ABERDEEN, SCOTLAND--(Marketwired - August 12, 2013) -
Ithaca Energy Inc (TSX VENTURE: IAE) (TSX: IAE)
Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States
Ithaca Energy Inc.
Second Quarter and Half Yearly 2013 Financial Results
13 August 2013
Ithaca Energy Inc. (TSX: IAE), (LSE AIM: IAE) ("Ithaca" or the "Company")
announces its quarterly results for the three months ended June 30,
2013 ("Q2 2013") and half yearly results for the six months ended June
30, 2013 ("H1 2013"). The acquisition of Valiant Petroleum plc
("Valiant") was completed on April 19, 2013, with the financial results
reflecting the takeover of the company from that time.
Financial Highlights
- Q2 2013 cashflow from operations increased approximately 300% to
$65.0 million (Q2 2012: $16.3 million), resulting in half yearly
cashflow from operations of $100.5 million (H1 2012: $44.7 million) -
H1 2013 cashflow per share $0.36 (H1 2012: $0.17)
- Q2 2013 net earnings of $52.2 million (Q2 2012: $30.2 million),
resulting in half yearly net earnings of $55.7 million (H1 2012: $43.2
million) - H1 2013 earnings per share $0.20 (H1 2012: $0.20)
- Q2 2013 profit before tax of $69.1 million (Q2 2012: $21.7 million),
resulting in half yearly profit before tax of $71.4 million (H1 2012:
$35.5 million)
- Q2 2013 average realised oil price of $111 / bbl (Q2 2012: $116 /
bbl), including a realised hedging gain of $8 / bbl
- Net drawn debt of $346 million from bank facilities of $780 million
at June 30, 2013 (zero net drawn debt at December 31, 2012)
- UK tax allowances pool of $923 million and Norwegian tax receivable
of $70 million at June 30, 2013
- Approximately 4.3 million barrels of future 2013-14 oil production
hedged at a weighted average price of around $103 / bbl (approximately
30% puts / 70% swaps)
H1-2013 Pro-Forma
The acquisition of Valiant was completed on April 19, 2013, with the
financial results reflecting that. The table below sets out the
financial highlights of H1 2013 with the exceptional restructuring
costs associated with the Valiant transaction separately identified.
Also shown is a pro-forma cashflow summary for H1 2013 to provide an
overview of the cash generative nature of the enlarged Company.
Fin. Results Pro-Forma
H1 2013 Valiant from Valiant from
19-Apr-13 01-Jan-13
Production boepd 9,138 14,300
Revenue M$ 188.1 299.6
Reduction in oil inventory M$ (22.7) (27.0)
Operating Costs M$ (66.3) (83.2)
G & A M$ (5.4) (15.9)
Forex M$ (2.0) (0.2)
Realised Derivative Gains M$ 14.1 14.1
Cashflow from Ongoing Operations M$ 105.8 187.4
Non-Recurring Valiant Costs-
- Restructuring Costs M$ (5.2) (5.2)
Cashflow from Operations M$ 100.5 182.2
-Ithaca's Valiant acquisition transaction costs of $5 million are
included within cashflow from investing activities, resulting in total
non-recurring costs of $10.2 million.
The H1-2013 pro-forma highlights are:
- Average net export production in H1 2013 of 14,300 boepd, 95% oil
- H1 2013 cashflow from ongoing operations of $187.4 million
- Operating costs of $32 per barrel of oil equivalent ("boe") yielding
a netback per barrel of over $70 / boe
- Future annual G&A savings of over $20million per annum resulting from
the now completed restructuring and full integration of Valiant's
assets into the enlarged Company
Production & Operations
Based on pro-forma production in H1 2013 and a balanced view of the
opportunities and challenges for the second half of 2013 ("H2 2013"),
the Company anticipates that full year 2013 production will be at the
lower end of the pro-forma annual guidance range of 14,000 to 16,000
boepd.
Production is expected to benefit from recent operational activities
and planned work programmes.
- An additional production well on the Don Southwest field was drilled
and brought online in late June 2013 and drilling of a water injection
well in the same area of the field is nearing completion. A chemical
treatment campaign on the wells on the West Don field has also
successfully been completed.
- Good progress continues to be made on the work programme required to
enable start-up of the electrical submersible pump ("ESP") on the
Causeway field. It is anticipated that the facilities being installed
on the host platform for the field will be operational in the fourth
quarter of the year, significantly boosting production from the field.
- Production from the Athena field was partially reduced during the
second quarter as one of the four producing wells, the "P2" well, was
temporarily shut-in. A repair was successfully completed as planned in
early July 2013 and the well was brought back online.
The key risks to production in H2 2013 relate to completion of works on
certain of the Company's non-operated assets and the results of an
ongoing evaluation on one of the Athena wells.
- The planned start-up of the ESP on the Causeway field in Q4 2013 is
subject to TAQA delivering an on time turnaround of six weeks on the
North Cormorant platform and thereafter executing on the plan to
deliver power to the Causeway well ESP package.
- The Shell operated Cook field has had to be shut-in in the last few
days to allow inspection of the infield flowline connecting the field
to the Anasuria floating production, storage and offloading vessel. The
Operator is planning for the work to be completed in September 2013 to
allow restart of production.
- Production from one well on the Athena Field, the "P4" well which
contributes under 400 boepd (net) was shut-in on 12 August 2013.
Diagnostic testing, including investigation of the ESP installed in the
well, is underway.
Substantial delay to completion of the above works, including any rig
or vessel work required as an outcome of the Athena P4 diagnostic
testing, has the potential to reduce full year production below the
guidance range.
Greater Stella Area Development
- Drilling on the Stella field commenced in June 2013. The first
development well is progressing as planned, with drilling currently
ongoing in the horizontal reservoir section of the well.
- Excellent progress is being made on the subsea infrastructure
installation work programme - the 60km 10-inch gas export pipeline and
main subsea structures have been installed and infield flowline
trenching has been completed.
- Execution of the marine system works currently being conducted on
the"FPF-1" floating production unit, in Gdansk, Poland is progressing
well.
Corporate
- The acquisition of Valiant was completed on April 19, 2013 and all
the main integration milestones have now been completed.
- All future UK exploration and appraisal well commitments transferred
as a result of the Valiant acquisition have been farmed out with
material expenditure carries - removing approximately $75 million of
net exploration expenditure, while creating upside exposure to future
wells at an anticipated net cost of less than $10 million. Monetisation
of the UK exploration portfolio has exceeded expectations in terms of
levels of expenditure carry and speed of execution.
- Drilling operations on the Norvarg well were successfully completed
in August 2013. The reserves of the field and potential future
development options are currently being evaluated.
- A re-focused strategy has been established for the Norwegian
business, targeting lower risk geology / geography, with new leadership
provided by Lars Thorrud, previously Vice President Business
Development in Det Norske Oljeselskap ASA.
Iain McKendrick, Chief Executive Officer, commented:"In the first half of
the year we have both doubled production and
operating cashflow and importantly diversified our producing asset base
to 11 fields. The Greater Stella Area development is moving forward
rapidly and with the integration of the Valiant acquisition now
completed, including restructuring of the UK exploration portfolio, we
look forward to an active second half of the year."
Company Website
Ithaca has today launched a re-developed Company website,
www.ithacaenergy.com, with further background information on all its
assets and on-going activities.
- ENDS -
Enquiries:
Ithaca Energy:
Iain imckendrick@ithacaenergy.com +44 (0)1224 650 261
McKendrick,
CEO
Graham gforbes@ithacaenergy.com +44 (0)1224 652 151
Forbes,
CFO
FTI Consulting:
Billy billy.clegg@fticonsulting.com +44 (0)207 269 7157
Clegg
Edward edward.westropp@fticonsulting.com +44 (0)207 269 7230
Westropp
Georgia georgia.mann@fticonsulting.com +44 (0)207 269 7212
Mann
Cenkos Securities plc:
Jon jfitzpatrick@cenkos.com +44 (0)207 397 8900
Fitzpatrick
Neil nmcdonald@cenkos.com +44 (0)131 220 6939
McDonald
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
Notes
In accordance with AIM Guidelines, John Horsburgh, BSc (Hons)
Geophysics (Edinburgh), MSc Petroleum Geology (Aberdeen) and Subsurface
Manager at Ithaca is the qualified person that has reviewed the
technical information contained in this press release. Mr Horsburgh
has over 15 years operating experience in the upstream oil and gas
industry.
References herein to "boe" are derived by converting gas to oil in the
ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl")
of oil. Boe may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion
method primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead.
This press release contains non-International Financial Reporting
Standards ("IFRS") industry benchmarks and terms, such as
"netbacks","cashflow from operations" and "cashflow from ongoing
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 and cashflow from ongoing operations are
determined by adding back changes in non-cash operating working capital
to cash from operating activities. 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. The non-IFRS
financial measures do not have any standardised 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.
Further details on the above are provided in the unaudited interim
consolidated financial statements of Ithaca for the quarter ended June
30, 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.
About Ithaca Energy
Ithaca Energy Inc. (TSX: IAE, LSE AIM: IAE) is a North Sea oil and gas
operator focused on the delivery of lower risk growth through the
appraisal and development of UK undeveloped discoveries, the
exploitation of its existing UK producing asset portfolio and a
Norwegian exploration and appraisal business centred on the generation
of discoveries capable of monetisation prior to development. Ithaca's
strategy is centred on generating sustainable long term shareholder
value by building a highly profitable 25kboe/d North Sea oil and gas
company. For further information please consult the Company's website
www.ithacaenergy.com.
Not for Distribution to U.S. Newswire Services or for Dissemination in
the United States
Forward-looking statements
Some of the statements and information in this press release are
forward-looking. Forward-looking statements and forward-looking
information (collectively, "forward-looking statements") are based on
the Company's internal expectations, estimates, projections,
assumptions and beliefs as at the date of such statements or
information, including, among other things, assumptions with respect to
production, drilling, well completion times, 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,
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 press release. Ithaca Energy Inc. expressly disclaims any
obligation or undertaking to release publicly any updates or revisions
to any forward-looking statement contained herein to reflect any change
in its expectations with regard thereto or any change in events,
conditions or circumstances on which any forward-looking statement is
based except as required by applicable securities laws.
