text: CALGARY, AB--(Marketwired - May 13, 2014) - Ithaca Energy Inc. (TSX: IAE) (LSE: IAE) ("Ithaca" or the "Company") announces its financial results for the three months ended March 31 2014.
  Cashflow from operations of $43.7 million (Q1 2013: $34.8 million), resulting in cashflow per share of $0.13 (Q1 2013: $0.13)
  Profit after tax increased by approximately 370% in Q1 2014 to $16.4 million (Q1 2013: $3.5 million), equating to earnings per share of $0.05 (Q1 2013: $0.01)
  Q1-2014 average realised oil price of $108/bbl (Q1 2013: $106/bbl)
  Net drawn debt of $478.2 million at 31 March 2014 (December 31, 2013: $348.5 million), excluding the Company's Norwegian tax rebate facility. Additionally, $45 million was advanced under the $70 million Shell oil sales agreement
  UK tax allowances pool of $1,174 million at 31 March 2014. Norwegian tax receivable of $77.8 million
  Approximately 3.0 million barrels of oil production hedged over the next 2 years at a weighted average price of around $100/bbl (approximately 70% swaps / 30% puts)
  Secured floor price of £0.58/therm (~$10/MMbtu) for approximately 200 million therms (20 billion cubic feet) of gas sales over gas years 2015 and 2016
  Q1 2014 cashflow from operations increased approximately 26% to $43.7 million (Q1 2013: $34.8 million) - cashflow per share $0.13 (Q1 2013: $0.13)
  Q1 2014 profit after tax increased approximately 370% to $16.4 million (Q1 2013: $3.5 million) - earnings per share $0.05 (Q1 2013: $0.01)
  Q1 2014 average realised oil price of $108/bbl (Q1 2013: $106/bbl)
  Net drawn debt of $478.2 million at March 31, 2014 (December 31, 2013: $348.5 million), excluding the Norwegian tax rebate facility. Additionally, $45 million was advanced under the $70 million Shell oil sales agreement
  UK tax allowances pool of $1,174 million at March 31, 2014. Norwegian tax receivable of $77.8 million
  Operations on-track to achieve 2014 production guidance of 11-13kboe/d
  Average production in Q1-2014 was 9,222 barrels of oil equivalent per day ("boepd"), 95% oil, in line with forecast performance given shutdowns on the Cook and Beatrice fields during the quarter.
  The core activities on the 2014 production enhancement programme are progressing well. The Fionn sidetrack has recently been completed and production from the field has recommenced. The host platform works required to enable the start-up of electrical submersible pumps ("ESPs") on the Causeway and Fionn fields are substantially complete. Drilling of the planned infill well on the Don Southwest field commenced in late April.
  Continued progress on the GSA development
  Continued progress has been made on the Greater Stella Area ("GSA") development since the start of 2014. Strong flow test results were achieved on the second Stella development well and drilling is on-going on the third well, with the clean-up flow test results for the well expected around late June 2014. The first of the 2014 subsea infrastructure installation campaigns was also completed in April, involving tie-in of the first two development wells at the Stella Main Drill Centre.
  Progress has also been made on the "FPF-1" floating production facility modification works being completed by Petrofac Facilities Management Limited ("Petrofac"), however the overall topsides construction programme has advanced more slowly than planned. As previously announced, Petrofac is forecasting the vessel to be ready for sail-away from the Remontowa yard in Poland to the Stella field in spring 2015. This schedule is anticipated to result in first hydrocarbons from the Stella field in mid-2015.
  Don NE licence award - securing Dons Area upside
  The Company was awarded the "Don NE" licence (40%, non-operated) that lies adjacent to its existing Dons field position by the Department of Energy and Climate Change ("DECC"). Submission of a "Phase I" Field Development Plan ("FDP") is planned for later this year to enable an early production well to be drilled on the licence from the existing Don Southwest facilities.
  Restructuring of the former Valiant Norwegian portfolio has largely been completed with the Company exiting the Barents Sea via a licence swap with Tullow Norge AS. Following execution of a farm-in agreement with TOTAL E&P Norge AS, an oil discovery close to existing infrastructure being was made on the "Trell" prospect in the Norwegian North Sea.
  Q1 2014 Q1 2013 %
  Average Brent Oil Price $/bbl 108 113 -4%
  Average Realised Oil Price(1) $/bbl 108 106 2%
  Revenue M$ 99.6 59.8 67%
  Cost of Sales - excluding DD&A M$ (53.5) (27.0) 98%
  G&A etc M$ (3.7) (1.9) 95%
  Realised Derivatives Gain / (Loss) M$ 1.3 3.9 -67%
  Cashflow From Operations M$ 43.7 34.8 26%
  DD&A M$ (32.5) (19.5) 67%
  Unrealised Derivatives Gain/(Loss) M$ 2.7 (11.1) -124%
  Other Non-Cash Costs M$ (9.3) (1.9) 389%
  Profit Before Tax M$ 4.6 2.3 100%
  Deferred Tax Credit / (Charge) M$ 11.8 1.2 883%
  Profit After Tax M$ 16.4 3.5 369%
  Earnings Per Share $/Sh. 0.05 0.01 400%
  Cashflow Per Share $/Sh. 0.13 0.13 -
  M$ Q1 2014 Q4 2013
  Cash & Equivalents 39 63
  Other Current Assets 387 375
  PP&E 1,573 1,481
  Other Non-Current Assets 59 59
  Total Assets 2,058 1,979
  Current Liabilities (412) (485)
  Bank Debt (569) (432)
  Asset Retirement Obligations (175) (172)
  Deferred Tax Liabilities (15) (10)
  Other Non-Current Liabilities (9) (26)
  Total Liabilities (1,180) (1,125)
  Net Assets 878 854
  Share Capital 547 536
  Other Reserves 16 19
  Surplus / (Deficit) 315 299
  Shareholders' Equity 868 854
  Maximising cashflow and production from the existing asset base.
