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Press release from Marketwire

Ithaca Energy Inc Announces Full Year Results

Tuesday, March 26, 2013

Ithaca Energy Inc Announces Full Year Results03:00 EDT Tuesday, March 26, 2013ABERDEEN, SCOTLAND--(Marketwire - March 26, 2013) - Ithaca Energy Inc. (TSX VENTURE: IAE)(LSE: IAE)Ithaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE)Not for Distribution to U.S. Newswire Services or for Dissemination inthe United States Ithaca Energy Inc. 2012 Financial Results, Reserves Update & Q1-2013 ProductionIthaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE) announces itsfinancial results for the twelve months ended December 31, 2012, theCompany's independently evaluated reserves as of the same date and aQ1-2013 production update.HIGHLIGHTSFinancial- 2012 cashflow from operations increased 50% to $90.3 million(2011: $60.2 million) - cashflow per share of $0.35 (2011: $0.23).- 2012 net earnings increased 160% to $93.4 million (2011: $35.9million) - earnings per share of $0.36 (2011: $0.14).- 2012 average realised oil price of $112.76/bbl (2011: $111.46/bbl) including a realised hedging gain in the year of $2.61/bbl.- Cash balance at year end of $31.4 million and $430 millionsenior borrowing base facility undrawn at the year end - fully fundedfor execution of the business plan.- UK tax allowances pool of $416 million at year end.- Approximately 2 million barrels of 2013-2014 oil productionhedged at a weighted average price of -$109/bbl (approximately 40% puts/ 60% Swaps).Reserves- Net proved and probable ("2P") reserves increased to 51.9 MMboeat 31 December 2012 (2011: 50.3 MMboe), as independently assessed bythe Company's independent reserves auditor, Sproule InternationalLimited ("Sproule").- Net 2P reserves post-tax net asset value ("NAV") increased by-40% to over $1 billion.- The Sproule reserves assessment reflects the inclusion of theCook and MacCulloch field interests being acquired from Noble EnergyInc. ("Noble") and an upward revision to the Greater Stella Areareserves, partially offset by actual production during 2012 andrelinquishment of the Carna discovery. No material revisions to Athena2P reserves.Operational & Corporate- Total average net export production in 2012 increased 34% toapproximately 5,862 barrels of oil equivalent per day ("boepd") (2011:4,370 boepd), including production from the assets being acquired fromNoble (effective January 1, 2012).- Start-up of the Athena field represents the third majordevelopment delivered by the Company. Strong operational performanceby the BW Athena floating production, storage and offloading vessel hasresulted in a field uptime in excess of 95% since completion ofstart-up and commissioning operations in June 2012. The fieldcontinues to produce "dry" oil at a gross daily rate of 10,000 to11,000 barrels of oil per day ("bopd"), 2,250 to 2,475 bopd net toIthaca.- Field Development Plan ("FDP") approval was received from theDepartment of Energy and Climate Change ("DECC") for the Ithacaoperated Stella and Harrier fields in April 2012. A full GreaterStella Area development update is provided in the 2012 ManagementDiscussion & Analysis.- Agreements were executed in October 2012 to acquire from Noblean additional 12.885% interest in the Cook field (acquisition completedFebruary 2013) and a 14% interest in the MacCulloch field, furtherbroadening the Company's producing asset portfolio.- Ithaca was awarded two operated licences by the DECC in the 27thUK Licence Round.INTENDED VALIANT ACQUISITIONOn March 1, 2013, the Company announced the intended acquisition ofValiant Petroleum plc ("Valiant") for a total enterprise value ofapproximately $459 million. The Valiant Board is recommending approvalof the offer to its shareholders and the transaction is scheduled toclose around mid April 2013.The acquisition is anticipated to be highly accretive, materiallyincreasing the Company's production, reserves and cashflow fromoperations, establishing Ithaca as a leading mid-cap North Sea oil andgas operator.PRODUCTION Q1-2013The Company estimates net export production to be in excess of 6,500boepd, 90% oil, in the upper range of that anticipated by the 2013annual guidance range of 6000 to 6,700 boepd.Iain McKendrick, Chief Executive Officer, commented:"These strong resultstogether with the announced Valiant acquisitiondemonstrate the Company's ability to execute upon its strategy forgrowing shareholder value though the delivery of development andacquisition led growth."A presentation will be available on the Company's website todaysummarising the 2012 financial results and operational update coveredin the Management's Discussion and Analysis.Notes:The Company's petroleum and natural gas reserves (the "reserves") wereindependently evaluated by Sproule ( (the "SprouleReport") in accordance with the Canadian Oil and Gas EvaluationHandbook ("COGEH") reserves definitions and evaluation practices andprocedures as specified by National Instrument 51-101 ("NI 51-101").The evaluation uses Sproule's forecast prices and costs at December 31,2012.The Company's Form 51-101 F1 Statement of reserves data for the yearended December 31, 2012 ("Statement of Reserves Data"), which includesthe disclosure and reports relating to reserves data and other oil andgas information along with the Form 51-101F2 Report on Reserves Data bySproule and Form 51-101F3 Report of Management and Directors onReserves Data and Other Information are contained in the Company'sAnnual Information Form for the year ended December 31, 2012 (the"AIF") which is available for review at accordance with AIM Guidelines, John Horsburgh, BSc (Hons)Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and SubsurfaceManager at Ithaca is the qualified person that has reviewed thetechnical information contained in this press release. Mr Horsburgh hasover 15 years operating experience in the upstream oil industry.The term "boe" may be misleading, particularly if used in isolation. Aboe conversion of 6 Mcf: 1 bbl is based on an energy equivalencyconversion method primarily applicable at the burner tip and does notrepresent a value equivalency at the wellhead. Given the value ratiobased on the current price of crude oil as compared to natural gas issignificantly different from the energy equivalency of 6 Mcf: 1 bbl,utilizing a conversion ratio at 6 Mcf: 1 bbl may be misleading as anindication of value.Further details on the above are provided in the Consolidated FinancialStatements, Management's Discussion and Analysis and AIF for the yearended December 31, 2012, which have been filed with securitiesregulatory authorities in Canada. These documents are available on theSystem for Electronic Document Analysis and Retrieval at www.sedar.comand on the Company's website: EnergyIain McKendrick, CEO +44 (0) 1224 650 261imckendrick@ithacaenergy.comGraham Forbes, CFO +44 (0) 1224 652 151gforbes@ithacaenergy.comCenkos Securities plcJon Fitzpatrick +44 (0) 207 397 8900jfitzpatrick@cenkos.comNeil McDonald +44 (0) 131 220 6939nmcdonald@cenkos.comRBC Capital MarketsTim Chapman +44 (0) 207 653 4641tim.chapman@rbccm.comMatthew Coakes +44 (0) 207 653 4871matthew.coakes@rbccm.comFTI ConsultingBilly Clegg +44 (0) 207 269 7157billy.clegg@fticonsulting.comEdward Westropp +44 (0) 207 269 7230edward.westropp@fticonsulting.comGeorgia Mann +44 (0) 207 269 7212georgia.mann@fticonsulting.comAbout Ithaca Energy:Ithaca Energy Inc. (TSX VENTURE: IAE) (LSE: IAE) and its wholly ownedsubsidiary Ithaca Energy (UK) Limited ("Ithaca" or "the Company"),is anoil and gas operator focused on North Sea production, appraisal anddevelopment activities. The Company's strategy is centred on buildinga highly profitable North Sea oil and gas company by maximisingproduction and cashflow from its existing assets, the appraisal anddevelopment of existing discoveries on properties held by the Companyand the delivery of additional growth via acquisitions and licenceround participation.Not for Distribution to U.S. Newswire Services or for Dissemination inthe United StatesForward-looking statementsSome of the statements in this announcement are forward-looking.Forward-looking statements include statements regarding the intent,belief and current expectations of Ithaca Energy Inc. or its officerswith respect to various matters. When used in this announcement, thewords "anticipate", "continue", "estimate", "expect", "may", "will","project", "plan", "should", "believe", "could", "target" and similarexpressions, and the negatives thereof., whether used in connectionwith operational activities, production forecasts, budgetary figurescontained in the corporate presentation, potential developments orotherwise, are intended to identify forward-looking statements. Suchstatements are not promises or guarantees, and are subject to known andunknown risks and uncertainties and other factors that may cause actualresults or events to differ materially from those anticipated in suchforward-looking statements or information. These forward-lookingstatements speak only as of the date of this announcement. IthacaEnergy Inc. expressly disclaims any obligation or undertaking torelease publicly any updates or revisions to any forward-lookingstatement contained herein to reflect any change in its expectationswith regard thereto or any change in events, conditions orcircumstances on which any forward-looking statement is based except asrequired by applicable securities laws.-ENDS-MANAGEMENT DISCUSSION & ANALYSIS YEAR ENDED 31 DECEMBER 2012 2012 HIGHLIGHTS & POST YEAR END ACTIVITIESRecord annual - 2012 cashflow from operations increasedearnings 50% to $90.3 million (2011: $60.2 million) - cashflow per share $0.35 (2011: $0.23) - 2012 net earnings increased 160% to $93.4 million (2011: $35.9 million) - earnings per share $0.36 (2011: $0.14) - 2012 average realized oil price of $112.76 / bbl (2011: $111.46 / bbl) including realized hedging gain in the year of $2.61 / bbl - Solid asset base with significant capital investment in the year reflecting total assets of $933.5 million (2011: $804.7 million) - Cash balance at year end of $31.4 million and $430 million senior borrowing base facility undrawn at the year end - UK tax allowances pool of $416 million at year end - Approximately 2 million barrels of 2013-14 oil production hedged at a weighted average price of around $109 / bbl (approximately 40% puts / 60% swaps)Solid operational - Export production increased 34% toperformance - approximately 5,862 barrels of oil equivalent perexecuting the day ("boepd") (2011: 4,370 boepd), includingbusiness plan production from the Cook and MacCulloch field interests being acquired from Noble Energy Capital Limited ("Noble"), effective January 1, 2012 - 51.9 MMboe proved and probable ("2P") reserves at end-2012, as assessed by Sproule International Limited ("Sproule") - Sproule post-tax net 2P asset value ("NAV") of $1,045 million, up over 40% - Start-up of production from the Ithaca operated Athena field in May 2012, representing the third major development delivered by the CorporationGreater Stella - Field Development Plan ("FDP") approvalArea hub - moving received from the Department of Energy and Climateahead Change ("DECC") for the Ithaca operated Stella and Harrier fields in April 2012 - All major contracts executed in 2012 to deliver the start-up of production from the Greater Stella Area ("GSA") production hub in 2014 - Fabrication of all the required subsea infrastructure that is to be installed by Technip is progressing according to plan - "FPF-1" floating production unit transferred to the Remontowa shipyard (Poland) in October 2012 for completion of the modification workscope by Petrofac - Ensco 100 drilling rig anticipated to arrive on location at the Stella field in Q2-2013 - UK Small Field Allowance ("SFA") tax relief increased and its application extended in March 2012, resulting in both Stella and Harrier being eligible for the full $240 million field benefit in addition to Athena - Appraisal of the Hurricane discovery completed in September 2012 - hydrocarbons in two reservoir intervals identified and a successful drill stem test performedGrowing - Intended acquisition of Valiant Petroleumshareholder value plc ("Valiant") for a total enterprise value ofvia acquisitions approximately $459 million announced March 2013 -and licence rounds the Valiant Board is recommending approval of the offer to its shareholders and the transaction is scheduled to close mid-April 2013 - Further broadening of the producing asset portfolio - agreements executed in October 2012 to acquire an additional 12.885% interest in the Cook field (acquisition completed February 2013) and a 14% interest in the MacCulloch field from Noble ("the Noble Assets") - Awarded two operated licences by the DECC in the 27th UK Licence Round SUMMARY STATEMENT OF INCOME 2012 2011 % Average Brent Oil Price $/bbl 112 111 1% Average Realised Oil Price(1) $/bbl 110 111 -1% Revenue M$ 170.5 129.1 32% Cost of Sales - excluding DD&A M$ (78.9) (63.7) 24% G&A M$ (4.3) (4.6) -7% Bank Charges, Interest, etc. M$ (0.9) (0.7) 29% Realised Derivatives Gain / (Loss) M$ 3.9 0.1 Cashflow From Operations M$ 90.3 60.2 50% DD&A M$ (56.2) (31.4) 79% Other Non-Cash Costs M$ (4.9) 8.3 Profit Before Tax M$ 29.2 37.1 -21% Deferred Tax Credit / (Charge) M$ 64.2 (1.2) Profit After Tax M$ 93.4 35.9 160% Earnings Per Share $/Sh. 0.36 0.14 157% Cashflow Per Share $/Sh. 0.35 0.23 52% (1) Average realized price before hedging SUMMARY BALANCE SHEET M$ 2012 2011 Cash & Equivalents 31 112 Other Current Assets 198 99 PP&E 663 593 Other Non-Current Assets 41 1 Total Assets 934 805 Current Liabilities (206) (102) Asset Retirement Obligations (53) (39) Deferred Tax Liabilities (62) (127) Other Non-Current Liabilities (7) (29) Total Liabilities (328) (297) Net Assets 606 507 Share Capital 431 430 Other Reserves 20 17 Surplus / (Deficit) 154 61 Shareholders Equity 606 507 CORPORATE STRATEGY Ithaca Energy Inc (the "Corporation" or "Ithaca" or the "Company") is an oil and gas operator focused on North Sea production, appraisal and development activities. Ithaca's strategy is to grow shareholder value by building a highly profitable 25kboe/d North Sea oil and gas company. The execution of this plan is centred on: - Maximising production and cashflow from its existing assets - Delivering material growth by appraising and developing existing hydrocarbon discoveries - Continuing to increase and diversify the Company's portfolio and cashflows through acquisitions CONSOLIDATION The consolidated financial statements of the Corporation and the financial data contained in this management's discussion and analysis ("MD& A") are prepared in accordance with international financial reporting standards ("IFRS"). The consolidated financial statements include the accounts of Ithaca and its wholly-owned subsidiaries Ithaca Energy (Holdings) Limited ("Ithaca Holdings"), Ithaca Energy (UK) Limited ("Ithaca UK") and Ithaca Minerals North Sea Limited ("Ithaca Minerals") and its associates FPU Services Limited ("FPU") and FPF-1 Limited ("FPF-1"). All inter-company transactions and balances have been eliminated on consolidation. A significant portion of the Corporation's North Sea oil and gas activities are carried out jointly with others. The consolidated financial statements reflect only the Corporation's proportionate interest in such activities. RESERVESSolid 2P reserves - At 31 December 2012, the Corporation'sbase, with 2P reserves were 51.9MMboe, as independentlyincreasing assessed by Sproule (including 1.4MMbbl from theproportion of yet to complete MacCulloch field acquisition)reserves associatedwith producing - 15.4MMboe of the Corporation's total 2Passets reserves are associated with producing assets, an increase of 83% on the end-2011 position. This increase is driven by start-up of the Athena field and the acquisition of the Noble Assets. - The end-2012 post-tax NAV of 2P reserves estimated by Sproule increased by over 40% to $1,045 million whilst pre-tax NAV of 2P reserves increased by approximately 33% to $1,442 million - The movement in 2P reserves between end-2011 and end-2012 is summarised in the table below. The Corporation has elected to relinquish the licence containing the Carna gas discovery following completion of a detailed technical and commercial evaluation since the additional equity and operatorship was transferred to the Corporation, for minimal consideration, by Centrica North Sea Gas Limited ("Centrica") in Q1-2012 2P Reserves MMboe Opening Reserves - December 31, 2011- 50.3 Acquisitions - Cook & MacCulloch 3.6 Production -2.2 Relinquishments - Carna -1.7 Positive Revisions (Mainly Stella) 1.9 Closing Reserves - December 31, 2012 51.9 - Opening reserves exclude the additional 16% equity in the Carna gas discovery transferred from Centrica during the year PRODUCTION & OPERATIONS UPDATE 2012 PRODUCTION34% increase in annual Ithaca's total net export production in 2012production delivered in was 5,862 boepd, representing an increase of2012, with the overall approximately 34% on 2011 production (2011:producing asset base 4,370boepd).enlarged to eightfields Production in the year was derived from the operated Athena, Beatrice, Jacky and Anglia fields and the non-operated Cook, Broom and Topaz fields. Total 2012 production also includes the contribution from the Noble Assets, the acquisition of which was announced in October 2012, effective 1 January 2012. The transfer of the Cook interest was completed in February 2013. The transfer of the MacCulloch interest is yet to