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Thank you, and good morning, everyone. Welcome to the call this morning. I'm glad to be able to take the opportunity to review the Q1 results. And to walk through a few of the changes in the business and the proposed changes in the coming months.
So if we can move to Slide 3 of the presentation, please. And this slide summarizes the executive changes that are announced today in support of the next phase of the business's progress, and this is looking ahead to the completion of the transformational business combination with the U.K. business that we expect, as previously announced to complete during Q3 this year. So as part of that, those changes we are announcing today the expected and proposed appointment of Luciano Vasques as the CEO from completion. And we're also announcing today the appointment expected of Yaniv Friedman as Executive Chairman, replacing Gilad Myerson, who's left the company. We're also glad to announce that Odin Estensen has been appointed as the Chief Operating Officer of the company, reflecting the new business that we expect in Q3 of substantial operating scale and bringing Odin and Luciano and Yaniv together into the business is really a significant step forward in terms of operational oil and gas experience.
Luciano comes over a 30-year experience internationally in the oil and gas business of Eni, and Odin, very experienced in terms of history with Shell and [indiscernible] the Managing Director of Neptune's U.K. and Norwegian operations.
Yaniv comes to us again with significant energy experience previously of Newmed and the East - in the [ EastMed ] and with our significant Israeli shareholder base Yaniv's experience in public markets in Israel, particularly is a great addition to the team.
We also announced previously the appointment of Zvika Zivlin as our Senior Independent Director. Zvika has joined the Board and completes the lineup of exec changes and Board changes that we're announcing today.
So moving on then to Slide 4, where we a summary of the Q1 highlights. We have had a good quarter, solid delivery of our expected operational output and really quite a quarter in terms of the proposed changes to the business through the combination announced with a Eni's U.K. business. In terms of the project, the major project that we have been undertaking in the last several years, Captain EOR Phase II, really glad to announce that is completed and completed with earlier injection anticipated of the first polymer into the subsea wells and completed on time and on budget, a very major project delivery for the business and really underpins the production growth in the coming years through delivery of polymer into the reservoir in the subsea wells in Captain.
We also undertook the recertification of the Captain rig equipment and that was completed during the quarter as well. Again, a very important milestone. The rig will be activated in Q3 for production enhancement through the next 18 months of drilling on Captain. The 13th drilling campaign on this massive field and looking forward to seeing the rig in operation later this year. We also were awarded a 2-year license extension at the end of March on the Cambo field that supports the continued evolution of that field towards FID and supports the farm-in process that we are working through as well.
In terms of Q1 results, production, in line with the guidance that we gave to the market in the past month or so with EBITDAX of $339 million. Net cash from operations of $314 million. Free cash flow, around $130 million in the quarter. And that leaves us in a very strong position of the balance sheet, net debt of $461 million. So continued deleveraging of the business with 0.3x net debt to EBITDAX ratio. Again, that's a historical low for the business and also a very significant liquidity available to us of over $1.25 billion as of the end of the quarter.
So with that on the ambition for strong delivery this year of a dividend, we're aiming to get up to $500 million. Really quite a solid set of results and strategically successful Q1.
Moving on to Slide 6, and these are just a reminder slides really of what is a very significant business combination that we are in the process of working through. Slide 6 summarizes the key headlines, the execution of Eni satellite model, bringing their highly cash-generative U.K. assets into the Ithaca portfolio. And with the combination of skills and expertise and assets really creating a U.K. powerhouse with a pro forma production of over 100,000 barrels a day. And as we work through the coming months and the conclusion of the business combination really set us up for growth and dividend returned to shareholders in the coming years.
Slide 7 just summarizes the assets. So I don't intend to spend too much time on these, but really critical to land how substantive and material the combination is.
And Slide 8 summarizes where that puts us in terms of production, but also reserves and resources, and by external estimation, the largest resource holder in the U.K. with 6 of 10 of the largest UKCS fields and a resource-to-production ratio of 15 years.