HIGHLIGHTS SECOND QUARTER 2013
- The acquisition of Valiant Petroleum plc
("Valiant") was completed on April 19, 2013,
and the financial results reflect the
takeover of the acquired assets from that
time
Record cashflow from - Q2 2013 cashflow from operations increased
operations approximately 300% to $65.0 million (Q2
2012: $16.3 million) resulting in half
yearly cashflow from operations of $100.5
million (H1 2012: $44.7 million) - H1 2013
cashflow per share $0.36 (H1 2012: $0.17)
- Q2 2013 profit before tax of $69.1 million
(Q2 2012: $21.7 million) and net earnings of
$52.2 million (Q2 2012: $30.2 million)
resulting in H1 2013 profit before tax of
$71.4 million (H1 2012: $35.5 million) and
H1 2013 net earnings of $55.7 million (H1
2012: $43.2 million)
- Q2 2013 average realised oil price of $111
/ bbl (Q2 2012: $116 / bbl), including a
realised hedging gain of $8 / bbl
- Net drawn debt of $346 million at June 30,
2013 (zero net drawn debt at December 31,
2012)
- UK tax allowances pool of $923 million at
quarter end. Norwegian tax receivable of $70
million
- Approximately 4.3 million barrels of
future 2013-14 oil production hedged at a
weighted average price of approximately $103
/ bbl (approximately 30% puts / 70% swaps)
Solid H1 2013 production - Taking into account production from the
performance Valiant assets on a pro-forma basis from the
start of 2013, total average net export
production in H1 2013 was approximately
14,300 barrels of oil equivalent per day
("boepd"), approximately 95% oil
- Based on pro-forma production in H1 2013
and a balanced view of the opportunities and
challenges for H2 2013, the Company
anticipates that full year 2013 production
will be at the lower end of the pro-forma
annual guidance range of 14,000 to 16,000
boepd
- Total average net export production in Q2
2013, taking into account the Valiant
acquisition from the transaction completion
date of April 19, 2013, was 12,100 boepd,
approximately 95% oil (Q2 2012: 3,964
boepd), resulting in H1 2013 production of
9,138 boepd, approximately 93% oil (H1 2012:
4,132 boepd)
Strong progress on Stella - Drilling on the Stella field commenced in
- development drilling June 2013 - the first well is currently
and subsea drilling in the horizontal reservoir section
infrastructure
installation programmes - Excellent progress is being made on the
commenced subsea infrastructure installation work
programme - the 60km 10-inch gas export
pipeline and main subsea structures have
been installed and infield flowline
trenching has been completed
- Steady progress has being made on
execution of the "FPF-1" floating production
facility marine system works following the
transfer of the vessel to the dry dock
facility at the modifications yard in
Gdansk, Poland, in April 2013. The hull tank
refurbishment operations are nearing
completion and installation of the
additional buoyancy has commenced
Norvarg drilling - Drilling operations on the Norvarg
completed appraisal well were successfully completed
in August 2013. Work is now being undertaken
to evaluate the estimated reserves on the
structure and potential future development
options
Valiant acquisition - All Valiant's UK assets have been
integration milestones integrated into Ithaca's existing
completed organisation and Valiant's UK office has
been closed - this is expected to yield
approximately $20 million per annum of
overhead savings
- All future UK exploration and appraisal
well commitments transferred as a result of
Valiant acquisition have been farmed out
with material expenditure carries - removing
approximately $75 million of net UK
exploration expenditure, while creating
upside exposure to future wells at an
anticipated net cost of under $10 million
- Re-focused strategy established for the
Norwegian business, targeting lower risk
geology / geography, with new leadership
SUMMARY STATEMENT OF INCOME
3 Months Ended June 30
2013 2012 %
Average Brent Oil Price $/bbl 102 108 -6%
Average Realised Oil Price(1) $/bbl 103 110 -6%
Revenue M$ 128.4 35.8 259%
Cost of Sales - excluding DD&A M$ (62.1) (18.9) 229%
G&A etc M$ (6.2) (2.6) 138%
Non-recurring Valiant Restructuring M$ (5.2) -
Realised Derivatives Gain / (Loss) M$ 10.2 2.0 410%
Cashflow From Operations M$ 65.0 16.3 299%
DD&A M$ (41.4) (11.1) 273%
Unrealised Derivatives Gain / (Loss) M$ 7.3 17.4 -58%
Non-recurring Valiant Deal Costs M$ (4.4) -
Non-recurring Negative Goodwill M$ 48.0 -
Other M$ (5.5) (0.9) 511%
Profit Before Tax M$ 69.1 21.7 218%
Deferred Tax Credit / (Charge) M$ (16.9) 8.5
Profit After Tax M$ 52.2 30.2 73%
Earnings Per Share(2) $/Sh. 0.17 0.12 42%
Cashflow Per Share(2) $/Sh. 0.21 0.06 233%
6 Months Ended June 30
2013 2012 %
Average Brent Oil Price $/bbl 108 114 -5%
Average Realised Oil Price(1) $/bbl 104 113 -8%
Revenue M$ 188.1 76.3 147%
Cost of Sales - excluding DD&A M$ (89.0) (31.5) 183%
G&A etc M$ (7.5) (1.1) 581%
Non-recurring Valiant Restructuring M$ (5.2) -
Realised Derivatives Gain / (Loss) M$ 14.1 1.8 683%
Cashflow From Operations M$ 100.5 44.7 125%
DD&A M$ (60.9) (24.5) 149%
Unrealised Derivatives Gain / (Loss) M$ (3.8) 18.1
Non-recurring Valiant Deal Costs M$ (5.0) -
Non-recurring Negative Goodwill M$ 48.9 -
Other M$ (8.3) (2.8) 196%
Profit Before Tax M$ 71.4 35.5 101%
Deferred Tax Credit / (Charge) M$ (15.7) 7.7
Profit After Tax M$ 55.7 43.2 29%
Earnings Per Share(2) $/Sh. 0.20 0.20 -
Cashflow Per Share(2) $/Sh. 0.36 0.17 100%
(1) Average realised price before hedging
(2) Q2 2013 weighted average number of shares of 305.9 million
and H1 2013 weighted average number of shares of 283.1 million
SUMMARY BALANCE SHEET
M$ Q2 2013 Q4 2012
Cash & Equivalents 30 31
Other Current Assets 315 198
PP&E 1,356 663
Other Non-Current Assets 47 41
Total Assets 1,750 934
Current Liabilities (365) (206)
Asset Retirement Obligations (141) (53)
Deferred Tax Liabilities (110) (62)
Other Non-Current Liabilities (377) (7)
Total Liabilities (994) (328)
Net Assets 757 606
Share Capital 525 431
Other Reserves 22 20
Surplus 210 154
Shareholders Equity 757 606
CORPORATE STRATEGY
Ithaca Energy Inc. ("Ithaca" or the "Company")
is a North Sea oil and gas operator focused on
the delivery of lower risk growth through the
appraisal and development of UK undeveloped
discoveries, the exploitation of its existing UK
producing asset portfolio and a Norwegian
exploration and appraisal business centred on
the generation of discoveries capable of
monetisation prior to development.
The Company has a solid and diversified UK
producing asset base generating significant free
cashflow from mainly oil production.
Ithaca's goal is to generate sustainable long
term shareholder value by building a highly
profitable 25kboe/d North Sea oil and gas
company.
Execution of the Company's strategy is focused
on the following core activities:
- Maximising cashflow and production from the
existing asset base.
- Delivery of lower risk development led growth
through the appraisal of undeveloped
discoveries.
- Delivering first hydrocarbons from the Ithaca
operated Greater Stella Area development.
- Monetising proven Norwegian asset reserves
derived from exploration and appraisal drilling
prior to the development phase.
- Continuing to grow and diversify the cashflow
base by securing new producing, development and
appraisal assets through targeted acquisitions
and licence round participation.
- Maintaining financial strength and a clean
balance sheet, supported by lower cost debt
leverage.
PRODUCTION & OPERATIONS UPDATE
Taking into account production from the Valiant
assets on a pro-forma basis from the start of
Solid H1-2013 2013, total average net export production in H1
production 2013 was approximately 14,300 boepd,
performance approximately 95% oil. This is in line with the
Company's pro-forma annual guidance range of
14,000 to 16,000 boepd.
Total average net export production in Q2 2013,
taking into account the Valiant acquisition from
the transaction completion date of April 19,
2013, was 12,100 boepd, approximately 95% oil
(Q2 2012: 3,964 boepd), resulting in H1 2013
production of 9,138 boepd, approximately 93% oil
(H1 2012: 4,132 boepd).
Production during the quarter was derived from
the operated Athena, Causeway Area (Causeway and
Fionn), Beatrice, Jacky and Anglia fields and
the non-operated Dons (Don Southwest and West
Don), Cook, Broom and Topaz fields.
The material increase in production delivered in
Q2 2013 compared to the same quarter in 2012 was
primarily attributable to the contribution of
the Valiant assets, in addition to the positive
impact of the Athena field start-up (first oil
May 2012) and the acquisition of an additional
12.885% interest in the Cook field from Noble
Energy Capital Limited, the "Cook Acquisition"
(transaction completed February 2013).
OPERATIONAL ACTIVITIES
The fields produced strongly during the quarter,
although, as anticipated, production was
impacted by planned maintenance shutdowns on a
number of assets, including the Beatrice Area
infrastructure and Anglia, together with the
non-operated Topaz field. Scheduled shutdowns
Main on-going were also incurred on the Shell-operated
operational work Anasuria Floating Production, Storage and
programmes focused on Offloading vessel ("FPSO"), which serves as the
production host facility for the Cook field, to enable the
enhancement re-start of production from another field that
activities uses the vessel.
Athena
During the quarter the Ithaca operated Athena
field completed its first full year of
operations.
Gross daily production was reduced towards the
end of the quarter as one of the four producing
wells, the "P2" well, was temporarily shut-in
awaiting a repair to the electrical cable
serving that particular well. The necessary
repair was completed in early July 2013 and the
well was brought back online.
During the quarter the Athena field commenced
the production of water with oil. This was
significantly later than originally anticipated
prior to start-up of production from the field.
The future evolution of the water production
profile will now provide important information
for forecasting the ultimate field production
profile and the scope for future potential
upside investment opportunities. The Athena
field accounts for less than 15% of the
Company's 2013 production following completion
of the Valiant acquisition.
Production from one well on the Athena Field,
the "P4" well which contributes under 400 boepd
(net) was shut-in on 12 August 2013. Diagnostic
testing, including investigation of the ESP
installed in the well, is underway.
Causeway Area
Drilling activities on the Causeway water
injection well and the Fionn production well
were completed in Q1 2013. Since taking control
of the assets in Q2 2013, the Company has
completed the subsea tie-in works required to
put the Fionn well into production and is
working closely with Taqa, the operator of the
Causeway Area host infrastructure, to facilitate
start-up of the installed electrical submersible
pumps ("ESPs") and (Causeway) water injection as
soon as practicable. It is anticipated that the
facilities required to start-up the ESPs on the
Causeway field will be operational in the fourth
quarter of the year. Flow tests
that have been performed on the Fionn
well since completion of the subsea tie-in works
have confirmed that the field has the potential
to flow at considerably better rates if the well
is sidetracked to a more optimal location (the
well is a re-completed appraisal well).
The Company has exercised a rig option
originally held by Valiant to complete the
sidetrack of the Fionn well. It is anticipated
that drilling operations will commence in the
fourth quarter of 2013. The well will be
sidetracked to a location updip of the existing
well to optimise access to the prime reservoir
formation and to target potential upside
reserves in a secondary reservoir. Prior to the
commencement of drilling operations, the well
will be produced on free flow (awaiting the
start-up of the ESPs).
Beatrice Area
During the quarter a planned maintenance
shutdown was completed on the Beatrice Area
infrastructure, which comprises the Beatrice and
Jacky offshore platforms and the Nigg oil
terminal. The shutdown was focused on both the
completion of asset integrity workscopes and the
implementation of measures designed to improve
the operating efficiency of the facilities.
Dons
A number of production enhancement activities
have been completed on the EnQuest operated Dons
fields since the end of Q1 2013. An additional
production well on the Don Southwest field was
drilled and brought online in late Q2 2013.
Drilling of a water injection well in the same
area of the field, to support production and
reserves recovery from that area of the field,
is nearing completion. A chemical treatment
campaign on a number of the wells on the West
Don field was successfully completed in July
2013, using the facilities on the Northern
Producer, in order to increase production.
Cook
During the quarter, the Cook field performed
strongly. In the last few days the field has
had to be shut-in to allow inspection of the
infield flowline connecting the field to the
Anasuria FPSO. The Operator is planning for the
work to be completed in September 2013 to allow
restart of production.
PRODUCTION OUTLOOK
Based on pro-forma production in H1 2013 and a
balanced view of the opportunities and
challenges for H2 2013, the Company anticipates
that full year production will be at the lower
end of the pro-forma annual guidance range of
14,000 to 16,000 boepd.
Production is expected to benefit from recent
operational activities and planned work
programmes, notably on the Dons and the Causeway
fields. The key risks relate to the timely
completion of the works on the Causeway and Cook
fields and the results of the on-going
evaluation on the Athena P4 well. Substantial
delay to completion of the works on these
fields, including any rig or vessel work
required as an outcome of the Athena P4
diagnostic testing, has the potential to reduce
full year production below the guidance range.
GREATER STELLA AREA DEVELOPMENT UPDATE
Strong progress has continued to be made with
development of the Greater Stella Area ("GSA"),
Development drilling with commencement of both the Stella development
and subsea drilling campaign and the initial subsea
infrastructure infrastructure installation programme marking
installation two major project execution milestones.
programmes underway
Drilling Programme
The high-spec ENSCO 100 heavy duty jack-up
drilling rig that is being used for the GSA
development drilling campaign commenced
operations on the Stella field in June 2013.
Management of the drilling and completion
operations is being performed by Advanced
Drilling Technology International ("ADTI")
under"turnkey" contract arrangements.
The initial campaign involves the drilling and
completion of four production wells on the
Stella field prior to start-up. Three
horizontal wells are to be drilled into the oil
rim of the field, along with one highly deviated
gas-condensate well on the crest of the
structure. Each well is anticipated to take
approximately 80-90 days to drill, complete and
clean-up test. Drilling operations on the first
well are currently on-going in the horizontal
reservoir section.
Subsea Infrastructure Works
Execution of the main subsea infrastructure
manufacturing and installation programme, which
is being executed by Technip UK Limited under
the terms of an integrated Engineering,
Procurement, Installation and Construction
contract, continued to move forward as planned
in Q2 2013.
The initial offshore installation works
commenced in June 2013, with trenching
operations being completed in preparation for
installation of the infield flowlines. The
infield flowlines, which will connect the drill
centres to the FPF-1, are scheduled to be
installed in Q3 2013.
Over a two week period in July 2013, the Apache
II pipelay vessel completed the installation of
the 60km 10-inch gas export pipeline that will
connect the FPF-1 with the BP operated Central
Area Transmission System, through which the gas
will be transported to shore for processing at
the Teeside Gas and Liquids Processing ("TGLP")
terminal. The existing facilities at the TGLP
terminal will be used to separate the natural
gas, which will be sold to the UK spot market on
a daily basis, and the associated propane,
butane and condensate from within the gas, with
such natural gas liquids being sold by TGLP at
prevailing market prices.
Installation of the main subsea structures that
will be used for the production and export of
hydrocarbons to and from the FPF-1 was also
completed in July, using the Skandi Arctic
construction and diving support vessel.
FPF-1 Modification Works
Work on the FPF-1 modifications and upgrade
programme, which is being managed by Petrofac
under the terms of a lump sum incentivised
contract, has continued to be focused on
execution of the marine system works during the
quarter.
The FPF-1 was transferred on to the dry dock
barge at the Remontowa shipyard in Gdansk,
Poland, in April 2013. The key elements of the
dry dock works being completed on the vessel are
inspection, repair and coating of the hull tanks
and the installation of additional buoyancy.
The hull tank refurbishment operations are
nearing completion. Construction and
installation of the steelwork blocks that will
form the additional sponsons that are being
added to the pontoons of the FPF-1 for enhanced
buoyancy is advancing and fabrication of the
additional buoyancy "blisters" that are being
added to the legs of the vessel has commenced.
DRILLING PROGRAMME
NORVARG APPRAISAL WELL - NORWAY
Drilling operations Drilling of the TOTAL E&P Norge operated Norvarg
on Norvarg appraisal appraisal well in the Norwegian sector of the
well completed - Barents North Sea was completed in August 2013.
reserves and Two formation tests were carried out in the
development options upper and lower parts of the Kobbe Formation,
evaluation to with the well flowing at a maximum gross
commence production rate of approximately 6.2 million
standard cubic of feet per day on a 52/64-inch
choke. An extensive data acquisition programme
was completed, including wire line logging,
coring and fluid sampling, and work will now be
undertaken by the Operator to evaluate the
estimated recoverable hydrocarbons on the
structure. Downhole pressure gauges have been
installed in the well to recover long term
pressure build-up data that will be used to
evaluate the extent of the reservoir.
