Ithaca Energy plc (ITH) Earnings Call Transcript

Good morning all, and thank you for joining us on today's Ithaca Energy Q3 2025 Results. My name is Brewie, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Yaniv Friedman, Executive Chairman. Please go ahead when you're ready.

Thank you, and good morning, everyone, from a snowy Aberdeen and a very cold London, and welcome to our Q3 2025 results. My name is Yaniv Friedman, and I'm the Executive Chairman of Ithaca Energy. Today with me on the call are my colleagues, Luciano Vasques, our Chief Executive Officer; and Iain Lewis, our Chief Financial Officer. If you move to Slide 3 on today's agenda, we'll cover highlights for year-to-date and Q3 2025 results, Luciano will speak to our strategic and operational highlights, Iain will give us a financial overview and we'll finish with closing remarks. And of course, as always, open up for questions and answers. Q3 highlights, if you'd be kind to move to Slide 5. So we had another very good quarter with strong strategic delivery, supporting our vision for scale, stability and strength. Production with 150,000 barrels of oil equivalent a day, average production year-to-date. We've had a material, some would say, unprecedented summer shutdown, and Luciano will talk about this later, and we're on track to deliver full year production guidance supported by an upgraded Q4 exit rate of 145,000 barrels of oil equivalent per day from 140,000 a day. Adjusted EBITDAX of $1.5 billion for the 9 months ending on September 30, enhanced financial performance, substantial cash generation that's supporting our cash allocation flexibility and attractive shareholders' returns. We're reaffirming our 2025 dividend target of $500 million and announcing this morning a payment of $133 million of dividend that we accelerated from April 2026 to December 2025. A strong balance sheet, $1.7 billion of available liquidity. We've had a very successful bond issuance a couple of months ago, EUR 450 million with a 5.5% coupon and we upsized our reserve-based lending facility. This gives us material financial firepower for our next phase of growth, as we'd like to call it, with a low leverage of 0.5x of EBITDAX. If you move to Slide 6. So we're really delivering on all pillars and on our improved 2025 outlook and continued strategic execution, reaffirming our upgraded management guidance that we've issued in August with production trending to the bottom range of the range primarily due to our informed decision to extend the Captain shutdown period to allow us to do more unplanned investment that will further support longer-term environmental and operational performance. And at the same time, we had a slight start-up -- slight delay to a start-up of 3 production wells -- high production wells that will come online very, very soon. Cash tax, and I'm sure Iain will mention this as well, trending to the bottom of the range of the $230 million to $270 million that we gave in August. At the same time and also due to these unprecedented TAR season, we're seeing increased installed total production capacity in Q4 and trending into 2026, with an uplift in Ithaca's exit production rates in Q4 from 140,000 barrels a day to 140,000 barrels of oil equivalent per day expected. And we've announced this morning, this is on the strategy section, 50% farm-in into Shell's Tobermory gas field, forming part of our wider West of Shetland strategy and really positioning Ithaca as the strategic partner in the region. If we'll move to Slide 7, we thought it would be good a year into our business combination with Eni, just to kind of show performance. So we're focused on delivering attractive shareholder returns while continuing to execute on our growth, both organic and inorganic, strong cash flow generation that supports the accelerated dividend payment that we've announced today and our full year dividend target of $500 million. But if you look over the past 3 years from 2023 until today, $1.2 billion of shareholder distribution, $1 billion just in '24 and in '25. And if you look at total return, since there's this combination, dividend adjusted, about 150% return to both the share price and dividends. I'll hand over to Luciano to talk about strategic and operational highlights. Luciano, please.