  Delivery of lower risk development led growth through the appraisal of undeveloped discoveries.
  Delivering first hydrocarbons from the Ithaca operated GSA development.
  Monetising proven Norwegian asset reserves derived from exploration and appraisal drilling prior to the development phase.
  Continuing to grow and diversify the cashflow base by securing new producing, development and appraisal assets through targeted acquisitions and licence round participation.
  Maintaining financial strength and a clean balance sheet, supported by lower cost debt leverage.
  Average production in Q1-2014 was 9,222 barrels of oil equivalent per day ("boepd"), 95% oil. This represents a 50% increase on the same quarter in 2013 (Q1-2013: 6,148 boepd ), driven by the additional assets resulting from the Valiant Petroleum plc ("Valiant") acquisition (transaction completed on April 19, 2013).
  The Fionn sidetrack has recently been completed and production from the field recommenced in early May. The initial performance of the well is in line with expectations.
  The Taqa-operated host platform works required to enable the start-up of electrical submersible pumps ("ESPs") on the Causeway and Fionn fields are substantially complete. The modifications also being undertaken to enable start-up of water injection on the Causeway field are advancing and scheduled to be finished around mid-year.
  Drilling of the planned infill well on the Don Southwest field commenced in late April and initial production from the well is forecast for the third quarter.
  The Athena co-venturers have awarded a contract to Diamond Offshore Drilling (UK) Limited for use of the Ocean Princess semi-submersible rig for the planned "P4" workover to replace the ESP package in the well. The rig is anticipated on location in the third quarter of the year, once it has completed its scheduled work programmes for prior clients.
  Restructuring of the former Valiant Norwegian portfolio was largely completed in January 2014 with the Company exiting the Barents Sea by swapping its position in the "Langlitinden" well for a licence interest in the Norwegian North Sea with Tullow Norge AS, on which a well is scheduled to be drilled on the "Lupus" prospect in mid-2014. As part of the portfolio restructuring, the Norvarg licence in the Barents Sea is also to be relinquished. Despite the considerable extent of the discovery and presence of mobile gas in the Kobe formation, the reservoir properties and lack of infrastructure in the area means that Norvarg is considered non-commercial at this time.
  Ithaca and Dyas UK Limited ("Dyas") entered into an agreement with North Sea Energy Limited ("NSE") to remove NSE from the Jacky joint venture in March 2014. As a result, Ithaca increased its interest in the Jacky field from 47.5% to 52.5% and is putting in place a cost sharing agreement with Dyas to share all costs 50/50 (excluding decommissioning and related costs).
  As previously noted, it is anticipated that 2014 will be the last year of production from the Beatrice and Jacky fields. Under the terms of the Beatrice facilities lease agreement executed with Talisman in 2008, Ithaca is able to re-transfer the facilities to Talisman for decommissioning. Preparation for the re-transfer is underway.
  Handcross (UK): Following completion of the successful Handcross exploration well farm-out programme in 2013, which resulted in Ithaca achieving a full carry for its share of the well cost, the commitment well transferred as part of the Valiant acquisition was drilled on the prospect in early 2014. No hydrocarbons were encountered by the well in the target formation.
  Trell (Norway): A farm-in executed with TOTAL E&P Norge AS resulted in an oil discovery close to existing infrastructure being made on the "Trell" prospect in February 2014. The joint venture is currently working on updating the subsurface model to incorporate the well data and assess the potential recoverable volumes and development options for the discovery.
  Q1 2014 RESULTS OF OPERATIONS
  Average Realised Price Q1 2014 Q1 2013
  Oil Pre-Hedging $/bbl 108 106
  Oil Post-Hedging $/bbl 105 114
  Gas $/boe 45 47
  Operating Expenditure 41,264 23,227
  DD&A 32,465 19,498
  Movement in Oil & Gas Inventory 11,861 3,576
  Oil purchases 418 157
  Total 86,008 46,458
  Movement in Operating Oil & Gas Inventory Oil
  kbbls Gas
  kboe Total
  Opening inventory 193 8 201
  Production 789 41 830
  Liftings / sales (893) (46) (939)
  Transfers/other* 5 - 5
  Closing volumes 94 3 97
  * Due to long term inventory transfers and terminal quality adjustments etc
  $'000 Q1 2014 Q1 2013
  General & Administration ("G&A") 3,270 2,476
  Share Based Payments 429 295
  Total Administration Expenses 3,699 2,771
  Exploration & Evaluation ("E&E") 2,008 312
  Impairment 2,895 -
  Total 8,602 3,083
  No UK tax anticipated to be payable in the mid-term
  A tax credit of $11.8 million was recognized in the quarter ended March 31, 2014 (Q1 2013: $1.2 million credit). $10.5 million is a non-cash credit relating to UK taxation and is a product of adjustments to the tax charge primarily relating to: UK Ring Fence Expenditure Supplement and share based payments. As noted in the Cost Of Sales section the deferred tax credit is increased by the use of accounting for acquisitions as business combinations.
