₪ David Pescod's Late Edition May 23, 2007
A Q&A WITH LAWRIE PAYNE
CEO, ITHACA ENERGY
(As of May 11, 2007)
We've had so much fun here with the success of Oilexco over the last two years that it's only natural you want to find another one. Octagon oil and gas analyst Warren Verbonac is very high on Ithaca Energy and it's one of his top picks and over the next six to 12 months should create a little interest with some significant drilling plays in the North Sea.
It’s been interesting to see the large number of Canadian-based oil and gas companies that are involved in the North Sea (not just Oilexco) with name likes Antrim Energy, which will become interesting in the next few months as they spud yet another well.
But it’s time to catch up with Lawrie Payne, the CEO of Ithaca Energy who is based in London, England.
Dave: Lawrie, could you give us a little bit of a background history to Ithaca Energy for those new to the story as well as some of the details on your discovery at Basil?
Lawrie: Ithaca was organized by Neill Carson, Brad Gunn, myself and a few others to explore in the North Sea. Neill is a native of that basin and I have had previous experience as well. We thought that with the majors preoccupied elsewhere, this was the time for independents. All of us now reside in the UK.
We started in mid 2004 with applications for Licenses, mostly in the Southern gas basin of which we acquired 10 blocks, and then went on to acquire projects that involved undeveloped discoveries and hence, lower risk and possible earlier production.
Over the course of 2 years, we acquired a 20% interest in the Barbara gas discovery, a 90% interest in the Athena oil discovery and a 100% interest in a large License surrounding the Beatrice oilfield which included a possible extension to the field (Basil).
Barbara is finally moving to development and should be on stream in 2009.
It is not large in the scheme of things because it needs to be unitized with other License holders and our interest will be small, but it could represent about 1,500 boepd to us.
In the fall of 2006 we drilled a successful appraisal well at Athena. We have contracted a rig for a second well which will drill this summer and may drill a third well before the year is out. We farmed out a portion of our 90% interest and retained 70%. This project could be very big for us. We have been credited with 19.2 MM barrels of 2P reserves. Upside could double reserves. Depending upon ultimate reserves and the number of wells, the development could represent gross 10,000 to 20,000 barrels per day. We are working towards field development application before year-end and first production mid 2009.
In April 2007 we successfully drilled the Basil well which is the Beatrice field extension. Our interest is 90% in this portion of the License and 100% in the balance of 115,000 acres. We believe that we have established approximately 5MM barrels of reserves. While small by NS standards in terms of reserves, this well represents a significant income stream. First production should commence before year-end 2008 at a gross rate of at least 5,000 bopd.
In the meantime we have been developing our exploration prospects and anticipate that two of these will be drilled by the end of Q1 2008.
Dave: Octagon oil & gas analyst, Warren Verbonac comes up with some target values for Ithaca that are currently approaching $4.00. So what does that mean?
Lawrie: Each analyst has their own criteria for establishing value and I do not want to comment on Warren’s or anyone else’s. Having said that, Ithaca at a market price of US $2.20 has a market cap of $US $180MM. We have $65MM in cash. That gives us an Enterprise Value of US $115MM or $1.41 per share or $5.77 per barrel.
From another point of view, Sproule have valued our 2P reserves at US $344MM before tax. GCA has evaluated our RISKED contingent resources at 18.6MMboe which would have a value of US$18.6MM at $1.00 per barrel.
They have evaluated our RISKED prospective resources at 106MM boe which at $0.50 would have a value of US $53MM. I am not suggesting that these per unit values are appropriate, but they are probably not far off. As a result, the total value before tax is US $5.86 before tax and US $3.69 after tax. If you include our Sprouleevaluated possible reserves, the numbers would be US $7.95 and US $4.74 respectively.
On the basis of production we are predicting 5,000 boepd in 2009 and close to 20,000 in 2010.
You be the judge.
Dave: You have three significant plays coming up shortly over the next 6-10 months that could very much dramatically affect the future of the company. Could you give us the lowdown on these plays?
Lawrie: Athena will see one and perhaps two wells in the next 6 months. See above.
A prospect called Morpheus in the southern basin has been farmed out and will drill before the end of Q1 2008. We will pay 25% for 34%. Potential 160 Bcf net.
Another southern gas prospect called Carna could be drilled (60%) this year. This prospect is close to the recently developed Kilmar field and could represent 140 Bcf. Net.
Given the success at Basil, another well in the Beatrice area could be drilled this year or early next. Net up to 60MMboe potential.
Finally, we could have some significant prospects at Triton and/or Zeus depending on the results of seismic which will be known in the next few months.
Dave: If you are exploring in the North Sea, what is your take on the area as a place to explore? It seems relatively safe compared to places such as the Congo, Nigeria and the like, and the royalty rates aren’t outrageous yet?
Lawrie: We decided to concentrate on the North Sea because:
- we have confidence in the political regime
- the fiscal terms are good – no royalty and 50% corporate income tax with 100% capex write off in first year
- the infrastructure is in place and generally has excess capacity.
- information is readily available.
- the lands are available through legitimate means.
- the majors are leaving, providing opportunities.
- nobody has been kidnapped off a rig or had a pipeline bombed – knock on wood.
While the potential reserves may be smaller than other areas, they are significant to us.
Dave: If you are in the oil and gas business, you have hopefully an idea of what next for oil and gas prices over the next while….
Lawrie: I have no crystal ball, but at the rate of 1,000 barrels per second, consumption is quickly depleting existing reserves, is likely to grow in spite of our green efforts and I do not think that reserves are being replaced at a commensurate rate. That’s why I am in the business. I don’t see an alternative to hydrocarbons in the foreseeable future.
Dave: After the next three plays in the 6-10 months, what will be next for Ithaca?
Lawrie: We’re in the prospect generation business and with a land position of more than 570,000 acres we have a huge prospect inventory in our portfolio today, let alone any new license or deals. We’re looking to first production at Basil in 2008 and Athena in 2009 with close to 20,000 bbls/day generating very significant cash flow then after that, who knows. There are lots of opportunities out there.
Dave: We always end these interviews with the question, “If you could only buy one oil and gas stock (other than your own) in which you have no conflicts of interest, what would it be? And a few details please….
Lawrie: I don’t have time to look at other players. Having said that, Ithaca is trading less than half of what we should be relative to our peers. I don’t know of anywhere else I can potentially double my money in as short a period of time all while knowing what the risk level really is.
Sorry.
Dave: Thank you so much for your time Lawrie! |
