Windfall tax: Ithaca’s North Sea output to plunge as much as 20%

Aberdeen firm also announces potential deal for stake sale in exchange for Eni's UK assets.

By Keith Findlay

March 27 2024, 11:55 am

Ithaca Energy's North Sea assets include a stake in the Montrose platform. Image: Repsol

North Sea oil and gas firm Ithaca Energy reported a scaling down of investment and output, because of the windfall tax, in its latest results.

The Aberdeen-based company also revealed a potential stake sale – involving up to 39% of the business – to Italy’s Eni.

A spokesman for Ithaca told The Press and Journal the continued uncertainty around the fiscal environment was “unhelpful”.

Ithaca’s longer term confidence

But he added: “We are focused on building a business with the size and scale to thrive whatever the fiscal regime.

“Longer-term, we believe that ultimately UK Government will see the overwhelming benefits – environmental, economic and energy security – of maintaining a domestic oil and gas industry.”

Ithaca was floated on the London Stock Exchange in 2022. Image: Ithaca Energy

Ithaca’s shares ahead almost 3%

Shares in FTSE 250 firm Ithaca closed up nearly 2.4% at 145.6p after it reported pre-tax profits of £239.3 million for 2023.

This is down from nearly £1.8 billion the year before.

The firm’s 2023 profits performance was hit by write-downs on development and production assets totalling nearly £442m.

Revenue for the latest period came in at £1.84bn, down from £2.06bn previously.

Barrels of oil against the background of American dollars. — North Sea firms say the controversial windfall tax is hitting their investments as well as profits. Image: Shutterstock

Ithaca paid taxes totalling £68.4m last year, down from nearly £816m during 2022.

Both years’ tax figures were impacted by windfall tax charges or credits and deferments.

The windfall tax, or energy profits levy (EPL), on North Sea energy firms was recently extended to March 31 2029.

Ithaca Energy's headquarters at Hill of Rubislaw in Aberdeen. — Ithaca Energy’s headquarters at Hill of Rubislaw in Aberdeen.<br />Image: Chris Sumner/DC Thomson

Ithaca said a reduction in investment in near-term projects as a direct result of the EPL included deferred or cancelled work on its Greater Stella Area, Montrose Arbroath Area, Elgin Franklin Area and Alba assets.

This is expected to cut the company’s total production by as much as 20% during 2024.

Last year, Ithaca’s output of oil and gas totalled 70,239 barrels of oil equivalent (boe) per day.

This is forecast to plunge to 56,000-61,000 boe per day this year.

We believe that ultimately UK Government will see the overwhelming benefits – environmental, economic and energy security – of maintaining a domestic oil and gas industry.”

Beyond 2024, the group expects a return to production growth towards 80,000 boe per day by 2027.

Output will be boosted by investment in Ithaca’s enhanced oil recovery project on Captain as well as first production from its Rosebank development west of Shetland.

A deal with Eni would see the Italian company take a stake of 38-39% in Ithaca.

In return for giving away its shares, Ithaca would take over Eni’s UK operations.

Deal with Eni would create UK’s second largest oil and gas firm

That would make the Aberdeen firm the second largest independent operator in the UK North Sea after Harbour Energy.

Ithaca would be producing more than 100,000 boe per day, thanks to interests in six of the UK’s 10 biggest oil and gas fields.

This would include output from Rosebank, where the firm is partnered with Norway’s Equinor. Start-up on Rosebank is expected during 2026-27.

Ithaca’s deal with Eni, which recently took over UK North Sea firm Neptune Energy. has an “exclusivity” time bar of four weeks.

Floating production storage and offloading vessel Petrojarl Knarr. — Floating production storage and offloading vessel Petrojarl Knarr, which will be used on Rosebank. Image: Petrojarl/Teekay

‘Strong’ financial performance

Ithaca highlighted adjusted £1.36bn of earnings before interest, taxes, depreciation, amortisation and exploration costs during 2023, down from £1.52bn the year before.

Interim chief executive and chief financial officer Iain Lewis said: “I am pleased to share a strong set of financial results for 2023, despite the significant fiscal and political headwinds we have faced in the year.

“The energy profits levy continues to have a direct impact on investment in the UK North Sea, with projects across our operated and non-operated deferred or cancelled.”

Extending the EPL by another year highlights “continued fiscal uncertainty” for the industry, he added.

Ithaca Energy interim chief executive and CFO Iain Lewis. Image: Ithaca

Russ Mould, investment director at financial services firm AJ Bell said: “Ithaca Energy may talk about reducing investment in the UK North Sea, thanks to the energy profits levy.

“But its actions and words are somewhat at odds, given the announcement of a proposed share-based deal with Italy’s Eni to acquire the latter’s UK oil and gas fields.

Treasury treatment ‘a bone of contention’ in North Sea sector

“This deal makes Ithaca the second largest operator in the region and leaves Eni with a near-40% stake in the group.

“That said, disquiet in the industry at the way companies have been treated by the Treasury is real, with the lack of consistency, as much as the absolute rate of tax, a bone of contention in the sector.”