Ithaca Energy made a lackluster debut in London on Nov. 9 as the North Sea oil and gas producer defied volatile markets with Britain’s largest IPO of 2022.

As Europe’s fifth biggest IPO of the year began trading, Ithaca’s shares fell as much as 11.6% below their 250 pence issue price, touching a low of 221 pence shortly after midday. At 1617 GMT, the shares were down 8.1% at 229.70 pence.

The pan-European STOXX 600, meanwhile, was off 0.3% and an index of European oil and gas stocks fell 1.9%.

Ithaca’s IPO, which priced at the bottom of the expected price range, gave the company an initial valuation of 2.45 billion pounds (US$2.83 billion). At the top of the original price range it would have been valued at 3.1 billion pounds.

“Ithaca has IPO’d into a difficult broader market backdrop and the near-term weakness probably underlines that,” Investec analyst Nathan Piper said.

Amid a drought of stock market listings, Ithaca raised proceeds of 288 million pounds.

Global IPO proceeds are down more than 70% compared with the same time last year, data from Dealogic shows.

London’s stock exchange has suffered the worst year on record for IPO volumes as the ongoing energy crisis and worsening economic forecasts made markets volatile.

Very few IPOs are expected in Europe, the Middle East and Africa before year-end, a bookrunner working on the Ithaca deal said, other than deals already underway in the Middle East including a listing by Americana Restaurants which is due to price in late November.

More than half of Ithaca's book went to U.K. investors, with a quarter going to Israeli investors and a fifth to U.S. names, the book-runner said.

With a free-float of 12%, Ithaca is the first major firm to take advantage of new London listing rules implemented at the end of 2021 that reduced the proportion of shares required to be in public hands from 25% to 10%.

Proceeds from shares sales in Britain have dropped 95% so far this year and only two out of 38 listings have been in the utility and energy sector, Dealogic data shows.

North Sea Horizon

Ithaca, owned by Tel Aviv-listed Delek Group, is being watched for investor interest in energy producers in the North Sea, an ageing basin where private equity firms have in recent years bought assets, but have held off IPOs.

Britain recently launched its first oil and gas exploration licensing round since 2019 to boost domestic production, but also imposed a 25% windfall tax on oil and gas producers to help households struggling with energy bills.

Producers can reduce the windfall tax significantly if they invest in new oil and gas production, which has meant some companies like Shell are virtually shielded from paying it.

Ithaca Chairman Gilad Myerson told Reuters that if the government, which is mulling changes to the tax, removes this mechanism, field developments in the North Sea would become “uneconomical.”

Ithaca, which produces around 70,000 barrels of oil equivalent per day, wants to use the IPO proceeds to pay down debt, which stood at a net $1.4 billion at the end of June, and aims to pay a 2023 dividend of $400 million.

The last oil and gas producer to float on the main London stock exchange was eastern Mediterranean-focused Energean in 2018.

Goldman Sachs and Morgan Stanley are joint global coordinators on the deal, while HSBC HSBA.L, Jefferies and Bank of America are joint book-runners, with ING acting as co-lead manager.

(US$1 = 0.8649 pounds)

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