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Ithaca Energy Inc
Symbol C : IAE
Shares Issued 316,905,657
Close 2013-05-10 C$ 1.67
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Ithaca Energy earns $3.47-million (U.S.) in Q1 2013

2013-05-13 05:33 ET - News Release

Mr. John Summers reports

FIRST QUARTER 2013 FINANCIAL RESULTS AND IMPACT OF VALIANT ACQUISITION

Ithaca Energy Inc. has released its quarterly results for the three months ended March 31, 2013. In light of the Valiant transaction closing on April 19, 2013, also included are the unaudited financial highlights for the same period, for illustrative purposes only, showing the contribution from Valiant Petroleum PLC for the period, together with an update on integration activities.

Ithaca first-quarter 2013 highlights

Financial:

  • Cash flow from operations increased over 20 per cent to $34.8-million (first quarter 2012: $28.4-million) -- cash flow per share 13 cents (first quarter 2012: 11 cents);
  • $14.6-million of earnings excluding unrealized losses on financial instruments of $11.1-million (first quarter 2012: $12.1-million);
  • Average realized oil price of $114.32 per barrel (first quarter 2012: $116.42 per barrel) including a realized hedging gain of $8 per barrel;
  • Strong clean balance sheet with cash net of drawn debt of $10.6-million at end of the first quarter 2013;
  • U.K. tax allowance pool of $424-million at end of first quarter 2013;
  • Approximately 2.6 million barrels of future 2013-2014 oil production hedged at a weighted average price of around $106 per barrel (approximately 25 per cent puts/75 per cent swaps).

Production and operations:

  • Total average net export production in the first quarter of 2013 increased 51 per cent to approximately 6,475 barrels of oil equivalent per day (first quarter 2012: 4,299 barrels of oil equivalent per day), including production from the Cook field interest acquired from Noble Energy Capital Ltd. (transaction effective Jan. 1, 2012, and completed on Feb. 5, 2013);
  • Production during the quarter was in the upper range of that anticipated by the 2013 annual guidance range of 6,000 to 6,700 barrels of oil equivalent per day. The Ithaca-operated Athena field had another strong quarter, with the field continuing to produce "dry" oil at a stable gross daily production potential of between 10,000 and 11,000 barrels of oil per day, 2,250 to 2,475 barrels of oil per day net to Ithaca.

Greater Stella area development:

  • The FPF-1 has been moved on to the dry dock barge at the Remontowa shipyard in Gdansk, Poland.
  • The Ensco 100 heavy duty jack-up drilling rig has now completed operations on the wells being drilled prior to commencement of the Greater Stella area development drilling program -- rig scheduled to be on location at Stella field in the second quarter of 2013.
  • Delivery to the Remontowa yard of the long-lead topsides processing plant equipment and pipework that is to be installed on the FPF-1 has commenced.
  • Fabrication of the subsea structures that are to be installed by Technip in 2013 has been completed on schedule at Global Energy Group's facilities in northeastern Scotland. Installation and testing of the pipework spools, valves and control systems being fitted within the structures is nearing completion.
  • Welding is under way at Technip's Evanton spool base in northeastern Scotland of the 10-inch steel export infrastructure linepipe that is to be installed in 2013.

Ithaca and Valiant first-quarter 2013 combination highlights

The financial consolidation of Valiant is only applicable from the second quarter of 2013, as the acquisition completed on April 19, 2013. However, the following unaudited first-quarter 2013 consolidated financial summary has been prepared, for illustrative purposes only, to provide a high-level overview of the potential cash flow performance of the enlarged company.

This information is provided to assist shareholders with quantifying the impact of the Valiant acquisition on the company. It does not represent a guide to future financial performance. The Valiant data used above have been extracted from the management accounts of Valiant for the first quarter of 2013. The Valiant accounting policies are broadly similar to those used by Ithaca.

