Ithaca Energy PLC

LSE:ITH

Earnings Call Transcript 2023-Q1

[Operator]

Hello, everyone, and welcome to the Ithaca Energy plc First Quarter 2023 Results webcast and thank you for standing by. My name is Daisy, and I'll be coordinating your call today. [Operator Instructions]

I would now like to hand the call over to your host Gilad Myerson, Executive Chairman of Ithaca to begin. So Gilad, please go ahead.

[Gilad Myerson, executive]

Hello, everyone, and thank you for joining the call today. We're very pleased to walk through our results for Q1 and also answer any questions. The way we thought of managing this presentation is that I will walk through a few slides, just giving you an overview of Q1 results. And then I'll hand over to Alan, who will walk through some safety environmental aspects of the quarter as well as production and an update on the development. And then Iain Lewis will walk through the financials. So with that, I'll start on Slide 3 of the podcast.

Operational highlights. We had a very strong production, 75,300 barrels produced in Q1. This is ahead of our guidance. We had some operational issues in Captain, FPF-1, which we resolved very rapidly. So that's very good results. I think we've discussed -- we discussed previously that we've had some issues in Captain and FPF-1 earlier this year, but the fact that the assets are now running smoothly is a testament to the operational capabilities and organization to really resolve these issues.

In terms of Pierce, we resumed production on Pierce. We're also spending a huge amount of time on Cambo and Rosebank. We're moving them both closer to final investment decision, working very constructively with the government, which I'll talk to shortly. We're also preparing for K2, which will be hopefully drilling in June this year. And then we finished our pre-FEED looking to electrify Captain, and we have a few options in front of us, and we're looking to progress the project. It is very much supported by the [ MFDA ]. It's one of the first full electrification projects in the North Sea, and we're very keen to be in front of the rest of the competition when it comes to electrifying platforms.

In terms of financial highlights, adjusted EBITDA of $518 million. So it's up from Q1 last year, also up from Q4 last year. So it's a very significant EBITDA per boe and Iain will walk you through the numbers, and we continue to deleverage. From a corporate standpoint, we paid the dividend of $133 million in March 2023, and we have line of sight to continuing paying the $400 million commitment. We also have a significant milestone achieved in terms of Cambo with Shell essentially beginning the marketing process for setting the share down of Cambo, we have an opportunity to buy the 30% share of Cambo. What it actually enables us to do is it enables us to further progress the project towards FID at the moment. Up until now, it's been relatively slow due to the fact that Shell weren't clear if they want to continue the project or not, now it's clear they do not, and therefore, we'll be able to move faster.

In terms of the numbers, you can see on the right-hand side of the slide, 75,000 production, $28 per barrel of oil, $518 million EBITDA and $132 million dividend.

Moving on to the second slide, Slide 4. EPL continues to be a major concern for Ithaca. We are looking to -- we're contracting the government to find ways to continue to develop the North Sea. Unintended consequences, and we spoke about them previously is that the debt availability is limited. The RBL capacity has gone down quite considerably. And overall, the JV partner confidence has gone down. So if you look into most of our development, they are all with partners who are having second thoughts about investing in the North Sea, the likes of Shell, as we mentioned on Cambo. We have Suncor on Rosebank, who we've decided to sell. We have Hibiscus in Marigold and each of these partners are looking at the U.K. North Sea energy profits levy and considering different options around how they mitigate the EPL impact, including not investing at all.

So with that, we are very focused on having constructive discussions with the government. We've spoken to all levels of the government, both the treasury -- the individuals are actually writing the EPL as well as senior ministers and both the -- on both the conservative side as well as the labor side in order to understand where they stand in terms of EPL and as consequences. What we've heard is that people acknowledge that our investments do 4 things, which are very good for the country. Number one, the increased U.K. energy security. Number two, they add thousands of jobs to Scotland and beyond. They reduced the greenhouse gas emissions in the North Sea.

And finally, they lower energy costs and it's very hard to argue against these 4 elements because they clearly are [indiscernible] that are important to both sides of the government, conservative as well as labor as well as environmentalist should see the opportunities that we have to reduce greenhouse gas emissions in the North Sea by developing fields of advanced technologies and therefore, we are seeing a lot of support behind the scenes. It hasn't translated into changes into EPL. So happy to answer any questions about that, but I think the engagement both from ourselves and from other operators in the North Sea seems to be very constructive, and we hope that the government will make changes in the short-term to accelerate developments.

With that, I'll hand over to Alan.

[Alan Bruce, executive]

Okay. Thank you, Gilad. Starting with safety and environmental performance on Page 6. So our teams are focused on ensuring that we're always in control, and we have effective barriers in place to prevent hazards raw materializing. So that's a core focus for our operations every single day. We have a large program of work underway across the assets, which you'll hear a bit more about today from exploration, drilling projects, daily operations through to decommissioning work as well, and we're committed to ensuring that this is managed to the highest safety and environmental standards.

