Ithican Energy shares surged on Wednesday after the UK government gave the green light for the development of the Rosebank oil field off the Shetland Islands.

Ithaca Energy has a 20% stake in Rosebank, the largest undeveloped oil field in the UK.

Ithaca Energy and Equinor have announced a £3.8 billion investment in the first phase of the Rosebank oil field development northwest of Shetland. The North Sea Transition Authority granted approval on 27 September.

Rosebank holds an estimated 300 million barrels of recoverable oil, with 245 million targeted in Phase 1. The field will use subsea wells tied to a redeployed floating production, storage and offloading (FSPO) vessel. First oil is expected in 2026-2027.

At peak, the £8.1 billion project should create around 1,600 UK construction jobs and 450 long-term UK roles. Major contracts include a £500 million subsea deal for TechnipFMC, a £328 million Odfjell rig contract, and an Altera FPSO charter.

The field lies 130 kilometres northwest of Shetland with estimated recoverable resources of 300 million barrels. Phase 1 targets 245 million barrels.

The FPSO will enable first production in 2026-2027. Rosebank should produce over 21 million standard cubic feet of natural gas daily, comparable to Aberdeen’s usage.

The development is forecast to spur £8.1 billion in investment, 78% within the UK. Around 1,600 construction roles and 450 longer-term UK jobs are expected.

Gilad Myerson, Executive Chairman, Ithaca Energy, commented:

“We are delighted to announce the decision to move forward with the Rosebank development alongside Equinor. Rosebank stands as the largest undeveloped field in the UK, and with the receipt of development consent from the NSTA, we are now poised to embark on a journey that will not only provide critically important domestic energy but also ignite substantial economic impact. The Rosebank project will create thousands of jobs and contribute significantly to securing the UK’s energy needs for many years to come.”

Ithaca Energy shares were 8% higher at the time of writing.

The FTSE 100 clawed back early losses on Tuesday as investors shook off more concerns about China and realigned portfolios after a busy period for central banks.

Apart from the FTSE 100’s miners, there were no clear sector gainers or losers on Tuesday suggesting investors had their stock picking hats on as the furore around interest rate decisions died down.

There was a stark contrast in the performance of individual stocks within certain sectors on Tuesday as investors picked out their sector favourites.

For example, Barclays was the FTSE 100’s top riser, gaining 3%, while Lloyds and Natwest fell marginally on the day.

Sainsbury’s was the top faller with losses of 3.5% as Tesco managed to remain positive. Housebuilder Berkeley Group Holdings were out of favour with 2% drop while Taylor Wimpey and Barratt Developments recorded small gains.

A broker upgrade helped lift Kingfisher 1.2%. Investec analysts turned bullish on Kingfisher upgrading the stocks to ‘buy’ from ‘hold’ with a price target of 255p.

While there were some positive individual moves and the index crept higher, lurking in the background were underlying concerns about what was happening in China’s property market and the US credit rating.

“Investors remain understandably wary about China’s troubled property sector and while Wall Street regained some poise overnight, the threat of a government shutdown is creating nervousness across the Atlantic too,” said AJ Bell investment director Russ Mould.

“Moody’s has warned about a possible downgrade for the credit rating of the world’s largest economy, yet another thing for the markets to fret about. And the message of higher rates for longer doesn’t seem to be going away.”

The Chinese property crisis is the consequence of a slowing Chinese economy and is hitting local companies as well as triggering worldwide anxiety over potential contagion.

What is happening in China

Companies in China continue to miss payments to their lenders and struggle with significant debt. Amidst the falling sector-wide prices, the Chinese property giant Evergrande experienced its share prices falling by 21 per cent on Monday after missing another debt payment. The company has previously defaulted on $300 billion of debt in 2021.

Evergrande has also filed for U.S. bankruptcy and is now worth just 5.3 billion Hong Kong dollars, while back in 2017, it used to be worth 420 billion Hong Kong dollars.

Another China-based property development company, Country Garden, has experienced its dollar bonds falling below 10 cents on the dollar. Country Garden`s spokesperson has said that this month the company is expecting to lose up to 7.6 billion dollars. The company has been previously regarded as one of the safest Chinese property developers.

