ABERDEEN, SCOTLAND
-- (Marketwired)
-- 05/13/13
Ithaca Energy Inc. (TSX VENTURE: IAE)
(LSE: IAE)
(TSX VENTURE: IAE)
Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States
Ithaca Energy Inc.
First Quarter 2013 Financial Results and Impact of Valiant Acquisition
May 13, 2013
Ithaca Energy Inc. (TSX VENTURE: IAE), (LSE: IAE) ("Ithaca" or
the "Company") announces its quarterly results for the three months
ended March 31, 2013 ("Q1 2013"). In light of the Valiant transaction
closing on April 19, 2013, also included is the unaudited financial
highlights for the same period, for illustrative purposes only, showing
the contribution from Valiant Petroleum plc ("Valiant") for the period,
together with an update on integration activities.
Ithaca Q1 2013 Highlights
Financial
- Cashflow from operations increased over 20% to $34.8 million (Q1
2012: $28.4 million) - cash flow per share $0.13 (Q1 2012: $0.11).
- $14.6 million of earnings excluding unrealised losses on
financial instruments of $11.1 million (Q1 2012: $12.1 million).
- Average realised oil price of $114.32 / bbl (Q1 2012: $116.42 /
bbl) including a realised hedging gain of $8.00 / bbl.
- Strong clean balance sheet with cash net of drawn debt of $10.6
million at end Q1 2013.
- UK tax allowance pool of $424 million at end Q1 2013.
- Approximately 2.6 million barrels of future 2013-2014 oil
production hedged at a weighted average price of ~$106 / bbl
(approximately 25% puts / 75% swaps).
Production & Operations
- Total average net export production in Q1-2013 increased 51% to
approximately 6,475 barrels of oil equivalent ("boe") per day ("boepd")
(Q1-2012: 4,299 boepd), including production from the Cook field
interest acquired from Noble Energy Capital Limited (transaction
effective January 1, 2012 and completed on February 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 boepd.
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 bopd, 2,250 to 2,475
bopd 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 ("GSA") development drilling programme - rig
scheduled to be on location at Stella field in Q2 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 North East ("NE") Scotland. Installation and testing of
the pipework spools, valves and control systems being fitted within the
structures is nearing completion.
- Welding is underway at Technip's Evanton spool base in NE
Scotland of the 10-inch steel export infrastructure linepipe that is to
be installed in 2013.
Ithaca & Valiant Q1 2013 Combination Highlights
The financial consolidation of Valiant is only applicable from Q2 2013,
as the acquisition completed on April 19, 2013. However, the following
unaudited Q1 2013 consolidated financial summary has been prepared, for
illustrative purposes only, to provide a high-level overview of the
potential cashflow performance of the enlarged Company.
Q1 2013 Ithaca Valiant Combined
Total Production boepd 6,475 8,372 14,847
Av. Realised Oil Price (Exc. Hedging) $/bbl 106 113 110
Revenue M$ 59.8 90.2 150.0
Inventory Increase/(Decrease) M$ (3.8) (3.8) (7.5)
Operating Costs M$ (23.2) (14.2) (37.4)
G&A M$ (1.9) (7.4) (9.3)
Realised Derivatives Gain / (Loss) M$ 3.9 (0.3) 3.6
Cashflow From Operations M$ 34.8 64.5 99.5
CFPS (using issued Shares 316.9m) $USD 0.11 0.20 0.31
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 has been extracted from the management accounts of Valiant
for Q1 2013. The Valiant accounting policies are broadly similar to
those used by Ithaca.
The Q1 2013 combined Ithaca and Valiant highlights are:
- Total net average export production of ~14,850 boepd,
approximately 95% oil.
- Production in line with the Company's full year 2013 guidance
range of 14,000 to 16,000 boepd, with volumes in the second half of
2013 scheduled to benefit from infill drilling activities on the Don
Southwest field.
- Cashflow from operations of ~$100 million during Q1 2013.
- A substantial reduction in unit operating costs to ~$28 / boe,
driven by the addition of a higher proportion of low cost barrels.
- Over 30% increase in the netback per barrel, to ~$80 / boe,
attributable to the predominantly oil production base and lower
operating cost per barrel.
- A combined UK tax allowances pool of over $900 million at the
end of Q1 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 realise the substantial cost synergies
that are achievable through removal of operational and administrative
overlaps. The Company has formally announced the closure of Valiant's
UK office, with all activities being transferred to Ithaca's existing
operations in Aberdeen, UK. It is anticipated that over three quarters
of the UK 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 UK office
anticipated in July 2013.
The Company has made significant progress towards its objective of
substantially reducing the future UK 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 $45million.
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 UK tax over the
medium term, and provided operational entry into Norway. The Company
has total proven and probable reserves of ~70 million boe 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, Mr. Jannik Lindbaek
and Mr. Michael Bonte-Friedheim, were to be appointed to the Board of
Ithaca as Non-Executive Directors.
Mr Bonte-Freidheim 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-Freidheim
every success in the future and thank him for his invaluable assistance
in the post-acquisition integration process.
The Company is pleased to confirm that Mr. Jannik 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.
Additional Information
An updated corporate presentation is available on the Company's
website, www.ithacaenergy.com. A short film summarising the Company's
GSA strategy and development execution plan is also available on the
website.
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 industry.
This press release contains non-International Financial Reporting
Standards ("IFRS") industry benchmarks and terms, such as "netbacks"
and "cashflow from operations". Netbacks are calculated on a per unit
basis as oil, gas and natural gas liquids revenues less royalties and
transportation and operating costs. Cashflow from operations is
determined by adding back changes in non-cash operating working capital
to cash from operating activities. The non-IFRS financial measures do
not have any standardized meaning and therefore are unlikely to be
comparable to similar measures presented by other companies. The
Company uses the foregoing measures 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.
Further details on the above are provided in the unaudited interim
consolidated financial statements of Ithaca for the quarter ended March
31, 2013, which have been filed with the securities regulatory
authorities in Canada. These financial statements are available on the
System for Electronic Document Analysis and Retrieval at www.sedar.com
and on the Company's website: www.ithacaenergy.com.
Enquiries:
Ithaca Energy Inc.
Iain McKendrick, imckendrick@ithacaenergy.com +44 (0) 1224 650 261
CEO
Graham Forbes, CFO gforbes@ithacaenergy.com +44 (0) 1224 652 151
Cenkos Securities
plc
Jon Fitzpatrick jfitzpatrick@cenkos.com +44 (0) 207 397 8900
Neil McDonald nmcdonald@cenkos.com +44 (0) 131 220 6939
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
FTI Consulting
Billy Clegg billy.clegg@fticonsulting.com +44 (0) 207 269 7157
Edward Westropp edward.westropp@fticonsulting.com +44 (0) 207 269 7230
Georgia Mann georgia.mann@fticonsulting.com +44 (0) 207 269 7212
About Ithaca Energy:
Ithaca Energy Inc. (TSX VENTURE: IAE), (LSE: IAE),is an oil and gas
operator focused on North Sea production, appraisal and development
activities. The Company's strategy is centred on building a highly
profitable North Sea oil and gas company by maximising production and
cashflow from its existing assets, the appraisal and development of
existing discoveries on properties held by the Company and the delivery
of additional growth via acquisitions and licence round participation.
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, 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, production forecasts,
budgetary figures contained in the corporate presentation, 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 and included in this press
release should not be unduly relied upon. These forward-looking
statements speak only as of the date of this announcement. 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.
Notes Regarding Oil and Gas Disclosure:
References herein to "boe" mean barrel of oil equivalent 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.
Statements relating to reserves are deemed to be forward-looking
statements, as they involve the implied assessment, based on certain
estimates and assumptions, that the reserves described can be
profitably produced in the future.
The reserve estimates set forth in this press release are estimates
only and the actual reserves and realized revenue may be greater or
less than those calculated. The estimates of reserves for individual
properties may not reflect the same confidence level as estimates of
reserves and future net revenue for all properties, due to the effects
of aggregation.
With respect to Ithaca's reserves, the figures are derived from a
report prepared by Sproule International Limited ("Sproule"), an
independent qualified reserves evaluator, evaluating the reserves of
Ithaca as of December 31, 2012 and forming the basis for the Statement
of Reserves Data and Other Oil and Gas Information of Ithaca dated
March 19, 2013 (the "Statement"). The reserves for the South West
Heather Field included in the Statement are those estimated by Ithaca
and reviewed by Sproule. With respect to Valiant reserves acquired by
Ithaca, the figures are derived from an Audit of Certain Reserves as at
December 31, 2012 prepared by RPS Energy Consultants Limited, an
independent qualified reserves evaluator, dated January 24, 2013. The
reserves estimates of Ithaca are based on the Canadian Oil and Gas
Evaluation Handbook ("COGEH") pursuant to National Instrument 51-101 -
Standards of Disclosure for Oil and Gas Activities. The reserves
estimates of Valiant are based on the 2007 SPE/AAPG/WPC/SPEE Petroleum
Resource Management System which is not materially different from
COGEH. The Valiant reserves have been adjusted to reflect the increased
Fionn field interest being transferred to Valiant by Antrim Resources
(N.I.) Limited.
Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States
-ENDS-
HIGHLIGHTS FIRST QUARTER 2013
Strong cashflow - Cashflow from operations increased over
from operations 20% to $34.8 million (Q1 2012: $28.4 million) -
cashflow per share $0.13 (Q1 2012: $0.11)
- Adjusted earnings of $14.6 million*
excluding unrealised revaluation loss on financial
instruments (Q1 2012: $12.1 million)
o Unadjusted earnings of $3.5 million (Q1 2012:
$12.9 million)
- Q1 2013 average realized oil price of $114
/ bbl (Q1 2012: $116 / bbl), including a realized
hedging gain of $8 / bbl
- Cash balance of $10.6 million net of drawn
debt (Q4 2012: $31.4 million)
- UK tax allowances pool of $424 million at
quarter end
- Approximately 2.6 million barrels of
future 2013-14 oil production hedged at a weighted
average price of around $106 / bbl (approximately
25% puts / 75% swaps)
Q1 production in - Export production increased 51% to
line with forecast approximately 6,475 barrels of oil equivalent per
day ("boepd") (Q1 2012: 4,299 boepd), including
production from the Cook field interest acquired
from Noble Energy Capital Limited ("Noble"),
effective January 1, 2012
Greater Stella - "FPF-1" floating production unit
Area hub - major transferred to dry dock
milestones being
achieved - Contract signed with Applied Drilling
Technology International ("ADTI") in April 2013 to
manage development drilling and completion
operations on the Greater Stella Area ("GSA")
under"turnkey" contract arrangements
- Ensco 100 drilling rig has now completed
operations on the wells being drilled prior to
commencement of the GSA development drilling
programme - rig scheduled to be on location at
Stella field in Q2 2013
- Fabrication of all the required subsea
infrastructure that is to be installed by Technip
in 2013 is progressing according to plan
Step-change in - Acquisition of Valiant Petroleum plc
growth of the ("Valiant") for a total enterprise value of
Corporation approximately $459 million completed on April 19,
2013
- Completion of the acquisition of an
additional 12.885% interest in the Cook field ("the
Cook Acquisition")
*Adjusted earnings removes the unrealised (non-cash) losses arising
from revaluation of hedges at the quarter end. Revaluation at the end
of April 2013 would have resulted in a gain as opposed to the loss of
$11.1 million reported.