  $'000 Q1 2014 Q4 2013 Increase / (Decrease)
  Cash & Cash Equivalents 51,456 75,633 (24,177)
  Trade & Other Receivables 355,138 335,877 19,261
  Inventory 17,582 21,632 (4,050)
  Other Current Assets 2,572 5,102 (2,530)
  Trade & Other Payables (397,228) (472,396) 75,168
  Net Working Capital* 29,520 (34,152) 63,672
  *Working capital being total current assets less trade and other payables
  $'000 1 Year 2-5 Years 5+ Years
  Office Leases 935 2,662 -
  Other Operating Leases 12,319 2,250 -
  Exploration Licence Fees 696 - -
  Engineering 106,224 893 -
  Rig Commitments 48,664 - -
  Total 168,840 5,805 -
  All financial instruments are initially measured in the balance sheet at fair value. Subsequent measurement of the financial instruments is based on their classification. The Company has classified each financial instrument into one of these categories:
  Financial Instrument Category Ithaca Classification Subsequent Measurement
  Held-for-trading Cash, cash equivalents, restricted cash, derivatives, commodity hedges, long-term liability Fair Value with changes recognised in net income
  Held-to-maturity - Amortised cost using effective interest rate method.
  Loans and Receivables Accounts receivable
  Other financial liabilities Accounts payable, operating bank loans, accrued liabilities Transaction costs (directly attributable to acquisition or issue of financial asset/liability) are adjusted to fair value initially recognised. These costs are also expensed using the effective interest rate method and recorded within interest expense.
  The classification of all financial instruments is the same at inception and at March 31, 2014.
  The table below presents the total gain / (loss) on financial instruments that has been disclosed through the statement of comprehensive income.
  Revaluation Forex Forward Contracts (4,171) (2,055)
  Revaluation of Other Long Term Liability 23 57
  Revaluation of Commodity Hedges 6,949 (9,067)
  Revaluation of Interest Rate Swaps (123) -
  Total Revaluation Gain / (Loss) 2,678 (11,065)
  Realised Gain / (Loss) on Commodity Hedges (2,674) 4,186
  Realised Gain / (Loss) on Forex Forward Contracts 4,028 (293)
  Realised Loss on Interest Rate swaps (70) -
  Total Realised Gain 1,284 3,893
  Total Gain / (Loss) on Financial Instruments 3,962 (7,172)
  2.7 million barrels of oil production over the next 2 years hedged at $100/bbl (70% swaps / 30% puts). This hedging underpins approximately $270 million of revenue while retaining oil price upside on over a third of the hedged volume.
  Secured floor price of £0.58/therm (~$10/MMBTU) for approximately 200 million therms (20 Bcf) of gas sales over gas year's 2015 and 2016. This hedging underpins approximately $200 million of revenue (net of all hedging costs) while retaining full upside to rising gas prices beyond £0.63/therm.
  Derivative Term Volume bbl Average Price $/bbl
  Oil Swaps April 2014 - March 2016 1,963,581 100
  Put Options April 2014 - March 2016 762,800 100
  Derivative Term Volume Therms Average Price p/therm
  Gas Swaps April 2014 - December 2014 1,210,000 67
  Gas Puts October 2015 - June 2017 187,300,000 64
  Term Dec 15
  $'000 31 Mar 2014 31 Dec 2013 30 Sep 2013 30 Jun 2013 31 Mar 2013 31 Dec 2012 30 Sep 2012 30 Jun 2012
  Revenue 96,600 111,696 114,112 128,360 59,769 52,566 41,579 35,779
  Profit After Tax 16,365 44,242 43,145 53,827 3,472 45,347 4,894 30,238
  Earnings per share "EPS" - Basic2 0.05 0.14 0.14 0.18 0.01 0.17 0.02 0.12
  EPS - Diluted2 0.05 0.13 0.13 0.17 0.01 0.17 0.02 0.11
  Common shares outstanding (000) 326,195 323,634 317,366 317,366 259,953 259,920 259,346 259,346
  1Q2-13 and Q3-13 restated to account for adjustment to Valiant acquisition accounting
  2Based on weighted average number of shares
  The most significant factors to have affected the Company's results during the above quarters, other than transactions such as the Valiant acquisition, are fluctuations in underlying commodity prices and movement in production volumes. The Company has utilized forward sales contracts and foreign exchange contracts to take advantage of higher commodity prices while reducing the exposure to price volatility. These contracts can cause volatility in profit after tax as a result of unrealized gains and losses due to movements in the oil price and USD: GBP exchange rate.
  Common Shares Outstanding 328,148,621
  Share Price(1) $2.49 / Share
  Total Market Capitalisation $817,090,066
  (1) Represents the TSX close price (CAD$2.75) on March 31, 2014. US$:CAD$0.9039 on March 31, 2014
  The consolidated financial statements include the accounts of Ithaca and its wholly‐owned subsidiaries, listed below, and its associates FPU Services Limited ("FPU") and FPF‐1 Limited ("FPF‐1").
  Ithaca Energy (Holdings) Limited ("Ithaca Holdings"),
  Ithaca Energy (UK) Limited ("Ithaca UK"),
  Ithaca Minerals North Sea Limited ("Ithaca Minerals")
  Ithaca Energy Holdings (UK) Limited ("Ithaca Holdings UK")
  Ithaca Petroleum Limited (formerly Valiant Petroleum plc)
  Ithaca Causeway Limited (formerly Valiant Causeway Limited)
  Ithaca Exploration Limited (formerly Valiant Exploration Limited)
  Ithaca Alpha (NI) Limited (formerly Valiant Alpha (NI) Limited
  Ithaca Gamma Limited (formerly Valiant Gamma Limited)
  Ithaca Epsilon Limited (formerly Valiant Epsilon Limited)
  Ithaca Delta Limited (formerly Valiant Delta Limited)
  Ithaca North Sea Limited (formerly Valiant North Sea Limited)
  Ithaca Petroleum Holdings AS (formerly Valiant Petroleum Holdings AS)
  Ithaca Petroleum Norge AS (formerly Valiant Petroleum Norge AS)
  Ithaca Technology AS (formerly Valiant Technology AS)
  Ithaca AS (formerly Querqus AS)
  Ithaca Petroleum EHF (formerly Valiant Petroleum EHF)
  The consolidated financial statements include, from April 19, 2013 only (being the acquisition date), the consolidated financial statements of the Valiant group of companies.