HANDCROSS
The Company is in the process of preparing for
the drilling of the operated exploration well on
the Handcross prospect located in the West of
Shetlands basin. The Stena Carron drillship
will be used for the drilling operations and it
is anticipated that it will be on location at
the end of 2013.
CORPORATE ACTIVITIES
Valiant Petroleum plc Acquisition & Integration
Efficient execution On April 19, 2013 the Company completed the
of Valiant acquisition of Valiant. Since this time, the
acquisition Company has efficiently executed its integration
integration plan - plan to maximise the value of the acquisition.
maximising
shareholder value - All Valiant's UK assets have been integrated
into Ithaca's existing organisation and
Valiant's UK office has been closed - this is
expected to yield approximately $20 million per
annum of overhead savings.
- All future UK exploration and appraisal well
commitments transferred as a result of the
Valiant acquisition have been farmed out with
material expenditure carries being paid by the
companies farming in to the licences - removing
approximately $75 million of net UK exploration
expenditure, while creating upside exposure to
future wells at an anticipated net cost of under
$10 million.
- A re-focused strategy has been established for
the Norwegian business, targeting lower risk
geology / geography, with new leadership.
- Mr Lars Thorrud, previously Vice President
Business Development in Det Norske Oljeselskap
ASA (Norway), will be taking up the position of
General Manager of the Company's Norwegian
subsidiary from September 1, 2013. Mr Thorrud,
a geologist by background, has been working in
the North Sea oil and gas industry for over 24
years in various senior technical and commercial
management positions. He brings a wealth of
experience of building and monetising Norwegian
exploration and appraisal portfolios.
UK EXPLORATION FARM-OUTS
Four significant farm-out transactions have been
executed to effectively restructure and de-risk
the UK exploration and appraisal portfolio
acquired from Valiant. In addition to the main
farm-out transactions listed below, the Company
has also withdrawn from a number of licences in
the portfolio transferred from Valiant.
- Handcross - P1631 & P1832 (Blocks 204/14c, 204
/18b & 204/19c): farm-outs have been executed
with RWE Dea UK SNS Limited and a subsidiary of
Edison International SpA reducing Ithaca's
paying interest in the operated West of Shetland
exploration well to be drilled in late 2013 from
100% to 6%, while retaining a 45% working
interest.
- Beverley - P1792 (Blocks 21/30f, 22/26c):
farm-out executed with Shell UK Limited,
resulting in Ithaca reducing its 40% interest in
the non-operated Central North Sea exploration
well to 20%, in return for a partial carry of
the costs of a well on the Beverly prospect.
- Isabella - P1820 (Blocks 30/6b, 30/11a & 30/
12d): farm-out executed with Maersk Oil North
Sea UK Limited, resulting in Ithaca reducing its
50% interest in the non-operated Central North
Sea exploration well to 20%, in return for a
partial carry of the costs of a well on the
Isabella prospect.
With the completion of the above farm-outs, the
Company has exceeded its expectations in respect
of the restructuring of the UK exploration and
appraisal programmes. The Company will continue
to farm-out, divest or relinquish the Valiant UK
exploration portfolio in order to create further
value.
BRIDGE LOAN FACILITY
The Company remains on schedule to refinance the
existing $350 million Bridge Loan facility,
which was fully drawn on April 19, 2013 as part
of financing the Valiant acquisition, into an
enlarged Senior Borrowing Base facility in the
second half of the year.
NORWEGIAN DEBT FACILITY
On July 1, 2013 the company signed a NOK 450
Enlarged Senior million (-$75 million) Norwegian Exploration
Borrowing Base Financing Facility. Under the Norwegian tax
facility to be regime, 78% of exploration, appraisal and
established in H2 supporting expenditure resulting from operations
2013 on the Norwegian Continental Shelf is refunded
by the Government in the December of the year
following the year the costs were
incurred. This facility will accelerate the
receipt of 95% of the tax refund receivable from
the Norwegian Government, significantly
increasing financial flexibility and assisting
Ithaca's growth in Norway. This is a
conventional tax refund facility, on industry
standard terms.
COMMODITY HEDGING
In the quarter, the Company received $9.4
million through the settlement of commodity
4.3MMbbl of future hedges relating to approximately 0.7 million
2013-14 oil barrels of oil and the exercise of an option to
production hedged at swap 1 million barrels of production at $107/
-$103/bbl 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, 4.3 million
barrels of future 2013-14 oil production is
hedged at a weighted average price of around
$103 / bbl (approximately 30% puts / 70% swaps).
The Company recognised a gain of $6.6 million
through the revaluation of oil swaps and put
options. The hedging instruments are measured at
June 30, 2013 and a valuation attributed based
on the Brent oil forward curve on that date
(spot Brent was trading at $102.4/bbl on June
30, 2013). The gains relate to movement in the
Brent oil forward curve, and an increase in the
implied volatility.
Q2 2013 RESULTS OF OPERATIONS
REVENUE
Three Months Ended June 30, 2013
Record quarterly Revenue increased by $92.6 million in Q2 2013 to
revenue of $128.4 $128.4 million (Q2 2012: $35.8 million). This
million was mainly driven by an increase in oil sales
volumes, partially offset by a reduction in the
oil price.
Oil sales volumes increased primarily due to the
inclusion of sales from the Dons and Causeway
fields from April 19, 2013 following the
acquisition of Valiant. In addition, there was
a significant increase from the Athena field
(first oil May 2012) and the additional Cook
Acquisition (transaction completed in Q1 2013)
offset by lower volumes from the Beatrice and
Jacky fields attributable to planned shutdowns.
Average realised oil prices decreased quarter on
quarter from $110/bbl in Q2 2012 to $103/bbl in
Q2 2013. The average Brent price for the quarter
was $102/bbl compared to $108/bbl for Q2 2012.
The Company's realised 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
realised oil price was nonetheless offset by a
realised hedging gain of $8/bbl in Q2 2013.
Q2 2013 gas sales increased compared to Q2 2012,
although volumes remain modest, accounting for
only 2% of total revenue.
Six Months Ended June 30, 2013
Revenue increased by $111.8 million in H1 2013
to $188.1 million (H1 2012: $76.3 million). This
movement mainly comprises an increase in oil
sales volumes, partially offset by a reduction
in oil price.
In line with the above quarterly movement, oil sales volumes
increased primarily due to the inclusion of sales from the Dons and
Causeway fields acquired from Valiant as well as the additional
interest acquired in the Cook field, offset by lower volumes from the
Beatrice and Jacky fields attributable to planned shutdowns.
Total gas sales increased primarily as a result of higher realised
gas prices, with an increase from $37/boe to $44/boe, partially
offset by lower production volumes in the period.
3-Months
Ended
June 30th
Average Realised Price 2013 2012
Oil Pre-Hedging $/bbl 103 110
Oil Post-Hedging $/bbl 111 116
Gas $/boe 41 32
6-Months
Ended
June 30th
Average Realised Price 2013 2012
Oil Pre-Hedging $/bbl 104 113
Oil Post-Hedging $/bbl 112 116
Gas $/boe 44 37
COST OF SALES
3-Months Ended 6-Months Ended
June 30th June 30th
$'000 2013 2012 2013 2012
Operating Expenditure 43,155 15,406 66,382 31,128
DD&A 41,367 11,092 60,865 24,477
Movement in Oil & Gas Inventory 18,137 3,481 21,713 380
Oil Purchases 790 - 947 -
Total 103,449 29,979 149,907 55,985
Three Months Ended June 30, 2013
Cost of sales increased in Q2 2013 to $103.5 million (Q2 2012:
$30.0 million) due to increases in operating costs, depletion,
depreciation and amortisation ("DD&A") and movement in oil and gas
inventory.
Operating costs increased in the quarter to $43.2 million (Q2 2012:
$15.4 million) primarily due to the inclusion of costs for the Dons
and Causeway fields acquired from Valiant, plus the additional
acquired interest in the Cook field.
Unit operating costs decreased to $39/boe in the period (Q2 2012:
$43/boe) mainly as a result of the inclusion of the lower cost Dons
and Causeway fields acquired from Valiant. Unit operating costs
were not reduced further in the quarter because of the planned
Beatrice shutdown and a light well intervention campaign on the
West Don field. Absent these two events, the combined unit
operating cost would have been approximately $35/boe following the
Valiant acquisition.
DD&A for the quarter increased to $41.4 million (Q2 2012: $11.1
million). This was primarily due to higher production volumes in Q2
2013 as a result of the addition of the Dons and Causeway fields,
together with a full quarter of production from the Athena field
and the additional acquired interest in the Cook field. The
blended DD&A rate for the quarter increased to $37/boe (Q2 2012:
$30/boe). The blended DD&A rate in Q2 2012 was unusually low due
to the production mix, however the driver for the increase has
been"business combination" accounting for transactions.
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 $18.1 million was charged to
cost of sales in Q2 2013 (Q2 2012 charge of $3.5 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 the oil has
been sold. In Q2 2013 more barrels of oil were sold (1,213k bbls)
than produced (1,041k bbls), as a result of significant Cook field
liftings.
Movement in Operating Oil Gas Total
Oil & Gas Inventory kbbls kboe kboe
Opening inventory 241 11 253
Production 1,041 60 1,101
Liftings/sales (1,213) (61) (1,274)
Acquired volumes 104 - 104
Closing volumes 173 10 184
Six Months Ended June 30, 2013
Cost of sales increased in H1 2013 to $149.9 million (H1 2012:
$56.0 million) due to increases in operating costs and DD&A and
movement in oil and gas inventory.
Operating costs increased in the period to $66.4 million (H1 2012:
$31.1 million) primarily due to the inclusion of costs for the Dons
and Causeway fields acquired from Valiant, plus increased Athena
costs (only part period in 2012) and the additional interest
acquired in the Cook field as noted above.
DD&A for the period increased to $60.9 million (H1 2012: $24.5
million). This was primarily due to higher production volumes in H1
2013 with the addition of the Dons and Causeway fields, together
with a full quarter of production from the Athena field and the
additional interest in the Cook field.
An oil and gas inventory movement of $21.7 million was charged to
cost of sales in H1 2013 (H1 2012: charge of $0.4 million). In H1
2013 more barrels of oil were sold (1,741k bbls) than produced
(1,536k bbls), again mainly as a result of Cook field liftings in
Q2.
ADMINISTRATION & EXPLORATION & EVALUATION EXPENSES
3-Months Ended 6-Months Ended
June 30th June 30th
$'000 2013 2012 2013 2012
General & Administration 3,623 1,034 5,415 2,105
Share Based Payments 366 204 663 339
Total Administration Expenses 3,989 1,238 5,478 2,444
Non-recurring Valiant Acquisition 9,554 - 10,235 -
Costs
Exploration & Evaluation 132 4 443 79
Total 13,675 1,242 16,756 2,523
Three Months Ended June 30, 2013
Total administrative expenses increased in the
quarter to $4.0 million (Q1 2012: $1.2 million)
primarily due to an increase in general and
administrative expenses as a result of the
continued growth of the Company, including the
associated costs of an enlarged Ithaca group post
the Valiant acquisition. 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 Q2 2013.
Valiant acquisition costs of $9.6 million were
incurred in the quarter with approximately half
of the costs relating to advisory fees and the
other half to restructuring costs. The
post-acquisition restructuring is now complete,
with Valiant's UK office now closed and new
management in place in Norway.
Exploration and evaluation expenses of $0.1
million were recorded in the quarter (Q2 2012:
$0.0 million) primarily due to the expensing of
previously capitalised costs relating to areas
where exploration and evaluation activities have
ceased.
Six Months Ended June 30, 2013
Total administrative expenses increased in the
period to $5.5 million (H1 2012: $2.4 million)
primarily associated with an increase in general
and administrative expenses as a result of the
associated costs of an enlarged Ithaca group post
the Valiant acquisition as well as higher levels
of corporate activity, particularly in the first
quarter of the year.
FOREIGN EXCHANGE & FINANCIAL INSTRUMENTS
Three Months Ended June 30, 2013
A foreign exchange loss of $2.6 million was
recorded in Q2 2013 (Q2 2012: $1.5 million). The
majority of the Company's revenue is US dollar
driven while operating expenditures are 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 1.52 at the start and
end of the quarter but fluctuating between 1.50
and 1.58 during the quarter). This volatility was
partially offset by the foreign exchange hedges
and resultant gains described below.
The Company recorded a $17.5 million gain on
financial instruments for the quarter ended June
30, 2013 (Q2 2012: $19.3 million). The gain was
predominantly due to a $9.4 million realised gain
on commodity hedges together with a $6.6 million
increase in the value of oil swaps and put
options, due to a reduction in the Brent oil
forward curve, and an increase in the implied
volatility. In addition, the Company realised a gain
of $0.8 million on foreign exchange
instruments as well as a $0.6 million gain on the
revaluation of foreign exchange instruments. The
Company continues to limit exposure to
fluctuations in foreign currencies with forward
contracts to hedge a further GBP100 million and
EUR30 million of capital expenditure on the GSA
development at rates of $1.52: GBP1.00 and $1.29:
EUR1.00.
Six Months Ended June 30, 2013
A foreign exchange loss of $2.1 million was
recorded in H1 2013 (H1 2012: $0.1 million gain).
As above, general volatility in the USD:GBP
exchange rate was the main driver behind the
foreign exchange loss in H1 2013 (USD:GBP at
January 1, 2013: 1.62. USD:GBP at June 30, 2013:
1.52 with fluctuations between 1.48 and 1.64
during the period).