SUMMARY STATEMENT OF INCOME
Q1 2013 Q1 2012 %
Average Brent Oil Price $/bbl 113 119 -5%
Average Realised Oil Price(1) $/bbl 106 116 -9%
Revenue M$ 59.8 40.6 47%
Cost of Sales - excluding DD&A M$ (27.0) (12.6) 114%
G&A etc M$ (1.9) 0.6 N/A
Realised Derivatives Gain / (Loss) M$ 3.9 (0.2) N/A
Cashflow From Operations M$ 34.8 28.4 23%
DD&A M$ (19.5) (13.4) 46%
Unrealised Derivatives Gain / (Loss) M$ (11.1) 0.8 N/A
Other M$ (1.9) (2.0) -5%
Profit Before Tax M$ 2.3 13.8 -83%
Deferred Tax Credit / (Charge) M$ 1.2 (0.9) N/A
Profit After Tax M$ 3.5 12.9 -73%
Earnings Per Share(2) $/Sh. 0.01 0.05 -80%
Cashflow Per Share(2) $/Sh. 0.13 0.11 18%
(1) Average realized price before hedging
(2 Weighted average number of shares of 259.9 million
pre Valiant Acquisition
SUMMARY BALANCE SHEET
M$ Q1 2013 Q4 2012
Cash & Equivalents 66 31
Other Current Assets 173 198
PP&E 749 663
Other Non-Current Assets 41 41
Total Assets 1,029 934
Current Liabilities (197) (206)
Asset Retirement Obligations (57) (53)
Deferred Tax Liabilities (103) (62)
Other Non-Current Liabilities (62) (7)
Total Liabilities (420) (328)
Net Assets 609 606
Share Capital 431 431
Other Reserves 21 20
Surplus / (Deficit) 157 154
Shareholders Equity 609 606
CORPORATE STRATEGY
Ithaca Energy Inc. (the "Corporation" or "Ithaca" or the "Company")
is an oil and gas operator focused on North Sea production, appraisal
and development activities.
Ithaca's strategy is to grow shareholder value by building a highly
profitable 25kboepd North Sea oil and gas company. The execution of
this plan is centred on:
- Maximising production and cashflow from its existing assets
- Delivering material growth by appraising and developing
existing hydrocarbon discoveries
- Continuing to increase and diversify the Company's portfolio
and cashflows through acquisitions
CONSOLIDATION
The consolidated financial statements of the Corporation and the
financial data contained in this management's discussion and analysis
("MD&A") are prepared in accordance with international financial
reporting standards ("IFRS"). The consolidated financial statements
include the accounts of Ithaca and its wholly-owned subsidiaries
Ithaca Energy (Holdings) Limited ("Ithaca Holdings"), Ithaca Energy
(UK) Limited ("Ithaca UK"), Ithaca Minerals North Sea Limited
("Ithaca Minerals") and Ithaca Energy Holdings (UK) Limited ("Ithaca
Holdings UK") and its associates FPU Services Limited ("FPU") and
FPF-1 Limited ("FPF-1").
All inter-company transactions and balances have been eliminated on
consolidation. A significant portion of the Corporation's North Sea
oil and gas activities are carried out jointly with others. The
consolidated financial statements reflect only the Corporation's
proportionate interest in such activities.
PRODUCTION & OPERATIONS UPDATE
51% increase in Q1 2013 PRODUCTION
production compared
to Q1 2012, with Ithaca's total net export production in Q1 2013
production in line was 6,475 boepd, approximately 90% oil,
with forecast representing an increase of approximately 51% on
performance Q1 2012 production (Q1 2012: 4,299 boepd). The
production performance was in the upper range of
that anticipated by the Corporation as part of
the 2013 annual production guidance range of
6,000 to 6,700 boepd.
Production in the period was derived from the
operated Athena, Beatrice, Jacky and Anglia
fields and the non-operated Cook, Broom and
Topaz fields. The total Q1 2013 production of
6,475 boepd includes the contribution from the
additional 12.885% Cook field interest acquired
from Noble.
The material increase in production delivered in
Q1 2013 compared to the same quarter in 2012 was
primarily attributable to the contribution from
the Athena field (first oil May 2012) and the
acquisition of the additional Cook field
interest from Noble.
The two primary fields contributing
approximately 70% of total net production during
the quarter were Athena and Cook, with each
contributing broadly equally. The Ithaca
operated Athena field had another strong
quarter, with the stable gross daily production
potential of field remaining at between 10,000
and 11,000 bopd, 2,250 to 2,475 bopd net to
Ithaca. Consistent daily delivery of the field
potential over the period has been achievable as
a result of the solid performance of the BW
Athena floating, production, storage and
offloading vessel ("FPSO"). The field continues
to produce "dry" oil.
GREATER STELLA AREA DEVELOPMENT UPDATE
GSA: Significant FPF-1 Modification Works
progress being made,
with commencement of Following the transfer in late 2012 of the FPF-1
drilling campaign floating production facility to the Remontowa
set for Q2-2013 shipyard in Gdansk, Poland, the modifications
work programme being performed by Petrofac in
the yard has been focused on preparation for the
dry dock.
Inspection, repair and coating of the hull tanks
is progressing well and the vessel has now been
transferred to the yard's dry dock barge to
enable completion of the marine system works.
This milestone marks the start of the
installation of additional buoyancy on the FPF-1
as part of the marine upgrade works, with steel
cutting, rolling and welding operations in
progress.
Installation of the new topsides processing
plant will commence upon completion of the dry
dock works. The vessel preparatory works have
largely been completed and delivery to the yard
of the equipment and materials required for the
construction and fabrication work programme has
commenced. The gas export compressors, which
represent the key processing plant package with
the longest lead time (having being order at the
start of 2012), have now been delivered to the
yard.
The FPF-1 is being modified and upgraded by
Petrofac under the terms of a lump sum
incentivised contract that was awarded by the
GSA joint venture partners in October 2011.
Drilling Programme
The high-spec Ensco 100 heavy duty jack-up
drilling rig that has been contracted for the
GSA development drilling campaign has now
completed operations on the wells being drilled
for the North Sea operator that has being using
the rig immediately prior to commencement of the
GSA programme.
The rig is being prepared for demobilisation
from its current location and will shortly
commence its transit to the Able shipyard in
Hartlepool, UK, where Ensco will complete a
scheduled routine inspection of the unit and
certain minor upgrade works to improve the well
construction capabilities of the rig
specifically designed to improve the efficiency
of GSA drilling operations. The unit is
expected to arrive on location at the Stella
field in Q2-2013.
The initial development drilling campaign
involves the completion of four wells on the
Stella field prior to start-up of production.
As previously announced, Advanced Drilling
Technology International ("ADTI"), a subsidiary
of Transocean, has been contracted to manage the
drilling and completion operations under"turnkey"
contract arrangements. The turnkey
contract locks in the expenditure and
performance requirements of the core drilling
operations, with each well anticipated to take
approximately 80-90 days to drill, complete and
clean-up test.
Subsea Infrastructure Works
Significant progress is being made by Technip UK
Limited ("Technip") with preparation for the
main subsea infrastructure installation
activities that are scheduled to take place
offshore in 2013. The subsea programme is being
performed under the terms of an Engineering,
Procurement, Installation and Construction
("EPIC") contract, thereby ensuring a fully
integrated execution plan covering all aspects
of this key element of the GSA development.
- Manufacturing, coating and delivery to
Technip's Evanton spool base in NE Scotland of
all the required 10-inch export infrastructure
linepipe has been completed and the welding of
12 metre pipes into 1000 metre pipe stalks has
commenced. The pipe stalks are scheduled to be
reeled on to Technip's Apache II pipelay vessel
in Q3-2013 for subsequent installation offshore.
- Manufacture of the static flexible
flowlines that will connect the drill centres to
the FPF-1 is nearing completion at Technip's
manufacturing facility in Le Trey, France.
These are scheduled to be installed by the
Skandi Arctic construction and dive support
vessel, commencing in Q3-2013.
- The first pipeline trenches to be cut in
advance of installation of the flexible
flowlines will commence in Q2-2013, marking the
start of the offshore installation campaign.
- Fabrication of the subsea structures
that will connect the drill centres with the
FPF-1 has been completed at Global Energy
Group's facilities in NE Scotland. Installation
and testing of the pipework spools, valves and
control systems being fitted within the
structures is nearing completion. The
structures are scheduled to be installed by the
Skandi Arctic in Q3-2013.
Q1 2013 CORPORATE ACTIVITIES
Acquisition of Cook Field Interest Completed,
Lapse of MacCulloch Field Interest Acquisition
Further broadening
of the producing In October 2012, the Corporation announced that
asset portfolio - it had entered into agreements with Noble Energy
acquisition of Capital Limited (a subsidiary of Noble Energy
additional Cook Inc.) to acquire a 12.885% interest in the Cook
field interest field and a 14% interest in the MacCulloch
field.
The acquisition of the Cook field interest was
completed in February 2013, increasing the
Corporation's overall interest in the field to
41.345%.The consideration paid at completion
was $37.7 million, with approximately $14
million of this payment being offset by the
transfer of oil inventory awaiting offload from
the Anasuria floating production, storage and
offloading vessel (the host facility for the
Cook field) to the Corporation.
The agreement for acquisition of the MacCulloch
field interest from Noble has now lapsed and the
Corporation has decided not to further pursue
this acquisition given the field has remained
shut-in since late December 2012.The
MacCulloch field was only anticipated to
contribute approximately 5% of the Corporation's
total forecast 2013 production guidance of 6,000
to 6,700 boepd and represented 1.4MMbbl or less
than 3% of the total 51.9MMbbl proved and
probable ("2P") reserves at the end of 2012.
ACQUISITION OF VALIANT PETROLEUM PLC
Highly accretive
acquisition -
materially On March 1, 2013, it was announced that the
increasing Boards of Ithaca and of Valiant reached
production, reserves agreement on the terms of a recommended
and cashflow acquisition (the "Acquisition") under which
Ithaca would acquire all the shares of Valiant.
The Acquisition was completed on April 19, 2013,
with the cessation of trading of Valiant shares.
The total Acquisition price was approximately
$309 million. The Corporation also repaid
approximately $150 million of Valiant debt /
working capital, implying a total enterprise
value of approximately $459 million.
The Acquisition is financed by a low interest
(London Inter Bank Offered Rate plus 1.0 - 1.6%)
$350 million bridge loan and the issue of new
Ithaca shares. The bridge facility, which has
been agreed with BNP Paribas, the Bank of Nova
Scotia and Bank of America Merrill Lynch, is
available for 12 months. The intention is to
fold the borrowing secured against the Valiant
assets into an enlarged borrowing base facility
during 2013.
A total of 56,952,321 new Ithaca common shares
have been issued and allotted to holders of
Valiant shares, immediately following which
issue and allotment Ithaca had a total of
316,905,657 common shares outstanding.
Admission of the new shares to trading on the
Alternative Investment Market ("AIM") and the
Toronto Stock Exchange occurred by April 22,
2013.
