Delek Group targets North Sea operator Ithaca Energy
Friendly takeover bid announced
CALGARY• Israel’ s Delek Group announced a friendly takeover bid for the Toronto Stock Exchange-listed Ithaca Energy Inc., which operates several North Sea offshore fields in the United Kingdom, in a sign that the depleting basin remains on the radar screen of international investors.
“It remains a difficult environment,” said Ithaca CEO Les Thomas. “However if you concentrate on the basics, there’s money to be made.”
Ithaca’ s management fully supported the deal, saying it presented shareholders with “a premium cash value for their investment.”
Thomas says the company managed to drive down costs by moving toward more standardized operations and a flexible supply chain.
“It’s not easy, and it’s not straightforward,” Thomas said.
Analyst research suggests Aberdeen- based Ithaca is among the most efficient producers in the region. The company brought its operating costs down to US$ 23 per barrel of oil equivalent in 2016, down from $ 31 per boe in 2015.
However, from a broader perspective the North Sea oil and gas industry faces an uncertain future as companies shed their costliest assets.
Last week Royal Dutch Shell PLC sold over half of its North Sea assets to Chrysaor, a private equity- backed oil group, for US$3.8 billion. In January, BP sold a 25 per cent stake in its Magnus oilfield in the North Sea basin to Enquest, who will now operate the project.
The deals come as production in the region gradually declines. Production rates today are roughly 60 per cent below their peak of 4.5 million bpd in the early 2000s.
Companies and governments are now focusing their efforts on dismantling the vast number of platforms, concrete blocks, wells and pipelines that are no longer in use.
A recent report from consultancy Wood Mackenzie found that taxpayers in the U. K. could be on the hook for US$ 29.2 billion over the next five years to decommission aging infrastructure at abandoned oil and gas developments.
As a result, the region is likely to be operated by a smaller group of companies that own increasingly large portions of development.
The takeover offer for Ithaca would see Delek boost its current 19.7 per cent stake in the company through an equity deal valued at $ 841 million. Delek also bought a US$ 53 million- stake in Faroe Petroleum, another North Sea operator, late last year.
Ithaca, which trades on both the London and Toronto stock exchanges, said the bid represented a 12 per cent premium on Ithaca shares, which were valued at $ 1.74 on Feb. 3. Ithaca shares were up over 10 per cent in early afternoon trading.
The company requires over 50 per cent of the remaining non- Delek shareholders to approve the purchase, which Ithaca said represents a total enterprise value of US$1.24 billion.
Delek said it made the offer as part of a broader expansion into overseas markets. The company has in the past stated its intention to complete the purchase of Ithaca after it bought its original 19.7 per cent stake in the company.
“Ithaca showed a proven ability to lower its production costs,” said Nilly Richman, a spokesperson for Delek.
The company has majority stakes in several massive offshore gas fields in the east Mediterranean. In November 2016 the company won a tender to explore an oil and gas basin in offshore Newfoundland.