Ithaca Energy plc (ITH) Earnings Call Transcript & Summary

Good morning, everyone. Those of you who are unfortunately not on holiday and joined us and those who are, welcome to our first half 2026 result presentation. My name is Yaniv Friedman. I'm the Executive Chairman of Ithaca Energy. And with me on the call today are Luciano Vasques, our CEO; and Iain Lewis, our CFO. First slide, as you can see, delivering on our strategy. I think this is a perfect example of a first half of the year that we've been executing on all pillars of our strategy. And what we'll cover today in our agenda, as you can see on Slide 2, is first half 2026 highlights, our strategic and operational review, financial updates, and then we'll open it up for questions and answers. If you'll please move to Slide 4, at a high level, again, our vision for scale, stability and strength, well demonstrated in our first half 2026. Record quarterly production of 131,000 barrels per day of barrels of oil equivalent with an improved cost outlook that supports our robust cash flow generation. I could say that we had -- as we said last quarter, we saw the trend going into Q2. We're seeing this trending into Q3, which is a heavy TAR quarter for us, but we're recovering very well from the TAR season. We're seeing this strong production trending into the third quarter as well. Stability, Rosebank nearing final stages of execution, and we're moving our organic portfolio forward with a pipeline of projects to enable us to take final investment decision on through the end of '26 and into 2027. And strength, significant available liquidity. We have $1.9 billion of available liquidity. We also have an accordion that we can expand in our reserve-based lending facility of above $400 million, so significant liquidity. We're also attuned to the market and taking advantage of opportunities. So we've done a private bond tap of our Eurobond, EUR 155 million at 5.5% to further support our growth ambitions and optimize our balance sheet. And with that, we value distributions. We understand that this is important to our shareholders. And we're announcing today our first interim dividend for 2026 of $255 million, and we're upgrading our management guidance of our dividends to $500 million to $530 million, and Iain will talk through that later as well. If you look to Slide 5 and what we did on Slide 5, we're focusing on stability, and we wanted to show that this is not a one-off quarter or one or first half of the year. And what you see here is really a snapshot of the last 24 months since the effective date of our business combination. And these are the type of charts that we like, scale, production going up, OpEx going down and stable cash flow production and distribution. I could also say and Luciano will speak to that, that safety is obviously paramount to us, and we're seeing improved metrics there as well. So if you look at the slide, so first half production in 2026 of 128,000 barrels, OpEx going down from $22 a barrel in 2024 to about $18 in the first half of 2026. And as we said, distributions are important for us. And as you can see, we've to date announced over $1.65 billion in the course of the last 3 years and upgrading our dividend guidance range for 2026. We'll cover strategic and operational review. I'll hand over to Luciano to talk about safety, production and projects. Luciano, please.

