv. So I don't see why you shouldn't use that word as well.

Humility, humility.

One question on operations and then two on financials, please. Firstly, on operations. I was looking at the NSTA data for Captain. And I was surprised that the profile of the production performance in the first half, because it seem to start at 21,000, 22,000 and then stepped up to about 28,000 for a couple of months and then back down and then stepped up to 28,000 again. I was surprised at that profile because I would have thought it would be a much smoother ramp-up from the EOR performance, but it seems to be flip-flopping between 2 states. I wonder if Luciano, you could expand on why that's happening.

Well, the reason is fundamentally because of operational events that happened. I mean, yes, the -- there is -- there are no structural reasons there. So the production is -- the situation is steady, but we had operations to be conducted. So we had to do some suspensions at time on the facility. So it's just normal running of our facilities. It's not anything that has to do with the -- with this subsurface, if you want. So the response from the polymer injection has been good, as I said. In fact, 4 partners have clearly given good response. So we are very comfortable with that, and we are overall ahead of about 1,000 barrels over our expectation.

Okay. That's correct. And 2 questions on finance. So if I may, please, Iain, firstly, your cash flow says $23.5 million of investment in other listed company shares in 2Q. Could you identify what that is, please? And my -- because I would have thought, if you want to buy shares, you should be buying your own shares, not somebody else's. Second question is on Rosebank CapEx and just the timing of that. There's -- the guidance implies no higher CapEx in second half versus first half. And I was slightly surprised of that because I would have thought CapEx would be ramping up ahead into the last year or so, ahead of the -- or the last 18 months ahead of start-up at the end of next year. And I was just wondering why there was that phasing and when you'd expect material spend on the drilling to start because you probably got probably about half of -- and you have about half of CapEx at the moment so far this year has been on the FPSO. And I would have thought there'd be more CapEx to come outside of that other than the FPSO to come. So I'm slightly surprised at the FPSO versus other CapEx mix in that spend as well. Those are my 2 questions.

Iain, why don't you take the second question? Then I'll answer the first question.

Sure, sure. Happy to do so, Chris. Yes, so on Rosebank assets, it's a fairly flat profile through the year actually because as there's some ebbs and flows in the FPSO CapEx. Although it's fairly solid, we have the subsurface program all through the summer. And so actually, the peaks are more in the summer because of the subsurface installations. So there's been a lot of work quite in our mother vessels through the first part of the summer and continue on through July and August as we close out all of the pipeline and manifold lays. So actually, the FPSO has been fairly flat. And until we could start drilling, which is Q1 next year, that will continue. So yes, the profile is kind of lower at the front half of the year and the back half of the year, but higher in the summer due to subsurface program.

So on the first question, so this is an investment in public upstream oil and gas company that does not require any further disclosure from us. So we're not commenting on this further.