Ithaca Energy plc today announced its financial results for the six months ended 30 June 2023

ITHACA ENERGY PLC

(“Ithaca Energy”, the "Company" or the “Group”)

First Half Results for the Six Months to 30 June 2023

Strong H1 production performance, continued strategic and operational progress

Ithaca Energy, a leading UK independent exploration and production company, today announced its unaudited financial results for the six months ended 30 June 2023.

¹ Non-GAAP measure as set out on pages 45 to 47.

H1 2023 Operational and strategic highlights

• Strong H1 production of 75.8 thousand barrels of oil equivalent per day (kboe/d), supporting full year 2023 production guidance (H1 2022: 66.7 kboe/d)
  • Production growth driven by the contribution of producing asset additions from M&A transactions completed in the first half of 2022
  • Production split 66% liquids and 34% gas
• Good progress made in H1 2023 against our BUY, BUILD and BOOST strategy preserving optionality across our portfolio with the aim of maximising value to shareholders

BUY

• Acquired the remaining 40% stake in the Fotla Discovery, together with three exploration licences, providing Ithaca Energy with full control over pre-final investment decision (FID) work and timing (subject to completion)
• Entered into marketing agreement with Shell U.K. Limited in relation to its interests in the Cambo field, representing a meaningful step towards securing an aligned joint venture partnership that would enable the future progression of the Cambo project towards FID, subject to regulatory and licensing approval processes and market conditions

• Pre-FID work continues across the Group’s high-value greenfield and brownfield development portfolio. Focus remains on finalising development plans and financing for Rosebank
• Positive exploration drilling results at K2 prospect, with the decision to proceed with an appraisal side-track (Ithaca Energy operated, working interest 50%) highlighting Ithaca Energy’s impressive exploration track record

BOOST

• Production performance in H1 2023 driven by high production efficiency across our operated assets in Q2 of 93%
• Material project scopes completed at Captain Enhanced Oil Recovery (EOR) Phase II with four of the seven wells drilled. Critical EOR turnaround scopes scheduled for H2 2023
• Front End Engineering Design (FEED) activity ongoing to explore the potential for electrification of the Captain field, demonstrating our continued focus on decarbonisation initiatives across our portfolio

H1 2023 Financial highlights

• Announced second interim 2023 dividend of $133 million payable in September 2023, taking our total year to date interim 2023 dividend to $266 million, with targeted total dividend of $400 million reaffirmed for financial year 2023
• Group adjusted EBITDAX up 8% to $979.7 million (H1 2022: $907.4 million), driven by higher production, despite lower average oil and gas prices
• Realised oil and gas prices (respectively) of $85/boe and $82/boe before hedging results and $83/boe and $125/boe after hedging results (H1 2022: $107/boe and $144/boe before hedging results and $93/boe and $105/boe after hedging results)
• Strong cost control, despite inflationary headwinds, delivering operating costs of $272.1 million ($19.8/boe (H1 2022: $19.5/boe)), allowing the Group to narrow its full year 2023 guidance range
• Adjusted net income of $253.2 million (H1 2022: $233.4 million)
• Statutory net income $159.6 million (H1 2022: $1,557.7 million) reflecting a $73.7 million post-tax impairment of the Greater Stella Area due to reduction in planned activity, as a direct result of the Energy Profits Levy (EPL) and falling gas prices; H1 2022 includes $1,324.3 million gain on bargain purchase which arose from the acquisitions of Marubeni UK and Siccar Point Energy
• Net cash flow from operating activities of $691.0 million (H1 2022: $989.0 million)
• Producing asset capex of $188 million, allowing the Group to reduce its full year 2023 guidance range

• Strong cash flow generation supporting further deleveraging of the balance sheet in the period. Adjusted net debt of $698.7 million at 30 June 2023 (31 December 2022: $971.2 million; 30 June 2022: $1,414.6 million)
• Group leverage position of 0.35x adjusted net debt to adjusted EBITDAX (30 June 2022: 0.91x)
• Successful redetermination of Reserves Based Lending (RBL) facility in June 2023
• Post period end, signed extension of bp offtake agreement and, in parallel, entered into new five- year $100 million loan facility agreement with bp (yet to be drawn)