Our focus this year has been on process safety, and I'm pleased to say that we're making good progress relative to our plan. And we're also doing a lot of work on emissions reduction, and I'm going to touch on that a bit later in the presentation in terms of the key priority for us, which is around the electrification of the Captain asset. So continued strong performance, but a big focus area for us in terms of safety and environment.

Moving to Page 7, which is a production summary, and there's a bit going on here. So I'll take some time just to try and unpack production for the quarter and then the outlook for the rest of the year. So on Page 7, as Gilad said, Q1 production came in at 75,300 barrels of oil equivalent per day, which was above our guidance range. That was due to a strong end to the quarter. So we mentioned at the time of full year results that we've had some challenges in Q1, particularly early part of the quarter due to equipment failure at FPF-1. That was quickly rectified. In fact, the asset performance has been really strong since then. So since coming back online, FPF-1, we've been at over 99.5% production efficiency for the past 2 months.

Similarly, on Captain, challenging month in January and February due to equipment failure issues. But got that resolved, and Captain has gone over 100 days now without unplanned trip. So we're continuing to progress there. And hoping to continue that. Our target is to reach 126 days, which is the field record for Captain. So that's what we've got in our sights. So we're slightly ahead of expectations as well in the nonoperated portfolio in the fourth quarter. So as we trued up the numbers, just had some benefits coming into the first quarter there. Some of that is kind of timing issues that we offset in the second quarter. So a good strong first quarter.

We do expect that particularly third quarter volumes will be down again to the second quarter, and it should be broadly in line. Third quarter, we're expecting it to be significantly lower, just the impact of planned maintenance that's ongoing, and in particular, we've got a large shutdown at Captain around the September time frame to complete work, which is in support of the EOR II project. So we should expect that the third quarter volumes will be down. And of course, that's what will result in us being within the guidance range, 68% to 74% for the full year. So I'm reiterating that guidance range, as I said, just the offset of having similar volumes in the first and second quarter, a reduction in the third quarter and then kind of back to normal in the fourth quarter.

Beyond that, really, we're still on track to deliver the 70,000 to 90,000 barrels a day range. And the key thing there really is things like the Captain EOR project, which is coming online in '24, peak production in '25, that offsets the natural decline in the portfolio. So that's something that is a bit unique to Ithaca is having that project portfolio, and particularly the Captain production increase that's coming through and helping us to keep volumes flat to growing over the next several years here.

Moving on to Page 8. A quick summary on Rosebank. So just as a reminder, Rosebank is the largest undeveloped discovery in the U.K., North Sea, around 325 million barrels of gross recoverable resource. And as you all know, the development concept involves the redeployment of an existing FPSO. So that helps improve the environmental footprint of the project and it results in favorable economics. The FPSO will be modified to suit Rosebank conditions, so that involves some process modifications and strengthening of the vessel and modifications to make sure it's ready for future potential electrification.

So the emissions intensity of Rosebank is expected to be significantly lower than imports from overseas. And while the U.K. is a net importer of hydrocarbons, which I think we all expect to be the case in any demand scenario for the foreseeable future, and we believe that it's the best approach for all stakeholders is to continue to develop our domestic resources, supporting the U.K. economy and crucially providing good quality, high-paying jobs. So the project continues to progress towards a final investment decision. The relevant documents have been submitted to the regulators and it's still expected that first production could be achieved in late 2026, which would result in around 50,000 barrels of oil equivalent per day net to Ithaca.

Moving on to Page 9, which is a summary on Cambo. Gilad touched on this seconds earlier, and we announced, of course, that we've made some progress in terms of the commercial issues around the development. As a reminder, Cambo is the second largest undeveloped discovery in the U.K., so well appraised field with a mature development concept. And really, the key next step is to continuing to progress the project by securing an aligned joint venture.

So the agreement that we signed earlier in the month, which supports marketing of the project will help us to do that. And so that process has now kicked off and it's ongoing expected to last the next -- up to 6 months. And of course, there is the option for Ithaca to obtain the work and interest of that market in process for Shell isn't successful. So we'll work through that and early stages provide updates accordingly as that progresses. I think the key point really for us is, as we said in our release, there's limited near-term cash impact, so any consideration would be payable on first oil.

Moving to Page 10, which is a summary of the other projects in the portfolio. These aren't quite as large as the likes of Rosebank in Cambo, but still highly valuable projects and the things we're working on are all close to existing infrastructure and good strategic fit for the assets that we have in the portfolio. So the 2 on the left, Fotla and Leverett are both in the Greater Britannia area where, of course, we have a 32% working interest in the host Britannia platform. As was mentioned earlier, the K2 well is -- rig is just mobilizing for that tomorrow, and it will drill the prospect, which was acquired as part of the Summit acquisition. So it's a 40s target good data on that, and we're as confident as we can be for an exploration prospect, but good prospects and a few different options in terms of potential tieback either towards MonArb base or Everest/Lomond area. So excited to see the results of that one.

