Ithaca Energy PLC (LSE:ITH) shares rallied on Wednesday after the firm unveiled plans to become the second-largest operator in the North Sea through a deal with Italy’s Eni.
Under the exclusivity agreement, Ithaca would acquire Eni’s UK offshore assets in return for a near-40% stake.
This includes operations in four hubs, Elgin Franklin, J-Area, Cygnus and Seagull, which produced between 40,000 to 45,000 barrels of oil equivalent a day in 2023.
News of the potential transaction came as Ithaca unveiled a 24% fall in free cash flow to US$1.3 billion (£1.03 billion) for 2024, alongside a 10% drop in adjusted earnings before interest, taxes, depreciation, amortisation and exploration expense (EBITDAX) to US$1.72 billion.
Production for the year fell 1.6% to 70,293 barrels of oil equivalent a day for the year, meanwhile, with Ithaca guiding for a reduction to as low as 56,000 barrels a day due to reduced investment on the back of the windfall tax on North Sea operators.
Interim chief executive Iain Lewis dubbed the results “strong [...] “significant fiscal and political headwinds”.
“The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea, with projects across our operated and non-operated deferred or cancelled,” he said.
“The extension of the Energy Profits Levy by a further year to a sunset date of March 2029, highlights the continued fiscal uncertainty our sector faces.”
The levy takes the total tax on North Sea operators to 75%, though breaks granted through investment can drastically reduce this.
Analysts were less convinced about the firm’s comments on investments as a result.
“Ithaca Energy may talk about reducing investment in the UK North Sea thanks to the Energy Profits Levy, but its actions and words are somewhat at odds given the announcement of a proposed share-based deal with Italy’s Eni to acquire the latter’s UK oil and gas fields,” AJ Bell’s Russ Mould commented.
"That said, disquiet in the industry at the way companies have been treated by the Treasury is real, with the lack of consistency, as much as the absolute rate of tax, a bone of contention in the sector."
Shares climbed 4.1% to 148p.