Ithaca Energy Inc.: 2014 Second Quarter & Half Year Results

Ithaca Energy Inc.: 2014 Second Quarter & Half Year Results 
CALGARY, AB -- (Marketwired) -- 08/12/14 --  Ithaca Energy Inc. (TSX:
IAE) (LSE: IAE) ("Ithaca" or the "Company") announces its quarterly
financial results for the three months ended 30 June 2014 ("Q2-2014")
and half yearly results for the six months ended 30 June 2014
("H1-2014"). 
Highlights  


 
--  H1-2014 cashflow from operations of $101.8 million (H1-2013: $100.5
    million), reflecting a Q2-2014 contribution of $58.1 million (Q2-2013:
    $65.0 million), resulting in H1-2014 cashflow per share of $0.31
    (H1-2013: $0.36)
--  H1-2014 profit after tax of $17.0 million (H1-2013: $57.3 million).
    Profit after tax during the quarter was $0.7 million (Q2-2013: $53.8
    million), after reflecting an unrealised non-cash hedging loss of $6.9
    million
--  Broadening of the producing asset portfolio with the acquisition of
    interests in three high quality, long-life UK oil fields from Sumitomo
    Corporation (the "Summit Assets")
--  Additional 1.6 million barrels of oil production hedged at
    approximately $105/barrel to underpin approximately 70% of production
    associated with the Summit Assets over the next two years
--  Successful completion of a $300 million senior notes offering,
    providing diversity in the sources and tenor of funding within the
    capital structure of the business
--  Net drawn debt of $499 million at 30 June 2014 (excluding the
    Norwegian tax rebate facility) out of total debt facilities of $1,010
    million, including the senior notes issued on 3 July 2014
--  Continued progress made on execution and de-risking of the Greater
    Stella Area ("GSA") development, with a further strong clean-up flow
    test result achieved on the third Stella development well that was
    completed during the quarter

  
Les Thomas, Chief Executive Officer, commented:
 "I am pleased with the
progress made by the Company over the last quarter, having further
strengthened the business in three key areas: the successful third
Stella well materially de-risked the on-going field development; the
Summit acquisition added high quality assets to the existing
producing portfolio; and the successful bond offering introduced
important funding diversification and flexibility." 
Production & Operations
 Average pro-forma production in Q2-2014 was
approximately 14,300 barrels of oil equivalent per day ("boepd"), 94%
oil, including a contribution of approximately 2,500 boepd from the
Summit Assets during the period. Average pro-forma production in
H1-2014 was approximately 12,800 boepd including approximately 2,300
boepd from the Summit Assets.  
Total 2014 pro-forma production guidance remains unchanged in the
range of 13,500 to 15,500 boepd, approximately 95% oil. As previously
guided, 2014 production volumes are forecast to be weighted towards
the second half of the year, notably from the later part of Q3-2014
post the completion of planned summer maintenance shutdowns, driven
by the close out of on-going production enhancement projects. 
Greater Stella Area Development Update
 During the quarter, drilling
of the third Stella development well was completed. The strong
results of the clean-up flow test performed on the well, combined
with the corresponding results of the first two wells, have served to
de-risk the initial annualised production forecast for the GSA hub of
approximately 30,000 boepd (100%), 16,000 boepd net to Ithaca.
Operations are currently on-going on the fourth well, the Stella
Andrew reservoir crestal gas producer, with completion of the well
scheduled for early October 2014. 
Offshore operations are currently on-going to install the subsea
infrastructure associated with the FPF-1 mooring spread. Installation
of the mooring piles has recently been completed, with the work now
focused on installation of the anchor chains that will be connected
to the piles and left ready for pull-in upon arrival of the FPF-1 on
location. On the FPF-1 modification works, construction activities on
the main deck of the vessel are advancing. All the main oil and gas
processing plant packages have been positioned on the vessel and
installation of the associated pipework has commenced. Fit out of the
accommodation module is progressing well, with handover for
pre-commissioning expected shortly.  
Corporate Activities
 In July 2014 the Company entered into an
agreement with Sumitomo Corporation to acquire non-operated interests
in the Cook (20.00%), Pierce (7.48%) and Wytch Farm (7.43%) producing
oil fields. The acquisition further broadens the Company's portfolio,
adding quality assets with clearly defined upsides, and delivers a
further step-up in reserves and acceleration in the monetisation of
the existing UK tax allowances pool. The acquisition was completed on
31 July 2014 for a net consideration of $163 million and the assets
will be consolidated into the Company's financial statements from
that date. 
In July 2014, the Company also successfully completed an offering of
$300 million senior unsecured notes due 2019, with a coupon of
8.125%. The diversification in funding sources and tenor that the
notes bring into the capital structure compliment the long term
production, appraisal and development growth focus of the business. 
Further Information
 A presentation to accompany the financial
results is available on the Company's website at
www.ithacaenergy.com. 
A short conference call for European research analysts will take
place at 09.00 UK time on 12 August 2014 and again at 14.00 UK time
for North American analysts. For further information contact FTI
Consulting. 
Notes 
 In accordance with AIM Guidelines, John Horsburgh, BSc (Hons)
Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and
Subsurface Manager at Ithaca is the qualified person that has
reviewed the technical information contained in this press release.
Mr Horsburgh has over 15 years operating experience in the upstream
oil and gas industry. 
References herein to barrels of oil equivalent ("boe") are derived by
converting gas to oil in the ratio of six thousand cubic feet ("Mcf")
of gas to one barrel ("bbl") of oil. Boe may be misleading,
particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1
bbl is based on an energy 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. 
About Ithaca Energy
 Ithaca Energy Inc. (TSX: IAE) (LSE: IAE) 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
targeting the generation of discoveries capable of monetisation prior
to development. Ithaca's strategy is centred on generating
sustainable long term shareholder value by building a highly
profitable 25kboe/d North Sea oil and gas company. For further
information please consult the Company's website
www.ithacaenergy.com.  
Not for Distribution to U.S. Newswire Services or for Dissemination
in the United States 
Forward-looking statements
 Some of the statements and information in
this press release are forward-looking. Forward-looking statements
and forward-looking information (collectively, "forward-looking
statements") 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, drilling, construction times,
well completion times, risks associated with operations, future
capital expenditures, continued availability of financing for 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. When used in this press
release, the words "anticipate", "continue", "estimate", "expect",
"may", "will", "project", "plan", "should", "believe", "could",
"target" and similar expressions, and the negatives thereof, whether
used in connection with operational activities, drilling plans,
production forecasts, budgetary figures, potential developments or
otherwise, are intended to identify forward-looking statements. Such
statements are not promises or guarantees, and are subject to 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. The Company believes that the
expectations reflected in those forward-looking statements and 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 included in this press
release should not be unduly relied upon. These forward-looking
statements speak only as of the date of this press release. Ithaca
Energy Inc. expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking
statement contained herein to reflect any change in its expectations
with regard thereto or any change in events, conditions or
circumstances on which any forward-looking statement is based except
as required by applicable securities laws.  
This press release contains non-International Financial Reporting
Standards ("IFRS") industry benchmarks and terms, such as "cashflow
from operations". "Cashflow from operations" does not have any
standardized 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 as determined 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. 
Additional information on these and other factors that could affect
Ithaca's operations and financial results are included in the
Company's Management's Discussion and Analysis for the quarter ended
June 30, 2014, and the Company's Annual Information Form for the year
ended December 31, 2013 and in reports which are on file with the
Canadian securities regulatory authorities and may be accessed
through the SEDAR website (www.sedar.com). 
HIGHLIGHTS SECOND QUARTER 2014
 Strong underlying cash generative
assets       


 
--  H1-2014 cashflow from operations of $101.8 million (H1-2013: $100.5
    million), reflecting a Q2-2014 contribution of $58.1 million (Q2-2013:
    $65.0 million), resulting in H1-2014 cashflow per share of $0.31
    (H1-2013: $0.36)
--  H1-2014 profit after tax of $17.0 million (H1-2013: $57.3 million). 
    Profit after tax during the quarter was $0.7 million (Q2-2013: $53.8
    million), after reflecting an unrealised non-cash hedging loss of $6.9
    million
--  Q2 2014 average realised oil price of $109/bbl (Q2 2013: $103/bbl)
    before hedging
--  Approximately 3.6 million barrels of oil production hedged, 70% swaps
    / 30% puts, over the next 2 years at a weighted average price of
    around $102/bbl ($100/bbl net of put premiums)
--  Net drawn debt of $499.4 million at June 30, 2014 (December 31, 2013:
    $346.6 million), excluding the Norwegian tax rebate facility, out of
    total debt facilities of $1,010 million
--  UK tax allowances pool of $1,246 million at June 30, 2014. Norwegian
    tax receivable of $79 million

  
Continued production growth and further financial strengthening of the
business delivered  


 
--  Further broadening of the Company's asset base delivered during the
    quarter through the acquisition of three high quality, non-operated UK
    producing oil field interests from Sumitomo Corporation ("Sumitomo").
    The transaction was completed on July 31, 2014 for a net consideration
    of $163 million.
--  Successful completion of a $300 million senior unsecured notes
    offering on July 3, 2014. The notes provide diversification in terms
    of both funding sources and tenor, complimenting the long term
    production, appraisal and development growth focus of the business.
    The weighted average cost of all the Company's debt facilities remains
    under 5%.

  
Operations on-track to achieve pro-forma 2014 production guidance of
13.5-15.5kboe/d       


 
--  Pro-forma 2014 production guidance increased to 13,500 to 15,500
    barrels of oil equivalent per day ("boepd"), approximately 95% oil,
    following the announcement of the assets acquisition from Sumitomo
    (the "Summit Assets").
--  Average pro-forma production in Q2-2014 was approximately 14,300
    barrels of oil equivalent per day ("boepd"), 94% oil, including the
    contribution from the "Summit Assets".
--  Solid progress was made during the quarter on completion of the main
    2014 production enhancement projects, with full year pro-forma
    production forecast to be within the guidance range.

  
Further significant Stella field production de-risking achieved with
completion of third development well         


 
--  Drilling of the third Stella field development well was completed
    during the quarter, with the well producing strongly during the
    clean-up flow test period. The combined test results of the first
    three Stella development wells have served to de-risk the initial
    annualised production forecast for the Greater Stella Area ("GSA") hub
    of approximately 30,000 boepd (100%), 16,000 boepd net to Ithaca.
--  Offshore operations are underway on the 2014 subsea infrastructure
    installation programme, with installation of the FPF-1 mooring spread
    currently on-going. Construction activities on the FPF-1 modifications
    programme remain centred on the main deck of the vessel. The key
    processing plant packages have all now been positioned on the deck and
    installation of the associated pipework has commenced.

 
                                                                            
                                                                            
SUMMARY FINANCIAL STATEMENTS                                                
--------------------------------------------------------------------------- 
                                                                            
INCOME STATEMENT (M$)                                  6-Months Ended June  
                                                               30th         
                                                        2014       2013     
Average Brent Oil Price                         $/bbl     107           108 
Average Realised Oil Price(1)                   $/bbl     109           106 
                                                                            
Revenue                                           M$    199.6         188.1 
Cost of Sales - excluding DD&A                    M$    (90.2)        (89.0)
G&A etc                                           M$     (5.1)        (12.7)
Realised Derivatives (Loss) / Gain                M$     (2.5)         14.1 
Cashflow From Operations                          M$    101.8         100.5 
DD&A                                              M$    (83.8)        (65.7)
Unrealised Derivatives (Loss)                     M$     (4.7)         (3.8)
Non-recurring Negative Goodwill                   M$        -          55.3 
Other Non-Cash Costs                              M$    (15.8)        (13.3)
Profit/(Loss) Before Tax                          M$     (2.5)         73.0 
Deferred Tax Credit / (Charge)                    M$     19.5         (15.7)
Profit After Tax                                  M$     17.0          57.3 
Earnings Per Share                              $/Sh.    0.05          0.20 
Cashflow Per Share                              $/Sh.    0.31          0.36 
  (1) Average realized price before hedging                                 
                                                                            
BALANCE SHEET (M$)                                    Q2-2014     Q4-2013   
Cash & Equivalents                                         51            63 
Other Current Assets                                      463           375 
PP&E                                                    1,626         1,481 
Other Non-Current Assets                                   79            59 
Total Assets                                            2,219         1,979 
Current Liabilities                                      (524)         (485)
Bank Debt                                                (606)         (432)
Asset Retirement Obligations                             (177)         (172)
Deferred Tax Liabilities                                   (8)          (10)
Other Non-Current Liabilities                             (22)          (26)
Total Liabilities                                      (1,337)       (1,125)
                                                                            
Net Assets                                                882           854 
Share Capital                                             548           536 
Other Reserves                                             18            19 
Surplus / (Deficit)                                       316           299 
Shareholders' Equity                                      882           854 
                                                                            
                                                                            
DEBT SUMMARY (M$)                                     Q2-2014     Q4-2013   
RBL Facility                                            550.2         410.0 
Corporate Facility                                          -             - 
Norwegian Facility                                       65.6          34.0 
Total Debt                                              615.8         444.0 
Cash and cash equivalents                                50.8          63.4 
Net debt                                                565.0         380.6 
Adjusted net debt (1)                                   499.4         346.6 
(1) Adjusted net debt excludes amounts outstanding under the Norwegian      
 Facility                                                                   

 
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 cashflow from operations.  
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 GSA
    development.
--  Monetising proven Norwegian asset reserves derived from exploration
    and appraisal drilling prior to the development phase.
--  Continuing to grow and diversify the cashflow base by securing new
    producing, development and appraisal assets through targeted
    acquisitions and licence round participation.
--  Maintaining financial strength and a clean balance sheet, supported by
    lower cost debt leverage.

  
CORPORATE ACTIVITIES
 Further broadening of the producing asset base
delivered by the assets acquired from Sumitomo       
SUMMIT ACQUISITION 
 In June 2014, the Company entered into an
agreement with Sumitomo to acquire interests in three non-operated UK
producing oil fields, with an effective date of January 1, 2014. The
acquisition further broadens the Company's producing asset base with
high quality, long-life oil assets with clear upsides and enables
acceleration in the monetisation of existing UK tax allowances. The
acquired assets are: a further 20% interest in the Cook field in
which the Company already has a 41.346% interest; a 7.480% interest
in the Pierce field; and, a 7.430% interest in the Wytch Farm field.  
The acquisition is estimated to increase net proved and probable
("2P") reserves by approximately 12.0 million barrels of oil
equivalent (Ithaca management estimate) from the transaction
effective date, equating to an increase in total Company 2P reserves
of approximately 20%. Incremental 2014 pro-forma production from the
field interests from the transaction effective date is estimated by
management to be approximately 2,500 boepd.  
The acquisition was completed on July 31, 2014, with the net
consideration paid at completion being $163 million, taking into
account working capital and net cashflows since the transaction
effective date.  
SENIOR NOTES OFFERING 
 Following the quarter end, the Company
successfully completed an offering of $300 million 8.125% senior
unsecured notes due July 2019, with interest payable semi-annually.
The net proceeds of the notes were used to partially repay (without
cancelling) the Company's senior secured reserves based lending
("RBL") facility, with a portion of it subsequently redrawn to
finance the acquisition of the Summit assets on July 31, 2014.  
Given the Company's long term appraisal and development growth focus,
the senior notes provide important diversity into the sources and
tenor of funding within the overall capital structure of the
business, as well as putting in place additional financial resources
to deliver flexibility in the timing of continued growth. The notes
also reduce bank funding dependency and provide cost of finance
certainty through the fixed rate coupon.  
The Company seeks to maintain a conservative financial profile and
strong balance sheet, with ample liquidity, in order to prudently
deliver its planned development activities and continue to grow the
business through acceleration of upsides within the existing
portfolio and by the ability to secure further valuable North Sea
asset acquisitions (undeveloped discoveries and producing assets). 
PRODUCTION & OPERATIONS UPDATE 
Pro-forma 2014 production guidance raised to 13.5-15.5kboe/d
following announcement of the Summit acquisition       
PRODUCTION 
 Average pro-forma production in Q2-2014 was
approximately 14,300 barrels of oil equivalent per day ("boepd"), 94%
oil, including the contribution from the assets acquired from
Sumitomo Corporation (the "Summit Assets"). This performance is in
line with the Company's pro-forma 2014 production guidance range of
13,500 to 15,500 boepd.  