  Commodity Price Volatility The Company's performance is significantly impacted by prevailing oil and natural gas prices, which are primarily driven by supply and demand as well as economic and political factors. In order to mitigate the risk of fluctuations in oil and gas prices, the Company routinely executes commodity price derivatives, predominantly in relation to oil production, as a means of establishing a floor in realised prices.
  Foreign Exchange Risk The Company is exposed to financial risks including financial market volatility and fluctuation in various foreign exchange rates. Given the proportion of development capital expenditure and operating costs incurred in currencies other than the US Dollar, the Company routinely executes hedges to mitigate foreign exchange rate risk on committed expenditure and / or draws debt in GB Sterling to settle Sterling costs which will be repaid from surplus Sterling generated revenues derived from Stella gas sales.
  Interest Rate Risk The Company is exposed to fluctuation in interest rates, particularly in relation to the debt facilities entered into. In order to mitigate the fluctuations in interest rates, the Company routinely reviews cost exposures as a result of varying rates and assesses the need to lock in interest rates.
  Debt Facility Risk The Company is exposed to borrowing risks relating to drawdown of its debt facilities (the "Facilities"). The ability to drawdown the Facilities is based on the Company meeting certain covenants including coverage ratio tests, liquidity tests and development funding tests, which are determined by a detailed economic model of the Company. There can be no assurance that the Company will satisfy such tests in the future in order to have access to the full amount of the Facilities.
  The Facilities include covenants which restrict, among other things, the Company's ability to incur additional debt or dispose of assets.
  As is standard to a credit facility, the Company's and Ithaca Energy (UK) Limited's assets have been pledged as collateral and are subject to foreclosure in the event the Company or Ithaca Energy (UK) Limited's defaults on the Facilities.
  The Company believes that there are no circumstances at present that result in its failure to meet the financial tests and it can therefore draw down upon its Facilities.
  The Company routinely produces detailed cashflow forecasts to monitor its compliance with the financial tests and liquidity requirements of the Facilities.
  Financing Risk To the extent cashflow from operations and the Facilities' resources are ever deemed not adequate to fund Ithaca's cash requirements, external financing may be required. Lack of timely access to such additional financing, or access on unfavourable terms, could limit Ithaca's ability to make the necessary capital investments to maintain or expand its current business and to make necessary principal payments under the Facilities may be impaired.
  A failure to access adequate capital to continue its expenditure program may require that the Company meet any liquidity shortfalls through the selected divestment of all or a portion of its portfolio or result in delays to existing development programs.
  The Company has established a fully funded business plan and routinely monitors its detailed cashflow forecasts and liquidity requirements to maintain its funding requirements.
  The Company believes that there are no circumstances at present that would lead to selected divestment, delays to existing programs or a default relating to the Facilities.
  Third Party Credit Risk The Company is and may in the future be exposed to third party credit risk through its contractual arrangements with its current and future joint venture partners, marketers of its petroleum production and other parties.
  The Company extends unsecured credit to these and certain other parties, and therefore, the collection of any receivables may be affected by changes in the economic environment or other conditions affecting such parties. The Company believes this risk is mitigated by the financial position of the parties. The joint venture partners in those assets operated by the Company are largely well financed international companies. Where appropriate, a cash call process has been implemented with partners to cover high levels of anticipated capital expenditure thereby reducing any third party credit risk.
  All of the Company's oil production is sold, depending on the field, to either BP Oil International Limited or Shell Trading International Ltd. Gas production is sold through contracts with RWE NPower PLC, Hess Energy Gas Power (UK) Ltd, Shell UK Ltd. and Esso Exploration & Production UK Ltd. Each of these parties has historically demonstrated their ability to pay amounts owing to Ithaca. The Company has not experienced any material credit loss in the collection of accounts receivable to date.
  Property Risk The Company's properties will be generally held in the form of licenses, concessions, permits and regulatory consents ("Authorisations"). The Company's activities are dependent upon the grant and maintenance of appropriate Authorisations, which may not be granted; may be made subject to limitations which, if not met, will result in the termination or withdrawal of the Authorisation; or may be otherwise withdrawn. Also, in the majority of its licenses, the Company is a joint interest-holder with other third parties over which it has no control. An Authorisation may be revoked by the relevant regulatory authority if the other interest-holder is no longer deemed to be financially credible. There can be no assurance that any of the obligations required to maintain each Authorisation will be met. Although the Company believes that the Authorisations will be renewed following expiry or granted (as the case may be), there can be no assurance that such authorisations will be renewed or granted or as to the terms of such renewals or grants. The termination or expiration of the Company's Authorisations may have a material adverse effect on the Company's results of operations and business. The Company has routine ongoing communications with the UK oil and gas regulatory body, the Department of Energy and Climate Change ("DECC") as well as Norwegian authorities. Regular communication allows all parties to an Authorisation to be fully informed as to the status of any Authorisation and ensures the Company remains updated regarding fulfilment of any applicable requirements.
  Operational Risk The Company is subject to the risks associated with owning oil and natural gas properties, including environmental risks associated with air, land and water. All of the Company's operations are conducted offshore on the United Kingdom Continental Shelf and as such, Ithaca is exposed to operational risk associated with weather delays that can result in a material delay in project execution. Third parties operate some of the assets in which the Company has interests. As a result, the Company may have limited ability to exercise influence over the operations of these assets and their associated costs. The success and timing of these activities may be outside the Company's control.