The Acquisition has resulted in:
- The establishment of Ithaca as a mid
cap North Sea oil and gas operator, with 2P
reserves of approximately 70MMboe, of which
approximately 50% relates to currently producing
assets;
- A more than doubling of Ithaca's
current forecast 2013 production to 14-16kboepd
(90% oil), forecast to rise to approximately
27kboepd in 2015; and
- Anticipated four fold increase in
Ithaca's anticipated 2013 cash flow from
operations to $400 million, rising to over $700
million in 2015.
COMMODITY HEDGING
At the start of Q1 2013 approximately 3 million barrels of 2013-14
oil production had been hedged at a weighted average price of $109 /
bbl (approximately 25% puts / 75% swaps).
In the quarter, the Corporation received $4.2 million through the
settlement of commodity hedges relating to approximately 0.4 million
barrels of oil.
In April 2013, the Corporation exercised an option to swap 1 million
barrels of production at $107/bbl. On the day of exercise, the Brent
forward curve, for the period to which the hedge related, was at $101
/ bbl resulting in the swaption being converted to a cash settlement
of $6 million and a forward swap of 1 million barrels of production
at $101 / bbl.
Following the above transactions, 2.6 million barrels of future
2013-14 oil production are hedged at a weighted average price of ~
$106 / bbl (approximately 25% puts / 75% swaps).
The unrealised losses of $11.1 million from the revaluation of
financial instruments included a loss of $9.1 million driven by the
revaluation of oil swaps and put options. The hedging instruments are
measured at March 31, 2013 and a valuation attributed based on the
Brent oil forward curve on that date (spot Brent was trading at
$108.46/bbl on March 31, 2013). The losses relate to movement in the
Brent oil forward curve, a reduction in the implied volatility and
the elapsing of time. Whilst significant, these marked-to-market
movements represent non-cash revaluations which are highly sensitive
to the oil price on the day of valuation and do not affect underlying
cashflow from operations. For example, had the revaluation taken
place at the end of April 2013, the revaluation would have resulted
in a gain rather than a loss.
Q1 2013 RESULTS OF OPERATIONS
REVENUE
Record
quarterly
revenue of Revenue increased by $19.2 million in Q1 2013 to $59.8
$59.8 million (Q1 2012: $40.6 million). This was mainly driven
million by an increase in oil sales volumes, partially offset by
a reduction in oil price.
Oil sales volumes increased primarily due to the
inclusion of sales from the Athena field and the Cook
Acquisition in Q1 2013 (Athena commenced production in
May 2012) offset by natural declines in the Beatrice and
Jacky fields. Of the reported 6,475 boepd production,
6,148 boepd flows through the statement of income with
the additional 327 boepd reflecting production from the
Cook Acquisition prior to completion. The value of the
pre-completion production is captured as part of the
acquisition accounting on the balance sheet.
Q1 2013 gas sales are in line with Q1 2012 despite a
reduction in Anglia and Topaz gas volumes, which was
offset by the addition of Cook gas sales as well as an
increase in realized gas prices.
Average realized oil prices decreased quarter on quarter
from $116/bbl in Q1 2012 to $106/bbl in Q1 2013. The
average Brent price for the quarter was $113/bbl compared
to $119/bbl for Q1 2012. The Corporation's realized oil
prices do not strictly follow the Brent price pattern
given the various oil sales' contracts in place, with
certain field sales sold at a discount or premium to
Brent. This decrease in average realized oil price was
nonetheless offset by a realized hedging gain of $8/bbl
in Q1 2013.
Average Realized Price Q1 2013 Q1 2012
Oil Pre-Hedging $/bbl 106 116
Oil Post-Hedging $/bbl 114 116
Gas $/boe 47 41
COST OF SALES
Q1 2013 Q1 2012 Q1 2013 Q1 2012
$'000 $'000 $/boe $/boe
Operating Expenditure 23,227 15,721 42 40
DD&A 19,498 13,385 35 34
Movement in Oil & Gas Inventory 3,576 (3,100) - -
Oil purchases 157 - - -
Total 46,458 26,006 84 66.
Cost of sales increased in Q1 2013 to $46.5 million (Q1 2012: $26.0
million) due to increases in operating costs, depletion,
depreciation and amortization ("DD&A") and movement in oil and gas
inventory.
Operating costs increased in the quarter to $23.2 million (Q1 2012:
$15.7 million) primarily due to the inclusion of Athena operating
costs (nil Q1 2012) and the additional acquired interest in Cook.
Operating costs/boe increased to $42/boe in the period (Q1 2012:
$40) mainly as a result of the phasing of Cook costs in 2012 with
lower costs in the first quarter 2012 compared to the comparative
period 2013. Although operating costs per boe are up compared to Q1
2012, a combined rate of $42/boe for Q1 is in line with the
Corporation's forecast to reduce operating costs for its current
portfolio (excluding Valiant assets) for the full year to under $40
/boe. The absence of production from other fields sharing the FPSO
through which Cook oil is exported gives rise to the higher
allocation of costs in the quarter. The other main field producing
across the FPSO (in which Ithaca has no equity interest)
recommenced production at the start of May, ahead of forecast,
supporting the expectation of a lower operating cost per barrel
over the year.
DD&A expense for the quarter increased to $19.5 million (Q1 2012:
$13.4 million). This was primarily due to higher production volumes
in Q1 2013 with the addition of the Athena field as well as the
recently acquired additional interest in Cook. The blended rate
for the quarter was relatively unchanged at $35/boe (Q1 2012: $34/
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. It should be noted
that this increase in DD&A and hence Cost of Sales is offset by a
credit in the Deferred Tax charged through the Statement of Income.
An oil and gas inventory movement of $3.6 million was charged to
cost of sales in Q1 2013 (Q1 2012 credit of $3.1 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 Q1 2013 more barrels of oil were sold (528k bbls) than
produced (495k bbls), as a result of timings of Cook liftings and
Athena shuttle tankers. Volumes account for $3.8 million of the
movement, partially offset by a credit of $0.2 million due to the
change in valuation of the opening inventory barrels.
Movement in oil & gas inventory Oil Gas Total
kbbls kboes kboes
Operating inventory 149 13 162
Production 496 57 553
Liftings/sales (527) (59) (586)
Acquired volumes 124 - 124
Closing volumes 241 11 253
ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES
$'000 Q1 2013 Q1 2012
General & Administration 2,476 1,071
Share Based Payments 295 135
Total Administration Expenses 2,771 1,206
Exploration & Evaluation 312 75
Total 3,083 1,281
Total administrative expenses increased in the quarter to
$2.8 million (Q1 2012: $1.2 million) primarily due to an
increase in general and administrative expenses as a
result of higher levels of corporate activity ongoing in
the quarter, particularly in relation to the Acquisition
of Valiant. Share based payment expenses increased as a
result of options being granted towards the end of 2012
(none end 2011), therefore higher amortisation expense
has been reflected through Q1 2013.
Exploration and evaluation expenses of $0.3 million were
recorded in the quarter (Q1 2012: $0.1 million) primarily
due to the expensing of previously capitalized costs
relating to areas where exploration and evaluation
activities have ceased.
FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS
A foreign exchange gain of $0.6 million was recorded in
Q1 2013 (Q1 2012: $1.6 million). The majority of the
Corporation's revenue is US dollar driven while operating
expenditures a re primarily incurred in British pounds.
As such, general volatility in the USD:GBP exchange rate
is the driver behind the foreign exchange gains and
losses, particularly on the revaluation of the GBP bank
accounts (USD:GBP at January 1, 2013: 1.62. USD:GBP at
March 31, 2013: 1.52 with fluctuation between 1.48 and
1.64 during the quarter). This volatility was partially
offset by foreign exchange hedges as described in the"Risks
and Uncertainties" section below.
The Corporation recorded a $7.2 million loss on financial
instruments for the quarter ended March 31, 2013 (Q1 2012:
$0.7 million loss). The loss was predominantly due to a
$9.1 million reduction in value of oil swaps and put
options, due to a relatively strong Brent oil price at
quarter end together with a reduction in implied
volatility in the period and the elapsing of time. In
addition, the Corporation recorded a $2.1 million loss on
the revaluation of foreign exchange instruments. The
Corporation's exposure to fluctuations in the USD:GBP
exchange rate has nonetheless been limited due to the
forward contracts entered into to hedge GBP120 million of
capital expenditure on the GSA development at a rate of
$1.52:GBP1.00. The revaluation losses were partially
offset by a $4.2 million realized gain on commodity
hedges.
TAXATION
No UK tax
anticipated A deferred tax credit of $1.2 million was recognized in
to be the quarter ended March 31, 2013 (Q1 2012: $0.9 million
payable in charge). This credit is a product of adjustments to the
the tax charge primarily relating to the UK Ring Fence
mid-term Expenditure Supplement and share based payments. As noted
in the Cost Of Sales section the deferred tax credit is
increased by the use of accounting for acquisitions as
business combinations.
As a result of the above factors, profit after tax
increased to $3.5 million (Q1 2012: $12.9 million).
No taxes are expected to be paid in the mid-term relating
to upstream oil and gas activities as a result of the
$424 million tax losses available to the Corporation.
CAPITAL INVESTMENTS
$'000 Q1 2013 Q1 2012
Development & Production ("D&P") 103,070 26,539
Exploration & Evaluation ("E&E") 2,108 1,254
Other Fixed Assets 31 26
Total 105,209 27,819
$70.9 million of the total $103.1 million capital
additions to D&P assets in Q1 2013 was attributable to
the acquisition of the additional interest in the Cook
field, of which $37.7 million represents cash paid with
the remainder being due to business combination
accounting. The remaining D&P additions were primarily
focused on execution of the GSA development, with the
main areas of expenditure being on the manufacture and
fabrication of subsea infrastructure and the FPF-1
modification works (as described above).
Capital expenditure on E&E assets in Q1 2013 was $2.1
million with spending primarily focused on Hurricane and
development projects.
LIQUIDITY AND CAPITAL RESOURCES
Significant
investment
in $'000 Q1 2013 Q4 2012 Increase /
development (Decrease)
projects
Cash & Cash Equivalents 65,636 31,376 34,260
Trade & Other 139,915 173,949 (34,034)
Receivables
Inventory 26,131 15,878 10,253
Trade & Other Payables (194,278) (205,635) 11,357
Net Working Capital 37,404 15,568 21,836
As at March 31, 2013, Ithaca had working capital of $37.4
million including a cash balance of $65.6 million.
Available cash has been, and is currently, invested in
money market deposit accounts with BNP Paribas.
Management has received confirmation from the financial
institution that these funds are available on demand.
Cash and cash equivalents increased as a result of $55
million of bank debt drawings towards the end of the
quarter offsetting the continued cash investment in the
Stella development. The funds were required for
substantial payments due for imminent release post March
31, 2013 on the Stella project together with funds
required to be held over as part of the Valiant
Acquisition. Other working capital movements are driven
by the timing of receipts and payments of balances.
A significant proportion of Ithaca's accounts receivable
balance is with customers in the oil and gas industry and
is subject to normal joint venture/industry credit risks.
The Corporation assesses partners' credit worthiness
before entering into joint venture agreements. The
Corporation regularly monitors all customer receivable
balances outstanding in excess of 90 days. As at March
31, 2013, substantially all of the accounts receivable is
current, being defined as less than 90 days. In the past,
the Corporation has not experienced credit loss in the
collection of accounts receivable.