The Company recorded a $10.3 million gain on
financial instruments for the six months ended
June 30, 2013 (H1 2012: $18.6 million). This was
primarily driven by a $13.6 million realised gain
on commodity hedges, including a $6 million
settlement on the swaption conversion, partially
offset by a $2.4 million downwards revaluation of
commodity hedges due to a reduction in value of
oil swaps and put options together with a $1.5
million loss on the revaluation of foreign
exchange instruments.
NEGATIVE GOODWILL
If the cost of an acquisition is more than the
fair value of net assets acquired, the difference
is recognised on the balance sheet as goodwill.
Conversely, if the cost of an acquisition is less
than the fair value of the assets acquired, the
difference is recognised as negative goodwill in
the statement of income. As a result of business
combination accounting for the Valiant
acquisition, $48.0 million of negative goodwill
was recognised in the quarter ended June 30,
2013. In addition, $0.9 million negative goodwill
was recognised in Q1 2013 in relation to the Cook
Acquisition representing negative goodwill of
$48.9 million in the six month period ended June
30, 2013.
TAXATION
Three Months Ended June 30, 2013
A tax charge of $16.9 million was recognised in
the quarter ended June 30, 2013 (Q2 2012: $8.5
No UK tax million credit). $18.5 million is a non-cash
anticipated to be charge relating to UK taxation and is a product
payable in the of adjustments to the deferred tax charge
mid-term primarily relating to the UK Ring Fence
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.
The remaining $1.6 million credit is due to
Norway tax refunds which have been generated as a
result of exploration expenditure, incurred by
Ithaca's Norwegian operations, expensed in the
statement of income. Further Norwegian tax
refunds totalling $70 million relate to Norwegian
capital expenditure and are recognised on the
balance sheet.
As a result of the above factors, profit after
tax decreased to $52.2 million (Q2 2012: $30.2
million).
Six Months Ended June 30, 2013
A tax charge of $15.7 million was recognised in
the six months ended June 30, 2013 (H1 2012: $7.7
million credit). $17.3 million of this non-cash
charge relates to UK taxation and is a product of
adjustments to the deferred tax charge primarily
relating to the UK Ring Fence Expenditure
Supplement and share based payments.
The remaining $1.6 million credit is due to
Norway tax credits which have been generated as a
result of exploration expenditure incurred by
Ithaca's Norwegian operations.
As a result of the above factors, profit after
tax decreased to $55.7 million (H1 2012: $43.2
million).
No taxes are expected to be paid in the mid-term
relating to upstream oil and gas activities as a
result of the $923 million UK tax allowances pool
available to the Company.
CAPITAL INVESTMENTS
$608 million of the total $748 million capital
additions to D&P assets in H1 2013 was
Capital expenditure attributable to the fair value on acquisition of
driven by the Valiant producing fields resulting from
significant business combination accounting (the total
investment in acquisition cost being $293.6 million). The
development projects remaining D&P additions of $140 million relate
and the acquisition primarily to the acquisition of the additional
of Valiant interest in the Cook field and execution of the
GSA development, with the main areas of
expenditure being on the manufacture and
fabrication of subsea infrastructure and
execution of the FPF-1 modification works (as
described above).
Capital expenditure on E&E assets in H1 2013 was
$29.7 million, offset by a $24.2 million release
of the acquired E&E liability, resulting in a net
addition of $5.5 million. Expenditure was
primarily focused on the Storbarden and Norvarg
exploration and appraisal wells in Norway as well
as UK development projects. As part of the
Valiant acquisition accounting, a liability was
created to cover the committed exploration spend
along with a corresponding asset for the
associated Norwegian tax credit receivable. This
liability is released as the spend is incurred,
essentially resulting in a nil asset value within
PP&E.
$'000 Q2 2013 Q2 2012
Development & Production ("D&P") 748,223 58,558
Exploration & Evaluation ("E&E") 5,495 2,553
Other Fixed Assets 567 43
Total 754,285 61,154
LIQUIDITY AND CAPITAL RESOURCES
$'000 Q2 2013 Q4 2012 Increase /
(Decrease)
Cash & Cash Equivalents 30,319 31,376 (1,057)
Trade & Other Receivables 278,747 173,949 104,798
Inventory 20,790 15,878 4,912
Other Current Assets 15,560 8,251 7,309
Trade & Other Payables (365,281) (205,635) (159,646)
Net Working Capital (19,865) 23,819 43,684
As at June 30, 2013, Ithaca had a working capital credit of $19.9
million including a cash balance of $30.3 million. Available cash
has been, and is currently, invested in money market deposit
accounts with BNP Paribas ("BNPP"). Management has received
confirmation from the financial institution that these funds are
available on demand.
Cash and cash equivalents remained relatively constant period on
period with other working capital movements 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 Company assesses partners'
credit worthiness before entering into joint venture agreements.
The Company regularly monitors all customer receivable balances
outstanding in excess of 90 days. As at June 30, 2013,
substantially all of the accounts receivable is current, being
defined as less than 90 days. In the past, the Company has not
experienced credit loss in the collection of accounts receivable.
At June 30, 2013, Ithaca had two loan facilities totalling $780
million, being the existing BNPP facility (the "Facility") of $430
million and an additional bridge loan (the "Bridge Facility") of
$350 million. At quarter end, the Company had unused credit
facilities totalling $404 million (Q4 2012: $430 million). $376
million was drawn down under the facilities at June 30, 2013, being
$30 million drawn under the Facility and $346 million drawn under
the Bridge Facility.
During the quarter ended June 30, 2013, there was a net cash
outflow of approximately $38.5 million (Q2 2012: inflow of $21.9
million).
Cashflow from Operations
Cash generated from operating activities in Q2 2013 was $65.0
million primarily due to cash generated from Athena, Beatrice,
Jacky, Anglia, Cook and Broom operations, augmented in Q2 2013
primarily due to the inclusion of Dons and Causeway operations.
Cashflow from Financing Activities
Cash generated from financing activities in Q2 2013 was $196.9
million primarily due to the draw down of the existing debt
facility in Q2 2013 ($320 million), partially offset by the
repayment of the existing Valiant loan ($115 million).
Cashflow from Investing Activities
Cash used in investing activities in Q2 2013 was $259.4 million
primarily due to the cash consideration paid on the Valiant
acquisition as well as further capital expenditure on the GSA
development, including modification of the FPF-1 and subsea
infrastructure fabrication works.
The Company continues to be fully funded, with more than sufficient
financial resources to cover its anticipated future commitments
from its existing cash balance, debt facilities and forecast
cashflow from operations. No unusual trends or fluctuations are
expected outside the ordinary course of business.
COMMITMENTS
The engineering financial commitments relate to committed capital
expenditure on the Stella and Harrier fields, as well as ongoing
capital expenditure on existing producing fields. Rig commitments
reflect rig hire costs committed in relation to the anticipated
Stella wells. As stated above, these commitments are expected to be
funded through the Company's existing cash balance, forecast
cashflow from operations and its debt facility.
$'000 1 Year 2-5 Years 5+ Years
Office Leases 423 1,316 -
Other Operating Leases 12,319 12,078 -
Exploration Licence Fees 583 - -
Engineering 159,861 - -
Rig Commitments 46,269 - -
Total 219,455 13,394 -
OUTSTANDING SHARE INFORMATION
The Company's common shares are traded on the Toronto Stock Exchange
("TSX") in Canada under the symbol "IAE" and on the Alternative
Investment Market ("AIM") in the UK under the symbol "IAE".
As at June 30, 2013, Ithaca had 317,365,658 common shares outstanding
along with 19,614,630 options outstanding to employees and directors
to acquire common shares.
In Q2 2013, a total of 56,952,321 new Ithaca common shares were
issued and allotted to holders of Valiant shares as part of the
Valiant acquisition consideration. Admission of the new shares to
trading on AIM and the TSX occurred by April 22, 2013.
No options were granted by the Board of Directors in the quarter
ended June 30, 2012.
As at August 10, 2013, Ithaca had 317,365,658 common shares
outstanding along with 19,614,630 options outstanding to employees
and directors to acquire common shares.
June 30, 2013
Common Shares Outstanding 317,365,658
Share Price(1) $1.69 / Share
Total Market Capitalisation $536,347,962
(1) Represents the TSX close price (CAD$1.78 on last trading day of
June, 2013. US$:CAD$ 0.95 on June 30, 2013
SUMMARY OF QUARTERLY RESULTS
$'000 30 Jun 2013 31 Mar 2013
Revenue 128,360 59,769
Profit After Tax 52,228 3,472
EPS - Basic 0.17 0.01
EPS - Diluted 0.17 0.01
$'000 31 Dec 2012 30 Sep 2012 30 Jun 2012 31 Mar 2012
Revenue 52,566 41,579 35,779 40,553
Profit After Tax 45,347 4,894 30,238 12,916
EPS - Basic 0.17 0.02 0.12 0.05
EPS - Diluted 0.17 0.02 0.11 0.05
Restated
$'000 31 Dec 2011 30 Sep 2011
Revenue 54,870 26,415
Profit After Tax 13,318 16,016
EPS - Basic 0.05 0.06
EPS - Diluted 0.05 0.06
The most significant factors to have affected the Company's results
during the above quarters, other than transactions such as the
Valiant acquisition, are fluctuation in underlying commodity prices
and movement in production volumes. The Company has utilised
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 unrealised gains and losses due to
movements in the oil price and USD : GBP exchange rate.
Q3 2011 was restated following the Company's election to present
all acquisitions since the IFRS transition date as business
combinations in accordance with IFRS 3(R). 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 Company 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 amortised 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 recognised 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
recognised 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 recognised in net earnings.
The Company 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 recognised 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 amortised cost. The
classification of all financial instruments is the same at
inception and at June 30, 2013.
The table below presents the total gain/(loss) on financial
instruments that has been disclosed through the statement of
comprehensive income.
Three months Six months
ended June 30 ended June 30
$'000 2013 2012 2013 2012
Revaluation Forex Forward Contracts 584 (428) (1,471) 541
Revaluation of Gas Contract - 872 - 758
Revaluation of Other Long Term 96 61 153 (29)
Liability
Revaluation of Commodity Hedges 6,623 16,858 (2,444) 16,858
Total Revaluation Gain / (Loss) 7,303 17,363 (3,762) 18,128
Realised Gain on Forex Contracts 837 68 544 68
Realised Gain/(Loss) on Commodity 9,374 1,908 13,560 1,709
Hedges
Total Realised Gain/(Loss) 10,211 1,976 14,104 1,777
Total Realised / Revaluation Gain / 17,514 19,339 10,342 19,905
(Loss)
Contingent Consideration - - - (1,295)
Total Gain/(Loss) on Financial 17,514 19,339 10,342 18,610
Instruments
The following table summarises the commodity hedges in place at the
end of the quarter.
Derivative Term Volume Average Price
bbl $/bbl
Oil Swaps July 2013 - 3,048,951 105
December 2014
Put Options July 2013 - 1,286,699 102
September 2014
Derivative Term Volume Average Price
Therms p/therm
Gas Swaps July 2013 - 2,342,000 67
December 2014
The table below summarises the foreign exchange financial
instruments in place at the end of Q2 2013.
Derivative Forward Forward Forward
Plus contract contract
Term July 13 - July 13 - Aug 13 -
Dec 13 Jan 14 Dec 13
Value GBP4 GBP100 EUR30
million / million million
month
Protection Rate $1.59/ $1.52/ $1.29/
GBP1.00 GBP1.00 EUR1.00
Trigger Rate $1.50/ N/A N/A
GBP1.00
CONSOLIDATION
The consolidated financial statements of the Company and
the financial data contained in this management's
discussion and analysis ("MD&A") are prepared in
accordance with 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").
The consolidated financial statements also include, from
19 April 2013 only (being the acquisition date) the
Valiant group of companies, comprising the following
companies:
- Ithaca Petroleum Limited (formerly Valiant Petroleum
plc)
- Ithaca Causeway Limited (formerly Valiant Causeway
Limited)
- Ithaca Exploration Limited (formerly Valiant
Exploration Limited)
- Ithaca Alpha (NI) Limited (formerly Valiant Alpha (NI)
Limited
- Ithaca Gamma Limited (formerly Valiant Gamma Limited)
- Ithaca Epsilon Limited (formerly Valiant Epsilon
Limited)
- Ithaca Delta Limited (formerly Valiant Delta Limited)
- Ithaca Petroleum Holdings AS (formerly Valiant
Petroleum Holdings AS)
- Ithaca Petroleum Norge AS (formerly Valiant Petroleum
Norge AS)
- Ithaca Technology AS (formerly Valiant Technology AS)
- Ithaca AS (formerly Querqus AS)
- Ithaca Petroleum EHF (formerly Valiant Petroleum EHF)
All inter-company transactions and balances have been
eliminated on consolidation. A significant portion of the
Company's North Sea oil and gas activities are carried
out jointly with others. The consolidated financial
statements reflect only the Company's proportionate
interest in such activities.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting policies require that management make
appropriate decisions with respect to the formulation of
estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses.
These accounting policies are discussed below and are
included to aid the reader in assessing the critical
accounting policies and practices of the Company and the
likelihood of materially different results being
reported. Ithaca's management reviews these estimates
regularly. The emergence of new information and changed
circumstances may result in actual results or changes to
estimated amounts that differ materially from current
estimates.
The following assessment of significant accounting
policies and associated estimates is not meant to be
exhaustive. The Company might realise different results
from the application of new accounting standards
promulgated, from time to time, by various rule-making
bodies.
Capitalised costs relating to the exploration and
development of oil and gas reserves, along with estimated
future capital expenditures required in order to develop
proved and probable reserves are depreciated on a
unit-of-production basis, by asset, using estimated
proved and probable reserves as adjusted for production.