Okay. Good morning, everybody. And if we can now switch to Slide 9. We are proud to continue our excellent safety and environmental performance. In particular, we consistently reported zero incidents -- serious incidents, both in process, personal safety as well as in the environmental space. That means that we have 2 full years with no significant demand. And so our metrics, as you can see, continue on a positive trend with 1.6 incident per million man hours versus the 2.9 of the last -- of Q3 of last year, and emissions at 17.3 kilogram of CO2 per barrel equivalent, which is about 25% lower than the average in the basin. This is, of course, the result of the combination of asset quality post the business combination and also the steady operation. And I'd like to say it's a strong indication of good performance as we've just gone, as Yaniv said, to a material TAR season, which inherently is a challenging one, both in terms of safety and environmental space. And so we still maintain our excellent safety records, thanks to our cruise offshore and onshore. If we can move to Slide #10, and we move to production. We closed the Q3 with a year-to-date production of around 115,000 barrels a day, as we said, and had a Q3 contribution of 97,900 barrels per day, which, of course, reflected our TAR campaign in 2025, which saw an unprecedented level of summer shutdowns, with more than 500 days delivered and 15 assets involved both operated and nonoperated. Of these 15, 12 were delivered on time and budget, which is a remarkable achievement. As I said, the TAR activity has been exceptional and somewhat unavoidable in '25 with the timing of the business combination, which impacted our ability to optimize the activity sequence. This, in fact, has been possible now for 2026, which we'll see a 55% deferment risk reduction in our further planning. And at Captain, as Yaniv mentioned, the decision was made to extend the shutdown to invest further into safeguarding our longer-term environmental and operational performance. This is a prudent decision because we want to support life extension activity for this asset. And with the successful completion of the TAR season and 3 new high-producing wells, which are coming onstream in December. So now we are entering the new year with an increased installed total production capacity, as we said. So that is the basis of the uplift that Yaniv just talked about, 245,000 barrels expected as an exit rate. So it's going to -- it's been merely a timing issue on new production delivery towards the end of the year. Moving on to Slide 11. Again, this is just to say that on Captain, we progressed with the delivery of the 13th campaign. So there are now 4 wells -- construction wells, which have been completed, and there are 2 left to go. And we have also matured the planning of the 14th campaign, which we intend to sanction in Q4 '25. On the maintenance campaign, I said already, but of course, this has required an extension of the TAR shutdown period. If we move now to Slide 12, we go into Seagull. At the end of October, we handed over to the operator of the J4 well, which is the fourth and last well of the Seagull development. You may remember, J4 has experienced technical issues in the first half of the year, which had required dedicated and rather technologically advanced operation to safely finalize the completion of the well. We're pleased to report that J4 has been completed and is currently being cleaned up and flow rates are in line with the predrill expectations. This is 1 of the 3 wells that we -- that I mentioned earlier, which had a start-up expected in December of this year. If we can now move to the next slide, which is Slide 13. And you may remember that at the end of our half year results, we presented a similar slide highlighting the importance of West of Shetland in our long-term organic growth strategy and, of course, the one of the United Kingdom as a whole. We will share, of course, an update on Rosebank and Cambo in the next slides, but let me touch on 2 further fields in this area. This morning, as Yaniv said, we announced the signing of a farm-in agreement with Shell for 50% working interest in licenses P2629 and P2630, which are located in the West of Shetland Basin and that contain the Tobermory discovery. The discovery is estimated to bear gross 2C resources of around 60 million, 65 million barrels, which add to the significant reserves and resources that we already hold in the West of Shetland. And following completion of the farm-in, Shell U.K. will continue to hold 50% stake in Tobermory discovery and will be the operator of the licenses. The announcement of this farm-in together with our 50-50 joint venture partnership with Shell in Tornado discovery strengthens, of course, further our position as a strategic partner in the area and provides the ability to unlock synergies between discoveries, which are infrastructure-led. The Tornado project, by the way, is progressing towards FID, of course, subject to fiscal and regulatory clarity, and tendering is ongoing and we are advanced also -- advancing also the environmental statement and the regulatory steps. A little more on the West of Shetland, if we can move to the next slide, Slide 13. You can see from the map why this is a strategic basin and it's important for our long-term growth plans. Not only we have, of course, the Rosebank field, which is the development ongoing, and we are continuing progression on the largest pre-FID discovery, Cambo towards a final investment decision, but also this area has the potential to a lot further exploration and further near-field connected tiebacks. And so positions us as a key player in the Northern gas hub with significant prospectivity in terms of resources that can, in fact, benefit from the infrastructure that can be shared and allowed for a relatively quick turnaround connection when new fields and new discoveries are there. So we can achieve -- we believe we can achieve significant synergy with the greater Tornado area. And so our investment in the West of Shetland is critical for us, and it's also critical for the U.K. energy security, also supporting skills, job and our supply chain, which, as you know, is vital for the entire economy. Moving to the next slide, we go and talk about the Rosebank and we're on Slide 15. Pleased to report that material progress has been achieved in respect to the refreshed consents. The operator with our support, active, has submitted the updated environmental statement in Q3, which included, as you remember, the assessment of the Scope 3 emissions associated with the project came after the guidelines issued by the government in June '25, following last year's consultation. And after the submission, operator advised that there were no objections to proceed with the public consultation process in relation to the amended submission and now this consultation process is in fact at the phase of concluding. And so we expect a revised consent to be issued in early 2026, which is much earlier than what's needed for a targeted first production. And if we move to the project side of things, to the next slide, Slide 16, the 2025 offshore subsea installation scopes were delivered on time and budget and excellent HSE statistics. The drilling activities are scheduled to commence in Q1 '26 as it was planned. The FPSO refurbishment activity are progressing at pace. The third dry dock has been completed and project progresses with a target to sail away early 2026, so to allow the mooring in the field during 2026. We are supporting the operator in its effort to maintain the FPSO sail away date, which is a critical milestone together with drilling and hook up and commissioning works to achieving the first production target at the end of '26 or beginning of '27. On costs, the updates from operator indicate that based on the achievement of these key milestones, as I mentioned, which include limited carryover activities for the FPSO sail away, the total project outturn forecasts don't need to be materially updated at this time and will be revisited after the FPSO sail away. And if we can move to Cambo, that is Slide 17, completing our zoom into the West of Shetland, our project is continuing its maturation towards the final investment decision and potential farm-down, which will require a fiscal and regulatory clarity, an outcome that we expect in the coming weeks. We've put significant efforts into maturing the project in the quarter and throughout the year actually, progress all main tenders for the key project packages. Of course, this is through the FPSO Engineering, but also its Procurement, Construction and Commissioning, but also the tenders for the Subsea, the Umbilicals, Risers and Flowlines. They are all commenced, and they are intended to be completed by mid-2026. So we have a consolidated project cost and schedule, which will be at the basis of a derisked final investment decision. We've also progressed speedily on the regulatory side, and we've also leveraged, of course, on the experience of Rosebank, and we are now pointing at the submission of an updated Field Development Plan and Environmental Statement before the end of 2025, which will, of course, reflect all our optimizations over the last year in the project. So that concludes the strategic and operational highlights. I'll hand over to Iain for the financial overview.