All right. Good morning, everybody. And if we now move to Slide #7. Our performance in the first half is fully consistent with the pillars of our strategy that we presented several times. I'll take you through the first 2, but this morning, extracting value from our versatile portfolio in U.K. progressing discipline in organic flow growth opportunities, which are strengthening our business for the future. The operational momentum from '25 carried strongly into H1 '26, delivering clear progress across safety, environmental performance, production efficiency, as Yaniv said, and cost discipline. And this, of course, reflects our focus on the operational excellence, which we've done through our Perfect Day, safer, stronger reliability and a lower operating cost per barrel. On the growth side, we've continued selecting investment across the producing portfolio, prioritizing fast cycle value opportunities on Captain, Cygnus and also J and Elgin Franklin, as I'll speak through. And at the same time, our organic growth pipeline is moving forward with purpose with Fotla, Tornado and Cambo progressing towards readiness for FID. Rosebank has also reached a major milestone with the FPSO now on location ahead of the expected first production in H1 2027 and following ramp-up. If we can now move to Slide 8. And I want to stress that our excellent overall performance in H1 2026 was underpinned, as Yaniv said, by strong health, safety and environmental results. For the tenth quarter on a row, we recorded Tier 1 Tier 2, zero process safety events and sustained again a positive total recordable incident rate trend at 1.2 cases per million man hours in H1 and 1.7 on a 1-year rolling basis, well below the U.K. North Sea basin average of 3.95. This is particularly notable given that 2 operated assets reached cessation of production, and this required greater focus to safely execute nonroutine end-of-life activities. Both the FPF-1 and Alba FSU were removed from their locations, transferred to decommissioning yards as planned without any recordable incident. The emission performance also remained strong with emission intensity now at 16.4 kilograms CO2 per barrel equivalent, which is substantially below the basin average of around 25 and continuing to trend downwards. And this reflects the increased weighting towards lower emission assets and the retirement, of course, of the higher intensity Alba and GSA fields. If we move now to Slide #8, sorry, to Slide #9 with production. We achieved, as we said, record production in Q2 '26, averaging 131,000 barrels per day as operations rebounded strongly from the weather-related challenges experienced in Q1. confirming the robustness of our portfolio despite the challenges, both in the operated and the nonoperated assets. This performance supported an average production of 128,000 barrels per day in the first half and production operations continued strong, as we said, beyond Q2, which provides us confidence in our production outlook for the year, still appropriately allowing for the planned impact of the Q3 turnaround season. And the production mix also strengthened with gas now representing 48% of H1 volumes versus 41% in H1 2025, and the shift reflects the strategic portfolio reshaping that we delivered through the M&A activities in 2025, particularly the increased contribution from Cygnus and Seagull gas fields. If we move to Slide 10 now, at Captain, the deployment of the PBLJ is already demonstrating the value of our industry collaboration model, unlocking near-term production through 3-month redrill program on well B15, which is progressing well and expected to be on stream from early Q4. The wider Captain 13th well campaign remains on schedule. The well C75 was successfully brought on stream in Q2. And following the current ongoing rig maintenance activity, the final well of the campaign, which is an injector will be executed. Captain continues to deliver fast cycle, high-return opportunities with the 14th campaign planned to follow immediately after the 13th one. And in parallel, sanction of the Captain subsea well campaign, which comprises 2 wells and will leverage again, the PBLJ capacity is expected to be reached in Q4 this year. The first production from the subsea campaign is targeted for '28, adding further depth to Captain's long-term production outlook, which is underpinned by the EOR Stage 1 and Stage 2 initiatives that are delivering in line with their field development plans. If we now move to Slide 11. We talk about Cygnus, where the infill drilling program continues to make strong operational progress. The C13 well, which was brought on stream in May, is performing ahead of expectations, thanks to a successful completion design and execution of the hydraulic fracturing program. C14 has since been spudded and remains on track to first gas in November. Before then, the campaign progresses to C15. On completion of C16, the rig then is expected to move to the Bravo Area in Q2 2027 for the C16 and C17 2-well campaign, which we expect to sanction in the second half of this year, subject to the required field development plan approvals. C16 is a clear example of production-led exploration, reinforcing our commitment to maximize value from Cygnus. So timely regulatory approval is essential to maintain momentum and support continued delivery of domestic gas from one of the U.K.'s most significant fields. If we move to Slide 12, now we turn to 2 key assets in our non-operated portfolio. J Area continues to provide a stable, low-cost production contribution, supported by strong performance from Jocelyn South and Talbot, which continue to be ahead of expectation. The operator performance remains high, underpinned by an open and constructive partnership, and the assets offer further upside through well interventions, new infill wells as well as production and infrastructure-led exploration and appraisal opportunities such as Courageous and Peach with the potential to replicate the Jocelyn South success. And at Elgin Franklin, with the new operator NEO NEXT+, we have sanctioned a 2-well program comprising EIJ and EIH, which was an opportunity previously deferred in response to the energy profit levy. And the campaign is scheduled to start in Q4 this year and represents a short cycle, again, high-return investment targeting 4,500 barrels per day of net incremental production in 2028, with EIJ expected onstream in January and EIH in August. And then if we move to Slide 13, we talk about Rosebank, which continues to move into its final stages of execution with the operator now narrowing first production in first half 2027 and ramp up to plateau from summer next year, subject to regulatory approvals. A major milestone was achieved in June with the FPSO arriving and being moored on location after a short dock phase in Bergen. And at this moment, hookup activities are ongoing, which will be followed by the commissioning prior to first oil. Following the April equipment handling incident, the drilling rig returned to service at the end of July after a period off-hire and has restarted well activities focused now on delivering the minimum well stock required for the planned ramp-up. 2026 capital spend is now expected to be lower than previously guided, reflecting the rephasing of this drilling activity and associated costs into 2027, including the final FPSO commissioning. Rosebank remains attractive as a project with expected post-tax CapEx below $4 per barrel equivalent, reducing to below $3.5 with the anticipated High Value 8 wells and an overall cost performance within project contingency envelope. And to close, we go in Slide 14, our key organic growth projects, Fotla, Tornado and Cambo have all progressed materially and now are technically assured with front-end engineering design and tendering largely complete. Fotla is moving towards execution, supported by the successful farm-down and rig sharing agreement with Harbour Energy. The key long lead items, including installation vessels and PBLJ drilling rig capacity have been secured, reducing development risk and increasing confidence in reaching FID in 2026. The West of Shetland remains central to our strategy and an important growth basin. Tornado will be a key gas enabler for future tiebacks and has advanced towards FID following the obtainment of 18 months license extension to March 2028, with critical long lead items and vessels secured alongside our partner, Adura, subject to regulatory approvals. And Cambo, the largest pre-FID undeveloped discovery of the U.K. continental shelf remains a strategically important option for both Ithaca and the U.K. indeed. With front-end engineering and tendering substantially complete, major contracts ready for award, value engineering, retendering, commercial and financial work streams progressing, the project is increasingly derisked as it moves towards sanction and equity farm-down. With that, I pass the word again to Yaniv.