 
--  Production in Q2-2014 excluding the Summit Assets was 11,820 boepd, in
    line with the 2014 guidance range of 11,000 to 13,000 boepd for the
    Company's existing assets.  This represents a 2% decrease on the same
    quarter in 2013 (Q2-2013: 12,100 boepd), resulting primarily from
    shutdowns for maintenance and planned production enhancement
    activities.
--  Production in Q2-2014 for the Summit Assets was calculated to be
    approximately 2,500 boepd, based on available operator data, in line
    with the forecast 2014 pro-forma production guidance for the acquired
    assets.

  
While the Company derives the economic benefit of production from the
Summit Assets from the acquisition effective date of January 1, 2014,
these assets will only be consolidated into Ithaca's financial
statements from the transaction completion date of July 31, 2014.  
Average pro-forma production in H1-2014, including a contribution of
approximately 2,300 boepd from the Summit Assets, was approximately
12,800 boepd, 94% oil. Excluding the Summit Assets, this represents a
15% increase on the same period in 2013 (H1-2013: 9,138 boepd). The
increase is primarily attributable to the inclusion of a full
period's contribution from the assets acquired as a result of the
Valiant Petroleum plc ("Valiant") acquisition, which completed on
April 19, 2013, partially offset by an unplanned shutdown of the Cook
field in Q1-2014 to repair the gas export compressor on the host
facility for the field.  
OPERATIONS UPDATE 
 During the quarter, continued progress was made
on completion of the main 2014 production enhancement projects. In
the Causeway Area, the Fionn sidetrack was completed along with the
platform modification works required to enable start-up of the
electrical submersible pumps installed in the Causeway and Fionn
production wells. The platform modifications to enable start-up of
water injection on the Causeway field are substantially complete,
with injection expected to commence in August 2014 following
close-out of on-going general water injection system refurbishment
activities on the platform. Drilling operations were also completed
on the Don Southwest "TJ" infill production well, with only
installation of a spool piece between the wellhead and the existing
drilling centre manifold required to enable start-up of the well,
which is now expected in September 2014.  
As previously guided, 2014 production volumes are forecast to be
weighted towards the second half of the year, notably from the later
part of Q3-2014 post the completion of planned summer maintenance
shutdowns, as a result of the following activities:  


 
--  Start-up of the Don Southwest "TJ" infill well and incremental
    production resulting from chemical treatments on a number of other
    wells on the field.
--  Re-start of production from the Fionn field, which is currently shut
    in due to the presence of a gas hydrate in the subsea line connecting
    the well to the main Causeway flowline.
--  Commencement of water injection on the Causeway field.
--  Re-commencement of production from the Pierce field following
    completion of the on-going modification works being performed on the
    field's floating production, storage and offloading vessel to enable
    tie-in of a third party field.
--  Completion of the planned well workover on the Athena field.

  
GREATER STELLA AREA DEVELOPMENT UPDATE
 Third Stella development well
completed, with strong flow test results further de-risking forecast
field production performance       
DRILLING PROGRAMME 
 The third Stella development well, "B1", was
completed in June 2014. The well was drilled to a total measured
depth subsea of 16,185 feet, with a 2,147 foot gross horizontal
reservoir section completed in the Palaeocene Andrew sandstone
reservoir. The well intersected high quality sands across a net
reservoir interval of 2,034 feet, equating to 95% net pay. As with
the previous two Stella development wells, a clean-up flow test was
performed on the B1 well. The well flowed at a maximum rate of 12,492
boepd (7,565 bopd and 29.6 MMscf/d of gas) on a 48/64-inch choke,
with the full production potential of the well limited by the
capacity of the well test equipment on the drilling rig. This
compares to the results of the Stella "A1" and "A2" wells that
achieved maximum flow rates of 10,835 boepd and 10,442 boepd,
respectively.  
The test results achieved on the first three Stella development wells
have served to de-risk the initial annualised production forecast for
the GSA hub of approximately 30,000 boepd (100%), 16,000 boepd net to
Ithaca.  
Drilling operations commenced on the fourth Stella development well
in early July 2014. The well, which is targeting the gas cap on the
crest of the structure, is being drilled from the same location as
the third well and is scheduled to be completed in October 2014.  
The first four wells on the Stella field are in the Andrew reservoir.
A fifth well on the field is included in the Field Development Plan,
targeting the Stella Ekofisk chalk reservoir that lies beneath the
principal Andrew reservoir. This well will now be drilled in
continuation with the current programme to capitalise on the strong
operational experience of the ENSCO 100 rig and associated cost
efficiencies, as well as enabling the addition of further oil
production capacity at the start-up of the hub to take advantage of
spare oil processing capacity on the FPF-1.  
The fifth well will be drilled from the Stella Main Drill Centre.
Prior to commencing drilling of the Ekofisk well, ENSCO will take
advantage of the required rig move from the Northern Drill Centre to
demobilise the rig to harbour for approximately one month to complete
a routine 5-year rig inspection programme that it is required to
perform.  
Management of the drilling and completion operations is being
performed by Applied Drilling Technology International ("ADTI") under
"turnkey" contract arrangements.     
2014 subsea installation works progressing well 
SUBSEA INFRASTRUCTURE WORKS 
 Over two thirds of the overall subsea
infrastructure installation activities have now been completed. The
key outstanding workscopes involve the tie-in of the wells,
installation of the vessel mooring spread, the mid-water arch over
which the risers and umbilicals are laid, the Single Anchor Loading
("SAL") oil export facilities and the dynamic flexible risers and
umbilicals that will connect the riser bases to the FPF-1. 
Offshore operations re-commenced in April 2014, with the tie in of
the first two Stella development wells at the Main Drill Centre.
Installation of the FPF-1 mooring piles to which the vessel will be
anchored, along with the pile for the oil export SAL, has recently
been completed. Installation of the anchor chains that will be
connected to the piles and left ready for pull-in upon arrival of the
FPF-1 on location will commence shortly.  
It is now planned for installation of the mid-water arch and the oil
export pipeline and associated SAL system to be completed next year
in order to accommodate Technip's vessel availabilities and take
advantage of operational synergies in preparing for arrival of the
FPF-1 on location. Execution of the main subsea infrastructure
manufacturing and installation programme is being completed by
Technip under an integrated Engineering, Procurement, Installation
and Construction contract.  
Focus on FPF-1 processing plant construction activities       
FPF-1 MODIFICATION WORKS 
 Completion of the FPF-1 modifications
programme is the key development activity dictating the overall
schedule for first hydrocarbons from the GSA hub. As highlighted in
May 2014, whilst progress was being made on the topsides processing
plant construction programme, it was advancing more slowly than
planned. As a consequence, it was announced that the vessel would be
ready for sail-away from the Remontowa yard in Poland to the Stella
field in spring 2015. This schedule is anticipated to result in first
hydrocarbons from the GSA hub in mid-2015. Since the schedule update,
Petrofac has made good progress implementing changes to expedite
completion of the remaining modification works, including managerial
changes in the yard team and the deployment of increased manpower on
the construction workscopes.  
The key focus of the on-going modification works is centred on
construction activities on the main deck of the FPF-1, along with fit
out of the accommodation module, following which commissioning
operations will be completed. The main oil and gas processing plant
packages (power generation, gas export compressors, etc.) have been
positioned on the vessel and installation of the associated pipework
has commenced. Fit out of the accommodation module is progressing
well, with handover for pre-commissioning expected shortly.  
During the quarter, the FPF-1 Operational Safety Case was approved by
the UK Health and Safety Executive. This is a key regulatory approval
required to enable the start-up of FPF-1 once on location.  
Execution of the FPF-1 modifications work programme is being
performed by Petrofac under the terms of a lump sum incentivised
contract with the GSA co-venturers.  
PORTFOLIO ACTIVITIES
 Continued restructuring of former Valiant
Norwegian portfolio completed       
As part of restructuring the Norwegian portfolio transferred as part
of the Valiant Petroleum plc ("Valiant") acquisition into a small,
focused exploration and appraisal operation centred on lower risk
geological and geographic opportunities capable of monetisation prior
to development, the Company has entered into an agreement with
Talisman to acquire two non-operated interests in the Norwegian North
Sea. The interests are: a 25% interest in Licence PL672 containing
the "SnOmus" prospect, which lies approximately 7 kilometres from the
Varg field and associated FPSO facilities; and, a 20% interest in
license PL019C containing the "Kark" prospect, which lies
approximately 7 kilometres from the Gyda platform. It is anticipated
that a well will be drilled on SnOmus in 2015 and Kark in 2016.
Completion of the transaction is subject to normal regulatory
consents.  
Lupus (Norway): Drilling operations were concluded on the Tullow Oil
Norge AS ("Tullow") operated Lupus exploration well in the Norwegian
North Sea in July 2014 in which the Company had a 10% working
interest. While the well identified good quality reservoir sandstone
in the target formation, no hydrocarbons were encountered. The
drilling programme was completed slightly ahead of the planned
duration, with the final net cost of the well anticipated to be
approximately $1.1 million, net of the 78% Norwegian tax refund. The
Company established its position in the Lupus prospect as part of a
licence interest swap with Tullow that enabled it to exit the Barents
Sea licences transferred from Valiant. 
Q2 2014 RESULTS OF OPERATIONS 
REVENUE
 Revenue up 6% on H1-2013      
Three months ended June 30, 2014 
 Revenue decreased by $28.5 million
from Q2 2013 to $99.9 million (Q2 2013: $128.4 million). This was
primarily driven by a decrease in oil sales volumes partially offset
by a modest increase in revenue associated with a higher realised oil
price.  
Oil sales volumes decreased primarily due to the changes in the
timing of liftings from Q2 2013. There were no liftings on the Cook
field in Q2 2014 as seen from the build-up of inventory described
below.  
The decrease in gas sales in Q2 2014 compared to Q2 2013 was
primarily due to the reduction in realised gas prices per boe, driven
by a reduction in the spot gas market.  
There was an increase in average realized oil prices from $103/bbl in
Q2 2013 to $109/bbl in Q2 2014. The average Brent price for the
quarter ended 30 June 2014 was $110/bbl compared to $102 for Q2 2013.
The Company's realized oil prices do not strictly follow the Brent
price pattern given the various oil sales contracts in place, with
some fields sold at a discount or premium to Brent and also impacted
by differing timescales for pricing. This increase in realized oil
price was partially offset by a realized hedging loss of $4/bbl in
the quarter.  
Six Months Ended June 30, 2014 
 Revenue increased by $11.5 million
in H1 2014 to $199.6 million (H1 2013: $188.1 million). This movement
is predominantly due to an increase in oil sales volumes combined
with an increase in realised oil price. The sales volumes in H1 2014
were higher than the comparable period in 2013 primarily due to
inclusion of a full period's contribution from the assets acquired
from Valiant Petroleum plc in April 2013 (production consolidated
from April 19, 2013).  
There was an increase in average realized oil prices from $104/bbl in
H1 2013 to $109/bbl in H1 2014. The average Brent price for the six
months ended 30 June 2014 was $107/bbl compared to $108/bbl for H1
2013. As above, the Company's realized oil prices do not strictly
follow the Brent price pattern. The increase in realized oil price
was partially offset by a realized hedging loss of $4/bbl in the
period.  
Total gas sales decreased largely as a result of lower production
volumes in the period due to the Topaz field being shut-in for a
period to repair a hydraulic leak.   


 
                                                                            
                                     3-Months Ended June 6-Months Ended June
                                             30th                30th       
Average Price        Realised           2014      2013      2014      2013  
Oil Pre-Hedging                $/bbl       109       103       109       104
Oil Post-Hedging               $/bbl       104       111       105       112
Gas                            $/boe        29        41        37        44
                                                                            
                                                                            
                                                                            
COST OF SALES                                                               
------------------------------                                              
                                                                            
                                 3-Months Ended June    6-Months Ended June 
                                        30th                   30th         
                                            Restated               Restated 
$'000                             2014        2013       2014        2013   
Operating Expenditure              51,896      43,155     93,159      66,382
DD&A                               51,307      46,221     83,772      65,719
Movement in Oil & Gas                                                       
 Inventory                        (15,596)     18,137     (3,735)     21,713
Oil Purchases                         373         790        793         947
Total                              87,980     108,303    173,989     154,761

 
Three months ended June 30, 2014 
 Cost of sales decreased in Q2 2014
to $88.0 million (Q2 2013: $108.3 million) primarily due to movement
in oil and gas inventory partially offset by increases in operating
costs and depletion and depreciation and amortization ("DD&A").  
Operating costs increased in the quarter to $51.9 million (Q2 2013:
$43.2 million) mainly due to higher Causeway Area production levels
resulting in additional tariff related costs, and higher cost share
contributions for the use of third party infrastructure (the Sullom
Voe terminal that processes oil from the Company's Northern North Sea
assets and the Anasuria FPSO that serves the Cook field). This drove
an increase in unit operating costs to $48/boe in the quarter (Q2
2013: $39/boe). Unit operating costs for the full year are expected
to fall as a result of the ongoing production enhancement activities
on a number of the Company's fields and the consolidation of the
Summit Assets from July 31, 2014.  
DD&A expense for the quarter increased to $51.3 million (Q2 2013:
$46.2 million). This was primarily due to higher production volumes
in Q2 2014 from the Causeway Area fields, together with a full
quarter of DD&A on the Dons field (only as of April 19, 2013). This
resulted in the unit DD&A rate for the quarter increasing to $48/boe
(Q2 2013: $42/boe).  
As the below "Changes in Accounting Policies" section outlines, the
adoption of IFRS and accounting for acquisitions as business
combinations has led to increased DD&A rates, representing the
majority of the rate increase. It should be noted that this increase
in DD&A and hence Cost of Sales is substantially offset by a credit
in the Deferred Tax charged through the Income Statement.  
An oil and gas inventory movement of $15.6 million was credited to
cost of sales in Q2 2014 (Q2 2013 charge of $18.1 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 oil has been sold. In Q2
2014 more barrels of oil were produced (1,018 kbbls) than sold (894
kbbls), mainly as a result of the timing of Cook field liftings.  


 
                                                                            
Movement in Operating Oil & Gas Inventory    Oil kbbls  Gas kboe  Total kboe
Opening inventory                                   94          3         97
Production                                       1,018         58      1,076
Liftings / sales                                   894         51        945
Transfers/other*                                    11          -         11
Closing volumes                                    229         10        239
* Due to long term inventory transfers and terminal quality adjustments etc.

 
Six Months Ended June 30, 2014 
 Cost of sales increased in H1 2014 to
$174.0 million (H1 2013: $154.8 million) due to increases in
operating costs and DD&A, partially offset by the movement in oil and
gas inventory.  
Operating costs increased in the period to $93.2 million (H1 2013:
$66.4 million) primarily due to the inclusion of costs for the Dons
and Causeway Area fields acquired from Valiant (full H1 2014 compared
to only as of April 19, 2013). Planned shutdowns in the period on
Beatrice and Jacky and some weather related production downtime,
particularly in relation to the Cook field during the first quarter
of the year, also contributed to the increase.  
DD&A for the period increased to $83.8 million (H1 2013: $65.7
million). This was primarily due to higher production volumes in H1
2014 with the addition of the Dons and Causeway fields, offset by no
DD&A on the Beatrice and Jacky fields with these assets now fully
written down.  
An oil and gas inventory movement of $3.7 million was credited to
cost of sales in H1 2014 (H1 2013: charge of $21.7 million). In H1
2014 more barrels of oil were produced (1,806 kbbls) than sold (1,786
kbbls), again mainly as a result of the timing of Cook and Dons field
liftings.  
CONTINGENT LIABILITY 
 The costs from the Sullom Voe Terminal
("SVT"), which receives oil from the Dons and Causeway areas, are
billed monthly on forecast allocations and a reconciliation invoice
is received in the second quarter of the following year based on
actual allocations. The monthly SVT billings for 2013 have all been
expensed and paid.  
In June and July 2014, Ithaca received inconsistent notifications
regarding the reconciliation charge in respect of 2013.  As a result,
Ithaca has not been able to verify the underlying input data and
calculations. The matter is being investigated with the SVT operator
and additional, relevant information is being requested. Accordingly,
management has not yet been able to determine the final amount that
will be payable. It is possible that the reconciliation charge could
be up to $12 million ($5 million post tax), which has not been
recorded because of the uncertainty over the matter. The final amount
of the 2013 reconciliation invoice is expected to be recognised in
the Q3 2014 interim financial statements.  
Agreements are in place to simplify the method of allocation of SVT
costs after 2014 and to base the allocation predominately on oil
throughputs, making forecasting more straightforward and reducing the
potential significant cost allocation distortions inherent in the
current allocation process.  