Then on the other 1 we mentioned in the Greater Britannia area, Leverett, that's another well -- appraisal well that's going to be drilled over the coming months here, well operated by NEO, but also a potential tieback to Britannia. So again, couple of good opportunities to provide low-cost advantaged barrels and with us, obviously, benefit in being a partner in the host infrastructure as well.

Moving on to Page 11. I've just got 3 slides on the Captain asset, and then I'll hand over to Iain to talk about financials. So just a bit of a summary here on Captain and this slide speaks to the first phase of polymer injection on the asset. So as a reminder for everyone, Captain, it's a large oil field with around 1 billion barrels initially in place. Area A came online in '97 and then Area B and C, which are both subsea developments were added in 2002 and 2006, respectively.

The first phase of enhanced oil recoveries targeting Unit A and it came online with polymer injection starting in 2016. But over the past 8 years, we've been developing significant learnings in terms of the subsurface performance of the polymer flood but also how to manage the offshore operations of polymer recovery. We're now actually into the fifth and sixth major revision of the polymer formulation. We've been working to continue to improve the yield with every revision that we've made.

The previous iterations have seen about a 10% reduction in polymer dosage required for the same amount of oil production. The fifth generation is finishing up lab development and that's moving towards commercial scale production. So we're hoping to have first injection from the fifth generation of the polymer in the first half of next year. But we're still going ahead with the sixth generation, which is actually a fundamental change to the polymer formulation.

And we've kicked off lab testing on that one earlier this year, working towards full field scale implementation in 2025. So continued development to optimize the asset, good performance from the existing polymer flood. And as you can see from the chart on the slide, the cumulative recovery there. We've already recovered over 10 million barrels of oil as a result of polymer flood with 5 patterns online, and that predictable performance really has helped derisk Phase 2 of the project, which is targeting Area B and C of the field.

Moving on to Page 11, just giving a quick summary on where we are in terms of EOR II project progress itself. Still on track. The project is on schedule and on budget. Most of the brownfield construction, some of the more challenging tasks were completed last year. So the big scope for this year is continuing to press drilling the wells. The rig returned in the first quarter, and we're making good progress with drilling the injector wells.

We're expecting first production and first polymer injection towards the end of this year into next year with really the impact of that being seen in 2024 in terms of the polymer making its way through to the production wells and peak production expected in 2025. This a real differentiator for us as a company, both in terms of deployment of the technology and where that could be potentially applicable elsewhere continuing to improve that and add value to the asset through our technological know-how, but also just the fact that it does provide that growth increase in Captain production from around 20,000 to 40,000 barrels a day and really offsetting the natural decline in the portfolio to support a stable outlook in the 70,000 to 90,000 barrels a day range for the next several years before we invest and bring online the larger greenfield and brownfield developments in the portfolio.

So last slide here, turning to Page 13, which is a quick summary on the decarbonization efforts we've got ongoing at Captain. Obviously, well it has been a long-life asset, we're working to do everything we can to drive down the emissions intensity. We have a couple of projects where we're looking to recapture and reuse low-pressure flare gas, and those are in engineering just now. The larger project is around electrification. So pre-FEED studies for that being completed and pleased to say that the concept is technically valuable, giving us confidence to move the project into front-end engineering and design.

Project itself has a potential to save over 100,000 tonnes of CO2 equivalent per year which depending on which country and could be in this country up to 65,000 cars equivalent. So really good project helps support the general industry push towards decarbonization and will drive the asset emissions intend to stay down into the single digits.

So in summary, we continue to progress the project, a good quarter for us from an operational perspective. We had to manage the challenges thrown at us of operating mature offshore assets early in the quarter, but we've dealt with that well. And we remain on track to deliver on our commitments for the remainder of the year.

So handing over to Iain now, who's going to cover the financial highlights for the quarter.

[Iain Lewis, executive]

Okay. Good morning, everyone. I believe there's been a couple of issues with the webcast. People have been looking at the financial statements, I think, which -- will give some of you a great joy on some of your less joy. But hopefully, you can see the presentation now, we're on Slide 15 on some of the key financial highlights for the quarter.

Overall, a strong and robust set of numbers for the quarter. Production has almost gone through 75,300 barrels a day. But unit operating cost maintained at around the $20 per barrel range. Now you'll have seen across the industry continued cost pressure. And so we're glad to see only a moderate increase in cost per barrel, even with some of the production issues that were faced during Q1. That all results in an EBITDAX of over $500 million, $518 million delivered in the quarter and adjusted net income of $158 million with operating cash was $351 million. So really seeing in the cash net income and EBITDAX, the strong performance for the quarter.

