NORTH SEA oil and gas firm Ithaca Energy has struck a $170 million (£100m) deal to buy stakes in three “high quality” oil fields, funded by the issue of $300m in bonds, as part of its strategy of broadening its production portfolio.
The acquisitions will be funded through the issue of $300m in bonds, due for repayment in 2019, which will also be used to partially pay down its reserves-based lending facility.
Ithaca chief executive Les Thomas said: “The transaction is directly in line with our strategy to further diversify and expand our producing asset portfolio. Moreover, each of the assets has clearly defined upsides that provide the opportunity to generate significant additional value.”
The deal, with Sumitomo subsidiary Summit Petroleum, will see the Aberdeen-based firm buy a further 20 per cent stake in the Shell-operated Cook field, in which it already has a 41.3 per cent interest. Ithaca is also acquiring 7.48 per cent stakes in the Pierce and Wytch Farm fields, operated by Shell and Perenco respectively.
Analysts at SP Angel said the price being paid by Ithaca looked “a little rich” at first glance, given that the three fields are “past their respective prime”.
However, the broker added: “We must factor in the fact that the company now has a controlling interest in Cook. With the news that the company is also undertaking a $300m bond offering, it would appear on initial inspection that the company is gearing up for its next stage of growth.”
Cook, in the central North Sea, was discovered by Amoco in 1983 and production started 17 years later. The development consists of a single well tied back to Shell’s Anasuria floating production, storage and offloading (FPSO) vessel, which also serves as a host facility for a number of nearby fields.
In February, Shell put the Anasuria FPSO up for sale – along with its Nelson and Sean platforms – as it seeks to ramp up disposals and focus on improving shareholder returns after a shock profit warning, although the oil major insisted it remained committed to the North Sea despite the planned disposals.
By increasing its holdings in Cook, Pierce and Wytch Farm, Ithaca will boost its net production by about 2,500 barrels of oil equivalent a day and add about 12 million barrels of proven and probable reserves, of which more than 90 per cent is estimated to be oil.
Analysts at Cenkos Securities, which rates Ithaca as a “buy”, raised their price target for the firm’s shares from 181p to 209p following the deal.
The broker said: “Overall, this is very exciting for Ithaca as we estimate the acquisition will boost current net resources by over 20 per cent. It both enlarges and diversifies the existing asset portfolio, and adds significant value for the company.”
In a note to clients, Westhouse Securities said: “The acquisition is in line with the company’s strategy of acquiring producing assets and diversifying its asset portfolio. In 2014, the company was targeting from 11,000 to 13,000 barrels of oil a day and its main focus is on bringing the Greater Stella area development onstream in mid-2015.”
The results from a third test well at Stella are due around the end of this month. Ithaca, which is listed in London and Toronto, saw its profits leap 38 per cent to $40.2m last year as it reaped the benefits of its £203m takeover of rival Valiant, formed in 2004 to develop assets in the northern North Sea. That deal helped average production more than double to 10,392 barrels a day.