The Ithaca Energy (LSE:ITH) share price jumped 7% in early trading on Wednesday (27 September) and continued to rise throughout the morning. The spike in interest was brought about by UK regulators approving the development of the Rosebank oil field.
What is Rosebank?
The oil field is a significant offshore oil and gas development. It’s located in the West of Shetland region in the North Sea, approximately 130 kilometres (81 miles) northwest of the Shetland Islands.
Rosebank is estimated to hold recoverable oil reserves in excess of 300m barrels and significant natural gas reserves. These reserves make it one of the largest untapped resources in the UKCS (United Kingdom Continental Shelf). According to some reports, it’s the largest untapped resource.
Projections indicate that during its peak production phase, Rosebank has the potential to yield approximately 69,000 barrels of oil daily, along with an estimated output of around 44m cubic feet of gas per day within its initial decade of operation.
Given that the UK only produced 874,000 barrels of oil per day in 2022, the Rosebank field could be significant. It could deliver first oil in 2026.
Where does Ithaca come in?
Ithaca Energy has a 20% stake in the oil field, which is operated by Equinor. The Norwegian firm doubled its stake with the takeover of Suncor Energy earlier this year. Ithaca Energy holds a non-operated interest.
It acquired its stake in the field in June 2022 through its acquisition of Siccar Point Energy. The acquisition was seen as a major coup for Ithaca. And the deal gave the company a significant stake in a world-class oil field.
Is Ithaca investable?
Ithaca Energy is a leading independent oil and gas producer, with a strong track record of material value creation. In H1, the firm noted a continued improvement in production, with EBITDAX up 8% to $979.7m.
Elevated oil and gas prices over the past 18 months have helped Ithaca bring debt under control. This puts the firm on the front foot for future investments. In the last quarter, the group highlighted that net debt to EDITDAX stood at 0.35 times, versus 0.91 times the year before.
However, as with most investment within this cyclical sector, the hypothesis revolves around the future demand and supply of oil and gas.
But this is where I’m bullish. With growing populations worldwide, an increasing middle class impacting personal transport usage, I assume demand will continue to grow.
Meanwhile, we can also observe that hydrocarbons are becoming increasingly scarce and that there’s increasing competition over them. On this rough basis alone, I’d expect oil prices to remain elevated over the next 10 years versus the past 10. Other forecasts support this.
With Ithaca Energy currently trading around 4.3 times earnings, it might not be a bad entry point. However, it’s worth remembering that the tangible impact of the regulators’ decision on Wednesday won’t be visible for at least two years.