Debt down to below $900 million. Very glad to see that come through, giving us a 0.46x net debt-to-EBITDAX ratio. We're seeing debt continuing to fall as we were able to pay down some debt regardless of the interim dividend payment of $133 million that was cash paid during the quarter. So we ended the quarter with $650 million of liquidity in our RBL position and our available cash, giving us the strong optionality forward in terms of our investment strategy and optionality.

In terms of the -- in the next slide, Slide 16, kind of summarizing where the EBITDAX story for the quarter, lots of you can see the production is up against the full year '22 from 71,000 to 75,000. We've seen a reasonable reduction in softening oil price and gas price during the period, so down to $83 realized in Q1 for oil and $101 per barrel equivalent for gas. But this is where the EBITDAX support of our hedging program really is seen to come through in the quarter. So we had substantial hedge gains as in gas, particularly our strong gas hedge book really supported the EBITDAX position. So with the supported price realizations and then a modest increase in operating expenditure. Really glad to see our adjusted EBITDAX per barrel increased from $73 in 2022 full year to $76 for Q1. So a solid set of results.

Given more detail there on Slide 17, we try and share this analysis so that we are open in terms of the calculation through of our EBITDAX, and you can see the numbers. I would just call out in this in the middle of that slide that the green -- that highlighted column, you can see that about halfway down the oil and gas hedging gains of $77 million in the quarter compared to $500 million for the full year of '22, of negative hedge loss positions as prices were high. But that balancing effect means as you drive down through the calculation of EBITDAX, the protected value realization from production and the unit operating cash costs gets us to $518 million of EBITDAX to $76 per barrel. So strong results as supported by hedging -- our hedging position.

The next slide, Slide 18, just to double-click a bit on the protection element of our financial framework. You can see the reduction in our debt position, continuing to pay down our RBL and use cash. And you can see the ability to draw on RBL at $650 million available in terms of liquidity and cash and RBL capacity at the end of the quarter. So 0.46x net debt-to-EBITDAX given our investors' confidence in our ability to meet the options that lie ahead of us.

Hedging book is on Slide 19. And again, you'll see the strong hedge book for the remainder of this year, particularly, we've had some thoughtful execution of hedge positions for -- through the end of this year or probably in the '24 for gas out through '25. We started to build a position as well. We draw your attention to the middle green highlighted bar in the tables at the bottom there, the weighted average dollars per barrel and pence per therm. And you can see that, that is the weighted average of the swaps and the collar floors.

You see that we're in the $70 rising through for oil through for the next several quarters. As you can see, the gas position particularly is a strong floor of above 200p per therm for the next 2 quarters. Now the gas price has softened early in the market in the past few weeks. So this floor position that we have on a substantial gas production base through Q2, Q3, the summer months really protects the business and protects the cash flow through that period. So volatility in gas with the weakness this summer and expectation of higher prices in the winter, we're supported in our gas hedging portfolio to protect the business, to protect the cash flows of the company.

Just the final slide for me is Slide 20 and just an overview of our capital allocation framework. We're sure you're well familiar with this. We keep coming back to it, but it is a unique factor for us in the market, and that's something that our investors take great confidence in. We are continuing to invest, and you can see the commitment to the projects has been taken through by Gilad and Alan. We continue to invest in Captain and the EOR II project and the development of those sustaining barrels. First of all, the first quarter of CapEx or cash flow, protecting the balance sheet through the leverage position and the hedge book and then commitment to the dividend, which -- we announced the IPO and reiterate today our commitment to the $40 million target for the year. But then growth beyond the ability to execute through our liquidity position on our portfolio of projects.

So I'll just close out by looking at the guidance for '23, which is Slide 22. And really no change here. We are glad to be able to reconfirm the guidance for '23, there was strong Q1 and having gone through a strong April and up through the May, looking to reiterate that guidance and confirm our ability to gain these ranges.

I'll pass it to Alan for the last slide, just t close out.

[Alan Bruce, executive]

Yes. Thanks, Iain. So Page 23, just a real quick summary before we open up to questions. So just reiterating really no change to our buy, build and boost strategy that we described at the IPO and the full year results. Continuing to evaluate potential value-accretive acquisitions and we've widened the aperture but we don't need to do anything. So again, being very disciplined and thoughtful in our approach there.

On the build assets, the key point is that we have really strong portfolio and lots of optionality in the portfolio, and we'll continue to progress those in a disciplined manner, looking at the economics of projects and making sure it fits within our capital allocation framework. Continue to work to boost assets and run the operation as well as you've seen in the first quarter here.