Slide 9 summarizes the key elements of the deal and just reiterates the key points from our perspective, the Board are very happy with the deal and looking forward to working with Eni as we work through the closeout of the transaction in the coming months.
Slide 10 summarizes the view from an Eni perspective as Ithaca fits into the satellite network that they have. So we'll be an independent company with substantive scale, but with the world-class support of Eni from a technical perspective, really setting us up as we move ahead.
So on to Slide 11 and back of the Q1 numbers. So the reference is there in terms of the bar chart shows the Q1 '24 performance. The full year expectation range that we gave previously. But really, the key guidance range is the 80,000 to 87,000 barrels a day on the third bar chart, that's the economic pro forma. So just a reminder for everyone that the deal economically will be effective from 1st July. We expect to complete during Q3, but economically from 1st July. So that means we're expecting 80,000 to 87,000 pro forma for the year economically.
Q1 lower than expected when we announced our guidance for the year. This was all fully baked in, but we had a number of non-operated infrastructure issues during Q1, which we have previously brought to the market. So Pierce off-stream for the entirety of Q1 when we expected it to be on, but now resolved and ramped up really to full production. In fact, they hit our max gas rate just this past week. Schiehallion, likewise number of production issues to do with weather and related outages now resolved, and Schiehallion is approaching peak rates as of this past week. And likewise, Erskine’ had a number of issues with the host facility at Lomond, but that is, again, likewise, resolved and Erskine has been in flush production the last couple of weeks.
So in terms of outlook, no change. The effective completion date of the deal is expected 1st July and the production range remains as guided.
Slide 12 gives a bit of a summary of the EOR Phase II project. As I mentioned, a really substantial project. It's difficult to convey simply how significant this is, but over 500 tonnes of steelwork and equipment installed. Quite innovative. This originally was going to be a new platform. And you can see that with the risers on the side of the existing -- one of the existing platforms we were able to significantly reduce the cost of the project, 36 kilometers of flow line installed, 1.2 million offshore man hours and to complete a project of this scale on time and on budget through the COVID and also the knock-on cost inflation impacts that have been felt around the world in terms of the energy issues globally. Really proud of that project execution and everyone involved in it has received a lot of thanks from us for a safe and effective execution. So looking forward to seeing the oil from EOR II come through in the coming years from what has been a great project.
Slide 13 just summarizes the rigorous certification on Captain as well. It's a very significant activity with large pieces of equipment out through a number of countries in Europe being refurbished to be recertified. And that's all coming together now on the Captain asset and planned timeline for a drilling campaign on Captain in the third quarter onwards.
So on to our financial Slide 15, if we can move to that, please just summarizes the Q1 performance, restating that we paid our final tranche of the $400 million dividend for 2023 during April, and we paid $134 million to shareholders. And really, that rounds off the successful 2023 despite a number of headwinds and significant return to shareholders. Q1 performance really at a glance 58,700 barrels a day production in line with our guidance, generating actually a higher cost per barrel marginally than previous at about $22.9 but actually OpEx lower in Q1 '24 than it was in Q1 2023, showing significant cost control across the business. And that's what helps us generate $314 million of net cash flow from operations and $339 million of EBITDAX. Just calling out again the net debt, the lowest ratio in the company's recent history and $1.25 billion of liquidity.
Slide 16, we give a bit of a breakdown on EBITDAX. This is -- this analysis tends to be appreciated by analysts and investors, so we continue to give it. And yes, just calling out a couple of significant numbers there. One is the hedging gains number. So you can see that $73 million of hedge gains in the quarter, consistent actually with Q1 '23. So again, significant value add from the hedging -- the hedge book that we've put together and the approach that we take. And that, together with controlled operating costs lower in Q1 '24 than '23, means that we've been able to deliver a $339 million EBITDAX despite production being lower than we would have hoped for. So solid production or solid financial delivery despite lower production in the quarter.