Thank you, Luciano. And you just spoke about organic growth opportunities. And if you move to Slide 15, it's really a snapshot of kind of the high-quality projects that we have right now and our ability to convert 200 million barrels of resources into production over the course of the next 18 months through FID decisions that we intend to make. I won't run through the projects again, but this gives you a good idea on the growth -- the organic growth potential that we have and the materiality and quality of our pipeline. If we move to Slide 16. So we've shared a version of the slide in one of our conference call before, and we talked about how we're seeing visibility on a 1 billion barrel license potential. And Luciano alluded to that as well. We're prioritizing infrastructure-led exploration, production-led exploration opportunities as additional avenue for long-term value creation with our 660 million barrels of oil equivalent of 2P, 2C resources. We are seeing kind of unbooked 2C contingent and prospective resources up to 1 billion. But we also have another tool, which is the transitional energy certificates that are providing a pathway beyond the existing licensed resources for additional value creation. And we're working this and you see this, and we're maturing those, and they will obviously -- through the maturity, we'll convert them to resources and then to projects that we can take final investment decision on. So we're seeing significant value in the U.K. Continental Shelf. And when people talk about no new exploration licenses, what we want to show is that even without new exploration licenses formally, we have where to grow in the U.K. further. Active but patient pursuit of M&A and what we're doing as well as optimizing our balance sheet to support our growth ambitions and strategy. If we look at the U.K. and kind of consolidation in our core UKCS market, so we just talked about our organic portfolio and obviously, projects or potential acquisitions, apologies in the U.K. needs to compete for capital with growth of our organic projects. And we have a very strong portfolio of organic projects. But at the same time, we are looking at opportunities. And as we always say, we look at this value lens, so they need to meet our investment thresholds. When we look at international expansions or focused international expansion. So we're maintaining an active but patient pursuit of opportunities. And we have a very clear strategy around this, right? So we want to deliver both growth and yield through these acquisitions and sustainable production and cash flows. It's important for us to keep the strength of our balance sheet agility and flexibility. So we're imposing a ceiling on our leverage position. And we're looking at regions that would not be a one-off that would offer further expansion opportunities to ensure that we can develop our business and continue and ensure sustainability and scale going forward. And at the same time, regions or geographies that are offering a stable fiscal and regulatory regime. So we talked about our available firepower in terms of liquidity, and that's definitely supporting potential M&A activity in the future. With that, I will hand over to Iain Lewis for our first half financial update. Iain, please.

