Ithaca Announces Quarterly Results (UK)

Ithaca Announces Quarterly Results (UK)

Ithaca Energy Inc. announces its quarterly results for the three months ended March 31, 2013. In light of the Valiant transaction closing on April 19, 2013, also included is the unaudited financial highlights for the same period, 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.

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 Lindbæk 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 confirmed that Mr. Jannik Lindbæk will be appointed to the Board as a Non-Executive Director in May 2013. Mr. Lindbæk was previously Chairman of the Norwegian international oil and gas company, Statoil ASA, prior to its merger with Norsk Hydro in 2007.

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Press Release, May 13, 2013