Interactive Investor

Ithaca Energy "outstandingly cheap"

9th October 2014 14:30

Lee Wild from interactive investor

Ithaca Energy are trading as low as they have been since summer 2012 after the oil and gas company warned that full-year production would miss forecasts. The shares are down over a third since June, but the experts still think they're worth much more.

Pro-forma production is now expected to be about 12,500 barrels of oil per day (boepd) in 2014, less than the 13,500 boepd management had promised. It blamed production deferrals at the Causeway fields following a platform oil export pump failure. This could take several weeks to repair, said Ithaca. Along with a delay in the provision of water injection from the Taqa facilities, about 1,400 boepd of annual average production will be lost at Causeway.

"An operations update for Ithaca this morning and although reasonably well telegraphed the market never likes to see production guidance missed and the shares have fallen back to below 100p," said industry expert Malcolm Graham-Wood in his daily blog.

"Like so many E&P companies Ithaca has had a hard time of late and at 100p does look outstandingly cheap but the same goes for a number of stocks in the sector. What will make them become more expensive is difficult to call as the oil price remains weak and investor attitude to the sector is negative but Ithaca is like some other stocks worth significantly more than its current market cap of £337 million."

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The team at Westhouse Securities is not put off:

Production is lagging due to issues at Causeway, which is a negative. Given the pressure on oil prices, the fact that half of Ithaca’s production is hedged at $102/b is a positive. Operating costs are expected to be c.$60mm and net debt of $719mm, which is slightly better than our estimates ($64mm and $739mm respectively). Continued progress at Greater Stella Area, which is central to our investment case, is being made and first hydrocarbons timing (mid-2015) is re-iterated. Fifth development well on Stella is now being drilled. FDP for Ythan field was received with first production expected in Q2/15. Ithaca will release Q3/14 financials on 13 November 2014. Mixed results, with production guidance downgrade most likely making the headlines. Until the GSA start-up, contribution from existing producing assets will be in focus. In the longer term, GSA is on track for mid-2015 start-up and Ythan can start contributing in Q2/15.

The broker keeps its buy recommendation and 190p price target.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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