Ithaca Energy said today its operating costs were down by about 30% from a year ago as the global oil and gas industry adjusts to lower crude prices.
First quarter results from UK North Sea-focused Ithaca showed it has reduced the costs associated with each barrel of oil it produces to less than $35.
The Aberdeen and Calgary firm also highlighted the impact of tax changes announced by Chancellor George Osborne in the March Budget.
It reported Q1 2015 adjusted earnings of £9.75million, excluding a non-cash accounting tax charge of £26.3million resulting from a reduction in UK tax rates.
The firm said: “During the quarter the UK Government enacted a reduction in the North Sea supplementary charge (SCT), resulting in the combined SCT and corporation tax (CT) rate falling from 62% to 50%.
“While this is a positive fiscal change, the company’s existing UK tax allowances pool of over $1.5billion (£950million) is forecast to shelter the business from the payment of SCT and CT prior to 2020 at current commodity prices.
“More immediately the company will benefit from the simultaneously announced reduction in the petroleum revenue tax rate from 50% to 35%, applicable from the start of 2016, on its interest in the Wytch Farm field (offshore of Dorset).
“Under accounting rules, these positive tax rate improvements result in a one-off non-cash accounting charge of $41.5million (£26.3million) through the income statement, as the net deferred tax asset – mainly arising from the UK tax allowances pool – is revalued down to reflect the lower tax rates.”
Ithaca’s pre-tax profits nearly doubled to £5.34million during the first three months of the year, from £2.89million a year ago.
Revenue fell to £44.6million, from £63.1million previously, after a near halving of oil prices.
Production in the latest period was roughly in line with expectations at 12,489 barrels of oil equivalent (boe) per day, up from about 10,900 a year ago.
Chief executive Les Thomas said: “Given an average Brent price of under $55/bbl in the first quarter of the year, the company has generated strong cashflow that reflects the benefit of our oil hedging position and a significant lowering of unit operating costs.
“The company is well set up to manage the prevailing oil price uncertainties, continues to maintain a strong balance sheet and will shortly start deleveraging, well ahead of start-up of production from the (UK North Sea) Stella field in Q2-2016.”
In April, Ithaca announced the completion of a successful final development well test on the Stella field. Five wells were drilled in total, achieving a combined maximum flow test rate of more than 53,000 boe per day.
The Greater Stella Area (GSA) – in the heart of the Central Graben area of the central UK North Sea – is expected to produce about 30,000boe per day, including 16,000 for Ithaca’s 54.66% stake.
Production start-up from Stella is expected in the second quarter of 2016 following delays caused by modifications to a floating production platform, FPF-1, in Gdansk, Poland, taking longer than expected.