Okay. Slide 17, just a bit of a summary of our financial framework and trending on the left-hand side there in terms of how we protect the business from a balance sheet perspective and cash generate. And you see significant cash balance at the end of the quarter, offsetting our debt positions to bring us to $461 million net debt, and significant liquidity available to us. So continuing to put the balance sheet in good shape to face the future and the opportunities that lie ahead of us with the combined business. And of course, we're having the addition of assets from the Eni business combination that will come in unlevered, subset the pro forma net debt to EBITDAX is showing significant debt capacity and the availability in the business.
Slide 18 summarizes the hedge targets. And again, what we call this hedge of the peaks approach. So we have been waiting for the right time in the markets to hedge. You can see on the right-hand side there, the oil to gas pricing that we have hedged at. Probably the key thing here actually is the forward curve, of course, is the historic cost. But we hedge where the forward curve position is in a place that we like. And you can see that we held off gas hedging materially from October '23 right through until the last few weeks actually did some of it in March and then actually quite a lot last week as gas prices not only lifted but also flattened off of the forward curve. And this is what we've been doing. Material hedge positions laid down when we like the pricing and holding off when we don't. And that's been generating significant gains to date, and we continue to develop that position.
Slide 19. Again, we give quite a lot of access to our hedge book here, the key moving part here actually has been gas hedging. You'll see that what we've been doing is laying down downside protection through options, but also wide zero-cost collar. So we actually augmented our policy as a Board during the last quarter, so that given the price of put options has been quite high because of the volatility. We could see some very nice wide zero-cost collars that we could get. And we've been using those to add to the hedge book to give us upside right up to 130p, 125p a therm, but gives us a floor of kind of in the high 70s, and that's something we've been starting to lay down in the past few months. But very strong gas book generating a lot of gains year-to-date, and we'll continue to see that through Q2 and Q3, as you can see our strong average floor of 123, 127 for the next 2 quarters.
Okay. In terms of closeout remarks, I would just turn it to Slide 21. And you can see on there that there's no change in the guidance from a stand-alone perspective on the left-hand side, but really more importantly, the combined guidance for the business on the right-hand side. So this is assuming completion of the deal, as we fully expect with a 1 July effective date for all metrics, taking me to a substantive material increase in our cash flow and production year-on-year.
Just a reminder on Slide 22 of our capital allocation framework, which underpins what we do. You can see that we have been investing. We continue to invest in material CapEx to sustain production, and the Rosebank project continues to move ahead with first oil and with project timelines as previously provided. We continue to protect the business to give us room to maneuver and to give us optionality, and that's been highly successful, as you can see from our deleveraging trajectory.
Return to shareholders, we are committed to, just like we did in 2023, and we are moving through our business plan with those targets of a commitment of 30% post-tax cash from operations and an ambition to bring that higher in the evolved category by additional yield through the back end of the year.
Okay. Slide 23 just a couple of closing remarks from me before we move to Q&A. Really, this is a fairly business as usual presentation today. The key things to call out is that the combination with Eni moves ahead towards conclusion, in line with expected timelines. We are able to announce significant changes to the executive team and the Board as we move into that new business. So new business with a new exec leadership team with a lot of depth of operational oil and gas experience that really sets us up for the future.
Successful delivery of a material project in Captain EOR Phase II that we expect to underpin production for years to come. Extension of the Cambo license, which gives us optionality as we face the future investment horizon on the fiscal environment that remains uncertain and a reconfirmation of our ambition for significant dividends for up to $500 million for the next 2 years post the completion of the deal.
So with that, I will turn over to Q&A.
[Operator Instructions] Our first question today comes from Werner Riding from Peel Hunt.
Question on production growth. The main driver of it for the next couple of years, as you've talked about comes from Captain. And I suppose, therefore, that also represents the main risks. So looking into next year, from your existing assets, I know you've only just started injecting. But I was wondering within your forecast, how quickly do you expect to see a pressure response in the reservoir to the polymer injection and then a subsequent production response, that makes sense. And basically -- just trying to understand how quickly you'll know if it's going to plan, basically.