At March 31, 2013, Ithaca had unused credit facilities
totalling $375 million (Q4 2012: $430 million). $55
million was drawn down under this facility in Q1 2013.
During the quarter ended March 31, 2013, there was a net
cash inflow of approximately $34.8 million (Q1 2012:
outflow of $5.6 million).
Cashflow from operations
Cash generated from operating activities was $34.8
million primarily due to cash generated from Athena,
Beatrice, Jacky, Anglia, Cook and Broom operations,
augmented in Q1 2013 primarily due to the inclusion of
Athena.
Cashflow from financing activities
Cash generated from financing activities was $46.0
million primarily due to the draw down of the existing
debt facility in Q1 2013 ($55 million), partially offset
by oil hedging premiums paid.
Cashflow from investing activities
Cash used in investing activities was $59.4 million
primarily due to capital expenditure on the Cook
Acquisition and the GSA development, including
modification of the FPF-1, subsea design and fabrication
works.
The Corporation continues to be fully funded, with more
than sufficient financial resources to cover the
anticipated level of development capital expenditure
commitments and to continue the pursuit of additional
asset acquisition opportunities and exploration and
appraisal activities on existing and newly acquired
licenses through its existing cash balance, forecast
cashflow from operations and its debt facility. No
unusual trends or fluctuations are expected outside the
ordinary course of business.
COMMITMENTS
$'000 1 Year 2-5 Years 5+ Years
Office Leases 423 1,421 -
Other Operating Leases 12,319 14,300 -
Exploration Licence Fees 583 - -
Engineering 53,550 - -
Rig Commitments 37,305 - -
Total 104,180 15,721 -
The engineering financial commitments relate to
pre-development committed capital expenditure on the
Stella and Harrier fields, as well as ongoing capital and
operating expenditure on existing producing fields. Rig
commitments reflect rig hire costs committed in relation
to the anticipated Stella wells. As stated above, these
commitments are expected to be funded through the
Corporation's existing cash balance, forecast cashflow
from operations and its debt facility.
OUTSTANDING SHARE INFORMATION
The Corporation's common shares are traded on the Toronto
Stock Exchange ("TSX") in Canada under the symbol "IAE"
and on the Alternative Investment Market ("AIM") in the
United Kingdom under the symbol "IAE".
As at March 31, 2013, Ithaca had 259,953,336 common
shares outstanding along with 20,344,631 options
outstanding to employees and directors to acquire common
shares.
In Q1 2013, the Corporation's Board of Directors granted
90,000 options at a weighted average exercise price of
C$1.79. Each of the options granted may be exercised over
a period of four years from the grant date. One third of
the options will vest at the end of each of the first,
second and third years from the effective date of grant.
As at May 10, 2013, following completion of the Valiant
Acquisition, Ithaca had 317,088,991 common shares
outstanding along with 20,011,297 options outstanding to
employees and directors to acquire common shares.
March 31, 2013
Common Shares Outstanding 259,953,336
Share Price(1) $1.70 / Share
Total Market Capitalisation $441,920,671
(1) Represents the TSX close price (CAD$1.73 on last
trading day of March, 2013. US$:CAD$ 0.9825 on March 31,
2013
SUMMARY OF QUARTERLY RESULTS
Restated
$'000 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun
2013 2012 2012 2012 2012 2011 2011 2011
Revenue 59,769 52,566 41,579 35,779 40,553 54,870 26,415 16,724
Profit 3,472 45,347 4,894 30,238 12,916 13,318 16,016 2,743
After
Tax
EPS - 0.01 0.17 0.02 0.12 0.05 0.05 0.06 0.01
Basic
EPS - 0.01 0.17 0.02 0.11 0.05 0.05 0.06 0.01
Diluted
The most significant factors to have affected the
Corporation's results during the above quarters are
fluctuation in underlying commodity prices and movement
in production volumes. The Corporation has utilized
forward sales contracts and foreign exchange contracts to
take advantage of higher commodity prices while reducing
the exposure to price volatility. These contracts can
cause volatility in profit after tax as a result
of unrealized gains and losses due to movements in the
oil price and USD : GBP exchange rate.
Each of the quarters from Q4 2010 to Q3 2011 was restated
following the Corporation's election to present all
acquisitions since the IFRS transition date as business
combinations in accordance with IFRS 3Ā®. Refer to
the"Changes in Accounting Policies" below for more details.
FINANCIAL INSTRUMENTS
All financial instruments are initially measured in the balance
sheet at fair value. Subsequent measurement of the financial
instruments is based on their classification. The Corporation has
classified each financial instrument into one of these categories:
held-for-trading, held-to-maturity investments, loans and
receivables, or other financial liabilities. Loans and receivables,
held-to-maturity investments and other financial liabilities are
measured at amortized cost using the effective interest rate
method. For all financial assets and financial liabilities that are
not classified as held-for-trading, the transaction costs that are
directly attributable to the acquisition or issue of a financial
asset or financial liability are adjusted to the fair value
initially recognized for that financial instrument. These costs are
expensed using the effective interest rate method and are recorded
within interest expense. Held-for-trading financial assets are
measured at fair value and changes in fair value are recognized in
net income.
All derivative instruments are recorded in the balance sheet at fair
value unless they qualify for the expected purchase, sale and usage
exemption. All changes in their fair value are recorded in income
unless cash flow hedge accounting is used, in which case changes in
fair value are recorded in other comprehensive income until the
hedged transaction is recognized in net earnings.
The Corporation has classified its cash and cash equivalents,
restricted cash, derivatives, commodity hedges and long term
liability as held-for-trading, which are measured at fair value with
changes being recognized in net income. Accounts receivable are
classified as loans and receivables; operating bank loans, accounts
payable and accrued liabilities are classified as other liabilities,
all of which are measured at amortized cost. The classification of
all financial instruments is the same at inception and at March 31,
2013.
The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of
comprehensive income.
$'000 Q1 2013 Q1 2012
Revaluation Forex Forward Contracts (2,055) 969
Revaluation of Gas Contract - (114)
Revaluation of Other Long Term Liability 57 (90)
Revaluation of Commodity Hedges (9,067) -
Total Revaluation Gain / (Loss) (11,065) 765
Realised Loss on Forex Contracts (293) -
Realised Gain/(Loss) on Commodity Hedges 4,186 (199)
Total Realised Gain/(Loss) 3,893 (199)
Total Realised / Revaluation Gain / (Loss) (7,172) 566
Contingent Consideration - (1,294)
Total (Loss) on Financial Instruments (7,172) (728)
The following table summarises the commodity hedges in place at the
beginning of the quarter.
Derivative Term Volume Average Price
bbl $/bbl
Oil Swaps* January 2013 2,297,753 108.0
- September 2014
Put Options January 2013 779,299 110.4
- March 2014
Derivative Term Volume Average Price
Therms p/therm
Gas Swaps January 2013 3,066,000 66.45
- December 2014
*Includes swaption of 1 million bbls which was exercised in April
2013
The table below summarises the foreign exchange financial
instruments in place during Q1 2013.
Derivative Forward Plus Forward contract
Term Jan 13 - Dec 13 Apr 13 - Jan 14
Value GBP4million / month GBP120 million
Protection Rate $1.59/GBP1.00 $1.52/GBP1.00
Trigger Rate $1.50/GBP1.00 N/A
CRITICAL ACCOUNTING ESTIMATES
Certain accounting policies require that management make appropriate
decisions with respect to the formulation of estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. These accounting policies are discussed
below and are included to aid the reader in assessing the critical
accounting policies and practices of the Corporation and the
likelihood of materially different results being reported. Ithaca's
management reviews these estimates regularly. The emergence of new
information and changed circumstances may result in actual results
or changes to estimated amounts that differ materially from current
estimates.
The following assessment of significant accounting policies and
associated estimates is not meant to be exhaustive. The Corporation
might realize different results from the application of new
accounting standards promulgated, from time to time, by various
rule-making bodies.
Capitalized costs relating to the exploration and development of oil
and gas reserves, along with estimated future capital expenditures
required in order to develop proved and probable reserves are
depreciated on a unit-of-production basis, by asset, using estimated
proved and probable reserves as adjusted for production.
A review is carried out each reporting date for any indication that
the carrying value of the Corporation'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 Corporation's CGUs are
those assets which generate largely independent cash flows and are
normally, but not always, single developments or production areas.
The impairment test involves comparing the carrying value with the
recoverable value of an asset. The recoverable amount of an asset is
determined as the higher of its fair value less costs to sell and
value in use, where the value in use is determined from estimated
future net cash flows. Any additional depreciation resulting from
the impairment testing is charged to the Statement of Income.
Goodwill is tested annually for impairment and also when
circumstances indicate that the carrying value may be at risk of
being impaired. Impairment is determined for goodwill by assessing
the recoverable amount of each CGU to which the goodwill relates.
Where the recoverable amount of the CGU is less than its carrying
amount, an impairment loss is recognized in the Statement of Income.
Impairment losses relating to goodwill cannot be reversed in future
periods.
Recognition of decommissioning liabilities associated with oil and
gas wells are determined using estimated costs discounted based on
the estimated life of the asset. In periods following recognition,
the liability and associated asset are adjusted for any changes in
the estimated amount or timing of the settlement of the obligations.
The liability is accreted up to the actual expected cash outlay to
perform the abandonment and reclamation. The carrying amounts of the
associated assets are depleted using the unit of production method,
in accordance with the depreciation policy for development and
production assets. Actual costs to retire tangible assets are
deducted from the liability as incurred.
All financial instruments, other than those designated as effective
hedging instruments, are initially recognized at fair value on the
balance sheet. The Corporation's financial instruments consist of
cash, restricted cash, accounts receivable, deposits, derivatives,
accounts payable, accrued liabilities and the long term liability on
the Beatrice acquisition. Measurement in subsequent periods is
dependent on the classification of the respective financial
instrument.
In order to recognize share based payment expense, the Corporation
estimates the fair value of stock options granted using assumptions
related to interest rates, expected life of the option, volatility
of the underlying security and expected dividend yields. These
assumptions may vary over time.
The determination of the Corporation's income and other tax
liabilities / assets requires interpretation of complex laws and
regulations. Tax filings are subject to audit and potential
reassessment after the lapse of considerable time. Accordingly, the
actual income tax liability may differ significantly from that
estimated and recorded on the financial statements.
The accrual method of accounting will require management to
incorporate certain estimates of revenues, production costs and
other costs as at a specific reporting date. In addition, the
Corporation must estimate capital expenditures on capital projects
that are in progress or recently completed where actual costs have
not been received as of the reporting date.
CONTROL ENVIRONMENT
Ithaca has established disclosure controls, procedures and corporate
policies so that its consolidated financial results are presented
accurately, fairly and on a timely basis. The Chief Executive
Officer and Chief Financial Officer have designed, or have caused
such internal controls over financial reporting to be designed under
their supervision, to provide reasonable assurance regarding the
reliability of financial reporting and preparation of the
Corporation'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 March 31, 2013, there were no changes in Ithaca's internal
control over financial reporting that occurred during the quarter
ended March 31, 2013 that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2011, the Corporation adopted IFRS using a transition
date of January 1, 2010. The financial statements for the quarter
ended March 31, 2013, including required comparative information,
have been prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board ("IASB").
