North Sea oil firm Ithaca Energy (IAE:AIM) slicks up 13% to 143p as it takes a significant step towards bringing its Stella field on stream with better than expected results from its first development well on the project.

We looked at how the Ithaca share price was more than underpinned by projected cashflows from Stella here and here and today's update increases visibility on these cashflows being realised.

The A1 well flowed at a maximum rate of 10,835 barrels of oil equivalent per day (boepd), with the full production potential of the well limited by the capacity of the well test equipment on the drilling rig. Following suspension of the A1 well, the ENSCO 100 rig will move on to drill the second Stella development well from the same location.

The company also confirms work being undertaken on the infrastructure necessary to produce from Stella is progressing as planned, with the entire project on budget and on track to meet its targeted mid-2014 start up date. At that point group production will increase from the current 12,000-14,000 boepd to 25,000 boepd.

VSA Capital analyst Dougie Youngson says the company may even be able to consider a dividend from 2015. 'Ithaca will at that point be highly cash generative and the free cash flow could be used to make more acquisitions or it could pay a substantial dividend which the management has guided could begin in 2015.'

Westhouse Securities, which has a 'buy' rating and 200p price target, says: 'This is a very positive result for Ithaca as the well test rates exceeded expectations. We remind that the guidance was that all four wells combined will be able to deliver the initial production rate of 16,000 boepd when GSA is onstream in mid-2014. The test rate of over 10,500 boepd from the first well is obviously a more than encouraging step and the fact that the rate is restricted by rig equipment provides even more confidence in deliverability.'

Issue Date: 11 Sep 2013