Iona Energy Inc.
TSX VENTURE : INA

June 30, 2011 10:58 ET

Iona Energy Announces 2011 First Quarter Results

CALGARY, ALBERTA--(Marketwire - June 30, 2011) - Iona Energy Inc. ("Iona" or the "Company") (TSX VENTURE:INA) announces its 2011 first quarter results. Commenting on first quarter results, Iona Energy's CEO, Neill A. Carson stated, "Our primary goal this quarter was to acquire quality assets and finance those acquisitions. Our vision was very well received in the marketplace as demonstrated by strong demand for our equity offering. We expect to be very busy building on our portfolio with the objective of significantly growing our reserve base over the course of the next several months. As we execute on our plan to achieve first oil at Orlando late next year and increase our current gas production at Tyne, our teams continue to focus on safe, efficient and effective operations."

Highlights for the Quarter Ended March 31, 2011

Financial

  • Closed a private placement of Subscription Receipts totalling CAD$69.9 million through a syndicate of agents led by Wellington West Capital Markets Inc. and including Mackie Research Capital Corporation and National Bank Financial Inc.
  • CAD$18.1 million in cash and CAD$44.5 million in restricted cash at March 31, 2010.
  • Grew net proven reserves from zero to 2.4 million barrels of oil ("MMbbls") and 6.1 Billion cubic feet ("Bcf") of natural gas, and proven and probable reserves from zero to 3.6 MMbbls and 13 Bcf of natural gas.
  • Net loss for the period of $0.842 million or a net loss of $0.015 per share.

Operational

  • Completed the acquisition of a 35% working interest in the Orlando oil discovery located on UK Block 3/3b. Along with license partners MPX Resources and Sorgenia E & P, the Company plans to work toward a Field Development Plan and fast-track development of the discovery.
  • Entered into a Sale and Purchase agreement with Perenco UK to acquire 20% of the Trent and Tyne producing gas fields and associated pipeline infrastructure located on Blocks 44/18 and 43/24 respectively. The effective date for the transaction is September 1, 2010.

Corporate

  • Entered into Amalgamation agreement with Northern Lights Acquisition Corp.
  • Staff additions included Chief Development Officer, Mr. David Sherrard in Aberdeen, Scotland.

Significant Subsequent Events

  • Completed the amalgamation of Iona Energy Company Limited ("Former Iona") and Northern Lights Acquisition Corp., a capital pool company, to form the amalgamated company called Iona Energy Inc. (the "Amalgamation"). The Amalgamation constituted the Qualifying Transaction of Northern pursuant to Policy 2.4 of the TSX Venture Exchange Inc. ("TSX Venture"). Listed the Company's common shares for trading on the TSX Venture.
  • Completed the acquisition of a 20% working interest in the Trent and Tyne gas fields from Perenco UK on May 31, 2011 as planned. Results in net gas production income to the Company effective September 1, 2010.
  • Gross production from September 1, 2010 through May 31, 2011 was approximately 3.02 Bcf or 600 MMscf net to Iona, generating USD$4.64 million in gas sales revenue net to Iona. Trent and Tyne gross production rates for May 2011 averaged 13 MMscf per day or 2.6 MMscf per day (450 boepd) net to Iona.
  • CAD$44.5 million released from escrow upon closing Amalgamation and Trent and Tyne acquisition.
  • With partners MPX Resources and Sorgenia, contracted a rig to drill well on Orlando spudding in mid to late July 2011.
  • Entered into an option agreement to acquire a 58.8% working interest, including operatorship, in the West Wick oil discovery on UK Block 13/21a.

Commenting on the first quarter, Iona's CFO, Brad G. Gunn said "We are delighted to have achieved several important milestones and secured our "Starter Pack" of assets, including existing production. We are well funded and are nicely positioned to build on our business. We believe we are just getting started."