complete and represents approximately 10% of total 2012 production. The material increase in production delivered in 2012 was primarily attributable to the start-up of the Athena field in May 2012 and acquisition of the Noble Assets. Planned maintenance shutdowns during the year, most notably on the Shell operated Anasuria floating production, storage and offloading vessel ("FPSO") that is the host facility for the Cook field, reduced overall net production performance by approximately 500 boepd. As a result of the Athena field start-up and the acquisition of the Noble Assets, the Corporation has increased its producing asset base by a further three fields during the year, establishing a solid cash generative asset base of eight fields.Q1-2013 production in Q1-2013 PRODUCTION UPDATEline with forecastperformance With less than a week remaining in the quarter, Ithaca's total net export production in Q1-2013 is forecast to be in excess of 6,500 boepd. Production for the quarter was in the upper range of that anticipated by the Corporation as part of the annual 2013 guidance issued in January 2013 of 6,000 to 6,700 boepd. As anticipated, there was no contribution from the MacCulloch field in the quarter (MacCulloch representing approximately 5% of total forecast 2013 production). DEVELOPMENTS UPDATEAthena field achieves ATHENAthe core objectives ofproduction Following completion of the BW Athena FPSOdiversification and conversion and mobilisation operations by BWcashflow generation, Offshore, start-up of production from thefacilitating continued Athena field commenced in late May 2012.growth of the Company This represents the third major development delivered by the Corporation, further underlining the Corporation's ability to execute upon its business model of driving forward the monetisation of reserves identified following appraisal success. Since the completion of post start-up commissioning activities, production from the field has been stable at a gross daily rate of between 10,000 and 11,000 bopd, 2,250 to 2,475 bopd net to Ithaca. Strong operational performance by the BW Athena has resulted in a vessel uptime in excess of 95% following the start-up period. The field continues to produce "dry" oil, with nearly 3MMbbl having been produced from the field to date, 0.675MMbbl net to Ithaca. Reservoir performance to date, including the continued production of dry oil, provides a positive signal for the longer term potential of the field. The timing of water breakthrough, along with the efficiency of the sweep of oil through the reservoir assisted by water injection, will be key to predicting the ultimate field production profile. Athena's 2P reserves remain materially unchanged following completion of the end-2012 Sproule reserves evaluation, despite initial production rates from the field being lower than originally forecast. Taking into account the latest dynamic field data and actual oil production to date, Sproule's end-2012 2P reserves are within approximately 5% of that anticipated prior to start-up of the field. Total gross 2P remaining reserves at 31 December 2012 are estimated by Sproule to be 22.6 MMboe, 5.1MMboe net to Ithaca.Clear hub strategy GREATER STELLA AREAfocused on drivingsignificant value from The GSA strategy is driven by monetisation ofthe GSA infrastructure 2P reserves of over 30MMboe net to Ithaca. The infrastructure that will be installed as part of the GSA development also presents the opportunity to create significant additional value from within the Corporation's portfolio and from third parties through the tie-back of the many undeveloped discoveries that lie in the catchment area of the GSA hub Delivering First Hydrocarbons Approval of the joint Stella and Harrier FDP was received from the DECC in April 2012. The development is centred on the tie-back of subsea wells to the FPF-1 floating production facility and the export of processed hydrocarbons to shore via nearby oil and gas transportation pipelines. To maximise initial oil and condensate production and fill the gas processing facilities on the FPF-1, four Stella wells are planned for the start-up of production from the hub. Further wells on Stella and Harrier, plus other potential targets, including Hurricane, will then be drilled post first hydrocarbons from Stella to maintain the gas processingfacilities on plateau.FPF-1 located in FPF-1 Modification WorksRemontowa yard inGdansk, Poland, for A lump sum incentivised contract forcompletion of the modification of the FPF-1 was awarded by themodifications work GSA co-venturers to Petrofac in October 2011.programme During 2012, the primary focus of the Petrofac work programme has been on completion of detailed design studies, award of the yard contract for the FPF-1 modification works and preparation and transfer of the vessel to the selected modifications yard. Based on the results of the design studies completed in 2012, the decision was made by Petrofac to install new processing equipment on the vessel, rather than partially re-use the existing facilities. This is to ensure the delivery of a higher quality vessel; one that is capable of achieving the high operational uptime performance that is stipulated in the Duty Holder contract under which Petrofac will operate the FPF-1 once it is deployed in the field. Preparation of the vessel for completion of the modifications work was undertaken in Teeside, UK, with all the redundant processing equipment being removed from the main deck of the vessel. Petrofac awarded the contract for completion of the FPF-1 modification works in 2012 to the Remontowa shipyard in Gdansk, Poland, which is located approximately 10 days towing time from the Stella field. The FPF-1 was moved to the yard in Q4-2012. Work is currently ongoing on the vessel to prepare for its transfer to dry dock in Q2-2013 for the marine systems workscope to be completed, following which the new topsides processing plant will be installed on the main deck.Arrival of Ensco 100 Drilling Programmedrilling rig nowanticipated Q2-2013 due A contract was signed with Ensco Offshore UKto delays in completion Limited ("Ensco") in November 2011 for use ofon current works being the Ensco 100 heavy duty jack-up drilling rigundertaken by another on the Stella and Harrier developmentoperator using the rig drilling campaign; 5 firm wells and 3 optional wells, providing flexibility in terms of the number of wells and sequence of drilling operations in the GSA. A delay in completion of the work currently being undertaken by another North Sea operator using the Ensco 100 rig means that the rig is now anticipated to arrive on location at Stella in Q2-2013, rather than the previously indicated time of late Q1-2013. This delay, which is unrelated to the performance of the rig itself, is outside Ithaca's control and is a routine schedule risk associated with the commencement of any drilling campaign. Based on the commencement of the drilling campaign in Q2-2013, the four well programme on Stella (drill, complete and clean-up test) prior to start-up of production from the hub is anticipated to complete in the early part of Q2-2014.Technip on schedule for Subsea Infrastructure Construction &execution of main Installation Activitiessubsea infrastructureworks in 2013 An Engineering, Procurement, Installation and Construction ("EPIC") contract was awarded to Technip in July 2012 for completion of the major subsea works required to deliver first hydrocarbons from the GSA hub. Engineering for the subsea infrastructure has been completed and the subsea facilities construction programme is progressing as planned and remains on target for the main installation works to be performed in 2013. - Manufacture of all the required 10-inch linepipe for the development has been completed and the application of coatings and delivery of the pipe to Technip's Evanton spool base in NE Scotland, for subsequent welding, is nearing completion. - Construction of all six subsea structures required to deliver first hydrocarbons are advancing well at Global Energy Group's Isleburn facilities at Invergordon and Nigg in NE Scotland. All the necessary valves that are to be fitted on the structures have been delivered on time. - All the flanges, fittings and pipework required for subsea structures have been manufactured on time and fabrication of the pipeline spools is ongoing. - Manufacture of the static umbilicals that will connect the drill centres to the FPF-1 and the flexible flowlines and risers are progressing to plan.Small Field Allowance Small Field Allowance Benefitschanges result inadditional tax shelter In March 2012 the UK Government announced itavailable to Ithaca's would be increasing and extending theStella and Harrier application of the SFA, which shelters afield interests portion of net cashflows from qualifying fields from the 32% Supplemental Charge. The size of fields that qualify for the full SFA was increased to include fields with Mid Case reserves under 6.25 million tonnes (approximately 45MMboe) and the tax allowance available to each field was doubled from approximately $120 million to $240 million. The SFA changes have resulted in the Stella field being eligible for the full $240 million allowance and the Harrier allowance increasing from $120 million to the same amount. These allowances imply that Ithaca will shelter approximately $120 million of each fields' profits from the 32% Supplementary Charge. Development Capital Expenditure The Company's net share of remaining capital expenditure prior to first hydrocarbons from the GSA production hub is $385 million, which is unchanged from the estimate underpinning the amount announced in November 2012 and reflected in all subsequent guidance. This capital expenditure will be funded from the Corporation's existing financial resources. In light of the delayed arrival of the Ensco 100 drilling rig, it is anticipated that some of the previously anticipated 2013 capital expenditure will now be incurred in 2014. Of the total capital expenditure of $385 million, approximately $300 million is currently forecast to be incurred in 2013, with the balance in the first half of 2014. HURRICANESuccessful Hurricane In September 2012, the Company successfullyappraisal well - the completed drilling of the Hurricane appraisalfirst potential bolt-on well in Block 29/10b, which lies within theto the GSA hub GSA. The well was drilled using the WilHunter semi-submersible rig, with Applied Drilling Technologies International ("ADTI"), a subsidiary of Transocean, used to manage drilling operations under "turnkey" contract arrangements. The well identified hydrocarbons in two reservoir intervals, the Eocene Rogaland sandstone and the Palaeocene Andrew reservoir; the latter being the main producing reservoir of the Stella field. Pressure data and fluid samples wererecovered from both intervals and a drill stem test ("DST") was performed on the Andrew reservoir. During the main DST flow period, lasting approximately 24 hours, the Andrew interval achieved an average gross flow rate of approximately 17 million standard cubic feet of gas per day ("MMscf/d") with associated condensate of 870 bopd (52degrees American Petroleum Institute "API" Gravity) from a half inch choke. A gross maximum flow rate of approximately 24 MMscf/d with associated condensate of 1,200 bopd from a 44 /64-inch fixed choke was also achieved with the full production potential of the well being limited by surface equipment. The appraisal well has been suspended for future potential use as a production well for the Andrew reservoir, with the capability of also being used for future production from the Rogaland reservoir. The integration of any future Hurricane infrastructure into the GSA hub can be accommodated within the existing design of the FPF-1 and subsea facilities. A work programme, involving seismic reprocessing is ongoing to assess the ultimate recoverable volumes associated with each of Hurricane's reservoir intervals and assess the development options for the field. This work is being conducted in conjunction with a wider regional subsurface analysis that is focused on evaluating other future feeder fields for the hub. The results of the Hurricane work are anticipated later in 2013. 2012 CORPORATE ACTIVITIES Acquisition of Cook & MacCulloch Field InterestsFurther broadening ofthe producing asset In October 2012 the Company announced that itportfolio - acquisition had entered into agreements with Noble Energyof additional Cook and Capital Limited (a subsidiary of Noble EnergyMacCulloch field Inc., NYSE: NBL) to acquire two wholly ownedinterests UK subsidiary companies that hold its non-operated interests in two UK North Sea producing fields; a 12.885% interest in the Cook field and a 14% interest in the MacCulloch field (the "Noble assets"). The Cook field acquisition was completed in February 2013.Completion of the MacCulloch field acquisition is still subject to resolution of normal regulatory and joint venture approvals, including reaching agreement in respect of decommissioning costs and security. 27th License Round27th License Round In October 2012 Ithaca was awarded twoSuccess - new appraisal operated licenses as part of the UK 27thopportunities Offshore Licence Round: - Block 29/5e is a joint venture between Ithaca (Operator, 54.66 %), Dyas UK Ltd. (25.34%) and Petrofac Energy Developments UK Ltd. (20%). The Block lies in the GSA, adjacent to Block 29/10b, which contains the Company's recently appraised Hurricane discovery. The joint venture has identified a target in Block 29/5d analogous to the appraised Hurricane Rogaland sand interval, known as "Twister". - Block 15/17b is a joint venture between Ithaca (Operator, 50%) and Premier Oil (UK) Ltd (50%). The block lies in the Outer Moray Firth basin and is close to the Ithaca operated Athena Field and Premier's license interests. The Block contains four undeveloped Jurassic oil discoveries, known as the "Piper Isles". The Block is adjacent to a number of producing oil fields, most notably Piper, Saltire, Iona and Chanter. The work programme for both Blocks comprises the completion of technical (subsurface) studies, along with development concept screening analysis, to enable a decision to be made within two years of the formal award of each license on committing to the drilling of a well on each Block thereafter. Debt Facility$430 million debt In July 2012 the Corporation executed a fullyfacility in place with underwritten $430 million senior securedseven international borrowing base facility agreement with BNPbanks Paribas. The facility was subsequently syndicated by BNP Paribas, with the over subscribed syndication bringing in six other leading international banks. J03 Court CaseSuccessful conclusion In July 2012 the Commercial Court of the Highof Jacky J03 Court Court of Justice ruled in favour of Ithaca inproceedings the dispute raised by its Jacky field partner, North Sea Energy (UK) Limited ("NSE"), concerning drilling of the "J03" development well in 2011. INTENDED VALIANT PETROLEUM PLC ACQUISITIONHighly accretive On March 1, 2013 it was announced that theacquisition - Boards of Ithaca and of Valiant had reachedmaterially increasing agreement on the terms of a recommendedproduction, reserves acquisition (the "Acquisition") under whichand cashflow Ithaca will acquire all shares of Valiant. The total acquisition price is approximately $309 million, which equates to approximately GBP4.75 per Valiant share. The Company will also repay approximately $150 million of Valiant debt / working capital, implying a total enterprise value of approximately $459 million. The Acquisition is to be financed by a low interest $350 million bridge loan and approximately $109 million from the issue of new Ithaca shares. The bridge facility, which has been agreed with BNP Paribas, the Bank of Nova Scotia and Bank of America Merrill Lynch, is available for 12 months, however, the intention is to fold the borrowing secured against the Valiant assets into an enlarged borrowing base facility during the year. The Acquisition is anticipated to result in: - The establishment of Ithaca as a mid cap North Sea oil and gas operator, with 2P reserves of approximately 70MMboe, of which approximately 50% relates to currently producing assets; - A more than doubling of Ithaca's current forecast 2013 production to 14-16kboe/d (90% oil), rising to approximately 27kboe/d in 2015; and - Approximately a four fold increase in Ithaca's anticipated 2013 cash flow from operations to $400 million, rising to over $700 million in 2015. The Acquisition is subject to approval by Valiant shareholders and certain regulatory approvals. The Valiant shareholders will meet on April 2, 2013 to vote on the Acquisition, with completion of the transaction anticipated to be mid-April 2013. SELECTED ANNUAL INFORMATION Financial Highlights - Revenue growth though increased production from asset acquisitions and the bringing of the Athena development on stream - Record Earnings per Share - Total assets increased mainly as a result of significant capital investment in Athena and the GSA development - Total non-current liabilities reduced through the improved tax position resulting from the recognition of theSmall Fields Allowance in the Deferred Taxation calculation Years Ending 31 December 2012 2011 2010 ($'000) Total Revenue 170,477 129,059 135,121 Net Earnings 93,399 35,868 61,930 Total Assets 933,505 804,674 585,441 Total Non-Current Liabilities (122,222) (195,127) (50,692) Net Earnings Per Share ($/Sh.) 0.36 0.14 0.34 Net Earnings Per Share - Fully 0.35 0.14 0.33 Diluted ($/Sh.) 2010 figures have been restated following the Corporation's election to present all acquisitions since the IFRS transition date as business combinations in accordance with IFRS 3(R). Refer to the Changes in Accounting Policies note below for more details. 