A review is carried out each reporting date for any
indication that the carrying value of the Company's D&P
assets may be impaired. For D&P assets where there are
such indications, an impairment test is carried out on
the Cash Generating Unit ("CGU"). Each CGU is identified
in accordance with IAS 36. The Company's CGUs are those
assets which generate largely independent cash flows and
are normally, but not always, single developments or
production areas. The impairment test involves comparing
the carrying value with the recoverable value of an
asset. The recoverable amount of an asset is determined
as the higher of its fair value less costs to sell and
value in use, where the value in use is determined from
estimated future net cash flows. Any additional
depreciation resulting from the impairment testing is
charged to the Statement of Income.
Goodwill is tested annually for impairment and also when
circumstances indicate that the carrying value may be at
risk of being impaired. Impairment is determined for
goodwill by assessing the recoverable amount of each CGU
to which the goodwill relates. Where the recoverable
amount of the CGU is less than its carrying amount, an
impairment loss is recognised 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 recognised
at fair value on the balance sheet. The Company's
financial instruments consist of cash, restricted cash,
accounts receivable, deposits, derivatives, accounts
payable, accrued liabilities and the long term liability
on the Beatrice acquisition. Measurement in subsequent
periods is dependent on the classification of the
respective financial instrument.
In order to recognise share based payment expense, the
Company estimates the fair value of stock options granted
using assumptions related to interest rates, expected
life of the option, volatility of the underlying security
and expected dividend yields. These assumptions may vary
over time.
The determination of the Company's income and other tax
liabilities / assets requires interpretation of complex
laws and regulations. Tax filings are subject to audit
and potential reassessment after the lapse of
considerable time. Accordingly, the actual income tax
liability may differ significantly from that estimated
and recorded on the financial statements.
The accrual method of accounting will require management
to incorporate certain estimates of revenues, production
costs and other costs as at a specific reporting date. In
addition, the Company must estimate capital expenditures
on capital projects that are in progress or recently
completed where actual costs have not been received as of
the reporting date.
CONTROL ENVIRONMENT
Ithaca has established disclosure controls, procedures
and corporate policies so that its consolidated financial
results are presented accurately, fairly and on a timely
basis. The Chief Executive Officer and Chief Financial
Officer have designed, or have caused such internal
controls over financial reporting to be designed under
their supervision, to provide reasonable assurance
regarding the reliability of financial reporting and
preparation of the Company's financial statements in
accordance with IFRS with no material weaknesses
identified.
Based on their inherent limitations, disclosure controls
and procedures and internal controls over financial
reporting may not prevent or detect misstatements and
even those options determined to be effective can provide
only reasonable assurance with respect to financial
statement preparation and presentation.
As of June 30, 2013, there were no changes in Ithaca's
internal control over financial reporting that occurred
during the quarter ended June 30, 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 Company adopted IFRS using a
transition date of January 1, 2010. The financial
statements for the quarter ended June 30, 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 Company elected to present all acquisitions since the
IFRS transition date as business combinations in
accordance with IFRS 3(R).
One impact of accounting for acquisitions as business
combinations is the recognition of asset values, upon
which the DD&A rate is calculated as pre-tax fair values
and the recognition of a deferred tax liability on
estimated future cash flows. With current tax rates at
62% this increases the DD&A charge for such assets. An
offsetting reduction is recognised in the deferred tax
charged through the consolidated statement of income.
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 Company's financial statements.
OTHER
Non-IFRS 'Cashflow from operations' referred to in this MD&A is
Measures not prescribed by IFRS. This non-IFRS financial measure
does not have any standardised meaning and therefore is
unlikely to be comparable to similar measures presented
by other companies. The Company uses this measure to help
evaluate its performance. As an indicator of the
Company's performance, cashflow from operations should
not be considered as an alternative to, or more
meaningful than, net cash from operating activities as
determined in accordance with IFRS. The Company considers
Cashflow from operations to be a key measure as it
demonstrates the Company's underlying ability to generate
the cash necessary to fund operations and support
activities related to its major assets. Cashflow from
operations is determined by adding back changes in
non-cash operating working capital to cash from operating
activities.
BOE The calculation of boe is based on a conversion rate of
Presentation 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, utilising a conversion ratio at 6 mcf: 1 bbl
may be misleading as an indication of value.
Well Test Certain well test results disclosed in this MD&A
Results represent short-term results, which may not necessarily
be indicative of long-term well performance or ultimate
hydrocarbon recovery there from.
Off Balance The Company has certain lease agreements and rig
Sheet commitments which were entered into in the normal course
Arrangements of operations, all of which are disclosed under the
heading "Commitments", above. Leases are treated as
either operating leases or finance leases based on the
extent to which risks and rewards incidental to ownership
lie with the lessor or the lessee under IAS 17. No asset
or liability value has been assigned to any leases on the
balance sheet as at June 30, 2013.
Related A director of the Company is a partner of Burstall Winger
Party LLP who acts as counsel for the Company. The amount of
Transactions fees paid to Burstall Winger LLP in Q2 2013 was $0.0
million (Q2 2012: $0.1 million). These transactions are
in the normal course of business and are conducted on
normal commercial terms with consideration comparable to
those charged by third parties.
As at June 30, 2013 the Company had a loan receivable
from FPF-1 Ltd, an associate of the Company, for $21.6
million (Q2 2012: $21.6 million) 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 Company is dependent upon
the production rates and oil price to fund the current
development program.
For additional detail regarding the Company's risks and
uncertainties, refer to the Company's Annual Information
Form dated March 25, 2013, (the "AIF") filed on SEDAR at
www.sedar.com.
RISK MITIGATIONS
Commodity The Company's performance is In order to mitigate the
Price significantly impacted by risk of fluctuations in oil
Volatility prevailing oil and natural gas and gas prices, the Company
prices, which are primarily routinely executes commodity
driven by supply and demand as price derivatives,
well as economic and political predominantly in relation to
factors. oil production, as a means
of establishing a floor in
realised prices.
Foreign The Company is exposed to Given the increasing
Exchange financial risks including proportion of development
Risk financial market volatility capital expenditure and
and fluctuation in various operating costs incurred in
foreign exchange rates. currencies other than the
United States dollar, the
Company routinely executes
hedges to mitigate foreign
exchange rate risk on
committed expenditure.
Interest The Company is exposed to In order to mitigate the
Rate Risk fluctuation in interest rates, fluctuations in interest
particularly in relation to rates, the Company routinely
the debt facilities entered reviews cost exposures as a
into. result of varying rates and
assesses the need to lock in
interest rates.
Debt The Company is exposed to The Company believes that
Facility borrowing risks relating to there are no circumstances
Risk drawdown of its debt at present that result in
facilities (the "Facilities"). its failure to meet the
The ability to drawdown the financial tests and it can
Facilities is based on the therefore draw down upon its
Company meeting certain Facilities.
covenants including coverage
ratio tests, liquidity tests The Company routinely
and development funding tests produces detailed cashflow
which are determined by a forecasts to monitor its
detailed economic model of the compliance with the
Company. There can be no financial tests and
assurance that the Company liquidity requirements of
will satisfy such tests in the the Facilities.
future in order to have access
to the full amount of the
Facilities.
The Facilities includes
covenants which restrict,
among other things, the
Company's ability to incur
additional debt or dispose of
assets.
As is standard to a credit
facility, the Company's and
Ithaca Energy (UK) Limited's
("Ithaca UK") assets have been
pledged as collateral and are
subject to foreclosure in the event the Company or
Ithaca UK
defaults.
To the extent cashflow from The Company has established
operations and the Facilities' a fully funded business plan
Financing resources are ever deemed not and routinely monitors its
Risk adequate to fund Ithaca's cash detailed cashflow forecasts
requirements, external and liquidity requirements
financing may be required. to maintain its funding
Lack of timely access to such requirements. The Company
additional financing, or believes that there are no
access on unfavourable terms, circumstances at present
could limit the future growth that would lead to selected
of the business of Ithaca. To divestment, delays to
the extent that external existing programs or a
sources of capital, including default relating to the
public and private markets, Facility.
become limited or unavailable,
Ithaca's ability to make the
necessary capital investments
to maintain or expand its
current business and to make
necessary principal payments
under the Facilities may be
impaired.
A failure to access adequate
capital to continue its
expenditure program may
require that the Company meet
any liquidity shortfalls
through the selected
divestment of its portfolio or
delays to existing development
programs.
Third Party The Company is and may in the The Company believes this
Credit Risk future be exposed to third risk is mitigated by the
party credit risk through its financial position of the
contractual arrangements with parties. All of the
its current and future joint Company'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 Company Oil International Limited.
extends unsecured credit to Oil production from Cook,
these parties, and therefore, Broom, Causeway, Fionn and
the collection of any Dons is sold to Shell
receivables may be affected by Trading International Ltd.
changes in the economic Anglia and Topaz gas
environment or other production is sold through
conditions. 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 Company 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 Company 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 Company's properties will The Company has routine
Risk be generally held in the form ongoing communications with
of licenses, concessions, the UK oil and gas
permits and regulatory regulatory body, the
consents ("Authorisations"). Department of Energy and
The Company's activities are Climate Change ("DECC").
dependent upon the grant and Regular communication allows
maintenance of appropriate all parties to an
Authorisations, which may not Authorisation to be fully
be granted; may be made informed as to the status of
subject to limitations which, any Authorisation and
if not met, will result in the ensures the Company remains
termination or withdrawal of updated regarding fulfilment
the Authorisation; or may be of any applicable
otherwise withdrawn. Also, in requirements.
the majority of its licenses,
the Company is often a joint
interest-holder with another
third party over which it has
no control. An Authorisation
may be revoked by the relevant
regulatory authority if the
other interest-holder is no
longer deemed to be
financially credible.
There can be no assurance that
any of the obligations
required to maintain each
Authorisation will be met.
Although the Company believes
that the Authorisations will
be renewed following expiry or
granted (as the case may be),
there can be no assurance that
such
authorisations will be renewed
or granted or as to the terms
of such renewals or grants.
The termination or expiration
of the Company's
Authorisations may have a
material adverse effect on the
Company's results of
operations and business.
The areas covered by the
Authorisations are or may be
subject to agreements with the
proprietors of the land. If
such agreements are
terminated, found void or
otherwise challenged, the
Company may suffer significant
damage through the loss of
opportunity to identify and
extract oil or gas.
Operational The Company is subject to the The Company acts at all
Risk risks associated with owning times as a reasonable and
oil and natural gas prudent operator. The
properties, including Company takes out market
environmental risks associated insurance to mitigate many
with air, land and water. All of these operational,
of the Company's operations construction and
are conducted offshore in the environmental risks.
United Kingdom Continental
Shelf; as such Ithaca is The Company uses the
exposed to operational risk services of Sproule
associated with weather delays International Limited
that can result in a material ("Sproule") to independently
delay in project execution. assess the Company's
Third parties operate some of reserves on an annual basis.
the assets in which the
Company has interests. As a
result, the Company may have
limited ability to exercise
influence over the operations
of these assets and their
associated costs. The success
and timing of these activities
may be outside the Company's
control.
There are numerous
uncertainties in estimating
the Company'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 Company's The Company places
Risk business, there is competition appropriate emphasis on
with entities that may have ensuring it attracts and
greater technical and retains high quality
financial resources. resources to enable it to
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
Company's internal expectations, estimates, projections,
assumptions and beliefs as at the date of such statements
or information, including, among other things, assumptions
with respect to production, future capital expenditures,
future acquisitions and cash flow. The reader is cautioned
that assumptions used in the preparation of such
information may prove to be incorrect. The use of any of
the words "anticipate", "continue", "estimate", "expect","may",
"will", "project", "plan", "should", "believe","could", "scheduled",
"targeted", "approximately" and
similar expressions are intended to identify
forward-looking statements and forward-looking
information. These statements are not guarantees of future
performance and involve known and unknown risks,
uncertainties and other factors that may cause actual
results or events to differ materially from those
anticipated in such forward-looking statements or
information. The Company believes that the expectations
reflected in those forward-looking statements and
information are reasonable but no assurance can be given
that these expectations, or the assumptions underlying
these expectations, will prove to be correct and such
forward-looking statements and information included in this
MD&A and any documents incorporated by reference herein
should not be unduly relied upon. Such forward-looking
statements and information speak only as of the date of
this MD&A and any documents incorporated by reference
herein and the Company does not undertake any obligation to
publicly update or revise any forward-looking statements or
information, except as required by applicable laws.
In particular, this MD&A and any documents incorporated by
reference herein, contains specific forward-looking
statements and information pertaining to the following:
- the quality of and future net revenues from the Company's
reserves;
- oil, natural gas liquids ("NGLs") and natural gas
production levels;
- commodity prices, foreign currency exchange rates and
interest rates;
- capital expenditure programs and other expenditures;
- the sale, farming in, farming out or development of
certain exploration properties using third party resources;
- supply and demand for oil, NGLs and natural gas;
- the Company's ability to raise capital;
- the continued availability of the Main Facility and the
Bridge Facility;
- the Company's acquisition strategy, the criteria to be
considered in connection therewith and the benefits to be
derived therefrom;
- the realisation of anticipated benefits from acquisitions
and dispositions;
- the Company's ability to continually add to its reserves;
- schedules and timing of certain projects and the
Company's strategy for growth;
- the Company's future operating and financial results;
- the ability of the Company to optimise 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 Company's
reserves.