The first-quarter 2013 combined Ithaca and Valiant highlights are:

  • Total net average export production of around 14,850 barrels of oil equivalent per day, approximately 95 per cent oil;
  • Production in line with the company's full-year 2013 guidance range of 14,000 to 16,000 barrels of oil equivalent per day, with volumes in the second half of 2013 scheduled to benefit from infill drilling activities on the Don Southwest field;
  • Cash flow from operations of around $100-million during the first quarter of 2013;
  • A substantial reduction in unit operating costs to around $28 per barrel of oil equivalent, driven by the addition of a higher proportion of low-cost barrels;
  • Over 30-per-cent increase in the netback per barrel, to around $80 per barrel of oil equivalent, attributable to the predominantly oil production base and lower operating cost per barrel;
  • A combined U.K. tax allowances pool of over $900-million at the end of the first quarter of 2013.

Progress on Valiant acquisition integration

The integration of Valiant's activities into Ithaca's existing operations is progressing well. The company has made major steps since completion of the acquisition to realize the substantial cost synergies that are achievable through removal of operational and administrative overlaps. The company has formally announced the closure of Valiant's U.K. office, with all activities being transferred to Ithaca's existing operations in Aberdeen, U.K. It is anticipated that over three quarters of the U.K. integration activities and removal of associated overheads will have been completed within approximately six to eight weeks of completion of the acquisition, with closure of Valiant's U.K. office anticipated in July, 2013.

The company has made significant progress toward its objective of substantially reducing the future U.K. exploration expenditure commitments that were transferred to Ithaca as part of the Valiant acquisition. In overall portfolio terms the company has reduced net exploration expenditure commitments via farm-outs by over $45-million.

The Valiant acquisition has established Ithaca as a leading mid-cap North Sea oil and gas operator. The transaction has significantly enhanced the company's existing production base and producing asset reserves, establishing a highly cash generative business, with tax allowances sheltering the company from the payment of U.K. tax over the medium term, and provided operational entry into Norway. The company has total proven and probable reserves of around 70 million barrels of oil equivalent and a strong balance sheet containing only low-risk/low-cost senior debt.

In the announcement made by the company on March 1, 2013, in connection with the Valiant acquisition, Ithaca confirmed that, upon completion of the acquisition, two existing directors of Valiant, Jannik Lindbaek and Michael Bonte-Friedheim, were to be appointed to the board of Ithaca as non-executive directors.

Mr. Bonte-Friedheim has since informed Ithaca that, due to other business commitments, he will be unable to dedicate sufficient time to the proposed role and, accordingly, will be unable to join the board of Ithaca as previously announced. The company wishes Mr. Bonte-Friedheim every success in the future and thanks him for his invaluable assistance in the postacquisition integration process.

The company is pleased to confirm that Mr. Lindbaek will be appointed to the board as a non-executive director in May, 2013. Mr. Lindbaek was previously chairman of the Norwegian international oil and gas company, Statoil ASA, prior to its merger with Norsk Hydro in 2007. A further announcement will be made regarding Mr. Lindbaek's appointment in due course.

                  CONSOLIDATED STATEMENT OF INCOME
       (in thousands of U.S. dollars, except per share amounts)

                                   For the three months ended March 31,
                                                         2013     2012

Revenue                                              $ 59,769 $ 40,553
Cost of sales                                         (46,458) (26,006)
                                                     -------- --------
Gross profit                                           13,311   14,547
Exploration and evaluation expenses                      (312)     (75)
Administrative expenses                                (2,771)  (1,206)
                                                     -------- --------
Operating profit                                       10,228   13,266
Foreign exchange                                          563    1,648
(Loss) on financial instruments                        (7,172)    (728)
Negative goodwill                                         914        -
                                                     -------- --------
Profit on ordinary activities before interest and
tax                                                     4,533   14,186
Finance costs                                          (2,276)    (469)
Interest income                                            20       65
                                                     -------- --------
Profit before tax                                       2,277   13,782
Taxation -- deferred tax                                1,195     (866)
                                                     -------- --------
Profit after tax                                     $  3,472 $ 12,916
                                                     ======== ========
Earnings per share
Basic                                                $   0.01 $   0.05
Diluted                                                  0.01     0.05

We seek Safe Harbor.

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