2012 RESULTS OF OPERATIONS REVENUERecord Revenue increased by $41.4 million in 2012 to $170.5 millionannual (2011: $129.1 million). This was mainly driven by anrevenue increase in oil sales volumes, partially offset by aof $170.5 reduction in gas sales.million Oil sales volumes increased primarily due to the inclusion of sales from the Athena, Cook and Broom fields in 2012 (Cook and Broom acquired in H2-2011, with Athena commencing production in May 2012) offset by natural declines in the Beatrice and Jacky fields. Of the reported 5,862boepd production, 4,673 flows through the statement of income with the additional 1,189 boepd reflecting production from the acquisition of the Noble Assets. The decrease in gas sales in 2012 compared to 2011 was due to a reduction in Anglia and Topaz gas volumes due to maintenance shutdowns, partially offset by the addition of Cook gas sales. There was a small decrease in average realized oil prices from $111.46/bbl in 2011 to $110.15/bbl in 2012. The average Brent price for the year ended 2012 was $111.75/bbl compared to $110.86 for 2011. The Corporation's realized oil prices do not strictly follow the Brent price pattern given the various oil sales' contracts in place, with certain field sales sold at a discount or premium to Brent. This decrease in average realized oil price was nonetheless offset by a realized hedging gain of $2.61/bbl in 2012. Average Realised Price 2012 2011 Oil Pre-Hedging $/bbl 110.15 111.46 Oil Post-Hedging $/bbl 112.76 111.46 Gas $/boe 39.36 43.12 COST OF SALES 2012 2011 2012 2011 $'000 $'000 $/boe $/boe Operating Expenditure 85,478 48,295 49.74 41.32 DD&A 56,172 31,447 32.45 26.57 Movement in Oil & Gas Inventory (6,601) 15,385 - - Total 135,049 95,127 78.59 81.38 Cost of sales increased in 2012 to $135.0 million (2011: $95.1 million) due to increases in operating costs and depletion, depreciation and amortization ("DD&A"), partly offset by higher oil inventory. Operating costs increased in the year to $85.5 million (2011: $48.3 million) primarily due to the inclusion of Athena, Cook and Broom operating costs in 2012 (Cook was acquired midway through Q3 2011 and Broom in Q4 2011, with Athena commencing production in Q2 2012) as well as the maturing Beatrice and Jacky fields incurring higher maintenance and servicing costs. Operating costs increased to $49.74/boe in the year (2011: $41.32) mainly as a result of two factors. Cook operating costs were unusually high as a result of the field, at times, picking up almost 100% of the costs of the Shell operated Anasuria FPSO. The FPSO provides export and processing capability for three fields and the costs are shared according to oil throughput from each field. During the later part of 2012, both the other 2 fields suffered significant downtime for repair and hence Cook picked up all the operating costs severely impacting the operating cost/ boe., Cook correspondingly benefits in periods where it suffers low uptime. The impact of picking up a higher share of the FPSO operating costs is expected to continue in the 1H of 2013 before returning to normal with the return of production from the other FPSO feeder fields. The second factor increasing operating expenditure during 2012 was the payment of incentive payments to the Athena operator and offshore Athena personnel in recognition of the exceptional uptime delivered by the vessel since the start of operations. DD&A expense for the year increased to $56.2 million (2011: $31.4 million). This was primarily due to higher production volumes in 2012 with the addition of the Athena, Cook and Broom assets (Cook and Broom full year production 2012). The blended rate for the year has increased to $32.45/boe (2011: $26.57/boe). As the below "Changes in Accounting Policies" section outlines, the adoption of IFRS and accounting for acquisitions as business combinations has led to increased DD&A rates, representing the majority of the rate increase. It should be noted that this increase in DD&A and hence Cost of Sales is offset by a credit in the Deferred Tax charged through the Income Statement. In particular, DD&A rates on Cook have been significantly impacted as a result of accounting for acquisitions as business combinations with the DD&A rate increasing from $10.51/boe, excluding business combination uplift, to $27.85 /boe including the business combination uplift. An oil and gas inventory movement of $6.6 million was credited to cost of sales in 2012 (2011 charge of $15.4 million) primarily relating to the build up of stock levels on Cook, Athena and Broom. Movements in oil inventory arise due to differences between barrels produced and sold with production being recorded as a credit to movement in oil inventory through cost of sales until oil has been sold. In 2012 more barrels of oil were produced (1,506k bbls) than sold (1,427k bbls) with volumes accounting for $6.4 million of the movement. The remainder of the credit is due to the change in valuation of the opening inventory barrels, which are valued to reflect each field's relevant sales contract, such movements generally following the trend in Brent price, with some skewing due to the mix by field. ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES $'000 2012 2011 General & Administration 4,327 4,584 Share Based Payments 866 1,398 Total Administration Expenses 5,193 5,982 Exploration & Evaluation 4,261 791 Total 9,454 6,773 Total administrative expenses decreased in the year to $5.2 million (2011: $6.0 million) primarily due to a reduction in share based payment expenses as a result of no options being granted during 2011, therefore reduced amortisation expense throughout 2012, and the only options in 2012 being granted at the end of the year. This was coupled with a modest decrease in general and administrative ("G&A") expenses despite the overall growth in activity of the business. Exploration and evaluation expenses of $4.3 million were recorded in the year (2011: $0.8 million) primarily due to the decision not to pursue the development of the Carna discovery after detailed commercial and technical review. FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS A foreign exchange gain of $1.0 million was recorded in 2012 (2011: $0.8 million loss). The majority of the Corporation's revenue is US dollar driven while operating expenditures are primarily incurred in British pounds. As such, general volatility in the USD:GBP exchange rate is the driver behind the foreign exchange gains and losses, particularly on the revaluation of the GBP bank accounts (USD:GBP at January 1, 2012: 1.55. USD:GBP at December 31, 2012: 1.62 with fluctuation between 1.55 and 1.63 during the year). This volatility was partially offset by foreign exchange hedges as described in the "Risks and Uncertainties" section below. The Corporation recorded a $6.7 million gain on financial instruments for the year ended December 31, 2012 (2011: $3.4 million loss). The gain was predominantly due to a $2.5 million increase in value of oil swaps and put options and a $3.7 million realized gain on commodityhedges, along with a $1.8 million gain on the revaluation of other instruments, partially offset by a $1.3 million loss on revaluation of contingent consideration liabilities, triggered by FDP approval, relating to the acquisition of the Stella field and Challenger Minerals (North Sea) Limited ("CMNSL"). TAXATIONNo UK tax A deferred tax credit of $64.2 million was recognized inanticipated the year ended December 31, 2012 (2011: $1.2 millionto be charge). This credit is a product of adjustments to thepayable in tax charge primarily relating to the available SFA, UKthe mid-term Ring Fence Expenditure Supplement, share based payments, and relief claimed for the reinvestment of disposal proceeds relating to the sale of assets to Petrofac GSA Limited and Dyas UK Limited. As noted in the Cost Of Sales section the deferred tax credit is increased by the use of accounting for acquisitions as business combinations. As a result of the above factors, profit after tax increased to $93.4 million (2011: $35.9 million). No tax is expected to be paid in the mid-term future relating to upstream oil and gas activities as a result of the $416 million tax losses available to the Corporation. CAPITAL INVESTMENTS $'000 2012 2011 Development & Production ("D&P") 139,383 342,138 Exploration & Evaluation ("E&E") 38,188 7,752 Other Fixed Assets 133 705 Total 177,704 350,595 Ithaca aims to maximise shareholder value through delivery of a lower risk growth strategy. This growth strategy focuses on investment in undeveloped discoveries as well as producing assets, which in turn allows the Company to maximise cashflow and production from its existing assets, and continue to grow and diversify the cashflow base via acquisitions. Capital expenditure on D&P assets in 2012 of $139.4 million was primarily focused on: execution of the GSA development, with the main areas of expenditure being on the manufacture and fabrication of subsea infrastructure and preparation for the FPF-1 vessel upgrade and modification works (as described above); and, bringing the Athena development to first oil, with expenditure incurred on subsea installations for the arrival of the FPSO. Capital expenditure on E&E assets in 2012 was $38.2 million with spending primarily focused on drilling of the Hurricane appraisal and work completed for the 27th licensing round. LIQUIDITY AND CAPITAL RESOURCESSignificant $'000 2012 2011 Increase /investment (Decrease)indevelopment Cash & Cash 31,376 112,055 (80,679)projects Equivalents Trade & Other 173,949 89,753 84,196 Receivables Inventory 15,878 8,836 7,042 Trade & Other (205,634) (102,136) (103,498) Payables Net Working Capital 15,569 108,508 (92,939) As at December 31, 2012, Ithaca had working capital of $15.6 million including a free cash balance of $31.4 million. Available cash has been, and is currently, invested in money market deposit accounts with BNP Paribas. Management has received confirmation from the financial institution that these funds are available on demand. Cash and cash equivalents decreased significantly due to the capital investment made during 2012, primarily on the GSA development, with more investment, and therefore, payables outstanding, in the fourth quarter of 2012. This was partially offset by a rise in trade and other receivables as a result of the higher oil price at December 31, 2012 compared to December 31, 2011 as well as higher production volumes (average of 5,462 boed Q4 2012 compared to 3,774 boed Q4 2011). A significant proportion of Ithaca's accounts receivable balance is with customers in the oil and gas industry and is subject to normal joint venture/ industry credit risks. The Corporation assesses partners' credit worthiness before entering into joint venture agreements. The Corporation regularly monitors all customer receivable balances outstanding in excess of 90 days. As at December 31, 2012 substantially all of the accounts receivable is current, being defined as less than 90 days. In the past, the Corporation has not experienced credit loss in the collection of accounts receivable. At December 31, 2012, Ithaca had unused credit facilities totalling $430 million (2011: $140 million). Drawdown of this facility has commenced in Q1 2013. During the year ended December 31, 2012 there was a cash outflow from operating, investing and financing activities of approximately $65 million (2011 outflow of $100.0 million). Cashflow from operations Cash generated from operating activities was $90.3 million primarily due to cash generated from Athena, Beatrice, Jacky, Anglia, Cook and Broom operations, augmented in 2012 primarily due to the start up of Athena. Cashflow from financing activities Cash generated from financing activities was $15.0 million primarily due to the release of restricted cash balances in Q4 2012. Cashflow from investing activities Cash used in investing activities was $145.5 million primarily due to capital expenditure on the GSA, including modification of the FPF-1, subsea design and fabrication works, appraisal well drilling on the Hurricane field and completion activities on the Athena field prior to first production in May 2012. The Corporation continues to be fully funded, with more than sufficient financial resources to cover the anticipated level of development capital expenditure commitments and to continue the pursuit of additional asset acquisition opportunities and exploration and appraisal activities on existing and newly acquired licenses through its existing cash balance, forecast cashflow from operations and its debt facility. No unusual trends or fluctuations are expected outside the ordinary course of business. COMMITMENTS $'000 1 Year 2-5 Years 5+ Years Office Leases 440 1,528 65 Other Operating Leases 12,319 17,229 - Exploration Licence Fees 827 - - Engineering 79,431 - - Rig Commitments 31,489 - - Total 124,506 18,757 65 The engineering financial commitments relate to pre-development committed capital expenditure on the Stella and Harrier fields, as well as ongoing capital and operating expenditure on existing producing fields. Rig commitments reflect rig hire costs committed in relation to the anticipated Stella wells. As stated above, these commitments are expected to be funded through the Corporation's existing cash balance, forecast cashflow from operations and its undrawn debt facility. OUTSTANDING SHARE INFORMATION The Corporation's common shares are traded on the Toronto Stock Exchange ("TSX") in Canada under the symbol "IAE" and on the Alternative Investment Market ("AIM") in the United Kingdom under the symbol "IAE". As at December 31, 2012 Ithaca had 259,920,003 common shares outstanding along with 20,347,964 options outstanding to employees and directors to acquire common shares. In January 2012, the Corporation's Board of Directors granted 400,000 options at a weighted average exercise price of C$2.31. In October 2012, the Board of Directors approved the grant of 5,645,000 options at a price of C$1.99. Each of the options granted may be exercised over a period of four years from the grant date. One third of the options will vest at the end of each of the first, second and third years from the effective date of grant. As at March 25, 2013, Ithaca had 259,920,003 common shares outstanding along with 20,347,964 options outstanding to employees and directors to acquire commonshares. December 31, 2012 Common Shares Outstanding 259,920,003 Share Price(1) $1.99 / Share Total Market Capitalisation $517,240,806 (1) Represents the close price on the TSX on December 31, 2012. US$:CAD$ at par on December 31, 2012 Q4-2012 FINANCIAL RESULTS Oil and gas sales revenue decreased from $54.9 million in Q4 2011 to $52.6 million in Q4 2012. The decrease was predominantly due to a smaller Cook lifting in Q4 2012 compared to Q4 2011 as well as an expected decline in Beatrice and Jacky revenues. Gas volumes were also down on the same period in 2011 due to shutdowns (particularly Anglia) as well as anticipated natural decline, however, this was partly offset by an increase in realised gas prices ($43.50/boe 2012 compared to $41.11/boe 2011). Cost of sales increased to $52.0 million in Q4 2012 (Q4 2011: $48.8 million). The main driver behind the increase was the rise in operating costs due to the inclusion of Athena operating expenditure (2011: nil), significant Cook operating expenditure in the quarter as well as the maturing Beatrice and Jacky fields incurring higher maintenance and servicing costs. In addition, DD&A increased primarily due to addition of Athena plus a small increase in rates with the blended rate for the quarter increasing to $34.00/bbl compared to $33.30/bbl in Q4 2011. These rises were however partially offset by a reduced movement in inventory balance of $1.4 million (Q4 2011: $22.6 million - particularly high due to the initial Cook stock movement post acquisition in Q3 2011). SUMMARY OF 2012 QUARTERLY RESULTS Restated $'000 31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar 2012 2012 2012 2012 2011 2011 2011 2011 Revenue 52,566 41,579 35,779 40,553 54,870 26,415 16,724 31,050 Profit 45,347 4,894 30,238 12,916 13,318 16,016 2,743 3,788 After Tax EPS - 0.17 0.02 0.12 0.05 0.05 0.06 0.01 0.01 Basic EPS - 0.17 0.02 0.11 0.05 0.05 0.06 0.01 0.01 Diluted The most significant factors to have affected the Corporation's results during the above quarters are fluctuation in underlying commodity prices and movement in production volumes. The Corporation 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. Each of the quarters from Q4 2010 to Q3 2011 was restated following the Corporation's election to present all acquisitions since the IFRS transition date as business combinations in accordance with IFRS 3 (R). Refer to the "Changes in Accounting Policies" below for more details. FINANCIAL INSTRUMENTS 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 Corporation has classified each financial instrument into one of these categories: held-for-trading, held-to-maturity investments, loans and receivables, or other financial liabilities. Loans and receivables, held-to-maturity investments and other financial liabilities are measured at amortized cost using the effective interest rate method. For all