So that's kind of a good summary of the quarter. I think Gilad just wanted to make some closing comments and just reiterate some of the points on Slide 3, and then we'll close it out.

[Gilad Myerson, executive]

Yes. Thanks. I realized that the initial slide wasn't shown in the beginning of the presentation. So it's worth just flashing it back up. So if you can put Slide 3 back up on the presentation, really, this is the essence of -- from what you've delivered in Q1. And I just wanted to say that we are very focused on delivering our commitments and, if possible, over delivering, and that's essentially what we've managed to do in Q1 with these results.

With that, I'd be happy to open to Q&A.

[Operator]

[Operator Instructions] Our first question today comes from Sasikanth Chilukuru from Morgan Stanley.

[Sasikanth Chilukuru, analyst]

I have 3, please. The first was related to the Marigold project. You have highlighted that the unitization process was currently ongoing and that -- and also, initially, you mentioned that the Hibiscus was having some concerns in investing into the projects. I was just wondering with that context, when is the earliest we can expect an FID on that project? Any indication of expected start-up time line will also be helpful.

The second was related to development CapEx. Of course, you have the guidance for producing assets CapEx. I was just -- given that we are closer to midyear now, I was just wondering if there was any guidance range for the expected CapEx for the PFID projects or the nonproducing assets for 2023? Any range would be helpful. You've also highlighted Fotla FID by -- or late this year.

And finally, if you could provide any guidance on the exploration and the decommissioning spend in 2023, that would be helpful as well.

[Alan Bruce, executive]

All right. Thanks for your question, Sasi. So I'll grab the first one and then I'll let Iain jump in on the other 2. So on Marigold, the stage that the project is at is we've completed a bunch of the pre-FEED work in terms of the concept selection and then development studies and host tieback. So the next step there is entering into the full FEED, working through the tariff arrangements with potential host and then we'd be looking to -- and then completing the environmental statement. So we've done some surveys, but got the environmental statement to complete and then that would go out for public consultation.

So it's difficult to be precise. That environmental consultation process across the industry is taking longer than it has been in the past. Normally, that was sort of a 6-month turnaround and some of our peers are seeing of the order of 12-plus months for that. So we're probably into 2024 for final investment decision because it will have to complete that environmental statement process and probably looking at 2027, I think, for first production. Iain?

[Iain Lewis, executive]

Yes, sure, to pick up the other 2 questions. So in terms of the guidance for development projects, we haven't given guidance on those previously. I think the pre-FID costs are in the low tens of millions as we move through. And obviously, when projects get to FID, we'll give more detail on those. So yes, low tens of millions for the pre-FID costs is the key message.

The other question was on exploration on decommissioning. Again, we've historically given guidance on that. In terms of exploration, we tend to be looking at 1 or [ 1 and a bit ] exploration wells a year, and really we're looking at some $50 million on that kind of spend per annum. And in terms of decommissioning, again, relatively low spend, sub $70 million. Expect that to be a bit lower than that this year as well as we're closing out some particular scopes and then a bit lower for the next couple of years. So hopefully, that will give you some ranges around the $50 million plus mark for both of those.

[Operator]

Our next question today comes from James Carmichael from Berenberg.

[James Carmichael, analyst]

I guess, the Cambo and just the process there. I was just wondering if you could indicate if there's been much interest in that so far, as far as you know and whether you'd be happy at that 70% level taking it to the development or whether you'd sort of rather reduce your interest down towards the 50% level that you referenced in the statement?

And then just on the production for the year, obviously, outlined a really strong Q1 above guidance, it seems like the quarter ended very strongly there as well. Can you just sort of give us an idea of where you are currently and when you might have to start sort of thinking about full year guidance?

I don't know if we've got -- sorry, just 1 more can -- you talked about the difficult political backdrop in the U.K. office. I was just wondering if there's any thoughts you've got around sort of looking outside the U.K. to grow the portfolio over time?

[Alan Bruce, executive]

All right. Very good. Well, why don't I have a go at those and then I can ask Gilad or Iain if they have anything to add. So the first question on Cambo, I think it was early days really in terms of the marketing process kicking off. So there has been a degree of interest and sort of just working through. Some parties have some knowledge of the project already and others are new to the process. So just a case of working that through and as we've got more information to share, we'll definitely be able to do that.

Your question on production guidance, kind of where are we just now. So on a sort of daily basis, we've been up in the sort of 70 to 75 range. And so I expect that to be the case kind of through this month. There's some asset downtime as you get into June, July across the nonoperated portfolio and a couple of the operated assets just as always the case in the summer with some of the infrastructure shutdowns. So we'll expect to see lower volumes, particularly in the early part of the third quarter.