Sure, sure. Yes. No, thanks, Werner. I mean I would point to see a lot of growth comes through Captain. And I think post the completion of the deal, the business combination, we'll have a very diversified production portfolio. So Captain remains a significant asset. But actually, we have a very large Elgin-Franklin and J-Block share, et cetera, that comes through our production post deal close. But yes, to answer your question, I mean, the Captain polymer -- remember, this is Phase II of the Enhanced Oil Recovery in Captain with Phase I already having been undertaken the platform well program.
So we understand the response of polymer. It will be different in terms of the subsea wells because of the reservoirs, but we fully expect to see returns in the coming months, but that will only ramp up over the next 18 months, 24 months. So what's happened historically with polymer is that there are some wells that come ahead and some have come behind prognosis and the response is differential. So we'll expect to learn as we see responses, but there's high confidence from everyone that's looked at it, including our external reserve auditors that the volumes will come. And the question is exactly the timing on the patterns. Each pattern is different in the reservoir. So yes, we'll see -- we'll start to see results in the back end of this year and more through 2025.
Our next question today comes from Mark Wilson from Jefferies.
And for that update on Captain. Just could you tell us where we stand on Rosebank? What's the current activities in that? I know it's still early phase? And then on a combined basis, where we stand with Cambo and whether you think there's any increased possibility of that moving forward following the combination?
Thanks, Mark. Yes. So Rosebank, there's no material update. So the project continues to be executed in terms of the plans for the subsea infrastructure phase and drilling phase that continues with the relevant supply chain stakeholders, I guess the big visible project element is the FPSO out in Dubai. You can see it from your hotel if you're out there in the city. She's a big vessel. But that's kind of continuing in the destruct and kind of preparation phase. So as always, these projects, there will be elements that they will find and they will amend plans, et cetera. We have no material update from Equinor on that. Everything is as previously announced. So when we get an update that's more full and no doubt that will come to market through Equinor and ourselves. But yes, it's moving ahead in line with previous announcements.
In terms of Cambo. So Cambo is a great option for us as a business. We're keen to have control over that, which we do. The deal with Eni mix, the project substantively more possible and more solid in terms of bringing it to FID and financially being able to make decisions on it clearly ourselves. We're still looking for farm-down partner. We have worked and are working with a number of companies on that. Clearly, the backdrop here is the fiscal environment and the potential tax changes. So given the election is now being called and we are looking for an expected result in a matter of weeks, the decisions around Cambo will follow clarity from the government, whoever they are on their fiscal policy.
Our next question comes from Matthew Smith from Bank of America.
I just had a question. I think last quarter I asked around whether you had sort of certainty on what the labor sort of proposals were, I suppose, in relation to both EPL and also the regulatory environment, I suppose. And now you say, given general elections being called, I believe there's been further engagement with the current opposition since then. I just wondered whether you did have any clarity on what their proposals are versus the last time we spoke on the quarterly call? And I suppose that's sort of two parts. It's one in relation to the EPL where I think the main confusion towards the start of the year was whether the proposal was to remove investment allowances under the EPL or both investment allowances and capital allowances? And then I suppose the second part would perhaps be on what no new licenses looks like? Would that have any impact on potentially converting Cambo into production license? Or is that sort of not how you understand the policy positions? Any comments on those 2 specifics would be much appreciated.
Yes. Thanks, Matt. So yes, I mean in terms of the Labor Party position, we expect that to be made clearer during this pre-election phase. So I think how you've referenced it in terms of lack of clarity in some areas is how we see it and the industry sees it, and we are very much working with the industry and directly with all those involved to seek real clarity for the industry. This is a energy security issue. It's an environment and emissions of the U.K. net-net when we import issue and the right thing for the government to do is to support the industry as a whole. Labor heard those messages and continue to hear them. Let's see what the response is, and we'll expect to get clarity in the coming weeks.
