Mark Williamson: Israeli-owned firm sees potential in North Sea

A spokesperson noted that on August 24 the parent Delek Group had confirmed that Ithaca had encountered signs of hydrocarbons in well 22/1b- 12 and was completing data gathering in the exploration well prior to drilling an appraisal sidetrack.

She added: “ The well, a joint venture with Spirit Energy Resources Limited, is operating tight hole and in accordance with standard industry practice, no further information will be made available at this time.”

Analysts welcomed the news as a coup for Ithaca that could have encouraging implications for the wider North Sea industry. However, the find may never be developed if campaigners have their way.

Wood Mackenzie noted that the find was the first made in UK waters this year. The success came amid a period in which UK North Sea exploration activity has fallen to record lows.

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Firms have been shifting activity to areas in which they see better chances of making big finds, such as the Americas. The fallout from the coronavirus crisis further dented enthusiasm for North Sea exploration activity as companies looked to save cash

“ Ithaca Energy’s oil discovery at Fotla is a ray of light in what’s been a tough year for UK exploration activity, with 2021 on track for the fewest number of completed wells since the 1960s,” said Edinburgh-based Wood Mackenzie.

Based on estimates that Fotla may contain around 20 million barrels resources, the consultancy’s Lucy King noted the find could be commercially viable.

A 20m barrel find would be relatively modest but one made close to existing production infrastructure, as is the case with Fotla, could be developed relatively cheaply and quickly.

Ms King noted that Ithaca also made a find last year, when it drilled the successful Isabella well with French giant TotalEnergies.

With private equity-backed Harbour Energy planning to drill on another propect near Fotla, it may be time to revisit ideas about there being nothing much left to go for in the UK North Sea.

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Ms King said: “Despite the drop in activity, success at Fotla continues a recent renaissance in UK exploration performance. Discovered resource per well has grown steadily in recent years, reaching over 20 million barrels of oil equivalent (boe) since 2020, which is in line with global averages.

“Success rates have improved too. The average economically viable and commercial success rate for the UK since 2020 sits at over 40 per cent, comfortably above the global average over the same period.”

The North Sea contains lots of undeveloped finds and prospects close to existing infrastructure that the regulator has encouraged firms to invest in, under its plans to maximise economic recovery of the area’s reserves.

Delek Group recently underlined its continued enthusiasm for the UK North Sea.

In its second quarter results, the group noted that Ithaca doubled profits in the period to end June, to 217m Israeli Shekels (£50m) helped by the rise in oil and gas prices that has been fuelled by the rollout of coronavirus vaccines.

Chief executive Idan Wallace declared: “The strong results of the second quarter continue the positive trend since the beginning of the year, and attest to the quality of the Group’s core business in the oil and gas industry.”

Delek Group chief executive Idan Wallace Picture: Ron Kedmi

Delek highlighted the fact that Ithaca has applied for regulatory approval to develop the Abigail field in the North Sea and plans to drill up to 10 wells to boost recovery from the huge Captain asset.

Ithaca acquired its interest in Captain in 2019, when Delek backed it to buy a $2 billion North Sea portfolio from Chevron.

Delek bought Ithaca in a £1bn deal in 2017 under its plan to build an international oil and gas business to complement its operations off Israel.

Mr Wallace noted that Ithaca has been generating lots of cash for Delek. The group is considering plans for a stock-market flotation of Ithaca that could help it generate plenty more.

Against that backdrop, Delek will be keen to talk up Ithaca’s prospects. But it could face complications amid the increasingly vocal efforts of environmental campaigners to get curbs placed on North Sea activity.

Ithaca does not seem to want to bang the drum about Fotla.

The company has become embroiled, indirectly, in a legal action launched in Scotland by Greenpeace against the UK Government.

READ MORE: Majority think North Sea oil and gas production should be halted

Greenpeace claims that the Government was wrong to approve the Vorlich field development that Ithaca completed with BP, because it failed in its legal duty to check what impact that would have on the climate.

“At present, the government only assesses the impact of emissions that come from oil production, and disregards the emissions resulting from burning the oil extracted,” says the group.

”Emissions from burning the oil extracted at Vorlich will be the equivalent of over three coal plants running for one year.”

Roddy Dunlop QC, representing the UK Government, told the Court of Session last week that the challenge was “largely procedural and opportunistic”.

He said the indirect effects of eventual burning of oil and gas from the Vorlich field were not “material considerations” because that is taken into consideration as part of the net UK carbon account.

The parties involved must now wait for the three judges who are hearing the case, Lord President Lord Carloway, Lord Menzies and Lord Pentland, to reach a view, which they have said they will do as soon as they can.

READ MORE: High Court to hear claim that official support for oil and gas industry is unlawful

The outcome could have huge implications for Ithaca and BP and for the wider industry.

Mr Dunlop said the Government was concerned there could be health and safety issues associated with mothballing the Vorlich field, noting “that would be the consequence of the order if the consent were to be reduced, then the field can’t be operated lawfully and it would have to be a shutdown with serious consequences”.

If Greenpeace wins, the Government-appointed North Sea regulator might be required to consider the emissions that would be associated with using reserves before it grants approval for any other developments.

The case comes ahead of a wider action reaching the High Court in London, in which campaigners hope to get the financial support provided by the Government through the tax system ruled unlawful. They argue that whereas the regulator is obliged to try to maximise economic recovery much activity would not be economic without the support provided by the Government.

If the courts decide in favour of the campaigners concerned the system for approving North Sea fields and related financial support mechanisms could be thrown into chaos.

There must be a real risk that the cases will prompt some firms to cut their exposure to the North Sea or to just sit on their hands.

READ MORE: Costs of North Sea tax breaks laid bare in filings by oil giant

And yet demand for oil and gas is set to remain strong for years.

The prices paid for energy by millions of householders in the UK will increase by around 13% in October. The energy regulator allowed an increase in the price cap from then in response to a surge in wholesale gas market prices that reflected pressure on global supplies. Market watchers reckon further increases could be on the cards.

Overseas producers will be delighted to make up for any cut in UK gas production.

In its latest Global Energy Weekly report Bank of America Merrill Lynch noted: “Adding to the drama, renewable generation has waned as wind utilization this summer dropped below levels seen in 2018-2020, requiring thermal generation to fill the gap.”