Outlook

FY 2023 Management Guidance and Outlook

• Management provides the following updates to previously provided guidance ranges and activities for full year 2023 (FY 2023):
  • Production guidance reaffirmed for FY 2023 of 68-74 kboe/d;
  • Operating cost guidance narrowed at the lower end of the range for FY 2023 from $560- $630 million to $560-$610 million; and
  • Producing asset capital cost guidance for FY 2023 reduced from $400-$460 million to $390- $435 million
    

• Turnaround activity across operated and non-operated base scheduled for Q3 2023
• Captain EOR Phase II project H2 2023 activities include the continued drilling of Area E wells before moving to Area D to commence drilling operations and turnaround activity in Q3 that will support polymer injection into the subsea wells in 2024
• Continued focus on maturing high-value development projects and preserving optionality across our portfolio while prioritising capital allocation to maximise sustainable shareholder returns
• Management reaffirms its commitment to targeted total dividend of $400 million for financial year 2023

Energy Profits Levy impact beyond 2023

• In June 2023, the UK government published terms of reference for the oil and gas fiscal regime review and committed to engaging with industry stakeholders. One of HM Treasury’s stated objectives is to achieve a “simpler, more predictable, and stabler regime” (HM Treasury)
• In the meantime, until the fiscal regime is improved, as a direct result of the Energy Profits Levy, investment across our operated and non-operated portfolio has and will reduce, including the deferral and cancellation of certain 2023 and 2024 projects, impacting medium-term production outlook, with production in 2024 expected to be lower than 2023 levels. As part of the Group's strategy, we continue to leverage our M&A capabilities evaluating potential inorganic opportunities with the clear intention to increase our production in the medium-term
• We are in the process of working through our medium-term outlook, incorporating the full impact of EPL at an asset level and updating subsurface models for the latest production history along with the potential positive effect of new opportunities we are currently reviewing and we will share an updated view of our medium-term production outlook later in the year

Gilad Myerson, Executive Chairman, commented: “Ithaca Energy’s robust H1 performance demonstrates continued strong delivery across our BUY, BUILD and BOOST strategy and our capital allocation policy in H1 2023. I am delighted to announce today the second tranche of our 2023 interim dividend, taking our total year to date dividend in 2023 to $266 million, in line with our commitment to shareholders at IPO.

The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea and Ithaca Energy’s own investment programme across its diverse high-quality operated and non-operated asset base. We continue to constructively engage with the UK government to highlight the impact of the current fiscal regime to the industry’s outlook and to the UK government’s stated energy security and Net Zero ambitions.”

Alan Bruce, Chief Executive Officer, commented: “We are pleased to share a strong set of results for the first half of 2023, with growing Adjusted EBITDAX as a result of production of over 75 kboe/d in the period. Production efficiency across our operated assets has been high demonstrating our strong operational capabilities.

We continue to take a disciplined approach to capital investment including at our Captain asset where we are progressing the EOR Phase II project construction activities as well as evaluating emissions reduction options. We reported successful exploration drilling at our K2 prospect in July which further strengthens our high-quality development portfolio.”

Half-year 2023 performance in review

Strong operational performance in H1 supports the Group’s full year 2023 outlook

Continued focus on personal and process safety with one Tier 1/2 process safety event recorded as a result of a marine gas oil leak in the Captain FPSO power generation process. The Group’s serious incident and fatality rate remained at zero during the period.

Production in the first half of 2023 rose to an average of 75.8 kboe/d (H1 2022: 66.7 kboe/d), driven by the contribution of producing asset additions from M&A transactions completed in the first half of 2022. Production in the six-month period was split 66% oil and 34% gas.

The Group’s operated assets accounted for 54% of total H1 2023 production (H1 2022: 63%) with strong production efficiency across the Group’s operated portfolio. In the second quarter production efficiency was 93% with the Captain field recording its longest ever production run between field outages.

