Ithaca Energy Inc.: Second Quarter 2009 Results

LONDON, UNITED KINGDOM and CALGARY, CANADA--(Marketwire - Aug. 18, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Ithaca Energy Inc. ("Ithaca" or the "Corporation") (TSX VENTURE:IAE)(AIM:IAE), a Canadian independent oil and gas company with exploration, development and production assets in the UK North Sea, is pleased to announce its results for the second quarter ended June 30, 2009.

Net profit for the quarter was $3.8 million with positive cash flow from operations of $16.9 million.

SUMMARY OF KEY EVENTS

Operations

- Jacky production commenced on April 6, 2009 as planned.

- Beatrice Alpha, Beatrice Bravo and Jacky together produced 673,073 barrels (463,688 barrels net to Ithaca) of oil to the tank at Nigg Terminal for the period from April 1, 2009 to June 30, 2009.

- Total operational efficiency exceeded 95% for the period as production was stabilised. Work is ongoing to maximise and prolong production across the facilities, with a Jacky water injection well scheduled for the third quarter 2009. The Ensco 80 drilling rig was contracted on August 14, 2009 to complete this work.

- The Jacky field has continued to produce 'dry' oil (being zero or neglible water content) increasing management confidence in the likely ultimate production volume.

- Weighted average realised price for the quarter was $60.38/barrel (plus an additional price uplift of $0.96/barrel for 159,806 barrels net to Ithaca at the point of sale to a third party).

Financials

- Net profit for the quarter was $3.8 million (loss of $1.5 million for the 3 months ended June 30, 2008); due primarily to positive operating cash flows and a $5.6 million gain on financial instruments offset by high depletion charges of $17.6 million.

- The Corporation recorded its first quarter of positive cash flow from operations of $16.9 million as the benefit of the Jacky production took effect.

- Total cash at the quarter end stood at $14.3 million of which $11.9 million was restricted cash held as collateral for letters of credit issued by the Bank of Scotland. In addition, $2.3 million (net to Ithaca) is held on deposit with ENSCO Offshore (UK) Limited for a future rig commitment (Jacky water injector well) and is included in deposits, prepaid expenses and others.

- In the three months to June 30, 2009 total fixed assets decreased to $299.1 million ($308.5 million as at March 31, 2009) representing the lower capital spend in the period offset by high depletion as Jacky commenced production.

Events Subsequent to June 30th, 2009

- The Corporation announced on July 29, 2009 that it had completed a transaction with Dyas UK Limited ("Dyas"), whereby Dyas agreed to convert a loan of $61.2 million into an interest in certain assets of the Corporation. The transaction also provided for a $40.6 million cash payment to the Corporation. As a consequence of the transaction, the Corporation is now debt free and all security held by Dyas has been released.

- Gross oil sales in July totalled 364,842 barrels (net to Ithaca 175,124 barrels) at a realised price of $71.22 per barrel (before additional price uplift at the point of sale to a third party).

- The Corporation entered its first commodity hedge on July 24, 2009 whereby it fixed 50,000 barrels of July, August and September production at US$70/barrel.

Outlook

- The completion of the second Dyas transaction has given the Corporation additional cash to pursue current developments, enhance the efficiency of existing operations and to seek new opportunities to strengthen the portfolio:

-- The Jacky water injector is expected to be operational from October, 2009;

-- At least one well will also be worked over at Beatrice Bravo in November 2009 and water injection will also be restarted at Beatrice Bravo at that time;

-- Discussions are underway regarding contracting all services for an extensive work over programme at Beatrice Alpha;

-- The Stella appraisal well is planned for the second half of 2009;

-- The Carna development is scheduled to be sanctioned in the fourth quarter of 2009;

-- Development decision for the Athena field is expected in the fourth quarter given improved oil prices and greater commercial flexibility in the oil service sector; and

-- Development of the Polly discovery is under discussion with a major contractor.

/T/

Ithaca Energy Inc.