Thanks, Yaniv. Good morning, all. If we can go to Slide 19, please. And as usual, we call out the key numbers here on the finance side, the green numbers really describing the performance in the half year and then the blue ones are kind of financial position at the close of June. So strong production delivery, 128,000 barrels a day, remembering that we recovered from some difficult weather in January in the production front, supporting strong production delivery. The cost per barrel result of $18 is very pleasing. Our medium-term plan, of course, has been to maintain the $20 a barrel region, able to push that down to $18 this half year, and that is the aim as you move forward in the year. Able to today announce reduced management guidance on OpEx due to the cost control in the company, and that enables additional free cash flow and EBITDAX. So you can see the $1.1 billion EBITDAX for the half year, free cash flow of nearly $0.5 billion and net cash from ops of nearly $1 billion and a profit of $127 million. So on track, robust and continued good financial delivery. I suppose in terms of the plans for the future and the optionality that Yaniv and Luciano referred to, we are maintaining a high liquidity and low net debt position, 0.49x pro forma leverage at the end of June with $1.9 billion of liquidity available. That is part of our strategy. It enables us to look at opportunities with clear pathways to deliver the financial capability to land them and as part of our story as we move forward. Slide 20, if we can move to that summarizes the financial position in a bit more detail. You can see that we are at the end of June in the net debt position sitting on significant net cash, so an undrawn RBL of $1.3 billion and $571 million of cash, taking net debt down to just over $1 billion. And you can see in terms of the liquidity position there that our undrawn RBL of $1.3 billion and the cash balance can be augmented by an open and untriggered accordion facility on the RBL. So material debt capacity in the business and cash position. Now that was added to in the quarter, the last quarter by the bond tap. And as Yaniv mentioned, this is an opportunistic and highly valuable delivery of additional cash flow, strong demand for our bonds in the market, responding to that and adding to liquidity on the Eurobond was well received and set us up as we move into the next phase of the business. Leverage, you can see, has been very stable in the 0.5x now through -- from December '22 right through to where we are today. So stable management of the balance sheet and significant liquidity capacity at the end of the quarter. If we move to Slide 21, the hedge book, which continues to be of significant interest, obviously, in a volatile oil and gas market. You can see on the charts here that we've shown the forward curve as at 17th of August. Then the average hedge floor and average hedge ceiling that is in our hedge book, the average ceiling being the combination of swaps, collar floors and also wide collar floors that we put together. I think the key thing to point out to everyone is that we are well hedged in the next 2 years. And we are right now just riding the price curve and taking the upside on the unhedged barrels. You can see that what we've been able to do on the hedge front in oil, particularly is to take the hedge ceiling and floors and move them upwards as we move through the 2028, able to add to the hedge book through '28 in the last few months. That's really been our focus as has been our characteristic trend here, we look 12, 24, 36 months in advance and seek to establish strong cash flow delivery certainty out ahead in the business, and we see that on the oil side. On gas, you can see there's a significant upside in the market currently on the front end, and we deliberately have left more unhedged on gas at the front end for exactly this kind of eventuality. And in Q4 this year, for example, when prices are currently sitting at GBP 1.50 and above, we're 30% unhedged for gas in Q4 '26. So I think continuing the trend of long-term stability in our cash delivery of the business by hedging well, but leaving upside on the table to benefit from just exactly the kind of environment we're seeing at the moment. In the Slide 22. And of course, the output of all of the management of the business from an HSE perspective and production and cost management and good investment is the ability to deliver dividends to shareholders. We are very satisfied with the record we have here of delivering returns from '23 at $400 million, increased in '24 and '25 to $500 million and now as per our guidance update today, expecting to be above $500 million for 2026 with a $500 million to $530 million range. representing 30% post-tax cash from operations. Now remember, we moved to a 50-50 payment structure in terms of the dividend this year so that we have a flat dividend across the year. We are, for this half year, delivering a $255 million dividend as the first interim declared today. Obviously, on the market guidance numbers, the $500 million to $530 million tells you that there is some upside in that, but delivering $255 million for the half year. So solid return on the dividend, upgrading, thanks to production prices and cost management. If we move to Slide 24. This will just reinforce the guidance that we gave at the start of the year and upgrades in a couple of areas. So we are reaffirming all guidance across our suite of metrics here, but we are reducing OpEx, reducing it $20 million at the midpoint. That's at USD 1.35 rate. Of course, a significant amount of our expenditures in pounds and actually the average rate for the first 6 months has been below $1.35. So the FX adjusted reduction would be lower, but good strong cost performance in the half year has led us to be able to forecast a reduction for the full year. You can see Rosebank CapEx down $35 million at the midpoint. That again, is reflective, as Luciano has mentioned, of the Rosebank rig deferral given the 3.5 months of delay on the rig program. But again, as referred to, not impacting first oil and the ramp-up through '27. And all of that flowing through with higher prices into a higher dividend of $500 million to $530 million as outlined. So handing back to Yaniv for Slide 25 to close this out.