Okay. Yes, in terms of the regulator point, sorry, on Cambo, I mean the regulation and the licensing point, I guess, is quite separate. We have a license for Cambo, is extended for 2 years to work through that process. So that is a different process run through the regulatory body there, the NSTA. And as we move forward on that field. It's a field which we think should be developed. And there are a number of technical and financial processes to go forward on that project. But clearly, a fiscal environment is very material for a project like Cambo. To give you an example, Labor party talk about Norway and Norwegian rates of tax. But of course, a project like Cambo at FID and Norway would have guaranteed capital allowances. So there's an example of a regime that's high rate but also high certainty, and that's not currently where we are. So yes, that will evolve through the fiscal environment is part of the picture for Cambo.
Our next question today comes from Chris Wheaton from Stifel.
A number of questions for me. Firstly, can I just go back to Mark's question on Rosebank and ask how much of that $130 million of CapEx in 1Q was related to Rosebank? I'm presuming not very much. So most of the CapEx is going to be very much second half -- or second half weighted in the rest of this year?
Yes, it's a fairly flat profile actually because, I guess, there are slightly increases later in the year. But yes, it was fairly material in Q1. We're kind of running in the kind of net kind of $10 million to $15 million a month. Yes, so at the moment. But yes, that will get slightly higher at the end of the year.
Okay. That's helpful to clarify. I'm going to have to come back to the windfall tax as well because this seems to be the -- such a driver for shareholder value, but is completely outside of your control. You must be thinking about contingency plans. If Labor implement the worst case scenario, so a 78% tax rate, but only allowing 25% offset against tax of that investment. So a massive disincentive to investment there. You'll have seen the research published on this. Where does it leave you as largest resource holder in the North Sea. I would have thought the Captain drilling program as your initial thing would be surely at risk, Cambo as well. I just wonder, in terms of your contingency planning, where are you thinking at the moment where this might leave the company?
Yes. Thanks, Chris. So sure, senior research support the arguments. I mean I think taking a big step back here. This is kind of mired in politics, and it shouldn't be. Everyone in the U.K. should be supportive of energy security, of good jobs and of environmental decision-making around the energy transition. And the plan for energy transition, as United Union have said, really isn't there around jobs. And certainly, energy security point hasn't been answered. But the key thing for me is that the emissions answer hasn't been given either. We are in danger of as a country importing high-emission oil and gas and really not being honest around how that really plays out. So handling the oil and gas industry needs to be done very carefully by any government given the significant resource and opportunity it is. So we continue to make that message clear in terms of our business, what we've been doing is building optionality. So that's what the merger with the U.K. business does. We were doing that anyway organically.
So we have a number of decisions to make around how we -- or where we deploy capital. We want to deploy that in the U.K. We are keen to deploy that in the U.K. We have significant resource and project opportunity to deploy it in the U.K. That brings jobs. That brings production. That brings energy security and low emission production. However, we have options to deploy that elsewhere. And I guess that's where we stand at the moment is we've been building liquidity capacity in terms of investment and also opportunity capacity in terms of our business but we have to make investment decisions for our shareholders that deliver the best economic return and the kind of fiscal changes that you alluded to as being on the outer limits of what may be proposed would certainly have an impact -- a material impact on our plans.
But -- but we don't think that's where we'll end up. We think all of the political ramifications that are currently ongoing that the right answer must come forward around a sensible policy in this area that manages us through this transition.
I hope to God you right. I mean losing 100,000 jobs by 2030, threatening the U.K.'s energy security by having domestic gas production collapsed 70% by then as well. It just makes no sense to implement a policy that does those things. So I just hope sanity can prevail.
[Operator Instructions] Our next question comes from Kim Fustier from HSBC.
Two questions, if I may. The first one is on the dividend. You talked about an ambition for up to $500 million in 2024 and '25, subject to operational performance and market conditions. When is the decision expected to be made on the 2024 dividend? And how do you define operational performance? Is there a baseline there? And then same question with respect to market conditions.
Secondly, just on the timing of the Eni deal closing in the third quarter. Any more detail on that would be useful.
