The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Marketwire

Ithaca Energy Inc-Q3 2013 Financial Results

Monday, November 11, 2013

Ithaca Energy Inc-Q3 2013 Financial Results

02:00 EST Monday, November 11, 2013

ABERDEEN, SCOTLAND--(Marketwired - November 10, 2013) - Ithaca Energy Inc. (TSX VENTURE: IAE)

(LSE: IAE)

TSX VENTURE: IAENot for Distribution to U.S. Newswire Services or for Dissemination inthe United States Ithaca Energy Inc. Third Quarter 2013 Financial Results 11 November 2013Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) ("Ithaca" or the "Company")announces its quarterly results for the three months ended 30 September2013.Highlights- Record quarterly cashflow from operations of $77.8 million (Q32012: $30.1 million) - cashflow per share $0.25 (Q3 2012: $0.12)- Record quarterly earnings of $54.1 million (Q3 2012: $4.9million) - earnings per share $0.17 (Q3 2012 $0.02)- Continued strong netbacks of over $70 / barrel of oil equivalent("boe")- Revenue of $114.1 million (Q3 2012: $41.6 million)- Average production during the period of 11,942 boe per day("boepd"), 96% oil, reflecting the impact of shutdowns during thequarter- Net drawn debt of $357 million at 30 September 2013- UK tax allowances pool of $993 million and Norwegian taxreceivable of $88 million at 30 September 2013- Approximately 3.4 million barrels of future 2013-14 oilproduction hedged at a weighted average price of -$102/bbl(approximately 30% puts / 70% swaps)Graham Forbes, Chief Financial Officer commented:"Continued high netbacksof over $70/boe have enabled us to deliverboth record cashflows and earnings during a quarter where annualshutdowns have tempered production. These results, together with theenhanced debt facilities announced in October, provide an excellentfinancial platform to drive the Company forward".Greater Stella Area Development-Deliverability of the Stella reservoir was confirmed with thesuccessful completion of the Stella "A1" development well during thequarter, with the clean-up test performed on the well resulting in amaximum flow rate of 10,835 boepd. Operations are progressingaccording to plan on the "A2" development well, with drilling of thehorizontal reservoir section scheduled to commence shortly-Solid progress continues to be made on execution of the "FPF-1"floating production facility modifications programme. The vessel hasbeen re-floated following completion of the dry dock related marinesystem works and work has commenced on the main topsides processingplant construction and installation activities-Execution of the 2013 subsea infrastructure installation workprogramme is nearing completion, with the remaining works now focusedon tie-in of the infield flowlines and umbilicalsA new film is available on the Company's website (www.ithacaenergy.com)providing additional information on the work that has been completed onthe development over recent months.2013 Production OutlookTotal pro-forma production for 2013 is forecast to averageapproximately 13,000 boepd; this reflects inclusion of full yearproduction from the assets acquired as part of the Valiant Petroleumplc ("Valiant") acquisition, which completed on April 19, 2013. Thisis lower than originally anticipated for the year due primarily toproduction deferrals resulting from the longer than anticipatedduration of the shutdowns that impacted the Cook and Causeway Areafields during the second half of the year, and delay to completion ofthe electrical submersible pump related works on the Taqa-operated hostfacility for Causeway.CorporateThe Company has extended and improved its long term senior bank debtfinancing facilities, increasing its Reserve Based Lending ("RBL")facility from $430 million to $610 million, and established a new fiveyear $100 million corporate facility.Further farm-outs of the three UK exploration well commitmentstransferred as a result of the Valiant acquisition were entered intoduring the third quarter. When combined with the previously announcedfarm-outs, on completion, Ithaca will be fully carried for the forecastcost of drilling the wells and in addition will receive over $8 millionin cash from the farm-out parties. - ENDS -Enquiries:Ithaca EnergyGrahamForbes gforbes@ithacaenergy.com +44 (0)1224 652 151RichardSmith rsmith@ithacaenergy.com +44(0) 1224 652 172FTI ConsultingEdwardWestropp edward.westropp@fticonsulting.com +44 (0)207 269 7230GeorgiaMann georgia.mann@fticonsulting.com +44 (0)207 269 7212Cenkos SecuritiesJonFitzpatrick jfitzpatrick@cenkos.com +44 (0)207 397 8900NeilMcDonald nmcdonald@cenkos.com +44 (0)131 220 6939RBC CapitalMarketsTim Chapman tim.chapman@rbccm.com +44 (0)207 653 4641MatthewCoakes matthew.coakes@rbccm.com +44 (0)207 653 4871Notes Regarding Oil & Gas DisclosureIn 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 Horsburghhas over 15 years operating experience in the upstream oil and gasindustry.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,utilising a conversion ratio at 6 Mcf: 1 bbl may be misleading as anindication of value.This press release contains non-International Financial ReportingStandards ("IFRS") industry benchmarks and terms, such as "netbacks"and "cashflow from operations". Netbacks are calculated on a per unitbasis as oil, gas and natural gas liquids revenues less royalties andtransportation and operating costs. Cashflow from operations andcashflow from ongoing operations are determined by adding back changesin non-cash operating working capital to cash from operatingactivities. The Company considers cashflow from operations to be a keymeasure as it demonstrates the Company's underlying ability to generatethe cash necessary to fund operations and support activities related toits major assets. The non-IFRS financial measures do not have anystandardised meaning and therefore are unlikely to be comparable tosimilar measures presented by other companies. The Company uses theforegoing measures to help evaluate its performance. As an indicator ofthe Company's performance, cashflow from operations should not beconsidered as an alternative to, or more meaningful than, net cash fromoperating activities as determined in accordance with IFRS.Further details on the above are provided in the unaudited interimconsolidated financial statements of Ithaca for the quarter ended June30, 2013, which have been filed with the securities regulatoryauthorities in Canada. These financial statements are available on theSystem for Electronic Document Analysis and Retrieval at www.sedar.comand on the Company's website: www.ithacaenergy.com.About Ithaca EnergyIthaca Energy Inc. (TSX: IAE, LSE AIM: IAE) is a North Sea oil and gasoperator focused on the delivery of lower risk growth through theappraisal and development of UK undeveloped discoveries, theexploitation of its existing UK producing asset portfolio and aNorwegian exploration and appraisal business centred on the generationof discoveries capable of monetisation prior to development. Ithaca'sstrategy is centred on generating sustainable long term shareholdervalue by building a highly profitable 25kboe/d North Sea oil and gascompany. For further information please consult the Company's websitewww.ithacaenergy.com.Not for Distribution to U.S. Newswire Services or for Dissemination inthe United StatesForward-looking statementsSome of the statements and information in this press release areforward-looking. Forward-looking statements and forward-lookinginformation (collectively, "forward-looking statements") are based onthe Company's internal expectations, estimates, projections,assumptions and beliefs as at the date of such statements orinformation, including, among other things, assumptions with respect toproduction, drilling, well completion times, future capitalexpenditures, future acquisitions and cash flow. The reader iscautioned that assumptions used in the preparation of such informationmay prove to be incorrect. When used in this press release, thewords"anticipate", "continue", "estimate", "expect", "may","will","project", "plan", "should", "believe", "could", "target" andsimilarexpressions, and the negatives thereof, whether used in connection withoperational activities, production forecasts, budgetary figures,potential developments or otherwise, are intended to identifyforward-looking statements. Such statements are not promises orguarantees, and are subject to known and unknown risks, uncertaintiesand other factors that may cause actual results or events to differmaterially from those anticipated in such forward-looking statements.The Company believes that the expectations reflected in thoseforward-looking statements and are reasonable but no assurance can begiven that these expectations, or the assumptions underlying theseexpectations, will prove to be correct and such forward-lookingstatements and included in this press release should not be undulyrelied upon. These forward-looking statements speak only as of the dateof this press release. Ithaca Energy Inc. expressly disclaims anyobligation or undertaking to release publicly any updates or revisionsto any forward-looking statement contained herein to reflect any changein its expectations with regard thereto or any change in events,conditions or circumstances on which any forward-looking statement isbased except as required by applicable securities laws. HIGHLIGHTS THIRD QUARTER 2013Record - Q3 2013 cashflow from operations increased byfinancial over 150% to $77.8 million (Q3 2012: $30.1 million)results resulting in Q3 YTD 2013 cashflow from operations of $185.3 million (Q3 YTD 2012: $74.8 million) - Q3 YTD 2013 cashflow per share $0.63 (Q3 YTD 2012: $0.29) - Q3 2013 net earnings of $54.1 million (Q3 2012: $4.9 million) and Q3 YTD 2013 net earnings of $109.8 million (Q3 YTD 2012: $48.1 million) - Q3 2013 earnings per share of $0.17 - Netbacks of over $70 / barrel of oil equivalent ("boe") - Q3 2013 average realised oil price of $109 / bbl (Q3 2012: $113 / bbl), including hedging - Net drawn debt of $357 million at September 30, 2013 (zero net drawn debt at December 31, 2012) - UK tax allowances pool of $993 million at quarter end. Norwegian tax receivable of $88 million - Approximately 3.4 million barrels of future 2013-14 oil production hedged at a weighted average price of approximately $102 / bbl (approximately 30% puts / 70% swaps)Oil - Average production in Q3-2013 was 11,942 barrelsdominated of oil equivalent per day ("boepd"), 96% oil, reflectingproduction the impact of shutdowns during the quarter - Total pro-forma production for 2013 is forecast to average approximately 13,000 boepd; this reflects inclusion of full year production from the assets acquired as part of the Valiant Petroleum plc ("Valiant") acquisition, which completed on April 19, 2013. This is lower than originally anticipated for the year due primarily to production deferrals resulting from the longer than anticipated duration of maintenance shutdown activities that impacted the Cook and Causeway Area fields during the second half of the year, and delay to completion of the electrical submersible pump ("ESP") related works on the Taqa-operated host facility for CausewayContinued - Drilling of the Stella "A1" development well wasstrong successfully completed during the quarter, with theprogress clean-up test performed on the well resulting in a maximumon Stella flow rate of 10,835 boepd. Operations are progressing according to plan on the "A2" development well, with drilling of the horizontal reservoir section scheduled to commence shortly - Solid progress continues to be made on execution of the "FPF-1" floating production facility modifications programme. The vessel has been re-floated following completion of the dry dock related marine system works and work has commenced on the main topsides processing plant construction and installation activities - Execution of the 2013 subsea infrastructure installation work programme is nearing completion, with the remaining works now focused on finishing the tie-in of the infield flowlines and umbilicalsEnhanced - The Company has extended and improved its longdebt term senior bank debt financing facilities, increasing itsfacilities Reserve Based Lending ("RBL") facility from $430 million to $610 million and established a new five year $100 million corporate facility - Further farm-outs of the three UK exploration well commitments transferred as a result of the Valiant Petroleum plc ("Valiant") acquisition were executed during the quarter. When combined with the previously announced farm-outs, on completion, Ithaca will be fully carried for the forecast cost of drilling the wells and in addition willreceive over $8 million in cash from the farm-out parties SUMMARY STATEMENT OF INCOME 3 Months 9 Months Ended Ended Sep 30 Sep 30 2013 2012 2013 2012Average Brent Oil Price $/bbl 110 110 109 110Average Realised Oil Price(1) $/bbl 113 110 107 112Revenue M$ 114.1 41.6 302.2 117.9Cost of Sales - excluding DD&A M$ (35.0) (12.5) (124.1) (44.0)G&A etc M$ 1.2 - 0.8 (1.8)Non-recurring Valiant Restructuring M$ - - (5.2) -Realised Derivatives Gain / (Loss) M$ (2.5) 