Back the next chapter of Ithaca's odyssey

Stella sits in the Central Graben area of the North Sea, surrounded by large oil-producing fields long favoured by the majors. Ithaca first acquired licences for the area in 2008, and within two years had drilled an appraisal well and a secondary sidetrack wellbore, encountering light oil and identifying the edge of the field's oil and gas column. Ithaca has a 55 per cent working interest in the project - the rest being owned by Dutch co-investor Dyas and oil services contractor Petrofac - representing a net resource base of 16.4m barrels of oil equivalent. The good news is that the figure represents just two fields in the Greater Stella Area: 29/10a and 30/6a. Management expects the purpose-built FPF-1 floating production unit to be repeatedly used to cheaply develop satellite fields at Harrier, Austen and Vorlich.

Although it has dented Ithaca's valuation, the long delay in the rig's construction has been something of a blessing, as the company has avoided selling too much oil at the bottom of the market, while maximising the benefits of its excellent hedging programme. This has kept the price booked for the majority of this year's 9,585 barrels of daily production close to $60. Once Stella is running at full capacity, Ithaca's production should more than double to around 25,000 barrels of oil equivalent a day. While a barrel of Brent crude now fetches around $50, the rout in the oil services market has helped to significantly lower overheads. Unit operating costs are already $23 a barrel across Ithaca's entire portfolio of North Sea fields; with Stella online, these costs are expected to drop even further towards $20 a barrel.

This should lead to a surge in net cash inflow next year, with broker Peel Hunt forecasting that cash generation before financing will rise from $100m to $178m, allowing Ithaca to continue to drive down debt. Any further improvement in the oil price is only likely to accelerate that deleveraging effect, as will the $1.75bn tax credit pool accrued when Ithaca was in cash-burn mode. Uses of this growing cash pile will probably be detailed in an operational update in January, but we can surmise from management comments that turning the floating production system into a hub for the Greater Stella Area will be a big priority. This, as chief executive Les Thomas has argued, should provide a cost-effective and profitable method of developing surrounding fields regardless of the oil price.