Sure. Thanks, Kim. I'll deal with the first one -- or the second one first. So in terms of the business combination, so obviously, the regulatory process just for transfer approval, which is relatively straightforward that, that takes up to 3 months. So the applications are all in on that, but that takes 3 months, and that's a kind of key gating item that has to be worked through from a paperwork perspective. There's clearly a number of changes required to be worked through. But the next -- the key next phase is the publication of the prospectus circular. It's Class 1 transaction with the issuance of shares and therefore, requires both of those. So we expect that in the middle of the year. It may well be July, working through the timeline there just now, but that will then be followed by a shareholder vote, which will be a month or so later. And of course, the Delek share which is nearly 90% has been irrevocably committed to vote for the deal.
So that's the expectation of the shareholder vote. And we expect that, that takes you to kind of into August. We expect that the deal will close before the end of September. So just as we previously highlighted, we're talking about a Q3 completion.
In terms of -- the other question on dividends. Yes, it's too early in the year to be announcing dividend specifics. I think we've been I guess, probably more open than anyone in terms of dividends, saying that 30% post-tax cash from ops is the baseline, and we will deliver that. That's our plans. But we've an ambition to get up to $500 million, and we believe the business can get there in terms of operations. Yes, it means production delivery. We've a number of delivery requirements across the business. The Seagull, for example, is a large new project in the Eni U.K. side, which is going well, but that's 2 new wells that are coming on in the second half of this year. And yes, production from Captain, production across our significant asset base to delivery there, but also delivery in the markets. Prices have firmed up in terms of gas in the last week or so, which is good to see.
Oil price is pretty firm as well. We're looking for that to strengthen through. So I mean, that's what we mean by operational delivery, right? Cost management and production and market response in terms of commodity prices.
Our next question today comes from James Carmichael from Bernberg.
Just one for me. I guess just coming back to the topic of tax and U.K. uncertainty. You mentioned there that you've obviously got a good balance sheet, lots of liquidity to go investing elsewhere outside the U.K. potentially. I'm just wondering what sort of conversations you've had with Eni around that? Because I guess Var Energi is Norway specific. Azule is obviously a single country, entity in Angola. And Eni has got obviously a broad upstream portfolio. So just wondering how -- what conversations you've had with them around their appetite to go investing outside the U.K. through this vehicle?
Yes, sure. No. So I think I would say the discussion with you and I have been very open and very full in terms of the future of the business and there remains a lot of optionality in our current portfolio in the U.K., but also potential to go overseas. But the focus at the moment is on the completion of the deal and then the integration of the businesses in the U.K. But we continue to look at options. I mean I think Azule is probably a good example where it was entirely Angola, but they announced in the last few weeks that were going outside of Angola. And therefore, there's a BP any satellite that is moving beyond. So I think beyond Angola, a single jurisdiction.
So I mean we see this as being optionality, right? That's the key thing. We are creating a stable platform of over 100,000 barrels a day of high-quality assets that gives optionality. And the focus is on the U.K., but the international options continue to be looked at. And they are screened and analyzed and diligence done on them, and we'll invest in the right place at the right time.
We have no further questions in the queue. So that concludes today's call. I will now hand back over to Iain Lewis for closing remarks.
Yes. Thank you, Alex. Thanks, everyone, for joining the call today. I think I would just close out by reiterating a couple of things. So a robust set of Q1 numbers in line with expectations. Really, the Captain delivery on the EOR II sets us up for the future well and deal with Eni to bring the businesses together of Neptune U.K., Eni U.K. and Ithaca forward in line with plan. Really excited about the future optionality and the new executive team that the Board have put together to deliver that.
So the key question that remains unanswered from our business perspective is what the U.K. fiscal framework will be, but we have set ourselves up to be resilient in any outcome from that perspective, and we continue to work with the government and with the industry bodies to seek to get the right answer for the industry as we move forward. Very proud of what we do. The people that deliver this offshore, delivering oil and gas is very hard, and it's highly skilled. And the U.K. should be proud of the industry that they've built. And we certainly hope to be a long-term deliverer of value through high-quality assets for a long time to come. But thanks for your questions. Thanks for your interest today. Thank you, and we'll just close out the call there.