1.0 11.6 2.7Cashflow From Operations M$ 77.8 30.1 185.3 74.8DD&A M$ (42.3) (14.6) (103.1) (39.0)Unrealised Derivatives Gain / M$ (13.3) (12.9) (17.1) 5.2(Loss)Non-recurring Valiant Deal Costs M$ - - (5.0) -Non-recurring Negative Goodwill M$ 7.0 - 55.9 -Other M$ 16.7 (0.6) 1.3 (3.5)Profit Before Tax M$ 45.9 2.0 117.3 37.5Deferred Tax Credit / (Charge) M$ 8.2 2.9 (7.5) 10.6Profit After Tax M$ 54.1 4.9 109.8 48.1Earnings Per Share(2) $/Sh. 0.17 0.02 0.37 0.19Cashflow Per Share(2) $/Sh. 0.25 0.12 0.63 0.29(1)Average realised price before hedging(2) Q3 2013 weighted average number of shares of 317.4 million andQ3 YTD 2013 weighted average number of shares of 294.6 million SUMMARY BALANCE SHEETM$ Q3 2013 Q4 2012Cash & Equivalents 77 31Other Current Assets 366 198PP&E 1,466 663Other Non-Current Assets 54 41Total Assets 1,963 934Current Liabilities (430) (206)Bank debt (427) -Asset Retirement Obligations (160) (53)Deferred Tax Liabilities (119) (62)Other Non-Current Liabilities (15) (7)Total Liabilities (1,151) (328)Net Assets 812 606Share Capital 525 431Other Reserves 23 20Surplus 264 154Shareholders Equity 812 606 CORPORATE STRATEGY Ithaca Energy Inc. ("Ithaca" or the "Company") is a North Sea oil and gas operator focused on the delivery of lower risk growth through the appraisal and development of UK undeveloped discoveries, the exploitation of its existing UK producing asset portfolio and a Norwegian exploration and appraisal business centred on the generation of discoveries capable of monetisation prior to development. The Company has a solid and diversified UK producing asset base generating significant free cashflow from mainly oil production. Ithaca's goal is to generate sustainable long term shareholder value by building a highly profitable 25kboepd North Sea oil and gas company. Execution of the Company's strategy is focused on the following core activities: - Maximising cashflow and production from the existing asset base. - Delivery of lower risk development led growth through the appraisal of undeveloped discoveries. - Delivering first hydrocarbons from the Ithaca operated Greater Stella Area development. - Monetising proven Norwegian asset reserves derived from exploration and appraisal drilling prior to the development phase. - Continuing to grow and diversify the cashflow base by securing new producing, development and appraisal assets through targeted acquisitions and licence round participation. - Maintaining financial strength and a clean balance sheet, supported by lower cost debt leverage. OPERATIONS UPDATE PRODUCTION Total production in Q3-2013 was 11,942 boepd, 96% oil. This represents an increase of over 130% on the same quarter in 2012 (Q3-2012: 5,061 boepd), driven primarily by the additional assets acquired as a result of the Valiant acquisition. Production during the quarter was derived from the operated Athena, Causeway Area (Causeway and Fionn), Beatrice, Jacky and Anglia fields and thenon-operated Dons (Don Southwest and West Don), Cook, Broom and Topaz fields. OPERATIONAL ACTIVITIES Operational activities in Q3-2013 were dominated by maintenance shutdown activity on certain of the Company's main fields. Total production during the quarter was impacted by commencement of the major planned maintenance shutdown of the Taqa-operated North Cormorant platform, which serves as the host facility for the Causeway Area fields. The shutdown commenced at the end of August 2013, with production being reinstated in late October 2013, approximately two weeks behind the original plan. The extended shutdown duration and post-shutdown close-out activities have resulted in slippage in execution of the plan to complete the remaining platform modifications required to deliver power to the Causeway electrical submersible pump package installed in the well. It is anticipated that these platform workscopes will now be completed in 2014, resulting in deferment of ESP driven incremental Causeway production. Production during Q3-2013 was also affected by a significant unplanned shutdown of the Shell operated Cook field in August 2013. The Operator commenced the shutdown in early August 2013 in order to undertake an inspection of the infield flowline connecting the field to its host facility, the Anasuria floating production, storage and offloading vessel. The inspection was completed around mid-October 2013, enabling the reinstatement of production. The shutdown duration was longer than initially anticipated by the field Operator due to delays incurred in mobilising a diving support vessel to undertake the inspection works and field re-start operations. However, the inspection confirmed the integrity of the pipeline thus avoiding an extended shutdown in 2014 which was planned to cost $8 million (net). During the quarter diagnostic testing confirmed that the ESP pumps in the "P4" well on the Athena field had failed. The net production impact of this has been successfully mitigated by the optimisation of the other wells on the field and the processing facilities, such that it represents a net production deferment to Ithaca of just over 300 bopd. The options for reinstating full production from the well, via either a workover or sidetrack, are currently under evaluation. Minor planned maintenance shutdowns were incurred during the quarter on the Anglia and Topaz gas fields to accommodate the completion of maintenance activities on the gas gathering systems servicing the fields. PRODUCTION OUTLOOK Total pro-forma production for 2013 is forecast to average approximately 13,000 boepd; this reflects inclusion of full year production from the assets acquired as part of the Valiant acquisition, which completed on April 19, 2013. This is lower than originally anticipated for the year primarily as a result of production deferrals resulting from the longer than anticipated duration of the maintenance shutdown activities that have impacted the Cook and Causeway Area fields during the second half of the year, and delay to completion of the ESP related works on the Taqa-operated host facility for Causeway. Maintenance activities on the host facility for the Dons fields, the Northern Producer floating production facility, is also scheduled to result in a modest reduction in production from the fields over approximately two weeks in the final quarter of 2013. These works are being completed in order to improve the future uptime performance of these facilities over the longer term. GREATER STELLA AREA DEVELOPMENT UPDATEStrong progress Strong progress has continued to be made withduring the development of the Greater Stella Area ("GSA") andquarter on a number of key milestones have been closed out,execution of the including completion of both the first Stellakey GSA development well and the dry dock related works anddevelopment re-float of the FPF-1.workscopes DRILLING PROGRAMME During the quarter the first Stella development well was successfully drilled, completed and tested using the ENSCO 100 jack-up drilling rig. The 30/ 6a-A1Z ("A1") well is the first of four development wells that are to be drilled on the Stella field prior to the start-up of production. The A1 well was drilled to a total vertical depth subsea of 9,739 feet, with a 2,499 foot horizontal reservoir section completed in the Palaeocene Andrew sandstone reservoir, close to the targeted transition between the oil rim and gas condensate cap. As anticipated prior to drilling, the reservoir quality encountered by the well was in line with previous appraisal wells drilled on the field. The well intersected a net reservoir interval of 1,312 feet. A clean-up and production flow test was performedon the well. The purpose of this was to clean out the drilling fluids used to complete the well, to ensure that it is configured for the immediate start-up of production following the hook-up of the FPF-1, gain further information on the productivity of the well and obtain hydrocarbon fluid samples. The well flowed at a maximum rate of 10,835 boepd on a 7/8-inch choke, with the full production potential of the well limited by the capacity of the well test equipment on the drilling rig. The maximum flow rate of 10,835 boepd corresponds to 6,499 bopd of oil and 26 million standard cubic feet of gas per day ("MMscf/d") of liquids rich gas. Fluid samples show that the oil is of high quality, approximately 42degrees API. The processing facilities that will be used on the FPF-1 to separate and export oil and gas produced from the field will increase the overall oil relative to gas production rate associated with the A1 well, compared to that which can be achieved from the simple separation facilities available for the purposes of the well test. Following completion of the A1 well, the ENSCO 100 rig moved directly on to drilling of the Stella A2 well. Operations are progressing to plan on the well, with drilling of the horizontal reservoir section scheduled to commence shortly. Management of the Stella drilling and completion operations is being performed by Advanced Drilling Technology International ("ADTI") under "turnkey" contract arrangements. FPF-1 MODIFICATIONS PROGRAMME Solid progress was made during the quarter with execution of the FPF-1 dry dock related marine system refurbishment and hull life extension works, resulting in the vessel exiting the dry dock facility and being re-floated in early October. This marked a major milestone in execution of the FPF-1 modifications programme, allowing the main topsides processing plant construction and installation activities to commence. Three additional sponsons have been added to the pontoons on the FPF-1, involving the construction and installation of approximately 2000 tonnes of steelwork blocks, to provide enhanced buoyancy. Four buoyancy "blisters" are being fabricated and will be added to the columns of the FPF-1 during the next phase of operations, in parallel with the topsides construction works. These modifications are designed to ensure that the FPF-1 canaccommodate the new topsides processing equipment that is to be installed on the main deck and achieve strong operational uptime performance. Processing plant equipment and materials for the topsides of the vessel continue to flow to the yard, with most of the major long lead pieces of equipment having now been delivered to site in readiness for installation. Work is progressing on construction of the pre-assembled units and racks that are to be installed on the vessel, which will contain structural steel, pipework spools, cable trays and equipment. The associated preparatory work on the main deck of the FPF-1 is also underway, involving the installation of the structural steelwork on which the units and racks will be located. The FPF-1 modifications and upgrade programme is being managed by Petrofac under the terms of a lump sum incentivised contract. The modification works are being undertaken at the Remontowa shipyard in Gdansk, Poland. SUBSEA INFRASTRUCTURE WORKS Execution of the main subsea infrastructure manufacturing and installation programme, which is being undertaken by Technip UK Limited under the terms of an integrated Engineering, Procurement, Installation and Construction contract, has continued to make rapid progress over Q3-2013. Installation of the main subsea structures that will be used for the production and export of hydrocarbons to and from the FPF-1 was completed during the quarter. The 60km 10-inch gas export pipeline from the FPF-1 to the BP operated Central Area Transmission System ("CATS") pipeline has also now been fully installed following completion of trench backfill, tie-in and as laid survey operations. The pipeline is now configured to receive gas exports upon the start-up of production from the Stella field. No modifications are required to the onshore Teeside Gas and Liquids Processing ("TGLP") terminal to receive and process the rich gas that will be exported from the FPF-1 through the CATS pipeline. Installation of the flexible infield flowlines and static umbilicals that connect the Stella field drill centre manifolds to the FPF-1 riser bases has now been completed and diving operations will commence shortly to complete the tie-in of these components. Completion of the tie-in operations will mark the end of the 2013 subsea infrastructure installation campaign. Planning for the remaining subsea infrastructure installation programme is well advanced. The programme will involve tie-in of the wells, installation of the dynamic flexible risers and umbilicals that will connect the riser bases to the FPF-1, the vessel mooring spread and the oil export facilities. GSA LICENCES The GSA coventurers have elected to relinquish licence P.1814 (Block 29/10d), containing the Helios discovery. The licence terms required a commitment to be made to either drilling a well on the block or relinquishing it by October 2013. Such a well commitment was not deemed appropriate by the coventurers at this time. CORPORATE ACTIVITIES NEW DEBT FACILITIESEnlarged senior debt The planned enlargement of the Company'sfacility established, $430 million RBL facility