CONSOLIDATED BALANCE SHEETS
(unaudited)

June 30, December 31,
2009 2008
US$ US$
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS

Current assets
Cash and cash equivalents $ 2,434,596 $ 26,943,802
Accounts receivable 30,489,079 12,879,389
Restricted cash 11,894,400 12,305,014
Deposits, prepaid expenses and other 5,956,976 7,329,059
Fair value of derivative 7,043,527 -
Inventory 1,289,032 1,289,032
----------------------------------------------------------------------------
59,107,610 60,746,296

Long term receivable - 400,617
Property, plant and equipment (net)
(note 3) 299,085,461 296,523,448
----------------------------------------------------------------------------

$ 358,193,071 $ 357,670,361
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $ 36,138,482 $ 41,057,033

Loan payable (note 10) 68,105,500 61,200,000
Long term liability on Beatrice acquisition 4,639,172 4,137,413
Asset retirement obligation (note 6) 12,173,841 7,407,290
----------------------------------------------------------------------------
121,056,995 113,801,736

Shareholders' equity
Share capital (note 4) $ 277,029,766 $ 277,029,766
Contributed surplus (note 5) 6,880,517 5,126,285
Deficit (46,774,207) (38,287,426)
----------------------------------------------------------------------------
237,136,076 243,868,625

$ 358,193,071 $ 357,670,361
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments (note 8)
"Approved on behalf of the Board"

"John P. Summers"
---------------------------------
Director

"Jack C Lee"
---------------------------------
Director

Ithaca Energy Inc.

----------------------------------------------------------------------------
Consolidated Statements of Net and Comprehensive Profit and Deficit
(unaudited)

3 months ended June 30, 6 months ended June 30,
2009 2008 2009 2008
US$ US$ US$ US$
----------------------------------------------------------------------------
REVENUES
Oil sales 28,280,275 - 31,056,119 -
Other income 1,476,638 - 2,446,233 -
Interest income 146,305 126,137 238,254 505,486
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
29,903,218 126,137 33,740,606 505,486
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
COSTS AND EXPENSES
General and
administrative 1,273,583 460,116 2,808,058 1,967,409
Operating 12,056,509 - 24,704,897 -
Depletion,
depreciation
and accretion 17,585,049 278,838 20,053,029 485,377
(Gain) / loss on
foreign exchange (890,935) (447,527) (1,117,481) 3,549,624
Revaluation of long
term liability 483,818 - 483,818 -
Gain on derivative
(note 9) (5,602,293) - (7,043,527) -
Stock based
compensation 644,732 1,355,400 1,754,232 1,523,700
Interest and bank
charges 572,826 - 584,361 -
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
26,123,289 1,646,827 42,227,387 7,526,110
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Net and comprehensive
profit / (loss) $3,779,929 $(1,520,690) $(8,486,781) $(7,020,624)
Deficit, beginning
of period (note 13) $(50,554,136) $(13,340,393) $(38,287,426) $(7,840,459)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Deficit, end of
period $(46,774,207) $(14,861,083) $(46,774,207) $(14,861,083)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Net profit / (loss)
and comprehensive
profit / (loss)
per share (basic
& diluted) $0.02 $(0.01) $(0.05) $(0.06)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consolidated Statements of Shareholders' Equity
(unaudited - all amounts are US$)

Contrib-
Share uted Deficit 2009 2008
Capital Surplus Total Total

Balance,
Jan 1 2009 $277,029,766 $5,126,285 $(38,287,426) $243,868,625 $203,476,743
Stock based
compensation - 1,754,232 - 1,754,232 1,523,700
Options
exercised - - - - 759,599
Loss for
the period - - (8,486,781) (8,486,781) (7,020,624)
----------------------------------------------------------------------------

Balance,
June 30 $277,029,766 $6,880,517 $(46,774,207) $237,136,076 $198,739,418
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Ithaca Energy Inc.

