Ithaca and its wholly owned subsidiary Ithaca Energy (UK) Limited, an independent oil & gas company with exploration, development and production assets in the UK sector of the North Sea, has announced its financial results for the year ended December 31, 2008, together with a reserves update.
Commenting, Iain McKendrick, Chief Executive Officer of Ithaca, said, "In 2008 the oil industry and wider macro economy experienced unprecedented volatility. Ithaca accessed the equity market for C$75 million ahead of the markets closing to smaller oil companies in the third quarter. As a result of funding constraints in the debt markets Ithaca looked for a financing solution from within the industry and moved swiftly to conclude the strategic Dyas portfolio deal. The Dyas transaction preserved value for Ithaca shareholders whilst addressing our funding shortfall and allowed us to complete the Beatrice deal as well as the Jacky development. Ithaca is now well funded to meet its 2009 expenditure program, resilient to a prolonged low oil price environment and also ongoing constraints around accessing new debt and equity."
2008 was a year of exceptional market turbulence with volatile oil prices and the closure of both debt and equity markets for smaller development oil companies such as Ithaca. Despite these conditions, the Company managed to complete many of the plans set out at the start of the year. These plans included closing the previously announced transaction to lease the Beatrice field from Talisman, tie in the Jacky development and materially advance the development of the Athena field. In addition, Ithaca also advanced the Polly and Manuel prospects by drilling wells on both.
In 2009 and 2010, the costs of the Company's anticipated development activities are expected to be met through a combination of existing cash resources, cash flows from production and selective farm-outs. While these costs are likely to be significant, the Company is assuming that both the debt and equity markets remain closed and therefore has budgeted for its expenditure programme accordingly.
Exploration and Appraisal Drilling and Ongoing Field Development
Greater Beatrice Area
In the first quarter of 2008, Ithaca drilled its Polly Prospect on Block 12/26c (Ithaca 59.8% post Dyas transaction) and the Manuel prospect in block 11/29 (Ithaca 61.09% post Dyas Transaction). The Polly well has been suspended for future evaluation having encountered oil in the Beatrice Sandstone and the discovery will be considered for further activity when ranked with other opportunities in the Beatrice area. The Manuel well encountered oil saturated sands of Jurassic age of less than reservoir quality.
On November 10, 2008 Ithaca announced that it had closed a deal to lease 100% of the Beatrice oilfield and Nigg Terminal (net 74.75% following completion of the Dyas Transaction) from Talisman for a minimum of 3 years, extendable at Ithaca's election for the duration of production, in consideration for the sum of Pounds Sterling 10 million (approximately US$16.5 million at the time). After cessation of production Beatrice will be returned to Talisman who remains responsible for decommissioning and abandonment of the facilities. Ithaca has appointed Wood Group Engineering to be the Duty Holder for the Beatrice facilities under UK offshore regulations.
The acquisition of the Beatrice field provided Ithaca with its first oil production of 2,000 bopd and control of the infrastructure in the area. Since acquiring these assets, Ithaca has successfully reduced costs whilst sustaining higher production rates.
The Company entered in to a sales agreement with BP Oil International Limited ("BPOIL") on December 23, 2008 to market the Beatrice and Jacky crude oil through to December 31, 2009, extendable by mutual consent for a further year. This agreement prices the monthly production against set benchmarks resulting in regular payments, irrespective of when BPOIL elects to lift the oil from the Nigg tanks. This agreement was extended on March 25, 2009 to a five year deal covering all of Ithaca's qualifying oil production in the North Sea. Under a separate transaction, the Company has agreed to lease the spare Nigg oil tank to BPOIL for a fixed monthly payment for a term of one year.
The 67.28% owned Jacky field received Field Development Plan approval from the Department of Energy and Climate Change ("DECC") on November 10, 2008.
The Company has contracted with Northern Offshore for the immediate mobilization of the Energy Enhancer jack-up rig to conduct the Jacky completion work. It was originally intended that the Ensco 92 rig would conduct this work but as a result of the rig being delayed an agreement was reached with Ensco Offshore UK Limited to defer Ithaca's commitment to this rig for up to one year. The deferred commitment, net to the Company, is US $4.05 million.
First production is currently expected on or about the end of March 2009 at an anticipated 2009 gross rate of 7,500 bopd.
On March 10, 2008 Ithaca commenced drilling a well on Ithaca's then 70% owned Block 14/18b (Ithaca 52.33% post Dyas Transaction) to test a potential southern extension of the Athena oil pool. The well penetrated the targeted Lower Cretaceous Leek sands, however although the formation was found to be oil-bearing, it was of lower quality than is found in the Athena Reservoir. The well has been suspended pending evaluation and possible sidetracking for use in the Athena development scheme.
On July 21, 2008, the Company announced that it had successfully tested 28 degree API sweet oil at a stable rate of 2,330 barrels of oil per day ("bopd") from its third well (14/18b-18) on the Athena field.
Following the dramatic decline in the oil price during the second half of 2008, the Athena development has been put on hold until such time as the oil price recovers and the Company sees a price correction in the oil services sector. This is currently being investigated to determine the project's current commerciality.
2009 Subsequent Events
On December 26, 2008 the Company commenced the drilling of the 43/21b-A well, to explore the Carna prospect in the UKCS Southern Gas Basin. The Carna prospect, operated by Venture North Sea Gas Limited, is a significant potential gas-bearing structure located in Block 43/21b, in which Ithaca Energy has a 29.9% interest (post Dyas Transaction). Through a farm-out agreement, net drilling costs to Ithaca of this well were 22.4% of the total.
The Carna prospect lies adjacent to the Garrow and Kilmar gas fields. The drilling of the well was completed by March 5th 2009. Electronic logs indicated the well intersected a gas bearing interval of 1,490 ft (TVDSS), with net pay of 127 ft (TVDSS). On March 20, 2009 the Company announced that the Carna Gas well had been successfully tested at stabilised rates in line with expectations. The test results are currently being analyzed.
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