was completed inalong with a new October in order to incorporate the assetscorporate debt facility acquired as part of the Valiant acquisition and enable retirement of the $350 million bridge credit facility taken out to facilitate the acquisition. The increased $610 million facility is based on conventional oil and gas industry borrowing base financing terms, with a loan term until June 2017, and is available to fund on-going development activities and any producing asset acquisitions. A new $100 million five year corporate debt facility has also been established, providing additional financial flexibility for the Company to add new appraisal / development opportunities to the existing portfolio. This facility is based on normal corporate debt covenants, relating to EBITDAX ("Earnings before Interest Tax Depreciation, Amortisation and Exploration costs") coverage of debt and interest obligations. OIL SALES AGREEMENTS The Company has entered into an extension of its existing agreement with BP Oil International Limited for the marketing of niche grade crudes and its oil sales agreement with Shell Trading International Limited ("Shell") for production from the Cook, Dons, Causeway Area and Broom producing fields. Future volumes from the Stella field may also be included. This latter agreement includes the ability for Ithaca, at its option, to receive pre-payments for future crude sales to Shell. UK EXPLORATION FARM-OUTSFully carried positions In line with the Company's stated objectiveplus a positive cash at the time of the Valiant acquisition,balance established further farm-outs have been completed tothrough farm-outs of the restructure and de-risk the 3 UK exploration3 UK exploration wells well commitments transferred as a result ofcommitments transferred the acquisition. Ithaca will now be fullyfrom Valiant carried for the forecast cost of drilling the UK exploration commitment wells and in addition will receive over $8 million in cash from the farm-out parties. The status of the UK exploration farm-outs are summarised below. In addition to these transactions, the Company has also withdrawn from a number of licences in the portfolio transferred from Valiant. - Handcross - P1631 & P1832 (Blocks 204/14c, 204/18b & 204/19c): farm-outs have been executed with RWE Dea UK SNS Limited, a subsidiary of Edison International SpA, Oyster Petroleum Limited and Sussex Energy Limited. The agreements provide Ithaca with a fully carried 31% (operated) working interest and also a cash payment. Handcross is a Palaeocene prospect located in the West of Shetland sector of the UK Continental Shelf ("UKCS"). An exploration well is scheduled to be drilled on the prospect using the Stena Carron drillship, with operations anticipated to commence in late 2013. - Isabella - P1820 (Blocks 30/6b, 30 /11a & 30/12d): farm-out executed with Maersk Oil North Sea UK Limited and a subsidiary of Edison International SpA. The agreement provides Ithaca with a fully carried 10% non-operated working interest and also a cash payment. Isabella is a gas condensate prospect located in the UK Central North Sea. The licence work programme requires an exploration well to be drilled on the prospect by early 2015. - Beverley - P1792 (Blocks 21/30f, 22/26c): farm-out executed with Shell UK Limited, resulting in Ithaca reducing its 40% interest in the non-operated Central North Sea exploration well to 20%, in return for a partial carry of the costs of a well on the Beverley prospect. The licence work programme requires an exploration well to bedrilled on the prospect by early 2015. HANDCROSS WELL The Company is in the process of preparing for the drilling of the operated exploration well on the Handcross prospect located in the West of Shetlands basin. The Stena Carron drillship will be used for the drilling operations and it is anticipated that it will be on location at the end of2013. LANGLITINDEN WELL Drilling of an exploration well on the Det norske operated Langlintinden prospect is scheduled to commence in late 2013 (5% Ithaca working interest). The well is being drilled on the licence PL659, located in the Norwegian sector of the Barents Sea, in the vicinity of the 2008 Caurus gas discovery located on the same licence. Q3 2013 RESULTS OF OPERATIONS REVENUEQuarterly revenue Three Months Ended September 30, 2013of $114.1 million ,reflecting a Revenue increased by $72.5 million in Q3 2013 torealised average $114.1 million (Q3 2012: $41.6 million). This wasoil price of $109/ mainly driven by an increase in oil salesbbl volumes, partially offset by a reduction in the oil price. Oil sales volumes increased primarily due to the inclusion of sales from the Dons and Causeway fields following the acquisition of Valiant (April 2013). The additional Cook acquisition (transaction completed in Q1 2013) also added to the increase in oil sales offset by lower volumes from the Beatrice and Jacky fields. Average realised oil prices increased quarter on quarter from $110/bbl in Q3 2012 to $113/bbl in Q3 2013. The average Brent price for the quarter was $110.3/bbl compared to $109.6/bbl for Q3 2012. The Company's realised oil prices do not strictly follow the Brent price pattern given thevarious oil sales contracts in place, with certain field sales sold at a discount or premium to Brent. The higher premium to Brent achieved this quarter was predominantly driven by significant premiums on the uplift of oil cargoes from Nigg. This increase in average realised oil price was offset by a realised hedging loss of $4 /bbl in Q3 2013. Gas sales remained relatively steady quarter on quarter, although volumes remain modest, accounting for only 2% of total revenue. Nine Months Ended September 30, 2013 Revenue increased by $184.3 million in Q3 YTD 2013 to $302.2 million (Q3 YTD 2012: $117.9 million). This movement mainly comprises an increase in oil sales volumes, partially offset by a reduction in oil price. In line with the above quarterly movement, oil sales volumes increased primarily due to the inclusion of sales from the Dons and Causeway fields acquired from Valiant, as well as the additional interest acquired in the Cook field and Athena coming onstream in Q2 2012, partially offset by lower volumes from the Beatrice and Jacky fields attributable to planned shutdowns. Total gas sales increased primarily as a result of higher realised gas prices, with an increase from $38/boe to $43/boe, partially offset by lower production volumes in the period. 3-Months 9-Months Ended Ended Sep 30 Sep 30Average 2013 2012 2013 2012RealisedPriceOil $/bbl 113 110 104 112Pre-HedgingOil $/bbl 109 113 108 115Post-HedgingGas $/boe 41 41 43 38 COST OF SALES 3-Months 9-Months Ended Sep 30 Ended Sep 30 $'000 2013 2012 2013 2012 Operating 41,893 20,903 108,275 52,031 Expenditure DD&A 42,279 14,563 103,144 39,040 Movement in Oil (6,915) (8,370) 14,798 (7,989)&Gas Inventory Oil Purchases 34 - 981 - Total 77,291 27,096 227,198 83,082 Three Months Ended September 30, 2013 Cost of sales increased in Q3 2013 to $77.3 million (Q3 2012: $27.1 million). This increase was attributable to increases in operating costs, depletion, depreciation and amortisation ("DD&A") and movement in oil and gas inventory. Operating costs increased in the quarter to $41.9 million (Q3 2012: $20.9 million) primarily due to the inclusion of costs for the Dons and Causeway fields acquired from Valiant, plus the additional acquired interest in the Cook field. Unit operating costs decreased to $38/boe in the period (Q3 2012: $45/boe) mainly as a result of the inclusion of the lower cost Dons and Causeway fields acquired from Valiant. Unit operating costs were not reduced further in the quarter because of the planned Causeway area maintenance shutdown and the unplanned shutdown on Cook for infield flowline integrityinspection as noted above. DD&A for the quarter increased to $42.3 million (Q3 2012: $14.6 million). This was primarily due to higher production volumes in Q3 2013 as a result of the addition of the Dons and Causeway fields together with the additional acquired interest in the Cook field. The blended DD&A rate for the quarter increased to $38/boe (Q3 2012: $31/boe). The blended DD&A rate in Q3 2012 was unusually low due to the production mix, however the primary driver for the increase has been "business combination" accounting for transactions. As the below "Changes in Accounting Policies" section outlines, the adoption of international financial reporting standards ("IFRS") and accounting for acquisitions as business combinations has led to increased DD&A rates. 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 Statement of Income. An oil and gas inventory movement of $6.9 million was credited to cost of sales in Q3 2013 (Q3 2012 credit of $8.4 million). 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 the oil has been sold. In Q3 2013 fewer barrels of oil were sold (988k bbls) than produced (1,049k bbls), mainly as a result of the timing of Cook, Causeway and Dons field liftings. Movement in Operating Oil Gas Total Oil & Gas Inventory kbbls kboe kboe Opening inventory 173 10 183 Production 1,049 50 1,099 Liftings/sales (988) (50) (1,038) Transfers to LT inventory (7) - (7) Closing volumes 227 10 237 Nine Months Ended September 30, 2013 Cost of sales increased in Q3 YTD 2013 to $227.2 million (Q3 YTD 2012: $83.1 million) due to increases in operating costs, DD&A and movement in oil and gas inventory. Operating costs increased in the period to $108.3 million (Q3 YTD 2012: $52.0 million) primarily due to the inclusion of costs for the Dons and Causeway fields acquired from Valiant, plus increased Athena costs (only part period in 2012) and the additional interest acquired in the Cook field as noted above. DD&A for the period increased to $103.1 million (Q3 YTD 2012: $39.0 million). This was primarilydue to higher production volumes in Q3 YTD 2013 with the addition of the Dons and Causeway fields, together with a full period of production from the Athena field and the additional interest in the Cook field. An oil and gas inventory movement of $14.8 million was charged to cost of sales in Q3 YTD 2013 (Q3 YTD 2012: credit of $8.0 million). In Q3 YTD 2013 more barrels of oil were sold (2,730k bbls) than produced (2,584k bbls), as a result of the timing of liftings. ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES 3-Months 9-Months Ended Sep Ended Sep 30 30 $'000 2013 2012 2013 2012 General & Administration 1,315 462 6,731 2,566 Share Based Payments 203 62 865 401 Total Administration 1,518 524 7,596 2,967 Expenses Non-recurring Valiant - - 10,235 - Acquisition Costs Exploration & Evaluation 509 112 953 191 ("E&E") Total 2,027 636 18,784 3,158 Three Months Ended September 30, 2013 Total administrative expenses increased in the quarter to $1.5 million (Q3 2012: $0.5 million) primarily due to an increase in general and administrative expenses as a result of the continued growth of the Company, including the associated costs of an enlarged Ithaca group post the Valiant acquisition. Share based payment expenses increased as a result of options being granted towards the end of 2012 (none end 2011), therefore higher amortisation expense has been reflected through Q3 2013. Exploration and evaluation expenses of $0.5 million were recorded in the quarter (Q3 2012: $0.1 million) primarily due to the expensing of previously capitalised costs relating to areas where exploration and evaluation activities have ceased. Nine Months Ended September 30, 2013 Total administrative expenses increased in the period to $7.6 million (Q3 YTD 2012: $3.0 million) primarily associated with an increase in general and administrative expenses as a result of the associated costs of an enlarged Ithaca group post the Valiant acquisition as well as higher levels of corporate activity, particularly in the first quarter of the year. FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS Three Months Ended September 30, 2013 A foreign exchange gain of $2.2 million was recorded in Q3 2013 (Q3 2012: $0.7 million gain). The majority of the Company'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 1.52 at the start of the quarter rising to USD:GBPP 1.61 at the end of the quarter,fluctuating between 1.49 and 1.61 during the period). This volatility was partially offset by the foreign exchange hedges and resultant gains described below. The Company recorded a $15.8 million loss on financial instruments for the quarter ended September 30, 2013 (Q3 2012: $12.0 million loss). The loss was predominantly due to a $3.7 million realised loss on commodity hedges together with a $22.9 million decrease in the value of oil swaps and put options, due to a reduction in the Brent oil forward curve, partially offset by a $9.7 million gain on the revaluation of foreign exchange instruments. In addition, the Company realised a gain of $1.2 million on foreign exchange instruments. The Company continues to limit exposure to fluctuations in foreign currencies with forward contracts to hedge a further GBP65 million and EUR25 million of capital expenditure on