The Corporation elected to present all acquisitions since the IFRS
transition date as business combinations in accordance with
IFRS 3Ā®.
One impact of accounting for acquisitions as business combinations
is the recognition of asset values, upon which the DD&A rate is
calculated as pre-tax fair values and the recognition of a deferred
tax liability on estimated future cash flows. With current tax rates
at 62% this increases the DD&A charge for such assets. An offsetting
reduction is recognized in the deferred tax charged through the
consolidated statement of income.
In May 2011, the IASB issued the following standards: IFRS 10,
Consolidated Financial Statements ("IFRS 10"), IFRS 11, Joint
Arrangements ("IFRS 11"), IFRS 12, Disclosure of Interests in Other
Entities ("IFRS 12"), IAS 27, Separate Financial Statements ("IAS
27"), IFRS 13, Fair Value Measurement ("IFRS 13") and amended IAS
28, Investments in Associates and Joint Ventures ("IAS 28"). Each of
the new standards is effective for annual periods beginning on or
after 1 January 2013. There has been no material impact from the
adoption of the new and amended standards on the Corporation's
financial statements.
OTHER
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 Corporation uses this measure to
help evaluate its performance. As an indicator of the
Corporation's performance, cashflow from operations
should not be considered as an alternative to, or more
meaningful than, net cash from operating activities as
determined in accordance with IFRS. The Corporation
considers Cashflow from operations to be a key measure
as it demonstrates the Corporation's underlying ability
to generate the cash necessary to fund operations and
support activities related to its major assets. Cashflow
from operations is determined by adding back changes in
non-cash operating working capital to cash from
operating activities.
BOE
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.
Off Balance
Sheet
Arrangements The Corporation has certain lease agreements and rig
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 March 31, 2013.
Related
Party
Transactions A director of the Corporation is a partner of Burstall
Winger LLP who acts as counsel for the Corporation. The
amount of fees paid to Burstall Winger LLP in Q1 2013
was $0.1 million (Q1 2012: $Nil). 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 March 31, 2013 the Corporation had a loan
receivable from FPF-1 Ltd, an associate of the
Corporation, for $21.6 million (Q1 2012: $Nil) as a
result of the completion of the GSA transactions in
2012.
RISKS AND UNCERTAINTIES
The business of exploring for, developing and producing oil
and natural gas reserves is inherently risky. There is
substantial risk that the manpower and capital employed
will not result in the finding of new reserves in economic
quantities. There is a risk that the sale of reserves may
be delayed due to processing constraints, lack of pipeline
capacity or lack of markets. The Corporation is dependent
upon the production rates and oil price to fund the current
development program.
For additional detail regarding the Corporation's risks and
uncertainties, refer to the Corporation's Annual
Information Form dated March 25, 2013, (the "AIF") filed on
SEDAR at www.sedar.com.
RISK MITIGATIONS
Commodity The Corporation's performance In order to mitigate the
Price is significantly impacted by risk of fluctuations in oil
Volatility prevailing oil and natural gas and gas prices, the
prices, which are primarily Corporation routinely
driven by supply and demand as executes commodity price
well as economic and political derivatives, predominantly
factors. in relation to oil
production, as a means of
establishing a floor in
realised prices.
Foreign The Corporation is exposed to Given the increasing
Exchange financial risks including proportion of development
Risk financial market volatility, capital expenditure and
fluctuation in interest rates operating costs incurred in
and various foreign exchange currencies other than the
rates. United States dollar, the
Corporation routinely
executes hedges to mitigate
foreign exchange rate risk
on committed expenditure.
Debt The Corporation is exposed to The Corporation believes
Facility borrowing risks relating to that there are no
Risk drawdown of its senior secured circumstances at present
borrowing base facility (the that result in its
failure"Facility"). The ability to to meet the financial tests
drawdown the Facility is based and it can therefore draw
on the Corporation meeting down upon its Facility.
certain covenants including
coverage ratio tests,
liquidity tests and
development funding tests The Corporation routinely
which are determined by a produces detailed cashflow
detailed economic model of the forecasts to monitor its
Corporation. There can be no compliance with the
assurance that the Corporation financial tests and
will satisfy such tests in the liquidity requirements of
future in order to have access the Facility.
to the full amount of the
Facility.
The Facility includes
covenants which restrict,
among other things, the
Corporation's ability to incur
additional debt or dispose of
assets.
As is standard to a credit
facility, the Corporation's
and Ithaca Energy (UK)
Limited's ("Ithaca UK") assets
have been pledged as
collateral and are subject to
foreclosure in the event the
Corporation or Ithaca UK
defaults.
Financing To the extent cashflow from The Corporation has
Risk operations and Facility established a fully funded
resources are ever deemed not business plan and routinely
adequate to fund Ithaca's cash monitors its detailed
requirements, external cashflow forecasts and
financing may be required. liquidity requirements to
Lack of timely access to such maintain its funding
additional financing, or requirements. The
access on unfavourable terms, Corporation believes that
could limit the future growth there are no circumstances
of the business of Ithaca. To at present that would lead
the extent that external to selected divestment,
sources of capital, including delays to existing programs
public and private markets, or a default relating to the
become limited or unavailable, Facility.
Ithaca's ability to make the
necessary capital investments
to maintain or expand its
current business and to make
necessary principal payments
under the Facility may be
impaired.
A failure to access adequate
capital to continue its
expenditure program may
require that the Corporation
meet any liquidity shortfalls
through the selected
divestment of its portfolio or
delays to existing development
programs.
Third Party The Corporation is and may in The Corporation believes
Credit Risk the future be exposed to third this risk is mitigated by
party credit risk through its the financial position of
contractual arrangements with the parties. All of the
its current and future joint Corporation's oil production
venture partners, marketers of from the Beatrice, Jacky and
its petroleum production and Athena fields is sold to BP
other parties. The Corporation Oil International Limited.
extends unsecured credit to Oil production from Cook and
these parties, and therefore, Broom is sold to Shell
the collection of any Trading International Ltd.
receivables may be affected by Anglia and Topaz gas
changes in the economic production is sold through
environment or other contracts to RWE NPower PLC
conditions. and Hess Energy Gas Power(UK)
Ltd. Cook gas is sold
to Shell UK Ltd. and Esso
Exploration & Production UK
Ltd. The Corporation has not
experienced any material
credit loss in the
collection of accounts
receivable to date.
The joint venture partners
in those assets operated by
the Corporation are largely
well financed international
companies. Where
appropriate, a cash call
process has been implemented
with the GSA partners to
cover high levels of
anticipated capital
expenditure thereby reducing
any third party credit risk.
Property The Corporation's properties The Corporation has routine
Risk will be generally held in the ongoing communications with
form of licenses, concessions, the UK oil and gas
permits and regulatory regulatory body, the
consents ("Authorizations"). Department of Energy and
The Corporation's activities Climate Change ("DECC").
are dependent upon the grant Regular communication allows
and maintenance of appropriate all parties to an
Authorizations, which may not Authorization to be fully
be granted; may be made informed as to the status of
subject to limitations which, any Authorization and
if not met, will result in the ensures the Corporation
termination or withdrawal of remains updated regarding
the Authorization; or may be fulfilment of any applicable
otherwise withdrawn. Also, in requirements.
the majority of its licenses,
the Corporation is often a
joint interest-holder with
another third party over which
it has no control. An
Authorization may be revoked
by the relevant regulatory
authority if the other
interest-holder is no longer
deemed to be financially
credible.
There can be no assurance that
any of the obligations
required to maintain each
Authorization will be met.
Although the Corporation
believes that the
Authorizations will be renewed
following expiry or granted
(as the case may be), there
can be no assurance that such
Authorizations will be renewed
or granted or as to the terms
of such renewals or grants.
The termination or expiration
of the Corporation's
Authorizations may have a
material adverse effect on the
Corporation's results of
operations and business.
The areas covered by the
Authorizations are or may be
subject to agreements with the
proprietors of the land. If
such agreements are
terminated, found void or
otherwise challenged, the
Corporation may suffer
significant damage through the
loss of opportunity to
identify and extract oil or
gas.
Operational The Corporation is subject to The Corporation acts at all
Risk the risks associated with times as a reasonable and
owning oil and natural gas prudent operator. The
properties, including Corporation takes out market
environmental risks associated insurance to mitigate many
with air, land and water. All of these operational,
of the Corporation's construction and
operations are conducted environmental risks.
offshore in the United Kingdom
Continental Shelf; as such
Ithaca is exposed to
operational risk associated The Corporation uses the
with weather delays that can services of Sproule
result in a material delay in International Limited
project execution. Third ("Sproule") to independently
parties operate some of the assess the Corporation's
assets in which the reserves on an annual basis.
Corporation has interests. As
a result, the Corporation may
have limited ability to
exercise influence over the
operations of these assets and
their associated costs. The
success and timing of these
activities may be outside the
Corporation's control.
There are numerous
uncertainties in estimating
the Corporation's reserve base
due to the complexities in
estimating the magnitude and
timing of future production,
revenue, expenses and
capital.
Competition In all areas of the The Corporation places
Risk Corporation's business, there appropriate emphasis on
is competition with entities ensuring it attracts and
that may have greater retains high quality
technical and financial resources to enable it to
resources. maintain its competitive
position.
FORWARD-LOOKING INFORMATION
This MD&A and any documents incorporated by reference
herein contain certain forward-looking statements and
forward-looking information which are based on the
Corporation's internal expectations, estimates,
projections, assumptions and beliefs as at the date of
such statements or information, including, among other
things, assumptions with respect to production, future
capital expenditures, future acquisitions and cash flow.
The reader is cautioned that assumptions used in the
preparation of such information may prove to be
incorrect. The use of any of the words
"anticipate","continue", "estimate", "expect", "may", "will","project",
"plan", "should", "believe", "could","scheduled", "targeted",
"approximately" and similar
expressions are intended to identify forward-looking
statements and forward-looking information. These
statements are not guarantees of future performance and
involve known and unknown risks, uncertainties and other
factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
statements or information. The Corporation believes that
the expectations reflected in those forward-looking
statements and information are reasonable but no assurance
can be given that these expectations, or the assumptions
underlying these expectations, will prove to be correct
and such forward-looking statements and information
included in this MD&A and any documents incorporated by
reference herein should not be unduly relied upon. Such
forward-looking statements and information speak only as
of the date of this MD&A and any documents incorporated by
reference herein and the Corporation does not undertake
any obligation to publicly update or revise any
forward-looking statements or information, except as
required by applicable laws.
In particular, this MD&A and any documents incorporated by
reference herein, contains specific forward-looking
statements and information pertaining to the following:
- the quality of and future net revenues from the
Corporation's reserves;
- oil, natural gas liquids ("NGLs") and natural gas
production levels;
- commodity prices, foreign currency exchange rates
and interest rates;
- capital expenditure programs and other
expenditures;
- the sale, farming in, farming out or development of
certain exploration properties using third party
resources;
- supply and demand for oil, NGLs and natural gas;
- the Corporation's ability to raise capital;
- the continued availability of the Facility;
- the Corporation's acquisition strategy, the
criteria to be considered in connection therewith and the
benefits to be derived therefrom;
- the realization of anticipated benefits from
acquisitions and dispositions;
- the Corporation's ability to continually add to
reserves;
- schedules and timing of certain projects and the
Corporation's strategy for growth;
- the Corporation's future operating and financial
results;
- the ability of the Corporation to optimize
operations and reduce operational expenditures;
- treatment under governmental and other regulatory
regimes and tax, environmental and other laws;
- production rates;
- targeted production levels; and
- timing and cost of the development of the
Corporation's reserves.