  There are numerous uncertainties in estimating the Company's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital. The Company acts at all times as a reasonable and prudent operator and has non-operated interests in assets where the designated operator is required to act in the same manner. The Company takes out market insurance to mitigate many of these operational, construction and environmental risks.
  The Company uses experienced service providers for the completion of work programmes.
  The Company uses the services of Sproule International Limited ("Sproule") to independently assess the Company's reserves on an annual basis.
  Competition Risk In all areas of the Company's business, there is competition with entities that may have greater technical and financial resources. The Company places appropriate emphasis on ensuring it attracts and retains high quality resources and sufficient financial resources to enable it to maintain its competitive position.
  Weather Risk In connection with the Company's offshore operations being conducted in the North Sea, the Company is especially vulnerable to extreme weather conditions. Delays and additional costs which result from extreme weather can result in cost overruns, delays and, ultimately, in certain operations becoming uneconomic. The Company takes potential delays as a result of adverse weather conditions into consideration in preparing budgets and forecasts and seeks to include an appropriate buffer in its all estimates of costs, which could be adversely affected by weather.
  Reputation Risk In the event a major offshore incident were to occur in respect of a property in which the Company has an interest, the Company's reputation could be severely harmed The Company's operational activities are conducted in accordance with approved policies, standards and procedures, which are then passed on to the Company's subcontractors. In addition, Ithaca regularly audits its operations to ensure compliance with established policies, standards and procedures.
  The quality of and future net revenues from the Company's reserves;
  Oil, natural gas liquids ("NGLs") and natural gas production levels;
  Commodity prices, foreign currency exchange rates and interest rates;
  The sale, farming in, farming out or development of certain exploration properties using third party resources;
  Supply and demand for oil, NGLs and natural gas;
  The Company's ability to raise capital;
  The continued availability of the Facilities;
  The Company's acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom;
  The realization of anticipated benefits from acquisitions and dispositions;
  The Company's ability to continually add to reserves;
  Schedules and timing of certain projects and the Company's strategy for growth;
  The Company's future operating and financial results;
  The ability of the Company to optimize operations and reduce operational expenditures;
  Treatment under governmental and other regulatory regimes and tax, environmental and other laws;
  The ability of the company to continue operating in the face of inclement weather;
  Targeted production levels; and
  Timing and cost of the development of the Company's reserves.
  With respect to forward-looking statements contained in this MD&A and any documents incorporated by reference herein, the Company has made assumptions regarding, among other things:
  Ithaca's ability to obtain additional drilling rigs and other equipment in a timely manner, as required;
  Access to third party hosts and associated pipelines can be negotiated and accessed within the expected timeframe;
  FDP approval and operational construction and development is obtained within expected timeframes;
  The Company's development plan for the Stella and Harrier discoveries will be implemented as planned;
  The Company's ability to keep operating during periods of harsh weather;
  Reserves volumes assigned to Ithaca's properties;
  Ability to recover reserves volumes assigned to Ithaca's properties;
  Revenues do not decrease below anticipated levels and operating costs do not increase significantly above anticipated levels;
  Future oil, NGLs and natural gas production levels from Ithaca's properties and the prices obtained from the sales of such production;
  The level of future capital expenditure required to exploit and develop reserves;
  Ithaca's ability to obtain financing on acceptable terms, in particular, the Company's ability to access the Facilities;
  The continued ability of the Company to collect amounts receivable from third parties who Ithaca has provided credit to;
  Ithaca's reliance on partners and their ability to meet commitments under relevant agreements; and,
  The state of the debt and equity markets in the current economic environment.
  The Company's actual results could differ materially from those anticipated in these forward-looking statements and information as a result of assumptions proving inaccurate and of both known and unknown risks, including the risk factors set forth in this MD&A and under the heading "Risk Factors" in the AIF and the documents incorporated by reference herein, and those set forth below:
  Risks associated with the exploration for and development of oil and natural gas reserves in the North Sea;
  Risks associated with offshore development and production including risks of inclement weather and the unavailability of transport facilities;
  Operational risks and liabilities that are not covered by insurance;
  Volatility in market prices for oil, NGLs and natural gas;
  The ability of the Company to fund its substantial capital requirements and operations;
  Risks associated with ensuring title to the Company's properties;
  Changes in environmental, health and safety or other legislation applicable to the Company's operations, and the Company's ability to comply with current and future environmental, health and safety and other laws;
  The accuracy of oil and gas reserve estimates and estimated production levels as they are affected by the Company's exploration and development drilling and estimated decline rates;
  The Company's success at acquisition, exploration, exploitation and development of reserves;
  Risks associated with realisation of anticipated benefits of acquisitions;
  Risks related to changes to government policy with regard to offshore drilling;
  The Company's reliance on key operational and management personnel;
  The ability of the Company to obtain and maintain all of its required permits and licenses;
  Competition for, among other things, capital, drilling equipment, acquisitions of reserves, undeveloped lands and skilled personnel;
  Changes in general economic, market and business conditions in Canada, North America, the United Kingdom, Europe and worldwide;
  Actions by governmental or regulatory authorities including changes in income tax laws or changes in tax laws, royalty rates and incentive programs relating to the oil and gas industry including any increase in UK or Norwegian taxes;
  Adverse regulatory rulings, orders and decisions; and
  Risks associated with the nature of the common shares.