the GSA development at rates of $1.52: GBP1.00 and $1.29: EUR1.00. Nine Months Ended September 30, 2013 A foreign exchange gain of $0.1 million was recorded in Q3 YTD 2013 (Q3 YTD 2012: $0.9 million gain). As above, general volatility in the USD:GBP exchange rate was the main driver behind the foreign exchange loss in Q3 YTD 2013 (USD:GBP at January 1, 2013: 1.62. USD:GBP at September 30, 2013: 1.61 with fluctuations between 1.48 and 1.64 during the period). The Company recorded a $5.5 million loss on financial instruments for the nine months ended September 30, 2013 (Q3 YTD 2012: $6.6 million gain). This was primarily driven by a $25.4 million downwards revaluation of commodity hedges due to a reduction in value of oil swaps and put options partially offset by a $9.9 million realised gain on commodity hedges (including a $6 million settlement on the swaption conversion), a $8.3 million gain on the revaluation of foreign exchange instruments together with a $1.8 million realised gain on foreign exchange instruments. BUSINESS COMBINATIONS NEGATIVE GOODWILL If the cost of an acquisition is more than the fair value of net assets acquired, the difference is recognised on the balance sheet as goodwill. Conversely, if the cost of an acquisition is less than the fair value of the assets acquired, the difference is recognised as negative goodwill in the statement of income. As a result of business combination accounting for the Valiant acquisition, $55.0 million of negative goodwill was recognised in Q3 YTD 2013, including $7 million in Q3 2013 relating to the true-up of working capital balances on acquisition. In addition, $0.9 million negative goodwill was recognised in Q1 2013 in relation to the Cook acquisition representing negative goodwill of $55.9 million in the nine month period ended September 30, 2013. EXPLORATION OBLIGATION As part of the Valiant acquisition accounting, a liability was created to cover committed exploration expenditure. On the farm-out of Handcross to Euroil Exploration Limited, a subsidiary of Edison International SpA, $22.3 million of this liability was released and credited to the statement of income to reflect the fact that Ithaca will no longer be liable for these costs. TAXATIONNo UK tax Three Months Ended September 30, 2013anticipated to bepayable in the A tax credit of $8.2 million was recognised inmid-term the quarter ended September 30, 2013 (Q3 2012: $2.9 million credit). This is a product of adjustments to the tax charge primarily relating to the UK Ring Fence Expenditure Supplement, share based payments and the release of exploration obligations. As noted in the Cost Of Sales section the deferred tax credit is increased by the use of accounting for acquisitions as business combinations. In addition, Norwegian tax refunds totalling $88 million relating to Norwegian capitalexpenditure are recognised on the balance sheet. As a result of the above factors, profit after tax increased to $54.1 million (Q3 2012: $4.9 million). Nine Months Ended September 30, 2013 A tax charge of $7.5 million was recognised in the nine months ended September 30, 2013 (Q3 YTD 2012: $10.6 million credit). This is a product of adjustments to the tax charge primarily relating to the UK Ring Fence Expenditure Supplement, share based payments and the release of exploration obligations. As a result of the above factors, profit after tax decreased from $117.3 million to $109.8 million (Q3 YTD 2012: $48.1 million). No taxes are expected to be paid in the mid-term relating to upstream oil and gas activities as a result of the $993 million UK tax allowances pool available to the Company. CAPITAL INVESTMENTSCapital expenditure $608 million of the total $886 million capitaldriven by additions to D&P assets in Q3 YTD 2013 wassignificant attributable to the fair value on acquisition ofinvestment in the Valiant producing fields resulting fromdevelopment projects business combination accounting (the totaland the acquisition acquisition cost being $293.6 million). Aof Valiant further $105 million relates to non-cash additions to decommissioning liabilities relating to Valiant acquired assets and the Stella field. The remaining D&P additions of $173 million relate primarily to the acquisition of the additional interest in the Cook field and execution of the GSA development, with the main areas of expenditure being on the manufacture and fabrication of subsea infrastructure andexecution of the FPF-1 modification works (as described above). Capital expenditure on E&E assets in Q3 YTD 2013 was $49.7 million, offset by a $28.7 million release of the acquired E&E liability, resulting in a net addition of $21 million. Expenditure was primarily focused on the Norvarg and Storbarden exploration and appraisal wells in Norway as well as UK development projects. As part of the Valiant acquisition accounting, a liability was created to cover the committed exploration spend along with a corresponding asset for the associated Norwegian tax credit receivable. This liability is released as the spend is incurred, essentially resulting in a nil asset value within PP&E. $'000 Q3 2013 Q3 2012 Development & Production ("D&P") 885,757 98,311 Exploration & Evaluation 20,979 28,168 Other Fixed Assets 711 60 Total 907,447 126,539 LIQUIDITY AND CAPITAL RESOURCES $'000 Q3 2013 Q4 2012 Increase / (Decrease) Cash & Cash 77,196 31,376 45,820 Equivalents Trade & Other 325,677 173,949 151,728 Receivables Inventory 28,106 15,878 12,228Other Current 12,150 8,251 3,899 Assets Trade & Other (408,604) (205,635) (202,969) Payables Net Working 34,525 23,819 10,706 Capital As at September 30, 2013, Ithaca had a positive net working capital balance of $34.5 million including a cash balance of $77.2 million. Available cash has been, and is currently, invested in money market deposit accounts with BNP Paribas ("BNPP"). Management has received confirmation from the financial institution that these funds are available on demand. Cash and cash equivalents increased as a result of bank debt drawings towards the end of the quarter offsetting the continued cash investment in the ongoing Stella field development. The funds were drawn for substantial payments due for imminent release post September 30, 2013 on the Stella development. Other working capital movements are driven by the timing of receipts and payments of balances. 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 Company assesses partners' credit worthiness before entering into joint venture agreements. The Company regularly monitors all customer receivable balances outstanding in excess of 90days. As at September 30, 2013, substantially all of the accounts receivable is current, being defined as less than 90 days. In the past, the Company has not experienced credit loss in the collection of accounts receivable. At September 30, 2013, Ithaca had three loan facilities being a $430 million senior borrowing base facility (the "Facility"), an additional bridge credit facility (the "Bridge Facility") of $350 million (to facilitate the Valiant acquisition) together with a Norwegian debt facility (the "Norwegian Facility") of NOK 450 million (-$75 million). At quarter end, the Company had unused credit facilities totalling approximately $421 million (Q4 2012: $430 million). Approximately $434 million was drawn down under the facilities at September 30, 2013, being $50 million drawn under the Facility, $350 million drawn under the Bridge Facility and $34 million drawn under the Norwegian Facility. During the quarter ended September 30, 2013, there was a net cash inflow of approximately $46.7 million (Q3 2012: outflow of $55.0 million). Cashflow from Operations Cash generated from operating activities in Q3 2013 was $77.8 million primarily due to cash generated from Athena, Beatrice, Jacky, Anglia, Cook and Broom operations, augmented in Q3 2013 primarily due to the inclusion of Dons and Causeway operations. Cashflow from Financing Activities Cash generated from financing activities in Q3 2013 was $52.1 million primarily due to additional draw down of the existing debt facility in Q3 2013 ($58 million). Cashflow from Investing Activities Cash used in investing activities in Q3 2013 was $139.3 million primarily due to further capital expenditure on the GSA development, including modification of the FPF-1 and subsea infrastructure fabrication works as noted above. The Company continues to be fully funded, with more than sufficient financial resources to cover its anticipated future commitments from its existing cash balance, debt facilities and forecast cashflow from operations. No unusual trends or fluctuations are expected outside the ordinary course of business. COMMITMENTS The engineering financial commitments relate to committed capital expenditure on the GSA development, as well as ongoing capital 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 Company's existing cash balance, forecast cashflow from operations andits debt facilities. $'000 1 2-5 5+ Year Years Years Office Leases 954 3,137 - Other Operating Leases 12,319 8,272 - Exploration Licence 583 - - Fees Engineering 238,451 - - Rig Commitments 23,094 - - Total 275,401 11,049 - FINANCIAL INSTRUMENTS All financial instruments are initially measured in the balance sheet at fair value. Subsequent measurement of the financial instruments is based on their classification. The Company has classified each financial instrument into one of these categories:Financial Ithaca Subsequent MeasurementInstrument ClassificationCategoryHeld-for-trading Cash, cash Fair Value with changes recognised equivalents, in net income restricted cash, derivatives, commodity hedges, long-term liabilityHeld-to-maturity - Amortised cost using effective interest rate method.Loans and Accounts receivable Transaction costs (directlyReceivables attributable to acquisition or issue of financial asset/ liability) are adjusted to fairOther financial Accounts payable, value initially recognised. Theseliabilities operating bank costs are also expensed using the loans, accrued effective interest rate method and liabilities recorded within interest expense.The classification of all financial instruments is the same atinception and at September 30, 2013. The table below presents the total gain / (loss) on financial instruments that has been disclosed through the statement of comprehensive income. Three months Nine months ended ended September 30 September 30$'000 2013 2012 2013 2012Revaluation Forex Forward Contracts 9,723 166 8,251 707Revaluation of Gas Contract - 610 - 1,368Revaluation of Other Long Term (90) (86) 64 (115)LiabilityRevaluation of Commodity Hedges (22,945) (13,617) (25,389) 3,241Total Revaluation Gain/(Loss) (13,312) (12,927) (17,074) 5,201Realised Gain on Forex Contracts 1,185 50 1,729 118Realised Gain/(Loss) on Commodity (3,687) 888 9,873 2,597HedgesTotal Realised Gain/(Loss) (2,502) 938 11,602 2,715Total Realised / Revaluation Gain/ (15,814) (11,989) (5,472) 7,916(Loss)Contingent Consideration - - - (1,295)Total Gain/(Loss) on Financial (15,814) (11,989) (5,472) 6,621Instruments The following table summarises the commodity hedges in place at the end of the quarter.Derivative Term Volume Average Price bbl $/bblOil Swaps October 2013 - December 2014 2,472,809 102Put Options October 2013 - September 2014 930,300 104Derivative Term Volume Average Price Therms p/thermGas Swaps October 2013 - December 2014 1,974,000 67The table below summarises the foreign exchange financial instrumentsin place at the end of Q3 2013.Derivative Forward Forward Forward Plus contract contractTerm Oct 13 - Dec 13 Oct 13 - Jan 14 Oct 13 - Dec 13Value GBP4million / month GBP65 million EUR25 millionProtection Rate $1.59/GBP1.00 $1.52/GBP1.00 $1.29/EUR1.00Trigger Rate $1.50/GBP1.00 N/A N/A SUMMARY OF QUARTERLY RESULTS$'000 30 Sep 2013 30 Jun 2013 31 Mar 2013Revenue 114,112 128,360 59,769Profit After Tax 54,104 52,228 3,472EPS - Basic 0.17 0.17 0.01EPS - Diluted 0.17 0.17 0.01$'000 31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 2012 2012 2012 2012 2011Revenue 52,566 41,579 35,779 40,553 54,870Profit After 45,347 4,894 30,238 12,916 13,318TaxEPS - Basic 0.17 0.02 0.12 0.05 0.05EPS - Diluted 0.17 0.02 0.11 0.05 0.05 The most significant factors to have affected the Company's results during the above quarters, other than transactions such as the Valiant acquisition, are fluctuation in underlying commodity prices and movement in production volumes. The Company has utilised 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 unrealised gains and losses due to movements in the oil price and USD : GBP exchange rate. OUTSTANDING SHARE INFORMATION The Company'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 UK under the symbol "IAE". As at September 30, 2013, Ithaca had 317,365,658 common shares outstanding along with 19,314,630 options outstanding to employees and directors to acquire common shares. No options were granted by the Board of Directors in the quarter ended September 30, 2013. Due to the exercise and listing of option shares following the end of Q3-2013, as at November 8, 