(Reuters) -Ithaca Energy has been given a four-week exclusivity period by Italy's Eni, to make an offer for UK exploration and production assets that could expand its output massively, the London-listed company said on Wednesday.
Buying those assets, including those of Eni's recently acquired Neptune Energy, could add a further 40,000-45,000 barrels of oil equivalent per day (boe/d) to Ithaca's output, taking the total to more than 100,000 boe/d.
In return, Ithaca would issue new shares to Eni, which will become a major shareholder by holding some 38% to 39% of the enlarged share capital of Ithaca.
"Although the discussions are at an advanced stage, there can be no certainty that a Potential Combination will occur," Ithaca said.
The transaction is part of Eni's broader strategy aimed at developing businesses focused on a geographical area or a specific activity and share the investment efforts with a partner.
Under a similar logic, in 2022 Eni teamed up with BP (LON:BP) to create Azule Energy, which combines the two groups' upstream businesses in Angola.
Separately, Ithaca's full-year profit slumped to $215.6 million from $1.03 billion, due to impairments related to its oil and gas projects and a heavier tax bill.
Ithaca, owned by Tel Aviv-listed Delek Group, incurred a $557.9 million pretax impairment charge on its Greater Stella Area and Alba projects and was charged a $333.4 million bill under Britain's Energy Profit Levy (EPL).
Shares in Ithaca Energy (LON:ITH) rose about 2.5% after the two announcements.
Interim Chief Executive Iain Lewis, who stepped up from CFO when Alan Bruce stepped down in January, will have to contend with another year of the windfall tax after British finance minister Jeremy Hunt this month extended the EPL by a year to 2029.
"The extension ... highlights the continued fiscal uncertainty our sector faces," Lewis said.
Ithaca is targeting 2024 production between 56,000 and 61,000 boe/d this year, before rising again towards 80,000 boe/d by 2027. The company produced about 70,239 boe/d in 2023.
The lower projected 2024 output is due to deferred or cancelled projects at many of its oil and gas fields, the company said, with the EPL directly resulting in lower near-term investment.
Still, Ithaca aims to double the net capital expenditure on its Rosebank oil development this year, to between $190 and $230 million from $97 million in 2023, as it eyes starting oil production there by 2026/27.
The British government gave Ithaca and 80%-stake-owning partner Equinor the go-ahead in September 2023 to develop Rosebank, the aging North Sea basin's biggest new project in years.
Ithaca's decline in annual earnings was capped by trading gains of $266 million which helped it to realise a gas price of $111/boe after hedging compared with $76/boe before hedging.