 
                                                                            
ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES                          
                                                                            
                                  3-Months Ended June   6-Months Ended June 
                                          30th                  30th        
$'000                               2014       2013       2014       2013   
General & Administration              3,507      3,623      6,778      5,415
Share Based Payments                    339        366        766        663
Total Administration Expenses         3,846      3,989      7,544      5,478
Non-recurring Valiant                                                       
 Acquisition Costs                        -      9,554          -     10,235
Exploration & Evaluation                446        132      2,454        443
Impairment                                -          -      2,895          -
Total                                 4,292     13,675     12,893     16,756

 
Three Months Ended June 30, 2014 
 Total administrative expenses
remained relatively steady in the quarter at $3.8 million (Q2 2013:
$4.0 million). Around $1.7 million of the G&A cost relates to the
costs of the Norwegian office, however, approximately half is
recovered as a cash tax refund from the Norwegian government - the
credit is recorded under Taxation. Share based payment expenses
remained relatively flat as a result of no new options being granted
during the quarter (no grant in Q2 2013). Exploration and evaluation
expenses of $0.4 million were recorded in the quarter (Q2 2013: $0.1
million) primarily associated with costs relating to Norwegian
licences deemed non-commercial.  
Six Months Ended June 30, 2014 
 Total administrative expenses
increased in the period to $7.5 million (H1 2013: $5.5 million)
primarily due to an increase in general and administrative expenses
as a result of the associated costs of an enlarged Ithaca group post
the Valiant acquisition.  
The impairment charge above represents further costs of a capital
nature recognised in the first quarter of 2014 on Beatrice and Jacky,
both of which were fully written down at December 31, 2013 in
anticipation of their handback to Talisman.  
FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS  
Three Months Ended June 30, 2014 
 A foreign exchange gain of $2.2
million was recorded in Q2 2014 (Q2 2013: $2.6 million loss). The
majority of the Company's revenue is US dollar driven while
expenditures are incurred in British pounds, US dollars and Euros.
General volatility in the USD:GBP exchange rate is the primary driver
behind the foreign exchange gains and losses, particularly on the
revaluation of non USD bank accounts and working capital balances
(USD:GBP at April 1, 2014: 1.66. USD:GBP at June 30, 2014: 1.70 with
fluctuations between 1.65 and 1.71 during the quarter).  
The Company recorded an overall $11.2 million loss on financial
instruments for the quarter ended June 30, 2014 (Q2 2013: $17.5
million gain).  A $3.8 million cash loss was realised in respect of
instruments which expired during the quarter - comprising a $3.7
million realised loss on commodity hedges and a $0.2 million realised
loss on interest rate instruments.  
Also contributing to the loss was the revaluation of instruments at
June 30, 2014 which relates to instruments still held at the quarter
end. This $7.4 million non-cash revaluation primarily related to a
$9.7 million downward revaluation of oil hedges, due to a decrease in
value of oil swaps and put options based on the increase in the Brent
oil forward curve from the previous quarter end and the implied
volatility at the end of the reporting period, offset by a $2.8
million upwards revaluation of gas hedging instruments. The Company
does not apply hedge accounting, which can therefore lead to
volatility in the results due to the impact of revaluing the
financial instruments at each reporting period end. The Brent spot
price closed at $111 at June 30, 2014, an increase from $106 at March
31, 2014, resulting in a mark-to-market loss on commodity hedges that
have been entered into to ensure realised prices of over $100/bbl are
obtained. 
Six Months Ended June 30, 2014 
 A foreign exchange gain of $1.8
million was recorded in H1 2014 (H1 2013: $2.1 million loss). As
highlighted above, general volatility in the USD:GBP exchange rate
was the main driver behind the foreign exchange gain in H1 2014
(USD:GBP at January 1, 2014: 1.65. USD:GBP at June 30, 2014: 1.70
with fluctuations between 1.62 and 1.71 during the period).  
The Company recorded a $7.2 million loss on financial instruments for
the six months ended June 30, 2014 (H1 2012: $10.3 million gain). A
$2.5 million cash loss was realised in respect of instruments which
expired during the quarter - comprising a $6.3 million realised loss
on commodity hedges and a $0.2 million realised loss on interest rate
instruments, partially offset by a $4.0 million realised gain on
foreign exchange instruments.  
Also contributing to the loss was the revaluation of instruments at
June 30, 2014 which relates to instruments still held at the period
end. This $4.7 million non-cash revaluation primarily related to a
$4.2 million revaluation loss on foreign exchange instruments and a
$3.3 million downward revaluation of oil hedges, partially offset by
a $3.4 million upwards revaluation of gas hedging instruments and a
$0.2 million revaluation gain on interest rate swaps. 
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 $54.4 million
of negative goodwill was recognised in Q2 2013 in relation to the
Valiant Acquisition (Q2 2014: Nil). A further $0.9 million of
negative goodwill in relation to the Cook acquisition from Noble was
recognised in Q1 2013, being a total of $55.3 million of negative
goodwill recognised in H1 2013 (H1 2014: Nil).  
GAIN ON FARM-OUT 
 In the six months ended June 30, 2014, a gain of
$2.2 million was recognised in the income statement as a result of
the farm-out of the Company's cost commitments for and certain rights
to the Handcross well, an exploration commitment acquired as part of
the Valiant Acquisition. (Q2 2014, Q2 2013 and 1H 2013: Nil)  
FINANCE COSTS 
Three Months Ended June 30, 2014 
 Finance costs increased to $5.7
million in Q2 2014 (Q2 2013: $5.0 million). This rise primarily
reflects interest and fees incurred in relation to the Company's
increased debt financing facilities and the drawdowns therefrom.  
Six Months Ended June 30, 2014 
 Finance costs increased to $12.0
million in H1 2014 (H1 2013: $7.3 million). This rise again primarily
reflects increased interest and fees incurred in relation to
additional drawings under the Company's RBL debt facility combined
with fees and drawings under the Norwegian tax refund facility (the
"Norwegian Facility") signed in Q3 2013. Total debt drawn in the
period has increased from $375.9 million in Q2 2013 to $615.8 million
in Q2 2014.  
TAXATION
 No UK tax anticipated to be payable in the
mid-term      
Three Months Ended June 30, 2014 
 A tax credit of $7.7 million was
recognized in the quarter ended June 30, 2014 (Q2 2013: $16.8 million
credit). $6.4 million  is a non-cash credit relating to UK taxation,
due to a combination of the taxable loss generated and adjustments to
deferred tax, primarily the UK Ring Fence Expenditure Supplement. As
noted in the Cost Of Sales section the deferred tax credit is
increased by the use of accounting for acquisitions as business
combinations.  
The remaining $1.3 million credit is due to Norwegian tax refunds,
which have been generated as a result of exploration related
expenditure, incurred by Ithaca's Norwegian operations during Q2
2014. Norwegian tax refunds totalling $79 million recognised on the
balance sheet relate to Norwegian capital expenditure.  
As a result of the above factors, profit after tax increased to $0.7
million (Q2 2013: $53.8 million).  
No Corporation or Supplementary tax is expected to be paid over the
medium term future relating to upstream oil and gas activities as a
result of the $1,246 million of UK tax losses available to the
Company. Petroleum Revenue Tax of 50% will be payable on cashflows
generated by the Company's Wytch Farm field interest.  
Six Months Ended June 30, 2014 
 A tax credit of $19.5 million was
recognised in the six months ended June 30, 2014 (H1 2013: $15.7
million charge). $16.9 million of this non-cash charge relates to UK
taxation and is a product of the taxable loss generated and
adjustments to deferred tax charge primarily relating to the UK Ring
Fence Expenditure Supplement and share based payments.  
The remaining $2.6 million credit is due to Norway tax credits which
have been generated as a result of exploration expenditure incurred
by Ithaca's Norwegian operations.  
As a result of the above factors, profit after tax increased to $17.0
million (H1 2013: $57.3 million).  
CAPITAL INVESTMENTS
 Capital expenditure on development and
production ("D&P") assets totalled $209 million in H1 2014. This
related primarily to development drilling operations on the Stella
field, subsea infrastructure installation activities for the GSA hub
and the on-going modification works on the FPF-1, along with drilling
of the Fionn sidetrack and also the Don Southwest "TJ" well.  
Capital expenditure on E&E assets in H1 2014 was $28.9 million,
offset by a $4.2 million release of the acquired E&E liability,
resulting in a net addition of $24.7 million. Expenditure was
primarily focused on the Trell exploration well in Norway where 78%
of the cost is subsequently reimbursed by the Norwegian Government.  
LIQUIDITY AND CAPITAL RESOURCES
 Significant investment in
development projects       


 
                                                                            
$'000                                                             Increase /
                                           Q2 2014     Q4 2013    (Decrease)
Cash & Cash Equivalents                       50,753      63,435    (12,682)
Restricted cash                               12,610      12,198         412
Trade & Other Receivables                    419,858     335,877      83,981
Inventory                                     25,498      21,632       3,866
Other Current Assets                           5,063       5,102        (39)
Trade & Other Payables                     (515,477)   (472,396)    (43,081)
Net Working Capital*                         (1,695)    (34,152)      32,457
                                                                            
  *Working capital being total current assets less trade and other payables 

 
The Company's liquidity requirements arise principally from capital
investment and working capital demands. For the periods presented,
Ithaca met its liquidity requirements primarily from ongoing cashflow
generation from the producing assets and debt financing through
ongoing drawings on the RBL Facility and Norwegian Facility.  
As at June 30, 2014, Ithaca had a net working capital balance of
$(1.7) million including a free cash balance of $50.8 million and
$12.6 million restricted cash. Available cash has been, and is
currently, invested in money market deposit accounts with BNP
Paribas.  Management has received confirmation from the financial
institution that these funds are available on demand.  
Cash and cash equivalents decreased as a result of continued cash
investment in the ongoing Stella field development and the Fionn
sidetrack well, offset by drawings from bank facilities in the
quarter.  
Trade and Other Receivables have increased in the six months to June
30, 2014 predominantly due to an increase in working capital
associated with the GSA development. A significant proportion of
Ithaca's accounts receivable balance is with customers and
co-venturers 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 90 days. As at June 30, 2014 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.  
Trade and Other Payables have increased in the six months to June 30,
2014 predominantly due to the cash advances of $41 million under the
Shell oil sales agreements combined with an increase in working
capital associated with the GSA development.  
At June 30, 2014, Ithaca had two UK loan facilities available, being
the $610 million RBL Facility and the $100 million corporate debt
facility. At the quarter end, the Company had unused UK credit
facilities totalling approximately $160 million (Q4 2013: $300
million), with approximately $550 million drawn under the RBL
Facility. The Company also has a Norwegian Facility of NOK 450
million (~$75 million), under which approximately $66 million was
drawn as at June 30, 2014.  
Following the quarter end the Company successfully completed an
offering of $300 million 8.125% senior unsecured notes due July 2019
and executed an amendment to the Norwegian Facility to increase the
facility size from NOK 450 million (~$75 million) to NOK 600 million
(~$100 million).  
During the quarter ended June 30, 2014 there was a cash inflow from
operating, investing and financing activities of approximately $11.6
million (Q2 2013 outflow of $38.5 million).  
Cashflow from operations 
 Cash generated from operating activities
was $101.8 million primarily due to cash generated from Cook, Athena,
Dons, Causeway, Beatrice, Jacky, Anglia, and Broom operations.  
Cashflow from financing activities 
 Cash generated from financing
activities was $172.2 million primarily due to drawdowns under the
RBL debt facility in the quarter. 
Cashflow from investing activities 
 Costs incurred in investing
activities were $253.4 million. The main components of capital
expenditure related to drilling of the second and third development
wells, installation of the FPF-1 mooring system and continued
construction and commissioning of processing plant on the FPF-1 as
part of the GSA development, the drilling of the Fionn sidetrack well
and drilling operations on the Don Southwest TJ well. $21 million was
also advanced to FPF-1 Limited, an associate company, in relation to
hull modification costs.  
The Company remains fully funded, with more than sufficient financial
resources to cover its anticipated future commitments from its
existing cash balance, debt facilities, forecast cashflow from
operations and senior notes issued post quarter end. No unusual
trends or fluctuations are expected outside the ordinary course of
business.  


 
                                                                            
COMMITMENTS                                                                 
-------------------------------------------                                 
                                                                            
$'000                                         1 Year    2-5 Years  5+ Years 
Office Leases                                      935      2,478          -
Other Operating Leases                          11,543     12,078          -
Exploration Licence Fees                           696          -          -
Engineering                                     49,008      2,699          -
Rig Commitments                                 46,979          -          -
Total                                          109,161     17,255          -

 
The engineering financial commitments relate to the Company's share of
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 well as committed rig hire costs relating
to the Don Southwest well and upcoming Athena workover. As stated
above, these commitments are expected to be funded through the
Company's existing cash balance, forecast cashflow from operations
and its available debt facility. 
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 Instrument                                                     
         Category          Ithaca Classification    Subsequent Measurement  
----------------------------------------------------------------------------
Held-for-trading         Cash, cash equivalents,  Fair Value with changes   
                         restricted cash,         recognised in net income  
                         derivatives, commodity                             
                         hedges, long-term                                  
                         liability                                          
----------------------------------------------------------------------------
Held-to-maturity         -                        Amortised cost using      
                                                  effective interest rate   
                                                  method.                   
                                                                            
                                                  Transaction costs         
                                                  (directly attributable to 
                                                  acquisition or issue of   
                                                  financial asset/liability)
                                                  are adjusted to fair value
                                                  initially recognised.     
                                                  These costs are also      
                                                  expensed using the        
                                                  effective interest rate   
                                                  method and recorded within
                                                  interest expense.         
                                                                            
                                                                            
--------------------------------------------------                          
Loans and Receivables    Accounts receivable                                
--------------------------------------------------                          
Other financial          Accounts payable,                                  
liabilities              operating bank loans,                              
                         accrued liabilities                                
----------------------------------------------------------------------------

 
The classification of all financial instruments is the same at
inception and at June 30, 2014.  
The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of
comprehensive income.  


 
                                                                            
                                      Three months ended  Six months ended  
                                           June 30th          June 30th     
$'000                                   2014      2013     2014      2013   
Revaluation Forex Forward Contracts          -       584   (4.171)   (1,471)
Revaluation of Interest Rate Swaps        (111)        -     (234)        - 
Revaluation of Other Long Term                                              
 Liability                                (393)       96     (370)      153 
Revaluation of Commodity Hedges         (6,877)    6,623       72    (2,444)
------------------------------------- --------  -------- --------  -------- 
Total Revaluation (Loss) / Gain         (7,381)    7,303   (4,703)   (3,762)
------------------------------------- --------  -------- --------  -------- 
Realised Gain on Forex Contracts             -       837    4,028       544 
Realised Gain/(Loss) on Commodity                                           
 Hedges                                 (3,667)    9,374   (6,341)   13,560 
Realised Loss on Interest Rate swaps      (155)        -     (225)          
Total Realised (Loss) / Gain            (3,822)   10,211   (2,538)   14,104 
------------------------------------- --------  -------- --------  -------- 
Total Gain/(Loss) on Financial                                              
 Instruments                           (11,203)   17,514   (7,241)   10,342 
------------------------------------- --------  -------- --------  -------- 

 
The following table summarises the commodity hedges in place at the
end of the quarter.  


 
                                                                            
Derivative    Term                         Volume bbl    Average Price $/bbl
Oil Swaps     July 2014 - June 2016           2,358,586                  102
Put Options   July 2014 - June 2016             920,647                  101
                                                                            
Derivative    Term                                          Average Price   
                                         Volume Therms         p/therm      
Gas Swaps     July 2014 - December 2014         809,600                   67
Gas Puts      October 2015 - June 2017      187,300,000                   63

 
Post quarter end, further oil swaps and oil puts were entered into for
approximately 0.4 million barrels of production for the period to Q1
2016 at a weighted average price of $107/bbl, 70% puts / 30% swaps
($105/bbl net of put premiums).  
As at August 11, 2014 the Company had the following hedging in place: 
Oil Hedging  


 
--  3.6 million barrels of oil production over the next 2 years hedged at
    $102/bbl, 70% swaps / 30% puts ($100/bbl net of put premiums). This
    hedging underpins approximately $370 million of revenue while
    retaining oil price upside on a third of the hedged volume.

  
Gas Hedging  


 
--  Approximately 190 million therms (20 Bcf) of gas sales hedged at a
    floor price of GBP  0.58/therm (~$10/MMBTU) out until gas year 2016.
    This hedging underpins approximately $190 million of revenue (net of
    all hedging costs) while retaining upside to rising gas prices beyond
    GBP  0.63/therm on almost 100% of the hedged volume.