2013, Ithaca had 322,233,620 common shares outstanding along with 14,446,668 options outstanding to employees and directors to acquire common shares. September 30, 2013 Common Shares Outstanding 317,365,658 Share Price(1) $2.45 / Share Total Market Capitalisation $777,545,862 (1) Represents the TSX close price (CAD$2.53 on last trading day of September, 2013. US$:CAD$ 0.97 on September 30, 2013 CONSOLIDATION The consolidated financial statements of the Company and the financial data contained in this management's discussion and analysis ("MD&A") are prepared in accordance with 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"), Ithaca Minerals North Sea Limited ("Ithaca Minerals") and Ithaca Energy Holdings (UK) Limited ("Ithaca Holdings UK") and its associates FPU Services Limited ("FPU") and FPF-1 Limited ("FPF-1"). The consolidated financial statements also include, from April 19 2013 only (being the acquisition date) the Valiant group of companies, comprising the following companies: - Ithaca Petroleum Limited (formerly Valiant Petroleum plc) - Ithaca Causeway Limited (formerly Valiant Causeway Limited) - Ithaca Exploration Limited (formerly Valiant Exploration Limited) - Ithaca Alpha (NI) Limited (formerly Valiant Alpha (NI) Limited - Ithaca Gamma Limited (formerly Valiant Gamma Limited) - Ithaca Epsilon Limited (formerly Valiant Epsilon Limited) - Ithaca Delta Limited (formerly Valiant Delta Limited) - Ithaca Petroleum Holdings AS (formerly Valiant Petroleum Holdings AS) - Ithaca Petroleum Norge AS (formerly Valiant Petroleum Norge AS) - Ithaca Technology AS (formerly Valiant Technology AS) - Ithaca AS (formerly Querqus AS) - Ithaca Petroleum EHF (formerly Valiant Petroleum EHF) All inter-company transactions and balances have been eliminated on consolidation. A significant portion of the Company's North Sea oil and gas activities are carried out jointly with others. The consolidated financial statements reflect only the Company's proportionate interest in such activities. 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 areincluded to aid the reader in assessing the criticalaccounting policies and practices of the Company 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 Company might realise different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies. Capitalised 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 Company's D&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 Company'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 recognised 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 recognised at fair value on the balance sheet. The Company'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 recognise share based payment expense, the Company 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 Company'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 Company 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 September 30, 2013, there were no changes in Ithaca's internal control over financial reporting that occurred during the quarter ended September 30, 2013 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 Company adopted IFRS using a transition date of January 1, 2010. The financial statements for the quarter ended September 30, 2013, including required comparative information, have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IASB"). The Company elected to present all acquisitions since the IFRS transition date as business combinations in accordance with IFRS 3(R). 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 recognised in the deferred tax charged through the consolidated statement of income. 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 1 January 2013. There has been no material impact from the adoption of the new and amended standards on the Company's financial statements. ADDITIONAL INFORMATIONNon-IFRSMeasures 'Cashflow from operations' referred to in this MD&A is not prescribed by IFRS. This non-IFRS financial measure does not have any standardised meaning and therefore is unlikely to be comparable to similar measures presented by other companies. The Company uses this measure to help evaluate its performance. As an indicator of the Company's performance, cashflow from operations should not be considered as an alternative to, or more meaningful than, net cash from operating activities asdetermined in accordance with IFRS. The Company considers Cashflow from operations to be a key measure as it demonstrates the Company'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.'EBITDAX' referred to in this MD&A isnot prescribed by IFRS. EDITDAX is defined as earnings before interest, taxes, Depreciation, Amortization and Exploration costs. EBITDAX is a supplemental non-GAAP financial measure that is not recognized under IFRS and does not have a standardized meaning prescribed by IFRS. EBITDAX should not be considered as an alternative to, or more meaningful than, net profit and comprehensive income or cash flows from operating activities as determined in accordance with IFRS or as an indicator of operating performance or liquidity. The computations of EBITDAX may not be comparable to other similarly titled measures of other companies, and accordingly EBITDAX may not be comparable to measures used by other companies.'Netbacks'referred to in this MD&A is not prescribed by IFRS. Netbacks are calculated on a per unit basis as oil, gas and natural gas liquids revenues less royalties and transportation and operating costs. Management believes that Netback is a useful supplemental measure as it provides an indication of the results generated by the principal business activities. Netbacks may not be comparable to other similarly titled measures of other companies, and accordingly Netbacks may not be comparable to measures used by other companies.Off Balance The Company 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 September 30, 2013.Related A director of the Company is a partner of BurstallParty Winger LLP who acts as counsel for the Company. TheTransactions amount of fees paid to Burstall Winger LLP in Q3 2013 was $0.3 million (Q3 2012: $0.1 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 September 30, 2013 the Company had a loan receivable from FPF-1 Ltd, an associate of the Company, for $26.3 million (Q3 2012: $21.6 million) as a result of the completion of the GSA transactions in 2012.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 at the 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, utilising a conversion ratio at 6 mcf: 1 bbl may be misleading as an indication of value.Well Test Certain well test results disclosed in this MD&AResults represent short-term results, which may not necessarily be indicative of long-term well performance or ultimate hydrocarbon recovery there from. 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 Company is dependent upon the production rates and oil price to fund the current development program. For additional detail regarding the Company's risks and uncertainties, refer to the Company's Annual Information Form dated March 25, 2013, (the "AIF") filed on SEDAR at www.sedar.com. RISK MITIGATIONSCommodity The Company's performance is In order to mitigate thePrice significantly impacted by risk of fluctuations in oilVolatility prevailing oil and natural gas and gas prices, the Company prices, which are primarily routinely executes commodity driven by supply and demand as price derivatives, well as economic and political predominantly in relation to factors. oil production, as a means of establishing a floor in realised prices.Foreign The Company is exposed to Given the increasingExchange financial risks including proportion of developmentRisk financial market volatility capital expenditure and and fluctuation in various operating costs incurred in foreign exchange rates. currencies other than the United States dollar, the Company routinely executes hedges to mitigate foreign exchange rate risk on committed expenditure.Interest The Company is exposed to In order to mitigate theRate Risk fluctuation in interest rates, fluctuations in interest particularly in relation to rates, the Company routinely the debt facilities entered reviews cost exposures as a into. result of varying rates and assesses the need to lock in interest rates.Debt The Company is exposed to The Company believes thatFacility borrowing risks relating to there are no circumstancesRisk drawdown of its debt at present that result in facilities (the "Facilities"). its failure to meet the The ability to drawdown the financial tests and it can Facilities is based on the therefore draw down upon its Company meeting certain Facilities. covenants including coverage ratio tests, liquidity tests The Company routinely and development funding tests produces detailed cashflow which are determined by a forecasts to monitor its detailed economic model of the compliance with the Company. There can be no financial tests and assurance that the Company liquidity requirements of will satisfy such tests in the the Facilities. future in order to have access to the full amount of the Facilities. The Facilities includes covenants which restrict, among other things, the Company's ability to incur additional debt or dispose of assets. As is standard to a credit facility, the Company's and Ithaca Energy (UK) Limited's ("Ithaca UK") assets have been pledged as collateral and are subject to foreclosure in the event the Company or Ithaca UK defaults.Financing To the extent cashflow from The Company has establishedRisk operations and the Facilities' a fully funded business plan resources are ever deemed not and routinely monitors its adequate to fund Ithaca's cash detailed cashflow forecasts requirements, external and liquidity requirements financing may be required. to maintain its funding Lack of timely access to such requirements. The Company additional financing, or believes that there are no access on unfavourable terms, circumstances at present could limit the future growth that would lead to selected of the business of Ithaca. To divestment, delays to the extent that external existing programs or a sources of capital, including default relating to the public and private markets, Facility. become limited or unavailable, Ithaca's ability to make the necessary capital investmentsto maintain or expand its current business and to make necessary principal payments under the Facilities may be impaired. A failure to access adequate capital to continue its expenditure program may require that the Company meet any liquidity shortfalls through the selected divestment of its portfolio or delays to existing development programs.Third Party The Company is and may in the The Company believes thisCredit Risk future be exposed to third risk is mitigated by the party credit risk through its financial position of the contractual arrangements with parties. All of the its current and future joint Company's oil production venture partners, marketers of from the Beatrice, Jacky and its petroleum production and Athena fields is sold to BP other parties. The Company Oil International Limited. extends unsecured credit to Oil production from Cook, these parties, and therefore, Broom, Causeway, Fionn and the collection of any Dons is sold to Shell receivables may be affected by Trading International Ltd. changes in the economic Anglia and Topaz gas environment or other production is sold through conditions. contracts to RWE NPower PLC and Hess Energy Gas Power (UK) Ltd. Cook gas is sold to Shell UK Ltd. and Esso Exploration & Production UK Ltd. The Company 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 Company 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 Company's properties will The Company has routineRisk be generally held in the form ongoing communications with of licenses, concessions, the UK oil and gas permits and regulatory regulatory body, the consents ("Authorisations"). Department of Energy and The Company's activities are Climate Change ("DECC"). dependent upon the grant and Regular communication allows maintenance of appropriate all parties to an Authorisations, which may not Authorisation to be fully be granted; may be made informed as to the status of subject to limitations which, any Authorisation and if not met, will result in the ensures the Company remains termination or withdrawal of updated regarding fulfilment the Authorisation; or may be of any applicable otherwise withdrawn. Also, in requirements. the majority of its licenses, the Company is often a joint interest-holder with another third party over which it has no control. An Authorisation may be revoked by the relevant regulatory authority if the other interest-holder is no longer deemed to be financially credible. There can be no assurance that any of the obligations required to maintain each Authorisation will be met. Although the Company believes that the Authorisations will be renewed following expiry or granted (as the case may be), there can be no assurance that such authorisations will be renewed or granted or as to the terms of such renewals