Ithaca today confirmed the start-up of its Greater Stella Development would be delayed until the third quarter of this year.
The firm confirmed the completion of scheme’s FPF-1 modifications programme had overrun original deadlines, pushing the sail-away of the FPF-1 back by between six to 12 weeks.
The delay is expected to take a chunk out of Petrofac’s earning potential.
Last year, the two agreed an incentivised deal where Petrofac could earn the maximum payement of $34million for a sail-away date before the end of March or $0 for a sail-away after July 31.
An Ithaca spokesperson said: “Planned sail-away of the FPF-1 from Poland at the end of the first quarter of 2016 is now expected to be delayed by six to twelve weeks due to slippage in completion of certain commissioning milestones and the requirement for some marine system re-work in order to ensure the vessel meets the required sail-away certification standards. Based on this schedule it is forecast that first hydrocarbons from the Stella field will be in the third quarter of 2016.
“All costs of modifying the FPF-1 above the contract cost cap continue to be fully paid by Petrofac. Under the terms of the previously announced FPF-1 incentivisation agreement, a delay in sail-away of the vessel will reduce any potential incentive payment made by Ithaca to Petrofac. The agreement provides for Petrofac to earn up to $34 million dependent on the timing of sail-away of the FPF-1, with the maximum payment achieved for delivering sail-away from the shipyard prior to the end of March 2016 and reducing to zero for sail-away after 31 July 2016.
“As previously noted, all the subsea infrastructure that is required to be installed prior to the arrival of the FPF-1 on location is in place and all five Stella development wells have been successfully drilled and tested.”
The incentive-based deal prompted discussion around the emergence of North Sea contractual marriages.
At the time, Dr Marc van Grondelle, head of the global ventures practice for KPMG in the UK, said: “You see this in other parts of the world – in the Middle East and other parts of Europe – where oil companies want to see that the service firm is solely committed to what’s important to them. In this case, the sailaway.”
The delay confirmation comes a day after Petrofac said it would be forced to shed up to 160 jobs.
Despite the delay, chief executive Les Thomas said he was confident in the North Sea’s potential.
He added: “With many positive actions taken over the last year Ithaca enters 2016 in a position to continue generating positive cashflow from operations, even at current low commodity prices, and to deliver transformational first production from the Stella development.”
“We remain confident that good returns can be made in the North Sea, with a rigorous, cost and risk conscious approach to selective investment in high quality assets. We believe that today’s difficult environment actually provides an opportunity for the Company as a focused player in the sector, as demonstrated by the acquisition of our interest in Vorlich.”
The firm expects to reduce its capital expenditure by 40% in 2016, rounding out at $50million.
Its average volume of 10,000boepd has been hedged at $61/boe until mid-2017.
Its 2016 operating expenditure per barrel of oil is $30. Ithaca expects that number to drop to $25 after Stella’s start-up. Ithaca also expects Stella to double production to 25,000 boepd.