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Ithaca: from prey to potential predator

BROKER TIP: Ithaca's North Sea odyssey continues as the oil company announces a smart-looking acquisition and has boosted its fire-power with a new $430m syndicated debt facility
October 12, 2012

What's new:

■ North Sea acquisitions

■ New syndicated debt facility

■ Operational cash-flow to rise significantly

IC TIP: Buy at 126p

North Sea-focused Ithaca Energy (IAE) has enhanced its production profile through an agreement with a subsidiary of US-based Noble Energy to acquire an additional 12.9 per cent stake in the Cook field, in addition to a 14 per cent holding in the nearby MacCulloch operations. The respective fields are located in the UK Central North Sea and operated by Shell and ConocoPhillips. Ithaca is forking out $38.5m (£23.8m) for the interests, which will add 3.4m barrels of oil equivalent (boe) to reserves, and boost net daily production by 1,100 boe through to the end of 2013 at least.

The effective price of $11.30 a barrel is at the lower end of the range for North Sea assets, but it is unlikely to be the last deal finalised by Ithaca this year; the company has just signed a $430m syndicated debt facility with BNP Paribas as lead arranger, together with six other banks, which is available to fund ongoing development activities and asset acquisitions. Ithaca, itself, has been the subject of takeover speculation in the past but, given cash resources of around £94m, and the new Paribas facility, the boot is now on the other foot, with the likes of Valiant Petroleum and Lochard Energy now being touted as possible targets for the Aberdeen-based explorer.

RBS Capital says...

Outperform. Ithaca's stake in the Cook field increases to 41.3 per cent on completion of the deal, strengthening the company's position as the largest owner in the asset. We believe Ithaca could look to assume operatorship of the field from Shell, which should enable the company to press ahead with opportunities for incremental reserve and production growth from the 16m barrel Central North Sea field. We expect Ithaca to provide further details on both the Cook and MacCulloch fields alongside its year-end reserve report. The additional near-term production should also enable Ithaca to accelerate the monetisation of its tax losses.

Cenkos says...

Buy. We estimate that the respective Cook and MacCulloch interests are worth 12p and 14p a share on a risked basis. Ithaca is undervalued with the market assigning a value of approximately $7.70/boe on the Proven & Probable (2P) reserves alone, with little or no value assigned to the exploration portfolio. Given current production, its asset base, and the current oil price of $111 a barrel, we would expect the company to be valued in the region of 233p a share, or an equivalent of $16.30/2P boe.