Iona Energy Company Limited

Management's Discussion and Analysis

The following Management's Discussion and Analysis ("MD&A") of Iona Energy Company Limited ("Iona" or "the Company") have been prepared in accordance with International Financial Reporting Standards ("IFRS"). This discussion should be read in conjunction with the unaudited Interim Condensed Financial Statements and comparative information and the Joint Information Circular and Proxy Statement relating to the proposed amalgamation of Northern Lights Acquisition Corp. and Iona dated April 30, 2011 available on Sedar. The Company adopted IFRS on January 1, 2011 with a transition date of January 1, 2010. Previously, Iona prepared its Interim and Annual Consolidated Financial Statements in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The Company has provided IFRS accounting policies and prepared reconciliations between Canadian GAAP and IFRS in Note 3 and 12 of its March 31, 2011 Interim Condensed Financial Statements. Further information on the IFRS impacts is provided in the Change in Accounting Policies Section of this MD&A.

This MD&A is dated June 29, 2011. All currency amounts are expressed in Canadian Dollars ("$") unless otherwise stated.

Statements throughout this MD&A that are not historical facts may be considered "forward-looking statements." These forward-looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company's objectives, goals or future plans are forward-looking statements. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties and actual results could differ materially from those currently anticipated. These risks and uncertainties include, but are not limited to, changes in market conditions, law or government policy, operating conditions and costs, operating performance, demand for oil and gas and related products, price and exchange rate fluctuations, commercial negotiations or other technical and economic factors. Forward-looking statements are based on current expectations, estimates and projections of future production and capital spending as at the date of this MD&A and the Company assumes no obligation to update or revise forward-looking statements to reflect new events or circumstances, except as required by law.

Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed course of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.

Business of the Corporation

Iona is an oil and natural gas acquisition, appraisal, and development corporation active through its 100% wholly owned United Kingdom subsidiary Iona Energy Company (UK) Ltd. in the United Kingdom's Continental Shelf ("UKCS"). On May 27, 2011, Iona and Northern Lights Acquisition Corporation amalgamated to form Iona Energy Inc. with the Company's shares listing for trading on the TSX Venture Exchange on June 8, 2011 under the symbol "INA."

In early 2008, Iona (through its subsidiary, Iona Energy Company (US) Limited) participated in Alaska's offshore land sale 193 and was successful in acquiring Block 6767 located within the Chukchi Sea. The block, owned 100% by Iona, is proximal to the Burger Gas Discovery currently held under license by Shell. Iona maintains a work program on the block through license rental and a security treasury bond of $ 50,000 lodged with the regulatory body.

On March 31, 2010, Iona was awarded two offshore exploration blocks in the UK¹s 25th Seaward Licensing Round. Blocks 112/13 &14 are owned 100% by Iona Energy Company (UK) Limited and lie within the East Irish Sea and are held under a Promote License through to 2014. The work program includes an obligation to obtain the existing seismic within the blocks and to elect to a well commitment if the company wishes to convert the Promote License to a traditional license in 2012. License rentals due the company are less than $10,000 per annum.

Over the last year, the Corporation has continued its efforts to acquire strategically-aligned assets for its UK portfolio. Iona seeks low-cost, proven undeveloped acquisition targets that are proximate to infrastructure willing and able to accept its production, and where sub-sea tiebacks can be utilized. Employing this strategy facilitates the Corporation's pursuit of profitable oil and gas production through the effective management of finding and development costs, initial capital expenditure, and lower long-term per barrel operating expenditure and tariffs. To date in 2011, the Company closed the following two transactions:

Orlando – A proven undeveloped oil discovery

In December 2010, the Corporation signed a Sale and Purchase Agreement with Wintershall (E&P) Limited ("Wintershall") to acquire their entire 35% equity interest in UKCS License P1606, Block 3/3b (An oil discovery referred to as "Orlando" located in the North Viking Graben area of the UK North Sea) with the transaction closing on March 10, 2011. The consideration payable to Wintershall for the Orlando acquisition is USD$3,000,000 and the Corporation will fund the respective commitment well to the extent of 42.5% (approximately USD$11,050,000) to earn their 35% equity interest. The Orlando drilling program will be operated by MPX North Sea Limited (with a 30% working interest) with Iona and Sorgenia E&P (UK) Ltd. as partners (each with a 35% working interest).

