Ithaca Energy: Profit tumbles at North Sea oil and gas firm as windfall tax bites
North sea oil and gas firm Ithaca Energy saw its revenue and profit tumble after being hit by impairment charges, lower production and a dip in the oil and gas prices.
The FTSE 250 constituent, which in the Spring announced plans to buy all of Italian competitor Eni’s North Sea assets for £754m, lowered its outlook for full-year production from between 80,000-87,000 barrels of oil equivalent (boepd) to a range of 76,000 to 81,000.
The firm also posted significantly lower production numbers in the first half of the year. Production dropped to 54,046 boepd in the six months to June from over 75,000 in the previous period last year.
Net income fell from $159.6m (£121.9m) to $105.7 (£89.7m). Earnings before in interest, tax, debt, amortisation and exploration (EBITDAX) – an indicator of financial performance used by oil and gas firms – tumbled from $979.7m (£748.4m) to $533m (£407.2m).
The firm was forced to book an impairment charge of $19m (£14.5m) alongside the earnings, which were also weighed down by the drastic drop in the natural gas price, which has fallen over 60 per cent since 30 June 2023.
Net debt fell to $506m (£386.4m) from $698.7m (£533.6m), while available liquidity rose to $1.1bn (£840m) from $791.3 (£604m).
The firm’s earnings continued to be hampered by the effects of the government’s Energy Profits Levy—a windfall tax on North Sea oil and gas operations applied to energy companies in response to the bumper profits many of them reported after Russia’s invasion of Ukraine.
As part of its plans to expedite the UK’s transition away from fossil fuels, the new Labour government has said it would hike the tax to an effective rate of 78 per cent and remove the investment allowance that firms like Ithaca were granted to encourage further exploration and investment.
In its earnings, published on the same day the North Sea energy sector’s industry body Offshore Energies UK issued an open letter from energy firms warning of the plans’ detrimental impact on jobs, Ithaca Energy branded the tax a “substantial headwind”.
The half-year results were the first major set of results since Ithaca’s acquisition of the North Sea assets owned by Eni, an Italian oil giant.
Of the acquisition, Ithaca said: “With a proven track record for value- accretive M&A, the Combination creates an enhanced platform for delivery of the Group’s inorganic growth strategy in the North Sea and internationally.
“Ithaca Energy is well positioned to play a pivotal role in further North Sea consolidation… and with access to Eni’s global credentials and the expertise and relationships of its shareholders, supports the ability to broaden the Group’s M&A strategy internationally, establishing additional options for value creation.”