H1 2023 non-operated production was impacted by the delayed start-up and curtailed production of the Pierce field and a number of unplanned outages at Schiehallion that have now been resolved.

As we enter the second half of the year, the Group will embark on a series of planned maintenance campaigns across its operated and non-operated asset base including a scheduled ~25-day turnaround at Captain, in preparation for the next stage of the EOR Phase II project.

With strong first half production performance; we reaffirm our 2023 production guidance of 68-74 kboe/d.

Operating costs in H1 2023 of $272.1 million (H1 2022: ($234.4 million), representing a broadly flat net unit opex cost of $19.8/boe (H1 2022: $19.5/boe).

During the first half of the year, the Group launched an internal cost optimisation project focused on maintaining tight control on expenditure across our operated and non-operated assets and corporate overhead costs.

In the medium-term, the Group has ambitions to materially reduce the average operating cost per barrel by transitioning our portfolio to earlier-life assets with lower operating costs.

Operating cost guidance narrowed at the lower end of the range for the year ended 31 December 2023 from $560–$630 million to $560–$610 million supported by stringent focus on ongoing cost control.

Total net producing asset capital expenditure (excluding decommissioning) in H1 2023 of $188 million reflects the material work scopes completed at Captain EOR Phase II during the first half of the year, with the Captain field representing approximately 68% of producing asset capital expenditure in the period.

Total capital spend in the year reflects lower scheduled activity across the Group’s operated and non- operated assets, with the deferral and cancellation of capital project activities largely driven by EPL and the associated fiscal uncertainty.

Producing asset capital cost guidance reduced for the year ended 31 December 2023 from $400–$460 million to $390–$435 million, reflecting a further reduction to capital cost guidance in addition to the material reduction in guidance provided earlier in the year.

Targeted investment across our strategic pillars: BUY, BUILD and BOOST

With expertise extending across the full life-cycle of E&P operations, the Group has demonstrated its ability in the first half of 2023 to execute operations successfully across exploration, development and production activities.

During July, the Group announced successful exploration drilling at the K2 prospect together with the decision to proceed with follow on appraisal drilling. Results from the appraisal side-track are expected during September and will provide further data to determine a recoverable resource estimate and future development activity. The K2 prospect is an excellent demonstration of the Group’s BUILD strategy targeting opportunities close to existing infrastructure to maximise value.

Across our portfolio, we continue to seek to BOOST the value of our assets, including infill drilling campaigns that provide short-cycle returns and near-term cash flow generation. At Alba, preparations were underway in the first half of the year to support an infill drilling campaign that will commence in the second half of the year.

Material progress was made during the first half of the year on executing Phase II of our pioneering polymer EOR project, that will maximise recovery rates from Captain and deliver on our strategy to BOOST field performance. The project reached a number of key milestones in H1 2023 including the successful installation of polymer injection pumps, installation of the subsea umbilical distribution structure and the commencement of Area E drilling operations. In the second half of the year, activities include laying flowlines and umbilicals, installation of piping cassettes and completion of Area E drilling before moving to Area D.

Enhanced oil recovery from Captain EOR Phase I continues to perform well with the first phase of polymer injection exceeding expectations with over 11 mmbbls recovered to date. We continue to refine the pioneering polymer formulation and the development of 5th and 6th generation polymer designs, which will continue to improve cost efficiency of the polymer flood by 10%.

With material work scopes completed, first injection of polymer to support EOR Phase II is expected in summer 2024. History matching of the latest field performance, together with reprocessed seismic, is currently being worked to provide an updated subsurface model to refine the polymer response of EOR Phase II. Initial results confirm no change to overall EOR Phase II reserve recovery but shows indications of the possibility for a longer path to peak response and plateau.

The Group continues to leverage our M&A capabilities (BUY) evaluating potential inorganic opportunities both in the UK and internationally. During the period, we entered into a marketing agreement with Shell

U.K. Limited, taking a meaningful step towards securing an aligned joint venture partnership that would enable the future progression of the Cambo project towards FID. Development options for Cambo continue to be evaluated to support submission of a field development application ahead of the associated licence milestone of 31 March 2024, subject to the outcome of the marketing campaign. In July, the Group announced the acquisition of the remaining 40% stake in the Fotla Discovery providing Ithaca Energy with full control over pre-FID work and timing.