With respect to forward-looking statements contained in
this MD&A and any documents incorporated by reference
herein, the Company has made assumptions regarding, among
other things:
- Ithaca's ability to obtain additional drilling rigs and
other equipment in a timely manner, as required;
- access to third party hosts and associated pipelines can
be negotiated and accessed within the expected timeframe;
- FDP approval and operational construction and development
is obtained within expected timeframes;
- the Company's development plan for the Stella and Harrier
discoveries will be implemented as planned;
- the 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 Company's ability to access the
Facility;
- the continued ability of the Company 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 Company's actual results could differ materially from
those anticipated in these forward-looking statements and
information as a result of assumptions proving inaccurate
and of both known and unknown risks, including the risk
factors set forth in this MD&A and under the heading "Risk
Factors" in the AIF and the documents incorporated by
reference herein, and those set forth below:
- risks associated with the exploration for and development
of oil and natural gas reserves in the North Sea;
- risks associated with 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 Company to fund its substantial
capital requirements and operations;
- risks associated with ensuring title to the Company's
properties;
- changes in environmental, health and safety or other
legislation applicable to the Company's operations, and the
Company's ability to comply with current and future
environmental, health and safety and other laws;
- the accuracy of oil and gas reserve estimates and
estimated production levels as they are affected by the
Company's exploration and development drilling and
estimated decline rates;
- the Company's success at acquisition, exploration,
exploitation and development of reserves;
- risks associated with realisation of anticipated benefits
of acquisitions;
- risks related to changes to government policy with regard
to offshore drilling;
- the Company's reliance on key operational and management
personnel;
- the ability of the Company to obtain and maintain all of
its required permits and licenses;
- competition for, among other things, capital, drilling
equipment, acquisitions of reserves, undeveloped lands and
skilled personnel;
- changes in general economic, market and business
conditions in Canada, North America, the United Kingdom,
Europe and worldwide;
- actions by governmental or regulatory authorities
including changes in income tax laws or changes in tax
laws, royalty rates and incentive programs relating to the
oil and gas industry including any increase in UK taxes;
- adverse regulatory rulings, orders and decisions; and
- risks associated with the nature of the common shares.
Additional The information in this MD&A is provided as of August 10,
Reader 2013. The Q2 2013 results have been compared to the
Advisories results of the comparative period in 2012. This MD&A should
be read in conjunction with the Company's unaudited
consolidated financial statements as at June 30, 2013 and
2012 and with the Company'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.
Consolidated Statement of Income
For the three and six months ended 30 June 2013 and 2012
(unaudited)
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
Note US$'000 US$'000 US$'000 US$'000
Revenue 4 128,360 35,779 188,129 76,332
Cost of sales 5 (103,449) (29,979) (149,907) (55,985)
Gross Profit 24,911 5,800 38,222 20,347
Exploration and evaluation 10 (132) (4) (443) (79)
expenses
Administrative expenses 6 (3,989) (1,238) (6,078) (2,444)
Non-recurring Valiant 6 (9,554) - (10,235) -
acquisition costs
Total administrative (13,543) (1,238) (16,313) (2,444)
expenses
Operating Profit 11,236 4,558 21,466 17,824
Foreign exchange (2,637) (1,548) (2,074) 103
Gain on financial 25 17,514 19,339 10,342 18,610
instruments
Gain on asset disposal - 205 - 205
Negative goodwill 12 47,964 - 48,878 -
Profit Before Interest and 74,077 22,554 78,612 36,742
Tax
Finance costs 7 (5,001) (902) (7,277) (1,371)
Interest income 21 69 42 134
Profit Before Tax 69,097 21,721 71,377 35,505
Taxation - UK deferred tax 23 (18,504) 8,517 (17,309) 7,651
Taxation - Norwegian 23 1,635 - 1,635 -
Profit After Tax 52,228 30,238 55,703 43,156
Earnings per share
Basic 22 0.17 0.12 0.20 0.20
Diluted 22 0.17 0.11 0.19 0.20
The accompanying notes on pages 7 to 23 are an integral part of the
financial statements.
Consolidated Statement of Comprehensive Income
For the three and six months ended 30 June 2013 and 2012
(unaudited)
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Profit for the period 52,228 30,238 55,703 43,156
Release of loss on oil price hedge - 376 - -
Other comprehensive income - 376 - -
Total comprehensive income 52,228 30,614 55,703 43,156
The accompanying notes on pages 7 to 23 are an integral part of the
financial statements.
Consolidated Statement of Financial Position
(unaudited)
30 June 31 December
2013 2012
Note US$'000 US$'000
ASSETS
Current assets
Cash and cash equivalents 27,091 31,374
Restricted cash 8 3,228 2
Accounts receivable 254,894 159,195
Deposits, prepaid expenses and other 23,852 14,754
Inventory 9 20,790 15,878
Derivative financial instruments 26 15,560 8,251
345,415 229,454
Non current assets
Long-term receivable 28 21,551 21,551
Investment in associate 14 18,337 18,337
Exploration and evaluation assets 10 52,442 47,390
Property, plant & equipment 11 1,303,713 615,788
Goodwill 13 985 985
Other non-current assets 7,738 -
1,404,766 704,051
Total assets 1,750,181 933,505
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 316,980 205,635
Exploration obligations 16 48,301 -
365,281 205,635
Non current liabilities
Bank debt 15 368,823 -
Decommissioning liabilities 17 140,998 52,834
Other long term liabilities 18 2,866 3,018
Contingent consideration 19 4,000 4,000
Derivative financial instruments 26 1,596 -
Deferred tax liability 109,970 62,370
628,253 122,222
Net Assets 756,647 605,648
Equity attributable to equity holders
Share capital 20 524,908 431,318
Share based payment reserve 21 22,046 20,340
Retained earnings 209,693 153,990
Shareholders' Equity 756,647 605,648
The financial statements were approved by the Board of Directors on 12
August 2013 and signed on its behalf by:"Jay Zammit"
Director"John Summers"
Director
The accompanying notes on pages 7 to 23 are an integral part of the
financial statements.
Consolidated Statement of Changes in Equity
(unaudited)
Share Share Retained Total
Capital based Earnings
payment
reserve
US$'000 US$'000 US$'000 US$'000
Balance, 1 Jan 2012 429,502 17,318 60,591 507,411
Net income for the period - - 43,156 43,156
Total comprehensive income 429,502 17,318 103,747 550,567
Share based payment - 1,615 - 1,615
Options exercised 250 (107) - 143
Balance, 30 June 2012 429,752 18,826 103,747 552,325
Balance, 1 Jan 2013 431,318 20,340 153,990 605,648
Net income for the period - - 55,703 55,703
Total comprehensive income 431,318 20,340 209,693 661,351
Shares issued 93,005 - - 93,005
Share based payment - 1,963 - 1,963
Options exercised 585 (257) - 328
Balance, 30 June 2013 524,908 22,046 209,693 756,647
The accompanying notes on pages 7 to 23 are an integral part of the
financial statements.
Consolidated Statement of Cash Flow
For the three and six months ended 30 June 2013 and 2012
(unaudited)
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
CASH PROVIDED BY (USED IN):
Operating activities
Profit Before Tax 69,097 21,721 71,377 35,505
Adjustments for:
Depletion, depreciation and 41,367 11,092 60,865 24,477
amortisation
Exploration and evaluation 132 4 444 79
expenses
Share based payment 366 204 661 339
Loan fee amortisation 592 416 1,184 494
Revaluation of financial (7,303) (17,362) 3,762 (18,128)
instruments
Revaluation of contingent - - - 1,295
consideration
Movement in goodwill (47,964) - (48,878) -
Gain on disposal - (205) - (205)
Accretion 1,088 436 1,590 820
Bank interest & charges 3,296 - 4,455 -
Valiant acquisition fees 4,351 - 5,032 -
Cashflow from operations 65,022 16,306 100,492 44,676
Changes in inventory, debtors and 19,963 11,168 20,842 10,347
creditors relating to operating
activities
Net cash from operating activities 84,985 27,474 121,334 55,023
Investing activities
Acquisition of Valiant (200,636) - (200,636) -
Cash acquired on acquisition of 11,611 - 11,611 -
Valiant
Valiant acquisition fees (4,351) - (5,032) -
Acquisition of Cook - - (33,370) -
Capital expenditure (66,050) (31,782) (91,434) (54,290)
Investment in associate - (18,337) - (18,337)
Loan to associate - (21,551) - (21,551)
Proceeds on disposal - 44,878 - 44,878
Settlement of contingent - (15,700) - (15,700)
consideration
Changes in debtors and creditors (56,880) 38,666 (44,441) 30,855
relating to investing activities
Net cash used in investing (316,306) (3,826) (363,302) (34,145)
activities
Financing activities
Proceeds from issuance of shares 299 143 328 143
(Increase) / decrease in (3,226) 457 (3,226) (3,710)
restricted cash
Derivatives (1,680) - (9,627) -
Loan repayment (115,000) - (115,000) -
Loan draw down 320,918 - 375,918 -
Bank interest & charges (4,396) - (5,506) -
Net cash from/used in financing 196,915 600 242,887 (3,567)
activities
Currency translation differences (4,137) (2,307) (5,202) (971)
relating to cash
Increase / (decrease) in cash and (38,543) 21,941 (4,283) 16,340
cash equiv.
Cash and cash equivalents, 65,634 89,944 31,374 95,545
beginning of period
Cash and cash equivalents, end of 27,091 111,885 27,091 111,885
period
The accompanying notes on pages 7 to 23 are an integral part of the
financial statements.
1. NATURE OF OPERATIONS
Ithaca Energy Inc. (the "Corporation" or "Ithaca"), incorporated and
domiciled in Alberta, Canada on 27 April 2004, is a publicly traded
company involved in the exploration, development and production of oil
and gas in the North Sea. The Corporation's registered office is 1600,
333 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 2Z1. The
Corporation's shares trade on the Toronto Stock Exchange in Canada and
the London Stock Exchange's Alternative Investment Market in the United
Kingdom under the symbol "IAE".
2. BASIS OF PREPARATION
These interim consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
applicable to the preparation of interim financial statements,
including IAS 34 Interim Financial Reporting. These interim
consolidated financial statements do not include all the necessary
annual disclosures in accordance with IFRS.
The policies applied in these condensed interim consolidated financial
statements are based on IFRS issued and outstanding as of 12 August
2013, 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 all wholly-owned subsidiaries as
listed per note 28. Ithaca has seventeen wholly-owned subsidiaries,
thirteen of which were acquired on 19 April 2013 as part of the
acquisition of Valiant Petroleum PLC ("Valiant"). The consolidated
financial statements include the Valiant group of companies from 19
April 2013 only (being the acquisition date). All inter-company
transactions and balances have been eliminated on consolidation.
A subsidiary is an entity which the Corporation controls by having the
power to govern the financial and operating policies. The existence and
effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether Ithaca controls
another entity. A subsidiary is fully consolidated from the date on
which control is obtained by Ithaca and is de-consolidated from the
date that control ceases.
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 as
negative goodwill.
Goodwill
Capitalisation
Goodwill acquired through business combinations is initially measured
at cost, being the excess of the aggregate of the consideration
transferred and the amount recognised as the fair value of the
Corporation's share of the identifiable net assets acquired and
liabilities assumed. If this consideration is lower than the fair value
of the identifiable assets acquired, the difference is recognised in
the statement of income.
Impairment
Goodwill is tested annually for impairment and also when circumstances
indicate that the carrying value may be at risk of being impaired.
Impairment is determined for goodwill by assessing the recoverable
amount of each cash generating unit ("CGU") to which the goodwill
relates. Where the recoverable amount of the CGU is less than its
carrying amount, an impairment loss is recognised in the statement of
income. Impairment losses relating to goodwill cannot be reversed in
future periods.
Foreign currency translation
Items included in the financial statements are measured using the
currency of the primary economic environment in which the Corporation
and its subsidiary operate (the 'functional currency'). The
consolidated financial statements are presented in United States
Dollars, which is the Corporation's functional and presentation
currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the statement of income.
Share based payments
The Corporation has a share based payment plan as described in note 20
(c). The expense is recorded in the statement of income or capitalised
for all options granted in the year, with the gross increase recorded
in the share based payment reserve. Compensation costs are based on the
estimated fair values at the time of the grant and the expense or
capitalised amount is recognised over the vesting period of the
options. Upon the exercise of the stock options, consideration paid
together with the amount previously recognised in share based payment
reserve is recorded as an increase in share capital. In the event that
vested options expire unexercised, previously recognised compensation
expense associated with such stock options is not reversed. In the
event that unvested options are forfeited or expired, previously
recognised compensation expense associated with the unvested portion of
such stock options is reversed.
Cash and Cash Equivalents
For the purpose of the statement of cash flow, cash and cash
equivalents include investments with an original maturity of three
months or less.
Restricted cash
Cash that is held for security for bank guarantees is reported in the
balance sheet and cash flow statements separately. If the expected
duration of the restriction is less than twelve months then it is shown
in current assets.
Financial Instruments
All financial instruments, other than those designated as effective
hedging instruments, are initially recognised at fair value in the
statement of financial position. The Corporation's financial
instruments consist of cash, restricted cash, accounts receivable,
deposits, derivatives, accounts payable, accrued liabilities,
contingent consideration and the long term liability on the Beatrice
acquisition. The Corporation classifies its financial instruments into
one of the following categories: held-for-trading financial assets and
financial liabilities; held-to-maturity investments; loans and
receivables; and other financial liabilities. All financial instruments
are required to be measured at fair value on initial recognition.
Measurement in subsequent periods is dependent on the classification of
the respective financial instrument.
Held-for-trading financial instruments are subsequently measured at
fair value with changes in fair value recognised in net earnings. All
other categories of financial instruments are measured at amortised
cost using the effective interest method. Cash and cash equivalents are
classified as held-for-trading and are measured at fair value. Accounts
receivable are classified as loans and receivables. Accounts payable,
accrued liabilities, certain other long-term liabilities, and long-term
debt are classified as other financial liabilities. Although the
Corporation does not intend to trade its derivative financial
instruments, they are classified as held-for-trading for accounting
purposes.