With respect to forward-looking statements contained in
this MD&A and any documents incorporated by reference
herein, the Corporation has made assumptions regarding,
among other things:
- Ithaca's ability to obtain additional drilling rigs
and other equipment in a timely manner, as required;
- access to third party hosts and associated
pipelines can be negotiated and accessed within the
expected timeframe;
- FDP approval and operational construction and
development is obtained within expected timeframes;
- the Corporation's development plan for the Stella
and Harrier discoveries will be implemented as planned;
- the effect of the Valiant Acquisition on Ithaca;
- reserves volumes assigned to Ithaca's properties;
- ability to recover reserves volumes assigned to
Ithaca's properties;
- revenues do not decrease below anticipated levels
and operating costs do not increase significantly above
anticipated levels;
- future oil, NGLs and natural gas production levels
from Ithaca's properties and the prices obtained from the
sales of such production; - the level of future capital
expenditure required to
exploit and develop reserves;
- Ithaca's ability to obtain financing on acceptable
terms, in particular, the Corporation's ability to access
the Facility;
- the continued ability of the Corporation to collect
from third parties who Ithaca has provided credit to;
- Ithaca's reliance on partners and their ability to
meet commitments under relevant agreements; and
- the state of the debt and equity markets in the
current economic environment.
The Corporation's actual results could differ materially
from those anticipated in these forward-looking statements
and information as a result of assumptions proving
inaccurate and of both known and unknown risks, including
the risk factors set forth in this MD&A and under the
heading "Risk Factors" in the AIF and the documents
incorporated by reference herein, and those set forth
below:
- risks associated with the exploration for and
development of oil and natural gas reserves in the North
Sea;
- risks associated with the integration of Valiant
into Ithaca's existing operations;
- risks associated with offshore development and
production including transport facilities;
- operational risks and liabilities that are not
covered by insurance;
- volatility in market prices for oil, NGLs and
natural gas;
- the ability of the Corporation to fund its
substantial capital requirements and operations;
- risks associated with ensuring title to the
Corporation's properties;
- changes in environmental, health and safety or
other legislation applicable to the Corporation's
operations, and the Corporation's ability to comply with
current and future environmental, health and safety and
other laws;
- the accuracy of oil and gas reserve estimates and
estimated production levels as they are affected by the
Corporation's exploration and development drilling and
estimated decline rates;
- the Corporation's success at acquisition,
exploration, exploitation and development of reserves;
- risks associated with realisation of anticipated
benefits of acquisitions;
- risks related to changes to government policy with
regard to offshore drilling;
- the Corporation's reliance on key operational and
management personnel;
- the ability of the Corporation to obtain and
maintain all of its required permits and licenses;
- competition for, among other things, capital,
drilling equipment, acquisitions of reserves, undeveloped
lands and skilled personnel;
- changes in general economic, market and business
conditions in Canada, North America, the United Kingdom,
Europe and worldwide;
- actions by governmental or regulatory authorities
including changes in income tax laws or changes in tax
laws, royalty rates and incentive programs relating to the
oil and gas industry including any increase in UK taxes;
- adverse regulatory rulings, orders and decisions;
and
- risks associated with the nature of the common
shares.
Additional
Reader
Advisories The information in this MD&A is provided as of May 10,
2013. The Q1 2013 results have been compared to the
results of the comparative period in 2012. This MD&A
should be read in conjunction with the Corporation's
unaudited consolidated financial statements as at March
31, 2013 and 2012 and with the Corporation's audited
consolidated financial statements as at December 31, 2012
together with the accompanying notes and MD&A, and AIF for
the 2012 fiscal year. Copies of these documents are
available without charge from Ithaca or electronically on
the internet on Ithaca's SEDAR profile at www.sedar.com.
With respect to Ithaca's reserves disclosure, the figures
are derived from a report prepared by Sproule, an
independent qualified reserves evaluator, evaluating the
reserves of Ithaca as of December 31, 2012 and forming the
basis for the Statement of Reserves Data and Other Oil and
Gas information of Ithaca dated March 19, 2013
(the"Statement"). The reserves for the South West Heather
field included in the Statement are those estimated by the
Corporation and reviewed by Sproule.
With respect to Valiant reserves, the figures are derived
from an Audit of Certain Reserves as at December 31, 2012
prepared by RPS Energy Consultants Limited, an independent
qualified reserves evaluator, dated January 24, 2013. The
reserves estimates of Ithaca are based on the Canadian Oil
and Gas Evaluation Handbook ("COGEH") pursuant to Canadian
National Instrument 51-101 - Standards of Disclosure for
Oil and Gas Activities, with references to oil referring
to medium quality oil.
The Ithaca reserves correspond to those in the Statement
adjusted to reflect the increased Carna and Cook field
equities acquired following the date of issue of the
Statement. The reserves estimates of Valiant are based on
the 2007 SPE/AAPG/WPC/ SPEE Petroleum Resource Management
System which is not materially different from COGEH. The
Valiant reserves have been adjusted to reflect the
increased Fionn field interest being transferred to
Valiant by Antrim Resources (N.I.) Limited.
If a discovery is made, there is no certainty that it will
be developed, or if it is developed, there is no certainty
as to the timing of such development or the benefits (if
any) which may flow to the Corporation. Cashflow from
operations includes the impact of executed hedges and does
not include non-cash items such as DD&A, revaluation of
financial instruments, impairments of fixed assets and
movements in goodwill, which may have a significant impact
on the Corporation's results.
The reserve estimates set forth in this MD&A are estimates
only and the actual reserves and realized revenue may be
greater or less than those calculated. The estimates of
reserves for individual properties may not reflect the
same confidence level as estimates of reserves and future
net revenue for all properties, due to the effects of
aggregation.
Statements relating to reserves are deemed to be
forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions,
that the reserves described can be profitably produced in
the future.
Consolidated Statement of Income
For the three months ended 31 March 2013 and 2012
(unaudited) 2013 2012
Note US$'000 US$'000
Revenue 4 59,769 40,553
Cost of Sales 5 (46,458) (26,006)
Gross Profit 13,311 14,547
Exploration and evaluation expenses 9 (312) (75)
Administrative expenses 6 (2,771) (1,206)
Operating Profit 10,228 13,266
Foreign exchange 563 1,648
(Loss) on financial instruments 23 (7,172) (728)
Negative goodwill 11 914 -
Profit on ordinary activities Before Interest and 4,533 14,186
Tax
Finance costs 7 (2,276) (469)
Interest income 20 65
Profit Before Tax 2,277 13,782
Taxation - Deferred tax 21 1,195 (866)
Profit After Tax 3,472 12,916
Earnings per share
Basic 20 0.01 0.05
Diluted 20 0.01 0.05
The accompanying notes on pages 7 to 22 are an integral part of the
financial statements.
Consolidated Statement of Comprehensive Income
For the three months ended 31 March 2013 and 2012
(unaudited)
2013 2012
US$'000 US$'000
Profit for the period 3,472 12,916
Net (loss) on oil price hedge - (376)
Other comprehensive income - (376)
Total comprehensive income 3,472 12,540
The accompanying notes on pages 7 to 22 are an integral part of the
financial statements.
Consolidated Statement of Financial Position
(unaudited)
31 March 2013 31 Dec 2012
US$'000 US$'000
ASSETS
Current assets
Cash and cash equivalents 65,634 31,374
Restricted cash 2 2
Accounts receivable 126,303 159,195
Deposits, prepaid expenses and other 5,925 14,754
Inventory 8 26,131 15,878
Derivative financial instruments 24 7,368 8,251
231,363 229,454
Non-current assets
Long-term receivable 21,551 21,551
Investment in associate 18,337 18,337
Exploration and evaluation assets 9 49,186 47,390
Property, plant & equipment 10 699,391 615,788
Goodwill 12 985 985
789,450 704,051
Total assets 1,020,813 933,505
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 194,278 205,635
Derivative financial instruments 24 2,296 -
196,574 205,635
Non-current liabilities
Bank debt 14 47,312 -
Decommissioning liabilities 15 57,494 52,834
Other long term liabilities 16 2,961 3,018
Contingent consideration 17 4,000 4,000
Deferred tax liabilities 21 102,329 62,370
214,096 122,222
Net assets 610,143 605,648
Shareholders' equity
Share capital 18 431,365 431,318
Share based payment reserve 19 21,316 20,340
Retained earnings 157,462 153,990
Total equity 610,143 605,648
The financial statements were approved by the Board of Directors on 10
May 2013 and signed on its behalf by:"John Summers"
Director"Jay Zammit"
Director
The accompanying notes on pages 7 to 22 are an integral part of the
financial statements.
Consolidated Statement of Changes in Equity
(unaudited)
Share Share Retained Other comp. Total
capital based E'ings income
payment
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance, 1 Jan 2012 429,502 17,318 60,591 - 507,411
Share based payment - 862 - - 862
Unrealised hedging - - - (376) (376)
loss
Net income for the - - 12,916 - 12,916
period
Balance, 31 March 429,502 18,180 73,507 (376) 520,813
2012
Balance, 1 Jan 2013 431,318 20,340 153,990 - 605,648
Share based payment - 994 - - 994
Options exercised 47 (18) - - 29
Net income for the - - 3,472 - 3,472
period
Balance, 31 March 431,365 21,316 157,462 - 610,143
2013
The accompanying notes on pages 7 to 22 are an integral part of the
financial statements.
Consolidated Statement of Cash Flow
For the three months ended 31 March 2013 and 2012
(unaudited)
Note 2013 2012
US$'000 US$'000
Operating activities
Profit Before Tax 2,277 13,782
Adjustments for:
Depletion, depreciation and 10 19,498 13,385
amortisation
Exploration and evaluation 9 312 75
write off
Share based payment 6 295 135
Loan fee amortisation 592 78
Unrealised (gain)/loss on 23 11,065 (765)
financial instruments
Revaluation of contingent 17 - 1,294
consideration
Movement in goodwill 11 (914) -
Accretion 7 502 384
Bank charges 1,159 -
Cashflow from operations 34,786 28,368
Changes in inventory, debtors 882 (820)
and creditors relating to
operating activities
Net cash from operating 35,668 27,548
activities
Investing activities
Acquisition of Cook (33,370) -
Capital expenditure (25,384) (22,508)
Changes in debtors and
creditors relating to investing
activities 12,439 (7,810)
Net cash (used in) investing (46,315) (30,318)
activities
Financing activities
Proceeds from issuance of 29 -
shares
(Increase) in restricted cash - (4,167)
Derivatives (7,947) -
Loan draw down 55,000 -
Bank charges (1,110) -
Net cash from/(used in) 45,972 (4,167)
financing activities
Currency translation (1,065) 1,336
differences relating to cash
and cash equivalents
Increase/(decrease) in cash and 34,260 (5,601)
cash equivalents
Cash and cash equivalents, 31,374 95,545
beginning of period
Cash and cash equivalents, end 65,634 89,944
of period
The accompanying notes on pages 7 to 22 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". Ithaca has four wholly-owned
subsidiaries, Ithaca Energy (UK) Limited ("Ithaca UK"), Ithaca Minerals
(North Sea) Limited ("Ithaca Minerals"), Ithaca Energy Holdings (UK)
Limited ("Ithaca Holdings UK"), all incorporated in Scotland, and
Ithaca Energy (Holdings) Limited ("Ithaca Holdings"), incorporated in
Bermuda. Ithaca also has two associates, FPU Services Limited ("FPU
Services") and FPF-1 Limited ("FPF-1"), both incorporated in Jersey.