Thanks, Luciano, and good morning, everyone. So turn to Slide 19, please. And we'll call out some of the key numbers for the year-to-date Q3. So the top line, some of the operational numbers, 115,000 barrels a day. Split, 58% liquids and 42% gas, obviously from 1 October with the completion of the deal to add Cygnus equity, our gas production will increase, and it will be more balanced towards 50-50 at the end of the year. And that's come through with a $19.1 per barrel year-to-date Q3 OpEx. And again, driving below $19 is the aim for the year, and we can see that coming to pass in the numbers year-to-date Q3. In the middle of the slide, you see the outturn performance financially, $1.5 billion of EBITDAX and $1.3 billion of net cash from ops. The main difference between those 2, obviously, being the cash tax payments made in Q3, again, very strong performance and a $98.5 million profit in Q3 stand-alone, helping to claw back against the net income charge for EPL extension that was booked in Q1. So we're $119 million negative for the year-to-date Q3 in net income terms. In terms of debt and liquidity, you can see that we're $1.1 billion of net debt at the end of the quarter at 0.5x leverage ratio, again, maintaining our low leverage position, but very significant liquidity. We end the quarter with, I think, a record liquidity position of $1.7 billion through our facilities. So moving to Slide 20, a little bit more detail on EBITDAX. Just to call out a couple of numbers here. Clearly, a transformed business Q3 '25 compared with Q3 2024 year-to-date with 115,000 barrels a day compared to 53,000 barrels a day. One thing I would call out is continued hedge gains. You can see that $77 million of hedge gains in the year-to-date 2025, a consistent pattern now over 3 years of head gain positions. And we have, at the end of the quarter, material hedge mark-to-market positive positions as well across both oil, gas and FX hedges continuing to strengthen and protect the business. I would call out just in terms of the value from production line. Obviously, prices are a bit softer in '25 than they were in '24. You can see that the $83 a barrel year-to-date '24 value from production has moved down to $68 following that market trend. It's a $15 reduction. But because of the operating cost shift that we've seen in the business and being able to drive from $29 a barrel last year to $19 this year, you can see that the EBITDAX per barrel has only dropped from $5 from $53 a barrel to $48. So just showing the resilience of the business has transformed from the merger with the Eni assets and the sustaining EBITDAX per barrel at a very high level. So moving on to Slide 21 and a bit of a summary of our refinancing that we did in the quarter. You can tell on the right-hand side, in terms of bond performance, the U.S. dollar bond that's been in the market for over a year now has been performing very well, strong credit support in the market and appetite for the bonds. That, together with favorable market conditions in the summer led us to the issuance of an EUR 450 million bond, again, accessing a new market with a lot of appetite for the issuance, able to execute that at 5.5% coupon with an effective translation into U.S. dollars for hedge production at 6.7%, again, just reflecting for our credit rating, a very strong issuance and enabling us to look forward with confidence in terms of the various options that we have financially. We always want to stay with significant liquidity and capacity, and we leave the quarter in that position. Moving to Slide 22 to see that in a bit more detail. You can see the adjusted net debt position of $1.064 billion at the end of the quarter with significant cash on hand. And you can see that in the middle, the available liquidity has been augmented by not just the issuance of the notes, the euro notes, but also the extension of the reserve-based lending facility. So we added $300 million, adding new institutions to our facility, which gives material upside to the liquidity position. We used the accordion and we still have remaining tranche in the accordion in our RBL as well, again, just making ourselves ready for opportunities. Our flexibility and agility in the market is underpinned by our financial capacity and flexibility, and this continues to position us to be able to move when opportunity arises. And finally, on the right-hand side, you can see 0.5x net debt to EBITDAX at the close of the quarter, maintaining our modest leverage position. On to Slide 23. And again, we're giving a lot more detail on our hedge book. We have a very strong hedge position at the end of the quarter with nearly 40 million barrels hedged through Q4 '25 and extending out into now 2027. You can see on the left-hand side that we have a strong oil book with swaps and collars put together to show significant hedging through 2026. The floors on those, you can tell on the table at the bottom of the swaps are at about $67 for 2026 all the way through, so above market. And then you can see that the collar floors are in the low 60s with ceilings up to $70 a barrel. So a strong hedge position going into the year '26 on the oil front and a continued very strong gas book. You can see swaps at essentially 100p or just below for several quarters ahead and floor ceilings of 80p with a lot of headroom above. So continuing to deliver protection for the business, protection for EBITDAX and yet leaving us with material upside in the price environment if we were to see some strengthening on the Brent and the NBP pricing. Okay, I'll hand back to Yaniv for outlook and closing remarks.