The pace of investment across our pre-FID projects has slowed as we continue to engage with the UK government to highlight the impact of the Energy Profits Levy and fiscal uncertainty on our ability to make critical decisions on large scale capital investments. We remain committed to developing our pre-FID projects and continue to engage in a constructive manner with the UK government. During the first half of the year, the Group continued its work towards supporting a final investment decision at Rosebank and in the near-term, our focus remains on finalising development plans and financing arrangements for the project, and on prioritising capital across our strategic pillars that will maximise shareholder returns in the current fiscal environment.

Meaningful decarbonisation activity

Ithaca Energy is committed to its ambitions of developing one of the lowest carbon emission portfolios in the UK North Sea by optimising our current portfolio in the short-term, and fundamentally transitioning the portfolio in the medium to long-term.

Significant progress has been made across our operated portfolio with operational improvements at FPF-1 and Captain and an ongoing turbine optimisation project at Alba. For the first six months of 2023, the GHG emissions intensity (Scope 1 and 2), from our operated assets was 24.5 kgCO2e/boe.

FEED activity commenced in April 2023 to explore the potential for electrification of the Group’s flagship Captain field, following the successful conclusion of a pre-FEED study in Q1 2023. With over 70% of Captain’s GHG emissions related to power generation, partial electrification of the asset has the potential to substantially reduce emissions intensity. The Captain electrification project is an important opportunity contributing to Ithaca Energy meeting its target of a 50% reduction in Scope 1 and 2 CO2e emissions by 2030. The delivery of the project is subject to accessing a suitable grid connection or alternative power source in a timely manner.

Robust cash flow generation and continued strengthening of the balance sheet

During H1 2023, our diversified, high-quality asset base generated net cash flow from operating activities of $691.0 million. This strong cash flow generation supported the continued deleveraging of our balance sheet in the first half of the year, with the Group reporting adjusted net debt of $698.7 million, representing an adjusted net debt to adjusted EBITDAX ratio of 0.35x at 30 June 2023.

The Group successfully completed the semi-annual redetermination of its Reserves Based Lending facility (RBL) at the end of June securing borrowing base availability of $865 million (31 December 2022: $925 million), excluding RBL facilities utilised for letters of credits. The Group continues to be well supported by a banking syndicate of nine financial institutions. The impact of the recently announced price floor, that would trigger the early sunset of the EPL based on oil prices dropping below $71.40 per barrel and gas prices below 54 pence per therm, was yet to be factored into borrowing base availability at redetermination.

Post period end, the Group signed an extension to its Offtake agreement with bp, and in parallel, entered into a new five-year $100 million term loan facility agreement with bp at a commercial interest rate, which is yet to be drawn. This new facility term provides capital out to 2028, supporting the development of pre- FID fields.

The Group continues to have sufficient available capital to support our capital allocation policy with a liquidity position at 30 June of $791.3 million (H1 2022: $320.4 million), prior to execution of the $100 million bp loan facility agreement.

Net income recorded in H1 2023 of $159.6 million, was impacted by a pre-tax impairment charge of $328.4 million (post tax $93.6 million), principally in relation to the Greater Stella Area and other gains of $72.2 million in the period. The impairment charge follows the decision not to proceed with further infill drilling at Harrier, as a direct result of the Energy Profits Levy and falling gas prices.

As we move into the second half of the year, we continue to take a disciplined approach to hedging, recognising the importance of balancing upside exposure to commodity prices while managing downside protection of our cash flows in line with the PROTECT pillar of our capital allocation policy. At 30 June 2023, the Group has a hedged position of 9.9 million barrels of oil equivalent (mmboe) (62% oil) from H2 2023 into 2025 at an average price floor of $73/bbl for oil and 161p/therm for gas. Following the period end, we have been active in placing further hedges on attractive terms and at 15 August our hedged position has increased to 11.5 mmboe (66% oil) from H2 2023 into 2025 at an average price floor of $73/bbl for oil and 159p/therm for gas.