or grants. The termination or expiration of the Company's Authorisations may have a material adverse effect on the Company's results of operations and business. The areas covered by the Authorisations are or may be subject to agreements with the proprietors of the land. If such agreements are terminated, found void or otherwise challenged, the Company may suffer significant damage through the loss of opportunity to identify and extract oil or gas.Operational The Company is subject to the The Company acts at allRisk risks associated with owning times as a reasonable and oil and natural gas prudent operator. The properties, including Company takes out market environmental risks associated insurance to mitigate many with air, land and water. All of these operational, of the Company's operations construction and are conducted offshore in the environmental risks. United Kingdom Continental Shelf; as such Ithaca is The Company uses the exposed to operational risk services of Sproule associated with weather delays International Limited that can result in a material ("Sproule") to independently delay in project execution. assess the Company's Third parties operate some of reserves on an annual basis. the assets in which the Company has interests. As a result, the Company may have limited ability to exercise influence over the operations of these assets and their associated costs. The success and timing of these activities may be outside the Company's control. There are numerous uncertainties in estimating the Company's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital.Competition In all areas of the Company's The Company placesRisk business, there is competition appropriate emphasis on with entities that may have ensuring it attracts and greater technical and retains high quality financial resources. resources to enable it to 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 Company'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 Company 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 Company 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-lookingstatements and information pertaining to the following: - the quality of and future net revenues from the Company's reserves; - oil, natural gas liquids ("NGLs") and natural gas production levels; - commodity prices, foreign currency exchange rates and interest rates; - 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 Company's ability to raise capital; - the continued availability of the RBL Facility and the $100 million corporate facility; - the Company's acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom; - the realisation of anticipated benefits from acquisitions and dispositions; - the Company's ability to continually add to its reserves; - schedules and timing of certain projects and the Company's strategy for growth; - the Company's future operating and financialresults; - the ability of the Company to optimise 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 Company's reserves. With respect to forward-looking statements contained in this MD&A and any documents incorporated by reference herein, the Company has made assumptions regarding, among other things: - Ithaca's ability to obtain additional drilling rigs and other equipment in a timely manner, as required; - access to third party hosts and associated pipelines can be negotiated and accessed within the expected timeframe; - FDP approval and operational construction and development is obtained within expected timeframes; - the Company's development plan for the Stella and Harrier discoveries will be implemented as planned; - the 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 levels from Ithaca's properties and the prices obtained from the sales of such production; - the level of future capital expenditure required to exploit and develop reserves; - Ithaca's ability to obtain financing on acceptable terms, in particular, the Company's ability to access the Facility; - the continued ability of the Company 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 Company's actual results could differ materially from those anticipated in these forward-looking statements and information as a result of assumptions proving inaccurate and of both known and unknown risks, including the risk factors set forth in this MD&A and under the heading "Risk Factors" in the AIF and the documents incorporated by reference herein, and those set forth below: - risks associated with the exploration for and development of oil and natural gas reserves in the North Sea; - risks associated with offshore development and production including transport facilities; - operational risks and liabilities that are not covered by insurance; - volatility in market prices for oil, NGLs and natural gas; - the ability of the Company to fund its substantial capital requirements and operations; - risks associated with ensuring title to the Company's properties; - changes in environmental, health and safety or other legislation applicable to the Company's operations, and the Company's ability to comply with current and future environmental, health and safety and other laws; - the accuracy of oil and gas reserve estimates and estimated production levels as they are affected by the Company's exploration and development drilling and estimated decline rates; - the Company's success at acquisition, exploration, exploitation and development of reserves; - risks associated with realisation of anticipated benefits of acquisitions; - risks related to changes to government policy with regard to offshore drilling; - the ability of the Company to obtain and maintain all of its required permits and licenses; - competition for, among other things, capital, drilling equipment, acquisitions of reserves, undeveloped lands and skilled personnel; - changes in general economic, market and business conditions in Canada, North America, the United Kingdom, Europe and worldwide; - actions by governmental or regulatory authorities including changes in income tax laws or changes in tax laws, royalty rates and incentive programs relating to the oil and gas industry including any increase in UK taxes; - adverse regulatory rulings, orders and decisions; and - risks associated with the nature of the common shares.AdditionalReaderAdvisories The information in this MD&A is provided as of November 8, 2013. The Q3 2013 results have been compared to the results of the comparative period in 2012. This MD&A should be read in conjunction with the Company's unaudited consolidated financial statements as at September 30, 2013 and 2012 and with the Company's audited consolidated financial statements as at December 31, 2012 together withthe accompanying notes and MD&A, and 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 www.sedar.com.Consolidated Statement of IncomeFor the three and nine months ended 30 September 2013 and 2012(unaudited) Three months Nine months ended ended 30 Sept 30 Sept 2013 2012 2013 2012 Note US$'000 US$'000 US$'000 US$'000Revenue 4 114,112 41,579 302,241 117,912Cost of sales 5 (77,291) (27,096) (227,198) (83,082)Gross Profit 36,821 14,483 75,043 34,830Exploration and evaluation 10 (509) (112) (953) (191)expenses Administrative expenses (1,518) (524) (7,956) (2,967) Non-recurring Valiant - - (10,235) - acquisition costsTotal Administrative expenses 6 (1,518) (524) (17,831) (2,967)Operating Profit 34,794 13,847 56,259 31,672Foreign exchange 2,212 748 137 851(Loss)/gain on financial 24 (15,814) (11,989) (5,472) 6,621instrumentsRelease of exploration 15 22,649 - 22,649 205obligationNegative goodwill 7,033 - 55,912 -Profit Before Interest and 50,874 2,606 129,485 39,349TaxFinance costs 7 (4,956) (697) (12,233) (2,068)Interest income 3 61 45 195Profit Before Tax 45,921 1,970 117,297 37,476Taxation 22 8,183 2,924 (7,492) 10,575Profit After Tax 54,104 4,894 109,805 48,051Earnings per shareBasic 21 0.17 0.02 0.37 0.19Diluted 21 0.17 0.02 0.37 0.18The accompanying notes on pages 6 to 23 are an integral part of thefinancial statements.Consolidated Statement of Financial Position(unaudited) 30 September 31 December 2013 2012 Note US$'000 US$'000ASSETSCurrent assetsCash and cash equivalents 73,770 31,374Restricted cash 8 3,426 2Accounts receivable 212,905 159,195Norwegian tax receivable 87,517 -Deposits, prepaid expenses and other 25,255 14,754Inventory 9 28,106 15,878Derivative financial instruments 25 12,150 8,251 443,129 229,454Non current assetsLong-term receivable 27 26,346 21,551Investment in associate 13 18,337 18,337Exploration and evaluation assets 10 67,416 47,390Property, plant & equipment 11 1,398,401 615,788Goodwill 12 985 985Other non-current assets 8,126 - 1,519,611 704,051Total assets 1,962,740 933,505LIABILITIES AND EQUITYCurrent liabilitiesTrade and other payables 408,604 205,635Exploration obligations 15 21,485 - 430,089 205,635Non current liabilitiesBank debt 14 426,574 -Decommissioning liabilities 16 160,014 52,834Other long term liabilities 17 2,955 3,018Contingent consideration 18 4,000 4,000Derivative financial instruments 25 8,253 -Deferred tax liability 22 119,152 62,370 720,948 122,222Net Assets 811,703 605,648Equity attributable to equity holdersShare capital 19 524,908 431,318Share based payment reserve 20 23,000 20,340Retained earnings 263,795 153,990Shareholders' Equity 811,703 605,648The financial statements were approved by the Board of Directors on 8November 2013 and signed on its behalf by:"Jay Zammit"Director"John Summers"DirectorThe accompanying notes on pages 6 to 23 are an integral part of thefinancial statements.Consolidated Statement of Changes in Equity(unaudited) Share Share Retained Total Capital Based Earnings Payment Reserve US$'000 US$'000 US$'000 US$'000Balance, 1 Jan 2012 429,502 17,318 60,591 507,411Net income for the period - - 48,051 48,051Total comprehensive income 429,502 17,318 108,642 555,462Share based payment - 2,399 - 2,399Options exercised 250 (107) - 143Balance, 30 September 2012 429,752 19,610 108,642 558,004Balance, 1 Jan 2013 431,318 20,340 153,990 605,648Net income for the period - - 109,805 109,805Total comprehensive income 431,318 20,340 263,795 715,453Shares issued 93,005 - - 93,005Share based payment - 2,917 - 2,917Options exercised 585 (257) - 328Balance, 30 September 2013 524,908 23,000 263,795 811,703The accompanying notes on pages 6 to 23 are an integral part of thefinancial statements.Consolidated Statement of Cash FlowFor the three and nine months ended 30 September 2013 and 2012(unaudited) Three months ended Nine months ended 30 Sept 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000CASH PROVIDED BY (USED IN):Operating activitiesProfit Before Tax 45,921 1,970 117,297 37,476Adjustments for:Depletion, depreciation and 42,279 14,563 103,144 39,040amortisationExploration and evaluation 509 112 953 191expensesShare based payment 203 62 864 401Loan fee amortisation 592 - 1,777 494Revaluation of financial 13,312 12,927 17,074 (5,201)instrumentsRevaluation of contingent - - - 1,295considerationMovement in goodwill (7,033) - (48,878) -Gain on disposal - - - (205)Gain on exploration obligation (22,321) - (22,321) -releaseAccretion 1,375 453 2,965 1,272Bank interest & charges 2,949 - 7,405 -Valiant acquisition fees - - 5,032 -Cashflow from operations 77,786 30,087 185,312 74,763Changes in inventory, debtors and (7,925) (7,255) 12,917 3,092creditors relating to operatingactivitiesNet cash from operating 69,861 22,832 198,229 77,855activitiesInvesting activitiesAcquisition of Valiant - - (200,636) -Cash acquired on acquisition of - - 11,611 -ValiantValiant acquisition fees - - (5,032) -Acquisition of Cook - - (33,370) -Capital expenditure (139,304) (60,456) (196,943) (114,745)Investment in associate - - - (18,337)Loan to associate - - - (21,551)Proceeds on disposal - - - 44,878Settlement of contingent - - - (15,700)considerationChanges in debtors and creditors 63,136 (15,409) (22,133) 15,444relating to investing activitiesNet cash used in investing (76,168) (75,865) (446,503) (110,011)activitiesFinancing activitiesProceeds from issuance of shares - - 328 143(Increase) / decrease in - (340) (3,226) (4,049)restricted cashDerivatives (3,249) (2,485) (12,876) (2,485)Loan repayment - - (115,000) -Loan draw down 58,123 - 434,041 -Bank interest & charges (2,816) - (8,321) -Net cash from/used in financing 52,058 (2,825) 294,946 (6,391)activitiesCurrency translation differences 928 816 (4,276) (155)relating to cashIncrease / (decrease) in cash and 46,679 (55,042) 42,396 (38,702)cash equiv.Cash and cash equivalents, 27,091 111,885 31,374 95,545beginning of periodCash and cash equivalents, end of 73,770 56,843 73,770 56,843periodThe accompanying notes on pages 6 to 23 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".2. BASIS OF PREPARATIONThese interim consolidated financial statements have been prepared inaccordance with International Financial Reporting Standards (IFRS)applicable to the preparation of interim financial statements,including IAS 34 Interim Financial Reporting. These interimconsolidated financial statements do not include all the necessaryannual disclosures in accordance with IFRS.The policies applied in these condensed interim consolidated financialstatements are based on IFRS issued and outstanding as of 8 November2013, the date the Board of Directors approved the statements. Anysubsequent changes to IFRS that are given effect in the Corporation'sannual consolidated financial statements for the year ending 31December 2013 could result in restatement of these interim consolidatedfinancial statements.The condensed interim consolidated financial statements should be readin conjunction with the Corporation's annual financial statements forthe year ended 31 December 2012.3. 