  The information in this MD&A is provided as of May 9, 2014. The Q1 2014 results have been compared to the results of the comparative period in 2013. This MD&A should be read in conjunction with the Company's unaudited consolidated financial statements as at March 31, 2014 and 2013 and with the Company's audited consolidated financial statements as at December 31, 2013 together with the accompanying notes and Annual Information Form ("AIF") for the year ended December 31, 2013. Copies of these documents are available without charge from Ithaca or electronically on the internet on Ithaca's SEDAR profile at www.sedar.com.
  Revenue 5 99,640 59,769
  Cost of Sales 6 (86,008) (46,458)
  Gross Profit 13,632 13,311
  Exploration and evaluation expenses 12 (2,008) (312)
  Impairment of assets (2,895) -
  Administrative expenses 7 (3,699) (2,771)
  Operating Profit 5,030 10,228
  Foreign exchange (373) 563
  Gain/(loss) on financial instruments 27 3,962 (7,172)
  Gain on farmout 2,190 -
  Negative goodwill - 914
  Profit Before Interest and Tax 10,809 4,533
  Finance costs 8 (6,274) (2,276)
  Profit Before Tax 4,560 2,277
  Taxation 25 11,805 1,195
  Profit After Tax 16,365 3,472
  Basic 24 0.05 0.01
  Diluted 24 0.05 0.01
  US$'000 31 December 2013
  Cash and cash equivalents 39,146 63,435
  Restricted cash 12,310 12,198
  Accounts receivable 10 330,033 314,727
  Deposits, prepaid expenses and other 25,104 21,150
  Inventory 11 17,582 21,632
  Derivative financial instruments 28 2,572 5,102
  426,747 438,244
  Long-term receivable 30 31,565 31,655
  Long-term inventory 11 8,126 8,126
  Investment in associate 15 18,337 18,337
  Exploration and evaluation assets 12 76,997 57,628
  Property, plant & equipment 13 1,496,228 1,423,712
  Goodwill 14 985 985
  1,632,238 1,540,443
  Total assets 2,058,985 1,978,687
  Trade and other payables 17 397,228 472,396
  Exploration obligation 18 11,039 12,859
  408,267 485,255
  Borrowings 16 569,117 432,243
  Decommissioning liabilities 19 175,295 172,047
  Other long term liabilities 20 - 6,037
  Deferred tax liabilities 25 14,505 9,909
  Contingent consideration 21 4,000 4,000
  Derivative financial instruments 28 9,047 15,550
  771,964 639,786
  Net assets 878,754 853,646
  Share capital 22 547,291 535,716
  Share based payment reserve 23 16,422 19,254
  Retained earnings 315,041 298,676
  Total equity 878,754 853,646
  The financial statements were approved by the Board of Directors on 9 May 2014 and signed on its behalf by:
  Balance, 1 Jan 2013 431,318 20,340 153,990 605,648
  Share based payment - 994 - 994
  Options exercised 47 (18) - 29
  Net income for the period - - 3,472 3,472
  Balance, 31 March 2013 431,365 21,316 157,462 610,143
  Balance, 1 Jan 2014 535,716 19,254 298,676 853,646
  Share based payment - 1,693 - 1,693
  Options exercised 11,575 (4,525) - 7,050
  Net income for the period - - 16,365 16,365
  Balance, 31 March 2014 547,291 16,422 315,041 878,754
  Depletion, depreciation and amortisation 32,464 19,498
  Exploration and evaluation write off 2,008 312
  Share based payment 429 295
  Loan fee amortisation 926 592
  Revaluation of financial instruments (2,678) 11,065
  Gain on farm-out (2,190) -
  Movement in goodwill - (914)
  Accretion 1,305 502
  Bank interest & charges 3,979 1,159
  Cashflow from operations 43,699 34,786
  Changes in inventory, debtors and creditors relating to operating activities 35,403 882
  Net cash from operating activities 79,102 35,668
  Acquisition of Cook - (33,370)
  Capital expenditure (128,705) (25,384)
  Loan to associate (91) -
  Proceeds on farm-out 2,190 -
  Changes in debtors and creditors relating to investing activities (118,406) 12,439
  Net cash (used in) investing activities (245,012) (46,315)
  Proceeds from issuance of shares 7,050 29
  Derivatives (1,315) (7,947)
  Loan draw down 135,951 55,000
  Bank charges (2,917) (1,110)
  Net cash from financing activities 138,769 45,972
  Currency translation differences relating to cash and cash equivalents 2,852 (1,065)
  Increase/(decrease) in cash and cash equivalents (24,289) 34,260
  Cash and cash equivalents, beginning of period 63,435 31,374
  Cash and cash equivalents, end of period 39,146 65,634
  The consolidated financial statements of the Corporation include the accounts of Ithaca Energy Inc. and all wholly-owned subsidiaries. Ithaca has seventeen wholly-owned subsidiaries, thirteen of which were acquired on 19 April 2013 as part of the acquisition of Valiant Petroleum PLC ("Valiant"). The consolidated financial statements include the Valiant group of companies from 19 April 2013 only (being the acquisition date). All inter-company transactions and balances have been eliminated on consolidation.
  Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of completion of the acquisition. Acquisition costs incurred are expensed and included in administrative expenses. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Corporation's share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the Corporation's share of the net assets acquired, the difference is recognised directly in the statement of income as negative goodwill.
  Items included in the financial statements are measured using the currency of the primary economic environment in which the Corporation and its subsidiaries operate (the 'functional currency'). The consolidated financial statements are presented in United States Dollars, which is the Corporation's functional and presentation currency.
