From being 25 per cent to the good at the start of the week, our early year 'buy' tip (142p, 19 Jan 2012) Ithaca Energy moved into negative territory after the Canada-based North Sea oil explorer ended weeks of takeover speculation by announcing that it had "ceased discussions with all parties" regarding the potential acquisition of the company. The news obviously didn't sit well with investors – many of whom were obviously expecting a bidding war – and the resultant sell-off drove down Ithaca's share price by nearly a third.
Hardly a red letter day for Ithaca, but the removal of the speculative element of the share price has created an opportunity for value investors, particularly as the bombshell came just a day after Ithaca reported first oil from its flagship Athena project – news that was welcomed by another one of our favoured North Sea specialists – Trap Oil – which is in the process of securing a 15 per cent stake in the field.
The Ithaca board decided that the deteriorating economic climate and consequent softening in Brent Crude prices made it unlikely that the discussions would result in an offer that would adequately reflect the true value of the company. Ithaca now plans to go it alone, and to that end has secured a three-fold increase in its debt facility via a fully underwritten $400m arrangement with BNP Paribas. The deal actually represents a vote of confidence in Ithaca given that the French bank had been previously paring back its financing in the North Sea and its arrangement with Ithaca is devoid of any restrictive covenants.
Some upbeat news from the North Sea was provided by Ithaca's Aim stable-mate, Xcite Energy. The share price of the company bubbled up by 4.7 per cent after it announced that drilling at its 9/3b-7 well on the Bentley field had intersected a reservoir section of 2,200 feet on the way to its target depth of 9,377 feet. While there's nothing unexpected in the finding, it further validates Xcite's interpretation of the Bentley geology. The remainder of the planned operations, including drilling of the second reservoir section, will now be completed prior to the start of the production test. Watch this space.