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 10 May 2012,
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 2013
could result in restatement of these interim consolidated financial
statements.
The condensed interim consolidated financial statements should be read
in conjunction with the Corporation's annual financial statements for
the year ended 31 December 2012.
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 the wholly-owned subsidiaries Ithaca
Energy (UK) Limited, Ithaca Minerals (North Sea) Limited, Ithaca Energy
(Holdings) Limited and Ithaca Energy Holdings (UK) Limited. 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.
Investments in associates
Interests in entities over which Ithaca has significant influence, but
not control or joint control, are accounted for using the equity
method. Ithaca's share of equity investments' results are recorded in
the consolidated statement of income
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.
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.
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 subsidiaries 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 18
(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
statement of financial position and statement of cash flow separately.
If the expected duration of the restriction is less than twelve months
then it is shown in current assets.
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.
The Corporation may designate financial instruments as a hedging
instrument for accounting purposes. Hedge accounting requires the
designation of a hedging relationship, including a hedged and a hedging
item, identification of the risk exposure being hedged and an
expectation that the hedging relationship will be highly effective
throughout its term.
The Corporation assesses, both at the hedge's inception and on an
ongoing basis, whether the derivative financial instruments designated
as hedges are highly effective in offsetting changes in cash flows of
the hedged items. The effective portion of the gains and losses on cash
flow hedges is recorded in Other Comprehensive Income until the hedged
transaction is recognised in net earnings. Any hedge ineffectiveness is
immediately recognised in net earnings. When the hedged transaction is
recognised in net earnings, the fair value of the associated cash flow
hedging item is reclassified from other reserves into net earnings.
Hedge accounting is discontinued on a prospective basis when the
hedging relationship no longer qualifies for hedge accounting.
Analyses of the fair values of financial instruments and further
details as to how they are measured are provided in notes 23 to 25.
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.
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 are 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 CGU 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 profit or loss 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
In May 2011, the IASB issued the following standards: IFRS 10,
Consolidated Financial Statements ("IFRS 10"), IFRS 11, Joint
Arrangements ("IFRS 11"), IFRS 12, Disclosure of Interests in Other
Entities ("IFRS 12"), IAS 27, Separate Financial Statements ("IAS 27"),
IFRS 13, Fair Value Measurement ("IFRS 13") and amended IAS 28,
Investments in Associates and Joint Ventures ("IAS 28"). Each of the
new standards is effective for annual periods beginning on or after 1
January 2013. There has been no material impact from the adoption of
the new and amended standards on the Corporation's financial
statements.
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, share based payment, 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. REVENUE
Three months ended 31 March
2013 2012
US$'000 US$'000
Oil sales 56,153 35,808
Gas sales 2,771 2,821
Condensate sales 137 170
Other income 708 1,754
Total 59,769 40,553
5. COST OF SALES
Three months ended 31 March
2013 2012
US$'000 US$'000
Operating costs (23,227) (15,721)
Oil purchases (157) -
Movement in oil and gas inventory (3,576) 3,100
Depletion, depreciation and amortisation 10 (19,498) (13,385)
(46,458) (26,006)
6. ADMINISTRATIVE EXPENSES
Three months ended 31 March
2013 2012
US$'000 US$'000
General & administrative (2,476) (1,071)
Share based payment (295) (135)
(2,771) (1,206)
7. FINANCE COSTS Three months ended 31
March
2013 2012
US$'000 US$'000
Accretion (502) (384)
Bank charges & interest (1,164) (6)
Loan fee amortisation (592) (78)
Non-operated asset finance fees (18) (1)
(2,276) (469)
8. INVENTORY
31 March 31 Dec
2013 2012
US$'000 US$'000
Crude oil inventory 26,118 15,865
Materials inventory 13 13
26,131 15,878
9. EXPLORATION AND EVALUATION ASSETS
US$'000
At 1 January 2012 22,689
Additions 38,188
Write offs/relinquishments (4,261)
Disposals (9,226)
At 31 December 2012 47,390
Additions 2,108
Write offs/relinquishments (312)
At 31 March 2013 49,186
Following completion of geotechnical evaluation activity, certain
licences were declared unsuccessful and certain prospects were declared
non-commercial and therefore the related expenditures of $0.3 million
were expensed in the three months to 31 March 2013.
10. PROPERY, PLANT AND EQUIPMENT
Development & Production Other fixed
Oil and Gas Assets assets Total
US$'000 US$'000 US$'000
Cost
At 1 January 2012 623,549 2,292 625,841
Additions 139,383 133 139,516
Disposals (37,912) - (37,912)
At 31 December 2012 725,020 2,425 727,445
Additions 103,070 31 103,101
At 31 March 2013 828,090 2,456 830,546
DD&A
At 1 January 2012 (53,988) (1,497) (55,485)
Charge for the period (55,770) (402) (56,172)
At 31 December 2012 (109,758) (1,899) (111,657)
Charge for the quarter (19,397) (101) (19,498)
At 31 March 2013 (129,155) (2,000) (131,155)
NBV at 1 January 2012 569,561 795 570,356
NBV at 1 January 2013 615,262 526 615,788
NBV at 31 March 2013 698,935 456 699,391
11. BUSINESS COMBINATION
On 5 February 2013 the Company completed the acquisition of
wholly-owned UK subsidiary of Noble Energy Capital Limited, which owns
a 12.885% non-operated interest in the Cook field (increasing the
Company's field interest in Cook to 41.345%). The total acquisition
consideration was $37.7 million.
The fair values of the identifiable assets and liabilities of Cook as
at the acquisition date were:
Fair value
US$'000
Oil and gas properties 70,533
Inventories 14,014
Trade receivables 142
Trade and other payables (734)
Deferred tax liabilities (41,153)
Provisions (4,158)
Total identifiable net assets at fair value 38,644
Negative goodwill arising on acquisition (914)
Total consideration 37,730
The cash outflow on acquisition is as follows:
Cash paid (37,730)
Net consolidated cash flow (37,730)
12. GOODWILL
US$'000
Cost
At 1 January 2012, 31 December 2012 & 31 March 2013 985
$1.0 million represents goodwill recognised on the acquisition of gas
assets from GDF in December 2010. As at 31 March 2013, the recoverable
amount of assets acquired from GDF was sufficiently high to support the
carrying value of this goodwill.
13. INVESTMENT IN ASSOCIATES
31 March 31 Dec
2013 2012
US$'000 US$'000
Investments in FPF-1 and FPU services 18,337 18,337
Investment in associates comprises shares, acquired by Ithaca Holdings,
in FPF-1 and FPU services 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 Company's
share of the associates' results.
14. LOAN FACILITY
On 29 June 2012, the Corporation executed a Senior Secured Borrowing
Base Facility agreement (the "Facility") for up to $430 million, being
provided by BNPP as Lead Arranger. The loan term is up to five years
and will attract interest at LIBOR plus 3-4.5%. This Facility replaces
the previous undrawn $140 million debt facility with Lloyds Banking
Group.
The Corporation is subject to financial and operating covenants related
to the Facility. Failure to meet the terms of one or more of these
covenants may constitute an event of default as defined in the Facility
agreement, potentially resulting in accelerated repayment of the debt
obligations.
Security provided against the loan
Security provided against the loan is in the form of a floating charge
over all assets.
The Corporation is in compliance with its financial and operating
covenants.
As at 31 March 2013, $55 million was drawn down under the Facility. The
$47 million in the balance sheet represents amounts drawn down net of
unamortised loan fees.
15. DECOMMISSIONING LIABILITIES
31 March 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 52,834 39,3832
Additions 4,158 9,613
Accretion 502 1,777
Revision to estimates - 2,062
Balance, end of period 57,494 52,834
The total future decommissioning liability was calculated by management
based on its net ownership interest in all wells and facilities,
estimated costs to reclaim and abandon wells and facilities and the
estimated timing of the costs to be incurred in future periods. The
Corporation uses a risk free rate of 3.8 percent (31 December 2012: 3.8
percent) and an inflation rate of 2.1 percent (31 December 2012: 2.1
percent) over the varying lives of the assets to calculate
the present value of the decommissioning liabilities. These costs
are expected to be incurred at various intervals over the next 10
years.
The economic life and the timing of the obligations are dependent on
Government legislation, commodity price and the future production
profiles of the respective production and development facilities. Note
that upon the acquisition of the Beatrice Field in November 2008, the
Corporation did not assume the decommissioning liabilities.
16. OTHER LONG-TERM LIABILITIES
31 March 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 3,018 2,785
Revaluation in the period (57) 233
Balance, end of period 2,961 3,018
On completion of the acquisition of the Beatrice Facilities on 10
November 2008 there were 75,000 barrels of oil in an oil storage tank
at the Nigg Terminal. This volume of oil is required to be in the
storage tank when the Beatrice Facilities are retransferred. This
volume of oil is valued at the price on the forward oil price curve at
the expected date of re-transfer and discounted. The liability is
subject to revaluation at each financial period end. The expected date
of re-transfer is likely to be between 2 and 5 years in the future.
17. CONTINGENT CONSIDERATION
31 March 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 4,000 24,580
Revision to estimates - 1,295
Release - (21,875)
Balance, end of period 4,000 4,000
The contingent consideration at the end of the period relates to the
acquisition of the Stella field and is payable upon first oil.
18. SHARE CAPITAL
No. of ordinary Amount
Authorised share capital 000 US$'000
At 31 December 2012 and 31 March 2013 Unlimited -
(a) Issued
The issued share capital is as follows:
Issued Number of common Amount
shares US$'000
Balance 1 January 2012 259,164,461 429,502
Issued for cash - options exercised 755,542 1,020
Transfer from Share based payment reserve on - 796
options exercised
Balance 1 January 2013 259,920,003 431,318
Issued for cash - options exercised 33,333 29
Transfer from Share based payment reserve on - 18
options exercised
Balance 31 March 2013 259,953,336 431,365
(b) Stock options
In the quarter ended 31 March 2013, the Corporation's Board of
Directors granted 90,000 options at a weighted average exercise price
of $2.00 (C$1.97).
The Corporation's stock options and exercise prices are denominated in
Canadian Dollars when granted. As at 31 March 2013, 20,344,631 stock
options to purchase common shares were outstanding, having an exercise
price range of $0.20 to $2.73 (C$0.25 to C$2.31) 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:
31 March 2013 31 December 2012
Wt. Avg Wt. Avg
No. of Exercise No. of Exercise
Options Price* Options Price*
Balance, beginning of 20,347,964 $1.63 17,506,839 $1.66
period
Granted 90,000 $2.00 6,045,000 $2.05
Forfeited / expired (60,000) $2.70 (2,448,333) $3.42
Exercised (33,333) $1.79 (755,542) $1.26
Options 20,344,631 $1.64 20,347,964 $1.63
* The weighted average exercise price has been converted into U.S.
dollars based on the foreign exchange rate in effect at the date of
issuance.