  
The Company also enters into interest rate swaps as a measure of
hedging its exposure to interest rate risks on the loan facilities.
The below summaries the interest rate financial instruments in place
at the end of the period.  


 
                                    
Derivative        Interest rate swap
Term              Dec 15            
Value             $200 million      
Rate              0.44%             
                                    
                                    
                                                                            
                                                                            
QUARTERLY RESULTS SUMMARY                                                   
----------------------------------------------------------------------------
                                                                            
                                       Restated(1)                          
              30 Jun  31 Mar  31 Dec  30 Sep  30 Jun  31 Mar  31 Dec  30 Sep
$'000           2014    2014    2013    2013    2013    2013    2012    2012
Revenue       99,931  96,600 111,696 114,112 128,360  59,769  52,566  41,579
Profit After                                                                
 Tax             659  16,365  44,242  43,145  53,828   3,472  45,347   4,894
                                                                            
Earnings per                                                                
 share "EPS"                                                                
 - Basic(2)     0.00    0.05    0.14    0.14    0.18    0.01    0.17    0.02
EPS -                                                                       
 Diluted(2)     0.00    0.05    0.13    0.13    0.17    0.01    0.17    0.02
Common                                                                      
 shares                                                                     
 outstanding                                                                
 (000)       328,399 326,195 323,634 317,366 317,366 259,953 259,920 259,346
----------------------------------------------------------------------------

 
(1) Q2-13 and Q3-13 restated to account for adjustment to Valiant
acquisition accounting 
(2) Based on weighted average number of shares  
The most significant factors to have affected the Company's results
during the above quarters, other than transactions such as the
Valiant acquisition, are fluctuations in underlying commodity prices
and movement in production volumes. The Company has utilized forward
sales contracts and foreign exchange contracts to take advantage of
higher commodity prices while reducing the exposure to price
volatility. These contracts can cause volatility in profit after tax
as a result of unrealized gains and losses due to movements in the
oil price and USD: GBP exchange rate. 
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 United
Kingdom under the symbol "IAE". As at June 30, 2014 Ithaca had
328,398,620 common shares outstanding along with 16,993,567 options
outstanding to employees and directors to acquire common shares. Due
to the exercise and listing of option shares following the end of
Q2-2014, as at August 11, 2014, Ithaca had 329,518,620 common shares
outstanding along with 15,968,567 options outstanding to employees
and directors to acquire common shares. 


 
                                                                            
                                                         June 30, 2014      
Common Shares Outstanding                                        328,398,620
Share Price(1)                                                 $2.49 / Share
Total Market Capitalisation                                     $817,712,564
(1) Represents the TSX close price (CAD$2.75) on June 30, 2014. US$:CAD$    
 0.9039 on June 30, 2014                                                    

 
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, listed below, and its associates
FPU Services Limited ("FPU") and FPF-1 Limited ("FPF-1").  
Wholly owned subsidiaries:  


 
--  Ithaca Energy (Holdings) Limited ("Ithaca Holdings"),
--  Ithaca Energy (UK) Limited ("Ithaca UK"),
--  Ithaca Minerals North Sea Limited ("Ithaca Minerals")
--  Ithaca Energy Holdings (UK) Limited ("Ithaca Holdings UK")
--  Ithaca Petroleum Limited (formerly Valiant Petroleum plc)
--  Ithaca Causeway Limited (formerly Valiant Causeway Limited)
--  Ithaca Exploration Limited (formerly Valiant Exploration Limited)
--  Ithaca Alpha (NI) Limited (formerly Valiant Alpha (NI) Limited
--  Ithaca Gamma Limited (formerly Valiant Gamma Limited)
--  Ithaca Epsilon Limited (formerly Valiant Epsilon Limited)
--  Ithaca Delta Limited (formerly Valiant Delta Limited)
--  Ithaca North Sea Limited (formerly Valiant North Sea Limited)
--  Ithaca Petroleum Holdings AS (formerly Valiant Petroleum Holdings AS)
--  Ithaca Petroleum Norge AS (formerly Valiant Petroleum Norge AS)
--  Ithaca Technology AS (formerly Valiant Technology AS)
--  Ithaca AS (formerly Querqus AS)
--  Ithaca Petroleum EHF (formerly Valiant Petroleum EHF)

  
The consolidated financial statements include, from April 19, 2013 only
(being the acquisition date), the consolidated financial statements
of the Valiant group of companies.  
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 are included to aid the
reader in assessing the critical accounting 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 realize different results from the application of new
accounting standards promulgated, from time to time, by various
rule-making bodies.  
Capitalized costs relating to the exploration and development of oil
and gas reserves, along with estimated future capital expenditures
required in order to develop proved and probable reserves are
depreciated on a unit-of-production basis, by asset, using estimated
proved and probable reserves as adjusted for production.  
A review is carried out each reporting date for any indication that
the carrying value of the 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 recognized in the Statement of Income.
Impairment losses relating to goodwill cannot be reversed in future
periods.  
Recognition of decommissioning liabilities associated with oil and
gas wells are determined using estimated costs discounted based on
the estimated life of the asset. In periods following recognition,
the liability and associated asset are adjusted for any changes in
the estimated amount or timing of the settlement of the obligations.
The liability is accreted up to the actual expected cash outlay to
perform the abandonment and reclamation. The carrying amounts of the
associated assets are depleted using the unit of production method,
in accordance with the depreciation policy for development and
production assets. Actual costs to retire tangible assets are
deducted from the liability as incurred.  
All financial instruments are initially recognized 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 recognize 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 June 30, 2014, there were no changes in Ithaca's internal
control over financial reporting that occurred during the period
ended June 30, 2014 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 period ended June 30, 2014, 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.  
New and amended standards and interpretations need to be adopted in
the first interim financial statements issued after their effective
date (or date of early adoption). There are no new IFRSs of IFRICs
that are effective for the first time for this interim period that
would be expected to have a material impact on the Company.  


 
                          ADDITIONAL INFORMATION                            
                          --------------------------------------------------
Non-IFRS Measures         'Cashflow from operations' referred to in this    
                          MD&A is not prescribed by IFRS. This non-IFRS     
                          financial measure does not have any standardized  
                          meaning and therefore is unlikely to be comparable
                          to similar measures presented by other companies. 
                          The 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 as determined 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.                                       
                                                                            
                          'Net working capital' referred to in this MD&A is 
                          not prescribed by IFRS. Net working capital       
                          includes total current assets less trade & other  
                          payables. Net working capital may not be          
                          comparable to other similarly titled measures of  
                          other companies, and accordingly Net working      
                          capital may not be comparable to measures used by 
                          other companies.                                  
                          --------------------------------------------------
Off Balance Sheet         The Company has certain lease agreements and rig  
 Arrangements             commitments which were entered into in the normal 
                          course 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 June 30, 2014.            
                          --------------------------------------------------
Related Party             A director of the Company is a partner of Burstall
 Transactions             Winger Zammit LLP who acts as counsel for the     
                          Company. The amount of fees paid to Burstall      
                          Winger Zammit LLP in Q2 2014 was $0.1 million (Q2 
                          2013: $0.0 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 June 30, 2014 the Company had a loan        
                          receivable from FPF-1 Ltd, an associate of the    
                          Company, for $52.3 million (December 31, 2013:    
                          31.6 million) as a result of the completion of the
                          GSA transactions.                                 
                          --------------------------------------------------
BOE Presentation          The calculation of boe is based on a conversion   
                          rate of 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, utilizing a          
                          conversion ratio at 6 mcf: 1 bbl may be misleading
                          as an indication of value.                        
                          --------------------------------------------------
Well Test Results         Certain well test results disclosed in this MD&A  
                          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 28, 2014, (the    
            "AIF") filed on SEDAR at http://www.sedar.com/.             
                                                                            
            -------------------------------- -------------------------------
                          RISK                         MITIGATIONS          
            -------------------------------- -------------------------------
Commodity                                    In order to mitigate the risk  
 Price      The Company's performance is     of fluctuations in oil and gas 
 Volatility significantly impacted by        prices, the Company routinely  
            prevailing oil and natural gas   executes commodity price       
            prices, which are primarily      derivatives, predominantly in  
            driven by supply and demand as   relation to oil production, as 
            well as economic and political   a means of establishing a floor
            factors.                         in realised prices.            
            -------------------------------- -------------------------------
Foreign                                      Given the proportion of        
 Exchange                                    development capital expenditure
 Risk                                        and operating costs incurred in
                                             currencies other than the US   
                                             Dollar, the Company routinely  
                                             executes hedges to mitigate    
                                             foreign exchange rate risk on  
                                             committed expenditure and / or 
            The Company is exposed to        draws debt in GB Sterling to   
            financial risks including        settle Sterling costs which    
            financial market volatility and  will be repaid from surplus    
            fluctuation in various foreign   Sterling generated revenues    
            exchange rates.                  derived from Stella gas sales. 
            -------------------------------- -------------------------------
Interest                                     In order to mitigate the       
 Rate Risk                                   fluctuations in interest rates,
            The Company is exposed to        the Company routinely reviews  
            fluctuation in interest rates,   cost exposures as a result of  
            particularly in relation to the  varying rates and assesses the 
            debt facilities entered into.    need to lock in interest rates.
            -------------------------------- -------------------------------
Debt        The Company is exposed to         The Company believes that     
 Facility   borrowing risks relating to      there are no circumstances at  
 Risk       drawdown of its debt facilities  present that result in its     
            (the "Facilities"). The ability  failure to meet the financial  
            to drawdown the Facilities is    tests and it can therefore draw
            based on the Company meeting     down upon its Facilities.      
            certain covenants including                                     
            coverage ratio tests, liquidity                                 
            tests and development funding                                   
            tests, which are determined by a                                
            detailed economic model of the                                  
            Company. There can be no                                        
            assurance that the Company will                                 
            satisfy such tests in the future                                
            in order to have access to the                                  
            full amount of the Facilities.                                  
                                                                            
            The Facilities include covenants The Company routinely produces 
            which restrict, among other      detailed cashflow forecasts to 
            things, the Company's ability to monitor its compliance with the
            incur additional debt or dispose financial tests and liquidity  
            of assets.                       requirements of the Facilities.
                                                                            
            As is standard to a credit                                      
            facility, the Company's and                                     
            Ithaca Energy (UK) Limited's                                    
            assets have been pledged as                                     
            collateral and are subject to                                   
            foreclosure in the event the                                    
            Company or Ithaca Energy (UK)                                   
            Limited's defaults on the                                       
            Facilities.                                                     
            -------------------------------- -------------------------------
Financing   To the extent cashflow from      The Company has established a  
 Risk       operations and the Facilities'   fully funded business plan and 
            resources are ever deemed not    routinely monitors its detailed
            adequate to fund Ithaca's cash   cashflow forecasts and         
            requirements, external financing liquidity requirements to      
            may be required. Lack of timely  maintain its funding           
            access to such additional        requirements.                  
            financing, or access on                                         
            unfavourable terms, could limit                                 
            Ithaca's ability to make the                                    
            necessary capital investments to                                
            maintain or expand its current                                  
            business and to make necessary                                  
            principal payments under the                                    
            Facilities may be impaired.                                     
                                                                            
            A failure to access adequate     The Company believes that there
            capital to continue its          are no circumstances at present
            expenditure program may require  that would lead to selected    
            that the Company meet any        divestment, delays to existing 
            liquidity shortfalls through the programs or a default relating 
            selected divestment of all or a  to the Facilities.             
            portion of its portfolio or                                     
            result in delays to existing                                    
            development programs.                                           
            -------------------------------- -------------------------------
Third Party The Company is and may in the    The Company believes this risk 
 Credit     future be exposed to third party is mitigated by the financial  
 Risk       credit risk through its          position of the parties.  The  
            contractual arrangements with    joint venture partners in those
            its current and future joint     assets operated by the Company 
            venture partners, marketers of   are largely well financed      
            its petroleum production and     international companies. Where 
            other parties.                   appropriate, a cash call       
                                             process has been implemented   
                                             with partners to cover high    
                                             levels of anticipated capital  
                                             expenditure thereby reducing   
                                             any third party credit risk.   
                                                                            
            The Company extends unsecured    All of the Company's oil       
            credit to these and certain      production is sold, depending  
            other parties, and therefore,    on the field, to either BP Oil 
            the collection of any            International Limited or Shell 
            receivables may be affected by   Trading International Ltd. Gas 
            changes in the economic          production is sold through     
            environment or other conditions  contracts with RWE NPower PLC, 
            affecting such parties.          Hess Energy Gas Power (UK) Ltd,
                                             Shell UK Ltd. and Esso         
                                             Exploration & Production UK    
                                             Ltd. Each of these parties has 
                                             historically demonstrated their
                                             ability to pay amounts owing to
                                             Ithaca. The Company has not    
                                             experienced any material credit
                                             loss in the collection of      
                                             accounts receivable to date.   
            -------------------------------- -------------------------------
Property    The Company's properties will be The Company has routine ongoing
 Risk       generally held in the form of    communications with the UK oil 
            licenses, concessions, permits   and gas regulatory body, the   
            and regulatory consents          Department of Energy and       
            ("Authorisations"). The          Climate Change ("DECC") as well
            Company's activities are         as Norwegian authorities.      
            dependent upon the grant and     Regular communication allows   
            maintenance of appropriate       all parties to an Authorisation
            Authorisations, which may not be to be fully informed as to the 
            granted; may be made subject to  status of any Authorisation and
            limitations which, if not met,   ensures the Company remains    
            will result in the termination   updated regarding fulfilment of
            or withdrawal of the             any applicable requirements.   
            Authorisation; or may be                                        
            otherwise withdrawn.  Also, in                                  
            the majority of its licenses,                                   
            the Company is a joint interest-                                
            holder with other third parties                                 
            over which it has no control. An                                
            Authorisation may be revoked by                                 
            the relevant regulatory                                         
            authority if the other interest-                                
            holder is no longer deemed to be                                
            financially credible. There can                                 
            be no assurance that any of the                                 
            obligations required to maintain                                
            each Authorisation will be met.                                 
            Although the Company believes                                   
            that the Authorisations will be                                 
            renewed following expiry or                                     
            granted (as the case may be),                                   
            there can be no assurance that                                  
            such authorisations will be                                     
            renewed or granted or as to the                                 
            terms of such renewals or                                       
            grants. The termination or                                      
            expiration of the Company's                                     
            Authorisations may have a                                       
            material adverse effect on the                                  
            Company's results of operations                                 
            and business.                                                   
            -------------------------------- -------------------------------
Operational The Company is subject to the    The Company acts at all times  
 Risk       risks associated with owning oil as a reasonable and prudent    
            and natural gas properties,      operator and has non-operated  
            including environmental risks    interests in assets where the  
            associated with air, land and    designated operator is required
            water. All of the Company's      to act in the same manner. The 
            operations are conducted         Company takes out market       
            offshore on the United Kingdom   insurance to mitigate many of  
            Continental Shelf and as such,   these operational, construction
            Ithaca is exposed to operational and environmental risks.       
            risk associated with weather                                    
            delays that can result in a                                     
            material delay in project                                       
            execution.  Third parties                                       
            operate some of the assets in                                   
            which the Company has interests.                                
            As a result, the Company may                                    
            have limited ability to exercise                                
            influence over the operations of                                
            these assets and their                                          
            associated costs.  The success                                  
            and timing of these activities                                  
            may be outside the Company's                                    
            control.                                                        
                                                                            
                                             The Company uses experienced   
                                             service providers for the      
                                             completion of work programmes. 
                                                                            
            There are numerous uncertainties                                
            in estimating the Company's      The Company uses the services  
            reserve base due to the          of Sproule International       
            complexities in estimating the   Limited ("Sproule") to         
            magnitude and timing of future   independently assess the       
            production, revenue, expenses    Company's reserves on an annual
            and capital.                     basis.                         
            -------------------------------- -------------------------------
Competition In all areas of the Company's    The Company places appropriate 
 Risk       business, there is competition   emphasis on ensuring it        
            with entities that may have      attracts and retains high      
            greater technical and financial  quality resources and          
            resources.                       sufficient financial resources 
                                             to enable it to maintain its   
                                             competitive position.          
            -------------------------------- -------------------------------
Weather     In connection with the Company's                                
 Risk       offshore operations being                                       
            conducted in the North Sea, the  The Company takes potential    
            Company is especially vulnerable delays as a result of adverse  
            to extreme weather conditions.   weather conditions into        
            Delays and additional costs      consideration in preparing     
            which result from extreme        budgets and forecasts and seeks
            weather can result in cost       to include an appropriate      
            overruns, delays and,            buffer in its all estimates of 
            ultimately, in certain           costs, which could be adversely
            operations becoming uneconomic.  affected by weather.           
            -------------------------------- -------------------------------
Reputation  In the event a major offshore    The Company's operational      
 Risk       incident were to occur in        activities are conducted in    
            respect of a property in which   accordance with approved       
            the Company has an interest, the policies, standards and        
            Company's reputation could be    procedures, which are then     
            severely harmed                  passed on to the Company's     
                                             subcontractors. In addition,   
                                             Ithaca regularly audits its    
                                             operations to ensure compliance
                                             with established policies,     
                                             standards and procedures.      