The Corporation engaged Gaffney, Cline & Associates Ltd. ("GCA"), an independent reserve auditor of oil and gas resources, to provide a reserve audit and production estimate on the Orlando asset (the "GCA Reserve Report"). The GCA Reserves Report estimates proven reserves net to Iona of 2.4 MMbbls ("1P"), proven plus probable reserves of 3.6 MMbbls ("2P"), and proven plus probable plus possible reserves of 5.4 MMbbls ("3P"). The Corporation expects to commence drilling activities on Orlando by the fourth quarter of 2011. Production processing is planned for CNRL International's Ninian platform, where a per-barrel tariff has been negotiated at USD $5.50/bbl.

Trent & Tyne gas production

In November 2010, the Corporation signed a Letter of Intent with Perenco UK Limited ("Perenco") regarding Iona's acquisition of a 20% working interest in two producing UK Southern North Sea gas fields, the Trent Field (Block 43/24 - License P685) and the Tyne Field (Block 44/18 - License P609) (herein referred to as "Trent & Tyne") with the transaction closing on May 31, 2011. Pursuant to the agreement, Iona committed to fund up to GBP£21,200,000 for the drilling of a production well on the Tyne Field. The planned work program is comprised of a re-entry into the existing T5 well and sidetrack to an up-dip location (the "T5 Sidetrack Well"), intended by Perenco to be drilled in 2011. The Corporation's financial exposure will be cost-capped such that, in the event the T5 Sidetrack Well exceeds the GBP£21,200,000, any additional costs related to the well will be borne 100% by Perenco. Additionally, with respect to an area known as Tyne North West, Iona will have the option to increase its working interest in Trent & Tyne by a further 17.5% (37.5% in total), by committing to fund the drilling of a second well with Perenco as Operator. Again, this drilling program is cost-capped to Iona at GBP£24,650,000, such that any cost overrun beyond this amount will be borne 100% by Perenco.

As with Orlando, the Corporation contracted GCA to assess Trent & Tyne's reserve base and production profile. GCA's Reserve Report estimates 1P reserves of 6.1Bcf, 2P reserves of 12.6Bcf, and 3P reserves of 37.3Bcf, net to Iona. Furthermore, with the successful completion of Tyne North West, a 2C contingent resource, GCA projects 19.6Bcf will be added to the Corporation's net recoverable reserves.

The Trent & Tyne agreement with Perenco is dated effective September 1, 2010, therefore Iona will receive production revenue and pay its share of production related costs associated with approximately 4MMscfd of net gas production as a result of its 20% working interest. The Corporation anticipates drilling the "T5 Sidetrack Well" during the third quarter of 2011, thereby increasing Iona's net Trent & Tyne production to 8MMscfd (2P @ 20%), and furthering this to 14.2MMscfd (2P @ 37.5%) with their commitment to drill Tyne North West. A successful completion of Tyne North West, which the Corporation hopes to drill and tie back by the third quarter of 2012, has the potential to increase production by an incremental 11MMscfd.

Equity Financing

Iona Energy intends to execute its business plan for the UK North Sea in large part due to its ability to access capital through the issuance of equity. In December of 2010, the Corporation appointed Wellington West Capital Markets Inc. as lead agent with Mackie Research Capital Corporation and National Bank Financial Inc. as syndicate partners to raise up to CAD$60,000,000 through a private placement of subscription receipts priced at CAD$0.60 per unit, with each receipt entitling the holder to one common share in the capital stock of the Corporation upon the completion of certain events. The financing closed on March 10, 2011, with $69.9 million raised as a result of an increased level of interest via the issue of 116,485,090 Subscription Receipts. The proceeds, which were held in escrow and have been, committed to the acquisition and development of Orlando, Trent & Tyne, and general working capital purposes. On March 10, 2011, as a result of the closing of the Orlando acquisition, $23 million was released from escrow and 38,333,333 Subscription Receipts were automatically converted into 38,333,333 Common Shares. On May 31, 2011, the remaining 78,151,757 were converted into Common Shares.