Consolidated Statements of Cash Flows
(unaudited)

3 months ending 6 months ending
June 30, June 30,
2009 2008 2009 2008
US$ US$ US$ US$
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CASH PROVIDED BY
(USED IN):

OPERATING ACTIVITIES:

Net profit / (loss) 3,779,929 (1,520,690) (8,486,781) (7,020,624)
Items not affecting
cash
Depletion,
depreciation
and accretion 17,585,049 278,838 20,053,030 485,377

Gain on financial
Instrument (5,602,293) - (7,043,527) -
Revaluation of
long term
liability 483,818 - 483,818 -
Stock based
compensation
(note 5) 644,732 925,502 1,754,232 1,523,700

---------------------------------------------------------------------------
---------------------------------------------------------------------------
16,891,235 (316,350) 6,760,772 (5,011,547)
Changes in non-cash
working capital (10,468,518) (4,522,421) (2,593,688) (4,585,108)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
6,422,717 (4,838,771) 4,167,084 (9,596,655)

FINANCING ACTIVITIES:
Proceeds from
issuance of shares 759,599
Dyas loan 5,141 33,970,268 6,905,500 33,970,268
---------------------------------------------------------------------------
---------------------------------------------------------------------------
5,141 33,970,268 6,905,500 34,729,867

INVESTING ACTIVITIES:
Oil and natural
gas properties (7,863,187) (81,557,421) (17,833,830) (112,145,619)
Office furniture
and equipment (12,377) (375,973) (14,660) (511,340)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(7,875,564) (81,933,394) (17,848,490) (112,656,959)
Changes in non-cash
working capital
relating to
investing
activities (9,711,534) 27,877,189 (17,965,676) 25,281,721
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(17,587,098) (54,056,205) (35,814,166) (87,375,238)

Gain on foreign
exchange 610,239 4,415,430 232,376 4,153,178

(DECREASE) IN CASH
AND CASH
EQUIVALENTS (10,549,001) (20,509,278) (24,509,206) (58,088,848)

Cash and cash
equivalents,
beginning
of period 12,983,597 58,635,137 26,943,802 96,214,707
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash and cash
equivalents,
end of period 2,434,596 38,125,859 2,434,596 38,125,859
---------------------------------------------------------------------------
---------------------------------------------------------------------------

/T/

Ithaca Energy Inc.

All figures are in US Dollars, except where otherwise stated.

1. NATURE OF OPERATIONS

Ithaca Energy Inc. (the "Corporation" or "Ithaca Energy"), incorporated in Alberta, Canada on April 27, 2004 and its wholly-owned subsidiary Ithaca Energy (UK) Limited, incorporated in Scotland are a publicly traded group of companies involved in the exploration, development and production of oil and gas in the North Sea. The Corporation's shares are listed on the TSX Venture Exchange in Canada and the London Stock Exchange's Alternative Investment Market in the United Kingdom under the symbol "IAE".

The recoverability of amounts shown for oil and natural gas properties is dependent upon the determination of economically recoverable reserves.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The unaudited interim consolidated financial statements of the Corporation include the accounts of Ithaca Energy Inc. and its wholly-owned subsidiary Ithaca Energy (UK) Limited. The interim consolidated statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended December 31, 2008, except as noted below. The notes to these unaudited interim consolidated financial statements do not conform in all respects to the note disclosure requirements of Canadian generally accepted accounting principles ("GAAP") for annual financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2008.

Change in Accounting Policies

On January 1, 2009, the Corporation adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook Section: "Goodwill and Intangible Assets", Section 3064. The new standard replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard was applied retroactively and has had no material impact on Ithaca's consolidated financial statements.

As part of the Corporation's preparation for transition to International Financial Reporting Standards ("IFRS"), a new accounting software was installed. The second quarter, 2009, was the first period operating under the new system. The accounting package will allow the Corporation to individually account for cash generating units. The Corporation expects to have a transition plan in place by the end of the third quarter, 2009, to ensure that 2010 accounts will be in a position to form the basis of the 2011 IFRS compliant comparatives.

