Iona Energy Inc.
TSX VENTURE : INA

November 28, 2011 18:38 ET

Iona Energy Inc. Announces 2011 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 28, 2011) -

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Iona Energy Inc. ("Iona" or the "Company") (TSX VENTURE:INA) announces its 2011 third quarter results for the period ended September 30, 2011.

Neill A. Carson, Iona's CEO commented, "Iona is very pleased with the progress we've made since the beginning of Q3 as we continue to position ourselves for aggressive development growth in the coming year. During the third quarter, contracts for critical equipment were finalized and a rig secured for Iona's first half 2012 drilling program, our management team was bolstered with the addition of top-notch resources, and Iona actively pursued quality acquisition targets. We are looking forward to 2012 with great anticipation as we prepare for an active year of project execution."

Highlights for the Quarter Ended September 30, 2011

Financial

  • Q3 G&A expenditures of CAD$0.9 million a decrease of 62.5% as compared to Q2 G&A expenditures.
  • Current assets of CAD$47.9 million, including CAD$46 million unrestricted cash.
  • Net loss of CAD$0.6 million (or CAD$0.004 per share) for the period

Operational

  • Exit Q3 production rate at the Company's Trent and Tyne gas fields was 3.3 million standard cubic feet per day ("MMscfd") net.
  • With partners MPX Resources and Sorgenia, Iona entered into an agreement with GE Oil & Gas for the construction of two production subsea trees.
  • Continued to assess and pursue accretive acquisition targets. Related efforts of Q3 culminated in the signing of a Sale and Purchase Agreement with Fairfield Cedrus Ltd. for the acquisition of a 100% Operated interest in their Staffa Oil Field.

Corporate

  • Mr. Peter Campbell joined the company as Manager, Commercial Infrastructure. Peter has more than 30 years experience in the E&P business and joined Iona from Maersk, where he was Head of New Business and M&A, responsible for new countries, business development and M&A worldwide.
  • Mr. Colin Tannock joined the company as Chief of Subsurface. Colin has 30 years experience in the Energy business with Talisman, Statoil, Aran and joined Iona from TAQA Bratani, where he was most recently the Geoscience and Exploration Manager.

"With over $47 million in cash and deposits, along with the continued addition of high caliber team members, we are very well positioned to close on our Staffa acquisition and execute on our 2012 strategy, and confident that our efforts are placing Iona on a successful trajectory." commented Brad Gunn, Iona's CFO.

Subsequent to the end of Q3, the Company notes the drilling of the Orlando appraisal and development well is currently underway.

A reserve report by Gaffney Cline & Associates for the Staffa Field is also underway.

Further details on the above are provided in the interim consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2011, which have been filed with securities regulatory authorities in Canada. These documents are also available on SEDAR (www.SEDAR.com) and on the Company's website (www.ionaenergy.com).

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."

Over the last year, the Company 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 Company'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 transactions:

Orlando - A proven undeveloped oil discovery

In December 2010, the Company 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 14, 2011. The consideration payable to Wintershall for the Orlando acquisition is USD$3,150,000 and the Company 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 is 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 Company 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"). Drilling activities on Orlando are currently underway. Production processing is planned for CNRL International's Ninian platform, where a per-barrel tariff has been negotiated at USD $5.50/bbl.

The Company spudded the Orlando appraisal well, 3/3b-13, on November 2, 2011. The semi-submersible drilling rig Awilco WilHunter is anticipated to be on location for approximately 45 days, drilling a deviated well which will be suspended for a future re-entry and conversion to a producing well once the Orlando development commences. The total depth is anticipated to be 14,245 feet or approximately 12,000 feet vertically. The well is targeting a producing Brent horizon that flowed at 2,800 barrels of oil per day in the discovery well 3/3b-11.

Trent & Tyne gas production

In November 2010, the Company 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"). The Company'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 Company 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 12.6 Bcf, and 3P reserves of 16.2 Bcf, 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 Company'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 Company anticipates drilling the "T5 Sidetrack Well" during the second quarter of 2012, thereby increasing Iona's net Trent & Tyne production to 8MMscfd (20% WI), and furthering this to 14.2MMscfd (37.5% WI) with their commitment to drill Tyne North West. A successful completion of Tyne North West, which the Company hopes to drill and tie back by the third quarter of 2012, has the potential to increase production by an incremental 11MMscfd.

Staffa - Redevelopment of a proven field

Subsequent to the quarter ending, the Company signed a Sale and Purchase Agreement with Fairfield Cedrus Ltd., for a 100% interest in U.K. block 3/8d containing the Staffa oil field. The transaction is subject to approval of the U.K's Department of Energy and Climate Change (DECC).

Under the terms of the agreement, Iona shall reimburse Fairfield in cash for pre-development expenditures related to the Staffa oil field including, but not limited to, cash deposits on subsea wellheads, production trees and associated equipment, a pipeline route survey, an advanced field development plan (FDP), predevelopment engineering studies, and reservoir optimization modelling and engineering. These expenditures have been determined at GBP£5,372,358. In addition, upon FDP approval by DECC, Iona shall make a cash payment of USD$5,000,000 to Fairfield and pay a net price of USD$2.50 per barrel of production commencing upon first oil from Staffa.