 
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-looking statements 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 Facilities;
--  The Company's acquisition strategy, the criteria to be considered in
    connection therewith and the benefits to be derived therefrom;
--  The realization of anticipated benefits from acquisitions and
    dispositions, including the acquisition of the Summit Assets;
--  The Company's ability to continually add to reserves;
--  Schedules and timing of certain projects and the Company's strategy
    for growth;
--  The Company's future operating and financial results;
--  The ability of the Company to optimize operations and reduce
    operational expenditures;
--  Treatment under governmental and other regulatory regimes and tax,
    environmental and other laws;
--  Production rates;
--  The ability of the company to continue operating in the face of
    inclement weather;
--  Targeted production levels; and
--  Timing and cost of the development of the Company's reserves.

  
With respect to forward-looking statements contained in this MD&A and
any documents incorporated by reference herein, the Company has made
assumptions regarding, among other things:  


 
--  Ithaca's ability to obtain additional drilling rigs and other
    equipment in a timely manner, as required;
--  Access to third party hosts and associated pipelines can be negotiated
    and accessed within the expected timeframe;
--  FDP approval and operational construction and development is obtained
    within expected timeframes;
--  The Company's development plan for the Stella and Harrier discoveries
    will be implemented as planned;
    
--  The Company's ability to keep operating during periods of harsh
    weather;
--  Reserves volumes assigned to Ithaca's properties;
    
--  Ability to recover reserves volumes assigned to Ithaca's properties;
--  Revenues do not decrease below anticipated levels and operating costs
    do not increase significantly above anticipated levels;
--  Future oil, NGLs and natural gas production levels from Ithaca's
    properties and the prices obtained from the sales of such production;
--  The level of future capital expenditure required to exploit and
    develop reserves;
--  Ithaca's ability to obtain financing on acceptable terms, in
    particular, the Company's ability to access the Facilities;
--  The continued ability of the Company to collect amounts receivable
    from third parties who Ithaca has provided credit to;
--  Ithaca's reliance on partners and their ability to meet commitments
    under relevant agreements; and,
--  The state of the debt and equity markets in the current economic
    environment.

  
The Company's actual results could differ materially from those
anticipated in these forward-looking statements and information as a
result of assumptions proving inaccurate and of both known and
unknown risks, including the risk factors set forth in this MD&A and
under the heading "Risk Factors" in the AIF and the documents
incorporated by reference herein, and those set forth below:  


 
--  Risks associated with the exploration for and development of oil and
    natural gas reserves in the North Sea;
--  Risks associated with offshore development and production including
    risks of inclement weather and the unavailability of transport
    facilities;
--  Operational risks and liabilities that are not covered by insurance;
--  Volatility in market prices for oil, NGLs and natural gas;
--  The ability of the Company to fund its substantial capital
    requirements and operations;
--  Risks associated with ensuring title to the Company's properties;
--  Changes in environmental, health and safety or other legislation
    applicable to the Company's operations, and the Company's ability to
    comply with current and future environmental, health and safety and
    other laws;
--  The accuracy of oil and gas reserve estimates and estimated production
    levels as they are affected by the Company's exploration and
    development drilling and estimated decline rates;
--  The Company's success at acquisition, exploration, exploitation and
    development of reserves;
--  Risks associated with realisation of anticipated benefits of
    acquisitions, including the Summit acquisition;
--  Risks related to changes to government policy with regard to offshore
    drilling;
--  The Company's reliance on key operational and management personnel;
--  The ability of the Company to obtain and maintain all of its required
    permits and licenses;
--  Competition for, among other things, capital, drilling equipment,
    acquisitions of reserves, undeveloped lands and skilled personnel;
--  Changes in general economic, market and business conditions in Canada,
    North America, the United Kingdom, Europe and worldwide;
--  Actions by governmental or regulatory authorities including changes in
    income tax laws or changes in tax laws, royalty rates and incentive
    programs relating to the oil and gas industry including any increase
    in UK or Norwegian taxes;
--  Adverse regulatory rulings, orders and decisions; and
--  Risks associated with the nature of the common shares.

 
                                                                            
                          --------------------------------------------------
                                                                            
 Additional Reader        The information in this MD&A is provided as of    
 Advisories               August 11, 2014. The Q2 2014 results have been    
                          compared to the results of the comparative period 
                          in 2013. This MD&A should be read in conjunction  
                          with the Company's unaudited consolidated         
                          financial statements as at June 30, 2014 and 2013 
                          and with the Company's audited consolidated       
                          financial statements as at December 31, 2013      
                          together with the accompanying notes and Annual   
                          Information Form ("AIF") for the year ended       
                          December 31, 2013. Copies of these documents are  
                          available without charge from Ithaca or           
                          electronically on the internet on Ithaca's SEDAR  
                          profile at http://www.sedar.com/.             
                                                                            
                          Estimates of the proved plus probable reserves    
                          associated with the acquisition of the Summit     
                          Assets as disclosed in this MD&A have been        
                          prepared by Ithaca's non-independent qualified    
                          reserves evaluator as of June 2014. The reserves  
                          estimates contained in this MD&A are estimates    
                          only and the actual results may be greater than or
                          less than the estimates provided herein. The      
                          estimates of reserves for individual properties   
                          may not reflect the same confidence level as      
                          estimates of reserves for all properties, due to  
                          the effects of aggregation.                       
                                                                            
                                                                            
Consolidated Statement of Income                                            
For the three and six months ended 30 June 2014 and 2013                    
(unaudited)                                                                 
                                             Restated*             Restated*
                                 Three months ended 30   Six months ended 30
                                                  June                  June
                                       2014       2013       2014       2013
                            Note    US$'000    US$'000    US$'000    US$'000
--------------------------- ---- ---------- ---------- ---------- ----------
                                                                            
Revenue                        5     99,931    128,360    199,571    188,129
Cost of sales                  6   (87,980)  (108,303)  (173,989)  (154,761)
--------------------------- ---- ---------- ---------- ---------- ----------
Gross Profit                         11,951     20,057     25,582     33,368
                                                                            
Exploration and evaluation                                                  
 expenses                     12      (446)      (132)    (2,454)      (443)
Impairment of Assets                      -          -    (2,895)          -
 Administrative expenses       7    (3,846)    (3,989)    (7,544)    (6,078)
 Non-recurring Valiant                                                      
 acquisition costs             7          -    (9,554)          -   (10,235)
--------------------------- ---- ---------- ---------- ---------- ----------
Total administrative                                                        
 expenses                           (3,846)   (13,543)    (7,544)   (16,313)
--------------------------- ---- ---------- ---------- ---------- ----------
Operating Profit                      7,659      6,382     12,689     16,612
                                                                            
Foreign exchange                      2,203    (2,637)      1,830    (2,074)
(Loss)/Gain on financial                                                    
 instruments                  27   (11,203)     17,514    (7,241)     10,342
Gain on asset disposal                    -          -      2,190          -
Negative goodwill                         -     54,419          -     55,333
--------------------------- ---- ---------- ---------- ---------- ----------
Profit/(Loss) Before                                                        
 Interest and Tax                   (1,341)     75,677      9,468     80,212
                                                                            
Finance costs                  8    (5,747)    (5,001)   (12,021)    (7,277)
Interest income                          17         21         42         42
--------------------------- ---- ---------- ---------- ---------- ----------
Profit/(Loss) Before Tax            (7,071)     70,697    (2,511)     72,976
                                                                            
Taxation                      25      7,730     16,836     19,536   (15,674)
--------------------------- ---- ---------- ---------- ---------- ----------
Profit/(Loss) After Tax                 659     53,828     17,025     57,302
                                                                            
Earnings per share                                                          
Basic                         24       0.00       0.18       0.05       0.20
Diluted                       24       0.00       0.17       0.05       0.20

 
* Refer to Note 2, Basis of Preparation for further details on the
nature of the restatement. 
No separate statement of comprehensive income has been prepared as
all such gains and losses have been incorporated in the consolidated
statement of income above. 
The accompanying notes on pages 6 to 21 are an integral part of the
financial statements.  


 
Consolidated Statement of Financial Position                                
(unaudited)                                                                 
                                                      30 June    31 December
                                                         2014           2013
                                          Note        US$'000        US$'000
----------------------------------------- ---- -------------- --------------
ASSETS                                                                      
                                                                            
Current assets                                                              
Cash and cash equivalents                              50,753         63,435
Restricted cash                              9         12,610         12,198
Accounts receivable                         10        397,115        314,727
Deposits, prepaid expenses and other                   22,743         21,150
Inventory                                   11         25,498         21,632
Derivative financial instruments            28          5,063          5,102
----------------------------------------- ---- -------------- --------------
                                                      513,782        438,244
Non current assets                                                          
Long-term receivable                        31         52,328         31,655
Long-term inventory                         11          8,126          8,126
Investment in associate                                18,337         18,337
Exploration and evaluation assets           12         79,843         57,628
Property, plant & equipment                 13      1,545,683      1,423,712
Goodwill                                                  985            985
----------------------------------------- ---- -------------- --------------
                                                    1,705,302      1,540,443
                                                                            
Total assets                                        2,219,084      1,978,687
                                                                            
LIABILITIES AND EQUITY                                                      
                                                                            
Current liabilities                                                         
Trade and other payables                    17        515,477        472,396
Exploration obligations                     18          8,638         12,859
----------------------------------------- ---- -------------- --------------
                                                      524,115        485,255
Non current liabilities                                                     
Borrowings                                  16        605,911        432,243
Decommissioning liabilities                 19        176,609        172,047
Other long term liabilities                 20              -          6,037
Deferred tax liability                                  8,466          9,909
Contingent consideration                    21          4,000          4,000
Derivative financial instruments            28         18,467         15,550
----------------------------------------- ---- -------------- --------------
                                                      813,452        639,786
                                                                            
----------------------------------------- ---- -------------- --------------
Net Assets                                            881,517        853,646
----------------------------------------- ---- -------------- --------------
                                                                            
Equity attributable to owners of the parent                                 
Share capital                               22        548,109        535,716
Share based payment reserve                 23         17,707         19,254
Retained earnings                                     315,701        298,676
----------------------------------------- ---- -------------- --------------
Shareholders' Equity                                  881,517        853,646
----------------------------------------- ---- -------------- --------------
                                                                            
The financial statements were approved by the Board of Directors on 11      
 August 2014 and signed on its behalf by:                                   
                                                                            
"Jay Zammit"                                                                
-----------------------------------------                                   
Director                                                                    
                                                                            
"Les Thomas"                                                                
-----------------------------------------                                   
Director                                                                    

 
The accompanying notes on pages 6 to 21 are an integral part of the
financial statements.  


 
Consolidated Statement of Changes in Equity                                 
(unaudited)                                                                 
                                                 Share                      
                                                 based                      
                                      Share    payment   Retained           
                                    Capital    reserve   Earnings      Total
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
Balance, 1 Jan 2013                 431,318     20,340    153,990    605,648
Shares issued                        93,005          -          -     93,005
Share based payment                       -      1,963          -      1,963
Options exercised                       585      (257)          -        328
Net income for the period                 -          -     57,302     57,302
-------------------------------- ---------- ---------- ---------- ----------
Balance, 30 June 2013               524,908     22,046    211,292    758,246
-------------------------------- ---------- ---------- ---------- ----------
                                                                            
Balance, 1 Jan 2014                 535,716     19,254    298,676    853,646
Share based payment                       -      3,280          -      3,280
Options exercised                    12,393    (4,827)          -      7,566
Net income for the period                 -          -     17,025     17,025
-------------------------------- ---------- ---------- ---------- ----------
Balance, 30 June 2014               548,109     17,707    315,701    881,517
-------------------------------- ---------- ---------- ---------- ----------

 
The accompanying notes on pages 6 to 21 are an integral part of the
financial statements.  


 
Consolidated Statement of Cash                                              
 Flow                                                                       
For the three and six months                                                
 ended 30 June 2014 and 2013                                                
(unaudited)                                Restated*            Restated*   
                                 Three months ended 30   Six months ended 30
                                                 June                June   
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
CASH PROVIDED BY (USED IN):                                                 
Operating activities                                                        
 Profit Before Tax                  (7,071)     70,697    (2,511)     72,976
 Adjustments for:                                                           
 Depletion, depreciation and                                                
  amortisation                       51,307     46,221     83,771     65,719
 Exploration and evaluation                                                 
  expenses                              446        132      2,454        444
 Impairment                               -          -      2,895          -
 Share based payment                    337        366        766        661
 Loan fee amortisation                  923        592      1,849      1,184
 Revaluation of financial                                                   
  instruments                         7,381    (7,303)      4,703      3,762
 Movement in goodwill                     -   (54,419)          -   (55,333)
 Gain on disposal                         -          -    (2,190)          -
 Accretion                            1,305      1,088      2,610      1,590
 Bank interest & charges              3,504      3,296      7,483      4,455
 Valiant acquisition fees                 -      4,351          -      5,032
-------------------------------- ---------- ---------- ---------- ----------
Cashflow from operations             58,132     65,022    101,830    100,492
-------------------------------- ---------- ---------- ---------- ----------
 Changes in inventory,                                                      
  receivables and payables                                                  
  relating to operating                                                     
  activities                       (13,255)     19,963     22,148     20,842
-------------------------------- ---------- ---------- ---------- ----------
Net cash from operating                                                     
 activities                          44,877     84,985    123,978    121,334
-------------------------------- ---------- ---------- ---------- ----------
                                                                            
Investing activities                                                        
 Acquisition of Valiant                   -  (200,636)          -  (200,636)
 Cash acquired on acquisition of                                            
  Valiant                                 -     11,611          -     11,611
 Valiant acquisition fees                 -    (4,351)          -    (5,032)
 Acquisition of Cook                      -          -          -   (33,370)
 Capital expenditure              (106,020)   (66,050)  (234,725)   (91,434)
 Investment in associate                  -          -          -          -
 Loan to associate                 (20,763)          -   (20,854)          -
 Proceeds on disposal                     -          -      2,190          -
 Changes in receivables and                                                 
  payables relating to investing                                            
  activities                         58,435   (56,880)   (59,971)   (44,441)
-------------------------------- ---------- ---------- ---------- ----------
Net cash used in investing                                                  
 activities                        (68,348)  (316,306)  (313,360)  (363,302)
-------------------------------- ---------- ---------- ---------- ----------
                                                                            
Financing activities                                                        
 Proceeds from issuance of                                                  
  shares                                517        299      7,567        328
 (Increase) / decrease in                                                   
  restricted cash                         -    (3,226)          -    (3,226)
 Derivatives                              -    (1,680)    (1,315)    (9,627)
 Loan repayment                           -  (115,000)          -  (115,000)
 Loan draw down                      35,914    320,918    171,865    375,918
 Bank interest & charges            (3,024)    (4,396)    (5,941)    (5,506)
-------------------------------- ---------- ---------- ---------- ----------
Net cash from/used in financing                                             
 activities                          33,407    196,915    172,176    242,887
-------------------------------- ---------- ---------- ---------- ----------
                                                                            
Currency translation differences                                            
 relating to cash                     1,671    (4,137)      4,524    (5,202)
                                                                            
-------------------------------- ---------- ---------- ---------- ----------
Increase / (decrease) in cash                                               
 and cash equiv.                     11,607     38,543   (12,682)    (4,283)
-------------------------------- ---------- ---------- ---------- ----------
                                                                            
Cash and cash equivalents,                                                  
 beginning of period                 39,146     65,634     63,435     31,374
                                                                            
Cash and cash equivalents, end                                              
 of period                           50,753     27,091     50,753     27,091
-------------------------------- ---------- ---------- ---------- ----------