financial assets and financial liabilities that are not classified as held-for-trading, the transaction costs that are directly attributable to the acquisition or issue of a financial asset or financial liability are adjusted to the fair value initially recognized for that financial instrument. These costs are expensed using the effective interest rate method and are recorded within interest expense. Held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income. All derivative instruments are recorded in the balance sheet at fair value unless they qualify for the expected purchase, sale and usage exemption. All changes in their fair value are recorded in income unless cash flow hedge accounting is used, in which case changes in fair value are recorded in other comprehensive income until the hedged transaction is recognized in net earnings. The Corporation has classified its cash and cash equivalents, restricted cash, derivatives, commodity hedge and long term liability as held-for-trading, which are measured at fair value with changes being recognized in net income. Accounts receivable are classified as loans and receivables; operating bank loans, accounts payable and accrued liabilities are classified as other liabilities, all of which are measured at amortized cost. The classification of all financial instruments is the same at inception and at December 31, 2012. The table below presents the total gain / (loss) on financial instruments that has been disclosed through the statement of comprehensive income. $'000 2012 2011 Revaluation Forex Forward Contracts 519 (510) Revaluation of Gas Contract 1,368 3,099 Revaluation of Other Long Term Liability (232) 87 Revaluation of Commodity Hedges 2,487 (6,159) Total Revaluation Gain / (Loss) 4,142 (3,483) Realised Gain on Commodity Hedges 3,718 70 Realised Gain on Forex Forward Contracts 174 - Total Realised Gain 3,892 70 Total Realised / Revaluation Gain / (Loss) 8,034 (3,412) Contingent Consideration (1,295) 2,000 Total Gain / (Loss) on Financial Instruments 6,739 (1,413) The following table summarises the commodity hedges entered into during the year. Derivative Term Volume Average Price bbl $/bbl Oil Swaps March 2012 - June 2013 768,800 116.07 Oil Swaps January 2013 - December 2013 503,800 108.67 Put Options May 2012 - February 2013 390,000 120.67 Put Options October 2012 - June 2013 300,300 111.34 Derivative Term Volume Average Price Therms p/therm Gas Swaps January 2013 - December 2014 3,066,000 66.45 Post year end, further hedges (-50% puts / -50% swaps) were entered into for approximately 1 million barrels of production for the period to September 2014 at a weighted average price of $108/bbl. An option, exercisable in late April 2013, to swap - 1 million bbls of production over the next 12 months at over $107/bbl was also taken out post year end. The table below summarises the foreign exchange financial instruments in place during 2012. Derivative Forward Plus Term Jan 12 - Dec 12 Value $4million / month Protection Rate $1.60/GBP1.00 Trigger Rate $1.40/GBP1.00 Advantage Rate $1.58/GBP1.00 Post year end, further instruments were entered into to hedge GBP4 million operating costs per month for the period January 2013 - December 2013 at an average protection rate of $1.59/GBP1.00 and a trigger rate of $1.50/GBP1.00 as well as an additional GBP120 million in forward contracts for capital expenditure in the period Q2 2013 - Q1 2014 at an average rate of $1.52/GBP1.00. CRITICAL ACCOUNTING ESTIMATES Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These accounting policies are discussed below and are included to aid the reader in assessing the critical accounting policies and practices of the Corporation and the likelihood of materially different results being reported. Ithaca's management reviews these estimates regularly. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates. The following assessment of significant accounting policies and associated estimates is not meant to be exhaustive. The Corporation might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies. Capitalized costs relating to the exploration and development of oil and gas reserves, along with estimated future capital expenditures required in order to develop proved and probable reserves are depreciated on a unit-of-production basis, by asset, using estimated proved and probable reserves as adjusted for production. A review is carried out each reporting date for any indication that the carrying value of the Corporation'sD&P assets may be impaired. For D&P assets where there are such indications, an impairment test is carried out on the Cash Generating Unit ("CGU"). Each CGU is identified in accordance with IAS 36. The Corporation's CGUs are those assets which generate largely independent cash flows and are normally, but not always, single developments or production areas. The impairment test involves comparing the carrying value with the recoverable value of an asset. The recoverable amount of an asset is determined as the higher of its fair value less costs to sell and value in use, where the value in use is determined from estimated future net cash flows. Any additional depreciation resulting from the impairment testing is charged to the Statement of Income. Goodwill is tested annually for impairment and also when circumstances indicate that the carrying value may be at risk of being impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized in the Statement of Income. Impairment losses relating to goodwill cannot be reversed in future periods. Recognition of decommissioning liabilities associated with oil and gas wells are determined using estimated costs discounted based on the estimated life of the asset. In periods following recognition, the liability and associated asset are adjusted for any changes in the estimated amount or timing of the settlement of the obligations. The liability is accreted up to the actual expected cash outlay to perform the abandonment and reclamation. 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. All financial instruments, other than those designated as effective hedging instruments, are initially recognized at fair value on the balance sheet. The Corporation's financial instruments consist of cash, restricted cash, accounts receivable, deposits, derivatives, accounts payable, accrued liabilities and the long term liability on the Beatrice acquisition. Measurement in subsequent periods is dependent on the classification of the respective financial instrument. In order to recognize share based payment expense, the Corporation estimates the fair value of stock options granted using assumptions related to interest rates, expected life of the option, volatility of the underlying security and expected dividend yields. These assumptions may vary over time. The determination of the Corporation's income and other tax liabilities / assets requires interpretation of complex laws and regulations. Tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ significantly from that estimated and recorded on the financial statements. The accrual method of accounting will require management to incorporate certain estimates of revenues, production costs and other costs as at a specific reporting date. In addition, the Corporation must estimate capital expenditures on capital projects that are in progress or recently completed where actual costs have not been received as of the reporting date. CONTROL ENVIRONMENT Ithaca has established disclosure controls, procedures and corporate policies so that its consolidated financial results are presented accurately, fairly and on a timely basis. The Chief Executive Officer and Chief Financial Officer have designed, or have caused such internal controls over financial reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company's financial statements in accordance with IFRS with no material weaknesses identified. Based on their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements and even those options determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. As of December 31, 2012, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. CHANGES IN ACCOUNTING POLICIES On January 1, 2011, the Corporation adopted IFRS using a transition date of January 1, 2010. The financial statements for the year ended December 31, 2012, including required comparative information, have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IASB"). Following the introduction of IFRS the Corporation initially accounted for the acquisitions of the non-operated interests in the Cook field and of CMNSL as asset acquisitions. In Q4 2011 the Company subsequently elected to present all acquisitions since the IFRS transition date as business combinations in accordance with IFRS 3(R). This resulted in a restatement of the original accounting for the Cook acquisition (in Q3 2011) and the acquisition of gas assets from GDF (in Q4 2010) as shown in previous interim statements during 2011. One impact of accounting for acquisitions as business combinations is the recognition of asset values, upon which the DD&A rate is calculated as pre-tax fair values and the recognition of a deferred tax liability on estimated future cash flows. With current tax rates at 62% this increases the DD&A charge for such assets. An offsetting reduction is recognized in the deferred tax charged through the consolidated statement of income. IMPACT OF FUTURE ACCOUNTING CHANGES In May 2011, the IASB issued the following standards: IFRS 10, Consolidated Financial Statements ("IFRS 10"), IFRS 11, Joint Arrangements ("IFRS 11"), IFRS 12, Disclosure of Interests in Other Entities ("IFRS 12"), IAS 27, Separate Financial Statements ("IAS 27"), IFRS 13, Fair Value Measurement ("IFRS 13") and amended IAS 28, Investments in Associates and Joint Ventures ("IAS 28"). Each of the new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Corporation has decided not to early adopt any of the new requirements. OTHERNon-IFRS 'Cashflow from operations' referred to in this MD&A isMeasures not prescribed by IFRS. This non-IFRS financial measure does not have any standardized meaning and therefore is unlikely to be comparable to similar measures presented by other companies. The Corporation uses this measure to help evaluate its performance. As an indicator of the Corporation's performance, cashflow from operations should not be considered as an alternative to, or more meaningful than, net cash from operating activities as determined in accordance with IFRS. The Corporation considers Cashflow from operations to be a key measure as it demonstrates the Corporation's underlying ability to generate the cash necessary to fund operations and support activities related to its major assets. Cashflow from operations is determined by adding back changes in non-cash operating working capital to cash from operating activities.BOE The calculation of boe is based on a conversion rate ofPresentation six thousand cubic feet of natural gas ("mcf") to one barrel of crude oil ("bbl"). The term boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency atthe wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 mcf: 1 bbl, utilizing a conversion ratio at 6 mcf: 1 bbl may be misleading as an indication of value.Off Balance The Corporation has certain lease agreements and rigSheet commitments which were entered into in the normal courseArrangements of operations, all of which are disclosed under the heading "Commitments", above. Leases are treated as either operating leases or finance leases based on the extent to which risks and rewards incidental to ownership lie with the lessor or the lessee under IAS 17. No asset or liability value has been assigned to any leases on the balance sheet as at December 31, 2012.Related A director of the Corporation is a partner of BurstallParty Winger LLP who acts as counsel for the Corporation. TheTransactions amount of fees paid to Burstall Winger LLP in 2012 was $0.1 million (2011: $0.2 million). These transactions are in the normal course of business and are conducted on normal commercial terms with consideration comparable to those charged by third parties. As at December 31, 2012 the Corporation had a loan receivable from FPF-1 Ltd, an associate of the Corporation, for $21.6 million (2011: $Nil) as a result of the completion of the GSA transactions. RISKS AND UNCERTAINTIES The business of exploring for, developing and producing oil and natural gas reserves is inherently risky. There is substantial risk that the manpower and capital employed will not result in the finding of new reserves in economic quantities. There is a risk that the sale of reserves may be delayed due to processing constraints, lack of pipeline capacity or lack of markets. The Corporation is dependent upon the production rates and oil price to fund the current development program. For additional detail regarding the Corporation's risks and uncertainties, refer to the Corporation's most recent AIF filed on SEDAR at RISK MITIGATIONSCommodity The Corporation's performance In order to mitigate thePrice is significantly impacted by risk of fluctuations in oilVolatility prevailing oil and natural and gas prices, the gas prices, which are Corporation routinely primarily driven by supply executes commodity price and demand as well as derivatives, predominantly economic and political in relation to oil factors. production, as a means of establishing a floor in realised prices.Foreign The Corporation is exposed to Given the increasingExchange financial risks including proportion of developmentRisk financial market volatility, capital expenditure and fluctuation in interest rates operating costs incurred in and various foreign exchange currencies other than the rates. United States dollar, the Corporation routinely executes hedges to mitigate foreign exchange rate risk on committed expenditure.Debt The Corporation is exposed to The Corporation believesFacility borrowing risks relating to that there are noRisk drawdown of its senior circumstances at present secured borrowing base that result in its failure facility (the "Facility"). to meet the financial tests The ability to drawdown the and it can therefore draw Facility is based on the down upon its Facility. Corporation meeting certain covenants including coverage The Corporation routinely ratio tests, liquidity tests produces detailed cashflow and development funding tests forecasts to monitor its which are determined by a compliance with the detailed economic model of financial tests and the Corporation. There can be liquidity requirements of no assurance that the the Facility. Corporation will satisfy such tests in the future in order to have access to the full amount of the Facility. The Facility includes covenants which restrict, among other things, the Corporation's ability to incur additional debt or dispose of assets. As is standard to a credit facility, the Corporation's and Ithaca Energy (UK) Limited's ("Ithaca UK") assets have been pledged as collateral and are subject to foreclosure in the event the Corporation or Ithaca UK defaults.Financing To the extent cash flow from The Corporation hasRisk operations and Facility established a fully funded resources are ever deemed not business plan and routinely adequate to fund Ithaca's monitors its detailed cash requirements, external cashflow forecasts and financing may be required. liquidity requirements to Lack of timely access to such maintain its funding additional financing, or requirements. The access on unfavourable terms, Corporation believes that could limit the future growth there are no circumstances of the business of Ithaca. To at present that would lead the extent that external to selected divestment, sources of capital, including delays to existing programs public and private markets, or a default relating to the become limited or Facility. unavailable, Ithaca's ability to make the necessary capital investments to maintain or expand its current business and to make necessary principal payments under the Facility may be impaired. A failure to access adequate capital to continue its expenditure program may require that the Corporation meet any liquidity shortfalls through the selected divestment of its portfolio or delays to existing development programs.Third Party The Corporation is and may in The Corporation believesCredit Risk the future be exposed to this risk is mitigated by third party credit risk the financial position of through its contractual the parties. All of the arrangements with its current Corporation's oil production and future joint venture from the Beatrice, Jacky and partners, marketers of its Athena fields is sold to BP petroleum production and Oil International Limited. other parties. The Oil production from Cook and Corporation extends unsecured Broom is sold to Shell credit to these parties, and Trading International Ltd. therefore, the collection of Anglia and Topaz gas any receivables may be production is sold through affected by changes in the contracts to RWE NPower PLC economic environment or other and Hess Energy Gas Power conditions. (UK) Ltd. Cook gas is sold to Shell UK Ltd. and Esso Exploration & Production UK Ltd. The Corporation has not experienced any material credit loss in the collection of accounts receivable to date. The joint venture partners in those assets operated by the Corporation are largely well financed international companies. Where appropriate, a cash call process has been implemented with the GSA partners to cover high levels of anticipated capital expenditure thereby reducing