The Staffa oil field is located in block 3/8d in the U.K. North Sea and lies approximately 14 kilometres southeast of the producing Ninian Central platform. The Staffa field also lies due south of the Orlando oil discovery within block 3/3b in which a 35% working interest is held by Iona. The Staffa field is a three-way fault closed structure approximately four km long by two km wide and has a 489-foot (true vertical thickness) oil column in the Upper Brent sandstone reservoirs. The Staffa field produced at rates of between 10,000 and 5,800 barrels of oil per day (bopd) between the years 1992 and 1994 and ceased production when the Brent crude oil price was approximately $13 to $15 per barrel.

West Wick - Oil Discovery

On April 15th, 2011, Iona Energy Company (UK) Limited entered into an option agreement with Venture North Sea Oil Limited ("Venture") for the right by Iona Energy Company (UK) Limited to purchase a 58.73016% working interest in an oil discovery contained in UK Block 13/21a. Pursuant to the original agreement, Iona Energy Company (UK) Limited paid a non-refundable deposit of US$3,150,000 to Venture and had until October 31st, 2011 to give notice of its intent to deliver additional monetary consideration to Venture in order to complete the purchase. On October 31st, 2011, Iona requested and was granted an extension until December 31st, 2011 to give notice of its intent to close. If Iona Energy Company (UK) Limited delivers notice to Venture by December 31st, 2011, the transaction remains subject to other conditions precedent, including the payment of the full purchase price and approval of DECC to the transaction. If Iona Energy Company (UK) Limited does not deliver the notice by December 31st, 2011, the agreement will terminate without further obligation to either party in accordance with its terms.

The Company is currently reviewing its portfolio of assets, both in terms of managing its forward risks and as a means of realizing value to fund ongoing appraisal and development. The review may result in farm-outs, project financing or divestitures of certain assets.

General and Administrative

General and administrative costs for the first three and nine month periods ended September 30, 2011 has increased compared to the comparative periods of 2010 as a result of professional costs with respect to increased operations, the Company's public listing on the TSX Venture Exchange, financing, option grants and a one-time charge related to the NLAC acquisition. Costs will continue to increase as the Company continues to staff up its operations.

Exploration and Evaluation

During the three and nine month periods ended September 30, 2011, $11,375,168 and $18,399,767, respectively of exploration and evaluation assets were capitalized. Details of the Company's properties (Orlando and Trent & Tyne) have previously been discussed under the heading Development of Business. The costs incurred in the current quarter relate to the commencement of construction of two production subsea trees, one for the Orlando project and one for potential use on the Orlando field or other development candidates and preliminary costs for the drilling of the Orlando appraisal well in 3/3b with the well being spud on November 2nd. A semi-submersible drilling rig is anticipated to be on location for approximately 45 days, drilling a deviated well which will be suspended for a future re-entry and conversion to a producing well once the Orlando development commences. The total depth is anticipated to be 14,245 feet or approximately 12,000 feet vertically with an estimated net cost of $11,427,900 (US$11,000,000) to Iona. The well is targeting a producing Brent horizon that flowed at 2,800 barrels of oil per day in the discovery well 3/3b-11.

Summary of Quarterly Results




($ thousands, except per share amounts)
Three
months ended
September 30,
2011
Three
months ended
June 30,
2011
Three
months ended
March 31,
2011
Three
months ended
December 31,
2010
Net earnings (loss) (607 ) (2,694 ) (725 ) (22 )
Net and comprehensive income (loss) 1,892 (4,028 ) (842 ) -
Net capital expenditures (recovery) 11,992 2,854 3,648 -
Working capital surplus (deficiency) 45,709 56,063 17,372 1,211
Total assets 69,450 66,320 68,652 2,978



($ thousands, except per share amounts)
Three
months ended
September 30,
2010
Three
months ended
June 30,
2010
Three
months ended
March 31,
2010
Net earnings (loss) (106 ) (216 ) (18 )
Net and comprehensive income (loss) - - -
Net capital expenditures (recovery) 12 - 8
Working capital surplus (deficiency) 1,439 (18 ) (224 )
Total assets 3,066 1,559 1,636

The increase in operations commencing in the first three quarters of 2011 is due to the completion of the $69 million financing in March, which allowed the Company to complete the Orlando and Trent & Tyne acquisitions and expand operations.

The increase in capital expenditures in the current quarter is primarily related to the preparation of the drilling of the Orlando well.

The decrease in the loss for the three month period ended September 30, 2011 compared to June 30, 2011 is primarily due to $1,015,670 of stock option expense and a one-time charge of $525,341 related to the NLAC transaction incurred in the 2nd quarter.

To view the Company's complete interim consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2011 or for further information about Iona Energy Inc. please go to the Company's website www.ionaenergy.com or SEDAR (www.SEDAR.com).

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.

Note: "Boe" means barrel of oil equivalent on the basis of 6 mcf of natural gas to 1 bbl of oil. Boes 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. As used in this press release, possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Additionally, this news release uses certain abbreviations as follows:

Oil and Natural Gas Liquids Natural Gas
bbls barrels scf standard cubic foot
MMbbls millions of barrels MMscf million standard cubic feet
boepd barrels of oil equivalent per day Bscf billion standard cubic feet

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.

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