Transaction costs that are directly attributable to the acquisition or
issue of a financial asset or liability and original issue discounts on
long-term debt have been included in the carrying value of the related
financial asset or liability and are amortised to consolidated net
earnings over the life of the financial instrument using the effective
interest method.
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.
Analysis of the fair values of financial instruments and further
details as to how they are measured are provided in notes 25 to 27.
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 is written off to the statement
of income in the period the relevant events occur.
Impairment
The Corporation's oil and gas assets are analysed into CGUs for
impairment review purposes, with E&E asset impairment testing being
performed at a grouped CGU level. The current E&E CGU consists of the
Corporation's whole E&E portfolio. E&E assets are reviewed for
impairment when circumstances arise which indicate that the carrying
value of an E&E asset exceeds the recoverable amount. When reviewing E&E
assets for impairment, the combined carrying value of the grouped
CGU is compared with the grouped CGU's recoverable amount. The
recoverable amount of a grouped CGU is determined as the higher of its
fair value less costs to sell and value in use. Impairment losses
resulting from an impairment review are written off to the statement of
income.
Oil and gas expenditure - development and production assets
Capitalisation
Costs of bringing a field into production, including the cost of
facilities, wells and sub-sea equipment, direct costs including staff
costs and share based payment expense together with E&E assets
reclassified in accordance with the above policy, are capitalised as a
D&P asset. Normally each individual field development will form an
individual D&P asset but there may be cases, such as phased
developments, or multiple fields around a single production facility
when fields are grouped together to form a single D&P asset.
Depreciation
All costs relating to a development are accumulated and not depreciated
until the commencement of production. Depreciation is calculated on a
unit of production basis based on the proved and probable reserves of
the asset. Any re-assessment of reserves affects the depreciation rate
prospectively. Significant items of plant and equipment will normally
be fully depreciated over the life of the field. However, these items
are assessed to consider if their useful lives differ from the expected
life of the D&P asset and should this occur a different depreciation
rate would be charged
Impairment
A review is carried out each reporting date for any indication that the
carrying value of the Corporation's D&P assets may be impaired. For D&P
assets where there are such indications, an impairment test is carried
out on the CGU. Each CGU is identified in accordance with IAS 36. The
Corporation's CGUs are those assets which generate largely independent
cash flows and are normally, but not always, single developments or
production areas. The impairment test involves comparing the carrying
value with the recoverable value of an asset. The recoverable amount of
an asset is determined as the higher of its fair value less costs to
sell and value in use, where the value in use is determined from
estimated future net cash flows. Any additional depreciation resulting
from the impairment testing is charged to the statement of income.
Non Oil and Natural Gas Operations
Computer and office equipment is recorded at cost and depreciated over
its estimated useful life on a straight-line basis over three years.
Furniture and fixtures are recorded at cost and depreciated over their
estimated useful lives on a straight-line basis over five years.
Decommissioning liabilities
The Corporation records the present value of legal obligations
associated with the retirement of long term tangible assets, such as
producing well sites and processing plants, in the period in which they
are incurred with a corresponding increase in the carrying amount of
the related long term asset. The obligation generally arises when the
asset is installed or the ground/environment is disturbed at the field
location. In subsequent periods, the asset is adjusted for any changes
in the estimated amount or timing of the settlement of the obligations.
The carrying amounts of the associated assets are depleted using the
unit of production method, in accordance with the depreciation policy
for development and production assets. Actual costs to retire tangible
assets are deducted from the liability as incurred.
Contingent consideration
Contingent consideration is accounted for as a financial liability and
measured at fair value at the date of acquisition with any subsequent
remeasurements recognised either in the statement of income or in other
comprehensive income in accordance with IAS 39.
Taxation
Current income tax
Current income tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amounts are those that are
enacted or substantively enacted by the reporting date.
Deferred income tax
Deferred tax is recognised for all deductible temporary differences and
the carry-forward of unused tax losses. Deferred tax assets and
liabilities are measured using enacted or substantively enacted income
tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in rates is
included in earnings in the period of the enactment date. Deferred tax
assets are recorded in the consolidated financial statements if
realisation is considered more likely than not.
Recent accounting pronouncements
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, stock-based compensation, contingent
consideration, decommissioning liabilities, derivatives and deferred
taxes are based on estimates. The depreciation charge and any
impairment tests are based on estimates of proved and probable
reserves, production rates, prices, future costs and other relevant
assumptions. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of
changes in such estimates in future periods could be material. Further
information on each of these estimates is included within the notes to
the financial statements.
4. REVENUE
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Oil sales 125,064 33,293 181,217 69,101
Gas sales 2,452 1,759 5,224 4,580
Condensate sales 135 136 272 306
Other income 709 591 1,416 2,345
Total 128,360 35,779 188,129 76,332
5. COST OF SALES
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Operating costs (43,155) (15,406) (66,382) (31,128)
Oil purchases (790) - (947) -
Movement in oil and gas inventory (18,137) (3,481) (21,713) (380)
Depletion, depreciation and (41,367) (11,092) (60,865) (24,477)
amortisation
(103,449) (29,979) (149,907) (55,985)
6. ADMINISTRATIVE EXPENSES
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
General & administrative (3,623) (1,034) (5,415) (2,105)
Non-recurring Valiant acquisition (9,554) - (10,235) -
related costs
Share based payment (366) (204) (663) (339)
(13,543) (1,238) (16,313) (2,444)
7. FINANCE COSTS
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Accretion (1,088) (436) (1,590) (820)
Bank charges (3,297) (38) (4,460) (44)
Non-operated asset finance fees (24) (12) (42) (13)
Loan fee amortisation (592) (416) (1,185) (494)
(5,001) (902) (7,277) (1,371)
8. RESTRICTED CASH
30 June 31 Dec
2013 2012
US$'000 US$'000
Security 3,228 2
3,228 2
The above represents cash backed letters of credit at 30 June 2013.
9. INVENTORY
30 June 31 Dec
2013 2012
US$'000 US$'000
Crude oil inventory 20,575 15,865
Materials inventory 215 13
20,790 15,878
10. EXPLORATION AND EVALUATION ASSETS
US$'000
At 1 January 22,689
2012
Additions 38,188
Write offs/ (4,261)
relinquishments
Disposals (9,226)
At 31 December 47,390
2012
Additions 5,495
Write offs/ (443)
relinquishments
At 30 June 2013 52,442
Following completion of geotechnical evaluation activity, certain
licences were declared unsuccessful and certain prospects were declared
non-commercial and therefore the related expenditure of $0.4 million
was expensed in the six months to 30 June 2013.
11. PROPERY, PLANT AND EQUIPMENT
Development& Production
Oil and Gas Other fixed
Assets assets Total
US$'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 748,223 567 748,790
At 30 June 2013 1,473,243 2,992 1,476,235
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 period (60,665) (200) (60,865)
At 30 June 2013 (170,423) (2,099) (172,522)
NBV at 1 January 2012 569,561 795 570,356
NBV at 1 January 2013 615,262 526 615,788
NBV at 30 June 2013 1,302,820 893 1,303,713
12. BUSINESS COMBINATION
On 19 April 2013 the Corporation completed the acquisition of Valiant
Petroleum PLC ("Valiant"). The total acquisition consideration was
$293.6 million, being $200.6 million paid in cash and $93 million paid
with Ithaca shares. The interim condensed consolidated financial
statements include the results of Valiant from the acquisition date.
The provisional fair values of the identifiable assets and liabilities
of Valiant as at the acquisition date were:
Provisional
Fair value
US$'000
PP&E 608,000
Other non-current assets 7,145
Deferred tax asset 10,863
Inventories 10,432
Trade and other receivables 46,718
Norwegian tax receivable 69,064
Cash and cash equivalents 11,611
Trade and other payables (151,298)
Borrowings (115,000)
Exploration obligations (72,500)
Provisions (83,430)
Total identifiable net assets at fair value 341,605
Negative goodwill arising on acquisition (47,964)
Total consideration 293,641
The cash outflow on acquisition is as follows:
Net cash acquired 11,611
Cash paid (200,636)
Net consolidated cash flow (189,025)
From the date of acquisition, Valiant has contributed $52.1 million of
revenue and approximately $6 million to the net profit before tax. If
the combination had taken place at the beginning of the year, the
profit before tax from continuing operations for the period would have
been approximately $32 million and revenue from continuing operations
would have been $163.5 million. Note profit before tax excludes
negative goodwill.
13. GOODWILL
US$'000
Cost
At 1 January 2012, 31 December 2012 & 30 June 2013 985
$1.0 million represents goodwill recognised on the acquisition of gas
assets from GDF in December 2010. As at 30 June 2013, the recoverable
amount of assets acquired from GDF was sufficiently high to support the
carrying value of this goodwill.
14. INVESTMENT IN ASSOCIATES
30 June 31 Dec
2013 2012
US$'000 US$'000
Investments in FPF-1 and FPU services 18,337 18,337
Investment in associates comprises shares, acquired by Ithaca Energy
(Holdings) Limited, in FPF-1 Limited and FPU Services Limited as part
of the completion of the Greater Stella Area transactions in 2012.
There has been no change in value during the period with the above
investment reflecting the Corporation's share of the associates'
results.
15. 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 BNP Paribas as Lead Arranger. The loan term is up to five
years and attracts interest at LIBOR plus 3-4.5%. This Facility
replaced the previous undrawn $140 million debt facility with Lloyds
Banking Group.
The Corporation also executed a $350 million bridge loan (the "Bridge
Facility") in April 2013 with BNP Paribas, the Bank of Nova Scotia and
Bank of America Merrill Lynch. The Bridge Facility is available for 12
months and attracts interest of between LIBOR plus 1.0 - 2.25%,
averaging 1.6% if drawn over the full 12 month period. The intention is
to fold the borrowing secured against the Valiant assets into an
enlarged borrowing base facility during 2013.
The Corporation is subject to financial and operating covenants related
to the Facility and the Bridge Facility. Failure to meet the terms of
one or more of these covenants may constitute an event of default as
defined in the facility agreements, potentially resulting in
accelerated repayment of the debt obligations.
Security provided against the loan
Security provided against the Facility is in the form of a floating
charge over all assets of the Ithaca group pre Valiant acquisition.
Security provided against the Bridge Facility is in the form of a
floating charge over all former Valiant assets.
The Corporation is in compliance with its financial and operating
covenants.
As at 30 June 2013, $30 million was drawn down under the Facility and
$346 million was drawn down under the Bridge Facility. The $369 million
in the balance sheet represents amounts drawn down net of unamortised
loan fees.
16. EXPLORATION OBLIGATIONS
30 June 31 Dec
2013 2012 US$'000 US$'000
Exploration obligations 48,301 -
The above reflects the fair value of E&E commitments assumed as part of
the Valiant transaction (see note 12), including the release of
expenditure incurred in the period.
17. DECOMMISSIONING LIABILITIES
30 June 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 52,834 39,382
Additions 87,588 9,613
Accretion 1,590 1,777
Revision to estimates (1,014) 2,062
Utilisation - -
Balance, end of period 140,998 52,834
The total future decommissioning liability was calculated by management
based on its net ownership interest in all wells and facilities,
estimated costs to reclaim and abandon wells and facilities and the
estimated timing of the costs to be incurred in future periods. The
Corporation uses a risk free rate of 3.9 percent (31 December 2012: 3.8
percent) and an inflation rate of 2.1 percent (31 December 2012: 2.1
percent) over the varying lives of the assets to calculate the present
value of the decommissioning liabilities. These costs are expected to
be incurred at various intervals over the next 10 years.
The economic life and the timing of the obligations are dependent on
Government legislation, commodity price and the future production
profiles of the respective production and development facilities. Note
that upon the acquisition of the Beatrice Field in November 2008, the
Corporation did not assume the decommissioning liabilities.
18. OTHER LONG TERM LIABILITIES
30 June 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 3,018 2,785
Revaluation in the period (152) 233
Balance, end of period 2,866 3,018
On completion of the acquisition of the Beatrice Facilities on November
10, 2008 there were 75,000 barrels of oil in an oil storage tank at the
Nigg Terminal. This volume of oil is required to be in the storage tank
when the Beatrice Facilities are re-transferred. This volume of oil is
valued at the price on the forward oil price curve at the expected date
of re-transfer and discounted. The liability is subject to revaluation
at each financial period end.
19. CONTINGENT CONSIDERATION
30 June 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 4,000 24,580
Revision to estimates - 1,295
Release - (21,875)
Balance, end of period 4,000 4,000
The contingent consideration at the end of the period relates to the
acquisition of the Stella field and is payable upon first oil.