And then I touched on the Captain shutdown, which will bring us down a good bit through the back end of the third quarter and then coming back up again in the fourth quarter. So I think once we're at the point of kind of releasing our second quarter results, we'll have a better sense of where we are on the full year. I mean I think just now we're feeling really good about the range. But of course, just kind of need to get through the shutdowns in particular.

And then the last question was -- yes, sure. Yes, I mean, look, it's obviously been a bit of a hot potato at the moment just in terms of where we are on energy policy. I think what we would say is that really need in this country to have energy security, energy affordability and then energy sustainability. So we think that those dimensions are important really for the country to be focused on, and I think sometimes we're maybe being focused on some of those legs of the stool more than others. We believe that our contribution is across all of those in terms of security, affordability and sustainability. And that's what we're focused on as being a company that can address each of those priorities.

And ultimately, as much as -- it's always the case that politicians will have a certain agenda to drive. We think if we're able to do the right thing as far as those different dimensions, then we're doing the right thing for all of our stakeholders. So that's our focus area. I think it's very difficult. We're continuing to have good engagement across the political spectrum. It's difficult for us to make any forecasts on what might or might not happen.

[Operator]

Our next question is from Chris Wheaton from Stifel.

[Christopher Wheaton, analyst]

Great. Two questions, if I may. Firstly, on your OpEx. If you look at OpEx per unit boe, you've shown some pretty good cost control, I think, in first quarter. You're up about [indiscernible] first quarter on first quarter. And that's despite currency adverse FX versus dollar -- sterling versus dollar, about 10% in that same period. Could you perhaps break down for me better some of the moving parts there? Because it seems like you're holding underlying costs FX about flat, which seems to be a pretty good outcome considering how inflation is rampant at the moment, particularly everywhere. And then I also had a question for Iain on the RBL, but I'll ask them in order.

[Alan Bruce, executive]

Yes. Sure. Iain maybe best place to speak to the OpEx one as well, but just real quick, Chris, thank you for acknowledging the hard work that goes on sort of every day in our teams on controlling OpEx because it's -- it does just take that sort of culture in the organization and everyone really being very thoughtful about everything that they're spending, and we're really pushing to try and drive efficiency improvements across the portfolio and both in terms of being very value driven, focused on improving the boe side of things as well as the OpEx side of things, being very thoughtful about the contracts that we've got in place and having put some good long-term contracts in place that are coming to bear now in terms of continuing to hold costs where they are.

Iain, maybe you can just double-click, anything you want to add on that one and then take the RBL question.

[Iain Lewis, executive]

Yes. Sure. No. Christopher, you're right, obviously, that there are a number of key moving parts. One is FX, which clearly plays into this with a large portion of our costs in GBP. We also have high carbon pricing coming through in terms of fuel gas and diesel. But as Alan says, we see cost control really as -- it's about the hard yards of the detail every day. I sign off on all of the contracts that we execute.

We have a detailed tender board process where everything gets scrutinized and tendered. Usage is tracked and is scrutinized across the business, and there's a -- I need to keep the cost conscious focus throughout the business. We don't run heavy on areas where we believe we can be efficient. So I guess there's no silver bullet here. It's just lots of hard yards of cost control.

[Christopher Wheaton, analyst]

Excellent. If you had to guess what the underlying inflation rate in the North Sea was at the moment, ex FX, what do you think that would be, Iain?

[Iain Lewis, executive]

Right now, I mean, I think we're seeing most people reporting kind of 10% plus. I think some of the capital -- well, I mean, yes, it's really dependent on supply or we just had anchor handlers that we secured, 3 different rates that were massively different depending on the timing of the market.

So I think it's partly timing and ability to be flexible with some of the resources that are scarce as well because I think, obviously, some suppliers are facing different demand cycles. But I think 10% is what people generally are seeing if you kind of take out the FX and hydrocarbon pricing noise.

[Christopher Wheaton, analyst]

Okay. That's really helpful. My second question, please, on the RBL. Your -- 1 of the most pernicious effects of this windfall tax fiasco is that the lack of the price floor in the second iteration of the EPL has meant that RBL capacity is being cut substantially across the industry, withdrawal of capital, therefore, follows.

Could you perhaps talk about how much you expect your RBL facility to be cut later in the year? I look at Neptune, for example, their RBL has been cut not quite 50%, around 40%, 45% as they reported in their 1Q numbers, and therefore, the effect that has on your liquidity and therefore, your sort of your plans, therefore, for financing the future projects as a consequence of that withdrawal of capital availability.

[Iain Lewis, executive]

Sure. Yes. So just a quick recap on our facility, which is the $300 million of [indiscernible] part of the RBL on the $925 million loan tranche of which, as you see in Slide 18 of the presentation that you're $575 million undrawn at the end of the quarter. The key thing here, I guess, from our perspective is that the facility amount that we have was historically significantly low in the borrowing base. So really what determines the impact of EPL is a number of elements to it, but the key 1 is the borrowing base relative to the facility amount.