any third party credit risk.Property The Corporation's properties The Corporation has routineRisk will be generally held in the ongoing communications with form of licenses, the UK oil and gas concessions, permits and regulatory body, DECC.regulatory consents Regular communication allows ("Authorizations"). The all parties to an Corporation's activities are Authorization to be fully dependent upon the grant and informed as to the status of maintenance of appropriate any Authorization and Authorizations, which may not ensures the Corporation be granted; may be made remains updated regarding subject to limitations which, fulfilment of any applicable if not met, will result in requirements. the termination or withdrawal of the Authorization; or may be otherwise withdrawn. Also, in the majority of its licenses, the Corporation is often a joint interest-holder with another third party over which it has no control. An Authorization 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 Authorization will be met. Although the Corporation believes that the Authorizations will be renewed following expiry or granted (as the case may be), there can be no assurance that such Authorizations will be renewed or granted or as to the terms of such renewals or grants. The termination or expiration of the Corporation's Authorizations may have a material adverse effect on the Corporation's results of operations and business. The areas covered by the Authorizations are or may be subject to agreements with the proprietors of the land. If such agreements are terminated, found void or otherwise challenged, the Corporation may suffer significant damage through the loss of opportunity to identify and extract oil or gas.Operational The Corporation is subject to The Corporation acts at allRisk the risks associated with times as a reasonable and owning oil and natural gas prudent operator. The properties, including Corporation takes out market environmental risks insurance to mitigate many associated with air, land and of these operational, water. All of the construction and Corporation's operations are environmental risks. conducted offshore in the UKCS; as such Ithaca is The Corporation uses the exposed to operational risk services of Sproule associated with weather International Limited to delays that can result in a independently assess the material delay in project Corporation's reserves on an execution. Third parties annual basis. operate some of the assets in which the Corporation has interests. As a result, the Corporation 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 Corporation's control. There are numerous uncertainties in estimating the Corporation's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital.Competition In all areas of the The Corporation placesRisk Corporation's business, there appropriate emphasis on is competition with entities ensuring it attracts and that may have greater retains high quality technical and financial resources to enable it to resources. maintain its competitive position. FORWARD-LOOKING INFORMATION This MD&A and any documents incorporated by reference herein contain certain forward-looking statements and forward-looking information which are based on the Corporation's internal expectations, estimates, projections, assumptions and beliefs as at the date of such statements or information, including, among other things, assumptions with respect to production, future capital expenditures, future acquisitions and cash flow. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "plan", "should", "believe", "could", "scheduled", "targeted", "approximately" and similar expressions are intended to identify forward-looking statements and forward-looking information. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements or information. The Corporation believes that the expectations reflected in those forward-looking statements and information are reasonable but no assurance can be given that these expectations, or the assumptions underlying these expectations, will prove to be correct and such forward-looking statements and information included in this MD&A and any documents incorporated by reference herein should not be unduly relied upon. Such forward-looking statements and information speak only as of the date of this MD&A and any documents incorporated by reference herein and the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements or information, except as required by applicable laws. In particular, this MD&A and any documents incorporated by reference herein, contains specific forward-looking statements and information pertaining to the following: - the quality of and future net revenues from the Corporation's reserves; - oil, natural gas liquids ("NGLs") and natural gas production levels; - commodity prices, foreign currency exchange rates and interest rates; - capital expenditure programs and other expenditures; - 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 Corporation's ability to raise capital; - the continued availability of the Facility; - the Corporation's acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom; - the completion of the Valiant Acquisition; - the realization of anticipated benefits from acquisitions and dispositions; - the Corporation's ability to continually add to reserves; - schedules and timing of certain projects and the Corporation's strategy for growth; - the Corporation's future operating and financial results; - the ability of the Corporation to optimize operations and reduce operational expenditures; - treatment under governmental and other regulatory regimes and tax, environmental and other laws; - production rates; - targeted production levels; and - timing and cost of the development of the Corporation's reserves. With respect to forward-looking statements contained in this MD&A and any documents incorporated by reference herein, the Corporation 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 Corporation's development plan for the Stella and Harrier discoveries will be implemented as planned; - the completion and effect of the Valiant Acquisition on Ithaca; - 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 levelsfrom 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 Corporation's ability to access the Facility; - the continued ability of the Corporation to collect 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 Corporation'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 the integration of Valiant into Ithaca's existing operations; - risks associated with offshore development and production including 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 Corporation to fund its substantial capital requirements and operations; - risks associated with ensuring title to the Corporation's properties; - changes in environmental, health and safety or other legislation applicable to the Corporation's operations, and the Corporation'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 Corporation's exploration and development drilling and estimated decline rates; - the Corporation'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 Corporation's reliance on key operational and management personnel; - the ability of the Corporation 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 taxes; - adverse regulatory rulings, orders and decisions; and - risks associated with the nature of the common shares.Additional The information in this MD&A is provided as of March 25,Reader 2013. The 2012 results have been compared to the resultsAdvisories of 2011. This MD&A should be read in conjunction with the Corporation's consolidated financial statements as at December 31, 2012 and 2011 together with the accompanying notes and Annual Information Form ("AIF") for the 2012 fiscal year. Copies of these documents are available without charge from Ithaca or electronically on the internet on Ithaca's SEDAR profile at With respect to Ithaca's reserves disclosure, the figures are derived from a report prepared by Sproule, an independent qualified reserves evaluator, evaluating the reserves of Ithaca as of December 31, 2012 and forming the basis for the Statement of Reserves Data and Other Oil and Gas information of Ithaca dated March 19, 2012 (the "Statement"). The reserves for the South West Heather field included in the Statement are those estimated by the Company and reviewed by Sproule. In respect of the MacCulloch field only (representing 1.4 MMboe proved plus probable reserves as at the same effective date, with Ithaca's previously announced acquisition of such field interest anticipated to be completed in 2013), Ithaca management prepared information reviewed by a qualified person under AIM guidelines. With respect to Valiant reserves, the figures are derived from an Audit of Certain Reserves as at December 31, 2012 prepared by RPS Energy Consultants Limited, an independent qualified reserves evaluator, dated January 24, 2013. The reserves estimates of Ithaca are based on the Canadian Oil and Gas Evaluation Handbook ("COGEH") pursuant to Canadian National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities, with references to oil referring to medium quality oil. The Ithaca reserves correspond to those in the Statement adjusted to reflect the increased Carna and Cook field equities acquired following the date of issue of the Statement and Ithaca management's estimate of MacCulloch field reserves. The reserves estimates of Valiant are based on the 2007 SPE/AAPG/WPC/ SPEE Petroleum Resource Management System which is not materially different from COGEH. The Valiant reserves have been adjusted to reflect the increased Fionn field interest being transferred to Valiant by Antrim Resources (N.I.) Limited. If a discovery is made, there is no certainty that it will be developed, or if it is developed, there is no certainty as to the timing of such development or the benefits (if any) which may flow to the Company. Cashflow from operations includes the impact of executed hedges and does not include non-cash items such as DD&A, revaluation of financial instruments, impairments of fixed assets and movements in goodwill, which may have a significant impact on the Company's results. Statements relating to reserves are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future.Independent Auditors' ReportTo the Shareholders of Ithaca Energy Inc.We have audited the accompanying consolidated financial statements ofIthaca Energy Inc and its subsidiaries, which comprise the Statement ofFinancial Position as at 31 December 2012 and 31 December 2011 and theconsolidated Statement of Income, Statement of Changes in Equity andStatement of Cash Flow for the years then ended, and the related notes,which comprise a summary of significant accounting policies and otherexplanatory information.Management's responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation ofthese consolidated financial statements in accordance withInternational Financial Reporting Standards, and for such internalcontrol as management determines is necessary to enable the preparationof consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.Auditor's responsibilityOur responsibility is to express an opinion on these consolidatedfinancial statements based on our audit. We conducted our audit inaccordance with Canadian generally accepted auditing standards. Thosestandards require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence aboutthe amounts and disclosures in the consolidated financial statements.The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the consolidatedfinancial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant tothe entity's preparation and fair presentation of the consolidatedfinancial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity's internal control. Anaudit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of theconsolidated financial statements.We believe that the audit evidence we have obtained in our audit issufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the consolidated financial statements present fairly,in all material respects, the financial position of Ithaca Energy Incand its subsidiaries as at 31 December 2012 and 31 December 2011 andtheir financial performance and their cash flows for the years thenended in accordance with International Financial Reporting Standards.Chartered Accountants"PricewaterhouseCoopers LLP"PricewaterhouseCoopers LLP32 Albyn PlaceAberdeenAB10 1YL25 March 2013Consolidated Statement of IncomeFor the year ended 31 December 2012 2012 2011 Note US$'000 US$'000Revenue 4 170,477 129,059Cost of Sales 5 (135,049) (95,127)Gross Profit 35,428 33,932Exploration and evaluation expenses 10 (4,261) (791)Administrative expenses 6 (5,193) (5,982)Operating Profit 25,974 27,159Foreign exchange 1,029 (755)Gain/(loss) on financial instruments 23 6,739 (3,413)Gain on asset disposal 11 205 -Negative goodwill - 15,210Profit Before Interest and Tax 33,947 38,201Finance costs 7 (4,930) (1,521)Interest income 218 434Profit Before Tax 29,235 37,114Taxation - Deferred tax 21 64,164 (1,246)Profit After Tax 93,399 35,868Earnings per shareBasic 20 0.36 0.14Diluted 20 0.35 0.14No separate statement of comprehensive income has been prepared as allsuch gains and losses have been incorporated in the consolidatedstatement of income above.The results above are entirely derived from continuing operations.The notes on pages 8 to 26 are an integral part of these consolidatedfinancial statements.Consolidated Statement of Financial Positionas at 31 December 2012 2012 2011 US$'000 US$'000ASSETSCurrent assetsCash and cash equivalents 31,374 95,545Restricted cash 8 2 16,510Accounts receivable 159,195 80,960Deposits, prepaid expenses and other 14,754 8,793Inventory 9 15,878 8,836Derivative financial instruments 24 8,251 - 229,454 210,644Non-current assetsLong-term receivable 26 21,551 -Investment in associate 13 18,337 -Exploration and evaluation assets 10 47,390 22,689Property, plant & equipment 11 615,788 570,356Goodwill 12 985 985 704,051 594,030Total assets 933,505 804,674LIABILITIES AND EQUITYCurrent liabilitiesTrade and other payables 205,635 102,136 205,635 102,136Non-current liabilitiesDecommissioning liabilities 15 52,834 39,382Other long term liabilities 16 3,018 2,785Deferred tax liabilities 21 62,370 126,534Contingent consideration 17 4,000 24,580Derivative financial instruments 24 - 1,846 122,222 195,127Net Assets 605,648 507,411Shareholders' EquityShare capital 18 431,318 429,502Share based payment reserve 19 20,340 17,318Retained earnings 153,990 60,591Total Equity 605,648 507,411The financial statements were approved by the Board of Directors on 25March 2013 and signed on its behalf by:"John Summers"Director"Jay Zammit"DirectorThe notes on pages 8 to 26 are an integral part of these consolidatedfinancial statements.Consolidated Statement of Changes in EquityFor the year ended 31 December 2012 Share Share Warrants Retained Total capital based issued earnings payment reserve US$'000 US$'000 US$'000 US$'000 US$'000Balance, 1 Jan 2011 422,373 11,427 311 24,723 458,834Profit for the period - - - 35,868 35,868Total comprehensive income 422,373 11,427 311 60,591 494,702Share based payment - 6,351 - - 6,351Options exercised 1,032 (460) - - 572Warrants exercised 6,097 - (311) - 5,786(18(d))Balance, 31 Dec 2011 429,502 17,318 - 60,591 507,411Balance, 1 Jan 2012 429,502 17,318 - 60,591 507,411Profit for the period - - - 93,399 93,399Total comprehensive income 429,502 17,318 - 153,990 600,810Share based payment - 3,817 - - 3,817Options exercised 1,816 (795) - - 1,021Balance, 31 Dec 2012 431,318 20,340 - 153,990 605,648The notes on pages 8 to 26 are an integral part of these consolidatedfinancial statements.Consolidated Statement of Cash FlowFor the year ended 31 December 2012 Note 2012 2011 US$'000 US$'000CASH PROVIDED BY (USED IN):Operating activitiesProfit Before Tax 29,235 37,114Adjustments for:Depletion, depreciation and amortisation 11 56,172 31,447Exploration and evaluation write off 10 4,261 2,791Share based payment 6 866 1,399Loan fee amortisation 7 1,087 311Unrealised (gain)/loss on financial 23 (4,142) 3,483instrumentsRevaluation of contingent consideration 17 1,295 (2,000)Gain on disposal 11 (205) -Movement in goodwill - (15,210)Accretion 7 1,777 858Cashflow from operations 90,346 60,193Changes in inventory, debtors and creditors (23,779) 43,276relating to operating activitiesNet cash from operating activities 66,567 103,469Investing activitiesCapital expenditure (165,863) (206,524)Investment in associate 13 (18,337) -Expenditure on decommissioning - (358)Loan to associate 26 (21,551) -Proceeds on disposal 11 44,878 -Settlement of contingent consideration (15,700) -Changes in debtors and creditors relating toinvesting activities 31,031 14,877Net cash used in investing activities (145,542)(192,005)Financing activitiesProceeds from issuance of shares 1,020 6,356Decrease/(increase) in restricted cash 8 16,508 (10,202)Derivatives (2,485) (6,508)Net cash used in/from financing activities 15,043 (10,354)Currency translation differences relating to (239) (1,146)cash & cash equivalents(Decrease) in cash & cash equivalents (64,171) (100,036)Cash and cash equivalents, beginning of 95,545 195,581periodCash and cash equivalents, end of period 31,374 95,545The accompanying notes on pages 8 to 26 are an integral part of thefinancial statements.1. NATURE OF OPERATIONSIthaca Energy Inc. (the "Corporation" or "Ithaca"), incorporated anddomiciled in Alberta, Canada on 27 April 2004, is a publicly tradedcompany involved in the exploration, development