Thank you, Iain. I'm on Slide 25. And before closing remarks, it's also snowing in London apparently, so not just in Aberdeen, quite heavily. But back to the performance of the quarter, so strong performance. Again, a very good quarter, 115,000 barrels of oil equivalent production, strong cash generation, EBITDAX of $1.5 billion and we're increasing our production capacity in Q4 with an upgraded exit rate expected of 145,000 barrels per day of production. It's brought at length about our balance sheet. And I would just say we've been very disciplined. You can see this from our hedging strategy. You can see this from our debt management strategy. This $1.7 billion of liquidity gives us a lot of flexibility to go and do things in 2026. We're focused on growth, organic and inorganic. The announcement this morning on Tobermory demonstrates our view of and position in the West of Shetland and supporting our long-term growth. And at the same time, since the closing of the Eni Business Combination, we've closed on 2 additional acquisitions of JAPEX and Spirit with Cygnus that were completed in July and in October. We're doing all this, keeping in mind that shareholders' returns are very important. So looking at this through that perspective as well. We've accelerated $133 million of dividend from April until December, reaffirming our $500 million dividend target for 2025. So overall, again, a very solid and a very strong quarter. Before we move to Q&A, I would just say that this is the work of many. We have a great team in Aberdeen. So thank you, Ithaca team. And we will now open this up for questions.