  The Corporation has a share based payment plan as described in note 22 (c). The expense is recorded in the consolidated statement of income or capitalised for all options granted in the year, with the gross increase recorded in the share based payment reserve. Compensation costs are based on the estimated fair values at the time of the grant and the expense or capitalised amount is recognised over the vesting period of the options. Upon the exercise of the stock options, consideration paid together with the amount previously recognised in share based compensation reserve is recorded as an increase in share capital. In the event that vested options expire unexercised, previously recognised compensation expense associated with such stock options is not reversed. In the event that unvested options are forfeited or expired, previously recognised compensation expense associated with the unvested portion of such stock options is reversed.
  For the purpose of the statement of cash flow, cash and cash equivalents include investments with an original maturity of three months or less.
  Cash that is held for security for bank guarantees is reported in the statement of financial position and statement of cash flow separately. If the expected duration of the restriction is less than twelve months then it is shown in current assets.
  All financial instruments, other than those designated as effective hedging instruments, are initially recognised at fair value on the statement of financial position. The Corporation's financial instruments consist of cash, restricted cash, accounts receivable, deposits, derivatives, accounts payable, accrued liabilities, contingent consideration and the liability acquired as part of the Beatrice field acquisition. The Corporation classifies its financial instruments into one of the following categories: held-for-trading financial assets and financial liabilities; held-to-maturity investments; loans and receivables; and other financial liabilities. All financial instruments are required to be measured at fair value on initial recognition. Measurement in subsequent periods is dependent on the classification of the respective financial instrument.
  Inventories of materials and product inventory supplies, other than oil and gas inventories, are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out method. Oil and gas inventories are stated at fair value less cost to sell.
  Oil and gas expenditure - exploration and evaluation assets
  Oil and gas expenditure - development and production assets
  Non oil and natural gas operations
  Computer and office equipment is recorded at cost and depreciated over its estimated useful life on a straight-line basis over three years. Furniture and fixtures are recorded at cost and depreciated over their estimated useful lives on a straight-line basis over five years.
  The Corporation records the present value of legal obligations associated with the retirement of long-term tangible assets, such as producing well sites and processing plants, in the period in which they are incurred with a corresponding increase in the carrying amount of the related long-term asset. The obligation generally arises when the asset is installed or the ground/environment is disturbed at the field location. In subsequent periods, the asset is adjusted for any changes in the estimated amount or timing of the settlement of the obligations. The carrying amounts of the associated assets are depleted using the unit of production method, in accordance with the depreciation policy for development and production assets. Actual costs to retire tangible assets are deducted from the liability as incurred.
  Contingent consideration is accounted for as a financial liability and measured at fair value at the date of acquisition with any subsequent remeasurements recognised either in profit or loss or in other comprehensive income in accordance with IAS 39.
  Significant accounting judgements and estimation uncertainties
  The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions regarding certain assets, liabilities, revenues and expenses. Such estimates must often be made based on unsettled transactions and other events and a precise determination of many assets and liabilities is dependent upon future events. Actual results may differ from estimated amounts.
  The Company operates a single class of business being oil and gas exploration, development and production and related activities in a single geographical area presently being the North Sea.
  Oil sales 96,601 56,153
  Gas sales 2,056 2,771
  Condensate sales 20 137
  Other income 963 708
  99,640 59,769
  Operating costs (41,264) (23,227)
  Oil purchases (418) (157)
  Movement in oil and gas inventory (11,861) (3,576)
  Depletion, depreciation and amortisation (32,465) (19,498)
  (86,008) (46,458)
  General & administrative (3,270) (2,476)
  Share based payments (429) (295)
  (3,699) (2,771)
  Accretion (note 19) (1,305) (502)
  Bank charges & interest (3,979) (1,164)
  Loan fee amortisation (926) (592)
  Non-operated asset finance fees (64) (18)
  (6,274) (2,276)
  31 March 31 Dec
  Security 12,310 12,198
  12,310 12,198
  Trade debtors 201,854 194,442
  Norwegian tax receivable 77,798 61,397
  Accrued income 50,381 58,888
  330,033 314,727
  US$'000 31 Dec
  Crude oil inventory - current 17,367 21,417
  Crude oil inventory - non-current 8,126 8,126
  Materials inventory 215 215
  25,708 29,758
  At 1 January 2013 47,390
  Additions 60,145
  Release of exploration obligations (31,170)
  Write offs/relinquishments (18,737)
  At 31 December 2013 57,628
  Additions 23,197
  Release of exploration obligations (1,820)
  Write offs/relinquishments (2,008)
  At 31 March 2014 76,997
  At 1 January 2013 725,020 2,425 727,445
  Acquisitions 685,533 - 685,533
  Additions 332,796 738 333,534
  At 31 December 2013 1,743,349 3,163 1,746,512
  Additions 107,533 342 107,875
  At 31 March 2014 1,850,882 3,505 1,854,387
  At 1 January 2013 (109,758) (1,899) (111,657)
  DD&A charge for the period (157,879) (400) (158,279)
  Impairment charge for the period (52,864) - (52,864)
  At 31 December 2013 (320,501) (2,299) (322,800)
  DD&A charge for the period (32,368) (96) (32,464)
  Impairment charge for the period (2,895) - (2,895)
  At 31 March 2014 (355,764) (2,395) (358,159)
  NBV at 1 January 2013 615,262 526 615,788
  NBV at 1 January 2014 1,422,848 864 1,423,712
  NBV at 31 March 2014 1,495,118 1,110 1,496,228
  At 1 January 2013, 31 December 2013 & 31 March 2014 985
  Investments in FPF-1 and FPU services 18,337 18,337
  On 29 June 2012, the Corporation executed a Reserves Based Lending Facility agreement (the "RBL Facility") for up to $430 million, being provided by BNPP as Lead Arranger. The loan term was up to five years and attracted interest at LIBOR plus 3-4.5%.