3. PROPERTY, PLANT AND EQUIPMENT

/T/

June 30, December 31,
2009 2008
-----------------------------------

Oil and natural gas properties $320,047,592 $ 297,918,747
Less accumulated depletion (21,608,227) (2,178,728)
-----------------------------------
298,439,365 295,740,019
-----------------------------------

Office furniture and equipment 1,185,882 1,171,222
Less accumulated depreciation and
amortization (539,786) (387,793)
-----------------------------------
646,096 783,429
-----------------------------------

-----------------------------------
Total property, plant and equipment $299,085,461 $ 296,523,448
-----------------------------------
-----------------------------------

/T/

The Corporation acquired the producing Beatrice facilities on November 10, 2008 and has therefore recognised depletion charges since that date, the depletion charge in the quarter was $17.2 million (June 30 2008: $Nil). As at June 30, 2009, oil and natural gas properties included $273.7 million (Dec 2008 - $272.1 million) relating to proved properties and $24.7 million (Dec 2008 $24.6 million) unproved properties. During the three months to June 30, 2009, the Corporation capitalized $2.1 million (Dec 2008 - $7.6 million) of overhead directly related to exploration, appraisal and development activities. The Corporation also capitalized $0.9m of interest in the three months to June 30, 2009. Future development costs for the proved oil and gas properties are forecast to be approximately $247.7 million.

4. SHARE CAPITAL

(a) Issued

The issued share capital is as follows:

/T/

----------------------------------------------------------------------------
Issued Number Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance December 31, 2008 and June 30, 2009 162,261,975 $ 277,029,766
----------------------------------------------------------------------------

/T/

(b) Stock Options

As at June 30, 2009, 9,754,500 stock options to purchase common shares were outstanding, having an exercise price range $0.22 to $3.16 (C$0.25 to C$3.65) per share.

Changes to the Corporation's stock options are summarized as follows:

/T/

June 30, 2009 December 31, 2008
---------------------------------------------------------------------------
Number of Wt. Avg . Number of Wt. Avg.
Options Exercise Options Exercise
Price(i) Price(i)
---------------------------------------------------------------------------
Balance, January 1, 2009 10,694,500 $ 1.93 4,330,000 $ 2.01
Granted - - 7,224,500 $ 1.82
Forfeited (940,000) $ 2.13 (530,000) $ 1.97
Exercised - - (330,000) $ 2.07
---------------------------------------------------------------------------
Options outstanding, end
of period 9,754,500 $ 1.92 10,694,500 $ 1.89
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Options exercisable, end
of period 2,926,667 $ 2.71 2,613,333 $ 1.91
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(i) 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 outstanding as at June 30, 2009.

Options Outstanding
---------------------------------------------------------------------------
Range of Exercise Number of Wt. Avg. Wt. Avg.
Price Options Life Exercise
(Years) Price(i)
---------------------------------------------------------------------------

$0.22 (C$0.25) 3,334,500 4.92 $ 0.20

$1.56 (C$1.80) 600,000 4.67 $ 1.69

$1.90 - $3.16
(C$2.20 - C$3.65)(i) 5,820,000 2.67 $ 3.04

---------------------------------------------------------------------------
9,754,500 3.56 $ 1.92
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(i) The exercise price and the weighted average exercise price have 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 exercisable as at June 30, 2009.

Options Exercisable
---------------------------------------------------------------------------
Range of Exercise Number of Wt. Avg. Wt. Avg.
Price Options Life Exercise
(Years) Price(i)
---------------------------------------------------------------------------

$1.90 - $3.16
(C$2.20 - C$3.65)(i) 2,926,667 2.67 3.04

---------------------------------------------------------------------------
2,926,667 2.67 $ 3.04
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(i) The exercise price and the weighted average exercise price have been
converted into U.S. dollars based on the foreign exchange rate in
effect at the date of issuance

/T/

(c) Stock-Based Compensation

Options granted are accounted for using the fair value method. The compensation cost charged during the quarter ended June 30, 2009 against earnings for stock options granted was $644,732 (2008: $925,502) 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:

No options have been granted in the six months ended June, 2009.