Thanks, Iain. As mentioned, Slide 25, just some closing remarks. So record quarterly production, as mentioned, 131,000 barrels per day production that we've achieved in Q2, trending into Q3 and strengthening confidence in our full year production outlook and management guidance reaffirmed. Disciplined and agile balance sheet management, strong cash flow generation, opportunistic bond tap, as Iain mentioned, that supports increasing our firepower to continue to deliver growth in the business. We're accelerating organic investment delivery with incremental barrels in a high commodity environment. So immediate deployment of the PBLJ rig to the Captain B15 well. Depth and quality of our organic portfolio with growing momentum towards final investment decision on several projects and focusing on building the next wave of optionality beyond the 1 billion barrels of oil equivalent resource potential that we believe is definitely doable. And at the same time, delivering attractive returns to shareholders, first tranche of 2026 dividend of $255 million declared today and upgrading our dividend guidance for the full year of 2026, as Iain said, with some potential upside. With that, and before we move to questions and answers, as always, I would like to take the opportunity to thank the entire Ithaca Energy team. Yes, you're seeing and hearing us here, but this is a work of many behind the scenes, and I would like to thank them on behalf of all of us. With that, Drew, I hand over to you, and we'll be happy to take questions.

[Operator Instructions] With that, our first question is from Cian Evans-Cowie from Bank of America.

I just have 2, please, if I may. So firstly, it's nice to see the dividend guidance upgrade today, but given your payout policy, there's also an implicit CFO upgrade in there. And Iain, you spoke a bit about this, but it would be helpful if you could just talk through perhaps in a bit more detail the moving parts in this upgrade, please? I know some of it, as you mentioned, is related to your OpEx guide reduction. But given that your production guide is unchanged, I suppose what are the other components that are in there? And then just related to that, if you could talk us through again what your assumptions are that you're making for the rest of the year on the macro front to arrive at that guidance, please? And then for my second question, on the production profile side of things, if my memory serves me correctly, your maintenance drop-off should look substantially shallower this year compared to last year. I mean, is this still the working assumption? And then how would you guide us to think about the movement or the quarterly delta for 3Q and 4Q?