 
* Refer to Note 2, Basis of Preparation for further details on the
nature of the restatement. 
The accompanying notes on pages 6 to 21 are an integral part of the
financial statements.  
1. NATURE OF OPERATIONS 
Ithaca Energy Inc. (the "Corporation" or "Ithaca"), incorporated and
domiciled in Alberta, Canada on 27 April 2004, is a publicly traded
company involved in the exploration, development and production of
oil and gas in the North Sea. The Corporation's registered office is
1600, 333 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 2Z1. The
Corporation's shares trade on the Toronto Stock Exchange in Canada
and the London Stock Exchange's Alternative Investment Market in the
United Kingdom under the symbol "IAE". 
2. BASIS OF PREPARATION 
These interim consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
applicable to the preparation of interim financial statements,
including IAS 34 Interim Financial Reporting. These interim
consolidated financial statements do not include all the necessary
annual disclosures in accordance with IFRS. 
The policies applied in these condensed interim consolidated
financial statements are based on IFRS issued and outstanding as of
11 August 2014, the date the Board of Directors approved the
statements. Any subsequent changes to IFRS that are given effect in
the Corporation's annual consolidated financial statements for the
year ending 31 December 2014 could result in restatement of these
interim consolidated financial statements. 
The financial statements for the period ended 30 June 2013 have been
restated to reflect adjustments to the provisional fair values
attributed to the business combination accounting for the acquisition
of Valiant Petroleum PLC in 2Q 2013. Subsequent revisions disclosed
within the 3Q 2013 and 31 December 2013 year end accounts are now
reflected through 2Q 2013 ie the time of acquisition. Restatements
have been reflected through negative goodwill, cost of sales and
taxation. 
The condensed interim consolidated financial statements should be
read in conjunction with the Corporation's annual financial
statements for the year ended 31 December 2013. 
3. SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATION
UNCERTAINTY 
Basis of measurement 
The consolidated financial statements have been prepared under the
historical cost convention, except for the revaluation of certain
financial assets and financial liabilities (under IFRS) to fair
value, including derivative instruments. 
Basis of consolidation  
The consolidated financial statements of the Corporation include the
accounts of Ithaca Energy Inc. and all wholly-owned subsidiaries as
listed per note 31. Ithaca has seventeen wholly-owned subsidiaries,
thirteen of which were acquired on 19 April 2013 as part of the
acquisition of Valiant Petroleum PLC ("Valiant"). The consolidated
financial statements include the Valiant group of companies from 19
April 2013 only (being the acquisition date). All inter-company
transactions and balances have been eliminated on consolidation. 
A subsidiary is an entity which the Corporation controls by having
the power to govern the financial and operating policies. The
existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether
Ithaca controls another entity. A subsidiary is fully consolidated
from the date on which control is obtained by Ithaca and is
de-consolidated from the date that control ceases. 
Business Combinations  
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the fair value of the
assets acquired, equity instruments issued and liabilities incurred
or assumed at the date of completion of the acquisition. Acquisition
costs incurred are expensed and included in administrative expenses.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially
at their fair values at the acquisition date. The excess of the cost
of acquisition over the fair value of the Corporation's share of the
identifiable net assets acquired is recorded as goodwill. If the cost
of the acquisition is less than the Corporation's share of the net
assets required, the difference is recognised directly in the
statement of income as negative goodwill. 
Goodwill  
Capitalisation  
Goodwill acquired through business combinations is initially measured
at cost, being the excess of the aggregate of the consideration
transferred and the amount recognised as the fair value of the
Corporation's share of the identifiable net assets acquired and
liabilities assumed. If this consideration is lower than the fair
value of the identifiable assets acquired, the difference is
recognised in the statement of income. 
Impairment  
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 cash generating unit ("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. 
Interest in joint arrangements and associates 
Under IFRS 11, joint arrangements are those that convey joint control
which exists only when decisions about the relevant activities
require the unanimous consent of the parties sharing control.
Investments in joint arrangements are classified as either joint
operations or joint ventures depending on the contractual rights and
obligations of each investor. Associates are investments over which
the Corporation has significant influence but not control or joint
control, and generally holds between 20% and 50% of the voting
rights.  
Under the equity method, investments are carried at cost plus
post-acquisition changes in the Corporation's share of net assets,
less any impairment in value in individual investments. The
consolidated statement of income reflects the Corporation's share of
the results and operations after tax and interest. 
The Corporation's interest in joint operations (eg exploration and
production arrangements) are accounted for by recognising its assets
(including its share of assets held jointly), its liabilities
(including its share of liabilities incurred jointly), its revenue
from the sale of its share of the output arising from the joint
operation, its share of revenue from the sale of output by the joint
operation and its expenses (including its share of any expenses
incurred jointly). 
Revenue 
Oil, gas and condensate revenues associated with the sale of the
Corporation's crude oil and natural gas are recognised when title
passes to the customer. This generally occurs when the product is
physically transferred into a vessel, pipe or other delivery
mechanism. Revenues from the production of oil and natural gas
properties in which the Corporation has an interest with joint
venture partners are recognised on the basis of the Corporation's
working interest in those properties (the entitlement method).
Differences between the production sold and the Corporation's share
of production are recognised within cost of sales at market value.  
Interest income is recognised on an accruals basis and is separately
recorded on the face of the statement of income.  
Foreign currency translation  
Items included in the financial statements are measured using the
currency of the primary economic environment in which the Corporation
and its subsidiary operate (the 'functional currency'). The
consolidated financial statements are presented in United States
Dollars, which is the Corporation's functional and presentation
currency. 
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the statement of income. 
Share based payments  
The Corporation has a share based payment plan as described in note
22 (c). The expense is recorded in the statement of income or
capitalised for all options granted in the year, with the gross
increase recorded in the share based payment reserve. Compensation
costs are based on the estimated fair values at the time of the grant
and the expense or capitalised amount is recognised over the vesting
period of the options. Upon the exercise of the stock options,
consideration paid together with the amount previously recognised in
share based payment reserve is recorded as an increase in share
capital. In the event that vested options expire unexercised,
previously recognised compensation expense associated with such stock
options is not reversed. In the event that unvested options are
forfeited or expired, previously recognised compensation expense
associated with the unvested portion of such stock options is
reversed. 
Cash and Cash Equivalents  
For the purpose of the statement of cash flow, cash and cash
equivalents include investments with an original maturity of three
months or less. 
Restricted cash  
Cash that is held for security for bank guarantees is reported in the
balance sheet and cash flow statements separately. If the expected
duration of the restriction is less than twelve months then it is
shown in current assets. 
Financial Instruments  
All financial instruments, other than those designated as effective
hedging instruments, are initially recognised at fair value in the
statement of financial position. The Corporation's financial
instruments consist of cash, restricted cash, accounts receivable,
deposits, derivatives, accounts payable, accrued liabilities,
contingent consideration and the long term liability on the Beatrice
acquisition. The Corporation classifies its financial instruments
into one of the following categories: held-for-trading financial
assets and financial liabilities; held-to-maturity investments; loans
and receivables; and other financial liabilities. All financial
instruments are required to be measured at fair value on initial
recognition. Measurement in subsequent periods is dependent on the
classification of the respective financial instrument. 
Held-for-trading financial instruments are subsequently measured at
fair value with changes in fair value recognised in net earnings. All
other categories of financial instruments are measured at amortised
cost using the effective interest method. Cash and cash equivalents
are classified as held-for-trading and are measured at fair value.
Accounts receivable are classified as loans and receivables. Accounts
payable, accrued liabilities, certain other long-term liabilities,
and long-term debt are classified as other financial liabilities.
Although the Corporation does not intend to trade its derivative
financial instruments, they are classified as held-for-trading for
accounting purposes. 
Transaction costs that are directly attributable to the acquisition
or issue of a financial asset or liability and original issue
discounts on long-term debt have been included in the carrying value
of the related financial asset or liability and are amortised to
consolidated net earnings over the life of the financial instrument
using the effective interest method. 
Analysis of the fair values of financial instruments and further
details as to how they are measured are provided in notes 27 to 29. 
Inventory  
Inventories of materials and product inventory supplies, other than
oil and gas inventories, are stated at the lower of cost and net
realisable value. Cost is determined on the first-in, first-out
method. Oil and gas inventories are stated at fair value less cost to
sell.  
Trade receivables 
Trade receivables are recognised and carried at the original invoiced
amount, less any provision for estimated irrecoverable amounts. 
Trade payables 
Trade payables are measured at cost.  
Property, Plant and Equipment  
Oil and gas expenditure - exploration and evaluation assets  
Capitalisation  
Pre-acquisition costs on oil and gas assets are recognised in the
statement of income when incurred. Costs incurred after rights to
explore have been obtained, such as geological and geophysical
surveys, drilling and commercial appraisal costs and other directly
attributable costs of exploration and evaluation including technical,
administrative and share based payment expenses are capitalised as
intangible exploration and evaluation ("E&E") assets. 
E&E costs are not amortised prior to the conclusion of evaluation
activities. At completion of evaluation activities, if technical
feasibility is demonstrated and commercial reserves are discovered
then, following development sanction, the carrying value of the E&E
asset is reclassified as a development and production ("D&P") asset,
but only after the carrying value is assessed for impairment and
where appropriate its carrying value adjusted. If after completion of
evaluation activities in an area, it is not possible to determine
technical feasibility and commercial viability or if the legal right
to explore expires or if the Corporation decides not to continue
exploration and evaluation activity, then the costs of such
unsuccessful exploration and evaluation is written off to the
statement of income in the period the relevant events occur.  
Impairment  
The Corporation's oil and gas assets are analysed into CGUs for
impairment review purposes, with E&E asset impairment testing being
performed at a grouped CGU level. The current E&E CGU consists of the
Corporation's whole E&E portfolio. E&E assets are reviewed for
impairment when circumstances arise which indicate that the carrying
value of an E&E asset exceeds the recoverable amount. When reviewing
E&E assets for impairment, the combined carrying value of the grouped
CGU is compared with the grouped CGU's recoverable amount. The
recoverable amount of a grouped CGU is determined as the higher of
its fair value less costs to sell and value in use. Impairment losses
resulting from an impairment review are written off to the statement
of income.  
Oil and gas expenditure - development and production assets  
Capitalisation  
Costs of bringing a field into production, including the cost of
facilities, wells and sub-sea equipment, direct costs including staff
costs and share based payment expense together with E&E assets
reclassified in accordance with the above policy, are capitalised as
a D&P asset. Normally each individual field development will form an
individual D&P asset but there may be cases, such as phased
developments, or multiple fields around a single production facility
when fields are grouped together to form a single D&P asset. 
Depreciation  
All costs relating to a development are accumulated and not
depreciated until the commencement of production. Depreciation is
calculated on a unit of production basis based on the proved and
probable reserves of the asset. Any re-assessment of reserves affects
the depreciation rate prospectively. Significant items of plant and
equipment will normally be fully depreciated over the life of the
field. However, these items are assessed to consider if their useful
lives differ from the expected life of the D&P asset and should this
occur a different depreciation rate would be charged 
 Impairment  
A review is carried out each reporting date for any indication that
the carrying value of the Corporation's D&P assets may be impaired.
For D&P assets where there are such indications, an impairment test
is carried out on the CGU. Each CGU is identified in accordance with
IAS 36. The Corporation's CGUs are those assets which generate
largely independent cash flows and are normally, but not always,
single developments or production areas. The impairment test involves
comparing the carrying value with the recoverable value of an asset.
The recoverable amount of an asset is determined as the higher of its
fair value less costs to sell and value in use, where the value in
use is determined from estimated future net cash flows. Any
additional depreciation resulting from the impairment testing is
charged to the statement of income. 
Non Oil and Natural Gas Operations  
Computer and office equipment is recorded at cost and depreciated
over its estimated useful life on a straight-line basis over three
years. Furniture and fixtures are recorded at cost and depreciated
over their estimated useful lives on a straight-line basis over five
years. 
Decommissioning liabilities  
The Corporation records the present value of legal obligations
associated with the retirement of long term tangible assets, such as
producing well sites and processing plants, in the period in which
they are incurred with a corresponding increase in the carrying
amount of the related long term asset. The obligation generally
arises when the asset is installed or the ground/environment is
disturbed at the field location. In subsequent periods, the asset is
adjusted for any changes in the estimated amount or timing of the
settlement of the obligations. The carrying amounts of the associated
assets are depleted using the unit of production method, in
accordance with the depreciation policy for development and
production assets. Actual costs to retire tangible assets are
deducted from the liability as incurred.  
Contingent consideration  
Contingent consideration is accounted for as a financial liability
and measured at fair value at the date of acquisition with any
subsequent remeasurements recognised either in the statement of
income or in other comprehensive income in accordance with IAS 39.  
Taxation  
Current income tax  
Current income tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amounts are those that
are enacted or substantively enacted by the reporting date.  
Deferred income tax  
Deferred tax is recognised for all deductible temporary differences
and the carry-forward of unused tax losses. Deferred tax assets and
liabilities are measured using enacted or substantively enacted
income tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
rates is included in earnings in the period of the enactment date.
Deferred tax assets are recorded in the consolidated financial
statements if realisation is considered more likely than not.  
Recent accounting pronouncements  
New and amended standards and interpretations need to be adopted in
the first interim financial statements issued after their effective
date (or date of early adoption). There are no new IFRSs or IFRICs
that are effective for the first time for this interim period that
would be expected to have a material impact on the Corporation. 
Significant accounting judgements and estimation uncertainties  
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions regarding
certain assets, liabilities, revenues and expenses. Such estimates
must often be made based on unsettled transactions and other events
and a precise determination of many assets and liabilities is
dependent upon future events. Actual results may differ from
estimated amounts.  
The amounts recorded for depletion, depreciation of property and
equipment, long-term liability, stock-based compensation, contingent
consideration, decommissioning liabilities, derivatives and deferred
taxes are based on estimates. The depreciation charge and any
impairment tests are based on estimates of proved and probable
reserves, production rates, prices, future costs and other relevant
assumptions. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of
changes in such estimates in future periods could be material.
Further information on each of these estimates is included within the
notes to the financial statements. 
4. SEGMENTAL REPORTING 
The Company operates a single class of business being oil and gas
exploration, development and production and related activities in a
single geographical area presently being the North Sea. 
5. REVENUE  


 
                                 Three months ended 30   Six months ended 30
                                                  June                  June
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
Oil sales                            97,231    125,064    193,833    181,217
Gas sales                             1,463      2,452      3,519      5,224
Condensate sales                        116        135        135        272
Other income                          1,121        709      2,084      1,416
-------------------------------- ---------- ---------- ---------- ----------
Total                                99,931    128,360    199,571    188,129

 
6. COST OF SALES  


 
                                              Restated              Restated
                                 Three months ended 30   Six months ended 30
                                                  June                  June
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
Operating costs                    (51,896)   (43,155)   (93,159)   (66,382)
Oil purchases                         (373)      (790)      (793)      (947)
Movement in oil and gas                                                     
 inventory                           15,596   (18,137)      3,735   (21,713)
Depletion, depreciation and                                                 
 amortisation                      (51,307)   (46,221)   (83,772)   (65,719)
-------------------------------- ---------- ---------- ---------- ----------
                                   (87,980)  (108,303)  (173,989)  (154,761)

 
7. ADMINISTRATIVE EXPENSES  


 
                                                         Six months ended 30
                            Three months ended 30 June                  June
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
General & administrative            (3,507)    (3,623)    (6,778)    (5,415)
Non-recurring Valiant                                                       
 acquisition related costs                -    (9,554)          -   (10,235)
Share based payment                   (339)      (366)      (766)      (663)
-------------------------------- ---------- ---------- ---------- ----------
                                    (3,846)   (13,543)    (7,544)   (16,313)

 
8. FINANCE COSTS 


 
                                 Three months ended 30   Six months ended 30
                                                  June                  June
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
Accretion                           (1,315)    (1,088)    (2,620)    (1,590)
Bank charges                        (3,161)    (3,297)    (7,140)    (4,460)
Non-operated asset finance fees        (38)       (24)      (101)       (42)
Prepayment interest                   (310)          -      (310)          -
Loan fee amortisation                 (923)      (592)    (1,850)    (1,185)
-------------------------------- ---------- ---------- ---------- ----------
                                    (5,747)    (5,001)   (12,021)    (7,277)

 
9. RESTRICTED CASH  


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Security                                               12,610         12,198
---------------------------------------------- -------------- --------------
                                                       12,610         12,198

 
The above represents cash backed letters of credit for the
Corporation's share of costs arising under Sullom Voe Terminal tariff
agreements at 30 June 2014. 
10. ACCOUNTS RECEIVABLE 