and production of oiland gas in the North Sea. The Corporation's registered office is 1600,333 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 2Z1. TheCorporation's shares trade on the Toronto Stock Exchange in Canada andthe London Stock Exchange's Alternative Investment Market in the UnitedKingdom under the symbol "IAE". Ithaca has three wholly-ownedsubsidiaries, Ithaca Energy (UK) Limited ("Ithaca UK"), Ithaca Minerals(North Sea) Limited ("Ithaca Minerals"), both incorporated in Scotland,and Ithaca Energy (Holdings) Limited ("Ithaca Holdings"), incorporatedin Bermuda. Ithaca also has two associates, FPU Services Limited ("FPUServices") and FPF-1 Limited ("FPF-1"), both incorporated in Jersey.The consolidated financial statements of Ithaca Energy Inc. for theyear ended 31 December 2012 were authorised for issue in accordancewith a resolution of the directors on 22 March 2013.2. BASIS OF PREPARATIONThe Corporation prepares its financial statements in accordance withInternational Financial Reporting Standards (IFRS) as issued by theInternational Accounting Standards Board (IASB).The consolidated financial statements are presented in US dollars andall values are rounded to the nearest thousand (US$ 000), except whenotherwise indicated.3. SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATIONUNCERTAINTYBasis of measurementThe consolidated financial statements have been prepared under thehistorical cost convention, except for the revaluation of certainfinancial assets and financial liabilities (under IFRS) to fair value,including derivative instruments.Basis of consolidationThe consolidated financial statements of the Corporation include theaccounts of Ithaca Energy Inc. and the wholly-owned subsidiaries IthacaEnergy (UK) Limited, Ithaca Minerals (North Sea) Limited and IthacaEnergy (Holdings) Limited. All inter-company transactions and balanceshave been eliminated on consolidation.A subsidiary is an entity which the Corporation controls by having thepower to govern the financial and operating policies. The existence andeffect of potential voting rights that are currently exercisable orconvertible are considered when assessing whether Ithaca controlsanother entity. A subsidiary is fully consolidated from the date onwhich control is obtained by Ithaca and is de-consolidated from thedate that control ceases.Investments in associatesInterests in entities over which Ithaca has significant influence, butnot control or joint control, are accounted for using the equitymethod. Ithaca's share of equity investments' results are recorded inthe consolidated statement of income.Business CombinationsBusiness combinations are accounted for using the acquisition method.The cost of an acquisition is measured as the fair value of the assetsacquired, equity instruments issued and liabilities incurred or assumedat the date of completion of the acquisition. Acquisition costsincurred are expensed and included in administrative expenses.Identifiable assets acquired and liabilities and contingent liabilitiesassumed in a business combination are measured initially at their fairvalues at the acquisition date. The excess of the cost of acquisitionover the fair value of the Corporation's share of the identifiable netassets acquired is recorded as goodwill. If the cost of the acquisitionis less than the Corporation's share of the net assets required, thedifference is recognised directly in the statement of income.GoodwillCapitalisationGoodwill acquired through business combinations is initially measuredat cost, being the excess of the aggregate of the considerationtransferred and the amount recognised as the fair value of theCorporation's share of the identifiable net assets acquired andliabilities assumed. If this consideration is lower than the fair valueof the identifiable assets acquired, the difference is recognised inthe statement of income.ImpairmentGoodwill is tested annually for impairment and also when circumstancesindicate that the carrying value may be at risk of being impaired.Impairment is determined for goodwill by assessing the recoverableamount of each cash generating unit ("CGU") to which the goodwillrelates. Where the recoverable amount of the CGU is less than itscarrying amount, an impairment loss is recognised in the statement ofincome. Impairment losses relating to goodwill cannot be reversed infuture periods.Joint VenturesThe Corporation is engaged in oil and gas exploration, development andproduction through unincorporated joint ventures. The Corporationaccounts for its share of the results and net assets of these jointventures as jointly controlled assets.RevenueOil, gas and condensate revenues associated with the sale of theCorporation's crude oil and natural gas are recognised when titlepasses to the customer. This generally occurs when the product isphysically transferred into a vessel, pipe or other delivery mechanism.Revenues from the production of oil and natural gas properties in whichthe Corporation has an interest with joint venture partners arerecognised on the basis of the Corporation's working interest in thoseproperties (the entitlement method). Differences between the productionsold and the Corporation's share of production are recognised withincost of sales at market value.Interest income is recognised on an accruals basis and is separatelyrecorded on the face of the statement of income.Foreign currency translationItems included in the financial statements are measured using thecurrency of the primary economic environment in which the Corporationand its subsidiaries operate (the 'functional currency'). Theconsolidated financial statements are presented in United StatesDollars, which is the Corporation's functional and presentationcurrency.Foreign currency transactions are translated into the functionalcurrency using the exchange rates prevailing at the dates of thetransactions. Foreign exchange gains and losses resulting from thesettlement of such transactions and from the translation at year endexchange rates of monetary assets and liabilities denominated inforeign currencies are recognised in the statement of income.Share based paymentsThe Corporation has a share based payment plan as described in note 18(c). The expense is recorded in the statement of income or capitalisedfor all options granted in the year, with the gross increase recordedin the share based payment reserve. Compensation costs are based on theestimated fair values at the time of the grant and the expense orcapitalised amount is recognised over the vesting period of theoptions. Upon the exercise of the stock options, consideration paidtogether with the amount previously recognised in share basedcompensation reserve is recorded as an increase in share capital. Inthe event that vested options expire unexercised, previously recognisedcompensation expense associated with such stock options is notreversed. In the event that unvested options are forfeited or expired,previously recognised compensation expense associated with the unvestedportion of such stock options is reversed.Cash and cash equivalentsFor the purpose of the statement of cash flow, cash and cashequivalents include investments with an original maturity of threemonths or less.Restricted cashCash that is held for security for bank guarantees is reported in thestatement of financial position and statement of cash flow separately.If the expected duration of the restriction is less than twelve monthsthen it is shown in current assets.Financial instrumentsAll financial instruments, other than those designated as effectivehedging instruments, are initially recognised at fair value in thestatement of financial position. The Corporation's financialinstruments consist of cash, restricted cash, accountsreceivable, deposits, derivatives, accounts payable, accruedliabilities, contingent consideration and the long term liability onthe Beatrice acquisition. The Corporation classifies its financialinstruments into one of the following categories: held-for-tradingfinancial assets and financial liabilities; held-to-maturityinvestments; loans and receivables; and other financial liabilities.All financial instruments are required to be measured at fair value oninitial recognition. Measurement in subsequent periods is dependent onthe classification of the respective financial instrument.Held-for-trading financial instruments are subsequently measured atfair value with changes in fair value recognised in net earnings. Allother categories of financial instruments are measured at amortisedcost using the effective interest method. Cash and cash equivalents areclassified as held-for-trading and are measured at fair value. Accountsreceivable are classified as loans and receivables. Accounts payable,accrued liabilities, certain other long-term liabilities, and long-termdebt are classified as other financial liabilities. Although theCorporation does not intend to trade its derivative financialinstruments, they are classified as held-for-trading for accountingpurposes.Transaction costs that are directly attributable to the acquisition orissue of a financial asset or liability and original issue discounts onlong-term debt have been included in the carrying value of the relatedfinancial asset or liability and are amortised to consolidated netearnings over the life of the financial instrument using the effectiveinterest method.Analyses of the fair values of financial instruments and furtherdetails as to how they are measured are provided in notes 23 to 25.InventoryInventories of materials and product inventory supplies, other than oiland gas inventories, are stated at the lower of cost and net realisablevalue. Cost is determined on the first-in, first-out method. Oil andgas inventories are stated at fair value less cost to sell.Property, plant and equipmentOil and gas expenditure - exploration and evaluation assetsCapitalisationPre-acquisition costs on oil and gas assets are recognised in thestatement of income when incurred. Costs incurred after rights toexplore have been obtained, such as geological and geophysical surveys,drilling and commercial appraisal costs and other directly attributablecosts of exploration and evaluation including technical,administrative and share based payment expenses are capitalised asintangible exploration and evaluation ("E&E") assets.E&E costs are not amortised prior to the conclusion of evaluationactivities. At completion of evaluation activities, if technicalfeasibility is demonstrated and commercial reserves are discoveredthen, following development sanction, the carrying value of the E&Easset is reclassified as a development and production ("D&P") asset,but only after the carrying value is assessed for impairment and whereappropriate its carrying value adjusted. If after completion ofevaluation activities in an area, it is not possible to determinetechnical feasibility and commercial viability or if the legal right toexplore expires or if the Corporation decides not to continueexploration and evaluation activity, then the costs of suchunsuccessful exploration and evaluation are written off to thestatement of income in the period the relevant events occur.ImpairmentThe Corporation's oil and gas assets are analysed into CGU forimpairment review purposes, with E&E asset impairment testing beingperformed at a grouped CGU level. The current E&E CGU consists of theCorporation's whole E&E portfolio. E&E assets are reviewed forimpairment when circumstances arise which indicate that the carryingvalue of an E&E asset exceeds the recoverable amount. When reviewingE&E assets for impairment, the combined carrying value of the groupedCGU is compared with the grouped CGU's recoverable amount. Therecoverable amount of a grouped CGU is determined as the higher of itsfair value less costs to sell and value in use. Impairment lossesresulting from an impairment review are written off to the statement ofincome.Oil and gas expenditure - development and production assetsCapitalisationCosts of bringing a field into production, including the cost offacilities, wells and sub-sea equipment, direct costs including staffcosts and share based payment expense together with E&E assetsreclassified in accordance with the above policy, are capitalised as aD&P asset. Normally each individual field development will form anindividual D&P asset but there may be cases, such as phaseddevelopments, or multiple fields around a single production facilitywhen fields are grouped together to form a single D&P asset.DepreciationAll costs relating to a development are accumulated and not depreciateduntil the commencement of production. Depreciation is calculated on aunit of production basis based on the proved and probable reserves ofthe asset. Any re-assessment of reserves affects the depreciation rateprospectively. Significant items of plant and equipment will normallybe fully depreciated over the life of the field. However, these itemsare assessed to consider if their useful lives differ from the expectedlife of the D&P asset and should this occur a different depreciationrate would be charged.ImpairmentA review is carried out each reporting date for any indication that thecarrying value of the Corporation's D&P assets may be impaired. For D&Passets where there are such indications, an impairment test is carriedout on the CGU. Each CGU is identified in accordance with IAS 36. TheCorporation's CGUs are those assets which generate largely independentcash flows and are normally, but not always, single developments orproduction areas. The impairment test involves comparing the carryingvalue with the recoverable value of an asset. The recoverable amount ofan asset is determined as the higher of its fair value less costs tosell and value in use, where the value in use is determined fromestimated future net cash flows. Any additional depreciation resultingfrom the impairment testing is charged to the statement of income.Non oil and natural gas operationsComputer and office equipment is recorded at cost and depreciated overits estimated useful life on a straight-line basis over three years.Furniture and fixtures are recorded at cost and depreciated over theirestimated useful lives on a straight-line basis over five years.Decommissioning liabilitiesThe Corporation records the present value of legal obligationsassociated with the retirement of long-term tangible assets, such asproducing well sites and processing plants, in the period in which theyare incurred with a corresponding increase in the carrying amount ofthe related long-term asset. The obligation generally arises when theasset is installed or the ground/environment is disturbed at the fieldlocation. In subsequent periods, the asset is adjusted for any changesin the estimated amount or timing of the settlement of the obligations.The carrying amounts of the associated assets are depleted using theunit of production method, in accordance with the depreciation policyfor development and production assets. Actual costs to retire tangibleassets are deducted from the liability as incurred.Contingent considerationContingent consideration is accounted for as a financial liability andmeasured at fair value at the date of acquisition with any subsequentremeasurements recognised either in profit or loss or in othercomprehensive income in accordance with IAS 39.TaxationCurrent income taxCurrent income tax assets and liabilities are measured at the amountexpected to be recovered from or paid to the taxation authorities. Thetax rates and tax laws used to compute the amounts are those that areenacted or substantively enacted by the reporting date.Deferred income taxDeferred tax is recognised for all deductible temporary differences andthe carry-forward of unused tax losses. Deferred tax assets andliabilities are measured using enacted or substantively enacted incometax rates expected to apply to taxable income in the years in whichtemporary differences are expected to be recovered or settled. Theeffect on deferred tax assets and liabilities of a change in rates isincluded in earnings in the period of the enactment date. Deferred taxassets are recorded in the consolidated financial statements ifrealisation is considered more likely than not.Operating leasesRentals under operating leases are charged to the statement of incomeon a straight line basis over the period of the lease.Maintenance expenditureExpenditure on major maintenance refits or repairs is capitalised whereit enhances the life or performance of an asset above its originallyassessed standard of performance; replaces an asset or part of an assetwhich was separately depreciated and which is then written off, orrestores the economic benefits of an asset which has been fullydepreciated. All other maintenance expenditure is charged to thestatement of income as incurred.Recent accounting pronouncementsIn May 2011, the IASB issued the following standards: IFRS 10,Consolidated Financial Statements ("IFRS 10"), IFRS 11, JointArrangements ("IFRS 11"), IFRS 12, Disclosure of Interests in OtherEntities ("IFRS 12"), IAS 27, Separate Financial Statements ("IAS 27"),IFRS 13, Fair Value Measurement ("IFRS 13") and amended IAS 28,Investments in Associates and Joint Ventures ("IAS 28"). Each of thenew standards is effective for annual periods beginning on or after 1January 2013 with early adoption permitted. Initial assessmentsconclude that there should be no material impact from the adoption ofthe new and amended standards on the Corporation's financialstatements. The Corporation has not decided to early adopt any of thenew requirements.Significant