General and Administrative

For the three months ended March 31, For the year ended December 31,
General and administrative 2011 2010 2010
Consulting fees / wages $ 161,723 $ 13,145 $ 99,421
Professional fees 179,550 146 209,871
Bank charges 1,040 128 1,301
Office and other 68,405 936 25,361
Travel 123,997 3,202 14,112
534,715 17,557 350,066

General and administrative costs for the first quarter ended March 31, 2011 has increased compared to the first quarter of 2010 as a result of professional costs with respect to the Company's public listing on the TSX Venture Exchange and financing. Costs will continue to increase as the Company continues to staff up its operations.

During the period, the Company was charged $273,402 in legal fees of which $98,000 related to share issuance costs by a law firm where a director of the Company is a partner, of which $260,573 is included in accounts payable and accrued liabilities as at March 31, 2011. The related party transactions are in the normal course of operations and measured at exchange amounts which are incurred under the same terms or conditions with other third parties.

Exploration and Evaluation

The Company's exploration and evaluation expense represents all pre-license costs and the capitalized costs from exploration and evaluation assets that have been expensed. These costs represent unrecoverable exploration and evaluation costs associated with an area and costs incurred prior to obtaining the legal rights to explore. The costs included in exploration and evaluation expense include pre-license costs and land expiries. During the period ended March 31, 2011, $193,221 of pre-license costs were incurred with respect to the Orlando and Trent & Tyne property acquisitions as previously mentioned.

Foreign exchange

A portion of the Company's working capital is denominated in British Pound Sterling and US dollars. The fluctuating exchange rate between these currencies and the Canadian dollar created exchange gains and losses during the period. During the three months ended March 31, 2011 the Company experienced a foreign exchange loss of $117,417 (2010 - $Nil). The losses are primarily a result of the strengthening of the Canadian dollar against the other currencies.

Income Taxes

Presently the Company does not expect to pay current taxes into the foreseeable future based on existing tax pools, planned capital activities and current forecasts of taxable income. However, the current tax horizon will ultimately depend on several factors including commodity prices, future production, corporate expenses, and both the type and amount of capital expenditures incurred during in future reporting periods.

Liquidity and Capital Resources

As at March 31, 2011, Iona has a working capital surplus of approximately $17,372,084. In addition, the Company has $44.5 million of restricted cash, a portion of which will be used to fund the aforementioned Trent & Tyne capital commitment. The Company considers itself to be in the development stage, as it is in the process of exploring its petroleum and natural gas licenses and has not yet determined whether they contain reserves that are economically recoverable. The success of the Company's exploration and development of its petroleum and natural gas licenses will be influenced by significant financial risks, legal and political risks, fluctuations in commodity prices and currency exchange rates, varying levels of taxation and the ability of the Company to discover economically recoverable reserves and to bring such reserves into production on an economic basis. The Company will be required to obtain additional financing to develop its licenses. While the Company seeks to manage these risks, many of these factors are beyond its control. The Company presently does not have a loan facility available. Although management's efforts to raise capital and complete accretive asset acquisition have been successful in past endeavors there is no certainty that they will be able to do so in the future. Iona will endeavor to use equity issues to fund its near term exploration program.

The Company has the following contractual obligations.

As at March 31, 2011
Payments Due in Period
Contractual Obligations Total Less than 1 Year 1 to 3 years 3 to 5 years More than 5 years
U.S. Dollars
Exploration leases 92,160 11,520 23,040 23,040 34,560
Drilling, completion, facility construction 11,050,000 11,050,000 - - -
Seismic 25,000 25,000 - - -
Total $ 11,167,160 $ 11,086,520 $ 23,040 $ 23,040 $ 34,560
March 31, 2011 CAD/USD exchange rate 0.9718
0.9718
0.9718 0.9718 0.9718
Contractual Obligations in Canadian Dollars $ 10,852,246 $ 10,773,880 $ 22,390 $ 22,390 $ 33,585

The Corporation's mineral lease rentals are $ 11,458 per year for a ten-year term expiring in 2018.