On September 18, a Bermuda court ordered the liquidation of Chinese property company Oceanwide’s assets due to the company’s inability to pay off debt.

These developments are starting to spread through the Chinese financial system, in particular the banking sector. China’s Minsheng Bank, where Oceanwide is a shareholder, has filed a lawsuit against the company, as it was also unable to pay off debt to the bank.

Commodity prices are reacting to the news in China with declines in major base metals. Chinese Iron ore prices fell 4 per cent on Monday, creating further ripple effects across financial assets.

Li Daokui, a former People’s Bank of China adviser said in an interview with Bloomberg that property sales will take up to a year to recover.

“The property market will come back as an important driver for the economy, however the magnitude of the impact of property as a growth engine will be much smaller,” he said.

Worldwide spill-over effect

China has been a major driver of global economic growth, responsible for more than 40 per cent. Now, as the crisis looms over the country and the growth rate drops, most European stock market indices are susceptible to headlines from the Chinese property sector.

A weakened economy in China will mean less demand for oil and other natural resources, which has significantly hit UK-listed companies such as Rio Tinto and Anglo American again on Tuesday.

Bowleven shares crashed on Tuesday after the oil exploration company said they were considered a deeply discounted placing as operations at their sole asset showed no signs of providing meaningful cashflow in the near term.

Bowleven has a 25% stake in the Etinde oil field which is operated by New Age African Global Energy. Bowleven’s problems stem from New Age seeking to sell its stake and operations effectively halted in the interim.

Despite months passing since New Age African Global Energy signed agreements to sell its 37.5% stake in the Etinde project and operatorship to Perenco, the transaction remains incomplete.

Several conditions must still be met, most critically approval from Société Nationale des Hydrocarbures, Cameroon’s national oil company. Their consent represents the next milestone, yet has been outstanding for an extensive period with uncertainty around if or when a decision will be made.

Although not party to the transaction discussions, Bowleven believes New Age and Perenco continue working to progress despite passing the formal long-stop date.

Bowleven will receive little income from the project until this situation is resolved.

Fundraise

Bowleven Cash reserves stand at approximately $1.25 million as of 23rd September 2023 after divesting remaining financial investments this year. A significantly reduced cost base was also noted in March. Per projections, these resources will only fund operations through calendar Q1 2024 assuming Bowleven’s Etinde contributions remain at current low levels, which may or may not occur pending transaction completion.

As announced in July, fundraising planning continues in 2023 with consideration of capital raising options to fund the Group. The Board originally expected an earlier transaction close.

Bowleven is currently reviewing a deeply discounted fundraising proposal from a shareholder that would allow all current shareholders to participate at the same price. While early stage, there are no certainties around if, structure or terms of any such fundraising.

ASOS is undergoing a transformation strategy in an effort to boost profitability at the expense of sales by reducing discounting and improving stock management.

The company’s sales fell 11% in the year to 3rd September but profitability and cash flow improved dramatically, especially in the second half.

ASOS’ adjusted H2 EBIT rose more than 100% compared to the same period a year ago and cashflow increased by £140m.

ASOS is implementing strategies to boost basket sizes and reduce the cost of servicing their least profitable customers. The company is also tackling problems with returns by placing restrictions on buy now, pay later purchases.

However, for all the progress in their transformation, the market seems unimpressed with the update and shares were down 1% at the time of writing.

ASOS shares are down 24% in 2023 and trade close to the lowest levels in over a decade.

“ASOS released a full-year trading statement and profitability rather than growth continues to be the order of the day. Sales were down 15% over the final quarter of the year as a wet July and August helped drive a slowdown in the UK clothing market,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“Despite this, there’s some good news on the profitability front. Gross margins are heading back in the right direction as freight costs have pulled back from 2022’s peaks.

“The oversized inventory levels have also been brought back down to earth faster than expected, falling around 30% last year. And as a sign that the group’s profitability drive is taking shape, 9% lower customer numbers were being offset by a roughly 35% increase in profit per order. That’s expected to put operating profit at the lower end of the group’s £40-£60m full-year guidance, but should provide continued tailwinds for the bottom line moving forward.”