20. SHARE CAPITAL
No. of Amount
ordinary
Authorised share capital 000 US$'000
At 31 December 2012 and 30 June 2013 Unlimited -
(a) Issued
The issued share capital is as follows:
Issued Number of Amount
common
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 31 December 2012 259,920,003 431,318
Share issue 56,952,321 93,005
Issued for cash - options exercised 493,334 331
Transfer from Share based payment reserve on - 254
options exercised
Balance 30 June 20123 317,365,658 524,908
(b) Stock options
In the quarter ended 30 June 2013, the Corporation's Board of Directors
did not grant any new 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 30 June 2013, 19,614,630 stock
options to purchase common shares were outstanding, having an exercise
price range of $0.20 to $2.28 (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:
30 June 2013 31 December 2012
Wt. Avg Wt. Avg
No. of Exercise No. of Exercise
Options Price- Options Price-
Balance, beginning of period 20,347,964 $1.63 17,506,839 $1.66
Granted 90,000 $2.00 6,045,000 $2.05
Forfeited / expired (330,000) $2.26 (2,448,333) $3.42
Exercised (493,334) $0.63 (755,542) $1.26
Options 19,614,630 $1.65 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 30 June 2013
Options Outstanding
Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price-
$2.22-$2.28 (C$2.25-C$2.31) 5,090,000 1.6 $2.23
$1.49-$2.03 (C$1.54-C$1.99) 10,326,667 2.1 $1.81
$0.20-$0.81 (C$0.25-C$0.87) 4,197,963 0.3 $0.55
19,614,630 1.6 $1.65
Options Exercisable
Wt. Avg Wt. Avg
Range of No. of Life Exercise
Exercise Price Options (Years) Price-
$2.22-$2.28 3,260,003 1.5 $2.22
(C$2.25-C$2.31)
$1.49-$2.03 4,475,001 0.6 $1.52
(C$1.54-C$1.99)
$0.20-$0.81 4,197,963 0.3 $0.55
(C$0.25-C$0.87)
11,932,967 0.7 $1.37
The following is a summary of stock options as at 31 December 2012
Options Outstanding
No. of Wt. Avg Wt. Avg
Range 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
compensation cost during the three months and six months ended 30 June
2012 for total stock options granted was $0.9 million and $1.9 million
respectively (Q2 2012: $0.8 million, Q2 YTD: $1.6 million). $0.3
million and $0.7 million were charged through the income statement for
share based payment for the three and six months ended 30 June 2013
respectively, being the Corporation's share of share based payment
chargeable through the income statement. The remainder of the
Corporation's share of share based payment has been capitalised. The
fair value of each stock option granted was estimated at the date of
grant, using the Black-Scholes option pricing model with the following
assumptions:
For the For the
six months year
ended ended
30 June 31 December
2013 2012
Risk free interest rate 1.31% 0.40%
Expected stock volatility 63% 74%
Expected life of options 3 years 3 years
Weighted Average Fair Value $0.94 $1.08
21. SHARE BASED PAYMENT RESERVE
30 June 31 Dec
2013 2012
US$'000 US$'000
Balance, beginning of period 20,340 17,318
Share based payment cost 1,963 3,817
Transfer to share capital on exercise of options (257) (795)
Balance, end of period 22,046 20,340
22. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit
after tax and the weighted average number of common shares in issue
during the period. The calculation of diluted earnings per share is
based on the profit after tax and the weighted average number of
potential common shares in issue during the period.
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
Weighted average number 305,912,433 259,198,399 283,055,608 259,181,430
of common shares
(basic)
Weighted average 309,278,839 264,314,570 287,225,134 264,662,007
numbers of common
shares (diluted)
23. TAXATION
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
UK Deferred tax (18,504) 8,517 (17,309) 7,651
Norwegian tax 1,635 - 1,635 -
(16,869) 8,517 (15,674) 7,651
24. COMMITMENTS
Operating lease commitments 30 June 31 Dec
2013 2012
US$'000 US$'000
Within one year 12,742 12,759
Two to five years 13,394 18,756
More than five years - 65
Capital commitments 30 June 31 Dec
2013 2012
US$'000 US$'000
Capital commitments incurred jointly with other 206,713 111,747
ventures (Ithaca's share)
25. FINANCIAL INSTRUMENTS
To estimate fair value of financial instruments, the Corporation uses
quoted market prices when available, or industry accepted third-party
models and valuation methodologies that utilise observable market data.
In addition to market information, the Corporation incorporates
transaction specific details that market participants would utilise in
a fair value measurement, including the impact of non-performance risk.
The Corporation characterises inputs used in determining fair value
using a hierarchy that prioritises inputs depending on the degree to
which they are observable. However, these fair value estimates may not
necessarily be indicative of the amounts that could be realised or
settled in a current market transaction. The three levels of the fair
value hierarchy are as follows:
- Level 1 - inputs represent quoted prices in active markets for
identical assets or liabilities (for example, exchange-traded commodity
derivatives). Active markets are those in which transactions occur in
sufficient frequency and volume to provide pricing information on an
ongoing basis.
- Level 2 - inputs other than quoted prices included within Level 1
that are observable, either directly or indirectly, as of the reporting
date. Level 2 valuations are based on inputs, including quoted forward
prices for commodities, market interest rates, and volatility factors,
which can be observed or corroborated in the marketplace. The
Corporation obtains information from sources such as the New York
Mercantile Exchange and independent price publications.
- Level 3 - inputs that are less observable, unavailable or where the
observable data does not support the majority of the instrument's fair
value.
In forming estimates, the Corporation utilises the most observable
inputs available for valuation purposes. If a fair value measurement
reflects inputs of different levels within the hierarchy, the
measurement is categorised based upon the lowest level of input that is
significant to the fair value measurement. The valuation of
over-the-counter financial swaps and collars is based on similar
transactions observable in active markets or industry standard models
that primarily rely on market observable inputs. Substantially all of
the assumptions for industry standard models are observable in active
markets throughout the full term of the instrument. These are
categorised as Level 2.
The following table presents the Corporation's material financial
instruments measured at fair value for each hierarchy level as of 30
June 2013:
Total
Fair
Level 1 Level 2 Level 3 Value
US$'000 US$'000 US$'000 US$'000
Derivative financial instrument asset - 15,560 - 15,560
Long term liability on Beatrice - - (2,866) (2,866)
acquisition
Contingent consideration - (4,000) - (4,000)
Derivative financial instrument - (1,596) - (1,596)
liability
The table below presents the total gain / (loss) on financial
instruments that has been disclosed through the statement of net and
comprehensive income:
Three months Six months
ended 30 June ended 30 June
2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000
Revaluation of forex forward contracts 584 (428) (1,471) 541
Revaluation of gas contract - 872 - 758
Revaluation of other long term 96 61 153 (29)
liability
Revaluation of commodity hedges 6,623 16,858 (2,444) 16,858
7,303 17,363 (3,762) 18,128
Realised gain on commodity hedges 9,374 1,908 13,560 1,709
Realised gain/(loss) on forex contracts 837 68 544 68
10,211 1,976 14,104 1,777
Contingent consideration - - - (1,295)
Total gain on financial instruments 17,514 19,339 10,342 18,610
The Corporation has identified that it is exposed principally to these
areas of market risk.
i) Commodity Risk
The table below presents the total gain / (loss) on commodity hedges
that has been disclosed through the statement of net and comprehensive
income:
Three months ended 30 June
2013 2012
US$'000 US$'000
Revaluation of commodity hedges 6,623 16,858
Realised gain on commodity hedges 9,374 1,908
Total gain on commodity hedges 15,997 18,766
Commodity price risk related to crude oil prices is the Corporation's
most significant market risk exposure. Crude oil prices and quality
differentials are influenced by worldwide factors such as OPEC actions,
political events and supply and demand fundamentals. The Corporation is
also exposed to natural gas price movements on uncontracted gas sales.
Natural gas prices, in addition to the worldwide factors noted above,
can also be influenced by local market conditions. The Corporation's
expenditures are subject to the effects of inflation, and prices
received for the product sold are not readily adjustable to cover any
increase in expenses from inflation. The Corporation may periodically
use different types of derivative instruments to manage its exposure to
price volatility, thus mitigating fluctuations in commodity-related
cash flows.
The below represents commodity hedges in place:
Derivative Term Volume Average price
Oil puts July 13 - 1,268,699 bbls $105/bbl
Sept 14
Oil swaps July 13 - 3,048,951 bbls $102/bbl
(including swaption) Dec 14
Gas swaps July 13 - 2,342,000 therms 66.64p/therm
Dec 14
ii) Interest Risk
Calculation of interest payments for the Senior Secured Borrowing Base
Facility agreement with BNP Paribas that was signed on 29 June 2012
incorporates LIBOR. The Corporation will therefore be exposed to
interest rate risk to the extent that LIBOR may fluctuate. The
Corporation will evaluate its annual forward cash flow requirements on
a rolling monthly basis.
iii) Foreign Exchange Rate Risk
The table below presents the total (loss) on foreign exchange financial
instruments that has been disclosed through the statement of net and
comprehensive income:
Three months
ended 30 June
2013 2012
US$'000 US$'000
Revaluation of foreign exchange forward 584 (428)
contracts
Realised gain on foreign exchange forward 837 68
contracts
Total gain/(loss) on forex forward contracts 1,421 (360)
The Corporation is exposed to foreign exchange risks to the extent it
transacts in various currencies, while measuring and reporting its
results in US Dollars. Since time passes between the recording of a
receivable or payable transaction and its collection or payment, the
Corporation is exposed to gains or losses on non USD amounts and on
balance sheet translation of monetary accounts denominated in non USD
amounts upon spot rate fluctuations from quarter to quarter.
The below represents foreign exchange financial instruments in place:
Derivative Term Value Protection rate Trigger rate
Forward July 13 - GBP4 million/month $1.59/GBP1.00 $1.50/GBP1.00
plus Dec 13
Forward July 13 - GBP100 million $1.52/GBP1.00 N/A
Jan 14
Forward Aug 13 - EUR30 million $1.29/EUR1.00 N/A
Dec 13
iv) Credit Risk
The Corporation's accounts receivable with customers in the oil and gas
industry are subject to normal industry credit risks and are unsecured.
All of its oil production from the Beatrice, Jacky and Athena field is
sold to BP Oil International Limited. Oil production from Cook, Broom,
Dons, Causeway and Fionn is sold to Shell Trading International 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 30 June 2013 substantially all
accounts receivables are current, being defined as less than 90 days.
The Corporation has no allowance for doubtful accounts as at 30 June
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 30 June 2013, exposure is $15.6
million (31 December 2012: $8.3 million).
The Corporation also has credit risk arising from cash and cash
equivalents held with banks and financial institutions. The maximum
credit exposure associated with financial assets is the carrying
values.
v) Liquidity Risk
Liquidity risk includes the risk that as a result of its operational
liquidity requirements the Corporation will not have sufficient funds
to settle a transaction on the due date. The Corporation manages
liquidity risk by maintaining adequate cash reserves, banking
facilities, and by considering medium and future requirements by
continuously monitoring forecast and actual cash flows. The Corporation
considers the maturity profiles of its financial assets and
liabilities. As at 30 June 2013, substantially all accounts payable are
current.
The following table shows the timing of cash outflows relating to trade
and other payables.
Within 1 year 1 to 5 years
US$'000 US$'000
Accounts payable and accrued liabilities 316,980 -
Other long term liabilities - 2,866
316,980 2,866
26. DERIVATIVE FINANCIAL INSTRUMENTS
30 June 31 December
2013 2012
US$'000 US$'000
Oil swaps 8,112 2,497
Put options 7,369 5,667
Gas swaps (46) -
Embedded derivative - 87
Foreign exchange forward contract (1,471) -
13,964 8,251
27. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Financial instruments of the Corporation consist mainly of cash and
cash equivalents, receivables, payables, loans and financial derivative
contracts, all of which are included in these financial statements. At
30 June 2012, the classification of financial instruments and the
carrying amounts reported on the balance sheet and their estimated fair
values are as follows:
30 June 2013 31 December 2012
US$'000 US$'000
Classification
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents 27,091 27,091 31,374 31,374
(Held for trading)
Restricted cash 3,228 3,228 2 2
Derivative financial 15,560 15,560 - -
instruments
(Held for trading)
Accounts receivable 254,894 254,894 159,195 159,195
(Loans and Receivables)
Deposits 23,852 23,852 14,754 14,754
Contingent consideration (4,000) (4,000) (4,000) (4,000)
Derivative financial (1,596) (1,596) - -
instruments
(Held for trading)
Other long term liabilities (2,866) (2,866) (3,018) (3,018)
Accounts payable (316,980) (316,980) (205,635) (205,635)
(Other financial liabilities)
28. 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
incorporation 30 June
2013 2012
Ithaca Energy (UK) Limited Scotland 100% 100%
Ithaca Minerals (North Sea) Scotland 100% 100%
Limited
Ithaca Energy (Holdings) Bermuda 100% Nil
Limited
Ithaca Energy Holdings (UK) Scotland 100% Nil
Limited
Ithaca Petroleum PLC England and Wales 100% Nil
Ithaca North Sea Limited England and Wales 100% Nil
Ithaca Exploration Limited England and Wales 100% Nil
Ithaca Causeway Limited England and Wales 100% Nil
Ithaca Gamma Limited England and Wales 100% Nil
Ithaca Alpha Limited Northern Ireland 100% Nil
Ithaca Epsilon Limited England and Wales 100% Nil
Ithaca Delta Limited England and Wales 100% Nil
Ithaca Petroleum Holdings AS Norway 100% Nil
Ithaca Petroleum Norge AS Norway 100% Nil
Ithaca Technology AS Norway 100% Nil
Ithaca AS Norway 100% Nil
Ithaca Petroleum EHF Iceland 100% Nil
Transactions between subsidiaries are eliminated on consolidation.
The following table provides the total amount of transactions that have
been entered into with related parties during the six month period
ending 30 June 2013 and 30 June 2012, as well as balances with related
parties as of 30 June 2013 and 31 December 2012:
Sales Purchases Accounts Accounts
receivable payable
US$'000 US$'000 US$'000 US$'000
Burstall Winger 2013 - 57 - -
LLP
2012 - 138 - -
Loans to related parties Amounts owed from related parties
30 June 31 Dec
2013 2012
US$'000 US$'000
FPF-1 Limited 21,551 21,551
29. SEASONALITY
The effect of seasonality on the Corporation's financial results for
any individual quarter is not material.
This information is provided by RNS
The company news service from the London Stock Exchange
END