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 all wholly-owned subsidiaries aslisted per note 27. Ithaca has seventeen wholly-owned subsidiaries,thirteen of which were acquired on 19 April 2013 as part of theacquisition of Valiant Petroleum PLC ("Valiant"). The consolidatedfinancial statements include the Valiant group of companies from 19April 2013 only (being the acquisition date). All inter-companytransactions and balances have 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 acquired, thedifference is recognised directly in the statement of income asnegative goodwill.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.Foreign currency translationItems included in the financial statements are measured using thecurrency of the primary economic environment in which the Corporationand its subsidiary 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 19(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 based paymentreserve is recorded as an increase in share capital. In the event thatvested options expire unexercised, previously recognised compensationexpense associated with such stock options is not reversed. In theevent that unvested options are forfeited or expired, previouslyrecognised compensation expense associated with the unvested portion ofsuch 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 thebalance sheet and cash flow statements separately. If the expectedduration of the restriction is less than twelve months then it is shownin 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, accounts receivable,deposits, derivatives, accounts payable, accrued liabilities, bankdebt, contingent consideration and the long term liability on theBeatrice 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.The Corporation may designate financial instruments as a hedginginstrument for accounting purposes. Hedge accounting requires thedesignation of a hedging relationship, including a hedged and a hedgingitem, identification of the risk exposure being hedged and anexpectation that the hedging relationship will be highly effectivethroughout its term.The Corporation assesses, both at the hedge's inception and on anongoing basis, whether the derivative financial instruments designatedas hedges are highly effective in offsetting changes in cash flows ofthe hedged items. The effective portion of the gains and losses on cashflow hedges is recorded in Other Comprehensive Income until the hedgedtransaction is recognised in net earnings. Any hedge ineffectiveness isimmediately recognised in net earnings. When the hedged transaction isrecognised in net earnings, the fair value of the associated cash flowhedging item is reclassified from other reserves into net earnings.Hedge accounting is discontinued on a prospective basis when thehedging relationship no longer qualifies for hedge accounting.Analysis of the fair values of financial instruments and furtherdetails as to how they are measured are provided in notes 25 to 27.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 is written off to the statementof income in the period the relevant events occur.ImpairmentThe Corporation's oil and gas assets are analysed into CGUs 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 reviewing E&Eassets 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 the statement of income 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.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. There has been no material impact from the adoption ofthe new and amended standards on the Corporation's financialstatements.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, stock-based compensation, 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 Three months ended Nine months ended 30 Sept 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000Oil sales 111,289 38,227 292,506 107,328Gas sales 2,007 2,040 7,231 6,620Condensate sales 56 98 328 405Other income 760 1,214 2,176 3,559 114,112 41,579 302,241 117,9125. COST OF SALES Three months Nine months ended ended 30 Sept 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000Operating costs (41,893) (20,903) (108,275) (52,031)Oil purchases (34) - (981) -Movement in oil and gas inventory 6,915 8,370 (14,798) 7,989Depletion, depreciation and (42,279) (14,563) (103,144) (39,040)amortisation (77,291) (27,096) (227,198) (83,082)6. ADMINISTRATIVE EXPENSES Three months Nine months ended ended 30 Sept 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000General & administrative (1,315) (462) (6,731) (2,566)Non-recurring Valiant acquisition - - (10,235) -related costsShare based payment (203) (62) (865) (401) (1,518) (524) (17,831) (2,967)7. FINANCE COSTS Three months ended Nine months 30 Sept ended 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000Accretion (1,375) (453) (2,965) (1,272)Bank charges (2,949) (219) (7,409) (264)Non-operated asset finance fees (40) (25) (82) (38)Loan fee amortisation (592) - (1,777) (494) (4,956) (697) (12,233) (2,068)8. RESTRICTED CASH 30 Sept 31 Dec 2013 2012 US$'000 US$'000Security 3,426 2 3,426 2The above represents cash backed letters of credit at 30 September2013.9. INVENTORY 30 Sept 31 Dec 2013 2012 US$'000 US$'000Crude oil inventory 27,891 15,865Materials inventory 215 13 28,106 15,87810. EXPLORATION AND EVALUATION ASSETS US$'000At 1 January 2012 22,689Additions 38,188Write offs/relinquishments (4,261)Disposals (9,226)At 31 December 2012 47,390Additions 20,979Write offs/relinquishments (953)At 30 September 2013 67,416Following completion of geotechnical evaluation activity, certainlicences were declared unsuccessful and certain prospects were declarednon-commercial and therefore the related expenditure of $1.0 millionwas expensed in the nine months to 30 September 2013.11. PROPERY, PLANT AND EQUIPMENT Development & Other Production fixed Oil and Gas assets Total Assets US$'000 US$'000 US$'000CostAt 1 January 2012 623,549 2,292 625,841Additions 139,383 133 139,516Disposals (37,912) - (37,912)At 31 December 2012 725,020 2,425 727,445Additions 885,046 711 885,757At 30 September 2013 1,610,066 3,136 1,613,202DD&AAt 1 January 2012 (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)Charge for the period (102,852) (292) (103,144)At 30 September 2013 (212,610) (2,191) (214,801)NBV at 1 January 2012 569,561 795 570,356NBV at 1 January 2013 615,262 526 615,788NBV at 30 September 2013 1,397,456 945 1,398,40112. GOODWILL US$'000CostAt 1 January 2012, 31 December 2012 & 30 September 2013 985$1.0 million represents goodwill recognised on the acquisition of gasassets from GDF in December 2010. As at 30 September 2013, therecoverable amount of assets acquired from GDF was sufficiently high tosupport the carrying value of this goodwill.13. INVESTMENT IN ASSOCIATES 30 Sept 31 Dec 2013 2012 US$'000 US$'000Investment in FPF-1 and FPU services 18,337 18,337Investment in associates comprises shares, acquired by Ithaca Energy(Holdings) Limited, in FPF-1 Limited and FPU Services Limited as partof the completion of the Greater Stella Area transactions in 2012.There has been no change in value during the period with the aboveinvestment reflecting the Company's share of the associates' results.14. LOAN FACILITYOn 29 June 2012, the Corporation executed a Reserves Based LendingFacility agreement (the "RBL Facility") for up to $430 million, beingprovided by BNP Paribas as Lead Arranger. The loan term was up to fiveyears and attracted interest at LIBOR plus 3-4.5%.The Corporation also executed a $350 million bridge loan (the "BridgeFacility") in April 2013 with BNP Paribas, the Bank of Nova Scotia andBank of America Merrill Lynch. The Bridge Facility was available for 12months and attracted interest of between LIBOR plus 1.0 - 2.25%.On 1 July 2013, the Corporation signed a NOK 450 million NorwegianExploration Financing Facility (the "Norwegian Facility"). Under theNorwegian tax regime, 78% of exploration, appraisal and supportingexpenditure resulting from operations on the Norwegian ContinentalShelf is refunded by the Government in the December of the yearfollowing the year the costs were incurred. This is a conventional taxrefund facility on industry standard termsThe Corporation is subject to financial and operating covenants relatedto the Facility and the Bridge Facility. Failure to meet the terms ofone or more of these covenants may constitute an event of default asdefined in the facility agreements, potentially resulting inaccelerated repayment of the debt obligations.The Corporation is in compliance with its financial and operatingcovenants.Security provided against the loanSecurity provided against the Facility is in the form of a floatingcharge over all assets of the Ithaca group pre Valiant acquisition.Security provided against the Bridge Facility is in the form of afloating charge over all former Valiant assets.As at 30 September 2013, $50 million was drawn down under the RBLFacility, $350 million was drawn down under the Bridge Facility andapproximately $34 million was drawn under the Norwegian Facility. The$427 million in the balance sheet represents amounts drawn down net ofunamortised loan fees.Post quarter end, in October 2013, the Corporation increased itsexisting Facility to $610 million with enhanced terms including reducedmargin costs (LIBOR plus 2.75%-3%) and greater flexibility over futureunallocated capital. This has enabled retirement of the aforementioned$350 million Bridge Facility.The Corporation also established a new five year $100 million corporatefacility in October 2013 with a term of up to 5 years which attractsinterst at LIBOR plus 4.15%.15. EXPLORATION OBLIGATIONS 30 Sept 31 Dec 2013 2012 US$'000 US$'000Exploration obligations 21,485 -The above reflects the fair value of E&E commitments assumed as part ofthe Valiant transaction. During the 3 months to 30 September 2013,$26.8 million was released reflecting expenditure incurred in theperiod as well as the partial release of the Handcross obligation postfarm-out to Euroil Exploration Limited, a subsidiary of EdisonInternational SpA.16. DECOMMISSIONING LIABILITIES 30 Sept 31 Dec 2013 2012 US$'000 US$'000Balance, beginning of period 52,834 39,382Additions 105,229 9,613Accretion 2,965 1,777Revision to estimates (1,014) 2,062Balance, end of period 160,014 52,834The total future decommissioning liability was calculated by managementbased on its net ownership interest in all wells and facilities,estimated costs to reclaim and abandon wells and facilities and theestimated timing of the costs to be incurred in future periods. TheCorporation uses a risk free rate of 3.8 percent (31 December 2012: 3.8percent) and an inflation rate of 2.1 percent (31 December 2012: 2.1percent) over the varying lives of the assets to calculate the presentvalue of the decommissioning liabilities. These costs are expected tobe incurred at various intervals over the next 17 years.Additions in the period primarily relate to the acquisition of Valiantand the development of Stella.The economic life and the timing of the obligations are dependent onGovernment legislation, commodity price and the future productionprofiles of the respective production and development facilities. Notethat upon the acquisition of the Beatrice Field in November 2008, theCorporation did not assume the decommissioning liabilities.17. OTHER LONG TERM LIABILITIES 30 Sept 31 Dec 2013 2012 US$'000 US$'000Balance, beginning of period 3,018 2,785Revaluation in the period (63) 233Balance, end of period 2,955 3,018On completion of the acquisition of the Beatrice Facilities on 10November 2008 there were 75,000 barrels of oil in an oil storage tankat the Nigg Terminal. This volume of oil is required to be in thestorage tank when the Beatrice Facilities are re-transferred. Thisvolume of oil is valued at the price on the forward oil price curve atthe expected date of re-transfer and discounted. The liability issubject to revaluation at each financial period end.18. CONTINGENT CONSIDERATION 30 Sept 31 Dec 2013 2012 US$'000 US$'000Balance, beginning of period 4,000 24,580Revision to estimates - 1,295Release - (21,875)Balance, end of period 4,000 4,000The contingent consideration at the end of the period relates to theacquisition of the Stella field and is payable upon first oil.19. SHARE CAPITAL No. of ordinary AmountAuthorised share capital 000 US$'000At 31 December 2012 and 30 September 2013 Unlimited -(a) IssuedThe issued share capital is as follows:Issued Number of common Amount shares US$'000Balance 