  Trade payables 205,939 173,052
  Accruals and deferred income 191,289 299,344
  397,228 472,396
  Exploration obligations 11,039 12,859
  Balance, beginning of period 172,047 52,834
  Additions 1,943 105,229
  Accretion 1,305 4,509
  Revision to estimates - 9,475
  Balance, end of period 175,295 172,047
  Balance, beginning of period 6,037 3,018
  Revaluation in the period (23) 3,019
  Reclassed to trade payables (6,014) -
  Balance, end of period - 6,037
  Balance 31 December 2013 & 31 March 2014 4,000 4,000
  Authorised share capital Number of ordinary shares Amount
  At 31 December 2013 and 31 March 2014 Unlimited -
  Issued Number of common shares Amount
  Balance 1 January 2013 259,920,003 431,318
  Share issue 56,952,321 93,005
  Issued for cash - options exercised 6,761,296 6,574
  Transfer from Share based payment reserve on options exercised - 4,819
  Balance 1 January 2014 323,633,620 535,716
  Issued for cash - options exercised 4,515,001 7,050
  Transfer from Share based payment reserve on options exercised - 4,525
  Balance 31 March 2014 328,148,621 547,291
  In the quarter ended 31 March 2014, the Corporation's Board of Directors granted 7,165,000 options at a weighted average exercise price of $2.47 (C$2.71).
  No. of Options Wt. Avg
  Exercise Price* No. of Options Wt. Avg
  Balance, beginning of period 14,593,567 $2.01 20,347,964 $1.63
  Granted 7,165,000 $2.47 1,820,232 $2.43
  Forfeited / expired - - (813,333) $2.18
  Exercised (4,515,001) $1.69 (6,761,296) $0.95
  Options 17,243,566 $2.29 14,593,567 $2.01
  Options Wt. Avg
  (Years) Wt. Avg
  Price* Range of
  $2.22-$2.47 (C$2.25-C$2.71) 12,485,232 2.9 $2.40 $2.22-$2.47 (C$2.25-C$2.71) 3,456,667 0.8 $2.23
  $1.75-$2.03 (C$1.80-C$1.99) 4,758,334 2.4 $2.01 $1.75-$2.03 (C$1.80-C$1.99) 1,714,998 2.1 $1.98
  17,243,566 2.8 $2.29 5,171,665 1.3 $2.26
  $2.22-$2.46 (C$2.25-C$2.53) 6,670,232 1.8 $2.29 $2.22-$2.46 (C$2.25-C$2.53) 3,280,003 2.0 $2.22
  $1.49-$2.03 (C$1.54-C$1.99) 7,451,667 2.1 $1.90 $1.49-$2.03 (C$1.54-C$1.99) 3,113,338 1.2 $1.53
  $0.20 (C$0.25) 471,668 0.1 $0.17 $0.20 (C$0.25) 4,666,297 0.8 $0.80
  14,593,567 1.9 $2.01 11,059,638 1.3 $1.43
  Options granted are accounted for using the fair value method. The cost during the three months ended 31 March 2014 for total stock options granted was $1.7 million (Q1 2013: $0.9 million). $0.4 million was charged through the statement of income for stock based compensation for the three months ended 31 March 2014 (Q1 2013: $0.3 million), being the Corporation's share of stock based compensation chargeable through the statement of income. The remainder of the Corporation's share of stock based compensation has been capitalised. The fair value of each stock option granted was estimated at the date of grant, using the Black-Scholes option pricing model with the following assumptions:
  For the three months ended 31 March 2014 For the year ended
  Risk free interest rate 1.27% 1.37%
  Expected stock volatility 56% 51%
  Expected life of options 3 years 2 years
  Weighted Average Fair Value $1.12 $0.82
  Balance, beginning of period 19,254 20,340
  Share based payment cost 1,693 3,733
  Transfer to share capital on exercise of options (4,525) (4,819)
  Balance, end of period 16,422 19,254
  The calculation of basic earnings per share is based on the profit after tax and the weighted average number of common shares in issue during the period. The calculation of diluted earnings per share is based on the profit after tax and the weighted average number of potential common shares in issue during the period.
  Weighted av. number of common shares (basic) 326,194,787 259,944,818
  Weighted av. number of common shares (diluted) 330,905,217 264,926,389
  Taxation 11,805 1,195
  Within one year 13,255 13,262
  Two to five years 4,912 8,149
  Capital commitments 31 March
  Capital commitments incurred jointly with other ventures (Ithaca's share) 156,478 150,091
  To estimate fair value of financial instruments, the Corporation uses quoted market prices when available, or industry accepted third-party models and valuation methodologies that utilise observable market data. In addition to market information, the Corporation incorporates transaction specific details that market participants would utilise in a fair value measurement, including the impact of non-performance risk. The Corporation characterises inputs used in determining fair value using a hierarchy that prioritises inputs depending on the degree to which they are observable. However, these fair value estimates may not necessarily be indicative of the amounts that could be realised or settled in a current market transaction. The three levels of the fair value hierarchy are as follows:
  Level 1 - inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives). Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
  Level 2 - inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, market interest rates, and volatility factors, which can be observed or corroborated in the marketplace. The Corporation obtains information from sources such as the New York Mercantile Exchange and independent price publications.
  Level 3 - inputs that are less observable, unavailable or where the observable data does not support the majority of the instrument's fair value.
  In forming estimates, the Corporation utilises the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorised based upon the lowest level of input that is significant to the fair value measurement. The valuation of over-the-counter financial swaps and collars is based on similar transactions observable in active markets or industry standard models that primarily rely on market observable inputs. Substantially all of the assumptions for industry standard models are observable in active markets throughout the full term of the instrument. These are categorised as Level 2.