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

Well done on great operational performance. Your team has done extraordinarily well, I think. A couple of questions, 2, maybe 3 questions from me. Firstly, on the dividend. Obviously, oil prices are down substantially versus when the company IPO-ed and also since last year. I'm interested in how much that drop in commodity prices is factoring into your thinking about where dividend goes for 2026 onwards given you've delivered a good operational -- great operational performance so far. My second question would be on tax, if I may. What do you need to see from the budget next week to start progressing Cambo, Tornado, Tobermory forward with more certainty? If you can talk about anything you need to see from the budget next week, that would be, I think, very interesting. My last question would be also on -- just finally on Rosebank. What would make that late '26 start-up rather than, say, early '27 in terms of what has to get done to be able to get a sort of late '26 start-up? That's it for me.

Okay, Chris. I'll take the first one. In terms of our dividend policy, it's clearly linked with cash from operations, which is where we've always pinned ourselves since IPO. And part of our hedge protection is indeed to make sure that we're able to deliver material results. I think as we went through there, you can see that our hedge book is well ahead of market. So although prices have softened a little, we believe, first of all, there will be volatility because there has been in recent years. Materially, we will take advantage of that in the hedge market we already have done. And therefore, we expect some strong EBITDAX performance with strong production delivery. That means we will expect a strong dividend, and more to come on that when we give our update at the year-end in early 2026. In terms of the second, I'll pass maybe to Yaniv on that.

No. And thanks, Chris, for your comments. Look, on budget and EPL work, we continue to engage with the government. I would say it's a constructive engagement about the future of oil and gas and fiscal policy. And I could say that Ithaca has been an active participant in these discussions. I think more generically, I think what the industry needs and what we need is certainty, right? So we need to understand that there is a path forward that there is certainty, there is stability in the fiscal regime that we can plan ahead and do our capital allocation properly. So without getting into details of what we expect or what do we need, obviously, we think that the current environment is far from being windfall in any way, shape or form and needs to be revisited and reshaped. I think the most important thing for the industry is certainty. Luciano?

Yes. Well, on Rosebank, the key indicators, if you want, for that are, in fact, the sail away date, the amount of work that might eventually be carried over at the sail away because the scope is -- the objective is to minimize any carryover work and then the efficiency of the hook-up campaign during summer next year and of the commissioning. As you know, in these projects, the last steps are usually the more -- the pretty intense one -- intensive one to do so. So if everything goes, and we'll have a better view of it in Q1 next year, how efficiently this last month in the docs have been and have been executed. And so how quickly can all the commissioning be carried out in the campaign, so to be -- maybe to tell us whether we're going to hit the end of 2026 or into 2027. Although, I mean, the impact on the overall results is limited because there is still a ramp-up, which is pretty smooth in terms of bringing in new wells.