accounting judgements and estimation uncertaintiesThe preparation of financial statements in conformity with IFRSrequires management to make estimates and assumptions regarding certainassets, liabilities, revenues and expenses. Such estimates must oftenbe made based on unsettled transactions and other events and a precisedetermination of many assets and liabilities is dependent upon futureevents. Actual results may differ from estimated amounts.The amounts recorded for depletion, depreciation of property andequipment, long-term liability, share based payment, contingentconsideration, decommissioning liabilities, derivatives, and deferredtaxes are based on estimates. The depreciation charge and anyimpairment tests are based on estimates of proved and probablereserves, production rates, prices, future costs and other relevantassumptions. By their nature, these estimates are subject tomeasurement uncertainty and the effect on the financial statements ofchanges in such estimates in future periods could be material. Furtherinformation on each of these estimates is included within the notes tothe financial statements.4. REVENUE 2012 2011 US$'000 US$'000Oil sales 157,146 112,806Gas sales 8,586 12,428Condensate sales 501 995Other income 4,244 2,830Total 170,477 129,0595. COST OF SALES 2012 2011 US$'000 US$'000Operating costs (85,478) (48,295)Movement in oil and gas inventory 6,601 (15,385)Depletion, depreciation and amortisation 11 (56,172) (31,447) (135,049) (95,127)6. ADMINISTRATIVE EXPENSES 2012 2011 US$'000 US$'000General & administrative (4,327) (4,584)Share based payment (866) (1,398) (5,193) (5,982)7. FINANCE COSTS 2012 2011 US$'000 US$'000Accretion 15 (1,777) (858)Bank charges (2,004) (352)Loan fee amortisation (1,087) (311)Non-operated asset finance fees (62) - (4,930) (1,521)8. RESTRICTED CASH 2012 2011US$'000 US$'000Decommissioning security - 16,167Other security 2 343 2 16,510Decommissioning security in respect of the Corporation's interests inthe Anglia and Cook fields is now facility backed as opposed to cashbacked.9. INVENTORY 2012 2011 US$'000 US$'000Crude oil inventory 15,865 8,823Materials inventory 13 13 15,878 8,83610. EXPLORATION AND EVALUATION ASSETS US$'000At 1 January 2011 17,832Additions 7,752Write offs/relinquishments (2,791)Disposals (104)At 31 December 2011 22,689Additions 38,188Write offs/relinquishments (4,261)Disposals (9,226)At 31 December 2012 47,390Following completion of geotechnical evaluation activity, certainlicences were declared unsuccessful and certain prospects were declarednon-commercial and therefore the related expenditures of $4.3 millionwere written off in the year to 31 December 2012.Disposals in the period reflect the sale of assets to Petrofac GSALimited and Dyas UK Limited as detailed per note 11.Refer to note 23 for further details of the 2011 write off.11. PROPERY, PLANT AND EQUIPMENT Development & Production Other fixed Oil and Gas assets assets Total US$'000 US$'000 US$'000CostAt 1 January 2011 281,411 1,587 282,998Additions 342,138 705 342,843At 31 December 2011 623,549 2,292 625,841Additions 139,383 133 139,516Disposals (37,912) - (37,912)At 31 December 2012 725,020 2,425 727,445DD&AAt 1 January 2011 (22,934) (1,104) (24,038)Charge for the period (31,054) (393) (31,447)At 31 December 2011 (53,988) (1,497) (55,485)Charge for the period (55,770) (402) (56,172)At 31 December 2012 (109,758) (1,899) (111,657)NBV at 1 January 2011 258,477 483 258,960NBV at 1 January 2012 569,561 795 570,356NBV at 31 December 2012 615,262 526 615,788Disposals in the period reflect the sale of assets to Petrofac GSALimited ("Petrofac") and Dyas UK Limited ("Dyas") on completion of theSale and Purchase Agreements ("SPAs") relating to the Greater StellaArea. The completion of the SPAs led to an overall pre-tax gain ondisposal of $205k, as shown through the consolidated statement ofincome for the year ended 31 December 2012, as well as the investmentin associates as per note 13.12. GOODWILL US$'000CostAt 1 January 2011, 31 December 2011 & 31 December 2012 985$1.0 million represents goodwill recognised on the acquisition of gasassets from GDF in December 2010.As at 31 December 2012, the recoverable amount of assets acquired fromGDF was sufficiently high to support the carrying value of thisgoodwill.13. INVESTMENT IN ASSOCIATES 2012 2011 US$'000 US$'000Investments in FPF-1 and FPU services 18,337 -Investment in associates comprises shares, acquired by Ithaca Holdings,in FPF-1 and FPU services as part of the completion of the GreaterStella Area transactions (refer to note 11). There has been no changein value during the year with the above investment reflecting theCompany's share of the associates' results.14. LOAN FACILITYOn 29 June 2012, the Corporation executed a Senior Secured BorrowingBase Facility agreement (the "Facility") for up to $430 million, beingprovided by BNPP as Lead Arranger. The loan term is up to five yearsand will attract interest at LIBOR plus 3-4.5%. This Facility replacesthe previous undrawn $140 million debt facility with Lloyds BankingGroup.The Corporation is subject to financial and operating covenants relatedto the Facility. Failure to meet the terms of one or more of thesecovenants may constitute an event of default as defined in the Facilityagreement, potentially resulting in accelerated repayment of the debtobligations.Security provided against the loanSecurity provided against the loan is in the form of a floating chargeover all assets.The Corporation is in compliance with its financial and operatingcovenants.No funds were drawn down under the Facility as at 31 December 2012.15. DECOMMISSIONING LIABILITIES 2012 2011 US$'000 US$'000Balance, beginning of period 39,382 23,652Additions 9,613 15,250Accretion 1,777 858Revision to estimates 2,062 (20)Utilisation - (358)Balance, end of period 52,834 39,382The total future decommissioning liability was calculated by managementbased on its net ownership interest in all wells and facilities,estimated costs to reclaim and abandon wells and facilities and theestimated timing of the costs to be incurred in future periods. TheCorporation uses a risk free rate of 3.8 percent (31 December 2011: 3.9percent) and an inflation rate of 2.1 percent (31 December 2011: 2percent) over the varying lives of the assets to calculatethe present value of the decommissioning liabilities. These costsare expected to be incurred at various intervals over the next 15years.The economic life and the timing of the obligations are dependent onGovernment legislation, commodity price and the future productionprofiles of the respective production and development facilities. Notethat upon the acquisition of the Beatrice Field in November 2008, theCorporation did not assume the decommissioning liabilities.16. OTHER LONG-TERM LIABILITIES 2012 2011 US$'000 US$'000Balance, beginning of period 2,785 2,872Revaluation in the period 233 (87)Balance, end of period 3,018 2,785On completion of the acquisition of the Beatrice Facilities on 10November 2008 there were 75,000 barrels of oil in an oil storage tankat the Nigg Terminal. This volume of oil is required to be in thestorage tank when the Beatrice Facilities are retransferred. Thisvolume of oil is valued at the price on the forward oil price curve atthe expected date of re-transfer and discounted. The liability issubject to revaluation at each financial period end. The expected dateof re-transfer is likely to be more than three years in the future.17. CONTINGENT CONSIDERATION 2012 2011 US$'000 US$'000Balance, beginning of period 24,580 12,976Additions - 13,604Revision to estimates 1,295 (2,000)Release (21,875) -Balance, end of period 4,000 24,580The contingent consideration at the end of the period relates to theacquisition of the Stella field and is payable upon first oil.The release of $21.9m reflects the consideration paid ($15.7 million)upon Stella and Harrier Field Development Plan approval as well as atransfer of part of the liability to Petrofac on completion of theGreater Stella Area transactions (see note 11).18. SHARE CAPITAL No. of ordinary AmountAuthorised share capital 000 US$'000At 1 January 2012 and 31 December 2012 Unlimited -(a) IssuedThe issued share capital is as follows:Issued Number of common Amount shares US$'000Balance 1 January 2011 255,789,464 422,373Issued for cash - options exercised 874,997 572Issued for cash - warrants exercised 2,500,000 5,786Transfer from Share based payment reserve on - 460options exercisedTransfer from Warrants issued on warrants - 311exercisedBalance 31 December 2011 259,164,461 429,502Issued for cash - options exercised 755,542 1,020Transfer from Share based payment reserve on - 796options exercisedBalance 31 December 2012 259,920,003 431,318Capital ManagementThe Corporation's objectives when managing capital are:- to safeguard the Corporation's ability to continue as a goingconcern;- to maintain balance sheet strength and optimal capital structure,while ensuring the Corporation's strategic objectives are met; and- to provide an appropriate return to shareholders relative to the riskof the Corporation's underlying assets.Capital is defined as shareholders' equity. Shareholders' equityincludes share capital, share based payment reserve, warrants issued,retained earnings or deficit and other comprehensive income. 2012 2011 US$'000 US$'000Share capital 431,318 429,502Share based payment reserve 20,340 17,318Warrants issued - -Retained earnings 153,990 60,591Shareholders' Equity 605,648 507,411The Corporation maintains and adjusts its capital structure based onchanges in economic conditions and the Corporation's plannedrequirements. The Board of Directors reviews the Corporation's capitalstructure and monitors requirements. The Corporation may adjust itscapital structure by issuing new equity and/or debt, selling and/oracquiring assets, and controlling capital expenditure programs.The Corporation monitors its capital structure using the debt-to-equityratio and other benchmark measures at the consolidated group level. 2012 2011 US$'000 US$'000Debt - -Equity 605,648 507,411Debt as a % of equity N/A N/A(b) Stock optionsIn the quarter ended 31 March 2012, the Corporation's Board ofDirectors granted 400,000 options at a weighted average exercise priceof $2.28 (C$2.31).In the quarter ended 31 December 2012, the Corporation's Board ofDirectors granted 5,645,000 options at a weighted average exerciseprice of $2.03 (C$1.99).The Corporation's stock options and exercise prices are denominated inCanadian Dollars when granted. As at 31 December 2012, 20,347,964 stockoptions to purchase common shares were outstanding, having an exerciseprice range of $0.20 to $2.70 (C$0.25 to C$2.69) per share and avesting period of up to 3 years in the future.Changes to the Corporation's stock options are summarised as follows: 31 December 2012 31 December 2011 Wt. Avg Wt. Avg No. of Exercise No. of Exercise Options Price- Options Price-Balance, beginning of 17,506,839 $1.66 20,146,003 $1.61periodGranted 6,045,000 $2.05 260,000 $1.99Forfeited / expired (2,448,333) $3.42 (2,024,167) $2.29Exercised (755,542) $1.26 (874,997) $0.61Options 20,347,964 $1.63 17,506,839 $1.66- The weighted average exercise price has been converted into U.S.dollars based on the foreign exchange rate in effect at the date ofissuance.The following is a summary of stock options as at 31 December 2012 Options Outstanding Wt. Avg Wt. AvgRange of No. of Life ExerciseExercise Price Options (Years) Price-$2.22-$2.70 5,350,000 2.0 $2.22(C$2.25-C$2.69)$1.49-$2.03 10,331,667 2.6 $1.81(C$1.54-C$1.99)$0.20-$0.81 4,666,297 0.8 $0.56(C$0.25-C$0.87) 20,347,964 2.0 $1.63 Options Exercisable Wt. Avg Wt. AvgRange of No. of Life ExerciseExercise Price Options (Years) Price-$2.22-$2.70 3,280,003 2.0 $2.22(C$2.25-C$2.69)$1.49-$2.03 3,113,338 1.2 $1.53(C$1.54-C$1.99)$0.20-$0.81 4,666,297 0.8 $0.80(C$0.25-C$0.87) 11,059,638 1.3 $1.43The following is a summary of stock options as at 31 December 2011 Options Outstanding Wt. Avg Wt. AvgRange of No. of Life ExerciseExercise Price Options (Years) Price-$3.65 2,165,000 0.1 $3.65(C$3.65)$2.22-$2.70 5,050,000 3.0 $2.23(C$2.25-C$2.69)$1.49-$1.79 5,311,667 2.0 $1.55(C$1.54-C$1.85)$0.20-$0.81 4,980,172 1.8 $0.56(C$0.25-C$0.87) 17,506,839 0.5 $1.72 Options Exercisable Wt. Avg Wt. AvgRange of No. of Life ExerciseExercise Price Options (Years) Price-$3.65 2,165,000 0.1 $3.65(C$3.65)$2.22-$2.86 1,663,330 3.0 $2.22(C$2.25-C$2.70)$1.49-$1.79 2,048,329 1.8 $1.57(C$1.54-C$1.85)$0.20-$0.81 3,904,548 1.8 $0.49(C$0.25-C$0.87) 9,781,207 1.6 $1.71(c) Share based paymentsOptions granted are accounted for using the fair value method. Thecompensation cost during the year ended 31 December 2012 for totalstock options granted was $3.8 million (2011: $6.4 million). $0.9million was charged through the statement of income for share basedpayment for the year ended 31 December 2012, being the Corporation'sshare, after cut back to joint venture partners, of share based paymentchargeable through the statement of income. The remainder of theCorporation's share of share based payment has been capitalised. Thefair value of each stock option granted was estimated at the date ofgrant, using the Black-Scholes option pricing model with the followingassumptions: 2012 2011Risk free interest rate 0.40% 1.20%Expected stock volatility 74% 97%Expected life of options 3 years 3 yearsWeighted Average Fair Value $1.08 $1.68(d) Gemini AgreementIn September 2006 Gemini Oil & Gas Fund 11 L.P. ("Gemini") providednon-recourse funding of $6 million. Further to a supplemental agreemententered into in August 2008, the loan was fully repaid. Under thesupplemental agreement Gemini retained rights, under certaincircumstances relating to the Athena Field, to elect to receivewarrants to acquire up to 3,000,000 common shares at $3.00 per shareand to receive payments connected to asset sales of interests inAthena.On 20 September 2010, a further agreement was entered into with Geminiwhereby in exchange for and in consideration of Gemini's waiver of anyright to proceeds from the disposal of equity interest in the Athenadiscovery and in substitution for any previously awarded or agreedwarrants, Ithaca Energy Inc. granted Gemini warrants to acquire up to2,500,000 common shares in Ithaca Energy Inc. The warrants wereexercised at C$2.25 per share on 3 March 2011. The agreement terminatesall rights that Gemini has in respect of the Corporation's interests.The total fair value attributed to warrants issued in 2010 was $0.3million.19. SHARE BASED PAYMENT RESERVE 2012 2011 US$'000 US$'000Balance, beginning of period 17,318 11,427Share based payment cost 3,817 6,351Transfer to share capital on exercise of options (795) (460)Balance, end of period 20,340 17,31820. EARNINGS PER SHAREThe calculation of basic earnings per share is based on the profitafter tax and the weighted average number of common shares in issueduring the period. The calculation of diluted earnings per share isbased on the profit after tax and the weighted average number ofpotential common shares in issue during the period. 2012 2011Weighted av. number of common shares (basic) 259,391,234 258,350,813Weighted av. number of common shares (diluted) 264,188,368 262,997,93521. TAXATION 2012 2011 US$'000 US$'000Current taxCurrent tax on profits for the year - -Deferred taxRelating to the origination and reversal of temporary (80,953) 1,414differencesRelating to changes in tax rates 1,181 1,095Adjustment in respect of prior periods 15,608 (1,263)Total tax expense (64,164) 1,246The tax on the group's profit before tax differs from the theoreticalamount that would arise using the effective rate of tax applicable forUK ring fence oil and gas activities as follows: 2012 2011 US$'000 US$'000Accounting profit before tax 29,235 37,112At tax rate of 62% (2011 59.3%) 18,126 22,008Non taxable income (48,992) (23,258)Difference in foreign tax rates 756 1,420Deferred tax effect of small field allowance (51,433) -Under/(over) provided in prior years 15,816 (724)Recognition of deferred tax assets - -Unrecognised tax losses (71) 261Change in tax rates 1,634 1,909Other - (370)Total tax recorded in the consolidated statement of (64,164) 1,246incomeThe effective rate of tax applicable for UK ring fence oil and gasactivities in 2012 was 62% (2011:59.3%). The weighted average rate of59.3% in 2011 was due to the increase in supplementary charge on oiland gas activities from 20% to 32% announced on 23 March 2011 by the UKgovernment resulting in a 62% marginal tax rate.The deferred tax effect of small field allowance in respect of theStella and Athena fields has been recognised in 2012. This will reducepart of the future tax liability on these fields from a total rate of62% to 30%. Ithaca has recognised this allowance based on theassessment that the fields will generate sufficient profits to utilisethe allowance.Deferred income tax at 31 December relates to the following: 2012 2011 US$'000 US$'000Deferred tax liability 317,279 336,682Deferred tax asset (254,909) (210,148)Net deferred tax liability 62,370 126,534The gross movement on the deferred income tax account is as follows: 2012 2011 US$'000 US$'000At 1 January 126,534 6,814Acquisitions - 118,475Income statement charge (64,164) 1,246At 31 December 62,370 126,534 Deferred tax on Accelerated tax business Other dep'n combinations TotalDeferred tax liability US$'000 US$'000 US$'000 US$'000At 1 January 2012 (4,328) 202,218 134,465 332,355Charged/(credited) to 4,992 (5,811) (7,408) (8,227)income statementAt 31 December 2012 664 196,407 127,057 316,720 Tax Abandonment losses provision TotalDeferred tax assets US$'000 US$'000 US$'000At 1 January 2012 (199,719) (6,101) (205,820)Charged/(credited) to income (55,190) (746) (55,936)statementAt 31 December 2012 (254,909) (6,847) (261,756)Deferred income tax assets are recognised for the carry-forward ofunused tax losses and unused tax credits to the extent that it isprobable that taxable profits will be available in the future againstwhich the unused tax losses/credits can be utilised.The UK related non-capital losses of $416 million do not expire underUK tax legislation and may be carried forward indefinitely.On 23 March 2011, the UK government announced that the rate ofsupplementary tax applicable to North Sea oil companies would rise from20% to 32% from 24 March 2011, resulting in an effective combined baseand supplementary tax rate of no less than 62%. Based on currentproduction and price assumptions and a continuing business modelwhereby the Corporation reinvests capital, incurs general,administrative and interest costs, together with the non-capital lossesavailable to the Corporation, Ithaca does not expect to pay traderelated cash income taxes in the short or medium term.22. COMMITMENTS 2012 2011 US$'000 US$'000Operating lease commitmentsWithin one year 12,759 247Two to five years 18,756 989More than five years 65 309 2012 2011Capital commitments US$'000 US$'000Capital commitments incurred jointly with other 111,747 82,521ventures (Ithaca's share)23. FINANCIAL INSTRUMENTSTo estimate fair value of financial instruments, the Corporation usesquoted market prices when available, or industry accepted third-partymodels and valuation methodologies that utilise observable market data.In addition to market information, the Corporation incorporatestransaction specific details that market participants would utilise ina fair value measurement, including the impact of non-performance risk.The Corporation characterises inputs used in determining fair valueusing a hierarchy that prioritises inputs depending on the degree towhich they are observable. However, these fair value estimates may notnecessarily be indicative of the amounts that could be realised orsettled in a current market transaction. The three levels of the fairvalue hierarchy are as follows:- Level 1 - inputs represent quoted prices in active markets foridentical assets or liabilities (for example, exchange-traded commodityderivatives). Active markets are those in which transactions occur insufficient frequency and volume to provide pricing information on anongoing basis.