The following is a summary of stock options as at 31 March 2013
Options Outstanding
Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price*
$2.22-$2.73 5,290,000 1.8 $2.24
(C$2.25-C$2.31)
$1.49-$1.79 10,421,667 2.4 $1.81
(C$1.54-C$1.99)
$0.20-$0.81 4,632,964 0.5 $0.56
(C$0.25-C$0.87)
20,344,631 1.8 $1.64
Options Exercisable
Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price*
$2.22-$2.73 3,393,336 1.8 $2.24
(C$2.25-C$2.31)
$1.49-$1.79 4,500,001 0.9 $1.52
(C$1.54-C$1.99)
$0.20-$0.81 4,632,964 0.5 $0.56
(C$0.25-C$0.87)
12,526,301 1.0 $1.36
The following is a summary of stock options as at 31 December 2012
Options Outstanding
Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price*
$2.22-$2.70 5,350,000 2.0 $2.22
(C$2.25-C$2.69)
$1.49-$2.03 10,331,667 2.6 $1.81
(C$1.54-C$1.99)
$0.20-$0.81 4,666,297 0.8 $0.56
(C$0.25-C$0.87)
20,347,964 2.0 $1.63
Options Exercisable
Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price*
$2.22-$2.70 3,280,003 2.0 $2.22
(C$2.25-C$2.69)
$1.49-$2.03 3,113,338 1.2 $1.53
(C$1.54-C$1.99)
$0.20-$0.81 4,666,297 0.8 $0.80
(C$0.25-C$0.87)
11,059,638 1.3 $1.43
(c) Share based payments
Options granted are accounted for using the fair value method. The
cost during the three months ended 31 March 2013 for total stock
options granted was $0.9 million (Q1 2012: $1.6 million). $0.3 million
was charged through the statement of income for stock based
compensation for the three months ended 31 March 2013, being the
Corporation's share of stock based compensation chargeable through the
statement of income. The remainder of the Corporation's share of stock
based compensation has been capitalised. The fair value of each stock
option granted was estimated at the date of grant, using the
Black-Scholes option pricing model with the following assumptions:
For the three months For the year
ended ended
31 March 2013 31 December 2012
Risk free interest rate 1.3% 0.4%
Expected stock volatility 63% 74%
Expected life of options 3 years 3 years
Weighted Average Fair Value $0.91 $1.08
19. SHARE BASED PAYMENT RESERVE
31 March 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 20,340 17,318
Share based payment cost 994 3,817
Transfer to share capital on exercise of options (18) (795)
Balance, end of period 21,316 20,340
20. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit
after tax and the weighted average number of common shares in issue
during the period. The calculation of diluted earnings per share is
based on the profit after tax and the weighted average number of
potential common shares in issue during the period.
Three months ended 31 March
2013 2012
Weighted av. number of common shares (basic) 259,944,818 259,164,461
Weighted av. number of common shares (diluted) 264,926,389 265,009,444
21. TAXATION
Three months ended 31 March
2013 2012
US$'000 US$'000
Deferred tax 1,195 866
2012 deferred tax includes the tax effect of $614,000 on the loss of
oil price hedging shown through the Statement of Other Comprehensive
Income.
22. COMMITMENTS
31 March 31 Dec
2013 2012
US$'000 US$'000
Operating lease commitments
Within one year 12,742 12,759
Two to five years 15,722 18,756
More than five years - 65
31 March 31 Dec
2013 2012
Capital commitments US$'000 US$'000
Capital commitments incurred jointly with other 91,438 111,747
ventures (Ithaca's share)
23. 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 31
March 2013:
Total Fair
Level 1 Level 2 Level 3 Value
US$'000 US$'000 US$'000 US$'000
Derivative financial instrument - 7,368 - 7,368
asset
Long term liability on Beatrice - - (2,961) (2,961)
acquisition
Contingent consideration - (4,000) - (4,000)
Derivative financial instrument - (2,296) - (2,296)
liability
The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of
comprehensive income:
Three months ended 31 March 2013
2012
US$'000 US$'000
Revaluation of forex forward contracts (2,055) 969
Revaluation of gas contract - (114)
Revaluation of other long term liability 57 (90)
Revaluation of commodity hedges (9,067) -
(11,065) 765
Realised loss on forex contracts (293) -
Realised gain/(loss) on commodity hedges 4,186 (199)
(7,172) 566
Contingent consideration - (1,294)
Total (loss) on financial instruments (7,172) (728)
The Corporation has identified that it is exposed principally to these
areas of market risk.
i) Commodity Risk
The table below presents the total (loss)/gain on commodity hedges that
has been disclosed through the statement of comprehensive income:
Three months ended 31 March
2013 2012
US$'000 US$'000
Revaluation of commodity hedges (9,067) -
Realised gain/(loss) on commodity hedges 4,186 (199)
Total (loss) on commodity hedges (4,881) (199)
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 Jan 13 - Mar 14 779,299 bbls $110/bbl
Oil swaps (including Jan 13 - Sep 14 2,297,753 bbls $108/bbl
swaption)
Gas swaps Jan 13 - Dec 14 3,066,000 therms 66.45p/
therm
ii) Interest Risk
Calculation of interest payments for the Senior Secured Borrowing Base
Facility agreement with BNP Paribas that was signed on 29 June 2012
incorporates LIBOR. The Corporation will therefore be exposed to
interest rate risk to the extent that LIBOR may fluctuate. The
Corporation will evaluate its annual forward cash flow requirements on
a rolling monthly basis.
iii) Foreign Exchange Rate Risk
The table below presents the total (loss) on foreign exchange financial
instruments that has been disclosed through the statement of income:
Three months ended 31 March
2013 2012
US$'000 US$'000
Revaluation of forex forward contracts (2,055) 969
Realised loss on forex forward contracts (293) -
Total (loss)/gain on forex forward contracts (2,348) 969
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
statement of financial position translation of monetary accounts
denominated in non-USD amounts upon spot rate fluctuations from quarter
to quarter.
The below represents foreign exchange financial instruments in place:
Derivative Term Value Protection rate Trigger rate
Forward Jan 13 - Dec 13 GBP4 million/ $1.59/GBP1.00 $1.50/GBP1.00
plus month
Forward Apr 13 - Jan 14 GBP120 million $1.52/GBP1.00 N/A
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 fields is
sold to BP Oil International Limited. Oil production from Cook and
Broom is sold to Shell Trading International Ltd. Anglia and Topaz gas
production is currently sold through three contracts to RWE NPower PLC
and Hess Energy Gas Power (UK) Ltd. Cook gas is sold to Shell UK Ltd
and Esso Exploration & Production UK Ltd.
The 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 31 March 2013, substantially
all accounts receivables are current, being defined as less than 90
days. The Corporation has no allowance for doubtful accounts as at 31
March 2013 (31 December 2012: $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 31 March 2013, exposure is $7.4
million (31 December 2012: $8.3 million).
The Corporation also has credit risk arising from cash and cash
equivalents held with banks and financial institutions. The maximum
credit exposure associated with financial assets is the carrying
values.
v) Liquidity Risk
Liquidity risk includes the risk that as a result of its operational
liquidity requirements the Corporation will not have sufficient funds
to settle a transaction on the due date. The Corporation manages
liquidity risk by maintaining adequate cash reserves, banking
facilities, and by considering medium and future requirements by
continuously monitoring forecast and actual cash flows. The Corporation
considers the maturity profiles of its financial assets and
liabilities. As at 31 March 2013, substantially all accounts payable
are current.
The following table shows the timing of contractual cash outflows
relating to trade and other payables.
Within 1 year 1 to 5 years
US$'000 US$'000
Accounts payable and accrued liabilities 194,278 -
Other long term liabilities - 2,961
194,278 2,961
24. DERIVATIVE FINANCIAL INSTRUMENTS
31 March 31 December
2013 2012
US$'000 US$'000
Oil swaps 4,013 2,497
Oil put options 3,257 5,667
Gas swaps (143) 87
Foreign exchange forward contract (2,055) -
5,072 8,251
Refer to note 23 for further details of derivative financial
instruments.
25. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Financial instruments of the Corporation consist mainly of cash and
cash equivalents, receivables, payables, loans and financial derivative
contracts, all of which are included in these financial statements. At
31 March 2013, the classification of financial instruments and the
carrying amounts reported on the balance sheet and their estimated fair
values are as follows:
31 March 2013 31 December 2012
US$'000 US$'000
Classification Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents (Held 65,634 65,634 31,374 31,374
for trading)
Restricted cash 2 2 2 2
Accounts receivable (Loans and 126,303 126,303 159,195 159,195
Receivables)
Deposits 243 243 247 247
Contingent consideration (4,000) (4,000) (4,000) (4,000)
Derivative financial (2,296) (2,296) - -
instruments (Held for trading)
Other long term liabilities (2,961) (2,961) (3,018) (3,018)
Accounts payable (Other (194,278) (194,278) (205,635) (205,635)
financial liabilities)
26. RELATED PARTY TRANSACTIONS
The consolidated financial statements include the financial statements
of Ithaca Energy Inc and the subsidiaries listed in the following
table:
Country of % equity interest at 31
incorporation March
2013 2012
Ithaca Energy (UK) Limited Scotland 100% 100%
Ithaca Minerals (North Sea) Scotland 100% 100%
Limited
Ithaca Energy (Holdings) Bermuda 100% N/A
Limited
Ithaca Energy Holdings (UK) Scotland 100% N/A
Limited
Transactions between subsidiaries are eliminated on consolidation.
The following table provides the total amount of transactions that have
been entered into with related parties during the quarter ending 31
March 2013 and 31 March 2012, as well as balances with related parties
as of 31 March 2013 and 31 December 2012:
Sales Purchases Accounts Accounts
receivable payable
US$'000 US$'000 US$'000 US$'000
Burstall Winger LLP 2013 - 57 - -
2012 - - - -
A director of the Corporation is a partner of Burstall Winger LLP who
acts as counsel for the Corporation.
Loans to related parties Amounts owed from related parties
2013 2012
US$'000 US$'000
FPF-1 Limited 21,551 21,551
27. SEASONALITY
The effect of seasonality on the Corporation's financial results for
any individual quarter is not material.
28. POST BALANCE SHEET EVENTS
Acquisition of Valiant Petroleum plc
In March 2013, the Boards of Ithaca and Valiant announced that they had
reached agreement on the terms of a recommended acquisition
(the"Acquisition"). The Acquisition became effective on 19 April 2013 with
Ithaca Energy Holdings (UK) Limited acquiring the entire issued and to
be issued share capital of Valiant.
The total acquisition price was approximately $309 million, which
equated to approximately GBP4.75 per Valiant share. Approximately $200
million of the consideration was payable in cash (being approximately
GBP3.07/ Valiant share) and approximately $109 million in new Ithaca
shares ("Consideration Shares" equating to 1.33 Ithaca shares per
Valiant share). The Company also repaid ~$150 million Valiant debt/
working capital bringing the total enterprise value to $459 million.
Given the proximity of the Acquisition to the quarter end, no
provisional fair values have yet been determined.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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