1 January 2012 259,164,461 429,502Issued for cash - options exercised 755,542 1,020Transfer from Share based payment reserve on - 796options exercisedBalance 31 December 2012 259,920,003 431,318Share issue 56,952,321 93,005Issued for cash - options exercised 493,334 331Transfer from Share based payment reserve on - 254options exercisedBalance 30 September 2013 317,365,658 524,908(b) Stock optionsIn the quarter ended 30 September 2013, the Corporation's Board ofDirectors did not grant any new options.In the quarter ended 31 March 2013, the Corporation's Board ofDirectors granted 90,000 options at a weighted average exercise priceof $2.00 (C$1.97).The Corporation's stock options and exercise prices are denominated inCanadian Dollars when granted. As at 30 September 2013, 19,314,630stock options to purchase common shares were outstanding, having anexercise price range of $0.20 to $2.28 (C$0.25 to C$2.31) per share anda vesting period of up to 3 years in the future.Changes to the Corporation's stock options are summarised as follows: 30 September 2013 31 December 2012 Wt. Avg Wt. Avg No. of Exercise No. of Exercise Options Price- Options Price-Balance, beginning of 20,347,964 $1.63 17,506,839 $1.66periodGranted 90,000 $2.00 6,045,000 $2.05Forfeited / expired (630,000) $2.20 (2,448,333) $3.42Exercised (493,334) $0.63 (755,542) $1.26Options 19,314,630 $1.64 20,347,964 $1.63- 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 30 September 2013Options OutstandingRange of No. of Wt. Avg Wt. AvgLife ExerciseExercise Price Options (Years) Price-$2.22-$2.28 5,090,000 1.3 $2.23(C$2.25-C$2.31)$1.49-$2.03 10,026,667 1.8 $1.76(C$1.54-C$1.99)$0.20-$0.81 4,197,963 0.1 $0.55(C$0.25-C$0.87) 19,314,630 1.6 $1.48Options Exercisable Wt. Avg Wt. AvgRange of No. of Life ExerciseExercise Price Options (Years) Price-$2.22-$2.28 3,260,003 1.3 $2.22(C$2.25-C$2.31)$1.49-$2.03 4,528,334 0.4 $1.52(C$1.54-C$1.99)$0.20-$0.81 4,197,963 0.1 $0.55(C$0.25-C$0.87) 11,986,300 1.3 $1.22The following is a summary of stock options as at 31 December 2012Options 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 $1.63Options Exercisable No. of Wt. Avg Wt. AvgRange of Options Life ExerciseExercise Price (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 $1.43(c) Share based paymentsOptions granted are accounted for using the fair value method. Thecompensation cost during the three months and nine months ended 30September 2013 for total stock options granted was $1.0 million and$3.0 million respectively (Q3 2012: $0.8 million, Q3 YTD: $2.4million). $0.2 million and $0.9 million were charged through the incomestatement for share based payment for the three and nine months ended30 September 2013 respectively, being the Corporation's share of sharebased payment chargeable through the income statement. The remainder ofthe Corporation's share of share based payment has been capitalised.The fair value of each stock option granted was estimated at the dateof grant, using the Black-Scholes option pricing model with thefollowing assumptions: For the For the nine months year ended ended 31 December 30 September 2012 2013Risk free interest rate 1.30% 0.40%Expected stock volatility 63% 74%Expected life of options 3 years 3 yearsWeighted Average Fair Value $0.92 $1.0820. SHARE BASED PAYMENT RESERVE 30 Sept 31 Dec 2013 2012 US$'000 US$'000Balance, beginning of period 20,340 17,318Share based payment cost 2,917 3,817Transfer to share capital on exercise of options (257) (795)Balance, end of period 23,000 20,34021. EARNINGS PER SHAREThe calculation of basic earnings per share is based on the profitafter tax and the weighted average number of common shares in issueduring the period. The calculation of diluted earnings per share isbased on the profit after tax and the weighted average number ofpotential common shares in issue during the period. Three months ended 30 Sept Nine months ended 30 Sept 2013 2012 2013 2012Weighted average 317,365,658 259,346,128 294,617,969 259,236,730number ofcommon shares(basic)Weighted average 324,563,406 264,573,365 299,807,995 264,632,244numbers ofcommon shares(diluted)22. TAXATION Three months ended 30 Sept Nine months ended 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000Taxation 8,183 2,924 (7,492) 10,57523. COMMITMENTSOperating lease commitments 30 Sept 31 Dec 2013 2012 US$'000 US$'000Within one year 13,273 12,759Two to five years 11,409 18,756More than five years - 65Capital commitments 30 Sept 31 Dec 2013 2012 US$'000 US$'000Capital commitments incurred jointly with other 262,128 111,747ventures (Ithaca's share)24. 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 30September 2013: Level 1 Level 2 Level 3 Total Fair Value US$'000 US$'000 US$'000 US$'000Derivative financial - 12,150 - 12,150instrument assetLong term liability - - (2,955) (2,955)on Beatrice acquisitionContingent consideration - (4,000) - (4,000)Derivative financial - (8,253) - (8,253)instrument liabilityThe table below presents the total gain / (loss) on financialinstruments that has been disclosed through the statement of net andcomprehensive income: Three months ended Nine months ended30 Sept 30 Sept 2013 2012 2013 2012 US$'000 US$'000 US$'000 US$'000Revaluation of forex forward 9,723 166 8,251 707contractsRevaluation of gas contract - 610 - 1,368Revaluation of other long term (90) (86) 64 (115)liabilityRevaluation of commodity hedges (22,945) (13,617) (25,389) 3,241 (13,312) (12,927) (17,074) 5,201Realised gain/(loss) on (3,687) 888 9,873 2,597commodity hedgesRealised gain on forex 1,185 50 1,729 118contracts (2,502) 938 11,602 2,715Contingent consideration - - - (1,295)Total gain/(loss) on financial (15,814) (11,989) (5,472) 6,621instrumentsThe Corporation has identified that it is exposed principally to theseareas of market risk.i) Commodity RiskThe table below presents the total gain / (loss) on commodity hedgesthat has been disclosed through the statement of net and comprehensiveincome:Three months ended 30 Sept 2013 2012 US$'000 US$'000Revaluation of commodity hedges (22,945) (13,617)Realised gain/(loss) on commodity hedges (3,687) 888Total (loss) on commodity hedges (26,632) (12,729)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 in place:Derivative Term Volume Average priceOil puts Oct 13 - Sept 14 930,300 bbls $104/bblOil swaps Oct 13 - Dec 14 2,472,809 bbls $102/bblGas swaps Oct 13 - Dec 14 1,974,000 therms 66.79p/thermii) Interest RiskCalculation of interest payments for the RBL Facility agreement as wellas the Bridge Facility incorporates LIBOR whilst the Norwegian Facilityincorporates NIBOR. The Corporation will therefore be exposed tointerest rate risk to the extent that LIBOR/NIBOR may fluctuate. TheCorporation will evaluate its annual forward cash flow requirements ona rolling monthly basis.iii) Foreign Exchange Rate RiskThe table below presents the total (loss) on foreign exchange financialinstruments that has been disclosed through the statement of net andcomprehensive income:Three months ended 30 Sept 2013 2012 US$'000 US$'000Revaluation of foreign exchange forward contracts 9,723 166Realised gain on foreign exchange forward contracts 1,185 50Total gain on forex forward contracts 10,908 216The 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 onbalance sheet translation of monetary accounts denominated in non USDamounts upon spot rate fluctuations from quarter to quarter.The below represents foreign exchange financial instruments in place:Derivative Term Value Protection rate Trigger rateForward plus Oct 13 - GBP4 million/month $1.59/GBP1.00 $1.50/GBP1.00 Dec 13Forward Oct 13 - GBP65 million $1.52/GBP1.00 N/A Jan 14Forward Oct 13 - EUR25 million $1.29/EUR1.00 N/A Dec 13iv) 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, Broom,Dons, Causeway and Fionn is sold to Shell Trading International Ltd.Anglia and Topaz gas production is currently sold through threecontracts to RWE NPower PLC and Hess Energy Gas Power (UK) Ltd. Cookgas is sold to Shell UK Ltd and 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 30 September 2013 substantiallyall accounts receivables are current, being defined as less than 90days. The Corporation has no allowance for doubtful accounts as at 30September 2013 (31 December 2012: $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 30 September 2013, exposure is$12.2 million (31 December 2012: $8.3 million).The Corporation also has credit risk arising from cash and cashequivalents held with banks and financial institutions. The maximumcredit exposure associated with financial assets is the carryingvalues.v) Liquidity RiskLiquidity risk includes the risk that as a result of its operationalliquidity requirements the Corporation will not have sufficient fundsto settle a transaction on the due date. The Corporation managesliquidity risk by maintaining adequate cash reserves, bankingfacilities, and by considering medium and future requirements bycontinuously monitoring forecast and actual cash flows. The Corporationconsiders the maturity profiles of its financial assets andliabilities. As at 30 September 2013 substantially all accounts payableare current.The following table shows the timing of cash outflows relating to tradeand other payables. Within 1 year 1 to 5 years US$'000 US$'000Accounts payable and accrued liabilities 408,604 -Other long term liabilities - 2,955 408,604 2,95525. DERIVATIVE FINANCIAL INSTRUMENTS 30 Sept 31 December 2013 2012 US$'000 US$'000Oil swaps (7,648) 2,497Put options 3,387 5,667Gas swaps 48 -Embedded derivative - 87Foreign exchange forward contract 8,110 - 3,8978,25126. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIESFinancial instruments of the Corporation consist mainly of cash andcash equivalents, receivables, payables, loans and financial derivativecontracts, all of which are included in these financial statements. At30 September 2013, the classification of financial instruments and thecarrying amounts reported on the balance sheet and their estimated fairvalues are as follows: 30 September 2013 31 December 2012 US$'000 US$'000Classification Carrying Fair Carrying Fair Amount Value Amount ValueCash and cash equivalents (Held 73,770 73,770 31,374 31,374for trading)Restricted cash 3,426 3,426 2 2Derivative financial 12,150 12,150 8,251 8,251instruments (Held for trading)Accounts receivable (Loans and 300,424 300,424 159,195 159,195Receivables)Deposits 25,255 25,255 14,754 14,754Bank debt (Loans and (426,574) (426,574) - -Receivables)Contingent consideration (4,000) (4,000) (4,000) (4,000)Derivative financial (8,253) (8,253) - -instruments (Held for trading)Other long term liabilities (2,955) (2,955) (3,018) (3,018)Accounts payable (Other (408,604) (408,604) (205,635) (205,635)financial liabilities)27. 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 30 Sep 2013 2012Ithaca Energy (UK) Limited Scotland 100% 100%Ithaca Minerals (North Sea) Scotland 100% 100%LimitedIthaca Energy (Holdings) Bermuda 100% NilLimitedIthaca Energy Holdings (UK) Scotland 100% NilLimitedIthaca Petroleum PLC England and Wales 100% NilIthaca North Sea Limited England and Wales 100% NilIthaca Exploration Limited England and Wales 100% NilIthaca Causeway Limited England and Wales 100% NilIthaca Gamma Limited England and Wales 100% NilIthaca Alpha Limited Northern Ireland 100% NilIthaca Epsilon Limited England and Wales 100% NilIthaca Delta Limited England and Wales 100% NilIthaca Petroleum Holdings AS Norway 100% NilIthaca Petroleum Norge AS Norway 100% NilIthaca Technology AS Norway 100% NilIthaca AS Norway 100% NilIthaca Petroleum EHF Iceland 100% NilTransactions between subsidiaries are eliminated on consolidation.The following table provides the total amount of transactions that havebeen entered into with related parties during the nine month periodending 30 September 2013 and 30 September 2012, as well as balanceswith related parties as of 30 September 2013 and 31 December 2012: Sales Purchases Accounts Accounts receivable payable US$'000 US$'000 US$'000 US$'000Burstall Winger 2013 - 323 - -LLP 2012 - 138 - -Loans to related parties Amounts owed from related parties 30 Sept 31 Dec 2013 2012 US$'000US$'000FPF-1 Limited 26,346 21,55128. SEASONALITYThe effect of seasonality on the Corporation's financial results forany individual quarter is not material. This information is provided by RNS The company news service from the London Stock ExchangeEND

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
RNS
Customer
Services
0044-207797-4400
rns@londonstockexchange.com
http://www.rns.com

Products
  • Globe Unlimited

    Digital all access pass across devices. subscribe

  • The Globe and Mail Newspaper

    Newspaper delivered to your doorstep. subscribe

  • Globe2Go

    The digital replica of our newspaper. subscribe

  • Globe eBooks

    A collection of articles by the Globe. subscribe

See all Globe Products

Advertise with us

GlobeLink.ca

Your number one partner for reaching Canada's Influential Achievers. learn more

The Globe at your Workplace
Our Company
Secure Service
Customer Service
Advertising Privacy
Globe Recognition
Mobile Apps
NEWS APP
Other Sections