The Corporation has a commitment to drill one well in the Orlando block (North Sea) during 2011 as a result of the acquisition that closed March 10, 2011 and will fund a work program of up to GBP£21,200,000 in the Trent & Tyne block (North Sea) during 2011.

The Corporation also has a commitment to acquire and process US$25,000 of seismic relating to the East Irish Sea property by the end of 2011.

The aforementioned contractual obligations will be funded from the Company's current working capital surplus and the $44.5 million of restricted cash as a result of completing the equity financing as previously discussed.

Financial Instruments

Crude oil and natural gas operations involve certain risks and uncertainties. These risks include, but are not limited to, commodity prices, foreign exchange rates, credit, operational and safety.

Operational risks are managed through a comprehensive insurance program designed to protect the Company from significant losses arising from risk exposures. Risks associated with commodity prices, interest and exchange rates are generally beyond the control of the Company; however, various hedging products may be considered to reduce the volatility in these areas.

Safety and environmental risks are addressed by compliance with government regulations as well as adoption and compliance of the Company's safety and environmental standards policy.

The Company is exposed to concentration of credit risk as substantially all of the Company's accounts receivable will be with joint venture partners in the oil and gas industry and are subject to normal industry credit risks. The Company mitigates this risk by entering into transactions with long-standing, reputable counterparts and partners. If significant amounts of capital are to be spent on behalf of a joint venture partner, the partner is "cash called" in advance of the capital spending taking place.

The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions denominated in currency other than the Canadian Dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditures in property and equipment in foreign currencies. The Corporation incurs expenditures in Canadian dollars, Pound sterling, Euros, and United States dollars and is exposed to fluctuations in exchange rates in these currencies. There are no exchange rate contracts in place as at or during the period ended March 31, 2011 or year ended December 31, 2010, or thereafter. Assuming all other variables remain constant, a 1% increase or decrease in foreign exchange rates on the foreign cash and restricted cash balances at March 31, 2011 would have impacted the cash flows of the Company during the period ended March 31, 2011 by approximately $115,209.

Outstanding Share Data

The Company has authorized an unlimited number of Common shares, without nominal or par value and unlimited number of Preferred shares, issuable in series . The Company currently has 139,060,155 common shares outstanding. The following details the share capital structure as of the date of this MD&A.


Expiry Date

Exercise Price

Total Number
Common shares 139,060,155
Warrants August 12, 2013 $0.22 137,300
September 13, 2013 $0.22 127,200
Options May 27, 2016 $0.60 9,550,000

Summary of Quarterly Results

($ thousands, except per share amounts) Three months ended March 31, 2011 Three months ended December 31, 2010 Three months ended March 31, 2010
Net earnings (loss) (725) (589) (18)
Net and comprehensive (loss) (842) - -
Net capital expenditures (recovery) 3,648 347 77
Working capital surplus (deficiency) 17,372 1,211 (224)
Total assets 68,652 5,227 1,636

Quarterly information is not available other than aforementioned information disclosed, as the Corporation is a private Corporation whose shares are not listed for trading on a stock exchange.

Forward-looking statements

Some of the statements in this announcement are forward-looking. Forward-looking statements include statements regarding the intent, belief and current expectations of Iona Energy Inc. or its officers with respect to various matters. When used in this announcement, the words "expects," "believes," "anticipate," "plans," "may," "will," "should", "scheduled", "targeted", "estimated" and similar expressions, and the negatives thereof, whether used in connection with the estimated drilling times of the Orlando well, estimated production levels and future activity or otherwise, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcome to differ materially from those suggested by any such statements. These forward-looking statements speak only as of the date of this announcement. Iona 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.

For the balance of this report click on http://www.ionaenergy.com.

The TSX Venture Exchange Inc. has in no way passed upon the merits of and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Iona Energy Compnay
    Neill A. Carson
    Chief Executive Officer
    +011 (44) 7919 057989

    Iona Energy Compnay
    Brad G. Gunn
    Chief Financial Officer
    (403) 775-7442