In line with our capital allocation policy, we announced and paid the first tranche of our 2023 dividend of $133 million in March 2023. We are pleased to today declare the second tranche of our 2023 dividend of a further $133 million, payable in September this year, taking our total 2023 interim dividend to $266 million. Ithaca Energy remains committed to its declared dividend policy with a targeted 2023 total dividend of $400 million.

Outlook

Ithaca Energy remains committed to investing in its asset base in the UK North Sea and continues to constructively engage with the UK government to highlight the negative impact of the Energy Profits Levy to our investment programme and the consequential medium and long-term impact to the UK government’s energy security and Net Zero ambitions.

New investment has been severely dampened across the UK North Sea in 2023, with operators delaying or cancelling projects given the competition for capital across global portfolios. While we maintain our 2023 production guidance, due to our continued strong operational performance, it is clear that we, like the rest of the industry, will feel the impact of lower investment on our medium-term production outlook below previously guided levels.

The Energy Profits Levy has already resulted in the deferral or cancellation of investment across the Group’s operated and non-operated assets, including in the Greater Stella Area (impairment charges in Q2 2023), Montrose Arbroath Area and Elgin Franklin Area. As capital investment plans are being drawn up for 2024 and beyond, both Ithaca Energy and our diverse partner groups, are reconsidering the attractiveness of capital deployment opportunities in the context of an enduring Energy Profits Levy in what we would consider to be a return to normal commodity prices. As an inevitable consequence of the current fiscal environment, our medium-term production outlook will be impacted, such that we now anticipate production in 2024 to fall below 2023 levels. For example, the predominantly 100% Ithaca Energy owned Greater Stella Area is expected to produce over 5,000 boe/d less in 2024, with Energy Profits Levy related investment decisions driving the reduction. We are currently in the process of reviewing inorganic opportunities with the clear intention to increase our production in the medium-term.

Ithaca Energy is actively participating in the ongoing review of the Oil and Gas Fiscal Regime in pursuit of a stable and supportive fiscal regime, required to make critical investment decisions that will support the UK’s future energy security. We strongly believe that further amendments are required to the Energy Profits Levy including the amendment, and legislation, of an appropriate price floor that reflects the seasonal nature and structural changes in gas markets.

In the period to June 2023, the Group incurred Energy Profits Levy charges of $223 million.

As we navigate the continued impact of the Energy Profits Levy to our operations, we remain value-focused and disciplined, investing only in opportunities across our BUY, BUILD and BOOST strategy that we believe have the potential to deliver growth and maximise shareholder value, including the pursuit of value- accretive inorganic opportunities that strengthen short to medium-term cash flows.

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About Ithaca Energy plc

Ithaca Energy is a leading UK independent exploration and production company focused on the UK North Sea with a strong track record of material value creation. In recent years, the Company has been focused on growing its portfolio of assets through both organic investment programmes and acquisitions and has seen a period of significant M&A driven growth centred upon two transformational acquisitions in recent years. Today, Ithaca Energy is one of the largest independent oil and gas companies in the United Kingdom Continental Shelf (the “UKCS”), ranking second by resources.

With stakes in six of the ten largest fields in the UKCS and two of UKCS’s largest pre-development fields, and with energy security currently being a key focus of the UK Government, the Group believes it can utilise its significant reserves and operational capabilities to play a key role in delivering security of domestic energy supply from the UKCS.

Ithaca Energy serves today’s needs for domestic energy through operating sustainably. The Group achieves this by harnessing Ithaca Energy’s deep operational expertise and innovative minds to collectively challenge the norm, continually seeking better ways to meet evolving demands.

Ithaca Energy’s commitment to delivering attractive and sustainable returns is supported by a well-defined emissions-reduction strategy with a target of achieving net zero by 2040.

Ithaca Energy plc was admitted to trading on the London Stock Exchange (LON: ITH) on 14 November 2022.

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