In a tumultuous year for Ithaca Energy, the UK-based oil and gas producer, the company’s annual profit plummeted drastically in 2023. Blaming the UK government’s energy tax and project impairments, Ithaca’s profit nosedived from $1.03 billion to $215.6 million, according to recently disclosed financial results.
Impact of UK’s Energy Profits Levy
A significant portion of the profit decline, approximately $333.4 million, can be attributed to the UK’s Energy Profits Levy (EPL). This levy, recently extended for another year by Chancellor Jeremy Hunt, directly affected Ithaca’s investment plans in UK projects. Iain Lewis, Ithaca’s interim CEO, emphasized the adverse effect of the EPL, stating that it compelled the company to scale back its investments in the UK North Sea, leading to project delays and cancellations.
Sector-wide Contraction and Response
The repercussions of reduced investment were felt across the UK’s production sector, as evidenced by data from the Office for National Statistics. The decline in investment contributed to a contraction in North Sea crude and natural gas extraction, with UK oil production hitting its lowest levels this century. Several firms, including Harbour Energy, reported substantial profit hits due to the EPL, with effective tax rates soaring to as high as 95%.
Potential Acquisition Amidst Challenges
Despite the challenges posed by the energy tax, Ithaca Energy revealed a potential lifeline. Italy’s energy giant, Eni, offered a four-week exclusivity period for Ithaca to consider acquiring Eni’s UK exploration and production assets. If realized, this deal could significantly boost Ithaca’s output by adding an estimated 40,000 to 45,000 barrels of oil equivalent per day (boe/d).
Future Projections and Market Response
Despite the setbacks, Ithaca remains optimistic about its future production targets, aiming for a range of 56,000 to 61,000 boe/d this year, with projections climbing towards 80,000 boe/d by 2027. Market response to Ithaca’s potential acquisition and future plans was positive, with its shares rising by 2.39% on Wednesday.
Industry Disquiet and Moving Forward
While Ithaca’s proposed acquisition signals a strategic move amidst challenges, industry observers, like Russ Mould from AJ Bell, underscored ongoing disquiet within the sector. Concerns persist regarding the Treasury’s treatment of energy companies, particularly regarding tax consistency. Despite these challenges, Ithaca Energy remains poised for potential growth opportunities amidst evolving market dynamics.
Source：dailymail.co.uk