- Level 2 - inputs other than quoted prices included within Level 1that are observable, either directly or indirectly, as of the reportingdate. Level 2 valuations are based on inputs, including quoted forwardprices for commodities, market interest rates, and volatility factors,which can be observed or corroborated in the marketplace. TheCorporation obtains information from sources such as the New YorkMercantile Exchange and independent price publications.- Level 3 - inputs that are less observable, unavailable or where theobservable data does not support the majority of the instrument's fairvalue.In forming estimates, the Corporation utilises the most observableinputs available for valuation purposes. If a fair value measurementreflects inputs of different levels within the hierarchy, themeasurement is categorised based upon the lowest level of input that issignificant to the fair value measurement. The valuation ofover-the-counter financial swaps and collars is based on similartransactions observable in active markets or industry standard modelsthat primarily rely on market observable inputs. Substantially all ofthe assumptions for industry standard models are observable in activemarkets throughout the full term of the instrument. These arecategorised as Level 2.The following table presents the Corporation's material financialinstruments measured at fair value for each hierarchy level as of 31December 2012: Total Fair Level 1 Level 2 Level 3 Value US$'000 US$'000 US$'000 US$'000Long term liability on Beatrice - - (3,018) (3,018)acquisitionContingent consideration - (4,000) - (4,000)Derivative financial instrument asset - 8,251 - 8,251Assets measured at fair value in the statement of financial positionare minimal. Measurement was based on oil price at the time ofacquisition.The table below presents the total gain / (loss) on financialinstruments that has been disclosed through the statement of net andcomprehensive income: 2012 2011 US$'000 US$'000Revaluation of forex forward contracts 519 (510)Revaluation of gas contract 1,368 3,099Revaluation of other long term liability (232) 87Revaluation of commodity hedges 2,487 (6,159) 4,142 (3,483)Realised gain on commodity hedges 3,718 70Realised gain on forex forward contracts 174 - 3,892 70Contingent consideration (1,295) 2,000Total gain/(loss) on financial instruments 6,739 (1,413)The $2 million of associated contingent consideration relating tolicences and prospects relinquished in 2011 was also released to theconsolidated statement of income in 2011 through exploration andevaluation expenses.The Corporation has identified that it is exposed principally to theseareas of market risk.i) Commodity RiskThe table below presents the total gain/(loss) on commodity hedges thathas been disclosed through the statement of comprehensive income: 2012 2011 US$'000 US$'000Revaluation of commodity hedges 2,487 (6,159)Realised gain on commodity hedges 3,718 70Total gain/(loss) on commodity hedges 6,205 (6,089)Commodity price risk related to crude oil prices is the Corporation'smost significant market risk exposure. Crude oil prices and qualitydifferentials are influenced by worldwide factors such as OPEC actions,political events and supply and demand fundamentals. The Corporation isalso exposed to natural gas price movements on uncontracted gas sales.Natural gas prices, in addition to the worldwide factors noted above,can also be influenced by local market conditions. The Corporation'sexpenditures are subject to the effects of inflation, and pricesreceived for the product sold are not readily adjustable to cover anyincrease in expenses from inflation. The Corporation may periodicallyuse different types of derivative instruments to manage its exposure toprice volatility, thus mitigating fluctuations in commodity-relatedcash flows.The below represents commodity hedges entered into during the year:Derivative Term Volume Average priceOil swaps Mar 12 - Jun 13 768,800 bbls $116.07/bblOil swaps Jan 13 - Dec 13 503,800 bbls $108.67/bblPut options May 12 - Feb 13 390,000 bbls $120.24/bblPut options Oct 12 - Jun 13 300,300 bbls $111.34/bblGas swaps Jan 13 - Dec 14 3,066,000 bbls 66.45p/thermii) Interest RiskCalculation of interest payments for the Senior Secured Borrowing BaseFacility agreement with BNP Paribas that was signed on 29 June 2012incorporates LIBOR. The Corporation will therefore be exposed tointerest rate risk to the extent that LIBOR may fluctuate. TheCorporation will evaluate its annual forward cash flow requirements ona rolling monthly basis. No funds were drawn down under the facility at31 December 2012.iii) Foreign Exchange Rate RiskThe table below presents the total gain/(loss) on foreign exchangefinancial instruments that has been disclosed through the statement ofincome: 2012 2011 US$'000 US$'000Revaluation of forex forward contracts 519 (510)Realised gain on forex forward contracts 174 -Total gain/(loss) on forex forward contracts 693 (510)The Corporation is exposed to foreign exchange risks to the extent ittransacts in various currencies, while measuring and reporting itsresults in US Dollars. Since time passes between the recording of areceivable or payable transaction and its collection or payment, theCorporation is exposed to gains or losses on non-USD amounts and onstatement of financial position translation of monetary accountsdenominated in non-USD amounts upon spot rate fluctuations from quarterto quarter.The below represents foreign exchange financial instruments in placeduring 2012:Derivative Term Value Protection Trigger Advantage rate rate rateForward Jan 12 - Dec $4 $1.60/ $1.40/ $1.58/plus 12 million/ GBP1.00 GBP1.00 GBP1.00 monthiv) Credit RiskThe Corporation's accounts receivable with customers in the oil and gasindustry are subject to normal industry credit risks and are unsecured.All of its oil production from the Beatrice, Jacky and Athena fields issold to BP Oil International Limited. Oil production from Cook andBroom is sold to Shell Trading International Ltd. Anglia and Topaz gasproduction is currently sold through three contracts to RWE NPower PLCand Hess Energy Gas Power (UK) Ltd. Cook gas is sold to Shell UK Ltdand Esso Exploration & Production UK Ltd.The Corporation assesses partners' credit worthiness before enteringinto farm-in or joint venture agreements. In the past, the Corporationhas not experienced credit loss in the collection of accountsreceivable. As the Corporation's exploration, drilling and developmentactivities expand with existing and new joint venture partners, theCorporation will assess and continuously update its management ofassociated credit risk and related procedures.The Corporation regularly monitors all customer receivable balancesoutstanding in excess of 90 days. As at 31 December 2012 substantiallyall accounts receivables are current, being defined as less than 90days. The Corporation has no allowance for doubtful accounts as at 31December 2012 (31 December 2011: $Nil).The Corporation may be exposed to certain losses in the event thatcounterparties to derivative financial instruments are unable to meetthe terms of the contracts. The Corporation's exposure is limited tothose counterparties holding derivative contracts with positive fairvalues at the reporting date. As at 31 December 2012, exposure is $8.3million (31 December 2011: $Nil).The Corporation also has credit risk arising from cash and cashequivalents held with banks and financial institutions. The maximumcredit exposure associated with financial assets is the carryingvalues.v) Liquidity RiskLiquidity risk includes the risk that as a result of its operationalliquidity requirements the Corporation will not have sufficient fundsto settle a transaction on the due date. The Corporation managesliquidity risk by maintaining adequate cash reserves, bankingfacilities, and by considering medium and future requirements bycontinuously monitoring forecast and actual cash flows. The Corporationconsiders the maturity profiles of its financial assets andliabilities. As at 31 December 2012, substantially all accounts payableare current.The following table shows the timing of contractual cash outflowsrelating to trade and other payables. Within 1 year 1 to 5 years US$'000 US$'000Accounts payable and accrued liabilities 205,635 -Other long term liabilities - 3,018 205,635 3,01824. DERIVATIVE FINANCIAL INSTRUMENTS 2012 2011 US$'000 US$'000Oil swaps 2,497 -Oil put options 5,667 -Gas swaps 87 -Embedded derivative - (1,336)Foreign exchange forward contract - (510) 8,251 (1,846)Refer to note 23 for details of derivative financial instruments.In Q4 2010, the Corporation acquired an embedded derivative within anAnglia gas sales contract, which expired during the year.25. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIESFinancial instruments of the Corporation consist mainly of cash andcash equivalents, receivables, payables, loans and financial derivativecontracts, all of which are included in these financial statements. At31 December 2012, the classification of financial instruments and thecarrying amounts reported on the balance sheet and their estimated fairvalues are as follows: 2012 2011 US$'000 US$'000Classification Carrying Fair Carrying Fair Amount Value Amount ValueCash and cash equivalents (Held 31,374 31,374 95,545 95,545for trading)Restricted cash 2 2 16,510 16,510Accounts receivable (Loans and 159,195 159,195 80,960 80,960Receivables)Deposits 247 247 247 247Contingent consideration (4,000) (4,000) (24,580) (24,580)Derivative financial - - (1,846) (1,846)instruments (Held for trading)Other long term liabilities (3,018) (3,018) (2,785) (2,785)Accounts payable (Other (205,635) (205,635) (102,136) (102,136)financial liabilities)26. RELATED PARTY TRANSACTIONSThe consolidated financial statements include the financial statementsof Ithaca Energy Inc and the subsidiaries listed in the followingtable: Country of % equity interest at incorporation 31 Dec 2012 2011Ithaca Energy (UK) Limited Scotland 100% 100%Ithaca Minerals (North Sea) Scotland 100% NilLimitedIthaca Energy (Holdings) Bermuda 100% NilLimitedTransactions between subsidiaries are eliminated on consolidation.The following table provides the total amount of transactions that havebeen entered into with related parties during the year ending 31December 2012 and 31 December 2011, as well as balances with relatedparties as of 31 December 2012 and 31 December 2011: Sales Purchases Accounts Accounts receivable payable US$'000 US$'000 US$'000 US$'000Burstall 2012 - 138 - -WingerLLP 2011 - 211 - -A director of the Corporation is a partner of Burstall Winger LLP whoacts as counsel for the Corporation.Loans to related Amounts owed from related partiesparties 2012 2011 US$'000 US$'000FPF-1 Limited 21,551 -Key management compensationKey management includes the Chief Executive Officer, the ChiefFinancial Officer, the Chief Development Officer, the Chief TechnicalOfficer, the Chief Production Officer and the Non-Executive Directors.The compensation paid or payable to key management for employeeservices is shown below: 2012 2011 US$'000 US$'000Aggregate remuneration 3,211 2,486Company pension contributions 181 137Share based payment 3,425 - 6,817 2,623Share based payment reflects the value of options granted in 2012 asper the Black Scholes option pricing model. This does not represent acash payment to key management personnel.27. INTEREST IN JOINT VENTURESBlock Licence Filed/Discovery Operator Ithaca Net % Name Interest2/4a P902 Broom EnQuest 8.002/5 P242 Broom/SW Heather EnQuest 8.0011/25a P1031 Beatrice Ithaca 50.0011/29a P1392 - Ithaca 45.8411/30a P187 Beatrice Ithaca 50.0012/21c P1392 Jacky Ithaca 47.5012/21a P1031 Beatrice Ithaca 50.0012/26a P982 Beatrice Ithaca 50.0012/26c P1392 Polly Ithaca 40.0014/18b P1293 Athena Ithaca 22.5017/4a P1392 - Ithaca 50.0021/8a P1107 Scolty/Torphins EnQuest 10.0021/12c P1617 - EnQuest 10.0021/13a P1617 Crathes EnQuest 10.0021/20a- P185 Cook Shell 28.4629/10b P1665 Hurricane Ithaca 54.6629/10a P011 Stella/Harrier Ithaca 54.66(upper)30/6a (upper) P011 Stella/Harrier Ithaca 54.6629/10d P1814 Helios Ithaca 54.6648/18b P128 Anglia Ithaca 30.0048/19b P128 Anglia Ithaca 30.0048/19e P1011 Anglia Ithaca 30.0049/2a P1013 Topaz RWE 35.0015/17b P1994 Piper Isles Ithaca 50.0029/5e P2064 Twister Ithaca 54.66-Note: interest in Cook increased to 41.345% post year end. Refer tonote 28.28. POST BALANCE SHEET EVENTSProposed acquisition of Valiant Petroleum plcIn March 2013, the Boards of Ithaca and Valiant announced that they hadreached agreement on the terms of a recommended acquisition (the"Acquisition") under which Ithaca Energy Holdings (UK) Limited willacquire the entire issued and to be issued share capital of Valiant.The total acquisition price is approximately $309 million, whichequates to approximately GBP4.75 per Valiant share. Approximately $200million of the consideration is payable in cash (being approximatelyGBP3.07/ Valiant share) and approximately $109 million in new Ithacashares (approximately 57.01 million shares, equating to 1.33 Ithacashares per Valiant share). The Company will also repay -$150 millionValiant debt/working capital bringing the total enterprise value to$459 million.The Acquisition is anticipated to result in:- the establishment of Ithaca as a leading mid cap North Sea oiland gas operator, with 2P reserves of approximately 74MMboe, of whichapproximately 50% relates to currently producing assets;- a more than doubling of Ithaca's current forecast 2013production to 14-16kboe/d (90% oil), rising to approximately 27kboe/din 2015; and- approximately a four fold increase in Ithaca's anticipated 2013cash flow from operations to $400 million, rising to over $700 millionin 2015.The Acquisition is to be financed by a low cost $350 million bridgeloan and $109 million from the issue of new Ithaca shares.Further details of the proposed acquisition were published on theCompany's website on March 1, 2013. The acquisition is subject toapproval by Valiant shareholders and certain regulatory approvals.Cook acquisitionIn February 2013 the Company announced that it had completed theacquisition of a wholly owned UK subsidiary of Noble Energy CapitalLimited (a subsidiary of Noble Energy Inc., NYSE:NBL), which owns the12.885% non-operated interest in the Cook field. Following thetransaction, the Company now holds a 41.345% in the Cook field.Business combinationThe provisional fair values of the identifiable assets and liabilitiesof Cook as at the acquisition date were: Fair value US$'000Oil and gas properties 70,533Inventories 14,014Trade receivables 142Trade and other payables (653)Deferred tax liabilities (41,153)Provisions (4,158)Total identifiable net assets at fair value 38,725Negative goodwill arising on acquisition (1,061)Total consideration 37,664The cash outflow on acquisition is as follows:Cash paid (37,664)Net consolidated cash flow (37,664) This information is provided by RNS The company news service from the London Stock ExchangeENDFOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: RNSCustomerServices0044-207797-4400rns@londonstockexchange.com