Great. Let's all keep our fingers crossed to some sanity and breaking out for the budget next Wednesday.

Our next question comes from James Carmichael from Berenberg.

Just a couple, please. I guess another one linked to the budget. You've obviously got your -- or you talk about your consolidation strategy on the UKCS. You obviously got quite a bit of financial firepower on the balance sheet now. And from what you're seeing, I guess, the U.K. has been fairly active on the M&A front over the last 12 months or so. But from what you're seeing, assuming some sort of sensible outcome in the budget, do you see sort of lots of M&A there that's waiting to go, I guess, if we get the right result next week? And then -- and I guess we could include Cambo in that maybe as a follow-up. And then just on Captain, I was wondering if you could provide a bit of color on the increased scope of work that extended that shutdown. And also sort of specifically what you're talking about when you say safeguarding the environmental and operational performance. Were there some sort of issues that you uncovered as you were going through that work? Just some color on that would be great.

Thanks, James. I'll take the first one. Look, on -- again, as I said earlier, we're not going to say much on -- further on EPL. I think we'll all wait and see. And as Chris said, we'll expect some sanity and sensibility coming out of this process. But again, as mentioned, there is engagement. So we're hopeful that this will land on a sensible place. If this has a direct effect on M&A, I'm looking at the past 12 months or 15 months. And you've seen it's been quite an active M&A scene in the UKCS, right? So from Ithaca and Eni and Shell and Equinor with Adura and NEO and Repsol or NEO NEXT, and our acquisitions and [ Calane ] acquisition. So there's been -- it's been active. I'm not sure there is a direct effect on M&A. Obviously, I think that if EPL comes in a sensible place, what you'll see is companies planning in the future and, hopefully, CapEx programs to keep investing and growing in the UKCS. We are -- as you know, are active. We're looking -- the way we're looking at this is always through our value lens and our investment criteria, which are very clear to us. So we keep looking at opportunities and to try and high-grade our portfolio, which is -- as your portfolio is more -- is higher quality, it's obviously getting more difficult to high grade, but we're always looking at the best. Cambo, I think it's the same thing, right? Once we get certainty and we know what the future holds, would enable us to plan accordingly. Again, it's a project that we would like to do under the right circumstances. Odin, maybe you would like to take -- sorry?

Yes, I was going to say on the Captain points, we've been joined by Odin Estensen, our Chief Operating Officer, for the Q&A just now. So I'll pass over to Odin.

Yes. Hello, everybody. So of course, Captain is a super important asset for us. This was a TAR where this was big from the beginning. And when you do a TAR like this, you are gathering key information, and we have done lots of inspections. So we have learned things underway, which we then took a decision on in order to set Captain up to be the kind of big, reliable machine for the future for us. We saw that it was necessary to invest a little bit further into -- particularly into optimizing our environmental performance and also the operational performance going forward. And that's why we decided to invest further and take the time now setting up Captain for reliable high performance in the years to come.

Our next question comes from Cian Evans-Cowie from Bank of America.

Just 2, please. So the first one, a bit of a clarification question. You've obviously upgraded the exit rate guidance for the year. So just wondering how we should think about this? And if you could clarify, please. Is this -- maybe it's the flow rate you're expecting at the very end of December? Or is it more of a 4Q run rate? Or is it a steady rate that you should be able to hold comfortably by the end of the year? Or perhaps it's more of a peak production rate that you'll hit for maybe a day, but not much longer. So just a bit of clarifying on that, please. And then you've said in 3Q, you experienced unprecedented levels of summer shutdowns. Now I wonder going into next year and beyond, how should we think about this? Is this now the run rate we should expect for the third quarter going forward?