Ithaca Energy (LON: ITH) praised its “robust” cash flow but warned of the “lingering impact” of the UK government’s fiscal policy in the oil and gas sector and the “long-term damage” it will cause.

Ithaca, which is set to become one of the largest producers in the North Sea after completing its merger with Italy’s Eni later this year, said its net income fell in the first half of the year. However, the group stressed that its net cash flow, which also fell compared to the same period last year, remained “robust” despite reduced production and lower gas prices.

It confirmed that the controversial Rosebank oil field, in which it holds a 20% stake, was on track for first oil production in 2026/27 after completing the installation of all nine subsea structures ahead of schedule in July in a “major milestone”.

Extortion tax

Ithaca highlighted the “ongoing impact” of the Energy Profits Levy (EPL) on investment and the “long-term damage that further changes to the tax system will do to the achievement of the UK’s energy security and decarbonisation goals”.

The company reported net profit of $105.7 million (£80 million) for the first half of 2024, a significant decline from the first half of 2023, when it reported $159.6 million (£122 million).

Ithaca said net profit was negatively impacted by after-tax impairments related to decommissioning liabilities of $19 million (£14.5 million).

Net cash flow was 20% lower compared to 2023, with the company reporting $559.8 million (£427.3 million).

Ithaca Energy’s acting CEO and CFO Iain Lewis said the company continued to execute on its strategic priorities in the first half of the year and experienced a “strong period” of cash flow generation.

“With a robust liquidity position at the end of the first half of the year and increased financial strength from
“The addition of Eni UK’s unleveraged assets will provide us with significant financial firepower following completion of the transaction to support the execution of the Group’s strategy and shareholder returns, while paving the path to investment grade,” said Lewis.

Cambo, Fotla and Schiehallion

In addition to progress on the Rosebank development, Ithaca highlighted the completion of the second phase of Captain’s Enhanced Oil Recovery (EOR) project, which will double the field’s net production when it reaches peak production in 2026.

The company is also advancing the farm-down processes for its Cambo and Fotla projects. Ithaca aims to complete the selection of the development concept for Fotla in the second half of the year, with a final investment decision “contingent on financial conditions.”

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Elsewhere, Ithaca said production at its non-operating joint venture fields was impacted by operational issues, including delayed start-up and limited production at Pierce, productivity issues at the Jade J13 well and ongoing operational issues at Schiehallion.

In Schiehallion, Ithaca, it was said that operator BP was having problems with the Glen Lyon FPSO, but a return to full capacity was not expected until the end of the third quarter.

Overall, Ithaca recorded approximately 53,000 barrels of oil equivalent per day (boe/d), compared to just under 76,000 boe/d in the same period last year.

Ithaca and Eni deal

Ashley Kelty, research analyst at Panmure Gordon, said the merger with Eni was the “most important development” for Ithaca in the first half of 2024.

“A large pool of tax losses will help mitigate the impact of the UK tax system, although we believe this is still a bold move to put more pressure on the UK in the face of an openly hostile (and ill-informed) government,” Kelty said.

However, it will still be difficult for Ithaca to complete the deal, Kelty said, because parent company Delek “will have to issue a large number of shares just to maintain the free float.”

“This could lead to an overhang and potential pressure on stocks in the coming months,” he said.

“The results were well below consensus and the downgrade of the forecast is a concern, although the ability to close the deal arguably remains a major issue.”