By Scott Wright
ITHACA Energy, the oil and gas company planning to develop the controversial Cambo field West of Shetland, has floated on the stock market at the lower end of the price range, amid speculation that the UK Government may hike the windfall tax on the industry to boost the nation’s finances.
The Israeli-owned company, which holds stakes in six of the largest producing fields on the UK Continental Shelf, was valued at nearly $3 billion when its shares debuted on the main London market yesterday.
The valuation was based on an initial share offering of 250p per share, giving Ithaca a market capitalisation of around $2.9bn (£2.5bn). However, that was at the lower end of an indicative price range of 250p to 310p for the initial public offering (IPO).
The flotation has come amid renewed investor interest in the North Sea oil and gas industry, which has been revived as the UK takes steps to improve energy security following Russia’s war on Ukraine. It will allow Delek Group, Ithaca’s owner, to recoup some of the investment it made when it acquired the company for £1 billion in 2017.
Yesterday’s IPO saw Delek place around 10.4 per cent of Ithaca’s equity on the stock market. Its decision to float the shares at the lower end of the price range comes as speculation grows the UK Government may increase the windfall tax which has been applied to the extraordinary profits oil and gas companies have been making this year, driven by the surge in commodity prices that followed Russia’s assault on Ukraine.
Last week Linda Z Cook, chief executive of North Sea-focused Harbour Energy, warned that extending the tax could result in companies diverting investment to other parts of the world. The UK Energy Profits Levy added a 25% surcharge to the profits made by oil and gas companies, on top of the 40% headline rate of tax.
Ithaca’s shares experienced a bumpy first day of trading and closed the day at 233p.
Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said: “Given that the oil and gas sector has been among the most resilient this year, Ithaca clearly thought there would be demand for the company’s shares, despite the market volatility. It also probably wanted to move reasonably quickly given that clouds are darkening over the global economy.
“There would have been worries that had an IPO been delayed, it could have hit further headwinds in the months to come. There has been a disappointing start to trading, reflecting worries among investors that in the Autumn statement next week a further levy will be slapped on the table.”
Russ Mould, investment director at AJ Bell, said: “There are many possible reasons why Ithaca chose to price its IPO at the low end of the range. Investors may be wary of the possibility of the UK applying further windfall taxes to hydrocarbon-based earnings, especially after Harbour Energy’s clear quantification of its new tax expense obligations.
“The retreat in oil and gas prices from their earlier peaks may also be a contributory factor and commodity prices are notoriously difficult (impossible) to forecast. Ongoing talk of a recession may not help, as a deep economic downturn could hit demand for oil and gas.”
Ithaca ramped up its presence in UK waters in April, when it acquired Siccar Point Energy for $1.1bn – a deal that gave it a majority stake in the 170 million barrel Cambo field.
Cambo was already by then a source of controversy after First Minister Nicola Sturgeon said she would oppose its development amid concerns over climate change. Siccar initially planned to progress the project with Shell.
Ithaca expects to make a final investment decision on Cambo and Rosebank in the first half of 2023.
Gilad Myerson, executive chairman of Ithaca, said: “I am delighted with the outcome of our IPO. We have received great support from a high-quality selection of institutional investors, and I am excited to welcome them on board as we continue to create value in the public markets.”
“Ithaca Energy has undergone a transformation over the past three years to become one of the UK’s leading independent oil and gas companies and I am very excited for what lies ahead as we continue our journey in the public markets.”
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