And so what that means without going into the number, we obviously don't disclose the details of our BBA. But the basics are that such that the BBA was higher than the facility amount such that with the full inclusion of EPL, we are not expecting a significant or material reduction in our loan tranche and that comes fully through. We're in redetermination at the moment, a standard process which is going well. So we're not expecting a material reduction.

I would say there will be a reduction, and we will be impacted, but I think it plays into the wider context that we're well placed relative to many in the industry around liquidity and access to capital, but the EPL has basin-wide implications, which means that partners and partnering for projects, et cetera, is more complex.

[Operator]

Our next question is from Mark Wilson from Jefferies.

[Mark Wilson, analyst]

A few questions from me. I'm going to start with Rosebank. You've answered questions on Marigold and Cambo, but I think Rosebank would be the most material catalyst for you this year potentially. So can we talk what are the specific next steps you're looking for at Rosebank to move forward that towards FID? And can I also ask if the environmental statement has been approved yet? You mentioned that as going slower generally for some others. So where do we stand on Rosebank, please?

[Alan Bruce, executive]

Yes, sure. Thanks, Mark. I'll take that one. So the environmental statement gotten to the point where no more questions, but it's still with OPRED as part of their approval process. So what needs to happen is within OPRED, that will have to be approved and then it comes back to the NSTA after that. So still working through the regulatory approval process there. Project is in good shape, really, in terms of the maturity of engineering and all the physical work to be able to take kind of investment decision.

So that's where we are on that one. Yes, do you have a second question?

[Mark Wilson, analyst]

I do. Yes. The second question is regarding 1 area of guidance that we don't have, is actually regarding cash tax. Certainly, versus our numbers, there's a lot lower cash tax in the first quarter. That may just be timing. But at the end of '22, there was an EPL deferred tax of $766 million. So could you speak to how that -- what are the cash tax EPL payments this year and how we expect them to be phased, please?

[Iain Lewis, executive]

Yes, sure. So -- yes -- so -- I guess the $766 million deferred tax position, I guess, is the balance sheet position on the PP&E balance that all went through March '28, I guess some of that came through the income statement this quarter because it kind of goes with depreciation.

In terms of cash taxes, we guide on corporate taxes that we expect to be in the single-digit percentages of cash tax for the corporate tax position. So I think we're looking at being in the low single digits on cash tax for this year for corporate tax.

EPL is, I guess, pretty open to be calculated, all things said, given the guidance that we give. We will be -- we did pay some EPL in Q1. There's $30 million paid in Q1, but there's more to come later in the year. We haven't been giving specific guidance on that as it wasn't helping through with the calculation. But it's fairly straightforward and that it's pretty much EBITDAX less the -- well, yes, the [ 129% ] on the CapEx.

Does that help, Mark? Or you probably want exact cash numbers by month? We don't -- we haven't been giving those as direct guidance.

[Mark Wilson, analyst]

Okay. Well, it just sounds a lot lower than I would have expected. But we will have to come back to that. I didn't realize EPL could be deferred over such a long period of time that you spoke to.

[Iain Lewis, executive]

Yes, the balance sheet amount that was recognized, the $766 million will be recognized as essentially, it's deferred tax, it's not cash tax. It's deferred tax on the property part and equipment balance on the balance sheet.

[Mark Wilson, analyst]

I see where you are coming up from that, yes. Okay. We'll come back on that. And then the final point was regarding the Captain drilling progress from here because -- could you just remind us, Alan, how many of those injectors and producers you're actually drilling through this year? And then how they come on stream? You mentioned first polymers introduced, you should see the impact in 2024. But how many of those are coming through just so we can -- are being drilled, so you could follow that?

[Alan Bruce, executive]

Yes, sure. We actually have been doing a bit of batch drilling in the top-hole sections here. But -- and we've got a variety of wells that are conversions versus new wells. But yes, we basically got 6 wells that we're working through drilling now on the COSL Pioneer. So their expectation is that, that will kind of take us through back into this year, into early next year. And yes, I guess we can provide updates as those come on and we'll be able to bring them on in the series manner.

And -- actually, we're doing some work just now on the subsea tie-ins on the B-28 well, which will actually -- once we've got that completed here, we'll be able to get first polymer injection into that one and then bring the other ones on sequentially after that as they're drilled and completed. So it will be a bit phased. But of course, like -- it just takes a little bit of time to see the polymer response.

So we're not expecting to sort of see first production as a result of the polymer until sometime in 2024 with that ramping up through '23. And yes, we can double-click a bit more on that, but that's what we expect to see over the next 2 years.

