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Analysts highlight challenge facing North Sea oil and gas firms

Analysts highlight challenge facing North Sea oil and gas firms


North Sea-focused Ithaca Energy may need to resort to acquisitions to underpin its growth according to analysts who have highlighted the particular challenges firms face in the area.

Credit specialists at Fitch said Ithaca was in a strong financial position but this might weaken unless the company beefed up its production base.

In a note on Ithaca Fitch said: “Ithaca’s reserves are low, and it may need to resort to acquisitions to replenish reserves and maintain a stable production profile.”

The agency added: “Consistently low oil prices could have negative implications for Ithaca’s financial and business profiles, given its low proved reserve life and high cost of production.”

The comments highlight the challenges that are being posed for oil and gas firms in the North Sea by the plunge in commodity prices triggered by the coronavirus.

Fitch said: “Ithaca’s cost position with an operating expenditure of $15 per barrel oil equivalent in 2020 is fairly high though typical for the United Kingdom Continental Shelf, and could put the company at a disadvantage if low oil prices persist.”

Israeli-owned Ithaca significantly increased its exposure to the North Sea through the acquisition of a $2bn portfolio from Chevron last year.

 Fitch noted that Ithaca benefited from relatively low levels of debt and “sound standalone liquidity”.

However, Fitch left Ithaca on a rating watch negative (RWN). “The RWN reflects the potential pressure Ithaca may face due to ongoing liquidity issues experienced by its 100% parent, Delek Group,” said Fitch.

The agency noted that Delek is considering making disposals to help reduce its debts.

Last month Delek said it was in talks about a plan to merge Ithaca with an international firm in a move that could help it recoup some of its investment in the company.

 Delek acquired Ithaca in a £1 billion deal in 2017.

Fitch maintained an overall B rating on Ithaca. It increased the rating on $500m bonds issued by the firm to B from B-.

Brent crude sold for around $41.60/bbl yesterday, compared with around $70/bbl in January.

Separately, Premier Oil is reported to be seeking to secure a further reduction in the price it will have to pay for North Sea assets it agreed in January to acquire from BP.

Source: The Herald

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Published: 25-09-2020

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