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Trade debtors                                         260,400        194,442
Norwegian tax receivable                               79,051         61,397
Accrued income                                         57,664         58,888
---------------------------------------------- -------------- --------------
                                                      397,115        341,727

 
11. INVENTORY  


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Crude oil inventory - current                          25,283         21,417
Crude oil inventory - non current                       8,126          8,126
Materials inventory                                       215            215
---------------------------------------------- -------------- --------------
                                                       33,624         29,758

 
The non-current portion of inventory relates to long term stocks at
the Sullom Voe Terminal 
12. EXPLORATION AND EVALUATION ASSETS  


 
                                                                     US$'000
--------------------------------------------------------- ------------------
                                                                            
At 1 January 2013                                                     47,390
                                                                            
Additions                                                             60,145
Write offs/relinquishments                                          (31,170)
Disposals                                                           (18,737)
--------------------------------------------------------- ------------------
At 31 December 2013                                                   57,628
                                                                            
Additions                                                             28,890
Release of exploration obligations                                   (4,221)
Write offs/relinquishments                                           (2,454)
--------------------------------------------------------- ------------------
At 30 June 2014                                                       79,843

 
Following completion of geotechnical evaluation activity, certain
licences were declared unsuccessful and certain prospects were
declared non-commercial and therefore the related expenditure of $2.4
million was expensed in the six months to 30 June 2014. 
The above also includes the release of the exploration obligation
provision against expenditure incurred (see note 18). 
13. PROPERY, PLANT AND EQUIPMENT  


 
                                 Development &                              
                                    Production                              
                                   Oil and Gas    Other fixed               
                                        Assets         assets          Total
                                       US$'000        US$'000        US$'000
------------------------------- -------------- -------------- --------------
Cost                                                                        
                                                                            
At 1 January 2013                      725,020          2,425        727,445
                                                                            
Acquisitions                           685,333              -        685,533
Additions                              332,796            738        333,534
Disposals                                    -              -              -
                                                                            
------------------------------- -------------- -------------- --------------
At 31 December 2013                  1,743,349          3,163      1,746,512
                                                                            
Additions                              208,209            429        208,638
                                                                            
------------------------------- -------------- -------------- --------------
At 30 June 2014                      1,951,558          3,592      1,995,150
                                                                            
DD&A                                                                        
                                                                            
At 1 January 2013                    (109,758)        (1,899)      (111,657)
                                                                            
DD&A charge for the period           (157,879)          (400)      (158,279)
                                                                            
Impairment charge for the                                                   
 period                               (52,864)              -       (52,864)
                                                                            
------------------------------- -------------- -------------- --------------
At 31 December 2013                  (320,501)        (2,299)      (322,800)
                                                                            
DD&A charge for the period            (83,571)          (201)       (83,772)
                                                                            
Impairment charge for the                                                   
 period                                (2,895)              -        (2,895)
                                                                            
------------------------------- -------------- -------------- --------------
At 30 June 2014                      (406,967)        (2,500)      (409,467)
                                                                            
NBV at 1 January 2013                  615,262            526        615,788
NBV at 1 January 2014                1,422,848            864      1,423,712
                                                                            
------------------------------- -------------- -------------- --------------
NBV at 30 June 2014                  1,544,591          1,092      1,545,683

 
The impairment charge above represents further costs of a capital
nature recognized in the period on Beatrice and Jacky, both of which
were fully written down at 31 December 2013 in anticipation of their
handback to Talisman. 
14. GOODWILL  


 
                                                                     US$'000
------------------------------------------------------------- --------------
Cost                                                                        
At 31 December 2013, 31 March 2014 & 30 June 2014                        985

 
$1.0 million represents goodwill recognised on the acquisition of gas
assets from GDF in December 2010. As at 30 June 2014, the recoverable
amount of assets acquired from GDF was sufficiently high to support
the carrying value of this goodwill.  
15. INVESTMENT IN ASSOCIATES 


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Investments in FPF-1 and FPU services                  18,337         18,337

 
Investment in associates comprises shares, acquired by Ithaca Energy
(Holdings) Limited, in FPF-1 Limited and FPU Services Limited as part
of the completion of the Greater Stella Area transactions in 2012.
There has been no change in value during the period with the above
investment reflecting the Corporation's share of the associates'
results.  
16. BORROWINGS  
On 29 June 2012, the Corporation executed a Senior Secured Borrowing
Base Facility agreement (the "Facility") for up to $430 million,
being provided by BNP Paribas as Lead Arranger. The loan term is up
to five years and attracts interest at LIBOR plus 3-4.5%. 
The Corporation also executed a $350 million bridge loan (the "Bridge
Facility") in April 2013 with BNP Paribas, the Bank of Nova Scotia
and Bank of America Merrill Lynch. The Bridge Facility was available
for 12 months and attracted interest of between LIBOR plus 1.0 -
2.25%. 
In October 2013, the Corporation increased its existing RBL (Reserve
Based Lending) Facility to $610 million with enhanced terms including
reduced margin costs (LIBOR plus 2.75%-3%) and greater flexibility
over future unallocated capital with a loan term until June 2017.
Simultaneously, this enabled retirement of the aforementioned $350
million Bridge Facility.  
The Corporation also established a new five year $100 million
corporate facility in October 2013 with a term of up to 5 years which
attracts interest at LIBOR plus 4.15%. 
On 1 July 2013, the Corporation signed a NOK 450 million
(approximately $75 million) Norwegian Exploration Financing Facility
(the "Norwegian Facility") with a loan term of 1 year. Under the
Norwegian tax regime, 78% of exploration, appraisal and supporting
expenditure resulting from operations on the Norwegian Continental
Shelf is refunded by the Government in the December of the year
following the year the costs were incurred. This is a conventional
tax refund facility on industry standard terms. 
The Corporation is subject to financial and operating covenants
related to the facilities. Failure to meet the terms of one or more
of these covenants may constitute an event of default as defined in
the facility agreements, potentially resulting in accelerated
repayment of the debt obligations. 
Security provided against the facilities 
Security provided against the Facility is in the form of a floating
charge over all assets of the Ithaca group. 
As at 30 June 2014, $551 million (31 December 2013: $410 million) was
drawn down under the RBL Facility and approximately $66million (31
December 2013, $34million) was drawn under the Norwegian Facility.
$10 million (31 December 2013: $12 million) of loan fees have been
capitalised.  
The Corporation is in compliance with its financial and operating
covenants.  
17. TRADE AND OTHER PAYABLES 


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Trade payables                                        267,160        173,052
Accruals and deferred income                          248,317        299,344
---------------------------------------------- -------------- --------------
                                                      515,477        472,396

 
18. EXPLORATION OBLIGATIONS  


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Exploration obligations                                 8,638         12,859

 
The above reflects the fair value of E&E commitments assumed as part
of the Valiant transaction. During the period to 30 June 2014, $4.2
million was released reflecting expenditure incurred in the period. 
19. DECOMMISSIONING LIABILITIES  


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Balance, beginning of period                          172,047         52,834
Additions                                               1,943        105,229
Accretion                                               2,619          4,509
Revision to estimates                                       -          9,475
Utilisation                                                 -              -
---------------------------------------------- -------------- --------------
Balance, end of period                                176,609        172,047

 
The total future decommissioning liability was calculated by
management based on its net ownership interest in all wells and
facilities, estimated costs to reclaim and abandon wells and
facilities and the estimated timing of the costs to be incurred in
future periods. The Corporation uses a risk free rate of 3.0 percent
(31 December 2013: 3.0 percent) and an inflation rate of 2.0 percent
(31 December 2013: 2.0 percent) over the varying lives of the assets
to calculate the present value of the decommissioning liabilities.
These costs are expected to be incurred at various intervals over the
next 13 years.  
The economic life and the timing of the obligations are dependent on
Government legislation, commodity price and the future production
profiles of the respective production and development facilities.
Note that upon the acquisition of the Beatrice Field in November
2008, the Corporation did not assume the decommissioning liabilities. 
20. OTHER LONG TERM LIABILITIES  


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Balance, beginning of period                            6,037          3,018
Revaluation in the periodReclassed to trade             (370)          3,019
 payables                                             (6,407)              -
---------------------------------------------- -------------- --------------
Balance, end of period                                      -          6,037

 
The above balance relates to volumes of oil at the Nigg terminal which
must be settled on re-transfer to Talisman, expected to take place in
early 2015. This has been transferred to current liabilities in the
quarter and is now included within trade and other payables (note
17). 
21. CONTINGENT CONSIDERATION  


 
                                                      30 June         31 Dec
                                                        2014            2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Balance 31 December 2013, 31 March 2014 & 30th                              
 June 2014                                              4,000          4,000

 
The contingent consideration at the end of the period relates to the
acquisition of the Stella field and is payable upon first oil. 
22. SHARE CAPITAL  


 
                                                No. of common         Amount
Authorised share capital                               shares        US$'000
---------------------------------------------- -------------- --------------
At 31 December 2013 and 30 June 2014                Unlimited              -
                                                                            
(a) Issued                                                                  
                                                                            
The issued share capital is as follows:                                     
Issued                                              Number of         Amount
                                                common shares        US$'000
---------------------------------------------- -------------- --------------
Balance 1 January 2013                            259,920,003        431,318
Share issueIssued for cash - options exercised     56,952,231         93,005
                                                    6,761,296          6,574
Transfer from Share based payment reserve on                                
 options exercised                                          -          4,819
---------------------------------------------- -------------- --------------
Balance 1 January 2014                            323,633,620        535,716
Issued for cash - options exercised                 4,765,000          7,566
Transfer from Share based payment reserve on                                
 options exercised (Note 23)                                -          4,827
---------------------------------------------- -------------- --------------
Balance 30 June 2014                              328,398,620        548,109

 
(b) Stock options  
In the quarter ended 30 June 2014, the Corporation's Board of
Directors did not grant any new options. 
In the quarter ended 31 March 2014, the Corporation's Board of
Directors granted 7,165,000 options at a weighted average exercise
price of $2.47 (C$2.71). 
The Corporation's stock options and exercise prices are denominated
in Canadian Dollars when granted. As at 30 June 2014, 16,993,567
stock options to purchase common shares were outstanding, having an
exercise price range of $1.76 to $2.47 (C$1.80 to C$2.71) per share
and a vesting period of up to 3 years in the future. 
Changes to the Corporation's stock options are summarised as follows: 


 
                                   30 June 2014          31 December 2013   
---------------------------- ----------------------- -----------------------
                                                                            
                                             Wt. Avg                 Wt. Avg
                                  No. of    Exercise      No. of    Exercise
                                 Options      Price*     Options      Price*
---------------------------- ----------- ----------- ----------- -----------
Balance, beginning of period  14,593,567       $2.01  20,347,964       $1.63
Granted                        7,165,000       $2.47   1,820,232       $2.43
Forfeited / expired                    -           -   (813.333)       $2.18
Exercised                    (4,765,000)       $1.74 (6,761,296)       $0.95
---------------------------- ----------- ----------- ----------- -----------
Options                       16,993,567       $2.28  14,593,567       $2.01
---------------------------- ----------- ----------- ----------- -----------

 
* The weighted average exercise price has been converted into U.S.
dollars based on the foreign exchange rate in effect at the date of
issuance.  
The following is a summary of stock options as at 30 June 2014  


 
         Options Outstanding                   Options Exercisable         
------------------------------------- -------------------------------------
                                                                           
                       Wt.     Wt.                           Wt.     Wt.   
 Range of              Avg      Avg    Range of     No.      Avg      Avg  
 Exercise   No. of     Life  Exercise  Exercise     of       Life  Exercise
   Price    Options  (Years)  Price*     Price    Options  (Years)  Price* 
---------------------------------------------------------------------------
                                                                           
$2.22-                                    $2.22-                           
 $2.47                                     $2.47                           
 (C$2.01-                               (C$2.01-                           
 C$2.71)  12,335,232     2.7    $2.40    C$2.71) 3,303,667     0.6    $2.23
$1.76-                                    $1.76-                           
 $2.03                                     $2.03                           
 (C$1.80-                               (C$1.80-                           
 C$1.99)   4,658,335     2.1    $2.01    C$1.99) 1,614,999     1.9    $1.98
---------------------------------------------------------------------------
          16,993,567     2.5    $2.28            4,918,666     1.0    $2.14
===========================================================================

 
The following is a summary of stock options as at 31 December 2013.  


 
          Options Outstanding                   Options Exercisable         
-------------------------------------- -------------------------------------
                                                                            
                        Wt.     Wt.      Range                Wt.     Wt.   
  Range of              Avg      Avg       of        No.      Avg      Avg  
  Exercise   No. of     Life  Exercise  Exercise     of       Life  Exercise
    Price    Options  (Years)  Price*     Price    Options  (Years)  Price* 
--------------------- ------- -------- ---------- --------- ------- --------
                                                                            
 $2.22-                                    $2.22-                           
 $2.46                                      $2.46                           
 (C$2.25-                                (C$2.25-                           
 C$2.53)    6,670,232     1.8    $2.29    C$2.53) 4,673,333     1.0    $2.22
 $1.49-                                    $1.49-                           
 $2.03                                      $2.03                           
 (C$1.54-                                (C$1.54-                           
 C$1.99)    7,451,667     2.1    $1.90    C$1.99) 3,844,998     1.4    $1.77
 $0.20                                      $0.20                           
 (C$0.25)     471,668     0.1    $0.17   (C$0.25)   471,668     0.1    $0.20
--------------------- ------- -------- ---------- --------- ------- --------
           14,593,567     1.9    $2.01            8,989,999     1.1    $1.95
===================== ======= ======== ========== ========= ======= ========

 
(c) Share based payments  
Options granted are accounted for using the fair value method. The
compensation cost during the three months and six months ended 30
June 2014 for total stock options granted was $1.6 million and $3.3
million respectively (Q2 2013: $0.9 million, Q2 YTD: $1.9 million).
$0.3 million and $0.8 million were charged through the statement of
income for share based payment for the three and six months ended 30
June 2014 respectively, being the Corporation's share of share based
payment chargeable through the statement of income. The remainder of
the Corporation's share of share based payment has been capitalised.
The fair value of each stock option granted was estimated at the date
of grant, using the Black-Scholes option pricing model with the
following assumptions: 


 
                                                  For the six   For the year
                                                 months ended       ended 31
                                                 30 June 2014  December 2013
---------------------------------------------- -------------- --------------
Risk free interest rate                                 1.27%          1.37%
Expected stock volatility                                 56%            51%
Expected life of options                              3 years        2 years
Weighted Average Fair Value                             $1.08          $0.82

 
23. SHARE BASED PAYMENT RESERVE  


 
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Balance, beginning of period                           19.254         20,340
Share based payment cost                                3,280          3,733
Transfer to share capital on exercise of                                    
 options (Note 22)                                    (4,827)        (4,819)
---------------------------------------------- -------------- --------------
Balance, end of period                                 17,707         19,254

 
24. EARNINGS PER SHARE  
The calculation of basic earnings per share is based on the profit
after tax and the weighted average number of common shares in issue
during the period. The calculation of diluted earnings per share is
based on the profit after tax and the weighted average number of
potential common shares in issue during the period.  


 
                      Three months ended 30 June    Six months ended 30 June
                              2014          2013          2014          2013
-------------------- ------------- ------------- ------------- -------------
Wtd av. number of                                                           
 common shares                                                              
 (basic)               322,610,229   305,912,433   327,279,311   283,055,608
Wtd av. number of                                                           
 common shares                                                              
 (diluted)             329,445,220   309,278,839   330,171,186   287,225,134

 
25. TAXATION 


 
                                 Three months ended 30   Six months ended 30
                                                  June                  June
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
Taxation                              7,730     16,836     19,536   (15,674)
-------------------------------- ---------- ---------- ---------- ----------

 
26. COMMITMENTS  


 
                                                      30 June         31 Dec
                                                         2014           2013
Operating lease commitments                           US$'000        US$'000
---------------------------------------------- -------------- --------------
                                                                            
Within one year                                        12,478         13,262
Two to five years                                      14,556          8,149
                                                                            
Capital commitments                                   30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Capital commitments incurred jointly with                                   
 other ventures (Ithaca's share)                       99,383        111,747

 
27. FINANCIAL INSTRUMENTS  
To estimate fair value of financial instruments, the Corporation uses
quoted market prices when available, or industry accepted third-party
models and valuation methodologies that utilise observable market
data. In addition to market information, the Corporation incorporates
transaction specific details that market participants would utilise
in a fair value measurement, including the impact of non-performance
risk. The Corporation characterises inputs used in determining fair
value using a hierarchy that prioritises inputs depending on the
degree to which they are observable. However, these fair value
estimates may not necessarily be indicative of the amounts that could
be realised or settled in a current market transaction. The three
levels of the fair value hierarchy are as follows:  


 
--  Level 1 - inputs represent quoted prices in active markets for
    identical assets or liabilities (for example, exchange-traded
    commodity derivatives). Active markets are those in which transactions
    occur in sufficient frequency and volume to provide pricing
    information on an ongoing basis.
    