/T/

-------------------------
For the year ended
2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Risk free interest rate 3.12
----------------------------------------------------------------------------
Expected dividend yield 0%
----------------------------------------------------------------------------
Expected stock volatility 154%
----------------------------------------------------------------------------
Expected life of options 5 years
----------------------------------------------------------------------------
Weighted Average Fair Value $0.92
----------------------------------------------------------------------------

5. CONTRIBUTED SURPLUS

--------------------------------------
June 30, December 31,
2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, January 1, 2009 $ 5,126,285 $ 1,765,333
----------------------------------------------------------------------------
Stock based compensation expense 1,754,232 3,529,252
----------------------------------------------------------------------------
Transfer to share capital on exercise
of options - (168,300)
----------------------------------------------------------------------------
Balance, end of period $ 6,880,517 $ 5,126,285
----------------------------------------------------------------------------

/T/

6. ASSET RETIREMENT OBLIGATIONS

The total future asset retirement obligation was estimated 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 estimates its total undiscounted asset retirement obligations to be $15,867,839 as at June 30, 2009. The Corporation uses a credit adjusted risk free rate of 8.0 percent based upon the Corporation's current cost of borrowing and an inflation rate of 2.5 percent over the varying lives of the assets to calculate the present value of the asset retirement obligation. Note that upon the acquisition of the Beatrice Field in November 2008, the Corporation did not assume the decommissioning liabilities.

The following table provides a reconciliation of the Company's total discounted asset retirement obligations:

/T/

--------------------------------------
June 30, December 31,
2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, January 1, 2009 $ 7,407,290 $ 4,716,475
----------------------------------------------------------------------------
Liabilities incurred 4,295,014 4,493,350
----------------------------------------------------------------------------
Accretion 471,537 434,730
----------------------------------------------------------------------------
Liabilities disposed of - (2,237,265)
----------------------------------------------------------------------------
Balance, end of period $ 12,173,841 $ 7,407,290
----------------------------------------------------------------------------

/T/

7. PER SHARE AMOUNTS

The weighted average number of basis and diluted shares outstanding during 2009 was 162,261,975 and 172,404,320 respectively (Dec 2008: Basis 131,633,833 : Diluted 138,513,009).

8. COMMITMENTS

As at June 30, 2009, the Corporation had the following financial commitments:

/T/

----------------------------------------------------------------------------
Year ended 2009 2010 2011 2012 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Office sublease $ 160,000 $ 320,000 $ 320,000 $320,000 $320,000
----------------------------------------------------------------------------
Exploration license
fees $ 245,000 $ 245,000 - - -
----------------------------------------------------------------------------
Exploration Well $14,000,000 - - -
----------------------------------------------------------------------------

/T/

9. FINANCIAL INSTRUMENTS

There have been no significant changes from the previous quarter to the Corporation on its exposure to risks and management's objectives, policies and processes to manage the market risks outlined below.

The Corporation has identified that it is exposed principally to these areas of market risk.

i) Commodity Risk

Commodity price risk related to crude oil prices is the Corporation's most significant market risk exposures. Crude oil prices and quality differentials are influenced by worldwide factors such as OPEC actions, political events and supply and demand fundamentals. To a lesser extent the Corporation is also exposed to natural gas price movements as it holds undeveloped gas discoveries in its portfolio. Natural gas prices are generally influenced by oil prices, North American supply and demand and 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.

In July, 2009, the Corporation entered in to a forward swap for 50,000 barrels per month over July, August and September production fixing the price at $70/barrel.

ii) Interest Risk

The Corporation expects to use floating rate debt to finance its developments and operations, fixed as required by the banking facility terms. The Corporation is exposed to interest rate risk to the extent that LIBOR may fluctuate. As the Corporation's debt is largely denominated in U.S. dollars ("USD") the interest rate is principally set against USD LIBOR.

The Corporation will evaluate its annual forward cash flow requirements on a rolling monthly basis. Accordingly, individual facility amounts utilized and related interest terms will vary.

iii) Foreign Exchange Rate Risk

The Corporation is exposed to foreign exchange risks to the extent it transacts in various currencies, while measuring and reporting its results in USD. The exposure to foreign exchange risk is partly mitigated since debt financing is mostly in USD. Since time passes between the recording of a receivable or payable transaction and its collection or payment, the Corp