Thanks, Cian. I'll maybe take the first one there as requested. So yes, I mean, look, our guidance on dividend upgrade is really driven by pricing, but also by cost control. So as been mentioned, we are stable in our production range and continue to expect to deliver within that. Costs have been well managed, a little bit of FX help as well, but this is largely cost management. In terms of pricing and price assumptions, obviously, we don't give specific price assumptions. But I'd say our hedge book probably tells you a lot of the story. If you look for the rest of the year, we have this on Slide 21, we're kind of 85% downside protected on oil at $60 for the next 6 months. So you can assume that the bottom end of our dividend is kind of correlated in that kind of region. So I guess that's the kind of downside position. Obviously, that limits the upside, but that's part of the oil price protection that we delivered through the hedge book. But on gas, as you say, we've got significant downside protection, but also 26% upside exposure in unhedged barrels for the second half of the year with 30% unhedged in Q4. So those are the kind of numbers we're dealing with as we get to our range of dividend position. But of course, as prices move and work through and costs are driven and production managed, we may well be giving guidance later in the year a different dividend. It's not impossible that goes higher, of course, we'll continue to keep the market updated. Yes. On production, we have Odin Estensen with us, the COO, who is very well placed to talk to the turnaround this year compared to last year.

Yes. So thanks for your question. So you're absolutely right. So this year, we actually have approximately half the amount of turnaround days compared to last year, and we are progressing very well. And August and September are the kind of the key turnaround days month for us. And so far, we have completed all our turnarounds, except 2. It's one for Cygnus and it's a slowdown on the J Area. And I'm very pleased to confirm that we have completed those turnarounds on plan or ahead of them. So the last one on Erskine was completed this week, 6 days ahead of plan. So the risk exposure for the production for the remaining year is kind of very much reduced, and we are kind of feeling very much in control of the turnaround exposure for this year.

Our next question comes from Mark Wilson from Jefferies.

Congratulations on results. Again, and therefore, unfortunately, I have to ask regarding a question about things maybe not happening. We're waiting for regulatory approval on Rosebank for production start-up. You also talk to future drilling FIDs on Cygnus that require regulatory approvals to continue investment there. So can we talk about an expected time line to certainly the first of those approvals? And can we talk to what happens if that doesn't come or the variables that could actually be the decision from the government? Are we expecting just a straight Yes, no, on production start-up or could there be variables? And as I say, what happens if that doesn't come?

Yes. So good to hear you, Mark. I'll take that one. In terms of Rosebank. So look, we continue to see this as a regulatory process that's relatively straightforward. This is -- we've been asked for emissions data on Scope 3. We provided it and answers have been given. This is a very straightforward process in lots of ways. And speculation on results of processes that are pretty straightforward is probably not that helpful. So you'll forgive us for not speculating. I think in terms of other standard processes around approvals for field -- for wells and fields, et cetera, these are all well-worn regulatory paths and nothing has changed on that for, in fact, some time. Nothing has changed on the approval process around production that's either apart from the Scope 3 emissions change that happened last year. So in lots of ways, this is regular business, normal business. We have licenses, as Yaniv has taken us through that are very large and wide-ranging, and we continue to develop under those licenses issued by the government, the oil and gas that is needed for the country.

That's very clear, and you certainly make it look like normal business. So well done about that. My second point is regarding the -- it's definitely clear that the good operations that you're showing do also come from partnerships that are stable and involve motivated partners. You speak to Adura, West of Shetlands, NEO NEXT, Elgin Franklin, even Harbour at J Area and Fotla and you've consolidated Cygnus very much that is going forward. Is that, therefore, an additional angle we should look for regarding potential future M&A? Is the partnership that would be in place following such things to enable good operations?

Mark, I'm not sure I fully understood the question. But if your question was around UKCS consolidation, then we -- I think I've captured that. We're looking at opportunities, but we will do the right acquisitions and not an acquisition, right? So we're focused on value. We have a high-quality portfolio, and I think it's reflected in our results. And our goal is to high grade rather than dilute what we have. I think all the names that you've mentioned are today large players in the UKCS after kind of a wave of consolidations that I believe Ithaca started 2 years ago, and we've seen this developing in the past 2 years. And I think these kind of names will continue to kind of dominate the UKCS. And obviously, there's a lot of optionality for all sorts of cooperation around that. I hope I've answered your question.