    
--  Level 2 - inputs other than quoted prices included within Level 1 that
    are observable, either directly or indirectly, as of the reporting
    date. Level 2 valuations are based on inputs, including quoted forward
    prices for commodities, market interest rates, and volatility factors,
    which can be observed or corroborated in the marketplace. The
    Corporation obtains information from sources such as the New York
    Mercantile Exchange and independent price publications.
    
    
--  Level 3 - inputs that are less observable, unavailable or where the
    observable data does not support the majority of the instrument's fair
    value.

  
In forming estimates, the Corporation utilises the most observable
inputs available for valuation purposes. If a fair value measurement
reflects inputs of different levels within the hierarchy, the
measurement is categorised based upon the lowest level of input that
is significant to the fair value measurement. The valuation of
over-the-counter financial swaps and collars is based on similar
transactions observable in active markets or industry standard models
that primarily rely on market observable inputs. Substantially all of
the assumptions for industry standard models are observable in active
markets throughout the full term of the instrument. These are
categorised as Level 2.  
The following table presents the Corporation's material financial
instruments measured at fair value for each hierarchy level as of 30
June 2014:  


 
                                                                  Total Fair
                                 Level 1     Level 2     Level 3       Value
                                 US$'000     US$'000     US$'000     US$'000
---------------------------- ----------- ----------- ----------- -----------
Derivative financial                                                        
 instrument asset                      -       5,063           -       5,063
Long term liability on                                                      
 Beatrice acquisition                  -           -     (6,407)     (6,407)
Contingent consideration               -     (4,000)           -     (4,000)
Derivative financial                                                        
 instrument liability                  -    (18,467)           -    (18,467)
---------------------------- ----------- ----------- ----------- -----------

 
The table below presents the total (loss)/gain on financial
instruments that has been disclosed through the statement of
comprehensive income: 


 
                                 Three months ended 30   Six months ended 30
                                                  June                  June
                                       2014       2013       2014       2013
                                    US$'000    US$'000    US$'000    US$'000
-------------------------------- ---------- ---------- ---------- ----------
Revaluation of forex forward                                                
 contracts                                -        584    (4,171)    (1,471)
Revaluation of other long term                                              
 liability                            (393)         96      (370)        153
Revaluation of commodity hedges     (6,877)      6,623         72    (2,444)
Revaluation of interest rate                                                
 swaps                                (111)          -      (234)          -
-------------------------------- ---------- ---------- ---------- ----------
                                    (7,381)      7,303    (4,703)    (3,762)
                                                                            
Realised (loss)/gain on                                                     
 commodity hedges                   (3,667)      9,374    (6,341)     13,560
Realised gain/(loss) on forex                                               
 contracts                                -        837      4,028        544
Realised (loss)/gain on interest                                            
 rate swaps                           (155)          -      (225)          -
-------------------------------- ---------- ---------- ---------- ----------
                                    (3,822)     10,211    (2,538)     14,104
-------------------------------- ---------- ---------- ---------- ----------
Total (loss)/gain on financial                                              
 instruments                       (11,203)     17,514    (7,241)     10,342

 
The Corporation has identified that it is exposed principally to these
areas of market risk.  
i) Commodity Risk  
The table below presents the total (loss)/gain on commodity hedges
that has been disclosed through the statement of comprehensive
income:  


 
                                                  Three months ended 30 June
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Revaluation of commodity hedges                       (6,877)          6,623
Realised (loss)/gain on commodity hedges              (3,667)          9,374
---------------------------------------------- -------------- --------------
Total (loss)/gain on commodity hedges                (10,544)         15,997

 
Commodity price risk related to crude oil prices is the Corporation's
most significant market risk exposure. Crude oil prices and quality
differentials are influenced by worldwide factors such as OPEC
actions, political events and supply and demand fundamentals. The
Corporation is also 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's expenditures are subject to the effects
of inflation, and prices received for the product sold are not
readily adjustable to cover any increase in expenses from inflation.
The Corporation may periodically use different types of derivative
instruments to manage its exposure to price volatility, thus
mitigating fluctuations in commodity-related cash flows. 
The below represents commodity hedges in place: 


 
   Derivative            Term                Volume          Average price  
---------------- -------------------- -------------------- -----------------
Oil puts           July 14 - Jun 16           920,647 bbls          $101/bbl
Oil swaps          July 14 - Jun 16         2,358,586 bbls          $102/bbl
Gas swaps          July 14 - Dec 14         809,600 therms         67p/therm
Gas puts            Oct 15 - Jun 17     187,300,000 therms         63p/therm

 
ii) Interest Risk  
Calculation of interest payments for the Senior Secured Borrowing
Base Facility agreement with BNP Paribas that was signed on 29 June
2012 incorporates LIBOR. The Corporation will therefore be exposed to
interest rate risk to the extent that LIBOR may fluctuate. The
Corporation will evaluate its annual forward cash flow requirements
on a rolling monthly basis. 


 
Derivative           Term               Value              Rate             
-------------------- ------------------ ------------------ -----------------
Interest rate swap   Aug 14-Dec 15      $200 million       0.44%            

 
iii) Foreign Exchange Rate Risk  
The table below presents the total gain on foreign exchange financial
instruments that has been disclosed through the statement of
comprehensive income: 


 
                                                  Three months ended 30 June
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Revaluation of foreign exchange forward                                     
 contracts                                                  -            584
Realised gain on foreign exchange forward                                   
 contracts                                                  -            837
---------------------------------------------- -------------- --------------
Total gain/(loss) on forex forward contracts                -          1,421

 
The Corporation is exposed to foreign exchange risks to the extent it
transacts in various currencies, while measuring and reporting its
results in US Dollars. Since time passes between the recording of a
receivable or payable transaction and its collection or payment, the
Corporation is exposed to gains or losses on non USD amounts and on
balance sheet translation of monetary accounts denominated in non USD
amounts upon spot rate fluctuations from quarter to quarter. The
Corporation evaluates its foreign exchange instrument requirements on
a rolling monthly basis. 
iv) Credit Risk  
The Corporation's accounts receivable with customers in the oil and
gas industry are subject to normal industry credit risks and are
unsecured. All of its oil production from the Beatrice, Jacky and
Athena field is sold to BP Oil International Limited. Oil production
from Cook, Broom, Dons, Causeway and Fionn is sold to Shell Trading
International Limited. Anglia and Topaz gas production is currently
sold through three contracts to RWE NPower PLC and Hess Energy Gas
Power (UK) Limited. Cook gas is sold to Shell UK Ltd and Esso
Exploration & Production UK Limited. 
The Corporation assesses partners' credit worthiness before entering
into farm-in or joint venture agreements. In the past, the
Corporation has not experienced credit loss in the collection of
accounts receivable. As the Corporation's exploration, drilling and
development activities expand with existing and new joint venture
partners, the Corporation will assess and continuously update its
management of associated credit risk and related procedures. 
The Corporation regularly monitors all customer receivable balances
outstanding in excess of 90 days. As at 30 June 2014 substantially
all accounts receivables are current, being defined as less than 90
days. The Corporation has no allowance for doubtful accounts as at 30
June 2014 (31 December 2013: $Nil). 
The Corporation may be exposed to certain losses in the event that
counterparties to derivative financial instruments are unable to meet
the terms of the contracts. The Corporation's exposure is limited to
those counterparties holding derivative contracts with positive fair
values at the reporting date. As at 30 June 2014, exposure is $5.1
million (31 December 2013: $5.1 million). 
The Corporation also has credit risk arising from cash and cash
equivalents held with banks and financial institutions. The maximum
credit exposure associated with financial assets is the carrying
values.  
v) Liquidity Risk  
Liquidity risk includes the risk that as a result of its operational
liquidity requirements the Corporation will not have sufficient funds
to settle a transaction on the due date. The Corporation manages
liquidity risk by maintaining adequate cash reserves, banking
facilities, and by considering medium and future requirements by
continuously monitoring forecast and actual cash flows. The
Corporation considers the maturity profiles of its financial assets
and liabilities. As at 30 June 2014, substantially all accounts
payable are current.  
The following table shows the timing of cash outflows relating to
trade and other payables.  


 
                                                Within 1 year   1 to 5 years
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Accounts payable and accrued liabilities              515,477              -
Borrowings                                                  -        605,911
---------------------------------------------- -------------- --------------
                                                      515,477        605,911

 
28. DERIVATIVE FINANCIAL INSTRUMENTS  


 
                                                      30 June    31 December
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
Oil swaps                                            (15,523)       (15,349)
Oil puts                                              (2,477)            597
Gas swaps                                               3,106              -
Gas puts                                                1,594              -
Interest rate swaps                                     (104)              -
Foreign exchange forward contract                           -          4,304
---------------------------------------------- -------------- --------------
                                                     (13,404)       (10,448)

 
29. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES 
Financial instruments of the Corporation consist mainly of cash and
cash equivalents, receivables, payables, loans and financial
derivative contracts, all of which are included in these financial
statements. At 30 June 2014, the classification of financial
instruments and the carrying amounts reported on the balance sheet
and their estimated fair values are as follows: 


 
                                30 June 2014            31 December 2013    
                                  US$'000                   US$'000         
-------------------------------------------------- -------------------------
                           Carrying                  Carrying               
Classification              Amount     Fair Value     Amount     Fair Value 
------------------------------------- ------------ ------------ ------------
Cash and cash equivalents                                                   
 (Held for trading)            50,753       50,753       63,435       63,435
Restricted cash                12,610       12,610       12,198       12,198
Derivative financial                                                        
 instruments (Held for                                                      
 trading)                       5,063        5,063        5,102        5,102
Accounts receivable                                                         
 (Loans and Receivables)      398,070      398,070      314,727      314,727
Deposits                       22,743       22,743       21,150       21,150
Long-term receivable                                                        
 (Loans and Receivables)       52,328       52,328       31,655       31,655
                                                                            
Borrowings (Loans and                                                       
 Receivables)               (605,911)    (605,911)    (432,243)    (432,243)
Contingent consideration      (4,000)      (4,000)      (4,000)      (4,000)
Derivative financial                                                        
 instruments (Held for                                                      
 trading)                    (18,467)     (18,467)     (15,550)     (15,550)
Other long term                                                             
 liabilities                        -            -      (6,037)      (6,037)
Accounts payable (Other                                                     
 financial liabilities)     (515,477)    (515,477)    (472,396)    (472,396)

 
30. CONTINGENT LIABILITY 
The costs from the Sullom Voe Terminal ("SVT"), which receives oil
from the Dons and Causeway areas, are billed monthly on forecast
allocations and a reconciliation invoice is received in the second
quarter of the following year based on actual allocations. The
monthly SVT billings for 2013 have all been expensed and paid. 
In June and July 2014, Ithaca received inconsistent notifications
regarding the reconciliation charge in respect of 2013. As a result
Ithaca has not been able to verify the underlying input data and
calculations. The matter is being investigated with the SVT operator
and additional, relevant information is being requested. Accordingly,
management has not yet been able to determine the final amount that
will be payable. It is possible that the reconciliation charge could
be up to $12 million ($5 million post tax), which has not been
recorded because of the uncertainty over the matter. The final amount
of the 2013 reconciliation invoice is expected to be recognised in
the Q3 2014 interim financial statements. 
Agreements are in place to simplify the method of allocation of SVT
costs after 2014 and to base the allocation predominately on oil
throughputs making forecasting more straightforward and reducing the
potential significant cost allocation distortions inherent in the
current allocation process. 
31. RELATED PARTY TRANSACTIONS 
The consolidated financial statements include the financial
statements of Ithaca Energy Inc and the subsidiaries listed in the
following table: 


 
                                    Country of                              
                                 incorporation  % equity interest at 30 June
                                                         2014           2013
------------------------------- -------------- -------------- --------------
Ithaca Energy (UK) Limited            Scotland           100%           100%
Ithaca Minerals (North Sea)                                                 
 Limited                              Scotland           100%           100%
Ithaca Energy (Holdings)                                                    
 Limited                               Bermuda           100%           100%
Ithaca Energy Holdings (UK)                                                 
 Limited                              Scotland           100%           100%
Ithaca Petroleum Ltd               England and                              
                                         Wales           100%           100%
Ithaca North Sea Limited           England and                              
                                         Wales           100%           100%
Ithaca Exploration Limited         England and                              
                                         Wales           100%           100%
Ithaca Causeway Limited            England and                              
                                         Wales           100%           100%
Ithaca Gamma Limited               England and                              
                                         Wales           100%           100%
Ithaca Alpha (NI) Limited             Northern                              
                                       Ireland           100%           100%
Ithaca Epsilon Limited             England and                              
                                         Wales           100%           100%
Ithaca Delta Limited               England and                              
                                         Wales           100%           100%
Ithaca Petroleum Holdings AS            Norway           100%           100%
Ithaca Petroleum Norge AS               Norway           100%           100%
Ithaca Technology AS                    Norway           100%           100%
Ithaca AS                               Norway           100%           100%
Ithaca Petroleum EHF                   Iceland           100%           100%

 
Transactions between subsidiaries are eliminated on consolidation. 
The following table provides the total amount of transactions that
have been entered into with related parties during the six month
period ending 30 June 2014 and 30 June 2013, as well as balances with
related parties as of 30 June 2014 and 31 December 2013: 


 
                                                       Accounts     Accounts
                                Sales    Purchases   receivable      payable
                              US$'000      US$'000      US$'000      US$'000
-------------------- ----- ---------- ------------ ------------ ------------
Burstall Winger LLP   2014          -           84            -            -
                      2013          -          515            -            -
                                                                            
                                                                            
                                                   Amounts owed from related
Loans to related parties                                             parties
                                                      30 June         31 Dec
                                                         2014           2013
                                                      US$'000        US$'000
---------------------------------------------- -------------- --------------
FPF-1 Limited                                          52,328         31,655

 
32. SEASONALITY 
The effect of seasonality on the Corporation's financial results for
any individual quarter is not material.  
33. SUBSEQUENT EVENTS 
Acquisition of Summit Petroleum Limited    
In June 2014, the Boards of Ithaca and Sumitomo Corporation,
announced that they had reached agreement on the terms of a
recommended acquisition (the "Acquisition"). The Acquisition became
effective on 1 January 2014 with Ithaca Energy Holdings (UK) Limited
acquiring the entire issued and to be issued share capital of Summit.
Completion anticipated in Q3-2014.  
The total net acquisition price was approximately $163 million. 
It is expected that the transaction will be accounted for in
accordance with IFRS 3 - Business Combinations. Given the proximity
of the Acquisition to the quarter end, no provisional fair values
have yet been determined. 
Senior Notes Offering 
In July 2014, Ithaca completed its offering of $300 million 8.125%
senior unsecured notes due at 2019 at par. 
The Notes, the net proceeds of which will be used to partially repay
(without cancelling) the Company's senior secured reserves based
lending ("RBL") facility, will be senior obligations of the Company
and will rank pari passu with all present and future senior unsecured
indebtedness of the Company. 
The Company intends to draw amounts under the RBL facility to finance
the acquisition of Summit Petroleum Limited. 
Not for Distribution to U.S. Newswire Services or for Dissemination
in the United States 
This information is provided by RNS
 The company news service from
the London Stock Exchange 
Enquiries: 
Ithaca Energy 
Les Thomas
lthomas@ithacaenergy.com
+44 (0)1224 650 261 
Graham Forbes
gforbes@ithacaenergy.com
+44 (0)1224 652 151 
Richard Smith
rsmith@ithacaenergy.com
+44 (0)1224 652 172 
FTI Consulting
Edward Westropp
edward.westropp@fticonsulting.com
+44 (0)203 727 1521 
Shannon Brushe
shannon.brushe@fticonsulting.com
+44 (0)203 727 1077 
Cenkos Securities
Neil McDonald
nmcdonald@cenkos.com
+44 (0)131 220 6939 
Beth McKiernan
bmckiernan@cenkos.com
+44 (0)131 220 9778 
RBC Capital Markets
Tim Chapman
tim.chapman@rbccm.com
+44 (0)207 653 4641 
Matthew Coakes
matthew.coakes@rbccm.com
+44 (0)207 653 4871 
 
 
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