[Operator]

Our next question is from James McCormack from Cenkos Securities.

[James McCormack, analyst]

Just 1 quick question from me. We saw the announcement on the weekend from Keir Starmer regarding the new developments in the North Sea. I just wondered the conversations that you've been having with the opposition, what -- is what you're seeing in private and talking to the labor party the same as kind of what's been announced this week? Or is it a very different message when you're talking to what's been announced publicly?

[Alan Bruce, executive]

Yes, I'll have a go at that and maybe if Gilad wants to jump in, of course, you can. But I think what I would say is, I mean, the -- and David Whitehouse said this on TV yesterday, it's not actually clear at the moment exactly what the labor policy is in terms of -- various statements will be made in the public or interpreted by the press in terms of no new developments, no drilling, no licenses. So I think a bit of uncertainty there, and I think they're not really sure exactly what they mean yet.

So perhaps I think worth sort of moving back to -- where are the areas of alignment. I mean I think alignment on being open for business in this country and supporting economic growth and enterprise and, of course, supporting jobs. So I think that's where we've been working to start is where we're aligned on that, continued support for the economy, continued support for the Northeast of Scotland, continued support for all the people working in the industry. Good strong alignment there.

And I think it's a case of just spending a bit more time together, understanding the ramifications of various different policies and how they fit into the overall sort of aspirations from a climate perspective. So we are having engagement there, both as Ithaca and then also with the industry collectively and expect that to continue to be the case over the next number of months here. So still a long way off any general election at this point. So continuing to work collaboratively just to try and make sure that we've got a consistent understanding of the implications of different policies.

[Gilad Myerson, executive]

Yes. Thanks, Alan, and maybe I'll just add to that. We are hearing many politicians making statements. It's unclear what is driving a lot of the statements. The discussion that we're having with the politicians and we're speaking to the full spectrum, there's clearly a need and it's recognized by most politicians energy security in the U.K., for job creation, for emission reduction and for low energy costs. And the order of those 4, by the way, of energy security before jobs or emissions before costs or emissions before energy security. I think really it's the flavor of the different parties and the politicians. But I think we've heard unanimously that those 4 elements are definitely priority from any government that will come into play.

In terms of delivering against those objectives is very clear that the U.K. will be using hydrocarbons in the next 10 to 20, potentially 30, 40 years going forward and ready to have the question then becomes are we producing those hydrocarbons on our doorstep or importing those hydrocarbons from abroad. And that's really the focus of the discussion. We're spending a lot of time educating a lot of the decision-makers on the implications of different policies of drilling or not drilling or developing this type of asset or that type of asset.

And when you boil it down to the basic arithmetic, if you look at a project, for instance, Rosebank or Cambo, ultimately, they provide energy security, they provide jobs, they lower the net U.K. emissions and they provide low energy costs. And most people when I understand the math behind the development, they often will say to us, actually, that makes a lot of sense.

Let us go back and speak to people in the party who are developing the manifesto and realign our messaging accordingly. So essentially, what we are trying to do now is work constructively. We're trying to speak to as many individuals as we can in order to help understand the merits of the projects that we have at hand.

[Operator]

Our next question is from Kim Fustier from HSBC.

[Kim Fustier, analyst]

I have 2 quick questions, please. Firstly, on CapEx, just following up on an earlier question around OpEx. You came in right at the bottom end of your guidance on producing asset CapEx this quarter. And I wondered if you could give us some more color on the reasons why?

And then secondly, going back to Rosebank, Equinor has made some really positive noises about Rosebank in recent weeks. Now you might not be able to answer this, but do you think that they will want to farm down in their current 80% stake before taking FID? Or will they wait until after FID is taken?

[Alan Bruce, executive]

Yes. Super. Thanks, Kim. Well, let me take the second one first, and then I'll hand over to Iain on the first one. And I think the second one really is probably question for Equinor, unfortunately, not for us to speak on their behalf. But Iain, do you want to cover the CapEx question?

[Iain Lewis, executive]

Sure, yes. I mean it's mainly about phasing, Kim, as you you're aware in terms of capital projects. It's the timing of execution and what falls into different quarters. So we give it on the lower end, but that's a -- few things happen in terms of the [indiscernible] costs complete earlier than expected, the phasing of some of the company or to spend as well in the quarter. So relatively unexciting, I'm afraid in terms of where we came in, but we're holding the guidance for the full year.

[Alan Bruce, executive]

Okay. We're right at the top of the hour here. If there's no further questions, I think just a case of thanking everyone for their interest in the company and continued engagement. We really are very thankful for your questions today, for listening in on the call and look forward to continuing to work with you all.

[Operator]

Thank you, everyone, for joining today's call. You may now disconnect your lines, and have a lovely day.

[Alan Bruce, executive]

Thanks, everyone. Bye.